EnWave Corporation

Good morning and welcome to N-Wave Corporation's third quarter 2026 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 Charlton, and Nav Dhami, N-Wave's CFO. As a reminder, all participants are in a 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 would 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 Charlton. Please go ahead.

Thanks very much and thanks again to everyone who have joined us today for NWave's Q3 fiscal 2026 quarterly conference call. Q3 was a much better quarter than the first two fiscal 2026 quarters given we recognize the revenue tied to the sale of a prebuilt 120 kilowatt radiant energy vacuum machine to process here, our valued Mexican royalty partner. And we continue to see strong royalty growth led by branch out foods and micro dried. As we continue to work towards securing additional royalty streams and hastening the growth of these carried interests, my team and I are also concurrently planning to reduce internal expenses materially to position the company best for sustainable profitability in the coming years. Consistent with our past quarterly conference calls, the information we will present today, including my introductory statements, 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 will be in Canadian dollars unless otherwise noted. So as we continue to drive the company forward, our priorities remain focused on four areas. First, convert our commercial pipeline into equipment sales. That's obvious. It's great to have engagement, but engagement needs to convert into long-term commercial agreements, period. Second, expand our installed base of REV machinery, and we continue to work closely with current Royalty partners to help them develop new products and increase their REV machinery utilization. This effort is designed to lead to many more repeat purchasers like the one recently with process here. Third, increase recurring Royalty revenue generated by our existing partners. Same support mentioned a moment ago will help drive this growth. and lastly, fourth, continue building relationships with large food companies capable of deploying REVs technology at meaningful commercial scale either themselves directly or by using one of our many royalty partners that offer co-manufacturing services. Either way, we win. We feel we are well on our way to accomplishing these priorities. In Q3, we yielded superior results as noted to the prior two quarters. as quarterly revenue was $3.33 million, up 21% year-over-year, and gross margin in the quarter was 25%, up 6 points year-over-year. Additionally, year-to-date gross margin was 30%, so on target for our traditional gross margin that we approach for machine sales blended with royalties. Royalties were $536K in Q3, up 24% in the quarter year-over-year, despite an adjustment of $62K tied to an overpayment and Q2 by Microdrive, which was related to a miscalculation on the amount owed. Without this adjustment, the normalized base royalties, which doesn't include any exclusivity payments collected in Q3, would have been approximately 600K, the most base royalties collected in any quarter by EnWave. There is ample opportunity for consistent royalty growth in the coming quarters generated from the increased manufacturing capacity utilization of the installed REV machine base. We've been told that there are many new REV product launches planned in the coming quarters, some of which by blue chip food manufacturers using one or more of our established royalty partners. Any of these launches, if successful, could immediately increase our base royalties. With the information shared with us by current royalty partners, our royalties should push towards $3 million collected in fiscal 2027. I'm thrilled that NWAVE is in a position to reach this level of royalties. It's a direct reflection of the efforts from our leadership group and a huge improvement from past years. To better put this into perspective, three years ago we collected a total of 1.5 million in royalties, half of what we anticipate in fiscal 2027. Now while our quarterly financial performance continues to be influenced by the timing of large-scale REV equipment contracts, We made meaningful progress across several areas that we believe are important indicators of the underlying health and future potential of the business. Those areas include the number of active projects with billion-dollar revenue companies, the continued sales pipeline expansion across multiple continents, and the growing success of many rev-drive products in both the North American, Asian, and European markets. Importantly, we are seeing increased engagement from both existing royalty partners and prospective customers, and the quality of our commercial pipeline has continued to improve, particularly among larger organizations evaluating REF as an alternative to incumbent dehydration technologies, whilst also looking to disrupt their respective categories through innovation. From a business development standpoint, we generated 772 new qualified leads in Q3 through strategic targeting and trade show attendance. We held about 120 meetings and sent out about 1,200 nurturing emails through automated sequencing. A big effort from our sales group. In Q3, we exhibited at the Pet Food Forum at the Institute of Food Technologists in the United States, as well as FUMA in Japan and Vita Foods in Europe. We're also planning to attend Food Tech Mexico and the upcoming Supply Side West in Las Vegas in the fall. The number of large-scale prospective projects, some of which that were expected to close earlier in fiscal 2026, are numerous. So those projects that we thought we would close in Q1 and Q2 haven't gone away. They've necessarily been delayed into quarters forthcoming here. The sales pipeline we have created is a direct result, again, of that effort and leadership through Danna Dunnage, our VP of sales, as well as the rest of our team. This heightened level of interest that we have has yet to directly affect our financial performance in terms of large-scale machine orders, but Those purchase decisions and commercial product launches should transpire within the next few quarters. The sales cycle for these larger organizations can be lengthy, as we know, but successful conversion has the potential to materially expand and waives installed base and recurring royalty revenue. Currently, we are advancing the sales cycle with several material targets that should convert into long-term royalty partners in fiscal 2027. One of the most important developments in Q3, as noted before, is the continued expansion of our relationship with Processeer in Mexico. Following the successful deployment of their initial large-scale rev system, Processeer committed to purchasing a second 120 kilowatt rev machine. This is exactly the type of progression we want to see from our royalty partners. A customer initially adopts rev, validates the economics and product quality at commercial scale, builds demand for the resulting products, and ultimately adds additional capacity. Repeat machine orders are particularly important because they provide tangible validation of both technology and the customer's underlying business case. Also in Q3, and to the date of this report, we signed three new licenses and two technology evaluation and license option agreements. The first new license we signed was with Rhizome, a company led by multiple Michelin star winning chef Dan Barber. Rhizome is focused on the development and commercialization of several food applications that are sustainable, innovative, and unique. Part of this deal was the purchase of a pilot scale rev machine, and I hope to be able to share more details on the potential commercial launch of these products in coming quarters. The second license was signed with the Dry Hub of Egypt, our first foray into the African continent, who also purchased a pilot scale rev machine, a 10 kilowatt unit. They're busy completing their facility to house this machinery, along with several upstream and downstream processes. We hope to have the REV equipment delivered for installation in early fiscal 2027, if not sooner. And the most recent new license was signed earlier this month with the University of Limerick, who purchased a lab-scale REV unit to be used for research and development as well as industry engagement in Ireland and the UK. We hope that this relationship will spawn additional commercial opportunities for EnWave in the future. In regards to the technology evaluation agreement signed, one deal was signed with Swiss Cannabis Selection for further exploration into the use of REV technology for the production of various cannabis-based products. And the second was signed with General Mills, a top 10 global food conglomerate. Both companies are renting 10 kilowatt REV machines to help complete their respective evaluations. Our objective with relationships like the one established with General Mills is not simply to sell a piece of equipment. The larger opportunity is to embed REV into commercial manufacturing platforms where the technology can potentially be deployed across multiple products, facilities, and geographies. We continue to actively support evaluations with several prospective partners and are working to convert successful product development programs into royalty-bearing commercial licenses and equipment purchase agreements. These programs take time, and large multinational food companies have rigorous product development, engineering, procurement, and capital approval processes. But the potential value of converting even a small number of these opportunities is significant. Currently, we are engaged with behemoths in the pet food, seafood, snack, and ingredient industries. Another important part of our strategy is expanding access to rev technology. Over the past several quarters, we have established relationships with commercial processors, research organizations, and innovation centers in most major global markets. These relationships create regional access points where prospective customers can test products, develop processes and better understand the economic and product quality advantages of REV. This is important because adoption becomes considerably easier when customers can see the technology operating, conduct trials and develop commercial products without immediately committing to large scale capital equipment. We believe these hubs can shorten the path between initial interest and commercial adoption. They also support academic, and technical research that can further validate the REV value proposition. Our recently established relationship with the University of Limerick highlights the structure. Now, our royalty business remains central to the long-term NWA's investment thesis. That's no surprise to anybody. We have a broad installed base of royalty partners operating across multiple countries and product categories. The objective is to steadily increase that utilization of this installed base Some partners are quickly expanding distribution and enjoying immense commercial success. Others are introducing new products, and several are evaluating additional rev capacity at the moment. This creates operating leverage within our business model. EnWave does not need to manufacture another machine to benefit when an existing partner sells more rev-drive product. As partner utilization increases, royalty revenue can grow with very little incremental cost to EnWave. That remains one of the most attractive aspects of our business model, and we're starting to see the real traction. Looking at our total number of active license agreements, 52, 36 companies are actively deploying resources into the growth of Rev Drive Prox sales in market, while 16 companies are still either in the product development or testing phase, or associated with cannabis companies that purchase small 10 kilowatt units and are exploring the technology currently. The vast majority of the rev machine kilowatts deployed are being put to use to produce royalties, meaning most large scale machines are in action currently. Internally, we have also continued to sharpen our commercial approach. We have become increasingly selective about where we allocate technical and sales resources. Our focus is on opportunities where there is a clearly defined commercial application, sufficient production volume, a credible path to capital deployment, and the potential for meaningful recurring royalties. Simply, generating more technology evaluations is not the objective. Our objective is converting the right evaluations into commercial licenses and machine purchases. We believe this discipline is beginning to improve the overall quality of our pipeline. Looking towards the remainder of fiscal 2026 and into fiscal 2027, our outlook is constructive. We have several meaningful opportunities progressing and we have existing royalty partners evaluating additional production capacity. We have multinational companies conducting product and process evaluations, including General Mills and others. And we have a growing international network of web users, research institutions, and commercial processing hubs supporting the adoption of the technology. Now, before I ask Matt to further summarize our financials, I want to reiterate our four key priorities moving forward. Conversion of our pipeline opportunities into equipment orders, one. Successful execution on the equipment already under contract, number two. help our royalty partners increase utilization. Three, and lastly, maintaining financial discipline while pursuing these opportunities. It's inevitable that the timing of large equipment orders will continue to make quarterly revenue uneven, but that's inherent to our business. We're driving the underlying indicators that matter. Installed capacity, repeat equipment purchases, partner utilization, royalty generation, and engagement with larger strategic customers. Now, before NAB begins her financial statement synopsis, I want to congratulate her publicly for her well-deserved promotion to CFO. Nav, you've earned this opportunity and I'm excited to work closely with you to drive Enwave to the next level of success. Please take it away.

Thanks, Brent. Good morning, everyone, and thank you for joining us today. Please note that the figures I will be discussing can be found in our press release from yesterday and in the financial statements and MD&A filed on a CDAR. and all amounts are in Canadian dollars, unless otherwise noted. I will make a reference to adjusted EBITDA, which is a non-IFRS financial measure. So please refer to non-IFRS financial measures 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 will refer to throughout this presentation is the prior year Q3, ended June 30th, 2025. Revenue for Q3 were 3.3 million compared to 2.7 million in Q3 2025, an increase of 569,000 or 21%. The increase was primarily related to selling a fully fabricated large scale machine to processor and increase in base royalties. Base royalty revenue were 536,000 in Q3 2026 compared to 432,000 in the comparative period. An increase of $104,000 or 24%. Base royalties in Q3 2026 were reduced by a one-time $60,000 adjustment related to a Q2 overpayment by MicroDrive, one of the company's larger royalty-paying licensed partners. Royalties due to the increased number of royalty partners, product sales, and product production for the quarter. Additionally, as our royalty partners grow their business and increase capacity utilization of installed REV equipment, further REV installations will follow from new sales contracts and material royalty growth should continue in the coming quarters. Gross margin for the company in Q3 2026 was 25% compared to 19% in the comparative period, with the increase primarily attributable to lower fabrication costs from large scale machines on contract, increased royalties as compared to the prior quarter. At G&A expenses including R&D were 1.2 million for Q3 2026 compared to 1.4 million for the comparative period. A decrease of 205,000 or 15% with the decrease primarily related to lower personal and third party commission costs. Adjusted EBITDA is an IFRS financial measure, so please refer to our MD&A for the reconciliation from GAAP net income to adjusted EBITDA. The company reported an adjusted EBITDA loss of $93,000 for Q3 2026 compared to adjusted EBITDA loss of $575,000 for Q3 2025, an improvement of $480,000 over the comparative period. The increase was primarily related to selling a fully fabricated large-scale machine in increased royalties and lower operating expenses. We finished Q3 2026 with cash and cash equivalent of $2.5 million and a net working capital surplus of $7.1 million as of June 30, 2026. In Wave also has a credit facility with the Desjardins for growth and working capital purposes. As of June 30th, 2026, the credit facility had a total authorized limit of 2.3 million at a rate of prime plus 1.5% with 1.9 million drawn and 360,000 remaining undrawn availability. As of June 30th, 2026, inventory was 3 million compared to 1.4 million at a year end, an increase of 1.6 million or 118%. The increase in inventory is a result of the manufacturing of large scale machines, specifically 100 kilowatts, Neutrograph Machine, and two small-scale machines in aggregate were approximately 90% complete by June 30th. This investment, combined with an expanded marketing presence through increased trade show attendance and sales personnel, is designed to ensure faster order fulfillment and for prospective future machine sales. Off to you, Brent.

Thanks, Nav. Now, I mentioned at the beginning of our call that we are also working towards further significant expense reductions. Our goal is to reduce our expense base by more than a million dollars by fiscal 2028, and I will be disclosing the details of this plan in the coming weeks, so stay tuned. Before opening the calls to questions, I want to leave shareholders with one final thought. NWAVE has spent many years developing REV from an innovative drying technology into a proven commercial platform. Today, our technology is being used commercially across multiple countries, industries, and product categories. The opportunity in front of us is increasingly about scale. Scale the installed base, scale our successful royalty partners, scale our relationships with major food companies, and ultimately scale the recurring royalty revenue generated from this technology. The second 120 kilowatt machine order for process here is a good example of what that model can look like when a partner succeeds. We have cast a massive number of hooks into the pond. We have many fish on the line currently, and now we are reeling them in. We appreciate the continued support of our shareholders, employees, partners, and customers. Now with that, I'd be happy to open the call to questions. If you have any questions specific to Royalty Partner Progress, please ask. Thank you.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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 key. 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.

Thank you. Our first question comes from the line of Noel Atkinson with Clare Securities. Please proceed with your question.

Hi, Brent and Nav. Well done on a much improved quarter for fiscal Q3. Nice to see that. First off, just in terms of this planned OPEX expense reduction that you're planning to do over the next 12 months or so, I guess, where does that kind of get you in terms of an overhead? Do you get to the point, if you think you're going to do $3 million of royalties in fiscal 27, do you kind of get to the point where royalties are almost covering all your cash operating costs?

Yeah, you nailed it, Noel. We want to be faster to that particular scenario, and we think that we can get our base expenses down to about $3.5 million from the changes that we're contemplating. And of course, again, like I said, those details will be shared with the markets, investors, shareholders within the next couple of weeks. And with our wealth expected to reach about $3 million in fiscal 2027, we're getting ever close to that scenario. And so by 2028, we think that we should be generating royalties well above what our base expenses are to run this business.

Okay, great. Secondly, okay, so it sounds like there's now, as you said, multiple new product lines that could launch with blue chip companies, like I presume that's blue chip CPG companies and in 27. Can you talk at all about, you know, to the extent that you know, or extent you can disclose like geographies, you know, is it human? Is it Pett, is it snacks, ingredients? What is it that's really driving the interest from the blue chips right now?

So yeah, your assumption is correct in that it is blue chip CPG companies in both the pet and human space. And so we are knowledgeable of several of these launches, information that's been shared with us by our royalty partners who are co-manufacturers for these larger organizations. And those larger organizations we're also directly working with on the product development side, so we have insight to That should be primarily North American launches, albeit some of the co-manufacturers that would be participating in these opportunities may be based outside of North America, say in Europe in certain cases, to help support some of these new products being introduced to market.

Okay, great. Then finally, so you know, this might be a very similar question here, but as you're Going out over the next 12 months or so and you're seeing royalty growth, we see from Branch of Foods talking about tripling or quintupling their ingredient production for dried pieces that are going into CPG products for flavoring and color and that sort of thing. And we see them doubling their production for new listing wins and U.S. retailers for their own branded products. Are you seeing this fairly broadly across the partners that you're working with? Is it, hey, we've got a couple partners that are just blowing the doors off and are just leading the way for everybody? Or are you also starting to see some of those other commercial licensees that you've had for a while starting to say, okay, this is really starting to pick up and we're really starting to get going with this?

Good question. Also, across the board, I'd say the majority of royalty partners are seeing a rising of tides in overall royalty payments coming through, which is great, indicatively, that red-dried products are further displacing other alternatives in the market. In terms of leading the way, brand-new foods and micro-dried are by far showing the most growth in terms of royalty generation. We saw like a 265% increase year-over-year for brand-new foods as they are wrapping up their facility and then landing those deals you've talked about. And then in terms of microdrive, we saw very healthy growth, like in the 24, 25 percentile growth year over year for them. And from past discussions in the last month, again, we're quite confident with that expectation of 3 million in royalties based on machine utilization that's been shared with us tied to specific projects from some of these larger royalty payers. and the potential for, again, additional repeat purchase orders from these folks sometime in the latter half of fiscal 2027. So we do have better clarity to provide confidence behind that assumption, given, again, the information that was shared with us.

Okay, and then just one more from me before I get back in the queue. So, okay, so this probably sounds pretty exciting for 2027 if all the stars kind of align here. Are you seeing that, like the quote-unquote blue chip CPG companies that are now looking to do these product launches like what's been the sales cycle of them working with you or working with your co-packer partners in terms of getting to the point to say hey you know what I think we want to go launch with this has it been like a two-year cycle or a one-year cycle and then For the newer ones that are coming in, are you seeing an acceleration of that decision to say, okay, let's just get going? Again, I'm leading this a bit. Is there validation that you're seeing in the market that is driving these blue chip companies to say, okay, vacuum microwave is now something that we can really kind of latch on to?

So I'll start with the timing. So typically, the forthcoming meaningful launches from large billion-dollar CPD companies are typically 1 to 1.5 years of development. So doing the product development, matching them up with co-manufacturers. Thankfully, many of our royalty partners are already approved suppliers for many of these large CPDs, so you skip that headache because they have to do facility audits and all those things. And so, yeah, 1 to 1.5 years to the point where we're at now where there's planned launches in calendar 2027 or fiscal 2027 for us, which is great. And then obviously additional success in the market is driving faster decisions. So one example of that would be some of the existing relationships in PET that some of our co-manufacturers have. And they've already supplied them with a certain type of product, which is doing really well in market. And then they show a better version of it at slightly less cost. I.e., not freeze-dried, but vacuum microwave-dried. And so that really gets them excited to move faster because they already know there's demand in the market for these types of formats, but they can provide a better product at lower costs. So that scenario has really driven some of the decision points more quickly than maybe they would have been in times past.

Okay, great. All right. Thanks very much.

Thanks, Will.

Thank you. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Bart Gomer with Bear's Tips. Please proceed with your question.

Hi, Brent. This is Bart from Belgium. Interesting quarter. Can you give me an ID on the number of machines that have not been sold that are in inventory right now?

currently we have a pretty much fully built 100 kilowatt Nutri-Rev machine in inventory and then we have several 10 kilowatt units in inventory as well which we always carry so we can readily deploy them for different evaluation projects so the majority of the inventory number in our financial statements is primarily the 100 kilowatt Nutri-Rev machine and I did have another webcast question which kind of ties into this question from you Bart is like you know where were the large opportunities earlier in the year and I'll say that three of them are still very active. They were looking to close before the end of this calendar year and only one of them went away. So we have a closed process here. So if we had closed obviously three out of the four that on the time we assumed, we hopefully would have had four machines closed year to date. That just hasn't been the case. They're still in the pipeline and we expect that to transpire sometime in the next quarter into fiscal 27.

Okay and do you have anything planned in terms of a new big rev machine where you are anticipating an order or are you waiting for the 100 kilowatt machine to be sold?

I would state that there are several projects that are getting to decision points more near term than long term. and the difference in starting to pre-build another large scale machine versus getting an order through our traditional 40% deposit, 20% three months into the fabrication, 20% before shipment so we can manage the capital appropriately is de minimis. So from our standpoint, strategically, we're just gonna push forward to try and close these deals and then once we receive deposits, start building the next machines.

Okay, thank you. And can you give me some sort of feeling how the utilization rate across the different client base is? Meaning, is it close to 50%? Is it close to 95%? How close are we to full capacity utilization that in fact the clients are forced to buy a new rev dryer?

Totally varies. from Royalty Partner to Royalty Partner. So some are closing in on like 90, 95% capacity utilization for certain large scale equipment. Others are in the range of like 40 to 50%. Some are that were maybe operating at like 80%. I'll give you an example. One disappointment for us was a large dairy company who's actually down year over year, like close to 90% in royalties. And that's because they lost a industrial buyer as an ingredient. That is expected to return in October of this year. So even though we had very good royalties this quarter, that's also including a large reduction in that particular royalty pair, which is expected to rebound later in the year. So there are ebb and flows across the board, but overall, as I alluded to in an earlier response, there is an overall rise in the tide, I'd say, in terms of capacity available in the installed base. There's probably another 25% to 30% available in the installed base to utilize to generate further royalties for MWave.

OK. Well, thanks and good luck this and the next quarters.

Thank you, Bart. Okay, seeing that there are no other dialing questions at this moment, there were two, again, web questions that were posed. One was where some of the larger machines delayed at the same time earlier this year. I can give you sort of high-level details in the three that have been delayed. One went away for Altera Protein Company who decided to go with a cheaper air drying option but the other three that are very much in play currently as well as a potential fourth year that hopefully be talking about in a month or so is in the pet industry for a new facility that's being built the original idea was that the machinery was going to go into an existing facility but then they the operations folks rejigged the plan on that so that's a 2027 delivery potentially the second to do with a product launch that got delayed that's now launched currently. And we're hoping that the metrics tied to that product launch support the investment in a large-scale piece of equipment in the short term. And then lastly, there was a partner that had an exclusivity requirement to purchase a large-scale piece of equipment before March 31st. All indications were that they were going to move forward up until about a week before the end of March. And they said they were going to delay their decision. And now we're talking to them again about increased capacity as their business has grown since that time. So very much also play those three other large scale opportunities for various reasons got delayed out of our control. But we have to continue to soldier on and continue to pursue closing those deals. The second question came in was about the royalty pipeline indications for fiscal 27. I think we covered that off with responses to Nolan Bart. We do have great clarity in terms of some of these product launches, expected utilization from some of our larger royalty payers. And some of the publicly disclosed forecasts from companies like Branch Out Foods does, again, support a quicker path to $3 million in royalties in the next fiscal, given the information and the wins that they'd be able to share publicly. And with that, I've got one more question down below. So for the delayed machine sales, If a year ago they were close to a decision point and now they're close to a decision point, what has inspired over the year?

What turned around a year ago when they were not close to a decision point?

Yeah, I mean, exactly the explanation I just gave for the three different reasons for those projects is to do with operations that infrastructure has changed, had to do with product launch delays, which is now taking place, and in the case of the other, it was more so getting to a critical point with business success to justify the CapEx to purchase the large-scale equipment, even though they perhaps lost their exclusive rights and their license because of this delayed decision. Okay, so with that, I'd like to thank everybody who's joined our Q3 conference call today. And if you have any further questions pertaining to the company, please feel free to reach out to Nav or I. At this time, you may disconnect. Thank you.

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