VLN Velan Inc

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	)