May 27, 2020 By Xebec Adsorption Inc.
Xebec Adsorption Inc., a global provider of renewable gas solutions, is pleased to announce its 2020 first quarter results today, with the following highlights:
- Revenues of $12.2 million in the first quarter of 2020 compared to $9.8 million for the same period in 2019, a 24 per cent increase.
- Positive EBITDA at $0.8 million for 2020 compared to $1.1 million for the same first quarter in 2019.
- Net loss of $0.7 million or $(0.01)/share for 2020, compared to a net profit of $0.4 million or $0.01/share for the same period in 2019.
- Working capital increased at $39.7 million as of March 31, 2020, for a current ratio of 2.9:1 compared with working capital of $36.9 million and a 3.2:1 ratio on Dec. 31, 2019.
“Despite the global pandemic in the first quarter of 2020, Xebec was able to show resilience and continue its growth trajectory for the year. Our first quarter came in weaker than originally expected due to the impact of COVID-19 on our operations globally. Some industrial order deliveries were delayed and could not be shipped by March 31, resulting in lower than expected revenues. These deliveries have since resumed and a substantial part of these revenues will be realized in the current quarter. Xebec’s geographical diversity and the essential nature of our businesses have allowed us to continue operating and manufacturing with moderate impact on the first quarter. Our strong balance sheet and backlog provides us a solid foundation for the coming quarters.
We are happy to report that industry activity remains robust as customers remain forward-looking. Renewable gas projects typically span multi-years from inception to commissioning and deliberate planning is needed by all stakeholders. With mandates and targets already in place, the pandemic is not deterring developers from moving projects forward. In addition, governments are now looking at ways to stimulate the economy, and the long-term appeal of renewable energy projects looks to be favourable for policy makers,” said Kurt Sorschak, president and CEO, Xebec Adsorption Inc.
Impact of COVID-19 on first quarter and operational update
Xebec was not immune to the worldwide impact of COVID-19. The brief business interruptions in our Chinese, Italian and Californian operations in March resulted in shipment delays and consequently resulted in reduced revenues of approximately $3.8 to 4.0 million in Q1/20. These shipment delays in turn resulted in higher inventory levels. In addition, Xebec saw a planned increase of its inventory levels at its Blainville facility to ensure continued supply of critical manufacturing materials and components in the changing environment.
Furthermore, efforts to contain COVID-19 increased operating costs and reduced productivity at all our facilities due to the implementation of additional health and safety measures. Xebec’s Business Continuity Committee worked diligently to safeguard our employees, partners, and suppliers. To date, we can report that Xebec has not experienced a single case of COVID-19 throughout its worldwide operations.
With China restarting in mid-March, our Italian operations in early May and shipments from our California subsidiary having restarted in mid-April, our operational performance is improving. Our manufacturing facility in Québec continues to operate at near full capacity and has been deemed an essential business.
Xebec continues to be well-positioned in the event of future disruptions with its strong balance sheet that includes $23.7 million of cash on hand (as of March 31, 2020) and a $10 million loan facility from the Fonds de Solidarité FTQ that was recently announced. In addition, Xebec will receive additional funds of approximately $14 million if its outstanding warrants are exercised by July 4th, 2020.
Management guidance for 2020
Despite the weaker than expected Q1/20 numbers, which were primarily tied to our inability to ship products to customers and recognize revenues, Xebec expects to continue its rapid growth and improve its profitability in 2020. As a result, the company maintains its previously announced guidance. With the support of our strong order backlog of $89.9 million, we expect consolidated revenues for 2020 in the range of $80 to $90 million, net earnings of seven to nine per cent and EBITDA margins of 11 to 13 per cent.
More specifically, revenues in our Cleantech Systems segment are expected to be $50 to $55 million and revenues from our Industrial Service and Support segment are expected to grow to $30 to $35 million with half of the revenue attributed to acquisitions, and the rest to organic growth. Xebec does not expect to record any revenues from our Renewable Gas Infrastructure segment in 2020.
Due to the shutdown of our operations in China and Italy, which impacted the shipment of products and site construction and commissioning activities, revenue and gross margin profitability came in lower than anticipated. Xebec expects a stronger Q2/20 as the company’s operations in these markets have since restarted.
We regard quote activity as an early indicator for future order activity. Our current quote log remained strong at $937.0 million (as of March 13, 2020), and our order backlog is $89.8 million.
Xebec had recent success in the quarter with $27.0 million in U.S dairy farm orders announced in February 2020, which will be delivered over the next few quarters. We see this as a reflection of more customers recognizing Xebec’s competitive advantages which are lowest lifecycle costs and local service and support offerings through our North American Xebec Service Subsidiaries.
The company will continue to increase its effort in Europe and North America to market and sell its new BGX Biostream product to gain market share in the small to medium size biogas upgrading segment.
Industrial service and support
Xebec continues to pursue organic and inorganic growth opportunities. The company views acquisitions as a critical component in supporting Cleantech System’s growth by providing service and support throughout North America.
On Dec. 10, 2019, we announced our second acquisition as part of this strategy, and we expect another two to three acquisitions in 2020. The targeted acquisitions are in the U.S and Canada.
Revenue growth and profitability were impacted due to delays in product shipments to customers and restrictions in providing on-site service and support to companies that were closed. As economies begin to reopen and our acquisition strategy continues, Xebec expects future quarters to be stronger.
Revenue in this segment is expected to triple from $11.5 million in 2019 to $30 to $35 million in 2020, while gross margins should start improving from around 30 per cent toward the targeted 40 per cent range. In the first quarter we demonstrated being on track for this target with gross margins of 37 per cent.
Renewable gas infrastructure
Xebec is in the final stages of formalizing its first strategic investment partnership to actively participate in renewable gas projects in Canada. This partnership will support the growth of companies developing renewable gas and waste recovery projects.
Xebec expects to announce this partnership within the next few days, a key milestone in allowing Xebec to rapidly scale up its efforts to invest in high-quality renewable gas assets in Québec.
On February 18, 2020, Xebec announced its first renewable natural gas (RNG) infrastructure investment located in Québec. The $28 million project will be an integrated facility to process various organic wastes to produce renewable natural gas and biofertilizer. The project continues to progress, and the plant is expected to be commissioned by mid- to late 2021.
This project marked the start of Xebec’s newest business segment, which aims to drive predictable recurring and profitable revenue generation through 20-year Gas Purchase Agreements (GPAs) with utilities, tipping fees and bio-fertilizer sales.
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