Good morning, welcome to EnWave Corporation's Fourth Quarter Fiscal Year 2022 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 recently appointed new 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 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'll turn the call over to EnWave CEO, Mr. Brent Charleton. Sir, please proceed.
Thank you. Hello to everyone who have joined us today for EnWave Corporation's Q4 earnings call. Today, we will summarize the performance of our two business units, EnWave and NutraDried, and comment on the outlook of our company through the next few quarters. For those who are new to our quarterly calls, we refer to our proprietary vacuum microwave technology business unit, inclusive of machine sales, royalty generation, and toll manufacturing as EnWave, while we refer to our wholly owned subsidiary that sells branded and bulk shelf-stable cheese snacks as NutraDried. Following an update on our near-term outlook and fiscal 2022 performance, Dylan Murray, our new CFO, will speak to our Q4 consolidated financials as well as point out notable metrics for both EnWave and NutraDried.
Dylan brings a wealth of experience and expertise, being a CPA for almost 10 years, having broad operational responsibilities in prior roles and having worked in the cannabis industry. Now, consistent with our past quarterly earnings calls, this information we 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. At the beginning of fiscal 2022, we expected material performance improvement in both business units.
In our EnWave business, we had several current and prospective royalty partners operating in the international cannabis industry communicate intent to purchase large-scale machinery only to backtrack when it became abundantly clear that the global cannabis market was contracting. We had three current royalty partners that intended to scale up their cheese snack manufacturing capacities pull back from large-scale machinery decisions due to global increases in cheese commodity pricing. For NutraDried, its primary challenge was the historically high cheese and freight prices, which compressed its margin profile, even though Moon Cheese continued to exceed velocity expectations in the alternative snacking channel.
Despite these challenges faced, EnWave's technology business performed well, recording positive adjusted EBITDA in back-to-back fiscal years for the first time ever and producing an all-time best gross margin of 47% in fiscal 2022. We also managed cash prudently, maintaining a strong balance sheet. EnWave continues to track towards breakeven, while NutraDried has primarily accounted for the cash losses in recent quarters. That being said, I'll provide a more optimistic update on NutraDried's business prospects following a summary of EnWave's performance and near-term opportunities. In fiscal 2022, EnWave signed 10 new material agreements, either Technology Evaluation License Option Agreements or commercial licenses, growing the portfolio of companies committed to REV drying technology. Throughout the year, we sold four large-scale machines and seven 10kW units, generating about CAD 11 million in revenue on the machine sales.
The most encouraging metric for me is our third-party royalty growth year over year. Now we enjoy a 47% increase, growing our royalty portfolio from CAD 919,000 to CAD 1.35 million ex NutraDried in fiscal 2022. Given that we have four large-scale machines confirmed to be commissioned in fiscal 2023 and several potential new near-term large-scale purchase order opportunities, we expect continued royalty growth for the foreseeable future. We expect our team to complete the commissioning of the Dole 120kW and the Orto al Sole 120kW in Q2 fiscal. The 60kW installation for our Japanese royalty partner and the second 120kW installation for a U.S. cannabis partner will likely take place in Q4. All 10kW machines purchased in fiscal 2022 will be commissioned by the end of Q2.
There is ample room for EnWave to deliver stronger financial results in fiscal 2023. We have completed the facility build-out at REVworx and are actively working on several projects that should start up in the next calendar year. Our machine sales pipeline is robust, and there is ample opportunity to grow the number of large-scale REV machine orders. The groundwork completed in fiscal 2022 in both of these areas should yield results in the coming months. We obtained SQF certification for REVworx, critical for export of commercially saleable products with large companies, and completed numerous line trials for prospective toll drying clients. We also expect several new machine orders in the near term as we expect decisions in the upcoming months from current technology evaluation partners and direct-to-license prospects.
Based on our current pipeline, we hope to exceed our machine sales performance from fiscal 2022, with the majority of sales likely to come from food manufacturing companies. A few projects of importance that we will be monitoring closely this year include Dole's launch of their Good Crunch fruit and vegetable snacking line, the launch of a meat chip snack in the U.S. by an undisclosed partner, a broader domestic snack launch by our largest Japanese royalty partner, and our Italian partner, Orto Al Sole's European launch of their ultra-premium fruit and vegetable snack line. A success in any one of these projects could lead to additional large scale purchase orders and cement our technologies position as a value add option for major companies in the snacking space.
Complementary to our machine sales and third party royalty generation, we expect to confirm substantial new REVworx toll manufacturing contracts in fiscal 2023. We estimate that a full capacity utilization, REVworx could generate the neighborhood of CAD 2.5 million in annual revenue. Our strategy is to use REVworx as a platform for potential royalty partners to bring new REV drive products to market, prove their business cases, and eventually invest in their own internal REV manufacturing capacity. We are currently working with 10 qualified potential REVworx clients, all of whom have completed product development, have run trials, and are now negotiating contract terms. Of the 10 prospects, two generate more than CAD 1 billion in annual revenue, one generates more than CAD 300 million in revenue, the remaining prospects less than CAD 100 million in revenue.
To give you an idea of the size of businesses we're dealing with. While we are delighted with the early trials with REVworx 60kW production line, there is a limit on processing capacity to service all 10 prospects in short order. These operators know that, and they are moving quickly towards claiming their needed capacity. Before moving on to NutraDried, I want to acknowledge that our news flow hasn't been steady in the past quarters, and that's not a reflection of the business development activity that's taking place. Confidentiality is highly valued, and many of our partners just don't wanna share the details of their plans with the public, and we have to respect that. In Q4, NutraDried made additional expense reductions to further reduce discretionary spending.
Until the business begins to generate reliable positive cash flows and work itself through the rest of its higher price inventory, the expense structure will be tightly monitored and remain consistent. For the grocery channel, we have active opportunities to win an additional 4,000 new stores of distribution, ranging from two-four SKUs at each store. As previously mentioned, Moon Cheese velocities are doing well in the alternative snack category, which lends itself well to the selling story. Alongside potential new distribution, new Moon Cheese packaging will be hitting shelves in the spring. This new design came at a small cost and now unifies the look of all SKUs in NutraDried's portfolio, including the cheese nut mix called Blitz Mix and our Moon Cheese Sticks product line.
More impactful to a near-term NutraDried turnaround is the possible confirmation of new large bulk sales to companies looking to use our cheese as a snack mix ingredient. The contribution margin associated with bulk sales is vastly superior to traditional grocery sales. The cumulative size of these fiscal 2023 bulk opportunities, if one, would instantly change the fortunes of our operating subsidiary. Another variable that bodes well for NutraDried in fiscal 2023 is the stabilizing commodity block cheese pricing. Currently, the block pricing has come down to just above $2 from the highs of $2.40 to $2.50 in the May-June timeframe of fiscal 2022. NutraDried will need additional production and sales volume to return to profitability.
Between the bulk opportunities we're pursuing and new grocery distribution targeted, we have enough new volume opportunities that can get us there, but it will take some time. With that, I'll now ask Dylan to summarize our Q4 financial results in more detail.
Thanks, Brent. Good morning, everyone, thank you for joining us today. It's a pleasure to address the shareholder base for the first time as the company's new CFO. Today, we'll be taking some time to review our Q4 2022 financial results. 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 in MD&A filed on SEDAR. All amounts are in Canadian dollars unless otherwise noted. I will make reference to adjusted EBITDA, which is a non-IFRS financial measure. 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, Q4 ended September 30th, 2021.
Consolidated revenues for Q4 were CAD 5 million, compared to CAD 6.9 million in Q4 2021, a decrease of CAD 1.9 million. EnWave accounted for 57% and NutraDried for 43% of total Q4 revenue, respectively. EnWave's revenue was CAD 2.8 million for Q4 2022, compared to CAD 3.9 million for Q4 2021, a decrease of CAD 1.1 million. The decrease was due to the timing of revenue recognition on large-scale machine contracts. In Q4 2021, we had the benefit of recording 100% of a 120kW machine sale, which was not replicated in the current period. During Q4, EnWave confirmed a new 120kW order with Dole and signed an equipment purchase agreement with an existing royalty partner, a major Japanese snack company, for a 60kW machine.
A large portion of the associated revenues for these sales will be recognized in fiscal 2023. We have many other large-scale opportunities in the sales pipeline that we're aiming to close over the near term. EnWave's royalty revenue for Q4 2022 was CAD 290K, up from CAD 245K in Q4 2021, representing growth of 18%. 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 continue to see further royalty growth over the coming quarters. For NutraDried, sales were CAD 2.1 million for the quarter, a decrease of CAD 880K from Q4 2021 sales of CAD 3 million. The decrease in revenue was primarily due to lower bulk ingredient sales compared to the prior period.
Consolidated gross margin for the company in Q4 2022 was 15% compared to 34% in Q4 2021. EnWave generated a Q4 2022 gross margin of 39%, while NutraDried generated a negative gross margin of 15% for the period. The consolidated margin compression is a result of two things. In Q4 2021, a fully fabricated large-scale machine was resold for one-time substantial margin that was not repeated in Q4 2022. Two, NutraDried had experienced substantial margin compression in Q4 2022, with higher cheese pricing increasing its cost of goods. Cheese pricing for a 40-pound cheddar block from the Chicago Mercantile Exchange averaged $2 a pound for fiscal 2022 and peaked at around $2.40 in May of 2022. In Q4, cheese prices continued to fluctuate in ranges above the historical average, which compressed margins for the period.
When possible, NutraDried uses forward contracts to mitigate the impacts of commodity price fluctuations. SG&A expenses, including R&D, were CAD 2.9 million for Q4 2022 compared to CAD 3.2 million for Q4 2021, a decrease of CAD 234K. We reduced SG&A costs as part of a continued focus on managing non-revenue generating spending while increasing the investment into S&M to further development the market for EnWave's proprietary REV technology. Adjusted EBITDA is a non-IFRS financial measure, so please refer to our MD&A for the reconciliation from GAAP to net income to adjusted EBITDA. Adjusted EBITDA was a loss of CAD 1.5 million for Q4 2022 compared to a loss of CAD 223K for Q4 2021, a change of just below CAD 1.3 million.
The loss generated by NutraDried's higher cost of goods was the primary driver of decreased EBITDA for the quarter. The consolidated net loss for Q4 2022 was CAD 2.3 million compared to net income of CAD 1.1 million for Q4 2021. Turning to our balance sheet. We finished Q4 with cash on hand of CAD 6.2 million and a net working capital surplus of CAD 11.4 million. Inventory increased because of an additional 10kW units in fabrication to match the current sales pipeline, as well as long lead time parts on large-scale machines currently being purchased. Aside from a small COVID-19 relief loan and our facility leases, our balance sheet remains debt-free.
Thanks, Dylan. Our points of emphasis throughout fiscal 2023 will be to support our current royalty partners in product development and process optimization in order to elicit repeat machine orders, successfully commission all REV machinery on order to grow our royalty portfolio, contract our material at REVworx capacity to prospective our current royalty partners as early as Q2 of this year. We want to exceed the total machine sales that we had in fiscal 2022 and fiscal 2023 conservatively, and help NutraDried win new meaningful bulk business associated with some of the partner projects we're working on in the EnWave parent, contributing to margin improvement and helping the business to turn around. Lastly, to generate positive consolidated adjusted EBITDA. Now, over the last few years, we have devoted significant attention to resources on selecting, hiring, maintaining the best staff in manufacturing, R&D, sales, and marketing.
This entire team is primed and ready for the challenge in this coming year. There is ample positive energy and a clear plan to follow internally. With that, I'd now like to open the call for your questions. Operator, please provide the appropriate instructions.
Thank you. At this time, we conduct me with question and answer session. If you'd like to ask your question, please press star one on your telephone keypad. You can also type your question into the Ask a Question feature on the webcast. 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. At this time, there are no verbal questions. I'll turn the floor over to management for any web questions.
Thank you. I see a few questions have been submitted through the web portal, and the first is pertaining to past trials that were publicly disclosed in relation to AstraZeneca or any other pharmaceutical companies. A brief update on our advances with pharmaceutical market opportunities is that we have been closely working with GEA Lyophil, whom we announced as a joint partner in developing vacuum microwave technology specifically for large pharmaceutical companies. They acquired one of our machines for placement at their pilot facility in Germany, where they have hosted dozens of the largest pharmaceutical companies to come in and test the merits of vacuum microwave versus lyophilization, which is the industry incumbent. From those trials, there has been positive feedback, and we are in discussions with GEA Lyophil about prospective commercialization in the coming years.
That all being said, we took a strategy of trying to monetize this technology through this partnership with GEA, where they would deliver large-scale machinery and EnWave would reap the benefit as a percentage of revenue derived from those sales in the future. Next question. From Cormark, Liam Dotchison. Two questions came from Liam. The first is on the REV side in regards to guidance for this year and sales pipeline. I mentioned at the beginning of this call two external macroeconomic factors that affected our ability to close on the guidance that we provided last year. This year, we're not gonna be providing guidance other than we intend to do better than we did last year.
Talked about our pipeline and how robust that is, and we're gonna try and close as many deals as we can given the circumstances that were presented. The second question here is pertaining to REVworx and capacity utilization. As I mentioned, we do have a number of companies who are on the precipice of signing toll service contracts, we hope. If successful, that could be anywhere from 25% capacity utilization to 100% capacity utilization, dependent on the number of these deals that come to fruition. That's how much business is on the table for us to win. Next question is about NutraDried. Just an update on distribution pipeline with Costco. Costco is always there and as a potential rotation or multiple rotations in different regions for NutraDried.
However, there's nothing that has been contracted yet for fiscal 2023 that will demand an opportunity for NutraDried to produce product for Costco. We're always working towards winning different opportunities with Costco. Next question has to do with the U.S. Army. Just acknowledging, obviously, the terrible things that are going on in the geopolitical sphere with war currently, and the importance of armed forces having healthy and energy-intense military rations for use by soldiers, and want an update on the Army program. We talked about the Army getting approval on funding for additional machinery to meaningfully implement certain components into their military ration program this past year. As we understand it, their new fiscal year started in October, so we're anticipating sometime in the next few months to get word on the funding being released.
Meanwhile, we do continue to negotiate potential licenses with industry partners of the U.S. Army, where that machine would be prospectively placed. We still have a high level of optimism of moving the Army relationship forward in fiscal 2023. Next question from Steve Hansen at Raymond James. How broad is the NutraDried bulk business pipeline, are we targeting a handful of customers or a broad range? I would answer that in saying that we are going after a broad range of customers, but there's a handful of those that would be meaningful to the business, we have very clear vision on when those could come to fruition for fiscal 2023 and have incorporated that into our internal budgeting process.
In terms of bulk business pipeline, there are, I would say a few, like two-three that we're close to hopefully confirming. No POs yet because there's audits that take place at the facility before being able to work with certain companies. It's looking quite promising, and if we do confirm that business, we'll be sure to share that with our shareholder base. Next question. If the US Army buys a large-scale machine, how fast can we deliver it? Our typical lead times on large-scale machinery is between six-seven months from PO. That being said, we've been proactive investing in longer lead time parts into our inventory, which we have available for two large-scale machines in fiscal 2023 to deliver them hopefully in a more timely fashion.
If we receive a PO in December or January, it's likely the machine will be delivered sometime in the summer of next year for that fortunate. Next question is, why wasn't the Dole machine installed in Q4? Some things are completely out of our hands in regards to the operations of other businesses, and we follow the direction of our partners as timing sometimes can shift and change. It's no indication of our ability to deliver machinery. It's more so that certain companies take a little longer to be ready to receive the machinery. Another question is, are energy prices a problem at the moment for potential customers? Good question. In certain regions of Europe at the moment, with rising energy prices, it certainly will add a cost to using vacuum microwave, given that electricity is a primary component.
However, when we're doing the analysis of the cost of goods sold of primary food products, the contribution from the electrical prices is typically less than 7% or 8%. It's not significantly material to the cost profile of products that companies are bringing to market, but it certainly is a consideration. Next question from Steve Hansen at Raymond James. REVworx, given the strong interest across multiple parties, is there any thought of increasing total capacity in 2024? TBD. First thing is first, secure the contracts in the immediate term. Second is trying to compel these businesses to invest in their own internal manufacturing capacity.
If a company is adamant about working with EnWave longer term as a total service provider and is profitable for our business and we can see a clear return on investment, then certainly we would be looking at increasing total capacity, beyond, you know, 2023 into 2024. The last question I have here on the submissions is, what does REVworx capacity utilization potentially translate into revenue? Mentioned that during the call. It's about CAD 2.5 million we're anticipating with industry acceptable margins tied to the throughputs that we can get in that facility.
Thank you. If there are no further questions, do you have any further closing comments?
Just thanks everyone for joining us today for our conference call. To all of you, we wish you the best for the holiday season and for a healthy, happy and prosperous new year. At this time, you can disconnect.
Thank you. You may now disconnect.