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Hi, everyone. This is Jeremy So, Director of Corporate and Business Development. Welcome to the EverGen Infrastructure Fourth Quarter 2023 Earnings Results Presentation. [Operator Instructions] As a reminder, this call is being recorded.
Before we begin, I would like to direct all participants to our website at www.evergeninfra.com, where you will find a copy of the fourth quarter 2023 earnings presentation. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause our actual results to materially differ from those in the forward-looking statements contained in the fourth quarter 2023 management discussion and analysis.
I will now turn the call over to Mischa Zatjmann, EverGen Infrastructure's President and Chief Executive Officer, to begin.
Thanks, Jeremy, and thanks, everyone, for joining today. Overall, 2023 was a year to solidify our foundation to ensure future and sustainable growth in 2024 and beyond. It was a year in which we achieved some significant milestones in particular, bringing the Fraser Valley Biogas Facility online. And as we continue to ramp that facility up today, we're pleased and in terms of how that facility has performed relative to our expectations, and we expect to continue to see that type of performance at that facility, which sets us up well in terms of the development of all our core projects as we continue to advance those in 2024.
With that, I'll hand it over to Sean to go through our year-end results, and then I'll go through our presentation here, and then we'll leave it open for Q&A at the end.
Thanks, Mischa, and welcome, everyone, to the Q4 year-end earnings presentation.
Starting with our financial results, our revenues for Q4 2024 (sic) [ 2023 ] increased 35% relative to 2022. And these were boosted from the commencement of RNG production at GrowTEC and additional feedstock received across all of our operating facilities. After adjusting for depreciation, our direct operating costs were consistent with Q4 2022. And it should be noted that Q4 2023 includes additional costs associated with the RNG production at GrowTEC and the operations at our Prairie Sky Organics facility.
Our net loss was slightly impacted by recognizing a write-down on surplus equipment, which was classified as held for sale at year-end and our adjusted EBITDA was lower than last year, mainly as a result of the Fraser Valley Biogas construction and commissioning work undertaken during the quarter which disrupted RNG production at the facility prior to the completion of construction.
Moving on to liquidity. Our cash and working capital balances have been utilized for the Fraser Valley Biogas projects as well as the purchase of certain equipment at our project facility to be used as part of the second phase of the expansion. We're actively managing the working capital deficit through additional financing initiatives including a $3.5 million term loan for GrowTEC secure in January 2024, and we're working on additional non-dilutive financial measures. These initiatives serve to substantially improve both working capital and liquidity as long as the operating results continue to strengthen from Fraser Valley Biogas coming online.
Overall, it's positive to see increased revenues and stabilized costs during a quarter, which has seasonally been a slower quarter for EverGen and we look forward to reporting the Q1 results inclusive of the Fraser Valley Biogas project operating results in late May.
I'll now hand it back to Mischa for the remainder of the presentation.
Great. Thanks for that, Sean.
So in terms of what do we actually achieve, what do we -- what were the significant milestones that EverGen was able to get across the line in 2023. Obviously, as we've touched on, Fraser Valley Biogas was a big milestone for us. But we also brought in new feedstock contracts winning the City of Abbotsford contract for our Pacific Coast Renewables Facility. We finalized our NRCan grants for $10 million at PCR for the development of that project. We were awarded a 10-year 24,000-tonne processing organic processing contract with the City of Regina, and we continue to advance all of our core projects in terms of bringing them online.
So with Fraser Valley Biogas, we -- as you saw in the month of February, it was a record production month for us. We only had 2 of our 3 digesters operational at that time. We've since commissioned the third digester as well. We're in the process of commissioning our dry feeding system as well. Nameplate capacity at the facility is 160,000 gigajoules per year. Based on how the facility has performed to date, we expect to be able to exceed that number once that facility is fully ramped up on a run rate basis.
What's particularly exciting for us now that Fraser Valley Biogas is online is we've got a team that's actually ramped one of these -- commissioned -- a facility -- a facility like this of this scope of this size, and we can essentially redeploy that team and redeploy that model to what we're doing at GrowTEC in Alberta.
Since the end of [ ladder ], we've deployed a project manager who is fully dedicated to the advancement of GrowTEC Phase 2. As you can see, GrowTEC is now -- Phase 1 is producing RNG at a capacity of 70,000 gigajoules per year. What we've come up against is some pipeline constraints in terms of getting the gas into the system, which will be fully addressed as we design Phase 2. We expect to be in a position to announce FID at GrowTEC for Phase 2 in mid-2024 as we continue to advance that project.
2023 was a really busy year for Pacific Coast Organics or Pacific Coast Renewables. We renewed our -- our feedstock contract with the City of Abbotsford. But we made a lot of progress in terms of advancing the permitting at that facility for an RNG facility there. We've completed our environmental upgrades there and essentially now have a clean environmental bill of health, such that we're now in a position to move forward with permitting of the RNG facility. We expect to be in a position to announce FID by the end of 2024 and start deploying funds from the NRCan grant thereafter.
Where we've really made a lot of progress is on Project Radius. We managed to optimize the economics at that project in order to take advantage of the new ITC structure in Canada. We brought in a funding party. We're in the final throes of bringing in a financing party essentially to the funding gap for all 3 phases of the project, which once executed, will provide a much clearer path to getting to the full RNG capacity of this project. Again, we continue to expect to be able to achieve FID in mid-2024 at Project Radius here.
And we continue to -- while fully focused on our core projects, we want to establish that solid foundation from which to be able to grow accretively and sustainably. We continue to -- to analyze and review opportunities in our pipeline. The RNG market is continues to be ripe for consolidation. And we want to be -- ensure that we're taking a really disciplined approach in terms of how we grow and how we bring new projects into the [ full ] and we're still just at the early stages where we're only digging into a small piece of the larger RNG pie, as there's other -- many other opportunities out there to bring into the fold. And it's just a matter of ensuring that we do so on an accretive basis.
As Sean mentioned, we were -- we essentially were in the process and have addressed many of -- or the liquidity concerns that were highlighted in our financials. All strategic and financing alternatives that we're evaluating are -- would be executed on a nondilutive basis. We continue to see opportunities to evaluate these strategic alternatives, which would be essentially with a view to growing our platform, to bringing in new EBITDA in search of near-term cash flow as opposed to longer stage greenfield growth.
With that, I'll pass it over to Jeremy for the questions and answers.
Thanks, Mischa. So the first question is on Pacific Coast Renewables R&D expansion. Can you speak to the estimated cost and timing for financial investment decision and the plans for financing?
Yes. So why don't I touch on timing, Sean, you can touch on cost and financing.
So we expect to be in a position to get to FID by the end of 2024 here. As I mentioned, we've made a lot of progress on the permitting side of the facility and the RNG development there. We've now got a clean environmental bill of health. We're in discussions with the City of Abbotsford to get final approval from the city and we're in the final stages of finalizing our scope and -- sorry, our finalized design such that we can begin to draw on the NRCan grant.
Thanks, Mischa. So the guidance that we've previously put out is a cost of between, I believe, $33 million to $35 million. We -- as Mischa touched on before, now that we have completed the Fraser Valley Biogas Expansion Project, our team is being redeployed at both GrowTEC and Pacific Coast and they're really going into the detailed design and engineering work there to determine the project scope and we don't expect that estimate to change upwards. If there is any movement, we would expect it to come down based on the preliminary work done to date.
In terms of funding, we've obviously previously announced the -- we have $16 million available from our existing debt facility as well as an additional $10 million or $10.5 million from the NRCan grants, which was executed in February.
Thanks, Sean. The next question is on GrowTEC base expansion. Similarly, can you speak to the expected cost and timing for financial investment decision and plans for financing?
Yes. So with GrowTEC Phase 2, the -- the 2 main design issues that we're addressing right now are essentially addressing the pipeline capacity issue that we encountered in Phase 1 and we've come up with a solution to that issue, which will get addressed in Phase 2 at a minimal capital cost. And secondly, it's addressing the upgrading capacity at that site and the capital costs associated with that.
Sean, maybe if you want to talk about financing at GrowTEC.
Yes, sure. So as we touched on earlier, we secured a $3.5 million term loan for GrowTEC. The way that I would look at that is $2 million was -- was a reimbursement for the costs incurred for Phase 1 and $1.5 million is for costs -- some partially for costs incurred for Phase 2, along with ongoing costs being incurred for Phase 2 of the project. Our existing -- we're working with our existing lenders there, and they have indicated support for Phase 2 of the projects and dependent on certain terms -- standard terms and conditions.
Thanks, Sean. The next question is regarding covenants for the fourth quarter of 2023. Can you speak to the lender covenants?
Yes, sure. So I believe the question was why we were in compliance with certain of the covenants. So the biggest noncompliance there was the working capital deficit, our existing term loan with Roynat and EDC has working capital ratios that need to be achieved. And obviously, with a negative working capital deficit, we were off-site on that covenant. We've been working closely with both of our lenders on that term loan to -- and they were able to provide waivers for Q4. And we -- and we've since amended those covenants as the facility ramps up, in discussions with them. It's not unusual for -- while this is a corporate debt, it's in nature. It's a project level financing for the construction loan for Fraser Valley Biogas. And it's not unusual to have a ramp-up period as that project comes online. Obviously, the -- the debt was required to be drawn prior to -- during construction and well in advance of that facility coming online.
Thanks, Sean. On that note, the next question is regarding liquidity. What specific steps as the company plan to take in order to raise equity? And can you provide an estimate of the total amount of funds that the company needs to raise? Maybe its obligations?
Yes. So I mean we -- as part of year-end, we obviously went through the 4 audits, and this was a topic that we went through with our auditors. In our financial statements, we identify that there is -- there's a liquidity risk but what -- how that's being addressed is from the term loan that we entered into for GrowTEC. And as I touched on earlier in my presentation, we're working -- currently working on additional liquidity measures and one of those is an operating line of credit, which we're in the final stages of as well. So with those 2 mechanisms in place that solves the working capital issue that we have at year-end.
Additionally, with Fraser Valley coming online and with improved operations across all of the sites, I was touching on the lower costs that we're seeing year-over-year. Our operating cash flow is improving and we expect to be able to generate more than -- to generate more than enough cash flow from operations to meet our obligations as they come due.
Thanks, Sean. The next question, can you please elaborate on the write-down that occurred during the quarter?
Yes, sure. So that's really an accounting mechanism as part of the completion of the Fraser Valley Biogas. There were certain equipment that was decommissioned, and we are now in the process of selling that equipment. So it's really the delta between the carrying value or the book value of that equipment versus what we expect to sell it for. So some of this equipment is 10-plus years old and the accounting depreciation would have been depreciated over perhaps 15 to 20 years. So now when we're trying to sell it, it's at a slightly lower price than the book value.
Okay. Thanks, Sean. For the next question, can you speak to Fraser Valley and GrowTEC's ramp-up of production and when we anticipate reaching for [indiscernible]?
So at Fraser Valley Biogas, we've always envisioned a 3- to 6-month ramp-up period. We're about 3.5 months in, we've got our third digester commissioned and our dry feeding system is almost fully commissioned. So we expect to be fully ramped come the end of Q2 and with -- once we've achieved that, with nameplate capacity at 160,000 gigajoules, the expectation based on how we performed to date is that we'll be able to achieve about a 20% increase from nameplate capacity.
Thanks, Mischa. When you speak to the opportunities that we're seeing in the U.S., particularly with regards to U.S. offtake opportunities as compared to Canada.
Yes. And so the big distinction historically between the U.S. offtake market and the Canadian offtake market is pricing term. So in the U.S. market, you'll see some of the utilities or private actors offering 5-year terms at significantly higher pricing than what you'll get in Canada. In Canada, the offtake market has improved significantly in Canada from the utilities. When we got into -- when we founded EverGen about 4 years ago, the utility is offering in the high 20s per GJ. Now you've got some utilities in Canada that are able to offer in the mid-40s. Those are Canadian dollars. And FortisBC has recently increased their cap to the 30s. So we continue to see sort of positive tailwinds in the offtake market in Canada.
As we move forward and develop projects, particularly at a larger scale, there we'll probably be evaluating an offtake mix with a mix, a blend of long-term 20-year Canadian offtakes with other U.S. sort of shorter term, higher spot price opportunities, not too dissimilar to the structure that we have, we've achieved at GrowTEC.
Thanks, Mischa. For the fourth quarter with respect to seasonality with processing, can you speak to the impact of that?
Yes, I can tell you that one. So the way we look at both Q4 and Q1 in a given year, there's seasonality with our composting facilities. And the way that we look at it is there's usually minimal or very little EBITDA added from those facilities during that time. Just in March, when the weather started turning, we were seeing quantities of feedstock at all the facilities are more than double in a given week. So it's really those facilities generate the majority of their cash flows during Q2 and Q3 of a given year, including the sale of soil that the facilities produced in Q4 and Q1 really, there's nominal EBITDA contribution during those periods.
Thanks, Sean. That wraps up the Q&A. That concludes EverGen Infrastructure's Fourth Quarter 2023 Earnings Results presentation.
Thanks, everyone, for tuning in today.
Thank you.