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As this once in a lifetime energy transition progresses, we are anticipating increased market demand for our renewable onsite generated gases. And I can say due to already increasing demand that we are seeing today, we have decided to scale up our manufacturing capabilities in Europe and North America. In order to become a meaningful player in this energy transition and to be able to benefit from the opportunities this transition offers, we will need to significantly increase our manufacturing capacity to feel the demand for low carbon energy solutions.
We have started production of 30 Biostream units in our Quebec facility and we are currently looking to meaningfully expand our manufacturing capacities in the U.S. In Germany, we have taken steps to significantly increase production capacity at Inmatec with a goal to double revenues in the next three years.
I encourage you to check out the profiles of our management team and our board on our website. Finally, our top line gross remains on track and our Plainville operation team is working hard to return our RNG business to profitability. Our SG&A investments are significant but necessary for us to be able to make the transition from a small manufacturer to a more meaningful manufacturer of renewable and onsite gas systems and solutions.
Overall, as I said before, I’m very pleased with our progress. And the second half of 2021 is shaping up to be strong. This year, they’ll showcase our continued growth ability as we built the foundation for more growth and the return to profitability in 2022 and beyond.
Our gross margin was $5 million for the second quarter of 2021, compared to $4.3 million for the same period in 2020. The gross margin percentage decreased from 22% to 15% is due to working through the company’s lower margin RNG projects. In addition, the lower margin for RNG project is also impacted by larger overhead we’re carrying to prepare for a ramp up in Biostream production.
As you can see, the first half of the year, we booked almost as many revenues as we did in the entire 2020, which is quite impressive. As we turn through the legacy RNG contract, the bottom line will continue to improve. And the new investment we’re making today will also support higher future revenues in 2022 and beyond. Xebec as an aggressive growth plan, having achieved a 68% revenue CAGR this quarter since Q2 2017 and the outlook remains positive.
We aim to service and maintain the equipment we deploy in addition to our competitors, as installations are deployed across North America and Europe. This will also support our shift to a more recurring services model over time, which will help improve the predictability and profitability of the overall business.
As Kurt and Stéphane mentioned earlier, we continue to work through the legacy RNG contracts, and we expect the impact on our gross margin to taper down in the second half of this year, as we move from our manufacturing to our startup and commissioning phase.
On July 22, 2021, U.S. Senator Sherrod Brown and John Thune reintroduced bipartisan legislation to encourage investment in biodigester and nutrient recovery systems. Their bill known as the agricultural environmental stewardship act provides a 30% investment tax credit to help offset the upfront cost associated with building biodigester systems.
If passed, this legislation along with other initiatives are expected to result in an accelerated buildup of U.S. RNG projects.
Our decentralized hydrogen production hubs will be a key pillar to growth, given the localized demand we see in certain regions. We are currently scoping North American partners to build a hub in the country and currently have one under construction in the UK with – gases. And our expanding our existing hub in Arnhem, Netherlands, because of more demand coming online.
As I mentioned earlier, we are maintaining our revenue guidance of $110 million to $130 million, but we are updating our adjusted EBITDA guidance. The impact of the legacy RNG contracts and dollar decision to significantly invest in our SG&A and manufacturing capacity has pushed a return to positive adjusted EBITDA generation into 2022. Our water backlog for renewable gas equipment remain solid, as we transition to more recurring revenues from services, parts and molecules sales.
Q&A
Do you expect the Q3 backlog to be significantly increased due to the Biostream orders? If you add those 18 Biostream orders into our backlog, which we haven’t done, our order backlog would be over $100 million.
Do you expect the margin impact of the problematic RNG contracts to be limited to this quarter? Or do you still expect to see the effect on gross margin in the upcoming quarters? think we have worked through the majority of the impact, there is still some uncertainty. We still have some installation and commissioning work to be done. But overall, I think as we said in our presentation, we expect a significantly improved second half of the year.
Can you comment on what you expect the margins to be on the second generation Biostream product run?It’s early on, but we expect it to be solidly in the double-digits as we come down the learning curve in our production and as we optimize our supply chain.
How competitive is the BGX Biostream in the market? When I look at what our competitors offer, they offer not complete systems, they offer basically individual components that the client needs to integrate, or an EPC company needs to integrate. Our system is a complete system, it’s a containerized system, you install it in five days, you started up in three days, basically in 10 days, you are up and running. That’s a huge difference to where the market is today.
Can you talk a bit more about the green hydrogen produced from RNG using HyGear’s technologies and the pipeline in that regard and also its competitiveness to green hydrogen from when solar and hydro farms? We have the technology to upgrade the biogas to RNG, and we have the technology which our containerized steam methane reformers systems to further reform its RNG into green hydrogen. Today electrolysis is four to six times more expensive than hydrogen out of natural gas or out of RNG. RNG, obviously you need to add the carbon credits to it, but today electrolysis is not a competitive technology, that’s why you are seeing when we are announcing projects with industrial partners, they are not asking us, we have the capability to provide electrolyzer installations, but they are not asking us for electrolyzer installations. They’re asking us for steam methane reforming installations, because for them, cost is still a considerable factor.
In regards to the 18 Biostream units, were any service agreements attached to those hardware sales? We are currently offering in the process actually discussing service agreements for these 18 units. And I would expand by saying we have now a service agreement offering that we finalized with our Cleantech Services Network that will also be offering on all new bids that come in as well as going back to some of our existing customers and other customers, other products in the regions where we feel that we can provide the service and maintain them.
When do you hope to complete the capacity expansion to 30 to 40 Biostream units?Yes, we expect that by the end of Q3, we’ll have completed basically the majority of the work that we need to do for the expansion for our 30 to 40 Biostream, as we hit the production floor running basically in Q4 to meet our ramp up.
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