Now presenting Brent Charleton with EnWave.
Thanks very much, everyone, for coming this morning. Just by show of hands, who was here for the previous presentation? All right, about half of you. John has already given you a nice cursory summary of our technology, so I will skip about half the presentation and go directly to business outlook. Joking, I will go through everything. Forward-looking statements, I will be providing some guidance for the forthcoming fiscal year. Our fiscal year starts October 1st, so we have just finished our fiscal 2026 as of September 30th. The Q4 numbers will come out in December to wrap up that fiscal year. What we are most excited about is the improvements that we are forecasting for the next 12 months, given our pipeline and also some of the discussions we have had with current royalty partners about those royalty streams growing quarter to quarter. So quickly, corporate profile.
EnWave Corporation has developed a proprietary dehydration technology, combining vacuum and microwave energy to create a very fast, controllable, low-temperature way of removing water from organic materials. Where we have had most success in the commercialization of what we refer to as radiant energy vacuum technology is in multiple verticals within the food industry, and we will get into details on that in a moment. The business model is unique. Not often do you find an original equipment manufacturer attaching a royalty to the success rate of the buyer of that equipment, but in this case, we do. So we sell the equipment at approximately a 30% gross margin, give or take on negotiations, and then a carried interest, a single-digit percentage of revenue created from the products that are dried and then sold into market.
Why we are able to do that is the unique intellectual property positioning that we have.
We have 18 patent families covering off several apparatus designs, as well as the individual processes tied to different types of products that create value for the end user, like BranchOut Food, who presented just before me, where they can produce high-quality products at a lower cost and still demand the same pricing as, say, a freeze-dried good would in market. We have licensed partners that include BranchOut, of course. Other large household name companies like Dole, Calbee of Japan, one of the biggest snack food companies. We are working closely with the U.S. Armed Forces on new military ration inclusions, amongst many others. We have 50 + current licensed partners. Stock. Stock has traded like crap the past, call it three to four quarters. Let us call it what it is. Yeah. It is crap. Technical term, exactly.
Really, that, in my mind, has a lot to do with the lumpiness of our business. We are talking about large CapEx transactions, and in any given quarter, we can sell two or three machines, and some quarters, it is zero machines. So you have this up and down. Given that the percentage of revenue that we are creating on an annual basis is about 80%-85% from machine sales, you can see some of the maybe reservation or lack of confidence in the overall business case if we have a zero-machine quarter. In fiscal 2026, it was a bit lackluster in regards to the number of machines we sold. Three of those large-scale transactions we anticipated to close before September 30th have now been pushed into fiscal 2027. So our guidance for fiscal 2027, we are hoping to close about 6 large-scale transactions.
Each of those transactions are about $2 million USD per contract. Also, our royalties are expected to grow, which I will talk about in a slide here. So quickly on the tech, as John has already done a good summary. When you apply vacuum, you control the atmospheric pressure, therefore the boiling point of water. So we draw a firm enough vacuum to bring the boiling point somewhere between room and body temperature. By doing so, you are able to retain a heightened level of nutrient, color, flavor, as you alluded to before, as well as even going down below the triple point, so essentially an accelerated freeze-drying process. Our tech is actually continually to be evaluated by many of the large pharmaceutical companies. That is yet to hit our P&L in terms of generating value, but there is certainly interest in developing this technology for those applications going forward.
Further, our technology is continuous and flexible in how much moisture can be removed. So unlike lyophilization, air-drying, other incumbents, you can control the final moisture content precisely, which allows for different textures. With the other technologies, it is basically dry or you are going to have a wet center, and it is just not feasible to have that flexible final moisture content. If some of the adopters of our technology are concerned with ESG, the technology is extremely green. We have recirculated water, which cools the system. It is minimal energy usage. If we look at COGS of the products that are produced using our tech, typically about 5% of COGS has to do with the electricity utilization, and the majority comes from the actual value of the raw materials.
So again, low energy usage to produce a great product, therefore lower cost of production per unit, which is obviously very important.
When we look at the market and the size of the prize for us, realistically, about $2 billion worth of new lyophilization equipment or high-value drying equipment is sold per annum, specifically for food verticals. So we took out the additional machinery that is being sold into the pharmaceutical space because we have yet to prove this platform in that area. So this is a realistic TAM. Then in terms of the total value of the dried food market, premium dried food market that we have deciphered from our research is about 76 billion per year, and that is important because that is what the royalty percentage would be applied to as some of our royalty partners start to carve out market share for themselves.
This technology lends itself well to a number of verticals, not just one or two, like fruit and veg. Like you mentioned, your diversification into dairy.
We've got partners in meat, seafood, going into pet food. We're pretty much in every single vertical that you could imagine in the food space. Beyond that, consumers have an increasing demand for clean label, premiumization of what they're putting in their bodies. A recent Mintel study stated that 77% want simple ingredients, and they're looking at the back of the pack. I know I do more often than ever these days in terms of what I'm putting in my body. In terms of the rapid growth of freeze-dried product and markets, that's our primary competitor. When our customers are taking product to market, it's growing at approximately 8% annually. There is a continuing growth demand for these higher price, premium, shelf-stable, grab-and-go options.
The manufacturers, the food companies that we work with, innovation is primarily the driving force behind collaboration and development of new innovative products competitive in the landscape. When we talk to their engineers and their manufacturers, it needs to make sense, obviously, from a footprint perspective, cost per unit perspective. When you combine the opportunities with the new products, with the efficiencies of the machinery itself, lends itself to quite an attractive ROI proposition in terms of payback period on the actual CapEx. Many of those calculations come back between one and a half to two and a half years, assuming moderate success with the buyer of the technology. Our goals as a business is to sell as many of these machines to as many companies as we possibly can, obviously, around the world.
Each of those machines that we sell, we look at check printing machines that will send us back a royalty check on a quarterly basis. We're hoping to build this royalty portfolio to the point, obviously first to cover all of our OpEx soon. Next year, we'll come pretty close to that without relying upon those lumpy machine sales. Ultimately, when we get to the point where our royalties more than cover the total cost to run our business, all the incremental margin on more machine sales and the additional royalties fall to bottom line, which we'll either issue in dividends or buy back stock, depending on the value of our business. That is the plan. I mentioned the percentage of revenue for fiscal 2025 was 82%. For fiscal 2026, it's going to come in sort of that same range, breakdown of machine sales versus royalties.
Royalties, again, are basically pure margin. It was up to CAD 1.82 million in fiscal 2025. Our base royalties, we're expecting the total amount to be just over CAD 2 million for this fiscal, and the forecasted guidance for fiscal 2027, which we're in now, closer to CAD 3 million. Why the big jump from CAD 2 million- CAD 3 million so suddenly? We've got good success happening, like companies like BranchOut Food, if they hit their targets, that's a lot of royalties being paid from a singular partner. I mentioned we've got 50+ partners, and we've got 20+ large-scale machines out there around the world, and they're all starting to increase their manufacturing utilization, hence our confidence with making that larger jump towards that. Our OpEx in the business will be reduced in fiscal 2027 to about CAD 3.5, CAD 3.7 million bucks.
If we are generating $3 million in royalties at 3.7, our margin is 30% on a $2 million USD transaction. We only need to sell two machines to be in the black. Hopefully, we will have at least one or two of those confirmed before the end of this calendar year. We set ourselves up quite well for the next 12 months. Key growth drivers for EnWave, first royalties. This bar chart obviously illustrates the growth that we have seen. I talked about what the guidance is forthcoming. Again, we should see that continually growing for us. The leading indicator for royalty growth is the installed base. We call kilowatts as the rated power of the machines. Our largest machinery is about 100 kW, small pallet units, 10 kW.
Again, as that total installed base grows, the expectation is that the royalties will soon follow after the machines are turned on and products get to market. In terms of this business model, which may be unique for, again, an original equipment manufacturer, it is nice because once you start pulling those royalties, it is just consistent. It comes quarter to quarter without any additional effort, really. As the percentage of our revenue starts to lean more towards royalties versus machine sales, our margin is going to improve and ultimately has robust EBITDA potential for our business longer term. Quickly on the verticals, I mentioned that we are in most food verticals already commercially with partners, predominantly in fruit and vegetable, 20 licenses, 13 in dairy, five being seafood.
We are looking at pet food as the primary growth driver for us as a vertical is concerned for us in 2027. We have a company right now in Japan that is looking at production in about midpoint 2027, a company in Iceland who services Nestlé and Open Farm right now. They are looking at potentially buying large-scale equipment before the end of calendar year, amongst others in the U.S. We are excited about those different opportunities. This is the snapshot of some of the companies that have adopted the tech, signed licenses, paying us royalties, and bought equipment. You will recognize most, but not all. A lot of them are co-manufacturers, so producing ingredients which then are sold on to the large consumer packaged goods companies that you are more familiar with.
A couple companies of note on the slide deck would be General Mills, who we officially engaged with this past year.
They are now procuring a lot of the ingredients of snack products from a third-party co-manufacturer in the United States, which is driving up their utilization, which we hope will then lead them to buy more large-scale equipment to service General Mills. By engaging with General Mills directly and then matchmaking with the co-manufacturer who already has a license with us and machinery, it is instantaneous royalty growth. Hence, again, our bullishness on what we think we can grow the royalties for FY 2027. Here are where the machines are domiciled. We truly are a global company, rapidly expanding. We should see first installations in Africa this year, both in South Africa, Morocco, and Egypt, as well as a few new installations in Asia forthcoming. I will quickly rapid fire go through these slides, but I want to give you a better illustration of products in market.
Here are several different consumer packaged goods produced using the EnWave tech. PepsiCo's Bare Snacks brand, Calbee in Japan with their apples, Dole with the Good Crunch, and there are new innovative products being developed and targeted for launch next calendar year with all three of those companies. Talked about BranchOut earlier, Pacifico of Colombia, Pure Joy of Costa Rica, again, doing more regional domestic distribution, so not competing directly with BranchOut, but taking the same merits of technology to try and sell again to their end customers. In Italy, we have a company called Orto Al Sole, in Brazil, Solve, and Loovies was a more recent license partner out of Mexico who has their own proprietary extruded snack product, which they are claiming to be the healthiest snack in the world.
They have the studies to back it up, apparently, and we are happy to be their technology partner in that endeavor. From a co-manufacturing and ingredient perspective, MicroDried is a very large royalty payer for us. They have the second-largest REV installation globally in the U.S. and are a joy to deal with. They do also dairy products out of the Washington State facility. Over in Europe and beyond, we have Alarko of Turkey, Procescir in Mexico, Andean in South America, and a number of different cheese snack iterations in market in Canada. We have Gay Lea Foods in the U.S., Moon Cheese, and Almonds, probably seen that at Starbucks and/or Costco more recently. Moon Cheese is back in there. We are again working with US Armed Forces for protein-based products, pepperoni chips, dried cheesecake for their military ration programming.
Had BranchOut working with them, obviously, for a number of different products, hopefully to get those contracts going. Some other bespoke ingredients like chicken powder in Philippines and wasabi powder in Japan. Some pretty unique products. Let us keep going here and just show you there is breadth, there is deepness to the commercialization of different products right now, and all seemingly are gaining traction. The machines themselves illustrated on this slide deck, we have three primary models. The first is the 10 kW batch unit used for product development and/or small market trials. Once a company is comfortable with the business case, they will then invest in a larger scale continuous unit that starts at 60 kW in rated power, and then can go up to, again, 120 or 100 kW.
Unique again in this continuous nature in that lyophilization is batch and takes incredibly long periods of time to complete, minimum 15 hours for lyophilization, versus our technology is maximum three and a half hours. Sometimes it is below an hour, depending on the product, how much moisture needs to be removed. Cheese, for example, is like 45 minutes, so very quick. Here are some visuals of actual installations, both large scale and small scale around the world, just so you get a better picture of the stainless steel, what this is going to look like. Why do customers choose EnWave? I think John did a really good summary of that in his presentation with BranchOut and how they are capitalizing on it to create value for themselves and shareholders. But really beyond the technology's merits is the customer service that we provide.
We're a small but nimble team, and we're available 24/7. We provide a lot of support on that process and product development side, the creation of trade secrets, which then they can exploit for commercial benefit, and the technology is now proven. The machinery, the longest operating history of a large-scale unit is about 12 years now, and there's been no hiccups, no issues with the tech and minimal OpEx, excuse me, maintenance, OpEx for replaceable parts. There's only magnetrons and supply of power supplies that are needed, and that's pretty much it. The sales process, though, is tedious. It's long, and especially when you're working with larger companies. You've got multiple stage gates that you have to go through. You have to get the R&D folks on side, executives, then it's got to go through marketing, and then trials and tribulations.
As we've grown, we have put larger emphasis on building these co-manufacturing relationships with companies like BranchOut, MicroDried, et cetera, where if a General Mills or a Nestlé or whomever wants to do a product, they don't need to go through those multiple stage gates to get the capital investment to do their own production. We'll do the product development with them. We'll go through their business case and then hand it over like a present to one of our co-manufacturers to take it and run with it. It's really sped up the time in terms of getting products to market. Case in point, the General Mills example, where we engaged with them this year. They're going to be launching two products in 2027, that's confirmed. They'll leverage the existing manufacturing capacity that's already installed. We'll see royalties growing.
In summary, innovative technology that's proven, business case that's unique, and the growth of the sales of machinery can sometimes be lumpy, and that's what we've seen this past year. But the outlook for the business in regards to overall royalty growth and the quality of customers in our pipeline, our chairman said at our last, thankfully, he said this at our last board meeting, this is the best the pipeline's ever looked in terms of the quality of companies and the scale of companies. Now that we've built this ecosystem, again, inclusive of co-manufacturers, not just having to go through the path of getting them to buy and adopt the machinery themselves, we feel that we're going to be faster to grow those royalty streams and get closer to covering our total expenses.
We had an announcement, would've been like two months ago, a month and a half ago, about reducing our operational expenses. Prior to making that decision, we actually ran our own production facility in Vancouver to de-risk the technology for potential adopters, and the total cost to run that portion of the business was over CAD 1 million a year. We decided to get rid of it and reduce that expense because of, again, the evolution of the co-manufacturers in our ecosystem that we can hand off these projects to. We should see, again, our OpEx go down to about CAD 3.7 million, CAD 3.5 million next year. Again, royalties over three that we talked about, getting close to covering ourselves. I'll stop there and ask if you have any questions. How am I doing for time? I think that was pretty fast. Amazing. Go ahead.
What is the biggest value add for a customer to switch from a competing product? Is it total cost? Is it?
Why would a customer switch? What is the main driver? To be frank, typically, the folks that are adopting this technology are new into the shelf stable space. They are not displacing lyophilization, where they have already got huge sunk costs into these pieces of machinery. These are companies that want to compete, and they see the trends in market and how that area is growing. When they evaluate, do I want to invest in a freeze dryer, no royalty, but all of the detractors in terms of lack of flexibility and cost and length of time to process versus REV dry, that is where they are compelled to use vacuum microwave because it is going to give them a unique position in market with some innovative new products at a good price.
Do you anticipate then having any freeze-dried switch over to the new product? When do you think that will happen?
We are already starting to see it. Again, MicroDried, one of our biggest royalty payers, and they have been in the ingredient space for many years now with our tech. That is what they were doing. The first couple of years was tough, and it was slow growth with their attempts to do so. Now they are starting to get material contracts with the big-name players, and it is starting to sway over, and their business seems to be growing significantly. As different large CPG ask around, say, "Oh, well, why are you using that ingredient? It is lower cost. It is just as good," we are starting to see more buyers for REV dried product versus freeze-dried. Yeah.
And I know, would MicroDried be 25% of your royalty stream?
Yeah, I would say somewhere near like 20%-25% of the royalty streams for MicroDried. Yeah.
Why is the stock trading at all-time lows right now?
Well, I made the comment earlier that
Oh, sorry.
No worries. No worries. I addressed why it is crap, and I think the reason is the lumpiness of our large scale transactions. If we sell a large scale piece of equipment, we recognize that on a percentage completion basis. That can be drawn off over several quarters. If we are not working on large scale machines, quarter to quarter, revenues are going to be down, albeit royalties continue to grow. We have taken steps for this year obviously is reducing our operational expenses to be less reliant on those lumpy machine transactions. But the guidance for 2027, which we are in now, is six large scale machines we are hoping to convert, and to be in the black, it is like two large scale machines based on our reduction of expenses and anticipated royalty growth to CAD 3 million.
Right now we are trading at a close to all-time low. I think it is pretty crazy. Cash-wise, we are still like CAD 2.5 million in cash. We have got just over CAD 5 million in terms of trade receivables, due for customers on contract and loans receivables. And we have got inventory about CAD 3 million book value of machines itself.
Is there a warrant overhang?
No. No big warrant overhang. Just your standard options that have been granted over time to the full employee base. Also, that's not a tripwire necessarily. Yeah. Sorry.
Do you have a, excuse me, a return on invested capital target or some aspirations that you could perhaps?
There's been a lot of capital raised over the years with EnWave. So in terms of like, no, we haven't disclosed any numbers or forecasts in that regard at this time.
Thank you.
Yeah. No problem.
When we talk about the potential in the pharmaceutical industry still to be kind of R&D, are there any customers that basically already have a leg in pharmaceutical that is under existing base who can say, "Hey, we trust you over here on the food side. Let's talk about the pharma side.
No crossover from food to pharma necessarily, but we have an ongoing joint partnership with GEA. GEA, for those who know, a major machine manufacturer globally. They have one of our machines, which they have retrofitted for pharmaceutical use, available at their brand new lyophilization plant in Germany, and they are showcasing that tech for us, and they know how to structure those projects based on the different phase I, phase II clinical trials for these different drugs under development. We are putting that in their hands, and then we will share in the spoils if it ever does commercialize.
Since lyophilization is the gold standard in the equation in pharma space, how would TAM compare if you were to get 100% market share again, pharma versus the TAM that is currently available?
I think that would be irrational to like add the total value of like pharmaceutical products that are being dried using lyophilization. Right now, what I can talk to you about maybe is like the value of the lyophilization machinery that is sold per annum, and that is like another $6 billion per year. It is a large amount of CapEx being deployed, and most of that is going to some of the stalwarts who are specialized in pharmaceutical dehydration using lyophilization. Yep.
I have a technological question.
Yep.
What is the life cycle of these plants? After how long are they usually replaced?
Many years. Decades.
Okay.
They are similar to our tech in that you have your standard vacuum pumps that need to be replaced every so often, but primarily these machines are made of stainless steel, and they have their individual componentry, which is not that, again, cost prohibitive, like I mentioned, in terms of replacement costs. It is more so the economics of the process that is the detractor and the lack of flexibility that you can have in the characteristics of the end products. In the back, yep.
Can you walk us through how the price of the machine works in regards to product? Someone buys a machine for $3 million from you. What are they paying in terms of royalties per adding lots? How does that work?
Okay, so our typical transaction structure would be $2 million USD for the largest scale piece of machinery. We take a 40% deposit, start building the machine, 20% three months in, 20% upon shipping. So we are always using those deposits to pay for the machine build, so it does not require huge amounts of working capital, and then 20% once we have commissioned and installed the machinery. After that and it gets turned on, we negotiate a single-digit percentage of revenue created through the sales of the products. That can range between 2% and 5% dependent on the business case. Is it a higher value product? How much throughput are you getting? So it is a back and forth in commercial negotiation on that front, and then they pay those royalties until the last patent within our portfolio expires, which goes out right now to 2040-ish.
So we still have a long runway for royalty collection, and that is the uniform term in every license that we sign. The same term, just different commercial royalty percentages.
If you look at, you have been around for a while
Yeah
consulting. If someone bought a machine for $2 million, what are the royalties that they pay you over five years?
It depends on their success levels.
Yeah.
So-
It has to be an average.
Let's say, man, that's hard. There's a lot. There's a lot out there. We'll say that for our largest scale machinery, if they're at 80% capacity utilization, you're looking at probably between $150,000-$250,000 USD per year per machine if they're at full run.
You've got 2,686 as far as the kilowatts installed 2025.
Yep.
If you install another six machines in 2027, you're going to add roughly 360 with about a 13% left.
At what point do you end up with the Microsoft-like margins from the royalty stream offsetting the 30% margin on the base equipment?
Yeah, fair enough. It really will depend on whom we sell the large scale equipment to. If it is a repeat purchase order, that is just going to add to immediately needed capacity. The royalties are going to go faster in growth. If it is a new venture that is making their first investment into scaling up, that is oftentimes a slower build in royalties and success in market. If we sell six machines, and we are able to get to a point where we can reduce the margin on the CapEx, I think by 2028 we can take a look at that, but also have to be cognizant of ever-increasing material costs that are coming into play.
We still want to make a margin. Perhaps we can reduce that to 20% margin to get more companies in the door. We will take that on a case-by-case basis as we grow.
Out of the six machines that we sold in 2027, how many of them would be the boss wants to go water speed 90 to increase capacity in a hurry?
Yep
versus the more leisurely kind of start-up?
Right now it is half and half. We have got three targeted for new companies going from a 10 kW scaling up to a 60 or 100 kilowatt, and then we have got three tapped for current royalty partners who have communicated their plans for growth. That is a timing thing in calendar 2027 for them. Hi. She says, we are out of time. Okay, I am out of time. I will talk to anybody who would like outside, and also folks interested about the cheesecake before, I have got samples if you actually want to try it, so come on by. All right. Thanks, guys.