Velan Inc. Earnings Call Highlights Growth and Strain

Velan Inc. SV ((TSE:VLN)) has held its Q3 earnings call. Read on for the main highlights of the call.

Velan Inc. SV Balances Growth Momentum With Profitability and Cash-Flow Strains in Latest Earnings Call

Velan Inc. SV’s latest earnings call painted a mixed but generally steady picture: the company is clearly gaining commercial traction, with strong bookings growth, a larger backlog and a major new nuclear contract, and it returned to positive reported net income. At the same time, adjusted profitability fell sharply, cash flow from operations was under pressure, and the company is absorbing sizable transaction-related costs tied to its planned sale to Birch Hill. The tone of management was cautiously constructive, emphasizing operational progress and strategic opportunities while acknowledging near-term financial and shareholder-value concerns.

Order Book Strength and Bookings Surge

Velan underscored solid commercial momentum, with order backlog reaching $296.8 million at quarter end, an 8% increase since the start of the year. Bookings in Q3 climbed 32% year over year to $77.9 million, driven by particularly strong demand in North America’s nuclear and oil & gas sectors, as well as robust activity in Italy and China. For investors, this indicates that underlying demand for Velan’s specialized valves remains healthy, providing good revenue visibility even as current-quarter sales dipped slightly.

Flagship Nuclear Win with Ontario Power Generation

A standout highlight was a valve order exceeding CAD 20 million from Ontario Power Generation for the refurbishment of the Pickering Nuclear Generating Station. Shipments are scheduled to start in January 2027 and run through January 2028. Management framed this as a validation of Velan’s long-standing strength in nuclear valve technology and a reference win that reinforces its competitive position in high-specification nuclear projects. The long-dated delivery schedule also deepens future backlog visibility in this niche but attractive market.

Solid Adjusted EBITDA Despite Slightly Lower Sales

On the quarter’s operating performance, Velan reported adjusted EBITDA of $9.5 million on sales of $71.7 million. While sales fell 2.4% year over year, management emphasized that the current mix of higher-margin projects and disciplined control of operating expenses allowed the company to generate a “healthy” level of adjusted EBITDA. This suggests that, despite volume softness, the business can still deliver respectable earnings when it executes well on higher-value contracts and maintains cost discipline.

Return to Reported Net Profit

The company delivered a notable turnaround in reported earnings, with net income of $3.0 million, or $0.14 per share, compared with a net loss of $47.8 million, or $2.22 per share, in the prior-year quarter. Adjusted net income reached $4.0 million. This swing back into the black signals that earlier, more severe issues have been addressed, at least at the reported level, and that Velan’s restructuring and project-execution efforts are starting to show up in the bottom line, even though adjusted profitability is still under pressure.

Liquidity Position and Balance-Sheet Flexibility

Management highlighted what it sees as a robust liquidity profile. At quarter end, Velan held $36.3 million in cash and cash equivalents plus $0.4 million in short-term investments. When credit facilities, working-capital financing, letters of credit and guarantees are included, the company estimates it has about $86 million in available liquidity. This financial flexibility is intended to support ongoing operations, fund working capital for the growing backlog, and provide a cushion as the company navigates transaction costs and timing shifts in customer deliveries.

Strategic Sale to Birch Hill as Capital and Expertise Partner

A central strategic development is the agreement by Velan Holding to sell its 15.6 million multiple voting shares—representing roughly 72% of outstanding shares and about 93% of voting rights—to Birch Hill at CAD 13.10 per share. Management described Birch Hill as a long-term partner bringing operational expertise and greater access to capital, positioning the deal as a catalyst to accelerate Velan’s strategic plan. While the transaction is technically between the controlling shareholder and Birch Hill, Velan is treating it as a transformative governance and ownership event that could support future growth investments.

Ongoing Cost Control and Administrative Savings

Velan continued to emphasize cost management, reporting administration expenses of $16.5 million, down from $17.0 million a year earlier, and holding admin costs roughly flat as a percentage of sales at 23%. Management attributed this to ongoing cost-reduction initiatives. For investors, these incremental savings support the company’s effort to protect margins in the face of modest sales pressure and to free up resources for strategic priorities.

Sharp Declines in Adjusted EBITDA and Adjusted Net Income

Behind the headline return to positive net income, adjusted earnings metrics were weaker. Adjusted EBITDA fell from $14.3 million in the prior-year quarter to $9.5 million, a decline of about 33.6%. Adjusted net income dropped more steeply, from $8.5 million to $4.0 million, down roughly 52.9%. Management cited lower gross profit and unfavorable other expenses, including unrealized currency variations. These figures highlight that, beneath the improved reported bottom line, underlying profitability remains under strain and sensitive to mix and FX movements.

Sales and Margin Pressure from Mix and Timing

Quarterly sales slipped to $71.7 million from $73.4 million, a 2.4% year-over-year decline. Gross profit fell to $27.2 million from $28.3 million, with gross margin easing to 37.9% from 38.6%. The primary drivers were lower shipments out of Italy and customer timing “push-outs” that delayed certain deliveries. While the margin compression was modest, the combination of slightly lower volumes, regional weakness, and timing issues underscores the cyclical and project-driven nature of Velan’s business.

Working Capital Build and Operating Cash Flow Pressure

One of the more negative data points was the deterioration in operating cash flow. Cash flow from operating activities before net changes in provisions used $6.7 million in Q3, compared with $0.6 million used in the prior-year quarter—more than a tenfold increase in cash outflow. Management attributed this to temporary spikes in accounts receivable and an accumulation of late-stage work-in-process, both linked to customers shifting delivery schedules. Investors will watch closely to see if this reverses in coming quarters as these projects convert to cash.

Company-Funded Transaction and Change-of-Control Costs

Although the Birch Hill deal is between Velan Holding and the buyer, Velan itself will bear significant transaction-related costs based on the special committee’s recommendations. These include an estimated $10–11 million in direct transaction fees plus around $5 million in change-of-control expenses (such as accelerated vesting), totaling roughly $16 million, of which about $4 million has already been paid or accrued. These non-operational charges will weigh on near-term earnings and cash, effectively making the operating company fund part of the ownership transition.

Dividend Suspension and Impact on Income Investors

Velan paid $1.5 million in dividends during the quarter but agreed to suspend dividends until the Birch Hill transaction closes. Any ordinary dividends afterward will depend on Board decisions post-closing. This pause in shareholder payouts is a clear negative for income-focused investors, especially as it coincides with transaction-related costs borne by the company. The move suggests management is prioritizing liquidity and transaction execution over near-term income returns.

Backlog Deliverability and Project Timing

While the overall backlog grew, its near-term deliverability weakened slightly. At quarter end, 80.4% of the backlog, or $238.5 million, was scheduled for delivery within 12 months, down from 83.4% a year earlier. The shift hints at a greater proportion of longer-cycle or delayed projects, consistent with management’s comments about customer push-outs and complex project timing. For shareholders, this means more visibility over a longer horizon but slightly less near-term revenue certainty.

Regional Mix Shifts and Local Market Weakness

Velan’s geographic revenue mix shifted meaningfully: North America’s share of sales fell to 48% from 55%, while Asia Pacific dropped to 33% from 44% year over year. Management pointed to lower shipments from Italian operations and softer orders from German operations as offsets to growth elsewhere. These regional swings reflect the uneven recovery across end markets and the project-driven nature of demand, and they can have implications for overall margins depending on the mix of geographies and product lines.

Valuation Concerns and Shareholder Perception of the Birch Hill Deal

Analysts on the call raised questions around the CAD 13.10 per share price Birch Hill is paying to Velan Holding, noting that it was below recent average market prices and could be viewed as unattractive by minority shareholders. Management stressed it did not participate in pricing negotiations. Nonetheless, the optics of the controlling shareholder’s transaction, combined with company-funded deal costs and a dividend suspension, could heighten governance scrutiny and fuel debate about whether minority investors are fairly treated in this change of control.

Forward-Looking Guidance and Outlook

Management’s guidance framed the near term as “business as usual,” with an expected closing of the Birch Hill transaction in the first half of 2026. The company expects a strong Q4 and anticipates a recovery in cash inflows as customer delivery schedules normalize and current work-in-process converts into receivables and cash. Velan plans to continue executing its sizeable backlog, including the long-dated OPG contract, while relying on its roughly $86 million in available liquidity to support operations and growth. Dividends are expected to remain suspended until the transaction closes, with future dividends dependent on post-closing Board decisions.

In sum, Velan’s earnings call showcased a company in transition: operationally stronger, with rising bookings, a growing backlog and a return to net profitability, but facing weaker adjusted earnings, strained operating cash flows and meaningful transaction-related headwinds. The planned partnership with Birch Hill could unlock new capital and expertise, yet it raises valuation and governance questions for existing shareholders. For investors tracking the stock, the key variables over the coming quarters will be cash conversion from the backlog, the pace and terms of the transaction’s completion, and whether the promised strategic acceleration translates into sustainable, higher-quality earnings.