Mr. P. Peter Pascali reports
PYROGENESIS ANNOUNCES 2021 RESULTS: RECORD REVENUES $31.1MM; GROSS MARGIN 40%; RECORD CURRENT BACKLOG OF SIGNED AND/OR AWARDED CONTRACTS $47.7MM
PyroGenesis Canada Inc. has released its financial and operational results for the fourth quarter and the fiscal year ended Dec. 31, 2021.
"We are happy to be announcing our 2021 financial results, which includes both our exceptional organic growth plus the results of our recent acquisition, Pyro Green-Gas (formerly AirScience Technologies Inc.). We have posted a series of record numbers for the company, which includes record revenues for a Q4 of $7.2-million -- a revenue figure that alone surpasses the full-year revenue of every previous year aside from 2020 -- and yearly revenues of $31.1-million, which is the highest revenue we have ever posted for any full year. This is representative of our successful advancement and delivery of the backlog of signed contracts, and the benefit of the biogas upgrading projects from Pyro Green-Gas," said P. Peter Pascali, chief executive officer and chair of PyroGenesis. "The board and I see the record success of 2021 as both a validation of 2020's breakout results and a new, stronger platform from which years of continued high growth will stem."
Two thousand twenty-one results reflect the following highlights:
Record revenues of $31,068,350, an increase of 75 per cent from $17,775,029 year over year;
Revenues of $6,800,090 from the recent acquisition of Pyro Green-Gas, formerly known as AirScience Technologies;
Gross margin profit of $12,431,811 or 40 per cent of revenue;
Second highest ever year-end cash and cash equivalents at Dec. 31, 2021, of $12,202,513;
All-time-high backlog of signed and/or awarded contracts of $47.7-million;
Repurchased and cancelled $4.2-million of the company's common shares;
23-per-cent increase year over year in head count;
Capital expenditures, $1.5-million, an increase of 114 per cent from $700,000 year over year;
Best fourth quarter in the company's history, at $7.2-million, demonstrating further strength and stability of the company as a consistent, year-round revenue producer;
Milestone new market entry sales, including for the destruction of polyfluoroalkyl substances.
PyroGenesis completed 2021, having achieved many important accomplishments and milestones. Most importantly, it maintained the accelerated business momentum of the past 18 months despite the challenges of the global marketplace due to COVID, and even introduced new markets and opportunities to provide a broader, stronger platform for 2022 and beyond.
Building on its strategy to offer technology solutions that provide benefits from greenhouse gas (GHG) emission reduction, the company increased its offerings in this regard through a series of adjustments, such as internal capacity scaling, diversified sales channel targeting and external vision -- resulting in, most notably, the doubling of production staff, contract wins in new sectors, and the acquisition of AirScience Technologies and its subsequent relaunch as Pyro Green-Gas.
While the company had previously considered its strategy to be timely, as many governments are stimulating their respective economies by promoting and financing both environmental technologies and infrastructure projects, 2021 proved an even greater affirmation of this approach, as major industries and organizations targeted by the company not only recommitted to their targets, but in some cases raised them significantly. For instance, in the iron ore and steelmaking sector, in October, 2021, Rio Tinto unveiled new targets to reduce its Scope 1 and 2 emissions by 50 per cent by 2030, more than tripling its previous targets.
As stated, many times, most of PyroGenesis's product lines do not depend on environmental incentives (tax credits, GHG certificates and environmental subsidies) to be economically viable. With the increased commitments by industry to carbon reduction, it is anticipated that the company's growth drivers will expand, and shareholders will see increased value.
Furthermore, the experience gained over the past two years as the company, and its prospective clients, manoeuvred through both the lengthy modelling and business-case development processes, and the government incentive and procurement system have provided immeasurable insights into various bureaucratic and government processes -- affording a much clearer understanding of the process, enhancing its ability to respond to future situations and giving it better vision and a rebalance of expectations regarding timeline control. This knowledge will only serve to enhance what management has defined as government incentive-related tailwinds into an already strong pipeline, all with a positive impact on revenues and shareholder value.
The company is not immune to the negative impact that COVID-19 and other external factors brought on businesses, specifically related to the work force and, more importantly, the supply chain. However, management believes that the company is better situated than most, and through various mitigation measures, these challenges continue to be dealt with in an effective manner. The company expects even greater improvements as the impact of COVID-19 and other external factors continues to recede after second quarter 2022.
PyroGenesis recorded revenues of $31,068,350 for the year ended Dec. 31, 2021, representing an increase of 75 per cent compared with $17,775,029 recorded in 2020.
Revenues recorded in fiscal 2021 were generated primarily from:
- Purevap-related sales of $6,138,111 (2020: $4,163,059);
- Drosrite-related sales of $7,940,771 (2020: $9,976,696);
- Support services related to systems supplied to the U.S. Navy of $7,522,809 (2020: $1,425,883);
- Torch-related sales of $2,084,511 (2020: $1,452,455);
- Biogas upgrading and pollution controls of $6,800,090 (2020: nil);
- Other sales and services of $582,058 (2020: $756,936).
Purevap-related sales include revenue from the sale of technologies in the amount of $3.3-million. See Note 6 to the 2021 consolidated financial statements.
Cost of sales and services and gross margins
Cost of sales and services before amortization of intangible assets was $18,170,626 in 2021, representing an increase of 144 per cent compared with $7,445,171 in 2020, primarily due to the additional costs to complete the Pyro Green-Gas contracts following the acquisition. Increases in employee compensation of $2,650,739 (2020: $1,379,637), direct materials of $14,252,205 (2020: $4,147,704), and manufacturing overhead and other of $1,111,975 (2020: $507,217) were offset by a decrease in subcontracting of $872,933 (2020: $1,281,472), foreign exchange charge on materials of ($568,531) (2020: $147,561) and an increase in investment tax credits of ($148,695) (2020: ($18,420)).
In 2021, employee compensation, direct materials, manufacturing overhead and other increased to $18,014,919 (2020: $6,034,558), primarily due to the increased amount of contract values in the company and in the Pyro Green-Gas subsidiaries. Of note, the company in 2020 applied for an amount of $775,967 in wage subsidy from the government of Canada under the Canada emergency wage subsidy program. From this amount, $118,416 was applied to employee compensation under cost of sales and services. Subcontracting and foreign exchange charge on materials decreased to $304,402 (2020: $1,429,033).
The gross margin for 2021 was $12,431,811 or 40 per cent of revenue compared with a gross margin of $10,302,668 or 58 per cent of revenue for 2020. As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, and the mix between labour, materials and subcontracts may be significantly different. The cost of sales and services for 2021 and 2020 is in line with management's expectations.
Investment tax credits recorded against cost of sales are related to projects that qualify for tax credits from the provincial government of Quebec. Qualifying tax credits increased to $148,695 in 2021, compared with $18,420 in 2020. The increase is primarily related to more contracts being eligible for qualifying tax credits.
The amortization of intangible assets of $465,913 in 2021 compared with $27,190 for 2020 relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items and will be amortized over the duration of the patent lives.
Selling, general and administrative expenses
Included within selling, general and administrative expenses are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.
SG&A expenses for 2021 excluding the costs associated with share-based compensation (a non-cash item in which the option expense is amortized over the vesting period) were $17,474,390, representing an increase of 116 per cent compared with $8,089,945 reported for 2020.
The SG&A expenses, which now include those of Pyro Green-Gas since the acquisition date, increased in 2021 over the same period in 2020, and the net effect is as follows:
- An increase of 53 per cent in employee compensation primarily due to additional head count, an increased in commissions and bonuses;
- An increase of 198 per cent for professional fees, primarily due to an increase in consulting fees, accounting and audit fees, legal fees, investor relation fees, and public listing fees;
- An increase of 72 per cent in office and general expenses is primarily due to computer and information technology expenses;
- Travel costs increased by 11 per cent due to an increase in travel abroad;
Depreciation on property and equipment increased by 464 per cent due to higher amounts of property and equipment being depreciated;
- Depreciation on right-of-use assets increased by 40 per cent due to higher amounts of right-of-use assets being depreciated;
- Investment tax credits increased by 8 per cent to 32,486;
Government grants increased by 42 per cent due to higher levels of activities supported by such grants;
Other expenses increased by 1,051 per cent, primarily due to an increase in D&O insurance expense.
Separately, share-based payments increased by $5,518,137 in 2021 over the same period in 2020 as a result of the stock options granted in 2021. This was directly impacted by the vesting structure of the stock option plan with options vesting between 10 per cent and 100 per cent on the grant date requiring an immediate recognition of that cost.
Research and development costs
The company incurred $2,535,987 of R&D expenses, net of government grants, on internal projects in 2021, an increase of 447 per cent compared with ($731,077) in 2020. The increase in 2021 is due to an increase in R&D activities, the type of contracts being executed, the nature of the project activity, and an increase in employee compensation, subcontracting, materials and equipment, and other expenses of $2,000,853 compared with $775,824 and a decrease in investment tax credits of 684,709 compared with (1,141,468) reported in 2020.
In addition to internally financed R&D projects, the company also incurred R&D expenditures during the execution of client-financed projects. These expenses are eligible for scientific research and experimental development (SR&ED) tax credits. SR&ED tax credits on client-financed projects are applied against cost of sales and services.
Finance expenses for 2021 totalled $404,370 as compared with $524,074 for 2020, representing a decrease of 23 per cent year over year. The decrease in finance costs is primarily attributable to the extinguishment of term loans, other loans and convertible debentures in 2020.
The adjustment to the fair market value of strategic investments in 2021 resulted in a loss of $21,426,218 compared with a gain in the amount of $44,626,698 in 2020, representing a decrease of $66,052,916. The decrease is primarily attributable to the decreased market share value of common shares and warrants owned by the company of HPQ Silicon Resources Inc.
Comprehensive (loss) income
The comprehensive loss for 2021 of $38,428,495 compared with an income of $41,768,404 in 2020 represents a decrease of 192 per cent year over year. The variation of $80,196,899 in the comprehensive income (loss) in 2021 is primarily attributable to the factors described above and includes the profit and loss items of Pyro Green-Gas since the acquisition date:
- An increase in product- and service-related revenue of $13,293,321 arising in 2021;
- An increase in cost of sales and services of $11,164,178, primarily due to an increase in employee compensation, direct materials, manufacturing overhead and other, and amortization of intangible assets;
- An increase in SG&A expenses not including share-based expenses of $9,384,445 arising in 2021 primarily due to an increase in employee compensations, professional fees, office and general, travel, depreciation of property and equipment, depreciation of ROU assets, and other expenses;
- An increase in R&D expenses of $3,267,064 primarily related to the increase in employee compensation, subcontracting, materials and equipment, and other expenses and a decrease in investment tax credits, recognition of investment tax credits in 2020 and prior years in the amount of $1,141,468, which include amounts that reduce Canadian income taxes payable in 2020 and an amount of $365,433 in government grants;
- An increase in share-based expense of $5,518,137;
- A decrease in changes in fair market value of strategic investments and net finance costs of $65,933,212;
- A decrease in income taxes of $1,773,372.
EBITDA (earnings before interest, taxes, depreciation and amortization)
The EBITDA in 2021 was a $37,371,658 loss compared with an EBITDA gain of $43,824,533 for 2020, representing a decrease of 185 per cent year over year. The decrease in the EBITDA in 2021 compared with 2020 is due to the decrease in net earnings and comprehensive income of $80,196,899, offset by an increase in depreciation on property and equipment of $292,985, an increase in depreciation on right-of-use assets of $162,076, an increase in amortization of intangible assets of $438,723, a decrease in finance charges of $119,704, and a decrease in income taxes of $1,773,372.
Adjusted EBITDA in 2021 was a $27,608,913 loss compared with an adjusted EBITDA gain of $48,069,141 for 2020. The decrease of $75,678,054 in the adjusted EBITDA in 2021 is attributable to a decrease in EBITDA of $81,196,191 and an increase of $5,518,137 in share-based payments.
The modified EBITDA in 2021 was a $6,182,695 loss compared with a modified EBITDA gain of $3,442,443 for 2020, representing a decrease of 280 per cent. The decrease in the modified EBITDA loss in 2021 is attributable to the decrease as mentioned above in the adjusted EBITDA loss of $75,678,054 and an increase in change of fair value of investments of $66,052,916.
As at Dec. 31, 2021, the company has cash and cash equivalents of $12,202,513. In addition, the accounts payable and accrued liabilities of $10,069,177 are payable within 12 months. The company expects that its cash position will be able to finance its operations for the foreseeable future.
About PyroGenesis Canada Inc.
PyroGenesis, a high-technology company, is a 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.
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