PyroGenesis Canada Inc. (NASDAQ:PYR) Q3 2023 Earnings Call Transcript November 10, 2023
Operator: Good day, and thank you for standing by. Welcome to the PyroGenesis Third Quarter 2023 Business Update Conference Call. At this time, all participants are in listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Rodayna Kafal, Vice President, Investor Relations. Please go ahead.
Rodayna Kafal: Good morning, everyone, and thank you for joining PyroGenesis 2023 third quarter financial results and business update conference call. On the call with us today are Peter Pascali, CEO and President; Steve McCormick, Vice President of Corporate Affairs; and Andre Mainella, Chief Financial Officer. The company issued a press release on Thursday, November 9, 2023, containing a business update and financial results for the third quarter, ending September 30, 2023, which can be viewed on the company’s website. If you have any questions after the call or would like any additional information about the company, please contact us. We’ve collected a number of questions in advance of the call. Many of these will be discussed during today’s call.
A senior executive in a board room with company logos and charts in the background.
The company’s management will now provide prepared remarks reviewing the operational and financial results for the third quarter ended September 30, 2023. I would like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today’s date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information.
PyroGenesis disclaims any obligations to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information except as required by applicable law. In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to adjusted net loss and adjusted EBITDA, which do not have any standardized meaning under IFRS, and therefore, may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of each of adjusted net loss and adjusted EBITDA to net loss, please refer to the company’s Management Discussion and Analysis, which along with the financial statements are available on the company’s website at www.pyrogenesis.com and the company’s corporate filings on SEDAR+ at sedarplus.ca.
With that, I will now turn the call over to Steve McCormick, Vice President of Corporate Affair. Please go ahead, Steve.
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Q&A Session
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Steve McCormick: Thanks, Rodayna, and thanks everyone for joining us today on our call. I’m going to start off with a quick review of some of the company’s top line financials, followed by a summary of key business activities that occurred during the quarter. Before turning the call over to the company’s, Chief Financial Officer, Andre Mainella. I’d like to first start off with an update on the company’s status as a dual listed public company. Post quarter end on October 27, 2023 after careful consideration, the Board of Directors decided and the company announced that it will be ending its dual listing status by voluntarily delisting from the NASDAQ exchange. This decision would not affect its listing on the Toronto Stock Exchange and the company remains public and will so continue to trade on the TSX.
As background for some time, the company had been evaluating the cost and benefits of maintaining a dual listing on both NASDAQ and the TSX. The ongoing evaluation entailed an analysis of several key factors, including the historical advantages of dual listed companies, the financial costs associated with being on the NASDAQ, such as insurance, regulatory compliance, legal fees and accounting, the low volume of trading on the NASDAQ and the regulatory and compliance requirements mandated significant professional hours and duplication of effort and additional obligation for a Quebec company that already has to meet compliance and filing requirements in two languages. PyroGenesis associated to its dual listing in the US were considerable with incremental US-specific fees related to directors and officer insurance, legal, listing and filings and accounting of more than $2.2 million, which would require approximately $6 million to $8 million in gross revenue.
Ultimately, the Board of Directors decided that after weighing all of the above, the dual listing was not providing significant benefit and the company would voluntarily delist from the NASDAQ exchange. Again, this decision does not affect its listing on the Toronto Stock Exchange. The company has taken steps to have it shares quoted over the counter on the US-based OT the QX Best market. The company has initiated the NASDAQ delisting process and has filed the required Form 25 with the SEC for the removal of its shares from NASDAQ. This form is anticipated to become effective 10 days following resulting in a delisting of the company’s shares from NASDAQ on or about November 16, 2023. Now back to the financial summary. First, a reminder that PyroGenesis follows Canadian generally accepted accounting principles or GAAP, where revenue is accrued not on sales, but on a model that reflects a percentage of the work completed for long-term contracts during the period, which can vary, based on both the nature of the projects in-house and on our client’s own scheduling and logistical decisions, both of which can impact production milestones and the company’s ability to book revenue.
During these recent years, the supply chain, logistical and inflationary uncertainties, those issues have been more frequent in exacerbating. And as stated in previous reports, the company’s revenues are likely to be irregular and unpredictable quarter-to-quarter as contract-related revenue fluctuates based on various reasons, including those just explained. For the third quarter of 2023, the company exited the quarter with revenues of $3.7 million, which, while still low compared to the past two years, is the second consecutive quarter of growth from the revenue low point of two quarters ago in Q1 of 2023. As stated in yesterday’s news release, we are seeing improvements across industrial supply chains and customer bottlenecks. And along with better-than-expected customer demand for new project starts, we anticipate the revenue momentum to continue and for Q4 to maintain the upward trend of Q2 and Q3.
Gross margin was 30%. This is comparable to industries the company serves and consistent with margin pressures being seen across those industries who continue to have difficulty, maintaining 2022 level margins due to persistent inflationary environment for heavy industry and their customers. For comparison, the aluminum industry returned margins of 5.1%, Aerospace and Defense at 18.5%, iron and steel at 24.7% and metal mining at 29%, all for Q3 results reported to date. One aspect pertaining to margin that is often overlooked is that because some of the company’s projects are conducted in partnerships such as with clients like HPQ silicon, where PyroGenesis has back-end royalty revenue potential on the client’s end product or has sold intellectual property to the client, the engineering and production aspects are likely to be conducted with intentionally lower profit margins.
Additionally, project developed using government grant funding often have lower margin mandates, both instances can affect the company’s margin results based on the mix of work currently underway. As mentioned in the past, given that several of the company’s technology solutions are either only recently commercialized or can have long time spans between orders of a similar type system, we regard any high or even medium-sized margins at such an early stage as both positive and strong time for the future. And finally, to backlog. Corresponding to increasing customer demand, the backlog continues to rise, up more than $1 million to $35 million. This represents the 13th of the last 16 quarters above $30 million in backlog since the company first reached that mark in 2019.
