Mattr Corp. (MATR) Earnings Call Transcript

Thanks for holding, and welcome to the Mattr Third Quarter 2025 Results Webcast and Conference Call. Right now, everyone is in a listen-only mode. Once the speakers finish their presentation, we'll open things up for a question-and-answer session. To ask a question during that session, you'll need to press *11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press *11 again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Meghan MacEachern, Vice President Investor Relations, External Communications. Please go ahead.

Good morning, everyone. Before we get started on today's conference call, I'd like to briefly remind all of you listening that this call contains forward-looking statements. Those statements involve estimates, judgments, risks, and uncertainties, and they could cause actual results to differ materially from what's projected. The full text of Mattr's statement regarding forward-looking information appears in Section 4.0 of the third quarter 2025 earnings press release, as well as in the MD&A, which you can find on SEDAR+ and on the company's website at mattr.com. If you're joining us via webcast, the visual presentation that goes along with this call is available for you to follow. At this point, I'll hand things over to Mattr's President and CEO, Mike Reeves.

Good morning, and thanks for joining us on our third quarter conference call. Meghan is here with me today, along with Tom Holloway, our Senior Vice President of Finance and CFO. Q3 marked the first full quarter after Mattr wrapped up its four-year fundamental transformation, a program that involved divesting nine businesses, reshaping our North American production footprint, and onboarding the recently acquired AmerCable business. Now that these complex strategic activities are behind us, the organization is focused on levering its high-value portfolio of critical infrastructure products to enable progressively greater free cash generation and profit expansion. In the quarter, Mattr delivered revenue growth of 39% year over year and adjusted EBITDA growth of 16%, primarily driven by adding AmerCable to our Connection Technologies segment. The company also continued to benefit from strong demand in Composite Technologies, where the segment delivered further progress during the quarter on key technology development and operational efficiency initiatives. Our teams remain nimble, resilient, and cost-conscious in the face of a challenging near-term business environment, and we continue to focus on those variables we can control. Across Mattr, we are consistently prioritizing those actions and investments necessary to enable sustained technical differentiation, production flexibility, and progressively greater operational efficiency.

We expect near-term business results to be affected by ongoing economic softness in some key regions, and we think that will gradually cause customers to rein in purchasing during the seasonally weak end-of-year stretch, especially in the Canadian market, the European automotive market, and the energy extraction market. Because of that, we expect the usual fourth-quarter decline in revenue and adjusted EBITDA to be steeper than usual, marking the lowest point of the year. In line with how we have historically managed the balance sheet, the company plans in the near term to direct capital mainly toward paying down debt. Tom will offer a few additional remarks about capital allocation afterward. Now, reviewing how each segment performed in the quarter just finished, Connection Technologies posted year-over-year revenue growth of 105% and adjusted EBITDA growth of 62%. Wire and Cable revenue rose modestly on a sequential basis, as relatively flat AmerCable revenue was boosted by stronger Shawflex sales, which reached a new quarterly revenue record, speeding shipment of backlog from its recently relocated manufacturing site and providing an early sign of the new location's production capacity and efficiency potential. Wire and Cable margins declined sequentially on a less favorable revenue mix, driven mainly by lower sales into Canadian mining and global oilfield applications, partly offset by greater sales into data center and utility applications.

During the early part of Q3, US tariffs came into effect, and those had a direct effect on the main copper supply chain for both Shawflex and AmerCable. Acting fast and with ingenuity, Mattr's Wire and Cable team shifted that supply chain quickly from tariffed sources to non-tariffed ones. That shift did bring less favorable payment terms and a related rise in working capital for the quarter, but it prevented tens of millions of dollars in annualized tariff expense. Revenue at the segment's DSG-Canusa business was roughly flat on a sequential basis. The business saw margin compression sequentially, driven mainly by higher freight and tariff costs, as finished goods inventory that had been proactively built ahead of relocating the business's North American manufacturing footprint approached exhaustion, and output from the new Ohio site needed to be supplemented with products made internationally. Tariff and economic effects are still a near-term worry for the segment, yet our talented teams have shown they can mitigate outside pressures with speed and agility. Our commercial teams keep offsetting slowing Canadian mining and industrial and global oilfield activity by successfully capturing additional sales in utility, data center, and international mining markets. At the same time, we continue watching closely for any incremental tariff announcements related to copper that could affect our business. The company expects fourth-quarter revenue and adjusted EBITDA in the segment to move sequentially lower, since stronger DSG-Canusa performance driven by rising production from the Ohio site is more than offset by significantly lower demand for wire and cable in the Canadian industrial stock and project sectors.

The contraction in Canada's economy has weighed especially heavily on these sectors, with industrial activity generally softer and made worse by an aggressive push among distributors serving those sectors to cut inventory. Our expectation is that Canadian industrial demand will stay at levels comparable to the fourth quarter for a number of quarters. Setting aside the near-term disturbance caused by tariff-related headwinds, our constructive long-term view of electrification-driven demand in this segment is unchanged, and we are encouraged by how our strategic initiatives are progressing — initiatives aimed at raising operational efficiency and strengthening our exposure to utility, nuclear, global mining, data center, and the broader US industrial end markets. Moving to Composite Technologies, third-quarter revenue for the segment fell 4% and adjusted EBITDA fell 2% versus the prior year. Flexpipe's revenue and adjusted EBITDA were lower on a sequential basis, since underlying oilfield activity kept weakening against a depressed oil price. Largely offsetting that softness, Flexpipe kept advancing customer uptake of new technology, and during Q3 larger-diameter products accounted for close to 50% of North American revenue generation. Thanks to this continued share gain, Flexpipe held year-over-year North American revenue contraction to 3%, even though well completion activity dropped 16% over the same period. Productivity gains from Flexpipe's new Texas site are still on schedule, and the business still expects to release additional larger-diameter products around year-end, which would expand Flexpipe's addressable market by 50% or more over time.

In the third quarter, Xerxes' revenue came in somewhat below the prior quarter on a sequential basis. The reason was that output at new manufacturing sites, along with recently refurbished ones, fell short of plan during Q2, which weighed on how many tanks were available to ship in Q3. Those production limitations keep easing as workforce proficiency gets better across the Xerxes network, and total tank production for Q3 climbed more than 10% versus the previous quarter. Demand from customers for Xerxes' market-leading solutions is still strong: orders for products that serve retail fuel, data center, fire suppression, and the broader infrastructure markets outpaced revenue generation across all of the first three quarters of the year. By the close of Q3, the Xerxes order backlog had reached a fresh record high. In the third quarter, Mattr acquired an intermediary that had historically helped facilitate the supply of metallic components to the segment. That acquisition locks in a multi-decade exclusive supply agreement with the ultimate manufacturer, cutting costs significantly, reducing tariff exposure, strengthening supply chain control, and bringing down business risk. The transaction required very little integration or onboarding work, and it is expected to produce an after-tax internal rate of return well above the company's 20% target. We expect segment revenue and adjusted EBITDA to decline sequentially in the fourth quarter, since unfavorable oil prices are persisting and the usual holiday-season slowdown in US onshore activity cuts shipments of Flexpipe products, while winter ground conditions arriving will reduce the count of Xerxes tank shipments as year-end approaches.

As we look past the fourth quarter, we think the Composite Technologies segment is set up to beat its markets in the years ahead, since efficiency gains and rising output from its newly built and upgraded Xerxes facilities, together with the launch of new Flexpipe technology, should generate substantial growth opportunities for the segment over the mid and long term. Tom will now take us through some further financial details.

Thanks, Mike. Revenue from continuing operations in the third quarter came in at $314.9 million, which is 39% above the third quarter of 2024. Adjusted EBITDA from continuing operations was $34 million, up 16% from the same period a year earlier, mainly because AmerCable's results are included in 2025. The Connection Technologies segment posted a new third-quarter revenue record of $184.2 million, 105% above the third quarter of 2024, and segment adjusted EBITDA was $7.5 million higher than the prior year. Both of those outcomes are mainly driven by AmerCable's results being included in the segment's reported numbers. Even with the higher segment revenue, sales mix at AmerCable was less favorable on a sequential basis, and elevated freight- and tariff-related costs in the DSG-Canusa business weighed on profitability. Composite Technologies segment revenue was $130.7 million, a 4% decrease versus the third quarter of 2024, while adjusted EBITDA fell only 2% over that same period. The revenue decrease was mainly attributable to year-over-year declines in North American oilfield well completions, which were partially offset by sales gains in Flexpipe larger-diameter technology. Segment adjusted EBITDA in Q3 2024 included $1.5 million of M&O-related costs that were not present in the current year. Turning to cash flow, cash provided by operating activities from continuing operations in the third quarter was $6 million.

A big factor here was that we ramped up investment in working capital. That came from a major repositioning of the copper supply chain in our Wire and Cable businesses, done to lessen tariff effects, and it led to shorter terms for paying suppliers. The tariff savings we captured more than made up for this adverse swing in the working capital cycle. In the third quarter, investing activities used $33.1 million in cash. That figure included $14.6 million of capital spending on property, plant and equipment and the $22.5 million business acquisition we mentioned earlier, partly offset by receiving a modest working capital settlement tied to the AmerCable acquisition. Financing activities generated $13.2 million of cash during the quarter, mainly because of $21.7 million in net borrowings under the company's credit facility, largely to fund that acquisition. Cash outflows also covered repurchasing 445,000 shares through the company's normal course issuer bid as well as lease liability payments. Net debt to adjusted EBITDA stood at 3.9 times at quarter end, or 2.8 times once lease liabilities are left out. That mirrors the effect of elevated working capital connected to tariff mitigation, modest borrowing to finance the small Q3 acquisition, and a trailing 12-month adjusted EBITDA that came in lower sequentially.

Our goal is still to get back to a normal course ratio of 2 times or lower, and near term we'll put priority on cutting debt so the balance sheet has as much future flexibility as possible. We do expect to pause activity under our share repurchase program in the short term, but that isn't a shift in long-term strategy. Capital expenditures recognized in the quarter came to $14.3 million, with $14.6 million of cash deployed, including $7.8 million of cash outflow tied to capital expenditures previously accrued. Q3 capital expenditures included $10.8 million related to growth projects, mainly tied to new product readiness and production equipment meant to boost manufacturing capability and efficiency within both segments. Full-year 2025 capital spending expectations have been revised down to $50 to $60 million from our previously communicated range of $60 to $70 million. That reflects spending reductions and efficiencies, and it does not represent costs that will move into 2026. We anticipate 2026 capital spending will be within the company's previously communicated normal run rate range of $40 to $50 million. I'll now turn it back over to Mike.

Thank you, Tom. Across the past 3.5 years, we've substantially strengthened our capacity to develop and deliver, with efficiency, highly differentiated critical infrastructure products from an optimized footprint. Throughout the Mattr organization, our focus is tight on speeding up workforce proficiency and operational efficiency so that margin and cash flow enhancement become possible. At the same time, we keep exercising tight spending control, adjusting our cost base as needed so it appropriately reflects activity levels. As noted previously, based on how we currently see likely market conditions and customer demand, we expect reported business performance in the fourth quarter to come in below the third quarter of 2025. Our 2026 outlook stays cautious, given the impact of ongoing macroeconomic and geopolitical uncertainties experienced during the second half of 2025, along with the potential future impacts such factors may have on certain markets the company serves. The company remains optimistic about the benefits of recent investments to develop new technology, enhance manufacturing capability, improve operating efficiency, and acquire AmerCable. We also remain optimistic that robust near-term demand for the company's products in US infrastructure applications — including fueling network renewal, water management, data center construction, utility expansion, and mining — will persist for an extended period of time. At the same time, the company is experiencing significant declines in demand for wire and cable in the Canadian industrial and mining sectors, expects depressed commodity prices to weigh on oilfield sector activity for the foreseeable future, and cannot yet determine the potential for direct tariffs on Canadian-made wire and cable products sold into the US utility market.

So because of that, the company won't be giving guidance for the full year 2026 right now, but we do expect to provide that outlook when we report our Q4 2025 results. Even with the near-term turbulence tied to macroeconomic and geopolitical uncertainty, we still have strong conviction that our differentiated technologies — which enable greater generation, movement, and use of electrical power, along with the continuing shift toward composite materials in fuel and water management applications — give Mattr significant opportunities for long-term growth and profit expansion. With that, I'll hand the call over to the operator and open things up for any questions you may have for me, Tom, or Meghan.

Absolutely. The first question is from Timothy Monachello of ATB Capital Markets. Go ahead with your question, please.

Morning, everyone — appreciate it, and thanks for joining.

Good morning, everyone.

I’d like to get a clearer sense of how much the outlook has shifted from one business line to another. It sounds as though you’re being more cautious when it comes to capital allocation, and the outlook has likely softened compared with what you expected during the previous reporting cycle. Could you perhaps discuss the underabsorption trends at the four facilities and say when you expect each one to reach normalized capacity? And then, I suppose, the range of growth trajectories you believe each business line might achieve in 2026?

I'll definitely speak to part of that. Naturally, we've said we'd share more on '26 at the time of our Q4 results. I think a bit more time is needed to watch how some of these matters develop, but let me say more about what those items are. To be more specific, on the new plants, we're very pleased with how the Flexpipe site in the Dallas area is progressing, the Xerxes site in South Carolina keeps ramping up, and the Shawflex site that moved within Toronto enabled that business to post a record revenue quarter in Q3. As we move into the first half of 2026, those three locations either already are at, or definitely will be at, a normalized production level. The area where we've run into more difficulty lately is the DSG site in Ohio, which involves moving production activity from Canada into the US. We encountered a number of issues there, which I discussed on the prior earnings call, and those issues continued through the early portion of Q3, which caused that plant to fall short of the production output levels we expected and meant we had to bring in product manufactured at our German and Chinese facilities to satisfy North American demand at volumes higher than we had anticipated for the quarter, and we did take on some additional freight logistics and tariff costs tied to closing that gap.

Output has risen considerably at that plant as we move through the latter part of Q3 and into the start of Q4. It now exceeds what the Canadian facility it replaced was able to produce, we're making solid progress toward getting that site back where it should be, and my expectation is that we'll reach a normalized production level there during the first half of '26, just as we originally anticipated. A bit of near-term pain, though I don't see it dragging on for a long stretch. Regarding our outlook, the single item that has genuinely shifted between our prior earnings call and now is how the Canadian economic slowdown is affecting industrial demand for wire and cable in Canada. That demand has fallen off fairly sharply from mid-Q3 through today, and my sense is it will remain at a comparatively weak level across Q4 and likely deep into 2026. Underlying industrial demand has clearly come down, and our distribution partners are naturally working diligently to trim their inventories, which makes the difficulty even greater. What you'll see from us on the wire and cable side is cost reduction steps that have in effect already been implemented, along with an aggressive reallocation of resources aimed at generating incremental sales growth of wire and cable products into US utility, data center, and other applications as we work to offset the Canadian industrial demand shortfall.

I realize that falls short of providing everything you requested, but I hope it still gives you enough.

That's useful. I realize it's likely hard for you to form a view on '26, though Q1 isn't far off. A few seasonal factors have returned in Q4 relative to Q3, and those are probably masking part of the absorption gain you might otherwise see in Q4. Thinking about Q1 margins alongside seasonal patterns and the process of filling those facilities, is it fair to expect margins to improve from Q4 to Q1 on a sequential basis?

One unknown remains that I'm unable to resolve for you at this moment: the possibility of tariffs being imposed on Shawflex wire and cable manufactured in Canada and shipped into the US. You might remember that people expected the US government to issue additional announcements regarding its copper-related tariffs on October 28. That date arrived and passed without any announcements, though the government shutdown could very well explain that. We're watching to find out whether something gets announced there and whether whatever it is affects us. Apart from that single caveat, we typically observe comparable seasonal effects in Q4 and Q1. The operations hit by seasonality are mostly within the composites business, where ground conditions usually play a role in both quarters. My view is that neither macro conditions nor seasonality look materially different between Q4 and Q1. A few upside opportunities exist, and there's this tariff matter whose resolution we're awaiting, and at this point that's about everything I can share with you.

I suppose the area where you could potentially see a bit of upside compared with normal seasonal patterns would be Flexpipe, simply because budgets tend to run out in Q4.

There is definitely potential there. I think we also have to watch where oil prices head. They're sitting in the high $50s right now, and there's some chance they could go lower, so that's clearly an effect we need to think through carefully. At the moment, my expectation is that activity levels would track a normal seasonal pattern, meaning things slow down as we head into the holiday season, and then activity begins to pick up as we move into, let's say, the second half of January. We'll need to see how customers react to oil prices. I doubt there would be a material movement, as long as the oil price remains at its current level.

All right, regarding industrial demand for wire and cable in Canada — is it confined just to lower-margin stock items, or is that showing up in some of the higher-margin product lines too? No,

This has shown up throughout the industrial sector. Both projects and stock products have been hit in much the same way. Of course, we lack complete visibility into what other suppliers in that area are doing, but judging from quoted lead times, I believe everyone operating there is encountering precisely the same phenomenon.

Okay, I appreciate the remarks. Back to you.

Appreciate it.

Thanks. The next question is from Ian Gillies at Stifel. Go ahead with your question, please.

Good morning, all.

Good morning, everyone.

Good morning. Could you discuss a bit how margins moved in Connection Technologies and Composite Technologies on a sequential basis? Revenue was fairly flat, yet margins declined. Is product mix the only factor, or is there also inflation in product pricing? I'm just trying to make sense of that.

I guess I'll be the first one to try answering that. Ian, is your question about Q2 versus Q3, or is it about Q3?

Moving specifically from the second quarter into the third quarter.

When you look at Connection Technologies, we'd already told the market that AmerCable's margins would decline from one quarter to the next because of mix, and that's basically how it unfolded. We got some solid data center orders — those are great, they fill the pipeline and represent good business — but the margin on them runs a bit lower than what we sometimes see from oilfield or mining activity in that segment. It came out essentially as we expected. The major unpredictable factor, and the one that hit us hardest, was the DSG business, the Ohio facility. In Mike's prepared remarks and in mine, we noted that production difficulties at that plant forced us to supplement output with German and China production from our other facilities and bring it into North America to satisfy customer demand — which is great, but the price of doing so was expedited freight costs and tariffs on those products to get them here at a far higher level than we had anticipated. We don't expect that to continue, which is why DSG margins will probably rise in Q4, but that's the single biggest dynamic at work in that Connection Technologies area.

All right. So taking a broader view of the balance sheet, do you see a need to go after asset sales or some other form of discrete financing in order to shore up the balance sheet? Or do you believe you can manage your way through this?

No, we have a lot of confidence in our capacity to work our way through this situation. The ratios for our secured net debt covenant sit comfortably inside the permitted range. Clearly, as you look at the interest coverage ratio, it is tightening somewhat while EBITDA is contracting a little, yet we remain highly confident about our capacity to handle this. The pause in capital allocation regarding the NCIB is really more about let's truly concentrate on that ratio and bring it down, so that later on we can act more aggressively when allocating capital toward other areas. As I mentioned during my remarks, this is not a change for the long term. It is simply something we are doing over the short term to ensure that this market dynamic, which is affecting the macros and consequently our results, does not generate additional problems — we are just attempting to stay ahead of it. We do not perceive any meaningful problems or worries. There would be no requirement for any asset sales.

Got it — thank you so much.

I appreciate that.

Thanks. We'll take our next question from Arthur Nagorny at RBC. Go ahead, please.

Morning, everyone — thanks for joining.

Good morning, everyone.

Let me just say a few words about the large-diameter pipes in Flexpipe. As you mentioned, I believe that figure now stands at 50% in North America. I know you've said before that this was the goal, but now that we've reached it, is there anything suggesting you might be able to push that number above 50%?

Yes, certainly. The market keeps changing, in my view. Buyers are generally shifting toward bigger and bigger products, and what began 3 years ago as a business that represented roughly half of our revenue as a potential is now, I believe, substantially larger than that. Looking ahead, we'd expect to keep gaining share with the existing large-diameter products, and those will probably reach north of 50% of the revenue we generate in North America. Then, naturally, we'll be adding to that with further large-diameter variants that we bring out early in the new year, and those will unlock a significant new market opportunity that we'd anticipate growing into across a span of years. Although the underlying market for Flexpipe in North America has clearly been tough, with a 16% year-over-year decline in well completion activity, the business has done extremely well. Our revenue is only slightly lower year over year, and that's entirely because the sales team succeeded in capturing incremental share and deploying new technology, which will be strengthened as we move into 2026. In just about any market environment, I believe Flexpipe will be an outperforming business as we go forward.

Provided underlying activity levels show signs of settling down, the business should clearly be in a position to start generating growth that is meaningful.

Thanks for that. Regarding Xerxes, I believe you said during the prior quarter that you had what amounted to a backlog extending into mid-2026. I'm just wondering where things stand on that now, and separately, could you perhaps speak to how demand is shaping up specifically among data center customers?

Yes, across the past 12 months, Xerxes has increased its backlog by roughly $100 million. At the close of Q3, that backlog hit an all-time record and equated to forward revenue of somewhere above 6 months and a bit below 9 months. Demand for the business is strong and keeps growing, and we expect it to last for many years ahead, which is why we're concentrating heavily on raising productive output. As I noted in the prepared remarks, productive output climbed by over 10% between Q2 and Q3. Q4 will of course be somewhat slower owing to ground conditions that constrain certain shipments we'll make, but as this year ends, the business's productive capacity will sit materially higher than where it started the year, and that positions the business for strength in 2026 and beyond. Demand from data centers remains very robust. We can accept incrementally more orders as our very large molding for the tanks that data centers need keeps expanding, and that's largely at the Blythewood facility in South Carolina. All in all, I'd say Xerxes is positioned for good performance as we move forward.

Operational efficiency remains a focus for us. We now have one new site and one that's been fully refurbished, but four sites are still around that had been in existence for almost 40 years with only limited investment until recent years. There's still opportunity to draw additional efficiency and production output from those locations, and our teams will be pulling that out incrementally as we move through the coming several quarters.

Okay. So about AmerCable — I appreciate the extra detail you gave. From what I hear, things are moving along pretty much in line with what was anticipated. Would you still describe that acquisition as broadly on track relative to the guidance you set out before, particularly when it comes to adjusted EBITDA?