Good morning and welcome to EnWave Corporation's Q2 2025 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 a listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. If you 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. Brent, please go ahead.
Thanks very much, and good morning to everyone who has joined us today for EnWave's Q2 Fiscal 2025 Quarterly Conference Call. We had a great quarter, and I'm excited to speak more on our future expectations and the wins we've already announced. As always, 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 CDAR when reviewing this information. Also, all amounts discussed today will be in CAD unless otherwise noted. EnWave's 2nd quarter fiscal 2025 performance was an improvement from our 1st quarter and materially better year over year. We reported revenue of CAD 3.7 million and CAD 112,000 in adjusted EBITDA.
We reported net income of CAD 764,000, mainly due to an employee retention tax credit payment received from the U.S. government regarding our former operating subsidiary. Overall, a very solid quarter. Gross margins also remained strong at 33%. Now, as we continue to build EnWave's business, I encourage stakeholders to monitor two critical metrics. The first is third-party royalties, and the second being the number of large-scale Radiant Energy Vacuum, or REV for short, machines that we sell. In Q2, our third-party royalties grew to CAD 474,000, up 14% from the prior quarter, and the largest base royalties for any quarter historically. We expect royalties to continue to grow in coming quarters due to increased average capacity utilization for deployed REV machinery and additional REV machine sales that we complete. Up to the date of this call, we've confirmed two large-scale REV machines this fiscal year.
The first, a 120-kW to be delivered to our Mexican royalty partner PROCESCIR in July for the production of fruit and vegetable products, and the second, a 60-kW machine sold to MicroDried to increase their manufacturing capacity to four large-scale REV manufacturing lines. MicroDried is EnWave's longest-standing royalty partner and has seen great growth in their business recently. Current U.S. tariffs have actually helped their business, as importers of foreign food ingredients have been hit, creating a situation where many large food companies are looking for new domestic supply of ingredients. EnWave needs to sell and deliver four large-scale machines a year, with the current trailing 12-month royalty run rate to break even. Each additional REV machine sale above this minimum and any incremental increases in royalties collected will lead to profitability for our business.
This also assumes that we keep our current G&A expense structure within its current range, which we intend to do. As stated in times past, we have current capacity to produce up to 10 large-scale REV machines per year. Our operating leverage has the potential of increasing materially as each incremental large-scale REV machine sale occurs beyond the first four sold each year. In Q2, and up to the date of this call, we had several material commercial announcements. As discussed moments ago, we sold a large-scale REV machine to MicroDried and consummated the sale of a 120-kW unit to PROCESCIR . We also sold 10-kW REV machines to both Sprouted Proteins of Peru and Hokkai Yamato of Japan.
We signed four license amendments to allow higher REV machine capacity utilization by several royalty partners, including Creations Foods more recently for pet treats in the U.S., Patatas Fritas of Spain for high-protein snack items, and we granted Branch Out Foods the exclusivity for blueberries in Peru in exchange for a higher minimum annual royalty, and also granted processing exclusivity for apple products to MicroDried for the states of Washington, Idaho, and Oregon. Further, a technology evaluation and license option agreement was signed with Solve Solutions of Brazil and a master service agreement with Biotechnique of the U.S. for the continued evaluation of REV technology as a viable drying platform for biopharmaceutical products. Of note, Solve Solutions is a well-capitalized firm that intends to make a no-go decision to enter into a royalty-bearing license and buy REV equipment within this fiscal year.
Now, Solve Solutions is one of many companies currently in our sales pipeline for fiscal year 2025. We are setting ourselves up to meet the four-machine minimum target within the year as we've begun to build a 60-kW REV machine for inventory and have opportunistically recently agreed to buy back a 120-kW REV machine from a U.S. based cannabis company. As we've done in years past with other cannabis companies, our intent is to refurbish this 120-kW machine and resell the unit good as new as soon as possible to a more reliable royalty partner in the food industry. This prospective transaction should yield a margin consistent with new machine sales. Now, our efforts to continue bolstering our sales pipeline have also increased.
In the past quarter, we successfully hired a new European business development manager, onboarded her, and now have her actively hunting new leads, leveraging her existing network and attending trade shows. Our existing sales leadership, led by Danna Dunnage, have also been extremely active, attending Natural Products Expo West, the North American Pet Food Forum, and participating in a federal government trade mission to Australia. Further, we are scheduled to attend the upcoming IFT trade show in Chicago and Supply Side West later in this year. Now, over the past two quarters, we've seen an increasing demand for many household-name food companies to procure new innovative snack items, as well as the demand for healthier ingredients for flavor and color purposes. Consumer trends continue to support the use of REV technology, and the recent more strict rules being enforced by HHS in the U.S.
has also stimulated more timely transitions from artificial to natural ingredients across the food manufacturing ecosystem. In many of these interactions, these blue-chip companies have made it clear that they don't intend to invest in CapEx to produce these products internally, but rather prefer to buy from our existing royalty partners who act as co-manufacturers in the food industry supply chain. This is a huge opportunity for EnWave, as the potential volume requirements are massive and could drive numerous new large-scale REV machine sales to existing partners. Our two most recent large-scale sales are examples of this scenario. Lastly, REVworx's sole manufacturing business was quite busy in Q2, generating CAD 140,000 in revenue for the quarter and CAD 259,000 year-to-date. We are expecting additional contracts for REVworx in the coming months regarding four specific projects in negotiation currently.
REVworx continues to be a phenomenal showroom for our tech and a critical sales tool used to de-risk adoption. Now, with my summarized update complete, I'll now ask Dylan to summarize EnWave's detailed quarterly financial performance. Dylan?
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 CAD 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 disclosure and reconciliation to GAAP net income, both in the press release and our MD&A. Also, please note the comparative period I'll refer to throughout this presentation is the prior year Q2 ended March 31ST, 2024. Revenues for Q2 were CAD 3.7 million compared to CAD 0.7 million in Q2 2024, an increase of CAD 3 million, or 456%. The increase was primarily related to a large-scale machine sale and the commissioning of two small-scale machines during the period.
Third-party royalty revenue was CAD 474,000 in Q2 2025 compared to CAD 414,000 in the comparative period, an increase of CAD 60,000, or 14%. Royalties grew due to increased royalty partners, product sales, and partner production for the quarter. 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 Q2 2025 was 33% compared to negative 25% in the comparative period. The increase in margin was a result of higher machine sales, royalties, and total revenue for the quarter. SG&A expenses, including R&D, were CAD 1.4 million for Q2 2025 and for the comparative period. The company will continue to further invest in sales and marketing activities in the coming quarters.
In April, the company hired another business development manager domiciled in the Netherlands. This new business development manager will play a pivotal role in strengthening the company's international presence and accelerating growth in the European market. 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 112,000 for Q2 2025 compared to an adjusted EBITDA loss of CAD 1.3 million for Q2 2024, an improvement of CAD 1.4 million over the comparative period. The increase in adjusted EBITDA was driven primarily by a large-scale machine sale and the commissioning of two small-scale machines, increased royalties, and totaling revenue during the period. We finished Q2 2025 with cash and cash equivalents of CAD 3.8 million and a net working capital surplus of CAD 7.9 million as of March 31st.
EnWave has a credit facility with Desjardins for growth and working capital purposes. The amount available to the company under the credit facility is calculated as the lesser of CAD 5 million and a function of royalties, receivables, and inventory. As of the date of our quarterly filings, approximately CAD 1.5 million is available to the company at a rate of Canadian prime + 1.5%. The facility remains undrawn to date. The company recognized a $836,000 USD tax refund for NutraDried during the quarter in discontinued operations. The tax refund was for the Employee Retention Tax Credit, which is a refundable tax credit from the U.S. government for businesses that were affected during the COVID-19 pandemic. NutraDried received $460,000 USD of this ERTC during the quarter. The remaining balance of $376,000 USD was received subsequent to the quarter, and this is recognized in prepaids and other receivables at March 31st.
The company does not expect to receive any additional tax refunds or credits related to NutraDried going forward. Subsequent to the quarter, the company commenced the manufacturing of two large-scale 60-kW machines, as Brent indicated. One of the machines, as announced in April, was sold to MicroDried. The second 60-kW is being manufactured in anticipation of a future machine order. Additionally, subsequent to the quarter, the company repurchased a 10-kW machine and 120-kW machine from an Illinois U.S. based cannabis company. This transaction, along with the manufacturing of a second 60-kW machine on spec, increases inventory levels and strengthens the company's position to deliver on partnership opportunities, expediting the fulfillment and revenue recognition of prospective machine sales.
Thanks, Dylan. With that, I'd like now to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you. At this time, we're conducting a question-and-answer session. If you'd like to ask a question, 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 yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing 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 pull for questions. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Brent Charleton, CEO, for closing remarks.
Thanks so much. I did receive one question via email prior to the call, which I'll address right now. The question was, why were there no exclusivity-related royalties paid for Q2? The simple answer there is that the majority of our exclusivity top-up royalty payments—this is when a company has a minimum royalty to pay to EnWave to retain their exclusive rights over the technology for a certain product in a certain geography—are typically paid in Q1, so the end of each calendar year. That is why we tend to see a top-up during that time. Last year, we had another contract being signed where an exclusivity payment was made to retain the rights to potentially operate in a separate country by one of our current royalty partners, and that was completed in Q3.
We do expect a payment to occur in Q3 of—sorry, Q4, excuse me—of this year, as well as Q1, as we've had exclusivity payments in times past. I don't see any other questions. Oh, I see one just came in. What about the pharmaceutical front? That's quite a broad question, but in short, we continue to operate our joint partnership with GEA Lyophil, who are domiciled in Germany and have purchased a pilot-scale unit from EnWave to showcase to their large-scale pharma company partners. There are several different evaluations ongoing to date, with the hope that GEA can attract a consortium or a single pharmaceutical company to make a material investment in the scale-up of a continuous GMP-certified vacuum microwave dryer to displace lyophilization.
That takes not only the investment in the CapEx, but it also takes a commitment on the pharmaceutical company's side to identify a drug under development to take through that process using vacuum microwave as the core drying platform. Concurrent to that work, we announced a master service agreement with Biotechnique, who, in fact, were at our facilities this past week doing a number of trials with a derivative of a flu vaccination. The results, on first glance, have been very favorable. Now those results will then be shared with Biotechnique's client. If that client decides to move forward with this project, the likely next step would be for Biotechnique to look at purchasing their own pilot-scale equipment to have at their facility to continue the trials. That is the current status of EnWave's participation in the pharmaceutical industry.
I'll wait 10 seconds more to see if any other questions come in or downline questions come up. Okay. Seeing none, I'd like to thank everybody for joining the call today. As stated by the operator, if you do have questions, please feel free to follow up to discuss with either Dylan or myself. Thanks, everybody. Have a great weekend. Cheers.
Thank you for joining us today for EnWave's Q2 2025 E arnings Conference Call. At this time, you may now disconnect.