Mattr Corp. (MATR) Earnings Call Transcript

Good morning, everyone. Before we get started on this morning's conference call, I want to remind our listeners that today's call contains forward-looking statements involving estimates, judgments, risks, and uncertainties, and those may cause actual results to differ materially from what was projected. The full text of Mattr's statement on forward-looking information appears in section 4.0 of the third quarter 2026 earnings press release, and it's also in the MD&A, which you can find on SEDAR Plus and on the company's website at mattr.com. If you're joining by webcast, you can follow along with the visual presentation that goes with this call. I'll now hand things over to Mattr's President and CEO, Mike. Good morning, everyone, and thank you for being on our call for the third quarter. Tom Holloway, who serves as senior vice president of finance and is our CFO, is here with Meghan and me today. Mattr delivered record results for the third quarter, and adjusted EBITDA grew by more than two times compared with the same period a year earlier; those figures showed strong execution throughout the portfolio, since connection technologies and composite technologies both produced significantly greater sales and profitability than in the prior year. In connection technologies, our wire and cable operations gained from robust demand in mining, industrial, data center, infrastructure, and oil field applications. Meanwhile, DSG-Canusa kept improving its productivity and efficiency, posting its largest profit contribution of the year to date. In composite technologies, Xerxes kept up outstanding results, helped by increasing output, steadily growing demand in fuel and water uses, and a favorable mix of customers and products. Flexpipe likewise turned in a solid quarter, as activity climbed in North America and internationally and early sales of newly launched large-diameter items picked up speed. At the consolidated level, third-quarter results showed even more clearly the substantial gains from Mattr's recent portfolio transformation, faster technology development, and investments in manufacturing infrastructure, with greater output, a better mix, and higher margins throughout the business. The results we're seeing really come down to the skill, grit, and dedication of Mattr's people everywhere in the world, and I want to thank each team member for staying focused on safety, serving customers, and getting things done. Tom is going to take us through a few highlights from the third quarter's financial results now. Thank you, Mike. Mattr achieved robust growth in Q3 throughout the company, with revenue from continuing operations above $400 million, up 34% compared with a year earlier, and adjusted EBITDA more than doubled to 1.23. Connection Technologies played a significant part in Mattr's results, posting solid gains in revenue as well as adjusted EBITDA in Q3. The segment's wire and cable operations turned in especially strong performance for the quarter, helped by larger shipment volumes and favorable copper prices. Composite Technologies had an excellent quarter, with revenue up over 40% compared to a year ago and adjusted EBITDA greater than doubling. Xerxes posted record revenue and adjusted EBITDA, as increased production and shipping volumes drove better gross profit and absorption. Flexpipe added higher quarterly revenue and robust manufacturing output, including more deliveries from international sales. This quarter provides further evidence that Mattr's core business and operating fundamentals are sustainable and strengthening, since improved manufacturing performance, disciplined commercial choices, and an attractive portfolio mix are generating higher-quality results. Cash from operating activities in continuing operations was very strong this quarter, reaching $77.8 million. Improved operational results and the freeing up of working capital drove that strength in the quarter. Capex came to $8.3 million. For the entire year, we continue to anticipate capital expenditures in the $35 million to $45 million 1.23 range, which includes about $15 million 1.23 earmarked for maintenance. Consistent with the capital allocation priorities we have previously shared, robust cash generation enabled Mattr to retire over $40 million in debt in the quarter. Our net debt to adjusted EBITDA ratio at quarter end was 2.38, or 1.61 times when lease liabilities are excluded, leaving our balance sheet now well positioned for strategic flexibility. We remain balanced and disciplined with how we allocate capital: putting money back into appealing organic opportunities, paying down debt, keeping flexibility for strategic growth, and buying back shares when it makes sense. With earnings continuing to rise, we anticipate further improvement in cash generation and balance sheet flexibility. At this point I'll return the call to Mike. Thanks. Across each of our main end markets, customer demand is strong and sustainable. Mining activity trends appear favorable, particularly in North America and certain international markets. The significant long-term investment we've made in North American power generation and distribution continues to create appealing opportunities spanning utility, nuclear, and wider electrification applications. There's added demand coming from data center construction work in three of our businesses — wire and cable, heat shrink tubing, and underground storage tanks — and we keep choosing, on a selective basis, the opportunities where our technical differentiation, speed, and reliability give us the best shot at attractive, sustainable margins. In North America, retail fuel and water management markets are still quite active; customers in our traditional applications are committing to planning horizons that stretch further out, and at the same time we're seeing growing demand for Xerxes tanks in applications that are less traditional. Oil field activity is broadly stable; higher commodity prices are pushing customer capital spending up modestly in most major U.S. basins, and we expect that trend to carry on through the quarters ahead. Beyond that steady market backdrop, our positive view of the sector rests on share gains driven by technology as customers take up bigger-diameter Flexpipe products. In both the Xerxes and Flexpipe businesses, the usual seasonal rhythms of North America will keep showing up. Turning to Xerxes in greater depth, demand stays robust for its composite underground tanks, which lead the market, across conventional end markets, and chances to handle less conventional uses are growing. In the retail fuel segment, convenience store operators are stepping up construction of new-to-industry stores even faster. Meanwhile, work to swap out older tanks is climbing as well, which adds more demand for tanks; in our view, these patterns will hold for many years. The outlook for Xerxes over the medium term looks even stronger, driven by growing demand and the market share we've successfully gained in water management applications, as well as in less conventional use cases like data centers and other backup fuel and liquid storage. Against that background, Xerxes has increased total tank production by over 10% in the last 12 months, and we anticipate that our continued investments in manufacturing automation and efficiency will enable a similar annual output increase in 2027 and beyond, without constructing facilities in new locations. With demand rising, applications broadening, and a more capable network, we're confident Xerxes can continue to deliver growth and margin expansion. Moving to our near- and midterm outlook, typical fourth quarter seasonality should produce sequentially lower activity 1.23. As we anticipated previously, we expect Q4 adjusted EBITDA to come in similar to the first quarter of 2026, even with the early effects of tariffs put in place recently adding several million dollars of costs in the quarter. As a result, together with our record third quarter performance, this has us expecting full-year 2026 adjusted EBITDA to land modestly above the outlook we gave last quarter. During the past two years, Mattr has shown it can adapt swiftly and effectively to a fast-changing trade environment. Tariffs have hit us too, yet so far we've mostly neutralized their effect through price adjustments plus shifts in where we source and make goods across our operations. Notably, the footprint moves we completed in 2025 sharply reduced our tariff exposure going into this year by expanding our U.S. manufacturing base, moving production closer to major end markets, and reducing shipments across borders.

Lately, trade friction between the U.S. and Canada has grown. At the outset, we thought these matters would get resolved via updated trade agreements. That could still happen, but what has unfolded over the last several months has made us less confident in such a near-term result. In the third quarter, new U.S. Section 338 tariffs hit a variety of products made in Canada, which brought tariffs of 50% on certain wire, cable, and heat shrink tubing products that we produce in Canada and sell into the U.S. All of those products sit within Connection Technologies and account for roughly 9% of that segment's trailing 12-month revenue. The anticipated effect of these tariffs on our fourth quarter performance is fairly modest and is already baked into our Q4 outlook. Should these tariffs be removed soon, we think Mattr is set to deliver year-over-year adjusted EBITDA growth in 2027, supported by robust end-market demand and ongoing operational efficiency improvements, though somewhat held back by near-term production capacity constraints in AmerCable. If, however, tariff policy stays the same, we estimate the possible full-year hit to Mattr's 2027 adjusted EBITDA at about $20 million. Under that scenario, we think growth in composite technologies during 2027 would be enough to offset the expected tariff impact in connection technologies, and Mattr's adjusted EBITDA in 2027 would probably be comparable to 2026; we are not sitting back waiting for policy shifts to tackle this risk. Although these tariffs might eventually be lowered or removed, we are busy reworking production across our current manufacturing network to remove this risk and capture additional operational efficiency. That involves using and growing capabilities at existing U.S. facilities to make affected products while shifting Canadian production capacity toward non-U.S. markets; we expect this transition to be largely finished during 2027. Crucially, this is not another big footprint restructuring. We do not expect to add new facilities. Rather, we are moving selected production activities within our current network, relying on assets and capabilities we already possess; these steps will need incremental investment that could push our full-year 2027 CAPEX modestly above Mattr's normal course annual run rate. Any operating expense directly tied to carrying out tariff mitigation actions should be reported as restructuring cost, which would be added back to adjusted EBITDA. We see the possible effects of near-term tariffs as a temporary disruption rather than a shift in the earnings potential of the business. Whether through government policy changes or completion of our mitigation actions, we expect the impact to be mostly concentrated in 2027. Demand across our primary end markets remains strong. We are raising output across the existing Xerxes factory network, and investment is already underway to materially expand AmerCable's capacity beginning in early 2028. All together, these initiatives put Mattr in position to capture the attractive long-term demand trends across our businesses and keep progressing toward our long-term growth objectives. I'm extremely proud of how our teams have responded to a volatile and rapidly changing environment. Repeatedly, their attention has stayed on the things within our control, they adjusted fast when conditions shifted, and they kept driving the business ahead. We anticipate that volatility will stay a feature of the operating environment, yet we have also shown we can steer through it. Our manufacturing footprint is stronger, our operating platform is more flexible, and we have a clear plan for tackling the challenges ahead of us. Meanwhile, we keep putting investment into businesses where we see appealing chances to deliver long-term growth and returns. Our priorities have not changed: operating safely, serving our customers, improving manufacturing performance, and allocating capital with discipline; we head into the final quarter of 2026 with a stronger operating platform, a clear path through the near-term challenges, and ongoing confidence in Mattr's long-term earnings potential. I will now hand the call to the operator and open the line for questions for Tom, Meghan, or me.

My first question concerns the tariff headwind. Regarding that $20 million figure you're able to quantify, does it come on top of what we'd estimate as a low single-digit million impact from the earlier tariffs too? And what was the effect of these Section 338 tariffs on Q3?

Morning, Nate. As we've previously said, we believe our existing business, as embedded in the year-to-date performance of 2026, is probably carrying roughly $10 million a year in tariff expense stemming from various other tariffs. From the Section 338 tariffs, we saw no impact in Q3. We think some impact will begin to show in Q4; and clearly, this is a scenario that could evolve rapidly. So, although we've tried in our outlook here to give an approximate impact for full year 2027, whether these tariffs stay in place or not is really hard to predict in terms of timing. So, we've provided something that hopefully gives you a feel for the potential impact in 2027, but obviously we're hoping to see those tariffs mitigated through changes in government policy well before the end of '27, but as we've noted, we're going to take action regardless, because it's clear that right now we simply can't trust the trade relationship between the U.S. and Canada, and we are not going to put ourselves in a position where we are uncertain about our ability to deliver our full potential; so what you'll see from us is rapid action to reposition some manufacturing capabilities from existing facilities into existing U.S. facilities to ensure that certainly by the end of '27 and hopefully sooner, this conversation about Section 338 tariffs becomes really irrelevant to our business.

Regarding the details of this plan to mitigate tariffs, the new AmerCable capacity won't be ready until early 2028. Are you bringing on any additional output, or is this purely about shifting and repositioning assets? And I'd really appreciate any further specifics about what you intend to do to help offset the tariff impact.

Yes, so as I mentioned in the prepared remarks, the effect of certain tariffs will mostly be felt in the DSG business on a number of our heat shrink products — a minority of those products are still manufactured in Canada today. And then maybe somewhat more significantly in the Shawflex business, where our products going into U.S. utility applications are now affected by these tariffs; so we have the capability and we have the physical space to allow those products to be produced in the U.S. inside the existing DSG facility in Ohio and inside the AmerCable facility in Arkansas. So we'll move in that direction as fast as we can. None of this tariff mitigation action will disrupt or delay the additional production capacity that is already scheduled to be added at AmerCable and will come online in early 2028.

Stepping back for a moment and considering the broader picture for 2027, it appears that absent tariffs, the implied baseline would have come in at $230 million in adjusted EBITDA. Beyond tariffs being mitigated, which particular actions or events are necessary for you to achieve that?

I'll speak in broad terms, since we clearly aren't in the practice of giving numerical guidance, and it's a bit earlier in the year than when we'd typically offer full-year indications, but under the circumstances we felt it was suitable. On the big picture, we're seeing very strong demand across all the major products we bring to market. We're quite pleased with how things have performed and the growth we've recorded year-to-date in '26, and I'd point out that a substantial share of that was made possible by the significant investments we undertook in new facilities during '23, '24, and '25. Nothing I see undermines my confidence in the underlying demand for our products, and I believe that, without tariffs, what you'd observe is a connection technologies business capable of achieving perhaps some modest growth in 2027, though clearly, given the cap on how much production we can draw from AmerCable, there's something of a ceiling there. That would be the determining factor as to whether connection technologies, absent tariffs, would land in the growth range we'd see from that business or perhaps be flat year over year. Composite technologies is truly at a point where it's posting quite substantial growth year over year, and we expect that trajectory to carry on as we move forward. Demand for Xerxes and for Flexpipe products is solid. Bringing in additional large-diameter Flexpipe products has given us another leg to the stool in that segment, and our ongoing ability to capture more and more productive efficiencies in Xerxes is letting us sell more tanks to serve more of the market. So we're very excited about the opportunities for composite technologies going forward. Very excited about demand throughout the connection technologies business. We simply need a bit of time here to ensure we can fully capitalize on that demand. Tom, from a numerical standpoint, anything you'd like to add? I mean, I think during the prepared remarks we stated, or Mike stated, that with tariff impacts, you'd expect the year to look very similar to 2026. So logically, if those tariff impacts of roughly $20 million weren't there, I think your numbers are directionally correct, which would point to very strong growth for the overall business. And as Mike said, it's mostly in composites for next year, with connections facing capacity constraints and some potential mix challenges. Overall, very strong underlying macros. Our confidence in every one of our businesses remains strong, and we are putting in a great deal of effort to offset these effects permanently, so that we won't need to discuss tariffs again.

Thanks. I'll hand it over.

Mike, Tom, I'm not sure which one of you wants to field this, but could you speak a bit about 2027 CAPEX? Clearly, you'll be looking to reorganize parts of the supply chain. You'll likely grow AmerCable. Can you help us understand what you expect to spend and perhaps how you're viewing the ROI on those investments?

Yeah, so broadly speaking, as we mentioned, $40 million to $50 million is roughly our typical run rate; and I'd say with the AmerCable expansion, the Xerxes business performing very well, so possibly expansion there as well, and some of these mitigation effects, I'd tell you that '27 is probably somewhat above that figure. It's a bit early to provide an exact number, but what I can say is that we continue to view this through cash flow conversion, and we still think we'll achieve our 70% conversion even with elevated CAPEX in 2027 or 2028; so I realize there's no precise numerical guidance, and we'll provide that on the next call, but I'd expect next year to be a somewhat elevated year.

I've got a question in two parts, really, for the second one. On composite technologies, could you perhaps lay out how you're viewing incremental EBITDA margins going forward? They've consistently been quite strong, coming off a lower base across the last several quarters. And maybe in the same vein, if you'd like to touch on whether there are any refreshed thoughts regarding Xerxes volume growth over the coming few years, and so forth.

Yes, absolutely composite technologies deserves, in my view, plenty of discussion, since the business performance truly has been extremely strong. Let me say first that this segment will keep experiencing its usual seasonality. We do observe somewhat less activity in Q4 and Q1 compared with Q2 and Q3, purely because of ground conditions. So you should keep expecting that this business's margin profile runs a bit higher during the middle two quarters of the year than during the near-term quarter. Yet on a year-over-year basis, I completely expect margin growth in that segment as we go from '26 to '27. We've seen, I'd say, a pretty substantial catch-up in pricing on the Xerxes side this year, and maybe the pace of pricing movement in '27 is somewhat slower. But the pace of production growth, I don't believe slows down. I believe we've positioned ourselves, through the investments made over the last several years, to deliver 10% or more total output growth in Xerxes for at least the next three years, and I think possibly four to five; so they're very well positioned as we look toward '27 and '28; and demand for tanks keeps rising, not only from retail fuel, which has been the main legacy driver, but from a broad range of other applications where we enable customers to store liquids under challenging conditions. And on the Flexpipe side, we've clearly seen a stabilization of oil field activity in North America. The fact that we can now offer customers 7-inch and 8-inch products, something historically we've never been able to do, puts Flexpipe in position, I think, for a very, very strong 2027. So overall, I'm quite confident that we'll see top line growth and margin profile growth in composites. It's going to stem from increased production, it's going to stem from new technology, and it's going to stem from continued progression of operational efficiency, especially in Xerxes, and that process will continue over the next several years. So I don't think we're yet near the ultimate margin profile of that segment. I mean, you see composites Q3 margins at 22.3%. That gives you a sense of what the segment can do; and I think that's only scratching the surface of what it can do. For the full year, I’m not expecting us to land above 20% this year, though it wouldn’t surprise me at all if we get there next year and move into that low-to-mid 20s range. Both businesses in the segment are doing a really good job of lifting their margins, and we’re very bullish on that.

That's useful. Perhaps one final question from me regarding the composite side. You made a point of mentioning international orders in Q3, and those tend to be uneven. Could you give us some detail about what quoting activity looks like for international orders at present, as we're trying to work out how to think about next year?

Sure. Quoting activity is definitely above where it stood 12 months ago, which was truly a cyclical low. So it's solid. The Middle East, I'd say, is clearly in a somewhat interesting moment given the conflict there; we're currently delivering into the Middle East on a fairly substantial order. Whether our customers will be active in placing incremental orders for '27 in that region isn't clear yet, but we are seeing heightened quoting activity across several other international markets, Latin America included. So I believe Flexpipe will have a good year internationally in 2027. It might not reach a peak level, but frankly, that's fine. Margins on the specific applications we're able to serve internationally tend to run somewhat lower than North America. So should we see a margin profile in '27 that leans a little more toward North America, that would bode well for the margin profile of the business. And just as a reminder, Ian, we don't forecast large international orders in our outlook. So if those do come, they'll sit on top of what we've discussed. We've clearly done that before, and we won't be doing it going forward.

Got it. Appreciate the reminder, Tom.

Perhaps to build on that, a bit more on connection technologies. That margin profile has also widened compared with a year ago across the past two quarters. How far along are you on the margin ramp for connection technology, and where do you see it reaching in '27?

For connection technologies, '27 will probably land in a comparable margin range to what we delivered in '26. It hinges heavily on mix, especially in wire and cable. As we've discussed previously, when we can lock in a higher share of mining and gas application work at AmerCable, margins tilt toward the upper end of the spectrum; if one of those comes in somewhat softer and we end up with a bit more industrial activity, we'd tilt toward the lower end instead. What I'd say is that connection technologies remain quite far from their full margin potential. We're still establishing critical mass at Shawflex. We're still driving additional operational improvement at DSG in North America. And AmerCable, plainly, is pressing against a productive ceiling, which holds back additional economies of scale in that business. We'll unlock that as we move from '27 into '28. So '27 will probably be similar year over year in that segment, excluding tariffs, but I'd expect further upward progression as we head into '28, with AmerCable having more capacity available. Tom, anything to add or change? To be more precise, that $20 million impact sits entirely within this segment. So if tariffs turn out to be the scenario we land in — and again, nothing is certain, but should that happen — margins could be under pressure, though only during '27; we clearly see that in '28 our mitigation actions will put us back on the growth path for margins.

Could you remind us what amount of capacity, measured by revenue, the AmerCable expansion will provide?

Sure. The equipment we've ordered, which gets installed late '27 and comes online in early '28, is going to raise that facility's productive capacity by roughly 25% to 30%. So if you think in dollar terms, figure on about $100 million of revenue support at the low end, and possibly somewhat more than that as time goes on, depending on mix. That's a pretty meaningful chance to grow the scale of that business. It won't happen all at once, but I believe it will happen fairly fast, since demand in the sectors AmerCable serves is quite strong.

Now, regarding secondary effects from these tariffs that could show up, does this affect how competitively you're able to bid into the grid build-out in the Northeast? And you mentioned briefly moving some marketing of Shawflex products into international markets. And the last time tariffs were placed on Canada, quite a few stocks got dumped into the Canadian market and pushed pricing down. Is there a pricing effect in international markets as other competitors shift away from the U.S.?

Generally speaking, I'd say the impact we see is confined to the U.S. To be clear, you may remember that we were quite explicit and quite deliberate about targeting the U.S. utility market with the Shawflex business over the past couple of years, and the team has performed extraordinarily well in that effort. That revenue stream is the one most heavily affected by the Section 338 tariffs. It definitely places us at a disadvantage when we bid into U.S. utility markets from our Canadian manufacturing footprint. I'd say that revenue stream is unlikely to fall to zero, but it is certainly likely to fall materially from where it has been recently given that tariff burden on our products. And that's why we're taking mitigation actions to ensure we can keep serving the U.S. utility market from a U.S. production base over time. The response to the U.S. 338 tariffs on Canadian products has been certain Canadian tariffs on U.S.-made products, which, together with some federal action in Canada against the dumping of low-cost building wire coming from Asia, has produced a modest improvement in the pricing profile we see across the industrial wire and cable spectrum in Canada, including the stock industrial market. While the U.S. utility market for us is now, let's say, somewhat less favorable because of the tariff, Canadian industrial demand and pricing have moved in a positive direction. And the Shawflex products we sell internationally tend to be in the nuclear space, where competition is limited and customers place high value on quality, and that hasn't changed. So I don't see a negative impact to Shawflex and its sales into either Canada or international. It's really confined to the U.S. Is that impact in the U.S. contemplated in your $20 million tariff? Yes, it is. That dollar rough guide includes the tariff impacts across all of the products that are currently covered by Section 338.

Could you discuss what’s baked into your expectation — I suppose I mean your implied expectation — for $20 million of growth, excluding tariffs, across each business line?