Mr. James Mannebach reports

VELAN INC. REPORTS ITS FISCAL 2024 THIRD QUARTER FINANCIAL RESULTS

Velan Inc. has released its financial results for its third quarter ended Nov. 30, 2023. All amounts are expressed in U.S. dollars unless indicated otherwise.

Third quarter results:

• Sales of $80.9-million, down $14.3-million or 15.0 per cent compared with last year, but up $600,000 or 0.8 per cent from the second quarter of the current fiscal year;
• Gross profit of $16.4-million, or 20.2 per cent of sales, compared with $29.0-million, or 30.4 per cent of sales, last year;
• Net loss (1) of $7.3-million compared with net income (1) of $2.7-million last year;
• Net new orders (bookings) (2) of $78.3-million, compared with $99.2-million last year;
• Order backlog (2) of $485.0-million at quarter-end, up $20.7-million or 4.5 per cent since the beginning of the year;
• Net cash of $26.4-million at the end of Q3, versus $39.4-million three months ago. Liquidity remains strong with $97.5-million of available cash on hand and credit facilities;
• Following the termination of the arrangement agreement with Flowserve, after an eight-month interim period, the company resumes its objectives as an independent organization with a renewed focus on profitable growth.

"Velan's third-quarter results reflect reduced revenue in North American operations, which contrasted with the shipment of large orders during the same period last year," said James A. Mannebach, interim chief executive officer and chairman of Velan. "Our global presence, however, represents a significant competitive advantage, and bookings have been robust in Europe, particularly for nuclear orders in France, and oil and gas contracts at our Italian operations. As a result, our backlog has increased 4.5 per cent to $485.0-million since the beginning of the fiscal year, and we expect shipments to accelerate in the fourth quarter driven by the execution of these projects.

"Velan is resuming its focus on growth and is confident about its future opportunities worldwide. Our short-term priority is to strengthen the organization following the termination of the acquisition agreement with Flowserve Corp. Supported by an agile work force, global presence and solid brand reputation, we are well positioned to expand our reach in the flow control industry. As a supplier of critical equipment to essential industries, we expect sustained demand for our products steered by energy transition trends, while maintenance and repair activity should continue to provide a steady revenue stream. Over the longer term, we are committed to building shareholder value through sales and cash flow growth," concluded Mr. Mannebach.

Fiscal 2024 third quarter results

Sales amounted to $80.9-million, down $14.3-million or 15.0 per cent compared with the same quarter last year. The variation is essentially attributable to a reduction in North American sales due to last year's shipment of a large order for the oil and gas industry, and to lower maintenance, repair and overhaul (MRO) orders as a result of extended transit times for orders going through the Panama Canal. These elements were partially offset by a $1.9-million positive impact on sales from the strengthening of the euro average rate against the U.S. dollar in the quarter.

Gross profit was $16.4-million, down from $29.0-million last year. The variation is due to lower business volume which impacted the absorption of fixed production overhead costs and to the execution of a low-margin project from the backlog. These factors were partially offset by favourable unrealized foreign exchange translations related to the fluctuation of the U.S. dollar against the euro and the Canadian dollar when compared with similar movements in the previous year. As a percentage of sales, gross profit was 20.2 per cent compared with 30.4 per cent last year.

Administration costs amounted to $21.6-million, a decrease of $3.9-million or 15.2 per cent compared with last year. The variation reflects the recording in last year's third quarter of a $3.0-million provision for potential settlement value of future unknown asbestos-related claims and lower freight costs due to a lower sales volume.

Earnings before interest, taxes, depreciation and amortization (2) was negative $2.3-million compared with $6.1-million last year. The variation is primarily attributable to the previously explained decrease in gross profit, partially offset by a decrease in administration costs.

Net loss (1) amounted to $7.3-million, or 34 cents per share, compared with net income of $2.7-million, or 13 cents per share, last year. The variation reflects lower EBITDA (1) and higher finance costs.

Nine-month results

For the nine-month period ended Nov. 30, 2023, sales reached $228.9-million, down from $255.3-million last year. Gross profit amounted to $54.8-million, or 23.9 per cent of sales, compared with $72.5-million, or 28.4 per cent of sales, last year. EBITDA (1) stood at negative $3.2-million, versus $4.6-million in the previous year. Net loss (2) was $17.7-million, or 82 cents per share, compared with a net loss (2) of $8.3-million, or 38 cents per share, a year ago.

Bookings (1) and backlog (1)

Bookings (1) amounted to $78.3-million, a decrease of $20.9-million or 21.1 per cent compared with the third quarter of last year. The variation reflects lower marine orders for the company's North American operations following large orders recorded in the third quarter of last year. This factor was partially offset by higher oil and gas bookings (1) recorded by Italian operations, and by the strengthening of the euro average rate against the U.S. dollar on bookings (1) for European operations, which resulted in a favourable impact of $2.0-million in the third quarter. The book-to-bill1 ratio stood at 0.97 in the third quarter of fiscal 2024, compared with 1.04 a year earlier. Commercial activity remains strong particularly at the company's Italian operations.

For the nine-month period ended Nov. 30, 2023, bookings (1) reached $241.6-million, representing a book-to-bill (1) ratio of 1.06, compared with bookings (1) of $266.1-million, representing a book-to-bill (1) ratio of 1.04 for the corresponding period a year earlier.

As at Nov. 30, 2023, order backlog (2) stood at $485.0-million, up $20.7-million or 4.5 per cent since the beginning of the fiscal year. The increase is primarily attributable to changes in the profile of scheduled backlog (1) shipment dates. The increase is also due to the strengthening of the euro spot rate against the U.S. dollar since the beginning of the fiscal year which represented $7.9-million.

Financial position

As at Nov. 30, 2023, Velan's financial position remained solid with cash and cash equivalents, net of bank indebtedness, of $26.4-million, compared with $50.3-million at the beginning of the fiscal year. Considering unused credit facility, the company had total available liquidity of $97.5-million as at Nov. 30, 2023, compared with $140.9-million as at Feb. 28, 2023. The reduction reflects the use of cash and borrowings on the revolving credit facility to finance temporary working capital requirements.

Conference call notice

Financial analysts, shareholders and other interested individuals are invited to attend the third-quarter conference call to be held on Friday, Jan. 12, 2024, at 8 a.m. EDT. The toll-free call-in number is 1-800-954-1053, access code 22028877. 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. A recording of this conference call will be available for seven days at 1-416-626-4100 or 1-800-558-5253, access code 22028877.

About Velan Inc.

Founded in Montreal in 1950, Velan is one of the world's leading manufacturers of industrial valves, with sales of $370.4-million (U.S.) in its last reported fiscal year. The company employs approximately 1,630 people and has manufacturing plants in nine countries. Velan is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

(1) Net income or loss refer to net income or loss attributable to subordinate and multiple voting shares.

(2) Non-IFRS (international financial reporting standards) and supplementary financial measures.

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