5N Plus Inc
TSX:VNP
Q1-2025 Earnings Call
AI Summary
Earnings Call on May 8, 2025
Record Results: 5N Plus reported record Q1 revenue of $88.9 million, up 37% from last year, and a 77% increase in adjusted EBITDA.
Margin Expansion: Adjusted gross margin rose to 34.2%, up from 30.9% last year, driven by higher volume and prices in Specialty Semiconductors.
Strong Demand: Both Specialty Semiconductors and Performance Materials segments saw strong sales, especially in renewable energy, space solar, and bismuth-based products.
Capacity Growth: Ongoing investments are increasing solar cell production capacity by an additional 30% this year, after last year's 35% boost.
Guidance Maintained: Management kept its full-year adjusted EBITDA guidance unchanged, despite a strong start and ongoing demand.
Backlog Dynamics: Backlog decreased mainly due to strong Q1 sales and contract timing, with most of the revenue growth attributed to demand rather than order pull-forward.
Strategic Partnerships: The company is prioritizing long-term partnerships with key clients like First Solar over immediate price increases.
5N Plus delivered record revenue growth in Q1, with both key segments benefiting from strong demand. Specialty Semiconductors saw particularly robust sales in terrestrial renewable energy and space solar, while bismuth-based products drove growth in Performance Materials. Management highlighted that most of the growth was due to underlying demand rather than just the timing of orders.
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[Foreign Language] Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 5N Plus Inc. First Quarter 2025 Results Conference Call. [Operator Instructions]
[Foreign Language] And I would like to turn the conference over to your speaker today, Richard Perron, Chief Financial Officer. Please go ahead, sir.
[Foreign Language] 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 2 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 risks 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 5N 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 continue our work to boost solar cell production at AZUR 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 higher bismuth-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 expansion 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. Our sales 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 '25.
Turning now to backlog. Backlog at quarter-end of Specialty Semiconductors represented 337 days of annualized 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 31, 2025. The backlog for Performance Materials represented 102 days of annualized 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 annualized 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, '25 from $100.1 million at the end of December. This brought our net debt-to-EBITDA ratio down to 1.6x at quarter-end compared to 2.02x at previous year-end.
Looking at our borrowing capacity, on April 1, we announced the renewal of our senior secured multi-currency revolving syndicated credit facilities to a total of USD 154 million from USD 124 million previously. Subject to lender approval, we can also opt to increase our credit facilities to [ USD 204 million ] through a [ USD 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 EBITDA 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 will be there for them. Whatever the near-term 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 analysts.
[Operator Instructions] Your first question comes from Nick Boychuk with Cormark Securities.
On the growth, obviously, impressive this quarter, particularly with First Solar and the [indiscernible] 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 -- we have -- 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 spot 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, okay? 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 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. And then last, just on...
Definitely, we're active at looking at the different options and accelerating that forward.
Yes. Okay. Last on space. You mentioned that the updated capacity expansion is going well. My understanding right now is that the AZUR 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 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 we -- the demand is there, and we will evaluate other options to even further debottleneck.
So the positive outcome of our most recent initiatives will start to -- I'm going to use the term to pay off, from Q2 onward progressively.
Your next question comes from Amr Ezzat with Ventum Capital Markets.
Congrats on the outstanding results. 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?
Yes. So as we've mentioned, I think, myself for sure and as well Gervais, there's been some pull-forward into Q1 of Q2. But from a -- at a high 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 2 sectors under sensing and imaging, that business today is on a more of a spot business or quarterly 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 like 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?
Okay. 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 margin. 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 towards that initial challenge or goal we've given to our team.
If I may add on that one, when we launched the commercial excellence program 3 years ago, we were in the low-20s in terms of gross margin. And we -- this increase has been done steadily since then, and we're now reaching 34%, but it's -- nothing is happening by chance. It's a systematic approach. And with our -- we adjusted our go-to-market strategy, and we're also making sure that our product segments -- we are embedding all the advantage of not being a Chinese producer. Then being a trusted partner, I think that's a key differentiator for us.
As you can imagine, with a company that has numerous sites as we do and has a certain level of diversification, we have various levers to play with, 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 5N Plus. It's been a partner for numerous years. And as we 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, not our priority #1 to come up with anything different if the case -- compared to the current contract. Our priority is to address the capacity that they will likely -- 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.
Your next question comes from Rupert Merer with National Bank Financial.
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 and bismuth was pull-forward versus organic growth?
It's a combination of both. Even if there had 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 be -- 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, say, 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 assess the exact level. But obviously, we're working on making sure we have more precise visibility on that internally.
So 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.
And then, looking at your own access to materials, some of your clients are feeling a little nervous, perhaps pulling forward 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 5N Plus in the future quarters?
Well, 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 increase -- 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 1.5 years where we strategically position our inventory for the year '25 and '26.
So you're comfortable with your access to metals. You don't see any trade restrictions for metals you may be buying [indiscernible].
On a regular basis, no.
Your next question comes from Michael Glen with Raymond James.
So just to come back to the First Solar question. So, as you would have seen in their recent Q1, 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 2 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 Louisiana before the end of the year. Then this shift of production location that is currently happening is favorable to 5N Plus.
Okay. And just in terms of -- can you provide a -- was any of the material that you supplied this quarter to First 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.
Yes. 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 Eisenhuttenstadt in the value chain, they're closely connected. We look at it more as an overall margin with economies of scale obviously operating at higher levels. It's not one side more favorable than the other one, except maybe, in Europe, has been running for so long. So I guess, they've been running at full capacity for longer than Montreal. But overall, as I said, we look at it as 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. So as we -- 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 falloff 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.
Okay. It's not easy to estimate each quarter, okay? But at this point in time, we see the next 2 quarters pretty much equal. But obviously, as we're shipping stuff around the world, [indiscernible] may have an influence on a quarterly basis. But at this point in time, we expect the next 2 quarters to be at similar level based on the current shipment schedule, which obviously can vary from one quarter to another.
[Operator Instructions] Your next question comes from Frederic Tremblay with Desjardins.
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 range for 5N as it stands right now? And maybe we can discuss more on an annual basis. But just generally speaking, like 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 in the order of 10% of the current quarter was maybe a little bit of pull-forward.
10% of that 37% or 10% of...
Of the overall revenue, approximately.
Okay. That's helpful. I appreciate that. And you mentioned 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?
Well, as you know, we have an internal team and an external team supporting us. We have identified a pipeline -- we have a pipeline of opportunities, and then we're going diligently through every single initiative. Then 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.
Your next question comes from Rupert Merer with National Bank Financial.
We can't let you go without talking about your growth markets. Can you give us an update on medical imaging? And then, what are you seeing out of your partner, RayGen? I think they got some financing over the last few months.
Yes, 2 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 what we see is more and more actions, probably nothing material these days. We're sending samples where we have [ poolers ] 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. We've been working on that for decades now, for a decade.
And on RayGen, I think they successfully secured a new round of financing. They are now working really hard on this project in Australia and in Yadnarie, 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 2 markets, how much revenue do you think you could see in the next 12, 18 months?
It will be only material in -- I would say, for medical imaging, everything that -- 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 2, 3 years, that will be a super good business for us. And for RayGen, it's hard -- it will follow the project that they're going to do in Yadnarie. And then, soon after, it will depend on how many more projects they can pursue at the same time.
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.