PyroGenesis Canada Inc. (http://pyrogenesis.com) (TSX: PYR)
(NASDAQ: PYR) (FRA: 8PY), a high-tech company (hereinafter referred
to as the “Company” or “PyroGenesis”), that designs, develops,
manufactures and commercializes advanced plasma processes and
sustainable solutions which are geared to reduce greenhouse gases
(GHG), is pleased to announce today its financial and operational
results for the second quarter ended June 30th, 2022.
“We have posted Q2 2022 revenues of $5.8M,” said
Mr. P. Peter Pascali, CEO and Chair of PyroGenesis. “Our backlog
remains above $35M, a significant level and our pipeline continues
to expand. Despite gross reported revenue continuing to be impacted
by delayed client and contract decisions related to ongoing
international and regional logistical and resourcing headwinds, our
margins are at a level that puts us among industrial technology and
manufacturing industry leaders. The 43% quarterly gross margin
illustrates the combined strength of the company’s production
process and the strategy and care taken with contract negotiations.
Our trailing twelve-month (TTM) gross margin is a very healthy
32.4% despite the inclusion of the unusually low Q4 2021 gross
margin of 18% that was seen as a result of the cost and resource
synchronization process for Air Science Technologies acquisition
(now Pyro Green-Gas). Both this quarter’s gross margin, and our
TTM, are well above those of many of our contemporaries including
the high-profit industries we primarily serve: the aluminum
industry at 22.7%, iron and steel at 31.5%, and aerospace and
defense at 22.8%.1”
Mr. Pascali remarked, “Concurrently, two of our
flagship product lines, the NexGen plasma atomized metal powder
system and our plasma torch system for iron ore pelletization
furnaces, achieved long-anticipated milestones, placing both on the
threshold of full commercialization and widespread adoption. Even
more exciting is the momentum around reducing greenhouse gas
emissions and fossil fuel use in heavy industry which continues to
grow like never before. With the Inflation Reduction Act – the
combined climate change and inflation-fighting bill recently passed
by the US Congress – billions of dollars for clean energy research
and implementation across several industries, billions more for
targeted grant and loan programs to accelerate the transition to
clean electricity, and extensive incentives to reduce emissions
from industrial manufacturing processes – especially among the
large emitters that PyroGenesis serves – are about to become law.
We are well placed to benefit from this opportunity2.
Q2 2022 results reflect the following
highlights:
- Revenues of $5,847,180,
- Gross margin profit of $2,499,273
or 43% of revenue,
- Cash, cash equivalents and publicly
traded shares at June 30, 2022 of $9.4M
- Backlog of signed and/or awarded
contracts of $35.3M
Post-Quarter End Events
On July 5, the Company achieved a major
milestone when it confirmed delivery and arrival of its plasma
torch system to one of the world’s largest producers of iron ore.
This delivery, for the $1.8M order made by a multi-billion-dollar
international producer of iron ore pellets who has committed to
reducing its greenhouse gas emissions, is in preparation for
first-ever live site usage and site acceptance testing (SAT) of
plasma in the pelletization process – a major upstream step in the
steelmaking process. The delivery comes after the client – who has
over ten (10) iron ore pelletization plants globally, each possibly
requiring up to 50 plasma torches, or more than 500 torches in
total – conducted extensive modeling, simulations, business case
development, and live factory acceptance tests of plasma torches
over the course of a year, as a potential solution toward meeting
their carbon reduction goals. The Company also previously disclosed
that it has provided a cost estimate for 36 plasma torches to that
same Client, at a value range of $95-115 million.
On July 18, the Company provided a corporate
update to its 3D printing metal powders business unit. The update
indicated that, with the Company’s NexGen plasma atomization system
now capable of production titanium powder at commercial bulk order
scale, discussions are now underway between the Company and its
European commercial partner Aubert & Duval for full
distribution agreements, including broader distribution planning,
order planning, and logistics. Additionally, the update indicated
the Company has reached the final phase of the lengthy metal powder
qualification process with a global aerospace company, with an
anticipated end date during Q4 2022. If successful, the
qualification will certify the Company’s metal powders for use by
the Client and its component suppliers. The update also indicated
the Company has commenced general inventory production of titanium
metal powder, has started discussions with a major distributor for
Asian market expansion, is pursuing ISO 13485:2016 certification
for medical device usage, announced an intention to produce
aluminum alloy powder, and is pursuing a strategy to build and
operate a metal powder manufacturing facility in Europe.
OUTLOOK
The first half of 2022 has proffered an unusual
combination of events and results.
The Company – as with much of the industrial
technology and manufacturing sectors – has felt the repercussions
of macro-economic headwinds that have affected the planning,
logistics, and spending of its customers and of its sales pipeline
targets.
These conditions have weighed, at times heavily,
on both the Company’s top and bottom lines, with potential or
planned sales being impacted by customer resourcing, staffing, and
purchasing delays, and with continued governmental and logistical
issues preventing other customers from finalizing contract
negotiations or taking delivery of their fully completed orders –
orders that represent significant revenue and income to the Company
once they can be moved out of our warehouse.
What was anticipated to be a major growth first
half, has adjusted to be more of a modest stage-setting for the
second half of the year and into 2023, as existing and prospective
customers moved back their planning and decision-making in the
quarter to accommodate their own interruptions.
However, in parallel, and in contrast, during
the last quarter the Company achieved some of its greatest
corporate milestones – achievements that are considered major
advancements for both PyroGenesis and its customers’ industries,
and which are anticipated to provide potentially large sales bursts
through to and beyond 2023.
These achievements include producing and
delivering plasma torches for the first-ever in-factory use within
an iron ore pelletization furnace – a major upstream step in the
steelmaking process – and the movement from sample size to
commercial-scale batch production of titanium metal powder
production for 3D printing and additive manufacturing, from the
Company’s plasma atomization system.
These milestones continue to set the company up
for the accelerated business growth that the previous three decades
of research and development have made possible.
Importantly, as the global economy transitions
out of the disruption stage it has found itself in for several
quarters, we see a return to logistical and resourcing stability
for our heavy industry and government customers throughout the rest
of 2022 and 2023, but with a renewed sense of urgency.
Our value proposition remains the same, yet with
the events of 2020-2022 revealing the precariousness of the world’s
supply chain, fossil-fuel energy availability, workforce, and
material cost certainty, the Company’s technology offering looks
even better positioned.
Our ability to help impact and remake several of
the major priorities facing heavy industry – priorities that have
fallen further behind during these past two years – such as
greenhouse gas emissions reduction, fuel switching to
combustion-free electric sources, improved value recovery of metal
waste-streams, enhanced metal production output from the same
input, safe destruction of pervasive chemicals, and more rapid and
higher quality metal powder production for component weight
reduction – leaves us excited about our recent critical milestones
and our long-term positioning.
All of these factors, bolstered by the
quickening global push towards fossil fuel reduction at both
industry and government levels that further showcases the
PyroGenesis advantage, allows Management to state with continued
conviction that despite the challenges seen in the year’s first
half, the company believes opportunities for PyroGenesis continue
to expand.To note, until such time as the Company produces
consistent recurring revenue or continuous large scale orders and
can offer forward-looking guidance, we will continue to provide an
Outlook that is more descriptive, with a combination of actual
achievements combined with working opportunities, and less focused
on financial numbers.
Overall Strategy
The Company continues to build on its strategy
to offer technology solutions that produce benefits through
greenhouse gas (“GHG”) emissions reduction, clean electric fuel
sources, safe waste destruction, and improved production output and
quality, that take advantage of the Company’s expertise in patented
ultra-high temperature processes for heavy industry.
We have acknowledged our strategy to be timely,
as many governments in jurisdictions around the world promote and
fund environmental technologies and infrastructure projects. After
2021 proved an even greater affirmation of this approach as major
industries targeted by the Company not only recommitted to their
targets, but in some cases raised them significantly, 2022 has
brought about more circumstances that highlight how technology
solutions like those from PyroGenesis will be in even greater
demand.
In particular, the conflict in Ukraine has
exhibited how geopolitical influences will continue to impact the
supply of metals that are already under extraordinary market
demand. As supply chain issues, worries about supply reductions,
and additional sanctions on Russia (a major producer of the world’s
aluminum supply) caused massive fluctuations to aluminum
spot-prices, the conflict also more fully exposed the vulnerability
of aluminum producers to power availability and energy price
uncertainty, as energy supply challenges that were already being
experienced by European and Asian metal producers were exacerbated
during the war.
All of these factors show that with global metal
demand growing (anticipated to grow by 80% by 2050)3, and industry
carbon-reduction targets not yet on track to meet their goals,
aluminum producers must find ways to improve their efficiency, and
increase their yield of high-quality metal from current production
– all while lowering their carbon footprint. PyroGenesis’ range of
technology solutions provide just such an opportunity, with the
Company’s DROSRITE™ systems providing industry-leading dross
recovery rates of high-quality aluminum, inline and on-site, with a
lower operating expense and lower carbon footprint than all
competing technologies; meanwhile, the Company’s mainstay plasma
torch offering provides another technology-driven solution for
metal producers looking to reduce their reliance on a volatile
natural gas and diesel supply chain within any aspect of their
operations that require metal melting or heating, while again
eliminating fossil fuel emissions.
These same or similar pressures are affecting
the global steelmaking industry, into which the Company has already
sold and now delivered initial clean electric, non-combustion
plasma torches for final pre-order test runs. Macroeconomic
pressures may in fact serve to expedite the need for faster
implementation over the next year or more.
For clarity, as stated often, PyroGenesis’
product lines do not depend on environmental incentives (tax
credits, GHG certificates, environmental subsidies, etc.) to be
economically viable; with the increased industry carbon reduction
commitments, it is anticipated that the Company’s growth drivers
will expand, and shareholders will see increased value.
While the Company is not immune to how COVID-19
and other external factors negatively impacted businesses over the
past two years, specifically related to the work force and, more
importantly, the supply chain, Management believes that – while it
can do little about the strain on its customers’ and prospects’ –
the Company itself is well structured, and through various
mitigation measures these challenges continue to be dealt with in
an effective manner. The Company expects even greater improvements
as the impact of COVID-19 and other external factors continues to
recede during the remainder of 2022.
Organic Growth
Organic growth will be spurred on by (i) the
natural growth of our existing offerings; (ii) leveraging off the
insider “golden ticket” advantage we have with several industrial
customers due to how some of our industrial systems are installed
inside a customer’s facility (vs. the legacy systems that are
installed off-site) – enabling us to see first-hand some of the
additional daily challenges faced by our customers, and then upsell
to them accordingly; (iii) exploring new ways scientifically (and
to corresponding markets laterally) to provide unique solutions and
value that helps industries deal with some of the most pressing
environmental, engineering, and energy problems; and (iv) building
new manufacturing and chemical recovery facilities in overseas
markets, as per our recent announcement to pursue the construction
of a European production facility for metal powder production.
Over the past several years, PyroGenesis has
successfully positioned each of its business lines for rapid growth
by strategically partnering with multi-billion-dollar entities.
These entities have identified PyroGenesis’ offerings to be unique,
in demand, and of such a commercial nature as to warrant the
unique, long-term, supportive relationships that the Company has
experienced while it ramps up various technologies to
commercialization. We expect that these relationships have us well
positioned to transition into significant revenue streams once full
commercialization is achieved.
Aluminum Industry Process Improvement
As mentioned in previous reports, momentum with
PyroGenesis’ aluminum Industry strategy and offering continues to
expand.
During the quarter, the company announced that
its DROSRITE™ waste metal recovery technology had been successfully
commissioned for Ma’aden Aluminum in Saudi Arabia, one of the
world’s largest primary aluminum producers with 2021 revenue in
excess of US $7 billion. There, the DROSRITE™ technology is helping
to service the Ma’aden plant in Ras Al-Khair, a joint venture
corporation with Alcoa that is the largest and most efficient
vertically integrated aluminum complex in the world and includes
one of the world’s largest smelters. At Ma’aden, the first three
DROSRITE™ systems passed site acceptance testing and were fully
commissioned, with the remaining four already manufactured and
awaiting final shipment at the end-user’s request.
In addition to the DROSRITE™ waste metal
recovery system – one of the largest and fastest growing dross
recovery solutions in the world, with 11 large DROSRITE™ systems in
use or slated for delivery to markets around the world, and three
more LOI’s in play – during the quarter the Company provided a
comprehensive update on the aluminum business line as a whole,
outlining how increasing demand, global supply shortages, and
fluctuating prices and energy availability were impacting aluminum
producers, allowing PyroGenesis to announce new-use markets after
numerous inquiries for many different aspects of the aluminum
production process. As the aluminum industry eyes greater
technological innovation to improve production and reduce fossil
fuel reliance, few technologies are as ready as PyroGenesis.
Subsequent announcements in the quarter outlined
even more areas where the Company’s technology is being considered.
Combined, the various announcements revealed that PyroGenesis’
technology is being used, studied, or actively evaluated for use in
the upstream carbon anode baking process, as a fuel replacement in
scrap re-melting furnaces, in molten holding furnaces, in new
furnace production, in downstream cast-house furnaces, and in
retrofitting of existing aluminum recycling furnaces.
With the relationships the Company has been
developing throughout the industry, and as a result of the success
seen by its technologies in the primary aluminum sector, interest
has now expanded into secondary scrap-based producers, as well as
downstream parts manufacturers. This represents a significant
change and advancement from just 18 months ago.
Finally, the various joint ventures announced in
prior quarters continue to evolve.
For the joint venture technology geared to
handle the leftover residues resulting from the processing of waste
stream metal dross, the pre-launch requirements and considerations
have entered the final stage. Chemical residue samples from dross
produced at one of the Company’s clients’ facilities are being
tested in two different countries, and the results of those tests
will inform final steps.
As stated previously, we believe that valorizing
the residues and producing high end products will further define us
as the go-to company for all dross-related processing.
For the partnership with Aluminerie Alouette
(the largest primary aluminum smelter in the Americas and co-owned
by Rio Tinto and Norsk Hydro), for the development of a solution to
safely recover various metals and compounds from the heavily
contaminated carbon lining of aluminum smelters (known as “spent
pot linings”), work continues, with lab-scale tests concluded and
initial pilot phase in development.
Steel Industry Process Improvement
With steelmaking being one of the most
carbon-emission intensive industries in the world, estimated to be
responsible for between 7 to 12 per cent of all global fossil fuel
and greenhouse gas emissions, that industry continues to be under
intense pressure, including huge financial penalties, to find
emission reductions.
This pressure on the steelmaking industry allows
PyroGenesis to expect demand for its upstream, iron ore
pelletization solution to increase significantly, as steelmakers
look to all aspects of the production lifecycle for carbon
reduction opportunities.
As outlined in previous reports, serious
consideration is being given to replacing large numbers of the
fossil fuel burners in iron ore pelletization with PyroGenesis’
proprietary and patented plasma torches.
During the quarter, the Company achieved a major
milestone when, after extensive modeling, simulations, business
case development, production, and live factory tests – during a
period that was engulfed by a global pandemic – our plasma torch
system for iron ore pelletization was produced, assembled, and
shipped (as per the February 8 news release designating a Q2
quarter end shipping timeline) to the clients – in preparation for
first-ever live factory usage and factory acceptance testing toward
that carbon reduction goal.
As previously disclosed, that client is a
multi-billion-dollar international producer of iron ore pellets and
one of the largest in the industry, whose name will remain
confidential for competitive reasons. The Client, which has
committed to reduce its GHG emissions, has over ten (10) iron ore
pelletization plants, each possibly requiring up to 50 plasma
torches, or more than 500 torches in total. The Company has also
previously disclosed, that we have provided a cost estimate for 36
plasma torches to that same Client A, at a value of $95-115
million. The range is an estimate due to usage and customization
uncertainties which will be more clearly defined in due course.
Other previously announced clients – Client B,
one of the largest iron ore processes in the world who has signed a
$6M contract with the Company for 4 plasma torches for their
pelletization system, and Client C, who is not only a significant
player in the iron ore pelletization industry but is also a major
player in the steel industry – continue to progress at their own
pace.
For Client B, production of the four torches is
underway. As previously announced, Client B has advised PyroGenesis
that, upon the successful implementation of the torches, subsequent
orders are expected to be for approximately 130 plasma torches.
PyroGenesis expects that the previously
mentioned government initiatives, geared to stimulating their
respective economies by promoting and funding environmental
technologies and infrastructure projects, will only serve to
increase interest in PyroGenesis’ plasma torch offerings to other
companies in this space. While potential clients seeking government
support for large initiatives may draw out the onset of large
contracts, the sheer number of potential customers, and the fact
that the Company will engage with many of them in different stages
at different times, will help to ensure a long, overlapping
pipeline of potential projects.
In addition, PyroGenesis continues to target
other industries which are experiencing significant pressure to
reduce GHGs, and which utilize fossil fuel burners as well, such as
the cement, aluminum, and automotive industries.
Plasma Torches for Emerging / Niche
Markets
Separately, the Company also offers plasma
torches to emerging / niche markets where there is a high
probability of on-going sales from successful
implementation.
One such example is when, in Q1 on February 7,
the Company announced that it had signed a $273,000 contract with a
European research centre, to manufacture and deliver a 50Kw methane
plasma torch, which will be used by the client to develop a process
to convert hydrocarbons, including methane (a greenhouse gas), into
useful chemicals such as olefins (e.g. ethylene, propylene, etc.),
thereby significantly reducing GHGs.
That torch and system is currently in
production.
For each new market, the Company will also
benefit from providing proprietary spare parts and service, which
generates significant recurring revenue, thus complementing the
Company’s long-term strategy to build a recurring revenue
model.
Additive Manufacturing (Metal Powders for 3D
Printing)
Our metal powders business line also saw a major
milestone in Q2.
The Company’s NexGen™ facility, which
incorporates all the previously disclosed benefits (increased
production rates and lower capital & operating expenditures),
was announced as having produced and delivered two separate 100kg
orders for titanium powders – the first two commercial batch orders
for the system, after months of testing and sample size
production.
These orders were both an important commercial
milestone, as well as further validation of the Company’s process
and ability to supply some of the highest quality powder produced
to the AM industry using our NexGen™ plasma atomization process.
This process is a significant departure and upgrade from
conventional plasma atomization – a technology the Company also
invented and coined the term for, and which is still considered the
gold standard for the production of metal powder.
The two orders came via our European business
partner Aubert & Duval, who is a world leader in
industrializing high-performance steel, super alloy, aluminum and
titanium alloys for over a century. More specifically, they are a
recognized supplier of metal powders for additive manufacturing,
serving the Aerospace, Energy, Transport, Medical, Defense,
Automotive and other large scale, demanding markets.
Of note, a major tier-one global aerospace
company has already entered into an agreement with the Company to
formally qualify its metal powder, at considerable expense to the
global aerospace company, with a view towards having the Company
become a supplier.
Under this agreement, the Client has been
performing an in-depth qualification process with PyroGenesis – a
procedure typically required before a company can become an
approved supplier. The process was established to, amongst other
things, evaluate the Company’s manufacturing methods, test samples
of powder for batch-to-batch consistency, and determine various
mechanical and chemical properties. Subsequently, larger volumes of
powder will be used to print test coupons to further evaluate
mechanical and chemical properties.
Upon passing all steps, including acceptance
tests, the Company’s process will be locked down specifically for
each client, with no additional modifications permitted. Upon
successful completion of the testing, PyroGenesis would expect to
receive formal acceptance as an approved supplier. The formal and
methodical process with this top tier aerospace company is on track
and is nearing conclusion, with additional updates to investors
expected throughout Q3.
There are additional major top tier aerospace
companies and OEMs, in both Europe and North America, eagerly
awaiting powders from this new state-of-the-art production line,
and we are currently in the process of supplying sample powders to
them for analysis.
The Company expects that such developments will
continue and will translate into significant improvements in
contributions to revenue by this segment in the mid-long
term.
HPQ/PUREVAP™
With respect to HPQ, a PyroGenesis client and a
company whom PyroGenesis owns significant shares and options, the
goal is to continue to expand our role as HPQ’s technology provider
for the game changing family of silicon processes which we are
developing exclusively for HPQ and its wholly owned subsidiaries
HPQ Nano Silicon Powders Inc. and HPQ Silica Polvere Inc.,
namely:
The PUREVAP™ “Quartz Reduction Reactors” (QRR),
an innovative process (patent pending), which should permit the one
step transformation of lower purity quartz (SiO2) than any
traditional processes can handle into a silicon (Si) of a higher
purity level (2N-4N) that can be produced by any traditional
smelter, at reduced costs, energy input, and carbon footprint. The
unique capabilities of this process could position HPQ as a leading
provider of the specialised silicon material needed to propagate
its considerable renewable energy potential; and
The PUREVAP™ Nano Silicon Reactor (NSiR), which,
if successful, could position itself as a new proprietary low-cost
process that can transform the silicon (Si) made by the PUREVAP™
QRR into the nano-silicon materials (spherical silicon powders and
silicon nanowires) sought after by energy storage, batteries,
electric vehicle manufactures and clean hydrogen sectors
participants. The aim of the ongoing work is to position HPQ NANO
as the first to market with a commercial scale low-cost
nanoparticle production system.
A new plasma-based process that could convert
Silica (Quartz, SiO2) into fumed silica (Pyrogenic Silica) in one
step. This new process could be a low-cost and environmentally
friendly option that combines HPQ Silicon High Purity Quartz
initiatives with PyroGenesis’ industry leading know-how in the
development of commercial plasma processes. It is envisioned that
the process will eliminate harmful chemicals presently generated by
traditional methods. This new process could revolutionize the
manufacturing of fumed silica, while repatriating production back
to North America.
Government participation in a $5.3M funding of
the fumed silica project confirms our expectation that 2022 should
be a year in which significant developments occur on all these
fronts.
Land Based Units/Environmental
The Company did not previously aggressively
target the Company’s land-based/environmental solutions during the
period where the Company’s other offerings, such as in steelmaking
and aluminum industry process improvement, were
accelerating.
However, during 2021, interest in the Company’s
capabilities in this arena was renewed, and PyroGenesis’
plasma-based solutions have generated interest in processing a
waste stream that has recently been classified as hazardous.
In October of 2021, PyroGenesis was selected by
a US municipal water utility to provide a C$9.2 million system to
destroy perfluoroalkyl and polyfluoroalkyl substances (PFAs), a
group of hazardous chemicals that have become pervasive in product
manufacturing, and which are now understood to be harmful as they
leech out of products and into farmland, soil, and the water
system.
Planning and negotiations for this project have
drawn out considerably, for various client-side reasons related to
logistics, resourcing, competing municipal and state project
priorities and funding, as well as extensive legal ramifications
related to hazardous chemical processing and the newness of
operating in this realm, for all parties. As a result, great care
has been taken to ensure a proper project and contract framework.
The effort involved and the framework created will be very useful
for future projects of this nature, as well as in this area of PFAS
and hazardous chemical processing that is so new to governments,
but expanding rapidly.
Growth through Synergistic Mergers and
Acquisitions
As previously disclosed, the Company is
conservatively considering synergistic merger and acquisition
strategies to augment its growth, and the Company has been very
actively involved in pursuing several opportunities to support this
strategy. In so doing, the focus has been on private companies
exclusively which (i) primarily leverage the Company’s Golden
Ticket advantage, or (ii) could uniquely benefit from the Company’s
engineering advantage and/or international
relationships.
Additional Opportunities for Plasma Torches
Within the general plasma torch line of
business, the Company continues to consider options to leverage its
plasma expertise. We continue to review torch technologies, pursue
grant applications and government research involvement, and client
participation partnerships, that could complement our existing
torch offerings, leverage off our unique relationships, or explore
new opportunities. We are in early stage discussion across many
sectors and many potential customers; no additional details are
available at this time.
CONCLUSION
In conclusion, while headwinds have interrupted
the intentions of many clients and prospects during the first half
of the year, PyroGenesis continues to see 2022 as a platform from
which decades of growth will stem.
The Company plans to take advantage of its
unique position in its main business offerings to accelerate
growth, with a particular emphasis on offerings geared to
aggressively reducing GHG emissions and the world’s carbon
footprint, while finding and offering solutions to pressing
environmental, engineering, and energy challenges.
Financial Summary
Revenues
PyroGenesis recorded revenue of $5,847,180 in
the second quarter of 2022 (“Q2, 2022”), representing a decrease of
29% compared with $8,280,572 (which includes 3.3M sale of
intellectual properties) recorded in the second quarter of 2021
(“Q2, 2021”), Revenue for the six months of fiscal 2022 was
$10,053,943 a decrease of 31% over revenue of $14,545,075 during
the same period in 2021.
Revenues recorded in the three and six months ended June 30,
2022, were generated from:
(i) |
DROSRITE™ related sales of $436,538, $1,336,617 (2021 Q2 -
$1,648,882, $4,389,606) |
(ii) |
PUREVAP™ related sales of $727,378, $1,168,983 (2021 Q2 -
$3,896,453, $4,521,539) |
(iii) |
torch related sales of $1,550,201, $2,591,909 (2021 Q2 - $557,613,
$752,835) |
(iv) |
development and support related to systems supplied to the U.S.
Navy of $591,099, $1,336,359 (2021 Q2 - $2,133,187,
$4,719,208) |
(v) |
biogas upgrading and pollution controls of $2,181,107, $3,171,152
(2021 Q2 - $Nil, $Nil) |
(vi) |
other sales and services of $360,858, $448,922 (2021 Q2 - $44,437,
$161,887) |
Cost of Sales and Services and Gross
Margins
Cost of sales and services before amortization
of intangible assets was $3,129,148 in Q2 2022, representing a
decrease of 6% compared with $3,340,312 in Q2 2021, primarily due
to a decrease in direct materials of $1,612,969 (Q2 2022 -
$2,547,913) and increases in employee compensation, subcontracting,
manufacturing overhead & other of $1,987,111 (Q2 2022 -
$829,736), offset by the increase in foreign exchange charge on
materials of ($447,968) (Q2 2022 – ($1,023)).
The gross margin for the Q2 2022 three-month
period was $2,499,273 or 43% of revenue compared to a gross margin
of $4,933,481 or 60% of revenue for Q2 2021.
As a result of the type of contracts being
executed, the nature of the project activity, as well as the
composition of the cost of sales and services, as the mix between
labour, materials and subcontracts may be significantly different.
In addition, due to the nature of these long-term contracts, the
Company has not necessarily passed on to the customer, the
increased cost of sales which was attributable to inflation, if
any.
Investment tax credits related to qualifying
projects from the provincial government in Q2 2022 were $22,964 (Q2
2021 - $36,315). The Company also recorded for the six months ended
June 30, 2022, $24,793 (2021 - $37,498) of the investment tax
credits against cost of sales and services, $31,641 (2021 -
$23,880) against research and development expenses and $15,000
(2021 - $15,979) against selling general and administrative
expenses.
The amortization of intangible assets of
$218,759 in Q2 2022 compared to $6,780 for Q2 2021 relates mainly
to the intangible assets in connection with the Pyro Green-Gas
acquisition, patents and deferred development costs. These expenses
are non-cash items and will be amortized over the duration of their
expected lives.
Selling, General and Administrative
Expenses
Included within Selling, General and
Administrative expenses (“SG&A”) are costs associated with
corporate administration, business development, project proposals,
operations administration, investor relations and employee
training.
SG&A expenses for Q2 2022 excluding the
costs associated with share-based compensation (a non-cash item in
which options vest principally over a four-year period), were
$5,470,495 representing an increase of 62% compared with $3,371,888
reported for Q2 2021.
The increase in SG&A expenses in Q2 2022 over the same
period in 2021 is mainly attributable to the Pyro Green-Gas
acquisition and the net effect of:
(i) |
an increase of 45% in employee compensation due primarily to
additional head count, |
(ii) |
an increase of 89% for professional fees, primarily due to an
increase in accounting fees and legal fees, |
(iii) |
an increase of 109% in office and general expenses, is due to an
increase in computer and internet expenses, security expenses and
stationary and office related expenses, |
(iv) |
travel costs increased by 1,305%, due to an increase in travel
abroad, |
(v) |
depreciation on property and equipment increased by 77% due to
higher amounts of property and equipment being depreciated, |
(vi) |
depreciation on right of use assets increased by 4% due to higher
amounts of right of use assets being depreciated, |
(vii) |
Investment tax credits decreased by 12%, due to a decrease in
qualifying projects, |
(viii) |
government grants increased by 220% due to higher levels of
activities supported by such grants, |
(ix) |
other expenses increased by 56%, primarily due to an increase in
couriers & freight, |
Separately, share based payments decreased by 51% in Q2 2022
over the same period in 2021.
Research and Development (“R&D”)
Costs
The Company incurred $804,564 of R&D costs,
net of government grants, on internal projects in Q2 2022, an
increase of 13% as compared with $710,734 in Q2 2021. The increase
in Q2 2022 is primarily related to an increase in employee
compensation, investment tax credits, subcontracting, materials and
equipment, and other expenses and a decrease in government grants
recognized. During the first six months of fiscal 2022, net
spending on internal R&D was $1,286,996 as compared to $997,041
in 2021, primarily due to an increase in R&D activities
performed.
In addition to internally funded R&D
projects, the Company also incurred R&D expenditures during the
execution of client funded projects. These expenses are eligible
for Scientific Research and experimental Development (“SR&ED”)
tax credits. SR&ED tax credits on client funded projects are
applied against cost of sales and services (see “Cost of Sales”
above).
Financial Expenses
Finance expenses for Q2 2022 totaled $156,113 as
compared with $40,086 for Q2 2021, representing an increase of 289%
year-over-year. The increase in finance expenses in Q2 2022, is
primarily attributable to higher interest and accretion due on the
business combination.
Strategic Investments
The adjustment to fair market value of strategic
investments for Q2 2022 resulted in a loss of $7,477,865 compared
to a loss in the amount of $17,884,293 in Q2 2021. The loss is
attributable to the decreased market share value of common shares
and warrants owned by the Company of HPQ Silicon Resources Inc.
Comprehensive (Loss) Income
The comprehensive loss for Q2 2022 of
$13,039,531 compared to a loss of $20,362,205, in Q2 2021,
represents a decrease of 36% year-over-year. The decrease of
$7,322,674 in the comprehensive loss in Q2 2022 is primarily
attributable to the factors described above, which have been
summarized as follows:
(i) |
a decrease in product and service-related revenue of $2,433,392
arising in Q2 2022, |
(ii) |
an increase in cost of sales and services of $816, primarily due to
increase in foreign exchange charge on materials and the decrease
in direct materials, offset by the increase in employee
compensation, subcontracting, manufacturing overhead & other,
investment tax credits, and amortization of intangible assets, |
(iii) |
an increase in SG&A expenses of $430,962 arising in Q2 2022
primarily due to an increase in employee compensation, professional
fees, office and general, travel, depreciation in property and
equipment, depreciation ROU assets, government grants, and other
expenses which is offset by a decrease in share-based
expenses, |
(iv) |
an increase in R&D expenses of $93,830 primarily due to an
increase in subcontracting, material and equipment and other
expenses and a decrease in government grants, |
(v) |
an increase in financial expenses of $116,027 in Q2 2022 primarily
due to interest on lease liabilities, interest accretion on balance
due on business combination and other interest expenses, |
(vi) |
an increase in fair value adjustment of strategic investments of
$10,406,428 in Q2 2022, |
(vii) |
an increase in income taxes of $19,542 in Q2 2022. |
EBITDA
The EBITDA in Q2 2022 was $12,341,307 loss
compared with an EBITDA loss of $20,082,063 for Q2 2021,
representing a decrease of 39% year-over-year. The $7,740,756
decrease in the EBITDA loss in Q2 2022 compared with Q2 2021 is due
to the decrease in comprehensive loss of $7,322,673, an increase in
depreciation on property and equipment of $64,351, an increase in
depreciation ROU assets of $6,181, an increase in amortization of
intangible assets of $211,980, an increase in financial expenses of
$116,028, and an increase in income taxes of $19,542.
Adjusted EBITDA loss in Q2 2022 was $10,720,267
compared with an Adjusted EBITDA loss of $16,793,378 for Q2 2021.
The decrease of $6,073,111 in the Adjusted EBITDA loss in Q2 2022
is attributable to a decrease in EBITDA loss of $7,740,756, and by
a decrease of $1,667,646 in share-based payments.
The Modified EBITDA loss in Q2 2022 was
$3,242,402 compared with a Modified EBITDA gain of $1,090,915 for
Q2 2021, representing a decrease of 397%. The decrease of
$4,333,318 in the Modified EBITDA loss in Q2 2022 is attributable
to the decrease as mentioned above in the Adjusted EBITDA of
$6,073,111 and a decrease in the change of fair value of strategic
investments of $10,406,428.
Liquidity
As at June 30, 2022, the Company has cash
and cash equivalents of $1,291,508. In addition, the accounts
payable and accrued liabilities of $9,404,542 are payable within 12
months.
About PyroGenesis Canada
Inc.
PyroGenesis Canada Inc., a high-tech company, is
a leader in the design, development, manufacture and
commercialization of advanced plasma processes and sustainable
solutions which reduce greenhouse gases (GHG), and are economically
attractive alternatives to conventional “dirty” processes.
PyroGenesis has created proprietary, patented and advanced plasma
technologies that are being vetted and adopted by multiple
multibillion dollar industry leaders in four massive markets: iron
ore pelletization, aluminum, waste management, and additive
manufacturing. With a team of experienced engineers, scientists and
technicians working out of its Montreal office, and its 3,800 m2
and 2,940 m2 manufacturing facilities, PyroGenesis maintains its
competitive advantage by remaining at the forefront of technology
development and commercialization. The operations are ISO 9001:2015
and AS9100D certified, having been ISO certified since 1997. For
more information, please visit: www.pyrogenesis.com.
This press release contains certain
forward-looking statements, including, without limitation,
statements containing the words "may", "plan", "will", "estimate",
"continue", "anticipate", "intend", "expect", "in the process" and
other similar expressions which constitute "forward- looking
information" within the meaning of applicable securities laws.
Forward-looking statements reflect the Corporation's current
expectation and assumptions and are subject to a number of risks
and uncertainties that could cause actual results to differ
materially from those anticipated. These forward-looking statements
involve risks and uncertainties including, but not limited to, our
expectations regarding the acceptance of our products by the
market, our strategy to develop new products and enhance the
capabilities of existing products, our strategy with respect to
research and development, the impact of competitive products and
pricing, new product development, and uncertainties related to the
regulatory approval process. Such statements reflect the current
views of the Corporation with respect to future events and are
subject to certain risks and uncertainties and other risks detailed
from time-to-time in the Corporation's ongoing filings with the
securities regulatory authorities, which filings can be found at
www.sedar.com, or at www.sec.gov. Actual results, events, and
performance may differ materially. Readers are cautioned not to
place undue reliance on these forward-looking statements. The
Corporation undertakes no obligation to publicly update or revise
any forward- looking statements either as a result of new
information, future events or otherwise, except as required by
applicable securities laws. Neither the Toronto Stock Exchange, its
Regulation Services Provider (as that term is defined in the
policies of the Toronto Stock Exchange) nor the NASDAQ Stock
Market, LLC accepts responsibility for the adequacy or accuracy of
this press release.
SOURCE PyroGenesis Canada Inc.
For further information please contact: Rodayna
Kafal, Vice President, IR/Comms. and Strategic BDPhone: (514)
937-0002, E-mail: ir@pyrogenesis.com
RELATED LINK: http://www.pyrogenesis.com/
1
https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=201
2
https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_of_2022.pdf
3
https://international-aluminium.org/iai-releases-aluminium-sectors-decarbonisation-dataset-in-line-with-the-international-energy-agencys-beyond-2-degrees-findings
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