EverGen Infrastructure Corp. (EVGIF) Q2 FY2025 Earnings Call Transcript & Summary

[Audio Gap] [Operator Instructions] As a reminder, this call is being recorded. Before we begin, I would like to direct all participants to our website at www.evergeninfra.com, where you'll find a copy of our second quarter 2025 earnings presentation. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information is contained in the second quarter 2025 management discussion and analysis. I will now turn the call over to Chase Edgelow, EverGen Infrastructure's Chief Executive Officer, to begin.

Great. Thanks, Laura. So Q2 marked the first 30 days of new management involved in the business, myself and Ron Green as well as Maria O'Sullivan on the call here today, who stepped in as our CFO at the end of June. In those first 30 days, our focus has been on kicking off optimization initiatives across the business, led by Ron Green, our COO; and really his expertise in fostering teams and creating high performance is already -- we've already seen results from that. These efforts are part of a long-term plan to position the company at an institutional grade level, which is our goal in order to attract project level investments and low-cost capital as we grow the business. Looking at the results for Q2. What we saw was our core assets, our two RNG projects continue to be the drivers of value and deliver record production in the quarter. This strong performance has been historically volatile. And our goal is to steady that out, and we'll touch on that later in the call. That confidence or a stable track record of production from those assets are what is going to drive the most impactful value for EverGen from the core asset base. In terms of financials, if you look at Q2, it's largely in line with Q1 from a financial performance perspective, adjusted for seasonality and really, the performance in Q2 was driven by decisions made in Q1 and prior and primarily due to capital constraints. There was a number of follow-on impacts and really have left the business in a position that needed significant work, and we're undertaking that today. Part of that was impacting revenues and volumes at our organics and composting facilities. And we've continued to maintain lower volumes at those facilities as an intentional reset that we believe is necessary to rebuild long-term value, and we'll talk about what that means. In terms of capital deployment, we have undertaken a review of all of the capital projects, optimization projects within the company, and we'll be deploying that capital in the back half of the year in order to generate attractive returns on a priority basis prioritizing cash flow payback, which we believe will drive non-immediate but sustainable results for the business. And with that, I'll turn it over to Maria to dive into the Q2 financials, and we'll talk about our strategic progress past the end of June and our outlook after that.

Thanks, Chase. Good morning, everyone, and thanks for joining the Q2 earnings call. I'm pleased to be speaking with you today for the first time as Interim CFO. So revenues were $2.8 million in Q2 2025 compared to $1.9 million Q1 2025. As Chase touched on already, our R&D segment delivered record production, driving higher revenue quarter-on-quarter, and we also saw a seasonal increase in revenue at our Organics and Composting facilities. Revenues decreased relative to Q2 2024 mainly due to lower tipping revenues due to those lower volumes received at the [ organic waste ] and composting facilities as well as no management fees earned from product radius in the quarter, partially offset by increased RNG revenues. Turning to adjusted EBITDA. This came in at $0.3 million for Q2 2025 compared to $0.5 million in Q1 2025 due to increased direct operating costs at our organics and composting facilities as well as certain costs connected to the private placement transaction. These were offset by increased revenues in the RNG segment. When compared to prior year, adjusted EBITDA has decreased mainly due to those lower revenues, partially offset by savings in our direct operating costs. Through the second quarter, we delivered results that reflect continued steady production in RNG segment, which achieved quarterly record production. Looking ahead, we remain confident in our strategy and expect the initiatives that are underway position us well for a long-term success. With that, I'll turn it back to Chase to conclude the Q2 2025 earnings presentation.

Great. Thanks, Maria. I think one of the things that we looked at with the original financing that was taken in May was the fact that the company was in a challenged position financially. We believe that it was more than reflected in the share price. And that implied value of the company in May was a significant discount to the underlying asset value that we see, and we believe we can unlock through the optimization activities that we're currently undertaking. Our focus in the first 100 days, we're just -- we're nearing day 90 of being involved in the operations. And so a lot of what we talk about will be -- on the Q3 call will be detailed in terms of what we're achieving in July and August and September. But our objective was to establish a repeatable template for operating projects as well as delivering projects that we can scale across future growth projects and to reinforce EverGen's position in Canada as a leader in the R&D sector. We see this as the clearest path to premium valuations for our shareholders. And really what that's meant is looking at all aspects of the business from a people perspective and assets perspective and a systems perspective and working from the ground up to ensure that we've got alignment and success. And that's not -- a it's not an incredibly impactful -- in 1-day activity. This is -- it's a process that takes time. And we're lucky to have an incredible team. Maria and Laura here, Ron as our COO and the team of general managers that we have and VPs at our sites have really responded incredibly to that system, and we're starting to see just daily results from assets that -- and transparency into the operating performance that we didn't have before. And that, I think, ultimately is going to reflect positively across the business. With respect to some of those key milestones that happened or have happened recently, we spent a decent amount of effort on the PCR RNG expansion project as this is our nearest term development project within our portfolio. That project received a regulatory approval hurdle that we have been waiting on for about two years as a company at the end of July. So a positive news for the PCR RNG expansion project. In terms of financing, we had the company had in February, signed an LOI on a refinancing of the Fraser Valley Biogas or financing at the Fraser Valley Biogas level that would refinance the company's debt. That's something that we've spent a lot of time on over the last 60 days, and we expect to conclude that here shortly. It will free up capital, it will strengthen the flexibility -- balance sheet flexibility for the company. And with that, we've also extended our private placement, our commitment to our shareholders to have the ability to participate at these levels and intend to close that at the same time that we closed the debt refinancing. In terms of outlook, the optimizations and work that we're undertaking at the composting facilities to build long-term value in terms of transitioning those to RNG assets is going to take some time. The RNG assets themselves, Fraser Valley and GrowTEC are performing well, and we expect them to continue to sustain the R&D production levels that they've been maintaining. And that's a key piece of underpaying value for long-term shareholder share price appreciation. And with that, I think we've got some questions that have come in. We'll turn it over to a short Q&A session and I'll be available for any shareholders that want to discuss the position of the company and get a little more information. Feel free to reach out.

Great. Thank you very much, Maria and Chase. Our first question here, it is regarding our Fraser Valley Biogas facility and its ramp up to nameplate capacity. What is the progress? And do you anticipate challenges that we've seen in prior years?

So one of the contributing factors to volatility at Fraser Valley Biogas historically or with the R&G businesses historically has been a lack of capital and ability to have critical spares on site and avoid downtime with an anaerobic digester, it's essentially -- think of it as a giant stomach. So the organic waste that goes into the digester is decomposed by bacteria and the gas production comes from that bacteria being healthy. So any downtime upsets the stomach and you end up with -- it could be a week of downtime that contributes to three weeks of lower RNG production. So our focus here with the additional capital coming in has been ensuring that there's critical spares in place. Another element of that ability to achieve nameplate capacity comes down to consistent feedstock. And we've been working very closely with our customers to ensure that we've got consistent feedstock. And I would say Fraser Valley is -- has been one of the longest standing biogas facilities, the first RNG project to deliver gas into the North American grid. It has a strong reputation and we've only strengthened that in the last six months and expect to continue.

Thank you. Our next question is regarding our composting side of the business. We see the tip fee revenues down from the prior year. What is the reason? And can you give more color on that?

Yes. So there -- in Q1, there was a fire at one of the facilities that impacted volume and there were decisions that had to be made from a financial perspective to decrease the incoming tonnage into our facilities. Our approach has been that the best way to create medium- and long-term value for these assets is to prep and ensure that these assets are ready for expansion and to deliver a long-term sustainable solution to our customers. So rather than prioritize immediate revenue uplift, our goal has been to specifically at the Pacific Coast Renewables facility to position that asset so that we're able to expand that with the PCR RNG expansion project.

Another question about the PCR expansion project. Can you give the current status and the FID expectation and timing for the RNG side of the project?

Sure. So the PCR RNG expansion project has been something that the company has had on its books for -- since inception essentially. The gating item for that project to move ahead has not been funding as it was awarded CFR or NRCan grant funding. It hasn't been financing as there was a dedicated debt facility for that project. The challenge has been in BC getting through a permanent amendment process. And that permit that the site currently has -- the amendment that was put in over two years ago, finally received unanimous support from the Abbotsford City Council, and that permit is now with the regulator for a final review. That's a key milestone for the project that the company has been waiting on for over two years. Upon receipt of that regulatory approval, we expect to have the project shovel-ready within 6 to 12 months, which would put us on a time line for 2028 for first gas, potentially an ability to accelerate that. But ultimately, that's the type of project that institutional capital we'll value well in advance of first gas provided that all of the permits are in place, financing is in place, [ offtake ] is in place. And we're serving a broad market in Metro Vancouver that is going to be very interested in delivering organics to an RNG project. So we're very confident that, that project as soon as we receive regulatory approval, we can accelerate.

Fantastic. Could you also shine some light and gives the current status of the GrowTEC RNG Phase 2 project?

So GrowTEC as an RNG project has had similar challenges with volatile gas production. What we've seen recently has been a stabilization of that RNG production, which gives us confidence in an expansion project. We're looking at -- this is an area where we're really evaluating a number of different options that range from a small capital investment to a larger investment that would be financed at the project level that would deliver more growth. So that's in reevaluation mode. We're expecting that, that evaluation process will take about 90 to 180 days depending on which solution and which path we choose. And then we would step into executing on that project. But goal is to get GrowTEC to a point where it can be a material project for the company and contribute significant EBITDA.

Great. We have one more project question. This is regarding Project Radius. Could you give FID expectation and timing?

So Project Radius, I believe there hasn't been a change in what was previously disclosed for the project. It has been -- it has had both debt and equity interest. So both of those parties remain interested in the project, the uncertainty around the Canadian clean fuels regulations required the project to effectively wait for the potential change in government. Now that, that government has been put back in place, and we've seen significant strength in the CFR market. So the carbon credits, the Canadian clean fuel standard credits that we received for our RNG production are a big driver of Project Radius. And so that's allowed us to go back and pursue an FID on that project. And I'd expect that's a 3- to 6-month process before we'll have an update, but it is something that we've kicked off here with our partner in the month of August.

We have one more question here regarding our financing and the refinancing of the Fraser Valley Biogas debt. Where are we in the process?

Yes. Great question. So we've had given summer months, we've had a consistent and steady progress towards the debt refinancing, albeit a little bit slower than we would have liked, given the seasonal timing. We are expecting to have that refinancing closed shortly. So we've said by the end of Q3, and I think we'll be very close to that. One of the reasons that we've delayed our follow-on financing is to align with the closing of the Fraser Valley debt tranche. And so we're planning to close that financing, which has allowed other shareholders and strategic investors to come in alongside Ask America, planning to close that at the same time as the debt refinancing. So the time line on that is going to be end of September as well.

Okay. All right. Thank you very much, Chase and Maria. And thanks, everybody here for your time and your continued support, and we are excited about what's ahead and look forward to updating you again soon. Until then, take care, and thank you again.