Mattr Corp.

Good day, and thank you for standing by. Welcome to the MATTER fourth quarter 2023 results webcast and conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is phrased. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Megan McEachern, Vice President of External Communications and ESG. Please go ahead.

Good morning. Before we begin this morning's conference call, I would like to take a moment to remind all listeners that today's call includes forward-looking statements that involve estimates, judgments, risks, and uncertainties that may cause actual results to differ materially from those projected. The complete text of matters statement on forward-looking information is included in Section 4.0 of the fourth quarter and full year 2023 earnings press release in the MD&A that is available on CDAR Plus and on the company's website at matter.com. For those joining via webcast, you may follow the visual presentation that accompanies this call. I'll now turn it over to Matter's President and CEO, Mike Reeves.

Good morning, and thank you for attending our fourth quarter conference call. Today, Megan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway. In 2023, Matt's continuing operations delivered year-on-year adjusted EBITDA growth of over 16%, expanded adjusted EBITDA margins by 140 basis points compared to 2022, and set new record levels of annual financial performance in both our composite and connection technology segments. These robust financial outcomes were accomplished while also executing a fundamental business transformation, rebranding our company completing our strategic review process, and building a year-end cash balance of over $330 million. Our technology investments continue to drive growth, with our Xerxes water, large diameter flex pipe, and SureFlex nuclear product lines each reaching new heights. During 2023, we also repurchased nearly 4.5 million shares under our normal course issuer bid, and deployed over $75 million of organic growth capital into our manufacturing modernization, expansion, and optimization program, with all four of our new North American production facilities remaining on budget and on schedule to commence production between mid-2024 and early 2025. We exited the year as a tightly focused critical infrastructure products provider with the balance sheet strength to continue investing in organic opportunities and share repurchases while also considering meaningful acquisitions to accelerate value creation for all stakeholders. Over these past 12 months, the employees of MATA have achieved a long list of extraordinary outcomes and have done so while setting a new safety performance record and further lowering our greenhouse gas emissions. I could not be prouder of this organization and the many talented, creative, and committed people who work here. Turning to the fourth quarter, The company delivered robust total operating results, continued to progress its significant organic growth program, and accelerated its share repurchase activity. Total consolidated adjusted EBITDA was $137 million during the quarter, with adjusted EBITDA margins of 29%, a substantial increase from the prior year and the prior quarter. Our continuing operations which exclude the business components now sold to Tanaris and reported as discontinued operations, delivered adjusted EBITDA of $33 million in the fourth quarter, a significant accomplishment given normal seasonal slowing and the previously anticipated unfavorable market dynamics, which impacted our composite technology segment towards year end. Continuing operations adjusted EBITDA margins exceeded 15% in the quarter, a testament to the organization's ongoing commitments to tight cost control and efficiency improvement. During the fourth quarter, we sold the majority of our pipe coating business, reported as discontinued operations, to Tanaris. Prior to its sale, the business delivered significant revenue, adjusted EBITDA, and cash flow, primarily as a result of stronger than previously expected execution and margins on the Southeast Gateway Pipeline project. MATA benefited from this significant generation of cash, but will have some working capital adjustment liability as a consequence. We anticipate the combination of pre-closing cash generation, the contractual purchase price, net of transaction fees and expenses, and the currently estimated working capital adjustment will deliver total net cash proceeds to MATA of nearly $280 million. Tom will share additional details on this transaction later. The hard work of recent years to strengthen our balance sheet and our cash generation profile positions us to continue pursuing a flexible but disciplined capital allocation strategy, balancing share buybacks with investment in high margin growth opportunities to generate elevated returns in the coming years. During Q4, the company continued its substantial growth investments within its composite and connection technology segments. These investments, including four new operating sites, are expected to enhance production capacity, efficiency, and proximity to key markets, provide added footprint optimization flexibility, and lower risk by providing increased production redundancy. They are expected to accelerate mid and long-term revenue growth, elevate margin profiles, and deliver attractive overall returns. We remain alert to strategically aligned accretive acquisition opportunities which have the potential to accelerate our organic growth trajectory. With our strategic review completed and a substantial cash balance established, we now have the capacity to consider both tuck-in and more meaningful acquisition target. Finally, we continue to believe the intrinsic value of our business represents an excellent investment opportunity And consequently, the company further increased its stock repurchase activity under its normal course issuer bid during the fourth quarter. Looking at each of our segments, Competit Technologies delivered new annual records for revenue and adjusted EBITDA in 2023, with Xerxes water product sales setting a new high water mark and sales of Xerxes fuel storage tanks rising 7% compared to 2022. despite the previously discussed customer permitting delay challenges. In addition, share gains in our FlexPipe business enabled revenue expansion despite year-over-year contraction in North American oil field activity. Of particular note, sales of our larger diameter FlexPipe products rose nearly 70% when compared to 2022. The Competit Technologies team has demonstrated agility creativity, and a strong commitment to customer service over the last 12 months, while successfully navigating some particularly challenging market conditions late in the year. I deeply appreciate their efforts. Despite a new quarterly record for Xerxes water product sales, these previously discussed late-year market conditions, including further reduced North American oil field activity, normal seasonal slowing of underground fuel storage tank installation activity, and the first of two quarters where underground fuel storage tank production was curtailed to lower finished goods inventory balances led to a sequentially lower fourth quarter revenue and adjusted EBITDA. Entering 2024, market conditions have evolved largely as expected. North American oilfield drilling activity has remained in line with the prior quarter, a trend we believe is likely to continue for at least the first half of the year in the face of flat oil price lower natural gas prices, and substantial customer consolidation. However, earlier customer ordering patterns continue to indicate ongoing FlexPipe share gains, particularly in larger diameter products, with normal seasonal increases in U.S. completion activity expected to drive a substantial rise in FlexPipe revenue moving into the second quarter. In addition, recently captured international orders including large diameter product orders, will modestly enhance first quarter revenue before becoming more impactful in Q2 and beyond. In our Xerxes business, ground conditions during the first quarter are typically the least favorable for fuel and water system installations, and so far 2024 has followed this historic pattern. In parallel, Our fuel customer base has been working hard since early 2023 to modify their permitting strategies to secure a more consistent supply of approved permits and are communicating a greater degree of confidence that their 2024 convenience store construction and renewal projects will move forward as planned. Consequently, the first quarter of 2024 is expected to be the final quarter in which the business tempers production activity. Given the continued rise of U.S. interstate commerce and truck traffic and the lower applicability of electrification to this market sector, our fuel customers continue to display a rising focus on expanding their interstate travel center or truck stop networks. We are generally seeing older, smaller convenience stores being retired and replaced by larger convenience stores, with 20 to 25 percent or more of these being travel centers. For context, a travel center will typically require seven or more new Xerxes fuel storage tanks, often of our largest configurations, whereas a non-travel center will typically require three to four tanks. Consequently, while total active convenience store count is projected to remain approximately flat, demand for premium Xerxes products continues to rise and is the primary driver behind our investment to upgrade, expand, and optimize the Xerxes manufacturing network. With a strong outlook for the second quarter and beyond, the segment has been intensely focused on advancing its manufacturing, modernization, expansion, and optimization strategy. At year end, its new flex pipe production site in Rockwall, Texas, and new Xerxes production site in Blythewood, South Carolina, remained on budget and scheduled for first production around mid-year. Commissioning of the Rockwall site will lower manufacturing concentration risk in our flex pipe business, alleviate rising capacity challenges in our Calgary facility, and enable substantially more efficient production of larger diameter flex pipe products. In addition, its location will significantly reduce freight costs associated with products sold into West Texas and to international destinations. The Blythewood Xerxes site will be the first new tank production facility commissioned in 35 years, incorporating modern manufacturing processes to significantly enhance efficiency and configured to optimize output of our largest tanks, which continue to rise as a proportion of total demand. Its large diameter production capacity will be approximately four times that of our recently shuttered Anaheim site, and its impending addition to the Xerxes footprint was the planned trigger for the company to exit Anaheim, a location which was among the oldest in our network and was exposed to the particular risk factors associated with the state of California. The shutdown of Anaheim is expected to be completed by year end and anticipated to yield at least $2.5 million of annualized fixed cost savings once completed. Exiting Anaheim does not alter our previously shared revenue growth potential and related returns expectations tied to the new composite technologies production sites. The one-time costs associated with ongoing action to commission two new sites and exit Anaheim will be elevated during the first two quarters of 2024, before moving down significantly in the second half of the year. In combination, these factors lead us to expect a modest sequential decline in segment adjusted EBITDA during the first quarter, before rising significantly in the second quarter. Turning to connection technologies, the segment delivered new annual records for revenue and adjusted EBITDA during 2023, with sales of harsh environment wire, cable, and heat shrink tubing into infrastructure applications rising substantially compared to the prior year. This outcome, while running at near full capacity in our Toronto wire and cable production site, is a testament to the creativity and teamwork of the connection technology segment employees. During Q4, the connection technology segment reported revenue and adjusted EBITDA slightly lower sequentially, but modestly above the prior year period as expected. Within the quarter, we observed continued strong demand for the segment's products in North American infrastructure markets, which largely offset a modest impact from U.S. automotive labor disruption and ongoing interest rate driven slowness in the Canadian distribution sector. Reduced Canadian wire and cable distributor activity throughout the second half of 2023 has enabled the segment to redirect capacity and capture incremental share in North American utility markets, particularly in the U.S., a trend that continued in the fourth quarter and we believe is sustainable moving forward. As anticipated, we did not see meaningful inventory destocking by wire and cable distributors. That would typically occur at year end and do not expect to see the seasonal restocking that would typically occur in the first quarter. Despite this, The company expects Connection Technologies revenue in the first quarter to move upwards and to be similar to the level seen in Q1 of 2023, before moving further upwards in the second quarter as continued demand growth and share gain in the North American infrastructure market compounds a return to pre-strike levels of U.S. automotive production activity. The segment continues to execute the relocation, expansion, and modernization of its North American production activities into two new 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, with final site completion occurring in the first half of 2025, enabling connection technologies to maintain and accelerate its North American growth trajectory. Overall, we maintain a favorable view of the long-term electrification, communication, and transportation trends which impact this segment and will continue to invest in the development of new technologies and to improve our manufacturing capacity, elevate our production efficiency, and lower lead times. We also continue to evaluate accretive acquisition opportunities to further expand our product offering and geographic presence. Lastly, our discontinued operations, which were sold at the end of November, delivered over $100 million in adjusted EBITDA. with an adjusted EBITDA margin of almost 40% in Q4, driven by very strong operational execution, particularly on the Southeast Gateway Pipeline project. Our pipe coating employees performed at an extraordinary level throughout 2023, particularly given the added distraction of a sale process. They're an incredible team of passionate people. We will miss them, and we wish them a very successful future as part of Tenaris. Tom will now walk through the company's full year and fourth quarter financial highlights, including greater detail on our completed pipe coating sale transaction.