PyroGenesis Inc. (PYR) Earnings Call Transcript & Summary

Good day, and welcome to the Second Annual Winter Wonderland Best Ideas Conference. The next presenting company is PyroGenesis Canada Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Peter Pascali, CEO of PyroGenesis Canada Inc. Sir, the floor is yours.

Thank you very much for that introduction. Ladies and gentlemen, thanks for joining me today and allow me to present to you PyroGenesis Canada Inc., where I am the CEO. PyroGenesis Canada Inc. is a high-tech publicly listed company on the NASDAQ under the symbol PYR, the Toronto Stock Exchange PYR and in Frankfurt under 8 PY. I'll share with you the forward-looking statement. Feel free to look at it at your leisure at some other point in time. We'll have this probably on our website shortly after the presentation. For those of you that are new to the story, PyroGenesis has been around for over 25 years. We have a significant number of patents over 110 patents to our name and now over 110 employees. We've more than doubled over the past year, 1.5 years. We operate out of 2 facilities in Montreal, Canada. One 3,800 square meters, the other is 2,940 square meters. We recently expanded our facilities in anticipation of some significant growth. And we have developed over the years, one of the highest concentrations of plasma expertise under one roof anywhere in the world, and that has enabled us to become a world leader in commercializing advanced plasma technologies. And we tend to focus our technologies on reducing greenhouse gas emissions. And we are proud to say that in, I believe, all the cases, we are providing an alternative that is cheaper than legacy processes and thereby taking away that economic hurdle for people to make an adjustment to reduce their greenhouse gas footprint. And as a result, we like to say we make sustainability sustainable. What is plasma. Again, for those of you who are new to the story, it is the fourth state of matter, and I'm typically known to say, I don't want to sound too [indiscernible] when I say that, but it is a 4 states of matter. And you may recall your science school teacher describing 3 states of matter, one being the ice cube that's a solid; and then liquid, which is water; and steam, which is gas. So if you heat up one, it becomes the next. You heat up an ice cube, which is a solid, it becomes water or liquid. You heat it further comes steam and gas. If you heat up a gas about 10x more -- significantly more, then it becomes the plasma, the sum of the plasma. As a plasma, lighting is a plasma, so we didn't invent plasma but we've harnessed its various capabilities and we've used it in our processes 2 of our plasma torches. And effectively, they're like a high-tech [ hair drier ]. Effectively, you have a gas coming in one end, you're excited, you heat it up, and it comes out as a high temperature plasma at the other end. And those are our plasma torches we put into our patent technologies. Over the years, we've developed 4 main product lines, our pelletization, waste treatment, aluminum industry, 3D printing, added manufacturing, and we recently acquired a company in the renewable natural gas arena. You will find that in each of our business segments, they have been embedded and adopted by multibillion-dollar industry leaders who have done significant due diligence and in most cases, have adopted our technology to some degree. What I will do today is I will focus on 2 very exciting -- they're all very exciting. They're all very exciting. In fact, it's hard to choose. But right now, we've been press releasing some significant -- we have some significant press releases in the iron ore pelletization industry. I'll focus a bit more on what we're doing in the aluminum industry. I will then turn to some of our financials. And if time allows, I'll come back and speak a bit to the other 3 verticals, waste treatment, added manufacturing and renewable natural gas. Again, for those new to the story, in iron ore palletization, what they do is the iron ore palletizers, they use diesel burners to heat up their furnaces -- fossil fuel burners, excuse me, to keep up their furnaces to produce iron ore pellets, which are then used downstream to make steel. The iron ore palletization industry has been under a lot of pressure to reduce their greenhouse gas footprint. And as you can imagine, these fossil fuel burners create a lot of environmentally damaging emissions. To make a long story short, we had an opportunity a while back to submit our torch to be considered in a project where Sweden was looking at how to reduce the greenhouse gas footprint and they're actually looking at the iron ore palletization industry as to see how they could deal with these fossil fuel burners. To make a long story short, it was quite successful. Some of the conclusions were that, yes, a plasma torch, a clean plasma torch. We do not have any greenhouse gas emissions can replace a diesel burner quite effectively. It's a plug-and-play. You take out the diesel burner, you put it in our plasma torch, you make some adjustments. You don't have to shut down the furnace. The iron ore palletization furnace to do it, you can continue running it. And from this vantage point, it seems like when everything is considered, it's actually cheaper than the legacy technology. Now when I was talking about iron ore pelletization and I mentioned that they use fossil fuel burners, I've got to mention that in each furnace, they have about -- they can have 10 -- sort of up to up to 50 diesel burners. So each one of these diesel burners need to be replaced or should be replaced with the plasma torch. Having said that, from the success we had in Sweden, the news got out and we were approached by iron ore palletization companies to -- could we address their issue. The issue, which is replacing their fossil fuel burners, which at the time they didn't really have anything on the table. We estimate this business, which we have patent protected. We have patent protected to replace fossil fuel burners with plasma torches, where patent protected in the iron ore pelletization industry and we have first-mover advantage in other industries such as cement, steel, aluminum and automotive, which are under the same pressures as the iron ore palletization industry. They are under pressure from their investors from environmentalists, but more importantly, from banks that are tying their lending facilities to whether or not these iron ore palletization plants reduce their greenhouse gas footprint. So we've got the patent. We seem to have the process, the torch to replace what's been happening since the iron ore pelletization industry heard about us. We press released our [indiscernible] Client A, B and C. These 3 clients in total have a potential need for over 1,000 torches. Each one of these torches go for about 7 million -- sorry, they go from about $1.5 million, $1.8 million or $2 million each, $1.5, $1.8 million each. Client A has bought 1 and Client 2 has bought 4. What's interesting is that the net present value based on a 20-year life, which is quite low, I mean the torch is about 25, 30 years. But based on a 20-year life, we estimate that each torch has the net present value to us of about $7 million. So where are we in this? Each one of these clients seems to have wanted a computer simulation, then they seem to order a torch and then they're ordering, they will hopefully be ordering more torches. And these are basically what I call ticking the box. Now it takes time -- you have to understand these are multibillion-dollar companies. They were already on a particular path. We came out of the blue. They need to vet us. They need to confirm who we are. They need to have discussions -- they had to do the computer simulation, they order the torch and then now they got to put the torch in their plant and see how it works. So we recently press released, I think, one of the most major milestones in the company's history actually was the completion and successful completion of what we call the factory acceptance test for Client A's 1 torch order. That's extremely significant because there has -- there's a certain expectation the client had at this point, and it was met. And we press released that a day or so ago. The torch is now going to be packed up, shipped off to the client. And -- so we still expect it to be shipped before the end of Q1. It should arrive there around the end of Q2. It will be installed in the client's facility to replace the fossil fuel burner, which is currently in place. That installation is going to take about 3 or 4 weeks at which time there is a site acceptance test, which would be performed. And we don't expect any different results than the fact. And after that, it's up to the client to decide how long he wants it to operate, how fast he wants to order or if he wants to order at all. What we do know is that same client has asked us for a cost estimate for 36 torches. And we recently press released that, and that cost estimate was for $95 million to $115 million. That was the range based on certain assumptions that we made. Now this client has a need for -- he's above over -- he has over 10 furnaces, each one having about 50 torches each. So this is just a drop in the bucket, so to speak, given the potential in the industry. Client B, quote us 4 torches, told us to -- if these torches, 4 torches that we're currently manufacturing and going to ship to them work that we should be expecting a series of orders for 130 plasma torches. The one that we -- the plasma torch that Client A bought was for 1 megawatt. The other ones, the 36 torches we quote as 3 megawatts. Why? Well, first of all, it's such a -- potentially, there's such a huge demand for these torches that if we do 3 megawatts set instead of 1 megawatt, arguably, we could meet client demand in the 1/3 of the time that if we're making 1 megawatt torches. The other thing is everybody benefits. The client gets a better price but we make a lot more money on selling a 3-megawatt torch than selling 3 1-megawatt torches. This is extremely exciting. Right now, we're -- well, I'd like to say we're close to the goal and now we can see it. Now we can have a time line that we can speak to. When the client will order, if they order, it's never a done deal until they sign on the dotted line. We don't know, but we do know that coming towards the end of Q2, beginning of Q1, we'll have demonstrated some significant results. What I wanted to do next was skip over to the DROSRITE technology, which is also a very exciting technology for us. And DROSRITE is essentially in the little -- and enormous smelters, you produce a waste stream called dross. And the traditional process is to ship it off to a rotary salt furnace to recuperate the valuable metal that's in that waste stream because in the dross -- excuse me, in the dross, there is some valuable metal they want to recuperate. The salt rotary furnace because it's salt has to be off-site because if salt comes in contact with the enormous smelter, it contaminates the whole batch. So that's the reason why it usually goes off-site. Well, we came up with a process that -- a process that does not use salt. So we can be on site, we can process the dross hot. We can return it hot into the into the furnace. There's no need for transportation and heating and cooling and transporting back, and we get a higher recovery. In the traditional process, I think the recoveries were up 78%. We get like 98% recovery. And once more we do not have a hazardous byproduct where it is in the traditional process where you do have salt involved via salt cakes and there is a hazardous salt cake waste that's developed at the end. So we've had extreme -- a lot of success commercializing our dross, what we call dross, right, it's our dross recovery system -- I'm sorry, not dross, roughly the waste, aluminum recovery system from a dross waste stream. It started back in 2016 where we had our first order for $600,000, then the same client ordered basically the same system short thereafter for $1 million. So that gives you a bit of insight into our cost. I mean the first order we didn't do for free and the impact it had on the client and that he ordered the second one for $1 million. Then we had a 2-system order and lo and behold of 2019, 2020, that was a watershed year where there was a 7 system order put out for bid, and we won it. Our technology won it. It was for 7 systems. It was a -- it's a 20-year deal where there's 2 years of manufacturing the systems and 18 years of service and maintenance. And we won that for $20 million for 7 systems. Each one of these systems, by the way, has a recurring revenue, maintenance and the spare parts, which is quite significant. We just announced recently that we got a letter of intent from an existing client for 3 10 systems in the order of $10 million to $50 million. It's just an LOI. But in the Q1, a few weeks ago, we announced that they actually put in the first -- they put in the purchase order for the first of the 3 for $4 million. And that means that we will soon have 13 dross waste systems either in full operation delivered or in the process of being delivered, each one generating significant after-sales service and spare parts business, which we estimate at this point to be over $4 million a year, which is quite significant. But we haven't stopped there. Once we are dealing with aluminum smelters, we're inside the fence. We call that the golden ticket. It allows us to look at other on-site opportunities for expanding our offerings with a client that now has confidence with us. So downstream, we're looking at the residues. So many of the -- what to do with the residues, which they typically landfill or ship off to cement furnaces [indiscernible]. Basically, they gave it away. Well, we found a technology that we've teamed up with that can actually convert that residue into a high-value specialty chemicals like ammonium or aluminium sulfate. And they're commodities, they're not hard to sell. So we're in the process right now of -- we have a joint venture with them, and we're now in the process of looking at places where we can deploy this effectively. We also are looking upstream where we're trying to deploy plasma-based technologies to unseat legacy technologies that are greenhouse gas emitters. And we've identified a -- I'm very reluctant to give too much detail on this because there's past pending. So what we -- I can tell you is that we did press release that we are looking at a $40 million opportunity where it seemed like we were the front runners. And it's been put on hold for reasons that have been ascribed to paperwork issues at the end -- with the potential client. Having said that, the real news here is that we have identified another plasma-based technology that is significantly cheaper than legacy technology and reduces greenhouse gases and where we're trying to commercialize it is in areas that they're very sensitive to greenhouse gas emissions. We've also spoken to a second opportunity with the same technology. So we seem to be on to something in the upstream commercialization of our plasma technologies in the aluminum dross recovery process. So being inside the fence and its clear advantages and the other thing that we've spoken to is tolling. Tolling is essentially not just selling our system to the end user and the only benefit we get is subsequent maintenance and spare parts contracts, which are quite lucrative as I mentioned before. But tolling is where we operate it ourselves. And the economic advantage there is significant. But we have to be very careful in where we do that. We are in the process, we press released of locking up a tolling contract, which we believe will lead to several other tolling contracts with the same client. So we should be hearing some interesting news on that in the near future. And that essentially summarizes our aluminum dross recovery offering. Again, given time, I'd like to just quickly move to our financials, which -- well, what I can point out to you is we have announced contracts in 2021, totaling $38 million and already in 2022, we've announced $4 million. What's interesting is our backlog has been increasing significantly but so has our revenues. So for those who are wondering whether our backlog is increasing because of COVID-related delays that's affecting our revenues, I suggest to you that the furthest from the truth. Our revenues and our backlog are increasing significantly. What's also interesting is we have no debt. Well, we have [ $100,000 ] or so interest-free loan from the Canadian government, which we won't pay off as interest free. But basically, we have no debt. We're sitting on -- last time we announced, we're sitting on about $15 million, $16 million of cash. We have a significant ownership in a public company called HPQ. We have about 25 million, 27 million shares or so -- between 25 million and 30 million shares with options, and that's a publicly traded company. Today, it's trading between $0.40 and $0.50. No debt, cash on hand, significant backlog and revenues increasing. Our verticals are -- each one of them is extremely exciting and moving faster to significant contracts. That's not to say they're going to -- it's ever going to transpire into something, but it looks like we're on the right track. We're advanced plasma technologies, we've been vetted and adopted by companies that have spent a lot of my time and effort to [ vet ] our technologies. We have patent production, fully commercialized systems solutions. And in each of our markets that we've identified, they're massive opportunities. We also have a long tail of potential additional large market applications. I mentioned to our -- we own shares in HPQ. But what HPQ is doing in the battery space and in the solar panel space is extraordinary, and they're our client as well. We focus on greenhouse gas emissions reduction. We have a clear advantage with cheaper than legacy technologies. And it seems that governments want to stimulate the economies by funding and financing greenhouse gas emission reduction technologies, environmental technologies as well as infrastructure. So we nail it on both sides of that equation. Having said that, I think we're right on, I think we might be right on the time for Q&A. So we didn't have time to go back over the balance of the presentation, but I focus on 2 of our lines that are extremely exciting. It's hard to choose which 2. We have added manufacturing, which is kicking off this year. It's going behind buses right now. And also in the environmental side, we announced our first nonmilitary land-based system to destroy a new [ hazardous ] waste stream where people have had a hard time to find a solution called PFAS, look it up, P-F-A-S. It's in our water supply. It never was recognized being a hazardous waste and now it is -- it's stuff that comes up when you're shampooing in the shower and cleaning your carpet. It's in our water supply and it's becoming a hazardous waste stream, and it's always been identified the hazardous waste stream, and we're at the forefront of that with a plasma-based solution. And on that note, I'll open up to questions and answers.

Thank you, Peter. The first one is coming in from investors. First one is did you disclose the backlog? And is your recurring revenue projected to be at $4 million in 2022?

So I can't speak to the backlog. Backlog is -- it has to be publicly disseminated. But what I did mention in the presentation was the backlog that we last press released or had in our financials. And I think in the presentation, I think it was $42 million or so. The $4 million of recurring revenue will be once the 13 systems are all up and running. So right now, we have 13 systems that are either in operation -- are in operation or have been ordered. So once those 13 are up, we estimate we'll be getting $4 million of recurring revenues. We are already getting recurring revenues for the ones that are up and running. But when all 13 are up, we expect it to be actually significantly more than $4 million.

Great. Next question -- a couple of questions and one actually. In yesterday's press release, you stated that you expected torches to arrive by the end of Q1. Do you manufacture the torches?

Yes. We manufacture the torch. So the torch that we just half tested, we did a acceptance test, what's an acceptance test? It's basically at your factory to make sure everything works according to -- you don't ship it off to the client and the client discovers at his site that something hasn't been screwed properly. So the factory acceptance test was performed, the client signed off. It's now that torch, that exact torch is being shipped to the client. And it's already manufactured. We manufacture our torches. But we can also subcontract much of the manufacturing when these torch is out. So that's why we say any significant order -- not any, any reasonable significant order we can address with our suppliers. He also said as I sit here, the customer received at 2 months after that, is it shipped by both? And the client is taking care of the shipping, I believe it's by both. How long after that before they decide what to do? I don't know. It's [ Kenny ], [ Kenny ] has stated. I have no clue [ Kenny ]. I have no clue. I mean let's just put it this way. While we were doing the computer simulation, Client A was already putting together a contract to purchase the first torch. Before the [ SAP ] test, they already had bought [indiscernible] 6 torches. So it seems they have identified the actual furnace. So I don't know, [ Kenny ], how long after the [ SAP ] test is passed, do they want to -- if they want to move to another order. I can say that everybody in this industry is under a hell of a lot of pressure to address the greenhouse gas emissions coming off these diesel burners. And the other question, I guess, is from [ Brent ], do you believe Client A will wait until after the [ SAP ] of the 1-megawatt torch -- any substantial order? No clue. My feeling has nothing to do with this. So I'm not going to tell you what I feel. But I'm extremely excited that the [ SAP ] test is behind it. It's going to the client site that we have some real -- that the goal -- there are certain goals that we've actually identified the client. These are the client goals that I press released the other day, when the [ SAP ] will take place, when the installation will take place. They also want training, personnel to be trained by us. So it's extremely exciting. We could see the light. Whether or not it's going to end up being a contract or not, we don't know, but everything is tending in the right direction.

Great. I think we have time for just I guess 2 more questions. So can you provide some guidance on in terms of potential customers, industries that you're targeting?

So -- well, it depends on the segment. I mean we mentioned in the iron ore palletization. We're looking at the steel industry, the car and automotive industry. The cement industry, there is much in there that I mentioned. In 3D printing, we're pretty much focusing on the aerospace and automotive as well. In the dross side, it's pure aluminum, aluminum manufacturers. Right now, we're not going to concentrate on zinc or other ones that we mentioned in the past. We're concentrating on the low-hanging fruit, where we've demonstrated a credible -- credibility to very discerning clients in that aluminum -- I'm sorry, the aluminum industry is concentrated on our dross site on that. We're really -- on the environmental, I believe we have demonstrated that there is an interest in handling PFAS using plasma. And we really find that the question of how to handle PFAS has not been addressed. So what we want to do is drive a truck through that and we're putting a lot of effort on looking at other opportunities to demonstrate our capabilities in handling this in a newly identified hazardous waste called PFAS.

Got it. I think we have one last question here. Has there been any more development on additive other than the May 2021 release?

Yes. We can't speak to that. We can't speak to that. What we can confirm is our process is up and running and that there's some end users that have been eagerly awaiting our powders and it's going through a qualification thought process in Europe and in North America and nothing untoward has happened there. And hopefully, I'm going to have a press release come out with an overview of all our lines so people can have an understanding if everything that's happening in one place, and hopefully, we'll be -- we will get some better time lines with respect to the business lines that we have in the past.

Well, thank you, Peter. That's the time we have for questions. I'll turn it over to you for concluding remarks.

Well, I want to thank everybody for attending today and people who have been asking me questions on other platforms or even sending an e-mail request, we respond always within publicly available information. But if you ask me questions, and I can't answer them at least it gives me an inclination of what needs to be answered in our press releases. So thank you very much for your time and your support, and I wish you all well.

Ladies and gentlemen, that does conclude the PyroGenesis Canada, Inc. presentation. This concludes today's event. Remember one-on-one meeting requests are still open, so be sure to log into the conference platform and request more meetings. You may now disconnect.