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, and PyroGenesis’ plasma-based solutions have generated interest in processing a waste stream that has recently been classified as hazardous.
In October of 2021, PyroGenesis was selected by a US municipal water utility to provide a C$9.2 million system to destroy perfluoroalkyl and polyfluoroalkyl substances (PFAs), a group of hazardous chemicals that have become pervasive in product manufacturing, and which are now understood to be harmful as they leech out of products and into farmland, soil, and the water system.
Planning and negotiations for this project have drawn out considerably, for various client-side reasons related to logistics, resourcing, competing municipal and state project priorities and funding, as well as extensive legal ramifications related to hazardous chemical processing and the newness of operating in this realm, for all parties. As a result, great care has been taken to ensure a proper project and contract framework. The effort involved and the framework created will be very useful for future projects of this nature, as well as in this area of PFAS and hazardous chemical processing that is so new to governments, but expanding rapidly.
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.
Additional Opportunities for Plasma Torches
Within the general plasma torch line of business, the Company continues to consider options to leverage its plasma expertise. We continue to review torch technologies, pursue grant applications and government research involvement, and client participation partnerships, that could complement our existing torch offerings, leverage off our unique relationships, or explore new opportunities. We are in early stage discussion across many sectors and many potential customers; no additional details are available at this time.
CONCLUSION
In conclusion, while headwinds have interrupted the intentions of many clients and prospects during the first half of the year, PyroGenesis continues to see 2022 as a platform from which decades of 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 $5,847,180 in the second quarter of 2022 (“Q2, 2022”), representing a decrease of 29% compared with $8,280,572 (which includes 3.3M sale of intellectual properties) recorded in the second quarter of 2021 (“Q2, 2021”), Revenue for the six months of fiscal 2022 was $10,053,943 a decrease of 31% over revenue of $14,545,075 during the same period in 2021.
Revenues recorded in the three and six months ended June 30, 2022, were generated from:
| (i) | DROSRITE™ related sales of $436,538, $1,336,617 (2021 Q2 - $1,648,882, $4,389,606) |
| (ii) | PUREVAP™ related sales of $727,378, $1,168,983 (2021 Q2 - $3,896,453, $4,521,539) |
| (iii) | torch related sales of $1,550,201, $2,591,909 (2021 Q2 - $557,613, $752,835) |
| (iv) | development and support related to systems supplied to the U.S. Navy of $591,099, $1,336,359 (2021 Q2 - $2,133,187, $4,719,208) |
| (v) | biogas upgrading and pollution controls of $2,181,107, $3,171,152 (2021 Q2 - $Nil, $Nil) |
| (vi) | other sales and services of $360,858, $448,922 (2021 Q2 - $44,437, $161,887) |
Cost of Sales and Services and Gross Margins
Cost of sales and services before amortization of intangible assets was $3,129,148 in Q2 2022, representing a decrease of 6% compared with $3,340,312 in Q2 2021, primarily due to a decrease in direct materials of $1,612,969 (Q2 2022 - $2,547,913) and increases in employee compensation, subcontracting, manufacturing overhead & other of $1,987,111 (Q2 2022 - $829,736), offset by the increase in foreign exchange charge on materials of ($447,968) (Q2 2022 – ($1,023)).
The gross margin for the Q2 2022 three-month period was $2,499,273 or 43% of revenue compared to a gross margin of $4,933,481 or 60% of revenue for Q2 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 in Q2 2022 were $22,964 (Q2 2021 - $36,315). The Company also recorded for the six months ended June 30, 2022, $24,793 (2021 - $37,498) of the investment tax credits against cost of sales and services, $31,641 (2021 - $23,880) against research and development expenses and $15,000 (2021 - $15,979) against selling general and administrative expenses.
The amortization of intangible assets of $218,759 in Q2 2022 compared to $6,780 for Q2 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 Q2 2022 excluding the costs associated with share-based compensation (a non-cash item in which options vest principally over a four-year period), were $5,470,495 representing an increase of 62% compared with $3,371,888 reported for Q2 2021.
The increase in SG&A expenses in Q2 2022 over the same period in 2021 is mainly attributable to the Pyro Green-Gas acquisition and the net effect of:
| (i) | an increase of 45% in employee compensation due primarily to additional head count, |
| (ii) | an increase of 89% for professional fees, primarily due to an increase in accounting fees and legal fees, |
| (iii) | an increase of 109% in office and general expenses, is due to an increase in computer and internet expenses, security expenses and stationary and office related expenses, |
| (iv) | travel costs increased by 1,305%, due to an increase in travel abroad, |
| (v) | depreciation on property and equipment increased by 77% due to higher amounts of property and equipment being depreciated, |
| (vi) | depreciation on right of use assets increased by 4% due to higher amounts of right of use assets being depreciated, |
| (vii) | Investment tax credits decreased by 12%, due to a decrease in qualifying projects, |
| (viii) | government grants increased by 220% due to higher levels of activities supported by such grants, |
| (ix) | other expenses increased by 56%, primarily due to an increase in couriers & freight, |
