Mattr Announces Second Quarter 2023 Results

TORONTO, Aug. 10, 2023 (GLOBE NEWSWIRE) — Shawcor Ltd., dba Mattr Infratech (“Mattr” or the “Company”) (TSX: MATR) reported today its operational and financial results for the three and six months ended June 30, 2023. This press release should be read in conjunction with the Company’s Management Discussion and Analysis (MD&A) and interim consolidated financial statements for the three and six months ended June 30, 2023, which are available on the Company’s website and at www.sedarplus.ca.

Highlights from the second quarter include¹:

• On a consolidated basis, revenue was $401 million, income from operations was $28 million and Adjusted EBITDA was $67 million;
• Composite Technologies (formerly known as Composite Systems) segment set a new quarterly revenue record, increasing by 11% to $150 million compared to $135 million in the prior year’s quarter;
• Connection Technologies (formerly known as Automotive & Industrial) segment revenue grew by 12% to $89 million compared to $79 million in the prior year’s quarter;
• Pipeline and Pipe Services segment revenue improved by 73% to $162 million compared to $93 million in the prior year’s quarter;
• The Pipeline and Pipe Services segment commenced coating operations on the Southeast Gateway Pipeline (“SGP”) project in Altamira, Mexico near the end of the quarter;
• The Company completed a rebranding process, from Shawcor to Mattr, changed its TSX ticker symbol from SCL to MATR and modified the names of two of its three reporting segments, as noted above.
• The Company completed the sales of its Shaw Pipeline Services (“SPS”) business unit and a specialty pipe coating facility in Ellon, Scotland (“UK Coating”), both formerly part of the Pipeline and Pipe Services segment, for combined gross proceeds of $9.4 million. Additionally, the Company entered into an agreement to sell its idle facility in Pozzallo, Italy, a transaction that is expected to close in the third quarter of 2023 yielding gross proceeds of approximately $6.5 million;
• The order backlog for execution in the next 12 months decreased by 12% to $1,157 million as of June 30, 2023, from $1,309 million as of March 31, 2023. This decrease primarily reflects an increase in offshore pipe coating project activity, which exceeded the volume of new contracts secured or moved into the coming 12-month window, and the elimination of backlog tied to the divested SPS business. The Pipeline and Pipe Services segment continued to account for a majority of the Company’s 12-month order backlog as of June 30, 2023;
• The Company announced further details of its 2023 capital investment program, committing to two new Connection Technologies production facilities, one in the US and one in Canada, to replace the previously sold and leased back Toronto footprint. These are in addition to the two previously announced expansion facilities related to the Composite Technologies segment;
• The Company renewed and extended its Normal Course Issuer Bid (“NCIB”) while remaining active and repurchasing 404,700 of its common shares during the quarter for an aggregate repurchase price of approximately $5.2 million. Subsequent to the quarter and as of August 4, 2023, the Company has repurchased 169,500 shares for an aggregated repurchase price of approximately $3.3 million;
• The Company generated $31 million in cash from operating activities, compared to approximately $9 million of cash used in operating activities during the second quarter of 2022, while investing in working capital to support growth in all three reporting segments, including mobilization of the SGP project, which was pre-funded with cash deposits from the customer; and
• A net repayment of $5 million was made on the Credit Facility (as defined herein). As at June 30, 2023, the Company had total net debt of $119 million and a Net debt-to-EBITDA¹ ratio (using a trailing twelve-month Adjusted EBITDA¹) of approximately 0.54 times.

¹ _{EBITDA, Adjusted EBITDA, and Net debt-to-EBITDA are non-GAAP measures. Order backlog is a supplementary financial measure. 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. Adjusted EBITDA is adjusted for all periods presented as the Company updated this non-GAAP measure in the first quarter of 2023 to include adjustments for share-based incentive compensation cost and foreign exchange (gain) loss. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details on this modification. The amounts presented above reflect restated figures for the second quarter of 2022 to align with the updated composition. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.}

“We continued to execute on our strategy to accelerate growth, expand margins and lower volatility through the second quarter of 2023,” said Mike Reeves, President & CEO of Mattr. “Strong operational performance enabled significant year-over-year sales growth in all three reporting segments during the quarter. The Composite Technologies segment set new quarterly records for both revenue and Adjusted EBITDA¹, the Connection Technologies segment set a new quarterly record for Adjusted EBITDA¹ and the Pipeline and Pipe Services segment successfully commenced coating operations on the Southeast Gateway Pipeline project. On a consolidated basis, the Company grew Adjusted EBITDA¹ by more than 23 percent sequentially compared to the first quarter of 2023 and delivered its highest Adjusted EBITDA margin¹ since 2015.”

“During the quarter, the Company continued to pursue its disciplined, returns-focused capital allocation strategy, initiating the establishment of two new North American production sites serving our Connection Technologies segment in addition to the two previously announced expansion facilities for the Composite Technologies segment, which are expected, over time, to accelerate revenue growth and further increase Adjusted EBITDA margins¹. In parallel, the Company continued to be active under its previously launched NCIB, which it renewed and expanded.”

“In alignment with the Company’s previously communicated strategic review process, during the second quarter we completed the sale of our SPS business, our UK Coating business and entered into an agreement to sell our idle Italian pipe coating facility. We remain fully committed to concluding the strategic review process in respect of our remaining pipe coating business, and this process continues to receive significant focus as we actively pursue its completion. While we are not yet positioned to announce a transaction, progress continues to be made and we will provide further details when there are material developments to report.”

“We believe Mattr is very well positioned to accelerate value creation for all stakeholders over the coming years given its strong balance sheet, clear opportunities for high return organic and inorganic growth, and pending completion of its portfolio optimization process. We anticipate Adjusted EBITDA¹ in the third quarter of 2023 to rise significantly, driven primarily by the impact of a full quarter of coating activity on the SGP project.”

¹ _{EBITDA, Adjusted EBITDA, and Net debt-to-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 Measure and Other Financial Measures” for further details and a reconciliation of these non-GAAP measures. Adjusted EBITDA is adjusted for all periods presented as the Company updated this non-GAAP measure in the first quarter of 2023 to include adjustments for share-based incentive compensation cost and foreign exchange (gain) loss. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details on this modification. The amounts presented above reflect restated figures for the second quarter of 2022 to align with the updated composition. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.}

Selected Financial Highlights

1.0 SECOND QUARTER HIGHLIGHTS

The Company delivered Income from Operations of $28.4 million and Adjusted EBITDA¹ of $67.3 million in the second quarter of 2023, a reduction of $5.3 million and an improvement of $34.6 million, respectively, compared to the second quarter of 2022. These results reflect increased activity levels across pipe coating facilities including the commencement of the load-in and pipe coating activities of the SGP project, coupled with high-margin aerospace and nuclear wire and cable orders, increased demand for the Company’s composite pipe products, with particular strength in demand for its recently added larger diameter products and continued strength in the retail fuel and water management markets for FRP tanks and related products. Income from Operations in the prior year’s second quarter included a $43 million gain on sale of the Rexdale facility in Toronto. The Company’s sales into infrastructure & industrial end markets accounted for nearly 42% of total revenue during the second quarter of 2023.

The Company continues to execute on its strategy to optimize its portfolio, while exploring organic and inorganic investment opportunities. During the quarter, the Company entered into an agreement to sell its facility in Pozzallo, Italy which is expected to close in the third quarter of 2023. Additionally, the Company completed the sales of the SPS business and UK Coating business generating total gross proceeds of $9.4 million. During the quarter, the Company also detailed organic growth capital commitments, including the addition of a new Flexpipe facility in Texas and a new Xerxes facility in South Carolina for its Composite Technologies segment as well as an expanded ShawFlex facility in the Greater Toronto Area and a new DSG-Canusa facility in Ohio, which will expand and replace the Connection Technologies segment’s existing North American footprint.

As at June 30, 2023, the Company had cash and cash equivalents totaling $124.5 million (December 31, 2022 – $264.0 million). This decrease was driven by an investment of $100.4 million in working capital mostly in support of the SGP project and increased business activity in the Composite Technologies and Connection Technologies segments, a repayment of $30.0 million of the Company’s syndicated credit facility (the “Credit Facility”), $78.4 million of growth and maintenance capital expenditures and $8.6 million on the acquisition of Triton Stormwater Solutions offset by $6.5 million received from the divesture of the SPS and UK Coating businesses net of transaction expenses. Since the beginning of 2021 and up to June 30, 2023, the Company has repaid $252.5 million against the Credit Facility. The Company will continue to focus on maximizing the conversion of operating income into cash, managing its long-term debt, exploring organic and inorganic growth opportunities, and maximizing returns to shareholders.

Selected Segment Financial Highlights

Composite Technologies segment revenue in the second quarter of 2023 was $150.4 million, a quarterly record for the segment and an increase of $14.9 million, or 11%, compared to the second quarter of 2022, with an operating income of $25.6 million. This year-over-year performance improvement was despite the absence of the Oilfield Asset Management (“OAM”) business which was sold during the fourth quarter of 2022. Demand for composite pipe products in North America continued to grow as the business continued to take market share in US markets through its larger diameter offerings. The segment also benefitted from atypical strength in international composite pipe sales. With favourable installation conditions generally prevailing, North American demand for underground FRP tanks for liquid fuel moved up quarter-over-quarter, while growth in demand was observed for the segment’s water management systems and related products. Adjusted EBITDA¹ in the second quarter of 2023 was $34.8 million, a new quarterly record and a 50% increase compared to $23.2 million in the second quarter of 2022. This increase was primarily attributed to elevated sales of composite pipe products, with growing volumes of larger diameter products driving higher margins.

The Connection Technologies segment continued its strong performance from the first quarter to deliver revenue of $88.7 million. This represents an increase of 12% versus the second quarter of 2022. In industrial markets, the business benefitted from continued infrastructure spending, particularly in North American utilities. The segment delivered new record quarterly Adjusted EBITDA¹ of $21 million, a 29% increase over the prior year quarter, largely stemming from higher demand in industrial markets and bolstered by a favourable product mix. Segment margins were elevated both by manufacturing efficiencies, meaningful shipments of high-margin wire and cable products in support of nuclear customers, as well as from a substantial one-time shipment of high-margin wire and cable products in support of an aerospace project.

The Pipeline and Pipe Services segment delivered revenue of $161.6 million, an increase of $68.2 million or 73% compared to the second quarter of 2022 despite the sale of the SPS business mid-quarter and the absence of $16 million from the LSC business which was sold in the third quarter of 2022. The segment’s performance was driven by strong coating activity on projects across multiple sites with particular strength in Latin America. The segment benefitted from a slight pull-forward in activities related to the Yellowtail project and the commencement of load-in and pipe coating activities on the SGP project. At the end of the second quarter of 2023, approximately 5% of the total anticipated SGP project revenue had been recognized. Adjusted EBITDA¹ in the second quarter of 2023 was $17.1 million, an increase compared to the negative $0.7 million reported in the second quarter of 2022, primarily related to higher revenue and improved utilization.

The twelve-month order backlog¹ of $1,157 million as at June 30, 2023, represents a 12% decrease from the $1,309 million twelve-month order backlog¹ as at March 31, 2023. This reduction was primarily attributed to several offshore pipe coating project scopes being executed throughout the quarter, including the Yellowtail project and the start of the SGP project pipe coating activity in Mexico. The order backlog¹ includes firm customer contracts which are expected to be executed over the next twelve months and a majority is related to the Pipeline and Pipe Services segment.

¹ _{EBITDA, Adjusted EBITDA and Net debt-to-Adjusted EBITDA are non-GAAP measures. Order backlog is a supplementary financial measure. 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. Adjusted EBITDA is adjusted for all periods presented as the Company updated this non-GAAP measure to include adjustments for share-based incentive compensation cost and foreign exchange (gain) loss. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for further details on the changes in composition of Adjusted EBITDA. The amounts presented above reflect restated figures for the first quarter of 2022 to align with the updated composition. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.}

Outstanding firm bids, which are bids provided to customers with firm pricing and conditions against defined scope, were $997 million as of June 30, 2023, an increase versus the $847 million from the previous quarter. Conditional awards, pending final investment decision, were at $8 million, down from the $168 million as at the prior quarter, as several final investment decisions occurred during the quarter. Budgetary estimates were nearly $2.1 billion at the end of the quarter, a decrease from approximately $2.5 billion at the end of the previous quarter, as some projects moved from budgetary to firm bids during the quarter. Outstanding firm bids and budgetary estimates are measures used primarily for the Pipeline and Pipe Services segment, and as such, most of the numbers reported relate to this segment.

2.0 OUTLOOK

The Company expects to see a step-up in performance in the third quarter of the year as the Pipeline and Pipe Services segment sees its first full quarter of coating activity on the SGP project. In the third quarter of 2023, the Company expects results in its Composite Technologies segment to remain similar to the results of the second quarter of the year, as continued growth in North American sales offsets a return to more typical levels of international composite pipe sales. The Connection Technologies segment is expected to see a decline in sales compared to the second quarter, reflecting continued strong demand in North America and EMEA, offset by non-recurrence of the large aerospace related wire and cable order which was delivered in the first half of 2023.

In management’s view, the underlying business trends for all of Mattr’s primary businesses remain favourable as its infrastructure and industrial focused portfolio continues to experience consistent demand growth, while the Company’s oil and gas focused offerings remain well-positioned as commodity prices and energy availability challenges drive a multiyear upcycle in both onshore and offshore activity. The Company continues to experience raw material and labour cost pressures and, as a result, will continue to monitor its pricing and, if needed, roll out further price increases to help offset these costs.

The Company expects to make sizeable organic investments during the remainder of 2023 and in 2024 to expand capacity within its Composite Technologies and Connection Technologies segments. During the second quarter, the Company detailed several planned 2023 and 2024 capital investments into high-return growth opportunities in both of these segments. These investments include the construction of new composite pipe, composite tanks, and heat shrink manufacturing facilities in the US, as well as a new wire and cable facility in Canada, the latter two facilities replacing and expanding the Company’s existing North American footprint for the Connection Technologies segment. In aggregate, once completed, these planned growth capital 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 outputs 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 continues to take an “all of the above” approach to capital allocation, skewed towards investment in organic opportunities viewed as having the highest risk adjusted return on investment potential. While disciplined capital investment in all areas continues, high-return potential growth capital investments, recurring lease liabilities and share repurchases under the Company’s recently renewed NCIB are expected to consume the majority of cash generated from operations during 2023. 

Order backlog¹ is expected to decline through the back half of the year as execution on large pipe coating projects, particularly the SGP project, outpace new order intake.

¹ _{Order backlog is a supplementary financial measure. See “Section 5.0 – Reconciliation of Non-GAAP Measures” for additional information.}

Composite Technologies Segment

The Company is expecting continued stable demand for underground FRP tanks in the third quarter of 2023 as liquid fuel service station networks expand, upgrade and replace existing aging tanks, before experiencing a slight decline in the fourth quarter driven by normal seasonal cycles in customer installation activity. Growth in demand for water and storm-water storage and treatment systems is expected to persist, supported by increasing societal demands to conserve and manage water resources and projected higher infrastructure spending on commercial and municipal water projects. The Company’s ability to serve water-oriented markets is further enhanced by the product portfolio acquired from Triton Stormwater Solutions during the first quarter of 2023. Overall growth in demand for the segment’s composite pipe products in North America is expected to continue in the second half of 2023 as activity levels in Western Canada and in the Permian Basin remain robust while commercial adoption of the Company’s larger diameter products continues. International sales of composite pipe products are expected to generally trend upwards, although the tender-based nature of many international orders means timing of order delivery and related revenue recognition is likely to remain irregular. Price increases have been implemented to manage raw material cost escalations across the segment. Additionally, labour shortages and capacity constraints are being managed to ensure adequate personnel and facilities are available to meet the robust demand for all composite products in the market.

Connection Technologies Segment

Demand for the Connection Technologies segment products is expected to remain strong throughout 2023, although revenue is expected to decrease to a more typical level in the third quarter driven by the non-recurrence of a one-time, high margin wire and cable aerospace order which was delivered in the first half of 2023. At this time, the Company anticipates experiencing its normal seasonal pattern of distributor de-stocking in the fourth quarter, which is expected to cause the fourth quarter to be the lowest revenue quarter of the year. The Company expects continued healthy demand, particularly in the nuclear and industrial sectors, to drive underlying business growth and higher revenue for the remaining quarters of 2023 when compared to the same quarters of 2022. This revenue growth will be offset by costs incurred in preparation for the 2024/2025 facility relocations. The Company continues to monitor recessionary concerns and broad supply chain impacts. The Company’s full year outlook does not incorporate any expectation of meaningful growth in total global vehicle output within the automotive end markets, which represented approximately 29% of the segment’s revenue in the second quarter of 2023. Despite the macroeconomic backdrop, 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 and EMEA regions. In industrial and infrastructure end markets, which represented approximately 71% of the segment’s revenue in the second quarter of 2023, the Company is expecting to benefit from continued infrastructure spending in 2023 and beyond as new and upgraded utility and communication networks are constructed, nuclear refurbishments continue in Canada, and federal stimulus packages are rolled out. Additionally, the Company will continue to manage the volatility of copper raw material costs.

Pipeline and Pipe Services Segment

The Company expects that its PPS segment, which is now comprised entirely of its Pipeline Performance Group (“PPG”) unit, will see a substantial step up in activity levels during the third quarter of 2023 as it realizes its first full quarter of revenue from the SGP project. Based on elevated coating efficiency rates observed to date, the Company now anticipates the SGP project coating timeline will accelerate, and coating activity is expected to remain steady through the back half of 2023 until the anticipated completion during the first quarter of 2024. It is expected that the sequencing of the coating activities will result in SGP revenue being recognized relatively evenly across the next three quarters, with a slight skew towards the fourth quarter of 2023.

The Company continues to monitor international developments for the segment, including sustained exploration success and additional project phases in Guyana and Brazil, and Middle Eastern offshore projects designed to meet domestic energy needs and global LNG demand. Increases in inbound subsea orders have been observed across the Company’s customer base, particularly in Latin America, Asia, Europe and Asia-Pacific, where the Company is well-positioned to secure and execute work. New offshore pipeline installations that range from small and mid-size to large in scope are expected to arise throughout 2023 and into subsequent years. Project sanctioning activity, bid, budgetary, and general interest from customers to install more pipelines, are all expected to drive elevated demand for the Company’s market leading pipe coating technologies.

Strategic Review Update

On September 12, 2022, the Company announced that it had commenced a review of strategic alternatives (the “Strategic Review”) for its PPG, SPS, and OAM operating units. In connection with the Strategic Review, the Company also announced its intent to re-brand and rename the Company from “Shawcor Ltd” to “Mattr Ltd”, subject to necessary regulatory and shareholder approvals.

Since the commencement the Strategic Review the Company has considered and explored a range of options for each of the operating units, including the sale of such units. To date, the Strategic Review process (including the sale of a non-material business unit preceding the formal launch of the strategic review) has resulted in the successful completion of the following:

• sale of Lake Superior Consulting (which formed part of the PPS segment) in September 2022;
• sale of its OAM business (which formed part of the Composite Technologies segment) in November 2022;
• sale of its Socotherm subsidiary (which formed part of the PPS segment) in December 2022;
• sale of its specialty pipe coating facility in Ellon, Scotland in the second quarter of 2023;
• entered into a definitive agreement to sell its facility in Pozzallo, Italy in the second quarter of 2023 (which is expected to close in the third quarter of 2023); and
• sale of its SPS business (which formed part of the PPS segment) at the end of May 2023.

Following the sale of the SPS business, the PPS segment now consists solely of the PPG operating unit. The Company remains fully committed to concluding the Strategic Review process in respect of its PPG operating unit, and while progress continues to be made, the Company is not yet positioned to make an announcement regarding the business. The remaining aspect of the Strategic Review process continues to receive significant focus as the Company actively pursues its completion and the Company will provide further details when there are material developments to report.

Additionally, at the beginning of June 2023, the Company announced its official rebrand to “Mattr”, reflecting its transformation from an energy services organization, into a materials technology company, providing differentiated, high-performance products to critical infrastructure markets around the world.

3.0 CONFERENCE CALL AND ADDITIONAL INFORMATION

Mattr will be hosting a Shareholder and Analyst Conference Call and Webcast on Friday, August 11^th, 2023 at 9:00 AM ET, which will discuss the Company’s Second Quarter 2023 Financial Results. To participate via telephone, please register at https://register.vevent.com/register/BI401a152ea5fa467290dd900ded9cad17
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/z3w9gu27. 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 and mobile manufacturing facilities. Its three business segments, Composite Technologies, Connection Technologies and Pipeline & Pipe Services enable responsible renewal and enhancement of critical infrastructure while lowering risk and environmental impact.

For further information, please contact:

Meghan MacEachern
Director, External Communications & ESG
Tel: 437-341-1848
Email: meghan.maceachern@mattr.com
Website: www.mattr.com

Source: Shawcor Ltd,. dba Mattr Infratech
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, the ability of the Company to deliver higher returns to all stakeholders; the evolution of the Company’s portfolio of products and services beyond the energy sector; the completion of the remaining portion of the Strategic Review process, including whether it will result in a definitive agreement or any transaction in respect of such Strategic Review, as well as the terms and timing of a definitive agreement or transaction, if any, in connection therewith; the favourability of underlying business trends of the Company; the Company’s ability to execute on its portfolio optimization strategy; the Company’s ability to execute projects under contract; the Company’s intentions to mobilize facilities and conduct work on the SGP project; the Company’s plans for coating activity on the SGP project; 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 expected order backlog decline through the second half of 2023; the level of financial performance throughout 2023 and 2024; the expected upcycle in pipe coating activity in the second half of 2023; the demand for, and activity in, the Company’s products in the Composite Technologies, the Connection Technologies and the Pipeline and Pipe Services segments of the Company’s business; the increased performance of the Company’s Pipeline and Pipe Services Segment; the Company’s expected investments during 2023 and 2024 to expand capacity within the Composite Technologies and Connection Technologies segments; continued share repurchases under the NCIB; the growth in and the successful execution of the Company’s order backlog during 2023 and the increased execution of work secured in the backlog; the opportunity to obtain greater market share in the Composite Technologies segment; the increased performance of the Pipeline and Pipe Services segment as a result of the coating activity on the SGP project; the anticipated timeline of the SGP project coating and the level of coating activity through 2023 and its anticipate completion in the first quarter of 2024; the anticipated results and timing of the Company’s capital expenditures investments and the expected impact on the Company’s revenue generating capacity, operational efficiencies, margin profile enhancement, and financial results; the impact on revenue of costs incurred in advance of the 2024 and 2025 facility relocation; statements regarding timing for completion of the new facilities, and timing of achievement of anticipated production levels; the seasonal impacts to, and increased demand in, the Company’s Connection Technologies segment; the growth in premium, hybrid and full electric vehicle markets and the impact thereof on the Company’s financial performance; the impact of increased infrastructure spending, including in the areas of water management, communication networks and nuclear refurbishment on the Company’s financial performance; the Company’s management of raw material costs; the impact of global economic activity on the demand for the Company’s products; the impact of continuing demand for oil and gas; the impact of global oil and gas commodity prices; the impact of changing energy demand, supply and prices; the execution of definitive contracts on outstanding bids for and the timing to complete certain pipe coating projects; the likelihood that international and offshore projects will be sanctioned in the future and the impact thereof on the Company’s business; the ability of the Company to fund its operating and capital requirements; 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 Management Discussion and Analysis 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 caused by pandemics, other health crises or by natural disasters; the Company’s ability to manage supply chain disruptions and other business impacts caused by, among other things, geopolitical events or conflicts, such as the conflict in Ukraine and related sanctions on Russia; global oil and gas prices stabilizing at current levels; improved pipe-coating activity throughout 2023; the impact of the war in Ukraine and related sanctions on Russia; the Company’s demand for products and the strength of its and its customers supply chains; the impact of raw material shortages on the Company; the costs of raw materials and labour, including as a result of labour shortages and capacity constraints; seasonal impacts on the Company’s FRP tanks business due to North American ground conditions; sustained strong demand for the Company’s FRP tanks, including for retail fuel storage and water treatment and storage; seasonal impacts to the Company’s composite pipe business due to spring break-up conditions; the increased demand for composite pipe products and the Company’s products within the Connection Technologies markets; heightened demand for electric and hybrid vehicles and for electronic content within those vehicles; the growth in demand for water and storm-water storage and treatment systems; heightened infrastructure spending in Canada, including in respect of commercial and municipal water projects, transportation networks, communication networks and nuclear refurbishments; the recommencement of increased capital expenditures in the global offshore oil and gas pipeline segment to replace, maintain and rehabilitate existing infrastructure, replace production due to reservoir depletion and to address geopolitical challenges impacting several producing regions; the continued recovery of the global economy; a gradual recovery of oil and gas markets in North America; 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 continue to be able to optimize its portfolio and identify and successfully execute on opportunities for acquisitions and dispositions in alignment with its strategic plan; the effect of the Strategic Review process on the Company; 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 increase in order backlog and contracts; the adequacy of the impairment charges taken; and the ability of the Company to satisfy all covenants under its Credit Facility (as defined herein) and other debt obligations and having sufficient liquidity to fund its obligations and planned initiatives. 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

In an effort to reduce the volatility of the Adjusted EBITDA metric imposed by factors outside of the Company’s control and to provide enhanced comparability of the Company’s results from its principal business activities with those of the Company’s peer group, the Company has modified the composition of Adjusted EBITDA. Beginning in the first quarter of 2023, Adjusted EBITDA includes adjustments for share-based incentive compensation costs and foreign exchange (gains) losses. Share-based incentive compensation costs have recently experienced a high degree of volatility derived from movements in the market value of the Company’s shares and the related impact on such plans. Given the Company’s global presence and its exposure to several foreign currency rates, the Company experiences fluctuation from foreign exchange gains or losses outside of its control. The Company believes this modified composition will present a more accurate representation of the Company’s results from principal business activities. The amounts presented below reflect restated figures for prior periods as needed to align with the updated definition.

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 repayment 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 Credit Facility.

Composite Technologies Segment

Connection Technologies Segment

Pipeline and Pipe Services Segment

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.

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 Adjusted EBITDA, 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.

Total Interest Coverage Ratio

Total Interest Coverage Ratio is a non-GAAP measure defined as Adjusted EBITDA, 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.

Source: Shawcor Ltd., dba Mattr Infratech