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spk07: Hello and welcome to today's Q3 Energia conference call and webcast for 2022. My name is Jordan and I'll be coordinating your call today. If you'd like to register an audio question, you may do so by pressing star followed by one on your telephone keypad. I'm now going to hand over to Darlene Webb of Investor Relations to begin. Darlene, please go ahead.
spk03: Thank you very much, Operator, and good morning, everyone. On this call, we'll be discussing our earnings for Energia's third quarter of 2022, and it's September 30th. If you're following along with our slides, my comments are directed at slides one through three. For our call today, I'm joined by Dr. Andrew Benedek, Energia's founder, board chairman, and CEO, Dr. Yaniv Sherson, Energia's chief operating officer, Ms. Paula Meisen, Energia's chief financial officer, and Mr. Hany Casey, and a GEA's Chief Development Officer. Before beginning our formal remarks, we would like to refer listeners to slide two of the presentation that 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 can cause actual results to differ materially from those anticipated in these forward-looking statements. ANAGIA does not 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 and the company's perspectives, which is filed with the 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.
spk01: Thank you, Darlene. Before I start on slide four, I would be remiss if I didn't say we're very proud to have Paula on this call. She joined us a little over three weeks ago as the new CFO. And as a company, we're very fortunate not to have both Paula and Honey in key roles. Paula has been drinking from the fire hose or the hydrant, I think she likes to say, but she's getting there quickly. And we're very fortunate that Honey will soon be able to focus on the growth trajectory for the company, which is fantastic. becoming bigger and bigger as we see it long term. Looking at slide four, I want to start by just mentioning three particular squares that we're proud of. The first one is a major Asian project, probably the flagship project of Asia. that we will be demonstrating our technologies for all of Asia to see. The plant itself will be showing how they should be handled in Asian cities. The next square talks about decarbonizing shipping. This has been a an issue as people look at that market. And recently Merck, the largest container shipping company, plus a few others decided that what they want to have is green methanol. Well, fortunately, we, together with a partner in Denmark, are able to supply the very first ship with green methanol that Merck will put into the water. And there'll be need for this kind of methanol throughout the world for all the ships. And we're hoping to play a significant role in supplying this methanol. Finally, the third square on top is the top award in renewable natural gas in Europe. that your company received this year and we appreciate very much to be recognized even though we're not a European company, but we have significant European activities as you all know. On the bottom three squares, we just basically focus telling you that we continue to focus on exactly what we said we would do. Our projects in Europe are coming in one by one. So we'll be putting gas into the grid and starting to earn money for these plants this quarter. Furthermore, there has been very significant additional incentives announced in the quarter. The one in Europe is called Repower Europe. It requires an increase of 13 fold in this decade of renewable natural gas going into the grid. And as far as analysts, there's one new analyst covering us from Ross. The backlog and the revenue, sorry, the revenue is up in the quarter. and we're continuing the growth trend that we said we would be doing. We'd like to do it, we were hoping to do it a little faster, but there's still substantial growth, particularly given the new accounting method that we have to do going forward. On slide five, we are showing you the backlog and the backlog actually increased a little bit. We have not added major new projects. So we have some capital projects and some other issues, but overall, we're still moving ahead in our backlog. Now, getting back to Europe, on the right side on slide five, you see the natural gas prices. They have come down a bit, but they're still very high and are forecasted to remain high at least for the next two years. With regards to the Repower Europe that I mentioned, it now is getting translated into each major European country by new decrees and incentives. Italy has done that. And in that incentive, they also include a 40% grant for new plants. And so we will be building many more plants in that country. In the US, the Inflation Reduction Act was passed, which provides 30% grants and other support for renewable energy projects such as ours. And interestingly, We have significant progress in Canada as well with the clean fuel regulation and additional incentives similar to IRA that have been announced that we are expecting to see soon. Also, the volunteer market is also growing in North America, whereby many companies are trying to decarbonize by buying renewable natural gas. At this point, I'll hand it over to Paula for her maiden voyage.
spk02: Thank you, Andrew, and good morning, everyone. I'll start on slide six of your PAC, which is the financial summary, and address some of the line items there for you, give some color around those. On the revenue, we had higher revenues for the quarter. Up 60%. And year-to-date, up 47%. When we're looking at revenue, it's coming from by segment. The majority of our revenue is concentrated in our capital sales segment, 80% of the year-to-date revenues. And that's because our blue business is in the process of being developed. So capital sales is the primary contributor. In terms of regions, The EMEA region, the European region, is the major driver of the growth. It comprises about 70% of the year-to-date revenues. And we're seeing strong performance in EMEA in terms of revenue. It's capital sales driven. And the reason being there's significant government incentives in the region that drive the development of facilities to divert both organic waste from landfills and to produce RNG. During the quarter, we also saw revenue growth in North America, and on a year-to-date basis, that's up almost 40% over 2021, and that's largely due to several large capital sales projects and construction. In terms of the gross margin, it was 23% for the quarter, 21% year-to-date. The quarter showed improvement over the prior quarter, and I'm referencing Q2 2022, which was 19%. That's because Q2 was a bit of an anomaly. It contained cost overruns on certain projects, as well as some startup costs as we ramped up on some certain service projects. There has been higher SG&A relative to 2021 on both a quarter and year-to-date basis. And this relates to some one-time costs being legal fees and the higher overhead that we're experiencing as we position ourselves for growth. In terms of adjusted EBITDA, we were $1 million to the negative for the quarter. That's slightly better than Q3 2021, mainly because of the increase in revenue. And on a year-to-date basis, we're negative $7 million in adjusted EBITDA. That's lower than the first nine months of 2021, and that's driven, again, by the lower growth margin that we were just discussing due to the project cost overruns and higher SG&A. Our small net loss for the quarter of $5.7 million contains the impact of changes related to fair value of embedded derivatives and movement of some interest in our equity-accounted investees, just as a reminder for you. Moving to slide seven, that's the capital management and liquidity slide. We ended the quarter with cash, cash equivalents and restricted cash of $141 million. That's up $53 million from the end of the prior quarter. We use approximately $42 million in investing in the quarter. And we've been using our cash effectively as a bridge until we get project debt in place. And during the quarter, we did receive the bridge financing for the Italian booths. So the six Italian booth projects are fully funded. For Rhode Island, Charlotte, and the SoCal booth, financing agreement is in place. And we continue to work on facilities to support the Tondor project in Denmark. In terms of, I will move to slide eight now, and that's the financial outlook. Starting with fiscal 2022, on the revenue side, our year-to-date revenues are already approximately the total revenues from the entire fiscal year of 2021. So we do expect fiscal 2022 to show healthy revenue growth of approximately 25 to 35% compared to last year. That would place our current estimate of the 2022 revenues between approximately 160 million and 170 million. Now that is our reduction from previous guidance and the reasons underlying that change is that the previous guidance assumed revenues would accelerate each quarter And it assumed that they would be particularly high in Q4. And that assumption was based on the contribution, estimated contribution from the BOO projects. Now, both Rialto and SoCal Biomethane facilities were expected to be operating close to what would have been their full capacity with sales of RNG during the fourth quarter, as we assumed would be the case of the majority of the BOOs in Italy. And as we have stated previously, RBS, there's been a delay in the contribution due to there's been some feedstock delays or delays in the ramp up and the delayed completion of we have to register under the federal RIN and LCFS programs to allow ourselves to commence a bill of RNG. So therefore, the RNG sales, we wouldn't expect to start till the end of the fourth quarter of fiscal 2022. In addition to those reasons, the timing of the capital sales and project execution in both North America and Europe have been behind what our previous estimates were. And that's largely due to those on the capital sales side, it's due to client driven delays that have slowed the progression of certain projects. And basically those are things we can't control or predict. They are client driven. In terms of adjusted EBITDA for 2022. We expect adjusted EBITDA to be approximately 10 million negative. That's a reduction from the previous guidance. And this is because the lower revenue that we just discussed and the erosion of some gross margin due to the cost inflation of higher SG&A we're seeing in the businesses. So I would say as an overarching comment on 2022 guidance, I'd say we are continuing to do what we said we were going to do. It's taking a bit longer. And that's the impact that you're seeing on the outlook. In terms of fiscal 2023, both revenue and adjusted EBITDA, we believe there are significant prospects for growth for the company in fiscal 2023 and beyond. But there have been some significant changes since our last 2023 guidance. the large macroeconomic changes that we're all experiencing in terms of interest rates and natural gas pricing. When you combine that with the company-related developments, but not necessarily limited to the construction commissioning schedule for the booths, there's a need for us to review the key assumptions in the 2023 outlook. And so we've made the decision to withdraw the prior guidance as a result. Having only been here three weeks, we will be doing that in the very near term and reviewing those key assumptions, and we will be providing an updated outlook for 2023 as soon as possible. And that covers my slides, so I believe I'm handing it over to Yaniv.
spk04: Great. Thank you, Paula. Much appreciated. Yaniv here, starting on slide nine on capital sales segments. I'll be summarizing the growth that we have seen, quite healthy growth. An overarching 41% increase in our capital sales business, which as Paula mentioned, has been a significant contributor to our revenue composition. And this has been driven primarily by the growth in Italy, as well as large multi-year projects in North America. As you know, we're building in Italy one of the largest portfolios of digestive facilities in the country. as well as building the largest agricultural digester in North America. So these are significant contributors to the healthy capital scale business. EMEA continues to drive growth, and with the backdrop of the Repower EU program, as well as the extension of the incentives, both in Italy and in other countries, we're seeing the buildup of a healthy pipeline with additional opportunities in 2023. Not just driven by the higher gas prices, but as I said, by the extension of programs that are government-backed with long-term fixed price on the renewable natural gas production. So we're positioning our capital sales business to capitalize on the recent announcements of these new programs. In the APAC region, the flagship facility that Andrew referred to is quite a significant contributor to our capital sales, not only revenue contribution, but backlogs. a multi-year uh design build contract to supply what would be singapore's first integrated facility leveraging energy as technology and expertise to integrate both solid and liquid waste combined at a world leading facility one of the one of the premier utilities in the planet so we're very excited about this opportunity to showcase energy's capability truly at a global scale and launched Singapore into the next generation of organic waste management. We also announced one of Japan's largest manure, dairy manure digesters to make renewable electricity during the quarter. Moving on to slide number 10, in the backdrop of our capital sales business, we wanted to share the progress at the Sterling Natural Resource Center. in large part because of its technological significance in the marketplace, both leveraging the integration of solid and liquid waste. This will be a world-leading facility that's nearly complete, where all of the inputs, sewage and organic waste, become a commercial product and will enable the facility to not only meet its own energy demand, but export power to be a renewable energy contributor to the grid. The facility is in near completion. It leverages energy and technologies both on the liquid side and on the solid side and is benefiting the community as a prime example of social infrastructure, an element that we're very proud of. Not only is this a technologically advanced facility and a market setting model for resource recovery, but also fabric of the community with job training and a high school across the street where will be providing employment and job opportunities to high-tech renewable energy jobs. The water as well, interestingly, that is cleaned, thanks to our technology, will be used to cross the street at a park with a lake that is providing community center in a community that's one of the disadvantaged communities in California. Moving on to slide number 11, our service and food business do continue to grow. Our service segment has experienced a 59% year-over-year growth, large contributions mainly from the ramp-up in the North American service business with multiple OREX lines and digestive facilities with either large companies or municipalities that we're servicing. And we have additional service contracts in our revenue backlog that are typically tied to the capital sales that we provide. On the blue side, despite the delays in RBS, which is caused by the delay in regulatory enforcement, we have seen a month-over-month increase in feedstock, primarily from the waste management OREX line in Sun Valley. And we are on track, as we said before, to implement the second OREX by the end of this quarter. which will be contributing more feedstock, and then the third OREX early next year. The big needle mover is the ordinance, which is a year delayed pursuant to SB 1383 state law in Los Angeles that is still on schedule and on track to be implemented in December, which would require all generators in Los Angeles to subscribe to the organic diversion program. With this in place, we remain optimistic and view a significant increase in turnaround in feedstock volumes to Rialto. The facility otherwise is receiving feedstock, working, and doing what we said it would do technologically. The revenue contributions, however, that we have experienced in the boo business have been primarily from the tipping fees as our facilities are ramping up, mainly the North American plants. And the gas has been stored at both Rialto and SoCal until such time as the RIN and LCFS are registered. We've been driving these registrations aggressively and rapidly, working collaboratively with the agencies. And in large part, the agencies have been moving at the speed that they can with the reality of shortage of staff and a lot of applications to deal with. But we still remain on schedule to have RELTA's registrations by the end of this year. Moving on to slide number 12, a snapshot of the BOO overview. We continue to execute on our plan with our 13 build on operate facilities around the world. The European gas prices have been a strong tailwind where we see an immediate term, a short term benefits over the next two years as Andrew alluded to with higher natural gas prices. And as a reminder, the government incentive is additive to natural gas price. And so the government incentive stays fixed long term, and the natural gas commodity price is additive to that. So we see this being a beneficial time in the immediate term as our Italian facilities are starting to inject gas and get online in real time one by one. The biogenic supply of CO2 is really a game changer and a market setting. All of our plants produce CO2 as a waste product and the ability to leverage a waste product into a revenue stream for a new market segment to decarbonize now shipping sector is very exciting and applicable at the global stage. So we're excited about our toner opportunity and setting a market precedent. On the execution side, two of our Six Italian blue facilities have been commissioned during 2022 and injecting gas. Toner will be injecting gas very shortly, expected next week. And we are on track to have the phase one completion for our toner plants this quarter. So that remains on track. The remaining blue facilities are coming online and will all start commissioning by the end of this year. Back to North America, on Rhode Island, the construction to convert that plant from an electricity generating plant, which it is today, into RNG continues and is on track, and we're advancing in the construction of that and conversion of this facility. At the Charlotte Booth facility, we continue to operate the plant and generate electricity, and we'll be executing on the plan next year to convert that facility into RNG as well. Taking a step back onto what we're seeing macro level at the market, in North America, the IRA and the voluntary market are enormous, enormous drivers. The IRA has now created a deadline and a major opportunity to start construction on projects in the next two years with up to a 40% incentive, either as a tax credit for facilities that we own or for our municipal customers reimbursement and an incentive from the IRS. We're very excited about the opportunity with the wastewater sector where energy has extremely differentiated technology and a reference space from which to build and a very untapped market segments that we're aggressively pursuing. So the RA is providing a significant economic boost to this. In the backdrop of the voluntary market, utilities and companies seeking decarbonization through carbon-based procurement, carbon-negative fuels to decarbonize their portfolio. Italy remains an attractive market, not only in the backdrop of the extension of the incentive program another three years, but developing opportunities in other European markets, UK, Germany as examples, who are all implementing similar programs as Italy with respect to long-term incentives. So we continue to stay focused in the European market. And now back over to Andrew.
spk01: Thank you, Yaniv. Between Yaniv and I, we pretty much summarized the key takeaways that are shown on this slide. And I don't want to repeat it, but you have it here. What all this means is that we have many opportunities that we are developing in Europe and in America, and that these will eventually translate into increased continued and increased growth. It will also require significant. And so we are looking in parallel to both investing in people We announced a few management changes already, and the last one I just announced today with Honey joining the team on the development side. And we're furthermore looking at different ways of financing this potential Avalancha project. This is a really good time from an opportunity point of view. somewhat challenging from an execution point of view, but we remain strong and we're looking forward to growing the company as we always said we would. At this point, I believe we are ready for questions. Darlene, will you start that step?
spk03: Certainly, I'm going to ask Jordan. Yeah, so I'll just ask Jordan here to remind everyone how to ask a question. I'll let you do that, Jordan.
spk07: Thank you. As a reminder, if you'd like to register a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. We'd also ask participants to limit themselves to one question with an additional follow-up.
spk08: We have a question from Aaron McNeil of TD Securities. Aaron, please go ahead.
spk05: Hey, morning all. Thanks for taking my questions. I can appreciate that you're reevaluating your internal forecasts and you've already given kind of broad strokes, but I guess I'd argue that a lot of the rationalizations that you've used to reduce or rescind guidance were known when you reported Q2 results or earlier. I'm hoping you can give us a better sense of what specifically has changed quarter over quarter.
spk01: Well, Aaron, the reality is that we're living in turbulent times. Turbulent times in the sense that you have basically... Every company has supply issues and people issues, both efficiency in terms of the new world and lack of people. And so we can control our end, but we can't control the other companies and government bodies that we work with. A simple example, the second OREX that we were ready to install and plan to install in the second quarter will not start operating on the first quarter next year. There's nothing we could do because our partner, our client, had to get permits and then it had to get construction done. And things take longer than we've been assuming. And so this is happening even in, I'll give you another example, in Italy. Our second, the first plant we built, we finished building, and we finished it, and it's running, and it's burning back. Because the utility took a couple of months to figure out how to let us put it in because they were not up to scratch and they had to do something of their own. So this is the world we're living in now. So I wish we weren't dependent on others outside of our company. We can just do what we think we should do. But this is happening now on many fronts and it's a more difficult world than we have ever seen. Perhaps, Paula, do you want to add something more to this to be a little more specific for Aaron?
spk02: There's not much more to add, Andrew, other than I would emphasize the prior forecast did rely on, like I mentioned, the RIN and LCSS programs being in place for Q4. That was key. That was the assumption in August, but that is one of the big assumptions that's changed. It's things like that, and as Andrew mentioned, it's those things that are not within our control.
spk05: Right. Okay. Maybe just focusing on Italy for my follow-up question, I think in the guidance you cited that the booze wouldn't be operating most of the booths wouldn't be operating in Italy versus prior guidance, but only two have been commissioned thus far, and there's a ramp in volume. So were you previously expecting that all of those facilities would be operational in Q4 for the previous guidance? And maybe you could also just give us a sense of where those two commissioned facilities are today relative to their nameplate capacity.
spk01: Sure, I'll take this one also. We assume that five of them would be operating this year. Three of them will. Two will be injecting gas only next year. We were rushing. Because we also had to meet the incentive deadlines, but these have been extended, so the pressure has been off. But it's the same story I just mentioned to you. The two plants are, one is in the south end of Italy. If you look at the boot, it's kind of near the front of the boot. A place not far from a place called Brindisi, if you know where that is. And the other one is near Rome. And there will be one more near Rome. And then a couple in the north and one on the island of Sardinia.
spk05: I guess I'm just wondering, you know, today, what sort of, you know, volumes of feedstock are they?
spk01: accepting relative to to nameplate those two commissioned facilities yes there's no shortage of feedback it's not it's not real so in fact we are making excess gas right now in the one near rome and we'll be pretty close to making the gas very shortly in the one in the south okay thanks guys i'll turn it over
spk08: As a reminder, for any further questions, that's star followed by one on your telephone keypad.
spk07: Our next question comes from Craig Irwin of Roth Capital Partners. Craig, please go ahead.
spk06: Good morning, and thank you for taking my questions. Can you maybe update us on the... The equipment sales opportunity, both domestically in the US and then in Canada, and then probably more pertinent is the conversation about Europe and Germany. The severe shortage of natural gas and the strong financial support for green gas projects, both in North America and Europe, seems to be supporting a more accommodative environment for equipment sales. Can you maybe just give us some color on what's changing, what we can expect, how this could potentially take shape over the next number of months and quarters?
spk01: Yaniv, do you want to take that on?
spk04: Sure. Yeah, happily. Great question. In North America, the significant opportunities in the municipal sector which has been sort of with an extra acceleration with the IRA backdrop that's now provided a significant financial incentive for municipalities, wastewater treatment facilities specifically I'm referring to, to leverage the biogas and utilize in a beneficial way. As an example, most wastewater plants, to give some color, do not have digesters, and about 90% to be specific, And those that do, a minority fraction are actually using the biogas beneficially. So equipment sales and actually system solutions, turnkey system solutions like the turnkey sterling plant that we talked about remain a significant growth opportunity now with what is good to have in the municipal sector to the point that we can't control decision-making. And when there's economic turmoil in the backdrop, decision-making often gets slowed or stalled until interest rates become more predictable. But in the municipal sector, the IRA drive is now putting a significant financial incentive at a time where resource recovery and sustainability are front and center. So the municipal wastewater sector is going to be a big driver in West America, and we're seeing it now with more opportunities than we've seen historically. In Europe, we're seeing a significant increase pipeline opportunity of capital sales mostly to private entities who are trying to capture exactly the opportunity you mentioned, the massive shortfall of domestic natural gas production and taking advantage of now the incentives across the EU for RNG. And so these are materializing into folks coming to us for our turnkey capabilities to deliver plants with a single point of responsibility and a vertically integrated partner who can essentially offer customers confidence and comfort that there's one person to rely on, one entity to rely on for full turnkey delivery from the plant to the equipment to the service operations. And so we're seeing the pipeline increase mostly from private sector developers or large multinationals. interested in plants to generate RNG and benefit from the EU incentive programs. Craig, did I answer your question?
spk06: Yeah, no, that's very helpful. That's very helpful. So then the bigger question then is, you know, the urgency with which to bring on gas production is pretty significant. What's the approximate lead time if someone wants to adopt your technology and triple their biogas production by introducing a little bit of food waste into the stream and treating those bugs extra special the way you guys do. What's the timeline for a wastewater plant to spec in and adopt this technology? Is this something that can be done in less than a year, or do these projects typically take multi-year horizons for planning and procurement and implementation?
spk04: Yeah, the actual, from the time the contract signs, a retrofit, the tripling, you know, our technological ability to triple capacity of existing digesters is a 12 to 18-month construction timeline typically. What is on the pre-end of that timeline that has more broad variability is is the decision-making, is the method of procurement, if it's RFPs and any pre-design work and municipal approvals. So that can be an additive timeline with more broad variables. Megaprojects, however, like the one in Singapore, this is a multi-year project, enormous in scale, with lots of detailed design milestones. And so the timeline there is not driven by procurement of equipment, more so by the execution of a large, of a really large complex facility for which we have a subscope.
spk06: Understood. Understood. Well, thank you for that caller. I'll go ahead and hop back in the queue.
spk08: As a final reminder, for any further questions, that's star followed by one on your telephone keypad.
spk07: We have no further questions on the phone line, so I'll hand back to Andrew for any closing remarks.
spk01: Sure. Well, thank you for the questions, Aaron and Craig. The bottom line is that, as we have pointed out, the market is expanding in the developed world and even in the less developed world. We see a long list of projects for both owner-operate and capital, and we are sitting with the world's leading technology for accessing any kind of waste and an ability to turn it into RNG efficiently with demonstrated plants throughout the world in markets where no one else could actually do what we are doing. And these are the largest markets. So when you marry expanding opportunities and as a powerful platform Sooner or later, there is going to be good results, and that's exactly what we're doing. Not as fast as we like, but they're all coming and so on. So thank you very much for tuning in, and we look forward to continuing the progress we're reporting on. Darlene?
spk03: Thank you, Andrew. As always, for additional information or should you have any questions, please contact the IR team at IR at Energia.com or visit us online at Energia.com. Thank you all once again for your time today. Operator, you may end the call.
spk07: Thank you. This concludes today's call. You may now disconnect your
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