XBC Xebec Adsorption Inc

Xebec Adsorption Inc. (TSXV: XBC) ("Xebec"), a global provider of renewable gas solutions announced today its 2020 third quarter and nine-month period results, with the following highlights:

• Revenues of $18.4 million in the third quarter of 2020 compared to $13.2 million for the same period in 2019, a 39% increase.
• Negative EBITDA of $1.3 million for the third quarter of 2020 compared to positive EBITDA of $1.4 million for the same period in 2019.
• Net loss of ($2.2) million or ($0.02)/share for the third quarter of 2020, compared to a net profit of $1.0 million or $0.02/share for the same period in 2019.
• Working capital increased to $81.3 million on September 30, 2020, for a current ratio of 4.4:1, from working capital of $36.9 million and a current ratio of 3.2:1 on December 31, 2019.

Financial Highlights:

	Three months ended September 30,				% of Change		Nine months ended September 30,				% of Change
	2020		2019				2020		2019
(In millions of dollars)	(unaudited)		(unaudited)				(unaudited)		(unaudited)
Revenues	18.4		13.2		39 %		50.2		35.7		41 %
Gross margin	4.4		4.0		10 %		11.7		11.4		2 %
Gross margin as a percentage of revenues	24 %		31 %				23 %		32 %
EBITDA (1)	(1.3)		1.4				(0.7)		3.7
Adjusted EBITDA (2)	(0.7)		1.5				(0.3)		4.3
Net income (loss)	(2.2)		1.0				(3.7)		2.5
Net income (loss) per share - basic ($/share)	(0.02)		0.02				(0.04)		0.04
Weighted average number of shares	105,485,980		69,216,473				92,928,420		61,546,642
As at:							September 30, 2020		Dec. 31, 2019
Total assets							123.4		64.5
Total liabilities							37.5		25.5
Equity							85.9		39.0
As at:							November 9, 2020		November 11, 2019
Backlog							88.4		71.0
(1) EBITDA is a non-IFRS financial measure and the Company defines it as earnings from operations excluding financial charges, taxes, foreign exchange loss (gain) and amortization.(2) Adjusted EBITDA starts with EBITDA and adjusts for Stock-based compensation expenses, impairment of inventories, exchange gain/loss on the obligation arising from non-controlling interest participation in a subsidiary, foreign exchange loss (gain) and accretion of debt.

Financial Results and Recent Developments

• Revenues of $50.2 million for the nine-month period ended September 30, 2020 compared to $35.7 million for the same period in 2019, a 41% increase. The increase is mainly explained by a higher volume of major Cleantech contracts and the acquisition of service companies.
• Gross margin of $11.7 million or 23% of revenues for the nine-month period ended September 30, 2020 compared to $11.4 million or 32% for the same period in 2019. The company had a lower gross margin in the Cleantech segment due to investments in product development, standardization and higher construction costs for sites impacted by COVID-19 regulations.
• Net loss of $3.7 million or ($0.04) per share for the nine-month period ended September 30, 2020 compared to a net profit of $2.5 million or $0.04 per share for the same period in 2019, a deterioration of $6.2 million and $0.08 per share. The decrease is mainly explained by a reduction in gross margin, an increase in SG&A expenses, and reduced productivity caused by the COVID-19 pandemic.
• Negative EBITDA of $0.7 million for the nine-month period ended September 30, 2020 compared to positive EBITDA of $3.7 million for the same period in 2019, a deterioration of $4.4 million.
• Backlog increased by $17.4 million over the last 12 months, from $71.0 million on November 11, 2019 to $88.4 million on November 9, 2020.
• Selling and administrative expenses increased by $6.6 million in the nine-month period ended September 30, 2020 compared to the same period in 2019. The increase is primarily due to the organizational scale-up of employees and associated costs to support the increased level of sales, order backlog and quote log. Also included are higher than anticipated one-time costs of acquisitions due to outsourced due diligence.
• As at September 30, 2020, the company had $51.9 million of cash on hand compared to $22.7 million as at December 31, 2019 and working capital of $81.3 million compared to $36.9 million as at December 31, 2019.
• On July 31, 2020, Xebec acquired North Carolina based Air Flow to expand its Cleantech Service Network.
• On August 31, 2020, Xebec acquired British Columbia based Applied Compression Systems to expand its Cleantech Service Network.
• On October 21, 2020, the Toronto Stock Exchange (the “TSX”) conditionally approved the listing of the common shares of Xebec (the “Shares”). Listing of the Shares is subject to Xebec fulfilling all of the requirements of the TSX, including receipt of all required documentation, on or before January 19, 2021, as well as the distribution of the Shares to a minimum number of public shareholders. Upon, and subject to, receipt of final TSX approval, the Shares will be delisted from the TSX Venture Exchange and begin trading on the TSX under the symbol “XBC”.
• On October 31, 2020, Xebec acquired Pennsylvania based The Titus Company to expand its Cleantech Service Network.

CEO Quote:“Despite the market disruption caused by COVID-19, Xebec was able to display resilience, maintain its revenue growth trajectory and succeed in closing several acquisitions. Similar to the previous quarter, the third quarter presented challenges with COVID-19 as countries around the world continued to grapple with the effects of the pandemic and its resurgence. This had an impact on our ability to deliver product to customers and we continued to incur higher costs associated with operations and installations due to increased health & safety measures.

Over time we expect to see a normalization in our operations as we better understand COVID-19, improve public health measures, and work towards a vaccine. We expect this will result in a strengthening and return to our historical product margins and reduced one-time costs associated with outsourced M&A activity.

We believe it is a critical time for governments to consider how they rebuild their economies and how the transition to a low-carbon future play into that. We expect clean energy policies and investment will come to the forefront worldwide, as we have already seen in Europe and our home country, Canada. We are encouraged to see quoting activity for renewable gas projects has picked up in the second half of this year and we remain positive about our future outlook.

Ultimately, 2020 has shaped up to be a year of focusing on building a strong foundation for Xebec. We expanded our management and operational teams and executed on a number of internal improvement projects, such as the new ERP implementation, ESG reporting capabilities, the establishment of an M&A team and the implementation of internal controls compliant with 52-109 to up-list to the TSX mainboard. Although the year did not go as initially planned, I am confident that we are building the foundation for our company to continue the rapid scaling we anticipate in the years to come,” stated Kurt Sorschak, Chairman, CEO and President of Xebec Adsorption Inc.

Current Market and Guidance for Remainder of 2020Renewable natural gas and hydrogen purification systems continue to see strong demand and sales activity has picked up in the latter half of the year. The Industrial Service and Support business continues to develop well with support from both organic and inorganic growth.

Nonetheless, we continue to see delays and higher costs with delivering our Cleantech products, which impacts our revenue and profit generation. This is due to higher manufacturing and installation costs resulting from increased health & safety and remote working measures. Xebec expects that operational costs as a percentage of revenue will return to normal levels once the pandemic has run its course, which is anticipated in the second half of 2021.

In addition, execution on the build out of our Cleantech Service Network is progressing well, although we are seeing higher one-time costs related to M&A activity being outsourced and conducted virtually. This includes onsite due diligence conducted primarily by local partner firms which has increased our third-party costs.

Xebec is in a transition period where we are investing significantly in management and operational teams to create an organization that can scale and deliver continued growth in 2021 and beyond. This investment as well as investments associated with acquisitions, our Enterprise Resource Planning (ERP) system and uplisting to the TSX main board are reflected primarily in increased SG&A expenses.

The revenue impact of COVID-19 leads us to adjust our revenue guidance for 2020 to $70 to $80 million from $80 to $90 million previously. Due to higher operating costs during the pandemic, as well as the investments noted above, Xebec does not expect to be profitable on a net earnings and EBITDA basis for 2020.

Cleantech SystemsThe Cleantech Systems segment continues to grow and develop. Throughout the quarter we received several renewable natural gas (RNG) and hydrogen purification orders. In addition, we are in final negotiations for a number of new and exciting projects, leading to a positive short-term order outlook and increasing backlog.

Xebec’s new containerized BGX Biostream™ (“Biostream”) product for small-scale biogas upgrading applications was launched this quarter. The market reception to the product has been positive because of its attractive price point and low operating costs compared to competitors. As we continue to market this new solution to dairy farmers, we expect there to be strong demand for a standardized, turnkey product. To date, we are quoting on over $100 million worth of Biostream projects alone. This product will be launched in European markets in 2021 and we expect to generate positive momentum in Italy, France and Spain.  

Lastly, we continue to regard quote activity as an early indicator for future order activity. Our current quote log remained strong at $1.17 billion (as of November 9, 2020), and our order backlog stands at $88.4 million.

Industrial Service & SupportXebec continues to execute on its roll-up strategy by acquiring service companies to build out its Cleantech Service Network throughout North America. Revenues are expected to grow from $11.5 million in 2019 to more than $30 million in 2020. In Q3/20 Xebec achieved a gross margin of 31.4% (34% for the nine-month period), lower than our 40% plus target. We expect to achieve cost reductions that should improve our margins into the targeted range as we start to develop synergies with our completed acquisitions and optimize our product mix.

Furthermore, when customers select a vendor for a multi-million-dollar renewable natural gas or hydrogen installation, service and support figures prominently in their purchasing decision. We plan to expand our Cleantech Service Network across North America over the coming years and we are targeting a yearly revenue run rate of approximately $200 million in this segment by 2025.

Renewable Gas InfrastructureAs previously announced, Xebec will address the renewable gas infrastructure opportunity through GNR Quebec Capital L.P. (GNRQC), a fund that Xebec created with the Fonds de solidarité FTQ earlier this year. All of Xebec’s infrastructure activities in Québec were folded into GNRQC.

On July 3, 2020, the Québec government announced its organic material management plan with a target to recycle or recover 70% of organic waste in the province by 2030. In conjunction with this target, the province earmarked $1.2 billion in funding to support municipalities and private companies with the build out of organic matter collection services and processing facilities. In addition, there is a specific program (PTMOBC) for the treatment of organic materials by biomethanization (renewable natural gas production) and composting, whose budget will be increased by $308 million. Lastly, the Québec government announced on July 4, 2020, its commitment to provide $70 million in funding for RNG projects.

GNRQC aims to reduce methane emissions by diverting organic waste away from landfills, recycling nutrients back into agriculture, and increasing renewable natural gas (RNG) production in Québec. When fully capitalized and appropriately leveraged, GNRQC will be able finance 12 to 15 renewable natural gas projects in the province.

GNRQC started its operations in Q3 and is currently evaluating 10 projects for development.

Management Guidance for 2021Xebec currently expects to continue its rapid growth and return to profitability in 2021. However, given the uncertainties around COVID-19, we will be providing FY2021 revenue and earnings guidance with our Q4/20 results. In addition, Xebec does not expect to record revenues for our Renewable Gas Infrastructure segment in 2021, due to the long-term nature of these projects and transfer of Québec based activity to GNRQC.

Conditional Approval to Graduate to the Toronto Stock ExchangeXebec is pleased to announce that, on October 21, 2020, the Toronto Stock Exchange (the “TSX”) conditionally approved the listing of the common shares of Xebec (the “Shares”). Listing of the Shares is subject to Xebec fulfilling all of the requirements of the TSX, including receipt of all required documentation, on or before January 19, 2021, as well as the distribution of the Shares to a minimum number of public shareholders. Upon, and subject to, receipt of final TSX approval, the Shares will be delisted from the TSX Venture Exchange and begin trading on the TSX under the symbol “XBC”.

Xebec to Host Live Investor Webinar to Discuss Q3 2020 ResultsAn investor webinar for shareholders, analysts, investors, media representatives, and other stakeholders will be held today, November 10, 2020 at 11:00AM EDT (8:00AM PDT).

Register here: https://app.livestorm.co/xebec-adsorption-inc/2020-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 investors.xebecinc.com.

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

Related links:Xebec Main WebsiteBGX Biostream Overview

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

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

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

This press release makes reference to certain non-IFRS measures, such as "EBITDA", “Adjusted EBITDA”, “backlog”, and “quote log”. These non-IFRS measures are not recognized measures under International Financial Reporting Standards ("IFRS") and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-IFRS measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management's perspective. Accordingly, these non-IFRS measures should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.