Anaergia Inc
TSX:ANRG
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Hello, everyone, and welcome to the Anaergia Third Quarter 2023 Conference Call and Webcast. My name is Carla, and I will be your operator for today's call. [Operator Instructions]
I will now hand over to your host, Darlene Webb of Investor Relations to begin. Please go ahead when you're ready.
Thank you very much, Carla, and good morning, everyone. On this call, we'll be discussing Anaergia's third quarter of 2023 ended September 30. If you're following along with our slides, my comments are directed to Slides 1 through 3. For our call today, I'm joined by Mr. Brett Hodson, Anaergia's CEO; Dr. Yaniv Scherson, Anaergia's Chief Operating Officer; and Mr. Andrew Spence, Anaergia's Chief Financial Officer.
Before beginning our formal remarks, we would like to refer listeners to Slide 2 of the presentation, which contains a caution on forward-looking information and a note on the use of non-IFRS measures. Listeners are reminded that today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Anaergia does not undertake to update any forward-looking statements, except as may be required by applicable laws. Listeners are urged to review the full discussion of risk factors in the company's prospectus, which is filed with Canadian securities regulators. And lastly, while this conference call is open to the public for the sake of brevity, questions will be prioritized for analysts.
And with that, I'll turn the call over to Brett.
Thank you, Darlene. Good day, everyone. I'm on Slide 4 for a reference. The company's Q3 financial statement and management discussion and analysis of the financial condition and results have been released and described and reflect our situation. As a summary, the third quarter continued to be a difficult and challenging time for Anaergia. In Q3, the company launched a strategic review and engaged financial advisers, including Piper Sandler to assist the company and identifying options for going forward.
While the strategic review is currently ongoing, one of the earlier actions taken from the strategic review included the sale of our 6 Italian build-own-operate assets to Arjun Infrastructure Partners. I'll take a bit more time later on in the presentation to describe more about that.
A few other significant items to highlight include, the fact that we secured senior debt in one of our subsidiaries to finance the remaining construction and commissioning of the BOO project and working capital for our Rhode Island facility in the town of Johnston, Rhode Island. We also reached an agreement with certain bondholders and their affiliates for a senior secured superpriority multi-draw term loan facility on the Rialto Bioenergy Facility, which will give more of an update on that situation a little later in the presentation as well.
With that summary, I'm going to pass it over to Andrew Spence to go through some more of the details on the financials.
Great. Thank you very much, Brett. Good morning, everyone. I'm going to provide a brief discussion of the third quarter results starting with key disclosures. I'm on Slide 5 of the presentation deck. Going concern. We have again disclosed the Note 1 to the financial statements and in the MD&A that substantial doubt exists about the company's ability to continue as a going concern. While management has made efforts to improve profitability, these efforts are unlikely to be sufficient on their own to address the financial challenges facing the company.
Closing of the $20 million financing for Rhode Island Bioenergy Facility on September 28, 2023, Anaergia announced that its subsidiary closed a term loan with a bank to finance the remaining construction and commissioning of a project in the town of Johnston, Rhode Island and to provide working capital. This financing has a 7-year term and bears interest at an annual rate equal to 9.04% based on a fixed interest rate swap.
Agreement on the sale of the AIP Finance portfolio in Italy. In August, Anaergia has sold its equity interest in the Italian project platform to its lender AIP. The company entered into agreements to terminate its obligations relating to the AIP loan, including the lender option requiring the company in certain circumstances to repurchase the loan.
Next, we have the key accounting charges and provisions for the third quarter. Our investment in Fibracast, a related party, was impaired by $6.6 million from the dilutive effect arising from an amended shareholder agreement. Estimated credit losses on trade receivables were recognized in SG&A and totaled $4.6 million for the quarter. Losses on our equity investments were $4.2 million.
Anaergia reported a third quarter operating loss of $13.3 million and a net loss for the same period of $30.6 million. And cash used in operations year-to-date was $59 million.
Withdrawal of guidance. As was the case in our second quarter reporting, management will not be providing updates regarding guidance, including projected revenue and adjusted EBITDA until the completion of the company's strategic review and a reassessment of related assumptions.
Moving on to Slide 6 in the deck. Regarding the Q3 financial results, our top line revenue was $34 million, a decline of $11 million from the prior year. Revenue decreased mainly due to capital sales projects nearing completion and delays on new projects. Gross profit was down proportionally as the gross margin was in line with the prior year.
SG&A was up due to credit losses previously mentioned, plus the provision on the termination of an O&M project and legal provisions. The net loss, which includes the loss from operations plus the fiber cast impairment, the loss in equity investments, finance costs, and other items equals negative $30.6 million. And adjusted EBITDA was $11.3 million, $10 million lower than the same period in 2022, which is consistent with the reported loss from operations.
And now I will turn the call over to my colleague, Yaniv.
Thank you, Andrew. Yaniv Scherson speaking here. I'm on Slide #7. We'll be providing an update on our build-own-operate assets. Starting with the Rialto Bioenergy Facility. The Rialto Bioenergy Facility continues to be in the restructuring process under Chapter 11 with Anaergia operating the facility.
In September of '23, the RBF entered into a disagreement (sic) [ agreement ] with certain bondholders. Under the agreement, the facility will continue to operate with 2 possible outcomes. The first outcome would be a targeted sale in April of 2024. And the secondary outcome will be to file a reinstatement plan, whereby the facility could exit the bankruptcy. There has been an investment banker engaged, that's Jefferies, who is running the sale process. We will continue to update as more information comes to price.
Moving over to the Anaergia bioenergy facilities. The 3 facilities continued to operate per plan. The SoCal Biomethane facility continues to ramp up towards its capacity and is operating smoothly. RNG is injected to the grid and continues to be supplied ultimately to Toyota for hydrogen production in the Port of Long Beach. The Rhode Island Bioenergy Facility continues its completion of commissioning on track for the end of this quarter with R&D expected to inject soon.
And finally, on the Charlotte Bioenergy Facility, the construction upgrades continue to progress with power continuing to be produced and ramping up with food waste as a feedstock and the completion of the construction upgrades are anticipated as expected at the end of this quarter.
With that, I'll pass it over back to Brett.
Great. Thanks, Yaniv. For reference, I'm on Slide 8. As previously disclosed, the company is undergoing a strategic shift. We brought this forward in Q2, and it continues through all of Q3 and even to now. We're looking at our business to move to more of a capital-light business model, where we look for partners on various capital-intensive projects to lessen the burden on the company and be able to effectuate faster starts on these projects.
In addition, the strategic shift that we've been doing is also looking at a number of improvements, making a number of efforts to improve, including margin, reducing SG&A and prudently conserving cash as liquidity is a significant concern. In addition to these initiatives, though, in Q3, we did announce the strategic review launch to that. And the purpose is to look at all options to maximize shareholder value.
We've hired several advisers to assist us with this, including Piper Sandler, as I mentioned before. And we're actively working on this file, and it is ongoing at the moment. So there's no particular details to provide at this time. But as items come forth and are actions done by the Board and management, we make those available.
An example of that, and it was a significant one was the sale of our Italian BOO assets, which Andrew Spence went through some of the financial impacts of that. I'm going to speak a little bit more about that. We sold our equity interest in the subsidiary of Anaergia that own those 6 BOO assets for -- and transferred $55 million loan across that we had previously written off regarding the company.
Now this transaction included approximately $145 million or so of obligations owing to AIP being terminated as part of the sale. And as importantly, there's a lender option for AIP to require Anaergia to purchase outstanding loans related to various projects if senior financing was not secured by a set time. And so that was also terminated as part of the transaction.
We're -- the company and AIP entered into a cooperation agreement in addition to the sale to help manage post-closing activities, including, but not limited to, the company continuing to participate in providing engineering, procurement and construction for some of the projects that needed completion and also transitionary services as well as the opportunity for the company to receive additional considerations through performance incentives and an earn-out, which is currently being negotiated in good faith between the parties.
Now having said that, the strategic review is active, but the company cautions that there's no assurances that the evaluation of the potential options will result in an approval or completion of any specific transaction or outcome. So it is still a very uncertain time, and -- but the company is actively working through, looking for items to action on over the coming days, weeks, months.
So with that, I'll conclude our comments. We're pleased to open it up for questions and answers.
[Operator Instructions] We will now take our first question from Derrick L. Whitfield from Stifel.
At a very high level, just wanted to see if you could offer any insight on your learnings as a result of the several months that you've now had with a strategic review? I realize that you are going to announce material developments when they occur, but just any high-level learnings you could share with us?
So through the strategic review, we're looking at all options. So it's quite a broad spectrum of opportunities and initiatives to look for moving forward. The results -- and again, if you look prior to the strategic review, there was, as I mentioned, the strategic shift towards capital-light SG&A reductions, conserving cash. We have been able to find ways to execute on those, and we continue to accelerate those where it makes sense in terms of giving ourselves a bit better chance going forward.
But the more significant items for the strategic review is really in the midst of activity right now. So it's difficult to give any learnings or conclusions as the direction any of these could take is uncertain at this point in time. And we're hopeful that within a reasonable period of time, we'll be talking more concretely about the results of this work. But at this moment in time, it's very difficult to give any sort of general direction as to the strategic review results at this point in time.
Terrific. And then with respect to the Rhode Island facility, could you comment on the broad time line to commission the project and ramp it to nameplate capacity? And separately from a revenue perspective, what are your current views on the time line to achieve RIN and LCFS certifications for the project?
Okay. I'll pass that over to Yaniv, if you can talk to that.
Absolutely, yes, Yaniv here. Derrick, great to hear from you. One variation. The Rhode Island Bioenergy Facility is procuring supply of renewable natural gas to the Irving oil company. So it will not need RIN or LCFS registrations. It will be supporting the Canadian clean fuels regulation. And so we'll be obtaining a CI under that regime. The facility is commissioning this quarter will be as planned, on track for injecting gas and the ramp-up will continue into the early part of '24 per our projection.
So the facility, as a note, is operating now and is receiving feedstock as we're in the commissioning phase. And so we are producing gas. We are ramping up the facility. And so the fact that trucks are coming in, gas is being produced. We anticipate a smooth ramp up, not starting from 0.
And out of my apologies for framing it from a RIN, LCFS perspective. But within the certification process, with on the Canadian side, what's the time line for that? I know that here in the U.S., we have quite a bit of a delay with LCFS certification?
Yes. It's a bit on the early days as well. So like everything, there's expectations and then regulatory reality on time lines, but the process is a little streamlined in the sense that there's a preliminary score that is assigned to at least get started. And then it's a matter of months duration to get the assigned CI score. But as we said, there's -- it's subject to the Canadian CFR program approvals and reviews.
But just to make a note, Derrick, the supply of gas is -- will commence and as well payments for the revenue unlike the U.S. RIN and LCFS program. So supply of gas and payments for gas commenced upon the first molecules in the grid.
We will now take our next question from Morgan Flatt from CIBC.
If you can, could you guys comment just on what management's ideal final outcome would be from the current scenario?
Okay. Well, we're not in a position to give any sort of forward guidance on where we're going to end up because it is very uncertain at this moment in time. We are making efforts to come up with options to improve our liquidity and to look for opportunities, particularly aligned with our strategic alignment to a capital-light model to find partners that see value in the portfolio of initiatives that we have originated out in the marketplace.
And so those are 2 obviously key objectives of what we're trying to achieve in our work. And again, that's work that started even prior to the strategic review and is ongoing, but obviously accelerated and focused as part of the work.
You guys have a cash runway based on your disclosures until sort of the first couple of months of next year, barring any sort of major change in your ability to generate a stop gap. Is there any projects or items closing soon that would make a material impact on that time line?
Our projects that matter for us are the ones that we've been discussing in terms of our BOO projects, getting commissioning completed on Rhode Island and ramped up. Those are -- that's a critical project for us. And as you heard from Yaniv, it's on track at this point in time.
Got it. And final one for me. There's been an objection filed regarding the employment of Jefferies as an investment banker. You have any update there?
Yaniv, can I pass that to you?
Yes. The -- there's been various filings to the court, but we're working through them through the due course and the court process and nothing has changed on the ground as far as the sale process with Jefferies driving it.
[Operator Instructions] We have no other questions registered. So with that, I will now hand the call back over to Darlene Webb for final remarks.
Thank you very much, Carla. And as always, for additional information or should you have any questions, please contact the IR team at ir@anaergia.com or visits online at anaergia.com. Thank you all once again for your time today. Operator, you may now end the call.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect your lines. Have a great day.