5N Plus Inc.

Good morning, ladies and gentlemen. Thank you for standing by and welcome to the 5N Plus Think second quarter 2025 conference call. At this time, note that all participants are in a 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 1 on your telephone keypad. And if you require immediate assistance for the operator, please press star 0. 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 Q2 2025 Results Conference Call and Webcast. We will begin with a short presentation, followed by a question period with financial analysis. 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 Discussion Analysis of 2024, dated February 25, 2025, available on our website in our public file. In the analysis of our quarterly results, you will note that we used and discussed certain non-IQRS measures, which definitions may differ from those used by other companies. For further information, please refer to our management discussion and analysis. I will now turn the conference over to Jacques.

Thank you, Richard, and thank you all for joining us this morning. Yesterday evening, we announced record results for the second quarter of 2025 and year-to-date across several indicators. Our performance marks several new all-time highs for 5 and plus and positions us well for the remainder of the year. This includes record quarterly and first half adjusted EBITDA, record quarterly adjusted gross margin, and our strongest first half revenues in a decade. In a volatile business environment, where customers are seeking out dependable partners. 5N Plus continues to stand out. We are the partner of choice outside of China for high purity, high quality, advanced materials. Customers appreciate the value and depth of our diversified global sourcing and manufacturing capabilities. Today, our reliability and supply chain are not just competitive advantage for us. They are of strategic importance for our customers. This morning, we also announced a milestone supply agreement with First Solar, which I will discuss in more detail in a moment. As we head into the second half of the year, we're not only well-placed to deliver on our new, increased adjusted EBITDA guidance for 2025, we will also be able to build on this momentum going into 2026. Let's start with our activities in strategic sectors under specialty semiconductors. In terrestrial renewable energy, volumes were significantly increased. up for the second quarter compared to last year, and up compared to the first quarter. We are on pace to continue shipping more products than originally planned to our key strategic customer in this sector, as reflected in the terms of our new and expanded supply agreement. Under our new terms, we are increasing semiconductor compound supply volumes by 33% for the 25-26 period underway. This is compared to initial contract level. As we are increasing volumes by an additional 25% over this period for the subsequent 27 and 28 term. This will also include the delivery of additional next generation semiconductor compound as we continue to work with First Solar on product development. With the investment recently completed in our Germany and Montreal plant operation, we will be able to meet this increased demand with minimal additional investments. Our team is incredibly proud to solidify its standing as a critical enabler to the U.S. solar energy sector and to further strengthen our longstanding partnership with First Solar. Amid shifting U.S. energy policy, First Solar is uniquely positioned to capitalize on U.S. economic growth, digital infrastructure expansion, and accelerating electrification as the leading American solar technology company. Make no mistake, America needs solar energy in the mix as it seeks to diversify its energy sources and enhance its energy security and to meet significant power demand over the next decades. They need access to domestically produced, reliable, scalable, cost-effective, and quick-to-market solutions. First Solar provides all those things, and they are currently actively expanding their U.S. nameplate capacity to meet the moment. With the U.S. administration's Big Beautiful Bill Act, And despite the phase-out of the Inflation Reduction Act anticipated in 2026, domestic solar energy will remain a part of the U.S. energy equation. The why and how may have evolved, but the fundamentals remain. In this context, 5N Plus is also benefiting as a key strategic North American supplier embedded in First Solar's value chain. and as reinforced by our expanded supply agreement. Turning now to space power and our activities at Azure in Germany. Demand for our solar cell technology remains very strong, further driving our performance in the second quarter, including pricing margins. Customers are planning ahead and securing products early to support future satellite programs, and space missions. To illustrate, we recently submitted a quote for deliveries extending into 2029, 2030, and 2031. This highlights both the long-term visibility the sector provides and customer confidence in the reliability of our technology. After increasing capacity in Heilbronn by 35% last year, We continue to boost solar cell production by an additional 30% this year. All equipment, including two new reactors, has been installed and commissioned. We are currently ramping up production while optimizing the full value chain. We remain on schedule to reach our full production target by Q4 2025. Looking now at energy storage. A few weeks back, our customer Australia-based region announced the acquisition of its Yanari project by AGL, a project which has been granted development approval. This acquisition marks a major step towards the industrialization and commercial development of long-duration storage technology. As the supplier who supplied the solar cells, that formed the foundation of Raygen's core module technology, this announcement bodes well for us as a commercial opportunity in the medium term. When that time comes, we will be ready and able to deliver on Raygen's global pipeline of projects, including Liannari, which will have a total of 150 megawatts of solar energy capacity once operational. Finally, On the performance materials side, we are benefiting from exceptional margins, and this is no accident. In Q2, this segment was positively impacted by a favorable sales mix, despite slightly lower volumes over last year. This, once again, reflects our unique positioning in the context of high business volatility with a strategic and diversified global supply chain. In conclusion, we have many tools in our toolbox to continue capturing market share and the growing demand in key sectors for our advanced materials. We have the capacity to grow organically thanks to our flexible manufacturing footprint, while we also continue to actively pursue external opportunities from a strong financial position. Thanks to our market leadership, and competitive advantages, we will continue to solidify our status as the strategic partner of choice. Richard, over to you for a review of our financial results in more detail. Thank you, David. Good morning, everyone.

Strong financial results across the board in Q2 2025 and the year to date reflect significant volume increases in specialty semiconductors on the back of accelerating demand in strategic sectors. an exceptional margin expansion on the performance materials. In an environment of ongoing global trade and economic volatility, our customers are acting decisively to secure the advanced materials they require, and we are delivering. We have the right expertise to supply high-quality products, as well as diverse sourcing and manufacturing capabilities customers can depend on. And this is translating into sustained outperformance since the beginning of the year. To illustrate, consolidated revenue in Q2 increased by 28%, reaching 95.3 million, while revenue year-to-date reached 184.2 million, representing a 37% growth year-over-year and a 10-year high in terms of first-half revenue generation for 5M+. Adjusted EBITDA increased by 79% to a record 24.1 million in Q2 and grew to a record 44.9 million year-to-date, and a 78% increase compared to the year-to-date 2024. For Q2, we also did avert a record adjusted gross margin, both in terms of dollars and as a percentage of sales. In dollars, adjusted gross margin increased by 41% to 33 million and came in at 34.6% of sales. Adjusted gross margin through the first half of 2025 came in at 63.4 million and 34.4 million of sales. Turning now to our segments and the drivers behind the outstanding KPI performance, starting with specialty semiconductors, Q2 volumes in terrestrial renewable energy were up 50% year over year and 15% compared to Q1. Our new agreement with First Solar announced this morning only further confirms that this acceleration in demand is not a question of timing or pull forward, but really a step up in demand that is sustained and that will continue to grow over the next few years. Q2 segment performance was further supported by high demand for solar cells, which is also positively impacting pricing margins as we progressively benefit from our capacity expansion at HESR. Meanwhile, imaging and sensing performance was on plan and as expected. Specialty semiconductors revenue was $71.2 million compared to $52.3 million in Q2 last year. Year-to-date revenue was $134 million compared to $97.5 million in 2023. supported by the desired amount. Adjusted gross margin as a percentage of sales was 32.7% in Q2 compared to 33% in Q2 of last year. Year-to-date, it was 32.8% compared to 31.2% year-to-date, favorably impacted by economies of scale due to higher production and higher prices net of inflation. Adjusted EBITDA increased by 5.9 million, or 45%, to reach 19 million for Q2. and adjusted to the year-to-date increase by $14 million to $36.7 million. The increase is primarily attributable to higher demand, higher prices, net of inflation, and favorable unit costs from economies of scale. For its part, our performance material segment performance was positively impacted by a favorable segment, sales mix. This is despite slightly lower volumes over last year and the absence of the pull forward in purchasing experience in Q1. Our ability to supply business-based products for industrial applications at higher margins in the context of high business volatility speaks to our unique, strategic, and diversified global supply chain. Performance at Shell's revenue reached $24.1 million in Q2 compared to $22 million in Q2 of last year. Year-to-date, the revenue was $50.2 compared to $42.1 last year. Adjusted gross margin as a percentage of sales was a record 41.1% in Q2 this year compared to 28.4% in Q2 last year, and 36.8% for year-to-date compared to 31.7% last year. We had a favorable inventory position going into the quarter, from which we benefited on top of a favorable product mix and higher prices net of inflation. Adjusted EBITDA in Q2 increased by 4.2 million, or 108%, and reached 8 million, Adjusted EBITDA year-to-date increased by 5.3 million to 14.1 million, positively impacted by the same factors. Turning now to backlog. Backlog for specialty semiconductors was 354 days of analyzed revenue, 17 days higher than on March 31st, 2025. While the estimated number of days based on analyzed revenue cannot exceed 365 days per hour backlog definition, The effective backlog for the terrestrial renewable energy and space solar power sectors specifically continues to surpass the next 12 months. Backlog for performance materials was 127 days, 25 days higher than on March. Combined backlog at Q2 was 297 days of annualized revenue, 29 days higher than on March. We also ended the quarter in a strong financial position with net debt at the low level of $74.3 million. This is compared to $100.1 million as of the end of December 2024, representing a decrease of $25.7 million. That brings our net debt-to-visa ratio to a 1.07 times as of June 30th, 2025. Our strong balance sheet coupled with our borrowing capacity continues to provide us with financial flexibility to execute on internal or external growth opportunities. We continue to actively assess opportunities, and the team is very motivated to enter 2026 with an acquisition. However, we will take the time required to find the right opportunity that meet our criteria. We are pursuing these opportunities while remaining highly focused on our increased capacity targets and production optimization to meet anticipated demand. Turning now to Outlook and the adjusted EBITDA guidance. Through the second half of 2025, we anticipate demand under specialty semiconductors from the terrestrial renewable energy and space solar power markets to increase further as customers look to secure high-quality advanced materials from trusted partners. Under performance materials, consistent with historical trends, volumes through the second half are expected to be slightly lower than in the first half, but with margins continuing to benefit from a strategic global supply chain. Based on our financial performance year to date and our expectations for the second half of 2025, we have increased our adjusted EBITDA guidance from a range of 55 to 60 million to a new range of 65 to 70 million. This revised guidance takes into account the increased volumes anticipated through the end of this year as a result of our new contract with FirstSource. Looking ahead, we are excited about the growth opportunities ahead, but also remain very prudent and mindful of the evolving geopolitical and trade environment. We're keeping a close eye on any impact on operating costs and focus on supporting our clients. All in all, given our unique and global standing as a preferred partner, we are well positioned for the rest of the year, but we will also capitalize on our strong momentum to enter 2026 at higher levels. We will continue to raise the bar as we have done consistently over the last few years and keep the momentum going. So that concludes our formal remarks. I will now turn the call back over to the au pair for the Q&A with financial analysts.

Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. And if you wish to decline from the polling process, please press star followed by two. And if using a speakerphone, please lift the handset first before pressing any keys. Mesdames et messieurs, si vous avez des questions, veuillez, s'il vous plaît, appuyer sur l'étoile suivie du 1. Merci. And your first question will be from Michael Dumais at National Bank Financial. Please go ahead, Michael.

Hey, good morning, guys. Good morning. Good morning. Congratulations on the quarter and obviously the first solar contract expansion and extension. So maybe I'll start on the latter piece. So on the contract... you know, would you be able to provide some details around just pricing in general? And I know generally you said minimal capex, but if you can get a little bit more specific on that, that'd be great. And then also, I guess separately, any way you can comment on whether or not you expect the deliveries there to extend much beyond the first solar U.S. production, as well, just to get a general view.

Okay. As a starting point, by default, the vast majority of the volume of the Curva Life Contract will be heading to the U.S., to the United States. So there are various plans that they have in the U.S. as a starting point. Then to answer the CapEx part, we have already in this year's budget capital allocated to meet the current year's demand. and we have launched another program in order to meet next year and the following two years' demand. All of that is on its way, and those capital investments will be done for the most part, and not exclusively, for the most part in Montreal. So that's all undergoing. And the other part of your question was pricing. So pricing, it's on favorable terms. But at the same time, remember our last remarks, we're extremely mindful of inflation and operating costs that will most likely not stay at the current level. But all has to be to see.

And maybe just to add, you know, it will all happen within our own installation, both in Eisen and Montreal. No need to build a new building. It will be happening within the same installation. And we keep the same strategy, securing contract first and then adding capacity in an incremental manner.

We're extremely disciplined when it comes to capital investment.

Perfect. Thank you. So maybe turning to the results, like obviously a very strong first half. If I tell you to go back to the beginning of the year and compare your early year expectations, the results so far, I wonder in your view, what really exceeded the expectations? And I guess separately, has the expanded agreement with First Solar already provided a boost to the first half, or is that really just expected to start going into the second half and into 26?

The last part of your question, with this morning's announcements, what we need to say is that in the first half, part of that is already realized. Okay? Okay. It's what we referred to in the past as our spot business. not being confirmed or contracted. That's essentially what's behind today's announcement. And more, as you can see, it goes four years ahead of us. Okay. And the other part of your question was on?

Where? Compared to the beginning. Expectation. Expectation. So I guess,

Our biggest single positive impact in the year would be on the performance materials. It does perform better than anticipated, okay, from a margin perspective. And obviously, we did not at the beginning of the year anticipate the pull forward in Q1, but as we just mentioned, it did not appear in Q2. But the margins that we're currently realizing on the performance materials, that's a nice... let's say, surprise or a factor that we did not anticipate at the beginning of the year. We always anticipate good results from that segment, but the results are better than anticipated. We have to be honest.

Perfect. And maybe if I can end with a third bit, you know, I noticed you didn't characterize the strength in your Q2 sales as benefiting from an equal forward like you did for Q1. So, you know, if I take your comments on the accelerating demand in special semiconductors markets, obviously including for solar, the expansion of Azure. In my mind, how is it not possible that the key to – sorry, the second half sales don't exceed the first half sales? Just trying to really square away the guide with some of the commentary. Okay.

Well, in the case of renewable energy, you know, what was a spot sales in Q1 will be under contract and will increase gradually over the year to be ready to be at the level of 2026 and so on after. Then what we see is an improvement on renewable terrestrial energy. On space solar, you know, you will see an increase going forward as we completed the commissioning and now we're doing all the qualification and ramping up the production. Then At Azure, production will gradually increase over the year as well. And on performance materials, as you know, we have enough capacity to meet all the demand, but the volume is slightly down, but margin up. Then we'll see how the market will react over the next two quarters.

Okay, I'll leave it there, guys. Obviously, congratulations again.

Thank you.

Next question will be from Nicholas Boychuk at Cormark Securities. Please go ahead, Nicholas.

Thanks. Good morning, guys. Good morning. On the first solar contract, can you just kind of qualify? Richard, you mentioned that a lot of the new material you're producing is going to be going to the U.S., but does this incremental capacity account for all of the new facilities they have coming online there, or might there be additional demand that they have as these other facilities like Louisiana and Alabama fully ramp to production?

Well, our understanding from discussion with them and also their own public findings, their strategy forward is to increase further their capacity in the U.S. And I say further, further from what they may have announced a couple of years back when they officially announced the Alabama and Louisiana plant. Now they want to bring to a higher level that capacity they have in the U.S.

Okay, but to confirm, Do you guys know if what you are producing represents all of the CDTE and all of the advanced materials that are going into those facilities?

That's our understanding. If it's not all of it, it's by far a vast majority of all the semiconductor compounds they're going to be using in their tin film technology.

Yep. Okay. Understood.

Thank you. This morning's announcement, as you've read, we're also adding another tin film material referred to as CDSE.

Yep.

Exactly. I was just going to ask, the CBSE, can you comment at all on where that's going to be produced and the expected volumes, the type of product it's going to be going into, any color there?

It's going to be produced in Montreal. Then we're currently, we will be investing in Montreal to put in place a new production line producing CBSE. And this will, it is part of the different semiconductor compound layers when you're producing a panel at a 10-10 solar panel at First Solar. You do have one layer of CDSC, then this will be produced in Montreal.

Okay, understood. And then switching gears to Azure and the capacity demand you have there, it's remarkable that you're booking business as far as you are. How are you guys thinking about capacity there? What would you have to see, I guess, to increase further production run rate and what would catalyze that?

Well, As you know, 25 is fully sold. 26 is fully sold. Now we're booking 27 and onward. And the way it works for us, the same strategy will apply as soon as the booking will be, you know, when we have super good visibility and we know that we will be lacking capacity, we will be looking at projects to add capacity again. But again, it will be one step at a time and in an incremental manner. Always the same strategy. securing contracts, and then investing.

So we essentially have a whole list of options prepared, and as we're filling up those years, we'll come upon a time we'll make the call.

Okay. Understood. Thank you, guys.

Thank you. Next question will be from Frédéric Tremblay at Desjardins.

Please go ahead, Frédéric.

Thank you, and congrats on the quarter and the new agreement with Resolv. Thanks, Alex. Just on the first solar agreement, can you help us maybe understand how the incremental volume, the increase that you announced at 33%, how that's going to be distributed roughly over 2025 and 2026? Should we think about it as an increase in both years, or is it mainly weighted to 2026?

Both. The way we have made our announcement, we've compared the 25-26 versus that previous contract that we had announced a year ago. So you got a first increase, where by default 2026 has a higher volume than 25. Then when you get into 27 and 28, the increase we have announced is against 25-26. In this case, at this point in time, the two years should be pretty much at the same level. But for the first two years, the second year, being 2026, would be at a higher level than this year.

Okay. Thanks for that. That's helpful. And then maybe just switching to performance materials and trying to better understand the elevated margins there. Is it – I mean, you're talking about business-based pricing. Is it mainly just a pass-through of the higher business prices that we're seeing in the market right now that's sort of helping – the operating leverage and the margin there, or is there something else that's driving that margin higher? I'm just trying to get a better grasp of the sustainability of that margin.

It's the combination of various factors, the sales mix. And if you recall, we made some investments into that segment three years or so back. We added automation, we added capacity. And we also recently made additional investments. All of that leading to operations that are more productive overall. But in the current geopolitical, what we've been able to take advantage of is what we refer to in our official remarks as our strategic global supply chain. We've been able, in the context of our prices of business, not to name it, through our various sources of business, the shapes and form, the value add that we're adding to make the products that we're sending in IAM markets, we've been able to pull the best of all margins we could.

Okay, perfect. And then maybe just lastly on Azure, you commented on the year that you're booking business in. Can you talk about pricing and margins and what you're seeing there? There's obviously been significant improvements since you acquired the company, but just given the strong demand, I would imagine that pricing is favorable as well in the new agreements that you're signing to this day?

Yes, indeed. If you look at the new agreement that we're signing compared to the one we had three, four years ago, It's totally different. And the reason is the following. The supply and demand is super tight. And the market has been quite disciplined. Our two main competitors in the U.S., one of the two announced investment to increase its capacity, but also in a manner where it's quite gradual. Then I think from a supply side, there's a lot of discipline. and we're growing based on order. Then if you don't have the contract, you're not adding capacity, which definitely helps to maintain and improve the margin.

Great. Thank you, and congrats again.

Next question will be from Michael Glenn at Raymond James. Please go ahead, Michael.

Hey, good morning. So just the first question. So look, if I look at your back half guidance, You're effectively pointing to a 50% decline in EBITDA relative to the front half of the year at the midpoint of the second half implied guide on EBITDA. Is it realistic to think that your EBITDA will decline that much in the back half of the year versus the first half?

We're going to have a great H2, but we expect it to be lower than H1 for various reasons. On the performance materials, as we've been saying, I would say eight years out of 10, most often the volume is down because of the type of industries and clients we are addressing who are more cautious about their year-end balance sheet. And then in the case of specialty semiconductors, obviously volume is up, but we can foresee at this point in time without without exact numbers, that operating cost will be higher. So again, we're going to have two great quarters ahead, but slightly lower than the first. And so the extent of which is always difficult to assess with precision.

Okay. And then just to go back to the first solar, is the volume I know you're saying a lot of – you're commenting a lot on it, but is the volume we should see in the back half of the year consistent with the first solar volume that we saw in the front half of the year?

It should because essentially for solar, every unit of product we could produce, they took it in the first half. It's not like it's been – pace with a lot more in the second half than the first half. So going forward, it should be similar or slightly higher. And then as always, there's always that tricky cutoff part when you reach the holiday period towards the end that may play, but the volume will be superb in the second half.

Okay. And then one of the comments was towards 2026, like it, In M&A, maybe having motivated to enter 2026 with an acquisition, can you just maybe – are you getting closer on the type of business you would like to acquire? Just maybe additional information on what's happening with your M&A conversations.

We have a short list of companies. that we're spending a fair bit of time to better understand the operations, the market, and assess the fit with 5N+. So that's where we're at, and we're entertaining exchange, but at this point in time, it's still getting familiar with the market, the operations, and how it fits into the 5N-plus story.

And again, you know, we're not looking for an acquisition. We're looking for a successful acquisition like Azure. Exactly. I think the mantra and the mindset is really we're super focused on that.

Okay. Thank you for taking the questions. Thank you. Next question will be from Amir Azad at Ventum Capital Markets.

Please go ahead, Amir.

Good morning and congrats. Thanks, Amir. I hate to ask again, but just for an abundance of clarity on the volumes, obviously where it becomes difficult is you have, like, all of the spot purchases. So from what you guys said in the Q&A, Q2 results already reflect that run rate that we should have for the rest of 2025. I think we all understand that. But then for 2026, yes. I thought I understood that we get a bit of an uptake relative to 2025. Did I misunderstand or is that correct?

It is correct. 26 will have more volume than 25. And that is true for renewable and space.

Yep.

Yeah, let's just, yeah, for space, I understand. So, for renewable, how do I think, how much of an uptake do we have in 2026 relative to 2025? Are you guys, like, comfortable sharing that?

It's an important uptake. It's in the 35 to 45%.

Okay, because when you guys like say 33% for 2025, 2020, 2026.

That's the combination of the two years. Yep.

Okay. Okay. Understood. Then for 2027, 2028, we layer another 25% on top of that.

Another 25% over 2025, 2026. Yep. Exactly. Okay.

On top of that. Okay. Perfect. Okay. I think that was very clear. The expanded agreements includes like CDSE beginning 2026. which we haven't discussed, like, too, too much in past calls. Number one, is that in addition to the 33% of increased volumes for CBT?

It is, sir.

Yep. Fantastic. Can you guys, like, quantify for us, you know, like, that volume, number one? Then if you could elaborate on how CDST – fits into your product and manufacturing roadmap relative to CDTE. I do understand, for first of all, where it's complementary to CDTE within the same sort of module architecture, but I just wonder how does it sort of impact your production processes and requirements and maybe thoughts on the margin profile over time for CDSE relative to CDTE.

From a manufacturing perspective, It is very similar in terms of equipment and processes, but it will need to be manufactured in a separate room to avoid, obviously, contamination. But the processes and the type of equipment, all that works out in a similar fashion to CDTE, where we build our own reactors and so on and so forth, and the chemistry has a lot of similarities. By default, the process is to make it. From a margin perspective, it is also pretty similar.

Yeah. And in terms of quantity, you know, the layer of CDAC, it's thinner, much thinner than the layer of CDT, less quantity.

Yeah, volume-wise, it's not at all to the magnitude of CDT because they use a much thinner layer.

But it's a super interesting niche product.

It's a nice add-on.

Yeah, high-value add-on.

Technology pretty similar. Yep.

It appears that his line disconnected.

Okay. It's not ours.

And at this time, gentlemen, it appears that we have no other questions registered. Please proceed.

Okay, well, we would like to thank you all for joining us this morning, and have a great day. Yeah, thanks.

Thank you. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending, and at this time we ask that you please disconnect your lines.