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spk17: Good day and thank you for standing by. Welcome to the third quarter 2024 NanoExplorer earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pierre Therese, VP of Corporate Development. Please go ahead.
spk02: Good morning, everyone, and thank you for joining this discussion of NanoExport Financial and Operating Resolve for Third Quarter Fiscal 2024. The press release reporting this result was published yesterday after market closed and can also be found on our website along with our financial statement and MD&E. These documents are also available on CEDAR+. Before we begin, I'd like to remind you that today's remark, including management's outlook and answer to question, contain forward-looking statements. These forward-looking statements represent our expectation as of today, May 15, 2024, and are accordingly subject to change. Such statements are based on assumptions that may not materialize and are subject to risk and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. The description of the risk factor that may affect future results is contained in the Manual Explorer Annual Information Form, available on our corporate website, and in our filings with the Canadian Securities Administrator on CEDAR+. On the call with me this morning, we have Solange Nazarpo, NanoExport founder and chief executive officer, and Pedro Azevedo, our chief financial officer. After a remark from Sush and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Sush.
spk04: Thank you, PY, and good morning to everyone joining us on the call. We'll first start with the review of the economy and the impact on our business. I will then expand on our capital allocation plan, and I will end my remarks with an update on Volta Explore. As the central banks, mainly Canada and Europe, are making progress towards interest rate cuts, the previously mentioned increased activities with our customers are continuing, especially in transportation markets. Our customers' forecasts are robust and demand remains strong. The North American economy continues to show resilience which is giving confidence to our customers. Furthermore, industry headwinds from the supply shortages, inflationary cost pressures, and type label markets continue to improve and are impacting positively on our business. In this environment, we achieved record results in the third quarter, with revenues and adjusted EBITDA in the advanced materials segment of around $34 million and $1.3 million, respectively. Steps taken to improve our efficiency are bearing fruits with gross margin at an all-time high of around 21%. These results demonstrate the strength of our business model, our expanding market share, and the value creation of our vertically integrated model. I'm very pleased with the performance of Nanoexplore's team. We continue to perform at a high level and we're executing on our capital allocation priorities. We foresee this momentum continuing into fourth quarter and the next fiscal year. Now turning to our operation for our graphene-enhanced composite products, demand continues to be very strong, and our current capacity is almost fully utilized. We have made investments in the new equipment and will continue to invest more as a part of our five-year strategic plan. A large part of these investments will be in the United States and are supported by booked contracts with existing and new customers. In regards to our direct graph in-sales activities, validation and testing are ongoing with new customers while we continue to supply existing ones. Drilling fluid, foam, and battery material market continue to show promise, especially following our recent announcement related to financing of our graphene and anode material facility. We are continuing discussions with an off-state partner for our upcoming facility and have already signed a letter of intent with the construction company to build our facility. In fact, we have underestimated the demand for our battery material, and one of our potential customers has asked if we could accelerate our expansion and move the build-out timeframe forward. The increase in demand for battery material is a result of the Inflation Reduction Act and the need for battery supply chain market participants to be compliant. Again, we want to remind investors and analysts that we are executing this expansion without issuing equity. Turning to Volta Explore, and as discussed before, we have a potential strategic investor presently in its due diligence process. Given the slowdown in the EV space, we believe having a strategic investor is essential for Volta Explore's success. This strategic investor will bring resources, know-how, and end market diversification to the project. With that in mind, and given the growth we see with Nano-Explore, we believe that it's more prudent to only start the Volta-Explore Vino Factory project if and when we close the deal with this partner. In the meantime, we're continuing with validation of our graphene-enhanced batteries, along with developing more advanced production methods such as tablet designs, and further developing new generations of our graphene-enhanced silicon-anode additives. Taking this approach, even though it pushes out the start of production, ensures long-term success, and reduces risks related to the market on ZNT. With that, I'll now turn the call over to Pedro, who will provide details about our financial performance.
spk09: Pedro? Thank you, Soroj. Good morning, everyone. Today, I will begin with a review of our Q3 financial results, followed by an update on financing for our five-year plan, and conclude with some commentary on near-term CapEx spending and outlook for fiscal year 2024. Total revenues in Q3 were 7% higher than Q3 2023 at $33.9 million, which was a record for NanoExplore. The increase in revenue was directly attributable to progress billings on new tooling being manufactured for three different customers. Tooling revenues will continue to be higher than normal for the next two quarters due to the previously announced expansion of an existing program and the launch of two new programs. Once the tooling for these programs are completed, part revenues will increase as the additional capacity and the new programs come online. With regard to gross margins, gross margins as a percentage to 20.9% year-over-year driven by improved productivity resulting in part from manufacturing cost benefits of producing graphene-enhanced products, higher margin product mix, and various manufacturing efficiency improvements put in place over the last year. This year-over-year margin improvement has been a trend over the last seven quarters, and we are pleased that it is continuing. As a reminder to our shareholders and analysts, as the proportion of sales of graphene powder or graphene-enhanced materials increase, gross margins as a percentage of sales will also increase. Adjusted EBITDA was $574,000 and was comprised of $1.26 million in the advanced materials, plastics, and composite product segment, a record achievement and improvement of nearly $800,000 versus last year and negative 688,000 in the battery cell segment, which encompasses the Volt Explorer initiative. Since Volt Explorer was a shared cost with Martinry until the end of Q3 2023 and largely excluded from EBITDA, therefore no comparable in Q3 2023. Looking at our year-to-date numbers, while sales were lower than expected in the first half of the fiscal year, Q3 was fairly strong and in line with expectations. For the first nine months of fiscal 2024, we are now 2% above the same period of the prior year. While sales are now higher than last year, the noteworthy performance in our year-to-date results has been in gross margins and EBITDA. Gross margins as a percentage of sales have increased from 16.1% to 20.1%, leading to an increase of $4 million of margins in EBITDA in advanced materials, plastics, and composite product segments, has increased from minus $1.4 million last year to positive $1.9 million year-to-date this year. With regard to our balance sheet and cash flows, we ended the quarter with $29.8 million in cash and cash equivalent, an increase of $2.2 million during the quarter. Cash flow from operating activities was positive $4.6 million, mainly due to advanced payments from customers on tooling contracts and continued close management of accounts receivable and inventory levels. Cash flows from financing activities were negative $1.1 million, resulting mainly from repayment of lease liabilities and also included two offsetting items. During the quarter, stock options nearing expiry were exercised. This generated $1.2 million of cash, which was used to repay an outstanding loan that was coming due during the quarter. Finally, cash flows from investing activities were negative 1.2 million, mainly related to capital expenditures. Our cash, along with the 10.3 million of unused space on our credit lines, resulted in total liquidity of 0.1 million at March 31st. Moving now to the financing of our five-year strategic plan. As a reminder, this does not cover the battery Gigafactory initiative, which is being done separately and through different financing. As was recently announced, we completed an agreement with the Royal Bank of Canada in April to provide NanoExplore with a significant increase in our borrowing capacity versus the old credit facility with the National Bank. The new credit facility will provide the financial support to fully finance the graphene-enhanced FMC Lightweighting Expansion, and in conjunction with the anticipated but not yet finalized government support for the Anode Material Initiative, will finance will fully finance the capital needs of our five-year strategic plan. Turning now to our near-term CAPEX spending and the outlook for fiscal year 2024. With regard to CAPEX spending, we expect to spend $3 to $5 million in each of the next four quarters as we increase the spending of the Graphene Enhanced SMC Initiative of the five-year strategic plan. This amount will be updated once the government's support for the Nano Material Initiative is finalized. and the anode material plant moves forward. Despite the headwinds, during the first half of the year, Q3 delivered solid results and we are confident Q4 will continue this momentum with strong revenues and associated margins. Based on the visibility we have today, our total revenue guidance for the full year fiscal 2024 remains at $130 million. In conclusion, we are on track to deliver a record Q4 and start 2025 with good momentum. With that, I will pass back to Pierre-Yves.
spk02: Thank you, Pedro. Operator, we can now open the lines for questions.
spk17: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question.
spk00: And our first question comes from Amar as a national partners.
spk05: Good morning. Thanks for taking my questions and congrats on a very strong quarter. The sales growth was very solid and you're confirming guidance. So it looks like Q4 will even be stronger. What I want to focus on is gross margin. You know, like Pedro, you're saying that the sales mix includes lower margin tooling, yet you're at record gross margins. So I just wonder, how do gross margins look like without the tooling components? Can you maybe help us, you know, like maybe give us a range as tooling comes off? how that impacts the margins?
spk09: In a particular case, the tools that we have right now that are being made and the work that we're doing in the expansion are actually producing margins that are close to what we normally have in parks. Abnormally, this quarter and upcoming quarters the tooling margins will actually be very close to parts margin. So there's no real mixed effect in this quarter, as we have seen in the past. In past quarters, we do have lower margins on tools, but in this case, in this quarter and upcoming quarters, the margins are going to be very close. Just to disconnect a little bit the two parts, If you exclude tooling, we still are in the 21%, 22% range. That's the goal that we're achieving right now. We intend to increase that over time as rafting enhanced materials continues to proportionately be higher and so on. So right now, I would answer your question by saying right now for the quarter, it's about 21%, 22% for parts and about 21% to 20 on tooling. Fantastic. That's great, Keller.
spk05: then I'm not sure how much you are willing to share. But could you provide us the sense of, or maybe I missed it, how much of the Q3 growth was from tooling revenues and what should we be expecting for Q4? The reason being, I just wonder, as this tapers off, does the revenues from parts take over more than takes over whatever you're losing from tooling? Or what you're delivering now in terms of sales is a new plateau that we could sort of grow from?
spk09: So in the quarter, tooling revenue was about $3 million, and it will probably be close to $4 million next quarter. We traditionally have annually, we traditionally have around $2 to $4 million depending on the years and launching of new programs. This year, it'll be close to $8 million. But what you have to understand is that tooling revenues are a precursor to the parts revenues. So when tooling ends, parts revenue starts kicking in and kind of replaces the revenue. So in the quarter, while the volumes generally of our products haven't increased that much, there is an increase, but it's not that big. That's because we do have programs with our customers and those customers are buying volumes and they are growing, but on a slower basis. There is one customer that we spoke about in the last quarter that is expanding, and we are currently expanding our facility to allow for that expansion to actually take place. They're actually hoping that we finish our work sooner so that they can be buying and increase their cadence faster. But that's not the case right now until the end of the year. So I would say to you, just in summary, that parts revenue will kick in to replace the tooling that will drop off, but at least for the next two quarters and possibly until the end of the calendar year, until the end of this year, we are going to be producing tooling revenues that will eventually turn into parts revenues.
spk05: Fantastic. And the question was, like, it more than offsets the drop you're going to get from the... That's right. From tooling. Yeah, okay.
spk16: There might be a stemming effect,
spk09: But generally speaking, that's exactly right. That's why tooling is important to us because it's just a precursor to coming online with new parts.
spk05: No, I fully understand that. It's good for you to come out with the new credit facility and to confirm that no equity is needed for your five-year plan. I think it alleviates a lot of the risk, I guess. But, you know, like on the 80 million non-dilutive government financing, I think the wording you guys used is you're finalizing it. Just wondering if you can give us a sense of where you guys stand and when can we hear something.
spk04: Yeah, so we received the support letters, but we have to go through the full proposal steps. These support letters are for the government. Having said that, legally we have to wait for their announcement at the end of full proposal. So it's going to be a couple of quarters until we get to that stage. And normally the way these programs are, these are a refund of incurred expenses. So as we invest on the CAPEX in the next two years, we're seeing a refund of those investments through the programs like investment tax credit, but also direct programs that governments are providing for these battery materials projects.
spk05: Okay, but the support letters that you guys have are for the full $80 million that you guys were talking about?
spk12: Yes.
spk05: Okay, that's fantastic. Okay, so Saroosh, your prepared remarks sounded... I want to say, like, very optimistic about, like, anode materials. And you spoke to... I'm not sure if it's a customer or a potential customer asking if you could bring production forward. So my first question, you know, like, is that already a signed takeoff agreement? And if it's not, can you maybe give us an update on how advanced you guys are in securing?
spk04: Yeah, so we are... So we have the whole market of the anode material itself, which is a couple of products. These are active anode materials plus graphene-enhanced conductive additives plus graphene-enhanced silicon additives, these three products together. We're seeing quite a lot of interest from the battery makers against the supply chain And the fact that there's a tendency to friend shore, especially on the anode material where majority of this is being produced in east of the world. And also following the IRA announcement, there's quite a lot of interest to buy from North America. And the supply side just doesn't exist today. So what we are hearing from the customers is that they want fast to get this product their OEM customers want to get the IRA credit faster, right? So we are looking into all these requests at this point. I would say we have a very strong visibility of the customers for that facility. We don't have yet a signed off the contract, but we're working towards that off the contract at this stage.
spk05: Okay. It seems like you're positive enough to sort of speak to it. So I'm assuming this is close. Then maybe, you know, like when you first announced the five-year plan, you were saying, okay, we're going to take like graphene production from 4,000 to 20,000. So that incremental 16,000, not all of it was allocated to battery production. And it seems like the demand side and the lack of supply is driving a lot of potential growth. So is there a potential for you guys to allocate the whole 16,000 tons of graphene production towards the battery materials?
spk04: So there is a portion of the anode material and there's a portion of the, we call it low cost or industrial graphene that we're going to have in that facility. Now, the battery grade products, they have much higher purity than industrial grade, right? So there's capital requirements if you want to expand 100% of the graphene production for the battery material. I think at this stage we have a decent portion of that to be allocated to battery market, but we are open to put more purification system in place when we get clarity and contracts for all of it. But at this stage I think the graphene, industrial grade graphene is also needed for a couple of customers that's coming out in the pipeline.
spk05: Okay, then maybe one last one and I'll pass the line. I don't think the language in your MD&A changed on the lead times. You know, like I think it's 8 to 12 or 8 to 16 months that you guys were speaking about. And you've got a potential customer asking you to bring production forward. Well, are you able to bring production forward or how should we think about timelines?
spk04: So while the construction of the physical building will probably take about a year, and some of the equipment on the anode material side will require close to 12 months of lead time. So there are ways we can do to order a bit faster those long lead time items. So we can probably save a couple of months, but more than that, it looks unrealistic.
spk05: Well, it's a good problem to have. Congrats again on the quarter. I'll pass the line.
spk17: Thank you. One moment for our next question. Our next question comes from Rupert Murair of National Bank. Your line is open.
spk07: Hi. Good morning, everyone. Good morning, Rupert. Soroush, you mentioned that with Volta Explorer you would wait for a strategic investor before you move forward. I'm wondering if you can give us a little more colour on that process. If you have a short list of investors you're talking to and what are you looking for in a partner? Who would be the ideal partner?
spk04: Within the last couple of years, we all see that EV demand is under pressure. If you remember, our facility was supposed to be half of the capacity for non-transportation related application, but there's still an off-tick site on the transportation side. So the way we're seeing is going forward, we need to diversify the customer base to make sure that the risk associated to this customer and then also all the OEMs in the EV market We look at the diversification of the customers, and the part that can help us to get there is certainly a battery maker. So that's what we are looking at. We are in advanced discussion and due diligence discussion with one particular one, but we really would like to have that secured before getting to the next step of voltage work.
spk07: All right, great. And then on the benefits of graphene for batteries, you've demonstrated some improvements. Would you say that those benefits are generally accepted by the industry today? And as part of that, where can you take those improvements and where are you looking at improving performance and is it best to do those next steps and next steps of improving performance with a partner?
spk04: So looking at, well, two parts are pretty clear. One is on the conductive additive side with the graphene. That's a product that is being sold as conductive carbon black. Normally about 2% of cathode materials, they have that. So we have performance benefit and cost benefit versus that product. So the two together, you know, the testing that the customers do is they check out conductivity of the product and they look at your business case. So they're not looking at the graph, you know, any particular material at this point. They're looking at any sort of additive that can give them the conductivity that they need. So this product, I would say, will gain market share. The dynamic of the market on the conductive additive is also the same as the anode materials. It's undersupplied in a sense. When we look at the silicon-type additives and graphene-enhanced silicon, that's more of a high-performance niche product. So a lot of one-by-one customer validation needs to be done in those types of products. You know, silicon is used in a large concentration today. So I would say that, you know, that's more of a co-development. There's a couple of companies out there that are trying to achieve high silicon content batteries. You know their names. And, you know, we are along with them trying to, you know, get that product into the hands of users and buyers of the batteries.
spk06: I'll leave it there. That's two for me. Thanks.
spk17: Thank you.
spk00: One moment for our next question. And our next question comes from Michael Glenn of Raymond James.
spk10: Hey, good morning. Ceruse, just to go back on the Vault Explorer, the strategic impact investor that you are referencing is, I think before you had indicated that you were in a process, you were going to be submitting some due diligence papers to them. I think the timeline was something like the end of April. Is that the same strategic investor that you're still in discussions with? I'm just trying to get an update, get some sense as to is it the same person or is it moved on to somebody else?
spk13: No, it's the same
spk10: It's the same person. And then this one might be... What's that?
spk04: It's the same company.
spk10: Same company. And then this one might be tough for you to answer, but how do we answer the question as to, okay, how should we think about timing on this now? I'm just trying to make sure everybody is consistent and Everybody's answering the question sort of the same way as to how we think about timing of this finalization.
spk04: Hard for me to tell you the timing. They're advanced. They have been through many rounds of questions back and forth. But it's just hard for me to tell you how long it's going to take. We don't control the strategy's timeline. That's the best I can say at this point.
spk10: Okay. And just One more on Volta. There's been a fair amount of news in Quebec about power supply, some capacity constraints facing Hydro-Quebec. Can you talk about the power requirements of Volta Explore and is that an area that has been secured? Is the power needs for Volta Explore?
spk04: Yeah, so on the nano side, we are looking at close to 10 megawatt hour. On the Volta side, we're looking at 20 megawatt hour. Our application is already in Hydro-Québec for, I think, more than a year, for a total of 30 megawatt hour of power. Of course, the final allocation requires us to go forward with those projects. But look, the power is limited, but supported projects will get the power, I think.
spk10: Okay. And then just on the CapEx that you're talking about, how does the CapEx split between the U.S. and Canada exactly?
spk09: Are you talking about the non-Volta CapEx that I brought up? Yes.
spk10: Yeah, I'm talking about the non-volta. The reference you made over the next four quarters, how does that split between U.S. and Canada?
spk09: So the investments in Canada are going to be probably around $3 million before the end of the calendar year. So let's say $1 million in each of the three quarters. The larger part will be in the U.S. as we invest in the SMC initiative, Lightweighting Initiative, with presses and other equipment. And that will be the balance. So probably about, give or take, $2 to $4 million in the U.S. over the next three to four quarters.
spk10: Okay. Okay, I just want to make sure. So near-term capex, $3 to $5 million in each of the next four quarters. About a million of that is in Canada, and then the rest will be in the U.S. then. Correct. Okay.
spk09: This is for the investments. Michael, just to correct, this is mainly for the investments. There's other CAPEX that are more for keeping the lights on type of thing, and those will be done in the location that they're required. Since we're proportionally more in Canada, you might have more activity beyond $3 to $5 million, or it can be part of the $3 to $5 million that will be in Canada versus the U.S.
spk10: But largely, the numbers that I gave you is generally correct. Okay. Thank you for taking the questions. Thanks, Michael.
spk17: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Pierre Therese for closing remarks.
spk18: Thank you, operator. We would like to thank everyone for participating in this call, and we wish everyone a great day. Thank you very much.
spk17: This concludes today's conference call. Thank you for participating, and you may now disconnect. you Thank you. Thank you. Good day, and thank you for standing by. Welcome to the third quarter 2024 NanoExplorer earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pierre Therese, VP of Corporate Development. Please go ahead.
spk02: Pierre Therese Therese Therese Therese Therese Therese The press release reporting this result was published yesterday after market closed and can also be found on our website along with our financial statement and MD&E. These documents are also available on CEDAR+. Before we begin, I'd like to remind you that today's remark, including management's outlook and answer to question, contain forward-looking statements. These forward-looking statements represent our expectation as of today, May 15, 2024, and are accordingly subject to change. Such statements are based on assumptions that may not materialize and are subject to risk and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factor that may affect future results is contained in the Manual Explore Annual Information form available on our corporate website and in our filings with the Canadian Securities Administrator on CEDAR+. On the call with me this morning, we have Solushna Zappo, NanoExport founder and chief executive officer, and Pedro Azevedo, our chief financial officer. After a remark from Sush and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Sush.
spk04: Thank you, PY, and good morning to everyone joining us on the call. We'll first start with the review of the economy and the impact on our business. I will then expand on our capital allocation plan and I will end my remarks with an update on Volta Explore. As the central banks, mainly Canada and Europe, are making progress towards interest rate cuts, the previously mentioned increased activities with our customers are continuing, especially in transportation markets. Our customers' forecasts are robust and demand remains strong. The North American economy continues to show resilience, which is giving confidence to our customers. Furthermore, industry headwinds from the supply shortages, inflationary cost pressures, and tight labor markets continue to improve and are impacting positively on our business. In this environment, we achieved record results in the third quarter. with revenues and adjusted EBITDA in the advanced materials segment of around $34 million and $1.3 million, respectively. Steps taken to improve our efficiency are bearing fruits, with gross margin at an all-time high of around 21%. These results demonstrate the strength of our business model, our expanding market share, and the value creation of our vertically integrated model. I'm very pleased with the performance of Nanoexplore's team. We continue to perform at a high level and we're executing on our capital allocation priorities. We foresee this momentum continuing into fourth quarter and the next fiscal year. Now turning to our operation for our graphene enhanced composite products, demand continues to be very strong and our current capacity is almost fully utilized. We have made investments in the new equipment and will continue to invest more as a part of our five-year strategic plan. A large part of these investments will be in the United States and are supported by booked contracts with existing and new customers. In regards to our direct graphene sales activities, validation and testing are ongoing with new customers while we continue to supply existing ones. Drilling fluid, foam, and battery material market continue to show promise, especially following our recent announcement related to financing of our graphene and anode material facility. We are continuing discussions with an off-state partner for our upcoming facility and have already signed a letter of intent with the construction company to build our facility. In fact, we have underestimated the demand for our battery material, and one of our potential customers has asked if we could accelerate our expansion and move the build-out timeframe forward. The increase in demand for battery material is a result of the Inflation Reduction Act and the need for battery supply chain market participants to be compliant. Again, we want to remind investors and analysts that we are executing this expansion without issuing equity. Turning to Volta Explore, and as discussed before, we have a potential strategic investor presently in its due diligence process. Given the slowdown in the EV space, we believe having a strategic investor is essential for Volta Explore's success. This strategic investor will bring resources, know-how, and end market diversification to the project. With that in mind and given the growth we see with NanoXplore, we believe that it's more prudent to only start the VoltaXplore in the factory project if and when we close the deal with this partner. In the meantime, we're continuing with validation of our graphene-enhanced batteries along with developing more advanced production methods such as tablet designs and further developing new generations of our graphene-enhanced silicon-anode additives. Taking this approach, even though it pushes out the startup production, ensures long-term success, and reduces risks related to the market on ZNT. With that, I'll now turn the call over to Pedro, who will provide details about our financial performance. Pedro?
spk09: Merci, Sourouche. Bonjour à tous. Good morning, everyone. Today, I will begin with a review of our Q3 financial results, followed by an update on financing for our five-year plan, and conclude with some commentary on near-term CapEx spending and outlook for fiscal year 2024. Total revenues in Q3 were 7% higher than Q3 2023 at $33.9 million, which was a record for NanoExplore. The increase in revenue was directly attributable to progress billings on new tooling being manufactured for three different customers. Tooling revenues will continue to be higher than normal for the next two quarters due to the previously announced expansion of an existing program and the launch of two new programs. Once the tooling for these programs are completed, part revenues will increase as the additional capacity and the new programs come online. With regard to gross margins, gross margins year-over-year driven by improved productivity resulting in part from manufacturing cost benefits of producing graphene-enhanced products, higher margin product mix, and various manufacturing efficiency improvements put in place over the last year. This year-over-year margin improvement has been a trend over the last seven quarters and we are pleased that it is continuing. As a reminder to our shareholders and analysts, As the proportion of sales of graphene powder or graphene-enhanced materials increase, gross margins as a percentage of sales will also increase. Adjusted EBITDA was $574,000 and was comprised of $1.26 million in the advanced materials, plastics, and composite product segment, a record achievement and improvement of nearly $800,000 versus last year, and negative $688,000 in the battery cell segment, which encompasses the Volt Explorer initiative. Since Volt Explorer was a shared cost with Martinry until the end of Q3 2023 and largely excluded from EBITDA, therefore no comparable in Q3 2023. Looking at our year-to-date numbers, while sales were lower than expected in the first half of the fiscal year, Q3 was fairly strong and in line with expectations. For the first nine months of fiscal 2024, we are now 2% above the same period of the prior year. While sales are now higher than last year, the noteworthy performance in our year-to-date results has been in gross margins in EBITDA. Gross margins as a percentage of sales have increased from 16.1% to 20.1%, leading to an increase of $4 million of margins in EBITDA in advanced materials, plastics, and composite product segments has increased from minus $1.4 million last year to the positive $1.9 million year-to-date this year. With regard to our balance sheet and cash flows, we ended the quarter with $29.8 million in cash and cash equivalent, an increase of $2.2 million during the quarter. Cash flow from operating activities was positive $4.6 million mainly due to advance payments from customers on tooling contracts and continued close management of accounts receivable and inventory levels. Cash flows from financing activities were negative 1.1 million, resulting mainly from repayment of lease liabilities and also included two offsetting items. During the quarter, stock options nearing expiry were exercised. This generated 1.2 million of cash, which was used to repay an outstanding loan that was coming due during the quarter. Finally, cash flows from investing activities were negative 1.2 million, mainly related to capital expenditures. Our cash along with the 10.3 million of unused space on our credit lines resulted in total liquidity of 0.1 million at March 31st. Moving now to the financing of our five year strategic plan. As a reminder, this does not cover the battery Gigafactory initiative, which is being done separately and through different financing. As was recently announced, we completed an agreement with the Royal Bank of Canada in April to provide NanoExplore with a significant increase in our borrowing capacity versus the old credit facility with the National Bank. The new credit facility will provide the financial support to fully finance the graphene-enhanced FMC Lightweighting expansion, and in conjunction with the anticipated but not yet finalized government support for the Anode Material Initiative, will finance will fully finance the capital needs of our five-year strategic plan. Turning now to our near-term CAPEX spending and the outlook for fiscal year 2024. With regard to CAPEX spending, we expect to spend $3 to $5 million in each of the next four quarters as we increase the spending of the Graphene Enhanced SMC Initiative of the five-year strategic plan. This amount will be updated once the government's support for the Nano Material Initiative is finalized and the anode material plant moves forward. Despite the headwinds, during the first half of the year Q3 delivered solid results and we are confident Q4 will continue this momentum with strong revenues and associated margins. Based on the visibility we have today, our total revenue guidance for the full year fiscal 2024 remains at $130 million. In conclusion, we are on track to deliver a record Q4 and start 2025 with good momentum. With that, I will pass back to Pierre-Yves.
spk02: Thank you, Pedro. Operator, we can now open the lines for questions.
spk17: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from Amar Azad, Echelon Partners.
spk05: Good morning. Thanks for taking my questions and congrats on a very strong quarter. The sales growth was very solid and you're confirming guidance, so it looks like Q4 will even be stronger. What I want to focus on is gross margin. You know, like Pedro, you're saying that the sales mix includes lower margin tooling, yet you're at record gross margins. So I just wonder, how do gross margins look like without the tooling components? Can you maybe help us, you know, like maybe give us a range as tooling comes off? how that impacts the margins?
spk09: In a particular case, the tools that we have right now that are being made and the work that we're doing in the expansion are actually producing margins that are close to what we normally have in parks. Abnormally, this quarter and upcoming quarters the tooling margins will actually be very close to parts margin. So there's no real mixed effect in this quarter, as we have seen in the past. In past quarters, we do have lower margins on tools, but in this case, in this quarter and upcoming quarters, the margins are going to be very close. Just to disconnect a little bit the two parts, If you exclude tooling, we still are in the 21, 22% range. That's the goal that we're achieving right now. We intend to increase that over time as rafting enhanced materials continues to proportionately be higher and so on. So right now, I would answer your question by saying right now for the quarter, it's about 21, 22% for parts and about 21% to 20 on tooling. Fantastic. That's great, Keller.
spk05: then I'm not sure how much you are willing to share. But could you provide us a sense of, or maybe I missed it, how much of the Q3 growth was from tooling revenues and what should we be expecting for Q4? The reason being, I just wonder, as this tapers off, does the revenues from parts take over more than takes over whatever you're losing from tooling? or what you're delivering now in terms of sales is a new plateau that we could sort of grow from?
spk09: So in the quarter, tooling revenue was about $3 million, and it will probably be close to $4 million next quarter. We traditionally have annually, we traditionally have around $2 to $4 million depending on the years and launching of new programs. This year, it'll be close to $8 million. But what you have to understand is that tooling revenues are a precursor to the parts revenues. So when tooling ends, parts revenue starts kicking in and kind of replaces the revenue. So in the quarter, while the volumes generally of our products haven't increased that much, there is an increase, but it's not that big. That's because we do have programs with our customers and those customers are buying volumes and they are growing, but on a slower basis. There is one customer that we spoke about in the last quarter that is expanding, and we are currently expanding our facility to allow for that expansion to actually take place. They're actually hoping that we finish our work sooner so that they can be buying and increase their cadence faster. But that's not the case right now until the end of the year. So I would say to you, just in summary, that parts revenue will kick in to replace the tooling that will drop off, but at least for the next two quarters and possibly until the end of the calendar year, until the end of this year, we are going to be producing tooling revenues that will eventually turn into parts revenues.
spk05: Fantastic. And the question was, like, it more than offsets the drop you're going to get from the... That's right. From tooling. Yeah, okay.
spk16: There might be a stemming effect,
spk09: But generally speaking, that's exactly right. That's why tooling is important to us because it's just a precursor to coming online with new parts.
spk05: No, I fully understand that. It's good for you to come out with the new credit facility and to confirm that no equity is needed for your five-year plan. I think it alleviates a lot of the risk, I guess. But, you know, like on the 80 million non-dilutive government financing, I think the wording you guys used is you're finalizing it. Just wondering if you can give us a sense of where you guys stand and when can we hear something.
spk04: Yeah, so we received the support letters, but we have to go through the full proposal steps. These support letters are commitment for the government. Having said that, legally we have to wait for their announcement at the end of full proposal. So it's going to be a couple of quarters until we get to that stage. And normally the way these programs are, these are a refund of incurred expenses. So as we invest on the CAPEX in the next two years, we're seeing a refund of those investments through the programs like investment tax credit, but also direct programs that governments are providing for these battery materials projects.
spk05: Okay, but the support letters that you guys have are for the full $80 million that you guys were talking about?
spk12: Yes.
spk05: Okay, that's fantastic. Okay, so Saroosh, your prepared remarks sounded... I want to say like very optimistic about like anode materials and you spoke to, um, I'm not sure if it's a customer or a potential customer asking if you could bring production forward. So my first question, you know, like, is that already a signed takeoff agreement? And if it's not, can you maybe give us an update on how advanced you guys are, um, in securing?
spk04: Yeah. So we are, uh, So we have the whole market of the anode material itself, which is a couple of products. These are active anode materials plus graphene-enhanced conductive additives plus graphene-enhanced silicon additives, these three products together. We're seeing quite a lot of interest from the battery makers against the supply chain And the fact that there's a tendency to friend shore, especially on the anode material where, you know, majority of this is being produced in east of the world. And also following the IRA announcement, there's quite a lot of interest to buy from North America. And the supply side just doesn't exist today. So what we are hearing from the customers is that they want to get this product faster because their OEM customers want to get the IRA credit faster, right? So we are looking into all these requests at this point. I would say we have a very strong visibility of the customers for that facility. We don't have yet a signed off-day contract, but we're working towards that off-day contract at this stage.
spk05: Okay. It seems like you're positive enough to sort of speak to it. So I'm assuming this is close. Then maybe, you know, like when you first announced the five-year plan, you were saying, okay, we're going to take like graphene production from 4,000 to 20,000. So that incremental 16,000, not all of it was allocated to battery production. materials and it seems like the demand side and the lack of supply is driving a lot of potential growth. So is there a potential for you guys to allocate the whole 16,000 tons of graphene production towards the battery materials?
spk04: So there is a portion of the anode material and there's a portion of the, we call it low cost or industrial graphene that we're going to have in that facility. Now, the battery grade products, they have much higher purity than industrial grade, right? So there's capital requirements if you want to expand 100% of the graphene production for the battery material. I think at this stage we have a decent portion of that to be allocated to battery market, but we are open to put more purification system in place when we get clarity and contracts for all of it. But at this stage I think the graphene, industrial grade graphene is also needed for a couple of customers that's coming out in the pipeline.
spk05: Okay, then maybe one last one and I'll pass the line. I don't think the language in your MD&A changed on the lead times, you know, like I think it's 8 to 12 or 8 to 16 months that you guys were speaking about. And you've got a potential customer asking you to bring production forward. Well, are you able to bring production forward or how should we think about timelines?
spk04: So while the construction of the physical building will probably take about a year, and some of the equipment on the anode material side will require close to 12 months of lead time. So there are ways we can do to order a bit faster those long lead time items. So we can probably save a couple of months, but more than that, it looks unrealistic.
spk05: Well, it's a good problem to have. Congrats again on the quarter. I'll pass the line.
spk17: Thank you. One moment for our next question. And our next question comes from Rupert Murair of National Bank. Your line is open.
spk07: Hi. Good morning, everyone. Hi, Rupert. Soroush, you mentioned that with Volta Explorer you would wait for a strategic investor before you move forward. I'm wondering if you can give us a little more color on that process. If you have a short list of investors you're talking to and what are you looking for in a partner? Who would be the ideal partner?
spk04: Within the last couple of weeks, we all see that EV demand is under pressure. If you remember, our facility was supposed to be half of the capacity for non-transportation related application, but there's still an off-tick site on the transportation side. So the way we're seeing is going forward, we need to diversify the customer base to make sure that the risk associated to this customer and then also all the OEMs in the EV market We look at the diversification of the customers, and the part that can help us to get there is certainly a battery maker. So that's what we are looking at. We are in advanced discussion and due diligence discussion with one particular one, but we really would like to have that secured before getting to the next step of Voltaic Board.
spk07: All right, great. And then on the benefits of graphene for batteries, you've demonstrated some improvements. Would you say that those benefits are generally accepted by the industry today? And as part of that, where can you take those improvements and where are you looking at improving performance and is it best to do those next steps, next steps of improving performance with a partner?
spk04: So looking at, well, two parts are pretty clear. One is on the conductive additive side with the graphene. That's a product that is being sold as conductive carbon black. Normally about 2% of cathode materials, they have that. So we have performance benefit and cost benefit versus that product. So the two together, you know, the testing that the customers do is they check out conductivity of the product and they look at your business case. So they're not looking at the graph, you know, any particular material at this point. They're looking at any sort of additive that can give them the conductivity that they need. So this product, I would say, will gain market share. The dynamic of the market on the conductive additive is also the same as the anode materials. It's undersupplied in a sense. When we look at the silicon-type additives and graphene-enhanced silicon, that's more of a high-performance niche product. So a lot of one-by-one customer validation needs to be done in those types of products. You know, silicon is used in a large concentration today. So I would say that, you know, that's more of a co-development. There's a couple of companies out there that are trying to achieve high silicon content batteries. You know their names. And, you know, we are along with them trying to, you know, get that product into the hands of users and buyers of the batteries.
spk06: I'll leave it there. That's two for me. Thanks.
spk17: Thank you.
spk00: One moment for our next question. And our next question comes from Michael Glenn of Raymond James.
spk10: Hey, good morning. Cerise, just to go back on the Vault Explorer, the strategic impact investor that you are referencing is, I think before you had indicated that you were in a process, you were going to be submitting some due diligence papers to them. I think the timeline was something like the end of April. Is that the same strategic investor that you're still in discussions with? I'm just trying to get an update, get some sense as to is it the same person or is it moved on to somebody else?
spk13: No, it's the same.
spk10: It's the same person. And then this one might be... What's that?
spk04: It's the same company.
spk10: Same company. And then this one might be tough for you to answer, but how do we answer the question as to, okay, how should we think about timing on this now? I'm just trying to make sure everybody is consistent and Everybody's answering the question sort of the same way as to how we think about timing of this finalization.
spk04: Hard for me to tell you the timing. They're advanced. They have been through many rounds of questions back and forth. But it's just hard for me to tell you how long it's going to take. We don't control the strategy's timeline. That's the best I can say at this point.
spk10: Okay. And just One more on Volta. There's been a fair amount of news in Quebec about power supply, some capacity constraints facing Hydro-Quebec. Can you talk about the power requirements of Volta Explore and is that an area that has been secured? Is the power needs for Volta Explore?
spk04: Yeah, so on the nano side, we are looking at close to 10 megawatt hour. On the Volta side, we're looking at 20 megawatt hour. Our application is already in Hydro-Québec for, I think, more than a year, for a total of 30 megawatt hour of power. Of course, the final allocation requires us to go forward with those projects. But look, the power is limited, but supported projects will get the power, I think.
spk10: Okay. And then just on the CapEx that you're talking about, how does the CapEx split between the U.S. and Canada exactly?
spk09: Are you talking about the non-Volta CapEx that I brought up? Yes.
spk10: Yeah, I'm talking about the non-volta. The reference you made over the next four quarters, how does that split between U.S. and Canada?
spk09: So the investments in Canada are going to be probably around $3 million before the end of the calendar year. So let's say $1 million in the next three quarters. The larger part will be in the U.S. as we invest in the SMC initiative, Lightweighting Initiative, with presses and other equipment. And that will be the balance. So probably about, give or take, $2 to $4 million in the U.S. over the next three to four quarters.
spk10: Okay. Okay, I just want to make sure that I – so $3 to $5 million – so near-term capex, $3 to $5 million in each of the next four quarters. About a million of that is in Canada, and then the rest will be in the U.S., then. Correct. Okay.
spk09: This is for the investments. Michael, just to correct, this is mainly for the investments. There's other CAPEX that are more for keeping the lights on type of thing, and those will be done in the location that they're required. Since we're proportionally more in Canada, you might have more activity beyond $3 to $5 million, or it can be part of the $3 to $5 million that will be in Canada versus the U.S.
spk10: But largely, the numbers that I gave you is generally correct. Okay. Thank you for taking the questions. Thanks, Michael.
spk17: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Pierre Therese for closing remarks.
spk18: Thank you, operator. We would like to thank everyone for participating in this call, and we wish everyone a great day. Thank you very much.
spk17: This concludes today's conference call. Thank you for participating, and you may now disconnect.
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