Purecycle Technologies Inc (PCT) 2024 Q2 法說會逐字稿

Good day, and thank you for standing by.

Welcome to the PureCycle Technologies Second Quarter 2024 Corporate Update Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Christian Bruey, Director of Corporate Communications.

Please go ahead.

Thank you, Michelle.

Welcome to PureCycle Technologies Second Quarter 2024 Corporate Update Conference Call.

I am Christian Bruey, Director of Corporate Communications for PureCycle, and joining me on the call today are Dustin Olson, our Chief Executive Officer; and Jaime Vasquez, our Chief Financial Officer.

This morning, we will be highlighting our corporate development for the second quarter 2024.

The presentation we'll be going through on this call can also be found on the Investor tab at our website at purecycle.com.

Many of the statements made today will be forward-looking and are based on management's beliefs and assumptions and information currently available to management at this time.

The statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our safe harbor provisions and forward-looking statements that can be found at the end of our second quarter 2024 corporate update press release that was filed this morning, as well as in other reports on file with the SEC that provide further detail about the risks related to our business.

Additionally, please note that the company's actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statement.

Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties, including, among other things, changes in connection with quarter end and year-end adjustments.

Any variation between PureCycle's actual results and the preliminary financial data set forth herein may be material.

You're welcome to follow along with our slide deck or if joining us by phone, you can access it at any time at purecycle.com. We are excited to share updates from the previous quarter with you.

I'll now turn it over to Dustin Olson, PureCycle's Chief Executive Officer.

Thank you, Christian.

Thank you for joining our call today.

It's always refreshing to update the market on our company's progress.

Working at PureCycle is a privilege, as we get to see the impact we'll have in the world every day.

I've never been part of the team as committed, as hard-working or as persistent to find success.

Every now and then, we have to helicopter up to remind ourselves about that this is a novel cutting-edge process, a real change to the world opportunity, and something that no one has ever done before.

Q2 is a bit of a tale of two halves.

The first half was spent completing the outage that we started in April.

In the second half, we spent commissioning the new improvements and testing the plant at new operational levels.

We achieved new high bars for feed at 8,000 pounds per hour and pelletization at 11,000 pounds per hour using curbside PCR with elevated levels of CP2.

And to give you a little taste of our current activities, today, we are running between 7,000 and 8,000 pounds per hour, pelletizing at the same rate, pulling CP1 ratably and pulling CP2 batch-wise.

In June, we successfully achieved the highest production total to date using low CP2 feeds and then introduced higher CP2 feeds to the plant in July.

These feeds allowed us to test the new CP2 improvements implemented during the outage.

As you may recall, a key learning from our outage was that the level indication in the high-pressure section of co-product two area was not working properly.

We fixed this problem during the outage, which helped us move forward and toward a new, more permanent solution for CP2.

I'm pleased to announce that these improvements appear to be working as hoped.

We now see indications of removing greater than 20,000 pounds per day of CP2, which is substantially higher than our prior performance of 3,000 pounds per day.

After removing the higher rates from the high-pressure system, we did see downstream bottlenecks in our low-pressure CP2 system.

And just like past bottlenecks, our team continued to work in July to further improve our low-pressure CP2 handling operations.

We know that redesign and commissioning is a long and painful activity, but we are also through the toughest part and now believe the CP2 removal is solved.

Doing this work did impact our rates in July and the first part of this month, but we expect rates to improve after we implement the final handling equipment next week.

This moment should reflect an inflection point in our production.

The CP2 activities will not require an outage, nor do we anticipate another outage for the remainder of the year.

The production during Q2 has allowed us to be more active on the commercial front.

We received an FDA Letter of Non-object for our process that covers all conditions of use when running food-grade PCR feedstocks.

This should pave the way to supply the market with FDA quality product.

We continue to see strong demand from our customers.

We've completed numerous PIR and PCR trials with fiber applications and have seen very good results, some of which you've already seen through social media accounts.

And remember, fiber is a notoriously challenging application even for virgin pellet production.

Our team is actively working with these customers to map out our PureCycle resin to brand applications that can be introduced to the market.

We also established a footprint with multiple compounders, which we will review in more detail later in this presentation.

With compounding, we should be able to tailor our PureFive product to specific customer application needs.

These customizations should help reduce the adoption barriers to a new product, providing what the application requires and should expand the volume potential to the market.

We will be offering a mixture of PureFive product with both recycle and virgin streams.

We are proud to have the first POs in hand for the compounded material and expect first deliveries in August.

On the financing side, we're executing our plan and making progress.

We successfully marketed and sold $22.5 million of revenue bonds and tend to market the remaining bonds later this year and are progressing conversations with multiple capital sources.

Jaime will discuss this later.

Ironton operations are continuing to improve.

Our focus has shifted from a start-up and commissioning phase to steadily increasing production and sales.

In July, our focus was on CP2 removal and recovery.

While we made strong improvements in removing the CP2 from the high-pressure system, our originally designed low-pressure system did not work as expected.

During this month, we made certain design changes to the system and will make what we expect the final change next week.

As I just mentioned, our high-pressure system changes are working well.

We have proven that the system has the capability to remove more than 20,000 pounds per day of CP2.

And when we get below pressure system improvements installed next week, once installed, we should be able to test higher rates of the CP2 removal system and raise rates accordingly.

Low-pressure improvements should be inherently easier to tackle than the high-pressure side.

Low-pressure improvements do not require outages and should be improved much more quickly.

Our team is working tirelessly to move this technology forward.

While we are deeply engrossed in the daily activities, it's also important to state some benchmark goals.

With our focus now moving beyond redesign and commissioning, we feel confident sharing our near-term goals with you.

We are targeting continuous feed rate to 10,000 pounds per hour to produce more than 200,000 pounds in a single day and to produce 1 million pounds in one week.

We believe this is within reach, and we won't stop pushing for it until we achieve it.

And while these are only short-term goals, this is just the first next step toward getting Ironton to nameplate capacity.

Let's take a look at some of the metrics that show our progress.

In June, we produced pellets for 13 days in a row.

We reached peak daily production of 134,000 pounds and produced pellets 25 days out of 30.

Stretching days of production together like this gives us the confidence that we can raise rates and achieve significant production levels.

Since our last communication, we increased our max continuous feed rate from 6,500 pounds per hour to 8,000 pounds per hour, and the max pelletization rate reached 11,000 pounds per hour.

The incremental steps show continuous progress.

These are the headliners, the metrics that people focus on first.

I understand that, and we keep it in focus, but I'm equally proud of the work we do in the trenches.

And quite frankly, it's the trenchwork that creates the platform for headliner performance.

This time last year, our solvent circulation was 40% and our utility plant reliability was 25%.

We were challenged moving forward because these systems and others continued to create barriers to more consistent operations.

We addressed these issues quickly, and today, both our solvent circulation and our utility plant reliability are operating at greater than 98% uptime when you exclude the outage downtime.

This is foundational progress.

And quite frankly, the same can be said for our reliability efforts.

While we have had challenges with numerous rotating equipment, we have completed several projects that have improved overall reliability, including the addition of backup power supply to two of our three key seal systems.

We also upgraded our product transfer valve that moves polymer to our final product extruder.

And while it still led to operational downtime in July, we worked through those, implemented the improvement and it's working much better today.

Co-product two is today's primary challenge and we've made tremendous progress.

We've upgraded nearly every component in the system to improve reliability.

And while it's been a grind, we're seeing signs of success.

For CP2, I would like to explain a little bit better the challenge that we faced and why it created problems for rates in Ironton.

First, the plant was originally designed for approximately 95% PP in the feedstock stream to reach target performance.

And while we haven't had any problems finding enough feedstock supply, the reality is the number 5 bales available in the market typically only have 65% to 75% PP.

Secondly, with our original design, we had difficulty pulling CP2 out of the system.

The original design, this didn't consider the type of polymer morphology or, in other words, shapes, sizes, density and toughness.

Our CP2 is more difficult to remove than expected, and the system initially could only pull 3,000 pounds per day.

When you combine the PP concentration below 90% with the low CP2 removal capacity, the resulting production is below meaningful rates, approximately 26,000 pounds per day or less than 10% of nameplate capacity.

The table on this slide shows the importance of two separate activities: one, removing CP2 from the feedstock; and two, removing CP2 from the plant.

The numbers on the table represent a possible daily production numbers resulting from each activity.

As you move from the left to the right, the daily production numbers increase.

As you move from the top to the bottom, the daily production numbers also go up.

By combining these two activities, the CP2 limitation should be eliminated.

During the second quarter, we really focused on the CP2 system.

We redesigned the high-pressure CP2 removal system, and initial commissioning results show that we can now remove more than 20,000 pounds per day of product.

And we implemented several feedstock strategies to move PP concentration up to 97%.

We are close to implementing the final design package for CP2 low-pressure system.

We should complete this next week, which we believe will allow us to sit firmly in the green no bottleneck area.

For feedstock preparation, we made tangible changes to our overall operation.

While we have always had the option to purchase higher concentration PP at a higher cost, we have also worked to implement two new operations where we increased the PP concentration of our bales and also of the wash flake from Ironton at a good cost basis.

These two improvements should provide between 2,000 to 3,000 pounds per hour of high-quality feed rate, which we currently estimate a total average cost of approximately $0.15 per pound, which is in line with our original expectations.

During Q3, we will work to add another 3,000 to 5,000 pounds of sorting capacity to our bale purchases and another 2,000 to 6,500 pounds per hour of flake sorting capacity.

These activities should help to minimize the overall impact of the CP2 in the system, but there is actually a more important impact created by this activity.

By removing the low-quality CP2 from the feedstock, it should also improve the overall yield of high-quality recycled PP production in Ironton.

For instance, shifting from an 85% PP feedstock to a 97% PP feedstock should improve the overall PP yield by 12% and production by 14%.

Back to compounding now.

Our compounding strategy is a direct result of actively engaging with and closely listening to our customers.

We continue to find overwhelming support for our company, our product, and our mission.

Simply put, our customers want to buy our product.

But the current variability of our operation, the limitation of our customers' facilities, and the realities of their change management protocols added both time and complexity to every conversation.

So we listened, adjusted our customer-facing strategy, and implemented a compounding strategy so that we can give the customers what they need to be successful.

The pictures on slide 9 give me great joy.

These are rugs that were made from compounded materials from the Ironton facility.

I can tell you that when we published these pictures to social media last month, we received a bunch of inquiries about, where can we purchase these for personal use?

This is a great example of how compounding can help us.

In this case, it is made with 100% PureFive material, no virgin blend, no other recycled materials, no other fillers.

But it was augmented with a vis-breaking agent to change the Melt Flow Index, or MFI.

MFI is a way to describe the viscosity of plastic.

And we've taken our product from a low number to a high number.

Many customers have similar objectives and constraints.

They like the PureCycle story.

They need a higher quality product, and they want to use our product, but the base product didn't quite fit for their application profile.

So with this product example, we worked with this customer to provide a one-pellet solution that they can use directly in their facility.

They didn't have to make physical changes to their plant.

They didn't have to adjust their equipment.

They just had to run the material like they would have run the virgin equivalent.

This customer is very excited about the product, the market potential, and the ability to expand into numerous offerings, and we are discussing which big brands to market the product to.

I personally love this.

We get to see our resin in the world.

We can buy it and then put it in our homes, and we know it's made of recycled high-quality material.

We have many potential customers like this.

The overall sales opportunities are positive, but they each come with their own set of circumstances, given the variability of our system, product and their needs.

By adding the compounding step to our operation, we should be able to accelerate the product development process for customer applications, open more market channels and should also create enhanced unit economics for Ironton.

We're very excited about the pellets produced at Ironton.

It's not perfect yet, but as we successfully removed CP1 and CP2 from the recycled feedstock, we believe it gives us an inherent advantages in the market over other alternatives.

We do see variations in product quality with the natural fluctuations in feedstock and in operations, but the mechanical properties are good.

Our odor performance also continues to be good, following changes made during the April outage.

We still expect this to be a strong aspect of our customer value proposition.

Compounding, as an independent operation, is very well understood as an active segment within the PP industry.

In fact, as we engaged various compounders near Ironton, we found 47 operations within a 400-mile radius from our facility.

We've added the different options and are selecting partners that are interested in PureCycle operations and have a strong quality and manufacturing competence.

Most compactors focus on specific applications and most also have their own customers.

This gives us an opportunity to not only compound our product, but also sell our product to the compounders.

We started the compounding activities by partnering with three independent operations at around 2 million to 3 million pounds per month targeted in Q4.

This is a good start but still only represents a small portion of our overall Ironton volume.

Given Ironton's proximity to ample compounding capacity and as we gain experience in this space, we should have the opportunity to grow as needed.

For our customers, we think it will make the buying process easier for them.

Now they can simply define what characteristics that the application requires, and we will work with our partners to build it for them.

This should allow us to expand the MFI index, make it fit better into their existing infrastructure, and reduce the magnitude of change to their operation.

Put more simply, this is a 1-pellet solution built to fit their purpose.

At this point, I will hand it over to Jaime for a finance update.

Thank you, Dustin.

Turning to slide 11, which highlights our liquidity position.

We ended June with just under $11 million of unrestricted cash.

Our cash expenses were $34.7 million for the second quarter, which was about $9 million higher than the first quarter.

Our normalized run rate for cash outflows has been around $26 million per quarter.

The increase reflected the timing of payments for accrued expenses incurred in the first quarter as well as expenses incurred from the April planned outage and higher usage of outside services.

Also this week, we reached agreement for the sale of $22.5 million face value of revenue bonds for total cash proceeds of $18 million to various investors.

And as we continue to make progress at Ironton, I believe we'll be able to sell the remaining $118 million of revenue bonds.

I will now turn the call back to Michelle to open the call for questions.

(Operator Instructions) Hassan Ahmed, Alembic Global Advisors.

Very happy to see the production rates going up and the sort of positive results emerging from the sort of all the good work that you guys have done.

Look, my question is just around operating rates, first of all.

You talked about how in the near term, you could get to 1 million pounds per week, if I heard correctly, of production.

So which obviously, on an annualized basis is around 52 million pounds, which again, maybe I'm being a little sort of greedy or whatever, but that's still significantly below nameplate capacity.

So beyond the near term, and by near term, I'm assuming you meant between now and the end of the year, what gets us to sort of optimal operating rates?

Yes, so thanks for the question, Hassan, and good to talk to you again.

Look, the goals that I put out there are goals, okay?

We have a goal, a near-term goal to get to 10,000 pounds per hour of feed rate, to get to 200,000 pounds per day of production and get to 1 million pounds per week.

We set intermediate short-term goals as milestones for us to achieve, but then raise the bar for the next step.

This, by no means, impacts our desire or capability to get to nameplate capacity.

We still see that very much in the sites and don't really see any constraints that will hold us back.

The reality is that the co-product two removal system has constrained us on the feed rates at the beginning.

But now that, that's behind us, we see a real nice lane going forward to see an inflection in production.

Understood.

Very helpful.

And just moving on to the sort of blending/compounding opportunity.

Could you dig a bit deeper into what this means in terms of maybe potentially unit economics or overall economics?

I mean, what sort of feedstock costs you'll pay for that?

What potentially the incremental opportunity may be, starting with Ironton and maybe beyond?

Yes, I think that's a good question.

So the first thing is this is creating a platform for us to give the customer what they need and what they want without compromise.

So in the past, when we would have a feedstock shift from a low MFI to a higher MFI, it was trying to find a way to make that work inside of the customer's platform.

And it just made the conversation complicated, okay?

So what this allows us to do is have a clear lane to our customers to give them exactly the type of product that they need in their system, which we believe will give us a much quicker adoption rate for product into their facility.

When it comes to the economics, I mean, you've got to look at it in two ways.

For sure, the extra compounding step will add some incremental cost.

Although given the amount of compounders around Ironton in close proximity, we see this as a very competitive opportunity.

And quite frankly, we see the compounding capacity in the market is pretty long right now.

So I think it's a good opportunity for us to step into this.

But that's the first piece.

The second piece is really the value creation for the customer.

I mean, not only are we able to get our product into their system faster, we're also able to get higher-value products and supply into their system as well.

And so I think there's an opportunity to control the costs on the front end because of the, let's just say, the status of the industry but also push the revenue up on the customer side, because we're going to be creating a product that has higher value to them.

Now remember, I mean, the market is woefully undersupplied in recycled material, okay?

And there is no shortage of appetite for customers to use recycled material.

So we feel like if we focus more on giving the customer what they need to be successful, the customers will compensate us and reward us for that activity.

And so we actually see strong support for the economics of this activity.

And remember also, I mean, we will be expanding the volume potential of sales as well, okay?

When we either purchase virgin material or purchase other post-industrial recycled material and blend it in with our product, I mean, that's a volume expansion.

And while those numbers can move around quite a bit in terms of what does it cost to buy that material to blend it in, we feel pretty confident in our ability to keep the cost of that material in line with the cost to produce our material at Ironton.

So we feel good on both fronts.

Eric Stine, Craig-Hallum Capital Markets.

So just wondering, when you think about compounding, and I know you've said that it's got superior physical properties, I mean, is this something that we should think about ultimately the vast majority of your production would go to compounding, because that's just required by the market?

Or are you saying that there are just certain applications such as what you showed online and in your presentation, certain end products that really need those superior properties?

I mean, how should we think about the ultimate mix that compounding will make when you're up and running at full?

Yes.

So I definitely see this being a, let's say, a portfolio view of our overall sales streams.

We will have some product that will be sold neat to the market.

We'll have other products that will be sold as a blend.

In some cases, it's going to be opportunistic to blend it to get to the right properties for the customer.

And so we'll do that for specific applications.

But in other cases, the customers have more flexibility than they can take with direct.

So as we step into this, at the end of the day, we're going to find the lane that has the highest value to the customer and ultimately then the highest value to PureCycle.

And I think that what compounding really does for us is it creates flexibility.

It gives us some optionality for how to manage customers' request and manage the opportunity to move product into the market more effectively.

So I think all options are on the table, Eric.

I think that we have -- building the platform with partners will give us, let's say, the experience compounding.

And we're going to start at a relatively low number to begin with, with a target of 2 million to 3 million pounds per month by the end of the fourth quarter.

But depending on the success we find with the interest and the customers, the desire to grow their recycled volume more quickly, I think we're going to have a really nice opportunity to grow that as well.

Yes.

And then obviously magnifies your volume potential quite a bit, depending on how much that mix is.

When we think about economics, and I know, I mean, look, it's still, to an extent, to be determined, it's early days.

But do you think that you'll be able to command the same premium pricing for the compounded output as compared to, say, the PureFive?

Well, I think the way I'd answer that is the compounding industry has been a successful enterprise because of the value creation through compounding.

And the traditional compounding industry has done that with just virgin materials.

So I think we will be able to tap into the compounding value creation that's already there in the market.

And quite frankly, I think we're going to be able to add to that because we're going to bring a high-quality recycled stream to the market that the market hasn't seen.

And so I feel very good about our opportunity to maintain our pricing potential in the market and then also potentially expand it with the volume potential.

Look, at the end of the day, your value depends on how much value you create for our customer.

And so our focus after listening to customers a lot over the last six months, our focus has shifted so that we can now give the customer exactly what they want.

And I think that, that's going to be valued and viewed very well by the market.

Brian Butler, Stifel.

Maybe on the feedstock or not feedstock but on the offtake agreements, when you think about what was in place for the production of Ironton, the agreement at one point, the facility was fully kind of sold out, how does compounding impact those offtake agreements, especially when you think about what's going to be being delivered to P&G?

I mean, has that been renegotiated and they're taking a compounded product or are they still kind of taking the recycled?

How do we think about that kind of as you move forward with the compounding strategy?

Look, I mean, I think it's the same with all customers.

I mean, you really have to think about the organization and how they work internally.

I mean, first of all, our big customers like Procter & Gamble and L'Oreal and some of the people that have been with us for a long time, I mean, their interest is really about getting as much recycled content into their applications as they can, because they've got very forward-looking strong and, quite frankly, admirable sustainability goals.

So our responsibility is to help them do that.

When you peel that onion back just one layer, then you have to see how that process works internally.

And look, like world-class brands like Procter and L'Oreal become world-class brands, because they have an extremely high expectation for product quality.

They do things the right way.

They are very particular with how they evaluate the product and how they integrate the product.

And they don't want to take undue risk into their operation either.

And so as we've talked to both of those operations, it's our belief that the compounding piece of this will help them adopt the product into a wider variety of applications within their operation than what they potentially could have before.

So they view this very well.

With respect to the original contracts, I think that the game on the contracts is relatively the same.

I mean, there's enough language in the contract to be able to manage through this effectively.

And I think we're going to be in a good shape there as well.

Okay.

And then on the logistics of compounding, just so I understand this, you're going to produce the PureFive from Ironton, and then those pellets are delivered to the compounders who you pay a fee.

And then once it's compounded and you have the compounded product, that then shifts from the compounder to your customers.

Is that the right way to think of the logistics?

Yes.

Look, I mean, if you think about the base Ironton operations, we have railcars that leave our facility, go to a packaging facility, and that will be packaged down to truck and/or boxes.

That's our base operation.

So what this will do is it will allow us to move those railcars instead of to break down in bulk, we'll move them to a compounder where they will be compounded and then boxed out at that facility.

That's right.

And then you're right, we will pay the compounder a fee for that activity.

Okay.

And then on the Ironton production target of that 1 million a week, when you hit that target, let's say you hit that towards the end of the third quarter.

How should we think of the next step up?

Is that, it moves to 1.5 million a week when you think about fourth quarter?

Or is there a big stair step up as you kind of hit that target of 1 million and then you can really ramp much faster once meeting that?

Yes, that's a great question.

I mean, look, we really believe that we are at an inflection point, okay?

So we see a lot of the redesign and commissioning work that we've had to do across numerous systems.

I mean, it was adsorbent beads and it was screen changer and then it was seals, and you can go on and on and on about the things that we've discussed that we've had to work through in the past.

And by the way, we've worked through all of those successfully.

I mean, a trademark of this company is our ability to solve problems.

At the end of the day, the faster you find, the faster you solve, the faster you move.

And so we're very proud of our team from that perspective.

But then when you start to get past a lot of that commissioning, then you've eliminated a lot of the constraints that are straight in front of you, which will allow you to raise rates and get the production up.

And that's where we believe we are right now.

We've got a little bit more work to do next week to, let's say, automate the CP2 low-pressure system to really pull that material out.

But then really, we've got an open path to see higher production rates.

I'll remind you, though, that when it comes to predicting where we'll be on overall operations, what we've done over the course of the last quarter is we've really pushed ourselves to higher production levels and learned how the plant operates at that level.

So we get there, we see how things operate.

There might be some tweaks we need to make to make it more steady, and then we move the ball back up again.

And we continue to do that over and over and over until we get to nameplate or beyond capacity, okay?

That's the name of the game right now.

It's moving the plant to higher tiers of production so that you can learn how the plant operates at that place and then ultimately make operating at that place more reliable.

And that's what we've been successful doing over the last quarter.

Okay.

And then maybe just one quick last one.

Does this -- is the third quarter and those targets, are those going to be sample kind of test production volumes?

Or should we think about third quarter having positive revenue?

No, look, we mentioned that we're already starting to see POs come into the system for applications from the compounded product.

That's a positive sign.

We think that the compounding operation is going to give us the opportunity to get the product to the customers in a more effective way.

So we see it as a positive indication for revenue.

Ultimately, the revenue will be defined by how quickly customers can adopt our product into their systems and then start buying our product at a ratable basis.

So we see that coming, and we think that compounding will help us get there.

Thomas Boyes, TD Cowen.

First, maybe just given the sortation capabilities that you have, coupled with kind of the CP2 removal that you're able to achieve now, do you think that there is a need to implement the originally contemplated CP2 fix where you have tie-ins that are already kind of available?

Kind of from the chart, it looks like that really would only be necessary if feedstock CP2 content level is above 10%.

I mean, the sortation does not even need to happen.

Yes.

I mean, I think that's a great point, Thomas.

I mean, that's a good memory also.

If you recall, prior to the outage, our goal was to install tie-ins to the outage whereby we could install a long-term CP2 removal capacity.

When we got end of the outage, we learned things about our high-pressure system that we didn't expect to see.

I mean, we opened a couple of vessels.

We're like, wow, that's not what we thought.

We learned from that.

We fixed it.

We made the level much more reliable.

And from that learning, we were able to add another very low-cost project to the outage, which enabled us to have a chance to remove CP2 at higher rates.

And we did that and it works.

What that means for the longer-term more expensive fix is that we do not see any need to implement it at this point.

We made the tie-ins.

We made the steps necessary to be able to do it without an outage.

But we didn't spend the bulk of the money because we felt like through the outage, we had another opportunity to do it in a more cost effective and, quite frankly, a more efficient way.

So that project now is off the table.

Great.

And then with the sale of the $22.5 million bonds, you had the $18 million in cash, how should we think about the discount rate going forward if the goal is to remarket the balance of the bonds heading into the end of the year?

Given kind of the planned performance metrics for Ironton heading into the end of the year, could you improve to say a 10% discount rate?

Do you have expectations there?

And what kind of discount you're going after -- you could command when remarketing those bonds until the end of the year?

Thomas, it's Jaime.

Yes, we're constantly talking with investors.

And I think as Ironton continues to show good progress, I'd like to think that we're derisking the bonds and perhaps sell it at a better price than what we've been selling it.

The last two transactions have gone off at a 80-point.

So I think as we continue to derisk it, we can see better value in the bonds.

If I could squeeze one more in.

Just on how do you think about balancing some of the sortation capabilities between some of your suppliers and then doing it in-house?

I mean, just looking at slide 7, certainly, the self-sortation seems to be a bit more cost effective.

So I'm just kind of wondering how you think about that.

Yes.

No, we agree with you.

During the course of Q2, actually a couple of weeks ago, we implemented the first flake sorting activity, which is, let's just say, PCT-owned operation.

We implemented that, started it up, and are seeing really good performance out of that machine.

We expect to implement a higher capacity machine in the course of Q3 and get that operational in Q4.

So we see this as a, first of all, a very good technology that serves the purpose in an efficient way but also a pretty low maintenance technology that we should be able to implement inside the PCT boundaries.

With respect to third-party sorting and bale sorting and things like that, I think this is a flexibility moment for us.

I mean, in some cases, it may make sense for us to spend capital to bring sortation inside.

In other cases, it may make sense for us just to use excess sortation capacity with other partners.

And there's been quite a bit of capacity added to the system over the last two to three years to create higher-quality bales.

So there are higher-quality bales out there.

And there's a lot of excess capacity.

And so we're working, let's say, all fronts there in order to try to find the right balance between in-sourced and outsourced.

At the end of the day, it becomes a question of capital versus expense.

(Operator Instructions) Gerard Sweeney, Roth Capital.

Just a couple of questions that I wanted to get a clarification on.

On the compounding side, should we look at that as strictly a tolling agreement or will you be partnering with the compounders?

And will they be selling some of the material in the back end as well, because that changes the economics?

Yes.

Look, I think that the way to look at it is more like a service agreement.

We will work with the compounder to build what we want so we'll have the direct relationship with the customer.

We'll send the materials to the compounder.

They will compound it and then we will sell it to the customer.

That's the primary view.

There are some nuances in that activity.

One, compounders are very active in the recycle and virgin purchasing markets.

There might be some opportunities to buy some of the blend from them.

And quite frankly, many compounders also have direct relationships with customers.

And as they get to know our product, they see the value in the recycled material, there's probably going to be a tangential opportunity to sell some of the product to them as well to introduce it into their channels.

Okay, that's fair.

And then on the sales side, it sounds like we do have some POs and you do have some orders, but you also mentioned the term ratable sales.

I mean, are there any specific steps that you need to go through to sort of get to ratable sales, i.e. make sales in higher volumes?

And what are they and what are the time lines to achieve that?

Yes.

It's this thing we struggle with quite a lot, to find the right balance with the customer because every customer that we talk -- maybe not every customer, but the large majority of customers that we talk to are extremely interested in our product, in our process, in our carbon footprint, in our value proposition.

I mean, they like what we're doing.

And then it comes to just the tactical operations of how do you make it happen?

And to get to ratable sales, you've got to make it easier for the customer to buy your material.

And that's what compounding does.

So look, I'm not going to give guidance at this point on how many sales or what the revenue projection is or anything like that yet, okay?

But as we see the compounding operation come forward, as customers see our ability to make it work for them, we expect the revenue and the orders just to follow right behind.

Okay, that's fair.

And then this is probably a little bit for Jaime.

Just cash requirements, CapEx requirements into the end of this year.

Yes, Thomas, I don't see anything too unusual.

This past quarter, we had the April planned outage so that was really one of the reasons for the large increase in cash outlays.

Expectation is outside of interest payments that are due, cash outlays should be more normalized.

And I would like to turn the conference back over to Christian Bruey for any further remarks.

All right.

Thank you, Michelle.

We did ask for questions via e-mail, and so we got a couple of those that we want to get to real quick before we wrap up.

First one from Mark Cassel.

What is the most likely percentage of a mixture of recycled PP and virgin resin that PureCycle plans to sell?

Yes, that's a good question.

Appreciate the e-mail questions also from some of our supporters online.

Look, I think the best way to think about what we're doing on the sales side is creating optionality to give the customers what they want.

And just like every individual has a different pace when they go to the restaurant and buy something different on the menu, the same can be said for customers that want specific polypropylene.

This is, again, one of the reasons polypropylene is so valuable is it can be used in so many different applications.

But when you do that, you have to give the customer what they want.

And so with the blend of virgin versus recycled versus neat sales, it really just depends on the customer.

I see some customers that only want post-consumer recycled.

I see some customers that only care that it's 100% recycled.

I see some customers that just want to get started.

They want to bring a little bit of recycled material in, but they don't want to take a lot of risk on their operation by doing something new.

And so they might start at 10% recycled content and 90% virgin, and they will like that because it still gives them a tiptoe into the overall market.

And so I just think that as we gain more confidence in our production and running the plant more reliably, making the volumes of product with certain product specs, we're going to be able to work with the compounders to augment it to be what they need it to be.

I mean, look, a great example are the rugs that we talked about in the slide show.

I mean, those rugs were not blended with anything other than an agent that changed its viscosity.

That customer could not take a low viscosity product.

That customer needed a higher viscosity product.

We compounded the material, made a higher viscosity product, and then they're extremely happy with the results.

And so I think that, that's a microcosm into one customer that I think can be pretty widely adopted across many other customers.

The next one came from Rob.

Compounding provides a faster path to commercial revenues, but also notes the plant does not consistently meet specs for color, opacity or MFI.

How should we look at this?

Yes, I wouldn't look at it that way.

The way I would look at it is the plant is consistently removing CP1 and CP2 out of the feed.

And by definition, the product resulting from that is a higher quality than what the market has to offer, okay?

What we're seeing are more natural fluctuations in the feeds, natural fluctuations in the operations.

I mean, quite frankly, when the operations are up and down and less continuous, it creates variability in the ops, which also creates variability in the product quality.

So what we're doing is managing through the variability in the feedstocks that come in, getting to continuous operations so we can fine-tune the product on the back end to achieve higher and higher product quality ratings and more consistency.

I'll remind you though, like our product is good, okay?

Our product, absent of CP1 and CP2, has very good mechanical properties.

Customers like that.

It also has very good odor.

And remember, the odor performance of our product is -- it's a difference-maker to some customers.

There are a lot of customers that really care a lot that the odor threshold in the recycled material is low.

And quite frankly, that's something that's very difficult to do on the recycled front.

So we're very excited about where we are.

We're not satisfied.

We're not done.

I mean, again, the trademark of PureCycle is to always push the ball forward, grit and grind our way to higher levels of production, higher levels of quality, higher levels of customer service, and that's what we are focused on doing today.

The final one is for Jaime.

What is your plan to raise additional liquidity for the balance of the year?

We've been successful in raising capital through the sales of the revenue bonds, and we're constantly talking with potential investors.

We have good line of sight on raising additional capital.

Our preference is going to be nondilutive capital.

And as long as we continue to make good progress at Ironton, I believe we will have the opportunity to raise additional capital near term.

Once again, thank you for everyone who e-mailed in questions, and thanks, everyone, for hopping on.

I'll turn it over to Dustin for some final comments.

I really appreciate the opportunity to spend an hour with you every quarter.

It's refreshing to do it every time.

We enjoy it.

It gives us an opportunity to really explain what's happening inside the PureCycle circle.

And look, we are very proud of our progress.

We continue to demonstrate higher feed and pelletization rates.

We've seen a lot of improvement with our CP2 removal, both in terms of removing it from the feed and removing it from the process.

We've been very active on actually doing things to improve the overall performance of the site.

And we're at an inflection point.

I mean, we see this as the moment where we see open lanes in the future for production and pellet production.

We're very excited about our opportunities in compounding.

For us, that gives us the necessary lever to create the product that our customer needs, which we believe will unlock our ability to move the product into the market more quickly.

So thank you again for your time, your effort, and your interest in PureCycle.

We're here to serve, we're here to listen.

We're here to get better every day.

And that is our mission on a day-to-day basis.

Thank you so much.

This concludes today's conference call.

Thank you for participating.

You may now disconnect.