5N Plus Q2 2026 Earnings Report

5N Plus EPS Results

• Actual EPS: C$0.31
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

5N Plus Revenue Results

• Actual Revenue: $173.84 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

5N Plus Announcement Details

• Quarter: Q2 2026
• Date: 8/3/2026
• Time: After Market Closes
• Conference Call Date: Tuesday, August 4, 2026
• Conference Call Time: 8:00AM ET

5N+ is a leading global producer of specialty semiconductors and performance materials. The Company's ultra-pure materials often form the core element of its customers' products. These customers rely on 5N+'s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company's products enable various applications in several key industries, including renewable energy, security, space, pharmaceutical, medical imaging and industrial. Headquartered in Montréal, Quebec, 5N+ operates R&D, manufacturing and commercial centers in strategically located facilities around the world including Europe, North America and Asia.

5N Plus Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue rose 28% year over year to $122.4 million in Q2, driven primarily by higher renewable-energy and bismuth-product volumes; first-half revenue increased 30% to $240.3 million.
• Positive Sentiment: Demand remains strong, with Specialty Semiconductors backlog at its maximum reported level and effective backlog exceeding 12 months; AZUR’s 2026 and 2027 capacity is sold out, while space-power bids in the first half were at least twice last year’s dollar value.
• Negative Sentiment: Gross margin declined to 30.3% from 34.6% a year ago, as higher metal and chemical costs, unplanned equipment maintenance, and ramp-related inefficiencies weighed on profitability. Management expects margins to remain around Q2 levels in the second half, with metal-cost recovery taking at least two quarters and only partially offsetting the pressure.
• Positive Sentiment: Adjusted EBITDA increased 10% in Q2 to $26.6 million and reached $55.8 million year to date; management reaffirmed full-year 2026 guidance of $100 million to $105 million despite the cautious cost outlook.
• Positive Sentiment: The balance sheet strengthened materially, with net debt falling to $23.7 million from $50.3 million at year-end and net debt-to-adjusted EBITDA improving to 0.21 times, supporting planned capacity investments and potential strategic acquisitions.

Presentation

[Operator]

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 5N Plus second quarter 2026 results conference call. At this time, note that all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, please press star, then one on your telephone keypad. If you require immediate assistance from the operator, please press star zero. I will now turn the floor over to Stefano Bertolli, Director of Communication and Corporate Affairs. Please go ahead, sir.

[Stefano Bertolli, Director of Communications and Corporate Affairs at 5N Plus]

Good morning, everyone, and thank you for joining us for our Q2 2026 results conference call and webcast. We will begin with a short presentation, followed by a question period with financial analysts. Joining us this morning is Richard Perron, our President and CEO, and Alban Fournier, our CFO. We issued our financial results yesterday and posted a short presentation on the Investors section of our website. We would like to draw your attention to slide two of this presentation. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore subject to risks and uncertainties.

[Stefano Bertolli, Director of Communications and Corporate Affairs at 5N Plus]

A detailed description of these risk factors that may affect future results is contained in our management's discussion and analysis of 2025, dated February 24th, 2026, and available on our website and in our public filings. In the analysis of our quarterly results, you will note that we use and discuss certain non-IFRS measures, which definitions may differ from those used by other companies. For further information, please refer to our management discussion and analysis. We now turn the conference over to Richard.

[Richard Perron, President and CEO at 5N Plus]

Thank you, Stefano. Good morning, everyone, and thank you for joining us. While the second quarter presented a more challenging operating environment, our results demonstrated the strength of demand across our strategic end markets and the resilience of our business. We delivered another quarter of solid growth, capping a strong first half of 2026 in support of our full-year objectives. Revenue increased 28% in Q2 and 30% year-to-date, reaching just over $240 million for the first six months of the year. Adjusted EBITDA increased 10% in a quarter and reached $55.8 million year-to-date, representing growth of 24% over the same period last year. Profitability remains strong, although margins reflected higher input costs as expected and temporary reduced operational efficiencies. Most of these cost pressures are expected to be recovered over time.

[Richard Perron, President and CEO at 5N Plus]

The equipment downtime and suboptimal operations experienced during the quarter and associated incremental expenses are temporary in nature. Turning first to Specialty Semiconductors. The business delivered a strong quarter reflecting structural demand across our strategic end markets. Terrestrial renewable energy had a standout quarter, with higher volumes translating into record quarterly revenue. This performance reflects our key customer's continuous expansion and reinforces our position as a critical supplier within its value chain. Commercial activity also remained very strong in space solar power. We secured significant new contract awards in H1 and participated in a record level of bids by dollar value during the quarter. This momentum reinforces the structural growth of this end market. It also underscores AZUR's position as a global leader in solar cell technology and a partner of choice. The quarter, however, was not without challenges.

[Richard Perron, President and CEO at 5N Plus]

Both our renewable energy and space power businesses experienced comparable levels of unplanned equipment maintenance. Our teams responded quickly through contingency planning, operational flexibility, and targeted inventory allocation. We continued to support customer demand and maintain deliveries during the quarter. Our teams continue to resolve the remaining issues and strengthen preventive maintenance measures. Beyond these temporary operational impacts, margin contraction in Specialty Semiconductors also reflected higher metal input costs.

[Richard Perron, President and CEO at 5N Plus]

A portion of these costs is expected to be recovered over subsequent quarters, although the timing will vary by product and customer. In the meantime, we are working to partially offset these pressures through economies of scale and continued operating efficiencies. Performance Materials also delivered a solid quarter. Segment revenue increased nearly 40%, driven primarily by our volumes of bismuth-based products. As anticipated, margins continued to normalize from their record levels achieved last year and sustained in the first quarter.

[Richard Perron, President and CEO at 5N Plus]

This reflects higher metal input costs and a significant increase in chemical costs in recent months. The business continues to generate profitable growth and demonstrate the resilience of its portfolio. Halfway through the year, we continue to take a prudent approach to our outlook. Geopolitical risks continue to evolve rapidly and influence inflation across many regions. Various input and operating costs remain elevated. We're also increasing production volumes and operating our equipment at high capacity while integrating a significant number of new employees. In this context, we remain firmly focused on disciplined execution and operational excellence. As we enter Q3, our priorities are to improve operational and maintenance processes, advance our productivity initiatives, and execute our capacity expansion plans. These expansion plans all remain on plan. Finally, our balance sheet continues to provide us with significant financial flexibility.

[Richard Perron, President and CEO at 5N Plus]

Organic investment remains a priority as we expand capacity to support contracted demand. We also continue to actively evaluate external opportunities that could complement or extend our capabilities. Near-term impacts and quality variations aside, we are building a business positioned to deliver sustainable, profitable growth over the long term by supplying advanced materials to critical industries. That strategy continues to be validated. Customers increasingly value secure, reliable Western supply chains, particularly in markets tied to renewable energy, space, security, and advanced technologies. These trends reinforce the value of our differentiated capabilities, manufacturing footprint, and long-standing customer relationships. As a result, we remain well-positioned to create sustainable value by executing our growth strategy. With that, I'll turn the call over to Alban, who will review our financial results and outlook in more detail.

[Alban Fournier, CFO at 5N Plus]

Thank you, Richard, and good morning to all of you. Before turning to the results, I would like to reiterate how enthusiastic I am to be a member of the executive team of 5N Plus at such a critical juncture in its growth and development. I've engaged with other teams and with the investment community in the last three months. Those discussions have reinforced my confidence in our strategy, in the inherent strength of our business, in the strong financial foundation, and the opportunities ahead.

[Alban Fournier, CFO at 5N Plus]

Turning now to our financial performance. Revenue increased 28% to $122.4 million in Q2 2026 compared with Q2 2025. For the first half of the year, revenue reached $240.3 million, an increase of 30% over the same period last year. The increase primarily reflected higher volumes in renewable energy and more favorable product mix in space power. It also reflected higher volumes of bismuth-based products.

[Alban Fournier, CFO at 5N Plus]

Adjusted gross margin increased to $37 million in Q2 2026, representing 30.3% of sales. This compares with $33 million, or 34.6% of sales in the second quarter of last year. While adjusted gross margin increased in absolute dollars, margin percentage declined. This primarily reflects higher metal input costs, temporary operational inefficiencies associated with the production ramp-up, and higher chemical costs. For the first half of the year, adjusted gross margin represented 32.6% of sales. Adjusted EBITDA increased 10% to $26.6 million in Q2 2026 compared with Q2 2025. Year to date, adjusted EBITDA reached $55.8 million, slightly above the midpoint of our full-year guidance range. Net earnings amounted to $19.7 million, or $0.22 per share, compared with $15.2 million or $0.17 per share in the second quarter of last year. In Specialty Semiconductors, revenue increased 25% year-over-year to $89.2 million.

[Alban Fournier, CFO at 5N Plus]

The increase was primarily driven by higher volumes in renewable energy. Adjusted gross margin represented 30.2% of sales, compared with 32.7% in Q2 2025. This decrease primarily reflected higher metal input costs and lower operating efficiency. Adjusted EBITDA increased by 16% to $22.1 million. Higher volumes mitigated the impact of suboptimal operational performance and higher maintenance expenses. Backlog remains at the maximum level of 365 days as per our definition, with the effective backlog for this segment continuing to well surpass the 12-month mark. In Performance Materials, revenue increased 38% year-over-year to $33.2 million, driven by higher volumes of bismuth-based products. Adjusted gross margin was 30.9% of sales, compared with 41.1% in the prior year period. The decrease reflected the anticipated margin normalization with higher metal input and chemical costs. Adjusted EBITDA increased 7% to $8.5 million.

[Alban Fournier, CFO at 5N Plus]

The increase was primarily attributable to a more favorable product mix and higher volumes, net of higher metal input and chemical costs. Backlog represented 99 days of annualized revenue, reflecting the timing of contract renewals and the continued execution of long-term contracts. Turning now to our balance sheet and cash flow. In Q2 2026, cash used in operating activities was $1.9 million compared to cash from operating activities of $22.3 million in Q2 2025.

[Alban Fournier, CFO at 5N Plus]

Year to date, operating cash flow reflects continued growth in working capital in line with revenue and COGS increases. Looking ahead, we expect net working capital to evolve broadly in line with revenue growth. Cash from investing activities includes $16.6 million of PP&E CapEx year to date, with proceeds from the renewal of our total return swap. These proceeds were largely used to reduce debt. As a result, our financial position continues to strengthen.

[Alban Fournier, CFO at 5N Plus]

Net debt stood at $23.7 million as of the end of June, compared with $50.3 million at the end of 2025. Our net debt to adjusted EBITDA ratio improved to 0.21x. This highlights the strength of our balance sheet and provides significant financial flexibility to support our long-term growth. Turning now to guidance. In Specialty Semiconductors, structural growth across our core end market continues to support demand, particularly in renewable energy and space power. In Performance Materials, pricing conditions are normalizing largely as anticipated. More broadly, we continue to operate in a dynamic rising cost environment. We notably expect margins to come under additional pressure in the near term due to higher metal input costs and chemical costs, which will partially be recovered with a timeline of at least two quarters.

[Alban Fournier, CFO at 5N Plus]

Against this backdrop, we are reaffirming our 2026 full year adjusted EBITDA guidance of between $100 million and $105 million. This reflects our confidence in continued revenue growth and higher growth margin dollars during the second half. It also incorporates a prudent assessment of ongoing operating and input cost environment. That concludes our formal remarks. I will now turn the call back to the operator for the question-and-answer session with financial analysts. Thank you.

[Operator]

[Non-English content] Thank you. If you'd like to ask a question, please press star one on your telephone keypad. One moment please for your first question. Your first question comes from Baltej Sidhu from National Bank of Canada. Please go ahead.

[Baltej Sidhu, Analyst at National Bank of Canada]

Hey, good morning, Richard and Alban.

[Richard Perron, President and CEO at 5N Plus]

Morning.

[Baltej Sidhu, Analyst at National Bank of Canada]

Two questions for you. You noted higher metal input costs and the unplanned equipment maintenance at both the renewable and solar side as the primary drivers for the pressure and the semi segment. Could you help us think about the relative impact of both those factors as it pertains to margins?

[Richard Perron, President and CEO at 5N Plus]

Alban.

[Alban Fournier, CFO at 5N Plus]

We assess that both factors, the higher metal input costs and the operational difficulties, have had a fairly equal impact on our gross margin during the second quarter of the year. It's been fairly well shared between both parameters.

[Baltej Sidhu, Analyst at National Bank of Canada]

Great. I think Richard had noted that the unplanned maintenance is temporary. How much of an impact could we see in the second half of the year and by extension, did it have any impact on the backlog and decision to maintain guidance?

[Richard Perron, President and CEO at 5N Plus]

At this point in time, we don't foresee any impact from a delivery perspective in H2. All of our people applying themselves, obviously, on the remaining issues, improving our preventing plan, better staffing our night and weekend shifts. Everyone is applying themselves to turn this around. We continue to say it's a temporary measure with no expected impact from a shipment perspective in H2.

[Baltej Sidhu, Analyst at National Bank of Canada]

Great. Turning over to the ongoing capacity expansions, how much of an impact did it have on margins in Q2? Would it be correct to think of it as not being able to attribute it to unabsorbed overhead?

[Richard Perron, President and CEO at 5N Plus]

I'm not sure I missed the beginning of your question there, Baltej, sorry.

[Baltej Sidhu, Analyst at National Bank of Canada]

Oh, yeah. How much of an impact did the ongoing capacity expansions have on the margins? Is it accurate to assume that this is largely attributable to unabsorbed overhead?

[Richard Perron, President and CEO at 5N Plus]

Yeah, exactly. It's a combination of unabsorbed overhead and also extra maintenance expenses. Okay. That's how we come up with, as Alban just mentioned earlier, the actual impact in Q2 was pretty balanced between the two. A combination of it. In the case of the equipment, a combination of extra maintenance expenses and as you just referred to, unabsorbed operating costs during the period.

[Baltej Sidhu, Analyst at National Bank of Canada]

Fantastic. The last one for me is just on the PM side, and we've noted in the past few quarters, we expect the pricing to normalize. Would you say that Q2 represents a reasonable run rate for the business, or could we see incremental pressure just given what you're seeing in the market as of today?

[Richard Perron, President and CEO at 5N Plus]

In the case of Performance Materials going forward, it will depend in large to the actual product and client mix to be realized over H2. Q2 was particularly low. Okay. Going forward, I guess, a gross margin around the year to date could be used for the moment. Okay. The tricky part remains chemical costs and other costs like this that continues to be on the rise. Nitric acid, caustic soda and all of those chemicals that we're using are on the rise. That's the unknown part. From a forecasted client and product mix at this point in time, the year-to-date gross margin could be used as an assumption for H2 on performance materials.

[Baltej Sidhu, Analyst at National Bank of Canada]

Got it. Understood. Thank you again, Alban and Richard, I'll pass the line. Thanks.

[Alban Fournier, CFO at 5N Plus]

Thank you.

[Operator]

Your next question comes from Amr Ezzat from Canaccord Genuity. Please go ahead.

[Amr Ezzat, Analyst at Canaccord Genuity]

Good morning. Thanks for taking my questions. Maybe just on the equipment. I think, Richard, your comments suggested that some, but not all of it has been resolved. Did I misunderstand? Can you help us understand, are these issues a function of the operational intensity associated with the significant volume and capacity ramp, or can you just tell us what's the nature of the equipment issues you've had?

[Richard Perron, President and CEO at 5N Plus]

Well, we've been integrating a number of equipment, new equipment in the sense, new design and else. All of that at the same time, we've been integrating a large number of new employees. We're pushing every equipment we have close to its limit. Okay? While in parallel, we continue to increase capacity by adding additional equipment to meet demand of 2027, and so on and so forth. It's really a combination of large number of new equipment, new equipment with different designs and operating parameters, a large number of new employees. We need definitely to better staff our night and weekend shifts, and we need to improve our preventive maintenance in light of those new equipment and parameters that we're working with today.

[Amr Ezzat, Analyst at Canaccord Genuity]

Understood. Are they largely resolved? I understand you won't have any issues delivering, but are these equipment issues largely resolved?

[Richard Perron, President and CEO at 5N Plus]

Most of them, but we still have issues here and there, throughout the different product lines that we have. All of those issues are being addressed by some key members of the team and else, and with the support of external contractors and else. We're bringing on board a bit more larger number of spare parts, for example, and all of these things. Look, we used to operate manufacturing operations with various sites. Look, it's more challenging because there are more equipment, as I've just said, new design and else and all. Look, we're addressing all of those issues. We have contingency plans. On that basis, we don't see any foreseen challenge issue or risk of not making required shipments in H2.

[Amr Ezzat, Analyst at Canaccord Genuity]

Fantastic. Your revenue is obviously extremely strong, significantly ahead of expectations. We spoke to EBITDA was only modestly ahead because of some of the issues you've outlined. I'm wondering how much of the revenue upside actually came from higher physical volumes versus the metal prices, and sometimes you've got contractual pass-throughs, so they could inflate your sales and they're just pass-throughs. Would you quantify the strong revenues as really mostly volume-driven, i.e., very high quality?

[Richard Perron, President and CEO at 5N Plus]

As we've mentioned, in the case of bismuth, clearly volume. Okay? Same thing with renewable energy, and to a smaller extent, because of different operational challenges, a smaller extent our space solar business. Overall, volume is the main factor behind the increase in revenue.

[Amr Ezzat, Analyst at Canaccord Genuity]

Fantastic. Maybe one last one for me. On CapEx, I'm just looking at the year to date. You guys are approximately $17 million, I appreciate there's some of the equipment issues that you've outlined. I believe that you said you guys are building redundancy as well. I believe a couple of quarters ago, you guys mentioned the 2026 output for CapEx would be similar to 2025 at $20 million or $21 million. Do you guys have a revised sort of full-year expectation for us?

[Richard Perron, President and CEO at 5N Plus]

On a net cash-out basis, considering that some of the equipment that we'll be adding in the U.S. is supported by a government grant, the value remains valid at this point in time. We did, though, we've brought on board different equipment earlier in the year than later this time in order to be ready to address 2027 volume requirements.

[Amr Ezzat, Analyst at Canaccord Genuity]

Fantastic. Congrats on the very strong revenues. I'll pass the line.

[Operator]

Your next question comes from Michael Glen from Raymond James. Please go ahead.

[Michael Glen, Analyst at Raymond James]

Hey, Richard. Just hoping that you can dig into some of the backlog that you're looking at in terms of the AZUR project wins right now. We've been reading a lot about these space-based data centers. Are you seeing any projects come in with those type of build-outs?

[Richard Perron, President and CEO at 5N Plus]

The data centers in space, those are still under development. It will take probably a couple of years before you actually see those being launched and else. At this point in time, it's too early. As I've said in our introduction, in terms of bids that we've placed in this first half of the year on a dollar basis, it's at least twice the dollar amount compared to last year's same period. To our knowledge, none of those are specific to data centers. Based on our intel of the market, this is still under product development space.

[Michael Glen, Analyst at Raymond James]

Are you, in AZUR, are you able to indicate, did you add new customers in the segment this quarter?

[Richard Perron, President and CEO at 5N Plus]

New customers? No, I cannot say specifically. We've been supplying for years all of those primaries that are subcontractors, and there's been a few newcomers in the last two, three years, but for most of them, if not all of them, they're already clients of AZUR SPACE.

[Michael Glen, Analyst at Raymond James]

Okay. Then just on the renewable side, or I'm not sure if it translates to the space side as well. Can you give an update on where your product line sits with perovskite and the timeline associated with some, for any significant increase in perovskite volumes from 5N Plus?

[Richard Perron, President and CEO at 5N Plus]

Well, currently the strategy for the company is to focus on the individual elements making up perovskite rather than the actual encapsulation technology or else, okay. At this point in time, it's still early stage for the outside China to introduce perovskite as a tandem material. It's still early stage. We believe before any meaningful volume, an introduction of perovskite in a commercial phase, we're still most likely a year or two away.

[Michael Glen, Analyst at Raymond James]

Okay. Is this is only applicable to terrestrial, or would it be applicable to both space and terrestrial?

[Richard Perron, President and CEO at 5N Plus]

It could be applied on both, for terrestrial applications are a lot more advanced in terms of introduction.

[Michael Glen, Analyst at Raymond James]

Okay. Thank you.

[Operator]

Your next question comes from Daniel Lavoie, from Ventum Financial. Please go ahead.

[Daniel Lavoie, Analyst at Ventum Financial]

Good morning, Richard, Alban, Stefano. I got two questions to start. One is the overall capacity expansion, and the recent issues surrounding unplanned maintenance. Just wondering if that makes you think differently about the pace of capacity expansion. When looking at AZUR's end customer, what needs to happen for you to see accelerating demand and give you confidence in taking a bolder move in term of adding more capacity?

[Daniel Lavoie, Analyst at Ventum Financial]

The second question is related to guidance. When looking at the guidance for 2026, obviously the very strong half at $55.8 million of realized EBITDA in H1, it kind of implied like a flattish EBITDA dollar into H2, despite the strong revenue momentum. I understand there's some couple of quarter, for pass-through for the hourly metal input cost, but can you just help us understanding the math for the margin over there? Thank you.

[Richard Perron, President and CEO at 5N Plus]

Okay. On capacity expansion, same approach that we've been applying ourselves to in the last two, three years. In line with earning contracts, we're reassessing the capacity that we need to have installed, we take at that point in time, the appropriate measures to add capacity. That's the approach we'll continue to apply. We'll try to correlate as much as we can, order taking with capacity investments. That's for the first question.

[Richard Perron, President and CEO at 5N Plus]

In terms, you had a question on forward-looking. Look, we continue to take a prudent approach. On KF, we continue to take a prudent approach. It's a complex environment. We see a lot of inflation across many regions. As you know, those factors continue to contribute to ongoing uncertainty and often with a very limited warning to us. Forward-looking for the second half, we take a prudent approach, and we anticipate a certain lag, especially for metal input costs in order to recover.

[Daniel Lavoie, Analyst at Ventum Financial]

Thanks. Lastly, if I may. Is the CDSC line up and running right now in Montreal?

[Richard Perron, President and CEO at 5N Plus]

CDSC. Sorry. At this point in time, the plan is to have it to start running at some point in the second half, most likely around the end of Q3. Okay. We currently have products that are being pre-qualified, but the ramp-up and the formal qualification will occur later in the second half of this year.

[Daniel Lavoie, Analyst at Ventum Financial]

Thank you. Have a good day. Thanks.

[Operator]

Your next question comes from Nick Boychuk from ATB Cormark. Please go ahead.

[Nick Boychuk, Analyst at ATB Cormark]

Thanks. Morning, guys. Curious, you mentioned that some of the larger constellations you're bidding on, the size of the backlog, the RFP. What makes these either interesting to you guys? Is there something about the characteristic, either the style of constellation, size of the opportunity? Just looking for a little bit of color, especially as that pertains to the mixed comments that you made this quarter about how AZUR had positive mix.

[Richard Perron, President and CEO at 5N Plus]

Look, it's quite diversified in terms of, referring to the high number and the high dollar value of the bid. It's highly diversified as to the clients and the end constellation and/or satellite programs. It varies a lot. There's nothing very specific that came up in H2 other than it's a large number with large dollars of bids that have been placed.

[Nick Boychuk, Analyst at ATB Cormark]

Okay. Anything in terms of the industry, though? Is everyone still acting rationally and sort of behaving as you would expect, or are you starting to see a little bit more increased demand, either regionally, by constellation, by customer?

[Richard Perron, President and CEO at 5N Plus]

No, at this point in time, the distribution region analysis is similar to what we've been experiencing for the last couple of years. It's just the number of the dollar values that have been, as I've just said, at least twice this first half of the year compared to the same period last year.

[Nick Boychuk, Analyst at ATB Cormark]

Okay. On the metal passthrough, what's the timing and the lag that you expect you'll be able to recover some of those costs?

[Alban Fournier, CFO at 5N Plus]

The metal passthrough, we expect it to happen with at least two quarter lags and in the partial way, it won't be 100%. We are at the point where we see the margin for Q2 2026 being extended in the second half of the year within approximately one percentage point.

[Nick Boychuk, Analyst at ATB Cormark]

Okay. Thanks, Alban. Is it fair to assume then on that comment that the normalized margins this quarter, excluding the unplanned maintenance and the price impacts of the metals, it would have been about two percentage points higher than where it currently landed?

[Richard Perron, President and CEO at 5N Plus]

Mathematically, assuming it's about half, that's our estimate.

[Alban Fournier, CFO at 5N Plus]

Yeah, that would work.

[Nick Boychuk, Analyst at ATB Cormark]

Okay. Excellent. Thanks so much, guys.

[Operator]

Your next question comes from Nelson Ng from RBC Capital Markets. Please go ahead.

[Nelson Ng, Analyst at RBC Capital Markets]

Great. Thanks, good morning, everyone. Your comment in terms of adding a lot of equipment and lots of employees, just to clarify, that's in the terrestrial renewable energy side or both renewables and AZUR SPACE as well?

[Richard Perron, President and CEO at 5N Plus]

It's almost equally attributable to both terrestrial and space.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay. Got it. I think you mentioned that the ramp-up in the AZUR SPACE side is taking place in the second half of the year. On the renewable energy side, obviously you have more volumes with the First Solar over the next few years as well as starting last year. Is that ramp pretty gradual over last year, this year, and the next two years?

[Richard Perron, President and CEO at 5N Plus]

This year we definitely have more volume than last year, for the coming two years, we'll have more volume, not of the same magnitude in terms of incremental volume if you compare it to 2025 to 2026.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay.

[Richard Perron, President and CEO at 5N Plus]

2026 is a bigger volume.

[Nelson Ng, Analyst at RBC Capital Markets]

each year we'll have more volume.

[Richard Perron, President and CEO at 5N Plus]

Yeah. 2026 is a bigger volume increase, and then 2027 and 2028 are also increased volume but have a smaller scale.

[Nelson Ng, Analyst at RBC Capital Markets]

Got it. Okay. Just on the balance sheet, net debt was standing at around $24 million. It sounds like you are on track to be roughly net debt-free by the end of the year. I think you commented that working capital will be consistent with the revenue increases. Is that correct?

[Alban Fournier, CFO at 5N Plus]

Yeah, that's correct.

[Richard Perron, President and CEO at 5N Plus]

It's going to be aligned with growth plus or minus, obviously, some additional investment we may make in terms of safety stock.

[Alban Fournier, CFO at 5N Plus]

Yeah.

[Nelson Ng, Analyst at RBC Capital Markets]

Got it.

[Alban Fournier, CFO at 5N Plus]

Essentially in line with revenue growth.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay.

[Alban Fournier, CFO at 5N Plus]

Whatever specific action we need to take for safety inventory or strategic inventory, but roughly in line with revenue.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay. Then I know you previously talked about M&A opportunities and how you want to find the right opportunity sometime this year. Can you just talk about the environment now? Obviously there's been a bit of a pullback in valuations in some sectors, including the space-related sector. Can you just talk about some of the opportunities you're seeing, whether the environment has improved?

[Richard Perron, President and CEO at 5N Plus]

Look, we continue to scour markets for M&A opportunities. Obviously, despite some corrections, as you referred to, in the space industry, it remains across many sectors that we cover quite high still today. We continue to be very optimistic to get our hands on something accretive and strategic to 5N Plus. Things are definitely expensive still today.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay. Got it. There's one last question. Just marine shipping costs. I don't know how big of an exposure you have on shipping costs, but since the Iran war, can you just talk about how that has impacted your transportation costs?

[Alban Fournier, CFO at 5N Plus]

You're talking about the increased shipping costs-

[Nelson Ng, Analyst at RBC Capital Markets]

Right

[Alban Fournier, CFO at 5N Plus]

That we see right now in the market. I think we cannot single out this factor, but overall it contributes to the increase we see in our chemical products, generally speaking. It's one factor which we cannot single out, but which is a contributor.

[Nelson Ng, Analyst at RBC Capital Markets]

Okay. Got it. I'll leave it there. Thank you.

[Operator]

Your next question comes from Frédéric Tremblay from Desjardins Capital Markets. Please go ahead.

[Frédéric Tremblay, Analyst at Desjardins Capital Markets]

Thank you. Good morning.

[Alban Fournier, CFO at 5N Plus]

Hi. Good morning.

[Frédéric Tremblay, Analyst at Desjardins Capital Markets]

On the two-quarter lag to recover higher metal costs, I'm just curious, is that a lag because the metal prices went up so fast that it's going to be more gradual to implement price actions, or is it more contractual in nature? Just trying to better understand the two-quarter dynamic there and what's going on.

[Richard Perron, President and CEO at 5N Plus]

It's a combination of both. Obviously, the speed and the magnitude plus after that, the recovery depends on a per product, on a per client basis, so contractual.

[Frédéric Tremblay, Analyst at Desjardins Capital Markets]

Perfect. Just on the bidding environment, you mentioned for AZUR that things are going well on that front. I'm just wondering about competitive discipline, meaning is the higher metal environment being properly reflected in new contracts and new bids across the industry, or are we kind of resetting to a different margin level given the metal environment?

[Alban Fournier, CFO at 5N Plus]

I think, as Richard mentioned, there is a way to structure contractually our growth. We're working on it. There will be a capacity to pass through metal costs with a delay and with a certain percentage. We are building that through our growth.

[Frédéric Tremblay, Analyst at Desjardins Capital Markets]

Okay. Last question, just on the U.S. germanium refining capacity expansion and the grant that you received or announced, do you have an update on that, on how that's progressing?

[Richard Perron, President and CEO at 5N Plus]

It's progressing as per plan. It's a fairly large project at the end, so we're expanding the building that we're in today. We started to receive some additional equipment. We have ordered more equipment that is on its way. To complete the project, it's going to take probably close to a year and a half, two years. Gradually we're adding more capacity and capabilities from one quarter to the next. Actually, it's all as per plan.

[Frédéric Tremblay, Analyst at Desjardins Capital Markets]

Okay. That's all I have. Thank you.

[Operator]

Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

[Jonathan Goldman, Analyst at Scotiabank]

Hey, good morning, guys, and thanks for taking my questions. I just wanted to clarify a couple points on the margin discussion. Gross margin was down 430 basis points year-on-year, and you're saying half of that was due to the unplanned maintenance. Is that correct?

[Richard Perron, President and CEO at 5N Plus]

Yeah.

[Alban Fournier, CFO at 5N Plus]

Yeah. That's about that. Yeah.

[Jonathan Goldman, Analyst at Scotiabank]

Okay. When do you think you would recover that impact? Would it be a couple of quarters, few quarters? The unplanned maintenance part of the overhead efficiencies from that, when would that be resolved?

[Richard Perron, President and CEO at 5N Plus]

Okay. Unplanned maintenance and else, we're applying ourselves to resolve the remaining, let's say, issues that we have. Okay? For us, this is temporary, and we have mitigation plans and else, and we don't foresee any issue in order to realize contracts on hand in H2. Metal is a bit tricky because, as I've said earlier, it varies from product and clients, and by default, also contracts that are different depending on the business lines and clients and products. For that, we take a prudent approach, and we see at least two quarters for that to be resolved.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, that makes sense. Maybe I missed this in the prepared remarks, did you mention additional margin pressure before we come back to the normalized margins when you recover the metal prices?

[Richard Perron, President and CEO at 5N Plus]

Nothing specific other than, look, it's a complex environment and inflation, chemicals, energy, and else can occur with a limited warning. That's why we continue to take a prudent approach on our guidance and forecast for the second half of the year.

[Jonathan Goldman, Analyst at Scotiabank]

Alban, I missed your comment. You said the margins in the second half being where the Q2 level is within 1%. Is that correct?

[Alban Fournier, CFO at 5N Plus]

Yeah, that's the view that we currently have, that the gross margin that we've seen for Q2 would probably be a good projection for the second half, within a one percentage point band.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, understood. Then very strong growth in Performance Materials on the revenue line. I've always thought of this business as a GDP type of growing business, and I think, Richard, you mentioned a lot of that was supported by volume. I'm just trying to understand what's supporting the strong growth there, and how should we think about the balance of the year in terms of the top line and Performance Materials?

[Richard Perron, President and CEO at 5N Plus]

Typically, historically, if you look at a numerous number of years, Performance Materials would typically do better in the first half than the second half with many of our clients under that segment, I guess, reducing the inventory at year-end to show a better balance sheet and else. Typically, historically, the first half from a volume perspective has always been better than the second half. That's essentially what we anticipate will happen again this year.

[Jonathan Goldman, Analyst at Scotiabank]

Okay. Makes sense. On AZUR, can you give us an update on the order book? How much of the order book is fully booked in 2027, and how much orders are you currently taking to 2028 and maybe beyond?

[Richard Perron, President and CEO at 5N Plus]

Look, at this point in time, 2026 is sold out, 2027 is sold out. We continue, obviously, we're assessing opportunities to increase further capacity for 2027. At this point in time, we're working out scenarios for 2028, 2029, and 2030 forward.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, perfect. Maybe one more for me, if you could just remind us your capital allocation priorities. Balance sheet's in great shape. It got better. I think an earlier analyst mentioned, maybe leverage neutral by the end of the year, how do you evaluate M&A versus buybacks here, organic growth, and what's the runway for organic growth to expand capacity further?

[Richard Perron, President and CEO at 5N Plus]

With no surprise, I'll let Alban complement, with no surprise, organic growth, proper inventory levels is the priority at this point in time, because as you know, commercially, we have a lot of visibility and we need to fulfill those contracts.

[Alban Fournier, CFO at 5N Plus]

Just to complement that, as I've said, we're making room in our balance sheet. We continue to scan for M&A opportunities. We want to have the room and the capability to make a valuable acquisition if it presents itself.

[Jonathan Goldman, Analyst at Scotiabank]

Is there any update on the M&A pipeline? Has anything become more interesting lately?

[Alban Fournier, CFO at 5N Plus]

There is nothing specifically.

[Richard Perron, President and CEO at 5N Plus]

No, we have obviously a list of files that we do spend more time than others, but nothing that we can communicate this morning.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, fair enough. Thanks for taking my questions. I'll get back in queue.

[Richard Perron, President and CEO at 5N Plus]

Thank you.

[Operator]

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from Baltej Sidhu from National Bank of Canada. Please go ahead. Baltej.

[Baltej Sidhu, Analyst at National Bank of Canada]

Sorry, had myself on mute there. Thanks again for taking my question. I just wanted to quickly ask on AZUR, and other product lines you may be considering, just the number of satellites that are looking to be set up into orbit over the next, call it 10 years. Right now you're tackling true LEO, MEO, and GEO. Are you looking at opportunities within the VLEO market? How should we think about the product suite that could culminate?

[Richard Perron, President and CEO at 5N Plus]

At the present time, as you know, our technology are referred to as III-V multi-junction solar cells, applied to what I often refer to as true LEO, MEO, GEO distances from Earth. Are we contemplating adding a new product line to address the VLEO market? Maybe, but nothing confirmed or very concrete this morning. We continue to focus on high-end applications for our solar cell.

[Baltej Sidhu, Analyst at National Bank of Canada]

Great. Thank you. I'll pass the line.

[Operator]

There are no further questions at this time. I will turn the call back over to Richard Perron for closing remarks.

[Richard Perron, President and CEO at 5N Plus]

Look, I would like to wish you all a good day, and thanks for being with us this morning.

[Operator]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Participants

Executives

• Stefano Bertolli, Director of Communications and Corporate Affairs
• Richard Perron, President and CEO
• Alban Fournier, CFO

Analysts

• Baltej Sidhu, Analyst at National Bank of Canada
• Amr Ezzat, Analyst at Canaccord Genuity
• Michael Glen, Analyst at Raymond James
• Daniel Lavoie, Analyst at Ventum Financial
• Nick Boychuk, Analyst at ATB Cormark
• Nelson Ng, Analyst at RBC Capital Markets
• Frédéric Tremblay, Analyst at Desjardins Capital Markets
• Jonathan Goldman, Analyst at Scotiabank