XBC Xebec Adsorption Inc

Xebec Adsorption Inc. (TSX: XBC) ("Xebec"), a global provider of clean energy solutions, announced today its 2021 third quarter results, with the following highlights:

• Revenues of $26.7 million for the three-month period ended September 30, 2021, compared to $18.4 million for the same period the prior year.
• Gross margin of $10.1 million (38%) for the three-month period ended September 30, 2021, compared to $4.4 million (24%) for the same period the prior year.
• Adjusted EBITDA of $0.3 million for the three-month period ended September 30, 2021, compared to $0.4 million for the same period last year.
• Net loss of $9.2 million or ($0.06) per share in the three-month period ended September 30, 2021, compared to a net loss of $2.2 million or ($0.02) per share compared for the same period in the prior year.
• Working capital of $71.2 million on September 30, 2021, for a current ratio of 1.88:1, compared to working capital of $171.2 million and a current ratio of 4.12:1 on December 31, 2020.
• Management guidance updated with revenues at the top end of the range of $120.0 to $130.0 million from $110.0 to $130.0 and adjusted EBITDA margins in the range of -3.0% to -5.0% from -3.0% to -4.0% to reflect the acquisition of UECompression and supply chain risks.
• As at September 30, 2021, the company had $61.9 million of cash and restricted cash compared to $168.6 million as at December 31, 2020.

Financial Highlights:

	Three months ended September 30,				% of Change		Nine months ended September 30,				% of Change
	2021		2020				2021		2020
(In millions of dollars)	(unaudited)		(unaudited)				(unaudited)		(unaudited)
Revenues	26.7		18.4		45	%	80.0		50.2		59	%
Gross margin	10.1		4.4		130	%	19.3		11.7		65	%
Gross margin %	38	%	24	%			24	%	23	%
Adjusted EBITDA (1)	0.3		0.4				(9.0	)	1.4
Net income (loss)	(9.2	)	(2.2	)			(25.9	)	(3.7	)
Net income (loss) per share - basic ($/share)	(0.06	)	(0.02	)			(0.17	)	(0.04	)
Weighted average number of shares	153,521,659		105,485,980				153,201,728		92,928,420
As at:							Sep. 30, 2021		Dec. 31 2020
Total assets							435.9		444.7
Total liabilities							121.7		100.7
Equity							314.2		344.0
As at:							Nov. 10, 2021		Nov. 9, 2020
Backlog							100.1		88.4

(1)

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), accretion of debt, impairment charge of tangible assets, and one-time payment arising from the prior departure of employees and legal costs.

Financial Results

• Revenues increased by $29.8 million to $80.0 million for the nine-month period ended September 30, 2021, compared to $50.2 million for the same period the prior year. The 59% increase is mainly explained by acquisitions completed in 2020 and 2021, including (1) $22.8 million for services companies and ACS, and (2) $30.5 million for HyGear and Inmatec. This was offset by lower revenues from long-term production-type RNG projects. As the company transitions to standardized products such as Biostream, revenues will be recognized on delivery.
• Gross margin increased from $11.7 million to $19.3 million for the nine-month period ended September 30, 2021 compared to the same period the prior year. The gross margin percentage increased from 23% to 24% as the positive impact of acquisitions completed in 2020 and 2021 was offset by the negative impact from long-term production-type RNG contracts.
• Selling and administrative expenses (“SG&A”) for the nine-month period ended September 30, 2021, of $31.7 million increased by $18.6 million compared to $13.1 million for the same nine months of 2020. The increase is primarily due to additional SG&A expenses associated with the newly acquired companies: (1) $5.9 million for services companies and ACS, and (2) $9.4 million for HyGear and Inmatec. In addition, SG&A expenses increased due to an organizational scale up of employees, hiring fees and associated costs to support the increased level of future sales.
• Other gains and losses of $7.0 million for the nine-month period ended September 30, 2021 compared to $0.9 million for the same nine months of 2020. The increase is mainly due to a one-time payment arising from the prior departure of employees, legal costs and integration and M&A costs.
• Research and development expenses of $1.9 million for the nine-month period ended September 30, 2021 were related to the development of the company’s second generation of the Biostream product and the continued development of biogas upgrading and hydrogen projects. As of January 1, 2021, R&D expenses are recorded as they are incurred.
• Operating loss of $21.4 million for the nine-month period ended September 30, 2021 compared to an operating loss of $2.4 million for the same period in 2020. The increase in operating loss is mainly explained by the above-noted increase in SG&A and other gains and losses, offset by the slightly higher consolidated gross margin percentage.
• Net loss of $25.9 million or ($0.17) per share in the nine-month period ended September 30, 2021 compared to a net loss of $3.7 million or ($0.04) per share for the same period the prior year.
• Adjusted EBITDA decreased to ($9.0) million for the nine-month period ended September 30, 2021, from $1.4 million for the same period last year.

CEO Quote:

“In Q3 we made progress in executing our growth plan while also reducing the impact from our legacy, customized RNG projects. This resulted in a stronger gross margin compared to Q1 and Q2 of this year, as legacy contracts contributed fewer overall revenues and as we saw higher quality revenues across our segments. Ultimately, we are focused on our transition to standardized products which will reap benefits in both scale and costs. In addition, after the quarter end, we announced the acquisition of Colorado-based UECompression which gives us credible capacity to achieve significant organic growth with our containerized renewable natural gas and hydrogen generation systems for the North American market.

In 2021, we have made progress in building the team and enhance our operational setup to take advantage of the accelerating tailwinds for renewable gases. However, we will need to remain vigilant on supply chain risks and other operational disruptions as we continue to execute and grow our company,” stated Kurt Sorschak, Chairman, President and CEO of Xebec Adsorption Inc.

Current Market Outlook

Xebec continues to see an improving political and regulatory backdrop for its products and services. This can be seen with the “Build Back Better Act” from the Biden administration which would allocate $555 billion for U.S. investments in clean energy and combatting climate change. The Act specifically includes tax credits for biogas, renewable natural gas, hydrogen and local manufacturing. In addition, the Global Methane Pledge was announced at the COP26 conference, which aims cut methane emissions by 30% by 2030 compared to 2020 outputs. These initiatives, among others, continue to favour Xebec’s proven technologies and solutions for reducing emissions with renewable gases.

Furthermore, the company has felt the impact of supply chain disruptions and continues to manage its risk which includes higher than normal inventory purchases and dual sourcing. Xebec is also preparing for potential transportation challenges which may result in delayed revenues in future quarters. The company’s strategy in having local manufacturing and building a strategic sourcing function is expected to help mitigate this risk.

Systems - Cleantech

Renewable Natural Gas (RNG)Xebec continues to execute on its long-term production-type RNG projects with the last handful of projects in final stages of execution and commissioning. The tapering down of impact from these legacy contracts as a result of less contribution to total revenues, was seen this quarter through a stronger gross margin. Overall, standardized products such as Biostream are expected to lead to a stronger organic revenue growth profile for the segment, more predictable cost management and improved gross margins.

The company has also begun production of its second-generation Biostream in Canada, with the aim of having a capacity run rate of 30 to 40 units per year. Revenues on the recent 18-unit Biostream order have not yet been recognized as they will now be recognized on delivery, instead of on a percentage of completion basis.

The recently announced additional capacity acquired with UECompression, will add another 120 to 150 containerized renewable gas systems for North American capacity totaling 150 to 190 units. This significant manufacturing capacity increase reflects the anticipated demand Xebec sees in the market for its products in the agricultural sector. In addition, the expansion is further supported by the success and positive feedback received from customers for the first generation Biostream, which now has several units producing RNG at U.S. dairy farms and is performing at or above expectations.

HydrogenThe quarter saw several hydrogen contract wins, including a contract for a new industry application (annealing heat-treatment process) with a Turkish based flat steel manufacturer for two Hy.GEN® 150 units. Xebec also commissioned a key project in the Czech Republic where hydrogen will be delivered with a local partner to both a tungsten manufacturing and photonics plant.

In addition, the increasing demand for distributed hydrogen production in the U.S. has resulted in Xebec starting the process of establishing local manufacturing through UECompression. The company is seeing an increasing number of quotes to convert renewable natural gas to green hydrogen, for which it possesses world leading technology for.

Lastly, Xebec’s hydrogen PSA purification platform is seeing more activity as the mobility market develops. For example, an order was received from a leading marine robotics company to produce high purity hydrogen from ammonia cracking for a fuel cell onboard a ship. Xebec expects that as the mobility market develops, the need for high-purity hydrogen will accelerate growth opportunities for its PSA platform.

Oxygen and NitrogenInmatec continues to see record production levels primarily due to the heightened demand caused by the COVID-19 pandemic for sustainably and reliably sourced medical-grade oxygen. To address this demand, last quarter a lease was signed to double the production floor space of the manufacturing facility in Herrsching, Germany and this expansion is well under way.

Organizations around the world continue to see the benefits of on-site production of gases. Inmatec showcased the value proposition recently with a large delivery to a hospital in St. Lucia. Historically, there was no oxygen available on the island and the gas had to be imported in liquid form in shipping containers. This supply would cost upwards of USD $250 per ton. By generating the gas on-site instead, the hospital now pays one tenth the cost as before, reduces their carbon footprint, is ensured a secure supply, and can serve more patients in intensive care units (ICU).

Lastly, Inmatec is seeing a pickup in on-site nitrogen generation activity as industrialized economies reopen around the world as COVID-19 imposed restrictions are lifted.

Support – Industrial Products & ServicesXebec saw several developments in its roll-up strategy to acquire compressed air service companies to build out the company’s Cleantech Service Network. Two acquisitions were made in the quarter, including California-based California Compression and the assets of Wisconsin-based Wisconsin Compressed Air.

While the service centers felt the impact of supply chain disruptions, bookings overall were strong for the quarter and several divisions are now seeing meaningful contributions from cleantech equipment. Xebec expects that the pace of acquisitions may slow down as the company works to integrate, optimize and focus its efforts within the segment.

Renewable Gas InfrastructureXebec is addressing the renewable gas infrastructure opportunity through GNR Quebec Capital L.P. (“GNRQC”), a fund created in partnership with The Fonds de solidarité FTQ (“Fonds”), the largest capital development fund in Québec. Xebec is an equal equity investor alongside the Fonds and will participate in the sale of renewable natural gas equipment alongside long-term parts & service agreements for the equipment.

The fund has evaluated 28 projects to date and is actively involved with 18 of both greenfield and brownfield varieties in agriculture, municipal, landfill, mixed use, and industrial waste applications. The fund has now successfully executed several letters of intent (LOI) for projects in Québec.

Management Guidance for 2021For fiscal full-year 2021, Xebec is updating its previously announced guidance with revenues now expected to be at the top end of the range of $120.0 to $130.0 million from $110.0 to $130.0 million and adjusted EBITDA margins in the range of -3.0% to -5.0% from -3.0% to -4.0%. This guidance reflects contribution from the recently announced acquisition of UECompression and increased supply chain risks.

Xebec to Host Live Investor Webinar to Discuss Q3 2021 ResultsAn investor webinar for shareholders, analysts, investors, media representatives, and other stakeholders will be held today, November 11, 2021, at 8:30AM EST (5:30AM PST).

Register here: https://app.livestorm.co/xebec-adsorption-inc/2021-q3-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 xebecinc.com/investors.

2021 Third Quarter Financial Statements and Management’s Discussion and AnalysisThe condensed financial statements, notes to financial statements, and Management’s Discussion and Analysis for the three-month period ended September 30, 2021, are available on the company’s website at xebecinc.com/investors or on the SEDAR website at www.sedar.com.

Related links:https://xebecinc.com/

For more information:Xebec Adsorption Inc.Brandon Chow, Director, Investor Relations+1 450.979.8700 ext 5762bchow@xebecinc.com

About Xebec Adsorption Inc. Xebec is a global provider of clean energy solutions for renewable and low carbon gases used in energy, mobility and industrial applications. The company specializes in deploying a portfolio of proprietary technologies for the distributed production of hydrogen, renewable natural gas, oxygen and nitrogen. By focusing on environmentally responsible gas generation, Xebec has helped thousands of customers around the world reduce their carbon footprints and operating costs. Headquartered in Québec, Canada, Xebec has a worldwide presence with eight manufacturing facilities, thirteen Cleantech Service Centers and five sales offices spanning over four continents. Xebec trades on the Toronto Stock Exchange under the symbol (TSX: XBC). For more information, xebecinc.com.

Cautionary Statement This press release contains forward-looking statements within the meaning of applicable Canadian securities law. These statements relate to future events or future performance and reflect the expectation of Management regarding the growth, results of operations, performance and business prospects and opportunities of the Corporation or its industry. Forward-looking statements typically contain words such as “believes”, “expects”, “anticipates”, “continues”, “could”, “indicates”, “plans”, “will”, “intends”, “may”, “projects”, “schedules”, “would” or similar expressions suggesting future outcomes or events, although not all forward-looking statements contain these identifying words. Examples of such statements include, but are not limited to, statements concerning: (i) actions expected to be undertaken to achieve the Company’s strategic goals; (ii) the key market drivers impacting the Company’s success; (iii) intentions with respect to future renewable gas work; (iv) expectations regarding business activities and orders that may be received in fiscal 2021 and beyond; (v) trends in, and the development of, the Company’s target markets; (vi) the Company’s market opportunities; (vii) the benefits of the Company’s products, (viii) the intention to enter into agreements with partners; (ix) future outsourcing and supply chain; (x) expectations regarding competitors; (xi) the expected impact of the described risks and uncertainties; (xii) intentions with respect to the payment of dividends; (xiii) the management of the Company’s liquidity risks in light of the prevailing economic conditions; (xiv) the Company’s cost reduction plan; (xv) the search for additional financing over the next months; (xvi) statements regarding the merits of the class action complaints filed against the Company; (xvii) 2021 revenue and EBITDA guidance; (xviii) the expectation that the Blainville facility will allow production of 30 to 40 Biostream systems per year; (xix) the expectation that the UECompression facility will allow for 120 to 150 Biostream and Hy.GEN® systems per year; and (xx) that the expected delivery of second generation Biostream systems in 2022.

These statements are neither promises nor guarantees but involve known and unknown risks and uncertainties that may cause the Company’s actual results, level of activity or performance to be materially different from any future results, levels of activity or performance expressed in or implied by these forward-looking statements. These risks include, generally, risks related to revenue growth, operating results, industry and products, technology, competition, the economy, the sufficiency of insurance and other factors which are discussed in greater details in this press release and in the Annual Information Form of the Corporation filed on SEDAR at www.sedar.com.

Forward-looking statements contained herein are based on a number of assumptions believed by the Corporation to be reasonable as at the date of this press release, including, without limitations, assumptions about trends in certain market segments, the economic climate generally, the pace and outcome of technological development, the identity and expected actions of competitors and customers, assumptions relating to the merits of the class action complaints filed against the Company and their impact, the value of the Canadian dollar and of foreign currency fluctuations, interest rates, working capital requirements, the anticipated margins under new contracts awards, the state of the Corporation’s current backlog, the regulatory environment, the sufficiency of internal and disclosure controls, the ability of the Corporation to successfully integrated acquired business, and the acquisition and integration of businesses in the future. Other assumptions, if any, are set out throughout this press release. If these assumptions prove to be inaccurate, the Corporation’s actual results may differ materially from those expressed or implied in the forward-looking statements. The forward-looking statements contained herein are made as of the date of this press release and are expressly qualified in their entirety by this cautionary statement. Except to the extent required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements contained herein. Readers should not place undue reliance on forward looking statements.

Non-IFRS MeasuresThis press release refers to financial measures that are not recognized under International Financial Reporting Standard (“IFRS”). A non-IFRS financial measure is a numerical indicator of a company's performance, financial position or cash flow that excludes or includes amounts or is subject to adjustments that have the effect of excluding or including amounts that are included or excluded in most directly comparable measures calculated and presented in accordance with IFRS. Non-IFRS measures do not have any standardized meaning under IFRS and therefore are unlikely to be comparable to similar measures presented by other companies having the same or similar businesses.

The Corporation believes these measures are useful supplemental information. The following non-IFRS measures are used by the Corporation in this press release: EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, backlog of Xebec.

Please find below definitions of non-IFRS financial measures used by herein:

“EBITDA” means the earnings before interest, income taxes, depreciation and amortization, where interest is defined as net finance costs as per the consolidated statement of comprehensive income.

“EBITDA margin” being EBITDA as a percentage of revenues.

“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), accretion of debt, impairment charge of tangible assets, and one-time payment arising from the prior departure of employees.

“Adjusted EBITDA margin” being Adjusted EBITDA as a percentage of revenues.

“Backlog” means contracts that have been received and are considered as firm orders.