Shawcor Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to Shaw Court Q2 2021 Resorts Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker for today. Megan McKinnon, 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 conference 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 Shawcore's statement on forward-looking information is included in Section 4.0, of the second quarter 2021 earnings press release that is available on CDAR and on the company's website at Shawcore.com. I'll now turn it over to Shawcore's president and CEO, Mike Reeves.

Good morning, and thank you for joining us on this morning's conference call. This morning, Megan and I are joined by our CFO, Gaston Tano. On June the 1st, Steve Orr stepped down as CEO of Shawcore, and on behalf of everyone who had the pleasure of working with him, I wish Steve the very best as he enjoys some well-earned time with his family. Steve's contributions to the culture, vision, and performance of this organization have been enormous, and I'm honored to follow him in this role. In addition, I want to thank the employees of SureCorps for their continued commitment to keeping each other healthy and safe despite the ongoing challenges posed by the pandemic and a number of significant weather events this year. Most recently, Sure cause team in Rhine back Germany was directly impacted by significant flooding. While all show core employees in the local area have been accounted for and are safe. Many of these team members have suffered personal property loss and will receive our fullest support as they and their families recover. Fortunately, our Rhine back production site so limited damage and only brief business interruption. Yesterday, we released our results for Q2 2021, during which the company generated adjusted EBITDA of $35.2 million on revenue of $306 million, with cash flow from operations of $24.7 million. Revenue increased compared to Q1 2021, driven primarily by the expected seasonal increase in shipment of composite underground storage tanks and rising demand for flexible composite pipes. with Surecore's composite system segment delivering its highest quarterly revenue since Q4 2019. In addition, continued strong sales of heat shrink tubing and premium wire and cable products, coupled with pricing escalation tied to elevated copper input costs, enabled Surecore's automotive and industrial segment to achieve another record revenue quarter, materially exceeding pre-pandemic levels. Our pipeline and pipe services segment saw flat quarter-over-quarter revenue, but delivered increased margins driven by favorable project mix and continued focus on cost management and efficient project execution. The company's 90% sequential step-up in adjusted EBITDA on 10% sequential revenue growth is a reflection of the meaningful operating leverage inherent in Surecore's increasingly efficient cost structure and physical footprint, a result of the restructuring activities completed to date. At quarter end, the company's backlog stood at $489 million, reducing less than originally expected versus the prior quarter as the impact of limited new project awards in our pipeline and pipe services segment was largely offset by slightly lower than expected pipe coating backlog consumption, strong underground storage tank bookings, and continued order capture in other parts of the business. Restructuring activities intended to further lower the company's fixed cost base continued, with Surecore deciding to permanently close its Adria Italy pipe coating facility and completing the sale of one of our two pipe coating facilities in Argentina. While a substantial majority of planned footprint optimization activity has now been completed, we will continue to assess further opportunities to lower our cost basis while retaining the right capabilities in strategic locations to meet future market needs. At quarter end, the company's global salaried workforce stood 27% below March 2020 levels and Q2 SG&A expense was slightly below our continued guidance of $55 million per quarter for the current year, due to the COVID-19 wage subsidy received in the quarter. Thoughtful timing of investment decisions limited Q2 CapEx spend to $5 million, and our full-year CapEx spend guidance is modestly lowered to $40 to $45 million. Looking at Q3, despite industry-wide raw material supply chain tightness and other ongoing pandemic impacts, we anticipate continued strength in demand for composite systems and automotive and industrial products, and consistent execution of scheduled pipe coating projects. This organization remains intensely focused on those variables we can control, protecting the health and safety of our employees, delivering the products and services needed by our customers, generating cash and strengthening the balance sheet, and capturing our share of increased customer spend. Surecore's high-quality product and service portfolio including robust non-oil and gas components, coupled with early and late cycle oil and gas exposure, positions the company very favorably to create and secure profitable growth opportunities as spending continues to recover in the energy, transportation, and infrastructure markets. I will provide more detailed comments later in this morning's call after Gaston Tano, Surecore's CFO, has discussed the numbers.