Velan Inc. (TSX: VLN) (“Velan” or the “Company”), a world-leading manufacturer of industrial valves, announced today financial results for its second quarter ended August 31, 2024. All amounts are expressed in U.S. dollars unless indicated otherwise.

SECOND-QUARTER HIGHLIGHTS AND RECENT EVENTS

  • Strong order backlog of $548.1 million, up $56.6 million since the beginning of the year; highest backlog in three years.
  • Bookings of $116.6 million, up significantly from $71.5 million in the second quarter of fiscal 2024.
  • Book-to-bill ratio1 of 1.18 versus 0.89 in the same period last year.
  • Sales of $98.7 million, up 22.8% from $80.3 million in the second quarter of fiscal 2024.
  • Gross profit of $26.7 million, or 27.0% of sales, versus $23.4 million, or 29.1% of sales, last year.
  • Improvement of $2.2 million in net profitability, resulting in net income2 of $0.1 million.
  • Solid cash flows from operating activities of $10.1 million, versus negative $21.2 million last year.
  • Net cash and cash equivalents of $41.3 million, versus $36.4 million at the beginning of the year.
  • On September 2, Velan announced a Main Services Agreement with GEH SMR Technologies Canada Ltd. to provide certain proprietary products and services required for the development of a small modular reactor to Ontario Power Generation Inc.
  • On October 10, the Company and union members at the Williston, Vermont plant, signed a new three-year collective agreement. Employees will return to work on October 14.
FINANCIAL RESULTS(‘000s of U.S. dollars, excluding per share amounts) Three-month periods ended Six-month periods ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Sales $98,647   $80,318   $176,147   $147,977  
Gross profit $26,668   $23,385   $50,480   $38,437  
Gross margin 27.0%   29.1%   28.7%   26.0%  
Net income (loss) $121   ($2,120 ) ($983 ) ($10,404 )
per share - basic and diluted $0.01   ($0.10 ) ($0.05 ) ($0.48 )
EBITDA1 $5,127   $2,960   $8,869   ($839 )
Adjusted EBITDA1 $5,127   $3,289   $8,990   ($1 )
Adjusted net income1 (loss) $121   ($1,878 ) ($894 ) ($9,788 )
per share - basic and diluted $0.01   ($0.09 ) ($0.04 ) ($0.45 )
Weighted average share outstanding (‘000s) 21,586   21,586   21,586   21,586  

“Velan’s strong momentum continued in the second quarter of fiscal 2025 with bookings and sales growing more than 60% and 20% year-over-year, respectively,” said James A. Mannebach, Chairman of the Board and CEO of Velan. “This dual growth was driven by our diversified portfolio, global reach and sustained differentiation in key market segments. At quarter-end, we announced a contractual agreement with GEH SMR Technologies Canada Ltd. for the provision of high-quality products and services to supply a stand-alone small modular reactor (SMR) for Ontario Power Generation Inc. Given Velan’s development of proprietary valve technology, which is critical to the deployment of SMR technology, this initial booking bodes well for larger follow-on orders with GEH and other solution providers in the rapidly expanding nuclear sector. Looking ahead to the second half, we are reiterating our sales growth outlook for the full fiscal year.”

“We are pleased with the robust increase in cash flow from operations, which reached $10.1 million in the second quarter and $15.0 million after six months,” added Rishi Sharma, Chief Financial and Administrative Officer of Velan. “At the beginning of the year, we pledged to improve cash flow generation by leveraging the global scale of our business, maximizing strategic procurement and optimizing inventory management. We are highly encouraged by quality of execution to this end, as it enabled us to further reduce our debt. Our net cash position of $41.3 million at the end of the quarter offers Velan the flexibility to invest in growth areas and continue to create sustained value for all shareholders.”

BACKLOG(‘000s of U.S. dollars)   As at
    August 31, 2024 Feb. 29, 2024
Backlog     $548,116   $491,525  
for delivery within the next 12 months     $395,873   $360,669  
     
BOOKINGS (‘000s of U.S. dollars, excluding ratios) Three-month periods ended Six-month periods ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
Bookings $116,596   $71,545   $226,364   $163,356  
Book-to-bill ratio 1.18   0.89   1.29   1.10  

As at August 31, 2024, the backlog stood at $548.1 million, up $56.6 million, or 11.5%, since the beginning of the fiscal year, reflecting strong bookings during the first half of the year. As at August 31, 2024, 72.2% of the backlog, representing orders of $395.9 million, is deliverable in the next 12 months. Currency movements had a $7.4 million positive effect on the value of the backlog for the first six months of fiscal 2025.

Bookings for the second quarter of fiscal 2025 were $116.6 million, versus $71.5 million for the same period last year. This increase reflects higher bookings in North America driven by new projects for the nuclear power market, including the strategic Main Services Agreement with GEH SMR Technologies Canada Ltd., and MRO business. The variation is also due to higher bookings in Germany for oil refinery projects and in France for the nuclear power and defense markets. These factors were partially offset by lower oil and gas bookings in Italy due to large orders recorded in the corresponding period of fiscal 2024. Currency movements had a $6.3 million positive effect on the value of bookings for the quarter.

For the first six months of fiscal 2025, bookings reached $226.4 million, up from $163.4 million in the first six months of fiscal 2024. The increase is attributable to higher bookings in North America, Germany and France, partially offset by reduced bookings in Italy. Currency movements had a $7.4 million positive effect on the value of bookings for the period.

As bookings outpaced sales, the Company’s book-to-bill ratio was 1.18 and 1.29, respectively, for the three- and six-month periods ended August 31, 2024.

SECOND QUARTER RESULTS

Sales reached $98.6 million, up $18.3 million or 22.8% from the same period last year. The increase is mainly attributable to higher shipments from Italian operations for the oil and gas market, from French operations for the nuclear power market and from North American operations for the defense market. The variation also reflects non-recurring revenue of $5.2 million related to a cancelled agreement with a customer on which no gross profit was recognized in the second quarter of fiscal 2025. These factors were partially offset by lower MRO shipments in North America. Currency movements had a $0.6 million negative effect on sales for the quarter.

Gross profit totaled $26.7 million, up from $23.4 million last year. The increase is primarily attributable to higher sales which positively impacted the absorption of fixed production overhead costs, and a more favorable product mix this year compared to last, partially offset by higher inventory provisions and learning curve effects in the early phase of certain projects for the nuclear power market. Currency movements had a $0.1 million negative effect on gross profit compared to the same period last year. As a percentage of sales, gross profit was 27.0%, compared to 29.1% last year. Excluding the effect of non-recurring revenue of which no gross profit was recognized, this year’s gross profit as a percentage of sales was 28.5%.

Administration costs totaled $24.8 million, or 25.1% of sales, compared to $22.6 million, or 28.1% of sales a year ago. Last year’s costs included $0.3 million in expenses related to the proposed transaction with Flowserve Corporation. The year-over-year increase is mainly attributable to higher sales commissions due to higher business volume.

EBITDA1 amounted to $5.1 million, compared to $3.0 million last year. Excluding expenses related to the proposed transaction, last year’s second quarter adjusted EBITDA was $3.3 million. The year-over-year increase is attributable to higher volume and resulting higher gross profit, partially offset by higher administration costs.

Net income amounted to $0.1 million, or $0.01 per share, compared to a net loss of $2.1 million or $0.10 per share last year. The improvement is primarily attributable to higher EBITDA. Excluding the after-tax effect of expenses related to the proposed transaction, last year’s adjusted net loss was $1.9 million, or $0.09 per share.

SIX-MONTH RESULTS

Sales totaled $176.1 million, compared to $148.0 million for the same period last year. Gross profit reached $50.5 million, compared to $38.4 million a year ago. As a percentage of sales, gross profit was 28.7%, compared to 23.0% last year. Excluding the effect of non-recurring revenue, this year’s gross profit as a percentage of sales was 29.5%.

EBITDA was $8.9 million, compared to negative $0.8 million last year, while adjusted EBITDA stood at $9.0 million, up from breakeven in the first half of fiscal 2024.

Net loss amounted to $1.0 million, or $0.05 per share, compared to a net loss of $10.4 million or $0.48 per share last year. Adjusted net loss was $0.9 million, or $0.04 per share, versus an adjusted net loss of $9.8 million, or $0.45 per share, last year.

FINANCIAL POSITION

As at August 31, 2024, the Company held cash and cash equivalents of $44.5 million and short-term investments of $4.8 million. Bank indebtedness stood at $3.2 million, while long-term debt, including the current portion, amounted to $22.6 million.

OUTLOOK

As at August 31, 2024, orders amounting to $395.9 million, representing 72.2% of a total backlog of $548.1 million, are expected to be delivered in the next 12 months. Given these orders, the Company anticipates that sales in the second half the year will continue to support its expectations to deliver sales growth in fiscal 2025.

DIVIDEND

The Company opted to declare no dividend this quarter.

CONFERENCE CALL NOTICE

Financial analysts, shareholders, and other interested individuals are invited to attend the second quarter conference call to be held on Friday, October 11, 2024, at 8:00 a.m. (EDT). The toll-free call-in number is 1-888-510-2154 or by RapidConnect URL: https://emportal.ink/3XgWfJ1. The material that will be referenced during the conference call will be made available shortly before the event on the company’s website under the Investor Relations section (https://www.velan.com/en/company/investor_relations). A recording of this conference call will be available for seven days at 1-289-819-1450 or 1-888-660-6345, access code 48139.

ABOUT VELAN

Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world’s leading manufacturers of industrial valves, with sales of US$346.8 million in its last reported fiscal year. The Company employs 1,618 people and has manufacturing plants in 9 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

SAFE HARBOUR STATEMENT

This news release may include forward-looking statements, which generally contain words like “should”, “believe”, “anticipate”, “plan”, “may”, “will”, “expect”, “intend”, “continue” or “estimate” or the negatives of these terms or variations of them or similar expressions, all of which are subject to risks and uncertainties, which are disclosed in the Company’s filings with the appropriate securities commissions. While these statements are based on management’s assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking statement can be guaranteed and actual future results may differ materially from those expressed herein. The Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by the applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES

In this press release, the Company has presented measures of performance or financial condition which are not defined under IFRS (“non-IFRS measures”) and are, therefore, unlikely to be comparable to similar measures presented by other companies. These measures are used by management in assessing the operating results and financial condition of the Company and are reconciled with the performance measures defined under IFRS. The Company has also presented supplementary financial measures which are defined at the end of this report. Reconciliation and definition can be found below.

Adjusted net income (loss), Adjusted net income (loss) per share, Earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA

(‘000s of U.S. dollars, excluding per share amounts) Three-month periods ended Six-month periods ended
August 31, 2024 August 31, 2023 August 31, 2024 August 31, 2023
  $   $   $   $  
Reconciliation of net income (loss) to adjusted net income (loss) & adjusted net income (loss) per share          
Net income (loss) 121   (2,120 ) (983 ) (10,404 )
Adjustments for:          
Restructuring costs -   -   89   -  
Proposed transaction related costs -   242   -   616  
Adjusted net income (loss) 121   (1,878 ) (894 ) (9,788 )
per share - basic and diluted 0.01   (0.09 ) (0.04 ) (0.45 )
Reconciliation of net income (loss) to Adjusted EBITDA          
Net income (loss) 121   (2,120 ) (983 ) (10,404 )
Adjustments for:          
Depreciation of property, plant and equipment 2,612   2,154   4,297   4,220  
Amortization of intangible assets and financing costs 250   514   1,021   1,077  
Finance costs – net 1,472   1,391   2,813   2,596  
Income taxes 672   1,021   1,721   1,672  
EBITDA 5,127   2,960   8,869   (839 )
Adjustments for:          
Restructuring costs -   -   121   -  
Proposed transaction related costs -   329   -   838  
Adjusted EBITDA 5,127   3,289   8,990   (1 )

The term “Adjusted net income (loss)” is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus adjustment, net of income taxes, for costs related to restructuring and to the proposed transaction. The terms “Adjusted net income (loss) per share” is obtained by dividing Adjusted net income (loss) by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

The term “EBITDA” is defined as adjusted net income plus depreciation of property, plant & equipment, plus amortization of intangible assets, plus net finance costs, plus income tax provision. The term “Adjusted EBITDA” is defined as EBITDA plus adjustment for costs related to restructuring and to the proposed transaction. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Definitions of supplementary financial measures

The term “Net new orders” or “bookings” is defined as firm orders, net of cancellations, recorded by the Company during a period. Bookings are impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the Company’s sales operation performance for a given period as well as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “backlog” is defined as the buildup of all outstanding bookings to be delivered by the Company. The Company’s backlog is impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the future operational challenges of the Company as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “book-to-bill” is obtained by dividing bookings by sales. The measure provides an indication of the Company’s performance and outlook for a given period.

The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Contact:  
Rishi Sharma, Chief Financial and Administrative Officer Martin Goulet, M.Sc., CFA
Velan Inc. MBC Capital Markets Advisors
Tel: (438) 817-4430 Tel.: (514) 731-0000, ext. 229

1 Non-IFRS and supplementary financial measure. Refer to the Non-IFRS and Supplementary Financial Measures section for definitions and reconciliations.2 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares.

Consolidated Statements of Financial Position   
(in thousands of U.S. dollars)   
        As at  
    August 31,   February 29,  
    2024   2024  
    $   $  
Assets          
           
Current assets          
Cash and cash equivalents   44,480   36,445  
Short-term investments   4,791   5,271  
Accounts receivable   114,869   119,914  
Income taxes recoverable   7,017   6,132  
Inventories   225,325   208,702  
Deposits and prepaid expenses   9,035   10,421  
Derivative assets   431   125  
    405,948   387,010  
           
Non-current assets          
Property, plant and equipment   69,590   69,918  
Intangible assets and goodwill   15,851   16,543  
Deferred income taxes   5,860   5,193  
Other assets   752   729  
           
    92,053   92,383  
           
Total assets   498,001   479,393  
           
Liabilities          
           
Current liabilities          
Bank indebtedness   3,213   -  
Accounts payable and accrued liabilities   94,954   88,230  
Income taxes payable   1,094   1,568  
Customer deposits   38,692   30,396  
Provisions   16,595   14,129  
Derivative liabilities   2   26  
Current portion of long-term lease liabilities   1,606   1,607  
Current portion of long-term debt   3,234   24,431  
    159,390   160,387  
           
Non-current liabilities          
Long-term lease liabilities   10,965   11,036  
Long-term debt   19,329   4,346  
Income taxes payable   1,252   2,325  
Deferred income taxes   4,314   3,462  
Customer deposits   43,187   35,082  
Provisions   71,700   74,058  
Other liabilities   5,433   5,438  
           
    156,180   135,747  
           
Total liabilities   315,570   296,134  
           
Total equity   182,431   183,259  
           
Total liabilities and equity   498,001   479,393  
Consolidated Statements of Income (loss)    
(in thousands of U.S. dollars, excluding number of shares and per share amounts)   
  Three-month periods ended     Six-month periods ended  
  August 31,   August 31,     August 31,   August 31,  
  2024   2023     2024   2023  
  $   $     $   $  
           
           
Sales 98,647   80,318     176,147   147,977  
           
Cost of sales 71,979   56,933     125,667   109,540  
           
Gross profit 26,668   23,385     50,480   38,437  
           
Administration costs 24,760   22,571     46,567   44,070  
Other expense (income) (322 ) 525     453   512  
           
Operating income (loss) 2,230   289     3,460   (6,145 )
           
Finance income 151   136     262   271  
Finance costs (1,623 ) (1,527 )   (3,075 ) (2,867 )
           
Finance costs – net (1,472 ) (1,391 )   (2,813 ) (2,596 )
           
Net income (loss) before income taxes 758   (1,102 )   647   (8,741 )
           
Income tax expense 672   1,021     1,721   1,672  
           
Net income (loss) for the period 86   (2,123 )   (1,074 ) (10,413 )
           
Net income (loss) attributable to:          
Subordinate Voting Shares and Multiple Voting Shares 121   (2,120 )   (983 ) (10,404 )
Non-controlling interest (35 ) (3 )   (91 ) (9 )
           
Net income (loss) for the period 86   (2,123 )   (1,074 ) (10,413 )
           
Net income (loss) per Subordinate and Multiple Voting Share          
Basic and diluted 0.01   (0.10 )   (0.05 ) (0.48 )
           
           
Dividends declared per Subordinate and Multiple -   -     -   0.02  
Voting Share (CA$ -  ) (CA$ - )   (CA$ - ) (CA$0.03 )
           
           
Total weighted average number of Subordinate and          
Multiple Voting Shares          
Basic and diluted 21,585,635   21,585,635     21,585,635   21,585,635  
Consolidated Statements of Comprehensive Loss   
(in thousands of U.S. dollars)     
  Three-month periods ended     Six-month periods ended  
  August 31,   August 31,     August 31,   August 31,  
  2024   2023     2024   2023  
  $   $     $   $  
           
           
Comprehensive loss          
           
Net income (loss) for the period 86   (2,123 )   (1,074 ) (10,413 )
           
Other comprehensive income (loss)          
Foreign currency translation (2,270 ) 1,696     246   3,104  
           
Comprehensive loss (2,184 ) (427 )   (828 ) (7,309 )
           
Comprehensive income (loss) attributable to:          
Subordinate Voting Shares and Multiple Voting Shares (2,149 ) (424 )   (737 ) (7,300 )
Non-controlling interest (35 ) (3 )   (91 ) (9 )
           
Comprehensive loss (2,184 ) (427 )   (828 ) (7,309 )
           
Other comprehensive loss is composed solely of items that may be reclassified subsequently to the consolidated statement of loss.
Consolidated Statements of Changes in Equity     
(in thousands of U.S. dollars, excluding number of shares)      
                   
                   
                   
  Equity attributable to the Subordinate and Multiple Voting shareholders    
  Share capital Contributedsurplus Accumulatedothercomprehensiveloss Retainedearnings Total Non-controllinginterest Total equity
                   
Balance - February 28, 2023 72,695   6,260   (41,208 ) 162,142   199,889   946   200,835  
                   
Net loss for the period -   -   -   (10,404 ) (10,404 ) (9 ) (10,413 )
Other comprehensive income -   -   3,104   -   3,104   -   3,104  
                   
Comprehensive income (loss) -   -   3,104   (10,404 ) (7,300 ) (9 ) (7,309 )
                   
Acquisition of non-controlling interests -   -   -   -   -   -   -  
Dividends                  
Multiple Voting Shares -   -   -   (354 ) (354 ) -   (354 )
Subordinate Voting Shares -   -   -   (137 ) (137 ) -   (137 )
                   
Balance - August 31, 2023 72,695   6,260   (38,104 ) 151,247   192,098   937   193,035  
                   
Balance - February 29, 2024 72,695   6,260   (38,692 ) 141,914   182,177   1,082   183,259  
                   
Net loss for the period -   -   -   (983 ) (983 ) (91 ) (1,074 )
Other comprehensive income -   -   246   -   246   -   246  
                   
Comprehensive income (loss) -   -   246   (983 ) (737 ) (91 ) (828 )
                   
Balance - August 31, 2024 72,695   6,260   (38,446 ) 140,931   181,440   991   182,431  
Consolidated Statements of Cash Flow    
(in thousands of U.S. dollars)     
  Three-month periods ended     Six-month periods ended  
  August 31,   August 31,     August 31,   August 31,  
  2024   2023     2024   2023  
  $   $     $   $  
           
Cash flows from          
           
Operating activities          
Net income (loss) for the period 86   (2,123 )   (1,074 ) (10,413 )
Adjustments to reconcile net loss to cash used by operating activities 11,011   2,246     10,836   3,080  
Changes in non-cash working capital items (952 ) (21,283 )   5,283   (3,133 )
Cash used by operating activities 10,145   (21,160 )   15,045   (10,466 )
           
Investing activities          
Short-term investments 1,023   1     567   20  
Additions to property, plant and equipment (1,796 ) (1,605 )   (3,469 ) (2,714 )
Additions to intangible assets 658   (390 )   (294 ) (774 )
Proceeds on disposal of property, plant and equipment, and intangible assets 138   39     146   53  
Net change in other assets (298 ) 5     (293 ) 33  
Cash used by investing activities (275 ) (1,950 )   (3,343 ) (3,382 )
           
Financing activities          
Dividends paid to Subordinate and Multiple Voting shareholders -   (491 )   -   (491 )
Net change in revolving credit facility -   5,000     -   5,000  
Increase in long-term debt 584   -     584   -  
Repayment of long-term debt (3,120 ) (778 )   (6,936 ) (1,704 )
Repayment of long-term lease liabilities 90   (390 )   (293 ) (752 )
Cash provided (used) by financing activities (2,446 ) 3,341     (6,645 ) 2,053  
           
Effect of exchange rate differences on cash (176 ) 511     (235 ) 914  
           
Net change in cash during the period 7,248   (19,258 )   4,822   (10,881 )
           
Net cash – Beginning of the period 34,019   58,630     36,445   50,253  
           
Net cash – End of the period 41,267   39,372     41,267   39,372  
           
Net cash is composed of:          
Cash and cash equivalents 44,480   41,474     44,480   41,474  
Bank indebtedness (3,213 ) (2,102 )   (3,213 ) (2,102 )
           
Net cash – End of the period 41,267   39,372     41,267   39,372  
           
Supplementary information          
Interest received (paid) 901   (53 )   56   (102 )
Income taxes paid (623 ) (939 )   (3,146 ) (3,549 )
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