BQE Water Inc. ($BQE)

Thank you for standing by. At this time, I would like to welcome everyone to the BQE Water Q4 2025 Investor Call. [Operator Instructions] I would now like to turn the conference over to the BQE Water management team. Please go ahead.

Hello, everyone. My name is David Kratochvil. I'm the President and Chief Executive Officer of the company. And on behalf of our entire team, warm welcome to our conference call about Q4 and year-end results for 2025. With me here on the call today are Heman Wong, the Chief Financial Officer of the company; and Peter Gleeson, Executive Chairman of the Board. We will start the call by Heman summarizing the highlights of the financial results. And I will then provide a few comments to set the financial results in a broader context on the past, present and future expectations from the management's perspective, and then we'll open the floor for questions. I do need to remind everyone, though, on the call that the discussion will contain forward-looking statements about future business and financial expectations, and the actual future results may differ from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our financial report. Furthermore, on this call, we will refer to certain non-GAAP financial measures such as proportional revenue and adjusted EBITDA and a reconciliation of these measures to the closest GAAP financial measure is included in our MD&A, which is available on our website. And now I will pass the floor over to Heman. Please go ahead.

Thank you, David. Hello, everyone. My name is Heman, CFO of BQE Water. Let me first start by walking over through our financial performance for the year-end December 31, 2025. We delivered record GAAP revenues of $35.5 million, an increase of $18.4 million, which is 107% and also a record proportional revenue of $39.9 million, an increase of $15.1 million, which is 61% increase compared to 2024. These results are broken down mainly by our recurring water treatment fees, which was $7.3 million. In general, our Raglan was a longer season, and we started up 3rd plant in China and also started up Selen-IX plant in North Dakota. Chemical Services was $28.3 million and mainly the 2 projects in Yukon combined to $20 million, and we hope will continue to work in 2026. Included in our proportional revenue, which includes our share of income and revenue from China, our JCC joint venture, and this was roughly half of the prior year's results. Net income for the year was $8.1 million compared to $4.8 million an increase of $3.3 million or 68%. In our net income this year, we recorded a deferred tax recovery of $1.8 million, which further increases the recovery from last year of $1.3 million. So total, we have a $3.1 million recognized deferred tax assets. And these assets is recognized to offset future tax expenses against the prior year loss carryforwards from Canada. Our adjusted EBITDA was $8.2 million in 2025 compared to $5.6 million in the prior year, an increase of $2.6 million or 47%. On the cash flow side, we grew net cash and cash equivalents by $7.2 million to $19 million as of December 31 by 2025, with $5.1 million generated from operating activities. On the balance sheet, we have increased our working capital, which we define as current assets less current liabilities, increased by $8.8 million or 70% year-over-year to a total of $21.4 million as of the year-end. With that, I would like to turn the call over back to David.

Thank you. Thank you, Heman. Before we start with questions, I just wanted to share a few comments and observations and thoughts on the company from my perspective. Looking at last year, it was really, really, in many ways, transformational for the company. When I compare the company today and a year ago, I see several significant changes. Number 1, is that our field operations team has grown tremendously. It's now well, 3x, maybe quadruple the size of a year ago, as a result of the operations work that we've actually been doing not just last year, but already in Q1 and as we indicated in our MD&A, we are in discussions with several other sites where we expect to provide operation services this year as well. And really, our operations group is now by far the largest group in the company. So that really bodes well for the ability of the company to generate revenue and recurring revenue specifically. I also want to share with everyone that our new aquatic toxicity lab is approaching completion. And we expect that active testing with [ fish ] will start within the next few weeks. And we already received interest from several existing clients who inquired and are interested in toxicology services that include not only the advisory consulting side, but also crucially the actual lab testing. I also see a backlog of engineering services projects that I don't think I've seen before at BQE and I think that the size of the projects that are in the backlog is also indicative of the stage of the cycle, the commodity cycle. I finally wanted to also share with everyone that I personally do see already positive results of the internal reorganization, restructuring that we completed last year. We definitely increased our business development capacity and it's still expanding with fresh onboarding of our new Latin American lead. We have dedicated intellectual property capture and development area with the leadership in place and properly staffed. And we also onboarded the new directors of EH&S and talent that will make us overall a better company? Finally, I see sort of shift in the industry when I compare Q1 last year to Q1 this year. The nature of the works changed. Last year, we worked on a lot of small early-stage projects on the technical services side. This year, most of the work and proposals are really for prefeasibility, feasibility studies and for projects that are anticipated to fast track to implementation, a major shift in the nature of the technical services work that we anticipate as we progress through the year. Now we are growing and will continue to grow. What is the expected growth? It's early to say for this year, for sure. But I would say that we're well on our way to meeting our internal goal that we set for ourselves last year, which is to double in size in the next 3 to 4 years. And with this out of the way, I would like to now open the floor to questions that you may have for us. And back to you, Morgan.

[Operator Instructions] First question comes from Robert Gignac with Forterra Investment Management.

Thanks for giving a platform for investors and analysts an opportunity -- questions. My first question is just about the current outlook for 2026. It seems to be quite strong. But after such a strong year in 2025, should investors be thinking that you can see revenue growth? And if so, would this be more from operations revenue stepping up or a mix of both?

Mr. Gignac is interested in your revenue growth.

Okay. Robert, thank you for the question. So I think the growth is actually going to come in balanced from all these areas. I think we're firing on all cylinders. I think when I look at the operation services, there's undeniably growth that's going to come from there. With respect to the difficulty to overcome last year because of the revenue linked to the emergency response at Eagle, obviously, we don't need as many resources this year necessarily, but for Eagle, but we continue. There's still water. We're there on site, we're treating. So I think that the -- with respect to the operations revenue, there's definitely going to be a growth there. And for the rest of the company, as I alluded to, I think just the nature of the projects changed. And so I expect that these feasibility studies, pre-feasibility studies that allow us to allocate resources for extended period of time rather than the small projects where you need to really quickly be reallocating and really replacing projects that move through the pipeline very quickly within 4 to 6 weeks, you need to have a replacement. These feasibility studies are typically taking months, right? And so you have better opportunity to achieve high utilization of staff. And so I do expect growth overall. It's early to say how much, but I certainly -- based on what we see, I would expect to do better than last year.

Okay. Great. And just maybe on a follow-up for that. It's just around the Britannia mill SART project. Can you maybe elaborate on the rationale for this project from the client's perspective and the prospect of this providing a reference case for other projects in North America?

Sorry, Robert, it wasn't clear. You were asking about Britannia and...

Just on the Britannia mill SART project. If you could elaborate on the -- can you and just maybe...

Okay. We now know what project you're talking about. Can you repeat it, okay?

Yes. And can you maybe elaborate on the rationale for this project from the client's perspective and the prospect of this providing a reference case for other projects in North America?

Yes. Obviously, I can't comment from the client's perspective. That's up to them to comment. I think that the importance, obviously, for the SART technology overall is to have its first application in Canada and application that is basically in the metallurgical processing that is non-heap leach, which is a tougher application for SART and cyanide recycling than a heap leach operation. And I think for those reasons, it's having that reference is really important. And I think that it sets also the tone for other companies in the way that we actually execute and implement together with Hudbay. Because I think as we discussed in the past, the notion that you can quickly implement SART without having the right people involved, relying on sort of what's publicly available without having the know-how and expertise, I think that's a fallacy. And I think that this really helps us to put the stake in the ground and say, this is how you deliver SART in Canada safely, quickly and achieve the metallurgical performance and safety standards that everybody is expecting.

Yes. If I can add, David, to that and to you, Robert. The client's due diligence because there was nothing in the geographical region was extreme. They really did do a hell of a lot of due diligence, including traveling the sites we've got. And a bit like any business you look at, you look at first-time movers to make the market. But there's also an element of that in geography if someone is in the geographical region, someone else says, where can I see it? So I think it will be a good reference point in that way as well. I'll just add to that.

Your next question comes from Nicholas Cortellucci with Atrium Research.

Really excited for the first conference call that you guys are doing in a long time. So the first question I wanted to ask was regarding 2 of the contracts you signed with one with Canadian Royalties, the other for Britannia. And it seems like those were signed on plants that other companies built. So how did you guys land those contracts over the incumbent? And is that a future opportunity where you can go to other plants that are built around the world and suite yourselves in there?

Yes. thank you for the question. I think you asked about is that an opportunity for us? Absolutely. I think as this company grows, as much as you know well that the vast majority of our projects have been sole sourced. So we got into operations without having to compete and bid against others. We recognize that as we grow this company and we want to continue growing, we have to go after some of these tenders and public tenders from governments as well. And I think that in order for us to be successful in those, we, however, needed to build that expertise and really, strong expertise and know-how and not only on the operations side, but to have all the systems in place. To be a really credible party to bid on a large government contract, we have to have systems in place and procedures. And I think that, that is really the part of the winning strategy. So for Canadian Royalties, I think that in order to be successful at a remote site in a seasonal operation where you need to discharge a large volume of water very quickly, you need really good systems in place and strong team that can train, onboard and execute with confidence. And I think that, that really is the winning strategy for some of these seasonal operations for us in general. And like I said, for the government contracts, I think that really winning Britannia basically evolves the company into a different tier of a company that I imagine that once FARO comes again on a public tender in Yukon, we will be there, and we will be one of the senior players.

Okay. That's amazing. And then the other question I had was more for Heman regarding the levels of the sales and development costs of $1.5 million in Q4. Is that the level that we should expect going forward given the hiring and corporate organization you have in that?

Yes. Regarding the development costs, one thing we alluded to in Q3, we have been expanding in the aquatic toxicity. So we are -- there is cost to, I would say, more of a onetime cost, and it takes time for them to build up the lab and they will soon be revenue generating, like what David mentioned earlier. I wouldn't expect a continual increase, but it was -- there's components of onetime in nature in there as well.

I would expect it to be a maximum going forward. And as you know, we don't use our capital, Nicholas, in other areas, but this is the one area that with a small bit of M&A that we did in July last year, there is some unusual expenses out there, but they're not extraordinary.

I think in general, right, sales and development also. So there is that onetime sort of investment cost into the aquatic toxicity. But I think in general, everybody understands that, that's where a lot of unallocated labor ends up. So if we are not busy, it becomes sales and development expense for the company. So we expect that to be fairly minimal. Having said that, we're growing, and we're onboarding a lot of new people. And so there may be -- it may be fluctuating depending on how much internal time we need to spend on onboarding talent. I think moving forward this year, it's not going to be a very large number because a lot of the onboarding is happening through our existing operations. So the labor is fully allocated. But if we get into a situation where we're onboarding some senior talent, then that would be in that line item.

Your next question comes from Sidharth Sawhney with Rational Capital Investment Fund.

I have a question. Apart from the regional hub model where a single head office can manage a suite of local projects for your operational segment going forward, which is the strategy that you'll be using to scale. Are there any other strategies that you'll be using to reduce the customer acquisition costs and retention costs, possibly through AI automation tools where the value -- the data that you collect, there is some value from all of that.

Could you repeat that again?

We had hard time actually understanding. You were not on this line. We know this line.

My question is about the scalability from the operational segment. You said that you can use a single head office and you can gather many projects in that region, and that's how you've scaled through the operational segment. I was wondering if there is implementation of some AI and automation tools as well that could help reduce customer acquisition costs and retention costs going forward?

Yes. No, very good question, and thank you for that. I'll offer a comment and then let my colleagues comment on as well. So it's true that we enjoy and we will continue to enjoy the economy of scale as we scale up our operations and have a centralized system for operation support, for health and safety and obviously, collecting data, as you alluded to, and interpreting trends and et cetera, et cetera, basic operation support. The data also is a source of potential new IP. So the analysis of the data is actually mined internally for any new potential IP and ideas for improvements in technology development. So as far as automating that, we're well on our way to do that. So in our automation team, we have one person who's actually dedicated to streamlining the way that the sites report and automatically generate different heat maps, if you will, or summaries for people involved in operation support, in intellectual property development and actually archiving as well for ourselves. As far as actually implementing artificial intelligence, we're very careful about it. We don't have a subscription to any AI for reasons that we -- because we are focused on intellectual property, and we're not feeling confident yet that the rules around and clarity around intellectual property are clear enough for us to be confident to engage in that sense. But as far as automation, absolutely, it's already happening inside.

That's great. My second question is regarding the disciplined engineering acquisition that was talked about previously. We did the Aquatic Toxicology acquisition. I just wanted to ask if any updates on that.

Yes. No updates that we would be able to share on this call. However, it's -- as we indicated, that's a natural next area for us to be pursuing. And we are in the process of identifying additional ones. So it's not just the disciplined engineering, but we're starting to look at areas -- new areas that we haven't yet -- we haven't looked previously, but we're looking now. And again, fully complementary, applying the same criteria. We're looking for businesses that are already profitable, established and that are bolting on to our existing services, specifically in water and mining so that it's truly growing complementary to what we have. But we don't have anything specific to announce on M&A today, but those are the areas that we're looking.

Your next question comes from [ Hall Tingley ] who is a shareholder.

Can you hear me? I hope...

Yes, we can hear you.

First off, congratulations, great job. We're a very happy shareholder. But next -- the focus seems to be -- seems to be a very large focus on critical minerals, rare earths. And I just wondered if we have got any technologies or whatever that -- or we're looking at that area as a new area of -- a new source of income.

I'll certainly let David answer it. But as a shareholder, you see some -- David has made some mentions about us in projects with rare earths now. I don't know how you'd expand on that, David. Is it any different to...

I think it's basically -- put it this way, I think it's public knowledge that we are part and parcel of 2 projects that Aclara Resources are advancing in South America, one is in Chile and one is in Brazil. Those projects are -- and please look at Aclara. It's really inspirational company in many ways. They are developing projects, but they are integrating from mine all the way to the super magnets production. And the uniqueness of their projects is that they are very much focused on the heavy rare earth. So it's terbium and dysprosium. Those are the most valuable of the rare earth. We are in charge of making sure that water that's used for processing is fully reused. So there is full reuse of water. So the treatment is focused on reuse as well as making sure that tailings from the processing meet the strictest limits that are out there, including sulfate, including other impurities that would be in the pore water of the tailings produced from the metallurgical processing. And at the same time, in the process -- in the treatment process, we also capture some of the rare earth themselves that the metallurgical process does not recover. So we recycle them back to the project. And we run fully integrated pilot or acquire a bit with us, with our team. So we teamed up with them and ran a full pilot in Chile and in Brazil. So those 2 projects, I think, are advancing. I think Aclara announced that they are building a refinery in Louisiana for purifying those metals and separating them and most recently with CAP on a large iron producer on actually producing from the pure metals producing super magnet. So that's one. And then we are also -- I can't disclose the name, but we are involved in a rare earth project where we are looking in very early stage at basically doing best available technology assessment for water treatment. So our involvement is not on the recovery of these, but on making sure that these processes are environmentally acceptable and basically meet the high standards of regulatory approvals.

And for the layman hard rock mining is hard rock mining. It doesn't matter if it's rare earth or...

Well, that's actually a unique thing first for Aclara is that they're developing ionic clays. So unlike the hard rock, this is where I think their projects are probably the most advanced out there because the nature of ionic clay is that you literally just need to wash the metals off the clay instead of hammering them, they don't need grinding, milling, acids, nothing of that sort. So it's really the most environmentally friendly process, if you will, for getting rare earth.

And but no undue complications by the time it gets out and water is water.

Yes. And the water is basically recycled around, right? So it's really zero liquid discharge situation.

Your next question is a follow-up from Robert Gignac with Forterra Investment Management.

I was just wondering how investors should be thinking about your margins going forward, given the nature of the new operations contracts that you've signed and that are going to be part of results for 2026. Should we expect that some of these come at a blended lower margin going forward? Maybe help us understand what the go-forward looks like for margins.

The new operations in 2026, there is a blend. There's a spectrum of various margins. But together in aggregate, it will be similar to what we had in 2025.

Okay. Great. And just a follow-up. I wanted to ask about Centerra's Kemess project. They put out a more compelling PEA recently. Do you continue to have involvement with this project while it's on care and maintenance? And what's the likelihood that if this project were to come back online, you would be engaged here again?

So just to clarify, we've always had engagement and involvement since they put the project on care and maintenance. So we basically -- our team would go to site once a year, inspect the equipment, maintain the resin, et cetera. So we've maintained that involvement under contract. since it was put on care and maintenance. But I think we mentioned it previously that we're in discussions with Centerra about the next steps in basically putting that treatment plant back into operation. So the discussions are ongoing. And we -- again, as part of our technical services that we will report on in Q1, we've done some work on that project specifically. So just be patient and you'll learn more. But thank you for your question.

That concludes our Q&A session. I would now like to turn the conference back over to Pete Gleeson for closing remarks.

Thank you, Morgan, and thank you, everybody, for listening and everybody that joined. We really -- we do appreciate our shareholders and the support over the years, and we hope to keep performing. If anybody didn't have a chance to answer a question or ask a question or whatever, I want to dig further into what we've already answered, please feel free to e-mail me. I'll definitely respond within 24 hours. And happy to answer anything that we can answer. Thank you very much, Morgan, and I'll hand it back to you.

Thank you. That concludes the BQE Water Investor Call. Thank you so much for attending, and have a wonderful rest of your day.