Hello, and welcome to PyroGenesis Q3 2024 earnings conference call. At this time, all participants are in a listen-only mode. I would now like to hand the conference over to your host, Steve McCormick. You may begin.
Thank you, Operator, and good morning. I'm Steve McCormick, Vice President of Corporate Affairs for PyroGenesis. Thank you for joining PyroGenesis 2024 Q3 financial results and business conference call. On the call with us today are Mr. P. Peter Pascali, President and CEO of PyroGenesis, and Mr. Andre Mainella, the company's Chief Financial Officer. The company issued a press release on Wednesday, November 6, 2024, containing the financial results and a business update for Q3 ending September 30, 2024, which can be viewed on the company's website. If you have any questions after the call or would like additional information about the company, please contact the Investor Relations Department, and we will try as best as possible to answer any questions that are of a public nature. The company's management will shortly provide prepared remarks reviewing the operational and financial results for Q3 ending September 30, 2024.
I'd like to remind everyone that this discussion will include forward-looking information that is based on certain assumptions and is subject to risks and uncertainties that could cause actual results to differ materially from historical results or from results anticipated by the forward-looking information. Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on any forward-looking information. PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events in such forward-looking information, except as required by applicable law.
In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to EBITDA, modified EBITDA, and backlog, which do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of EBITDA and modified EBITDA, please refer to the company's management discussion and analysis, which, along with the financial statements, are available on the company's website at pyrogenesis.com and at SEDAR+.ca.
Also, a reminder that PyroGenesis follows Canadian Generally Accepted Principles, excuse me, Generally Accepted Accounting Principles, or GAAP, where revenue is accrued not on sales but on a model that reflects a percentage of the work completed on contracts during the period, which can vary based on both the nature of the projects in-house and on a client's own scheduling and logistical decisions, both of which can impact production milestones and the company's ability to book revenue. During these recent years of supply chain, logistical, and inflationary uncertainties, those issues have been more frequent and exacerbating, and as stated in previous reports, the company's revenues are likely to be irregular and unpredictable quarter to quarter as contract-related revenue fluctuates based on various reasons, including those just explained. With that, I will now turn the call over to Mr. P. Peter Pascali, President and CEO of PyroGenesis. Mr. Pascali, please go ahead.
You seem to have a very deep mic. Anyways, thanks, thanks, Steve, and thanks to everyone for joining us today. That mic comment was a little bit off script, and let me just continue going off script a bit before I get into my script. I hope that as you read these financials and you consider them in light of the past several quarters, you'll see, as I do, a significant improvement across the board with the company, and this mirrors exactly what we've been saying over these past few quarters. Hopefully, you'll find that there's strength behind these numbers. There seems to be a developing consistency and an appropriate direction. We're showing steady progress. We're not hitting for the fences. We're not all in on one product, service, or client. We're continuously diversifying this risk over many lines, in effect perfecting the multi-legged stool strategy across all our disciplines.
And it's a strategy we've been adhering to since our inception. And more importantly, we've been doing this in a persistent and patient manner, putting one well-placed foot in front of the other. And we expect to build on that in similar fashion. Now, I'm going to start off with a quick review of some of the company's top-line financials, followed by a summary of key business activities that occurred during the quarter before turning the call over to the company's Chief Financial Officer, Andre Mainella. But I'm going to be back, so don't go anywhere. I'm going to be back to say goodbye, but I have a very big announcement to share with you, and I don't even think our board members know about it, so why don't you stick around to when I say goodbye? I mean, I'm not going to say goodbye.
I'm saying when I turn off at the end of this presentation. Top-level, for Q3 of 2024, the company exited the quarter with revenues just over CAD 4 million. And as we stated in yesterday's news release, this represented an increase of 9% year over year. This is the third consecutive quarter of year-over-year growth and the fifth quarter out of the last six where we've booked revenue that exceeded the preceding quarter. Our gross margin was 42% for the quarter, a 13-point improvement over the previous quarter, and a 12-point increase from the same period a year ago. 42% is a robust margin figure and brings us back towards the levels that we saw a few years ago, and frankly, is a number that we have as an expectation for us as a company moving forward. But let's compare that number to some of the industries we serve or support.
The aluminum industry is currently at 17.6% margin for Q3. Aerospace and defense is at 11%. Iron and steel, 24%. The renewable energy services and equipment industry is tracking at 27%, and the industrial machine and components is close at 40%, so comparatively, I think we've made significant progress in getting our margin back to where we said we wanted it to be, and we did this through a disciplined focus on operational efficiency and smart cost-cutting initiatives that we've been instituting over the past year. Now, let's turn to our backlog. The only way to describe it is it's never been better. It's electric. Our backlog has reached an all-time high of CAD 54.9 million. For those that need clarity on backlog, it's what some companies refer to as order book.
That is, signed or awarded contracts for which the revenue has yet to be accounted for on the income statement. In other words, it's expected future revenues coming from signed contracts. That obviously will be added to the financial results over subsequent quarters. Or even simply put, backlog is sales that have yet to be registered as revenue because the projects are sold and signed but not yet completed. For context as to why I feel this number is important, for many years, we were a company with a backlog that hovered between CAD 5 million and CAD 10 million. That number more than doubled when it stepped up to the CAD 25 million level for the first time back in late 2019. And it hasn't dropped below that figure since. No, it hasn't. And recently, we've been hovering between CAD 28 million and CAD 35 million in backlog.
Until now, where it's almost doubled again, putting us above a new plateau of CAD 50 million. To me, this is a significant and major achievement for the company. It speaks to all the things that we've been doing well. It speaks to the improvement in our sales force and our strategy. It speaks to the continued strength in our existing customer relationships. It speaks to the undeniable movement of electrification that is taking hold across industries worldwide. More importantly, it underscores the variety of innovative ways that PyroGenesis plasma processes can help with heavy industrial high-temperature applications. Now, let's move on to some key production highlights for the quarter. Again, please note that projects or potential projects previously announced that do not appear in this summary update or within the MD&A or Outlook at all should not be considered at risk.
Noteworthy developments can occur at any time based on project stages, and the information presented is a reflection of information on hand for some, but not all projects. Projects not mentioned may have simply not yet completed milestones worthy of discussion. Starting with a brief reminder of the company's business strategy, PyroGenesis is a provider of an expanding selection of technologies that leverage the company's expertise in ultra-high-temperature processes. With a technology ecosystem for heavy industry, we have or are developing a number of solutions at different stages of development, from early pilot to full commercialization, and are concentrated under three basic verticals, each which aligns with economic drivers key to heavy industry.
First, energy transition and emission reduction focuses essentially on fuel switching or helping heavy industry reduce their fossil fuel use and lower their greenhouse gas emissions by utilizing the company's electrically powered plasma torches and its biogas upgrading technology within various industrial process steps. During the quarter, this vertical had a couple of very notable announcements. In September, we acknowledged that EarthGrid, a plasma tunnel boring technology and infrastructure development company, was our client. You see, previously, back in January 16, 2020, we had announced that we had received a $667,000 non-refundable down payment under a master agreement for multi-year multi-plasma torch purchases from an undisclosed client who was unnamed for competitive and confidentiality reasons. Well, this client was EarthGrid.
When EarthGrid announced in September a joint venture with EnerTech, a Kuwait-based investment entity to deploy infrastructure projects in four phases across the United States, Europe, and the Middle East, we thought it was appropriate to both congratulate our friends at EarthGrid and to reveal them as our customer. We look forward to EarthGrid's future announcements as they commence their announced rollout of the first two phases of their US infrastructure projects, which they've roughly estimated at $18 billion. That's with a B, $18 billion. Then again came an announcement, perhaps one of the biggest announcements in years and one that has helped drive our backlog to new heights.
We announced on October 21, post-quarter end, a contract valued at approximately $27 million for the development of a plasma torch system powered at 20 MW from an existing U.S. client, which provides technology and test services geared to solving critical defense, military, aeronautics, and space exploration challenges. The same client, which previously ordered a 4.5 MW plasma torch system for PyroGenesis in August 2023, regularly serves as a prime contractor for the U.S. government. Look, a plasma torch at this 20 MW power level, based on our own research, represents one of the most powerful, if not the most powerful, plasma torch ever produced commercially. The project has an estimated duration of three years.
Developments continued under our second-tier program, Commodity Security and Optimization, which essentially describes PyroGenesis's technologies, which is used to aid in the recovery of valuable metals and in the optimization of production output, both of which are meant to improve the availability of critical materials such as titanium, aluminum, magnesium, and others that are essential for modern manufacturing. In July, the company announced that HPQ-Palver had signed a letter of intent with Evonik Corporation, a very large global specialty chemicals company. HPQ-Palver's primary initiative is the fumed silica reactor, or FSR project, that PyroGenesis has been designing, engineering, and constructing to convert quartz into fumed silica in a single and eco-friendly step. On May 30, 2024, we announced our intent to exercise our right to convert our annual royalty rights into a 50% ownership stake in this very same HPQ-Palver, pursuant to a design and development agreement.
The objective, by the way, of HPQ-Palver's letter of intent with Evonik is to outline the basis of collaboration during the FSR's pilot scale phase, with the goal to validate the ability of the FSR to produce low-cost, low-carbon material acceptable to Evonik's specifications. Separately, in September, the company announced the signing of a CAD 1 million first phase contract with an entity engaged in the production of graphite, where PyroGenesis will once again design and deliver a customized pilot scale plasma reactor and associated testing system. Upon the successful completion of the first phase, the next step would be the negotiation of a contract for the development of a full-scale graphite production plant for which PyroGenesis has exclusive rights. Additionally, PyroGenesis has negotiated a 10% royalty on future gross revenues generated from an initial commercial graphite production plant built by the client and a 5% royalty on any subsequent plants.
Graphite, of course, is a critical mineral widely used across manufacturing, and finally, our third tier, waste remediation, which is the safe destruction of hazardous materials and the recovery and valorization of underlying substances such as chemicals and minerals that could be reused or resold. In July, we announced the signing of a contract for a land-based waste-to-energy system to a European entity representing a group of municipalities and the landfill that serves the region. This is a two-phase project, with the signed first phase representing a CAD 2 million design phase. The first phase is scheduled to end by or before Q3 2025, and the results of that will determine the final size of the system to be built, which, as we mentioned at the time, has a potential phase two value in the neighborhood of between CAD 120 and CAD 160 million.
To read about these and other events and updates, as well as ongoing projects not discussed at this call, please refer to the corresponding section of the news release or the MD&A, in particular the Outlook sections of those documents. As I said before, I'll be back at the end for some final thoughts. But at this point, I'd like to turn the call over to the company's Chief Financial Officer, Andre Mainella, to discuss the financials in more detail. All yours, Andre.
Thank you, Peter, and hello, everyone. Let me continue with the review of our Q3 financial results. I'll begin by saying we're excited to once again announce that revenue continues to trend upwards, with Q3 2024 coming in at $4 million, beating $3.9 million in Q2, which is higher than Q1 of $3.5 million, and if we compare it to the same quarter last year, revenue was 9% or $300,000 higher, and was due to the net effect of several factors, namely, Spark-related sales increased by $0.6 million due to the advancement of fabrication and assembly, along with the advancement of major components, with completion expected for early 2025. DROSRITE-related sales increased by $0.4 million due to the rise in client-side trials in Europe, increased spare part orders from existing clients, and higher revenue from storage and transportation related to the DROSRITE units.
Torch-related products and services increased by CAD 0.4 million due to the continued progress on the significant projects related to our 4.5 MW and smaller torch systems and to the additional on-site support. This was offset by development and support for systems supplied to the U.S. Navy, which decreased by CAD 0.7 million compared to Q3 2023. This is due to the current stage of the project. In the comparable period, significant advancement was made related to the inspection, packaging, and shipment of this equipment to our customer in order to move forward with installation and commissioning. Also because of PUREVAP-related sales, which generated revenue of CAD 0.2 million, down from CAD 0.4 million in Q3 2023 due to the completion of the project which the company had previously announced. As a result, minimal revenue was forecasted and realized in the current quarter.
And now for the company's backlog, which includes only signed and/or awarded contracts. Following the announcement in October 2024 for a hyperpower torch and carrying forward existing contracts, the company's backlog is CAD 54.9 million as of yesterday's filing, November 6, 2024, which is a record for PyroGenesis. Generally, the company's backlog is divided equally into the company's three verticals. However, with the new contract for the 20 MW torch, a higher portion is now in the vertical energy, transition, and emission reduction. The gross profit for Q3 2024 was CAD 1.7 million, or 42% of revenue, compared to a gross profit of CAD 1.1 million, or 30% for Q3 2023. The increase in gross margin was due to the reduction of direct material costs due to the nature of the project and process, and also due to certain intangible assets that were fully amortized, therefore less expense recognized in the quarter.
Moving on to the selling general and administrative expense category. The total SG&A expense was CAD 5 million, compared to CAD 7.6 million for Q3 2023, a significant decrease of CAD 2.6 million. And this is due to several reasons, namely, a significant credit loss was recorded in the comparative period last year for CAD 2.7 million, and due to the delay in collecting long overdue receivables versus only CAD 0.7 million being recorded in the current quarter. Also, share-based expense decreased by CAD 500,000 to just under CAD 0.2 million. This relates to grants of stock options and varies based on the number of stock options granted in the past and their vesting period. Furthermore, professional expenses and other expenses continued to decrease by CAD 0.6 million due to cost cutting and less reliance on external services, namely legal, accounting, and investor relations, and of course, the director and officer's insurance.
These items are in line with PyroGenesis' initiative to monitor and reduce costs, which will benefit the company in future periods as well. The depreciation expense on property and equipment was stable in the quarter, and these assets continue to be amortized over their useful lives, and the net book value continues to decrease naturally. Research and development activities for Q3 2024 decreased year over year from CAD 0.7 million - 0.2 million. The company continues to assess the individual R&D projects and place emphasis on key initiatives. Next, for finance costs. Finance costs, which includes interest and accretion on debentures and loans, the balance due on the business combination, and on the royalty receivable. The current quarter expense for the finance cost is CAD 344,000, which falls well within the expected amount, and CAD 0.1 million more than Q3 2023.
This is due to the interest accretion and reevaluation of the balance due on the business combination, and also to the accretion on the convertible loan, which was only issued and outstanding since December 2023. The change in fair value of strategic investment is derived from the common shares of both Goldfield and, in the prior quarters, from the common shares of HPQ held until their disposal in April, 2024. As a result of the market value and portfolio holding, the current adjustment was negligible, roughly $5,000, versus the gain of $1.2 million in Q3 2023, and this brings us to comprehensive loss, which was $3.9 million, a favorable impact of $2.3 million when compared to the loss in the same quarter last year.
This increase is summarized as the increase in revenue of CAD 0.3 million, generating a healthy 42% margin, a decrease in SG&A explained earlier by the variation in the credit loss, stock options, and, of course, overall cost savings related to professional fees, other expenses, and the D&O insurance. This was offset by an additional CAD 0.1 million in finance costs, and finally, by the variation of fair market value adjustments from the 2023 period. Lastly, the Modified EBITDA. Management and investors use this measure as it brings additional clarity to operating performance. It eliminates variations in the fair value of strategic investments and other items which could be beyond the control of the company. The Modified EBITDA was a loss of CAD 3 million for the quarter, an improvement from the CAD 6 million loss from 2023.
It's explained by the comprehensive loss detailed earlier, and adjusting for the fair value of strategic investments, depreciation and amortization, finance costs, and share-based expenses. This brings me to the end of the financial results review. I'll turn the call over to you, Peter. Thank you.
Thank you, Andre. In closing, I'm pleased to say our third quarter financials show that we remain on track and continue to appreciably gather steam. Our revenue is growing over successive quarters for the fifth time out of the last six quarters. Our year-over-year numbers are positive for three straight quarters. Our margin is back above 40% to a more targeted area. Our losses have been reduced considerably as cost cutting and efficiencies have helped reduce this quarter's net loss by 38% year over year. While having an overall savings to the company of more than CAD 3 million so far this year, and these savings are repetitive, we're going to see those same exact savings every year. They're not just one-time savings, and in just the three quarters of 2024, we have come within CAD 900,000 of surpassing all of 2023's revenues.
All this to say that while we have continued to innovate, no matter the economic environment, after a challenging couple of revenue years, we believe we have resumed what we do best: building, expanding, and growing. I hope you've seen that we have posted significant improvement. We're strong, we're growing, and we're doing it with patience and perseverance. It's important that you read our press releases. Our press releases say a lot. But we also understand that PyroGenesis, on many levels, is more complicated than the average company, as we have several companies in one. I encourage you to ask us questions, and we will answer them. We'll answer them in press releases geared to that function. I miss the days when we would engage with investors, and they'd ask us questions, and we'd answer them with publicly available information.
I found at that time our investors understood the company a lot better than they do today. So I encourage you to reach out and ask us questions. I don't care how many shares you own or owned, or if you want to buy or sell. I want your question, because if you have a question, so do probably dozens of others as well. Let's get that dialogue going so you know the company better, and we have a chance to explain it to you in terms of how and what you need to know. For this purpose, we put together an email at PyroGenesis: three to speak, the number three, the number two, and speak, all one word, at pyrogenesis.com. There's a group of three, and there's a group of two, and if you multiply them together, there's six of us.
That's where it comes from, three to speak. Not to be confused with how it sounds, three to speak. So please email us your questions at three to speak. We will combine them, and we'll answer them in public press releases geared to further inform our investors on the key questions that they have. Thank you very much, everybody. Thank you for your time. Thank you for your patience. As I said before, I think the future is electric. I pass the microphone back to Steve.
Thank you, Mr. Pascali, and this will mark the end of today's call. We look forward to providing you with additional updates in the very near future. A reminder to submit any questions you may have about the company and its projects, as we may follow up with a response news release to any notable questions. Thank you again, and good morning. Operator, please end the call.
Ladies and gentlemen, that concludes today's call. Thank you for your participation. You may now disconnect.