Xebec Announces Q2 2020 Financial Results

Record revenue of $19.6 million, EBITDA of $-0.1 million and net loss of $0.8 million

MONTREAL, Aug. 11, 2020 (GLOBE NEWSWIRE) -- Xebec Adsorption Inc. (TSXV: XBC) ("Xebec"), a global provider of renewable gas solutions is pleased to announce today its 2020 second quarter and six-month periods results, with the following highlights:

  • Record revenues of $19.6 million in the second quarter of 2020 compared to $12.8 million for the same period in 2019, a 53% increase.
  • Negative EBITDA at $0.1 million for the second quarter 2020 compared to a positive $1.8 million for the same period in 2019.
  • Net loss of ($0.8) million or ($0.01)/share for the second quarter 2020, compared to a net profit of $1.0 million or $0.02/share for the same period in 2019.
  • Working capital increased to $87.2 million on June 30, 2020, for a current ratio of 6.5:1 compared with working capital of $36.9 million and a 3.2:1 ratio on December 31, 2019.

Financial Highlights:

 Three months ended
June 30,

% of
Six months ended
June 30,

% of
 20202019 20202019 
(In millions of dollars)(unaudited)(unaudited) (audited)(audited) 
Revenues19.612.8  53 %31.822.541 %
Gross profit4.34.0  8 %7.37.3- %
Gross profit as a percentage of revenues22%32% 23%33% 
EBITDA (1)(0.1)1.5 0.52.2 
Adjusted EBITDA (2)(0.1)1.8 0.32.8 
Net income (loss)(0.8)1.0 (1.5)1.4 
Net income (loss) per share - basic ($/share)(0.01)0.02 (0.02)0.03 
Weighted average number of shares88,884,226 58,116,344  87,086,13757,648,164 
As at:   June 30,
Dec. 31,
Total assets   113.564.5 
Total liabilities   33.525.5 
Equity   80.039.0 
As at:    August 10,
August 12,
Backlog   85.563.5 
(1) EBITDA is a non-IFRS financial measure and the Company defines it as earnings from operations excluding financial charges, taxes, foreign exchange loss (gain) and amortization.
(2) Adjusted EBITDA starts with EBITDA and adjusts for Stock-based compensation expenses, impairment of inventories, exchange gain/loss on the obligation arising from non-controlling interest participation in a subsidiary, foreign exchange loss (gain) and accretion of debt.

Financial Results

  • Revenues of $31.8 million for the six-month period ended June 30, 2020 compared to $22.5 million for the same period in 2019, a 41% increase. The increase is mainly explained by the higher volume of major cleantech contracts and acquisition of a service company.
  • Gross profit of $7.3 million or 23% of revenues for the six-month period ended June 30, 2020 compared to $7.3 million or 33% for the same period in 2019. The company had a lower gross margin in the cleantech segment due to investments in product standardization and higher construction costs for sites impacted by COVID regulations.
  • Net loss of $1.5 million or ($0.02) per share for the six-month period ended June 30, 2020, compared to a net profit of $1.4 million or $0.03 per share for the same period in 2019, a deterioration of $2.9 million. The decrease is mainly explained by a reduction of gross margin, an increase of SG&A and the reduced productivity caused by the COVID-19 pandemic.
  • Positive EBITDA of $0.3 million for the six-month period ended June 30, 2020, compared to $2.9 million for the same period in 2019, a deterioration of $2.6 million.
  • Backlog increased by $22.0 million, from $63.5 million on August 12, 2019, to $85.5 million on August 10, 2020.
  • Selling and administrative expenses increased by $3.6 million in the six-month period ended June 30, 2020 compared to the same period in 2019.  This is primarily due to an organizational scale-up of employees and associated costs to support the increased level of sales, order backlog and quote log.  Also included are the costs of acquisition, up list to TSX by end of 2020 and the implementation of an ERP system.
  • As of June 30, 2020, the company had $60.0 million of cash on hand compared to $22.4 as of December 31, 2019 and positive working capital has increased to $87.2 million compared to $36.9 million on December 31, 2019.
  • On June 26, 2020, Xebec closed a bought deal public offering of units at a price of $3.60 per unit for aggregate gross proceeds of $29 million.

CEO Quote:
“Q2 was a challenging quarter and I’m proud to see the resilience Xebec has displayed. COVID-19 is to a certain degree catching up with Xebec and even though we were successful in continuing to grow the top line during the first 6 months of 2020, we had to incur higher costs in order to achieve that growth. These higher costs combined with the additional overhead expansion for our organizational build-out in Europe, North America and China has led to increases in our SG&A. The current revenue does not yet reflect the full revenue potential of these investments in our organization and consequently we are seeing an impact on our short-term earnings ability, especially since we are also confronted with higher direct costs to generate the revenue, which in turn has reduced our targeted gross margin in Q2.

We are consequently increasing the focus on our overall gross margin generation, for which our target is the low 30% range, and we are working to achieve SG&A below 20% of revenues. We expect to achieve more operating leverage as our revenues will increase in the quarters to come.

There are a number of investments we are currently making, such as the implementation of 52-109. These are exchange rules that are required to govern internal controls for companies listed on the TSX mainboard. We are also in the process of a planned migration of our inhouse server-based Enterprise Resource Planning (ERP) system to the latest cloud version. The new ERP software will allow us to connect all our subsidiaries to our ERP system and manage all data centrally through this program. As a result, we will have better business control and business intelligence as we move into 2021.

Furthermore, we have been working on our first “Sustainability Report” for 2019. We have chosen to base our reporting of our material ESG issues on the standards of the Sustainabil­ity Accounting Standards Board (SASB) for the Industrial Machinery & Goods industry of the Resource Transformation sector, as defined by SASB’s Sustainable Industry Classification System®; these serve to determine the specific material ESG issues we will report on. This first report will form the baseline for future annual reports on our sustainability efforts, and will hopefully lead to better environmental, social and governance related outcomes. We expect to issue our first report later this month.

Due to the Cleantech order scale up, we have decided to introduce a night shift at our Blainville, Québec facility in July of this year. This has consequently increased our production and support staffing and we are in the process of ramping up this increased capacity. This capacity expansion will allow us to continue to grow our revenues as planned.

I am also pleased to report that we are seeing solid demand for our hydrogen technologies and that we are on track to generate about $15 to 20 million in hydrogen sales in 2020.

We continue to see a positive backdrop for the industry as climate change comes back to the forefront of people’s minds and governments look to stimulate their economies. Xebec is in a strong position to take advantage of these new opportunities as we aim to decarbonize and achieve a zero-carbon future.”
- Kurt Sorschak, President and CEO, Xebec Adsorption Inc.

Current Market and Guidance for 2020
Our market outlook for renewable natural gas and hydrogen purification equipment under our Cleantech Systems remains unchanged from our previous guidance. We expect our Industrial Service and Support segment to continue its revenue growth in line with our strategy.

We maintain our revenue guidance of $80 to $90 million but retract our earnings and EBITDA guidance. Xebec expects to be profitable on a net earnings and EBITDA basis for FY2020 but given the results of the first two quarters, we are unable to maintain the previous guidance. Execution and organizational development will be key for continued growth. Management recognizes this and is focused on operational performance and the creation of an environment that will allow the company to scale. We are working on expanding our managerial capabilities, building strong, results-driven teams that will deliver on future opportunities.

Cleantech Systems
Our Cleantech segment continues to expand. We have signed several Letters of Intent (LOI) for renewable natural gas (RNG) systems during the course of Q2, and we have received a number of orders for hydrogen purification. We have also signed a significant order for helium purification with a large industrial gas client. In addition, our short-term order outlook looks very positive, which will lead to further solid order flow in Q3.

Europe has been slower than expected, mainly due to the COVID-19 shut-down of most of the European economy during Q2. We expect that Italy will remain weak for the rest of the year, but we expect further growth in France. We continue to guide for Cleantech revenue in the $50 to $55 million range, but we are seeing lower than anticipated margins in the larger biogas plants as we invest in the standardization of these designs. Our engineering and supply chain teams are working on complexity reductions and sourcing synergies between different product platforms, which will allow us to generate Cleantech margins in the 25% to 30% range. Lastly, we regard quote activity as an early indicator for future order activity. Our current quote log remained strong at $1.05 billion (as of August 10th, 2020), and our order backlog is $85.5 million.

Yesterday, we announced a partnership with CarbonQuest which has opened a new application for our purification and separation technologies. Although in the early stages, this initiative could open another large-scale market for Xebec as NYC building owners look to reduce their exposure to the new Local Law 97 or face significant penalties that increase in severity over time. There are over 60,000 buildings in NYC alone that could benefit from the carbon capture solution we are co-developing, and we look forward to providing updates on this in the future.

Industrial Service & Support
Xebec continues to pursue organic and inorganic growth opportunities and expects to grow revenues from $11.5 million in 2019 to about $30 to $35 million in 2020. Our current run rate for industrial service and support revenues is approximately $25 million, and we expect to close 2 more acquisitions within the next 60 to 90 days. As a result, Xebec is on track to hit revenue guidance of $30 million+ range for FY2020. In Q2/20 we achieved a gross margin of 37%, somewhat lower than the targeted 40%+. As our purchasing power increases, we should be able to improve the margin into the targeted range.

Renewable Gas Infrastructure
On July 3rd, 2020 the Québec government announced its organic material management plan with a target to recycle or recover 70% 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 bio-methanation (RNG production) and composting, whose budget will be increased by $308 million. In addition, the Québec government announced on July 4th, 2020, its commitment to provide $70 million in funding for RNG projects.

These developments are positive for Xebec’s recently announced fund (GNR Québec Capital L.P.) with the Fonds de solidarité FTQ. This new investment vehicle aims to increase renewable natural gas (RNG) production in Québec and when fully capitalized and appropriately leveraged, could fund 12 to 15 renewable natural gas projects in the province.

Overall, the fund’s development is progressing well with three key hires being finalized. In addition, the first RNG project (announced in February 2020) is in the process of being rolled into the fund. This first project is located in the Eastern Townships and will process 45,000 tons of organic waste per year, generate 150,000 GJ of RNG and produce 7,500 metric tons of biofertilizer annually. Lastly, there are several projects being evaluated for investment and Xebec expects activity to pick up as the new hires assume their positions.

Xebec to Host Live Investor Webinar to Discuss Q2 2020 Results
An investor webinar for shareholders, analysts, investors, media representatives, and other stakeholders will be held today, August 11, 2020 at 11:00AM EDT (8:00AM PDT).

Register here: https://app.livestorm.co/xebec-adsorption-inc/2020-q2-investor-webinar

A recording of the webinar and supporting materials will be made available later today in the investor’s section of the Company’s website at investors.xebecinc.com.

2020 Second Quarter Financial Statements and Management’s Discussion and Analysis
The complete financial statements, notes to financial statements, and Management’s Discussion and Analysis for the six-month period ended June 30, 2020, are available on the company’s website at www.xebecinc.com or on the SEDAR website at www.sedar.com

Related links:

For more information:
Xebec Adsorption Inc.
Brandon Chow, Investor Relations Manager
+1 450.979.8700 ext 5762

About Xebec Adsorption Inc.
Xebec Adsorption Inc. is a global provider of gas generation, purification and filtration solutions for the industrial, energy and renewables marketplace. Its customers range from small to multi-national corporations and governments looking to reduce their carbon footprints. Headquartered in Montreal (QC), Xebec designs, engineers and manufactures innovative and transformative products, and has more than 1,500 customers worldwide. With two manufacturing facilities in Montreal and Shanghai, as well as a sales and distribution network in North America, Europe, and Asia, Xebec trades on the TSX Venture Exchange under the symbol XBC. For additional information on the company, its products and services, visit Xebec at xebecinc.com.

Cautionary Statement
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accept responsibility for the adequacy or accuracy of this release. This news release contains forward-looking statements and forward-looking information (together, “forward-looking statements”) within the meaning of applicable securities laws. All statements, other than statements of historical facts, are forward-looking statements and subject to risks and uncertainties. Generally, forward-looking statements can be identified by the use of terminology such as “plans”, “seeks”, “expects”, “estimates”, “intends”, “anticipates”, “believes”, “could”, “might”, “likely” or variations of such words, or statements that certain actions, events or results “may”, “will”, “could”, “would”, “might”, “will be taken”, “occur”, “be achieved” or other similar expressions. Forward-looking statements, including statements concerning future capital expenditures, revenues, expenses, earnings, economic performance, indebtedness, financial condition, losses and future prospects as well as the expectations of management of Xebec with respect to information regarding the business and the expansion and growth of Xebec operations, involve risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements are subject to business and economic factors and uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements, including the relevant assumptions and risks factors set out in Xebec's public documents, including in the most recent annual management discussion and analysis and annual information form, filed on SEDAR at www.sedar.com. Furthermore, should one or more of the risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements or information. These risks, uncertainties and other factors include, among others, the uncertain and unpredictable condition of the global economy, Xebec’s capacity to generate revenue growth, a limited number of customers, and other factors. Although Xebec believes that the assumptions and factors used in preparing the forward-looking statements are reasonable, undue reliance should not be placed on these statements, which only apply as of the date of this news release, and no assurance can be given that such events will occur in the disclosed times frames or at all. Except where required by applicable law, Xebec disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.