5N Plus Inc

TSX:VNP

Earnings Call Transcript 2020-Q3

[Operator]

[Foreign Language] Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the 5N Plus, Inc. Third Quarter 2020 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.

[Richard Perron, Chief Financial Officer]

[Foreign Language] Good morning, everyone, and thank you for joining our third quarter ended September 30, 2020 financial results conference call. We will begin with an overview of our business performance and review of our financial results, 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 to your attention, 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 and in our public filings. The company is not aware of any significant changes to its risk factors previously disclosed. However, since January 2020, the gradual outbreak of the novel strain of the coronavirus, COVID-19, and its declaration as a pandemic by the World Health Organization has resulted 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 new risk factor. 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's discussion and analysis. I would now like to turn the conference to Arjang for the discussion on the business performance and quarter results. Arjang?

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

Thank you, Richard. Good morning, ladies and gentlemen. Welcome to 5N Plus conference call. I hope wherever you are, you and yours are healthy, safe and are doing well. Last night 5N Plus posted results for Q2 and year-to-date 2020. Our company continued to deliver strong quarterly earnings with adjusted EBITDA for the quarter and year-to-date, reaching $7.7 million and $22.2 million, an increase of 28% as compared to the same period last year against a quarterly and year-to-date revenue of $40 million and $131 million, which is a decrease of 20% and 13%, respectively, over the same period last year. The third quarter results for 2020 reflect a gross margin of 31.3%, which is a notable improvement over the same period last year at 23.5%. Annualized return on capital employed or ROCE improved to 12.9% by the end of the quarter as compared to 8.2% as of end of 2019. Given the various events that have taken shape over the quarter and year-to-date, I'd like to provide additional clarity. Let's start with revenue development. The lower revenue numbers for the quarter and year-to-date in 2020 as compared to the same period last year can be explained by 3 main factors. First, lower metal revenue driven by lower metal notations. Second, lower contribution from upstream businesses such as recycling and refining. This is also due to lower or low metal notations, I should say. And third, COVID-related impacts. As you may know, the total revenue figure for 5N Plus includes 2 components. First, pass-through metal revenue, and secondly, revenue from value-added activities. For all of 2019, relevant metal notations continued to decline, reaching near historic low levels early this year. And well, basically, metals continued to decline all the way until early this year and have only recently shown slight signs of recovery. As a result of this, the basket of pass-through metals used by 5N Plus as of year-to-date provides a lower revenue component as compared to the same period last year. Also, the same historically bull metal notations have impacted the revenue contribution from the upstream businesses which recycle and refine metals from secondary and complex feet. We estimate 2/3 of the revenue difference between 2019 and 2020 year-to-date can be explained by these 2 factors. We estimate the remainder of the revenue impact to be COVID related. Now moving to the second component of revenue, namely value-added revenue, we should note that this revenue component as of year-to-date is higher than the same period last year, reflecting progress in line with the company's ambition to move forward higher value-added materials and away from commodities. During the quarter, 5N Plus initiated the closure of an Asian subsidiary due to unfavorable business conditions arising from abrupt changes in the regulatory environment. Part of our responsibility as management is to ensure the sustainability of our businesses. Given the inconsistencies in enforcement practices within the given jurisdiction, we have decided to consolidate the activities from this site to other locations within our global footprint. I am purposely withholding location names, not to be coy, but because we are still finalizing terms and conditions associated with this project. We also believe consolidation will afford certain opportunities in achieving better economies of scale and implementing new processes, which should make 5N Plus more competitive in the future. I should also mention that during the quarter, 5N Plus executed a negotiated settlement, which resulted in a nonrecurring income of $8 million. This settlement is related to the company's upstream activities. And once again, we are limited by what we can share. The financial impact of these 2 nonrecurring events resulted in a net gain and a favorable cash flow impact to follow over the coming quarters. 5N Plus continues to make progress with its growth initiatives, especially in segment electronic materials. In anticipation of your questions, I assume the change in the backlog within this segment may cause some head scratching. As you may know, our backlog number is based on committed business over the next 12 months. As we've said before, we manage our business with a mix of short and long-term contracts, many of which are at our discretion. Regardless of the mix, it is fair to say that as we get closer to the end of the long-term contracts, especially within the window of 12 months without renewal events, the backlog number can quickly change. The backlog number reflected in the MD&A for electronic materials signaled exactly that evolution within the cycle of long-term contracts. This said, as I speak to you, we have closed on a substantial volume of long-term business, and assuming we can get approval from the key stakeholders, we plan to provide more clarity in the near future. With this assumption and assuming the current trajectory of ordinary business, also assuming no extraordinary events, we expect the backlog figures to improve markedly by the next reporting period. I want to take this opportunity to once again remind us that how 5N Plus manages backlog and how the commitments develop depend on a number of factors, including our perception of short versus long-term value creation. Given that much of this is at our discretion, barring demand shortfall for our products, backlog figures may move higher or lower based on elective actions of the management for and/or maturity of long-term contracts, both of which need not communicate an adverse event.Having addressed some of the quarterly specific items, I'd like to shift my attention to the specific businesses. Despite a disappointing development early this year with one of the major Internet-based low orbit satellite constellations declaring bankruptcy, and 5N Plus being the supplier of record for semiconductor substrates utilized in the satellite constellations solar arrays, 5N Plus semiconductor business is having perhaps the best year on record. Much of the growth in this area is coming from various imaging and sensing based applications ranging from the security markets to medical imaging. In July, 5N Plus announced the introduction of the third-generation of engineered semiconductor substrates, codename INZBE3, specially developed for high-resolution infrared imaging based on breakthrough process technologies. The demand for this product has been simply outstanding. In the meanwhile, the Internet-based satellite customer mentioned earlier has emerged from bankruptcy with new source of funding and every intention to resume operations. Also, over the past several months, the demand for 5N Plus's engineered semiconductor materials for a new generation of medical imaging devices has been exceptionally strong. Within this market, many major suppliers of medical imaging devices are increasingly considering the unique benefits associated with medical imaging devices based on photon counting detectors or PCD. These devices are demonstrating cost-effective alternatives with significantly improved imaging capabilities and much lower radiation exposure for the patient when compared to today's technology. 5N Plus is the leading supplier of engineered semiconductor materials essential for the enablement of these devices. Based on customer feedback and actual increase in the demand for our products, we believe a number of medical imaging OEMs are intensifying their activities in this area and developing medical imaging solutions based on PCD technology. We believe the large demand experience for our materials are intended for the initial fleet of machines needed to demonstrate performance and initiate the regulatory process. We are extremely encouraged by this development. Given the conservative nature of the industry, we expect a lengthy qualification and vetting process before any mass production launches. To that end, we expect the demand for our product to come in ebb and flow fashion and are not yet ready to declare the current demand as a normalized run rate for these products. The demand for health and pharmaceutical materials remains strong across all major products with the exception of one product line which in the recent months have experienced lower demand due to challenges at a customer, and these challenges are unrelated to 5N Plus. We do not expect the current situation at this customer to materially change over the short term. However, over the medium term, we do expect the demand for the products supplied by 5N Plus to recover with or without this customer's participation. The adverse impact of COVID-19 has been mainly felt in industrial, catalytic and extracted materials. We continue to see lower demand from these businesses. As we mentioned last quarter, we expect the recovery to be slow across these businesses and have postured our operating activities in line with this expectation. As with the impact of COVID on our operations, we continue to operate our global footprint with emphasis on well-established practices and focus on the health and safety of our people. Since early this year, my team and I review the status of our global sites on a regular basis to ensure this matter remains a key priority in our company. We expect the contribution in recycling and refining activities or what we call upstream activities to remain muted for as long as the metal notations remain at the current levels. That is, our upstream assets continue to operate in a suboptimal environment. This set the downstream businesses, which today compose the vast majority of our activities, are ideally positioned in the current environment as they benefit from stable metal markets and are slowly becoming less dependent on metal notations. In the last quarterly call, we mentioned that in the second half of the year, we expect to address 2 notable items. First, completion of certain key investment, and secondly, establishment of joint and strategic agreements to increase the size of our markets. Let me start with the investment topic first. A couple of weeks ago, we announced the completion of a series of investment packages related to process technologies totaling nearly $10 million. We expect these investments to deliver additional productivity gains and enhance our ability to compete in the marketplace. Also, with respect to joint and strategic agreements, let me begin by mentioning that it is becoming increasingly obvious that once our company focuses on a given market, most often than not, it earns its way to become the leading supplier in that market. To demonstrate this point, consider 5N Plus's total addressable market or TAM. We estimate our TAM to be somewhere between $400 million to $500 million in annual revenue. And against that landscape, 5N Plus has secured between 40% to 50% of the revenue. What is now needed is to substantially increase the size of the total addressable market in which our company competes. We believe the best way to achieve this is to expand our reach in various tangents across our company's core competencies and utilize all options, including external means to achieve this objective. Let me provide you an example. 6 years ago, 5N Plus entered the market for engineered powders and elected to focus on the technologically challenging and smaller markets within microelectronics and semiconductor applications. This allowed the company to acquire the necessary experience before expanding further. In the past 2 years, we have secured a number of technologically challenging programs with trendsetting customers in the electronics market. In the past quarter, 5N Plus has been awarded yet another contract to supply micro powders to a leading developer of handheld devices for the latest platform of products launched recently. Today, the revenue associated with these programs are not grand in size, but considering where the technology and these programs are migrating to, the future potential becomes significant. Most importantly, we view this as a tangible confirmation of our ability to compete in this competitive market and growth. To that end, time has come for 5N Plus to not only continue to develop its business in the microelectronics industry, but utilize this competency and expand into the much larger additive manufacturing market. In support of this ambition, we recently launched a portfolio of new products and announced partnership with Metalpine, an innovative Austrian supplier of additive manufacturing products. Manufacturing powders, I should say. Our ambition is to become a leading supplier of engineered powders to this market, which is estimated to exceed $1 billion in revenue later this decade by industry pundits. We're now going through similar process with other growth initiatives. One question dominates the agenda. How can we apply our competencies and those available externally to materially increase our TAM and notably expedite our growth? To support the ambition which this question implies, over the past few years, we have been continuing to strengthen our balance sheet and maximize our available resources. For example, as of year-to-date, 5N Plus has generated over $19 million from operating activities. We continue to maximize our available resources in anticipation of additional investments aimed at expanding our growth. In the meanwhile, given the current visibility, we would like to reiterate our expectation for better earnings in 2020 as compared to 2019 and maintain our guidance for adjusted EBITDA in the range of $25 million to $28 million for the full year. At this point, I'd like to turn the call over to Richard for his review.

[Richard Perron, Chief Financial Officer]

So good morning, everyone. As mentioned by Arjang, the company posted strong results in the third quarter, achieving a gross margin of 31.3% and adjusted EBITDA of $7.7 million, the best in many quarters, supported by a new business model favoring more value-added products and services, mitigating the impact of COVID-19, currently earning ourselves for the industrial sectors we serve and continued impact of low metal prices, preventing contribution from our upstream activities. Resilient, the company continues to operate in a challenging business environment, not only imposed by COVID-19 and historical low metal notations, as just mentioned, but also changing business conditions in some part of the world. That being said, fortunate, the company has been able to reach a favorable agreement with the suppliers during the quarter, allowing to mitigate the impending impact of low metal notations to its upstream activities and recurred an exceptional gain of $8 million. However, not at rest, the company also made the decision to consolidate certain activities and close one of its subsidiaries located in Asia. Following the introduction of unfavorable business conditions and new regulations by local authorities, preventing the site to be economically viable, incurring exceptional restructuring and impairment charges. Note repeat, the net financial impact of these 2 events will create a favorable cash flow impact over the coming quarters, most likely the next two. As our mantra, the company continued to manage cash diligently and operating expenses judiciously. Similar to previous quarters, we continue to believe that 5N Plus is ideally positioned not only to navigate its path through the current environment, but most important, emerge more competitive. So now starting with the coverage of revenue and gross margins of this quarter, in Q3 2020, revenue decreased by 20% compared to the same quarter of last year, while gross margin surged to 31.3% compared to 23.5% in Q3 of last year, tracking an average gross margin of 28.4% or $37.2 million after 9 months compared to 23% or $34.7 million for both periods, impacted by certain low underlying metal notations and relative metal notation stability during 2020. Now covering adjusted EBITDA and EBITDA in Q3 2020, adjusted EBITDA was $7.7 million compared to $6 million in Q3 of last year, favorably impacted by increased contribution from semiconductor compounds and semiconductor engineered substrates against the backdrop of stable but low metal notation. And year-to-date 2020 adjusted EBITDA increased by $4.8 million from $17.4 million in year-to-date 2019 to $22.2 million this year. Mostly impacted by the same factors mentioned before, mitigating the shortfall in contribution from upstream activities. In Q3 2020, EBITDA was $7.5 million compared to $5.9 million in Q3 of last year. The increase is mainly explained by our adjusted EBITDA as well as by nonrecurring gain related to the settlement and termination of a supply agreement net of restructuring and impairment charges associated with the decision to consolidate selected activities and close a subsidiary located in Asia. The combined positive net impact mitigating higher foreign exchange and derivative loss. And year-to-date, EBITDA was $20.2 million compared to $15.4 million last year. In Q3, operating earnings reached $5.2 million compared to $2.9 million in Q3 of last year and $12.9 million on a year-to-date basis compared to $7.1 million last year. Now looking at annualized backlog and bookings, backlog as of September 30th reached a level of 171 days of annualized revenue, a decrease of 31 days over the backlog as of June 30, 2020. The net difference in backlog largely attributed to the timing associated with the negotiation of long-term contracts. For which, we are happy to mention that on November 9th, the company secured multiyear contracts within its segment electronic materials, more precisely as part of our renewable energy sector. The renewal of this contract is expected to significantly improve the backlog and bookings and would be reflected in the fourth quarter 2020 reporting period. Backlog as at September 30, 2020, for the Electronic Materials segment, before this recent contract renewal, represented 159 days of annualized segment revenue, a decrease of 34% over the backlog of June 2020. The backlog for the eco-Friendly Materials segment represent 183 days of annualized revenue, an increase of 15 days or 9% over the backlog of June 2020. Quickly going through the expenses, depreciation and amortization expenses in Q3 and year-to-date amounted to $3 million and $9.1 million, respectively, compared to $2.5 million and $8.3 million for the same periods of 2019. The increase is primarily attributed to the completion of specific capital expenditures late 2019 and 2020. SG&A expenses in Q3 and year-to-date were $4.5 million and $14 million, respectively, compared to $5.2 million and $16.2 million for the same period of 2019. In 2020, these expenses were mainly positively impacted by lower travel and consulting expenses either avoided or delayed due to COVID 19.Share-based compensation expense in Q3 and year-to-date amounted to $0.3 million and $0.9 million, respectively, compared to $0.6 million and $2.1 million for the same periods of '19. In Q3, the company recorded a nonrecurring income of $8 million from the settlement and termination of a supply agreement net of associated costs. In addition, the company also made the decision to consolidate selected activities and close one of its subsidiaries in Asia, incurring a provision for restructuring costs for an amount of $2.3 million, which consists of severances and other related costs to site closure. No expenses or income from litigation and restructuring activity were recorded in year-to-date of 2019. In Q3 2020, the company recorded an impairment charge on noncurrent assets of $4.9 million following the decision to close one of its subsidiaries mentioned before, as well as an impairment of specific production equipment related to the site affected by the termination of a supply agreement also mentioned before. Financial expense in Q3 2020 amounted to $1.6 million compared to $0.5 million in Q3 of last year. And year-to-date financial expense amounted to $4.5 million compared to $3.2 million in year-to-date of '19. The increase is mainly due to higher loss in foreign exchange and derivatives following -- compared to the same period last year, all noncash. The company reported earnings before income taxes of $3.5 million in Q3 and $8.4 million in year-to-date 2020. Income tax expense in Q3 and year-to-date were $0.8 million and $3.4 million, respectively, compared to $1.4 billion and $2.2 million for the same periods of last year. Both parts were impacted by deferred tax assets applicable in certain jurisdictions. Covering liquidity and year-to-date cash generated by operating activities amounted to $19.2 million compared to cash used in operating activities of $2.5 million for the same period of '19. The increase in funds from operations is mainly explained by our adjusted EBITDA -- by higher EBITDA, mitigating the negative impact in noncash working capital on a year-to-date basis. Cash used in investing activities was $6.1 million in year-to-date 2020 compared to $7.1 million in year-to-date of last year. In year-to-date 2020, cash used in financing activities amounted to $2.8 million compared to cash from financing activities of $1.2 million in year-to-date of last year. Now looking at gross and net debt, total gross debt is stable at $55.1 million when compared to December of last year. However, the net debt after considering cash and cash equivalents decreased by $10.4 million from $35 million as of December last year to $24.7 million as of September this year. This will conclude the financial review. We are ready to take questions from analysts.

[Operator]

[Operator Instructions] Your first question will be from Rupert Merer at National Bank.

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

Maybe if I could start with a question on the additive manufacturing market. With your partnership with Metalpine, what's next here? Are you focused on market development? Is there any more product development in this relationship? What should we be looking for and what's the timing for development?

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

So this is obviously a new market for us. We have been doing a lot of work over the past I would tell you 12 to 18 months studying this market, trying to understand the specificities related to this market. Now what you should know is that when you go to additive manufacturing, the range of products becomes extremely wide. What do I mean by that? You could have products anywhere from, I don't know, a couple of hundred degrees in melting point all the way to over 2000. And when you look at 5N Plus's technology, we can really address everything from about 60 degrees all the way up to 1,100. So that allows us to develop certain level of products. Some of it goes into electronics market. Some of it will go into additive manufacturing. I'll give you an example, copper and copper-based alloy is something that we've just launched as a product of our own for additive manufacturing. And there, that is part of our development, that's part of our work. Now as you get into titanium or nickel-based alloys, you're dealing with really much higher temperatures in which you need to use a completely different group of technology to produce those fine powders, and that's where our partnership with Metalpine is really adding value. So that has been the current focus is to be able to first make sure that we are uniquely positioned from the portfolio of product, and we think we are. We think you're not going to find many suppliers out there that can say, look, from I don't know, 60 degrees up to over 2000 degrees I can give you products of high quality. Now the thing that we have to do is focus the next I would tell you the next probably 12 to 24 months on market, strong market development. That's an area where we are putting a lot of focus on because we think now we have the product portfolio. So that's going to be the main focus, really work on developing the market, get our toes wet. We already have some interest in the market already. There's a small amount of sampling that's going on even though we just launched the initiatives, and that's what's going to be our focus.

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

So maybe hard to predict. What does the path look like from today to that $1 billion market that's forecasted in a number of years? How fast could this grow for you?

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

Well, let me put some perspective to it. When you look at all the studies and all the -- and I refer to them as pundits, all the experts in the industry, they say actually the additive manufacturing market, some estimate it to be as much as $2.5 billion to $3 billion by later this decade. We assume $1.2 billion for -- based on the products, portfolio of products that we're engaged in, whether ourselves or in partnership with Metalpine. So that would become the global market. Now we think the North American market becomes much more relevant for us in that because the -- also the partnership with Metalpine is geared at that. That is estimated, North America is estimated to be a big market, somewhere between 37% and 40%. So look, the TAM there should be somewhere in the neighborhood of let's conservatively say $500 million by later this decade. And there are a number of players in that market. This is not a market where you've got only 2 players. No, it's I would tell you definitely more than few and probably more than even several. And so even if you take a very small number in terms of percentage though to that, for us, that growth becomes meaningful. We haven't really disclosed our numbers yet. We do have a business plan against it. In the future, we certainly will provide more clarity. But just take the $500 million -- between $500 million to $600 million TAM, and if I'm an analyst, I would probably put a very low percentage, single percentage against that and say that's probably the trajectory over the next, I don't know, 5 years, 5, 6 years. And that would be a conservative approach.

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

And secondly, on the negotiated settlement in Asia, I think you said we shouldn't expect any material change to earnings in the near term. Are you still positioned to go back into the upstream business if the market for the upstream starts to look more favorable? Or are you giving up on that business?

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

So giving up on that business is not what we're doing. I'd like to give you more information on some of these things, but I can't, the settlements are governed by very, very strict nondisclosure agreements, so I can't really get more into them. As far as upstream is concerned, right now is not a good environment to be in upstream, especially with our metals. Everybody that I think you can probably go on the Internet, and you see that people that are in that business are struggling. Luckily, that doesn't really, the contribution for us from upstream is not huge at this point and we have a very thriving downstream business that is doing quite well. So we're less affected. But at this point, we're really not able to operate our upstream businesses, our refining and recycling activities very effectively. We are -- in that business, you need to be patient. By nature, it's a cycle. So you can't just jump out of the cycle. That being said, I think there is a natural progression that is happening in our business. I know it's slow. I know some of my investors wish that it would go faster. But we're more and more becoming less reliable on what happens to metals. You can just see the difference between 2015 let's say and 2019. You see that the impact from metals is becoming less and less. And I expect this to continue. As you can see, we're engaging in so many different downstream products near our competency that has a higher value-added and less metal. So I think by the natural order of things, we will, over time, become less and less reliant on a thriving upstream business anyhow.

[Operator]

Next question will be from Nick Agostino at Laurentian Bank Securities.

[Nick Agostino]

I guess first question, on the last call, you spoke about COVID impacting your ability to conduct product qualifications. Can you maybe just give us an update on what the environment looks like from that perspective?

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

To be very frank with you, it still does. It still does. I'll give you an example. We were doing quite well in qualifying our products for feed additives, as an example. And today, it's a bit -- that whole progression is happening slower. We were doing better in terms of qualifying our powders. Today, it's slower. Some of even the medical imaging stuff is happening slower. So what 5N Plus is doing is essentially trying to launch new products. New products means you have to be able to work closely with your -- and we're not producing widgets, right? We're producing material technology, which means it is an integral part of our customers' overall picture of whatever they're developing. And so you have to be there in your customers' labs, you have to be there face-to-face, jointly developing these products. It's not impossible. Modern tools have made it obviously much more fluid. But I would be remiss to say that the speed of market development is the same as it was before COVID, it's not.

[Nick Agostino]

My second question, on the secured multiyear contracts that you guys signed earlier this week, I recognize you're probably limited to what you can say. But can you, first of all, confirm, is it with one or multiple customers? And if it is just one, is that a renewal of an existing contract? Or is it a new contract? And maybe any color around how long this contract is? And if it was an existing contract, what the terms look like on a relative basis. More volume margin relative to the prior? Just any high-level color you could provide would be great.

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

As much as I'd like to do that, I have to tell you, this whole thing happened very quickly in a sense that by the time our MD&A was in motion, and we had to actually declare it as a subsequent event to make sure we were fully compliant, I don't even have yet all the approvals to be able to communicate on this that normally you afford your stakeholder. I am very reluctant. We obviously wanted to give you maximum exposure so that you know it's happened, but I'm very reluctant right now to say much more than that. But I would tell you that my guess is within the next week, you will get more information on that. You will have more information because I'll be -- we'll be able to go through the normal due course of getting the approvals that we need in order to be able to say more. So just please be patient as we go through that approval process, you'll have more explanation.

[Nick Agostino]

I understand. And I guess my last question, it feels like you guys are shifting more into top line growth initiatives. I guess my question is now that you've announced the intro into the additive manufacturing, your partnership with Metalpine, and I believe in your MD&A, you're signaling as part of the planned growth initiatives you discussed external means. I'm not sure if that references M&A, so my question is, how close are you to I guess announcing a second partnership? And if M&A is part of the -- part of your near-term growth initiatives, how active and maybe how close are you on that front? And I'll leave it there.

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

Okay, So let me delayer that question and answer it in its components. So over the past 4 years with our strategic plan, which is coming to term essentially, we had a certain objective, and that was essentially to put the company on a very, very strong footing, optimize the existing activities, its core businesses, make sure the balance sheet becomes absolutely robust and then launch growth initiatives, growth initiatives that are essentially the beachhead for where you're going to expand into in your next let's say period of strategic initiatives. And we think we've done that. We think we -- our results, I would not give myself, for example, an A+ for sure. I would be critical of some things because I don't think the bottom line has grown as much as we had hoped. For various reasons. Obviously, upstream, we had a lot more expectation from upstream. Some of the growth initiatives have not grown as fast as they should have, but they have certainly grown and they are -- every indication from customer, from the market, is that these are the right markets that we're in, that these are the markets of the future, that we have unique positions in them, that we have the ability to expand and do quite well. So I'm very encouraged by that. Now I gave you the TAM numbers for a reason. You see that our world around us is let's say $500 million in revenue. What is -- if we were to get every piece of business that's out there, it's probably going to add up to about $500 million. And we've gotten about 40% to 50% of that. So it is a glaring evidence that, look, our issue is not developing the businesses and being a strong company in them. It's that the pool we're swimming in is a smaller pool. We are outgrowing the size of the pool. We need to go and start swimming in a bigger pool. And we think our growth initiatives that we launched are one way to get there, but as you know, organic growth initiatives, especially in a technology sector, material technology, always have a long lead time. Several years is an average in this industry. And so we can't just rely on that. We can just rely that, okay, we'll just continue to in a jigsaw puzzle type of a format put pieces of our own organic doing into it. We have to look outside. You're right to say that Metalpine is one item. You're right to say that our focus is naturally going to have to be on the top line as well because the top line will also be now a KPI for whether we're able to grow that pool. And yes, indeed, we are looking externally. When you say M&A, M&A depends what your definition is. I consider M&A, or at least in how I've communicated this to you, I would encourage you to consider it as the wide definition of the word. It doesn't necessarily have to be acquisition of somebody, purchase of somebody, although that is always in the cards. But it could be partnership, it could be joint venture, it could be any of those, take the entire spectrum. We know that the companies that we like are expensive. We know that these are -- we're being very selective in what we're doing. But we think there are ways to still achieve our objective. So a long answer to your short question is, we're using all options. Organic means has put us on the map, has developed these beachheads, and now we're going to use every option that we can potentially afford to try to grow them. And I think down the line, being able to communicate how much we've expanded our total addressable market, which by default is a revenue signal, will be a material item.

[Operator]

Next question will be from Mac Whale at Cormark Securities.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

With Metalpine, give us -- can you speak to the impact on margin that might result? Like depending on what you're selling, what you're producing versus what they're providing, if that gets substantial, like would that impact the margin? I mean, because the margin is just so big now in electronics, I would imagine it would, but can you speak to that a bit?

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

Well, I mean, any time that you have to share a pie with a partner, you have to give out some. So when you go in it solo versus when you have a partner, you're not benefiting from the entire profit that you expect. At the same time, it also shares the risk that you're also assuming. So I think from the balance of -- I think you can assume that the margins aren't going to be like what I would expect from a let's say a semiconductor, specialty semiconductor specialty type of a business. It's not that. But it is certainly better than let's say what you would get with some of our chemical businesses. That's at least our assumption. Because at some point, you have to essentially share some of the benefits.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

So presumably, like you talked about that TAM getting over single-digit over 5, 6 years of that TAM. What would you be comfortable with us assuming about the margin?

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

Well, the reason why I struggle to answer the question, because it depends on the mix of what products we take from what products are considered joint. It depends on our sales mix, right? So there are products where 5N is developed and will produce itself. Those products will have very good margins, very, very strong margins. The products that are joint would be somewhat less. So I guess I'm not yet ready to give you a number because it depends on that mix, and we've got to see how the market develops.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

But it's not a situation where it's like eco-friendly margins?

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

No. No, we are, net-net with everything thrown in there, with our products, their products, looking at additive electronic markets, no, no, it should be better than that. It should definitely be better than that.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. And so then with the changes on the upstream part of the business and this margin coming in where it is now, are you -- what does your cash flow look like? I know that working capital jumps around a lot quarter-to-quarter. But just annually, are you expecting like a sizable increase in sort of in operating cash flow or cash from operations? I mean, are you -- or is your -- is there sort of offsets in terms of needing to invest in some more property plant and equipment? I'm trying to get an idea on where your sort of return on capital employed might be going '21 and beyond?

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

I'll answer that, and then I'll ask Richard to weigh in from a more of a strategic view. Please recognize that we're in a bit of a -- I hate that word because it's overused, transition phase. And depending on some of the things that we're working on, we may all of a sudden actually have to invest quite a bit, and we may be in need of a substantial amount of cash. So we're not in a -- your question assumes a certain level of stability. And I would tell you right now, with all these initiatives that we have, depending on the signal we get, we may all of a sudden go there or not. I guess, Richard, maybe you can answer that more on a normalized approach?

[Richard Perron, Chief Financial Officer]

I was going to say, if you leave networking capital aside, which is dependent on an at least two important factors, notations and the speed of growth, as far as that, we've done a lot of key investments within our core business to date. So from a CapEx perspective, we don't foresee any major CapEx or for the core business, okay? So we'll be generating cash. Well, you see what kind of cash we've been generating after 6, 9 months. So on a going-forward basis, like I said, networking cap aside and anything special around growth, we should be generating between $10 million and $15 million of cash forward.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Okay. That's good.

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

Richard generates it, I spend it.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

Exactly. Okay. Lastly, just -- I know you can't really talk so much about on the renewable. You talked about the contract. But just thinking in general, just remind us what -- how different is that process? I'm not asking about the result this year, but when you look -- when you approach that process every year with that, in that renewable space, is it a much different process that you go through than a lot of your other contracts? Or is it sort of the same? Like do you go into this with a bit of a concern where you have to argue, hey, look, we don't want our margin to be coming down that much. And so you need to address what you're doing for them. Because I know the contract is different than it has been in the past, but I'm wondering whether it's materially different than anything else you deal with. Because it's -- why is it sort of taken out, specifically talked about -- I'm just trying to get an idea, is there a lot of risk around it every year? Is it like the auto parts where they can hammer you on price every year and you have to claw back what you can?

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

Actually, you know my feeling about mentioning names and this and that. If I had my druthers, I would not really even be discussing it. In a way we have to because renewable has been a large amount of the company's output. And so there are certain let's say certain guidelines as a publicly traded company that requires that we make certain disclosure. That's why it's probably getting more publicity than other clients or other sectors. Now in terms of changes, I would tell you, when you look at not just renewable, but other sectors, there has been a change in how we negotiate contracts. I think a lot of it is because how we have changed our approach to negotiating contracts. We don't go for market share anymore. We are willing to take volume hits if that means we are going to preserve certain amounts of margin. Because we believe, look, if you believe that you're going to grow and you've got your growth initiatives to help you grow, fighting for market share for me makes no sense. It's a downward spiral. You're essentially destroying your own market. So we've been very selective. We continue to be, not just in this contract or with renewables, but with other activities. This is probably why our margins are also have improved to some extent. And so let me leave it there again because I don't really have much more runway.

[MacMurray Davidson Whale, Analyst of Institutional Equity Research]

No, that's helpful. I guess it makes sense that it's sizable, but my sense is that things are changing as your business evolves and that perhaps as investors shouldn't be all that talked about this process every year.

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

Yes, it's a process thing. It's not us emphasizing it. It's almost -- again, if it was up to me, I would just treat all these things equally, but there are certain regulatory things in the background that is pushing these things.

[Operator]

Your next question will be from Frederic Tremblay at Desjardins Bank.

[Frederic Tremblay, Analyst]

So just a quick question for me. Recently, you've remained active on share buyback and completed a series of investments in Process Technologies. I was wondering if you could provide your thoughts on capital allocations for coming quarters?

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

Well, I'll start and then Richard can chime in. As I said, he makes them, and I spend them. So share buyback, we've been I would say very prudent. We haven't -- we continue to buy our allotment. As you know, under NCIB, there are terms that regulate how much you can buy, and there's a whole host of -- there's a whole regime around what you can do. And we've been very consistent each time purchasing what we can. Our Board over the past 2 years, have taken a very prudent approach of saying, look, we believe there's value here. So we'll continue to consistently over the past 2 years, buy our own shares back. Where that's going to go in the future? Well, we'll communicate that when the time comes. As far as capital allocations, as Richard mentioned, core business, we don't see large capital allocations there. We think it should be well within the depreciation or perhaps even below depreciation. Now the thing, as I mentioned earlier, that could occur is that as we are looking to expand our total addressable market and are looking at a pretty wide base of things to do, we may require substantial amounts of funding to be able to do that. That could be the event that is differentiating. Richard, what's your thoughts?

[Richard Perron, Chief Financial Officer]

Definitely completely agree about the comment on our core business and Capex. Just to say that we definitely see value in the NCIB. But at the same time, we believe that the current and the future growth projects that we're working on will most likely make a better use of our liquidity forward.

[Operator]

Thank you. And at this time, we have no further questions. Please proceed.

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

Okay. Well, I would like to thank you all for joining us this morning. Have a nice day.

[Richard Perron, Chief Financial Officer]

Thank you very much.

[Operator]

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