Shawcor Ltd.

Good day and thank you for standing by. Welcome to the Shawcore first quarter 2023 results webcast 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'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 your speaker today, 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 2023 earnings press release and in the MD&A that is 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 Shawcore's first quarter conference call. Megan and I are joined today by our CFO, Tom Holloway. The first quarter of 2023 saw Surecore continue to execute on its commitments to elevate margins, lower volatility, and focus resources on high growth opportunities serving industrial and critical infrastructure end markets. The company delivered strong operating results across all segments, added to its fast-growing stormwater solutions business, committed capital into high return organic growth opportunities, accelerated its share repurchase activity, and continued the mobilization of its large southeast gateway pipeline project. All three of our operating segments reported meaningful revenue and adjusted EBITDA growth during the quarter when compared to the prior year. Our industrial and infrastructure-focused businesses continue to benefit from significant global investment in transportation, low emissions energy, electrification, communications and water-related infrastructure. In parallel, our energy-oriented businesses are experiencing rising market demand with sales of larger diameter composite pipe accelerating and pipe coating activity remaining robust as offshore pipeline infrastructure expansion continues its multi-year upcycle. Q1 also saw the organization continue its focus on environmental, social, and governance-related enhancements. We believe firmly that taking sensible business improvement actions, such as more efficiently utilizing resources and expanding the talent pool from which we recruit, can deliver substantial economic value to the company in the near and long term, while also driving achievement of our stated 2030 ambitions to lower greenhouse gas emissions and elevate senior management diversity. Surecore's annual ESG report will be released later in the year and, in addition to revealing strong progress towards our long-term ambitions, will show this pragmatic approach has resulted in approximately 30% lower energy consumption in 2022 compared to our 2019 baseline. I'm proud of our practical approach to ESG and of the continuing commitment demonstrated by our employees in this important area. The hard work completed across Surecore in the last few years to substantially strengthen our balance sheet and our cash generation profile positions us to pursue a disciplined capital allocation strategy, balancing share buybacks with investment in high-quality growth to generate elevated returns for all stakeholders. Consistent with our previously shared full-year capital guidance of $160 to $180 million, During Q1, the company commenced two substantial growth capital investments in our composite system segment. These investments will enhance production capacity, efficiency, and proximity to key markets, and are expected to accelerate mid- and long-term revenue growth, elevate margin profiles, and deliver attractive overall returns. The company also continues to be active under its previously launched normal course issuer bid taking the opportunity to repurchase shares at an accelerated pace during Q1. In parallel, we remain alert to strategically aligned, attractively valued acquisition opportunities. During the first quarter, the company supplemented its stormwater product offering by acquiring the assets of Triton Stormwater Solutions, which have subsequently been incorporated into the company Xerxes business, part of our composite systems reporting segment. This acquisition brings in-house a portfolio of unique composite-based infiltration chambers, which are a crucial component in many stormwater management systems. We expect this transaction to enhance margin in our stormwater business, provide access to markets beyond our current North American core, and position shore core to significantly increase chamber manufacturing output, enabling an accelerated growth profile in this key market sector. Finally, our previously announced strategic review process for the remaining businesses of our pipeline and pipe services segment is ongoing, and we remain on track to rename the company from Surecore to Matter by mid-year, establishing a new, exciting brand, trading under a new TSX ticker symbol that more fully reflects our capabilities, our purpose, and our future. Looking a little closer at each of our segments, During Q1, composite systems revenue climbed 25% and adjusted EBITDA margins rose 610 basis points compared to the same period last year, reaching a new record level of first quarter performance for the segment. Overall segment revenue in Q1 was modestly lower than the prior quarter due to the absence of the segment's oilfield asset management business, which was sold partway through Q4. With this sale complete, there are no further business divestitures currently contemplated from within the composite segment. North American sales of the company's spoolable composite flex pipe products remained robust during the quarter, with further acceleration of large diameter product adoption and new customers onboarded in multiple operating basins. First quarter performance in this business benefited from an unusually late onset of breakup conditions in Canada. which extended product delivery to Canadian customers further into March than would ordinarily be expected. The normal slowing of Canadian flex pipe sales tied to the breakup season will impact second quarter results to a modest degree, but our expectations for strong year-over-year growth in the flex pipe business remain unchanged. Demand for Xerxes underground storage tanks in the fuel market and our full range of stormwater management products also remained high in Q1, Although normal seasonal slowing of shipments was observed during the quarter, as ground conditions across parts of North America were unfavorable to underground installation operations. This impact is expected to abate in the second quarter. With robust demand across the Xerxes portfolio, enhanced by the completion of the previously mentioned Triton acquisition, we believe our fuel and water oriented businesses are well positioned to continue their recent trends of significant annual growth. Our favorable long-term outlook for markets served by the composite systems segment underpins the growth capital investment to establish two additional production sites in the US, one for FlexPipe, one for Xerces Tanks, which was announced subsequent to quarter end. Further details of these investments may be found in the company's press release issued on April 26th. The automotive and industrial segment delivered a new record quarter. with 19% revenue growth versus the same quarter last year and adjusted EBITDA margins exceeding 20%. This performance was driven by continued strong North American industrial and infrastructure demand across the segment's product portfolio, robust deliveries of heat shrink products into the European automotive market, significant deliveries of premium wire and cable into aerospace and nuclear projects, and normal seasonal restocking by distributed customers. Consistent with the normal seasonal cycles of this segment, we expect Q1 to be the strongest quarter of the year. We currently anticipate full year demand for DSG Canoosa heat shrink products to be modestly higher than 2022, as total vehicle production remains depressed in the face of elevated interest rates, but electronic content in vehicles of all drive types continues to rise. Despite the impact of high interest rates, we continue to anticipate year-over-year business growth across industrial and infrastructure markets for both ShoreFlex and VSG Canoosa, particularly in North America, as long-cycle infrastructure expansion activity continues. Despite this favorable underlying business progression, the remaining quarters of 2023 are likely to yield segment-adjusted EBITDA similar to the same quarters of 2022. as revenue expansion is offset by incremental costs incurred to spur future growth acceleration, including costs recognized in advance of North American production facility relocation, investment, and expansion. We remain vigilant to the potential impacts of energy costs and availability in Germany later this year, and continue to take steps which lower the company's risk tied to this possible issue. Overall, we maintain a constructive view of the long-term market trends which impact the ShoreFlex and DSG Canoosa businesses, and we will continue to invest growth capital to enhance our product offering, improve our manufacturing capacity, and elevate our production efficiency, including the previously announced intent to relocate, expand, and modernize our North American production footprint. Lastly, our pipeline and pipe services segment saw revenue rise by 65% compared to the first quarter of 2022, delivering an adjusted EBITDA margin of nearly 11% compared to a loss in the prior year quarter. Sequentially, segment revenue and adjusted EBITDA rose slightly compared to previous expectations of modest declines. This strength was the result of very robust Canadian small diameter pipe coating activity, which benefited from the unusually late onset of breakup and particularly efficient operational execution of larger projects in our Latin America and Asia Pacific regions. Coating activity in all regions remained at elevated levels during Q1, and the company is starting to observe tightness in pipe coating capacity in certain geographies for late 2024 and beyond. Mobilization activities for the Southeast Gateway pipeline project continued during and subsequent to the first quarter, with capital deployed in accordance with the company's previously laid out 2023 guidance. The company continues to expect coating activity to commence mid-year. Pipeline and pipe services segment adjusted EBITDA during the second quarter of 2023 is expected to be modestly lower than Q1, impacted by the timing and mix of specific pipe coating projects. Coating activity on the SGP project and others will accelerate entering the third quarter, and the company continues to expect a substantial step up in segment revenue generation during the second half of 2023, with segment profitability expected to reach previous peak cycle levels during this period. The combination of a substantial high-quality backlog, elevated volumes of bid and budgetary quoting activity, favorable energy fundamentals, and continued successful new technology adoption support our belief that the pipe coating business will benefit from significant activity levels for several years to come. 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 was just over $1.3 billion, an increase of $79 million when compared to the prior quarter. Healthy order intake prevailed across our composite systems and auto and industrial segments, while the PPS segment secured several smaller pipe coating projects. These new awards, coupled with movement of expected revenues from previously awarded pipe coating projects into the forward 12-month window, most notably the SGP project in Mexico, caused the PPS segment to represent a bigger majority of the company's 12-month backlog balance at the end of Q1 than it did at the prior quarter end. We anticipate consolidated 12-month backlog will begin to decline as execution of the SGP project commences, which is expected late in Q2. Total backlog, which includes committed work beyond 12 months, was similar to the prior quarter at just under $1.4 billion. 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 $847 million, an increase of $54 million when compared to the prior quarter, as the volume of new bidding activity in our composite systems and PPS segments more than offset the movement of projects from bid into backlog. bidding activity levels remain strong across the energy spectrum and are a clear indicator that customers are committed to moving forward with new and previously contemplated onshore and offshore field developments in the face of elevated commodity prices and growing global demand for natural gas. The quarter-end bid number included $168 million of conditional awards pending final investment decision, up from $150 million at the end of Q4. Surecore's budgetary number, reflecting the value of indicative pricing submitted to allow customers to build a project budget ahead of formal procurement activities, was $2.5 billion at quarter end, up from $2.1 billion in the prior quarter, as new budgetary quoting exceeded the movement of several projects from budgetary to bid. This growing budgetary number further supports our expectations that offshore pipe coating activity will remain elevated for several years to come. It is important to note that the vast majority of SureCore's bid and budgetary balances are attributable to the PPS segment. Tom will now walk through the company's first quarter financial highlights.