Mattr Corp.

a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Megan McCacklin, VP 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 Matter's statement on forward-looking information is included in Section 4.0 of the second quarter 2024 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 second quarter conference call. Today, Megan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway. During the second quarter of 2024, Matter's consolidated results included $254 million of revenue, $43 million of adjusted EBITDA, and adjusted earnings per share of 31 cents, with our teams around the globe working efficiently to drive strong sequential growth despite a number of market and geopolitical challenges. Customer buying patterns in the quarter were largely aligned with expectations across all business lines. Order visibility for the rest of this year and into next is improving in multiple business lines, and the company is beginning to see an increase in quoting activity within several market sectors that are traditionally sensitive to interest rates. We continue to believe that our investments in technology, operational efficiency, and enhanced production capabilities will support our ambition to double revenue by 2030 while driving EBITDA margins above 20%. Our manufacturing modernization expansion and optimization or M E O program has made considerable progress in the first half of 2024 with both of our new composite technologies production sites now largely completed and commencing operations early in July. While both of our new connection technology sites remain on budget and on schedule to commence initial production around year end. As they come online, These investments are expected to gradually enhance production capacity, efficiency, and proximity to key markets, provide added flexibility, and lower risk by strategically establishing U.S. domestic manufacturing capabilities while providing increased production redundancy. They are expected to accelerate mid- and long-term revenue growth, elevate margin profiles, and deliver attractive overall returns. The hard work of recent years to strengthen our balance sheet and our cash generation profile enables our commitment to a flexible but disciplined capital allocation strategy. In addition to completing our 2024 organic growth investment initiatives, we remain active in our development of strategically aligned accretive acquisition opportunities, which have the potential to further accelerate our growth trajectory. Finally, we continue to believe the intrinsic value of our business represents an excellent investment opportunity and consequently renewed our normal course issuer bid late in Q2. Looking at each of our segments, in the second quarter, composite technologies delivered significantly higher sequential revenue and adjusted EBITDA as a strong North American seasonal upswing in our Xerxes business compounded a new quarterly revenue record in our FlexPipe business. Excluding the impact of MEO costs, the segment's underlying profitability approached the recent historical highs of mid-2023. Within FlexPipe, quarterly international activity was robust, although modestly lower than the prior quarter, as expected. Year-to-date international revenue represents the strongest six-month performance period in the company's recent history and nearly equaled our full year 2023 results. We remain committed to strategic actions intended to continue driving annual growth of international revenue in the coming years. While we currently believe full-year 2024 international flex pipe sales will represent a significant increase over 2023, the project-driven nature of most international revenue means sequencing remains subject to change, driven by operational and procurement priorities within our customer base. Recently, we were advised by a customer that they have elected to defer a substantial project and related contract award that was previously expected to occur during the second half of 2024. While we remain confident in our opportunity to compete for this award in the future, this timing adjustment lowers our Q3 international revenue and related margin contribution expectations. Domestically, Continued share gain by FlexPipe within its US and Canadian onshore markets, including further large diameter product adoption, drove second quarter North American revenue to grow sequentially by over 20%, outperforming the average North American drilling rig count, which fell nearly 14% in the same period. FlexPipe Q2 North American revenue was also modestly higher than the prior year's quarter, despite a year-over-year decline of more than 16% in average North American drilling rig count and over 18% in average U.S. drilling rig count. We currently anticipate a continued lowering of North American drilling rig count during the second half of 2024, with U.S. completion activity moving down following its typical seasonal high point in Q2. Our ability to materially outperform key market activity indicators throughout the first half of 2024 gives us confidence the substantial investments made in technology, training, and domestic operational infrastructure over the past several years have positioned us well for the future. Among our operational infrastructure investments is a new flex pipe production facility located in Rockwall, Texas. This significant project is part of the company's MEO strategy And I'm very pleased to confirm that it commenced commercial operations in early July safely, on time, and on budget. This site has been designed specifically to be highly efficient in the production of larger diameter products. And its initial equipment installation, which consumes about 50% of the rock wall manufacturing floor space, more than doubles the company's total prior output capabilities in these sizes. The site is strategically located and, when compared to our existing Calgary facility, is expected to enable significantly lower cost shipments of large diameter products to customers in the southern US oil fields and in future years to the port of Houston for export orders. Production activity within the site is expected to increase progressively throughout the coming 12 months and based on our current outlook, including continued domestic and international adoption of our larger diameter product offering, We expect the site to be operating at reasonable levels of efficiency as we approach the middle of 2025. We retain the option to add further production equipment into the facility in future years, as market demand requires, and note that this includes future optionality for the output of even larger flex pipe sizes. Turning to the Xerxes business, Q2 is traditionally a period where North American weather and ground conditions are conducive. to underground tank installation activity, and we saw a robust sequential rise in tank shipments and production during the quarter. Xerxes revenue was very similar to the prior year period, while expanding nearly 50% versus the prior quarter. Our retail fuel customer base demonstrated an ability to more effectively navigate underlying permitting challenges, requesting shipment of over 35% more tanks to their sites in Q2, when compared to the same period of 2023. Shipments during the quarter also exceeded the same period of 2022 by over 5%, supporting our belief that absent permit-induced fluctuations, the industry remains in a secular growth cycle. We currently expect fuel tank shipments to remain robust for the majority of the rest of the year before normal seasonal slowing late in Q4. It's important to note that while Xerxes tank shipment quantity in a particular period is a helpful indicator of current customer demand, it does not necessarily correlate perfectly to revenue generation because some tanks may be built, shipped, and recognized as revenue during that period, while others may have been built and recognized as revenue in prior periods and then stored as customer-owned inventory until a project is ready to receive them. The elevated tank shipment activity completed during Q2 has allowed the company to lower its customer-owned tank inventory to a level within our normal historical range, measurably below the same period of last year. The Energy Information Administration report for May 2024 gasoline consumption showed the strongest monthly demand since August of 2019 as the total number of miles driven by liquid-fueled vehicles on U.S. roads continues to rise. With robust balance sheets, healthy fuel and convenience store margins, and rising demand for their products, we continue to observe a strong appetite from larger fuel retailers to expand their geographic presence via both organic and inorganic means. Early indications suggest the construction of new-to-industry fuel stations in 2025 will increase by around 10% year-over-year, with the quantity complexity and average size of tanks at each site likely to continue slowly rising. MATA remains committed to deploying capital within the Xerxes business to ensure we can efficiently meet this rising demand. Included within these investments is our newly established Xerxes tank production facility in Blythewood, South Carolina, which commenced output early in July as expected. This site is the largest in our network the first to incorporate semi-automated production technology, and the only location specifically designed to optimize the construction of larger, more complex tank designs. Production activity within the site is expected to increase progressively throughout the next 12 months, and based on our current outlook, we expect the site to be operating at reasonable levels of efficiency as we approach the middle of next year. Positioning these critical capabilities in South Carolina will, over time enable even greater efficiency in our transportation of tanks to the high demand eastern seaboard and southeastern U.S. markets, where we continue to see substantial customer investment to expand retail fuel networks. By the end of this year, we expect the site to be populated with approximately two-thirds of its ultimate total production equipment capacity, including incremental 12-foot tank production capabilities which are expected to support the continued growth in sales of very large fuel and water storage tanks into the rapidly accelerating data center market, which we discussed last quarter. Based on customer indications, we believe robust market demand for fuel and water tanks in 2025 will be sufficient to consume the incremental production generated from this site. Turning to connection technologies, As expected, the segment reported Q2 adjusted EBITDA of just over $17 million, similar to the first quarter, on modestly lower sequential revenue. Excluding the impact of MEO costs, segment adjusted EBITDA margin in Q2 would have exceeded 20%. When compared to the same period of 2023, the segment delivered similar revenue and modestly lower adjusted EBITDA. These financial performance similarities do not fairly reflect the challenges faced and overcome by the Connection Technologies team in the last 12 months. During the second quarter of 2023, the segment benefited from a substantial high margin delivery to an aerospace customer for a project which has not repeated in 2024. In addition, Q2 2023 was the last full quarter in which Canadian distributor stock product demand and average margins remained elevated, before moving materially downwards in mid-2023 as higher interest rates lowered demand and distributors actively reduced inventories. Q2 of 2024 also saw the segment carry just over half a million dollars of MEO expense, where none was present in the prior year period. In combination, these three factors created substantial revenue and margin dollar voids for the segment to fill. This comparable period deficit was substantially filled by continued capture of new projects within infrastructure and non-stock utility markets in Canada, the U.S., and our EMEA region, with a strong growing funnel of projects for potential future award established. The successful capture of market share in utility, nuclear, and non-stock industrial markets is a crucial component of the segment's longer-term growth and profit expansion strategy, and a key driver behind our substantial ongoing investment to modernize, expand, and bifurcate the segment's North American production footprint. Progress on both of the segment's new production sites remains on time and on budget, with first production from our new DSG Canoosa heat shrink factory in Fairfield, Ohio, expected before year-end, and first production from our new SureFlex wire and cable factory in Vaughan, Ontario, likely to occur around year-end. Looking forward, while Canadian wire and cable distributor customers continue to tightly manage inventories and limit purchases of stock products during the second quarter, As the Bank of Canada has taken recent steps to lower interest rates, we have observed a material increase in quoting activity across the industrial sector, and currently anticipate deliveries of stock products to Canadian distributors will rise in the second half of this year, albeit at initially modest margins. Our view of specific project timing suggests the third quarter of 2024 will see a less favorable mix of revenue sources for the segment, with relatively lower sales into nuclear, communication and utility sectors, and relatively higher sales of stock industrial products into Canadian distributors. While quoting activity for non-stock industrial projects, including several larger opportunities, has also risen recently, these tend to have a longer award cycle than stock orders, and we currently do not expect to see elevated quoting convert into elevated revenue this year. Our outlook for the automotive sector currently presumes some third quarter moderation of total auto production by our customers in the European and Chinese markets, and a continued slowing in the growth of US battery electric vehicle sales. The diverse and differentiated DSG Canusa portfolio is not dependent on any specific drive type to underpin demand, and we continue to observe gradually increasing consumption of our product per vehicle as electronic content within cars and light trucks steadily rises. Overall, we maintain a favorable view of the long-term electrification, communication, and transportation trends which impact this segment. We have established a strong and growing foundation in the North American infrastructure markets, and we believe interest rate reductions by the Bank of Canada and signaling by the Federal Reserve that similar steps may be on the near-term horizon within the U.S. have the potential to drive measurably higher demand for the company's products across the industrial marketplace. Consequently, we 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, Brazilian pipe coating operations which is reported as part of our financial corporate and other section in our financial statements continued to execute safely and efficiently during the quarter delivering revenue and adjusted EBITDA similar to the prior year period and modestly below Q1 the business is fully booked in the mid 2025 and based on the sequencing of project activity is currently expected to deliver revenue and adjusted EBITDA in Q3 that moves higher sequentially, returning to or slightly above its Q1 level of performance. We remain confident that this business will yield increased full year 2024 financial performance when compared to 2023, and the company continues to seek the best long-term owner for this part of our organization. Tom will now walk through the company's second quarter financial highlights.