Xebec Adsorption Inc. (OTCQX:XEBEF) Q4 2019 Earnings Conference Call April 15, 2020 11:00 AM ET
Kurt Sorschak – Chief Executive Officer
Louis Dufour – Chief Financial Officer
Prabhu Rao – Chief Operating Officer
Brandon Chow – Investor Relations
Conference Call Participants
My name is Brandon Chow and I am the Investor Relations Manager of Xebec. I’d like to remind everyone that this webinar is going to be recorded and will be made available in the investor section of our website later today. Please note that we will open the floor to questions after the conclusion of the presentation. If at any time you have a question you may type it in, into the console on the right of your screen.
Joining me today will be Chief Executive Officer, Kurt Sorschak, our Chief Financial Officer, Louis Dufour, and our Chief Operating Officer, Dr. Prabhu Rao.
Our earnings press release was issued earlier today before market opened. All relevant documents are available to download either from the investor relations section on our website or from CEDAR directly. You will also find later today, a copy of today’s slide deck on our websites Investor section.
During this call we will make forward looking statements about our future financial performance and other future events and trends including guidance. These statements are only predictions that are based on what we believe today and actual results may differ materially.
These forward-looking statements are subject to risks and uncertainties, assumptions and other factors that could affect our financial results and the performance of our businesses which we discussed in detail in our filings, including today’s earnings press release and the risk factors and other information contained in the final prospectus relating to our recent offerings. Xebec assumes no obligation to update any forward looking statements we may make on today’s call.
With this, I’ll turn it over to Kurt.
Thank you Brandon and welcome everyone to the most attended quarterly conference Xebec has hosted to-date. At the last count we had over 350 registered attendees for today’s webinar.
Let me start off by saying how proud I am of what the team has delivered for the year. This marks the third consecutive year of strong revenue growth, and our Q4 was yet another record revenue quarter. We generated $49.3 million in revenue in 2019, $6.3 million in net-adjusted EBITDA and $2 million in net income, the best results since we went public back in 2009.
The past year has been challenging for the team on many fronts. Growing our manufacturing operations by triple digits while remaining profitable is a solid achievement; scaling the organization, buying and integrating companies, developing new and improved products, while at the same time implementing a new ERP system and working on improving our internal financial controls to be in line with 52-109, which will allow us to up-lease the TSX main port later this year. It requires a lot of hard work, commitment, dedication and focus to detail. All this gives me confidence that we can continue executing on our strategy of profitable growth by scaling our operations in the years ahead.
I’m happy to report that our team continues to grow stronger as we build our organization and strengthen our management capabilities from Team Leaders to Managers, Directors, Vice Presidents and the C-Suite. With everything we have planned in 2019, Xebec has set itself up for another record year in 2020. The company is in a much stronger financial position with an improved balance sheet, a significant cash position and low debt.
Now operationally, we are going into 2020 with a record order backlog of almost $100 million and almost $1 billion worth of growths outstanding. The two successful bought deals that we have concluded in 2019 have positioned us now, especially for times like these. They left us well capitalized and in a solid position compared to many of our competitors, and as we all know in today’s environment ‘Cash Is King.’
Also the world backdrop is concerning and the crises is taking a considerable health and economic toll. I still remain positive and excited about our opportunities and all our ongoing initiatives.
Presently we continue to work on our 2020 acquisitions. We continue developing significant partnerships that will help us fuel our future growth and I’m particularly excited as we continue to strengthen our management team, so that we can execute on our strategy of profitable growth and shareholder value creation.
With this, I’ll turn over to Louis Dufour, our Chief Financial Officer who will go over financial highlights. Louis, please.
Okay, thank you Kurt and welcome everyone joining us. Let me start by reviewing our consolidated financial results for Q4 and the full year. As Kurt discussed, we achieved record revenue of $13.6 million in the fourth quarter of 2019 compared to $6.1 million for the same period in 2018, a 123% increase. We had revenues of $49.3 million for the 12 month period ended December 31, 2019 compared to $20.2 million for the same period in 2018, a 144% increase.
The increase is mainly explained by higher volume of major Cleantech contracts and the revenue additions of CAI, which embarked at the beginning of 2019. Our gross profit was $4.1 million in the fourth quarter compared to $1.5 million for the same period of 2018, a 173% increase. Our gross margin as a percentage of revenue significantly improved from 25% to 30% over last year’s quarter.
The annual gross profit came in at $15.5 million or 31% of revenues compared to $5.7 million for the same period in 2018, a 172% increase compared to the same period in 2018. The company had higher gross margin in the Cleantech segment, and a better absorption of the overhead costs due to higher volumes of sales.
Selling and administrative expenses were $3.6 million in the fourth quarter compared to $2.3 million for the same period in 2018, a 58% increase. Selling and administrative expenses increased by $4.1 million in the 12 month period ended December 31, 2019 compared to the same period in 2018. This is primarily due to the organizational scale up and associated costs to support the increased level of sales, order backlog and building quote log.
Acquisition costs related to the acquisition of CDA system, and additional costs associated with other acquisition activities and legal expenses related to the establishment of our infrastructure segment increased SG&A expenses in the fourth quarter of 2019. A significant cost factor in Q4 2019 was the amortization expense of intangible assets of almost $1.3 million.
A financial metric we monitor is our selling and administrative expense as a percentage of revenue, which was 26% for the fourth quarter compared with 38% for the same period in 2018, a decrease of 12%. This decrease is similarly reflected in our 12 month period ended December 31, 2009 where the percentage was 23% for 2019 and 36% for 2018. This represents a significant decrease and showcases our ability to scale the business and realize efficiencies. Our long term target is to have SG&A at a 15% to 17% of revenues.
We had positive EBITDA at $1.4 million for the fourth quarter 2019 compared to negative EBITDA of $0.8 million for the same period in 2018. For the 12 months ended December 31, 2019 EBITDA came in at $5.1 million compared to a negative of $1.9 million for the same period in 2018, an improvement of $7 million.
In additions, adjusted EBITDA came in at $1.9 million for the fourth quarter 2019 compared to negative $0.8 million for the same period in 2018. The adjusted EBITDA of $6.3 million for the 12 month period ended December 31, 2019 compared to a negative $1.2 million for the same period in 2018, an improvement of $7.5 million.
The net loss for the quarter was $0.5 million or $0.01 per share compared to a net loss of $1 million or $0.02 per share for the same period in 2018. For the year we are showing a net profit of $2 million or $0.03 per share compared to a net loss of $2.9 million or $0.07 last year, an improvement of $4.9 million. The increase is mainly due to higher sales and margins and a reduction in the SG&A expenses as a percentage of revenue.
Lastly, we ended up – we ended the quarter very strong with the working capital having increased to $36.9 million on December 31, 2019, for a current ratio of 3.2:1 compared with a working capital of $5.2 million and a 1.6:1 ratio on December 31, 2018.
Our cash on hand is at $22.7 million on December 31, 2019 compared with $3.9 million on December 31, 2018. Please note that we made a cash payment of almost $7 million for the acquisition of CDA Systems on December 10, 2019.
Now, I’d like to bring your attention to this graph, which shows our ability over the years to deliver strong and consistent revenue growth. Since 2016 we’ve been able to achieve a compound annual growth rate of 52%, which is quite impressive. With the guidance that we will be reiterating, this growth rate will be maintained or be improved depending on our execution in 2020.
Now let’s look at our EBITDA reconciliation. I thought it would be especially helpful to look at the EBITDA reconciliation as it provides some context to our profitability. 2019 was an important year as we ramp up expenses to prepare the next leg of growth for the company. Revenue came in as expected and profitability came in weaker than expected. This is driven by expenses we had to incur for strategic initiatives that we believe will support the next phase of growth.
For example, we are implementing a new ERP system. We have implemented a new website into your legal fees associated with our infrastructures initiatives, consulting expenses related to acquisitions and recruiting fees for senior hires. Many of these were one-time costs which we believe to be supportive of future cost savings and revenue and profitability growth.
Furthermore, you can see that our net income for the fourth quarter 2019 was impacted by higher than normal depreciation, amortization of intangible assets such as engineer standardization and income taxes. All of these add up to $1.7 million in expenses that adds up to our EBITDA of $1.4 million. In addition, our adjusted EBITDA can be calculated by adding stock compensation, impairment of inventory, foreign gain and losses and accretion of debt, which brings us to $1.9 million of adjusted EBITDA, which as a percentage age of revenue is 14%.
Lastly, I’d like to point out that the income tax came from our Italian and Toronto subsidiaries, which reported net income for 2019. Our operation in Quebec, Canada do not incur income taxes as we have tax losses carried forward available to us for two years.
Finally, I would like to give a snapshot of revenue by geography. We are happy to report that all our locations are performing well with triple digit revenue growth across most of it. China led with more than 400% in revenue growth and is expected to double in 2020. Our Chinese team has done a tremendous job in 2019. We’re especially happy to see that we are gaining market shares in the hydrogen segment in China.
For 2020 we’re expecting that our U.S. revenues will increase due to the recent U.S. dairy project orders, the added revenue of CDA system and the revenue additions of our planned U.S. acquisitions for this year.
Now, I’ll turn to Prabhu, our Chief Operating Officer, who will go over an update on the impact of COVID-19 on the operation. So Prabhu?
Yeah, thank you Louis and welcome to everyone joining us on this call from your homes or your offices. I look forward to giving you an operational update and I hope you’ll find this helpful to better understand how the company continues to evolve as it positions itself for future growth.
First let me address the impact of COVID-19 pandemic on the operations.
As you know, we have operations in Shanghai, Milan, Montreal, Toronto, San Francisco and some staff operating from Boston and Vancouver. As the outbreak spread in China, it eventually got to Europe and North America. We had to contend with these impacts on our operations.
The good news that is that so far none of our staff, about 160 employees around the world have been directly impacted by this and their well-being continues to be the main focus of the management team. In all our locations we quickly transitioned to remote work environments and minimized the impact on functions like engineering supply chain and all the SG&A teams.
The production activities in China were halted for three-weeks in February, but we re-opened on March 2 and have been shipping products since then. In Italy where the impacts of the virus are quite severe, the team was able to quickly adjust and transition to a remote work setting. However, given the shelter and place restrictions, the work on three of our biogas sites have been halted for the last four weeks. The positive news as of this call is that we are back in operation on the first site and we should be able to get back to the other sites over the next two weeks and get the work restarted.
Since March 15, in the province of Quebec there’s been a state of emergency and again, we have transitioned to remote work within a week or so. Given that we shipped critical filtration and air dryers to many customers, including hospitals, and we have sub-contractors to essential services like waste management organizations, we are deemed as an essential service and we are able to operate our facilities and provide the support our customers need.
In our subsidiaries CAI and CDA, the service teams continue to provide essentials – service to essential businesses, while the rest of the teams are supporting them remotely.
In summary, I’m happy to say that I’m quite pleased how the leadership team at the various locations have responded to this crisis and collaborated with each other through this process. If there’s a silver lining to the situation, it has brought the management team closer and we expect to come out of this with a stronger Xebec team.
Before we get into the operational highlights of 2019, I wanted to spend a few minutes on what we’ve been doing at Xebec on the product development side over the last two years. We’ve reorganized our product offerings into four product platforms: Biogas Plants, PSA’s, Natural Gas Dryers and Compressed Air and Filtration Products, but all share the core absorption technologies and are designed with the marginality and scalability. A lot of effort of the team has gone into standardizing these products, so that we can position them for volume production as the market evolves.
Now coming to the operational highlights of 2019, I want to reinforce what Kurt mentioned at the very beginning of the call, that our success in 2019 was a team effort with all the functions of the company doing their part well. Our sales team was focused on closing deals with customers with a strong pipeline of projects, of fighting for projects that will lead to a significant market opportunity in the future.
You’re all aware of our activity in the biogas, hydrogen, compressed natural gas and compressed air industry. However, some of the interesting projects that we’re working on also involves CO2 capture, purification of syngas from gasifiers, hydrogen reformers for fuel cell applications and helium and argon purification solutions. These are all from markets that can be of significant revenue potential in the coming years. The sales team achieved more than $53 million in bookings in 2019 and as you can see from our backlog number, we’re quite well positioned for 2020 revenue and part of 2021.
On the manufacturing side our work has been focused on ramping up our production activity and our supply chain, while maintaining the quality of the products. In 2019 we had a 300% increase in PSA valve production, which amounted to approximately one PSA system per week. We also initiated the activity of implementing a global supply chain, so that we can ensure that the Xebec products have the same quality and performance in all regions, and we can leverage our supply chain appropriately.
Supply chain management will be a key focus for Xebec over the next few years, to improve lead time and quality while reducing the cost of the product. We also established a customer care function that will be responsible for site installations, operation and maintenance contracts, training of the new service providers we are bringing on, parts and warranty management. As you probably know, most of the capital products we sell have a minimum life of 10 or 15 years and there’s significant revenue and margin opportunity of service appliance. Our acquisitions of CAI and CDA and integrating them within our service network is a part of this strategy.
Lastly, we continue to invest in our R&D to improve our products and absorbent technologies and we’ll communicate further on these activities over the coming quarters. As Louis mentioned, we are also implementing a new ERP and CRM systems, which should be completed in 2020, and as you can see, in 2019 has been a very busy year for Xebec operations.
Now I’d like to get into some specifics of each segment starting off with the Cleantech product. As the main driver of our revenue growth, we were happy to achieve our revenue targets for Cleantech for the year. Our revenue grew to $37.8 million compared to $14 million in 2018. This represents an increase of 140%.
In Q4, 2019 we announced an LOI with a partner which now has been converted into $27 million of U.S. dairy orders in multiple U.S. locations, including California. This increased adoption is reflective of the market realizing the advantage of the Xebec offers through its proprietary technology. In particular, our PSA platform allows dairy farmers landfills and municipalities to achieve low project life cycle cost, which can be very significant over the 20 year life of a project.
We’re in a very fortunately position to have a strong backlog for 2020 and hope to continue to building on our quote log which is close to $1 billion and backlog over the next few quarters to prepare for 2021. Winning contracts in new regions and applications will be a key part of this strategy.
Over the last few years we have done well competing with membrane based upgrading technologies from biogas flow rates for 600 SCFM and higher. However, we had a gap in our product portfolio for small scale biogas upgrading solutions, which was mainly dominated by the membrane solutions. So we are very excited about our new product Biostream, which is a modular, fully integrated solution for biogas fuels below 300 SCFM. We’re deploying many of these units in North America over the course of this year and will be in Europe early next year.
For example, in France there are about 1,800 applications for R&D projects and it’s expected that the vast majority of these projects will be awarded – will be within the flow capacities of Biostream. This product could be a significant revenue generator for Xebec over the next few years.
Our hydrogen business under Cleantech’s product portfolio also continues to grow nicely. Xebec has one of the most compact and cost competitive hydrogen purification PSAs or byproduct hydrogen purification or small as [inaudible] in the commercial field sense.
We are seeing strong growth in hydrogen purification orders, particularly in China and we’ll be expanding our hydrogen offerings over the course of this year. We were just an incredible participant in the emerging hydrogen energy business.
Our next segment is our industrial services support segment. As a reminder, this is Xebec’s legacy business before we got involved in the Cleantech space. We’re expanding this business through acquired and profitable businesses that are located in regions that are central to our Cleantech deployments.
For example, our first acquisition CAI is located close to Toronto where we are doing two biogas projects, and our second acquisition CDA Systems in Livermore, California was done in conjunction with our California US daily orders. This strategy will be key to supporting our continued revenue and EBITDA growth and we expect to acquire two to three more companies this year.
We’re also happy to communicate that our performance of CAI in 2019 was exemplary. Their revenue growth was 35% year-over-year, exceeding the goal of 20% that was set for the management. We believe that our strategy of aligning our Cleantech and industrial businesses is a competitive advantage and supplementary for each business segment.
Finally, I like to talk to you about our third business segment, the renewable gas infrastructure initiative. Since 2018 we’ve been working towards developing high quality renewable gas assets, and along the way we’ve been able to identify the appropriate position for us in the value stream. One of the major learning’s was the most project developers in the biogas market are limited by the upfront risk funding that is required and hence, many projects take a very long time to get to a funding stage. In addition, we feel that the best approach is to form strong partnership with credible players in the value stream and align the stake – all the stake holder interests.
Going forward, Xebec will be a financial investor and technology partner in these RNG infrastructure projects. We will provide capital equipment and operational support for the upgrading equipment. Xebec will facilitate the environment in which project developers can develop these projects and we’ll co-invest into these projects to provide the financial backing that is need. This approach also gives other investors’ confidence in the reliability of the projects as a major technology providers to investors and shares the project with us.
At the start of this year we finally announced our first project with several others in the pipeline. The first project is located in Quebec. It requires an investment of $28 million and is expected to be commissioned by mid to late 2021. It’s an integrated facility to process various organics waste for the production of renewable natural gas and bio fertilizers. We have processed about 45,000 tons of organic waste per year and generate 150,000 gigajoules of RNG and 7,500 tons of bio fertilizers per year.
There are three revenue streams for this project, which are renewable natural gas sales, tipping fees on the bio fertilizer sales. Tipping fees are revenues generated for accepting the organic waste from waste collectors who historically would have taken this waste to landfills.
We expect undelivered returns of 12% to 15% on the project, and as mentioned before, we also receive the benefit of selling one of our RNG systems to the project and we’ll enter into a long term operations and maintenance contracts with the project operators.
Furthermore, I’m very excited to say that we are very close to signing a significant core investment partnership to invest in multiple RNG projects in Canada. We expect to announce this partnership within the next few months and allow us to scale up our efforts to invest in high quality renewable gas assets.
Currently we are incurring cost to develop the first project in addition to the costing incurred for establishment of the co-investment partnership. We look forward to providing more updates on these activities over the next few months as they’ll become key drivers for long term success of the segment providing Xebec with predictable record revenues and profitability.
This concludes the operational update and I’d like to invite Kurt for his final comments and conclude with the outlook for 2020. Kurt?
Yeah, thank you Prabhu. 2019 was another good year for shareholders. Xebec has been chosen for the second time as a TSX Venture 50 Company: A Program by the TSX Venture Exchange Showcase, The Top 50 Performers for the Year on the Exchange. We also celebrated some other milestones throughout the year, one of which was ringing the opening bell for our 10 year anniversary on the Toronto Stock Exchange. You’re looking now at a picture of our team opening the market at the TSX offices here in Montreal.
Our share price in 2019 increased over 190%, which was in combination with the 330% increase in market capitalization to $180 million. Alongside, we saw a 350% increase in trade volume, with almost 62 million shares traded and a 950% increase in trade value to over $100 million for the year. As of today, Xebec is covered by nine analysts, six based in Canada and three out of the U.S.
These positive capital market developments have allowed Xebec to conclude two successful bought deals in 2019, raising gross proceeds of almost $35 million. The start of our evolution, we are now on track to graduate to the TSX main port in early Q3 this year. This will help provide more exposure for the stock and allow more institutions to invest in the company.
Overall, I’m very happy that we have been able to significantly increase shareholder value over the last three years. In 2016 we ended the year with a share price of $0.06 and at the end of 2019 we ended the year with a share price of $2.15, a 3,500% increase over a 36 months period. In 2019 we have demonstrated that Xebec has access to the capital markets, can find its growth and going forward we can utilize our stock as future currency for potential acquisitions.
I would like to spend a few minutes on looking past COVID-19. The immediate effects of COVID-19 will be a recession that will significantly depress demand, not only in the short term, but for many months and possibly years to come. The impact will be felt by everyone. One of the main lessons we need to learn out of this pandemic is that we need to be prepared for the next Black Swan Event. If we do not take preventative steps, if we do not listen to the experts and scientists, and if we do not prepare, we will pay a heavy price – a price like the one we are paying right now.
As with this pandemic, climate change has the potential to be a similar scale event. Scientists and climate experts have been unanimous in warning us for years about the significant negative impacts of climate change on our health and our economy. Unfortunately our response so far has fallen far short of what is needed.
Given that governments will have to spend significant amounts of money to stimulate the economy as the pandemic runs its course, I think it is reasonable to expect strong investments into renewable energy and clean technologies. The Canadian government is already considering this kind of stimulus and Xebec should be well positioned to benefit from these potential opportunities.
Given the current conditions…
Sorry guys, it looks like we have lost Kurt. Prabhu, can you take over the slide for managing guidance?
I will, thank you, thank you.
Okay, am I back? I was out… [Cross Talk] Am I back?
I’ll just start out again. Given the current economic conditions, we are very fortunate to have been able to reaffirm our guidance for 2020. We have enough orders and backlog and visibility into operations to confirm our outlook. We’re expecting $80 million to $90 million in revenue. Gross margin is expected to remain the same at around 30%; SG&A as a percentage of revenue should come in below 20%. EBITDA is forecasted to remain in the range of 11% to 13% and net income is targeted at 7% to 9%, which translates into approximately $0.05 to $0.08 per share.
In terms of how the revenue build is split, we’re expecting $50 million to $55 million in the Cleantech segment and $30 million to $35 million in our industrial service business. Segment margins are budgeted to be in-line with our historical levels.
At this point let me reiterate how robust our financial position is. It was approximately $25 million in cash as of today and another $17.2 million in warrants to be exercised by July 1; in other words, in the next 2.5 months. Combined with our quote log of close to $1 billion and the backlog of almost $100 million, we are very well positioned relative to other companies in our industry and world-wide.
On the last slide of this presentation, I’d like the go over our high level 2020 strategic objectives for each segment. In our Cleantech segment we are aiming to win additional contracts to fill the backlogs for 2021. As mentioned, we have enough orders for this year and will be booking most additional orders into 2021 and beyond. We would like to continue the momentum and order flow, but clearly we need to see how our potential customers will position themselves over the next few weeks and months given the current situation. It will be interesting to see if they will place the orders as planned or will hold on to see how the crisis plays out.
We are really excited about how our new containerized Biostream system will evolve, which will allow us to expand into new markets and geographies for smaller flow applications. We see this as a key step to gaining further market share and solidifying our leadership position in key markets. Lastly, in conjunction with launching Biostream, we would like to strengthen our presence in Europe. Our market intelligence has shown that small scale applications are a significant market in Europe, and consequently we would like to strengthen our position in core markets and add one or two more additional markets.
In our industrial segment, we are continuing this, our M&A strategy. Our gross margins in this segment requires some work and we are planning further product mix diversifications and leveraging our increasing purchasing power to reduce product costs.
Lastly, we would like to reduce the cost of capital for our acquisitions. The recent interest rate reductions by the Bank of Canada and the Fed are already helping us in this regard. We are currently in negotiations for a line of credit for our acquisitions.
Our infrastructure statement continues to evolve steady. As previously mentioned by Prabhu, we are planning to announce several more RNG projects over the next 12 to 18 months. We are also looking forward to announcing our co-investment partnership as this will be a significant development for the industry here in Canada.
On the corporate development side, we like to graduate to the TSX main board by July, August this year. Over the last 10 to 12 months more and more investors have asked us to consider and move to the main board, and early this year our board has approved the move. We are now actively working on becoming compliant with the requirements for an up-listing, which should be achieved during Q2.
We are also looking to expand our Board from five to seven members and become more diverse in our board composition. Lastly, we have commenced a review of all our essential and non-essential expenses to make sure we are only spending money on needs to haves, and not on nice to haves.
With that, I’ll turn it back over to Brandon to proceed with the Q&A.
Q – Brandon Chow
Thank you, Kurt. With that we’ll open up the floor to questions. Please note that you may ask a question at any time to the right in the console. We will wait a moment for questions to queue up.
Great! So we have one question from Jason Tucker from Paradigm Capital. Prabhu, can you talk about the potential delays in the contracts that we’ve been working on so far and how that might impact guidance? And can you talk about how confident you are in being able to hit the guidance for the year given the coronavirus uncertainty?
Yeah, in terms of – if you look at the biogas industry and our deployments there, the majority of the deployments or really onsite worker is really Q3 and Q4. So a lot of the work that’s going on now is mostly construction of the product and the supply chain that’s delivered. So at this stage we can’t – we feel reasonably confident that our deployments will go on schedule, and we’ll be able to recognize the revenues on that. So however the pandemic grows and it continues in Q3 and Q4, I think the adjustments will be more of a timing issue rather than a loss of revenue.
When it comes to the PSA deliveries that we are working on with the – in the hydrogen space or the other markets, other applications, so far we have not seen any delays form our customers. The flip side of that, we get a lot of calls from customers to make sure that we are delivering on time. So I think we have not felt any impacts in terms of delays for the full year 2020. In terms of actual shipments, there may be adjustments by a few weeks here and there, but that’s mainly dependent on logistics and the sites being ready and the construction queues being ready on the customer side.
Great! Thank you, Prabhu. So we have another question from Amit Dayal from H.C. Wainwright. Does the revenue guidance include the contributions from the new acquisitions on the industrial side?
Yes, they do. We have a run-rate on the industrial side, currently of around $22 million — $22 million to $23 million. So we need to add at least two or three additional acquisitions to hit our target of $30 million to $35 million.
Great! Thank you, Kurt. We have another question from Amit and a couple of other investors including Sid. Can you talk about the certainty of the first build on operate project. What kind of contracts can come from that and how are you thinking about the first project development and the future ones ahead?
Can you repeat that question Brandon?
Yes, no problem. Can you talk about the first renewable natural gas project and the certainty behind that and how are you thinking about the next couple of projects moving forward?
Yeah so, on the certainty side, the project has progressed so far very nicely. We are obviously working with our partner, Bahler Biogas on that. Applications have been made, permits application has been made, brand application has been made, the design work is progressing. We expect that plan to be operational by mid next year, maybe a little bit later than mid-next year that is the current target. So as far as I can see, this is progressing on track.
The next projects are dependent obviously on financing. As Prabhu has mentioned in his overview, a lot of those projects are suffering, are not having the risk money available to develop the projects. Now what we don’t make available is the risk money to develop those projects, because as you move those projects forward, you basically have to invest into permitting, siting, finding the feedstock, finding the off state, all those things. If anything falls apart, suddenly you’ve invested quite a considerable amount of money and you have no project.
So what will happen is, with the establishment of our more important partner, co-investment in partnership, we will make the risk money available to develop a multitude of projects. That’s quite a good list of potential projects that we are following at this point.
Great! Thank you, Kurt. We have another question from Alan Richardson for you Prabhu. In the order backlog, how much can be attributed to the repeat business of the service division versus the equipment sales in the Cleantech side?
In terms of the order backlog that we have, I would say 60%, 70% of that is basically on a Cleantech and PSA side, PSA businesses. And then we have a service businesses, which is probably I would say 20% to 30% of that.
In terms of repeat businesses we got on the PSA side, especially when it comes to hydrogen there is a lot of repeat business, customers – as I said, when it comes to small scale hydrogen purification or small scale solutions, I think PSA – Xebec’s the leader in that space. There is a lot of – we have customers who have worked with us for the last decade on that.
In terms of biogas, obviously this is an emerging market. We have a repeat orders from a couple of the customers, but I expect to see that grow a lot more in the next few years.
Yeah, let me add here. Out of the $100 million order backlog that we are having and I think we are breaking it down in our MD&A, about $10 million comes from the industrial segment. So clearly our acquisitions have orders for a commitment for equipment business that go into backlog, but the majority of our backlog is in the Cleantech business.
And normally the service businesses generate about 60% to 70% on the service and parts side, and about 30% to 35% as I’m always saying on the new equipment side. So a lot of the revenue that the service companies have generated are not reflected in our backlog. Only the equipment orders that they carry at any given point is reflected in our order backlog.
Great! Thank you, Kurt and Prabhu. Prabhu, can you also talk about the competitive landscape and how’s has Xebec propriety technology compares to the others?
Yeah, so when you’re talking about our PSA technology, and the competitors based you have membranes, I’m talking about the biogas industry. The membranes, water wash and you have the chemical system, the immune systems.
I think over the last three or four years the two technologies that are kind of come to the surface of the membranes and the PSAs, and among the – compared to membranes and PSAs, PSAs as I said, when it comes to large scale plants, PSAs always have a distinction competitive advantages, because membranes, the cost of a membrane system scales but the surface area of the membrane and the cost of a PSA systems scales by the diameter of the tanks that we use. So from pure physics, our products are more cost effective.
When it comes to small scale system, this is where membranes are doing a better job over the last three years. But now with our Biostream product I’m very confident that we’ll be capturing market share there.
The other technologies, water wash and maintaining systems, I mean they seem to have some challenges and I think customers have begun to realize that, so the focus mainly has been on PSA and membranes. And when it comes to PSA technology themselves, there are a few competitors, but when it comes to the novelty, the simplicity and the size of our PSA and the reliability of the products, I think our product is definitely distinctly better than what I see with others. And it was reflected by the feedback from the customers, and also from the order backlog that we have.
Great! Thank you Prabhu. We have a question from Raveel from Canaccord. This is again for you Prabhu. How do you see the cost of renewable natural gas changing over time as the industry scales and matures?
Yeah, I think this is good question, because we try to think about that a lot. Because you know today, as you know the pricing or RNG can be anywhere from $15/MMbtu to $70 to $80/MMbut in California. So the market obviously is supported by the attractive pricing that’s there, but at the same time what I see is that as we continue to standardize our products, and actually make up products more cost effective, we should be able to make a good value proposition for customers even if there is headwind towards the RNG pricing.
We don’t see a significant change on that in the near term, let’s say in the next two, three years, but further out its likely – just like solar and wind run through a depreciation in the pricing structure. We could see that in the RNG space, but our focus is mainly to reduce our cost structure, so that we can continue to create value for the customers. And eventually we want to get to a price of RNG where we can actually make cost effective hydrogen as we see that as the next emerging field.
So cost effective RNG to convert that to the renewable hydrogen through on-site Steam Methane Reformer for hydrogen fueling. So that’s kind of the next wave of activities for Xebec.
Great! Thank you, Prabhu. We have a question from Catherine for you Kurt. Can you talk about the landscape when it comes to different new subsidies, different renewable gas mandates and how that might be impacted by the coronavirus and the economic situation?
That’s a difficult question. Obviously at the moment you have basically two instruments that is carrying your renewable natural gas. Either those renewable gas mandates that gas utility implement or you have a low carbon fuel standard like in California where you think can create [ph] the certificates.
Now going forward, what’s really evolved and I’ve spoken in the presentation a little bit about it. What will happen to the governments coming out with their stimulus spending that might change the landscape. I mean I clicked out an article from the global mail that was in there. I believe it was April 9, where they are already talking – in this article, they are talking about this Catherine McKenna who is an Infrastructure Minister and Jonathan Wilkinson who is the Environment Minister are basically been asked to look at how they can start stimulating the economy, but also by spending on climate relating activities. So I’d be very hopeful that we are seeing some very interesting programs come out that should bode well for renewable natural gas.
Now will the same be happening on the federal level in the U.S.? I doubt it. On the state level in the U.S.? Yes, I would hope that we are going to see our program and I would assume the same probably will happen in Italy and in France.
Now Italy is a little bit that delicate situation, because Italy has an enormous backlog. They’ve announced, I think is now almost two years or 1.5 year back that they have a €4.7 billion subsidy program for renewable natural gas. Now we will see if they can deploy that money given everything they have to do.
Now if they use that up in support to Italy, what I expect, I would hope that we are going to see increased investment into this space, because again, our climate change is the next potential huge crisis we’re going to be facing and every dollar spent now on this should be beneficial for us later on as a society.
Great! Thank you, Kurt. Our next question comes from Jeff Silver from Corrado Financial Group. So it’s the early days in the COVID-19 environment. But with Xebec’s strong balance sheet, can you talk about how you’re thinking about acquisitions, and assume that potential sellers may be driven down to the table, how do you trade off what may be a buyer’s environment with the stress of the potential acquirers?
I’ll let you answer that Prabhu.
Yeah, I think it’s a very interesting time. On one side your right, it looks like this could be a buyer’s environment. So our focus as we look to acquire a company, as I said the drivers behind it is they have to be strategically located to where our Cleantech deployments are. So we look beyond just the COVID situation now. We want to make sure that we have good companies, good management team, because we typically like to keep those management teams intact for a few years.
So we want to look at companies that have again, profitable companies with a good management team at a right service infrastructure, and support of the growth of our Cleantech service business over the next, say three to five years.
That’s really the driver behind how we look at these companies, and I completely agree that this COVID situation may actually create some unique opportunities for Xebec to use this balance sheet and the funding resources that we have to actually acquire some really good assets over the next six to eight months.
So our team is motivated about it. So we are – that’s why we reconfirm what we just said. We are looking to acquire two to three companies, where I think it actually gives us an opportunity to do that this year.
Great! Thank you, Prabhu.
I want to just add, it’s not only the rollouts strategy that we are pursuing. I think there’s also opportunity that might be a little bit more strategic and more important to Xebec. We will need to see how this evolves. There’s no rush for us over the next 12 to 18, 24 months. I think there will be opportunities for Xebec to look at some potentially very strategic and diverse, while acquisitions as we move forward
Now we’ll assess it and we’ll see how it goes, but I think the pricing that we will be seeing, that’ll be attractive. Even today if I look at some of those companies I’m following, the pricing looks very, very attractive even today.
Great, thank you Kurt. So we have a follow-up question from David Quezada from Raymond James. Can you talk about how the pricing has changed from what you’ve seen so far, may be provided in the context of dollar amounts or different valuation metrics?
In terms of the acquisitions, Brandon?
Yes, so given the current environment, how much more attractive are these oppositions becoming. Are you able to quantify that?
Well, I think it’s a little too early to qualify, because we have a pipeline of acquisitions that we are working with, and there’s a lot of back and forth with, I would say three or four companies that is going on right now. And also it also helps us to structure or deal slightly differently given the uncertainty in the 2020 revenue projections that they would have. So it gives us – I think we are in a position to be able to make different types of offers that are more attractive for Xebec.
Again, the acquisitions we are obviously looking at paying the right, fair price, for each acquisition. What we are tending towards at this point is also to use some of our share as a currency in those accusations. It obviously makes a lot of sense for us to conserve as much cash as we can, as we move forward, because even if you think this thing only lasts maybe six, 12 to 18 months who knows, we don’t know.
So we want to make sure we have enough financial resources as we move forward, and I think it would be prudent for us to combine those acquisitions. They have an earn out component. They should have a certain equity component, in other words share components from Xebec and then there’s a cash component, and ideally this can component, we want debt finance, debt financing is becoming increasingly more affordable for us. So that’s how I would look at that. But cash preservation as I said before, ‘Cash Is King’ and we want to make sure we have as much cash as we move forward.
Great! Thank you, Kurt and Prabhu. We have another question from Eric Stein from Craig Hallum Capital Group. Can you describe and characterize the partner you are close to announcing? Will this be an exclusive agreement? Can you also discuss the pipeline with this partner and will other – and other potential partners. Prabhu this is for you.
I think, as we’ve indicated that we expect to have an announcement in about two months. So I think we ought to be a little careful about what we talk about it, what we say about it today. But in terms of a partner, this would be a strong financial partner who will work with Xebec in terms of developing projects in the Quebec region and I think that’s our initial focus right now, is Quebec, because it’s closer to where we are, where our headquarters is, and then once we expand in Quebec, I think beyond that we have other discussions going on in other regions of North America.
We also announced a partnership in Europe earlier – I think it was last year. That continues to exist for us and we have opportunities to invest. We’ll invest with them in Italy and France.
Great, thank you. We have another question from Ahmad Shaath from Beacon Securities. Prabhu, can you talk about the movement in backlog. Has there been any other wins besides the $27 million that was announced in California?
So I mean, in terms of backlog, there have been – a number of contracts have been awarded, mostly in PSA type activities. On the biogas side we are very close on a few projects and hopefully we’ll be able to announce some of them in the near future.
Yeah, I think what I would like to add here is, as you know in Canada, only two provinces at the moment have a renewable gas mandate, British Columbia and Quebec. Enbridge and Ontario has now applied for voluntary RNG program that should become hopefully operational in the second half of this year, but more importantly [inaudible] has just recently announced that they have received approval from the British Columbia Utility Commission to move forward the spying renewable natural gas out of province. So this will allow now a number of projects Xebec has been working on that are located outside of British Columbia to move forward because the off-take agreements can now proceed and those off-take agreements always with this focus.
So when we are talking about and I was speaking about that we are close to closing some of those contracts, we will need to see if the clients will now place the orders or if beyond getting an off-take agreement then we are hesitant about the future and hold back on placing those orders. I think over the next four to eight weeks we should see how the order, situation progresses.
Also I think, again because of the COVID situation, there has been some delays in activities in Europe too. I mean there’s some very exciting opportunities for us in Italy that we are working on.
China is back. I mean now although there’s some restrictions on travel for the sales team, but they are now in a position to start closing some orders. So we should see some traction there.
As we mentioned earlier, China had a fantastic year. We came into 2020 with a very strong backlog in China. So the revenue risk there are pretty low. But in Q2 we should be able to see a lot more closings around the world I think. We should see, begin to see the progress there.
Great! Thank you, Kurt and Prabhu. So to build off that, we have another follow-up question from Ahmad. So it looks like we booked some orders in the last quarter in China. Prabhu, can you provide some additional color on how that’s looking?
Yeah, in China it’s interesting what – how successful we are. Like I said, again Xebec have a very unique PSA and when it comes to gas purification, especially in the hydrogen space we are leaders there.
So in China there are two segments where there seems to be a lot of growth. One is by-product hydrogen purification for fuel cell applications. As you know, China has been pushing hydrogen fuel cells for the last year, 1.5 year, and that is triggering a lot of demand for low cost hydrogen. And one of the ways of making low cost hydrogen is by-product hydrogen from chemical processes and that’s where we are seeing a lot of traction.
The second segment we are also seeing a lot of activity is in the refinery industry. So when it comes to making chemicals, there’s some gasking of technology that’s required and so we are selling a lot of these smaller scale hydrogen purification solutions in the downstream refinery chemicals. So between the two, I think we did almost $20 million in sales in China last year.
So in close, those two segments are going nicely for us. We expect the same, yet we are seeing a lot of traction in the former steam methane reformer based solutions for hydrogen generation in North America, so we have a lot of customers in that space. As you also know, we have a partnership with the company in Korea where they are building like 500 kilograms a day or half a ton reformers for fuel cell applications, so we sell PSAs to them.
So that segment as it evolves, as heavy duty fueling and heavy duty trucks or fuel cell trucks are on the road, there will be lot more demand for small scale hydrogen generators. I think Xebec is well positioned, not just on the purification side, but also on the reforming side of things. So that’s the segment that will continue to evolve for us.
Great! Thank you, Prabhu. So we have a question from Bob McWhirter from Selective Asset Management and another one from Ahmad. What is the expected selling price of the DGX Biostream system and can you provide some color on sort of what the go-to-market strategy is, which geographies are the focus and is that only exclusive to Europe or is it also going to be in North America too?
Well, the bio-stream product is a global product. I mean what – we are obviously launching that in North America today. Its priced very competitively. We know what the market pricing is for a membrane based systems in this space, in this floor rates and we are pricing it competitively. But also this is a reasonably – I mean it’s – in terms of a margin structure we expect it to be pretty good for us, but a lot of that obviously comes with scale.
So as an example, in France over the last couple of years, they have been between, I would say almost 50 small scale system sold and so Xebec did not have a product in that space, and as a result we were not able to capture the market. So you can – even if you got 10%, 15%, 20% of the market share going into next year, we can see a significant revenue bump coming from just the Biostream product in that region.
We expect that as the larger projects are put in place, the next wave of projects in Europe and also eventually be in North America too, will be the small scale systems. So our focus is really to standardize the products, set up a supply chain globally and drive the cost of the bio-steam lower, so that we can go out for all these markets. And then beyond the 300 SCFM we see a lot of interest in really small farms, which is maybe a 50 SCFM to 100 at SCFM, especially we have a lot of request for that in South America too.
So we were looking at a portfolio of products in what we say integrated Biostream solution. So what we have launched right now is that first wave of Biosteam, but there’s going to be many models of Biostream that will come out targeting different regions and different floor rates.
Great! Thank you, Prabhu. We have a question from Fred Tremblay from Desjardins. What are you expectations for revenue and earnings, contribution of your first infrastructure project in 2021?
Let me answer that. So on the infrastructure project, we are anticipating that we going to invest about 20% to 30% into the equity of the project. So there is going to be a return out of the profit generation of the project. We are going to have to scale of an upgrading system, and we are going to have the revenue out of a service and operations agreement.
Now the project is only slated to start mid to late 2021. So the impact on our revenue in 2021 will only be in relation to the equipment sale, the profit generation or the service and maintenance. Our contribution will be negligible.
But going forward, obviously each one of those service contracts is an important part of our strategy to generate more stable recovering revenue. And as we’ve announced, the IRR on those projects is initially 12% to 15%. We have a hurdle rate for those projects, which sits at 10%. So yeah, I’m quite happy if we can attract those projects, work with waste companies, municipalities, gas utilities, project developers, to participate in the roll out of those projects and Xebec can be a co-investor to give more confidence to the other investor base. I think it’s ideal.
Great! Thank you, Kurt. So we have a couple more follow-on questions from Andre, and Andrew Hood from M Partners. Can you talk a bit more about – maybe give some examples of the key players in this Build, Own, Operate infrastructure segment, and the potential risks that these projects may not go forward given the current business environment?
So in terms of Build, Own, Operate, if you look at the value stream, you have obviously the feedstock supply, then you have the partners that will make the digesters themselves and then we have the upgrading players like Xebec, and then you have the downstream off-takers and also customers that could take the fertilizer. So there is a range of players in each part of the value steam.
So over the last year what Xebec has done is basically map that out and look at the players that are there and the different regions, and try to identify partners for each one of those parts of the value steam that we could partner with in the different regions. As Kurt mentioned, and we talked earlier, a lot of the project developers are putting together these projects. You know they have limited funding and in terms of developing a project you need to get the partners onboard, you got to get the contracts in place with them and then you got to take the off-take agreements and the feedstock started agreement.
So putting together a project is almost like a 12 month process, 12 to 15 month process and what we have done is, try to identify partners that we can work with and also provide the necessary funding and provide the funding resources so that we can take this to a full scale. Get through the development phase and get it to full funding.
So we have partnerships developed and also identified in different regions of the world, and the one in Quebec is probably the one that’s moving forward the quickest and that’s also because we want to do it in a region where we are close to it and we are headquartered there. So I hope that answers the question. I mean we would have to get into every region and talk about the various players to be very specific about this.
I want to add maybe here, because in opening for us it was also a process of determining where in the value stream do we sit. What we realized is and what some of our potential customers brought to us, are you becoming a competitor to us in going into project developers. And we realized we don’t want to be project developers, we want to be partners to project developers. So we needed to find our space in the value chain, which I think you have to now. We have a business model that allows us to co-invest, sell the equipment, get an operation maintenance agreement.
So I think the – and help the industry grows. Because by us and our financial partner making risk capital available for the development phase, it will be very important for a lot of people to be able to push their projects forward, and it will still allow them to invest into the equity of the project, while we co-invest if it is required or desired, but we are not pushing this. You want it, we are there; if it’s a good project, if it meets our hurdle rates.
So clearly, we want to make sure that the market understands we are not a competing project developer. We are basically a facilitator, that’s how I would say it, I would like to issue them.
The last comment about that is the following: Is that if you look at a lot of the biogas projects from the past, a number of them have failed because the technology provider has walked away from them, and what we want to do is make sure that we are there in the project and we have a stake in the project and we get some long term returns on that. So all the other participants and all the stakeholders have the confidence to make the investment. So we have skin in the game is basically what it is.
Great! Thank you, Kurt and Prabhu. We have another follow up question from Eric Stein. Can you talk about the expected linearity throughout 2020 with Q1 already done and acquisitions as part of the plan?
Yeah, this is a good question, because this is what we grapple with day-to-day on the operational side. So if we look at our revenue projections for the year, we are reiterating revenue projections. We feel pretty good about it, because when you look at the backlog and the projects we have, we see a pathway to get to the numbers we have set.
The question becomes whether it’s – how is it distributed across the various quarts in the year, and this always – this is something that the team is constantly working with the supply chain and with the customers to make sure that we’re able to deploy the products as planned. So it’s difficult for us to tell you exactly how the revenue is distributed between Q1 and Q2, but we definitely see a clear path leading to the $80 million to $90 million that we have talked about. So that’s – I hope that answers the first part of the question; and Brendon what was the second part of it in terms of acquisitions.
We are activity pursuing two to three acquisitions right now. So it’s a matter of now going through the due-diligence and executing them. So very attractive companies will add a lot of value to Xebec in terms of not just providing the service infrastructure, but also the product portfolio that could be used through or entire service network that we are establishing.
So I think there’s no slowdown as such in terms of activity in the acquisition space, but as Kurt mentioned a few times now, in this environment Cash-Is-King, so we’re always making the prudent decision in terms of how we structure those deals, so that we are not exposing ourselves from a cash flow point of view.
No, I want to add maybe just two sentences. One is, historically Q1 was always the weakest quarter or one of the weakest quarter and we strengthen as we go through the year. That’s what you see when you look at our quarters very often, so I would expect it to be similar in 2020. And then when you look at the revenues from acquisitions, clearly if we are having a run rate revenue rate at the moment in our industrial segment of about $22 million, $23 million, we need to acquire about $10 million to $15 million this year to get to our guidance of $30 million to $35 million.
If you assume that we are now in Q2, that we can close maybe the acquisitions over the next two to three, four months, that would mean that in the second half of the year, we need to get in at least $10 million in additional revenue, $10 million to $15 million in additional revenue out this acquisition that implies that those acquisitions overall generate about $20 million to $25 million, $30 million in revenue, those three four acquisitions we are looking at. I think that gives you a little bit of a guideline as to how we look at those acquisitions and the revenue that we should be getting in from them.
Great! Thank you, Kurt and Prabhu. We have another question from Andrew Hood for you Louie. So he’s commenting on the bump in accounts receivable for Q4. Is this just a timing on collections and the increase in revenues, and has there been a significant portion that’s been collected or are there any concerns on collecting the money in today’s economic environment?
Well, you know the – as we said, you know the accounts for CIBL [ph] went up you know from – we had revenue last year of $20 million, this year its $49 million. So that’s you know the accounts receivable are going up and this is normal.
We don’t see any issues for collecting the amounts. You know any of the ones that we have concerned they were provision, so it’s just a matter of time. Don’t forget that that these contracts, sometimes we have to deliver – there is some performance to be finalized on them to collect, so it’s just a matter of time. But you know [inaudible] and all of the receivables, if you got to China as well, China increase and the collection in China is always longer. So we did the evaluation, we don’t foresee an issue of collecting these.
Maybe Louie, also speak about the percentage of completion accounting, that impact.
Well, I can add it to something. We have always two categories. We have the trade accounts receivables that we have invoiced, but we have also what we call the accrued receivable, which means that in some cases when we perform more work on a job that we have, we have built a customer, then we have in an accrual to receive, so that’s another part of the explanation.
So we’re working very hard and we’re ahead in many cases, in some contracts in terms of work we performance on the job versus what we’ve built with the customer, which we are, because we’re doing the accounting of what you call the POG accounting, progressive accounting. So that explains also why that has increased. But that’s basically the answer, and there’s no worry about collecting these receivables at this point.
Great! Thank you, Louie. We have a couple of questions from Calvin and Gary in regards to the quote log. Prabhu, can you talk about how the quote log is shaping up and your sort of exceptions on the conversion of that into the backlog?
Yeah, I think as we have mentioned a few times, the quote log is very large and we are quoting – if we look at how the distribution of the quote log, obviously when we talk, when we quote for landfilled projects in North America, Europe, those typically are a much larger dollar value. Then we are doing a lot of – in-terms of the digesters and waste water treatment facilities and again, both in North America, Europe, those dollars are typically you are talking about between $3 million to $5 million for projects. So those are the two big categories there in terms of the biogas market.
There is obviously – a smaller part of that is also the hydrogen PSAs and there’s a good number of those also building up for both fuel cell applications and also refinery applications.
In terms of conversion on the quote log to orders, typically our target as we always say is that we want to be able to close a decent number of projects in every region, every quarter. That’s kind of how the sales team is focused. So that, and like we said in 2019 we closed about almost 50, nearly $53 million or $54 million in orders and we expect to exceed that in 2020, that’s the target the sales team have.
It terms of quoting activity for – we did not see any slowdown in the first quarter because of the virus situation. The team’s been as busy as ever. We are also seeing a lot more activity now starting in Australia, so that’s a new market area which we are looking at. So that’s a new area that’s developing and Australia is investing a lot and not just in biogas, but hydrogen I think is a big market and its evolving rather quickly.
So we have supplied – for example, we have supplied PSAs there for the gasification project. So that’s the region that’s – that’s an interesting region and we are trying to figure out exactly how to play there, but RNG, hydrogen and PSAs for gasification on three markets coming out from that region too.
Great! Thank you, Prabhu. Another question in regards to how we are thinking about South America, is that an area of potential expansion too?
Yeah, we have – we’ve just completed the commissioning of PSA system in South America. Many of these competing technologies that are there, we talked about membranes and other technologies, many of these competing technologies are not able to achieve the gas purity required to injecting in the pipeline. So sometimes we supply purification systems to put after our competitors technologies to actually get into the gas pack, and so we had just commissioned one of the plants there and one of the largest landfills in Brazil, and that project was successfully done.
There is lot of demand from Brazil that we see a lot of requests from very small scale biogas solutions and so we’ve been looking at it. So that will be a mini version of Biostream. So there is a product offering in Biostream that is smaller than what’s being launched today, that’s in the cards. The timing of that is not exactly sure, but we are working with some very significant players in Brazil for that market, so.
Then there is some activity in Argentina and Colombia, but these are all opportunistic and we are little bit cautious about spreading ourselves too think, because you know when you supply a plant you need to provide the service infrastructure behind it. So Brazil definitely is a key market focus for us and I’m hoping that the second half of this year we’ll have a lot more activity down there and we have a partnership there in terms of a service support, that’s quite stable and strong. So as we are starting to climb products there, we feel confident that we can service them.
Great! Thank you, Prabhu. We have a couple of questions in regards to head counts, and how the hiring of the senior management is going. And are there still positions that need to be filled for you Prabhu?
Yeah, so as Kurt said the last three years have been quite an effort by Kurt and Louie and myself trying to build the organization. A major part of my time has been in bringing in the right people in the company. So we have a series of directors that we brought in, in terms of engineering and supply chain and manufacturing and then very recently we brought in a Vice President in Operations who is helping me a lot in terms of operating the facility Blainville, in Montreal. So that was a very strategic higher.
There are probably a couple more that are needed as we expanded the latest regions in the world, that are more managing locally in those regions. I think we have filled I would say 70% to 80% of the key positions in the company and there are a few more that we either promote from internal resources or we’ll have to go out and hire.
I did mention supply chain as a key focus for the next few years. I think the company in the biogas industry that has the best supply chain is going to win the business. So that’s going to be a big focus of my activities over the next few years.
I think we might have lost Brandon here.
So, I think maybe it’s about 12:20.
Maybe we should probably wrap it up, especially since we lost the host. So thank you everyone.
Do you have some concluding comments? Yeah.
Yeah, so thank you everyone. It was a pleasure having you for our third Investor webinar and we’ll be reporting our Q1 ’20 numbers by mid-to-end May and I look forward to speaking to you then and in the meantime keep safe as well, and that concludes our webinar. Thank you very much.
Thank you all.
Have a good day!