Velan Inc.

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 Valen Q4 and full year 2025 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. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the two. Thank you. This call is being recorded today on May 22nd, 2025. I will now hand the conference over to your host today, Mr. Rishi Sharma, Chief Financial Officer. You may begin your conference.

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 February 28th, 2025. The Board of Directors approved these results yesterday, May 21st, 2025. The second paragraph refers to non-IFRS 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 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 U.S. dollars and all financial metrics discussed are from continuing operations. I would now like to turn the call over to Mr. Jim Lineback, Chairman of the Board and CEO of LF.

Thank you, Rishi. Good morning, good evening, good afternoon to everyone. Fiscal 2025 proved to be a vintage year for the lot marked by strong, profitable growth and key strategic initiatives that unlock significant shareholder value. From a financial standpoint, we achieved our objective of closing fiscal 2025 with sales of $295 million of .1% over the prior year, while our gross profit improved by 770 basis points to 28.8%. We generated adjusted EBITDA of 27.5 million, up sharply from 2.1 million a year ago, and importantly, we more than doubled our cash flow from operating activities to 26.5 million. From an operations perspective, the announced sale of our French subsidiaries and divestiture or Vespestas-related liabilities represent key highlights. The 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 along France and Sego, for a total consideration of $208 million, including $184 million in cash. We expect to record a gain of approximately $96 million on this transaction in the first quarter of fiscal 2026, 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 Vespestas-related liabilities for $143 million. This transaction permanently removed all Vespestas-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 million for the divestiture of the Vespestas-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 recorded 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. The line 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 million on a pro-forma 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 $0.30 Canadian cents per share, reflecting confidence in our outlook going forward. This amount will be in addition to our regular dividend payment of $0.03 Canadian cents per share. Moving to our fourth quarter results on slide five, sales increased nearly 3% -over-year to $83.2 million, despite the volatile economic environment and uncertain trade disruptions moving over customers worldwide, largely driven by the tariff developments in the United States. Meanwhile, adjusted EBITDA was $3.6 million in the fourth quarter, down from last year due in part to lower gross profit margin of mix. Rishi will provide you with more details in his financial review. Shifting to targeted high-growth markets on slide six, finance poised to reach new heights by leveraging its proven strengths. We've been actively involved in the nuclear market for more than 55 years. We're well positioned to take advantage of a dynamic sector brimming with new opportunities. For example, several technology companies are rolling out AI centers on a global basis and join forces with either established energy providers or startups to deploy nuclear energy through emerging small modular reactor SMR technologies. While other projects call for recommissioning of existing infrastructure. This is where BLIND comes into play. Our recent signing of partnerships with leading actors in nuclear energy such as Bruce Power, GE Atachi, Westinghouse, and Kandoo, bode well for our proprietary valves on a long-term basis. As our know-how spans both SMRs and standard reactors. Additionally, our large install-based valves and existing reactors hold much promise through life extension projects as well as maintenance, repair, and overhaul activities. 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 at 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 the line driven by efforts to safeguard the environment. In oil and gas, we boast a 90% market penetration of refineries in North America. And an expanding presence overseas. Supplying the most reliable engineered valves and steam traps represents a key differentiator for the plant. As customers worldwide seek lower emissions and better safety. In addition, and importantly, our vast install 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 oilfield valves and early winds 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 2025, both from a financial and operational point of view. The company is very well positioned to benefit from increased demand for energy, which would drive momentum for clean sources and most particularly nuclear, where our solid reputation is firmly entrenched in other, as our solid reputation is firmly entrenched in other industrial markets around the world. While a portion of our business is exposed to tariffs, particularly some products imported into the US, we are well underway to execute the plan 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 75th anniversary, the land enters fiscal 2026 with a sharper trend of more focused, improved balance sheet. We've significantly improved our market cap by approximately a quarter billion Canadian dollars in 2025, behind strong results, the sale of our friendship city years, and the divestiture of asbestos-related liabilities. Consequently, we are highly optimistic that we can further unlock shareholder value in 2026 and beyond for our continued strong execution.