Bonjour, mesdames et messieurs. Merci d'avoir patienté et bienvenue à la conférence téléphonique des résultats du deuxième trimestre 2022 de 5N Plus. Présentement, les lignes des participants sont en mode d'écoute seulement. Après la présentation, il y aura une période de questions et réponses. Pour poser une question, appuyez sur étoile et le un de votre clavier téléphonique. Et si vous avez besoin d'assistance, veuillez appuyer sur étoile zéro. Je vais maintenant céder la parole à Richard Perron, chef de la direction. Good morning, ladies and gentlemen. Thank you for standing by and welcome to the 5N Plus Inc. second quarter 2022 results conference call. At this time, note that all participant lines are in a listen-only mode. After the speaker's remarks, there will be a question and answer session.
To ask a question during this session, you will need to press star one on your telephone keypad. If you require operator assistance, please press star zero. I would like to turn the conference over to your speaker today, Richard Perron, Chief Financial Officer. Please go ahead, sir.
Thank you. Bonjour à toutes et à tous. Good morning, everyone, and thank you for joining our second quarter ended June 30, 2022 financial results conference call. We'll begin with an overview of our business performance, strategies, and the review of our financial results. After which, we'll begin the question period. Joining me this morning is Gervais Jacques, our President and Chief Executive Officer. We issued yesterday our financial statements, and we have posted a short presentation on the investors section of our website. I would like to draw your attention to slide two 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 risk and uncertainties.
A detailed description of the risk factors that may affect future results is contained in our management discussion analysis of 2021, dated February 22, 2022, available on our website and our public filings. Other companies. For further information, please refer to our management discussion analysis. I would like to turn the conference to Gervais for the discussion on the business and quarter results. Gervais.
Thank you, Richard, and welcome everyone. Yesterday, we released strong second quarter results with a 50% increase in revenues and with our new and higher value-added products boosting our Adjusted EBITDA. This is despite operating in a challenging environment. Our revenue and earnings growth year-over-year demonstrates the adaptability of our business and that we are focusing on the right end markets across both segments. Our results also show that our past investments and ongoing commercial initiatives are bearing fruit in the context of high inflation and complex global market dynamics. In addition to our strong financial performance, we also forged ahead of many other fronts during the quarter in support of our long-term business and growth strategy. In May, we announced that we secured a partnership with global mining group Rio Tinto to refine the tellurium to be produced at its Kennecott copper operation in Utah.
This partnership is a strong validation and recognition of 5N Plus' western world advantage and unique expertise in the transformation of mining byproducts into advanced and critical materials. The tellurium will be refined in Montreal and primarily used for the manufacturing of thin-film PV modules serving the renewable energy market. It will also be used to manufacture ultra-high purity semiconductor substrates in St. George, Utah, to support the homeland security and medical imaging sectors. Our intention is to continue to pursue such strategic partnerships for both the sourcing and refining of critical minerals in North America, which will be to the benefit of many critical industries we serve. Last quarter, we confirmed that we had reactivated our strategic review process to ensure that we focus on business that deliver improved margins and that are less affected by commoditization.
Also in May, we announced the intention of our subsidiary in Belgium to halt production and proceed with the closure of our Tilly manufacturing facility, which produce lead-based products and nitrate chemicals. This clearly defined process, as per the applicable Belgian labor laws, is advancing as expected, and we will keep the market informed of its progress. Once completed, we expect to shed negative earnings, release working capital, and improve cash flows. We continue to review our full portfolio to ensure the compatibility of our product offering with our long-term growth strategy. As such, the strategic review process is still ongoing. We also continue to actively promote our commercial excellence program, focused on a segmented approach through commercial partnering.
The implementation of our commercial go-to-market strategies continues to progress and is expected to gain momentum through to year-end. To support and spearhead our commercial efforts, I am very pleased to welcome seasoned sales and marketing executive, Roland Dubois, to the newly created position of Chief Commercial Officer. I believe this to be a highly strategic role for 5N Plus at this stage of our growth and an important area of focus. Bringing deep commercial expertise, relevant industry experience, and a proven track record of success, Roland is the ideal candidate to lead our commercial activities. As a member of the management team, he will not only ensure the continued execution of our recently implemented commercial excellence program, he will also bring our go-to-market strategies and all our commercial activities to the next level in support of our growth objectives.
On the project front, we continue to move forward with our Saint- Laurent project in Montreal to enhance our development and manufacturing capabilities around tellurium for the renewable energy market. While we did experience some delays related to contractor and equipment availability during the quarter, we are nonetheless satisfied with our progress. We now expect the project to be completed in commission by the end of Q3 2022. Looking ahead, as previously discussed, we are seeing significant demand for solar cells for space application in Europe and in North America. With AZUR now well in the fold, we are uniquely and very well positioned to capitalize on this and further grow our TAM in this critical end market.
We are, of course, approaching business opportunities in the solar space segment with discipline in terms of partners and project selection, given the longer time horizon of space programs to strategically position ourselves over the midterm. In general, we believe the company is entering a unique period to support the world's clean energy transition and various other technological advancement in critical end markets where we bring unique and relevant expertise. To capture the demand, we are evaluating strategic capital investments within our existing facilities. The objective is to effectively increase our production capacity for semiconductor compounds, in particular to address rapidly increasing demand in namely the renewable energy, solar space and medical imaging market, each of which are expected to sustain well above double-digit growth rates over the coming years.
We will continue to pursue our growth and business strategy with discipline, focusing on value-added markets and value-creating client partnership, while strategically investing in our business to expand our total addressable market. I will now hand over to Richard to discuss our results in more detail before we take questions from the analysts. Richard, over to you.
Again, good morning, everyone. We are extremely happy to be with you this morning, reporting a superb quarter for the company with revenue and adjusted EBITDA well above last quarter and the same quarter last year. This, despite many geopolitical and economic challenges faced as well by many others. As mentioned in previous communications, mindful of current geopolitical uneasiness and inflation impact on our businesses, we continue to believe that these can be transformed into unique midterm opportunities and strategic partnerships, in particular on the renewable energy, solar, space, and medical imaging markets to sustain, as just mentioned by Gervais, well above double-digit growth rates over the coming years with the company advantageously positioned.
During this second quarter, the significant revenue and adjusted EBITDA growth over last year and previous quarter was supported by our demand for specialized semiconductors and realized benefits from targeted commercial initiatives introduced to mitigate the impact of inflation on selected products and markets. Supported by dynamic pricing adjustments and other commercial initiatives, segment Performance Materials delivered an outstanding performance well above the previous quarter. Further supported by capital investment completed last year to improve the competitiveness of our operations for pharma and health products, the completion of these investments critical in time of high inflation. During the quarter, the company continued to strategically position its business development, emphasizing our value-added products in strategic sectors and markets like those requiring specialized semiconductors and leverage its recognized expertise in the transformation of mining and metallurgical by-products into high purity critical minerals for critical and promising end markets.
We continue to believe that 5N Plus is ideally positioned to not only navigate its path through the current environment, but most importantly, emerge stronger, uniquely positioned in relevant markets and more competitive. Now starting with the coverage of revenue and gross margin, as well as adjusted EBITDA. Revenue in Q2 2022 increased by 52%, reaching $ 72.4 million compared to $ 47.7 million for the same period last year, supported by strong demand in Specialty Semiconductors as well as pharmaceutical, health, and Performance Materials. Not accounting for the contribution from the recently AZUR, revenue increased by more than 20% compared to Q2 of 2021.
Adjusted gross margin in Q2 was favorably impacted by volume reaching $ 16.2 million compared to $ 11.8 million in Q2 of last year. On a year-to-date basis, the adjusted gross margin was favorably impacted by volume reaching $ 30.3 million compared to $ 23.5 million on a year-to-date basis for 2021. Adjusted EBITDA in Q2 reached $ 8.6 million compared to $ 6.3 million in the same period last year. Adjusted EBITDA increased by $ 3.1 million under Specialty Semiconductors and $ 0.4 million under Performance Materials, despite the impact of inflation and supply challenges. Now looking at the annualized backlog. The backlog on June 30 represented 140 days of annualized revenue, a decrease of 56 days over the backlog of last quarter.
The net difference in backlog is largely attributable to the timing of negotiations for long-term contracts, the quarterly realization of long-term contracts under negotiation for renewal in the coming quarters, and our commercial go-to-market strategy to effectively mitigate the impact of inflation. Important to AZUR has a backlog that extends beyond 12 months, not fully represented in the figures due to our definition. Quickly going through the expenses. Depreciation and amortization expenses in Q2 and year-to-date 2022 amounted to $ 4.9 million and $ 9.7 million respectively, compared to $ 2.6 million and $ 5.2 million last year. The increase mainly explained by the increase in property, plant and equipment, tangible assets, and right-of-use assets following the acquisition AZUR in Q4 of last year.
SG&A expenses in Q2 and year-to-date were $ 7.4 million and $ 14.9 million, respectively, compared to $ 5.2 million and $ 10.1 million for the same period of 2021. The increases also mainly explained by the acquisition AZUR in Q4, as well as general inflation impacting various expenses and progressing easing of restrictions related to COVID-19. In Q1 of 2022, the company recorded a non-cash impairment charge on non-current assets of $ 5.4 million included in the Specialty Semiconductors segment to reflect the assessment of the carrying value of intangible assets impacted by the Russia-Ukraine conflict. We have earned since then new businesses to replace the Russian business well above past revenue average for Russian clients.
Share-based compensation expense in Q2 amounted to $1 million compared to a recovery of $ 0.3 million in Q2 of last year, reflecting the scheduled vesting of long-term incentive plans and changes in the company's share price. In Q2, the company recorded litigation and restructuring costs of $ 0.4 million following the settlement of a contract by mutual agreement. Financial expense in Q2 of this year amounted to $ 1.8 million compared to $ 1.2 million same quarter of last year. The negative impact mainly due to the interest on long-term debt and imputed interest, which arose following the acquisition AZUR. income tax expense in Q2 and year-to-date were $ 2.6 million and $ 2.1 million respectively, compared to $ 0.7 million and $ 2.4 million for the same period of 2021.
Similar to other quarters, both periods were impacted by deferred tax assets applicable only in certain jurisdictions. Operating liquidity in Q2 of this year, the cash generated by operating activities amounted to $ 5.1 million, compared to cash used in operating activities of $ 3.1 million in Q2 of last year. In Q2 of this year, cash used in investing activities totaled $ 2.8 million compared to $ 1.3 million last year, and cash generated by financing activities amounted to $ 8.8 million compared to cash used in financing activities of $ 0.1 million in Q2 of last year. The increase of $ 8.8 million is mainly explained by the new drawdown of $10 million from the credit facility in Q2, reduced by expenses of $ 0.5 million following the renewal of its credit facility and an increase in lease payments.
Now looking at gross and net debt. The debt stood at $ 126 million on June thirtieth, compared to $ 116 million at the end of last year, following a drawdown from the credit facility in Q2 to support net working capital. However, net debt after considering cash and cash equivalent is at similar level to Q1 of 2022 at $ 89.6 million on June. Before we conclude the financial review, I would like to say that we are maintaining our previous, previously communicated guidance, but we expect to reach the upper range of it. We will now be taking questions from analysts.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. If you would like to withdraw from the question queue, please press star followed by two. Your first question is from David Ocampo at Cormark.
Thank you. Good morning, gentlemen.
Morning.
I wanted to zero in a little bit on the uptick that you guys saw in Performance Materials on the margin front. You guys called out the pricing schemes that you're implementing, so that dynamic pricing. If you take a look at the contracts that you guys have in place, is there still more work to do there or are largely all your contracts now moved over to the dynamic pricing?
By default under that segment, many of the contracts we've been mentioning it over time are occurring in Q4 and Q1. But for some contracts, we've been delaying the renewal and working more on a spot basis. There's still more opportunity, but a good portion of it is already addressed for 2022.
Richard, what's the typical lag on the dynamic pricing? Is it one month, a quarter lag? What does that look like?
We have, I mean, if you look at the product portfolio and the Performance Materials, I mean, we have numerous products, and they all have their own behavior depending on the client and the sector. So it varies widely from one product to another. But it's not instantaneous, obviously, as you saw it in Q1, our results were not at all at the level that we've been able to achieve in Q2. So let's. I guess on an overall basis, I guess it could be a quarter, huh?
Mm-hmm.
In terms of that.
Okay. That makes sense. On the Russian sales from AZUR that got delayed in Q1, is there any expectation that eventually gets shipped out this year? Just curious how bespoke that product is, if it could, you know, potentially be repurposed and sold to another customer.
The whole Russian business is, we really don't have any control over it. I mean, it's all about sanctions. I mean, we have to see what comes next with this conflict, so it's very hard to say. Again, as I mentioned in my statement, we have replaced that business.
Yep
By new businesses that were not there in the past and are coming from, I'm gonna use the term friendly jurisdictions.
Is that inventory still on your balance sheet then?
No, we've been able to turn most of it.
Okay. That's good.
Yeah.
Gervais, you called out the double-digit growth in renewable solar and medical imaging devices. How quickly does that flow through your result? Is that double-digit growth, can that be experienced in 2023, or is that more a longer dated story?
Well, we will see some impact even at the back end of 2022, and then you will see largely the impact in 2023 and after 2024 as well. This is currently the type of contracts that we're negotiating, and we're quite optimistic on that.
Okay. I'll keep my eyes peeled for that one. Thank you so much, guys.
Thanks.
Thank you. Next question will be from Rupert Merer at National Bank.
Good morning, everyone.
Morning.
Morning.
On slide four, Richard, where you show the revenue walk from Q2 last year to this year, if I look at that $ 9.4 million increase in the 5N Plus revenues, how much of that is volume driven, and how much of that came from price?
We're presenting. I would say, it's not far from probably two-thirds volume, one-third pricing.
Okay, great. When you talk about double-digit growth going forward, I imagine that is, volume you're talking about or is there some price support for that growth too?
No, our comment refers to volume.
Yep.
More business. We're likely to also announce, in the upcoming quarters, investment to expand.
All right, very good. We had this discussion in previous quarters about the impact tellurium prices were having on your sales to the solar industry. We've seen tellurium prices roll over a bit now, and you've got some new supplies coming in. Is that problem largely behind you? Are those sales sort of back on track?
Sales are independent of where the tellurium price lands ultimately. I'm just not sure I follow your question.
All right. Sorry. I was under the understanding you were potentially looking to delay some sales to the solar market because of the level of tellurium prices.
No. We need, I mean, as you can see it from our statement, and you just need to read it in the news. I mean, the whole world is going to a transition to clean energy and solar power is a big portion of it, so no.
Yeah. I think with the current geopolitics, what we're seeing is a higher demand for solar energy, and we're well positioned to benefit from this growth. This is part of the plan now to make sure that we're capturing the growth.
What we've mentioned in previous quarters is one of our key contract was, I'm gonna use the term backloaded, and we're at the end of it, by default. Going forward, though, we expect the sector to continue to grow.
Okay, very good. Just finally on the backlog, you've given us a little color on what drove the drop in the backlog. Where do you see that going in the next few quarters? Will it rebound to historical levels fairly quickly or do you feel you'll see more spot-
What is happening?
In the near term.
What is happening this quarter is similar to similar quarters every second or third year, okay? Based on our definition, what we're presenting there is the next 12 months. As the contract comes to an end, every quarter we're depleting that backlog by realizing the sales, okay? Then the contract gets renewed, then the backlogs gets refilled. We'll definitely rebound. It's just a question of time.
Very good. I'll leave it there. Thank you very much.
It goes beyond the yearly contracts.
Yeah.
It's both a combination of long-term and yearly contracts.
Some of it is also related to our commercial strategy to make sure that we are applying the dynamic pricing adjustment. I think, you know, the large portion will come back, and we will keep some flexibility to make sure that we can apply the dynamic pricing.
Just to add the AZUR business that we acquired, I mean, this is all about space programs, and it goes beyond 12 months. We definitely have more in our backlogs, but they don't fulfill our definition for reporting purposes at this point in time.
Great. Thank you. Thanks for color.
Thank you. Next question will be from Michael Glen at Raymond James.
Hey, good morning. Just on AZUR, when you bought the business, I think you described it, some of the revenue generation in the business could be lumpy depending on timing of shipments. Like when we sort of back into or when you look at the $ 15.3 million of revenue contribution coming out of AZUR this quarter, is it? Just give some thoughts on consistency of that type of revenue generation on a quarterly basis.
As we've mentioned in previous AZUR on average is a business that generates about $60 million or so of sales. If you look at the quarter, I guess the quarter will be more around a quarterly average, but it doesn't work like this AZUR because of the nature of their business. We continue to maintain the comment that it can be lumpy from one quarter to another, while the full year, the visibility is much better.
2H, maybe just correct me if I'm wrong, but 2H AZUR, i think generally is better than first half because of some seasonality aspect in the business. Is there some-
It's-
Something to think about there?
Historically, the second half has always been better than the first half. For 2022, because I'm gonna refer to the Russian event, it's gonna be more true because.
Yeah
Q1 was a bad quarter, in part due to the Russian conflict that impacted AZUR.
Okay. In general, do you think you're tracking better than $60 million of sales contribution AZUR this year?
Let's say it's within the range.
It's within the range? Okay.
Yeah.
And then-
You need to account for another AZUR is extremely strong in Europe while it continues to do much better year-over-year in North America, so part of their sales are denominated in euros. Okay? That may have an influence from an absolute dollar perspective presented. But in terms of volume and general business, everything that we've mentioned remains valid.
The comment you've been able to earn new business to replace that lost from the Russian customers. Is that Europe business or is that elsewhere in the world?
At this point in time, I would say two-thirds is North America and a third is European.
Yeah
for that comment.
The demand for space solar cells is really high. I think that's something, you know. I think the Russian event was unfortunate, but the timing of it, I think was great because we have multiple opportunities.
Also in the background of it, you see American players partnering with European players to do bigger projects.
Yeah.
We have a combination of that we participate into.
Is there military and defense spending underlying that? Are you able to say?
No, we're unable to say. Our belief is most of it is commercial.
Yeah.
Finally, in terms of when you reported 1Q, you talked about the energy price situation in Europe. I believe that was an impact on the Performance Materials margin. Looking at what's happening with energy price, and I know that you're gonna eventually shut down that Tilly, Belgium facility. When we look at energy price in Europe and think about impact in back half of the year, is that a pressure point for the EBITDA profile and Performance Materials?
It is, but it's more important for our Belgium plants than the German plants that we have, okay? In terms of energy consumption and else. I mean, it impacts German companies, okay, in our units, but to a much smaller extent than our Belgium plant today, so. We expect that to continue. We don't consume that much. I mean, we use energy, but we don't consume of it that much. What we use, though, are chemicals that are made out of that.
Mm-hmm
energy and/or natural gas, not to mention it.
Okay. I'll leave it there. Thank you.
Thank you.
Thank you, Michael.
Next question will be from Nick Agostino at Laurentian Bank.
Yes. Good morning. First of all, congrats on the quarter. I was just wondering, just to get some color from you guys. I think when we talked about in the renewable energy space, you talked about your existing contracts, specifically on the First Solar side as being back-end loaded. I'm assuming we're obviously moving into that period. At the same time last week, we saw the U.S. hopefully pass through or at least come to some sort of a U.S. climate agreement, which the market views as gonna be positive for solar. I'm just wondering if you can provide any color in terms of how you guys see that specific Biden climate agreement. What sort of indirect benefit it might have on you guys, and maybe how you see your current relationship with First Solar.
What sort of volume growth you might anticipate off of that climate agreement announcement from last week?
At this point in time, I mean, we cannot pronounce ourselves as to the actual volume growth that we're gonna see. That volume growth is gonna be to some extent limited by production capacity. Investments will have to come into play and realize itself in sales. It's definitely extremely good for First Solar and ourselves.
Okay. Obviously you've already announced that you're gonna be closing down the Belgian plant just from an overall plant production. I'm just wondering, any color you guys can provide or update when it comes to exiting non-core assets, so specific verticals, something that was being pursued in the past and then I think paused. I think, Gervais, it was something that you recently reintroduced the idea of maybe exiting some of the more metals heavy, sectors or verticals. Is that something you're still pursuing? Have you identified any assets that you plan to exit, or is that something that you just continue to review?
Well, I think we're at this point in time, it's really Tilly. We're still looking at that type of, you know, market where we're highly exposed on metals. You know, we want to focus on value added. We want to focus on teaming with customers, developing new products, and I think we want to move away from commoditization. I think that's the main topic of 5 N. We're completing the first step with the process of Tilly, and then we're gonna continue to move forward. I think big move like Tilly, I think that Tilly was probably the big one. Now what we're gonna do is a smaller adjustment. We're quite confident with the climate change bill, with all the things that are currently happening, the energy crisis in Europe, globally.
I think we are on the right market segments and we want to grow and we will grow.
Just to add the commissioning of Project Saint‐Laurent later this year, it's the completion of a similar exercise, which is a relocation of our South Asian primary refining operations, Malaysia, not to name it, into Montreal, so.
Yeah.
Okay. Thank you for that. My last question is just relating to OneWeb, who was a prior client of yours before they announced bankruptcy on their part. Obviously, they're back in business. Last week, I think there was an announcement that they were gonna be merging with Eutelsat. I'm just wondering, do you have a renewed relationship with OneWeb? If so, how do you guys see that proposed merger with Eutelsat potentially playing out, benefiting you guys, assuming that there is a relationship there?
I think it's definitely something that we're working on. I think it's quite positive to see all these constellation project moving ahead. Now, this recent announcement that they're working together, I think we were having relationship with both, good relationship with both, and now the fact that they're working together, it's a good indication for us.
Yeah. Just to add on this whole opportunity, just a reminder, there's only three players outside China that does solar cells, okay? There's two in North America and one in Europe and out of those three, there's only one that is never into conflict with any of its clients, okay? It's us. When those constellations, they come into play, if it's indirectly for us and via our clients, somebody will earn that business and will benefit from it in time.
Yep.
Okay, great. Thank you.
Bye.
Thank you. Next question is from Frédéric Tremblay at Desjardins.
Thank you. Good morning.
Morning.
on the commercial agreement with the Rio Tinto for tellurium, do you have any indication on when, you know, that may start? I guess if you could provide some indication on the magnitude of it or sort of how much of your tellurium supply may come from that agreement going forward.
Yeah. We expect the first shipment to arrive here in Q4. You know, if you look at the project St. Laurent, we will be commissioning in Q3, then we will start receiving material in Q4 and moving forward. That type of, you know, the way they are operating their facility, you know, they are building inventory, and then when they come to a certain threshold of inventory, they're shipping it to us. That's gonna be how we're gonna be proceeding with them. In terms of percentage, I think that we are working with them to grow that over time. You know, it was a phase one that we announced. We're working with them and other miners as well to make sure that we can diversify our sourcing of tellurium.
that the aim, and this is the reason why we invested on Project Saint- Laurent.
As usual, we're not extremely vocal when it comes to volume for various strategic reasons.
Okay. To say that, I guess it's sort of incremental supply, not necessarily replacing any other suppliers. It's more incremental to support your growth.
Incremental. Definitely incremental.
It is definitely incremental, and we want that to be replicable with them and with other mining company. I think that the fact that they are now more inclined to look at what they could extract from their deposit. You know, they I think from an ESG standpoint for Rio Tinto and other big mining companies, that's that type of project is really good because they can look at what they are currently have on hand and what they could valorize. Maybe five years ago or 10 years ago, it was not high on their agenda, but today it is definitely really high on their agenda.
Okay. You did mention some other potential capacity expansion project. Is that something that could play into the 2022 CapEx budget, or is it something that's a bit more, you know, like 2023?
Most likely 2023. 2022 will be a lot around, I mean, completing Project Saint-Laurent, other things already in train.
Okay, perfect. Last question from me. You did mention inflation in the quarter. Just maybe get your latest thoughts on where you're sort of seeing inflation, what sort of buckets. Is it labor? Is it transportation? I guess maybe your outlook for that and your ability to pass through those costs maybe for the next couple quarters.
Again, I think the dynamic pricing adjustment is something we have introduced in the, you know, in our contract, and we're continuing to introduce that principle to most of our contracts. The intent is we know that we are living in a world that is quite dynamic. You know, we're good in producing high quality value-added materials. We're not a transport company. We're not there to start bidding on the transport. The transportation needs to be something that we are. The freight cost needs to be something that is carried over to our contracts. This is the principle we are working on, is making sure that we are doing what we can control.
What we can't control, together with our partner, our customers, we say, "Look, if you can do better and take it from our facility and transport that material at a cheaper cost, then just do it. You can do it.
Great. Thank you.
Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by one on your telephone keypad. Your next question is from Michael Glen at Raymond James.
Hey, can you just the revenue impact from the Tilly closure, how much that is supposed to be?
I don't think we've mentioned it so far, and I mean, Tilly produces different products, so we'll need to come back with a final assessment of it because some sales may continue and others not, and it has not been fully determined at this point in time.
We are still on phase one of the process.
Yeah.
Decision will be, you know, all that type of impact will be communicated when we're gonna be moving on phase two. According to Belgian law, we need to follow the process. On phase one, no decision has been taken yet.
Yeah. Going forward, as we've mentioned in all of our communications, it's gonna be shedding some revenue, but it will have a positive impact on the bottom line cash flow and the release of working capital.
Yeah.
Obviously, it's the right thing to do if we're doing it.
Our margin.
And-
Overall, our margin will increase.
Yes. Yeah, that much is very clear. Based on your prior experiences in Belgium, in terms of pursuing this type of effort, is it for sure that this plant would ultimately be closed? Like, is there some probability that you could be forced to keep it open?
On phase one, there is two options that you can get that could happen. You know, we're looking at who else could be interested in buying. As time goes by, the type of buyer could, you know, could change. You know, desperate, you know, you can get somebody at the end of the process who demonstrating some interest. This is part of phase one is looking at opportunities, alternative, can you produce something else? For us, for 5N Plus, we will no longer be producing the same type of product in this facility.
The key is that the interruption is around lead-based products and chemical nitrates.
Yeah. The short answer is no. 5N Plus will no longer be operating that type of product on that facility.
Tilly has other products that we would like to pursue.
Okay. Tilly's not operating that type of product, so are you losing revenue then in the short term? Like, is there a revenue headwind there as you make that product transition? I'm just trying to understand.
It's gonna be a phase out that will occur over quarters. The answer is yes. Okay. Most of it, that shortfall, that revenue shedding will be 2023.
Yep.
Okay. Okay, thanks.
Thank you. At this time, Monsieur Jacques, Monsieur Perron, we have no further questions. Please proceed.
Okay. Well, I would like to thank you all for joining us this morning. Have a good day.
Well, thank you all. Enjoy your summer vacation for those who are leaving on vacation. Thank you for following us, and let's stay in touch all together.
Thank you. Merci. 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.