VLN Velan Inc

In a release issued under the same headline on Thursday, May 16, 2024 by Velan Inc. (TSX: VLN), please note that the conference call access information has been updated. The toll-free call-in number should be 1-800-836-8184, not 1-888-660-6345 or 1-289-819-1450. The corrected release is as follows:

Velan Inc. (TSX: VLN) (“Velan” or the “Company”), a world-leading manufacturer of industrial valves, announced today its financial results for its fourth quarter and fiscal year ended February 29, 2024. All amounts are expressed in U.S. dollars unless indicated otherwise.

FOURTH QUARTER HIGHLIGHTS:

• Bookings1 of $132.8 million, up sharply from $87.1 million last year and $78.3 million in the third quarter.
• Book-to-bill1 ratio of 1.13, versus 0.76 for the same period a year ago and 0.97 in the third quarter.
• Sales of $117.9 million, up from $115.1 million last year and up from $80.9 million in the third quarter.
• Gross profit of $38.4 million, or 32.6% of sales, compared to $39.9 million, or 30.4% of sales, last year.
• Net loss2 of $2.1 million compared to a net loss of $47.2 million last year.

YEAR-END HIGHLIGHTS:

• Order backlog1 of $491.5 million, up $27.1 million from last year.
• Bookings of $374.5 million, compared to $353.2 million in fiscal 2023.
• Book-to-bill ratio of 1.08, versus 0.95 last year.
• Sales of $346.8 million, compared to $370.4 million in fiscal 2023.
• Gross profit of $93.2 million, or 26.9% of sales, versus $112.5 million, or 30.4% of sales, last year.
• Net loss of $19.7 million, versus a net loss of $55.5 million in the prior year.
• Cash and cash equivalents of $36.4 million.

FINANCIAL RESULTS(‘000s of U.S. dollars, excluding per share amounts)		Three-month periods ended				Fiscal years ended
		Feb. 29, 2024		Feb. 28, 2023		Feb. 29, 2024		Feb. 28, 2023
Sales		$117,894		$115,141		$346,816		$370,429
Gross profit		$38,384		$39,945		$93,207		$112,465
Gross margin		32.6%		34.7%		26.9%		30.4%
Net loss		($2,083)		($47,164)		($19,737)		($55,453)
per share - basic and diluted		($0.10)		($2.18)		($0.91)		($2.57)
Adjusted EBITDA		$19,879		$16,468		$17,780		$21,092
Adjusted net income (loss)		$8,944		$8,790		($7,918)		$501
per share - basic and diluted		$0.41		$0.41		($0.37)		$0.02
Weighted average share outstanding (‘000s)		21,586		21,586		21,586		21,586

“Velan concluded fiscal 2024 with strong fourth quarter results, marked by heightened sales volume and healthy profit margins on improved quality of execution,” said James A. Mannebach, Chairman and CEO of Velan. “In addition, robust bookings during the period further increased our backlog to $491.5 million at year-end. Given the value of orders to be shipped over the next 12 months, we expect sales growth in fiscal 2025. As a supplier of critical equipment to essential industries, Velan is well positioned to capture growth opportunities driven by the ongoing energy transition and expand its reach in the flow control industry based on an agile workforce, global presence and strong brand recognition.”

“Fueled by a net cash position, Velan’s strong balance sheet will allow the Company to fund its current operations and pursue re-investment to expand its global reach. Over the longer term, we remain committed to building shareholder value through sales and cash flow growth,” added Rishi Sharma, Chief Financial and Administrative Officer of Velan.

BOOKINGS AND BACKLOG(‘000s of U.S. dollars, excluding ratio)		Three-month periods ended						Fiscal years ended
		Feb. 29, 2024			Feb. 28, 2023			Feb. 29, 2024			Feb. 28, 2023
Backlog								$491,525			$464,337
for delivery within the next 12 months								$360,669			$307,991
Bookings		$132,825			$87,085			$374,454			$353,176
Book-to-bill ratio			1.13			0.76			1.08			0.95

As at February 29, 2024, the backlog stood at $491.5 million, up $27.2 million, or 5.9%, from $464.3 million a year earlier reflecting strong fourth quarter bookings. As at February 29, 2024, 73.4% of the backlog, representing orders of $360.7 million, is deliverable in the next 12 months, versus 66.3% of last year’s backlog. Currency movements had a positive effect of $5.6 million on the backlog during the year.

Bookings for the fourth quarter of fiscal 2024 amounted to $132.8 million, up 52.5% over bookings of $87.1 million a year earlier. The increase is mainly attributable to strong oil and gas bookings recorded by the Company’s Italian operations and to higher orders recorded by North American operations, partially offset by the timing of orders for the French subsidiary following strong bookings in the prior year. Currency movements had a positive effect of $3.8 million on bookings during the quarter.

As a result of bookings outpacing sales, the Company’s book-to-bill ratio was 1.13 in the fourth quarter of fiscal 2024, compared to 0.76 in the corresponding period of fiscal 2023.

Fiscal 2024 bookings reached $374.5 million, an increase of $21.3 million or 6.0% compared to the previous year. As a result of bookings outpacing sales for the fiscal year, the Company’s book-to-bill ratio was 1.08 in fiscal 2024, compared with 0.95 in fiscal 2023.

FISCAL 2024 FOURTH QUARTER RESULTS

Sales reached $117.9 million, up $2.8 million or 2.4% from last year. The variation is mostly attributable to stronger shipments from the Company’s International operations. These factors were partially offset by lower shipments from North American operations and shipping delays due to the situation in the Red Sea. Currency movements had a $1.7 million positive effect on sales for the quarter.

Gross profit was $38.4 million, versus $39.9 million a year ago. The variation reflects a less favorable product mix this year compared to last due to the execution of certain low margin projects. Last year’s gross profit also benefitted from a favorable revaluation of the inventory provision based on new estimates relating to changes in market demand. As a percentage of sales, gross profit was 32.6%, versus 34.7% last year.

Administration costs reached $33.1 million, compared to $80.8 million last year. This year’s administration costs include a $10.0 million asbestos provision adjustment and restructuring charges of $1.3 million mostly consisting of severances. Last year’s costs included a $56.0 million charge to increase the Company’s asbestos provision. Excluding these items, administration costs totaled $21.7 million, or 18.4% of sales, in the fourth quarter of fiscal 2024, versus $24.9 million, or 21.6% of sales, in the fourth quarter of fiscal 2023. The decrease is mostly due to lower expenses for the North American operations and cost reduction initiatives throughout the Company’s operations.

EBITDA1 reached $8.5 million compared to negative $39.5 million last year. Excluding asbestos and restructuring costs, adjusted EBITDA was $19.9 million in the fourth quarter of fiscal 2024, compared to $16.5 million a year earlier. This increase reflects lower administration costs and a $1.7 million net reduction in other expenses, mainly related to a provision related to a commodity tax audit last year. These factors were partially offset by a lower gross profit.

Net loss was $2.1 million, or $0.10 per share, versus a net loss of $47.2 million, or $2.18 per share last year. Excluding the after-tax effect of asbestos and restructuring costs, adjusted net income was $8.9 million, or $0.41 per share, compared to $8.8 million, or $0.41 per share, last year. The variation is attributable to higher adjusted EBITDA partially offset by higher net finance costs and income tax expense.

YEAR-END RESULTS

For the fiscal year ended February 29, 2024, sales amounted to $346.8 million, down from $370.4 million last year. Gross profit was $93.2 million, or 26.9% of sales, compared to $112.5 million, or 30.4% of sales, last year. EBITDA stood at $5.3 million, versus negative $34.9 million a year ago, while adjusted EBITDA reached $17.8 million compared to $21.1 million last year. Net loss was $19.7 million, or $0.91 per share, compared to a net loss of $55.5 million, or $2.57 per share, a year ago, while adjusted net loss was $7.9 million, or $0.37 per share, compared to adjusted net income of $0.5 million, or $0.02 per share in the prior year.

FINANCIAL POSITION

As at February 29, 2024, Velan’s financial position remained solid. The Company had cash and cash equivalents of $36.4 million, as well as short-term investments of $5.3 million, while long-term debt, including the current portion, amounted to $28.8 million.

OUTLOOK

Velan aims to build on the momentum gained in the second half of fiscal 2024, concluding the year on a solid note with a growing order backlog and a book-to-bill ratio of 1.08. As at February 29, 2024, orders totaling $360.7 million, representing 73.4% of a total backlog of $491.5 million, are expected to be delivered in the next 12 months. Given these orders, the Company expects to deliver annual sales in fiscal 2025 above the level achieved in fiscal 2024.

CONFERENCE CALL NOTICE

Financial analysts, shareholders, and other interested individuals are invited to attend the fourth quarter conference call to be held on Friday, May 17, 2024, at 8:00 a.m. (EDT). The toll-free call-in number is 1-800-836-8184 or by RapidConnect URL: https://emportal.ink/4aUSejk. The material that will be referenced during the conference call will be made available shortly before the event on the company’s website under the Investor Relations section (https://www.velan.com/en/company/investor_relations). A recording of this conference call will be available for seven days at 1-289-819-1450 or 1-888-660-6345, access code 24455.

ABOUT VELAN

Founded in Montreal in 1950, Velan Inc. (www.velan.com) is one of the world’s leading manufacturers of industrial valves, with sales of US$346.8 million in its last reported fiscal year. The Company employs approximately 1,641 people and has manufacturing plants in 9 countries. Velan Inc. is a public company with its shares listed on the Toronto Stock Exchange under the symbol VLN.

SAFE HARBOUR STATEMENT

This news release may include forward-looking statements, which generally contain words like “should”, “believe”, “anticipate”, “plan”, “may”, “will”, “expect”, “intend”, “continue” or “estimate” or the negatives of these terms or variations of them or similar expressions, all of which are subject to risks and uncertainties, which are disclosed in the Company’s filings with the appropriate securities commissions. While these statements are based on management’s assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that it believes are reasonable and appropriate in the circumstances, no forward-looking statement can be guaranteed and actual future results may differ materially from those expressed herein. The Company disclaims any intention or obligation to update or revise any forward-looking statements contained herein whether as a result of new information, future events or otherwise, except as required by the applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

NON-IFRS AND SUPPLEMENTARY FINANCIAL MEASURES

In this press release, the Company has presented measures of performance or financial condition which are not defined under IFRS (“non-IFRS measures”) and are, therefore, unlikely to be comparable to similar measures presented by other companies. These measures are used by management in assessing the operating results and financial condition of the Company and are reconciled with the performance measures defined under IFRS. The Company has also presented supplementary financial measures which are defined at the end of this report. Reconciliation and definition can be found below.

Adjusted net income, Adjusted net income per share, Earnings before interest, taxes, depreciation and amortization ("EBITDA") and Adjusted EBITDA

(thousands, except amount per shares)		Three-month period ended				Fiscal years ended
		Feb. 29, 2024		Feb. 28, 2023		Feb. 29, 2024		Feb. 28, 2023
		$		$		$		$
Reconciliation of net income (loss) to adjusted net income (loss)2& adjusted net income (loss) per share
Net income (loss)		(2,083	)	(47,164	)	(19,737	)	(55,453	)
Adjustment for:
Proposed transaction related costs		108		-		900		-
Restructuring costs		919		-		919		-
Adjustment to asbestos provision		10,000		55,954		10,000		55,954
Adjusted net income (loss)		8,944		8,790		(7,918	)	501
per share - basic and diluted		0.41		0.41		(0.37	)	0.02
Reconciliation of net income (loss) to Adjusted EBITDA
Net income (loss)		(2,083	)	(47,164	)	(19,737	)	(55,453	)
Adjustments for:
Depreciation of property, plant and equipment		2,472		2,452		8,930		8,722
Amortization of intangible assets and financing costs		650		608		2,296		2,272
Finance costs – net		2,355		516		6,346		1,552
Income taxes		5,088		4,102		7,471		8,045
EBITDA		8,482		(39,486	)	5,306		(34,862	)
Adjustments for:
Proposed transaction related costs		147		-		1,224		-
Restructuring costs		1,250		-		1,250		-
Adjustment to asbestos provision		10,000		55,954		10,000		55,954
Adjusted EBITDA		19,879		16,468		17,780		21,092

The term “Adjusted net income (loss)” is defined as net income or loss attributable to Subordinate and Multiple Voting Shares plus adjustment, net of income taxes, for costs related to the proposed transaction, restructuring, and asbestos provision. The terms “Adjusted net income (loss) per share” is obtained by dividing Adjusted net income (loss) by the total amount of subordinate and multiple voting shares. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

The term “EBITDA” is defined as adjusted net income plus depreciation of property, plant & equipment, plus amortization of intangible assets, plus net finance costs, plus income tax provision. The term “Adjusted EBITDA” is defined as EBITDA plus adjustment for costs related to the proposed transaction, restructuring, and asbestos provision. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement.

Definitions of supplementary financial measures

The term “Net new orders” or “bookings” is defined as firm orders, net of cancellations, recorded by the Company during a period. Bookings are impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the Company’s sales operation performance for a given period as well as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “backlog” is defined as the buildup of all outstanding bookings to be delivered by the Company. The Company’s backlog is impacted by the fluctuation of foreign exchange rates for a given period. The measure provides an indication of the future operational challenges of the Company as well as an expectation of future sales and cash flows to be achieved on these orders.

The term “book-to-bill” is obtained by dividing bookings by sales. The measure provides an indication of the Company’s performance and outlook for a given period.

The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Contact:
Rishi Sharma, Chief Financial and Administrative Officer	Martin Goulet, M.Sc., CFA
Velan Inc.	MBC Capital Markets Advisors
Tel: (438) 817-4430	Tel.: (514) 731-0000, ext. 229

_______________________1 Non-IFRS and supplementary financial measures. Refer to the Non-IFRS and supplementary financial measures section for definitions and reconciliations.2 Net income or loss refer to net income or loss attributable to Subordinate and Multiple Voting Shares.

Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
				As at
		February 29,		February 28,
		2024		2023
		$		$
Assets
Current assets
Cash and cash equivalents		36,445		50,513
Short-term investments		5,271		37
Accounts receivable		119,914		121,053
Income taxes recoverable		6,132		6,195
Inventories		208,702		202,649
Deposits and prepaid expenses		10,421		7,559
Derivative assets		125		107
		387,010		388,113
Non-current assets
Property, plant and equipment		69,918		68,205
Intangible assets and goodwill		16,543		16,153
Deferred income taxes		5,193		4,663
Other assets		729		723
		92,383		89,744
Total assets		479,393		477,857
Liabilities
Current liabilities
Bank indebtedness		-		260
Accounts payable and accrued liabilities		88,230		79,408
Income taxes payable		1,568		2,832
Customer deposits		30,396		28,201
Provisions		14,129		16,485
Derivative liabilities		26		299
Current portion of long-term lease liabilities		1,607		1,298
Current portion of long-term debt		24,431		8,177
		160,387		136,960
Non-current liabilities
Long-term lease liabilities		11,036		9,458
Long-term debt		4,346		21,719
Income taxes payable		2,325		933
Deferred income taxes		3,462		3,966
Customer deposits		35,082		27,937
Provisions		74,058		70,924
Other liabilities		5,438		5,125
		135,747		140,062
Total liabilities		296,134		277,022
Total equity		183,259		200,835
Total liabilities and equity		479,393		477,857

Consolidated Statements of Loss
(in thousands of U.S. dollars, excluding number of shares and per share amounts)
		Three-month periods ended					Fiscal years ended
		February 29,		February 28,			February 29,		February 28,
		2024		2023			2024		2023
		$		$			$		$
Sales		117,894		115,141			346,816		370,429
Cost of sales		79,510		75,196			253,609		257,964
Gross profit		38,384		39,945			93,207		112,465
Administration costs		33,121		80,841			98,744		156,759
Other expense (income)		(91	)	1,700			448		1,568
Operating profit (loss)		5,354		(42,596	)		(5,985	)	(45,862	)
Finance income		64		240			459		467
Finance costs		(2,419	)	(758	)		(6,805	)	(2,019	)
Finance costs – net		(2,355	)	(518	)		(6,346	)	(1,552	)
Income (loss) before income taxes		2,999		(43,114	)		(12,331	)	(47,414	)
Income tax expense		5,088		4,102			7,471		8,045
Net loss for the period		(2,089	)	(47,216	)		(19,802	)	(55,459	)
Net income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares		(2,083	)	(47,164	)		(19,737	)	(55,453	)
Non-controlling interest		(6	)	(52	)		(65	)	(6	)
Net loss for the period		(2,089	)	(47,216	)		(19,802	)	(55,459	)
Net loss per Subordinate and Multiple Voting Share
Basic and diluted		(0.09	)	(2.18	)		(0.91	)	(2.57	)
Dividends declared per Subordinate and Multiple		-		-			0.02		0.02
Voting Share		(CA$ -	)	(CA$ -	)		(CA$0.03	)	(CA$0.03	)
Total weighted average number of Subordinate and
Multiple Voting Shares
Basic and diluted		21,585,635		21,585,635			21,585,635		21,585,635

Consolidated Statements of Comprehensive Loss
(in thousands of U.S. dollars)
		Three-month periods ended					Fiscal years ended
		February 29,		February 28,			February 29,		February 28,
		2024		2023			2024		2023
		$		$			$		$
Comprehensive loss
Net loss for the period		(2,089	)	(47,216	)		(19,802	)	(55,459	)
Other comprehensive income (loss)
Foreign currency translation		(719	)	1,423			2,516		(8,985	)
Comprehensive loss		(2,808	)	(45,793	)		(17,286	)	(64,444	)
Comprehensive income (loss) attributable to:
Subordinate Voting Shares and Multiple Voting Shares		(2,802	)	(45,741	)		(17,221	)	(64,438	)
Non-controlling interest		(6	)	(52	)		(65	)	(6	)
Comprehensive loss		(2,808	)	(45,793	)		(17,286	)	(64,444	)
Other comprehensive loss is composed solely of items that may be reclassified subsequently to the consolidated statement of loss.

Consolidated Statements of Changes in Equity
(in thousands of U.S. dollars, excluding number of shares)
		Equity attributable to the Subordinate and Multiple Voting shareholders
		Share capital		Contributedsurplus		Accumulatedothercomprehensiveloss		Retainedearnings		Total		Non-controllinginterest		Total equity
Balance - February 28, 2022		72,695		6,260		(32,126	)	217,995		264,824		686		265,510
Net loss for the year		-		-		-		(55,453	)	(55,453	)	(6	)	(55,459	)
Other comprehensive loss		-		-		(8,985	)	-		(8,985	)	-		(8,985	)
Comprehensive loss		-		-		(8,985	)	(55,453	)	(64,438	)	(6	)	(64,444	)
Acquisition of non-controlling interests		-		-		-		-		-		266		266
Other		-		-		(97	)	97		-		-		-
Dividends
Multiple Voting Shares		-		-		-		(366	)	(366	)	-		(366	)
Subordinate Voting Shares		-		-		-		(131	)	(131	)	-		(131	)
Balance - February 28, 2023		72,695		6,260		(41,208	)	162,142		199,889		946		200,835
Net loss for the year		-		-		-		(19,737	)	(19,737	)	(65	)	(19,802	)
Other comprehensive loss		-		-		2,516		-		2,516		-		2,516
Comprehensive loss		-		-		2,516		(19,737	)	(17,221	)	(65	)	(17,286	)
Acquisition of non-controlling interests		-		-		-		-		-		201		201
Dividends
Multiple Voting Shares		-		-		-		(354	)	(354	)	-		(354	)
Subordinate Voting Shares		-		-		-		(137	)	(137	)	-		(137	)
Non-controlling interest		-		-		-		-		-		-		-
Balance - February 29, 2024		72,695		6,260		(38,692	)	141,914		182,177		1,082		183,259

Consolidated Statements of Cash Flow
(in thousands of U.S. dollars)
		Three-month periods ended					Fiscal years ended
		February 29,		February 28,			February 29,		February 28,
		2024		2023			2024		2023
		$		$			$		$
Cash flows from
Operating activities
Net loss for the period		(2,089	)	(47,216	)		(19,802	)	(55,459	)
Adjustments to reconcile net loss to cash provided by operating activities		12,669		64,794			14,289		67,553
Changes in non-cash working capital items		9,069		911			9,814		(11,572	)
Cash provided by operating activities		19,649		18,489			4,301		522
Investing activities
Short-term investments		(5,254	)	9,367			(5,232	)	8,250
Additions to property, plant and equipment		(2,925	)	(1,385	)		(6,829	)	(4,370	)
Additions to intangible assets		(1,199	)	(903	)		(2,358	)	(2,219	)
Proceeds on disposal of property, plant and equipment		(127	)	141			(45	)	185
Net change in other assets		317		(117	)		347		(87	)
Cash provided (used) by investing activities		(9,198	)	7,103			(14,127	)	1,759
Financing activities
Dividends paid to Subordinate and Multiple Voting shareholders		-		-			(491	)	(497	)
Acquisition of non-controlling interests		1		266			201		266
Net change in revolving credit facility		-		(5,373	)		5,000		-
Increase in long-term debt		1,286		1,506			1,286		3,666
Repayment of long-term debt		(1,069	)	(683	)		(8,762	)	(4,398	)
Repayment of long-term lease liabilities		(603	)	(566	)		(1,895	)	(1,657	)
Cash provided (used) by financing activities		(385	)	(4,850	)		(4,661	)	(2,620	)
Effect of exchange rate differences on cash		17		200			679		(2,873	)
Net change in cash during the period		10,083		20,942			(13,808	)	(3,212	)
Net cash – Beginning of the period		26,362		29,311			50,253		53,465
Net cash – End of the period		36,445		50,253			36,445		50,253
Net cash is composed of:
Cash and cash equivalents		36,445		50,513			36,445		50,513
Bank indebtedness		-		(260	)		-		(260	)
Net cash – End of the period		36,445		50,253			36,445		50,253
Supplementary information
Interest paid		(845	)	(524	)		(1,274	)	(974	)
Income taxes paid		(2,523	)	(1,361	)		(6,708	)	(8,160	)