Velan Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 12, 2024

There are 4 speakers on the call.

Operator

Greetings and welcome to the Valens Incorporated Q3 Financial Results Conference Call. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded on Friday, January 12, 2024. I would now like to turn the conference over to Rishi Sharma, Ghislain La Paul and Mr.

Operator

Rishi Sharma.

Speaker 1

Thank you, operator. Good morning, Paul and thank you for joining us for our conference call. Let's start by Discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first section of the disclaimer mentions that the presentation provides an analysis of our consolidated results for the Q3 ended November 30, 2023. The Board of Directors approved these results yesterday, January 11, 2024.

Speaker 1

The 2nd 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 this presentation are expressly qualified by this cautionary statement. Finally, all amounts are expressed in U. S.

Speaker 1

Dollars unless indicated otherwise. I would now like to turn the call over to Mr. Jim Manovac, Interim CEO and Chairman.

Speaker 2

Thank you, Rishi, and good morning, everyone. During our last conference call, we communicated the unfortunate termination of the acquisition agreement with Flowserve Corporation following the French government's refusal to approve the transaction. The chapter is now behind us And we've turned our focus at the company to strengthening the organization and growing the business. We believe Elan has tremendous assets at its disposal to further expand its global market reach. Of course, this includes an agile workforce, diversified manufacturing capacity and above all, a solid brand reputation.

Speaker 2

As a supplier of critical equipment to essential industries, We anticipate growing demand for our products driven by energy transition trends and by our proven ability to provide solutions for the most demanding applications in a variety of market digits. Delving deeper into environmental matters, many of our customers have started Carbon emission reduction targets and programs accordingly related thereto and are increasingly looking for energy efficient solutions to reach these objectives. I want to directly align with this secular growth trend as we have dedicated significant resources to environmentally driven solutions for many, many years. Our main goal of the company is to support our customers with safe and reliable flow control products for their existing and emerging needs. Energy transition underway creates challenges for customers in several industries, including nuclear oil and gas, as well as process and power.

Speaker 2

The challenges become our opportunities. And as a key equipment supplier, We are excited about playing a leading role worldwide in this online transformation. In parallel, We expect maintenance repair and overhaul activity, which we refer to as MRO, on our extensive base of Install equipment to continue providing a recurring revenue stream. To make sure we can rapidly capture growing opportunities, set a center role of Interim CEO alongside my duties as Chairman of the Board. My 35 year experience in Flow Control Industry and 5 and 10 are on the Blonde Board should serve the company well.

Speaker 2

I'm also pleased to report that Rishi has been promoted to the role of Chief Financial and Administrative Officer to oversee all Valens' Administrative functions in addition to his oversight of the financial team. Over and above, the entire Bellin team is committed to building shareholder value Profitable sales growth and cash flow. Turning to our operating performance. 1's backlog has increased 4.5 percent to $485,000,000 since the beginning of the fiscal year. Of this $361,000,000 is expected to be delivered in the next 12 months.

Speaker 2

The increase is mainly attributable to changes in the profile of scheduled backlog shipment dates. The strengthening of the euro also slightly improved our position in backlog as well. 3rd quarter bookings reached $78,300,000 down $99,000,000 from last year, as we are facing the tough comparable period in which North American This is partially offset by higher oil and gas bookings in Italy. Sequentially, bookings were nearly 10% higher than those of the 2nd quarter. And I'm pleased to report that the pickup activity is continuing so far in the Q4.

Speaker 2

For instance, we recently signed new large scale orders in Italy, which constitutes a record for our subsidiary. We are very pleased with the strong commercial activity we are seeing all across Europe. As for our financial results, Rishi will provide more details in a minute. But in a nutshell, 3rd quarter sales of $80,900,000 reflected reduced sales activity in North America, which contrasted with large shipments reported during the same period last year. Lower sales combined with a drop in gross profit due to reduced volume and the execution of a certain low margin project negatively affected our profitability.

Speaker 2

Net loss totaled $77,300,000 in the Q3 of fiscal 20.4, while EBITDA was negative $2,300,000 Although 3rd quarter results were disappointing and unacceptable, We anticipate shipments to accelerate in the 4th quarter, driven by the execution of large scale projects. In addition, our strong backlog and the recent uptick in bidding and booking activity provide confidence as we look to projected sales in the New Year. In summary, I want to stress that Bellon's global presence, diversified customer base and focus on critical applications represent significant advantages in a highly competitive industry. We're resuming our focus on growth and we're confident about our future opportunities worldwide. At this point, I turn the call over to Rishi to share a financial review for the quarter.

Speaker 1

Thank you, Jim. As previously mentioned, our backlog has increased 4.5% since the beginning of the fiscal year, reflecting a book to bill of 1.06 on a year to date basis. With the ratio nearly 1:1 in the 3rd quarter, the backlog held steadily sequentially at $485,000,000 during the period. Bookings have increased sequentially and commercial activity remains quite robust in the nuclear sector in France as well as the oil and gas sector. Turning over to the income statement, sales totaled $80,900,000 in the Q3 of fiscal 2024, down 15% from 1 year ago.

Speaker 1

The variation essentially reflects a reduction in North American sales due to last year's shipment of a large oil and gas order. It also reflects lower MRO contracts based on extended transit times for orders passing through the Panama Canal that was affected by this year's unusually low water levels. These elements were partially offset by a positive $1,900,000,000 impact on sales on the strengthening of the euro average rate against the U. S. Dollar in the quarter.

Speaker 1

On a geographical basis, Sales outside of North America were 6.5% to account for 43.6% of total revenues compared with 34.8% last year, mainly reflecting the solid activity in both fronts and industries. Gross profit reached $16,400,000 compared to $29,000,000 in the same period last The decrease is mainly due to lower sales volume, which impacted the absorption of fixed production overhead costs and to the execution of a low margin project during the quarter. These factors were partially offset by unrealized foreign exchange gains related to the fluctuation of the U. S. Dollar against the euro and the Canadian dollar.

Speaker 1

As a percentage of sales, gross profit amounted to 20.2% compared to 30.4% last year. Administration costs decreased 15.2 percent year over year to $21,600,000 The decline reflects the recording in last year's Q3 of a $3,000,000 provision for potential settlement value of future unknown asbestos related claims and lower freight costs based on reduced sales volumes. As a result, EBITDA was negative $2,300,000 in the Q3 of fiscal 2024 compared to a positive $6,100,000 last The variation is primarily related to a decrease in gross profit, partially offset by lower administration costs. Net income Net loss totaled $7,300,000 or $0.34 per share compared to net income of $2,700,000 or $0.13 per share in the prior year. The year over year difference stems from lower EBITDA and higher finance costs.

Speaker 1

Moving on to cash flows. Cash used by operating activities amounted to $4,900,000 in the Q3 of 2024 versus using $3,400,000 last year. The unfavorable moving in cash for the quarter is attributable to a decrease in EBITDA, partially offset by favorable movements in working capital items and net change in long term provisions and customer deposits. During the quarter, as previously mentioned, we completed the purchase of the remaining 25 As that minority interest was included in the current portion of long term debt, this transaction explains most of the $6,300,000 in cash used by financing entities. Finally, our financial position remains solid.

Speaker 1

As at November 30, 2023, Net cash and overall liquidity position stood at $26,400,000 $97,500,000 respectively. We believe our strong liquidity position along with future cash flows from operations are sufficient to meet all financial obligations and satisfy projected working capital requirements, while allowing Bellen to execute its business strategy by capturing profitable growth opportunities that may arise. I will now turn the call back over to Frank

Operator

We have a question from Alex Ciaranelli from Essen Investors. Please proceed.

Speaker 3

Yes. Hi. Thank you for taking my question. A few, if I may. First one is on the Flowserve broken deal since you brought it up.

Speaker 3

How did the process come around? Was it like Part of the process actually or they just came and knocked on your door and I can unsolicited bid?

Speaker 2

Yes, it was a process. It wasn't an unsolicited bid. The Board took a decision prior to look at potential strategic options. This involved reaching out to our advisor to numerous equity and other investors to which Flowserve was ultimately chosen as among the craft, the most Advantageous and likely to preserve and grow off of our legacy. So it's a process, not a knock on the door.

Speaker 3

All right, perfect. I think in the recent article, you were talking about tightening the integration of capabilities The right business, if you can give some color on what you mean by that?

Speaker 2

Integration of the businesses, Yes. I think what we're looking at here is we've got tremendous strengths and capabilities around the world. I referenced Italy, For instance, it's a tremendous success in the end of the third quarter and strengthened to the 4th We think there's a better opportunity to exploit our competencies, market, product, manufacturing In a more integrated fashion around the world than we've traditionally done in the past. Often if you look back at the line in the past, the international operations In France and Italy, we're much more autonomous, which we think there's some strength in keeping that in place. But we don't know that we fully recognize the value of the synergies as a global company.

Speaker 2

So that's what we're looking at to try and drive More benefit out of looking at the business globally. The brand is a preeminent brand globally. Our activities to exploit the brand and our value

Speaker 3

Okay. I guess I'll also answer most of probably my third question, which is one of the goals is Increased margins, which I'm assuming is a function of volumes. I guess, I see admin costs Coming down as we look for your provisions and then you like about the CABDATA integrations. Are there any other levers you're looking at?

Speaker 2

Yes. Certainly, we're looking at you mentioned operating expenses. We're looking at ways to reduce further operating expenses in line with our projections for top line growth And redeploy some of the spending in areas currently into areas that will drive more growth in product development. I think there is some opportunity for us also to further exploit, if you will, our position in India With respect to greater collaboration that we've long had engineering capabilities in India that worked very well with the Montreal Group And we want to see that continue to grow and thrive into the future.

Speaker 3

And I'm just Sorry to ask you this, but I don't remember. What is the percentage of revenues of MRO? I don't know if you disclosed it though.

Speaker 1

For consolidated MRO?

Speaker 3

Yes, consolidated.

Speaker 1

Yes, I'd say about 10%, 15% consolidated for the company.

Speaker 2

This is another great question because at 10% to 15% given the installed base we have, we should be exploiting that position more. So this is an area of focus As you know, typically, margins are generally better With MRO and spare, we think we've got some great opportunity to, as I said, further exploit the installed base that we have called.

Speaker 3

Great. And then lastly from here, at the moment, the Serge of the CEO, how is that going?

Speaker 2

Well, the Board has A long standing succession plan in place and when the prior CEO Bruno left, of course, we were able to move Quickly to fill that position with me. We had the Board meeting yesterday

Speaker 3

That's okay.

Speaker 2

Yes. Okay. So as the process is ongoing, we expect we'll have news in the near term on that front.

Operator

Chairman, there are no further questions at this time.

Speaker 2

Very good. Thank you, Frank. We appreciate your help with this and Thank everyone who listened into the earnings call. We look forward to reporting again at the conclusion of our fiscal year after February. Thank you again.

Speaker 2

Have a wonderful day.

Operator

That does conclude the conference call for today. We thank you for your participation And ask that you please disconnect your line.

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Key Takeaways

  • After the French government blocked the Flowserve acquisition, Valens has refocused on strengthening its organization and leveraging its agile workforce, diversified manufacturing and strong brand to grow globally.
  • In Q3, sales fell 15% to $80.9 million with a net loss of $7.3 million and EBITDA at negative $2.3 million, reflecting lower volumes and the execution of a low‐margin project.
  • Backlog rose 4.5% to $485 million (with $361 million expected within 12 months) and sequential bookings increased nearly 10%, highlighted by record large‐scale orders in Italy.
  • Valens is targeting secular growth from the energy transition and sees MRO (10–15% of revenues) on its installed base as a significant recurring revenue stream.
  • Interim CEO Jim Manovac, bringing 35 years of flow control experience, and newly appointed CFO Rishi Sharma are driving global integration of capabilities, profitable sales growth and strong cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
Velan Q3 2024
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