Are you here to officially kick things off? Okay. Yeah, that's fine. We were gonna self-govern.
Got it. So you are the only one presenting?
No, myself and Tom.
Okay, got it. Good morning, everyone. My name is Jack Greenberg with the Midwest Ideas Conference, hosted by Three Part Advisors. Thank you all for coming. Our next session will begin momentarily with Mattr Corp., traded on the Toronto Stock Exchange under the symbol MATR. Here today on behalf of the company is Tom Holloway, SVP of Finance Comms and ESG, and Mike Reeves, President and CEO. With that, I hand it over to Mike. Sorry about that, gentlemen.
You're good.
Good morning. On the bright side, I have not just run up flights of stairs, so that's good. So, my name is Mike Reeves. I'm the President and CEO of Mattr, and, in a moment, I'll pass the floor to Tom Holloway, who is our CFO and here as well. And we're more than happy to take your questions at the end, but thought we might give you an overview of the organization first.
Mattr is a relatively new company name, and the symbol was changed, approximately two years ago. We were previously traded under the name Shawcor, so it's possible you may have heard of the company under that name, but I'm hoping not. My lawyers say I have to show you this, and we're done. Mattr.
We are approximately a CAD 1 billion revenue company, traded on the Toronto Stock Exchange, and have been so for more than fifty years. We have around about 1,500 employees around the world, and the vast majority of our revenue comes from North America, the U.S. slightly heavier than Canada. We are an organization that specializes in the production of key components for infrastructure, renewal, and expansion. We are a manufacturing organization.
We are not a service organization, and we are an organization that's been through substantial transformation over the last three years. Three years ago, our business was dominated by oil field pipeline-related businesses. We have divested of them all, and we are now firmly an infrastructure products organization with high growth, high margin, high free cash flow conversion, and a very, very solid balance sheet primed for the next phase of our growth.
When we think about our organization, it is divided into two segments. I'll dive in a little more depth into those two segments here shortly, but they are Composite Technologies, which makes up roughly 60% of our revenue, and Connection Technologies, which makes up roughly 40% of the revenue. Businesses within those two segments are allocated based on their underlying technology and end markets,
but across the spectrum, everything we do, we are a manufacturer of complex materials-based technologies operating in the subsectors of our customers' markets where the environments are most challenging. We pride ourselves on designing and building products that function where the conditions are at their most extreme.
If you think about any infrastructure application, power generation, power distribution, water management, communications, transportation, energy, in the subsectors of those businesses where temperature is our most extreme, pressure is our most extreme, radiation, mechanical loads, corrosive environments, that's where you'll find our products.
So our business is built up from many, many thousands of niches, and at the end of the day, we operate where the cost of failure to our customer is at its highest, and therefore, the value of our products is at its highest. We have limited competition because of the nature of the products that we make, and the total cost of what we offer to our customers makes up a tiny fraction of their total infrastructure product, project spend, so they tend to be less cost-sensitive in our product space than they do in others.
To dive in a little more depth into the two business lines. So on the Composite Technologies side, which again is about 60% of the current revenue stream, we focus on using composite materials, typically fiberglass-reinforced plastics, to replace concrete and steel in the storage and management of highly corrosive, unpleasant liquids.
We are predominantly serving three markets in this segment. We're serving the liquid fueling network market of North America. If you were to stand on the forecourt of any gas station anywhere in North America, you are almost certainly standing above our liquid tanks that are holding the fuel underground. We are the market leader. We have one incredible competitor. We serve the stormwater management market.
So anywhere that a mid or a small size commercial construction project is being created, they will have an obligation to manage the stormwater that runs off their roofline or their concrete pad. We provide the products that allow those customers to capture that water, treat that water, and then reintroduce that water into the ground.
And then we serve the traditional energy markets around the world with what's called spoolable composite pipe. So this product is used by our customers, the Exxons and Shells and Chevrons of the world, to connect a newly completed oil or gas well to wherever they gather the fluids that come from that well. So it can be a few hundred yards, it can be tens of kilometers of pipe used to move water, oil, gas, or a mixture of all three.
Those fluids, again, are incredibly corrosive, and the key for our customers is that they can move them efficiently with low risk of environmental spill, so that's generally what we do on the composites side of the business. On the connection technology side of the business, we offer two primary product lines: wire and cable, and then the protective heat shrink tubing that is used to protect connection points for wire and cable.
The way to think about that segment: it is broadly driven by the electrification trend, so we are selling, as I said earlier, into many small niches across energy generation sites, including nuclear reactors, all kinds of power generation sites, utility networks, mass transit, mass communication, aerospace, and we're selling into those niches where wire and cable and the protective device that goes around its connection point is subject to the most extreme conditions.
It's an organization that hasn't just been through a fundamental portfolio transformation, but is in the midst of a fundamental investment phase. So I mentioned earlier that most of the history of this organization was dominated by oil and gas pipeline-related products and services. Those businesses consumed virtually all of the capital of the organization until roughly three years ago.
The businesses that we have retained have largely been in our portfolio for quite some time, but were underinvested and not positioned to drive long-term growth. Those businesses have, as you'll see in a moment, delivered extraordinary growth over the last three years, but they were approaching a point where they were gonna be limited by production capacity. So starting in early 2023 and concluding early in 2025, we have and are executing a substantial organic growth investment campaign.
In total, approximately CAD 200 million of CapEx deployed between 2023 and 2024 to establish four new production sites, all of which bring not just incremental production capacity, but greater efficiency, closer to our end markets, closer in many cases, to our sources of raw material supply, and expected to allow us to drive substantial growth going forward at elevated margins versus historical levels. I spoke earlier about the growth of this business.
Here you can see performance on revenue, adjusted EBITDA and adjusted EBITDA margin for both of our segments and for the corporation, comparing 2021 full year to the trailing twelve months ended at the middle of 2024. You can see substantial growth rates across every measure, across all of the businesses.
We believe that this organization is grossly undervalued, in large part, because it's only been recently that investors had visibility of this kind of potential growth in the organization. I think we have done a very effective job of transforming the portfolio. I think we have demonstrated that the businesses we have retained are exposed to some of the most interesting long-cycle growth opportunities and that we can grow within those industries.
This year is a year of investment and transition, so our growth rates this year versus last year will not be as high as they have been in the last couple of years, but we will be positioned to enter twenty twenty-five with substantially greater production capacity and efficiency and are looking forward to delivering on our longer term growth commitments, which we laid out at our last Investor Day, and you can see summarized here.
We are very confident in our ability to grow on average by 10% per year. In that process, doubling our revenue by the time we get to 2030, getting to and moving beyond 20% adjusted EBITDA margins and delivering north of 70% free cash flow conversion once we complete this large capital investment cycle. All of those targets are organic only.
So the last thing I'll say before passing to Tom is that we see clear opportunities to accelerate our pathway to and beyond these targets through acquisition. We have a net cash position, and we have been very clear publicly that we're looking for acquisition opportunities to enhance our wire and cable business in particular. It's worth noting that our wire and cable business today operates from a single production site in Ontario.
We have a very substantial position in the Canadian market, a small but growing position in the U.S. market, but many of the applications we could serve in the U.S. fall under the Buy American Act. So it is clearly our number one objective to find and acquire a reasonably sized wire and cable producer with a U.S. production footprint to allow us to continue our growth south of the border, and I have said multiple times, and let's hope that I'm not disappointed,
but I've said I will be disappointed if we don't have something to communicate on the M&A front by the end of the year, so when you think about this organization, I encourage you to think about it as one that specializes in differentiated materials, technology-based products that serve a wide array of critical infrastructure applications. All of our end markets are growing.
We are growing within them. We have effectively invested for the next phase of our organic growth, and we are poised to add to that through M&A. I'll pass the microphone to Tom.
All right, so thank you, Mike. I'll take you through a couple of the things financially, and then we'll take Q&A from there. So what you're looking at on this page is, on the left-hand side, the total gross proceeds that have been generated through the transformation process that Mike walked you through from being energy-focused oil field pipe, pipe coating business to what we are today, which is an industrial manufacturer.
So we've generated over CAD 479 million in total gross proceeds. With all of those activities on the left-hand side, I won't walk through each of them. You, you've seen what the business is that's remaining. On the right-hand side is really how we think about capital allocation, and I'll walk through a little bit of that on further slides as well.
But we typically talk about capital allocation as an all-of-the-above approach. So the first step in that was pay down the debt. We're through that phase. We have a very low net debt to EBITDA ratio, again, which will be on further pages, and feel very comfortable where we sit today. So lots of dry powder in the coffers for us to do some of the M&A, which I'll come to in a second. We then looked at, okay, well, what's the next thing?
This business has been uninvested in from an organic perspective over the past, you know, decades. And we've taken the opportunity to look at the business, look for IRRs of greater than 20% in all of our investment opportunities, so organically and through share buybacks.
But that 20% threshold was actually quite easy to hit with the lack of investment over the past decades. So we've invested, as Mike said, or are in the process of investing about CAD 200 million in these businesses. On the next slide, I'll walk you through how we think about CapEx going forward as well. Then when you come to inorganic side, again, we've talked about our targets on the inorganic side. We have lots of dry powder, lots of ability to operate very effectively after doing an acquisition because we still have a very strong balance sheet. So again, I'll take you through that.
And then on the last point, which is very salient, we've invested over CAD 70 million in NCIB, which is a share buyback program, over the past couple of years and are very active in our current program. So, moving on to the next slide. So this walks you through our CapEx. At the highest of levels, the business that we have really only needs CAD 10 million to CAD 15 million of maintenance CapEx a year.
So very low CapEx requirements to keep it running, and that's with the increased footprint that Mike walked us through earlier. So four new plants with lots of ability to expand. You can see the 2023 and 2024 numbers. We've put substantial capital to work. Two of the four plants are now up and running.
The third one we just came from a few days ago, looks fantastic, should be up and running in the next, you know, few months. The last one will come online, start producing this year, but be fully operational next year as we've moved all of the equipment from an old facility to the new one. The natural question is, does that mean your run rate is, you know, very high capital program going forward? You can see the last bar on this page. We think the business really needs something on the order of CAD 30-CAD 50 million to achieve that doubling of revenue by 2030.
In the 2025 year, we've not given guidance on what that number looks like just yet, but I would expect it to be at the higher end of that range because there are still projects that we need to invest in. But you'll start to see in 2025, the plants coming online, the efficiency starting to ramp up, the capital spending starting to come down, and the free cash flow therefore starting to increase and get closer to the ratios that we've put out publicly as our targets.
Moving to our debt journey, I don't need to talk a lot about this slide other than to say we came from a business in 2019 and going through COVID that reached net debt to adjusted EBITDA ratios greater than five times. We have no intention of going back there.
We've spent great amounts of capital to reduce that debt level to being below one. You know, point two three, I think, was our last reported one in the last quarter. That includes leases, so we've taken on some additional leases over the course of adding these four new facilities. If you were to exclude leases, we are still in a net cash position and will be healthily there, so very, very strong balance sheet. We've described on the right-hand side, you can see it here, our strategy of managing debt as we would like to stay below, on a normal basis, below the two times net debt to adjusted EBITDA ratio, including leases.
That gives us plenty of capacity to do all of the investments that we wanna do and not stress any of our covenants with our banks or any other covenant you would think of. We are willing to stretch that to do the right M&A deal at the right time.
So it needs to be very strategically focused, and get us, you know, the U.S. footprint potentially, that we've talked about. But the caveat is, in the next four to six quarters after that stretching, we would then intend very quickly to bring that ratio back down to that comfortable operating ratio. We tend to be very conservative on the debt side, have no intention, again, of putting the company in a high leverage position going forward.
This slide just shows you a little bit of what we've done on the NCIB share buyback program. So despite all of the significant investments we've made in the business organically, and a couple of small inorganic acquisitions that we've done, and the payback of debt, we've still invested over CAD 70 million in returning capital to shareholders through our share buyback program.
And as I said a minute ago, we have an active NCIB today. We are active in buying back shares. You could see, as soon as we put it back in place, we got active. Our July reporting is out there, and we've been very, very active and intend to stay so.
Which segues quite nicely to my last slide, which is on the right-hand side. I'll start with, you know, why would we be investing heavily in the share buyback program? Our multiple is extremely low compared to industrials like us. We're still trading pretty low, but we're still trading like an energy stock. We are exposed to energy trends today,
but it's about a third of our business or less. So we have not seen the transition yet all the way to, and it being an industrial, having industrial GICS code, having an industrial multiple, and we see that opportunity squarely in front of us, and that's why we're putting our money where our mouth is and buying back our own stock while we're investing heavily in organic and inorganic funds. So you can see all the things on the page.
I am not gonna walk you through this, but the opportunity's there. We have a good opportunity to really control our own destiny. This is an organic growth story. M&A will augment that and take us further along the curve, and we have a very strong balance sheet to support that. So with that, we can turn to Q&A, and Mike will join me up here.
... Expand a little bit more on the M&A in terms of where, like, which segment, what kind of technologies?
Yeah, in case you couldn't hear, the question was, you know, expansion on our M&A strategy, so we've been very explicit and I think very narrowly focused. We recognize that we have an opportunity to drive the kind of growth we'd like to see across all of our businesses using organic methods, with one exception, which is our wire and cable business, really expanding its exposure to the U.S.
There's a lot of applications in the U.S. where the Buy American Act applies, and clearly, I make my products in Canada, which is not helpful, so we have, for the last three years, been clear that that's our primary focus when it comes to M&A. We spent three years making this a simpler, cleaner, more efficient organization. We are not about to undo that with our application of M&A.
So we spent the last three years building a funnel of targets, of businesses that, we believe are transactable, that meet very narrowly our strategic focus here. So we're talking about U.S. wire and cable manufacturers that make differentiated products, not high volumes of commoditized wire and cable, that has a meaningful U.S. production footprint that we can lever to bring our existing products into the U.S. market and meet the Buy American Act,
and hopefully, can take their products from the U.S. and bring them into the Canadian market using our existing commercial infrastructure. We've cultivated a funnel, I would say tens of targets, that meet those strategic criteria that are within the range of our potential, acquisition capabilities. And they are largely private, in most cases, family-owned businesses.
In some cases, small pieces of much larger conglomerates that are out of favor within their parent organizations. And, you know, we believe there are opportunities out there to make the kind of acquisitions that would transform our business, and to do so at multiples that are similar to, if not modestly below, our own trading multiple, which is important, and we're very cognizant that that's an important thing.
So what you should expect from us is to do exactly what I've just said, nothing different. And when we find something, you should expect that it is accretive on day one, adds to our growth capabilities over the mid and long term, and fits very closely with the strategy of our existing wire and cable business. Yes, sir?
How are raw material costs impacting your operations?
So the question was around raw material costs. Largely, they're not. Obviously, we are a manufacturing organization, so raw material input costs matter. When we think about our exposure, it is largely polymers and resins, it is glass fiber for our composites business, and it is copper for our wire and cable business. By far, the most variable there is copper.
All of our contractual relationships with our customers give us the ability to modify our selling prices to adapt for the actual cost of the raw material. And in the rare events that a customer won't accept that kind of a variability in the selling price, then we would forward buy the copper for the contract at the time that we agree the selling price with the customer.
So we have very little exposure to movement of raw material prices, and the same is true across all of the businesses that we offer. We are generally not locked in to long-term fixed prices with customers, and therefore, generally not exposed to being squeezed by raw material costs. Dave?
You referenced your acquisition targets, and given the infrastructure bill is so well-
Mm
... openly known.
Yeah.
Why would anybody sell right now, when if they had a differentiated product in a market that's almost destined to expand?
Yeah. It is a great question. In case you couldn't hear it in the back: Why would anybody sell a business to us that fits the criteria that I just described? The reality is that in many cases, small, family-owned businesses operate on a different time scale than public organizations, and I'd say that's generally what we see. There are generations seeking to move out of a business.
The next generation's not interested in stepping in. In fact, really, they just want the cash to go spend on something else, so there have actually been quite a number of businesses that have come to market here in the last 12 months that I think if they were in public hands, they would never have come to market, but in private hands they do, for different reasons. Yeah.
Given that in the last 12 months, several have come to market-
Mm.
You have had zero.
Yep.
Those become part of your organization.
Yeah.
Why? What's led to that gap?
Discipline. Honestly, what we've seen in the wire and cable space is most of the transactions that have occurred in the last twelve months have been substantially bigger businesses than we have the appetite or the ability to go acquire. And largely, they've been businesses that have been very, very well run, so I think deserving of a higher multiple, and we've generally seen multiples be in the eight, nine, ten kinda range for wire and cable. When we think about the targets that we're looking at, we're certainly not talking about broken businesses. We've got enough history of that. We don't need any more.
We're talking about businesses that have good customers, good technology, good employees, good infrastructure, but probably are not growing at the pace that we're growing at and some of their competitors are growing at because either the parent company or the family has chosen not to invest over the last several years, so generally
what we find are businesses that have a small amount of hair on them, that we're very confident we can fix and get onto a much more aggressive growth curve, and therefore, there, you know, there are discussions that are in that five-to-six times range, which is far more appealing for an organization that trades where we trade today.
Thank you.
No, of course. Anything else we could answer for anybody?
Okay, so no one's piping up immediately. Five to six times-
Yes.
with a little bit of hair.
Yeah.
If you make your corrections, that multiple would then turn into a what? Four to five, one to two.
I think that-
How much of a-
That's a-
Incremental benefit are you talking about that you can bring?
Yeah. I think we should have relatively low expectations when it comes to cost synergies, 'cause largely we're talking about a physically separate manufacturing footprint, thousands of kilometers from where we operate today. So the opportunity is on driving growth and creating commercial synergies. Certainly, when we look at some of the targets that we've chosen to pass on for various reasons, we saw a pathway to, you know, lowering the paid multiple by at least two turns over the course of a two- to three-year period. So I think the opportunity set is really compelling.
What's worth noting here is when you think about publicly traded wire and cable businesses, and there's several of them out there, both in North America and in Europe, they generally focus on larger volumes of product where they can generate their margins through very, very high efficiency.
It means they usually have no interest in the targets that interest us, because what we do in the wire and cable space is a far more bespoke process, far more customer engagement. We're producing in smaller lots for niche elements of the end markets. There's a lot more engineering involved. It's generally not something that a very big wire and cable company is good at, and generally not something they want to become good at.
They're focused on what they're focused on. So it does mean that we see limited competition from strategic buyers when it comes to the kind of targets that interest us, and it's what gives me the confidence that there are legitimate opportunities to transact around the kind of ranges that I've just described. Sorry, there was a question at the back.
Yeah, I was just curious on the composite side and kind of how would you know... Like, how complex is that? Like, how much competition is there? Because no one else come in to take that composite business from you.
Yeah. So let's, if we break down the composite business into the two primary subsets, so we've got spoolable pipe, which is where we serve the traditional oil and gas markets around the world. There are three other competitors in that space. There's one of any credibility that has meaningful share. That company is a company by the name of FlexSteel.
They are a wholly owned subsidiary of Cactus, which is a public U.S. company, and you can see all of their data in their public reporting. So worth taking a look at. You can see what we aspire to be there. The other side of the business is the underground tank business, where we serve both liquid fueling and water markets.
In North America, there's really only one credible competitor for underground composite tanks, and that is, NOV, who are really mostly oil field oriented, but this is a subset of one of their business lines. We see that while patents are not necessarily a perfect barrier to entry, know-how in the manufacturing process to create high-quality, consistent products in both spaces is.
Because our customers operate, as I said at the very beginning, these products get placed in environments where they are subject to extreme temperatures, extreme corrosion, extreme mechanical loads, and they have to function for decades without leaking. It's about customer confidence, and that is not something that a new entrant earns easily.
We've seen no evidence of new entrants attempting to participate in either of those two markets, because the time to go from concept to reasonable revenue and cash flow stream is so long, it's not appealing. I think we've got a moat that is defendable. We've got high-quality competitors who are thoughtful in how they approach the market, and the consequence is I feel very good about our position in both of those subsectors.
Thank you.
Of course. Any questions for Tom? I feel like he's getting a free ride here. Second question.
Can you just give a little more on the history, like, of your team and when you-
Okay
came in, and why you
Yes
Got rid of the other businesses?
Yes. So I mentioned earlier this company existed in its previous form under the Shawcor name. Shawcor, until twenty fourteen, Shawcor was a Shaw family-controlled business, even though it was a public business. And even after twenty fourteen, I'd say it still was finding its way from family-controlled to true independent public company.
And it was an organization that had despite buying a number of different businesses that didn't necessarily really fit together, it was an organization still dominated by pipeline coating for oil and gas applications. And I don't think it was an organization that had the appetite to change, to contemplate a different strategy. So my predecessor informed the board of his desire to step down in twenty nineteen. COVID then hit.
Obviously, he stayed to make sure the company navigated through the worst of times, and the board went through a search process that led to me joining the organization. And in that process, while my own background is oil and gas, the conversation between myself and the board was this only makes sense if you have a mind open to a new strategy, because I don't personally believe that pipe coating is should be the core of this organization going forward.
Far too volatile, far too unpredictable. They were open. Tom was kind enough to come and join me. He and I had the chance to work together for several years in private equity prior to this, and together with Meghan and others in the leadership team, set about establishing and then executing the strategy that we've talked about here.
So we sold off multiple businesses that we didn't think had any real differentiation, didn't, in our opinion, have the ability to deliver the kind of returns we're looking for, were either exceedingly volatile, or businesses that had such a competitive environment around them that we thought they would degrade over time. So we identified the four businesses that we've talked about here today as the keepers, because we had technical differentiation . They play to the strengths of our corporation, and they are exposed to end markets that we think are not just large, but growing and likely to grow for the decades that come. That's where we got to. I'd say other than myself and Tom, there was one other new individual that came into the executive team.
That is the president of our composites segment, but the rest of the executive team were members of the existing team when we arrived. No questions for Tom, huh? Okay. Thank you for your time today. We do appreciate your interest.