EnWave Corporation

Good morning and welcome to N-Wave Corporation's fourth quarter 2025 earnings conference call. My name is Melissa and I will be your operator for today's call. Joining us for today's presentation are the company's president and CEO, Brent Charleton, and Dylan Murray, N-Wave CFO. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Finally, I'd like to remind everyone that this call will be made available for replay via a link in the investor relations section of the company's website at www.nwave.net. Now, I'd like to turn the call over to NWave CEO, Mr. Brent Charleton. Please go ahead, sir.

Thank you and a very good morning to everyone who has joined us today for NWAVE's Q4 fiscal 2025 quarterly conference call. Q4 yielded outstanding financial results and I'm very pleased to summarize our performance details today and discuss our business outlook for the upcoming fiscal year. Now, as always, the information we will present today contains forward-looking information that is based on our management's expectations, estimates, and projections. Our statements are not a guarantee of future performance and involve a number of risks, uncertainties, and assumptions. Please consider the risk factors in the filings made by N-Wave on CDAR when reviewing this information. Also, all amounts discussed today will be in Canadian dollars unless otherwise noted. So again, our performance in Q4 was very strong as we reported revenues of 6.2 million, which was up 71% year over year. Many come from continuous operations of $928,000, which was up 58% year-over-year, and adjusted EBITDA of $1.4 million, an increase of almost $1 million year-over-year. These excellent Q4 results helped us to achieve fiscal year revenues of $13.8 million, a 69% improvement year-over-year, and the highest fiscal year revenue generated by NWA's licensing royalty business as a standalone entity. In Q4, we continue to build two 60-kilowatt rev machines purchased by Milne Microdrive for their new dairy co-manufacturing facility in Washington State. We resold a high-margin 120-kilowatt rev machine to Branch Out Foods, and we also commissioned six 10-kilowatt machines. Now, in regards to our quarterly and fiscal year royalty performance, most important to me is that our base royalties, which are royalties generated through the sales or production of RevDrive products, were 418,000 in Q4, which is the highest quarterly third party base royalties ever generated and up 31% year over year. We also generated 1.8 million in base royalties for the full fiscal year 2025, which was up 228K year over year. Total royalties year over year were flat and that was due to the decision of one existing royalty partner deciding not to pay an annual exclusivity royalty to maintain rights to produce certain tropical fruit products in a Central American country and rather use those proceeds as part of their capital expenditure to acquire 260 kilowatt machines during fiscal 2025. Overall, our royalty growth is trending in the right direction. And the fact that all four large scale rev sales in fiscal 2025 will repeat orders from existing royalty partners, it's likely that we'll see faster base royalty growth in future quarters. In regards to deals getting done in Q4 and to the date of this call, we confirmed the sale of the second 60-kilowatt quantum rev machine and two 10-kilowatt rev machines to Microdrive. In 2026, Microdrive will be offering a total of five large-scale rev machines and two 10-kilowatt units, producing the largest portfolio of rev drive products available from a single royalty partner of N-Waves. We also sold two additional 10-kilowatt units to Dairy Concepts Ireland in Q4 to support their growing market demand for their premium shelf-stable dairy snacks in the United Kingdom and Europe. They now operate five 10-kilowatt units for commercial production. The most material transaction in Q4 was the resale of the 120-kilowatt machine taken back from a U.S. cannabis company and resold to Branfield Foods. This machine is scheduled for installation in Peru during the upcoming month of January. and BranchOut will then have a total of four large-scale REV units and one 10-kilowatt unit commissioned for their growing production needs in 2026. BranchOut Foods' outlook for sales growth and subsequent royalty payments to EnWave is incredibly bullish. Lastly, in Q4, we signed a new royalty-bearing commercial license with Solve Solutions of Brazil, whom also purchased a 10-kilowatt for initial production. Our understanding is that Solve intends to grow their manufacturing capacity through 2026 for both fruit, vegetable, and dairy product production. And in order for Solve to maintain certain product exclusivity in Brazil, they are required to purchase a large-scale rev machine on or before March 31st, 2026. Their strategy will be a blend of direct consumer and co-manufacturing contracts. Now, subsequent to Q4 and prior to this call, we signed two additional commercial licenses. One with a U.S. snack company that will first establish production in Mexico, and the second with a company called Shiny Way of New Zealand, a cannabis drying company. The U.S. snack company purchased a 10-kilowatt unit and is expected to acquire additional rev units in fiscal 26 to expand production. Although we can't be certain when every deal will close, we have numerous new license agreements, evaluation agreements, and machinery sales, both first-time and repeat, that we are actively pursuing for fiscal 26. Across our royalty partner ecosystem we are seeing most partners increase their capacity utilization and some have already communicated an imminent need for more machinery this year. We are targeting superior machine sale performance in fiscal 26 both in the number of large scale units and tank kilowatt sales and of these prospective sales we anticipate at least half of these potential orders to come from existing royalty partners. In the past three months From a sales and marketing perspective, we attended six international food tech trade shows, including the PPMA in the UK, Food Tech Mexico, Supply Side Global, AFTEA in Singapore, FI Europe, and the PLMA show in Vegas. That's a lot of travel. And as we head into the new year, we're preparing to attend three additional shows in Q2, including Expo West in Anaheim, ProSuites in Europe, and the North America Pet Food Forum. I'm overall very pleased with the efforts of our sales and marketing team to date. We began to put that $3 million gross proceeds generated from the life offering closed in Q4 to use. We're building two large-scale machines, one 100-kilowatt NutriRef and one 120-kilowatt QuantRef, along with two additional 10-kilowatt units for our inventory and prospective demand. This will allow us to deploy large-scale machinery more expeditiously in the new year, and there are numerous active discussions regarding machine sale opportunities that we hope to be able to discuss in the near term. Now, with my summarized update complete, I'll now ask Dylan to summarize NWAVE's detailed quarterly financial performance. There we go.

Thanks, Brent. Good morning, everyone, and thank you for joining us today. Please note that the figures I'll be discussing can be found in our press release from this morning and in the financial statements and MD&As filed on CDAR, and all amounts are in Canadian dollars unless otherwise noted. I will make reference to adjusted EBITDA, which is a non-IFRS financial measure, So please refer to the non-IFRS financial measure disclosures and reconciliation to gap net income both in the press release and in our MD&A. Also, please note that the comparative period I'll refer to throughout this presentation is the prior year Q4 ended September 30th, 2024. Revenues for Q4 were $6.2 million compared to $3.6 million in the comparative period, an increase of $2.6 million or 71%. An increase of $5.6 million or 69%. During the year, the company sold eight small-scale machines and four large-scale machines, including a high-margin 120-kilowatt machine that it repurchased from a Canada's multi-state operator. In 2024, the company sold only three small-scale machines and two large-scale machines, including a repatriated 100-kilowatt machine from NutriDrive. Third-party base royalty revenue was $481K in Q4 2025, compared to $381K in a comparative period. An increase of $113K or 31%. Base royalties for the year ended September 30th, 2025 were $1.8 million compared to $1.6 million for the year ended 2024. An increase of $228K or 14%. Royalties grew due to the increased number of royalty partners and machine capacity utilization for a quarter. Total royalties inclusive of exclusivity payments were down $161K quarter over quarter. As Brent mentioned, the decrease in exclusivity payments was related to an existing royalty partner that committed to multiple large-scale machines during the year, deciding not to continue with exclusivity in an unspecified Central American country. This partner redeployed capital to a different strategic area to house the recently acquired large-scale machines. And as the royalty partners grow their businesses and increase capacity utilization of installed REV equipment, further REV installation Red installations will follow from new sales contracts and material-based royalty growth should continue in the coming quarters. The four large-scale machines sold in fiscal 2025 are all expected to begin commercial production and generate royalties in fiscal 2026. And as of the date of this call, two of these large-scale machines have been commissioned or are in the process of being commissioned. Gross margin for the company in Q4 2025 was 41% compared to 40% in Q4 2024. The increase in margin are results of the production mix of large and small scale machines at various stages of production. SG&A expenses, including R&D, were 1.5 million for Q4 2025 compared to 1.3 million for Q4 2024, an increase of 223K or 17%. The increase primarily related to sales personnel and increased trade show attendance. The company will continue to further invest in sales and marketing activities in the coming quarters to drive further sales growth. Adjusted EBITDA is a non-IFRS financial measure, so please refer to our MD&A for the reconciliation from gap net income to adjusted EBITDA. The company recorded adjusted EBITDA of $1.4 million for Q4 2025 compared to $450K in the comparative period, an increase of $950K. The increase in adjusted EBITDA was primarily driven by machine sales and the production sales mix relative to the comparative period. We finished Q4 2025 with cash and cash equivalents of $6.4 million and a networking capital surplus of $9.7 million as of September 30th. And during the quarter, the company closed a fully subscribed private placement of 7.5 million common shares of the company at a price per share of $0.40 for aggregate gross proceeds of $3 million. As Brent mentioned, the company is using the funds to increase inventory levels by manufacturing two large-scale machines. The manufacturing and fabrication process takes approximately six months per machine to complete. This investment, combined with an expanded marketing precedent through increased trade show attendance and sales personnel, is designed to ensure faster order fulfillment and support prospective future machine sales. EnWave has a credit facility with Dave Jardin for growth and working capital purposes. The amount available to the company under the credit facility is calculated as the lesser of $5 million in the function of royalties, receivables, and inventory. As of the date of our quarterly filings, approximately $1.2 million is available to the company at a rate of Canadian Prime plus 1.5%, and the facility remains undrawn to date. With our cash on hand and amounts available in the company's Desjardins credit facility, we believe M-Wave is well capitalized to accelerate the execution of its strategic growth initiatives given the current opportunity pipeline.

Thanks very much, Dylan. I think it's evident that our base royalties are growing. We're seeing commercial momentum with our current royalty partners, given the number of repeat rev machineries we confirmed in fiscal 25. And we have the liquidity to speed up the deployment of new machinery, which will lead to faster royalty growth. Precise timing to close each of those machine sales is unknown, but the sheer number of opportunities gives me confidence in the fiscal year 26 outlook. And with that, I'd like now to open up the call for your questions. Operator, please provide the appropriate instructions.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If there are any outstanding questions at the end of the call, the company will be happy to take them by email at ir at nwave.net. One moment please while we poll for questions. Our first question comes from the line of Noel Atkinson with Clara Securities. Please proceed with your question.

Hi, good morning Brent and Dylan. Really well done in Q4. Congratulations on that. A few questions for me. Firstly, are there any product areas of strength that you're seeing in your machine order pipeline?

Thanks for the question. Are you referring to market verticals where we see the most opportunity for fiscal 26?

That's right.

So we've been consistent in gaining a lot more Dhananjani, Dina Dhananjani has done due diligence in the black soldier fly larva space. There are many companies that need a drying solution at scale for those types of products whilst drying at a reduced temperature. And also we're engaged with a few industrial companies. We've yet to be able to disclose what those products exactly are, but we're hopeful that we will be able to do so in the next quarter.

Okay, great. And then maybe as a follow on, What are you seeing in terms of pipeline? Like relative to where you were kind of this time last year, what are you seeing in terms of your overall pipeline for large scale machines?

Better pipeline than last. Let's put it that way. So, as you know, we confirmed four large scale in fiscal 25. We hope to improve upon that fiscal 2026. And, you know, I think somewhere in the range of six to eight machines is possible. But of course, it comes down to the timing of these decisions from both our current licensed royalty partners and the new business that we're driving. Of course, there's many, many, many more opportunities, but from history, providing some teaching lessons, of course some of them it's not all you know get sort of staggered out on a more less lumpy basis so we're hopeful that's going to be the case here for fiscal 26.

And then just finally from you on your tolling activities so that's been something that you know has has been a help to the business in you know a few years back and they could slow down a little bit last year I think are you seeing opportunities to to ramp the tolling back up again and what kind of, how do you see tolling as a part of your overall strategy?

I have a great question. The establishment of our RevWorks Toll Manufacturing Facility was primarily to act as a launch pad for companies to bring a certain amount of product to market, justify their business case and invest themselves in internal manufacture, buying equipment from us and paying royalties long term. We never will intend that part of our business to grow much more than a million and a half to two million dollars in revenue per annum and that's at full utilization. We also see it as a solution for some of our current royalty partners who start to experience material growth in market needing more volume and simply don't have the machinery available at that time. So they will use RevWorks as a band-aid processing solution until their new machinery arrives and then take on that increased volume. In regards to new companies using the facility, right now we've got, you know, about a dozen different companies evaluating the timing. on creating some new products through this particular tool. And again, hopeful of converting those companies into full-fledged royalty partners in the future.

Okay, great. That's all for me. Thank you.

Thanks, all.

Thank you. As a reminder, if you'd like to ask a question via the telephone, please press bar 1 on your telephone keypad. Our next question comes from line of Bart Gomeret with Varus Tips. Please proceed with your question.

Good morning, gentlemen. Congratulations on the results. I have a few questions. First of all, in your balance sheet, I see that there's a huge increase in the long-term portion of lease liabilities. Can you explain me that?

Hey, thanks, Bart. Yeah. So in Q4, we entered into a new manufacturing lease that's closer to our head office. So that's where we manufacture all our small and Large scale machines and it's closer to where our overall head office, R&D and RevWorks facility are located. No change to the actual manufacturing capacity from our old lease location to our new lease location.

Okay, thank you. And regarding the verticals, something I didn't hear was cannabis and you sold one machine of an existing cannabis partner. But last week there were some interesting comments from President Trump regarding the cannabis market. Do you still see potential there?

Absolutely, Bart. We do. But as we've had many discussions throughout the past several quarters, the majority of our resources from a sales and marketing perspective have been put towards The Food Industry, and that's honestly where the majority of our resources will continue to lie. However, we are engaged with a few licensed producers here in Canada as well as a number in Europe and in Australasia who are considering the technology for their future expansion. And there was a time where we weren't receiving any calls, and I think that was sort of a flux in the market, and now things are starting to stabilize with the better operators. and so we do see opportunity for cannabis transactions in fiscal 26 and more so the Canadian company using the large-scale 120 kilowatt machine now there is the possibility that they may wish to expand their production capacity using REF sometime during this fiscal year based on the results they're getting so working towards it but obviously no guarantee yet.

Okay thank you and one last question can you comment a bit on The efforts in the pharmaceutical industry with your partner in Germany, I think?

Sure. So Gale Lyofil, for those who are familiar, is in a joint partnership with Enwave Corporation, and they have a pilot scale GMP vacuum microwave dryer that they've been using for product development with a number of the globe's leading pharmaceutical companies. And that particular situation remains the same as it was, speaking about in maybe the past few quarters, where They're still looking for a singular company and or consortium of pharmaceutical companies to commit to the development of a specific drug going through multistage process for ultimate commercialization using vacuum microwave rather than lyophilization from the beginning. And that's critical because that drying method needs to be incorporated into their application and, of course, stage gate process for approval. and so still working on it. Other pharmaceutical activity that we've seen lately has been through Biotechnique, which is a total manufacturing company out of the United States, whom have engaged us for paid trials at our facilities in Vancouver. What we've seen, the results have been very encouraging, but again, it comes back to the brass tacks of which company, or, again, a consortium of companies will step up and invest several million dollars plus the cost of developing a new drug using vacuum microwaves. So we continue to push, but that needs to be the next material step forward if we're going to take this into the broader pharmaceutical market.

Okay. Thank you and good luck in this fiscal year. Thanks, Mark.

Thank you. At this time, we have no other phone questions. I'll turn the floor back for any web questions.

Okay, thanks so much. First question is quite straightforward. When do you expect to become profitable? So let's talk about like our cash flow breakeven scenario with Enwave currently with our expense structure of about four and a half to $5 million. If we are able to recognize the revenue of four large scale machines per annum with our historical royalty run rate, we're about a breakeven business. We're hoping to perform better than we did in fiscal 25, which was for large scale machines. And of course, there are about 2 million bucks just there under of the royalties. So if we're able to improve upon our fiscal 25 numbers, we should be in a better position to get closer to profitability. Second question is based on existing machine sales and assuming similar usage volumes in 2026 with existing machines. What would royalties be next year? Trying to figure out the base rate assuming no other machine fails if you can provide an estimate at this time. So for us, our target we think can happen based on the number of large scale machines we're currently delivering. So the first machine for milling micro dry is being started up this month. The 120 kilowatt is planned to be installed and started up for branch out foods in January. The 120 kilowatt machine that went to process here in Mexico only started up about, you know, two thirds through the year of fiscal So there still is a material opportunity for capacity utilization and help to rise the tide of royalties. So I think conservative estimate for fiscal 26 will be somewhere in the range of call it $2.3 million would be sort of conservative target based on the machines that we've already sold and increasing capacity utilization. And then we'll come down to when and how we deliver the next wave of large scale purchasers that we're expecting to hopefully confirm in the coming months. Okay, and with that, I do not see any further questions submitted through the webframe. So I'd like to thank again everybody for joining the call today. Exciting times and good momentum at N-Waves. And if you have any further follow-up, please do reach out to Dylan or myself in the coming week. Thanks, everybody. You may now disconnect.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.