PyroGenesis Canada's (PYR) CEO Peter Pascali on Q4 2021 Results - Earnings Call Transcript

PyroGenesis Canada Inc. (NASDAQ:PYR) Q4 2021 Earnings Conference Call April 1, 2022 10:00 AM ET

Company Participants

Peter Pascali – Chief Executive Officer

Andre Mainella – Chief Financial Officer

Conference Call Participants

Greg MacDonald – Loderock Research

Jeffrey Campbell – Alliance Global Partners

Operator

Good day, and thank you for standing by. Welcome to the PyroGenesis Fiscal Year 2021 Business Update Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. David Waldman [ph]. You may begin.

Unidentified Company Representative

Good morning and thank you for joining PyroGenesis’ 2021 fiscal year-end financial results and business update conference call. On the call with us today are Peter Pascali, Chief Executive Officer; Andre Mainella, Chief Financial Officer; and Kosta Darsaklis, Controller of PyroGenesis. The company issued a press release yesterday on March 31, 2022 containing business update and financial results for the 2021 fiscal year ended December 31, 2021, which is also posted on the company’s website. If you have any questions after the call or would like any additional information about the company, please contact the IR department.

The company’s management will now provide prepared remarks reviewing the financial and operational results for the 2021 fiscal year ended on December 31, 2021. I’d like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information.

Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today’s date. There can be no assurance that forward-looking information will prove to be accurate, you should not place undue reliance on forward-looking information. PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events in such forward-looking information except as required by applicable law.

In addition, during the course of this call, there may be – there may also be references to certain non-IFRS financial measures, including references to adjusted net loss, adjusted EBITDA, which do not have any standardized meaning under IFRS and therefore, may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of each of adjusted net loss and adjusted EBITDA and net loss, please refer to the company's management discussion and analysis, which along with the financial statements are available on the company’s website at www.pyrogenesis.com and the company’s corporate filings on SEDAR at www.sedar.com.

With that, I will now turn the call over to Peter Pascali, President and Chief Executive Officer. Please go ahead, Peter.

Peter Pascali

Thanks very much, David, for that introduction and thanks to everyone for joining us today on our call. 2021 represents another breakthrough year for the company as PyroGenesis achieved accelerated business momentum over the past 18 months, despite the challenges of the global marketplace due to COVID. As a result, I’m very pleased to report a series of record financial results for the company. First and most importantly, PyroGenesis achieved record revenue of $31.1 million for the fiscal 2021, or approximately 75% year-over-year revenue growth. By growing existing customer relationships, introducing new solutions and entering new markets, 2021 built upon the successes of 2020.

We achieved multiple milestones and continued our rapid expansion in 2021 and I built a broader and stronger platform for 2022 and beyond. I am extremely pleased to announce that Q4 of 2021 was the company’s highest ever fourth quarter performance. It’s the first time in the company’s history that a Q4 has surpassed $7 million in revenue. And these Q4 numbers alone are the company’s fourth largest revenue performance of any quarter ever. In fact, Q4 2021 surpassed the full year revenue of every previous year, besides 2020. This is even more impressive where one considers that historically at PyroGenesis as with many other industrial suppliers, Q4 revenues tend to see a decline as compared to Q3. As companies typically slowed down during the holiday season, in our case, on average, in previous years, we tend to see a one-third drop from Q3s.

Last year, that number was reduced to 22% meaning 2021 Q4 pullback represents one of the company’s smallest ever Q3 over Q4 differentials. Combined these notable Q4 results demonstrate that the company is continuing on a growth trajectory and delivering positive financial results all year round. As more of our in development business units come online for commercialization during various points in 2022, this trend towards consistent full year performance will be demonstrated even further.

Turning now to the company’s backlog of signed contracts, our backlog reached an all-time high of $47.7 million. This figure represents a massive 60% increase from the backlog at the end of the previous year. With numerous proposals and bids well into the deepest territory of the procurement process and many more in development are already on the way, we expect to see our backlog jump again quite substantially over the coming weeks and months.

Our proprietary advanced plasma technologies continued to be vetted by multi-billion dollar companies. As we expand into plasma-based GHG solutions and as such, our fully commercialized solutions are gaining momentum in each of our five target markets. We cannot emphasize enough the competitive advantage of having one of the largest concentrations of plasma expertise under one roof and the relationships we have developed with key players in each business line.

Overall, we are very confident in our ability to provide our customers with sustainable clean energy solutions that not only significantly reduce GHG emissions, but are also economically attractive. We expect that the strong relationships that we have built with our existing customers combined with the reputation we continue to grow across several industries are now positioning us for even more significant revenue streams particularly in steel making and aluminum industry process improvement 3D printing and most recently a renewed interest in our land-based units for various forms of both environmental and hazardous waste destruction.

Entities within these categories have identified PyroGenesis’ offerings to be unique, in demand and of significant commercial value, which has led to these relationships. Here are some examples of the company’s offerings that have continued to gain traction over the past 12 months: one, replacing the fossil fuel burners in the upstream aspect of the steel making process known as iron ore pelletization with PyroGenesis proprietary clean plasma torches; two, recovering valuable metal and chemicals from aluminum smelting waste streams; three, repurposing aluminum industry waste previously destined for landfills; four, destroying hazardous medical and chemical waste using plasma-based destruction systems; five, disrupting the added manufacturing 3D printing industry with an innovative powder production method that is capable of producing highly sought-after metal powders, cheaper, faster and to a higher quality; and six, generating renewable natural gas from ozone depleting substances.

Turning first to the steel making industry. It is one of the most carbon emission intensive industries in the world, estimated to be responsible for between 7% to 12% of all global fossil fuel and greenhouse gas emissions, and continues to be under intense pressure, including huge financial penalties to find emission reductions solutions. This pressure on the steel making industry allows PyroGenesis to expect demand for its upstream iron ore pelletization solution to increase significantly as steel makers look to all aspects of the production lifecycle for the carbon reduction opportunities.

In 2021, we reached what we and many around the industry considered to be a major milestone when two major firms moved to first stage equipment orders and we’re now building the plasma torches for in-factory trials at their iron ore pelletization plants in different locations around the world. We signed a commercial plasma torch contract for four torches for approximately $6 million with a client B, a multi-billion dollar international provider of iron ore. Client B also indicated an initial need for over 100 torches upon the successful installation of these first four.

This is in addition to client A, who had ordered an initial torch and has requested a cost estimate in 2021 for 36 more torches. Interestingly enough client A operates over 500 diesel burners. So this first indication or for a cost estimate was for just 36. With the Factory Acceptance Test process, now successfully completed and officially approved by client A, we expect the plasma torch to arrive at the customers' location on or about the end of Q2 2022, in just a few months.

The torch will then be installed in client A's induration furnace, replacing the dirty fossil fuel burner system currently in place. The installation should take approximately three to four weeks after which a Site Acceptance Test will be performed. This Site Acceptance Test is scheduled to be completed before the end of July 2022. Both the installation and Site Acceptance Test will be conducted by client A and supervised by PyroGenesis personnel. Assuming these tests go well, which we fully expect, we look forward to receiving orders and delivering additional torches to this customer.

Keep in mind that client A and client B are not just two of the biggest mining and steel makers in the world, they are two of the biggest companies in the world. The potential sales opportunity with these two companies alone for us is in the hundreds of millions of dollars. We are looking forward to the results as the in-factory trials progress. And we continue to be contacted by others in the industry for information, modeling and quotes.

As mentioned, the entirety of the steel making industry is under extreme pressure to reduce the of greenhouse gas emissions. The lending institutions have even begun to tie their loan facilities to cover GHG track record making PyroGenesis solution all the more time there. As a reminder, PyroGenesis has the only patented process to replace contaminated diesel burners with a clean plasma torch in iron ore pelletization. As sales of PyroGenesis plasma torches increased, PyroGenesis should also benefit from providing proprietary spare parts and services, which should generate significant high margin recurring revenue. Overall, the market represents an enormous opportunity for PyroGenesis. Assuming a one to one replacement of a diesel burner with a plasma torch and each plasma torch selling for approximately $1.5 million with a net present value of $7 million, this would equate to a total addressable market of more than $10 billion.

As you can imagine, we are also proactively targeting other industries, which are experiencing significant pressure to reduce greenhouse gases and which utilize fossil fuel burners as well. These industries include, but are not limited to the aluminum, cement and gas industries. We fully expect to leverage our first mover advantage developed in the steel-making and iron ore industries in these industries as well. Among the many opportunities under review, pre-heating of refactory ladles as well as maintaining the temperature of molten steel in the tundish for continuous casting, are two examples. PyroGenesis is also working with industry partners to develop a role for plasma torches in the direction – in the direct reduction of steel using hydrogen, which could produce steel with a very low carbon footprint.

More recently in 2022, in February 2022, we announced that we signed a plasma torch contract with a European research center to manufacture and deliver a 50 kilowatt methane plasma torch will be – which will be used by the client to develop a process to convert hydrocarbons, including methane into useful chemicals such as olefins, ethylene or propylene, thereby again, significantly reducing greenhouse gases.

Turning now to our aluminum industry process improvement business line. Following our successful joint venture agreement with a leading residue producer to transform aluminum dross residues to the high value chemical products, we decided to create a new division specifically dedicated to the aluminum industry. The new division’s name – is named PyroGenesis Aluminum includes five main offerings: one, DROSRITE sales and tolling services; two, the valorization of downstream dross residues; three, a number of upstream applications; four, PyroGenesis high power plasma torches geared towards replacing fossil fuel burners; and five, repurposing of spent pot lining residues recovery.

PyroGenesis DROSRITE offering enables smelters to not only operate more economically, but also to concurrently reduce the greenhouse gas emissions at the same time. PyroGenesis' DROSRITE offering has proven quite successful. PyroGenesis has been successfully selling its DROSRITE technology either directly to smelters or to independent operators and benefiting from initial sales and securing long-term recurring revenues through after sale support and spare parts business. This strategy culminated in our DROSRITE technology winning one of the largest, if not the largest bid ever put out for dross processing to date. With the receipt of a $4 million purchase order for the first of three-ton DROSRITE systems we are now one of the largest and certainly the fastest growing dross recovery solution in the world. And now have 13 commercial DROSRITE systems either in full operation delivered or in the process of being delivered. Once all these systems are fully operational, we expect to generate recurring revenue from ongoing maintenance and spare parts contracts as well.

Leveraging what we call our insight defense advantage with our DROSRITE offering, we have identified several other opportunities within the aluminum industry where we can apply our plasma expertise to again, decreasing greenhouse gas emissions, economically. One, a joint venture with a technology provider to explore the potential of utilizing their existing technology to convert DROSS residues into valuable chemicals. Currently these residues are being landfilled or sold to the cement industry as a cheap aggregate. A successful implementation of this technology would be timely and governments are beginning to ban the landfill of these residues.

Two, providing towing services of our DROSRITE offering. A towing service arrangement is one in which a smelter provides DROSS to a third party to process either on or offsite. In this case, PyroGenesis would provide a towing service using its DROSRITE system to process the DROSS and recover valuable metals for a fee. Towing services are expected to be more lucrative to the company than an outright sale of the underlying DROSRITE technology. Furthermore, towing provides high margin recurring revenues. Our main objective is to in short order generate sufficient recurring revenues to cover all fixed and variable costs. We expect to conclude our first towing contract, a 10-ton system in Europe within the first half of 2022. If successful the same client has a towing requirement for two additional systems, both located in Europe as well.

Three, upstream opportunities where plasma-based solutions are expected to reduce greenhouse gas emissions while being more economic than the existing dirty legacy processes. We had previously announced that we were bidding on an upstream opportunity, valid approximately $40 million in that PyroGenesis was the preferred bidder. We subsequently disclosed that the project was delayed due to paperwork issues with the fact facility and the government. There have been no material development since our last update. However, we expect additional delays as there have been significant changes in personnel within the government responsible for the project. We have, however, identified identical upstream opportunities within an existing client and expect to move forward with this opportunity later this year.

Four, repurposing spent potlining residues into a variable end product. These residues are currently being landfill and represent a significant problem and challenge to the aluminum industry.

PyroGenesis is currently developing a new technology in partnership with a major Quebec aluminum smelter, Aluminerie Alouette, based on our core plasma weight destruction technologies that are currently in use with the U.S. Navy. This process is designed to transform SPL residues into a fuel that is low in carbon, as well as into materials that are inert and reusable. In turn, this process provides an alternative to landfill disposal of SPL residues and potentially other industrial byproducts, while significantly reducing specific greenhouse gas emissions. This process is a closed loop solution at the smelter site, eliminating the current industry reliance upon the cement industry for disposal of hazardous waste fractions.

With respect to our additive manufacturing segment, PyroGenesis has improved our innovative plasma atomization process by developing NexGen. NexGen allows for the production of powder that retains all the desired properties of plasma atomized powder, [indiscernible] CapEx and lower OpEx to be realized by our production line. This method is widely viewed as the gold standard for producing powder for the additive manufacturing industry.

PyroGenesis locked down the production process, improved quality management systems and set in motion an expansion plan. This plan pertains to improving the infrastructure, which includes a provision for a full in-house testing facility. These developments should allow PyroGenesis to execute on our plan becoming a world leading supplier of additive manufacturing powder.

The quality of PyroGenesis’ powder is what we believe has allowed us to establish unique relationships with top tier aerospace companies and original equipment manufacturers in North America, Europe and Asia. PyroGenesis’ powder is in the final stages of qualifications in Europe and North America along with samples being analyzed in Asia.

Today, we have established a mutually exclusive relationship with Aubert & Duval to supply our powder to the additive manufacturing industry in Europe. Upon this completion of qualification and acceptance of PyroGenesis’ powder by a large North American OEM, we are accelerating our first powder delivery of 2022.

Furthermore, by the end of Q2 2022, we expect to have our powders qualified by our clients in Europe and North America. We expect these initial qualifications will provide the marketplace with further confidence in our powders, which we believe will accelerate the adoption of PyroGenesis plasma atomized powder worldwide.

Whereas in the past we’ve been primarily targeting the very demanding aerospace industry, we have recently expanded the target market to also address the unique needs of the electric vehicles marketplace, who have recently approached us with their powder needs.

With respect to our hybrid ceramic powder process, our goal is to become the leader in carbon nanotube, especially powder production. Specifically, we have recently been awarded an Innovative Solutions Canada Phase 2 Prototype Development contract of approximately $1.15 million to develop a unique hybrid ceramic powder processing system.

Carbon nanotubes hold significant potential from mechanical reinforcement in composite materials, including ceramic composites. However, the bundling of the carbon nanotubes has prevented this potential from being realized. The main competitive advantage of our solution is the ability to process ceramic powder in the same reactor as the carbon nanotube synthesis allows for production in a single step. We believe this process will prove far more efficient and scalable than conventional technologies such as the chemical vapor deposition process.

Additionally, we believe that our technology is capable of processing a variety of composite materials, which could lead to the development of new IP and product lines for other specialty powder production technologies.

We are also expanding our role as HPQ silicon technology provider for the game-changing family of silicon processes, which we’re developing exclusively for HPQ and its wholly owned subsidiaries HPQ NANO Silicon Powders Inc. and HPQ Silica Polvere Inc.

Specifically, we developed several processes. One, we developed the PUREVAP Quartz Reduction Reactors, which should permit the one step transformation of lower purity quartz than any traditional process can handle into a silicon of a higher purity level that can be produced by any traditional smelter at reduced costs, energy output, and carbon footprint. Unique capabilities of this process could position HPQ as a leading provider of the specialized silicon material needed to propagate its considerable renewable energy potential.

Second, we developed the PUREVAP Nano Silicon Reactor, which if successful, could position this as a new proprietary, low-cost process that can transform the silicon made by the PUREVAP QRR into the nano silicon material sought after by the energy storage battery electric vehicle and clean hydrogen companies. The aim of the ongoing work is to position HPQ Nano as the first to market with a commercial scale, low-cost nanoparticle production system.

And third, we developed a new plasma-based process that convert silica into fumed silica also known as Pyrogenic Silica again in one step. This new process could be a low-cost and environmentally friendly option that enables HPQ Silicon High Purity Quartz initiatives with PyroGenesis’ industry leading knowhow in the development of commercial plasma processes. It is our expectation that the process will eliminate harmful chemicals presently generated by traditional methods. This new process could revolutionize the manufacturing of fumed silica, while repatriating production back to North America. In late 2021 HPQ secured government participation in excess of $5 million funding of the fumed silica project with a vast majority of these funds to be paid to us, to PyroGenesis.

In total, the government participation of 1.3 million and 5.3 million fumed silica project with HPQ is strong validation of these technologies and sets the states for potentially significant upcoming developments.

At the same time, PyroGenesis is pursuing synergistic M&A opportunities to speed our growth. In 2021, we announced the acquisition of AirScience Technologies Inc., a Montreal-based company offering technologies, equipment and expertise in the area of biogas upgrading as well as air pollution controls which provides us a healthy backlog of over $10 million of signed contracts.

AirScience Technologies is also known for its line of landfill gas flares, which reduce greenhouse gas emissions specifically from landfills. This acquisition effectively provided PyroGenesis with a 15-plus year advantage as compared to building these operations from scratch. In addition, the acquisition provided PyroGenesis with a presence in Europe via Italy and India where AirScience Technologies had already developed strong relationships with several multibillion dollar companies who are currently using their technology. This acquisition springboards PyroGenesis into the renewable natural gas market where we believe there is significant unmet need for renewable natural gas providers particularly in North America.

The acquisition of AirScience, which we renamed as Pyro Green-Gas, also provides potential synergy with PyroGenesis’ land-based waste destruction offerings, which if successful would significantly increase the value of our – of such offerings to the marketplace. In September 2021, Pyro Green-Gas was selected to supply a $5 million landfill biogas purification system, which is projected to repurpose 3,500 tons of greenhouse gas each year, the GHG equivalent of removing 1,000 cars per year from circulation every year. The contract is expected to be fully commissioned in the first half of 2023. We believe there is significant demand for upgrading biogas facilities worldwide, particularly given the legislative trend across North America, towards regulating minimum amounts of renewable natural gas to be incorporated within gas pipelines.

Our goal for the next 12 to 18 months is to strengthen Pyro Green-Gas’ operations and quality control systems, while at the same time increasing the backlog of signed contracts to position Pyro Green-Gas has a significant incredible player in the marketplace.

Overall, we cannot emphasize enough our competitive advantage of having one of the largest concentrations of plasma expertise under one roof and the range we have developed with key players in each business-line.

For now, I’ll be back with some final thought at the end, but for now at this point, I’d like to turn the call to our Chief Financial Officer, Andre Mainella, to go over the financials in detail.

Andre, please go ahead.

Andre Mainella

Thank you, Peter. I’ll just take a moment and go over the financial results for the year. So, for December 31, 2021, revenues increased by 75% to $31.1 million compared to $18.8 million for the same period last year. The revenue increase was mainly attributable to a 40% increase in PUREVAP sales, bringing it to $6.1 million, an increase in development and support services for the U.S. Navy, which increased to $7.5 million, as well as an increase in torch sales to $2.1 million and new revenues of $6.8 million related to biogas upgrading and pollution controls. That was the result of our acquisition of AirScience.

PUREVAP related sales and included revenue from the sale of intellectual properties in the amount of $3.3 million in the year.

As of March 31, the company had a backlog of $47.7 million of contracts.

Gross profit for the year ended December 31, 2021, was $12.4 million or 40% of revenues compared to a gross profit of $10.3 million or 58% for the comparable year. The increase in gross profit was attributable to the higher increase in revenues than the cost of sales and services.

Cost of sales and services before the amortization of intangible assets was $18.2 million for the year end of December 2021, representing an increase of 144% compared to $7.4 million for the same period last year, mainly due to the additional cost to complete the Pyro Green-Gas project, following gas position of August 2021.

The increase in cost of sales and services is mainly due to an increased employee compensation, direct materials, manufacturing overhead which are also offset by decrease in subcontract costs, foreign exchange and investment tax credits. The decrease in gross margin was caused by the shift of product mix including the additions of the Pyro Green-Gas contracts.

Selling and administrative expenses were $27.2 million for the year 2021, compared to $12.3 million for the same period last year. SG&A expenses for the year 2021 excluding the cost associated with share based expenses, which is a non-cash item with the option expenses amortized over the vesting period totaled $17.5 million, representing an increase of 115% compared to $8.1 million for 2020.

The increase in SG&A expenses were mainly attributable to the operating activities of Pyro Green-Gas and also the cost associated with an increase in employee compensation, professional fees, among depreciation and on property and equipment, depreciation of ROU assets as well as government grants in investment tax credits.

In addition, share based expenses increased by $5.5 million for the year 2021 over the same period last year. As a result of the stock options that were granted in the current year. This was directly impacted by the vesting structure of the stock option plan, which options vest between 10% and 100% of the grant date, depending on the allocation date, requiring immediate recognition of that cost.

Research and development expense for the fiscal year 2021 was $2.5 million net of government grants on internal projects for the fiscal year. This compares to recovery of 731,000 for 2020. The increase in the current year 2021 was primarily related to an increase in employee compensation, IPCs, subcontract, materials and equipment and other expenses of $2.5 million compared to $400,000 recovery in 2020. As a result, comprehensive loss for the fiscal year 2021 was 38.4 compared to a net income of $41.8 million for the fiscal year of 2020.

For the modified EBITDA which we consider a useful metric of measuring ongoing operations with a loss of $6.2 million compared to a gain of $3.4 million in 2020. Modified EBITDA excludes $9.8 million of non-cash share based expenses as well as $21.4 million as an adjustment for the fair market value of this strategic investment alone in 2021 is attributable to decrease in the fair market value of the common shares and warrants owned by the company of HPQ.

Modified EBITDA also adjust for an increase in depreciation on property and equipment of 293,000, increase in depreciation on the right of use assets of over 150,000, as well as an increase in amortization of intangible assets for an additional 439,000. This was offset by a decrease in finance charges 120,000 but also decrease in income tax of the $1.8 million.

Finally, the increase in modified EBITDA loss was largely due to an increase in operating expenses offset by the increase in revenues. We have made significant investments in our operations in 2021 and believe we have built a highly scalable business model to support continued growth and drive profitability as we continue to increase our revenues. We had a strong balance at December 31, 2021 with $12.2 million of cash and cash equivalent. With a strong and clean balance sheet, we believe we’re well positioned to execute on our strategy of growth, both organic and through synergistic mergers and acquisitions

At this point, I’ll turn the call back over to Peter.

Peter Pascali

Thank you very much, Andre. That completes our presentation with respect to the overview and the financial analysis. I would open up the floor now to questions should anybody have something?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is from Ryan [indiscernible] RK Capital Holdings. Your line is open.

Unidentified Analyst

Hey, this is Ryan with RK Capital Holdings. Thank you guys for your time today. And first of all, congratulations, very exciting quarter, full-year, lots of growth, it seems and very strong. So congratulations.

Peter Pascali

Thanks, Ryan.

Unidentified Analyst

It seems like lots of exciting things ahead. Couple of quick questions, if you guys have just a moment. First question, I’ll ask you is how has this war in geopolitical situation in Ukraine affected you all? And how do you see that affecting it moving forward?

Peter Pascali

Yes. The unfortunate events playing out in Europe have actually spoken to two of our main offerings of iron ore pelletization where we replace diesel burners with plasma torches and DROSRITE where we recover a valuable aluminum from the waste stream. You can imagine how with increasing diesel prices, how our – the business, the economics underpinning are replacing these diesel burners with plasma torches is even more significant than it was several months ago. And now that aluminum prices are increasing significantly, you can imagine how important it is for smelters to tap into the aluminum that’s actually in their waste stream and DROSRITE does a damn good job of doing that.

So it is on one hand regret, there’s a award taking place, but it has impacted fuel prices and aluminum prices and we’re just happy that we can be there to help mitigate those costs by providing a very effective way of recuperating the aluminum or replacing diesel.

Unidentified Analyst

Very good. That makes a lot of sense. I appreciate the...

Peter Pascali

So Ryan in a nutshell, our business cases for our two hottest lines is just going through the roof. So that’s off script. That’s off script for you; it’s going through the roof. The business case is going through the roof.

Unidentified Analyst

Well, that makes sense. And I’d hate to see what’s going on in Ukraine, but that makes sense of how that impacts the business. So now another – one more – just one more question and part of my [indiscernible] on this, but where is iron ore pelletization in the steel making process? And in fact that we hear a lot about hydrogen, what’s your opinion as well? So just kind of those two questions clearly?

Peter Pascali

All right. That’s so let me see. I mentioned in the presentation that the steel making industry is extremely damaging to the environment. I think I mentioned it’s estimated to be responsible for somewhere around 10% of all global fossil fuel and greenhouse gas emissions. There’s a number of processes to make steel. You have the – what I call the upstream and the downstream. And I guess, you have midstream as well. And most people have heard of a lot of efforts that the steel making companies are putting in towards decarbonization such as electric arc furnaces and hydrogen-based steel making, but that’s all downstream.

Even have battery power trucks for transportation, and that’s in the midstream. I would argue. But upstream, there is very little – there’s very few options to mitigate the greenhouse gas effect of mining and taking iron ore and making it into small marble size pellets, if you will, that is used by the downstream process. So, simply put upstream, you have the mining of the iron ore converting it to little marble pellets. That’s the iron ore pelletization process.

Then they’re using, let’s say electronic vehicles to transport it to the downstream steel making process where you’re using electric arc furnaces and other hydrogen-based steel making processes. And we find a lot of people getting mixed up thinking that we’re competing with the hydrogen-based steel making, which is the downstream. But we’re really not. We’re upstream. So where we play a role right now with our torches is upstream, iron ore pelletization.

Having said that, we are finding some really interesting applications of plasma-based processes downstream as well, where I think we’re going to go head to head and knock some people right out of the ring. But with respect to upstream, I feel that we are the only real option for dealing with iron ore pelletization greenhouse gas emissions. You mentioned hydrogen and there is a significant disadvantage in hydrogen and that you need to build large scale hydro production facilities to feed the whole iron ore pelletization plant. It’s not a small thing. And what people don’t realize is that it will be done with the electrolysis of water. And so, you create your hydrogen by the electrolysis of water, which consumes a hell of a lot of electricity, which requires a major power source.

So plasma torch would also use electricity, but we converted directly into high temperature heat. So essentially we’re bypassing the need to store and burn hydrogen. And I don’t see – maybe I’m arrogant or I don’t see really hiding to be a real competitor to us upstream. I don’t – I don’t at all, not in the iron ore pelletization area where we have the patent to replace diesel burners. And I think and I'm doing – I'm assuming here that’s really one reason why the iron ore pelletization just – I mean the steel makers just when they heard about us, they just grab us and push us fast because they don’t really have an alternative upstream. Yes, I don’t think they do. I don’t think – I think that’s ours for the taking so long as our technology works properly.

Unidentified Analyst

Very good. Well, thank you. I appreciate the explanations and your answers and like I said exciting stuff here.

Peter Pascali

Thanks a lot, Ryan, for joining us today.

Unidentified Analyst

Yep.

Operator

And our next question comes from Greg MacDonald of Loderock Research. Your line is open.

Peter Pascali

Hi, Greg.

Greg MacDonald

Good morning, Peter. How are you?

Peter Pascali

Pretty good.

Greg MacDonald

Good. Well, listen. Thanks for – it’s a very thorough update that you gave. So thanks for that.

Peter Pascali

Thanks.

Greg MacDonald

Couple questions I have. Just I always like to get a sense of the backlog and just generally how it breaks down amongst the different business lines. Could you just provide a quick breakdown that doesn’t have to be exact?

Peter Pascali

I – it’s a – I don’t have that off the top of my fingertips. I don’t know Andre, if you have that, you can speak to that.

Andre Mainella

We can do after the call, Peter.

Peter Pascali

Okay, I apologize for that.

Andre Mainella

I got it, yes.

Peter Pascali

You have that, right. Go ahead.

Andre Mainella

Peter, if you want I can just added a few elements with that, I am with cost, looking at the backlog, but we have everything from contracts in AirScience, Italy. And again, I won’t give too much of the details, but we do have AirScience, Italy backlog, AirScience, India as well across the board. If I look at some of that steel industries as well, make up a significant portion of our $47 million backlog. But again, we can provide more of the details specifics to that if need be.

Greg MacDonald

Okay. Thanks. And as I recall, there is a substantial portion of that that is expected to be booked in the next year, but not all of that, right. That’s multiyear.

Peter Pascali

Well, I think, most of the backlog will be scheduled to run – would run through in the next 12 to 18 months.

Greg MacDonald

Yes, that’s right.

Andre Mainella

Most of it.

Peter Pascali

Yes, most of it.

Andre Mainella

Some of them are going a little bit further as well. Especially we’re looking at the contracts acquired through the AirScience acquisition going a little further to 24 months or so.

Peter Pascali

Yes.

Greg MacDonald

Thank you. Thank you. Second is on is on the hazardous chemical waste side of things. When I first started looking at this company, that wasn’t necessarily a big opportunity, but it seems that it’s developing into one. Can you just provide some general sense of why that’s happening and how big the opportunity might be?

Peter Pascali

Are you talking about the PFAS market?

Greg MacDonald

Yes.

Peter Pascali

Okay. There’s a number of significant takeaways from that. Those who know us know that in that particular sector we are concentrating on military based – military land-based or U.S. Navy offerings. And this was our first sale outside of that marketplace. So, it’s very significant in that we are finding a niche market for our land-based waste destruction systems outside of the military. To be honest with you, we don’t – we didn’t really pursue that marketplace given the other offerings, which were low-hanging fruit. But we didn’t – we entertained requests that seem to fit in with what we do and didn’t require too much lobbied.

In this particular situation, there’s a new waste – a new hazardous and a waste stream has now been identified as being hazardous. It’s this thing called PFAS, they’re called the forever waste stream. There as a result of things with simple as your shampoo, your shampoo in the shower, the PFAS fall off and go into the waste. And they never – nobody ever thought they were hazardous. Now, they are being identified and the hazardous effects on us has been identified. In fact, they’re becoming more and more regulated in Europe. And in North America, if I believe Biden made it part of his election campaign to actually identify them and classify them as hazardous. There are no – there doesn’t seem to be too many options on the table on how to deal with these – this new waste stream that’s in our water supply.

And this was a very exciting opportunity to provide a platform-based solution to a facility in the United States. It’s in a particular state, obviously, particular state in the United States. And what’s real interesting is, we are at the cutting edge as this waste stream seems to be coming more highly regulated. What’s also interesting in the particular state that we have won this bid, there’s an opportunity for several more.

And given that the regulations are state by state, I would hope that we have a foot in the door in that we’ve already nailed it with one potential client operating within those regulatory environment – within that regulatory – and our offering look good to them. So to quantify it in terms of what this potential is, I think it’s extremely high. I don’t have here on my fingertip, a number to tell you what it would be, but it’s not insignificant at all. And the fact that we’re at the cutting edge as people are trying to figure out a solution for this waste stream is extremely exciting. So without putting any numbers to it, it’s one that we have identified. We want it and we’re looking forward to actually having some more news of this year.

Greg MacDonald

Okay. That’s very exciting. Thank you, Peter. And then the last one I have is just a quick financial one.

Peter Pascali

Yes.

Greg MacDonald

4 million on the buyback so far in 2021, sorry, you’ve got $12 million in cash on the balance sheet, and I know you like to keep a strong balance sheet for commercial reasons. Can you give us a sense of what the plans are to execute on the buyback for 2022?

Peter Pascali

That’s a difficult question actually to answer, because I’m not sure I’m allowed to answer it other than to say that I personally have a high interest. I mean I think one of the best values is to buyback our shares. I mean that I believe is – that’s why we have that tool there. However, you have to weigh that against the cash on the balance shares and other opportunities that might be – that we may want to pursue. We’ve also – if you look at our balance sheet been converting some cash into inventory to mitigate some of the potential threats to the supply chain and the delays that associated with acquiring certain long lead items or metals and so we’re also looking at – looking how to deploy that cash on the balance sheet.

We’re a young company in the sense of young and expanding and lots of opportunities. So you can’t be everything to everybody. So having cash on the balance sheet should be used properly either soft buyback, adding to inventory, as well as opportunistic – with opportunities in the mergers and acquisitions market arena. So to answer your question, it’s there because we would like to take the – make use of the stock buyback at certain times, depending on our cash level and what are the opportunities are presented to us.

Greg MacDonald

Yes.

Andre Mainella

Maybe add in terms of figures, the NCIB has been renewed in February to allow us to $7.5 million common shares as we’ve disclosed in the financial statements. So this is my…

Peter Pascali

I thought that’s what you’re speaking to. Sorry.

Andre Mainella

No, I think it was in terms of numbers, its $7.5 million that was renewed in February 2022 for the next 12 months exactly.

Peter Pascali

That’s right.

Operator

And our next question comes from Tim Scott [ph] of Private Investor. Your line is open.

Unidentified Analyst

Hi, Peter and team. Congratulations on an impressive Q4 and full year of growth and performance during unprecedented challenging times.

Peter Pascali

Thanks, Tim.

Unidentified Analyst

Can I ask for some clarity on the large SG&A costs and the $12 million executive compensation costs, are these onetime or do you expect further similar costs going forward? Thank you.

Peter Pascali

Andre?

Andre Mainella

Yes. It’s – the combination of cost is both, well, I’ll get into detail in a moment, but there are some onetime, there are some recurring, there are some cash and there are some non-cash, and I know you specified SG&A. So I’ll try to keep it to SG&A, but mainly we do have an increase of headcount as we’re building the base for the business and for the growth of 2022. So that’ll be a recurring, but that again is to sustain a growth of 2022 and onwards.

In terms of some of the non-cash – sorry, non-recurring items and unfortunately being publicly listed company, we did have some uplifting fees, which are obviously substantial in the year 2022. So I’d have to say that is obviously non-recurring. We do have some additional professional fees, which are non-recurring, some which will recur, other large items such as D&O insurance that will have to recur.

So again, I think the combination of recurring, non-recurring just as we’re trying to set up for a successful 2022, to be able to deliver on those contracts. Some of the other items for example, the stock-based compensation again, keep in mind that’s a non-cash, some of the amortization is strictly non-cash as well.

Unidentified Analyst

Thank you for the clarity.

Operator

And our next question comes from Jeffrey Campbell of Alliance Global Partners. Your line is open.

Jeffrey Campbell

Good morning, Peter, and congratulations on all the activity. And to that point, my first question is kind of a broad one. And then the second is specific. The broad one is, PyroGenesis has a lot of hires on the fire as you’ve described today for investors that are maybe a little newer to the story and trying to get their arms around it. Can you point to maybe the top three opportunities in terms of whatever metrics that you like for fiscal year 2022?

And the other question is referring to hydrogen in a different way than your earlier discussion. I’d appreciate an update on your evolving application of paralysis to methane to produce hydrogen and solid carbon. Thanks.

Peter Pascali

So your first question sorry. Jeffrey, welcome on board. Thanks for the questions. The first one was with respect to our top. Yes, the top two or three, without a doubt, our top two are iron ore pelletization our torche – the application of our torches to replace diesel burners, wherever they are in the world. I mean, we talk about iron ore pelletization, but you can imagine there are diesel burners everywhere and they could – their economics of replacing with plasma torches when and where they can be is extremely significant business opportunity, even downstream in the steel-making industry.

And so that is really big. DROSRITE and that group – that offering is again extremely exciting these days with the price of aluminum, and the opportunities being inside the fence and seeing how we can adapt our plasma technologies to other issues is also extremely exciting. The third would have to be a tie between additive manufacturing, which is going on its own pace, but it is every day it’s moving forward, and our recent entry into the PFAS market with our land-based system.

So those are the very exciting – very, very exciting opportunities that are in front of us. With respect to the – to your specific question with respect to our – our patent – I can’t speak to that right now, because we’d have to press release, I think for to general public that some of the details, but I can get back to Jeffrey with the details once I clear it with internally.

Jeffrey Campbell

Okay. And well, then let me just ask a quick follow-up on the replacement of diesel burners.

Peter Pascali

Yes.

Jeffrey Campbell

Is it reasonable to if the iron pelletization opportunity is really the one that’s kind of breaking the ground on this if I understand it correctly?

Peter Pascali

Yes, yes.

Jeffrey Campbell

So is it reasonable to think that, if you get over the half with the iron pelletization that it’s going to make further applications of the torches for diesel replacement move more quickly and other industries where it may be applicable. Is that a fair thing to think?

Peter Pascali

Yes, no, definitely. When you see these large companies adopt the technology, I think it gives a lot of credibility to us our process and the capabilities of replacing diesel burners with the plasma torch without a doubt.

Jeffrey Campbell

Okay, great. Well, thanks. And I’ve already spoken here about the hydrogen stuff. So I just wondered if we had any just a general update in terms of the progress of the effort, not necessarily technical stuff that you don’t want to discuss here, but we can do that offline. No problem.

Peter Pascali

Thanks a lot, Jeffrey.

Jeffrey Campbell

Yes.

Operator

And our next question comes from the [indiscernible]. Your line is open.

Unidentified Analyst

Yes. Hi.

Peter Pascali

Hey, Philip.

Unidentified Analyst

Good morning, Peter. I have several questions here, your PFAS system. What exactly do you do? And is this something that you will run continually and get recurring payments or is it just a onetime payment?

Peter Pascali

So I’m not going to discuss exactly what we do, but I can tell you which is probably better that we’re looking at all our offerings to get recurring revenue. So in this particular situation, as a minimum, we get maintenance and spare parts, recurring revenues. And right now it’s – the idea behind this particular offer would be to sell it and get the recurring revenues from spare parts and maintenance.

Unidentified Analyst

Okay. On your torches and your DROSRITE machines, do you take into – do you get take these into revenue when they’re delivered?

Peter Pascali

So in all our products, we have a percent completion revenue recognition policy, which means that based on an estimate of costs associated with the project, as you take in those costs, if you take in 40% – if you’ve gone through 40% of the costs, then you’re bring in 40% of the revenues.

So it’s got to do with percent completion, not necessarily with when the money actually comes in. So not to bore people too much with this accounting standard, but if you bring in 40%, if you’re 40% complete as determined by accounting standards, then you’re allowed to bring in 40% of the revenues and 40% of the expenses.

Now, obviously you may collect money earlier, or you may collect money later than 40% complete. If you bring it in earlier, then that difference is a liability. If you bring in – if you’re going to collect the revenues later, then it’s an asset, it’s a receivable. So it’s kind of funny that accounting basis for a percent completion, allocates a liability, if you’re collecting cash faster.

The other funny footnote to this is that, your client is paying you based on milestones that he thinks is our due. He has absolutely no clue what your percent completion is. So it’s kind of like a weird liability. So it’s not like a telephone bill that’s that needs to be paid. Anyways I think I’m talking too much about it. But to answer your question specifically, it comes into our revenues based on percent completion, notwithstanding when the cash comes in. Did I confuse you there? Hi there – we – hello?

Andre Mainella

Peter, I can hear you. I think we might lost him.

Peter Pascali

We lost the question or the whole thing.

Andre Mainella

I said, I can hear you, Peter. I think we lost the question and I’m not sure if the call has been disconnected.

Unidentified Company Representative

No, we’re good guys. You can – we’ll turn the call that looks like it’s the end of the Q&A, so operator, if you can take it from here.

Operator

Certainly, I would now like to turn the conference back to management for closing remarks, and this does conclude today’s conference call. Thank you for participating. You may now disconnect.

Peter Pascali

Thank you all for attending. I appreciate the time you spend in looking at what we’re doing. If there’s any questions you may have, please contact us through our IR platform. Thank you very much.

Andre Mainella

Thank you, everybody.

Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.