Nanoxplore’s Earnings Call: Mixed Sentiments and Future Outlook

Nanoxplore ((TSE:GRA)) has held its Q3 earnings call. Read on for the main highlights of the call.

The recent earnings call for Nanoxplore presented a mixed sentiment, reflecting both optimism and challenges. On the positive side, the company reported improvements in gross margins and EBITDA in specific segments, alongside promising developments in U.S. expansion and graphene powder commercialization. However, these positive aspects were tempered by declines in revenue, delays in program launches, and obstacles in power allocation for expansion projects.

Increase in Gross Margins

Nanoxplore reported a significant improvement in adjusted gross margins, which increased by 150 basis points year-over-year, reaching 22.4% during the quarter. This growth was primarily driven by manufacturing efficiency improvements and higher sales of graphene powder, showcasing the company’s ability to enhance profitability through operational efficiencies.

Positive EBITDA in Battery Sales and Materials Segment

The Battery Sales and Materials segment showed a positive shift, reporting an EBITDA of $102,000 compared to a loss of $688,000 in the previous year. This turnaround was largely attributed to research and development grants and reduced spending, highlighting the segment’s potential for future profitability.

Expansion and Investment in the U.S.

Nanoxplore’s expansion efforts in North Carolina are on track, with equipment expected to arrive by May and production anticipated by summer. Supported by booked contracts, this expansion is projected to generate over $10 million annually, marking a significant step in the company’s growth strategy in the U.S. market.

Graphene Powder Commercialization

The company is optimistic about the commercialization of graphene powder, expecting sales to increase significantly. Promising results from customers in drilling fluid and insulation foam sectors suggest potential for substantial future orders, underscoring the product’s growing market acceptance.

Revenue Decline

Despite positive developments, Nanoxplore experienced a decline in total revenues for Q3, which fell to $30.4 million from $33.9 million the previous year. This decline was mainly due to lower progress revenue recognition and reduced volumes from major customers, indicating challenges in maintaining revenue growth.

Delays in New Program Launches

The company faced delays in launching two new customer programs, coupled with reduced demand from existing customers. These factors are impacting expected revenue growth for fiscal year 2025, presenting a hurdle in achieving projected financial targets.

Challenges with CSPG Expansion

Nanoxplore is encountering challenges in its CSPG and dry process graphene expansion plans due to delays in receiving official confirmation from Hydro-Quebec for necessary power allocation. This issue is hindering the company’s ability to fully realize its expansion objectives.

Soft Commercial Vehicle Market

The commercial vehicle market remains soft, leading to a revised guidance for fiscal 2025. The company now expects sales to be flat compared to fiscal 2024, at approximately $130 million, reflecting the broader market challenges.

Forward-Looking Guidance

Looking ahead, Nanoxplore provided several key metrics and forward-looking guidance. While revenues for Q3 were down from the previous year, the company anticipates fiscal year 2025 sales to remain flat at approximately $130 million. Despite economic uncertainties and delayed program launches, they project a minimum of $15 million in incremental revenue for the following fiscal year, driven by new customer programs, U.S. expansion, and increased graphene powder sales. Capital expenditures are expected to decrease significantly by the end of Q2 2026.

In summary, Nanoxplore’s earnings call highlighted a mixed sentiment with both positive developments and challenges. While improvements in gross margins and promising expansion efforts offer optimism, revenue declines and program delays present hurdles. The company’s forward-looking guidance reflects cautious optimism, with expectations of stable sales and future growth driven by strategic initiatives.