Northstar Clean Technologies Inc. (ROOF) Earnings Call Transcript & Summary

All right. Well, everybody, welcome to the Q4 2024 and Full Year 2024 Financial Results and Investor Update. As usual, same kind of admin as we've done over the last few quarters. So please put your questions in, and we'll pick those up as we go along, and then we will have the team ask the questions at the end. And so yes, with -- and plan, of course, is to take you through where we are with the financials and the results, obviously, that came out with the press release this morning and do an investor update. So without any further ado, and obviously, of course, forward-looking statements, we will be making forward-looking statements, and this is obviously the disclaimer with respect to that. And now I'll hand it over to Greg Phaenuf to take us through the financials. Greg?

Thanks, Aidan. Good afternoon, everyone. This represents my first Northstar earnings call with the markets. I'm honored and privileged to be part of the team. I look forward to many, many more of these calls with you as we begin to post operational results. Just a few financial highlights for me that occurred during the 2024 fiscal year prior to handing it back over to Aidan. 2024 represented a significant year in the capitalization and funding of the company, the proceeds of which served a multifold purpose: one, funding construction efforts on the inaugural Calgary facility; 2, providing capital dedicated to sourcing, analyzing and securing future sites as part of the exciting growth plan for the company; and 3, funding the operations of Northstar itself. Cash balances at the end of fiscal 2024 were $10.2 million compared to $7.6 million at the end of fiscal 2023. During 2024, Northstar through various vehicles, raised over $28 million, the majority of which were nondilutive to existing shareholders. Together with receipts from government agencies, the company received nearly $30 million in cash to fund the business. The majority of these funds were dedicated to the construction during 2024, as I mentioned, of the Calgary facility. The company recorded $19 million in capital expenditures and $1.5 million in deposits paid for existing facilities during fiscal 2024. 2024 also presented an important year from the perspective of generating increased revenues from tipping fees. Revenue for 2024 was $640,000 compared to just $206,000 for fiscal 2023. As has been communicated in various press releases, we anticipate commencing full operations in mid-2025, and as such, quarterly results will reflect material increases in revenue and operations. From a cost perspective, cash expenses for the year totaled $4.8 million as compared to $4.1 million for the prior year. The increase is due to additional personnel and a broader scope in operations for the business. Research and development expenses were 0 for the period compared to $778,000 for fiscal year 2023. As the company evolved from pilot operations to full commercial operations, requirements for R&D diminished. Having said that, we would anticipate only minor amounts to be spent on R&D going forward as we fine-tune operations and perform product testing for specific future markets. Comprehensive loss for the period was $9.3 million compared to $6.7 million for fiscal 2023. As the company moves to full-fledged operations and anticipated profitability, these losses will be used to significantly shelter income from taxes. We forecast our tax payable horizon, assuming our stated growth plans for plants to be several years into the future, thereby leaving more cash in the business itself to fund growth and in turn, minimize dilution to existing shareholders. One final note for me, we included a more detailed analysis of our issued and outstanding and fully diluted share capitalization in our management discussion and analysis to aid current and potential shareholders understand the somewhat complex capitalization of the company. Assuming all existing securities that are issued and that could be issued upon conversion of certain debentures are, in fact, converted, NorthStar would have an outstanding share base of 274 million shares, but would bring in an additional $20 million in proceeds upon various securities being exercised. I would welcome any questions as part of the Q&A. But for now, Aidan, back over to you.

Okay. Thanks, Greg. That's great and great to have Greg on board and great performance as we got through the audit, which is always a heavy lift for the finance team. So great to have that team here delivering that. Okay. So investor update. So look, we chatted about this as we came into the year that there were kind of 3 objectives that we had for 2025. So the first one was to deliver the Calgary facility and ensure we were up and operating by kind of middle of the year. The second was to develop the 2026 sites such that we could start construction in 2026. And then the last thing was obviously to develop the portfolio such that we could really identify at least the next 10 facilities or next 10 locations for us to start the development work in it. Because obviously, permitting -- the earlier you can identify areas, start to secure supply and start the permitting process, the better. So look, the key deliverables, I'll talk through most of these in the next slides. But obviously, all of them align with those 3 objectives. And I think it's also worth reflecting just at the end of the year, kind of like what we actually delivered in kind of 2024. So -- the left-hand side are all the things that we think are important with respect to where are the strategic offtake customers, where are with strategic investors, et cetera. And if you look at the highlights that we had for 2024, it was a fairly barnstorming year. Obviously, discussions ongoing with Hamilton and US #1, secured $14 million from our partners at CVW, $1.8 million came in from TAMKO and the completion of one of the ERA funding stages. We had ERA come in for the first milestone we delivered on milestone 1. We had $2.25 million come in from strategic Calgary investors, including the Chiu Family with Patrick joining the Board. We had -- we secured feedstock supply for Calgary. We started -- we identified exactly where the first TAMKO facility to be supplied was. And remember with -- that with the TAMKO investment as well, so we extended the number of sites that TAMKO will take from 3 to 4 with the extension of the MOU. So all of that lays a phenomenal foundation for stepping into the U.S. I'm actually at the Planet MicroCap investor conference in Vegas today. And one of the key points that I've been making to investors here is this is -- this -- if you think about the 16.5 million tonnes going into landfills or destined for landfills across North America, about 1.5 million tonnes of that is in Canada and 15 million tonnes in the U.S. So really understanding as we develop this portfolio, what the U.S. options look like is absolutely critical. So we started to draw on the BDC loan. We had, as we said, milestone 1 payment come in from ERA. And most importantly, we started construction during 2024 on the Calgary facility. We've been putting out the construction videos, and we'll talk about that in a little bit more detail later. But yes, obviously, an important -- a very important milestone for the company. Technology continues to go. So R&D work is continuing to develop. The IP, you saw most recently that we added another patent for Canada. And with respect to emissions, the measurement and monitoring protocol that we have to adhere to with the Emissions Reduction Alberta work has already been kicked off, and we've been doing measurements through commissioning. So like we always talk about what are the fundamentals of the business and what are the foundation. And I think that's one of the things that we've been building as we've gone over the last kind of 3 or 4 years. But yes, I think we came out of 2024 with a very, very solid foundation. And clearly, one of the most important things, and again, ruthless focus from the company is the Calgary facility. So we collected the feedstock for commissioning, we constructed it, completed construction in kind of March, and then we started commissioning. So as you'll have seen from the video at the beginning of this week, commissioning on the front end on the kind of -- on the aggregate separation is actually complete. One of the things that happens with construction projects, and what I've seen through my time in BP and the like is that construction hands the plant to commissioning to commission it and commissioning hands it to operations to operate it. And that's the ultimate kind of destination is when it gets to operations. And the front section of this plant that does the aggregate separation and the production of aggregates of our first product has actually been handed from commissioning to operations. So as the commissioning guys are focusing on the back half of the plant, the operations guys are now running the front half to give them the feedstock to process and commission in the second half. So that's a phenomenal place for us to get to. We continue, as I said in the video on Monday, we continue to expect the plant to be operating -- to be operational by midyear. That has not changed. We've got great confidence in that. And the first stage, the water stage, which obviously provides aggregate that first product, but also provides the fiberglass covered in asphalt to go on to the hydrocarbon side is working really well. So we're very, very -- we're very happy with the progress of that. And the expansion plan -- we've looked at 2026, we've always had kind of been chatting about 3 options. So Hamilton, US #1 and Vancouver. So kind of in reverse order, as you saw the press release, we were able to extend the lease agreement in Vancouver, an extension from 5 years to 15 years, which obviously can work up the economic life of the facility. And so that's obviously an expansion option. Hamilton, we have kicked off the permitting process. So the consultation of our -- the pre-consultation process has started. We've been working with HOPA on the lease agreement. And as you saw already in Q1, we had the LOI with YORK1 for our first tranche of supply. And again, all those things are important to make sure that we have this pull together to be able to sanction in the second half of the year. US #1, again, we -- in 2024, we identified the Frederick site in Maryland to supply for TAMKO and [ so now ] it's all about site selection. And so we've been going through kind of pretty rigorous site selection all the way kind of from Philadelphia down to Baltimore and down around in the middle. And so lots of -- yes, lots of work being done on that, and we're -- hopefully going to have something to kind of announce here in Q2 with the site selection. And obviously, important because then we -- that kicks off the permitting process as well. So good progress on all those 3. I don't -- I'm not going to go through in detail either the Mid-Atlantic or Hamilton. It's in the slide pack, and it's also on the deck on the web. And look, the last thing I would say is people have heard me talk a number of different times that this isn't -- we are absolutely at the tipping point of the stock here. I chatted with -- when we're chatting investors down here in -- at the Microcap conference. And my point has been, look, up until this point, this has been a technology story. Like this has been a technology stock. It's kind of like can they take this idea and make it commercial. We're literally, in my opinion, 6 to 8 weeks away from demonstrating that middle of the year. And I think this story will pivot rapidly to be not a technology story anymore, but to actually be a deployment story. And so we're not going to be measured necessarily against how we progressing the development of our technology here, we're going to be measured against how can we deploy this more quickly. When -- what stage do we add licensing that we've always talked about in our strategic plans. How do we develop the 10 next sites and actually have the resourcing to start working those straight away. And if you think about the 10,000 foot number and you think about 10 sites all delivering -- all having the potential to deliver something like $5 million to $10 million depending on what the volume that goes through that, that gets us to a completely different conversation with respect to -- as Greg says, the earnings calls we will be talking about how we're deploying plants, what are those plants delivering, what is the EBITDA, difference between kind of Plant 1, Plant 3, Plant 5, et cetera, and it will be a completely different conversation. So when I say that I believe we're at a tipping point, those are the fundamentals that I can hang on to as we chat about how we expect the stock to do. I mean, great, we got awarded the Venture 50 for TSX performance last year, and I'm expecting hopefully to do exactly the same again this year. So yes, I think lots of upside, I feel. And I think from the business perspective, I think we're in great shape. We've got an excellent facility that's literally commissioning as we speak. And by midyear, we're expecting to be supplying some product. So guys, I think, [ Matt, ] I think that's -- that's -- those are my remarks.

Great. We can move on to some Q&A now. Our first question is related to tariffs. So how do you foresee the Donald Trump tariffs impacting the fundamentals of the business?

Well, look, I think I got quoted at the end of last year saying that I wanted to be the -- I wanted this business to be the Tim Hortons of asphalt shingles reprocessing. Actually, down in Vegas, I've had to change that to the Dunkin' Donuts, to be fair. But yes, the -- we have a local collection market. So it doesn't matter if you're collecting in Hamilton in Canadian dollars or you're collecting in Philadelphia or Atlanta in U.S. dollars, the collection is local. The manufacturing is local. The jobs are local and the production is stays in country. So US #1, it's getting collected locally, produced locally and it's going to TAMKO. Calgary, it's getting collected locally, it's getting produced locally, and it's going to make asphalt. Now to be fair, it's in U.S. dollars. So we have U.S. dollar exposure because all commodities, as you know, from an asphalt perspective, are in U.S. dollars, whereas collection in Canada would be in Canadian dollars. So there's definitely an exchange rate difference. And I think the only thing where there could be any impact whatsoever is if we were buying -- if we're constructing in the U.S. and buying equipment in the U.S. and the equipment was coming from Canada or vice versa, there may be a tariff on the equipment, but of a $20 million build, it could be $250,000 or $500,000 maybe. And all our suppliers have got international options, too. So we may be able, for example, to get a piece of equipment, which in Calgary, we bought from Texas that they may have -- they have a European division where we may buy it from France. So I mean, we -- there's definitely supply options, and I don't think the core of the business is affected really at all because we're so localized.

Thanks for the very rigorous answer there. I have a few Calgary questions here, so I'm going to combine 3 or 4 of them. So what are some of the biggest lessons you've learned through the construction and commissioning process for the Calgary site? And also like what kind of -- how does that carry forward as you deploy the business?

Well, I mean, I've always used the technical term to say when you're constructing the first of its kind or you're commissioning the first of kind, it's always going to be a bit of a [ s*** show ] at times. And you learn a lot of lessons about, well, what would you do with your plan? What would you do with your process? What would you do with your equipment? How do you put it together? How do you interface between the various modules that we've built. And all of that provides brilliant learning. We actually -- we had -- the Board came to site at the beginning of April. We took them through the plan. And then we went through the lessons learned of how we think we can improve it, and it was like 2 slides. So there's a lot of -- and that was just as we were coming into commissioning. And I suspect by the time we get to the end of commissioning, there'll be another slide with bullet points on it about lessons that we've learned as we've gone through. So I definitely think -- and I've always said that I believe the capital for the run rate to build new facilities will be lower than Calgary, and I continue to think that. And I think the speed of deployment will be quicker. One really good example of that is when we run Calgary, we know the set points to put in the control system for the next facility. Today, we do not know that. That's why we're commissioning. So that's why commissioning has taken longer in Calgary because it's the first facility. But once it's operating and you know the set point for the level on one of the mixing tanks is X, like you literally just preprogrammed that into the Hamilton system and the control system is literally ready to turn on and go. Now you still have to make sure the interface works. You still have to start at the front. You still have to work your way through commissioning, but it will not take the length of time that it takes now. So I think the lessons learned will provide benefit for lower capital and faster deployment of both construction and certainly commissioning.

Excellent. The next question is sort of more about the Calgary site from the community perspective. So how has the reception been locally? Any noise complaints from the neighbors or anything of that sort?

No. I mean the Calgary site, we've been working there since the beginning of last year when we started collections. So I think truck traffic has been pretty steady. I think some of the neighbors in the area were getting fairly excited about the parking on the street because there were lots of people involved in constructing this building, as you saw, we've -- and touch wood and great without a lost time incident, which was very, very, very good for the safety for the site, which was important. But yes, and I think, obviously, one of the things as we hire workers, as you've seen, we're bringing on the operations team. The key reason that we are able to operate the front end of the plant is because we have the operations team in place, not fully resourced quite yet, but pretty close. And so I think that's been good. It has been interesting actually that the people that have joined from the operations team are also very excited about not just joining and not just getting a job with a company that's kind of like building -- has built a facility in Calgary, but actually are very excited about the development and growth journey that we're on with this company and that this is the first of its kind, and this is #1 in a line of 300 or however many we end up building. But yes, so I think that's been really, really well received and kind of like it's been great to bring local workforce on in the Calgary region.

Our next question is related to -- so how do you view expansion opportunities comparing to the United States and Canada? Like, how are you evaluating the...

I mean as we think about expansion opportunities, I mean, people who have heard me talk about how we analyze sites. We kind of -- we have a pretty sophisticated matrix that looks at both kind of objective and subjective kind of measures. So the 3 big ones are what is the local oil price or what is the local asphalt price because obviously, there's regional differences, number one. Number 2, what is the tipping fee in the region? Because obviously, we generally discount to incentivize, but the starting point of the index is the tipping fee. And more Interestingly, this year, we've now started -- or sorry, 2024, we've actually started to assess and what is the shingles kind of -- what is the shingle size in that location. And what I mean by that is, if we can do an 80,000 tonne -- sorry, if we spend the capital in the Calgary facility, capital is spent to build a 40,000-tonne facility. And a 40,000-tonne facility is defined by essentially you run the facility using a day shift. If -- and the constraint to move to 80,000 tonnes is not capital. It's just shingle availability. So clearly, an 80,000-tonne facility is more efficient and twice the EBITDA of a 40,000-tonne facility. So we're now looking at -- to start with -- and I chatted about it earlier, the next -- the portfolio of the next 10 facilities, one of the criteria will be and can it support 80,000 tonnes. Now it's always really important to not go to 80,000 tonnes necessarily straight away to establish your operations team, to establish your processes, to establish your shipping and your customer offtake, et cetera. But ultimately, within 3 to 6 months of setting that up, hiring the second shift to make it go to 80,000 tonnes is the criteria. One of the other criteria, of course, is like the speed of permitting, the support from the local government. And often the support from the local government will show up as kind of what is the tipping fee. So there's kind of like a bit of a symbiosis between the objective and the subjective, but those are the 3 key criteria we're looking at now as we think about that. So if you do think about that, then, look, and if you think -- if you take our 16.5 million tonnes and you divide it down, it's about 15 million tonnes in the U.S. and 1.5 million tonnes in Canada. So that's why we're at conferences like this one in Vegas to start to familiarize not only the market or/and investors, but also people in general that the U.S. is a major target market. And so -- and again, because of the localized nature of the business that we build, we believe we're fairly immune to the noise that's kind of going on between Canada and the U.S. Yes. And we think it's a very strong plan.

For our last question here. So what is your long-term vision for the company, say maybe 5, 10 years?

My long-term vision for the company. Well, like we clearly had to include some sort of a Rory McIlroy quote. We haven't won the Grand Slam yet. We like -- this is going to be our first major by delivering the Calgary facility. Look -- and we've said repeatedly that we thought we have the capability to build 3 to 4 plants a year organically. I think the size of this market is so huge with the potential of 400 40,000 tonne facilities that licensing the technology is something that we think is a natural step. And remember, if you look at the ARMA statistics for the -- their strategy to build -- to divert 50% of all shingles away from landfill by 2035, that would need to -- that would require 200 40,000-tonne Northstar plants, which is absolutely massive, an absolutely massive market. So I think what we need to do is I think we need to build the organization -- and my vision is to have an organization that can repeatably build 3 to 4 facilities a year under our control and 3 to 4 facilities licensed per year. I think that will give us huge financial capability, but I also think it will establish a program whereby we would have cities coming to us to build facilities. And this will be self-sustaining, not only from a -- no need to raise any capital perspective, great cash flow coming in, but also in that development pipeline. And so my vision is less about the numbers and more about the point where we get to where literally the phones ringing off the hook for us to come to a municipality and divert 80,000 tonnes away from their landfills. That -- that to me is -- that's not my kind of Rory's moving to the seniors tour moment, but it's certainly a vision that I'm very excited about.

Excellent. Thank you. That's all for questions.

Well, listen, thanks as always. Natalie and Trenton and Kin helping us set this up as always, and guiding us through. So thanks for that. Great to have Greg on board. And his first -- as he said, his first drive through the numbers. I think these are going to get very exciting as we go through the year and look forward to the next one where we've got some operations to tell you guys about. And yes, we'll continue to do the commissioning videos, and you'll see those coming out regularly. Yes, and I look forward to delivering on this and having this facility operating in this business, generating cash by the middle of the year. So thank you.