Good day and thank you for joining us. Welcome to the PureCycle Technologies Fourth Quarter 2023 Corporate Update Conference Call. Please note that this call is being recorded. I will now turn the call over to Christian Bruey, Corporate Communications Manager. Please proceed.

Thank you, Dedy. Welcome to PureCycle Technologies fourth quarter and fiscal year ended 2023 corporate update conference call. I am Christian Bruey, Manager of Corporate Communications for PureCycle, and joining me on the call today are Dustin Olson, our Chief Executive Officer; and Jaime Vasquez, our Chief Financial Officer. This morning, we will be highlighting our corporate developments for the fourth quarter and fiscal year ended 2023. The presentation we will be going through on this call will also be found under the Investors tab of our website at purecycle.com. Many of the statements made today will be forward-looking and are based on management's beliefs and assumptions and information currently available to management at this time. These statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our fourth quarter 2023 corporate update press release filed yesterday, and in our annual report on Form 10-K filed this morning, as well as on other reports on file with the SEC that provides further detail about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated and except as required by law, we undertake no obligation to update any forward-looking statement. Our remarks today may also include preliminary non-GAAP estimates and are subject to risks and uncertainties including, among others, changes in connection with quarter end and year-end adjustments. Any variation between the PureCycle's actual results and the preliminary financial data set forth herein may be material. You are welcome to follow along with our slide deck or if joining us by phone, you can access it at any time on purecycle.com. We are excited to share updates from the previous quarter with you. I will now turn it over to Dustin Olson, PureCycle's Chief Executive Officer. Dustin?

It's a pleasure to join you today. We are in Ironton, Ohio this morning, and excited to share our results. However, I would like to start the call by introducing our new CFO, Jaime Vasquez. Jaime's resume is impressive. He comes with a lot of relevant experience and he is already adding value. Jamie, if you'd like to introduce yourself, the floor is yours.

Thank you, Dustin. Well, I'm certainly excited to be here, and working with a very talented and dedicated team. I've been very impressed with the collaborative thought processes and the execution of critical items that I've seen in my first three weeks at PureCycle. I believe that my 30 years of experience in various financial roles with public and industrial companies will complement this talented team and I look forward to speaking with many of you on the phone in the near term.

Thank you for the introduction, Jamie. But more importantly, thank you for joining our team. I can tell you that I'm very excited to have Jamie on our team. He brings years of experience, a wealth of financial expertise, and has navigated multiple dynamic business environments in prior roles. Jamie will bring a balanced perspective to our core decision-making process that will help us deliver strong business results. It's been a pleasure getting to know Jamie over the last few weeks and I'm looking forward to many years of partnership. This was a busy quarter for Ironton operations. After the screen changer installation, for the first time, we've been able to establish greater end-to-end production where we can monitor the entire process working together. We are starting to see tangible progress across all operations. We have focused exclusively on PCR grade feedstock since the November outage, which has enabled us to finalize all aspects of the operation. While it has only been two months of running without bead contaminations, we've already achieved numerous production milestones, up to approximately 8,000 pounds per hour of end-to-end processing, successful production of co-products one and two, pelletizing that reached rates between 9,000 and 10,000 pounds per hour, and successful loading of numerous rail cars with pellets. We've done all of this while consuming significantly less utilities than originally estimated. The most important metric is our end-to-end production. This means that we run feed extruders at 8,000 pounds an hour, process the feed through the entire plant, and produce both co-product one and co-product two, while pelletizing the resulting product at the end of the plant. This was previously not possible as we faced lengthy bead plugging issues. Watching the production of co-products one and two was an exciting phase. I still believe there is no greater example of our process working than watching the production of these co-products. Remember, while our job is to make ultra-pure recycled resin, we achieve this by removing contaminants. Therefore, it is critical to remove CP1 and CP2 in order to produce our final product. On the commercial front, we are also starting to see momentum. We achieved our first revenue through sales in Q4 and began sampling our product to customers for final application approval. Initial results are positive and we expect this progress to continue. As we prepare for the rest of 2024, we intend to execute a two to four week outage in early Q2 to advance several reliability improvements. This small pause in production should help position the facility for stronger reliability. We are now entering a new phase for PureCycle. We've commissioned the plant, identified areas where we have opportunities, and we are now transitioning into traditional manufacturing processes, improving reliability, optimizing the process, and driving day-to-day improvements. We will focus on our core operations to achieve higher continuous plant rates and drive more consistent product quality so we can deliver a superior product to customers. While our progress was good over the past six to twelve months, the pace of progress was limited by two critical challenges: seal failures and absorbent bed leaks. Both of these events took significant time to diagnose and solve, but more importantly, it lengthened our learning curve. There were certain aspects of the operation that remained untested until we could establish continuous end-to-end operations. The last two months have been different. Running in this operational mode allowed us to test a wider range of PCR feedstocks, each with its unique characteristics, and to test the operational boundaries of each feedstock. Feedstocks have widely varying characteristics that require process optimization. These include differences like high and low melt flow indices, high and low concentrations of co-product one and two, and many other minor behaviors that impact optimization of the plant. It also allowed us to develop better solvent purification expertise. While we learn how to run this commercial-scale facility, we are also proving our ability to solve new challenges every day. In doing so, we're learning how to operate this plant more reliably each day. Ultimately, our success has been defined by how quickly we integrate learnings into our operations. There's no doubt that we will face new challenges with each operational tier, but this is normal for manufacturing operations and we have the right team in place to solve the next challenge and achieve our goals. Our metrics are not where we want them to be today, but they are getting better. We've seen quarter-over-quarter progress on many of our key metrics. Our pellet production has increased five times from 200,000 pounds to 1.3 million pounds with a single-day feed record of 102,000 pounds and a single-day palletization record of 144,000 pounds. Our purge rates are one third of last quarter, from 70% to 22%. Purging, a technical term that means our extruders are not running efficiently. We see steady and reliable increases in CP1 and CP2 production levels. In fact, after implementing reliability improvements in January, our CP2 production increased from 16,000 pounds to 48,000 pounds from January to February. We've now exclusively run on PCR since the November outage, and we've tested numerous new feedstocks, both produced internally and externally, and our core support operations are reaching stronger reliability levels. Our steam availability is at 99.8% in Q1 and our solvent circulation reliability has increased from 71% to 98% in Q1. Our overall uptime has been variable, but our daily production performance when not impacted by reliability problems has been stronger. We continue to focus on implementing incremental reliability improvements as well as expect a stepwise improvement when following the planned outage. The metrics are improving every day, and we let data guide our actions, shape our behaviors, and help us get better. We aren't satisfied with where we are, but our team will not slow down. Our team is excited about the future, not just because of the tangible progress, but also because of the learned enhancements that we are applying to our base design. We are planning a small 2 to 4 week outage in Q2 that we expect will significantly improve our operational performance. During this outage, we intend to tackle several key areas. During the July and November outages, we implemented several key improvements. For this upcoming outage, we will make further improvements to enhance extraction efficiency, thereby improving the recovery of co-product one. The co-product two discussion has already been disclosed publicly and we will discuss more later, but our efforts here are crucial for improving the settling performance and laying the groundwork for CP2 removal. Our filtration has been a reliability challenge. During Q1, it limited uptime, which impacted rates and forced us to stop and start operations many times. However, we were able to install a bypass line, which improved uptime, but we will need to spend more time during the outage cleaning the system to reset operations back to baseline. Seals have been a consistent challenge. We have already implemented several system upgrades and improved operational monitoring, which are providing improved performance. However, to achieve the desired long-term results, we will need to continue upgrading key seals across our facility. This process will not be completed during the outage and will likely require additional activity in the future. Our digital foundation is very good. We have a platform that should enable us to reap long-term benefits across the entire digital ecosystem. However, it has also been temperamental. We've worked through hundreds of improved programming glitches and while it doesn't cost much to fix and is still getting better, the impact on uptime has been a challenge. We have a talented digital team, and we will continue to learn and improve, and all of the learnings are directly applicable to future growth projects. Co-product two is currently the principal limitation. We can run feed through the system, purify through extraction, produce co-product one, settle in the process, produce co-product two, and pelletize the product. These fundamental processes work. However, the capacity to remove CP2 from the system is limited. It's not impacting our ability to produce CP2, it's limiting our ability to purge CP2 from the system, which ultimately restricts the rate we can push through the facility. We originally expected to only produce the granular variety of what we call 'dinosaur bones' in the process. This variation ultimately conflicts with the original design and limits our ability to remove it from the system efficiently. We have several short-term solutions in mind. First, we will continue to manually remove CP2 through the trades at approximately 3,000 to 7,000 pounds per day. Second, we will continue to purchase lower CP2 feedstocks so we can raise feed rates in the current removal capacity. Third, we are investigating a small project to flake sort the material produced from the prep wet line so more post-consumer curbside material can be processed. For the longer-term solution, we are using commercial data to design a more robust continuous operational asset. We have already started the early stage construction and design work and intend to make critical tie-ins during the Q2 outage. Ultimately, our team is working to optimize the short-term options to bridge to a longer-term solution. This change will take time and the final implementation should occur shortly after the Q2 outage is completed. We do not expect the final implementation to impact plant production as the critical tie points will be installed during the outage. Our operations are improving; it is a grind at times, but our team is unwavering in their pursuit to run the facility efficiently, reliably, and consistently. It will take time, but we are making positive strides every day. We are driven by the mission; we have purpose in our every effort, and we feel good about the impact that we're making around the world. As we build strong operations, we also see key unit economics trending positively. Granted, there are both positives and negatives when comparing our unit economics to earlier estimates three to five years ago, but we believe the net impact is positive. For revenue, we see stronger demand for our product than we originally expected, and a shorter supply of good quality competition. This is true for both purify as well as other higher color variants. For energy, we see lower consumption of energy than originally expected. For what we used to call waste, we now call co-products. There is genuine interest in the alternative applications for these products, shifting a former $0.04 per pound cost into a current revenue stream. Counteracting the positives, we also have higher than expected feedstock logistics costs and higher than expected SG&A costs. However, the net impact is positive, and as reliability continues to improve, the economics will follow. We are proud of our energy performance. It serves the business and shareholders with two key messages. One, our overall variable cost should be lower and is expected to reduce electricity and natural gas usage. This should result in a $2 million to $4 million per year utility savings for the business. Moreover, the improved energy performance should reduce our overall carbon footprint. This means we should be using less than half of the carbon to make our product compared to other fossil-based alternatives. Our customers can confidently showcase their sustainable product to the market, and final customers can feel good again about the plastic that they're purchasing. We still have more work to do, and these are early estimates that should be validated externally soon, but the early data looks very promising. This is significant for our customer base as it further differentiates us from the competition and ultimately improves the value proposition for sales. The net result is very positive for our business, for our customers, and most importantly, for our planet. The market feedback for our product is positive because we are producing a true plastic-to-plastic solution with benefits that other technologies do not provide. Most chemical recycling technologies deliver a plastic-to-fuel solution with low yield, and most mechanical recycling technologies blend the feedstock into the process with limited ability to remove internal contaminants. Our technology is the only commercial option that can offer customers a true plastic-to-plastic solution with high yield, high quality, and a low carbon footprint. We have produced products from both PIR and PCR, and while various pellet productions have varied with color, even the higher color variants have strong demand due to superior mechanical processing properties. Our goal will always be to improve the product consistency and quality across the feedstock slate. However, the reality is the end customer appetite for recycled material, coupled with a significant undersupply of quality product, is creating strong demand for PureCycle's product. The initial product testing is truly exciting for our team. We are testing commercial products across many customers to gain approval for long-term commercial supply. I want to highlight one specific application, fiber. Fiber is produced when polypropylene is melted and stretched into long strands. You can visually imagine it like dental floss. This is used in many applications, including textiles, apparel like watch bands, rugs, carpet, and clothing. It can even be molded into semi-rigid parts to provide additional strength. That's all impressive, but it's not the best part of the story. Making fiber from fossil-based PP is among the most challenging manufacturing applications in the polypropylene industry. You can imagine hundreds of continuous yards of individual long strands of product flying through the facility at high rates and through sophisticated equipment. The challenges that arise when a single strand breaks during production are significant. This application is extremely difficult for traditional polypropylene recycling products, because most of these products still have CP1 and CP2 in the mixture. Therefore, varying levels of contaminants can cause the strands to break. The industry has not been successful in running PB Fiber with recycled feedstock. I'm proud to present a school of polypropylene fiber that was successfully made from our purified material, with applications arising from this production. This proves that our product quality is superior, even in the most difficult applications, and serves as a reasonable replacement for fossil-based alternatives. Another exciting step in product development involves the collaboration between our PureZero program and our relationship with Churchill Containers. Churchill Containers is a leader in manufactured service wire, and one key application involves producing stadium cups for venues nationwide. Through the partnership, Churchill has manufactured stadium cups from our commercially produced EPR resin at the Ironton facility. We expect our PureZero partners to have these cups serving beverages of choice in the stadiums in the future. This is true circularity. The opportunity to team with our PureZero partners and Churchill to create a true plastic-to-plastic circularity change is exactly what the world is looking for in our industry. The path for Ironton is clear, and we believe we are on the right track. We will continue to focus on our operations here to achieve higher continuous plant rates, drive more consistent product quality, continue to enhance our product offerings to customers for final commercial qualifications, and efficiently execute the Q2 outage. While today's focus is primarily on Ironton, we also want you to know that we are still working diligently with our partners to prepare our growth path. Each project is in a slightly different position, but all must have primary focus: integrating Ironton learnings into the CapEx plan, finding efficiencies to reduce the overall project stack, and preparing the engineering to ensure strong project deliveries. These efforts, combined with the improved unit economics, should result in strong projects with reliable performance and excellent returns.

Thank you, Dustin. We have a few financial highlights starting on slide 16, which shows the change in unrestricted and restricted cash from the end of the third quarter to the end of the fourth quarter. As you can see, unrestricted cash declined by just under $90 million during that period. The single largest driver of the change was a $50 million increase in the general liquidity reserve. This was required as part of the second amendment to the Ironton revenue bond and venture that was executed in early November 2023. Operating and corporate-related expenses were $27.5 million for the fourth quarter, and adjusted for severance associated with our previously announced December reduction in force and the timing of certain payments. This level of expense was in line with expectations. Turning to slide 17, which is not a fourth-quarter event, but a very important action that occurred this week, and the reason we are highlighting it in our fourth-quarter discussion. On March 5th, we purchased just around 99% of the $249 million Southern Ohio Court Authority revenue bonds. This was an important step as it virtually removed all restrictive covenants, allowing us to better focus on working through operational startup challenges by finding solutions that are best long-term for the Ironton operations, as opposed to operating the plant to meet short-term volume goals and other milestones. Additionally, the purchase of the bonds should provide improved cash cycles for the company, as we become commercialized through the termination of the operating revenue escrow account. We did not retire the revenue bonds, allowing potential to remarket the bonds opportunistically, which we believe remain attractive due to their tax-free status and first priority lien on a valuable asset. On slide 18, we show a pro forma change in liquidity as a result of the bond purchase. Using our year-end 2023 liquidity position, you can see that the purchase included the use of $74.5 million of unrestricted cash and just under $185 million of restricted funds, or nearly 75% of the total issue that were in revenue bond escrow accounts. Again, we have the opportunity to improve liquidity with the remarketing of the revenue bonds. Additionally, we are working to obtain the release of funds still held in escrow, including a pro-rata share of the debt service fund for the bonds that were purchased, which could potentially free up about $20 million in liquidity. Lastly, we increased the line of credit from $150 million to $200 million to rebuild liquidity post the bond repurchase. Now I'll turn it back to Dustin.

Thank you, Jamie. We are excited about the progress we made this quarter. We successfully produced end-to-end production runs across core purification assets and achieved 8,000 pounds per hour rates. We produced significant quantities of co-product one and co-product two at the commercial scale and successfully implemented a series of small projects to improve our month-over-month production of co-product two. We have delivered commercial-grade samples to our customers for final application approval and received strong feedback on the product quality. We repurchased almost all of our energy revenue bonds, which should provide a mechanism for additional liquidity, and we are preparing for a Q2 outage that we expect will transform the reliability of our operations. At this time, I would like to hand over to our moderator for Q&A.

And our first question comes from Gerry Sweeney of ROTH MKM.

Hey, listen, just starting with CP2. Obviously, this sounds like this is the bigger bottleneck that you're working on. As you're looking at the engineering challenges around this, how difficult is it to engineer around this? I know you went into a little bit of detail on the call, but it sounds like this is a multi-step process. Overall, how challenging will CP2 be to complete?

Yes, that's a good question, Gerry. The good news is that we are producing CP1 and CP2 in the process. The very fact that we're able to produce CP2 and it reaches the bottom of our system is proof that our core technology works. We have faced several challenges like this in other areas, and we've always successfully worked through them. This is not unique to bringing new technology to market. In particular with respect to CP2, it is a challenging technical problem, but we believe we have a good design solution in place and expect a good development of that in Q2.

You discussed pursuing feedstock with less CP2 content. Admittedly, I'm not sure exactly what the co-product two is, but is that supply chain or ability to procure material with lower CP2 content a challenge? Is it more expensive? How should we think about that?

Yes, the CP2 that we're primarily discussing is polyethylene. When we harvest polypropylene feedstocks from the market, the bales will contain varying levels of polyethylene contamination. The higher the polyethylene in the bale, the higher the CP2 removal required. What we are doing now is attacking it from multiple angles. First, we are looking for already available products that we can purchase. They come at various price points, but we believe they all still make sense inside our purification economics. Additionally, we're improving the operation of the current CP2 removal, and we're also exploring a small project to effectively sort the polyethylene out of our processed prep material, reducing the amount of CP2 we put into the feed.

Got it. There is enough raw material with CP2 characteristics out there that you can obtain?

We believe so. We have a strong feedstock network in place now. We're continuously searching for new supply sources. As we test the feed through the purification plant, we discover more opportunities. We do not expect this to be a long-term constraint.

Curious about SG&A. I found it a bit shocking. I'm unsure if it’s a change in reporting, but I think SG&A was around $29 million for the quarter. Can you give guidance on a good run rate for SG&A?

So when we talk about SG&A in terms of unit economics, we're specifically referring to the corporate overhead that supports Ironton operations. This has been higher than the estimates we had three to five years ago due to inflationary pressures globally. We're consistently focusing on optimizing our overall cost position, as this is standard in business and something we keep an eye on.

Thanks, I'll jump back in line.

Our next question comes from Eric Stine of Craig-Hallum.

Could you discuss the off-takers at Ironton? I know you in the past have not disclosed a lot about specific contracts, but I'm curious if are there dates embedded in these offtake agreements? If you don't reach them, could customers potentially renegotiate the contracts? What are the patience levels of customers given that Ironton has taken longer than expected?

We have no concerns there. We have very strong demand for the product, and all of our core customers are currently testing our commercial-scale products for the final application and are prepared to receive the volume at scale. Additionally, our portfolio of customers with the Augusta project is also interested in taking early material from Ironton to jumpstart the sales process for them from Augusta.

So it hasn't impacted prospects for future plants either?

No, on the contrary, commercial products produced at Ironton have accelerated the demand for our product. We have many new customers testing our product through the Formera contract and distribution channel, and the favorable results they see quickly brings them back to us for further sales.

To confirm, did you say in Q4 you produced 200,000 pounds of pellets? Did you mean 1.3 million, or is that a cumulative number?

The production number is quarter-to-date. Yes, the 1.2 million pounds is indeed quarter-to-date.

It's good you no longer have to meet milestones dictated under the bondholder agreement. But where do you stand now? Are you willing to share when you think you might reach the 4.5 million level on the path to the 9 million? You have mentioned a 7-day continuous production goal.

It's challenging to predict the S-curve of production when introducing new technology, especially while running equipment for the first time. Our focus is less about achieving specific milestones and more about steadily improving every day. We expect to see continued improvements in production every day, sometimes experiencing step-change improvements. The planned Q2 outage is significant; after running continuously over the last couple of months, we've uncovered new items to address. We've engineered them and are ready to implement improvements, which we know will enhance our operations post-outage. The earlier milestones were a source of distraction from focusing on the fundamentals that establish long-term productivity.

We did invite questions in our press releases. This is Christian Bruey again, via our email at investor questions at purecycle.com. We wanted to get to a few of those. The first one is from Vishal Bakshi at Morgan Stanley. Dustin, on your previous updates, you mentioned that you ran various feedstocks to test the limits of your technology following the co-product two fix. How confident are you that you can run many different feedstocks or do you anticipate long-term challenges regarding availability if you're limited in your inputs?

Thank you for the question, Vishal. It's essential to recognize the scale of the opportunity we are engaging in. There are literally billions of pounds of feeds available. We've already run the key feeds for Ironton, which is typically Raffi, as well as post-consumer curbside rigids, and they ran successfully. Therefore, I'm not concerned about the availability of feed. There is plenty of feed to fulfill Ironton with those two key streams alone. Additionally, our technology allows us to procure what others cannot because our process washes the molecule from the inside out. We will continue testing feedstocks to discover new economic opportunities.

The next question we received was from James Graham. You mentioned sampling, but have any actual products been made from the resin produced at the commercial plant? And if so, what are they?

We have indeed made actual products, which you can see in the earnings packet. They have not yet been produced at commercial scale, as the first step is to test them in operations to evaluate their performance before allocating larger volumes for sale. We are doing this across multiple fronts with various customers.

The next question is from Spencer Moore. Is the screen changer still necessary if you successfully purged the beads from the system?

Yes, probably not, but a little clarification is due. There are really two purposes for the screen changer. The first is to remove the initial beads that contaminated the system. Following the outage in November, we were able to do that successfully; it did take longer than we expected due to a higher number of beads in the system. However, once the beads are gone, there's still an opportunity to use the screen changer as a final filtration step for the product, which often positively impacts color and opacity.

There were two questions that came in from John David. The first one, what is the latest on the Augusta side?

We are very excited about the path for Augusta. We've reassessed and reset our base engineering in partnership with KBR, who is proving to be a helpful thought partner for enhancing our base facilities. We are also integrating the learnings from Ironton into that design. Don't forget; we've already invested around $85 million in pre-construction, engineering, and long lead purchases. That project is very much still in progress.

The second question from John was, has the expected market price for PureCycle's resin changed since it was discussed in 2023?

Yes. The dynamics of market pricing are complex. We'll probably avoid discussing specific pricing levels for the PureCycle product. The key point is that there is robust customer demand across numerous application lanes. Even with Ironton and Augusta running at maximum rates, they still represent a small fraction of our production and a minor portion of sustainability commitments from our core customers. We see plenty of opportunities ahead and haven’t yet tested the whole market. We will continue testing new applications to our process.

Final email question comes from Michael Grasso. Given the increased production and the commentary around high demand for the product, what is the revenue outlook for Q1 2024?

We are very optimistic about the future fundamentals of the business. I believe that coming out of the Q2 outage, this optimism will persist. However, we prefer not to set a precedent of providing mid-quarter guidance at this moment. What's vital, as I mentioned in the presentation, is that we feel good about the original economics.

That is all of the email questions. I will pass it back over to the…

Actually, I see there are no more questions. I will now return the call to Dustin Olson.

Thank you for everyone's time today and for dedicating your valuable time to our business and operations. This is a very important week for PureCycle, and honestly, I have never been more excited about our progress, potential, and future. Thank you for your time today and for believing in the mission of PureCycle and our team. We look forward to seeing you tomorrow at our Ironton Showcase Day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.