Cematrix Corporation

I'm Grant Howard, and thank you to those who are attending today. I want to introduce CEO Jeff Kendrick and COO Randy Boomhour. And I'm going to apologize. We're having some technical issues with Jeff's camera, so he looks a little fuzzy. We'll get that resolved for the next webinar. But that's not something to worry about in this particular case. Jeff and Randy want to make some comments about the market action or the market reaction. This morning, we got hit rather hard, but it is starting to recover. And we've talked about this and I think it's important, but really the business hasn't changed from you know, yesterday. So with that, I'm going to turn it over to Jeff and Randy, and they're going to make some opening comments before they get into a discussion about the Q2 and the first half results.

Thanks, Rand, and welcome, everybody, to today's webcast. I'm going to, while I'm talking, I will start to share my screen, and hopefully everybody can see that all right. As Grant mentioned, of course, we recognize the fact that there was a large sell-off in the market this morning. It was kind of unpredicted by ourselves as a senior management team because the business hasn't changed from yesterday to today. The cellular concrete, its matrix and its cellular concrete business continues to grow, continues to achieve, and that's all we can do in the marketplace is to continue to do that. You can be assured that if we find that there's something that we've been doing that is wrong or that we can do better, we will do that in the marketplace. But in reality, I'm very confident in not only the current year, but the future years as we go forward. And in fact, the business continues to grow every day, as we have said in the past. I'll pass it on to Randy in case he has or introduce Randy first. Randy, of course, is our CEO, our former CFO. And so, Randy, if you have any comments that you want to add to that too as well, please go ahead.

Yeah, I think you summed it up, Jeff. I mean, we were obviously surprised by the market reaction because we believe we put up a good quarter and a good first half and still feel really good about the year and how it's going to shape up and feel even better about 2025. So for us, the underlying business is in a great spot. So we believe that whatever's happened in the marketplace will correct as we continue to put up good results. And I think we will chat about that here as we go further.

Yeah, that's important, Randy. I think that's great. And, you know, we will continue to achieve and that's all we can do. And that's, we've talked about it for years. The market's going to do what it's going to do. And we're going to continue to grow this business and make money. And that's our job. So thank you, Randy. Just to highlight that, the four-quarter rolling sales is a record of $54.8 million. We also had a record for the first two quarters of the year, and things continue to look quite bright for our future. Just to... MJ is not with us today, our CFO. She's on holidays and apologize for not being here. But she also helped us put this presentation together. So she's here in spirit and wishes you all well as well. Before I get started with the table of contents, I just wanted to remind everybody is what we try to accomplish here is just talk about the business, help everyone understand what the business that we do, and also to reflect over the past quarter and what we expect for the future. So table of contacts, we'll run through a video, the South Park video, and I'll talk about that in a second. If it actually goes forward as planned, talk a little bit about the business of Symmetrix, just in case you're new to the story, talk about her solid second quarter, the record start for the year. Next, the strong 2024, why this growth trend will continue, our capacity for continued strong sales growth, our backlog and our sales pipeline in place. And then we'll talk a little bit about the recent TSX uplisting and the successful institutional-led financing. Again, okay, let's go into the solid second quarter. You know, it's still off-season for us, just so everybody knows. The first two quarters of the season, or year, are basically off-season. Generally, the second quarter is better than the first. We had a record first quarter, as you know, and a second quarter, which is ahead of last year, a little bit behind what we expected because we did have a few delays in projects, but we didn't lose those projects. This included a tunnel project in Texas, a power plant project in the northeast U.S., both of which experienced delays, and we also had a delay in a large bridge abutment project in the north, but they are all underway now or complete. Other projects that didn't see delays included several load reducing field projects, annular field and abandonment projects across North America. Record sales year to date. We had a record first quarter in sales combined with a strong second quarter to result in record sales year to date and a record rolling fourth quarter sales at 54.8 million. We also saw higher margins from strategic pricing, efficient execution, and cost management, and this resulted in smaller loss during the seasonal quarters and a positive EBITDA to date. And this also means that we're set up great finish for the year during our busy season where the higher sales volumes in the last two quarters cover fixed costs early, thus providing increased margins and profits in EBITDA for the balance of the year. Strong 2024 continues. Tradition of the last six months of every year drives the large portion of the company's annual revenues. Our portion of the long-delayed and often rescheduled $16 million U.S. North Carolina project is slated to kick off in September. Originally, it was going to go in August, but it's been delayed a little bit. For this North Carolina project, the matrix will provide backfill for five new overpasses along Highway US 70. This project is Phase 1 of 7, which sees a conversion of several lighted intersections into overpasses, and this will continue along this highway until the entire highway is turned into a freeway. The other thing we want to talk about this year was what does a strong year mean to Symmetrix? And it may have different connotations to different people, but a strong year for us is that continued sales strength. We had a record year last year, and last year was an unusual year and a catch-up year. both from COVID and the supply chain issues of 2022. We never expected 2024 to grow by 84% again. And we, in fact, have stated since the beginning that, you know, sales will be strong this year and provide great results. And again, we'll get back to a more stronger sales growth in the following year. We also, though, look at stronger margins, and we've seen that to date. And the stronger margins are achieved from value pricing, the end of the supply chain issues, and the reduction of the effect of the lower margin project sales that are margins of projects that we acquired as part of the Pacific International Grout acquisition a few years back. So those margins are now coming back, and we're pricing their projects much higher now. and thus gaining better margins in those projects as well. And of course, stronger margins with stronger sales means stronger EBITDA as a percentage of sales. And so that is a strong year to Sumatrix. Each year will change, but those are the basics to a strong year for our company. As mentioned in previous webcasts, the growth trend is expected to continue for the foreseeable future. Cellular concrete continues to get acceptance as the right product to replace the less environmentally friendly legacy products with a better, longer-lasting solution at a lower cost and time of construction. It's really a no-brainer once people start using this product and it becomes more and more accepted. we're still in the early stage of many of these markets, including the US market, which is 10 to 15 years ahead of the Canadian market. And that's because a lot of the states don't use cellular concrete significantly to this date. All growth to date has been through the replacement of legacy products in normal annual infrastructure construction. The trillions of dollars that has to be spent on replacement infrastructure is just starting to hit the market and will continue for the foreseeable future. Okay, we're talking about the capacity for continued strong sales growth. We have over 200 million in USD and seasonally adjusted production capacity. We have 11 dry mix processors and eight wet mix processors spread across North America. We have a strong cross-strain operating teams that enabled significant growth in 2023 and with room to grow in the future. Again, the backlog continues to remain strong. That backlog was at 84.1 million at our last contracts press release on July 10th. We also have a sales pipeline at four to 500 million year-to-date financial highlights and the trends.

Thank you, Jeff. Appreciate that. So when we talk about a strong year, these are the financial KPIs that Jeff and I and the board monitor closely in addition to others. For example, on revenue, revenue is actually up in the quarter, 6.4 million versus 6.2 million, which is a 3% increase, very modest, but still nonetheless an increase. On a year-to-date basis, revenue is up, 14.9 million versus 13.4 million, an 11% increase over last year, which was our best year ever. Gross margins is a place where we've seen significant improvement. In the second quarter, very similar to last year, but on a year-to-date basis, we're at 24% versus 14%. last year, which is an 89% increase. From an operating income or loss point of view, again, the second quarter, very similar to last year, but on a year-to-date basis, dramatic improvement of 62% improvement versus 2023, so pretty significant. Adjusted EBITDA, again, on the quarter, very similar. Q2, year-to-date basis, though, we're at a Half a million dollars year to date, 145% increase. Cash flow from operations, very similar again in Q2, a continuing theme on a year to date basis. Again, up significantly. We're at a positive 0.4 million, which is 133% improvement versus 2023. Cash on hand as of June was 5.5 million. And after the net proceeds for the life financing, that added an additional $6 million to our bank account. Again, looking at financial trends, we continue to show revenue growth by quarter. Our business does vary depending on when projects start and finish, as Jeff has talked about previously, so that you won't see a linear increase in our revenue. It can be lumpy at times, but we've shown consistent revenue growth after the last little bit. Gross margins continue to improve quarter over quarter. That's a function of two things, doing better on specific projects, bidding them higher and executing them better. But also there's a certain amount of fixed costs that we have to cover. And so when our revenue is higher, we cover those fixed costs. And as a result, then those existing project margins drop to the bottom line. We've talked about our balance sheet. We've made significant strides over the last four years to significantly de-lever and simplify our balance sheet. You can see that in the top right corner. And then finally, we chatted about it a couple of different times today, but you can see a summary of the life financing where we issued just under 15 million shares for 6.6 million gross proceeds, 6 million net. And you can see the cap table on the far side where we had just under 136 million shares outstanding. We issued just under 15 million shares for the life financing, which was a dilution of 11%. There was 8%. just over 8 million warrants associated with that financing, which if they're all exercised would bring in just under another $5 million and bring the total dilution up to 17%. So that chart, there's a good little summary of the like-minded.

Thank you, Randy. I'll now pass it back to Grant to manage the question and answer session and look forward to answering all of your questions. And thank you all for being here today.

Again, our apologies for some of the technical issues uh just remember even Elon Musk when he unveiled the cyber truck to show everybody how indestructible it was and he smashed the window on it um so we've got some questions that have come in and some were answered in the presentation uh there was one here about the dilution from the life financing Randy you've just answered that Somebody's asked about, can you disclose which institutions bought in? I'm not going to throw it back to you. I'll answer that for you. Sorry, that cannot be disclosed unless you want to add anything to that, Jeff.

I cannot. Certain institutions will actually disclose it in their quarterly results or monthly reports, but some institutions just don't want to be known.

Question here. So matrix is almost debt free, profitable and cash flow positive $8 million line of credit. No near term acquisitions. Can you explain further why the the equity raise?

Again, the equity raise itself was entirely based on our belief that bringing in institutions into our shareholder base, which was largely retail to that point, was very good for the company, not only in the short term, for the future. And so we successfully did that, and that's what we tried to accomplish, and it's exactly what we did.

Randy, there's a question here about the exercise price and the expiration date on those warrants for your life financing.

Yeah, so the bulk of the warrants are at $0.60 grant and they have a two-year term. There are some broker warrants that have a lower exercise price but have a similar two-year term.

Next question, how many crews did you start the year with and... How many do you expect to have going at year end?

Randy, I'll pass that over to you.

Yeah, I mean, we don't really think about it in terms of crews. I would say our employee count right now is about 65 employees, and we would expect to end the year at a similar employee count. We do add some seasonal employees when the business peaks. in Q3, Q4, but by the end of the year, it will be very similar where it is now.

Questions or comments in and around the financing, but that has been addressed. In regards to the backlog, you gave the numbers for the backlog and pipeline currently. Can you recall where the numbers were a year ago?

At the end of the year, the backlog was approximately 80 million. I don't have the numbers exactly in front of me, but I believe it was around $80 million. So since then, we've grown in and, of course, deducted sales to date off of that backlog.

I recall. In regards to the acquisition pipeline, are you currently looking at anything in that pipeline as an acquisition that looks interesting at this point?

Yeah, we're actively looking, but not pursuing at this point in time. Of note, we identified a couple of opportunities that we will, a few years back, that we would probably pursue again. And there are other opportunities that are coming up all the time. And we have others looking for us as well. So again, no intention to pursue anything till 2025. Our job this year was to, or our strategy was to, again, to execute on the backlog, make money, generate profits, put more cash in the bank, and get ready for that growth by acquisition and M&A in 2025 and beyond.

The reverse of that question, somebody was asking about, you know, are you going to pursue another company? I've got a question here as to whether or not a larger corporation might want to pursue some ATRIX.

They have looked at us in the past and I believe that they will look at us in the future. So Matrix is a great opportunity for someone out there, no different than it's a great opportunity for us and our shareholders. So obviously, because it is a public market, people will be looking and we could get pursued in the near future or the distant future.

Question on global. Do you have any idea when we should start seeing a return in global on some matrices investment? And can you explain how some matrix might make money off of the global investment?

Yeah, right now it's an equity investment to Glovel. And Glovel is growing their business. They're going through the same growing pains we faced 20 years ago. But they're in the process of selling and growing their sales and refinancing to bringing in additional capital in order to... bring in the second kiln and move that forward. So things are moving forward and we continue to support them. Of note, I'm a director on that company so that I'm daily or involved in what's going on with the Glavo Group and the opportunity there hasn't changed from the past, but certainly COVID and the delays caused by other issues created their or slowed their timeline down, let's just say. Because it's an equity investment, you won't see any sales or cost of sales on our books related to it. But it doesn't mean we won't look at potentially expanding our ownership in the future.

Are you quoting any $10 million plus jobs at the moment?

We are. Or we're in the design stage assistance with them. No, no, and one thing is important to note is that the North Carolina project, as mentioned earlier in the project is a large project that's gonna continue on. And so there'll be other opportunities related to that project as well.

I think we're back on the global question because it's what is the timing on the second kiln? So it's definitely a global question.

Yeah, they're refinancing right now and hope to have the kiln ordered and in place within a year.

Are you seeing any cost pressures which may affect your gross margins to the end of the year and beyond?

Randy, do you want to take that one on?

Yeah, I think in business, it's always normal to experience pressure on margins, cost increase are going up across the board, labor inputs, spent prices. And so it's our job as management to manage those increases and to pass those increases on to our customers as much as the market will bear. Sometimes that's possible. Sometimes it's not possible. I think what we've demonstrated this year is we've done a good job of improving our margins, but there is, of course, an upper cap to what the market will bear in terms of gross margins.

You should hear about which analysts are covering some matrix and their price targets. I'm going from memory, but Beacon and Claris, I know that. I believe Beacon is currently 80 cents based on their last update and Claris was a dollar. Is that correct, gentlemen?

I believe so, Grant. And yes, that is correct.

Right. Are the various sales regions performing any surprises or disappointments?

Randy? Yeah, unfortunately, Grant, we can't disclose non-public information there, right? So I would say they're performing essentially to expectations. We had hoped maybe that some projects, larger projects would start earlier, but that's not so much a function of sales. That's more a function of project execution. So overall, we're pretty pleased and happy with how our sales departments are doing. There's always, as Jeff said, always room for improvement. We're always trying to figure out more ways to get in front of more customers or find more opportunities. But we've grown revenue substantially over the last two years, and 2024 looks to be a good year, and 2025 looks to be even better.

Okay. Somebody wrote here, considering the disappointing results for Q2, I think disappointing is a matter of qualification. And you can address that. Will the missed revenue, and I'm not sure what this individual was expecting, but will the missed revenue from this latest quarter be made up in the next quarter? Were any sales or projects lost or just delayed? You might want to address that.

I think that what the gentleman or lady is referring to is that the analyst had predicted a slightly higher income than we achieved. But we don't count the second quarter as a missed quarter, maybe a missed quarter in relation to the analyst's expectations. But those analysts' expectations, remember, are independent and are based on their knowledge and experience in the business. And they do a good job of doing that. But it's a bumpy market, as Randy had alluded to earlier. So, you know, we have quarters where the sale gets delayed to the next quarter. And so it doesn't mean it goes away. It just means it hasn't gone when you expected it to go. And it's important to note the reason for that is that it's totally out of our control. The general contractors are what set really the timeline for these projects. So if they are delayed on what we are doing, we are delayed on what we are doing. And so we can't control that. And that's, I guess, kind of a weakness in our business because of that. But it doesn't mean that the strength in the overall growth of our opportunities has changed at all. And some sales may move from one quarter to the next quarter, one year to the next quarter, but the overall top-line growth will continue to get stronger as the years go on. Some will be lower than others, others will be higher than others, but the long-term forecast for our business, even without the replacement infrastructure projects that are going to start hitting the market, it's going to be extensive across North America. I hope that answers their question.

Can you provide any color on why some projects have been delayed? You know, you were just talking about things being totally out of your control, Jeff. But perhaps, you know, weather delays, contractual delays, whatever it may be.

Well, let me give you an example. One of the projects I mentioned earlier, the B3 tunnel in Texas that we were doing. First of all, during the first four weeks of the project, we couldn't get the flash that we needed for the project. So we're getting two trucks per day versus four to six trucks per day. So that slows down the daily production. And then to make things worse, the hurricane came through, was it Hurricane Debbie? Came through and flooded out the site, knocked out the power and actually shut the project down for a month. Again, completely out of our control. Now we're back on site now pouring again, but that's a month later or a month and a half later than what was expected, right? So again, the sales didn't go away and they're going into the ground now and we expect to be completed that job either at the end of the September or early in October. So again, those are the sales or part of the sales that should have gone into the second quarter but moved into the third.

Nature intervened. Yes. I already know what the answer is to this one, but I have to ask, are you in a position to provide guidance to the end of this year in 2025?

You know the answer and we don't provide guidance because again, it's a relatively young market that has a tremendous amount of volatility to it. You really have to look at the long-term growth aspects of Sumatrix. That is going to continue to remain strong for the foreseeable future. in between those time periods there's going to be ups and downs because of the nature of the market and the fact that it's partly or largely out of our control when these projects actually go forward but they do go forward that's the important thing in the past few days there's been a concern in the markets that the overall u.s economy is slowing are you seeing any indications to support these concerns I know I haven't, I'll let Randy add to this, but I haven't, but just typically, so that the audience knows, is generally around the election, we always find the number of bids that come out go down a bit, you know, just prior to the election and just after, but it doesn't mean the market slows down. And if it was, and they're talking again about the market in the US slowing down and possibly going into recession, but the recessions don't really affect our business. In fact, governments typically pour money into infrastructure when countries go into recessions in order to keep people working. So we're kind of insulated from that and we don't expect that it will affect us in the future. Brandy, do you want to add to that or?

No, you said exactly what I was going to say. A recession generally doesn't impact us. In fact, it's probably more likely to help us because governments will spend money on infrastructure to try to keep the economy going.

Just in terms of the infrastructure and the type of projects, there was an individual here that's asked whether or not you're seeing more interest or being asked for bids on road basis because really that was a good part of the business going back some time.

Randy, do you want to comment on that one?

Yeah, so we definitely are seeing some interest in road basis, particularly when we're in an area that has weaker, unstable soils. We recently completed a study with the University of Waterloo that basically confirmed that solar concrete is a preferred construction material in those situations. And so we've been taking the results of that study and meeting with all the different ministries of transportation. across Canada and to the U.S., just sharing that information, trying to increase the market awareness of that opportunity to use cellular concrete. It is one of the challenges that Jeff's talked about is that, you know, this is a relatively new material and sometimes it's an existing material being used in a different application. And it does take a while to reach the market and convince the market that that's the right solution. And then it takes a while for those people to then basically put our product into their bids and then execute. So sometimes that business development cycle can be years, maybe even decades. So it does take a while, but absolutely we view that as a very important opportunity for us.

Back on the US and spending. The question is, I'll frame it a bit. It's in and around whether or not the US infrastructure bill has been of any direct benefit to some matrix.

As mentioned in the past, Grant, it has not. To this day, we expect it to. We don't include it in our forecasts. But again, the money is to be spent on, and it's in the trillions of dollars. I mean, there was only an initial $6 billion approved by the Biden government, but that was a small portion of the significant amount of replacement infrastructure that has to go across the U.S. in the next 10 years. So it hasn't affected us to date. We don't include it in our forecasts, but it all relates to roads, highways, bridges, tunnels, and other infrastructure. And that's what we do. So it's definitely going to benefit us in the future, but it hasn't to date.

Back on the weather for a moment, given the delays from weather, et cetera, do you expect the next quarter being Q3, which we're in now, to be better than Q2?

Well, it'll be better than Q2, but of note, I mean, last year we had tremendous record sales, right? So we now still expect a strong third quarter and fourth quarter, but you can't have record sales every quarter in a row. But we will have continued records, you know, for the foreseeable future and future. But again, it won't be on a quarterly basis. And there'll be some ups and downs in our market. But again, the future development and growth of this business is not changed.

This is our last question. I don't know if you even want to go near this one. Does the Matrix have a preference on the next presidency, Trump or Harris?

We will work with either one, right? And either one will have challenges with it, but governments change on a regular basis. What doesn't change is our opportunity and what we do. And as mentioned earlier in the webcast is that all we can do is focus on growing our business, making money and generating cashflow and developing value for the shareholders. Can't do anything about the governments, can't do anything about the market except do the best we can. And that's what we will do.

On that note, that is a good place to end. So again, our apologies for the technical issues that were incurred during this webinar, but we finally got it back on track. Jeff and Randy, thank you very much. And I think we're already starting to see some recovery in the market. based on my screen yes we are uh so i guess some folks looked at the dip this morning as a buying opportunity again thank you very much and uh keep an eye out for ongoing contractual news and we will see you on the q3 webinar thank you thank you everyone thanks jim