Q3 2023 Anaergia Inc Earnings Call

Hello, everyone and welcome to the <unk> 'twenty 'twenty conference call and webcast.

My name is Carla and I will be your operator for today's call.

Today's call will include a Q&A session to register your question. Please press star followed by one pet I think keep at it.

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I will now hand over to you is the only web 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 Energy's third quarter 2023 ended September 30.

If you're following along with our slides in my comments are directed to slides one through three.

For our call today I'm joined by Mr. Brett Hudson attitude as CEO.

Sure.

She was chief operating officer and.

Mr. Andrew Spence.

As Chief Financial Officer.

Before beginning our formal remarks formal remarks, we.

We would like to refer listeners to slide two of the presentation, which contains the caution on forward looking information.

And a note on the use of non <unk> 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.

<unk> 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 was 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 Charlie.

Good day, everyone I'm on slide four for reference.

The company's Q3 financial statements and management's discussion and analysis of financial condition and results have been released and describing reflect their situation and the summary.

The third quarter continued to be a difficult and challenging time for energia.

In Q3, the company launched a strategic review and engaged financial advisers, including Piper Sandler to assist the <unk>.

Any in identifying options for going forward.

The strategic review is currently ongoing.

One of the earlier actions taken from the strategic review included the sale of our six Italian build own and operate assets to Arjun infrastructure partners will.

I will take a bit more time later on in the presentation to describe more about that.

A few other significant items to highlight include.

We secured senior debt in one of our subsidiaries to finance remaining construction and commissioning.

<unk> 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 super priority 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, im 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 five of the presentation deck.

Going concern we have again disclosed in note one 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.

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 <unk>.

Energy announced that its subsidiary closed a term loan with a bank to finance the remaining construction and commissioning of the project in the town of Johnston, Rhode Island.

And to provide working capital. This financing has a seven 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 financed portfolio in Italy.

<unk> energy has sold its equity interest in the Italian project platform to its lender AIP occur.

The company entered into agreements to terminate its obligations relating to the AIP loans, including the lender option requiring the company in certain circumstances to repurchase the law.

Next we have the key accounting charges and provisions for the third quarter.

Our investment in fiber cast a related party was impaired by $6 $6 million from a dilutive 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.

Okay.

Energy reported a third quarter operating loss of $13 3 million and a net loss for the same period of $36 million.

And cash used in operations year to date was $59 million.

With the 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 six in the deck.

Regarding the.

Q3 financial results.

Topline 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 proportionately as the gross margin was in line with the prior year.

SG&A was up due to credit losses, previously mentioned plus a 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.

<unk> costs and other items equals negative $36 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 <unk>.

Thank you Andrew you need certain speaking here I'm on slide number seven.

I'll be providing an update on our build on operate assets.

Starting with the Rialto by Ranch facility that Rialto Biogen facility continues to be in the restructuring process under chapter 11 with energy operating facility.

At September 23.

The RBS entered into a disagreement with certain bondholders.

Under the agreement the facility will continue to operate with two possible outcomes.

The first outcome would be a targeted sale in April of 2024.

And the secondary outcome.

We will be to file that reinstatement plan, where.

The facility could exited bankruptcy.

There has been an investment banker engaged that's Jeffrey who is running the sale process.

We will continue to update as more information.

Pat.

Moving over to the energy.

Baroness facilities.

The three facilities continue to operate per plan.

So kind of our methane facility continues to ramp up towards capacity and is operating smoothly R&D is injected something great and continues to be supply ultimately to Toyota for hydrogen production and the port of long Beach.

The Rhode Island by R&D 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 barge facility the construction upgrades continue to progress.

With power continuing to be produced and ramping up with.

With food waste as a feedstock and the completion of the construction upgrades are anticipated as expected the end of this quarter.

With that I'll pass it over back to Brad.

Great. Thanks <unk>.

For reference I'm on slide eight.

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 know we're looking at our business to move to more of a capital light business model, where we look for partners on various capital.

Tens of projects to lessen the burden.

On the company and be able to effectuate faster.

On these projects in.

In addition, the strategic shift that we've been doing is also looking at a number of improvements making number of efforts to improve gross margin.

Margin, reducing SG&A and prudent prudently conserving cash as liquidity is a significant concern. In addition to these initiatives, though in Q3, we did we did announced the strategic review.

Launched that and the purpose is to look at all options to maximize shareholder value.

We've hired several.

Advisors 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 theres no particular details to provide at this time, but as items that come forth and our actions on by the board and management, we make those available. An example of that and it was a very significant one was the sale of our Italian.

<unk> 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 a subsidiary of Energia that.

That own those <unk> 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 was a lender option for AIP to require energy had to purchase outstanding loans related to various projects at senior financing, we have not secured by a set time and so that was also terminated as part of the transaction.

The company and AIP entered into a cooperation agreement. In addition to the sale to help manage post closing activities.

<unk>, but not limited to the company continuing to participate in providing engineering procurement and construction for some of the projects that need to completion.

And also transition ARY services.

As well as the opportunity for the company to receive additional considerations through performance incentives in 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 because theres 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 the company is actively working through looking for items two action point over the coming days weeks months.

So with that I'll conclude our comments were pleased to open it up for questions and answers.

Thank you if you'd like to ask a question you may do so my question's thoughtfully by one on your telephone keypad.

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And if you wish to I think your question. Please press star followed by chance.

We will now take our first question from Derrick Whitfield from.

Stifle Garik. Your line is now open. Please go ahead.

Yeah.

Hi, good morning, all and thanks for your time.

Eddie.

Very high level, just wanted to see if you could offer any insight on your learnings.

As a result of several months that you've now had with the strategic review.

Is that you are going to announce material developments when they occur, but just any high level learnings you can 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.

To look forward moving forward.

The.

The results and again.

If you look prior to the strategic review there was.

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 and 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 you know.

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 will be talking more concretely.

<unk>.

But the results of this work, but at this moment in time, it's very difficult to give any sort of general direction.

To the strategic strategic review results.

None.

Terrific and then with the with respect to the Rhode Island facility could you comment on the broad timelines Commission that project and ramp up to nameplate capacity.

Separately from a revenue perspective, what are your current views on the timeline to achieve rent in El CFO certifications for the project.

Okay.

I'll pass that over to you need if you can talk to that.

Absolutely Yeah give me Pierre great to hear from you.

One one variation the Rhode Island by Orange facility is procuring supply in renewable natural gas to the Irving oil company, So, we'll not need rain or else CFS.

Registration.

It will be supporting the.

The Canadian clean fuels regulation, and so we'll be obtaining.

Sci under that regime.

The facility is commissioning this quarter will be as as planned on track for injecting gas.

The ramp up will.

Continued into the early part of 'twenty four.

Per our projections so the facility.

Note is operating now.

Now Andy 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 zero.

And my apologies for framing it from a rent <unk> perspective, but within the certification process with them on the Canadian side, what's the timeline for that I know that here in the U S. We have quite a quite a bit of delay with CFS.

Vacation.

Yes.

It's a bit on that early days as well so so like everything there is.

Expectations and then.

Regulatory reality on timelines, but the process is a little.

A streamlined in the sense that there is a.

Preliminary score that is assigned to at least get started.

And then it's a matter of months duration to get get the assigned Ci score, but as we said there is that subject to the.

The Canadian CFR program approvals and reviews.

But just to just to make a note Derek.

The supply of gas.

This will commence and agile payments of the revenue unlike the U S.

CFS program.

So supply of gas and payments that gas commence upon the first molecule in the grid.

Thanks for the added color.

Okay.

Okay.

Thank you Derek we will now take our next question from Morgan flat from CIBC Morgan. Your line is now open. Please go ahead.

Thanks, guys.

If you can could you guys comment just on what management's ideal.

Final outcome would be from from the current scenario.

Okay.

Well.

The.

We're not 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.

Moment in time, where you are.

We're 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 those are tier two obviously key objectives of what we're trying to to achieve.

In our work and again.

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 stopgap is there any projects or items closing soon that would make a material impact on that timeline.

Our projects that matter for us are the ones that.

We have been discussing in terms of our boom projects getting commissioning completed on Rhode Island and ramped up those that's a critical project for us and as you heard from <unk> on track at this point in time.

Got it and final final one from me.

There's been an objection.

Regarding the employment of Jefferies as an investment banker you have any update there.

You need can I pass it to you.

Yes.

There has been.

Various filings through the court.

We're working through them to the due course of the core process and.

Nothing has changed on the ground as far as the sales process with Jefferies driving it.

Okay. Thanks.

Yeah.

Thank you Morgan as a reminder, if you'd like to ask a question.

Please press star followed by one on your telephone keypad.

We have no other questions registered so with that I will now hand, the call Dani.

In our remarks.

Thank you very much Carla.

As always for additional information on should you have any questions. Please contact the IR team of IR team.

<unk> Dot com.

With us online at <unk> Dot 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.

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