PyroGenesis Inc. (PYR) Earnings Call Transcript & Summary

Good morning. My name is Mark Paterson, and I'm General Counsel and Corporate Secretary for PyroGenesis. The Annual Shareholders' Meeting is about to begin. Instructions on the voting procedure will appear on your screens. As with any relatively new technology, unexpected glitches may occur, but our service providers with this platform at Lumi are very experienced at running this type of meeting and will help us out as needed. We'll conduct the votes on each of the matters before us by a poll. On each poll, every shareholder who is entitled to vote on the matter has 1 vote with respect to each share entitled to be voted on for that matter and held by that shareholder. The poll will be opened for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the end of the discussion on each resolution before casting your vote.

Well, thank you, Mark. Thank you very much. This meeting will now come to order. Good morning, everyone. This is the 14th Annual Meeting of the Shareholders of PyroGenesis Canada Inc. My name is Alan Curleigh. I am the Chair of the Board of Directors, and I will act as the chair of this meeting. I would like to introduce the other current members of the Board who are present. We have Andrew Abdalla, Dr. Virendra Jha, Paul Rajchgod, Ben Naccarato, a major general retired Robert Radin. We have Nannette Ramsey and Peter Pascali. We also have presence today members of management, Mark Paterson, General Counsel and Corporate Secretary of PyroGenesis; Andre Mainella, Chief Financial Officer of PyroGenesis; Steve McCormick, Vice President of Corporate Affairs; and Isabelle [indiscernible] of TSX Trust Company, the register and transfer agent of PyroGenesis who will act as scrutineers of this meeting. Now in accordance with the notice and access procedures, PyroGenesis has sent all the shareholders thorough its transfer agent or other intermediaries, a notice of availability of the proxy materials for the meeting, and as affect, the form of proxy or a voting instruction form informing of websites where the meeting material can be found, access to meeting materials online and how the shareholders can act as a paper copy of the meeting materials. [indiscernible] sent to the shareholders also contains basic information about the meeting, such as the matters for which a vote will be held. We will forego the reading of the notice as it has been made available to all shareholders of PyroGenesis entitled to receive such a notice, together with the other meeting materials including the management information circular, the former proxy, PyroGenesis financial statements and the auditor's report thereon. [indiscernible] have filed with PyroGenesis' proof of mailing of all these meeting materials. The declaration as to this mailing is available for inspection by the shareholders -- by any shareholder. The Secretary will append proof of this mailing to the minutes of this meeting. The corporation's bylaws provide that a person present at the opening of the meeting of shareholders and representing personally or by proxy 1 or more shareholders holding 5% of the issued and outstanding voting shares of the corporation shall constitute a quorum for the -- as action of business. I will now ask Mark to explain how the participants may vote and how questions will be addressed. Mark?

Thank you, Mr. Chair. Today, registered shareholders and duly appointed proxy holders who are attending the meeting have the ability to vote online through the Lumi platform. For those of you who have already voted in advance of the meeting, you don't need to do anything today. The poll will stay open throughout the meeting until the last business item has been put to a vote and the Chair declares voting to be closed. Preliminary results will be provided at the end of the meeting, and final results will be posted on SEDAR+. We have solicited questions from shareholders in advance of this meeting, and we'll answer certain questions during the meeting. Participants will, therefore, not be able to ask questions live during the meeting. Questions related to items of business will be addressed immediately before each item is put to a vote. Then questions of a general nature will be addressed during the question period after the Chair's remarks.

Well, thank you. Thank you. A notice having been served in accordance with the Canada Business Corporations Act and PyroGenesis' bylaws and quorum being present, I declare that this meeting is duly constituted for the transaction of business. The Secretary will annex the scrutineers' report to the minutes of this meeting. The polls will now be open. The first item of business is the presentation of the annual audited consolidated financial statements of PyroGenesis for the year ended December 31, 2023, and the auditor's report thereon. These financial statements as well as related management discussion and analysis are available under PyroGenesis' profile on SEDAR. I now present to the meeting the financial statements together with the auditors report therein -- thereon. I ask the Secretary to keep a copy of these financial statements with the minutes of this meeting. Mark, are there any questions in respect to the presentation of the financial statements.

No, we have not received any questions on this topic.

Thank you. The next item of business is the election of the corporation's directors. The articles of the corporation provide that it shall have not less than 3 and not more than 15 directors. It is proposed by both management and the directors that 8 directors be elected to the Board of Directors for the coming year -- upcoming years. Following 8 nominees are put forward as candidates to serve as directors for the following year. Andrew Abdalla, Alan Curleigh, Dr. Virendra Jha, Ben Naccarato, Photis Peter Pascali, Robert Redin, Paul Rajchgod, Nannette Ramsey. Mark, if you have received any questions from participants on these nominations?

No. Mr. Chair, we have not received any questions on this topic.

Thank you. As there is no further discussion, I declare the nominations closed. May I please have a motion to elect the nominated candidates as directors of the corporation.

Mr. Chairman, I move that the 8 candidates nominated be elected as rectors of the corporate for the ensuing year.

Thank you, Robert.

I second that motion.

Thank you, Nannette. You've heard the motion has made by Robert Radin seconded by Nannette Ramsey, I will now proceed with the vote. I will pause to allow participants to register their votes. Thank you. I will now move on to the matter of the appointment of the auditors of the corporation. Mark, have you received any questions on the appointment of the auditors?

No, Mr. Chair, we have not received any questions on this topic.

Thank you. May I have a motion regarding the reappointment of Raymond Chabot Grant Thornton as the auditors for the corporation.

I move that Raymond Chabot Grant Thornton LLP Certified Public Accountants be reappointed as the independent auditors of the corporation and that the Board of Directors be authorized to fix the auditor's remuneration.

Mr. Chairman, I second that motion.

Thank you, Robert. Thank you, Nanette. You've heard the motion made by Nannette Ramsey and seconded by Robert Radin. I will now proceed with the vote. I will pause to allow participants to register their votes. Thank you. That brings us to the end of the formal business of this meeting. In a moment, Mr. Steve McCormick, Corporate Vice President of the corporation will provide an update and overview of PyroGenesis business affairs. The corporation will also have a question period during which moderated questions that were submitted prior to this meeting will be answered. Following that, our scrutineers will announce the results of the voting. I will give you one last minute to cast your votes before we conclude the formal part of this meeting. Thank you. The formal part of this meeting has now ended, and the voting polls are closed. Thank you all for your participation. I will now hand things over to Steve. Steve?

Thank you, Mr. Chair. Hello to everyone listening today. My name is Steve McCormick. I'm Vice President of Corporate Affairs for PyroGenesis. And in a moment, I will be presenting a summary of 2023, plus a brief look at our progress so far in 2024. But first, I'd like to present a video message featuring Mr. Peter Pascali, President and CEO of PyroGenesis. Please roll over the video.

Hi. I'm Peter Pascali, President and CEO of PyroGenesis. I'm also its single largest shareholder. I'd like to take this opportunity to review some of what's going on with the company and what excites me about its future. 2023 was a challenging year for everyone. They had just come out of a post-COVID era where we were all challenged by labor shortages, supply chain issues and never seen before demand such as work from home, which on the surface, not seem like a big deal, but for an innovative company, let's just say innovation is challenging when you're working via Zoom. So we just come out of COVID with its inherent challenges. And just as we're almost back on our feet, economy was hit with interest rate hikes, increasing at a rate we have never seen before. This affects everyone, clients, suppliers and the stock market. As interest rates remain high and a slow rolling recession impacted various industries at different times, we saw shifting demand dynamics and tighter financial conditions weigh heavily on spending decisions and new project development for many of our potential clients. This was especially true for start-up and smaller tech sector clients seeking early-stage funding that would have allowed them to place initial orders with us sooner than they have. You haven't gone away, it's just taking a bit longer. We were fortunate that we do not have that much debt, and most of what we have is in friendly hands. In retrospect, I think we managed one of the most challenging years facing microcap companies in recent memory quite well. During this time, we've been reviewing our expenses with a view to rationalizing them post-COVID. I say post-COVID, since we more than doubled our workforce during that period. People were hired over Zoom and many worked 100% of the time over Zoom. Were they working and integrating in an optimum fashion? Did they comply with the high standards PyroGenesis demanded? Were they efficient? Were they happy? Labor was not the only expense item that was put under the microscope in 2023. As an example, we challenged our procurement group to source items with a goal to achieve an overall 10% reduction while maintaining or improving quality. And all this within an inflationary environment that saw global prices increase by over 5% per year. Although the final results are not yet in, I can safely say our group has more than achieved their goal. This overall rationalization is a big part of what led to us to decide to leave the NASDAQ until made more sense, thereby saving us, by the way, close to $2 million annually. But 2023 was not all about rationalization of expenses. During this time, our clients and potential clients were also dealing with the same global challenges facing us all. From an investor's perspective, PyroGenesis' achievements in attracting large billion-dollar companies is a double-edged sword. On one hand, it to some degree, gives investors added confidence that large entities with money and expertise have done some due diligence before moving forward. However, on the other hand, these same entities do not move fast when it comes to making decisions in a changing environment. It may seem slow to someone used to dealing with small caps is lightning speed in the larger cap arena. The combined impact of these issues not only resulted in our lower revenue, but also in our share price, which was typical for small cap in growth tech stocks across the board as investors moved into defensive investing that focused on the mega caps on the emergence of computer technology stocks, such as artificial intelligence, which received massive media publicity. I consider this turbulance to be temporary, and it will help focus investors on the real companies with real solutions like PyroGenesis. I remain exceedingly optimistic about the role PyroGenesis is and can play within this changing environment. Notwithstanding this difficult environment, we managed to lay down some cornerstones upon which we will most certainly build. We strengthen existing partnerships and we expanded business development to increase awareness of PyroGenesis offerings in several new industries. And of course, we built on past successes by continuing to grow our client base, specifically targeting key industries like aluminum. We moved closer to both the commercial validation of the numerous industrial trials we are engaged in and the widely anticipated certification of our products, particularly in metal powder for 3D printing. On that note, we have finally reached the start line for commercialization of important business units like our next-gen titanium metal powder production system. And last but not least, we saw a strong resurgence of some older business lines such as waste remediation. While our 2023 yearly revenue is down. We still see the revenue trend is moving up with this year being the potential bottom of the recent downturn. As we have all witnessed, the last 10 years has brought considerable evolution to heavy industry and to PyroGenesis. The traditional industrial focus of avoiding obsolescence has been fueled, and in some cases, eclipsed by corporate mandates to optimize raw material input and output secure logistical networks to diversify production and reduce and eliminate corporate environmental footprints. And with the increased demand for lighter metals, the maturing of battery-operated transportation and the ever-tightening restrictions on industrial emissions and waste, the previous predictions, but heavy industries with their billions invested in legacy equipment and processes will increasingly need to turn to high-tech solutions has started to become a reality. Almost 30 years ago, PyroGenesis was born out of an idea to harness the unique potential behind plasma and ultra-high temperature electricity-based application that was often considered a process looking for an application or more appropriately a solution in search of a problem. When I left Wall Street to pursue [indiscernible] , which arguably was ahead of its time. I did so with the full knowledge that the road to widespread customer acceptance will be challenging. But their journey, if successful, will be rewarding and game changing. It is essentially what has motivated me to get on the bed for the past 30 years. As I stand here today, I can tell you that it is still rewarding. And I'm more certain than ever that the vision I had for plasma 30 years ago is taking hold as we speak and has already become a game-changing process. As the industrial decarbonization trend grows, we are very well positioned to capitalize as industries are forced to innovate and adopt the carbon-reducing technologies that are required for their energy transition evolution. I cannot overstate how much the fact that we have stood the test of time and built a stable of billion-dollar clients has given PyroGenesis. A level of credibility in these emerging markets that is hard to find and which has provided PyroGenesis' competitors with a serious barrier to entry. And now let me mention a few events that have occurred in this most recent quarter that provide even more reasons for my optimism in the future. First, we signed and announced an agreement with Constellium, a world-leading manufacturer of aluminum products, that expands upon the results of our recently conducted test campaign for replacing fossil fuel burners with our all-electric plasma torches. This agreement signifies a next step for Constellium, who will now move to testing our plasma torches in a large aluminum melting for us at an active aluminum facility with a potential of a widespread adoption of our plasma torches. Second, our often criticized strategy to extend the receivables time line for a certain key client has proven to be successful as we recently received notice of payment for the outstanding balance in 2 parts. This level of trust that has been established between Radian, their new partner, and ourselves speaks volumes as we expand our offerings in the region, a region that is well funded and has an eye to the future while much of the rest of the world is in hibernation mode. Third, we have seen a rapid increase in interest in our solutions across several different industrial sectors, of course, spurred on by a determined business development effort, but also by the leadership of influential companies like Constellium and Norsk Hydro, both of whom publicly announced their intent to investigate plasma as a replacement heat source in various process steps. This type of change together with these late quarter developments give substance and credibility to our long-term strategy and allows us to continue delivering on our mission with increased motivation. In closing, I would be remiss if I did not thank our investors for their patience over the years. It has, without a doubt, been a difficult time in the capital markets for small cap companies like ourselves. As the biggest shareholder of the company, I'm well aware of both the financial and psychological impact that a declining share price can have. And while I can't guarantee how the capital markets will react to our successes, what I do to assure you that no one will work harder to take this company to new heights and to ensure that every company in heavy industry has been made aware of PyroGenesis and its solutions. We are committed to winning and with that comes a commitment to help produce major change, that type of change that can alter industries for the better, forever, while hopefully also making you proud of where you have made your investment. As I mentioned earlier, plasma technologies was once a solution looking for a problem. It, along with other electric technologies, was often ignored as unremarkable, unharnessable and even unnecessary due to the wide availability of gas and oil. Its full potential was underestimated by all but those working diligently at PyroGenesis, and those that shared our vision as governments, clients, potential clients and investors keep moving towards a greener industrial future, PyroGenesis remains a partner of choice with a proven history of innovation and with an ecosystem of factory-ready technology solutions. As we stated in the recent promotional series, with the decarbonization potential of plasma, the future is electric. I believe this is true for a heavy industry, for our company, and most importantly for our investors.

Thank you to Mr. Pascali for this video message. As mentioned, I'm going to start with revisiting some of the company's accomplishments of 2023 and then discuss some of the progress which has already been made in 2024. But first, our forward-looking statements. Top lining the numbers as of today, June 27, 2024, 33 years in business, more than 170 patents and a lot of things that have happened over the past 5 years, in particular, as many investors know, during this period, the company uplisted to the TSX from the Venture Exchange, opened the second production plant for a total manufacturing footprint now of more than 70,000 square feet and by adding to perhaps the largest collection of experts in our field under one roof. The company doubled its staff count which as of today currently sits at 119 full-time employees. Now looking back on 2023. During the year, PyroGenesis continued to innovate, commercialize and expand our offering and service to heavy industry, government and entrepreneurial customers. We harness our expertise in ultra high temperature processes to conceive, develop and deliver solutions across a diverse range of business lines. During the year, the company significantly increased the power levels of its plasma torches after signing a contract for a 4.5-megawatt torch with a U.S. defense and Aeronautics organization. This was complemented by a surge of new interest and requests for feasibility studies to study first-time uses of plasma within a variety of different process steps in heavy industry. 2023 also saw fast acceleration of the fumed silica reactor project, leading to the construction of the pilot plant, which when complete, will convert ports into fume silica in a single step without the use of harmful chemicals. Fumed silica is a particle size food safe additive with a large surface area used worldwide as a thickening agent in thousand products everything from milk shakes to adhesives, powered foods, paints, inks, cosmetics and beverages, and it's used to increase strength, viscosity and flow control. 2023 saw important milestones being met toward commercialization of new business lines, such as for our next-gen plasma [ ionization ] system that produces titanium metal powder for use in additive manufacturing or industrial 3D printing. The company was granted a U.S. patent for the technology while also signing a first commercial by the ton order for its titanium power. Also notable was that the successful conversion of ports to silicon in a single step was achieved in 2023 using the port reduction reactor leading to a successful port to silicon that validated the previous project milestones. And the company expanded into several new industries, including initial projects for the cement and chemical industries. 2023 saw a reverse of the waste remediation business line with contracts for 6 different projects, including a chemical warfare waste destruction system and a system to safely destroy hazardous refrigerants such as CFCs. And with existing customers, we continue to earn their trust with new sales to the U.S. Navy, aluminary alouette and others, along with a variety of research and development initiatives with long-term government and corporate clients. And now a few quick thoughts on the progress the company has made so far in 2024. We have started off the year strong with a variety of achievements and new project sales. With our recent Q1 results announced May 14th, which was the third best first quarter in the company's history. The earnings have moved up 4 straight quarters above the low point that was seen in Q1 of 2023. In fact, 2023 revenues for the first quarter represent what management believes to have been the bottom of the down cycle. The company may have the odd revenue pullback on any given quarter, given the nature of GAAP revenue reporting, which is based on the percentage completed projects and not on new sales, but the trend line is solid and management believes the worst is behind us. For context, for much of the history of the company, the company was a $5 million a year revenue company. All that changed in 2020 when revenues tripled and then almost doubled again in 2021, subsequently receiving the last 2 years due to the lingering effects of supply chain disruption, customer project bottlenecks and high interest rates affecting CapEx spending for smaller and startup customers. On a quarterly basis in the pre-2020 era, the company would average about $1.5 million in revenue per quarter. since achieving an all-time high of more than $9 million in the third quarter of 2021, there's been a lot of investor concern about the drop off since then and readily so. But management believes the last 4 quarters of growth provide confidence of a reversal of that first quarter -- excuse me, of that first quarter 2023 low point and of the likely continued forward progression. Another strong indicator is backlog. Backlog is future revenue associated to project signed and awarded, but not yet completed. This is different from pipeline, which is potential sales and is very speculative. For many years, the company's backlog averaged approximately $7 million. Then in the third quarter of 2019, backlog shot up past $25 million, and it's never dipped below that level since, now hovering around the $30 million mark with the last quarter reporting at just over $28 million in backlog. With a strong backlog assuring a flow of projects and revenue for many quarters to come, the announced new project sales and corporate activities for the first 2 quarters of 2024 provide more emphasis underlining management's confidence where 2023 saw a renewal of the waste remediation business line, 2024 has validated the potential of power green gas. The company's wholely-owned gas purification and dollarization solution provider subsidiary that was acquired in 2021. Over the last month alone, however, green gas has signed close to $4 million of new projects with others still in negotiations. In other areas, as I alluded to earlier, so far in 2024, the company has seen an influx of study and testing requests by a number of very large players of crossheavy industry. Each looking to potentially utilize plasma in their heating and process steps -- a technical issue. Sorry about the delay. I'll read that again. In other areas, as I alluded to earlier. So far in 2024, the company has seen an influx of study in testing requests by a variety of very large players across heavy industry, each looking to potentially utilize plasma in their heating and process steps. The most prominent client that the company has publicly announced in this regard is Constellium, one of the world's largest manufacturers of aluminum products who after conducting successful furnace tests [indiscernible] PyroGenesis has now announced they will conduct live furnace test using plasma at their own facilities. And finally, as stated in this outlook from the first quarter financials, potentially large-scale opportunities are presenting themselves. These include continued plasma torch advancements, the fumed silica reactor technology that the company now owns 50% of after exercising an option to purchase. New projects within the Middle East region and for the next-gen titanium metal powders, which as was announced in June has passed the final requirements to become an official supplier to a global aerospace OEM and is now waiting in addition to the supplier list. For more information, please refer to the outlook section of the first quarter financial report where numerous other projects and potential projects were referenced. In summary, if 2023 started to climb out from the revenue lows, 2024 is shaping up to continue that momentum through the remainder of the year and well into 2025. As Peter Pascali, the company's President and CEO, said in ending his video message, thanks to the decarbonization potential of the plasma, the future is electric. This will conclude the 2023 and 2024 synopsis portion of the meeting. Thank you for your time and for listening today. I will now pass it back to the Chair, Mr. Chairperson, over to you.

Thank you, Steve. Peter, thanks for the video, it was very good. So that was a very insightful presentation. We are now going to address questions that were raised prior to this meeting. Mark, have we received any questions?

Yes, Mr. Chair, we have. And to address these questions, I will turn the floor over to Peter Pascali, President and CEO of PyroGenesis. Peter?

Thank you very much, Mark. Thank you very much, Mr. Chair. It's great to be here. Thank you all for attending this AGM, and thank you for everybody who put such a good presentation together. It's good to be here. First of all, I'd like to speak to the questions and the -- how we can answer them. As many people may think that this AGM is actually public platform, it's not considered to be a public platform. In other words, anything we answer has to be in the context of previously published public information. We cannot disclose anything new here. So that's a limitation, I hope you can understand and respect. I hope you like the video. My job was to do the video and answer these questions. And if you think that, that might have been a way of keeping me on script, maybe, but I just got a question, a late question that nobody is aware of. And the question is, so Peter, how do you feel about things? No, actually, I didn't get a question like that, but had I got a question like that? I probably would have answered something like I'm over the moon. I mean things are shaping up in PyroGenesis. Now I'm not talking about the stock. We're not talking about stock here. We're talking about the company. And as I said in the video, we don't know how the market is going to react to any information we come out with good or bad. But if we come with good information, it does not necessarily mean the stock is going to go up. So I'm talking just about the company itself. If you look at how things have been laying up over the past quarter, we've been guiding contract after contract after contract and the news we announced yesterday was over the top. And I'll explain that in a bit because one of the questions was a real question was somebody asking us before yesterday's press release was, what's happening with that way overdue receivable you have on your balance sheet? Which has been an eyesore for many, including ourselves. I mean it's on our balance sheet, we knew internally that it was a good receivable. We have insight into the receivable. We delayed payments on purpose because we thought it was the benefit of the company. And -- but we weren't allowed to adjust the balance sheet entry because the balance sheet entry is determined by accounting principles and those accounting principles dictate you have to reflect it on the balance sheet as per the original terms of the agreement. So if you amend the agreement, forget about it, it still has to go with respect to the original. So it was there. We are comfortable with it. In our press release yesterday, we said it was the right thing and the friendly thing to do. That's not to me -- that's not to reflect a weak perspective, absolutely not. We had the ability to go in. We had the hammer. We had the trigger to go in and collect if we wanted to. But we don't think that was good for us, for our client and for the future, and this is correct. We have essentially established ourselves with this client within the region as being a friendly partner, one who will be patient under certain circumstances, which the circumstances have to be beneficial to the company, of course. And that goes a long way to the future partnerships we expect to sign and engage in expanding our draws right capabilities in the area, expanding our -- cross-selling our other business lines. And we've spoken to these -- to this in our recent past 2 outlooks in our quarterly. So I'd ask you to look at those. Some questions we've gotten in have to do with things that are public and we can't speak to. There are a couple of questions that have to do with things we can't speak to very quickly. One is, are we still planning on building plants to convert DROSITE residues to aluminum sulfide? The answer is yes. That strategy hasn't changed, but I can't go into more specifics here because we haven't made them public. Are we still planning on building a 3D powder production plant in Europe? That is our ultimate goal still. And again, I can't go into too many -- too much -- too many details here because it hasn't been public. Other than that, all the other questions we have been asked speak to nonpublic information. And what we will do is, hopefully, I can't promise, but what we'll try to maybe -- and if you have any more questions as a result of this, please send them in. And what we'll try and do is have a press release where we highlight the questions and answer them specifically. So it's -- so these questions that have been asked, at this meeting will be addressed with public information, so everyone is going to have the same information at the same time. On that note, I'm very happy. I want to thank our investors again for their patience. We're very excited about where we are. We're very excited about where we're going. And I pass the -- if I pass the -- turn things back now over to the Chair.

Well, thank you, Peter, and thank you for addressing those questions, I will now ask [indiscernible] one of the scrutineers of the meeting to present the preliminary results of the voting. The final results will be posted on SEDAR.

Thank you, Mr. Chair. We, the scrutineers of this meeting, hereby declare that on a preliminary basis, each of the 8 nominees for election as director has received a vote of at least 99.45% of all shares voted in favor of their re-election. At least 99.90% of the votes were cast in favor of the reappointment of Raymond Chabot Grant Thornton as auditors of the corporation for the ensuing year and to authorize the directors to fix the auditor's remuneration.

Thank you, [indiscernible]. Now before we close, on behalf of the Board, and our Board members, I'd like to really thank our PyroGenesis' management team for their continued support and leadership and thank all of our employees for their hard work and dedication. Well, thank you all in the meeting with us today and have a wonderful rest of the day. So enjoy. Thank you very much.