One of Metro Vancouver's most high-profile start-ups in the development and construction realm, Nexii Building Solutions, has now had its application seeking creditor protection under the Companies' Creditors Arrangement Act (CCAA) approved, according to filings in the Supreme Court of British Columbia.
Nexii Building Solutions is a green construction products company whose crown jewel is a propriertary low-carbon alternative concrete material that's marketed as "Nexiite," which has up to 41% lower carbon emissions than glass fibre reinforced concrete, according to the company's website.
The company manufactures Nexiite via raw materials sourced from various suppliers and the Nexiite is then formed into panels, out of a manufacturing facility in Squamish. Because of that panelling system, buildings can be assembled much quicker than traditional construction methods — akin to prefabrication. Nexii Building Solutions' customers include Walmart, Starbucks, and JP Morgan Chase.
Famously, Nexii says it was the fastest company in Canadian history to reach "unicorn" status, a $1B valuation, accomplishing the feat in 31 months. Notable investors include the actor Michael Keaton and NFL quarterback Joe Flacco, while the company's board of directors includes former executives and/or board members of Uber, Apple, and McDonald's.
The CEO of the company is Bill Tucker, who is also the CEO of construction and design firm Omicron, which was acquired by Nexii in 2021. Former Mayor of Vancouver Gregor Robertson served as the company's Executive Vice President of Strategy and Partnerships for nearly five years, leaving in November 2023, according to his LinkedIn.
Nexii Building Solutions is the parent company of Nexii Construction Inc., Nexii Holdings Inc., NBS IP Inc., Omicron Canada Inc., and Omicron Construction Management Ltd. The two Omicron entities, which operate independently of Nexii, are not petitioners in the creditor protection application, but Nexii has requested that certain protections be extended to those entities, "in order to protect against potential cross-defaults that could arise in connection with the petitioners' commencement of the CCAA proceedings."
"Liquidity Constraints"
In an affidavit sworn on January 10, Tucker says the petitioning group of companies "face significant liquidity constraints and are in default to their creditors, including suppliers and their primary secured creditors, all of whom are collectively owed more than $80M USD."
The company has tried to significantly reduce expenses in the past year after seeing a negative gross margin of $23M in 2022, according to Tucker. He says the company anticipates $14M in revenue for 2023, almost double what the company saw in 2022, and notes that Nexii achieved its first positive gross margin in Q3 2023.
He adds that Nexii currently has four ongoing construction projects nearing completion, which are expected to bring in $8.3M in revenue. Additionally, the company has six more projects under contract that have yet to commence.
"For the six projects where work has not yet begun, Nexii would require labour and material bonds," Tucker says in his affidavit. "Nexii is not able to obtain bonding without cash collateral. Nexii is exploring alternatives and options, but if it is unable to secure bonding, these projects will be cancelled, which would significantly reduce Nexii's operating expenses and overhead."
Tucker also says that Nexii is currently "not able to raise additional capital through equity" to continue funding the company's growth and business strategy, and that its senior secured lenders are not making further funding available.
Those senior secured creditors are Powerscourt Investments XXV, Trinity Capital Inc., and Horizon Technology Finance Corporation. Those creditors advanced nine loans to Nexii for the combined principal amount of $60M USD. Under the loan agreement, interest accrues at a rate of prime (as published in the Wall Street Journal) plus 7.00% per annum, but increases by 5.00% in the event of a default.
According to Tucker's affidavit, Nexii failed to pay the amounts owed beginning in April 2023. The senior secured lenders subsequently made a formal demand for payment on June 21 and also delivered notice of intention to enforce security. As of January 2, Nexii remains in default and owes the senior secured creditors approximately $79M USD.
According to Tucker, Nexii leases all of its spaces, including the manufacturing facility in Squamish, and has also been unable to pay rent for several months, currently owing approximately $950,000 in unpaid rent.
Tucker says that Nexii obtained a $5M investment from Investcorp Green Limited in August 2023. At one point, Nexii had also secured an $18M investment from "strategic investors in the Middle East," but the agreement was later terminated.
Quietly, several members of Nexii's senior management team have left the company in recent months, incuding Brian Carter (EVP of Manufacturing, August 2023), Stephen Sidwell (CEO, October 2023), Todd Buchanan (VP of Investor Relations, December 2023), and Bonnie Dawe (VP of Finance, December 2023).
What Happens Next
According to Tucker, the the senior secured lenders are not prepared to advance additional funding "without a clear path to the sale of Nexii's business."
The aforementioned Omicron entities are believed to carry a significant amount of value, as they currently hold 67 contracts with a total value of $150M, with another $110M in contracts for projects where construction has yet to commence. Tucker says he also believes that Nexii remains a company with "significant potential value" due to its propriety Nexiite product, established set of customers, and the industry's current "premium placed on sustainable and environmentally conscious building practices."
The core issue at hand for the company is as it relates to costs.
Estimates provided by Tucker state that the company's assets total to about $69.9M, while its liabilities total to $152.6M.
Efforts the company has taken to reduce its expenses include two rounds of layoffs that saw the termination of over 40% of its staff, shutting down operations at a facility the company had in Saskatchewan, and more. Despite those efforts, the company was still unable to make its scheduled debt payments.
As of January, due to the company being unable to pay trade creditors and suppliers, Nexii is also the subject of numerous legal actions. Claims have been filed by Verigo Logistics, Goldback Recruiting, and McKercher LLP in British Columbia, Symphony Advanced Building Technologies and Advance Building Systems in Ontario, as well as an entity in the United States.
Explaining the company's financial difficulties, Tucker cited "aggressive growth," pointing to a new manufacturing facility in Pennsylvania (which Michael Keaton invested in). In 2021, the company also realized that its "product cost structure required significant rework to achieve a competitive price position in the marketplace."
"Over the past two years, Nexii has performed extensive redesign and testing necessary to re-engineer the product so that it was competitive and profitable in the marketplace," says Tucker. "Although the company was successful in the re-engineering, and the product demonstrated strong profitability in late 2023, Nexii had consumed significant capital over the prior 24 months."
Tucker says that if the senior secured lenders were to enforce their rights under the loan agreement, "it would be destructive to the business and value of [Nexii]." Because of this, Nexii sought out creditor protection, which would give it breathing room and time to secure an interim loan, which could potentially stabilize the business by avoiding the termination of its existing contracts.
Nexii says it will also seek to right-size its operations and expenses, while also pursuing a sale process to identify a buyer for its business.
Nexii's application seeking creditor protection was granted on January 11, with the next hearing set for January 22, at which Nexii and the receiver are expected to present a proposed sales process.
Nexii's precarious position is made more curious by the fact that its leadership has been well aware of the hazards of aggressive growth. In an interview with the New York Times in June 2022, former Mayor of Vancouver Gregor Robertson shared his thoughts on the trajectory of the company: "We are scaling like a software company, but this is hardware. And it takes time to put plants together, to put people in manufacturing lines and in the assembly process. We don't want to burn out by growing too intensely. But it's also a very hungry market."
