Good morning. Welcome to EnWave Corporation's Q3 2024 Earnings Conference call. My name is Kevin, and I'll 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 listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Finally, I'd 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'd like to turn the call over to EnWave CEO, Mr. Brent Charleton. Sir, please proceed.
Thanks to everyone who has joined us today for EnWave's quarterly conference call. Today, we will discuss our Q3 performance and provide a business outlook for the rest of fiscal 2024 and beyond. 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 third fiscal quarter, 2024, delivered a much stronger performance than the previous two, and I expect that Q4 performance should build off of this positive momentum. In Q3, we generated the highest quarterly base royalties ever at CAD 425,000.
We reported an adjusted EBITDA profit of CAD 85,000, only the second time in the past eight quarters, and recognized CAD 2.6 million in quarterly revenue, up CAD 136,000 year over year. Further, our gross margin significantly rebounded from last quarter, improving to 44%, due to multiple new large-scale REV machine orders combined with our royalty growth. Just prior to our Q2 conference call, last quarter, we announced two material REV equipment sales in Q3. The first being a new 120-kilowatt purchase order from an existing royalty partner to support their need for increased manufacturing capacity tied to opportunities with several major consumer packaged goods brands, and the second, the sale of the repatriated 100-kilowatt machinery from NutraDry that was sold to Branch Out Foods.
During the recent quarter, we also signed a technology evaluation and license option agreement with a North American food company led by a famous chef with multiple Michelin stars. Now, this project continues to advance with several intriguing commercial products under development. We also signed two new commercial licenses, one with Bounty Farms of the Philippines, who also purchased a 10-kilowatt REV machine. Bounty has been focused primarily on REV dried meat products, but is also advancing several specific fruit and vegetable items as well. The second license signed is with a current long-standing royalty partner, which allowed them to secure the right to produce several tropical fruits in Central America. EnWave will receive a six-figure annual fee to secure these rights until the royalty partner elects to purchase additional large-scale REV machinery for use in that region.
Subsequent to the quarter, we negotiated to buy back one of the two 120-kilowatt machines from a multi-state cannabis operator, given their facility intended to house this machine was never completed, and we had a royalty partner who immediately needed additional REV's drying capacity. So the multi-state cannabis operator will intend to continue using the installed 120-kilowatt machine for ongoing cannabis production, and we are now able to expedite the fulfillment of the equipment purchase agreement with Branch Out Foods, which was previously announced earlier in 2024, and the machine is expected to be delivered by September or October of this year. This series of transactions is expected to generate a healthy margin for EnWave, which will be reflected in next quarter's statements. REVworx, our toll manufacturing service, was very busy throughout Q3 and now into Q4.
We've been producing Brussels sprouts for Branch Out Foods and will also begin the production of cherry tomatoes in September. We also were able to complete a line trial for Yamachan, another one of our royalty partners, who's focused on the production of shelf-stable, high-quality ramen noodles, and that trial was deemed successful, with additional commercial runs being planned for Q4. Looking forward now, Q4 should be another solid quarter, and we are very encouraged by the information shared with us by several of our larger blue-chip royalty partners regarding their future volume forecasts for products that they've already launched to market. We believe there will be the need for many new large-scale REV machines in the coming twelve months to satisfy their projected throughput needs.
Additionally, our pipeline of new potential licenses is strong and is set to get even stronger as we strengthen our sales infrastructure to optimize our ability to drive new business and growth. Last month, we hired a new Vice President, Global Sales and Business Development, Dana D'Unitsch . Dana joined EnWave with a wealth of executive experience with over twenty-five years of demonstrated success in sales and strategy roles in the food service, distribution, hospitality, and SaaS industries. She previously worked for Gordon Food Service, which is the largest broadline food distribution company in North America. She worked for more than a decade in sales for GFS before being promoted to president of the British Columbia division and was responsible for annual revenues of over $1 billion and nine hundred plus employees.
Or in other words, she is a proven business builder, and I very much look forward to partnering with her as we build EnWave. Dana is now leading the recruitment of two additional sales managers that will be domiciled in Europe and Southeast Asia, respectively, both key global markets for us. Concurrent with our sales team build out, we've leveled up our international trade show attendance … We recently attended IFT in Chicago and FOOMA in Japan, and we will have representation at the upcoming Anuga FoodTec India, SupplySide West in Las Vegas, the FoodTech Summit in Mexico, and Gulf ood Manufacturing in Dubai, all within the next three months. Our team is energized and ready to hit the road.
I've been asked by several investors for an update regarding our joint partnership with GEA Lyophil, a leading global pharmaceutical equipment company, and more generally, an update on potential for us in the pharma industry. GEA has been diligent in attracting most of the top global pharma companies to explore REV technology at their R&D center in Germany through the machinery they purchased from us a few years back. This work has resulted in several requests for quotes on pilot scale REV machinery directly to EnWave, and these quotes are active and could result in sales in fiscal year 2025. Additionally, updates we're sharing include the continued success of Dole and their Good Crunch snack line. We're optimistic regarding growth of this relationship in fiscal 2025, given that they will likely need increased manufacturing capacity.
We've also seen good royalty growth from MicroDried, Gay Lea, our unnamed Canadian cannabis partner, and several other royalty partners with 10-kilowatt machinery, including Alpina Dairy of Colombia and Dairy Concepts of Ireland, among others. We're also actively working, and continue to work with, the U.S. Army and now the U.S. Navy, to test and develop new military ration inclusions, both directly and through some of our royalty partners who can deliver these quickly. Cheesecake was the first accepted item, but will likely not be the last. So 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 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, Q3 ended June thirtieth, 2023. Revenues for Q3 were CAD 2.6 million, compared to CAD 2.5 million in Q3 2023, an increase of CAD 136,000 or 5%.
The increase was primarily driven by the sale of the repatriated 100-kilowatt NutraDry machine to Branch Out Foods and increased royalties during the period. Third-party royalty revenue was CAD 425,000 in Q3 2024, compared to CAD 394,000 in Q3 2023, an increase of CAD 31,000 or 8%. Royalties for the nine months ended June thirtieth, 2024, were CAD 1.3 million, compared to CAD 1.1 million for the nine months ended June thirtieth, 2023, an increase of CAD 234,000 or 22%. Royalties grew due to increased partner product sales and larger production volumes. In July 2024, EnWave signed a new commercial license with an existing royalty partner who sells a broad portfolio of fruit and vegetable products globally.
The license grants the royalty partner with the right to use REV technology in an unspecified Central American country for production of several tropical fruit products. In exchange for the rights granted in the license, this royalty partner will pay EnWave a six-figure annual salary fee. EnWave believes this fee, in conjunction with forecasted base royalties for Q4, will result in approximately CAD 2 million in total royalties for fiscal year 2024, potentially an increase of CAD 535,000 or 37% compared to fiscal 2023. 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 occur in the coming quarters. Gross margin for the company in Q3 2024 was 44%, compared to 29% in Q3 2023.
As Brent has previously noted, the increase in margin was a result of the higher margin resale of the 100-kilowatt machine to BranchOut and increased royalties. SG&A expenses, including R&D, were CAD 1.4 million for Q3 2024, compared to CAD 1.2 million for Q3 2023, an increase of CAD 178K or 15%. The increase primarily related to increased personnel costs, legal fees, and increased sales efforts, including more frequent attendance at international trade shows. The company intends to make further investments in sales and marketing activities in the coming quarters to drive sales growth. 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 adjusted EBITDA of CAD 85,000 for 2024, compared to EBITDA loss of CAD 192,000 for 2022, an increase of CAD 277,000. The increase in adjusted EBITDA was primarily driven by strong margin as a result of the sale of the repatriated 100-kilowatt machine from NutraDry and increased royalties during the period. We finished Q3 2024 with cash and cash equivalents of CAD 3.6 million and a net working capital surplus of CAD 6.5 million as of June thirtieth. Our balance sheet remains debt-free, and we expect our balance sheet to strengthen in the coming quarter.
Thanks very much, Dylan. Now, the realistic pipeline for multiple new large-scale REV machine sales in the next twelve months is very encouraging to us. Our effort to build a better, stronger global sales team is underway. We have the resources to support this growth, and our entire executive group is enthusiastic about our future after collectively navigating more challenging times in the past few quarters, which now should be behind us. I'd now like to open the call for your questions. Operator, please provide the appropriate instructions.
...Certainly. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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. Once again, if you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Our first question is coming from Bart Goemaere, from BeursTips. Your line is now live.
Hi, gentlemen. This is Bart Goemaere from BeursTips in Belgium. Congratulations on the results and the new hires. I have a few questions. Can you give me a number of the total installed capacity with your clients in kilowatts, and what the average utilization rate of these machines is?
Hey, Bart. So right now we have three active 10-kilowatt REV machines placed at foreign facilities for product development and potential commercialization. Now, where we've had an uptick in collaboration with new potential adoptees of REV technology in our pipeline, is directly at our innovation center. In Vancouver, we have an extensive facility which not only allows folks to come and feel and touch the technology at both pilot scale, lab scale, and full commercial scale, but they can work very closely with our food science team to accelerate the product development.
Most folks now are deciding to do that, come and work with us for a few weeks, and then employ us to continue that product development remotely, rather than having to bring a machine in-house for that evaluation period. Sorry, the follow-up question was?
In fact, I think you misunderstood my question. The question was: What is the total installed capacity with your existing client base, and what is the average utilization rate of these machines in your client base?
Hey, Bart. Yeah, I don't have a total installed REV capacity. We disclosed that figure as part of the year-end statements, which I believe is about 2,800 kilowatts as at September thirtieth, and with the new installations that have happened each, you know, quarter. So, you know, a range of installed capacity would be, you know, north of, north of that figure. And then in terms of, you know, average capacity utilization, I don't have that figure readily available, too, but there's, you know. I'd say, if Brent can add more commentary on some of these larger, conglomerates that are getting close to maxing out their capacity and then lead to large-scale machine orders. But by and large, you know, we're probably between 50% and 100% of existing capacity.
Yeah, and I'll add on to your question, or the response there, Dylan. Like Dole, for instance, is close to 100% capacity utilization on their first large-scale machine, as is Gay Lea, which we mentioned in the conference call in Canada, for cheese snack production. Whereas a company like Orto Al Sole in Italy is working towards higher utilization, as they just secured some material and new purchase orders through their distribution network. So it does vary from partner to partner. As Dylan alluded to in our corporate presentation, we do provide a chart with the increases in installed kilowatt capacity, and as more come online, we'll continue to update that slide so that investors can track how many machines are installed, and we'll continue to address the royalty growth on each of these conference calls.
Okay, thank you. And how many machines are under construction at the end of Q3?
So as of the end of Q3, right now, we're working to deliver, as Bart mentioned, the two machines, 120- and 100-kilowatt to BranchOut, and there was some subtle changes that were needed to be made on those units. And then, of course, building a third machine from scratch, which will be underway, which we previously announced a 120-kilowatt sold to an unnamed current royalty partner to support some of the larger consumer packaged goods demand for them to be a co-manufacturer. So those are the three machines underway right now. 10 kilowatts, we always have in inventory to readily deploy, so we're not building any new ones in that model at this point.
Then we'll work towards, again, closing some of these new pharmaceutical pilot scale opportunities, as well as receiving the purchase orders to increase manufacturing capacity from some of the brands that have already given us those volume forecasts, and so we know what they need for 2025 and 2026.
Okay, thanks. And one last question. You gave a target royalty rate for this fiscal year. Can you give me, as an impression or an idea or a range, what the targeted royalty rate for next year is?
I think it would be foolhardy to provide guidance for that a year out, given that we don't know when exactly some of these new purchase orders will be received. As we've experienced in times past, even if we can build a new machine within six months for delivery, the facilities themselves are not already, always ready to accept those machines. And so, you know, in the perfect world, okay, after a purchase order, we deliver them after six months, and then we can incorporate a ramp-up period, for certain product development. Or if a product's already in market, and it's just the manufacturing capacity increase, then of course, we'll get more aggressive with our assumption for royalty growth. But this time, you know, guidance for this fiscal year is what we're providing, and then we'll reevaluate after next quarter.
Okay, thanks, and good luck in the coming sales.
Thank you.
Thank you. There are no further audio questions. I'm going to turn the floor back over to Brent for any further questions or closing remarks.
Thank you. There's one web-submitted question in the first-