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5N Plus Inc. Management Reports 2025
46186_rns_2025-05-07_3c5250de-b8af-4bf5-87ff-1ec9a2958985.pdf
Management Reports
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1 Management Report
Quarter Ended
March 31, 2025
5N-i
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") of the financial condition and results of operations is intended to assist readers in understanding 5N Plus Inc. (the "Company" or "5N+"), its business environment, strategies, performance and risk factors. This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements of Q1 2025 and the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2024, based on International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS Accounting Standards" or "IFRS"), unless otherwise stated. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators.
All amounts in this MD&A are expressed in U.S. dollars, and all amounts in the tables are in thousands of U.S. dollars, unless otherwise indicated.
Information contained herein includes any significant developments until May 7, 2025, the date on which the MD&A was approved by the Company's Board of Directors. Unless otherwise indicated, the terms "we", "us", "our" and "the group" as used herein refer to the Company together with its subsidiaries. "Q1 2025" and "Q1 2024" refer to the three-month periods ended March 31, 2025 and March 31, 2024, respectively.
Non-IFRS Measures
This MD&A contains certain non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures, which do not have a standard meaning under IFRS Accounting Standards and, therefore, may not be comparable to similar measures presented by other issuers. Such non-IFRS measures and ratios include Backlog, Bookings, EBITDA, EBITDA margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted operating expenses, Adjusted net earnings (loss), Basic adjusted earnings (loss) per share, Adjusted gross margin, Adjusted gross margin percentage, Total debt, Net debt, Net debt to EBITDA ratio, Working capital and Working capital ratio.
For definitions, further information and reconciliation of these measures to the most directly comparable measures under IFRS Accounting Standards, see the "Non-IFRS Measures" section.
Notice Regarding Forward-Looking Statements
Certain statements in this MD&A may be forward-looking within the meaning of applicable securities laws. Such forward-looking statements are based on a number of estimates and assumptions that the Company believes are reasonable when made, including that 5N+ will be able to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners, that 5N+ will continue to operate its business in the normal course, that 5N+ will be able to implement its growth strategy, that 5N+ will be able to successfully and timely complete the realization of its backlog, that 5N+ will not suffer any supply chain challenges or any material disruption in the supply of raw materials on competitive terms, that 5N+ will be able to generate new sales, produce, deliver, and sell its expected product volumes at the expected prices and control its costs, as well as other factors believed to be appropriate and reasonable in the circumstances. However, there can be no assurance that such estimates and assumptions will prove to be correct. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict and may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. A description of the risks affecting the Company's business and activities appears under the heading "Risk and Uncertainties" of 5N+'s 2024 MD&A dated February 25, 2025 and note 10 of the unaudited condensed interim consolidated financial statements for the three-month periods ended March 31, 2025 and March 31, 2024 available on SEDAR+ at www.sedarplus.ca.
Forward-looking statements can generally be identified by the use of terms such as "may", "should", "would", "believe", "expect", the negative of these terms, variations of them or any similar terms. No assurance can be given that any events anticipated by the forward-looking statements in this MD&A will transpire or occur, or if any of them do so, what benefits that 5N+ will derive therefrom. In particular, no assurance can be given as to the future financial performance of 5N+.
The forward-looking statements contained in this MD&A is made as of the date hereof and the Company has no obligation to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws. The reader is warned against placing undue reliance on these forward-looking statements. Forward-looking statements are presented in this MD&A for the purpose of assisting investors and others in understanding certain key elements of the Company's expected financial results, as well as the Company's objectives, strategic priorities and outlook, and in obtaining a better understanding of the Company's anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
5N+
Management's Discussion and Analysis • 1
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
5N+ is a leading global producer of specialty semiconductors and performance materials. The Company's ultra-pure materials often form the core element of its customers' products. These customers rely on 5N+'s products to enable performance and sustainability in their own products. 5N+ deploys a range of proprietary and proven technologies to develop and manufacture its products. The Company's products enable various applications in several key industries, including renewable energy, security, space, pharmaceutical, medical imaging and industrial. Headquartered in Montreal, Québec, 5N+ operates R&D, manufacturing and commercial centers in strategically located facilities around the world including Europe, North America and Asia.
Vision, Mission and Values
The Company's vision is to enable critical industries through essential products based on advanced material technology and 5N+'s aim is to propel the growth of these markets by developing and manufacturing advanced materials to enable product performance.
The Company's mission is to be critical to its customers, valued by its employees and trusted by its shareholders. The Company's core values are integrity, commitment and customer development, with an emphasis on sustainable development, continuous improvement, and health and safety.
Reporting Segments
The Company has the following two reportable segments: Specialty Semiconductors and Performance Materials. Corresponding operations and activities are managed accordingly by the Company's key decision makers. Segmented operating and financial information and labelled key performance indicators are available and used to manage these business segments, review performance and allocate resources. Financial performance of any given segment is evaluated primarily in terms of revenues and Adjusted EBITDA¹, which are reconciled to consolidated numbers considering corporate income and expenses.
Operating in North America and Europe, the Specialty Semiconductors segment manufactures and sells products used in several applications, such as renewable energy, space satellites and imaging. Typical end markets include photovoltaics (terrestrial and space-related solar energy), medical imaging, infrared imaging, optoelectronics and advanced electronics. These products are sold either as semiconductor compounds, semiconductor wafers, ultra high purity metals, epitaxial semiconductor substrates, space solar cells and assemblies. Revenues and earnings associated with recycling services and activities provided to Specialty Semiconductors customers are captured in this segment.
The Performance Materials segment operates in North America, Europe and Asia and manufactures and sells products that are used in several applications in pharmaceutical and healthcare and industrial. Main products are sold as active pharmaceutical ingredients, specialized chemicals, commercial grade metals, alloys and engineered powders. All commercial grade metal and engineered powder sales have been regrouped under Performance Materials. Revenues and earnings associated with recycling services and activities provided to Performance Materials customers are captured in this segment.
Corporate expenses associated with the head office and unallocated selling, general and administrative expenses (SG&A), together with financial expenses (income), are grouped under "Corporate".
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management's Discussion and Analysis • 2
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Q1 2025 Highlights – Strong Demand Driving Record-setting Growth
5N+ generated record year-over-year revenue growth in Q1 2025 as a result of higher sales in the strategic terrestrial renewable energy and space solar power sectors, as well as for bismuth-based products. Our strong performance this quarter reflects strong demand and accelerated purchasing by customers in our strategic sectors. In an environment of ongoing global trade volatility, our customers are acting decisively to secure the advanced materials they require from reliable partners — and our leadership position has made us their trusted choice. Further enabling this performance is the Company's unique standing and expertise as a critical supplier to critical industries, coupled with our enhanced ability to meet higher demand thanks to increased operational agility and expanded manufacturing capabilities following investments completed over the last few years.
All amounts are expressed in U.S. dollars.
In Q1 2025, both of the Company's reportable segments contributed to strong operational and financial performance, resulting in a consolidated Adjusted EBITDA of $20.8 million, compared to $11.7 million in Q1 2024.
Under Specialty Semiconductors, revenue was $62.8 million in Q1 2025, compared to $45.2 million in Q1 2024, supported by higher demand from strategic sectors, while Adjusted gross margin percentage¹ was 35.0% in Q1 2025, compared to 29.2% in Q1 2024, favourably impacted by economies of scale due to higher production and higher prices net of inflation. Adjusted EBITDA in Q1 2025 increased by $8.1 million, or 85%, to reach $17.7 million, supported by the same factors. The backlog¹ for Specialty Semiconductors represented 337 days of annualized revenue, while its effective backlog for terrestrial renewable energy and space solar power sectors specifically surpassed 365 days at period end.
Under Performance Materials, revenue in Q1 2025 was $26.1 million, compared to $19.9 million in Q1 2024. Adjusted gross margin as a percentage of sales was 32.9% in Q1 2025, compared to 35.3% in Q1 2024, as a result of a less favourable year-over-year product mix. Adjusted EBITDA in Q1 2025 increased by $1.2 million, or 24%, and reached $6.1 million. The backlog for Performance Materials represented 102 days of annualized revenue at period end.
In Q1 2025, 5N+ progressed in the implementation of its capacity increase program at its AZUR facility in Heilbronn, Germany as it aims to increase output by an additional 30% with minimal additional investments. This work is advancing as planned and is expected to be completed in FY 2025.
During the quarter, 5N+ entered into an agreement with ALLOS Semiconductors to complete the development and commercialization of a gallium nitride intellectual property portfolio. This agreement allows 5N+ to focus on its core business, while benefiting from growth in the high-power electronics market through royalties in the future.
On April 1, 2025, 5N+ announced the renewal of its senior secured multi-currency revolving syndicated credit facilities, expanding its borrowing capacity from $124 million to $154 million, to further support the Company's growth plan. Subject to lenders' approval, 5N+ can opt to increase its credit facilities to $204 million through a $50 million accordion feature.
Financial Highlights
- Revenue in Q1 2025 increased by 37% to $88.9 million, compared to $65.0 million in Q1 2024. The increase is primarily attributable to higher sales in the terrestrial renewable energy and space solar power sectors under Specialty Semiconductors, and higher bismuth-based products sales under Performance Materials.
- Adjusted EBITDA in Q1 2025 increased by 77% to $20.8 million, compared to $11.7 million in Q1 2024, driven by higher volume in the terrestrial renewable energy and space solar power sectors, and better prices over inflation.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management’s Discussion and Analysis • 3
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
- Adjusted gross margin¹ increased by 51% to $30.4 million in Q1 2025, favourably impacted by the same factors as above. Adjusted gross margin as a percentage of sales was 34.2% in Q1 2025, compared to 30.9% in Q1 2024.
- Net earnings in Q1 2025 were $9.6 million, compared to $2.5 million in Q1 2024.
- Backlog stood at $260.9 million, representing 268 days of annualized revenue as at March 31, 2025, 58 days lower than at the end of last year, primarily due to the timing of contract signings and renewals under Performance Materials net of the revenue realized during the quarter.
- Net debt¹ was $92.3 million as at March 31, 2025, compared to $100.1 million as at December 31, 2024, reflecting an increase in cash. The Company's net debt to EBITDA ratio¹ stood at 1.60x as at March 31, 2025.
Outlook
Taking into account its performance year-to-date, and based on under-contract and anticipated near-term demand primarily under Specialty Semiconductors, management's Adjusted EBITDA guidance for 2025 remains unchanged in the range of $55 to $60 million.
The Company remains committed to its long-term objectives and the execution of its strategic initiatives. It will continue to leverage its strategic positioning and competitive advantages to navigate any potential headwinds that result from the evolving macro-economic environment. The Company also continues to actively explore opportunities to increase its production capacity to meet strong demand in its strategic sectors over the coming years.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management's Discussion and Analysis • 4
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Summary of Results
| (in thousands of U.S. dollars, except per share amounts) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Revenue | 88,888 | 65,019 |
| Adjusted operating expenses¹ | (68,096) | (53,282) |
| Adjusted EBITDA | 20,792 | 11,737 |
| Share-based compensation expense | (1,393) | (360) |
| ERP implementation costs | (160) | - |
| Foreign exchange gain | 714 | 387 |
| EBITDA¹ | 19,953 | 11,764 |
| Interest on long-term debt, imputed interest and other interest expense | 2,717 | 2,206 |
| Depreciation and amortization | 4,128 | 3,945 |
| Earnings before income taxes | 13,108 | 5,613 |
| Income tax expense | ||
| Current | 3,371 | 2,514 |
| Deferred | 164 | 592 |
| 3,535 | 3,106 | |
| Net earnings | 9,573 | 2,507 |
| Basic earnings per share | $0.11 | $0.03 |
| Diluted earnings per share | $0.11 | $0.03 |
Revenue by Segment and Adjusted Gross Margin
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| $ | $ | ||
| Specialty Semiconductors | 62,804 | 45,150 | 39% |
| Performance Materials | 26,084 | 19,869 | 31% |
| Total revenue | 88,888 | 65,019 | 37% |
| Cost of sales | (61,892) | (48,020) | 29% |
| Depreciation included in cost of sales | 3,403 | 3,076 | 11% |
| Adjusted gross margin | 30,399 | 20,075 | 51% |
| Adjusted gross margin percentage | 34.2% | 30.9% |
Revenue in Q1 2025 increased by 37%, reaching $88.9 million, compared to $65.0 million for the same period last year. The increase is primarily attributable to strong growth from the terrestrial renewable energy and space solar power sectors under Specialty Semiconductors, and strong sales from bismuth-based products under Performance Materials.
Adjusted gross margin increased by 51% to reach $30.4 million in Q1 2025, compared to $20.1 million in Q1 2024, favourably impacted by higher volume in strategic sectors under Specialty Semiconductors and better prices over inflation. Adjusted gross margin as a percentage of sales was 34.2% in Q1 2025, compared to 30.9% in Q1 2024, with margin expansion driven by Specialty Semiconductors and a slightly less favourable year-over-year product mix in Performance Materials.
Specialty Semiconductors
Revenue in Q1 2025 was $62.8 million, compared to $45.2 million in Q1 2024, supported by higher demand from the terrestrial renewable energy and space solar power sectors. Adjusted gross margin as a percentage of sales was 35.0% in Q1 2025, compared to 29.2% in Q1 2024, favourably impacted by economies of scale due to higher production and higher prices net of inflation.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management’s Discussion and Analysis • 5
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Performance Materials
Revenue in Q1 2025 reached $26.1 million, compared to $19.9 million in Q1 2024. Adjusted gross margin as a percentage of sales was 32.9% in Q1 2025, compared to 35.3% in Q1 2024, as a result of a less favourable year-over-year product mix.
Operating Earnings, EBITDA and Adjusted EBITDA
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| $ | $ | ||
| Specialty Semiconductors | 17,690 | 9,557 | 85% |
| Performance Materials | 6,078 | 4,912 | 24% |
| Corporate | (2,976) | (2,732) | 9% |
| Adjusted EBITDA | 20,792 | 11,737 | 77% |
| EBITDA | 19,953 | 11,764 | 70% |
| Operating earnings | 15,111 | 7,432 | 103% |
Adjusted EBITDA in Q1 2025 increased by 77% to $20.8 million, representing an Adjusted EBITDA margin¹ of 23.4%, compared to $11.7 million, or an Adjusted EBITDA margin of 18.1%, in Q1 2024.
In Q1 2025, EBITDA reached $20.0 million, compared to $11.8 million in Q1 2024. The increase of $8.2 million is mainly explained by an increase in Adjusted EBITDA. The items reconciling Adjusted EBITDA to EBITDA are share-based compensation expense, ERP implementation costs and a foreign exchange gain. For more information, see the "Expenses" section.
In Q1 2025, operating earnings amounted to $15.1 million, compared to operating earnings of $7.4 million in Q1 2024, impacted by the same factors as mentioned above.
Specialty Semiconductors
Adjusted EBITDA in Q1 2025 increased by $8.1 million, or 85%, to reach $17.7 million, representing an Adjusted EBITDA margin of 28.2%, compared to 21.2% in Q1 2024. The increase is primarily attributable to higher demand in the terrestrial renewable energy and space solar power sectors, higher prices net of inflation and favourable unit costs from economies of scale.
Performance Materials
Adjusted EBITDA in Q1 2025 increased by $1.2 million, or 24%, and reached $6.1 million, representing an Adjusted EBITDA margin of 23.3%, compared to 24.7% in Q1 2024.
Net Earnings and Adjusted Net Earnings
| (in thousands of U.S. dollars, except per share amounts) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Net earnings | 9,573 | 2,507 |
| Basic earnings per share | $0.11 | $0.03 |
| Reconciling items: | ||
| Share-based compensation expense | 1,393 | 360 |
| ERP implementation costs | 160 | - |
| Income tax recovery on taxable items above | (411) | (95) |
| Adjusted net earnings¹ | 10,715 | 2,772 |
| Basic adjusted earnings per share¹ | $0.12 | $0.03 |
In Q1 2025, net earnings were $9.6 million or $0.11 per share, compared to net earnings of $2.5 million or $0.03 per share in Q1 2024. Adjusted net earnings were $10.7 million or $0.12 per share in Q1 2025, compared to $2.8 million or $0.03 per share in Q1 2024.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management’s Discussion and Analysis • 6
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Excluding income tax recovery, the items reconciling Adjusted net earnings in Q1 2025 are a share-based compensation expense, and ERP implementation costs. For more information, see the "Expenses" section.
Backlog and Bookings
| (in thousands of U.S. dollars) | BACKLOG | BOOKINGS¹ | ||||
|---|---|---|---|---|---|---|
| Q1 2025 | Q4 2024 | Q1 2024 | Q1 2025 | Q4 2024 | Q1 2024 | |
| $ | $ | $ | $ | $ | $ | |
| Specialty Semiconductors | 231,632 | 216,911 | 173,484 | 77,525 | 50,577 | 43,677 |
| Performance Materials | 29,299 | 35,920 | 31,594 | 19,463 | 23,415 | 18,117 |
| Total | 260,931 | 252,831 | 205,078 | 96,988 | 73,992 | 61,794 |
| (number of days based on annualized revenue)* | BACKLOG | BOOKINGS | ||||
| --- | --- | --- | --- | --- | --- | --- |
| Q1 2025 | Q4 2024 | Q1 2024 | Q1 2025 | Q4 2024 | Q1 2024 | |
| Specialty Semiconductors | 337 | 365 | 351 | 113 | 89 | 88 |
| Performance Materials | 102 | 173 | 145 | 68 | 113 | 83 |
| Weighted average | 268 | 326 | 288 | 100 | 95 | 87 |
- Backlog and bookings are also presented in number of days to normalize the impact of commodity prices.
Q1 2025 vs. Q4 2024
Backlog on March 31, 2025, represented 268 days of annualized revenue, 58 days lower than the backlog on December 31, 2024.
The backlog for Specialty Semiconductors represented 337 days of annualized revenue, a decrease of 28 days, compared to the backlog on December 31, 2024, due to specific contracts realized during the quarter. It is important to note that the estimated number of days based on annualized revenues cannot exceed 365 days per the Company's definition of backlog, however, the effective backlog under Specialty Semiconductors for the terrestrial renewable energy and space solar power sectors specifically surpassed the next twelve months on March 31, 2025.
The backlog for Performance Materials represented 102 days of annualized revenue, a decrease of 71 days compared to the backlog on December 31, 2024, mainly due to the timing of the signing and/or renewal of contracts, which typically occur in the fourth and first quarters of the year for this segment, net of the quarterly realization of long-term contracts.
Bookings for Specialty Semiconductors increased by 24 days, from 89 days in Q4 2024 to 113 days in Q1 2025. Bookings for Performance Materials in Q1 2025 decreased by 45 days, from 113 days in Q4 2024 to 68 days in Q1 2025. Bookings are calculated by adding revenues to the increase or decrease in backlog for the period divided by annualized revenue. As such, the increase or decrease in bookings is attributable to the same factors as the increase or decrease in backlog.
Q1 2025 vs. Q1 2024
Backlog on March 31, 2025, in number of days, for Specialty Semiconductors represented 337 days, a decrease of 14 days, compared to the backlog on March 31, 2024. The backlog for Performance Materials on March 31, 2025, represented 102 days, a decrease of 43 days, compared to 145 days on March 31, 2024.
Bookings for Specialty Semiconductors increased by 25 days and decreased by 15 days for Performance Materials, compared to the same quarter of the previous year.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management’s Discussion and Analysis • 7
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Expenses
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Depreciation and amortization | 4,128 | 3,945 |
| SG&A | 8,560 | 7,317 |
| Share-based compensation expense | 1,393 | 360 |
| ERP implementation costs | 160 | - |
| Financial expense | 2,003 | 1,819 |
| Income tax expense | 3,535 | 3,106 |
| Total expenses | 19,779 | 16,547 |
Depreciation and Amortization
Depreciation and amortization expenses in Q1 2025 amounted to $4.1 million, compared to $3.9 million for the same period in 2024.
SG&A
SG&A expenses in Q1 2025 were $8.6 million, compared to $7.3 million for the same period in 2024. The increase in Q1 2025 is mainly explained by a punctual need for third-party support and inflation.
Share-based Compensation Expense
Share-based compensation expense in Q1 2025 amounted to $1.4 million, compared to $0.4 million in Q1 2024.
Enterprise Resource Planning ("ERP") Implementation Costs
ERP implementation costs of $0.2 million were incurred in relation to its Montréal site in Q1 2025. This project is expected to be completed by the end of FY 2025.
Financial Expense
Financial expense amounted to $2.0 million in Q1 2025, compared to $1.8 million in Q1 2024.
Income Taxes
The Company reported earnings before income taxes of $13.1 million in Q1 2025. Income tax expense in Q1 2025 was $3.5 million, compared to $3.1 million in the same period in 2024. Both years were impacted by deferred tax assets applicable only in certain jurisdictions.
Liquidity and Capital Resources
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Cash from operations before the following: | 16,124 | 7,144 |
| Net changes in non-cash working capital items | (9,808) | (7,995) |
| Cash from (used in) from operating activities | 6,316 | (851) |
| Cash from (used in) investing activities | 2,464 | (9,980) |
| Cash (used in) from financing activities | (456) | 10,208 |
| Effect of foreign exchange rate changes on cash | 58 | (154) |
| Net increase (decrease) in cash | 8,382 | (777) |
In Q1 2025, cash from operating activities amounted to $6.3 million, compared to cash used in operating activities of $0.9 million for the same period in 2024. The positive variance of $7.2 million is due to a higher contribution in cash from operations of $9.0 million partially offset by incremental requirements of non-cash working capital of $1.8 million.
5N+
Management's Discussion and Analysis • 8
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
In Q1 2025, cash from investing activities amounted to $2.5 million, compared to cash used in investing activities of $10.0 million in Q1 2024. The positive variance of $12.4 million is mainly explained by the proceeds on settlement of Company's total return swap which was renewed during Q1 2025, resulting in a receipt of cash of $6.9 million and decreased additions to Property plant and equipment of $4.6 million compared to Q1 2024.
In Q1 2025, cash used in financing activities amounted to $0.5 million, compared to cash from financing activities of $10.2 million for the same periods in 2024. The variation of $10.7 million is attributable to the drawdown of the credit facility after repaying a portion of the subordinated term loan, as well as the two interest-free term loans received in Q1 2024 for a total amount of $2.9 million.
Working Capital
| (in thousands of U.S. dollars) | As at March 31, 2025 | As at December 31, 2024 |
|---|---|---|
| $ | $ | |
| Inventories | 135,526 | 137,823 |
| Other current assets | 97,176 | 79,572 |
| Current liabilities | (65,671) | (60,481) |
| Working capital¹ | 167,031 | 156,914 |
| Working capital ratio¹ | 3.54 | 3.59 |
Working capital increased by $10.1 million as at March 31, 2025, compared to as at December 31, 2024, due to an increase in other current assets of $17.6 million from higher revenue, partially offset by lower inventories of $2.3 million and higher current liabilities of $5.2 million.
Net Debt
| (in thousands of U.S. dollars) | As at March 31, 2025 | As at December 31, 2024 |
|---|---|---|
| $ | $ | |
| Bank indebtedness | - | - |
| Long-term debt including current portion | 122,779 | 122,203 |
| Total debt¹ | 122,779 | 122,203 |
| Cash | (30,524) | (22,142) |
| Net debt | 92,255 | 100,061 |
Total debt stood at $122.8 million as at March 31, 2025, compared to $122.2 million as at December 31, 2024.
Net debt, after considering cash, decreased by $7.8 million to $92.3 million as at March 31, 2025, from $100.1 million as at December 31, 2024.
In March 2025, the Company signed a senior secured multi-currency revolving credit facility of $154.0 million maturing in March 2029 to replace its existing $124.0 million senior secured revolving facility maturing in April 2026. At any time, the Company has the option to request that the credit facility be expanded through the exercise of an additional $50.0 million accordion feature, subject to review and approval by the lenders. This revolving credit facility can be drawn in U.S. dollars, Canadian dollars or Hong Kong dollars (up to $4.0 million). Drawings bear interest at either the Canadian prime rate, U.S. base rate, Hong Kong base rate, SOFR or CORRA, plus a margin based on the Company's senior net debt to consolidated EBITDA ratio. Under the terms of its credit facility, the Company is required to satisfy certain restrictive covenants as to financial ratios. As at March 31, 2025, and December 31, 2024, the Company had met all covenants.
¹ These measures are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures presented by other companies. See Non-IFRS Measures for more information.
5N+
Management’s Discussion and Analysis • 9
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
In addition, in March 2025, the Company received CA$1.3 million from Canada Economic Development for Quebec Regions with respect to an interest-free term loan with a maximum drawdown of CA$3.0 million dependent upon eligible capital expenditures, bringing the Company's total drawdown to CA$2.5 million. At a date no later than December 31, 2025, an additional two-year repayment moratorium period will begin. Subsequently, the loan is reimbursable in monthly instalments over a period of five years.
Share Information
| As at May 7, 2025 | As at March 31, 2025 | |
|---|---|---|
| Issued and outstanding shares | 89,042,801 | 89,042,801 |
| Stock options potentially issuable | 1,234,924 | 1,234,924 |
Off-balance Sheet Arrangements
The Company is exposed to currency risk on sales in euros and other currencies, as well as interest rate fluctuations on its credit facility, and, therefore, may periodically enter into foreign currency forward contracts and interest rate or foreign currency swap contracts to protect itself against interest rate and currency fluctuations. The reader will find more details related to these contracts in Notes 18 and 26 of the audited consolidated financial statements for the year ended December 31, 2024.
Commitments
In the normal course of business, the Company contracted letters of credit for an amount of $0.2 million as at March 31, 2025, and of $0.2 million as at December 31, 2024.
Contingencies
In the normal course of operations, the Company is exposed to events that could give rise to contingent liabilities or assets. As at the date of issue of the consolidated financial statements, the Company was not aware of any significant events that would have a material effect on its consolidated financial statements.
Governance
As required by Multilateral Instrument 52-109 of the Canadian Securities Administrators ("MI 52-109"), 5N+ has filed certificates signed by the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO") that, among other things, attest to the design of the disclosure controls and procedures and the design and effectiveness of internal controls over financial reporting.
Disclosure Controls and Procedures
The CEO and the CFO have designed disclosure controls and procedures ("DC&P"), or have caused them to be designed under their supervision, in order to provide reasonable assurance that:
- Material information relating to the Company has been made known to them; and
- Information required to be disclosed in the Company's filings is recorded, processed, summarized and reported within the time periods specified in securities legislation.
An evaluation of the effectiveness of the Company's disclosure controls and procedures was carried out under the supervision of the CEO and CFO. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.
Internal Control over Financial Reporting
The CEO and the CFO have also designed internal controls over financial reporting (ICFR) or have caused them to be designed under their supervision, using the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS Accounting Standards.
Due to their intrinsic limitations, DC&P and ICFR only provide reasonable assurance and may not prevent or detect all misstatement or errors.
5N+
Management's Discussion and Analysis • 10
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Changes in Internal Control over Financial Reporting
No changes were made to the ICFR during the three-month period ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the ICFR.
Financial Instruments and Risk Management
Fair Value of Financial Instruments
A detailed description of the methods and assumptions used to measure the fair value of the Company's financial instruments and their fair value is discussed in Note 18 – Fair Value of Financial Instruments of the audited consolidated financial statements for the year ended December 31, 2024.
Financial Risk Management
For a detailed description of the nature and extent of risks arising from financial instruments, and their related risk management, refer to Note 26 of the audited consolidated financial statements for the year ended December 31, 2024.
Risk and Uncertainties
For a detailed description of risk factors associated with 5N+ and its business, refer to "Risk and Uncertainties" of 5N+ 2024 MD&A dated February 25, 2025. Factors of uncertainty and risk that might result in such differences include the risks associated with interest rate, foreign currency, credit, liquidity, global economic conditions, international operations including China and trade protectionist measures and any retaliatory action from affected countries, environmental regulations, crisis and climate change management, environmental social and governance (ESG) considerations, safety and hazards, prolonged armed conflict in Ukraine, disease outbreaks, availability and retention of qualified professional employees, collective agreements, litigation, our growth strategy, competition, commodity price, sources of supply, protection of intellectual property, inventory price, business interruptions, loss of an important customer, changes to backlog, acquisitions, systems, network infrastructure and data failure, interruption and breach, privacy, market price of the common shares, as well as grants and other incentive programs.
Non-IFRS Measures
In this MD&A, certain non-IFRS measures are used. The Company's management believes that these non-IFRS measures provide useful information to investors regarding the Company's financial condition and results of operations as they provide additional key metrics of its performance. These non-IFRS measures are not recognized under IFRS Accounting Standards, do not have any standardized meaning prescribed under IFRS Accounting Standards and may differ from similarly named measures as reported by other issuers, and accordingly may not be comparable. These measures should not be viewed as a substitute for the related financial information prepared in accordance with IFRS Accounting Standards.
Backlog represents the expected orders the Company has received, but has not yet executed, and that are expected to translate into sales within the next twelve months, expressed in dollars and estimated in number of days not to exceed 365 days. Bookings represent orders received during the period considered, expressed in number of days, and calculated by adding revenues to the increase or decrease in backlog for the period considered, divided by annualized year revenues. 5N+ uses backlog to provide an indication of expected future revenues in days, and bookings to determine its ability to sustain and increase its revenues.
5N+
Management's Discussion and Analysis • 11
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
EBITDA means net earnings (loss) before interest expenses, income tax expense (recovery), depreciation and amortization. 5N+ uses EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business, without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
EBITDA is reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Net earnings | 9,573 | 2,507 |
| Interest on long-term debt, imputed interest and other interest expense | 2,717 | 2,206 |
| Income tax expense | 3,535 | 3,106 |
| Depreciation and amortization | 4,128 | 3,945 |
| EBITDA | 19,953 | 11,764 |
EBITDA margin is defined as EBITDA divided by revenues.
Adjusted EBITDA means operating earnings (loss) as defined before the effect of impairment of inventories, share-based compensation expense (recovery), ERP implementation costs, loss (gain) on disposal of property, plant and equipment, loss (gain) on remeasurement of financial instrument, impairment (reversal of impairment) of non-current assets, litigation and restructuring costs (income), and depreciation and amortization. 5N+ uses Adjusted EBITDA because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of certain expenses. The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenues.
Adjusted EBITDA and Adjusted EBITDA margin are reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Revenues | 88,888 | 65,019 |
| Operating expenses | (73,777) | (57,587) |
| Operating earnings | 15,111 | 7,432 |
| Share-based compensation expense | 1,393 | 360 |
| ERP implementation costs | 160 | - |
| Depreciation and amortization | 4,128 | 3,945 |
| Adjusted EBITDA | 20,792 | 11,737 |
| Adjusted EBITDA margin | 23.4% | 18.1% |
Adjusted operating expenses means operating expenses before impairment of inventories, share-based compensation expense (recovery), ERP implementation costs, loss (gain) on disposal of property, plant and equipment, loss (gain) on remeasurement of financial instrument, impairment (reversal of impairment) of non-current assets, litigation and restructuring costs (income), and depreciation and amortization. 5N+ uses Adjusted operating expenses to calculate Adjusted EBITDA. 5N+ believes it is a meaningful measure of the operating performance of its ongoing business. The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
Adjusted operating expenses are reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Operating expenses | 73,777 | 57,587 |
| Share-based compensation expense | (1,393) | (360) |
| ERP implementation costs | (160) | - |
| Depreciation and amortization | (4,128) | (3,945) |
| Adjusted operating expenses | 68,096 | 53,282 |
5N+
Management's Discussion and Analysis • 12
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Adjusted net earnings (loss) means the net earnings (loss) before the effect of impairment of inventory, share-based compensation expense (recovery), ERP implementation costs, loss (gain) on disposal of property, plant and equipment, loss (gain) on remeasurement of financial instrument, impairment (reversal of impairment) of non-current assets and litigation and restructuring costs (income), net of the related income tax expense (recovery). 5N+ uses adjusted net earnings (loss) because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
Basic adjusted earnings (loss) per share means adjusted net earnings (loss) divided by the basic weighted average number of outstanding shares. 5N+ uses basic adjusted earnings (loss) per share because it believes it is a meaningful measure of the operating performance of its ongoing business without the effects of unusual expenses or income. The definition of this non-IFRS measure used by the Company may differ from that used by other companies.
Adjusted net earnings (loss) and Basic adjusted earnings (loss) per share are reconciled to the most comparable IFRS measures:
| (in thousands of U.S. dollars, except per share amounts and number of shares) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Net earnings | 9,573 | 2,507 |
| Basic earnings per share | $0.11 | $0.03 |
| Reconciling items: | ||
| Share-based compensation expense | 1,393 | 360 |
| ERP implementation costs | 160 | - |
| Income tax recovery on taxable items above | (411) | (95) |
| Adjusted net earnings | 10,715 | 2,772 |
| Basic weighted average number of shares | 89,042,801 | 88,733,736 |
| Basic adjusted earnings per share | $0.12 | $0.03 |
Adjusted gross margin is a measure used to monitor the sales contribution after paying cost of sales, excluding depreciation and inventory impairment charges. 5N+ also expressed this measure in percentage of revenues by dividing the adjusted gross margin value by the total revenue.
Adjusted gross margin is reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | Q1 2025 | Q1 2024 |
|---|---|---|
| $ | $ | |
| Total revenue | 88,888 | 65,019 |
| Cost of sales | (61,892) | (48,020) |
| Gross margin | 26,996 | 16,999 |
| Depreciation included in cost of sales | 3,403 | 3,076 |
| Adjusted gross margin | 30,399 | 20,075 |
| Adjusted gross margin percentage | 34.2% | 30.9% |
5N+
Management's Discussion and Analysis • 13
5N PLUS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Net debt is calculated as total debt less cash. Any introduced IFRS 16 reporting measures in reference to lease liabilities are excluded from the calculation. 5N+ uses this measure as an indicator of its overall financial position.
The net debt to EBITDA ratio is defined as net debt divided by the trailing 12 months EBITDA.
Total debt and Net debt are reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | As at March 31, 2025 | As at December 31, 2024 |
|---|---|---|
| $ | $ | |
| Bank indebtedness | - | - |
| Long-term debt including current portion | 122,779 | 122,203 |
| Lease liabilities including current portion | 29,604 | 29,402 |
| Subtotal Debt | 152,383 | 151,605 |
| Lease liabilities including current portion | (29,604) | (29,402) |
| Total Debt | 122,779 | 122,203 |
| Cash | (30,524) | (22,142) |
| Net Debt | 92,255 | 100,061 |
Working capital is a measure of liquid assets that is calculated by taking current assets and subtracting current liabilities. Given that the Company is currently indebted, it uses it as an indicator of its financial efficiency and aims to maintain it at the lowest possible level.
Working capital ratio is calculated by dividing current assets by current liabilities.
Working capital is reconciled to the most comparable IFRS measure:
| (in thousands of U.S. dollars) | As at March 31, 2025 | As at December 31, 2024 |
|---|---|---|
| $ | $ | |
| Inventories | 135,526 | 137,823 |
| Other current assets excluding inventories | 97,176 | 79,572 |
| Current assets | 232,702 | 217,395 |
| Current liabilities | (65,671) | (60,481) |
| Working capital | 167,031 | 156,914 |
| Working capital ratio | 3.54 | 3.59 |
Additional Information
5N+'s common shares trade on the Toronto Stock Exchange (TSX) under the ticker symbol VNP. Additional information relating to the Company, including the Company's annual information form, is available under the Company's profile on SEDAR+ at www.sedarplus.com.
Selected Quarterly Financial Information
| (in thousands of U.S. dollars, except per share amounts) | March 31, 2025 | Dec 31, 2024 | Sept 30, 2024 | June 30, 2024 | March 31, 2024 | Dec 31, 2023 | Sept 30, 2023 | June 30, 2023 |
|---|---|---|---|---|---|---|---|---|
| $ | $ | $ | ||||||
| Revenue | 88,888 | 70,854 | 78,828 | 74,580 | 65,019 | 65,063 | 62,946 | 59,075 |
| EBITDA | 19,953 | 10,240 | 14,368 | 13,196 | 11,764 | 7,736 | 9,582 | 17,530 |
| Adjusted EBITDA | 20,792 | 12,484 | 15,621 | 13,490 | 11,737 | 9,033 | 9,649 | 10,844 |
| Net earnings | 9,573 | 1,006 | 6,370 | 4,789 | 2,507 | 2,284 | 1,518 | 10,143 |
| Basic earnings per share | $0.11 | $0.01 | $0.07 | $0.05 | $0.03 | $0.03 | $0.02 | $0.11 |
| Diluted earnings per share | $0.11 | $0.01 | $0.07 | $0.05 | $0.03 | $0.03 | $0.02 | $0.11 |
| Adjusted net earnings | 10,715 | 2,783 | 7,841 | 4,991 | 2,772 | 2,994 | 1,742 | 3,187 |
| Basic adjusted earnings per share | $0.12 | $0.03 | $0.09 | $0.06 | $0.03 | $0.03 | $0.02 | $0.04 |
| Cash from operations before net change in non-cash working capital items | 16,124 | 6,958 | 11,875 | 9,503 | 7,144 | 5,883 | 5,064 | 15,227 |
| Backlog | 268 days | 326 days | 289 days | 300 days | 288 days | 292 days | 284 days | 289 days |
Net earnings are completely attributable to equity holders of 5N+.
5N+
Management's Discussion and Analysis • 14