Shawcor Ltd.

Good day and thank you for standing by. Welcome to the Shawcore first quarter 2022 results conference call. At this time, all participants are in listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star then one on your telephone keypad. Please be advised today's conference may be recorded. If you require operator assistance during the call, please press star then zero. I'd now like to hand the conference over to Megan McEachern, Director of External Communications and ESG.

Good morning. Before we begin this morning's conference call, I'd 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 Shawcore's statement on forward-looking information is included in Section 4.0 of the first quarter 2022 earnings press release and in the MD&A that's available on CDAR and on the company's website at shawcore.com. For those that have tuned in via webcast, you may follow the visual presentation that accompanies this call. I'll now turn it over to Shawcore's President and CEO, Mike Reeves.

Good morning. and thank you for joining Surecore's first quarter conference call. Today, Megan and I are joined by our CFO Gaston Tano and our Chief Accounting Officer Tom Holloway. I'd like to begin by once again recognizing the commitment to customer engagement, innovation and creativity of Surecore's employees around the world. Their ability to safely and sustainably deliver infrastructure technology our world needs despite the ongoing pandemic, supply chain disruptions and inflationary challenges is a testament to the teamwork and culture of this organization. Turning to business, 2022 has already seen further benefit from the company's continued strategy of simplifying our portfolio while investing to accelerate growth in less volatile industrial and other critical infrastructure markets. Our industrial and infrastructure-focused businesses are benefiting from the expansion of global investment in communications, transportation, low emissions energy, and water-related infrastructure. These tailwinds helped elevate revenues from businesses serving industrial and infrastructure end markets to 49% of total sales during the first quarter, up from 36% in the prior year quarter. In parallel, our onshore oilfield-related businesses are experiencing higher demand as oil and gas operators seek to capitalize on elevated commodity prices, and our offshore pipeline coating and inspection businesses, which are a later cycle and have weathered several quarters of low activity, are poised to see activity rise over the remaining quarters of 2022 and the years that follow as new offshore pipeline construction ramps up. These variables combine to underpin our confidence that a multi-year upcycle is evolving across Surecore's primary markets. As we position the company to generate maximum stakeholder value in this environment, we also remain committed to our 2030 greenhouse gas emissions reductions goals. continuing to identify and execute opportunities to lower overall energy consumption and improve energy efficiency across the company. During the quarter, this included progress to eliminate energy consumption tied to excess infrastructure and advancements of programs to install on-site renewable solutions, such as solar, at several production locations. We will release our 2021 ESG report in the third quarter, which will provide a more complete update on progress towards our ambitions. Looking a little closer at each of our business segments, our composite system segment operational performance was modestly better than expected for the quarter, with revenue climbing 50% versus the prior year, as North American oilfield consumption of spoolable composite pipe continued to rise and demand for high-specification underground storage tanks in the water and retail fuel markets remained robust. In addition to growing overall market demand for spoolable composite pipe, SureCore's 5-inch product line, which was launched in 2021, has been very well received, with adoption accelerating during the first quarter. We also remain on track to launch a 6-inch variant in mid-2022. It's important to remember that the second quarter of each year sees Canadian onshore oil field activity drop due to soft ground conditions. Excluding this effect, our outlook for the rest of 2022 remains favorable for growth in composite pipe demand across North America land. Our FlexPipe team have worked tirelessly to meet their customers' needs in recent months and are very well positioned to capture share as we move forward. Moving to composite tanks, order intake remains elevated, and we are bullish on both fuel station and stormwater system construction activity in the coming years. The quarter once again saw thermoset resin availability limit our manufacturing output. although deliveries were more stable and predictable than in late 2021, and good progress has been made to qualify additional sources of supply. Consequently, we still anticipate incrementally higher resin availability and tank production as we move into the second half of this year, with a robust backlog providing strong demand visibility for the rest of 2022 and much of next year. Our automotive and industrial segment traditionally benefits from seasonal customer inventory restocking during the first few months of each year, and this annual pattern continued in both our wire and cable and heat shrink tubing businesses during Q1, including stronger than expected demand from North American nuclear and industrial customers for Surecore's market-leading wire and cable products. This segment continues to improve the trajectory of its revenue EBITDA, gross margin and backlog profiles with new records set for revenue EBITDA and backlog this quarter. While the availability of microchips has shown modest improvement year to date, effects from the ongoing war in Ukraine and more recently significant COVID-19 driven lockdowns in China continue to present challenges to our automotive customers. With some vehicle production sites idled during the quarter, and broader supply chains disrupted. These disruptions have so far had nominal impacts on our business, with growth in industrial markets, which represented 70% of total revenue during the quarter, offsetting deferral of automotive revenues. And we currently believe our outlook appropriately reflects the likely impacts to this market for the remainder of 2022. Despite this, we remain vigilant and are engaged with our automotive customer base, ready to quickly respond to either further disruption or an acceleration of demand should disruption ease. Overall, the automotive and industrial segments first quarter performance causes us to have a slightly higher full year outlook for the segment and a constructive view of the mid and long term market trends which impact this business. We will continue to invest growth capital to enhance our product offering and improve our manufacturing capabilities, including the previously announced intent to relocate, expand, and modernize our Toronto production site, enabling profitable growth for the next decade. Lastly, our pipeline and pipe services segment, while delivering an EBITDA loss for the quarter, performed better than originally expected as our teams successfully captured incremental onshore coating work in Western Canada, while accelerating the execution of several offshore pipe coating projects that were originally scheduled for later in 2022. This pull forward of activity helped to limit the EBITDA losses within the segment during a quarter which saw a normal seasonal slowdown in our girth world inspection and engineering services businesses, coupled with the lowest level of offshore pipeline coating activity in many years. while steel tubular supply challenges pose some risk to new project FID timelines. We expect the PPS segment to experience sequential business growth moving through 2022, with second half activity substantially higher than the first half as several offshore coating projects currently in backlog, including Scarborough, move into the execution phase. Backlog within the PPS segment grew during Q1 with the capture of several smaller projects, and we expect further backlog growth over the course of 2022. A combination of the expected 2022 year-end activity run rate and a healthy backlog mean this segment is positioned for meaningful year-over-year earnings growth in 2023, while substantial offshore project quoting, driven by increased energy demand, continues to indicate a multi-year upcycle in offshore pipeline construction and coating activity. Turning to consolidated 12-month backlog, at the end of Q1, the company's committed backlog of work to be completed within the next 12 months stood at $702 million, an increase of $113 million when compared to the prior quarter. This improvement was the result of new order capture exceeding backlog burn in all three reporting segments, with backlogs in our composite systems and automotive and industrial segments reaching new record levels. Total backlog, including committed work beyond 12 months, also rose in Q1, reaching $804 million versus the prior quarter level of $744 million. Surecore's bid number reflects the value of work where the company has issued a firm price with proposed contract terms against an explicit scope of work with a defined timeline for execution. At the end of Q1, the bid balance was $946 million, an increase of $103 million when compared to the prior quarter, despite movement of several projects from bid into backlog. This expansion primarily reflects continued growth in bidding activity for offshore pipeline coating projects, as customers move forward with new and previously contemplated projects in the face of elevated commodity prices and growing needs for more efficient movement of natural gas. Included in the bid number is $56 million of conditional awards pending the client's final investment decision, unchanged from the prior quarter. Surecore's budgetary number, reflecting the value of indicative pricing submitted to allow customers to build a project budget ahead of formal procurement activities, remained relatively unchanged versus the prior quarter at $1.5 billion. This further supports our expectations that pipe coating activity will continue to rise in 2023 and beyond. Finally, Last year, we announced Gaston's decision to step down from the company at the end of May 2022 after transitioning his CFO responsibilities to Tom. This extended, thoughtful executive succession plan is progressing as expected and is consistent with Surecore's long-held practices, ensuring minimal disruption to the organization's tactical and strategic initiatives. This will be Gaston's last earnings call with Surecore, and on behalf of the entire team, I wish him the very best in his post-Surecore endeavors and and thank him for his tireless work to create value for all Surecore stakeholders. Tom and Gaston will now walk through Surecore's first quarter financial highlights.