NanoXplore Inc. (GRA:CN), a leading graphene manufacturer, reported a mix of challenges and advancements in its second quarter of 2024 earnings call. Despite lower total revenues attributed to a strike and timing effects, the company managed to maintain its gross margins and projects a strong second half with $30 million in annual incremental revenues from new and expanded programs. NanoXplore's GrapheneBlack SMC, noted for its weight reduction and moisture resistance properties, continues to draw strong demand, prompting customers to financially support increased production capacity. The company is also diversifying its sales activities, supplying graphene to various industries beyond composites. With a solid cash position and ongoing discussions for a new credit facility, NanoXplore is advancing its strategic plans and investments, particularly in the high-margin battery market for grid storage and residential applications. The company maintains its full fiscal year 2024 revenue guidance at $130 million.
Key Takeaways
- NanoXplore reports $30 million in incremental revenues from new and expanded programs.
- Strong demand for GrapheneBlack SMC with customers supporting capacity expansion.
- Sales diversifying beyond composites, supplying graphene to various industries.
- Reduced total capital requirement for five-year strategic plan to $140-150 million.
- New credit facility discussions in progress to cover capital needs.
- VoltaXplore initiative financing advancing, with focus on high-margin battery markets.
- Q2 revenues lower due to strike and timing, but gross margins consistent with the previous year.
- Adjusted EBITDA negative but showing improvement; positive outlook for second-half revenues and margins.
- Full fiscal year 2024 revenue guidance maintained at $130 million.
Company Outlook
- Anticipates stronger financial performance in the second half of 2024.
- Expects to spend $5-7 million in the next two quarters, with additional $5 million by year-end on capacity expansion.
- Further $3-5 million investment anticipated for each two-quarter period in fiscal 2025 and 2026.
- Interest rates for new CapEx loans expected to be similar to current rates.
- SMC business projected to generate an additional $10-15 million in annual revenues.
Bearish Highlights
- Q2 revenues impacted by a strike and timing effects.
- Adjusted EBITDA remained negative, although it showed improvement from the previous year.
Bullish Highlights
- Strong demand for GrapheneBlack SMC and other graphene-enhanced products.
- Diversification into high-margin battery markets with lower production volumes.
- R&D costs decreased due to more efficient investments.
Misses
- Lower total revenues in Q2 due to external factors.
Q&A Highlights
- No impact on target market for power cells, long cycle life batteries for energy storage, and grid storage applications despite EV battery market changes.
- VoltaXplore project focused on anode material capacity, not predominantly supplying mobility industry parts.
- High-power battery market sales yielding 10-15% higher gross profit compared to EV market.
- Investment focus on high-margin, high-end segments of the battery business.
- R&D expected to stabilize before potentially increasing as the company expands into new markets.
NanoXplore's strategic direction, particularly its focus on high-margin products and markets, positions the company to navigate the competitive landscape effectively. The company's reduced capital requirements and the ongoing development of a new credit facility further strengthen its financial footing. With a maintained revenue guidance and a diversified customer base willing to pay a premium for quality materials, NanoXplore's outlook remains positive as it continues to innovate and expand its presence across various industries.
InvestingPro Insights
NanoXplore Inc. (GRA:CN) has shown resilience amidst adversity, with its strategic focus on high-margin products and diversification into multiple industries. As investors look to gauge the company's financial health and future prospects, certain metrics and insights from InvestingPro can provide a clearer picture.
InvestingPro Data indicates a Market Cap of 261.52M USD, reflecting the company's current valuation in the market. Despite the challenges faced in Q2 2024, the company's Revenue Growth over the last twelve months as of Q2 2024 stands at 6.27%, suggesting an upward trajectory in sales. However, it's important to note the P/E Ratio (Adjusted) of -32.93, which underscores the company's current lack of profitability.
InvestingPro Tips highlight that analysts have recently revised their earnings expectations downwards for the upcoming period, signaling caution among experts regarding NanoXplore's immediate financial performance. Moreover, while the company is not expected to be profitable this year, it's noteworthy that its liquid assets exceed short-term obligations, indicating a certain level of financial stability.
For investors seeking a deeper analysis, InvestingPro offers additional tips, with a total of 6 tips available for NanoXplore Inc. These insights can be accessed through https://www.investing.com/pro/NNXPF, and for those interested in a comprehensive investment tool, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This code not only offers savings but also unlocks a wealth of data and expert analysis to inform investment decisions.
NanoXplore's strategic advancements in the battery market and its ability to maintain revenue guidance are promising signs. However, the InvestingPro insights suggest investors should keep a watchful eye on profitability metrics and analyst sentiment as they consider the company's long-term potential.
Full transcript - NanoXplore Inc (NNXPF) Q4 2023:
Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2024 NanoXplore Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Pierre Terrisse, VP of Corporate Development.
Pierre Yves Terrisse: [Foreign Language]. Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answers to questions contain forward-looking statements. These forward-looking statements represent an expectation as of today, February 14, 2024, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risk factors that may affect future results is contained in NanoXplore Annual Information Form available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR. On the call with me this morning are Soroush Nazarpour, NanoXplore's Founder and Chief Executive Officer; and Pedro Azevedo, our Chief Financial Officer. After remarks from Soroush and Pedro we'll open the call to questions from financial analysts. Let me now turn the call over to Soroush.
Soroush Nazarpour: Thank you, PY, and good morning. I will first start with a review of the economy as it relates to our business. I will then expand on our capital allocation plans and will end my remarks with an update on VoltaXplore. As the central banks are deciding on the timing of the interest rate cuts, we are seeing increased activities with our customers. Our customers' forecast are strong and growing. The North American economy continues to show resilience and is giving confidence to our customers. Against that backdrop, I'm very pleased with the performance of the NanoXplore team. We continue to perform at a high level. Our balance sheet is strong, and we're executing on our capital allocation priorities. We delivered good results overall in the second quarter and made excellent progress in our Graphene-enhanced composite products. We announced new program awards and expansion of existing programs with more than $30 million in annual incremental revenues. Demand is very strong for our Graphene-enhanced composite products, and customers are open to covering the related capital requirements and supporting us financially to increase our production capacity. According to IDTechEx Graphene Market Report, composites are currently the largest segment of the Graphene market and will continue to be nearly half of global Graphene market in the next 10 years. Our Graphene-enhanced composite products are currently sold under the commercial name GrapheneBlack SMC. It provides up to 15% weight reduction versus conventional SMC at neutral costs to the OEMs through downgauging, which enables the use of less materials per part. Moreover, GrapheneBlack SMC improves moisture resistance of the SMC molded components, which leads to less surface blistering after painting and less quality defects as a result. These improvements are so significant that the impact is visible on our gross margin and have been recognized by our customers. Furthermore, this Graphene-enhanced SMC solutions improved mechanical rigidity, accelerate molding process and increase flame retardancy. All these improvements enable applications in lithium-ion battery enclosure business, which are of great interest to NanoXplore. Now related to Graphene sales activities outside of composite market, our sales team have been quite active. We have started supplying Graphene to five new customers, three of which are encoding market, one in adhesive market and another in the fabric market. This showed the great potential of our Graphene products to enter multiple markets outside of what has been announced before, such as foam, concrete, drilling fluid, and recycled plastics. In these markets, we continue our work with customers and go through validation steps one-by-one. For instance, the validation process related to our Graphene-enhanced products for insulation foam has continued very positively with one of the largest chemical companies in the world. Related to drilling fluids, our Graphene is performing very well and testing is ongoing with several oil and gas companies. Sales in recycled plastic market is continuing, and we're expecting volumes to grow with new customers. All in all we're seeing progress on multiple markets and our Graphene is performing well in trials. Even though validation and certification process of a new material takes years and it's a difficult endeavor, we are maintaining our financial discipline and successfully navigated uncertainties of the last year. Now looking forward and as economic certainties are improving, our customers and partners are getting their confidence back to introduce new products and along with them, we're continuing our R&D and customer validation trials. Now moving on to our five year strategic plan. We have advanced further in the implementation of our plans, particularly related to capital requirements. I'm pleased to announce that the total capital requirement for our five year plan is reduced by 15% to $140 million to $150 million from originally announced $170 million, mainly due to optimization of engineering work and equipment cost reductions as well as customer investments on the manufacturing equipment. To finance that, we are finalizing our new credit facility in the next few weeks and in the final discussion with the federal and provincial governments. These discussions started early last year, and we're anticipating a conclusion shortly as we have received positive feedbacks from both levels of the government recently. This should cover almost all of our capital requirements for our five year plan and should remove uncertainties for our shareholders. VoltaXplore financing is also continuing with the due diligence of our lead investor and continuation of the paper work for government support. Even though it has been a long process to secure the financing of all these projects, I'm quite pleased that we are reaching the end of it and can start construction of these facilities next quarter. With that, I'll now turn the call over to Pedro, who will provide details about our financial performance.
Pedro Azevedo: [Foreign Language]. Good morning, everyone. Today, I will begin with a review of our Q2 financial results, followed by an update on financing for our five year strategic plan and conclude with some commentary about our fiscal year 2024. Total revenues in Q2 were 6% lower than Q2 2023 at $29.1 million. The decrease in revenue was directly attributable to two main items. First, a six week strike at one of our major customers impacted us by approximately $3 million. Second, tooling revenues were $700,000 lower, which was purely a timing effect that will be recovered in the second half of the year. If it were not for these two impacts, total revenues would have increased compared to last year, resulting from higher volume, including the demand for Graphene-enhanced composite products. With regards to gross margins, although total revenues during the quarter decreased, gross margins were the same as last year at $5.5 million. This was due to gross margins as a percentage of sales, increasing from 17.8% to 19.4% year-over-year and was driven by improved productivity, resulting in part from the manufacturing cost benefits of producing Graphene-enhanced products, higher margin product mix and various manufacturing efficiency improvements put in place over the last year. This year-over-year margin improvement has been a trend for the last six quarters, and we are pleased that it is continuing. Adjusted EBITDA was just shy of breakeven at negative $92,000 and was comprised of positive $416,000 in the Advanced Materials, plastics, and composite product segments, an improvement of $300,000 versus last year. Despite lower sales and $509,000 negative in the battery cell segment, which encompasses the VoltaXplore initiatives. Since VoltaXplore was a shared cost with Martinrea last year and excluded from EBITDA, there is no direct EBITDA comparable to our previous year's numbers. If the quarter had not been impacted by the strike, adjusted EBITDA in the advanced materials plastics and composite segment would have been over $1.2 million. Looking at our year-to-date numbers, while sales were approximately $1 million below last year, mainly due to the two discussed impacts in the most recent quarter. Our year-to-date adjusted EBITDA, excluding VoltaXplore initiative was positive $590,000 and is $2.4 million better than last year, largely due to the impacts of higher Graphene-enhanced product sales mix and manufacturing improvements. With regards to our balance sheet, we ended the quarter with $27.6 million in cash and cash equivalent, a reduction of only $1.4 million during the quarter. Operating cash flows resulted in net inflows of $2.4 million and were offset by $3.8 million of financing and investing outflows, which included the final tranche repayment of $1 million for the acquisition of Canuck Compounders. Our cash, along with the $10.3 million of the unused space on our lines of credit resulted in total liquidity of $37.9 million. Moving now to the financing of our five year strategic plan. As a reminder, this does not cover the Battery Gigafactory initiative, which is being done separately and through different financing. Over the last two quarters, we have been in discussions with various lenders, including our current lenders. At the end of the quarter, we had received offers from three lenders. After negotiating terms, we selected the preferred lender and secured a committed term sheet from them. As a result of the progress made thus far, we expect to put in place the new credit facility in the coming weeks. Once in place, the new credit facility will provide an important financial support toward our five year strategic plan. Turning now to our fiscal year 2024. Despite the headwinds, during the first half of the year, we remain confident the second half revenues will be stronger than our first half and stronger than last year's second half. With the recently announced awards, new customer tooling will be required for the new programs before production begins. In addition, the program expansion also recently announced benefiting our St-Clotilde plant will also generate tooling revenues and higher sales volumes than those recognized last year. Gross margins in the second half should be 100 to 150 basis points higher than the first half due to higher volumes, but be limited to this level due to the higher tooling revenues, which were sold at lower gross margins. Based on the visibility we have today, our guidance for full year -- full fiscal year 2024 remains at $130 million. With that, I will pass it back to Pierre Yves.
Pierre Yves Terrisse: Thank you, Pedro. Operator, we can now open the lines for questions.
Operator: Thank you. [Operator Instructions]. And our first question today comes from James McGarragle of RBC Capital Markets.
James McGarragle: Hey, good morning guys.
Soroush Nazarpour: Good morning, James.
Pedro Azevedo: Good morning.
James McGarragle: I just have a question on the outlook for all VoltaXplore specifically. We've been hearing a number of electric vehicle battery manufacturing, manufacturers tapping the brakes on expansion. Most recently, Panasonic (OTC:PCRFY) decided not to build an EV battery factory in Oklahoma. And I guess, from your perspective, are you seeing anything from either a demand or even potentially a cost perspective that has changed recently that could impact some of the long-term profitability assumptions for the build out for VoltaXplore.
Soroush Nazarpour: Not for us. The fact is we are in VoltaXplore target market is not purely EV batteries. We are looking at customers and applications for power cells. And also for long cycle life batteries for energy storage and grid storage, peak shaving application. So technically, the bulk of the market of the EV -- of the batteries, are in EVs and the middle part of the volume forecast. And then the battery that we are working in the markets we are playing at are in the power cells, let's say, military applications and power tools plus the grid storage and peak shaving. These two parts of the market that Volta is playing at mostly, they are not seeing impact similar to the EV market.
James McGarragle: I appreciate the color. And going back to NanoXplore on the long-term capacity expansion you gave some cadence surrounding the total CapEx, but can you give an update on how you see that CapEx spend evolving in particular in the next two quarters, and then into fiscal 2025 and into fiscal 2026? Hey, guys. Were you able to hear my question?
Operator: Please be on the line. Your conference will begin shortly again.
Soroush Nazarpour: Hey, we're back.
James McGarragle: Hey, its James here. Were you able to share my follow-up question there?
Soroush Nazarpour: No. Can you repeat that question, please?
James McGarragle: Yes. So I was just asking on the long-term capacity expansion with regards to NanoXplore, you provided an update on the total CapEx spend. But can you just give us an update on how you see that CapEx evolving during the remainder of the year, potentially in the next two quarters and then into fiscal 2025 and into fiscal 2026. Just so we can see how the cash flow will evolve over the next number of quarters.
Pedro Azevedo: So in the next two quarters, at least or even before the end of this calendar year, the CapEx that is going to be spent as many can be on the SMC. And we're waiting for the final credit facility to be in place. So that should be in the next few weeks. So before the end of the fiscal year, I expect maybe $5 million possibly up to $7 million of additional CapEx that relates to that, if everything goes well. And for the end of the year, the calendar year, there could be another $5 million out again. So let's say, 5 and 5 in the next two quarters and then two quarters after that.
James McGarragle: And then into fiscal '25 and '26, would that just be kind of an even split for the remaining amount?
Pedro Azevedo: Yes. It will probably be about $3 million to $5 million every two quarters after that.
James McGarragle: Okay. And then on the loans for the new CapEx, are you able to provide any color on interest rates or anything you'd call out that's attractive regarding the terms of those loans?
Pedro Azevedo: I can't go into specifics as we haven't finalized the agreements, but the interest rates on the committed term sheet that we've received are very similar to what we have today. So it's based on the prime plus basis points depending on debt-to-EBITDA ratios, and they're very much in line with what we paid today. So we wouldn't expect anything to explode in terms of interest costs or anything of that nature.
James McGarragle: Okay, thank you very much. I'll turn the line over.
Pedro Azevedo: Yes.
Operator: Thank you. One moment for our next question. And our next question comes from Rupert Merer of National Bank.
Rupert Merer: Hi, good morning everyone.
Pedro Azevedo: Hi, Rupert.
Rupert Merer: I'd like to focus in on a couple of the materials in your five-year plan. If I could start with the SMC business. Your original plan, you were looking at £12 million per year, revenue potential of 80 million. Have the goal posts on that part of the plan changed at all? And if you can give us a little more color about how this business develops. You have some long-term contracts. So the time you are ready to commercialize this business, what level of contracting would you anticipate?
Soroush Nazarpour: So just for me to understand you're asking the question on the SMC part or you're asking for the...
Rupert Merer: On SMC, yes, that is right.
Pedro Azevedo: Just on SMC, okay, SMC we expect once everything is in place, it will probably drive between $10 million and $15 million a year of additional revenues, depending on the adoption of the Graphene-enhanced materials. This will grow over time and our ability also to sell SMC materials to third parties will also be an additional amount. Our financial models, internal financial models do expect for there to be a strong third-party market for us to sell material into.
Soroush Nazarpour: So Rupert, just to clarify that when we talk about SMC, there's SMC materials and there's SMC parts, right? So I think Pedro's answer was just on the SMC materials.
Rupert Merer: I see. Okay. So the original plan was annual revenue potential of about $80 million. Is that still consistent with the potential for this business? And how much of it do you think you will contract? We have seen some contracts already that you've announced $24 million per year, I believe. What percentage of the business will be contracted?
Soroush Nazarpour: In this business, historically, most of it is contracted, like pretty much all of the programs we have today that are contracted and the contracts will continue for 10, 15 years in many cases. And then there is new contracts and also expansion of the existing program. So all in all, we still have, I think I would say more than half of the new capacity that's coming allocated. But we adjust the CapEx investments following the contract awards. So we're not just putting capacity in place and then going out and get customer for it. We get -- in that part of the market demand is strong, we get the contracts and then accordingly, we are putting CapEx for it.
Pedro Azevedo: Yes. And about 60% to 65% of our business today is contracted, leaving the other part that is more dependent on customer purchases on a monthly basis. But an important part of our total revenue is contracted and will go up and down based on the cadence of our customers' manufacturing.
Rupert Merer: Great. Thank you. And then on the SIG pilot line, you have 100 tons per year of capacity and you've given some more details on the relative performance of the material. I'm wondering if you can give us some color on the reception you're getting from the industry for this product? And maybe talk a little about who you're targeting? Is it the same as VoltaXplore? Are you focusing on non-EV batteries here? Or is this material more open to the broad market?
Soroush Nazarpour: So it's not just of Volta. We're discussing the product is in the hands of a couple of battery makers now and they are testing that. The target of this pilot facility was to get the product and do the validation with the battery makers. Now in general, silicon additives are not really used for EVs, maybe at a very low concentration in the anode, focus of silicon is to increase the capacity and energy density of batteries. So it gives much higher application, much more applications in military, in power tools, in drones and those types of markets.
Rupert Merer: Can you give us any color on the reception that you're getting for the product from the market?
Soroush Nazarpour: Look, as we disclosed in the press release, we are getting 1,150 watt-hour per liter. This is one of the highest number recorded in the volumetric energy density. The battery makers are confirming as well these data. So there is interest to partner up with us on that material.
Rupert Merer: And then just finally, then you imagine like the SMC business, you'll let orders lead before you invest in the CapEx to grow capacity?
Soroush Nazarpour: Yes, 100%.
Rupert Merer: All right, I will leave it there. Thank you.
Operator: Thank you. [Operator Instructions]. And our next question comes from Michael Glen of Raymond James.
Michael Glen: Hey, good morning.
Soroush Nazarpour: Good morning, Michael.
Michael Glen: Just wanted to circle back to the CapEx question. So Pedro, if you indicated that $5 million to $7 million before the end of this fiscal year and then an additional $5 million. And then you talked about $3 million to $5 million every two quarters post. I'm just trying to -- like what's the gap there? I mean because the plan is $150 million. Like when does the bulk of the $150 million go out.
Pedro Azevedo: So okay. So to be clear, my comments were based specifically on the SMC investment. So I'm only talking about that $30 million part that relates to SMC. The related CapEx for the anode materials investment will be at a later time. It will be based on expectations of when the financing is fully in place when we have offtake agreements. So it will be dependent on that. So I can't give you a specific time line other than once that occurs, we will come back to the market and let everybody know that we are starting this process. So right now, I would say, would be at least into 2025 before the investments would start.
Michael Glen: Okay. So that number is dependent on the VoltaXplore [indiscernible] whenever that gets done?
Soroush Nazarpour: No, no, no. VoltaXplore is only [indiscernible] the capacity for the anode material is going to go there. The rest of the capacity will go to the other customers. So that's the offtake we're talking outside of VoltaXplore.
Michael Glen: Okay. And then Soroush, as we think about how the NanoXplore business is evolving, and you make more of these investments into SMC. Should we think about this business evolving into predominantly a parts supplier for the mobility industry over time?
Soroush Nazarpour: Not at all. If you look at our five-year plan, you see out of, let's say $140 million, $150 million investment, two-third of it is outside of transportation. So that's not at all evolving into an auto part supply.
Michael Glen: Okay. And then can you -- the SMC business wins that you're recording right now, are the customers paying a premium for these parts over and above what was supplied to them on a legacy basis?
Pedro Azevedo: I wouldn't say that they're paying a significant amount more. They are paying more for the parts, yes, but they're also getting a better benefit in terms of the materials and the quality of the materials that they're receiving. So there's an acceptance by the customer that they're getting a better product and they're paying a little bit more for it.
Michael Glen: Okay. And then one more for me. I think and you can correct me if I'm wrong when I heard this. There was a comment when you talked about the VoltaXplore financing update, I think Soroush, you mentioned something about discussions with your lead investor or a lead investor. Is that what I understood?
Soroush Nazarpour: Yes, due diligence with the lead investor.
Michael Glen: Okay. And that's not the lead investor. That's not your current lead investor, that's somebody else?
Soroush Nazarpour: No, it's somebody else VoltaXplore, lead investor, investment is done outside of the NanoXplore. So it's totally a different group.
Michael Glen: Okay, Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Mac Whale of CSI.
MacMurray Whale: Hi, my questions have been asked, but I thought I'd follow-up with just a broader question on the market for the high power outside of EVs, those batteries, do they tend to have a higher margin? Like can you -- when you compare that, say, to the EV space, I'm just wondering as we fine-tune our models what we should be thinking about in terms of the sort of revenue per kilowatt hour or margin that you can get from that?
Soroush Nazarpour: Yes. So well, first, our sales model is a raw material cost plus lumpsum. So it's a full transfer of the raw material about the 80% of the cost of production of the sales. Our lumpsum covers the production cost plus the gross profit. So looking at power sales that normally in terms of gross profit are about 10% to 15% higher on a per kilowatt hour basis.
MacMurray Whale: Okay. That's helpful. Thanks. And from -- there are technical reasons why you're looking at that market. Obviously, there's some commercial reasons as well. If we see these delays as we spoke earlier in the call about the delays on the OEM side for rolling out capacity, is that an opportunity that you could go after if you saw particular contracts or opportunities? Or do you just not want to be in that market for some of these issues around margin?
Soroush Nazarpour: Yes. We even started the reason we wanted to be in the EV market, in the direct EV market. For that, you need not a two-gigawatt hour battery, you need a 50-gigawatt hour battery more. It's a very competitive market. Raw material cost is becoming 95% of the cost of production just not enough margin for us to play. So from the beginning, we went after higher margin type batteries at the lower gigawatt hour Gigafactory, which you can actually absorb higher gross profit from them, but also there's less competition in that part of the market. So if you look at the grid storage, even if you look at Tesla (NASDAQ:TSLA)'s financial, you see that grid storage part and residential batteries are even though they're not the highest selling part of their business, but the margins are just much better in the rest of the business. So we're looking at that high-end, high-margin part of the battery business, which requires much lower production volumes.
MacMurray Whale: That's great. Thanks. Thanks Soroush.
Soroush Nazarpour: Thanks.
Operator: Thank you. One moment for our next question. And our next question comes from Ahmad Shaath of Beacon Securities.
Ahmad Shaath: Good morning guys. I guess most of my questions have been asked and answered. But maybe on the cost on the R&D side, that is noticeable downtick quarter-over-quarter. Is that by design, should we expect that line to stabilize at around $1 million or not much particularly the historical trends up better?
Soroush Nazarpour: I would say the R&D team came under budget. So the budget was a bit higher. It's not designed to be lower. It just happened to the cost coming lower. I think the team is being more optimized and efficient in terms of the investments. And at this point, it's slightly lower. We anticipate that as we grow into the SMC market into drilling fluid market into the concrete market. Some of these markets that are more newer for us like drilling fluid and concrete require a little bit more of R&D dollars and SMC, which is more mature, requires less of R&D dollars. So there is -- in general, we will see R&D expenses staying at this level for a little bit for a couple of years, but we will see how the Graphene market as a whole level, and we're okay to increase our R&D expenditures.
Pedro Azevedo: It's been a targeted approach. We've really nailed down in terms of what we wanted to be focused on, and that allowed us to reduce the R&D spend. But as Soroush said, as we kind of move on into other areas of interest to us, the R&D may increase in the future, but not for the next year.
Ahmad Shaath: That's really helpful. Thanks. I'll jump back in the queue.
Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to Pierre Terrisse for closing remarks.
Pierre Yves Terrisse: Thank you, operator. We'd like to thank everyone for participating in this call. And we wish everyone a great day. Thank you.
Operator: This concludes today's conference call. Thank you for participating. And you may now disconnect.
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