This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Thanks for your patience, everyone. The Q1 Aniridia Conference Call and Webcast 2022 will begin in two minutes' time. If you would like to ask a question at the end of the presentation, please press star, followed by the number 1 on your telephone keypad. Thank you. Thank you. Thank you. Thank you. Hello, everyone, and welcome to the Q1 Energia Conference Call and Webcast 2022. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star, followed by the number one on the telephone keypad. I will now hand over to your host, Darlene Webb, Investor Relations of Energia, to begin. Darlene, please go ahead.
spk02: Thank you very much, Nadia, and good morning, everyone. This call will be discussing our earnings for Energia's first quarter of 2022 and is March 31st, 2022. If you're following along with our slides, my comments, as usual, are directed to slides one through three. For our call today, I am joined by Dr. Andrew Banadek, Energia's founder, board chairman, and CEO, Dr. Yaniv Sherson, Energia's chief operating officer, and Mr. Hani Casey, Energy is 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 risk and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements. Energia does not undertake to update any forward-looking statements except as may be required by applicable laws. Therefore, listeners are urged to review the full discussion of risk factors in the company's perspectives, which is filed with Canadian securities regulators. And lastly, while this conference call is open to the public, For the sake of brevity, questions will be prioritized for analysts. And with that, I'll turn the call over to Andrew.
spk04: I'm on slide four, summarizing the key highlights. The quarter's revenue is showing a very small growth. This should not be disappointing to anyone who saw our MD&A or our release, year-end release about six weeks ago. We did, in fact, predict a slow start to the year, and that's indeed what is happening, but we are still holding onto our estimate for the rest of the year, which means that it should be a very good year for the company. If the revenues is not so disappointing, what is truly disappointing is the collapse of our share price, which we do not understand because we are doing everything we said we would do. Some of the delays that we're seeing are normal in this environment. But nonetheless, all our projects are proceeding. And we're seeing tremendous opportunities, particularly in Europe. We have raised $60 million in a bond deal in early April. This was raised at $1,250. We needed to do this, although we didn't like the share price, because we felt in order to to begin to grow in europe we had to take advantage of this historic opportunity and that's why we did it we are very disappointed for the shareholders that saw their price go down and that includes me of course because i personally invested 5 million in that 60. But such is the way the markets are. And, you know, eventually, having led a public company for a long time in the past under TSX, things go up and down. And I always talk to our meeting and just kept doing what is right for the company and will continue to do so this time as well. We are proceeding. I'll pass to slide number five, which kind of summarizes some of the things we're doing in more detail. On slide five, you will basically see a really important moment for us, which is a price of gas. above 30 usd per mfbtu this is uh likely to remain high hopefully the war the war ukraine will be over but even then the predictions are that this year and next year will continue to that high crisis we we see that as we said before that EU governments in particular, but even the UK government, are all keen and doubling up on the need for having RNG in their country. And together with the incentives that are already there and this high wholesale price, our revenue will increase significantly for all our projects. And this is the reason that we believe we have a historic opportunity that we need to invest in. In the U.S., the prices of the incentives are essentially staying the same for the three. It's down for LCFS, which means that the market price overall is a little bit lower but still in excess of our estimates when we undertook our projects um we uh and and the i need to speak later to this but uh all the incentives in california are moving in the right direction particularly for california-based gas we have as you know we are fortunate to have offices in germany and the uk as well as holland in europe and we see all of those markets as ready to boom in our business as well as payment friends we have also added some capital sales to our backlog but we did not sign any major project new projects simply because we are shifting our way given the current share price, and we will only get moving on projects once the financial support for the project is in place going forward, especially near the share price. With this, I'd like to hand it over to Hani for slides six and seven.
spk05: Thank you, Andrew, and good morning, everyone, and thank you for joining. Going to slide six, as Andrew mentioned and as previously disclosed, our 2022 is starting slow and expected to accelerate. At $20 million, the Q1 revenues are 6% higher than the same quarter in 2021, with 86% of these revenues coming from capital sales. The EMEA region made up 68% of the revenues and was the major driver of the revenue growth while North America made up 29% and Asia 3%. The service segment also grew nicely related to Q1 2021. The gross margin of 24% is a good margin and as usual reflects the mix of projects during that quarter. The net SG&A is in line with expectations And our Q1 adjusted EBITDA is $1.1 million. The net income loss includes a $7.1 million change in fair value of an embedded derivative. Going to slide seven, as of March 31st, 2022, our cash equivalents and current restricted cash was at $76.7 million, down by $25 million. And the cash used in investing activities during Q1 2022 is reported at $35.3 million. This cash is being used primarily as bridge financing until the project debt is in place for the BOO project, at which time we will recover a good portion of this bridge financing and cash invested. Following the quarter end, we raised $60 million in a bond deal, as Andrew mentioned, And following that, we find a shelf prospectus to allow us opportunistic offering of securities of up to $250 million. Now, considering the project debt financing that we're working on putting in place, the company has enough capital to complete the project it has in hand. The question is really how fast we want to grow beyond that. At the current share price, it's unlikely that we will take advantage of the shelf prospectus. But we are hoping that given the fundamentals of the company and the increasing size of the opportunities in front of us, the share price will improve, at which point we will consider using the shelf prospectus. However, in any case, we're working on some alternative arrangements. After quarter-end, we also closed the senior debt financing for Easy Energy, one of our Italian booths. And in parallel, in addition to our existing mezzanine facility for the portfolio of Italian booths, we have been focused on putting in place, among others, a senior debt facility for the portfolio of Italian booths and a mezzanine loan and senior debt for our Turner project in Denmark. I will now pass it over to Amit.
spk07: Thank you, Hani, and good morning, everybody. I'm on slide eight. As a recap, we continue our three lines of business, our capital sales, primarily driven in Europe and in North America at the moment, as Hani mentioned, our service business with ongoing revenue streams from mostly O&M contracts, and our expansion of our build and operate business, as Hani mentioned. And as you'll see, we see an increasing shift in our build and operate revenue that will grow precipitously this year. Moving to slide number nine on our capital sales, you notice a slight decrease in the revenue from last year, but this is primarily due to delays in executions in our U.S. projects from global supply chain issues where the projects are still there and the revenues will be realized in subsequent quarter. We do expect to be on track with our capital sales business for the year despite the delay early this year. In the United States, we announced a recent follow-up contract with our carbon cycle facility in North Carolina. This is one of the largest agricultural digesters in the United States, and with that came a substantial scope addition as well as a long-term operating contract. EMEA continues to be our core growth driver this quarter, a 60% year-over-year increase, primarily driven by the capital sales in that region. that are continuing to execute and go throughout the rest of the year across our portfolio. Notably, we had two capital sale projects of about $45 million in value, demonstrating the growth in the region and the fundamentals of our BOOs as well as the market in general. Moving to slide number 10, our student service and BOO revenues both increased year over year. The primary growth in our service is through the start of our operating contracts in Canada, as well as other contracts we're adding to our revenue backlog this year. On the blue side, the main revenue increase is attributable to our North American facilities starting to realize tipping fee revenues while we're storing gas. And we are expecting, as we stated before, organic waste volumes in Los Angeles, specifically for the Rialto facility, to increase as the franchise is starting to roll out the collection, and most notably with a clear enforcement. Despite the delays in enforcement of the program, we continue to deploy two more OREX machines. Currently, the second one is slated to start operation in Q3 that is expected to increase feedstock to Rialto, independent of the outcome of the Los Angeles specific enforcement timing, as well as the third one that is in manufacturing now and will be deployed in the Southern California region. We expect with these three OREX machines to be able to overfill Rialto with all three running and, therefore, ensure that Rialto will be filled. Moving to slide 11, we note the start of commissioning in Italy in the first of six projects slated to come online this year, Ease Energia. You notice on the figures that the financials are in line with our 4 to 6x EBITDA build cost multiple, reflective across our Italian portfolio. and representative of the five additional facilities in Italy in addition to this one that will be coming online this year. We will note that there is upside that we believe will be obtainable with the increasing natural gas price and energy security drivers in Europe in the wake of the Ukraine crisis. Moving to slide 12, We show a snapshot here of our portfolio of build-on-operate assets across North America and Europe, primarily in Italy and Denmark, with our operating, execution, and one project that's contracted and we haven't started yet. It's showing a portfolio of 13. Highlighting a couple of key figures, this portfolio here, which is firm, is representing a $682 million capital investment, so 85% greater than at the time of our IPO and contributing 150% increase in our proportional run rate EBITDA, 130 million of proportionate run rate EBITDA versus 52 million at the time of the IPO. The main drivers in Europe we expect will be driving profitability with a dual driver from the increased current price in natural gas from the energy crisis, as well as a drive for not only decarburization, but local energy security. European policy is moving quite aggressively to produce local and domestic supplies of renewable natural gas in the wake of the crisis. As mentioned, our six Italian Blue projects are expected to come to mind this year, as well as the first phase of our project in Denmark, to meet the first gas requirement with the second phase completed next year in 23. We noted the increase in the run rate EBITDA about 150% again. And on the U.S. side, the environmental attributes with RNG is expected to increase value, but we are not including quite yet. As noted for the North American project, gas is being produced through our Rialto facility and our SoCal biomethane, as we noted, currently being stored in the grid while we finalize approvals for the renewable attributes. As far as execution, we noted that our first Italian project was commissioned earlier this quarter with the follow-on coming online. SoCal Bond Methane also started last quarter, Q1, and is actively storing in the grid. We've talked about the Phase 1 toner projects with Phase 2 next year. And fundamentally, our pipeline continues to grow with the Kent County, Michigan project and Victor Valley in live development with secured agreements. We are working on continuing the development of these two megaprojects underlying the need for diversion in RNG. Most notably, as Andrew mentioned, and we'll add detail, we reorganized our structure in Europe to take advantage of this major opportunity. with consolidating leadership to be able to take advantage of the other geographies that we have present but haven't entered the build-on-operate business quite yet. We are taking advantage of regional offices and references across European jurisdictions outside of Italy and Denmark with a focused structure and centralized leadership. With this, I'll pass it over back to Andrew.
spk04: Thank you very much, Yaniv. Between Hani and Yaniv, we pretty much covered what's on slide 13. Perhaps I can wrap up this discussion by talking about the overall picture that your company is involved in. And initially, the driver for us has been climate change, the energy transition, and working with the incentives in place to bring that about. Essentially, RNG has relatively recently been recognized as a critical part of the transition because it is a simple drop in fuel that can replace molecule for molecule once in the gas pipeline. The replacement actually has started in some countries. As I noted previously, in Denmark it's already at 25% of the gas consumed. uh what is the the critical change that has happened that is now in particular in europe it has become a security issue as well a long-term job creation and security issue and as a result we're proceeding to take advantage of the double opportunity plus the additional increase in value of this gas far beyond what we had assumed. So we're in a terrific position as a North American company that's very well established in Europe. We've seen what we have done in a short time in Italy. And as Yaniv said, we are now figuring out how to take advantage of our position in the other countries where we supply capital equipment. And so... this will eventually bring great results for your company. In the meantime, we remain the strongest company in this space on the planet, strongest technologically, strongest in geographical distribution, and therefore resilience. And we look forward to much better share price and much faster growth as time goes on. Thank you very much for tuning in.
spk02: I think we can open it up to questions now.
spk00: Thank you. If you would like to ask a question today, please press star followed by the number 1 on your telephone keypad. If you choose to withdraw your question, please press star followed by the number 2. When preparing to ask your question, please ensure your phone is unmuted locally. And our first question today comes from Aaron McNeil of TD Securities. Aaron, please go ahead. Your line is open.
spk08: Hey, morning, all. Thanks for taking my questions. I'm not sure if this one is for Andrew or Yaniv or maybe both, but, you know, appreciating and maybe putting aside Rialto on the feedstock sourcing issues, I think it would be helpful if you could give us a sense of where the SoCal biomethane facility is and the EV energy facilities are in terms of volumes relative to their nameplate capacity and what your expectations are in terms of the timeline to ramping up to nameplate if they're not there already.
spk04: Yannick, do you want to address that?
spk07: Yeah, absolutely. The socaval methane is not short of feedstock. As we said, that also has the isolated situation that it's dependent on the rollout of a new program. That is required by law, of course, and has been delayed in ramp up as rollout of the program as well as the strong enforcement. Sokobal methane is actively injecting gas. We are approaching about 50% of the flow capacity now, and we expect that by end of Q2, we should be at main plate or close to there. With respect to Easy Energia, we've started commissioning and are starting to ramp up the feed. Gas injection will start very shortly. and we expect a similar ramp-up to Socavall Methane. As I said, the feedstock for Easy Energia is available and is presently being sent on a longer drive to another location waiting for the Easy Energia site to start, which is at a closer location, thus providing a savings and logistics benefit to our suppliers.
spk04: Aaron, maybe just for your information, all our Italian projects have – fixed contracts for the feedstock. So there's no issue with feedstock.
spk08: Understood. Yaniv, maybe one more for you. Can you provide any updates with respect to the ordinance that's expected from Los Angeles related to Rialto and that would ultimately compel more businesses to comply with the Senate Bill 1383? And I know there's nothing formal that's been announced, so... I'm just more looking for any anecdotes that you have, if you can share them.
spk07: Yeah, absolutely. We're tracking this issue very closely, as you know, that every city in California is required to have an ordinance by law, by SB 1383. Many have passed ordinances already, which are requiring constituents, generators, to subscribe to the organic collection program that the jurisdictions decided to elect. The ordinance has not been officially passed in Los Angeles yet. We understand that it's in the works. Los Angeles is currently required to have an ordinance in place. It's, as we said, required by state law. There's some unknown timelines with respect to politics. for ordinance to come in place, but we know that it's happening. We expect that it would be this year, have to be this year, given that it's required by state law, and LA is not in compliance.
spk08: Okay, understood.
spk07: I would just add, Aaron, sorry, Aaron, I would just add, though, that we believe, however, that independent of the timing of the ordinance, this second OREX and now this third, that is in manufacturing will increase feedstock to Rialto because it's servicing jurisdictions that are outside of LA as well where the commitments have already been in place to utilize these ORECs for extracting organics from solid waste corrected from other jurisdictions outside of Los Angeles.
spk08: Okay, that's helpful. Thank you. Hany, I don't want to leave you out here. I guess Can you share what portion of the capital related to the $420 million of consolidated CapEx for projects that are being executed has been spent as of the end of the first quarter? And maybe could you also share how you expect capital spending to flow over the next few quarters or year?
spk05: Sure. But just for clarity, you're asking about the PPE that's $420 million? That's right.
spk08: On slide 12, the BOO project in execution, the consolidated capex of $420 million.
spk05: Okay. And the question is, is what exactly about the portfolio? How much of that is spent today? Yeah. Approximately, I would say... Approximately a third of that has already been spent.
spk08: Understood. And do you have any sense of how capital spending flows might trend over the next couple quarters, or do you have like a 2022 full year?
spk05: Yeah. The whole 420 or most of it is probably going to – actually, no, that's not true. About the – About $100 million of that $420 million is going to be in 2023. And the remainder is going to be during the rest of 2022.
spk08: Okay. That's very helpful. Thank you. I'll get back to you.
spk00: Thank you. And our next question comes from Derek Whitfield of Stifel. Derek, please go ahead. Your line is open.
spk03: Thanks. And good morning, all, and congrats on your operational progress during Q1. Thank you. With my first question, I wanted to focus on your prepared remarks regarding European energy security and the power of EU. Now that you've reorganized your management structure in Europe and have had more time to evaluate and discuss business opportunities with various industry counterparts, I wanted to ask where you guys see the greatest opportunity for incremental growth within the boost segment in areas where you did not have a good presence?
spk04: I'll answer that. The situation in Europe is essentially across Europe. So the opportunities, however, for build and operate require local knowledge and local teams. So we're tending to focus on locations where we already have a presence, sell capital equipment, And we also operate in the UK, for example, so we can easily do what we've done in Italy and transition. The company has been going through a very significant transition, but we've tended to start in one location, like in North America, we started in California. Then as we added people and knowledge of the East Coast, we moved to the East Coast. And before the East Coast, we actually moved to Italy, where we had a very strong presence and a good team, and we've proven that we can make that shift. Now what we're trying to do is repeat the Italian model and translate it to the countries where we are similarly positioned, and that's primarily the UK and Germany. We do sell capsule equipment in other countries, in particular Spain and France, which are significant markets. And we're also considering establishing a stronger presence in those markets. That's the near-term focus.
spk03: Great. That makes sense, Andrew. And perhaps with my follow-up, I wanted to focus on easy energy projects. Following the successful commissioning of your first European VRO facility, I wanted to ask if there were any learnings from that first facility that can be applied to subsequent projects to improve the capital efficiency of your operations? I think there is always learning.
spk04: um the biggest one is to lock down every single component before we start a project in today's environment technologically most of these projects are similar and the real learning will start as we operate the plants but building them is what we've been doing so relatively speaking There's no major discovery so far.
spk03: And just one quick follow-up for Janos on Rialto. Could you perhaps help frame where waste collection stands at present relative to expected throughput?
spk07: Yeah, we're at roughly 20% of the throughput through the plant currently. This is about a 20% increase from prior quarter. So it's a gradual increase. And as I said, the increase will really be a step function with new ORECs coming online, a sort of firm increases with a stepwise. The secondary driver, we expect continual increase as the organic collection program continues to roll out at a steady pace in L.A. with more subscribers. But the real inflection point will be with the ordinance. So, you know, the capacity is there. The facility is working. And it's a timing issue as soon as we get these ORECs on and then the ordinance coming in place.
spk03: Great. Thanks all for your time and responses.
spk00: Thank you. And as a reminder, if you would like to ask a question today, please press star followed by the number one on your telephone keypad. And our final question at the moment comes from Justin Strong of Scottier Bank. Justin, please go ahead. Your line is open.
spk06: Great. Thanks for taking my call, guys. Just wanted to see if you could give us some color on that Petawawa AD upgrade project that kind of just came across. Is that now in your revenue backlog? And if so, to what magnitude? I'm just trying to get a sense of the size of this project and potential ongoing revenue for the length of the 10-year service contract.
spk04: Tony, do you want to address that?
spk07: Yeah, I can take that. This facility is a significant one for us as a validation of our wastewater thesis in creating value with unique technology platform for resource recovery in the wastewater sector. It's significant for us because it's a first milestone in presence in the Canadian wastewater market. Ironically, it took us longer to get into the Canadian market than the U.S., And we believe it's opening up a significant door to expand into the Canadian wastewater treatment sector by demonstrating the ability through our unique technology platform to derive value from energy and resiliency with our technological retrofits. So the contract itself, I don't believe, has been in our backlog yet. We don't add until things are signed. Honey can correct me. The value is modest, but the entry into the market segment is significant.
spk05: It's not in the backlog yet.
spk06: All right.
spk00: Thank you. It appears we have no further questions, so I'll hand the call back over to Darlene for any closing remarks.
spk02: Thank you very much for having us again.
spk04: May I just say that this Petalawa contract proves that we are the most versatile RNG player on the planet. We handle the biggest output of human activity, either solid or liquid waste. And we have dramatic, unique, and enabling technologies that give us an opportunity over the long term. The opportunities we're talking about take time. It's great that in Europe we have this accelerator. In North America, it has taken time, but it is long-term, solid, and with great customers in the end. So I do think this federal contract is significant. We have quite a few projects already in the U.S., all of them successful. And we are doing great things in this space, including plans that revolutionize this whole industry worldwide. And one of those will be opened on July 23rd. So if anybody's interested, let me know if you want to attend the opening in Southern California. Thank you.
spk02: Thank you, Andrew. And once again, Nadia, thank you. Did you want to ask if there was any further questions based on that?
spk00: Yes, of course. As a final reminder, if you would like to ask a question today, please press star followed by the number one on your telephone keypads now. I see that there are no further questions.
spk02: That's great. Thank you very much, Nadia. Thank you all for your time today and joining us on our Q1 call. For any additional information or should you have any further questions, please feel free to contact the IR team at ir.anergia.com or visit us online on our website at anergia.com. Thank you all once again. That's our call for today.
spk00: Thank you, ladies and gentlemen. This concludes today's call. Thank you all for joining the Anagio conference call and webcast. You may now disconnect your lines.
Disclaimer