Anaergia Inc
TSX:ANRG
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Good morning. Thank you for attending today's Anaergia Q4 and 2022 Year-End Results Conference Call. My name is Frances, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Darlene Webb, Anaergia Investor Relations.
Thank you very much, operator, and good morning, everyone. On this call, we'll be discussing our earnings for Anaergia's fourth quarter and year-end dated December 31, 2022. And 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 Dr. Andrew Benedek, Anaergia's Founder, Board Chairman and CEO; and Dr. Yaniv Scherson, Anaergia's Chief Operating Officer; and Ms. Paula Myson, Anaergia's Chief Financial Officer.
Before beginning our formal remarks, we would like to refer listeners to Slide 2 of the presentation that 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 today's call over to Andrew.
Thank you very much, Darlene. I am starting on Slide 4, which lists the highlights of 2022. These highlights include a significant amount of interesting opportunities and capital sales around the world with -- and these opportunities are continuing to rise with the interest in RNG.
Our existing BOOs are also continuing to be executed as per plan, although somewhat delayed. All of our Italian BOOs will now -- this year will be operating, 2 of them are all ready; the remaining 4 will be put into operation during the next 2 quarters.
RNG as a market is continuing to be growing throughout the world in all of our markets. And there are new incentives in Europe, in Canada, in the U.S. And there are volunteer markets around the world that will continue to drive this market.
We did sell our Tønder project. We sold it because we -- given the low share price, we did not have the resources to complete it. It still had a significant amount of additional investment, and we also felt that we can better deploy the money elsewhere. But we are looking forward to the results beyond Tønder.
In terms of global recognition, just a few weeks ago, we -- our Italian project is the Anaergia was named as the world-leading biogas project. We are also -- have received other awards, and in the running next month for a couple of awards in global water meeting in Berlin.
Our quarter was lower than last year, but last year was an exceptionally high quarter. Overall, in the year, our revenue has grown 25%.
Moving on to the next slide, Slide 5. This basically summarizes some of the things I just told you in a little more detail. For example, it shows that our backlog has decreased because of Tønder. We counted the backlog for the full build-out before. But nonetheless, it's still a very healthy backlog. Our Italian market and, in fact, all of the European markets are going to increase substantially because of new decrease caused by the European polymers desire to increase renewable energy and, in particular, biogas. So in Italy, for example, we now have a new incentive that gives a 45% discount and will be available until June 2026. The IRA became law in Q3, and this will impact both our BOO business as well as the capital equipment business.
Canada now provides incentives for renewable energy that is useful for providers of nonrenewable energy. This explains our sale of the Rhode Island plant gas to Irving Oil in Canada.
In addition, in most of our markets, the voluntary market is increasing, particularly in California with a new law, SB 1440. And we're also looking forward to bring additional contracts on the voluntary markets, for example, for our so-called biomethane facility, we are negotiating a new contract. So overall, opportunity is continuing to grow.
I'll hand this over now to Paula Myson, our Chief Financial Officer.
Thank you, Andrew, and good morning, everyone.
Moving to Slide 6. Again, we'll highlight a point Andrew has already made. The revenue grew 25% in 2022 compared to 2021. The capital sales segment remains a very strong contributor, driving approximately 76% of the revenue for the year. The BOO segment is increasing in contribution, contributing 15% for the year. That's up from 4% in 2021.
When revenue is segmented by region, you'll see that in the graphic on the slide. EMEA continues to lead the other regions in revenue with 74% of the total, followed by North America at 23% and the Asia Pacific region at 3%.
The gross margin for 2022 was 17.6%. That's down from just over 19% in 2021. And that was as a result of higher material costs and customer-driven delays on a small number of projects.
The 2022 adjusted EBITDA, when we're looking at adjusted EBITDA as a year-over-year comparison, it was $20.3 million lower than 2021, and that was largely due to higher SG&A costs. When we're looking at net SG&A, it was $21.5 million higher than the prior year. And that increase was mainly driven by growth-related activities to support projects in BOO development. It's an increase in ECLs and legal expenses and provisions and higher net R&D spending.
Compared to 2021, the year-to-date net income was $60.6 million lower, and that was due to a noncash loss on an embedded derivative. The difference year-over-year was 23 -- $22.3 million. We had higher net SG&A, which we just spoke about, and we had an increase in income tax expense. The change year-over-year was $13 million, and the large majority of that was noncash. And there were other items totaling about $3.8 million.
If we move to the 2022 guidance. Our 2022 revenue of $163 million was within the guidance range. And to remind you, that range was $160 million to $170 million. The adjusted EBITDA was $12 million lower than guidance. Approximately half of that variance to guidance resulted from lower gross margin on 4 projects that we had, with the remainder resulting from an increase in SG&A related to some BOO costs that had to be expensed.
As previously disclosed in December of 2022, 2023 revenue is expected to range from $280 million to $340 million and adjusted EBITDA from $25 million to $35 million. And we reevaluate the guidance every quarter.
Moving to Slide 7. Cash, cash equivalents and current restricted cash as of the end of the year was $78.8 million. That's roughly $23 million lower than the end of Q4 2021. And noncurrent restricted cash was $16.5 million.
In February 2023, a subsequent event, we completed the sale of Tønder for gross proceeds of EUR 56 million. We expect to recognize a positive impact on that sale, which will get booked in Q1 2023. The proceeds from the sale will be used for general corporate purposes and facilitating additional growth in Europe that Andrew referenced.
For the year, cash used in investing activities was $192.5 million and was mainly directed at advancing the construction of the BOO portfolio. And the majority of the invested capital was funded at the subsidiary level. So $134 million of debt and $24 million of preferred capital, with the balance being funded by corporate proceeds from the issuance of our share capital.
And with that, I will turn it over to Yaniv.
Great. Thank you, Paula, and good morning, everybody. Moving on to Slide #8. You'll see a modest increase in the capital sales segment year-over-year, and this continues to be driven primarily from the North American and EMEA regions. This modest increase was mostly driven to project delays, and it's not necessarily a loss of the projects, but that will occur this year.
The EMEA region continues to be the backbone of the '22 contribution, up 31% year-over-year. And driven by the execution of multiple projects in the region, both between our BOO and our capital sales segment, third-party sales. And we still face quite a healthy pipeline in the EMEA region, primarily driven by the REPowerEU program and the extension of multiple incentives. Most notably, the Italian decree has been extended an additional 3 years from '23 to '26. And as Andrew mentioned before, this will now result in a substantial capital cost subsidy by the government on new projects.
In '22, we saw bookings totaling over $100 million, and these includes large turnkey projects. For example, in the EMEA region, large turnkey facilities producing LNG as a project among the largest agricultural digester in North America. And you'll see the first integrated solid waste and wastewater facility in Singapore with the Tuas Nexus Integrated Waste Management facility is part of the world-leading municipality [indiscernible] that was booked last year. And notably, 2 projects with PepsiCo, of which we anticipate follow-on opportunities among hundreds of facilities around the world.
Moving on to Slide 9. You'll see a photo here of the recently commissioned Ambiente facility. This is an example. This was the latest shift outside of Milan, showcase servicing the municipal region. And an example of the replicable model of the Italian facilities and assets that are all benefiting again from the 10-year fixed priced CIC credits.
Moving on to Slide #10. On the services and BOO segment, we saw a 28% increase in our service segment from '22 to '21 and a substantial increase nearly fourfold in the BOO segment. The service segment continues to grow primarily driven from service agreements in North America, and we expect the service segment to continue to grow as our capital sales come online for which we perform ongoing service and operation-related services to those customers.
On the BOO side, a substantial increase in our BOO revenue, primarily driven from the arrangement with our construction in Udine, Italy as well as start-up revenues from our operating plants. Notably, the Rialto Bioenergy facility did obtain the RIN and LCFS approvals after substantial administrative delays. And so gas from March onwards will monetize, and the SoCal Biomethane facility is working on finalizing an offtake with a major multinational underscoring the interest, particularly in the voluntary market with gas.
Moving on to Slide #11. As you can see here, of the 12 assets in the Anaergia portfolio, 6 in operations, 6 in execution, with the adjustments from current market conditions and the Tønder sale, we're looking at a $70 million proportional run rate EBITDA across the portfolio reflective of nearly $600 million of invested CapEx, most of which is financed.
As noted, the Tønder facility was sold, and these proceeds will be directed to continue to drive growth in our focus regions, particularly Italy and Germany and Europe. Ambiente is another facility of 3 out of the 6 that was commissioned. And as noted before, the remaining 3 will be commissioned this year. And a number of BOO facilities are in advanced stages of development in Italy and other European markets, again, particularly driven by the renewal of government-backed incentives that are guaranteeing gas prices as well as now subsidizing capital costs.
Moving over to North America. Construction of Rhode Island and the improvements at Charlotte continue. They're both expected to finish their upgrades by Q3 of this year, with Rhode Island selling gas to Canada's largest refinery, Irving Oil. And the IRA North America continues to accelerate R&D projects as well as what is an emerging voluntary market and what we're calling the compliance market, an example name, the CFR, driving the requirements on obligated parties to procure lower carbon intensity fuels naturally driving demand for RNG, a drop in on the immediately dispatchable fuel. This evidenced by Irving Oil as well as other opportunities that we are in advanced stages of discussions and finalizing.
And our development continues on multiple wastewater and solid waste R&D opportunities in North America. The large development in Kent County continues to advance, and a number of wastewater opportunities recently awarded and will be expected this year continue to advance, again, accelerated by a burgeoning voluntary market, driving desire for low CI fuels and accelerated as well with the IRA that's now substantial capital cost incentives on projects.
Moving on to Slide 12, specific uptake on the Rialto Bioenergy facility. As noted before, the ramp-up has been sluggish with feedstock in Los Angeles. This has primarily been delayed -- been due to the delay in the implementation of an ordinance. This ordinance requires generators to sign up for organic waste collection and diversion services as required by state law. The ordinance was finally implemented, albeit late and behind schedule per the state requirements in December of '22, and it requires all commercial and multifamily generators to subscribe to services.
So this ordinance is expected to drive increase in feedstock from our anchor supplier, the OREX facility and Waste Management Sun Valley Recycling Park at a steady rate throughout the year. However, 2 additional OREXs are being deployed with universal waste system and independent hauler based in the Los Angeles region. And these are implemented to facilitate derisking the sluggish ramp-up from the ordinance and regulatory actions. However, both machines have experienced client-driven delays in permanent construction. And as a result, the second OREX, which is located in downtown L.A., is expected now to start operations in the second quarter of '23.
And the third OREX in a city just out of Los Angeles called Santa Fe Springs is expected or operations third quarter of '23. Both of these machines will drive feedstock increase to Rialto, in part from ordinance and in part from just the existence of additional machines. And so we do expect a continued increase throughout the year. Notably, however, the rate of revenue contribution will come from the facility now that the RIN and LCFS approvals have been completed.
And with that, I'll pass this back over to Andrew. Andrew, back over to you.
Thank you, Yaniv. I was on mute. I'm on Slide 13, which summarizes what my colleagues have ably explained in terms of progress in the company. The main point on this slide in the interest of time, I will not repeat everything that has been said, but you can see it. It's clear.
The last point on this slide is the most important one. The company value is well below our book value, and it is in spite of the fact that the company's fundamentals are still very strong. Delays in accounting or delays in projects and so on don't alter that fundamental value, and we truly believe that we are a world-leading company in an extremely exciting space that is a critical one for us to combat climate change.
And with this, I'll pass it over to Darlene.
Thank you, Andrew. I appreciate that. We are able to open for our Q&A, operator.
[Operator Instructions] Our first question comes from the line of Aaron MacNeil with TD Securities.
I know you're now suggesting in the presentation that all the Italian BOOs will be completed by the end of Q3, but I was hoping you could give us a bit more specifics on the sequencing of each of those projects, when they're going to be commissioned? When you expect them to be fully ramped up? And then a similar question on Rialto. I guess, on the ramp-up, and maybe more importantly, how your expectations for all of those facilities have changed since you introduced the guidance in December.
Yaniv, do you want to take that one?
Sure. Thanks for the question, Aaron. The Italian projects, typically, once commissioned, there is between a 3- to 5-month period for ramp-up and registrations with the subsidy scheme. And so we anticipate that to occur -- the commissioning milestone in Q2 and in Q3 with the remaining 3 assets.
With respect to Rialto, we expect an increase in the ramp-up to occur this year, as noted before, with the ordinance in place and with these 2 additional OREX machines. But we know that it's difficult for us to predict exactly the rate of which adoption will occur. We continue to monitor very closely on a regular basis, and we'll absolutely update as we learn more on the rate of rollout. But the ordinance did recently go into effect, and there has been a campaign in messaging by the city to generators notifying of the requirement, getting the word out, making sure that it's clear.
And there is a penalty that can commence in January of '24 for those that don't subscribe. And so we believe that between the positive tariffs of notification and generally folks that are good citizens to be signing up as well as the stake in '24 to drive ramp-up into '24 as far as reaching full capacity.
Okay. There's some language in the press release around a comprehensive strategic review on Rialto. Can you elaborate on that?
Yes. All options are being evaluated currently. There's been no decisions as far as restructuring alternatives, but we are conducting a strategic review. And we do maintain a direct line of communication with the bondholders. And so we're evaluating financial options...
To refinance the bonds or...
Correct, to refinance...
[indiscernible] comprehensive strategic...
Yes, for refinancing or all financing options that may be available.
Got it. How much capital do you need to spend to complete all the BOO projects in the backlog?
Paula, do you want to take that one?
Sure. There isn't a number we provided for that, Aaron. But largely in Italy, as you know, we're in -- we're either have the projects in operation, the 3 -- or the other 3 remaining are nearing completion and going to be entering ramp-up. So the capital there is minimal.
In terms of North America, 4 of the 6 are significantly complete. The others, I would say -- like we're looking at something less in North America, less than $50 million. And the Italian BOOs, of course, we don't consolidate all of those. So those don't get shown in the same manner.
Understood. Maybe one more, if I can sneak it in. What's an appropriate G&A run rate going forward? And would you highlight any items in the quarter as nonrecurring or onetime in Q4 [ '20 ]?
Yes, yes. So in terms of SG&A, like -- as you would expect, our SG&A does grow because we are growing. That definitely does happen. But on a go-forward basis, with a larger operating base, the diverse nature of the operations, I would expect SG&A to be -- the net SG&A to be at or below where we are for 2022. I would expect it to be low, lower because we did take some provisions in the year that I wouldn't expect to occur again. But we have increased headcount, of course, for SG&A to support the bigger company, the bigger BOOs, the larger level of activity, and that will keep going.
So if you're trying to look forward, I would say 2022 unless you can go through the provisions and adjust for those, we wouldn't expect those to -- those are the onetime items.
The next question comes from Derrick Whitfield with Stifel.
For my first question, I wanted to ask a follow-up on Rialto. Regarding the strategic review, could you perhaps speak to the broad financing and business implications from this review and comment on if it's limited just to Rialto?
It is limited just to Rialto. And as far as the overall implications, we're evaluating all options. And so it's premature for us to say implications as of now. But we are evaluating all project, structural financing options that might be available.
And then staying on Rialto. Assuming the universal waste system and operation targets hold for Q2 and Q3 for the second and third OREX, how are you thinking about the feedstock build through year-end? Or I guess, more specifically, what have you guys assumed in your 2023 guidance?
We've assumed a ramp-up with -- a substantial ramp up and increase with OREX number 2 and OREX number 3. They will certainly deliver more feedstock with known certainty. And other contributing factor is the fact that gas sales are now possible -- it is another accretive adjustment from prior year.
With respect to the feedstock, we've assumed in our guidance that there is a substantial increase into Q4 for the year, although we note that there's uncertainty on the rate of rollout with the generators. And so the OREX number 2 and OREX number 3 are shielded in parts because they serve areas that are also outside of the Los Angeles franchise. And so we assume that there'll be a substantial amount of feedstock by the end of the year driven by those 3, but not necessarily totally full.
Terrific. And one final, if I could. Just with regard to the SoCal Biomethane project, you referenced that you're actively negotiating offtake terms in your prepared comments. Could you perhaps, give us any color on the nature of the pricing arrangement you're pursuing? I'm assuming that you guys are referring to fixed price offtake.
We have. Well, we'll be able to disclose some more granular information here coming forward. But thematically, it's in line with what we've been messaging about the voluntary market before, that the voluntary market is growing very rapidly for fixed price offtakes that are CI-based, meaning premium for the lower CI or even negative CI fuels because of their ability to achieve either carbon-neutral products or carbon-negative products for decarbonization purposes. So the answer to your question is, yes, it is in line with what we've been seeing in the voluntary market as far as fixed price premiums for renewable low CI or carbon-negative fuel.
The next question comes from Craig Irwin with ROTH Capital Partners.
So first thing I really wanted to understand a little bit better is the gas price assumptions and guidance. This is something where you guys have had a fairly conservative basis for how you put things together. But can you maybe update us on where gas prices are now versus what you've been using to put your guidance together?
Paula, do you want to address that one?
I'll take that one. Craig, thanks for the question. I think I should have said that in the backlog calculations, we are basically using gas prices as they used to be before the Ukrainian war. So continuing to be fairly conservative.
Okay. Excellent. Then I do know that you have run sort of Rialto on a fairly regular basis. Can you maybe give us an approximate tonnage or volume that you processed at the facility in the quarter? And how would you expect capacity to ramp? Would it have a kind of a little bit of a stop-start approach? Or should there be a linear ramp? Or are we likely to see sort of a jump in capacity over the next months and quarters?
Yes. Generally speaking, the ramp is somewhat linear and gradual from the machines, particularly because it's been driven historically by voluntary customers signing up in the Los Angeles region for organics collection. What we expect for the year, however, is sort of the 2-step functions of increase with OREX number 2 and OREX number 3, those are binary sources, new catchments and new machines delivering. And they either run or they don't. So it's a binary sort of step function and increase.
Deliveries are steady. They come 5 or 6 days a week, Monday to Friday, Monday to Saturday. And so we'd expect from Sun Valley sort of a linear gradual increase throughout the year as customers sign up and then a step function in Q2 and Q3 towards the tail end, of course, with OREX number 2 and OREX number 3 coming online. And then they sort of linearly gradually increasing as well over time.
Okay. Excellent. And changing subjects completely, right? When we look at the European market, it seems like green gas, there would be a tremendous investment opportunity over the next many years, fundamental changes in German gas commitments, structurally higher energy prices in Europe. Can you maybe just talk a little bit about the broader pipeline of projects and opportunities? Where do you see as areas that you could participate or where you have dialogue with existing customers or owners of existing facilities that might be potential customers over the next many years?
So I'll take that, Craig. Basically, you're absolutely right. There is lots of opportunities in Europe. We have -- we could almost and will bring on many more projects. What we're trying to do, though, is focus on making sure that we do deliver the current projects. And we're selectively looking at investing in additional projects just because our financial means are limited and I don't want to raise money at the current share prices or even before the current share prices. So -- but on the other side, we can also do capital projects in a booming market. So this will give us a way to grow the company and enable to cover our SG&A.
Excellent. And last question, if I may. The Tønder project that you sold -- you sold the ownership end of the quarter. Can you talk about the profit on project development as far as sort of total capital invested and your return on that capital as you sold a piece to this partner?
Paula, do you want to take that one?
Sure. Craig, Yes, we did -- we will realize a benefit for the sale of that project. That'll actually be -- the positive impact will actually be shown in Q1, but it will be roughly -- the book value of that asset is between CAD 58 million and CAD 60 million-ish approximately. And so we did get a significant benefit from that.
There are no questions waiting at this time. So I'll now pass the conference back over to Darlene Webb for any additional remarks.
Thank you, operator, and thank you for those who participated today. As always, for additional information or should you have any questions, please contact the IR team at ir@anaergia.com or visit us online at anaergia.com.
Thank you all once again for your time today. And operator, you may end the call at this time.
That concludes the Anaergia Q4 and 2022 Year-End Results Conference Call. Thank you for your participation. You may now disconnect your lines.