5N Plus Inc

TSX:VNP

Earnings Call Transcript 2021-Q2

[Operator]

[Foreign Language] Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 5N Plus Inc. Second Quarter 2021 Results Conference Call. [Operator Instructions] And I would like to turn the conference over to your speaker today, Richard Perron, Chief Financial Officer. Please go ahead, sir.

[Richard Perron, Chief Financial Officer]

[Foreign Language] Good morning, everyone, and thank you for joining our second quarter ended June 30, 2021 financial results conference call. We'll begin with an overview of our business performance, the review of our financial results and the highlight of key strategic themes, after which we will begin the question period. Joining me this morning is Arjang Roshan, our President and Chief Executive Officer. We issued yesterday our financial statements, and we have posted a short presentation on the Investors section of our website. I would like to draw your attention to Slide 2 of the 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 description of the risk factors that may affect future results is contained in our management's discussion and analysis available on our website in our public filings. The company is not aware of any significant changes to its risk factors previously disclosed. However, since January 2020, the outbreak of the coronavirus, COVID-19, and its declaration as a pandemic is still ongoing today, resulting in governments worldwide enacting emergency measures to combat the spread of the virus. These measures have caused material disruption to businesses globally, resulting in an economic slowdown. The outbreak of the COVID-19 should be considered a risk factor still ongoing today. 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 discussion and analysis.I would like to now turn the conference to Arjang for the discussion on the business performance and quarter results. AJ?

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

Thank you, Richard. [Foreign Language] Good morning, ladies and gentlemen. This morning, I will start with the analysis of the company's performance during the quarter. Richard will follow with financial analysis. Before taking your questions, I will come back and highlight some of the items in focus. Looking at our company's performance during Q2, 3 items stand out. Number one, 5N Plus revenue during the quarter grew by 16% as compared to the same period last year. Number two, despite recovery challenges from the global pandemic, Eco-Friendly Materials delivered outstanding performance supported by recent investments in process technology and asset optimization. Electronic Materials performance was in line with expectations as communicated in the last quarterly call. Number three, the customary closing conditions, including foreign regulatory approvals associated with the announced acquisition of AZUR SPACE, continues to move forward at a measured pace with positive progress.Now let's talk about each of these 3 items. In recent years, we've been focusing on value extraction from existing revenues by maximizing margins across existing businesses. At the same time, we've been positioning and investing in future growth by essentially organic means. And these are centered around advanced material technology. During this period, we've been consistent in stating that the reduction in the total revenue is to be expected and it's not of concern because nearly all of the reduction is attributed to the commodity component of the overall revenue, namely metals, which historically have not provided an appropriate risk-to-reward ratio for 5N Plus.Conversely, we've grown the value-added portion of the revenue, which has resulted in notable improvements to the adjusted EBITDA margin over this period. Obviously, the proof is in the pudding. When we look at average adjusted EBITDA margin from 2012 to 2016, we see that this number stands at about 6.1% from 2017 to 2020. This is a period where we deemphasized metal sales and focus on value-added revenue, the same margin surges more than doubled to about 14%.Clearly, this approach has been very effective. However, in and of itself, it is reaching a point of diminishing returns. We've begun to now emphasize total revenue growth. This is going to be an important KPI for us. Given the fact that 5N Plus has secured approximately 45% of its current addressable market significant future revenue growth will require material expansion of the company's total addressable market. We believe this will be achieved by a combination of organic growth and M&A activities, acquisition of AZUR SPACE is obviously an example of the latter. During the quarter, each of the 3 market sectors within segment Eco-Friendly Materials experienced revenue growth ranging from high single digit to mid-double-digit percentages with Eco-Friendly Materials as a whole, registering 32% revenue growth as compared to the same period last year.Clearly, the recovery from the pandemic has been a positive factor for Eco-Friendly Materials, albeit with numerous challenges around logistics and consumables. This said, the company's investments in process technology and asset optimization initiated in 2019 and recently completed allowed 5N Plus to increase efficiency of its operating assets, reduce consumable consumption and improve labor productivity across the segment.With the cost of consumables and wages on the rise, also with increased demand for the company's products. These investments could not have been timelier. The culmination of the growth in demand and improved operating leverage culminated in an outstanding performance across Eco-Friendly Materials. Electronic Materials performed in line with expectations communicated in the last conference call. Revenue contribution from this segment was 2% lower than the same period last year. In 2020, the company's new generation of medical imaging semiconductor detector products were used to build up a fleet of medical imaging devices, which is undergoing regulatory and customer qualifications. During this phase of market development, the company expects lower demand from this activity. 5N Plus also expected lower contributions from renewable energy for the quarter, given the fact that the long-term contracts negotiated in 2020 provide asymmetrical revenue contribution favoring the latter part of the contracts.During the quarter, 5N Plus announced an investment of $8.5 million in its Montreal campus to support demand for II-VI semiconductor materials. The investment will deploy new process technologies and optimize supply chain to lower unit cost of production, reduce carbon footprint and improve access to essential materials. Given the importance of the semiconductor materials to the development of critical industries such as renewable energy, electric mobility and so forth, approximately 1/3 of the investment has received funding from governmental agencies. The announced acquisition of AZUR continues to move forward with positive progress. Our understanding is that the process associated with the transaction of this nature has been recently amended by the European regulatory bodies. We're told that our file is among the first files undergoing this new process and the measured rate of progress is to be expected. 5N Plus is working closely with the related agencies and third parties to support the process based on the company's best visibility this file is in the last stages of the approval process. The conclusion of this work is anticipated by late Q3 or early Q4.I will now turn the call over to Richard for a financial review. And before taking your questions, we'll return to add additional color. Richard?

[Richard Perron, Chief Financial Officer]

Yes. Good morning, everyone. So as mentioned by AJ, the second quarter is characterized by a repeated solid performance for Eco-Friendly Materials, reaping the benefits of prior year initiatives and solid demands for its products. In terms of overall financial performance, revenue for the quarter were notably higher than the same quarter last year, signaling an upward inflection point for the remainder of the year, especially under Eco-Friendly Materials.Similar to the previous quarter, this segment continued to deliver strong results with adjusted EBITDA margin reaching outstanding levels, supported by solid demand across the sectors it serves, higher-margin businesses and improve operational efficiency. The segment's results for the first half of 2021 reflect the accumulation of strategic measures introduced over the years and its leadership position under sector health and pharma.Under Electronic Materials following an exemplary year in 2020, the segment experienced lower adjusted EBITDA during the quarter as compared to the same quarter last year but performed in line with the company's expectations as communicated in the previous quarterly report. Both segments ended the quarter with strong backlog, confirming solid demands for its products. The company continues to maintain a healthy balance sheet, managing liquidity diligently to finance growth, realizing competitive return on capital employed.During the rest of 2021, we will continue to invest in projects to support our ongoing transitions towards higher added value products, and that allows us to be more cost competitive. The company well engaged into the path to realign its product offering to large addressable markets, margin expansion, risk reduction and simplification. 5N Plus is committed to grow its role as a global material technology leader. So now starting with the coverage of revenue and gross margin followed by the adjusted EBITDA, net earnings. In Q2 of 2021, revenue increased by 16% compared to the same quarter of last year, impacted by higher volume under Eco-Friendly Materials, with gross margin reaching 24.7%. On a year-to-date basis, we are tracking an average gross margin of 24.8% or $23.5 million compared to $24.8 million last year.In Q2 of this year, adjusted EBITDA was $6.3 million compared to $7.6 million in Q2 of last year, impacted by unfavorable product sales mix under Electronic Materials, partially mitigated by higher volume under the Eco-Friendly Materials. As for EBITDA, it reached $6.3 million compared to $6.5 million in Q2 of last year. On a year-to-date basis, the adjusted EBITDA was $12.6 million compared to $14.5 million last year, while the EBITDA was $12.1 million compared to 12.7% last year. In Q2 of this year, net earnings were $2.2 million compared to $1.7 million in Q2 of last year. And on a year-to-date basis, net earnings were $2.9 million compared to $2.3 million last year. Now looking at annualized backlog. Backlog on June 30 of this year represented 190 days -- 199 days of annualized revenue, an increase of 4 days over the backlog of March. Backlog at the end of this quarter for the Electronic Materials segment represented 255 days of annualized segment revenue. The backlog for the Eco-Friendly Materials segment represented 161 days of annualized segment revenue, an increase of 11 days or 7% over the backlog of March. Compared to Q2 of last year, the backlog for this quarter for the Electronic Materials segment increased by 15 days, supported by the sensing and imaging sector. The Eco-Friendly Materials segment reached 161 days compared to 168 days in Q2 of last year. Bookings for the Electronic Materials segments are similar to the level of the previous year quarter and increased by 62 days for the Eco-Friendly Materials compared to the previous year quarter. Quickly going through the expenses. Depreciation and amortization expenses in Q2 and year-to-date amounted to $2.6 million and $5.2 million compared to $3 million and $6.1 million for the same period of last year. SG&A expenses in Q2 and year-to-date were $5.2 million and $10.1 million compared to $4.6 million and $9.5 million for the same period of 2020. These expenses were impacted by exchange rates across most in a native local currency. Financial expense in Q2 amounted to $1.2 million compared to $1.5 million for Q2 of last year. On a year-to-date basis, financial expense amounted to $1.1 million compared to $2.9 million in year-to-date of last year. The decrease is mainly due to a gain in foreign exchange and derivatives recorded on a year-to-date basis this year compared to a loss for the same period last year, while the interest on the long-term debt was at similar levels for both periods.The company reported earnings before income taxes of $2.9 million in Q2 and $5.3 million in year-to-date on a year-to-date basis. Income tax expense in Q2 of this year and year-to-date were $0.7 million and $2.4 million compared to $0.9 million and $2.5 million for the same periods of last year.Covering liquidity. On a year-to-date basis, cash generated by operating activities amounted to $2.7 million compared to $16.8 million last year. The decrease is mainly due to the negative change in nonworking capital in 2021. On a year-to-date basis, the cash used in investing activities totaled $5 million compared to $4.2 million last year, essentially attributed to the acquisition of minor equity stake in Microbion earlier this year.On a year-to-date basis, cash used in financing activities amounted to $6.5 million compared to $2 million. On a year-to-date basis last year, the increase of $4.5 million is mainly explained by the reimbursement in Q1 of this year of $5 million to our credit facility. Now looking at gross and net debt. Total debt decreased by $5.1 million and stood at $45 million compared to $50 million on December, and on a net debt basis, considering cash and cash equivalents, it increased by $4 million from $10.2 million to $14.1 million on June 30, explained by the current net working capital. So this will conclude the financial review. Let me turn back to AJ for the highlights of key strategic themes, after which we'll be taking questions from analysts. AJ?

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

Thanks, Richard. I'd like to make some comments about a topic we discussed last quarter, which is the pricing environment of both metallic and nonmetallic consumables. With respect to the nonmetallic consumables to recover in various industries and supply chain disruptions have resulted in price inflation in certain consumables used by 5N Plus, thanks to the investments in process technology and our team's proactive management of the supply chain, the adverse impact year-to-date has been significantly muted as this challenge will be with us for the immediate future, it remains a priority.With respect to the increase in the price of metallic commodities, metal commodities, we continue to see no demand-based fundamentals supporting inflation and notation of metals, such as, for example, bismuth or tellurium. We believe the market is well supplied with ample inventory for these metals. To that end, our best indication is that any form of price hike is generated based on implied dislocations in the market.5N Plus continues to exercise prudence and has been working closely with its suppliers and customers to ensure competitive and reliable access to these metals. In the last conference call, there was a question about whether such environment would result in market share loss for 5N Plus. It has certainly impacted margins, but not market share.Looking to other priorities in the second half of 2021 and beyond, we expect -- number one, we expect to close the acquisition of AZUR SPACE and begin its integration. This is a transformational transaction for us as it will uniquely position our company within the specialty semiconductor space expanding our value chain and enlarging our addressable market.The acquisition of AZUR is well aligned with the company's goal to substantially increase its TAM within the high-value technology space. It also establishes 5N Plus as perhaps the only company in the world with capabilities spanning from competitive procurement of strategic metals based on process technology to production of epi-ready semiconductor wafers customized for specific needs of our customers in critical industries.With increased TAM, 5N Plus will be focused on revenue growth, both organically and through external means. We will also be paying close attention to margin management to ensure quality revenue gain. Number two, our company will continue to strengthen its position with respect to ESG themes to which the recent announced investments in Montreal campus is a testament.Number three, we will continue to focus our activities on select areas and increase the depth of market and product penetration. An example would be specialty semiconductors, where we've begun to increase our activities along the value chain and will enter larger markets. We expect this work to continue in other parts of our business.When we look to the earnings guidance, which we -- which was provided with Q1 report, we took a conservative approach toward what AZUR would contribute in 2021. I think this was prudent and well warranted. We remain comfortable with maintaining our guidance for adjusted EBITDA in the range of $25 million to $30 million.We're now ready to take your questions.

[Operator]

[Operator Instructions] And your first question will be from Michael Glen at Raymond James.

[Michael W. Glen, Equity Research Analyst]

AJ, maybe just to start, you did mention the tellurium dynamic. Are you able to provide some insights perhaps into how it did ultimately impact the revenue and the EBITDA for the electronic materials in the quarter?

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

Sure. The primary impact comes from the fact that as we've said, part of our -- there's a portion of our contract, which works on fixed pricing. Obviously, when prices go up, it cuts into your margin. So there was a margin reduction in terms of those units that were sold during the quarter. And I think that's -- when you look at the results of electronic material, that's definitely seen in it.

[Michael W. Glen, Equity Research Analyst]

Okay. So were there any -- I believe or I think you had mentioned the potential for some sales deferrals maybe -- correct me if I'm wrong on that, but did any of that take place in the period?

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

Without completely telegraphing my punches, we have been working very closely with the customers that are involved. I think they credit to them. They understand that these short-term dislocations are not good for their industry as well. And so we've been working with them. And to give you a more definitive answer, there has been no losses of sales events.I won't comment about how we manage that. But I can assure you that it's not like we walked away from a sales event and someone else picked it up. We've been working very closely with our customer base to make sure all of those are managed and maintained.

[Michael W. Glen, Equity Research Analyst]

Okay. And circling to the investment taking place in Montreal, can you provide an update, like just regarding the timing, how this impacts the CapEx. And just some insights into -- ultimately, does this improve your flexibility? Does it improve your cost profile? What's some of the motivating factors are there?

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

Sure. When you look at the current tellurium supply chain, for us, it's basically spread out in various locations. So one of the first things this will do is it will essentially create economies of scale and make it more concentrated. It allows us to manage our working capital better. It allows us from the environmental point of view, the whole footprint becomes a lot more manageable. So there are benefits there. Then we're also utilizing certain technologies, new process technologies, which allows us now to get access to new feeds to new sources. More and more, we see ESG is also a theme here. Our suppliers want to make sure that the person next in the line, certainly, our western suppliers are taking good care of these materials. So these new process technologies opens up that door to us as well. It -- overall, I think what you will see is per unit cost of production, we'll be able to provide -- have a more competitive profile. Along with that, I think in the press release, we've mentioned between the supply chain consolidation between the fact that we're using hydroelectricity and others environmentally, it actually reduces our CO2 footprint.Now in terms of investments, we've -- next year, Richard, correct me if I'm wrong, we're still forecasting that we'll be investing if we just now not talk about AZUR because when that comes on, obviously, there's investments there, but not considering AZUR, we'll be investing at the rate of depreciation. So even with this investment, we'll be able to manage it.

[Michael W. Glen, Equity Research Analyst]

Okay. And then just one more for me. There was -- you had mentioned an ongoing strategic review of the certain businesses within eco-friendly. Can you provide an update on that?

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

If we said it's within eco-friendly, I don't recall, we're doing that. You're absolutely right. We are not at a place where I can definitively give you answers, but there's -- clearly, we see that there are certain assets that we've identified. And I think we'll have more to say about that probably 6 months from now, 3 to 6 months from now. But we're certainly -- we expect a readjustment in our footprint, again, with the whole theme around going deep, not wide. That's something we've been saying, and I think that's what you'll see. You'll see that. We'll be looking to -- similar to what we did with Montreal, for example, is to bring more activities to our larger sites.

[Operator]

Next question will be from Rupert Merer at National Bank.

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

On the Eco-Friendly Materials business, you mentioned that you saw good growth in most of the segments there. Wondering if you can give us a little more color on where you saw the activity. And it sounds like you're expecting strength for the remainder of the year. So if you can give us some color on the nature of this business, it sounds like it could be sustainable in the long run and maybe not just cyclical. Any way you can give us some more color on that business, please?

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

Sure. Look, when we look at Eco-Friendly Materials, there are -- this is the part of our business that also has the most amount of metal revenue. So I should mention for transparency sake that obviously metal prices helped, but even without metal prices, the growth would have been quite substantial. We said 16% was the company's revenue growth. Even if metal prices were -- had not gone up we would still have a double-digit revenue growth for the company.Now in terms of where -- well, actually, there are 3 sectors in there that we usually talk about: there's the pharma; there's the industrial; and the catalytic and extracted, all 3 of them. All 3 of them showed very, very good growth from high single digit to as high as one of them, I believe, was up to about 50%, for example, was quite strong. When we analyze that, clearly, one factor is it's an opening item with the global economy becoming a bit more active. But beyond that, we had order books in the past, that was quite strong. And some of the products that we have been putting out there in the field was getting a lot of interest from customers. You may remember that, for example, for several quarters, we mentioned that our catalytic and extracted business, the order book is like bursting at the scene. With the pandemic, obviously, there was a bit of a halt to that. But clearly, that material -- the materials that are coming from there has its own market demand. Now would I say that going forward, you should model yourself at 32% growth for that. No. Clearly, a good chunk of that is an opening of -- due to the global pandemic. But certainly, there was strong fundamentals from the market itself that sought products that we were producing.

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

And if you look at the capabilities in that business today, where would you be operating on a capacity factor basis perhaps? Do you have plenty of room for expansion in that business if it comes?

[Richard Perron, Chief Financial Officer]

Catalytic and extracted, I think we're -- we've done a lot of debottlenecking. Remember, this was a theme. A lot of the investments that we've made, I guess, I hope that you recognize that we've made ourselves to account, and you can see now the results. These are all the stuff that we told you 2 years ago that would happen. That is now happening. Catalytic and extracted, we said we were going to build another plant for the strong order book that we were going to do everything we can to debottleneck. So that has been debottleneck. I think right now, that order book is quite full. I probably wouldn't be able to create more capacity at this point. With regards to pharma and industrial, we have capacity to take advantage of. There's still room for us to produce more without having to invest.

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

Maybe just one more on Eco-Friendly Materials for me. We talked a couple of years ago about animal feed business potential. If you can talk about how that's playing out? And any other organic growth opportunities you could see in eco-friendly?

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

Yes. In fairness to your question, I should say that, yes, you have probably caught me not talking about some of these things. One of the things that I learned through the course of these questioning if some of these starting businesses, they have -- you have periods of ebb and flowing. And I've been talking less about them because I want them to mature. Feed additive is a good example of that. We started that business I believe we entered the market if memory serves 2 years ago in earnest. And we had -- there was a period where we were facing competitive pricing. Clearly, a couple of parties that were in the field didn't want us joining and made it difficult, but our team has done a great job of changing its strategy and without getting into it has been able to come back. And they're actually -- I think it's fair to say that they can turn that business most likely very shortly into it into a black number. So usually, in our business, as you know, there's a long runway, material business, it takes you -- when you start a business, it takes you several years to turn black. And I think our team has been doing a good job of moving that. And I would say it was probably quicker than we had anticipated. They're turning that business into small, very small, but yet a black number.

[Operator]

Next question will be from Nick Agostino at Laurentian Bank.

[Nick Agostino]

I guess just one question on my part. And with regards to partnerships. I mean now you're at a stage where we're seeing some good stability on the revenue side, profitability side. You've announced some partnerships in the recent past. Can you maybe give us a reminder as to are some of those -- and I'm thinking of one in particular but are some of those partnerships starting to contribute to the top line growth? And if so, how meaningful are they? And then secondly, what are prospects for other partnerships? And maybe where are you seeking out those partnerships in terms on a segment basis?

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

Most of the partnerships that you're referring to are fairly new. I wouldn't expect top line -- material top line contribution. There's always top line contribution, obviously, but -- so no, I would be blunt to say that we have not -- like I think the 2, one in powder business, the other in pharma business, I think they're like 6 months, maybe 8 months, maybe 10 months old. So no, I wouldn't say the contribution is material. And in terms of partnerships, look, partnerships are your way of -- or I should say, our way of dipping our toe in the water. And will we utilize them more we could. We could. You know that there are 2 areas in the company that we're emphasizing at the moment quite a bit, it's basically advanced materials, which has pharma and powder in it and specialty semiconductors. Our preferred model is to be able to go and have -- essentially have a controlling stake. That's our preferred model. But yes, we could entertain other arrangements, assuming long term, it fits our strategy in those areas that I just mentioned.

[Operator]

Next question is from Frederic Tremblay at Desjardins.

[Frederic A. Tremblay, Analyst]

A question on million AZUR first. As you make measured pace towards closing that acquisition, are you able to provide a bit of color on where their order book stands or like the sort of the general outlook for that business as we move closer to closing? Any general comments there?

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

I think I would have to not say much about that. Obviously, we still have not closed the deal. So anything I would mentioned on their behalf would probably, at this point, be inappropriate. That being said, I think I understand where you're headed. And I think you want to be able to model and see how much when they do, hopefully, come on board, what you could add on top of what 5N does it by itself. Look, the space business is -- the way it works, it comes in batches. It's not like when you look at the billing cycles and the production, it comes in lumps. We knew, for example, last year, there were some things that came towards the end of the year. So one of the reasons why I was reluctant to put -- to not put a lot of AZUR contribution into this year's earnings, and I know I got a lot of flags from some of you was because of that because it's lumpy. And if we even close, let's say, end of Q3, I'm not sure how much -- how the lump is going to be favoring. So I guess I'll have to leave it at that at this point.

[Frederic A. Tremblay, Analyst]

There's one bit of information we can say is that, to our knowledge, their backlog is very healthy.

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

That's true.

[Frederic A. Tremblay, Analyst]

Okay. That's helpful. And second question for me on economies of scale. AJ, you mentioned that a few times in your comments and on the MD&A. Just wondering if we could get maybe a bit more details there. Are you referring to something like more centralized purchasing? Or is that more something doing something similar to what you just announced with the Montreal investment, but doing that at other sites, but could you maybe expand on the opportunities to gain economies of scale.

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

No. It's more -- exactly. It's more on the operating side. We have -- our value chain -- as we've said in our monologue, we've expanded our value chain in, for example, specialty semiconductors. When you're expanding value chain, operationally, you got to be careful not to have them over too many sites because then you're creating a monster. And so what we've done and what we're doing is exactly what you mentioned. Montreal investment would be a good example of that is try to consolidate that value, that supply chain and internal supply chain on fewer footprint, create economies of scale in terms of all your overhead, all your consumables and be able to become truly competitive. And so that's really what we're focusing on. In terms of centralizing purchasing and those things, we feel that we're pretty lean when it comes to some of those overhead activities. This is more on the operational side.

[Operator]

[Operator Instructions] And your next question will be from David Ocampo at Cormark.

[David Ocampo, Analyst of Institutional Equity Research]

I just had some follow-ups on Michael's initial questions. Maybe I can just ask it a different way, and you may not answer the first one because of competitive reasons. But I think in the last quarter and your indications to me was that you guys did have -- and your customer did have inventory of tellurium. Is that still the case today? You may not disclose the order of magnitude on how big that is, but just wanted some clarity on that.

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

So let me answer it. Let me walk the fine line between trying to answer your question without again, telegraphing my punches. We have no immediate need to go in the market and purchase tellurium, for that matter of business. So we are -- we have the luxury of being able to be patient if and when we decide that the market is being superficial in terms of its pricing profile. We still have that -- we're still in that very, I would say, status.

[David Ocampo, Analyst of Institutional Equity Research]

Okay. And then another follow-up is on the margin profile. I understand sales mix is a little skewed to the downside here, then you don't have the medical device sales which was higher margin last year. But if I compare it to, say, overall 2020 margins or even 2018 margins, you guys are closer to the 30% range in electronic materials. And today, we're closer to 20%. I guess when things ultimately settle and you start to get those outsized returns on your first solar contract and other things start to come into play, do you see this getting back up to the 30% level? Or are we sort of in that new normal now?

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

I think we certainly see it increasing. Richard, I don't have -- do you see it specifically getting to 30% or higher? Or what's your thought?

[Richard Perron, Chief Financial Officer]

We'll go back to that level at a point in time. Yes. Once our mix is improved, then we have more stability on tellurium prices, for example.

[David Ocampo, Analyst of Institutional Equity Research]

All right. And Richard, is that something that steps up over, say, a 1- or 2-year period on kind of like a straight-line basis? Or is it just whipsaw depending on what happens with tellurium prices?

[Richard Perron, Chief Financial Officer]

It does not happen at once. It will gradually improve, and you see it in our results. Will it take a year or 2? It's very likely to take a few quarters. But I'm not sure I can specifically say years at this point in time, but it's going to take a few quarters.

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

In reality, I think for the sake of disclosure, we should say that we're at a -- we've got some budding businesses. As soon as these businesses put demand into our pipeline, it sort of creates a surge in margins because this was the case with medical devices, for example. There are other types of imaging applications that we're also right now working on. So just to manage our analysts' expectation, expect choppiness in these margins because we get surge of demand. And then there's a period of lull where there is certification or whatever is going on. And so I think I would say it's part and parcel for the course right now.

[Operator]

Next, we have a follow-up from Michael Glen at Raymond James.

[Michael W. Glen, Equity Research Analyst]

AJ, I'm just hoping -- like absent AZUR, are you able to provide some insight into your own space business and the outlook for that business?

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

Sure. So the business as a whole has been in -- it's a cyclic business. From, I think, 2013, 2014 until recently, it's been in a downturn and now it's supposed to be in its up cycle. The communications we get indicate like quite a bit of growth. In fact, they point to probably more activity than the supply chain is capable of doing.The problem with that is that it's space. And as you know, space business, there's a lot of delays. There's a lot of changes. So when I look at the space business, at least specifically for us, absent AZUR, I would tell you there needs to be -- I would see probably high single to maybe a double-digit growth when I look at the next quarters. That's what the order book at least shows. Now in the past, we've seen, as they're beginning to scale up, an example of that, for example, OneWeb, I mean, OneWeb was supposed to be basically, I think, 70%, 80% done by now. And we can see that it's not close to that number, yet it's continuing to grow. There are other constellations in the phase of planning. So our order book looks quite solid actually. But what I would expect is some delays in that. So our own business without AZUR we would model it for growth. I would say as I said, high single digit, low double digit.

[Michael W. Glen, Equity Research Analyst]

Okay. And on your side, in the space business, is there additional investment that you need to make sure that you're actively capturing the market share that you should be?

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

The investments are in capacity. The investments are in capability, which, by the way, the majority of them are paid by grants and other activities. So I would -- net-net, I would not say that it's going to -- essentially, this is one of the reasons that 5N Plus is able to keep its investments quite low. We -- given the strategic type of materials that we work with, we have access to a number of different financing mechanisms and grants and so on, which allows us to be able to manage that. So I would tell you in the grand scheme of things, it's not going to have a huge impact on our overall CapEx.

[Operator]

And at this time, Mr. Perron, we have no other questions. Please proceed.

[Richard Perron, Chief Financial Officer]

Okay. Good. So we would like to thank everyone for joining us today, and we wish you all a pleasant day. Thanks to all.

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

Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed concludes your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.