PyroGenesis Canada [PYR] Conference call transcript for 2022 q2
2022-08-16 16:32:07
Fiscal: 2022 q2
Operator: Good day, and thank you for standing by. Welcome to the PyroGenesis Second Quarter 2022 Financial Results and Business Update Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised, that today's conference is being recorded. I would now like to hand the conference over to speaker today, Rodayna Kafal, Vice President, Investor Relations. Please go ahead.
Rodayna Kafal : Good morning. And thank you for joining PyroGenesis' second quarter 2022 financial results and business of the conference call. On the call with us today are Peter Pascali, Chief Executive Officer and Andre Mainella, Chief Financial Officer. The company issued a press release yesterday on August 15, 2022, containing business updates and financial results for the second quarter ended June 30, 2022, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact the IR department. The company's management will now provide prepared remarks, reviewing the financial and operational results for the second quarter ended June 30, 2022. I would like to remind everyone, that this discussion will include forward-looking information that is based on certain assumptions, and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. Forward-looking information provided in this call speaks only as of the date of this call, and is based on the plan, belief, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law. In addition, during the course of this call, there may be also -- there may also be references to certain non-IFRS financial measures, including references to adjusted net loss and adjusted EBITDA, which do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of advanced -- of each of adjusted net loss and adjusted EBITDA to net loss, please refer to the company's management discussion and analysis, which along with the financial statements are available on the company's website at www.pyrogenesis.com and the company's corporate filings on SEDAR www.sedar.com. With that, I will now turn the call over to Peter Pascali, President and CEO. Please go ahead, Peter.
Peter Pascali : Thank you very much, Rodayna. And thank you, everyone, for joining us today on our call. Before I proceed with a prepared text, which guides me through the -- through this section, the business overview of the call today. I like to make some comments to try and get some color to what I'm about to say. People that know me, know that I'm not the type of guy to blow smoke, wherever one blows smoke. And to say, that I'm happy with the numbers would be a serious mistake. I'm not happy with these numbers, but I'm extremely happy with the quarter. And I'd like to focus on a number of elements that will help you understand better my comments in the business overview, specifically to the fact that things have been delayed. And we mentioned time and time again why. But they're not serious delays. You'd expect delays, natural delays, but they're all different because our potential clients are massive, and they simply face many different and significant challenges they each have to do with everything from labor costs to supply chain, and things like that. We're a small company and we managed it very well, but our clients do have delays. And within the quarter, you'll see that we've made significant strides. If you look at our margins, we've commented on it, I won't cover it right now. They're out of this world. Our backlog is high, our cash and investments, I'm going to put it to you this way, if you look at our cash, paying the cash equivalents, our accounts receivable, and our strategic investment, and assume that all cash, no one would have a worry. You have to have the confidence that management understands what they're doing, and that these receivables are good. And we have a plan. The revenues. When you look at our revenues, and you put them in context of the past few years, they are six months over $10 million. And in 2019, they were $4 million, $4.8 million. So it just underscores the fact that it's not a mistake, or something that will reverse them, we had two solid years, and six solid months 2020, 2021, $17 million, $31 million, $10 million now we're there. And what's very exciting is that PyroGenesis is well positioned from a balance sheet perspective, from a financability perspective, from a debt perspective, we have no debt on our balance sheets. And the environment to reduce greenhouse gases in the environment to reduce the dependency on diesel is lining up precisely to fit our strategic goals. So with that as a background, I'm going to say, I'm not happy with the numbers themselves. Under normal circumstances, they would be much better, but the company is doing phenomenally. During the quarter. PyroGenesis chased some of its greatest corporate milestones to-date. Major advancements for both PyroGenesis is customers and the industries they serve. These achievements include producing and delivering plasma torches for the first ever in-factory use within an iron pelletization furnace, a major upstream step in the steelmaking process, and the movement from sample size to commercial scale batch production of titanium metal powder for 3D printing and additive manufacturing, utilizing the company's groundbreaking next-gen plasma atomization system. Building on decades of research and development, these milestones have positioned PyroGenesis for accelerated business growth, and are anticipated to provide potentially significant orders --sorry potentially significant orders through 2023 and beyond. More importantly, as the global economy transitions out of the disruption in its phase for the past several quarters, we expect to see a return to logistical and resourcing stability for heavy industry and government customers throughout the rest of 2022 and 2023, with the renewed sense of urgency. Our value proposition remains the same, yet with the events that have unfolded over the past two years, realigned the precariousness, which have realigned the precariousness of the world's supply chain, fossil fuel energy availability, the workforce and material cost certainty PyroGenesis technology offering looks to be even better positioned. We continue to execute on our business growth strategy by offering technology solutions that provide benefits from greenhouse gas emissions reduction, clean electric fuel sources, safe waste destruction, and improved production output and quality that take advantage of the company's expertise in patented ultra-high temperature processes for heavy industry. We also continue to build upon established customer relationships, introducing new solutions and entering new markets, setting us up for ongoing success for years to come. The company's backlog of signed contracts is $35.3 million. We expect to continue to grow this figure, as we have numerous proposals and bids well underway, and many more development. We maintained our competitive advantage by remaining at the forefront of technology, development and commercialization. Our core competency about PyroGenesis to lead the way in providing innovative ultra-high temperature solutions, including plasma torches, type of waste processes, metallurgical processes, and engineering services to the global marketplace of heavy industry sectors such as aluminum steelmaking and iron ore production. 2022 has brought about more circumstances that highlight how our technology solutions will be an even greater demand. In particular, the conflict in Ukraine has exhibited how geopolitical influences will continue to impact the supply of metals that are already under extraordinary market pressure. As supply chain issues, worried about supply reductions, and additional sanctions on Russia, who's a major producer of the world's aluminum supply, cause massive fluctuations to aluminum spot prices. The conflict also more fully exposed the vulnerability of aluminum producers to power availability and energy price uncertainty, as energy supply challenges that were already being experienced by European and Asian metal producers were exasperated during this conflict. All of these factors show, that with global metal demand growing, which is anticipated to grow 80% by 2050, and industry carbon reduction targets not yet on track to meet their goals, aluminum producers must find ways to improve their efficiency and increase yields -- and increase their yield of high quality metal from current production, all while lowering their carbon footprint. PyroGenesis range of technology solutions provide just such an opportunity with a company's draw straight systems providing industry-leading gross recovery rates of high-quality aluminum, in-line and on-site with a lower operating expense and lower carbon footprint than all competing technologies. Meanwhile PyroGenesis' mainstream plasma torch offering provides another technology-driven solution for metal producers looking to reduce their reliance on a volatile natural gas and diesel supply chain within any aspect of their operations that require metal melting or heating, while again eliminating fossil fuel emissions. The same or similar pressures are affecting the global steelmaking industry, and to which the company has already sold and now deliver delivered initial clean electric non-combustible type of torches for pre -- final pre-ordered test runs. Macroeconomic pressures may in fact, serve expedite the need for faster implementation over the next year or more. For clarity, as often stated, PyroGenesis product lines do not depend on environmental incentives such as tax credits, GHG certificates, or environmental subsidies to be economically viable. With the increased industry carbon reduction commitments, it is anticipated that the PyroGenesis' growth drivers will expand and shareholders will see increased value. The company is however, not immune to how COVID-19 and other external factors negatively impacted businesses over the past two years, specifically related to the workforce and more importantly the supply chain. And while we believe that we can do little about the strain on our customers and prospects, PyroGenesis is still well positioned. Through various mitigation measures, these challenges continue to be dealt with in an effective manner. We expect even greater improvement as the impact of COVID-19 and other external factors continue to recede during the remainder of 2022. We believe that the PyroGenesis organic growth will be spurred on by a multitude of events including: one, the natural growth of our existing offerings, which continue to accelerate; Two, leveraging our insider golden ticket advantage that we have discussed, and the fact that the in-line hot DROS-enabled DROSRITE metal recovery system is installed inside the customer's facility versus the legacy cold DROS rotary salt furnace approach that is installed off-site. This allows us to see firsthand, some of the additional and peripheral needs of our customers. Three, exploring, testing and rapidly commercializing new ways to provide unique solutions and value that helps industry deals with some of the most pressing environmental, engineering and energy problems. And four, building new manufacturing and chemical recovery facilities in overseas markets to pursue the construction of a European production facility for metal powder production. Presenting market-ready technology solutions to heavy industry players, who can now benefit from the recently passed U.S. climate change and inflation bill known as the Inflation Reduction Act, an act that provisions billions in incentives for carbon and GHG reduction and fuel switching to clean energy and electricity. Over the past several years, PyroGenesis has successfully positioned each of its business lines for rapid growth by strategically partnering with multibillion dollar entities. These entities each have identified PyroGenesis' offerings to be unique, in-demand, now such a commercial nature has to work the long-term supportive relationships that the company has experienced, while it ramps up various technologies to commercialization. We expect that these relationships help us well positioned to transition into significant revenue streams once full commercialization is achieved. Turning now to the aluminum business line. During the quarter, we announced that our DROSRITE waste metal recovery technology had been successfully commissioned at Maâaden Aluminum in Saudi Arabia, one of the world's largest primary aluminum producers with 2021 revenue in excess of $7 billion. There the DROSRITE technology is helping to serve Maâaden plant in Ras Al-Khair, a joint venture corporation with Alcoa that is the largest and most efficient vertically integrated aluminum complex in the world and includes one of the worldâs largest smelters. This is indeed a feather in PyroGenesis cap. At Maâaden, the first three DROSRITE systems passed site acceptance testing, and were fully commissioned, with the remaining four already manufactured and awaiting final shipment at the end users' request. For the joint venture technology geared to handle the leftover residues resulting from the processing of waste stream metal dross. The pre-launch requirements and considerations have entered the final stage. Chemical residue samples from dross produced at one of the company's client's facilities are being tested in two different countries. And the results of those tests will determine the final steps. We believe that valorizing the residues and producing high-end products will throw to the point as the go to company for all dross related processing. For the partnership with Aluminerie Alouette, the largest primary aluminum smelter in the Americas and co-owned by Rio Tinto and Norsk Hydro work continues. We're developing a solution to safely recover various metals and compounds from the heavily contaminated carbon lining of aluminum smelters known as spent pot linings. Lab scale tests have now concluded and the initial pilot phase is in development. Turning now to the steelmaking an iron ore business. As most of you know, steelmaking is one of the most carbon emission intensive industries in the world, estimated to be responsible for between 7% and 12% of all global fossil fuels and greenhouse gas emissions. When combined with iron ore, these two related issues account for almost one quarter of all industrial emissions. The industry continues to be under intense pressure, including huge financial penalties to find emission reductions. During the quarter, PyroGenesis achieved a major milestone when, after extensive modelling, simulations, business case development, production and live factory tests occurring during a period that was engulfed by global pandemic by the way. Our plasma torch system for iron ore pelletization was produced, assembled and shipped to the clients, in preparation for the first ever live factory usage and factory acceptance testing toward that carbon reduction goal. As previously disclosed, that client is a multibillion dollar international producer of iron ore pellets, and one of the largest in the industry, whose name will remain confidential for competitive reasons. The client who we referred as Client A, which has committed to reduce its GHG emissions has over 10 iron ore pelletization plants is possibly requiring up to 50 plasma torches totaling more than 500 torches in total. We have provided in the past a cost estimate for 36 plasma torches to that same client, at a value of between $95 million and $150 million, just for 36 plasma torches. Remember, they may need 500. The range is estimate due to usage and customization uncertainties, which will be more clearly defined in due course. Other previously announced clients, Client B, one of the largest iron ore processors in the world, who has signed a $6 million contracts with the company for 4 plasma torches for their pelletization system, and Client C, who is not only a significant player in the iron ore pelletize industry, but is also a major player in the steel industry both continue to progress at their own pace. For Client B, production of the 4 torches is underway. As previously announced, Client B has advised PyroGenesis, that upon the successful implementation of torches, subsequent orders are expected to be for approximately 130 plasma torches. PyroGenesis expect, that the previously mentioned government initiatives geared to stimulating their respective economies by promoting and funding environmental technologies and infrastructure projects will only serve to increase interest in PyroGenesis plasma torch offerings to other companies in this space, and other spaces as well. While potential clients seeking government support for large initiatives may draw out the onset of these large contracts, the sheer number of potential customers and the fact that PyroGenesis will engage with many them in different stages at different times, will help us to ensure a long overlapping pipeline of potential projects. In addition, PyroGenesis continues to target other industries which are experiencing significant pressure to reduce greenhouse gases and which utilize fossil fuel burners as well, such as the cement industry, aluminum and automotive industries. With respect to additive manufacturing, our total -- our metal powders business line also saw a major milestone in Q2. The company's NextGen facility which incorporates all the previously disclosed benefits, such as increased production, lower capital and operating expenditures, and as having produced and delivered two separate 100 kilogram orders for titanium powders. The first two commercial batch systems for the system after months of testing and sample size production. These orders were both an important commercial milestone, as well as a further validation of PyroGenesis' process and ability to supply some of the highest quality powder produced to the additive manufacturing industry, using our NextGen plasma atomization process. This process is a significant departure and upgrade from conventional plasma atomization. The technology by the way, the project is also invented and coined the term for, and which is still considered the gold standard for product -- for the production of metal powder. The two orders came via our European business partner, Aubert & Duval, who's the world leader can industrializing high-performance steel, super alloy, aluminum and titanium alloys for over a century. More specifically, they are a recognized supplier of metal powders for additive manufacturing, serving the aerospace, energy, transport, medical, defense, automotive and other large scale demanding markets. Separately, and of note, a major tier one global aerospace company has already entered into an agreement with PyroGenesis to formally qualified its metal powder at considerable expense to the global aerospace company with a view towards having PyroGenesis become a supplier. Under this agreement, the client has been performing an in-depth qualification process with PyroGenesis, a procedure typically required before a company can become an approved supplier. The process was established to evaluate PyroGenesis' manufacturing methods and test samples of powder for batch-to-batch consistency. We continue to expect to see significant year-over-year improvements in our 3D metal powders offering as our NextGen facility is now officially online and operational. There are additional major top tier aerospace companies and OEMs in both Europe and North America are eagerly awaiting powders from this new state-of-the-art production line. And we are currently in the process of supplying several powders to them for analysis. We expect that such developments will continue and will translate into significant improvements in revenue by this segment in the mid-to-long-term. In conclusion, PyroGenesis' 2022 as a foundational year, from which we will drive exponential growth and position ourselves as a leader in the market for decades to come. We plan to take advantage of our unique position in the market and our broad offerings to accelerate growth, with a particular emphasis on offerings geared to aggressively reducing GHG emissions and the world's carbon footprint, while finding and offering solutions to pressing environmental, engineering and energy challenges, while driving cost savings for our clients. At this point, I'll be back later to answer questions, but at this point, I'd like to turn the call over to our Chief Financial Officer, Andre Mainella, to go over the financials in detail. Please go ahead, Andre.
Andre Mainella : Thank you, Peter. And good morning, everyone. The company as with much of the industrial technology and manufacturing sectors, has lot of repercussions and macroeconomic headwinds that has affected the planning, logistics, and spending of its customers and its sales pipeline projects. These conditions outweigh sometimes heavily on both the company's top and bottom line, with potential or planned sales being impacted by customer resourcing, staffing and purchasing delays, and with continued governmental and logistical issues, preventing other customers from finalizing contract negotiations or taking delivery of their fully completed orders. Orders that represent significant revenue and income to the company, once they can be moved out of the warehouse. What was anticipated to be a major growth first half, has adjusted to be more of a modest stage setting for the second half of the year and into 2023, as existing and prospective customers move back their planning and decision making to the quarter to accommodate their own interruptions. Now moving to the income statement. Total revenue for the current quarter was $5.8 million, compared to $8.3 million for the same period last year. And total revenue for the first six months of 2022 was $10 million, compared to $14.5 million for the same period last year. It's also important to note that in Q2, 2021, and includes $3.3 million of patent sales, which are not repeated in the first half of 2022 and such sales represent a significant high gross margin percentage. The revenue decrease was mainly due to a decrease in sales related to DROSRITE and PUREVAP, as well as decrease in support related to the U.S. Navy. This was offset by an increase in torch sales and sales related to biogas upgrading and pollution control. As of the filing the financial statement yesterday, August 15, 2022, the company had a backlog of signed contracts of over $35 million. Gross profit for the three months ending June 30, 2022 was $2.5 million or 43% of revenue, compared to a gross profit of $4.9 million or 60% for the same three-month periods ended last year on June 30, 2021. Gross profit for the first six months of the year, for the current year, were $3.6 million or 35%, compared to a gross profit of $7.1 million or 49% for the first six months of 2021. The decrease in gross profit was attributable to an increase in employee compensation, subcontract -- subcontracting, manufacturing overhead costs, foreign exchange and amortization of intangible assets, but it was also offset by a decrease in direct materials and other subcontracting costs. Also, again note that in 2021, this included patent sales, which have a very high gross margin percentage. Selling and administrative expenses were $7.1 million and $12.7 million for the first three and six-month periods of June 30, 2022, respectively. This compares to $6.7 million and $10.4 million for the first three and six months period ended June 30, 2021, respectively. The increase in SG&A expenses were mainly attributable to the Pyro Green-Gas acquisition, along with an increase in employee compensation, professional fees, office and general expensive, travel both local and abroad, and the depreciation of property and equipment, depreciation of the ROU asset, government grants, IT fees and other expenses. Additionally, the share-based expense decreased by 51% to $1.6 million for the current quarter of 2022, which compares to $3.3 million for the same quarter of 2021. R&D expenses for the current quarter was $800,000, an increase of 13% when compared to $700,000 for the three months ended June 30, 2021. During the first six months of fiscal '22, net spending on internal R&D was $1.3 million, compared to close to $1 million in 2021, primarily due to an increase in R&D activities that were performed. The comprehensive loss for the current quarter ended June 30, 2022, was $13 million compared to a net loss of $20.4 million for the same quarter of 2021, which represents a decrease of 36% or a reduction of over $7 million over the current quarter. Modified EBITDA, which we consider a useful metric and measuring the ongoing operation was a $3.2 million loss compared to a gain of $1.1 million in 2021. The modified EBITDA excludes the $1.6 million of non-cash, share-based expense, as well as a $7.4 million adjustments to the fair market value of the strategic investments caused by the decreased market value of the common shares and warrants owned by the company of HPQ Silicon Resources Inc. Resources Inc. The modified EBITDA also adjust for an increase in depreciation of property equipment, an increase of depreciation of the ROU assets, increase the amortization of intangible asset and an increase in the financial expenses. As of June 30, 2022, the company had a $1.3 million of cash and cash equivalent balance. A key to point out that our gross margin for this quarter were terrific 43%, a high remember which surpasses many of the -- our counterparts and the averages for our companies, and industries that we primarily serve such as aluminum, iron, steel, aerospace and defense. Additionally, the company has completed or nearly completed several projects that are late due to client side challenges and decision making, as a result of slower recognition of cost, or cost of sales means a slower percentage of revenue recognized. With these factors related to client side logistics and resourcing factors, and not for the company's sales or production efforts, it's noteworthy that this should be mentioned for the benefit of investors understanding. In addition, those contracts which are close to the final delivery stage, tend to incur costs at a slower pace, as well as the corresponding revenue has been recognized at a slower pace. At this point, I'll turn the call back over to Peter.
Peter Pascali : Thank you very much, Andre. In conclusion, ladies and gentlemen, I have to say we're very pleased with the progress we've made during the quarter and are confident that we have set the stage for continued success. While the headwinds we have described have interrupted the intentions of some of our clients and prospects during the first half of the year, it's not to be unexpected. And PyroGenesis contingency 2022 as a platform from which decades of growth will emerge. Moving forward, we plan to take advantage of our unique position and expect our main business offerings to accelerate growth with a particular emphasis as I mentioned, our offerings geared towards aggressively reducing greenhouse gas emissions and the world's carbon footprint, while finding and offering solutions even more the world's most pressing environmental engineering and energy challenges. We of course remain committed to driving shareholder value, and look forward to providing further updates as developments unfold. At this point, I'd like to thank you once again for joining the call today. And we'd like to open up the call to questions. Operator?
Operator: Thank you. Our first question comes from MacMurray Whale from Cormark Securities Your line is open.
MacMurray Whale: Hi, good morning. Just want to drill down a bit into the backlog. Can you segment the backlog into the same categories as your revenue?
Peter Pascali : Yes, Andre off the top of your head?
Andre Mainella : Yeah. What I can say about the backlog breakdown by product, it's really the majority of the three top sections would be DROSRITE, biogas upgrading and some of the feedback which makes up the three biggest parts of the $35 million.
MacMurray Whale: Okay. And then in terms of size, like do you have -- like, are there 10 contracts or like six contracts I believe? Can you give us an idea of sort of the number of contracts, and if there's a big variation and the dollar value of each one?
Andre Mainella : It's pretty diverse. And they spread out from different countries. But they were anywhere from $0.5 million up to $7 million. So, in total I'd say it is over 10 contracts on the backlog list.
MacMurray Whale: Okay, so the largest is only a couple million.
Andre Mainella : Yeah, that'd be per se, few million -- a couple of millions, maybe a little bit more for the --
Peter Pascali : I don't want to put any words into Mac's -- in question. I think he's wondering if it's overloaded all into one contract at one line.
Andre Mainella : Definitely, no, it's not overloaded on one contract.
MacMurray Whale: Okay. And how much of it is 12-month deliverable?
Andre Mainella : I think most of our backlog is between 12 and 15 months.
MacMurray Whale: Okay.
Andre Mainella : Most, yeah.
MacMurray Whale: Okay. Okay, good. And in terms of gross margin, because it's dropped about 20% or so over the -- 30% over the last year. When you look at the gross margin of that backlog, is there anything that we can say that you could share about that? Like, does it look -- is it more like the 60, or is it more like the 40, or is it all over the map?
Andre Mainella : I think it depends on the product mix. Also, keep in mind that when you say, that the drop in the gross margin versus last year, last year, Q2, 2021 had the HPQ patent sales, which have a very high gross margin. So that would definitely play in the mix. But looking forward, it looks a mix of everything from biogas, DROSRITE, and the combination of backlog, and it's a -- but that's just -- and then probably now that high 30% to 40%, for sure. But definitely it won't be similar to a Q2, 2021 and not usually high because of that sales.
MacMurray Whale: Okay. And so when -- in terms of the gross margin in the latest quarter, have you seen more of an impact from cost inflation or more of an impact in your own pricing strategy in terms of sort of driving demand?
Andre Mainella : I'd say a little bit of both, but we've been able to source materials and increase our inventory, so we've been able to offset the impact of inflation by purchasing abilities, and reducing our decline in purchasing an event to mitigate the impact of inflation.
MacMurray Whale: Okay. On the SG&A, is this a good like a new run-rate that we should be looking at or are there was some one-times or unusuals in there that you want to flag?
Andre Mainella : Looking at the details, there's no there's no unusual items. It's more of a run-rate in the stock-based compensation. It's fair-- were a year-over-year comparison of the D&O insurance but it's more representative of the actual fact. And I'll see what changes in the D&O and insurance industries, we're hoping that the rates will go down for next year, but it's more representative of recurring revenue .
MacMurray Whale: Okay, because there was a lot of professional -- there's a big jump in professional fees? And is there a chunk of legal in there, that's not normal?
Andre Mainella : Well, it depends if you're looking at the three to six months, but there's also timing. So keep in mind that when we have professional services in January, February, March, for the year-end audits and so on, it'll offset the timing a little bit, so depending if you looking at the first three months of the first six months.
MacMurray Whale: Okay.
Andre Mainella : Nothing unusual that I can really mention right now.
MacMurray Whale: Okay. And then the last question I had was just on you spoke on some European capacity, what's the cost and timing of that initiative?
Peter Pascali : For the pilot production?
Peter Pascali : We're still talking about doing that in Europe with some -- as a joint venture with someone. We definitely need to put some powder production into Europe. I'd say, I'm just guessing here, Mac to give you a timeframe, but we would like to have it up next year. Have it up next year will be very tight.
MacMurray Whale: Okay --
Peter Pascali : We haven't chosen the partner yet. Sorry?
MacMurray Whale: Okay. No, that's good. That's all my question. Thank you.
Peter Pascali : Very good.
Andre Mainella : Thanks, Mac.
Peter Pascali : Thanks for your questions.
Operator: Thank you. One moment for our next question. Our next question come from line of Greg MacDonald from Loderock. Your line is open.
Greg MacDonald: Thank you. Hi, guys. Good morning. Peter, I wanted to ask you a question on the overall logistical and resource headwinds that you're talking about. My assumption on that is from the commentary that that's predominantly the aluminum and steel opportunities not anything to do with what's going on with metal powders. Am I right in making that assumption?
Peter Pascali : Yes. I mean, we're finding these delays across the board. But specifically, the 90-day delay that we announced with the iron ore pelletization, client had to do with some delays in getting their facility ready and prepped the way they wanted to. They had some delays on their side. Yes.
Greg MacDonald: Okay. Is there anything generally that we should be looking at? Is this an issue with geopolitical challenges more than others? Like, what are some of the main challenges that these clients are facing, that we should be looking at as inputs of things change in the future? And I'm thinking, not just on inputs, but the Inflation Reduction Act that you mentioned? Is there anything in the Inflation Reduction Act, because that is relatively reason that you think could change some of the views on timelines for your clients? And/or is there anything in the Inflation Reduction Act that you specifically are excited about relative to before seeing the details of it?
Peter Pascali : Well, I think there's a number of questions in your question. I think the first one had to speak to geopolitical influences. And no, there are no geopolitical influences really, that are negatively impacting our situation. If anything, is positively impacting our situation. Now, I think the second one, you asked me for what is the biggest concern or the biggest, is it just -- I mean you read in the paper every day. I mean, I'm not -- there's supply chain issues. I mean, we suffer them, we're managing, we're a small company. So we can we can duck and weave and do things quickly. But bigger because companies don't have. I mean, they're facing supply chain and so let's say an imaginary client, Client W. Client W want to get things ready for us or they want to do something, they can't source the power supply, or the pump or the whatever it happens to be. Okay, it takes time. So they're having -- our clients are having massive, massive problems, when it comes to actually getting the supply, not our supply, not us. They need the infrastructure, things they need to get it, to accept us. The same thing is happening in Saudi Arabia. We have DROSRITE systems here ready to ship. They're not ready. They're not ready to accept them, because it's -- primarily because of supply chain issues. That I'm aware of, and you're aware of. I imagine they also have labor shortages, just like everybody else does, trying to get the right people at the right place to do the job. So these things are exasperating the delays, but delays are normal in these type of businesses. But it exasperates the delay. The fundamental issue is nothing has really changed. And nothing has really changed with our offerings, their irrelevant. In fact, they're even more relevant. When you look at the app that you mentioned, you asked me, what's the takeaway from that? Well, the takeaway is, pop up in the bottle of champagne. There's government's putting billions of dollars into supporting companies to buy my product. I mean, if you can get a coupon, if someone's getting some of the coupons to buy my product 50% off, don't you think I'm pretty excited about it, I'm pretty excited about it. Now, we've known this, by the way, for some time. There's been government incentives to reduce greenhouse gases, et cetera. And as we mentioned, the past -- even big companies, it'd be stupid not to take advantage of it. Some of our offerings require some infrastructure changes. There's infrastructure, support for infrastructure changes. So when you got ancient, old smokestack industries, that know -- intellectually, and fundamentally, they have to make infrastructure change, they've been delaying it for the past decade. And all of a sudden, they've got incentives to do it, I think they jump on it, right. So yes, these are all excellent programs that are supporting our business. They're supporting our products. So our customer base, so we already have the customer base that's excited, should expand, because there may be some on the borderline that may not want to do it for a, b, and c reason. But here, you've got government support for it. So I think I've answered all your questions. I think I did. There's a number of questions in your question, I hope I did.
Greg MacDonald: No, you definitely did on the second issue of the Inflation Reduction Act. I mean, it's something that I've heard analyzed as it's more of a carrot and stick approach. There's lots of funding going into it. I guess what I was asking through that indirectly was, is there one area of your business relative to others that you get particularly excited about, just because, new money's definitely going to go in relative to what it was before this? That's all.
Peter Pascali : Yeah. So basically, iron ore palletization, DROSRITE, 3D printing, they lined up for all three of them, even 3D printing.
Greg MacDonald: Right. Okay. The second question I had was on the backlog. You made some comments on the $35 million growing through numerous bids that you have going on right now? Is that -- can we categorize that or define that as a mix that is typical of the revenue line today? Or is there an opportunity for growth in one area versus another? So I guess indirectly, I'm asking metal powders relative to pelletization, anything going on in the steel industry and the aluminum industry?
Peter Pascali : So we're talking about backlog, not pipeline. So backlog to us, is signed contracts? So signed contracts, we signed we're working on them, we've identified them. If you ask me, where do I think the growth will come from, in the shortest timeframe, it's without a doubt iron ore pelletization and DROSRITE. DROSRITE we're already out there, we've got a very compelling offering, which includes taking care of the residues, and we're also talking about some upstream plasma-based solutions. So we're really locking up it slowly the DROSRITE offering to almost be very difficult to compete against this in the dross. So that's very exciting. On the iron ore pelletization, generally our torches which can be used to reduce greenhouse gases, and reduce that dependency on diesel fuel. That's very, very exciting as well as you know. So those are the two ones that are front row center. And 3D printing is quickly coming up the back, as it's going through the phases of getting qualify by very significant five-star OEMs. Now, here's something I'll throw out to you here. The challenges between iron ore pelletization and our torches and DROSRITE. When we sell one torch for between $1 million and $2 million, it's very similar to just one DROSRITE system or half of DROSRITE system. So one might ask you, why are you doing one versus the other? And that's very interesting, because iron ore --there's recurring revenues from both. Both are very exciting. But the most exciting, I think, is what our torches single handedly can do to reduce greenhouse gases and dependency on diesel? It's our area of expertise. The world needs it. It's very simple for us to implement.
Greg MacDonald: And you made mention a pipeline. I'm always curious about what's going on in metal powders. Has anything changed in the opportunity to see revenue near term in the metal powders business? Or is that still a business that will take time for companies to get comfortable with?
Peter Pascali : Well, I think if you look -- it is a long road path to getting accepted by these type of aerospace companies. So it is a long path, and the nature of the industry that dictates -- demanded. So I would say we're about 90% of the way there. Now, why do I say that? Because, we've mentioned that -- we mentioned two things that are an indication that things are 90% of the way there. One is the North American OEM is spending lots of money. They visited our facility, they seen what we're doing. So now they're spending the money to tick the boxes as they have to industry to demonstrate that our powders are of the type that want to buy. So that's taking place, now it can't go faster. There's a certain -- but we're there. And so I would say we're 90% of the way there, because they won't spend the money really nearly on just any job shop in the world. They've done their due diligence, they put their name on their reputations in-line and they've got the funding to do it. The other thing that demonstrates that we're 90% of the way there, is the need to establish the powder production facility in Europe to mitigate the transportation costs. We mentioned we set two 100 kilogram orders to Europe recently. So we are doing that. And I guess you don't care too much about the transportation costs. But to set up a facility and to get into bed with someone in Europe to do that would indicate that there is some reason to doing it. It's not just, the giggles. So those are two things I could direct your attention to, to determine how far along we are. And I just -- I'm putting a 90% down the road on that. And you can imagine that once the orders start being processed by the North American OEM, let's take that as an example, you can imagine that would give us a lot of credibility, particularly with the name and open up the door to many other opportunities in that industry. So I think we're 90% of the way there.
Greg MacDonald: And final question I have is, with metal powders you mentioned in the press release, and I've heard this before developing an inventory, which suggests that there's a standing opportunity to be either selling or providing metal powders for test purposes. Is there -- is that at all -- I mean, I'm asking out of the blue here, is that at all part of an opportunity for revenue in the near term?
Peter Pascali : Inventory, how you'd operate this, as you do some runs and you sell something to keep some inventory, it's just a smart way of doing it. So keeping an inventory of powder, so you could ship them is -- would be necessary, for sure.
Greg MacDonald: It suggests smaller batch. Peter, my understanding is correct?
Peter Pascali : No, not at all. Right now, we're doing smaller batches. But when we go into commercialization, we have to keep an inventory for the ups and downs of the demand. No, we definitely -- we keep inventory for -- it just makes sense. I mean, when we do a run, you don't stop it at x. If you continue doing the run, it's cheaper to do a run and keep -- you have an estimate, you make an estimate of what your needs will be over the next several months, and you inventory accordingly.
Greg MacDonald: Got it.
Peter Pascali : Managing sales of inventory is old hat. I mean, we don't have to reinvent the wheel, there's lots of standards for that.
Greg MacDonald: Got it. Okay. Thanks for answering the questions.
Peter Pascali : Pleasure. Thanks for joining us today.
Operator: Thank you. Our next question comes from line of Alan Thompson, an investor. Your line is open.
Peter Pascali : Hey, Mr. Thompson.
Unidentified Analyst: Good morning.
Peter Pascali : Good morning, sir. How are you doing?
Unidentified Analyst: Good. Thank you. I was just wondering if you could give us an update on any improvements made to address the internal control shortfalls cited in your year-end financials.
Peter Pascali : I'm sorry. Did you hear that Andre? I didn't.
Andre Mainella : Yeah, I think the question is update on internal control?
Unidentified Analyst: Improvements made to your internal control systems that were cited at the shortfalls that were stated in year-end financials?
Andre Mainella : Yeah. I think if I understand the question, what I have to say is we keep looking at our processes, we address all the weaknesses that we have. We address it mainly by implementing a series of compensating controls that we execute on a quarterly basis. So given the timing of when we have all the internal controls in place, and eventually the assessment by auditors, we'll continue to improve the control, working with external consultants and getting resources that we need to make sure that there's no unaddressed risk in our financial statements. So we're moving forward and obviously going my priority. But our main focus is making sure we have all the proper compensation controls and improving our ERP IT systems to make sure everything is there to mitigate any risks that we have.
Peter Pascali : Just for those who are listening in, need some color on that. These standards were what we had to get to as a result of uplisting and being on the NASDAQ. And so when, you don't do them in advance. NASDAQ, for example, dictates that there should be certain levels of controls. And when you uplift, they give you a certain period of time to do it within. So we're well within the time period, and we're implementing those controls. Remember that we've been a client of the U.S. Navy for many, many, many years. And we have lots of controls and reporting procedures in place. We just have to adapt them and tweak them for NASDAQ's requirements. So this is old hat for us, to adapt to those very, very stringent controls. It's not It's nothing. It's nothing unusual. However, accounting processes and standards dictated that we had to highlighted in our financials once we uplisted.
Andre Mainella : And just add to that, honestly we prefer being transparent, and disclosing everything that we're able to illustrate in the financial statements. And so, we're just focusing on that to be clear if any issues and making sure our financials are free of any mistakes.
Unidentified Analyst: Many thank you.
Peter Pascali : Mr. Thompson, was that good for you?
Unidentified Analyst: Yes, thank you.
Andre Mainella : Thank you.
Peter Pascali : Would you have another question?
Operator: I'm not showing any further questions at this time. I'm not showing any further question at this time. I'd like to turn the call over to Peter for any closing remarks.
Peter Pascali : Well, ladies and gentlemen, as I started off by telling you, the numbers themselves, don't excite me this year. However, for those who have the time to peel back the onion, they'll realize that we have made amazing strides towards our goal. We haven't faltered, nothing's falling off the back of a ship. Everything's moving forward. And in fact, the world is lining up to support our product line and our offerings by providing government support and incentives and a general interest in reducing greenhouse gases and a fundamental interest in reducing the need to rely on diesel. So your company is well positioned? Well led, if I may. And we're very excited here more or less high because of what's happening on the ground and what we're doing with our technology. I appreciate the patience. I appreciate the time you've put into listening to me today. I look forward to updating you in the near future with very interesting developments. Thanks a lot.
Operator: Thank you for participating. You may now disconnect. Everyone have a great day.
Peter Pascali : Thanks. Thank you.
