PyroGenesis Announces 2024 Second Quarter Results

Share-based payments expenses as explained above, are non-cash expenses and are directly impacted by the vesting structure of the stock option plan whereby options vest between 10% and up to 100% on the grant date and may require an immediate recognition of that cost.

4. Depreciation on Property and Equipment

The depreciation on property and equipment for the three and six-month periods ended June 30, 2024, decreased to $0.1 million and $0.16 million, respectively, compared with $0.2 million and $0.3 million for the same periods in the prior year. The expense is comparable to the same quarters last year and the decrease is primarily due to the nature and useful lives of the property and equipment being depreciated.

5. Research and Development (“R&D”) Costs, net

During the three-months ended June 30, 2024, the Company incurred $0.3 million of R&D costs on internal projects, a decrease of $0.5 million when compared to Q2 2023. The decrease in Q2 2024 is primarily related to a decrease in employee compensation and in other expenses due to a reduction in R&D activities.

During the six-months ended June 30, 2024, the Company incurred $0.5 million of R&D costs on internal projects, a decrease of $0.6 million when compared to the same period in the prior year. The decrease is mainly due to lower levels of R&D activities in the 2024 period.

In addition to internally funded R&D projects, the Company also incurred R&D expenditures during the execution of client funded projects. These expenses are eligible for Scientific Research and Experimental Development (“SR&ED”) tax credits. SR&ED tax credits on client funded projects are applied against cost of sales and services (see “Cost of Sales” above).

6. Finance Expenses (income), net

Finance expenses for Q2 2024 totaled $0.3 million as compared with an income of $0.9 million for Q2, 2023, representing a variation of $1.3 million year-over-year. The increase in finance expenses in Q2 2024 is mainly due to the favourable $1.1 million of the revaluation of the balance due on business combination in Q2 2023, not repeated in 2024 and to the increase in interest and accretion related to the convertible debenture and convertible loan.

During the six-month period ended June 30, 2024, the finance expenses totaled $0.5 million as compared with an income of $1.8 million for the 2023 comparable period, representing a variation of $2.4 million year-over-year. This is due to the favourable revaluation of the balance due on business combination due to two milestones that would not be achieved, thus a reversal of the liabilities was recorded. In addition, greater financial expenses were due to the interest and accretion for the convertible debenture and convertible loan.

7. Strategic Investments

During the three-months ended June 30, 2024, the adjustment to fair market value of strategic investments for Q2, 2024 resulted in a loss of $0.04 million compared to a loss in the amount of $1.2 million in Q2, 2023, a favorable variation of $1.2 million. During the six-months ended June 30, 2024, the adjustment to fair market value of strategic investments resulted in a loss of $0.2 million compared to a loss in the amount of $0.9 million for the same period in the prior year, a favorable variation of $0.7 million. The decrease in loss for the three and six-month periods ended June 30, 2024, is attributable to the variation of the market value of the common shares owned by the Company of HPQ Silicon Inc.

8. Other Income

During the three-months ended June 30, 2024, Other Income includes a gain on settlement of legal proceedings with a third party which was also a customer of the Company’s subsidiary, Pyro Green-Gas. As a result, the Company received a settlement of $1.5 million and recognized a gain of $1,180,335 and the remainder as a reduction of accounts receivable.

9. Comprehensive Income (loss)

The comprehensive income for Q2, 2024 of $1.4 million compared to a loss of $6.3 million, in Q2, 2023, represents a variation of $7.8 million, and is primarily attributable to the factors described above, which have been summarized as follows:

  • an increase in product and service-related revenue of $0.9 million arising in Q2, 2024, which generated a 29% gross margin, compared to 37% in Q2 2023. As a result, gross profit is $1.1 million in both the current and comparable three-month period,
  • a decrease in SG&A expenses of $6.2 million arising in Q2, 2024, was primarily due to the expected credit loss and bad debt decrease, and also to lower professional fees, other expenses and foreign exchange from the U.S. dollar. This was offset by increases in employee compensation, office and general, depreciation of right-of-use assets, and government grants,
  • a decrease in share-based expenses of $0.4 million
  • a decrease in R&D expenses of $0.5 million due to a reduction of R&D activities,
  • an increase in net finance expenses primarily due to the revaluation of the balance due on business combination in Q2 2023, not repeated in 2024,
  • a favourable variation in the fair market value of strategic investments of $1.2 million, and the $1.2 million gain on the legal settlement.

The comprehensive loss for the six-month period ended June 30, 2024, of $3.0 million compared to a loss of $12.5 million, for the same period in the prior year, represents a variation of $9.5 million, and is primarily attributable to the factors described above, which have been summarized as follows:

  • an increase in product and service-related revenue of $1.8 million, which generated a 25% gross margin, compared to 29% in 2023. As a result, gross profit is $1.9 million compared to $1.6 million for the same six-month period of 2023,
  • a decrease in SG&A expenses of $9.2 million was primarily due to the favourable impact of the expected credit loss and bad debt decrease and also to the decrease in employee compensation, professional fees, travel, depreciation of property and equipment, other expenses and foreign exchange but slightly offset by an increase in office and general, and government grants,
  • a decrease in share-based expenses of $1.0 million
  • a decrease in R&D expenses of $0.6 million primarily due to decreased R&D activities,
  • an increase in net finance expenses primarily due to the revaluation of balance due on business combination of $2.1 million in 2023 not repeated in 2024,
  • a favourable variation in the fair market value of strategic investments of $0.7 million, and the $1.2 million gain on the legal settlement.

10. Liquidity and Capital Resources

As at June 30, 2024, the Company had cash of $3.4 million, included in the net working capital deficiency of $9.2 million. Certain working capital items such as billings in excess of costs and profits on uncompleted contracts do not represent a direct outflow of cash. The Company expects that with its cash, liquidity position, and its access to capital markets it will be able to finance its operations for the foreseeable future.

The Company’s term loan balance at June 30, 2024 was $317,140 and decreased by $86,939 since December 31, 2023, due mainly to the complete reimbursement of a loan. The decrease from January 1, 2023, to December 31, 2023 was mainly attributable to the accretion on the Economic Development Agency of Canada loan, which is interest free and will remain so, until the balance is paid over the 60-month period ending March 2029. In July 2023, the Company closed a brokered private placement for $3,030,000, bearing interest at 10%. On December 20, 2023, the Company closed a non-brokered private placement of a convertible loan for gross proceeds of $1,250,000 and bears interest at 3%. The average interest expense on the other term loans and convertible debenture is approximately 10%. The Company does not expect changes to the structure of term loans and convertible debentures and loans in the next twelve-month period. The Company maintained one credit facility which bears interest at a variable rate of prime plus 2%, therefore 7.95% at June 30, 2024. The Company will continue to reimburse the existing credit facility in 2024.

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