5N Plus Inc.

Hello, ladies and gentlemen. Thank you for your patience and welcome to the Telephone Conference on the results of the first quarter of 2025 of 5N+. Currently, the participants' lines are in listening mode only. After the presentation, there will be a period of questions and answers. If you have a question, press star and 1 of your telephone keyboard. If you need assistance, please press star 0. Good morning, ladies and gentlemen. Thank you for standing by and welcome to the 5M Plus, Inc. First Quarter 2025 Results Conference Call. At this time, note that all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star, then the one on your telephone keypad. And if you require immediate assistance from the operator, please press star zero. Je vais maintenant céder la parole à Richard Perron, chef de la direction financière. And I would like to turn the conference over to your speaker today, Richard Perron, chief financial officer. Please go ahead, sir.

Bonjour à tous et à toutes. Good morning, everyone, and thank you for joining us for our Q1 2025 results conference call and webcast. We will begin with a short presentation, followed by a question period with financial analysts. Joining me this morning is Gervais Jacques, our president and CEO. We issued our financial results yesterday and posted a short presentation on the investors section of our website. I would like to draw your attention to slide two of this presentation. Information in this presentation and remarks made by the speakers today will contain statements about expected future events and financial results that are forward-looking and therefore subject to risk and uncertainties. A detailed description of the risk factors that may affect future results is contained in our management's discussion and analysis of 2024, dated February 25, 2025, available on our website and in our public filings. In the analysis of our quarterly results, you will note that we use and discuss certain non-IFRS measures, which definitions may differ from those used by other companies. For further information, please refer to our management's discussion and analysis. I would now turn the conference over to Gervais.

Good morning. Thank you, Richard, and thank you all for joining us on the call this morning. Yesterday evening, we announced outstanding first quarter results. Strong momentum entering the year resulted in 5 and plus, generating record revenue growth in the first quarter compared to the same period last year. This was coupled with an impressive 77% growth in adjusted EBITDA and continued margin expansion. Both of our segments contributed to our operational and financial performance. In specialty semiconductors, we saw strong sales in the strategic terrestrial renewable energy and space solar power sectors. In our performance materials segment, bismuth-based products were also in high demand. This first quarter performance reflects strong demand and accelerating purchasing by key customers, notably under renewable energy and our bismuth product lines of performance materials. In an environment of ongoing trade volatility, our customers are acting decisively to secure the advanced materials they required from reliable partners, and they trust us. This only reinforces our unique global standing as the partner of choice with the right technical expertise, footprint, and sourcing capabilities to supply critical materials to critical industries. And with our manufacturing platforms, enhanced operational agility and production capacity, our ability to deliver has only gotten stronger. As you know, we have made a series of strategic investments in the last few years in terms of materials recycling, semiconductor compound production, and higher solar cell production. This has positioned us well to meet growing client demand. This work is continuing. After increasing capacity by 35% last year, we continued our work to boost solar cell production at Azure in Heilbronn by an additional 30% this year, with minimal additional investments. This work is advancing as planned and is expected to be completed in fiscal year 2025. Also during the quarter, We entered into an agreement with Allos Semiconductors to complete the development and commercialization of a GaN IP portfolio. This allows us to focus on our core business while benefiting from future growth in the high power electronics market through royalties. More broadly, we continue to actively explore opportunities to further expand our production capacity. we are looking both into internal and external growth options. The objective is to be well positioned to capture more demand and solidify our leadership in our key and high growth end markets. Our target positioning remains unchanged. We are maintaining our focus on higher margin, value-added advanced materials, and on being a critical supplier without being a critical cost to customers. Looking forward, near-term demand is at very high levels in our strategic sectors, and our medium- to long-term outlooks for our end markets across both reportable segments remain intact. With our key competitive advantages and our trusted partner status, We believe that we have the right strategy and positioning to continue navigating these headwinds. We have obviously started the year off very strong, and we remain on target to achieve our annual financial targets. Richard, over to you for a review of our financial results in more detail. Thank you, Gervais, and good morning, everyone.

So, in Q1 2025, both of our reportable segments helped drive strong operational and financial performance, with specialty semiconductors continuing to deliver in high-growth sectors and performance materials also contributing. Turning now to a review of our KPIs, on a consolidated basis, revenue in Q1 increased by 37%, to a record $88.9 million from $65.1 million in Q1 of last year. The increase is primarily attributable to higher sales in the terrestrial renewable energy and space solar power sectors under specialty semiconductors and our business-based product sales under performance materials. Adjusted EBITDA in Q1 increased by 77% to 20.8 million compared to 11.7 million in Q1 of last year. driven by higher volume in the terrestrial renewable energy and space solar power sectors and better prices over inflation across our strategic products. Adjusted gross margin increased by 51% to 30.4 million in Q1 of this year, favorably impacted by the same factors. Adjusted gross margin percentage was 34.2%. This is compared to 30.9% in Q1 of last year. This margin extension was driven by specialty semiconductors, offset by a slightly less favorable product mix in performance materials. Turning now to our segments. Under specialty semiconductors, revenue in Q1 was $62.8 million compared to $45.2 million in Q1 last year, supported by higher demand from renewable energy and space solar sectors. Adjusted gross margin percentage was 35% in Q1 compared to 29.2% in Q1 of last year. favorably impacted by economies of scale from higher production and higher prices net of inflation. Adjusted EBITDA in Q1 increased by 85% to reach $17.7 million. The increase is primarily attributable to higher demand in the terrestrial renewable energy and space solar power sectors, higher prices, net of inflation, and favorable unit costs from economies of scale. Under performance materials, revenue reached $26.1 million for the quarter compared to $19.9 million in Q1 of last year. RSLs from bismuth-based products came from health and pharma, but also from technical materials. Adjusted gross margin percentage was 32.9% compared to 35.3% in Q1 last year, reflecting a slightly less favorable product mix. Adjusted EBITDA increased by 1.2 million, or 24%, to reach 6.1 million in Q1 of 2025. Turning now to backlog, backlog at quarter end of specialty semiconductors represented 337 days of analyzed revenue, a decrease of 28 days compared to the backlog of December 2024. However, note that the effective backlog for the renewable energy and space solar sectors specifically surpassed the next 12 months as of March 31st, 2025. The backlog for performance materials represented 102 days of analyzed revenue, a decrease of 71 days compared to December 2024, mainly due to the timing of the signing and renewal of contracts, net of the realized sales during the quarter. Combined, our backlog represented 268 days of analyzed revenue at the end of the quarter. Net debt, after considering cash, decreased by $7.8 million to $92.3 million as of March 31, 2025, from $100.1 million at the end of December. This brought our net debt-to-bid-debt ratio down to 1.6 times at quarter-end compared to 2.02 times at previous year-end. Looking at our borrowing capacity, on April 1, we announced the renewal of our senior secure multi-currency revolving syndicated credit facilities to a total of $154 million U.S. from $124 million previously. Subject to lender approval, we can also opt to increase our credit facilities to $204 million through a $50 million accordion feature. Our strong balance sheet coupled with our expanded borrowing capacity supports our growth plan and provides flexibility to execute on internal and external growth opportunities. As mentioned, By Gervais, these really strong Q1 results reflect not just anticipated demand, but also an acceleration in the release of orders from key customers, or pull forward if you prefer, a trend we expect will continue in Q2 for a very strong H1. At this stage, we believe that part of it is a question of timing due to the volatility caused by the global trade environment. As a result, taking into account our year-to-date performance and contracted demand, And this despite anticipated additional business over and above firm contracts. Our adjusted business guidance for 2025 remains unchanged for a moment. Up to now, customer behavior has seen, as we've seen in early 2025, coupled with our business ability to respond with agility, provides us with great confidence in our fundamentals and market positioning. Our customers are relying on us, and we'll be there for them. Whatever the new return volatility we face, we remain committed and confident in our long-term objectives and strategic initiatives so that we can continue growing in our key end markets. So that concludes our formal remarks. I will now turn the call back over to the operator for the Q&A with financial analysis.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the one on your touchtone 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. Your first question comes from Nick Boychuk with Cormark Securities. Your line is now open.

Thanks. Good morning, gentlemen.

Good morning.

Good morning. On the growth, obviously impressive this quarter, particularly with first solar and the terrestrial solar and business businesses. Can you walk us through a little bit more of the dynamics, though, and how those conversations went? At what point might we start to see them formally increase the contracts or indicate to you guys that this is the new run rate of what their business is going to be doing?

Okay, so this is the first quarter of the year. Since late last year and more intensively throughout the Q1, we've been entertaining discussions with key clients. So we expect, let's say we have a few internal milestones to complete before all of that either be part of a formal contract and or we have a lot more visibility or more precise visibility on any additional FUD business coming throughout the year.

Okay, and so if we're thinking of the strong results from Q1, what indications are those companies and those partners of yours giving you for Q2 and into H2? How should we be thinking about how that flows through for the rest of the year?

It's still a bit early to be very precise, but one thing for sure, For all of our key products, the fact that we are a strategic supplier outside China is definitely playing very favorably. So it may not be the exact answer you would like to have, except that we're definitely entertaining additional business, leveraging our unique position being a key supplier of those key materials outside China.

Okay, understood. And then on capacity, how comfortable are you guys right now with your available room at each of the facilities in order to meet that demand? Might we start to see capacity increases either in solar or business?

Well, over the years, we've been invested in a modular way. Then we do have flexibility to add capacity at minimum with minimum investment. Then I think the infrastructure is there and we have the right platform to grow for the future.

Okay, thanks.

Definitely we're active at looking at the different options and accelerating that forward.

Okay, thanks Richard. Last on space, you mentioned that the updated capacity expansion is going well. My understanding right now is that the Azure business is operating at full capacity. How fast do you think you could turn on the incremental space that you'll have once that 30% completion is done?

Well, we will have the full benefit, you know, throughout the year. Then we did not materialize all the full benefit now. And the additional 30% will be delivered across the year. And I think what we see now is that things are going super well. And, you know, the demand is there. And we will evaluate other options to even further the bottleneck.

So the positive outcome of our most recent initiatives We'll start to – I'm going to use the term to pay off from Q2 onward progressively.

Excellent. Thanks, guys.

Your next question comes from Amir Azad with Bentham Capital Market. Your line is now open.

Good morning. Congrats on the outstanding results. Thanks.

Thanks.

So backlog dropped despite what you guys described as a great demand environment. Am I right to assume that there was a bit of front-loading of orders from Q2 into Q1? And if so, can you give us a sense of how much front-loading was there?

Yeah, so as we've mentioned, I think myself, for sure, and as well, Gervais, there's been some pull forward into Q1 or Q2. But at a higher level, what you have is we have a segment, performance materials, where the contracts are either annual and or quarterly. And we've realized a fairly strong quarter, so mathematically that reduces the backlog, and then towards the end of the year, it gets replenished for that. And under specialty sectors, while we have long-term contracts for the first two sectors, under sensing and imaging, that business today is on a more of a spot business or property basis. So that gets depleted as well until it gets replenished. So the realization of the non-long-term contract, essentially, that is creating that mathematical outcome in the quarter.

Understood. Then you obviously hit record gross margins and EBITDA. I'm just looking to understand the sustainability, I guess, of this margin profile going forward. Maybe you could give us a sense, to the extent that you can, of how much of that expansion was volume-driven versus price-driven in specialty semiconductors.

By default, on an absolute dollar basis, the volume has an important impact from the margins generated on a per product basis and also the economies of scale from the higher production levels, as you can imagine. But as a percentage of sales, I think we've been fairly vocal in the past that we've given our team the challenge to come up to realize a consolidated weighted average gross margin of 35%. So this quarter, the team has been up to the challenge, so very close to, and we're doing everything possible to maintain or beat that level of margins, but again, We have a certain level of diversification in our business. So from one quarter to another, it may vary. But the trend on a full year basis is definitely be towards that initial challenge or goal we've given to our team.

If I may add on that one, when we launched a commercial excellence program three years ago, we were in the low 20s in terms of gross margin, and this increase has been done steadily since then, and we're now reaching 34, but nothing is happening by chance. It's a systematic approach, and we adjusted our go-to-market strategy, and we're also making sure that our product segments, you know, that we are...

embedding all the the advantage of not being a chinese producer then being a trusted partner i think that's the the key differentiator for us as you can imagine with uh with a company that has numerous sites as we do and and has a certain level of diversification um we have various levers to to play with uh and and and uh And the product mix and the segment mix has also an influence, but everything is aiming towards, as I've said, a team target of 35% for this year.

Fantastic. I think what was evident with, like, First Solar's last quarter is there's going to be a massive shift of production to the U.S. as they look to ramp domestically their capacity. I think everybody understands that that gives you like greater visibility on volumes, but I'm more interested in your thoughts on what kind of pricing leverage you have as you head into your next contract cycle. Can you maybe give us a sense of how these discussions are evolving and if you are indeed seeing pricing leverage? Okay.

First Solar has been more than a client to 5 and Plus. It's been a partner for numerous years. And as you just said, things look like they're going to be rebalancing to a further level their production and capacity in the U.S., where we definitely play a strategic role as a supplier. Current discussions are not on prices, and I'll be honest. It's not our priority, number one, to come up with anything different if the case, compared to the current contract, our priority is to address the capacity that they will most likely require sooner than later. So that's where the discussions are today, is to make sure that we support them.

And it's all about balancing short-term gain and long-term strategy, and we're more into the long-term strategy with the partnership approach and going to the end market of making sure that they are able with their product to gain a bigger market share.

Understood. Thank you, and congrats again. I'll pass the line.

Thank you, Amir. Thank you.

Your next question comes from Rupert Mayer with National Bank Financial. Your line is now open.

Hi, good morning. Congratulations on the quarter. I'd like to come back to the pull forward of revenue. Can you quantify the pull forward in approximate terms and perhaps how much of the year-over-year growth in volumes that you saw in renewable energy in Bismuth was pull forward versus organic growth?

It's a combination of both. Even if... There have not been a little bit of pull forward. We would have completed the quarter just based on the original shipment schedule, much better than the same quarter last year. So it has an impact, but the growth in Q1 comes mainly from the growing demand. The vast majority of that quarter is the growing demand, which will continue for the rest of the year.

Maybe another way to ask this, if you look at the pull forward, how much of that would be considered spot revenues versus contract revenues?

Most of it will be contract. That's why from an H1 perspective, we know it's going to be very good and to which we know we're going to have additional spot business, but it's too early to ask this. the exact levels, but obviously we're working on making sure we have more precise visibility on that internally.

As if it's any spot revenue I imagine doesn't eat into contracted volumes in future quarters and give you visibility on revenue in future quarters?

Our contracts give us a lot of visibility on the upcoming quarters and the spot will come over and above that. That portion, we're still lacking a bit of visibility, but we know that the outcomes are very positive.

Thank you. And then looking at your own access to materials, so some of your clients are feeling a little nervous perhaps, pulling forward a demand for various reasons. Are you looking to do the same thing? I mean, I look at your inventory level and it's pretty flat quarter over quarter. Should we anticipate growing inventory for 5M plus in the future quarters?

Well, you know, this is part of our long-term strategy of diversifying the supply. I think we've been working on that for many years. And now having a global supply chain and not relying only on one country, I think that makes a big difference. And we've been increasing the inventory over the last few quarters, and we don't see any additional increase in the short term.

So if we see an increase, it's definitely not going to be by the same increment than the last year and a half where we strategically positioned our inventory for the year 25 and 26.

Yeah. So you're comfortable with your access to metals? You don't see any trade restrictions for metals you may be buying out of the Far East?

On a regular basis, no.

Great. I'll get back in the queue. Thank you. Thank you.

Your next question comes from Michael Glenn with Raymond James. Your line is now open.

Hey, good morning. So just to come back to the first solar question, so as you would have seen in their recent Q1 presentation, they did reduce their volume guidance. So I'm just trying to square their volume guidance reduction versus the trend that you saw in the quarter if you can help draw some insight into how that took place.

If you look at what's happening with First Solar, I will call it a transition, transitioning from producing outside of the U.S. to inside in the U.S. We're super well positioned as the sole supplier in the U.S., The reduction is happening in two sites that are not located in the U.S. And now Alabama is producing. It's about to be at full production in a few months. And they're starting in Louisiana before the end of the year. Then this shift of production location that is currently happening is favorable to five and plus.

Okay. And... Just in terms of, can you provide any of the material that you supplied this quarter for solar? Was that out of Montreal facility or did it all come from overseas?

The vast majority was from Europe, but a fairly good portion from Montreal.

Production has started and it's going well.

And does the material coming out of Montreal, does it have an improved margin profile versus the material out of Europe?

We look at it more because Montreal and Eisenstadt in the value chain, they're closely connected. We look at it more as an overall margin with economies of scale operating at higher levels. It's not one site more favorable than the other one, except maybe in Europe it's been running for so long. So I guess they've been running at full capacity for longer in Montreal, but overall, as I said, we look at it as a combined operations at the end from a margin perspective.

Okay. And then just on the guidance, so you are referencing – what sounds like a continued strong performance in Q2. But you are maintaining the full year guide. Now, just to, I guess, keep us analysts in check to some degree, should we expect a good Q2 and then some fall off in the back half of the year in terms of EBITDA growth? I'm just trying to get a little bit more granularity as to how we should model the cadence of your EBITDA through the rest of 2025.

It's not easy to estimate each quarter. But at this point in time, we see the next two quarters pretty much equal. But obviously, as we're shipping stuff around the world, cut-off and else may have an influence on on a quarterly basis, but at this point in time, we expect the next two quarters to be at a similar level based on the current shipment schedule, which obviously can vary from one quarter to another.

Okay. Okay. I will leave it there. Thank you.

Thank you, Michael.

Ladies and gentlemen, as a reminder, should you have a question, please press star 1. Your next question comes from Frédéric Tremblay with Desjardins. Your line is now open.

Thank you. Good morning. Just coming back to the revenue in Q1, I mean, it was up 37%. Is there any way to sort of give us an indication or a breakdown of what part of that was what I would call normalized growth and what part of it was demand pull forward? I'm just trying to, I guess, figure out in your view what's a normalized growth growth range for 5N as it stands right now, and maybe we can discuss on an annual basis, but just generally speaking, how was the split in Q1 of that 37% growth?

I would probably need to spend more time to calculate it with a bit more precision, but maybe maybe maybe uh maybe uh in the order of 10 of their current quarter was maybe a little bit of pull forward 10 of that 37 or 10 percent of the overall revenue of the overall revenue approximately okay well that's helpful i appreciate that thank you and um you know you mentioned that the strong financial position of the company and

looking at internal and external opportunities. So just wondering if you had any updates on your M&A pipeline and how that's shaping up?

As you know, we have an internal team and an external team supporting us. We know we have identified a pipeline. We have a pipeline of opportunities, and then we're going diligently through every single initiative. We're progressing, probably not to the pace that we would like to, but, again, there's no rush. We want to do the right thing for the company and be super selective.

Great. That's all I have. Thanks, and congrats on the quarter.

Thank you. Your next question comes from Rupert Merrer with National Bank Financial. Your line is now open.

Hi, we can't let you go without talking about your growth markets. Can you give us an update on medical imaging and what are you seeing out of your partner Raygen? I think they got some financing over the last few months.

Yeah, two things. Well, in medical imaging, it's interesting to see the progress we're making with the key partners that we're dealing with. I think, you know, what we see is more and more actions, probably nothing material these days. You know, we're sending samples where we have... Pullers in production, we're teaming development program with customers. And the progress that Siemens is making in doing the commercialization is helping a lot because it's putting a lot of pressure on the others to make their move. Then we expect that in the next 12 months, others will follow the lead of Siemens. and be announcing investment, and that will help us to benefit from this. And we're well positioned. You know, we've been working on that for decades now, for a decade. And on region, I think they successfully secured a new round of financing. They are now working really hard on this project in Australia, in Yanari. And they're trying to sequence the investment with the phase down of the coal power facility to make sure that they can benefit from the interconnection to the grid. Then we're working closely with them, and we expect that in the next few months they will have a positive announcement.

So in these two markets, how much revenue do you think you could see in the next 12, 18 months?

You know, it will be only material in, I would say, for medical imaging. You know, every additional growth is good because it's on top of what we're doing, but it will not be material in the next 12 to 18 months. But we will soon see after maybe two, three years that that will be a super good business for us. And for region, it's hard. It will follow the project that they're going to do in January, and then soon after, it will depend on how many more projects they can pursue at the same time.

Very good. I'll leave it there. Thank you.

If there are no further questions at this time, I will now turn the call over to Richard for closing remarks.

Well, we would like to thank you all to be with us this morning, and we wish you all a great day.

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