Carbonxt Group Limited (ASX: CG1) (Carbonxt or the Company) has announced a positive June 2024 quarter, highlighted by significant contract wins and an operational growth story. NewCarbon Processing, LLC’s new Kentucky facility is nearing completion. Carbonxt Group is focused on generating robust operational cash flows from existing and upcoming facilities. The operational scale will enhance manufacturing cost efficiency and contribute to margin growth.
Operational Update
- Revenue Growth: Revenue increased by 6.2% on the prior comparative quarter and 19% higher year-on-year, driven by a 165% surge in customer receipts compared to last year’s quarter. Customer cash receipts for the quarter totalled AUD 6.4 million, reflecting an 81% increase compared with the previous quarter. The forward sale of 1,200 tons of ACP to WPS significantly contributed to this result. Sales of Activated Carbon Pellets (ACP) increased by 36% year-on-year and by 14% on a quarterly basis. Powdered Activated Carbon (PAC) revenues are 16% higher on a rolling 12-month basis than the previous year. This revenue increase is due to companywide efforts to raise prices across the portfolio, as volumes have remained largely unchanged
- Strategic Contracts: Carbonxt secured two substantial contracts: An AUD 4.3 million upfront sale of Activated Carbon Pellets (ACP) to Wisconsin Public Service and a four-year, AUD 24 million contract with Reworld Waste, LLC for Powdered Activated Carbon (PAC)
- Operational Efficiency: Significant strides have been made in improving plant efficiency, leading to lower production costs and higher margins
- Kentucky Facility Progress: Construction of the flagship Activated Carbon production facility in Kentucky is nearing completion, with first sales of Granular Activated Carbon (GAC) expected in the December quarter
- Strong Market Demand: Carbonxt is witnessing increased demand for its products, particularly in the PFAS remediation market
Operating Cash Flows and Manufacturing Costs Performance
Carbonxt Group successfully transitioned from negative to positive cash flow through strategic cost management and increased sales. This turnaround was driven by enhanced operational efficiencies, key contract acquisitions, and focused pricing strategies, leading to sustained financial improvement and profitability.
Figure 1: Net Cash from / (used in) Operating Activities
Over the past 18 months, concerted efforts have improved plant efficiencies, reducing manufacturing costs and increasing margins. Following lease renegotiations, further cost improvements at the Black Birch facility are expected in 1HFY25.
Figure 2: Continuous Improvement in Manufacturing Costs
Managing Director Warren Murphy commented:
“The June quarter was a very successful period for the Company, highlighted by the completion of the WPS forward sale, which consolidated Carbonxt’s position amid the broader demand tailwinds for Activated Carbon products in the US market.
“Post-quarter-end, the WPS sale was followed by the award of a large PAC contract with Reworld Waste, LLC, a leading provider of sustainable waste solutions in the US waste-to-energy industry. That contract will increase annual revenues for the Group by over 25%, whilst seeing gross margins improve to over 40% at our Black Birch PAC manufacturing facility in Georgia.”
Addressable Market Size
Figure 3: Current Activated Carbon Market Size
Based on its current area of specialisation (Air Phase), Carbonxt has an addressable market in the US valued at USD 290 million, holding an approximate 4% market share. The EPA estimates that annual compliance with the new regulations could cost water utilities between USD 772 million and USD 1.2 billion.
Investors Outlook
Carbonxt remains optimistic about the future, with the imminent start-up of the Kentucky facility and the expectation of securing additional revenue contracts. The pellet product portfolio continues to expand to address various industrial applications. The Kentucky facility addition is expected to significantly increase business size and scope in 2025.
A significant rise in demand for PFAS remediation has been observed, with an increasing number of Requests for Proposals (RFPs) from customers seeking related support and treatment technologies, as noted by Carbonxt. The industry anticipates demand will substantially exceed supply in the medium term, which sounds favorable for the Company.
The Company’s recent discussions with prospective customers reveal that market pricing for GAC products and 4mm AC pellets significantly exceeds USD 3,500 per ton.
Market Information
Carbonxt’s stock was traded at AUD 0.075 as on July 31st, 2024. The Company has a market capitalisation of AUD 26.64 million as of July 31st, 2024, with 324.92 million ordinary shares outstanding.
