A-G,

I’ve been noodling on this since your original post. I have a few thoughts.

If there is, as you ask, some threshold number at which point the backlog discourages new orders, I think it would be relative to overall production capacity. So as PYR's network of subs grows and as the Company’s production footprint grows the meaning of a particular backlog size changes. It would be a moving target.

I also believe one would need to segment the backlog by business line, because they are not all the same. In the overall backlog number, you would have plain torch sales, entire Drosrite systems with associated engineering, AM powders, PyroGreenGas landfill systems, etc., etc. They all have differing timelines, warehousing needs, validation requirements, and so on. I might be more concerned about orders piling up on individual torches than I might be for aerospace company orders for titanium powders that require more validation time.

Peter did address capacity directly in the most recent earnings call. He said that PYR had no problem spreading around the work to subs without giving away the secret sauce to how all the pieces fit together. And they’ve doubled headcount.

I also wonder how inflation affects the backlog in cases where there are cost-plus elements of signed deals. In such a case, the backlog dollar value could rise without an increase in units owed to customers. So portions of rising backlog may reflect PYR’s ability to pass on rising costs of inputs or logistics.

The other thing we don’t know about the backlog is how much financial engineering is baked in at any given time. PPP mentioned mutually agreeing to delay a customer payment for some greater future benefit. Any deal like that would add to backlog accounting.

Looking at your BMW / VW analogy… In the case of iron ore pelletization the image does not work. There is no “VW” for a VALE or a RIO to buy in place of the “BMW” they want. For them, the choice is “BMW” or “Thomas the tank engine.” And, once fully bought in, those companies alone could balloon the backlog by giving the green light. BUT, then PYR will have money to throw at production and logistics.

My feeling is, based on the uncommon offerings of this Company and given the kind of clients involved — who plan for generations at a time, if there is a deterrent backlog size, we are nowhere near it.

OK — now here’s a thought experiment of my own. PPP mentioned that their M&A strategy was focused on privately held companies. I can imagine a world in which PYR has visibility on 10 years of orders for, say iron ore pelletization retrofits, and decides to vertically integrate logistics and buys a family owned trucking company to control delivery times… and then be able to lease out capacity for HPQ deliveries of silicon to automobile OEMs. Crazy? Maybe, but fun to imagine.

GLTA

MP