PyroGenesis Announces Q1 2019 Results: Current Backlog $8.5MM; Revenues of $736K; Gross Margin of 13%

MONTREAL, May 30, 2019 (GLOBE NEWSWIRE) -- PyroGenesis Canada Inc. (http://pyrogenesis.com) (TSX-V: PYR) (OTCQB: PYRNF) (FRA: 8PY), a high-tech company (the "Company", the “Corporation” or "PyroGenesis"), a Company that designs, develops, manufactures and commercializes plasma atomized metal powder, plasma waste-to-energy systems and plasma torch products, is pleased to announce today its financial and operational results for the first quarter ended March 31, 2019.

“I may be repeating myself, but it is imperative that I remind readers the importance of putting Q1 2019 results in the context of previous strategic decisions made in 2018, and which are still impacting results,” said Mr. P. Peter Pascali, President and CEO of PyroGenesis.“Recent results have been significantly affected by management’s decision in 2018 to pursue strategic partnerships at the expense of revenues. However, as a result, we have press released imminent contracts in excess of $32MM with associated future revenues well in excess of that which, in my opinion, fully justifies that strategy. As I have said in the past, 2018 was the year in which the Company successfully positioned itself with unique and strategic partnerships, geared to effectively accelerate commercialization, and we are benefiting from these efforts. Again, we believe that these financials should be viewed in this context.”

Q1 2019 results reflect the following highlights:

  • Revenues of $736,443, a decrease from $2,060,602 posted in Q1 2018;
  • Gross margin of 13% a decrease of 21% over the same period in Q1 2018;
  • Fair value of investments increased to $706,196, versus ($219,000) an increase of $925,196;
  • Leasehold improvements of $137K were spent to build a clean room for plasma atomization system;
  • A Modified EBITDA loss of $1.13MM compared to a Modified EBITDA loss of $545K over the same period in Q1 2018;
  • Backlog of signed contracts as of the date of this writing is $8.5MM;
  • Cash on hand at quarter end: $142K (December 31, 2018: $645K).

The following is a summary of PyroGenesis’ main activities.

Outlook

2019 is turning into the year that bears the fruit of 2018 strategies, in which PyroGenesis successfully positioned itself with unique and strategic partnerships, geared to effectively accelerate commercialization in two of its three business segments.

In 2018, the Company successfully positioned each of its commercial business lines for rapid growth by strategically partnering with multi-billion-dollar entities who have identified PyroGenesis’ offerings to be unique, in demand, and of such a commercial nature as to warrant such unique relationships.

By the end of 2018 PyroGenesis could boast of a unique relationship with a multi-billion-dollar entity in each of its three commercial offerings:

  1. The US Navy within the Military/Environmental sector;
  2. A Japanese trading house within the DROSRITE™ (tolling) offering;
  3. Aubert & Duval within the Additive Manufacturing/3D printing (“AM”) offering.

Most companies would be thankful for one such relationship, but PyroGenesis has successfully developed three.

It became readily apparent to management that partnering with the right entity could significantly accelerate commercialization in each of its new business lines. This however, would come with a cost in 2018. In order to succeed, PyroGenesis would have to dedicate significant resources to demonstrating the value proposition, and capabilities, to these entities. This meant that assets which should have been dedicated to sales now had to be deployed to developing these relationships. This not only impacted revenues, but it also increased costs of non-paying projects. We have seen this effect continue into Q1 2019, which we expect will continue to some degree into Q2, 2019.

To date, PyroGenesis has announced that it should be awarded a two-ship build for its PAWDS unit, for approximately $13.5MM. Add to this the recently announced potential contract with 1st year revenues of $20MM ($30-50MM in subsequent years revenues) and the impact of this strategy is apparent: over $30MM in revenues over the next 18 months. Approximately 6x 2018 revenues.

2019 should also be the year in which the Company takes steps, outside of the ordinary course of business, to unlock additional value for investors.

One such step that has been announced is the spin-off of the Company’s additive manufacturing capabilities.

Another step, which is likewise outside the ordinary course of business, and is geared to unlocking shareholder value, is the previously announced up-listing of the Company’s stock to a more senior exchange other than the one the Company is currently on. This is projected to be completed by year-end.

There are other steps, outside the ordinary course of business, that the Company is considering, to further increase shareholder value. The first of which should be announced in early Q3, 2019.

In short, 2019 is playing out to be the first of many years which will bear the fruit of strategic decisions made in the recent past.

Financial Summary

Revenue

PyroGenesis recorded revenue of $736,443 in the first quarter of 2019 (“Q1 2019”), representing a decrease of 64% compared with $2,060,602 recorded in the first quarter of 2018 (“Q1 2018”).

Revenues recorded in the first quarter of 2019 were generated primarily from:

  1. PUREVAP™ related sales of $94,077 (Q1 2018 - $736,660)
  2. Torch related sales of $139,813 (Q1 2018 - $Nil)
  3. Support services related to PAWDS Marine systems supplied to the US Navy $210,667 (Q1 2018 - $527,444)

Cost of Sales and Services and Gross Margins

Cost of sales and services before amortization of intangible assets was $639,506 in Q1 2019, representing a decrease of 53% compared with $1,354,696 in Q1 2018.

In Q1 2019, employee compensation, subcontracting, direct materials and manufacturing overhead decreased to $662,379 (Q1 2018 - $1,420,628).

The gross margin for Q1 2019 was $92,158 or 12.5% of revenue. This compares with a gross margin of $705,906 (34.3% of revenue) for Q1 2018.

As a result of the type of contracts being executed, the nature of the project activity had a significant impact on the gross margin and the overall level of cost of sales and services reported in a period, as well as the composition of the cost of sales and services, as the mix between labour, materials and subcontracts may be significantly different.

The amortization of intangible assets of $4,779 in Q1 2019 and $Nil for Q1 2018 relates to patents and deferred development costs. Of note, these expenses are non-cash items and will be amortized over the duration of the patent lives.

Selling, General and Administrative Expenses

Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.

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