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Introduction & Market Context
Velan Inc. (TSX:VLN) presented its first quarter fiscal 2026 results on July 11, 2025, highlighting solid performance with significant sales growth and an increased dividend. The industrial valve manufacturer reported a cash position exceeding $59 million, its highest level in five years, despite a slight decline in the company’s stock price, which closed at $13.97 on July 10, down 0.21%.
The presentation, titled "Leveraging Our Strengths," outlined how Velan is capitalizing on growing demand in key markets including nuclear energy, China, and the Middle East, continuing momentum from its strong fiscal 2025 performance when annual sales reached $295 million.
Quarterly Performance Highlights
Velan reported Q1-FY2026 sales of $72.2 million, representing an 18.6% increase compared to $60.9 million in the same quarter last year. This growth rate significantly outpaces the 14.1% annual growth achieved in fiscal 2025, suggesting accelerating momentum.
The company’s gross profit reached $20.6 million, a $3.8 million increase versus the prior year, with margins improving by 100 basis points to 28.6% of sales. This improvement was attributed to higher business volume and a more favorable product mix.
As shown in the following sales distribution chart, the Asia Pacific region drove much of the growth, increasing to 49.1% of total sales compared to 40.5% in Q1-FY25:
Adjusted EBITDA rose to $4.0 million, a $1.2 million increase compared to the prior year, though this figure excludes $5.7 million in restructuring costs. The improvement in adjusted EBITDA was primarily due to higher gross profit, partially offset by increased administration costs.
The following chart illustrates the company’s gross profit and adjusted EBITDA performance:
Strategic Growth Initiatives
Velan identified several key growth markets in its presentation. In China, the company reported heightened traction as traditional power consumption booms, positively affecting business. The company noted that most output in China is sold domestically, insulating it from U.S. tariff exposure.
The Middle East represents another significant opportunity, described as "poised for solid growth" as the largest market for oilfield valves. Velan has established a joint venture in Saudi Arabia to strengthen its presence in the region and recently achieved important qualification standards, resulting in its first significant production order.
The company also emphasized its bullish outlook on the nuclear market, where it’s working with key players in both standard and small modular reactors (SMRs). While revenue recognition cycles are longer in this sector, management expects to announce expanded agreements in the near future, noting that nuclear energy is increasingly relied upon as a viable alternative to fossil fuels.
Additionally, Velan is leveraging its maintenance, repair, and overhaul (MRO) opportunities, citing a vast installed base across several industrial markets and a 90% penetration rate at oil refineries in North America. This business generates a steady flow of orders that can be quickly converted into sales.
Financial Position and Outlook
Velan reported a backlog of $286.1 million as of May 31, 2025, with $241.3 million deliverable within the next 12 months. This represents the highest backlog recorded during the period analyzed and includes an increasing number of long-term contracts for the nuclear and defense sectors.
The following chart shows the company’s backlog and bookings trends:
Despite strong sales performance, the company reported negative cash flow from operating activities of $15.5 million for Q1-FY26, compared to positive $12.0 million in Q1-FY25. This decline was attributed to transaction-related costs of $6.1 million and negative changes in non-cash working capital.
The financial position chart shows Velan’s cash and debt levels:
In a significant move reflecting confidence in future performance, the Board of Directors approved a change in dividend policy, increasing the quarterly dividend to CA$0.10 per share. This decision was based on the growing backlog and confidence in future financial performance and ability to sustain strong cash flow.
Forward-Looking Statements
Chairman and CEO James A. Mannebach emphasized that the company’s strong financial cushion will enable it to review strategic options, balancing long-term growth objectives and shareholder returns. This aligns with comments from the previous earnings call where then-CEO Jim Leinbach described fiscal 2025 as "a vintage year for Velan, marked by strong profitable growth."
The company’s focus on the nuclear energy sector appears to be continuing from fiscal 2025, with expectations of accelerated orders in this segment. The presentation also highlighted potential growth in China and the Middle East, suggesting these regions will play an increasingly important role in Velan’s global strategy.
While the presentation emphasized positive developments, investors should note the negative cash flow from operations in Q1-FY26, which contrasts with the doubled cash flow reported for the full fiscal year 2025. This suggests potential volatility in working capital requirements that may impact short-term financial performance despite the overall positive trajectory.
Full presentation:
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