NanoXplore reports Q4 revenue drop amid transition in leadership, yet anticipates growth from new graphene contracts and operational improvements.

OPERATOR - (00:02:21)

Good day and thank you for standing by. Welcome to the Q4 and year end 2025 financial results NanoXplore Earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Pierre Y Terries, Vice President, Corporate Development. Please go ahead.

Pierre Y Terries - (00:03:15)

Good morning everyone and thank you for joining this discussion of NanoXplore financial and operating results for the fourth quarter and year end results of fiscal 2025. The press release reporting this result was published yesterday after market close and can also be found on our website along with our financial statements and mda. These documents are also available on SEDAR Plus. Before we begin, I'd like to remind you that today's remark is including management's outlook and answer to question contain forward looking statements. These forward looking statements represent our expectations as of today, September 17, 2025 and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on on these forward looking statements. A description of the risk factors that may affect future results is contained in Nano Explore Annual Information form available on our corporate website and in our filing with the Canadian Securities Administrator on SEDAR Plus. On the call with me this morning we have Soroush Nazarpour, NanoXplore Chief Executive Officer and Pedro Zevedo, our Chief Financial Officer. After remarks from Solutions, Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Soroush.

Soroush Nazarpour - (00:04:46)

Thank you Pierre and good morning to everyone joining us on the call. By now you are all aware that I decided to step down from my CEO role at the agm, stay on the board thereafter and support the corporation from a technical and strategic point of view. This decision was taken for personal reasons. I have built this company from the ground up with the Nano team and I'm very proud of what we have accomplished since inception. At this point in the growth of the company, it's the right time to make this transition. NanoXplore will in the very near future embark on the launch of a major graphene contract which has been a major objective from the team. My successor is inheriting a graphene market leader on a strong footing and will bring the company to its next stage of growth. With that being said, nothing is changing until the agm. So let's start with a quick review of the broader economic picture, particularly tariffs since they continue to affect both our customers and us. Then I will move to our recently announced sales contract and finish with some comments on capital allocation and other parts of our business. From a macro standpoint, the current US Administration's trade and economic policies have been disruptive. The impact shows up directly in our customers planning cycle and therefore in our own visibility. Practically, this has meant delays in some of our announced contracts and volume reduction on some of our ongoing business. As it relates to our drilling fluid customer, we have made significant progress in the quarter. Specifically, we have completed well trials and are finalizing contract terms we should be able to discuss in the near future. This contract involves supplying our TriboGraph powder to a major US Oil and gas company for its lubricant for both onshore and offshore drilling fluid applications. Tribograf is a high performance carbon powder which is being produced in our graphene production facility in Montreal. This high performance specialty carbon mixture is engineered particularly as lubricant additive for drilling fluids, metal working and stamping, providing superior friction reduction, wear protection and suspension stability. TriboGraph, when formulated in drilling fluids, has demonstrated outstanding results in the industrial space standard tribology and friction testings. Evaluation carried out under a wide range of conditions show that our solution consistently outperformed leading alternatives currently available on the market. This product is the result of years of development and fine tuning and has already proved its reliability and performance during demanding extended reach drilling operations in the United States. More in Depth Data collected during drilling operation has confirmed that TriboGraph directly improves drilling performance. The results show faster drilling speeds, reduced rig time and lower overall operating cost. Furthermore, there is clear evidence that TriboGraph reduces wear on downhole tools, helping extend equipment life and further lowering operating and maintenance expenses. Now, moving on to our North Carolina expansion, we have completed installation and commissioning of the equipment and pre production parts have recently been shipped to our new customer. Those parts are pending final approval. Once that comes true, we will move quickly to scale production at the state's field at the beginning of October. Stepping back Q4 was a tough operating environment. Revenue declined year over year. On the positive side, adjusted EBITDA margins improved, reflecting in part a broader adoption of our high margin products and cost management. Regarding our dry process graphene and CSPG project, we have made significant inroads with both levels of government and for our electricity allocation. We are satisfied with the progress made with our stakeholders in the project. We will inform investors as we progress and reach key milestones. At the same time, we have ordered equipment to begin industrial scale production of our dry process graphene at our T menns facility targeting early calendar 2026. This first module gives us between 500 and 1000 tons per year of capacity depending on product grade. This first production module will allow us to start supply larger volumes to our testing partners and will eventually be the first line installed in our new facility. Looking ahead to the fiscal year, we see two stages. Our advanced materials, Plastic and Composite segment is currently seeing volume reduction from our two major customers. That will translate into a challenging Q1 and Q2, but as we move into the back half, we expect growth to be driven by higher margin graphene powder cells Statesville production ramp up and by volumes resuming in graphene enhanced smc. To sum it up, while there are softer volumes in the near term, there's plenty of good news as well. Q4 delivered strong adjusted EBITDA margin. We are in the final stage of securing a major new oil and gas customer while progressing with other ones for our highest margin business segment. We completed the state's wheel expansion and already have parts shipping and we made solid progress on the dry graphene project as we gear up for future growth. Overall, we expect both growth and profitability to be weighted toward the second half of the year. With that, I'll now turn the call over to Pedro to walk you through our financial performance.

Pedro Zevedo - Chief Financial Officer - (00:10:51)

Merci, Soroush. Bonjour à tous Good morning everyone. Today I will begin with a review of our Q4 and full year financial results, followed by an update on financial aspects of our five year plan and conclude with some commentary on near term capex spending. Total revenues in Q4 were 17% lower than Q4 2024 at 31.7 million. This decrease was mainly due to a reduction in demand from our two largest customers as volumes have slowed to historically low levels after strong demand levels last year. Our two largest customers along with others in the industry have reported layoffs and cadence reductions due to the current economic environment. Although revenues from parts and materials were lower, tooling revenues were higher due to to the continued supply of tools for new programs and expansion of an existing program now completed. As previously indicated, this higher level of tooling will be the case during fiscal 2026 until part production starts on new programs during calendar 2026 and early 2027. Adjusted gross margins which exclude depreciation as a percentage of sales continued to increase during the quarter to reach 24.7%, an increase of 110 basis points year over year driven mainly by positive variances on tooling revenue recognition partly offset by lower manufacturing overhead costs absorption on lower volume this year over year. Margin improvement has been a trend for over the last 12 quarters and we are pleased that it is continuing. Looking back at the progress made over the quarters and I wanted to highlight that we started with an adjusted gross margin of 3% in Q1 of 2022 and have progressively improved quarter by quarter to reach 24.7% this past quarter. These improvements have come from improved operational efficiency, increased volume of both graphene enhanced parts and other non graphene enhanced parts, increasing graphene powder sales and a higher US dollar. Adjusted EBITDA was 2.5 million equal to last year and was comprised of 2.7 million in the advanced materials, plastics and composite products segment, a decrease of 600,000 versus last year and by a loss of 247,000 in the battery cells and materials segment, an improvement of 600,000 versus last year. With regard to our balance sheet and cash flows, we ended the quarter with $18.6 million in cash and cash equivalent and $5.2 million in short term and long term debt. Operating cash flows amounted to $1.8 million mainly from changes in working capital items. Cash flows from financing Activities were positive $1.8 million resulting from equipment lease financing advances, inflow of $3.9 million and debt and lease repayments of 1.9 million. Finally, cash flows from investing activities were negative 5.4 million mainly due to capital expenditure payments related to our five year strategic plan. Our cash along with the unused space in our revolving credit lines resulted in a total liquidity of 28.6 million at June 30th. Looking at our full year results, while sales were strong in the first half of our fiscal year and in line with expectations, the second half was disappointing as our two largest customers reduced their production cadence. Nevertheless, within our total sales usage and sales of graphene powder continue to grow. Sales for the year were slightly below last year at 129 million, but with a record adjusted EBITDA of 6.1 million. If we look at the segments, adjusted EBITDA in the advanced materials, plastics and composite products segment reached 6.9 million, an improvement of 1.7 million versus fiscal year 2024. During the year, gross margins excluding depreciation increased from an average of 21.1% in fiscal 2024 to an average of 22.3%. In fiscal 2025, adjusted EBITDA loss in the battery cells and materials segment was 725,000 compared to a loss of 2.7 million last year, mainly due to the cost reductions in the VoltaXplore initiative. With regard to the expansion of graphene enhanced SMC capacity, expansion in our Bose Quebec plant was completed during the quarter. This expansion increased our capacity to produce parts for for one customer by 50%. However, the capacity expansion currently remains underutilized due to the reduced demand in the mid and heavy transportation industry. Our U.S. expansion, which includes both graphene enhanced SMC as well as additional capacity for the composites business, is near completion with most of the equipment having been delivered and installed during the summer months. Start of production of a new program at the Stateville site or will begin in early October, adding to revenues in our Q2. Lastly, in August 2025, NanoXplore was selected to receive up to 2.75 million over the next three years from natural Resources Canada under the Energy Innovation Program's Battery Industry acceleration call for proposals for the research and development on the use of silicon graphene in ultra high powered cylindrical cells. Turning now to our near term CAPEX spending. With regard to CAPEX spending, as expected, we spent approximately 5 million on CapEx in Q4 and expect to spend another 3 to 5 million in each of the next two quarters as we complete the spending on the US expansion initiative and the Graphene Enhanced SMC initiative of the five year Strategic Plan. As previously mentioned, this will be financed through our RBC credit facility and mainly with equipment. With that I will turn back to py.

Pierre Y Terries - (00:17:10)

Thank you Pedro. Operator,, we can now.

OPERATOR - (00:17:13)

Open the line for questions. Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Amir Izat from Ventum Capital Markets.

Amir Izat - Equity Analyst - (00:17:47)

Good morning. Thanks for taking my questions. I'd like to start I'd like to first acknowledge yesterday's news. Soroush Nazarpour, congrats on everything you've achieved in building Nano Explore. It's been certainly great to follow the story from the early days and I'm glad to see that you remain involved with Advisor and Vice Chair, but maybe if we could start there. Can you walk us through what drove the decision and the timing of the decision? When you guys are test of commercialization then from an investor viewpoint how should we think about, I guess, the continuity in customer relationships, especially when it comes to powder commercialization, as well as the strategy going forward? Is the change signaling a different direction?

Soroush Nazarpour - (00:18:45)

Right, right. All right, so let me start by saying I'm pretty happy with this transition and it was a work in progress for quite some time. Just let's step back. It's very normal for startups to be highly dependent to the founder and this has been something that has been recognized in the company for the last few years. So throughout the time, Rocco and Pedro Zevedo, that are both pillars of the company, they are, you know, they took slowly, some some of the responsibility that I have throughout the years. And the best example of that, the last two years both of them have been involved directly as well with the board of directors reporting. So this has been a transition in the making for quite some time. Rocco is a fantastic executive. We have been working together for many years and I'm very, very happy for, for this transition, seeing Rocco coming on board and taking lead from December. Now, on the personal side, I have decided to move on sometime in the next year. So we decided to put the transition really on the agm. So I have still a good six to nine months of being present physically actually to be able to support Rocco in the transition to going forward. I'm also continuing the board of Nano and I'm a big supporter of the company. I started this and I will continue to be the supporter regardless of the title. Having said that, I'm actually continuing with the company. The concept is not for me to move away. I'm still continuing to be here and supporting the business. So I see it as a very positive transition. I actually think highly dependent corporation to the founders are at risk. I believe we have done a great job with the board of directors of Nano and Rocco and Pedro Zevedo to really manage the transition in a very positive way and something that I believe we removed a risk from the company. So all in all, very positive. I'm very happy and on the timing of that. So we are in the cusp of signing a contract with the major oil and gas company and that's what we have reflected in the script as well. The good news is actually we've been able to conclude this contract very soon. We will release the news related to that and I think it's the best time. The company is doing fantastic. The graphene sales is in the best shape possible. So I think it's a great time actually for this.

Amir Izat - Equity Analyst - (00:21:39)

Fantastic. That's extremely helpful and congrats again. So let's go to the other big news like that you just mentioned on the prepared remarks. I think the wording that you used is you are finalizing the contract on the drilling fluid side for powder commercialization. Obviously. Can you give us, and I'm not sure if you can like a sense of size and pricing of such a contract then do we think of that as a one off contract or is that a multi year sort of contract?

Soroush Nazarpour - (00:22:19)

So let me say that we actually recorded this script yesterday, but today I can tell you the contract is concluded. So that's the positive side of it. The contract is done, the press release will come out. Let me talk about what is this TriboGraph. So TriboGraph is, as I said in the script, is a mixture of carbon. It's technically produced in our teamman's facility. It has quite extensive lubricity properties. So it's very useful for the drilling fluid application and also other sort of metal working and, and so on. What it does is it brings down the friction while drilling. So moving away from the technical that how it's doing it, it translates into cost reduction for the oil and gas companies and for the drillers. So this type of graphene type solution has always exposed to extra cost for users has been something that we have to manage today. This product is actually reducing the cost. So adoption going to be very strong in terms of details of the contract. You got to wait for the press release to come. But it's a multi year supply contract. That's what I can say today. But you will see the details of the contract and all the commitments very soon.

Amir Izat - Equity Analyst - (00:23:53)

Fantastic. Congrats on that. And if you'll allow me one more, I mean you guys spoke at length about the economic environment and your two largest customers have, you know, like been holding back volumes. And certainly in Quebec there's been a lot of local, I guess, coverage around Pacao's St. Therese plant, whether it's the layoffs or the production cutbacks. And a lot of it actually is post year Q4. So I'd like to understand the magnitude of the volume softness in Q1 for both your large clients relative to Q4. Then when thinking about fiscal 2026, should we view this as largely a Q1 event, then Q2 as a rebound? Is that a fair statement?

Pedro Zevedo - Chief Financial Officer - (00:24:49)

So Amir, so Q1 in terms of specific percentages, I'd rather not talk about those because it is a subset of the whole of Nano Explore. The decrease has continued throughout Q1 from Q4 so you can make it with what you will you're right. The Paccar plant closure of a shift and downsizing is definitely a direct impact on our Bose plant. It's not an impact on other businesses, if that helps a little bit when it comes to Q1. Q2, yes, it is mainly a Q1 issue because we have a lot of stuff coming into Q2 that we've talked about in the script. New programs are starting in Q2, new customers starting in Q2. While the issue related to the two largest customers might continue into Q1 and Q2. A couple of things. Number one, all of these new programs will offset some of that in Q2 and in H2. In our second half, we expect the transportation industry to start recovering, even if it's just a little bit. With everything that's being built up, we see H2 being a recovery. So coming back to your point, Q1, probably the area where the softness will be mostly viewed. But then Q2 ramp up will start and then H2 will be, I would say back to normal and then some.

Amir Izat - Equity Analyst - (00:26:17)

Fantastic. Thanks, Pedro. I'll pass the link.

OPERATOR - (00:26:23)

Thank you. One moment for our next question. Our next question comes from the line of Bal Tej Sidhu from National bank of Canada.

Bal Tej Sidhu - (00:26:36)

Hey, good morning and congratulations on the transition. So just a question on the five year strategic plan and namely the graphene and battery material expansion. Could we get an update on the outlook for this portion of the strategic plan? Have you had any further conversations with Hydro Quebec on the required power allocation and this is a follow up to that. If not, have you decided to make any change to the initial plan? Whether it's exploring different geographies or manufacturing sites and the like?

Soroush Nazarpour - (00:27:09)

Right. So we can only discuss what we have been able to discuss from the energy side. But I can tell you we are happy with the outcome of that. There is no changes today. We're continuing. We were in a point to make switch to the program in the last during summer. But I'm happy that things evolved and we're happy with the outcome. Having said that, any sort of release needs to be managed by the government. So we have to follow those requirements. There is no change. We are still on. The plan is still the same and I hope that in the next couple of months we will get. You guys will get a lot of positive updates about that.

Bal Tej Sidhu - (00:27:58)

Sounds great. And then just on the financing side of things, have we seen any additional sources of financing come through or increased customer contributions? Or is it still that same stack with investment tax credits, project debt and government lending?

Soroush Nazarpour - (00:28:12)

We will update some of the Capex numbers for sure a little bit later. But you know the main component of this is to announce the government supports and following that we will have, you will have more clarity about the numbers.

Bal Tej Sidhu - (00:28:33)

Great. And then on the CSPG side of things, given the newly proposed tariffs by the US on Chinese graphite, are you seeing any more indications of customer inbounds on this proposed product or any evolution in conversations that you've had in the past few months?

Pedro Zevedo - Chief Financial Officer - (00:28:49)

CSPG continues to be really under supplied in North America and the demand is there even though some of the demand related to EV looks to be slower than in terms of growth than anticipated. But the production is still pretty much non existent. So further pressure on Chinese graphite supply really doesn't change at this point. There's not enough CSPG supply in North America as the graphite and the graphite, the secondary transport graphite products are more tariffed, there's more need for local production. So I don't see this to make significant changes in the landscape today. But it certainly makes it more difficult for Chinese suppliers to provide the product to North America. So it's a positive momentum for us. We're seeing as well new entrants of large companies into the csbg. So again that shows that this supply demand is still attractive for us to play in it. But at the end of the day I think the impact of the tariff on the graphite would be minimal.

Bal Tej Sidhu - (00:30:08)

Great. And then just on the tariffs situation, just another follow up here. Given the pressure on graphite supply, have you seen any changes in your contract with your supplier and or your supply chains in sourcing graphite? And if you're able to give us any sense of kind of a contract length with their current Canadian supplier, we.

Soroush Nazarpour - (00:30:29)

Have multiple sources for the graphite. Graphite availability is still graphite market as a whole is oversupplied. So we don't really see any challenge in getting the graphite that we need. So again it's not something that we are concerned at this point.

Bal Tej Sidhu - (00:30:52)

And then just the last one for me if I may on your on your SMC expansion, what's the order book looking like for this facility? I recall in Q3 you had mentioned that there were around four programs for around 30 to 35 million dollars in sales. Have you seen increased traction or an evolution in conversations there?

Pedro Zevedo - Chief Financial Officer - (00:31:11)

So as Suroosh kind of mentioned, one of the issues that we did see is that the awards that were made and we've announced have been delayed. So we thought that they would have started by now, but they haven't but they will be starting in Q2. When it comes to order book, there are various programs that are in the magnitude of 10 to 20 million in the next 12 months, let's say. And then further, another further 10 million, give or say, take in 2017. So we've been awarded all of these projects into the next two years, but for the plant in Statesville and in North Carolina operations, these programs will start in the next few months, in the next month, actually, and grow to 2027, when all these awards will now be in production.

Bal Tej Sidhu - (00:32:01)

Thank you. That's it for me. And congratulations once again.

Soroush Nazarpour - (00:32:04)

Thank you.

OPERATOR - (00:32:07)

Thank you. One moment for our next question. Our next question comes from the line of Marvin Wolf from Paradigm Capital.

Marvin Wolf - (00:32:18)

Yes, good morning, guys. Can you hear me okay?

Soroush Nazarpour - (00:32:22)

Yes. I hear, a little too much, but yes.

Marvin Wolf - (00:32:26)

Okay, I'll try to tone it down. So, Roosh, I just like to say congratulations. You've built a great company here. So, Roosh, you know, hats off to you. It's a big achievement and sorry to hear you stepping aside, but I fully understand it from the, you know, evolution of the firm. And I think all shareholders down the road, you know, will find this as a good move. I had a question with regard to shovels in the ground on the expansions. What can we kind of think of there now?

Soroush Nazarpour - (00:33:01)

Well, I mean, we talked a little bit about the dry process TSPG project there. There has been a couple of milestones for us to get there before starting the construction. Of course, the power requirement was one and government support was the other one. And then putting everything together and starting the construction. I think we are almost there. I can't update you as a press release or something because there are other partners that need to, you know, let us announce it, like Hydro Quebec and as well the government. But I'm quite confident that this project can move forward. What I'm seeing today is positive and we can go forward now in terms of the shovel in the ground. We have to build a plant. And this potentially starts soon.

Marvin Wolf - (00:33:57)

Yes. Do you think you'll be able to catch this this season or you gotta wait through the winter?

Soroush Nazarpour - (00:34:05)

Yet to be seen, but I think the, you know, the supply demand dynamic is not gonna change by a couple quarters. That's. That's for sure. But I hope that we can start this very soon.

Marvin Wolf - (00:34:20)

Okay, very good. Okay, that's all for me. Thanks a lot.

Soroush Nazarpour - (00:34:24)

Thanks.

Marvin Wolf - (00:34:25)

More.

Soroush Nazarpour - (00:34:25)

Thanks, Marvin.

OPERATOR - (00:34:28)

Thank you. One moment for our next question. Our next question comes from the line of Michael Glenn from Raymond James.

Michael Glenn - (00:34:38)

Hey, good morning. And Sarosh thank you for everything with Nano Explorer over the years, all your patience with me and touring the facilities and bringing me up to speed on the future of graphene. It's all been really, really fun and interesting to watch.

Soroush Nazarpour - (00:34:57)

Thank you very much.

Michael Glenn - (00:35:00)

Just to come back on the SMC facility and outlook that was asked previously when you, Pedro, I think you were speaking to that when you add all this together, you mentioned a number of different order items in the order book. When you add all those together, you know, looking out, say in two years from now, can you give a range like what the revenue contribution from all of this might look like?

Pedro Zevedo - Chief Financial Officer - (00:35:37)

So just on the SMC initiative that we've been putting together, we expect a minimum in two years. And I think your timeline is right because it's going to still take a little bit longer than from today to ramp up to that. But it is ramping up. So think of this as a ramp up. Over the next two years, it should reach around 30 to 40 million in the next two years as these programs are all rolled out and the SMC initiative has really come to fruition, let's say, as we had originally planned.

Michael Glenn - (00:36:09)

Okay. And would you say that that is largely in line with current gross margins?

Pedro Zevedo - Chief Financial Officer - (00:36:17)

That will all be at current gross margins and possibly even a little bit more. As we fill plants the margins, the overheads get absorbed by more revenue and therefore the margins should improve. Yeah.

Michael Glenn - (00:36:31)

Okay. Okay. And then back to the drilling fluid product. I can't remember the name of it, but is this a patent protected product or IP protected?

Soroush Nazarpour - (00:36:43)

Just trying to understand a little bit. It's protected by intellectual properties and it's pretty much coming out of the same graphene production line. There are modifications that we did on the outputs to make it more suitable for lubrication properties.

Michael Glenn - (00:37:04)

But it's. And how does I know that? We're waiting for some of the details, but how does the anticipated customer demand align with the installation you have right now?

Soroush Nazarpour - (00:37:25)

I think it's better to wait and see the press release before I speculate on the volume.

Michael Glenn - (00:37:31)

Sorry, I missed the last part. What was that?

Soroush Nazarpour - (00:37:33)

I think it's better to wait for the press release. This is a little bit of a speculation at this point. Let's get the press release. Details are in there. All in all, I would say I'm very happy with the outcomes. Potentially the biggest graphene contract of. Well, it is the biggest graphene contract for Nano and potentially the biggest graphene contract in the history. But let's wait for the contract to come out and there's more details in there.

Michael Glenn - (00:38:02)

I see. Okay. Thanks for taking the question.

Soroush Nazarpour - (00:38:06)

Thank you.

OPERATOR - (00:38:08)

Thank you. At this time, I would now like to turn the conference back over to Pierre E. Terris for closing remarks.

Pierre Y Terries - (00:38:17)

Thank you, operator. Is there any further question from the analysts?

OPERATOR - (00:38:22)

There is not.

Pierre Y Terries - (00:38:23)

Okay. Well, I'd like to thank everyone for participating in this call and have a great day.

OPERATOR - (00:38:30)

This concludes today's conference call. Thank you for participating. You may now disconnect.