EnWave Corporation (ENW) Earnings Call Transcript & Summary

Good morning, and welcome to EnWave Corporation's Q4 2024 Earnings Conference Call. My name is Daryl, 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, EnWave's CFO. [Operator Instructions] And the conference is being recorded. [Operator Instructions] 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.enwave.net. Now I would like to turn the call over to EnWave's CEO, Mr. Brent Charleton. Sir, please proceed.

Thanks very much. And first off, thank you to everyone who is joining us today for EnWave's final quarterly conference call for fiscal year 2024. Today, we will discuss our strong fourth quarter performance and provide a business outlook for fiscal 2025. Now consistent with past quarterly earnings calls, 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 EnWave on SEDAR when reviewing this information. Also, all amounts discussed will be in Canadian dollars unless otherwise noted. EnWave's fourth quarter fiscal 2024, as I alluded to, was strong, following up on a good third quarter. We generated quarterly revenue of $3.6 million, royalties of $642,000 and adjusted EBITDA of $450,000, all improvements from our Q3 numbers. Net income from continuing operations was $588,000, and that was generated -- and we also generated a strong gross margin in Q4, which remains robust at about 40%. For the fiscal year ended 2024, a clear bright spot was that we collected $2 million in royalties, up about $500,000 from the year prior. With several recent additional large-scale machines coming online, we anticipate continued growth in our diversified royalty portfolio. This positive momentum should hopefully continue in fiscal 2025 as we have a solid pipeline of commercial opportunities. EnWave fell short in the number of targeted new REV machine sales confirmed in fiscal year 2024. And we understand the importance of not repeating the slow first half of the year as we move into 2025. In Q4, we also successfully reached global settlements of our civil claim in the Supreme Court of British Columbia against EnWave's former CEO and 3 other former EnWave employees collectively I'll refer to as the Durance Defendants. Pursuant to the settlement, the Durance Defendants, together with 3 companies associated with the former CEO, are permanently restrained and enjoined from directly or indirectly, selling, attempting to sell, supplying, delivering or installing vacuum microwave dryers. The Durance Defendants together with 3 companies associated with the former CEO are also assigned all issued and pending patents in the name of the Durance Defendants to EnWave. Now this was successfully done already. The patents have been transferred to EnWave, and we deem this outcome to be a positive one for the company and certainly provides an example of our willingness to continue to protect our intellectual property. Now speaking of intellectual property, we've recently developed new patentable innovations relating to improved technology efficiencies and flexibility of use with our large-scale machines. We are now going through the application process and are confident regarding the novelty and commercial viability of these inventions, which will become public soon. If successful in our application, the collection of royalties from our license partners will extend well into 2044. We're excited about many of our royalty partnerships, but here are a few pertinent updates worth sharing. In the past 2 months, our engineering team successfully commissioned or is in the process of commissioning 3 large-scale REV machines at BranchOut Food's new facility in Peru. BranchOut is a royalty partner who is enjoying great commercial success through both branded and co-manufactured product sales. BranchOut projects to generate about USD 4 million in Q1 calendar 2025 in terms of revenue and believes they will earn continued sales growth on a go-forward basis, which may lead to additional large-scale REV machine needs in 2025. We expect BranchOut to be a meaningful royalty payer in coming quarters. Next, our royalty partner, Bounty Fresh of the Philippines is also worth discussing. I recently met with their executive group in Manila as part of a federal government trade mission to Indonesia and the Philippines, and Bounty now is a multibillion-dollar revenue company privately held and the dominant producer of chicken products in the Philippines. We've been working with them to perfect a premium chicken powder product, which is expected to be commercialized at scale in 2025. It is quite likely that they will need additional REV machinery capacity in the near term. And if the products under development get traction, there are multiple large-scale REV machine possibility. Blue-chip royalty partners like Dole and Calbee have also made fantastic commercial progress recently, and we are optimistic about potential future growth in their REV manufacturing capacity. We also expect these companies to expand their respective REV-dried snack product portfolios in 2025. Now within our pipeline, we have several imminent large-scale REV machine order purchase decisions. Many of these opportunities are directly tied to REV-derived product market success as evidenced by our growing royalties in fiscal 2024. More REV capacity is needed to support forecasted volumes from several of our royalty partners. And many of our royalty partners currently using 10-kilowatt machinery are considering making a jump to large-scale equipment. It's great to have this current pipeline, but as we know what matters is operational execution and the closing of these deals. Now beyond our current deal flow, we continue to execute a more robust sales effort, led by our recently hired new Vice President to further expand our opportunity pipeline. Now in the past 3 months, we attended major industry trade shows in Mexico, India, Singapore, Indonesia, the Philippines, Dubai and 2 in the United States. All efforts led to more than 100 new qualified leads being collected and put into our CRM. We are still working towards securing the 2 international sales hires previously discussed on the last conference call now with several candidates currently advancing through the application process, and we hope to make those hires in Q2. Our REVworx business was much busier in the second half of fiscal 2024. We were consistently in commercial production, supporting growing volume needs for current royalty partners. We also ran line trials for new prospective products, including confectionery and instant noodles. Looking at the potential utilization in fiscal 2025 of this showcase of REV technology, we have 3 major projects being evaluated currently, each individually could account for most of the manufacturing capacity of REVworx, if any of them proceed. In Q1 2025, we have thus far signed 2 new agreements. The first is with CNTA of Spain, a leading food technology commercialization hub, and the second was ELEA of Germany. Since I purchased a 10-kilowatt machine, and we'll engage with many domestic food companies to use REV technology. ELEA is focused on using their own 10-kilowatt machine in combination with their Pulsed Electric Field technology to develop better-for-you potato and vegetable snacks. Now with my summarized update complete, I'll now ask Dylan to summarize EnWave's detailed quarterly financial performance.

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 yesterday and in the financial statements and MD&A filed on SEDAR, 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 GAAP 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 30, 2023. Revenues for Q4 were $3.6 million compared to $1.5 million for Q4 2023, an increase of $2.2 million or 149%. The increase in revenue for the period was primarily a result of the company repurchasing a 120-kilowatt machine from a cannabis multistate operator to expedite the completion of an equipment purchase agreement to BranchOut during the period. Third-party royalty revenue was $642,000 in Q4 2024 compared to $381,000 in Q4 2023, an increase of $261,000 or 69%. Royalties for the year ended September 30, 2024, were $2 million compared to $1.5 million for the year ended 2023, an increase of $496,000 or 34%. Royalties grew to an increased exclusivity payments, partner product sales and larger production volumes. The increase in exclusivity payments was driven by new commercial license agreements with an existing royalty partner for the right to use EnWave's technology in a country in South America. As our royalty partners grow their businesses 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 Q4 2024 was 40% compared to 29% in Q4 2023. The increase in margin is a result of the machine resale during the period. SG&A expenses, including R&D, were $1.3 million for Q4 2024 compared to $1 million for Q4 2023, an increase of $269,000 or 26%. The increase primarily related to increased legal fees, travel costs, marketing and trade show attendance, like Brent mentioned. The company will continue to further invest in sales and marketing activities in the company in quarters to drive sales growth. Adjusted EBITDA is a non-IFRS financial measures, so please refer to our MD&A for the reconciliation from GAAP net income to adjusted EBITDA. The company reported adjusted EBITDA of $450,000 for Q4 2024 compared to an adjusted EBITDA loss of $324,000 for Q4 2023, an increase of $774,000. The increase in adjusted EBITDA was primarily driven by the machine resale during the period and increased royalties. We finished Q4 2024 with cash and cash equivalents of $4.8 million and a net working capital surplus of $7.2 million as of September 30. And subsequent to the quarter, EnWave entered into a credit facility with Desjardins for growth and working capital purposes. The amounts available to the company under the credit facility is calculated as lesser $5 million and a function of royalties receivables and inventory. As of the date of our quarterly filings, approximately $1.8 million is available to the company at a rate of Canadian prime plus 1.5%. Additionally, EnWave signed a term loan with Desjardins of $500,000 with an amortization period of 48 months. The term loan is to be repaid monthly on equal and consecutive payments of principal plus interest at a rate of Canadian prime plus 2%. This nondilutive debt in addition to the company's available working capital will be used to fund EnWave's growth strategy for general working capital purposes.

Thanks, Dylan. I'd now like to open the call for your questions. Operator, please provide the appropriate instructions.

[Operator Instructions] I'm not showing any questions at this time. I would like to hand the call back over to Brent Charleton, CEO, for any closing remarks.

Thank you very much. Yes, seeing no questions being submitted today on the conference call, we are available after the fact to engage with any investors that would like to discuss the current progress of the business. Thank you all for joining today's Q4 2024 earnings conference call. At this time, you may now disconnect.

Thank you. That does conclude today's conference call. You may disconnect at this time. Enjoy the rest of your day.