Chrysos Corp Ltd
ASX:C79
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Earnings Call Analysis
Q2-2024 Analysis
Chrysos Corp Ltd
Chrysos Corporation Limited has continued on an impressive growth trajectory, posting a 57% increase in revenue year-on-year with an even more impressive 63% growth specific to PhotonAssay revenue. This marks their 20th consecutive quarter of recording sample volume increases, which saw a modest 1% growth quarter-on-quarter, despite the typical seasonal slump during the Christmas period.
Following a November equity raise, the company is well-capitalized with $85 million in cash. They also secured a significant $95 million in available debt funding from the Commonwealth Bank of Australia (CBA), underscoring strong financial support for its future growth initiatives.
Chrysos has expanded its fleet of deployed units to 25, with additional installations underway in Canada and England. However, customer readiness challenges have led to potential delays in the deployment schedule, which could push some planned deployments to the next fiscal year. Despite these challenges, the company remains committed to a strategy that focuses on direct mine site deployment, which is seeing new complexities but considered beneficial in the long run.
The company's minimum monthly assay payments (MMAP) provide a stable revenue floor, with the exit rate now at $48 million. Chrysos continues to see increases in quarterly samples and maintains controlled operational costs through strategic unit clustering. They have also introduced solution analysis services and are expanding their assay portfolio, further securing their expansion plans in global mining hubs.
A key partnership has been formed with Barrick Gold, one of the world's largest gold miners, who plans to integrate PhotonAssay in all of their major mines globally. This endorsement is expected to spark broader adoption of the technology and enhance Chrysos's market share in the gold analysis sector. This partnership, along with 49 existing contracts, augments the company's market position and deployment plans.
Despite deployment delays, which have led to projections trending towards the lower end of their FY '24 revenue range, these do not impact the overall contract value but merely delay revenue commencement. The company is still expected to be comfortably within its EBITDA range and remains in a strong financial position with about $180 million in available resources, maintaining investor confidence in its capabilities to increase market share and sustain growth.
To address customer readiness issues that have led to deployment delays, Chrysos aims to engage earlier with miners to ensure smoother installation processes. This proactive approach is vital to mitigate future setbacks and to sustain the momentum towards achieving deployment goals of 18 to 21-plus units per year.
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Thank you for standing by, and welcome to the Chrysos Corporation Limited Q2 FY '24 Quarterly Conference Call. [Operator Instructions]
I would now like to hand the conference over to Mr. Dirk Treasure, Managing Director and CEO. Please go ahead.
Excellent. Thank you, Melanie, for the introduction. Good morning, shareholders, and welcome to our December quarter 4C investor update. Today, I'm joined by Brett Coventry, our Chief Financial Officer; and for a change, we're both actually sitting in our office in Adelaide, albeit the next couple of months look fairly action packed with travel. Together, Brett and I will be running through an operational and financial report for the quarter and after the presentation, we'll be available for Q&A. Please ensure that you've dialed in rather than connected via the web link, if you would like to ask a question.
Slide 3, please, operator. Chrysos has closed out another strong quarter of growth, with revenue up 57% year-on-year or 13% quarter-on-quarter. If we consider PhotonAssay revenue only, the year-on-year growth increases to 63%. We're experiencing strong growth in minimum monthly assay payments associated with our deployments and are sustaining a relatively consistent portion of additional assay charges, which accounted for 12% of Q2 revenue. We've closed out our 20th consecutive quarter of achieving record sample volumes with a modest 1% quarter-on-quarter growth, and that's despite seasonality related to the Christmas period.
From a year-on-year perspective, volumes are up 29%. We're well funded to sustain future growth with $85 million in cash following our November equity raise and a further $95 million available debt from CBA, which was announced just before Christmas. Deployed units increased to 25 units, made up of an additional 2 during the quarter and 1 post quarter, somewhat shy of our targets. We have 2 units currently being installed, 1 into Canada and another into England.
During the quarter, we have experienced some challenges related to our customer readiness to receive and begin installation of PhotonAssay units. While we continue to manufacture units on schedule, this lack of site readiness introduces the potential that we will miss our forecast of deploying at least 18 PhotonAssay units in FY '24, with some of these deployments only to be completed in Q1 FY '25.
As we shift to deploying more units directly to mine sites rather than laboratories, we are experiencing new complexities related to deployment. However, we consider that the related modest delays for the commencement of revenues are well outweighed by the benefits of working directly with miners. And we're committed to this mine site focused global expansion strategy. We've continued to build out our deployment capacity and are partnering with our customers earlier regarding their deployment requirements in an effort to avoid similar delays in the future.
Slide 4, please, operator, and over to you, Brett.
Thanks, Dirk. This slide is a strong visualization of our revenue growth. Quarter-on-quarter, we can see the improvement in minimum monthly assay payments, or MMAP, which is the minimum take-or-pay amount due monthly from our deployed units and is secured and forecastable, this quarter, representing 88% of our revenues. We can also see the additional assay charges, or AAC, the amount we charge each month for assays over the minimum monthly assay payment, this quarter was 12% of revenue. As we move to the new quarter, our exit rate of baseline revenue for MMAP is now $48 million, a continued strengthening of our underlying revenue.
Next slide, please. With a further 2 units deployed last quarter and 1 subsequent to the quarter, the global fleet of PhotonAssay units continues to be expanded. And it's great to see ongoing increases in quarterly samples, with a slight increase on the previous period. Utilization remains in line with expectations and expected fluctuations in the utilization rate as we deploy more units, particularly with mine site deployments where we generally do expect a lower utilization rate. These rates are effective of the ramp-up from installation and the impact of -- by industry cycles, of course, remembering we have the baseline MMAP as a revenue floor.
Our strategy of deployment in global mining hubs has continued with these recent units deployed to existing regions. This allows us to leverage operational efficiencies and existing in-country infrastructure. Along with the commercially available assay services for gold, silver, copper and moisture analysis, solution analysis has been introduced during the quarter, with our technical services team spending time focusing education in a number of mine sites for this service. Alongside of this, elements that frequently coexist with gold are a focus of expanding analysis. However -- are the focus of expanding analysis. However, our deployment -- development team is starting to turn their mind to other elements, as you can see in this chart.
Next slide, please. Across the globe, we can see the continued concentration of deployments reflective of our global hubbing strategy and the high-quality customers that underpin this. Equally the orange dots here show the demonstration of the widespread inquiries of PhotonAssay across the globe, which continues, especially on the back of the recent announcements around Barrick.
Next slide, please. During the quarter, we had 2 events which saw us improve our funding position to continue the growth of PhotonAssay across the globe. The first being a well-supported $75 million institutional placement and the second being the Commonwealth Bank's continued support of our business, providing a further $65 million of debt, taking our total debt facilities to $95 million, which with the repayment of the outstanding balance at the time of $8 million leaves us with undrawn facilities required -- available to fund future growth. We are well funded to continue growing.
Thank you. Back to you, Dirk. Next slide.
During Q2, we established our partnership with Barrick Gold, one of the world's biggest gold miners, who have indicated an attention to include PhotonAssay in all of their major gold mines around the world. This is a substantial milestone for the company, and it presents the opportunity to work with Barrick on application and use of Photon to in their minds around the world. It's also a huge endorsement and we expect that this relationship will lead us to further PhotonAssay adoption.
Similarly, to Chrysos, this partnership is an endorsement of MSALABS, which are currently committed to deploy 21 PhotonAssay units, a large number of which will now likely be deployed to those Barrick mine sites. MSA's success on this front builds their profile in the industry and is likely to lead to additional samples processed through their hub labs and further opportunities for site deployments.
Slide 9, please, operator. Summarizing the quarter, we remain well positioned for continued strong growth. We continue to see substantial revenue increases quarter-on-quarter. Our strategy of clustering units is helping to keep our costs under control and the 49 contracts that we currently have support our continued rollout of PhotonAssay units. As I flagged earlier, we have seen some delays to deployment, which mean we're a little behind where we had expected to be on this front. Manufacturing continues on schedule, but challenges around customer site readiness are impacting our ability to deploy units.
It's important to note, though, that these delays don't reduce the overall contract value, but rather delay commencement of revenue. As a result, we are tracking toward the lower end of the FY '24 revenue range. Meanwhile, we are able to delay related costs to the installation, which provide controls on our profitability and capital outlay and we're guiding to being comfortably within our EBITDA range. Looking forward, we remain confident in our ability to continue to increase our market share in the gold analysis space, particularly in light of our recent endorsement by Barrick and we are now well supported financially with around $180 million available between debt and cash on hand to continue deployment of PhotonAssay units.
I'll now move to questions.
[Operator Instructions] Your first question comes from Josh Kannourakis with Barrenjoey.
Dirk and Brett, can you hear me okay?
Loud and clear, Josh.
Perfect. First question, just around some of the installation and customer readiness issues. Can we just maybe go into a little bit more detail about maybe some anecdotes of events that have happened sort of contributed to that? And I guess more importantly, what can you do to sort of mitigate these in the future to, I guess, give us confidence that you can re-ramp up to 18, 21-plus units a year again?
Great question, Josh. And I think the mitigation there is really partnering earlier with these miners as we go forward. The difference between deploying to an established laboratory, particularly in a Western country and going directly into a mine site. Then just additional complexities around making sure that there's a building available, suitable concrete, power, that type of thing. So linking that to a couple of anecdotes where we've gone to deploy our latest unit into Africa at the moment with DRC, we did run into, for example, the rainy season. So trying to build a shed in an African rainy season generally leads to some delays. We also made a number of changes around where these units were going on the back of Barrick and really progressing this mine site deployment focus.
And what we've seen there is it's just, if we were to partner earlier, if we know ahead of time exactly where these units are going, then our ability to deploy on schedule is improved. So we really do see this as a temporary item for us and nothing that we expect to continue in a long-term capacity.
Got it. And I imagine with the MSA and Barrick sites like they were effectively either redirected at probably relatively not last minute, but obviously, the time frame is probably shorter. So has that sort of contributed as well in terms of the...
Look, absolutely, without calling out sort of specific miners, definitely where we are deploying to mine sites. And there's a maturity here that we are learning to operate in these countries along the way as well. And I think those learnings both for us, for our mine site customers and for MSA will lead to improvements on that front. Getting the commercial deal done and signed off is the first step. And then it's really getting the units on site. So as you said, there's a short turnaround in a couple of the instances where we've been installing lately.
Yes, makes sense. Great. Just second point, just around, I guess, the new pipeline and in terms of new potential signings. Can you give us a bit of context around how that's progressing? Obviously, the splits around some of the lab versus mine site conversations, partnering with labs to do that or going direct. Can you just give us a bit of a flavor of how that's sitting in terms of the forward-looking pipeline?
Yes, absolutely. The pipeline continues to build out and cognizant that the Barrick deal was only announced in the last quarter as well, and we continue to get now a number of inbounds on the back of that because it really is an endorsement and a derisking for other companies to take up the technology as well. The pipeline as it stands at the moment, the 49 contracts obviously leaves us at the moment with 24 units still to deploy. We do want to maintain that 15- to 18-month pipeline. And just to give us that support, we're continuing to build out more units.
With regard to Labs versus miners, we're definitely going in the strategy of mine site deployment. We're relatively agnostic as to whether that's through a laboratory company or directly to the miner, as long as we are engaging there directly with the mining company because it does give us access to the additional points that I called out in, say, the Barrick notes around application development, site partnering, really growing sort of customer acceptance and delight of this technology. And we get that in a much more intense way. We're directly on site with the miner.
Okay. No, that's helpful. And then just 1 quick question on the numbers. So obviously, you mentioned around being comfortable in the EBITDA guidance range. And I assume because of the deployments you're not wearing those sort of operating costs that you usually would throughout that period. So I guess are we sort of reading the EBITDA ranges maybe not being at the middle, but sort of somewhere between the lower or the middle sort of end of that given the sort of where the revenue is sitting?
Thanks, Josh. You've interpreted that fairly well. And I think as we go forward, if we're not deploying the unit, we are actually able to make some savings on our costs that we had forecast. So that's allowing us to provide that guidance back to the market. And equally, we are starting to see some operational efficiencies flow through from those hubbing strategies that we've talked about. So there is a combination of those things happening there, and certainly, you summarized it well.
Okay. Got it. And final one for you, Brett, just on working capital, just to give us a feel for, obviously, there was a bit of a slight negative working capital impact in this period. Just to give us some context on that and how you're sort of thinking about that for the full year given the current outlook?
Yes. Thanks, Josh. We see December -- traditionally, our December quarter has always been a funny one in terms of getting payments from our customers and working through that timing. But we do see the rest of the year to continue to be operational cash flow positive, and this is just part of the seasonality of our cash flows during that window of time. And as we've said it over the last couple of years as well. So no issues there. It's really about the timing of payments through that Christmas and holiday period.
Your next question comes from Jules Cooper with Shaw and Partners Limited.
Dirk, if I could just follow up on one of Josh's questions there around contracting. I guess I just wanted to get a sense in the second quarter, was the contracting in line with your expectations? And is it a sort of a key focus for the business to expand the number of contracted units and the breadth of customers that you contracted to in the second half?
Yes. Look, I mean, it was on schedule. I mean, if anything beyond, if you consider that -- again, the Barrick deal was done in that quarter. For us, that is what we're targeting. And I think it's what we've led to ahead of that time as well. The best outcome for Chrysos is where we have a customer working toward global adoption of our technology. And when you've got someone at the scale of Barrick being the second biggest gold miner in the world, partnered with a lot of the other big gold miners around the world as well, that endorsement does allow us then to really leverage that with customers.
And if you consider that the industry itself is -- it's a group of fast followers rather than first movers, being able to point to something like a global adoption by Barrick just reduces the studies and trials that need to be undertaken by other customers as well. So certainly from our side, the goal is to continue to convert mining projects around the world to PhotonAssay, and we'll continue to update the market as we go with that.
[Operator Instructions] Your next question comes from Joseph House with Bell Potter Securities.
I've got 2. Firstly, when in the quarter were the 2 PhotonAssay units deployed? And maybe not specific dates but generally within the month. And when would you expect those 2 installations that are currently in progress to be completed in this quarter?
Yes, great question. So the way that we look at deployments is that typically, they take in the order of about 8 weeks. So when we guide to having units under installation at the moment, you can expect that then within the quarter. So in around 8 weeks, certainly within sort of 12 weeks that, that unit would then become operational. And then just looking at the last update that we did on the previous Q1 was that we had the 3 units being installed at the time of that update.
And obviously, then those units were installed during the quarter. We haven't sort of specifically guided to particular dates of those installs. Some of the customers may have disclosed that though anyway because obviously, it's new locations that suddenly now have a PhotonAssay service. I'd have to follow up on that, on what disclosure they've done as well.
That's all right. No, that's really helpful. And my second question, how would you describe the deployment schedule over the remainder of the financial year? I mean assuming everything goes to plan and given your guidance today, your guidance update, and given your existing deployment capabilities, should we maybe expect a strong skew in the final quarter of the year?
Yes. I think that's a fair statement. So look, we're introducing a degree of conservatism here. At this point in time, if all of our customers were actually ready to go, we would actually still achieve at least that 18 number during the year. So we are introducing a degree of conservatism here that flows through to the forecast, et cetera. But certainly, we'll be expecting an increase in deployment into the tail end of the year to be able to sort of get towards that number.
There are no further questions at this time. I'll now hand back to Mr. Treasure for closing remarks.
Thank you, operator, and thank you, shareholders. I appreciate your continued support and look forward to providing our next update corresponding with our half year results at the end of February.
That does conclude our conference for today. Thank you for participating. You may now disconnect.