Where Tekna presents its second quarter and half year results. If you wish to submit questions, you can do that during the webcast on the event page below the video player. I would like to invite Claude Jean, our CEO, to start the presentation. We also have Espen Schie, our CFO, that will join a little bit later to present the financial figures. Over to you, Claude.
Thank you, Arina. Good morning, good afternoon, everybody. Thank you for being with us today for the presentation of our Q2 financial performance and key highlight. I will start with a brief introduction, and Espen will follow with the highlights of the two business area and financial performance. I will come back at the end with the outlook and key takeaway. Of course, we will have a Q&A session. Next slide, please. This is the agenda. Next slide, please. Okay. For those of you that are not too familiar with Tekna, let me start with a brief introduction of Tekna. Tekna was founded more than 30 years ago. The foundation of everything we do is ICP technology, and ICP stands for inductively coupled plasma that generate an extremely hot gas stream.
We use ICP as a controllable heat source to produce the high purity metallic powder that we supply for additive manufacturing. The system business area develop and manufacture those ICP equipment that we use internally to produce our powder. We also sell those ICP equipment to external customer, for example, university, R&D institute, or corporate R&D, that people use it to develop new material. The big order that we just announced for U.S. customer for a very critical material is a good example of that. If you look at, we are located in Sherbrooke, Quebec. All our manufacturing and R&D operation are in Sherbrooke, Quebec, about 142 employees. Our technology is protected by 95 active patent. The material business area is really right now the growth engine, really based on additive manufacturing, but the system business area also offer a lot of opportunity.
One example, people use our plasma to recreate the type of environment that a space shuttle would encounter when it is coming back in the atmosphere. People are using it to test material to develop new thermal protection system, and we have a lot of opportunity in that business area also. Next slide, please. Let us look at what role we play in the additive manufacturing ecosystem. We use critical material like titanium, for example, in the form of wire. This wire, this raw material, is fully traceable back to the mining. It is extremely important for regulated market that we play in, like defense, aerospace and defense, and medical and dental. Then we use our ICP technology to melt this titanium and to create some very fine, highly spherical, very high purity powder of titanium.
We really produce, because of our technology, the highest purity material, the highest quality material. Since we were one of the first mover in that market, we have been qualified very early with the main OEMs, most specifically in aerospace and defense and medical. It is a very sticky business because we really make the most difficult material. We make titanium, for example, is extremely reactive, difficult to make, difficult to handle. We also make refractory metals that have extremely high melting point. We do not try to compete on the cheapest and the easiest material to make. We also make other material like aluminum, for example. We are working on developing other material. Then we ship this powder to the companies that are doing the 3D printing, so it can be the OEM itself, it could be service bureau. We ship across the world.
We have customer everywhere in the world. Very easy to access. Next slide, please. Now, if you look at additive manufacturing itself, so additive manufacturing market is forecasted to grow about 18% per year, CAGR, toward 2030. More specifically, the section that we serve, which is material, is forecasted to grow at 16% CAGR. Additive manufacturing present several merit compared to traditional machining. So you can basically manufacture shape of parts that you could rather not manufacture with traditional CNC, for example. It is more important in medical, for example, where you can adapt the shape of the geometry of the product to the exact patient's shape. Additive manufacturing also can be done much faster because you just put powder in the equipment and you print the part.
You do not need to wait for multiple component coming from everywhere, different part of the planet, that would, most of the time, make the lead time much longer. Also, additive manufacturing is benefiting for the main mega trend that we observe today. For example, reshoring. Companies are trying to reshore, like for example, in North America manufacturing, they would rather reshore with the most advanced technology and the most efficient technology. Also resource scarcity. With additive manufacturing, you can definitely use much less material. You can use almost 100% of the raw material, which is not the case with traditional manufacturing. Next slide, please. Okay. Now, let us turn to Espen for the highlights of the two business area and financial review.
Thank you a lot. Hello everybody. Let me take you through the financial updates. Note that all figures are in Canadian dollars. Tekna reported a strong quarter across the board. Revenues of CAD 10.6 million, up 18% year-over-year with growth in both business areas. Contribution margin expanded to 57% from 45% a year ago. Both business areas remain above their targets for a third consecutive quarter. Adjusted EBITDA was CAD 1.4 million, at 12.8% margin against a loss of CAD 2 million in the same quarter last year. This is an improvement of CAD 3.4 million, and it is our fourth consecutive adjusted EBITDA positive quarter. The inflection point we talked about last year is holding. The order intake is really the standout this quarter. We had CAD 19 million of new orders in the quarter, more than the double last year, giving a book-to-bill of 8.8x.
Backlog is also now at a record, at CAD 28.5 million. The balance sheet remains strong. We have a cash position of CAD 18 million and a net cash position of CAD 11.5 million. With that, let's take a look at each business in more detail. We can go to the next slide, please. First, we have materials. Revenues was CAD 7.9 million, up 20% year-over-year, driven mainly by aerospace and defense demand. On a trailing 12 months basis, we're now at CAD 30.6 million, up 19% year-over-year. Contribution margin was 54%, up from 38% a year ago, and well above our 50% target. On a trailing basis, we're at 56% margin. Order intake was CAD 7.4 million in the quarter, so this is up 5% on last year. Backlog is at CAD 16.6 million against CAD 18.2 million we had last year.
A reminder that in early last year we had additional orders that were with lower margins. The picture that we see on the graph right now, you can sort of read it. You have to be careful when you read it. This is not like a softening demand situation. We have strong order intake. The order quality has improved. Average order value is up. Delivery schedules have shortened. What it actually means is that we are converting the book faster than we were before. I also made the same point in Q1, and it's much more visible now. After the quarter closed, we also announced three orders from a U.S. defense customer, taking that specific account past CAD 3 million year to date with a significant step-up in volume. We can go to the next slide now.
I'll go a bit more deep on here. This is a new slide for this quarter to give some more flavor on this. Of the CAD 16.6 million of backlog for materials, roughly 60% of this, CAD 9.8 million, is scheduled for delivery in the second half of this year. Remaining CAD 6.8 million is in 2028 and beyond. What actually is happening here is that a greater share of the book now converts inside the next 12 months. We deliver faster, we have shorter delivery schedules, and it gives us visibility on the near-term revenue line. With that, we can go to systems on the next slide, please. Systems, this was an exceptional quarter. Revenues was CAD 2.7 million, up 13%. We had solid execution on the current order book. We closed the quarter with a very good order book. We'll come back to that.
We had a contribution margin reaching in the quarter 66%, up from 62%, and yet again, above our 60% target for this business area. The headline really remains, as I said, the order intake. We booked CAD 11.7 million in the quarter, a record. Against CAD 2.1 million a year ago. The bulk of that is the CAD 11.5 million order for two plasma systems. Backlog has then gone from CAD 2.7 million to CAD 11.9 million year-over-year. In Q2, we did say that the low backlog was temporary, and we had a maturing pipeline. The pipeline still remains robust, and we have further opportunities progressing.
This kind of business is lumpy by nature, and this shows, however, the earnings power when pipeline lands, because such a backlog we have now gives us high profitability and more stable revenue base going forward, and especially given our reduced cost base, this yields interesting results. We can with that go to the next slide. We will take a look at the costs. Next slide again. Here on the cost side, we have our indirect personal costs that remain about 22% below the peak. They have been flat for several quarters, and this is the level we expect to hold. Headcount is down 30% since Q2 2024. We have made smaller adjustments during Q2, so now we are reached a point where heavy lifting is behind us. The cost base is aligned with the current activity levels.
As I was hinting to on the previous slide, one important point for, I think, especially people modeling this, is that we do not expect indirect costs to move much from here. Now at this point, as revenue grows, this convert directly into operating leverage and margin expansion. With that, we can go to the next slide which sort of shows this visually. The bridge shows how we got from minus CAD 2 million a year ago to CAD +1.4 million this quarter, an improvement of CAD 3.4 million. The largest single contributor is materials at CAD 1.8 million, volume and margin together. The split there is about CAD 500,000 on volume and CAD 1.2 million, CAD 1.3 million on margin year over take. Systems adds another CAD 0.3 million.
On the cost side, we have year-over-year savings across the board, giving us great operating leverage and margin expansion as the revenue increases, as I mentioned. The reported EBITDA was CAD 1.2 millin. We had adjustments of about CAD 200,000 related to restructuring on the cost side and some share-based compensation. The takeaway that we see here is this is the situation we have come to now where volume, margin, and costs are pulling in the same direction, and this is also what makes this durable. We can go to the next slide. We will have to take a look at the cash flow. We started the quarter with CAD 18.8 million cash, ended at CAD 18 million, so we were down about CAD 800,000 on the cash side. We can look at that in the bridge. We will see that the operating cash flow was CAD -1.2 million.
Meanwhile, the P&L, of course, positively CAD 1.3 million coming from the profitability, and this is pretty much the EBITDA number we talked about. Against that, we had working capital consume about CAD 2.5 million, and we have slightly increased the inventory to faster convert spot orders and the backlog, as I talked about earlier. We have higher work in progress to support the record backlog that we have landed prior to closing the quarter. CapEx was merely at CAD 200,000 with some investments in maintenance and intellectual properties. We keep our guidance for CAD 1.2 million- CAD 2 million for the full year, as there might be some expansion CapEx we are considering if we need to in respect to demand increases. On financing side, we had loans that increased by CAD 800,000 from cash management purposes, being partly offset by minor lease repayment.
This gives us a very strong cash balance. I will finalize with the balance sheet at the next slide, please. The balance sheet remains a real strength of the company. Total assets, CAD 70 million. Net cash, CAD 11.5 million, improved from CAD 9.9 million at year-end on the back of positive CAD 2.2 million operating cash flow year to date. An equity ratio of 78%. We remain very well capitalized. This is up from 75% last quarter. Net working capital at CAD 14.5 million, which is 37% at trailing and also a reduction from 40% at year-end. Liquidity is solid, CAD 23.2 million, CAD 18 million cash, which is 26% of total assets. We have CAD 5.2 million undrawn credit facilities, which gives us flexibility and a fully funded business plan. With that concludes the financial update. I give the word back to you, Claude.
Thank you, Espen. Before concluding, I would like to give you a bit more information about the two main market verticals that are fueling our growth. I am talking about aerospace and defense and medical and dental. Let us start with medical and dental. As you can see on the chart there, the market in 2025 for titanium powder, specifically for additive manufacturing, was $69 million , forecasted to grow 20% per year to $171 million in 2030. Why is additive manufacturing used for medical and dental? I alluded to that a little bit before. It can produce patient-specific devices from additive manufacturing, and also design flexibility. Our customers are telling us that some products would not be feasible with traditional manufacturing methods. Of course, aging demographic is lifting the implant volume demand that is leading to the 20% forecasted growth.
If you look on the right there, you see some examples for orthopedic and spinal implant, cranial, maxillofacial plates, and also dental and patient-specific instrumentation. Our powders are qualified for medical implant with the main tier one global OEM. We have more than 20 active customers in medical segment that are expanding their demand. We have long-term strategic partnership with the U.S. medical contract manufacturer. We have ongoing qualification with several medical OEM, so it will be a good portion of our future growth. You can imagine that once you get qualified on those medical devices, it is becoming a very sticky business for Tekna because it is not easy to change powder supplier. As I said, our powder is fully traceable back to the mining of the mineral, which is required in a regulated market like medical and dental.
Tekna is one of the very few companies that can produce those extremely high purity powders that are needed for medical and dental, and it is because of our unique ICP technology. Next slide, please. The other market that is fueling our growth is aerospace and defense, and the market in 2025 there was $63 million , forecasted to grow 24% per year until 2030, reaching $182 million in 2030. Why is additive manufacturing used in those market verticals? The lightweighting. Using additive manufacturing, you can produce a part that is typically 50% lighter than a part that would be made by traditional manufacturing. Reshoring is also driving demand. Again, their design flexibility, you can produce some parts that would not be otherwise possible to manufacture. Supply chain simplification and acceleration. Again, not having to wait for multiple components coming from all over the world.
You can even see some 3D printer deployed on the battlefield to be able to produce some replacement part for the equipment. Again, there on the right you can see some example of parts that are being manufactured with additive manufacturing. The one in the middle is one that we have announced together with Burloak, a Canadian service bureau that is printing a satellite part for MDA or the MDA satellite. Also unmanned aerial vehicle that needs to be lighter are a big user of additive manufacturing. We are active with 57% of 69 identified aerospace and defense OEM. Airbus, Boeing, and Dassault are some example. Of course, we have all the quality certification that are required. Again, there you can imagine that those markets are very sticky when you get qualified there.
Again, as one of the first mover in titanium powder for additive manufacturing, we benefit from those early engagement with those OEM. Next slide. All that, if you look at the observed material order intake and increased customer order side, coupled with the current trend that we observe, we are in a very good position to deliver on our target to post double-digit growth every year toward 2030 and achieve 15%-20% EBITDA. We see the market accelerating, benefiting from the reshoring of manufacturing, and also the big investment in defense is really playing in our favor. Our innovation pipeline, specifically for new material or new application, new market for our system, is also supporting our ambition for the next year. If you look at our solid contribution margin, since 2025, we have achieved contribution margin above target in both business area. Next slide.
As a conclusion, we are very happy to be posting our fourth consecutive adjusted EBITDA, positive adjusted EBITDA quarter. It is basically confirming the profitability inflection point that started last year. Again, a very solid contribution margin in both business area above target with our indirect costs structurally lower. The system sales pipeline is advancing, with further orders anticipated in 2026. We have capacity in place to scale without significant CapEx investment. We are talking about CAD 1.5 million - CAD 2 million worth of CapEx in 2026. Again, confirming our favorable position in the fastly growing market. That is the conclusion. Arina, I think we can get to the Q&A. First of all, I would like to thank Espen, our CFO. Espen has been as a CFO of Tekna for more than three years now.
I personally joined Tekna more than 15 months ago, and I really enjoyed working with Espen, and I quickly realized the impact that he had on the company. I think that the results that you see, the performance that you see there, Espen was instrumental in growing the company, developing the company, and getting to the stage where we are today. I am very happy been working with Espen, and I wish you best of luck, Espen, in your next adventure.
Thank you so much.
Now, Arina, is it the time to ask Yves to introduce himself?
That is it. Before we start the Q&A, I would like to welcome Yves Lemoyne to the stage to introduce himself. He joined Tekna in September last year, and will take over as CFO from Espen for this third quarter. Yves?
Thank you, Arina. I am very pleased to take on the role of CFO. I have been with Tekna Canada for 11 months now. During this time, I have learned a lot about the business, our operations, and our key financial priorities. This new role, it is a natural next step. Let us continue the responsibility I have already been assuming. I look forward to sharing my experience with the whole Tekna team. I also look forward to building strong and open communication with all our stakeholders. I would also like to thank Espen for his contribution. His leadership and support has been provided throughout this transition. Thank you again, Espen. Going forward, my priorities are simple: ensure clear financial communication, strong financial discipline, and a good management of our working capital as we execute our strategy. I look forward to speaking with you again on our next quarterly call. Thank you.
Thank you, Yves. All right. Let's start the Q&A session. Once more, you can submit questions here in the event page below the video player. We have already received a few. Claude, I have a few for you. Let's start with a strategic one. Do you see opportunities for accelerating growth via M&A, or is the balance sheet strength purely a buffer for organic scaling?
It's a very good question. We actually see some opportunities in terms of M&A, and we're always looking at opportunities. I think it's important to pay attention to that because we see that there is some consolidation happening in the market right now. Every quarter there's some M&A announced, some merger. Companies are getting bigger. Of course, we are paying close attention to that. Of course, when there will be some real development, we will come back to you with details on that.
Okay. Then, obviously we've spoken about MLCC in the past. Is there already a final decision on where that is going?
Not a final decision yet. We spoke about it in the last quarter, that although we're quite happy with our technical development, we have achieved extremely high powder quality of the most advanced powder for MLCC, we think. But it's extremely difficult to get some commercial traction on that. We don't have clarity yet if we can actually turn it to a commercial business. We also look at opportunity to sell systems rather than selling powders. So stay tuned on that. We haven't made decision. We've slowed down R&D investment because we think that the powder quality got to a point where it meets the requirement for the most advanced MLCC. So we have reduced R&D on that. As I said, we're looking at all commercial opportunity, including selling system. We haven't made final decision yet on that.
For materials, in our risk assessment, we have disclosed that we are not selling our full production yield at attractive prices. What is the current percentage of production yield that is sold as an attractive price, and what operational or commercial milestones would unlock the remaining yield?
Yeah, so it's a very good question. Currently, our process produce about 50% of what we call the prime material. That is really used to manufacture the most critical parts in additive manufacturing. The rest is either very small powders or larger powders, and it's two different situations. We see better and better sales opportunity for the coarse powder, that is typically between 50 and 75 micron, that are more and more selling at attractive price because the printers are getting better and better. They have higher power laser, so some parts can be printed with a larger particle. There's definitely some very good development on that front. On the finer particle, finer powder, it's a little bit more difficult. It's selling at a lower ASP, mostly for MIM manufacturing.
I think the key thing is that we continue to develop better outcome for those, mostly the coarse powder, but also the small powder, the fine powder, but also we keep improving yield. We have very good activity, very good results already in R&D, where the 50% that I was talking about will significantly increase, such that the portion of the prime powder that we manufacture will increase. We're working on several front, either commercial or technical.
Yeah. It's already starting to happen, right? That's where the margins are also improving.
Absolutely. I think our margin above target and material is a demonstration of that.
How much of the recent materials growth is actually coming from either higher volumes, higher prices, the product mix, or customer qualifications?
Well, it is mostly customer qualifications. Basically, customers that were using our powders in the past to develop new product, they were R&D prototyping, and now we see several customer moving from prototyping to volume production, repeat production. The increased order intake is mostly coming from that change from prototype to repeat manufacturing. Of course, we also have new customers that are still ordering larger quantity to finish their R&D and prototyping, specifically in medical, where we have some good room for growth in terms of market share. We see some customer not yet in repeat production, but ordering more and more powder to finish their qualification.
Then a simple one, where is our production located?
All our production is located in Sherbrooke, Quebec. We used to have some production in France that were interrupted a few years ago already. Right now everything is consolidated in Sherbrooke, Quebec.
Espen, a few for you. Some financial questions. Why was operating cash flow negative in Q2 despite positive EBITDA?
That was a simple answer to it, is simply working capital. We had, of course, a very strong order intake closing the quarter. Towards that, we also anticipated both some inventory increases to cope with demand.
Some of this is also working capital that we already started on this new orders that we received. This is more of temporary nature, and we expect it to improve going forward.
When do you think we'll have consistent positive free cash flow?
It's perhaps not a matter of specific timing, but I think in a general way, I can comment that we do have a very positive trend on free cash flow. We have actually a very good graph, I think, that illustrates this in the appendix in the presentation, which I encourage the reader to look at. I think if you follow the trend, you will see that we are basically here, and it's a matter of now if we would push harder on the CapEx or not, or so operating cash flow, and it's a function of profitability, working capital, and CapEx for free cash flow matters. I think we are pretty much here now, and that's the graph that I was referring to, also demonstrates that. Yeah.
Good news. Then for our adjusted EBITDA, what is included in those adjustments and are they recurring in nature?
When we do an adjustment, these metrics are simply for comparability measures. It's simply to help the reader compare a number to a different period. We don't do anymore, almost no adjustments. We have very few of them now. We have in the past used some on litigation, like non-operational stuff and restructuring measures that we have taken, which we also in this presentation, we are basically done with the bulk of that. It's more for comparability to have apples to apples.
To continue.
Yeah.
Okay. Very clear. I have one more question, and I think it is a good one to finish with. This is for you, Claude. Are there any post-quarter orders or events that are not included in the financial statements?
Yeah, actually, you are right, Arina. Very good question to end. We are seeing very, very good order intake in the material business area. Since the beginning of the quarter, we have almost achieved the same total order that we achieved in Q3 last year. The trend continue in terms of receiving bigger order from customer with a shorter delivery time. It is really a strong indication on how active is additive manufacturing this year. Very, very positive for the future for Tekna.
Nice. I just got one more, though. Do we see Tekna growing faster than the overall materials market? Are we gaining market share?
We think that it's hard to say. I think that we see that around us in the market in general is growing quite fast this year. We think that we're growing on our market share, specifically in medical and dental. We're very active. In terms of ambition on how we gain market share, we have to be careful. We're really focusing on the highest quality market share. We don't want to compete, as I said, for the cheapest. We don't want to buy market share at any price, I guess, that's what I'm trying to say.
We want to maintain our contribution margin above or on target, so we have to be careful on where we gain market share. I would say that this year we're probably gaining market share in medical and dental, probably maintaining in aerospace and defense.
Okay. Well, excellent. Any closing remarks before we close the webcast?
Well, first of all, I'd like to thank Espen again, and also I would like to thank our employees because they're the reason why we're posting such great results. From the sales guys that are getting the order in, to the people that are producing and shipping the powder and the system. Kudos to our employees. They're the reason for the good results.
Couldn't agree more. With those words, thank you all for joining. If we have any further questions, we will post them on our website and answer in the Q&A section there. Thank you so much.
Thank you.