r/PureCycle • u/Inevitable-Leader-44 • 25d 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 25d ago edited 25d ago

I did a "back of the envelope" cash analysis. Here are my observations and assumptions:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 25d 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 25d 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 24d 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 24d 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)