Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) reported today its operational and financial results for the three and nine months ended September 30, 2022. This press release should be read in conjunction with the Company’s Management Discussion and Analysis of Financial Condition and Results of Operation (the “MD&A”) and condensed interim consolidated financial statements for the three and nine months ended September 30, 2022, which are available on the Company’s website and at www.sedar.com
TORONTO, Nov. 14, 2022 (GLOBE NEWSWIRE) -- Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) reported today its operational and financial results for the three and nine months ended September 30, 2022. This press release should be read in conjunction with the Company’s Management Discussion and Analysis of Financial Condition and Results of Operation (the “MD&A”) and condensed interim consolidated financial statements for the three and nine months ended September 30, 2022, which are available on the Company’s website and at www.sedar.com.
Highlights from the third quarter of 2022 include:
1EBITDA, Adjusted EBITDA and Net debt-to-Adjusted EBITDA areNon-GAAPmeasures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of theseNon-GAAPmeasures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.
“Shawcor’s transformation is well under way, and the Company remains committed to becoming a more profitable, less volatile business focused on the development and delivery of differentiated, high value, materials-based solutions in support of industrial and critical infrastructure end markets.” said Mike Reeves, President & CEO of Shawcor.
“During the third quarter, strong execution resulted in robust sequential and year-over-year growth in revenue, gross profit, operating cash flow and backlog. Shawcor also completed several important steps in our portfolio optimization strategy. With net debt ratios now below targeted levels, a shareholder returns program initiated through our recently launched NCIB, and the capacity available to pursue high return, organic and inorganic growth opportunities, we believe Shawcor is very well positioned to accelerate value creation for all stakeholders over the coming years.”
“While economic and geopolitical risks remain, Shawcor’s business portfolio has limited direct exposure to consumer discretionary spend and our primary markets continue to present favourable mid- and long-term growth opportunities. With offshore pipe coating activity rising quickly, the Company’s Adjusted EBITDA1 in the final quarter of 2022 is expected to be the highest of the year, and we anticipate delivering very robust Adjusted EBITDA1 growth in 2023 from the core businesses, including a strong contribution from the Pipeline and Pipe Services Segment with a significant second-half contribution from the SGP project.”
Selected Financial Highlights (in thousands of Canadian dollars, except per share amounts and percentages) Three Months Ended
September 30 Nine Months Ended
September 30 2022 2021 2022 2021 $%$%$%$% Revenue335,019 291,393 909,831 876,619 Gross profit97,47929.1%83,894 28.8%256,40928.2%247,508 28.2% Income from Operations(a)22,8706.8%2,492 0.9%57,9216.4%8,326 0.9% Net Income (Loss) for the period(b)23,014 (8,284) 36,424 (21,009) Earnings (Loss) per share: Basic0.33 (0.12) 0.52 (0.30) Diluted0.33 (0.12) 0.52 (0.30) Adjusted EBITDA(c)40,02811.9%31,793 10.9%91,53410.1%85,565 9.8%(a) Operating income in the three months ended September 30, 2022 includes $2.1 million of restructuring costs and other, net; while three months ended September 30, 2021 includes $1.1 million of restructuring and other income and $0.6 million repayments of COVID-19 related government wage subsidies. Operating income in nine months ended September 30, 2022 includes $43.0 million of gain on sale of land and other, $20.3 million of impairment charges and $6.3 million of restructuring costs and other, net; while nine months ended September 30, 2021 includes $11.6 million of impairment charges, $7.5 million of restructuring costs and other, net and $4.8 million in COVID-19 related government wage subsidies.
(b)Attributable to shareholders of the Company.(c) Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have standardized meanings prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of this Non-GAAP measure.
1EBITDA and Adjusted EBITDA areNon-GAAPmeasures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.
1.0 THIRD QUARTER HIGHLIGHTS
The Company delivered Income from Operations of $22.9 million and Adjusted EBITDA1 of $40.0 million in the third quarter of 2022, an improvement of $20.4 million and $8.2 million respectively, compared to the third quarter of 2021, primarily attributed to a healthy demand for products in the Automotive & Industrial and Composite Systems segments. During the quarter, the Company saw particular strength in both the composite underground storage tank and composite pipe businesses. The Company’s sales into infrastructure & industrial end markets accounted for over 47% of total revenue during the third quarter of 2022, compared to roughly 44% in the third quarter of 2021.
Since March of 2020, the Company has undertaken the controlled shutdown or sale of several girth weld inspection branches and 9 fixed pipe coating facilities to reduce its operating cost base and has continued to focus on cost optimization. In the third quarter of 2022, the Company recorded restructuring costs and other of $2.1 million, largely attributed to the Company’s completed exit from its Global Poly leased facility in Edmonton, Canada.
In the third quarter of 2022, the Company continued to execute on its strategy to optimize its portfolio. During the quarter, the Company sold its Lake Superior Consulting business for proceeds of $5.9 million and recorded a loss on sale of $5.9 million. The Company also announced its intent to evaluate strategic alternatives for the businesses in its Pipeline and Pipe Services segment and its OAM operating unit, reported within the Composite Systems segment. Subsequent to the quarter, the Company entered into definitive agreements to sell its fixed pipe coating facility in Argentina, a standalone operation which services the onshore Argentinian marketplace, and its OAM operating unit. As at September 30, 2022, the OAM operating unit and the fixed pipe coating facility in Argentina were classified as assets held for sale in the Company’s condensed interim consolidated financial statements for the three and nine months ended September 30, 2022.
In the third quarter of 2022, the Company’s share price increased by $2.83, or 50%, from $5.71 as at June 30, 2022 to $8.54 as at September 30, 2022. While the Company continues to perform actions to improve shareholder value, this significant increase in share price has impacted selling, general and administrative expenses through increased share-based incentive compensation accruals. The Company recorded $9.5 million and $14.9 million in share-based incentive compensation costs during the third quarter of 2022 and year to date respectively.
As at September 30, 2022, the Company had cash and cash equivalents totaling $124.2 million, an increase from $115.8 million as at June 30, 2022 (December 31, 2021 – $124.4 million). During the third quarter, the Company generated cash flow from operations of $69.6 million, reflecting a reduction in working capital investments, excluding the impact of restructuring liabilities of $34.4 million, and received $5.9 million of proceeds from the sale of the LSC business. The current quarter cash balance also reflects $21.9 million in capital expenditures which largely relate to facility mobilization and the re-establishment of a high-capacity concrete coating facility in Altamira, Mexico, in support of the SGP project and the repayment of $50.0 million against the outstanding debt under the Company’s syndicated credit facility (the “Credit Facility”). Since the beginning of 2021, the Company has repaid $218.5 million against the outstanding debt under the Credit Facility. The Company will continue to focus on maximizing the conversion of operating income into cash to continue to manage its long-term debt, explore organic and inorganic growth opportunities, and maximize returns to shareholders.
1EBITDA and Adjusted EBITDA areNon-GAAPmeasures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future periods.
Selected Segment Financial Highlights Three Months EndedNine Months Ended September 30,September 30,September 30,September 30, 20222021 20222021 (in thousands of Canadian dollars)($)(%)($)(%)($)(%)($)(%) Revenue Composite Systems147,696 103,196 389,552 271,073 Automotive and Industrial81,072 71,370 238,640 201,783 Pipeline and Pipe Services106,829 117,757 284,290 404,830 Elimination(a)(578) (930) (2,651) (1,067) Consolidated revenue335,019 291,393 909,831 876,619 Operating income (loss) Composite Systems21,747 14.7%7,573 7.3%38,142 9.8%16,391 6.0% Automotive and Industrial13,727 16.9%11,458 16.1%43,446 18.2%32,413 16.1% Pipeline and Pipe Services(9,550)(8.9%)(13,243)(11.2%)(48,224)(17.0%)(24,944)(6.2%) Financial and Corporate(3,054) (3,296) 24,557 (15,534) Operating income22,870 6.8%2,492 0.9%57,921 6.4%8,326 0.9% Adjusted EBITDA(b) Composite Systems31,024 21.0%15,571 15.1%68,601 17.6%39,968 14.7% Automotive and Industrial14,796 18.3%12,586 17.6%46,740 19.6%35,830 17.8% Pipeline and Pipe Services(1,690)(1.6%)6,827 5.8%(9,939)(3.5%)23,867 5.9% Financial and Corporate(4,102) (3,191) (13,868) (14,100) Adjusted EBITDA(b)40,028 11.9%31,793 10.9%91,534 10.1%85,565 9.8%(a) Represents the elimination of the inter-segment sales between the Composite Systems segment, the Automotive and Industrial segment and the Pipeline and Pipe Services segment.
(b) Adjusted EBITDA is a non-GAAP measure. Non-GAAP measures do not have a standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.
Revenue in the third quarter of 2022 for Composite Systems increased by $44.5 million, or 43%, compared to the third quarter of 2021, with an operating income of $21.7 million. The Company continued to see strong order activity for composite pipe products as completion activity levels in North America, particularly with larger operators, maintained its gradual rise. The business also benefitted from market share gains in the US, partially due to the commercialization of its larger diameter pipe products. In addition, the Company completed the delivery of a substantial composite pipe order to an international customer during the quarter. The segment also delivered more tanks for liquid fuel applications and for water management systems, which experienced another record quarter. The rise in revenue also reflects a roll out of price increases to help offset the inflationary increases in raw material and labour costs across the segment. Adjusted EBITDA1 in the third quarter of 2022 was $31.0 million, a 99% increase compared to $15.6 million in the third quarter of 2021.
The Automotive and Industrial segment continued its strong performance, delivering new record segment revenue of $81.1 million, which represents an increase of 14% compared to the third quarter of 2021, with an operating income of $13.7 million. This record segment revenue is primarily due to strong project-based activity in industrial markets, particularly for its wire and cable products, and a roll out of price increases to offset the inflationary increases in raw material and labour costs. The segment delivered a strong quarterly Adjusted EBITDA1 of $14.8 million, an 18% increase over the prior year quarter, largely stemming from higher demand in industrial markets and bolstered by a more profitable product mix.
1EBITDA and Adjusted EBITDA areNon-GAAPmeasures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures. The Company expects the current calculation methodology of Adjusted EBITDA to be consistently applied in future period.
The Pipeline and Pipe Services segment generated revenue of $106.8 million, a decrease of $10.9 million, or 9%, from $117.8 million in the third quarter of 2021, with an operating loss of $9.6 million. This revenue decline was due to lower large pipe coating project activity in Europe, Middle East and Africa (“EMEA”)2, as well as lower North American revenue due to the absence of $17.7 million of revenue attributable to the Shawcor Inspection Services business that was sold in December 2021 and the Lake Superior Consulting business that was sold in August 2022. Partially offsetting these declines, the segment saw increased revenue in Latin America and Asia Pacific as large project work commenced. Adjusted EBITDA1 in the third quarter of 2022 was negative $1.7 million, a decrease in comparison to the positive $6.8 million reported in the third quarter of 2021 primarily due to lower revenue, a less profitable project mix and increased share-based incentive compensation accruals. Despite the year-over-year decrease in revenue and Adjusted EBITDA1, the Company’s cost reduction and site optimization initiatives have substantially lowered fixed expenses for the segment which, in turn, partially offset the lower activity levels in the quarter.
The twelve-month order backlog of $1,010 million as at September 30, 2022, represents a 30% increase over the $779 million order backlog as at June 30, 2022. While strong order intake continues to be prevalent across the Composite Systems and Automotive and Industrial segments, the primary driver for this growth was the successful award of the SGP project, reinforced by other pipe coating projects that have been secured or moved into the coming 12-month window during the quarter. The backlog includes firm customer contracts which will be executed over the next twelve months.
Outstanding firm bids were nearly $960 million as of September 30, 2022, a decrease compared to approximately $1.5 billion from the previous quarter, largely attributed to the SGP project moving from bid into backlog during the quarter. Conditional awards, pending final investment decision, were at $11 million, down from the $61 million recorded in the prior quarter. Budgetary estimates were nearly $1.3 billion at the end of the third quarter of 2022, an increase from the budgetary value of $1.2 billion from the previous quarter as customers continued to develop scopes for new projects. Outstanding firm bids and budgetary estimates are measures used primarily for the Pipeline and Pipe Services segment, and as such the vast majority of the numbers reported relate to this segment.
2.0 OUTLOOK
The Company expects to continue its strong performance in the fourth quarter of 2022. While the Company does not forecast the impacts of foreign exchange and share price movements (the latter which impacts share-based incentive compensation costs), it is expecting Adjusted EBITDA1 in the final quarter of 2022 to be the highest of the year with offshore pipe coating activity rising quickly. In management’s view, the underlying business trends for all of Shawcor’s primary businesses remain favourable as its infrastructure and industrial focused portfolio continues to experience consistent demand growth, while the Company’s oil and gas focused offerings remain well-positioned as commodity prices and energy availability challenges drive a multiyear upcycle in both onshore and offshore activity. Looking forward to the remainder of 2022, raw material and labour costs continue to rise and, as a result, the Company will continue to monitor its pricing and, if needed, roll out price increases to help offset these increased costs. Supply chain volatility is expected to continue, including availability of gas supply to suppliers and customers of Shawcor’s Automotive & Industrial plant in Germany, which may present challenges through the balance of 2022 and into 2023. The Company has materially rationalized its footprint, including the divestiture of non-core businesses, and will continue to focus on optimizing and maintaining efficient operations with the technical expertise and geographic footprint that provide the best opportunity for the Company to secure work and drive profitability, particularly as pipe coating project activity continues to ramp in the fourth quarter of 2022.
1EBITDA and Adjusted EBITDA areNon-GAAPmeasures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 5.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.
2The EMEA geographic location group was previously referred to by the Company as EMAR (Europe, Middle East,Africaand Russia). The Company has updated this group reference tomore appropriately reflect the geographic locations where the Company conducts its business and where the majority of customers are.
Backlog is expected to continue to grow over the next several quarters as customers seek to secure orders for the Company’s infrastructure and industrial offerings, several pipe coating projects reach final investment decision and contract awards move into the 12-month period. Execution on work secured in the Company’s backlog is expected to rise in the fourth quarter as coating activities for newly sanctioned pipeline projects commence.
Composite Systems Segment
The Company is expecting robust demand for underground FRP tanks to continue through the remainder of 2022 and into 2023 as liquid fuel service station networks expand, upgrade and replace existing aging tanks. In addition, growth in demand for water and storm-water storage and treatment systems is expected to continue, supported by increasing societal demands to conserve and manage water resources, and projected higher infrastructure spending on commercial and municipal water projects. Specific supply chain constraints which have tempered FRP tank production output during 2022 have been addressed and at this time are not expected to be a constraint for the foreseeable future. In addition to qualifying alternative raw material sources, the business continues to manage production schedules and lead times to minimize impacts on the business. Price increases have been implemented to manage raw material cost escalations. Additionally, labour shortages and capacity constraints are being managed to ensure adequate personnel and facilities are available to meet the robust demand in the market. Growth in demand for the segment’s core composite pipe products in North America are expected to continue as activity levels in Western Canada and in the Permian Basin continue to rise. Further opportunities for the Company’s composite pipe products are expected as the commercial adoption of larger diameter products continues.
Automotive and Industrial Segment
The Automotive & Industrial segment is expected to see normal seasonal slowdowns in the fourth quarter of the year as customers draw down inventories and activity levels ease throughout the holiday period. While the Company expects that industrial markets will dominate demand for the segment’s products, demand for the Company’s heat shrink tubing products within the automotive sector is expected to continue to outpace overall automotive production as a result of electronic content growth in premium, hybrid and full electric vehicle markets, particularly in the Asia Pacific and EMEA regions. Broad supply chain impacts, including the global semiconductor shortage, and energy supply shortages related to the Russia-Ukraine conflict and European gas supply continue to create challenges for automotive manufacturers and consequently the Company’s full year outlook does not incorporate any expectation of meaningful growth in total global vehicle output. The Company’s diversified geographies and end markets are expected to provide insulation from the near-term impacts of these automotive industry challenges. On the industrial side of the business, which represented approximately 73% of the segment’s revenue in the third quarter of 2022, the Company is expecting to benefit from continued infrastructure spending in 2023 and beyond as new and upgraded communication networks are constructed, nuclear refurbishments continue in Canada, and federal stimulus packages are rolled out. Additionally, the Company will continue to manage the volatility of copper raw material costs.
Pipeline and Pipe Services Segment
The Company continues to expect growth in its Pipeline and Pipe Services segment in the fourth quarter of 2022 as it executes on the increasing volume of work that has been secured in its backlog. The Company continues to monitor international developments including sustained exploration success and additional project phases in Guyana and Brazil, and Middle Eastern offshore projects designed to meet domestic energy needs and global LNG demand. Increases in inbound subsea orders have been observed across the Company’s customer base, particularly in Brazil and Norway where the Company is well-positioned to secure and execute work. Activity levels in Western Canada are expected to remain strong, yielding steady demand for small diameter coating solutions. New offshore pipeline installations that range from small and mid-size to large in scope, are expected to arise during the remainder of 2022 and into subsequent years, project sanctioning activity, bid, budgetary, and general interest from customers to install more pipelines, all of which are expected to drive elevated demand for the Company’s market leading pipe coating technologies. Despite successfully executing substantial cost reduction activities within the PPS segment in the last two years, the Company has maintained the resources needed to execute on projects currently in backlog and those projects for which the Company is currently bidding.
3.0 CONFERENCE CALL AND ADDITIONAL INFORMATION
Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Monday, November 14th, 2022 at 9:00 AM ET, which will discuss the Company’s Third Quarter 2022 Financial Results. To participate via telephone, please register at https://register.vevent.com/register/BI70b33c32b11b406cb87d04a8fc4d363d and a telephone number and pin will be provided.
Alternatively, please go to the following website address to participate via webcast: https://edge.media-server.com/mmc/p/ztr2oti2. The webcast recording will be available within 24 hours of the live presentation and will be accessible for 90 days.
Shawcor Ltd. is a growth-oriented, global material sciences company serving the Infrastructure, Energy, and Transportation markets. The Company operates through a network of fixed and mobile manufacturing and service facilities. Its three business segments, Composite Systems, Automotive and Industrial and Pipeline and Pipe Services enable responsible renewal and enhancement of critical infrastructure while lowering risk and environmental impact.
For further information, please contact:
Meghan MacEachern
Director, External Communications & ESG
Tel: 437-341-1848
Email: meghan.maceachern@shawcor.com
Website: www.shawcor.com
Source: Shawcor Ltd.
Shawcor.ER
4.0 FORWARD-LOOKING INFORMATION
This news release includes certain statements that reflect management’s expectations and objectives for the Company’s future performance, opportunities and growth, which statements constitute “forward-looking information” and “forward-looking statements” (collectively “forward-looking information”) under applicable securities laws. Such statements, other than statements of historical fact, are predictive in nature or depend on future events or conditions. Forward-looking information involves estimates, assumptions, judgements and uncertainties. These statements may be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “anticipate”, “expect”, “believe”, “predict”, “estimate”, “continue”, “intend”, “plan” and variations of these words or other similar expressions. Specifically, this news release includes forward-looking information in the Outlook Section and elsewhere in respect of, among other things, the ability of the Company to deliver higher returns to all stakeholders; the level of the Company’s anticipated overall financial performance in 2022 and 2023, including expected increases in Adjusted EBITDA attributable to, among other things, contributions from the Pipeline and Pipe Services Segment and SGP project; the Company’s focus on maximizing the conversion of operating income into cash and the uses thereof; continuing demand growth in the Company’s infrastructure and industrial focused offerings; the impact from the potential upcycle in commodity prices and related activities on the Company’s oil and gas focused offerings; the intention to rename the Company and the receipt of necessary regulatory and shareholder approvals in connection therewith; Shawcor’s continued ability to execute on its portfolio optimization strategy; achievement and maintenance of targeted net debt ratio levels; Shawcor’s ability to realize on anticipated opportunities to accelerate value creation for its stakeholders; the Company’s ability to execute on its business plan and strategies, including the pursuit, execution and integration of potential organic and inorganic growth opportunities, as applicable; the optimization of the Company’s portfolio by means of selective acquisitions and divestitures, including the Company’s ongoing strategic review process for the entirety of the Pipeline and Pipe Services segment and the OAM operating unit, as well as the sale of the Company’s fixed pipe coating facility in Argentina and additional proceeds related to the sale of Lake Superior Consulting; the continuance of certain raw material shortages and supply chain disruptions for the final quarter of 2022 and the abatement of others in this same timeframe; the demand for the Company’s products in each of its business segments; the impact of the Russia and Ukraine conflict on the Company’s demand for products and supply chains; the impact of raw material shortages on the Company; the impact of shortages of premium micro-chips, COVID-19 related lockdowns (including the institution and re-institution of lockdowns and other public health restrictions) in China or other geographical locations where the Company carries on a part of its business, natural gas availability in Western Europe and other supply chain disruptions on automobile manufacturers and the impact thereof on the Company’s Automobile and Industrial segment; the growth in the Company’s order backlog during the final quarter of 2022 and the increased execution of work secured in the backlog during the final quarter of 2022 and 2023; the anticipated increase in drilling and completion related capital spending in North America and an increase in offshore pipeline installations and the impact on the Company’s business; the increase in order backlog and contracts; the impact on the Company’s business of the anticipated increase in infrastructure spending, including in the areas of water management, communication networks and nuclear refurbishment; and the impact on the Company’s business of increasing adoption rates for electric vehicles.
Forward-looking information involves known and unknown risks and uncertainties that could cause actual results to differ materially from those predicted by the forward-looking information. We caution readers not to place undue reliance on forward-looking information as a number of factors could cause actual events, results and prospects to differ materially from those expressed in or implied by the forward-looking information. Significant risks facing the Company include, but are not limited to: shortages and delays in the supply of or increases in the prices of raw materials used by the Company, as well as the impact of overall cost inflation; changes in underlying economic factors affecting demand for the Company’s products and services; the duration and impact of the COVID-19 pandemic and future public health crises and other events outside the Company’s control on the Company, its employees, customers, suppliers, energy and commodity markets and on the global economy; the actual and potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic, the issues relating to the resurgence of COVID-19 and/or new strains of COVID-19, and actions that have been and may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact and the availability, effectiveness and use of treatments and vaccines (including the effectiveness of boosters), including potential material adverse effects on our business, operations and financial performance; a decline in the level of North American drilling and completion activity; a decline in the level of global pipeline construction; the impact of divestitures and acquisitions on the Company; changes in competitive conditions within the markets that the Company operates in; the requirement to comply with various covenants under the Company’s existing and future debt obligations, the ability to make the scheduled payments thereunder and the potential for changes to the Company’s credit rating; rising interest and inflation rates; fluctuations in foreign exchange rates; exposure to product, environmental and other liability claims; the impact of expanding environmental, social and governance practices and disclosure requirements and changing investor sentiment in respect thereof; compliance with environmental, trade, health, safety, tax and other laws in multiple jurisdictions; the impact of activist shareholders; the impact of climate change on operations, supply chains and demand for the Company’s products and services; political, economic, health, global supply chain and other risks arising from the Company’s international operations including the Russia and Ukraine conflict; the Company’s ability to continue to optimize its portfolio and identify and successfully execute on opportunities for acquisitions and dispositions in alignment with its strategic plan; changes in trade, tax or other laws in Canada or internationally; disruptions of informational technology systems or cybersecurity breaches; as well as other risks and uncertainties described under “Risks and Uncertainties” in the Company’s management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021 and in the MD&A, and in the Company’s Annual Information Form under “Risk Factors”.
These statements of forward-looking information are based on assumptions, estimates and analysis made by management in light of its experience and perception of trends, current conditions and expected developments as well as other factors believed to be reasonable and relevant in the circumstances. These assumptions include those in respect of the reduction and/or continuing easing of certain COVID 19 related restrictions (including that governmental and public health authorities will not be required to institute or re-institute lockdowns or other public health restrictions) and the impact thereof on global economic activity, the Company’s ability to manage supply chain disruptions caused by the COVID-19 pandemic, other health crises or by natural disasters, global oil and gas prices, improving pipe coating activity levels throughout the balance of 2022 and into 2023; the impact of the Russia and Ukraine conflict on the Company’s demand for products and supply chains; the impact of raw material shortages on the Company; the costs of raw materials and labour, including as a result of labour shortages and capacity constraints; sustained strong demand for the Company’s FRP tanks, including for liquid fuel storage and water treatment and storage; increased demand for composite pipe; the future easing of microchip shortages in the automotive sector and increased demand in the automotive and industrial markets; heightened demand for electric and hybrid vehicles and for electronic content within those vehicles; the growth in demand for water and storm-water storage and treatment systems; heightened infrastructure spending in Canada, including in respect of nuclear plant refurbishment and upgraded communication and transportation networks; the likelihood of projects tied to securing long-term domestic energy supply or drilling rights being sanctioned, the recommencement of increased capital expenditures in the global offshore oil and gas segment replace, maintain and rehabilitate existing infrastructure, replace production due to reservoir depletion and to address geopolitical challenges impacting several producing regions, the continued recovery of the global economy, a gradual rise of oil and gas markets in North America, the Company’s ability to execute projects under contract, the Company’s continuing ability to provide new and enhanced product offerings to its customers, that the Company will continue to be able to optimize its portfolio and identify and successfully execute on opportunities for acquisitions and dispositions in alignment with its strategic plan, the higher level of investment in working capital by the Company, the continued availability of resin and the continued supply of and stable pricing or the ability to pass on higher prices to its customers for commodities used by the Company, the availability of personnel resources sufficient for the Company to operate its businesses, the maintenance of operations in major oil and gas producing regions, the adequacy of the Company’s existing accruals in respect of environmental compliance and in respect of litigation and tax matters and other claims generally, the adequacy of the impairment charges taken; the increase in order backlog; and the level of payments under the Company’s performance, bid and surety bonds and the ability of the Company to satisfy all covenants under its Credit Facility and other debt obligations and having sufficient liquidity to fund its obligations and planned initiatives. The Company believes that the expectations reflected in the forward-looking information are based on reasonable assumptions in light of currently available information. However, should one or more risks materialize, or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward-looking information included in this document and the Company can give no assurance that such expectations will be achieved.
When considering the forward-looking information in making decisions with respect to the Company, readers should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not assume the obligation to revise or update forward-looking information after the date of this document or to revise it to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
To the extent any forward-looking information in this document constitutes future oriented financial information or financial outlooks, within the meaning of securities laws, such information is being provided to demonstrate the potential of the Company and readers are cautioned that this information may not be appropriate for any other purpose. Future oriented financial information and financial outlooks, as with forward-looking information generally, are based on the assumptions and subject to the risks noted above.
5.0 RECONCILIATION OF NON-GAAP MEASURES
The Company reports on certain non-GAAP measures that are used to evaluate its performance and segments, as well as to determine compliance with debt covenants and to manage its capital structure. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company’s operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP. The following is a reconciliation of the non-GAAP measures reported by the Company.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP measure defined as earnings before interest, income taxes, depreciation, and amortization. Adjusted EBITDA is also a non-GAAP measure defined as EBITDA adjusted for items which do not impact day to day operations. Adjusted EBITDA is calculated by adding back to EBITDA the sum of impairments, costs associated with repayment of long-term debt and credit facilities, gain on sale of land and other, gain on sale of investment in associates, gain on sale of operating unit, acquisition costs or recoveries, restructuring costs and other, net and hyperinflationary adjustments. The Company believes that EBITDA and Adjusted EBITDA are useful supplemental measures that provide a meaningful indication of the Company’s results from principal business activities prior to the consideration of how these activities are financed or the tax impacts in various jurisdictions and for comparing its operating performance with the performance of other companies that have different financing, capital or tax structures. The Company presents Adjusted EBITDA as a measure of EBITDA that excludes the impact of transactions that are outside the Company’s normal course of business or day to day operations. Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate financial performance and is a key metric in business valuations. It is also considered important by lenders to the Company and is included in the financial covenants of the Company’s Credit Facility. Three Months EndedNine Months Ended September 30, September 30, September 30, September 30, (in thousands of Canadian dollars) 2022 2021 2022 2021 Net Income (Loss)$23,003 $(8,437)$35,834 $(21,637) Add: Income tax (recovery) expense (18,365) 5,919 (9,929) 9,249 Finance costs, net 6,495 5,128 16,902 17,926 Amortization of property, plant, equipment, intangible and ROU assets 16,442 19,198 51,397 58,656 EBITDA$27,575 $21,808 $94,204 $64,194 Gain on sale of land and other – – (43,017) – Loss on sale of operating unit 5,932 – 5,932 – Gain on redemption of investment in associate – (1,834) – (1,834)Hyperinflation adjustment for Argentina 5,510 1,315 8,933 4,105 Impairment – 11,609 20,269 11,609 2019 ZCL Composites Inc. purchase trust release (1,059) – (1,059) – Restructuring costs, net 2,070 (1,105) 6,272 7,491 Adjusted EBITDA(a)$40,028 $31,793 $91,534 $85,565
(a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $(0.6) million in the third quarter of 2021, and $4.8 million in the nine months ended September 30, 2021.
Composite Systems Segment Three Months EndedNine Months Ended September 30, September 30, September 30, September 30,(in thousands of Canadian dollars) 2022 2021 2022 2021 Income from operations$21,747$7,573$38,142 $16,391 Add: Amortization of property, plant, equipment, intangible and ROU assets 7,189 7,581 22,508 23,136EBITDA$28,936$15,154$60,650 $39,527Gain on sale of land – – (3,820) –Impairment – – 7,293 –Restructuring costs, net 2,088 417 4,478 441Adjusted EBITDA(a)$31,024$15,571$68,601 $39,968
(a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $(0.8) million in the third quarter of 2021, and $2.1 million in the nine months ended September 30, 2021.
Automotive and Industrial Segment Three Months EndedNine Months Ended September 30, September 30, September 30, September 30,(in thousands of Canadian dollars) 2022 2021 2022 2021 Income from operations$13,727$11,458$43,446$32,413 Add: Amortization of property, plant, equipment, intangible and ROU assets 1,069 1,097 3,213 3,308EBITDA$14,796$12,555$46,659$35,721Restructuring costs, net – 31 81 109Adjusted EBITDA(a)$14,796$12,586$46,740$35,830
(a) Adjusted EBITDA includes COVID-19 related government wage subsidies $0.9 million in the nine months ended September 30, 2021.
Pipeline and Pipe Services Segment Three Months EndedNine Months Ended September 30, September 30, September 30, September 30, (in thousands of Canadian dollars) 2022 2021 2022 2021 Loss from operations$(9,550)$(13,243)$(48,224)$(24,994) Add: Amortization of property, plant, equipment, intangible and ROU assets 7,884 9,971 24,627 30,410 EBITDA$(1,666)$(3,272)$(23,597)$5,466 Hyperinflation adjustment for Argentina (19) 52 (20) 80 Impairment – 11,609 12,976 11,609 Restructuring costs, net (5) (1,562) 702 6,712 Adjusted EBITDA(a)$(1,690)$6,827 $(9,939)$23,867
(a) Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.1 million in the third quarter of 2021, and $1.0 million in the nine months ended September 30, 2021.
Net debt-to-Adjusted EBITDA
Net debt-to-Adjusted EBITDA is a non-GAAP measure defined as the sum of long-term debt, current lease liabilities and long-term lease liabilities, less cash and cash equivalents, divided by Adjusted EBITDA, as defined above, for the trailing twelve-month period. The Company believes Net debt-to-Adjusted EBITDA is a useful supplementary measure to assess the borrowing capacity of the Company. Net debt-to-Adjusted EBITDA is used by many analysts as one of several important analytical tools to evaluate how long a company would need to operate at its current level to pay of all its debt. It is also considered important by credit rating agencies to determine the probability of a company defaulting on its debt. September 30, December 31, (in thousands of Canadian dollars, except Net debt-to-EBITDA ratio) 2022
2022
Long-term debt$229,373 $292,140 Lease liabilities 58,017 54,439 Cash and cash equivalents (124,194) (124,449)Total Net Debt$163,196 $222,130 Q1 2021 Adjusted EBITDA$– $18,566 Q2 2021 Adjusted EBITDA – 35,206 Q3 2021 Adjusted EBITDA – 31,793 Q4 2021 Adjusted EBITDA 20,078 20,078 Q1 2022 Adjusted EBITDA 20,034 – Q2 2022 Adjusted EBITDA 31,472 – Q3 2022 Adjusted EBITDA 40,028 – Trailing twelve-month Adjusted EBITDA$111,612 $105,643 Total Net debt-to-Adjusted EBITDA$1.46 $2.10
