Q2 2026 NanoXplore Inc Earnings Call

February 11, 2026

Speaker #1: Good day and thank you for standing by. Welcome to the NanoXplore second quarter 2026 earnings conference call. At this time, I'll participants are in a listen-only mode.

Pierre-Yves Terrisse: Good day, and thank you for standing by. Welcome to the NanoXplore Q2 2026 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-Yves Terrisse, Vice President of Corporate Development. Please go ahead.

Operator: Good day, and thank you for standing by. Welcome to the NanoXplore Q2 2026 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-Yves Terrisse, Vice President of Corporate Development. Please go ahead.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: I would now like to hand the conference over to your speaker today, Pierre-Yves Terrisse Vice President of Corporate Development. Please go ahead.

Speaker #2: Bonjour à tous et bienvenue à la conférence téléphonique du deuxième trimestre 2026 de NanoXplore. Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the second quarter of fiscal 2026.

Pedro Azevedo: Bonjour à tous, et bienvenue à la conférence téléphonique du deuxième trimestre 2026 de NanoXplore. Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the second quarter of fiscal 2026. 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&A. These documents are also available on SEDAR+. Before we begin, I'd like to remind you that today's remarks, including management outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, 11 February 2026, and are accordingly 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.

Pierre-Yves Terrisse: Bonjour à tous, et bienvenue à la conférence téléphonique du deuxième trimestre 2026 de NanoXplore. Good morning, everyone, and thank you for joining this discussion of NanoXplore financial and operating results for the second quarter of fiscal 2026. 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&A. These documents are also available on SEDAR+. Before we begin, I'd like to remind you that today's remarks, including management outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, 11 February 2026, and are accordingly 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.

Speaker #2: 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&A.

Speaker #2: These documents are also available on Cedar Plus. Before we begin, I'd like to remind you that today's remark including management outlook and answer to questions contain forward-looking statements.

Speaker #2: These forward-looking statements represent our expectation as of today, February 11, 2026, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risk and uncertainties.

Speaker #2: Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factor 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.

Pedro Azevedo: A description of the risk factors that may affect future results is contained in NanoXplore's Annual Information Form available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR+. On the call with me this morning, we have Rocco Marinaccio, our CEO, and Pedro Azevedo, our CFO. After remarks from Rocco and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Rocco.

Pierre-Yves Terrisse: A description of the risk factors that may affect future results is contained in NanoXplore's Annual Information Form available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR+. On the call with me this morning, we have Rocco Marinaccio, our CEO, and Pedro Azevedo, our CFO. After remarks from Rocco and Pedro, we'll open the call to questions from financial analysts. Let me now turn the call over to Rocco.

Speaker #2: On the call with me this morning, we have Rocco Marinaccio, our CEO, and Pedro Azevedo, our CFO. After remarks from Rocco and Pedro, we'll open the call to questions from financial analysts.

Speaker #2: Let me now turn the call over to

Speaker #2: Rocco. Merci PY and

Operator: Merci, PY, et bonjour à tous. Thank you for joining us today to discuss NanoXplore's fiscal second quarter 2026 results. As we build on the momentum established in Q1, I'm pleased to report a rebound in our operating performance this quarter. We delivered sequential improvements in revenue, gross margin, and adjusted EBITDA. While we remain focused on execution and continued margin expansion, these results reflect improving fundamentals across the business. Since assuming the CEO role, our priorities have been clear: discipline execution, diversification of revenue streams, and maximizing the value of our differentiated graphene manufacturing platform. Our commercial pipeline remains robust, our technology leadership is intact, and our teams are executing with focus as we scale operations and drive long-term shareholder value.

Rocco Marinaccio: Merci, PY, et bonjour à tous. Thank you for joining us today to discuss NanoXplore's fiscal second quarter 2026 results. As we build on the momentum established in Q1, I'm pleased to report a rebound in our operating performance this quarter. We delivered sequential improvements in revenue, gross margin, and adjusted EBITDA. While we remain focused on execution and continued margin expansion, these results reflect improving fundamentals across the business. Since assuming the CEO role, our priorities have been clear: discipline execution, diversification of revenue streams, and maximizing the value of our differentiated graphene manufacturing platform. Our commercial pipeline remains robust, our technology leadership is intact, and our teams are executing with focus as we scale operations and drive long-term shareholder value.

Speaker #3: bonjour à tous. Thank you for joining us today to discuss NanoXplore's fiscal second quarter 2026 results. As we build on the momentum established in Q1, I'm pleased to report a rebound in our operating performance this quarter.

Speaker #3: We delivered sequential improvements in revenue, gross margin, and adjusted EBITDA. While we remain focused on execution and continued margin expansion, these results reflect improving fundamentals across the business.

Speaker #3: Since assuming the CEO role, our priorities have been clear. Discipline execution, diversification of revenue streams, and maximizing the value of our differentiated graphene manufacturing platform.

Speaker #3: Our commercial pipeline remains robust. Our technology leadership is intact, and our teams are executing with focus as we scale operations and drive long-term shareholder value.

Speaker #3: Today, I will cover three key areas. Our final decision regarding the coded spherical purified graphite, or CSPG, project. An update on the implementation of our dry process graphene platform.

Operator: Today, I will cover three key areas: our final decision regarding the Coated Spherical Purified Graphite, or CSPG, project; an update on the implementation of our Dry Process graphene platform; and progress across our GrapheneBlack and graphene solutions business. Starting with CSPG, after extensive analysis, we have made the decision not to proceed with the previously contemplated $100 million investment. This reflects disciplined capital allocation and a clear focus on risk-adjusted returns. The decision was driven by three factors: ongoing geopolitical uncertainty that can materially impact pricing and market access; prolonged qualification and testing timelines from potential off-takers; and a highly unstable business environment, including an instance where a CSPG manufacturer had a binding agreement subsequently nullified. We are confident this was the right decision for the company and our shareholders and allows us to focus our capital toward higher return, lower risk, growth opportunities.

Rocco Marinaccio: Today, I will cover three key areas: our final decision regarding the Coated Spherical Purified Graphite, or CSPG, project; an update on the implementation of our Dry Process graphene platform; and progress across our GrapheneBlack and graphene solutions business. Starting with CSPG, after extensive analysis, we have made the decision not to proceed with the previously contemplated $100 million investment. This reflects disciplined capital allocation and a clear focus on risk-adjusted returns. The decision was driven by three factors: ongoing geopolitical uncertainty that can materially impact pricing and market access; prolonged qualification and testing timelines from potential off-takers; and a highly unstable business environment, including an instance where a CSPG manufacturer had a binding agreement subsequently nullified. We are confident this was the right decision for the company and our shareholders and allows us to focus our capital toward higher return, lower risk, growth opportunities.

Speaker #3: And progress across our tribal graph and graphene solutions business. Starting with CSPG, after extensive analysis, we have made the decision not to proceed with the previously contemplated 100 million dollar investment.

Speaker #3: This reflects disciplined capital allocation and a clear focus on risk-adjusted returns. The decision was driven by three factors. Ongoing geopolitical uncertainty that can materially impact pricing and market access.

Speaker #3: Prolonged qualification and testing timelines from potential off-takers. And a highly unstable business environment, including an instance where a CSPG manufacturer had a binding agreement subsequently nullified.

Speaker #3: We are confident this was the right decision for the company and our shareholders, and allows us to focus our capital toward higher returns, lower risk, and growth opportunities.

Speaker #3: Turning to our dry process graphene initiative, I'm pleased to confirm that installation is on schedule, with our first fully commercial module expected to be operational by early April.

Operator: Turning to our dry process graphene initiative, I'm pleased to confirm that installation is on schedule, with our first fully commercial module expected to be operational by early April. This represents a critical milestone for NanoXplore. Dry process graphene is significantly less costly for us to produce compared to our wet process graphene and opens new end markets that are not accessible to us today. The new mill will add incremental capacity between 500 to 1,000 tons annually. This is not simply incremental capacity. It is a transformative step that strengthens our cost leadership and significantly expands our addressable market. Moving to our graphene solutions business, we are encouraged by improving market conditions following the softness experienced over the past three quarters, particularly from our two largest customers. Demand has stabilized, and OEM forecasts continue to point to a recovery in the second half of the calendar year.

Rocco Marinaccio: Turning to our dry process graphene initiative, I'm pleased to confirm that installation is on schedule, with our first fully commercial module expected to be operational by early April. This represents a critical milestone for NanoXplore. Dry process graphene is significantly less costly for us to produce compared to our wet process graphene and opens new end markets that are not accessible to us today. The new mill will add incremental capacity between 500 to 1,000 tons annually. This is not simply incremental capacity. It is a transformative step that strengthens our cost leadership and significantly expands our addressable market. Moving to our graphene solutions business, we are encouraged by improving market conditions following the softness experienced over the past three quarters, particularly from our two largest customers. Demand has stabilized, and OEM forecasts continue to point to a recovery in the second half of the calendar year.

Speaker #3: This represents a critical milestone for NanoXplore. Dry process graphene is significantly less costly for us to produce compared to our wet process graphene. And opens new end markets that are not accessible to us today.

Speaker #3: The new mill will add incremental capacity between 500 to 1,000 tons annually. This is not simply incremental capacity. It is a transformative step that strengthens our cost leadership and significantly expands our addressable market.

Speaker #3: Moving to our graphene solutions business, we are encouraged by improving market conditions following the softness experienced over the past three quarters, particularly from our two largest customers.

Speaker #3: Demand has stabilized, and OEM forecasts continue to point to a recovery in the second half of the calendar year. While timing and magnitude remain difficult to predict, we expect a gradual volume improvement beginning mid to late this year.

Operator: While timing and magnitude remain difficult to predict, we expect a gradual volume improvement beginning mid to late this year. A major highlight this quarter was the successful launch of our program with Club Car. The launch was executed flawlessly, with on-time delivery and seamless integration into their manufacturing operations. As we enter the peak recreational season, shipments are accelerating and tracking as expected. This partnership is a strong validation of our ability to scale advanced material solutions within global OEM platforms and position us well for future expansion across Club Car's broader product portfolio. In addition, we are pleased to report a new takeover contract award from Volvo Trucks, expected to begin in summer 2027, with annual revenue contributions of approximately CAD 9 to 10 million. This award adds to the $40 million of contracted business we previously reported within our graphene solutions business and further strengthens our long-term revenue visibility.

Rocco Marinaccio: While timing and magnitude remain difficult to predict, we expect a gradual volume improvement beginning mid to late this year. A major highlight this quarter was the successful launch of our program with Club Car. The launch was executed flawlessly, with on-time delivery and seamless integration into their manufacturing operations. As we enter the peak recreational season, shipments are accelerating and tracking as expected. This partnership is a strong validation of our ability to scale advanced material solutions within global OEM platforms and position us well for future expansion across Club Car's broader product portfolio. In addition, we are pleased to report a new takeover contract award from Volvo Trucks, expected to begin in summer 2027, with annual revenue contributions of approximately CAD 9 to 10 million. This award adds to the $40 million of contracted business we previously reported within our graphene solutions business and further strengthens our long-term revenue visibility.

Speaker #3: A major highlight this quarter was the successful launch of our program with Club Card. The launch was executed flawlessly, with on-time delivery and seamless integration into their manufacturing operations.

Speaker #3: As we enter the peak recreational season, shipments are accelerating and tracking as expected. This partnership is a strong validation of our ability to scale advanced material solutions within global OEM platforms and position us well for future expansion across Club Card's broader product portfolio.

Speaker #3: In addition, we are pleased to report a new takeover contract award from Volvo Trucks, expected to begin in summer 2027, with annual revenue contributions of approximately 9 to 10 million dollars Canadian.

Speaker #3: This award adds to the 40 million dollars of contracted business we previously reported within our graphene solutions business and further strengthens our long-term revenue visibility.

Speaker #3: Turning to drilling fluids, our strategic collaboration with Chevron Phillips Chemical continues to advance. As a reminder, the contract became effective on October 1st, 2025, with the commercial launch announced by CP Ken in mid-November, just ahead of a seasonally slower drilling period.

Operator: Turning to drilling fluids, our strategic collaboration with Chevron Phillips Chemical continues to advance. As a reminder, the contract became effective on 1 October 2025, with the commercial launch announced by CP Chem in mid-November, just ahead of a seasonally slower drilling period. During fiscal Q2, we shipped GrapheneBlack to CP Chem's early adopters. More importantly, CP Chem is actively field-testing NanoSlide with two major Asian oil and gas producers, shipped product to one of the world's leading oilfield service companies, and initiated additional testing programs in Latin America. This is a new product launch and a new commercial relationship, which makes near-term revenue visibility inherently difficult to quantify. However, the pace of customer engagement and the expanding pipeline are in line with our expectations and underscore the strategic value of this partnership.

Rocco Marinaccio: Turning to drilling fluids, our strategic collaboration with Chevron Phillips Chemical continues to advance. As a reminder, the contract became effective on 1 October 2025, with the commercial launch announced by CP Chem in mid-November, just ahead of a seasonally slower drilling period. During fiscal Q2, we shipped GrapheneBlack to CP Chem's early adopters. More importantly, CP Chem is actively field-testing NanoSlide with two major Asian oil and gas producers, shipped product to one of the world's leading oilfield service companies, and initiated additional testing programs in Latin America. This is a new product launch and a new commercial relationship, which makes near-term revenue visibility inherently difficult to quantify. However, the pace of customer engagement and the expanding pipeline are in line with our expectations and underscore the strategic value of this partnership.

Speaker #3: During fiscal Q2, we shipped tribal graph to CP Ken's early adopters. More importantly, CP Ken is actively field testing NanoSlide with two major Asian oil and gas producers, ship product to one of the world's leading oil field service companies, and initiated additional testing programs in Latin America.

Speaker #3: This is a new product launch and a new commercial relationship, which makes near-term revenue visibility inherently difficult to quantify. However, the pace of customer engagement and the expanding pipeline are in line with our expectations in underscore the strategic value of this partnership.

Speaker #3: This high-margin application not only diversifies our revenue base, but also aligns well with industry demand for performance-driven, cost-efficient solutions. In summary, Q2 represents an important inflection point for NanoXplore.

Operator: This high-margin application not only diversifies our revenue base but also aligns well with industry demand for performance-driven, cost-efficient solutions. In summary, Q2 represents an important inflection point for NanoXplore. Sequential operating improvements, disciplined capital allocation, successful contract launches, and the upcoming commercialization of breakthrough technology position us well for a stronger second half. With that, I'll turn the call over to Pedro to walk you through our financial results.

Rocco Marinaccio: This high-margin application not only diversifies our revenue base but also aligns well with industry demand for performance-driven, cost-efficient solutions. In summary, Q2 represents an important inflection point for NanoXplore. Sequential operating improvements, disciplined capital allocation, successful contract launches, and the upcoming commercialization of breakthrough technology position us well for a stronger second half. With that, I'll turn the call over to Pedro to walk you through our financial results.

Speaker #3: Sequential operating improvements, discipline capital allocation, successful contract launches, and the upcoming commercialization of breakthrough technology position us well for a stronger second half. With that, I'll turn the call over to Pedro to walk you through our financial results.

Speaker #2: Merci Rocco. Bonjour à tous. Good morning, everyone. Today I will begin with a review of our Q2 financial results followed by an update on financial aspects of our five-year plan and conclude with some commentary on near-term CapEx spending and revenue guidance for fiscal year 2026.

Pierre-Yves Terrisse: Merci, Rocco. Bonjour à tous. Good morning, everyone. Today, I will begin with a review of our Q2 financial results, followed by an update on financial aspects of our five-year plan, and conclude with some commentary on near-term CapEx spending and revenue guidance for fiscal year 2026. Total revenues in Q2 were 17% lower than Q2 last year at CAD 27.6 million. This decrease was mainly due to a reduction in volume demand from our two largest customers, as well as lower tooling revenue, which was higher than usual last year. This was partially offset by new revenues with the start of the Club Car program and higher powder sales resulting from the CP Chem contract. Despite the lower volumes from our two largest customers in Q2, their volumes have stabilized during the quarter, and forecasts continue to show progressive volume increases during calendar 2026.

Pedro Azevedo: Merci, Rocco. Bonjour à tous. Good morning, everyone. Today, I will begin with a review of our Q2 financial results, followed by an update on financial aspects of our five-year plan, and conclude with some commentary on near-term CapEx spending and revenue guidance for fiscal year 2026. Total revenues in Q2 were 17% lower than Q2 last year at CAD 27.6 million. This decrease was mainly due to a reduction in volume demand from our two largest customers, as well as lower tooling revenue, which was higher than usual last year. This was partially offset by new revenues with the start of the Club Car program and higher powder sales resulting from the CP Chem contract. Despite the lower volumes from our two largest customers in Q2, their volumes have stabilized during the quarter, and forecasts continue to show progressive volume increases during calendar 2026.

Speaker #2: Total revenues in Q2 were 17% lower than Q2 last year at $27.6 million. This decrease was mainly due to a reduction in volume demand from our two largest customers, as well as lower tooling revenue, which was higher than usual last year.

Speaker #2: This was partially offset by new revenues with the start of the Club Card program and higher powdered sales, resulting from the CP Ken contract.

Speaker #2: Despite the lower volumes from our two largest customers in Q2, their volumes have stabilized during the quarter and forecasts continue to show progressive volume increases during calendar 2026.

Speaker #2: Adjusted gross margins, which exclude depreciation, as a percentage of sales, was 21.5%, a slight increase versus 21.3% last year, despite $5.6 million less in revenues.

Pierre-Yves Terrisse: Adjusted gross margins, which exclude depreciation, as percentage of sales was 21.5%, a slight increase versus 21.3% last year despite CAD 5.6 million less revenues. Our ability to achieve this level of gross margin results mainly from the higher margin contributions of powder sales and the addition of the Club Car program, partly leveraging existing overheads. Adjusted EBITDA was CAD 224,000, a decrease of CAD 880,000 versus last year, and was comprised of CAD 181,000 in the advanced materials, plastics, and composites product segment, a decrease of CAD 1.1 million versus last year, and CAD 43,000 in the battery cells and materials segment, an improvement of CAD 260,000 versus last year. Regarding our balance sheet and cash flows, we ended the quarter with CAD 30.1 million in cash and cash equivalent and CAD 14.6 million in short-term and long-term debt.

Pedro Azevedo: Adjusted gross margins, which exclude depreciation, as percentage of sales was 21.5%, a slight increase versus 21.3% last year despite CAD 5.6 million less revenues. Our ability to achieve this level of gross margin results mainly from the higher margin contributions of powder sales and the addition of the Club Car program, partly leveraging existing overheads. Adjusted EBITDA was CAD 224,000, a decrease of CAD 880,000 versus last year, and was comprised of CAD 181,000 in the advanced materials, plastics, and composites product segment, a decrease of CAD 1.1 million versus last year, and CAD 43,000 in the battery cells and materials segment, an improvement of CAD 260,000 versus last year. Regarding our balance sheet and cash flows, we ended the quarter with CAD 30.1 million in cash and cash equivalent and CAD 14.6 million in short-term and long-term debt.

Speaker #2: Our ability to achieve this level of gross margin results mainly from the higher margin contributions of powder sales and the addition of the Club Card program, partly leveraging existing overheads.

Speaker #2: Adjusted EBITDA was 224,000, a decrease of 880,000 versus last year, and was comprised of 181,000 in the advanced materials plastics and composites product segment, a decrease of 1.1 million versus last year, and 43,000 in the battery cells and materials segment, an improvement of 260,000 versus last year.

Speaker #2: Regarding our balance sheet and cash flows, we ended the quarter with 30.1 million in cash and cash equivalent and 14.6 million dollars in short-term and long-term debt.

Speaker #2: Our cash, along with the unused space in our revolving credit lines, resulted in a total liquidity of 40.1 million at December 31st. Operating cash flows were negative 6.4 million, mainly resulting from an increase in working capital largely due to higher sales payments to suppliers on tooling projects and income tax payments.

Pierre-Yves Terrisse: Our cash, along with the unused space in our revolving credit lines, resulted in a total liquidity of CAD 40.1 million at 31 December. Operating cash flows were -CAD 6.4 million, mainly resulting from an increase in working capital, largely due to higher sales, payments to suppliers on tooling projects, and income tax payments. Cash flows from financing activities were CAD 30.1 million, resulting from the equity financing in October 2025 and equipment financing offset by debt and lease repayments. Finally, cash flows from investing activities were -CAD 3.6 million, mainly due to capital expenditure payments. At the end of December, the company had used a cumulative cash amount of CAD 4 million on capital expenditures for projects in progress that will be financed during Q3 with the RBC credit facility. Moving now to an update on financial aspects of our five-year plan.

Pedro Azevedo: Our cash, along with the unused space in our revolving credit lines, resulted in a total liquidity of CAD 40.1 million at 31 December. Operating cash flows were -CAD 6.4 million, mainly resulting from an increase in working capital, largely due to higher sales, payments to suppliers on tooling projects, and income tax payments. Cash flows from financing activities were CAD 30.1 million, resulting from the equity financing in October 2025 and equipment financing offset by debt and lease repayments. Finally, cash flows from investing activities were -CAD 3.6 million, mainly due to capital expenditure payments. At the end of December, the company had used a cumulative cash amount of CAD 4 million on capital expenditures for projects in progress that will be financed during Q3 with the RBC credit facility. Moving now to an update on financial aspects of our five-year plan.

Speaker #2: Cash flows from financing activities were positive $30.1 million, resulting from the equity financing in October 2025 and equipment financing, offset by debt and lease repayments.

Speaker #2: Finally, cash flows from investing activities were negative 3.6 million, mainly due to capital expenditure payments. At the end of December, the company had used a cumulative cash amount of 4 million dollars on capital expenditures for projects in progress that will be financed during Q3 with the RBC credit facility.

Speaker #2: Moving now to an update on financial aspects of our five-year plan. As explained by Rocco, the decision not to proceed with the CSPG production initiative of the five-year plan is one that removes the need for over $100 million in required investment.

Pierre-Yves Terrisse: As explained by Rocco, the decision not to proceed with the CSPG production initiative of the five-year plan is one that removes the need for over CAD 100 million in required investment. However, the dry process graphene element of this initiative will remain a central part of our growth plan and will be undertaken in a modular way as demand for this new grade of graphene increases. Each module is expected to cost between CAD 1.5 and 2 million, reducing the need for large upfront investments. Regarding the graphene enhanced SMC initiative, we completed the US part of this initiative during Q1 and expect to complete the Canadian part of this initiative during Q4. While the generation of new revenues has already started in the US, we expect new revenues on the Canadian part to begin during fiscal year 2027. Turning now to our near-term CapEx spending and fiscal year 2026 guidance.

Pedro Azevedo: As explained by Rocco, the decision not to proceed with the CSPG production initiative of the five-year plan is one that removes the need for over CAD 100 million in required investment. However, the dry process graphene element of this initiative will remain a central part of our growth plan and will be undertaken in a modular way as demand for this new grade of graphene increases. Each module is expected to cost between CAD 1.5 and 2 million, reducing the need for large upfront investments. Regarding the graphene enhanced SMC initiative, we completed the US part of this initiative during Q1 and expect to complete the Canadian part of this initiative during Q4. While the generation of new revenues has already started in the US, we expect new revenues on the Canadian part to begin during fiscal year 2027. Turning now to our near-term CapEx spending and fiscal year 2026 guidance.

Speaker #2: However, the dry process graphene element of this initiative will remain a central part of our growth plan and will be undertaken in a modular way as demand for this new grade of graphene increases each module is expected to cost between 1.5 and 2 million dollars, reducing the need for large upfront investments.

Speaker #2: Regarding the graphene enhanced SMC initiative, we completed the US part of this initiative during Q1 and expect to complete the Canadian part of this initiative during Q4.

Speaker #2: While the generation of new revenues have already started in the US, we expect new during fiscal year 2027. Turning now to our near-term CapEx spending and fiscal year 2026 guidance.

Speaker #2: CapEx spending during the quarter was $3.6 million and in line with expectations. We expect to spend another $4 to $5 million during Q3 to complete the graphene-enhanced SMC initiative as well as the first module of the dry process graphene line.

Pierre-Yves Terrisse: CapEx spending during the quarter was CAD 3.6 million and in line with expectations. We expect to spend another CAD 4 to 5 million during Q3 to complete the graphene enhanced SMC initiative as well as the first module of the dry process graphene line. Once these two projects are completed, we expect CapEx to greatly reduce and represent less than CAD 1 million per quarter, excluding any new initiatives. Regarding our fiscal year 2026 guidance, the economic environment remains volatile, but forecast accuracy seems to be improving. As mentioned during our Q1 earnings call, Q1 revenues were at the trough of the fiscal year, with sequential quarterly revenue growth thereafter. Q2 has demonstrated this, and with the visibility we have for Q3 and Q4, it remains the case. As such, we believe revenues for the full year to be between CAD 115 million and 120 million.

Pedro Azevedo: CapEx spending during the quarter was CAD 3.6 million and in line with expectations. We expect to spend another CAD 4 to 5 million during Q3 to complete the graphene enhanced SMC initiative as well as the first module of the dry process graphene line. Once these two projects are completed, we expect CapEx to greatly reduce and represent less than CAD 1 million per quarter, excluding any new initiatives. Regarding our fiscal year 2026 guidance, the economic environment remains volatile, but forecast accuracy seems to be improving. As mentioned during our Q1 earnings call, Q1 revenues were at the trough of the fiscal year, with sequential quarterly revenue growth thereafter. Q2 has demonstrated this, and with the visibility we have for Q3 and Q4, it remains the case. As such, we believe revenues for the full year to be between CAD 115 million and 120 million.

Speaker #2: Once these two projects are completed, we expect CapEx to greatly reduce and represent less than 1 million dollars per quarter, excluding any new initiatives.

Speaker #2: Regarding our fiscal year 2026 guidance, the economic environment remains volatile, but forecasts accuracy seems to be improving. As mentioned during our Q1 earnings call, Q1 revenues were the trough of the fiscal year with sequential quarterly revenue growth thereafter.

Speaker #2: Q2 has demonstrated this and with the visibility we have for Q3 and Q4, it remains the case. As such, we believe revenues for the full year to be between 115 million and 120 million.

Speaker #3: Thank you, Pedro. Operator, we can now open the line for questions.

Pedro Azevedo: Thank you, Pedro. Operator, we can now open the lines for questions.

Pierre-Yves Terrisse: Thank you, Pedro. Operator, we can now open the lines for questions.

Speaker #4: 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.

Operator: 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&A roster. Our first question comes from Balthazar Chatué of National Bank Financial. Your line is open.

Speaker #4: Please stand by while we compile the Q&A roster. And our first question comes from Baltaz Shadu of National Bank of Canada. Your line is open.

Speaker #3: Perfect. Thank you. And good morning, everybody. So there's two questions for me. So margin improvement was much better than we had anticipated. And you had highlighted the drive for this was better product mix, improved productivity, and cost control.

Balthazar Chatué: Perfect. Thank you, and good morning, everybody. So just a few questions from me. So margin improvement was much better than we had anticipated, and you had highlighted the drive for this was better product mix, improved productivity, and cost control. So given that volume was still relatively low on this quarter, can you provide a targeted gross margin you'd expect with more run rate volumes with a similar product mix? And with that being said, and I think this has been alluded to in the prior comments, it's fair to assume that the continued quarter-over-quarter margin expansion should hold throughout the year.

Speaker #3: Just given that volume was still relatively low on this quarter, can you provide a targeted gross margin you'd expect with more run rate volumes with a similar product mix?

Speaker #3: And with that being said, and I think this has been alluded to in the prior comments, it's fair to assume that the continued quarter-on-quarter margin expansion should hold throughout the—

Speaker #3: year. Yes.

Pedro Azevedo: Yes, so that's correct, Balthazar. We will continue sequentially, quarter to quarter, to increase the margins as sales kind of recover. The addition of the powder sales for GrapheneBlack as they grow, and this is part of what Rocco was saying, is that it's hard to tell how fast it'll grow, but that inclusion of GrapheneBlack sales will contribute to the margins that the company produces overall in a very direct way because a lot of the structural costs are already built in. So every sale of GrapheneBlack is actually producing very strong flow-throughs to the bottom line. So in terms of specific numbers, I don't want to commit too much to numbers, but the 21.5, we do see it growing maybe to 22, 23, and so on over the course of the next few quarters, sequential quarters.

Rocco Marinaccio: Yes, so that's correct, Balthazar. We will continue sequentially, quarter to quarter, to increase the margins as sales kind of recover. The addition of the powder sales for GrapheneBlack as they grow, and this is part of what Rocco was saying, is that it's hard to tell how fast it'll grow, but that inclusion of GrapheneBlack sales will contribute to the margins that the company produces overall in a very direct way because a lot of the structural costs are already built in. So every sale of GrapheneBlack is actually producing very strong flow-throughs to the bottom line. So in terms of specific numbers, I don't want to commit too much to numbers, but the 21.5, we do see it growing maybe to 22, 23, and so on over the course of the next few quarters, sequential quarters.

Speaker #2: So that's correct, Baltaz. We will continue sequentially, quarter to quarter, to increase the margins as sales kind of recover. The addition of the powder sales for Tribal Graph as they grow—and this is part of what Rocco was saying—is that it's hard to tell how fast it'll grow, but that inclusion of Tribal Graph sales will contribute to the margins that the company produces overall in a very direct way because a lot of the structural costs are already built in.

Speaker #2: So every sale of tribal graph is actually producing very strong flow-throughs to the bottom line. So in terms of specific numbers, I don't want to commit too much to numbers, but the 21 and a half, we do see it growing maybe to 22, 23, and so on.

Speaker #2: Over the course of the next few quarters, sequential quarters. And it really is going to be an element of how much club car volumes will be in the next few quarters, how much tribal graph will be sold, and how much of the recovery in pack car and volatile volumes that are going to contribute to already existing structural costs.

Pedro Azevedo: And it really is going to be an element of how much Club Car volumes will be in the next few quarters, how much GrapheneBlack will be sold, and how much of the recovery in PACCAR and Volvo volumes that are going to contribute to already existing structural costs. So all of these things should ramp up the gross margins over the coming quarters just gradually, but you should see that continuation for several quarters.

Rocco Marinaccio: And it really is going to be an element of how much Club Car volumes will be in the next few quarters, how much GrapheneBlack will be sold, and how much of the recovery in PACCAR and Volvo volumes that are going to contribute to already existing structural costs. So all of these things should ramp up the gross margins over the coming quarters just gradually, but you should see that continuation for several quarters.

Speaker #2: So all of these things should ramp up the gross margins over the coming quarters just gradually. But you should see that continuation for several quarters.

Speaker #3: Fantastic. That's a with the first commercial dry process mill expected to be installed shortly. Could you just walk us through the sequence from commissioning to commercial revenue and specifically what milestones are you looking for?

Balthazar Chatué: Fantastic. That's great color. And just another one for me with the first commercial dry process mill expected to be installed shortly. Could you just walk us through the sequence from commissioning to commercial revenue, and specifically what milestones are you looking for, or does that need to occur before we continue to see meaningful revenue contribution?

Speaker #3: Or does that need to occur before we continue to see meaningful revenue?

Speaker #3: contribution? Sure.

Rocco Marinaccio: Sure. Hey, Balthazar. Good morning. Yeah, so the mill is on track in terms of being installed by April. In the past year, we've been able to produce very small lab-scale quantities to validate performance, okay? We're in different markets. We've identified markets that are not addressable to us today are now addressable to us. So as we ramp up the mill in April this coming year, we'll be able to produce larger volumes. There are different customers in different markets in different stages of testing. Some require much more volume than we could produce to advance their testing. So again, this is difficult to predict exactly. But I will tell you, the early results that we've seen up that led us to this point are extremely promising. And like I said, there are customers at different stages of testing. Some are towards the advanced staging.

Speaker #2: Hey, Baltaz. Good morning. Yeah. So the mill is on track in terms of being installed by April. We've in the past year, we've been able to produce very small lab-scale quantities to validate performance.

Speaker #2: Okay? And we're in different markets. We've identified markets that are not addressable to us today are now addressable to us. So as we ramp up the mill and in April this coming year, we'll be able to produce larger volumes.

Speaker #2: There's different customers and different markets and different stages of testing. Some require much more volume than we could produce to advance their testing. So again, this is difficult to predict exactly.

Speaker #2: But I will tell you the early results that we've seen up until that led us to this point are extremely promising. And like I said, there's customers in different stages of testing.

Speaker #2: Some are towards the advanced staging. Some are initial, with promising results across the board.

Rocco Marinaccio: Some are initial with promising results across the board.

Speaker #2: board. Perfect.

Balthazar Chatué: Perfect. Thanks, Rocco. Just a quick one here just on CP Chem. Are you exceeding expectations just with the testing that we have and in different basins and geographies? Are you comfortable with the capacity that you have there for them?

Speaker #3: Thanks, Rocco. And just a quick one here, just on CPC chem. Are you exceeding expectations just with the testing that we have and in different basins and geographies?

Speaker #3: Are you comfortable with the capacity that you have there for

Speaker #3: them? We're comfortable

Rocco Marinaccio: We're comfortable now. It is difficult. So I guess the biggest change this quarter from last quarter, we launched when we had the discussion, and CP Chem was trialing in one specific area. That's where all their testing was done initially. And that was validation of the product because it was one of the most stringent areas in the world. It was in the US. What they've started to do now is additional testing in other parts of the world to validate product, and that's where they are now. So in terms of capacity, we're fine now, and we're fine for the foreseeable future. Time will tell when we install additional capacity on the website.

Speaker #2: now. It is difficult. So I guess the biggest change this just launched when we had the discussion. And CP Chem was trialing in one specific area.

Speaker #2: That's where all their testing was done initially. And that was validation of the product because it was one of the most stringent areas in the world.

Speaker #2: It was in the US. What they've started to do now is additional testing in other parts of the world to validate product. And that's where they are now.

Speaker #2: So in terms of capacity, we're fine now. And we're fine for the foreseeable future. Time will tell when we install additional capacity on the website.

Speaker #3: Perfect. Thank you. I'll turn over the line.

Balthazar Chatué: Perfect. Thank you. I'll turn over the line.

Speaker #2: Thanks,

Rocco Marinaccio: Thanks, Baltaz.

Speaker #2: Baltaz. Thank

Speaker #4: you. And our next question comes from Amer Azad of Ventum Financial. Your line is

Operator: Thank you. Our next question comes from Amr Ezzat of Ventum Financial. Your line is open.

Speaker #4: open. Good morning.

Amr Ezzat: Good morning. Thanks for taking my questions. Just to continue on CP Chem, I believe in your prepared remarks, you noted, and I'm not sure if I'm quoting you right, a large services player is now trialing the product. I just want to confirm, is that a new potential client beyond the first sort of batch that CP Chem had? And if so, when you guys say a large services player, how should we think about the potential scale of said customer relative to the original set of customers CP Chem had?

Speaker #3: Thanks for taking my questions. Just to continue on CP Chem I believe in your prepared remarks, you noted and I'm not sure if I'm quoting you right a large services player is now trialing the product.

Speaker #3: is that a new potential I just want to confirm, appliance beyond the first sort of batch that CP Chem had? And if so, when you guys say a large services player, how should we think about the potential scale of said customer relative to the original set of customers CP Chem

Speaker #3: had? Yeah.

Rocco Marinaccio: Yeah. Good morning, Amr. So yeah. So the initial customer that trialed and converted, I mentioned they're early adopters in this process. That's how I referred to them. They were the first customer that had multiple sites across the US, and they have converted not 100% of their volume to NanoSlide and a portion of it, and they're in process of converting over time. What we referred to in the remarks were all additional customers that have been trialing or started trialing within the quarter. And that large service provider, I mean, there's two or three main ones. They're one of the three main ones, the biggest players in the world, all based in the Southern Texas, right? They're one of the three.

Speaker #2: Good morning, Amer. So, yeah. The initial customer that trialed and converted—I mentioned they're early adopters in this process. That's how I referred to them.

Speaker #2: They were the first customer that had multiple sites across the US, and they have converted not 100% of their volume to Nanoslide. And a portion of it is in their process of converting over time.

Speaker #2: What we referred to in the remarks were all additional customers that have been trialing or started trialing within the quarter. And that large service provider—I mean, there's two or three main ones.

Speaker #2: They're one of the three main ones. The biggest players in the world. All based in the southern Texas, right? They're one of the three.

Speaker #2: And it's not uncommon in this industry for a customer to privately label a product of a competitor that is adding value. And they label it as their own.

Rocco Marinaccio: It's not uncommon in this industry for a customer to private label a product of a competitor that is adding value, and they label it as their own. It's called white labeling. In this case, this is what would happen once adopted.

Speaker #2: They call it white labeling. And in this case, this is what would happen once adopted.

Speaker #3: That's fantastic. It does seem that that one player is much larger, I guess, than all the other clients CP Chem has. Can you help us understand where are they in the testing process?

Amr Ezzat: That's fantastic. It does seem that that one player is much larger, I guess, than all the other clients CP Chem has. Can you help us understand where are they in the testing process? Is it still early days, or have they already tested the product?

Speaker #3: Is it still early days, or have they already tested the product?

Speaker #2: Yeah, so they've done a lot of tests. So everyone's going to take the CP Chem data, and they're going to go validate in the lab, right?

Rocco Marinaccio: Yeah. So they've done lab tests. So everyone's going to take the CP Chem data, and they're going to go validate in the lab, right? That's step number one. They've done that. They're moving on to field testing. So they've ordered NanoSlide for field testing.

Speaker #2: That's step number one. They've done that. They're moving on to field testing. So they've ordered Nanoslide for field testing.

Speaker #3: Understood. Okay, that's very helpful. Congrats on that. It's hard for me to ask you at what point, or what process capacity becomes a constraint. But can you maybe help us understand how quickly you guys could add incremental capacity if and when needed?

Amr Ezzat: Understood. Okay. That's very helpful. Congrats on that. It's hard for me to ask you at what point what process capacity becomes a constraint, but can you maybe help us understand how quickly could you guys add incremental capacity if and when needed?

Speaker #2: Sure. We believe nine to twelve months for additional capacity, whether it's wet or dry. The answer is going to be the same. We feel twelve months would be, I would say, conservative, right, on both sides.

Rocco Marinaccio: Sure. We believe 9 to 12 months for additional capacity. Whether it's wet or dry, the answer is going to be the same. We feel 12 months would be, I would say, conservative, right, on both sides. The difference between wet and dry. Wet, we need a much larger footprint, obviously. We can't go smaller. We don't want to go smaller than what we have. So we would need additional square footage. On the dry side, we have ample square footage to expand into in our current facility.

Speaker #2: The difference between wet and dry: wet, we need a much larger footprint, obviously. We can't go smaller; we don't want to go smaller than what we have.

Speaker #2: So we would need additional square footage. On the dry side, we have ample square footage to expand into in our current

Speaker #2: facility. Yes.

Amr Ezzat: Yes. Fantastic. Congrats on the Volvo contract. Will that be fulfilled out of North Carolina? And did I understand correctly that this is additive to the CAD 40 million composites target that you guys have?

Speaker #3: Fantastic. Congrats on the Volvo contract. Will that be fulfilled out of North Carolina? And did I understand correctly that this is additive to the $40 million composites target that you guys have?

Speaker #2: Correct. So the launch of STATESCO, which is where we do the ClipGuard business, that facility is basically set up for all future SMC growth.

Rocco Marinaccio: Correct. So the launch of Statesville, which is where we do the Club Car business, that facility is basically set up for all future SMC growth. It's an SMC contract win. We're graphene-enhanced SMC. And yes, it is incremental to the 40 previously announced.

Speaker #2: It's an SMC contract win. We're graphene enhanced SMC. And yes, it is incremental to the 40 previously

Speaker #2: announced. Okay.

Amr Ezzat: Okay. And it's not just a transfer from your existing Volvo business? This is incrementally new?

Speaker #3: And it's not just a transfer from your existing Volvo business. This is incrementally

Speaker #3: new?

Speaker #2: Yeah. It's a takeover

Rocco Marinaccio: Yeah. It's a takeover from a competitor, if you will. So it's not transferring internally, no.

Speaker #2: From a competitor, if you will. So it's not transferring internally, no.

Speaker #3: Yeah. Fantastic. No, that's helpful. Then maybe one last one on the dry process. You guys have highlighted very positive sort of customer testing feedback and so on.

Amr Ezzat: Fantastic. No, that's helpful. Then maybe one last one on the Dry Process. You guys have highlighted very positive sort of customer testing feedback and so on. I just wonder, what are the gating factors between installation and meaningful revenue in fiscal 2027? Do we expect a long sort of qualification cycle, or is it really about customer integration timelines?

Speaker #3: I just wonder what are the gating factors between installation and meaningful revenue and fiscal '27? Do we expect a long sort of qualification cycle?

Speaker #3: Or is it really about customer integration?

Speaker #3: timelines? Yeah.

Rocco Marinaccio: Yeah. Different customers in different markets have different timelines, if you will. We're in advanced testing with certain markets and initial to mid-level testing with others. And the data has all proven to add tremendous value in each of these markets where there's final testing. I mean, plant trials that have to occur, some buyoffs that have to be done. Pricing usually gets discussed pretty early on to make sure we don't go down a road that we can't supply or we can't satisfy. So again, very difficult to say the timeline when we sell out in 3 months or 6 months or 9 months. Obviously, our goal is to fill the capacity ASAP and order incremental mills.

Speaker #2: Different customers and different markets have different timelines, if you will. We're in advanced testing with certain markets, and initial to mid-level testing with others.

Speaker #2: And the data has all proven to add tremendous value in each of these markets, where there's final testing. I mean, plant trials that have to occur.

Speaker #2: Some buy-offs that have to be done. Pricing usually gets discussed pretty early on to make sure we don't go down a road that we can't supply or we can't satisfy.

Speaker #2: So again, very difficult to say the mills when we sold out in three months, or six months, or nine months. Obviously, our goal is to fill it, the capacity, ASAP, in order to incremental mills.

Speaker #3: Fantastic. Congrats on the margin performance and I'll pass the line.

Amr Ezzat: Fantastic. Congrats on the margin performance, and I'll pass the line.

Speaker #2: Thanks, Aaron. on. on. Thanks.

Rocco Marinaccio: Thanks, Amer.

Operator: Thanks. And our next question comes from James McGarragle of RBC Capital Markets. Your line is open.

Speaker #1: And our next question comes from James McGargle of RBC Capital Markets. Your line is

Speaker #1: open. Hey.

Amr Ezzat: Hey. Thanks for having me on, and good morning.

James McGarragle: Hey. Thanks for having me on, and good morning.

Speaker #3: Thanks for having me on, and good morning.

Rocco Marinaccio: Morning.

Amr Ezzat: Morning, James.

Pedro Azevedo: Morning, James.

Speaker #4: Good Good morning, James. morning.

Rocco Marinaccio: Morning.

Speaker #3: So I just had a question on the decision to forgo the CPG or CSPG investment. I know a lot's changed since you provided, though, those five-year targets I think it was in 2022.

Amr Ezzat: I just had a question on the decision to forgo the CSPG investment. I know a lot's changed since you provided those five-year targets. I think it was in 2022. But at the time, there was CAD 100 million of top line associated with that investment. And then maybe this isn't the time for you to address this. Maybe this is for an investor day, but when I look at consensus revenue, it has top line doubling by fiscal 2028 versus fiscal 2026. So can you just kind of provide some color on how should we be thinking about the growth rate without the decision to invest in that? I know you mentioned the CP Chem opportunity is kind of hard to define in the near term, but just any color on how we should be thinking about top line growth into fiscal 2027 and fiscal 2028 would be helpful.

James McGarragle: I just had a question on the decision to forgo the CSPG investment. I know a lot's changed since you provided those five-year targets. I think it was in 2022. But at the time, there was CAD 100 million of top line associated with that investment. And then maybe this isn't the time for you to address this. Maybe this is for an investor day, but when I look at consensus revenue, it has top line doubling by fiscal 2028 versus fiscal 2026. So can you just kind of provide some color on how should we be thinking about the growth rate without the decision to invest in that? I know you mentioned the CP Chem opportunity is kind of hard to define in the near term, but just any color on how we should be thinking about top line growth into fiscal 2027 and fiscal 2028 would be helpful.

Speaker #3: But at the time, line associated with that investment. And then maybe this is in the time for you to address this. Maybe this is for an investor day.

Speaker #3: But when I look at consensus revenue, it has top line doubling by fiscal '28 versus fiscal '26. So can you just kind of provide some color on how should we be thinking about the growth rate without the decision to invest in that?

Speaker #3: I know you mentioned the CP Chem opportunity is kind of hard to define in the near term, but just any color on how we should be thinking about top-line growth into fiscal 2027 and fiscal 2028 would be—

Speaker #3: helpful. Yeah.

Rocco Marinaccio: Yeah. Thanks for the question, James. So go back to CSPG. So the top line growth you referenced was a combination between CSPG and dry process, okay? And just to clarify, dry process is still a go and still a main pillar of our company going forward. So the CSPG aspect, although a number was provided, again, we strongly feel the decision at the time was the right one for the company. But as we peel back that onion further and geopolitical conditions have changed, that decision became much more inherently risky for us as a company, I mean, for North America as a whole, if you will. So the top line revenue for CSPG, like I said, even if we had a customer in an agreement, the risk factor would always be there in terms of any margin associated, could eventually go negative, right?

Speaker #2: Thanks for the question, James. So, going back to CSPG—the top line growth you referenced was a combination between CSPG and dry process. Okay, and just to clarify, dry process is still a go and still a main pillar of our company going forward.

Speaker #2: So the CSPG aspect, although a number was provided, again, we strongly feel the decision at the time was the right one for the company.

Speaker #2: But as we peel back that onion further, and geopolitical conditions have changed, that decision became much more inherently risky for us as a company.

Speaker #2: I mean, for North America as a whole, if you will. So the top line revenue for CSPG, like I said, even if we had a customer in an agreement, the risk factor would always be there in terms of any margin associated could eventually go negative, right?

Speaker #2: And that was one of the main risks. On the dry process side, the answer is going to be the same, right? So as we ramp up customers, the difference is between dry and wet is we don't have to add 4,000-ton capacity.

Rocco Marinaccio: That was one of the main risks. On the Dry Process side, the answer is going to be the same, right? As we ramp up customers, the differences between Dry and Wet is we don't have to add 4,000-ton capacity. We can add mills as needed depending on the grade the customer requires in incremental capacities, right? Each mill, if you use the same selling price, just to give you a rule of thumb, I mean, each mill adds between 500 to 1,000 tons of capacity.

Speaker #2: We can add mills as needed, depending on the grade the customer requires, in incremental capacities, right? In each mill, if you use the same selling price, just to give you a thumb, I mean, each mill adds between 500 to 1,000 tons of—

Speaker #2: capacity.

Speaker #3: No, I appreciate

Amr Ezzat: No, I appreciate the color there. That makes a lot of sense. And then you noted volumes from your two largest customers started to stabilize during the quarter and that you're kind of expecting some gradual improvement as we move through the year. Can you just give us a quick update on what your customers are saying about the health of the transportation market and any visibility you have into that ramping in Q3 and into Q4?

James McGarragle: No, I appreciate the color there. That makes a lot of sense. And then you noted volumes from your two largest customers started to stabilize during the quarter and that you're kind of expecting some gradual improvement as we move through the year. Can you just give us a quick update on what your customers are saying about the health of the transportation market and any visibility you have into that ramping in Q3 and into Q4?

Speaker #3: the color there. That makes a lot of sense. And then you noted volumes from your two largest customers started to stabilize during the quarter and that you're kind of expecting some gradual improvement as we move through the year.

Speaker #3: Can you just give us a quick update on what your customers are saying about the health of the transportation market and any visibility you have into that ramping in Q3 and into Q4?

Speaker #2: Absolutely. Yeah. So the last three quarters have been tough for the whole industry, not just our customer specifically. The whole industry, I mean, as a whole, has taken a major hit.

Rocco Marinaccio: Absolutely. Yeah. So the last three quarters have been tough for the whole industry, not just our customer specifically. The whole industry, I mean, as a whole has taken a major hit. You can point to many different factors, right? I'll tell you, for our customer specifically, where we were supplying, tariffs were an impact, and the customer had to take the last few quarters to localize production where it made sense for them. We're very well positioned. We can supply out of our current facility where we supply out of Quebec. We can supply out of Statesville. So for us, that's very, very good that we're well positioned to support our customer growth.

Speaker #2: You can point to many different factors, right? I'll tell you, for our customers specifically, where we were supplying tariffs were an impact. And the customer had to take the last few quarters to localize production where it made sense for them.

Speaker #2: We're very well positioned we can supply out of our current facility where we supply out of Quebec. We can supply out of Statesville. So for us, that's very, very good that we're well positioned to support our customer growth.

Speaker #2: So what we see in the industry as a whole is that a gradual ramp-up starting I would say early next quarter. Going into the end of the year, to get back to very close to, I would say, capacity not 100% volumes to where we were 12 months ago, 12 to 15 months ago, but very

Rocco Marinaccio: So what we see in the industry as a whole is that a gradual ramp-up starting, I would say, early next quarter, going into the end of the year to get back to very close to, I would say, capacity, not 100% volumes to where we were 12 months ago, 12 to 15 months ago, but very close.

Speaker #2: Close. And then what's going to squeeze one last

Amr Ezzat: Then I was going to squeeze one last quick housekeeping one in. I just want to confirm the commentary on the CapEx. So it was stated CAD 4 to 5 million in Q3. That's going to go to CAD 1 million per quarter into Q4. And is that a reasonable run rate, the CAD 1 million, to put into our models for 2027?

James McGarragle: Then I was going to squeeze one last quick housekeeping one in. I just want to confirm the commentary on the CapEx. So it was stated CAD 4 to 5 million in Q3. That's going to go to CAD 1 million per quarter into Q4. And is that a reasonable run rate, the CAD 1 million, to put into our models for 2027?

Speaker #3: quick housekeeping one in. I just want to confirm the commentary on the CapEx. So it was stated four to five million in Q3. That's going to go to 1 million per quarter into Q4.

Speaker #3: And is that a reasonable run rate? The 1 million to put into our models for

Speaker #3: 2027?

Rocco Marinaccio: Yes, that's right.

Speaker #2: That's right.

Speaker #3: Awesome. I'll turn the line over and thanks for having me on.

Amr Ezzat: Awesome. I'll turn the line over, and thanks for having me on.

James McGarragle: Awesome. I'll turn the line over, and thanks for having me on.

Speaker #2: Thanks,

Rocco Marinaccio: Thanks, James.

Speaker #2: James. Thank

Speaker #1: you. And our next question comes from Fred Gittali of Raymond James. Your line is open.

Operator: Thank you. And our next question comes from Frederic Tremblay of Raymond James. Your line is open.

Speaker #5: Good morning. Thanks for taking my question. Just want to go back to the CP Chem. Specifically on the marketing of the product, it's now been a few months that this delivery has started.

Frédéric Tremblay: Good morning. Thanks for taking my question. I just want to go back to the CP Chem, specifically on the marketing of the product. It's now been a few months that this delivery has started. What are you seeing in terms of success and incremental demand that has come from the marketing of this product?

Speaker #5: What are you seeing in terms of success and incremental demand that has come from the marketing of this product?

Speaker #2: Yeah. Good question. So contract was official October 1st, 2025. CP Chem started marketing mid-November, okay? And there was a six-week gap there really because they didn't want to market without having product blended.

Rocco Marinaccio: Yeah. Good question. So contract was official 1 October 2025. CP Chem started marketing mid-November, okay? And there was a 6-week gap there really because they didn't want to market without having product blended and ready for customer trials, okay? They didn't want customers sitting there waiting. So there was a big gap in terms of when they started their marketing. And then in the industry and when I talk about seasonality and slowdown, I'm more talking about geographical locations where weather plays a factor. So obviously, in the Middle East, where weather's not a factor, those comments don't apply. But where the initial trials were done in the US, weather plays a factor. And December or January is a seasonality as slow period. Very difficult to drill if the ground is frozen, right? So the customers that have begun trialing in the quarter or previously.

Speaker #2: And ready for customer trials, okay? They didn't want customers sitting there waiting. So there was a big gap in terms of when they started their marketing.

Speaker #2: And then in the industry and when I talk about seasonality and slowdown, I'm more talking about geographical locations where weather plays a factor. So obviously, in the Middle East, where weather is not a factor, those comments don't apply.

Speaker #2: But where the initial trials were done, in the US, weather plays a factor. And December, January is a seasonality—a slow period. It's very difficult to drill if the ground is frozen, right?

Speaker #2: So the customers that have begun trialing in the quarter or previously, results have all validated what the product has said it was going to do.

Rocco Marinaccio: Results have all validated what the product has said it was going to do. There has been no negative technical feedback, at least to our knowledge.

Speaker #2: And there has been no negative technical feedback, at least to our

Speaker #5: Okay, thank you. And on the details on this Volvo award, you've just parsed through maybe, just a multi-contract sort of implications on the North Carolina facility capacity with this in place.

Frédéric Tremblay: Okay. Thank you. On the details on this Volvo award, could you just parse through maybe just to send multi-contract sort of the implications on the North Carolina facility capacity with this in place, and then whether this is in line with current margins?

Speaker #5: And then whether this is in line with current margins.

Speaker #2: Can you you cut out a bit. Can you just repeat the question,

Rocco Marinaccio: Can you cut out a bit? Can you just repeat the question, please?

Speaker #2: please? On this Volvo award,

Frédéric Tremblay: On this Volvo award, SMC award, could you just maybe go into further details on sort of the length of this contract, perhaps then go through sort of the margin implications as well?

Speaker #5: SMC award, could you just maybe go into further details on sort of the length of this contract? Perhaps then go through sort of the margin implications as well.

Speaker #2: Sure. So length of contract. So there's a takeover business, right? So I want to say there's at least four to five years left on this program.

Rocco Marinaccio: Sure. So length of contract, so this is a takeover business, right? So I want to say there's at least 4 to 5 years left on this program. The good thing about this component is a lot of times when we have one business in the transportation sector, it has been for a specific program. So whether it's a hood or it doesn't matter what the component is. If you're tied into a specific program, your volume is dictated by how well that one program sells. In the case of this business, this is an oil pan, which is a common component that goes across the whole trucking platform in North America. So the volume is much higher for us. And the margin question, it's in line with our expectations on the graphene-enhanced solutions business.

Speaker #2: The good thing about this component is a lot of times when we have one business in the transportation sector, it has been for a specific program.

Speaker #2: So whether it's a hood or—it doesn't matter what the component is—if you're tied into a specific program, your volume is dictated by how well that one program sells.

Speaker #2: In the case of this business, this is an oil pan, which is a common component that goes across the whole trucking platform in North America.

Speaker #2: So the volume is much higher for us. And the margin question, it's in line with our expectations on the graphene-enhanced solutions business.

Speaker #5: Thank

Speaker #5: you. you.

Frédéric Tremblay: Thank you.

Speaker #1: Thank

Operator: Thank you. As a reminder, if you have a question, please press star 11. Our next question comes from MacMurray Whale of ATB Capital Markets. Your line is open.

Speaker #1: question, please press star And as a reminder, if you have a 11. And our next question comes from McMurray Whale of ATBCCM, your line is open.

Speaker #3: Hi. Good morning. Can you discuss what sort of efforts you might need to make on materials, sourcing, now that you're not doing the CSPG initiative?

MacMurray Whale: Hi. Good morning. Can you discuss what sort of efforts you might need to make on materials sourcing now that you're not doing the CSPG initiative? Is there much of a disruption there?

Speaker #3: Is there much of a disruption there?

Speaker #2: Good question. No. So our process has one that's set up where it's very flexible for any type of raw material coming in. So whether we use local supply today, or whether we go to Brazil, South Africa—I mean, wherever we source raw materials from—our process is very flexible to adapt.

Rocco Marinaccio: Good question. No. So our process is one that's set up where it's very flexible for any type of raw material coming in. So whether it's we use local supply today, whether we go to Brazil, South Africa, I mean, wherever we source raw materials from, our process is very flexible to adapt. And we have agreements with more than one, multiple sources.

Speaker #2: And we have agreements with more than one, multiple sources.

Speaker #3: Okay. I guess on the other side, you mentioned is one of the risks is the geopolitical uncertainty. What specifically are you referring to? Is it more related to, say, government support around energy transition?

MacMurray Whale: Okay. I guess on the other side, you mentioned one of the risks was the geopolitical uncertainty. What specifically are you referring to? Is it more related to, say, government support around energy transition, or are you just really speaking about trade issues between clients that might be now outside our sort of favorite nations? Is that the kind of issue?

Speaker #3: Or are you just really speaking about trade issues between clients that might be now outside our sort of favored nations? Is that the kind of issue?

Speaker #2: Yeah, I mean, trade and tariff. I mean, even with tariffs on foreign materials coming in, to get to a price point—even if you include the tariff—it's not very easy to get to those numbers.

Rocco Marinaccio: Yeah. I mean, trade and tariff. I mean, even with tariffs on foreign materials coming in, to get to a price point, even if you include the tariff, it's not very easy to get to those numbers. And who knows what the future holds? If that tariff ever went back to where it was, we don't feel we could compete.

Speaker #2: And who knows what the future holds? If that tariff ever went back to where it was, we don't feel

Speaker #2: we could compete. Right. So there's been instances where Biden

MacMurray Whale: Right. I make sense.

Speaker #3: Right. I make sense.

Rocco Marinaccio: So there's been instances where binding agreements have been nullified for the same thing. So on a binding agreement, we said we would move forward. I mean, if we did move forward and it got canceled, we'd be left holding a big bag right now.

Speaker #2: agreements have been nullified for the same thing. So on a Biden agreement, we said we would move forward. I mean, if we did move forward, and it got canceled, we'd be left holding a big bag right now.

Speaker #3: Okay. And then when you're looking you talked about how the rest of the year should be we should be seeing these improvements as you've established now in Q2.

MacMurray Whale: Okay. And then, when you're looking, you talked about how the rest of the year should be. We should be seeing these improvements as you've established now in Q2. Do you expect an acceleration of the improvements? I mean, is it more of a linear, or is it more, can you kind of see bigger and bigger steps in the improvement as you ramp up?

Speaker #3: Do you find do you expect an acceleration of the improvements? I mean, is it more of a linear or is it more can you kind of see bigger and bigger steps in the improvement as you ramp up?

Speaker #2: I think the steps will be a little bit bigger. As Pakar and Volvo volumes start coming back, the club car business is already a bit established.

Rocco Marinaccio: I think the steps will be a little bit bigger as PACCAR and Volvo volumes start coming back. The Club Car business is already a bit established. So the step up that we had from Club Car and from CP Chem will continue to step up quarter over quarter. So you should expect a step that's a little bit better each quarter from sequential quarter to quarter.

Speaker #2: So the step up that we had from the club car and from CP Chem will continue to step up quarter over quarter. So you should expect a step that's a little bit better each quarter from sequential quarter to quarter.

Speaker #3: Okay. Excellent. Thank you both.

MacMurray Whale: Okay. Excellent. Thank you both.

Speaker #2: Okay. Thank you.

Rocco Marinaccio: Okay.

Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Pierre-Yves Terrisse for closing remarks.

Speaker #1: I'm showing no further questions at this time. I'd like to turn it back to Pierre-Trice for closing remarks.

Speaker #2: Well, thank you, everyone, for participating in the call this morning. And have a great

Rocco Marinaccio: Well, thank you, everyone, for participating in the call this morning, and have a great day.

Pierre-Yves Terrisse: Well, thank you, everyone, for participating in the call this morning, and have a great day.

Speaker #2: day. This concludes today's

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

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