BQE Water (TSXV:BQE) Q2 2026 Earnings Call

0:00 Thank you for standing by. At this time, I'd like to welcome everyone to the VQE Waterfog 2026 Investor Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. to ensure everyone has a chance to participate. We ask that you limit your questions to one question plus a follow-up. I would now like to turn the conference over to VQE Water Management. Please go ahead.

0:38 David Kratochvil Good night, everyone, and welcome. My name is David Kratochvil. I'm the president and CEO of the company. and again we'd like to give a warm welcome to the entire team to our call to review our financial results so far this year. And today with me on the call are our Chief Financial Officer Heman Wong and Exhibit Chairman Peter Gleeson. We will start the call with Heman, summarizing highlights of the financial results, and we'll then provide a few comments to set these financial results in a broader context.

1:26 I need to remind everyone on the call today that the discussion will contain forward-looking statements about future business and financial expectations, and that actual future results may differ from those projected in today's will be the various risks and uncertainties, including the risks described in our financial reports and MD&A. Further, this call will refer to certain non-GAAP financial measures, such as proportional revenue or adjusted into data, and reconciliation of these measures to the closest GAAP financial measures is included in our MD&A, which is available on our website. So I will pass the floor on to Heman

2:13 For his highlighting of the financial results so far, Heman, please go ahead. Thank you, David. I'll now go through the second quarter for Inherited Financials compared to the last year's second quarter. In our Q2 revenue under GAAP, we have $9.2 million and proportional revenues of $11.3 million. which is compared to $11.3 million and $12.9 million of the same period last year in Q2. I'd like to break out a revenue into three sections. These are recurrent water density or short-term operations and advisory and design services or chemical services.

2:58 Our recurring water treatment revenue for Q2 was $3.1 million, which is an increase of $1.9 million. And this is due to the addition of five new operations that started in 2026. Mainly, it was for Tamiya, the Nunavik nuclear project for CRI, a lead smelter in eastern Canada, the salt plant in China, and also the work mine in the U.S. Short-term operations were $4.2 million compared to $3.7 million. And during the second quarter, we continued to provide services for Eagle Mine, emergency treatment services for Eagle Mine, for the full quarter, which is the same as last year. And the additional revenue is because we started new seasonal operations at Bell Mine and at the Bell Retailers Facility, which we commissioned last year.

3:54 In terms of advisory and design services, it was $1.9 million compared to $6.5 million of last year's second quarter. And this is mainly due to the one-time plant equipment sale of the Valley Tail project, which we built, sold the equipment, and commissioned last year. In terms of our GCC, which is our joint venture in China, our share results was 25% increase compared to the same period last year. And this is mainly due to an 8% increase in the quantity of copper recovered and also by a 38% increase in the average copper prices during the period. Overall, our net income for the second quarter was $1.8 million compared to $1.9 million of Q2 2025. And our adjusted EBITDA of Q2 was $2.4 million compared to $2.5 million of the second quarter of 2025.

4:55 In terms of our working capital, which is defined as current assets, less current liabilities, until June 30th, was $21 million, compared to $21.4 million at December 31st, 2025. With that, I'll now turn the call back to David.

5:17 Thank you, Heman. I guess from my perspective, I just want to make a few remarks and comments to set the results in the broader context, long-term picture for everyone. I guess, you know, Heman went through the details of the second quarter year to date. We always encourage investors to look at the company performance, not quarter to quarter basis, but always look at the longer term. I think the whole year, overall year financial results. And for those of you who have followed the company now for a few years, probably appreciate the fact that 2025 was truly what I would call a weak year.

6:12 You know, it's evidence in the financial results that in 2025, we doubled, basically, our gap revenue and our net income increased by 67% in just one year. So, truly, truly years. Why did that happen and, you know, how does that set into the longer-term context? So, several larger projects happened during the year. Namely, as those of you know who follow the company for a while, we had basically almost a full year of short-term operations at the Eagle Line where we helped with the emergency response at the Portland-Victoria Gold Defeat, Gold Defeat operation in Yukon.

7:05 And we also had one-time projects with a sale of equipment for the ERVC to Valley Tailings project that Heman mentioned. Now, those two projects were excellent opportunities for us to really mobilize our entire team and start to develop additional resources to grow sustainably for the long term. But in the context of the year-to-year performance, they were truly one-off projects. When you actually subtract for that year, 2025, our technical services revenue was $28.2 million.

7:56 And you have to realize that that revenue of $28.2 million got revenue included for short-term operations, which were then still recorded under technical services. You probably have noticed that we started reporting the short-term operations separately this year for everyone to see that our technical advisory services, the true advisory services, set separately from the short-term operations. Last year, when we mixed those two together, it was $20.2 million, but when you subtract The one-time ERDC equipment sales and the full year of short-term operations, not just the e-book, but other sites. The true advisory service is sort of full year for $7.5 million.

8:45 So the way I kind of look at this is the year of consolidation of this rapid growth. We've increased our headcount. We've reorganized. and our current capacity to generate revenue through advisory technical services has grown from the 7.5 last year to this year, capacity to generate revenue of roughly 9.5 million per year. So roughly a 25% increase. And that's in line with what I, you know, those of you who follow our investor debt presentations, our program websites, You see that what we achieved over the last five years is compounded annual growth rate of 25%. So this build-out in capacity internally that we are experiencing this year investing in new resources is roughly in line with producing the long-term compounded growth rate of 25%.

9:49 Now, aside from viewing this year as a year of consolidation, so that we're not really seeing a dramatic decrease or increase of performance moving forward by the period of consolidation, I'd like to spend a few minutes and describe the strength of our pipeline, project pipeline, that we've analyzed recently. So overall, in the project pipeline, we have currently 40 projects. The projects are active in various stages of project development. All of those 40 clients or projects have already spent some money with us, but they're in different stages of development. Some are very early studies, lack the same contract.

10:39 Some are very advanced and close to construction. But overall, in the pipeline, we have 40 projects. Out of the 40, we've identified 17 as what we call high-impact projects. And the high-impact, for us, means that it's either projects that have recurring revenue potential at the end, or they're with a completely new and strategically important client. And then four have a large marketing value within the industry, so are viewed as So you have setting standards in the industry. So if these projects meet one of these three criteria, they become what we call a live impact. And just to get a little bit of a breakdown of what are these projects about, there's only one project that's purely driven by recovery of value from waste. The rest of them are all compliance-driven projects.

11:43 Out of those high-impact projects, over 80% are based or using at least part of our intellectual property. So there's really just a small minority of these where they're generic projects where we actually do work for clients who come to us and want us to work on projects that literally No special IP is needed, but the vast majority of projects require our IP. And so the overall pipeline, when I look at it, the spread or the distribution between the different types of IP and technologies is also quite even. So, you know, we've got roughly one-third of these being Selenium projects. They're obviously, we stand out strongly.

12:34 There is roughly 25% that's cyanide recycled for destruction against strong IP. And there's roughly 20% that's sulfate removal driven. And so it's not really with any one client either. We have the distribution of clients within the pipeline. There is no skewing. I think the largest chunk of these projects would be probably less than 20% with one client. And the rest of them are distributed amongst a number of different clients.

13:21 So just want to quote these comments about earlier today. We feel pretty Pretty confident about our pipeline moving forward. We feel that our performance for the rest of the year is going to be strong. We don't provide guidance. And for those of you who follow the company, you know there's always uncertainty. There's always distribution of outcomes. But in this distribution of outcomes, what I would say is that the The probability that we are going to be meaningfully or significantly below the results of last year is very unlikely.

14:06 And the probability that we are going to be meaningfully or significantly higher than last year is also unlikely. And with that, I will just open the floor to questions and be happy to answer any of the questions that you might have back in the future. Thank you. We'll now begin the question and answer session. If you'd like to ask a question during this time, simply press star 1 on your telephone keypad to raise your hand. If you'd like to withdraw your question, simply press star 1 again. To ensure everyone has a chance to participate, we ask that you limit your questions to one question, plus one follow-up. One moment while I compile the Q&A roster.

14:53 The first question comes from the line of Robert Gignac. Your line is live.

15:02 Yes, hello. My first question is just on your new segmenting of your short-term operations services. Thanks for that. That's very helpful. I think it gives us more Insight into that division between technical services and shorter-term operations. How should investors be thinking about how projects could move from short-term to long-term operations? And are there projects that could remain active in the short-term segment for an extended period of time?

15:40 Yes. Well, thank you for the question. Very good question. The short-term operations is a mix of projects. And I can say that within that mix, we do have projects that we see these short-term operations as the entry point for long-term. So there will be those, absolutely. And it's part of the – you know, these short-term operations typically – are shortcuts to basically get to operations without having to go through lab testing, engineering, construction, commissioning. Usually, these short-term operations are on existing facilities, and sometimes the clients have short-term issues they need to sort out, but for us, it could be an entry point into long-term operations.

16:35 So, that's one type. The second type is where truly this is a temporary situation. So water accumulations build up on sites. Client has, you know, one and a half million cubic meters of water. They need to get rid of that volume. But there's nothing beyond that. There will be those, absolutely. And I think, you know, there are also projects where we feel that it's a short term from the point of view of fixing an issue. The client already has resources on site, so we're just assisting them.

17:20 But it's really building credibility and reputation in the industry, so it's part and parcel of building our reputation. And, you know, I think that your point is very important, and that is that what really stands out for PQE in the States is we're one of very few players who can respond very quickly in an agile manner to the demand for help in operations. You know, there are companies who are doing engineering, advisory consulting services, but the operation piece, being able to fix current issues and or take over operations, that's a really unique feature of our capabilities.

18:15 Thanks. That's very helpful. My next question is actually just regarding regulatory changes. Bill C-39 was tabled in Parliament this week. It aims to speed up federal approvals for major projects. It also has some changes for the Fisheries Act, including a new mechanism for proponents to pay fees to offset impacts on fish and fish habitat. How do you see the bill affecting your business, both in terms of the pace of new mine development and any changes in the regulatory drivers for water treatment?

18:55 I think the answer is in the short term, I don't necessarily expect impact. For new projects, for new projects that are completely getting off the ground as a result of this bill, it's too early to tell. But I would say that one of the things that we've seen in the industry truly is the need for social acceptance. So regardless of the government push funding, facilitated permitting, the need for social acceptance is still there. And I think that if we can help our clients with achieving social acceptance without them having to offset any impact financially under this law, It would always be seen as one way.

19:58 Okay, that's super helpful. I'll get back in the queue.

20:01 Okay. The next question comes from the line of Nicholas Cordabucci from Atrium Research. Your line is live.

20:13 Hey, David. Thanks for answering my question, too. The first thing I wanted to ask about was growth margins. So Q1, you know, they were pretty small, and then Q2 is kind of back up to your guys' standards, but we've seen, you know, more than 50% in the past. So, you know, what is the right number to look at you guys at on a forward-looking basis for growth margins?

20:40 So when we look at the three types of revenue, they each have their own margin, gross margin in the mix. And within each bucket, each project will also have their own gross margin in the mix. And especially for Q1 and Q2, where predominantly it is the short-term operation and the technical services. But going through the Q3 and Q4, we do see a lot more operational or long-term operation services. And those are where we have higher margins. I think what you have seen in the past year is going to be our margins going forward, you know, without putting numbers in front of everybody right now.

21:27 Yeah, so it depends on the mix of the projects coming in right now, but it is expected that in Q3 and Q4 where operations services have other jobs will be kicking in, although we have full quarters of certain sites where those are seasonal, meaning that we're not running in Q2 or only running for a month in Q2, will have a full three-month impact.

21:48 Gotcha. For the net margin, I just want to make a comment there that You know, again, everybody probably on this call knows that our business model does not include investments into hard assets. So, you know, we don't necessarily grow, we don't need to invest in hard assets to grow the company. However, we do need to invest into our most precious resource, which is our people, our staff, And as I alluded to in my opening remarks, we are basically targeting roughly 25% increase in the advisory services generation, revenue generation capacity.

22:44 And that really involves hiring and training, onboarding new staff. So those costs of growth are reflected in the net margins. And, you know, they're not necessarily evenly spread through the year, right? So we do go through periodic strategic planning and reviews and budgeting. And the hiring happens in step-by-step fashion. So in some quarters, you may see a jump. In others, you may see a fall in the sales and development expenses. related to really increasing the internal revenue generating capacity of the business.

23:31 Perfect. Thank you for that.

23:33 And then the other question I had was about M&A, given the cash balance and probably the borrowing capacity of the company. Have you guys done anywhere on the M&A front?

23:43 Are there, you know, things in the pipeline that you're looking at that you want to share more about? Just a few comments maybe back to you. So again, I think last year we made the investment into amalgamating aquatic toxicology into our business. We're still very much focused on that integration, the full integration of that service into the business. It's been going really well. and I think by the end of this year, we will be really in a position that we can call this truly part of our, integral part of our business.

24:33 So with that already behind us, our eyes are on the next target or next few targets. We have some potential targets identified. We've spoken to investors in the past about Discipline Engineering Services companies. We are currently very busy on multiple meaty larger pre-feasibility or feasibility studies. We're working with some of these potential partners or companies that we may be interested in in acquiring. But, you know, the timing of this, we also were very cautious in a sense that we really need to make sure that the companies we work with are truly philosophically aligned and they're really happy with their work product.

25:30 And so, you know, the nature of these larger studies is that they typically take, you know, and so on. So, that's just one project, right? So, if you want to test someone and date someone, the timeframe is a year or two, but there is active opportunities and projects that we're working on right now with some of those companies. So, that's I guess the update on what we initially provided to investors about discipline engineering M&A. There are a couple of other targets that we identified, but nothing that we can report on this day, other than the discipline engineering.

26:19 Perfect. Okay. That's all for me. Thanks for the time, guys. Thank you. Your next question comes from the line of Craig Tingley. Your line is now live.

26:34 Guys, can you hear me? We can hear you quick, and thank you. Yes. Well, thank you. My question really is, is the money that was spent in the first quarter and the extraordinary first quarter last year, the difference there, are we going to be able to, is that money spent investing in... Needs of the Future, is that going to start to show up in Q3 and Q4 this year? I'm just, I was trying to interpret what you were saying, David, about, you know, odds are this, that, everything, but I'm just not too sure how it factors into this year's earnings for the year.

27:24 Yeah, thank you, Quig. So let me try to explain better. So what I was saying earlier was that last year, we actually have the advisory technical services, two advisory technical services along with 7 1⁄2 million for the year 2025, okay? We do want to, and we now have the capacity to generate roughly 9 1⁄2, okay? as a result of the headcount increase in that space. And so, basically, when we are looking into the, you know, for the rest of the year, the investment we made into the increase in headcount in Q1 and Q2 specifically You know, the costs of training and onboarding are not entirely but largely behind us. And with the workloads and the pipeline that we currently have, we definitely in Q4 will see these resources contributing to the technical advisory services. So, you know, what I'm going to say that starting with Q4 this year, We should be, or the investors should be looking at, you know, roughly an annual, rolling annual nine and a half million technical advisory services revenue as a measure

28:55 of the increase in the headcount that we invested in earlier this year. Obviously, you know, there's additional costs and investments we're making as we grow. We have to introduce new systems, new tools, new software, you know, new, you know, Panji's Accounting Systems, etc. So there's other investments we're making, we have to make as we grow. And there is also the aspect of growing the operations where, you know, while it's true that, you know, the operations are, even the short-term operations, They're seasonal or short-term. They're not necessarily seen as a sales and development cost for us or carry-on cost that we would have to carry when the operation stops, right, or when it's seasonal.

29:54 However, we're still investing in people as well, so we just went, we had a meeting yesterday reviewing staffing, and we're significantly upgrading the operations team from, you know, from the point of view of having more senior supervisors, operations supervisors, for example, within the team, right? So that also represents some ongoing costs, but Short story is I would expect the resources that we invested in largely in Q1 and part of Q2 to start contributing fully in Q4, and from that point on. Oh, yay.

30:40 Okay. Thanks, David. I appreciate that. Thank you. The next question comes from the line of Robert Gigner. Your line is live.

30:57 Thanks.

30:59 You have a few plants that are two plants, I guess, that are currently under construction. Maybe if you can give us a sense of their size and when you anticipate they could be commissioned just so that we have an understanding of pacing. Are these mostly going to Thank you very much.

31:44 The second one, I think the commissioning will start later, but still it will start in Q4 this year, will complete in Q1 next year. Both of those are expected to slide into a recurring revenue for us, and that will be reported under the long-term operations once the commissioning is complete. So one's starting commissioning imminently, the other one later in Q4. but should be over by the end of Q1 for sure.

32:20 Okay, that's great. And then my follow-up question here, you've done a lot of technical work in Latin America over the years and you have a lot of expertise down there. Should we start to see this come through in operations in 2027 and how should we be thinking about your capabilities in that region, and how should investors be thinking about the opportunities there? Thanks.

32:52 Yeah. So in terms of Latin America, what we're finding is that everything takes longer. All the steps that we go through normally here in Canada or the United States, you know, within – and so forth. And, you know, a set timeframe, that timeframe is typically longer in South America for a number of different reasons. But, you know, the pipeline that I was referring to earlier, in the high-impact projects, we do indeed have three out of the 17 that are located in Latin America. And so, the potential is significant.

33:38 Certainly in the long term, and that's why we're focused on increasing our presence down there. I would say that there's no expected operations revenue in South America or Latin America in 2027. But having said that, I think there are a couple of projects that may go into the final design for construction sometime next year. So everything is delayed, but I guess what I would also say is that in terms of the overall pipeline strength, we do have a number of opportunities that are very early stage still in South America, Latin America. So all of these are kind of, I look at these Latin American projects as providing the growth for us Not in 2027, not in 2028, but in the longer term, you will see them pop up. They just take a lot more time, a longer time to come to fruition. Again, we can discuss maybe in detail the different reasons, but it really is project or jurisdiction specific.

35:06 I would add, David, in answer to your question, Robert, there's a little bit of like the snowball running downhill that you've seen in North America, that Latin America wants to see the first plant built, and then I think we'll see an acceleration of business and opportunities down there. But it's very natural in that region to say, show us what you've built in Latin America. We can sell them, come and see the ones up here, but excuse me. It's just the natural way they are, but we, as a company, we understand the opportunity down there and the things David is alluding to is part of our strategy for 2026 is to push down there to bring these things into the early stage to eventually become operations.

36:01 That's very good. Thank you. Thanks for taking questions today. Thank you. There are no further questions. I would now like to turn the conference back over to Peter Gleeson for closing remarks.

36:16 Yeah, okay. Well, thank you very much, Jordan, and everybody, especially Heman and David for enlightening everyone. I will say that, you know, there was lots of talk there about the build-out that we've done in our human resource system. but the so you understand or hopefully it may trip out that it wasn't done in a vacuum we've done it because of the pipeline we see because of the macro environment we're in with the critical minerals and that worldwide so it is you know it's 2026 has been a bit of a build-out year and it will continue to be a bit of a build-out year but it is for what we see coming forward so As always, you know, anyone who talks to me knows we're very available. If you have any further questions, feel free to email or call us and we're very happy to answer. And most importantly, thank you everybody on the call for your support. It's really appreciated.

37:16 Thank you very much. Thank you. This ends today's call. You may now disconnect.