Mattr Corp.

Good day and thank you for standing by. Welcome to the Matter First Quarter 2025 Results Conference Call. 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 will need to press star 1-1 on your telephone and wait for your name to be announced. You will also hear an automated message advising that your hand was 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 your first speaker today, Megan McAachran, VP of Investment Relations and External Communications. You may begin.

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 first quarter 2025 earnings press release in the MDNA 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 matters president and CEO, Mike Reaves.

Good morning. Thank you for attending our first quarter conference call. Today, Megan and I are joined by our senior vice president of finance and CFO Tom Holloway. The first quarter of 2025 saw MATA leverage its unique product portfolio to deliver strong business performance despite geopolitically driven uncertainties across many end markets. With customer adoption of recently released technologies accelerating robust performance from AmarCable in its first quarter as a MATA brand and our newly established manufacturing facilities operating at improved levels of efficiency, Q1 saw continuing operations revenue and adjusted EBITDA rise by 52% and 80% respectively year over year. MATA benefited modestly during the first quarter from acceleration of purchasing decisions by some customers ahead of early April US tariff announcements. While MATA's own USMCA compliant products were not directly impacted by these announcements, the uncertain outlook for global trade and macro economic conditions has undoubtedly impacted customer confidence across much of the critical infrastructure landscape. Consequently, the company currently expects demand for its products during the second quarter of 2025 and likely beyond will be unfavorably impacted. Although the full year business impact remains unclear, we currently anticipate the second quarter of 2025 will see MATA's reported continuing operations revenue and adjusted EBITDA move lower sequentially. While the company cannot control the business environment within which it operates, in recent history, the talented teams across our organization have proven nimble, resilient and cost conscious in the face of challenging conditions. As demonstrated by our first quarter performance, MATA's technology driven products, differentiated positioning in key markets, strong customer value proposition and rebalanced modernized manufacturing footprint create the opportunity for market outperformance regardless of prevailing conditions. Our hard earned balance sheet strength enables MATA to navigate market uncertainties with confidence, remaining committed to technology development, to enhancing costs and operational efficiencies across the organization, to extracting commercial synergies from our newly expanded wire and cable portfolio and to creating longterm value for our shareholders, including via additional accretion acquisitions and the continued repurchase of shares under our NCID. Looking at each of our segments, connection technologies set new segment revenue and adjusted EBITDA records in Q1, growing sales by over 100% and adjusted EBITDA by over 70% versus the prior year. These results benefited from the early quarter edition of AmeriCable and continued share gains by DSG Canusa, although segment margins were tempered by nearly $3 million of non-capitalizable NEO costs during the quarter. Market share gains in the segments DSG Canusa premium heat shrink tubing business were achieved in both industrial and automotive markets despite declining global vehicle production as original equipment manufacturers, particularly in North America, began to curtail activity in response to tariff announcements. While the quarter benefited from stable deliveries into industrial markets, late in the quarter, the business began to observe some slowing in customer orders in response to the macroeconomic uncertainty. As expected, AmeriCable's revenue in 2025 is front-loaded. The business delivered a strong first quarter, supported by significant deliveries into specific mining projects, which are not expected to recur in the coming quarters. Baseline demand for AmeriCable products entering Q2 remains stable. While AmeriCable's US-made products are predominantly sold domestically, some products are exported to countries such as Canada, Chile, and China. Consequently, the business has the potential to be impacted by import duties levied by these countries in response to US tariffs and has observed some order delays from overseas customers which will likely impact the second half of 2025. Our ShoreFlex business started 2025 with strong sales into nuclear applications and based on order backlog continues to expect nuclear sales this year will grow by low double-digit percent versus 2024 before rising further in the years to come. I'll speak more about this particular market sector later. In parallel, the business also continued to experience robust demand for stock industrial products during Q1, primarily driven by Canadian distributor customers who have gradually been replenishing their inventory levels. As anticipated, the sales of these stock products were at below average margins, resulting in overall margins within the business remaining at the lower end of the typical range for the quarter. Progress continued on the segment's final remaining MEO projects during Q1 with production equipment installation occurring on time and on budget within the new ShoreFlex Ontario and DSG Canusa, Ohio sites. Both locations are already producing and all planned equipment installation will be completed by the end of Q2. At that time, the recognition of non-capitalizable MEO expenditures will cease. The timing of invoices related to these final activities caused MEO spend in the first quarter of 2025 to be modestly lower than previously anticipated. Consequently, MEO spend recognition is expected to be higher in the second quarter of 2025, impacting the quarter to segment margins in the quarter. Our outlook for electrification-driven demand across the segment remains favorable. And with the acquisition of AmarCable, we are even better positioned to fulfill our customers' needs. The first 90 days of AmarCable onboarding has solidified our view of longer-term cross-selling and growth opportunities between ShoreFlex and AmarCable, including meaningful growth potential for AmarCable in the North American medium voltage market. Looking more closely at the nuclear industry, across the globe, we observed demand for lower emissions and energy security, and a consequent renaissance in nuclear power generation. Our ShoreFlex business has long been considered a provider of choice for highly-engineered wire, cable, and assembly solutions in CanDo reactors, which are primarily located in Canada. The safety-critical nature of ShoreFlex's unique CanDo product portfolio showcases the depth of technical capability within the business. Nuclear refurbishment projects are long-cycle events with low risk of delay arising from economic changes. While this end market currently represents a modest percentage of matters revenue stream, this predictability has underpinned strong nuclear revenue growth within our wiring cable business over the last five years. And with 16 CanDo refurbishment projects expected over the next 10 years, matter is well-positioned to continue this growth trend. Beyond CanDo, the Canadian nuclear sector is experiencing a broader resurgence, with planned investments in both large-scale and small modular reactor projects in the coming decade. Major projects include Ontario Power Generations proposed new builds at their Wesleyville site, and recently approved small modular reactor construction at their Darlington site, as well as large-scale reactors planned at Bruce Power's Site C project. The Site C project would be the first large-scale nuclear building in Canada in over three decades. Each refurbishment or new build project presents the opportunity for matter to capture up to $15 million of premium ShoreFlex product revenue. ShoreFlex and its subsidiary, Canata Electronic Services Limited, are proudly Ontario-based manufacturers with over 90 years of combined nuclear experience. In partnership with Atkins Realis and with Westinghouse, ShoreFlex remains committed to advancing Canadian nuclear technology and strengthening our role in both domestic and international nuclear supply chains, regardless of reactor technology type. We continue to invest in the development and qualification of highly engineered products suitable for non-Candu reactor designs, and over the mid and longer term, we believe demand for our nuclear products will be a meaningful driver of growth and margin expansion. We stand ready to serve as a trusted partner to utilities, large engineering contractors, and technology developers, driving value through local expertise and nuclear-grade innovation. Turning to the composite technology segment, first quarter revenue increased by 11% year over year, driven primarily by increased demand for Xerxes fuel storage and water management products and higher sales of FlexPipe products into the US market. FlexPipe benefited from a modest degree of order acceleration from some US customers who sought to de-risk potential early April tariff introductions. Segment adjusted EBITDA rose by 40% year over year as the burden of prior year MEO cost recognition was eliminated and newly established production facilities continued to deliver progressively improved efficiency. Within the Xerxes business, first quarter revenue increased substantially versus the prior year, despite normal seasonal weather effects. Retail fuel customers continue to demonstrate a strong appetite for investment in new convenience stores and are successfully navigating the permitting challenges which so heavily impacted late 2023 and early 2024. The first quarter also saw sales of Hydrochain stormwater management products more than double versus the prior year quarter and continued strong demand for very large diameter water storage and backup fuel tanks used in mission-critical applications such as the US data center market with the segment expanding its backlog and its production capacity for these products. During the quarter, the business incurred elevated freight expense as customers requested accelerated shipment of Canadian-made tanks across the border ahead of potential tariff announcements. Xerxes products are not currently subject to any US tariffs and consequently we expect business activity will generally follow a normal seasonal pattern in 2025 with a sequential rise in revenue expected in Q2. Q1 saw FlexPipe continue to capture new customers and gain market share in North American onshore oil-filled markets, primarily through ongoing large diameter product adoption in the US. Total FlexPipe revenue was modestly below the first quarter of 2024, which benefited from a large international order. However, Q1 2025 saw FlexPipe deliver a new record for US revenue as the business once had a record of once again significantly outperformed the US well completions count, which fell approximately 7% year over year. Entering the second quarter, we have observed crude oil prices move down into a range that likely triggers further deceleration of North American onshore well completions. Our full year outlook now anticipates year over year activity declines of approximately 15%, which compares to our prior outlook of approximately 10%. We continue to anticipate further market share gains in the second quarter, but the combination of additional activity reductions and modest pull forward of revenue into Q1 yields an expectation that second quarter FlexPipe business performance will be modestly lower than the first quarter. Composite Technology's first quarter results reinforce our confidence that substantial recent investments in FlexPipe technology and in domestic operational infrastructure for both business lines have positioned the segment for strong future performance. We remain on track to introduce additional large diameter FlexPipe products towards the end of 2025, which are expected to add 50% or more to the business line's global addressable market. With the segment's physical footprint transformation completed and new site productivity rising, we remain well positioned to serve the North American market with our composite solutions in the years to come. Our Thermotype business, reported as discontinued operations, delivered another strong quarter with revenue of $23 million and adjusted EBITDA margins of 32%. Late last year, we announced a definitive agreement to sell the Thermotype business to Valeric and we continue to expect this transaction will close around the middle of the year. Tom will now walk through the company's first quarter financial highlights.

Thanks Mike. The first quarter's revenue from continuing operations of $320.1 million was 52% higher than the first quarter of 2024, reflecting an increase of $96.5 million in the connection technology segment as we report our first quarter of results with AmerCable included, along with $13.5 million in the composite technology segment. Total consolidated adjusted EBITDA from operations, which includes discontinued operations, was $54 million, while adjusted EBITDA from continuing operations was $46.6 million, an 80% increase from the comparative period in the prior year, primarily attributed to an uptick in gross profit related to the revenue increases in both segments and changes in product and customer mix slightly offset by the impact of expenses tied to pre-positioning of finished goods inventory in advance of possible tariff implementation. We also recorded $2.7 million related to our MEO growth activities during the quarter, with $1.4 million included in selling general and administrative costs, and $1.3 million in gross margin. While these MEO costs are slightly below our expected spend rate, the lower expense represents deferred spending from the first quarter, which will be deployed in the second quarter of 2025. All remaining MEO projects continue to remain on time and on budget. In the first quarter of 2025, the company incurred $5.3 million of costs related to the acquisition of AmerCable and an acquisition-related inventory adjustment, which decreased gross profit by $4.2 million. These costs were offset by a $2.2 million reduction 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 Connection Technology segment delivered a new first quarter revenue record of $187.3 million, which was 106 percent higher than the first quarter of 2024, primarily driven by the inclusion of the newly acquired AmerCable business. Segment adjusted EBITDA was $12.9 million higher than the prior year first quarter, primarily as a consequence of AmerCable's results being included into the segment's reported numbers. The increase in segment revenue was slightly offset by a decrease in sales into the North American infrastructure market for the Shawflex business. The first quarter of 2025 segment adjusted EBITDA also includes the previously mentioned non-capitalizable MEO costs. The segment did not record any MEO costs in the first quarter of 2024. The Composite Technology segment revenue was $132.8 million, an 11 percent increase compared to the first quarter of 2024, and adjusted EBITDA increased by 40 percent over the same time period. This increase was primarily attributable to increased sales of FRP tanks into retail fuel application, slightly offset by a reduction in composite pipe sales into the international markets in the first quarter of 2025, compared to the same period in 2024. Contributing to the adjusted EBITDA margin improvement, the segment did not record any MEO costs in the first quarter of 2025. Whereas adjusted EBITDA in the comparable period of 2024 included $2.3 million in non-capitalizable MEO costs within the segment's reported selling, general, and administrative expenses. Turning to cash flow, cash used in operating activities from continuing operations in the first quarter was $5.9 million, primarily a result of increased investment in working capital during the quarter. As the company implemented strategic initiatives in preparation of potential tariffs in the U.S., which were partially offset by better operational results, including the positive impact of results from the recently acquired AmerCable business. Cash used in investing activities in the first quarter was $406.9 million, primarily reflecting the purchase consideration for the acquisition of AmerCable, together with a capital spend outflow of $24.1 million on property, plant, and equipment, primarily MEO projects. This cash outflow for capital spend includes amounts previously accrued that were paid in the first quarter of 2025. During the first quarter, cash used in financing activities was $39.8 million, primarily driven by a $21.6 million net repayment on the company's credit facility, repurchases of nearly 1 million shares under the company's normal course issuer bid, and lease liability payments. Subsequent to the quarter, the company remained active on the NTID and expects to exhaust the current program capacity before the program is eligible for renewal in late June, at which point we expect to renew the program and remain active moving forward. As of March 31, 2025, we had a cash balance of $52.7 million, net debt of $562.8 million, and $27.7 million of standard letters of credit. As of the end of the quarter, the company's net debt to adjusted EBITDA ratio was 3.6 times, including lease liabilities, which reflects the additional debt raised to fund the acquisition of the AmerCable business. Adjusting for the AmerCable transaction earnings and the anticipated sale of ThermoTite on a pro forma basis, our trailing 12-month net debt to adjusted EBITDA ratio at March 31, 2025, would have been just under three times, or closer to two times if lease liabilities were excluded. As discussed previously, we remain committed to returning to a normal course ratio of two times or below. Lease liabilities increased slightly to $165.9 million in the first quarter of 2025, due primarily to the inclusion of AmerCable's leases. Matter retains financial flexibility and expects capital allocation priorities will continue to emphasize debt repayment, complete existing growth investments, and continue share repurchases under our NCIB. We also continue to cultivate our pipeline as acquisition opportunities, primarily focused on further enhancement of our connection technology segment. Capital expenditures in the quarter were $11.6 million, with $24.1 million of cash deployed, including $14.2 million of capital expenditures previously accrued in 2024. Of the capital expenditures, $8.6 million was related to growth expenditures. These were primarily related to new product and MEO projects, which are intended to increase production capacity and efficiency within both segments. As Mike mentioned, MEO projects for composite technologies and DSG Canusa within connection technologies are now online and ramping up production, while our relocation of the Shoplex production footprint continues towards expected completion by mid-2025. All projects remain on time and on budget, and Q2 should be the final quarter that we expect to record MEO expenses.

Thank you, Tom. With our business portfolio rationalization effectively complete, our North American production network, modernization, expansion, and optimization activities, concluding in Q2, and greater exposure to global electrification trends achieved by the acquisition of Amricable, MATTER is a transformed business. The changes of the last three years have fundamentally enhanced our ability to efficiently develop and deliver highly differentiated, critical infrastructure products from an optimized footprint that limits our direct exposure to ongoing trade friction. Normal seasonal and market cycles will continue to drive some variation in quarterly activity levels, and we remain vigilant for more meaningful tariff-driven changes in near and midterm economic conditions. However, we believe the underlying long-term trends for each of MATTER's primary businesses are favorable and expect them to remain so for several years. While we expect market uncertainty will cause some near-term slowing in customer buying patterns, the compelling need remains for investment into North American critical infrastructure renewal and expansion, and underlying demand for our core products is expected to persist. We continue to take steps designed to minimize our risk related to rising international trade friction, including further reduction in our already low exposure to Chinese source materials. The company's North American-made products are all USMCA compliant, and thus not currently subject to tariffs, and we remain well positioned to mitigate potential future tariff impacts on our supply chain. In parallel, we continue to exercise tight cost controls across the organization, adjusting our cost base as needed to appropriately reflect activity levels. As previously noted, given our current view of likely market conditions and customer behavior, we expect our reported business performance in the second quarter of the year, including the impact of our final remaining NEO costs, will be lower in the first quarter of 2025. It is difficult to predict how tariff impacts will ultimately unfold as we move through 2025, but we pride ourselves on our ability to embrace change, to be nimble, and to act swiftly when opportunities or challenges arise. We remain confident that the actions taken to enhance our production footprint and diversify our supply chain have better positioned the company to navigate today's unpredictable geopolitical environment. We will continue to remain disciplined in capital deployment with a sustained focus on lowering debt, incremental technology investments, and continuing to return capital to shareholders through our NCIB. We 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.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our Q&A roster. And our first question will be coming from David Ocampo of Cormark Securities. Your line is open.

Thanks. Good morning, everyone. Tom, maybe we can start with just the pull forward demand that you saw from the composite division. I was wondering if you can quantify what the impact was from a sales and EBITDA perspective.

Yeah. Thanks, David. So if we think about the quarter, the pull forward impact on the bottom line, so EBITDA, was around $4 million for the total corporation. Most of that was in the composite segment. There was a little bit in the connection segment as well as we saw some movements, but on the total $4 million. So maybe I'll take this opportunity to kind of walk you through how we're thinking about Q2, because I think it all ties together. So if you said Q2 had about $4 million of EBITDA included in it, and you normalized, sorry, Q1 included $4 million of pull forward, and you normalized our Q2 results for that, and then you added back NEO, so X NEO. The impact on Q2 quarter over quarter from Q1 to Q2 is a single digit percentage. It's relatively small. So just to give you a little bit of quantification there, that impact did have, you know, that pull forward did have an impact on our Q2. And we'll see what the outcome for the year is. We obviously didn't give further guidance on that because the market is very uncertain at this point in time. I hope that helps a little bit.

That sounds good. I guess I'll refrain from asking the full year questions, but maybe one for Mike. Do you have an update on the seven to eight inch line that you're launching later this year, and if you can comment on any initial customer interest from the new product?

Yes, so definitely strong customer interest. They recognize that we won't be in a position to begin to supply until late in the year. And the key milestones between now and then really are the establishment of design in our rock wall facility just outside Dallas. So the vast majority of the equipment necessary to do that is on the ground. It's being commissioned and we are on schedule and on budget. So at the moment, I fully expect that we will get to the tail end of this year, capable of producing initially small volumes of seven inch and eight inch product and working through initial field trials of those products. And that 2026 will be the first year where we have effectively a full year of commercial availability for those product lines.

Okay, and then maybe just the last one for me, if I turn the line over, maybe Tom can answer. That your composite facilities that you're, at least the connection facilities that you're launching later this year, we compare that to composite facilities that you launched last year. It did have some fixed cost absorption issues when it was first launched. Do you expect the connections business to be a little bit different just because they're essentially replacement facilities with just a little bit more square footage and more modernization? Just curious on the margin pressure that could be coming in the back half of the year.

Yeah, what I would say to that is we've baked in our best expectations to what we've talked about publicly. We do not expect connection technology to see the exact same impacts because, to your point, it's largely a move of facilities rather than an opening of completely new facilities. The Ohio facility, and I think we've talked about it before, has had some labor startup issues, which is normal with facilities like this. The Shawflex facility, however, is a complete move of the same workforce to the new production facility, and that's on track. We don't anticipate any real issues with that one at all. The short answer is some minor issues in Ohio, but nothing major and nothing at all in the Shawflex facility.

Is the expectation still to get to that 20% EBITDA margin for the division, or is that going to take the market actually turning for the better?

No, I think the expectation is still to get to that 20%, not this year, just to be clear. But definitely, we see a path. If the market turns, then I think we get there faster, but I don't think it impacts our view of the margin profile.

Okay, that's perfect. I'll hand the line over. Thanks,

guys. Thank you. Thank you. And our next question will be coming from Zachary Evershed of National Bank Financial. Your line is open, Zachary.

Good morning, everyone. Congrats on the quarter.

Good morning. Thanks, Zachary.

So on the medium voltage commercial synergies, you guys indicated that there is interest. Could you give us something tangible in terms of how that can be translated into orders, especially given all the commentary we're seeing about customers being in more of a -and-see mode?

Yeah, so AmarCable is a great example of what's possible when you have a team ready to move nimbly and take advantage of some of the opportunities that are created in a rapidly moving marketplace. So without giving explicit guidance, because that's not how you do it, despite the impact of tariffs and the consequences resulting uncertainty here, our view of the overall Ebert-Dahl contribution coming from AmarCable in 2025 really hasn't changed. We've certainly seen some expected orders be delayed a little bit as customers try to figure out what their cost base is going to be. But at the same time, we particularly in the medium voltage for industrial applications seen some orders captured that were not in our original forecast for the year. So big picture, I would tell you that the tariff uncertainty has probably put a bit of a ceiling on the upside for AmarCable in 2025, but it hasn't changed our expectations for business performance at the midpoint. Specifically, when it comes to medium voltage in North America, AmarCable historically was not in a position to serve as much of the industrial and the industry would have liked, and in part because they were bumping right up against production capacity in their site in Arkansas. With a little bit of slowing in mining and energy, it's created some space, and we've already seen much of that space consumed by sales into AI and other similar types of applications. So these are the kind of end markets that that business is capable of serving. For them to grow into a mature market share in that space will require some incremental production capabilities in Arkansas and the lead time on equipment for that round about 12 months. So what we're doing in 25 is taking advantage of existing capacity, levering the sales channels that already exist within ShoreFlex to help support the growth of industrial sales for AmarCable. And as we roll into 26, we will see the benefits of some of our modest investments this year, which will show up as incremental capacity, and I think we will continue to see growth of these medium voltage sales in the US, and provided no tariffs and counter tariffs are put into place, a similar opportunity exists in Canada.

Great, Kolar, thanks. And then if we look back to last quarter, you indicated that CirqueSuites was expecting to show revenue growth in 2025 as you guys had secured a significant percentage of full year fuel demand in the backlog and that the backlog for water products had continued to rise. Does that still apply to your current backlog and guidance? And are you seeing a big pickup in that data center if you have any more color there?

Yeah, I would tell you that CirqueSuites and AmarCable are the two businesses where the market gyrations that we've seen have really not changed our outlooks for 2025. The backlogs for both of those businesses effectively hold up to 25 revenue at this point in time, and demand for both fuel and water products in CirqueSuites continues to be strong. So Q1 historically is the slowest quarter of the year for CirqueSuites because of the ground conditions and the challenges of installing underground products. Now we're seeing the beginnings of the uptick in shipments and installations. I think our position with our customers is strong and gaining momentum as we're able to produce incrementally more from our new site in South Carolina. And as I mentioned on the prepared remarks, during Q1 we did add to our variation capabilities out of South Carolina. There will be a further add around mid-year, and that will continue to expand our ability to earn and produce orders for very large tanks in support of AI data centers, both water and fuel. So I think we have a very positive view of CirqueSuites despite the broader potential disruption from tariffs, and it's certainly a point of focus for us. We remain confident that 2025 will be a considerably better year for CirqueSuites than 2024. Thank you very much. I'll turn it over.

And as a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Our next question will be coming from Ian Gillies of Stiefel. Your line is open.

Good morning, everyone.

Good morning. Morning.

As you think about the full year, do you think EBITDA from continuing ops in 1Q25 is the high watermark? I know there's a lot of uncertainty, but just trying to think about the cadence through the remainder of the year.

I don't know that we are in a position to say with certainty whether it is or it isn't. I think, and I appreciate that's a non-answer, but unfortunately, it's the reality. I think Q1 was a strong quarter. Obviously, we were very pleased with it. As we mentioned, it did include some pull forward. It would not have been as strong had there not been this concern around potential tariff implementation. But I do think that it was a demonstration of what our business is capable of doing in something approaching a normal quarter, even a seasonally slower quarter. If we can navigate through this next couple of months and the markets broadly get confidence that there is not going to be heavy tariffs implemented in the cross-mits, whether they're for our products or any other products, then I think there's absolutely the opportunity for the second half to be stronger than the first quite significantly. But if we continue to live a world where people haven't the faintest idea what tomorrow is going to bring, I think we will continue to see very slow decision making on meaningful capital projects and the consequence is going to be declining backlog and ultimately lower sales than we would have expected coming into the year. Unfortunately, I really don't know which of those scenarios we're going to face. As I said earlier, I think AmarCable and Xerxes prevail regardless. The other three business will likely be impacted if we're in an uncertain environment for an extended period of time.

Understood and I think that's a completely fair answer.

On

the nuclear side, if I think it was second quarter of 2023, we got a nice surprise from a nuclear-related order. You spent some time talking about that. You updated nuclear views in the prepared remarks. Do you think you received one of those orders this year or does it come a bit later? There's just been so many announcements around refurbishments.

Yeah, there certainly have. As a reminder, we already have a pretty good line of sight on the refurbishment activity that's happening in the Bruce Power facility, which will continue for the rest of the decade and into the 2030s. That is a fairly meaningful source of revenue for us and we would expect it will continue to be so. The reason that we highlighted nuclear at this point in time is that we are now finally starting to see words convert into action when it comes to a resurgence in nuclear investment. Whether it is the OPG recently announced funding and committed path forward for OPG's MR development in Ontario, further refurbishments in Darlington and now the potential new builds, Pickering, etc. It feels very much like we're on the cusp of an exciting period of time for us in the nuclear space. I think it's quite likely that we may have some awards made later this year, late this year, but I wouldn't expect to see a meaningful step in revenue generation until we get into 26 and 27. I think if we can secure into backlogs and orders like this year, early next year, but I certainly think we have a pathway to take nuclear revenue from roughly 10-ish percent of the shore flex business to something several multiples higher than that. Obviously, that would make a big difference to the margin profile of the business over the coming years.

That's very helpful. If I could sneak in one last one in and around connection technologies and margin progression through the remainder of the year. Obviously, the stock products issue that manifests in the latter half of last year, we probably still see some of that through the first half of this year. I'm wondering how we should think about that in the context of the new language provided around copper price volatility and how this all kind of intertwines together.

Yes, certainly a few moving pieces and it's worth remembering that at least allegedly the US administration is going to announce their position on potential tariffs of copper early in Q3. There's a shoe that might fall there or it may not be a shoe at all. It's hard to tell. Let's rule that out for one moment. I think what we're seeing generally is that copper prices have inched their way up. As you will recall, we either have fixed selling prices where we pre-purchase copper to ensure we don't have a copper price risk or we have floating prices with our customers that are locked at the time that we actually produce the product. Broadly speaking, we're relatively immune to margin dollar loss as it was a price movement. As copper prices move up, we would expect that we'd see revenue be inflated by that with margin dollars not inflated. Margin percentage would certainly be negatively impacted. From a mixed perspective, as we sit here today, I think we're probably going to see a relatively steady state for the stock industrial product demand as we roll through the rest of the year. I don't see that rising as a percentage of revenue. There's a number of opportunities there to gain in non-stock, industrial, and other applications. The opportunity is certainly there for us to move the short flicks margin profile further up into the midpoint or beyond of its normal range. First half of the year, we're going to continue to see MEO costs. The CQ2 will be the last quarter that we see that. Reported numbers in Q2 will be impacted by that $5M to $7M of MEO costs. The second half of the year, I think we've got an opportunity to move margins. The question will be how much demand will there be? That goes back to my previous comment on the tariff uncertainty. Again, a lot of uncertainty there, but opportunities without doubt.

Understood. That's helpful. Thank you very much. I'll turn the call back over.

Our next question will be coming from Tim Monticello of ATB Capital Markets. Your line is open.

Thank you, Monica. A follow-up on a mute-line question. When you expect to have a full-seater product that is certified for heavy water reactors.

Yeah. Obviously, today our product suite serves the can-do reactor technology. We've been working for multiple years to develop an enhanced portfolio to address heavy water, light water, and SMR technology. I think we are in a position where we can complete development and move through certification and qualification on a time horizon that is consistent with the project time horizons that have been announced. I think over the course of the next two to three years, we will start to have a more meaningful portfolio of products certified for use in these different applications, which aligns with the timeline that we think orders likely will be placed. Obviously, we have to work hard here. We have to continue to execute well. We have done so over the last two or three years in this domain. I have confidence that you'll see us secure wins outside the can-do reactor domain over the next couple of years.

Okay. Thanks for that. I wonder if maybe you could help quantify how much cost and absorption you had in Q1 and how that compares to Q4 and where you expect to be by, I guess, mid-year, I guess specifically for probably most impactful in the COMSIS side.

Yeah. Yeah. So, just a reminder of the way we think about that. The incremental under-absorption is effectively to get to our target margin. So, for the first quarter, it definitely moderated. I think in the fourth quarter, it was around $4 million, and in the first quarter, it was closer to that $2 to $3 million range. So, it's definitely coming down, and it is virtually all in the COMSIS segment. By the mid-part of the year, I think we'll be through that efficiency cycle, and anything that's there is going to be minimal beyond that.

Okay. Will there be additional costs under-absorption later on when you add lines in Blythood? And how full is the line in Rockwell now?

So, we, at the moment, there's only one more line planned to go into Blythood this year. That is this additional 12-foot capacity, a very large tank capacity. Not expecting that that has a lot of capacity. We're expanding the team over the course of Q2, and I think we'll be prepared to have that line running and generating absorption as soon as it's commissioned. So, I'm not concerned about that. Rockwell, the facility currently only has one single line in it, and it is being operated at about, it's operating at about 50 to 60% of its total ultimate potential capacity. We've chosen to staff it to operate at that level, and at that level, it is capable of coming very close to fully absorbing the facility. So, when we think about the path forward in Rockwell, whether it is increased demand for the current product and the need to go to a higher level of utilization line, or whether it is the operation of this second line, which will produce seven-inch and eight-inch products starting late this year, I would expect that that facility crosses into fully absorbed territory as we get to year end, and likely is more favorable than that as we roll through 2026. Okay,

that's really

helpful.

And then it sounds like you had a little bit more international orders for flex type in Q1, at least you did in Q4, unless I'm getting that comparison wrong. But how does the outlook for international order flow in your bid pipeline?

Yeah, so let's say international revenue in Q4 and Q1 were really quite similar to each other, not a material difference, and not a huge percentage of our total revenue. Now, I should just clarify, when we talk international, for us, that means things outside the US and outside Canada. There are some others in our space that will use the international terminology to include anything outside the US, so they capture Canada in their numbers. For us, it's outside North America. I think this is a year where we're going to see a limited number of larger tenders get awarded internationally, just the cycle time, particularly in the Middle East, is such that 25 is not a year where I think you'll see large awards and large single deliveries. I think our international revenue stream will be made up of relatively small or mid-size orders. And again, there'll be a little bit of lumpiness. At the moment, I would think the second half will be the stronger of the two halves of the year for international revenue generation for flex type.

Okay, that is helpful. I'll turn it off. Thanks very much.

And our next question will be coming from Yuri Link of Canaccord Uniti. Your line is open, Yuri.

Good morning, and thanks for taking my question. Morning.

Morning.

Maybe just an update on Xerxes, if you don't mind. If you could give us a flavor for the percent of Xerxes that now comes from stormwater management and how that business has grown over the last year.

Yes, certainly varies a little quarter by quarter, more than anything because the volume of fuel revenue is seasonally impacted by ground conditions. The way I would encourage you to think about it on a four-year basis, we're somewhere in the 20 to 25% coming from water at this point. But that's been roughly where we've been for the last year or so. We made some good progress driving that number up from single digits to three years ago, got to where we are about 12 months ago, and then had to pause for a moment, quite frankly, because we've been really bumping up against our production capacity for water tanks, particularly large water tanks. Haven't been able to take on incremental growth there for the last 12 months or so. And we needed to get our new Hydrochain production facility online, which it now is. So I think with the addition of the large water tank production capabilities in the organization, which will be further enhanced around mid-year, and now having our in-house production in mass anglers, I would expect that we will see this percentage creep upwards as we work our way through the year. I think obviously the next milestone is to get to 30% on a consistent basis, which probably is a late 25 into the early part of 26 type timeframe. But broadly speaking, I think we're now positioned to water revenue growth at a faster pace than fuel revenue growth, and over time see water become a far more meaningful percentage of total revenue.

Okay. And then also in terms of the data centers and Xerxes, you know, is that still a single digit percent of Xerxes revenue? And are you playing just a role on the fuel storage at the data centers, or are you also on the thermal energy management systems? I'm not sure if those are exclusively steel or if there's some composite opportunities there.

No. So I would say that our revenue type directly to data centers is probably still single digits, but it's certainly a revenue stream that I think will be one of the fastest growing as we roll through this year with the addition of our production capacity. So we'd fully expect it's into the double digits as we get into the second half of the year. Generally what happens at a data center site is the decision will be made to store liquids above ground or below ground, and that will be driven by space availability, environmental conditions, potential for high risk events, flooding, tornadoes, things of that nature. When the decision is made to store liquids underground, it gives us the opportunity to participate in all of that liquid storage. So whether it is battery backup or the cooling water or even fire suppression liquids, we participate in all of those things. And I would tell you that in most cases, the larger of the opportunities in a single data center site is for the underground storage of cooling water. The sheer volume really outranks the volume of fuel that will be kept on location. So the more sites we can win, the more tanks we're able to produce, the more I think you will see margins expand, but also water as a percentage of revenue move up.

Okay. Okay. That's all I've got.

Thanks. Thank you. Thank you. And our next question will be a follow-up from Tim Monticello of ATB Capital Markets. Your line is open, Tim.

Thanks. Just one follow-up. Just curious if steel price inflation around tariffs is driving any incremental demand to composite, either for FlexPipe or Xerces. The fact that you guys are expecting 50% decrease in, I guess, top line for FlexPipe, but current prices have been pretty volatile and things could change quickly. It seems that steel tariffs might be one of the more certain aspects of the current macro.

Yes, we share your view. I don't think we're likely to see movement in the steel tariff situation. And as you would expect when all imported steel solutions are tariffed at 25%, all US sources of steel have increased in price by about 24.5%. So that is definitely a favorable factor from our vantage point, both for FlexPipe and for Xerces. I think we continue to see that customer base for underground tanks and for flexible, spoolable products have the desire to move away from steel and towards composites everywhere they possibly can. So I think over the course of this year and next, we would expect that higher prices for steel continue to drive that enthusiastic migration. And obviously, we have to be positioning ourselves to ensure we capture that migration ourselves and have the productive capacity to serve it. Generally favorable. At this point, I think we would expect that we're not going to see tariffs applied to our own products. We are working on the assumption that products that meet USMCA compliance will remain tariff free. Obviously, if that changes, then it will change the dynamic. But for now, it's not built into our own outlook.

Have you seen any of that tailwind in the numbers yet or in the backlog or order flow? Or is that just something that you're expecting that might impact H2 or 26 and going forward?

I'm

sorry,

impact of what in

the second? Just like stronger order flow. Anybody, any customers that would have been ordering steel products that are moving to composites?

We've certainly seen a robust build in the backlog for the Xerxes business. And it has been a more aggressive build than we saw at this point last year. So I think that is a combination of just continued strong enthusiasm to build new convenience stores. It's, I think, a reflection of the fact that our customers generally have the permits in hand for their full year of activity. They're confident placing orders. I think those who have dedicated a portion of their spend to steel are rethinking that based on costs. So it's a combination of factors, but I would say that the backlog for Xerxes is looking very strong for 25. For Flexpipe, it's not really a backlog driven business. Our backlog there tends to be relatively modest. The time between order placement and delivery can be as short as as long as a few months. I think to the degree that there is customer migration from steel to composites at the moment, it is somewhat being masked by a gradual slowing in total well completion activity as oil price remains fairly low. But it's certainly favorable. So I think for Flexpipe, while it's hard to know with certainty, we've seen over the last 18 months that that business has managed to eke out modest gains in EBITDA generation despite an underlying market that's fallen by more than 20 percent in that time frame. And that's entirely particularly with our large diameter products and in many cases, share being gained from steel. So I think that will continue.

Okay, thank you very much.

Thanks. Yes, and I'm showing no further questions at this time. I would now like to turn the call back to Mike Rees for closing remarks.

Thank you for joining us this morning. We appreciate your interest in Nata and after a strong Q1. Obviously Outlook has adjusted slightly for the second half of the year, but we remain confident in our ability to navigate whatever the world may throw at us and we look forward to sharing with you the Q2 results when we reconvene next quarter. Have a great day, everybody.

And thank you for your participation in today's conference. This does conclude today's program. You may now disconnect.