Velan Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 12, 2024

There are 4 speakers on the call.

Operator

This call is being recorded on Friday, July 12, 2024.

Operator

I would now like to turn the conference over to Vrishi Sharma, Chief Financial and Administrative Officer. Please go ahead.

Speaker 1

Thank you, operator. Good morning 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 mentions that the presentation provides an analysis of our consolidated results for the Q1 ended May 31, 2024. Board of Directors approved these results yesterday, July 11, 2024.

Speaker 1

2nd paragraph refers to non IFRS supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph refers forward looking information, which are subject to risks and uncertainties that 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 now turn the call over to Mr. Jim Manoback, Chairman of the quarter and CEO of Covenants.

Speaker 2

Well, thank you, Rishi, and good morning, everyone. If you're following along with the investor presentation, please turn to page 4 for a general overview of the Q1. Alana opened fiscal 2025 with a strong performance across its core markets, generated sales growth of 14.5 percent year over year. Our order backlog closed at $528,000,000 with a strong gross margin reported as well at just above 30% in the quarter. The double digit sales growth can be attributed to an increase in shipments from our North American operations, including important project delivers and solid performance from our UMRO business.

Speaker 2

Supported by a strong backlog, sales from our Italian operations, which revolve around oil and gas were also robust despite some shipment delays. From a market standpoint, we are particularly excited about expanded opportunities in the nuclear sector based on heightened interest in small modular reactors or SMRs. They're gaining traction in Europe and North America and indeed around the rest of the world as well. Due to its sheer size, the U. S.

Speaker 2

Offers massive potential for deploying SMRs. But as I noted, we're also seeing other countries highly interested in the clean energy, safety features and cost effectiveness of this emerging technology. As a whole, nuclear power deployments, which are critical to reducing greenhouse gas emissions were recently fast tracked through the passing of a bipartisan bill entitled the Advance Act in the U. S. Senate.

Speaker 2

Looking ahead, we anticipate a nuclear power growth cycle for at least the next decade, not only in the U. S. But on a global basis. Clearly, Vellante should benefit from this long term growth cycle as we are the leading valve supplier for all nuclear related technologies on a global basis. As announced earlier this week, a CAD50 million 10 year alliance agreement was reached with Bruce Power for valves reflecting strong demand for nuclear power in Canada.

Speaker 2

This milestone agreement which includes refurbishment and technical services could reach over CAD100 1,000,000 if all options and projects are firmed up over the course of Bruce Power's asset management and life extension projects in Ontario. Turning to Slide 5, I mentioned our order backlog reached nearly 530 at the end of the Q1, up 7.5% from the beginning of the year on the strength of solid bookings. At quarter end, 70.5 percent of the backlog represented orders of over $372,000,000 are deliverable within the next 12 months. As a result, we remain on track for delivering sales growth in fiscal 2025. Bookings improved 19.6 percent year over year to $109,800,000 in the Q1 of fiscal 2025.

Speaker 2

The growth mainly reflects a robust order increase in North America driven by new projects in the MRO business. Along with higher bookings for oil refinery projects in Germany and nuclear power service and spares in France. These factors were partially offset by reduced oil and gas in Italy. Currency movements had a positive effect of $1,100,000 on bookings in the quarter. Given that bookings outpaced sales, our book to bill ratio stood at 1.42 at the end of the Q1 of fiscal 2025 and 1.10 for the last 12 months.

Speaker 2

Of note, 1.10 marked our best book to bill ratio in nearly 3 years on a rolling 12 month basis. In summary, the bond delivered strong first quarter results across the board, heightened by sales, higher sales, margin and profitability, gains year over year combined with a growing order backlog. At this point, I'll turn the discussion over to Rishi for a more in-depth review of the financial results of the quarter. Rishi?

Speaker 1

Thank you, Jenny. Turning to our Q1 results on slide 7. Sales totaled $77,500,000 up from 14.5% from the Q1 of fiscal 2024. As previously mentioned, the growth was mainly driven by increased shipments from our North American and Italian operations. Currency movements had a $600,000 negative effect on sales in the quarter.

Speaker 1

By customer geographic location, North America accounted for nearly 49% of total revenues in the Q1 of fiscal 2025 compared to 51% in the Q1 of 2024. Europe represented 24% of total revenues in the Q1 of 2025, reflecting solid sales activity in Italy versus 19% in the same period in 2020. Asia Pacific at 16%, Africa and Italy is at 10%, as well as South and Central America at 1% rounded off the sales breakdown in the first quarter. Moving to gross profit on Slide 8, it amounted to $23,800,000 for the Q1 of 2025, up 58.2 percent from $15,100,000 last year. The significant increase was primarily due to higher sales volume, which positively impacted the absorption of fixed production overhead costs, more favorable product mix compared to last year and production efficiency gains.

Speaker 1

As a percentage of sales, gross profit reached 30.7% compared to 22.2% last year. Administration costs totaled $21,800,000 or 28.1 percent of sales in the Q1 of fiscal 2025 compared to $21,500,000 or 31.8 percent of sales a year ago. This year's administration cost included $100,000 in restructuring expenses, mainly consisting of severance payments, while last year's cost included $500,000 in expenses related to the proposed transaction with the Flowserve Corporation. EBITDA amounted to $3,700,000 in the Q1 of fiscal 2025 compared to negative $3,800,000 last year. Excluding business restructuring costs and last year's expenses related to the proposed Flowserve transaction, adjusted EBITDA reached $3,900,000 up from negative $3,300,000 last year.

Speaker 1

The year over year increase was mainly driven by higher sales volume combined with a significant improvement in gross profit. Net loss totaled $1,100,000 or $0.05 per share in the Q1 of fiscal 2025 compared to a net loss of $8,300,000 or $0.38 per share last year. Excluding the after tax effect of restructuring costs and expenses related to the proposed Flowserve transaction, adjusted net loss was $1,000,000 or $0.05 per share versus an adjusted net loss of $7,900,000 or $0.37 per share last year. The year over year variation can be attributed to higher adjusted EBITDA in the Q1 of 2025, partially offset by greater net finance costs and income tax expense. Moving on to cash flow from operations on Slide 9.

Speaker 1

It reached $4,900,000 in the Q1 of fiscal 2025, down from $10,700,000 in the corresponding period a year ago. The decline in cash for the quarter was primarily due to less favorable positive changes in non cash working capital movements, partially offset by an increase in EBITDA. Finally, our financial position remains healthy. As at May 31, 2024, the company held cash and cash equivalents of $35,800,000 and short term investments of $5,700,000 while long term debt including the current portion amounted to 24,800,000 dollars Turning to our outlook for the remainder of fiscal 2025 on Slide 10. Bella delivered strong first quarter results highlighted by a growing order back of $528,300,000 and a book to bill ratio of 1.42.

Speaker 1

As Jim stated earlier, orders of $372,300,000 at the quarter end or 70.5 percent of the total backlog are expected to be delivered within the next 12 months. Consequently, we are reiterating our expectations to deliver sales growth in fiscal 2025. I will now turn the call over to the operator for the Q and A session.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Alex Ciaranelli with SM Investors. Your line is now open.

Speaker 3

Yes. Hi, good morning. Congratulations on the call and the results. North America from the prepared remarks experienced a handsome revenues. Could you give some color which verticals performed pretty, very well?

Speaker 1

In North America, there's primarily 3 segments we would call projects, severe service and MRO. MRO mostly coming from distribution parts for DCs, spares, replacement valves and so on. Projects being heavy project related contracts such as abulated bed as that secure someone's orders and severe service in the traditional. Those are kind of the three ways that we look at the North American business.

Speaker 3

Maybe you don't break it out by, let's say, nuclear oil or things like that?

Speaker 1

Nuclear, we do have a vertical as well that's within embedded within those segments. That primarily relates to our operations in Canada and some in the U. S. For oil and gas, traditional refinery and mainly downstream verticals. I'm sorry,

Speaker 3

I missed the last part, oil and gas you were saying?

Speaker 1

Downstream, in the U. S. In the U. S. Downstream.

Speaker 1

In the U.

Speaker 3

S. Downstream. Okay. Since you're talking about the verticals, I'll just ask one more there. On the past documents, You don't break the revenue by different verticals, right?

Speaker 2

No. No. No. We only break it we only look at the revenue split geographically.

Speaker 3

And would you break it or for competitive reasons you prefer not to?

Speaker 1

Prefer not to.

Speaker 3

Prefer not to. Okay. I don't know if you break this out, but if you do, what is the percentage of MRO as a percentage of total revenue?

Speaker 1

So MRO is looked at in different ways. If you're looking purely at spares and parts, we're at about 9% to 11%. If you look at and include replacement valves, then you trend up towards 28%, 29%.

Speaker 3

Then if I may ask a question on the recently announced contract with

Speaker 1

Power. How is it cadence? How is it cadence?

Speaker 3

I'm sorry?

Speaker 2

You broke up there just for a second. Could you repeat the question?

Speaker 3

The announced deal was Bruce Power. What would be the cadence? Is it front loaded? Is it linear? Also what in terms of $50,000,000 or $100,000,000 And then the word you talked about Alliance.

Speaker 3

I don't know if that means the joint venture or it just means another way to say long term contract. Thank you.

Speaker 2

Okay. So I think into the to address the last point of your question, I think you could probably look at more as long term supply agreement with Bruce Power. As we talked about at the last quarter, obviously, there's an increase in interest and uptick in nuclear activity, not only in Europe, but also in North America, Canada and the U. S. People are recognizing that they need to strike these kind of agreements with Alon as a leading fire critical valves in the industry to assure their supply chain going forward.

Speaker 2

In terms of the cadence or how that might stretch out, most of the time in nuclear, a lot of this work is for refurbishment and extension. So some of it is front end, but a lot of it builds as time goes by principally because of long lead times within the nuclear industry anyway. So I think probably not linear wouldn't be a way to look at it, but not so much of a hockey stick either. Progressive. Yes, it's a progressive ramp up over the 10 year cycle.

Speaker 3

What makes the difference between $50,000,000 $100,000,000

Speaker 1

Yes. So there's obviously when you look at the supply of what's currently expected to be built, if you look at the infrastructure plan, secure at least $50,000,000 and then there's projects in the pipeline as they are firmed and options come through. That's where we see the potential doubling of the value of the contract.

Speaker 3

Okay. Perfect. Then another one for me in the MDA. I noticed that there's an increase in delinquency on accounts receivable, especially in Q1. I don't know if it means anything, but if you can give some color?

Speaker 2

No, I think what it means is timing. There were in outside principally outside North America, there were some large receivables that were collected basically right after the quarter, which would have altered the aging that you saw. I noticed the same thing and asked the question of the finance people, of course. But if we look into the collections right after the end of the quarter, it turned returned to a more normal state. I think over time, if you think about it on a continuum, the company continues its focus on maximizing its cash and the efforts to assure prompt collection of receivables continue to bear fruit.

Speaker 2

Fruits. I think the end of the quarter was as we sit here today, not okay, it was more of an aberration just for timing of collections.

Speaker 3

So after the call what you sorry, after the quarter ended, what you're saying you collected and you're back to

Speaker 2

Yes, right. So to bring the AAT more in alignment with more recent historic trends.

Speaker 1

Yes. And maybe just to add to that, if you look at the current bucket, there's a lot of efforts to collect current. Sometimes receivables get held up for certain reasons. So with the customer base, clear as much as we can currently. And as Jim mentioned, address the snags and shortly after the quarter shows the collective variation.

Speaker 3

Okay. Thank you. That's all for me. Thanks.

Speaker 2

Thank you.

Operator

There are no further questions at this time. I will now turn the call over to Jim.

Speaker 2

Thank you, operator, and thank everyone for joining us today. We look forward to sharing our Q2 results with you guys in the fall and hope you have a great day and a great summer. Take care. Bye for now.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Key Takeaways

  • Opening Q1 with 14.5% year-over-year sales growth to $77.5 M and a backlog of $528.3 M, driven by strong North American shipments and Italian oil & gas projects.
  • Bookings rose 19.6% YoY to $109.8 M, lifting the quarter-end book-to-bill ratio to 1.42 and marking a 1.10 ratio for the past 12 months—the best in nearly three years.
  • Gross profit jumped 58.2% YoY to $23.8 M, lifting gross margin to 30.7%, while adjusted EBITDA swung to $3.9 M from a negative $3.3 M in the prior year period.
  • A CAD$50 M 10-year alliance agreement with Bruce Power underscores mounting demand in the nuclear sector, with potential to exceed CAD$100 M as refurbishment and life-extension options materialize.
  • Balance sheet remains healthy with $35.8 M in cash, $5.7 M in short-term investments, $24.8 M in long-term debt, and operating cash flow of $4.9 M for the quarter.
A.I. generated. May contain errors.
Earnings Conference Call
Velan Q1 2025
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