Xebec Adsorption Inc

TSX:XBC

Earnings Call Transcript 2021-Q4

[Brandon Chow, executive]

Hello, everyone, and welcome to Xebec's Fourth Quarter and Year-end 2021 Investor Webinar. My name is Brandon Chow, and I'm the Director of IR at Xebec. I'd like to remind everyone that this webinar is going to be recorded and will be made available in the Investors section of our website later today. [Operator Instructions]

Joining me today will be our new President and CEO, Jim Vounassis; and our Chief Financial Officer, Stephane Archambault. Our earnings press release was issued today before market open. All relevant documents are available for download either from the Investor Relations section on our website or from SEDAR directly. You also find later today a copy of today's slide deck on our website's Investors section.

During this call, we will make forward-looking statements about our future financial performance and other future events, trends, including guidance. These statements are only predictions that are based on what we believe today, and actual results may differ materially. These forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could affect our financial results and the performance of our business, which we discussed in detail in our filings, including today's earnings press release.

Xebec assumes no obligation to update any forward-looking statements we may make on today's call. It may also be references to certain non-IFRS measures such as EBITDA, adjusted EBITDA, backlog, quote log. These non-IFRS measures are not recognized measures under the International Financial Reporting Standards and do not have standardized meanings prescribed by IFRS and are therefore, unlikely to be comparable to similar measures presented by other companies.

With this, I turn it over to Jim.

[Dimitrios Vounassis, executive]

Thank you, Brandon. Good morning, and welcome everyone to Xebec's Fourth Quarter and Year-end 2021 Investor Seminar. First and foremost, I want to say on behalf of the Xebec team that our hearts go out to all the people in the Ukraine and we wish a speedy resolution to this conflict. It's a pleasure for Stephane and I to host you today. As many of you have seen, Kurt's announcement for his accelerated retirement was released today, and we all wish him the best. He has done an incredible job in building a foundation over the last 18 years, and the team and I look forward on bringing the next level. Stephane and I are excited to present you the quarter as it marks an important year of transition and foundational building for next legs of growth. Mike Munro will join us starting next quarter as our COO. I want to congratulate Mike in this new role.

Despite the global headwinds seen from the effect of COVID-19, supply chain and logistics barriers, we grew our revenue of 123% and saw continued improvements in the bottom line as we scaled our business. This was shown in Q3 and Q4, where we saw positive EBITDA and in Q4 with a positive net income while ending the quarter with our largest backlog ever. Some of the foundational events in 2021 include reorganizing the organizational structure to enhance our operational capabilities, expanding our manufacturing capacity significantly, winning key contracts and completing several important acquisitions. We continue to see positive backdrops for our Cleantech products, but we need to remain vigilant given the supply chain disruptions everyone is seeing and the uncertainties. The Ukraine invasion has also showcased the need for domestic manufacturing, energy security and reducing our resilience on fossil fuels provided by [ unfriendly regions ]. These are both risks and opportunities for us that geopolitical events hold.

As a result of the crisis in the Ukraine and continued impact of the COVID-19 pandemic, we've decided to stop providing annual revenue and adjusted EBITDA guidance. Xebec aims to continue the growth strategy. We believe this approach best reflects the current global situation and uncertainties. The drive towards cleaner energy has already started, and we are optimistic that renewable gas will continue to play an important role in decarbonizing our future. And we may see an increased focus in energy independence supported by renewables given the current political climate. For example, support structures continue to be implemented. Most recently with the U.S.

Infrastructure Investment and Jobs Act, where $9.5 billion was earmarked for clean hydrogen hubs, $2.5 billion for refueling infrastructure and $3.5 billion for carbon capture. In addition, the renewed interest in reducing methane emissions means that tools such as RNG and hydrogen will continue to be in the spotlight as commercial ready pathways for reducing climate impact. Overall, we are optimistic about Xebec's future, especially as we continue with our growth strategy, which we'll communicate in more details in our upcoming Investor Day on March 29.

With this, I will turn it over to Stephane Archambault, our CFO, who will go over the financial highlights. Stephane?

[Stephane Archambault, executive]

Thank you, Jim, and welcome, everyone, joining us. Let me start by reviewing our financial results for Q4 and year-end 2021. We achieved revenues of $45.9 million in the fourth quarter of 2021 compared to $6.4 million for the same period in 2020. The substantial increase is mainly explained by the extraordinary adjustment recorded in Q4 2020 as disclosed on March 12, 2021, in the Cleantech Systems segment as well as the impact of acquisitions completed in 2020 and 2021.

The revenue contribution from acquisitions include $13.5 million for service companies and ACS, $21.8 million for HyGear and Inmatec and UEC. Xebec is also undergoing a transition from long-term production types, R&D projects to standardized products such as Biostream, where revenues are recognized on delivery. I'd like to note that Biostream revenues related to new orders received in the second half of 2021 are expected to be recognized in 2022. This quarter helped us to achieve a strong year for 2021 where we saw $125.9 million in revenues compared to $56.5 million in 2020. Our gross margin was $10.3 million for the fourth quarter of 2021 compared to a negative $11.4 million for the same period in 2020.

Gross margin percentage increased from negative 180% to 22% is due to the Q4 2020 extraordinary items relating to R&D contracts and more profitable revenue mix in Q4 2020. Our gross margin for the full year was $29.5 million compared to $0.3 million in 2020. Our research and development expenses were a gain of $0.3 million for the fourth quarter of 2021, which was related to cost transfer to other gains. This was partially offset by the continued development of our second-generation Biostream product, our biogas upgrading and hydrogen technologies. Our research and development expenses for the full year were $1.6 million compared to $1.2 million in 2020. Selling and administrative expenses were $20.4 million in the fourth quarter compared to $8.5 million in the same period in 2020. The increase is due to additional SG&A expenses associated with the newly acquired companies, $3.6 million for the service companies in ACS and $6.7 million for HyGear, Inmatec and UEC. During Q4, we also completed the purchase price allocation PPA and HyGear and advanced the PPA of Inmatec, resulting in $4.9 million of amortization of intangible assets recorded in SG&A expenses.

Selling expense -- selling and administrative expenses for the 12-month period ended December 31 were $51.8 million compared to $21.6 million for 2020. The increase is primarily due to additional SG&A expenses associated with the newly acquired companies and the reason noted earlier for amortization. We saw positive adjusted EBITDA at 0.2% for the fourth quarter of 2021 compared to negative adjusted EBITDA at 22.6% for 2020. I would like to thank the team for their hard work as they continue to exercise discipline on cost and continue to execute our growth plan. The adjusted EBITDA for the full year was negative $8.8 million, which was an improvement from negative $22 million in 2020. Net income for the quarter was $2.4 million or $0.02 per share compared to a net loss of $28.3 million or minus $0.26 per share for the same period in 2020. The increase is mainly due to a gain recorded on the remeasurement of our investment in Xebec Adsorption Shanghai of $19 million, combined with lower integration and acquisition costs.

We had a net loss of $23.5 million or $0.15 per share in 2021 compared to a net loss of $32 million or $0.33 per share in 2020. We have $51.1 million of cash as at December 31, along with access to credit facility, which gives us some flexibility as we continue to grow and improve our overall profitability. Overall I'm quite pleased with the quarter we delivered as it showed continued improvement over the past couple of quarters in revenues, gross margin, adjusted EBITDA and net income generation. We booked in Q4 2020 and almost the same amount of revenue as we did the entire year of 2020. This is incredible to see the scale we're at and understand what kind of operating leverage we can achieve in the future. Looking forward, we expect to continue our growth trajectory, but to be mindful, as Jim mentioned, with the global uncertainties and supply chain risks.

Next I'd like to show you our quarterly financial trend. As I say all the time, I always enjoy showing this graph as it helps to put into perspective where things are added long term. As you can see, quarter-over-quarter picture continues to improve as we scale while simultaneously improving the margin profile of the business. Although we're aiming to maintain our aggressive growth plan, we are being mindful in also being able to show improved economics of the businesses. As I mentioned, this was shown this quarter with an improvement in net metric year-over-year.

With this, I will turn it over to Jim to go over our operations and business segments.

[Dimitrios Vounassis, executive]

Thank you, Stephane. I'd like to now dive into summarizing some key highlights of the business over the last quarter and year. First let's kick things off with our RNG segment where we continue to accelerate our growth plan. Overall we are seeing many positive leading indicators for the market, which includes the recent Energy Vision report, which showcased that RNG facilities grew 34% year-over-year, and there's an opportunity to grow the volumes 30x larger than we're currently at. The team has been working hard to grow our market leadership in the space and have seen our core activities grow by 3x in the first 2 months of 2022 over the same period. We have the highest number of PSA installations in the U.S. market, and the team is working hard to make sure that we continue to scale these activities.

Part of this will be focusing on the agricultural market, which we have a unique solution for in our -- for the small-scale flow rates. This focus will be supported by UE compression, which five-folded our manufacturing capacity and will serve as a Center of Excellence for containerized RNG and hydrogen units in America. Production of our second-generation Biostream unit is ongoing at our 2 North American facilities. Lastly we are finalizing our last 2 legacy RNG projects and look forward to ensuring that we can put our time and energy into standardized systems, which will really give us scale and help the industry reduce cost. Before I go into the next slide, I'd like to bring your attention to our Biostream unit in the background, which was installed at a California dairy farm, as you can see how small the footprint is and how quick it would be to install.

Next let's discuss our hydrogen business. We continue to make inroads with the industrial sector in hydrogen and the past year has seen this business become more global. This was done on purpose as we look to expand our presence and with the help of the HyGear acquisition and our existing PSA business from hydrogen, we have a #1 leadership position worldwide for on-site SMR systems with over 80 installations and have been able to maintain this position. None of our competitors come close and this expertise and base of reference will bode well as we look to expand into North America.

As a result of our sales effort in 2021, we now have deliveries scheduled across the globe to the United Kingdom, Turkey, Poland, Saudi Arabia, Belgium, Chile and Spain. This is quite impressive to see the scale in which we are operating and the reach our products have in the corners of the globe. The need for low cost, low emission hydrogen is apparent, and this is why we will be focusing on our hub strategy with the aim to secure financial partnerships to help accelerate the strategy. Ultimately, there's always a lot of excitement and interest in the mobility sector, but the challenge today is finding enough demand for hydrogen to create a viable business model. We believe that our approach of using the industrial sector as a launch pad will be rewarded long term as we prepare for the enormous mobility sector.

Next let's discuss something newer for us, carbon capture and sequestration. Carbon capture and sequestration is becoming increasingly more important as investors recognize the need to capture carbon and permanently store or use it. The reality is that it is the only way we can achieve net zero and pay back our carbon debt is to find solutions to capture carbon we are meeting or already have limited into the atmosphere today. Xebec has both PSA and compression technology platforms that will be leveraged and will play a role in this initiative.

Our first foray into this is our partnership with CarbonQuest, where they are looking to reduce the carbon emissions from over 60,000 potential buildings in New York City. There is something called Local Law 96, where large buildings will be subject to a price on carbon and the price will escalate over time in New York. Buildings are the #1 source of carbon emissions in the city and is a good focus to decarbonize. We provided CarbonQuest with our PSA technology, which allows them to remove carbon from the flue gases coming off a boiler. The CO2 is then processed with the rest of CarbonQuest equipment by then liquefying it and putting it into a truck where it's sent a cement block factory and sequestered into cement bricks. It's a really interesting solution and a great opportunity for us to collaborate. The first project was launched in January 2022, and we recently received a follow-on order from them for a new project.

Imagine the potential, if only a fraction of the 60,000 buildings use the solution. In addition, transporting CO2 and pipelines is expected to become another driver. If the United States deliver on net zero ambitions, it must bury or utilize 1 billion tons of carbon per year by 2050. It will need 19,000 kilometers of carbon pipelines moving at least 65 million tonnes per year by 2030, according to a 2021 Princeton University study. This is an incredible amount of infrastructure that will need to be built and CO2 must be compressed at a higher pressure than natural gas due to its properties. This gives us a chance to play with our unique compression expertise and platforms where we are already compressing hydrogen, renewable natural gas, air and other gases for customers around the world. CO2 is easy for us to handle, and we will continue to play in this market. Ultimately our carbon capture solutions have the potential to be a strong and high growth pillar of our Cleantech Systems, and this is evolving.

Next let's discuss our oxygen and nitrogen business. Our oxygen and nitrogen business also booked a record year with over 600 units produced and approximately 4% attributed to oxygen. This marks several consecutive years of growth, and we expect volumes for oxygen generators to normalize as the impact of COVID-19 pandemic decreases. However this will be balanced out with nitrogen volumes, which we expect to pick up again as economies reopen and high-tech manufacturing increases. Supply chain impacts hit this business quite hard in the quarter, and the team is doing what it can to manage the situation. The team is continuing to execute on growth. And as we indicated previously, we are working to double the production floor space at our facility in Germany to accommodate the scale we want to achieve. Finally we also have an interesting new application that's being quoted for which is nitrogen for soldering electronics and semiconductors. This is a particularly interesting area as we start to consider the chip shortages we are seeing worldwide.

Next let's discuss our service business. Overall, our service segment delivered strong results and performed despite supply chain challenges. This segment booked a 35% gross margin, which we plan to improve over time as we drive more cost synergies and grow revenues, organically. The acquisition of UE Compression also added 3 service locations out West, which is helpful as we continue to expand our coverage for renewable gas equipment. To-date, we have completed 8 service acquisitions. We have 15 North American service locations over 60 service technicians and logged more than 3,000 hours in 2021 for supporting Cleantech equipment and commissioning, startup and maintenance.

In addition, this year, we are launching our training academy with the local community college to train technicians and build our pipeline for the network. This is an exciting way to create more jobs and be involved in our community as we help people involved in this energy transition. Ultimately, we aim to be a go-to-market leader for professional, courteous and knowledgeable service for renewable gas equipment. This is being done now, and I look forward to seeing more in our upcoming Investor Day.

I'd like to finish off by talking about our investment strategy in China. In November 2020, we announced that Shenergy would be taking a strategic investment in our Chinese subsidiary, Xebec Shanghai. This was an important milestone as it meant that our Chinese entity would become a JV and benefit from the scale and the resources that Shenergy would offer. Shenergy is the largest gas utility in Shanghai and is also responsible for about 1/3 of the electricity production in the region as well. With this investment, they committed to providing the JV with resources and contracts for hydrogen and RNG projects. As a result, our operation has a benefit from this and is profitable in growing rapidly. As Stephane mentioned earlier, we initiated a remeasurement of our investment in Q4 and booked a significant gain as a result. We are also booking our 60% share of the operating profit, which is also reflected in our financials.

Overall, I am quite happy with the team's execution this quarter and this past year. Last but not least, I'd like to personally invite everyone to our Investor Day, which will be hosted in Denver and live stream to the public. This event will showcase our worldwide capabilities and technology platforms for sustainable gases. It will be an interesting event to learn more about Xebec, and how everything ties together under one common goal and what we plan to do to execute on our multiyear growth plan. There will be presentations from not just the team you see on this call, but also product leadership across RNG, hydrogen and our Cleantech service network. We will also be press releasing our strategic plan in conjunction with the Investor Day. We look forward to seeing you live and the live stream details would be broadcasted closer to the date.

With that, I'll turn it back to Brandon for the Q&A session. Brandon?

[Brandon Chow, executive]

Thank you, Jim. And with that, we'll now open the floor to questions. Please note that you may ask a question at any time to the right of your counsel and note that on average, we receive over 100 questions and we'll unfortunately not have enough time to get through all of them today. Someone from Xebec will follow up on all your questions after the event, and we thank you for your patience. We'll wait a moment for questions to queue up. Our first question comes from Yuri Lynk at Canaccord Genuity. Can you talk about the variance on adjusted EBITDA and what was provided via guidance last year in November?

[Stephane Archambault, executive]

Certainly I can take that question. So as Jim mentioned in his presentation, we saw some significant headwind in Europe with respect to supply chain. And this is what caused -- I mean it caused an increase in cost and delay in receiving supplies and also delays in being able to deliver to customers. And that would be the main reason why we're off on the guidance. I don't know, Jim, if you want to add anything to this?

[Dimitrios Vounassis, executive]

Yes thank you, Stephane, I would simply add that our team is obviously working very hard. And as everyone is very aware, there's a lot of supply chain disturbances out there. So we've been trying effectively to secure forward by buying ahead of time. But sometimes, even when you buy ahead of time, the suppliers fail to deliver or fail to deliver the right quality. We expect this to go in and out throughout this year and probably into the early part of 2023 also.

[Brandon Chow, executive]

Thank you, Stephane and Jim. Our next question comes from Adam Gill from Paradigm Capital. Any color you can provide on the gross margins going forward, particularly as you start to deliver on the new Biostream orders? And also, where do you see the run rate for the SG&A standing?

[Stephane Archambault, executive]

I can take this one as well. So on the gross margin, as Jim mentioned, I mean, we've got 2 legacy projects going on right now. And these obviously will not have any margin associated with them. Going forward, with the new Biostream, we are on the path of building several this year, so the learning curve is going to be very important. So obviously, the first Biostreams will have more cost. But if you even this out throughout the year, I mean we will -- we think that we're going to get a gross margin that is decent for this type of product.

So for the -- as for the SG&A question the run rate, what you saw basically in Q4, it just removed the amortization of the intangible, if you remove that, that's pretty much a run rate going forward. I think we -- at the head office, we've completed the team here. We do have some expenditure, but I mean, that's normal. So Q4 would probably be the good guideline for our run rate going forward.

[Dimitrios Vounassis, executive]

Thanks, Stephane. Certainly from my perspective, with Stephane and the rest of the corporate team, we don't plan on expanding our corporate office any further. So as the business grows, we expect that the percentage of the cost of SG&A coming from our corporate office will get smaller and smaller.

[Brandon Chow, executive]

Our next question comes from David Quezada from Raymond James. Firstly he just wanted to congratulate you on the new CEO role. He wants to know do you plan to review the company's strategy at all? And will you also assess Xebec's specific segments with regard to whether or not they are core and noncore?

[Dimitrios Vounassis, executive]

Great question. As part of our strategy work that we did in the fall, I was very heavily involved with the rest of the leadership team. So what we will be presenting to you at the end of March is our 3-year strategy. But of course, I'll caveat by saying that as a leadership team, we always owe it to ourselves and to our investors to review our strategy on a regular basis, and this includes any potential acquisitions or divestitures. So right now, we think we have a great growth strategy going forward for the next couple of years that we'll share, but we reserve the right to always update it.

[Brandon Chow, executive]

Thank you, Jim. We have another question from David. In regards to manufacturing at Blainville and UECompression, are you hitting the targets you have discussed in the past in terms of production volume? And could you also comment on whether costs have been in line with expectations?

[Dimitrios Vounassis, executive]

Yes. Actually, quite -- I'm quite happy with the work that Mike Munro and his team have been doing. We've seen that the first units of our second-generation Biostream are coming in line, as Stephane mentioned, to the cost targets that we have set out. And right now, we have Blainville that is in full production. And as we discussed, the UEC, we're in the transition process, and we expect production out of UEC in the back end of this year. So, so far, Mike and the team are doing a great job on this.

[Brandon Chow, executive]

Another question from David as well. In regards to the RNG infrastructure segment, when do you see the projects that are in LOI stage moving forward? And what are upcoming hurdles there? And will supply chain constraints be an issue there?

[Dimitrios Vounassis, executive]

Yes, another good question. Look, we are quoting, as I said, an enormous amount of work, and there's a lot of interest in our product. As expected, we probably will see this materialize to whatever extent it will over the next 6 to 7 months this year. We always see that we're quoting something and then it materializes 3 to 6 months later. In terms of supply chain risks, we continue to work them. We just recently brought on board the last member of our senior team, Vice President of Strategic Sourcing, Stephen Evans, who is busy now integrating and working with our team for the Biostream specifically, we made a decision as we communicated in Q3 last year to buy long lead items.

So we have a certain amount of long-lead items that we have bought ahead of time, which gives us some cushion. And Mike and Stephen are now revisiting that and seeing how we leverage and buy further along based on what we're seeing in terms of the amount of quotations that people are asking us to quote on. So I expect that even as we buy long, we'll have some bumps on the road like everyone else, because of the uncertainty that's out there. But we are working very hard to mitigate it. And so far, I can say on the Biostream's team has done an excellent job.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from Aaron MacNeil with TD Securities. You suggest that the bidding activity for the BGX Biostream has had more than a double year-over-year. Can you give us some sense in order of magnitude and when we can expect this bidding activity to translate into orders?

[Dimitrios Vounassis, executive]

Sure. As I mentioned, in terms of when we expect it to transition into orders is going forward this year because we've been quoting last year at the end of the year and also at the beginning of this year. Just to give some color, year-to-date in 2021, up until basically mid-March, we had quoted on 36 proposals. And if we look at it this year, we've quoted on 65 proposals. So we doubled how many quotations were out there, and the team is actively working on this, and we're actively looking also at supporting our team with some incremental sales force. So it's very, very positive right now for us. We're actually quite excited with the team, and we look forward to also hosting -- right after our Investor Day, we are also hosting a Customer Day in Denver, and we expect to host quite a few customers who want to come and see the products and touch them and feel them. So we're positive that this will translate into future orders.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from Eric Stine from Craig-Hallum. Can you comment on the linearity of revenues throughout 2022 and typical seasonality of different cadence given the backlog timing?

[Stephane Archambault, executive]

I can take this one. So yes, I mean, we -- historically, if you look at our revenues, if Q1 has been historically lower than the other one. We always finish with significant revenue in the last quarter. But this year, what we're seeing is we're seeing some softness in Q1 and a pickup in Q2, Q3 and Q4.

[Brandon Chow, executive]

Thank you, Stephane. Our next question comes from Aaron again. Can you clarify some commentary on the disclosures, Specifically, do you expect the nitrogen demand will offset declines in oxygen demand or are you suggesting that the sales mix is expected to normalize as oxygen demand decreases?

[Dimitrios Vounassis, executive]

What we are seeing at the moment is a pickup on the nitrogen side of the business. Of course, we also must caveat this with the uncertainty around Ukraine and what this will do to the global marketplace, especially around Europe. But at the moment, we are seeing an uptick on the nitrogen side. So we expect to go back to the normalized kind of nitrogen-oxygen split and fill in the oxygen coming down with nitrogen going up.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from [ Nirav ]. Number one, any color on European opportunities on hydrogen and RNG sector after the recent announcement to invest in this specific energy by the EU? And then what other opportunities are we seeing in Canada?

[Dimitrios Vounassis, executive]

Yes. So for sure, on the European side, we see plenty of opportunities. And in fact, we are taking advantage of these opportunities on the hydrogen side. We are specifically happy that we have the opportunity to potentially combine our RNG technology with our hydrogen technology. We have seen some interest from customers as the European Union has provided the mechanism where hydrogen produced from RNG is "green hydrogen" so this is an exciting opportunity for us to combine the 2 technologies and there are some customers that are discussing this with us.

On the Canadian side, we continue to see good activity out west and in Ontario, and we will continue to monitor this also with our joint venture with GNR Capital in Quebec. We have seen that GMR is also looking at several projects that they've been quoting on. And we expect also on that front that will benefit from this partnership and have some opportunities come forward to fruition in 2022.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from Amit Dayal from H.C. Wainwright. Are you expecting year-over-year growth in revenues and EBITDA in 2022?

[Stephane Archambault, executive]

Yes. Obviously, I think on the revenue side, we've made several acquisitions in 2021, as you know. We'll see the full benefit of those acquisitions. So obviously, yes, I mean, there's going to be a significant impact associated with that. And that, as Jim mentioned, as we scale up the -- we have higher revenues, our fixed cost, SG&A, in particular, will remain relatively flat, and that's why we foresee to see a better pickup on margin as well.

[Dimitrios Vounassis, executive]

Yes. And I would add, not only as we see ourselves scale up, but also the scaling of our manufacturing, especially on the Biostream as we discussed, as we move forward past the initial couple of units and get into regular sustained production from both UEC and from Blainville, this gives us an opportunity for leverage also with the supply chain, which should also come and help us out.

[Brandon Chow, executive]

Thank you, Stephane and Jim. Our next question comes from Eric again. Can you talk a bit more about the carbon capture pipeline?

[Dimitrios Vounassis, executive]

Sure. As I mentioned in my presentation, there is a big push in the United States for carbon capture and sequestration. So we expect that this will continue for several years as people basically go and sequester carbon coming off of different processes into caves and other locations, which eventually they will probably -- because the world will need carbon, they will probably then turn around and sell it eventually back out to the world.

What is unique and a great opportunity for us is with our acquisition of the UEC Compression as well as our previous acquisition of ACS. We have the capabilities, both for small scale and large-scale compression and technology and combining these 2, we think we have a unique opportunity with the PSA work that we're doing with CarbonQuest to really not only tackle sequestering pulling carbon out of our waste stream, but also helping in transport it to sequestration sites and eventually transported back out of sequestration sites. So there's a lot of work happening on this front, and we expect to see some growth from this going forward.

[Brandon Chow, executive]

Thank you, Jim. We have another question from Viveck Punjabi at National Bank. Could you talk about the opportunity across Europe stemming from the energy crisis and how soon you could expect some benefit from the increased momentum?

[Dimitrios Vounassis, executive]

This is difficult for us to speculate on. I would say that, yes, we believe that, like everyone asked, that there will be opportunities as people look for more local and national produced gas, specifically through RNG or hydrogen. But right now, it's a little too early for us to comment as I think the world is still trying to digest and comprehend what's going on in the Ukraine and where the ultimate solution to this will be. But I think on the mid to long term, definitely a more national view of energy is coming around the corner. And we've already seen this for several years in the U.S. with the advent of fracking and also now with the bills that the Biden administration has passed around hydrogen.

[Brandon Chow, executive]

Our next question comes from [ Paul ]. Can you talk about the remeasurement process for the Chinese JV and sort of the rationale behind that?

[Stephane Archambault, executive]

Yes, yes. As Jim mentioned, back in 2020, we introduced new shareholders into our JV, but it was only in June 2021 that we actually formalized everything. So at that point, we lost control of that entity and that's what triggered the reassessment of our investments. So it was as part of the year-end work, we needed to have a reassessment. So we conducted a valuation of that entity. And based on that valuation, we had to make the adjustments and increase our -- the value of our investment in China.

[Dimitrios Vounassis, executive]

If I may add some color. Apologies everyone for my Internet connection this morning. We think that this is a golden play for us in China, our joint venture with Shenergy. Shenergy really has a customer base of around 30 million people that live in the Greater Shanghai area. And I think we're uniquely positioned as a Cleantech company to be able to take advantage of such a strong partner in China who really has the mandate to be the Center of Excellence for the region for hydrogen. So it bodes very well both for our PSA technology on the RNG and on the hydrogen side as well as for our SMR technology to go into China and to leverage basically the footprint and scale of Shenergy. So we're quite happy to have them as a partner, and we look forward to seeing our joint venture grow substantially within -- in the next couple of years.

[Brandon Chow, executive]

Thank you, Stephane and Jim. Our next question comes from [ Steve ]. It is my understanding that hydrogen produced with RNG is just as green as hydrogen produced from renewable electricity and water with electrolysis, the methanation process of RNG is also more economical. What is Xebec doing to make hydrogen industry aware of this fact?

[Dimitrios Vounassis, executive]

Good question. So we're working, for instance, in the U.S. with the Biogas Association and one of the biggest things that we're working on with them there is to basically recognize that hydrogen made from RNG is green hydrogen and allow basically the wheeling process to work. So for instance, today, if you're filling your CNG vehicle up in Pennsylvania and your producer has bought an RNG contract in California or in Idaho, then this CNG is considered green CNG because it is basically displacing natural gas coming out of the ground in somewhere in the pipeline.

So with the Biogas Association, we're working very hard to have the equivalent happen, i.e., if I'm buying RNG contract somewhere and the RNG is going to the CNG pipeline. And then at my filling station, I'm connecting us to the CNG network, and I'm pumping -- I'm creating hydrogen through my SMR, which you're absolutely correct, is much more efficient than electrolysis because the process itself, the reaction process itself yields 2 extra hydrogen molecules that this is considered also green. And in my discussions in the winter time with the Biogas Association, there's a strong belief that this will also eventually be accepted in the U.S. as it has been accepted in Europe.

[Brandon Chow, executive]

Our next question comes from Nick Boychuk at Cormark Securities. Just wanted to note the announcement that we had for the helium partnership earlier this year. Can you maybe walk through why Air Liquide wanted to partner with Xebec and do you have exclusivity there? And also the potential size of the helium projects in the pipeline there?

[Dimitrios Vounassis, executive]

Yes. Excellent. Well, in terms of size, well, let's start first with the fact that in North America and worldwide, there's been a significant shortage of helium. We saw helium prices in 2020 like increased by tenfold. This is driven predominantly by the fact that most of the helium was provided from the U.S. Strategic Reserve and all of a sudden in 2020, there were announcements that were made that this reserve was running out of helium. Russia is also a very large helium producer. And obviously, with the current Ukrainian conflict with Russia, it remains to be seen how much of that helium will be procured from Russia outside of the Russian country itself. So it's a great market for us. We had numerous discussions with Air Liquide.

Air Liquide is specifically very happy with the performance of our PSA unit. And we had done a project with them ahead of time in 2020. And then they came back to us with this market conditions where they see and we see opportunities that will basically grow substantially as people search for helium in the North American continent. It just made sense that we team up. It's their membrane technology and PSA technology that work together, and we're very happy for the partnership, and we look forward to announcing more opportunities with them as we move forward. I'm not going to speculate in terms of the size of the opportunity at this point in time. I think we need to understand a little bit more the fallout of the Ukrainian conflict and then we'll have a better view of the crystal ball. Suffice to say that both us and Air Liquide believe that this is going to be a very strong market for us in North America.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from [ Thomas ]. Are we looking at partnering with large companies looking to add hydrogen trains or vehicles to their fleet or is the on-site generation stream more focused on smaller businesses?

[Dimitrios Vounassis, executive]

I would say that we are doing both, right? I think we should be very careful not to conclude that we're not partnering with large people. If you look on the industrial side of our hydrogen business, we've partnered with every major flat glass manufacturer in the world. These are large global customers. Also on the metal hardening side, we have partners that are quite large on this side. So we continue to explore all the partnerships, and we look forward to potentially one day signing a partnership with a big hydrogen transportation distributor. What I would say right now is that the -- what we understand from our customer base is that there's not a lot of money to be made. In fact, it's not profitable at this point in time to be actually selling hydrogen into the transportation marketplace, but we continue to talk with all our partners. And we will continue to grow, especially on the industrial side with our industrial partners because we believe that's the right strategy. It puts us in the right locations, and we've proven it where some of our hubs are providing hydrogen to mobility customers that are in the neighborhood. And as mobility grows, we'll just take further and further advantage of this.

[Brandon Chow, executive]

Thank you. Our next question comes from [ Ken ]. Is Biostream scalable enough to be used for the build, own, operate projects?

[Dimitrios Vounassis, executive]

Look our Biostreams are scalable. We see that there's an opportunity for 1, 2 or 3 Biostreams to be put together in applications. And as we've discussed before, really when we built the Biostream, we really targeted the Ag market and its size and scale from 1 to 3 or half and below is there for about 80% of the applications that are out there. And if you were to believe the American Biogas Association, there is about 8,500 Ag applications that are out there at the moment. So what we see from our customer base is the demand for us to go smaller as their belief is that more and more of the large dairy applications and landfill applications have already been captured, and it's the mid-to smaller-sized applications that are the next golden opportunity for us, and we look forward to capturing them with a Biostream.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from [ Vic ]. What are the uses for capture carbon in the future?

[Dimitrios Vounassis, executive]

Well, as an example, carbon is a key element in steel manufacturing, for instance. So you need carbon with your iron ore to go into steel manufacturing. It has many unique applications as far and wide as some of the food products that we use, all the way to metals in the industry. So we see golden opportunities for sequestered carbon at the end to come back into the marketplace. But this is long term, 30 years out there.

[Brandon Chow, executive]

Thank you, Jim. Our next question comes from Ahmad Shaath of Beacon Securities. Are you able to provide some more color on the rate of amortization of intangibles we should expect on a go-forward basis and comparable to full year '21?

[Stephane Archambault, executive]

Yes. So as you heard in my presentation, so we had a charge of about $5 million on amortization in Q4, which was -- actually should have been done throughout the year. And that should be about your run rate going forward. It's about $5 million to $6 million on intangibles, yes.

[Brandon Chow, executive]

Thank you, Stephane. Our next question comes from [ Andre ]. Do you see any follow-up orders for high gear in the glass manufacturing business? And how is the partnership in Australia with Coregas going so far?

[Dimitrios Vounassis, executive]

Yes. So for sure, we see work and the teams are currently working on quoting further applications for glass manufacturers. Specifically I can say that our glass manufacturing customer base would like us to go further global with them. As we've mentioned, we've gone through quite a few locations around the globe, but certainly, the North American content, for example, is one good application for this. In terms of our Coregas partnership, I don't have a lot of details at the moment on this as I come up to speed on our global business. So what we'll do is, we'll give you some feedback on the question after the presentation.

[Brandon Chow, executive]

Thank you, Jim. Thank you for your questions, everyone. And unfortunately, this is all the time we have for today. And this wraps up today's webinar.

With that, I'll turn it back over to Jim for his closing remarks.

[Dimitrios Vounassis, executive]

Thank you, everyone. It was a pleasure for having you join us for our Q4 and year-end investor webinar. I look forward, and I invite you all one more time to our Investor Day. I think it will be a golden opportunity to meet myself, the rest of the leadership team and our extended leadership team and also see our products and our unique Denver site and its capabilities. In the meantime, I wish everyone safe and well day.

[Stephane Archambault, executive]

Thank you.

[Brandon Chow, executive]

Thank you. Well, everyone back concludes our webinar. The materials will be posted on the website shortly, and you may disconnect at any time. Thank you and we look forward to seeing you next time.