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Hello, everyone, and welcome to Xebec's Third Quarter 2021 Investor Webinar. My name is Brandon Chow and I'm the Director of Investor Relations at Xebec.I would like to remind everyone that this webinar is going to be recorded and will be made available in the Investors section of our website later today. Please note that we will open the floor to questions after the conclusion of the presentation. [Operator Instructions]Joining me today will be our President and Chief Executive Officer, Kurt Sorschak; our Chief Financial Officer, Stephane Archambault; and our Chief Operating Officer, Jim Vounassis.Our earnings press release was issued earlier today before market open. All relevant documents are available for download either from the Investor Relations section of our website or from SEDAR directly. You will also find later today, a copy of today's slide deck on our website's Investors 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, uncertainties, assumptions, and other factors that could affect our financial results and the performance of our business which we discuss in detail in our filings, including today's earnings press release. Xebec assumes no obligation to update any forward-looking statements we make on today's call.There may also be references to certain non-IFRS measures such as EBITDA, adjusted EBITDA, backlog and quote log. These non-IFRS measures are not recognized measures under the International Financial Reporting Standards and do not have a standardized meaning described by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies.With this, I turn it over to Kurt.
Thank you, Brandon, and good morning, and welcome everyone to Xebec third quarter 2021 investor webinar. I'm happy to be sharing our Q3 results this morning with you as we showcase the execution of our growth plan while simultaneously displaying our operational progress that we have made.This quarter we delivered a stronger gross margin compared to the previous 3 quarters, which in part was due to the tapering down of the impact of our legacy RNG contracts as we are working through those contracts, and improvements in performance in some of our other business segments, like oxygen, nitrogen, and air. These positive contributions also helped us to return to positive adjusted EBITDA, which is a big move for us, which highlights the hard work of our team and the efforts they have been putting in.This reach from percentage of completion -- recognizing revenues as a percentage of completion to basically recognizing revenues when we ship product obviously had an impact on our Q3 revenues and on our inventory levels as products go into it instead of revenues, but this will normalize going forward and will no longer show up.Q3 saw some significant commercial traction in our transition towards standardized products, which will help us recognize both benefits in regards to scale and cost. This quarter we included orders from the Brightmark-Chevron RNG partnership who by the way has indicated that they want to achieve a tenfold increase in the RNG volumes by 2025 compared to 2020, and we are seeing strong demand for RNG in general, especially out of the U.S., which has led us then to acquire UECompression a couple of weeks ago, which operates out of a 100,000 square feet facility in Denver and which will create for us credible production capacity something the market is looking for as our sales people came back from a large RNG show that was one of the main items, the market is looking for now is concerned about the ability to deliver. And through this acquisition, I think we're credibly demonstrating that we will be in a position to deliver systems going forward.The UEC acquisition solidifies our position in the RNG and hydrogen space as we execute on the fivefold capacity expansion for containerized renewable gas systems in North America and when we talk about containerized renewable gas systems, we are talking about RNG, hydrogen, oxygen and nitrogen systems that can be containerized. All of those containerized systems will be built there.The feedback from the industry that we've been receiving has been extremely positive and this combined with the current and upcoming regulatory requirements for make in America, buy in America contained both in the infrastructure and social bill that are currently working its way through Congress infrastructure bill has been passed, but social bill is working its way through. We will put us in a great position going forward.Overall, we continue to make important strides to address the growing tailwinds we are seeing in the industry worldwide. Some of those tailwinds include some infrastructure stimulus for green energy projects in Europe and North America, such as the Biden's Build Back Better Act, the emphasis on reduction of methane emissions through announcements such as the global methane pledge and let me just point out here, about 30% of the methane emissions in North America are from farms, so especially dairy and swine farms.So there is a unique opportunity for us there and countless, growing state and countrywide support programs such as a low-carbon fuel standard renewable fuel standards, a price on carbon and others. Renewable gases are in a unique spot, but unfortunately, I have to say their adoption is not yet as visible and as prevalent as other renewables like wind and solar. But RNG and hydrogen's ability to cost effectively decarbonize certain sectors which are hard to decarbonize through electrification is becoming more vitally recognized, and I think as this recognition grows, the value of companies like Xebec should be appreciated.As you've seen in our press release, we also have updated our guidance towards that top end of our revenue range which is now $120 million to $130 million with adjusted EBITDA now negative 3% to negative 5%. We downgraded the guidance, the EBITDA guidance, by one percentage point to basically reflect the UEC acquisition and potential general supply chain risks that might materialize over the next 6 weeks. There is a quite a bit of uncertainty in the supply chain at the moment.We remain focused on building a strong foundation for the future by making sure we have the right teams, the right manufacturing setup, and the right organizational structure in place to significantly grow our business as the energy transition accelerates.With this, I turn it over to Stephane, our CFO, who will go over the financial highlights. Stephane?
Thank you, Kurt, and welcome everyone joining us. Let me start by reviewing our consolidated financial results for Q3 2021. We achieved revenues of $26.7 million in the third quarter of 2021 compared to $18.4 million for the same period in 2020, a 45% increase. The 45% increase is mainly explained by acquisition completed in 2020 and 2021 including $7.7 million for the service companies and ECS, and $9 million for HyGear and Inmatec. This was offset by the transition from long-term production type projects where revenue is recognized on a percentage of completion basis; 2, standardized products such as Biostream where revenue is recognized at product delivery.It should be noted that Biostream revenues related to new orders received in Q3 2021 are expected to be recognized in 2022. In addition, manufacturing of these units commence in the second half of 2021. Our gross margin was $10.1 million for the third quarter of 2021 compared to $4.4 million for the same period in 2020. The gross margin percentage increase from 24% to 38% is due to a more profitable revenue mix in Q3 2021, including the impact of acquisitions made in 2020 and 2021.Our research and development expenses were $0.5 million for the third quarter of 2021 and were related to the development of the Company's second generation of Biostream product, and the continued development of biogas upgrading projects.Selling and administrative expenses were $10.9 million in the third quarter compared to $4.9 million in the same period in 2020. The increase is partly due to additional SG&A expenses associated to newly acquired companies: $2.2 million for the service companies and ACS, and $3.6 million for HyGear and Inmatec.I'm pleased to let you know that we've returned to positive adjusted EBITDA at $0.3 million for the third quarter of 2021 compared to positive adjusted EBITDA at $0.4 million for the same period in 2020. This was possible with the hard work from the team and we continue to expect the adjusted EBITDA margin to improve in Q4.Net loss for the quarter was $9.2 million or $0.06 per share compared to $2.2 million or $0.02 per share for the same period in 2020. The increase is mainly due to onetime payments arising from power departures of employees, legal costs, and integration and M&A costs.We have $61.9 million of cash as at September 30, 2021, and this amount may be impacted by future agreements we're currently in negotiations with. This includes a recent restatement of our loan agreement with FSTQ for $50 million signed on November 9, 2021.Overall, I'm pleased with the quarter we delivered and it showed continued improvement over the past quarters in revenues, gross margin, and adjusted EBITDA generation. I continue to look forward to seeing the impact of our investment that we've made in the last quarters as we continue to grow all our segments and integrate our acquisitions.Next I'd like to show you our quarterly financial trend. I always enjoy showing this graph as it helps to put into perspective where things are headed long term. As you can see, the quarter-over-quarter picture continues to improve as we scale while seem tirelessly improving the margin profile of the business. Although we are aiming to maintain our aggressive growth plan, we are being mindful and being able to show improved economics on the business. As I mentioned this was shown in this quarter with the return to positive adjusted EBITDA.With this, I'll turn it over to Jim to go over our operations and business segments.
Thank you, Stephane. I'd like to now dive into summarizing some key highlights of the business over the last quarter. First, let's kick things off with our hydrogen segment which continued its traction in the quarter by expanding our onsite hydrogen production with a project in Turkey for metal treatment.This project showcases that diverse industry applications for our decentralized hydrogen gas generation which secure supply at a competitive cost for our customers and lowers their carbon footprint. This agreement includes the supply of 2 hydrogen 150 units, which will produce approximately 600 kilograms of hydrogen per day at 99.999% purity to create a protective atmosphere within the heat treatment process.Building experience and high purity hydrogen lends itself well to the mobility market, which we are also seeing traction through our high digits in PSA platforms. For example, in the quarter, we received a hydrogen PSA order from a leading marine robotics company to produce high purity hydrogen ammonia cracking to be delivered for a fuel cell application onboard a ship. This is an interesting application and subsea robotics, and we expect that as the mobility market develops the need for high purity hydrogen will accelerate growth opportunities for our PSA platforms and our integrated hydrogen systems.Lastly, we commission the key project in the Czech Republic where gases of service hydrogen will be delivered through a local partner to both a tungsten manufacturing and a Photonics plant. This is a great example of how we can team up with local distribution partners to help reach more customers.Next I'd like to talk about our oxygen and nitrogen business. Our subsidiary Inmatec continues to see record production levels, primarily due to the heightened demand caused by the COVID-19 pandemic. Organizations such as hospitals around the world need sustainably- and reliably-sourced medical grade oxygen. A good example of how we are contributing to this humanitarian effort is with a large delivery in the quarter to a hospital in St. Lucia.Previously, there was no oxygen available on the island and gas had to be imported in liquid form by shipping containers. This supply with core cost more than USD 250 per ton. By generating the gas on site with our Inmatec system, the hospital is able to secure a supply, pay an order of magnitude less cost, reduce their carbon footprint and has more budget to serve additional patients.This is a great example of how Xebec is not only saving lives but also the environment across the globe. We see demand for our oxygen products to be steady at the moment. However, we are assuming activity pickup for our nitrogen business as industrialized economies reopen around the world due to the COVID-19 imposed restrictions being lifted.As we indicated last quarter, we are working to double the production floor space at our facility in Germany. This is well underway and we feel that's important and timely to continuing to be able to serve the increasing demand we're seeing for these products.Next let's discuss our renewable gas business. As Stephane mentioned, we continue to work through and execute our legacy RNG projects. We saw the tapering down of the impact from these legacy contracts as they continue to contribute less to total revenues as we move forward in time and execution.As we look forward to our Biostream production, I'd like to remind everyone that these are standardized units that we're building into inventory, and revenues will be recognized upon delivery to customer, and not progressively as was done with the customized systems. Overall, standardized products such as Biostream are expected to lead to a strong organic revenue growth profile for the segment, more predictable cost management, and improved gross margins.We made great progress in converting the Brightmark master service agreement into orders. Adding to our backlog, which now stands at a record at over $100 million. We continue to be in many discussions with customers and have recognized that capacity to build multiple units and speed to market are becoming key selection criteria driven by lead times. We also recognize the need for more local manufacturing and support in our major market, the U.S. Thus you saw us announce the acquisition of UECompression, which was a great acquisition to complement our engineering center and manufacturing capabilities in Canada.I would now like to dive into an overview of the acquisition. I'm really excited about the acquisition of UECompression. As it was a timely announcement for us, it provides Xebec with a cost-effective path towards expanding production capacity and showcasing our capabilities to our U.S. customers in country. This excess capacity and the facility is significant and allows us to fivefold our North American capacity for standardized renewable gas systems. We will be producing our Biostream for the U.S. market from this facility and bring our hydrogen generation products from Europe here too.This will give us a total of 151 to 190 containerized system capacity in North America alone, a significant move to help us address customer demands. We expect to see these products leaving the site in the second half of 2022. UEC is a state-of-the-art, 100,000 square foot facility with 14 fabrication base, 165 tonnes of total crane capacity, a dedicated paint building, ASME certification for its welders, factory test and acceptance capabilities, and most important, a 60 strong skilled workforce. Here's the picture of a site from the site, so you can get a sense of the scale. The facility also comes with its own warehouse and plenty of land outside for us to store our products prior to customer shipment.As I mentioned earlier, we are in many discussions with customers and expected demand for RNG systems to be robust in North America. There are several drivers, which include the renewable fuel standard, low carbon fuel standards, carbon pricing and most recently, the potential Build Back Better Act, which is providing an up to 30% investment tax credit on our RNG projects. We are ecstatic to get production going along with the UEC base business and have a more significant presence in the U.S. I look forward to updating you in the future on our progress with this facility.Next I'd like to go through our service segment. All our Cleantech activities are underpinned by growing and robust services and support segment. We saw several developments in this segment, which includes 2 key acquisitions in the quarter. This includes California based California Compression and the assets of Wisconsin based Wisconsin Compressed Air, helping to expand our coverage in California and the Midwest. Both acquisitions bring strong capable service organizations and are located well to service our existing customers and Biostream installations.Bookings overall were strong for the quarter, and several locations are now seeing contributions from Cleantech equipment start-ups in the regions. Here's a map of our current locations, the 2 recent additions and some recent RNG deployments we've had. The service network has been instrumental in commissioning and starting up these systems.Overall, our service network is starting to see the impact of global supply chain challenges, both in raw material and microchips from its supply base. Together with our OEM manufacturing sites, we have now implemented a weekly senior review meeting of our supply chain status where we make decisions on inventory levels, multiple sourcing and on-site expediting to ensure we manage the impact of these to best meet our customer needs. I expect that we will continue to experience a supply chain that will require very close monitoring and management throughout 2022 to minimize its impact on our service and OEM businesses.I'd now like to pass it along to Kurt for his outlook and comments on the guidance.
Thank you, Jim. As you can see from Jim's presentation, our business is expanding rapidly. And we are seeing opportunities that only 2 or 3 quarters ago, we could not have addressed. We believe that the energy transition will require companies to not only have technologies, but also have capacity to manufacture and deliver products and systems to the market and support those systems in the marketplace.When you look at Xebec today, you can start to see the evolution of a company that does all those things. We create IP, develop products, manufacture those products, have a global sales force to sell those products, and we are building a service network that will support our products in the field. Today, we are involved in natural gas, renewable natural gas, hydrogen, oxygen, nitrogen, helium, air and CO2, both for CO2 purification and capture. And I can tell you that every day opens new opportunities to us in applications we didn't think about before.As you can see from what I just said, Xebec is not a one-trick pony. We are building a company focused on sustainable and renewable gas generation, something the world urgently needs. Very soon, it will become obvious to people and investors that sector coupling. In other words, the connection between the electricity and the gas grid are a fundamental requirement for a stable and reliable future energy system. And I hope that this realization will ultimately lead to a better appreciation of what we at Xebec do and how we create value.Finally, I would like to leave you with this. By updating our guidance, it should become clear that Xebec will deliver its strongest ever revenue quarter in Q4 and that we are guiding to solid EBITDA generation as well, something we've been working towards for the last 3 quarters really. Our growth will continue to be significant going forward, and you will start to see the synergies and the leverage we will extract from the business in coming quarters.With this, I'll turn it back to Brandon for the Q&A session. Thank you very much.
[Operator Instructions] Our first question comes from Aaron MacNeil of TD Securities.Can you update us on how operating costs related to the BGX are tracking versus your internal budget? And how can you differentiate between parts large components, which may negatively impacted by supply chain as well as the manufacturing process?
I can probably take the first part of the question. So the BGX project, as we mentioned, are tapering down, meaning that we're completing the project that we have. Now we are focusing on building mainly of the Biostreams.We're still going to have some effect of the BGX going forward. Obviously, as I mentioned in previous calls, the margin with the BGX are very low. And as we complete them, obviously it will impact our overall gross margin. However, we don't see -- we don't foresee to see major issues as we are, as I mentioned, lowering the number of projects that are being executed at this point.
And perhaps I take the second half of the question. In terms of what are we seeing coming from the supply chain. As everybody knows, overall the global supply chain is experiencing ups and downs, preliminary driven by the impacts of COVID around the globe. What we're seeing right now is stress basically on electronic components like VFD drives, man machine interfaces and stress in our services from a large compressor deliveries from the underlying suppliers. Our teams are actively working this across the network.We're doing things like sometimes applying alternative sources for our electronic components. At other times, we're expediting the suppliers working with them to get components. And then our service network continues to work with its supply chain in order to prioritize based on customer needs. So -- and like I said, we will continue to see this well into 2022 and probably into the start of 2023. This is an industry-wide challenge for all of us.
Our next question comes from [ Nirav ] in 2 parts. The first one is, is Xebec pursuing any opportunities in Reno buildings in U.S. and Canada?
I can answer this not at the moment.
Yes, perhaps I would add the closest that we get to greener buildings is our work with CarbonQuest where we are working with them to sequester CO2 emissions from buildings in large U.S. cities.
And the next question from Rob is what kind of growth can we expect in the next 2 to 3 years for the hydrogen generation market?
Well, I would say the hydrogen companies already have given enough guidance on this as to how they perceive to be growing. So we would expect to be growing in a similar fashion. As the fuel cells market matures and more product comes into the market, the demand for hydrogen will increase. And obviously, we involved in on-site hydrogen generation. So we would expect that this hydrogen generation market will grow in line with the general market for fuel cells and hydrogen applications in industrial application, steel, fertilizer production, things like that.
Our next question comes from David Quezada at Raymond James. Could you comment on how the manufacturing ramp up for the Biostream unit is coming along at the Quebec manufacturing plant? And how are costs trending versus your expectations?
I'll take that question. I would say that we're pretty much on plan right now. We have production that has started. And the team is working on budget. We're continuing to monitor the situation very closely. And so far, we're quite happy with our performance in terms of where we are with the Biostream production.
We have another follow-up question from David again. Supply chain disruptions are very much an industry wide issue. Any color you can provide and what are expectations on when conditions can improve?
Yes, I'll take that again. So as I mentioned, the color is that we see the same challenges as everywhere and especially on the electronics side with the chip shortages. In our part of the world, it impacts our HMIs, our human machine interfaces, the touchscreens, as well as our VFDs and our controllers.This is the big area as well as some of the major systems that are coming from our third-party vendors into our aftermarket business, our services business. So we're continuing to work with all the supply base to try to expedite as well as second source these products. We see this going across 2022 and into the first half of 2023 right now.
I mean maybe I want to add here, obviously, to manage those supply chain disruptions. And there are new things popping up all the time like just recently, paint has become an issue. I don't know if you've heard about that yet, but paint is becoming a new issue in the supply chain. We are increasing our inventory levels. So as Jim said, there's a weekly meeting now, and we are making decisions, what do we have to put into inventory to be able to deliver on future growth, but there are risks there. There is no doubt about that.
We have one -- another question from David again. Are you able to quantify the effects of the change in the accounting with respect to recognizing revenues on percentage of completion to revenue recognition on delivery?
As I said before, the Biostreams that we're building in some our systems also in Europe are on inventory, and it's a matter of shipping these products. So yes, there are -- we have visibility on that. And as I mentioned, the large-scale projects are winding down as we speak. So then we'll foresee a minimum impact, but the majority of our revenues coming forward will be on -- recognized on a shipment basis. And as Jim mentioned, we'll be much more predictable.
We have another follow-up question from Aaron MacNeil. Can you provide some more details on the amended loan agreement with FSTQ and some more color on the warrants that were attached to it?
So this loan was simply an extension of what we had before. We refreshed the agreement, that's it. And we increased the facility. As far as the warrants, it's the same level of warrants that we provided with -- in proportion with the previous loans. So there's no change to that. As I said, it's simply an extension of what we had, but increasing the facilities.
Our next question comes from Joe. Do you expect to offer hydrogen fuel as a transport fuel?
Yes, I can take that. We already do. So we are already providing hydrogen to refueling our operators, especially in Europe, but we expect to be doing the same here in North America as we are now starting to produce hydrogen generation products here in North America. I think -- and as we are starting to move forward on our decentralized production hub strategy, yes, absolutely, we believe that we'll be providing fuel to refueling operators.
Our next question comes from [ Guion ]. Alberta's Prime Minister announced that he wants an energy transition in the province to switch from an oil to hydrogen producer. Does Xebec have any role in that transition? And is Xebec involved in any important projects or future projects here in [indiscernible]?
Yes I think obviously, there is a big opportunity for us, and we are in discussions on several projects in Alberta, but I think it's too early for us to really comment much further on this. But yes, both Alberta and Quebec offer unique opportunities. Alberta is probably the lowest cost natural gas and a great current capture storage opportunities. And Quebec has the lowest cost renewable green electricity for electrolyzer applications. So I think those provinces offer unique opportunities for us, and we are seeing traction in those provinces.
Our next question comes for Vern. How much of the revenue guidance upgrade is organic versus M&A?
Well -- in our guidance, we included the addition of UECompression. And as we disclosed last week in our press release, that company is generating about $35 million of revenues. So that is the factor. The rest is all the previous business that we've acquired in the past. So I would say that besides UECompression, everything is actually organic.
We have another follow-up question from Vern again. Any thoughts on the 2022 revenue outlook?
Not at this point, we are in the process of finalizing our budget, and then we're not commenting on that.
Our next question comes from Matthew. Can you please provide some more detail on how the UEC acquisition adds capacity? What products is the facility currently producing? And what do you need to do spend to have it ready for Biostream?
Yes, I'll take that. So UEC provides us with a unique opportunity because the facility is really -- a facility that was geared to produce a lot of large compressor type of products, compressor containerized systems for hydrogen, natural gas and other type gases. And as the oil and gas industry has seen a significant downturn, it's opened up a lot of capacity at the facility.So it's very good for us because equipment wise, the facility has everything that we need there to be able to manipulate and move and paint and produce containerized systems. Our investments are going to be really around tooling required for the Biostream and the hydrogen production. So a great acquisition because it comes pretty much equipped with everything we need. And even more important, it has certified welders and a specialty workforce that understands how to put containerized systems together.
Yes. And I want to add here something. I think that flies completely under the radar. We have now significant compression expertise. 2 years ago, we bought ACS in British Columbia, which is a specialized compression company and where we are building now our RNG compression packages. And with UEC, we've now acquired a company that does much larger compression jobs.When you look at the gas space or at the renewable gas space, be it hydrogen, be it renewable natural gas, natural gas helium, you need compression. We now have all the compression expertise in-house. This is a significant advantage because we can build not only for us but also for others, those compression packages. And that is what will happen going forward. So I think it's been a great acquisition in extending also the product portfolio on the compression side for us.
And if I would add one last point on the acquisition side has also given us a great service organization that covers quite a few regions in the Midwest, which is very incremental to our existing service organization. We will be able to support our Biostream installations and hydrogen installations in the region.
Our next question comes from Paul. In regard to the gross margin, is there any more upside from the Q3 levels with the remaining runoff of the legacy RNG contracts?
No. At this point, I think where we're looking and what we've guided is a more normal type of gross margin going forward for all our segments. You've got to realize that today with our portfolio of companies and in different businesses the gross margin will normalize and the effect of the legacy will be left much significant than it used to be in early part of the year and also last year.
Let's wait a minute for questions to continue queuing up here. Our next question comes from David again. Can you touch on what you're seeing in terms of the initial demand for on-site hydrogen in North America? Which end markets have been the strongest so far?
So when we look at on-site hydrogen generation, there are obviously a couple of applications that stand out. One is gas utilities that want to blend hydrogen into their pipe systems to reduce the carbon intensity of the natural gas. A lot of gas utilities across North America are currently doing demonstrations and testing because they need to see to what percentage they can add hydrogen into the gas grid. So I expect this to be a significant market going forward.So those gas utilities who add renewable natural gas and hydrogen and there is reducing the overall covenant density significantly. And then obviously, we are seeing some mobility sectors that are moving towards. It's not so much tracking yet. I think there's less traction there. There's a certain amount of build-out of refueling station. I think this will accelerate as those bills work their way through Congress and come out.So there will be the station build out opportunity, but then there's also marine and rail opportunities. So marine applications and rail opportunities that, are active at the moment. So I think there are multiple opportunities where we see it. And for Xebec, and we've stated this before, I believe we are obviously targeting our industrial customers, and we have an increasing range of customers.And there are certain customer segments like flat class production, microprocessor facilities, food processing and metal treatment companies that require hydrogen in their production processes. And this is where we are seeing opportunities for DPH, so decentralized hydrogen production hubs, and providing those customers locally yes, instead of them getting in liquid hydrogen, which is significantly more expensive and more carbon intensive.
Our next question comes from Eric Stine at Craig-Hallum Capital Group. Do you have any early views in taking into account the way that Biostream is accounted for in UEC and the split between systems and services?
Yes, this is a good question. We are targeting that our system's revenue and our service revenue overall are about 50%, 50%. Obviously, what CBD is looking for is a large recurring revenue base out of our service operations that will build a solid foundation for our equipment business, right.And when -- especially when you look at the Biostream units, those units are being sold with service contracts that run over 10 years. So it is a very attractive business because you could look at that business that we generate a certain margin on the capital equipment, and then we generate a certain margin on the service revenue over 10 years.And when you combine those margins that, is quite attractive and I think that is one of our business drivers. It's making sure we sell the capital equipment and then secure the service contracts going forward. That's why we are so focused on building out the service network.
Our next question comes from George. How is the growth in China?
Well, China is growing rapidly. It's a difficult question. So first of all, I haven't been in China for the last 2 years. I think very few people are traveling to China today. China is closed, people are coming out and now going in. Having said that, there's a lot of activity on the hydrogen side since we changed our joint venture from basically being an investment joint venture originally to an operational joint venture with Shenergy.We are seeing a lot of traction on revenues. So the company is growing rapidly, as rapidly, I would say in China as it is here. We are no longer consolidating those results into our financials because we are not controlling the entity. Even so we own 60% of the company we have an agreement with our joint venture partner that decisions on the Board are being made unanimously. That means we are not in control, therefore not consolidating.But everything we are shipping to them as core technology to China is now being recognized as revenue on our side. And the income they generate in China is being recognized as investment income on our side on the balance sheet. So I think it's a very promising direction the Chinese company is taking. And I think the growth will continue. There is no doubt in my mind. The Chinese are pushing very hard on hydrogen deployments in all kinds of sectors.
Our next question comes from Andre. Are there any updates regarding the plan for deployment on hydrogen hubs and potential Investors Day regarding this?
Yes, I'll take this again. Yes, there is. We are working on this, obviously, now with the UEC acquisition. We are rethinking our Investor Day somewhat. We were hoping to do an Investor Day in this quarter. But now that we have UEC, and there's so much interest, both on RNG and hydrogen in the U.S., we are thinking of conducting an Investor Day down in the U.S. to invite both analysts and investors down there to see not only our capabilities, but maybe some products. And that probably will happen, I would think, in the first half of 2022 now.
We have another follow-up question from Andre as well. Any updates on the build and operate RNG projects and the CarbonQuest project?
Yes I can take this as well. Our joint venture with the FSTQ through GNR Quebec Capital is making good progress. We have I believe, 28 projects under evaluation. We are looking at 18 more closely. We have signed 4 LOIs for 4 projects where there's really close evaluation. I expect that we're going to see some announcements in 2022. There are some really interesting projects that are fantastic for Quebec.And I think also a good social contribution here locally. I'm very happy with that, but those projects take time to develop. It's a very complex issue. You have a lot of smaller farms here in Quebec so when you want to bring together projects, you're talking to multiple stakeholders, and it takes time to do that. But I think the progress we are making is very encouraging.
And then any further updates on the CarbonQuest partnership?
The CarbonQuest partnership, you want to take that, Jim?
Sure, sure. I would say that as many of you are aware, we've been working with CarbonQuest CO2 from gases that are used in large buildings. Our first project with CarbonQuest, the Xebec portion of it has concluded. And I think the project is going quite well according to the feedback we're getting from Carbon Quest. We are now engaged with them working on the second project, defining the system requirements from our end. And we expect to continue to work with CarbonQuest as we finalize the technology and implement -- and they implement across multiple buildings in the New York area. So things are going quite well.
Yes, let me add a couple of details that are really exciting, I think. So CarbonQuest, their system captures the flue gas out of a boiler in a building, we purify the CO2. The CO2 is liquefied stored and then transported to a brick, cement brick a factory in Brooklyn. And there, the CO2 is being used in the cement brick manufacturing and inerted basically.So it's a fantastic project. They capture the carbon in the city. They transport the carbon to the brick factory, the brick factory through the carbon cure technology transforms it into cement. Its inerted there, it's captured there. And then the bricks are being sold again, in New York, New York City. So it's a fantastic project. There's also a video on YouTube already about the project. I encourage you to go and see it. It's really great. It's really a solid project with some good environmental benefits, I think.
We have another question from Ahmad Shaath from Beacon Securities. In regards to M&A, is the goal to have national coverage in the U.S.?
Yes I mean, we stated we want to have 30 service companies by 2025 and $250 million in revenue out of service, and that is our target. And I think given the interest in renewable natural gas and hydrogen, if we want to provide service, we need to provide service nationwide. And as you could see on the map that Jim showed, we are, I would say, 1/3 there, yes.
We have another follow-up question from Ahmad. Can you give us some color on HyGear potential in the transportation market?
On the hydrogen potential in the transportation market?
Yes, through HyGear.
Yes. I think that that market is relatively slow. There are no vehicles yet or way too few vehicles. That market will only really develop after 2025. In my opinion, we are looking at 2030. So this is why this hydrogen play is such a difficult play. When you look at the hydrogen companies that are participating in that market, they're all having a hard time, right, because there's not enough demand, especially in the transportation sector, there's not enough demand.So when you look at how can you play hydrogen profitably, you need to figure out your approach to that. And for us, it's clear, it's industrial applications. We are looking at industrial clients that we can serve with lower cost hydrogen, lower carbon footprint hydrogen. We sell opportunistically hydrogen into the mobility sector, when there is a -- if we have a hydrogen production system some place and we have access capacity and we own that system, then we will access hydrogen into the mobility if there is a refueling station nearby that wants cheap hydrogen. But you couldn't build a business on that, right? So not at the moment, I think Ahmad there is still 5, 10 years out in my opinion.
Our next question comes from Jeff. Have you been constrained in taking orders for RNG systems until you bring up the additional U.S. capacity?
Yes, perhaps I'll take this one. So when we look at the orders coming in and we look at our capacity, as I mentioned, the UE acquisition is quite timely because the UE acquisition will start providing capacity and complement our capacity coming out of Canada in the second half of 2022. So right now, what we see is our demand were pretty much sold out for the first half of 2022 and the demand that we're getting from our customer base is in the back half of 2022.So if we did not acquire UECompression, I would say that, yes, we would be capacity constrained. But now with the acquisition of UECompression, we feel that with this capacity coming online in the second half, we will have enough capacity to meet the demand that we see from our customers.
Great. Thank you, Jim. That's very helpful. Well, unfortunately, that's all the time we have this morning for Q&A, and I turn it back to Kurt for some closing remarks.
Okay. Thank you, Brandon, and thank you, everyone, for participating in our webinar. I hope we could give a good update, provide enough information for you to have a picture as to what is happening with us going forward. I think our legacy RNG contracts are winding down. The impact will not be significant going forward because -- real constitute a very low portion of our revenue going forward. And I think all my management team is looking towards getting back on track, generating solid growth and solid returns. With that, thank you very much, and I wish you a good day.
Well, everyone that concludes our webinar this morning. The materials will be posted to our website shortly. You may disconnect at any time. Thank you and we look forward to seeing you all next time.