PyroGenesis Announces Q3, 2019 Results: Revenues $2.1MM, Gross Margin 45%, Current Backlog $29.5MM

MONTREAL, Nov. 27, 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") 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 third quarter ended September 30, 2019.

“The 492% increase in backlog to $29.5MM at the end of Q3, from $6MM at the end of Q2, signals the beginning of the long-awaited breakout that we have been anticipating,” said Mr. P. Peter Pascali, President and CEO of PyroGenesis. “Separately, the $13.5MM US Navy Contract has also gained momentum in the second half of 2019, which we expect will also be added to the backlog soon. Notwithstanding some minor delays, 2019 is turning out to be all that we had expected it to be.”

Q3, 2019 results reflected the following highlights:

  • 91% increase in revenues to $2.1MM for the quarter over the same period in 2018,
  • gross margin of 45% representing an increase of 22% over the same period in Q3 2018,
  • 492% increase in backlog to $29.5MM over Q2 2019 ($6MM),
  • a modified EBITDA loss of $614K compared to a Modified EBITDA loss of $1.6MM over the same period in Q3 2018,
  • fair value of investments increased to $70,717, versus a decrease of $756,750 over the same period in Q3 2018 an increase of $827,467.

The following is an overview of PyroGenesis’ quarterly results.

Outlook

The second half of 2019 has seen the beginning of the long awaited breakout that we have been anticipating ever since the Company embarked on a strategy, in 2017 and 2018, to (i) develop two new business lines and partner with multi-billion-dollar corporations to effectively accelerate commercialization in these new segments, and (ii) focus on recurring revenue streams in all business lines.

In the second half of 2019, the Company successfully increased backlog of signed contracts by approximately 500% to $29.5MM from $6MM at the end of Q2 2019.  The cash flow from this increased backlog is expected within Q4 2019.

Separately, the long-anticipated US Navy contract for two PAWDS systems, with approx. $13.5MM in anticipated revenues over 18 months, has also gained momentum in the second half of 2019. After a period in which only the longest lead items were contracted for by the US Navy, PyroGenesis’ PAWDS system’s turn in the queue arrived.  We are happy to report that, as of this writing, the Company recently completed the last formal steps before final procurement.

With this additional contract in hand, and the resultant backlog in excess of $40MM, the Company will be well positioned to then embark on previously announced projects specifically aimed at increasing shareholder value (up-listing, spin-offs, and stock buy-back initiatives), which could not have started in earnest until the stock reacted to the news of these contracts. Once the above-mentioned contracts have been successfully signed, with deposits received, the resultant effect on the Company’s valuation can be determined, as this will play a significant role in dictating the optimum strategy to execute.

Separately, the Company will now also focus on accelerating paying projects which had been delayed as a result of the Company’s decision to divert assets from such projects to those non-paying efforts which resulted in winning these breakout contracts.

In addition to the above developments, there are several smaller projects the Company is pursuing (for instance the Swedish torch transaction geared towards iron ore pelletization) which are very promising in their own right and should get traction over the next 12 months.

In short, 2019 is turning out to be all that it had been billed to be, and events are developing in such a way as to make 2019 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 $2,097,437 in the third quarter of 2019 (“Q3 2019”), representing an increase of 91% compared with $1,097,726 recorded in the third quarter of 2018 (“Q3 2018”). Revenues recorded in Q3 2019 were generated primarily from:

(i)PUREVAP™ related sales of $328,733 (2018 - $2,249,859),
(ii)torch related sales of $1,932,353 (2018 - $Nil),
(iii)the development and support related to systems supplied to the U.S. Military for $500,946 (2018 - $825,151).
  

Cost of Sales and Services and Gross Margins

Cost of sales and services before amortization of intangible assets was $1,145,080 in Q3 2019, representing an increase of 35% compared with $845,575 in Q3 2018.

In Q3 2019, employee compensation and subcontracting decreased to $514,203 compared to 746,054 in Q3 2018, while the cost of direct materials and manufacturing overhead & other increased to $731,319 (Q3, 2018 - $187,796).

The gross margin for Q3 2019, was $947,090, or 45% of revenue. This compares with a gross margin of $252,151 (23% of revenue) for Q3 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 $5,267 in Q3 2019 and $Nil for Q3 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.

SG&A expenses for Q3 2019 excluding the costs associated with share-based payments (a non-cash item in which options vest over a four-year period), were $1,485,803, representing a decrease of 12% compared with $1,696,158 reported for Q3 2018.

The decrease in SG&A expenses in Q3 2019 over the same period in 2018 is mainly attributable to the net effect of:

  • a decrease of 14% in employee compensation,
  • a decrease of 21% for professional fees, primarily due to a decrease in consulting fees,
  • a decrease of 63% in office and general expenses, is primarily due to the reclassification of rent expense to depreciation right of use assets,
  • travel costs increased by 107%, due to an increase in travel abroad,
  • depreciation on property and equipment increased by 4% due to higher amounts of property and equipment being depreciated,
  • depreciation on right of use assets increased by 100% due to reclassification of rent expense to depreciation right of use assets,
  • investment tax credits increased by 100% due to the investment tax credits being recorded against the respective expenses in cost of goods sold, selling and general expenses and research and development expenses versus all of the investment tax credits of Q3 2018 being recorded against cost of goods sold only,
  • government grants decreased by 16% due to lower level of activities supported by such grants and,
  • other expenses decreased by 38%, primarily due to a decrease in costs of freight and shipping.

Separately, share based payments decreased by 93% in Q3 2019 over the same period in 2018 as a result of the vesting structure of the stock option plan including the stock options granted in 2018.

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