Earnings call transcript: Velan Inc. sees growth in nuclear sector in Q4 2025

Velan Inc. reported strong financial results for fiscal year 2025, driven by significant growth in the nuclear energy sector and successful strategic initiatives. Despite a minor dip in its stock price, the company demonstrated mixed financial indicators with annual sales reaching $295 million, marking a 14.1% increase year-over-year. According to InvestingPro analysis, the company currently trades near its Fair Value, with a notably strong cash position relative to debt. The company’s gross profit margin improved significantly to 60.26%, and cash flow from operations more than doubled, highlighting its operational efficiency and strategic focus.

Key Takeaways

• Velan’s annual sales increased by 14.1% to $295 million.
• Gross profit margin improved by 770 basis points.
• Strong focus on nuclear energy with strategic partnerships.
• Stock price declined by 1.97% post-earnings announcement.

Company Performance

Velan Inc. showcased a strong performance for fiscal year 2025, with a notable 14.1% increase in annual sales. The company’s strategic focus on the nuclear energy market, along with partnerships with leading industry players like Bruce Power and GE Hitachi, has positioned it strongly within the sector. The divestment of asbestos-related liabilities and the sale of French subsidiaries have further strengthened Velan’s balance sheet, allowing for a more focused approach on core operations.

Financial Highlights

• Annual sales: $295 million, up 14.1% year-over-year
• Q4 sales: $83.2 million, up 2.9% year-over-year
• Gross profit margin: 28.8%, up 770 basis points
• Adjusted EBITDA: $27.5 million for the year, $3.6 million for Q4
• Cash flow from operations: $26.5 million, more than doubled

Outlook & Guidance

Velan Inc. is optimistic about the future, particularly in the nuclear energy sector, where it expects an acceleration in orders. The company is targeting strategic acquisitions in niche markets to further bolster its growth prospects. A special dividend of CAD 0.30 per share has been declared, reflecting confidence in its financial position and future earnings potential.

Executive Commentary

Jim Leinbach, CEO of Velan Inc., remarked, "Fiscal twenty twenty-five proved to be a vintage year for Velan, marked by strong profitable growth." He also emphasized the company’s strategic focus, stating, "We have emerged after the closing of these two transactions with a sharper focus and stronger balance sheet."

Risks and Challenges

• Potential volatility in the nuclear energy market could impact order volumes.
• Ongoing labor contract negotiations may affect operational costs.
• Geopolitical factors, particularly Canada-US relations, could influence business operations.
• Market saturation in core sectors might limit growth opportunities.

Velan Inc.’s strategic focus on the nuclear energy sector and successful financial maneuvers have set a strong foundation for future growth, despite the slight decline in stock price. The company’s outlook remains positive, with expectations of increased nuclear orders and strategic acquisitions to drive shareholder value in the coming years. For comprehensive analysis including detailed financial health metrics, growth projections, and exclusive ProTips, explore Velan’s complete research report on InvestingPro, part of our coverage of over 1,400 US equities.

Full transcript - Velan Inc. (VLN) Q4 2025:

Joelle, Conference Operator: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valan Q4 and Full Year twenty twenty five Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. This call is being recorded today on 05/22/2025. I will now hand the conference over to your host today, Mr. Rishi Sharma, Chief Financial Officer. You may begin your conference.

Rishi Sharma, Chief Financial Officer, Valan: Thank you, operator. Bonjour, good morning, and thank you for joining us for our conference call. Let’s start by discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first section mentions that the presentation provides an analysis of our consolidated results for the fourth quarter and fiscal year ended 02/28/2025. The Board of Directors approved these results yesterday, 05/21/2025.

The second paragraph refers to non IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph covers forward looking information, which is subject to risks uncertainties that are not guaranteed to occur. Forward looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, unless indicated otherwise, all amounts are expressed in U. S.

Dollars and all financial metrics discussed are from continuing operations. I would now like to turn the call over to Mr. Jim Leinbach, Chairman of the Board and CEO of Vela.

Jim Leinbach, Chairman of the Board and CEO, Valan: Well, you, Rishi. Good morning, good evening, good afternoon to everyone. Fiscal twenty twenty five proved to be a vintage year for Vimant, marked by strong profitable growth and key strategic initiatives that unlock significant shareholder value. From a financial standpoint, we achieved our objective closing fiscal twenty twenty five with sales of $295,000,000 up 14.1% over the prior year, while our gross profit improved by $7.70 basis points to 28.8%. We generated adjusted EBITDA of $27,500,000 up sharply from $2,100,000 a year ago, and importantly, we more than doubled our cash flow from operating activities to $26,500,000 From an operations perspective, the announced sale of our French subsidiaries and divestiture of asbestos related liabilities represent key highlights.

These strategic initiatives, which closed after the fiscal year end, have strengthened our financial position and reduced substantially our risk profile. First, we reached an agreement with Framatome for the sale of all of our French subsidiaries, Valens France and Segol, for a total consideration of $2.00 $8,000,000 including $184,000,000 in cash. We expect to record a gain of approximately $96,000,000 on this transaction in the first quarter of fiscal twenty twenty six, and under a favorable tax basis, the transaction will result in no tax consequences. Second, we closed an agreement with an affiliate of Global Risk Capital for the divestiture of our asbestos related liabilities for $143,000,000 This transaction permanently removed all asbestos related liabilities and obligations from our books and will indemnify us for legacy charges into the future. Under existing accounting standards, we had to record charges totaling $100,000,000 for the divestiture of the asbestos related liabilities and all costs related to both transactions in the current fiscal year, whereas the gain on the sale of the French assets will as noted be reported in the upcoming first quarter.

In short, we have emerged after the closing of these two transactions with a sharper focus and stronger balance sheet. Align remains a global leader in the flow control industry supported by a strong brand and an enviable reputation for designing custom made solutions for very complex applications. Our activities will continue to benefit from strong momentum in nuclear energy, which is undergoing a multi year growth cycle, while remaining firmly entrenched in other industrial markets that value our know how and quality. As for our balance sheet, net proceeds from the closing of these two transactions enabled us to raise our cash position to approximately $55,000,000 on a pro form a basis. Given the solid financial position and mindful of our commitment of returning funds to shareholders, the Board of Directors yesterday approved the payment of a special dividend of $0.03 0 Canadian cents per share, reflecting confidence in our outlook going forward.

This amount will be in addition to our regular dividend payment of 3 Canadian cents per share. Moving to our fourth quarter results on slide five, sales increased nearly 3% year over year to $83,200,000 despite the volatile economic environment and uncertain trade disruptions losing over customers worldwide, largely driven by the tariff developments in The United States. Meanwhile, adjusted EBITDA was 3,600,000 in the fourth quarter, down from last year due in part to lower gross profit margin and mix. Rishi will provide you with more details in his financial review. Shifting to targeted high growth markets on slide six, Volantis poised to reach new heights by leveraging its proven strengths.

We’ve been actively involved in the nuclear market for more than fifty five years. We are well positioned to take advantage of a dynamic sector brimming with new opportunities. For example, several technology companies who are rolling out AI centers on a global basis have joined forces with either established energy providers or startups to deploy nuclear energy through emerging small modular reactor or SMR technologies, while other projects call for recommissioning of existing infrastructure. This is where Blind comes into play. Our recent signings of partnerships with leading actors in nuclear energy such as Bruce Power, GE Itachi, Westinghouse, and Candu bode well for our proprietary valves on a long term basis, as our know how spans both SMRs and standard reactors.

Additionally, our large installed base of valves at existing reactors holds much promise through life extension projects as well as maintenance, repair, and overhaul activity. As a result, we expect an acceleration in nuclear orders over the next few years. This surge may alter our backlog profile with a larger proportion of our orders to be delivered over an extended period, but the sheer size of these deals and margin profiles that reflect greater complexity will benefit our business for many years to come. Turning to slide seven. On the defense side, we expect to gain from heightened spending worldwide as sovereign states address national security concerns.

Our deep knowledge of nuclear, marine, and aircraft carrier propulsion technologies remains unmatched, especially when valves are subject to greater stress and harsher conditions at sea, all within a greatly reduced available footprint. We also offer the most complete technically advanced product line for applications in extreme temperatures. This includes valves designed for extremely low temperatures in liquefied natural gas applications, the cleanest of fossil fuels, as well as for hydrogen process operating at high temperature. These are growth sectors from Valiant driven by efforts to safeguard the environment. In oil and gas, we boast a 90% market penetration at refineries in North America and an expanding presence overseas.

Supplying the most reliable engineered valves and steam traps represents a key differentiator for the planet, as customers worldwide seek lower emissions and better safety. In addition, and importantly, our vast installed base provides significant opportunities for MRO activities and spare parts. For instance, we recently established a joint venture in Saudi Arabia to further strengthen our presence in The Middle East, the largest market for oil field valves, and early wins validate the significant potential of our investment as do our growing order quotation backlog. Finally, we have built a strong presence in mining regions experiencing robust activities such as Southeast Asia, Australia, and South America. We notably see tremendous potential for our expanding titanium valve line that can withstand highly corrosive environments.

Turning to my summary on slide eight, the land delivered an outstanding performance in fiscal twenty twenty five, both from a financial and operational point of view. The company is very well positioned to benefit from increased demand for energy, which should drive momentum for clean sources and most particularly nuclear, where our solid reputation is firmly entrenched other industrial markets around the world. While a portion of our business is exposed to tariffs, particularly some products imported into The U. S, we are well underway to executing plans designed to further optimize our global production capabilities and are evaluating alternative sources for raw materials and components as we work with suppliers to ensure we maintain a strong competitive position. As we celebrate our seventy fifth anniversary, Belan enters fiscal twenty twenty six with a sharper focus and improved balance sheet.

We’ve significantly improved our market cap by approximately a quarter billion Canadian dollars in 2025, beyond strong results, the sale of our French subsidiaries, and the divestiture of asbestos related liabilities. Consequently, we are highly optimistic that we can further unlock shareholder value in 2026 and beyond through our continued strong execution. I’ll turn the call over to Rishi for his financial

Rishi Sharma, Chief Financial Officer, Valan: review. Thank you, Jim. Please turn to slide 10. Our order backlog reached $274,900,000 at the end of the fourth quarter of twenty twenty five, down 3.1% from the beginning of the fiscal year. It should be noted that currency fluctuations had a negative impact of $12,700,000 on the value of the backlog during the fiscal year.

Excluding FX, we recorded a slight increase in the backlog as increased nuclear orders in North America were partially offset by a decline in oil and gas orders in Italy following strong orders last year. At year end, over 82% of the backlog representing orders of 225,700,000,000 was deliverable within the next twelve months. As Jim mentioned, over time, we expect a shift in the mix in the backlog due to a heavier concentration of long term nuclear orders. Bookings ordered totaled $292,500,000 in fiscal twenty twenty five, up from $288,700,000 in fiscal twenty twenty four. Bookings were particularly strong in the year, especially related to the nuclear market and MRO activities in North America, as well as oil and gas bookings reported by our German operations.

In the fourth quarter, lower year over year bookings of $62,000,000 reflect the timing of orders for our Italian operations due to project delays in the year versus strong oil and gas orders last year and lower bookings in North America. These were partially offset by increased orders from our Chinese operations. Still, bookings were up sequentially from the third quarter. Turning to our P and L on slide 11. Fiscal 20 20 five sales exceeded $295,000,000 representing a solid 14.1% increase over the last year, driven by shipments from our Italian operations for the oil and gas industry and higher volume from our German businesses related to oil refineries.

These factors were partially offset by slightly lower sales in North America and other international markets. By customer geographic location, North America remained our principal market in fiscal twenty twenty five, accounting for 54% of sales. Asia Pacific was our second largest revenue generating region with 22% of sales, while Europe was third at 13%. Fourth quarter sales totaled 83,200,000.0 up 2.9% from $80,800,000 a year ago, essentially reflecting the factors mentioned earlier, as well as lower MRO sales in North America. Turning to slide 12, gross profit for the year increased significantly to $84,900,000 up from $54,600,000 last year, while the margin improved by seven seventy basis points to 28.8%, driven by higher volume and a more favorable product mix this year versus last year.

In the fourth quarter, gross profit was $19,800,000 versus $22,400,000 last year, resulting from a less favorable mix due to MRO sales that were lower, higher provisions for aging inventory. As a percentage of sales, gross profit was 23.8% in Q4 twenty twenty five, compared to 27.7% for the same quarter last year. Administration costs were $68,600,000 in fiscal twenty twenty five or 23.2% of sales versus $62,600,000 or 24.2% of sales last year. The year over year increase reflects higher sales commissions due to greater business volume, higher freight costs, higher short term incentives related to the strong performance in fiscal twenty twenty five, and the non cash impact of a significant increase in our share price on the company’s long term incentive plan. For the same reasons, administration costs totaled $20,300,000 or 24.3 percent of sales in Q4 twenty twenty five compared to $16,100,000 or 19.9% of sales a year ago.

I would like to point out that the incentive plans had a combined impact of $3,400,000 in the fourth quarter of twenty twenty five. Excluding these items, the year over year increase in administrative costs was less than $1,000,000 Turning to slide 13, adjusted EBITDA, which excludes restructuring expenses amounted to $27,500,000 in fiscal twenty twenty five, up significantly from 2,100,000 in 2024, reflecting mainly the increase in gross profit. In the fourth quarter, adjusted EBITDA was $3,600,000 compared to $9,300,000 last year due to lower gross profit and higher administrative costs. Adjusted net income totaled $6,600,000 in fiscal twenty twenty five, marking a strong turnaround from an adjusted net loss of $15,700,000 in fiscal twenty twenty. In the fourth quarter, adjusted net loss was $4,900,000 compared to adjusted net income of $3,700,000 last year, essentially due to lower EBITDA.

Moving to cash flows on slide 14. Cash provided by operating activities amounted to $26,500,000 in fiscal twenty twenty five, up from $12,500,000 last year, driven by higher profitability and positive changes in working capital. Our financial position remained solid at year end. As of 02/28/2025, the company held cash and cash equivalents of $34,900,000 Long term debt, including the current portion, amounted to 16,200,000.0 and bank indebtedness was 2,500,000 As Jim mentioned, our pro form a cash position following the closing of the two transactions is approximately $55,000,000 This strong cash position, coupled with continued healthy operating cash flow, will allow us to invest in our operations to support long term profitable growth and seek strategic acquisitions that will expand reach in our niche markets. We are also happy that we announced yesterday we have entered into new credit facilities totaling $35,000,000 to support further growth and ambitions.

These facilities will be available over a three year period. Finally, as noted earlier, we declared a special dividend of CAD0.30 per share, bringing the total current quarterly dividend to CAD0.33 per share, payable on 06/30/2025 to shareholders of record on 06/16/2025. I would now like to turn the call back over to the operator for the Q and A session. Thank you.

Joelle, Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Sebastian Charla with Agave Capital. Your line is now open.

Sebastian Charla, Analyst, Agave Capital: Good morning. Thank you for taking my questions.

Rishi Sharma, Chief Financial Officer, Valan: Good morning. Thank you.

Sebastian Charla, Analyst, Agave Capital: My first question is regarding the gross margins. I know there’s noise in the quarter with old inventory, but with the recent French divestiture, is 30% still a fair ballpark to include in our models?

Jim Leinbach, Chairman of the Board and CEO, Valan: So I think it’s a good question. I think as we’ve talked about in past quarters, you know, we have our ABB business in Italy that operates in a bit different profile from the rest of the company, and that it’s not as completely vertically integrated as the rest of the business. And so as ABV grows to a larger percentage of the overall business now without the French businesses in the mix, I think you might see some basis point reduction in the combined gross margin, the consolidated gross margin for the business. But the thing about ABB that’s important to recognize too is it operates very leanly in terms of not only its production cost, but also its OpEx, And so when we get down to the EBITDA, it’s a much more interesting view, as well as its return on total invested capital is quite strong, given that we don’t have to buy the requisite machine tools and things of that nature that you would normally see in a vertically integrated operation. So I think for modeling you can probably look to you know some basis points lower than what we’ve reported in the past just because of the mix.

That answer your question? Yeah.

Sebastian Charla, Analyst, Agave Capital: Definitely. And perhaps if I can follow-up on this. Regarding in North America, KUSMA, is from my understanding, VALS are eligible to the Kuzma terrorist exemption, but can you comment on if Velin is on track for getting those? Or I’ve seen in other manufacturing companies that even though they were eligible, they didn’t necessarily met the documentation and processes requirements.

Jim Leinbach, Chairman of the Board and CEO, Valan: Right. So business is so USMCA, which I think is what you’re referring to

Sebastian Charla, Analyst, Agave Capital: Oh, yes.

Jim Leinbach, Chairman of the Board and CEO, Valan: Yeah, is successor to NAFTA, right? The agreement is still in place. And again, another very good question. The tariffs announced by the Trump administration at the outset, there was concern that they would not honor, The United States would not honor the agreement, the USMCA agreement. Okay, that would have been a bit more interesting for us, we’ll put it that way.

But subsequent to the initial announcements, they confirmed that the provisions and the protections afforded under USMCA compliance would be honored, all right. What that amounted to, and a significant, the vast majority of our products that we ship down from Canada into The United States markets are USMCA compliant, and therefore are not subject to these additional tariffs. Right. Now what is also interesting is we’ve looked at this though strangely enough as all of this focus has come about on tariffs, know of course we’re looking at all of our operations to make sure, and I commented on this in the opening remarks, that we’re optimizing our global manufacturing footprint. We can shift production and have over the years, you know, to our advantage from one of our sites say in India or Korea or Canada or The United States, and so we have tremendous flexibility in our production capability.

But again coming back specifically to your point, USMCA is currently being honored by The United States, and the vast majority of our product shipping from Canada into The U. S. Is USMCA compliant and therefore not subject to these additional tariffs.

Sebastian Charla, Analyst, Agave Capital: Perfect. That’s super clear. And perhaps a last one for me before I return in the queue. So last year, if I remember correctly, I think it was September, you swiftly resolved the situation at the Williston plant regarding labor agreements. I understand the other plants in North America, but also in the rest of the world, probably are on their own timelines.

I’m wondering if it’s possible to get just a general sense of the upcoming timelines around the network of plants.

Jim Leinbach, Chairman of the Board and CEO, Valan: Yeah, so let’s look internationally first. In Italy there’s a contract, the union contract there. It’s a little bit different in the international markets than it is in Canada, but suffice to say the Italian contract will be resolved sometime in the next couple of months. That’s rough time, okay. It’s more or less structured by federal mandate.

As we look to Canada, our plants here, the contracts will be renewed in the coming months. We’ve enjoyed good labor relations with our workers, union workers here and in Granby for many many years. In fact strangely enough I was just meeting with our union president here this morning, it was just a half beds of meeting, but we enjoy the relationship and we look to a successful outcome probably over the span of the normal negotiation last probably through late summer, early fall, something like that.

Sebastian Charla, Analyst, Agave Capital: Got it. Thank you. That’s it for me for now, and congrats again on the big closings in the recent months.

Jim Leinbach, Chairman of the Board and CEO, Valan: Thank you. Appreciate it.

Joelle, Conference Operator: Your next question comes from Alex Giannulli with SM Investors. Your line is now open.

Alex Giannulli, Analyst, SM Investors: Yes. Hi. Good morning. Thank you for taking my question. Sorry if this might have already been asked.

I was off the call for a few minutes. I was just wondering that because of the tariffs, because of, you know, some stock, let’s say, the relationship between Canada and The US might not be as good as it was, you know, a few months back. Do you think that this might have an impact on, you know, deals, strategic acquisitions between the Canadian company, US company, especially if it deals with, you know, strategic sector? Or, you know, is it on the ground as business as usual? So that’s, that’s the first one.

And the second question is, I see in the press release you’re looking at making strategic acquisition in niche markets. I’m sure if you could give some more color about, you know, those niche markets. Thank you.

Jim Leinbach, Chairman of the Board and CEO, Valan: Sure. The first question is well, it’s a little depends on how good the crystal ball is. I think your characterization of strange relations between The United States and Canada, in my mind, is something that passes quickly enough. You’ve got now or we’ve got now in Canada a confirmed political leader that I think has shown early signs of good working relations with the president of The United States. I don’t really see over the long term, as we sit here today, particular concerns in terms of if there were investors in The United States looking to do deals in Canada.

Time will tell, of course. But I don’t see that we would be any more or less subject to scrutiny or whatever if we were looking for deals in The U. S. Than otherwise would have been the case. As far as strategic investments, one of the things that’s quite interesting is, you know, with the closing of the two transactions that we announced and the formidable cash reserves that we merged with, as well as the new financing package that Rishi commented on in his remarks, with a considerable and growing resource base to look at strategic acquisitions.

You know, when we were in the midst of the French divestiture, as well as the divestiture of our asbestos liability, you can imagine that consumed a considerable amount of resources. But throughout, we’ve been looking, as I’ve commented on in past calls, at strategic opportunities that can further strengthen our position in these markets, the demanding markets that we focus on. So that would be the way I see it now. And again, my remarks concerning the political situation between Canada and The United States is as good as anybody else’s, I guess.

Alex Giannulli, Analyst, SM Investors: All right, thank you, appreciate it.

Joelle, Conference Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the call over to Jim for closing remarks.

Jim Leinbach, Chairman of the Board and CEO, Valan: Well, thank you operator. It’s been quite a wrap up to the prior fiscal year. I want to before signing off comment on the tremendous efforts put forth by the Blanton colleagues to close these two transactions and deliver such a robust year. This was especially true as you can imagine of our financial team led by Rishi, an outstanding job by the whole team over the last six, nine months. It’s been an amazing, amazing run, and we’re very, very excited about the future now, free from distraction specifically of asbestos.

And again, my appreciation thanks to all the colleagues across the line worldwide, as well as our shareholders. So with no further questions, we’ll sign off. We appreciate your interest in our company and your support, of course. Thank you very much, and you guys have a great day.

Rishi Sharma, Chief Financial Officer, Valan: Thank you.

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

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