Northstar Clean Technologies Inc. (ROOF) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and thank you for joining us for Northstar Technologies Second Quarter 2026 Results Webcast. I'm Josh from Kin Communications, and I'll be hosting today's call. Joining me today are Aidan Mills, Northstar's President and CEO; and Lynda Paananen, Northstar's CFO. During today's call, management will review Northstar's second quarter results, provide an update on operations in Empower Calgary and discuss the company's priorities for the balance of 2026. This will be followed by an audience Q&A period. Attendees can ask the question at any time by using the Q&A button at the bottom of their screen. A recording of today's event will be available shortly after the conclusion of this call. Before we begin, I'd like to remind everybody that today's discussion may include forward-looking information and statements that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. Please refer to the company's public disclosure filings for a more complete discussion of these risks and other factors. With that, I'll turn it over to Aidan.

Thanks, Josh, and thank you for the intro. And all great to be on and welcome to the call. So today's call is all about Calgary, as you've seen from the PR, which has just been released. As we talked about in the last couple of quarters, the focus for 2026 for Northstar is to get -- is to deliver an operating facility in Calgary. And today, that's exactly what we're going to talk about. So we're going to cover 4 things. We're going to talk about the Q2 financials. And Lynda, who's here in the office, will talk about that. The 10,000-foot summary, with respect to that is, it's pretty much the same as Q1 with one huge difference, and that is that we have first brought sales revenue. Secondly, we'll talk about the Calgary operation to show the huge progress that we've made there. As you've seen from the PR, we've hit the operational targets a set up an ERA for Aston 4. We've reached a record of over 160 tonnes a day at the facility, and we've got consistent production through June and July. The third thing I'll talk about is the path forward for Calgary, the maintenance that we did in August and the path forward over the next couple of months. And then lastly, I will do a quick update on the patent PR that we issued last week. We haven't really talked about technology development or patents for a long time. So I wanted to give you guys an update on that. So as Josh mentioned, forward-looking statements as always. And then we've now got the Q2 financials, and I will hand over to Lynda to take us through those.

Okay. Thanks, Aidan. Second quarter financial results continue to reflect Northstar's transition from commissioning and ramp-up towards commercial operations at Empower Calgary. Starting with revenue. So the first chart on the top left-hand side, total revenue was approximately $209,000 in the quarter, relatively consistent with the first quarter. Importantly, Q2 included approximately $35,000 of product revenue. Now this is revenue from Asphalt sales, representing the first product revenue under our agreement with McAsphalt. Tipping fee revenue remained the primary component of revenue during the quarter. And as production volumes increase, we expect product sales or asphalt sales to become a more meaningful component of the company's revenue mix alongside tipping fees. Gross profit was approximately $54,000 in the second quarter compared with approximately $84,000 last quarter. The decrease primarily reflects lower tipping fee revenue, which is higher margin, together with the introduction of cost of sales associated with our product revenue that we disclosed. During the current stage of the Calgary facility ramp up, a significant portion of facility operating expenditures continue to be recorded as what we call pre-commercial operating costs rather than cost of sales. As the facility progresses towards commercial production, the composition of both revenue and cost of sales will continue to evolve. Turning to the bottom line, comprehensive loss the company recorded approximately $3 million loss during the quarter. The reported results include both cash and noncash items. In particular, the company recorded a noncash fair value gain of approximately $2 million related to the derivative liability associated with U.S. dollar-denominated convertible debenture. That's a mouthful. Because this liability is remeasured each period, changes in its fair value may result in meaningful period-over-period volatility in reported earnings. Lastly, Northstar ended the second quarter with approximately $6.2 million in cash and cash equivalents, and this compares with approximately $12.7 million at the end of Q1. The approximately $6.5 million decrease in cash during the quarter reflects several factors, including a meaningful normalization of working capital following the March financing. Approximately $3.5 million was used to reduce accounts payable that had accumulated through the preceding quarters. Cash was also used to support operations at Empower Calgary as well as ongoing corporate costs. $800,000 of capital expenditures and approximately $1.3 million of interest and debt-related payments during the quarter. It's important to note that interest related to convertible debentures is heavily weighted to the second and the fourth quarters. So cash used for financing activities will obviously be higher in those 2 quarters. These uses of cash were partially offset by $1.4 million received on the second tranche of the U.S. convertible venture financing and $800,000 of the warrant exercise proceeds that were received in the quarter. It's important to note that Q2 included a greater-than-normal working capital outflow as the company reduced outstanding payables following the financing completed late in the first quarter. And so the cash usage in Q2 was not representative of a typical quarter. As Empower continues through its ramp-up, the company expects to continue allocating capital towards facility operations, reliability improvements and corporate requirements as it works towards sustained commercial production. Financial results therefore continue to reflective business in transition. We are beginning to see product revenue into the income statement, while the near-term financial profile continues to reflect the investment required to bring Empower Calgary to sustained operating levels. I'll turn it back to Aidan to discuss the operating progress.

Perfect. Thanks, Lynda. Okay. So the operating uptake. But let's focus in on kind of June and July. So we had during late June and through July, consistent front-to-back production that enabled us to hit the ERA milestone for target. We had record production of over 160 tonnes per day on the peak day. And most importantly and kind of reflected in the Q2, and you will obviously see reflected more in Q3, we had regular asphalt deliveries and therefore, product revenue coming in the door. And we had -- as people had been near the site, we had a drawdown of shingle inventory at site, obviously, to maintain those production levels. Now at the end of July and August, we were able to fast track one of the updates that we had identified -- or sorry, upgrades that we had identified for material handling. So as you know, when we chatted in the last quarter, that's the key thing that we had identified, was the material handling at the site of front end. And this is one of the system -- the system elements that we identified earlier in the year, and we were able to carry that out in late July and early August. And then for the balance of August, we carried out the first maintenance on the hydrocarbon system, which as you know, produced first oil last year. And so we carried out maintenance amount, which took us through the balance of August. And the whole system from front to back is now restarting this week. Let's just talk a little bit about ERA. So as you can see, the grant -- the technical -- ERA technical team has signed off the delivery of the milestone. It's going forward for funding. We expect the grant funding to be coming in the near term. And the award for that is for -- are the requests for that is $488,000. Once they take the project pullback of 10%, that will mean a delivery to Northstar of about $440,000. And the project holdback has been the same at every single stage through the project. So the milestone payment comes IDRI hold back 10%. And that's paid in a holdback payment at the very end of the project. And that will come after the facility update, which is planned at the end of the year and then when we deliver the final project report in Q1. So that holdback of $708,000 across the whole of the project will be delivered in Q1. And so we pointed out the holdback just to be able to be clear about how the ERA process worked. Now we also expect the second [indiscernible] debenture at the same time as that payment. And as you guys know, that's USD 2.8 million payment, which should follow alongside that milestone. Okay. So then let's talk about moving forward. So we've got the interim processing as we chatted about through July, the reliability upgrading maintenance in August and now we move into the next phase, which is again into processing through to the upgrade in Q4. So just to be super clear about this, not only we have done the reliability of fleet and the maintenance was carried out in August, we expect increased reliability, increased yield, increased throughput, increased operating hours and increased product delivery all the way through now to the upgrade at the end of the year. The target, as we've said before, is over 100 tonnes a day, and we're very confident with the ability of the facility to produce exactly that. So we've done it for the delivery of ERA through late June and until July. And we expect exactly the same thing with the operations team as we move into September. So all the way to the full upgrade at the end of Q4, that's what we expect. The Q4 upgrade, as we've talked about before, is the final step for the Calgary facility. Equipment ordered, the work is scheduled. And in my opinion, it's the last step towards profitability for the facility as we move into 2027. So we expect to see the September performance reflected in the Q3 results. And also as we move through Q4, we expect to see additional revenues rising from a financial performance perspective to deliver as we go into profitability in 2027. So the intellectual property update. So you saw the PR that we popped out last week, which was the addition of the fourth U.S. patent. So we've updated this slide as well to kind of give a bit of a status as we are with all of the patents. So in Canada, as you know, 2 patents have been awarded. We have 1 additional follow-on and 1 new patent filed in Canada that are under review. In the U.S., we have 1 additional follow-on that is under review. And for internationally, we originally filed the PCT, as you know, in 2023, so a while ago, and now we're progressing specific the country-specific payments or patents. And they are divided into a couple of different countries that we've applied for internationally. And a couple of those are just in progress, and that have just been filed. But one of them, we actually have had the feedback from the examiners in country and are not answering that. So we may have an international patent hopefully awarded as we might do the year. So in summary, for Q2, we believe we've made huge progress for the facility and the technology this is the first quarter I have sat here or -- and Lynda as well to talk about product revenue and our results. So that's a kind of a landmark timing for that to be delivered. We've enabled full front-to-back processing. All the things that we've talked about in the last kind of 6 months to the year where we had bottlenecks or we heard material handling issues, we believe we solved. And the last step of that is the final upgrade, which is scheduled for Q4. We've delivered the emissions reduction in Alberta, milestone for production objectives. So that's a third-party validation that the facility is actually doing what we hoped and expected it to do. and now we've carried out accelerated upgrade maintenance for us to, as we believe, to really drive through with operational performance through to the upgrade. We have huge confidence moving into Q4 here. We've got huge confidence in the solely upgrade. We have got huge confidence in moving into profitability as we head into 2027. Great. So Josh, I think that's the summary.

Excellent. So just a reminder again, you can use the Q&A button at the bottom of the screen to submit any questions you may have. And with that, I'll just jump to our first question. The first question is, it's great that you're focusing on Calgary. Still curious if there's any updates or anything to look out for with respect to Baltimore and Hamilton expansion?

There is -- sorry, I did actually -- somebody just pulled me up. I did make a mistake with respect to the [ Tomco ] follow-on payment. I actually said USD 2.8 million, not USD 1.8 million, so sorry. Just to be absolutely clear. And along with the emissions reduction Alberta payment, we would expect the associated [ TAMCO ] payment for Milestone at the same time, and that's USD 1.8 million not USD 2.8 million. So apologies. Misread that. Josh, great question. Yes. So obviously, with the production of Calgary and the ERA milestone 4, we focused this call completely on the Calgary operation. But yes, both Baltimore and Hamilton continue to develop site development and ready for next steps once the sites are completely signed up and leased to start permanent. So yes, both progressing in parallel with the work that's been done on Calgary and both progressing to a point whereby construction at the second half of 2027 as we've kind of signaled before, we still think will be achievable.

Great. We've got a question about the upgrades here. So I guess 2-part question. Can you speak a bit to what the benefit was of getting some of the winter upgrades done earlier in August? And also, will those upgrades allow the plant to continue processing during the final upgrade in winter?

So let's answer the second one first. We think there'll be minimum disruption. The way that we've planned the upgrade is, if the upgrades are likely to come in on a separate skid, so not require significant kind of retrofit work in the -- or kind of squeezing -- for anybody who's done -- any of the investors who have done the site walk about, they know that inside the building is pretty tight with respect to equipment. So the upgrade is going to be delivered on the skid and which will then be connected into the facility. So kind of bits coming in Calgary. So that relatively straightforward to do? No, it always does need safety-wise, shutdown, et cetera, et cetera, or a bit of time to be able to tie pipework and tie electric zone, et cetera, but it's not going to be a material time to be able to have to shut the process down. So we should be able to minimize the disruption to production as kind of like the overall goal that we see, so not a significant shutdown to the plant. And the first -- and then -- so as we kind of stepping back and look at the 10,000-foot view, we identified a number of different sections as we do -- as we looked at with respect to the material handling. One of those sections -- I mean, a couple of the sections have been in the plant and have already been addressed. And n of the sections that was in the plan, we were able to -- I mean, almost fast track procure the equipment. So that was ready and available to all in kind of at the end of July there. And so that was how we took the advantage of the acceleration, and it was really due to the speedy delivery of the equipment enabled us to address it straight away. And so that was the advantage. The upgrade is coming towards the end of the year, that has involved more complicated equipment, and therefore, just longer lead time for delivery, and that's really the thing that's driven this. That's not -- no other constraint, just about equipment delivery time. And so when we were able to get stuff that was quicker, we were able to install it almost straight away.

Perfect. The next question is with respect to the ERA milestone. So can you confirm sort of the requirements to meet that milestone in terms of how many days of operation and also what the tonnage per day requirement was?