5N Plus Inc

TSX:VNP

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the 5N Plus First Quarter Results Conference Call. [Operator Instructions]Jean Mayer, Vice President of Legal Affairs, you may begin your conference. [Foreign Language]

[Jean Mayer, VP of Legal Affairs & Corporate Secretary]

[Foreign Language] Good morning, everyone, and thank you for joining us for the presentation of the 5N Plus financial results for the quarter ended March 31, 2019. I am Jean Mayer, Vice President Legal Affairs and Corporate Secretary of the company.Before reviewing in more detail our quarter results, I would like to mention that we issued yesterday our financial statements for this period together with of our Management Discussion and Analysis. If you have not been able to get a copy of these documents, I invite you to do so by accessing our website at 5nplus.com, or the SEDAR website at sedar.com, where these documents are posted.Earlier we have also posted on our website a presentation on our quarter results that you may find helpful during this call.Joining me this morning is Arjang Roshan, our President and Chief Executive Officer, and Richard Perron, our Chief Financial Officer. Mr. Roshan, Mr. Perron and I will now be reviewing our financial statements, and we will be available afterwards to answer questions during the Q&A period.During this call Mr. Roshan, Mr. Perron and I may be making forward-looking statements, which are subject to the usual cautionary remarks. More specifically, these statements are based on the best estimates available to the company at this time and involve known and unknown risks, uncertainties or other factors that may cause the company's actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For a list of the factors that could cause our actual results to differ materially from those discussed or implied in our forward-looking statements, please refer to the risk factors described in our Management Discussion and Analysis.In the analysis of our last quarter results, you will note that we use and discuss certain non-GAAP measures, which definitions may differ from those used by other companies. For further information on the use of these non-GAAP measures, please refer to our Management Discussion and Analysis.I would now like turn the conference to Arjang for the discussion of the quarter results.

[Arjang J. Roshan, President, CEO & Non Independent Director]

Thank you, Jean. Good morning, ladies and gentlemen. Thank you for joining us this morning for 5N Plus quarterly earning.Last night 5N Plus posted its results for Q1 2019. Adjusted EBITDA and EBITDA came in at $5.6 million and $4 million as compared to $7.8 million and $7 million for the same period last year.Return on capital employed for Q1 registered at 8.6% as compared to 15.2% for Q1 2018.Revenue, including metal, reached $51 million for Q1 2019, as compared to $58 million for the same period last year.As you may recall in the past quarterly call, we mentioned that after 3 successive years of earnings growth, 2019 would be a year in which we would position ourselves for the next spurt of earnings growth defined within our strategic plan. When you look at how we envision our business over the next 2 to 3 years, our expectation is that in addition to whatever margin losses we may experience from our historical products, our growth initiatives will not only replace these losses, but will provide additional margins which will grow our earnings in line with 5N21 deliverables. We may not be able to exactly predict the timing of this sequence, but we have a credible game plan dictating the movement.To make this more clear let me point to a specific example. It is no secret that the solar market has been experiencing, on average, more than 20% year-on-year unit price reduction while continuing to grow. If you expand this to the supply chain of the solar panel manufacturers, one would expect some level of margin contraction. Thankfully, the type of terrestrial solar product 5N Plus supplies is a niche and has been able to withstand the cost-down pressures with lower year-on-year unit margin contraction and higher volume sales as compared to the traditional solar products.In 2018, we negotiated a series of multiyear contracts covering products and services, and fundamentally change our approach to mitigate these pressures. In comparison to the old contract which has ended, the new contract comes with higher volumes and lower prices resulting in stable overall revenues. As a whole, the new contract will register lower earnings as compared to the past. Last year we mentioned that the magnitude of this will depend on the mix of products and services which is governed by a series of contracts and is optioned by the customer. I believe we use the term layered contracts.Now coming back to what I said earlier about securing new businesses. Concurrently, our teams have been hard at work developing and securing new businesses to fuel our growth path to achieve $45 million adjusted EBITDA by 2021. Thanks to these teams, over the past 18 to 20 months, we have been able to secure a sizable order book. And in a perfect world, these businesses would come in just in time and would continue to grow earnings. Recognizing that our world is not perfect and we're no less imperfect, we have anticipated growing pains as we go through this process. This is why in our last quarterly call we referred to 2019 as a "staging year."In Q1 2019, 5N Plus face notable challenges with production of new products across the various segments, which significantly impacted the organization's earning efficiency. I use the term earning efficiency with purpose, because in an environment of value-added manufacturing when faced with challenges, the opportunity loss is not only the loss of impacted units but the associated costs related to the rework and repositioning, which can further amplify the punitive impact. When we look at the earnings, especially within electronic materials, this is a notable part of the variance between Q1 2018 and Q1 2019.When we analyze our operating environment, all signs indicate that we are experiencing teething issues associated with the company undergoing a sizable transformation. To make this point more palpable, consider the fact that as I speak to you, 5N Plus is engaged in various stages of new product introduction ranging from proof of concept to mass scale production of at least several specialty semiconductor materials, nearly 2 dozen different engineer powders, several specialty chemicals, several additives and a number of other initiatives, including development of our upstream businesses to support the consumable requirements of the downstream businesses.[ This ] scale of product proliferation and mass introduction is a first in our company's history. We believe this situation will continue for the next quarters, the extent and duration of which will depend on how fast we move along the learning curve. Our best indication tells us that our performance in the second half of the year will be notably better.To further enhance clarity, I'm now going to share specific cases. Considering we are in the public square, I will refrain from sharing certain details to avoid telegraphing our punches. If my comments come across as ambiguous, I ask for your forgiveness ahead of time.The first case takes us to sector catalytic and extractive materials. Over the past 18 months, 5N Plus has experience notable growth in this sector and have secured an impressive order book. Our value proposition for this business is based on product quality and competitive process technology. Consequently, the backlog for this business has been growing. And to support this, we have elected to focus on production debottlenecking versus simply adding additional production lines.In Q1, we operated our production assets at a rate not experienced in the past, and started to face equipment downtime which resulted in loss of production time. To address the situation, our teams are focusing their efforts on enhancing production robustness, process flow and further mass scaling of our products. This work will continue over the next quarters.The next case takes us to sector security, aerospace sensing and imaging materials. Over the past 18 months, 5N Plus has been awarded substantial business in this sector. As mentioned in the net last conference call, we have already experienced customer delays with some of the programs. In Q1, most of these programs started to move ahead. And at the same time, 5N Plus secured additional contracts with more stringent specifications; the combination of which resulted in production challenges which reduced our ability to ship products out the door.To put it in simple terms, within a relatively short period of time, our organization had to increase production output by five to tenfold, and in certain cases accommodate more stringent requirements.Last night in our quarterly press release, we provided adjusted EBITDA guidance in the range of $26 million to $30 million for 2019. Much of this variance in the range is dictated by how quickly our organization can address challenges like the examples I just provided. In the meanwhile, we are extremely encouraged by the support we're receiving from our customers, which is helping us move through the process. We're delighted to see a real [ pool ] for our products from the market, which tells us directionally we are on the right path.Now moving to other segments and sectors of our business. Segment Eco-Friendly Materials revenue and adjusted EBITDA for Q1 2019 was lower than the same period last year. Much of this deficit comes from sector catalytic and extractive materials as explained earlier.Revenue for sectors health and pharmaceutical materials was higher than the same period last year. 5N Plus has obtained necessary operating permits and is making good progress in certifying its new additive products within European customers. In addition, the company is in the process of obtaining relevant certification for the North American market.We expect 2019 to be entirely focused on certification and qualification campaigns, with volume production starting in 2020.Revenue for Industrial Materials was lower than the same quarter last year. Considering metal notations in Q1 2018 versus Q1 2019, much of the drop can be explained by the differences in notations as this sector has the highest usage of pass-through metals. The demand for the company's products were moderately lower than the same period last year, mainly driven by a reduction of commercial-grade metal sales which is no longer a core activity for the company. 5N Plus continues to commercially hedge its exposure whenever viable.Segment Electronic Materials revenue for Q1 2019 was relatively stable as compared to the same period last year. Adjusted EBITDA for the same period comparison was lower, impacted by sector security, aerospace sensing and imaging materials as described earlier.Revenue for Renewable Energy Materials was stable year-on-year. Much of this business is governed by long-term contracts and a mix of products and services as described earlier.Revenue for Technical Materials dropped year-on-year, mainly due to lower volume of commodity chemicals and metals. 5N Plus continues to move away from commodity chemicals and metals. On the other hand, volumes for engineer powders continued to grow. We are receiving ample interest from the market in qualifying our products for the future generation of electronic devices. There are over 2 dozen of such customer-based programs underway. We expect 2019 to be entirely focused on certification and qualification campaign.Nearly 3 years ago, when the new management launched 5N21 strategic plan, the initial priority was to turn the company around and place it on a secure footing. This work took us into early last year when we began to shift our focus toward positioning the company along a long-term growth trajectory.With respect to turning the company around, I believe Q1 2019 provides tangible proof. After 12 quarters of progress along the operating activities, we've had a quarter with its share of challenges. Against this backdrop, our company managed to deliver 22.4% gross margin. By contrast, prior to 5N21, a challenging quarter would see gross margins shrink quickly to teens or single-digit percentages.We are now in the midst of positioning the company for the next growth trajectory based on a reinvigorated portfolio of products and new business model. This is nothing short of a thorough transformation and will reinvent our company. In the short term, we will experience pain as anticipated, and our focus will be to grow out of it as expeditiously as possible.Our teams across the organization are highly motivated to surmount these challenges and are fully empowered and enabled to go through this transformation. We have no doubt that a successful passage to the other side of this obstacle will result in a much stronger organization with ample more opportunities.At this point, I'd like to turn the call over to Richard.

[Richard Perron, Chief Financial Officer]

Thank you, Arjang. So good morning, everyone. As covered by Arjang, entering the second half of the company strategic plan, while demand for our products is solid with strong backlog and booking levels, the realized shipments for the first quarter were disappointing, impacted by various production and process challenges associated with new materials and equipment down for part of our core businesses.During this first quarter of 2019, despite strong demand, we faced some challenges as we continue to prepare the company for the future. And yes, we still have more to achieve, build organization, remaining very focused on structure improving cost, overcoming any challenges associated with realizing our internal growth initiative plans and continuing to increase the share of high added value products.Worth reminding, mentioning before starting the financial coverage, the company raised a subordinated term loan using the majority of the proceeds to repay, redeem the outstanding portion of its debentures, for an aggregate amount of CAD 26 million during the first quarter. This new long-term financing has no dilution potential for our shareholders. The balance of the proceeds will be used to support our internal growth internal initiatives, offering additional flexibility when compared or combined to our senior credit facility.Given the performance of [ 2018 ] and market outlook, the company has resumed its NCIB late February and has been active since then, without holding on growth investment.Also worth highlighting to the readers of our financial statements, effective January 1, 2019, the company adopted IFRS 16 using the modified retrospective approach, and chose the option under which the amount of the right of use assets will be equal to the amount of the lease liabilities. The expected impact in the consolidated statement of financial position of this new standard is well covered in our MD&A under changes in accounting policies and in our financial statements.Starting with the coverage of revenue and gross margin, during Q1 of this year, revenue decreased by 12% compared to the same period of '18. Gross margin reached 22.4% in Q1 of this year, compared to 25.1% in Q1 of last year. Both revenue and gross margin were negatively impacted by production challenges, impacting the company's ability to ship products and, to a lesser extent, by adverse movements in the underlying metal notations.Now covering adjusted EBITDA and EBITDA. In Q1 of this year, adjusted EBITDA was $5.6 million compared to $7.9 million in Q1 of last year, negatively impacted by realized shipments due to the production challenges, to a lesser extent, adverse movements in the underlying metal notations, along with the application of most recent commercial terms from multiyear supply and services contracts renewed within the renewable energy sector.In Q1 of 2019, EBITDA was $4.2 million compared to $7.8 million in Q1 of last year. The decrease is mainly explained by the lower adjusted EBITDA this year combined with the higher share-based compensation expense, reflecting the rise of the company share price at the end of the first quarter of '19, when compared to Q1 of last year.In addition, no significant nonreoccurring items were recorded in the current period, while in Q1 of last year the company recorded two nonreoccurring items totaling $0.8 million recognized as income.Now looking at the analyzed backlog in bookings. Backlog as of March 31, '19 reached a level of 202 days of annualized revenue, with the Electronic Material segment increasing by 10 days, and by 33 days for the Eco-Friendly segment compared to Q1 of last year, achieving 202 days, as mentioned, on a consolidated basis versus 172 days last year.Quickly going through the expenses. Depreciation amortization expenses in Q1 amounted to $3.2 million compared to $2.2 million for the same period of last year. Expenses in Q1 of this year included the depreciation of right of use assets of $0.4 million, following the adoption of the new standard IFRS 16.In Q1 2019, SG&A expenses were $5.5 million compared to $6.8 million for the same period of '18. In Q1 of this year, the expenses were positively impacted by favorable exchange rates across most local currency-denominated expenses when compared to Q1 of last year, as well as timing of certain expenses. The full year is not expected to be materially different than 2018.Share-based compensation expense in Q1 of this year amounted to $1.1 million compared to your $0.7 million for the same period of last year. Increase in Q1 of this year is mainly due to the important rise in the company share price at the end of the first quarter when compared to March 31, 2018.No expenses or income from litigation or restructuring activity recognized this quarter, while in Q1 of last year we recorded an income from litigation or restructuring of $0.6 million, representing a nonrecurring income relating to an amount receivable from an inactive legal entity, for which no receivable had been recorded given the uncertainty back then.Financial expense amounted to $1.7 million in Q1 of this year and Q1 of last year, without favorable impact of foreign exchange in the derivative, mitigated by the decrease in interest on long-term debt.Income taxes. The company reported a loss before income taxes of $0.4 million in Q1 of this year. Income tax expense in Q1 of this year was $0.8 million compared to $1 million last year. Both periods were favorably impacted by deferred tax assets, applicable in certain jurisdictions that we operate.Current liquidity. Cash used in operating activities amounted to $6.6 million in Q1 of this year, similar to last year. In Q1 of this year, cash used in investing activities totaled $2.8 million compared to $2.6 million in Q1 of last year, explained by our investment in [ properly ] planning equipment during Q1 of '18, reduced on a net basis by the proceeds from the disposal of a redundant asset of $0.8 million in the same period.In Q1 of this year, cash provided by financing activities amounted to $4.8 million compared to $0.2 million in Q1 of last year. The increase associated with the new 5-year unsecured subordinated term loan of $25 million announced in Q1, for which only $19.3 million were used to redeem the company's outstanding convertible unsecured debentures of CAD 26 million.Now looking at gross and net debt. Gross debt increased by $6.2 million to $55.2 million at the end of Q1 of '19, compared to $48.9 million at the end of December of '18, which is mainly due to the replacement of the convertible debentures by a 5-year unsecured subordinated term loan at a higher face value, while net debt after considering cash and cash equivalents increased by $10.8 million from $22.2 million at the end of last year to $33 million as at the end of this quarter, mostly impacted by non-cash working capital requirements.This will conclude the financial review. We are ready to take questions from analysts.

[Operator]

[Operator Instructions] [Foreign Language] Your first question comes from the line of Rupert Merer from National Bank.

[Rupert M. Merer, Managing Director and Research Analyst]

When we look at the challenges you had in semiconductor manufacturing in the quarter, you're looking to increase volume and increase your product specification, can you give some more color on the plan to improve production this year? And are your execution challenges well understood with solutions available from known science? Or is there some risk you won't be able to get those processes to where they ultimately need to be?

[Arjang J. Roshan, President, CEO & Non Independent Director]

Let me give you maybe an example so that it may be able to better highlight what the nature of the challenge is. One of the products that we're having difficulty right now with is a specialty semiconductor which we sell as a wafer and it goes into imaging applications, in high-resolution, high-accuracy imaging applications.This product in the past, 5N Plus produced this product in certain diameters, 2-, 3-inch diameters, and has actually created a lot of interest based on this product. We have a unique way of growing the crystals. It's a unique technology that enables the customer to truly have a better image. And so the customers have been very much interested. And so now we go into a 2-dimensional challenge, because not only they have substantially increased their need for this, but now they're asking us to make these products at a much larger diameter.Now we've done these types of work before with other materials. We have the wherewith-it-all to do it. But it takes a bit of time to be able to do it and to industrialize it. And that's really what we're going through, trying to not only ramp up production for the products that we can support at this point, but then bring in the new generation, if you will, of technology at larger diameters which they are seeking.

[Rupert M. Merer, Managing Director and Research Analyst]

That specific example, is that something you can do with your existing equipment? Or do you need to spend money to solve this problem?

[Arjang J. Roshan, President, CEO & Non Independent Director]

At this point, we think that these challenges that we have can be managed with the current assets that we have. Again, I'm always looking at our investment needs into the future. And as you know, under 5N21, we've given ourself a $50 million cap over 5 years. And at this point, I have no indication that we're going to go over that cap. So even if there are equipment investments that we need to make, we still see it within that cap.

[Rupert M. Merer, Managing Director and Research Analyst]

So with that specific example, how long do you anticipate it would take to be able to solve the production issues?

[Arjang J. Roshan, President, CEO & Non Independent Director]

It's not the easiest question to answer. I would tell you minimum, my guess is, based on my best assessment of the situation, probably 1 to 2 quarters and maximum probably double that, 4 quarters. Remember, we're not just trying to scale up, but we're trying to bring in a new product and make sure that it can be scaled up. So some of that work has to do with the product going to the customer, and the customer's process also is an unknown and some of these things. On their side it takes time. So that time I can't estimate what that is. So it could take longer than, let's say the 2 quarters that I mentioned.

[Operator]

[Operator Instructions] [Foreign Language] Your next question comes from the line of Stephen Harris from GMP Securities.

[Stephen C.A. Harris, Head of Research]

Wonder if we can delve into this a little further. You talked about issues of production downtime. And the example you last gave sounds more like a production yield issue. And I know you got multiple different lines and products and things we're talking about here.But was there any sort of a failure when you talk about production downtime, sort of an event, some sort of machine breaking or something that caused you lost production that contributed to the quarter, where you can say, okay, that's in the past? Or when you think production downtime, are we thinking a number of small discrete events that accumulated to have an impact on the quarter?

[Arjang J. Roshan, President, CEO & Non Independent Director]

So to answer your question, I would have to say it was both. We've had in one instance where this is regarding catalytic and extractive materials, where we've never run the plant at the capacities that we're now running. And so you don't know what you don't know, because, naturally, one of my questions to our operations is why can't we foresee these things and, if you will, get ahead of it?In this case, it's just it is a simple case of that the orders are large enough that we've never been in that territory. And it did result in equipment failure. So there were downtime with equipment, which obviously we're addressing all of that. And in one instance, for example, we lost almost 3 weeks of production. So that's one example.Your yield comment is a very valid comment and it is one that, especially in electronic materials, tends to compound the effect. As I described when you have products in that segment that have yield issues, you tend to quickly fall off on the margin scale due to the compounding cost. And we had yield issues there. But for us, those yield issues, at this point, again, we don't see them -- we see them surmountable. We don't see them as something that gravely concerns us, because we see that as a part of the learning process of scaling up. And as you probably know, in semiconductor industry, that's part of the learning curve. So we're going through that.But to answer your question, yes, on both of those that you mentioned was part of our challenge this past quarter.

[Stephen C.A. Harris, Head of Research]

Okay. So if you take Q1 is in the past then, and look at Q2, we've got a month under your belt. And I know you may not have all the April results in, but you probably have a feel of how it's going. Can you say that, okay, so some of this is in the past and definitely not going to have a full repeat of Q1 in Q2? Or would you describe it as sort of still a work in progress where the issues from Q1 haven't really dissipated in Q2 yet?

[Arjang J. Roshan, President, CEO & Non Independent Director]

So I'm in almost daily contact with our teams. I don't have the results for the month. I suggest -- well, what is it? 31st (sic) [ 1st ] today? Yes. Okay. So, no I don't have the results for the month. But to your point, I am in daily contact with them.What I can tell you is, let's say if I were to collect the points in terms of on an improvement scale, each week I see more and more improvements. I see, the thing that I guess that encourages me is that I can visually see the learning that is happening in the organization. And I can see that learning showing up in terms of results on some of the metrics that we have put in place.That being said, I cannot say that this thing is not going to show up in Q2. It's not a step change. It'll be a ramp. So I expect certainly in Q2, I expect this to remain. Now I believe the effect of it should mitigate, but it will remain. So in the monologue that I just gave, I have referred to it as some quarters. And the reason why I can't give you exact number of quarters is because really depends on the learning curve, how fast we're going along it. But as the earlier, as Rupert had asked, I see, let's say 2 to 4 quarters certainly in the cards.

[Stephen C.A. Harris, Head of Research]

Okay. All right. And if you want, turn maybe to the renewable energy side. Can you give us a little more sense of how the contracts unfold and the extent to which what we've seen there has been a function of the customers' mix of services and products being ordered under that master agreement versus your expectation that this mix is normal and will continue in this pattern where overall revenues are sort of flattish with higher shipments and lower margins? And is that blend expected to continue in the future? Or was this just a particular combination of orders from the company that produced that outcome?

[Arjang J. Roshan, President, CEO & Non Independent Director]

Well renewable energy, as we mentioned in the past is, as you said, in various products and services, that is not option by us but option at the customer, meaning the customer at the end tells us, determines the mix of how those contracts will be exercised.In the past quarter, I don't think there was anything unusual. We had anticipated and we've been experiencing this that as the new contracts come in, as the old contract expires, that there will be a level of margin deterioration. The whole point of our growth initiatives, as I mentioned, has been to not only cover that, but then obviously deliver additional growth.Now in terms of where it's going in the future, again, because it's option at the customer, I probably wouldn't be prudent for me to say. But I can tell you how we -- because we have to obviously budget, how we envision it. We have envisioned it as similar, as similar in terms of revenue. But again, we see the margin deterioration that has occurred in future as well.Now as soon as we're able to get our other initiatives off the ground, I think, obviously, to the bottom result of the company, that becomes less of an issue.

[Operator]

Your next question comes from the line of Mac Whale from Cormark.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

You didn't change the long-term guidance for 2021, given the fact that you had some sort of hiccups on ramping. Is that because what's driving that growth in the 2021 to $45 million is essentially everything you're bringing on now, so that if you get that working the way you envision it in the next 4 quarters, that guidance is still firm? Or would you need to rethink your own internal development plan in order to make that, just given the fact that the ramp didn't go or has not been going sort of -- it doesn't sound like it's going as you saw, to the most part. So I'm wondering why you didn't have to make any changes on timing or amount for 2021.

[Arjang J. Roshan, President, CEO & Non Independent Director]

Okay. No, indeed, we did not change the guidance for 2021, because what we see is that guidance is based on the fundamentals of the business that we're running based on the demand that we're seeing in the market for our products. And that hasn't changed. So there is no reason for us to change the guidance for 2021. We remain committed to the $45 million adjusted EBITDA and 17% return on capital employed. And I think everyone in our organization have used that as a viable goal to reach.Now we had mentioned that we think we are going to go through -- we called the year a staging year, okay, with the intent that we would go through a learning stage. Now I'd be lying if I tell you I know exactly where the problems were going to come in. It's teething issues. But we had anticipated that that would happen. And it did. It did.And from what we see, we don't see anything that is systemic. In other words, we don't see anything, any of the challenges that we have in front of us. As best as we can dissect them, they're not indicating that, ooh, this is really questioning the fundamental approach to our business. They're all pointing to, look, there's a learning that needs to happen here. These are, in some squares, in some circles, a good problem to have. We've got the demands. We've got to now figure out how to scale up to improve yield, to ensure that our manufacturing facilities which haven't run at some of these capacities, are robust enough to run on a consistent basis.All of those, for me, are transitory issues that need to be resolved. So the risk is from our point of view, in the short term. Is it going to be resolved in the next 2 quarters? Is it going to be resolved in the next 4 quarters? That's what we see as a risk right now. And that's why we don't see any need for really revisiting 2021. We think that the business' fundamentals remain solid.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Good. And in terms of new opportunities, like could you pursue any sort of acquisitions or M&A activity while this is going on? Or has this really got your thinking and the management's attention now focused internally? Or has that impacted your ability to do some of the things that you may have thought, hey, by this point, things will be humming, we'd be doing this now, but instead you find yourself doing things that you didn't think you were doing? Do you understand what I mean? Is there enough bandwidth at the top to still pursue the other things that you were looking at?

[Arjang J. Roshan, President, CEO & Non Independent Director]

I would be -- in the spirit of full transparency, I am focusing the entire attention of the organization on the challenges that we're having today. We do have a smaller group that is continuing to scan the market for opportunities. But I would tell you that right now our full energy needs to be put into this phase of growth, because the sooner we get out of this, the sooner we can realize our ambition. And we think if we realize our ambition, it's going to give us a completely different freedom in the acquisition market. So to be very blunt, I want the entire organization's force to right now be put into this and essentially nothing else.

[Operator]

Your next question comes from the line of Nick Agostino from Laurentian Bank.

[Nick Agostino]

I guess just to kind of wrap my head around, you guys talk about the demand and the strength of demand, et cetera, and just to quantify for us the impact that the equipment downtime, the scaling issues had on the business. If you were successful as far as scaling as per plan and, therefore, would not have experienced maybe some of that equipment downtime, can you maybe quantify what Q1 could have looked like in a perfect world? Removing the impact of what happened with metal prices specifically.

[Arjang J. Roshan, President, CEO & Non Independent Director]

I would say that a good measure would be that it certainly wouldn't have this type of deficit as compared to Q1 last year. That's what it would have been. And depending on the product mix would have potentially had even improved margins. That would be the best indication I can give you.

[Nick Agostino]

So you're saying the quarter could have looked, from a top line perspective, closer to what we saw Q1 last year, and the margin profile could have been at or better than Q1 of last year? Is that what you're . . .

[Arjang J. Roshan, President, CEO & Non Independent Director]

Had we not had these growth issues.

[Nick Agostino]

Yes. Yes. Okay. And then just one other question. Q4, we did see revenue, I think it was somewhere around $48 million. I'm just wondering, just trying to wrap my head around, what was the timing of when these issues started to crop up? In other words, were you seeing some of this come to fruition in Q4 of last year, and maybe that spoke to why we saw the Q4 weakness and you were hoping to get some of this resolved sooner rather than later and maybe haven't been able to wrap your arms quite around it yet? So maybe did the issue go back to Q4 of last year, is really the question.

[Richard Perron, Chief Financial Officer]

The short answer is no. Q4's last year is a combination of seasonality as we used to experience in the past and, to some extent, also remember the metal notations came down drastically in the second half of last year, okay? So it's two different set of reasons for the current level of adjusted EBITDA.

[Nick Agostino]

Okay. So the ramping initiatives and the scaling and all that, that was something that was being undertaken solely starting Q1 of this year?

[Richard Perron, Chief Financial Officer]

It's mostly definitely the quarter and the year where those have a more important impact, yes.

[Nick Agostino]

Yes. Okay. That's it. Thank you.

[Arjang J. Roshan, President, CEO & Non Independent Director]

Nick, just before you go, I have to correct myself. I'm just quickly looking at some figures here. So just to be clear, because in Q1, we're actually ramping up, so even if we didn't have growing pain, there's ramp-up that's happening with customers. To answer your question, our revenue would have been slightly lower, but around the same margins, I would have said.

[Nick Agostino]

Okay. So slightly forward . . .

[Arjang J. Roshan, President, CEO & Non Independent Director]

So what I said is the revenue would have been at least -- initially I said that it would have been about or at least the same as last quarter. I have to correct myself to say it would have been . . .

[Richard Perron, Chief Financial Officer]

Slightly lower, but . . .

[Arjang J. Roshan, President, CEO & Non Independent Director]

. . . slightly lower because even without the operational issues, we're in a ramp-up mode of the products at the customer.

[Richard Perron, Chief Financial Officer]

Plus, I mean we're always uncomfortable referring to revenue, because notations in the first half of last year were higher. And for our Eco-Friendly segment, we still have a good portion of our products where the metal component is important.

[Nick Agostino]

Okay. But so just to be clear, revenue would have been something lower than but approaching where you were in Q1 of last year and margins would have been somewhere in the order of where you were last year?

[Arjang J. Roshan, President, CEO & Non Independent Director]

Yes.

[Richard Perron, Chief Financial Officer]

Yes, much closer.

[Operator]

There are no further questions at this time. [Foreign Language] I will turn the call back over to the presenters.

[Jean Mayer, VP of Legal Affairs & Corporate Secretary]

Okay. Thank you. We thank you all for joining us this morning for our earnings call. On behalf of 5N Plus Board of Directors, we invite you to attend our Annual Shareholders Meeting to be held at 10:00 a.m., this morning in Montreal. Thank you again, and have a great day.

[Operator]

This concludes today's conference call. You may now disconnect. [Foreign Language]