Operator: Good morning, ladies and gentlemen, and welcome to the Velan Inc. Q2 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, October 10, 2025. I would now like to turn the conference over to Rishi Sharma, Chief Financial Officer. Please go ahead.

Rishi Sharma: Thank you, operator. Good morning. Thank you for joining us on our conference call. Let's start by discussing the disclaimer from our related Investor Relations presentation, which is available on our website in the Investor Relations section. As usual, the first paragraph mentions that the presentation provides an analysis of our consolidated results for the second quarter ended August 31, 2025. The Board of Directors approved these results yesterday, October 9, 2025. The second paragraph refers to non-IFRS and supplementary financial measures, which are defined and reconciled at the end of the presentation. The last paragraph addresses forward-looking information, which is subject to risks and uncertainties that are not guaranteed to occur. Forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Finally, unless indicated otherwise, all amounts are expressed in U.S. dollars, and all financial metrics discussed are from continuing operations. I will now turn the call over to Jim Mannebach, Chairman of the Board and CEO of Velan.

James Mannebach: Thank you, Rishi, and good morning, good afternoon, good evening, everyone. Please turn to Slide 4 for a general overview of the second quarter of fiscal 2026. Velan reported adjusted EBITDA of $3.4 million and operating income of $400,000 on sales of $67.6 million during the period. Our performance in the quarter, which fell short of our internal expectations was negatively affected by the need to reschedule certain deliveries totaling more than $12 million, mostly to adapt to changes in customer requirements. Moreover, delays in purchasing decisions due to tariffs, largely for spare part orders, which are typically booked and shipped in the same quarter, further dampened sales in the period. It's important to note that prescheduled orders are part of firm contracts, which have simply been pushed out in time and will be delivered in the near future. For certain orders, small outstanding items prevented revenue recognition. And for others, greater complexity in part due to change in customer requirements led to these delays. In fact, we've already shipped orders related to the delays totaling approximately $5 million early in the third quarter, with the remainder now planned for delivery later in the third quarter or before the end of the fiscal year. We delivered the first order from our new manufacturing plant in Saudi Arabia, which is part of a joint venture in the Middle East dedicated to addressing the largest market for oilfield valves worldwide. This milestone follows the prior approval and certification from Saudi Aramco for some of our key valves. So, Velan is fully prepared to deliver in this region with a promising pipeline already in the works. Now let's turn to Slide 5. Our order backlog reached $285.8 million at the end of the second quarter, up 4% from the beginning of the year. At quarter end, 88.3% of the backlog, representing orders of $252.4 million was deliverable within 12 months as compared to 91.3% at the end of Q2 last year. As I stated last quarter, the shift in delivery schedule was driven by continued securing of an increasing number of large long-term contracts for the nuclear and defense industries. Bookings amounted to $65.2 million in the second quarter of fiscal 2026 compared to $88.4 million in the same period last year. Order intake early in the third quarter rebounded with significant contract and MRO wins throughout the world. Notably, we were recently advised of an award for certain reactor cooling valves related to the refurbishment of an Ontario reactor totaling more than $15 million, confirming the strength of our position, supplying the most critical valves into rapidly growing nuclear industry. To this point, among the key projects booked in the second quarter of last year was a main services agreement with GE Hitachi as part of the provision of a small modular reactor or SMR, at OPG's Darlington site, which I'll further expand in a moment. As we turn to Slide 6, I'm particularly pleased that this key infrastructure project was recently fast tracked by the Canadian government through the newly implemented Major Projects Office. The office's role is outlined by the federal government involves streamlining regulatory assessment approvals as well as helping structure finance and partnerships with all stakeholders. The main objective is to significantly reduce the approval time for projects identified as of national importance. Clearly, Velan stands to benefit from the pending acceleration of projects that typically require an extended planning periods such as nuclear. As a reminder, we have more than 55 years of experience in supplying valves to the nuclear power market with deep expertise, providing leading reactor technologies, more specific to the Darlington project, which happens to be the first SMR deployment in North America. Velan is a supplier of choice for GE Hitachi Nuclear Energy. Under the terms of our agreement, we are providing the development of advanced technology, engineering support and leading-edge proprietary valves for the safe and efficient operation of this first of 4 planned SMR units. This project has the potential to position Canada as a global leader in nuclear energy, and Velan as the leading valve provider in critical applications in the growing deployment of SMR technology. In summary, on Slide 7. nuclear and clean energy represents key growth sectors for Velan, both in Canada and increasingly on a global basis as customers move to reach their own carbon reduction objectives. So let's not forget that we're also fortified with a very solid footing in other markets, such as oil and gas, where our valves equip the vast majority of refineries in North America and a growing base worldwide, which will further expand through our Middle East joint venture. Defense activity also continues to rise as sovereign states are addressing their national security concerns. With our proven solutions for both surface and subsurface nuclear marine propulsion, we expect positive development in the years to come and continued growth. With the strength of our brand and our proven ability to address complex needs for the most demanding flow control applications throughout the world, we are very confident in our ability to sustain growth in our backlog. Before turning the call over to Rishi, let me assure you that after permanently resolving our asbestos-related liabilities and completing the sale of our French assets as announced earlier in the year, we remain quite active considering capital structure options to ensure the company remains well positioned to fully achieve its growth ambitions and its determination to maximize shareholder value. This wraps up my presentation, I'll now turn it over to you, Rishi.

Rishi Sharma: Thank you, Jim. Turning to our second quarter results on Slide 9. Sales totaled $67.6 million, down 13% from $77.7 million a year ago. Since last year's second quarter included a nonrecurring revenue of $5.2 million related to a canceled agreement, the comparable year-over-year sales decrease is about 6.7%. As previously mentioned, the decrease was mainly caused by rescheduling of order deliveries, specifically from our North American and Italian operations added by tariff disruption. In fact, uncertainty resulting from the changing tariff regimes have dampened demand for valves, spare parts and MRO throughout the U.S. as customers continue to defer purchasing activities, awaiting the final outcome of ongoing tariff negotiations. Partially offsetting these factors were higher sales in Korea, India and China as well as greater MRO sales in North America. By customer geographic location, North America represented 55% of total sales in the second quarter of fiscal 2026 compared to 51% last year. Asia Pacific accounted for 26% of total revenues versus 12% a year ago. For its part, Europe represented 12% of sales in the second quarter compared to 20% last year. Finally, Africa and the Middle East as well as South and Central America rounded off our sales for the quarter. Moving to Slide 10. Gross profit reached $15.7 million compared to $20 million last year. The decrease was primarily due to lower sales volume, which negatively affected the absorption of fixed production overhead costs and a less favorable product mix. In addition, tariffs had a dual impact on gross profit. First, by impacting supply chain optimization and second, by causing a timing lag between the moments they are incurred and subsequently passed on to customers. These factors were partially offset by positive foreign exchange gain. As a percentage of sales, gross profit was 23.2% versus 25.7% last year. Administration costs decreased to $15.4 million or 22.7% of sales in the second quarter of fiscal 2026 from $16 million or 20.6% of sales a year ago. The year-over-year variation reflects lower sales commissions, reduced freight costs and additionally, cost prudence in our day-to-day spend. We also incurred restructuring expenses of $700,000 in the second quarter of fiscal 2026, which consisted of transaction-related costs. Excluding restructuring expenses, adjusted EBITDA amounted to $3.4 million versus $6.7 million last year. The year-over-year decrease can be attributed to lower gross profit, partially offset by reduced administration costs. Net loss meanwhile, totaled $1.7 million or $0.08 per share in the second quarter of fiscal 2026 compared to a net loss of $1.2 million or $0.05 per share last year. Excluding restructuring expenses, adjusted net loss amounted to $1.2 million versus adjusted net income of $2.8 million a year ago. Briefly on Slide 11, for the first 6 months of fiscal 2026, sales were up 1% or close to 5%, excluding last year's nonrecurring revenue, while gross profit was relatively stable, both in dollars and as a percentage of sales. Turning to cash flow from operating activities on Slide 12. Before changes in provisions, we used $16 million in cash in the second quarter of fiscal 2026 compared to generating $4.7 million a year ago. The unfavorable movement in cash was due to lower profitability and negative changes in noncash working capital items versus last year. For example, significantly more late-stage work-in-process inventory related to the changes in delivery schedules increased working capital requirements. Work-in-process inventory was up $10 million in the second quarter alone, and we expect a cash inflow as projects are shipped and paid for. In the period, we also paid $6.8 million in dividends representing the regular payments for dividends declared in May and July as well as the $0.30 per share special dividend declared earlier this year. As for the next payment, the Board of Directors declared yesterday a dividend of CAD 0.10 per share payable on November 27, 2025, to shareholders of record as of November 13, 2025. Our dividend policy reflects our growing firm order backlog, confidence in our future performance and our ability to sustain strong cash flow generation. Finally, our financial position as at August 31, 2025, remained strong with cash and cash equivalents of $36.1 million and short-term investments of $400,000. Bank indebtedness stood at $6.6 million, while long-term debt, including the current portion, amounted to $15.9 million. Considering our new $35 million credit facility, working capital financing, letters of credit and guarantees, we have access to nearly $60 million in additional cash flows. As a result, Velan has $96 million in readily available to execute its strategy and finance it expansion to sustain long-term profitable growth. I will now turn the call over to the operator to begin the Q&A session.

Operator: [Operator Instructions] Your first question comes from Sebastian [ Sharlin ] with Agave Capital.

Unknown Analyst: My first question today, it's maybe a little more philosophical. So in terms of the cycle in nuclear, I think it's pretty clear where we're at. It's increasing. I know sometimes there can be some tying or freezing with all that happened in the last year. But clearly, there's a growing demand worldwide. What would you say we're at or what are you seeing on the oil and gas side in terms of CapEx investment, perhaps and growing capacity? Or like where do you see us in that cycle for that industry?

James Mannebach: Yes. Good question. I think what we're seeing in the marketplace in oil and gas, and it depends what you're looking at is upstream, midstream or downstream. But for our primary markets, we're seeing a lot of extension activity as refiners and producers continue to try and extend the useful life, so to speak, of their investments. It's good news for us. As you know, we're quite prevalent in all of those markets. And I think there's been a rebound generally in the sentiment with the change in the administration in the United States concerning the desirability for attractiveness of oil and gas in general. So I think the indicators are heading in the right direction are positive already. How long that will last? I suspect it will be a multiyear. It's not quite as long in terms of lead time, generally speaking, as in the nuclear industry. But certainly, once committed to, we're talking about several years of deployment.

Unknown Analyst: Makes sense. The next one might be for Rishi, but feel free. It's more on the gross margin ballpark. I know in previous year, and I think last year, I had a question, the $5.2 million cancellation. I think it was related to a Russian tied entity for BP or in Vietnam, something like that? So I was questioning how should we go about forecasting gross margins in the future? I know now you throw in a mix or a mélange, as we say in French with the USMCA that's in jeopardy, the tariffs and all the impacts on the supply chain. Should we forecast or adjust slightly down on the gross margin side going in the future? Or is there a lag? Because I understand there's a difference between the time that you book at a certain price and you deliver and then there's a tariff that comes in between. So I guess if I have to summarize it, do you pass it on to customer at some point? Or should we just forecast it down?

Rishi Sharma: Yes. So I'll take -- I'll take the question in 3 parts. The first one was, yes, it's a contract that we have for a Vietnam end user that was backed by essentially a Russian EPC. So that -- the $5.2 million that was the cancellation charge last year, you can essentially remove that from sales and it was at zero profit, if you remember what we discussed, so that normalizes Q2 of FY '25. On the gross margin and the mix, I think we're still very confident in terms of the normal levels we've been seeing in the last few quarters. When you look at tariffs, yes, exactly, there's a delay between when we pay the tariffs as the goods cross into the U.S. versus when we collect, let's say, surcharges or additional charges from our customers. I think that the year-to-date impact for us is just under $750,000 in net exposure. So I think we're controlling it well with the footprint that we have in terms of us negotiating with our customers. And then finally, Jim spoke about upstream, midstream. Our business in that sector has 2 components. There's the bare valves, as you call it, and then there's the actuation. We don't manufacture our actuators. So it's generally a buy-through and a pass-through of a markup. And so as the mix for upstream, midstream proportionately changes on the total revenues, you'll see some movement on the overall margin. But we're still very confident. And Jim mentioned the large order we're securing in nuclear. We have the defense contracts in the backlog that we're executing. So that the gross margin over the last few years -- quarters, I think, is still what we're targeting.

Unknown Analyst: Okay. That's really helpful. And my last one is considering the capital structure option comments, are we more looking at perhaps preparing for larger, longer-term contracts? So whether it is growth CapEx, refinancing or even upsizing the facilities that you have for letters of guarantee, that kind of stuff that may be required? Or more on the buybacks, dividend or even small acquisition side?

James Mannebach: Yes. I think principally, what we're looking at is we see a period of growth in some industries, such as nuclear, significant growth into the future for the industry. Our presence in those industries, as we've commented on several times, is quite critical. And consequently, it's incumbent on us to make sure that we have the capital structure in place that allows us to fully realize that growth potential. So in terms of the dividend, we had advised, I think it was in the last quarter that based on the strength of the business and our forward look, we had increased our recurring dividend to $0.10 per share and confirm that again this quarter. So some consideration of capital structure in that domain is also ongoing as you would expect by the Board quarter in, quarter out.

Operator: [Operator Instructions] Your next question comes from Alex Ciarnelli with SM Investors.

Alessandro Ciarnelli: Hope everything is fine. Just out of curiosity, can I ask what is the utilization rate of your manufacturing facilities today and then compared to, let's say, a year ago in general? And then if you can, for the Montreal stand-alone?

James Mannebach: Well, we don't disclose the utilization rates by plant. I would say that the company has sufficient capacity over its planning horizon to support substantial growth without the need for extraordinary capital addition. So our equipment stock is in our [indiscernible] in Canada and the U.S. and around the world is quite good and quite robust in terms of supporting the growth. As you know, our CapEx traditionally is $9 million to $12 million, $13 million annually. Sometimes it goes up and down depending on our investment in additional capital machines. So I think that probably is sufficient. It's more replacement and upgrade. We have a wonderful preventative maintenance program throughout our network of plants, which allows us to extract maximum utilization of our machine stock. But of course, like anything, as time goes by, tolerance is increasing, so we make prudent investment from time to time in key machinery to ensure we continue to meet all tolerances.

Alessandro Ciarnelli: Appreciate it. I don't know if you answered this already, sorry. When I look at the revenues down, right, and the commentary of the $5 million onetime last year, the push out of $12 million, which my understanding $5 million already came back and the $7 million for the rest of the year. Would it be wrong for me to see -- to say if I adjust for all that, the revenues were actually up? Is that a wrong way to look at it? or no?

James Mannebach: Did you say would that be wrong? You're asking that in the negative or the positive? Clearly -- I think that's exactly the right conclusion to draw is that we had some late in the quarter changes and delays with customer receipts that if that -- if those shipments had occurred in the second quarter as had originally been planned, revenues would have been up.

Rishi Sharma: I'll just add, Alex, to that. Today, we recognize revenue on a completed contract, as we see larger, more longer-term contracts, if you had a POC accounting base for rev rec, then it would be a bit more stable. So that's something of consideration for the future.

Alessandro Ciarnelli: And then just an accounting item, I see the taxes. I think in the report it states that after taxes were up because of, I guess, tax individual -- the legal entity versus consolidated. That means that last year, it was -- you were looking at the taxation was on a consolidated basis and this year is different? Or did I miss that? And then rate of that, what are your cash taxes?

Rishi Sharma: Are you talking about the quarter or year-to-date?

Alessandro Ciarnelli: The quarter, sorry.

Rishi Sharma: Yes. I think quarter -- I mean the variation in the quarters is just the taxable income that's generated in each of the legal entities. So in Q2 this year, we had certain legal entities that generated taxable income. There was catch-up in certain entities that have differences in year-end versus reporting periods for filings that result in assessments that go up and down. So Q2, you'll generally have a bit of catch-up or realignment for the year. So it's not more than that in terms of the cash tax expense. We do not, as you know, recognize and have not recognized deferred tax asset on the balance sheet. So that creates an effective tax rate that's significantly higher when you look at the taxable income that's generated. But as we move now forward to profitability that are in this quarter, if you look at net income, that's what we've done over the last 8 quarters, that's something that's also going to be for a discussion.

James Mannebach: Yes. I think to underscore that point on our balance sheet to [indiscernible] I suppose is a better way of putting it, that we have combined net operating loss carryforwards [indiscernible] of over $100 million under IFRS because of the company's performance prior to the turnaround that started in '23, we have a threshold or we're closing in on the threshold of reestablishing those credits. This is an accounting fiction at the end of the day, we have [indiscernible] NOL and tax credits that will shield our earnings for many years to come. So I think that modeling needs to be certainly taken into account the cash advantage of utilization [indiscernible] to the future.

Alessandro Ciarnelli: That's great [indiscernible] even after the French disclosure. And the last question, which you might have answered again, sorry, I was half of 5 minutes. Some color on the Saudi joint venture. How does that work [indiscernible] the first order and then what kind of pipeline you see there?

James Mannebach: Yes, sure. It's a good question. So as you know, we commissioned and opened the Saudi joint venture in the first quarter of prior year, and that had been delayed also. So as I think I commented on it the last quarter for some time as we looked at the -- that the prior strategic option review within the Flowserve side, we'll call it. And so we're very, very pleased with the rapid growth of this joint venture. It's exceeding our expectations at the moment. Of course, first, you have to -- after you secure the approvals, the [indiscernible] which we call Aramco, you have to then produce on a limited basis product in accordance with that certification. And then basically, the doors are open for additional work. Thus, the pipeline is very, very robust. And I think the backlog is already exceeding USD 500,000. This is rather remarkable given that this joint venture has really been in place and operative for the 6 months, maximum 9 months, something like that. So we're quite pleased with that and very, very bullish on what we see developing in the Middle East, not only in Saudi Arabia, but also in the surrounding parts of the world there where we really, quite frankly, haven't focused as intently as perhaps as possible, and certainly, it will be the case going forward. Saudi Aramco, as you know, is by far, by far, the largest producer in the world. So yes, we look very confidently with that joint venture. Thanks for bringing it up.

Operator: There are no further questions at this time. I will now turn the call over to Jim for closing remarks.

James Mannebach: Well, thank you, operator. We appreciate your help as always. And thank all of you for joining us today. We look forward to sharing our third quarter results with you in January. And hope you have a good weekend. And for friends in Canada, happy Thanksgiving weekend. We look forward to talking with you again soon. Bye for now.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.