Gooday, and thank you for standing by. Welcome to the PyroGenesis first quarter 2026 business update conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Steve McCormick. Please go ahead.
Thank you, Lisa, and good morning to everyone. I'm Steve McCormick, Vice President of Corporate Affairs for PyroGenesis. Thank you for joining PyroGenesis 2026 first quarter financial results and business update conference call. On the call with me today is Mr. Andre Mainella, the company's Chief Financial Officer. The company issued a press release on Thursday, May 7th, 2026, containing the financial results and a business update for the first quarter ended March 31st, 2026, which can be viewed on the company's website at pyrogenesis.com. If you have any questions after the call or would like any additional information about the company, please email the investor relations department and we will try as best as is possible to answer questions that are of a public nature and which are allowable by financial market regulations. The email address is ir@pyrogenesis.com.
We will shortly provide prepared remarks reviewing the operational and financial results for the first quarter. First, a reminder that this discussion may include forward-looking information that is based on certain assumptions which are subject to risks and uncertainties that could cause actual results to differ materially from historical results or from results anticipated by the forward-looking information. The forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today's date. There can be no assurance that this forward-looking information will prove to be accurate and undue reliance should not be placed on the information. PyroGenesis disclaims any obligation to update any forward-looking information or to explain any material difference between subsequent actual events and such forward-looking information except as required by applicable law.
In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to EBITDA, Modified EBITDA and backlog, which do not have standardized meaning under IFRS, and therefore may not be comparable to similar measures or information presented by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of EBITDA and Modified EBITDA, please refer to the company's management discussion and analysis documents, which along with the financial statements, will be available on the company's website at pyrogenesis.com and on the SEDAR website at sedarplus.ca. Finally, a reminder that PyroGenesis follows Canadian generally accepted accounting principles or GAAP, where revenue is accrued and reported not on sales, but on a model that reflects a percentage of the work completed for a given project during the reporting period.
This can vary based on both the nature of the projects and on a client's own scheduling and logistical decisions, both of which can impact production milestones and the company's ability to book revenue from one quarter to the next. As stated in previous reports, the company's revenues are likely to be irregular quarter to quarter based on project timing, as stated above, or sometimes due to cash on hand. In this continuously fluctuating economic landscape, clients can face their own cash flow and scheduling challenges, which can also have an effect on PyroGenesis revenue.
With that, I'll start off the business overview with a quick review of some of the company's top-line results for the quarter, followed by a summary of some of the key business activities that occurred during the quarter before turning the call over to our Chief Financial Officer, Mr. Andre Mainella. For the first quarter of 2026, the company exited the quarter with revenues of CAD 4.9 million, an increase of 63% year-over-year. This result was the company's best revenue quarter since 2022. It is also the second best first quarter in the company's history, exceeded only by the first quarter of 2021, which was the company's best year on record. Q1's earnings also represent the fourth straight quarter of revenue growth versus the previous quarter. For gross margin.
For the first quarter, gross margin was at 32% versus 27% for the year previous. Andre will provide additional details regarding these numbers later in the call. As always, we like to provide context for margin using comparison to some of the industries that the company works with or serves. We're filing a little earlier this year and most of the sector margins have yet to report, but for those that have, the aerospace and defense industry is at 20.7% margin. Chemical manufacturing is at 32%. General manufacturing is reporting 34% margin for Q1. In general, across much of heavy industry and manufacturing in the first quarter, there is some evidence of margins starting a slow recovery, but many companies are still impacted by higher input costs for raw materials, labor and logistics.
This is particularly true for capital equipment and industrial machinery, where component cost inflation, tariff uncertainty and competitive pricing pressure as companies push to regrow backlogs are all combining to impact margins. Though supply chains have normalized in many areas as companies sourced alternate supply during the previous two quarters, geopolitical issues are still impacting key areas such as shipping and energy supply, particularly for those heavily reliant on fossil fuels. On to backlog. PyroGenesis backlog stands at CAD 43.1 million, showing continuing strength in the company's order book.
For those that need clarity on backlog is defined as signed or awarded contracts, this provides visibility on future revenues for the company that will be added to the financial results over the subsequent quarters as these projects begin or as they reach various production milestones, which is recorded based on a percentage of work completed basis. In management opinion, a strong backlog helps to show the strength of the long-term outlook while also illustrating the wide variety of different types of contracts that the company can secure, what the company often refers to as its multi-leg stool approach. Now on to some key production highlights for the first quarter. Please note that projects or potential projects that were previously announced but which do not appear in this summary or within the MD&A or outlook should not be considered at risk necessarily.
Noteworthy developments can occur at any time based on project stages, and the information presented is a reflection of some of that information on hand for some, but not all projects. Projects not mentioned may not simply have begun or passed certain milestones worthy of discussion or had their project status changed since the last reporting quarter. Starting with a brief reminder of the company's business strategy, PyroGenesis leverages 35 years of expertise in ultra-high temperature processes and plasma technology to create technology solutions for heavy industry and defense. From early-stage lab tests to pilot projects to full commercialization, the company's technology solution set is concentrated under three business verticals: energy transition, materials production, and waste processing.
First, for the energy transition vertical, where the company provides plasma-based fuel switching solutions to help heavy industry electrify their high temperature processes, modify their energy mix, improve process efficiency, and lower their emissions. For the first quarter in January, the company confirmed successful delivery of the 4.5 MW plasma torch that was produced for a U.S. aeronautics and defense client. The delivery was part of a contract valued at approximately CAD 4.1 million with a U.S. corporation who regularly serves as a prime contractor for the U.S. government, as well as for public and private customers. This is the same company that subsequently ordered a 20 MW plasma torch, which is currently in the early engineering design phase.
In February, the company confirmed the successful results from a primary test campaign with a leading battery recycler as follow-up to a project announced December 11th, 2025. This project was to test PyroGenesis high temperature plasma as part of the client's material recovery and new battery production process. In March, the company confirmed the successful completion of the plasma torch system build for its client, Constellium, and that the delivery and installation phase had been commenced as a result. This announcement was a follow-up to a project announced in August of 2025, where Constellium signed an industrial implementation contract for the purchase of plasma torch technology and related peripheral components for use in a Constellium aluminum re-melting furnace.
Also in March, the company announced that our clients, Rio Tinto and Alcoa, were presenting at the annual conference of The Minerals, Metals, and Materials Society, or TMS. Their presentation provided data that confirms that PyroGenesis patented plasma torches provide significant reductions and/or cost savings in many key operational metrics when compared to natural gas burners. The data was derived from a live furnace trial conducted by PyroGenesis with Rio Tinto and Alcoa. Overall, the results showed that plasma improves furnace thermal performance, leading to significant energy savings, shorter melting times, and reduced dross generation, all without compromising metal quality. In the materials production business vertical, which encompasses the development of chemical-free material production systems and the production of in-demand materials for manufacturers.
In January, the company announced a second titanium powder order under the existing powder supply agreement with the U.S. Minerals and Material Company, which was first announced on December 15, 2025. The second contract was for the supply of one ton of off-cut titanium powder produced by PyroGenesis' next-gen plasma atomization system. Off-cuts are powders produced during PyroGenesis' plasma atomization process, but in particle sizes not currently being used by the existing range of commercial metal 3D printers used in industrial additive manufacturing. This titanium material is still very high quality, and we've been stockpiling it as we assumed there would one day be a market for its use. What this also means is that we've created a new market for another aspect of each production run.
From every run, we now produce three products, fine powder, coarse powder, and now off-cut, which allows us to better maximize the raw material input and the revenue from each production run. In February, Pyrogenesis announced independent verification of its Fumed Silica commercial grade 150 after samples from its most recent tests were sent for independent analysis. In February, the company announced a non-binding memorandum of understanding toward a potential joint venture for a commercial Fumed Silica plant through its client, HPQ Silicon Inc, and its subsidiary, HPQ Silica Polvere Inc. The purpose of the joint venture is to potentially operate a 1,000 ton per year Fumed Silica production plant.
Subsequently, in February, PyroGenesis confirmed successful third-party verification of its Fumed Silica, a key requirement for the proposed joint venture to proceed to the next steps of the negotiation phase, in which it remains as of the timing of this call. In February, the company announced a first titanium powder order with a scientific aerospace research organization based in Europe for the supply of coarse-cut titanium powder in particle size of 45-106 microns. Post-quarter end, in a news release dated April ninth, the company announced a contract toward a titanium powder supply and distribution agreement with an Asian materials company. The initial contract is for the supply of three cut sizes ranging from fine to coarse. The customer is a materials company supplying the Asian electronics market specifically for cell phone parts.
This contract will allow the client to perform final testing and analysis of the powder across three different particle sizes. Once this process is complete, assuming all regulatory and trade agreements are certified, the client has indicated it will potentially require multiple tons of PyroGenesis titanium powder per year with the final volumes to be determined. Separately, the same client is negotiating to be the official supplier of PyroGenesis titanium powder to the Asian electronics, medical, and aerospace sectors. Finally, to the waste processing vertical, which provides for the safe emission-free destruction, remediation, and valorization of industrial, chemical, agricultural, and municipal waste on land and at sea. In January, the company announced that it signed an agreement with the National Security and Defense Division of a U.S. multinational engineering infrastructure corporation to jointly pursue contracts for the safe destruction of chemical weapons in Syria.
Under this agreement, if these pursuits are successful, PyroGenesis would provide its PACWADS technology, which uses high-temperature electric plasma to eliminate a variety of dangerous biological warfare agents and chemicals, including sarin, mustard gas, soman, VX, and others, along with associated auxiliary systems and various engineering training, operational, and after-sales services. This would be supplied to various locations where required in conjunction with its defense contractor partner, the Syrian government, and organizations related to the prohibition and remediation of chemical weapons. In March, the company had announced that its plasma-based SPARC system was officially unveiled at the launch of New Zealand's National Refrigerant Destruction Facility.
This facility is the first of its type in the Southern Hemisphere and will use PyroGenesis' patented all-electric steam plasma arc, or SPARC, system to safely destroy up to 100,000 kilograms a year of hazardous end-of-life synthetic refrigerants, such as CFCs, HFCs, and HCFCs. These gases have a combined global warming potential of 220 million kilograms of carbon dioxide equivalent, and their destruction ends the potential for harm. To read about these and other events and updates, as well as some of the many ongoing projects not discussed on this call, please refer to the corresponding section of yesterday's news release or to the management discussion and analysis document, in particular, the outlook sections of each.
I'll be back at the end for some final thoughts, but at this point, I'd like to turn the call over to the company's Chief Financial Officer, Andre Mainella, to provide more details about the first quarter financials. Andre.
Thank you, Steve, for the overview and to everyone joining us on the call today. I'll now take you through PyroGenesis' financial performance for the three-month period ended March 31st, 2026. For the first quarter of the year, revenue increased by CAD 1.9 million compared to Q1 2025 and reached CAD 4.9 million, and mainly driven by stronger execution across two of our core product lines. In particular, TORCH-related revenue increased by CAD 1.6 million, reflecting continued progress in fabrication, delivery activities, and advancement towards installation and commissioning on active contracts, and includes increased on-site support. SPARC-related sales increased by CAD 1.3 million, reflecting significant progress in delivery, installation, and commissioning activities taking place at the client site during the quarter. DROSRITE-related sales also increased slightly by CAD 0.1 million, driven by incremental project activity and progression of contracts through its final stages.
These were partially offset by a decrease of CAD 0.9 million in biogas upgrading and pollution control sales, reflecting fewer milestone achievements compared to the same period last year, which had included the completion of larger project phases. PUREVAP-related sales decreased by CAD 0.1 million, as project activities were largely completed in February 2026. The quarter focused mainly on development and validation work. Other sales and services decreased slightly by CAD 0.1 million, reflecting normal variability in non-core activities. Overall, revenue growth in the quarter reflects increased execution across key lines, particularly TORCH and SPARC, partly offset by lower contributions from biogas projects. As we've highlighted in prior periods, revenue remains closely tied to the timing of project milestones, the fabrication progress, and on-site installation and commissioning activities.
As of May 7, 2026, backlog of signed and awarded contracts stood at CAD 43.1 million, of which in excess of 85% is foreign currency, and that's mainly the US dollar. The backlog is expected to be recognized into revenue over the next three years as we continue to satisfy the performance obligations under our long-term agreements. Turning to cost of sales, these totaled CAD 3.3 million in Q1 2026 compared to CAD 2.2 million in Q1 2025. The increase was due to higher direct material costs, which increased as projects advanced through fabrication, delivery, and installation phases, as well as higher subcontracting costs from increased use of external resources to support this execution.
Manufacturing overhead also increased consistent with higher production activity. Despite the increase in cost, gross profit for the quarter was CAD 1.6 million or 32% of revenue compared to 27% in Q1 2025. The improvement in gross margin reflects higher revenue volume and a more favorable project mix, partially offset by higher materials and subcontracting costs associated with later-stage projects. Cost of sales in the quarter reflects increased project activity and remains consistent with management's expectations. As is typical in our business, variability in cost structure is largely driven by the stage of execution of long-term contracts. Turning now to SG&A. These expenses totaled CAD 2.2 million compared to CAD 3.7 million in Q1 2025.
The decrease was mainly driven by a favorable movement in expected credit loss, which resulted in a recovery of CAD 0.9 million in the current quarter, compared to an expense of CAD 0.6 million in the prior year period. This reflects improved collection performance and a continuous reassessment of credit risk on outstanding trade receivables. Excluding this impact, SG&A still continued to improve year-over-year, with decreases in employee compensation reflecting ongoing costs, control measures and workforce optimization, and lower depreciation of right of use assets following prior year lease modifications. These were partially offset by higher share-based compensation, reflecting the timing and structure of equity-based incentives, as well as a normalization of office and general expenses. Overall, SG&A reflects continued cost monitoring, but also an alignment with the company's level of operational activity.
Net R&D expenses totaled CAD 0.1 million in Q1 2026, compared to CAD 0.3 million in Q1 2025. The decrease reflects lower overall R&D activity during the quarter, consistent with the progression of development initiatives. We continue to prioritize allocation of resources across our programs and simultaneously continue to benefit from client-funded R&D projects which qualify for tax credits. Net finance expenses for the quarter totaled CAD 0.2 million, compared to CAD 0.3 million of Q1 2025. The decrease was due to lower interest and accretion on convertible instruments and lease liabilities following repayment and the progression towards maturity of certain instruments. This was partially offset by higher interest and accretion on secured loans introduced after Q1 2025. Overall, finance costs remain consistent with the company's capital structure and expectations.
Next, the adjustment to the fair market value of strategic investment resulted in a negligible loss in Q1 2026, compared to a loss of CAD 0.7 million in Q1 2025. The variance is attributable to the reduced exposure to equity holdings in the current period compared to the prior year, which included a large position in HPQ shares and warrants and the associated mark-to-market impact. As a result, the company reported a comprehensive loss of CAD 1 million in the first quarter of 2026, compared to a comprehensive loss of CAD 4.4 million in the prior year period. To summarize the improvement, it was driven by higher revenue, improved gross margin, and gross profit, followed by a decrease in SG&A expenses and lastly, lower finance expenses and fair value adjustments of the investments.
This directly contributed to the EBITDA figure for the three-month period ended March 31st, 2026, which was a loss of CAD 0.5 million. That's an improvement of CAD 3.2 million versus Q1 2025. Finally, we move to Modified EBITDA, which adjusts for two non-cash items: share-based compensation expense and fair value changes of investments. Once we consider all items mentioned, it represents a Modified EBITDA loss of CAD 0.3 million, compared to a loss of CAD 3 million in Q1 2025. Overall, the improvement in both EBITDA and Modified EBITDA reflects stronger operating performance in the quarter, supported by higher revenue levels, improved margins and disciplined cost cutting. That concludes the financial review for the first quarter of 2026, and I'll now turn back the call to Steve for some additional comments. Thank you.
Thanks very much, Andre Mainella. As PyroGenesis President and CEO P. Peter Pascali stated in the news release yesterday, PyroGenesis closed the first quarter with a very strong 63% year-over-year revenue increase, which as mentioned, is the second best quarter, second best first quarter in the company's history and the best quarter overall since Q3 of 2022. These results underscore the resilience of PyroGenesis business model despite fluctuating market and geopolitical conditions. During Q1, the company's diversified product and technology portfolio provided revenue streams from a variety of different project types and project phases. Operational and process streamlining efforts contributed to the completion of major projects and the advancement on others, which led directly to increased revenue.
As the company's revenues can fluctuate quarter to quarter based on project phases and client timelines, P. Peter stated that he was encouraged by the strong start to 2026 from both operational and financial standpoints. At the end of last year, during the 2025 Q4 earnings call, Peter stated that as the company moved into 2026, it was going to be focused on converting its technological progress into improved financial performance while maintaining the flexibility needed to continue navigating a challenging macroeconomic landscape. It is Peter's belief that the Q1 results indicate that PyroGenesis is very much on the right track in that regard. Overall, as Peter stated, Q1 was a very solid quarter for the company across execution, new developments and continued innovation.
Finally, we'd like to welcome the newest member of our executive team, Mr. Jean Maher, who joined the company in April as our new Vice President of Legal Affairs and Corporate Secretary. Jean brings more than 25 years of business and legal experience, including advising public companies on corporate governance, securities law and commercial matters. He has served as General Counsel, has held senior executive positions, and has acted as a Director with various public and international companies in the mining, clean tech and renewable energy sectors. Welcome aboard, Jean. In closing, on behalf of Andre, our President and CEO, Peter Pascali, and the Board of Directors, I would like to thank our investors for their continued support. We look forward to providing additional updates in the very near future.
A reminder to email any questions you may have about the company and its projects to our investor relations department using the email address ir@pyrogenesis.com. Thank you again and good afternoon. Operator, please end the call.
Thank you. This concludes today's program. You may all disconnect.