5N Plus Inc.

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the 5M Plus Inc. First Quarter 2026 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, the one on your telephone keypad. And if you require me to assist for the operator, please press star, zero. I will now give the floor to Richard Perron, President. And I would like to turn the conference over to your speaker today, Richard Perron, President. Please go ahead, sir.

Bonjour à tous et à toutes. Good morning, everyone, and thank you for joining us for our Q1 2026 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 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 uncertainty. A detailed description of the risk factors that may affect future results is contained in our Management Discussion Analysis of 2025, dated February 24, 2026, available on our website and in our public findings. In the analysis of our quarterly results, you will know that we use and discuss certain non-IFRS measures, which definitions may differ from those used by other companies. For more information, please refer to our management discussion and analysis. I will now turn the conference call over to Gervais.

Thank you, Richard. Bonjour, good morning, everyone, and thank you for joining us today. Before we begin, I would like to say a few words As you know, I'm transitioning to the role of Executive Chair, so this is my last earnings call as Chief Executive Officer of FileN+. It has been a privilege and an honor to serve as CEO, and I would like to thank our shareholders and the broader investment community for their continued support. I look forward to contributing in my new capacity to the company's strategic direction and long-term development. And I have great confidence in Richard as he steps into the CEO role. Richard has been instrumental in our success, and he is well-positioned to continue executing on our strategy and take 5N Plus to the next level. And now, turning to the quarter, Q1 2026 reflects a powerful start to the year, with strong momentum across our core end markets above expectations. Performance was driven by sustained demand in specialty semiconductors, as well as favorable pricing conditions in performance materials. In specialty semiconductors, demand remains strong across our strategic sectors, with backlog continuing to provide excellent visibility, supported by ongoing strength in terrestrial renewable energy and space solar power. Bookings are now extending even beyond 2028. Segment performance in the quarter was driven by demand in terrestrial renewable energy in large part reflecting our expanded agreement with our strategic U.S.-based customer in this sector. As you will recall, under this agreement, volumes increased by 33% for the year of 2025-2026 and will increase by a further 25% for the subsequent term through 2028. In performance materials, the favorable pricing conditions we benefited from in 2025 persisted longer than anticipated and contributed positively to results, once again reflecting the agility of our global sourcing platform. Across the business, we remain focused on discipline execution, productivity initiatives, and capacity expansion plans. At our Azure facility in Heilbronn, Germany, we initiated work on our latest and previously announced capacity expansion project. This follows the 30% increase in solar cell production capacity achieved in 2025. We have begun our work and are now progressing toward an additional 25% increase, which is expected to come online by the second half of 2026, in line with customer demand. As a reminder, this capacity expansion requires targeted investment because much of the equipment is already in place. Overall, our first quarter performance reflects disciplined strategy execution. We remain focused on the right value-added products in the right-end markets, supported by agile operations and sourcing, as well as strong customer relationships. At the same time, we are fully engaged to mitigate the best we can the pressure resulting from the uncertain economic environment. Before turning the call over, I would also like to mention that our new chief financial officer, Alban Fourni, joined the company just a few days ago. We are very pleased to welcome him to the leadership team and we look forward to introducing him to the investment community ahead of our next call. With that, I will now turn it over to Richard.

Thank you, Gervais, and good morning, everyone. Before turning to the financials, I, too, would like to acknowledge Gervais for his leadership and contributions to Five and Plus. Gervais and I established a strong working relationship over the years, and we will continue to cooperate closely in his capacity as executive chair. I look forward to building on a strategy we develop and deploy with success as a team. I also look forward to working closely with our new CFO, Alba, who is quite quickly setting up to speed on all aspects of the business and the rest of our leadership team. As we move into our next phase of growth, our focus remains on discipline execution, scaling our position in iGrowth and markets, thanks to our value-added expertise, and driving operational efficiencies. All of this is being pursued with a view to delivering long-term sustainable value to our stakeholders. Turning now to our financial performance for the first quarter, revenue for Q1 2026 was $117.9 million, an increase of 33% compared to $88.9 million in Q1 of last year, primarily driven by higher volumes and specialty semiconductors and stronger pricing and performance materials, all of which reflects a favorable product mix. Adjusted gross margin increased by 36% to $41.4 million, representing 35.1% of sales compared to 34.2% in the prior year, reflecting a favorable product mix and pricing above input costs. Adjusted EBITDA reached $29.2 million, up 41% year-over-year compared to Q1 last year. Net earnings were $17.8 million or $0.20 per share compared to $9.6 million, or 11 cents per share in Q1 last year. In specialty semiconductors, revenue increased to 86.2 million, up 37% year-over-year, primarily driven by our volumes in terrestrial renewable energy. Adjusted EBITDA increased by 42% to 25.1 million, reflecting our demand in terrestrial renewable energy and improved unit costs from economies of scale. Adjusted gross margin remaining strong at 34.4 million of sales compared to 35% in Q1 last year. The decrease reflects less favorable net oil input costs, partially mitigated by economies of scale. Backlog remains effectively maxed out at 365 days, providing continued visibility into future demand. In performance materials, revenue increased to $31.7 million, up 21% year-over-year. Adjusted EBITDA increased by 67% to $10.1 million, supported by favorable pricing and product mix. Adjusted gross margin expanded to an impressive 37.8% of sales compared to 32.9% of sales in Q1 last year. The improvement also reflects favorable pricing and product mix, partly offset by less favorable metal input costs. Backlog represented 130 days of analyzed revenue, reflecting contract timing and renewals. Cash used in operating activities was $13.5 million in Q1 compared to cash generated in the prior year, primarily reflecting our working capital requirements to support increased volumes and sustained demand. Net debt stood at $74.7 million at March 31st, during 2026, compared to $50.3 million at the end of 2025, reflecting the working capital investment in the quarter. Despite this increase, our net debt to EBITDA ratio remains low at 0.71 times, highlighting the strength of our financial position. Turning to the outlook, in specialty semiconductors, structural growth across our core and markets continues to support demand, particularly in terrestrial renewable energy and space solar power. Long-term customer agreements and AFT backlog also provide strong visibility. In performance materials, Terrible pricing conditions extended into the first quarter, longer than we had anticipated. That said, we continue to expect a gradual normalization over the remainder of the year. More broadly, we continue to operate in a dynamic environment, with anticipated cost volatility and inflationary pressures due to the current geopolitical context. While we delivered strong performance in the first quarter, We continue to expect higher input and operating costs to exert some pressure on margins over the course of the year. In this context, we remain focused on the elements within our control, discipline execution, including on productivity initiatives and capacity expansion plans to support long-term growth and drive economies of scale. Taking these factors into account, along with our strong first quarter performance, we're maintaining our full-year adjusted EBITDA guidance of $100 million to $105 million. We expect a more balanced contribution across the year compared to our prior expectations. We also continue to actively evaluate external growth opportunities to further strengthen our leadership in advanced materials across our key markets. Overall, we are confident in the underlying growth fundamentals of our end markets, our competitive positioning within those markets, and our ability to execute on our strategy to deliver sustained profitable growth. So that concludes our formal remarks. I will now turn the call back over to the operator for the Q&A with our financial analysis.

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 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 Valtej Sidhu with National Bank of Canada. Your line is now open.

Hi, good morning, and congratulations once again, Cherie and Richard, on the transition. Just a few questions from me. So on the adjusted EBITDA margins in the SS segment, they reached a record high, partly driven by economies of scale. Just thinking, looking forward, how sustainable are these margin levels going forward, just given the strong underlying demand? Is that a fair run rate assumption to consider going forward?

On a consolidated basis, yes. If we have any variations from a gross margin expressed as a percentage of sales, it's going to be quite limited. It's going to be quite reasonable, nothing drastic. The current margins we have is what we're expecting for the most part of the year now. If there's any variation from one quarter to another, it will be most likely due to the product mix rather than the fundamentals of our business.

That's great. And then could you share an update on your pipeline in the space segment? And are there any changes in the competitive landscape that you're seeing right now, whether that's capacity? And it seems like pricing has continued to stay above inflation. Does any commentary that you have around Azure space?

The market is essentially... there's essentially no newcomers and we have two competitors essentially and all three of us are all very busy and like we often say in the history of the satellite industry for the actual products that we're supplying to that industry, the space solar cells, we expect pricing to continue to be extremely interesting and capacity to be maxed out. That's why we continue to Again, earlier this year, we announced a further expansion of our production capacity, and going forward, we expect similar announcements will come as well.

Perfect. And just one more here, just more on the terrestrial solar side. So in your CSR report last month, you highlighted province-guide precursors. Could you comment on the broader opportunity that you're seeing here and the path forward towards commerciality?

Sorry, I missed the beginning of your question.

In the CSR report, you highlighted perovskite precursors for terrestrial silver. Just if you can comment on the broader opportunity and path towards commerciality.

Well, as you know, we've been working in our customers, and the entire industry is working to develop perovskite. Perovskite is quite promising, but this is something that still requires development in order to make sure that the efficiency could last with a long period of time. We know that perovskite could produce energy for a short period of time, a few months, but could it last for 15 years? That remains to be seen. And this is why the different companies are working on that.

So it's still under a priority drop in phase, and then we'll follow qualification before a full industrialization is done.

Great. I'll turn the line. Thank you.

Thank you. Your next question comes from Nick Boychuk with ATB Cormark.

line is now open thanks uh good morning guys um coming back to voltage's question on the consolidated gross margin profile specifically for ss and your comments in the mdna about the ongoing years efficiency program i'm curious how much of that is tied to either incremental capacity expansion within the existing four walls of terrestrial solar as your space versus the optimization of margins and and how much each could increase like if we are seeing your U.S. customer on the terrestrial solar side expanding in the U.S. further, speaking about adding more capacity. Would you be able to address that? Is that part of your ongoing program or is everything right now focused on margin enhancement?

Okay. Well, specific to the space industry, the combination of capacity expansion, the high demand, independent of the positions of our competitors, From a margin perspective, we expect that it will continue to be good forward as the pressure on the volume that is required from a solar cell perspective continues to increase, and it's foreseen to be the case for many years to come.

Your next question comes from Michael Glenn with Raymond James.

Your line is now open.

Hey, good morning. And yes, congrats, Gervais, on everything achieved during your tenure at 5N. And Richard, congratulations, too, as you transitioned to your new role. Thanks, Michael. Richard, you're talking about the metal input costs. Can you give some... insight into how those maybe trend in both segments through the rest of this year in both the specialty semiconductor and the performance materials?

We typically don't speculate on where notations will go forward, but just in the last year, for all metals that we're using to make our products, there's been some substantial increase in notations.

Okay, and would you be able to comment at all regarding how there would be some pricing mechanisms with your customers in the various segments?

Yeah, well, in each segment and sectors within the segments that we serve, all contracts have their own behavior. But typically, within a certain range, it's a fixed price, and after that comes a formula. In other contracts that are more long-term, we have special clauses where adjustments are made in time based on the most recent notation. In other parts of our business, it's typically a formula that is applied, a premium that is applied on top of the notation. So it varies from one product to another. We're always exposed, but much, much less exposed than ever in the history of the company. But look, we're making products out of metal, so there's always a little exposure. but quite minimal today versus what we experienced many years ago. The key is obviously the quality of our product portfolio today essentially being made of value-added products. But there could be a lag. So a lag could happen. But it will definitely not hurt our margins like in other industries, relying much less on the patients than in the past in other industries.

And the sales gains you saw, you highlight the scale gains. Now, does the scale gains that you expect from top line and revenue through the rest of the year, do you see that as being enough to offset the notation inflation that's been seen? That's what is for CDS. Okay. Just one clarification for me. I missed the first four minutes of the conference call, but in the MD&A, you talk about Azure expanding by 30% of capacity. Is that a tick higher than the 25% that was indicated?

The 30% is the capacity increase realized last year, out of which we'll get the benefits this year. And earlier this year, we made another announcement at 25%, out of which we'll get the benefits next year, in 27.

Oh, okay. Okay, thank you for that. I'll leave it there.

Your next question comes from . Your line is now open.

Thanks, good morning. I just wanted to start with performance materials and the pricing there. You mentioned that it's been more favorable or favorable for longer than initially expected. Can you just remind us what's behind your view that this favorable pricing will eventually reverse?

It's essentially the continuation of last year where security of supply is the is the number one priority these days under the current geopolitical context. And we're able to supply our clients with quality products on time without any interruptions due to our footprint relations and processes in place. So that's what's behind it.

It's essentially a continuity of last year's theme, which is security of supply. Okay.

And then just on First Solar, they had good comments on U.S. bookings and manufacturing utilization in their Q1 results recently. Can you share anything about the volume trends that you're seeing relative to the contracted volumes that you have with them? Are you... In the past, you talked about selling spot volumes to them. Maybe general thoughts on the volumes that you're seeing now and expecting for the next couple of years with them.

The volume is essentially as per the contract, no changes to that. If anything, every volume of material that we're producing needs to be expedited to a first seller in the U.S., So the contract is essentially a take-or-pay commitment, and they're in desperate need for the product. So there's definitely no changes to the volume other than every volume produced needs to be expedited to First Solar rapidly.

Okay, I'll get back. Thank you. Thanks for taking the questions.

Your next question comes from Nick Boychuk with ATB Cormark. Your line is now open.

Thanks. Sorry, guys. I was cut off from the question before. I just want to come back to that gross margin dynamic specifically on the specialty semiconductor. I want to understand the new run rate that we're talking about here, the 34% plus. Does that factor in all of the efficiency improvements and gains that you're seeing from the improved economies of scale and cost per ton? Or could we actually see a further benefit into the year as things continue to progress?

The current margins that we are realizing is on the back of favorable market conditions and economies of scale. Going forward, we're applying ourselves to introduce various productivity initiatives and else that, on top of additional capacity and further economies of scale, is going to bring additional benefits to the margins. That, to some extent... will obviously improve, but will mitigate any negative impact if any other factors were to increase in time due to inflation and else.

Okay, that makes sense. Thank you. And then tying that into the unchanged guidance for the full year, what would have to happen over the next three quarters for either guidance not to be met or for things to be exceeded? Because on this new margin profile, assuming the top line persists and given the visibility you have there, it feels as if we're set up for a a materially larger year. I'm curious if you can help me understand that.

Okay. Well, like we often bring, I mean, in our business and any other businesses, you have typically three main risks. Commercially, as you know, a large portion of our business is under contract. So we have a pretty good idea of where it's going to land at the end and the type of mix we're going to have, both products and clients. What we don't know is the exact distribution per quarter. Technology-wise, this year, we're going to be essentially doing more of the same. So that's also well under control. So what we're left with is the operational risk, to which we also include inflation and else. So look, if we have a stellar year in terms of energy, consumables, Reliable equipment and else, yes, the likelihood to be the guidance is very good. Otherwise, we still believe no matter what kind of headwinds we're going to have from those factors, we still believe the guidance we have on hand is a valid guidance.

Okay, that's all right. Is there material energy exposure risk to some of your European assets?

Yeah, mostly, mostly. But that, I mean, obviously we have different measures in place also to limit our risk, but we cannot control everything, as you can imagine, in today's complex environment. Okay, understood.

Congrats on the new rules, guys. All the best. Good.

Your next question comes from Yuri Link with Canaccord. Your line is now open.

Hey, good morning, guys. Wayne? Yeah, I want to come back to the guidance question and maybe I'll attack it a different way. I mean, really strong start to the year. You're pointing to, you know, sustainable with some upside margins and specialty semiconductors. But, you know, to stay within the full year guidance, I mean, it's you're essentially downgrading the back half view versus what you might have had previously. Is that all within performance materials or am I misreading the implied guidance there? Just some detail on how your back half of 2026 outlook might have changed since we last spoke.

Before starting the year, what we anticipated was a stronger second half. Now we expect the first six months and the last six months to be more and more aligned or at a similar level. So that's what we're seeing. The reason behind it is we expect some normalization of the margins on their performance materials.

But that was the expectation previously, right?

Yeah, we expected that right from Q1 and as we've As we've said, Q1 is a nice surprise from that standpoint.

Okay. So no real change to your specialty semiconductor?

Specialty semi out of our two segments because we have long-term contracts, I have a pretty good idea of the mix and the releases. No, it was originally, again, it was all essentially based on our expectations that performance materials will normalize earlier in the year. and we had an incredible Q1, but we continue to be prudent and believe that it will be normalized over the coming quarters. Okay. But it will still be an incredible, superb business, obviously. Everything is relative here.

Yes, of course. I mean, we're more than a month into Q2. I mean, have you started to see that normalization, or has those positive trends continued into Q2?

It's still positive.

Okay. So you'd say the outlook is fairly conservative for the year, the guidance? That's what it sounds like?

Yeah, no, exactly. As I said, from an operational perspective, we remain prudent as to any inflation, operational challenges in the current complex environment and else. So we remain prudent. It's only one quarter out of four. So Years go by quickly, but at the same time, it's a little marathon that we have to go through.

Yeah, I get it. Okay, that's all I had. Thanks.

Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Michael Glenn with Raymond James. Your line is now open.

Hey, just a follow-up on the working capital issue. You had the AR and the inventory build in the quarter. Maybe how should we think about those trending over the next few quarters?

As it is often the case, in the first half of the year, we typically carry a bit more networking cap than usual. But that being said, year over year, because of the growth, the important growth under both, especially under renewable energy and space, and space power, there'll be an increase in the networking cap by year end. But again, in the first half, a bit more pronounced than in the second half. But on a full year basis, you'll have a little increase in networking cap aligned with the goal.

Okay. And any notable updates that you guys can share with progress on M&A targets?

Nothing specific other than, as we often say, we're a highly motivated to complete a transaction. We're looking at many different files with an internal team dedicated to it and the help of external resources. So we're spending a fair bit of time looking at various files, so we're very serious about it.

Thank you.

I don't know for the questions at this time. I will now turn the call over to Richard for closing remarks.

Okay. Well, we'd like to thank you all for joining us this morning, and we wish you all a good day. Thank you.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating, and as they please disconnect your lines.