MATTR CORP. - First quarter 2021 revenue was $279 million, 12% lower than the $319 million reported in the first quarter of 2020.
- Adjusted EBITDA1 in the first quarter of 2021 was $18.6 million, 199% higher than the $6.2 million reported in the first quarter of 2020. The current quarter includes $2.4 million of COVID-19 related government wage subsidies.
- Net loss2 in the first quarter of 2021 was $15.4 million (or loss per share of $0.22 diluted) compared with a net loss of $234.9 million (or $3.35 loss per share diluted) in the first quarter of 2020. Adjusted net loss1,2 in the first quarter of 2021 was $10.9 million (or adjusted loss per share1,2 of $0.15) compared with adjusted net loss1,2 of $32.9 million (or $0.47 adjusted loss per share1,2) in the first quarter of 2020.
- The Company’s order backlog was $521 million at March 31, 2021, compared to the backlog of $453 million at December 31, 2020.
- Subsequent to the quarter, the Company repaid $75 million of its credit facility.
TORONTO, May 13, 2021 (GLOBE NEWSWIRE) -- Shawcor Ltd. (TSX: SCL) Mr. Steve Orr, Chief Executive Officer of Shawcor Ltd. remarked “First quarter Adjusted EBITDA was $18.6 million, reflecting continued strong performance across the Company’s non-oil & gas businesses, offset by lower than expected, but still profitable, pipe coating activity which saw some impacts from weather and non-weather related project delays. Supported by secured work and rising order levels within our book and turn businesses, the second quarter results are expected to strengthen compared to this quarter.”
Mr. Orr added “Although there will be continued volatility in quarterly performance driven by project timing, seasonal cycles and supply chain impacts, we remain confident that the Company will deliver stronger financial performance in 2021 compared to 2020. Supportive long-term fundamentals across the majority of our diverse portfolio, coupled with a strong backlog and intense focus on cost control, will ensure the Company delivers sustainable financial results while keeping our employees safe and supporting our customers.”
1 EBITDA, Adjusted EBITDA, adjusted net income or loss and adjusted earnings or loss per share are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures.
2 Net Loss attributable to shareholders of the Company.
Selected Financial Highlights
| (in thousands of Canadian dollars, except per share amounts and percentages) | Three Months Ended March 31 | ||||||
| 2021 | 2020 | ||||||
| $ | % | $ | % | ||||
| Revenue | 279,331 | 319,027 | |||||
| Gross profit | 73,735 | 26.4% | 85,305 | 26.7% | |||
| Loss from Operations(a) | (4,600 | ) | (1.6%) | (221,818 | ) | (69.5%) | |
| Net Loss for the period(b) | (15,372 | ) | (234,903 | ) | |||
| Loss per share: | |||||||
| Basic | (0.22 | ) | (3.35 | ) | |||
| Diluted | (0.22 | ) | (3.35 | ) | |||
| Adjusted EBITDA(c) | 18,566 | 6.6% | 6,204 | 1.9 | |||
| Adjusted Net Loss(b)(c) | (10,865 | ) | (32,856 | ) | |||
| Adjusted EPS(c) | |||||||
| Basic | (0.15 | ) | (0.47 | ) | |||
| Diluted | (0.15 | ) | (0.47 | ) | |||
| (a) | Operating loss in the three months ended March 31, 2021 includes restructuring costs, net, of $3.4 million, while 2020 includes impairment charges of $203.1 million and restructuring costs of $0.2 million. | ||||||
| (b) | Attributable to shareholders of the Company. | ||||||
| (c) | Adjusted EBITDA, Adjusted Net Income or Loss and Adjusted EPS are 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 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||
1.0 KEY DEVELOPMENTS - FIRST QUARTER
Contract Award for the North Sea Project
On March 15, 2021, the Company announced that its pipe coating division had secured a firm contract, pending project sanction, to provide a wet insulation coating system utilizing its proprietary ULTRA™ technology for a development project located in the North Sea. The value of the award is in the range of $40-45 million, pending final investment decision, which is anticipated to occur in the third quarter of 2021. The work is expected to be executed from Shawcor’s Orkanger, Norway facility commencing in the third quarter of 2022.
Cost Saving Initiatives and Liquidity Update
In March 2020, the global market downturn caused by the COVID-19 pandemic and recent changes in oil and gas supply and demand resulted in an immediate decrease in demand for products and services supplied by Shawcor. The situation remains dynamic and the ultimate duration and magnitude of the impact on the global economy and on the Company, as well as on the extent and timing of global economic recovery remain unknown at this time. In 2020, the Company completed significant measures to reduce selling, general and administrative (“SG&A”) and other costs and generate cash from working capital reductions and asset sales. The Company continues to focus on reducing its operating cost base and actively managing cash flow and liquidity.
In the first quarter of 2021, the Company completed further actions to reduce its salaried workforce headcount bringing the total reduction to 25% since March 2020. The Company also announced the closure of its Leith, UK facility after it completes the Baltic Pipe project later this year. With this announcement, the Company has actioned the controlled shutdown of 7 pipe coating facilities and several girth weld inspection branches in the last twelve months. Based on actions completed and initiated to date, the Company expects its quarterly normalized SG&A run-rate to further improve to approximately $55 million. The Company will continue to assess additional optimization actions, including further reductions of its international operations footprint serving the energy market.
The Company continues to maintain sufficient liquidity to fund its operations, working capital requirements and capital investments. As at March 31, 2021, the Company had cash and cash equivalents totalling $194.3 million (December 31, 2020 – $214.5 million). This reflects an investment of $17.6 million in working capital excluding the impact of restructuring liabilities, limited capital spending of $4.3 million and $8.1 million from proceeds on sale of assets and investment from associates during the first quarter. Subsequent to the quarter end, the Company repaid $75 million on its outstanding credit facility debt based on confidence in the outlook for the year.
First Quarter Highlights and Outlook
Adjusted EBITDA1 of $18.6 million in the first quarter reflected the expected lower activity levels of pipe coating, and the typical seasonal slowdown in the composite tank business. The first quarter results also include $2.4 million of COVID-19 related government wage subsidies recorded in the period. Within the Pipeline and Pipe Services segment, the pipe coating business experienced additional headwinds as a result of COVID-19 and weather-related supply chain interruptions and other customer induced project delays. The quarter was also negatively impacted by resin material shortages leading to further disruption in supply chains and raw material price increases which were observed across many of the Company’s businesses. The Automotive and Industrial segment experienced strong demand for its automotive and wire and cable products and delivered a record quarter of profitability. In addition, the Company continued to prioritize employee safety and HSE procedures to manage the risk of COVID-19 related disruptions and as a result did not experience any site-wide shutdowns during the quarter.
The Company’s non-oil and gas businesses continued their strong performance in the first quarter, accounting for 36% of revenue. This was driven by continued strength in demand for the Company’s automotive products, contributions from infrastructure projects in Canada such as 5G network buildouts and nuclear refurbishments and steady demand for fiberglass reinforced plastic (“FRP”) tanks in the retail fuel market.
Sustained OPEC production cuts and gradual gains in commodity prices supported further activity recovery in North America’s energy sector in the quarter. US rig counts continued their steady climb from 351 rigs at the beginning of the quarter to 430 rigs as of April 1, 2021. In Canada, rig counts saw a recovery early in the year, peaking at 176 rigs in February before dropping in March in time for spring breakup. Despite these macroeconomic improvements and higher drilling activity, demand for composite pipe products, girth weld inspection and oilfield asset management (“OAM”) services remained at relatively low levels as large exploration and production (“E&P”) operators maintained their capital discipline and continued to limit spend.
In the first quarter, the Company completed further actions resulting in its salaried workforce having been reduced cumulatively by 25% from March 2020 levels, continued actions to optimize its operating footprint with the announced planned closure of a pipe coating facility in Leith, UK after the completion of the Baltic Pipe project and sustained control over discretionary spending. The Company incurred one-time net restructuring charges of $3.4 million during the quarter.
1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.
The Pipeline and Pipe Services segment experienced challenges as COVID-19 and weather induced supply chain interruptions forced customers to delay deliveries resulting in lower revenue as work was pushed out of the quarter and reduced backlog burn. Despite these challenges and the absence of contributions from the recently sold Pipeline Performance Products business (the “Products business”), the Pipeline and Pipe Services segment delivered positive Adjusted EBITDA1 in the quarter reflecting the reduced operating cost base. Pipe coating work continued to be executed on several international and offshore projects, and production ramp up continued at facilities in Mexico, Brazil, Norway, Indonesia, and Channelview (Texas). The segment’s engineering services business experienced its typical seasonal slowdown, while the integrity management business contributed stable revenue in the quarter.
The Composite Systems segment experienced its standard seasonal slowdown in shipments for retail fuel and water/wastewater tanks driven by customer induced installation delays due to winter weather conditions. Completion activities in North America were modestly higher than the previous quarter, with large and mid-size operators maintaining their cautious approach and limited capital spending. While showing an improvement in revenue over the fourth quarter of 2020, composite pipe product sales remain at relatively low levels. Business development activities in international markets continued in the quarter with active project bids made for composite pipe in the Middle East, Asia, Australia, and South America.
The Automotive and Industrial segment delivered record revenue and Adjusted EBITDA1 in the first quarter. Demand for the Company’s automotive products outpaced automotive production recovery as a result of increased adoption of electronic content and inventory build. In industrial markets, the business benefitted from infrastructure spending to build out communication and transportation networks and refurbish nuclear reactors. The segment’s revenue also benefitted from early pass through of copper price increases in the quarter, albeit with no impact on gross margin.
Order Backlog
The Company’s order backlog consists of firm customer orders only and represents the revenue the Company expects to realize on booked orders over the succeeding twelve months. The Company reports the twelve-month billable backlog as a leading indicator of changes in consolidated revenue. The order backlog of $521 million as at March 31, 2021, represents an increase over the $453 million order backlog as at December 31, 2020. This unexpected increase is mainly attributed to strong order intake in the Company’s composite tank business, lower than expected backlog burn rate from pipe coating activity due to weather related supply chain issues and other customer induced delays, and an increase in orders in other areas of the Company’s business.
The Company had previously anticipated backlog declines in the first half of the year, followed by a rebuild in the second half of 2021. As a result of supply chain interruptions and customer induced delays, execution was also delayed, thus deferring backlog declines. The Company now expects to see reduced backlog values over the next two quarters, followed by a rebuild in the fourth quarter of 2021.
In addition to the backlog, the Company closely monitors its bidding activity and the value of outstanding firm bids, which represents bids provided to customers with firm pricing and conditions against a defined scope. Outstanding firm bids were over $811 million as of March 31, 2021, slightly lower than the $841 million from last quarter largely due to projects moving into backlog. Included in the firm bid, but not in the backlog, are unsanctioned conditional awards between engineering and procurement companies (“EPC’s”) and Shawcor for a scope of work that is estimated at over $110 million in revenue in respect of which a final investment decision (“FID”) is expected in 2021. The Company is also working with customers on several other projects and the value of budgetary estimates at the end of the first quarter was over $1 billion. This represents a reduction compared to the budgetary value of $1.5 billion as at the end of the previous quarter, primarily due to removal of a large East African land pipeline project where the likelihood of participation is low. Although the timing of these projects in bid and budgetary is uncertain, these figures represent a diverse portfolio of opportunities to sustain and build the backlog.
1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.
Outlook
Shawcor’s financial performance is correlated with the level of industry activity and the level of investment in energy and infrastructure for resource development, storage and transportation around the globe and the resultant demand for the Company’s products and services.
The Company expects to deliver improved annual Adjusted EBITDA1 performance in 2021 over 2020, with some quarterly volatility due to project execution timing. Although disruptions related to supply chain issues are expected to continue into the second quarter of the year, the Company anticipates that the second quarter will show improvement over the results of the first quarter of 2021.
As discussed earlier, the Company expects its quarterly normalized SG&A run-rate to further improve to approximately $55 million. The Company will continue to focus its efforts on identifying additional opportunities to reduce costs and optimize its operating footprint, while maintaining the technical expertise and geographic footprint that provide the best opportunity for the Company to secure work and drive profitability.
The Company’s performance will be determined by the strength of its diverse base business and return of demand for its products and services, particularly in the U.S. and international energy markets, and its ability to continue to execute work and projects secured in the backlog. Performance will also be driven by the sustained strong demand for its composite tank business, continued demand recovery in the automotive and industrial markets which are serviced by the Company and its cost optimization initiatives completed over the course of the last year. Although the Company expects backlog to decline in the coming quarters as pipe coating projects are executed, it anticipates that it will rebuild in the fourth quarter of 2021 based on the Company’s strong competitive position and the expected addition of conditional awards pending sanctioning and awards secured for beyond 12 months.
The Company’s base oil and gas business in North America is heavily tied to the spending programs of E&P operators. While rig counts continue to rise, predominantly attributed to small and private producers, it is anticipated that the large- and mid-sized operators will maintain their capital spending discipline in the near term.
As the economy and energy demand recovers, the Company continues to expect that the global oil and gas capex cycle will resume and that large international and offshore projects will be sanctioned as National Oil Companies (“NOC’s”) and International Oil Companies (“IOC’s”) realign their portfolios. These investments are required to replace, maintain and rehabilitate infrastructure that is at or beyond its useful design life, replace production due to reservoir depletion, meet requirements for advanced technologies and non-corrosive materials, or to address geopolitical challenges which are affecting several important producing regions. Additionally, higher investments in gas, specifically LNG and for domestic energy, are being supported by the increased demand for gas and greener alternatives to support continued energy transition.
Further detail on the outlook for the Pipeline and Pipe Services, Composite Systems and Automotive and Industrial segments are set out below.
1 EBITDA and Adjusted EBITDA are Non-GAAP measures. Non-GAAP measures do not have standardized meanings under GAAP and are not necessarily comparable to similar measures provided by other companies. See Section 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP Measures.
Pipeline and Pipe Services Segment
Market demand for the Company’s Pipeline and Pipe Services segment is driven by capital spending and investments by IOCs and NOCs. The Company has a track record of providing leading solutions and successful execution on critical international and offshore development projects.
The Company expects to continue to execute work secured in its backlog with a number of projects set to be completed in the first half of the year. Work that was pushed out of the first quarter is projected to be completed in the second quarter of the year, with rapid execution outstripping sanctioning activity. As a result, backlog is expected to decline in the second quarter with an anticipated rebuild in the fourth quarter of 2021 as additional projects are sanctioned and awarded.
The Company continues to monitor international developments including continued exploration success and additional project phases in Guyana, Middle Eastern offshore projects designed to meet domestic energy needs and global LNG demand and new tax incentives introduced in Norway to accelerate project investments.
North American demand for the Pipeline & Pipe Services segment is closely tied to drilling and completion activity, the construction of new and the repair/replacement of old transmission pipelines and requirements for pipeline integrity and regulatory compliance. These activities drive the demand for small and large diameter pipe coatings, girth weld inspection services on existing pipelines and new projects and engineering design and consulting services. Larger operators have maintained their disciplined approach to capital spending and a moderate improvement in spending is expected to continue throughout 2021 as operators return to a minimum base level of investment to maintain current levels of production. Change in drilling and completion related capital spending is expected to be limited to single digit growth for the year.
Composite Systems Segment
Demand for composite storage tanks is detached from the dynamics of oil and gas markets and is expected to remain robust throughout 2021 as retail fuel service stations maintain healthy margins. Continued growth in demand for water storage and treatment tanks is expected to be supported by projected higher infrastructure spending and commercial and municipal water projects. Raw material shortages are anticipated to create supply chain challenges in the second quarter. In spite of these hurdles, the business continues to manage production schedules and lead times to minimize impacts and anticipates improved performance over its seasonal first quarter lows. Price surcharges have been implemented to manage raw material cost increases. The Company expects to deliver on its composite tank order backlog over the balance of the year with a focus on safe operations and supply chain management.
Market demand for the segment’s energy related businesses are driven by North American drilling and completion activity, demand for international oil and gas gathering line applications, and advanced materials in Oil Country Tubular Goods (“OCTG”). The segment benefits from the lower cost of ownership of composite systems versus steel and other materials, the development of larger diameter pipe applications and its international market qualifications. The composite pipe business will continue to benefit from stabilization in drilling and completion activity across the customer base as activity levels gradually return. Demand for the segment’s core pipe products in North America is expected to remain subdued compared to historical levels, however the Company believes that the lower demand can be partially offset by the continued commercialization of the larger diameter pipe applications, market share gains as operators adopt composite technology for its overall cost profile and environmental advantages, and continued business development work on international energy and infrastructure projects. Controlled and depressed spending from Canadian customers is expected to continue throughout 2021.
Automotive and Industrial Segment
Demand for the Company’s Automotive and Industrial businesses generally follows GDP activity; however, the segment continues to be well positioned to capture the growing trend of electronic content in automobiles with specified sealing, insulating and customized application equipment systems for Tier 1 assembly customers and the expected increased infrastructure spending. The Company will continue to invest in additional capacity to meet the demand within this segment.
Over the long-term, demand for electric and plug-in hybrid passenger vehicles and light trucks is expected to grow to represent more than 50% of global vehicle sales by the early part of the next decade. This trend fosters growth opportunities for the Company’s automotive products, in which demand could potentially surpass production growth projections in the broader automotive market due to increased electronic content adoption. Supply chain issues could create volatility quarter over quarter. In spite of this volatility, the Company expects to see continued growth in demand for its automotive products, particularly in Asia Pacific and Europe, Middle East, Africa and Russia (“EMAR”) regions, where electric vehicles adoption rates are highest.
Stable revenues are also expected from industrial markets, which are less cyclical. Despite negative non-residential permitting activity in 2020, the Company is expecting to benefit from infrastructure spending as new and upgraded communication networks are constructed and nuclear refurbishments continue in Canada, and federal stimulus packages are rolled out.
2.0 CONSOLIDATED INFORMATION AND RESULTS FROM OPERATIONS
2.1 Revenue
The following table sets forth revenue by reportable operating segment for the following periods:
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||||
| Pipeline and Pipe Services | $ | 144,518 | $ | 180,487 | |||
| Composite Systems | 71,121 | 89,405 | |||||
| Automotive and Industrial | 63,751 | 49,853 | |||||
| Elimination(a) | (59 | ) | (718 | ) | |||
| Consolidated revenue | $ | 279,331 | $ | 319,027 | |||
| (a) | Represents the elimination of the inter-segment sales between the Pipeline and Pipe Services segment, the Composite Systems segment and the Automotive and Industrial segment. | ||||||
First Quarter 2021 versus First Quarter 2020
Consolidated revenue decreased by $39.7 million, or 12%, from $319.0 million during the first quarter of 2020, to $279.3 million during the first quarter of 2021, reflecting a $36.0 million decrease in the Pipeline and Pipe Services segment and a $18.3 million decrease in the Composite Systems segment, partially offset by a $13.9 million increase in the Automotive and Industrial segment.
In the Pipeline and Pipe Services segment, revenue in the first quarter of 2021 was $144.5 million, or 20% lower than in the first quarter of 2020, primarily due to the absence of $28.5 million revenue attributable to the Products business sold in December 2020 and lower activity in North America, partially offset by higher activity in EMAR, Latin America and Asia Pacific. See Section 3.1 – Pipeline and Pipe Services Segment for additional disclosure with respect to the change in revenue in the Pipeline and Pipe Services segment.
In the Composite Systems segment, revenue in the first quarter of 2021 was $71.1 million, a decrease of 20% compared to the same quarter in 2020, primarily due to decreased demand in North America for composite pipe products. See Section 3.2 – Composite Systems Segment for additional disclosure with respect to the change in revenue in the Composite Systems segment.
In the Automotive and Industrial segment, revenue was $63.8 million, an increase of 28% compared to the first quarter of 2020, due to increased activity levels in North America, EMAR and Asia Pacific. See Section 3.3 – Automotive and Industrial Segment for additional disclosure with respect to the change in revenue in the Automotive and Industrial segment.
2.2 Loss from Operations ("Operating Loss")
The following table sets forth operating loss and Adjusted EBITDA for the following periods:
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars, except percentages) | 2021 | 2020 | |||||
| Operating Loss(a) | $ | (4,600 | ) | $ | (221,818 | ) | |
| Operating margin(b) | (1.6% | ) | (69.5% | ) | |||
| Adjusted EBITDA(b) | $ | 18,566 | $ | 6,204 | |||
| Adjusted EBITDA margin(b) | 6.6% | 1.9% | |||||
| (a) | Operating loss in the three months ended March 31, 2021 includes $3.4 million of restructuring costs, net, while 2020 includes $203.1 million of impairment charges and $0.2 million of restructuring costs. | ||||||
| (b) | Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. 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 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||
In the first quarter of 2020, the Company recorded impairment charges of $203.1 million due to the current market conditions for certain assets and the Company’s assessment of the related future demand and market recovery. The impairment charges included $143.6 million and $46.0 million on intangible assets and goodwill for Pipeline Performance Group and Shawcor Inspection Services, respectively, and $13.4 million on assets at two U.S. land pipe coating facilities and certain assets related to large diameter products in its Composite Systems facility in Alberta.
The Company continues to complete several cost reduction and cash preservation initiatives. As a result, the Company has recorded restructuring costs of $3.4 million, net of a gain of $2.8 million from the sale of scrap and other assets related to a site closure, in the first quarter of 2021 compared to $0.2 million of restructuring costs in the same period of the prior year.
First Quarter 2021 versus First Quarter 2020
Operating loss in the first quarter of 2021 was $4.6 million, a significant improvement compared to the $221.8 million operating loss incurred in the first quarter of 2020. The variance was primarily due to the absence of $203.1 million in impairment charges that occurred in the first quarter of 2020, a $22.5 million decrease in SG&A expenses, a $4.6 million decrease in depreciation and amortization, and a $1.4 million decrease in research and development, partially offset by a $11.6 million decrease in gross profit and a $3.2 million increase in restructuring costs.
The current quarter benefited from COVID-19 related government wage subsidies recorded of $2.4 million, of which $1.0 million was recorded in cost of goods sold and $1.4 million was recorded in SG&A expenses.
Gross profit decreased by $11.6 million compared to the first quarter of 2020. This was primarily driven by a $39.7 million decrease in revenue, due to the absence of the Products business which was sold in December 2020 and the activity levels as explained above, and a 0.3 percentage point decrease in gross margin. The current quarter also reflects a $1.0 million benefit from COVID-19 related government wage subsidies recorded.
SG&A expenses decreased by $22.5 million compared to the first quarter of 2020, primarily due to the completed cost control and headcount reduction initiatives and the absence of SG&A expenses of $5.7 million related to the Products business. Excluding the impact from the Products business, the quarterly decrease is primarily due to a reduction of $7.2 million in compensation expenses, $2.5 million in building and equipment expenses, $1.6 million in travel and entertainment expenses, $1.5 million information technology costs and $1.0 million in professional fees. The current quarter also benefited from COVID-19 related government wage subsidies of $1.4 million.
Adjusted EBITDA was $18.6 million in the first quarter of 2021 compared to $6.2 million in the first quarter of 2020. See Section 6.0 – Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.
2.3 (Loss) Income from Investments in Associates
The following table sets forth the (loss) income from investments in associates for the following periods:
| Three Months Ended | |||||
| March 31, | March 31, | ||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||
| (Loss) Income from investments in associates | $ | (190 | ) | $ | 164 |
The Company has equity-accounted investments in Zedi Inc. ("Zedi") and Power-Feed-Thru Systems and Connectors, LLC ("PFT"). During the first quarter of 2021, the Company received $6.3 million of proceeds pertaining to the partial redemption of the investment in Zedi, compared to the $8.9 million of proceeds received in the first quarter of 2020.
3.0 SEGMENT INFORMATION
3.1 Pipeline and Pipe Services Segment
The following table sets forth, by geographic location, the revenue, operating loss and Adjusted EBITDA for the Pipeline and Pipe Services segment for the following periods:
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars, except percentages) | 2021 | 2020 | |||||
| North America | $ | 61,325 | $ | 87,088 | |||
| Latin America | 20,796 | 20,062 | |||||
| EMAR | 45,652 | 57,564 | |||||
| Asia Pacific | 16,745 | 15,773 | |||||
| Total revenue | $ | 144,518 | $ | 180,487 | |||
| Operating loss(a) | $ | (9,499 | ) | $ | (215,673 | ) | |
| Operating margin(b) | (6.6% | ) | (119.5% | ) | |||
| Adjusted EBITDA(b) | $ | 4,046 | $ | (7,945 | ) | ||
| Adjusted EBITDA margin(b) | 2.8% | (4.4% | ) | ||||
| (a) | Operating loss in the three months ended March 31, 2021 includes $3.3 million restructuring costs, net, while 2020 includes $193.3 million of impairment charges and $0.2 million of restructuring costs. | ||||||
| (b) | Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. 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 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||
First Quarter 2021 versus First Quarter 2020
Revenue in the first quarter of 2021 was $144.5 million, a decrease of $36.0 million, or 20%, from $180.5 million in the comparable period of 2020. This was primarily due to the absence of $28.5 million revenue attributable to the Products business in North America and EMAR. Excluding the impact from the Products business, the first quarter results also reflects lower activity in North America, partially offset by higher activity in EMAR, Latin America and Asia Pacific.
- North America revenue decreased by $25.8 million, or 30%, primarily as a result of the absence of $13.5 million revenue attributable to the Products business, lower demand for small and large diameter pipe coating and engineering services and the completed closures of U.S. land pipe coating facilities during 2020, partially offset by higher revenue from girth weld inspection.
- Revenue in Latin America increased by $0.7 million, or 4%, primarily due to higher revenue from the Mero I project in Brazil and the Payara project in Mexico, partially offset by lower revenue from the Liza II project and other pipe coating activity in Mexico.
- In EMAR, revenue decreased by $11.9 million, or 21%, primarily as a result of the absence of $15.0 million revenue attributable to the Products business and lower activity levels at Ras Al Khaimah, UAE (“RAK”), Orkanger, Norway and Italy facilities. This was partially offset by higher revenue from the Baltic pipe project at the Leith, Scotland facility.
- Revenue in Asia Pacific increased by $1.0 million, or 6%, mainly due to higher pipe coating project activities at the Kabil, Indonesia and the Kuantan, Malaysia facilities.
Operating loss in the first quarter of 2021 was $9.5 million compared to $215.7 million in the first quarter of 2020. The lower loss was primarily due the absence of $193.3 million in impairment charges that occurred in the first quarter of 2020, a $20.6 million decrease in SG&A expenses, a $3.9 million decrease in depreciation and amortization, and a $0.8 million decrease in research and development. These positive impacts were partially offset by a $9.3 million decrease in gross profit and a $3.1 million increase in restructuring costs.
The current quarter benefited from COVID-19 related government wage subsidies recorded of $0.3 million, of which $0.2 million was recorded in cost of goods sold and $0.1 million was recorded in SG&A expenses.
Gross profit decreased by $9.3 million compared to the first quarter of 2020, primarily due to the $36.0 million decrease in revenue, due to the absence of the Products business and the activity levels as explained above, coupled with a 0.3 percentage point decrease in gross margin. The decrease in the gross margin percentage was primarily due to product and project mix and lower utilization in Latin America and EMAR facilities and the related impact on the absorption of manufacturing overheads.
SG&A expenses decreased by $20.6 million compared to the first quarter of 2020, primarily due to the restructuring initiatives and site closures and the absence of SG&A expenses of $5.7 million related to the Products business. Excluding the impact from the Products business, the quarterly decrease is primarily due to a reduction of $8.6 million in compensation expenses, $2.3 million in building and equipment expenses, $0.6 million in information technology costs, $0.6 million in professional fees and $0.5 million in travel and entertainment expenses.
Adjusted EBITDA in the first quarter of 2021 was $4.0 million compared to negative $7.9 million in the first quarter of 2020. See Section 6.0 – Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.
3.2 Composite Systems Segment
The following table sets forth, by geographic location, the revenue, operating income (loss) and Adjusted EBITDA for the Composite Systems segment for the following periods:
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars, except percentages) | 2021 | 2020 | |||||
| North America | $ | 69,769 | $ | 87,945 | |||
| Latin America | 749 | 1,063 | |||||
| EMAR | 603 | 397 | |||||
| Total revenue | $ | 71,121 | $ | 89,405 | |||
| Operating income (loss)(a) | $ | 667 | $ | (7,970 | ) | ||
| Operating margin(b) | 0.9% | (8.9% | ) | ||||
| Adjusted EBITDA(b) | $ | 8,547 | $ | 10,412 | |||
| Adjusted EBITDA margin(b) | 12.0% | 11.6% | |||||
| (a) | Operating income in the three months ended March 31, 2020 includes $9.8 million of impairment charges. | ||||||
| (b) | Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. 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 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||
First Quarter 2021 versus First Quarter 2020
Revenue in the first quarter of 2021 decreased by $18.3 million, or 20%, compared to the first quarter of 2020. This decrease was primarily due to lower revenue in North America of $18.2 million, or 21%, from lower demand for composite pipe products, resulting from the continued capital discipline focus of exploration and production operators despite the gradual increase during the quarter in oil and gas prices. In addition, the current quarter reflects lower activity in tubular management service business in Western Canada. Revenue for the Company’s composite tank business were only slightly higher than in the first quarter of 2020, reflecting the typical seasonal low activity level and some customer induced delivery delays due to weather issues.
Operating income in the first quarter of 2021 was $0.7 million compared to an operating loss of $8.0 million in the first quarter of 2020. The improvement was primarily due to the absence of $9.8 million in impairment charges that occurred in the first quarter of 2020, a $3.4 million decrease in SG&A expenses, and a $0.7 million decrease in depreciation and amortization expenses, partially offset by a $5.5 million decrease in gross profit.
The current quarter benefited from COVID-19 related government wage subsidies recorded of $1.4 million, of which $0.6 million was recorded in cost of goods sold and $0.8 million was recorded in SG&A expenses.
Gross profit decreased by $5.5 million compared to the first quarter of 2020, primarily due to the $18.3 million decrease in revenue, as explained above, coupled with a 0.2 percentage point decrease in gross margin. The decrease in gross profit was partially offset by $0.6 million of COVID-19 related government wage subsidies recorded.
SG&A expenses decreased by $3.4 million compared to the first quarter of 2020, primarily due to the completed headcount reduction initiatives that resulted in a decrease of $2.5 million in compensation related costs. The current quarter also benefited from COVID-19 related government wage subsidies of $0.8 million.
Adjusted EBITDA in the first quarter of 2021 was $8.5 million compared to $10.4 million in the first quarter of 2020. See Section 6.0 – Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.
3.3 Automotive and Industrial Segment
The following table sets forth, by geographic location, the revenue, operating income and Adjusted EBITDA for the Automotive and Industrial segment for the following periods:
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars, except percentages) | 2021 | 2020 | |||||
| North America | $ | 38,910 | $ | 29,933 | |||
| EMAR | 21,041 | 18,144 | |||||
| Asia Pacific | 3,800 | 1,776 | |||||
| Total revenue | $ | 63,751 | $ | 49,853 | |||
| Operating income | $ | 11,436 | $ | 7,598 | |||
| Operating margin(a) | 17.9% | 15.2% | |||||
| Adjusted EBITDA(a) | $ | 12,578 | $ | 8,719 | |||
| Adjusted EBITDA margin(a) | 19.7% | 17.5% | |||||
| (a) | Operating margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures. 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 6.0 – Reconciliation of Non-GAAP Measures for further details and a reconciliation of these Non-GAAP measures. | ||||||
First Quarter 2021 versus First Quarter 2020
Revenue in the first quarter of 2021 increased by $13.9 million, or 28%, compared to the first quarter of 2020, primarily due to strong demand for automotive heat shrink tubing products in the automotive sector across all regions and increased shipments for wire and cable products in North America.
Operating income in the first quarter of 2021 was $11.4 million compared to $7.6 million in the first quarter of 2020. The increase was primarily due to a $3.2 million increase in gross profit and a $0.6 million decrease in SG&A expenses.
The current quarter benefited from COVID-19 related government wage subsidies recorded of $0.4 million, of which $0.2 million was recorded in cost of goods sold and $0.2 million was recorded in SG&A expenses.
Gross profit increased by $3.2 million compared to the first quarter of 2020, primarily due to the $13.9 million increase in revenue, as explained above, partially offset by a 1.3 percentage point decrease in gross margin. The decrease in gross margin was primarily due to the product mix. The current quarter also benefited from $0.2 million of COVID-19 related government wage subsidies recorded.
SG&A expenses decreased by $0.6 million compared to the first quarter of 2020, primarily due to a decrease of $0.3 million in travel & entertainment expenses. The current quarter also benefited from COVID-19 related government wage subsidies of $0.2 million.
Adjusted EBITDA in the first quarter of 2021 was $12.6 million compared to $8.7 million in the first quarter of 2020. See Section 6.0 – Reconciliation of Non-GAAP Measures for additional disclosures regarding Adjusted EBITDA.
3.4 Financial and Corporate
Financial and corporate costs include corporate expenses not allocated to the operating segments and other non-operating items, including foreign exchange gains and losses on foreign currency denominated cash and working capital balances. The corporate division of the Company only earns revenue that is considered incidental to the activities of the Company. As a result, it does not meet the definition of a reportable operating segment as defined under IFRS.
The following table sets forth the Company’s unallocated financial and corporate expenses for the following periods:
| Three Months Ended | ||||||
| March 31, | March 31, | |||||
| (in thousands of Canadian dollars) | 2021 | 2020 | ||||
| Financial and corporate expenses | $ | (7,204 | ) | $ | (5,773 | ) |
First Quarter 2021 versus First Quarter 2020
Financial and corporate costs in the first quarter of 2021 were $7.2 million compared to $5.8 million in the first quarter of 2020. The $1.4 million increase reflects an incentive-based compensation expense of $1.9 million in the current quarter compared to a $2.3 million recovery in the first quarter of 2020, partially offset by a $0.6 million decrease in information technology costs, $0.5 million decrease in professional fees, $0.5 million decrease in compensation and a $0.3 million decrease in foreign exchange losses. The current quarter also benefited from $0.3 million of COVID-19 related governmental wage subsidies recorded.
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 impact and duration of the global COVID-19 pandemic and the related impacts on the Company’s operations and on the global supply and demand of oil and gas, the completion of cost savings initiatives, including the reduction of the Company’s international operations footprint, the achievement of improved normalized SG&A quarterly run rate, the future outlook for capital expenditures in the offshore oil and gas sector and North American land drilling and completion activity, the demand for its products in retail fuel, automotive and industrial markets, the successful execution of the Company’s order backlog and the anticipated fluctuations in the order backlog throughout 2021 including the rebuilding of the backlog in the fourth quarter of 2021 and the impact thereof on the Company’s revenue and operating income, the execution of definitive contracts on outstanding bids for and the timing to complete certain pipe coating projects, the likelihood that international and offshore projects will be sanctioned in the future, and the impact thereof on the Company’s business, the level of financial performance in the second quarter and for the balance of 2021, the effect of the Company’s diversified portfolio of products on revenue and operating income, the demand for the Company’s products in the Pipeline and Pipe Services, Composite Systems and the Automotive and Industrial segments of the Company’s business, the impact of global economic activity on the demand for the Company's products, the impact of continuing demand for oil and gas, the impact of global oil and gas commodity prices, the impact of changing energy demand, supply and prices and the impact and likelihood of changes in competitive conditions in the markets in which the Company participates.
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: the duration and impact of the COVID-19 pandemic on the Company, its employees, customers, suppliers, energy and commodity markets and on the global economy, the impact on the Company of the continued heightened focus by North American oil and gas operators on capital discipline, the impact on the Company of reduced demand for its products and services, including the delay, suspension or cancellation of existing or anticipated contracts, as a result of lower investment in global oil and gas extraction, infrastructure and transportation activity following the previous declines in the global price of oil and gas, long term changes in global or regional economic activity and changes in energy supply and demand, which with other factors, impact on the level of global pipeline infrastructure construction; exposure to product and other liability claims; supply chain disruptions caused by extreme weather or other conditions; shortages of or significant increases in the prices of raw materials used by the Company; compliance with environmental, trade and other laws; political, economic and other risks arising from the Company’s international operations; the impact of climate change on the demand for the Company’s products and fluctuations in foreign exchange rates, as well as other risks and uncertainties described under "Risks and Uncertainties" in the Company’s annual 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 gradual lifting of certain COVID-19 related restrictions or their continuation on a more limited and targeted basis than the basis on which those restrictions were previously imposed and the impact thereof on global economic activity; the Company’s ability to manage supply chain disruptions caused by the COVID-19 pandemic, extreme weather or by natural disasters; global oil and gas prices, the delay in the near term of certain projects and 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; the commencement of recovery of the global economy; a gradual recovery of oil and gas markets in North America, the continued recovery of demand in the automotive and industrial markets, particularly in North America and Europe and the heightened demand for hybrid and fully electric vehicles, tempered somewhat by automobile production delays arising from a global shortage of semi-conductors; sustained solid demand in the retail fuel market and stable demand in the industrial markets with storage tank demand supported by higher infrastructure spending and commercial and municipal water projects; heightened infrastructure spending in Canada on communication networks and nuclear refurbishments; the Company’s ability to execute projects under contract, the Company’s continuing ability to provide new and enhanced product offerings to its customers, the higher level of investment in working capital by the Company, the continued supply of and stable pricing for commodities used by the Company and the ability of the Company to pass on price increases in respect thereof; the availability of personnel resources sufficient for the Company to operate its businesses, the Company’s ability to optimize its operational footprint while maintaining its competitive position 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 level of payments under the Company's performance, bid and surety bonds; the ability of the Company to satisfy all covenants under the Credit Facility; 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 CONFERENCE CALL AND ADDITIONAL INFORMATION
Shawcor will be hosting a Shareholder and Analyst Conference Call and Webcast on Friday, May 14th, 2021 at 9:00 AM ET, which will discuss the Company’s First Quarter 2021 Financial Results. To participate via telephone, please dial 1-877-776-4039 or 1-315-625-6955. Conference Call ID: 1299148. Alternatively, please go to the following website address to participate via webcast: https://edge.media-server.com/mmc/p/pqpwvbbg
The Company’s first quarter MD&A and financial statements are available on Shawcor’s website at www.shawcor.com.
Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com.
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
Shawcor Ltd.
Interim Consolidated Balance Sheets (Unaudited)
| March 31, | December 31, | |||||
| (in thousands of Canadian dollars) | 2021 | 2020 | ||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 194,310 | $ | 214,514 | ||
| Accounts receivable | 203,093 | 200,871 | ||||
| Contract assets | 41,058 | 52,530 | ||||
| Income taxes receivable | 11,438 | 12,304 | ||||
| Inventory | 131,076 | 126,328 | ||||
| Prepaid expenses | 12,607 | 12,446 | ||||
| Derivative financial instruments | – | 691 | ||||
| Total current assets | 593,582 | 619,684 | ||||
| Non-current Assets | ||||||
| Property, plant and equipment | 347,835 | 360,329 | ||||
| Right-of-use assets | 63,008 | 67,352 | ||||
| Intangible assets | 195,115 | 200,168 | ||||
| Investments in associates | 5,013 | 11,594 | ||||
| Deferred income tax assets | 31,201 | 31,633 | ||||
| Other assets | 1,721 | 3,266 | ||||
| Goodwill | 229,369 | 231,570 | ||||
| Total non-current assets | 873,262 | 905,912 | ||||
| TOTAL ASSETS | $ | 1,466,844 | $ | 1,525,596 | ||
| LIABILITIES AND EQUITY | ||||||
| Current Liabilities | ||||||
| Accounts payable and accrued liabilities | $ | 164,807 | $ | 177,140 | ||
| Provisions | 18,173 | 18,394 | ||||
| Income taxes payable | 17,676 | 17,924 | ||||
| Derivative financial instruments | 148 | 728 | ||||
| Contract liabilities | 20,408 | 32,377 | ||||
| Lease liabilities | 18,236 | 18,590 | ||||
| Other liabilities | 5,406 | 4,434 | ||||
| Total current liabilities | 244,854 | 269,587 | ||||
| Non-current Liabilities | ||||||
| Long-term debt | 433,729 | 433,387 | ||||
| Lease liabilities | 49,664 | 53,576 | ||||
| Provisions | 16,717 | 17,857 | ||||
| Employee future benefits | 19,515 | 19,807 | ||||
| Deferred income tax liabilities | 6,248 | 6,874 | ||||
| Other liabilities | 4,714 | 7,815 | ||||
| Total non-current liabilities | 530,587 | 539,316 | ||||
| Total liabilities | 775,441 | 808,903 | ||||
| Equity | ||||||
| Share capital | 720,172 | 719,615 | ||||
| Contributed surplus | 26,622 | 26,494 | ||||
| Retained deficit | (67,058 | ) | (51,686 | ) | ||
| Non-controlling interests | 3,484 | 3,995 | ||||
| Accumulated other comprehensive income | 8,183 | 18,275 | ||||
| Total equity | 691,403 | 716,693 | ||||
| TOTAL LIABILITIES AND EQUITY | $ | 1,466,844 | $ | 1,525,596 | ||
Shawcor Ltd.
Interim Consolidated Statements of (Loss) Income (Unaudited)
| Three Months Ended March 31, | |||||||
| (in thousands of Canadian dollars, except per share amounts) | 2021 | 2020 | |||||
| Revenue | |||||||
| Sale of products | $ | 127,458 | $ | 147,118 | |||
| Rendering of services | 151,873 | 171,909 | |||||
| 279,331 | 319,027 | ||||||
| Cost of Goods Sold and Services Rendered | 205,596 | 233,722 | |||||
| Gross Profit | 73,735 | 85,305 | |||||
| Selling, general and administrative expenses | 51,365 | 73,889 | |||||
| Research and development expenses | 1,960 | 3,407 | |||||
| Foreign exchange losses | 1,644 | 1,961 | |||||
| Depreciation and amortization | 19,971 | 24,576 | |||||
| Impairment | – | 203,084 | |||||
| Restructuring costs, net | 3,395 | 206 | |||||
| Loss from Operations | (4,600 | ) | (221,818 | ) | |||
| (Loss) Income from investments in associates | (190 | ) | 164 | ||||
| Finance costs, net | (7,033 | ) | (6,209 | ) | |||
| Net monetary loss | (1,122 | ) | (485 | ) | |||
| Loss before Income Taxes | (12,945 | ) | (228,348 | ) | |||
| Income tax expense | 2,847 | 6,731 | |||||
| Net Loss | $ | (15,792 | ) | $ | (235,079 | ) | |
| Net Loss Attributable to: | |||||||
| Shareholders of the Company | $ | (15,372 | ) | $ | (234,903 | ) | |
| Non-controlling interests | (420 | ) | (176 | ) | |||
| Net Loss | $ | (15,792 | ) | $ | (235,079 | ) | |
| Loss per Share | |||||||
| Basic | $ | (0.22 | ) | $ | (3.35 | ) | |
| Diluted | $ | (0.22 | ) | $ | (3.35 | ) | |
| Weighted Average Number of Shares Outstanding (000s) | |||||||
| Basic | 70,436 | 70,208 | |||||
| Diluted | 70,436 | 70,208 | |||||
Shawcor Ltd.
Interim Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars) | Three Months Ended March 31, | |||||
| 2021 | 2020 | |||||
| Operating Activities | ||||||
| Net loss | $ | (15,792 | ) | $ | (235,079 | ) |
| Add (deduct) items not affecting cash | ||||||
| Depreciation and amortization | 19,971 | 24,576 | ||||
| Impairment | – | 203,084 | ||||
| Interest expense on right-of-use assets leases | 667 | 992 | ||||
| Share-based compensation and incentive-based compensation | 973 | (1,771 | ) | |||
| Deferred income taxes | (658 | ) | 4,027 | |||
| Gain on disposal of property, plant, and equipment | (3,619 | ) | (109 | ) | ||
| Unrealized loss (gain) on derivative financial instruments | 111 | (674 | ) | |||
| Loss (income) from investments in associates | 190 | (164 | ) | |||
| Other | 530 | (3,385 | ) | |||
| Change in non-cash working capital and foreign exchange | (21,626 | ) | 8,612 | |||
| Cash (Used in) Provided by Operating Activities | $ | (19,253 | ) | $ | 109 | |
| Investing Activities | ||||||
| Decrease in loans receivable | – | 423 | ||||
| Purchase of property, plant and equipment | (4,337 | ) | (9,875 | ) | ||
| Proceeds on disposal of property, plant and equipment | 1,729 | 187 | ||||
| Decrease in other assets | 1,325 | 130 | ||||
| Proceeds from redemption of investments in associates | 6,342 | 8,878 | ||||
| Cash Provided by (Used in) Investing Activities | 5,059 | (257 | ) | |||
| Financing Activities | ||||||
| Decrease in long-term debt | (193 | ) | (297 | ) | ||
| Repayment of lease liabilities | (5,588 | ) | (6,013 | ) | ||
| Dividends paid to shareholders | – | (10,546 | ) | |||
| Cash Used in Financing Activities | $ | (5,781 | ) | $ | (16,856 | ) |
| Effect of Foreign Exchange on Cash and Cash Equivalents | (229 | ) | 5,129 | |||
| Net decrease in Cash and Cash Equivalents | (20,204 | ) | (11,875 | ) | ||
| Cash and Cash Equivalents - Beginning of Period | 214,514 | 98,218 | ||||
| Cash and Cash Equivalents - End of Period | $ | 194,310 | $ | 86,343 | ||
| Cash | 193,681 | 85,202 | ||||
| Cash Equivalents | 629 | 1,141 | ||||
| Total Cash and Cash Equivalents | $ | 194,310 | $ | 86,343 | ||
6.0 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, restructuring costs 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 in the oil and gas industry 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 Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||||
| Net (Loss) Income | $ | (15,792 | ) | $ | (235,079 | ) | |
| Add: | |||||||
| Income tax expense | 2,847 | 6,731 | |||||
| Finance costs, net | 7,033 | 6,209 | |||||
| Amortization of property, plant, equipment, intangible and ROU assets | 19,971 | 24,576 | |||||
| EBITDA | $ | 14,059 | $ | (197,563 | ) | ||
| Hyperinflation adjustment for Argentina | 1,112 | 477 | |||||
| Impairment | – | 203,084 | |||||
| Restructuring costs, net | 3,395 | 206 | |||||
| Adjusted EBITDA(a) | $ | 18,566 | $ | 6,204 | |||
| (a) | Adjusted EBITDA includes COVID-19 related government wage subsidies of $2.4 million in the first quarter of 2021. | ||||||
Pipeline and Pipe Services Segment
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||||
| Operating Loss | $ | (9,499 | ) | $ | (215,673 | ) | |
| Add: | |||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 10,357 | 14,247 | |||||
| EBITDA | $ | 858 | $ | (201,426 | ) | ||
| Hyperinflation adjustment for Argentina | (83 | ) | 37 | ||||
| Impairment | – | 193,256 | |||||
| Restructuring costs, net | 3,271 | 188 | |||||
| Adjusted EBITDA(a) | $ | 4,046 | $ | (7,945 | ) | ||
| (a) | Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.3 million in the first quarter of 2021. | ||||||
Composite Systems Segment
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||||
| Operating Income (Loss) | $ | 667 | $ | (7,970 | ) | ||
| Add: | |||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 7,856 | 8,538 | |||||
| EBITDA | $ | 8,523 | $ | 568 | |||
| Impairment | – | 9,828 | |||||
| Restructuring costs, net | 24 | 16 | |||||
| Adjusted EBITDA(a) | $ | 8,547 | $ | 10,412 | |||
| (a) | Adjusted EBITDA includes COVID-19 related government wage subsidies of $1.4 million in the first quarter of 2021. | ||||||
Automotive and Industrial Segment
| Three Months Ended | |||||||
| March 31, | March 31, | ||||||
| (in thousands of Canadian dollars) | 2021 | 2020 | |||||
| Operating Income | $ | 11,436 | $ | 7,598 | |||
| Add: | |||||||
| Amortization of property, plant, equipment, intangible and ROU assets | 1,110 | 1,119 | |||||
| EBITDA | $ | 12,546 | $ | 8,717 | |||
| Restructuring costs, net | 32 | 2 | |||||
| Adjusted EBITDA(a) | $ | 12,578 | $ | 8,719 | |||
| (a) | Adjusted EBITDA includes COVID-19 related government wage subsidies of $0.4 million in the first quarter of 2021. | ||||||
Adjusted EBITDA Margin
Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue and is a non-GAAP measure. The Company believes that adjusted EBITDA margin is a useful supplemental measure that provides meaningful assessment of the business results of the Company and its Operating Segments from principal business activities excluding the impact of transactions that are outside of the Company’s normal course of business.
Adjusted Net (Loss) Income and Adjusted EPS
Adjusted (loss) net income is a non-GAAP measure defined as net income before acquisition-related and integration items, including transaction costs and financing fees; cost reduction and integration related initiatives such as separation benefits, retention payments, other exit costs, impact of inventory revaluation adjustment and certain costs associated with integrating an acquired company’s operations; gains or losses from early termination of debt and hedging activities; gains and losses on the disposal of land and other; gain on redemption of investment in associate; asset impairment charges; hyperinflation adjustment for Argentina; gain on sale of operating unit and the tax effect of the pre-tax adjustments above at applicable tax rates and certain other tax items. We define adjusted EPS as adjusted net income (loss) attributable to shareholders divided by the weighted average number of shares and the weighted average number of diluted shares.
| Three Months Ended | ||||||
| March 31, | March 31, | |||||
| (in thousands of Canadian dollars, except per share amounts) | 2021 | 2020 | ||||
| Net (Loss) Income | $ | (15,792 | ) | $ | (235,079 | ) |
| Add: | ||||||
| Hyperinflation adjustment for Argentina | 1,747 | 1,158 | ||||
| Restructuring costs, net | 3,395 | 206 | ||||
| Impairment | – | 203,084 | ||||
| Tax effect of the above adjustments | (635 | ) | (2,401 | ) | ||
| Adjusted Net (Loss) Income | $ | (11,285 | ) | $ | (33,032 | ) |
| Adjusted Net (Loss) Income Attributable to Shareholders | $ | (10,865 | ) | $ | (32,856 | ) |
| Adjusted EPS | ||||||
| Basic | $ | (0.15 | ) | $ | (0.47 | ) |
| Diluted | $ | (0.15 | ) | $ | (0.47 | ) |
Operating Margin
Operating margin is defined as operating (loss) income divided by revenue and is non-GAAP measure. The Company believes that operating margin is useful supplemental measure that provide meaningful assessment of the business performance of the Company and its Operating Segments. The Company uses this measure as key indicators of financial performance, operating efficiency and cost control based on volume of business generated.
