Okay, I will get it going now, Steve. Good afternoon, everyone, and welcome to Progressive Planet's fiscal Q1 2027 earnings call for the period ended July 31st, 2026. The financial statements and MD&A have been filed and can be accessed through the SEDAR website. Today is October 6th. CEO Stephen Harpur will present the company's financial results and provide a business update. This will be followed by a Q&A session. Investors are encouraged to submit their questions via the Q&A box, and we will address them at the end of the session. Please make your questions clear and succinct. I remind everyone that certain statements made today may contain forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors.
For a complete description of these risks and uncertainties facing the company, please refer to the MD&A and other continuous disclosure filings, which are also available on the SEDAR website. Steve, I'll pass it over to you now.
Hello, Martin. Thanks for having me.
All right.
Welcome everybody. Thank you for taking your precious time to listen to me for the next 45 minutes or so. I appreciate your time. I know it's valuable. We're going to talk today about the first quarter results of fiscal 2027. The first quarter ended on July 31st. I am having a little glitch here. Here we go. Our forward-looking statements. I'm not going to read this, but I will be talking about future events, and please note same. I want to talk first about the financial position of the company. We are currently experiencing strong momentum. We had record annual revenues for the fiscal year that ended April 30th, and we continued with that momentum. Our Q4 was our highest quarter ever until we exceeded that and significantly exceeded that with a record Q1.
Currently have more than CAD 5.6 million available in unused credit facilities, over CAD 2.5 million in cash as of July 31st. I talked a lot in the last, just a few weeks ago, Martin, when we talked, no further one-time slotting fees budgeted. Also, no further major capital projects currently anticipated for this current fiscal year and four major capital projects to be wrapped up by April 30th, 2027. Capital projects underway right now, four major capital projects underway. They'll all be finished two months before the end of our current fiscal year. The PozGlass phase 2, the major CapEx will be completed by December 31st. We just received yesterday our bagging line for the Can Blast abrasives that are made on the front end of that system.
Our lightweight cat litter installation that will occur before the end of the calendar year. Our automated valve pack line expected completion by February 28th. There's CAD 1 million of grant money from FortisBC that we will receive once we complete that. Our, sorry, pardon me, that is the fine grinding line. There's CAD 1 million of FortisBC money for it. The automated valve pack line again completed by February 28th, 2027. Critical infrastructure. Absorbent spent minimally in infrastructure and equipment in the decade before acquisition. The company was for sale for many years before we actually completed the acquisition. The acquisition got delayed by about two years based on COVID, and Absorbent needed a lot of money to invest in upgrading throughput. We've significantly increased the capacity since the acquisition, and these investments are now in place.
Current capital program is committed and on track for completion in this fiscal year. Any future capital allocation shifts will shift to growth and return-driven opportunities. We'll talk later in the presentation about a focus on the U.S. marketplace. Commissioning underway now on the PozGlass pilot plant, our Can Blast abrasive line. We've been selling that for about 20 years, our brand, but co-packed by another company. Just received the bagging equipment yesterday. We'll have that up and running and be bagging 50-lbs bags of sandblasting abrasive media. We'll be making our own by the end of October, and we will be commencing the production of PozGlass powder, so the wet grinding in November. We are now working with Amrize, formerly LafargeHolcim, for real-life projects with PozGlass April, May 2027 in the lower mainland of B.C.
I want to talk about our research and development and our core business costs. You saw elevated spending in the last fiscal year and again in the first quarter on the PozGlass pilot. I also want to talk about core inflation and how we've addressed it after Q1. We receive grant funding, which reimburses 49.86% of the PozGlass pilot plant costs. We report that as grant income separately from our core business. Under IFRS rules, which apply to us as a public company, development costs for a pilot plant can only be capitalized once a number of specific criteria are met, and these are quite stringent. Many of our costs that normally could be capitalized are expensed with this pilot plant.
PozGlass pilot plant costs will scale back at the end of the 2026 calendar year, so by December 31st, 2026, as we move to operating the plant. I also want to talk about core business inflation. We saw a significant increase, specifically over CAD 400,000 increase in our freight. Part of that increase was an increase in the amount of goods shipped, but there was a larger increase in the amount of freight than the growth of the company. We continue to see some margin compression in the short term, but we did implement a price increase in the current quarter. Some of our customers take up to 90 days to accept the price increase, but we implemented a price increase in August and September. Notification was given to our customers.
We will focus now with the automation and the projects that you've seen that I've just discussed. We're also putting a major focus on increasing our revenue per employee with these CapEx investments. Once you install an automated valve packer, you're not going to have the manual labor of manually filling the bags of Red Lake Earth, geothermal grout, et cetera. Q1, you see the two gold bars here because we celebrated best ever quarter ever in Q4 with CAD 6.51 million, and then we had CAD 7.29 million and change rounded up to CAD 7.3 million for Q1 of fiscal 2027. There is some seasonality in our business. If you look to Q2 for the last two years, you can see those numbers, and you can see that there is some seasonality. But we are very excited about the continued growth of the company.
I just don't want everybody to expect that every single quarter will exceed the prior quarter because we do have some seasonality in Q2 as we wind down. We have very prolific sales of Red Lake Earth, and one of the main things it's used for is killing fire ants. The fire ant season starts to wind down in Q2. We do see some decline in sales of Red Lake Earth, and that's part. Then, of course, in Q3, we start to see our cat litter ramp up again. Q2 is typically a weak quarter for us. I just bring that up to create realistic expectations that we will not constantly exceed every quarter from the quarter directly behind it. We do have some seasonality, but we are seeing very strong momentum in all segments of our business. Again, highest annual revenue was 2026.
Anybody that takes Q1 and times it by four would immediately see that we are trending to do better than that. But again, I caution that there is some seasonality, but also that we are seeing an uptick in all levels of our business, in all sectors. I want to talk about the elephant in the room. I often get teased. It is one of my favorite sayings, the elephant in the room. So what is the elephant in the room for us? Well, it is inflation and increased costs. If you look at the image to the left, you will see the three SKUs that we have. We have done roughly CAD 2 million in sales of those three SKUs since November 1st. They have been phenomenal for us. We sell them in 2,434 Tractor Supply stores.
The 20-lbs bags are co-packed for us by a family business in eastern Oregon, and then we bring back bulk bags of that and we make these two products. You see the image, and I am also holding them up. Those are made in Canada. Unfortunately, two of those three SKUs that are part of our booming new brand, Pure DE, they do cross the U.S. border twice, once when they come up to us, and secondly, when we bring them back for sale into the U.S.
Our diesel costs, they are soaring. Freight costs rose from CAD 819,000 for the prior year Q1 to CAD 1.233 million. I think most people recognize that globalism is in decline. There are strong incentives in the U.S. to make products in the U.S. that are sold in the U.S. So how are we going to address? Addressing the elephant, long-term solutions.
Over 66% of our Q1 revenue came from the U.S.A. Freight costs decline if products sold in the U.S.A. are made in the U.S.A. So we are searching for opportunities to process more product in the U.S.A., specifically in the Pacific Northwest, and we are seeking to avoid two border crossings with our new product lines. Red Lake Earth, Stall Dry, these products, Activated Barn Fresh, they will always be made with our Canadian DE. They are well-established brands that have a different color of diatomaceous earth. The Pure DE is a near white, and the Red Lake Earth, it is not quite red, but it is a sort of salmon-colored material, and people know its color. It is very much part of its identity. We are also receiving strong inbound inquiries to partner to onshore other industrial mineral-based products with very large third-party companies.
We are getting inbound interest from Europe and Asia. The European Union and Japan both signed new tariff agreements, which have fundamentally changed the profitability of legacy production of industrial mineral products in both Europe and Asia. Our phone is ringing from people wanting to discuss toll processing or partnering on onshoring. As we look to move more production into the U.S., as you know, we have got very strong brand now with the Pure DE being sold in Tractor. We are looking to establish bricks and mortar south of the border, not only to manage our own business, but also to enter into the business of toll processing. So ultimately, we are looking to build a multipurpose processing facility in the Pacific Northwest, similar to what we do in Canada. Share structure.
We have just under CAD 111 million shares, just under CAD 6 million options, just under CAD 117 million shares, fully diluted. I want to talk about awards. These are third parties recognizing us, and a lot of the value of the awards is gaining credibility with larger companies expressing an interest in doing business with us. I think the one that's most near and dear to my heart is the Carbon Capture Canada. We won it September of last year. We beat multiple global players. Petronas, one of the biggest oil companies in the world based in Malaysia, was a finalist for the Carbon Capture Utilization and Storage Technology Award of the Year. BASF, the biggest chemical manufacturer in Europe, was a finalist. We beat them.
These awards that we continue to be nominated as finalists and stay tuned as award season is up and coming for the fall of this year. Investment highlights. We're profitable, vertically integrated, clean tech manufacturer focused on eco-friendly silica-based products. We have robust cash flow funding our innovation pipeline, very clean cap table, patent pending solutions poised to disrupt the cement industry, getting ready to start deploying PozGlass. The investments in upgrading Canadian operations are nearing completion, and we're now moving our long-term focus on growing business in the U.S.A. with more production in the U.S.A. And so that's it, Martin, and I'll hand it over to you for any questions.
Thanks, Steve. As a reminder, anyone with questions, please type them into the Q&A box in Zoom, and we will read them out. Firstly, would PLAN help the co-packer buy new equipment so that you wouldn't bring the raw material to Kamloops?
We currently have a wonderful relationship with a co-packer, but they have a very small building on site. This is the material that we procure from a third party in eastern Oregon. That production facility is simply too small to grow significantly to enable us to do more at that specific production facility. Would we welcome increased involvement with this wonderful family business? Absolutely. But it still needs investment outside of the geographic location of the current production facility.
All right. You are not providing official revenue guidance, but can you give a sense of what level of growth should we expect growth year-over-year on a quarterly basis? While quarterly revenue may be seasonal, should we generally expect growth from the prior year?
Yes. I believe that we should expect growth quarter-over-quarter for the next three quarters of the current fiscal year if the current trajectory remains consistent. We've introduced a new product line. We only started doing sales in November of the Pure DE. We're seeing growth in our geothermal grout, and we are seeing general increase across all of our business segments.
You said you're expecting quarter-over-quarter growth for the next three quarters. Do you mean, like, Q2 will be bigger than Q1?
I mean Q2 versus the prior year Q2.
Okay.
Q3 versus prior year Q3. I believe we will see, of course, the only thing that is constant is that there's no constants right now in North America. There are things that can, if we are all of a sudden tariffed. Currently, we are not. I can only comment that in general, we are seeing an uptick across our business lines, and I expect to continue to see that uptick.
All right. Your margin compression, is that all due to rising costs, or are you facing pricing pressures as well?
Rising costs. Customers are not asking us to provide cheaper prices. On the contrary, we're able to get through most of the price increase that we implement. We only do price increases once a year. We just did them, the bulk of them coming in September. But the margin pressure is very much on inflation, and it's not just diesel. Plastic bags cost more, paper products cost more. The other thing we are doing to mitigate that is looking to grow our revenue per employee with the investments in automation. In particular, the automated valve pack is one, and continuous improvement is part of our DNA. You saw the margin grow in this company over the last three years.
We will continue to focus on continuous improvement, but one of the biggest things for us is a real focus on revenue per employee, and the investments that we've made enable us to grow our revenue per employee with automation. We just implemented, in the last year, the new robot that can feed two lines at once, but we haven't seen the benefit because the second line for us, our valve pack line, is still manually fed. At the point that the automated valve packer works, our robot can work at full capacity, stacking two lines at once with the bottleneck being currently the manual filling of the valve pack bags in that second line.
All right. The Can Blast line is expected operational by the end of October, lightweight cat litter by the end of December, and then the valve pack in February or March, I guess, of next year. Will those have impact immediately on efficiencies, I presume?
Yes.
Will they impact the revenue or the revenue potential, and how long will that sort of growth potential take to show on the financials?
There's two things you need to grow. First of all, you need to have the new sales, and secondly, you have to be able to produce the product and not grow your backlogs. If you grow your sales, but you just grow your backlog as you grow your sales and don't increase your production, then you don't increase your revenue. We changed two years ago the compensation structure of our sales team, and that has now worked out very well. When you introduce a new product, it's typically 9 - 12 months before that goes into a company, sometimes six months, but it's certainly not instant. The other thing is that the fourth capital project, the air swept mill, the fine grinding, that will increase our throughput by a factor of 10.
Currently, we produce a bunch of chipped product, so small little chips of DE or of bentonite clay, and then we have by-product powder. That by-product powder has to be ground smaller to have finished powder products. We have, for the last 30 years, not been able to make fine powder as fast as we generate coarse powder. Then we're subjected to going through a secondary step where we wet that powder, extrude it under pressure, press it back into rocks, goes back to the dryer, crushed and screened again. That's a significant cost for us. With the introduction of the new air swept mill or the fine grinding line, and this is the one where we've got CAD 1 million coming back from FortisBC when it's complete, and its target date is February 28th.
We will now be able to produce fine powder products as fast as we generate the coarse powder, so we can keep up because we've increased the throughput of that mill by a factor of 10. All of the powders are produced on the valve pack line, and the valve pack line currently is manually, someone literally picks up a bag and puts it on a spout. When it fills, they take it back, and then they put it onto a line where it goes over to the robot. There are two things holding up all of the products going through the valve pack. First of all, we couldn't make fine powder fast enough. That is now changed as of February 28th, when we finish the fine grinding line.
Secondly, we'll be able to bag it significantly faster because it's no longer manually a human putting an empty bag and then taking a 40 lbs off and then placing it in line to go to the robot. That's all done automatically. The answer to your question is a qualified yes. We still have to go out and get more sales, but we have the ability to produce. As you're aware, our business is on an uptick. We are growing, so qualified yes.
Okay, so your salespeople are incentivized to generate the new sales to coincide with the ramp-up of production.
Correct.
Okay. With the potential U.S. expansion, could this be achieved through an acquisition, or would this likely be done through a brownfield or greenfield investment?
All of the above. We are evaluating multiple opportunities. We are considering all opportunities, and obviously, I have been talking about this for maybe nine months now, so this is not a new topic. Stay tuned as we progress with this initiative to produce more in the States, but all of the above are options for us.
Margin hit in Q2 amounted to about 400 basis points. Due to all the factors you have discussed, do you see it stabilizing at this level? Could it improve, or could we see some additional weakness?
What I do not know is what the price of diesel is going to be. We see anecdotal evidence that crude oil is moving through the Straits of Hormuz at even higher than pre-war levels. But diesel production, we have seen destruction of processing capacity in Russia as well as in the Middle East. U.S. and European and Asian diesel production is running at greater than 100% of nameplate. You cannot do that forever without damaging your facilities. We run industrial processing. We know a little bit about running at excess capacity.
I cannot predict the price of diesel. I do see continued inflation right now, because it is not just the production of diesel, it is also the production of plastic, which is, again, a petroleum product, and the price of plastic is increasing. I do envision that we will have continued inflation for the next 6-12 months.
Even if everything ends tomorrow, there is a whole bunch of capacity that needs to be rebuilt. So I do see increased inflation for manufacturers as a whole. We have put through price increases, and we are investing and are nearly complete in the automation efforts. But I do not see margins rising significantly. With respect to what the other side is, it is a little bit of crystal ball. I will say that the majority of our costs are our own products, and we own our own minerals, so we do not see inflation on the raw materials that represent the bulk of our products, which we own, which are our DE, our bentonite clay, our zeolite quarries. We own those. For people that buy those commodities from others, they are subject to more risks than us.
We do have some protection, but the price of chemicals, and we buy two chemicals. We buy food-grade citric acid, and we buy soda ash, as well as the price of plastic and paper packaging and the price of freight. I do not see any relief in those in the very near term.
Are you running 24/7 at the facility?
For the last couple of weeks, we are back to 24/5, and we move to 24/7 when needed.
All right.
We did have a significant backlog that we were able to work through, and our backlog is more manageable. We have flexibility as we go through large seasonal demand, we can switch back and forth readily between 24/5 and 24/7, and we are doing that. We don't run 24/7 when we don't need to, but it's very easy for us to switch back and forth.
How does heat recovery return to the dryer?
That's very specific. We do not do that. We have some grant money from FortisBC to implement that project. We are still deciding whether we're going to proceed, but we do not have any heat recovery in our core business right now.
The Calgary R&D facility, how is that progressing as a revenue-generating operation, and can you give us a general update on that facility?
The core function of that facility is to work on commercializing our second cement, which is Planet LCD. We have done significant work on improving that recipe. We have now successfully replaced 50% of Portland with Planet LCD and exceeded the compressive strength well over 100% at 28 days. As well, in my opinion, we have perfected a plasticizer to work with that. We are starting to evaluate a location for a pilot plant in Alberta for progressing Planet LCD. There is some revenue. I am not going to get into the specifics. I never comment on the individual lines for competitive reasons. We just do not do that. We share our margins as a whole, but we do not talk about what we do for any line of the business, and I am not going to start that now.
For the PozGlass pilot plant, what specific regulatory or occupancy permits remain outstanding for phase one?
We are still waiting on an occupancy permit. I will get an update. I just got back to the office today. As soon as I finish this call, I am sitting down with the process engineer for PozGlass. We do not have it today, but I believe it is imminent, and as soon as we have it, we will put out a release announcing that. But we are working with the Tsleil-Waututh, who are our landlords. We are on their First Nations land here, but I believe it is imminent, but I do not have an exact date.
When do you anticipate Amrize or Lafarge could begin taking initial volumes of PozGlass?
We've got a very well-planned deployment. I'm not prepared to release powder to them until we've done about a dozen compression tests on different batches to ensure the quality is there on the day after day. I envision starting to give them five-gallon buckets of material in January and then February, perhaps a little larger, but we are looking realistically at major pours in the Lower Mainland of ready-mix concrete utilizing PozGlass in April and May of 2027.
Recently, you announced Dave Barnett joined your board. He's got an impressive resume. Can you describe in which ways his skills most benefit the way his skills most benefit PLAN and your plans for growth?
For sure. Our CFO has a similar level of education, a Chartered Business Valuator and a CPA, Chris Halsey-Brandt, and then Dave's got a Chartered Financial Analyst. Chris had a little medical issue, and we expect him back in two to three weeks now. He's recovering nicely. That whole incident forced me to look at redundancy in those skill sets. Dave was a pesky shareholder that, and I say that tongue in cheek, he's probably listening and laughing. I've got to know him very well. He does an exceptional amount of due diligence before he invests, and he's got a very meaningful share position. He started coming to our plant on multiple occasions, asking questions. Immediately prior to becoming the CEO of ZTEST, and that's a public co. that I'm a director of, so I also got to get to know Dave through ZTEST.
Dave worked in the insurance industry, and he would go on site to various large businesses and assess risk for underwriters of large insurance premiums that could exceed CAD 20 million in cases of big businesses. Dave would assess business risk, generate a written report for the insurers, and actually bring them on site many times for site visits. So he had an exceptional understanding of business operations. Probably the most respected designation in financial circles is Chartered Financial Analyst. You simply cannot fluff your way through. These exams are incredibly difficult. I believe, Martin, you're a CFA, so you could probably speak to that. So he's got the CFA designation, had the experience, and was also a major shareholder.
Dave also has been an exceptional micro-cap investor. He shared with me his 10-year returns, and I'm not going to talk about the actual numbers, but he's an exceptionally astute long-term investor. For capital allocation, we now have a business that's running well, that's generating significant margins. We've made major investments in CapEx to increase our revenue per employee to allow us to grow. The most difficult decisions that we will make and that will build shareholder value going forward is how we allocate capital. Looking for the right acquisitions and having another bright financial mind other than Kyle Dickson, CPA, and Chris Halsey-Brandt, CPA, Chartered Business Valuator. We've now got Dave Barnett, CFA, as well.
Just adding to that internal financial expertise at a time where capital allocation is going to be how well we allocate capital will dictate how well we perform as a company long term. That was a long-winded answer.
That's a good one. You recently There's a CAD 4 million BDC Pivot to Grow loan facility. Will this cover all your CapEx needs and spending needs for the next 24-month interest-only feature on the loan without additional equity dilution required? What are the general expected uses of this CAD 4 million facility?
We're expecting about 2.8 of that to be advanced for projects we've already deployed capital, and then there's 1.2 for new. 2.8 will recharge the treasury with cash. When the government looks to support Canadian manufacturers and they offer you money at 4.55% with 12 years to repay the principal and interest only for 24 months, those rates are just unheard of. I received an email. I went to an investment conference, and I received an email from the CFA yesterday offering to lend money, debt at between 10% and 15%. When we're offered money with those types of coupon rates, we take it, and we take it gratefully, and it's there for a reason, and that's to support Canadian manufacturing.
With respect to use of proceeds, 2.8 will be advanced in the next two weeks and will go direct to our bank account. We'll put it in short-term treasuries. There's 1.2 available for new projects. We have other unused facilities as well, operating lines, et cetera. We do not currently need to go to the market for a placement. If we find a significant acquisition opportunity, and we're focused stateside, then at that point we would consider, but at this point in time, we have no need for conducting a private placement.
All right, Steve. That wraps up the question session. Any final comments or words before we wrap the presentation up?
We are a company that I challenge anyone that's an investor or considering to be an investor, look at any 36-month period and see what we've accomplished. I welcome doing a Teams call to present our case as a long-term investment. Stay tuned. We're busy. We have our eyes on expanding. I know that we need to create a new location to manufacture outside of Kamloops to grow this into a CAD 100 million company in revenue. We can't do that just staying in Kamloops. I still feel very healthy and young at heart, and I have no plans to retire, and I'm looking at working for another 13 years or so and eventually calling it quits at 70. Very focused on the next round of growth.
We've made all the investments that we need to make in the short and intermediate term in Canada, and now we're looking for growth opportunities. You saw that 66% of our revenue is stateside, and we're looking to reduce our costs by finding opportunities to produce more in the States and of course, to sell more in the U.S.
Stephen, thank you very much. This concludes the Q1 conference call. We will now end it. Thank you.
Thank you.