UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40234
PureCycle Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 86-2293091 | |||||||
| ||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5950 Hazeltine National Drive,Suite 300
Orlando, Florida32822
(877) 648-3565
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||||||||
Common Stock, par value $0.001 per share | PCT | The Nasdaq Stock Market LLC | ||||||||||||
Warrants, each exercisable for one share of common stock, $0.001 par value per share, at an exercise price of $11.50 per share | PCTTW | The Nasdaq Stock Market LLC | ||||||||||||
Units, each consisting of one share of common stock, $0.001 par value per share, and three quarters of one warrant | PCTTU | The Nasdaq Stock Market LLC |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 6, 2023,May 3, 2024, there were approximately 164,059,311164,630,907 shares of the registrant's common stock, par value $0.001 per share, outstanding.
1
PureCycle Technologies, Inc.
QUARTERLY REPORT on FORM 10-Q
TABLE OF CONTENTS
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PART I - Financial Information | |||||
Item 1. Financial Statements | |||||
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2
PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
The forward-looking statements are based on the current expectations of the management of PCT and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of this Quarterly Report on Form 10-Q. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section of PCT’s Annual Report on Form 10-K for the fiscal year ended December 31, 20222023 (the “Annual Report on Form 10-K”) entitled “Risk Factors,” those discussed and identified in other public filings made with the U.S. Securities and Exchange Commission (the “SEC”) by PCT and the following:
3
PureCycle Technologies, Inc.
PART I - FINANCIAL INFORMATION — CONTINUED
PCT undertakes no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
Should one or more of these risks or uncertainties materialize or should any of the assumptions made prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events.
4
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS | |||||||||||
(Unaudited) | |||||||||||
(in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
CURRENT ASSETS | |||||||||||
Cash and cash equivalents | $ | 199,349 | $ | 63,892 | |||||||
Debt securities available for sale | 12,026 | 98,592 | |||||||||
Restricted cash – current | 33,277 | 68,850 | |||||||||
Prepaid expenses and other current assets | 12,689 | 4,883 | |||||||||
Total current assets | 257,341 | 236,217 | |||||||||
Restricted cash – non-current | 151,513 | 94,781 | |||||||||
Prepaid expenses and other non-current assets | 7,004 | 5,483 | |||||||||
Operating lease right-of-use assets | 30,050 | 19,136 | |||||||||
Property, plant and equipment, net | 625,925 | 505,719 | |||||||||
TOTAL ASSETS | $ | 1,071,833 | $ | 861,336 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
CURRENT LIABILITIES | |||||||||||
Accounts payable | $ | 6,847 | $ | 1,667 | |||||||
Accrued expenses | 29,824 | 35,102 | |||||||||
Current portion of long-term debt | 7,065 | — | |||||||||
Accrued interest | 8,230 | 1,532 | |||||||||
Total current liabilities | 51,966 | 38,301 | |||||||||
NON-CURRENT LIABILITIES | |||||||||||
Deferred revenue | 5,000 | 5,000 | |||||||||
Long-term debt, less current portion | 468,317 | 233,513 | |||||||||
Related party note payable | 38,029 | — | |||||||||
Warrant liability | 38,214 | 55,883 | |||||||||
Operating lease right-of-use liabilities | 27,556 | 16,620 | |||||||||
Other non-current liabilities | 1,185 | 1,136 | |||||||||
TOTAL LIABILITIES | $ | 630,267 | $ | 350,453 | |||||||
COMMITMENT AND CONTINGENCIES | |||||||||||
STOCKHOLDERS' EQUITY | |||||||||||
Common shares - $0.001 par value, 450,000 shares authorized; 164,059 and 163,550 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | $ | 164 | $ | 164 | |||||||
Additional paid-in capital | 761,466 | 753,885 | |||||||||
Accumulated other comprehensive loss | (7) | (641) | |||||||||
Accumulated deficit | (320,057) | (242,525) | |||||||||
TOTAL STOCKHOLDERS' EQUITY | 441,566 | 510,883 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,071,833 | $ | 861,336 |
ASSETS |
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| (Unaudited) |
|
|
|
| |||
(in thousands) |
| March 31, 2024 |
|
| December 31, 2023 |
| ||
CURRENT ASSETS |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 25,021 |
|
| $ | 73,411 |
|
Debt securities available for sale |
|
| 2,187 |
|
|
| 48,226 |
|
Restricted cash – current |
|
| 7,566 |
|
|
| 25,692 |
|
Prepaid expenses and other current assets |
|
| 16,397 |
|
|
| 15,316 |
|
Total current assets |
|
| 51,171 |
|
|
| 162,645 |
|
Restricted cash – non-current |
|
| 7,353 |
|
|
| 203,411 |
|
Prepaid expenses and other non-current assets |
|
| 4,689 |
|
|
| 4,772 |
|
Operating lease right-of-use assets |
|
| 28,785 |
|
|
| 29,799 |
|
Property, plant and equipment, net |
|
| 642,017 |
|
|
| 638,746 |
|
TOTAL ASSETS |
| $ | 734,015 |
|
| $ | 1,039,373 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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|
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CURRENT LIABILITIES |
|
|
|
|
|
| ||
Accounts payable |
| $ | 8,363 |
|
| $ | 2,881 |
|
Accrued expenses |
|
| 29,406 |
|
|
| 35,391 |
|
Accrued interest |
|
| 2,597 |
|
|
| 8,190 |
|
Current portion of long-term debt |
|
| 3,204 |
|
|
| 9,148 |
|
Total current liabilities |
|
| 43,570 |
|
|
| 55,610 |
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
| ||
Deferred revenue |
|
| 5,000 |
|
|
| 5,000 |
|
Long-term debt, less current portion |
|
| 242,937 |
|
|
| 467,708 |
|
Related party note payable |
|
| 41,452 |
|
|
| 39,696 |
|
Warrant liability |
|
| 36,003 |
|
|
| 22,059 |
|
Operating lease right-of-use liabilities |
|
| 26,270 |
|
|
| 27,253 |
|
Other non-current liabilities |
|
| 1,944 |
|
|
| 1,811 |
|
TOTAL LIABILITIES |
| $ | 397,176 |
|
| $ | 619,137 |
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COMMITMENT AND CONTINGENCIES |
|
| — |
|
|
| — |
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STOCKHOLDERS' EQUITY |
|
|
|
|
|
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Common shares - $0.001 par value, 250,000 shares authorized; 164,612 and 164,279 shares issued and outstanding as of March 31, 2024 and December 31, 2023 |
|
| 165 |
|
|
| 164 |
|
Preferred shares - $0.001 par value, 25,000 shares authorized; 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023 |
|
| — |
|
|
| — |
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Additional paid-in capital |
|
| 766,519 |
|
|
| 764,344 |
|
Accumulated other comprehensive income (loss) |
|
| 2 |
|
|
| (32 | ) |
Accumulated deficit |
|
| (429,847 | ) |
|
| (344,240 | ) |
TOTAL STOCKHOLDERS' EQUITY |
|
| 336,839 |
|
|
| 420,236 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 734,015 |
|
| $ | 1,039,373 |
|
The accompanying notes are an integral part of these financial statements.
5
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
(in thousands except per share data) | |||||||||||||||||
Costs and expenses | |||||||||||||||||
Operating costs | $ | 21,897 | $ | 6,451 | $ | 44,413 | $ | 16,948 | |||||||||
Research and development | 178 | 254 | 731 | 843 | |||||||||||||
Selling, general and administrative | 13,172 | 14,382 | 39,725 | 42,083 | |||||||||||||
Total operating costs and expenses | 35,247 | 21,087 | 84,869 | 59,874 | |||||||||||||
Interest expense | 10,750 | 159 | 14,883 | 1,197 | |||||||||||||
Interest income | (2,117) | (1,261) | (5,077) | (2,031) | |||||||||||||
Change in fair value of warrants | (48,817) | 14,884 | (17,669) | 16,224 | |||||||||||||
Other expense | 51 | 79 | 526 | 120 | |||||||||||||
Total other (income) expense | (40,133) | 13,861 | (7,337) | 15,510 | |||||||||||||
Net income (loss) | $ | 4,886 | $ | (34,948) | $ | (77,532) | $ | (75,384) | |||||||||
Earnings (loss) per share | |||||||||||||||||
Basic | $ | 0.03 | $ | (0.21) | $ | (0.47) | $ | (0.49) | |||||||||
Diluted | $ | 0.00 | $ | (0.21) | $ | (0.48) | $ | (0.49) | |||||||||
Weighted average common shares | |||||||||||||||||
Basic | 164,018 | 163,490 | 163,783 | 153,513 | |||||||||||||
Diluted | 165,548 | 163,490 | 163,980 | 153,699 | |||||||||||||
Other comprehensive income (loss) | |||||||||||||||||
Unrealized (loss) gain on debt securities available for sale | (7) | 14 | 634 | (800) | |||||||||||||
Total comprehensive income (loss) | $ | 4,879 | $ | (34,934) | $ | (76,898) | $ | (76,184) |
Three Months Ended March 31, |
| ||||||
2024 |
|
| 2023 |
| |||
(in thousands except per share data) |
|
|
|
|
| ||
Costs and expenses |
|
|
|
|
| ||
Operating costs | $ | 21,194 |
|
| $ | 7,372 |
|
Research and development |
| 1,831 |
|
|
| 1,754 |
|
Selling, general and administrative |
| 15,957 |
|
|
| 12,695 |
|
Total operating costs and expenses |
| 38,982 |
|
|
| 21,821 |
|
Interest expense |
| 15,054 |
|
|
| 657 |
|
Interest income |
| (3,602 | ) |
|
| (1,933 | ) |
Change in fair value of warrants |
| 13,944 |
|
|
| 4,835 |
|
Loss on debt extinguishment |
| 21,214 |
|
|
| — |
|
Other expense |
| 15 |
|
|
| 462 |
|
Total other expense |
| 46,625 |
|
|
| 4,021 |
|
Net Loss | $ | (85,607 | ) |
| $ | (25,842 | ) |
Loss per share |
|
|
|
|
| ||
Basic | $ | (0.52 | ) |
| $ | (0.16 | ) |
Diluted | $ | (0.52 | ) |
| $ | (0.16 | ) |
Weighted average common shares |
|
|
|
|
| ||
Basic |
| 164,355 |
|
|
| 163,588 |
|
Diluted |
| 164,355 |
|
|
| 163,784 |
|
|
|
|
|
| |||
Other comprehensive income |
|
|
|
|
| ||
Unrealized gain on debt securities available for sale | $ | 18 |
|
| $ | 641 |
|
Cumulative translation adjustment |
| 16 |
|
|
| — |
|
Total comprehensive loss | $ | (85,573 | ) |
| $ | (25,201 | ) |
The accompanying notes are an integral part of these financial statements.
6
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
Common stock | |||||||||||||||||||||||||||||||||||
(in thousands) | Shares | Amount | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity | |||||||||||||||||||||||||||||
Balance, December 31, 2022 | 163,550 | $ | 164 | $ | 753,885 | $ | (641) | $ | (242,525) | $ | 510,883 | ||||||||||||||||||||||||
Share repurchase | (48) | — | (277) | — | — | (277) | |||||||||||||||||||||||||||||
Equity-based compensation | 169 | — | 2,166 | — | — | 2,166 | |||||||||||||||||||||||||||||
Unrealized gain on available for sale debt securities | — | — | — | 641 | — | 641 | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | (25,842) | (25,842) | |||||||||||||||||||||||||||||
Balance, March 31, 2023 | 163,671 | $ | 164 | $ | 755,774 | $ | — | $ | (268,367) | $ | 487,571 | ||||||||||||||||||||||||
Share repurchase | (9) | — | (27) | — | — | (27) | |||||||||||||||||||||||||||||
Forfeiture of restricted stock | (1) | — | — | — | — | — | |||||||||||||||||||||||||||||
Equity-based compensation | 135 | — | 3,252 | — | — | 3,252 | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | (56,576) | (56,576) | |||||||||||||||||||||||||||||
Balance, June 30, 2023 | 163,796 | $ | 164 | $ | 758,999 | $ | — | $ | (324,943) | $ | 434,220 | ||||||||||||||||||||||||
Share repurchase | (78) | — | (818) | — | — | (818) | |||||||||||||||||||||||||||||
Equity based compensation | 341 | — | 3,285 | — | — | 3,285 | |||||||||||||||||||||||||||||
Unrealized loss on available-for-sale debt securities | — | — | — | (7) | — | (7) | |||||||||||||||||||||||||||||
Net Income | — | — | — | — | 4,886 | 4,886 | |||||||||||||||||||||||||||||
Balance at September 30, 2023 | 164,059 | $ | 164 | $ | 761,466 | $ | (7) | $ | (320,057) | $ | 441,566 |
For the Three and Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
Common stock | |||||||||||||||||||||||||||||||||||
(in thousands) | Shares | Amount | Additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity | |||||||||||||||||||||||||||||
Balance, December 31, 2021 | 127,647 | $ | 128 | $ | 539,423 | $ | (237) | $ | (157,779) | $ | 381,535 | ||||||||||||||||||||||||
Issuance of common stock | 35,714 | 35 | 205,261 | — | — | 205,296 | |||||||||||||||||||||||||||||
Share repurchase | (130) | — | (1,049) | — | — | (1,049) | |||||||||||||||||||||||||||||
Equity-based compensation | 3 | — | 3,171 | — | — | 3,171 | |||||||||||||||||||||||||||||
Unrealized loss on available for sale debt securities | — | — | — | (340) | — | (340) | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | (25,432) | (25,432) | |||||||||||||||||||||||||||||
Balance, March 31, 2022 | 163,234 | $ | 163 | $ | 746,806 | $ | (577) | $ | (183,211) | $ | 563,181 | ||||||||||||||||||||||||
Share repurchase | (2) | — | (17) | — | — | (17) | |||||||||||||||||||||||||||||
Equity-based compensation | 50 | — | 3,267 | — | — | 3,267 | |||||||||||||||||||||||||||||
Unrealized loss on available for sale debt securities | — | — | — | (460) | — | (460) | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | (15,004) | (15,004) | |||||||||||||||||||||||||||||
Balance, June 30, 2022 | 163,282 | $ | 163 | $ | 750,056 | $ | (1,037) | $ | (198,215) | $ | 550,967 | ||||||||||||||||||||||||
Share repurchase | (71) | — | (506) | — | — | (506) | |||||||||||||||||||||||||||||
Equity based compensation | 298 | 1 | 3,009 | — | — | 3,010 | |||||||||||||||||||||||||||||
Unrealized gain on available-for-sale debt securities | — | — | — | 14 | — | 14 | |||||||||||||||||||||||||||||
Net loss | — | — | — | — | (34,948) | (34,948) | |||||||||||||||||||||||||||||
Balance at September 30, 2022 | 163,509 | $ | 164 | $ | 752,559 | $ | (1,023) | $ | (233,163) | $ | 518,537 |
| For The Three Months Ended March 31, 2024 |
| ||||||||||||||||||||||
| Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(in thousands) |
| Shares |
|
| Amount |
|
| Additional paid-in capital |
|
| Accumulated other comprehensive (loss) income |
|
| Accumulated deficit |
|
| Total stockholders' equity |
| ||||||
Balance, December 31, 2023 |
|
| 164,279 |
|
| $ | 164 |
|
| $ | 764,344 |
|
| $ | (32 | ) |
| $ | (344,240 | ) |
| $ | 420,236 |
|
Options exercised |
|
| 16 |
|
|
| — |
|
|
| 92 |
|
|
| — |
|
|
| — |
|
|
| 92 |
|
Share repurchase |
|
| (99 | ) |
|
| — |
|
|
| (598 | ) |
|
| — |
|
|
| — |
|
|
| (598 | ) |
Equity based compensation |
|
| 416 |
|
|
| 1 |
|
|
| 2,681 |
|
|
| — |
|
|
| — |
|
|
| 2,682 |
|
Unrealized gain on available for sale debt securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| 18 |
|
Cumulative translation adjustment |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| 16 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (85,607 | ) |
|
| (85,607 | ) |
Balance, March 31, 2024 |
|
| 164,612 |
|
| $ | 165 |
|
| $ | 766,519 |
|
| $ | 2 |
|
| $ | (429,847 | ) |
| $ | 336,839 |
|
| For The Three Months Ended March 31, 2023 |
| ||||||||||||||||||||||
| Common stock |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(in thousands) |
| Shares |
|
| Amount |
|
| Additional paid-in capital |
|
| Accumulated other comprehensive (loss) income |
|
| Accumulated deficit |
|
| Total stockholders' equity |
| ||||||
Balance, December 31, 2022 |
|
| 163,550 |
|
| $ | 164 |
|
| $ | 753,885 |
|
| $ | (641 | ) |
| $ | (242,525 | ) |
| $ | 510,883 |
|
Share repurchase |
|
| (48 | ) |
|
| — |
|
|
| (277 | ) |
|
| — |
|
|
| — |
|
|
| (277 | ) |
Equity-based compensation |
|
| 169 |
|
|
| — |
|
|
| 2,166 |
|
|
| — |
|
|
| — |
|
|
| 2,166 |
|
Unrealized gain on available for sale debt securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 641 |
|
|
| — |
|
|
| 641 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25,842 | ) |
|
| (25,842 | ) |
Balance, March 31, 2023 |
|
| 163,671 |
|
| $ | 164 |
|
| $ | 755,774 |
|
| $ | — |
|
| $ | (268,367 | ) |
| $ | 487,571 |
|
The accompanying notes are an integral part of these financial statements.
7
PureCycle Technologies, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, | |||||||||||
(in thousands) | 2023 | 2022 | |||||||||
Cash flows from operating activities | |||||||||||
Net loss | $ | (77,532) | $ | (75,384) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities | |||||||||||
Equity-based compensation | 8,703 | 9,448 | |||||||||
Fair value change of warrants | (17,669) | 16,224 | |||||||||
Depreciation expense | 14,618 | 2,583 | |||||||||
Amortization of debt issuance costs and debt discounts | 1,840 | 746 | |||||||||
Accretion of discount on debt securities | (149) | (235) | |||||||||
Operating lease amortization expense | 2,171 | 964 | |||||||||
Changes in operating assets and liabilities | |||||||||||
Prepaid expenses and other current assets | (5,957) | (3,320) | |||||||||
Prepaid expenses and other non-current assets | (1,523) | (1,296) | |||||||||
Accounts payable | 1,527 | 827 | |||||||||
Accrued expenses | 4,375 | 491 | |||||||||
Accrued interest | 9,867 | 324 | |||||||||
Operating right-of-use liabilities | (1,601) | (1,536) | |||||||||
Net cash used in operating activities | $ | (61,330) | $ | (50,164) | |||||||
Cash flows from investing activities | |||||||||||
Purchase of property, plant & equipment | (142,680) | (212,095) | |||||||||
Purchase of debt securities, available for sale | (12,020) | (192,388) | |||||||||
Sale and maturity of debt securities, available for sale | 99,371 | 200,689 | |||||||||
Net cash used in investing activities | $ | (55,329) | $ | (203,794) | |||||||
Cash flows from financing activities | |||||||||||
Proceeds from issuance of convertible notes | 225,000 | — | |||||||||
Proceeds from related party note payable | 38,000 | — | |||||||||
Proceeds from equipment lease financing | 22,101 | — | |||||||||
Convertible notes issuance costs | (6,498) | — | |||||||||
Related party note payable issuance costs | (2,100) | — | |||||||||
Debt issuance costs | (1,849) | — | |||||||||
Payments to repurchase shares | (1,122) | (1,572) | |||||||||
Other payments for financing activities | (257) | (36) | |||||||||
Proceeds from issuance of common stock | — | 206,072 | |||||||||
Proceeds from issuance of warrants | — | 43,929 | |||||||||
Common stock issuance costs | — | (775) | |||||||||
Net cash provided by financing activities | $ | 273,275 | $ | 247,618 | |||||||
Net increase (decrease) in cash and restricted cash | 156,616 | (6,340) | |||||||||
Cash and restricted cash, beginning of period | 227,523 | 263,858 | |||||||||
Cash and restricted cash, end of period | $ | 384,139 | $ | 257,518 | |||||||
Supplemental disclosure of cash flow information | |||||||||||
Interest paid during the period, net of capitalized interest | $ | 2,736 | $ | 650 | |||||||
Non-cash investing activities | |||||||||||
Additions to property, plant, and equipment in accrued expenses | $ | 16,152 | $ | 22,059 | |||||||
Additions to property, plant, and equipment in accounts payable | $ | 4,470 | $ | 3,267 | |||||||
Additions to property, plant, and equipment in accrued interest | $ | — | $ | 4,271 | |||||||
Non-cash financing activities | |||||||||||
PIK interest on related party note payable | $ | 1,745 | $ | — | |||||||
| Three months ended March 31, |
| ||||||
(in thousands) |
| 2024 |
|
| 2023 |
| ||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (85,607 | ) |
| $ | (25,842 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
| ||
Equity-based compensation |
|
| 2,682 |
|
|
| 2,166 |
|
Change in fair value of warrants |
|
| 13,944 |
|
|
| 4,835 |
|
Depreciation expense |
|
| 9,256 |
|
|
| 1,294 |
|
Amortization of debt issuance costs and debt discounts |
|
| 2,538 |
|
|
| 265 |
|
Accretion of discount on debt securities |
|
| (318 | ) |
|
| (138 | ) |
Operating lease amortization expense |
|
| 767 |
|
|
| 926 |
|
Loss on extinguishment of debt |
|
| 21,214 |
|
|
| — |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
| (340 | ) |
|
| (1,148 | ) |
Prepaid expenses and other non-current assets |
|
| 83 |
|
|
| (174 | ) |
Accounts payable |
|
| 1,196 |
|
|
| 1,218 |
|
Accrued expenses |
|
| 214 |
|
|
| 2,116 |
|
Accrued interest |
|
| (4,151 | ) |
|
| 324 |
|
Operating right-of-use liabilities |
|
| (656 | ) |
|
| (597 | ) |
Net cash used in operating activities |
| $ | (39,178 | ) |
| $ | (14,755 | ) |
Cash flows from investing activities |
|
|
|
|
|
| ||
Purchase of property, plant & equipment |
|
| (14,348 | ) |
|
| (46,632 | ) |
Purchase of debt securities, available for sale |
|
| (30,586 | ) |
|
| — |
|
Sale and maturity of debt securities, available for sale |
|
| 76,961 |
|
|
| 99,371 |
|
Net cash provided by investing activities |
| $ | 32,027 |
|
| $ | 52,739 |
|
Cash flows from financing activities |
|
|
|
|
|
| ||
Payment to purchase revenue bonds |
|
| (253,230 | ) |
|
| — |
|
Debt issuance costs |
|
| (1,119 | ) |
|
| (1,344 | ) |
Payments to repurchase shares |
|
| (598 | ) |
|
| (277 | ) |
Other payments for financing activities |
|
| (476 | ) |
|
| (11 | ) |
Net cash used in financing activities |
| $ | (255,423 | ) |
| $ | (1,632 | ) |
Net (decrease) increase in cash and restricted cash |
|
| (262,574 | ) |
|
| 36,352 |
|
Cash and restricted cash, beginning of period |
|
| 302,514 |
|
|
| 227,523 |
|
Cash and restricted cash, end of period |
| $ | 39,940 |
|
| $ | 263,875 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
Non-cash operating activities |
|
|
|
|
|
| ||
Interest paid during the period, net of capitalized interest |
|
| 16,383 |
|
|
| — |
|
Non-cash investing activities |
|
|
|
|
|
| ||
Additions to property, plant, and equipment in accrued expenses |
|
| 15,656 |
|
|
| 30,809 |
|
Additions to property, plant, and equipment in accounts payable |
|
| 5,903 |
|
|
| 20,509 |
|
Additions to property, plant, and equipment in accrued interest |
|
| — |
|
|
| 4,271 |
|
Non-cash financing activities |
|
|
|
|
|
| ||
PIK interest on related party note payable |
|
| 1,441 |
|
|
| — |
|
Reconciliation of cash, cash equivalents reported in the consolidated balance sheet |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 25,021 |
|
| $ | 38,381 |
|
Restricted cash and cash equivalents - current |
|
| 7,566 |
|
|
| 68,028 |
|
Restricted cash and cash equivalents - non-current |
|
| 7,353 |
|
|
| 157,466 |
|
Total cash, cash equivalents and restricted cash |
| $ | 39,940 |
|
| $ | 263,875 |
|
The accompanying notes are an integral part of these financial statements.
8
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Formation and Organization
PureCycle Technologies, Inc. (“PCT” or “Company”) is a Florida-based corporation focused on commercializing a patented purification recycling technology (the “Technology”), originally developed by The Procter & Gamble Company (“P&G”), for restoring waste polypropylene into resin, called ultra-pure recycled (“UPR”) resin, which has nearly identical properties and applicability for reuse as virgin polypropylene. PCT has a global license for the Technology from P&G. PCT’s goal is to create an important new segment of the global polypropylene market that will assist multinational entities in meeting their sustainability goals, providing consumers with polypropylene-based products that are sustainable, and reducing overall polypropylene waste in the world’s landfills and oceans.
Business Combination
On March 17, 2021, PureCycle consummated the previously announced business combination (“Business Combination”) by and among Roth CH Acquisition I Co., a Delaware corporation (“ROCH”), Roth CH Acquisition I Co. Parent Corp., a Delaware corporation and wholly owned direct subsidiary of ROCH (“ParentCo”), Roth CH Merger Sub LLC, a Delaware limited liability company and wholly owned direct subsidiary of Parent Co, Roth CH Merger Sub Corp., a Delaware corporation and wholly owned direct subsidiary of ParentCo and PureCycle Technologies LLC (“PCT LLC” or “Legacy PCT”) pursuant to the Agreement and Plan of Merger dated as of November 16, 2020, as amended from time to time (the “Merger Agreement”).
Upon the completion of the Business Combination and the other transactions contemplated by the Merger Agreement (the “Transactions”, and such completion, the “Closing”), ROCH changed its name to PureCycle Technologies Holdings Corp. and became a wholly owned direct subsidiary of ParentCo, PCT LLC became a wholly owned direct subsidiary of PureCycle Technologies Holdings Corp. and a wholly owned indirect subsidiary of ParentCo, and ParentCo changed its name to PureCycle Technologies, Inc. The Company’s common stock, units and warrants are now listed on the Nasdaq Capital Market (“NASDAQ”) under the symbols “PCT,” “PCTTU” and “PCTTW,” respectively.
Legacy PCT unitholders willwere to be issued up to 4.0 million additional shares of the Company’s common stock if certain conditions are met (“the Earnout”). The Legacy PCT unitholders will bewere entitled to 2.0 million shares if, after 1 year after the Closing and prior to or as of the third anniversary of the Closing, the closing price of the common stock is greater than or equal to $18.00$18.00 over any 20 trading days within any 30-trading30-trading day period. The Company failed to achieve this milestone by March 17, 2024, and those shares have been forfeited and can no longer be earned by the Legacy PCT unitholders.
The Legacy PCT unitholders will also be entitled to 2.0 million shares upon the Ironton Facility becoming operational, as certified by Leidos Engineering, LLC (“Leidos”), an independent engineering firm, in accordance with criteria established in agreements in connection with construction of the plant.
Unless the context otherwise requires, “Registrant,” “PureCycle,” “Company,” “PCT,” “we,” “us,” and “our” refer to PureCycle Technologies, Inc., and its subsidiaries at and after the Closing and give effect to the Closing. “Legacy PCT”,PCT,” “ROCH” and “ParentCo” refer to PureCycle Technologies LLC, ROCH and ParentCo, respectively, prior to the Closing.
9
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared assuming that PCT will continue as a going concern; however, the conditions described below raise substantial doubt about PCT’s ability to do so, which management believes has been alleviated through its plans to mitigate these conditions and obtain additional unrestricted liquidity.
The Company has sustained recurring losses and negative cash flows from operations since its inception. As
reflected in the accompanying consolidated financial statements, the Company recently beganhas begun limited commercial
operations but does not yet have any significant sources of revenue. Revenue generation is expected later in 2023. The following is a summary of the components of our current liquidity (in thousands):
|
| As of |
| |||||
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Cash and cash equivalents |
| $ | 25,021 |
|
| $ | 73,411 |
|
Debt securities available for sale |
|
| 2,187 |
|
|
| 48,226 |
|
|
|
|
|
|
|
| ||
Restricted Cash (current and non-current) |
| $ | 14,919 |
|
| $ | 229,103 |
|
|
|
|
|
|
|
| ||
Working capital |
| $ | 7,601 |
|
| $ | 107,035 |
|
Accumulated deficit |
| $ | (429,847 | ) |
| $ | (344,240 | ) |
|
|
|
|
|
|
| ||
|
| For the three months ended |
| |||||
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||
Net loss |
| $ | (85,607 | ) |
| $ | (25,842 | ) |
As of | ||||||||
September 30, 2023 | December 31, 2022 | |||||||
Cash and cash equivalents | $ | 199,349 | $ | 63,892 | ||||
Debt securities available for sale | 12,026 | 98,592 | ||||||
Unrestricted liquidity | 211,375 | 162,484 | ||||||
Less: Other Ironton set-aside | — | 54,560 | ||||||
Available unrestricted liquidity | $ | 211,375 | $ | 107,924 | ||||
Restricted Cash (current and non-current) | $ | 184,790 | $ | 163,631 | ||||
Working capital | $ | 205,375 | $ | 197,916 | ||||
Accumulated deficit | $ | (320,057) | $ | (242,525) | ||||
For the nine months ended | ||||||||
September 30, 2023 | September 30, 2022 | |||||||
Net loss | $ | (77,532) | $ | (75,384) |
As of September 30, 2023,March 31, 2024, PCT had $211.4$25.0 million of Cash and Cash Equivalents, Debt Securities Available Unrestricted Liquidity. On March 15, 2023,for Sale of $2.2 million, and Restricted Cash of $14.9 million. PCT entered intoalso has a $150.0$200.0 million revolving credit facility with Sylebra Capital (the “Revolving Credit Facility”) that is currently unused and expires on September 30, 2025. Borrowings under
PCT sold an immaterial amount of UPR resin in 2023 and through March 31, 2024. Due to intermittent mechanical challenges during the Revolving Credit Agreement maycommissioning process, the Ironton Facility has not yet reached the point of producing meaningful volumes and on-spec product. While these mechanical issues are not uncommon for a first-of-its kind manufacturing facility, the downtime needed to correct these issues is a significant contributing factor to the delay of the Ironton Facility reaching the point of producing meaningful volumes and on-spec product. We expect the Ironton Facility to be used for working capital, capital expenditures and other general corporate purposes. There are currently no borrowings under the Revolving Credit Facility.
As of September 30, 2023,March 31, 2024, PCT anticipates that up to $12.5$12.5 million will be needed to complete the investment in the Ironton Facility, which relates to a performance guarantee payment due after successful completion of a performance testing milestone.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for revenue generation.one year from the date the
10
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
consolidated financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
PCT believes that its current level of Liquidity, including the unused Revolving Credit Facility may beunrestricted liquidity is not sufficient to fund operations, fund outstanding commitments, and outstanding commitments. However, given the September Milestone Event of Default under the Limited Waiver, and lack of revenue to date, there isfurther its future growth plans. The conditions described above raise substantial doubt regarding PCT’s ability to continue as a going concern for a period of at least one year from the date of issuance of the condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.
In an effort to alleviate these conditions, PCT is currently performing certain operational enhancements that are expected to correct the production issues with the Ironton Facility. Further, on March 5, 2024, the Purchaser (as defined below) purchased 99% of the outstanding Bonds (as defined below), which used $50.8 million, net, of unrestricted cash, and reduced Restricted Cash by $207.1 million. The purchased Bonds are held in an account with PCT LLC. PCT intends to, and has the ability to, re-market some or all of these Bonds based on the need for additional liquidity. The re-marketing process may require the addition of certain covenants to enhance the marketability of the purchased Bonds. The ability to re-market the purchased Bonds with any such additional new covenants would require a further amendment to, or waiver of, provisions included within the Revolving Credit Facility and Term Loan Credit Agreement (as defined below). After considering management’s plans to mitigate substantial doubt,these conditions, including adjustment of expenditure timing and execution of the plant becoming commercially viable and revenue generating later in 2023,amendment to the Revolving Credit Facility, PCT believes this substantial doubt has been alleviated and it has sufficient liquidity to continue as a going concern for the next twelve months.
PCT’s future capital requirements will depend on many factors, including the funding mechanism and construction schedule of the Augusta Facility and other anticipated facilities outside the United States, build-out of multiple Feed PreP facilities, funding needs to support other business opportunities, funding for general corporate purposes, and other challenges or unforeseen circumstances. As a pre-revenuelow-revenue operating company, PCT continually reviews its cash outlays, pace of hiring, professional services and other spend, and capital commitments to proactively manage those needs in tandem with its Available Unrestricted LiquidityCash balance. For future growth and investment, PCT expects to seek additional debt or equity financing from outside sources, which it may not be able to raise on terms favorable to PCT, or at all. If PCT is unable to raise additional debt or sell additional equity when desired, or if PCT is unable to manage its cash outflows, PCT’s business, financial condition, and results of operations would be adversely affected. In addition, any financing arrangement may have potentially adverse effects on PCT and/or its stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results or revenue generation, and may involve restrictions limiting PCT’s operating flexibility. If PCT consummates an equity financing to raise additional funds, the percentage ownership of its existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of PCT’s common stock.
11
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated interim financial statements include the accounts of the Company. The condensed consolidated interim financial statements are presented in U.S. Dollars. Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for further discussion.
The unaudited condensed consolidated financial statements should be read in conjunction with the information contained in the Company's 2023 Annual Report on Form 10-K for the year ended December 31, 2023; as filed with the SEC on March 6, 2024. Interim results are not necessarily indicative of the results that may be expected for a full year.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with the report classifications of the three months ended March 31, 2024 and cash equivalents. As of September 30, 2023, the Company’s cash and cash equivalents balance represents cash and money market funds deposited with financial institutions, as well as commercial paper and US treasuries with maturities of 90 days or less at acquisition. These balances may exceed federally insured limits; however,2023. Specifically, the Company believesreclassified certain expenses between Operating costs, Research and development, and Selling, general, and administrative to more accurately reflect the risk of loss is low. Actively traded money market funds are measured at their net asset value (“NAV”) and classified as Level 1. The Company’s remaining cash equivalents are classified as Level 2 and measured at amortized cost, which is a reasonable estimate of fair value becauseactivities of the short time between the purchase of the instrumentbusiness. Total operating costs and its expected realization.expenses did not change for prior years.
Restricted Cash
Cash pledged as collateral for future capital purchases and leased properties is also deemed restricted and included within this definition.restricted cash. Restricted cash that is expected to be spent or released from restriction within twelve months is classified as current on the consolidated balance sheet. Restricted cash that is expected to be spent or released from restriction after twelve months is classified as non-currentnoncurrent on the consolidated balance sheet.
The Company accounts for its investment in Debt Securities in accordance with ASC 320, Recently Issued Accounting Pronouncements
Investments – Debt Securities. The fair value for fixed-rate debt securities is based on quoted market prices forIn December 2023, the same or similar debt instruments and is classified as Level 2. All investment holdings as of September 30, 2023 and December 31, 2022 were classified as Available for Sale. The Company classifies its Debt Securities investments as current assets as they are highly liquid and the related funds are available for use in current operations.
In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim tax provision, at the end of eachdisclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in fiscal year 2025 and interim period the Company estimates the annual effective tax rate and applies that to its ordinary quarterly earnings. The effect of changesperiods beginning in the enacted tax laws or ratesfirst quarter of fiscal year 2026. Early adoption is recognized inpermitted. We are currently evaluating the interim period in whichimpact that the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and judgments including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in other jurisdictions, permanent differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained, or the tax environment changes.updated standard will have on our financial statement disclosures.
The Company evaluates all of its financial instruments, including issued warrants, to determine if such instruments are liability classified, pursuant to ASC 480 - 12Distinguishing Liabilities from Equity
(“ASC 480”) or derivatives or contain features that qualify as embedded derivatives pursuant to ASC 815 – Derivatives and Hedging (“ASC 815”). The classification of instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Issuance costs incurred with the Business Combination that are attributable to liability classified warrants are expensed as incurred.
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
NOTE 3 – NOTES PAYABLE AND DEBT INSTRUMENTS
The Company’s debt balances, including related party debt, consist of the following at September 30, 2023March 31, 2024 and December 31, 2022:2023 (in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Green Convertible Notes, interest at 7.25% due semiannually; balance due at maturity in August 2030 |
| $ | 250,000 |
|
| $ | 250,000 |
|
CSC Equipment Financing Payable, currently bearing interest at a monthly charge of 3.1% of the outstanding balance financed; 36 month term expected to commence December 1, 2024, bearing interest at 7.25% (based on lease rate factor indexed to WSJ Prime Rate) |
|
| 19,747 |
|
|
| 19,747 |
|
Revenue Bonds, interest at 7% due semiannually; semiannual principal repayments beginning 2031 maturing 2042 |
|
| 2,800 |
|
|
| 249,550 |
|
Other Equipment Financing Payable |
|
| 1,216 |
|
|
| 1,762 |
|
|
| 273,763 |
|
|
| 521,059 |
| |
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt |
|
| (27,622 | ) |
|
| (44,203 | ) |
Less: Current portion |
|
| (3,204 | ) |
|
| (9,148 | ) |
Long-term debt, less current portion |
| $ | 242,937 |
|
| $ | 467,708 |
|
|
|
|
|
|
|
| ||
Related Party Debt |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Pure Plastic Note Payable, interest at applicable rate plus margin, as defined (12.9% and 13.0% as of March 31, 2024 and December 31, 2023, respectively); balance due at maturity in December 2025 |
|
| 44,566 |
|
|
| 43,125 |
|
Less: Original issue discount and debt issuance costs classified as a reduction to note payable |
|
| (3,114 | ) |
|
| (3,429 | ) |
Related party note payable |
| $ | 41,452 |
|
| $ | 39,696 |
|
|
|
|
|
|
|
| ||
Sylebra Line of Credit, $200.0M borrowing capacity remaining, interest at applicable rate plus margin, as defined; maturing September 2025 |
| $ | — |
|
| $ | — |
|
September 30, 2023 | December 31, 2022 | |||||||||||||
Revenue Bonds | $ | 249,550 | $ | 249,550 | ||||||||||
Equipment Financing Payable | 21,911 | — | ||||||||||||
Green Convertible Notes | 250,000 | — | ||||||||||||
$ | 521,461 | $ | 249,550 | |||||||||||
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt | (46,079) | (16,037) | ||||||||||||
Less: Current portion | (7,065) | — | ||||||||||||
Long-term debt, less current portion | $ | 468,317 | $ | 233,513 | ||||||||||
Pure Plastic Note Payable | $ | 41,745 | $ | — | ||||||||||
Less: Original issue discount and debt issuance costs classified as a reduction to note payable | (3,716) | — | ||||||||||||
Related party note payable | $ | 38,029 | $ | — |
Revenue Bonds
On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain revenue bonds (“Revenue Bonds”)Bonds (as defined below) pursuant to an Indenture of Trust dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), between SOPA and UMB Bank, N.A., as Trustee (“Trustee”), and loaned the proceeds from their sale to PureCycle: Ohio LLC (“PCO”), an Ohio limited liability company and indirect wholly-owned subsidiary of PCT,the Company, pursuant to a Loan Agreement dated as of October 1, 2020, between SOPA and PCO (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), to be used to, (i)among other things, acquire, construct and equip the Company’s first commercial-scale recycling facility in Lawrence County, Ohio, the Ironton Facility (referred to withinFacility. Capitalized terms used but not defined herein have the Loan Agreement asmeanings ascribed thereto in the “Ohio Phase II Facility” and, together with the FEU (referred to within the Loan Agreement as the “Phase I Facility”), the “Project”); (ii) fund a debt service reserve fund for the Series 2020A Bonds; (iii) finance capitalized interest; and (iv) pay the costs of issuing the Revenue Bonds. Indenture.
The Revenue Bonds were offered in three series, including (i) Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A (“Series 2020A Bonds”); (ii) Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020B (“Series 2020B Bonds”); and (iii) Subordinated Exempt Facility Revenue Bonds (PureCycle Project), Taxable Series 2020C (“Series 2020C Bonds”), each series in the aggregate principal amount, bearing interest and maturing as shown in the table below. The Series 2020A Bonds were issued at a total discount of $5.5 million. The discount is amortized over the term of the Revenue Bonds using the effective interest method. The purchase price of the Revenue Bonds was paid and immediately available to SOPA on October 7, 2020, the date of delivery of the Revenue Bonds to their original purchaser. PureCycle is not a direct obligor on the Revenue Bonds and is not a party to the Loan Agreement or the Indenture pursuant to which the Revenue Bonds have been issued. Legacy PCT has executed a guaranty of completion dated as of October 7, 2020 (“Guaranty”), with respect to the full and complete performance by PCO of PCO’s obligations with respect to construction and completion of the Project, including construction by the Completion Date, free and clear of any liens (other than permitted liens), and the payment of all Project costs incurred prior to completion of the Project, and all claims, liabilities, losses and damages owed by PCO to each counterparty under the Project Documents (as such terms are defined in the Indenture). In addition, pursuant to the
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PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
(PureCycle Project), Taxable Series 2020C (“Series 2020C Bonds” and, together with the Series 2020A Bonds and the Series 2020B Bonds, the “Bonds” or "Revenue Bonds").
On February 10, 2024, PCO announced that it had agreed in principle with the Holders (as defined in the Indenture) of a majority in the aggregate principal amount of the Series 2020A Bonds outstanding (the "Majority Holders") that PCO or an affiliate of PCO would purchase (“Purchase”) from Holders for cash, upon the terms and subject to the conditions to be set forth in a definitive purchase agreement, by and among PCO and any Holder of Bonds that elects to be a party to the purchase agreement (each, a “Seller” and collectively, “Sellers”), any and all Bonds held by Sellers at a purchase price equal to $1,050 per $1,000 principal amount of the Bonds purchased, which amount is calculated in part to compensate the Sellers for default interest accruing from January 2, 2023 through December 31, 2023, as well as other accrued and unpaid interest from the last interest payment to, but not including, the Closing Date (as defined below) of the Purchase as consideration for consent to the Third Supplemental Indenture, by and among SOPA, PCO, the Guarantor, PCTO Holdco LLC is obligatedand the Trustee (the “Third Supplemental Indenture”), which sets forth certain proposed amendments to fundthe Bond Documents (“Proposed Amendments”) that will eliminate a substantial portion of the covenants, Events of Default (as defined below), and maintain a liquidity reserveother material terms and protections for the Project during the termbenefit of the GuarantyHolders contained in the amount of $50.0 million to be held in an escrow account with U.S. Bank National Association, as escrow agent (“Liquidity Reserve”). Pursuant toIndenture, the Loan Agreement, the Guaranty (as defined below) and other transaction documents that are permitted by the terms of the Indenture and/or the Loan Agreement PCO executed promissory notesto be eliminated with the consent of Majority Holders. The Purchase will occur only if Sellers include at least the Majority Holders and if Sellers consent to the Proposed Amendments. The purchase price shall not include any default or penalty interest accruing from January 1, 2024 that may otherwise be owed to Sellers, and each Seller will waive its respective right to such default or penalty interest as additional compensation for the Purchase.
The Third Supplemental Indenture amended and supplemented the Indenture and certain of the other Financing Documents (as defined by the Indenture) by, among other things and without limitation, eliminating substantially all covenants and events of default contained in the principal amountsIndenture ("Events of Default"), the Loan Agreement and certain of such other Financing Documents including, but not limited, to the following changes:
(in thousands) | ||||||||||||||
Bond Series | Term | Principal Amount | Interest Rate | Maturity Date | ||||||||||
2020A | A1 | $ | 12,370 | 6.25 | % | December 1, 2025 | ||||||||
2020A | A2 | $ | 38,700 | 6.50 | % | December 1, 2030 | ||||||||
2020A | A3 | $ | 168,480 | 7.00 | % | December 1, 2042 | ||||||||
2020B | B1 | $ | 10,000 | 10.00 | % | December 1, 2025 | ||||||||
2020B | B2 | $ | 10,000 | 10.00 | % | December 1, 2027 | ||||||||
2020C | C1 | $ | 10,000 | 13.00 | % | December 1, 2027 |
As conditions for closing of the Revenue Bonds, Legacy PCT contributed $60.0 million14
in equity at closing and PureCycle and certain affiliates contributed an additional $40.0 million in equity upon the closing of the Business Combination. PureCycle provided the Liquidity Reserve for construction of the Ironton Facility of $50.0 million and deposited that amount upon the closing of the Business Combination. In addition, PureCycle must maintain $100.0 million of cash on its balance sheet as of January 31, 2022, including the Liquidity Reserve. The Company met these requirements and continues to maintain that cash balance at September 30, 2023.
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
As of March 5, 2024, (the “Closing Date”) PCO and the Majority Holders closed on the Purchase Agreement and Consent (“Purchase Agreement”) comprising the definitive purchase agreement and, as additional consideration, the consent to the Third Supplemental Indenture, including the Proposed Amendments described therein. PureCycle Technologies LLC, an affiliate of PCO and the Guarantor under the Guaranty, will be the purchaser (“Purchaser”) of Bonds under the Purchase Agreement. The Purchase Agreement was executed by a majorityeach Holder that elects to sell its Bonds to the Purchaser and by PCO and the Purchase was effective on the Closing Date.
The Purchaser purchased 99% of the holdersoutstanding Bonds with $74.5 million of unrestricted cash and $184.6 million of restricted cash. The Purchase was determined to be an extinguishment of the Series 2020Aunderlying debt obligation due to PCO being a wholly-owned subsidiary of the Purchaser. PCT intends to, and has the ability to, re-market some or all of these Bonds then outstanding.based on the need for additional liquidity.Of the $259.1 million paid for the purchase, $5.9 million represented payment of accrued and unpaid interest prior to the Closing Date and $253.2 million was allocated to the outstanding carrying value at the Closing Date of $232.0 million. A $21.2 million loss on extinguishment of the Bonds was recognized in the condensed consolidated statement of comprehensive loss for the three months ended March 31, 2024.
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
On March Sylebra Credit Facility On March 15, 2023, PCT entered into a On March 1, 2024, PCT increased the Revolving Credit Facility from $150.0 million to $200.0 million, extended the maturity date to September 30, 2025, and obtained a carveout to permit the Company to purchase the Revenue Bonds, pursuant to an amendment to the Revolving Credit Agreement The Pure Plastic Term Loan Facility On May 8, 2023, the Company entered into a On March 1, 2024, PCT increased Green Convertible Notes On August 21, 2023, the Company priced its private offering of 15, 2023, PCT LLC,25, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and indirect wholly-owned subsidiaryaffiliate of PCT LLCPCO (the pledgor under anthe Equity Pledge and Security Agreement (as defined in the Indenture), pursuant to which the pledgor pledged certain interests to secure obligations of PCO under various Financing Documents (as defined in the Indenture) relating to the Revenue Bonds) and PCO and SOPAAgreement) and the Trustee entered into a Limited Waiver and Firstthe Fourth Supplemental Indenture (the “Limited Waiver”“Fourth Supplemental Indenture”), supplementing which amended certain provisions of the Indenture, and amending the Loan Agreement and that certain Amended and Restated Guaranty of Completion, entered into as of May 11, 2021, and effective as of October 7, 2020 (the “Guaranty”), by instructing the ARG,Trustee to release $22.1 million from the Senior Bonds Debt Service Reserve Fund and pursuant$3.3 million from the Repair and Replacement Fund, in each case, to whichPCO. In addition, the majority holdersFourth Supplemental Indenture provides that the Senior Bonds Debt Service Reserve Requirement, the Subordinate Bonds Debt Service Reserve Requirement, and the Repair and Replacement Fund Requirement shall each be reduced to $0, respectively, and that certain provisions of the Series 2020A Bonds consented to the Limited Waiver, based on stated conditions, of a Specified Event of Default (as defined below) under the Indenture and the Loan Agreement.Under the terms ofand/or the Loan Agreement, PCO was required to cause the Ironton Facility to be completed by December 1, 2022. The Ironton Facility was not completed by that date due to a variety of challenges resulting from,16PureCycle Technologies, Inc.NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED(Unaudited)among other things, the COVID-19 outbreak, the ongoing military conflict between Russia and Ukraine, and certain U.S. weather-related events (the “Specified Event of Default”).Subjectas applicable, relating to the following conditions,funding and maintenance of the Specified EventSenior Bonds Debt Service Reserve Fund, the Subordinate Bonds Debt Service Reserve Fund, and the Repair and Replacement Fund, will be suspended until the effectiveness of Default was waivedan amendment to the Indenture, the Loan Agreement and/or other applicable Financing Documents provides otherwise in exchange for PCO’s agreement to meet certain milestones toward completing the Ironton Facility, to deposit additional equity aggregating approximately $87.3 million with the Trustee for various purposes and to make certain other representations and warranties; provided, however, that any failure to complyaccordance with the terms of the Limited Waiver would be an immediate Event of Default under the Indenture and Loan Agreement, which will be deemed to have occurred on January 2, 2023 with respect to any requirements to pay accrued and unpaid interest at the Default Rate (as defined in the Indenture).PCO agreed to, among other things, achieve the following milestones (together, the “Milestones”): (i) closure by it or its direct or indirect parent entity of a financing transaction by March 31, 2023 that provides at least $150.0 million of working capital which may be used to support the Ironton Facility (which milestone was satisfied by the closing of the Revolving Credit Facility); (ii) mechanical completion of the Ironton Facility by June 30, 2023 (which milestone was satisfied on April 25, 2023); (iii) meet certain targeted production and performance targets during 2023; (iv) completion of the Ironton Facility by December 31, 2023; and (v) meet certain Ironton Facility pellet production targets by January 31, 2024 up to the Ironton Facility’s nameplate production capacity of 107 million pounds per year.The additional approximately $87.3 million of equity deposited with the Trustee is comprised of: (i) a deposit of $50 million in an account controlled by the Trustee; (ii) a deposit of approximately $25 million in the Equity Account of the Project Fund (as such terms are used in the Indenture) to fund remaining construction costs; (iii) an aggregate deposit of approximately $12.3 million into the Capitalized Interest Accounts (as defined in the Indenture) for the Series 2020A Bonds, Series 2020B Bonds and Series 2020C Bonds to pay capitalized interest on the Revenue Bonds through June 30, 2024. The Limited Waiver also requires that the Liquidity Reserve of approximately $50 million remain in the Liquidity Reserve Escrow Fund (as defined in the Indenture) for a period beyond the completion date of the Ironton Facility until certain production requirements have been met, and only thereafter may the balance in that fund be reduced based on certain conditions to $25 million, which must remain therein as long as Series 2020A Bonds remain outstanding. The $50 million deposit described above, along with the $50 million remaining in the Liquidity Reserve Escrow Fund, may satisfy the minimum cash requirement of the ARG of $100 million. The Trustee also released $13.2 million from the Project Fund held under the Indenture for use as part of the remaining investment in 2023 to complete the Ironton Facility in accordance with the Limited Waiver.As a result of the September Milestone Event of Default (as further described in Note 1 - Organization), on November 8, 2023, the Limited Waiver parties entered into the Second Limited Waiver. The principal terms of the Second Limited Waiver, include, but are not limited to, the following:i.PCO will deposit an additional $50,000,000 (the “Trustee Account Deposit”) in the Trustee Account (as defined in the Limited Waiver), such that at least $100,000,000 (the “Aggregate Trustee Deposit”) shall be on deposit in the Trustee Account so long as any Revenue Bonds remain outstanding; provided, that if no Event of Default shall have occurred and be continuing, $50,000,000 of funds in the Trustee Account shall be released back to PCO upon satisfaction of the conditions set forth in Section 4.11(a) of the amended and restated Guaranty.ii.subject to there being no default or event of default and compliance with the other terms of the Second Limited Waiver, once per quarter, PCO (and the Guarantor, if applicable) may request the release to PCO (or the Guarantor, as applicable) of any investment income or earnings with respect to amounts in the Trustee Account and the Liquidity Reserve Escrow Fund that have been invested pursuant to the terms of the Indenture or the Liquidity Reserve Escrow Agreement (as applicable).iii.PCO shall have produced 4.45 million pounds of pellets from its feedstock for thirty consecutive days by December 31, 2023, which shall be evidenced by a certificate signed by an Authorized Representative of PCO and by the Construction Monitor certifying thereto and delivered to the Trustee;iv.performance testing of the Ironton Facility shall be complete by no later than February 28, 2024, which shall be evidenced by a certificate signed by an Authorized Representative of PCO and by the Construction Monitor certifying thereto and delivered to the Trustee;17PureCycle Technologies, Inc.NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED(Unaudited)v.completion of the Project, including the acquisition, construction and equipping of the Ironton Facility, shall occur by no later than March 31, 2024, which shall be evidenced by a Certificate of Completion delivered to the Trustee;vi.PCO shall have produced 8.90 million pounds of pellets from its feedstock for thirty consecutive days by April 30, 2024, which shall be evidenced by a certificate signed by an Authorized Representative of PCO and by the Construction Monitor certifying thereto and delivered to the Trustee; and PCO shall have fully-ramped production at the Ironton Facility to nameplate capacity of 107 million pounds per year produced from its feedstock by no later than April 30, 2024, which shall be evidenced by a certificate signed by an Authorized Representative of PCO and by the Construction Monitor certifying thereto and delivered to the Trustee; andvii.the milestones referenced in (iii) – (vi) above (each, a “ Revised Milestone”), shall replace the corresponding Milestones in the Limited Waiver. If PCO fails to meet any of the Revised Milestones, no Event of Default shall have occurred until PCO has failed to meet such Revised Milestone on the date that is ninety days after such Revised Milestone date; provided, however, that during such ninety-day period, PCO will pay interest from the date of the Revised Milestone requirement until the date that the Revised Milestone is satisfied at the Default Rate, and notwithstanding anything to the contrary in the Indenture, the Loan Agreement the Limited Waiver or theand such other applicable Financing Documents or Bond Documents (each as defined in the Second Limited Waiver), PCO shall not have any access to any funds in the Trust Estate or otherwise held with the Trustee or a third-party (including, without limitation, funds in the Operating Revenue Escrow Fund and the Liquidity Reserve Escrow Fund (terms used as defined in the Second Limited Waiver)) pursuant to the Financing Documents until the date that such Milestone is satisfied.Documents.Equipment FinancingCSC Leasing Co.On May 8, 2023, the Company, through PureCycle PreP LLC, an indirect wholly-owned subsidiary of the Company, entered into a Master Lease Agreement (the “Master Lease Agreement”) with CSC Leasing Co. (“CSC”). Pursuant to the Master Lease Agreement, the Company and CSC agreed to enter into schedules that establish the specific terms and conditions of leasing certain equipment, machines, devices, features and any other items listed in each equipment lease schedule. The Master Lease Agreement commenced on the date set forth above and continues in effect until the later time that it is terminated, either by CSC at the end of any lease term, or by the Company upon three months written notice prior to the expiration of a lease term.Also on May 8, 2023, the Company, also through PureCycle PreP LLC, an indirect wholly-owned subsidiary of the Company, entered into an Equipment Procurement Agreement (the “Equipment Agreement”) with CSC. Under the terms of the Equipment Agreement, CSC has agreed to finance, acquire and/or purchase certain equipment (the “Equipment”) from third-party vendors and/or manufacturers (each, a “Vendor”), so that CSC may lease the Equipment to the Company pursuant to the terms and conditions of the Master Lease Agreement. Prior to entering into formal lease schedules under the Master Lease Agreement, the Company will lease from CSC certain Equipment pursuant to the terms of the Equipment Agreement.In connection with the above, CSC has funded $19.8 million for purposes of procuring equipment from a Vendor, which had previously been ordered by the Company prior to entering into these agreements with CSC. CSC will lease this equipment back to the Company under a 36 month lease, which will commence when 1) the Company accepts delivery of the equipment at its operating location and 2) all final bills from Vendor are paid. The Company has determined that it did not relinquish control of the assets to the buyer-lessor under these arrangements. Therefore, the Company has accounted for this transaction as a failed sale-leaseback transaction whereby it has continued recording these assets in the condensed consolidated balance sheet and also recorded a financing obligation for the consideration paid by the buyer-lessor. The Company currently expects the lease term to commence in late second quarter of 2024, and the repayment schedule below assumes payments under the 36 month term commence on June 1, 2024.The Company is also required to make monthly payments under the agreements during the period between funding of the construction obligation and delivery of the equipment, which began in June 2023 and are equal to a monthly lease rate factor of approximately 3.1% of the outstanding amount funded by CSC (the “Lease Rate Factor”). The18PureCycle Technologies, Inc.NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED(Unaudited)Company has determined that these payments represent a cost of borrowing under the financing arrangement and has recorded the payments as interest expense in the condensed consolidated statements of comprehensive income (loss). The Company incurred $1.9 million and $2.7 million of interest related to these obligations for the three and nine months ended September 30, 2023. The Lease Rate Factor is indexed to the WSJ Prime Rate as published by the Wall Street Journal and may be increased for every five basis point change in the index prior to final commencement of the 36 month lease term. Upon commencement of the 36 month lease term, the payments will be characterized as repayment of debt, and the expected coupon rate for the 36 month term is 7.25% based on the WSJ Prime Rate published as of September 30, 2023.The Master Lease Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Master Lease Agreement include, among others: (a) non-payment of principal, interest, fees or other amounts; (b) default of specific covenants; (c) breach of representations and warranties; (d) discontinuation of authorized electronic payments without CSC’s consent; (e) failure to furnish proof of insurance; (f) bankruptcy and insolvency proceedings; and (g) any unauthorized conveyance or transfer of the Equipment to a third party. Upon the occurrence of an event of default, CSC may accelerate all unpaid rents and exercise all rights and remedies available to it under the Master Lease Agreement and Equipment Agreement. Amounts due under the lease are guaranteed by PCT.Other Equipment FinancingThe Company has executed other equipment sale leasebacks which qualify as financing arrangements, with a total of $2.1 million outstanding as of September 30, 2023.$150$150 million Revolving Credit Facility pursuant to a credit agreement (the "Revolving Credit Agreement (the “Revolving Credit Agreement”Agreement") dated as of March 15, 2023, with PureCycle Technologies Holdings Corp. and PureCycle Technologies, LLC (the “Guarantors”), Sylebra Capital Partners Master Fund, LTD, Sylebra Capital Parc Master Fund, and Sylebra Capital Menlo Master Fund (collectively, the “Lenders”), and Madison Pacific Trust Limited (the “Administrative Agent”), which matures on March 31, 2025 (as further described in the Second Amendment (as defined below) and “Security Agent”). The Lenders and their affiliates are greater than 5%5% beneficial owners of PCT.Borrowings undermay be used for working capital, capital expenditures and other general corporate purposes and satisfieswith PCT, the financing obligation imposed upon PCT by the Limited Waiver.Amounts outstanding under the Revolving Credit Agreement bear interest at a variable annual rate equal to Term SOFR (as defined in the Revolving Credit Agreement) in effect for such period plus an applicable margin. The applicable margin is equal to (i) 5.00% from the Closing Date through June 30, 2023, (ii) 10.00% from July 1, 2023 through September 30, 2023, (iii) 12.50% from October 1, 2023 through December 31, 2023, (iv) 15.00% from January 1, 2024 through March 31, 2024, and (v) 17.50% thereafter. PCT is also required to pay (i) an up-front fee equal to 0.75% times $150 million—the total aggregate commitment for the Revolving Credit Facility—toGuarantors, the Lenders, payable at closing and (ii) a commitment fee equal to 0.25% per annum based on the actual daily unused amount of the Revolving Credit Facility, payable quarterly. Subject to timely prior written notice and payment of breakage fees, if any, PCT may at any time and from time to time (i) terminate all or any portion of the commitments under the Revolving Credit Agreement and/or (ii) prepay all or any portion of any outstanding borrowings.The Revolving Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Revolving Credit Agreement include, among others: (a) non-payment of principal, interest, fees or other amounts; (b) default of specific covenants; (c) breach of representations and warranties; (d) cross-defaults to other indebtedness in an amount greater than $1 million, subject to certain exceptions; (e) bankruptcy and insolvency proceedings; (f) inability to pay debts or attachment; (g) judgments; and (h) change of control. Upon the occurrence of an event of default, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders (as defined in the Revolving Credit Agreement) terminate the loan commitments, accelerate all loans and exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Revolving Credit Agreement and the other loan documents.19PureCycle Technologies, Inc.NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED(Unaudited)Amounts outstanding under the Revolving Credit Agreement are guaranteed by the Guarantors, and are secured by a security interest in substantially all of the assets of PCT. Any majority-owned direct or indirect subsidiaries of PCT formed after the closing date of the Revolving Credit Facility will also be required to guaranty the obligations under the Revolving Credit Agreement and grant security interests in substantially all of their respective assets.On May 8, 2023, the Company entered into the First Amendment to Credit Agreement, by and among the Company, as borrower, PureCycle Technologies, LLC and PureCycle Technologies Holdings Corp., as Guarantors, the lenders party thereto, and Madison Pacific Trust Limited, as administrative agent and as security agent (the “Sylebra Amendment”) in connection with the Company’s $150 million Revolving Credit Facility governed by the Revolving Credit Agreement. The Sylebra Amendment, among other things: (i) permits the Company’s entry into the Term Loan Facility (as defined below), (ii) provides for a new basket under the Revolving Credit Agreement’s indebtedness negative covenant allowing for offerings of unsecured convertible promissory notes of up to $200,000,000, (iii) provides for new baskets under the Revolving Credit Agreement’s indebtedness and lien negative covenants of up to $90,000,000 in additional equipment financings and (iv) exempts the proceeds of any such convertible notes offerings from the requirement for mandatory prepayments under the Revolving Credit Agreement.On August 4, 2023, the Company entered into the Second Amendment to Credit Agreement, by and among the Company, as borrower, PureCycle Technologies, LLC and PureCycle Technologies Holdings Corp., as Guarantors, the lenders party thereto, and Madison Pacific Trust Limited, as administrative agent and as security agent (the “Second Amendment”), in connection with the Company’s $150 million Revolving Credit Facility governed by the Revolving Credit Agreement, to extend the maturity date of the Revolving Credit Facility to March 31, 2025.On August 21, 2023, the Company further amended the Revolving Credit Agreement to (i) increase the amount available to the Company under the indebtedness covenant basket for offerings of unsecured convertible notes from $200,000,000 to $250,000,000 and (ii) make certain changes to the restricted payments covenant and the events of default section in order to permit the Notes (as defined below).There were no funds drawn on the Revolving Credit Facility as of September 30, 2023. The up-front commitment fee and other costs of $1.3 million have been recorded in prepaid expenses and other current assets and will be amortized over the term of the contract.$40$40 million Term Loan Facilityterm loan facility pursuant to the Term Loan Credit Agreement ("Term Loan Credit Agreement") dated as of May 8, 2023, among the Company, the Guarantors and Pure Plastic LLC (as Lender, Administrative Agent, and Security Agent), which matures on December 31, 2025 (the “Term Loan Facility”). The Term Loan Credit Agreement was amended on August 21, 2023. Affiliates of the Lender are greater than 5%5% beneficial owners of the Company. Balances related to the Term Loan Credit Agreement are recorded within related party note payable in the condensed consolidated balance sheets and, in certain instances, the Term Loan Credit Agreement is referred to as the “Related party note payable.”Borrowings under the Term Loan Credit Agreement may be used to repay indebtedness for borrowed money of the Company, to pay fees and expenses associated with the Term Loan Credit Agreement and the other loan documents and for general corporate purposes not in contravention of any law or of any loan document.The Term Loan Facility is structured as a single-draw, delayed draw term loan. The Lender funded the term loan on May 17, 2023 (the “Funding Date”). Amounts outstanding under the Term Loan Credit Agreement will bear interest at a variable annual rate equal to Term SOFR (as defined in the Term Loan Credit Agreement) in effect for such period plus an applicable margin. The applicable margin is equal to 7.5%, and the interest rate for the outstanding term loan was 12.9% as of September 30, 2023. The Company is also required to pay, on the Funding Date, (i) a closing fee to the Lenders, equal to 2.00% times the aggregate principal amount of the term loans funded by the Lenders on the Funding Date, (ii) a commitment fee to the Lenders equal to 1.00% times the aggregate principal amount of each Lender’s commitments on the Funding Date, (iii) a syndication fee to the Administrative Agent equal to 0.50% times the aggregate commitments of the Lenders on the Funding Date and (iv) a monitoring fee equal to $200,000 to the Administrative Agent for the account of the Administrative Agent and the Security Agent on the Funding Date and each anniversary of the Funding Date until maturity of the term loan. Additionally, the term loan will be issued with a 5.00% original issue discount. Subject to timely prior written notice, payment of breakage fees,20PureCycle Technologies, Inc.NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED(Unaudited)if any, and payment of a prepayment premium equal to (i) 12% if such prepayment occurs during the first year following the closing date or (ii) 8% thereafter, the Company may at any time and from time to time voluntarily prepay all or any portion of any outstanding borrowings. The Company incurred $1.3 and $2.0 million of interest cost during the three and nine months ended September 30, 2023. The interest due to date of $1.7 million was paid entirely in kind, which the principal amount of the Term Loan Facility by this amount (the “PIK Interest”). The Company has the contractual right to pay all interest payments in kind and may make this election for all interest payments for the duration of the Term Loan Facility. The repayment schedule presented below does not contemplate future PIK Interest.The Term Loan Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Term Loan Credit Agreement include, among others: (a) non-payment of principal, interest, fees or other amounts; (b) default of specific covenants; (c) breach of representations and warranties; (d) cross-defaults to other indebtedness in an amount greater than $1 million, subject to certain exceptions; (e) bankruptcy and insolvency proceedings; (f) inability to pay debts or attachment; (g) judgments; and (h) change of control. Upon the occurrence of an event of default, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders (as defined in the Term Loan Credit Agreement) accelerate all loans and exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Term Loan Credit Agreement and the other loan documents.Amounts outstanding under the Term Loan Credit Agreement are guaranteed by the Guarantors, and are secured by a security interest in substantially all of the assets of the Company. Subject to certain limited exceptions, any majority-owned direct or indirect subsidiaries of the Company formed after the closing date of the Term Loan Facility will also be required to guaranty the obligations under the Term Loan Credit Agreement and grant security interests in substantially all of their respective assets.On August 21, 2023, the Company amended the Term Loan Credit Agreement to (i) increase the amount available to the Company under the Term Loan Credit Agreement's permitted indebtedness covenant basket for offerings of unsecured convertible notesthe Revolving Credit Facility from $200,000,000$150.0 million to $250,000,000$200.0 million and (ii) make certain changes to the restricted payments covenant and the events of default section in orderobtained a carve out to permit the Notes.$215.0$215.0 million in aggregate principal amount of 7.25%7.25% Green Convertible Senior Notes due 2030 (the “Initial Notes”). On August 22, 2023, the initial purchaser in such offering exercised its option to purchase an additional $35.0$35.0 million in aggregate principal amount of the 7.25%7.25% Green Convertible Senior Notes due 2030 (together with the “Initial Notes”, the “Notes”), bringing the total aggregate principal amount of the Notes to $250.0$250.0 million.On August 24, 2023, the Company completed the private offering of the Notes. Each $1,000 principal amount at maturity of the Notes was issued at a price of $900. An amount equal to the difference between the issue price and the principal amount at maturity will accrete from the original issue date through August 15, 2027. The Notes are senior unsecured obligations of the Company. Entities affiliated with Sylebra Capital Management purchased $50.0 million aggregate principal amount at maturity of Notes.The net proceeds from this offering were approximately $218.50 million, after deducting the initial purchaser’s discounts and fees paid to our financial advisor. The Company intends to allocate an amount equal to the net proceeds from this offering to the financing and refinancing of recently completed and future Eligible Green Projects (as defined below) in the United States. In particular, the Company intends to allocate the net proceeds from this offering to make payments on certain long-lead items and fund initial outside battery limits engineering design work, both associated with a multi-line purification facility to be built in Augusta, Georgia. Pending such allocation, the Company intends to use the remaining net proceeds for general corporate purposes.
16
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
of the Notes, the Company entered into an Indenture, dated August 24, 2023 (the “Indenture”), with U.S. Bank Trust Company, National Association, as trustee. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the Notes become automatically due and payable. The events of default, as set forth in the Indenture and subject in certain cases to customary grace and cure periods, include customary events including a default in the payment of principal or interest, failure to comply with the obligation to deliver amounts due upon conversion, failure to give certain notices, failure to comply with the obligations in respect of certain merger transactions, defaults under certain other indebtedness and certain events of bankruptcy and insolvency.
Three months ended September 30 | Nine months ended September 30 | ||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Contractual interest expense | $ | 1,863 | $ | — | $ | 1,863 | $ | — | |||||||||
Amortization of deferred financing costs | $ | 643 | $ | — | $ | 643 | $ | — | |||||||||
Effective interest rate | 11.2 | % | — | % | 11.2 | % | — | % | |||||||||
| ||||||||||||||
Years ending December 31, |
| Long-term debt |
|
| Related party note payable |
| ||
2024 (April through December) |
| $ | 1,708 |
|
| $ | — |
|
2025 |
|
| 6,150 |
|
|
| 44,566 |
|
2026 |
|
| 6,611 |
|
|
| — |
|
2027 |
|
| 6,494 |
|
|
| — |
|
2028 |
|
| — |
|
|
| — |
|
2029 |
|
| — |
|
|
| — |
|
Thereafter |
|
| 252,800 |
|
|
| — |
|
| $ | 273,763 |
|
| $ | 44,566 |
| |
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt |
|
| (27,622 | ) |
|
| (3,114 | ) |
Less: Current Portion |
|
| (3,204 | ) |
|
| — |
|
Total |
| $ | 242,937 |
|
| $ | 41,452 |
|
Years ending December 31, | Long-term debt | Related party note payable | ||||||||||||
2023 (October through December) | $ | 402 | $ | — | ||||||||||
2024 | 12,249 | — | ||||||||||||
2025 | 23,106 | 41,745 | ||||||||||||
2026 | 14,424 | — | ||||||||||||
2027 | 28,110 | — | ||||||||||||
2028 | 257,710 | — | ||||||||||||
Thereafter | 185,460 | — | ||||||||||||
521,461 | 41,745 | |||||||||||||
Less: Original issue discount and debt issuance costs classified as a reduction to long-term debt | (46,079) | (3,716) | ||||||||||||
Less: Current Portion | (7,065) | — | ||||||||||||
Total | $ | 468,317 | $ | 38,029 |
NOTE 54 - EQUITY-BASED COMPENSATION
2021 Equity Incentive Plan
On March 17, 2021, our stockholders approved the PureCycle Technologies, Inc. 2021 Equity and Incentive Compensation Plan (the “Plan”).
The Plan provides for the grant of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares, performance units, dividend equivalents, and certain other awards. In general, the amount of shares issuable under the Plan will be automatically increased on the first day of each fiscal year, beginning in 2022 and ending in 2031, by an amount equal to the lesser of (a) 3%3% of the shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year, and (b) such smaller number of shares as determined by the Board of Directors (the “Board”) of the Company.
As of September 30, 2023,March 31, 2024, approximately 17.0 million shares of common stock are currently authorized for issuance under the Plan, of which approximately 8.912.8 million shares remain available for issuance under the Plan (assuming maximum performance with respect to the applicable performance goals applicable to the issued Plan awards).
Restricted Stock Agreements
RSUs issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan. The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant. The Company has the option to repurchase all vested shares upon a stockholder’s termination of employment or service with the Company.
17
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
A summary of restricted stock activity for the ninethree months ended September 30, 2023 and 2022March 31, 2024 is as follows (in thousands except per share data):
| Number of |
|
| Weighted |
|
| Weighted |
| ||||
|
|
|
|
|
|
|
|
| ||||
Non-vested at December 31, 2023 |
|
| 2,847 |
|
| $ | 9.31 |
|
|
| 2.3 |
|
Granted |
|
| 1,109 |
|
|
| 5.68 |
|
|
|
| |
Vested |
|
| (434 | ) |
|
| 6.29 |
|
|
|
| |
Forfeited |
|
| (71 | ) |
|
| 6.29 |
|
|
|
| |
Non-vested at March 31, 2024 |
|
| 3,451 |
|
| $ | 8.57 |
|
|
| 2.6 |
|
Number of RSUs | Weighted average grant date fair value | Weighted average remaining recognition period | |||||||||||||||
Non-vested at December 31, 2021 | 2,671 | $ | 14.33 | 3.4 | |||||||||||||
Granted | 1,395 | 7.61 | |||||||||||||||
Vested | (872) | 6.47 | |||||||||||||||
Forfeited | (441) | 9.78 | |||||||||||||||
Non-vested at September 30, 2022 | 2,753 | $ | 11.52 | 2.9 |
Number of RSUs | Weighted average grant date fair value | Weighted average remaining recognition period | |||||||||||||||
Non-vested at December 31, 2022 | 2,760 | $ | 11.92 | 2.7 | |||||||||||||
Granted | 1,254 | 6.22 | |||||||||||||||
Vested | (716) | 11.69 | |||||||||||||||
Forfeited | (114) | 10.24 | |||||||||||||||
Non-vested at September 30, 2023 | 3,184 | $ | 9.75 | 2.4 |
Stock Options
The stock options issued pursuant to the Plan are time-based and vest over the period defined in each individual grant agreement or upon a change of control event as defined in the Plan.
The Company recognizes compensation expense for the shares equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards. The fair value of the stock is estimated on the date of grant using the Black-Scholes option-pricing model using the following assumptions:
| March 31, 2024 |
|
| March 31, 2023 |
| |||
Expected annual dividend yield |
|
| 0.0 | % |
|
| 0.0 | % |
Expected volatility |
|
| 88.5 | % |
|
| 77.3 | % |
Risk-free rate of return |
|
| 4.3 | % |
|
| 3.5 | % |
Expected option term (years) |
|
| 6.5 |
|
|
| 6.5 |
|
| |||||||||||
18
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
A summary of stock option activity for the ninethree months ended September 30, 2023 and 2022March 31, 2024 is as follows (in thousands except per share data):
| Number of |
|
| Weighted |
|
| Weighted |
| ||||
Balance, December 31, 2023 |
|
| 983 |
|
| $ | 20.17 |
|
| 5.4 |
| |
Granted |
|
| 345 |
|
|
| 5.73 |
|
|
| 10.0 |
|
Exercised |
|
| (16 | ) |
|
| 5.72 |
|
|
| — |
|
Forfeited |
|
| (7 | ) |
|
| 5.72 |
|
|
| — |
|
Balance, March 31, 2024 |
|
| 1,305 |
|
| $ | 16.25 |
|
|
| 6.3 |
|
Exercisable |
|
| 613 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| |||
Weighted avg grant date fair values |
|
| 4.45 |
|
|
|
|
|
|
|
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |||||||||||||||
Balance, December 31, 2021 | 613 | $ | 28.90 | 6.2 | |||||||||||||
Granted | — | — | |||||||||||||||
Exercised | — | — | |||||||||||||||
Forfeited | — | — | |||||||||||||||
Balance, September 30, 2022 | 613 | $ | 28.90 | 4.3 |
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | |||||||||||||||
Balance, December 31, 2022 | 613 | $ | 28.90 | 4.0 | |||||||||||||
Granted | 459 | 5.72 | 10.0 | ||||||||||||||
Exercised | — | — | |||||||||||||||
Forfeited | (5) | 5.72 | |||||||||||||||
Balance, September 30, 2023 | 1,067 | $ | 19.03 | 5.9 | |||||||||||||
Exercisable | 613 |
Performance-Based Restricted Stock Agreements
The shares issued pursuant to the Performance-Based Restricted Stock Agreements vest depending on if the performance obligations are met. In general, the performance-based stock units (“Performance PSUs”) will be earned based on achievement of pre-established financial and operational performance objectives and will vest on the date the attainment of such performance objectives as determined by the Compensation Committee (the “Committee”) of the Board, subject to the participant’s continued employment with the Company. The Company has also issued performance-based stock units that vest if the market price of the Company’s common stock exceeds a defined target during the performance period (“Market PSUs”,PSUs,” together with the Performance PSUs, the “PSUs”).
The Company issued 0.4 million and 1.0 million PSUs for the ninethree months ended September 30, 2023, and 2022, respectively.March 31, 2024. As of September 30, 2023,March 31, 2024, the performance-based provision has not been achieved for any of the outstanding performance-based awards.
The Company recognizes compensation expense for the Performance PSUs equal to the fair value of the equity-based compensation awards and is recognized on a straight-line basis over the vesting period of such awards as the Company has concluded the performance condition is probable to be met. The fair value of the awards is equal to the fair value of the Company’s common stock at the date of grant.
A summary of the PSU activity for the ninethree months ended September 30, 2023 and 2022March 31, 2024 is as follows (in thousands except per share data):
|
| Number of |
|
| Weighted |
|
| Weighted |
| |||
Balance, December 31, 2023 |
|
| 1,246 |
|
| $ | 8.85 |
|
| 1.7 |
| |
Granted |
|
| 353 |
|
|
| 5.73 |
|
|
|
| |
Vested |
|
| — |
|
|
| — |
|
|
|
| |
Forfeited |
|
| (208 | ) |
|
| 17.43 |
|
|
|
| |
Balance, March 31, 2024 |
|
| 1,391 |
|
| $ | 6.75 |
|
|
| 1.9 |
|
19
Number of PSUs | Weighted average grant date fair value | Weighted average remaining recognition period | |||||||||||||||
Balance, December 31, 2021 | 424 | $ | 18.65 | 2.0 | |||||||||||||
Granted | 1,020 | 7.53 | — | ||||||||||||||
Vested | — | — | — | ||||||||||||||
Forfeited | (382) | 10.59 | — | ||||||||||||||
Balance, September 30, 2022 | 1,062 | $ | 10.86 | 1.9 |
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Number of PSUs | Weighted average grant date fair value | Weighted average remaining recognition period | |||||||||||||||
Balance, December 31, 2022 | 1,060 | $ | 10.87 | 1.7 | |||||||||||||
Granted | 416 | 6.08 | — | ||||||||||||||
Vested | — | — | — | ||||||||||||||
Forfeited | (11) | 6.84 | — | ||||||||||||||
Balance, September 30, 2023 | 1,465 | $ | 9.53 | 1.5 |
Equity-based compensation cost is recorded within the selling, general and administrative expenses within the condensed consolidated statements of comprehensive income (loss), and was not materialloss. Equity-based compensation expense for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022.
|
| Three Months Ended |
| |||||
|
| March 31, 2024 |
|
| March 31, 2023 |
| ||
Total equity-based compensation for RSUs |
| $ | 2,564 |
|
| $ | 2,418 |
|
Total equity-based compensation for PSUs |
|
| (52 | ) |
|
| (268 | ) |
Total equity-based compensation for stock options |
|
| 170 |
|
|
| 14 |
|
|
| $ | 2,682 |
|
| $ | 2,164 |
|
NOTE 65 - WARRANTS
RTI Warrants
RTI Global (“RTI”) holds warrants to purchase 971 thousand shares of PCT common stock. RTI can exercise these warrants as of March 17, 2022. The warrants expire on December 31, 2024. The Company determined the warrants are a liability classified under ASC 480. Accordingly, the warrants were held at their initial fair value and will be remeasured at fair value at each subsequent reporting date with changes in the fair value presented in the condensed consolidated statements of comprehensive income (loss).
A summary of the RTI warrant activity for the ninethree months ended September 30, 2023 and 2022March 31, 2024 is as follows (in thousands, except per share data):
| Number of warrants |
|
| Weighted average exercise price |
|
| Weighted average grant date fair value |
|
| Weighted average remaining contractual term (years) |
| |||||
Outstanding at December 31, 2023 |
|
| 971 |
|
| $ | 5.56 |
|
| $ | 0.03 |
|
|
| 1.0 |
|
Granted |
|
| — |
|
|
|
|
|
|
|
|
| — |
| ||
Exercised |
|
| — |
|
|
|
|
|
|
|
|
| — |
| ||
Outstanding at March 31, 2024 |
|
| 971 |
|
| $ | 5.56 |
|
| $ | 0.03 |
|
|
| 0.8 |
|
Exercisable |
|
| 971 |
|
|
|
|
|
|
|
|
|
|
Number of warrants | Weighted average exercise price | Weighted average grant date fair value | Weighted average remaining contractual term (years) | ||||||||||||||||||||
Outstanding at December 31, 2021 | 971�� | $ | 5.56 | $ | 0.03 | 3.0 | |||||||||||||||||
Granted | — | — | — | — | |||||||||||||||||||
Exercised | — | — | — | — | |||||||||||||||||||
Outstanding at September 30, 2022 | 971 | $ | 5.56 | $ | 0.03 | 2.3 | |||||||||||||||||
Exercisable | 971 |
Number of warrants | Weighted average exercise price | Weighted average grant date fair value | Weighted average remaining contractual term (years) | ||||||||||||||||||||
Outstanding at December 31, 2022 | 971 | $ | 5.56 | $ | 0.03 | 2.0 | |||||||||||||||||
Granted | — | — | — | — | |||||||||||||||||||
Exercised | — | — | — | — | |||||||||||||||||||
Outstanding at September 30, 2023 | 971 | $ | 5.56 | $ | 0.03 | 1.3 | |||||||||||||||||
Exercisable | 971 |
Refer to Note 129 – Fair Value of Financial Instruments for further information.
Public Warrants and Private Warrants
The Company has outstanding public and private warrants which entitle each holder to exercise its warrants only for a whole number of shares of Common Stock.common stock. Each whole warrant entitles the registered holder to purchase one whole share of the Company’s Common Stockcommon stock at a price of $11.50$11.50 per share at the later of the closing of the Business Combination or one year after ROCH’s initial public offering, provided that the Company has an effective registration statement under the Securities Act covering the shares of Common Stockcommon stock issuable upon exercise of the warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. The warrants will expire five years after March 17, 2021, or earlier upon redemption or liquidation. The private warrants are identical
20
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
to the public warrants, except that the private warrants and the common stock issuable upon exercise of the private warrants were not transferable, assignable or salable until after March 17, 2021, subject to certain limited exceptions. Additionally, the private warrants are non-redeemable so long as they are held by the initial holder or any of its permitted transferees. If the private warrants are held by someone other than the initial holder or its permitted transferees, the private warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
The Company may redeem the outstanding warrants in whole, but not in part, at a price of $0.01$0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock equals or exceeds $18.00$18.00 per share for any 20-trading20-trading days within a 30-trading30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders. If the Company calls the warrants for redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a cashless basis. In no event will the Company be required to net cash settle the warrant exercise. The public warrants are accounted for as equity classified warrants as they were determined to be indexed to the Company’s stock and meet the requirements for equity classification.
The Company has classified the private warrants as a warrant liability as there is a provision within the warrant agreement that allows for private warrants to be exercised via a cashless exercise while held by CR Financial Holdings, Inc. (the “Sponsor”) and affiliates of the Sponsor, but would not be exercisable at any time on a cashless basis if transferred and held by another investor. Therefore, the Company will classify the private warrants as a liability pursuant to ASC 815 until the private warrants are transferred from the initial purchasers or any of their permitted transferees.
There were approximately 5.7 million public warrants and 0.2 million private placement warrants outstanding at September 30, 2023March 31, 2024 and 2022. The Company recognized $0.7 million and $0.3 million of benefit related to the private warrants for the three and nine months ended September 30, 2023, respectively, and $0.2 million and $0 of expense for the three and nine months ended September 30, 2022.2023. Refer to Note 129 - Fair Value of Financial Instruments for further information.
Series A Warrants
On March 7, 2022, the closingCompany entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “2022 PIPE Investors”), pursuant to which the Company agreed to sell to the Investors, in a private placement, shares of the Company’s common stock, par value $0.001 per share, and Series A warrants to purchase shares of common stock (the “Series A Warrants”) at a price of $7.00 per share of common stock and one-half (1/2) of one Series A Warrant (the “2022 PIPE Offering”).
On March 17, 2022, the Company closed the 2022 PIPE Offering the Companyand issued approximately 17.9 million Series A Warrants to the 2022 PIPE Investors an aggregate of 35,714,272 shares of common stock and Series A Warrants to purchase an aggregate of 17,857,136shares of the Company’s common stock. Each whole warrant entitles the registered holder to purchase one whole share of the Company’s Common Stockcommon stock at a price of $11.50$11.50 per share any time after September 17, 2022 (the “Initial Exercise Date”), provided that the Company has an effective registration statement under the Securities Act covering the shares of Common Stockcommon stock issuable upon exercise of the warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Common Stock.common stock. The warrants will expire on March 17, 2026.
The Company may redeem the outstanding Series A Warrants in whole, but not in part, at a price of $0.01$0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s common stock equals or exceeds $18.00$18.00 per share for any 20-trading20-trading days within a 30-trading30-trading day period commencing after the Series A Warrants become exercisable and ending three business days before the Company sends the notice of redemption to the warrant holders. If the Company calls the Series A Warrants for
21
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
redemption, management will have the option to require all holders that wish to exercise the warrants to do so on a cashless basis. In no event will the Company be required to net cash settle the warrant exercise.
The agreements governing the Series A Warrants (the “Series A Warrant Agreements”) provide for a Black-Scholes value calculation (“Black-Scholes Value”) in the event of certain transactions (“Fundamental Transactions”), which includes a floor on volatility utilized in the value calculation at 100%100% or greater. The Company has determined this provision introduces leverage to the holders of the Series A Warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Therefore, the Company will classify the Series A Warrants as a liability pursuant to ASC 815.
As of September 30, 2023,March 31, 2024, there were approximately 17.9 million Series A Warrants outstanding. The Company recognized $44.1 million and $15.9 million of benefit related to the Series A Warrants for the three and nine months ended September 30, 2023, respectively, and $13.4 million and $16.8 million of expense for the three and nine months ended September 30, 2022, respectively. Refer to Note 129 – Fair Value of Financial Instruments for further information.
Warrant expense (benefit) recognized for further information.
|
| Three Months Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| |||
RTI warrants |
| $ | 1,097 |
|
| $ | (58 | ) |
Private placement warrants |
| $ | 168 |
|
| $ | 72 |
|
Series A warrants |
| $ | 12,679 |
|
| $ | 4,821 |
|
NOTE 86 – NET INCOME (LOSS)LOSS PER SHARE
The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The two-class method also requires losses for the period to be allocated between common and participating securities based on their respective rights if the participating security contractually participates in losses. As holders of participating securities do not have a contractual obligation to fund losses, undistributed net losses are not allocated to nonvested restricted stock for purposes of the loss per share calculation.
Presented in the table below is a reconciliation of the numerator and denominator for the basic earnings per share (“EPS”) calculations for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
|
| Three months ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss attributable to common shareholders |
| $ | (85,607 | ) |
| $ | (25,842 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted average common shares outstanding, basic |
|
| 164,355 |
|
|
| 163,588 |
|
Net loss per share attributable to common stockholder, basic |
| $ | (0.52 | ) |
| $ | (0.16 | ) |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Net income (loss) attributable to PureCycle Technologies | $ | 4,886 | $ | (34,948) | $ | (77,532) | $ | (75,384) | |||||||||
Less income attributable to participating warrants | (480) | — | — | — | |||||||||||||
Net income (loss) attributable to common shareholders | $ | 4,406 | $ | (34,948) | $ | (77,532) | $ | (75,384) | |||||||||
Weighted average common shares outstanding, basic | 164,018 | 163,490 | 163,783 | 153,513 | |||||||||||||
Net loss per share attributable to common stockholder, basic | $ | 0.03 | $ | (0.21) | $ | (0.47) | $ | (0.49) |
22
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Presented in the table below is a reconciliation of the numerator and denominator for the diluted EPS calculations for the three and nine months ended September 30,March 31, 2024 and 2023 and 2022 (in thousands):
|
| Three months ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss attributable to PureCycle Technologies |
| $ | (85,607 | ) |
| $ | (25,842 | ) |
Less change in fair value of RTI Warrants |
|
| — |
|
|
| (58 | ) |
Net loss attributable to common shareholders |
| $ | (85,607 | ) |
| $ | (25,900 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted average common shares outstanding, basic |
|
| 164,355 |
|
|
| 163,588 |
|
Add common equivalent shares from warrants |
|
| — |
|
|
| 196 |
|
Weighted average common shares outstanding, diluted |
|
| 164,355 |
|
|
| 163,784 |
|
|
|
|
|
|
|
| ||
Net loss per share attributable to common stockholder, diluted |
| $ | (0.52 | ) |
| $ | (0.16 | ) |
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||
Numerator: | |||||||||||||||||
Net income (loss) attributable to PureCycle Technologies | $ | 4,886 | $ | (34,948) | $ | (77,532) | $ | (75,384) | |||||||||
Less change in fair value of RTI Warrants | (4,049) | — | (1,485) | (553) | |||||||||||||
Less income attributable to participating warrants | (81) | — | — | — | |||||||||||||
Net income (loss) attributable to common shareholders | $ | 756 | $ | (34,948) | $ | (79,017) | $ | (75,937) | |||||||||
Denominator: | |||||||||||||||||
Weighted average common shares outstanding, basic | 164,018 | 163,490 | 163,783 | 153,513 | |||||||||||||
Add common equivalent shares from warrants | 395 | — | 197 | 186 | |||||||||||||
Add common equivalent shares from equity awards | 1,135 | — | — | — | |||||||||||||
Weighted average common shares outstanding, diluted | 165,548 | 163,490 | 163,980 | 153,699 | |||||||||||||
Net loss per share attributable to common stockholder, diluted | $ | 0.00 | $ | (0.21) | $ | (0.48) | $ | (0.49) |
Certain outstanding common share equivalents were excluded from the computation of diluted net income (loss)loss per share attributable to common stockholders for the periods presented as including them would have been anti-dilutive. For the three months ended September 30, 2023 and 2022, the Company had A summary of those outstanding instruments of approximately 23.8 million and 24.7 million warrants, 0.6 million and 0.6 million stock options, 0.7 million and 2.6 million non-vested restricted stock units, 1.5 million and 1.1 million non-vested performance stock units, 4.0 million and 4.0 million contingently-issuable shares related to the Earnout, and 16.9 million and 0 shares issuable upon conversion of the Green Convertible Notes (as described further in Note 3 – Notes Payable and Debt Instruments) which could be dilutive to the calculationcommon share equivalents is presented in the future, respectively. For the nine months ended September 30, 2023 and 2022, the Company had outstanding instruments of approximately 23.8 million and 23.8 million warrants, 1.1 million and 0.6 million stock options, 3.1 million and 2.6 million non-vested restricted stock units, 1.5 million and 1.1 million non-vested performance stock units, 4.0 million and 4.0 million contingently-issuable shares related to the Earnout, and 16.9 million and 0 shares issuable upon conversion of the Green Convertible Notes which could be dilutive to the calculation in the future, respectively.following table:
|
| Three months ended March 31, |
| |||||
(in thousands) |
| 2024 |
|
| 2023 |
| ||
Anti-dilutive awards |
|
|
|
|
|
| ||
Warrants, vested not exercised |
|
| 24,747 |
|
|
| 23,776 |
|
Stock options, vested not exercised |
|
| 1,309 |
|
|
| 613 |
|
RSU, non-vested |
|
| 3,439 |
|
|
| 3,478 |
|
PSU, non-vested |
|
| 1,393 |
|
|
| 1,413 |
|
Contingently - issuable shares related to the earnout |
|
| 2,000 |
|
|
| 4,000 |
|
Shares issuable upon conversion of Green Convertible Notes |
|
| 16,869 |
|
|
| — |
|
NOTE 97 – PROPERTY, PLANT AND EQUIPMENT
Presented in the table below are the major classes of property, plant and equipment by category as of the below dates:
| March 31, |
| ||||||||||
| Cost |
|
| Accumulated |
|
| Net Book |
| ||||
Building |
| $ | 81,703 |
|
| $ | 3,200 |
|
| $ | 78,503 |
|
Machinery and equipment |
|
| 353,576 |
|
|
| 28,660 |
|
|
| 324,916 |
|
Leasehold Improvements |
|
| 3,017 |
|
|
| 1,612 |
|
|
| 1,405 |
|
Fixtures and Furnishings |
|
| 736 |
|
|
| 203 |
|
|
| 533 |
|
Land improvements |
|
| 150 |
|
|
| 35 |
|
|
| 115 |
|
Land |
|
| 1,150 |
|
|
| — |
|
|
| 1,150 |
|
Construction in process |
|
| 235,395 |
|
|
| — |
|
|
| 235,395 |
|
Total property, plant and equipment |
| $ | 675,727 |
|
| $ | 33,710 |
|
| $ | 642,017 |
|
As of September 30, 2023 | |||||||||||||||||
(in thousands) | Cost | Accumulated Depreciation | Net Book Value | ||||||||||||||
Building | $ | 81,526 | $ | 1,893 | $ | 79,633 | |||||||||||
Machinery and equipment | 329,656 | 19,836 | 309,820 | ||||||||||||||
Leasehold Improvements | 2,957 | 1,284 | 1,673 | ||||||||||||||
Fixtures and Furnishings | 679 | 151 | 528 | ||||||||||||||
Land improvements | 150 | 30 | 120 | ||||||||||||||
Land | 1,150 | — | 1,150 | ||||||||||||||
Construction in process | 233,001 | — | 233,001 | ||||||||||||||
Total property, plant and equipment | $ | 649,119 | 649,119 | $ | 23,194 | $ | 625,925 |
23
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
| December 31, 2023 |
| ||||||||||
| Cost |
|
| Accumulated |
|
| Net Book |
| ||||
Building |
| $ | 81,593 |
|
| $ | 2,440 |
|
| $ | 79,153 |
|
Machinery and equipment |
|
| 349,796 |
|
|
| 20,415 |
|
|
| 329,381 |
|
Leasehold Improvements |
|
| 2,972 |
|
|
| 1,447 |
|
|
| 1,525 |
|
Fixtures and Furnishings |
|
| 711 |
|
|
| 177 |
|
|
| 534 |
|
Land improvements |
|
| 150 |
|
|
| 32 |
|
|
| 118 |
|
Land |
|
| 1,150 |
|
|
| — |
|
|
| 1,150 |
|
Construction in process |
|
| 226,885 |
|
|
| — |
|
|
| 226,885 |
|
Total property, plant and equipment |
| $ | 663,257 |
|
| $ | 24,511 |
|
| $ | 638,746 |
|
As of December 31, 2022 | |||||||||||||||||
(in thousands) | Cost | Accumulated Depreciation | Net Book Value | ||||||||||||||
Building | $ | 12,534 | $ | 1,016 | $ | 11,518 | |||||||||||
Machinery and equipment | 23,728 | 6,674 | 17,054 | ||||||||||||||
Leasehold Improvements | 2,957 | 803 | 2,154 | ||||||||||||||
Fixtures and Furnishings | 529 | 83 | 446 | ||||||||||||||
Land improvements | 150 | 22 | 128 | ||||||||||||||
Land | 1,150 | — | 1,150 | ||||||||||||||
Construction in process | 473,269 | — | 473,269 | ||||||||||||||
Total property, plant and equipment | $ | 514,317 | $ | 8,598 | $ | 505,719 |
Depreciation expense is recorded within operating costs in the condensed consolidated statements of comprehensive income (loss) and amounted to $9.3 million and $14.6 million for the three and nine months ended September 30, 2023, respectively, and $0.9 million and $2.6 million for the three and nine months ended September 30, 2022, respectively.loss as follows:
|
| Three Months Ended March 31, |
| |||||
(in thousands) |
| 2024 |
|
| 2023 |
| ||
Operating costs |
| $ | 8,322 |
|
| $ | 388 |
|
Research and development expense |
|
| 760 |
|
|
| 749 |
|
Selling, general, and administrative expense |
|
| 174 |
|
|
| 157 |
|
Total depreciation expense |
| $ | 9,256 |
|
| $ | 1,294 |
|
NOTE 10 – DEVELOPMENT PARTNER ARRANGEMENTS
The Company has determined that any net deferred tax assets are not more likely than not to be realized in the future, and a full valuation allowance is required. In addition, the Company has determined that any current forecasted operations would result in federal and state income tax losses which are also not more likely than not to be realized. As a result, for the periods ended September 30,March 31, 2024 and 2023, and 2022, the Company has reported tax expense of $0$0 and $0,$0, respectively.
Management has evaluated the Company’s tax positions and has determined that the Company has taken no uncertain tax positions that require adjustment to the condensed consolidated interim financial statements for the respective periods.
NOTE 129 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and sets out a fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability. Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices within Level 1 that are observable for the asset or liability, either directly or indirectly, and fair value is determined through the use of models or other valuation methodologies
24
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Level 3 - Inputs are unobservable for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The inputs into the determination of fair value are based upon the best information in the circumstances and may require significant management judgment or estimation.
Assets and liabilities measured and recorded at Fair Value on a recurring basis
As of September 30, 2023March 31, 2024 and December 31, 2022,2023, the Company’s financial assets and liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows (in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||||||||||||||||||||||||||
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash equivalents |
| $ | 8 |
|
| $ | — |
|
| $ | — |
|
| $ | 8 |
|
| $ | 36,277 |
|
| $ | 35,215 |
|
| $ | — |
|
| $ | 71,492 |
|
Restricted cash equivalents - current |
|
| 7,566 |
|
|
| — |
|
|
| — |
|
|
| 7,566 |
|
|
| 25,692 |
|
|
| — |
|
|
| — |
|
|
| 25,692 |
|
Restricted cash equivalents - noncurrent |
|
| 7,353 |
|
|
| — |
|
|
| — |
|
|
| 7,353 |
|
|
| 203,411 |
|
|
| — |
|
|
| — |
|
|
| 203,411 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Commercial paper, available for sale |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46,049 |
|
|
| — |
|
|
| 46,049 |
|
US Treasury Notes |
|
| 2,187 |
|
|
| — |
|
|
| — |
|
|
| 2,187 |
|
|
| 2,177 |
|
|
| — |
|
|
| — |
|
|
| 2,177 |
|
Total investments |
| $ | 2,187 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,187 |
|
| $ | 2,177 |
|
| $ | 46,049 |
|
| $ | — |
|
| $ | 48,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Warrant liability: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
RTI warrants |
|
| — |
|
|
| — |
|
|
| 2,534 |
|
|
| 2,534 |
|
|
| — |
|
|
| — |
|
|
| 1,437 |
|
|
| 1,437 |
|
Private warrants |
|
| — |
|
|
| — |
|
|
| 433 |
|
|
| 433 |
|
|
| — |
|
|
| — |
|
|
| 265 |
|
|
| 265 |
|
Series A warrants |
|
| — |
|
|
| 33,036 |
|
|
| — |
|
|
| 33,036 |
|
|
| — |
|
|
| 20,357 |
|
|
| — |
|
|
| 20,357 |
|
Total warrant liability |
| $ | — |
|
| $ | 33,036 |
|
| $ | 2,967 |
|
| $ | 36,003 |
|
| $ | — |
|
| $ | 20,357 |
|
| $ | 1,702 |
|
| $ | 22,059 |
|
September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Cash equivalents | $ | 60,349 | $ | 129,261 | $ | — | $ | 189,610 | $ | 51,250 | $ | — | $ | — | $ | 51,250 | |||||||||||||
Restricted cash equivalents - current | 33,277 | — | — | 33,277 | 68,850 | — | — | 68,850 | |||||||||||||||||||||
Restricted cash equivalents - noncurrent | 151,513 | — | — | 151,513 | 94,781 | — | — | 94,781 | |||||||||||||||||||||
Investments: | |||||||||||||||||||||||||||||
Commercial paper, available for sale | — | 9,866 | — | 9,866 | — | 32,756 | — | 32,756 | |||||||||||||||||||||
Corporate Bonds, available for sale | — | — | — | — | — | 58,442 | — | 58,442 | |||||||||||||||||||||
US Treasury Notes, Available for sale | 2,160 | — | — | 2,160 | — | — | — | — | |||||||||||||||||||||
Municipal bonds, available for sale | — | — | — | — | — | 7,394 | — | 7,394 | |||||||||||||||||||||
Total investments | $ | 2,160 | $ | 9,866 | $ | — | $ | 12,026 | $ | — | $ | 98,592 | $ | — | $ | 98,592 | |||||||||||||
Liabilities | |||||||||||||||||||||||||||||
Warrant liability: | |||||||||||||||||||||||||||||
RTI warrants | $ | — | $ | — | $ | 2,185 | $ | 2,185 | $ | — | $ | — | $ | 3,670 | $ | 3,670 | |||||||||||||
Private warrants | — | — | 493 | 493 | — | — | 784 | 784 | |||||||||||||||||||||
Series A warrants | — | 35,536 | — | 35,536 | — | 51,429 | — | 51,429 | |||||||||||||||||||||
Total warrant liability | $ | — | $ | 35,536 | $ | 2,678 | $ | 38,214 | $ | — | $ | 51,429 | $ | 4,454 | $ | 55,883 |
Measurement of the Private Warrants
September 30, 2023 | December 31, 2022 |
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||
Expected annual dividend yield | Expected annual dividend yield | — | % | — | % |
|
| — | % |
|
| — | % | ||||||
Expected volatility | Expected volatility | 101.1 | % | 105.1 | % |
|
| 91.7 | % |
|
| 100.2 | % | ||||||
Risk-free rate of return | Risk-free rate of return | 4.9 | % | 4.2 | % |
|
| 4.6 | % |
|
| 4.1 | % | ||||||
Expected option term (years) | Expected option term (years) | 2.5 | 3.2 |
|
| 2.0 |
|
|
| 2.2 |
|
The expected term of the warrants granted are determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The
The aggregate values of the private warrants were $0.5$0.4 million and $0.8$0.3 million on September 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.
25
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
A summary of the private warrants activity from December 31, 20222023 to September 30, 2023March 31, 2024 is as follows:
follows (in thousands):
| ||||||||||||||||||||||||||||||
Measurement of the RTI warrants
Significant changes in any of the significant unobservable inputs in isolation would not result in a materially different fair value estimate. The interrelationship between these inputs is insignificant.
The Company has determined its warrant to be a Level 3 fair value measurement and has remeasured using a Binomial Tree option pricing model to calculate its fair value using the following assumptions:
September 30, 2023 | December 31, 2022 |
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||
Expected annual dividend yield | Expected annual dividend yield | — | % | — | % |
|
| — | % |
|
| — | % | ||||||
Expected volatility | Expected volatility | 89.5 | % | 99.7 | % |
|
| 112.9 | % |
|
| 118.1 | % | ||||||
Risk-free rate of return | Risk-free rate of return | 5.3 | % | 4.4 | % |
|
| 5.1 | % |
|
| 4.7 | % | ||||||
Expected option term (years) | Expected option term (years) | 1.3 | 2.0 |
|
| 0.8 |
|
|
| 1.0 |
|
The expected term of the warrants granted are determined based on the duration of time the warrants are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. For September 30, 2023, theThe expected volatility was calculated based on the specific volatility of PCT’s publicly-traded common stock. For December 31, 2022, the expected volatility was based on the Company’s capital structure and volatility of similar entities referred to as guideline companies. In determining similar entities, the Company considered industry, stage of life cycle, size and financial leverage. The dividend yield on the Company’s warrants is assumed to be zero as the Company has not historically paid dividends. The fair value of the underlying Company shares was determined using the Binomial Tree model calculation.
The Company has an option to repurchase the warrants at any time. The maximum fair value of the warrants is limited by the fair value of the repurchase option, which cannot exceed $15.0$15.0 million.
Changes in Level 3 liabilities measured at fair value from December 31, 20222023 to September 30, 2023March 31, 2024 are as follows (in thousands):
| Fair value |
| ||
Balance, December 31, 2023 |
| $ | 1,437 |
|
Change in fair value |
|
| 1,097 |
|
Balance, March 31, 2024 |
| $ | 2,534 |
|
| |||||
The Series A Warrants meet the definition of derivative instruments and are measured at fair value on a recurring basis using the market price of the Company’s publicly traded warrants, with changes in fair value recorded in current earnings. The Company has determined the publicly traded warrants to be an appropriate proxy to value the Series A Warrants as both warrants have similar redemption features and the same exercise price. The Series A Warrants are classified as Level 2 for both initial measurement at issuance and subsequent measurement each period. The Series A Warrants were initially valued at $43.9 million upon closing of the 2022 PIPE Offering.
26
PureCycle Technologies, Inc.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Assets and liabilities recorded at carrying value
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are subject to fair value measurements.
The Company records cash and accounts payable at cost, which approximates fair value due to their short-term nature or stated rates. The Company records debt at cost.
NOTE 1310 - AVAILABLE-FOR-SALE INVESTMENTS
The Company classifies its investments in debt securities as available-for-sale. Debt securities have been historically comprised of highly liquid investments with minimum “A” rated securities. The debt securities have historically been reported at fair value with unrealized gains or losses recorded in accumulated other comprehensive income in the condensed consolidated balance sheets. Refer to Note 129 – Fair Value of Financial Instruments for information related to the fair value measurements and valuation methods utilized.
The following table represents the Company’s available-for-sale investments by major security type as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
|
| March 31, 2024 |
| |||||||||||||
|
| Amortized |
|
| Gross |
|
| Gross |
|
| Total |
| ||||
US Treasury Notes |
| $ | 2,188 |
|
| $ | — |
|
| $ | (0.1 | ) |
| $ | 2,187 |
|
Corporate Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Municipal Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 2,188 |
|
| $ | — |
|
| $ | (0.1 | ) |
| $ | 2,187 |
|
|
| December 31, 2023 |
| |||||||||||||
|
| Amortized |
|
| Gross |
|
| Gross |
|
| Total |
| ||||
Commercial Paper |
| $ | 46,069 |
|
| $ | — |
|
| $ | (20 | ) |
| $ | 46,049 |
|
Corporate Bonds |
|
| 2,175 |
|
|
| 2 |
|
|
| — |
|
|
| 2,177 |
|
Municipal Bonds |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 48,244 |
|
| $ | 2 |
|
| $ | (20 | ) |
| $ | 48,226 |
|
September 30, 2023 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | ||||||||||||||||||||
Commercial Paper | $ | 9,871 | $ | — | $ | (5) | $ | 9,866 | |||||||||||||||
US Treasury Notes | 2,162 | — | (2) | 2,160 | |||||||||||||||||||
Corporate Bonds | — | — | — | — | |||||||||||||||||||
Municipal Bonds | — | — | — | — | |||||||||||||||||||
Total | $ | 12,033 | $ | — | $ | (7) | $ | 12,026 |
December 31, 2022 | |||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | ||||||||||||||||||||
Commercial Paper | $ | 32,997 | $ | — | $ | (241) | $ | 32,756 | |||||||||||||||
Corporate Bonds | 58,791 | — | (349) | 58,442 | |||||||||||||||||||
Municipal Bonds | 7,446 | — | (52) | 7,394 | |||||||||||||||||||
Total | $ | 99,234 | $ | — | $ | (642) | $ | 98,592 |
The following table represents the Company’s available-for-sale investments by contractual maturity as of September 30, 2023March 31, 2024 and December 31, 20222023 (in thousands):
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||
|
| Amortized |
|
| Fair Value |
|
| Amortized |
|
| Fair Value |
| ||||
Due within one year |
| $ | 2,188 |
|
| $ | 2,187 |
|
| $ | 48,244 |
|
| $ | 48,226 |
|
Due after one year through five years |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
| $ | 2,188 |
|
| $ | 2,187 |
|
| $ | 48,244 |
|
| $ | 48,226 |
|
September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
Due within one year | $ | 12,033 | $ | 12,026 | $ | 92,253 | $ | 91,669 | |||||||||||||||
Due after one year through five years | — | — | 6,981 | 6,923 | |||||||||||||||||||
Total | $ | 12,033 | $ | 12,026 | $ | 99,234 | $ | 98,592 |
Debt securities as of September 30, 2023March 31, 2024 had an average remaining maturity of 0.30.25 years.
The Company reviews available-for-sale investments for other-than-temporary impairment loss periodically. The Company considers factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For debt securities, we also consider whether (i) it is more likely than not that
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
the Company will be required to sell the debt securities before recovery of their amortized cost basis and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the ninethree months ended September 30,March 31, 2024 and 2023, and 2022, the Company did notnot recognize any other-than-temporary impairment losses. All marketable securities with unrealized losses have been in a loss position for less than twelve months, and the Company does not anticipate any material losses upon maturity of these investments. The fair value for fixed-rate debt securities is based on quoted market prices for the same or similar debt instruments and is classified as Level 2. The fair value for the Company's other securities holdings, primarily under commercial paper, equals the carrying value and is classified as Level 2.
NOTE 1411 - COMMITMENTS AND CONTINGENCIES
Financial Assurance
On March 14, 2023,2024, PCT securedrenewed a surety bond in the amount of $25.0$25.0 million to provide financial assurance related to its performance under a certain vendor contract, which expires at the earlier of satisfaction of the obligation, termination of the related vendor contract, or one year from issuance (subject to renewal within one year)year). PCT may issue additional surety bonds in the future to provide financial assurance regarding performance under contracts with other parties.
These financial instruments are issued in the normal course of business and are not considered company indebtedness. Because PCT currently has no liability for these financial assurance instruments, they are not reflected in its consolidated balance sheets.
Legal Proceedings
PCT is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The assessment as to whether a loss is probable or reasonably possible, and as to whether such loss or a range of such losses is estimable, often involves significant judgment about future events, and the outcome of litigation is inherently uncertain. Other than as described below, there is no material pending or threatened litigation against PCT that remains outstanding as of September 30, 2023.
Shareholder Securities Litigation
Beginning on or about May 11, 2021, two putative class action complaints were filed against PCT, certain senior members of management and others, asserting violations of federal securities laws under Section 10(b) and Section 20(a) of the Exchange Act. The complaints generally allege that the applicable defendants made false and/or misleading statements in press releases and public filings regarding the Technology, PCT’s business and PCT’s prospects. The first putative class action complaint was filed in the U.S. District Court for the Middle District of Florida by William C. Theodore against PCT and certain senior members of management (the “Theodore“Initial Theodore Lawsuit”). The second putative class action complaint was filed in the U.S. District Court for the Middle District of Florida by David Tennenbaum against PCT, certain senior members of management and others (the “Tennenbaum Lawsuit”
On September 27, 2021, the Lead Plaintiffs filed a consolidated amended complaint. The consolidated amended complaint seeks to represent a class of investors who purchased or otherwise acquired PCT’s securities between November 16, 2020, and May 5, 2021, certification of the alleged class, as well as compensatory and punitive
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
damages. The consolidated amended complaint relies on information included in a research report published by Hindenburg Research LLC.
On November 12, 2021, PCT and the individual defendants affiliated with PCT (“PCT Defendants”) and Byron Roth each filed separate motions to dismiss Lead Plaintiffs’ amended complaint. Additional submissions by the parties were filed in December 2021 and January 2022.
On August 4, 2022, the U.S. District Court for the Middle District of Florida dismissed the Class Action Lawsuits,Consolidated Theodore Lawsuit, without prejudice. Plaintiffs filed their second amended complaint on August 18, 2022, in which they seek to represent a class of investors who purchased or otherwise acquired PCT’s securities between November 16, 2020, and November 10, 2021. 2021, and alleged violations of Section 10(b) and Section 14(a) of the Exchange Act.
On September 15, 2022, the PCT Defendants and Byron Roth each filed a motion to dismiss the second amended complaint, and the parties filed additional responsive pleadings in October 2022. On June 15, 2023, the U.S. District Court for the Middle District of Florida granted the PCT Defendants’ motion solely with regard to named defendant Tamsin Ettefagh, but denied the motion as to all other defendants. On June 30, 2023, the PCT Defendants filed a Motion for Reconsideration. Further, on July 14, 2023, each of the PCT and Roth Defendants filed their respective Answers and Counterclaims. The Motion for Reconsideration remains pending.
On November 30, 2023, Lead Plaintiffs filed their motion to certify two classes: a Section 14(a) class and a Section 10(b) class. On January 17, 2024, Lead Plaintiffs amended their motion for class certification to seek certification of only the Section 10(b) class. On January 23, 2024, PCT, the Individual Defendants and Bryon Roth submitted a joint opposition to Lead Plaintiffs’ motion for class certification. Plaintiffs’ reply in support of their motion for class certification was filed on February 21, 2024. The parties have been engaged in discovery, which is currently scheduled to close in July 2024. On March 21, 2024, the Court agreed to stay the litigation for thirty days in order to give the parties an opportunity to try to resolve the action through mediation.
On September 29, 2023, Jay Southgate, a purported shareholder, filed a complaint in the U.S. District Court for the Southern District of New York against PCT, and certain senior members of management (“Individual Southgate Defendants”), asserting violations of federal securities laws under Section 10(b) and Section 20(a) of the Exchange Act.Act (the "Southgate Lawsuit"). The complaints generally allege that the applicable defendants made false and/or misleading statements in press releases and public filings between August 8, 2023 and September 13, 2023, regarding the status of commissioning activities at the Ironton Facility, and specifically the impact of a power outage at the Ironton Facility in August 2023 and subsequent seal system failure in September 2023.
On April 5, 2024, plaintiffs in the Southgate matter filed an amended complaint (“Amended Southgate Complaint”), in which the plaintiffs allege the Company and the Individual Southgate Defendants violated Section 10(b) and Section 20(a) of the Exchange Act. The Amended Southgate Complaint alleges that beginning in April 2023 through December 2023, the Company and the Individual Southgate Defendants made misleading and inaccurate statements and omissions regarding the operations at the Ironton Facility,PCT’s ability to meet certain milestones and alleged issues with certain third-party contractors. On May 6, 2024, the Company and the Individual Southgate Defendants filed a motion to dismiss the Southgate complaint.
PCT, the PCT Defendants and the Individual Southgate Defendants intend to vigorously defend against the
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Consolidated Theodore Lawsuit and the Class ActionAmended Southgate Lawsuits. Given the stage of the litigation, PCT cannot reasonably estimate at this time whether there will be any loss, or if there is a loss, the possible range of loss, that may arise from the unresolved Class ActionTheodore and Amended Southgate Lawsuits.
Derivative Litigation
On November 3, 2021, Byung-Gook Han, a purported PCT shareholder, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action in the United States District Court for the District of Delaware (Byung-Gook Han v. Otworth et. al., Case No. 1:21-cv-01569-UNA) against certain senior members of PCT’s management, PCT’s directors and Byron Roth, who was subsequently dismissed (collectively, the “Individual Han Defendants”), alleging violations of Section 20(a) of the Exchange Act and breaches of fiduciary duties and bringing claims for unjust enrichment and waste of corporate assets (“Han Derivative Suit"Lawsuit"). The Han Derivative Suit generally alleges that the Individual Han Defendants made materially false and misleading statements in press releases, webinars and other public filings regarding the Technology, PCT’s business, PCT’s prospects, and the background and experience of the Individual Han Defendants. The Han Derivative Suit seeks unspecified monetary damages, reform of the company's corporate governance and internal procedures, unspecified restitution from the Individual Han Defendants, and costs and fees associated with bringing the action. On January 19, 2022, the court in the Han Derivative Suit granted the parties’ joint stipulation to stay the Han Derivative SuitLawsuit and administratively closed the matter pending the disposition of the motions to dismiss in the Class Action Lawsuits.
On January 27, 2022, Patrick Ayers, a purported PCT shareholder, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action in the United States District Court of the District of Delaware, captioned Patrick Ayers v. Otworth et. al., Case No. 1:22-cv-00110, against certain members of PCT’s management, PCT’s directors and others (collectively, the “Individual Ayers Defendants”), alleging violations of Section 20(a) of the Exchange Act and breaches of fiduciary duties, as well as claims for unjust enrichment, gross mismanagement, contribution, and indemnification (“Ayers Derivative Suit"Lawsuit"). The Ayers Derivative Suit generally alleges that the Individual Ayers Defendants made materially false and misleading statements in press releases, webinars and other public filings regarding the Technology, PCT’s business, PCT’s prospects, and the background and experience of the Individual Ayers Defendants. The Ayers Derivative Suit seeks unspecified monetary damages, declaratory relief, unspecified disgorgement and restitution from the Individual Ayers Defendants, and costs and fees associated with bringing the action.
On March 17, 2022, the court granted the parties’ joint stipulation to stay the Ayers Derivative SuitLawsuit and administratively closed the matter pending the disposition of the motions to dismiss in the Class Action Lawsuits. Should
After the Ayers Derivative Suit be reopenedcourt in the future,Consolidated Theodore Lawsuit ruled on the second motion to dismiss, the stay in the derivative actions was lifted. Ayers and Han (collectively the “Derivative Plaintiffs”), PCT and the Individual Ayers and Han Defendants (collectively, the “Individual Derivative Defendants”) filed a joint stipulation to consolidate the related derivative actions on June 26, 2023. The court granted the motion to consolidate the derivative actions on June 27, 2023, and ordered the Consolidated Derivative Action to be captioned In re: PureCycle Technologies, Inc. Derivative Litigation, Lead Case No. 21-1569-RGA (D. Del.) (“Consolidated Derivative Litigation”). In light of the Motion for Reconsideration in the Consolidated Theodore Lawsuit, the Derivative Plaintiffs, PCT, and Individual Derivative Defendants filed a joint stipulation to continue the stay of the Consolidated Derivative Litigation until thirty days after the court in the Class Action rules on the Motion for Reconsideration. Because the Motion for Reconsideration in the Consolidated Theodore Lawsuit remains pending, the stay of the Consolidated Derivative Litigation remains in effect.
On February 23, 2024, Ayers filed an amended derivative complaint under seal. The Consolidated Amended Derivative Complaint generally alleges that the Individual Derivative Defendants made materially false and misleading statements and omissions in press releases, webinars and other public filings regarding PCT’s business, the technology, PCT’s prospects, the background and experience of the Individual Derivative Defendants, PCT’s internal controls, and various production issues and delays. The Consolidated Amended Derivative Complaint seeks unspecified monetary damages, reform of the corporate governance and internal procedures, unspecified restitution from the Individual Han Defendants, and costs and fees associated with bringing the action. At this stage of the litigation, neither PCT nor the Individual Ayers Defendants have answered the Consolidated Amended Derivative Complaint, moved to dismiss the complaint, or otherwise responded to the complaint.
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
On March 29, 2024, John Brunson, a purported PCT shareholder, and on behalf of whom the February 2023 Delaware 220 demand referenced below was issued to the Company, derivatively and purportedly on behalf of PCT, filed a shareholder derivative action under seal in the Court of Chancery in the State of Delaware, captioned John Brunson v. Otworth et. al., against certain members of PCT’s management, PCT’s directors and others (collectively, the “Individual Brunson Defendants”), alleging breaches of fiduciary duties, aiding and abetting breaches of fiduciary duty, corporate waste, and unjust enrichment (“Brunson Derivative Lawsuit"). The Brunson Derivative Lawsuit generally contains similar allegations as contained in Consolidated Derivative Amended Derivative Complaint, as well as allegations regarding undisclosed operational risks, production issues and delays, persistent failure to remediate known material deficiencies, including inadequate staffing, lack of segregation of duties, unfamiliarity with financial reporting requirements, and lack of accounting resources, leading to revisions of prior financial statements. The Brunson Derivative Lawsuit also references two reports by Bleeker Street Research in November 2023 which alleged that the Company had misled investors about the launch of the Ironton Facility, and would not meet its production targets. Plaintiffs also point to and discuss the Theodore Securities Class Action and allege that PCT is exposed to liability in that case. The Brunson Derivative Lawsuit seeks unspecified monetary damages, declaratory relief, unspecified disgorgement and restitution from the Individual Brunson Defendants, and costs and fees associated with bringing the action.
The Individual Derivative Defendants intend to vigorously defend against the AyersConsolidated Derivative Suit.Litigation and the Brunson Derivative Lawsuit. Given the stage of the litigation, PCT cannot reasonably estimate at this time whether there will be any loss, or if there is a loss, the possible range of loss, that may arise from the unresolved AyersConsolidated Derivative Suit.
In the future, PCT may become party to additional legal matters and claims arising in the ordinary course of business. While PCT is unable to predict the outcome of the above or future matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial position, results of operations, or cash flows.
Denham-Blythe Arbitration
On October 7, 2020, PCO, a subsidiary of PCT and Denham-Blythe Company, Inc. (“DB”) executed an Engineering, Procurement, and Construction Agreement for certain construction activities associated with the Ironton Facility (“EPC Contract”).
On June 16, 2023, following unsuccessful efforts at mediating various disputes over certain unapproved change orders and payment applications, DB filed a demand for binding arbitration (“Arbitration Demand”) with the American Arbitration Association (“AAA”), seeking approximately $17.0$17.0 million related to certain fee applications, change orders and amounts currently held in retainage by PCO, and, on June 21, 2023, filed a mechanics lien in Lawrence County, Ohio for the same sum. On July 20, 2023, PCO filed its Answer and Counterclaim, in which PCO contends that various deficiencies in DB’s work resulted in damages to PCO in excess of DB’s $17.0$17.0 million Arbitration Demand, including, but not limited to, the following: DB’s insufficient and incomplete engineering drawings and packages, insufficient and unorganized material management, insufficient and inefficient contractor management, insufficient and rudimentary schedule management, incomplete and inefficient procurement procedures, and that the Company was required to undertake significant re-work at additional cost resulting from DB’s failure to adequately perform its obligations under the EPC Contract. On September 14, 2023, DB filed a motion with the AAA seeking to join ThermalTech Engineering, Inc., and ThermalTech Turnkey Solutions LLC, a subcontractor engaged by DB to provide engineering services for the Ironton Project. PCO and ThermalTech Engineering, Inc. have objected to the joinder and the matter remains pending.
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
On August 30, 2023, DB filed a breach of contract claim against PCO and others in Lawrence County Ohio, alleging the same facts contained in its arbitration demand, as well as an action to foreclose on a lien filed in Lawrence County, Ohio. Concurrently DB requested the complaint be stayed pending the resolution of all issues in the arbitration.
PCO intends to vigorously defend itself against DB’s claims and to pursue recovery of damages resulting from DB’s failure to perform adequately under the EPC Contract. Given the stage of the arbitration, PCT cannot reasonably estimate at this time whether there will be any loss, or if there is a loss, the possible range of loss, that may result from the Arbitration Demand.
Other Matters
On February 3, 2023, the Company received a books and records demand pursuant to Section 220 of the Delaware General Corporation Law, from a purported stockholder of the Company, in connection with the stockholder’s investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters. We are currently unable to predict the outcome of this matter.
On October 6, 2023 and October 27, 2023, the Company received two additional books and records demands pursuant to Section 220 of the Delaware General Corporation Law, from two purported stockholders of the Company, in connection with the stockholders’ investigation of, among other matters, potential breaches of fiduciary duty, mismanagement, self-dealing, corporate waste or other violations of law by the Company’s Board with respect to these matters. We are currently unable to predict the outcome of this matter.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Lease cost | |||||||||||||||||||||||
Operating lease cost | $ | 1,252 | $ | 618 | $ | 3,042 | $ | 1,390 | |||||||||||||||
Short-term lease cost | 211 | 83 | 795 | 291 | |||||||||||||||||||
Total lease cost | $ | 1,463 | $ | 701 | $ | 3,837 | $ | 1,681 | |||||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||
2023 | 2022 | ||||||||||||||||||||||
Other information | |||||||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||||||||||||||||||
Operating cash flows from operating leases | $ | 2,687 | $ | 1,829 | |||||||||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 13,084 | $ | 8,266 | |||||||||||||||||||
Weighted-average remaining lease term (in years) - operating leases | 15.3 | 7.9 | |||||||||||||||||||||
Discount rates | |||||||||||||||||||||||
Weighted-average discount rate - operating leases | 6.0 | % | 4.7 | % | |||||||||||||||||||
September 30, 2023 | December 31, 2022 | ||||||||||
Operating leases | |||||||||||
Operating lease right-of-use assets | $ | 30,050 | $ | 19,136 | |||||||
Accrued expenses | $ | 2,446 | $ | 2,188 | |||||||
Other long-term liabilities | 27,556 | 16,620 | |||||||||
Total operating lease liabilities | $ | 30,002 | $ | 18,808 |
Year Ending | Operating Leases | |||||||
2023 (October through December) | $ | 813 | ||||||
2024 | 4,495 | |||||||
2025 | 4,551 | |||||||
2026 | 4,457 | |||||||
2027 | 4,054 | |||||||
2028 | 2,814 | |||||||
Thereafter | 29,347 | |||||||
Total lease payments | 50,531 | |||||||
Less: Imputed interest | (20,529) | |||||||
Present value of lease liabilities | $ | 30,002 |
NOTE 1612 - SUBSEQUENT EVENTS
In connection with the preparation of the condensed consolidated interim financial statements for the period ended September 30, 2023,March 31, 2024, management has evaluated events through November 9, 2023May 8, 2024 to determine whether any events required recognition or disclosure in the condensed consolidated interim financial statements. The following subsequent events were identified through the date of these condensed consolidated interim financial statements:
On November 8, 2023,April 2, 2024, the Limited Waiver partiesCompany reached tentative settlement of the Consolidated Theodore Lawsuit (the “Securities Settlement”), which was memorialized in a Stipulation of Settlement dated May 6, 2024. Pursuant to the terms of the Securities Settlement, all known and unknown claims shall be settled for $12 million in exchange for a complete release of the Company and the individually named defendants in each of the referenced matters. The Securities Settlement shall be funded by the remainder of the Company’s self-insured retention under its directors and officers liability insurance policies applicable to the claims (“D&O Insurance”) and contributions by various carriers comprising part of the D&O Insurance tower available to the Company and defendants. The Securities Settlement is subject to court approval.
On May 7, 2024, the Company entered into an MOU agreement to settle the Second Limited WaiverAyers Derivative Lawsuit, the Brunson Derivative Lawsuit and certain shareholder demands (the “Demand Letters”), including demands under Delaware Code Section 220 and/or investigation demands (the “Derivative Settlement”). Under the proposed terms of the MOU in the Derivative Settlement, all claims shall be settled in exchange for certain corporate therapeutics and a monetary component of $3 million, out of which plaintiffs’ counsel may seek up to $2 million in attorneys’ fees (as approved by the Court), in exchange for a complete release of all claims set forth in the Ayers and Brunson derivative actions and the Demand Letters. Carriers comprising part of the D&O insurance tower will contribute $3
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
million of applicable policy limits to fund the monetary component of the Derivative Settlement. The Derivative Settlement is subject to final documentation and court approval.
Pure Plastic Bond Purchase
On May 7, 2024, PCT LLC entered into an agreement with Pure Plastic LLC (“Pure Plastic”), a Delaware limited liability company, whereby Pure Plastic will purchase approximately $94.3 million in aggregate par amount of Bonds owned by PCT LLC (the “Purchased Bonds”), including (i) a portion of the Series 2020A Bonds, (ii) all of the Series 2020B Bonds, and (iii) all of the Series 2020C Bonds, at a purchase price of $800 per $1,000 principal amount of the Purchased Bonds (the “Pure Plastic Purchase Agreement”). Affiliates of Pure Plastic are greater than 5% beneficial owners of the Company.
As total consideration for the Purchased Bonds, the aggregate amount of principal outstanding, together with accrued but unpaid interest thereon, of approximately $45.5 million under the Term Loan Facility will be deemed to be prepaid in full and PCT LLC will receive $30 million in cash, as further provided for in the Payoff and Release Letter (as defined below).
The closing of the transactions contemplated by the Pure Plastic Purchase Agreement will occur in three tranches, with each tranche subject to the satisfaction of certain conditions.
The Pure Plastic Purchase Agreement requires PCT LLC to make best efforts to:
Pursuant to the Payoff and Release Letter, by and among the Company, the Credit Facility Guarantors (as defined in the Pure Plastic Purchase Agreement) and Pure Plastic (the “Payoff and Release Letter”), which is to be entered into as of the Initial Closing Date (as defined in the Pure Plastic Purchase Agreement), the Company is required to pay a 12% prepayment premium on the outstanding principal and interest paid in order to prepay the Term Loan Facility (the “Prepayment Premium”) plus certain expenses. The Company will issue warrants (“Series B Warrants”) to Pure Plastic pursuant to whicha Series B Warrant Agreement to satisfy the September Milestone Event of Default was waived, various Milestones were amended and extended and certain additional requirements were imposed upon PCT and its subsidiaries. Refer to Note 3 – Notes Payable and Debt Instruments for further information.
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NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Warrant Agreement”). The Series B Warrants entitle Pure Plastic to purchase approximately 3.1 million shares of the Company's Common Stock at a price of $11.50 per share any time on or after November 6, 2024. The Series B Warrants will expire on December 1, 2030. The Company will pay the expenses in cash.
The Payoff and Release Letter also provides that if the Term Loan Facility is not paid off by a certain date, the Payoff Amount (as defined therein) will be increased by a specific amount on a daily basis. The Payoff and Release Letter will terminate and be of no force or effect if the Payoff Date (as defined therein) does not occur by 5:00 p.m. (Eastern Time) on May 17, 2024.
Lastly, the Payoff and Release Letter provides that all of the Obligations (as defined therein) under the Term Loan Facility shall be deemed paid and satisfied in full upon the satisfaction of certain conditions and, furthermore, upon the satisfaction of such conditions, all liens securing the Obligations shall be deemed to be fully released and discharged.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which PCT’s management believes is relevant to an assessment and understanding of PCT’s condensed consolidated results of operations and financial condition. The discussion should be read together with the audited Consolidated Financial Statements and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s most recent Annual Report on Form 10-K, as well as the unaudited condensed consolidated interim financial statements, together with related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q. This discussion may contain forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in the Company’s most recent Annual Report on Form 10-K. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our”,“we,” “us,” “our,” and “the Company” are intended to mean the business and operations of PCT and its consolidated subsidiaries.
Overview
PureCycle Technologies, Inc. (“PCT” or “Company”) is a Florida-based corporation focused on commercializing a patented purification recycling technology (the “Technology”), originally developed by The Procter & Gamble Company (“P&G”), for restoring waste polypropylene into resin, called ultra-pure recycled (“UPR”) resin, which has nearly identical properties and applicability for reuse as virgin polypropylene. PCT has a global license for the Technology from P&G. PCT’s goal is to create an important new segment of the global polypropylene market that will assist multinational entities in meeting their sustainability goals, providing consumers with polypropylene-based products that are sustainable, and reducing overall polypropylene waste in the world’s landfills and oceans.
PCT’s process includes two steps: Feed Pre-Processing (“Feed PreP”) and the use of PCT’s recycling technology for purification. The Feed PreP step will collect, sort, and prepare polypropylene waste (“feedstock”) for purification. The purification step is a purification recycling process that uses a combination of solvent, temperature, and pressure to return the feedstock to near-virgin condition through a novel configuration of commercially available equipment and unit operations. The purification process puts the plastic through a physical extraction process using super critical fluids that both extract and filter out contaminants and purify the color, opacity, and odor of the plastic without changing the bonds of the polymer. By not altering the chemical makeup of the polymer, the Company is able to use significantly less energy and reduce production costs as compared to virgin resin.
The Ironton Facility
PCT commenced commissioning activities at its first commercial-scale plant in Lawrence County, Ohio (referred to herein as the “Ironton Facility”), in the second quarter of 2023; hasApril 2023, achieved mechanical completion of the plant and commenced initialpellet production from post-industrial recycled pellet production. On June 28, 2023, the independent construction monitor reviewing construction and commissioning of the Ironton Facility issued its certification confirming commencement of production of post-industrial recycled pellets, which was required to achieve a key milestonepost-consumer materials later in connection with the Ironton Facility financing.2023. The Ironton Facility leverages the existing infrastructure of PCT’s pilot facility known as the Feedstock Evaluation Unit (the “FEU”), which became operational in 2019, and the Ironton Facility is expected to have UPR resin capacity of approximately 107 million pounds/year when fully operational. PCT expects to begin producing and selling itssold an immaterial amount of UPR resin in 2023, with full Ironton Facility production capacity achieved in 2024.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
first-of-its kind manufacturing facilities, the down-time needed to correct these issues is delaying the Ironton Facility from reaching consistent sustainable production rates. We expect the Ironton Facility to be fully operational later in 2024.
As of September 30, 2023,March 31, 2024, PCT anticipates that up to $12.5 million will be needed to complete the investment in the Ironton Facility, which relates to a performance guarantee payment due after successful completion of a performance testing milestone. The final investment for the Ironton Facility was approximately $360 million, exclusive of this performance guarantee payment.
The Augusta Facility
In July 2021, PCT reached an agreement with The Augusta Economic Development Authority (“AEDA”) to build its first U.S. facility with multiple lines for both Feed PreP and purification (“multi-line facility”) in Augusta, Georgia (the “Augusta Facility”). PCT expects the approximately 200-acre location to eventually include up to eight production lines, which are expected to collectively have UPR resin production capacity of approximately 1 billion pounds per year. When fully operational, each purification line at the Augusta Facility is expected to have annual production capacity of approximately 130 million pounds of PCT’s UPR resin. PureCycle has allocated 40% of the Augusta Facility output, for Lines 1 and 2, to existing customers and expects that additional offtake agreements will continue to be negotiated.
On June 30, 2023, PCT and the AEDA executed an Economic Development Agreement (“EDA”) related to the Company’s plans to construct the Augusta Facility. Pursuant to the EDA, PCT expects to receive certain property tax abatement benefits as well as certain other incentives, including site infrastructure development assistance (“Incentive Benefits”). In order to receive the Incentive Benefits under Phase One (as defined below) of the Augusta Project, PCT will be obligated to create 82 full-time jobs with investments of at least $440 million no later than December 31, 2026. Through September 30, 2023,March 31, 2024, PCT has invested approximately $77$88.0 million for pre-construction engineering and long-lead equipment for the benefit of Phase One investments. If PCT elects to activate the second phase of the Augusta Project, PCT will be required to create an additional 25 full-time jobs and investments of $295 million no later than December 31, 2028. To the extent PCT fails to achieve an average of 80% of the jobs and investment commitments in any year over the 20-years of each phase, PCT will be required to make a repayment to the AEDA of a pro rata portion of the total value of the Incentive Benefits received by PCT in such year.
Also on June 30, 2023, PCT entered into a series of agreements with the AEDA to construct phase one (“Phase One”) of the Augusta Facility. PCT is leasing 150 acres of land (“Real Property”) owned by the AEDA and will construct buildings, building equipment, and other structures (the “Improvements”) on the land. PCT will also acquire and install the necessary processing, warehousing, and other equipment, as well as conveyersconveyors and pipelines (the “Equipment”, together with the Real Property and the Improvements, the “Augusta Project”). The Improvements and Equipment will be transferred to the AEDA and leased back by PCT. As noted above, PCT anticipates that the first portion of Phase One will consist of one purification line withand construction expectedcommenced prior to begin by the end of 2023. Also as noted above, construction of the first purification line must be completed by December 31, 2026, but PCT expects that it will be completed sooner.
The legal sale-leaseback structure provides the Incentive Benefits to PCT as lessee of the Augusta Project. PCT will remain the owner of the Improvements and Equipment for accounting purposes during the term of the lease as PCT will have the right to acquire title to the Augusta Project for a nominal amount during the term and at the conclusion of the arrangement, which has an initial expiration date in 2044. The payments PCT makes to the AEDA during the term of the arrangement are not otherwise expected to be material.
At the end of 2023, the Company commenced site preparation activities, including debris removal and site stabilization activities, and continued with payments to vendors for certain long lead-time equipment. Pursuant to the EDA, PCT must commencealso show continuous construction activitiesprogress, with regard to the first purification line under the first phase of the Augusta Project no later than December 31, 2023during 2024 or risk losing certain future Incentive Benefits. Market conditions
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PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
remain challenging and have created uncertainty as to the timing or likelihood of success of the currently anticipated project financing for the Augusta Facility. As a result, PCT is currently pursuing various structures for project financing of ourthe Augusta Facility. While PCT remains confident in its ability to finance the Augusta Facility, it is limiting its expenses and adjusting its timeline in light of this uncertainty. If PCT is unable to raise additional debt or equity, when desired, or on terms favorable to PCT, PCT’s business, financial condition, and results of operations would be adversely affected. PCT expects to begin construction of the Augusta facility before the end of 2023 and, as noted above, failing to do so would result in the loss of certain Incentive Benefits.
Feedstock Pricing
PCT sees a robust pipeline of demand for its recycled polypropylene and PCT is seeing market acceptance of its “Feedstock+” pricing model for its UPR resin. The “Feedstock+” pricing model divides the market cost of feedstock by a set yield-loss and adds a fixed price, which effectively passes on the cost of feedstock and de-risks PCT’s operating margin volatility.
For the Ironton Facility, PCT’s feedstock price was linked, in part, to changes in the IHS Markit Index,Chemical Market Analysis, the index for virgin polypropylene, in a price schedule that contained a fixed, collared price around an index price range, which
PreP Facilities
In conjunction with the Augusta Facility, PCT also plans to build and operate Feed PreP facilities in locations geographically near the feed sources to optimize PCT’s supply chain economics. During the third quarter of 2022, PCT experienced challenges obtaining the necessary water and sewer permits to construct its first planned Feed PreP facility in Central Florida. PCT is evaluating its available recourses, to obtain these permits, as well as potentialincluding legal requirements and remedies with regard to its obligations for the remaining 98 years of its 11-year lease agreement for the Central Florida facility. PCT is also evaluating alternative preprocessing sites in Central Florida.other locations. Also, on August 24, 2022, PCT signed a lease for a future PreP facility in Denver, Pennsylvania, which is expected to be operationaloperationally ready in the first half of 2024, provided we obtain the financing necessary for operational readiness.late 2024. Throughout the second half of 2021, PCT developed a feedstock processing system with advanced sorting capabilities that can handle various types of plastics in addition to polypropylene (designated as no. 5 plastic). PCT’s enhanced sorting should allow PCT to process plastic bales between no. 1 and no. 7. PCT’s new Feed PreP facilities will extract polypropylene and ship it to PCT’s purification lines, while the non-polypropylene feed will be sorted, baled, and subsequently sold on the open market.
Letter of No Objection Submission and the Granting of FDA Food Packaging Clearances for Certain Feedstocks
On September 10, 2021, PCT filed for a U.S. Food and Drug Administration (“FDA”) Letter of No Objection (“LNO”), for Conditions of Use A – H. Conditions of Use describe the temperature and duration at which a material should be tested to simulate the way the material is intended to be used. Conditions of Use C – H address many consumer product packaging requirements, including applications for hot filled and pasteurized, as well as room temperature, refrigerated and frozen applications. Generally speaking, Conditions of Use A and B relate to extreme temperature applications. The LNO submission also defines the feedstock sources for the Company’s planned commercial recycling process, and this LNO submission pertained to (i) food grade post-industrial recycled feedstocks and (ii) food grade curbside post-consumer recycled feedstocks.
37
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
The FDA confirmed receipt of the submission on September 13, 2021 and followed up with additional questions and requests for clarification in a letter received by PCT on January 7, 2022. PCT responded to the FDA’s questions on February 17, 2022.
On September 6, 2022, PCT received two separate notifications from the FDA with respect to the following two feedstock sources:
(i) Food grade post-industrial recycled feedstocks: an FDA opinion letter approving Conditions of Use A – H and
(ii) Food-grade post-consumer recycled feedstock from stadiums: an FDA LNO for Conditions of Use E – G.
The Company’s FDA food contact grades are capable of being used for all food types per the conditions of use listed and per all applicable authorizations in the food contact regulations listed in the 21 CFR (Code of Federal Regulations, Title 21).
The Company is conducting additional testing and plans to make further LNO submissions for additional post-consumer recycled feedstock sources and expanded Conditions of Use.
Future Expansion
On January 17, 2023, the Company announced that its first European purification facility will be in Antwerp, Belgium. On October 20, 2022, the Company executed a Joint Venture Agreement with SK geo centric Co., Ltd., to develop a UPR purification facility in Ulsan, South Korea. The parties will each hold an equal stake in the joint venture with completioncommencement of construction activities currently expected in 2025, pending necessary financing. On January 17, 2023, the Company announced its first European purification facility will be located in Antwerp, Belgium. The Company is
Revenue
PCT generated an immaterial amount of revenue through the first quarter of 2024 but has not generated any operating revenue. We expect to begin to generate revenue later in 2023 when we expectyet reached (i) significant continuous operational volumes at the Ironton Facility or (ii) significant revenue generation. The Ironton Facility is expected to become commercially operational.
Operating Costs
Operating expenses to date have consisted mainly of personnel costs (including wages, salaries and benefits) and other costs directly related to operations at PCT’s operating facilities, including rent, depreciation, repairs and maintenance, utilities and supplies. Costs attributable to the design and development of the Ironton Facility, Augusta Facility, and Feed PreP facilities in Central Florida and Denver, Pennsylvania, are capitalized and, when placed in service, will be depreciated over the expected useful life of the asset. We expect our operating costs to increase as we continue to scale operations and increase headcount.
Research and Development Expense
Research and development expenses consist primarily of costs related to the development of the Technology, the facilities and equipment that will use the Technology to purify recycled polypropylene, and the processes needed to collect, sort, and prepare feedstock for purification. These include mainly personnel costs, depreciation for long-lived assets, third-party consulting costs, and the cost of various recycled waste. We expect our research and development expenses to increase for the foreseeable future as we increase investment in feedstock evaluation, including investment in new front-end feedstock mechanical separators to improve feedstock purity and increase the range of feedstocks PCT can process economically. In addition, we are increasing our in-house feedstock analytical capabilities, which will include additional supporting equipment and personnel.
38
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Selling, General and Administrative Expense
Selling, general and administrative expenses consist primarily of personnel-related expenses for our corporate, executive, finance and other administrative functions and professional services, including legal, audit and accounting services. We expect our selling, general, and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Comparison of three ended March 31, 2024and nine month periods ended September 30, 2023 and 2022
The following table summarizes our operating results for the three ended March 31, 2024and nine month periods ended September 30, 2023 and 2022:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
(in thousands, except %) | 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||||
Costs and expenses | |||||||||||||||||||||||||||||||||||
Operating costs | $ | 21,897 | $ | 6,451 | $ | 15,446 | 239 | % | $ | 44,413 | $ | 16,948 | $ | 27,465 | 162 | % | |||||||||||||||||||
Research and development | 178 | 254 | (76) | (30) | % | 731 | 843 | (112) | (13) | % | |||||||||||||||||||||||||
Selling, general and administrative | 13,172 | 14,382 | (1,210) | (8) | % | 39,725 | 42,083 | (2,358) | (6) | % | |||||||||||||||||||||||||
Total operating costs and expenses | 35,247 | 21,087 | 14,160 | 67 | % | 84,869 | 59,874 | 24,995 | 42 | % | |||||||||||||||||||||||||
Interest expense | 10,750 | 159 | 10,591 | (6661) | % | 14,883 | 1,197 | 13,686 | 1143 | % | |||||||||||||||||||||||||
Interest income | (2,117) | (1,261) | (856) | (68) | % | (5,077) | (2,031) | (3,046) | 150 | % | |||||||||||||||||||||||||
Change in fair value of warrants | (48,817) | 14,884 | (63,701) | 428 | % | (17,669) | 16,224 | (33,893) | (209) | % | |||||||||||||||||||||||||
Other expense | 51 | 79 | (28) | (35) | % | 526 | 120 | 406 | 338 | % | |||||||||||||||||||||||||
Net income (loss) | $ | 4,886 | $ | (34,948) | $ | 39,834 | (114) | % | $ | (77,532) | $ | (75,384) | $ | (2,148) | 3 | % |
|
| Three Months Ended March 31, |
| |||||||||||||
|
|
|
|
|
|
|
| $ |
|
| % |
| ||||
(in thousands, except %) |
| 2024 |
|
| 2023 |
|
| Change |
|
| Change |
| ||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating costs |
| $ | 21,194 |
|
| $ | 7,372 |
|
| $ | 13,822 |
|
|
| 187 | % |
Research and development |
|
| 1,831 |
|
|
| 1,754 |
|
|
| 77 |
|
|
| 4 | % |
Selling, general and administrative |
|
| 15,957 |
|
|
| 12,695 |
|
|
| 3,262 |
|
|
| 26 | % |
Total operating costs and expenses |
|
| 38,982 |
|
|
| 21,821 |
|
|
| 17,161 |
|
|
| 79 | % |
Interest expense |
|
| 15,054 |
|
|
| 657 |
|
|
| 14,397 |
|
|
| 2,192 | % |
Interest income |
|
| (3,602 | ) |
|
| (1,933 | ) |
|
| (1,669 | ) |
|
| 86 | % |
Change in fair value of warrants |
|
| 13,944 |
|
|
| 4,835 |
|
|
| 9,109 |
|
|
| 188 | % |
Loss on debt extinguishment |
|
| 21,214 |
|
|
| — |
|
|
| 21,214 |
|
|
| 100 | % |
Other expense |
|
| 15 |
|
|
| 462 |
|
|
| (447 | ) |
|
| (97 | )% |
Net loss |
| $ | (85,607 | ) |
| $ | (25,842 | ) |
| $ | (59,765 | ) |
|
| 231 | % |
Operating costs
The increase for the three and nine month periodsperiod was primarily attributable to higher employee costs of $2.0 million and $7.5 million due primarily to increased headcount at the Ironton Facility, higher depreciation expense related to assets supporting operations of $8.4 million and $12.0$7.9 million due primarily to placing the Ironton Facility assets in service in the second quarter of 2023, increased operational site costs of $3.6 million and $4.4$4.3 million related to commissioning and operating the Ironton Facility, higher labor costs of $1.0 million due primarily to increased contract labor at the Ironton Facility related to plant optimization activities, and higher rent for operating facilities of $0.7 million and $2.0 million, $0.4 million and $0.9 million related to increased operational consulting due primarily to on-site third party assistance for Ironton Facility mechanical completion and commissioning activities, and $0.3 million and $0.7 million of other net increases, respectively.
Research and development expenses
Research and development expenses did not significantly change period over period.
Selling, general and administrative expenses
The increase for the three month period was principally attributable to $2.1 million higher legal and nineprofessional consulting fees primarily related to the purchase of the Revenue Bonds in the first quarter of 2024, and higher insurance cost of $0.7 million.
Interest expense
The increase for the three month periodsperiod was attributable to additional financing incurred in the second and third quarters of 2023, including closing of $250.0 million of green convertible senior notes in August 2023, as well as ceasing capitalization of interest on the Revenue Bonds beginning in June 2023 as the plant is now in service.
39
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Interest income
The increase for the three and nine month periodsperiod was attributable to higher interest earned on PCT’s investment portfolio and money market funds due to rising interest rates.
The increased benefitexpense for the three and nine month periodsperiod was attributable to the change in fair value of the Company’s liability-classified warrants, of which the primary drivers of the change in valuation related to changes in the underlying price of PCT’s common stock, as well as fluctuations in volatility and reduction in the warrant terms with the passage of time.
Loss on debt extinguishment
The amount reported in the first quarter of 2024 relates to the loss recorded on the purchase of the majority of the outstanding Revenue Bonds.
Other expense
Other expenses didwere not significantly changematerial for either period over period.
Liquidity and Capital Resources
To date,
During 2023 and through March 31, 2024, PCT commenced commercial operations and sold an immaterial amount of UPR resin but has not generated any operating revenue. PCT expects to begin to generate revenue in 2023 from our commercial plant in Ironton. Ouryet reached significant continuous operational volumes. PCT’s ongoing operations have, to date, been funded by a combination of equity financing through the issuance of units and debt financing. Additionally, in Marchfinancing through the issuance of 2022, PCT consummated an offering pursuant to which PCT sold to certain investors, in a private placement, an aggregate of 35.7 million shares of our common stock and warrants to purchase an aggregate of 17.9 million shares of our common stock (the “Series A Warrants”), at a price of $7.00 per Common Stock and one-half of one Series A Warrants, for gross proceeds of approximately $250.0 million (the “2022 PIPE Offering”). PCT incurred approximately $0.8 million of expenses primarily related to advisory fees in conjunction with the 2022 PIPE Offering. On March 15, 2023, PCT entered into the Revolving Credit Facility (as defined and described below), and in May of 2023, PCT entered into the Term Loan Facility (as defined and described below), as well as the Master Lease Agreement and Equipment Procurement Agreement (as defined and described below), which provided additional unrestricted liquidity.Further, in August 2023, PCT priced the Green Convertible Notes for an aggregate gross principal amount of $250.0 million (as described below).
(in millions) |
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Cash and Cash Equivalents |
| $ | 25.0 |
|
| $ | 73.4 |
|
Debt Securities Available for Sale |
|
| 2.2 |
|
| 48.2 |
| |
|
|
|
|
|
| |||
Ironton Facility Bond Reserves |
| $ | 3.5 |
|
| $ | 210.6 |
|
Augusta Construction Escrow |
|
| 7.3 |
|
|
| 14.4 |
|
Letters of Credit and Other Collateral |
|
| 4.1 |
|
|
| 4.1 |
|
Restricted Cash (current and non-current) |
| $ | 14.9 |
|
| $ | 229.1 |
|
|
|
|
|
|
| |||
Green Convertible Notes |
| $ | 222.3 |
|
| $ | 220.7 |
|
Equipment Financing Payable |
|
| 21.0 |
|
|
| 21.6 |
|
Pure Plastic Related Party Note Payable |
|
| 41.5 |
|
|
| 39.7 |
|
Revenue Bonds |
|
| 2.8 |
|
|
| 234.6 |
|
Add: Discount and Issuance Costs |
|
| 30.7 |
|
|
| 47.6 |
|
Gross Long-term Debt and Related Party Note Payable |
| $ | 318.3 |
|
| $ | 564.2 |
|
40
PureCycle Technologies, Inc.
As of March 31, 2024, PCT had $25.0 million of Cash and Cash Equivalents, Debt Securities Available for the Augusta Facility. These funds are recorded inSale of $2.2 million, and Restricted Cash below.
(in millions) | September 30, 2023 | December 31, 2022 | ||||||||||||
Cash | $ | 199.4 | $ | 63.9 | ||||||||||
Debt Securities Available for Sale | 12.0 | 98.6 | ||||||||||||
Unrestricted Liquidity | $ | 211.4 | $ | 162.5 | ||||||||||
Less: Other Ironton Set-aside | — | 54.6 | ||||||||||||
Available Unrestricted Liquidity | $ | 211.4 | $ | 107.9 | ||||||||||
Ironton Facility Construction | $ | — | $ | 13.2 | ||||||||||
Liquidity Reserve | 102.2 | 50.0 | ||||||||||||
Capitalized Interest and Debt Reserve | 41.7 | 38.0 | ||||||||||||
Other Required Reserves Ironton | 26.0 | 21.2 | ||||||||||||
Augusta Construction Escrow | 13.5 | 39.4 | ||||||||||||
Letters of Credit and Other Collateral | 1.4 | 1.3 | ||||||||||||
Restricted Cash (current and non-current) | $ | 184.8 | $ | 163.1 | ||||||||||
Revenue Bonds | $ | 234.3 | $ | 233.5 | ||||||||||
Green Convertible Notes | 219.2 | — | ||||||||||||
Equipment Financing Payable | 21.9 | — | ||||||||||||
Pure Plastic Note Payable | 38.0 | — | ||||||||||||
Add: Discount and Issuance Costs | 49.8 | 16.1 | ||||||||||||
Gross Long-term Debt and Related Party Note Payable | $ | 563.2 | $ | 249.6 |
PCT sold an immaterial amount of UPR resin in 2023 and through March 31, 2024. Due to intermittent mechanical challenges during the Revolving Credit Agreement maycommissioning process of the Ironton Facility, the Ironton Facility has not yet reached the point of producing meaningful volumes and on-spec product. While these mechanical issues are not uncommon for a first-of-its kind manufacturing facility, the downtime needed to correct these issues is a significant contributing factor to the delay of the Ironton Facility reaching the point of producing meaningful volumes and on-spec product. We expect the Ironton Facility to be used for working capital, capital expenditures and other general corporate purposes. There are currently no borrowings under the Revolving Credit Facility.
As of September 30, 2023,March 31, 2024, PCT anticipates that up to $12.5 million will be needed to complete the investment in the Ironton Facility, which relates to a performance guarantee payment due after successful completion of a performance testing milestone.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for revenue generation.
PCT believes that its current level of Liquidity, including the unused Revolving Credit Facility may beunrestricted liquidity is not sufficient to fund operations, outstanding commitments, and outstanding commitments. However, given the September Milestone Event of Default, and lack of revenue to date, there isfurther its future growth plans. The conditions described above raise substantial doubt regarding PCT’s ability to continue as a going concern for a period of at least one year from the date of issuance of the condensed consolidated interim financial statements included in this Quarterly Report on Form 10-Q.
In an effort to alleviate these conditions, PCT is currently performing certain operational enhancements that are expected to correct the production issues with the Ironton Facility. Further, on March 5, 2024, PureCycle Technologies LLC ("PCT LLC") purchased 99% of the outstanding Bonds, which used $50.8 million, net, of unrestricted cash, and reduced Restricted Cash by $207.1 million. The purchased Bonds are held in an account with PCT LLC. PCT intends to, and has the ability to, re-market some or all of these Bonds based on the need for additional liquidity. The re-marketing process may require the addition of certain covenants to enhance the marketability of the purchased Bonds. The ability to re-market the purchased Bonds with any such additional new covenants would require a further amendment to, or waiver of, provisions included within the Revolving Credit Facility and Term Loan Credit Agreement. After considering management’s plans to mitigate substantial doubt, these conditions,
41
PureCycle Technologies, Inc.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
including adjustment of expenditure timing and execution of the plant becoming commercially viable and revenue generating later in 2023,amendment to the Revolving Credit Facility, PCT believes this substantial doubt has been alleviated and it has sufficient liquidity to continue as a going concern for the next twelve months.
PCT’s future capital requirements will depend on many factors, including the funding mechanism and construction schedule of the Augusta Facility and other anticipated facilities outside the United States, build-out of multiple Feed PreP facilities, funding needs to support other business opportunities, funding for general corporate purposes, and other challenges or unforeseen circumstances. As a pre-revenuelow-revenue operating company, PCT continually reviews its cash outlays, pace of hiring, professional services and other spend, and capital commitments to proactively manage those needs in tandem with itsour Available Unrestricted Liquidity balance. For future growth and investment, PCT expects to seek additional debt or equity financing from outside sources, which it may not be able to raise on terms favorable to PCT, or at all. If PCT is unable to raise additional debt or sell additional equity when desired, or if PCT is unable to manage its cash outflows, PCT’s business, financial condition, and results of operations would be adversely affected. In addition, any financing arrangement may have potentially adverse effects on PCT and/or its stockholders. Debt financing (if available and undertaken) will increase expenses, must be repaid regardless of operating results or revenue generation, and may involve restrictions limiting PCT’s operating flexibility. If PCT consummates an equity financing to raise additional funds, the percentage ownership of its existing stockholders will be reduced, and the new equity securities may have rights, preferences or privileges senior to those of the current holders of PCT’s common stock.
PCT has no material off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. PCT does not have any off-balance sheet arrangements or interests in variable interest entities that would require consolidation. Note that while certain legally binding offtake arrangements have been entered into with customers, these arrangements are not unconditional and definite agreements subject only to customer closing conditions, and do not qualify as off-balance sheet arrangements required for disclosure.
Cash Flows
A summary of our cash flows for the periods indicated is as follows:
Nine Months Ended September 30, | |||||||||||||||||||||||
(in thousands, except %) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
Net cash used in operating activities | $ | (61,330) | $ | (50,164) | $ | (11,166) | 22 | % | |||||||||||||||
Net cash used in investing activities | (55,329) | (203,794) | 148,465 | (73) | % | ||||||||||||||||||
Net cash provided by financing activities | 273,275 | 247,618 | 25,657 | 10 | % | ||||||||||||||||||
Cash and cash equivalents, beginning of period | 227,523 | 263,858 | (36,335) | (14) | % | ||||||||||||||||||
Cash and cash equivalents, end of period | $ | 384,139 | $ | 257,518 | $ | 126,621 | 49 | % |
|
| Three Months Ended March 31, |
| |||||||||||||
|
|
|
|
|
|
|
| $ |
|
| % |
| ||||
(in thousands, except %) |
| 2024 |
|
| 2023 |
|
| Change |
|
| Change |
| ||||
Net cash used in operating activities |
| $ | (39,178 | ) |
| $ | (14,755 | ) |
| $ | (24,423 | ) |
|
| 166 | % |
Net cash provided by investing activities |
|
| 32,027 |
|
|
| 52,739 |
|
|
| (20,712 | ) |
|
| (39 | )% |
Net cash used in financing activities |
|
| (255,423 | ) |
|
| (1,632 | ) |
|
| (253,791 | ) |
|
| 15,551 | % |
Cash and cash equivalents, beginning of period |
|
| 302,514 |
|
|
| 227,523 |
|
|
| 74,991 |
|
|
| 33 | % |
Cash and cash equivalents, end of period |
| $ | 39,940 |
|
| $ | 263,875 |
|
| $ | (223,935 | ) |
|
| (85 | )% |
Cash Flows from Operating Activities
The $11.2$24.4 million increase in net cash used in operating activities for the ninethree months ending September 30, 2023March 31, 2024 compared to the same period in 2022 2023 was primarily attributable to higher cashinterest payments on debt of $16.4 million (including $8.6 million paid for raw materialsthe green convertible notes and maintenance inventory$5.9 million in outstanding interest paid in connection with the purchase of approximately $5.1the Revenue Bonds), an increase in cash payments related to operating expenses of $5.5 million increasedprimarily driven by an increase in operational site costs at the Ironton Facility, higher cash paid related to higher employee costs of $1.8approximately $3.2 million, $3.4
42
PureCycle Technologies, Inc.
Cash Flows from Investing Activities
The $148.5$20.7 million decrease in cash used inprovided by investing activities for the ninethree months ending September 30, 2023March 31, 2024 compared to the same period in 20222023 was attributable to $180.4$30.6 million lowerhigher investment purchases and $69.4$22.4 million lower capital expenditure payments, offset by $101.3 million of lower maturities and sales of investments.
Cash Flows from Financing Activities
The $25.7$253.8 million increase in net cash provided byused in financing activities for the ninethree months ending September 30, 2023March 31, 2024 compared to the same period in 20222023 was primarily attributable to $285.1$253.2 million debt financing raised in 2023 comparedpaid to $250.0 million raised in 2022 related to proceedspurchase the outstanding Revenue Bonds.
Indebtedness
There have been no material changes regarding the Company's indebtedness from the 2022 PIPE Offering, lower share repurchase activity relatedinformation we provided in our most recent Annual Report on Form 10-K, except as outlined in the information below. Refer to withholdingNote 3 (“Notes Payable and Debt Instruments”) to the Notes to the Interim Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on equity vesting of $0.4 million in 2023 compared to 2022, offset by $10.6 million in debt issuance costs and LOC fees related to new financing arrangements incurred in 2023 compared to equity issuance costs in 2022 of $0.8 million,
Revenue Bonds
On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain revenue bonds (“Revenue Bonds”)Bonds (as defined below) pursuant to an Indenture of Trust dated as of October 1, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), between SOPA and UMB Bank, N.A., as Trustee (“Trustee”), and loaned the proceeds from their sale to PureCycle: Ohio LLC (“PCO”), an Ohio limited liability company and indirect wholly-owned subsidiary of PCT,PureCycle Technologies, Inc. (the “Company”), pursuant to a Loan Agreement dated as of October 1, 2020, between SOPA and PCO (as amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), to be used to, (i)among other things, acquire, construct and equip the Ironton Facility (referred to withinCompany’s first commercial-scale recycling facility in Lawrence County, Ohio (the “Ironton Facility”). Capitalized terms used but not defined herein have the Loan Agreement asmeanings ascribed thereto in the “Ohio Phase II Facility” and, together with the FEU (referred to within the Loan Agreement as the “Phase I Facility”), the “Project”); (ii) fund a debt service reserve fund for the Series 2020A Bonds; (iii) finance capitalized interest; and (iv) pay the costs of issuing the Revenue Bonds. Indenture.
The Revenue Bonds were offered in three series, including (i) Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020A (“Series 2020A Bonds”); (ii) Subordinate Exempt Facility Revenue Bonds (PureCycle Project), Tax-Exempt Series 2020B (“Series 2020B Bonds”); and (iii) Subordinated Exempt Facility Revenue Bonds (PureCycle Project), Taxable Series 2020C (“Series 2020C Bonds” and, together with the Series 2020A Bonds and the Series 2020B Bonds, the “Bonds” or "Revenue Bonds").
All of the Bonds are Outstanding under the Indenture. PureCycle Technologies LLC, a Delaware limited liability company (the “Guarantor”), purchased $246.8 million in aggregate principal amount of Bonds Outstanding under the Indenture on March 5, 2024, of which $216.8 million in aggregate principal amount are Series 2020A Bonds, and continues to hold all of those purchased Bonds such that the Guarantor comprises the Majority Holders. The Purchase was determined to be an extinguishment of the underlying debt obligation due to PCO being a wholly-owned subsidiary of the Purchaser. PCT intends to, and has the ability to, re-market some or all of these Bonds based on the need for additional liquidity. The re-marketing process may require the addition of certain covenants to enhance the marketability of the purchased Bonds.
On March 15, 2023, PCT LLC,25, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and indirect wholly-owned subsidiaryaffiliate of PCT LLC,PCO (the pledgor under anthe Equity Pledge and Security Agreement (as defined in the Indenture), pursuant to which the pledgor pledged certain interests to secure obligations of PCO under various Financing Documents (as defined in the Indenture) relating to the Revenue Bonds) and PCO and SOPAAgreement) and the Trustee entered into a Limited Waiver and Firstthe Fourth Supplemental Indenture (the “Limited Waiver”“Fourth Supplemental Indenture”), supplementing which amended certain provisions of the Indenture, and amending the Loan Agreement and the ARG,that certain Amended and pursuant to which the majority holdersRestated Guaranty of the Series 2020A Bonds consented to the Limited Waiver, based on stated conditions,Completion, entered into as of a Specified Event of Default (as defined below) under the Indenture and the Loan Agreement.
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PureCycle Technologies, Inc.
May 11, 2021, and effective as of October 7, 2020 (the “Guaranty”): (i) closure, by it or its direct or indirect parent entity of a financing transaction by March 31, 2023 that provides at least $150.0 million of working capital which may be used to support the Ironton Facility (which milestone was satisfied by the closing of the Revolving Credit Facility); (ii) mechanical completion of the Ironton Facility by June 30, 2023 (which milestone was satisfied on April 25, 2023); (iii) meet certain targeted production and performance targets during 2023; (iv) completion of the Ironton Facility by December 31, 2023; and (v) meet certain Ironton Facility pellet production targets by January 31, 2024 up to the Ironton Facility’s nameplate production capacity of 107 million pounds per year.
See Part II, Item 5 of this Quarterly Report on Form 10-Q for additional information regarding the Limited Waiver orBonds from the other Financing Documents or Bond Documents (each as defined in the Second Limited Waiver), PCO shall not have any access to any funds in the Trust Estate or otherwise held with the Trustee or a third-party (including, without limitation, funds in the Operating Revenue Escrow Fund and the Liquidity Reserve Escrow Fund (terms used as defined in the Second Limited Waiver)) pursuantperiod covered by this Quarterly Report on Form 10-Q to the Financing Documents until the date that such Milestone is satisfied.
On March 15, 2023, PCT entered into a $150 million Revolvingrevolving credit facility (the “Revolving Credit FacilityFacility”) pursuant to a Credit Agreement (the(as amended, the “Revolving Credit Agreement”) dated as of March 15, 2023, with PureCycle Technologies Holdings Corp. and PureCycle Technologies, LLC (the “Guarantors”), Sylebra Capital Partners Master Fund, LTD, Sylebra Capital Parc Master Fund, and Sylebra Capital Menlo Master Fund (collectively, the “Lenders”), and Madison Pacific Trust Limited (the “Administrative Agent”), which matures on March 31, 2025 (as further described in the Second Amendment (as defined below) and “Security Agent”). The Lenders and their affiliates are greater than 5% beneficial owners of PCT.
On March 1, 2024, through March 31, 2024, and (v) 17.50% thereafter. PCT is also required to pay (i) an up-front fee equal to 0.75% times $150 million—the total aggregate commitment for the Revolving Credit Facility—to the Lenders, payable at closing and (ii) a commitment fee equal to 0.25% per annum based on the actual daily unused amount ofincreased the Revolving Credit Facility payable quarterly. Subjectfrom $150.0 million to timely prior written notice$200.0 million, extended the maturity date to September 30, 2025, and payment of breakage fees, if any, PCT may at any time and from timeobtained a carveout to time (i) terminate all or any portion ofpermit the commitments underCompany to purchase the Revenue Bonds, pursuant to an amendment to the Revolving Credit Agreement and/or (ii) prepay all or any portion of any outstanding borrowings.
The Pure Plastic Term Loan Facility
On May 8, 2023, PCTthe Company entered into a $40 million term loan facility (the “Term Loan Facility”) pursuant to athe Term Loan Credit Agreement (the “Term("Term Loan Credit Agreement”Agreement") dated as of May 8, 2023, among PCT, as the borrower, PureCycle Technologies Holdings Corp., PureCycle Technologies, LLC and the subsidiaries of PCT as are or may from time to time become parties to the Term Loan Facility as guarantors (the “Guarantors”)Guarantors and Pure Plastic LLC (as a “Lender,” “AdministrativeLender, Administrative Agent,” and “Security Agent”)Security Agent), which matures on December 31, 2025.2025 (the “Term Loan Facility”). The Term Loan Credit Agreement was amended on August 21, 2023. Affiliates of the Lender are greater than 5% beneficial owners of the Company. Balances related to the Term Loan Credit Agreement are recorded within related party note payable in the condensed consolidated balance sheets and, in certain instances, the Term Loan Credit Agreement is referred to as the “Related party note payable.”
On March 1, 2024, PCT to pay fees and expenses associated with the Term Loan Credit Agreement and the other loan documents and for general corporate purposes not in contravention of any law or of any loan document.
On March 14, 2023,2024, PCT securedrenewed a surety bond in the amount of $25.0 million to provide financial assurance related to its performance under a certain vendor contract, which expires at the earlier of satisfaction of the obligation, termination of the related vendor contract, or one year from issuance (subject to renewal within one year). PCT may issue additional surety bonds in the future to provide financial assurance regarding performance under contracts with other parties.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
These financial instruments are issued in the normal course of business and are not considered company indebtedness. Because PCT currently has no liability for these financial assurance instruments, they are not reflected in its consolidated balance sheets.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates from the information we provided in our most recent Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.
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PureCycle Technologies, Inc.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about market risks as of September 30, 2023March 31, 2024 does not differ materially from that included in our most recent Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
PCT’s management, with the participation of its principal executive and financial officers, has evaluated the effectiveness of its disclosure controls and procedures in ensuring that the information required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to management (including the principal executive and financial officers) as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, PCT’s principal executive and financial officers have concluded that such disclosure controls and procedures were not effective as of September 30, 2023March 31, 2024 (the end of the period covered by this Quarterly Report on Form 10-Q), due to material weaknesses in internal control over financial reporting, as further described in our Annual Report on Form 10-K and summarized below:
•PCT did not design and maintain effective controls over certain information technology (“IT”) controls for certain information systems that are relevant to the preparation of its financial statements, specifically with respect to user access, to ensure appropriate segregation of duties that adequately restrict user access to financial applications, programs, and data to appropriate company personnel.
There have been no change in PCT’s internal control over financial reporting that occurredchanges during the period covered by this Quarterly Report on Form 10-Q that hashave materially affected, or isare reasonably likely to materially affect, PCT’s internal control over financial reporting.
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a description of the legal proceedings pending against us, see “Legal Proceedings” in Note 1411 (“Commitments and Contingencies”) to the Notes to the Interim Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10‑Q.
In the future, PCT may become party to additional legal matters and claims arising in the ordinary course of business. While PCT is unable to predict the outcome of the above or future matters, it does not believe, based upon currently available facts, that the ultimate resolution of any such pending matters will have a material adverse effect on its overall financial position, results of operations, or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes from risk factors previously disclosed in our most recent Annual Report on Form 10-K in response to Part 1, Item 1A.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information with respect to the Company’s purchases of its common stock for the thirdfirst quarter of 2023:
Period | (a) Total number of shares (or units) purchased* | (b) Average price paid per share (or unit)* | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | |||||||||||||||||||
July 1 to July 31 | 63,444 | $ | 10.60 | — | $ | — | |||||||||||||||||
August 1 to August 31 | 12,947 | 10.33 | — | — | |||||||||||||||||||
September 1 to September 30 | 1,174 | 9.13 | — | — | |||||||||||||||||||
Total | 77,565 | $ | 10.53 | — | $ | — |
Period |
| (a) Total number of shares (or units) purchased* |
|
| (b) Average price paid per share (or unit)* |
|
| (c) Total number |
|
| (d) Maximum |
| ||||
January 1 to January 31 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
February 1 to February 29 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
March 1 to March 31 |
|
| 98,651 |
|
| 6.07 |
|
|
| — |
|
|
| — |
| |
Total |
|
| 98,651 |
|
| $ | 6.07 |
|
|
| — |
|
| $ | — |
|
* Shares withheld to cover tax withholding obligations under the net settlement provision upon vesting of restricted stock units
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
None of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the Company’s fiscal quarter ended March 31, 2024.
Entry into a Material Definitive Agreement
On May 7, 2024, PCT LLC entered into an agreement with Pure Plastic LLC (“Pure Plastic”), a Delaware limited liability company, whereby Pure Plastic will purchase approximately $94.3 million in aggregate par amount of Bonds owned by PCT LLC (the “Purchased Bonds”), including (i) a portion of the Series 2020A Bonds, (ii) all of the Series 2020B Bonds, and (iii) all of the Series 2020C Bonds, at a purchase price of $800 per $1,000 principal amount of the Purchased Bonds (the “Pure Plastic Purchase Agreement”). Affiliates of Pure Plastic are greater than 5% beneficial owners of the Company.
As total consideration for the Purchased Bonds, the aggregate amount of principal outstanding, together with accrued but unpaid interest thereon, of approximately $45.5 million under the Term Loan Facility will be deemed to be prepaid in full and PCT LLC will receive $30 million in cash, as further provided for in the Payoff and Release Letter (as defined below).
The closing of the transactions contemplated by the Pure Plastic Purchase Agreement will occur in three tranches, with each tranche subject to the satisfaction of certain conditions.
The Pure Plastic Purchase Agreement requires PCT LLC to make best efforts to:
Pursuant to the Payoff and Release Letter, by and among the Company, the Credit Facility Guarantors (as defined in the Pure Plastic Purchase Agreement) and Pure Plastic (the “Payoff and Release Letter”), which is to be entered
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
into as of the Initial Closing Date (as defined in the Pure Plastic Purchase Agreement), the Company is required to pay a 12% prepayment premium on the outstanding principal and interest paid in order to prepay the Term Loan Facility (the “Prepayment Premium”) plus certain expenses. The Company will issue warrants (“Series B Warrants”) to Pure Plastic pursuant to a Series B Warrant Agreement to satisfy the Prepayment Premium (the “Series B Warrant Agreement”). The Series B Warrants entitle Pure Plastic to purchase approximately 3.1 million shares of the Company's Common Stock at a price of $11.50 per share any time on or after November 6, 2024. The Series B Warrants will expire on December 1, 2030. The Company will pay the expenses in cash.
The Payoff and Release Letter also provides that if the Term Loan Facility is not paid off by a certain date, the Payoff Amount (as defined therein) will be increased by a specific amount on a daily basis. The Payoff and Release Letter will terminate and be of no force or effect if the Payoff Date (as defined therein) does not occur by 5:00 p.m. (Eastern Time) on May 17, 2024.
Lastly, the Payoff and Release Letter provides that all of the Obligations (as defined therein) under the Term Loan Facility shall be deemed paid and satisfied in full upon the satisfaction of certain conditions and, furthermore, upon the satisfaction of such conditions, all liens securing the Obligations shall be deemed to be fully released and discharged.
The foregoing descriptions of the Pure Plastic Purchase Agreement, the Fifth Supplemental Indenture (which is included as Exhibit D to the Pure Plastic Purchase Agreement), the Payoff and Release Letter, and the Series B Warrant Agreement (which is included as Exhibit B to the Payoff and Release Letter) and are not complete and are qualified in their entirety by reference to the full text of the agreements or the “form of” the agreements, which are attached hereto as Exhibits 10.6, 10.7, 10.8, and 10.9 and incorporated herein by reference.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
The information contained under the section above entitled “Entry into a Material Definitive Agreement” is incorporated here by reference. Upon the occurrence of an Event of Default (as defined in the Indenture), the amount outstanding under the Bonds may be accelerated. Refer to Note 3 (“Notes Payable and Debt Instruments”) to the Notes to the Interim Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q for additional information regarding the material terms of the Bonds.
Unregistered Sales of Equity Securities
The information contained under the section above entitled “Entry into a Material Definitive Agreement” is incorporated here by reference. The Company offered and sold the Purchased Bonds and the Series B Warrants to Pure Plastic in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Regulation D thereunder. Pure Plastic represented that it is an “accredited investor” within the meaning of Regulation D under the Securities Act and that it acquired the securities for investment purposes, and not with a current view to, or for resale in connection with, any distribution, resale, pledging, fractionalization, subdivision or other disposition thereof. The securities are not registered under the Securities Act and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
ITEM 6. EXHIBITS
Exhibit Number | Description of Exhibit | ||||
2.1 | |||||
3.1 | |||||
3.2 | |||||
3.3 | |||||
3.4 | |||||
10.1 | |||||
| |||||
10.3 | |||||
10.4 | |||||
10.5 | |||||
| |||||
10.7 | |||||
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
32.1 | |||||
32.2 | Section 1350 Certification by | ||||
101.1 | The following financial statements from PureCycle Technologies, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended | ||||
(i) Condensed Consolidated Balance Sheets as of | |||||
(ii) Unaudited Condensed Consolidated Statements of Comprehensive | |||||
(iii) Unaudited Condensed Consolidated Statements of | |||||
(iv) Unaudited Condensed Consolidated Statements of Cash Flows for the | |||||
(v) Notes to the Interim Condensed Consolidated Financial Statements. | |||||
104.1 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
† Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission.
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PureCycle Technologies, Inc.
PART II — OTHER INFORMATION — CONTINUED
SIGNATURES
PURECYCLE TECHNOLOGIES INC. | ||
(Registrant) | ||
By: | /s/ Dustin Olson | |
Dustin Olson | ||
Chief Executive Officer | ||
(Principal Executive Officer) |
By: | /s/ Jaime Vasquez | |
Jaime Vasquez | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
Date: May 8, 2024 |
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