Third Quarter 2026 Business Update Conference Call - PYROGENESIS CANADA INC

Good day, and thank you for standing by. Welcome to the Pyrogenesis, Inc. 3rd Quarter 2026 Business Update Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve McCormick, Vice President of Corporate Affairs at Pyrogenesus. Please go ahead. thank you thank you daniel and good morning to everyone i'm steve mccormick vice president of corporate affairs for pyrogenesis thank you for joining pyrogeneses 2026 third quarter financial results and business update conference call on the call with me today is mr andre manella the company's chief financial officer the company issued a press release on thursday november 12th containing the financial results and the business update for the third quarter ended September 30th, 2026, which can be viewed on the company's website at pyrogenesis.com. If you have any questions after the call or would like any additional information about the company, please email the Investor Relations Department and we will try as best as possible to answer questions that are of a public nature and which are allowable by financial market regulations. The email address is ir at pyrogenesis. com. We will shortly provide prepared remarks reviewing the operational and financial results for the third quarter. But first, a reminder that this discussion may include forward-looking information that is based on certain assumptions, which are subject to risks and uncertainties that could cause actual results to differ materially from historical results or from results anticipated by the forward- looking information. The forward- looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions, and assumptions of management as of today's date. There can be no assurance that this forward-looking information will prove to be accurate, and undue reliance should not be placed on this information. Pyrogenesis disclaims any obligation to update any forward-lookings information or to explain any material difference between subsequent actual events and such forward- looking information, except as required by applicable laws. In addition, during the course of this call, there may also be references to certain non-IFRS financial measures, including references to EBITDA, modified EBITda, and backlog, which do not have standardized meaning under IFRS and therefore may not be comparable to similar measures or information provided by other companies. For more information about both forward-looking information and non-IFRS financial measures, including a reconciliation of EBITDA and modified EBITda, please refer to the company's management discussion and analysis, which, along with the financial statements, will be available on the company�s website at pyrogenesis.com and on the CDAR website at www.cdarplus.ca. Finally, a reminder that pyrogenesis follows Canadian Generally Accepted Accounting Principles, or GAP, where revenue is accrued and reported not on sales, but on a model that reflects a percentage of the work completed for a given project during the reporting period. and this can vary based on both the nature of the projects and on a client's own scheduling and logistical decisions, both of which can impact production milestones and the company's ability to book revenue from one quarter to the next. As stated in previous reports, the company'S revenues are likely to be irregular quarter to quarter based on project timing, as stated above, or sometimes due to cash on hand. In this continuously fluctuating economic landscape, clients can face their own cash flow and scheduling challenges, which can have an effect on PyroGenesis revenue. And with that, I'll start off with a quick review of some of the company's top-line results for the quarter, followed by a summary of some OF the key business activities that occurred during the quarter, before turning the call over to our CFO, Mr. Andre Minella. For the third quarter of 2026, the company exited the quarter with revenues of $3.07 million, a decrease of approximately 5% year over year. For the first nine months of 2026, the company is significantly outpacing 2025. In fact, the first 9 months of 2020 has come within $203,000 of matching the full year revenue for 2025. For gross margin, for the third quarter, gross margin was at 35%. As always, we like to provide a little context for margin using comparisons to some of the industries that the company serves. In general, across much of heavy industry and manufacturing in Q3, margins are resilient but compressed as companies manage higher input costs, especially for energy, commodities, and shipping. Industries that rely on metal alloys have seen prices spike significantly yet again in 2026, with copper, for instance, rising to another all-time high in September and remaining roughly 25 percent higher than 2025. New aluminum is currently 7.5 percent higher than a year previous, and scrap aluminum is up 23 percent year over year. Supply chains continue to see disruptions worldwide, with international shipping lanes remaining heavily disrupted by ongoing security threats. Across all industries, gross margins are being reported between 32 and 41%. Iron and steel is at 18.3%. The aerospace and defense industry is at 6.1%. Chemical manufacturing at 30.4%. Industrial machinery and components is 36.7%. Metal mining is 47%. And aluminum is 21.7% Andre will provide more details regarding the rest of the QFE financials later in this call now on the backlog our genesis reported backlog at 39.9 million dollars just slightly below the 40 million reported in the last quarter this number shows continuing strength in the company's order book while also indicating the company success in driving revenue from its project backlog during the quarter for those that need clarity on backlog backlog describes the outstanding revenue across all signed or awarded contracts that is yet to be recorded because the projects are still underway. Backlog provides a clear visibility on immediate future revenues for the company that will be added to the financial results over subsequent quarters under the percentage-complete work model as projects reach various production milestones. And now to some key production highlights for the quarter. Please note the projects or potential projects that were previously announced but which do not appear in this summary update or within the MDNA and the outlook should not be considered at risk. Noteworthy developments can occur at any time based on project stages and the information presented is a reflection of some of that information on hand for some but not all projects. Projects not mentioned may have simply not yet begun nor passed milestones worthy of discussion or not have their project status changed since the last reporting quarter. Starting with a brief reminder of the company's business strategy, Pyrogenesis leverages 35 years of expertise in ultra-high temperature processes and plasma technology to create technology solutions for heavy industry and defense. From early-stage lab tests to pilot projects to full commercialization, the company'S technology solution set is concentrated under three business segments, energy transition, materials production, and waste processing. So first, in the company's materials production business segment, in August, in a news release dated August 17th, 2026, the company provided a corporate update for its fume silica business line. As background, Pyrogenesis invented a plasma-based system, the fume-silica reactor, called the FSR, to convert quartz into a fume silica in a single eco-friendly step that represents a substantially simplified process compared to the complex multi-step process used by most conventional producers of fume silica. Our genesis FSR does not utilize any harmful chemicals that are typically required in conventional production processes and produces no hazardous byproducts. The news release update included information regarding potential projects with four separate entities, a major global manufacturer of fume silica, a potential joint venture partner, a company who uses fume Silica in its end product, and an existing Middle Eastern customer considering a fume-silica plant for their region. In August, in a news release dated August 20th, the company announced a titanium powder contract with a Department of Defense and NASA-supported U.S. Applied Research Facility. Pyrogenesis will provide TI-64 coarse-cut titanium powder for use in research for critical materials. This client operates one of the largest applied research laboratories supported by the DoD and NASA. The facility was established at the end of World War II and currently employs more than 1,000 personnel. To receive this contract, compliance with the Defense Federal Acquisition Regulation Supplement, or DFARS, which includes security-related requirements applicable to certain U.S. DOD contractors was required and was achieved by Pyrogenesis. Subsequently, the company announced on August 26th a second titanium powder contract from this same client, also for TI64 coarse-cut titanium powder for use in research for critical materials. again in august in a news release dated august 24th the company announced a titanium powder contract with a u.s based original equipment manufacturer serving the additive manufacturing industry also for ti64 coarse cut titanium powder with a particle size of 45 to 150 microns for use in directed energy deposition or ded a technology widely used in the aerospace and defense industries to print or repair structural metal parts and components. Subsequently, on August 31st, the company announced a second powder contract from that same client, also for coarse-cut titanium powder. In September, in a news release dated September 15th, the country announced a titanium powder contract with a U.S. materials distributor. The contract for TI-64 fine-cut powder, with a particle size range of 20 to 80 microns, is typically used in laser bed powder fusion, LPBF, an additive manufacturing technology widely used to produce complex, high-density components for aerospace, healthcare, and automotive industries. This client supplies U.S. customers across aerospace, defense, energy, and broader advanced manufacturing sectors, and the client has indicated the potential for a monthly supply agreement of up to 1,000 kilograms. As stated in previous releases, the company has been positioning the additive division for the next level of growth, which would be an operational scale-up of several times larger than what's currently in place, along with a goal to attract capital to finance that operational scale-ups. The positioning for this growth is being executed within the context of continuous improvement of production processes, reducing operational costs, Building critical mass across the project range by developing repeat customers, expanding the customer base across key segments, developing additional projects and products from existing production runs, and de-risking product offerings by expanding powder suitability across three major applications, laser bed powder fusion, electron beam melting, and direct energy deposition. During the quarter, the company secured three new clients, encompassing all three of those applications, and two of those new clients are already recurring, and post-quarter end, both of those clients placed their third orders with the company. Moving to the energy transition vertical, in August, announced on August 19th, the company announced a $1.4 million contract to supply two plasma torches to a European mining, metallurgy, and materials entity. Under the contract, Pyrogenesis will supply two plasmatorch systems of 300 kilowatts and 40 kilowatths for use in advanced metallurdy and high-temperature applications related to non-ferrous metals and critical minerals. This client is the European Research Institute, focused on non-ferrous metallurgy, high-purity materials, sustainable recycling, decarbonizing processes, and the circular economy. And finally, to the waste processing vertical. In September, in a news release dated September 22nd, the company announced that its subsidiary, Pyro Green Gas, received a final acceptance certificate for a previously announced major project undertaken for Tata Steel, one of the world's leading diversified steel producers. The certificate confirms successful completion of the one-year operational liability period and formally transfers responsibility for future operation of the system over to the client. The system cleans and purifies coke oven gas and produces hydrogen to a 99.9999% purity level for reuse across other applications in the facility. To read about these and other events and updates, as well as some of the many ongoing projects not discussed in this call, please refer to the corresponding section of yesterday's news release or to the Management Discussion and Analysis document, in particular, the Outlook sections of each. I'll be back at the end for some final thoughts, but at this point, I'd like to turn the call over to our colleague, the company's Chief Financial Officer, Andre Manila, to provide more details about the third quarter financials. Andre. Thank you, Steve, and thank you to everyone for being on the call this morning. In a moment, I'll go through the financial results for the third quarter and the first nine months of 2026. Before getting into the figures, I like to step back and highlight the broader picture. Quarterly results in our business can move considerably, depending on where large projects are in the execution cycle. But looking at the first nine months of the year, the direction is clearer. Revenue increased 34%, gross profit improved by $0.8 million, and modified EBITDA improved by 4.7 million compared with the same period last year. The progress came from several areas of the business, including plasma torches, SPARC, DrossRite and work related to the US Navy. Turning to revenue more specifically, revenue for the third quarter was 3.1 million compared to 3.2 million for the same period last year. And for the first nine months, however, revenue reached 12.4 million compared with 9.2 million last year and that's an increase of 3 million dollars. The difference between the quarterly and year-to-date results reflect the nature of our business our larger projects move through engineering fabrication delivery installation and commissioning revenue is recorded as those activities progress and the related performance obligations are satisfied in practical terms a project can be very active even though its revenue is spread across several quarters and that's why the nine month results provide a more complete view of the progress that we made during 2026. During the third quarter, stronger contributions from plasma torches, U.S. Navy programs, dross rates, and other sales and services largely offset the lower revenue from biogas projects and SPARC. Torch-related revenue increased by $0.5 million related to a significant project, while systems supplied to the U. S. Navy increased by 0.4 million. These gains were offset by lower revenue from biogas upgrading and pollution control systems and from spark due to the current stage of the project and as we press release in q3 we also saw encouraging momentum in titanium powders across multiple sectors with several new orders and repeat business these orders remain modest but the repeat demand is a positive sign as we continue to develop this market Looking at the first nine months, revenue growth was led by Torch-related products and services, which increased by $2.4 million as we made significant progress on the project. SPARC, which increased $1.7 million, and U.S. Navy Activities and DrossRide each increased by .7 million. These gains were partially offset by lower revenue from biogas upgrading and pollution control systems. The encouraging aspect is that the growth is supported by several commercial platforms rather than just one isolated project. Turning briefly to backlog, as of November 12th, 2026, the backlog from signed and awarded contracts was $39.9 million. This backlog is expected to be recognized over periods ranging anywhere from six to 36 months as we complete our obligations under the related contract. And for context, the backlog was approximately $40 million at the end of the second quarter, meaning we converted a portion into revenue while adding new contracts. Now even though quarterly revenue will continue to fluctuate, the Backlog provides visibility into future activity across several business lines. Turning to gross profit and margin. Gross margin for the third quarter improved to 35% from 24% in the comparative quarter. For the first nine months, gross margin came in at 33%, bringing in $4 million of gross profit compared with 35% in 2025. The quarterly improvements reflect the mix and stage of the projects recognized during the period, as well as lower direct materials and subcontracting costs. As we've often stated, margins can vary from quarter to quarter, depending on the project type and execution stage. In this quarter, the mix of TORCH, U.S. Navy Systems, and other sales helped with the improved margins that we reported. Selling general and administrative expenses were $4 million in the third quarter, compared with $2.6 million last year. The quarterly increase was driven mainly by higher non-cash share-based compensation. base compensation was $1.5 million in Q3 2026, compared with $0.1 million in the comparative quarter. And this was part of the offset by continued reductions in employee compensation, lease manufacturing facility costs, and additional government grants. For the first nine months, SG&A decreased to $9.3 million from $9,9 million last year. That reduction is important because it shows that, despite the unusually high non-cash expense in third quarter, the year-to-date cost base continued to improve. Net research and development expenses were $0.2 million in Q3, consistent with the comparative quarter. For the first nine months, net R&D expenses decreased to $0,5 million, compared with $0 9 million last year. The year- to-date decrease reflects the timing of development programs and additional spending done in 2025, led mainly by the the additive manufacturing sector. It does not reflect a change in our long-term commitment to innovation. Turning now to the net financial expenses, for the third quarter, the expense totaled 0.1 million compared with 0.2 million during the same period last year. The current quarter had less interest expense and accretion on financial liabilities, namely from fewer leases, fewer secured loans, and the maturity of the convertible to venture. For the first nine months, net finance expenses totaled $0.6 million compared with a net finance income of $0,3 million in 2025. The year-over-year comparison is due to the non-recurrence of a $1 million one-time finance income recognized in 2025 that was related to the re-evaluation of the balance due on business combinations. Finance costs were in line with management's expectations. Turning now to strategic investments, the fair value adjustment in Q3 is due to the disposal of the shares of BGF and similar in amount to the fair-value adjustment in the comparative quarter. Changes in the fair values of our investments were not significant during the 2026 year-to-date. This compares with a substantial loss recorded during 2025 related to our investment in HPQ Silicon whereby the shares and warrants were recorded at the mark-to-market adjustment, and losses from the sales of common shares. Looking now to other income, year-to date the company recognized $0.9 million related to the modification of the lease for a manufacturing facility. The right of use asset and corresponding lease liability for the property were terminated and a net gain resulted. We also recognized an $80,000 gain from the sale of equipment, whereby the proceeds exceeded the net book value. Together, these items contributed positively to our year-to-date earnings. Net loss for the third quarter was $3.2 million, compared with $2.3 million last year. Our higher loss was driven by the increase in non-cash share-based compensation. For the first nine months, the net loss improved to $5.4 million compared to $9.4 million during the same period last year, and that's an improvement of $4 million. dollars. The comprehensive loss for the nine-month period also improved to $5.4 million from $10 million last year. The year-to-date improvement reflects higher gross profit, lower operating expenses, the non-recurrence of significant investment valuation losses that were recorded in 2025, and $1 million of other income recognized earlier in 2026. Turning finally to the modified EBITDA, which, as a reminder, adjusts EBITD for the share-based compensation and changes in the fair value of investments, therefore providing an additional view of operating performance. The modified EBITDE for the third quarter was a loss of $1.5 million compared with a loss $1,9 million last year, an improvement of $0.4 million. And for the first nine months, the modified EBIDDA improves to a loss to $2.3 million compared to a lost of $7 million last year that's an improvement of 4.7 million the year-to-date improvement reflects stronger gross profit and lower operating expenses partly offset by the lower fair value adjustments compared with 2025. before i conclude i'd like to leave you with three observations first that the nine month revenue increased 34 percent supported by several technology platforms next is that the third quarter gross margin improved to 35%, while the nine-month gross profit increased by $0.8 million. And third, despite the effects of an unusually high non-cash share-based compensation, the nine months modified EBITDA improved by $4.7 million. Now quarterly results will continue to move with project timing and revenue recognition under the long-term agreements. However, the nine month results demonstrate progress in revenue, gross profit, operating costs, and the underlying performance and our focus remains on four items executing the backlog converting commercial opportunities into contracts maintaining cost discipline and finally building value for shareholders that concludes my financial review and i'll now turn the call back to steve thank you andre thanks very much as pyrogenesis president and ceo peter pascali stated in yesterday's news release q3 was an important quarter for the company, as the company put the finishing touches on several key initiatives to bring them across the finish line. We also brought new clients into the fold, and we drove recurring business, a key strategic goal for the Company. Most prominently, on the operational side, the Company completed the acquisition of the 50% ownership in HPQ Pulver, which solidifies the long-term rights holding of the fume silica reactor technology for which the Company has very high expectations. With several new clients across different business units, Mr. Pascali expressed that the quarter represented an example of the company's diversified business model in action, resulting in the company�s best nine-month revenue total since 2022. The company is on track to close out 2026 strongly, and we look forward to providing updates in that regard in the very near future. In closing, on behalf of our CFO, Andre Manila, our President and CEO, Peter Prescali, and the Board of Directors, I want to thank our investors for their continued support. Thank you again, and good morning. Operator, please end the call. This concludes today's conference call. Thank you for participating. You may now disconnect.