Earnings call transcript: NanoXplore Q2 2024 shows revenue rise, margin gains

NanoXplore Inc. (TSXV: NNX), a leader in graphene production with a market capitalization of $291.2 million, reported its financial results for the second quarter of 2024, highlighting a significant improvement in revenue and profitability. According to InvestingPro analysis, the company maintains a GOOD financial health score, supported by strong liquidity metrics. The company saw its total revenues increase by 14% compared to the same quarter last year, reaching $33.1 million. Adjusted gross margins also improved, contributing to a positive adjusted EBITDA of $1.1 million. The earnings call also detailed various operational updates and future expansion plans.

Key Takeaways

• Total (EPA:TTEF) revenues increased by 14% year-over-year to $33.1 million.
• Adjusted EBITDA turned positive at $1.1 million, a significant improvement from a loss of $93,000 last year.
• The company is preparing to scale up its dry process graphene production.
• New U.S. expansion site selected in North Carolina.

Company Performance

NanoXplore’s performance in Q2 2024 reflects a robust recovery and growth trajectory, with total revenues rising to $33.1 million, marking a 14% increase from the previous year. The company’s focus on innovation and expansion, particularly in its advanced materials segment, has bolstered its financial standing. The improvement in adjusted gross margins by 190 basis points year-over-year indicates effective cost management and operational efficiency.

Financial Highlights

• Revenue: $33.1 million, up 14% year-over-year.
• Adjusted Gross Margins: 21.3%, an increase of 190 basis points from last year.
• Adjusted EBITDA: $1.1 million, compared to a loss of $93,000 in the previous year.
• Advanced Materials Segment EBITDA: $1.3 million, up from $416,000 last year.
• Cash Position: $21 million in cash and cash equivalents.

Outlook & Guidance

NanoXplore provided guidance for fiscal 2025, with revenue expectations set between $140 and $155 million, now targeting the lower end of this range. The company anticipates continuing its margin expansion trend, supported by strategic investments and potential government funding, which could cover approximately 50% of its capital investments.

Executive Commentary

CEO Suraj Nazarpo emphasized the company’s strategic focus, stating, "We expect fiscal twenty twenty six to be more robust than in the last couple of years." He highlighted the cost-competitive nature of their graphene products, aiming to deliver benefits without a cost premium. CFO Pedro Azevedo noted, "The losses will really only start when we start spending a lot of money related to the initiative, which is not in the next few months, but it will be probably in the 2026 year."

Risks and Challenges

• Tariff uncertainties could create near-term market volatility.
• The graphite market remains in oversupply, which may impact pricing.
• The company’s expansion plans are contingent on securing necessary power allocations and equipment deliveries.

NanoXplore’s Q2 2024 earnings call underscored its growth momentum and strategic initiatives aimed at expanding its market presence and operational capacity. As the company navigates industry challenges, its focus on innovation and strategic expansion remains central to its outlook.

Full transcript - W. R. Grace & Co (GRA) Q2 2025:

Conference Operator: Good day and thank you for standing by. Welcome to the Second Quarter twenty twenty five NanoXplore Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session.

Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Pierre Therese, VP of Corporate Development. Please go ahead.

Pierre Therese, VP of Corporate Development, NanoXplore: Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the second quarter of fiscal twenty twenty five. The press release reporting these results was published yesterday after market close and can also be found on our website along with our financial statements and MD and A. These documents are also available on SEDAR Plus. Before we begin, I’d like to remind you that today’s remarks, including management’s outlook and answer to questions, contain forward looking statements. These forward looking statements represent our expectation as of today, 02/12/2025, 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 these forward looking statements. A description of the risk factors that may affect future results is contained in NanoXplore annual information form available on our corporate website and in our filings with the Canadian Securities Administrator on CEDAR Plus. On the call with me this morning, we have Soroush Nazarpo, NanoXport’s Chief Executive Officer and Pedro Azevedo, our Chief Financial Officer. After remarks from Suraj and Pedro, we’ll open the call to questions from financial analysts.

Let me turn the call over to Suraj.

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Thank you, PY, and good morning to everyone joining us on the call. I will first start with a review of the economy, more specifically tariffs and the impact on our business. I will then expand on our CSBG expansion and dry process graphene plan, followed by our graphene sales activities and end my remarks with an update on our capital allocation plans. From a macro perspective, the previously announced tariffs followed by 30 pause until early March is creating uncertainty in the near term and contributing to an unstable operating environment. We’re monitoring threat of tariff itself is already impacting North American supply chain by pushing companies to rethink sourcing and production strategies.

Some trends like reshoring, supplier diversification and vertical integration are top priorities now. In my opinion, while short term disruptions are inevitable, long term implications are sector specific. Such tariffs are very disruptive to the transportation market and price increases will be transferred to the end users. Related to our plastic business, raw material is mostly purchased from U. S.

And sold back to United States. Based on available information, it seems that there would be no tariff impact. To conclude, tariffs, while disruptive in the short term, are unlikely to have lasting negative impact on our business. Moving to our result, the increased activities from our customers resulted in a constructive second quarter performance, and I’m happy to report another quarter of double digit organic growth coupled to the tenth consecutive quarter of margin expansion. Regarding our expansion for CSPG and dry processed graphene, we’re still waiting confirmation from Hydro Quebec on the allocation of an additional two megawatts of electricity for our project.

The quest has been submitted around eighteen months ago and we have received verbal confirmation already. Our expectation is to receive the official document in the next few weeks. Aside from that, we continued our activities with related stakeholders such as our construction partner and First Nation groups. As of today, everything is in place to start the build out of the new plant this spring. The dynamics of the North American CSBG market haven’t changed and the supply deficit is persistent and could only be intensified by tariffs on Chinese imports.

As it relates to our dry process graphene, production at the company’s Montreal facility has been ongoing since July 2024, with sample shipments already delivered to customers targeting a wide range of applications, including composite materials, batteries, packaging, insulating forms and more. Air Day customer feedback has been consistently positive, particularly regarding the new cost structure of the dry process graphene. This competitive pricing has accelerated customer testing and decision making processes, generating significant enthusiasm. To meet growing demand of dry processed graphene and build on this momentum, the company’s technical team is preparing for a scale up in production. The engineering team is finalizing plans for a larger scale pilot plant with purchase orders for major equipment expected within the next month.

The centerpiece of this expansion will be a new exfoliation mill, anticipated to arrive by the third quarter of the current year. This new equipment will increase pilot production capacity significantly. Once the new equipment is installed and commissioned by the end of calendar year 2025, the company anticipate producing hundreds of tons of dry processed graphene powder from the expanded pilot line. This will serve as a precursor for the construction of a multi thousand tonne facility as outlined in the company’s five year strategic plan. The increased capacity will enable NanoXplore to serve a broader customer base, further penetrate key markets and accelerate adoption ahead of the full scale facilities completion.

This is a major step forward for us and for the commercialization of dry process graphene. We believe our patented dry process graphene will unlock new market opportunities, particularly as a replacement for other carbon based additives, Since pricing will not be a barrier for prospective clients, time to market and sales cycle should therefore be shortened. In respect to our direct graphene powder and masterbatch sales, validation and testing activities are ongoing. Regarding our customers in drilling fluid and insulation foam, test results have been promising and trials are still in progress. Our drilling fluid customer is undergoing well tests in various locations in The United States and we expect this process to continue until mid calendar year twenty twenty five and commercial rollout to start in the second half of calendar year twenty twenty five.

As it relates to our insulation foam customer, final plant verification will be ongoing for another ninety days. Following the completion of the testing phase, we expect to move to commercial rollout in the second half of this year. Both these products are pillars of our future growth and winning these businesses will materially impact the future of Nano X Tor and graphene market as a whole. We have spent years of development with our Fortune 500 partners and hope to conclude our commercial introduction this year. For our graphene enhanced composites products, overall demand continues to be strong, but delays in the new program launch combined with the uncertainty created by the potential tariff translate into potential softer near term demand environment.

Having said that, we continue to drive forward with investment in new equipment and will continue to invest more as a part of our five year strategic plan. A large part of these investments will be in The United States and are supported by booked contracts with existing and new customers. As a matter of fact, our expansion in North Carolina progressed well with the equipment expected to arrive in early summer timeframe and revenues to pick up by early fall. With that, I’ll now turn the call over to Pedro, who will provide details about our financial performance. Pedro?

Pedro Azevedo, Chief Financial Officer, NanoXplore: Good morning, everyone. Today, I will begin with a review of our Q2 followed by an update on progress of our five year plan and conclude with some commentary on near term CapEx spending and guidance for fiscal year twenty twenty five. But before the review of Q2, some housekeeping. During the quarter and to reflect the evolution in our business, we have renamed the Battery Cell segment to be Battery Cells and Materials. This segment will incorporate not just the Voltix lore initiative of cells, but the expansion into battery materials as well going forward.

Total revenues in Q2 were 14% higher than Q2 last year at $33,100,000 dollars and was mainly attributable to an increase on progress revenue recognition on new tooling being manufactured for three different customers. Tooling revenues will continue to be higher than normal during fiscal year twenty twenty five due to the previously announced expansion of an existing program and the launch of two new programs. Once the tooling for these programs is completed, part revenues will increase with the additional capacity and with new programs starting production. Adjusted gross margins as a percentage of sales continued to increase year over year and were 21.3% during the quarter, an increase of 190 basis points and were driven by improved productivity resulting in part from the manufacturing cost benefits of producing graphene enhanced products and various manufacturing efficiency improvement initiatives. This year over year margin improvement has been a trend over the last ten quarters, and we are pleased that it is continuing.

As a reminder to our shareholders and analysts, as a proportion of sales of graphene powder and graphene enhanced materials increases, gross margins as a percentage of sales will also increase. Adjusted EBITDA was $1,100,000 versus a loss of $93,000 last year. Looking at our segments, adjusted EBITDA was $1,300,000 in the Advanced Materials, Plastics and Composite Products segment compared to $416,000 last year and an adjusted EBITDA loss of $218,000 in the Battery, Sales and Materials segment compared to a loss of $509,000 last year. Volt Explorer expenditures during the quarter were lower mainly due to a reduction in spending on external consultants related to battery cells and a refocus on silicon graphene battery materials. In addition, Volt Explorer staff is providing support to for our research grants and will further reduce the EBITDA loss in the Battery, Sales and Materials segment in the near term.

With regard to our balance sheet and cash flows, we ended the quarter with $21,000,000 in cash and cash equivalent and $6,400,000 in operating loans and long term debt. Operating cash flows amounted to an inflow of $1,500,000 due to a reduction of noncash working capital. Cash flows from financing activities were an outflow of just $100,000 and included proceeds of $1,700,000 of equipment lease financing related to our U. S. Expansion, offset by repayments of lease liabilities and long term debt.

Cash flows from investing activities were an outflow of $1,900,000 mainly related to capital expenditure payments related to The U. S. And Canadian plant expansions. Our cash, along with the unused space of our revolving credit line, resulted in a total liquidity of $31,000,000 at December 31, which was similar to September 30. Moving now to an update on financial aspects of our five year strategic plan.

Regarding the expansion of graphene enhanced SMC capacity, expansion of our Cinque De Bose plant is in its last phase. Construction of the expansion was completed in December, and the new press and tooling are in transit and will be operational towards the end of this quarter. We expect incremental production will start in fiscal Q4. Our U. S.

Expansion, which includes both graphene enhanced SMC as well as the additional capacity for the composites business is also underway with most of the equipment having been ordered. Since the last quarterly call, we have chosen a site in Statesville, North Carolina, about thirty minutes from our Newton, North Carolina plant and are in the process of finalizing lease terms. We expect to sign a lease by the February. With various equipment expected to be delivered during fiscal Q4 twenty twenty five, we expect production to start during the summer of twenty twenty five adding incremental revenues. In light of recent events related to tariffs, an increase in our U.

S. Manufacturing capacity has turned out to be a good decision and will lessen the impact of tariffs in the future should they occur. As the Battery Materials Initiative due diligence process is ongoing with both levels of government, The main remaining factor in the process is the written confirmation from Hydro Quebec that we will obtain the additional two megawatt required for the project to move forward. This confirmation is expected before the March 2025. Turning now to our near term CapEx spending and fiscal year twenty twenty five guidance.

Given The current U. S. And Canadian expansion initiatives and low Q2 CapEx spending due to timing of progressive payments to suppliers for ordered equipment, we expect CapEx spending to be $2,000,000 to $3,000,000 in Q3 and $4,000,000 to $5,000,000 in the following two quarters, but then reduced thereafter to $1,000,000 to $2,000,000 The majority of this spending will be financed through equipment lease financing when equipment is operational. This CapEx spending amount does not include spending on the dry process graphene and anode battery materials initiative, but will be updated once the financing for the battery material initiative is finalized. Finally, with regard to fiscal year twenty twenty five guidance, while some parts of our business are growing as expected, the increase in volumes expected from our two largest customers on both existing and from the start of new programs are still not occurring.

The main contributor to this are market demand for medium duty trucks remaining flat and supply chain challenges by our customer in the launch of a new truck causing delays in the start of production. In addition, with the uncertainties created by the possibility of tariffs since the U. S. Election and more concretely with the events of last week and the thirty days grace is still in the background, we believe the near term economic environment may be softening. At this time, we maintain our guidance of $140,000,000 to $155,000,000 but expect to be on the lower end of this range.

We will provide an update during our Q3 call as the visibility improves. With that, I will pass it back to Pierre Yves.

Pierre Therese, VP of Corporate Development, NanoXplore: Thank you, Pedro. Operator, we can now open the lines for questions.

Conference Operator: Thank you. And our first question comes from James McGarrigle of RBC. Your line is open.

James McGarrigle, Analyst, RBC: Hey, good morning guys. Thanks for having me on.

Rupert Marrero, Analyst, National Bank: Good morning, James. Good morning.

James McGarrigle, Analyst, RBC: I just had a question on the gross margin expansion in the quarter. Anything specific to flag in that number? Any one time things that helped out margin in the quarter? Just trying to understand how we should be thinking about margins during the rest of the year, especially given some of the volume headwinds that you’d flagged in your updated outlook?

Pedro Azevedo, Chief Financial Officer, NanoXplore: No, there’s nothing particular coming into Q2. And I think that Q3 and Q4 should be at the same kind of path of year over year improvement. Q2 to Q2 was a bigger improvement than I would normally have expected, but Q3 should be a little bit softer versus last year.

James McGarrigle, Analyst, RBC: Perfect. I appreciate that. And then on when I look into the fiscal twenty twenty six, consensus is quite wide ranging, calling for significant top line growth 30% and then EBITDA of $20,000,000 which implies some pretty meaningful margin expansion and not asking for a 2026 guide, but any color on that you can share on how we should think about modeling fiscal twenty twenty six?

Pedro Azevedo, Chief Financial Officer, NanoXplore: At this time, it’s too early for those kind of conclusions. We’re trying to see how Q3 and Q4 ends up. Fiscal year ’20 ’20 ’6, we do see a lot of new business coming online. A lot of the initiatives that have been put in place, the last two years have been a lot of investment. So we expect fiscal twenty twenty six to be more robust than in the last couple of years.

But I can’t give you any guidance right now for that.

James McGarrigle, Analyst, RBC: No, I appreciate that and I’ll turn the line over. Thank you.

Conference Operator: Thanks. Thank you. Our next question comes from Amar Asad of Ventum Capital Markets. Your line is open.

Amar Asad, Analyst, Ventum Capital Markets: Suraj, Pedro, P. Y. Good morning. Good morning. Just a couple of questions.

First on guidance, like the guidance coming at the low end of the range, which I guess isn’t surprising for everybody for anybody given the macro headwinds. But I just wonder like how confident are you guys in hitting that low end or should we think of this as more of a moving target given the macro uncertainty? I’m wondering why not just give a new range instead of staying like low end?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: So I guess the first thing is there’s a lot of uncertainty at this point. We want to see how things are evolving with the tariffs, and that’s going to have a material impact on everyone’s business if there’s a blanket 25% tariff. So there’s a little bit of a wait and see about tariff. And I think the third quarter, we would have a lot better visibility to comment on the range.

Amar Asad, Analyst, Ventum Capital Markets: Okay. I guess it’s very hard to give color beyond that for everybody. So, like could we see a scenario where a greater portion of your five year business plan and expansion shifts to North Carolina rather than Quebec? Or is that too extreme a scenario to consider at this stage?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: I would say that at this point, we don’t see such a drastic change to the five year plan. But of course, the tariffs are going to be very meaningful if those type of blanket tariffs comes into effect. And that will potentially force us to rethink our five year strategy plan. But at this point, it’s unlikely that we will have such tariffs coming in. So I would say no at this point.

Amar Asad, Analyst, Ventum Capital Markets: Okay. But you still retain some flexibility, I guess?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: 100%.

Amar Asad, Analyst, Ventum Capital Markets: Okay. Okay. That’s good to know. Then did I hear you guys correctly? Did you guys say commercial rollout for the graphene powder for fluid and foam clients in the second half of the year?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Yes, that’s what we said.

Amar Asad, Analyst, Ventum Capital Markets: Are you guys commenting at all on the magnitudes, I guess, of these commercial rollouts?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Hard to say, but at this point, the initial feedbacks we’re seeing potentially at hundreds of tons to start with and moving to 1,000 tons in a couple of years. But very hard for me to pinpoint exact numbers at this point.

Amar Asad, Analyst, Ventum Capital Markets: Okay. I didn’t work out the math, but like if I were to take everything together, so like you’re saying for revenues low end of the guidance, which you are now targeting, it’s about five percent lower than the midpoint, I guess, that you previously had. Then you’ve got in the same time, the commercial rollout for graphene powder, which as we know is like much higher margins. So should we interpret this as okay, maybe lower revenue expectation, but some margin insulation, I. E.

Like not as much like impact on your gross profits and EBITDA? Is that like a fair assessment?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: A couple of points when it’s our fiscal year is junior year. So you got to consider that second half is going to be pushed into the next fiscal year. That’s one point.

Amar Asad, Analyst, Ventum Capital Markets: Okay. So sorry, second half of twenty twenty five?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Yes.

Amar Asad, Analyst, Ventum Capital Markets: Okay.

Pedro Azevedo, Chief Financial Officer, NanoXplore: But for the margin, yes. The revenue coming from this new business that will start up in the second half of this calendar year will have some revenue impact for sure, obviously. But it’s more the margins that will be more visible because as you said, the margins are greater and a lot of the absorption of fixed overheads that we have today will be flowing to the revenue will be flowing directly to the bottom line.

Amar Asad, Analyst, Ventum Capital Markets: Fantastic. Then just on the CSBG, Farooq, your comments were pretty like confidence in that the North American market remains in a supply deficit and there’s no real change in demand. Despite slowing EV sales, can you maybe give us like a refresher or walk us through these key dynamics?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: So a couple of internal analysis that we did, we believe somewhere around 60,000 tons of CSBG is bought annually in North America now. And I think that the total production of CSBG in North America today is slightly below 10,000 tons or 12,000 tons. So already, you’re seeing about 80% of capacity coming from China. So all those tariffs coming in place for Chinese, which is supply. And assuming even no growth in EV, I think there is still north of 45,000 to 50,000 tons of Sys which you needed for North America at this point without any growth.

Amar Asad, Analyst, Ventum Capital Markets: Well, it seems to suggest even if we’re going into decline, which we’re not, that there’s still demand for CSPG in a decline in EV market. Is that fair?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Yes. But the EV market is not declining. I mean, couple of the the numbers that are out, it’s growing not at the speed that everyone hopes for, but still growing.

Amar Asad, Analyst, Ventum Capital Markets: No, understood. I meant in an extreme scenario, it seems like there’s still demand for it given like how much how undersupplied I guess the markets are. Okay. Congrats on the quarter and I’ll pass the line.

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Thank you. Our

Conference Operator: Our next question comes from Rupert Marrero of National Bank. Your line is open.

Rupert Marrero, Analyst, National Bank: Hi, good morning everyone. Thanks for taking the question.

Amar Asad, Analyst, Ventum Capital Markets: Good morning. Good morning, Rupert. Good morning.

Rupert Marrero, Analyst, National Bank: So, Suraj, you’ve got two material investments you’re looking to make fairly soon, CSPG and your dry process graphene. I know you’re waiting on the confirmation from Hydro Quebec for the power. Can you give us more color on what’s happening with the funding agreements for those facilities and in particular the receipt of ITCs, government support in Canada?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Yes. So we are the last step for them and also for us is to get the power. We’re unfortunately unable to start a project of this magnitude without having 100% clarity on the availability of power for this project. So we’re waiting for the power confirmation to come in and start the production. We have at this point, our understanding is we will receive this funding from the government assuming the power is in place.

Rupert Marrero, Analyst, National Bank: Okay. And the plan, I believe, is $120,000,000 over a few years. How much of the capital have you received the financing for so far? In other words, have you got basic agreements in place for ITCs on just the initial portion or on the full investment at this point? And second part of that question is if we do get a change of government here in Canada, is there any risk to that financing?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Yes. So about 50% of the capital or maybe slightly higher is coming from the all the government programs and supports. So that’s the range that we’re talking. Regarding the change of ITC (NSE:ITC), I think one of the main contributors here is how the U. S.

New government will deal with the IRA or Inflation Reduction Act. And I think ITC was somehow a competitor to the IRA. IRA looks to be downgraded, but it’s not yet confirmed. So we’re observing to see how that is evolving. And there’s a chance that if there’s a change of government in Canada, there might be also changes in the program.

I think a little early to comment on those, but secondly, we are observing

Rupert Marrero, Analyst, National Bank: it. Great. And then secondly, very high level question here. We don’t know what’s going to happen with tariffs, but we do have tariffs on steel and aluminum already. And I’m already seeing commentary on a shift to composite materials in some industries to lower cost.

But Wondering how you think that trend could fit into your business, if you have any conversations on light weighting that could be accelerated by these tariffs?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Well, still an aluminum tariff are not in place yet. They’re going to be in place. And let’s say assuming everything follows, which these days everything changes as things evolve. I would say change of some structural parts are not going to be that easy to convert from steel to composite. It requires a lot of engineering and evaluation for the customers.

So I don’t see that trend, but some, I would say, noncritical parts could be replaced with composite, and that potentially will support our business. But I don’t see transportation itself. You’re just going to see a quick shift of metal to composite.

Amar Asad, Analyst, Ventum Capital Markets: All right, very good.

Rupert Marrero, Analyst, National Bank: I’ll leave it there. Thank you.

Conference Operator: Thank you. Our next question comes from Michael Glenn of Raymond (NSE:RYMD) James. Your line is open.

Michael Glenn, Analyst, Raymond James: Hey, good morning. Good morning. On the dry process graphene, can you remind us of the cost and pricing difference that will come with the dry process graphene versus the existing graphene process?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Dry process is significantly lower selling price, but also significantly lower cost. So it’s designed to be competitive with other type of carbon materials, particularly carbon black on a one on one basis. And carbon black is being offered USD 2.5 to USD 3.5 per kilo pricing today. So this is technically where we are seeing we’re going to offer this product. Cost is significantly lower, but we’re expecting we can keep the margin that we have currently with our graphene in the the dry process graphene as well.

Michael Glenn, Analyst, Raymond James: And the new capacity that comes on with dry process, will customers then switch away? Like is it a I’m trying to understand if it’s an incremental capacity add or there’s some switching that will take place away from the legacy graphene process into the dry process graphene?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: So a couple of points. So one of them is we are expanding the existing pilot line that we have in our team and facility to add few hundreds of tons of capacity of dry process graphene. So that’s one thing That comes as a precursor for the five year plant, 8,000 tons of new capacity that’s coming for graphene, right? So that’s one thing. The second is the applications are quite different.

So the what you call legacy graphene is functioning very well in a couple of applications, especially in the composite. We anticipate dry process to cover markets that requires lower selling price and lower costs. Not necessarily a lower performance, but lower or different, let’s say, outputs of characteristics for the dry profit graphene. The best example is, for instance, when you look at the barrier type properties, our what you call legacy graphene is functioning better. But if you’re looking at applications that requires UV properties, our dry process graphene are functioning better.

So these are different characteristics and different applications.

Michael Glenn, Analyst, Raymond James: Okay. And then within the battery segment, that will now include the battery materials. So are you able to provide some commentary surrounding like what I guess there will be a period of losses that come into that. So we should expect that losses within that segment will pick up for a period of time and then get smaller again as volumes ramp? Is that a logical assumption?

Pedro Azevedo, Chief Financial Officer, NanoXplore: Yes. So the losses will really only start when we start spending a lot of money related to the initiative, which is not in the next few months, but it will be probably in the 2026 year. We’re also going to be able to capitalize some of the costs as part of the investment for the plant. So they won’t flow to the bottom line as a loss per se. I don’t have the mechanics or the amounts I should say related to that, but you shouldn’t expect also a lot of losses.

Today, the losses that we see in the overall Nano business is really coming from the graphene infrastructure costs that we have built. But we shouldn’t see those things to the same extent in the battery materials segment. We’ll explore a lot of those costs went to the bottom line because we were not we were running, but we didn’t have a customer. So that didn’t allow for capitalization of those costs. So I think you shouldn’t expect too much losses to be flowing to the P and L for the bottom line once we start the initiative.

Michael Glenn, Analyst, Raymond James: Okay. And then last one, have there been any adjustments at all to graphite supply for Nano Explorers? Is it still coming from the same source or have there been adjustments? And are you expecting any adjustments to where you’re sourcing material from?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: No, there hasn’t been adjustment. Still the graphite market is in oversupply. It continues to be in oversupply. Supply. So no changes on that side.

Michael Glenn, Analyst, Raymond James: Okay. Thank you.

Conference Operator: Thank you. Our next question comes from Mac Murray Whel of Cormark Securities.

Suraj Nazarpo, Chief Executive Officer, NanoXplore: Can you

Michael Glenn, Analyst, Raymond James: share with us like what percentage of sales that go to Canadian customers end up with products being sold through to The U. S. Market?

Pedro Azevedo, Chief Financial Officer, NanoXplore: Well, that’s a hard answer to do or a hard question to answer simply because right now 75% of our business give or take goes to The U. S. Or is generated in The U. S. So some of it is flowing to Canada, but ultimately also going to The U.

S. So the amount that is impacted by The U. S. Possibility of tariffs and things of that nature is greater than what we currently sell in U. S.

Michael Glenn, Analyst, Raymond James: Okay. And can you remind us, how was the selling price of that dry process material? Like are you going out with trying to match a price of a product you’re trying to displace? I’m wondering you talked about the selling price being lower than the material you’re making with the other process. So just is that a quality issue, a purity issue like or is that just strategy in penetrating the market?

Suraj Nazarpo, Chief Executive Officer, NanoXplore: It’s a strategy in the way we are what we’re trying to do is when discussing with the client right from the start, they have the chance to replace the current carbon black that they buy with the dry processed graphene. And right there, they don’t see any increase in the cost of in the bill of material. So the idea is to get all the benefits from the graphene, but not to have any premium in terms of the cost for the cost.

Michael Glenn, Analyst, Raymond James: Okay. That’s helpful. Thanks. That’s all my questions. Thank you.

Amar Asad, Analyst, Ventum Capital Markets: Thanks.

Conference Operator: Thank you. I’m showing no further questions at this time. I’d like to turn it back to Pierre Truis for closing remarks.

Pierre Therese, VP of Corporate Development, NanoXplore: Okay. Thank you, operator. We’d like to thank everyone for participating in this call and wish everyone a great day. Thank you very much.

Conference Operator: This concludes today’s conference call. Thank you for participating and you may now disconnect.

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