Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. Mr. Rishi Sharma, Chief Financial Officer, you may now begin your conference.
Thank you, operator. Good morning, and thank you for joining us for our conference call. Let's start by discussing the disclaimer from our related IR presentation, which is available on our website in the Investor Relations section. As usual, the first section mentions that the presentation provides an analysis of our consolidated results for the second quarter ended August 31, 2024 . The board of directors approved these results yesterday, October 10, 2024 . Second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation.
The last paragraph refers to forward-looking information, which are subject to risks and uncertainties that are not guaranteed to occur. Forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, all amounts are expressed in U.S. dollars unless indicated otherwise. I now turn the call over to Mr. James Mannebach, Chairman of the Board and CEO of Velan.
Thank you, Rishi, and good morning, everyone. Please turn to page 4 for a general overview of the second quarter. Velan's strong momentum continued in the second quarter of fiscal 2025, with a robust financial performance across the board. Bookings and sales grew by more than 60% and 20% year-over-year, respectively, driven by solid contributions from multiple sectors, including nuclear power, defense, and oil and gas, leveraging our diversified portfolio, global reach, and sustained differentiation in key market segments to deliver remarkable growth. In terms of bottom line, the quarter marked a significant improvement with net income of $ 100,000 compared to a loss a year ago of $ 2.1 million. Equally important, we reported cash flow from operations of $ 10.1 million in the quarter and $ 15 million after six months into the fiscal year.
I'm sure you'll recall we had pledged to improve cash flow generation by taking advantage of the global scale of our business, maximizing our strategic procurement possibilities, and optimizing working capital around the world. Clearly, we're encouraged by the tight quality of execution across the organization. Now, if you'll turn to slide 5, please. We announced last month a main services agreement with GEH SMR Technologies Canada Limited for the provisioning of high-quality proprietary products and services to supply a standalone small modular reactor, SMR, for Ontario Power Generation. Under the terms of the agreement, Velan will provide GEH with the development of unique advanced technology, engineering support, and leading-edge valves, essential to the safe and efficient operation of its first SMR. Initial order has a provision for three additional units to be deployed, with completion expected by 2034.
In short, Velan has established a first-mover advantage to supply future SMRs with proprietary valve technology and technical expertise in Canada, the United States, and indeed, globally. We're very well positioned to support this landmark project, as well as those of all solution providers around the world, to help shape the future of nuclear energy landscape through the new SMR technology. The latest announcement comes on the heels of a CAD 50 million, 10-year alliance agreement with Bruce Power last quarter for asset management and life extension of nuclear projects in Ontario. In addition, we've signed a memorandum of understanding with Westinghouse to support nuclear new-build projects in Canada and around the world. Westinghouse, as many of you know, is a significant player in the nuclear power market, with roughly 50% of the global reactor fleet.
It's also actively developing the SMR and micro reactor niches based on its proven technology. This MOU offers Velan significant growth opportunities for its valves and flow control equipment through this important strategic partnership. Finally, we publicly stated our full support behind Canadians for CANDU, a campaign to promote the deployment of CANDU's nuclear technology at home and abroad in support of Canadian and global efforts to reach net zero emissions. Velan is proud to have these products installed in every CANDU power plant in operation and will continue to support its development. Our made-in-Canada nuclear valves remain a reference in the industry. We intend to remain a significant player during this new super cycle of nuclear power growth. The recent events involving Velan confirm growing momentum within the nuclear power sector, as the energy source is increasingly being relied upon as a viable alternative to fossil fuels.
Certainly, clean energy sources like nuclear power will be part of the mix of renewables, helping customers worldwide reach their net zero objectives. Moreover, related electrification goals around the world cannot be met without a rapidly growing role for nuclear technology. Moving to slide 6. Our order backlog reached $548 million at the end of the second quarter, up 11.5% from the beginning of the fiscal year on the strength of solid bookings. At quarter end, just over 72% of the backlog, representing orders of nearly $396 million, are deliverable within the next 12 months. Consequently, we are in an excellent position at the halfway mark of the fiscal year to achieve our sales growth objective for the full year. Importantly, bookings improved 63% year-over-year, up to $117 million in Q2.
The substantial increase reflects higher bookings in North America, driven by new projects in the nuclear sector, as previously mentioned, such as the agreement with GEH and orders for our MRO business as well. We also benefited from higher bookings for oil refinery projects in Germany, as well as for nuclear power and defense markets in France. These factors were partially offset by reduced oil and gas orders in Italy, which had recorded large orders, as you'll recall, in the second quarter of the prior year. Given that bookings continue to outpace sales, our book-to-bill ratio rose to 1.18 at the end of the quarter, and 1.29 for the first six months. To wrap up, Velan's strong momentum continued into the second fiscal quarter of 2025.
Most, if not all, of our key performance indicators are flashing green on our management dashboard. Our backlog, bookings, sales, EBITDA, cash flow, all key metrics are up year-over-year. So we're entering the second half teeming with confidence to further improve on our financial, and operating performance. Before turning the call back over to Rishi, I wanna add that I'm very proud of our team's achievements during the past twelve months. We were a bit distracted by external forces a year ago, but we've made great efforts building on our strong heritage to regain our strategic impetus. That's resulted in robust bookings and backlog growth. The enhanced quality of execution, in turn, is now filtering down to our financial performance, as I've just commented on.
A sincere congratulations to my colleagues at Velan throughout the world for the confidence in our company and unwavering dedication to our customers. Similarly, we've witnessed a sharp improvement in our share price, which, as you know, has gained more than 50% since the beginning of the calendar year. Granted, we are still far removed from Velan's all-time highs, and we're not satisfied at this point. But more than ever, we're pointed in the same direction, to the benefit of all of our shareholders. Rishi, I'll turn the call back over to you for comments on the financial review and performance this quarter.
Thank you, Jim. On the call, good morning once again to all. Turning to our quarter results on slide 8, sales totaled $98.6 million, up 22.8% from the same period a year ago. As previously mentioned, the growth is mainly driven by increased shipments from our diverse businesses in Italy, France, and North America. The sales increase also reflects a non-recurring revenue gain of $5.2 million related to a canceled agreement with a customer during the second quarter. These factors were partially offset by lower MRO shipments in North America. Currency movements, meanwhile, had a $0.6 million negative effect on the sales. By customer geographic location, North America accounted for approximately 40% of sales in the second quarter of fiscal 2025, compared to 46% last year.
For its part, Europe represented nearly 30% of revenues on the strength of increased sales in Italy and France versus 26% a year ago. Asia Pacific at 17%, Africa and Middle East at 13%, as well as South and Central America at 1%, rounded off the Q2 2025 sales breakdown. Moving on to gross profit on Slide 9, it amounted to $ 26.7 million in the second quarter of fiscal 2025, up 14% from $ 23.4 million last year. The increase was primarily due to higher sales volume, which positively impacted the absorption of fixed production overhead costs and a more favorable product mix compared to last year. These factors were partially offset by higher inventory purchases. As a percentage of sales, gross profit reached 27%, compared to 29.1% last year.
Excluding the impact of the non-recurring revenue gain mentioned earlier, on which no gross profit was recognized, gross profit as a percentage of sales would have attained 28.5% in the second quarter of fiscal 2025. Administration costs totaled $ 24.8 million, or 25.1% of sales, in the second quarter of fiscal 2025, compared to $ 22.6 million, or 28.1% of sales a year ago. Last year's costs included $ 0.3 million in expenses related to the proposed transaction with Flowserve Corporation. The year-over-year increase in administration costs can be mainly attributed to higher sales commissions due to higher business volume. EBITDA amounted to $ 5.1 million in the second quarter of fiscal 2025, compared to $ 3 million last year.
Excluding expenses related to the proposed transaction, adjusted EBITDA reached $ 3.3 million in the second quarter last year. The year-over-year growth was mainly driven by higher sales volume and improved gross profit, partially offset by increased administration costs. We achieved an important turnaround in profitability with net income of $ 0.1 million, or $0.01 per share, in the second quarter of fiscal 2025, compared to a net loss of $ 2.1 million, or $0.10 per share last year. The year-over-year improvement can be primarily attributed to higher adjusted EBITDA this year compared to last. Turning to Slide 10, the cash flow from operations reached $ 10.1 million in the second quarter of fiscal 2025, compared to cash flow usage of $ 21.2 million a year ago.
The significant improvement in cash flows was mainly due to more favorable changes in non-working cash, working capital items, movements and higher EBITDA. As a result, this additional cash enabled the repayment of long-term debt, $ 2.5 million in the second quarter, and of $ 6.4 million since the beginning of the fiscal year. Finally, our financial position remains solid. As of August 31, 2024 , the company held cash and cash equivalents of $ 44.5 million and short-term investments of $ 4.8 million, while long-term debt, including the current portion, amounted to $ 22.6 million. Our positive net cash will support investments in strategic growth areas such as the expanding SMR nuclear power market that Jim alluded to earlier, thus creating sustained value for all shareholders.
Turning to our outlook on Slide 11, Velan delivered strong first half results, marked by our highest order backlog in three years of $ 548.1 million and a book-to-bill ratio of 1.2. As noted earlier, orders of $ 395.9 million at the end of the second quarter are expected to be delivered within the next 12 months. Looking ahead, we anticipate this strong momentum will continue in the second half, and accordingly, we are maintaining our sales growth outlook for the fiscal year. I would now like to turn the call over to the operator for the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Alex Charnley with SM Investors. Your line is now open.
Oh, yes. Hi, good morning, and congratulations on the results. You guys don't break out volumes and pricing, correct?
Sorry, Alex, can you please repeat?
Sorry. You guys don't break out, you know, revenues in terms of volumes and pricing. How, if there's any color on that that you could give?
No, we don't. I mean, we do comment essentially volume and the effects on profit with absorption. We don't, you know, necessarily talk about market-specific pricing. It's quite sensitive, and we leave that at the high.
You guys are signing all these nuclear contracts, which is great. I'm assuming the Westinghouse is new. At this point, I need to ask, what is your TAM that you think for nuclear? I understand that could expand over time, but the way do you look?
Yeah, that's a great question. It's I think the way to answer it is to determine or to size the available market in nuclear is very, very difficult at the moment because SMR, you know, which everyone is believing, is gonna be a tremendous catalyst for growth in the industry over the next several decades. It's still in its nascent stages, and so to put your arms around how big that market could grow to is gonna be a challenge, let's put it that way. I think what's important, and you referenced the agreements that we have in place with Westinghouse, which we've had a long-standing relationship with as well, as well as Bruce and OPG and GEH. And EDF.
What's very, very important to recognize is that no matter the supplier of the nuclear technology and solutions, so the builder of legacy or SMR, Velan is on board, and we're on board in critical applications. So whatever the total market grows to, we expect we have a very good position to hold not only our fair share, but it would to increase our penetration. Okay? So again, I know it's kind of a vague answer in some ways, but to lay your hands on the size of the available market going forward is difficult, but taking confidence in the breadth of our relationships across the industry assures that we're gonna be a major player.
Great. So, so the Westinghouse is, can I view it as an extension of, of part or past agreements and then increasing penetration? That's how I should read it?
As I mentioned, we've had and continue to enjoy relationships with every major provider. I think that with developing SMR technology, we have proprietary technology that's very, very interesting across the market. In terms of our installed base and service and extension of life of legacy, where Westinghouse is at and where the others are at, again, we're there. So-
Okay.
If that answers your question.
Yeah, it does.
You know, I think you might remember, and we've talked about this, I believe, in the past, that Velan is more than fifty years, has been a pioneer in the nuclear area. And one of the great advantages we have over competition is you know, our long-standing position in this industry and our reputation for unsurpassed quality. And once on board, you know, it's the preference of most to continue with us. So we'll be able to exploit the install base. We often look to SMR, but I think it's very, very important to watch what's developing in the industry about life extension and renewal. Again, that bodes well for our position in the market, given our install base.
Then I'll ask about Three Mile Island and the Palisades. If I remember correctly from what I read, you guys are in almost 90% of the reactors around the world.
Yes.
I'm assuming that you might be able to participate in the refurbishing of Three Mile Island and the Palisades when those open. Is that correct?
Absolutely. Yes, absolutely.
What else did I want to see? You guys gave the financial about Bruce Power, but nothing around GEH. I can see the, you know, the backlog and the bookings. So would that be a good, a decent indication, part of that for the content, initial content, new GEH SMRs, or we go with that?
So I think there was a press release launched yesterday, that identified, with GEH, the additional development contract. And then, also reference to, follow-on awards that, you know, obviously, depending on good performance, as it would always be the case, that we can look forward to. We're not disclosing much around the specifics because it's competitive information. But suffice to say that the backlog at the moment certainly does not recognize, the full of it, the potential.
I was just asking if you recognize the initial part, but I understand the other three or even part of the first one. But I'll ask you, this is now a different area. I see that North Africa and Middle East grew. I'm assuming that's also part of the joint venture with Italy. So I'm assuming part of that is Saudi Arabia. Are there any risks from the conflicts across the in the Middle East on those projects?
I think the first thing that comes to mind is probably logistics risk. There still is disruption, you know, in the Suez Canal that causes some implications for our supply chain, especially the European. In terms of, you know, if war would break out, you know, a full-scale war, which might be what you're alluding to, obviously that represents a risk for us. But in that event, of course, our company would be more concerned about the safety of our colleagues and friends around the world, than the immediate repercussions for us in terms of marketplace. But I don't think that, you know, if we look specifically, let's say, to Israel, there's much exposure for us at the moment.
So it's hard to say, you know, we're watching developments like everyone else is for multiple reasons.
Okay. I'll pass the baton to somebody else if they have the-
Great talking to you as always. Thank you.
Thank you so much.
Your next question comes from Sebastian Charland, with Odyssey Capital. Your line is now open.
Bonjour, monsieur. Congratulations on the strong results and thank you for taking my questions. My first one is about the gross margins and the admin costs. Going forward, should we forecast slightly lower gross margins and somewhat higher admin costs, given all the ramp-up costs coming up with the new, especially nuclear contracts, and I mean, the backlog increasing that much, too?
On gross margin, so if we exclude the one-time contract, you saw that we're at about 28.5%.
Yes.
I think, you know, Q1, we had a relatively favorable mix. Q2, excluding that contract, solid mix. I think when you execute the beginning of the new contracts in nuclear any new expanded or new program, you have some level of learning curve effect, but as those become very long-term, the profit margins expand and follow. The benefit we have on our capacity and our footprint is it's relatively fixed, so we can execute those contracts, and we'll see nice uptakes on the absorption. That should help the gross margin. I think we're comfortable with the ranges that we're at for growth. On the admin cost, as we mentioned, the biggest driver is really, you know, commission.
Mm-hmm.
As we continue to pursue more commercial activity and we see a significant increase in commercial activity, particularly around some of these new markets or green markets, I should say, you know, we could stabilize. I think we've had some very good bookings that we refer to, and that's what's driving the record backlog. But, you know, plus or minus on admin, I wouldn't say significant increase or significant decrease or to do.
Okay, this is helpful. When you are talking about commissions and bookings, are the commissions paid like, are they front-loaded, like, paid only at the beginning, or are they paid as you deliver the products and the contracts?
Mostly as it's delivered.
Got it. Perhaps as you were discussing the cancellation, the $ 5.2 million, maybe it's too early in the morning for me, and I'm not being able to tie it back in the balance sheet or the financial statements, but it's included in the revenues, but not in the gross profits, is my understanding. Does that also mean that it's excluded from your quarter's net profit, or is it in there?
The revenue is included. When we say, when you say the gross profit is not included, I think I would rephrase maybe and just say that there's no gross profit, so essentially, what you have is a revenue and a cost of sales that essentially is equivalent, and when you look at the balance sheet, when you look at the balance sheet, basically what we've done is taken a provision against the value of that inventory, so it added it, so.
Oh, I see. I see. Okay, that's why. So there's zero. So the cost is equal, equates five million as well.
Exactly.
Got it.
Yep.
And as far as practicable to say, is it possible to add color, or context about this cancellation? It's really good to see that you have strong protection clauses in your contracts, but it seems to be a significant amount.
Yeah, this one here is a particularly unique circumstance. It goes back to two thousand and seventeen. It was with a Russian EPC. The contract, the initial contract, was with a Russian EPC for deployment in Vietnam. And a couple of things, of course, over time, have conspired against dealing with the Russians, as you're well aware.
Yes.
And so, you know, there was really, in the past, no P&L impact of this. It had always been, you know, Rishi just described the change in accounting, but the cancellation of the contract was confirmed legally in the past quarter, and that's why we took the position we did on the income statement and the balance sheet. So, you know, very unique circumstances here. It's not anything that's signaling some kind of a development other than, you know, with sanctions outstanding. We're not supportive of the Russians at the moment.
That makes perfect sense, given that additional color. Thank you very much. So that $ 5.2 million is not in accounts receivable either, it's just been diminished in provisions and inventory?
Yeah. There was an advance against it, so that's exactly. Yep.
Perfect. Okay. Now, that's it for me for today, and congratulations again on the strong quarter.
Thank you.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call over to Jim for closing remarks.
Great. Thank you, operator. We appreciate your assistance as always. It's good to meet with you and report the results. We'll look forward to the next quarter and meeting again, and then the interim for the Canadians on the phone, we hope you enjoy the holiday weekend. We were talking before we joined the call, that we always seem to schedule our calls at the onset of a holiday here in Canada. So we'll take that into consideration going forward as well. Anyway, the best to everyone, and again, a real joy for us to be with you. Thanks so much. Bye for now.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.