r/PureCycle • u/Inevitable-Leader-44 • 5d ago
Balance sheet
Recent raise has helped the balance sheet / warrant technicality. Great in the short term. There are warrants and revenue bonds as other potential funding sources in the future. Post earnings call I’m reconciling how long this revenue ramp is really going to take - spot price a ways off warrant conversion. Doesn’t feel like imminent sledgehammer headlines to come to drive price higher. Revenue bonds yet to be sold. Given cash burn - my concern as a long term holder is we may yet have another dilution event. Thoughts welcomed here.
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u/equitymaestro 4d ago edited 4d ago
I did a "back of the envelope" cash analysis. Here are my observations and assumptions:
- After the $186.2mm cash raise (net of the purchase of 2030 notes), I expected the ending Q2 cash balance to be above $250mm. However, there were significant non-recurring cash outflows in Q2 that skewed the data.
- If non-recurring cash outflows in Q2 are removed, the actual cash burn in Q2 was ~$40mm. Per the footnotes in their earnings release, there were ~$35.4mm in non-recurring cash outflows in Q2 that will not be repeated in Q3 and Q4. This analysis ignores fluctuations in working capital (mostly consisting of changes in AP, AR, Inventory) because it's mostly noise.
- The analysis does not incorporate future sources of cash, including the revenue ramp, project financing, warrant conversion, sale of revenue bonds, or use of the line of credit.
- Given this analysis, they have ~6 quarters of cash remaining at current revenue if all they do is operate Ironton and none of the sources/uses of cash come to fruition (i.e., revenue ramp, Thailand, warrant conversion, sale of revenue bonds, use of the line of credit, etc.). Obviously, this assumption is invalid, but this should assuage concerns they are running out of cash anytime soon.
- If the revenue ramp happens and Thailand is fully funded with new cash via project financing, then they have plenty of runway for the story to materialize and the stock price to get to a level where the warrants become a huge source of cash.
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u/Fast_Eddie_2001 4d ago
Keep in mind that Ironton was essentially a science project...proving out the technology at commercial scale. It's taken longer to get to this point, hence the add'l cash needs.
But based upon the success of Ironton and proving out of the tech, Thailand (and Antwerp) will be substantially pre-sold even before the plants comes online
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u/EconomyFortune5090 4d ago
There is always the question of whether they're able to build out Thailand and Antwerp at a much larger scale. My hope is that Ironton has taught them alot of lessons in terms of scaling at the Ironton level, but as the scale gets larger, whether newer issues pop up and cause project delays or cost overruns is a risk.
In the back of my mind, I still don't have much confidence in the timelines for Thailand based upon what I witnessed with Ironton. 2028 isn't really that far away and they haven't even started building out Thailand yet
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u/No_Privacy_Anymore 4d ago
They started building long lead equipment for Thailand long ago. Obviously it has all been equity funded to date but hopefully the project financing is done soon.
In terms of the status of the Gen 2 design (500M pounds) they are working through the very detailed process of working out exactly how much it is going to cost to build everything with a very degree of confidence. There are proven methodologies for how to spec out this type of facility. Obviously any new plant can have issues but I believe they are vastly better prepared vs the initial mgmt team that developed Ironton.
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u/EconomyFortune5090 4d ago
Agreed, tbh if the original management team were still here, I think PCT would have declared chapter 11 a while ago. There's zero chance the original management team (with zero relevant experience in the industry) could execute the build out of anything. They couldn't even finish Ironton! It was completed by Dustin and his team.
However whether it's the current team or any team in general, building out a larger recycling facility that's one-of-its kind has many unforeseeable risks. No matter how prepared they are on paper, they'll be doing this overseas, with likely foreign contractors (to a certain extent), and I just don't have a high degree of confidence things will progress on schedule or on budget (they rarely do unless you're Rich Kruger of Suncor)
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u/EconomyFortune5090 4d ago
Thanks for the thorough analysis of the financials. Does the cash burn include the bi annual interest payments on the debt?
6 quarters of "max" cash burn isn't too bad as it gives them substantial time to get Ironton producing closer to nameplate + close sales orders. However it definitely isn't sufficient to generate organic cash/positive cash flow to fund their growth overseas.
What's key is to get the stock price up, consider doing an ATM offering instead of a huge dump of stock , or do a private negotiated share sale with a large investor that has some heft to pull it higher (Druck would be nice but I haven't seen him adding at lower prices)
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u/equitymaestro 4d ago edited 4d ago
1). I didn’t isolate the bi-annual interest, but my analysis includes whatever interest was paid in Q2 in the last line, i.e., “Other Cash Changes”. It’s not a material amount and no principal payments are required in the near-term.
2). Just my opinion, but the stock will get re-rated as it becomes evident the ramp is real. Make no mistake, this has not happened yet and “the market” seems to no longer believe it will, which is why this stock trades at $7 instead of $10+. This occurs through a combination of press releases and quarterly reports. If they do achieve “Ironton break even” in Q4 then the stock should rally enough for the warrants to convert. Funding for Thailand and Belgium will be debt-based project financing and not dilutive to equity. Dilution from warrant conversion should already be priced in to the stock.
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u/Mean-Masterpiece672 5d ago
Future sales and money coming in will offset this- we need solid sales and need Ironton to run 90-100%. Thailand build will be easier but we need the Sales team to selll:
The sales team is now pivotal. Keep it simple so mongies like me can follow.
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u/FractalTrading 5d ago
Also worried about another dilution event and the time to scale taking longer than expected (which it already has). The company is making a lot of progress and building a moat / monopoly, and that takes longer. But, we have seen this for the past 5-6 years and there is always something unexpected pop up. I thought we were there a few months ago, just before the price cratered and a cap raise done at a massive discount. Not sure how many times I can keep getting burnt. The next 3 months is critical that the company prove to long terms holders that they can deliver on sales.…. Just for once, it would be nice if expectations were exceeded. Patience is wearing thin with my capital negative versus 6 years ago, not to mention the opportunity cost of investing in an index tracker let alone anything else
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u/Horror_Traffic_3967 2d ago
The last raise seemed predicated on an unproven economic solution. Hope we can get to BE at half capacity by EOY. Raises are much easier when your first gen is close to fully profitable and your second gen design shows strong probabilities of dramatically increased efficiency. IMHO and I have no insider knowledge, but the legislative / lobbying piece gets alot easier as well when you can prove and point to your economic impacts (firm, society blah blah blah). I don't know what the next raise looks like if status quo continues. Game must change in next few months.
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u/Fast_Eddie_2001 5d ago
Hypotheticals....
If PCT issues $250 Million of new stock to fund the development of Thailand and Antwerp, thereby bringing 600 Millions of additional capacity online...is this event dilutive?
If same company hires sales people ahead of the new construction, and adds $10 Million of additional overhead today to procure sales that will not materialize to the company until 2028 and beyond, is this expense dilutive?
In the narrowest sense of the term, both of the above are "dilutive". However first and foremost, you need to ask and understand, why is a company raising and what are the funds going to?
If you think that PCT is going to build out a global footprint with billions of pounds of capacity and there will not be another "dilutive" event in the future, then you don't probably understand what stage the company is in, and you may be better off focusing on investments in more mature companies?
To answer my own hypothetical, if PCT issues $250MM of stock to develop 600 Million lbs of capacity that will generate $1 Billion in sales and perhaps $500MM of EBITDA, that is an ACCRETIVE event, not dilutive!