NanoXplore Inc.

Good day and thank you for standing by. Welcome to the Q4 and year-end 2025 Financial Results 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-answer session. To ask a question during the session, you will need to press star 1-1 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 E. Therese, Vice President, Corporate Development. Please go ahead.

Good morning, everyone, and thank you for joining this discussion of NanoExport financial and operating results for the fourth quarter and near-end results of fiscal 2025. The press release reporting this result was published yesterday after market close and can also be found on our website along with our financial statements and MD&A. These documents are also available on CEDAR+. Before we begin, I'd like to remind you that today's remark, including management outlook and answer to question, contain forward-looking statements. These forward-looking statements represent our expectation as of today, September 17, 2025, and accordingly are 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 factors that may affect future results is contained in NanoExport's annual information forum, available on our corporate website and in our filing with the Canadian Securities Administrator on CEDAR+. On the call with me this morning, we have Soros Nazarpo, NanoExport's Chief Executive Officer, and Pedro Azevedo, our Chief Financial Officer. After remarks from Soros and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Sorush.

Thank you, PY, and good morning to everyone joining us on the call. By now, you're all aware that I decided to step down from my CEO role at the AGM, stay on the board thereafter, and support the corporation from a technical and a strategic point of view. This decision was taken for personal reasons. I have built this company from the ground up with the nano team, and I'm very proud of what we have accomplished since inception. At this point, in the growth of the company, it's the right time to make this transition. Nanoexplorer will, in the very near future, embark on the launch of a major graphene contract, which has been a major objective from the team. My successor is inheriting a graphene market leader on a strong footing and will bring the company to its next stage of growth. With that being said, nothing is changing until the AGM, so let's start with a quick review of the broader economic picture, particularly tariffs, since they continue to affect both our customers and us. Then I will move to our recently announced sales contract and finish with some comments on capital allocation and other parts of our business. From a macro standpoint, the current U.S. administration's trade and economic policies have been disruptive. The impact shows up directly in our customers' planning cycle and therefore in our own visibility. Practically, this has meant delays in some of our announced contracts and volume reduction on some of our ongoing business. As it relates to our drilling fluid customer, we have made significant progress in the quarter. Specifically, we have completed well trials and are finalizing contract terms which should be able to discuss in the near future. This contract involves supplying our Tribograph powder to a major U.S. oil and gas company for its lubricant for both onshore and offshore drilling fluid applications. Tribograph is a high-performance carbon powder, which is being produced in our graphene production facility in Montreal. This high-performance specialty carbon mixture is engineered particularly as lubricant additive for drilling fluids, metalworking, and stamping. providing superior friction reduction, wear protection, and suspension stability. Tribograph, when formulated in drilling fluids, has demonstrated outstanding results in the industrial standard tribology and friction testings. Evaluation carried out under a wide range of conditions showed that our solution consistently outperformed leading alternatives currently available on the market. This product is the result of years of development and fine-tuning and has already proved its reliability and performance during demanding extended-reach drilling operations in the United States. More in-depth data collected during drilling operation has confirmed that Tribograph directly improves drilling performance. The results show faster drilling speeds, reduced rig time, and lower overall operating cost. Verdemer. There is clear evidence that Tribograph reduces wear on downhole tools, helping extend equipment life and further lowering operating and maintenance expenses. Now, moving on to our North Carolina expansion, we have completed installation and commissioning of the equipment, and pre-production parts have recently been shipped to our new customers. Those parts are pending final approval. Once that comes true, we will move quickly to scale production at the state's field at the beginning of October. Stepping back, Q4 was a tough operating environment. Revenue declined year over year. On the positive side, adjusted EBITDA margins improved, reflecting in part a broader adoption of our high-margin products and cost management. Regarding our dry process graphene and CSBG project, we have made significant inroads with both levels of government and for our electricity allocation. We are satisfied with the progress made with our stakeholders in the project. We will inform investors as we progress and reach key milestones. At the same time, we have ordered equipment to begin industrial scale production of our dry process graphene at our T-MINS facility targeting early calendar 2026. This first module gives us between 500 and 1,000 tons per year of capacity, depending on product rate. This first production module will allow us to supply larger volumes to our testing partners and will eventually be the first line installed in our new facility. Looking ahead to the fiscal year, we see two stages. Our advanced material, plastic, and composite segment is currently seeing volume reduction from our two major customers. That will translate into a challenging Q1 and Q2. But as we move into the back half, we expect growth to be driven by higher margin graphene powder cells, states will production ramp up, and by volumes resuming in graphene-enhanced essence. To sum it up, While there are softer volumes in the near term, there's plenty of good news as well. Q4 delivered strong adjusted EBITDA margin. We are in the final stage of securing a major new oil and gas customer while progressing with other ones for our highest margin business segment. We completed the state's full expansion and already have parts shipping, and we made solid progress on the dry graphene project as we gear up for future growth. We expect both growth and profitability to be weighted toward the second half of the year. With that, I'll now turn the call over to Pedro to walk you through our financial performance.

Merci, Sorouche. Bonjour à tous. Good morning, everyone. Today, I will begin with a review of our Q4 and full-year financial results, followed by an update on financial aspects of our five-year plan, and conclude with some commentary on near-term capex spending. Total revenues in Q4 were 17% lower than Q4 2024 at $31.7 million. This decrease was mainly due to a reduction in demand from our two largest customers as volumes have slowed to historically low levels after strong demand levels last year. Our two largest customers, along with others in the industry, have reported layoffs and cadence reductions due to the current economic environment. Although revenues from parts and materials were lower, tooling revenues were higher due to the continued supply of tools for new programs and expansion of an existing program now completed. As previously indicated, this higher level of tooling will be the case during fiscal 2026 until part production starts on new programs during calendar 2026 and early 2027. Adjusted gross margins, which exclude depreciation as a percentage of sales, continued to increase during the quarter to reach 24.7%, an increase of 110 basis points year-over-year, driven mainly by positive variances on tooling revenue recognition, partly offset by lower manufacturing overhead costs absorption on lower volume. This year-over-year margin improvement has been the trend for over the last 12 quarters, and we are pleased that it is continuing. Looking back at the progress made over the quarters, I wanted to highlight that we started with an adjusted gross margin of 3% in Q1 of 2022 and have progressively improved quarter by quarter to reach 24.7% this past quarter. These improvements have come from improved operational efficiency, increased volume of both graphene-enhanced parts and other non-graphene-enhanced parts, increasing graphene powder sales, and a higher U.S. dollar. Adjusted EBITDA was 2.5 million, equal to last year, and was comprised of 2.7 million in the advanced materials, plastics, and composite product segment, a decrease of 600,000 versus last year, and by a loss of 247,000 in the battery cells and materials segment, an improvement of 600,000 versus last year. With regard to our balance sheet and cash flows, we ended the quarter with 18.6 million in cash and capital short-term and long-term debt. Operating cash flows amounted to $1.8 million mainly from changes in working capital items. Cash flows from financing activities were positive $1.8 million resulting from equipment lease financing advances inflow of $3.9 million and debt and lease repayments of $1.9 million. Finally, cash flows from investing activities were negative $5.4 million mainly due to capital expenditure payments related to our five-year strategic plan. Our cash, along with the unused space in our revolving credit lines, resulted in a total liquidity of $28.6 million at June 30th. Looking at our full-year results, while sales were strong in the first half of our fiscal year and in line with expectations, the second half was disappointing as our two largest customers reduced their production cadence. Nevertheless, within our total sales, usage and sales of graphene powder continue to grow. Sales for the year were slightly below last year at 129 million, but with a record adjusted EBITDA of 6.1 million. If we look at the segments, adjusted EBITDA in the advanced materials, plastics, and composite product segment reached 6.9 million, an improvement of 1.7 million versus fiscal year 2024. During the year, gross margins excluding depreciation increased from an average of 21.1% in fiscal 2024 to an average of 22.3% in fiscal 2025. Adjusted EBITDA loss in the battery cells and materials segment was $725,000 compared to a loss of $2.7 million last year, mainly due to the cost reductions in the Volta Explorer initiative. With regard to the expansion of graphene-enhanced SMC capacity, expansion in our Beauce, Quebec plant was completed during the quarter. This expansion increased our capacity to produce parts for one customer by 50%. However, the capacity expansion currently remains underutilized due to the reduced demand in the mid and heavy transportation industry. Our U.S. expansion, which includes both graphene-enhanced SMC as well as additional capacity for the composites business, is near completion, with most of the equipment having been delivered and installed during the summer months. Start of production of a new program at the Statesville site will begin in early October, adding to revenues in RQ2. Lastly, in August 2025, NanoExplorer was selected to receive up to $2.75 million over the next three years from Natural Resources Canada under the Energy Innovation Program's Battery Industry Acceleration Call for proposals for the research and development on the use of silicon graphene in ultra-high-powered cylindrical cells. Turning now to our near-term capex spending. With regard to CapEx spending, as expected, we spend approximately $5 million on CapEx in Q4 and expect to spend another $3 to $5 million in each of the next two quarters as we complete the spending on the U.S. Expansion Initiative and the Graphene Enhanced SMC Initiative of the five-year strategic plan. As previously mentioned, this will be financed through our RBC credit facility and mainly with equipment lease financing. With that, I will turn back to PY.

Thank you, Pedro. Operator, we can now open the line for questions.

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. Our first question comes from the line of Amir Izat from Ventum Capital Markets.

Good morning. Thanks for taking my questions. Good morning. I'd like to start. I'd like to first acknowledge yesterday's news. Soroush, congrats on everything you've achieved in building NanoExplore. It's been certainly great to follow the story from the early days, and I'm glad to see that you remain involved as advisor and vice chair. But maybe if we could start there, can you walk us through what drove the decision and the timing of the decision when you guys are at the cusp of commercialization? Then from an investor viewpoint, how should we think about, I guess, the continuity in customer relationships, especially when it comes to powder commercialization? as well as the strategy going forward? Did the change signaling a different direction?

Right, right. All right, so let me start by saying I'm pretty happy with this transition, and it was a work in progress for quite some time. Just let's step back. It's very normal for startups to be highly dependent to the founders. And this has been something that has been recognized in the company for the last few years. So throughout the time, Rocco and Pedro, that are both pillars of the company, they took slowly some of the responsibility that I have throughout the years. And the best example of that, the last two years, both of them have been involved directly as well with the board of directors reporting. This has been a transition in the making for quite some time. Rocco is a fantastic executive. We have been working together for many years, and I'm very, very happy for this transition, seeing Rocco coming on board and taking lead from December. Now, on the personal side, I have decided to move on sometime in the next year. So we decided to put the transition really on the AGM so I have still a good six to nine months of being present physically actually to be able to support Rocco in the transition. Going forward, I'm also continuing the board of Nano, and I'm a big supporter of the company. I started this, and I will continue to be the cheerleader regardless of the title. Having said that, I'm actually continuing the company. The concept is not for me to move away. I'm still continuing to be here and supporting the business. So I see it as a very positive transition. I actually think highly dependent corporations to the founders are a risk. i believe uh you know we have uh we've done a great job with the board of directors of nano and rocco and pedro to really manage the transition in a very positive way and and something that we i believe we removed a risk from the company so all in all very positive i'm very happy and on the timing of that so um you know we are in the cusp of signing a contract with the major oil and gas company. And that's what we have reflected in the script as well. The good news is actually we've been able to conclude this contract. Very soon we will release the news related to that. And I think it's the best time. The company is doing fantastic. The graphene cells is in the best shape possible. So I think it's a great time actually for this transition.

Fantastic. That's extremely helpful and congrats again. So let's go to the other big news that you just mentioned on the prepared remarks. I think the wording that you used is you are finalizing the contract on the drilling fluid side for powder commercialization, obviously. Can you give us, and I'm not sure if you can, like a sense of size and pricing of such a contract? Then do we think of that as a one-off contract or is that a multi-year sort of contract?

So let me say that we actually recorded this script yesterday, but today I can tell you the contract is concluded. So that's the positive side of it. The contract is done, the press release will come out. Let me talk about what is this tribograph. So tribograph is, as I said in the script, is the mixture of carbon. It's technically produced in our T-MINS facility. It has quite extensive lubricity properties. So it's very useful for the drilling fluid application and also other sort of metal working so on what it does is it brings down the friction while drilling so moving away from the technical that how is doing it it translates into cost reduction for the for the oil and gas companies and for the drillers so you know this type of graphene type solution has been are always exposed to extra costs for users has been something that we have to manage today. This product is actually reducing the cost. So adoption is going to be very strong. In terms of details of the contract, you've got to wait for the press release to come. But it's a multi-year supply contract. That's what I can say today. But you will see the details of the contract and all the commitments very soon.

Fantastic. Congrats on that. And if you'll allow me one more. I mean, you guys spoke at length about the economic environment and your two largest customers have, you know, like been holding back volumes. And certainly in Quebec, there's been a lot of local, I guess, coverage around PACAR's Saint-Thérèse plant. whether it's the layoffs or the production cutbacks, and a lot of it actually is post your Q4. So I'd like to understand the magnitude of the volume softness in Q1 for both your large clients relative to Q4, then When thinking about fiscal 2026, should we view this as largely a Q1 event and then Q2 as a rebound? Is that a fair statement?

So Q1, in terms of specific percentages, I'd rather not talk about those because it is a subset. of the whole of NanoExplore. The decrease has continued throughout Q1 from Q4, so you can make it with what you will. You're right, the PACCAR plant closure of a shift and downsizing is definitely a direct impact on our Bose plant. It's not an impact on other businesses, if that helps a little bit. When it comes to Q1, Q2, yes, it is mainly a Q1. issue because we have a lot of stuff coming into Q2 that we've talked about in the script. New programs are starting in Q2, new customers starting in Q2. While the issue related to the two largest customers might continue in Q1 and Q2, A couple of things. Number one, all of these new programs will offset some of that in Q2. And in H2, in our second half, we expect the transportation industry to start recovering, even if it's just a little bit. With everything that's being built up, we see H2 being a recovery. So coming back to your point, Q1 probably... the area where the softness will be mostly viewed, but then Q2 ramp up will start, and then H2 will be, I would say, back to normal, and then some. Fantastic. Thanks, Pedro. I'll pass the mic.

Thank you. One moment for our next question. Our next question comes from the line of Bal Tej Sirhu from National Bank of Canada.

Hey, good morning, and congratulations on the transition, Saroosh. So, just a question on the five-year strategic plan, and mainly the graphene and battery materials expansion. Can we get an update on the outlook for this portion of the strategic plan? Have you had any further conversations with Hydro-Quebec on the required power allocation? And just as a follow-up to that, if not, have you decided to make any change to the initial plan, whether it's different geographies or manufacturing sites and the like.

Right, so we can only discuss what we have been able to discuss from the energy side, but I can tell you we're happy with the outcome of that. There is no changes today, we're continuing. We were in a point to make switch to the program during the summer, but I'm happy that things evolved and we're happy with the outcome. Having said that, any sort of release needs to be managed by the government, so we have to follow those requirements. There is no change. The plan is still the same, and I hope that in the next couple of months, you guys will get a lot of positive updates about that.

Sounds great. And then just on the financing side of things, have we seen any additional sources of financing come through or increased customer contributions, or is it still that same stack with investment tax credits, project debt, and government spending?

We will update some of the CAPEX numbers for sure a little bit later. But the main component of this is to announce the government supports. And following that, you will have more clarity about the numbers.

Great. And then on the DSPG side of things, given the newly proposed tariffs by the U.S. on Chinese graphite, Are you seeing any more indications of customer inbound on this proposed product or any evolution in conversations that you've had in the past few months?

CSPG continues to be really under supplied in North America and the demand is there even though some of the demand related to EV looks to be slower in terms of growth than anticipated. But the production is still pretty much non-existent. So further pressure on Chinese graphite supply really doesn't change at this point. There's not enough CSBG supply in North America. As the graphite and the secondary transport graphite products are more tariffed, there's more need for local production. So I don't see this to make significant changes in the landscape today, but it certainly makes it more difficult for Chinese suppliers to provide the product. to North America. So it's a positive momentum for us. We're seeing, as well, new entrants of large companies into the CSBG. So again, that shows that this supply-demand is still attractive for us to play in it. But at the end of the day, I think the impact of the tariff on the graphite .

Great. Just on the tariffs situation, just another follow-up here. Given the pressure on graphite supply, have you seen any changes in your contract with your supplier and or your supply chains in sourcing graphite? And if you're able to give us any sense of kind of a contract length with their current Canadian supplier.

No, we have multiple sources for the graphite. The graphite availability is still, the graphite market as a whole is over-supplied. So we don't really see any challenge in getting the graphite that we need. So again, it's not something that we're concerned at this point.

And then just the last one for me, if I may, on your SMC expansion. What's the order book looking like for this facility? I recall in Q3 you had mentioned that there were around four programs for around $30 to $35 million in sales. Have you seen increased traction or an evolution in conversations there?

So as Soroush kind of mentioned, one of the issues that we did see is that the awards that were made and we've announced have been delayed. So we thought that they would have started by now, but they haven't, but they will be starting in Q2. When it comes to order book, there are, various programs that are in the magnitude of 10 to 20 million in the next 12 months, let's say, and then further, another 10 million, give or take, in 2017. So we've been awarded all of these projects into the next two years, but for the plant in Statesville and in North Carolina operations, these programs will start in the next few months, in the next month, actually. and grow to 2027 when all these awards will now be in production.

Thank you. That's it for me and congratulations once again. Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Marvin Wolf from Paradigm Capital.

Yes. Good morning, guys. Can you hear me okay? Yes.

I mean, a little too much, but yes. Okay. I'll try to tone it down, Saroosh. I'd just like to say congratulations. You've built a great company here, Saroosh. You know, hats off to you. It's a big achievement. And sorry to hear you're stepping aside, but I fully understand it from the, you know, evolution of the firm. And I think all shareholders down the road, you know, will find this is a good move. I had a question with regard to shovels in the ground on the expansions. What can we kind of think of there now?

Well, I mean, we talked a little bit about the dry processing DSPG project. There has been a couple of milestones for us to get there before starting the construction. Of course, the power requirement was one. support was the other one and then putting everything together and starting the construction. I think we are almost there. I can't update you as a press release or something because there are other partners that need to let us announce it like Hydro-Québec and as well the government, but I'm quite confident that this project can move forward. What I'm seeing today is positive and we can go forward. Now, in terms of the shovel in the ground, we have to build a plant, and this potentially starts soon.

Yes. Do you think you'll be able to catch this season, or do you got to wait through the winter?

Yet to be seen, but I think the supply-demand dynamic is not going to change by a couple of quarters. That's for sure. But I hope that we can start this very soon. Okay, very good.

Okay, that's all for me. Thanks a lot. Thanks, Mark. Thanks, Mark.

Thank you. One moment for our next question. Our next question comes from the line of Michael Glenn from Raymond James.

Hey, good morning, and Soroush, thank you for everything with NanoExplorer over the years, all your patience with me, and thank touring the facilities and bringing me up to speed on the future of graphene. It's all been really, really fun and interesting to watch. Thank you very much. Just to come back on the SMC facility and that outlook that was asked previously. Pedro, I think you were speaking to that. When you add all this together, you mentioned a number of different items in the order book. When you add all those together, looking out, say, in two years from now, can you give a range like what the revenue contribution from all of this might look like?

So just on the SMC initiative that we've been putting together, we expect a minimum in two years. And I think your timeline is right because it's going to still take a little bit longer than from today to ramp up to that. But it is ramping up. So think of this as a ramp up over the next two years. It should reach around 30 to 40 million in the next two years as these programs are all rolled out and the SMC initiative has really come to fruition, let's say, as we had originally planned.

Okay, and would you say that that is largely in line with current gross margins?

That will all be at current gross margins and possibly even a little bit more as we fill plants. The margins, the overheads get absorbed by more revenue and therefore the margins should improve.

Okay, and then back to the drilling fluid products. I can't remember the name of it, but is this a patent-protected product or IP-protected? I'm just trying to understand that a little bit.

It's protected by intellectual properties, and it's pretty much coming out of the same graphene production line. There are modifications that we did on the outputs to make it more suitable for lubrication properties. But it's patent-protected, yeah.

I know that we're waiting for some of the details, but how does the anticipated customer demand align with the installation you have right now?

I think it's better to wait and see the precedence before I speculate on the volume.

Sorry, I missed the last part. What was that?

I think it's better to wait for the press release. This is a bit of a speculation at this point. Let's get the press release details are in there. All in all, I would say I'm very happy with the outcomes. Potentially the biggest graphing contract for Nano and potentially the biggest graphing contract in the history. But let's wait for the contract to come out and there's more details in there. I see.

Okay. Thanks for taking the question. Thank you.

Thank you. At this time, I would now like to turn the conference back over to Pierre E. Therese for closing remarks.

Thank you, operator. Is there any further questions from the allies?

There is not.

Okay. Well, I'd like to thank everyone for participating in this call, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.