Cematrix Corporation

All right, we're going to get started as the participants are entering the webinar. I'm Grant Howard, very pleased to be hosting this webinar with the Simatrix team on their first quarter great record results. I'm going to start with the fairest one of the group. That's Marie Josie Canton and MJ. She is the CFO, Jeff Kendrick, the CEO, and Randy Bumauer, the COO. With that team, I'm going to turn it over to you. And again, congratulations.

Thank you, Grant. And thank you, everyone, for being here today. Randy, MJ, and I wanted to welcome you to our um first quarter webcast and talk about another record quarter for some matrix uh of course it's good morning to you people in the west and it's good afternoon to you individuals joining us from the east so welcome to you all we'll talk about the disclaimer we'll move on to um what we're going to be talking about today first i want to show you a little project video on um a project we completed in the Brooklyn Bridge in New York City. I'm going to talk a little bit about what Simatrix does for those of you who are new to the story and also just a refresher for those who have heard this story before. Talk a bit about our record first quarter, the record three quarters in succession that we've just achieved. Talk about 2024 and strong results we expect to continue. why this growth trend will continue, why are we in a position to move forward, including the capacity for continued strong growth, the fact that we continue to strengthen our team, and that we have a backlog and sales pipeline in place in order to achieve that growth. So first of all, before I start the video, this is, I always like this video because it's a rehab project that we're doing at the Brooklyn Bridge in New York City. And someone once sang a long time ago, if you could make it here, you can make it anywhere. And Sumatris is pouring a lot of product in New York City. So let me play this video for you, give you an idea of what we do. No, I will stop it there. But it's important to note that the reason we're growing is that not only are we pouring in New York City, but we're pouring projects. Last year in Philadelphia, we did a runway taxi project, a large one there. We did a big wharf backfill project in Houston. We did several tunnel projects in St. Louis, San Antonio, Texas, British Columbia, Toronto. And we did some overpass backfill projects in Bellingham, Chicago, and some other areas as well. And we also did a sports field underlay project in Calgary. So a wide range of projects. And of course, everywhere in between too as well. So what are we doing? We produce a product that's called cellular concrete on site for infrastructure construction applications. So the concrete is like ReadyMix, it's cement based, but we take the sand and gravel out and we replace it with a microscopic air bubble system. By doing that, we create a lightweight material that's insulating and it has some structural properties as well. There's tremendous benefits over the legacy products that we replace, not the least of which is it's lower in cost. Usually if you have something that's better than the alternative, it always costs more. But in our case, the installed cost is generally quite lower. Not only is it quite lower, but generally we can complete the project significantly faster than the alternative. And the product itself is generally more environmentally friendly than the products to replace. It's important to note that we don't replace regular concrete. We replace things like weak and unstable soils, EPS block, which are large styrofoam blocks. We replace rigid insulations, lightweight aggregates, and heavy grouts in some cases, and other materials too, but those are the main ones. And we replace them to do, and the five main applications are tunnels, using tunnels to put infrastructure under cities like new water lines and sewer lines. We use it to backfill overpasses, bridges, and big concrete panels you see along freeways called MSC panels. We use it to replace or to underlay roads, highways, and runways that cross weak and unstable seismic prone or frost prone soils. We use it to fill abandoned water lines and sewer lines and pipelines and culverts, and that's a big business across Canada and the US. And also as an insulating sub-base for all infrastructure like buildings and industrial facilities. So those are the main applications. And because we don't replace regular concrete, the cement companies actually love us because every time we pour a cubic meter of our material, it's a new market for their cement. Who would have thought that you would be using cement to insulate pipes and things like that. It's just not a normal application for the cement and we use a lot of cement in our applications. So record first quarter. Again, This is the result of carryover sales from 2023 and good weather. And these, of course, were higher margin projects, as you can see by the results for the year. I won't speak to the results yet because MJ is going to be covering that as she goes through the financial results. And of course, this is off season for some matrix. And there's a misnomer that it might mean that we're not doing anything, but it actually is one of their busiest times of year because not only were you doing projects, but we're you know, servicing, maintaining, and sometimes rebuilding the equipment that we have for the upcoming years. Of course, we're in the middle of our sales season, so landing and bidding and designing projects, you know, is a daily process for us. Of course, from an accounting perspective, we're busy as well. And of course, we're busy collecting cash from all the sales we sold in the third and fourth quarter of 2023 as well. And because it's the main project design and sales season we've executed another 18 million new contracts this year already and that will continue for the foreseeable future. also wanted to highlight the fact that this is the third record quarter in succession. So first quarter we did $8.4 million in sales versus our previous record in 2023 of 7.2 million. We had a record fourth quarter of 19.6 versus our record in 2022 of 8.3 million. And same thing with the third quarter record at 20.4 million versus our previous record of 11.6 also in 2022. And the important thing is that they were profitable sales. And so each of those years or periods were profitable was positive EBITDA as well. What does the future look like? Well, 2024 is going to be strong as expected. Now, we saw our sales grow by 84% last year. They won't grow by 84% this year. And a lot of last year's sales were makeup because of all the delays related to COVID and the cement crisis, the supply crisis that we had in 2022. So that was an unusual year. Do we expect strong growth for the foreseeable future? Absolutely. And we'll probably average... 30% over the next five years, but some years will be lower. And we expect 2024 will be probably lower than the 30%, but no guarantees of that yet either. We also continue to bid on, continue to build that backlog in both US and Canada. And to keep up with this demand, we've actually hired additional sales staff. So this will help us to continue to increase our sales, not only in 2024, but for the future as well. So why is this growth trend expected to continue? And again, we stated this last webcast to us because the overall market size continues to grow because it's still early stage for many applications in many states and in many provinces. So in the U.S., it's about 10 to 15 years ahead of the Canadian market, but it's still in the early growth stage, even though it's growing dramatically. And a large part of this is because the product continues to perform. It's been in the ground for over 20 and 30 years now. So this has built confidence in the design engineering terms, teams in the ministries of transportation, municipalities and governments that specify these materials for these projects. And as a result, the overall market continues to grow dramatically. And it's important to note here that this does not include the replacement infrastructure that the billions of dollars that have been approved in the US and the trillions of dollars that actually has to be spent on replacement infrastructure over the next 10 years. So again, this hasn't hit the ground for us yet, but because it relates to bridges and highways and roads and tunnels, it's going to affect our market and make it stronger. Why are we able to grow? Of course, we have the capacity to grow. And that's why we saw our sales grow from 29 million to 53 million in 2003. It's because we have a tremendous amount of capacity in our equipment and our people. We have over 200 million USD in seasonally adjusted production capacity. So that's one shift part of the year. We get double the shifts and then increase that capacity. We have 11 dry mix processors and eight wet mix processors that basically go across the country on a daily basis to port projects. We also have a strong cross-strain operational staff that we didn't lay off during COVID, and we keep employed by, again, maintaining and servicing our equipment in the first quarter when we're usually the slowest. We also, in order to reduce the amount of labor that we do carry our operating staff that we do carry, we take advantage of trained operating staff from our general contractors as well. This helps keep our staff lower and because labor is really in the operation staff is a fixed cost to some matrix. We also continue to strengthen our team. Our overhead is fairly set, but there are areas where we still need to strengthen. First and foremost, of course, as on the sales side, as mentioned earlier, we just added a new salesperson in Chicago and a new project manager in order to manage the growth that's happening in the U.S. market. And as mentioned in the previous webcast, Mr. Broomhauer is with us today, was promoted from CFO to COO effective January 1, and we added Ms. Canton as our CFO effective February 5, 2024. Both have been great additions to us to Matrix and will continue to enable us to grow for the foreseeable future. We've also added a few new operations staff because as the sales numbers continue to grow, we're going to have to continue to add key people to our operations staff and train them to prepare them for the upcoming growth. We also have the backlog in sales pipeline in place. So, you know, although our backlog was diminished a little bit by a change in scope in one of the tunnel projects we had landed earlier, we still have an extremely strong background or backlog. So the reduction in scope of that project will affect us a little bit in 2024, but not much. because the project was scheduled to start at the end of the year, but it's mostly scheduled for next year and we expect to replace all of those sales or hopefully all of those sales next year and not have and expect our growth to continue for the foreseeable future. Also that our backlog or our pipeline continues to remain strong at over $400 million. These are the projects that we draw projects on. or from, and again, that continues to remain strong. I want to highlight the two pictures on here, because this is the extreme. This is why they use cellular concrete in these projects. This is actually a project that was done in England a number of years ago. It's a Canary Wharf project. I don't know if you can remember the Canary Wharf, but It was an expansion of the office areas in the London area, and it was built on weak and unstable soils. And so they built the highway first, and it's actually in between these two, in the left-hand picture, in between the two formworks on the left and right-hand side. And they had to put all of their water lines, sewer lines, and everything, electrical equipment, Everything had to go in here. And then the only material to use was cellular concrete. It was actually produced on the Thames River on a barge and then pumped into place. And this is an extreme, but this is why cellular concrete is being used right across North America, various applications. It is the right solution for these applications where the other products were only being used because they were only products available at the time. So that is it for me. I'm going to pass it on to MJ to go over our Q1 financial highlights, and then we'll pass it back to Grant, who will monitor the question period. So, MJ.

Thank you, Jeff. Good afternoon or good morning, everyone, depending on where you're sitting. As a reminder, if you wish to get more information, our documents are located on our website or on Cedar Plus. So let's go through our Q1 2024 financial highlights. As Jeff mentioned, traditionally, Q1 is our slowest quarter due to cold weather in Canada and northern United States. However, we had our third record quarter in the history of the company, which is great. So revenue for the quarter was 8.4 million in Q1 versus 7.2 in 2023 or 1.2 million entries as we executed work on large tunnel backfill and grout projects. Gross margins was up at 2.6 million or 30% in Q1 versus 0.7 or 10% in 2023. This is up 1.9 million. The margins were positively impacted by our project mix and good levels of revenue to cover our fixed costs. Operating income, which is gross margins minus SG&A, was 0.3 million in Q1 versus the loss of 1.2 million in 2023. That's up 1.5 million. It's a great improvement for us. Adjusted EBITDA also positive at 1 million in Q1 versus a negative 0.7 million in 2023 was up 1.7 million, also a first in our history as results of record Q1 revenue and improved margins. Cash flow from operations before non-cash working capital changes is up 1.6 million to 0.9 million in Q1 compared to an investment of 0.7 in 2023. We're really proud of it. Finally, cash. We had 7.9 million of cash on hand at March 31st. It went up 4.6 million from year end as expected. as we collected on our Q4 record revenue and Q1. So if we can move on to the next slide, thanks Jeff. So on the upper left corner, you can see our seasonality of our business with our revenue split by quarter. Generally revenue in the first half of the year is about 34%, Q3 38% and Q4 28%. You can also appreciate our organic growth in the last few quarters. On the right-hand side, you see our borrowings by quarter. It has been significantly reduced over the last four years, and for the last four quarters, we are about $4.2 million in debt, mostly because of two loans we have with the BDC and some leases. We've added a graph this year about our gross margins percent by quarter, so you can see they're improving. and when you look at the graph 2021 and 2022 it was impacted by supply chain and pandemic challenges and we are now showing strong and improved margins supported by our revenue growth in project mix discovers our financial highlights q1 is a great start of the year for us thank you andre so that's it for some matrix uh for our presentation today and we'll go to our question period with uh

Grant monitoring it.

All right. Thank you. And we've got a few questions in already. And just as a reminder to the participants, the Q&A button at the bottom of the screen, please submit your questions through there. So the first one is, can we expect a TSX upgrade or is that off the table for this year?

Do you want to handle that, Randy, or are you on board still?

Yeah, no, I'm here, Jeff. I think probably best for you to field that one.

Okay. We are considering that and we haven't set a date yet for when that's going to happen, but certainly your plan was to move to the big board in the foreseeable future.

What percent of the sales pipeline usually converts to backlog or usually converts from backlog? I guess it should be.

That's a good question, Grant, and it varies, right? So in Canada, where we have lower competition generally we're converting a lot of those projects that we see in our pipeline to backlog. And the Canadian pipeline percentage averaged around 30 to 40% of that total backlog, let's say, maybe a little bit lower. The US, there's some competition that we face in the US. So although the number of projects that are landed as a group from the cellular concrete producers in the US is going up significantly. But so as ours along with that, we don't land all of it. So for us, it's probably 20 to 30%, which is actually converting to projects for ourselves in the US.

Along the same line, the question was about backlog. This one is about bids. Same idea. What sort of percent success rate on average do you see on your bids?

It's kind of the same question in total. So in Canada, because we're the only supplier for cellular concrete, we generally have a higher percentage success rate for ourselves. So again, we're at the 40% success rate, let's say, in Canada. But the numbers of projects, of course, are quite lower than the numbers in the U.S., In the US where there's a bit more competition, there's various applications of various sizes of projects down there. And so the larger projects we tend to, I would say that our success rate is probably in the 10 to 20% range and maybe overall it's around 25%.

Congratulations on the solid quarter. Can you elaborate on the extent of the reduction of backlog in 24 and 25 sales or the impact on it? Do you expect to make up for the lost backlog in 2025 and resume growth?

Yeah, the net change in the backlog was the decrease of 17 million Canadian and it was due to, they changed the tunnel boring machine that they used for the project that we originally bid on and unfortunately didn't tell us about it. So They went from a much larger tunnel boring machine that which would have required, you know, 150,000 cubic yards of grout to a smaller boring machine, which again, with the same size pipe inside, resulted in a reduction down to 58,000 cubic yards thereabouts in volume. So it did change the size of the project. And fortunately, you know, we're able to renegotiate at this time to from a contract perspective, and hopefully we'll achieve better margins too for the smaller project, which is the plan. But we, and the good question is, will you be able to replace that? It's a large project. Will we be able to replace all of the projects? Eventually we will. And hopefully we will do it, you know, either before or during the 2025 year and make up everything that we lost.

What percent of your sales budget for this year is baked into the backlog, the current backlog?

What percentage of our sales is in the backlog already is, I'm just going to do a quick calculation. I know the numbers. Well, you know, As I think about it, that would be giving guidance and we don't give guidance. So I'm sorry, I'm not going to answer that question.

Well, then we'll skip to another question here. And I think it's in line with what you mentioned about the target being on an annual or annual basis of 30%. growth in the top line and gross margins would fit into a better bottom line. So the question is, is 30% your new normal?

No, what I did say was that it would average 30%. So we could see years that could go as high as 84% again. We could also see years that may be down to 10%. And it just depends on the year. But what we expect is continued strong growth. And we expect it to average 30%. But that is an expectation. And it's not a guidance.

I think it's the sales team now. And are they structured by geography or target markets?

Randy, can you answer the numbers on the sales side?

Yeah, I don't think we want to disclose exactly how big our sales team is, Grant, but we are organized by geography. And the sales team's members in those various geographies would target all the different opportunities that are available.

Skip off some matrix in part from a question here about Label. Have they received their second kiln and how much of an increase in revenue potential does a second kiln constitute? And perhaps for the folks who aren't familiar with Glavel, just a quick education on why Sumatrix invested in Glavel.

So Glavel is a business that's in the manufacturing production of foam glass, which is a lightweight aggregate that is made from recycled glass. We invested in that company a year and a half ago and assisted them in buying their first kiln and providing some working capital for developing the business and to participate in the second kiln as well. And so because of the COVID situation and the delays in manufacturing, the development of that market and the manufacturer of the equipment, including the second kiln, it did not get delivered on a timely basis. And so they are still operating with one kiln and they expect to hopefully have that second kiln in place sometime this year. That would double their capacity from a sales perspective. But because it's a private business, I'm not able to disclose publicly information related to that company other than we're invested in it and we continue to support it.

You addressed this in the presentation, but... chance to reiterate, maybe expand upon, are you continuing to see a greater acceptance of cellular concrete in the industry, and are more jurisdictions approving its use?

Absolutely, you know, particularly in the U.S., but you know, and it's important to note here, it's hard to say everything during a short presentation, but I try to tell the audience that It is growing dramatically, but in most cases, none of our applications in any market have reached that tipping point where it is the product that is always selected for the product of choice for these particular applications. The geotechnical engineering world is still using legacy products in many cases. So although it's accepted generally, it hasn't been accepted entirely yet. And so there's a tremendous amount of growth, even in the states like Illinois, New York, that use a lot of it, or even California. And there's many states that don't use it that much at all. You know, so it's relatively young in their markets. And in Canada, of course, we're 10 to 15 years behind the U.S. market. So we're in the really early development stages, particularly in eastern Canada.

Easy one here. It's a yes or no, I think. Are you currently bidding on any 10 plus million dollar contracts?

Yes.

Okay. Have you started to see any business based on money that's flowing through the US infrastructure bill?

No, I'd mentioned that earlier. We have not seen it hit the ground yet. we expect it to happen within the next couple of years, but it's really the early stages on this.

Hopefully, not totally tied to the elections in November as to the availability of that money.

Yeah. Well, what's good, Brad, is that all of this growth that we're seeing is all just normal infrastructure. So we consider that a bonus, right? So normal infrastructure will continue to grow for us because again, we're stealing markets from legacy products. So there's still lots of room to growth even without that additional opportunity.

In regards to competition, if you don't win a contract, generally what do the competitors look like and why would they win a deal and you don't?

Generally, they would win it on price in the US. And the second reason that they're in a geography that's closer to where the application is. So our main offices are in Chicago and in Bellingham, Washington, and of course in Canada. But in order for us to go do a project in California, if it's a small project, it's difficult for us to bid on it and win it because we have the transportation costs. So generally, those small to medium-sized projects that are closer to those competitors, they would win.

raise the last question here that's currently been submitted. It has to do with what Sumatrix is doing to continue to promote itself in the capital markets and with investors and maybe just want to provide a little overview on that.

That's a good question. And then the one I always like to answer is that, you know, we, we evaluate the market every year and know what's the best thing to do for some matrix. And of course we get advice from our IR groups and investment bankers out there. And, um, And since COVID, we've determined that there's certain things that we can do that give us the best opportunity to get in front of the audiences. And we tend not to attend investor conferences anymore. We attend the odd one. particularly those that are supporting Symmetrix elsewhere. But generally how we get to our audience is through first public company announcements on contracts and things like that. We also do regular webcasts four times a year with you and Bristol, our other IR group. We also do two other webcasts through the year to talk more about what we're doing from an operational perspective in business like we did in this past January. We also do a lot of virtual presentations to significant investors and new investors, mainly on the institutional side. We've got a lot of institutions following us right now and significant retail investors too as well. And we also do digital media through one of our IR firms. that being the Howard Group. And so that is what we're focused on right now and for this year. We do have a couple of investor conference that we are attending. One we already have, which is the Centurion Conference in Toronto. That was in March. And we're attending another conference in September with the Small Cap Discoveries Group at this time. And at this point, that is what our plan is for 2024.

Same person had asked about advertising and just so folks know, when we did run a digital program, online program targeting retail investors last year for a few months, we had over 2000 people register. And that means not just saw something, but in fact, they took the time to give us their information. uh, and their contact information. And of course they're getting things the same as everyone, but another 2000 people. And we know if you look back six months or so ago and where the stock was, uh, six months ago, um, and where it is now, you know, you're up about 150, 60%. So I don't think it's all bad. Certainly, uh, You've played a critical role, obviously, by delivering the tremendous results you have over the past few quarters. Our job is to create an audience and your job is to create the results and you're doing a heck of a job there. So keep that up. We have no more questions. And with that, any closing comments from the team?

Well, as Randy would tell me, the best way to get attention in the marketplace is great results. And that's what we're doing. And that's what you just mentioned. So that is the best thing we can do. And I think we've mentioned in a previous webcast that our strategy right now is execution. grow the market, grow the backlog, put the sales in place and make money. And that's the best thing that we can do for our shareholders at this time. And hopefully within a reasonable amount of time, the capital markets in Canada, particularly the microcap markets, will start to turn around. And we see that happening already.

It's definitely, if you look even just at the venture index over the past few months, it's finally on a continuous uptrend, which we haven't seen for over three years now so hopefully that holds anyways uh with that thank you to all the participants thank you to some matrix team and uh we'll see you in the next quarter thank you thank you graham thanks randy thanks mj