Agilyx ASA

OSE:AGLX

Earnings Call Transcript 2022-Q3

[Fabian Jorgensen, analyst]

Hi, everyone, and welcome to this business update with Agilyx. With us today, I have the CEO of Agilyx, Tim Stedman, who will go through the recent commercial updates. And after that, we will follow on with a Q&A. So please post your questions using the question function under your screen, and you can do that throughout the whole presentation.

And with that, I leave the word with you, Tim.

[Timothy Stedman, executive]

Great. Thank you very much. We really appreciate the opportunity to talk to you all today, and obviously, thanks to Carnegie and to Fabian for hosting us here. It's been a busy time. This is an interesting world that we all live in, and we're very pleased that despite all of that, we've been able to continue our track of development and against our objectives that we see and we've laid out previously.

So always important to start with the revenue, and it's a really good story in terms of acceleration in this space. Where is the money coming? Well, here it is. So we have unaudited first 9 months revenue of just shy of $13 million, which compares extremely favorably to this time a year ago. consistent with what we've been talking about previously, projects going into construction, the work that we're doing in Cyclyx to grow out our volume there and to be able to deliver.

We've got projects that continue to develop. So we've talked about the fact that we want 1 project into development every quarter on average. That's 4 in total on an annualized basis. And we're very pleased with the track record that we've got there, developing. What's even more important to us, though, right now, and we'll talk more about this later, is the criticality of those moving into licensing and construction. And obviously, we've had 1 early this year. Toyo that went into construction. That's a big part of why the revenue movement has been so significant. But we actually have clear line of sight for 2 more. And that's very, very exciting in terms of the future development, this sort of transition point, this tipping point that we've talked about previously in terms of the opportunity for significant growth.

Cyclyx has obviously been in the news again. You've seen recently the development of the first circularity center and how that's evolved with both ExxonMobil and LyondellBasell, 2 of the biggest producers of plastics globally. But also underneath this is the critical steps that we've been taking around piloting the waste collection programs, the 10 to 90 programs. And again, we'll come and talk a little bit more about that later.

In the last quarter, we also delivered on our promise to uplift to the main Oslo Børs. We did that in September. Very exciting time. We were very privileged actually to be here and be able to do that in person. Unlike the listing 2 years ago on the -- what was than the predecessor for the Euronext growth. And it was very exciting that we apparently we're the first company to have been on the bridge, ringing the bell since the wonderful refurbishment of the Børs.

And of course, slightly prior to that, we were able to raise $15 million in the market, really with a focus on funding project development through FID, a new business model that we've been talking about doing for a while to look at how do we accelerate our substantial pipeline focused on getting projects through to FID and then into funding for construction.

So if we turn to look at the revenue, the little picture on the left-hand side, if they say a picture tells a thousand words, very reassuring very exciting for us when you look at these annualized numbers. So we've annualized first quarter, second quarter, third quarter to compare to the full year of '21. And as I've mentioned, that's really driven largely by the Toyo construction move, but also the revenue from Cyclyx feedstock sales. So a story of growth and development of establishing the business model and driving it forward. Importantly, the gross margin, the gross profit for the third quarter is positive. That was something that we talked to people about in terms of the timing effect earlier this year. That's now positive. That's where it should be. That's where it will continue to go. And of course, licensing is the piece that drives that up significantly, licensing extremely profitable activity.

And I've talked about the $15 million. That's really targeted to driving those couple of projects we talked about, 1 in North America through the final stage of engineering to FID, 1 major one in Europe. I'm still hoping that I'm going to be able to release the large U.K. petrochemical company that that's associated with in not-too-distant future. But those things moving forward, we're spending that money consistent with what we raised it for. So I'm very, very enthusiastic about what we're going to be able to do there. And this puts us in a great position going into next year.

So if we talk about the pipeline, 1 of the things that we've been focused on here is not so much continuing to grow the number of projects or the size of projects, there is some development in terms of overall volume, as you can see here. But it's been very much a focus on quality. Focusing on the quality, what are the high potential projects in here, the high-priority ones. And you can see it's now 33, which is up a fair way from where it was previously in the mid-20s. But the key thing that the organization is focused on, as I've talked about, is how do we drive this into licensing and construction. Those 2 critical steps that drive a significant step-up in both our revenue, but also in terms of margin.

So I said that we expect 2 further licenses in the coming months. And obviously, those licenses then move into construction afterwards. And as I've talked about, we're using the placement revenue to be able to take more control of those projects. One of the things that is always a bit of a challenge in the licensing business is that you are reliant on your partners. And so that money, 1 of the things we were wanting to do is really explore how we can take control, drive those projects through much, much faster through the decision gates and get ourselves into that important transition point in the next stage of the project.

So 1 of the things that's also been happening in the past few months is the implications of Trustyrenyx. Now that's this partnership with Technip, Technip is huge company who's really the world's leader in styrene, who is now out there marketing our integrated Trustyrenyx technology. Our conversion process with their separation process, it's that, that allows you to go after feedstock that other people can't touch.

You've just seen recently the announcement between Kumho and Technip. This is exactly what we're looking for is basically those kind of partnerships. Kumho is somebody that 3 years ago, we couldn't have gone after because we didn't have the right technology with the purification piece. Now together, we're able to do that. And Kumho and Technip are working together on this process. Obviously, with our technology inside, our technology is a key part of that.

And what we've seen with this pipeline is that there has been a drive already from the Trustyrenyx launch to increase the amount of polystyrene projects represented in this going from just under 30% in March to 41% now. Technip is active in the market. We're active supporting them. So this is a real partnership where we're both bringing very, very substantial strengths to the market where there is huge opportunity.

I will just mention, just remind people that Kumho is predominantly focused on the market around performance tires, typical tires in Europe. That market in and of itself for styrene, which is what comes out of these projects is about 2.5 million tonnes per year. So this is a very nice, very attractive, high-value market that we're now able to go after with the likes of Trustyrenyx.

I said I'd talk a little bit about some of the activities in Cyclyx that might be -- have seemed a little bit below the surface. I've often said that there are 4 things that you need to do in order to get chemical recycling to work. You need to be able to source waste, process waste, convert it and then purify it. Those first 2, sourcing and processing is what Cyclyx is focused on. The sourcing piece is this 10 to 90 approach. We've launched the 10 to 90 website. We're launching more activities associated with that to drive broader industrial but also consumer and municipality engagement. And 1 of the specific examples that we wanted to share here is what we're doing in Kingwood, Texas.

Now Kingwood is a part of Houston. So this is all linked to the Houston recycling partnership. We're doing this in conjunction with the city of Houston, but also with people like Exxon with Lyondell, with FCC Environmental. And we're now launching this in Kingwood right now. So there was stuff happening out this weekend with people educating the local community about what we want them to do.

And here, it's about understanding how do you get across to people to make it as easy as possible for them to recycle plastic. So pretty simply, the way you do it is you say, "I want everything." I don't want you as a consumer to be looking at the little symbol on the bottom of your plastic water bottle or your yogurt cup to be able to say what is it? Just put it all in there. And that's what we're trying to do here is drive all plastics into this system. And we're using Kingwood as basically a fairly large-scale opportunity to explore and understand. We're going to get a huge amount of data because we're going to be able to collect a lot of plastic, understand the different chemistries that are in there. Understand then how that will flow into the circularity center that we're launching.

So this will be 1 piece, but this is an early stage to be able to understand and develop and enhance that such that you can then roll it out further within the city of Houston, which is population of well in excess of 5 million people. So this is a really significant step for us as part of the scale up towards the circularity center that is coming down the path.

So talking about the circularity center. We announced this previously. I think many of you will have seen it before. But this is a huge step for Cyclyx in its development and proving out. So you've got that first bit, which is sourcing, 10 to 90, the second piece, which is processing the waste, taking this huge variability of waste plastic coming in all waste and then being able to process it so that you can route it to the highest possible value use.

So we talked about this previously when it was first announced as being about a 60,000 tonne per year unit. Now we're planning on it being 150,000 tonnes a year. Originally, it was kind of Exxon focused. Now it's Exxon and Lyondell. This is growing out. It's becoming more significant and material, but I want to emphasize 1 word on this page. First, this is not an end. This is the beginning. We envisage this with our partners being the first of many and crucial to building out the stepwise move towards the higher volumes we've talked about in the future.

In the meantime, what we're doing is signing up dedicated tolling. So that's been done such that we can bridge to higher volumes in the future ahead of this unit coming on in 2024, the beginning of 2024. And this all plays together. What we're doing in Agilyx with the developments we're seeing, the pipeline, the drive towards licensing and construction with Cyclyx on the sourcing side, 10 to 90 in the circularity centers all flows into these midterm objectives that we've laid out before, of $200 million to $300 million of revenue. And so we're staying with this kind of goal of 1 new project into development per quarter on average, 4 in 2022. When we look to the future, yes, that may well accelerate. But let's get that moved into construction and licensing because that's what really will drive this and create, we believe, a sort of self-fulfilling prophecy in terms of moving this forward, especially when you're leveraging technology companies like Technip with their global reach to be able to drive this.

In Cyclyx, it's all about expansion, expansion, expansion, dedicated processing capabilities ramping up the CCCs, driving the 10 to 90 initiatives, all of that moving towards goals in the 650,000 to 900,000 tonnes per year of plastic again in the same type of time frame. So again, we believe we're on track for that. We believe that these are important milestones or road signs on the road map that we've laid out previously.

And we're very, very encouraged and enthusiastic about where we are. Yes, the world we live in is very uncertain, but I'm absolutely convinced. And some of the recent announcements by the European Union, you've seen things in Germany, various other places, tells me that the train has left the station in terms of people wanting to drive circularity and addressing this issue of plastic waste that we're able to turn into an opportunity. And so I think we are in a very good place to be able to continue to grow and deliver.

And so that brings you back to the start, just to wrap up again. Accelerating revenue, projects continuing to move forward and develop, Cyclyx ramping up and growing, we're in the right position in terms of now being on the main Børs listing. And we've been able to raise the capital we need to explore extensions to our business model that can then further enhance growth.

So with that, let me stop. I'll hand it back over to Fabian for the Q&A. Thank you.

[Fabian Jorgensen, analyst]

Thank you, Tim. All right. Some questions have started coming in. So I'll just start from the top. When you talk about project quality, what are the key metrics you take into consideration?

[Timothy Stedman, executive]

Yes. That's a really great question. And it's -- I would be -- it would be inaccurate for me to say that there is a given list of criteria that is the sort of golden answer to that. So there is a judgment factor about it, but it's things along the lines of. Is that company truly committed? Do they show the dedication to this? Do we have a solution that we think can really bring them competitive advantage in the long term?

Let me give you an example, Kumho is a great one. Kumho is playing in a market where they're in a higher value use for styrene, those high-performance tires. They are in a market where there isn't an obvious solution to circularity or sustainability. And they have shown a dedication to innovation and to development. And all of those things together say, tick, tick, tick, yes. Last point is, do they actually have the willingness to spend money? Because none of us are doing this for charity. So this is a case of do they have the wherewithal, the capability to actually back that up.

And so you put that together and you say that's the kind of holy grail that you're looking for. And the good news is we've got a lot of companies in our pipeline who are on that front foot, if you like. There are some others, there always are, who are waiting for others to actually move forward. And this is what's so exciting about the depth of our pipeline that I really believe as you start seeing a few of these move into the next stage, some of those followers will be very quick to say, "Okay, now I need to get going because I need to be in that market. Otherwise, I'm going to lose opportunity in my downstream market."

So that's part of the learning of the last, I would say, since I've been here last couple of years, around how do you work with these customers? Who do you select? Who do you kind of deprioritize or say we'll come back to? Where do you focus the effort? We're a very small organization. So focus is very critical.

[Fabian Jorgensen, analyst]

Great. Next 1 is how will you deal with the metal content in tire feedstock at Kumho?

[Timothy Stedman, executive]

Well, actually, I'm glad somebody asked that question because let me clarify what we're doing. So right now, we are not actually recycling tires because that -- whoever asked that question there, spot on mate, is a really significant challenge. What we're doing is providing Kumho with a sustainable recycled-based source of styrene, which goes into a product that they produce called styrene butadiene rubber, which is what makes up the tread of any tire that you find in Europe, for example. That's the kind of approach. So we're providing them with a basis to offer a more sustainable solution to their customers.

Now, the next step would be how do you actually recycle the tire, and that's something that they're working on. But our focus at the moment is to provide them with a solution that they don't have around a sustainable source of styrene. And that market, as I said, just for the styrene even though the tread of a tire is very small, just for styrene, that market is about 2.5 million tonnes a year.

[Fabian Jorgensen, analyst]

And how do you expect new projects to ramp up in terms of first and subsequent year utilization? Are there debottling type activities that you might yield higher utilization in future years?

[Timothy Stedman, executive]

Yes, that's a great question. We do have a ramp-up plan on any project, anybody that's worked on anything related to the chemical industry. When you start up, there's always a ramp-up plan that needs to happen over a period of time, and that's something that we share with our clients and align on expectations. Then the question about debottlenecking, there are options for doing that where you can look at yield, where you can -- that will give you some additional material, and that does link back to feedstock. So that's an optimization question you can get into. But right now, the primary mechanism for debottlenecking is additional lines. So we're a modular approach. We have a 50 tonne per day reactor. Polystyrene, you typically have 2 of those. And so you can just add more. So that's the kind of big stages of debottlenecking that you would do.

[Fabian Jorgensen, analyst]

Great. And we note that tangible revenue is stemming from Cyclyx. Could you please elaborate on the potential revenue streams from Cyclyx going forward, i.e., in addition to just royalty per tonne processed?

[Timothy Stedman, executive]

Yes. We talked about that previously, and we've said that we'll come back and talk further. I think at this point, we're not ready to disclose that, but I hear that question a lot. So we do recognize that we're going to have to shed more light in this space. Right now, the 2 key things about Cyclyx is, first of all, the big kick on revenue is basically on the feedstock pass-through. So we are basically sourcing waste, processing, adding that cost, adding the royalty and sending it through as a feedstock. And so you've got a revenue associated with that.

And over time, that will cover effectively the -- all of the overhead within Cyclyx. That's the idea. It's cost plus. So you're covering all of that cost. The royalty is buried within the Cyclyx revenue. So we haven't called that out as a specific stream. We also recognize that we haven't guided as yet in terms of what that number is. Again, we hear that question loud and clear. And that is something that we are taking into consideration. And I hope, in due course, we will, in the very near future, be able to provide more transparency in this area because I do know that, that's something that people are looking for.

[Fabian Jorgensen, analyst]

Great. And so far, you have Toyo Styrene moving into construction. You have Kumho signing an MoU with Technip. You also have AmSty, INEOS both focusing on polystyrene. Just let's say, the development project portfolio now indicate that the technology for Agilyx is tilted towards recycling of polystyrene? Or is this an effect of the partnership you have with Technip and so on? And is there, let's say, other partnerships you could enter for recycling of other polymers?

[Timothy Stedman, executive]

So definitely, yes, because we talked about PMMA. So that's still there. But again, it comes back to the -- this piece around the 4 steps: source, process, convert, purify. If you have all 4, it's kind of -- you've got a very, very strong position. And it's just unambiguous that with polystyrene now with Trustyrenyx, we are in a completely unique situation. Nobody else can do that. Very clear, no one.

To go back from very, very distressed waste to a pure chemical product that can go straight into the market, fungible, tradable material going after the customers of people that typically chemical recycles would talk to. That is unique. So it is no surprise. It should be no surprise at all to anyone that, that is getting very significant traction, especially with the name like Technip behind it.

PMMA the equivalent there is Mitsubishi. But it's a smaller market. They're a huge piece of that. So it's very interesting. But again, you've kind of got all 4 steps covered. Mixed waste plastic is more of a development case. We do have projects in that space, but it is clear that it's not so much that those are slowing down as Trustyrenyx is taking off. That is the way that you should see it.

So those other things will come. We are looking. We do have an R&D pipeline that looks to the future to look at other opportunities. And again, more on that in the future. And it is very, very exciting. Partnership though, technology partnership, we view as being absolutely crucial. This is how you build sustainable competitive advantage by leveraging your strength with the strength of others, then you can go to the market in very unique ways.

[Fabian Jorgensen, analyst]

Great. Thank you. And can you comment on how you perceive the risk of the investments you're making to move some projects through FID? I mean is the investments you're making close to the revenue guide for development projects, so being around $3 million to $5 million?

[Timothy Stedman, executive]

Yes. We -- I would say that again, this is again, the benefit of having a very, very significant pipeline, and we can be extremely picky about where we go. So we're not just going to sort of throw money at any project. It's going to be partners that we find reliable, that are committed, where we can leverage money in 1 form or another. So we're doing this in a very judicious, very careful way but with a view to how do we accelerate, how do we take control and drive things forward. And I'm -- I would say that so far, what we're seeing is extremely positive. So I'm very encouraged by what I'm seeing. But obviously, more in the future on that one as things develop.

[Fabian Jorgensen, analyst]

And can you comment on the key differences between the cash flow profile of an Agilyx project and a Trustyrenyx project?

[Timothy Stedman, executive]

Yes. I mean I think the way that you've got to think about this is more in the round. And so a Trustyrenyx project, the key thing is it still needs our core equipment. And so the big chunk of this is actually identical. There may be a little bit of a difference in terms of the way and when things get realized. But what I would say is that Technip's ability to be able to drive licensing revenue earlier is probably greater than ours. So -- because they're well known. They have a basis for saying this is our model, this is what we're going to do.

So I think that in the most part, you're going to see a lot of similarities, but maybe with a little bit of a change in profile. But the key thing is the license revenue and the construction revenue, effectively, they're going to be the same. And what I'm pushing for and what I'm expecting and what I think we're going to get with Trustyrenyx is an acceleration to license and equipment sales. It's all about driving it faster, getting more through, leveraging their scale to be able to do more projects.

[Fabian Jorgensen, analyst]

Great. And you also state that you have clear line of sight on 2 more license sales in 2022 or in the next few months, as you say. And that subsequent construction revenue is expected. Is there a rule of thumb here for, let's say, the lag between license sale and when you expect construction revenue to come in?

[Timothy Stedman, executive]

I think we're too early to say that there's a rule of thumb. What I think is -- what we'd say is that we anticipate one is followed by the other. But there is -- this really does come down to the partnerships, who the people are, what they're doing. So I think it's too early for that. I think over time, that will develop. But even over time, as that develops, there's likely to be sort of faster and slower ones. This is -- unfortunately, it's part of the overall technology licensing model that you're still -- even when you take more control, you're still having to work with partners. So at this point, I don't think it will be wise to provide a rule of thumb, but I think it will start becoming more apparent with time.

[Fabian Jorgensen, analyst]

Got it. And then the final question here is the first Cyclyx circularity center will have a capacity of 150,000 tonnes. Can you just elaborate on how you will bridge the capacity here and the targets you have for 2025, 2026 of 650,000 to 900,000 tonnes?

[Timothy Stedman, executive]

Well, that's an easy question. There's going to be more than one. I mean, this is very simple. When you look at what it is that the likes of Lyondell and Exxon are actually -- just those 2 are looking for, then it's very simple that you don't get it with 1 circularity center. And there's an awful lot of other people out there who are looking for this. So actually, 1 of the key things with the circularity centers, that kind of thing is this takes a lot less time to put in place than a chemical recycling unit.

And so a lot of these companies are looking at how do I sequence these. But this is a copy paste type model. We're not looking at 1 nor are they. So this is, we think, getting this first 1 kind of moving to the next phase. They're not going to sit on their hands waiting. They need to move. If you look at what Exxon has been committing, what they're driving towards, I mean, it's big volume and it's very soon. And Cyclyx is critical for that.

[Fabian Jorgensen, analyst]

Great. Thank you, Tim. That's all the submitted questions. So on behalf of Carnegie, I would like to thank you for having this business update. I think it's been very much appreciated by both us and the investor community.

[Timothy Stedman, executive]

Thank you very much. Really appreciate the opportunity to come in and do this. So thank you.