Mr. P. Peter Pascali reports

PYROGENESIS ANNOUNCES 2023 FOURTH QUARTER AND YEAR END RESULTS

PyroGenesis Canada Inc. has released its financial and operational results for the fourth quarter and the fiscal year ended Dec. 31, 2023.

"Two thousand twenty-three was an interesting year for PyroGenesis as we dealt with many of the issues associated with the growth and adoption of clean technology in a cautious economic environment," said P. Peter Pascali, president and chief executive officer of PyroGenesis. "We navigated cash management challenges brought about by higher costs associated with commercializing our technologies, continued inflationary pressures on material and labour costs, longer sales cycles for system sales caused by the uncertain economic environment we are all facing, and multiple requests from potential customers to help them in their investigation of using plasma as a solution to their many problems. As much of this type of work is new-use proof of concept, profit margins are negligible, and timelines imprecise.

"While many of these efforts did not yield large contracts or system sales during the year, we cannot underestimate the impact these engagements have had and are having," said Mr. Pascali. "In a few short years, we have moved front of mind to many current and potential heavy industry customers, who sought us out as they made their initial steps on their decarbonization journey. Since late 2019, when our work on the first tests of plasma in iron ore pelletization heralded our entry into the field of heavy industry decarbonization, the opportunities have expanded far beyond the one-furnace/one-industry concept to numerous process heating steps in virtually every heavy industry. The array of opportunities possible within the aluminum industry alone has surpassed that of any one specific technology solution we offered in the past. This is a fundamental change that has taken hold in 2023, which I would suggest significantly derisks PyroGenesis over all."

Mr. Pascali added: "As the decarbonization trend continues to mature, we are well positioned as a company with deep experience in the field -- a key factor to customers as the scale of projects amplifies. This, along with our continued focus on cost optimization, our strong backlog of almost $29-million, negligible debt, the recent commercialization of our titanium metal powder production system and a very robust sales pipeline, feeds my optimism for the future. As I have mentioned in the past, our revenue will fluctuate quarter to quarter, but our commitment will not. We are positioning ourselves to become a leader in heavy industry decarbonization technology solutions for many years to come."

The information herein represents important highlights from the past year, followed by an outline of the company's strategy and outlook for 2024.

Fourth quarter 2023 production highlights

In Q4 2023, PyroGenesis continued its focus on advancing its updated business strategy that was first outlined in the company's fourth quarter and year-end 2022 results.

As noted, as the variety of uses for the company's core technologies has expanded, and industry interest has increased, the company is concentrating its activities under a three-tiered solution ecosystem that aligns with economic drivers that are key to global heavy industry.

Energy transition and emission reduction:

• Fuel switching, utilizing the company's electric-powered plasma torches and biogas upgrading technology to help heavy industry reduce fossil fuel use and greenhouse gas emissions.

Commodity security and optimization:

• Recovery of viable metals and optimization of production methods/processes geared to increase output, maximize raw materials and improve availability of critical minerals.

Waste remediation:

• Safe destruction of hazardous materials and the recovery and valorization of underlying substances such as chemicals and minerals.

Q4 financial highlights

In November, the company confirmed receipt (press release dated Nov. 20, 2023) of a production milestone payment of $520,000 associated with the plasma torch contract with a U.S. corporation for perfluoroalkyl and polyfluoroalkyl substance destruction (press release dated Sept. 12, 2023).

In December, the company announced (press release dated Dec. 20, 2023) closing of a $1.25-million non-brokered private placement of a convertible loan in the amount of $1.25-million with Fiducie de Credit Mellon Trust, a related party.

Status as a dual-listed publicly traded company

As part of the company's pro-active risk management strategy, the company announced in its second quarter news release (press release dated Aug. 10, 2023) that it was evaluating the costs and benefits of maintaining a dual listing on both Nasdaq and the Toronto Stock Exchange. That evaluation entailed an analysis of several key factors, including: (i) the financial costs associated with being on each exchange, such as insurance costs, regulatory compliance costs, legal fees and accounting fees; (ii) the volume of trading on both exchanges; and (iii) the regulatory and compliance requirements of each exchange.

On Oct. 27, 2023, after careful consideration by the board of directors, the company announced it would be voluntarily delisting from the Nasdaq exchange.

The company's shares were subsequently delisted from Nasdaq, and shares ceased trading on Nov. 16, 2023. On the same day, the company's shares began trading on the OTCQX Best Market under the symbol PYRGF.

None of these activities had any bearing on the company's main listing on the TSX, where the company's stock continued to trade uninterrupted under the symbol PYR. The company also trades on the Frankfurt exchange under the symbol 8PY.

Financial summary

Revenues

PyroGenesis recorded revenue of $3.0-million in the fourth quarter of 2023, representing a decrease of $300,000 compared with $3.3-million recorded in the fourth quarter of 2022. Revenue for fiscal 2023 was $12.3-million, a decrease of $6.7-million over revenue of $19-million compared with fiscal 2022.

Revenues recorded in fiscal 2023 were generated primarily from:

• Purevap related sales of $1,660,928 (2022: $6,272,697);
• Drosrite related sales of $535,868 (2022: $1,912,807);
• Support services related to systems supplied to the U.S. Navy of $3,245,618 (2022: $1,288,356);
• Torch related sales of $3,396,458 (2022: $5,558,210);
• Refrigerant destruction sales of $605,962 (2022: nil);
• Biogas upgrading and pollution controls of $1,713,810 (2022: $3,347,443);
• Other sales and services of $1,186,437 (2022: $633,990).

Q4 2023 revenues decreased by $300,000, mainly as a result of:

• Purevap related sales decreased by $600,000 due to the completion of the project and the company announcing the successful silicon pour validating all critical milestones, and with this achievement, the stage is set for discussions in transitioning to commercial production.
• Drosrite related sales decreased by $300,000 due to customer delays in financing for the construction of the on-site facility.
• Support services related to systems supplied for the U.S. Navy increased by $1.5-million due to the completion of several milestones and the increase in awarded contracts. In addition, in 2022, a revision in the cost budget affected the revenue recognized by percentage completion. At that time, the customer had yet to provide the company with a firm purchase order for the change of scope.
• Torch related products and services decreased by $1.4-million due to the completion of the project, with the company currently providing continuous on-site support.
• Sparc related sales increased by $200,000 due to the advancement of the project.
• Biogas upgrading and pollution controls related sales increased by $200,000 specifically due to the project advancement of its regenerative thermal oxidizer system.

Fiscal 2023 revenues decreased by $6.7-million, mainly as a result of:

• Purevap related sales decreased by $4.6-million due to the completion of the project and the initial phase of testing and one-time $3.6-million sale of intellectual property, in 2022, which was not repeated in the current fiscal year.
• Drosrite related sales decreased by $1.4-million due to the impact of the continued customer delays in financing for the construction of the on-site facility.
• Support services related to systems supplied for the U.S. Navy increased by $2.0-million due to the completion of several milestones and the increase in awarded contracts.
• Torch related products and services decreased by $2.2-million due to the completion of the project, with the company currently providing continuous on-site support.
• Sparc related sales increased by $600,000 due to the advancement of the project.
• Biogas upgrading and pollution control related sales decreased by $1.6-million due to the delivery of and agreed completion of projects during the comparable period of the previous year.

As of April 1, 2024, revenue expected to be recognized in the future related to backlog of signed and/or awarded contracts is $28.8-million. Revenue will be recognized as the company satisfies its performance obligations under long-term contracts, which are expected to occur over a maximum period of approximately three years.

Comprehensive (loss) income

The comprehensive loss for Q4 2023 of $9.8-million compared with a loss of $10.8-million in Q4 2022 represents a variation of $1.0-million, and is primarily attributable to the factors summarized as follows:

• A decrease in product and service related revenue of $300,000 arising in Q4 2023, but with a higher gross margin of 23 per cent and thus a gross profit of $700,000, as opposed to $500,000 in Q4 of 2022;
• A decrease in selling, general and administrative expenses of $1.0-million arising in Q4 2023 primarily due to a decrease in the allowance for credit loss of $4.2-million, and a decrease in professional fees, office and general, offset by increases in travel, other expenses, foreign exchange charge on materials, impairments and changes in assumptions in cash flows of royalty receivables;
• A decrease in share-based expenses of $600,000;
• A decrease in research and development expenses of $300,000 primarily due to a decrease in subcontracting, materials and equipment, and other expenses, offset by an increase in employee compensation;
• An increase in finance costs of $300,000 in Q4 2023 primarily due to the interest and accretion on the convertible debenture, convertible loan, balance due on business combination and royalty receivable;
• A variation in the fair market value of strategic investments of $300,000.

The comprehensive loss for the 12-month period ended Dec. 31, 2023, of $28.5-million compared with a loss of $32.2-million for the same period in the prior year represents a variation of $3.7-million, and is primarily attributable to the factors summarized as follows:

• A decrease in product and service related revenue of $6.7-million, and annual gross margin of 28 per cent, thus generating a gross profit of $3.4-million, as opposed to 43-per-cent margins in 2022, which generated $8.1-million in gross profit;
• An increase in SG&A expenses of $1.9-million was primarily due to an increase in employee compensation, travel, depreciation in property and equipment, depreciation of right-of-use assets, foreign exchange charge on materials, and the combination of credit loss, impairments and changes in cash flows of royalty receivables of $3.8-million, which are offset by a decrease in professional fees, office and general, government grants, and other expenses;
• A decrease in share-based expenses of $2.4-million;
• A decrease in R&D expenses of $100,000 primarily due to a decrease in subcontracting, materials and equipment, and an increase in employee compensation, investment tax credits and other expenses;
• A decrease in net finance costs (income) of $1.9-million is primarily due to the revaluation of balance due on business combination;
• A favourable variation in the fair market value of strategic investments of $8.0-million.

Outlook

Consistent with the company's past practice and in view of the early stage of market adoption of its core lines of business, the company is not providing specific revenue or net income (loss) guidance for 2024.

Overall strategy

PyroGenesis provides technology solutions to heavy industry that leverage the company's expertise in ultrahigh-temperature processes. The company has evolved from its early beginnings of being a specialty engineering firm to being a provider of a robust technology ecosystem for heavy industry that helps address key strategic goals.

The company believes its strategy to be quite timely as multiple heavy industries are committing to major carbon and waste reduction programs at the same time as many governments are increasingly funding environmental technologies and infrastructure projects -- all the while both are making it a strategy to ensure the availability of critical minerals during the coming decades of increased output demand.

While there can be no guarantees, the company believes the evolution of its strategy beyond greenhouse gas emission reduction to an expanded focus that encapsulates key verticals both: (i) improves the company's chances for success while (ii) also providing a clearer picture of how the company's wide array of offerings work in tandem to support heavy industry goals.

PyroGenesis's market opportunity is significant as major industries such as aluminum, steelmaking, manufacturing, cement, chemicals, defence, aeronautics and government require factory-ready, technology-based solutions to help steer through the paradoxical landscape of increasing demand and tightening regulations and material availability.

As more of the company's offerings reach full commercialization, PyroGenesis will remain focused on attracting influential customers in broad markets while at the same time ensuring that operating expenses are controlled to achieve profitable growth.

For 2024, the company will continue to sharpen the focus on the strategy that structures the company's solution ecosystem under the three verticals noted previously: (i) energy transition and emission reduction; (ii) commodity security and optimization; and (iii) waste remediation, while introducing new solutions within each category -- some self-initiated, and some in conjunction with (or at the behest of) industry partners.

About PyroGenesis Canada Inc.

PyroGenesis, a high-technology company, is a proud leader in the design, development, manufacture and commercialization of advanced plasma processes and sustainable solutions, which reduce greenhouse gases and are economically attractive alternatives to conventional dirty processes. PyroGenesis has created proprietary, patented and advanced plasma technologies that are being vetted and adopted by multiple multibillion-dollar industry leaders in four massive markets: iron ore pelletization, aluminum, waste management and additive manufacturing. With a team of experienced engineers, scientists and technicians working out of its Montreal office and its 3,800-square-metre and 2,940-square-metre manufacturing facilities, PyroGenesis maintains its competitive advantage by remaining at the forefront of technology development and commercialization. The operations are ISO 9001:2015 and AS9100D certified, having been ISO certified since 1997.

We seek Safe Harbor.