Good morning, ladies and gentlemen. Thank you for standing by and welcome to the 5N Plus Inc. Second Quarter 2025 Conference Call. At this time, note that all participants are in a listen-only mode. After the speaker's presentation, there will be a question -and -answer session. To ask a question during the session, please press star then one on your telephone keypad. If you require immediate assistance with the operator, please press star zero. [Foreign language] . I would like to turn the conference over to your speaker today, Richard Perron, Chief Financial Officer. Please go ahead, sir.
[Foreign language] . Good morning, everyone, and thank you for joining us for our Q2 2025 Results Conference Call and Webcast. We will begin with a short presentation, followed by a question period with financial analysts. Joining me this morning is Gervais Jacques, our President and CEO. We issued our financial results yesterday and posted a short presentation on the Investors' Section of our website. I would like to draw your attention to slide two of this 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's discussion and analysis of 2024, dated February 25, 2025, available on our website in our public file.
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 turn the conference over to Gervais.
Thank you, Richard, and thank you all for joining us this morning. Yesterday evening, we announced record results for the second quarter of 2025 and year to date across several indicators. Our performance marks several new all-time highs for 5N Plus and positions us well for the remainder of the year. This includes record quarterly and first half adjusted EBITDA, record quarterly adjusted gross margin, and our strongest first half revenues in a decade. In a volatile business environment where customers are seeking out dependable partners, 5N Plus continues to stand out. We are the partner of choice outside of China for high-purity, high-quality, advanced materials. Customers appreciate the value and depth of our diversified global sourcing and manufacturing capabilities. Today, our reliability and supply chain are not just competitive advantages for us, they are of strategic importance for our customers.
This morning, we also announced a milestone supply agreement with First Solar, which I will discuss in more detail in a moment. As we head into the second half of the year, we're not only well placed to deliver on our new increased adjusted EBITDA guidance for 2025, we will also be able to build on this momentum going into 2026. Let's start with our activities and strategic sectors under specialty semiconductors. In terrestrial renewable energy, volumes were significantly up for the second quarter compared to last year and up compared to the first quarter. We are on pace to continue shipping more products than originally planned to our key strategic customers in this sector, as reflected in the terms of our new and expanded supply agreement. Under our new terms, we are increasing semiconductor compound supply volumes by 33% for the 2025-2026 period underway.
This is compared to the initial contract level. As we are increasing volumes by an additional over 25% over this period for the subsequent 2027 and 2028 term, this will also include the delivery of additional next-generation semiconductor compounds as we continue to work with First Solar on product development. With the investment recently completed in our Germany and Montreal plant operations, we will be able to meet this increased demand with minimal additional investments. Our team is incredibly proud to solidify its standing as a critical enabler to the U.S. solar energy sector and to further strengthen our long-standing partnership with First Solar. Amid shifting U.S. energy policy, First Solar is uniquely positioned to capitalize on U.S. economic growth, digital infrastructure expansion, and accelerating electrification as the leading American solar technology company.
Make no mistake, America needs solar energy in the mix as it seeks to diversify its energy sources and enhance its energy security and to meet significant power demand over the next decade. They need access to domestically produced, reliable, scalable, cost-effective, and quick-to-market solutions. First Solar provides all those things, and they are currently actively expanding their U.S. nameplate capacity to meet the moment. With the U.S. administration's Big Beautiful Bill Act, and despite the phase-out of the Inflation Reduction Act anticipated in 2026, domestic solar energy will remain a part of the U.S. energy equation. The why and how may have evolved, but the fundamentals remain. In this context, 5N Plus is also benefiting as a key strategic North American supplier embedded in First Solar's value chain and as reinforced by our expanded supply agreement.
Turning now to space solar power and our activities at AZUR in Germany, demand for our solar cell technology remains very strong, further driving our performance in the second quarter, including pricing margins. Customers are planning ahead and securing products early to support future satellite programs and space missions. To illustrate, we recently submitted a quote for deliveries extending into 2029, 2030, and 2031. This highlights both the long-term visibility the sector provides and customer confidence in the reliability of our technology. After increasing capacity in Heilbronn by 35% last year, we continue to boost solar cell production by an additional 30% this year. All equipment, including two new reactors, has been installed and commissioned. We are currently ramping up production while optimizing the full value chain. We remain on schedule to reach our full production target by Q4 2025.
Looking now at energy storage, a few weeks back, our customer, Australia-based Regen, announced the acquisition of its Yunari project by AGL, a project which has been granted development approval. This acquisition marks major steps towards the industrialization and commercial development of long-duration storage technology. As the supplier who supplied the solar cells that form the foundation of First Solar's core module technology, this announcement bodes well for us as a commercial opportunity in the medium term. When that time comes, we will be ready and able to deliver on Regen 's global pipeline of projects, including Yunari, which will have a total of 150 MW of solar energy capacity once operational. Finally, on the performance materials side, we are benefiting from exceptional margins, and this is no accident. In Q2, this segment was positively impacted by a favorable sales mix, despite slightly lower volumes over last year.
This, once again, reflects our unique positioning in the context of high business volatility with a strategic and diversified global supply chain. In conclusion, we have many tools in our toolbox to continue capturing market share and the growing demand in key sectors for our advanced materials. We have the capacity to grow organically thanks to our flexible manufacturing footprint, while we also continue to actively pursue external opportunities from a strong financial position. Thanks to our market leadership and competitive advantages, we will continue to solidify our status as the strategic partner of choice. Richard, over to you for a review of our financial results in more detail.
Thank you, Gervais. Good morning, everyone. Strong financial results across the board in Q2 2025 and year to date reflect significant volume increases in specialty semiconductors on the back of accelerating demand in strategic sectors and exceptional margin expansion under performance materials. In an environment of ongoing global trade and economic volatility, our customers are acting decisively to secure the advanced materials they require, and we are delivering. We have the right expertise to supply high-purity, high-quality products, as well as diverse sourcing and manufacturing capabilities customers can depend on. This is translating into sustained outperformance since the beginning of the year. To illustrate, consolidated revenue in Q2 increased by 28%, reaching $95.3 million, while revenue year to date reached $184.2 million, representing a 37% growth year over year and a 10-year high in terms of first half revenue generation for 5N Plus.
Adjusted EBITDA increased by 79% to a record $24.1 million in Q2 and grew to a record $44.9 million year to date and a 78% increase compared to the year to date 2024. For Q2, we also delivered a record adjusted gross margin, both in terms of dollars and as a percentage of sales. In dollars, adjusted gross margin increased by 41% to $33 million and came in at 34.6% of sales. Adjusted gross margin through the first half of 2025 came in at $63.4 million and 34.4% of sales. Turning now to our segments and the drivers behind the outstanding KPI performance, starting with specialty semiconductors, Q2 volumes in terrestrial renewable energy were up 50% year -over -year and 15% compared to Q1.
Our new agreement with First Solar, announced this morning, only further confirms that this acceleration in demand is not a question of timing or pull forward, but really a step up in demand that is sustained and that will continue to grow over the next few years. Q2 segment performance was further supported by high demand for solar cells, which is also positively impacting pricing margins as we progressively benefit from our capacity expansion at AZUR. Meanwhile, imaging and sensing performance was on plan and as expected. Specialty semiconductors revenue was $71.2 million compared to $52.3 million in Q2 last year. Year to date, revenue was $134 million compared to $97.5 million in 2024, supported by this higher demand. Adjusted gross margin as a percentage of sales was 32.7% in Q2 compared to 33% in Q2 of last year.
Year to date, it was 33.8% compared to 31.2% in year to date, favorably impacted by economies of scale due to higher production and higher prices net of inflation. Adjusted EBITDA increased by $5.9 million or 45% to reach $19 million for Q2, and adjusted EBITDA year to date increased by $14 million to $36.7 million. The increase is primarily attributable to higher demand, higher prices net of inflation, and favorable unit costs from economies of scale. For its part, our performance materials segment performance was positively impacted by a favorable sales mix. This is despite slightly lower volumes over last year and the absence of the pull forward in purchasing experience in Q1. Our ability to supply bismuth-based products for industrial applications at higher margins in the context of high business volatility speaks to our unique strategic and diversified global supply chain.
Performance materials revenue reached $24.1 million in Q2 compared to $22 million in Q2 of last year. Year to date, the revenue was 50.2% compared to 42.1% last year. Adjusted gross margin as a percentage of sales was a record 41.1% in Q2 this year compared to 28.4% in Q2 last year and 36.8% for year to date compared to 31.7% last year. We had a favorable inventory position going into the quarter from which we benefited on top of a favorable product mix and higher prices net of inflation. Adjusted EBITDA in Q2 increased by $4.2 million or 108% and reached $8 million. Adjusted EBITDA year to date increased by $5.3 million to $14.1 million, positively impacted by the same factors. Turning now to backlog. Backlog for specialty semiconductors was 354 days of annualized revenue, 17 days higher than on March 31, 2025.
While the estimated number of days based on annualized revenue cannot exceed 365 days per our backlog definition, the effective backlog for the terrestrial renewable energy and space solar power sectors specifically continues to surpass the next 12 months. Backlog for performance materials was 127 days, 25 days higher than on March. Combined backlog at Q2 was 297 days of annualized revenue, 29 days higher than on March. We also ended the quarter in a strong financial position with net debt at the low level of $74.3 million. This is compared to $100.1 million as at the end of December 2024, representing a decrease of $25.7 million. That brings our net debt to EBITDA ratio to 1.07x as of June 30, 2025. Our strong balance sheet, coupled with our borrowing capacity, continues to provide us with financial flexibility to execute on internal or external growth opportunities.
We continue to actively assess opportunities, and the team is very motivated to enter 2026 with an acquisition. However, we will take the time required to find the right opportunity that meets our criteria. We are pursuing these opportunities while remaining highly focused on our increased capacity targets and production optimization to meet anticipated demand. Turning now to outlook and the adjusted EBITDA guidance. For the second half of 2025, we anticipate demand under specialty semiconductors from the terrestrial renewable energy and space solar power markets to increase further as customers look to secure high-quality advanced materials from trusted partners. Under performance materials, consistent with historical trends, volumes through the second half are expected to be slightly lower than in the first half, but with margins continuing to benefit from a strategic global supply chain.
Based on our financial performance year to date and our expectations for the second half of 2025, we have increased our adjusted EBITDA guidance from a range of $55 million - $60 million to a new range of $65 million - $70 million. This revised guidance takes into account the increased volumes anticipated through the end of this year as a result of our new contract with First Solar. Looking ahead, we are excited about the growth opportunities ahead, but also remain very prudent and mindful of the evolving geopolitical and trade environment. We're keeping a close eye on any impact on operating costs and focus on supporting our clients. All in all, given our unique and global standing as a preferred partner, we are well positioned for the rest of the year, but we will also capitalize on our strong momentum to enter 2026 at higher levels.
We will continue to raise the bar as we have done consistently over the last few years and keep the momentum going. That concludes our formal remarks. I will now turn the call back over to the operator for the Q&A with financial analysts.
Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone 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 one. If you're using a speakerphone, please lift a handset first before pressing any keys. [Foreign language] . Your first question will be from Michael Dumais at National Bank Financial. Please go ahead, Michael.
Hey, good morning, guys.
Good morning.
The quarter.
Good morning.
Congratulations on the quarter and obviously the First Solar contract expansion and extension. Maybe I'll start on the latter piece. On the contract, would you be able to provide some details around just pricing in general? I know, Gervais, you said minimal CapEx, but if you can get a little bit more specific on that, that'd be great. Also, I guess separately, any way you can comment on whether or not you expect the deliveries there to extend much beyond the First Solar U.S. production as well, just to get a general view.
Okay. As a starting point, by default, the vast majority of the volume secured by that contract will be heading to the U.S., to the United States. There are various plans that they have in the U.S., as a starting point. To answer the CapEx part, we have already in this year's budget, capital allocated to meet the current year's demand, and we have launched another program in order to meet next year and the following two years' demand. All of that is on its way, and those capital investments will be done for the most part, if not exclusively, for the most part in Montreal. That's all undergoing. The other part of your question was pricing. Pricing found favorable terms, but at the same time, remember our last remarks, we're extremely mindful of inflation and operating costs that will most likely not stay at the current level. All left to be to see.
Maybe just to add, you know, it will all happen within our own installation, both in Eisen and Montreal. No need to build a new building. It will be happening within the same installation. We keep the same strategy, securing contract first and then adding capacity in an incremental manner.
We're extremely disciplined when it comes to capital investments.
Perfect. Thank you. Maybe turning to the results, obviously, a very strong first half. If I tell you to go back to the beginning of the year and compare your early-year expectations to the results so far, I wonder, in your view, what really exceeded the expectations? I guess separately, has the expanded agreement with First Solar already provided a boost to the first half, or is that really just expected to start going into the second half and into 2026?
The last part of your question. With this morning's announcements, what we need to say is that in the first half, part of that is already realized. Okay.
Okay.
Okay. It's what we referred to in the past as our spot business not being confirmed or contracted. That's essentially what's behind today's announcement. As you can see, it goes four years ahead of us.
Okay.
The other part of your question was on.
Where.
Other.
For.
Compared to the beginning.
The expectations.
The expectations. I guess our biggest single positive impact in the year would be under performance materials. It does perform better than anticipated, okay, from a margin perspective. Obviously, we did not, at the beginning of the year, anticipate the pull forward in Q1, but as we just mentioned, it did not occur in Q2. The margins that we're currently realizing under performance materials, that's a nice, let's say, surprise or factor that we did not anticipate at the beginning of the year. We always anticipate good results from that segment, but the results are better than anticipated, we have to be honest.
Right. Maybe if I can end with a third, I noticed you didn't characterize the strength in your Q2 sales as benefiting from any pull forward like you did for Q1. If I take your comments on the accelerating demand in specialty semiconductors, obviously including First Solar, and the expansion at AZUR, in my mind, how is it not possible that the second half sales don't exceed the first half sales? Just trying to really square away the guide with some of the commentary.
In the case of renewable energy, what was spot sales in Q1 will be under contract and will increase gradually over the year to be ready to be at the level of 2026 and so on after. What we see is an improvement on terrestrial renewable energy. On space solar, you will see an increase going forward as we completed the commissioning and now we're doing all the qualification and ramping up the production. At AZUR, production will gradually increase over the year as well. On performance materials, as you know, we have enough capacity to meet all the demand, but the volume is slightly down, but margin up. We'll see how the market will react over the next two quarters.
Okay, I'll leave you to that, guys. Obviously, congratulations again.
Thank you. Next question will be from Nick Boychuk at Cormark Securities. Please go ahead, Nick.
Thanks. Good morning, guys.
Good morning.
On the First Solar contract, can you just kind of qualify, Richard, you mentioned that a lot of the new material you're producing is going to be going to the U.S., but does this incremental capacity account for all of the new facilities that they have coming online there, or might there be additional demand that they have as these other facilities like Louisiana and Alabama fully ramp to production?
Our understanding from discussion with them and also their own public filing, their strategy forward is to increase further the capacity in the U.S. When I say further, further from what they may have announced a couple of years back when they officially announced the Alabama and the Louisiana plant. Now they want to bring to a higher level that capacity they have in the U.S.
Okay. To confirm, do you guys know if what you are producing represents all of the CdTe and all of the advanced materials that are going into those facilities, or?
That's our understanding.
Yeah.
If it's not all of it, it's by far the vast majority of all the semiconductor compounds they're going to be using in their thin-film technology.
Yeah. Okay. Understood. Thank you.
Sorry, just to quickly add, in this morning's announcements, if you read, we're also adding another thin-film material referred to as CdSe.
Yeah. Exactly. I was just going to ask, the CdSe, could you comment on where that's going to be produced, and the expected volumes, the type of product it's going to be going into, any color there?
It's going to be produced in Montreal. We will be investing in Montreal to put in place a new production line producing CdSe. This is part of the different semiconductor compound layers. When you're producing a panel, a thin-film solar panel at First Solar, you do have one layer of CdSe. This will be produced in Montreal.
Okay. Understood. Switching gears to AZUR and the capacity demand you have there, it's remarkable that you're booking business as far as you are. How are you guys thinking about capacity there? What would you have to see, I guess, to increase further production run rate, and yeah, what would catalyze that?
As you know, 2025 is fully sold. 2026 is fully sold. Now we're booking 2027 and onward. The way it works for us, the same strategy will apply as soon as the booking will be, you know, when you have super good visibility and we know that we will be lacking capacity, we will be looking at projects to add capacity again. It would be one step at a time and in an incremental manner. Always the same strategy: securing contract and then investing.
We essentially have a whole list of options prepared. As we're filling up those years, there will come a point in time, we'll make the call.
Okay. Understood. Thank you, guys.
Thank you. Next question will be from Frederic Tremblay at Desjardins. Please go ahead, Frederic.
Thank you, and congrats on the quarter and the new agreement with First Solar.
Thanks.
On the First Solar agreement, can you help us maybe understand how the incremental volume, the increase that you announced, the 33%, how that's going to be distributed roughly over 2025 and 2026? Should we think about it as an increase in both years, or is it mainly weighted to 2026?
The way we have, not made our announcement, we've compared the 2025, 2026 versus that previous contract that we had announced a year ago. You got a first increase, where, by default, 2026 has higher volume than 2025. When you get into 2027 and 2028, the increase we have announced is against 2025, 2026. In this case, at this point in time, the two years should be pretty much at the same level. For the first two years, the second year, being 2026, would be at a higher level than this year.
Okay. Thanks for that. That's helpful. Maybe just switching to performance materials and trying to better understand the elevated margins there. Is it, I mean, you're talking about bismuth-based pricing. Is it mainly just a pass-through of the higher bismuth prices that we're seeing in the market right now that's sort of helping the operating leverage and the margin there, or is there something else that's driving that margin higher? I'm just trying to better get a better grasp of the sustainability of that margin.
It's the combination of various factors, okay, the sales mix. If you recall, we made some investments into that segment three years or so back. We added automation, we added capacity, and we also recently made additional investments. All of that linked into operations that are more productive overall. In the current geopolitical, what we've been able to take advantage of is what we refer to in our official remarks as our strategic global supply chain. We've been able, in the context of higher prices of bismuth, not to name it, through our various sources of bismuth, the shapes and form, the value add that we're at, that we're adding to make the products that we're sending in high-end markets, we've been able to pull the best of all margins we could.
Okay. Perfect. Maybe just lastly, on AZUR, you commented on the years that you're booking business in. Can you talk about pricing and margins and what you're seeing there? There's obviously been significant improvements since you acquired the company, but just given the strong demand, I would imagine that pricing is stable as well in the new agreements that you're signing to this day?
Yes, indeed. You know, if you look at the new agreement that we're signing compared to the one we had three, four years ago, it's totally different. The reason is the following. You know, the supply and demand is super tight, and the market has been quite disciplined. Our two main competitors in the U.S., you know, one of the two announced investment to increase its capacity, but also in a manner where it's quite gradual. I think from a supply side, there's a lot of discipline, and we're growing based on order. If you don't have the contract, you're not adding capacity, which definitely helps to maintain and improve the margin.
Great. Thank you. Congrats again.
Thanks.
Next question will be from Michael Glen at Raymond James. Please go ahead, Michael.
Hey, good morning. Just the first question. If I look at your back half guidance, you're effectively pointing to a 50% decline in EBITDA relative to the front half of the year at the midpoint of the second half implied guide on EBITDA. Is it realistic to think that your EBITDA will decline that much in the back half of the year versus the first half?
We're going to have a great H2, but we expect it to be lower than H1 for various reasons. On the performance materials, as we've been saying, I would say 8 years out of 10, most often, the volume is down because of the type of industries and clients we are addressing. We are more cautious about their year-end balance sheet. In the case of specialty semiconductors, obviously, volume is up, but we can foresee at this point in time without exact numbers that operating costs will be higher. We're going to have two great quarters ahead, but slightly lower than the first half. The extent of which is always difficult to assess with precision.
Okay. Just to go back to the First Solar, is the volume, I know you're saying a lot of it, but is the volume we should see in the back half of the year consistent with the First Solar volume that we saw in the front half of the year?
It should because, essentially, First Solar, every unit of product we could produce, they took it in the first half. It's not like it's been paced, with a lot more in the second half than the first half. Going forward, it should be similar or slightly higher. As always, there's always that tricky cutoff part when you reach the holiday period towards the end that may play. The volume will be superb in the second half.
Okay. One of the comments was, towards 2026, like an M&A maybe having motivated to enter 2026 with an acquisition. Can you just maybe, are you getting closer on the type of business you would like to acquire? Are you, just maybe additional information on what's happening with your M&A conversations?
We have a shortlist of companies that we're spending a fair bit of time to better understand the operations, the markets, and assess the fit with 5N Plus. That's where we're at, more entertaining exchange. At this point in time, it's still getting familiar with the markets, the operations, and how it fits into the 5N Plus story.
We're not looking for an acquisition. We're looking for a successful acquisition like AZUR.
Yeah.
I think that the mantra and the mindset is really, we're really super focused on that.
Okay, thank you for taking the questions.
Thanks.
Thank you. Next question will be from Amr Ezzat at Ventum Capital Markets. Please go ahead, Rupert.
Good morning and congrats.
Thanks.
I hate to ask again, but just for an abundance of clarity on the volumes, obviously, where it becomes difficult is you have all of the spot purchases. From what you guys said in the Q&A, Q2 results already reflect that run rate that we should have for the rest of 2025. I think we all understand that, but then for 2026, I heard or I thought I understood that we get a bit of an uptick relative to 2025. Did I misunderstand, or is that correct?
It is correct.
Yeah.
2026 will have more volume than 2025. That is.
Okay. Gotcha.
For renewable, that is true for renewable and space.
Yeah. Yeah. I understand. For renewable, how do I think, how much of an uptick do we have in 2026 relative to 2025? Are you guys, like, comfortable sharing that?
It's an important uptake. It's in the 35% -4 5%.
Okay. When you guys, like, say 33% for 2025, 2026?
That's the combination of the two years.
Okay. Understood. For 2027 and 2028, we layer another 25% on top of that.
Another 25% over 2025, 2026.
Yeah.
Exactly.
Okay.
On top of that.
Okay. Perfect. Okay. I think now it's very clear. The expanded agreements include, like, CdSe, beginning 2026, which we haven't discussed, like, too, too much in past calls. Number one, is that in addition to the 33% of increased volumes for CdTe?
It is, sir.
Yeah. Fantastic. Can you guys quantify for us, you know, that volume, number one? If you could elaborate on how CdSe fits into your product and manufacturing roadmap relative to CdTe. I do understand for First Solar it's complementary to CdTe within the same sort of module architecture, but I just wonder how does it impact your production processes and requirements, and maybe thoughts on the margin profile over time for CdSe relative to CdTe?
Okay. From a manufacturing perspective, it is very similar in terms of equipment and processes, but it will need to be manufactured in a separate room to avoid, obviously, contamination. Okay? The processes and the type of equipment, all that works out in a similar fashion to CVTE where we build our own reactors and so on and so forth. The chemistry has a lot of similarities by default, the processes to make it. From a margin perspective, it is also pretty similar.
Yeah. In terms of quantity, you know, the layer of CdSe, it's much thinner than the layer of CdTe, then less quantity.
Yeah. Volume-wise, it's not at all to the magnitude of CdTe, because they use a much thinner, much thinner layer.
It's a super interesting niche product.
It's a nice add-on.
Yeah, high value add and technology pretty similar.
Hello?
It appears that his line disconnected.
Okay. Huge, not ours.
At this time, gentlemen, it appears that we have no other questions registered. Please proceed.
Okay, we would like to thank you all for joining us this morning and have a great day.
Yeah. Thanks.
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.