Cematrix Corporation

I'm Grant Howard, and thank you for attending today, the Q3 webinar, financial results webinar with Sumatrix. We're going to get straight into this. I would like to introduce Jeff Kendrick, CEO, Randy Boomauer, the COO. and Regio C Canton, the CFO. And just before you start, Jeff, just as a reminder, folks, at the bottom of your screen, you'll see the Q&A button. Any questions that you have, please submit them through that. And Jeff, I'm going to hand this over to you now.

Well, thank you, Grant. And thanks for managing this today for us. Wanted to welcome everybody, Randy, MJ, and I want to welcome everybody to our third quarter review of our third quarter results and the year to date results. And of course, we all know that we had previously disclosed that there was going to be a delay in revenue this year. But as we go through this review, there's certain things we want you to remember at the end or the key things that we'd like you to keep in mind as we go through this presentation. Number one, 2024 is still going to be our best year ever, second best year ever, despite the delays in projects. The projects were delayed but not lost, and that's important to note. Most of these delayed projects will start early in 2025, which is also going to be good for the company. In 2025, it's forecast to be a good year even before the addition of these projects. So, again, it's a short-term issue, and we're looking at 2025 to be a rebound year. And we, again, thank you for being part of this presentation today and look forward to your questions at the end of the period. So what we're going to cover today, I'm going to show you a short project video. Again, this is in our goal to educate our investors as to what we do. I'm going to go over the business as much as what we do as an update for a refresher or for those of you who know the story and as an explanation of what we do for those who are new to the story. We'll talk about our solid third quarter results despite the delays. We'll talk about the year-to-date sales that are down due to those project delays. The next thing we'll talk about is those delays themselves. Again, to try to be fully transparent here, we want to show you the projects that we're talking about, what has been delayed and how long they will be delayed. Talk about the growth trend that will continue. In the background, we've had a very good year growing the business on top of what, or besides what the delays that have happened out there. We'll talk about the backlog and the sales pipeline, which is still strong. Like a little bit about the TSX uplisting and life financing that we completed during the quarter. And then I will pass it on to MJ for a discussion of our third quarter financial highlights and trends. So before I start the video, I'll tell you a little bit about it. A lot of people think of our business as very large projects, but a big part of our business is the small to medium size, and even specialty projects like this South Battery Park project, which is basically on the shores of New York, overlooking the Statue of Liberty, or vice versa, the Statue of Liberty is overlooking this project. This is a project that came out of the Sandy hurricane a few years back and again they're trying to rebuild the structure around the shores. Normally you would think of not using a lightweight material in this kind of circumstance because they'll probably look at flooding in the future as well, but because the soils are very weak along the shores, they need a lightweight material as a base and they put ballast over top of it to ensure that it will not float when the flooding happens again. So anyways, let me play this video for you. It's a good revelation of one of those specialty projects that we do across North America on a daily basis. you you Well, as you can see, that project was completed by Mix On Site, which is the Chicago-based company we bought a number of years ago. They're part of the Symmetris Group, and they are doing projects across North America or the U.S. on a regular basis. I'll now go over the business of Simatrix. Again, we're in the sale and onsite production of a product that's called cellular concrete. Cellular concrete is a lightweight material that is cement-based where we take out all the sand and gravel and we replace it with a microscopic air bubble system. By doing that, we create a lightweight material There's many benefits over the legacy products that we replace. Now, there are many benefits, though the most significant of which are lower installed in installed costs, sometimes in the millions of dollars, particularly when you're talking about tunnel construction. It's significantly faster construction. We have equipment that can pour up to 250 cubic meters per hour, and it's generally more environmentally friendly than the products we replace, particularly in a life cycle situation. It's important to note that we don't replace regular concrete. We replace things like weak and unstable soils, EPS block, which is large blocks of styrofoam, other four by rigid installations that are used in infrastructure construction, lightweight aggregates, and in some cases, heavy grouts. Our major applications include tunnel backfill or bridge abutment and overpass backfill, underlays for highways and runways, abandonments like water lines and sewer lines, and of course as an insulating sub-base for industrial, commercial and residential facilities as well. So we did have a solid third quarter. Important to note again, historically third quarter is one of our best quarters. And we did have a good quarter in, but nowhere near, of course, the record results that we saw in 2023. Sales was down, but utilization was actually almost stronger because we completed a number of small to medium-sized projects. It's also important to note that the tunnel business was largely inactive during the quarter, where last year we did two very large tunnels, particularly during September and October. Even though utilization was strong, all of our staff kept safe, and that's very important to us. We had no medical or emergency injuries or or time loss because of injuries, which is great for the company. And as predicted, of course, our stronger margins resulted in income and positive EBITDA for the quarter. Of course, the continued delays in projects meant that year-to-date sales are reasonable, but nowhere near the record sales that were experienced in 2023. This is due entirely to a number of delayed projects. Project delays are normal in the industry, but it's unusual for a construction company to have a majority of its projects delayed at the same time. It's not that it can't happen, but it is unusual. It's important to note as well that 2023 itself was an abnormal year as well. And as Symmetrix replaced, 8 million of projects were delayed and landed another 18.5 million sales over its original forecast. So it was an incredible year. Now, in 2024, we also landed a number of projects to replace the projects that were delayed, but not enough to overcome the shortcoming from the 2024 delays. The good news is that, again, the delays are largely short-term, so the 2025 is looking to be a very good year. Just to go over some of the delays so you get an idea of what we're talking about. We had six major projects being done in the second half of the year. Now, the first one, the $4 million U.S. tunnel that was supposed to start in January 2024 didn't start until April or May, June. And then because of actual delays during the project is now not going to be completed until mid-November or in the next week. We have another million-dollar U.S. tunnel that was supposed to be done in the fourth quarter. That will now start early in the new year. We have $3 million U.S. from a $10 million U.S. tunnel that was supposed to be done in the fourth quarter because of delays on site from the general contractor. It will not start until the first quarter of 2025 as well. Also 7.5 million U.S. from a $16 million U.S. overpass project. It's originally scheduled to start in August, then September, October, and now because of Hurricane Helena that rolled through in October, it will not start until January. But these are all projects that are going to be going forward. Same with the overpass backfill projects. This was actually a $5 million project, $2.5 million of which has already been completed. The balance of this project will now go in the second quarter of 2025. And the reason for this is because the Ministry of Transportation changed the design before the overpass went ahead, which delayed going forward with our material. The growth trend that we're experiencing is continuing in the background, even though sales have been delayed and it's expected to continue, but it will be lumpy at times. This will not be a linear growth at all times. Our job in senior management, of course, is to continue to reduce the effect of these sales delays by basically building up the top line and reducing the effect of seasonal sales through regional expansion. If you think of a big company like Berg Construction, they will have, if they have $15 to $18 million in delayed sales, it doesn't affect their top line. They're doing $4 billion in sales. So again, as we grow our sales, these short-term delays will have lesser effect on our business as we move forward. The backlog has slowed a little bit. Growth has slowed a bit in 2024, which is not unusual. It's typical in a U.S. election year where there's not as many U.S. projects that come out. Of course, we expect that will change again in 2025 as the new government starts to move forward. It will also continue to grow as cellular concrete continues to gain acceptance across North America. and infrastructures begin to filter in from this replacement infrastructure projects that are going on in the US. And it's a reminder that the market is still very early stage, even in the US. And one of the questions that's probably going to come up is, is the new government or the election of the Trump government going to have any effect on our business? And generally no, because all of our, we don't sell anything across the border. None of the tariffs that have been spoken about are going to affect our business. And secondly, the Republicans tend to put more product in the ground. And so we may see more of this replacement infrastructure actually hitting the ground over the next five or so years. So that may be good for our business. But generally, it will not have a negative effect on our business. Our backlog in sales pipeline is in place, continues to remain strong. That 74.7 million is largely for the balance of this year and next year. Some of it may slide into 2026, but generally it's a very short-term backlog at this time. Our sales pipeline remains strong at 400 to $450 million. And within that pipeline, we're working on a number of projects, over a million, and some very large projects as well. There's no guarantee that they will come our way, but we tend to land a significant number of the projects that are out in the marketplace. Of course, in the past quarter, we completed the TSX-UP listing on July 15th. It was very well received by our shareholder base. On October 29th, we successfully completed an oversubscribed $6.6 million life financing that accomplished what we were trying to accomplish with it by strengthening our shareholder base and putting us in a strong position to pursue M&A opportunities in 2025 and beyond. This financing, of course, was led by Beacon Securities and supported by Centurion One. Of course, this stronger cash position and the already strong balance sheet that we already in place puts us in a very good position as we move forward as a company. Also adding to that is the fact that even though sales have been delayed, we're still generating our own cash and having positive cash flow and positive EBITDA. So with that, I will pass it on to MJ for a review of our Q3 and year-to-date financial highlights. After that, Grant will monitor the question and answer session for us.

Thank you, Jeff. Let's go through our key financial metrics for the third quarter. Starting with revenue, as mentioned earlier on this call, our revenue was impacted by several project delays. Revenue for Q3 was $10.1 million compared to $20.4 million in Q3 2023, a 50% decrease, and $25 million year-to-date versus $33.7 million in 2023. This is a 26% decrease. Moving on to gross margins, gross margin as a percent of revenue has improved significantly, 27% in Q3 versus 23% in 2023. This is a 4% gross margin increase. 26% year-to-date versus 19% in 2023, a 7% gross margin increase. This leads to operating income of $700,000 in the current quarter versus $2.5 million in 2023, which was our best year ever if you remember. We reported a small loss of $100,000 year-to-date versus income of $0.4 million last year. Adjusted EBITDA was both positive for the quarter and the year. $1.4 million in Q3 versus $3.2 million in 2023, that's a 56% decrease. $1.8 million year-to-date versus $2.1 million in 2023, a 14% decrease. Cash flow from operations before non-cash working capital changes, also positive for the quarter and the year. $1.3 million in Q3 compared to $3.1 million last year. That's a 58% decrease, and 1.7 million year-to-date versus 2 million in 2023, which is a 15% decrease. Cash on hand at September 30th was 9.9 million, up 8 million from September 2023, when we had 1.9 million in the bank, and up 6.6 million from December 31st cash balances. Can we go to the next slide? Thank you, Jeff. So let's look at our financial trends. Upper left corner is our revenue per quarter, still solid at 10 million, as Jeff mentioned. You can also visually see our seasonality. The construction industry is largely dependent on the weather, so we tend to be slower in the first few months of the year. On the lower left corner is our gross margin percent. As mentioned earlier, we are seeing significant improvement as we are performing well on site. On the upper right side of the slide, we have our borrowings per quarter. It has come a long way from our from 2020. Jeff just mentioned it, but finally you can see a summary of our live financing. We've raised in July, we issued 14.7 million shares with 8.2 million warrants for 6.6 million gross proceeds. If you'd like more information, you can see our documents on our website, or you can go to Cedar Place. Grant, I'll pass it back to you for questions.

Thank you. And a reminder, submit your questions through the Q&A button at the bottom of your screen. And we're going to start with a series of questions from Russell Stanley. And just so you folks know, Russell is the Managing Director of Equity Research at Beacon Securities. And he also covers and has written about some matrix many times. So, Jeff, you were talking about the election results. In fact, Russell's first question is, whether or not you saw any risk on tariffs and does the new administration also represent some notable opportunities? I know you talked about it, but perhaps you can expand a bit more on that.

Yeah, I'll just reiterate what I've already said is that we don't expect to have any negative effect on our business. And in fact, it's important to note, the first thing is the tariffs will not affect us because we're not selling any materials across the border. So if they should come into place, and have a general overall effect on all Canadian products. It won't affect our business in that regard. And then secondly, you know, a lot of the infrastructure spending that the Biden government had talked about, the replacement infrastructure, that is really in the trillions. They'd approved $6 billion a number of years ago, but a lot of that is not hitting the streets. And if it has, it hasn't been related to our business. We believe that Trump will actually move that forward. So it should mean more business for us in the future. We don't count on it in our current forecasts, but we do hope that it will be a positive effect on our business, not only in the current year, but in the future years to come.

Russell is looking into 2025, which project types or applications are you seeing the strongest demand for?

We're seeing strong demand right across the board. And so I think that highway underlays, bridge abutment, backfill projects, tunnel projects, we're working on a number of those in design right now. And of course, that small to medium-sized business that I talked about a little bit earlier, this is a big part of our business. generally represents sometimes 30 to 40 to 50% of our entire business. And that's where our projects that are less than a million dollars, generally they're traditional projects, traditional things like we do, whether it's backfilling of pipelines or insulation of shallow utilities or backfilling of abandoned utilities or road construction and things like that. So that is a big part of our business and it continues to grow on a regular basis.

Russell's next question is, and since you're talking about project size, understanding that project sizes can vary significantly, what size range do you find it ideal to target? Larger projects boost the top line more, but delays can be more disruptive to reported financial results, while smaller projects can offer higher margins. How are you balancing those factors going forward?

It's a good question. And, you know, we focus on both. Okay. But it's important because it is important to grow both ends of the business. The large, as mentioned, the large projects, of course, add significant amount to the top line. but the small to medium-sized projects are a strong base business that we continue to grow that are less likely going to have project delays and things like that. So again, the short answer is that we focus on both.

It still looks very healthy. Can you talk about your sales process and pipeline and how you work to win contracts?

I missed the first part of that question, Grant.

It was the backlog still looks very healthy. Can you talk about the sales process and pipeline?

I'll pass it on to Randy. Randy, you feel like taking on that question?

Sure. Yeah, absolutely. I mean, it builds on a lot of what you've already described, Jeff, right? And we kind of have two different ways we try to win work is we would chase the bid, which is we're looking for public procurement projects. And then the other one is a more relationship or strategic based selling where we're actively working on a business of our own perspective to create connections and relationships with general contractors or designers that would specify cellular concrete and would maybe award directly to us. So we're doing both things. And whenever we have extra resources to add, we add first in the sales department because we understand the key to growing our business. We have to grow the top line. We've gotten better at, uh, managing margins either by bidding more effectively and executing more effectively in the field and targeting our margins for the situation. But we're trying to do both, chase the bid and strategic selling.

Last question from Russell. So far, you've noted in the past that the Canadian market has been slower to adopt cellular concrete than the US, and it looks like an increasing share of revenue is coming from the US. Can you talk about any recent inroads you've made in Canada with respect to product adoption?

Randy, would you like to take that one on too?

Yeah, I can give it a go. So it has been slower. I think the way we actually kind of articulate it is we just say the U.S. is 10 to 20 years ahead of Canada. And the U.S. market is just significantly bigger and has advantages of concentration products. If you look at the amount of infrastructure and population that exists on the East Coast or the West Coast, you just have a much bigger market to pursue and you can make bigger inroads. In Canada specifically, we've really focused on trying to get the requisite approvals from the different departments of transportation in the provinces. We've made progress recently in Quebec to get on the MTQ's approved product list. Recently in Ontario, in the last couple of years, we've gotten approval on that. And we made some changes to our selling force in Ontario and Quebec to try to access those markets. So, again, we try to focus on the markets where you have the biggest population centers because there you're going to have the biggest infrastructure where our product has a lot of applications that make sense. So that's really what we're trying to do in Canada to improve product adoption. Jeff, anything you would add to that?

No, I think you did a great job of explaining, Randy, and thank you for doing that.

Next question, when there is a customer delay, are there any penalties to that customer? It seems like when you set aside capacity, in other words, you're mobilizing equipment, and then they, I'll use the term mess up, that there should be a cost to that customer.

Unfortunately, there is no cost to the customer. And in order for us to continue to do business with the customer, we can't really charge them a penalty. Now, fortunately we find out the delays before we mobilize. So there's really, you know, there's an administration cost and there are some general costs from carrying people for periods of time where those projects should have been going and they would have been more utilized. So there is a cost to the company, but generally it all balances out and it's unfortunate that the delays happen. Where it does affect the general contractors that we work for is sometimes they can get into penalty situations. And because of our ability to speed up our process, we can help them gain back some of their lost time if they have delays. And we've done that many times in the past. So it's something we can contribute to the whole business or their business and their projects. And because of that, we do a lot of repeat business with a lot of customers that have faced the same situations.

Fiscal 25 already anticipated to be busy with projects. And now all the delayed projects from 24 being pushed into next year. do you have the manpower and equipment to execute on all the projects?

Randy, would you like to take that one on?

Yeah, I mean, the simple answer is yes. We have a lot of additional capacity in our equipment to do even more revenue than what we've got scheduled for 2025. And we've been planning to do this work from a crew and manpower's perspective for a while. So we believe we have all the people and equipment that we need. And then to the extent that we need more manpower, we have the ability to get extra help from the general contractor or to train up new people in time to do it. So we feel very confident that we've got the right crew and equipment in place to do that revenue.

Can you explain how it is that gross margins are up in the face of the revenues declining to the extent that they did?

Well, there's a couple of reasons. I'm sure Randy has some other ideas on this too, but generally, one of the things that we've tried to explain in the past is when we bought the two US companies, and particularly the second one, there was some in-place projects that had lower margins associated with them. So first and foremost, we were working through most of those projects. There's a couple left that are still being done, but so that's why you're seeing a general increase in the overall margins of the company. Secondly, you know, we're focusing on that small to midsize project level where we are getting better margins. And then thirdly, just overall, just managing costs within the projects that we do and pricing better on the regular jobs that we do also as well is also contributing to that margin level.

comment on market share and from that question i'm presuming the intent is to get an understanding of uh how some matrix um compares in the canadian market and the u.s market versus you know your competitors well in canada we're generally the only supplier there are a couple of small players in in one in toronto and one in uh

in Southern BC, but they don't really compete in the markets that we're in that much. In the US, there are a number of different competitors. There's hundreds of small mom and pop operations. and that do small projects like flooring systems and smaller roof decks. So we'll have machines that can do 2 to 5 cubic yards an hour. Our equipment does 100 to 250 to 300 cubic meters an hour. So we're in a different level of business. There are a number of competitors in the larger industry. project business that we compete with. We've mentioned in the past, a couple of them are out of California. There's one in the Northeast or a couple in the Northeast. So they are out there competing with us on the general business. As to market share in the US, it's difficult to determine where we stand, but we are one of the leading suppliers. on the large projects and the medium-sized projects business. But because there's no overall knowledge of what the overall market is, it's very difficult for us to determine what our actual market percentage is in the U.S. And again, we're the only public company as well. So it makes it difficult, again, to generate any comparable information.

You know, halfway into Q4, can you give us some idea of progress in Q4? And do you anticipate it will be similar to Q3?

That's what we said in our press release, and nothing has changed from that.

See your bread and butter is in roads and highways. with cellular concrete used as a base, what inroads are you making into this segment while road construction continues as it is? I guess what the person's getting at here is what part of your business is, you know, road and bridge construction, I guess.

Well, before Randy takes it on, if he has any further comments, is that this is one of the areas that we believe we're going to see the most growth from in the future. You know, it will be bridge abutments and overpasses as well, but really the roads, and we're seeing that in the U.S., where it's growing quite dramatically, and we expect the same thing to happen in Canada in the foreseeable future. Randy, is there anything else you wanted to add to that?

It's the same person that is asking, no pun, have you made any inroads recently into Ontario and the Quebec jurisdiction since the last webinar?

Randy?

Well, the last webinar was only three months ago, so we have not done a road project in the last three months in those two jurisdictions.

Question, has the South Carolina project started?

The North Carolina project, no, that is one of the delayed projects that is expected to start early in the new year.

That, I think we have it covered. Any closing comments?

I just want to reiterate what I said at the beginning. Again, thank you all for joining us today. And key things to remember, again, 2024 is still going to be our second best year ever. Projects that were delayed were delayed, not lost. Those projects are going to start mostly in the first half of 2025, and we're expecting a very good year in 2025.

Thank you, everyone who attended, and we will continue See you in a few months. Have a good Christmas. And if you're south of the border, happy pending Thanksgiving.