Land Based Units/Environmental
The Company did not previously aggressively target the Company’s land-based/environmental solutions during the period where the Company’s other offerings, such as in steelmaking and aluminum industry process improvement, were accelerating.
However, during 2021, interest in the Company’s capabilities in this arena was renewed. Besides the interest in niche torch applications mentioned above (ex. medical waste), PyroGenesis’ plasma-based solutions have generated interest in processing a waste stream that has recently been classified as hazardous. Management believes that, in a current bidding process, its solution is the technology of choice. If successful, this will represent a significant positioning of PyroGenesis plasma-based solutions not only for this specific product line but, when taken in conjunction with the historic success with its offering on US Aircraft carriers, the land based/environmental segment in general.
Growth through Synergistic Mergers and Acquisitions
As previously disclosed, the Company is conservatively considering synergistic merger and acquisition strategies to augment its growth, and the Company has been very actively involved in pursuing several opportunities to support this strategy. In so doing, the focus has been on private companies exclusively which (i) primarily leverage the Company’s Golden Ticket advantage, or (ii) could uniquely benefit from the Company’s engineering advantage and/or international relationships.
During 2021, the Company acquired AirScience Technologies Inc. (“AST”), a company with experience in biogas upgrading. PyroGenesis believes that AST’s experience in biogas upgrading, combined with PyroGenesis’ engineering and multidisciplinary skills, as well as its proven record of meeting the exacting demands of multibillion-dollar companies and the US military, positions the combination well to address the opportunities arising from this growing need to generate renewable natural gas.
The acquisition of AST also provides potential synergies with PyroGenesis’ land-based waste destruction offerings which, if successful, will significantly increase their value to the market. AST’s technology complements PyroGenesis’ existing offerings and further strengthens PyroGenesis’ position as an emerging leader in GHG solutions for sustainable long-term growth.
Our objective is to strengthen AST’s operations and quality control systems, over the course of the next 12-15 months, while at the same time increasing the backlog of signed contracts and successfully delivering on existing contracts thus positioning AST as a significant and credible player in the marketplace. Once established, we will evaluate our options to accelerate the rollout of these solutions.
Additional Opportunities - Plasma Torches:
Within the Plasma Torch line of business, the Company continues to consider options to leverage its plasma expertise and continue to review torch technologies that could complement existing offerings, leverage off their unique relationships, or explore new opportunities. In early stage discussion across many sectors and many potential customers, no additional details are available at this time.
CONCLUSION
In conclusion, PyroGenesis sees 2022 as a platform from which decades of exponential growth will stem.
The Company plans to take advantage of its unique position in its main business offerings to accelerate growth, with a particular emphasis on offerings geared to aggressively reducing GHG emissions and the world’s carbon footprint, while finding and offering solutions to pressing environmental, engineering, and energy challenges.
Financial Summary
Revenues
PyroGenesis recorded revenue of $4,206,762 in the first quarter of 2022 (“Q1, 2022”), representing a decrease of 33% compared with $6,264,503 recorded in the first quarter of 2021 (“Q1, 2021”).
Revenues recorded in the first quarter of 2022 were generated from:
| (i) | DROSRITE™ related sales of $900,079 (2021 Q1 - $2,740,725) |
| (ii) | PUREVAP™ related sales of $441,605 (2021 Q1 - $625,086) |
| (iii) | torch related sales of $1,041,709 (2021 Q1 - $195,221) |
| (iv) | development and support related to systems supplied to the U.S. Navy of $745,260 (2021 Q1 - $2,586,021) |
| (v) | Biogas upgrading and pollution controls of $990,045 (2021 Q1 - $Nil) |
| (vi) | other sales and services of $88,064 (2021 - $117,450) |
Cost of Sales and Services and Gross Margins
Cost of sales and services before amortization of intangible assets was $2,936,280 in Q1 2022, representing a decrease of 29% compared with $4,114,713 in Q1 2021, primarily due to a decrease in direct materials and manufacturing overhead of $1,784,445, offset by the increase of $606,659 in employee compensation, subcontracting, and foreign exchange charge on materials.
In Q1 2022, employee compensation, subcontracting, and foreign exchange charge on materials increased to $1,695,707 (Q1 2021 - $1,089,048). The gross margin for Q1 2022 was $1,051,723 or 25% of revenue compared to a gross margin of $2,143,010 or 34.2% of revenue for Q1 2021. As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, as the mix between labour, materials and subcontracts may be significantly different. In addition, due to the nature of these long-term contracts, the Company has not necessarily passed on to the customer, the increased cost of sales which was attributable to inflation, if any.
Investment tax credits related to qualifying projects from the provincial government were $10,498 (2021 - $26,649). The Company also recorded for the three months ended March 31, 2022, $1,829 (2021 - $1,183) of the investment tax credits against cost of sales and services, $1,168 (2021 - $17,967) against research and development expenses and $7,500 (2021 - $7,500) against selling general and administrative expenses.
The amortization of intangible assets of $218,759 in Q1 2022 compared to $6,780 for Q1 2021 relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items and will be amortized over the duration of their expected 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 Q1 2022 excluding the costs associated with share-based compensation (a non-cash item in which options vest principally over a four-year period), were $3,942,738 representing an increase of 41% compared with $2,803,095 reported for Q1 2021.
The increase in SG&A expenses in Q1 2022 over the same period in 2021 is mainly attributable to the net effect of:
| (i) | an increase of 37% in employee compensation due primarily to additional head count, |
| (ii) | a decrease of 33% for professional fees, primarily due to a decrease in accounting fees, legal fees, and listing fees. |
| (iii) | an increase of 47% in office and general expenses, is due to an increase in stationary and office and computer related expenses, |
| (iv) | travel costs increased by 267%, due to an increase in travel abroad, |
| (v) | depreciation on property and equipment increased by 87% due to higher amounts of property and equipment being depreciated, |
| (vi) | depreciation on right of use assets increased by 63% due to higher amounts of right of use assets being depreciated, |
| (vii) | Investment tax credits were the same year to year, |
| (viii) | government grants increased by 100% due to higher levels of activities supported by such grants, |
| (ix) | other expenses increased by 317%, primarily due to an increase in insurance. |
Separately, share based payments increased by 81% in Q1 2022 over the same period in 2021 as a result of the stock options granted in 2020, 2021 and 2022. This was directly impacted by the vesting structure of the stock option plan with options vesting between 10% and 100% on the grant date requiring an immediate recognition of that cost.
