Canadian Biomass Magazine

Xebec reports revenues of $18.4M in Q3 2020

November 10, 2020
By Xebec Adsorption Inc.

Xebec Adsorption Inc., a global provider of renewable gas solutions announced today its 2020 third quarter and nine-month period results, with the following highlights:

  • Revenues of $18.4 million in the third quarter of 2020 compared to $13.2 million for the same period in 2019, a 39 per cent increase.
  • Negative EBITDA of $1.3 million for the third quarter of 2020 compared to positive EBITDA of $1.4 million for the same period in 2019.
  • Net loss of ($2.2) million or ($0.02)/share for the third quarter of 2020, compared to a net profit of $1.0 million or $0.02/share for the same period in 2019.
  • Working capital increased to $81.3 million on Sept. 30, 2020, for a current ratio of 4.4:1, from working capital of $36.9 million and a current ratio of 3.2:1 on Dec. 31, 2019.

Financial results and recent developments

  • Revenues of $50.2 million for the nine-month period ended Sept. 30, 2020 compared to $35.7 million for the same period in 2019, a 41 per cent increase. The increase is mainly explained by a higher volume of major Cleantech contracts and the acquisition of service companies.
  • Gross margin of $11.7 million or 23 per cent of revenues for the nine-month period ended Sept. 30, 2020 compared to $11.4 million or 32 per cent for the same period in 2019. The company had a lower gross margin in the Cleantech segment due to investments in product development, standardization and higher construction costs for sites impacted by COVID-19 regulations.
  • Net loss of $3.7 million or ($0.04) per share for the nine-month period ended Sept. 30, 2020 compared to a net profit of $2.5 million or $0.04 per share for the same period in 2019, a deterioration of $6.2 million and $0.08 per share. The decrease is mainly explained by a reduction in gross margin, an increase in SG&A expenses, and reduced productivity caused by the COVID-19 pandemic.
  • Negative EBITDA of $0.7 million for the nine-month period ended Sept. 30, 2020 compared to positive EBITDA of $3.7 million for the same period in 2019, a deterioration of $4.4 million.
  • Backlog increased by $17.4 million over the last 12 months, from $71.0 million on November 11, 2019 to $88.4 million on Nov. 9, 2020.
  • Selling and administrative expenses increased by $6.6 million in the nine-month period ended Sept. 30, 2020 compared to the same period in 2019. The increase is primarily due to the organizational scale-up of employees and associated costs to support the increased level of sales, order backlog and quote log. Also included are higher than anticipated one-time costs of acquisitions due to outsourced due diligence.
  • As at Sept. 30, 2020, the company had $51.9 million of cash on hand compared to $22.7 million as at Dec. 31, 2019 and working capital of $81.3 million compared to $36.9 million as at December 31, 2019.
  • On July 31, 2020, Xebec acquired North Carolina-based Air Flow to expand its Cleantech Service Network.
  • On Aug. 31, 2020, Xebec acquired British Columbia-based Applied Compression Systems to expand its Cleantech Service Network.
  • On Oct. 21, 2020, the Toronto Stock Exchange (the TSX) conditionally approved the listing of the common shares of Xebec. Listing of the shares is subject to Xebec fulfilling all of the requirements of the TSX, including receipt of all required documentation, on or before Jan. 19, 2021, as well as the distribution of the shares to a minimum number of public shareholders. Upon, and subject to, receipt of final TSX approval, the shares will be delisted from the TSX Venture Exchange and begin trading on the TSX under the symbol “XBC”.
  • On Oct. 31, 2020, Xebec acquired Pennsylvania-based The Titus Company to expand its Cleantech Service Network.

“Despite the market disruption caused by COVID-19, Xebec was able to display resilience, maintain its revenue growth trajectory and succeed in closing several acquisitions. Similar to the previous quarter, the third quarter presented challenges with COVID-19 as countries around the world continued to grapple with the effects of the pandemic and its resurgence. This had an impact on our ability to deliver product to customers and we continued to incur higher costs associated with operations and installations due to increased health and safety measures.

Over time we expect to see a normalization in our operations as we better understand COVID-19, improve public health measures, and work towards a vaccine. We expect this will result in a strengthening and return to our historical product margins and reduced one-time costs associated with outsourced M&A activity.

We believe it is a critical time for governments to consider how they rebuild their economies and how the transition to a low-carbon future play into that. We expect clean energy policies and investment will come to the forefront worldwide, as we have already seen in Europe and our home country, Canada. We are encouraged to see quoting activity for renewable gas projects has picked up in the second half of this year and we remain positive about our future outlook.


Ultimately, 2020 has shaped up to be a year of focusing on building a strong foundation for Xebec. We expanded our management and operational teams and executed on a number of internal improvement projects, such as the new ERP implementation, ESG reporting capabilities, the establishment of an M&A team and the implementation of internal controls compliant with 52-109 to up-list to the TSX mainboard. Although the year did not go as initially planned, I am confident that we are building the foundation for our company to continue the rapid scaling we anticipate in the years to come,” stated Kurt Sorschak, chairman, CEO and president of Xebec Adsorption Inc.

Current market and guidance for remainder of 2020

Renewable natural gas and hydrogen purification systems continue to see strong demand and sales activity has picked up in the latter half of the year. The Industrial Service and Support business continues to develop well with support from both organic and inorganic growth.

Nonetheless, Xebec continues to see delays and higher costs with delivering its Cleantech products, which impacts its revenue and profit generation. This is due to higher manufacturing and installation costs resulting from increased health and safety and remote working measures. Xebec expects that operational costs as a percentage of revenue will return to normal levels once the pandemic has run its course, which is anticipated in the second half of 2021.

In addition, execution on the build out of Xebec’s Cleantech Service Network is progressing well, although the company is seeing higher one-time costs related to M&A activity being outsourced and conducted virtually. This includes onsite due diligence conducted primarily by local partner firms which has increased our third-party costs.

Xebec is in a transition period where we are investing significantly in management and operational teams to create an organization that can scale and deliver continued growth in 2021 and beyond. This investment as well as investments associated with acquisitions, Xebec’s Enterprise Resource Planning (ERP) system and uplisting to the TSX main board are reflected primarily in increased SG&A expenses.

The revenue impact of COVID-19 leads Xebec to adjust its revenue guidance for 2020 to $70 to $80 million from $80 to $90 million previously. Due to higher operating costs during the pandemic, as well as the investments noted above, Xebec does not expect to be profitable on a net earnings and EBITDA basis for 2020.

Cleantech Systems

The Cleantech Systems segment continues to grow and develop. Throughout the quarter Xebec received several renewable natural gas (RNG) and hydrogen purification orders. In addition, Xebec is in final negotiations for a number of new and exciting projects, leading to a positive short-term order outlook and increasing backlog.

Xebec’s new containerized BGX Biostream product for small-scale biogas upgrading applications was launched this quarter. The market reception to the product has been positive because of its attractive price point and low operating costs compared to competitors. As Xebec continues to market this new solution to dairy farmers, the company expects there to be strong demand for a standardized, turnkey product. To date, Xebec is quoting on over $100 million worth of Biostream projects alone. This product will be launched in European markets in 2021 and Xebec expects to generate positive momentum in Italy, France and Spain.

Lastly, Xebec continues to regard quote activity as an early indicator for future order activity. Xebec’s current quote log remained strong at $1.17 billion (as of Nov. 9, 2020), and its order backlog stands at $88.4 million.

Industrial service and support

Xebec continues to execute on its roll-up strategy by acquiring service companies to build out its Cleantech Service Network throughout North America. Revenues are expected to grow from $11.5 million in 2019 to more than $30 million in 2020. In Q3/20 Xebec achieved a gross margin of 31.4 per cent (34 per cent for the nine-month period), lower than Xebec’s 40 per cent-plus target. Xebec expects to achieve cost reductions that should improve our margins into the targeted range as we start to develop synergies with our completed acquisitions and optimize our product mix.

Furthermore, when customers select a vendor for a multi-million-dollar renewable natural gas or hydrogen installation, service and support figures prominently in their purchasing decision. Xebec plans to expand its Cleantech Service Network across North America over the coming years and is targeting a yearly revenue run rate of approximately $200 million in this segment by 2025.

Renewable gas infrastructure

As previously announced, Xebec will address the renewable gas infrastructure opportunity through GNR Quebec Capital L.P. (GNRQC), a fund that Xebec created with the Fonds de solidarité FTQ earlier this year. All of Xebec’s infrastructure activities in Québec were folded into GNRQC.

On July 3, 2020, the Québec government announced its organic material management plan with a target to recycle or recover 70 per cent of organic waste in the province by 2030. In conjunction with this target, the province earmarked $1.2 billion in funding to support municipalities and private companies with the build out of organic matter collection services and processing facilities. In addition, there is a specific program (PTMOBC) for the treatment of organic materials by biomethanization (renewable natural gas production) and composting, whose budget will be increased by $308 million. Lastly, the Québec government announced on July 4, 2020, its commitment to provide $70 million in funding for RNG projects.

GNRQC aims to reduce methane emissions by diverting organic waste away from landfills, recycling nutrients back into agriculture, and increasing renewable natural gas (RNG) production in Québec. When fully capitalized and appropriately leveraged, GNRQC will be able finance 12 to 15 renewable natural gas projects in the province.

GNRQC started its operations in Q3 and is currently evaluating 10 projects for development.

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