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spk01: Hello everyone and welcome to the Energia Q2 conference call and webcast 2021. My name is Daisy and I'll be coordinating today's call. You will have the opportunity to ask a question at the end of the presentation. If you would like to register a question, please press star followed by one on your telephone keypad. I'll now hand over to your host, Darlene Webb from the Investor Relations Group of Energia. Darlene, please go ahead.
spk00: Thank you very much, operator, and good morning, everyone. This call will discuss our earnings for the second quarter into June 30, 2021. If you're following along on our slide deck, I'll be directing my comments to slides one through three. Today, I am joined by Dr. Andrew Benedek, Anergy's founder, board chairman, and CEO, Dr. Yaniv Shurson, Anergy's chief operating officer, and Mr. Hani Casey, Energia's Chief Financial Officer. Before beginning our formal remarks, we would like to refer listeners to slide two of the presentation, which contains a caution on forward-looking information and a note on the use of non-IFRS measures. Listeners are reminded that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements. Energia doesn't undertake to update any forward-looking statements except as may be required by applicable laws. Listeners are urged to review the full discussion of risk factors in the company's prospectus, which has been filed with the Canadian securities regulators. Lastly, while this conference call is open to the public, and for the sake of brevity, questions will be prioritized for analysts. And with that, I'll turn the call over to Andrew.
spk04: Thank you, Darlene. Before we start, I would like to remind you all that we are here to provide solutions at significant scale to the global climate change issues as outlined in the recent IPCC report. Over the last 14 years, we have been preparing our company for the acceleration that is needed to bring scale and to bring carbon negative fuel that is absolutely necessary to get to net zero and The IPO was one of the steps in an important step to get us to the point where we can increase our scale. Nonetheless, the results of this quarter are not influenced by the IPO. If anything, they've been hurt by the IPO because top management has been preoccupied with the obvious steps required to get the IPO done. So over time, however, you will see the impact of the IPO. But what I want to caution you on, as this is our very first call, quarterly call after an IPO, that we will be making continuous, continual step-by-step growth, but it is a business that isn't best described by quarter because it takes typically years for us to complete projects. Nonetheless, you can expect significant growth over time. We have all the right ingredients. We have the right global locations, the right people, and mostly the right differentiated technology. And we have the wind at our back caused by the more and more dire situation globally. So now, going to the quarter, I'd like to bring your attention to slide four, the highlights. The important thing is that we continue to expand our projects. As you have already seen, we have announced significant project that we're starting to build now in the Northeast to expand our geographical reach within the US. And significantly, we've added several new projects in Italy. And we will continue to add these because we see a ripe opportunity there. But we also see many ripe opportunities across Europe. In terms of the bookings themselves, we have grown them now by 50% to 3.2 billion, as you can see it. And our growth year over year is also significant, 52%. Going to the next slide, it's just a simple summary of the IPO itself. Please note that nearly $200 million was raised. This was, I believe, the largest Canadian IPO in the environmental space because of the over-allotment that was picked up by Toronto Dominion. And as you can see, our debt situation The debt that's shown is project-related non-recourse financing. Corporate debt is low. And, of course, we still have much of the money remaining as outlined by Honey in his MDA. And I'll pass it to Honey, our CFO.
spk05: Thank you, Andrew. Good morning, everyone, and thank you for joining. Turning to slide six. Although the rent and the LCFS pricing has been strong, and more US states are introducing LCFS-like programs, which is expanding the market for us, generally, the waste market in California is building up slower than expected due to the COVID pandemic. And on the other hand, we are seeing strong growth in opportunities in Italy and other European countries. So during the quarter, we were able to realize $499 million in new bookings. These were primarily driven by the Rhode Island The Dawn Operate project acquisition and Italian blues. And that increased our backlog from $2.8 billion to $3.2 billion, which represents a 15% increase quarter over quarter. Moving on to slide seven, we're happy to report significant year-over-year growth of 44% in Q2 and 52% for the first half, and that's growth in revenues. On the profitability side, it is also up with an adjusted EBITDA year-over-year increase of 41% for the quarter and totaling $3.9 million year-to-date. As mentioned earlier, the COVID pandemic is causing a sluggish recovery in the commercial waste sector in California. And that's mainly due to the impact of COVID on commercial businesses and delay in the rollout of the commercial organics program required by the Los Angeles solid waste franchise. This has resulted in a slower ramp up in Rialto's revenues, and we now anticipate reaching full capacity of the plant sometime in 2022. Now, that being said, the 2022 and 2023 guidance remains unchanged. And that's because we're seeing stronger than anticipated demand in Europe that we expect would offset the delays in California. Lastly, the expected growth in revenues and EBITDA from 2020 to 2022 is not going to be linear. And this is partly, as Andrew explained, there is quarterly variations and variability. And because also an important portion of the growth is expected to happen in 2022 as new projects start going online. I will now pass the call over to Yaniv.
spk03: Thank you, Hani. This is Yaniv speaking, and pleasure to speak with everybody today. Referencing slide eight, as a recap, our business has developed this segmented into three segments, our capital sales, services that are recurring revenue-based, and our build-on-operate. As time goes on, our build-on-operate business is growing significantly with the ramp-up of current projects and the acquisitions and construction of new ones. And this is a significant revenue driver with high margin and long-term profitability and growth. We're seeing a growth in our capital sales business that's adding recurring revenue through new operating contracts and primarily significant growth in our build and operate business in North America and in Europe. As facilities get online and ramp up, there will be significant growth. Moving to slide nine, you can see here in our capital sales, we've seen an impressive growth over Q2 from last year to this year, 49%. And this is primarily due to an increasing demand for our technologies. that are driving short-term capital sale projects that are bringing in near-term revenue, as well as adding operating contracts associated. Most of the rapid capital sales growth has been due to capital projects being sold in Italy to our projects, which is really being driven by incentives, lucrative incentives in Europe for renewable natural gas that need to start before 2023. Moving to North America and the APAC region, our team in Asia is currently executing projects across multiple jurisdictions with a robust pipeline. And in North America, we continue to see growth in our three major sectors, solid waste, wastewater, and agricultural. Moving to slide 10 in our service and build on operate, which are recurring revenue streams, We've seen a growth in our services business between second quarter of 2020 and second quarter of this year, and sluggish growth in our build-on operate, primarily due to the slower-than-expected ramp-up at Rialto due to COVID, as Hani described. Nonetheless, the facility is operating and is anticipated to increase as the COVID pandemic subsides. In the near term, we have capital projects that are coming online, booking this year, that are coming with associated O&M agreements, so expecting firm growth in our operating and service contracts, primarily in North America and in Italy. And on our build-on-operate side, revenue is expected to grow from our build-on-operate business this year, primarily due to the growth from our Rialto projects, our Victor Valley project that's coming online, Q4 of this year, and the first wave of our Italian projects that will be completing construction this year and starting operations. In the immediate term, the Italian Renewable Natural Gas Incentive remains a significant driver for the growth of our build and operate business, with a number of projects coming online at the tail end of this year and into next year. Moving to slide 11, with an update on our build-own-operate business, our backlog of projects is strong. And you can see here over 11 projects that are either operating, in construction, or contracted this year, representing over half a billion dollars of capital investment and over $100 million of run rate EBITDA, with $73 million for energy as proportional interest. Significant growth is driven by the acquisition of the Rhode Island facility that Andrew mentioned, which is a significant entry into the Northeast market that has significant drivers for organics recycling and landfill diversion. And Energia is in the process of upgrading the facility to convert it to renewable natural gas production with pipeline injection. In North America, we discussed the Rialto Bioenergy Facility, as well as the Victor Valley project. And in Italy, we continue to grow with our backlog. And moving to slide 12, a bit of a feature on the Rhode Island project here, you can see the scale, roughly similar to the Victor Valley project as far as gas production, 100,000 tons per year of capacity, and a 5x EBITDA build cost multiple, attractive returns thanks to the tipping fees and gas sales driven by LCFS markets. And with that, we will move into the Q&A section.
spk01: Thank you very much, Yaniv. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you would like to withdraw your question, please press star followed by 2. And when preparing to ask your question, please ensure you are unmuted locally. So that's star followed by 1 on your telephone keypad to register a question. Our first question comes from Aaron McNeil from TD Securities. Aaron, your line is open. Please go ahead.
spk02: Hey, morning, all. Thanks for taking my questions. I guess since it's your first conference call, maybe I'll just rip the Band-Aid off and get the obvious tough question out of the way that I'm sure is on everyone's mind. You guys obviously referenced it in the prepared remarks, but Can you help us understand the Rialto dynamic a bit more, you know, to the extent that you'd be willing to share? The types of questions I'm looking for answers on are things like, you know, where are volumes today relative to the 310,000 tons of annual main plate capacity? Even a ballpark would be great. You know, what percentage of volumes... would come from the two waste franchise zones versus the three waste treatment facilities? And are there any, is there any one feedstock source that's really lagging? You know, are there issues at the transfer station level? You know, would there be a way to get access to feedstock from other sources in the near term? And then finally, sort of a related question for Hanny, what does the 21 million of capital expenditure commitments for Rialto and SoCal relate to? Is there still capital to complete Rialto, I guess, would be the better question. So maybe, I know that's a lot, but maybe I'll leave it to you guys.
spk03: Thank you for the question. This is Yannick Cherson speaking. The Rialto facility, as described, is suffering a shortage of feedstock due to COVID. And the dynamic is that with COVID, the commercial sector, which is the Recicla franchise, the Los Angeles franchise is servicing the commercial sector primarily, has suffered closure. So the closing of restaurants has resulted in much less organic waste being disposed. and has also had stymied the rollout of the program, which required the haulers to have boots on the ground with people signing up customers for the program. Without that sort of face-to-face interaction, the rollout has been delayed. With that said, we're seeing a slow increase over time, but now the new wave of the Delta variant has proven put a bit of uncertainty on the rate of ramp-up, with restaurants primarily being at a partial capacity or not fully open. That's for the food waste, the organic waste side. We're seeing, however, in the biosolids, which is the other feedstock from the wastewater plant, that feedstock is available and processing. Fortunately, COVID or no COVID, people still flush toilets and they go to the wastewater plants. And so the biosolids is running and ramping up. Mitigation efforts underway, however, are the – we will have another OREX. That's the organics extrusion machine at the transfer stations that separates organics, the Energia technology that separates organics from solid waste. Coming online, it's being manufactured and will be installed in the fourth quarter of this year with a hauler called UWS in downtown Los Angeles. This will be a step function increase in feedstock as we have another system bringing online to Rialto. And with respect to efforts to increase ramp-up, we are working with multiple haulers, four in the Los Angeles and Orange County region, including Waste Management, Republic Services, EWS. and working to incentivize and increase third-party volume that can come to those transfer stations. COVID has been a blow across the commercial sector, across the region, particularly in the organic space.
spk02: Got it. And just a quick clarification, that's the second OREX, not a third, because I think the original scope was for two, right?
spk03: That's correct. That is the second OREX in addition to the first, which is at Waste Management's Sun Valley Material Recovery Facility.
spk02: Got it. Okay. That's very helpful. Maybe one more question on project ramping. Victorville, if I pronounce it incorrectly, forgive me, but Calamara should come on by the end of the year. Can you just give us an update in terms of the timing of when they – should start up and also, you know, what the ramp time to full capacity might look like?
spk03: Sure. Victorville and Calamara will be starting up Q4 of this year. Victorville will be starting injection at the beginning of Q4, gas injection. There is gas that is currently produced at the site already from sludge, so the digesters that are processing indigenous sludge are producing gas. And there's a number of haulers already subscribed to bring, and five in particular, subscribed to start bringing feedstock. So we expect a fairly smooth and quick ramp-up in Victorville. Calamari is a similar situation. Feedstock is lined up, and the facility is expected to have a successful ramp-up.
spk02: Understood. Last question for me. Just trying to understand your reference to the increased strength or optimism in Italy. Does that relate to the two projects that were added to the backlog, or is that something incremental that you're seeing that gives you a bit more comfort on the 2022 and 2023 guidance? Go ahead, Andrew. You want to answer that?
spk03: Sure. I can start, and Angie can add some color. The Italian portfolio benefits from a robust pipeline of projects that we knew about for time, some time, and really the bottleneck is not project count. It's just the rate with which we can acquire and get execution started. to meet this 2022 tariff deadline. So the optimism with Italy is that there's a robust pipeline of just under a dozen projects identified, known, and incrementally increasing acquisition and contracting. And they're fairly standardized, similar in size, similar technology, so sort of a repeatable, executable model.
spk02: So just to be clear, this would be something that was currently in the selected pipeline that would potentially move into a contract? Correct. Got it. Okay, great. Thanks, everybody. I'll turn it over.
spk01: As a reminder, everyone, if you would like to register a question, please press star followed by one on your telephone keypads. We have no further questions, so I'll hand back over to Darlene for closing.
spk04: Thank you. Hold on, Darlene. Just for Erin, I just want to explain that we don't see the COVID problem in the same way as it happens for or a Rialto project in our other projects because they're tapping existing feedstocks, and they're not dependent on the commercial side of the industry, just to give them some comfort. Thanks. Go ahead, Donnie. All right.
spk00: Okay. Thank you. Everyone, we would like to thank you again for your time today. For additional information or if you have any questions, please contact us at ir.energia.com. That's the call for today. Thank you.
spk01: Thank you, everyone, for joining today's call. You may now disconnect your lines.
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