Good morning. Welcome to EnWave Corporation's Q4 2023 earnings conference call. My name is Daryl, 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 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 zero 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 CEO, Mr. Brent Charleton. Sir, please proceed.
Thanks very much, and happy holidays to everyone. Greetings to all of you who have joined us today to discuss EnWave Corporation's Q4 results, as well as our fiscal year 2023 performance and fiscal 2024 outlook. Now, consistent with our past quarterly earnings calls, the information we will present today contains forward-looking information that is based on our management 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 remains at the forefront of vacuum microwave drying, innovation, and commercialization.
We've built a strong foundation of technology partners throughout the world that are holistically increasing the number of REV dried products now being sold to consumers in more than 25 countries. Our royalty portfolio is growing, an indication that many of the individual royalty streams are also expanding, not just the number of partners in our portfolio. This momentum continues into fiscal 2024, as we potentially could see robust growth on an improvement in installed capacity of REV machines. Our growing royalty portfolio underpins the value of our business. We anticipate several go, no-go, large-scale machine purchase decisions tied to new and existing royalty partners to take place in the next 2-3 months, and more in the latter half of fiscal 2024.
Our REV machine sales continue to be volatile quarter to quarter, and in certain quarters, we may sell multiple large-scale REV machines, and some quarters, none at all. There isn't necessarily seasonality associated with this volatility, but every business runs on their own timelines. In fiscal 2023, we added six new licensed partners, including notable companies like Michael Foods, which is a subsidiary of Post Holdings, Bridgford Foods, a longtime production partner with the US Army, a major Canadian cannabis company, and Creation Foods, who acquired most of the assets from NutraDried and continued to sell Moon Cheese in the North American market. We sold four large-scale machines this past fiscal year, and we currently have many more large-scale opportunities to pursue. Our sales pipeline includes both possible scale-ups with existing technology partners and new deals with companies working through their initial product development evaluations.
There is strong internal optimism, but the reality is we need to execute and deliver on these prospects. If we do, our royalty portfolio will continue to grow. In fiscal 2023, we generated CAD 11.3 million in revenue, up CAD 300K from the year prior, of which CAD 1.5 million was from royalties, up just over CAD 100K year-over-year. We also reduced our SG&A costs in fiscal 2023 by about CAD 1.7 million year-over-year, yield a gross margin of 39% and produced positive adjusted EBITDA of CAD 379K, a million-dollar turnaround from the year prior. Over the past twelve months, we completed the installation of three new large-scale machines, one at Orto Al Sole of Italy, a second at Dole in Thailand, and a third at one of our Canadian cannabis partners.
We will have another two come online before the end of February at Bridgford Foods, a very large snack manufacturer in Japan, respectively. The potential impact of this increase in manufacturing capacity has not yet been reflected in our royalties, and we assume that through fiscal 2024, royalties should improve as these technology partners execute their planned commercial launches. Now, a notable difference to EnWave's situation today versus the same time last year, is the number of blue chip partners that have or are in the process of launching commercial consumer products in market. If any of these product launches are successful, we expect several new large-scale machine orders to support the future needed manufacturing capacity tied to growing volume estimates. We are communicating closely with these technology partners and remain optimistic.
Q4 reflected the aforementioned volatility of large-scale machine sales, and we are working to achieve more consistent cadence of machine orders in calendar 2024. That being said, the success of existing technology partners and the growth of royalty revenue should be the focus for investors. 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 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, Q4 ended September 30, 2022. Revenues for Q4 were CAD 1.5 million, compared to CAD 2.8 million in Q4, 2022, a decrease of CAD 1.3 million or 48%.
The decrease was primarily due to fewer machine contracts during the quarter. The decrease in revenue was partially offset by third-party royalty revenue, which was CAD 381,000 in Q4 2023, compared to CAD 301,000 in Q4 2022, an increase of CAD 80,000 or 27%. Royalty revenue for the year was CAD 1.5 million, compared to CAD 1.4 million for 2022, an increase of CAD 113,000 or 8%. The increase was predominantly a result of an increase in products sold and produced by our royalty partners. And as our royalty partners grow their businesses and increase capacity utilization on REV equipment, alongside new REV installations deriving from new sales, we hope to see material royalty growth over the coming quarters.
As Brent mentioned, there are 5 large-scale machines which have been recently commissioned or will be commissioned soon, but have yet to reach expected royalty-generating potential. Gross margin for the company in Q4 2023 was 29%, compared to 39% in Q4 2022. The decrease in margin was due to the production mix during the quarter and the machine resale in the comparative period. Gross margin for the company remains healthy at 39% for the year end, September 30. SG&A expenses, including R&D, were CAD 1 million for Q4 2023, compared to CAD 1.4 million for Q4 2022, a decrease of CAD 405,000 or 28%. SG&A for the year was CAD 5.2 million, compared to CAD 6.8 million for 2022, a decrease of CAD 1.7 million or 25%.
We reduced G&A costs as part of a continued focus on managing non-revenue generating 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 324,000 for Q4 2023, compared to adjusted EBITDA loss of CAD 27,000 for Q4 2022, an increase of CAD 297,000. Adjusted EBITDA for the year was CAD 379,000 compared to a loss of CAD 681,000 for 2022, an increase of CAD 1 million. The increase in adjusted EBITDA was primarily due to the reduction of SG&A expenses, including R&D, offset by lower margins for the period.
We finished Q4 2023 with cash and cash equivalents of CAD 4.2 million and a net working capital surplus of CAD 8.6 million as of September 30. Our balance sheet remains debt-free. As previously announced, EnWave's board of directors and executive management commenced an orderly wind down and value maximization process for the NutraDried business segment earlier in the year. In Q2, EnWave agreed to sell NutraDried assets, including trademarks, auxiliary production equipment, select saleable inventory to Creations. Total consideration for our sale of NutraDried assets and the 100kilowatt unit to Creations was $2.6 million, of which $830,000 was outstanding as of September 30. In accordance with IFRS 5, NutraDried has been presented as a single amount in the face of the statement of comprehensive income as discontinued operations.
During Q4 2023, the company reported net income from discontinued operations of CAD 770,000, compared to a loss of CAD 1.8 million for Q4 2022, an increase of CAD 2.6 million. The increase was a result of the wind down and tax refund in the amount of $500,000 of an estimated total potential of $1.2 million tax refund being recognized in Q4 2023. The refund is for the employee retention tax credit, which is a refundable tax credit from the United States government for businesses that were affected during the COVID-19 pandemic. The $500,000 tax refund was received subsequent to year-end.
As of the date of this earnings call, there's been no further communication from the IRS related to the remaining potential tax refund, and the associated receivable has not been recognized as there's no certainty it will be issued.
Thanks for your commentary, Dylan. Now, despite a slower Q4 than we would have liked, we see many opportunities, many of them near term in fiscal 2024, to expand existing commercial relationships in a number of verticals, including the fruit, vegetable, seafood, pet treat, meat snack, military ration, egg product, and dairy snack areas. Quite a, quite a number of verticals that we're commercializing this technology into. We also have the opportunity to convert a number of new companies into royalty paying partners. We expect our royalty portfolio to grow both in total size and by the number of contributing royalty payers. New REV dried commercial products have or will be hitting the market with meaningful distribution this year, and we need these products to sell well.
We will continue to keep our expenses in check and spend strategically in an effort to stimulate greater revenue generation, and our current cash position will adequately support our business needs so long as we sell machines as internally forecasted. There genuinely seems to be growing interest now in our stock, again, stimulated by a recent capital markets effort, and we intend to continue investing time towards investor outreach and awareness concurrent with expected operational execution. I'd now like to open 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 your line is in the question queue. 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 your questions. Our first questions come from the line of Eric Psim with EnWave. Please proceed with your questions.
Hi. Hi, Brent. Hi, Dylan. I just wanted to congratulate you on the royalty growth, which is, as a longtime shareholder, something I've been watching for many, many years. You know, now that we're firmly above CAD 1 million, Dylan, you referred to anticipating material increases in royalty. Do you guys have internal measures for that? How do you define material internally when you're – you've really come quite a long way in the last few years for percentage gains? Do you still anticipate single-digit?... growth on that royalty, or can we expect double-digit growth for a couple years before we lower that down?
Hey, yeah, thanks for your question. As a percentage, you know, we still forecast double-digit royalty growth in the coming periods. Our last, you know, quarter here had about $400,000 in royalties. So on a go-forward basis, you know, management looks at that as our royalty baseline, if you will, for 2024.
Yeah, I'll just add some additional color to Dylan's response there, Eric, in regards to the products that are going to market, or have already gone to market. There's no lag or delay in the volumes that are hitting the market versus, say, partners who typically have sold their products on a business-to-business basis. These business-to-consumer products are filling the distribution channels, and we should immediately see an influx in royalty growth from the likes of, you know, Dole, Calbee, et cetera.
Yeah, I mean, it's, that's why I, I kind of, I wonder what, where those royalties can go, because that really is a, it's kind of a new era for the company. A lot of the partnerships that you guys have currently don't seem to have those kind of volumes and names involved with the production. So, I mean, can we expect, you know, how much, how material is material, I guess, but I guess we're just gonna have to wait and see it roll in.
You're exactly right. It's always so hard to predict royalty growth because it's timing based on, you know, commissioning of machines and, commercial partner success. But, you know, we continue to anticipate and project internally that, we'll continue to see strong royalty growth as these machines come online.
Is that part of the company being recognized in the pursuit that you've had in the capital markets? Is that something that you and your team focus on? Because that has always, for me, been a key pillar of the company's future. And, you know, we really seem to be at a point where it's gonna be lift off here for royalties, and, you know, the embedded nature of those royalties is so attractive to the markets, and that's... Is that something you guys are talking about?
Absolutely. That is a key emphasis in all of our communications with capital markets, is the royalty portfolio that we have, the strength of our intellectual property, and the projected growth in those royalty streams from blue-chip technology partners. This is, you know, EnWave with a sort of a clean bill of health without having a subsidiary that was hemorrhaging cash. We've cleaned that up, and we accomplished that in the first half of the year. And then now with what we see in our pipeline operationally, it makes sense for us to spend time to ensure that as we hopefully deliver, folks are watching us.
Yeah, well, again, you've, I really am looking forward to 2024. It sounds like you've got a lot on your plate, so I, I wish you all well, and we'll, we'll see what you guys come up with. Thanks again.
Thanks, Eric.
Great. Thank you.
Thank you. We have reached the end of the audio portion of the question-and-answer session. Now, I'd like to turn the call back over to CEO Brent Charleton, to moderate the webcast questions and provide closing remarks.
Thanks very much. So there are three questions that I'll answer that are listed here. First is a question: Any updates with the lawsuit to report, referring to ongoing civil litigation with some former management employees of EnWave Corporation? So the updates I can provide, which have been publicly disclosed, are that we have come to settlements with two of the primary defendants, not including ex-employees of EnWave, and have now received a copious amount of additional communiqué and evidence to further support our pursuit of justice in this particular case. The court date is now being projected to be scheduled sometime in 2025, given that the primary defendants, the ex-employees of EnWave, changed their counsel halfway through the proceedings here.
So, they are still under full injunction, can't do anything regarding vacuum microwave, and we're happy to continue preparation for the eventual court date. Second question is: How are you managing production personnel while waiting for machine orders? I guess just, you know, the inherent volatility of when we're building machines. There's lots to do in-house, and I think we have a lean enough team where we're always kept busy, whether it's on new innovation, with some of the processes and refinements in our machinery. And also, we're still installing machines. Like, as I said, we have folks that are actually in Japan right now, completing a large-scale installation at one of our partners. They're then scheduled for several visits internationally to current technology partners, as a preventative maintenance exercise, paid preventative maintenance exercise, and then ultimately the installation for...
Which gets to the next question on the list here. What's the update for Bridgford Foods and the US Army? And that, that 120-kilowatt machine is scheduled for installation in Q2 fiscal. So we'll have our team out in North Carolina completing that and training up them for the production of cheesecake rations for the US Army to begin. But also, Bridgford is currently collaborating with a handful of commercial partners and other folks that are interested in getting into the US Army ecosystem. And so the next question for Dylan here is: Do you break out royalties on your income statements?
Not on the face of the income statements, but in the revenue note, note 18, we segment the different revenue streams and then, additional commentary on royalties in the MD&A.
Okay. Thanks, Dylan. And then the last question I see here currently on the platform is: What is the utilization time of Revworx and how much time to, with potential customers? So the majority of our utilization of that infrastructure has been on the development of new contracts and/or the progress on down the sales pipeline with folks that have taken manufacture in-house. We have still several material Revworx contracts we're pursuing for fiscal 2024. If successful, incrementally speaking, on revenue, it would be a maximum of, you know, $1.5 million.
So this is not significantly material in terms of top-line growth, but as we've stated time and time and time again, is that that particular facility is more of a sales tool for us to de-risk the launch of new products to market and then encourage folks to take, again, manufacture in-house longer term under a licensing royalty agreement. I'll wait a few seconds here to see if any further questions come in. Okay. All right. Seeing none, would like to thank everyone who joined us today for EnWave's Q4 and fiscal year 2023 earnings conference call. At this time, you may disconnect.