TORONTO, May 14, 2024 (GLOBE NEWSWIRE) — Mattr Corp. (“Mattr” or the “Company”) (TSX: MATR) reported today its operational and financial results for the three months ended March 31, 2024. This press release should be read in conjunction with the Company’s management’s discussion and analysis (“MD&A”) and interim consolidated financial statements for the three months ended March 31, 2024, which are available on the Company’s website at www.mattr.com and on SEDAR+ at www.sedarplus.ca.
Highlights from the first quarter include1:
Consolidated revenue was $224 million, operating income was $8 million and Adjusted EBITDA was $30 million;Composite Technologies segment revenue was $119 million, a 10% decrease compared to the $133 million delivered in the prior year’s quarter;Connection Technologies segment revenue was $91 million, a 4% decrease compared to the $95 million delivered in the prior year’s quarter;On a consolidated basis, Mattr reported a Net Loss of $0.2 million, fully diluted (Losses) Earnings Per Share (“EPS”) of $(0.09) and fully diluted Adjusted EPS of $0.16 during the quarter;Subsequent to the quarter, the Company closed on an upsized offering of $175 million aggregate principal amount of 7.25% senior unsecured notes due 2031 and utilized the proceeds to fund the redemption of its outstanding 9.0% senior unsecured notes due 2026, to pay related fees and expenses and for general corporate purposes; andSubsequent to the quarter, the Company amended its US$300 million senior secured revolving credit facility to, among other things, extend its term through April 2028.
“During the first quarter of 2024, Mattr continued to efficiently execute its underlying business operations, delivering high-value solutions to customers as they expand and renew critical infrastructure around the world,” said Mike Reeves, President and CEO of Mattr. “In parallel, we made substantial progress on our North American production footprint modernization, expansion and optimization (“MEO”) strategy and expect production from the first two of our four new sites around mid-year.”
Mr. Reeves continued, “As several of our business lines emerge from first quarter seasonal lows, we expect a robust step-up in revenue and Adjusted EBITDA generation during the second quarter of 2024. Based on the Company’s current visibility, a number of international Flexpipe orders originally anticipated to be delivered during the second quarter of 2024 now seem more likely to be delivered in the second half of 2024, and consequently the Company now anticipates revenue and Adjusted EBITDA to move upwards sequentially in both the second and third quarters of 2024. While we will continue to be impacted by one-time costs tied to our North American production footprint MEO activities, our belief is unchanged that full year 2024 revenue and underlying profitability will be higher than that of Continuing Operations in 2023.”
1 EBITDA, Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See “Section 5.0 – Reconciliation of Non-GAAP Measure and Other Financial Measures” for further details and a reconciliation of these non-GAAP measures.
“Our businesses serve large and growing end markets, we have a robust balance sheet, significant opportunities for investment in high return organic growth, the capacity to seek and complete meaningful, accretive acquisitions and the intention to renew our normal course issuer bid program when eligible (subject to the requirements and approvals of the Toronto Stock Exchange, which has not yet been applied for or obtained). Consequently, management believes Mattr is well positioned to deliver substantial value creation for shareholders and to meet our stated growth, profitability and free-cash-flow conversion objectives over the coming years,” further added Mr. Reeves.
Selected Financial Highlights
(in thousands of Canadian dollars, except per share amounts and percentages)
Three Months Ended March 31 2024 2023 $ %$ % Revenue 224,461 238,732 Gross profit 65,348 29%74,098 31% Income from Continuing Operations(a) 7,725 3%30,277 13% Net (Loss) Income from Continuing Operations (234) 20,708 Net (Loss) Income from Discontinued Operations (5,405) 4,521 Net (Loss) Income for the period (5,639) 25,229 (Losses) Earnings per share: Basic (0.09) 0.36 Diluted (0.09) 0.36 Adjusted EBITDA from Continuing Operations (b) 30,069 13%40,466 17% Adjusted EBITDA from Discontinued Operations(b) — — 14,062 11% Total Adjusted EBITDA from Operations (b) 30,069 13%54,528 15% Total Adjusted EPS from Operations: (b) Basic 0.16 0.37 Diluted 0.16 0.37 (a)Operating income in the three months ended March 31, 2024, includes restructuring costs of $3.2 million; while operating income in the three months ended March 31, 2023, includes no restructuring costs.(b)Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Non-GAAP measures do not have standardized meanings prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for further details and a reconciliation of these non-GAAP measures.
1.0 FIRST QUARTER HIGHLIGHTS
The first quarter of 2024 saw the Company’s Composite Technologies segment revenue and Adjusted EBITDA decrease compared to the same quarter of 2023, as the segment navigated approximately 19% lower average North American oilfield drilling rig count, normal seasonal slowness in underground storage tank installation activity and completed its final quarter of lowered underground fuel tank production in response to transient customer permitting challenges encountered earlier in 2023.
The Company’s Connection Technologies segment delivered first quarter revenue and Adjusted EBITDA modestly below the same quarter of 2023, with continued strength in North American infrastructure markets mostly offsetting lingering slowness in the Canadian wire and cable distribution sector and the non-recurrence of a large aerospace order which delivered substantial profitability during the first half of 2023.
Consequently, the first quarter of 2024 saw the Company’s consolidated revenue, operating income and Adjusted EBITDA decrease compared to the same quarter of 2023.
The Company’s operating income from Continuing Operations was $7.7 million and Adjusted EBITDA1 from Continuing Operations was $30.1 million in the first quarter of 2024, a decrease of $22.6 million and $10.4 million, respectively, compared to the first quarter of 2023. Operating income from Continuing Operations in the first quarter included restructuring cost of $3.2 million booked in connection with the closure of the Xerxes®’ Anaheim tank manufacturing facility, whereas the comparable period for the prior year included no restructuring costs. Additionally, share-based incentive compensation of $7.6 million was recorded against operating income from Continuing Operations during the first quarter of 2024. This was driven by an increase in the Company’s share price during the period. Comparatively, operating income from Continuing Operations in the prior year’s first quarter was not significantly impacted by share-based incentive compensation expense.
During the fourth quarter of 2023, the Company completed the sale of a substantial majority of the assets of its pipe coating business, or Pipeline Performance Group, to Tenaris S.A. (“Tenaris”) The Company received total gross proceeds of $241.2 million, which included the agreed-upon purchase price of $225.4 million and an initial working capital estimate. The final net cash proceeds received by the Company in satisfaction of the contractual purchase price for the sale of the PPG business remains subject to completion of a customary final true up of the estimated working capital calculation as provided in the definitive purchase and sale agreement in respect of the transaction. The Company now expects its net cash outflow to settle the working capital adjustment to be approximately $37.4 million and therefore in the first quarter of 2024 recorded an additional $5.4 million loss from the sale of the PPG business in Discontinued Operations. The Company expects the parties to finalize the net working capital adjustment by the third quarter of 2024.
As at March 31, 2024, the Company had cash and cash equivalents totaling $316.0 million, a decrease from the $334.1 million as at December 31, 2023 (March 31, 2023 – $162.0 million). The decrease in cash compared to the fourth quarter of 2023 was largely attributable to investments of $30.6 million in capital expenditures, primarily related to the Company’s North American production footprint Modernization, Expansion and Optimization (“MEO”) strategy, partially offset by an operating cash inflow of $10.5 million despite a $12.2 million increase in net working capital.
Subsequent to the quarter, the Company closed on a private offering of $175 million aggregate principal amount of 7.25% senior unsecured notes due 2031. The proceeds were primarily used to fund the redemption of its outstanding 9.00% senior unsecured notes due 2026, to pay related fees and expenses and for general corporate purposes. Also subsequent to the quarter, the Company amended its US$300 million senior secured revolving credit facility through April 2028. Based on the actions completed and planned, the Company expects to generate sufficient cash flows and have continued access to its credit facilities; subject to covenant limitations, to fund its operations, working capital requirements and capital program including share buybacks. The Company will continue to focus on maximizing the conversion of operating income into cash, optimizing its capital structure, investing in organic and inorganic growth opportunities, and enhancing shareholder value.
1 EBITDA, Adjusted EBITDA, Adjusted EPS, and net debt-to-Adjusted EBITDA are non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for further details and a reconciliation of these non-GAAP measures.
Selected Segment Financial Highlights
(in thousands of Canadian dollars, except percentages)
Three Months Ended March 31 2024 2023 $ %$ % Revenue Composite Technologies 119,282 132,549 Connection Technologies 90,757 94,687 Financial, Corporate, and Others 14,422 11,496 Revenue from Continuing Operations 224,461 238,732 Revenue from Discontinued Operations — 125,673 Operating income Composite Technologies 4,017 3.4%20,722 15.6% Connection Technologies 14,543 16.0%16,993 17.9% Financial and Corporate (10,835) (7,438) Operating income from Continuing Operations 7,725 30,277 Operating Income from Discontinued Operations — — 5,353 4.3% Adjusted EBITDA Composite Technologies 15,008 12.6%26,748 20.2% Connection Technologies 17,617 19.4%18,352 19.4% Financial and Corporate (2,556) (4,634) Adjusted EBITDA from Continuing Operations (a) 30,069 13.4%40,466 16.9% Adjusted EBITDA from Discontinued Operations (a) — — 14,062 11.2%(a)Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for further details and a reconciliation of these non-GAAP measures.
Composite Technologies segment revenue in the first quarter of 2024 was $119.3 million, a decrease of $13.3 million, or 10.0%, compared to the first quarter of 2023. Operating income in the first quarter of 2024 was $4.0 million and represented a $16.7 million decrease from the $20.7 million reported in the first quarter of 2023. The year over year decrease in revenue was entirely concentrated in the segment’s Xerxes business, partially offset by growth in its Flexpipe business, despite approximately 19% lower North American drilling and completion activity.
Within Xerxes, year-over-year revenue contraction was primarily the consequence of a more pronounced seasonal reduction in market activity as customers faced unfavorable ground conditions for fuel station construction and storm water product installation. Within Flexpipe, revenue expansion versus the prior year was primarily the consequence of an increase in international sales, including larger diameter products, partially offset by a modest decline in North American sales, where the Company’s performance substantially exceeded a material drilling rig count decline.
The segment also incurred restructuring costs associated with the closure of its Anaheim production facility of $3.2 million and non-capitalizable MEO costs of approximately $2.3 million associated with the establishment of its new North American production sites during the quarter. Adjusted EBITDA in the first quarter of 2024 was $15.0 million, a decline from the $26.7 million reported in the first quarter of 2023 primarily attributed to lower Xerxes revenue, compounded by MEO costs and higher freight costs associated with international Flexpipe sales, partially offset by cost savings associated with the closure of the Anaheim facility.
The Connection Technologies segment delivered revenue of $90.8 million in the first quarter of 2024 which was a decrease of roughly $3.9 million or 4.2% compared to the first quarter of 2023. Its operating income in the first quarter of 2024 was $14.5 million compared to $17.0 million in the first quarter of 2023. This decrease in the segment is mainly attributed to the absence of a substantial wire and cable product shipment into the aerospace market, which contributed favorably in the first quarter of 2023. Substantially offsetting this decrease, the segment saw stronger demand in automotive, infrastructure and industrial markets. The segment also incurred MEO costs of less than half a million dollars associated with the relocation of its North American footprint during the quarter. The segment delivered Adjusted EBITDA1 of $17.6 million during the first quarter of 2024, a 4.0% decrease versus the prior year quarter.
The Company sold its businesses formerly reported under the Pipeline and Pipe Services segment, excluding the entities not within the perimeter of the transaction, to Tenaris during the fourth quarter of 2023. As such, Discontinued Operations did not generate revenue or Adjusted EBITDA for the Company during the first quarter of 2024.
2.0 OUTLOOK
The Company expects a sequential rise in quarterly consolidated revenue and Adjusted EBITDA during the second quarter of 2024, driven predominantly by increased performance of its Composite Technologies segment.
Within this segment, higher production and shipment of Xerxes FRP tanks is anticipated as customer construction activity rises and the Company elevates tank production activity following completion of its multi-quarter output curtailment program. In addition, while consolidated North American onshore drilling rig count is expected to modestly decline versus the first quarter of 2024, driven primarily by break-up conditions in Canada and customer consolidation in the US, Flexpipe revenue is expected to rise in the second quarter as the timing of specific customer deliveries, continued new customer capture and larger diameter product market share gains in North America are further enhanced by another strong quarter of international shipments.
Revenue in the second quarter of 2024 is expected to increase slightly on a sequential basis within the Connection Technologies segment, primarily driven by expected continued strong demand within North American industrial and infrastructure markets and anticipated share gain by the Company in North America and Europe within the segment’s DSG Canusa business.
While consolidated revenue in the second quarter of 2024 is expected to be modestly above the same quarter of 2023, the Company anticipates some margin compression as a result of its MEO activities and the specific mix of product sales in each of its operating segments.
During the second quarter of 2023, the Company detailed several planned capital investments into high-return growth and efficiency improvement opportunities in both segments. These investments and other MEO activities, which are currently progressing on time and on budget, include:
The addition of two new manufacturing facilities and the elimination of one aging manufacturing facility within the Composite Technologies network, namely: a new Xerxes FRP tank production site in Blythewood, South Carolina that is expected to commence production in mid-2024;a new Flexpipe composite pipe production site in Rockwall, Texas that is expected to commence production in mid-2024; andthe shut-down and exit of a Xerxes FRP tank production site in Anaheim, California that is expected to be largely complete by the end of 2024. The replacement of the Company’s Rexdale, facility in Toronto, Ontario and the expansion of its Connection Technologies segment’s North American manufacturing footprint through: a new heat-shrink tubing production site in Fairfield, Ohio that is expected to commence production in late 2024; anda new wire and cable production site in Vaughan, Ontario that is expected to commence production in late 2024.
The Company expects to continue to make sizeable organic investments throughout 2024 to modernize, expand and optimize capacity in targeted geographies and improve efficiency within the North American production network of its Composite Technologies and Connection Technologies segments. Given the anticipated timing of these MEO actions, the Company continues to expect to recognize meaningful MEO costs throughout 2024, with these costs weighted towards optimization and growth activities within the Composite Technologies segment during the first half of 2024 and weighted towards the modernization and growth activities within the Connection Technologies segment during the second half of 2024. In aggregate, once completed, these planned investments are expected to result in the Company creating at least $150 million per year of incremental revenue generating capacity with comparable margins to those realized in its Composite Technologies and Connection Technologies segments. These levels of output are expected to be realized over the 3–5 year period following completion, as the facilities reach efficient utilization levels in accordance with their currently expected timelines. The Company does not expect its exit from the Xerxes production site in Anaheim, California, to alter these output expectations in light of its capital investments and MEO activities.
In management’s view, the underlying mid- and long-term market trends for all of Mattr’s core businesses remain favourable. Despite continued elevated interest rates, demand for products in support of critical infrastructure renewal and expansion is expected to remain robust; fuel tank customers of its Xerxes business have made adjustments to accommodate elongated permitting timelines which are anticipated to result in more normalized FRP tank shipment patterns during the second quarter of 2024; and a relatively stable oil and gas commodity price environment is expected to provide opportunities for market share gains by the Company’s Flexpipe business, particularly within its larger diameter product portfolio, moving through the year. More broadly, management expects that demand for its differentiated products designed to withstand harsh environments will continue to rise in the coming years as a result of the global need to renew and expand critical infrastructure, including energy generation and distribution, electrification, transportation network enhancement and storm water management, but remains alert to potential industrial market softness as a result of sustained higher interest rates and the uncertainty around the approaching US Presidential election cycle. The Company continues to closely monitor raw material and labour costs and accordingly, will continue to ensure its pricing appropriately reflects the value of its products and its cost inputs.
The Company continues to explore options to divest of its Brazilian pipe coating operations (“Thermotite”), formerly part of the PPG operating unit. While the Company does not anticipate Thermotite’s financial results to be material to the organization, the business is fully booked throughout 2024 and is expected to deliver increased full year 2024 financial performance when compared to 2023.
The Company continues to take an “all of the above” approach to capital allocation, skewed towards investment in organic and inorganic acquisition and investment opportunities viewed as having the highest risk-adjusted return on investment potential. With substantial capacity to deploy capital and the expectation to deploy available capital over the next several quarters, the Company continues to elevate focus on inorganic opportunities, including opportunities of meaningful scale, particularly related to differentiated wire & cable sectors and water products, where long-term tailwinds are expected. The Company remains focused on ensuring any capital investments provide superior returns (both near and long-term) to shareholders in light of all available options, including the return of capital to shareholders. Additional opportunities exist to further enhance the Company’s organic growth trajectory.
On May 14, 2024, the Company’s board of directors approved the renewal of the Company’s normal course issuer bid (“NCIB”), on substantially the same terms and conditions as the current NCIB and subject to the approval of the TSX, which has not yet been applied for or obtained. If the NCIB renewal is approved, the Company will continue to repurchase its common shares on an opportunistic basis.
1 EBITDA, Adjusted EBITDA, adjusted EBITDA margins and net debt-to-Adjusted EBITDA are non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for further details and a reconciliation of these non-GAAP measures.
Composite Technologies Segment
Production and shipment of Xerxes’ FRP tanks and storm water management products are expected to rise in the second quarter of 2024 as weather and ground conditions across much of North America improve, allowing construction activity for fuel stations and other commercial structures to accelerate. Permitting delay issues that had plagued many of the Company’s fuel customers across North America over the course of 2023 appear to have been largely mitigated, and in response the Xerxes business expects to elevate its production activity during the second quarter of 2024.
Although relatively stable commodity prices are expected to prevail, the Company anticipates North American onshore oil and gas drilling rig count will modestly decline in the second quarter of 2024 when compared to the first quarter of 2024, driven primarily by seasonal break-up conditions in Canada and customer consolidation in the US, which typically results in temporarily lower activity levels within the impacted organizations. Despite this market outlook, Flexpipe revenue is anticipated to rise in the second quarter of 2024 as the timing of specific customer deliveries, continued new customer capture and larger diameter product market share gains in North America are expected to be further enhanced by another strong quarter of international shipments.
EBITDA margins for the Composite Technologies segment in the second quarter of 2024 are likely to be compressed compared to the prior year quarter by the impact of MEO cost recognition, a modestly elevated freight cost burden tied to Flexpipe international shipment activity and the ongoing inefficiency of transporting larger diameter pipe products from the Company’s Calgary facility into West Texas. The Company expects these shipping cost inefficiencies to begin easing as its Rockwall, Texas facility commences production around mid-2024.
In recent quarters the Company has been successful in securing multiple Flexpipe orders, including larger diameter product orders, for delivery into international projects. These deliveries occurred partially during the first quarter of 2024 and are expected to continue during the second quarter of 2024. Additional international opportunities for delivery during the second, third and fourth quarters of 2024 are being pursued, however, due to the somewhat unpredictable nature of international project order placement and subsequent delivery, some variability in schedules may exist and movements in the schedule between quarters could occur. Based on the Company’s current visibility, several new international orders originally anticipated to be delivered during the second quarter of 2024 now are anticipated to be delivered in the second half of 2024.
The segment continues to execute the establishment of two new US production sites, with its Rockwall, Texas Flexpipe and Blythewood, South Carolina Xerxes facilities progressing on-budget and currently expected to commence commercial production around mid-year.
In addition, the segment continues to progress on the exit of its aging Anaheim, California Xerxes tank facility. Tank production at this site ceased early in the first quarter of 2024 and the facility is expected to be fully vacated by year end, further lowering the Company’s fixed cost and operating risk base.
In combination, the actions taken to modernize, expand and optimize the segment’s North American production footprint are expected to lower average production costs, increase total production capacity and position the segment to deliver meaningful growth and margin expansion in subsequent years. The Company continues to expect MEO costs will lower segment EBITDA margins during the remainder of the first half of 2024. The Company expects that there will be sufficient revenues from these new facilities to absorb incremental fixed costs during the ramp up periods, and both new facilities have sufficient physical space to enable further production line additions in future years. The segment continues to closely monitor raw material and labour costs and, as a result, will continue to ensure its pricing appropriately reflects the value of its products and its cost inputs.
Connection Technologies Segment
The Company expects demand for its Connection Technologies segment products will remain relatively consistent in the second quarter of 2024 when compared to the first quarter. The Company is expecting to benefit from continued infrastructure spending in 2024 and beyond as new and upgraded utility and communication networks are constructed, nuclear refurbishments continue in Canada, and federal stimulus package impacts persist. Profitability in the second quarter is expected to be modestly impacted by one-time costs associated with the Company’s MEO activities, although the majority of MEO costs for the segment are expected to be recognized during the second half of 2024.
The outlook for the Connection Technologies segment does not incorporate any expectation of meaningful growth in total global vehicle output within the automotive end markets, which represented approximately 30% of the segment’s revenue in the first quarter of 2024. Market data in early 2024 has suggested some softening in consumer demand for electric vehicles, however, the Company does not currently anticipate any material impact from this trend but cannot rule out potential future impacts. Despite the interest rate environment, demand for the Company’s automotive products is expected to continue to outpace overall automotive production as a result of electronic content growth in premium, hybrid and full electric vehicle markets, particularly in the Asia Pacific, Europe and Africa regions. Uncertainty remains around interest rates as early signals from Canadian and US central banks imply that significant downward interest rate movements are unlikely throughout the remainder of 2024 and therefore could impact demand within industrial markets.
The Connection Technologies segment continues to execute the establishment of two new production sites, with its Vaughan, Ontario and Fairfield, Ohio facilities progressing on-time and on-budget. First production from both sites is expected during the second half of 2024. The Company expects that there will be sufficient revenues from these new facilities to absorb incremental fixed costs during the ramp up periods, and both new facilities have sufficient physical space to enable further production line additions in future years. The segment continues to closely monitor raw material and labour costs, particularly copper, and, as a result, will continue to ensure its pricing appropriately reflects the value of its products and its cost inputs.
3.0 CONFERENCE CALL AND ADDITIONAL INFORMATION
Mattr will be hosting a Shareholder and Analyst Conference Call and Webcast on Wednesday May 15th, 2024 at 9:00 AM ET, which will discuss the Company’s First Quarter 2024 Financial Results. To participate via telephone, please register at https://register.vevent.com/register/BI93a990cb2ca2478082f16d6821531a62 and a telephone number and pin will be provided.
Alternatively, please go to the following website address to participate via webcast: https://edge.media-server.com/mmc/p/c6wwatha/. The webcast recording will be available within 24 hours of the live presentation and will be accessible for 90 days.
About Mattr
Mattr is a growth-oriented, global materials technology company broadly serving critical infrastructure markets, including transportation, communication, water management, energy and electrification. The Company operates through a network of fixed manufacturing facilities. Its two business segments, Composite Technologies and Connection Technologies, enable responsible renewal and enhancement of critical infrastructure while lowering risk and environmental impact.
For further information, please contact:
Meghan MacEachern
VP, External Communications & ESG
Tel: 437-341-1848
Email: meghan.maceachern@mattr.com
Website: www.mattr.com
Source: Mattr Corp.
Mattr.ER
4.0 FORWARD-LOOKING INFORMATION
This news release includes certain statements that reflect management’s expectations and objectives for the Company’s future performance, opportunities and growth, which statements constitute “forward-looking information” and “forward-looking statements” (collectively “forward-looking information”) under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves estimates, assumptions, judgements and uncertainties. These statements may be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “anticipate”, “expect”, “believe”, “predict”, “estimate”, “continue”, “intend”, “plan” and variations of these words or other similar expressions. Specifically, this news release includes forward-looking information in the Outlook section and elsewhere in respect of, among other things: Specifically, this document includes forward-looking information in the Outlook section and elsewhere in respect of, among other things: the ability of the Company to deliver higher returns to its shareholders; the market dynamics during the remainder of 2024; the favourability of underlying business trends for the Company’s core businesses; the Company’s ability to execute on its business plan and strategies, including the pursuit, execution and integration of potential organic and inorganic growth opportunities, as applicable; the timing of the finalization of the net working capital adjustment for the sale of the Pipeline Performance Group; the anticipated net cash outflow amount to settle the working capital adjustment for the sale of the Pipeline Performance Group; the level of financial performance and financial results of the Company, its businesses and reporting segments levels of production and shipment of FRP tanks; international shipments in the second quarter of 2024; construction activity and tank production activity; the decline of North American onshore drilling activity in the second quarter of 2024; new customer capture in the Flexpipe business; larger diameter product market share; demand for the Company’s products, including the demand within the North American industrial and infrastructure markets, the demand for the Company’s Flexpipe products in the second quarter of 2024, and the seasonal impacts to, and demand in, the Company’s Connection Technologies and Composite Technologies segments; demand within the North American industrial and infrastructure markets; demand for products in support of critical infrastructure renewal and expansion, including energy generation and distribution, electrification, transportation network enhancement and storm water management; market share gains within the Company’s businesses; anticipated margin compression in the second quarter of 2024, including as a result of modernization, expansion and optimization (“MEO”) activities and mix of product sales; the timing and costs of planned capital investment and MEO activities; the average production costs, production capacity and growth and margin expansion in the Composite Technologies segment; EDBITDA margins in the Composite Technologies segment; the Company’s exit of the Xerxes production site in Anaheim, California and the anticipated timing for such exit, and accompanying lowered fixed cost and operating risk base; the timing for completion of new facilities, and timing of achievement of anticipated production levels; the timing of the exit of production sites; FRP tank production and shipment activity; fixed costs and operating risk base; the adequacy of revenues from new facilities in the Composite Technologies segment; timelines for obtaining permits during the second quarter of 2024; the impact of MEO activities on the Company’s financial performance; easing of shipping cost inefficiencies at the Company’s Composite Technologies segment; deliveries of orders in the Flexpipe business; schedules for international opportunities and deliveries of international orders in the remainder of; the timing of the establishment and commencement of production of new production sites; expected production activity in the Xerxes business during the second quarter of 2024; demand for automotive products compared to overall automotive production; consumer demand for electric vehicles and the impact on the Connection Technologies segment; the growth in electronic content within premium, hybrid and full electric vehicle markets and the impact thereof on the Company’s financial performance; the impact of continued infrastructure spending, including in the areas of water management, communication networks and nuclear refurbishment on the Company’s financial performance; the expected first production in the Composite Technologies and Connection Technologies segments; the Company’s management of raw material and labour costs; the impact of global economic activity on the demand for the Company’s products; the level, and impact of demand for oil and gas; the impact of global oil and gas commodity prices and the annual capital spending cycle for North American oil and gas producers; the global need to renew and expand critical infrastructure; the impact of changing energy demand, supply and prices; the Company’s expected pricing, including the reflection of the value of its products and cost inputs; the Company’s intentions in respect of the renewal of the Company’s normal course issuer bid, the TSX’s acceptance of the Company’s application to renew such bid and the expected purchases of common shares of the Company under such bid; the ability of the Company to fund its operating and capital requirements and growth objectives; the ability of the Company to comply with its debt covenants; and the ability to finance increases in working capital.
Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. Readers are cautioned not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward-looking information. Significant risks facing the Company include, but are not limited to: the risks and uncertainties described in the Company’s MD&A under “Risks and Uncertainties” and in the Company’s Annual Information Form under “Risk Factors”.
These statements of forward-looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of: the Company’s ability to manage supply chain disruptions and other business impacts caused by, among other things, current or future geopolitical events , conflicts, or disruptions, such as the conflict in Ukraine and related sanctions on Russia; the impact of the; Russia and Ukraine conflict on the Company’s demand for products and the strength of its and its customers supply chains; the current Israel-Palestine conflict; uncertainty surrounding the U.S. Presidential election cycle; increased activity levels in the Connection Technologies segment; higher sales of composite pipe products into international markets; increased shipment of Flexpipe ® products to support international projects; strengthening demand within the North American industrial and infrastructure markets; seasonal impacts on the Company’s FRP tanks business due to North American weather and ground conditions; the changing demand for the Company’s FRP tanks and water and stormwater storage and treatment systems; seasonal impacts to the Company’s composite pipe business due to spring break-up conditions; the trend of international sales for composite pipe products ;expected demand for the Company’s products in the Composite Technologies segment, including the ability to grow such demand over the timeline expected to complete such facilities and achieve desired operational levels; the Company being able to complete the construction and commissioning of these facilities on their expected timeline and budget, as applicable, and its ability to achieve and maintain necessary production and efficiency levels once operational; expectations regarding the Company’s ability to attract new customers and develop and maintain relationships with existing customers; the continued availability of funding required to meet the Company’s anticipated operating and capital expenditure requirements over such time; consistent competitive intensity in the segments in which the Company operates; no significant legal or regulatory developments, other shifts in economic conditions, or macro changes in the competitive environment affecting the Company’s business activities; key interest rates remaining relatively stable throughout the remainder of 2024; expectations regarding the Company’s ability to continue to manage its supply chain and any future disruptions; the impact of federal stimulus packages in the Connection Technologies segment; heightened demand for electric and hybrid vehicles and for electronic content within those vehicles particularly in the Asia Pacific, Europe and Africa regions; heightened infrastructure spending in Canada, including in respect of commercial and municipal water projects, nuclear plant refurbishment and upgraded communication and transportation networks, communication networks and nuclear refurbishments; sustained health of oil and gas producers; the continued global need to renew and expand critical infrastructure, including energy generation and distribution, electrification, transportation network enhancement and storm management; the Company’s ability to execute projects under contract; the Company’s continuing ability to provide new and enhanced product offerings to its customers; that the Company will identify and successfully execute on opportunities for acquisitions or investments; the higher level of investment in working capital by the Company; the easing of supply chain shortages and the continued supply of and stable pricing or the ability to pass on higher prices to its customers for commodities used by the Company; the availability of personnel resources sufficient for the Company to operate its businesses; the maintenance of operations by the Company in major oil and gas producing regions; the adequacy of the Company’s existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally; the impact of adoption of artificial intelligence and other machine learning on competition in the industries which the Company operates; the Company’s ability to meet its financial objectives; the ability of the Company to satisfy all covenants under its credit facility and other debt obligations and having sufficient liquidity to fund its obligations and planned initiatives; the ability to develop, access or implement some or all of the technology necessary to efficiently and effectively achieve the Company’s ESG goals and ambitions, including its greenhouse gas targets; the availability, commercial viability and scalability of the Company’s greenhouse gas emission reduction strategies and related technology and products; and the anticipated costs and impacts on the Company’s operations and financial results of adopting these technologies or strategies. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize, or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.
When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward-looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
To the extent any forward-looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward-looking information generally, are based on the assumptions and subject to the risks noted above.
5.0 RECONCILIATION OF NON-GAAP MEASURES
The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage its capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company’s operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.
EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is a non-GAAP measure defined as earnings before interest, income taxes, depreciation and amortization. Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. Adjusted EBITDA is calculated by adding back to EBITDA the sum of impairments, costs associated with refinancing of long-term debt and credit facilities, gain on sale of land and other, gain on sale of investment in associates, gain on sale of operating unit, acquisition costs, restructuring costs, share-based incentive compensation cost, foreign exchange (gain) loss and other, net and hyperinflationary adjustments. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company’s results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company’s normal course of business or day to day operations. Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company’s credit facility.
(in thousands of Canadian dollars) Three Months Ended March 31,
2024 March 31,
2023 Net (Loss) Income from Continuing Operations $(234)$20,708 Add: Income tax expense 5,817 4,585 Finance costs, net 2,142 4,984 Amortization of property, plant, equipment, intangible and ROU assets
8,996 9,021 EBITDA from Continuing Operations $16,721 $39,298 Share-based incentive compensation cost (recovery)
7,632 (42) Foreign exchange loss 2,515 1,210 Restructuring costs and other, net 3,201 — Adjusted EBITDA from Continuing Operations $30,069 $40,466
Composite Technologies Segment
(in thousands of Canadian dollars)
Three Months Ended March 31,
2024 March 31,
2023 Operating Income $4,017 $20,722 Add: Amortization of property, plant, equipment, intangible and ROU assets 6,371 6,627 EBITDA $10,388 $27,349 Share-based incentive compensation cost (recovery) 1,452 (601) Restructuring costs and other, net 3,168 — Adjusted EBITDA $15,008 $26,748
Connection Technologies Segment
(in thousands of Canadian dollars)
Three Months Ended March 31,
2024 March 31,
2023 Operating Income(a) $14,543 $16,993 Add: Amortization of property, plant, equipment, intangible and ROU assets
1,722 1,333 EBITDA $16,265 $18,326 Share-based incentive compensation cost
1,319 26 Restructuring costs and other, net 33 — Adjusted EBITDA $17,617 $18,352 (a)As of the first quarter of 2024, the Company began allocating corporate administrative costs to the Connection Technologies segment. This aligns with the Company’s historical practice of allocating corporate administrative costs to the Composite Technologies segment. As a result, the comparative figures for the first quarter of 2023 have been retrospectively restated to reflect this allocation. Corporate administrative costs of $0.7 million were included in operating income in the first quarter of 2023 and 2024.
(in thousands of Canadian dollars)
Three Months Ended March 31, June 30, September 30, December 31, 2023 2023 2023 2023 Operating Income(a) $16,993 $16,346 $13,255 $11,133 Add: Amortization of property, plant, equipment, intangible and ROU assets 1,333 1,349 1,356 1,714 EBITDA $18,326 $17,695 $14,611 $12,848 Share-based incentive compensation cost (recovery) 26 2,224 (48) 447 Restructuring costs and other, net — — — 747 Adjusted EBITDA $18,352 $19,919 $14,563 $14,041 (a)As of the first quarter of 2024, the Company began allocating corporate administrative costs to the Connection Technologies segment. This aligns with the Company’s historical practice of allocating corporate administrative costs to the Composite Technologies segment. As a result, figures for all four quarters of 2023 have been retrospectively restated to reflect this allocation.
Financial, Corporate and Other
(in thousands of Canadian dollars)
Three Months Ended March 31,
2024 March 31,
2023 Operating Loss(a) $(10,835)$(7,438) Add: Amortization of property, plant, equipment, intangible and ROU assets 903 1,059 EBITDA $(9,932)$(6,379) Share-based incentive compensation cost 4,861 535 Foreign exchange loss 2,515 1,210 Adjusted EBITDA $(2,556)$(4,634)(a)As of the first quarter of 2024, the Company began allocating corporate administrative costs to the Connection Technologies segment. This aligns with the Company’s historical practice of allocating corporate administrative costs to the Composite Technologies segment. As a result, the comparative figures for the first quarter of 2023 have been retrospectively restated to reflect this allocation. Corporate administrative costs of $0.7 million were allocated to the Connection Technologies segment in operating income in the first quarter of 2023 and 2024.
(in thousands of Canadian dollars)
Three Months Ended March 31,
2023 June 30,
2023 September 30,
2023 December 31,
2023 Operating Loss(a) $(7,438)$(18,955)$(12,763)$(4,445) Add: Amortization of property, plant, equipment, intangible and ROU assets 1,059 1,062 1,031 913 EBITDA $(6,379)$(17,893)$(11,732)$(3,532) Share-based incentive compensation cost (recovery) 535 13,993 (1,932) 1,250 Restructuring costs and other, net — — — 1,727 Foreign exchange loss (gain) 1,210 (44) 952 125 Gain on sale of land and other — — — 340 Curtailment of defined benefit plan — — (1,889) — Impairment — — 8,652 — Adjusted EBITDA $(4,634)$(3,944)$(5,949)$(90)(a)As of the first quarter of 2024, the Company began allocating corporate administrative costs to the Connection Technologies segment. This aligns with the Company’s historical practice of allocating corporate administrative costs to the Composite Technologies segment. As a result, figures for all four quarters of 2023 have been retrospectively restated to reflect this allocation.
Adjusted EBITDA Margin
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue and is a non-GAAP measure. The Company believes that Adjusted EBITDA margin is a useful supplemental measure that provides meaningful assessment of the business results of the Company and its Operating Segments from principal business activities excluding the impact of transactions that are outside of the Company’s normal course of business.
See reconciliation above for the changes in composition of Adjusted EBITDA, as a result of which the table below reflects restated figures for the prior year quarter to align with the updated composition.
Operating Margin
Operating margin is defined as operating (loss) income divided by revenue and is a non-GAAP measure. The Company believes that operating margin is a useful supplemental measure that provides meaningful assessment of the business performance of the Company and its Operating Segments. The Company uses this measure as a key indicator of financial performance, operating efficiency and cost control based on volume of business generated.
Adjusted Net Income (attributable to shareholders)
Adjusted Net Income (attributable to shareholders) is a non-GAAP measure defined as Net Income (attributable to shareholders) adjusted for items which do not impact day to day operations. Adjusted Net Income (attributable to shareholders) is calculated by adding back to Net Income (attributable to shareholders) the after tax impact of the sum of impairments, costs associated with refinancing of long-term debt and credit facilities, gain on sale of land and other, gain on sale of investment in associates, gain on sale of operating unit, acquisition costs, restructuring costs, share-based incentive compensation cost, foreign exchange (gain) loss and other, net and hyperinflationary adjustments. The Company believes that Adjusted Net Income (attributable to shareholders) is a useful supplemental measure that provides a meaningful indication of the Company’s results from principal business activities for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures.
Adjusted Earnings Per Share (“Adjusted EPS”)
Adjusted EPS (basic) is a non-GAAP measure defined as Adjusted Net Income (attributable to shareholders) divided by the number of common shares outstanding. Adjusted EPS (diluted) is a non-GAAP measure defined as Adjusted Net Income (attributable to shareholders) divided by the number of common shares outstanding, further adjusted for potential dilutive impacts of outstanding securities which are convertible to common shares. The Company presents Adjusted EPS as a measure of Earning Per Share that excludes the impact of transactions that are outside the Company’s normal course of business or day to day operations. Adjusted EPS indicates the amount of Adjusted Net Income the Company makes for each share of its stock and is used by many analysts as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations.
Total Consolidated Mattr Adjusted EPS (Continuing and Discontinued Operations)
(in thousands of Canadian dollars except for per share amounts) Three Months Ended
March 31,
2024
$ Earnings Per
Share – Basic Earnings Per
Share – Diluted Net Loss (a) (5,842)(0.09)(0.09) Adjustments (before tax): Share-based incentive compensation cost 7,632 Foreign exchange loss 2,515 Loss on sale of Subsidiaries 5,405 Restructuring costs and other, net 3,201 Tax effect of above adjustments (2,066) Adjusted Net Income (non-GAAP) (a) 10,845 0.16 0.16 (a)attributable to Shareholders of the Company
(in thousands of Canadian dollars except for per share amounts) Three Months Ended March 31, 2023 $ Earnings Per
Share – Basic Earnings Per
Share – Diluted Net Income (a) 25,239 0.36 0.36 Adjustments (before tax): Share-based incentive compensation recovery (603) Foreign exchange loss 271 Tax effect of above adjustments 993 Adjusted Net Income (non-GAAP) (a) 25,901 0.37 0.37 (a)attributable to Shareholders of the Company
Total Net debt-to-Adjusted EBITDA
Total net debt-to-Adjusted EBITDA is a non-GAAP measure defined as the sum of long-term debt, current lease liabilities and long-term lease liabilities, less cash and cash equivalents, divided by the Consolidated Adjusted EBITDA (Continuing and Discontinued Operations), as defined above, for the trailing twelve-month period. The Company believes total net debt-to-Adjusted EBITDA is a useful supplementary measure to assess the borrowing capacity of the Company. Total net debt-to-Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate how long a company would need to operate at its current level to pay of all its debt. It is also considered important by credit rating agencies to determine the probability of a company defaulting on its debt.
See discussion above for the changes in composition of Adjusted EBITDA. The table below reflects restated figures for the prior year quarters to align with the updated composition.
(in thousands of Canadian dollars except Net debt-to-EBITDA ratio) March 31,
2024 December 31,
2023 Long-term debt $144,726 $144,201 Lease liabilities 89,419 88,263 Cash and Cash equivalents (315,986) (334,061) Total Net Debt $(81,841)$(101,597) Q1 2023 Adjusted EBITDA $— $54,528 Q2 2023 Adjusted EBITDA 67,274 67,274 Q3 2023 Adjusted EBITDA 128,440 128,440 Q4 2023 Adjusted EBITDA 137,721 137,721 Q1 2024 Adjusted EBITDA 30,069 — Trailing twelve-month Adjusted EBITDA $363,504 $387,963 Total Net debt-to-Adjusted EBITDA (0.23) (0.26)
Total Interest Coverage Ratio
Total Interest Coverage Ratio is a non-GAAP measure defined as Consolidated Adjusted EBITDA (Continuing and Discontinued Operations), as defined above, for the trailing twelve-month period, divided by Finance costs, net, for the trailing twelve-month period. The Company believes Total Interest Coverage Ratio is a useful supplementary measure to assess the Company’s ability to honour its debt payments. Total Interest Coverage Ratio is used by many analysts as one of several important analytical tools to judge a company’s ability to pay interest on its outstanding debt. It is also considered important by credit rating agencies to determine a company’s riskiness relative to its current debt or for future borrowing.
(in thousands of Canadian dollars except Interest Coverage ratio) March 31,
2024 December 31,
2023 Q1 2023 Adjusted EBITDA $— $54,528 Q2 2023 Adjusted EBITDA 67,274 67,274 Q3 2023 Adjusted EBITDA 128,440 128,440 Q4 2023 Adjusted EBITDA 137,721 137,721 Q1 2024 Adjusted EBITDA 30,069 — Trailing twelve-month Adjusted EBITDA $363,504 $387,963 Q1 2023 Finance costs, net — 5,144 Q2 2023 Finance costs, net 5,528 5,528 Q3 2023 Finance costs, net 5,744 5,744 Q4 2023 Finance costs, net 5,113 5,113 Q1 2024 Finance costs, net 2,142 — Trailing twelve-month finance cost, net $18,527 $21,529 Total Interest Coverage Ratio 19.62 18.02