Cielo Waste Solutions Corp. (CMC.V) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cielo Waste Solutions Q2 2023 Financial Results Conference Call. [Operator Instructions] I would now like to hand the call over to Mr. Ryan Jackson, Chief Executive Officer; and Ms. Jasdeep Dhaliwal, Chief Financial Officer of Cielo Waste Solutions. Please go ahead.

Thanks, Michelle, and good morning, or in certain parts of the country, good afternoon, everyone. Cielo is, of course, pleased to announce its financial results for the 6 months ended October 31, 2022. And of course, I want to make sure that you know that all amounts in this release or in this conference call will be in Canadian dollars, unless otherwise indicated. Just wanted to also mention too that after this, Michelle mentioned, there is going to be a Q&A. We have some different voices today because Jas, myself and Ryan Carruthers are all battling what everybody else seems to be battling right now with respect to sickness. So we're getting through it as much as we can, but please excuse if we sound like permit the frog more than we do ourselves today. With that, I'll leave it over to Jas to do the summary of the Q2 financial results. Jas?

Good morning, good afternoon, everyone. I'm happy to be here with my esteem colleagues, Ryan and Ryan. Just to go through some of the key events or transactions we went through in Q2. So as noted in our MD&A and in our PR, we were able to complete a payment of $1.1 million for R&D facility fabrication. Also, occupancy of our Fort Sask facility occurred August 1, 2022. And this results in annual base rental income of $0.6 million, plus 90% occupancy costs that are covered. In addition, on September 8, shares were issued for a debt for shares conversion of $2 million. This resulted in 26.9 million shares issued as debt repayment. What was also noted in Q1 -- I just want to mention the impact of that -- is that there was impairment of $22.4 million, which has resulted in total assets decrease of $21 million compared to April 30, as at October 31, 2022, in comparison to April 30. In addition, total liabilities on October 31 has decreased by $2.4 million compared to April 30 due to $1.2 million decrease in accounts payable. We've done -- put forward our best efforts to streamline G&A and ensure we're rightsizing the company for its trajectory and its growth at this point. In addition to that, what you've also seen is in short-term liabilities, the debt has been reclassed, the $4.1 million, to short-term liability because it's due next September, so September 2023, the first loan as referred to, and looking at the valuation of it, it's $4.1 million. In addition, Cielo has begun preliminary conversations with Renewable U on the 9 outstanding MOUs and the potential for the first location MOU in Dunmore, the joint venture. What we did there is it's been classified as short-term liability because of our intent to settle the 9 MOUs in the next 12-month period. It's also important to note, in the MD&A it was noted that we do have a waiver on behalf of Renewable U indicating that they will not be calling the $2.25 million before August 23, 2023. The important piece to note there is, as noted, the pieces that relate to the performance obligation of Cielo and Aldersyde, which is resulting in a conversation back and forth on the settlement of the MOUs and how best to capture our strategy and our trajectory going forward. Subsequent to that, where we are operationally is wrapping up our calendar year of December, excited for Q1. Ryan Carruthers can speak to that as the questions arise, with the fabrication completion of our R&D facility and beginning our testing on various feedstocks. So to end off October 31, our net loss for the 3-month period ended October 31 was $2.1 million, comprised primarily of G&A of $0.9 million, research and development costs of $0.4 million, finance costs of $0.8 million. Our net working capital deficit totaled $1.8 million at October 31, with cash utilized for the quarter in operations of $1.4 million and investing in $1.0 million. That's everything on my end, Ryan. The floor is yours.

All right. Thanks, Jas. That is the earnings for Q2, and we'll now open it up, Michelle, for any questions that anybody on the line might have.

[Operator Instructions] There are no questions on the phone line. I'll turn the call back to Mr. Jackson for any closing remarks. We do have a question from Carmine [indiscernible], a private investor.

A couple of quick questions. Regarding the feedstock, the contract that you guys have are dealing with it as the CP or CN Rail for the ties, you're getting paid a tipping fee, am I correct, for the ties?

We are, yes.

Okay. So you've never disclosed what the fee is that you're getting for the ties or if you have received any of the tipping fee, wouldn't that be considered part of your revenue and should be shown somewhere?

We haven't been receiving the rail road ties yet, Carmine. So we're not able to recognize any revenue from that until we actually start to receive them from CP Rail.

Okay. I was under the understanding that you guys did receive some in order to start testing and doing the stuff that you were doing. So you haven't received any from them yet?

Nothing from CP Rail as of yet. Our feedstock trial with CP Rail isn't scheduled to commence until April of '23.

Okay, perfect. So that is in line and that's all set up and ready to go.

You bet.

Okay, perfect. Now the other thing is these MOUs with Renewable U. So these were the -- is this part of that 10 site contract that you guys had originally stated about a year ago or whatever it was, with them that they would be financing the 10 sites?

It's 9. Yes, it's 9 MOUs outstanding with Renewable U. And yes, the nature of the agreement is to fund the joint venture. So the agreement is limited liability partnership structure that has been discussed previously and disclosed publicly a joint venture type of agreement where they fund the capital cost, the CapEx, and that's the nature of it and operationally, it's Cielo's.

Okay. Perfect. I understand there was a split in terms of money or whatever, up to a certain point. And then once it was paid off, then the amount would favor Cielo more, if I was correct, when I was reading it way back in the day? Is that still pending or are you guys renegotiating that as well?

We are reviewing all 9 MOUs in relation to the strategy we'd like to put forward at Cielo. So at this point, it's a discussion on where those 9 MOUs stand with Cielos as we're finalizing our own strategy.

Okay. So in order for those MOUs to be kicked in, I remember when it was first -- when it first came out, you had to reach a certain capacity and certain flow in order for it to kick in. Was that reached for them to have these MOUs or is there some sort of a conflict between the 2 now that maybe somebody wants to get out of this contract?

So what has happened is conversations have occurred between Renewable U and Cielo that those MOUs are no longer most applicable to our operations. So there was performance obligations on behalf of Cielo to hit certain liters per hour on the Aldersyde facility. As you know, we've taken the previous process, decommissioned it. And now our R&D facility is what we call the R&D Aldersyde facility. So we have to take those new performance measures into account and have those discussions on the MOUs on what potential amendments or what that looks like to make sure it reflects current operations.

Okay. But are they trying to get out of like the operational costs or setting up these sites now? Or...

At this point, the conversation is to amend them. No other information of trying to get out of them has occurred.

Ladies and gentlemen, if you would -- no, Mr. Jackson, there are no other questions, sir. Please continue.

Okay. So in the absence of anyone else chiming in with respect to having a question, we want to thank everyone for continuing to be a shareholder in Cielo and also want to thank again -- and I won't make him speak if we don't have. Ryan Carruthers, he sounds way worse than I do -- and Jasdeep for joining us today. Also, of course, as we go into the busy holiday season, we want to wish everyone, of course, the most blessed of the holiday season, and we expect that we'll be talking to all of you again in the new year. Thanks, everyone.

Ladies and gentlemen, this does conclude your conference call for this afternoon. We would like to thank you all for participating and ask you to please disconnect your lines.