Mr. Bruno Carbonaro reports

VELAN INC. REPORTS ITS FIRST QUARTER 2023/24 FINANCIAL RESULTS

Velan Inc. has released its financial results for its first quarter ended May 31, 2023.

Highlights:

• Order backlog1 remains strong at $490.5 million, an increase of $26.2 million or 5.6 per cent since the beginning of the year driven by strong net new orders (bookings) and the lower sales volume reported for the quarter. The portion of the current backlog1 deliverable in the next twelve months is $335.8 million.
• Bookings1 of $91.8 million for the quarter, representing a book-to-bill ratio1 of 1.36. The bookings1 remained relatively stable compared with the previous year.
• Sales for the quarter amounted to $67.7 million, a decrease of $7.3 million or 9.8 per cent compared with the same quarter of the previous fiscal year. The decrease for the quarter is primarily attributable to accelerated shipments in the fourth quarter of the prior fiscal year as a result of customer demand and the Company's increased production ramp-up, delays on certain shipments in the current quarter caused by customer readiness issues, and finally a shortage of deliverable orders in the Company's Italian operations.
• Gross profit for the quarter amounted to $15.1 million or 22.2 per cent, a decrease compared with last year's $20.1 million or 26.8 per cent. The 460 basis points decrease in gross profit percentage is mainly due to the lower sales volume which impacted the absorption of fixed production overhear costs.
• Net loss2 of $8.3 million and negative EBITDA of $3.8 million for the quarter compared with a net loss2 of $7.4 million and a negative EBITDA of $2.9 million last year. The decrease in EBITDA is primarily attributable to the decrease in gross profit, partially offset by a decrease in administration costs.
• The Company's net cash amounted to a solid $58.6 million at the end of the quarter, an increase of $8.4 million since the beginning of the fiscal year driven by continued improvements in operating cash flow generation.

Bruno Carbonaro, CEO of Velan, said, "The start to fiscal 2024 was impacted by temporary shipment delays which negatively affected our results, but we are nevertheless pleased to report a significantly improved cash balance at the end of the quarter, thanks to continued focus on working capital management, pursuing on the trend realized in the last quarter of the previous fiscal year. Our backlog1 also improved this quarter. We are committed to addressing the various operational issues encountered this quarter as execution remains our top priority in a somewhat-challenging environment. Finally, we are dedicating all the necessary resources and efforts to prepare a successful closing of the transaction with Flowserve."

First Quarter Fiscal 2024 (unless otherwise noted, all amounts are in U.S. dollars and all comparisons are to the first quarter of fiscal 2023):

• Sales were lower for the quarter, decreasing by $7.3 million or 9.8 per cent compared with the same quarter last year. The decrease in sales for the quarter is primarily attributable to decreased shipments of large orders in the Company's Italian and French operations. This decrease was caused by accelerated shipments in the fourth quarter of the prior fiscal year as a result of customer demand and the Company's increased production ramp-up, delays on certain shipments in the current quarter caused by customer readiness issues, and finally a shortage of deliverable orders in the Company's Italian operations. The decrease in sales for the quarter was partially offset by increased shipments in the Company's North American operations despite also being faced with multiple customer related issues.
• Bookings1 amounted to $91.8 million, a decrease of $1.6 million or 1.7 per cent compared with the first quarter of last year. This decrease is partially attributable to lower marine orders recorded in the Company's North American operations, partially offset by increased upstream oil and gas and nuclear orders recorded in the Company's Italian and French operations.
• The total backlog1 increased by $26.2 million or 5.6 per cent since the beginning of the fiscal year, amounting to $490.5 million at the end of the quarter. The increase in backlog1 is primarily due to a strong book-to-bill ratio1 of 1.36 as a result of bookings1 outpacing sales in the current quarter.
• Gross profit decreased for the quarter, totaling $15.1 million or 22.2 per cent compared with last year's $20.1 million or 26.8 per cent. The decrease in gross profit percentage for the quarter is primarily attributable to the lower sales volume which impacted the absorption of fixed production overhead costs. The Company's gross profit was also negatively impacted by unfavorable unrealized foreign exchange translations related to the fluctuation of the U.S. dollar against the euro when compared with similar movements from the previous year. Finally, the decrease in gross profit was also due to the unfavorable effect of the product mix delivered.
• Administration costs for the quarter amounted to $21.5 million, a decrease of $4.3 million or 16.7 per cent. The decrease in administration costs for the quarter is primarily attributable to the recording in the last quarter of the previous fiscal year of an asbestos provision for potential settlement value of future unknown claims. The settlement expense in the first quarter of fiscal 2023 amounted to $3.2 million. The decrease in administration costs for the quarter is also due to lower outbound freight costs which have now stabilized and sales commissions in reaction to the lower quarterly sales volume.
• Net loss2 amounted to $8.3 million or $0.38 per share compared with $7.4 million or $0.34 per share last year. EBITDA amounted to a negative $3.8 million or $0.18 per share compared with a negative $2.9 million or $0.13 per share last year. The unfavorable movement in EBITDA for the quarter is primarily attributable to the previously explained lower gross profit, partially offset by the decrease in administration costs. The movement in net loss2 was primarily attributable to the same factors as for EBITDA combined with an unfavorable movement in finance costs, partially offset by a favorable movement in income taxes.

Dividend

The Company opted to declare no dividend this quarter.

Conference call

Financial analysts, shareholders, and other interested individuals are invited to attend the first quarter conference call to be held on Friday, July 7, 2023, at 11:00 a.m. (EDT). The toll free call-in number is 1-800-926-7510, access code 22027398. 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 1-416-626-4100 or 1-800-558-5253, access code 22027398.

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$370.4 million in its last reported fiscal year. The Company employs approximately 1,650 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.

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