Q2 2026 5N Plus Inc Earnings Call

August 4, 2026

Speaker #1: Bonjour, Mesdames et Messieurs. Merci d'avoir patienté et bienvenue à la conférence téléphonique des résultats du deuxième trimestre 2026 de 5N Plus. Présentement, les lignes des participants sont en mode d'écoute seulement.

Operator: Bonjour, mesdames et messieurs. Merci d'avoir patienté et bienvenue à la conférence téléphonique des résultats du deuxième trimestre 2026 de 5N Plus. Présentement, les lignes des participants sont en mode d'écoute seulement. Après la présentation, il y aura une période de questions et réponses. Pour poser une question, appuyez sur * et le 1 sur votre clavier téléphonique. Si vous avez besoin d'assistance, veuillez appuyer sur *0. Good morning ladies and gentlemen. Thank you for standing by and welcome to the 5N Plus Q2 2026 Results Conference Call. At this time, note that all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, please press * then 1 on your telephone keypad. If you require immediate assistance from the operator, please press *0.

Speaker #1: Après la présentation, il y aura une période de questions et réponses. Pour poser une question, appuyez sur « étoile » puis « 1 » sur votre clavier téléphonique.

Speaker #1: Si vous avez besoin d'assistance, veuillez appuyer sur « étoile 0 ». Good morning, ladies and gentlemen. Thank you for standing by and welcome to the 5N Plus second quarter 2026 results conference call.

Speaker #1: At this time, note that all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, please press star, then 1, on your telephone keypad.

Speaker #1: And if you require immediate assistance from the operator, please press star zero. Je vais maintenant céder la parole à Stefano Bertoli, directeur des communications et des affaires corporatives. I will now turn the floor over to Stefano Bertoli, Director of Communication and Corporate Affairs.

Operator: Je vais maintenant céder la parole à Stefano Bertolli, directeur des communications et des affaires corporatives. I will now turn the floor over to Stefano Bertolli, Director of Communications and Corporate Affairs. Please go ahead, sir.

Speaker #1: Please go ahead, sir.

Speaker #2: Bonjour à toutes et à tous. Good morning, everyone, and thank you for joining us for our Q2 2026 results conference call and webcast. We will begin with a short presentation, followed by a question period with financial analysts.

Stefano Bertolli: Bonjour à toutes et à tous. Good morning everyone and thank you for joining us for our Q2 2026 results conference call and webcast. We will begin with a short presentation followed by a question period with financial analysts. Joining us this morning is Richard Perron, our President and CEO, and Alban Fournier, our CFO. We issued our financial results yesterday and posted a short presentation on the investor section of our website. We 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 risks and uncertainties.

Speaker #2: Joining us this morning are Richard Perron, our President and CEO, and Alban Fournier, our CFO. We issued our financial results yesterday and posted a short presentation on the investor section of our website.

Speaker #2: We would like to draw your attention to slide 2 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.

Speaker #2: And therefore, subject to risks and uncertainties. A detailed description of these risk factors that may be they may affect future results is contained in our management's discussion and analysis of 2025, dated February 24, 2026, and available on our website and in our public filings.

Stefano Bertolli: A detailed description of these risk factors that may affect future results is contained in our management's discussion and analysis of 2025, dated 24 February 2026, and available on our website and in our public filings. 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 discussion and analysis. We now turn the conference over to Richard.

Speaker #2: 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.

Speaker #2: For further information, please refer to our Management Discussion and Analysis. We now turn the conference over to Richard.

Speaker #3: Thank you, Stefano. Good morning, everyone, and thank you for joining us. While the second quarter presented a more challenging operating environment, our results demonstrated the strength of the man across our strategic end markets and the resilience of our business.

Richard Perron: Thank you, Stefano. Good morning everyone and thank you for joining us. While Q2 presented a more challenging operating environment, our results demonstrated the strength of demand across our strategic end markets and the resilience of our business. We delivered another quarter of solid growth, capping a strong H1 2026 in support of our full year objectives. Revenue increased 28% in Q2 and 30% year to date, reaching just over CAD 240 million for H1 of the year. Adjusted EBITDA increased 10% in a quarter and reached CAD 55.8 million year to date, representing growth of 24% over the same period last year. Profitability remains strong, although margins reflected higher input costs as expected and temporary reduced operational efficiencies. Most of these cost pressures are expected to be recovered over time.

Speaker #3: We delivered another quarter of solid growth, capping a strong first half of 2026 in support of our full-year objectives. Revenue increased 28% in Q2 and 30% year-to-date.

Speaker #3: Reaching just over $240 million for the first six months of the year. Adjusted EBITDA increased 10% in the quarter and reached $55.8 million year-to-date.

Speaker #3: This represents growth of 24% over the same period last year. Profitability remained strong, although margins reflected higher input costs as expected, and temporarily reduced operational efficiencies.

Speaker #3: Most of these cost pressures are expected to be recovered over time. The equipment downtime and sub-optimal operations experienced during the quarter and associated incremental expenses are temporary in nature.

Richard Perron: The equipment downtime and suboptimal operations experienced during the quarter and associated incremental expenses are temporary in nature. Turning first to Specialty Semiconductors. The business delivered a strong quarter reflecting structural demand across our strategic end markets. Terrestrial renewable energy had a standout quarter, with higher volumes translating into record quarterly revenue. This performance reflects our key customer's continuous expansion and reinforces our position as a critical supplier within its value chain. Commercial activity also remained very strong in space solar power. We secured significant new contract awards in H1 and participated in a record level of bids by dollar value during the quarter. This momentum reinforces the structural growth of this end market. It also underscores AZUR's position as a global leader in solar cell technology and a partner of choice. The quarter, however, was not without challenges.

Speaker #3: Turning first to specialty semiconductors, the business delivered a strong quarter, reflecting structural demand across our strategic end markets. Terrestrial renewable energy had a standout quarter, with higher volumes translating into record quarterly revenue.

Speaker #3: This performance reflects our key customers' continuous expansion and reinforces our position as a critical supplier within its value chain. Commercial activity also remained very strong in space solar power.

Speaker #3: We secured significant new contracts awards in H1 and participated in a record level of bids by dollar value during the quarter. This momentum reinforces the structural growth of this end market.

Speaker #3: It also underscores Azure's position as a global leader in solar cell technology and a partner of choice. The quarter, however, was not without challenges.

Speaker #3: Both our renewable energy and space power businesses experienced comparable levels of unplanned equipment maintenance. Our teams responded quickly, through contingency planning operational flexibility and targeted inventory allocation, we continued to support customer demand and maintain deliveries during the quarter.

Richard Perron: Both our renewable energy and space power businesses experienced comparable levels of unplanned equipment maintenance. Our teams responded quickly through contingency planning, operational flexibility, and targeted inventory allocation. We continued to support customer demand and maintain deliveries during the quarter. Our teams continue to resolve the remaining issues and strengthen preventive maintenance measures. Beyond these temporary operational impacts, margin contraction and Specialty Semiconductors also reflected our metal input costs. A portion of these costs is expected to be recovered over subsequent quarters, although the timing will vary by product and customer. In the meantime, we are working to partially offset these pressures through economies of scale and continued operating efficiencies. Performance Materials also delivered a solid quarter. Segment revenue increased nearly 40%, driven primarily by higher volumes of bismuth-based products. As anticipated, margins continued to normalize from their record levels achieved last year and sustained in Q1.

Speaker #3: Our teams continued to resolve the remaining issues and strengthened preventive maintenance measures. Beyond these temporary operational impacts, margin contraction in specialty semiconductors also reflected our middle input costs.

Speaker #3: A portion of these costs is expected to be recovered over subsequent quarters, although the timing will vary by product and customer. In the meantime, we are working to partially offset these pressures through economies of scale and continued operating efficiencies.

Speaker #3: Performance metrics also delivered a solid quarter. Segment revenue increased nearly 40%, driven primarily by higher volumes of bismuth-based products. As anticipated, margins continued to normalize from their record levels, achieved last year, and sustained in the first quarter.

Speaker #3: This reflects higher middle input costs and a significant increase in chemical costs in recent months. Even so, the business continued to generate profitable growth and demonstrate the resilience of its portfolio.

Richard Perron: This reflects higher metal input costs and a significant increase in chemical costs in recent months. Even so, the business continued to generate profitable growth and demonstrate the resilience of its portfolio. Halfway through the year, we continue to take a prudent approach to our outlook. Geopolitical risks continue to evolve rapidly and influence inflation across many regions. Various input and operating costs remain elevated. We're also increasing production volumes and operating our equipment at high capacity, while integrating a significant number of new employees. In this context, we remain firmly focused on disciplined execution and operational excellence. As we enter Q3, our priorities are to improve operational and maintenance processes, advance our productivity initiatives, and execute our capacity expansion plans. These expansion plans all remain on plan. Finally, our balance sheet continues to provide us with significant financial flexibility.

Speaker #3: Halfway through the year, we continued to take a prudent approach to our outlook. Geopolitical risk continued to evolve rapidly and influenced inflation across many regions.

Speaker #3: Various input and operating costs remain elevated. We are also increasing production volumes and operating our equipment at high capacity while integrating a significant number of new employees.

Speaker #3: In this context, we remain firmly focused on disciplined execution and operational excellence. As we enter Q3, our priorities are to improve operational and maintenance processes, advance our productivity initiatives, and execute our capacity expansion plans.

Speaker #3: These expansion plans all remain on plan. Finally, our balance sheet continues to provide us with significant financial flexibility. Organic investment remains a priority as we expand capacity to support contracted demand.

Richard Perron: Organic investment remains a priority as we expand capacity to support contracted demand. We also continue to actively evaluate external opportunities that could complement or extend our capabilities. Near-term impacts and quality variations aside, we are building a business positioned to deliver sustainable, profitable growth over the long term by supplying advanced materials to critical industries. That strategy continues to be validated. Customers increasingly value secure, reliable Western supply chains, particularly in markets tied to renewable energy, space, security, and advanced technologies. These trends reinforce the value of our differentiated capabilities, manufacturing footprint, and longstanding customer relationships. As a result, we remain well-positioned to create sustainable value by executing our growth strategy. With that, I'll turn the call over to Albert, who will review our financial results and outlook in more detail.

Speaker #3: We also continue to actively evaluate external opportunities that could complement or extend our capabilities. Near-term impacts and quarterly variations aside, we are building a business position to deliver sustainable, profitable growth over the long term by supplying advanced materials to critical industries.

Speaker #3: That strategy continues to be validated. Customers increasingly value secure, reliable Western supply chains particularly in markets tied to renewable energy, space, security, and advanced technologies.

Speaker #3: These trends reinforce the value of our differentiated capabilities, manufacturing footprint, and long-standing customer relationships. As a result, we remain well positioned to execute our strategy. With that, I'll turn the call over to Alba, who will review our financial results and outlook in more detail.

Speaker #4: Thank you, Richard, and good morning to all of you. Before turning to the results, I would like to reiterate our enthusiastic aim to be a member of the executive team of 5N Plus at such a critical juncture in its growth and development.

Alban Fournier: Thank you, Richard, and good morning to all of you. Before turning to the results, I would like to reiterate how enthusiastic I am to be a member of the executive team of 5N Plus at such a critical juncture in its growth and development. I've engaged with our teams and with the investment community in the last three months. Those discussions have reinforced my confidence in our strategy, in the inherent strength of our business, in the strong financial foundation, and the opportunities ahead. Turning now to our financial performance. Revenue increased 28% to CAD 122.4 million in Q2 2026, compared with Q2 2025. For H1 of the year, revenue reached CAD 240.3 million, an increase of 30% over the same period last year. The increase primarily reflected higher volumes in renewable energy and more favorable product mix in space power. It also reflected higher volumes of bismuth-based products.

Speaker #4: I have engaged with our teams and with the investment community in the last three months. Those discussions have reinforced my confidence in our strategy, in the inherent strength of our business, in our strong financial foundation, and in the opportunities ahead.

Speaker #4: Turning now to our financial performance. Revenue increased 28% to $122.4 million in Q2 2026, compared with Q2 2025. For the first half of the year, revenue reached $240.3 million, an increase of 30% over the same period last year.

Speaker #4: The increase primarily reflected higher volumes in renewable energy and more favorable product mix in space power. It also reflected higher volumes of bismuth-based products.

Speaker #4: Adjusted gross margin increased to $37 million in Q2 2026, representing 30.3% of sales. This compares with $33 million, or 34.6% of sales, in the second quarter of last year.

Alban Fournier: Adjusted gross margin increased to CAD 37 million in Q2 2026, representing 30.3% of sales. This compares with CAD 33 million or 34.6% of sales in Q2 of last year. While Adjusted gross margin increased in absolute dollars, margin percentage declined. This primarily reflects higher metal input costs, temporary operational inefficiencies associated with the production ramp-up, and higher chemical costs. For H1 of the year, Adjusted gross margin represented 32.6% of sales. Adjusted EBITDA increased 10% to CAD 26.6 million in Q2 2026 compared with Q2 2025. Year to date, Adjusted EBITDA reached CAD 55.8 million, slightly above the midpoint of our full-year guidance range. Net earnings amounted to CAD 19.7 million, or CAD 0.22 per share, compared with CAD 15.2 million or CAD 0.17 per share in Q2 of last year. In Specialty Semiconductors, revenue increased 25% year over year to CAD 89.2 million.

Speaker #4: While adjusted gross margin increased in absolute dollars, margin percentage declined. This primarily reflects higher metal input costs temporary operational inefficiencies associated with the production ramp-up and higher chemical costs.

Speaker #4: For the first half of the year, adjusted gross margin represented 32.6% of sales. Adjusted EBITDA increased 10% to $26.6 million in Q2 2026, compared with Q2 2025.

Speaker #4: Year-to-date adjusted EBITDA reached $55.8 million, slightly above the midpoint of our full-year guidance range. Net earnings amounted to $19.7 million, or $0.22 per share, compared with $15.2 million, or $0.17 per share, in the second quarter of last year.

Speaker #4: In specialty semiconductors, revenue increased 25% year over year to $89.2 million. The increase was primarily driven by higher volumes in renewable energy. Adjusted gross margin represented 30.2% of sales compared with 32.7% in Q2 2025.

Alban Fournier: The increase was primarily driven by higher volumes in renewable energy. Adjusted gross margin represented 30.2% of sales, compared with 32.7% in Q2 2025. This decrease primarily reflected higher metal input costs and lower operating efficiency. Adjusted EBITDA increased by 16% to CAD 22.1 million. Higher volumes mitigated the impact of suboptimal operational performance and higher maintenance expenses. Backlog remains at the maximum level of 365 days as per our definition, with the effective backlog for this segment continuing to well surpass the 12-month mark. In Performance Materials, revenue increased 38% year over year to CAD 33.2 million, driven by higher volumes of bismuth-based products. Adjusted gross margin was 30.9% of sales, compared with 41.1% in the prior year period. The decrease reflected the anticipated margin normalization with higher metal input and chemical costs. Adjusted EBITDA increased 7% to CAD 8.5 million.

Speaker #4: This decrease primarily reflected higher metal input costs and lower operating efficiency. Adjusted EBITDA increased by 16%, to $22.1 million. Higher volumes mitigated the impact of suboptimal operational performance and higher maintenance expenses.

Speaker #4: Backlog remained at the maximum level of 365 days as per our definition, with the effective backlog for this segment continuing to well surpass the 12-month mark.

Speaker #4: In Performance Materials, revenue increased 38% year over year to $33.2 million, driven by higher volumes of bismuth-based products. Adjusted gross margin was 30.9% of sales compared with 41.1% in the prior year period.

Speaker #4: The decrease reflected the anticipated margin normalization with a higher metal input and chemical costs. Adjusted EBITDA increased 7% to $8.5 million. The increase was primarily attributable to a more favorable product mix and higher volumes net of higher metal input and chemical costs.

Alban Fournier: The increase was primarily attributable to a more favorable product mix and higher volumes, net of higher metal input and chemical costs. Backlog represented 99 days of annualized revenue, reflecting the timing of contract renewals and the continued execution of long-term contracts. Turning now to our balance sheet and cash flow. In Q2 2026, cash used in operating activities was CAD 1.9 million compared to cash from operating activities of CAD 22.3 million in Q2 2025. Year-to-date operating cash flow reflects continued growth in working capital, in line with revenue and COGS increases. Looking ahead, we expect net working capital to evolve broadly in line with revenue growth. Cash from investing activities includes CAD 16.6 million of PP&E CapEx year to date, with proceeds from the renewal of our total return swap. These proceeds were largely used to reduce debt. As a result, our financial position continues to strengthen.

Speaker #4: Backlog represented 99 days of annualized revenue reflecting the timing of contract renewals and the continued execution of long-term contracts. Turning now to our balance sheet and cash flow.

Speaker #4: In Q2 2026, cash used in operating activities was $1.9 million, compared to cash from operating activities of $22.3 million in Q2 2025. Year-to-date operating cash flow reflects continued growth in working capital in line with revenue and COGS increases.

Speaker #4: Looking ahead, we expect net working capital to evolve broadly in line with revenue growth. Cash from investing activities includes $16.6 million of PP&E capex year-to-date, with proceeds from the renewal of our total return swap.

Speaker #4: These proceeds were largely used to reduce debt. As a result, our financial position continues to strengthen. Net debts stood at $23.7 million as of the end of June, compared with $50.3 million at the end of 2025.

Alban Fournier: Net debt stood at CAD 23.7 million as of the end of June, compared with CAD 50.3 million at the end of 2025. Our net debt to Adjusted EBITDA ratio improved to 0.21 times. This highlights the strength of our balance sheet and provides significant financial flexibility to support our long-term growth. Turning now to guidance. In Specialty Semiconductors, structural growth across our core end market continues to support demand, particularly in renewable energy and space power. In Performance Materials, pricing conditions are normalizing largely as anticipated. More broadly, we continue to operate in a dynamic rising cost environment. We notably expect margins to come under additional pressure in the near term due to higher metal input costs and chemical costs, which will partially be recovered with a timeline of at least 2 quarters.

Speaker #4: Our net debt to adjusted EBITDA ratio improved to 0.21 times. This highlights the strength of our balance sheet and provides significant financial flexibility to support our long-term growth.

Speaker #4: Turning now to guidance. In specialty semiconductors, structural growth across our core end markets continues to support demand, particularly in renewable energy and space power.

Speaker #4: In performance materials, pricing conditions are normalizing largely as anticipated. More broadly, we continue to operate in a dynamic, rising cost environment. We notably expect margins to come under additional pressure in the near term due to higher metal input costs and chemical costs, which will partially be recovered, with a timeline of at least two quarters.

Speaker #4: Against this backdrop, we are reaffirming our 2026 full-year adjusted EBITDA guidance of between $100 million and $105 million. This reflects our confidence in continued revenue growth and higher gross margin dollars during the second half.

Alban Fournier: Against this backdrop, we are reaffirming our 2026 full year Adjusted EBITDA guidance of between CAD 100 to 105 million. This reflects our confidence in continued revenue growth and higher growth margin dollars during the H2. It also incorporates a prudent assessment of ongoing operating and input cost environment. That concludes our formal remarks. I will now turn the call back to the operator for the question and answer session with financial analysts. Thank you.

Speaker #4: It also incorporates a prudent assessment of ongoing operating and input cost environment. That concludes our formal remarks. I will now turn the call back to the operator for the question and answer session with financial analyst.

Speaker #4: Thank you.

Speaker #1: Merci. Si vous souhaitez poser une question, s'il vous plaît, appuyez sur l'étoile suivie du 1 sur votre clavier téléphonique. Un moment, s'il vous plaît, pour votre première question.

Operator: Merci. Si vous souhaitez poser une question, s'il vous plaît appuyez sur l'étoile suivie du un sur votre clavier téléphonique. Un moment s'il vous plaît pour votre première question. Thank you. If you'd like to ask a question, please press star one on your telephone keypad. One moment please for your first question. Your first question comes from Baltej Sidhu from National Bank of Canada. Please go ahead.

Speaker #1: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, for your first question. Your first question comes from Baltej Sidhu from National Bank of Canada.

Speaker #1: Please go ahead.

Speaker #2: Hey, good morning, Rashard and Alban.

Baltej Sidhu: Hey, good morning, Richard and Alban.

Alban Fournier: Morning.

Speaker #4: Good morning.

Baltej Sidhu: You noted higher metal input costs and the unplanned equipment maintenance at both the renewable and solar side as the primary drivers for the pressure in the Specialty Semiconductors business. Could you help us think about the relative impact of both those factors as it pertains to margins?

Speaker #2: A few questions from. So you noted higher metal input costs and the unplanned equipment maintenance at both the renewable and solar side as the primary drivers for the pressure and the semi business.

Speaker #2: Could you help us think about the relative impact of both those factors as it pertains to margins?

Speaker #4: Fine. Yeah, we assess that both factors the higher metal input costs and the operational difficulties have had a fairly equal impact on our gross margin during the second quarter of the year.

Alban Fournier: Alban. Yeah. We assessed that both factors, the higher metal input costs and the operational difficulties, have had a fairly equal impact on our gross margin during the Q2 of the year. It's been fairly well shared between both parameters.

Richard Perron: Alban.

Alban Fournier: Yeah. We assessed that both factors, the higher metal input costs and the operational difficulties, have had a fairly equal impact on our gross margin during the Q2 of the year. It's been fairly well shared between both parameters.

Speaker #4: So it's been fairly well shared between both parameters.

Speaker #2: Great. And I think Rashard had noted that the unplanned maintenance is temporary. How much of an impact could we see in the second half of the year?

Baltej Sidhu: Great. I think Richard had noted that the unplanned maintenance is temporary. How much of an impact could we see in the H2 of the year, and by extension, did it have any impact on the backlog and decision to maintain guidance?

Speaker #2: And by extension, did it have any impact on the backlog and decision to maintain guidance?

Speaker #4: At this point in time, we don't see we don't foresee any impact from a delivery perspective in H2. All of our people applying themselves, obviously, to on the remaining issues.

Alban Fournier: At this point in time, we don't foresee impact from a

Richard Perron: At this point in time, we don't foresee impact from a

Richard Perron: From a delivery perspective in H2, all of people applying themselves, obviously, on the remaining issues, improving our preventing plan, better staffing our night and weekend shifts. Everyone is applying themselves to turn this around. We continue to say it's a temporary measure with no expected impact from a shipment perspective in H2.

Speaker #4: Improving or preventing plan, better staffing or night and weekend shifts, so everyone is applying themselves to turn this around. So we continue to say it's a temporary measure with no expected impact from a shipment perspective in H2.

Speaker #2: Great. And then, turning over to the ongoing capacity expansions, how much of an impact did it have on margins in Q2? And would it be correct to think of it as not being able to attribute it to absorbed overhead?

Baltej Sidhu: Great. Turning over to the ongoing capacity expansions, how much of an impact did it have on margins in Q2? Would it be correct to think of it as not being able to attributively absorb overhead?

Speaker #4: I'm not sure. I missed the beginning of your question about that, Shar.

Richard Perron: I'm not sure I missed the beginning of your question about that, Shar.

Speaker #2: Oh, yeah. So how much of an impact did the ongoing capacity expansions have on the margins, and is it accurate to assume that this is largely attributed to unabsorbed overhead?

Baltej Sidhu: Oh, yeah. How much of an impact did the ongoing capacity expansions have on the margins? Is it accurate to assume that this is largely attributable to unabsorbed overhead?

Speaker #4: Yeah, exactly. It's a combination of unabsorbed overhead and also extra maintenance expenses. That's how we come up with, as Alban just mentioned earlier, the actual impact in Q2 was pretty balanced between the two.

Richard Perron: Yeah, exactly. It's a combination of unabsorbed overhead and also extra maintenance expenses. Okay. That's all we come up with. As Alban just mentioned earlier, the actual impact in Q2 was pretty balanced between the two. A combination of it. In the case of the equipment, a combination of extra maintenance expenses, and as you just referred to, unabsorbed operating costs during the period.

Speaker #4: So, a combination of it. In the case of the equipment, a combination of extra maintenance expenses and, as you just referred to, unabsorbed operating costs during the period.

Speaker #2: Fantastic. And the last one for me is just on the PM side. You've noted in the past few quarters that you expect the pricing to normalize.

Baltej Sidhu: Fantastic. The last one for me is just on the PM side, and you've noted in the past few quarters we expect the pricing to normalize. Would you say that Q2 represents a reasonable run rate for the business, or could we see incremental pressure just given what you're seeing in the market as of today?

Speaker #2: Would you say that Q2 represents a reasonable run rate for the business or could we see incremental pressure just given what you're seeing in the market as of today?

Speaker #4: Well, in the case of preventive performance materials going forward, it will depend in large part on the actual product and client mix. To be realized over H2, Q2 was particularly low.

Richard Perron: In the case of Performance Materials going forward, it will depend in large to the actual product and client mix to be realized over H2. Q2 was particularly low. Okay. Going forward, I guess the gross margin around the year to date could be used for the moment. Okay. The tricky part remains chemical costs and other costs like this that continues to be on the rise. nitric acid, caustic soda, and all of those chemicals that we're using are on the rise. That's the unknown part. From a forecasted client and product mix at this point in time, the year-to-date gross margin could be used as an assumption for H2 on Performance Materials.

Speaker #4: So, going forward, I guess the gross margin year-to-date could be used for the moment. The tricky part remains chemical costs and other costs like this that continue to be on the rise.

Speaker #4: Nitric acid, caustic soda, and all of those chemicals that we're using on the rise. That's the unknown part. But from a forecasted client and product mix at this point in time, the year-to-date gross margin could be used as an assumption for H2 on performance materials.

Speaker #2: Got it. Understood. Thank you again, Alban and Rashard. I'll pass the line. Thanks.

Baltej Sidhu: Got it. Understood. Thank you again, Alban and Richard, I'll pass the line. Thanks.

Speaker #4: Thank you.

Richard Perron: Thank you.

Speaker #1: Your next question comes from Amar Ezzat from Canaccord Genuity. Please go ahead.

Operator: Your next question comes from Amr Ezzat from Canaccord Genuity. Please go ahead.

Speaker #5: Good morning. Thanks for taking my questions. Maybe just on the equipment, I think Rashard, your comments suggested that some, but not all, of it has been resolved.

Amr Ezzat: Good morning. Thanks for taking my questions. Maybe just on the equipment, I think, Richard, your comment suggested that some, but not all of it has been resolved. Did I misunderstand? Can you help us understand, are these issues like a function of the operational intensity associated with the significant volume and the capacity ramp, or can you just tell us what's the nature of the equipment issues you've had?

Speaker #5: Did I misunderstand? Then can you help us understand are these issues like a function of the operational intensity associated with the significant volume and capacity ramp or can you just tell us what's the nature of the equipment issues you've had?

Speaker #4: Well, we've been integrating a number of equipment—new equipment in the sense of new design and so on. All of that, at the same time, we've been integrating a large number of new employees.

Richard Perron: Well, we've been integrating a number of equipment. New equipment in a sense, new design, and else. All of that at the same time, we've been integrating a large number of new employees. We're pushing every equipment we have close to its limit. Okay? While in parallel, we continue to increase capacity by adding additional equipment to meet demand of 2027, and so on and so forth. It's really a combination of large number of new equipment, new equipment with different designs and operating parameters, a large number of new employees. We need definitely to better staff our night and weekend shifts, and we need to improve our preventive maintenance in light of those new equipment and parameters that we're working with today.

Speaker #4: So it's and we're pushing every equipment we have close to its limit. While in parallel, we continue to increase capacity by adding additional equipment to meet demand of 27.

Speaker #4: And so on and so forth. So it's really a combination of a large number of new pieces of equipment, new equipment with different designs and operating parameters, and a large number of new employees. We definitely need to better staff our night and weekend shifts, and we need to improve our preventive maintenance in light of the new equipment and parameters that we're working with today.

Speaker #5: Understood. And are they largely resolved? I understand you won't have any issues delivering, but are these equipment issues largely resolved?

Amr Ezzat: Understood. Are they largely resolved? I understand you won't have any issues delivering, are these equipment issues largely resolved?

Richard Perron: Most of them, we still have issues here and there throughout the different product lines that we have. All of those issues are being addressed by some key members of the team and else, and with the support of external contractors and else. We're bringing on board a bit more larger number of spare parts, for example, and all of these things. Look, we used to operate manufacturing operations with various sites. Look, it's more challenging because there are more equipment, as I've just said, new design and else and all. We're addressing all of those issues. We have contingency plans. On that basis, we don't foresee any challenge, issue, or risk of not making required shipments in H2.

Speaker #4: Most of them, but we still have issues here and there throughout the different product lines that we have. All of those issues are being addressed by some key members of the team, as well as with the support of external contractors.

Speaker #4: We're bringing on board a bit larger number of spare parts, for example, and all of these things. So look, we're used to operating manufacturing operations with various sites.

Speaker #4: So look, we're playing, it's more challenging because there's a larger—there is more equipment, as I've just said, new design, and else, and all.

Speaker #4: But look, we're addressing all of those issues. We have contingency plans. So on that basis, we don't see any foreseen issue or risk of not making required shipments in H2.

Speaker #5: Fantastic. Your revenues were obviously extremely strong—significantly ahead of expectations. But, like we spoke about, EBITDA was only modestly ahead because of some of the issues you've outlined.

Amr Ezzat: Fantastic. Your revenue is obviously extremely strong, significantly ahead of expectations. We spoke to EBITDA was only modestly ahead because of some of the issues you've outlined. I'm wondering how much of the revenue upside actually came from higher physical volumes versus the metal prices, sometimes you've got contractual pass-throughs, they could inflate your sales and they're just like pass-throughs. Would you quantify the strong revenues as really mostly volume-driven, i.e. very high quality?

Speaker #5: But I'm wondering, how much of the revenue upside actually came from higher physical volumes versus the metal prices and sometimes you've got contractual pass-throughs so they could inflate your sales and they're just like pass-throughs.

Speaker #5: Or would you quantify the strong revenues as really mostly volume-driven, i.e., very high quality?

Speaker #4: As we've mentioned, in the case of bismuth, clearly volume. Same thing with durable energy, and to a smaller extent—because of different operational challenges—a smaller extent is our space solar business.

Richard Perron: As we've mentioned, in the case of bismuth, clearly volume. Okay? Same thing with renewable energy, and to a smaller extent, because of different operational challenges, our space solar business. Overall, volume is the main factor behind the increase in revenue.

Speaker #4: But overall, volume is the main factor behind the increase in revenue.

Speaker #5: Fantastic. Then maybe one last one for me. On CapEx, I'm just looking at the year-to-date— you guys are approximately $17 million, and I appreciate there are some of the equipment issues that you've outlined.

Amr Ezzat: Fantastic. Maybe one last one from me. On CapEx, I'm just looking at the year-to-date. You guys are approximately CAD 17 million, and I appreciate there's some of the equipment issues that you've outlined, and I believe that you said you guys are building redundancy as well. I believe a couple of quarters ago, you guys mentioned the 2026 output for CapEx would be similar to 2025. That's like CAD 20 or CAD 21 million. Do you guys have a revised sort of full-year expectation for us?

Speaker #5: And I believe that you said you guys are building redundancy as well. But I believe a couple of quarters ago, you guys mentioned the 2026 output for CapEx would be similar to 2025.

Speaker #5: That's like $20 or $21 million. Do you guys have a revised, sort of full-year expectation for us?

Speaker #4: On the net cash-out basis, considering that some of the equipment that we'll be adding in the U.S. is supported by a government grant, the value remains valid at this point in time.

Richard Perron: On a net cash-out basis, considering that some of the equipment that we'll be adding in the US is supported by government grants, the value remains valid at this point in time. We did, though, we've brought on board different equipment earlier in the year than later this time in order to be ready to address 2027 volume requirements.

Speaker #4: We did, however, bring on board different equipment earlier in the year, rather than later this time, in order to be ready to address 2027 volume requirements.

Speaker #5: Fantastic. Congrats on the very strong revenues and I'll pass the line.

Amr Ezzat: Fantastic. Congrats on the very strong revenues, I'll pass to Wayne.

Speaker #1: Your next question comes from Michael Glenn from Raymond James. Please go ahead.

Operator: Your next question comes from Michael Glen from Raymond James. Please go ahead.

Speaker #6: Hey, Richard, just hoping that you can dig into some of the backlog that you're looking at in terms of the Azure project wins right now.

Michael Glen: Hey, Richard. Just hoping that you can dig into some of the backlog that you're looking at in terms of the AZUR project wins right now. We've been reading a lot about these space-based data centers. Are you seeing any projects come in with those type of build-outs?

Speaker #6: We've been reading a lot about these space-based data centers. Are you seeing any projects come in with those types of build-outs?

Speaker #4: The data centers in space, those are still under development. It will probably take a couple of years before you actually see those being launched and so on.

Richard Perron: The data centers in space, those are still under development. It will take probably a couple of years before you actually see those being launched and else. At this point in time, it's too early. As I've said in our introduction, in terms of bids that we've placed in this H1 of the year on a CAD basis, it's at least twice the CAD amount compared to last year's same period. To our knowledge, none of those are specific to data centers. Based on our intel of the market, this is still under product development phase.

Speaker #4: So at this point in time, it's too early. As I've said in our introduction, in our introduction, in terms of bids that we've placed in this first half of the year on a dollar basis, it's at least twice the dollar amount compared to last year's same period.

Speaker #4: But to our knowledge, none of those are specific to data centers. And based on our intel of the market, this is still a product development under product development phase.

Speaker #6: And are you in Azure are you able to indicate did you add new customers in the segment this quarter?

Michael Glen: In AZUR, are you able to indicate, did you add new customers in the segment this quarter?

Speaker #4: New customers? Not to say specifically, we've been supplying for years all of those primaries that are subcontractors. And there's been a few newcomers in the last two, three years, but for most of them, if not all of them, they're already clients of Azure Space.

Richard Perron: New customers? No, I cannot say specifically. We've been supplying for years all of those primaries that are subcontractors, there's been a few newcomers in the last two, three years, for most of them, if not all of them, they're already clients of AZUR SPACE.

Speaker #6: Okay. And then just on the renewable side, or I'm not sure if it translates to the space side as well. Can you give an update on where your product line sits with Perovskite and the timeline associated with for any significant increase in Perovskite volumes from 5N Plus?

Michael Glen: Okay. Then, just on the renewable side, I'm not sure if it translates to the space side as well. Can you give an update on where your product line sits with perovskite and the timeline associated with some for any significant increase in perovskite volumes from 5N Plus?

Speaker #4: Well, currently, the strategy for the company is to focus on the individual elements, making up Perovskite rather than the actual encapsulation technology or else.

Richard Perron: Well, currently, the strategy for the company is to focus on the individual elements making up perovskite rather than the actual encapsulation technology or else, okay? At this point in time, it's still early stage for the outside China to introduce perovskite as a tandem material. It's still early stage. We believe before any meaningful volume, an introduction of perovskite in a commercial phase, we're still most likely a year or two away.

Speaker #4: At this point in time, it's still early stage. For the outside China, to introduce Perovskite as a tandem material. So it's still early stage.

Speaker #4: We're still we believe before any meaningful volume and introduction of Perovskite into a commercial phase, we're still most likely a year or two away.

Speaker #6: Okay. And is this only applicable to terrestrial, or would it be applicable to both space and terrestrial?

Michael Glen: Okay. Is this is only applicable to terrestrial, or would it be applicable to both space and terrestrial?

Richard Perron: It could be applied on both, for terrestrial applications are a lot more advanced in terms of introduction.

Speaker #4: It could be applied on both, but for terrestrial applications are a lot more advanced in terms of introduction.

Speaker #6: Okay. Thank you.

Michael Glen: Okay. Thank you.

Operator: Your next question comes from Daniel Lavoie, from Ventum Financial. Please go ahead.

Speaker #1: Your next question comes from Daniel Lavoie from Ventum Financial. Please go ahead.

Speaker #7: Bon matin, Richard, Alban, Stéphano. Félicitations pour le trimestre. Got two questions to start. One is the overall capacity expansion. And the recent issue surrounding unplanned maintenance.

Daniel Lavoie: I got two questions to start. One is the overall capacity expansion, and the recent issues surrounding unplanned maintenance. Just wondering if that makes you think differently about the pace of capacity expansion. When looking at AZUR's end customer, what needs to happen for you to see accelerating demand and give you confidence in taking a bolder move in term of adding more capacity? The second question is related to guidance. When looking at the guidance for 2026, obviously, the very strong half at CAD 55.8 million of realized EBITDA in H1, it kind of implied like a flattish EBITDA dollar into H2, despite the strong revenue momentum. I understand there's some couple of quarter, for pass-through for the our metal input cost, but can you just help us understanding the maths for the margin over there? Thank you.

Speaker #7: Just wondering if that makes you think differently about the pace of capacity expansion. And when looking at Asia's end customer, what needs to happen for you to see accelerating demand and give you confidence in taking a bolder move in terms of adding more capacity?

Speaker #7: And the second question is related to guidance. When looking at the guidance for 2026, obviously, the very strong half at $55.8 million of realizable in H1.

Speaker #7: It kind of implied a flat-ish a bit dollar into H2. Despite the strong revenue momentum. So I understand there's some couple of quarter for past due for the hourly metal input cost, but can you just help us understanding the math for the margin over there?

Speaker #7: Thank you.

Speaker #5: Okay. So on capacity expansion, same approach that we've been applying ourselves to in the last two, three years. In line with earning contracts, we're reassessing the capacity that we need to have installed.

Richard Perron: Okay. On capacity expansion, same approach that we've been applying ourselves to in the last two, three years. In line with earning contracts, we're reassessing the capacity that we need to have installed, we take at that point in time, the appropriate measures to add capacity. That's the approach we'll continue to apply. We'll try to correlate as much as we can, order taking with capacity investments. That's for the first question. Thurm's, you had a question on forward-looking. Look, we continue to take a prudent approach on KF, we continue to take a prudent approach. It's a complex environment. We see a lot of inflation across many regions. As you know, those factors continue to contribute to ongoing uncertainty and often with a very limited warning to us.

Speaker #5: And we take, at that point in time, the appropriate measures to add capacity. So that's the approach we'll continue to apply. We'll try to correlate, as much as we can, order taking with capacity investments.

Speaker #5: So that's what the first question. In terms, you had a question on forward-looking. Look, we continue to take a prudent approach. Halfway today, we continue to take a prudent approach.

Speaker #5: I mean, it's a complex environment. We see a lot of inflation across many regions. And as you probably as you know, those factors continue to contribute to ongoing uncertainty and often with the very limited warning to us.

Speaker #5: So, looking forward to the second half, we take a prudent approach, and we anticipate a certain lag, especially for metal input costs in order to recover.

Richard Perron: Forward-looking for H2, we take a prudent approach and we anticipate a certain lag, especially for metal input costs in order to recover.

Speaker #7: Thanks. And lastly, if I may, is the CDSC line up and running right now in Montreal?

Daniel Lavoie: Thanks. Lastly, if I may, is the CdSe line up and running right now in Montreal?

Richard Perron: CDSE?

Alban Fournier: CDSE.

Speaker #5: Oh, CDSC. Sorry, sorry. At this point in time, the plan is to have it to start running at some point in the second half, most likely around the end of Q3.

Richard Perron: CdSe. Sorry. At this point in time, the plan is to have it to start running at some point in H2, most likely around the end of Q3. We currently have products that are being pre-qualified, but the ramp-up and the formal qualification will occur later in H2 of this year.

Speaker #5: Okay. We're currently have products are being pre-qualified, but the ramp-up and the formal qualification will occur later in the second half of this year.

Speaker #7: Thank you. Have a good day. Thanks.

Daniel Lavoie: Thank you. Have a good day. Thanks.

Operator: Your next question comes from Nicholas Boychuk from ATB Capital Markets. Please go ahead.

Speaker #1: Your next question comes from Nick Boychuk from ATB Capital Markets. Please go ahead.

Speaker #8: Thanks. Morning, guys. Curious—you mentioned that some of the larger constellations you're bidding on, the size of the backlog, the RFP—what makes these either interesting to you guys?

Nicholas Boychuk: Thanks. Morning, guys. Curious, you mentioned that some of the larger constellations you are bidding on, the size of the backlog, the RFP, what makes these either interesting to you guys? Is there something about the characteristic, either style of constellation, size of the opportunity? Just looking for a little bit of color, especially as that pertains to the positive mix comments that you made this quarter about how AZUR had positive mix.

Nick Boychuk: Thanks. Morning, guys. Curious, you mentioned that some of the larger constellations you are bidding on, the size of the backlog, the RFP, what makes these either interesting to you guys? Is there something about the characteristic, either style of constellation, size of the opportunity? Just looking for a little bit of color, especially as that pertains to the positive mix comments that you made this quarter about how AZUR had positive mix.

Speaker #8: Is there something about the characteristic, either the style of constellation, size of the opportunity, just looking for a little bit of color? Especially as that pertains to the mixed comments that you made this quarter about how Azure had positive mix.

Speaker #4: Oh, look, it's quite diversified in terms of referring to the high number and high dollar value of the bids. It's highly diversified as to the clients and the hand constellation and/or satellite programs.

Richard Perron: Look, it is quite diversified in terms of, referring to the high number and high dollar value of the bid. It is highly diversified as to the clients and the hand constellation and/or satellite programs. It varies a lot. There is nothing very specific that came up in H2 other than it is a large number with actually large dollars of bids that have been placed.

Speaker #4: It varies a lot. There's nothing very specific that came up in H2, other than it's a large number—with actually large dollars, actually—of bids that have been placed.

Speaker #8: Okay. Anything in terms of the industry, though? Is everyone still acting rationally and sort of behaving as you would expect, or are you starting to see a little bit more increased demand—either regionally, by constellation, or by customer?

Nicholas Boychuk: Okay. Anything in terms of the industry, though? Is everyone still acting rationally and sort of behaving as you would expect, or are you starting to see a little bit more increased demand, either regionally, by constellation, by customer?

Nick Boychuk: Okay. Anything in terms of the industry, though? Is everyone still acting rationally and sort of behaving as you would expect, or are you starting to see a little bit more increased demand, either regionally, by constellation, by customer?

Speaker #4: Not at this point in time. The distribution region and else, it's similar to what we've been experiencing so the last couple of years. It's just a number of the dollar values that have been as I've just said, at least twice this first half of the year compared to the same period last year.

Richard Perron: No, at this point in time, the distribution region analysis is similar to what we've been experiencing for the last couple of years. It's just the number of the dollar values that have been, as I've just said, at least twice, this H1 compared to the same period last year.

Nicholas Boychuk: Okay. On the metal passthrough, what's the timing and the lag that you expect you'll be able to recover some of those costs?

Nick Boychuk: Okay. On the metal passthrough, what's the timing and the lag that you expect you'll be able to recover some of those costs?

Speaker #8: Okay. And then on the metal pass-through, what's the timing and the lag that you expect you'll be able to recover some of those costs?

Alban Fournier: The metal passthrough, we expect it to happen with at least 2 quarter lags and in the partial way, it won't be 100%. We are at the point where we see the margin for Q2 2026 being extended in the H2, within approximately 1 percentage point.

Speaker #5: The metal pass-through, we expect it to happen with at least two quarter lags and in the partial way. It won't be 100%. So we are at the point where we see the margin for Q2 2026 being extended in the second half of the year within approximately 1 percentage point.

Speaker #8: Okay. Thanks, Alban. So is it fair to assume then on that comment that the normalized margins this quarter, excluding the unplanned maintenance and the price impacts of the metals, it would have been about 2 percentage points higher than where it currently landed?

Nicholas Boychuk: Okay, thanks Alban. Is it fair to assume then on that comment that the normalized margins this quarter, excluding the unplanned maintenance and the price impacts of the metals, it would've been about 2 percentage points higher than where it currently landed?

Nick Boychuk: Okay, thanks Alban. Is it fair to assume then on that comment that the normalized margins this quarter, excluding the unplanned maintenance and the price impacts of the metals, it would've been about 2 percentage points higher than where it currently landed?

Speaker #4: Mathematically, assuming it's about half, that's our estimate. Yeah, that would work.

Richard Perron: Mathematically, assuming it's about half, that's our estimate. Yeah, that would work.

Speaker #8: Okay, excellent. Thanks so much, guys.

Nicholas Boychuk: Okay, excellent. Thanks so much, guys.

Nick Boychuk: Okay, excellent. Thanks so much, guys.

Speaker #1: Your next question comes from Nelson Nguyen from RBC Capital Market. Please go ahead.

Operator: Your next question comes from Nelson Ng from RBC Capital Markets. Please go ahead.

Speaker #8: Great, thanks. And good morning, everyone. So, your comment in terms of adding a lot of equipment and lots of employees—just to clarify, that's in the terrestrial renewable energy side, or both renewables and Azure Space as well?

Nelson Ng: Great, thanks, and good morning, everyone. Your comment in terms of adding a lot of equipment and lots of employees, just to clarify, that's in the terrestrial renewable energy side, or both renewables and AZUR space as well?

Richard Perron: It's almost equally attributable to both terrestrial and space.

Speaker #4: It's almost equally attributable to both terrestrial and space.

Speaker #8: Okay. Got it. And then I think you mentioned that the ramp-up in the Azure space side is taking place in the second half of the year.

Nelson Ng: Okay. Got it. I think you mentioned that the ramp-up in the AZUR SPACE side is taking place in H2. On the renewable energy side, obviously you have more volumes with First Solar over the next few years as well as starting last year. Is that ramp pretty gradual over last year, this year, and the next two years?

Speaker #8: So on the renewable energy side, obviously, you have more volumes with first solar over the next few years as well as starting last year.

Speaker #8: Is that ramp pretty gradual over whether it's last year, this year, and the next two years?

Speaker #4: This year, we definitely have more volume than last year. And then for the coming two years, we'll have more volume, but not at the same magnitude in terms of incremental volume.

Richard Perron: This year, we definitely have more volume than last year, for the coming two years, we'll have more volume, not of the same magnitude in terms of incremental volume if you compare it to 2025 to 2026.

Speaker #4: If you compare it to '25 to '26.

Speaker #8: Okay. But each year we'll have more volume.

Nelson Ng: Okay. For each year we'll have more volume

Speaker #4: Yeah. '26 is a bigger volume increase, and then '27 and '28 are also increased volume, but have a smaller scale.

Richard Perron: Yeah, 2026 is a bigger volume increase, then 2027 and 2028 are also increased volume, but of a smaller scale.

Speaker #8: Got it. Okay. And then just on the balance sheet, net debt was standing at around $24 million. So it sounds like you are on track to be roughly net debt-free by the end of the year.

Nelson Ng: Got it. Okay. Just on the balance sheet, net debt was standing at around CAD 24 million. It sounds like you are on track to be roughly net debt-free by the end of the year. I think you commented that working capital will be consistent with the revenue increases. Is that correct?

Speaker #8: I think you commented that working capital will be consistent with the revenue increases. Is that correct?

Speaker #5: Yeah, that's correct.

Richard Perron: Yeah, that's correct.

Alban Fournier: Yeah, that's correct.

Speaker #4: It's going to be aligned with growth plus or minus obviously some additional investment we may make in terms of safety stock.

Nelson Ng: It's going to be aligned with growth plus or minus, obviously some additional investment we may make in terms of safety stock.

Richard Perron: It's going to be aligned with growth plus or minus, obviously some additional investment we may make in terms of safety stock.

Speaker #5: Yeah, yeah. But essentially, in line with revenue growth.

Richard Perron: Yeah.

Nelson Ng: Yeah.

Nelson Ng: Got it.

Richard Perron: Essentially in line with revenue growth.

Alban Fournier: Essentially in line with revenue growth.

Speaker #8: Okay.

Nelson Ng: Okay.

Speaker #5: Plus whatever specific action we need to take for safety inventory or strategic inventory. But roughly in line with revenue.

Richard Perron: Plus whatever specific action we need to take for a safety inventory or strategic inventory. Roughly in line with revenue.

Alban Fournier: Plus whatever specific action we need to take for a safety inventory or strategic inventory. Roughly in line with revenue.

Speaker #8: Okay. And then I know you previously talked about M&A opportunities and how you want to find the right opportunity sometime this year. But can you just talk about the environments now and obviously, there has been a bit of a pullback in valuations in some sectors, including the space-related sector.

Nelson Ng: Okay. I know you previously talked about M&A opportunities and how you want to find the right opportunity sometime this year. Can you just talk about the environments now? Obviously there's been a bit of a pullback in valuations in some sectors, including the space-related sector. Can you just talk about some of the opportunities you're seeing, whether the environment has improved?

Speaker #8: Can you just talk about some of the opportunities you're seeing, whether things are whether the environment has improved?

Richard Perron: Look, we continue to scout our markets for M&A opportunities. Obviously, despite some corrections, as you refer to, in the space industry, it remains across many sectors that we cover quite high still today. We continue to be very optimistic to get our hand on something accretive and strategic to 5N Plus. Things are definitely expensive still today.

Speaker #4: Look, we can't change the scattered markets for M&A opportunities. Obviously, despite some corrections, as you referred to in the space industry, it remains across many, many sectors that we cover quite high still today.

Speaker #4: But we continue to be very optimistic to get our hand on something accurate and strategic to five and plus. But things are definitely expensive still today.

Speaker #8: Okay. Got it. And there's one last question. Just marine shipping costs. I don't know how big of an exposure you have on shipping costs, but since the Iran war, can you just talk about how that has kind of impacted your transportation costs?

Nelson Ng: Okay, got it. There's one last question. Just marine shipping costs. I don't know how big of an exposure you have on shipping costs, but, since the Iran war, can you just talk about how that has impacted your transportation costs?

Speaker #5: So you're talking about the increased shipping costs that we see right now in the market. So I think we cannot single out this factor, but overall, contributes to the increase we see in our chemical products.

Richard Perron: You're talking about the increased shipping costs-

Nelson Ng: Right

Richard Perron: that we see right now in the market. I think we cannot single out this factor, but overall it contributes to the increase we see in our chemical products, generally speaking. It's one factor which we cannot single out, but which is a contributor.

Speaker #5: Generally speaking. So it's one factor which we cannot single out, but which is a contributor.

Speaker #8: Okay. Got it. I'll leave it there. Thank you.

Nelson Ng: Okay, got it. I'll leave it there. Thank you.

Speaker #1: Your next question comes from Frédéric Tremblay from Desjardins Capital Markets. Please go ahead.

Operator: Your next question comes from Frédéric Tremblay from Desjardins Capital Markets. Please go ahead.

Speaker #8: Thank you. Good morning.

Frédéric Tremblay: Thank you. Good morning.

Speaker #7: Morning. Good morning.

Richard Perron: Morning.

Richard Perron: Good morning.

Alban Fournier: Good morning.

Speaker #8: On the two-quarter lag to recover higher metal costs, I'm just curious, is that a lag because the metal prices went up so fast that it's I mean, it's going to be more gradual to implement price actions, or is it more contractual in nature?

Operator 2: On the two-quarter lag to recover higher metal costs, I'm just curious, is that a lag because the metal prices went up so fast that it's going to be more gradual to implement price actions, or is it more contractual in nature? Just trying to better understand the two-quarter dynamic there.

Frédéric Tremblay: On the two-quarter lag to recover higher metal costs, I'm just curious, is that a lag because the metal prices went up so fast that it's going to be more gradual to implement price actions, or is it more contractual in nature? Just trying to better understand the two-quarter dynamic there.

Speaker #8: Just trying to better understand the two-quarter dynamic there.

Speaker #4: It's a combination. It's a combination of both, obviously, the speed and the magnitude plus after that, the recovery depends on a pre-product on a per-client basis.

Richard Perron: It's a combination of both. Obviously, the speed and the magnitude, plus after that, the recovery depends on a per product and a per client basis, so contractual.

Speaker #4: So contractual.

Speaker #8: Okay. Perfect. And then just on the bidding environment, you mentioned for Azure that things are going well on that front. I'm just wondering about competitive discipline, meaning is the higher metal environment being properly reflected in new contracts and new bids across the industry, or are we kind of resetting to a different margin level given the metal environment?

Frédéric Tremblay: Okay, perfect. Just on the bidding environment, you mentioned for AZUR that things are going well on that front. I'm just wondering about competitive discipline, meaning is the higher metal environment being properly reflected in new contracts and new bids across the industry, or are we resetting to a different margin level given the metal environment?

Speaker #5: No. So I think as Richard mentioned, there is a way to structure contractually our growth. We're working on it. So there will be a capacity to pass through metal costs with a delay.

Alban Fournier: I think as Richard mentioned, there is a way to structure contractually our growth. We're working on it. There will be a capacity to pass through metal costs with a delay and with a certain percentage. We are building that through our growth.

Speaker #5: And with a certain percentage. But we are building that through our growth.

Speaker #8: Okay. And then, last question—just on the U.S.-Germanium refining capacity expansion and the grant that you received or announced, do you have an update on that, on how that's progressing?

Frédéric Tremblay: Okay. Last question, just on the US remaining refining capacity expansion and the grant that you received or announced, do you have an update on that, on how that's progressing?

Speaker #4: It's progressing as per plan. It's a fairly large project. We're expanding the buildings that we're in today, and we've started to receive some additional equipment.

Richard Perron: It's progressing as per plan. It's a fairly large project at the end, we're expanding the building that we're in today. We started to receive some additional equipment. We have ordered more equipment that is on its way. To complete the project, it's going to take probably close to a year and a half, two years. Gradually we're adding more capacity and capabilities from one quarter to the next. It's all as per plan.

Speaker #4: We have ordered more equipment that is on its way. So to complete the project, it's going to take probably close to a year and a half, two years.

Speaker #4: But gradually, we're adding more capacity and capabilities from one quarter to the. So it's actually all. As per plan.

Speaker #8: Okay, that's all I had. Thank you.

Frédéric Tremblay: Okay. That's all I had. Thank you.

Speaker #1: Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Operator: Your next question comes from Jonathan Goldman from Scotiabank. Please go ahead.

Speaker #8: Hey, good morning, guys, and thanks for taking my questions. I just want to clarify a couple of points on the margin discussion. So gross margin was down 430 basis points year on year, and you're saying half of that was due to the unplanned maintenance.

Jonathan Goldman: Hey, good morning, guys, and thanks for taking my questions. I just wanted to clarify a couple points on the margin discussion. Gross margin was down 430 basis points year on year, and you're saying half of that was due to the unplanned maintenance. Is that correct?

Speaker #8: Is that correct?

Speaker #4: Yeah.

Richard Perron: Yeah.

Richard Perron: Yeah. Yeah. That's about that. Yeah.

Speaker #5: Yeah, yeah. That's about that. Yeah.

Richard Perron: Yeah. That's about that. Yeah.

Speaker #8: Okay. And when do you think you would recover that impact? Would it be a couple of quarters, a few quarters, but the unplanned maintenance part and the overhead efficiencies from that?

Jonathan Goldman: Okay. When do you think you would recover that impact? Would it be a couple of quarters, few quarters? The unplanned maintenance part and the overhead efficiencies from that, when would that be resolved?

Speaker #8: When would that be resolved?

Speaker #4: Okay. So unplanned maintenance and else we're applying ourselves to resolve the remaining issues that we have. Okay? So for us, this is temporary, and we have mitigation plans and else.

Richard Perron: Okay. Unplanned maintenance and else, we're applying ourselves to resolve the remaining, let's say, issues that we have. Okay? For us, this is temporary, and we have mitigation plans and else, and we don't foresee any issue in order to realize contracts on hand in H2. Metal is a bit more tricky because it varies from, as I've said earlier, it varies from product and clients, and by default also contracts that are different depending on the business lines and clients and products. For that, we take a prudent approach, and we see at least two quarters for that to be resolved.

Speaker #4: And we don't foresee any issue from in order to realize contracts on N and H2. Metal is a bit more tricky because it varies from, as I've said earlier, it varies from product and clients and by default also contracts that are different depending on the business lines and clients and products.

Speaker #4: So for that, we take a print approach and we see at least two quarters for that to be resolved.

Speaker #8: Okay. That makes sense. And maybe I missed this in the prepared remarks, but did you mention additional margin pressure before we come back to the normalized margins when you recover the metal prices?

Jonathan Goldman: Okay, that makes sense. Maybe I missed this in the prepared remarks, did you mention additional margin pressure, before we come back to the normalized margins when you recover the metal prices?

Speaker #4: Nothing specific other than, look, it's a complex environment and inflation, chemicals, energy and else. Can occur on a with a limited warning. That's why we continue to take a print approach on our guidance and forecast for the second half of the year.

Richard Perron: Nothing specific other than, look, it's a complex environment inflation, chemicals, energy, and else can occur with a limited warning. That's why we continue to take a prudent approach on our guidance and forecast for H2 of the year.

Speaker #8: Okay, and I missed your comment. You said the margins in the second half are kind of where the Q2 level is, within 1%. Is that correct?

Jonathan Goldman: Okay. Alban, I missed your comment. You said the margins in H2 being where the Q2 level is within 1%. Is that correct?

Speaker #5: Yeah. That's the view that we currently have, that the gross margin that we've seen for Q2 would probably be a good projections for the second half within 1 percentage point band.

Alban Fournier: Yeah, that's the view that we currently have, that the gross margin that we've seen for Q2 would probably be a good projection for H2 within a 1 percentage point band.

Speaker #8: Okay, understood. And then, very strong growth in performance materials on the revenue line. I've always thought of this business as kind of a GDP-type of growing business.

Jonathan Goldman: Very strong growth in Performance Materials on the revenue line. I've always thought of this business as a GDP type of growing business, and I think, Richard, you mentioned a lot of that was supported by volume. I'm just trying to understand what's supporting the strong growth there, and how should we think about the balance of the year in terms of the top line and Performance Materials?

Speaker #8: And I think, Richard, you mentioned a lot of that was supported by volume. So I'm just trying to understand what's supporting the strong growth there, and how should we think about the balance of the year in terms of the top line and Performance Materials?

Speaker #4: Yeah. Typically, historically, if you look at numerous number of years, performance materials would typically do better in the first half and the second half.

Richard Perron: Yeah. Typically, historically, if you look at a numerous number of years, Performance Materials would typically do better in the H1 than the H2, with many of our clients under that segment, I guess reducing the inventory at year-end to show a better balance sheet and else. Typically, historically, the H1 from a volume perspective has always been better than the H2. That's essentially what we anticipate will happen again this year.

Speaker #4: With many of our clients under that segment, I guess reducing the inventory at year-end to show a better balance sheet and else. So typically, historically, the first half from a volume perspective has always been better than the second half.

Speaker #4: So that's essentially what we anticipate will happen again this year.

Speaker #8: Okay, makes sense. And on Azure, could you give us an update on the order book? How much of the order book is fully booked in '27, and how many orders are you currently taking for '28 and maybe beyond?

Jonathan Goldman: Okay. Makes sense. On AZUR, can you give us an update on the order book? How much of the order book is fully booked in 2027, and how much orders are you currently taking to 2028 and maybe beyond?

Speaker #4: Look, '26 is at this point in time, '26 is sold out. '27 is sold out. And we continue obviously we're assessing opportunities to increase further capacity for '27.

Richard Perron: Look, at this point in time, 2026 is sold out, 2027 is sold out, and we continue obviously, we're assessing opportunities to increase further capacity for 2027. At this point in time, we're working out scenarios for 2028, 2029, and 2030 forward.

Speaker #4: But at this point in time, we're working out scenarios for '28, '29, and '30 forward.

Speaker #8: Okay, perfect. And maybe one more from me. If you could just remind us of your capital allocation priorities? I mean, the balance sheet is in great shape.

Jonathan Goldman: Okay, perfect. Maybe one more from me. If you could just remind us your capital allocation priorities. Balance sheet's in great shape. It got better. I think an earlier analyst mentioned maybe leverage neutral by the end of the year. How do you evaluate M&A versus buybacks here, organic growth, and what's the runway for organic growth to expand capacity further?

Speaker #8: It got better. I think an earlier analyst mentioned maybe leverage neutral by the end of the year. But how do you evaluate M&A versus buybacks here organic growth?

Speaker #8: And what's the runway for organic growth to expand capacity further?

Speaker #4: With no surprise, and I'll let Alba complement, but with no surprise, organic growth, proper inventory levels is the priority at this point in time because as you know, commercially, we have a lot of visibility.

Richard Perron: With no surprise, and I'll let Alban complement, but with no surprise, organic growth, proper inventory levels is the priority at this point in time because as you know, commercially, we have a lot of visibility and we need to fulfill those contracts.

Speaker #4: And we need to fulfill those contracts.

Speaker #5: And just to complement that, as I've said, we're making room in our bank sheet. We continue to scan for M&A opportunities. So we want to have the room and the capability to make a valuable acquisition if it presents itself.

Alban Fournier: Just to complement that, as I've said, we're making room in our balance sheet. We continue to scan for M&A opportunities. We want to have the room and the capability to make a valuable acquisition if it presents itself.

Speaker #8: And is there any update on the M&A pipeline? Is anything become more interesting lately?

Jonathan Goldman: Is there any update on the M&A pipeline? Has anything become more interesting lately?

Speaker #5: There is nothing specifically.

Alban Fournier: There is nothing specific.

Speaker #4: No. We have obviously a list of files that we do spend more time than others, but nothing that we can communicate this morning.

Richard Perron: No, we have obviously a list of files that we do spend more time than others, but nothing that we can communicate this morning.

Speaker #8: Okay, fair enough. Thanks for taking my questions. I'll get back in the queue.

Jonathan Goldman: Okay, fair enough. Thanks for taking my questions. I will get back in queue.

Speaker #5: Thank you.

Richard Perron: Thank you.

Speaker #1: Encore une fois, si vous souhaitez poser une question, s'il vous plaît, appuyez sur l'étoile suivie du 1 sur votre clavier téléphonique. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.

Operator: As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from Baltej Sidhu from National Bank of Canada. Please go ahead. Baltej?

Speaker #1: Your next question comes from Baltej Sidhu from National Bank of Canada. Please go ahead.

Speaker #8: That's it.

Speaker #1: Baltej.

Speaker #3: Sorry, had myself on mute there. Thanks again for taking my question. I just wanted to quickly ask about Azure. Are there any other product lines you may be considering, given the number of satellites that are looking to be set up into orbit over the next, call it, 10 years?

Baltej Sidhu: Sorry, had myself on mute there. Thanks again for taking my question. I just wanted to quickly ask on AZUR, and other product lines you may be considering, just the number of satellites that are looking to be set up into orbit over the next, call it 10 years. Right now you're tackling true LEO, MEO, and GEO. Are you looking at opportunities within the VLEO market? Then how should we think about the product suite that could culminate?

Speaker #3: Right now, you're tackling true LEO, MEO, and NGO. Are you looking at opportunities within the VLEO market and how should we think about the product suite that could culminate?

Richard Perron: At the present time, as you know, our technology are referred to as III-V multijunction solar cells, applied to what I often refer to as true LEO, MEO, and GEO distances from Earth. Are we contemplating adding a new product line to address the VLEO market? Maybe, but nothing confirmed or very concrete this morning. We continue to focus on high-end applications for our solar cells.

Speaker #4: At the present time, as you know, our technology are referred to as 3.5 multi-junction solar cells. Applied to what I often refer to as true LEO, MEO, NGO distances from Earth.

Speaker #4: Are we contemplating adding a new product line to address the video market? Maybe, but nothing confirmed or very concrete this morning. So we continue to focus on high-end applications for solar cells.

Speaker #3: Great. Thank you. I'll pass the line.

Baltej Sidhu: Great. Thank you. I'll pass the line.

Speaker #1: And there are no further questions at this time. I will turn the call back over to Richard Perron for closing remarks.

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

Speaker #4: Look, I would like to wish you all a good day and thanks for being with us this morning.

Richard Perron: Look, I would like to wish you all a good day, and thanks for being with us this morning.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Merci.

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