- PUREVAP™ related sales generated revenue of $0.2 million, a decrease of $0.2 million compared to Q3, 2023 due to the completion of the project and with the successful silicon “pour” previously announced by the Company. As a result, minimal revenue was forecasted and realized in the current quarter,
- DROSRITE™ related sales increased by $0.4 million due to the rise in active client site trials across Europe, increased spare parts orders from existing clients, and higher revenue from storage and other ancillary revenue and transportation related to the DROSRITE units, at the request of the client,
- Development and support related to systems supplied to the U.S Navy decreased by $0.7 million compared to Q3, 2023, due to the current stage of the project, whereas, in the comparable period, significant advancement was made related to inspection, packaging and shipment of the equipment to our customer in order to move forward with installation and commissioning,
- Torch-related products and services increased by $0.4 million, due to the continued progress on the significant projects related to our 4.5MW and 1MW torch systems, and additional recurring monthly 24/7 onsite support,
- SPARC™ related sales increased by $0.6 million, due to substantial advancements in fabrication, assembly, and delivery preparation, installation and commissioning scheduled for early 2025.
- Biogas upgrading and pollution controls generated revenue of $0.7 million, a decrease of $0.1 million compared to Q3, 2023, due to the nature and status of the projects.
During the nine-month period ended September 30, 2024, revenues varied by $2.1 million, mainly as a result of:
- PUREVAP™ related sales decreased to $0.7 million due to the completion of the project and current project phase, whereby lower revenue was expected,
- DROSRITE™ related sales increased to $1.2 million due to additional site trials for customers and the increase in spare parts orders from existing clients and the increase in storage revenue, other ancillary revenue and transportation related to the DROSRITE units,
- Development and support related to systems supplied to the U.S Navy decreased by $0.5 million due to the current stage of the project, with the advancements contingent upon the client’s inspections scheduled for Q4, 2024, partially offset, by the increase in awarded contracts for spare parts and engineering services from clients that are third-party suppliers of the US Navy,
- Torch-related products and services increased by $2.3 million, due to the Company providing continuous 24/7 onsite support and the significant progress related to the current ongoing torch systems projects,
- SPARC™ related sales increased by $0.6 million, due to significant advancements, particularly the completion of long-lead major equipment, with focus now on preparing for installation and commissioning at the client’s facility,
- Biogas upgrading and pollution controls related sales decreased by $0.5 million due to a decrease in project volume,
As of November 6, 2024, revenue expected to be recognized in the future related to backlog of signed and/or awarded contracts is $54.9 million. Revenue will be recognized as the Company satisfies its performance obligations under long-term contracts, which is expected to occur over a maximum period of approximately 3 years.
2. Cost of Sales and Services and Gross Margins
Cost of sales and services were $2.3 million in Q3, 2024, representing a decrease of $0.3 million compared to $2.6 million in Q3, 2023, primarily attributable to a $0.6 million reduction in direct materials, totaling $0.9 million, and a $0.2 million decrease in amortization of intangible assets, compared to $1.5 million and $0.2 million, respectively for the three-month period ended September 30, 2023. The decrease in direct materials is related to the decrease in recognition of costs related to the Company’s DROSRITE™, PUREVAP™, and Biogas upgrading and pollution controls product lines, offset by the recognition of costs from the completion of the power supplies required for the Company’s high-powered torch systems. However, the decrease was offset by the increase in employee compensation of $0.1 million increasing to $0.9 million (three-month period ended September 30, 2023 - $0.8 million), an increase of $0.2 million in subcontracting (three-month period ended September 30, 2023 - $0.1 million), attributed to additional work being subcontracted and the product mix related to the cost of sales and the increase in manufacturing overhead and other of $0.2 million, to $0.4 million (three-month period ended September 30, 2023 - $0.2 million).
The gross profit for Q3, 2024 was $1.7 million or 42% of revenue compared to a gross profit of $1.1 million for Q3, 2023, representing 30% of revenue. The increase in gross margin percentage was mainly due to the decrease on direct materials costs, and amortization of intangible assets.
During the nine-month period ended September 30, 2024, cost of sales and services were $7.9 million, an increase from $6.6 million for the same period in the prior year. The $1.3 million increase is primarily driven by a $1.4 million rise in direct materials related to the recognized costs of substantial items, namely power supplies. Employee compensation and manufacturing overhead and other increased by $0.2 million and $0.1 million, to $2.8 million and $0.9 million, respectively (nine-month period ended September 30, 2023 - $2.6 million and $0.8 million). This increase was partially offset by the decrease in amortization of intangible assets of $0.5 million to $0.1 million compared to $0.7 million for the same period in the prior year.
The amortization of intangible assets for Q3, 2024 was $0.02 million compared to $0.2 million for Q3, 2023, and during the nine-month period ended September 30, 2024, was $0.1 million compared to $0.7 million for the same period in the prior year. This expense variation relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, which have been fully amortized by January 2024. These expenses were non-cash items, and the remaining intangible assets are composed of patents, and deferred development costs that will be amortized over the expected useful lives.
As a result of the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, the mix between labour, materials and subcontracts may be significantly different. In addition, due to the nature of these long-term contracts, the Company has not necessarily passed on to the customer, the increased cost of sales which was attributable to inflation, if any. The costs of sales and services are in line with management’s expectations and with the nature of the revenue.
3. Selling, General and Administrative Expenses
Included within Selling, General and Administrative expenses (“SG&A”) are costs associated with corporate administration, business development, project proposals, operations administration, investor relations and employee training.
SG&A expenses for the third quarter of 2024 amounted to $5.0 million, reflecting a decrease of $2.6 million from Q3, 2023. This reduction is primarily attributed to several key factors. The expected credit loss and bad debt experienced a decrease of $2.0 million, primarily due a reduction in provisioned outstanding receivable. Additionally, professional fees were reduced by $0.3 million from the three-month period ended September 30, 2023, due to decreased reliance on external consultants, legal services, and other professional services. Other expenses showed a favorable variance of $0.3 million, driven by reductions in insurance expenses and marketing costs and an increase of $0.2 million in government grants due to higher levels of activities supported by such grants. The decreases were partially offset by the negative impact of $0.3 million due to changes in the foreign exchange charge on materials due to the variation of the U.S. dollar and the increase of employee compensation of $0.3 million from $2.1 million to $2.4 million for the three-month period ended September 30, 2024.
During the nine-month period ended September 30, 2024, SG&A expenses totaled $9.7 million, a significant decrease of $11.8 million from $21.6 million for the same period in the prior year. The key factors contributing to this decrease include the expected credit loss and bad debt provision, which varied favourably by $8.2 million. This was caused by the payment received from a customer whose balance was provisioned, and to higher credit loss expense recognized in Q3, 2023. Professional fees saw a significant reduction of $1.2 million due to less reliance on external consultants, legal services, and other professional services. Other expenses decreased by $1.0 million, as well, due to a favorable impact of $0.3 million on the foreign exchange charge on materials due to the variation of the U.S. dollar.
