Velan Inc. (VLN) Earnings Call Transcript & Summary

Mr. Chairman, I move that the resolution as set forth in Schedule A of the management proxy circular, approving the unallocated options under the option plan be passed, ratified and confirmed.

Thank you. May I have a seconder?

Mr. Chairman, I second the motion.

Thank you. Is there any discussion on the matter? If you have questions, please submit them now. If there is no discussion, I now call for a vote on the motion. Please submit your vote now. [Voting]

Thank you for voting. This concludes the business of the meeting. Polls for all of the items of business will now close. The scrutineer has presented its report and advises that all resolutions have been approved by at least a majority of votes cast at the meeting by the shareholders or by proxy as required. Accordingly, I declare that all resolutions have been carried. The final voting results will be released after the meeting in the usual format and will be available under our profile on SEDAR+. Ladies and gentlemen, this concludes the agenda of items for the formal portion of the meeting. Following the conclusion there of, there will be a CEO presentation. And I now have a motion to conclude the formal portion of the meeting.

Mr. Chairman, I move that the formal portion of the meeting be concluded.

Thank you. May I have a seconder?

Mr. Chairman, I second the motion.

Thank you. Absent any objection, I declare the motion carried and the formal portion of the meeting terminated. Now that the formal part of the meeting is over, we will move on to our management presentation. The slides for this presentation were posted this morning in the Investor Relations section of our website. Before I begin, I will direct you to our customary disclaimer regarding forward-looking statements as evidenced on Slide 2. The first section mentions that the presentation provides an analysis of our consolidated results for fiscal 2024. The Board of Directors has approved these results. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph refers to forward-looking information, which are subject to risks and uncertainties and are not guaranteed to occur. Forward-looking statements contained in the presentation are expressly qualified by this cautionary statement. And finally, all amounts are expressed in U.S. dollars unless indicated otherwise. With that being said, please turn to Slide 4 for a general overview of fiscal 2024. By Velan's standards fiscal 2024 proved to be a less than a optimal year, marked by a challenging global economic environment and disruptions from our proposed sale that distracted the company from executing its strategic plan. As shown adjusted EBITDA totaled $17.8 million on sales of $346.8 million in fiscal 2024, both below the prior year figures. However, we were highly encouraged by the sequential increase in bookings in the third and fourth quarter. As a result, our order backlog stood at $491.5 million at the end of the fiscal year with nearly 3/4 of the backlog expected to be shipped within the subsequent 12-month period. Consequently, we fully expect Velan to return to growth mode in fiscal 2025 based on our strong bookings momentum and results-oriented corporate culture. As demonstrated on Slide 5, Velan is a global company with headquarters in Canada, not merely a Canadian company with overseas operations. We have R&D centers in Montreal within Canada as well as in France, Italy and India, each developing innovative technologies to improve the performance and reliability of our industrial valves. Our research hubs are supported by 12 manufacturing facilities and a further 2 distribution centers. We view our global footprint has a strong competitive advantage in terms of offering a diverse and relevant product portfolio at scale and in a cost-effective manner. Let's flip to Slide 6 for an overview of our key growth markets. Looking ahead to fiscal 2025 and beyond, we plan to increase our reach in high-growth sectors like nuclear, defense, oil and gas as well as liquefied natural gas or LNG. These market niches in which we have sustained differentiation are currently being supported by energy transition trends. Many of our customers have stated carbon emission reduction targets each such as reaching net zero global carbon dioxide emission and are increasingly looking for energy-efficient solutions to reach these objectives. Velan is directly aligned with the secular growth trend as we dedicated significant resources to environmentally driven solutions. We are particularly heartened by evolving sentiment around nuclear power as is critical to reducing greenhouse gas emissions due to its clean properties, namely zero emissions and fully recyclable. 2 landmark events. The COP28 Climate Change Conference and the Nuclear Energy Summit, heralded a new year of cooperation to include nuclear energy in the mix of renewables to reach net zero emissions objectives within the projected time frame. More recently, the U.S. Senate passed a bipartisan bill, better known as ADVANCE Act to fast-track nuclear power deployment south of the border. Looking ahead, we anticipate a nuclear growth cycle for at least the next decade, not only in the U.S., but on a global basis. Moreover, an announcement earlier this week of a $50 million 10-year alliance agreement with Bruce Power for valves reflect strong demand for nuclear power in Canada. This milestone agreement, which includes refurbishment and technical service could reach $100 million if all options and projects are firmed up over the course of Bruce Power's asset management and life extension projects in Ontario. At Velan, our valves are the power industry's choice for reliable nuclear service, boasting a large installed product base nuclear power reactors worldwide and over 50 years of uninterrupted experience in the field. We are the leading valve supplier for all nuclear reactor technologies. Our expertise can be leveraged into small modular reactors or SMRs as they're known, which are increasingly gaining traction due to the reduced footprint, savings on cost and construction time as well as far greater safety. Velan's long-standing experience in defense markets, particularly nuclear marine and aircraft carrier propulsion provides us again with a leg up on the competition. For example, given tight space consideration, marine reactors must be physically smaller and generate higher power per unit space than land-based reactors. Valves are thus subject to greater stress and must endure harsher conditions at sea. In short, our insurance position and presence in defense markets makes us the ideal supplier for the growingness of our niche. As for the oil and gas sector, it's been widely affected by global efforts to mitigate climate change and protect the environment. Accordingly, we intend to leverage our extensive customer base, which includes most North America oil refiners and a growing presence overseas by providing engineered valves and steam traps that are the most reliable in the market. Similarly, Velan offers the most complete and technically advanced product line for liquefied natural gas, the cleanest of fossil fuels, producing 40% less CO2 than coal and 30% less than oil. From an operating standpoint, you can see on Slide 7, we're well positioned to drive sales growth and cash flow from operations in the upcoming year. However, the $4 million in cash flow reported in fiscal 2024 understates our real potential. We've implemented a series of actions to increase cash flow by leveraging the global scale of our business, maximizing strategic procurement advantages and optimizing inventory management. Improving our cash flow in 2025 will bolster an already solid financial performance. We closed 2024 with a positive net cash position, providing Velan with a distinct advantage in a relatively high interest rate environment. This concludes my prepared remarks for fiscal 2024. I'll now turn the call over to Rishi Sharma, Velan's Chief Financial and Administrative Officer, to review our 2024 results in more detail. Rishi?

Thank you, Jim. [Foreign Language] [Interpreted] So when it comes to the financial results for our financial results presented, our consolidated sales figures were [ $346 million ] down 6.4% compared to 2024. The variation reflects what we're doing in North America and in Canada, specifically when it comes to everything that we've done in the previous numbers. And we have generated numbers around maintenance, repairs and reviews in North America. These factors were in part due to sales in Germany, reinforcing the euro compared to the American dollar had a positive impact of $3.8 million on sales during the year. In terms of gross profit now, it reached $93.2 million for fiscal 2024 compared to $112.5 million in the previous year. The decline is largely due to lower business volumes, which impacted the absorption of fixed production overhead costs and a less favorable product mix. As a percentage of sales, gross profits attained 26.9% compared to 30.4% in the last year. Adjusted EBITDA, excluding asbestos, restructuring and proposed transaction-related costs amounted to $17.8 million in fiscal 2024 versus $21.1 million in 2023. The decrease is mainly attributable to reduced gross profit, partially offset by lower administration costs and other expenses. Moving to our order backlog on Slide 10. It stood at $491.5 million at the end of the year, up 5.9% from the previous year on the strength of strong fourth quarter bookings. At the end of fiscal 2024, 73.4% of the backlog were representing orders of $360.7 million were deliverable in the next 12 months. Total bookings, meanwhile, increased 6% year-over-year to reach $374.5 million in fiscal 2024. The growth reflects strong oil and gas orders recorded by our Italian operations, partially offset by lower orders for our North American business in the Marine sector and for MRO activities. Currency movements had a positive effect of $7 million on new bookings during the year. Given that bookings outpaced sales, the company's book-to-bill ratio improved to hit 1.08 in 2024, representing its best ratio in over 2 years on a rolling 12-month basis. On Slide 11. Cash flow from operations totaled $4.3 million in fiscal 2024. The year-over-year increase is attributable to higher EBITDA and positive changes in noncash working capital movements, partially offset by an unfavorable movement in terms of long-term provisions. As Jim mentioned earlier, generating additional cash flow is a key priority for management in fiscal 2025. Finally, our financial situation remains very solid. As at February 29, 2024, cash and cash equivalents stood at $36.5 million. And we also had $5.3 million in short-term investments as opposed to $28.8 million in total debt. I will now turn the call back over to Jim.

If you could please turn to Slide 13 for our first fiscal 2025 outlook. As outlined by Rishi, Velan delivered strong bookings momentum in the second half of 2024. Our order backlog amounted to $491.5 million at year-end, of which nearly 75% is deliverable in the next 12 months. As a result, we fully expect return to sales growth in 2025. Indeed, we launched or released our earnings for the first quarter within the last hour or so after the close of trade. We'll have an earnings call tomorrow, which we'd encourage all interested parties to join where we'll demonstrate continued strength not only in orders but shipment and profitability into the first quarter of the new year driven largely by the backlog that I just referenced. So in closing, I'm thankful for leading such a high-quality leadership team as we have at Velan to the collective contributions of our leaders, along with the tireless work of more than 1,600 employees worldwide, our brand remains revered throughout the industry. Consequently, I'd like to take the opportunity to sincerely thank all of our employees for the dedication and resilience during what can best be described as an unusual year from which we have rebounded and are looking forward to the years ahead. On behalf of the entire Velan team, thank you for joining us today and for your ongoing support. We look forward to sharing with you our progress at next year's annual meeting, and again, I encourage you to join us at the earnings call tomorrow morning. Thank you very much.