Velan Q3 Earnings Call Highlights

Velan (TSE:VLN) executives highlighted stronger order intake, steady gross margin performance, and an update on a pending change-of-control transaction during the company’s third-quarter fiscal 2026 earnings call, covering the period ended November 30, 2025. Management also discussed timing-related shipment delays that affected quarterly sales and operating cash flow.

Quarterly results: sales dipped, while margins stayed relatively steady

Chairman and CEO Jim Mannebach said the company delivered adjusted EBITDA of CAD 9.5 million on sales of CAD 71.7 million, attributing the result to execution on higher-margin projects and “continued tight management of operating expenses.”

Chief Financial Officer Rishi Sharma reported that sales of $71.7 million were down 2.4% from $73.4 million a year earlier. He said the decline primarily reflected lower shipments from the company’s Italian operations after a strong prior-year quarter, along with customer-driven timing shifts that pushed “orders totaling a few million dollars” into later periods. Those factors were partially offset by higher sales in India and Germany and a favorable foreign exchange impact.

Gross profit was CAD 27.2 million, down from CAD 28.3 million last year, while gross margin was relatively stable at 37.9% versus 38.6%. Sharma said higher-margin projects helped sustain profitability, though results were offset by lower absorption from reduced volume and tariff impacts. Currency movements provided a slight benefit to gross profit for the period.

Administrative costs decreased to CAD 16.5 million (23% of sales) from CAD 17.0 million (23.2% of sales), which Sharma attributed to cost reduction initiatives. The quarter included CAD 1.3 million of restructuring expenses consisting of transaction-related costs.

Adjusted EBITDA and earnings: year-over-year decline in adjusted profitability

Adjusted EBITDA of CAD 9.5 million compared with CAD 14.3 million a year ago. Sharma tied the decline to lower gross profit and a slight increase in other expenses, “mainly caused by unfavorable currency movements on unrealized variations,” partially offset by the favorable effect of a provision reversal.

Net income was reported at CAD 3.14 per share in the quarter, compared with a net loss of CAD 47.8 million, or CAD 2.22 per share, in the prior-year period. Excluding non-recurring elements, adjusted net income was CAD 4.0 million versus CAD 8.5 million a year earlier.

For the first nine months of fiscal 2026, Sharma said sales were relatively stable year over year and were up more than 2% excluding the prior year’s non-recurring revenue contribution. Gross profit for the nine-month period was “marginally down” in both dollars and as a percentage of sales.

Bookings and backlog: nuclear and oil and gas driving growth

Mannebach emphasized momentum in bookings and backlog, saying rescheduled orders from the prior quarter largely landed in Q3, though similar customer timing dynamics again pushed “a few million dollars” in complex projects into later periods.

Velan’s backlog reached CAD 296.8 million at quarter-end, up 8% from the beginning of the fiscal year. Management said 80.4% of backlog (CAD 238.5 million) was deliverable within 12 months, compared with 83.4% at the end of the year-ago quarter.

Bookings totaled CAD 77.9 million, a 32% increase year over year. Mannebach attributed the increase to higher bookings from North American operations in the nuclear and oil and gas sectors, along with increased bookings from Italy and China, partially offset by lower orders from Germany.

Among the quarter’s notable wins, management highlighted a valve order of more than CAD 20 million from Ontario Power Generation for reactor refurbishment work at the Pickering Nuclear Generation Station. Mannebach said first shipments are scheduled for January 2027, with deliveries completed by the end of January 2028, and noted that Velan supplied the original valves more than 45 years ago and has supported the Pickering complex throughout its construction and refurbishment program.

Proposed controlling-share sale to Birch Hill: terms, timing, and costs

Management also addressed a recently announced transaction in which Velan Holdings—owned by certain Velan family members—agreed to sell its multiple voting shares to Toronto-based Birch Hill Equity Partners Management Inc.

Mannebach said Velan Holdings plans to sell its CAD 15.6 million multiple voting shares, representing about 72% of Velan’s outstanding shares and 93% of aggregate voting rights, to Birch Hill at CAD 13.10 per share for aggregate gross proceeds of CAD 203.9 million. The transaction is expected to close in the first half of calendar 2026, subject to regulatory approvals and other conditions. He added that the deal is not subject to financing conditions or shareholder approval.

According to management, a special committee of independent directors recommended that facilitating the transaction was in the company’s best interest. While Velan is not a party to the private transaction, the company entered into a cooperation agreement to support the closing process.

In the Q&A session, Mannebach said it was “business as usual” for management and that he did not expect immediate changes, adding that Birch Hill’s approach to partnering with management and its “data-driven decision-making process” could be helpful. When asked whether investors should expect additional announcements around strategy or M&A, he said the immediate focus was supporting the closing process and delivering a strong fourth quarter, while any reassessment of plans would likely come post-closing.

Sharma also addressed transaction-related costs and said direct transaction fees were in the $10–$11 million range, with an additional roughly $5 million tied to change-of-control items “mostly relating to vesting and accelerated vesting of incentive plans.” He said about $4 million had already been paid or accrued during the year. Management said the special committee recommended the company bear those costs in the corporation’s best interest.

Management declined to comment on valuation or pricing when asked about the difference between the transaction price and prior trading levels, emphasizing that the company was not involved in pricing and that the transaction was between Velan Holdings and Birch Hill.

Cash flow, dividends, and liquidity

Sharma said cash flow from operating activities (before net changes in provisions) used CAD 6.7 million in Q3, compared with CAD 0.6 million used a year ago, largely due to negative changes in non-cash working capital. He pointed to a temporary increase in accounts receivable and late-stage work-in-process inventory tied to shifting customer delivery schedules. He said management expects cash inflows to improve “once this customer dynamic normalizes.”

Velan paid CAD 1.5 million in dividends during the quarter, but Sharma said the company agreed to suspend dividend payments until the Birch Hill transaction closes, with ordinary course dividends planned to resume thereafter “as if and when declared by the Board of Directors.”

At quarter-end, Velan reported CAD 36.3 million in cash and cash equivalents and CAD 0.4 million in short-term investments. Bank indebtedness was CAD 16.1 million, and long-term debt (including the current portion) was CAD 17.7 million. Sharma said the company had access to multiple funding sources and approximately CAD 86 million “readily available” to execute its strategy and expansion plans.

About Velan (TSE:VLN)

Velan Inc is an international manufacturer of industrial valves. It offers products such as Gate valves, check valves, cryogenic, steam traps, and others, which are used in various industries including power generation, oil, and gas, refining and petrochemicals, chemical, liquid natural gas (LNG) and cryogenics, pulp and paper, geothermal processes and shipbuilding. The company operates in various geographical regions, which are Canada, the United States, France, Italy, and Other countries.