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Velan Inc
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[Foreign Language]
[Interpreted] Greetings, and welcome to the Velan Incorporated Q3 Financial Results Conference Call.
Please refer to the conference call section of the press release for the link to the company's Investor Relations website where you will have access to the presentation. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]
As a reminder, this conference is being recorded on Thursday, January 12, 2023.
I would now like to now turn the conference Bruno Carbonaro, CEO and President. Please go ahead.
Good morning, everybody. Bruno Carbonaro, speaking. Welcome to our conference today. I'm joined by Rishi Sharma, our CFO and we will present the results of our Q3 -- F Q3 for the fiscal year 2023.
I'll comment the highlights of the Q3 with the sales amounting to $95.2 million which is an improvement of more than $10 million versus the second quarter. But it's less than the same quarter last year as its shown on the right of the slide.
In terms of EBITDA, $6.1 million, which is obviously better than $1.4 million, we reported during the previous quarter, but lower than also the same period of last year. It's important to notice that when we that explanation is on the volume of sales in terms of gross profit. We have gross profit in Q3 this year is comparable to the same quarter last year. This EBITDA of $6.1 million translate in to $2.7 million of net income for the quarter.
In terms of backlog, which is extremely important for me, we keep a backlog, which is shy of $500 million at $488 million. The decrease of the backlog is mainly due to the variation of the foreign exchange between these euro and the dollar because most of our bookings are written to our European operations booked in France and Italy.
In terms of net cash, we are at $29.3 million so we were able to protect that position during Q2, even if we would have expected [indiscernible] in terms of gross debt. (ph)
And now, I'll turn over the mic to Rishi that will educate (ph) you through the details for the presentation.
Great. Thank you, Bruno. Good morning to everyone and Happy New Year to you all. I will walk you through our key financial metrics for the quarter and provide some color on where we landed for Q3.
Backlog for the quarter closed at a solid $488.3 million or $11 million and 2.3% higher than the prior quarter as a result of strong bookings at $99.2 million at a book-to-bill of 1.04 for both the quarter and year-to-date.
The strong bookings in the quarter were driven mainly by securing a large order in the Marine business for the North American operations. Our continued growth in bookings for our Nuclear business in France and a slight improvement in the bookings for our oil and gas operations, mainly in Italy.
Of the current backlog of $488.3 million, $336.2 million of this is shippable over the next 12 months gives us confidence in our short-term revenue stream. Furthermore, although, we have seen some improvements in the euro to USD rates, the backlog was nonetheless negatively impacted on the translation to USD by $21.6 million coming mostly from our euro-based operations and backlog.
If you look at Page 7 for sales. Sales per quarter as mentioned by Bruno amounted to $95.2 million or an improvement of $10.2 million or 12% compared to the second quarter. Although a decrease of $14.7 million or 13.5% versus the same quarter in the prior year.
For us, in Q3, continued focus on shipments and deliveries, while managing the now stabilizing headwinds in logistics and supply chain allowed us to recover from the slow start we experienced in the first half.
Our North American operations continue to ramp up with $62 million of sales improving both quarter-over-quarter and year-over-year, while our French Nuclear operations assuming a constant currency also grew year-over-year.
Our Italian oil and gas sales continued to be affected by the softer bookings experienced in the sector at the end of full year '22 and the first half full year '23, but as mentioned on the previous slide, we have seen some improvements in the booking activity.
The currency impacts on our revenues were $4.9 million negative for the quarter and $15.9 million negative year-to-date, driven mainly by the average rate used to convert the euro to USD transactions.
If we move to Page 8, on our profitability, Evolution. Gross profit for the quarter amounted to $29 million, or 30.4% which is an improvement of $5.5 million or 280 basis points compared to the second quarter, but a decrease compared to last year's 35.9% or 32.6%.
Although, we are very happy with our performance in Q3, we understand and acknowledge the amount of work that remains for us to continue on to steady positive improvement. It is, however, important to note that the gross profit for the nine month period of the prior year was 30.1% net of government subsidies related to COVID-19, which we did not collect this fee.
Our administrative costs net of asbestos continue to trend in the right direction with our continued focus on cost control and have contributed in part to an EBITDA and adjusted EBITDA improvement of 480 or 400 points respectively compared to Q2, the current year and compared to prior year.
If you look at Slide 9 on the net cash analysis, our net cash amounted to $29.3 million at the end of the quarter, which was stable versus the last quarter, but a decrease of $24.2 million since the beginning of the fiscal year. The decrease in the net cash is primarily attributable to the lower net income combined with the ramp up as you can see on the working capital items and ongoing repayment of our long term debt.
In the year, we have repaid $4.8 million down of our long term debt. However, in the quarter, the company did draw on its credit facilities in the amount of $5.4 million to support the very strong ramp up expected to see in the fourth quarter of the current fiscal year.
During the quarter, the company was also better able to manage its cash flows through various AR and AP initiatives and the negative impact from the customer deposits related mostly to revenues relating to one large order as well as the timing effect of receiving advances from customer bookings secured in the later part of Q3. The overall liquidity remained strong at $137.6 million available cash on hand and facilities.
I'll now pass it back to Bruno for his closing comments before we take questions. Thank you. Bruno, [indiscernible].
Thanks, Rishi. I think as the closing comment, I think we are still in a world, which has certainly very low visibility. So it's extremely important for us to be prudent and to make sure that we navigate the times with caution and then making sure that we can benefit from some good things and protect against the [indiscernible].
We have two big protections. A, that’s the size of our backlog, which help us to organize the future and help us being more disciplined and provide visibility to you. B, the strength of our balance sheet. So that's extremely evident that we continue to protect that because that's really what will help us navigate through uncertain times.
We are focused on being prudent and execute probably seen the discipline and execution in a key word in my discussion with my teams. We've seen a lot of progress in Q3 and we will continue to progress in Q4, which is absolutely needed for us to deliver a strong Q4.
As you saw on my previous -- on my first slide, I think Q4 is always A, very strong quarter in the year and we expect [indiscernible] of the same year. But with B, it will have a stronger stage for a slow start of the year we acknowledge that our Q1 wasn't as good as we would have expected, but basically we put all our efforts to [indiscernible] a strong end of it.
I'm now ready to take on any questions they have.
Thank you. [Operator Instructions] We do have a question from Robert Beutel with OakWest Corp. Please proceed.
Yes. Thank you and good morning. Congratulations gentlemen, on a very solid third quarter, and nice to see the improvement.
Thank you.
My question, gross margins are quite nice and you're moving in the right direction, but my question is really about the balance sheet. Last year, you begun putting aside provisions. And as I understood, they were largely in anticipation or to allow for asbestos issues as they arise. And correspondingly, you have current provisions and you have non-current provisions. Am I safe in assuming that, that is largely or exclusively for asbestos expenses?
That's correct, yes.
Okay. And so to the extent that the ones in the current category of almost $15 million, those are for the next 12 months. And the one in the -- one current of about $16 million or $16.5 million, those are for one’s going out after 12 months. So far, so good?
Yes. Let me just [indiscernible]…
Do we mean one year or many years?
Okay. Can you hear me, Robert?
Yes. Can you hear me?
Yeah, we did. I just tried to correct myself. So on the long-term portion for the provision, yes, that's path specific, and I'll get back to your -- to answer your questions. On the current portion on the financials and the balance sheet, there's an embedded portion within there related to asbestos. And then there's normal provisions related to warranties and so on and so forth. So I just want to make that clarification.
To your question on the long-term portion, it's long-term, so beyond 12 months. I mean the information available to us on hand with the number of claims that we know of, does not determine a point of settlement. So we understand it could be beyond 12 months, which is why we then classified it as long term.
Okay. And I guess where I'm headed is to ask whether you believe that is sufficient for all current and future or whether that is sort of what you can see when you look at -- that's what you are aware of or have been filed today, so to speak.
It's what we are aware of today for non-claims.
Okay. And as you set up the provision, the provision flows through your administrative costs on an annual basis. So when I see $25 million, I'm sorry, I don't have the...
Yeah.
That flows through -- you take it through your administrative expenses.
That's correct.
Okay. And so if we put aside $50 million a year on sales, that's part of your administrative expense, okay. Thank you. I'm just trying to get some clarity on issue.
Thank you.
Appreciate it. And good luck as you go into the fourth quarter. The foreign exchange is a lovely thing, but it's certainly hard to -- for me to predict.
Same thing for us. Thank you. Thank you for your all great questions.
[Operator Instructions] Gentlemen, there are no further questions at this time. Mr. Carbonaro, I don't have further questions at this time.
We can wait for 1 minute to close.
[indiscernible] that’s what we do. Okay.
Very good. [Operator Instructions] We have a question from Vincent [indiscernible] from Banque Nationale. Please proceed.
[Foreign Language]
[Interpreted] Vincent [indiscernible] National Bank Financial. Is there any buyback share plan by…
The current year…
Currently, there is no plan.
Okay, because at the -- because there is clearly an opportunity at the about 0.5 the book value. So is there something that you'd consider?
Yeah. Understood your comment. It's -- obviously, we've always considered various options that we discuss. But at this moment, there's no repurchase plan.
Okay. Thanks.
Thank you.
There are no further questions at this time.
Okay, [indiscernible].
We can close. Thank you very much.
That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. [Foreign Language]