Earnings call transcript: Capsule Technologies Q4 2024 sees first profit

Capsule Technologies (CAPSULE) announced its financial results for the fourth quarter of 2024, marking its first profitable quarter. The company reported a pre-tax profit of 3.2 million Norwegian kroner, driven by a significant increase in revenues. Currently trading at 1.03 USD with a market capitalization of 63.73M USD, the stock price of Co2 Capsol AS, Capsule’s parent company, rose by 3.64% following the announcement, reflecting investor optimism about the company’s growth trajectory and market potential. According to InvestingPro data, analyst price targets range between 1.80-1.89 USD, suggesting potential upside from current levels.

Key Takeaways

• Capsule Technologies achieved its first profitable quarter in Q4 2024.
• Full-year revenues increased 2.75 times compared to 2023, totaling 94.2 million Norwegian kroner.
• The company’s cash position remains strong at 64.5 million Norwegian kroner.
• New product developments and strategic partnerships are expected to drive future growth.

Company Performance

Capsule Technologies reported a robust performance in Q4 2024, with revenues significantly increasing year-over-year. The company successfully transitioned to profitability, driven by its focus on carbon capture technologies and strategic expansion into new markets. However, InvestingPro analysis indicates a WEAK financial health score of 1.68, suggesting room for improvement in fundamental metrics. The growth in its project pipeline and successful demonstration campaigns underscore its competitive positioning in the expanding global carbon capture market. Discover comprehensive analysis and 12+ additional key metrics with an InvestingPro subscription.

Financial Highlights

• Revenue: 94.2 million Norwegian kroner (2.75x increase from 2023)
• Pre-tax profit: 3.2 million Norwegian kroner in Q4 2024
• Cash position: 64.5 million Norwegian kroner
• Pre-tax margin targets: 40-60% at the corporate level

Outlook & Guidance

Capsule Technologies is poised for continued growth, with a potential revenue increase of 200 million euros from projects expected to reach a final investment decision (FID) in the next three years. The company is expanding its services to include solvent supply and digital services, aiming to enhance its market presence and technological offerings.

Executive Commentary

Wendy Lam, CEO, highlighted the company’s strong pipeline growth, stating, "Capsule’s pipeline growth is outpacing the industry." She emphasized the company’s commitment to enhancing its base technology and maintaining a stable business, with sufficient funding to support future initiatives.

Risks and Challenges

• Market Volatility: Fluctuations in carbon credit prices could impact profitability.
• Technological Advancements: The need for continuous innovation to stay ahead of competitors.
• Regulatory Changes: Potential changes in environmental regulations could affect operations.
• Supply Chain Disruptions: Risks associated with sourcing materials for technological development.

Capsule Technologies remains focused on capitalizing on the expanding carbon capture market, leveraging its innovative solutions and strategic partnerships to drive growth and shareholder value.

Full transcript - Co2 Capsol AS (CAPSL) Q4 2024:

Tona Bekesdag, Head of Communications, Capsule Technologies: Good day, everyone, and welcome to Capsule Technologies Q4 and full year twenty twenty four investor update. My name is Tona Bekesdag, Head of Communications at Capsule. I’m joined today by our CEO, Wendy Lam, our CFO, Inger Berg, and our Chief Delivery Officer, Sam Tewall. Wendy will start off by taking us through our Q4 highlights. Sam will then be presenting a deep dive on our CapsuleGold demonstration units, what they are, why our clients invest in Capsule Go demonstration campaigns, and invaluable learnings the Capsule Go units provide in further developing our technology.

Wendy will then take us through the operational senior questions anytime during the presentation. I will now hand the call over to Wendy.

Wendy Lam, CEO, Capsule Technologies: Thank you, Tuna. Good day, everyone, and welcome to our Q4 and full year twenty twenty four investor update. Let me start by sharing what a typical carbon capture value chain looks like. This is an illustration showing a biomass energy plant that is producing heat and electricity and emits a large amount of CO2 in doing so. Some plants like this one can emit 100,000 tons of CO2 every month, form of full plant design for emitters like this one through a technology license.

This CO2 capture plant can typically stand end of pipe next to the emitter. Our solution has the ability to capture CO2 concentrations from three to 30%. We can meet the industry standards of capture rate of 95 and even more, and produce food grade CO2 of over 99% purity. Once captured, the CO2 leaves the capture plant where it is transported and typically stored. While capsule is CCS projects like this are much needed solution to address the harmful effects of emissions, and Capsule is providing a competitive solution to addressing this need.

A recap of who Capsule is for those of you just hearing about us. We are one of the very few publicly listed carbon capture technology companies in the world. We offer method of inherent heat recovery in our capture process, which results in significantly lower electricity consumption than that of competing mature technologies. We have energy consumption

Sam Tewall, Chief Delivery Officer, Capsule Technologies: of

Wendy Lam, CEO, Capsule Technologies: 0.5 to 1.5 gigajoules per tonne. Our technology experience is built on decades proven chemistry, more than fifteen years of R and D and over seventeen thousand hours of operating experience with our demonstration plants. We also have a mature project pipeline of over 17,000,000 tons of CO2 capture capacity, and this is still growing. And we are just at the beginning. With that, let me cover our highlights of an exciting Q4.

First, we have continued to show strong revenue and pipeline growth. We have almost three times revenue growth and 45% pipeline growth year on year. That’s proof of our strong commercial traction. This pipeline now has the potential of over €200,000,000 in revenue potential in FIDs in the next three years. Our tech is also verified by industry leaders.

We’ve also been very pleased to see that the first scale the first large scale CCS project with Capsule’s technology, namely others. We also continue with initiatives to drive performance and value capture. While we’re happy about the overall progress, we are never satisfied. To protect and further leverage our cost leadership, we’ve opened up an HPC or hot potassium carbonate R and D center in Stavanger during Q4. And we started a project to improve the HPC chemistry with bio based additives with Stockholm Eshergy, KTH Royal Institute of Technology, and Airzyme.

Finally, we are still running Capsule with a business model that is fully funded. As for any business, CCS projects must be economically viable, and Capsule is already making a contribution. On the last CO2 Captured is presenting a gap from the incentives on ETS, or emissions trading system cost avoidance, and low carbon premiums. The difference means that the project still requires additional subsidies. In the example beside this, you can see that Capsule’s lower capture cost represented in orange, driven by lower energy costs, can already make a project profitable.

For projects in biomass or waste energy, where we can generate extra heat, additional revenues can increase the incentives, further improving carbon removal credit markets paying a premium for CO2 from BECCS projects. We see increasing demand for low carbon materials, and ETS is forecasted by multiple parties to be 135 to hundred and 55 by 02/1930, increasing the value of avoiding emissions. At Capsule, we are seeing these dynamics directly from our customers. Looking more broadly beyond cost advantages, Capsule brings other benefits to post combustion carbon capture versus other options in the market in the first category with our customers. Second, against amines who have the most traction for post combustion carbon capture, we are offering a stable open source solvent that does not lead to harmful emissions to the air or contaminate the CO2 it captures.

Capsule also requires minimal to no water or steam and offers a fully independent end of pipe integration. Finally, over AMines, Capsule has inherent heat generation, has lower CAPTCHA costs, and can easily integrate to take advantage of any extra heat that may be available to improve over other solutions, and is the most mature alternative to AMines. The result of the advantages I just mentioned is that while the carbon capture industry is not moving at the pace the world needs yet to achieve various targets, Capsule is still seeing very strong pipeline growth. The Global CCS Institute showed mature project pipeline growth of just 12% in cement, biomass, and energy from waste. And we’re present in the most advanced geographical markets where the required regulatory framework is in place.

We also continue to work with leading industry partners, such as Munters, Siemens (ETR:SIEGn) Energy, Storedeca, GE Vernova, Sumitomo Foster Wheeler and PetroPack. The strong traction you have seen in million euros as this revenue is triggered by our customers taking final investment decisions on their CCS projects with our technology. A question we’ve been asked by investors and analysts lately is, when can we expect the next FIDs? The short answer is that there are not many FIDs expected this year in our portfolio as most of our projects in our portfolio have more engineering work to be done. Next (LON:NXT) year, however, a large share of our pipeline can be FID ready.

If we look at the next three years, eight thousand projects, which is growing every quarter, and that it typically takes twelve to twenty four months for a project to go from feasibility study to FID. I now pass to our Chief Delivery Officer, Sam Tibble, who will take us deeper into how we are delivering for our customers and gaining experience.

Sam Tewall, Chief Delivery Officer, Capsule Technologies: Thanks, Wendy, and good day, everyone. At Capsule, as Tunu and Wendy mentioned, I look after the delivery of the engineering studies which we perform for our clients, and I also manage the operations of our Capsule Go demonstration unit. I joined the company in December to ensure operational excellence in our activities by enhancing our practices, namely safety. Built a technology platform for post combustion CO2 absorption with potassium carbonate And we have developed several applications of the technology which defines the solutions we have for our clients. Our Capsule GO demonstration unit, the capsule end of pipe license for full scale plants, and Capsule GT, which is our solution to capture CO2 from gas turbines.

Today, we are working hard with our clients and our contractors to ensure that we maintain a spotless safety record in 2025. Commercially, it has been announced that we started 2025 with two new campaigns, an energy waste project at Mollerenerge in Sweden with Sumitomo Foster Wheeler and Schwenk Cement in Lithuania, which is pictured on the right hand side. This is a big one for us as it is our first campaign for a cement producer, 2025, which is a good sign not only for the adoption of our technology, but also for revenue generation this year. But let’s rewind a little bit. What is a capsule go?

It is a fully electric demonstration unit, which we use to replicate the hot potassium carbonate carbon capture process at a client. The campaign varies between three months and one year, and we take care of everything, installation, people, equipment, chemicals, and then breakdown and transport. We have three of these demo units to which we can also add a liquefaction module, which is also a containerized solution. And it is this 30 feet container which you can see in the middle. With this, we can capture about one tonne per day with the option to liquefy CO2 and assess if we can meet Northern Light standards or food grade specifications.

But let’s investigate more what we do with this. What do our clients get from a Capsule Go demonstration project? Very simply said, a Capsule Go unit is a tool to de risk a carbon capture project with hard potassium carbonate. This must be standardized CO2. So we are the bridge between these point source emissions and then later conditioning and transport.

And as a result, we have to demonstrate that we can achieve high CO2 capture rates under various operating conditions, being biomass, energy from waste, cement, petrochemicals, and other industries. This is why emitters use our capsule go units to mitigate potential flue gas issues. What are the contaminants? How does the solvent behave opportunities? And this helps us build valuable knowledge as CCS projects move towards full scale implementation.

Let me give you a simple example. Typically, our clients measure their emissions for reporting reasons, but they record average data. The variability can be seasonal and we need to make sure that all cases are covered, but the changes can also be instantaneous. With a capsule go, we are exposed to short term variations, and reduction of these specificities is one of the keys to a successful project later. Last point is on stakeholder engagement.

Some of our clients use the Capsule Go demonstration unit as a communication tool for three reasons in no particular order. Number one, to build social acceptance. Number two, sometimes to get public funding. And number three, to secure internal support. Because typically, if a plant manager can show a tangible successful demonstration at his facility business, A successful campaign is probably the best selling argument to progress towards a license agreement with our client.

With seven contracted campaigns, with more than fifteen hours of run time on multiple flue gas configurations such as biomass, energy from waste and cement, we are by far the company with the most post combustion flue gas experience when it comes to hot potassium carbonate. And I guess this is why our units make the cover of publications like the last issue of the CCS state of the art technology run our own research and development initiatives. Capsule Go is therefore the platform used by our head of innovation to test the solutions which our team develops in our R and D center in Stavanger. With this, with the demonstration unit, we can quickly do a reality check of the concept we have developed in the lab. And by iterating these exchanges between lab experiments and pilot scale deployment, we are able to refine our models and accelerate our development.

The objective is to develop a bio based parameter to enhance CO2 capture. And at some point, we will test this on real flue gas, and it will be done with the Capsule GO. And we do this with other technologies or other suppliers, which will ultimately improve our capsule end of pipe value proposition. So this is Capsule Go in a nutshell. One key to secure future growth for capsule technologies is to continue to innovate and deliver demonstration campaigns on time, within budget, and without safety incidents.

And I can guarantee we will work hard in 2025 to make this happen. Thanks, and over to you, Wendy, for the operational review.

Wendy Lam, CEO, Capsule Technologies: Thanks very much, Sam. Let me start the operational review with a summary of the commercial traction we have had since end of Q3. Since then, we have signed six projects, all with large industrial clients, all of whom have a portfolio of carbon capture needs in their organization. Working from the top, we have progressed our work with a cement plant in Europe from feasibility to a pre feed. This is for a large international cement provider.

Next, a large utility with operations across key European countries has engaged us for a study for a large scale energy from waste plant. Next, Holcim (SIX:HOLN) signed on for a capsule demonstration campaign for a plant in Germany as part of a wider collaboration. They are the second cement provider to the International Energy Company for one of their refineries. Finally, a new German cement producer signed on for a feasibility study with us at the end of q three. These projects represent the kind of interest we have had from the market.

Zooming out with a view of the last twelve months, we have seen a 45% growth in our mature project pipeline with up to two hundred percent three point eight five million tons of capture capacity supporting customer adoption. And third, our license agreements at 1,350,000 tons of capture capacity represent this contracted revenue growth we have for the future. Overall, we are seeing steady growth. And as said earlier, we are engaging with larger customers on their carbon capture needs. I want to share another view of what sectors are behind that growing pipeline.

Capsule is merging as the preferred technology across multiple industries. In cement, where we are growing quickly, we have eight and a half million tons of capture capacity in the pipeline. Customers here like our lower energy consumption numbers, the easier plant integration, and no need for additional steam. Finally, we are still positioned to take advantage of growing demand for CCS on gas turbines to decarbonize everything from gas power plants to data centers. The low concentrations of CO2 in the exhaust of a gas turbine make capture extra challenging, but we can use the high temperature exhaust to power our system in an efficient way and generate extra electricity along the way.

We continue our work with leading gas turbine manufacturers here. Next, I’ll give a couple project examples from cement and biomass. In cement, we are very proud that Wholesome will be one of the first to deploy a Capsule GO demonstration unit on a cement plant. In December 2024, capsule signed a cooperation agreement with Holcim Group, one of the world’s largest cement producers, building on an earlier engagements. And if successful, it could lead to a large scale rollout of capsule EOP technology.

Holcim targets 8,000,000 tons of fully decarbonized cement by 02/1930, presenting a major commercial opportunity for capsule. Within biomass, Stockholm Exergy’s BEX, or Bioenergy and CCS project, is our first large scale project coming to life with an FID soon. We booked our first licensing fee at the end of twenty twenty four with this project. This project, with our technology, was validated through a number of key milestones. It secured €180,000,000 from the EU for large scale in January 2025 for this project.

The plant will capture 800,000 tons of CO2. This is bigger than the CCS projects for North Sem in Breivik and Celsio in Oslo combined. Capsule is now positioned for scaling up commercial deployment across multiple industries. Finally, as we look ahead, we are identifying a number of exciting growth possibilities for Capsule to create value. Building on our core base of experience, Capsule opened a new R and D center in Stavanger, Norway in Q4 twenty twenty four.

The center will expand chemical and process testing to generate proprietary know how while working alongside our capsule go test campaigns. The center will optimize capture performance with a new R and D collaboration for bio based promoters to make the chemistry of HPC work even better. The project was awarded Swedish kronor of 7,000,000 from the Swedish Energy Agency over two years. Alongside core R and D, we’re also exploring full project cycle service offerings for the future, including solvent supply, digital services, and other expert services. In summary, we are taking a long term view of the value creation potential of Capsule building on our already robust technology platform.

I now pass on to Ingarm, who will provide financial highlights.

Inger Berg, CFO, Capsule Technologies: Thank you, Wendy, on the platform. It is capital light with no major investments in plants or factories. We do not expose our balance sheet for cost overruns in project, and we can scale globally with a relatively small team. Finally, it is a high margin model. We have pre tax margin targets of between 4060% on the corporate level.

Let me bring you through an example on how this model is deployed in a project. Take a cement project with one of your engineering studies. For these studies, we typically get paid between 50 and €500,000 If desired by the client, we also execute a capsule go campaign to further mature the project. A campaign typically lasts six months with a hundred and fifty to two hundred and fifty two thousand euros in revenue per month. The engineering work and demonstration campaigns go a long way to funding our operations.

Until now, we have been working on the left hand side of this project timeline. However, as Wendy touched upon earlier, a project pipeline is maturing and we are moving over to the right hand side of the timeline with our first license revenue booked in Q4 and opportunity for final investment decisions on more than 10,000,000 tons per annum from our current portfolio over the next few years times relative to the same period last year. And for the full year, we saw revenues at 94,200,000.0 Norwegian krones, up 2.75 times from 2023. The majority of revenue is still from demonstration campaigns and engineering services. But in Q4, we booked our first licensing revenue, making it our first profitable quarter with a pretax profit of 3,200,000.0 Norwegian kroners.

Let’s have a look at cash flows for Q4. We started the period with 66,000,000 Norwegian kroners and ended at 64,500,000.0. Giving a cash outflow of 1,500,000.0 Norwegian kroners for the period. We invested 3,100,000.0 Norwegian kroners mostly in the capsule go program. With now only about 3,000,000 Norwegian kroners remaining.

This is down from Norwegian kroners for the quarter. This was down to a concentrated effort to improve the working capital relative to q3. With the cash position, current cost levels and contracted revenue, we are fully funded to execute our current business plan. On that note, I give the word back to Wendy.

Wendy Lam, CEO, Capsule Technologies: Thank you very much, Inger. The milestones we expect over the next six to twelve months will de risk the path towards long term goals and revenue potential. Especially with demonstration units, we are already 70% booked today. We will continue to sign licensing agreements within our mature project pipeline for projects with visibility of FIDs. We will also continue to bring Capsule GT to the market and continue to expand our global industrial partnerships.

In summary, we are in an exciting time for the industry and for Capsule. Capsule’s pipeline growth is outpacing the industry, and we expect over €200,000,000 of revenue potential in projects that can reach FID in the next three years. In new sectors, Capsule GT can unlock a large opportunity decarbonizing gas turbines. We have a stable business and are fully funded in how we operate today. And what drives us forward even more is the promise of greater growth.

We are enhancing performance of our base technology and our new r and d center in Stavanger and are already working on new products and services. Thank you very much. And I’ll pass it back to Tona for our Q and A.

Tona Bekesdag, Head of Communications, Capsule Technologies: Thank you very much, Wendy. Now let’s look at the questions we have received. The first question is, what is the status of your U. S. Office?

And do you have a comment on the new U. S. Administration?

Wendy Lam, CEO, Capsule Technologies: We still believe that U. S. And Canada will be a very attractive market for CCS for us. What we’ve done in The US already in The last year is raise our awareness, raise the awareness of the market for capsule. For example, we are already going back there in a couple of weeks for SARA week, one of the premier energy conferences in the world.

And at that conference, we have been recognized as one of six energy innovation pioneers out of hundreds. So we’re still very optimistic about North America.

Tona Bekesdag, Head of Communications, Capsule Technologies: Okay. Thank you, Wendy. And then there’s a question regarding GT. So what is the market outlook for your Capsule GT solution?

Wendy Lam, CEO, Capsule Technologies: Yes. Capsule GT, as you know, it is providing the market an option for clean power and, specifically clean gas power with gas turbines. What we know despite the ups and downs of the politics in the world, we know that energy demand is growing and constant. And we have said before that carbon capture is going to be considered quite more in order to provide a clean source of power for our customers. And we are having conversations about that already.

In terms of the market size, as some of you know, we are offering a solution for open cycle gas turbines. And we know there’s over 3,000 open cycle gas turbines out there already today that are creating emissions where our solution could be suitable. So remain very optimistic about the GT market.

Tona Bekesdag, Head of Communications, Capsule Technologies: Thank you.

Wendy Lam, CEO, Capsule Technologies: So I’ll say a couple comments and I might ask my colleague here Sam to also comment. When we look at everything as it is today, ETS where it is today, I think it can be easy to come to the conclusion that the cost of admitting is just lower. But all of our customers that we are working with are looking at the long term. We have seen various estimates and our customers believe that the ETS price is gonna be over €130. We also have voluntary markets driving, the dynamics as well in making the economics work better for CCS.

Maybe I’ll ask Sam to maybe comment on what you are seeing with customers.

Sam Tewall, Chief Delivery Officer, Capsule Technologies: Yeah. Beyond that, the way we can help our customers improve the business case is, first with the engineering studies where we do an early risk mitigation of their project. We talked earlier about the Capsule Go demonstration units. That’s really the reality check that we do, with talk tips because by ensuring the optimal integration of the technology, we will ultimately reduce the cost for our clients. These are four levers.

Wendy Lam, CEO, Capsule Technologies: Thank you, Wanya and Sam. Next question is, you mentioned a pipeline with significant licensing revenue potential in twenty twenty five to twenty twenty seven. How does the prospects look like to convert this pipeline into firm sales in the same period? And questioning the lead time necessary from contract is Everything that is represented in our mature project pipeline is representing paid work with customers. There is a broader pipeline behind that mature pipeline.

We can safely say over 100 leads that we filter before we take things into that mature pipeline. So by that activity already, we have already filtered the we’ll say the most attractive projects that have the most likelihood of getting to FID. We get inquiries from all over the world, and we do make a point to

Inger Berg, CFO, Capsule Technologies: If so, I’ll also build a little bit on what you said of Of our pipeline, mature pipeline of 17,000,000 tonnes per annum, we see a viable path to final investment decision for projects representing more than 13,000,000 tonnes per annum over the next three years. Now, not all of these will necessarily happen or go to us, but at the same time we see our pipeline is growing rapidly and the ones not going to us will be replaced by new and exciting projects. Hill reaching FID will be shorter, predicting between twelve and twenty four months typically going forward for this. So we’ll yeah.

Tona Bekesdag, Head of Communications, Capsule Technologies: Thank you very much. Then there’s a Capsule Go question. Do you still have ambition of acquiring another Capsule Go unit dedicated to The US market?

Sam Tewall, Chief Delivery Officer, Capsule Technologies: Maybe I can take this one. But first, we want to make sure that we serve our existing customers as best as we can. And how do we do that? The live customer, the live opportunity, the right commercial model or partnership, we could invest in a new Capsule Go demonstration unit.

Wendy Lam, CEO, Capsule Technologies: Need to also add to Sam’s answer that, you know, when we look at other markets, we have the opportunity to introduce, I will say, different versions of Capsule Go to meet the needs of that particular market. So, that also goes into the consideration and can also help us qualify even different elements of how Capsule can operate in the market. As you know, we have raised some capital last year to expand the organization. And we’re definitely sized right now to handle the growth that we see in our immediate business plan. However, the market is very interesting.

And the further we proceed with the work with our customers, the more opportunities we are seeing for various growth paths ahead. So, while we are sized sufficiently today to handle the growth, there will be other things that we will evaluate. And thank you to Wendy, Inger and Sam.

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