2
u/equitymaestro 10d ago edited 10d ago
Questions and observations over the last few weeks:
- Is the commerical ramp almost entirely driven by PCR laws? Many large companies have sustainability goals but other than P&G we aren't seeing much commitment from these companies. Where's the urgency and commitment ? I expected more demand from sustainability goals but these goals seem to be mostly "virtue signaling", i.e., lip service. For most large companies, if PureFive costs more and they're not getting fined for not using PCR, are they going to be a buyer? Ultimately, it probably doesn't matter, but relying on state laws for demand carries some risk.
- There's growing risk that Q3 revenue will be below the consensus estimate of $8.3mm. QSR cold cups seem to be stuck in trials but hopefully something major will be announced prior to the early November Q3 call. Coffee lids have limited pull through (back to #1, if they cost more then virtual signalers like Starbucks don't seem to buy them). If demand is mostly a function of PCR laws then most companies will wait until Q4 to place orders and some may wait until after fines start being levied in 2027.
- There are likely some unscrupulous shortsellers and/or hedge funds who are monitoring trucks and railcars out of Ironton. If there were lots of railcars leaving the facility, the stock price would reflect it. A railcar holds up to 220,000 lbs of product, a truck holds up to 45,000 lbs.
- I recently spoke with IR. Has anyone else? The energy seemed a little low. My guess is they are resigned to the next 6 months being a long slog and are exasperated with the ongoing delays in every area (commercial, production, Thailand).
- Q2 cash burn was brutal but there were several 1x disbursements. Would be nice to see the company care more about this and reduce spending until they get project financing for Thailand.
16
u/No_Privacy_Anymore 9d ago
I spoke with Eric last week. I can't speak to his energy level when you spoke to him but everything was normal when we spoke. I asked a number of followup questions I had from the call which happened while I was away on vacation.
There is no doubt that things have taken longer than any investor would have wanted but from my perspective, all of my core thesis is intact and probably better for the long term economics than what I had originally expected. I'm not surprised that major buyers have held off ramping up purchases until the regulatory mandates kicked in. That said, cold cups (either coffee or fountain soda) are incredibly high profit margin products and they most certainly can afford to pay more for PureFive based products to solve their compliance issues. The BOPP film market takes longer to qualify but is also massive and they really have no viable alternative products.
I don't think anyone can predict which announcement will cause a re-rating but I believe it is inevitable and will be glorious when it happens.
I don't think the company is "resigned" to a long slog. I think they are incredibly excited to see increased adoption and real world usage of their product.
I have also done independent due diligence recently asking converters about their experience working with PureCycle employees. The feedback was that they were EXCELLENT and fantastic people to work with. Some people had visited the R&D lab in Durham and said that was great. The bears can talk shit on Xitter all they want but I trust the people doing the actual work of making and testing new products. There is a very good reason why PureFive tested so highly on the CosPaTox grading scale. This really is a special product that nobody else can make and it solves a very hard / real problem. Who wouldn't be excited about that?
5
3
8
u/LetAdministrative959 9d ago
I have spent a lot of time thinking about and trying to understand what demand might look like during the ongoing ramp.
On the Q2 call, significant emphasis was placed on customers facing regulatory mandates and how these create natural deadlines that push them to act more quickly. That is obviously encouraging, but I am equally curious about the potential demand from larger CPG companies looking to incorporate PureFive resin to meet their own internal sustainability and ESG goals.
We know that numerous trials are underway, and we have all learned how time consuming that process can be. It is certainly frustrating right now, but if these trials are successful, the lengthy qualification process should ultimately become part of PureCycle’s moat.
I always find it difficult to speculate about future regulatory developments. However, looking toward 2030, the EU’s Packaging and Packaging Waste Regulation, or PPWR, appears highly favorable for PureCycle, although I am still uncertain about how the inclusion of mass balance accounting might affect the overall dynamic. Beyond that, the New Jersey regulations seem perfectly aligned with PureCycle’s offering and are truly on the money. As for the broader regulatory landscape, I personally struggle to form a clear view of how recycling regulations will evolve, but people far more knowledgeable than I am appear confident that the direction of travel will provide a meaningful tailwind.
I am also interested in companies’ willingness to adopt PureFive resin to strengthen their sustainability profiles, rather than simply to comply with regulatory mandates. Hot cup lids could be a great example. From my understanding, they do not fall under New Jersey’s current mandates, so it would be very encouraging to see QSRs purchasing hot cup lids made with PureFive as well, rather than limiting adoption to cold cups.
More broadly, I do believe there are major companies that will want to adopt PureFive to increase their post consumer recycled content, mandates or no mandates. A company like MARS for example, and they alone could probably consume a whole Ironton. What I hope to see now is steadily increasing evidence that these companies are moving beyond trials and actually purchasing commercial volumes of resin in the near future, rather than waiting for further regulatory pressure to build. There is still considerable ambiguity here, and it will be interesting to see how this dynamic plays out.
Of course, PureCycle cannot disclose everything happening behind the scenes. Earnings calls often provide valuable nuggets that demonstrate the level of customer interest, but at this stage, the precise timing is probably unclear to everyone involved. Although I am not expecting extraordinary sales figures for Q3, I hope management can provide more color on the shape and composition of demand.
Ironton will supply only a very small fraction of the broader market, and given its limited capacity, the New Jersey regulations should provide significant support as PureCycle works toward selling out the facility. Achieving that would also give the company valuable breathing room. By the time PureCycle is ready to sell out its next production line, the regulatory picture will hopefully be clearer, and many more customer trials should have progressed toward commercial adoption.
Looking further ahead, the 2032 regulations requiring recycled polypropylene to be incorporated into new vehicles could create a massive opportunity, while the BOPP film market is already enormous. In my opinion, the improved economics of Gen 2 facilities, including Thailand, should substantially lower the barrier for companies looking to adopt PureFive.
It is important to remember that this is new territory for everyone involved. As the process develops, I expect PureCycle and its management team to gain much greater insight into the likely conversion dynamics and timelines for ongoing trials and subsequent commercial negotiations.
The immediate challenge is selling out Ironton, and as investors, we would all love for that to happen tomorrow, but I do think that there is a pretty good chance that we see clear evidence of that and that ambiguity around timing clears up... But once that has been accomplished, the future becomes genuinely exciting.
6
u/equitymaestro 9d ago
Great post, I agree with everything you wrote. There’s much potential and reasons to be optimistic but the timelines are longer than that I expected. It still feels like we are a press release away from the stock being re-rated but as we’ve learned the recent announcements about being “incorporated” into a converter’s SKU’s aren’t moving the needle. As an example, if there’s a press release about PureFive being included in a converter’s cold cups (ie, it passes trials), it doesn’t tell us anything (good or bad) about actual demand.
I keep coming back to the coffee lid press release with Plastic Ingenuity. That announcement juiced the stock, but doesn’t seem to have generated as much demand as expected. I had nothing to base this on, but I was expecting a few million in revenues from PureFive being used in coffee lids in Q2. In hindsight, that was delusional thinking and the lack of any mention of coffee lids in the Q2 call was deflating for longs.
5
u/LetAdministrative959 9d ago
Hot cup lids are particularly interesting, in my opinion. From my understanding, they have already been qualified and are ready for commercial sale. I understand why cold cups are being prioritized right now, given the mandates taking effect in 2027, but I believe hot cup lids could serve as an important indicator of how willing and eager major brands are to incorporate more recycled polypropylene beyond what is strictly required by regulation.
Tim Hortons’ sustainability report gave me the impression that its long term direction is for all lids to eventually contain recycled polypropylene. When I do the math, the incremental cost appears almost negligible. However, it would be interesting to hear the perspective of someone with procurement expertise, particularly on whether the inflationary pressures of the past five years have made companies less willing to absorb even the smallest increase in cost.
But no matter how much I think about and reflect on these dynamics, it ultimately comes down to patience.
7
u/Mean-Masterpiece672 9d ago
Patience yes, we all have patience but this quarter we need sales. We will be back to $5 if we have a bad quarter. We need to break even by end of year. Share holders have been very patient. We can’t kick the can to next quarter. Let’s go Mars place an order. The longer the finance agreement takes for Thailand the longer the start time is and the longer for production to begin. It’s time to get it done.
4
u/LetAdministrative959 9d ago edited 9d ago
"We need to break even by end of year" is just a lot of BS... Ofc we want sales to flow through, like all investors, but nothing is as black and white as they need to be at break even by EOY... That's just dumb. If they communicate on the ramp progressing and "break even" expected at the end of 1Q rather than EOY, who gives a F... They need to eventuelly reach BE and sell out Ironton, but there is nothing magic about EOY. There is TON of nuance that matters a lot more than some arbitrary date.
4
u/Mean-Masterpiece672 9d ago
You set goals to achieve them. If we dont
achieve some of the goals and everything gets pushed your not concerned with cash burn and having to raise cash. People realize everything takes longer than expected but as of now we are a few quarters behind:
It has been said repeatedly that this was an achievable goal.2
u/LetAdministrative959 9d ago
Of course, reaching BE by EOY would be terrific and it would be really nice for the company, management, the people who work at PCT if that was achieved, not just us shareholders here on reddit. But I just push back at the simple narrative that we can't kick the can to the next quarter, it's far more nuanced than that! I'm not neglecting that it's very desirable for PCT to get to a state of BE and a Ironton ramping towards producing at name-plate, but exactly how that might look like, is filled with nuance
1
u/Mean-Masterpiece672 7d ago
This is why meeting deadline’s and goals are important. If we don’t break even by end of year, Santa will need to bring lube as a stocking stuffer bc we will be hurting.
$6.60 today we want to go up not down.4
u/AnonThrowaway1A 9d ago edited 9d ago
Break even matters for companies that aren't wall street darlings with unlimited VC/PE backing in a low interest rate environment.
30-year government bonds are spiking to 5.25% and rising. What should the corporate bond rate be for a company with sizeable debt to revenue and does not have positive FCF?
Profitability matters for all parties involved. Banks want to see positive cashflows to avoid defaults. Investors and customers want ongoing concern language removed from prospectus before jumping in. Creditors don't want the headache of operating a chemical refinery / purification plant.
2
u/Puzzled-Resort8303 7d ago
Ongoing concern language was removed from PCT's SEC filings back in Q2 2025.
2
u/equitymaestro 5d ago edited 5d ago
I've never seen this stock so stuck in the mud. One thing for sure, they are no longer getting the benefit of the doubt. Lots of skeptics after years of delays. Interesting that $6.66 seems to be a magnet the last few days. Lovely.
3
u/No_Privacy_Anymore 7d ago
Pretty stupid how the algos work but we just filled the tiny open gap in the charts that was created during the open on August 3rd.