Mattr Corp.

Good day and thank you for standing by. Welcome to MATTERS' fourth quarter 2024 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Megan McEachern, Vice President of Investor Relations and External Communications. 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 fourth 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 fourth quarter conference call. Today, Megan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway. In 2024, MATA continued to progress favorably against our key strategic objectives, transforming our operational footprint, securing the highly accretive acquisition of Ammer Cable, and lowering our cost of debt, all while navigating complex market conditions. Despite these market conditions, MATA delivered new annual revenue records in three of our four business lines and achieved year-over-year revenue growth within our consolidated continuing operations. We ended 2024 with our North American Production Modernization Expansion and Optimization, or MEO, program largely completed, having established and commenced operations at three new U.S. manufacturing sites during the year. We expect to complete the final stage, the relocation of production activity for our SureFlex business into a new Canadian site before the middle of 2025. These new sites form the foundation of our ability to deliver long-term profitable growth across Matter's business portfolio, while also significantly increasing our ability to serve U.S. customers from U.S. production sites. During 2024, we recognized $18 million of non-capitalizable expenses tied to our MEO strategy, which was the largest driver of a reduction in reported adjusted EBITDA from continuing operations when compared to the prior year. Late in the year, we announced a definitive agreement to acquire AmerCable, a transaction that closed in early January, adding a US production footprint and significantly greater scale to the wire and cable portfolio within our connection technology segment. Closure of this transaction causes connection technologies to become the larger of our two segments. Over the course of 2024, we also repurchased more than 3.3 million shares under our normal course issuer bid. In the aggregate, since the initial launch of our NCIB to the end of 2024, we've bought back nearly 12% of our stock. 2024 was a transformative year for MATA. the year in which we reshaped our production network to better serve our North American customer base and positioned ourselves for growth in 2025 and beyond. This would not have been possible without the hard work of our talented employees to drive and embrace change in the face of elevated market uncertainty. I could not be more proud of this organization and the committed and creative individuals who work here. With our transformation effectively complete, the entire MATA team are now focused on delivering maximum value from our enhanced operational footprint and our technology investments while efficiently onboarding and profitably growing the AMA cable business. Our infrastructure is now in place and we have significant opportunities to enhance efficiency over the years to come, elevating our margin profile and expanding our free cash flow. Turning to the fourth quarter, MATA saw normal seasonal slowing across all business lines as many customers moderated activity heading into the year-end, and ground conditions became less favorable for subsurface product installations. While North American critical infrastructure demand remained stable, as expected, we continued to see weakness across the North American onshore oilfield market, Eurozone industrial sector, and increasingly the global automotive market. Amidst these market dynamics, MATA delivered $208 million in revenue and $13 million in adjusted EBITDA from continuing operations. The company currently expects weakness in the oil field and automotive sectors to linger throughout 2025. Consequently, while we are confident our technology development investments will continue to enable market share capture regardless of underlying customer activity, we took steps during the fourth quarter to lower operating costs tied to these specific end markets by approximately $20 million annually. In parallel, we completed the establishment of and initial production within our new DSG Canusa facility in Fairfield, Ohio, while also concluding the shutdown of our aged Xerxes production facility in Anaheim, California. During the quarter, we also reopened our debt subscription receipts, closing on a private offering which was utilized to finance the Amacable acquisition subsequent to the year end. I encourage any investor seeking to better understand the Amacable business and how we believe it will favorably impact MATA to review the November 8th transcript of our conference call on this topic. We continue to believe that our investments in technology, operational efficiency, and enhanced production capabilities will support our ambitions to deliver annual EBITDA growth above 10%, are driving EBITDA margins above 20%, and that our acquisition of AmeriCable will serve to accelerate our progress towards these goals. Finally, we remain convinced that the intrinsic value of our business represents an excellent investment opportunity, and as such, we remained active under our normal course issuer bid throughout Q4, and expect to remain so moving forward. Q4 represented the most active purchasing period of 2024, with nearly 1.9 million shares repurchased. Looking at each of our segments, composite technologies' fourth quarter revenue moved up compared to 2023, with year-over-year gains in both FlexPipe and Xerxes, despite normal seasonal slowing. FlexPipe's continued share gains in North American onshore oilfield markets, including further large-diameter product adoption drove fourth quarter North American revenue to move higher year over year, significantly outperforming North American drilling rig and well completion counts, which fell approximately 6% and 21% respectively in the same period. Given current and forward strip commodity prices, we continue to expect North American onshore well completion activity levels in 2025 will average approximately 10% below 2024. Despite this anticipated market activity decline, our demonstrated ability to outperform key market activity indicators leads us to believe full-year 2025 FlexPipe revenue will be similar to 2024, with quarterly revenue levels likely to be relatively even throughout the year. We remain confident that the substantial investments made in FlexPipe technology, training, and domestic operational infrastructure over the past several years have positioned the business well for the future, despite near-term industry headwinds, and we remain on schedule to deliver additional product portfolio expansions towards the end of 2025, which are expected to add 50% or more to our global addressable market. Within the Xerxes business, Q4 revenue increased versus the prior year's quarter, with fuel tank shipments rising more than 25% year over year, as retail fuel customers better navigated the extended permitting process that encumbered convenience store construction in late 2023 and early 2024. Demand also remained strong for very large-diameter water storage and backup fuel tanks used in mission-critical applications such as the U.S. data center market, with this segment expanding its backlog for these products. Customer mix in the fuel sector was skewed to larger, lower-priced customers, as expected, And as previously noted, this mix is likely to remain similar through the first quarter of 2025, before moving favorably as we enter the second quarter construction season. We expect fuel tank shipments and related revenue during 2025 to follow a normal weather and ground condition driven seasonal cycle, where the first quarter of the year is generally the slowest quarter of the year, followed by a step up in the second quarter as ground conditions generally improve. Q4 saw our new flex pipe manufacturing site in Rockwall, Texas, and our new Xerxes manufacturing site in Blythewood, South Carolina, continue to increase output. Both locations are expected to demonstrate progressively greater productivity as we move through 2025. The segment will continue to strategically balance production between its U.S. and Canadian sites to optimize our total cost of delivery, including in response to any tariff impacts. As noted in our Q3 2024 earnings release, the segment adjusted its fixed cost base during the fourth quarter to reflect near-term oilfield market conditions. Also during the fourth quarter, the segment incurred approximately $3.6 million of non-routine expenses tied both to pre-positioning of finished goods inventory in advance of possible tariff implementation and to address a discrete customer issue. With production network upgrades and fixed cost reductions within the segment now complete, we are well positioned to regain revenue and margin momentum in 2025. Our demonstrated ability to consistently capture market share in the flex pipe business in spite of market softness, coupled with rising demand for our Xerxes underground storage tanks and growing backlog within fuel and water markets gives us a strong foundation for profitable growth in 2025. Within the Xerxes business, demand for premium underground liquid fuel storage tanks continues to rise. North American fuel marketers, many of whom are private, have outlined growth initiatives which we estimate will translate to an average capital spend increase of approximately 10% versus 2024, predominantly driven by new-to-industry store construction. Retailers' fuel margins remain healthy and steady demand for liquid fuels is expected to continue. with more than 98% of vehicles on U.S. roads relying on liquid fuel. We do not expect this percentage to change appreciably in the coming years as adjusting consumer preferences coupled with U.S. policy changes impacting electric vehicle subsidies and automaker production targets are likely to have a slowing effect on EV sales growth rates. There has been a constant rise in the number of active convenience stores with fuel in the U.S. over the last several years. Larger convenience store operators are investing to capture incremental customer share from smaller marketers by offering modern, well-lit, more appealing fueling sites stocked with an enhanced range of food and other convenience items. Data from recent years suggest this strategy is working, with those operators controlling 500 stores or more gradually representing a larger proportion of total active fueling sites. When combined with rising demand for replacement tanks as the existing population further ages, we continue to believe this market will enable growth within our Xerxes fuel business for years to come. Turning to connection technologies, year-over-year revenue increased by 11%, marking a new Q4 revenue record for the sector. This strong fourth quarter outcome was primarily driven by persistent demand in the North American industrial sector and continued market share gains with industrial and automotive customers, partially offset by slowing total automotive unit production and, as expected, lower shipments into infrastructure applications based on project timing. During Q4, the segment's SureFlex highly engineered wire and cable business maintained its strong demand for stock industrial products primarily from its Canadian distributor customers who are gradually rebuilding inventory levels as interest rates move lower and industrial activity trends higher. As expected, sales of these stock products came at below average margins, which caused overall margins within the business to remain at the lower end of its typical range. Our nuclear customers are signaling steady rising activity levels as we move into 2025 and beyond. and the business continues to invest in the qualification of incremental products to further expand its addressable nuclear market. The segment's DSG Canusa premium heat shrink tubing business secured new customers and captured incremental market share in its core industrial and automotive markets. These gains were partially offset by continued weakening of global vehicle production output as several customers took corrective action in the face of profitability challenges, particularly related to electric vehicles. In response to these lower activity levels, and in anticipation that this trend will linger throughout 2025, we took action to adjust our cost base during the fourth quarter. Despite concerns regarding automotive market activity, our current visibility suggests DSG Canoosa will deliver year-over-year revenue growth in 2025, driven by new customer capture and new product introduction, primarily in North America. We believe that electrification demands will continue to backstop momentum in North American industrial and infrastructure activity. Our already favorable view of opportunities within these sectors is further enhanced by our recent acquisition of AmeriCable, which closed on January 2nd and nearly doubles the revenue of our connection technology segment. Early views from the onboarding period have reinforced our belief in cross-selling opportunities between Ammer Cable and SureFlex and have affirmed our optimism regarding meaningful growth potential for Ammer Cable in the North American medium voltage market. We currently anticipate overall 2025 performance from Ammer Cable will approximate our pre-transaction expectations, with Q1 likely to be the strongest quarter of the year driven by specific timing of certain mining-related projects. 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. During the quarter, the segment's DSG Canoosa heat shrink factory relocation to Fairfield, Ohio, was substantially completed. Our new shore flex wire and cable factory in Vaughan, Ontario, also commenced production in the quarter, and relocation efforts remain on track for mid-year completion. Lastly, Thermatite, our Brazilian pipe coating operation, which, following our announcement of its pending sale to Valeric, is now reported as discontinued operations, continued to execute safely and efficiently during the quarter, delivering sequentially higher revenue and adjusted EBITDA. Based on the sequencing of project activity, Thermotite is currently expected to deliver Q1 2025 revenue and adjusted EBITDA slightly below its level of performance in the fourth quarter of 2024. We expect to close on the sale of Thermotite in the coming months. Tom will now walk through the company's fourth quarter and full year financial highlights.

Thanks, Mike. The fourth quarter's revenue from continuing operations was $207.8 million, 8.5% higher than the $191.5 million in the fourth quarter of 2023. The $16.3 million increase from the fourth quarter of 2023 is reflective of increases of $8.5 million in the connection technology segment and $7.8 million in the composite technology segment. Total consolidated adjusted EBITDA from operations, which includes discontinued operations, was $21.1 million, while adjusted EBITDA from continuing operations was $12.7 million, a 50.9% decrease from the comparative period in the prior year. This decrease of $13.2 million is primarily attributed to a decline of $10.6 million in gross profit related to temporary impacts of unabsorbed costs at Xerps and Spipe manufacturing sites. Changes in product and customer mix and the impact of non-routine expenses tied to prepositioning of finished goods inventory in advance of possible tariff implementation, and to address a discrete customer issue in the composite segment. We also recorded $3.8 million related to our MEO growth activities during the quarter, with $2.1 million included in selling general and administrative costs, and $1.7 million in gross margins. While these MEO costs are slightly below our expected spend rate, the lower expense represents deferred spending during the fourth quarter, which will be spent in the first half of 2025. All MEO projects remain on time and on budget. In the fourth quarter of 2024, the company also incurred restructuring costs of $4.9 million, associated primarily with severance obligations tied to workforce restructuring in our automotive and oilfield-related business lines completed in the quarter. Additionally, during the quarter, we incurred $1.7 million of costs related to the acquisition of Amortable and $2.2 million of costs associated with non-recurring Canadian pension-related obligations. These costs were partially offset by a reduction of $4.3 million in long-term share-based incentive accruals due to share price movements. All of these items were added back to adjusted EBITDA and are included in our reconciliation of non-GAAP measures. Turning to segment results, the composite technology segment revenue was $120.3 million, a 6.9% increase compared to the fourth quarter of 2023, and adjusted EBITDA was $9.4 million, a 50.1% decrease from the prior year fourth quarter. This revenue increase was primarily attributable to increased sales of FRP tanks into retail fuel applications, along with the rise in composite pipe sales in North America in the fourth quarter of 2024 compared to the same period in 2023. The adjusted EBITDA reduction was primarily due to a decrease in gross profit of $8.1 million. This was driven by an 8.6 percentage point decrease in gross margin compared to the fourth quarter of 2023, attributed to a $2.6 million non-routine provision related to a specific customer order, $1 million of costs related to inventory pre-positioning ahead of possible tariff implementation, lower overhead absorption within the segment's manufacturing network, primarily related to the ramp-up of the new facilities and a modestly less favorable mix of product sales and flex type. Fourth quarter 2024 adjusted EBITDA also includes $0.4 million in noncapitalizable MEO costs within the segments reported selling general and administrative expenses. The segment will not record any MEO costs beyond the end of 2024. The connection technology segment delivered a new fourth quarter revenue record of $87.5 million, which was 11% higher than the fourth quarter of 2023. Segment adjusted EBITDA was $10 million, which was $4.1 million lower than the prior year fourth quarter, primarily as a consequence of $3.5 million in MEO costs and a reduction of 5.9 percentage points in gross margin, due to less favorable product mix within the Shaw Flex business. The increase in segment revenue was a result of higher demand for lower margin stock industrial products from Canadian distributors in Shaw Flex and increased sales into automotive markets in North America and EMEA, reflecting market share gains for the DSG business. This was partially offset by lower sales in U.S. and Canadian infrastructure markets due to specific project timing. Discontinued operations, which consists primarily of the pipe coating operations in Brazil, reported revenue of $23.8 million, a decrease of 91.6 percent compared to the fourth quarter of 2023, primarily resulting from the absence of revenue from the operations sold to Tenaris late in the fourth quarter of 2023 and which contributed heavily to the comparative period. Adjusted EBITDA was $8.3 million, which compared to the $111.8 million recorded in the prior year fourth quarter, reflecting the aforementioned lower revenue and the impact of the operations previously sold. Turning to cash flow. Cash provided by operating activities from continuing operations in the fourth quarter was $45.2 million, compared to $3.1 million of cash used in operating activities from continuing operations in the prior year fourth quarter. This result reflects effective management of working capital during the quarter, especially around accounts receivable. Cash used in investing activities in the fourth quarter was $15.7 million, reflecting a capital spend of $16.1 million on property, plant, and equipment, primarily MEO projects offset by $1.1 million in proceeds on disposal of assets. During the fourth quarter, cash provided by financing activities was $276.5 million, primarily driven by $179.9 million from a drawdown of the company's credit facility and $127.3 million on issue of senior notes to partially fund its purchase of AmerCable, which closed on January 2, 2025. This is partially offset by $25.4 million in share repurchases under the company's normal course issuer bid and $2.9 million in lease liability payments for continuing operations, excluding the imputed interest on lease Net cash generated in the fourth quarter of 2024 was $316.5 million. As of December 31st, 2024, we had a cash balance of $502.5 million, net debt of $131.9 million, and $34.2 million of standard letters of credit. As of the end of the quarter, the company's net debt to adjusted EBITDA ratio was 1.0 times. including lease liabilities, which reflects the additional debt raised to fund the acquisition of the AmerCable business. Lease liabilities increased to $163.1 million in the fourth quarter of 2024, due primarily to foreign exchange movements. As a reminder, we funded the early January AmerCable transaction through a mix of balance sheet cash, unsecured high-yield debt, and our credit facility, which is expected to temporarily increase our leverage above our normal course target of two times. Pro forma for this transaction and based on the results from the fourth quarter, our trailing 12-month net debt to adjusted EBITDA ratio at December 31st, 2024 would have been approximately 2.5 times or 1.7 times if lease liabilities were excluded. As discussed previously, we remain committed to returning to a normal course ratio of two times or below. Speaking of capital deployment, we remind investors that since the beginning of 2021 to the end of 2024, and including the capital outflow to acquire AmerCable, Matter is deploying over $1 billion of capital under our all-of-the-above strategy while maintaining strict balance sheet discipline. In that period, we have paid down over $260 million on our credit facility, deployed over $200 million into high-return organic growth initiatives, and repurchased over $115 million, or nearly 12% of our shares. Post-transaction, Matter will retain financial flexibility and expects to adjust near-term capital allocation priorities to emphasize debt repayment, complete existing growth investments, and continue share repurchases under our NCIB. We will also continue to cultivate our pipeline of acquisition opportunities, primarily focused on further enhancement of our connection technology segment. Capital expenditures in the quarter were $33.1 million, including outstanding payments to suppliers, of which $26.8 million was related to growth expenditures. These were primarily related to MEO projects, which are intended to increase production capacity and efficiency within both segments. MEO projects for composite technologies and DSG Canusa are now online and ramping up production, while our relocation of the Shawflex production footprint is expected to be completed by mid-2025. All projects remain on time and on budget. Turning to full-year 2024 results, This was a year of transformation with strong strategic execution while also driving annual revenue records in three of our four operating business lines. Revenue from continuing operations in the year was $885.3 million, 0.5% higher than the $880.5 million in 2023. Adjusted EBITDA from continuing operations was $108.2 million, a 28.2% decrease from the prior year, primarily attributed to $17.7 million in non-capitalizable MEO costs, the temporary impact associated with unabsorbed costs at newly established Xerxes and FlexPipe sites, as well as other legacy Xerxes sites that underwent significant upgrades and less favorable customer and product mix. Consolidated results. for the year also included a loss of $18.3 million on the sales of our PPG and Shaw pipeline services businesses. Of the $17.7 million of non-capitalizable MEO costs, $11.5 million was in composite technologies and $6.1 million was in connection technologies. We also incurred $8.4 million of net restructuring costs non-recurring costs associated with Canadian retirement plans of $2.2 million related to the wind down of our Canadian defined benefit plans, and $1.7 million of costs associated with the acquisition of AmeriCable. Turning to segment results, composite technology segment revenue was $528.4 million, a 1.3% decrease compared to 2023, and adjusted EBITDA was $72.2 million, a 36% decrease from the prior year. These results reflect lower FRP tank production and shipment activity during the first quarter of 2024, the recognition of noncapitalizable MEO costs, the temporary impact associated with unabsorbed costs in newly constructed or upgraded facilities, and a less favorable customer and product mix. This was partially offset by full-year record revenue in FlexPipe, driven by continued market share gain in North America and internationally. Connection Technologies' segment revenue was $357 million, a 3.5% increase compared to 2023, and adjusted EBITDA was $56.8 million, a 15% decrease from the prior year. These results reflect increased demand for the segment's products in its industrial, infrastructure, and automotive end markets, offset by the absence of a large shipment into the aerospace market that benefited the prior year period, an increase in noncapitalizable MEO costs, and a less favorable product mix within the Shaw Flex business. Both Shaw Flex and DSG Canusa set new annual revenue records in 2024. Discontinued operations revenue was $74.4 million and 92% decrease compared to 2023, primarily resulting from the absence of the pipe coating business sold to Tenaris in 2023. Adjusted EBITDA was $22.5 million and 91% decrease from the prior year, reflecting the aforementioned lower revenue. Full-year 2024 cash provided by operating activities was $51.3 million, reflecting $68.7 million in cash from net income from continuing operations after non-cash items offset by a $17.7 million increase in working capital from continuing operations. Cash used by investing activities in the year was $155 million, reflecting $110.4 million of capital expenditures paid in cash and $49.3 million paid in cash to settle the net working capital adjustment due to Tenaris on the sale of the PPG business. During the year, cash generated by financing activities was $259.8 million, reflecting a net debt increase of $317.4 million, including a drawdown on our credit facility and a new issue of senior notes offset by repayment of bank indebtedness and long-term debt. Offsetting the increase in net debt was $11.1 million of lease payments and $47.3 million in share repurchases under the company's normal course issuer bid. Net cash generated in 2024 was $168.4 million. past year saw matter effectively complete its transformation to become a less volatile business focused on the deployment and delivery of differentiated high value critical infrastructure products with our transformation now complete we are positioned to fuel profitable growth margin expansion and enhanced free cash flow conversion in 2025 and beyond we remain committed to pursuing high return organic growth opportunities and successfully deployed over $110 million of growth capital to optimize and enhance our production footprint during 2024, slightly above our original expectation as certain projects were executed faster than anticipated. We currently anticipate $60 to $70 million of capital expenditures during 2025, with $45 to $55 million directed to growth investments, including completion of our remaining MEO projects. We continue to expect a normal annual capital spend rate of $40 to $50 million per year from 2026 onward. I'll now turn it back to Mike for some final comments. Thanks, Tom.

MATA has completed its disposition of non-core assets, with the exception of the sale of ThermoTite, which is expected to close around mid-year. In addition, we have largely completed the modernization, expansion, and optimization of our North American production network, with the remaining relocation of our SureFlex manufacturing site expected to be complete by mid-year. Consequently, over the course of 2025, we expect to return to more normalized operations with an intense focus on elevating the value delivered from our restructured operational footprint and our technology investments, while also ensuring full integration and optimization of the AmeriCable acquisition and continuing to return capital to shareholders through our NCIB. Normal seasonal and market cycles will continue to drive some variation in quarterly activity levels. However, we believe the underlying long-term trends for each of MATA's primary businesses are favorable and expect them to remain so for several years. Long duration North American critical infrastructure activity remains robust, and demand for our core products is expected to persist. We remain vigilant towards the potential impacts of geopolitical events, supply chain risks, inflationary impacts, and interest rate movements, and continue to take steps designed to minimize our risk related to rising international trade friction. given the material uncertainty regarding the potential duration and scope of tariffs, our outlook does not include tariff impacts. To provide a relative indication of our exposure to potential North American tariff impacts, in 2024, inclusive of Amacable, approximately 30% of our continuing operations revenue was derived from product sales that crossed the U.S.-Canadian border, and approximately 45% of our cost of goods sold were tied to materials that crossed the border. We currently expect to lower these exposures over the course of 2025 as our new facilities elevate production output. We continue to watch closely as more information becomes available on tariff implementation and scope and remain prepared to take additional mitigating actions, including increasing the selling prices of our products if necessary. Barring potential long-duration North American tariffs, We currently expect meaningful year-over-year growth in 2025 revenue and adjusted EBITDA, driven primarily by our connection technology segment, inclusive of the AmeriCable acquisition, and the Xerxes business within our composite technology segment. We expect our Xerxes business will follow its normal seasonal cycle, starting 2025 at its low point, before stepping up in the second quarter of the year as ground conditions improve. As I detailed earlier, the markets for both our fuel and water products remain constructive, and our teams are intensely focused on elevating production output, including from our new and newly refurbished sites. Based on our current view of the North American onshore oilfield market, we anticipate relatively flat performance year over year in our flex pipe business, with revenue likely to be evenly spread across the year as continued expected share gains are offset by gradually declining customer activity levels. Our DSG Canoosa business is expected to deliver year-over-year growth in spite of muted global automotive production, driven primarily by new customer capture in North American infrastructure and industrial markets. With our wire and cable businesses, we're expecting top-line growth driven by continued share gains in ShoreFlex and the addition of AmeriCable. Given the timing of deliveries into specific mining projects, we estimate that the first quarter of the year will be the highest revenue quarter of 2025 for our wiring cable businesses. While tariff impacts remain a question mark for any organization operating across borders, over the last several years, MATA has demonstrated its ability to embrace change, to be nimble, and to act swiftly when opportunities or challenges arise. The actions we have taken to enhance our U.S. production footprint and diversify our supply chain have better positioned the company to navigate today's unpredictable geopolitical environment. We continue to observe broadly favorable indicators of demand across the North American industrial and critical infrastructure sectors for 2025 and firmly believe the company remains well-positioned to deliver on its longer-term growth, profitability, and cash flow objectives. I'll now turn the call over to the operator and open it up for any questions you may have for myself, Tom, or Megan.

As a reminder, to ask a question, please press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of David Ocampo with Cormark Securities.

Thanks, good morning, everyone. Good morning, David. Mike and Tom, I appreciate the commentary around tariffs and your disclosure on your cross-border exposure at 30%. I'm curious if you guys are the importer of records on your products, and have you spoken to your customers about their ability to absorb some of the tariff costs, or is it something that's going to be shared by both you and the customer?

So generally speaking, I would say the majority of our cross-border revenue is within the composites segment. So there's a little bit on connections, but composites is really where the bulk of it lays. And it's dependent on the business line. But for FlexPipe, generally, we are the importer of record. For Xerxes, generally, we are not. So I think what we're going to see if tariffs go into place on products that we manufacture, are some interesting conversations. Obviously, those conversations have been happening and will continue to happen. But I would anticipate that in most cases, we would be passing the cost of those tariffs to our customers. And depending on the circumstances, there may be one or two cases where there is a little bit of a split. But largely speaking, I think this will be a cost that our customers ultimately are in a better position to absorb than we are. What I would just say is 100% of the product that we manufacture that is sold cross-border is USMCA compliant. So as the tariff situation stands today, none of our products are subject to tariff, but obviously that may evolve. And then the last thing I'd say is I think we've demonstrated that we are a nimble organization. We've established a far more robust U.S. manufacturing footprint over the last 18 months. We are far better positioned to navigate this set of circumstances today than we would have been two years ago. And we have already pre-positioned a fairly substantial volume of finished goods, flex pipe inventory in the U.S. That's the one major business line where we are the importer of record.

Yeah, that makes a lot of sense, Mike. But Have your customers spoken to any demand destruction if they're the ones that are going to be observing the costs? Maybe it's a bit too early to comment on that, but any commentary around that would be great.

I think the one business line where if tariffs go into effect for a meaningful period of time, the one business line where we know there will be destruction of demand is in the auto sector. um and that is more to do with our our customers supply chains than it is to do with us i would say broadly speaking and as we've discussed many times we specialize in the manufacture of unique products that make up a very small percentage of the total project cost for our customers so whether it is the drilling and completion of an oil well for flex pipe the construction of a convenience store with fuel for Xerxes or power generation, power distribution networks in the connection technology segment, we make up a very small percentage of total project cost. I think a tariff on our particular component of that cost is unlikely to cause lower activity from customers. We just have to be thoughtful and keep an eye on how our competitors are behaving. Broadly speaking, I think we'll see our competitors in those business lines impacted by a similar

Yeah, that's perfect. And then maybe a last one from you before I hop back in the queue. The backlog for traditional fuel tanks seems quite strong heading into 2025. Just curious how many months of backlog you have today and how that compares to probably this time last year. And then within the backlog, I'm guessing a lot of that has to do with larger and more complex tanks, so potentially even higher margins than we've seen in the past.

So to To address the last point there, we certainly have the expectation that Zerky's delivers higher full year margins, 25 than it did in 24. The backlog as we sit here today, well, we won't give a perfect number to you. It is as high as it's been since January of 2022. It is more than double where it was this time last year. And it represents the majority of the revenue we expect that business to generate in 2025.

Okay, that's perfect. I'll hop back in the queue. Thanks a lot. Thanks.

Our next question comes from a line of Yuri Link with Canaccord Genuity.

Hey, good morning, guys.

Good morning.

I just wanted to chase down a couple of discrete items that you called out in the Q3 call, particularly around the severance. I think you were calling out $6 to $8 million. I think it came in $4.9. And then what I'm trying to get at with that one is you were kind of guiding to $20 million of cost savings as a result of that severance. Is that still the plan?

Yeah. So, Yuri, what I would say is we have executed all of the expected reductions. And as part of that program, when we evaluated it, it was more of a workforce reduction program as a totality for the organization to match demand in the market. And because of that, we were able to classify it as a restructuring activity. So I know that was a departure from where we thought we would be. But if you think about I'll go ahead and address a couple of other points with my comments. If you think about if you were to subtract that $5 million-ish of severance costs, and then we had a discrete item related to one of our customers that was $2.6 million, I would add that back in terms of just getting to a normal operational result and the million dollars of tariff-related costs movement across the border. You get to a roughly equivalent place. So I think the EBITDA at a reported level is roughly what an operational normalized EBITDA would look like. So, you know, a few things embedded in that comment, but I just wanted to take the opportunity to address each of those.

And then on the savings side, as Tom said, when we worked our way through the middle portion of 2024, we were still a little more optimistic about the oil field and automotive markets that we would be encountering in the latter stages of 24 into 25. Obviously, we've tempered those expectations and did so late in Q3, early Q4, and therefore made the decision to take cost out of the organization. So the way we sit today, I think we have the right cost base for the revenue levels that we're anticipating in 2025.

Okay. And then transaction expenses associated with AmeriCable. I think you were talking $8 to $9 million in Q4, and I saw $1.7. So are they getting pushed into Q1, and how will they be treated in your EBITDA?

Yeah, great question. So the $8 to $9 is still a pretty good estimate. The $1.7 was just incurred in the fourth quarter. and we added it back to EBITDA. For the first quarter, you'll see the balance of those costs hit and also be added back to EBITDA. So no departure from overall treatment just because the timing crossed the year. Some of those costs crossed the year as well.

Okay. And last one, just MEO, given some of the deferrals, can you just update us on what we should expect in Q1 and Q2 of 25, please? Thank you.

Yeah, of course. So we expect MEO costs of $7 to $8 million in 2025, roughly evenly spread across the first two quarters, so I think three to four each quarter, all in the connection technology segment. I'll just reiterate the comments I made in the script. There will be no MEO costs in composite technologies going forward, so we are finished with that process.

Thanks. I'll turn it over. Thanks, Gary.

Our next question comes from Tim Monticello with ATB Capital Markets.

Hey, thanks for taking my question. I'm curious on a flex type, your competitors or your largest competitor and their key flow results are signaling through lower quarter over quarter.

uh revenue in in their business in q1 sounds like you know you're not seeing that or maybe market share gains are stronger for you can you just talk a little bit about the near-term outlook for flex pipe certainly so you're right um when we generally look at flex pipe i think q4 of 24 q1 of 25 are probably going to be similar in terms of revenue um As you've seen consistently over the course of the last year, despite a fairly aggressive reduction in total completion activity in North America, we've been able to drive incremental gains, modest but incremental nonetheless. This really is an artifact of us introducing larger diameter products that effectively doubled the addressable market for that business line. We introduced in late 21 and then into 22 and over the course of 23, 24 and rolling into 25, we're maturing our market share. So that's really the primary driver. Larger diameter products in FlexPipe made up a little over one third of total revenue during the full year 2024. So continuing to progress nicely. And in addition to being able to sell large diameter where previously we couldn't, It also gives us access to some customers who consume both large and small diameter, but prefer to buy everything from a single vendor. So as we think about our revenue progression over the course of 24, it hasn't just been large diameter growing. There's also been some share gains and new customer onboarding with our traditional smaller diameter products as well. I think one of the things we're most excited about in 25 is including not the market conditions, but our ability to perform within those markets and the rate of progress that we're making on being in a position to finally offer 7-inch and 8-inch products. So the next step up in size, which, as I said on the call, would be open another 50% addressable market. So I think we'll be in a position to start talking to customers about those products very late in 2025 into early 2026. And the future, I think, for FlexPipe over the next several years, even in a, let's call it relatively flat North American operating environment, is really quite bright.

Yeah, that's helpful. I guess in an environment where tariffs are implemented, the FlexPipe business might be at a cost disadvantage to its largest competitor in the U.S., Do you expect to continue to pre-position inventory through the first quarter or until tariffs are ultimately either imposed or canceled? And then secondly, if you do see a longer term duration for tariffs, are you thinking about moving production lines into the U.S. because you have some more space available in Rockwell?

Yeah, we certainly have optionality, which is a very healthy place to be. As we say, the rock wall facility is up and running and beginning to increase its output, and it has substantial floor space available if we wanted to put incremental production there. I think it's a little early to be postulating on whether we would move any production lines, I'd say we continue to ensure that we have a robust volume of finished goods inventory in the US so we can respond to customer demand quickly and do so without tariff implications. I think all of our competitors in this space will have some degree of tariff impact, whether it comes from crossing borders, in our case, or it comes from tariffs that apply to steel and other metallic components in other cases. So I'm not sure we're going to find ourselves at a true cost disadvantage. And certainly, if we were to believe that tariffs were here for the long term, we would, of course, look at balancing production between our Canadian and U.S. footprints to ensure the total cost of delivery to our customers is as low as possible.

Okay. And then more broadly on the composite technology segment, when do you expect to see underabsorption across the footprint with facilities ramping up in the US to dissipate and margins to normalize?

I think we are approaching a normalized condition as we roll into the second half of this year. Obviously, it's progressive, so I think we'll see improvement as we go from Q4 into Q1 and then into Q2 and then beyond. So we're moving in the right direction, very pleased with the progress that the teams are making in the new sites and specifically just call out that we were able to get up and running incremental 12 foot tank production capabilities in our Blythewood, South Carolina Xerxes facility early in the new year. So we have improved our ability to serve that very large tank market, which is predominantly serving AI data centers and other standby fuel and water storage markets.

Okay, that's helpful. And then Ammer Cable, can you just talk a little bit about how integration is going so far, any one-time costs, and if you can quantify those for 2025, perhaps even for Q1, if that's possible. And then interested to know a little bit more about these cross-selling opportunities, $5 million of onboarding costs that you're expecting, what do you think that yields, and is that – a cost that you would expect to incur more regularly if you see increased cross-selling opportunities into Canada, or is that more a one-time sort of setting up of some sort of manufacturing capabilities or something like that in Canada?

There's a lot there. I'm going to try and cover all of that and maybe a little more. So bear with me. Yeah, we're excited about AmarCable. And I tell you that from every interaction we've had, the AmarCable team are excited to be part of MATA. The onboarding process is going very well, very much aligned with our expectations. We're taking a light touch. We're not converting systems. We're not making fundamental change in their business. We're asking them just to keep doing what they're doing. and they're doing it very, very well. So as we sit here today, I think the thesis behind the acquisition remains fully intact, and we have made enough progress to, I'd say, expand our confidence that the cross-selling opportunities between Shaw Flex and Amer Cable are there, they're real, and customers are very interested in those conversations. So it takes time to get to a place where you convert opportunity into revenue. But as we said on the call earlier, I think as we roll into the second half of the year, we can start to see some modest revenue coming from cross-selling. The opportunity is predominantly to bring medium voltage cable produced by Hammer Cable across into some of the higher margin industrial and infrastructure opportunities that we serve in SureFlex. So that'll be step one. But the opportunity continues to progress over time and I think will be quite robust as we roll into 26. We are making modest capital investments in Amar Cable during 2025. There's going to be a little bit of growth capital that goes in to ensure that we are not um holding up the opportunity to take advantage of these cross-selling capabilities um but i think there'll be a little bit more capex that goes into that business as we go into 26 27 to really beef up their productive capabilities in terms of the business itself um you know depends on the year but some you typically 70 to 80 percent of the revenue of americable is mro so relatively stable fairly predictable revenue streams There are, from time to time, projects associated with major overhauls or new construction of mine sites, offshore installations, etc, etc. This year, just looking at what we can see right now, I think the timing of those projects will mean that Q1 is the most robust quarter of the year and Q4 is likely to be the least robust. That doesn't belie some seasonal sequencing. It's just purely timing of projects. But very nice to have the strongest quarter of the year really here right on the doorstep. I still think that in terms of reported EBITDA that comes from this particular business, 25 is going to be somewhere in the $65 to $70 million range. Clearly, we're not going to break it out in our financial reporting, but just to give you a feel. And I think that includes about... $5 million plus or minus of onboarding costs that I don't believe will be repeated as we roll into 26. These are things that legitimately are one-time costs to get a business onto a new platform, incorporated into a new corporation. It's a variety of small things. There's no one big thing. Hopefully that gave you what you were looking for.

Yeah, no, that was great. I appreciate you able to answer five questions at once.

Our next question comes from the line of Ian Gillies with Stiefel.

Morning everyone. Morning. Tom, this one's probably for you. Can you maybe provide a bit more detail on what's occurring with this inventory revaluation at transaction for Amer Cable and the headwind it's going to provide to margins and then The follow-on piece to this question is, would that not be a reflection of what the ongoing costs are going to be in the business moving forward? It's just not something I've seen before at that close of transaction.

Yeah, great question. So the technical, I'll answer the second question and come back to the first one. So the technical rules require when you acquire finished goods inventory, so three stages, raw materials with finished goods, each one progressively more ready for sale. When you acquire something that's closer to finished and you have an already stated margin with the customer, it's already allocated to that customer with those margins, it effectively requires you to state that inventory at the value you're selling it to the customer. It kind of eliminates your margins, is the ultimate impact at the top level of financial reporting. In this particular case, AmeriCable's inventory turns very quickly, and we would anticipate that all of the items being marked up are gone by mid-year, probably even by the first quarter. So let's just say by the middle of the year, all of that inventory that's marked up with reduced margins will be flushed out of the system. From a how we're going to reflect it perspective, the reported EBITDA before adjustments will include those reductions to gross margin, but we will add it back as an EBITDA adjustment so that you will see adjusted EBITDA reflecting the actual performance of the business, which does not include this purchase accounting adjustment. Hopefully I covered all of those items in there. I believe it's amounting to something like $4 to $5 million of inventory that gets marked up. So it's not a material impact to the year, and we'll adjust that out.

Understood. That's helpful. Mike, I acknowledge you don't want to talk too much about the AmeriCable cadence, and you said that revenue is going to be is still in line with what you would have anticipated acquisition um but given that q1 is going to be stronger maybe i'll try and just see if you want to provide what percentage of you think that full year revenue likely comes in q1 just because i think a lot of us probably have models that show probably stronger seasonal dynamics in the middle part of the year and just to get the allocations appropriate um

Yeah, I think we've got to be a little bit careful because obviously things, deliveries don't always happen exactly when you think they will, but I think you might be on the order of 30% of the full year revenue in the first quarter.

Thank you. That will be helpful for us. And then, Tom, last one. Can you just repeat what you said about pro forma leverage ex leases exiting 24? Because I know we had the with leases in, but I just want to make sure I understand the commentary correctly.

Yeah, of course. So the reported number is 1.0. If you were to adjust for the AmeriCable transaction, it's 2.5, including leases. If you adjust those leases out, it's about 0.8 of a turn. So you get to 1.7. So that's how the numbers flow. The seasonality of the business, as you know, Q1 tends to be a little lower this year. That may be a little different for us, but I think what you should expect is that from a trajectory that net debt to adjusted EBITDA moves up slightly in Q1 just because we lose some big quarters replaced with slightly smaller quarters in the calculation, and then it starts to move down quite nicely from there. The other thing I'll just comment on is we have already started repaying the debt modestly at this point, but by the end of the first quarter, you should expect that we will have paid down some of that debt.

Understood. And then last one for me, apologies if I missed it, but can we get an update on what's occurring in the stock market with respect to connection technologies? That had been a margin drag. It was supposed to stop mid-year. Is that still holding true?

So the industrial stock demand continues to be fairly robust. At this point, I think we're likely to see relatively steady revenue contribution coming from that piece of the business. And as we roll through this year, our expectation is that we see the industrial project, nuclear infrastructure, revenue streams start to become bigger percentages of total revenue. So just by that fact. in a positive direction over the course of the year. As we sit here today, the stock industrial marketplace is still fairly competitive. So haven't yet seen a material move up in the margins associated with that specific revenue stream. But I do believe that as we roll through the first half of this year, we're likely to see it start to expand as activity more broadly grows. The competitiveness in that space tends to decline.

Understood. Thanks very much. I'll leave it there.

Thanks. Our next question comes from Michael Topol with TD Cowan.

Thank you. Good morning. Good morning. I know you've talked sort of high level about your revenue expectations and indicated that you expect... legacy business lines with the exception of FlexPipe to all see growth. Wondering if you can provide any more detail just to help us understand sort of order of magnitude variances across the different areas in terms of the growth rates. Just not sure how much you can say, but any incremental detail just on revenue growth expectations for the legacy businesses for 2025 outside of perhaps FlexPipe, which I think you've been clear on.

Yeah, no problem. Happy to do that. At this point, and obviously still with the caveat that if tariffs come, something could change, I think excluding FlexPipe, we would expect each of the other three business lines to achieve their 10% year-over-year growth rate, perhaps modestly better in some cases. Tom, do you want to comment on anything below the revenue line?

Yeah, I think if you wanted to look at the full year and sort of just bridge at a very high level from one year to the next, and you said, We had 108 reported for 2024. MEO was roughly 18 million, plus we had a provision we took in Q4 and some tariff-related costs. That's $21, $22 million. That gets you to around 130 adjusted for MEO. And then if you added AMERICable, let's just add it at the low end of what Mike said, 65%, and then adjusted for the MEO cost in 25, which we've said at the top end are $8 million. That gets you into the 180s. And then there will, I'll just remind everyone, there will be a little bit of corporate cost creep next year because with not hitting targets this year, incentives were at a much lower level. So we'll reset those from a target perspective. So there's a little bit of incremental costs there. And the TSA with Tenaris is dwindling, so the reimbursement for some of our fixed costs does go away. That puts us in a range where I would say Mike's commentary on hitting the 10% numbers for three of the four businesses also converts to a 10% growth rate at the bottom line on a normalized basis. So I know there was a lot of numbers I just threw at you, but I wanted to provide a little bit of a bridge so you can very quickly walk from where we reported to where we might be next year.

Okay. I know that's really helpful. I may have to kind of work through some of that offline, but maybe just one quick follow-up on all of that, which might be helpful for people. So I think what you left out when you talked about the 180 is the actual growth coming from the top line growth that Mike talked about in the business lines. So is the suggestion there, if we took, I think it was the 130, that's the base off of which we'd be growing that 10%, then add in an AMR cable? Yeah, I think that's a reasonable way to look at it. Okay. Okay, perfect. And I mean, I guess we can maybe try to back into this, but maybe just to ask sort of higher level. As far as margins for 2025, I mean, you spoke earlier on the call about still very much targeting EBITDA margins around the 20% level for the business going forward. Are you able to comment on what sort of underlying margins will look like in 2025 and maybe how they kind of progress through the year and recognizing, of course, there are the MEO costs to consider as well.

So, I'll offer some perspective. Tom may have some additional comments. I think you're likely to see generally what we've seen in most of recent history, which quarters tend to be our most robust, just given the seasonal cycles in some of our businesses. So I think those are likely to represent the upper end of the range that we will see from a quarterly EBITDA margin perspective in 2025. And Q1 and Q4 are likely to be on the lower end of the range. And I think on average, you know, we're in the mid teens. for the year and obviously pushing to try to drive beyond that if we can avoid tariffs and we can execute very well in our production footprints across the company, there is absolutely upside potential there.

Perfect. That's all very helpful. Thank you. Probably for Tom, question about depreciation amortization. The level we saw in 2024 Is that representative of what to expect going forward, or is there much change given AmeriCable plus also the new facilities?

Yeah, I would say for AmeriCable, while the purchase accounting is not finalized yet, you should expect something on the order of mid-teens, maybe low-teens amortization annually for the intangibles. So that will be an add to the to the bottom line, not to the EBITDA, of course. From a depreciation on the asset perspective, the number does move up in 2025 a bit, just as you say, because we do have some new plants coming online. It's not all that material because most of the capital has already been spent and allocated, though. I can provide a little bit more detail. I'll dig that out, though.

That's perfect. Thank you. And then I guess sort of similar question, just lease liabilities. Do they deviate much going forward from what we saw at the end of the year?

They should not. So what you saw at the end of the year didn't include all of AmeriCable, but the AmeriCable ad is pretty small, and we've taken some actions to reduce a couple of leases going forward as well. So I think it'll be in the same range as we report Q1. So you should not see material moves.

Perfect. And then just lastly, here before I turn it over, can you talk about expectations for changes in non-cash working capital in 2025, including cadence throughout the year?

Yeah, I think the cadence would be similar to what we've typically seen, which is a Q1 that has an outflow of working capital for a variety of reasons, incentive payouts and some, especially this year, bills relating to the tariffs. I think that flattens out in Q2 and Q3. And then by the fourth quarter, which is what we saw in this fourth quarter, you should see a pretty good working capital release. So that's the trend, I would say. I think on the whole, we'll see a relatively flat working capital profile for 2025, just simply because there's enough things moving with new plants and a variety of tariff actions that we're taking, regardless of whether they go into effect, that are impacting our numbers slightly. So I think you should expect roughly flat for the year and the cadence as I referenced. That's all very helpful. I will leave it there. Thank you. Thanks, Michael.

That concludes today's question and answer session. I'd like to turn the call back to Mike Reeves for closing remarks.

We thank you for joining us this morning and look forward to sharing an update in May for our Q1 results. Have a great day, everybody.

This concludes today's conference call. Thank you for participating. You may now disconnect.