PyroGenesis Inc.

Welcome everyone to the second quarter 2024 business update conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. At this time, I'd like to turn the conference over to Steve McCormick of Pyrogenesis. Please go ahead.

thank you operator good morning i'm steve mccormick vice president of corporate affairs for pyrogenesis thank you for joining pyrogenesis 2024 second quarter financial results and business update conference call on the call with us today are mr p peter pascali president and ceo of pyrogenesis and mr andre manella the company's chief financial officer the company issued a news release on tuesday august 6th 2024 containing the financial results and a business update for the second quarter ending June 30th, 2024, 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 the Investor Relations Department and we'll try as best as possible to answer questions that are of a public nature. The company's management will shortly provide prepared remarks reviewing the operational and financial results for the second quarter ending June 30th, 2024. 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 from 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 obligation 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 EBITDA, modified EBITDA, and backlog, 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 EBITDA and modified EBITDA, please refer to the company's management discussion and analysis, which along with the financial statements are available on the company's website at pyrogenesis.com and at cdarplus.ca. Also a reminder that Pyrogenesis follows Canadian Generally Accepted Accounting Principles, or GAP, where revenue is accrued not on sales, but on a model that reflects a percentage of the work completed for contracts during the period, which can vary. based on both the nature of the projects in-house and on a 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 of supply chain, logistical, and inflationary uncertainties, those issues have been more frequent and 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. With that, I will now turn the call over to Mr. P. Peter Pascali, President and CEO of Pyrogenesis. Please go ahead, Mr. Pascali.

Thanks a lot, Steve, and thanks for everyone for joining us today. Before I 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 over the quarter, Um, I like to, uh, go off script. Yes. And, uh, present, uh, what I consider to be the, uh, like a 30,000 foot overview of what's taking place. And, and, and what I talk about being excited, I'm over the top excited about this quarter. This is a quarter that I could only dream about. Seriously. I had something, everything came together in this particular quarter. And when I talk about excitement, again, I'm talking about the company and how it's been laid up for the future. And I'm not talking about stock price. Nothing that I'm talking about here has to do with stock price. You can look at the company from two perspectives. The financials that we published from the line-by-line numerical disclosure, we had gross profit and net profit in the same quarter. Our backlog is increasing. And if you read our press releases, we could very well double that over the next few months. Sales are improving and cash flow is even better. But what I'm speaking to is what happened over the quarter. We started landing some contracts, not major, well, in the millions of dollars, but one after another across a large number of our business lines. And this speaks to what I alluded to, I think, in our previous call, where I said that our clients were basically two types. They're the multi-billion dollar clients, and they're the small startups. Both had been plagued with challenges, not just the supply chain and labor issues post-COVID, but the newer challenge, which was interest rates increasing rapidly, unforeseen number of interest rates increases in a short period of time, which shocked both of our clients. the small cap and the multi-billion dollar clients. Both had to figure out what does this mean in their reality. The small caps were shocked by the sticker price of having to go to market. In fact, oftentimes, it was very difficult for them to raise the caps they needed to proceed, and they had to retrench and regroup and figure out what to do. One client said that typically $100,000 investors are now putting in $10,000, $20,000, if that. The larger billion-dollar companies had to look at how they're going to react to this new interest rate environment. And as I alluded to in our previous discussion, they started to come forward, and we had a large number of contracts being written in the second quarter. When you're looking at our company, I was at a presentation the other day and a question came up, you know, what is our burn or what is our break-even? I said, that's a good question. And I asked, what company are you looking at? And the reason I asked that is because when you look at what Pyrogenesis is doing, we're introducing new technology into sometimes, oftentimes, conservative industries. So we are selling one-off. Well, not one-off. When I say one-off, I mean we're selling just one system But oftentimes we're doing it at an introductory price, although we're making half decent margins at an introductory price. And oftentimes our profits have to be tapered because there's government support or they're with a government which strictly prohibits or regulates what type of profit we can ask for. That's the environment the company has been working in for the past God knows how many years. Now we're turning towards repeat orders and orders where there are an order for multiple units of the same type of product. What happens? First of all, the margins increase significantly. We have no engineering costs associated with those, which are quite expensive. Our cost savings for multiple orders In one case, it's up to 35% savings on costs. So these repeat orders and these orders that are multiple orders, sorry, one order for multiple items of the same type will now translate into huge improved margins. So that's where we're going to now. We're transitioning into a company that's entertaining those type of, we're at a position where we're entertaining those type of contracts. Similarly, in the second quarter, one of the most satisfying developments was our client in Saudi Arabia made a significant payment on a past due receivable. A receivable where many people had questioned whether it was even at any chance of being paid. And our position has always been, we've looked at it, it was a strategic decision. And quite frankly, we see a lot of opportunity coming out of Saudi Arabia as the needs in Saudi Arabia and that part of the world marry up with pretty much every one of our business lines. And that is so exciting. Now, if anybody was paying attention, you will have read in our press releases that the entity that is actually buying our client invested in our private placement, which signals to us a further interest in developing our technology in that part of the world. Now, that's it for my 30,000 off-the-script analysis. I'm extremely excited, as I said. The excitement has to do with the contracts that are coming in and the ones that we are laying up. Actually, you know what? If you look back at all our press releases over time and you tick off the ones that come through, yes, there may be a delay. There may be a delay because, quite frankly, we can't control our clients and the delays that our clients take, like I just described, multi-billion-dollar companies and small startups that are trying to figure out what to do in this new environment. So we cannot be responsible for delays, but we try to give you the best sense that we get from our clients as to what the timeframes are. But if you go back at our press releases and you tick off which ones have come true, you'll find that we're doing very, very, very, very well. And I think that's all you can expect from us is to come out with the news. The timeframes have to be taken into consideration of who our clients are and their pressures. But I think we're doing very, very well. If you look at how we are positioning ourselves in some very interesting markets as a key player with multi-billion dollar companies, I think hopefully you'll share my excitement. Anyways, onto the review of the second quarter 2024. a quarter in which we exited the quarter with revenues of close to $4 million, $3.93 million. And as stated in yesterday's news release, this represented an increase of close to 30% year-over-year and more than 13% over Q1 of this year. We continue to create distance from the three-year low revenue mark that was recorded back in Q1 2023. And this quarter marks the fifth consecutive quarter where we've comfortably exceeded that low point. And this was the fourth quarter of the last five where we've booked revenue that exceeds the preceding quarter. This is the reason why I'm excited. We're starting this trend and we're continuing it in very trying markets. Gross margin, 30% for the second quarter, up from 21.7% in Q1. And we consider this to be a very solid margin number, particularly in the face of continuing fluctuation of the global supply chain costs and inflationary figures. And let's compare them to some of the industries we serve. 30% compared to aerospace and defense, which is at 21, 22% for the quarter. Iron and steel, 26%. Metal and mining is at 34%. And I should mention that we usually also reference the aluminum industry as well, but as of today, it appears that many of the major aluminum companies have yet to report their earnings, so an industry-wide margin figure for them wasn't available as of this time. It's important to note that our margins are even more impressive when one considers that many of our projects are conducted in partnership with clients like HBQ Silicon or have government grants associated with them, which I mentioned limit the profits we can ask for. And we conscientiously in those type of projects obviously have lower profit margin when it comes to our engineering and production. As for our backlog, as similar to our revenue, our backlog is back strong, now up to 30, almost 30 million, 29.8 million. So we're once again hovering around the 30 million backlog number that we first reached back in 2019.