Tekna Holding ASA ($TEKNA)

Good afternoon. Welcome to Tekna's presentation of the Q1 results. Claude Jean and Espen Schie are with us today to present the highlights, followed by a Q&A session. You can post your questions either below this webcast video or on the right side or even by e-mail to [email protected]. Over to you, Claude.

Thank you, Arina. Thank you, everybody, for being with us this afternoon or this morning. So before jumping into the Q1 results, I'd like to spend some time on the describing Tekna for those of you that are less familiar. So at Tekna, everything we do is based on what we call ICP inductively coupled plasma technology that Tekna started developing more than 30 years ago. And what it is, basically, it's a very hot stream of gas, and we use it for different means. So if you look at the system business area, we have two business areas, Tekna. If you look at the system business area, that's why we developed the plasma system that are used in our material business area, but are also used by several customers, for example, R&D lab, universities that are looking at developing new material. So we sell those systems for those applications. And also those systems, those plasma, they are perfectly suited to reproduce the kind of environment that a space shuttle would experience, for example, when they come back to Earth. So you probably have all seen Artemis coming back to Earth recently, and they were talking about the thermal protection system such that the space shuttle would not burn coming back to Earth. So in order to develop those thermal protection system, labs, universities of big corporation need to be able to reproduce the environment and our plasma are perfectly suited for that. So that's one significant application. And also, of course, we develop our own plasma system for the other business area where we use our plasma system to manufacture powder for additive manufacturing, mostly titanium, a few other materials that I will be talking about, but mostly titanium. So material business area is really the growth engine. We made $27.8 million revenue in 2025 with 53% contribution margin. And on the system side, lower revenue in 2025. It's more lumpy business by nature, but with very healthy marginal contribution. Both plants are located in Sherbrooke, Quebec. We're about 152 employees. And of course, we're protecting our core IP with 95 active patents. Next slide, please. So if you look at the Q1 highlights, we posted strong revenue growth year-over-year, 19%, mostly driven by the material business area, again, third consecutive quarter with positive EBITDA at $200,000. Cash flow was very strong. Espen will give more detail about that. First time that we have positive cash flow on a trailing 12 months basis, up $8 million year-over-year. Both business units delivered very good contribution margin compared to target, 53% in the material and 60% in systems or 54% combined. And net working capital went down very significantly to 28% of sales. And again, Espen will talk about it. Next slide. Okay. Before going into the detail, again, let's talk a bit more about additive manufacturing because this is really where we put our effort. It's our main focus. If you look at the graph on the bottom left, the way it works, basically we're using raw material, in our case, mostly titanium, and we use our plasma equipment and our plasma equipment melt the raw material, and it's basically transforming it into powders, very tightly controlled powders in terms of sphericity, size, purity, et cetera. And we have a worldwide distribution network. We ship powders everywhere in the world in all market vertical. And as I said, it's based on 35 years of experience with inductively coupled plasma technology. And we focus on titanium -- we focus on the toughest material to make. So where the barrier to entry are very high. So titanium is difficult to make in a sense that it's a reactive material. So if you expose it to air, it would burn, it would explode, when it's in very fine particle. And our technology can produce the best control in terms of size, sphericity, and purity, especially purity, very hard to make material. We announced in the fall NADCAP certification for defense. We renewed our ISO13485 certification for medical. And again, mostly titanium. We're #2 global supplier of titanium for additive manufacturing, but also some other material like tantalum and tungsten, they are refractory metal. They have very high melting point. They are hard to make. So we're also very good at that. And also aluminum is another material that we provide. Next slide. If you look at the additive manufacturing market, the left graph is there showing the latest forecast from AM Power that they just recently published. And this graph is just for metal additive manufacturing. It's excluding polymer additive manufacturing. And if you look at 2025, it was a $3.6 billion market and the materials segment is $1.2 billion there. And out of that, titanium is about $200 million. That's where we play. And it's forecasted to grow 16% CAGR in the next five years. Specifically for titanium, they forecast about 21% or 22% CAGR. And what is driving this additive manufacturing or 3D printing fast adoption, you can make with 3D printing, you can make parts that you could not even make with traditional manufacturing or you would have to use several components, sometimes hundreds of different components. While with 3D printing, you just put powder in the printer and you print the whole part. Somewhat -- someone -- sometimes not feasible with traditional manufacturing, you can make it much lighter because you're only using the amount of material that you need to use. And also, you can use material like titanium, for example, that is much lighter than any other material. You can have much shorter turnaround time because, again, you don't have to wait for parts coming from all over the world. It's only getting the electronic file in the printer, putting powder in the printer and getting the part printed the very same day. So -- and you can have production distributed around the world close to the point of usage, again, because you need the powder in the printer. And it's also being pushed by geopolitical trend. There's a lot of reshoring in Europe and also in North America. If you are going to reshore parts manufacturing, you would rather implement the most, the one that suits best you need and also digitalization of supply chain. Again, you just have to transfer the electronic file of your part design to the printer company, and it can be printed already. So a lot of global trends are pushing the adoption of additive manufacturing. And we are one of the first mover when it comes to making the powder for that market. So we're extremely well positioned. Next slide. Okay. Again, if you look at the forecast for additive manufacturing on the right-hand side, this is from last year AM Power report. You can see the 2024 market for defense, space, medical, industrial, civil aviation and so on. And the 2029 numbers, as you can see, currently, medical is the biggest market. Medical is quite mature when it comes to 3D printing. They're printing implant or body implant, for example. The 3D printing fits perfectly the need because they can print a part, an implant that is perfectly adapted to your shape, to your body shape, highly customizable. So that's a good example. But defense, space, civil aviation are growing nicely. And if you look on the left, we already have about 50% of our revenue in aerospace and defense. We are one of the first mover. We went very early into qualification with almost all the big user there. So extremely well positioned. And as I said, in the medical, our market share is lower right now, but we're making a lot of effort. We gained two new customers in Q1, and we will announce a new customer win in the next quarter. So we're making a lot of effort because there, we have a lot of room for growth because our current market share is lower. Next slide. Okay. So before getting into more detail into the Q1 results. So again, we are extremely well positioned to capture the growth in additive manufacturing, particularly in aerospace and defense and medical. We are a world-leading provider of those advanced materials and also system. We are well positioned to capture the growth in all market verticals, including aerospace and defense and medical. System is more lumpy, but we see a lot of opportunity. We said in the previous presentation that we see a lot of opportunity to grow this business unit because it's providing very healthy contribution margin and also providing a lot of technological advancement to the material business unit. And as we progress in our exploration and customer engagement, we see a good pipeline that is building for the system BU. So we're in a good position to continue to target double-digit growth per year towards 2030 with 15% to 20% EBITDA in a market that is forecasted to grow at around 20% per year. Espen will talk about our robust balance sheet that we have established and I spoke about all the opportunity to do even better than the plan that we presented. Next slide. So now to Espen for the financial detail.

Very good. So let's take a look at the Q1 results. So first of all, very happy to report materials results in Q1, topping $7.7 million revenues. This is our best Q1 ever for materials. We had almost 24% year-over-year growth, driven by aerospace and defense and also a very nice uptick on the medical side. Our margins ended solidly again for the third consecutive quarter, well above 50%. This is as we guided also to achieve over 50% contribution margins. Very happy also to look at the backlog. Looking at the graph, you might get fooled, but it looks like it is going down year-over-year, but order intake last year had some orders that had lower selling prices compared to what we have now. So the quality of what we have now in the backlog is very, very solid and the quality of the backlog we have now essentially is better than what we had on the same time last year. So I'm very happy with what we see on this picture. We had several important wins in the U.S. defense with a large U.S. defense customer and also two new medical customers coming into joining the Tekna customer base this quarter. So with that, we can look at the next slide for systems. For systems, we also achieved very, very solid revenues of $2.3 million, and especially considering that we have a fairly low backlog or lower than what we are targeting. We have luckily a very, very solid pipeline. So I think what we're seeing is temporarily low on the backlog side, with the pipeline maturing and believe we have much to look forward to. Nonetheless, in the quarter, we did achieve a $1.5 million order from a leading U.K. university. And also lastly, for the quarter, we also achieved a very solid contribution margin, 60%, in line with guiding. And while we do have a limited backlog, we also keep in place cost measures, both for staff and OpEx to align this with the current work level we have. So with that, we can go for the next slide. So this is the profitability program that we started in 2023. So this is just a continuation of the reporting on this. So we have recurring savings also into Q1. We see that the last three quarters are fairly on a similar level and comparable to what we had in 2021. And then we have achieved annual savings if you compare it to the end of '23 to now the end of '26. We have annualized savings if we take all the staff of the company of almost $8 million. So that will be $7.7 million annual savings from the beginning of the program. With that, we can go to the next slide. And next slide again. And then so we have the EBITDA. Year-over-year, we had a $1 million improvement in EBITDA. We had good effects from both the materials side and the system business. We achieved then our third consecutive positive adjusted EBITDA quarter. And we had also indirect personnel cost savings of $0.5 million, and then we had some headwind with respect to FX and other income, which is timing effects related to grants. The adjustments we made in the quarter was related to some restructuring measures on costs that we executed continuously -- from a continuation from my previous slide. And also a litigation cost related to the litigation on the patent that we -- the appeal that was ended to Tekna's favor in Q1. With that, we can go to the next slide. With the cash flow, we had a very solid improvement also from -- to about $1.4 million increase. We had a solid contribution from the working capital side, first of all. So this comes from, of course, improved EBITDA and the operations as such. As you see in the graph, it looks like it is a small negative $0.3 million contribution from the P&L, but that is on a non-adjusted basis, of course. So this includes all the costs from the P&L. And then when looking at the working capital here, we had a very, very good improvement coming from all the major items in the working capital being trade inventories, trade receivables and trade payables. CapEx, very limited at $0.2 million in the quarter, mainly on maintenance. And then we do keep our guidance from last quarter about $1.5 million to $2 million for the year. And also, we repaid a little bit more on the bank loan for cash management purposes that we had increased in the prior quarter. So with that, we ended the quarter with a cash position of $18.8 million. We can go to the next slide, please. This brings us to the balance sheet. So we have, as you can appreciate, a net position of debt, which is a net cash position. So we have much more cash than we have debt. So this is almost $13 million, $12.9 million. This improved from the $9.9 million that we had at the end of the year. Very, very solid equity ratio of 75%. We have a working capital of $10.6 million, which is now a 28% of trailing revenues. This is down from the $14.2 million that we had at the end of the year, the 40% that we had at that time. So this is a very, very solid improvement quarter-over-quarter. Liquidity now, 26% of our assets is cash, and we still have almost $5 million of non-utilized credit facilities, which brings our liquidity to almost $24 million, and we have a fully funded business plan as we continue executing. With that, we can go to the next slide, and back to Claude.

Thank you, Espen. So before going to Q&A, some last comment. So we reiterate our ambition to, in the next five years, grow double digit per year to reach 15% to 20% EBITDA toward 2030. Of course, the growth engine will remain the business area material, supported by the trend that I spoke about in additive manufacturing, supported the current backlog that we have and the reshoring trend that we see and also the trend of increased defense spending that we already feel in both business area. And we're also working -- we keep working on other opportunity like, for example, nanomaterial, more specifically nickel and copper. So again, we want to keep working on growing the system business unit, providing very healthy contribution margin, and we see a lot of opportunity there moving forward. Next slide. So as a conclusion, we're very happy with our performance, third consecutive adjusted -- positive adjusted EBITDA, very healthy contribution margin in both business area. We see a good pipeline, good backlog. We like our backlog in the material business area, and we have a very healthy pipeline of opportunity in the system business area and low CapEx need. We're still, as Espen said, talking about $1.5 million to $2 million in 2026. We are fully funded in terms of production capacity for the next five years. We could almost double the business with the current capacity that we have already invested in. So I think that we are in full control to be able to deliver what we said we would deliver in the previous presentation. So that concludes the presentation. I think we can go to the Q&A, Arina.

Yes, Claude, thank you very much for the presentation to both of you. And so people can ask questions below or depending what device you use below or on the right side of this webcast screen. So feel free to send us your questions. In the meantime, I have a few for you. So you talk a lot about aerospace and defense. So how do you see those opportunities specifically? And how is Tekna making use of the increased budget spending that countries are announcing?

Yes, very good question. What is good with aerospace and defense is that there's opportunity for both business area. So we spoke about PlasmaSonic where there's a need to test material, either for hypersonic flight or space rocket or space shuttle. So there's a lot of opportunity there. And we see that almost all the testing facility in the world are aging a lot. They're quite old and need to be modernized with more capability. So there's definitely a lot of opportunity there. And of course, with our material, there's definitely additive manufacturing is getting adopted very quickly in aerospace and defense. When it comes to making lighter product, again, some parts that are rather impossible to make with traditional manufacturing. We already see it when it comes to making unmanned vehicle engine or all kind. I gave the example of suppressor for guns. It's growing a lot in the U.S. right now because, again, of the way they need to make those suppressor with very complex channel inside. So when it comes to using our material, also our refractory material that are quite important, not only in aerospace and defense, but also in nuclear energy, where there's also a lot of spending. So we definitely feel it. We see it in the order intake, and we see it in the funnel of opportunity that we have in the system business.

Thank you. So that sounds very good. Then obviously, we're trying to increase our market share in the medical industry. So what actions are we taking to make that -- our position stronger in that market?

Yes, very good question. So as I said, in medical, we have a small market share. We were not the first mover in this market. So we're basically looking at getting qualified to most of the big user of powder for 3D printing of medical part. So every quarter, we win new customer. We are getting qualified. Some customers already completed qualification, has started recurring production. Some other are progressing in their qualification. We regained our quality certification for medical. So we're actively chasing new customer all the time in -- mostly in Europe and North America. And as I said, we're making a lot of progress. We also feel it in our order intake and in our forecast. So I think there, again, the Tekna titanium powder is really the best powder you can buy. So when it comes to medical, of course, powder quality, powder purity is very important, and we are making the top quality powder. So very promising, and we're making a lot of progress there.

Excellent. Then in our research and development, we were working on nanomaterials for microelectronics. Can you give us an update on what's happening there?

Yes. So we were working on developing nano nickel powder for multi-layer ceramic capacitor application. Tekna has been working on it for many years. In the last quarter, we kept making technical progress. But in the last meeting, we said that we were targeting to be qualified in 2026 for start of production around the end of '27, beginning of '28. We -- the way we see it right now with new customer requirement when it comes to powder performance, we can probably not achieve qualification in 2026 again, not because we didn't achieve the expected performance from the customer, but the customer came with new criteria that we can't achieve at this time that would require more R&D work. And we have so many opportunity in both business area, and we need to be careful in which one we invest. We cannot invest in all opportunity we have. So we are currently reevaluating our business case for MLCC. We also have opportunity to sell system. So it's another opportunity that we can turn to instead of selling powder selling system. So we're really reviewing with the Board all the opportunity that we have in front of us. We have a lot of opportunity in additive manufacturing with new alloy that we could tackle. So it's really a question of making the best decision, where do we put our resource, where will we get the best return on our investment. So stay tuned on that, but we're not expecting qualification again in 2026.

Clear. Then we have, obviously, a situation -- a geopolitical situation happening in Iran. Do you foresee any issues for Tekna supply chain or deliveries related to our business?

So far, we haven't seen any negative impact. Of course, we follow the situation very carefully. We maintain enough inventory of the needed raw material that we use. And when it comes to gases, we have a very high level of recycling of the gas that we use. So we are monitoring the situation very closely so far. We haven't been warned by our -- any of our supplier of a potential issue. We obviously haven't feel any so far. When it comes to energy price, we don't use oil in our operation, nor we use clean electricity. So we're in Quebec. So we haven't been affected there either. Also on the transportation costs, very little impact. So far, we're not being materially affected. But of course, we monitor the situation very carefully.

Yes, exactly. Then I think -- I haven't seen any other questions come in from our viewers. So maybe you want to make some closing remarks before we...

Yes. So again, we're very excited, very proud of our Q1 results. I think we keep confirming that what we started establishing in Q3 last year, the third consecutive positive EBITDA, first time that we were cash flow positive on a trailing 12-month basis, which is quite good, managing better net working capital, and we're very excited about our current backlog. We like the backlog we see. We like the trend that we see from our customer in the market that we play in and also in the system business area also. So I think we're having a very good and very encouraging start of 2026.

Excellent. I feel the confidence also inside the organization. All right. Well, thank you both for joining us for this webcast. We will present our half year results in August 13. So that's a few months away. In the meantime, if you have any further questions, please e-mail on [email protected] or use the Q&A session on the website. And that's it for today. Thank you all.

Thank you.