Velan Inc. Q3 2026 Earnings Call - Navigating Strategic Transition Amid Strong Order Momentum

Conference Call Operator: Good morning, ladies and gentlemen, and welcome to the Velan Inc. Q3 Financial Results Conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, January 15, 2026. I would now like to turn the conference over to Rishi Sharma, Chief Financial Officer. Please go ahead.

Rishi Sharma, Chief Financial Officer, Velan Inc.: Thank you, Operator. Good morning, bonjour. 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 paragraph mentions that the presentation provides an analysis of our consolidated results for the third quarter ended November 30, 2025. The Board of Directors approved these results yesterday, January 14, 2026. 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 addresses forward-looking information, which is subject to risks and 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 US dollars, and all financial metrics discussed are from continuing operations.

I now turn the call over to Mr. Jim Mannebach, Chairman of the Board and CEO of Velan.

Jim Mannebach, Chairman of the Board and CEO, Velan Inc.: Thank you, Rishi. Good morning, good afternoon, and evening, everyone. Please turn to slide four for a general overview of the third quarter of fiscal 2026. Velan delivered healthy Adjusted EBITDA of CAD 9.5 million on sales of CAD 71.7 million, driven by the execution of high-margin projects and continued tight management of operating expenses. With respect to sales, let me point out that, as expected, most rescheduled orders from the previous quarter were captured in Q3 2026. A similar customer dynamic occurred in certain complex projects in the third quarter, leaving us again with orders worth a few million dollars still pushed out to later periods. Now, let’s turn to slide five. Our order backlog reached CAD 296.8 million at the end of the third quarter, up 8% from the beginning of the year.

At quarter end, 80.4% of the backlog, representing orders of CAD 238.5 million, were deliverable within 12 months, compared to 83.4% at the end of Q3 last year. Bookings amounted to CAD 77.9 million in the third quarter of fiscal 2026, a year-over-year increase of 32%, further driving momentum in our backlog. The strong growth reflects higher bookings by our North American operations in the nuclear and oil and gas sectors, along with increased bookings by our Italian and Chinese units. These factors were partially offset by reduced orders from the German operations. In North America, Velan secured a valve order of more than CAD 20 million from Ontario Power Generation, or OPG, for reactors being refurbished at the Pickering Nuclear Generation Station, confirming our leadership position in this fast-growing nuclear sector. First shipments scheduled for January 2027, with subsequent deliveries to be completed by the end of January 2028.

Note that Velan supported the original valves more than 45 years ago and has continuously supported the Pickering complex throughout its construction and refurbishment program. Turning to slide six, I’d now like to address the recent announcement regarding the proposed sale of Velan Holding’s controlling interest in the company to Toronto-based Burchill Equity Partners Management Inc. Velan Holding, which is held by certain Velan family members, has agreed to sell its CAD 15.6 million multiple voting shares, representing approximately 72% of Velan’s outstanding shares and 93% of its aggregate voting rights, to Burchill at a price of CAD 13.10 per share for aggregate gross proceeds of CAD 203.9 million. This is a private transaction, and it’s expected to close in the first half of calendar 2026, subject to receipt of required regulatory approvals and other customer goals and conditions.

The transaction is not subject to any financing conditions or approval by our shareholders. Velan’s special committee of independent directors recommended to the Board of Directors that it’s in the best interest of the company to facilitate the consummation of this transaction, and while the company is not a party to the private transaction, it has entered into a cooperation agreement with the parties, which will ensure a smooth transition with Burchill as we jointly secure regulatory approvals and complete other customer goals and conditions. The company continues to draw its inspiration from our founder, A.K. Velan, and the tireless efforts of the Velan family since our founding more than 75 years ago. We are extremely proud of our heritage and look forward to growing on our legacy as a world-leading Canadian valve company. Burchill has a proven track record of partnering with Canadian industrial leaders and accelerating performance.

Their broad business experience and deep access to capital will enable Velan to speed advancement of our business plan, which is focused on value creation for all stakeholders, including customers, employees, and, of course, shareholders. We look forward to partnering with Burchill as we accelerate the execution of our strategic plan. Before turning the call back over to Rishi, I want to reiterate on slide seven. Velan is well-positioned in its main markets through its trustworthy brand, high-quality products, and proven expertise in developing solutions for the most critical applications. Nuclear energy is enjoying a strong resurgence driven by massive power requirements and rising demand for clean energy sources. Our recent contract win with OPG is a clear example of governments refurbishing existing reactors to meet their energy requirements well into many future years.

New deployment of small modular reactors or SMRs are also expected to be part of the overall solution. As a reminder, Velan is a key supplier to the first SMR initiative in North America at OPG’s Darlington site. On the oil and gas front, we’ve recently witnessed geopolitical pressures in key strategic areas, highlighting the global need for this fossil fuel. Of course, Velan remains impartial, but we stand to benefit since the company supplies the most reliable engineered valves to the majority of refineries in North America, along with a growing presence overseas, especially in the Middle East through our announced joint venture in the Kingdom of Saudi Arabia. These two sectors, nuclear and oil and gas, were the driving force behind a remarkable 32% bookings growth in the third quarter.

If we add our important presence in other areas such as defense, liquefied natural gas, and mining, the underlying theme is that Velan is well-positioned to leverage strengths across a wide range of industrial sectors throughout the world. Rishi, I turn the call back over to you.

Rishi Sharma, Chief Financial Officer, Velan Inc.: Thank you, Jim. Turning to our third quarter results on slide nine, sales totaled $71.7 million, down 2.4% from $73.4 million one year ago. The decline reflects lower shipments from our Italian operations following strong sales in last year’s third quarter. And as Jim mentioned, customer dynamic resulted in orders totaling a few million dollars being pushed out to later periods. These factors were partially offset by higher sales in India and Germany, along with a positive foreign exchange impact. By customer geographic location, North America represented 48% total sales in the quarter compared to 55% last year. Asia-Pacific accounted for 33% of total revenues versus 44% a year ago. For its part, Europe represented 8% of sales this year, with Africa, the Middle East, as well as South and Central America rounding off our quarterly sales.

Moving to slide ten, gross profit reached CAD 27.2 million in Q3 2026, compared to CAD 28.3 million last year. As a percentage of sales, gross profit remained relatively steady, reaching 37.9% compared to 38.6% last year. This stability was driven by higher margin projects, though offset by lower absorption due to reduced volume and tariff impacts. Currency movements had a slight positive effect on gross profit for the period. Administration costs decreased to CAD 16.5 million, or 23% of sales, in the third quarter of fiscal 2026 from CAD 17 million, or 23.2% of sales one year ago. The year-over-year reduction can be attributed to cost reduction initiatives. We also incurred restructuring expenses of CAD 1.3 million in Q3 2026, which consisted of transaction-related costs. Excluding non-recurring elements, Adjusted EBITDA amounted to CAD 9.5 million in the third quarter of fiscal 2026 versus CAD 14.3 million last year.

The year-over-year variation can be attributed to a lower gross profit and to a slight increase in other expenses, mainly caused by unfavorable currency movements on unrealized variations. These factors were partially offset by the favorable effect of a provision reversal. Net income totaled CAD 3.14 per share in Q3 2026, compared to a net loss of CAD 47.8 million, or CAD 2.22 per share last year. Excluding non-recurring elements, adjusted net income amounted to CAD 4 million versus CAD 8.5 million a year ago. On slide 11, for the first nine months of fiscal 2026, sales were relatively stable year-over-year and were up more than 2%, excluding last year’s non-recurring revenue contribution. Gross profit, meanwhile, was marginally down both in dollars and as a percentage of sales.

Turning to slide 12, cash flow from operating activities for net changes in provisions used CAD 6.7 million in the third quarter of fiscal 2026, compared to CAD 0.6 million used a year ago. The unfavorable movement in cash was mainly due to negative changes in non-cash working capital items versus last year. More specifically, a temporary increase in accounts receivable and late-stage work-in-process inventory related to changes in customer delivery schedules were largely responsible for the year-over-year variation. Once this customer dynamic normalizes, cash inflows are expected to follow. During the quarter, we also paid CAD 1.5 million in dividends, representing regular payments for dividends declared. It should be noted that the company has agreed to suspended payment of dividends until the closing of the transaction between Velan Holding and Burchill. Ordinary course dividends are planned to resume thereafter, as if and when declared by the Board of Directors.

Finally, our balance sheet remained strong at quarter end with CAD 36.3 million in cash and cash equivalents and short-term investments of CAD 0.4 million. Bank indebtedness stood at CAD 16.1 million, while long-term debt, including the current portion, was CAD 17.7 million. Considering our credit facility, working capital financing, letters of credit, and guarantees, we have access to multiple sources of additional funds. Altogether, Velan has approximately CAD 86 million readily available to execute its strategy and finance its expansion to sustain long-term profitable growth. I now turn the call over to the operator for the Q&A session.

Conference Call 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 touch-tone 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, for your first question. Your first question comes from Sebastien Charlen with Agave Capital. Your line is now open.

Good morning, Messrs. Thank you for making the call this morning.

Jim Mannebach, Chairman of the Board and CEO, Velan Inc.: Hi, Sebastien. Bonjour.

My first question, actually, it’s quite personal and maybe it’s too early to ask, but are you staying, both of you?

Well, I appreciate the interest in that. Yeah, it’s business as usual for us at Velan. Burchill has a long history of partnering and participating with management, and we don’t see any change in that in the immediate future. So I look forward to working with them. In fact, they have a very unique, I think, data-driven decision-making process that I think will be very, very helpful to us. And yeah, so business as usual, no expected changes in the foreseeable future with management in place driving our strategic plan going forward.

Great. And can we know a little more, or should we expect more announcements in coming months as this transaction closes? I respect that they’re a Canadian buyer, so it should alleviate some of the problems we may have seen or foreseen with, let’s say, foreign buyers in the strategic asset as Velan. But should we expect more announcements regarding changes to strategy or appetite M&As? I really understand there’s quite a big difference between the two controlling shareholders we’ll have now and in the future.

Thanks, Sebastien. I think the first course of action and priority is obviously to support through the engagement of the cooperation agreement the closing and get to the closing of the transaction. So that’s the immediate requirement, as well as obviously delivering a strong fourth quarter. I think that goes without saying. For us and the management team, it’s business as usual in terms of orders, bookings, delivery, profitability, and cash generation. Beyond that, post-closing, I think we’ll see. I think business as usual, there’s a strategic plan, there’s objectives that we have. I think through the partnership and our new controlling shareholder with Burchill, there could be, but I think there’ll be some time required to kind of reassess the plan going forward. So I don’t expect immediate announcements to that effect, but I think post-closing, there will probably be some plans that will be shared.

Okay. And did I read correctly that Velan, the company, is going to assume the legal cost of the transaction, even though if it’s a private one, the CAD 12 million that’s highlighted in the press release?

Yeah. So the special committee recommended that in the best interest of the corporation going forward, that those costs be borne by the company. So if you look at the note, the total transaction, direct transaction fees are in the amount of $10-$11 million. There’s an additional $5 million, call it, cost that will be incurred relating to change of control-triggered items, mostly relating to vesting and accelerated vesting of incentive plans. And against that $16 million, we have about $4 million that’s been paid throughout the year or accrued. So it’s really a recommendation and support in terms of the best interest of the company going forward that those costs be absorbed by the company.

Okay. Yeah. And perhaps, I guess, the elephant in the room is maybe what do we don’t know or do we miss for the discrepancy between the CAD 13 sell price versus the, say, average price of the last six months of Velan, which was probably about CAD 17 or CAD 18. Do you agree with that price? If the company is paying for the legal fees for it, it means it agrees. The special committee, it agrees that’s the valuation that’s correct for Velan?

Yeah. Well, I think it’s important to note, as we’ve already said, this is a private transaction between Burchill and Velan Holding. The company facilitated the secondary trade to ensure it was completed in an organized manner, but we weren’t a part of the trade. We weren’t involved in the pricing matters. As such, we’re really not in a position to comment on valuation or pricing matters. As you know, Austin, the minority shareholders will continue to participate in the company’s next phase of growth, right, as it executes its strategic plan, and adding to what Rishi said, I look forward to an acceleration of deployment of those strategic plans with a new partner, Burchill, so I think we’re on a good track building out the fundamentals of this business to drive value creation over the long term.

And I think that’s the perspective that needs to be taken. And again, as I said, it’s a private transaction between the parties that we weren’t involved in the pricing. Yeah. And just to add on that, I think the way that Jim and I look at the transaction cost is it’s really an investment in bringing on a partner as strategic as Burchill that has operational discipline, that has the capital that we may have access to in the case of growth and executing on the strategic plan. But beyond that, as Jim mentioned, private transactions between the two parties. Our sole obligation here is the cooperation to ensure that the deal gets to a close.

Okay. I mean, it’s a lot to reconcile in one day, but at the same time, I want to, yes, I just want to reassess. I know, and I appreciate all the work you two have been doing in the old team in the last three years, not fixing the problem, but addressing the challenges of the business. So yeah, I just want to admit I was disappointed when I saw the release yesterday, but the fact that you’re staying, that we’re not forced into selling at that price, I guess it’s a mixed signal, but somewhat reassuring. I just wanted to highlight this point. It seems quite obvious, though, that it deserved to be addressed.

Yes, Steve, thank you so much.

Rishi Sharma, Chief Financial Officer, Velan Inc.: Thank you. I appreciate the recognition as well. And as I said, underscoring the point, we really look forward to accelerating execution of our plans. I think we’re in a really strong position in nuclear and oil and gas and other demanding applications, as I mentioned in my comments. And partnering with Burchill and bringing their perspectives to the business, I think it’s really a win-win outcome in the long run for everyone.

Good. Thank you for taking my questions.

Jim Mannebach, Chairman of the Board and CEO, Velan Inc.: Thank you.

Conference Call Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Alex Ciernelli with SM Investors. Your line is now open.

Hey, hi, good morning. How are you guys?

Jim Mannebach, Chairman of the Board and CEO, Velan Inc.: Good morning, Sam. How are you?

Good, yourself? Thank you. Most of my questions have been asked. And I guess the bigger one was the reconciliation of the pricing, which you addressed. I don’t know if this was asked. I was on the morning meeting of the company for a few minutes, but I think the press release was talking about the review of strategic alternatives under supervision of the special committee. So were there other options, maybe to sell the entire company or some, if you can talk about this review in general?

Yeah. You’ve been engaged in our calls for quite a while now. As you know, we’ve consistently and publicly stated that the company was reviewing options, right, to maximize value for the shareholders. This process was continuous, right, going back many years, including the special committee’s engagement with respect to the asbestos and the French subsidiary divestitures. Given that the offer was made to Velan Holding to sell the multiple voting shares of Velan Holding, after the special committee reviewed the circumstances and the particulars, as Rishi’s already commented tonight as well, they concluded that it was in the best interest of the company to facilitate the transaction.

Really, beyond that, I’m not sure what else I can say about that other than, as I’ve said or as I said a moment ago, we’ve been quite clear and transparent that we’ve been considering value-creating opportunities for many years.

Yeah. I’ll change gears. I’ll ask just the SMR, the entire power generation project, if I remember correctly, was approved in May. I don’t know if there’s any updates. How’s that going? I know it’s a long term, but yeah.

Yeah. We’re very encouraged by what we’re seeing. We see with the owner, as well as with the provider, GE Hitachi, on the project that you’re referring to specifically, it continues to progress very nicely. Obviously, this is new technology being developed, and this is right in the wheelhouse of our business to grow off of what we’ve already done in nuclear over 50 years now and apply it to this new emerging approach to more compact SMR nuclear power generation. So what we’ve seen so far is very encouraging, very positive. And as I said just a moment ago, really plays to the strength of the brand and our people, especially at this moment, our engineering people. So we’re quite encouraged by what we’re seeing to the moment. Long way to go, but encouraging to the moment.

Last one for me. This might be a strange question, and there’s also some ways to ask it. We saw what happened in Venezuela. Is it had actually an opportunity for the oil and gas for you guys, or is it too early to say? Okay.

I don’t think it’s a strange question. Of course, we don’t know what’s going to happen. It was sort of an unexpected move, I guess, by the United States anyway. But as you know, the majors that are involved in Venezuelan oil before the nationalization of those assets were all customers of Velan. And what we’ve seen in the public disclosures about the intentions of the United States going forward is encouraging to us as well because for the parties that President Trump is talking about, we have good relations with and expect to have a good opportunity to provide valuable product to them as they improve the operations in Venezuela. So very early, very early. And strange circumstances, you alluded to, but I think from a commercial market point of view, it’s positive for us.

And that’s it for me. Thank you so much.

That’s good to hear from you.

Sorry, sorry. One more thing. This is for Rishi. I sent you an email about the conference. I don’t know if you’re interested or not, but if you can answer, so I can relay. I can send it again if you want to.

It’s been a little bit busy the last few days, but as you can imagine, I’ll definitely get back to you on that. Thank you.

Appreciate it. Thank you.

Thanks again.

Thank you.

Conference Call Operator: There are no further questions at this time. I will now turn the call over to Jim for closing remarks.

Jim Mannebach, Chairman of the Board and CEO, Velan Inc.: Thank you, operator. It’s been an interesting couple of days, a few weeks, months, for sure. The business in the last quarter, I’m very encouraged by the uptake in orders, especially in the nuclear and oil and gas space for us. I think it bodes well for our future. We’ll look forward to chatting with you all at the end of our fiscal year, which is just a few weeks away. Anyway, we appreciate the support and always the interest of the investors and stakeholders. Thank you so much and have a great day.

Thank you.

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