Tekna Holding AS (market cap: $50 million) reported a decline in its fourth-quarter revenue, while simultaneously improving its cash flow and operational efficiency. According to InvestingPro analysis, the company appears undervalued at current levels. Despite a challenging market environment, the company continues to focus on its core business lines and strategic growth in advanced materials.
[InvestingPro Tip: While the company is quickly burning through cash, analysts anticipate sales growth in the current year. Get access to 5 more exclusive ProTips with InvestingPro.]
Key Takeaways
- Fourth-quarter revenue decreased by 15% year-over-year.
- Advanced Materials revenue increased by 14% in Q4.
- Cash balance improved by $4.8 million during the year.
- Operational expenses were significantly reduced with a 17% staff reduction.
Company Performance
Tekna’s performance in the fourth quarter of 2024 reflects a mixed picture. While the company faced a 15% year-over-year decline in revenue, its Advanced Materials segment showed resilience with a 14% increase. This growth is notable given the broader industry challenges. Tekna’s strategic focus on advanced materials, particularly in sectors like aerospace and electronics, positions it well for future growth.
Financial Highlights
- Q4 Revenue: $9.6 million, a 15% decrease from the previous year.
- Full Year 2024 Revenue: $37.2 million, down 9% year-over-year.
- Adjusted EBITDA: Negative $1.5 million in Q4.
- Cash Balance: $12.4 million, an increase of $4.8 million.
- Operating Cash Flow: Improved by $10.4 million compared to 2023.
Outlook & Guidance
Looking ahead, Tekna expects to see higher revenue and improved EBITDA in 2025. InvestingPro data shows analysts are strongly bullish on the stock, with revenue growth forecast at 202% for fiscal year 2024. The company is targeting significant growth in its powder sales utilization to reach 85% by year-end. Planned capital expenditures for 2025 are set at $2.5 million, with potential large orders for its Plasmasonic systems on the horizon.
Executive Commentary
CEO Luc Dion emphasized the company’s improved financial position, stating, "We have improved our cash position and cash flow from operations." CFO Espen Schia expressed confidence in future profitability, noting, "We expect margin improvements in ’25 versus ’24."
Risks and Challenges
- Potential trade tariffs between the US and Canada could impact costs.
- Macroeconomic pressures may affect customer demand in key segments.
- The need to maintain cost reductions without compromising growth initiatives.
Q&A
During the earnings call, analysts focused on Tekna’s cost reduction strategies and the company’s progress in the microelectronics market. There was also discussion about the potential impact of trade tariffs and the company’s confidence in achieving margin improvements in 2025.
Tekna’s strategic focus on innovation and operational efficiency, coupled with its strong position in advanced materials, suggests a positive outlook despite current revenue challenges.
Full transcript - Tekna Holding AS (TEKNA) Q4 2024:
Irina, Moderator/Host, Tecna: Good evening, and welcome to Tecna’s presentation of the highlights of q four. Luc Dion, CEO of Tecna, and Espin Schia, our CFO, are here are with me here today. It will be a short presentation of about fifteen minutes, and you can post your questions in investorweb.no or by email to investorstechna dot com. Over to you.
Luc Dion, CEO, Tecna: Hello. Thank you, Irina. So hello, everyone. And I’m pleased to share our company’s fourth quarter results with you today and reflect on the progress we have made despite the challenging market environment in 2024. So over the past two years, we have focused on strengthening our financial position.
We are not quite where we want to be, but our fundamentals have significantly improved as you will see. We will also comment about the tariffs threat on the Canadian U. S. Trades. But before we go into these details, I will share a few words about Tecna for those who are joining us for the first time.
So next slide please, Irina. Tekna is a world leading provider of advanced materials and plasma systems solutions. The company was founded in 1990. We have our headquarter in Canada and we are listed on the Oslo Stock Exchange since July 2022. We currently have 185 employees in the company with two production facilities located in Canada.
We also have offices and distributors that are located, well, of course, in Canada, USA, France, China, Korea, India, and Japan. Approximately, well, 46% of our revenues at the end of twenty twenty four were generated in North America, 20 7 Percent in Europe and the same in Asia and other countries. In terms of the customer segments we are serving now, 50% of the revenues again for 2024, So 50% came from the sales to the aerospace industry, 13% to the medical industry and this has increased, it was 7% last year. Three d machines 9%, so this was down from 12% to 9% and then 9% to consumer electronics, which was 5% last year. So the balance of 20% are sales that we do to various other segments such as academic institutions and industrial research.
So you can see here on the right side of our slide that we are serving and targeting quite a large base of high quality customers. And as I mentioned earlier, a good number of them are leaders in their in the aerospace industry. Next (LON:NXT) slide please. So the company Tecna is engaged in two business lines, Plasma Systems on the left and Advanced Materials. The Systems business line represents more or less 30% of our total revenues and this is in two specific market segments.
One is R and D Plasma Systems and plasma wind tunnels. Here on this picture, you can see what the R and D size plasma system looks like. And you will see on the later slide in my presentation, we will see what a plasmasonic wind tunnel that is a high potential for Tecna. One of the key application for our plasma systems is to produce advanced materials and those materials are produced in the form of very fine metal powders. We have developed a customized configuration of these systems and we use them for our exclusive production of advanced materials in three rapidly growing segments that we see under here, the under the Advanced Materials business line.
So that is Additive Manufacturing, Microelectronics and Energy Storage. Additive manufacturing is our current business. Microelectronics is a business we are currently developing and energy storage development is currently on hold. The production for materials serving for additive manufacturing segment is fully industrialized and it has generated more than two thirds of Tecna’s total revenues in 2024. Next slide, please.
And then, Espen, I’ll leave the word to you.
Espen Schia, CFO, Tecna: Sorry, that was muted. So thank you, Luke. Let’s take a look at the results. So Q4 revenue decreased 15% compared to the same quarter last year to $9,600,000 the decrease due to lower systems revenue. Advanced materials had a good quarter and were up 14% year over year to $7,500,000 For the year, revenues ended at $37,200,000 which is a 9% decrease.
Again, this is driven by the lower systems revenue we see. The advanced materials increased 3% in 2024 with very strong growth in all segments except for material sales to three d printer manufacturers that declined by almost 40% in 2024. We do find very strong confidence in our system pipeline and also the fact that virtually all the underlying advanced material segments are with strong growth. Next slide, please. So you see here, this slide, as we mentioned in our Q4 report that we published today, we have closed to the activities of a joint venture.
So historically, Tecna had revenues from making services to this joint venture. So when we look at this graph, we then exclude this from the advanced material bar. Those are the numbers in green. And then then we can conclude that the year on year growth on materials were actually 17% instead of the 14 that we saw on the left side and seven here on the right side instead of the 3%. So that is just to compare properly apples with apples.
Next slide, please. Let’s look at the profitability. So the adjusted EBITDA ended at 1,500,000.0 negative in Q4 and in 2024 was down by $2,800,000 versus $2,023,000,000 dollars This decline again is mainly driven by the lower system revenues that we just saw on the previous slides. We continue with very high focus on profitability and cash flow, and we remain very cautious on spending with continuous type of cost control. Some of the readers that have been following us, we have been working on cost reduction actions for a while.
And the cost reductions that we have made in 2024, most of them will also continue with recurring effect into 2025. You can go to the next slide, please. To illustrate here some of the fruits from the capital efficiency, we have over the past year reduced net working capital by $5,100,000 This largely then contributed to a very good improvement in operating cash flow by $10,400,000 in 2024 versus 2023. The CapEx in 2024 was in Q4 was very limited and for the year it ended at $2,200,000 This then excludes the lease contracts that are subject to IFRS 16. And finally, I’m very happy to say that the cash balance increased in the quarter to $12,400,000 up 4,800,000 since last quarter and $2,900,000 of this we received from a litigation case that we won last year.
The next slide, please. So a small touch on The US tariffs. So here, the recent threats that we have seen in tariffs between US and Canada does create some certainty in the marketplace. We do experience that the business is cautious, and pending on the outcome of this situation. It’s we see that some customers are delaying their decisions, others are pulling forward on orders.
Both are effectively different ways of managing their respective risks. So we see that everyone is managing on this basis. So we, on our end, we are monitoring the potential risk for us, the advantages for us that we can take out of the situation, any changes on the competitive landscape. And we work on minimizing the current exposure with the existing business we have as well as positioning ourselves for new business to limit the impact as much as possible pending the outcome. As we see the situation today, we do expect little impact on the system business.
And for Advanced Materials, no impact on the purchasing of raw materials, but a portion of the backlog that we have on hand could be in some way impacted depending on the outcome of what comes. But we do have mitigation plans in place and we expect that this number will also be reduced by the time by the time if the tariffs come come into play. So as the story evolves, we monitor and adjust our planning and try to limit the impact as much as possible. So with that, I will hand back to you, Luc. Next slide, please.
Luc Dion, CEO, Tecna: All right. Thank you, Espen. So looking at the year on year for the Advanced Materials. So over the past year, we saw strong year on year growth in advanced material sales across the key industries, aerospace, medical and consumer electronics. However, the sales of our materials to the three d printer manufacturers were affected by end users that were delaying their purchase of new printers.
So and these delays were mostly due to the high capital costs. As we can see on the graph here, this is basically the sales to AM machine manufacturers is essentially the factor that has affected our material sales throughout the year. And hopefully, the downward revision of interest rates should be a positive development for this market segment in 2025 and coming years. So despite this situation with AM machines, our sales to the aerospace and medical customers remained strong in Q4 and we closed 2024 with growth rates over ’23, respectively of 2429%. So this is quite strong growth for these segments.
And just to give a hint about the use of our materials, so for aerospace, the powders are used for the manufacturing of various parts used on aircraft, satellites, or rocket components. For medical, it is either for the manufacturing of medical implants, hip or like knee joints and or small medical tools. On the consumer electronics side, although the sales was quite soft in Q4, we have recorded 24% growth over last year. So this is quite impressive if we considering that there were basically no sales or little sales variation in Q4. So in consumer electronics, the use of our powder is to manufacture cases of and small components such as dials and press button that are used on cell phones, digital watches or any other wearable electronics.
So next slide please. So if we look at the long term for Advanced Materials, our ambitions for the growth and improving our margins remain very strong. Although some years have performed better than others, in 2024, we have recorded the tenth consecutive year of non stop revenue growth for this business line. And basically, if you look at the graph there due to some math, you’ll see that we’re doubling revenue more or less every three years. So several economic factors are working in our favor and that are fueling the demand for our materials.
So namely, like trade tensions and Western reshoring of manufacturing capabilities, or I would say maybe reshoring from Asia to the West, manufacturing capabilities, the aging population that is driving demand for medical implants and of course, growth in connectivity and electronic wearables. So all of this translate in a growing number of customers who are operating at industrial scale for three d printing. And of course, you know, beyond three d printing, it is important to mention that our addressable market is expanding and creating additional sales opportunities for the full range of the size fractions that we are producing. Those are the powder size fractions we are producing to serve various markets. So looking ahead, Tecna aims to gradually scale sales and production capacity to achieve about $70,000,000 in revenue by 2027.
This will be we expect that we will be able to achieve this with limited capital expenditure because we will be tapping on our current powder equipment base and productivity improvements. Next slide please. So beyond Advanced Materials sales for Additive Manufacturing, we see a significant potential upside in two key areas. The one, the acceleration of satellite space and hypersonic flight programs that is driving demand for our plasmasonic product line and also the growing market for multilayer ceramic capacitors that are supported by our nickel nanomaterials. The economic drivers remain favorable for Tecna’s plasmasonic product line.
In Q4, we’ve added four new opportunities to our pipeline and each having an average selling price exceeding $10,000,000 per unit. We continue to see consistent progress in the sales cycle for productive plasma project. So these opportunities are maturing, strengthening our confidence in near term to mid term orders. On the MLCC front, a recent applications and validation test on delivered samples that have yielded promising results. In Q4, we provided an adjusted version of our product and we expect feedback on these samples delivered in Q1 twenty twenty five.
Additionally, we still have trials of our techno nanomaterials for next generation MLCC applications that are ongoing and this is reinforcing our position in this high potential market. Next slide, please. So in conclusion of our presentation, so for systems revenue, we see decline in 2024 that has significantly impact our profitability, but we expect to rebound in 2025 with potential large plastasonic system order. In Advanced Materials, sales grew 25% to 30% across all sectors except three d printer manufacturers that were affected by high interest rates. Financial strength improved.
We have improved our cash position and cash flow from operations compared to the previous year. EBITDA and market conditions is the EBITDA is below market and that is was mainly impacted by our low systems revenue. The technology and commercial fundamentals of Tecna have proven resilient in a market challenge globally. We’ve seen this with our growing sales for additive powders. And last but not least, we our focus on cash reduction and cash preservation remains our key priority.
So with this, thank you everyone for listening today. And Irina, I pass it back to you for the q and a session.
Irina, Moderator/Host, Tecna: Yes. Thank you. So welcome to the q and a. We have already received some questions, and we’ll start with our CFO, Espen, some questions for you on our profitability program.
Espen Schia, CFO, Tecna: Yep.
Irina, Moderator/Host, Tecna: So what specific cost reduction measures were implemented to help reduce overhead?
Espen Schia, CFO, Tecna: Yep. So we have in the reduced first of all, we have reduced our staff cost base. So year over year, it’s about 17% lower staff. So we ended the year at 185 and we had over one hundred and two twenty two in the same period a year ago, so end of ’twenty three. If you compare it to the June, so Q2, that was 02/2003, so it’s still a significant reduction since the summer.
And the savings coming from this fact of the lower cost base also continues into 2025. In addition, we have significantly reduced our operational expenses. So the the typically, OpEx. These are mostly recurring and also structural savings, but some of this is discretionary spending, meaning these things we have temporarily reduced. By structural savings, what I mean with that is that we have changed our methods, processes in a way that we are leaner and operate more efficient.
This basically summarizes it and we expect that that this will be a main or a key driver for profitability in the
Irina, Moderator/Host, Tecna: future. Thank you. Then, at the same time, the working capital reduction is impressive. So how do you see that going forward? Is there more room to improve?
Espen Schia, CFO, Tecna: We have done a lot of working a lot of work on the working capital in ’24, including inventory management payments, price negotiations with suppliers and reduced virtually everything that is overdue on our receivables. In this equation, it’s also important thing for for the viewers to keep in mind that the system business we have, that the business that have very low working capital, because with these systems come with high prepayments. So the working capital is mainly driven by the activity on the material side. And for 2025, we expect that the working capital level will be more or less stable with slightly improvement that we can take probably something reduced on the inventory level. So I would say about 35%, which we ended now at 39% at December 24.
And over time, I do see that we have potential for improvement much beyond 35% also.
Irina, Moderator/Host, Tecna: That’s good news. Luke, for the reduction in head count, was quite drastic that we’ve done over the past year. How do you plan to maintain operational efficiency but at the same time grow the company?
Luc Dion, CEO, Tecna: Yeah. Good question. So I think we need to understand that an important part of this reduction in the headcount was made when we terminated the joint venture operations. So that part does not affect our remaining current business. So that’s, was one thing.
Another change we have done recently was a change in top management positions. So we made sure that we are keeping all the critical skills inside the company to continue the and maintain the operations as well as the business development. For example, we have not touched our sales force. Sales force remained untouched and we even further made some recent acquisition in, acquisition hiring, sorry about that, of a new staff. We have strategically positioned a sales director in Asia to cover that important part of our revenue.
So I think that the key skills are in the company and they are strategically deployed to make sure that we maintain our ability to develop and grow the company.
Irina, Moderator/Host, Tecna: Okay. That’s good to hear. We recovered the legal fees, but there’s also an appeal going on. Can you give us a bit more information on on that whole side of our story?
Luc Dion, CEO, Tecna: Yeah. Well, first, we were very happy to recover the legal fees. No doubt about it. You saw in our report, it’s about, well, not above it. It’s 2,900,000.0, basically close to a % of what we had claimed in the fees.
In terms of the appeal process, well, there’s not much to say about it because this is an ongoing process. We are very confident in the fact that the original ruling will not be overturned. But never done this process is going and it can take another year and a half before the court, the appeal court hears the case.
Irina, Moderator/Host, Tecna: Okay. So we, we still have this going on, but it seems like we’re not, it’s not gonna occupy your thoughts for now.
Luc Dion, CEO, Tecna: No. We’re not too concerned about it.
Irina, Moderator/Host, Tecna: Alright. Then, question about the market dynamics that we observed in this quarter.
Luc Dion, CEO, Tecna: I think it was q four was a pretty good reflection of what happened during the year, meaning that we did some good progress in every key sectors like I mentioned earlier, aerospace, medical and consumer was a little low, however. But the two key medical and aerospace went well for the sales of powders to the manufacturers of the three d printer that was still low as it was all year long. So I think it’s a pretty much same pattern in Q4. There’s nothing special there. Of course, our sales team, as usual, when we get close to the end of the fourth quarter, we try to promote sales as much as possible.
So we’ve been successful to some extent at doing this as it has reflected in our Q4 sales for materials. So I think all in all is good. And that’s we’re talking about powders, but also for plasma systems. We did receive two orders in Q4. So that really helped to boost a little bit of the backlog for that business segment.
We’ve also saw some acceleration going on for our plasmasonic product line. So we are actively, as you know, developing and growing in this highly interesting sector. For example, we have recorded four new opportunities in our pipeline. Each opportunity sells for about, in average, above CAD10 million. So those are it was quite, I would say, interesting to see how in a single quarter four opportunities came up.
And I think it’s useful to say that it’s a fiftyfifty spread between, share between industrial users and academic users. Okay.
Irina, Moderator/Host, Tecna: Since you brought it up, since you brought up the systems, so we have a maturing pipeline. Do you want to add something about that?
Luc Dion, CEO, Tecna: Well, I think I just maybe conclude that we trust that the progress in one of the orders we had in our pipeline was quite encouraging in Q4 and has continued in January. And if all things remain as they are going today, we believe that we could close this order early this year.
Irina, Moderator/Host, Tecna: Fingers crossed. Then one very specific question. So you said that one order for Plasmasonic could be $10,000,000 on average. What do our other plasma systems cost?
Luc Dion, CEO, Tecna: It’s, the average selling price we’ve seen so far for other systems is $1,000,000 So it goes from somewhere between $700 and depending on the size of $2,000,000 But what we usually sell in average, it’s about a million dollars.
Irina, Moderator/Host, Tecna: Okay. Thank you. Espen, so you spoke about the tariffs. Do you wanna say something more about how Trump, Musk and these tariffs may be affecting our business this year?
Espen Schia, CFO, Tecna: I think, well, for the systems that I mentioned that that there’s a very limited impact most probably from from at least from what we understand of the situation that has been presented so far. On the material side, I think it’s one may keep in mind here that it’s, of course, quite expensive for our customers to change supplier of metals because there’s a long qualification change. So for that reason, I wouldn’t expect that we’re suddenly going to see a change of customer base jumping around because of this. But and adding to that tariffs are probably a temporary measure. Then if we put that aside, if you look at our product portfolio as such, the product portfolio we have remains highly competitive also should tariffs come
Luc Dion, CEO, Tecna: to
Espen Schia, CFO, Tecna: play. And why I believe such a statement would be relevant is that most of the metals that are relevant for techno competitions for competitors for of of Tecnam. Most of these metals actually are coming from suppliers from Canada into The US. So it means that it’s going to be a higher price for US buying Canada for everybody. This is not a phenomenon that’s going to be isolated to us if it happens.
Irina, Moderator/Host, Tecna: Yeah. So for now we’re not thinking about putting our production in The US or any dramatic changes like that.
Espen Schia, CFO, Tecna: No. I I think that will be a overreaction to to what we see.
Irina, Moderator/Host, Tecna: Yeah. Luke, any updates on the consumer electronics, smartwatches? The question we get every quarter.
Luc Dion, CEO, Tecna: Yeah. You mean for the NLCC or for the No.
Irina, Moderator/Host, Tecna: For the small size,
Luc Dion, CEO, Tecna: size, yeah. Okay. Well, I think we pretty good development on that front. So for those who are less familiar, our process, when we produce powder, we naturally generate different sizes of material. Let’s say if we set break this in three sizes, let’s say the middle range, sells like a premium product and we’re every year we sell 100% of what we produce.
And we also have two byproducts. So these byproducts have been challenging to sell in the past. So if we take byproduct A to give it a name, which is a smaller fraction of what we produce in size, right now for 2025, it’s sold out. So we managed to find a outlet to sell 100% of those smaller size fractions, I would call it. And for the larger size fraction, it’s been challenging to sell it in the past years.
But now we have managed to find some outlets and the sales of this larger size will be growing throughout 2025. So I think all in all, we think it’s realistic to think that by the end of this year, we will have some outlet for about 85, maybe a little bit more, 85% of the total powders we are producing.
Irina, Moderator/Host, Tecna: Which will be really helping our margin in the end as well.
Luc Dion, CEO, Tecna: Absolutely. Yeah.
Irina, Moderator/Host, Tecna: So since you mentioned micro electronics, let’s go there. How
Luc Dion, CEO, Tecna: do
Irina, Moderator/Host, Tecna: you see that going forward and what specific developments are we looking for in order to turn that into a revenue stream?
Luc Dion, CEO, Tecna: Yeah. So last year, well, at at our last meeting, we’ve mentioned that we had received customer feedback on samples we had sent in 2,023. And that feedback was pretty much we checked pretty much all the boxes except for one where our powder was, for one parameter, was slightly on the low end of what the customer was ready to accept. So the customer asked us to make some adjustment to the product and hit the middle of the target. So this is what we’ve done.
We’ve managed to our R and D team managed to achieve this target in Q4. And with a lot of prowess and effort, the team managed to deliver the product to the customer before Christmas. And we expect to have some feedback from this customer in Q1 this year. So it’s quite exciting for a lot of people to see how this will turn out. It’s a huge potential.
We’re talking about dealing with the largest producer of MLCC device. So one of the largest. Yeah.
Irina, Moderator/Host, Tecna: We’re so close. Okay. So, this one is for you, Espen. How do you see their margin profile evolving over the next quarters, especially if Plasma Systems revenue remains lumpy?
Espen Schia, CFO, Tecna: Okay. We don’t guide specifically on quarters. It’s very difficult to do that. But I would like to just to say that because of the ACD is to restate that again on the tariff situation, it is a little bit on uncertainty in this moment for what happens in The US particularly, but I think that’s going to be much clearer very soon. And then that should probably then again speed up more business again.
And for the margin question, I think, what I can say for the for ’25, I think here we do expect margin improvements in ’25 versus ’24, and that should be on both systems and materials. But of course, this depends on how also the revenue develops. But we remain positive on this.
Irina, Moderator/Host, Tecna: Okay. Well, and then also final question for you, any revenue and profitability guidance for 2025?
Espen Schia, CFO, Tecna: Yeah. So, yeah, but to follow-up a bit on my following previous comment on this, both we do expect ’25 to have higher revenue, a higher EBITDA or improved EBITDA. And in addition, we have mentioned in the report today that we plan for about 2,500,000 CapEx in 2025, which is similar to what we had in 2024 at 2.2. These numbers are done excluding these contracts that are subject to IFRS 16 accounting. So and then I mentioned the working capital of the 35 around that.
So and then that that that brings the total picture.
Irina, Moderator/Host, Tecna: Sounds good. So let’s deliver that. Okay. So, Luke, any closing remarks from your side?
Luc Dion, CEO, Tecna: Yeah. Well, sure. Well, first of all, thanks everyone for listening today. There’s likely a lot of Tecna employees also listening to this conversation with us, with you guys. So I want to extend all of my recognition to the team because 2024, it was tough.
Generally, the market was very challenging, not just for Tecna, but also every industry around the world. It was quite a challenging year. Our team has delivered in these conditions quite exceptional results. So thanks to everyone. I think when I reflect about Tecna and this kind of, I would say, our performance in 2023, if we exclude the low systems revenue, which of course, that segment is usually fluctuating a lot year on year.
But if we look at our advanced materials and the performance we have been able to deliver for these key sectors, aerospace, medical and consumer electronics. And if we analyze that, we find that, it’s like a testament about our technology and the commercial fundamentals that we have established over the five, six, seven years in in developing ourselves as a reliable supplier of, of advanced materials in that industry. So we’re I’m very, happy about, these results. I’m happy and proud, actually, about all we have accomplished. And I really look forward to continue 2025 on the same trend.
So thanks a lot, everyone. And looking forward to talk to you again in our Q1 results later this year.
Irina, Moderator/Host, Tecna: Alright. Thank you for joining us today. Please consult the published interim report for more information, and we will be publishing our annual report on April tenth of this year. Thanks a lot.
Luc Dion, CEO, Tecna: Thank you.
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