It was a rough-looking quarter for EnWave Corp (EnWave Corp Stock Quote, Charts, News, Analysts, Financials TSXV:ENW), according to iA Capital Markets analyst Neil Linsdell, but investors can expect better times ahead. Linsdell reviewed the quarterly numbers in an update to clients on Wednesday where he maintained a “Buy” rating on EnWave while lowering his target price from $1.65 to $1.10, which at press time represented a projected 12-month return of 74.6 per cent. EnWave, which licenses, builds and installs commercial-scale dehydration technology for manufacturing companies primarily in the food, pharmaceutical and cannabis sectors, released its third quarter fiscal 2022 results on Monday for the period ended June 30, 2022. The company’s revenue dropped 24 per cent year-over-year to $5.6 million and its adjusted EBITDA fell to negative $1.1 million compared to positive $937,000 a year earlier. Lower revenue from EnWave’s REV dehydration machine projects and lower Moon Cheese sales in the quarter were reported to be the cause for the drop in revenue, while lower operating leverage and higher cheese prices impacted the bottom line. EnWave saw an EPS loss of $0.02 per share for the quarter compared to $0.00 per share last year. EnWave said corporate highlights for the quarter and ensuing weeks included the sale of a 120kW REV machine to Dole Worldwide Food and Beverage Group, with royalty-bearing commercial production set to begin in early calendar 2023, the sale of a third 10kW Rev machine to Dairy Concepts and a purchase order for an EU-GMP with an unnamed pharmaceutical cannabis company to dry cannabis for medical consumption and derivative products for sale in the EU market. The company also had a 10kW GMP unit commissioned for cannabis dehydration in New Zealand, and, year-to-date, registered royalty revenue of $1.15 million, representing an annual growth rate of 55 per cent for its high-margin royalty portfolio. Comparing the fiscal Q3 with what the analysts had forecasted, EnWave’s $5.6 million was below both the consensus call of $7.9 million and the $7.2 million estimate from Linsdell and the adjusted EBITDA loss of $1.1 million was also lower than the Street’s negative $0.1 million and iA Capital’s negative $0.4 million. Linsdell noted that EnWave’s Canada revenue was down 25 per cent to $2.7 million with three 10kW machine sales despite increased machine fabrication revenues. Royalties were $0.3 million, up 58 per cent, on more installed capacity and increasing volumes from royalty partners. As for Moon Cheese, the company’s cheese product under its NutraDried subsidiary, revenue fell 24 per cent to $2.9 million over the Q3, with the drop chalked up to the product being delisted at about 500 Target locations (itself due to planning changes as opposed to performance or sales issues, Linsdell pointed out), while a lack of regional product rotations in Costco and inventory stocking by distributors ahead of a May pricing increase also factored into the decline. The analyst expects more stability on Moon Cheese going forward as the company’s grocery channel grows, including a new distribution deal into 2,200 Kroger stores in the third quarter and an anticipated distribution into about 300 Walmart stores in the spring of 2023. Linsdell said EnWave's outlook is better for fiscal 2023. “For EnWave Canada, global supply chain issues have caused delays in customer project builds (impacting ordering and provisioning of REV units) and deferral of other programs, including in the US cannabis segment. We expect improvement next year as certain existing customers upgrade from 10kW to 60kW+ units and other projects in the pipeline come to fruition,” Linsdell wrote. Linsdell said the partnership with Dole (which he calls “extremely promising”) and with cannabis companies should significantly contribute to EnWave’s royalties picture, noting a 120kW machine sale to a US multi-state cannabis operator in March of 2021 was commissioned in fiscal Q1 2022. “While large units can generate $100-300K/yr in royalty revenue, cannabis can provide more than double due to the high value/weight ratio. There are another two 120kW machines already fabricated and will be commissioned at the royalty partner’s sites, expecting to drive meaningful growth in royalties. The Dole unit is expected to be provisioned in the new year and should start royalty generation soon thereafter,” Linsdell said. By the numbers, Linsdell is now forecasting full fiscal 2022 revenue of $24.5 million, compared to $26.5 million achieved in fiscal 2021, and going to $36.7 million in fiscal 2023 and then to $51.3 million in fiscal 2024. On adjusted EBITDA, the analyst is seeing ENW go from negative $2.2 million in fiscal 2021 to negative $2.9 million in fiscal 2022 to $1.9 million in fiscal 2023 and to $6.1 million in fiscal 2024. “REV unit sales and revenue recognition are known to be lumpy. Moon Cheese sales can also be volatile depending on inventory levels, promotional activities, new product/customer launches, and overall consumer demand. FQ3 was a confluence of multiple negative impacts, although the overall outlook remains positive for nutritional snacks and the REV technology’s demand, specifically in the cannabis space and with major customers such as Dole. We maintain our Buy recommendation,” Linsdell said.