During the quarter, the PUREVAP™ Quartz Reduction Reactor (QRR) completed a validation of its systems integration and entered reactor start-up phase, where various process improvement tests were slated to take place over a period of a few months. Subsequently, the integrity of the reactor’s full operational ability will be tested over a multi-day, continuous run period at high temperatures; thereafter, quartz will be added to the system for processing and testing.
CONCLUSION
PyroGenesis considers 2022 to be a strong platform from which future growth will stem.
In the face of global headwinds and uncertainty, we are committed to focusing on the production efficiency, steady progression towards full commercialization for emerging business lines, the pursuit of innovation, and deepening the relationships with existing and potential clients that has served us successfully to this point.
Providing heavy industry with technology solutions to pressing environmental, engineering, and energy challenges while meeting their carbon reduction goals, remains PyroGenesis’ primary goal and focus.
Financial Summary
Revenues
PyroGenesis recorded revenue of $5,657,783 in the third quarter of 2022 (“Q3, 2022”), representing a decrease of 39% compared with $9,317,926 recorded in the third quarter of 2021 (“Q3, 2021”), Revenue for the nine months of fiscal 2022 was $15,711,726 a decrease of 34% over revenue of $23,863,001 during the same period in 2021.
Revenues recorded in the three and nine months ended September 30, 2022, were generated from:
| (i) | DROSRITE™ related sales of $71,431, $1,408,048 (2021 Q3 - $1,983,524, $6,373,130) | ||
| (ii) | PUREVAP™ related sales of $4,243,138, $5,617,942 (2021 Q3 - $999,875, $5,524,642) | ||
| (iii) | torch related sales of $684,997, $3,307,150 (2021 Q3 - $645,894, $1,398,729) | ||
| (iv) | development and support related to systems supplied to the U.S. Navy of $420,809, $1,757,168 (2021 Q3 - $1,957,981, $6,677,188) | ||
| (v) | biogas upgrading and pollution controls of $89,698, $3,260,850 (2021 Q3 - $3,712,000, $3,712,000) | ||
| (vi) | other sales and services of $147,710, $360,568 (2021 Q3 - $18,652, $177,312) |
Cost of Sales and Services and Gross Margins
Cost of sales and services before amortization of intangible assets was $1,325,847 in Q3 2022, representing a decrease of 74% compared with $5,174,062 in Q3 2021, primarily due to a decrease in direct materials and manufacturing overhead and other, $1,219,031 (Q3 2021 - $4,609,037) and increases in employee compensation and subcontracting $1,127,509 (Q3 2021 - $811,136), offset by the increase in foreign exchange of ($998,263) (Q3 2021 – ($200,240)).
The gross margin for the Q3 2022 three-month period was $4,113,176 or 73% of revenue compared to a gross margin of $4,052,531 or 43% of revenue for Q3 2021.
As a result of the sale of Intellectual Property and the type of contracts being executed, the nature of the project activity, as well as the composition of the cost of sales and services, as 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.
Investment tax credits related to qualifying projects from the provincial government in Q3 2022 were $22,430 (Q3 2021 - $45,871). The Company also recorded for the nine months ended September 30, 2022, $47,223 (2021 - $83,369) of the investment tax credits against cost of sales and services, $46,134 (2021 - $73,237) against research and development expenses and $22,500 (2021 - $23,479) against selling general and administrative expenses.
The amortization of intangible assets of $218,760 in Q3 2022 compared to $91,333 for Q3 2021 relates mainly to the intangible assets in connection with the Pyro Green-Gas acquisition, patents and deferred development costs. These expenses are non-cash items and will be amortized over the duration of their expected lives.
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 Q3 2022 excluding the costs associated with share-based compensation (a non-cash item in which options vest principally over a four-year period), were $4,979,916 representing an increase of 18% compared with $4,227,937 reported for Q3 2021.
The increase in SG&A expenses in Q3 2022 over the same period in 2021 is mainly attributable to the Pyro Green-Gas acquisition and the net effect of:
| (i) | an increase of 39% in employee compensation due primarily to salary compensation and the growing workforce, | ||
| (ii) | an increase of 28% for professional fees, primarily due to an increase in accounting fees, legal and patent fees, | ||
| (iii) | an increase of 11% in office and general expenses, is due to an increase in computer and internet expenses, security expenses and stationary and office related expenses, | ||
| (iv) | travel costs increased by 50%, due to an increase in travel abroad, | ||
| (v) | depreciation on property and equipment increased by 66% due to higher amounts of property and equipment being depreciated, | ||
| (vi) | depreciation on right of use assets increased by 3% due to higher amounts of right of use assets being depreciated, | ||
| (vii) | Investment tax credits remained the same, | ||
| (viii) | government grants increased by 59% due to higher levels of activities supported by such grants, | ||
| (ix) | other expenses decreased by 17%, primarily due to a decrease in couriers & freight, |
