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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 March 31, 2024

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

 

img14928909_0.jpg 

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, Florida 32822

(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 May 3, 2024, there were approximately 164,630,907 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

 

 

 

Page

PART I - Financial Information

 

 

 

Item 1. Financial Statements

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

5

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three months ended March 31, 2024 and 2023

6

 

 

Unaudited Condensed Consolidated Statements of Stockholder’s Equity for the Three months ended March 31, 2024 and 2023

7

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2024 and 2023

8

 

 

Notes to the Interim Condensed Consolidated Financial Statements

9

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

46

 

 

Item 4. Controls and Procedures

46

 

 

PART II - Other Information

 

 

 

Item 1. Legal Proceedings

47

 

 

Item 1A. Risk Factors

47

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

47

 

 

Item 3. Defaults Upon Senior Securities

47

 

 

Item 4. Mine Safety Disclosures

47

 

 

Item 5. Other Information

48

 

 

Item 6. Exhibits

50

 

 

Signatures

52

 

 

2


 

PureCycle Technologies, Inc.

PART I - FINANCIAL INFORMATION

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the financial condition, results of operations, earnings outlook and prospects of PureCycle Technologies, Inc. (“PCT”). Forward-looking statements generally relate to future events or PCT’s future financial or operating performance and may refer to projections and forecasts. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions (or the negative versions of such words or expressions), but the absence of these words does not mean that a statement is not forward-looking.

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, 2023 (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:

PCT's ability to obtain funding for its operations and future growth and to continue as a going concern;
PCT's ability to meet, and to continue to meet, applicable regulatory requirements for the use of PCT’s UPR resin (as defined below) in food grade applications (including in the United States, Europe, Asia and other future international locations);
PCT's ability to comply on an ongoing basis with the numerous regulatory requirements applicable to the UPR resin and PCT’s facilities (including in the United States, Europe, Asia and other future international locations);
expectations and changes regarding PCT’s strategies and future financial performance, including its future business plans, expansion plans or objectives, prospective performance and opportunities and competitors, revenues, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures, and PCT’s ability to invest in growth initiatives;
the ability of PCT’s first commercial-scale recycling facility in Lawrence County, Ohio (the “Ironton Facility”) to be appropriately certified by Leidos (as defined below), following certain performance and other tests, and commence full-scale commercial operations in a timely and cost-effective manner, or at all;
PCT’s ability to meet, and to continue to meet, the requirements imposed upon it and its subsidiaries by the funding for its operations, including the funding for the Ironton Facility;
PCT’s ability to minimize or eliminate the many hazards and operational risks at its manufacturing facilities that can result in potential injury to individuals, disrupt its business (including interruptions or disruptions in operations at its facilities), and subject PCT to liability and increased costs;

 

3


PureCycle Technologies, Inc.

PART I - FINANCIAL INFORMATION — CONTINUED

 

PCT’s ability to complete the necessary funding with respect to, and complete the construction of, (i) its first U.S. multi-line facility, located in Augusta, Georgia (the “Augusta Facility”); (ii) its first commercial-scale European plant located in Antwerp, Belgium and (iii) its first commercial-scale Asian plant located in Ulsan, South Korea, in a timely and cost-effective manner;
PCT’s ability to procure, sort and process polypropylene plastic waste at its planned plastic waste prep (“Feed PreP”) facilities;
PCT’s ability to maintain exclusivity under the Procter & Gamble Company (“P&G”) license (as described below);
the implementation, market acceptance and success of PCT’s business model and growth strategy;
the success or profitability of PCT’s offtake arrangements;
the ability to source feedstock with a high polypropylene content at a reasonable cost;
PCT’s future capital requirements and sources and uses of cash;
developments and projections relating to PCT’s competitors and industry;
the outcome of any legal or regulatory proceedings to which PCT is, or may become, a party including the securities class action and putative class action cases;
geopolitical risk and changes in applicable laws or regulations;
the possibility that PCT may be adversely affected by other economic, business, and/or competitive factors, including interest rates, availability of capital, economic cycles, and other macro-economic impacts;
turnover or increases in employees and employee-related costs;
changes in the prices and availability of labor (including labor shortages), transportation and materials, including inflation, supply chain conditions and its related impact on energy and raw materials, and PCT’s ability to obtain them in a timely and cost-effective manner;
any business disruptions due to political or economic instability, pandemics, armed hostilities (including the ongoing conflict between Russia and Ukraine and the conflict in the Middle East);
the potential impact of climate change on PCT, including physical and transition risks, higher regulatory and compliance costs, reputational risks, and availability of capital on attractive terms; and
operational risk.

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)

 

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

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

COMMITMENT AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

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

 

 

 

 

 

 

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 LOSS

(Unaudited)

 

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 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)

 

 

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)

NOTE 1 - ORGANIZATION

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 were 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 were 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 over any 20 trading days within any 30-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 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,” “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 has begun limited commercial

operations but does not have any significant sources of revenue. 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 March 31, 2024, PCT had $25.0 million of Cash and Cash Equivalents, Debt Securities Available for Sale of $2.2 million, and Restricted Cash of $14.9 million. PCT also has a $200.0 million revolving credit facility with Sylebra Capital (the “Revolving Credit Facility”) that is currently unused and expires on September 30, 2025.

 

PCT sold an immaterial amount of UPR resin in 2023 and through March 31, 2024. Due to intermittent mechanical challenges during the commissioning 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 fully operational later in 2024.

 

As of 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. PCT also has other capital commitments of approximately $47.1 million related to long-lead equipment and pre-construction work for the Augusta Facility, and $17.0 million for equipment and leases related to future Feed PreP and purification facilities, both in the U.S. and internationally. Moreover, there are interest payments of at least $18.5 million, as well as other ongoing monthly costs associated with managing the Company and possible draws on the Revolving Credit Facility.

 

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 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 unrestricted liquidity is not sufficient to fund operations, fund outstanding commitments, and further 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 consolidated 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 these conditions, including adjustment of expenditure timing and execution of the 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 low-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 Cash 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 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 the interim periods presented in accordance with the rules and regulations of the SEC and accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions were eliminated upon consolidation. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2024. The accompanying condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented.

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 2023. Specifically, the Company reclassified certain expenses between Operating costs, Research and development, and Selling, general, and administrative to more accurately reflect the activities of the business. Total operating costs and expenses did not change for prior years.

Restricted Cash

Cash pledged as collateral for future capital purchases and leased properties is deemed restricted and included within 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 noncurrent on the consolidated balance sheet.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2023-09—Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures. The amendments in this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. The updated standard is effective for our annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting, which expands annual and interim disclosure 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 periods beginning in the first quarter of fiscal year 2026. Early adoption is permitted. We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

12

 


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 March 31, 2024 and December 31, 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

 

$

 

 

$

 

 

Revenue Bonds

On October 7, 2020, the Southern Ohio Port Authority (“SOPA”) issued certain Revenue 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 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, among other things, acquire, construct and equip the Company’s first commercial-scale recycling facility in Lawrence County, Ohio, the Ironton Facility. Capitalized terms used but not defined herein have the meanings ascribed thereto in the 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

13

 


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 and the Trustee (the “Third Supplemental Indenture”), which sets forth certain proposed amendments to the Bond Documents (“Proposed Amendments”) that will eliminate a substantial portion of the covenants, Events of Default (as defined below), and other material terms and protections for the benefit of the Holders contained in the Indenture, 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 to 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 Indenture ("Events of Default"), the Loan Agreement and certain of such other Financing Documents including, but not limited, to the following changes:

elimination of the Milestones and Revised Milestones;
amendments extending the Outside Completion Date to December 31, 2030;
amendments to the definition of each of “Outstanding,” “Bonds Outstanding,” and “Outstanding Bonds” in the Indenture such that any Bonds owned by or on behalf of PureCycle or an affiliate of PureCycle or the Issuer or an affiliate of the Issuer will have the same approval voting or consent rights as other Holders;
elimination of the requirement to produce sufficient annual gross revenues in order to provide a Senior Debt Service Coverage Ratio (“DSCR”) equal to at least 150% for each fiscal year, and a ratio of at least 110% of net income available for debt service;
elimination of certain financial prerequisites that placed limitations on the issuance of additional senior parity indebtedness, subordinate indebtedness and non-parity indebtedness;
elimination of the DSCR requirement for certain equipment liens;
elimination of delivery of interim financial statements on a quarterly basis for PCO and the Guarantor;
elimination of requirement for an unqualified opinion of the independent certified public accountant for year-end financials for PCO;
elimination of quarterly operating statements and monthly reconciliation statements;

14

 


PureCycle Technologies, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

(Unaudited)

 

elimination of the Operating Revenue Escrow Fund;
elimination of the restrictions on distributions by PCO on any of its membership interests, including management fees;
elimination of the requirement to disclose transactions with affiliates to the Trustee and bondholders and to seek approval of Majority Holders for affiliate transactions;
elimination of the requirement that offtake contracts provide revenues to PCO sufficient to meet a Senior Parity Coverage Requirement ratio (“SPCR”) of 125% for any fiscal year, commencing December 31, 2023;
elimination of the requirement that feedstock supply contracts provide feedstock to PCO sufficient to permit PCO to meet a SPCR of 125% for any fiscal year, commencing December 31, 2023;
elimination of the requirement that the Guarantor replenish the Contingency Account from the Liquidity Reserve Escrow Fund and replenish the Liquidity Reserve Escrow Fund;
amendments providing that the occurrence of an Event of Default (other than an Event of Default under the Loan Agreement, the Mortgage or the Tax Compliance Agreement, each as defined in the Indenture) will not be an Event of Default under the Indenture;
provide for a potentially earlier termination of the Guaranty and release of funds remaining in the Liquidity Reserve Escrow Fund after the Purchase;
provide for the release of funds (solely to the extent such release may be effectuated with the consent of the Majority Holders) on deposit in accounts in the Trust Estate (as defined in the Indenture) in an amount proportionate to the percentage of aggregate principal amount of Bonds that are submitted for Purchase (with such released funds being used by the Purchaser, together with other available funds of the Purchaser, to effectuate the Purchase); and
amendments to various escrow accounts and other funds managed by the Trustee and US Bank to permit the release of funds from such accounts in an amount proportionate to the percentage of aggregate principal amount of Bonds purchased by PCO or an affiliate of PCO from time to time.

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 each 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 outstanding 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 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. 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.

15

 


PureCycle Technologies, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

(Unaudited)

 

On March 25, 2024, SOPA, as Issuer, PCO, the Guarantor, PCTO Holdco LLC, a Delaware limited liability company and affiliate of PCO (the pledgor under the Equity Pledge and Security Agreement) and the Trustee entered into the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”) which amended certain provisions of the Indenture, 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 Trustee to release $22.1 million from the Senior Bonds Debt Service Reserve Fund and $3.3 million from the Repair and Replacement Fund, in each case, to PCO. In addition, the Fourth 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 Indenture and/or the Loan Agreement, as applicable, relating to the funding and maintenance of the Senior 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 an amendment to the Indenture, the Loan Agreement and/or other applicable Financing Documents provides otherwise in accordance with the terms of the Indenture, the Loan Agreement and such other applicable Financing Documents.

Sylebra Credit Facility

On March 15, 2023, PCT entered into a $150 million Revolving Credit Facility pursuant to a credit agreement (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” and “Security Agent”). The Lenders and their affiliates are greater than 5% beneficial owners of PCT.

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 with PCT, the Guarantors, the Lenders, and the Administrative Agent and Security Agent.

The Pure Plastic Term Loan Facility

On May 8, 2023, the Company entered into a $40 million term loan facility pursuant to the Term Loan Credit Agreement ("Term Loan Credit Agreement") dated as of May 8, 2023, among 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% beneficial owners of the Company.

On March 1, 2024, PCT increased the amount available to the Company under the Term Loan Credit Agreement's permitted indebtedness covenant basket for the Revolving Credit Facility from $150.0 million to $200.0 million and obtained a carve out to permit the Company to purchase the Revenue Bonds. Each of PureCycle Technologies Holdings Corp. and PureCycle Technologies, LLC are subsidiaries of the Company.

Green Convertible Notes

On August 21, 2023, the Company priced its private offering of $215.0 million in aggregate principal amount of 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 million in aggregate principal amount of the 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 million. Entities affiliated with a greater than 5% beneficial owner

16

 


PureCycle Technologies, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

(Unaudited)

 

of the Company purchased $50.0 million aggregate principal amount at maturity of the Notes. As of March 31, 2024, the fair value of the Green Convertible Notes was $137.6 million.

Principal repayments due on Long-term debt and Related party note payable over the next five years are as follows (in thousands):

 

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

 

 

NOTE 4 - 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% 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 March 31, 2024, approximately 17.0 million shares of common stock are currently authorized for issuance under the Plan, of which approximately 12.8 million shares remain available for issuance under the Plan (assuming maximum performance with respect to the 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 three months ended March 31, 2024 is as follows (in thousands except per share data):

 

 

Number of
RSUs

 

 

Weighted
average grant
date fair value

 

 

Weighted
average
remaining
recognition
period

 

 

 

 

 

 

 

 

 

 

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

 

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

 

The expected term of the shares granted is determined based on the period of time the shares 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 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 shares 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 Company’s closing stock price on the grant date.

18

 


PureCycle Technologies, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

(Unaudited)

 

A summary of stock option activity for the three months ended March 31, 2024 is as follows (in thousands except per share data):

 

 

Number of
Options

 

 

Weighted
Average
Exercise Price

 

 

Weighted
Average
Remaining
Contractual
Term
(Years)

 

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

 

 

 

 

 

 

 

 

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,” together with the Performance PSUs, the “PSUs”).

The Company issued 0.4 million PSUs for the three months ended March 31, 2024. As of 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 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 three months ended March 31, 2024 is as follows (in thousands except per share data):

 

 

 

Number of
PSUs

 

 

Weighted
average grant
date fair value

 

 

Weighted
average
remaining
recognition
period

 

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

 


PureCycle Technologies, Inc.

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED

(Unaudited)

 

 

Equity-based compensation cost is recorded within the selling, general and administrative expenses within the condensed consolidated statements of comprehensive loss. Equity-based compensation expense for the three months ended March 31, 2024 and 2023 is presented in the following table (in thousands):

 

 

 

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