Good morning. Welcome to EnWave Corporation's First Quarter 2024 Earnings Conference Call. My name is Camilla, 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. 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 0 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.enwave.net. Now I would like to turn the call over to EnWave's CEO, Mr. Brent Charleton.
Good morning to everyone who has joined us today to discuss EnWave Corporation's Q1 performance and, more importantly, our outlook for the rest of fiscal 2024. Consistent with our 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 first fiscal quarter for 2024 demonstrated volatility in Radiant Energy Vacuum machine contracts as no new orders were received, which negatively impacted revenue. Currently, there are several active projects and potential orders for both 10-kilowatt and large-scale REV drying lines, which we hope to confirm in the near future.
Quarterly royalties were the highest they've ever been in the past two and a half years, at CAD 480,000, an increase of CAD 67,000 year-over-year. Further, the percentage of royalties collected from REV-dried product sales by our royalty partners versus the exclusivity top-up payments made increased when compared to Q1 2023. This is a good indicator that the company is commercializing REV-dried products to continue to build their respective REV businesses. We monitor the use of all large-scale REV equipment through remote programs and have seen an uptick in usage. Now, despite the absence of new machine sales in Q1, which would be no surprise to anybody, we continued to keep our expense structure tight and had a modest reduction in cash position. We will continue to operate in this manner, only making material investments when a clear return is highly probable.
We are comfortable with our manufacturing capabilities and innovation competency but will likely invest in a more robust sales structure this year. Our pipeline is strong, and I'll speak to several developments in a moment, but we will not continue to accept the status quo, which is being typically 4-6 large-scale machine sales over the past few years. If we achieve the status quo, we are a break-even business on an Adjusted EBITDA basis. Many shareholders have asked for a more robust summary of the key projects we are working on with current and potential royalty partners. To begin, the installation of the 120-kilowatt REV machine at Bridgford Foods is scheduled to complete in March, enabling the U.S. Army to continue progressing a project to incorporate a dried cheesecake ration component into many of their field ration packs.
Concurrent with this work, Bridgford is evaluating a number of additional toll manufacturing projects and their own development and launch of commercial products. They've had a 10-kW unit at their facility for more than a year and are very capable operators. I'm very much looking forward to witnessing their progress as they move forward over the coming quarters. The U.S. Army has also engaged BranchOut Food and Michael Foods, other royalty partners of ours, among others, to collaborate on additional ration inclusions, more hopefully to come on these projects later in the year. A second large REV line was recently commissioned in Japan for Calbee. Calbee launched a premium dried apple snack that did well during initial market trials, and we anticipate broader domestic sales of the snack line and a potential expansion of their portfolio, again, in the coming quarters.
Dole continues to commercialize their Good Crunch snack line in North America, selling three SKUs currently. We remain optimistic about the future of this relationship given the high utilization rate of the 120-kW REV machinery operating in Thailand and the new potential SKUs under development. Also, there has been intensive collaboration with additional royalty partners of ours to potentially support growing capacity needs in the near term. Moving forward, additional large-scale REV orders may either come directly from Dole or other royalty partners who may toll manufacture for the brand. Good Crunch is currently available online in North America and at many traditional grocery channels. Now, many of our royalty partners using REV technology to produce dairy snack products are also making headway. Gay Lea Foods in Canada has maxed out their capacity on their first 100-kW unit and elected to maintain their exclusivity to produce cheese snacks here domestically.
We hope they decide to increase their capacity in the coming quarters. Ashgrove Cheese in Australia is diversifying their formats of cheese snacks offered in their domestic market, and Dairy Concepts IRL launched their product line into the largest retailer in the U.K., Marks & Spencer, and by all accounts, the sales continue to vastly exceed expectations. That being said, we're optimistic about their continued growth this year and the need for additional manufacturing capacity. BranchOut Food, which I mentioned in relation to the U.S. Army previously, is another royalty partner who has had some major recent wins. They landed repeat multi-million-dollar contracts with the largest grocery retailers in the U.S. to sell their line of premium fruit and vegetable snacks.
They engaged us to use our REVworx toll drying facility to make up the immediate shortfall in capacity, and we anticipate that this toll drying contract will likely extend for most of this fiscal year. We are contracted to deliver a second large-scale REV machine to BranchOut Food in the second half of 2024 to support this growth. Orto al Sole of Italy has also expanded their domestic grocery distribution for their ultra-premium line of healthy snacks, and Alarko of Turkey has communicated their goal of winning several major supply agreements with leading domestic brands this year. Those brands they've targeted they have close ongoing relations with, and I feel that that's a highly probable goal to achieve. Alarko is one of the largest conglomerates in Turkey, and they're actively investing to grow their REV business significantly.
On the business-to-business ingredient front, MicroDried, one of our most important royalty partners, continues to build a meaningful business. They've won supply contracts with many household brands in the cereal, craft beer, snack bar, smoothie, and dairy application areas in North America and internationally. They operate three large-scale lines currently. They're a top-tier partner, and we believe they have the capabilities to also grow in the coming years. In addition to the updates provided, there are many more royalty partners moving in the right direction. EnWave's portfolio of diversified royalty streams is growing, and we expect that trend to continue. In our pipeline, we are actively courting new royalty partners in the pet treat, seafood, and meat snack space. There has been minimal penetration in these verticals to date, and we're hopeful about our prospects to sign new licenses and sell REV machinery into these market segments in 2024.
We've also been busy developing new commercially viable, shelf-stable snack products, the most recent breakthrough being a shelf-stable soft crunch French fry that we are now pitching to every major potato product manufacturer, already receiving positive feedback, meetings, follow-up, and, of course, sampling of these products. We also have several new leads in the fruit and vegetable area. With the increasing commercial success of Dole, Calbee, and others, we are now seeing shorter times between engagement and license agreement negotiation. I hope to be able to talk about these prospects as closed deals come in as soon as possible. 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 going over today 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 Q1 ended December 31st, 2022. Revenues for Q1 were CAD 1.3 million compared to CAD 2.8 million in Q1 2023, a decrease of CAD 1.5 million or 55%, and the decrease was primarily related to fewer machine sales and machines in fabrication during the period.
The decrease in revenue was partially offset by third-party royalty revenue, which was CAD 480,000 in Q1 2024 compared to CAD 413,000 in Q1 2023, an increase of CAD 67,000 or 16%. Royalties grew due to increased partner product sales and production, offset by a decrease in exclusivity fees for the quarter. As our royalty partners grow their businesses and increase capacity utilization on REV equipment alongside new REV installations arising from new sales, we hope to see material royalty growth over the coming quarters. Gross margin for the company in Q1 2024 was 18% compared to 37% in Q1 2023. The decrease in margin was a result of fewer machine sales and machines in fabrication to absorb fixed overhead costs. SG&A expenses, including R&D, were CAD 1.3 million for Q1 2024 compared to CAD 1.6 million for Q1 2023, a decrease of CAD 303,000 or 19%.
The decrease primarily related to reduction in commissions to third-party sales representatives and to concerted efforts to maintain discretionary spending. Adjusted EBITDA is a non-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 CAD 70,056 for Q1 2024 compared to an adjusted EBITDA loss of CAD 256,000 for Q1 2023, a decrease of CAD 500,000. The decrease in adjusted EBITDA was primarily related to top-line revenue, fewer machine sales and machines in fabrication during the period. We finished Q1 2024 with cash and cash equivalents of CAD 3.9 million and a net working capital surplus of CAD 7.6 million as of December 31st. Our balance sheet remains debt-free.
Thanks for that commentary, Dylan. As just noted, we were able to limit our cash burn through continued strict expense management. Timing of large-scale REV machine sales has been historically volatile, and in Q1, we experienced a slow period. It's imperative that the frequency of new machine orders picks up in the coming months to ensure that the total number of large-scale machines sold this fiscal year surpasses five machines the status quo. The number needed, timing, and price-dependent, of course, to yield positive Adjusted EBITDA. With several active projects prospectively needing additional REV drying capacity this year, many of which large-scale, we are optimistic about our prospects, and I shared numerous royalty partner updates that I hope build confidence among our stakeholder group regarding the future of EnWave. I certainly continue to be excited about our commercial opportunities.
Now I'd like to open up the call for your questions. Operator, please provide the appropriate instructions.
Thank you. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, and you may press star two if you would 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 keys. If there are any outstanding questions at the end of the call, the company will be happy to take them by email at ir@enwave.net. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Bart Goemaere with BeursTips. Please proceed with your question.
Hi, Brent. This is Bart Goemaere from BeursTips in Belgium. I have a question regarding the installation pipeline in the MD&A. There seems to be 1 big machine of 120 kW for BranchOut Food in production. But if I read in the MD&A, under the revenue section, it states that 2 big machines are under production and 1 small one. So can you please clarify this and tell me how many machines are under production right now and how many that you have in inventory that are not sold yet?
So BranchOut Food, what you're referring to, and Brent mentioned in his commentary, there's a machine that's contracted to begin fabrication this summer of 2024, and at this time, fabrication of that machine has not started. In terms of your second question, how many machines do we have built in inventory? We continue to have that one large-scale machine that was repatriated from NutriDried.
Okay. And the number of small ones?
The number of small machines is in and around 10 at this point, 10 machines that either have come back from rental agreements or are sitting inventory. We have a few near-term projects with 10-kW units that should significantly deplete that number, getting it down to below four machines in the very near term. So multiple 10-kW are likely to be needed for singular royalty partners to begin commercial production prior to prospectively receiving a large-scale machine thereafter. So what we'd like to see, of course, is immediacy on the deployment of 10-kW to be used during the time period from purchase order, fabrication, delivery, and commissioning of large-scale machines, which, as I just stated, several of those opportunities are in our pipeline near term.
Okay. And then a second question, can you give me an overview of the state of the cannabis market in the United States? Because it seems that the legislation is going to change over there. So do you feel, in contact with cannabis companies in the United States, that there is a change imminent?
I think the ability for us to generate new opportunities in the U.S. cannabis market was not simply to do with the legislation changing for the positive on a federal basis. More so, it was about connecting with competent operators who had the available capital to do the trials and test work on the machinery. Now, we've taken a different strategic path in offering 10-kW units to all of the major multi-state operators for test work. But even then, they've been so inundated with trying to right-size their own businesses and control expenses that it's really only been the past 3 months -4 months where we've had feedback and an appetite to move forward.
We announced recently a TELOA with a U.S.-based cannabis company to trial our product, and we anticipate that additional projects like that will come to fruition this fiscal year, some of which with some of the bigger companies, given that they finally see some calm waters ahead for their own operations.
Okay. Thanks. I have no more further questions.
Thanks, Martin.
Thank you. We have reached the end of our audio question-and-answer session, and I will now turn the call back over to Brent Charleton, CEO, for any closing remarks.
Okay. Just want to thank everybody for joining today. If you have questions that you'd like to address directly offline, please do reach out to either Dylan or myself after the call, either today or next week. Thanks very much.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.