On Friday, Velan (TSX:VLN) discussed first-quarter financial results during its earnings call. The full transcript is provided below.

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Summary

Valens Semiconductor Ltd reported sales of $57.8 million and bookings of $48 million, with a backlog of $275 million, 70% of which is expected to be delivered in the next 12 months.

The company is advancing a transformation plan to optimize operations, modernize facilities, and expand market share across nuclear, defense, energy, and other critical markets.

Strategic initiatives focus on cost discipline, improving operating leverage, and ensuring the cost base supports long-term profitable growth.

In nuclear power, Valens is positioned to benefit from the growing demand for low-carbon energy and investment in reactor projects, supported by Canada's Nuclear Energy strategy.

Defense sector opportunities are driven by rising global security concerns, with the company pursuing naval modernization programs and nuclear propulsion valve applications.

Financial performance was impacted by geopolitical and regional conflicts, leading to deferred shipments and reduced bookings, particularly in North America.

First-quarter sales decreased to $57.8 million from $72.2 million last year, with gross profit declining to $11.4 million due to lower business volume and increased provision costs.

The company ended the first quarter with $34.6 million in cash, a new $80 million credit facility, and plans to use it to accelerate strategy execution and invest in core capabilities.

Full Transcript

Rishi

The factors impacting our performance were external in nature, primarily relating to geopolitical and regional conflicts and its effect on our customer activity, order timing, and shipment schedules. Bookings totaled $48 million and sales were $57.8 million, while our backlog remains solid at $275 million, with approximately 70% expected to be delivered over the next 12 months. Certain shipments were deferred as a result of these external factors and they are expected to be realized in future periods.

At the same time, there are areas within our control where we see opportunities for improvement. Cost discipline remains a core priority for Verlant and we continue to focus on right-sizing our cost structure to improve operating leverage as the business grows. While we have made meaningful progress, we remain committed to driving further efficiencies across the organization and ensuring our cost base supports long-term profitable growth. Accordingly, we are advancing a transformation plan focused on optimizing our operations, leveraging our global scale, simplifying our organizational structure, and modernizing our facilities as we prepare for anticipated growth across nuclear, defense, energy, and other critical markets. These initiatives are designed to improve execution, enhance delivery performance, strengthen customer service, and support profitable growth. We are also investing in our commercial capabilities to expand market share across our product portfolio. We look forward to providing more details on these initiatives as they progress. In that context, let's turn to slide six where I would like to spend a few moments discussing the outlook for our key markets and why we believe Velan is positioned to benefit from the opportunities ahead.

Nuclear power remains a major growth driver for the Lab, supported by growing demand for reliable low-carbon energy and increasing investment in reactor refurbishments, life extension programs, SMRs, and new build projects. With more than 55 years of nuclear expertise, a global installed base, and leadership across reactor technologies, we are very well positioned to benefit from these opportunities. In Canada, the recently announced Nuclear Energy strategy reinforces the important role of nuclear power will play in meeting future electricity demand, energy security, and economic growth.

The strategy supports both reactor refurbishment and new build opportunities, including SMRs, while promoting Canadian nuclear expertise on the global stage. As a preferred supplier to the CANDU ecosystem and through our long-standing relationship with Atkins Realist, we believe the land is well-positioned to participate in future CANDU refurbishments and new reactor projects in both Canada and internationally. Many of the opportunities in our pipeline are tied to funded projects that are advancing through engineering and procurement stages, including our contribution to the GEB SMR program.

As a result, we expect a meaningful portion to convert into bookings in the near term, with execution occurring largely within the next 24 months and revenue contribution beginning during that period. Turning to Slide 7 in defense, rising global security concerns continue to drive investment in naval modernization programs. Given our leading position in nuclear propulsion valve applications, we are actively pursuing several opportunities that we believe could translate into orders and execution activity over the next two years in oil and gas.

While geopolitical uncertainty affected customer activity, bidding levels remain healthy. Deferred maintenance activity in North America and potential infrastructure investments in the Middle East are creating attractive opportunities. Given our strong market position and our joint venture in Saudi Arabia, we are well-positioned to capture this demand, particularly in shorter cycle MRO opportunities that can convert to revenue more quickly. As anticipated on slide 8, the lab's financial results were affected by the factors discussed earlier.

Order bookings and delivery schedules and related profitability have moved out into future periods. Bookings were constrained by uncertainty and reduced in North America by the MRO activity. Since MRO activities and bookings are frequently converted into sales within the same period, reduced activity and refinery shutdowns in the Middle East had an adverse impact on sales. Shipments were deferred for future periods, but the majority expects to be recaptured by the end of the fiscal year.

Reflecting lower bookings, the order backlog decreased slightly to $275 million with about 70% deliverable over the next 12 months. As anticipated and previously discussed, our backlog is progressively evolving towards a structure that reflects a growing share of longer-duration large-scale contracts, particularly in the nuclear and defense sectors, which increases backlog visibility and extends delivery timelines. Finally, our financial position remains solid with nearly $35 million in cash and cash equivalents on hand.

Additionally, our new credit agreement signed after quarter-end provides us with greater liquidity and flexibility to execute our business strategy going forward. We'd now like to turn the call over to Jamara Gibbons for the financial review.

Jamara Gibbons

Thank you, Rishi, and good morning everyone. Please turn to Slide 9. Our order backlog stood at $275.1 million at the end of Q1, down slightly from the previous quarter due to shipments exceeding bookings during the period. Bookings totaled $48 million in Q1 compared to $78.2 million last year. As mentioned, challenging market conditions resulted in lower bookings in our North American, Italian, and German operations as well as for MRO activity mainly in North America.

Turning to the P and L on slide 10, first-quarter sales totaled $57.8 million compared to $72.2 million last year. The decrease was mainly due to the impact of geopolitical and regional conflicts which resulted in shipments being deferred to subsequent periods. This situation mostly affected volume coming out of our North American and Italian operations by customer geographic location. North America was our principal market in Q1, accounting for 57% of total sales.

Asia Pacific represented our second-largest revenue-generating region with 21% of sales, while Africa and the Middle East was third at 16%. Turning to slide 11, gross profit was $11.4 million or 19.6% of sales versus $20.6 million or 28.6% of sales in the prior year. The decrease primarily reflects the impact of lower business volume on the absorption of fixed production overhead costs as well as a $1.3 million increase in our provision. Excluding this factor, gross profit was approximately 22% of sales.

Administration costs totaled $15.7 million compared to $18.3 million a year ago. The reduction is attributed to cost reduction initiatives and lower sales commissions. Adjusted EBITDA, which excludes restructuring expenses and non-recurring provision adjustments, was a negative $2.1 million compared to a positive $3.8 million last year. The decrease reflects lower gross profit partially offset by lower administration costs. As a result, the adjusted net loss was $6.9 million compared to an adjusted net income of $0.1 million in the prior year.

Turning to cash flows on Slide 12, cash used by operating activities before net change in provisions was $17.4 million compared to $15.5 million last year. This year's unfavorable cash variation reflects negative changes in non-cash working capital items, mainly decreases in accounts payable and accrued liabilities as well as in short-term customer deposits. These factors were partially offset by lower inventories. The increase in working capital is primarily attributed to operational factors that have temporarily increased the amount of capital invested in the business, such as securing material procurement ahead of executing long-term contracts.

Efforts remain focused on improving working capital efficiency through inventory management, timely collection of receivables, and optimization of cash flows. We concluded the first quarter with a solid financial position. Cash and cash equivalents totaled $34.6 million as of May 31, 2026, while long-term debt stood at $16.8 million and bank indebtedness at $17.6 million. Subsequent to the end of the quarter, we secured a new five-year $80 million revolving credit facility with a major Canadian chartered bank.

This facility strengthens our capital structure by increasing available liquidity and lowering our cost of capital. Proceeds were used to repay existing North American debt. The new facility in place provides us the flexibility to accelerate the execution of our strategy and to invest in our core capabilities to sustain profitable growth and create long-term value for our shareholders. I now turn the call over to Rishi for his concluding remarks.

Rishi

Thank you, Imran. Turning to my closing remarks on slide 13, we are entering an exciting new chapter in Velan's 75-year history. We have a solid balance sheet, a growing backlog of strategic projects, and a strong opportunity pipeline. We are well-positioned to execute strategy and create long-term value across our core nuclear, defense, and energy markets. We continue to see attractive opportunities supported by favorable long-term fundamentals.

Importantly, many of these opportunities are advancing through engineering and procurement stages, providing us visibility towards future bookings and execution activity. At the same time, we are advancing our transformation program focused on operational excellence, cost optimization, and profitable growth. By improving execution, enhancing our commercial effectiveness, modernizing our operations, and leveraging technology across the organization, we are positioning Velan to better serve our customers and capture growth opportunities.

While near-term market conditions remain dynamic, we are confident in our long-term outlook and in our ability to build a stronger, more competitive, and more profitable company. I now turn the call over to the operator for the Q and A session.

OPERATOR (Operator)

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press Star followed by the one on your Touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please. There are no questions at this time.

I will now turn the call over to Rishi for closing remarks.

Rishi

Thank you, Operator. Thank you, everyone, for joining us today. We look forward to sharing with you our second-quarter results in October. I wish you a wonderful and safe summer and also note that we'll be hosting our annual General Meeting of Shareholders on Tuesday, August 25, 2026, at 4:30 pm to be held in virtual format. Thank you to all and have a great day.

OPERATOR (Operator)

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

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.