CEMATRIX Corporation (CEMX) Earnings Call Transcript & Summary

It looks like everyone is coming in. So first, thank you, everybody, for joining us today. I'm Jeff Walker, Vice President at The Howard Group. We're speaking with Randy Boomhour, CEO and President; and MJ Cantin, who is CFO of CEMATRIX. We will go through the presentation discussing last year's numbers, 2024 as well as Q4, [Operator Instructions] So on that, I will turn it over to the team.

Thank you, Jeff. I appreciate that introduction, and welcome, everybody, to our Q4 2024 earnings call. We're excited to share the results with you guys and share a little bit about the company. My sense is most of the people on the call are familiar with CEMATRIX. But nonetheless, we'll do a quick corporate overview here to help you guys get acquainted with the company, and then we'll get into some of the numbers. And then as Jeff said, we'll go into a Q&A. So key investor highlights for the company. CEMATRIX is an innovative cellular concrete solutions company. We're a leading provider of lightweight, cost-effective, durable cellular concrete for infrastructure projects. We have a strong competitive advantage, and we work primarily as a subcontractor for a major North American general contractors. We have a very strong financial strength position, and we have an overall growth trend. 2024 revenue was $35.4 million. Adjusted EBITDA was $3.3 million. Cash flow from operations was $4.9 million. We have $10.3 million in cash and only $1.1 million in long-term debt at the end of the year, and we're forecasting a record year in 2025. We've got a significant market opportunity in front of us. We're an industry leader. The size of the global cellular concrete market is very large with estimates ranging from $4 billion to $27 billion and pretty much all of those estimates forecasting steady growth. And we've got lots of tailwinds providing further benefits to us, mostly around increased infrastructure spending in Canada and the U.S. So the management team is myself and MJ; Jordan Wolfe, who is the President of MixOnSite for us, which is our largest U.S. operation. We have about 150 million shares outstanding, fully diluted to 165 million. Inside our ownership is about 15 million shares or roughly 10% of those largest insiders, the 2 or biggest are Jordan at 12 million shares and myself at 1.4 million shares. Cellular concrete is made by mixing cement water and a foaming agent together. The foaming agent creates bubbles in the mixture, resulting in the cellular structure that when it sets -- when the concrete sets. Really what differentiates or make cellular concrete useful or the key properties, those are that's cost-effective as low density and is lightweight, has a high bearing capacity. It's extremely pumpable highly flowable and self-leveling. It's also self compacting because of the bubble structure, there's some thermal insulating properties, and it's durable and excavatable. Lots of applications, the primary ones that we service in the market are lightweight engineered fill, MSE retaining wall fills, insulating road sub-bases, flowable self compacting fill, pipe and covert abandonments, tunnel and annular grout and shallow utility and foundation insulation. As we stated earlier, kind of our customers and competitive advantages. Our key customers are always -- we're always a subcontractor to a general contractor. Occasionally, we will contract directly with an owner usually on smaller scopes of work. We've worked with many, if not all, of the largest general contractors in North America, and there's a snapshot of some of them down below to the left. Competitive advantage is really our reputation. We've been successfully delivering cellular concrete solutions on time and on budget for over 25 years. We have a fantastic team with lots of expertise over 200 years of in the field experience. Our equipment. We have the largest fleet of mobile technologically advanced equipment for producing cellular concrete with lots of capacity in that equipment fleet to grow. Our size and scale, we have got multiple locations from coast to coast in Canada and the U.S., and we're generally more environmentally friendly than the legacy products that we replace. So the market size and the customers and opportunity. The third-party data on the size of the market is the estimates range from as low as $4 billion from the Market Research Future to as high as $27 billion from Allied Market Research all agree that the market for cellular concrete is growing and the market for lightweight fills, which is -- which includes competitive products is a multiple size larger. Infrastructure spending is increasing. It's aging in Canada and the U.S. and needs to be repaired and replaced. Populations continue to grow, requiring new infrastructure, replacing additional loads on existing infrastructure. As I said, spending is expected to increase in the future, and that's a significant tailwind for cellular concrete and lightweight products for many years to come. So I'll hand it over here to MJ to kind of go over our key financials.

Thanks, Randy. So our top line growth trend is go -- even if we had a step back in 2024, our overall revenue trend line is growing, and I'm going to show you a graph of portraying that. If you look at 2021, for instance, revenue was $22.6 million, and last year in 2024, it was at $35.6 million, and we are forecasting 2025 to be a record year. Our positive -- our bottom line is positive, and we are generating cash. We have positive adjusted EBITDA of $3.3 million in 2024 and positive cash flow from operations, as Randy said, of $4.9 million in 2024. We do have a healthy balance sheet with leverage. At the end of the year, last year, we had $10.3 million in cash and $1.1 million in long-term debt again at the end of the year. So some concept to understand our business, revenue growth will be lumpy. It will not be a perfect stair case. Financial results will be variable based on the timing of when large projects start and stop. As a reminder, construction is a seasonal business with higher revenues in warmer month and the opposite in colder months. And on average, over the last 5 years, we produced in Q1 about 18% of our revenue; Q2, similar; Q3, around 36% and Q4, 28%. We are a specialty construction contractor and margins tend to be higher than general contractors, but we have more idle time and more fixed cost. Project size and [ pax ] margins, larger projects have more competition, and as a result, lower margins. We have excess capacity, which enables us to do significantly more revenue with existing equipment and existing staffing levels. So to reiterate, it was our second best year in the history of the company in 2024. And during the quarter, we had a revenue of $10.4 million compared to $19.6 million in 2023. That was a record year. For the year, we had $35.4 million versus $53.3 million in 2023. When you look at gross margin percent as a percent of revenue, we did 29% in Q4 compared to 27% in 2023. So that's a 2% gross margin increase. And for the year, 27% and 22% in 2023, that's a 5% gross margin increase. We had operating income of $0.6 million in Q4 versus $2.4 million in 2023 and $0.5 million for the year versus $2.7 million in 2023. Adjusted EBITDA was positive for both the quarter and the year, $1.4 million in Q4 versus $2.9 million in 2023. $3.3 million in 2024 versus $4.9 million in 2023. Positive cash flow from operations for both the quarter and the year as well, $2.6 million during the quarter versus $2.8 million last year and $4.9 million in 2024 versus $0.5 million in 2023. Cash on hand, as Randy mentioned, was $10.3 million. It's $7 million higher than what we had on hand in 2023 at $3.3 million. Looking at revenue, you can see our trend line is growing. If I had to add 2025, the trend line will continue to grow. And then if you were to look at our annual growth rate since 2019, it's about 9%. And you can also see it is a bit lumpy as we discussed. Looking at gross margin is improving. We have good momentum over the last few years. You see a dip there that's due to COVID and some supply chain issues that we had and some cement shortages. And looking down at the bottom, the picture is worth thousand words. If you look at debt in 2020, we had roughly above $20 million, and then our finance costs were higher than $1.2 million, and we came along with since 2019 when you look at today, $1 million in long-term debt on the balance sheet. And less than $200,000 in finance costs. And when you look at the right-hand corner, this is our share structure. So at the end of the quarter last year 2024, we had $150 million of shares, and 3 instruments outstanding we had 6.2 million units of options, 2.1 million RSUs and 8.2 million units of warrants. If you would like to have more information, you're more than welcome to negate on our website, and our documents are there and also on SEDAR+. So I'll turn it back to Randy.

Thanks, MJ. So just kind of wrap up why invest in CEMATRIX. We're an industry leader. We're well positioned to capitalize on the large opportunity in the growing infrastructure segment. We are a growth company. We give the most conservative calculation of our growth rate there, but if were to go back to 2017 and calculate the growth rate, our growth rate is over 20% on an annual basis. We have positive EBITDA, positive cash flow from operations and a very strong balance sheet. We believe that we're currently undervalued based on traditional valuation metrics. If you take a forward multiple of revenue or forward multiple of EBITDA you come up with a much higher share price or valuation. We don't need to raise any more capital to fund the burn rate, only new capital should be in support of an accretive acquisition. And we also have existing capital to deploy. So we're looking for opportunities to deploy that, whether it be the acquisition or other organic uses of that capital. So we've got 2 Investor Relations contact, the Howard Group and Bristol Capital. Their contact information here. And we have 1 analyst covering the company, which is Beacon Securities and the analyst contact information is there as well. So thank you for joining us. We appreciate the opportunity to share with you the results, and we'll open it up to questions and answers.

Thank you both. I've got some questions from Russell Stanley, who is the analyst on file for Beacon Securities. Somebody had asked what Beacon's target is for CEMATRIX now? The last update I've seen, they're calling for $0.55 a share as a buy for CEMATRIX. So to Russell's questions, there's a few and all these [indiscernible] pieces, and I'll let you answer accordingly. Can you provide an update on the major projects, specifically the North Carolina job and the tunnel grouting project in the Midwest.

Yes. So the North Carolina job is expected to start this year. We're hopeful that, that will start in Q2. The general contractor on site are currently working on that project. So we know our scope of work is coming up quickly. The communication with that general contractor hasn't been ideal, but we continue to kind of work through that issue with them, and we expect to be able to press release when we start our scope of work there in the second quarter. With respect to the tunnel grouting project, that project is proceeding along very well. And the latest estimate has us mobilizing to site there in mid- to late April. So we're very confident that, that 1 is going to start very soon.

When you brought up the impact of tariffs and the potential of that what are customers, whether it's contracts or project owners saying about how they intend to respond to tariffs.

Yes, that's interesting. I'm not sure we've had a lot of conversation with customers per se about the impact of tariffs. I can say the impact of tariffs for us personally should be very limited. There's very little that we do that crosses the border. We procure cement and ready-mix locally in the jurisdictions that we work and we manufacture our product on the sites that our customers are working on. So very little of what we do crosses the border. There's some concern about the overall macroeconomic impact of tariffs and what that's going to mean for Canada and the U.S. economies, in both cases, kind of predicting potential recessions. The good news is the markets we tend to focus on being infrastructure markets tend to be a bit recession-proof. And in fact, often in times of recession, governments will actually spend more money in those areas. So we're pretty confident overall that the impact of tariffs will be pretty minimal on CEMATRIX. But as I said, we're worried about the greater macroeconomic impacts that we really can't forecast or say what they will be at this time.

Can you talk about the appetite for acquisitions, given where the stock is?

So as I stated in the presentation, we really feel like the share price is undervalued given the year that we have in front of us and the balance sheet that we have. So -- and we want to do -- when we do an acquisition, we want to have a portion of that acquisition that's based on equity. And so right now, I'd say our appetite is pretty low. Our focus really is on executing the backlog and the work that we have in front of us and hope that the market starts to recognize the results and the progress and the overall growth trend. And once that happens and the share price recovers, then I think we'll be a little bit more active on the acquisition side. So I'd say any acquisition would be very late this year, early next year. And we won't do an acquisition just to do an acquisition. It has to make sense and it has to be accretive.

Regarding gross margins, understanding that larger projects are typically more competitive and are lower margin. How do you expect your revenue mix between fiscal '25 and fiscal '24? I guess, large and smaller.

Yes. So in order for us to do a record year, that means there has to be some significant revenue from large projects. So 2025 is going to have some significant revenue from large projects, which -- and in the larger projects, those margins are always lower because there's more competition chasing that work. So I would expect you might see some slight margin compression in 2025, but still very strong.

And then do you care to comment on what you think the normal top line growth rate will be for CEMATRIX past 2025?

Yes. I don't want to comment on that. I truly don't know what it is. All I can tell you is the overall growth trend is one of growth and positive, and we're doing everything we can to build a profitable, growing business.

You expect 2025 to be a record year? Do you expect that to be both on the top and bottom line? And what is the basis of that expectation?

So yes, we do expect it to be a record year, both in terms of revenue and EBITDA. And the basis of that expectation is really just looking at backlog, on when our current scheduled backlog is scheduled to go into the ground for our customers based on conditions on the ground. So it's not -- it's not an optimistic forecast. It's based -- we think it's a very realistic forecast based on conditions on the sites.

The cash you have on hand and the stock price being where it is, would you consider a stock buyback?

Yes, it's a tricky question. It is definitely something that we're evaluating internally because we truly do believe the share price is not just a little bit undervalued but significantly undervalued. But there's also -- the flip side is if we have cash to deploy we should be looking at opportunities to deploy that into the business. So it's something we're evaluating and hope to be able to provide a more concrete answer in the future.

If you want to comment on the backlog where it was a year ago versus today? And what's the pipeline of opportunity a year ago versus then -- versus now.

Yes. So we've changed how we report and disclosed backlog. We used to disclose that number as part of each new contract announcement, which created challenges because we had investors or shareholders trying to reverse engineer or do some fancy math to figure out what our revenue is, and we found that it was just counterproductive because they'd often get it wrong. When we look at backlog this year versus last year, I think the numbers are fairly similar. It might be down a little bit. We do expect backlog might drop in 2025 because we're going to have a record year and put a lot of the projects that are in backlog into revenue. So we're working really hard to refill that backlog and win new work that's going to basically sustain the company for 2026 in the years going forward.

And someone's asked about the Ontario Stone, Sand & Gravel Association and the Toronto and Area Road Builders Association, they partnered to push recycled aggregate in road construction. Will this development be a headwind of our competitors on winning contracts in Ontario?

Yes. So I'm not aware of that push per se. I will say where cellular concrete makes sense for road basis is over weaker, unstable soils. And so using a recycled aggregate doesn't change our competitive position in those situations. So I don't expect that to really have a material impact on our business.

Everyone here. Your plan is to be debt free by the end of 2025. Is that correct?

At the end of 2025, we will have repaid all of the long-term debt associated with the BDC. That's from the 2 acquisitions we did in 2018 and 2019. We will still technically have some debt in the terms of equipment financing, but we won't have any long-term debt that's not associated with the specific piece of equipment.

Several questions just about guidance for 2025, earnings per share, EBITDA, do you want to comment any further on any of that?

Yes. I'll just say we don't provide formal guidance, right? The only guidance that we've provided is that 2025 is going to be a record year. So any questions asking for more specificity around that, we just can't answer.

Are you competing on any $20 million-plus projects?

I'm not aware of any $20 million-plus projects that are in our pipeline. I will say there's lots of larger projects, but none of that size.

What changes have been made, would you say day-to-day with management of the company since the retirement of former CEO.

Not many changes have been made. I mean before the retirement of Jeff, I was already the Chief Operating Officer of the company, responsible for the -- all of the operations. So we haven't really made a lot of changes. There's been some changes around communication and style. The overall strategy of the company remains the same. Jeff and I were highly aligned on how the company ran before his departure, and that hasn't really changed since his departure.

Asking more just a bit more detail on -- are you observing challenges due to the change in the U.S. government with CEMATRIX being mostly a Canadian company?

Well, yes, there's definitely been a lot of challenges and interesting developments. I just as a citizen of the world. But from a -- if I just put my CEMATRIX hat on, we really are a Canadian company operating in Canada, and we have a U.S. subsidiary with U.S. employees and U.S. equipment operating in the U.S. So we don't -- as I say, we don't really expect a lot of challenges or adversity associated with tariffs or the change in government. There's -- you might even be able to argue that despite some of the noise around Trump, a lot of his policies are actually pro business. And if you get past this kind of period of instability, it might actually be very good for the economies in both cases and spur further investments, both in the U.S. and in Canada.

How are you able to improve profitability in 2024 despite the reduced revenue?

So it's 2 things. It's one, a concerted effort to basically do better on our margins, so either do better in the bidding and estimating process to basically correctly price it based on competitive factors. And then the second is to do better in terms of execution. So there are sometimes opportunities to do better than your bid margins and execution. So we've done a good job of both of those things in 2024. And then the second thing is just a mix. So in 2024, we had less revenue from larger projects, more revenue from small to midsized projects as a sort of percentage of the overall total and that contributes to increasing the margin. When we have more revenue from larger projects, just the mix results in a lower margin.

Someone's asked about your investment in Glavel and what your expectations are there going forward?

Yes. So Glavel has a really good product that has a very large niche market opportunity in the construction industry. So we are big believers in foam glass aggregate. Glavel has been working on getting their capital structure rightsized and getting their own balance sheet cleaned up. So we're very optimistic about Global. I think initially, our plan was to have a path where we could end up being the majority owner of Glavel incorporating into our financial results, but Glavel's capital requirements basically outstripped our ability to finance them. So I think the path to full ownership of Glavel has probably disappeared at least for now. So we're really just trying to support that business and get it to a point where there's some exit in the future where we can recognize value on our investment.

And the question regarding the seasonality of the business. Could you discuss what actions are being undertaken or explored to reduce it?

Yes. So -- there's some -- there's a bit of a notion that seasonality is kind of inherently bad. And I don't really view it that way. So if we have an opportunity to do more revenue in the third quarter or fourth quarter that's profitable and it makes seasonality kind of look worse. We're going to take that opportunity to make that revenue and to make that money. In terms of things that we could do to reduce seasonality, it's things like expand our presence in some of the southern states where there's less impact from winter. In some cases, you might even get reverse seasonality because of how hot it gets in the summer, where you don't really want to be working in July and August. Usually on the West Coast, there's less impacts from winter just because of the moderation of the ocean. So we're looking to grow our business on the West Coast. And then there are some scopes of work that are almost weather independent. So if you're roading a tunnel underground, the weather above often doesn't matter. So there's a bunch of different things, but I don't want to leave investors or shareholders with the impression that seasonality is inherently bad. If we find opportunities to grow our revenue in the third quarter, we will do it.

And someone's asked about a lot of the projects that were pushed last year into this year and into Q1 potentially. Did you lose any of that business? Or do you still expect everything that was pushed to go forward in 2025?

Yes. I mean, again, I think there's sometimes a sense that if it didn't happen in Q4 that it's got to happen in Q1, and that's just not the nature of construction. So sometimes projects get delayed and they get delayed from Q3 all the way to Q2. It's just the nature of construction. And often, once you get into the winter season, and we've been talking about this seasonality a little bit, it's often beneficial to delay the start until the spring. So we haven't lost any work that we had scheduled for 2024 that got delayed. It's just some projects that we hope would start in Q1 optimistically did not. Those projects, for the most part, look to start in Q2, but could also start in Q3.

That covered the questions. There was quite a few that you had answered along the way that we didn't answer again specifically because they have been looked after. That concludes the Q&A at this point. Is anything you want to say to wrap it up?

No, just we just want to thank all of our shareholders and investors for being invested in the company. I know that the last 6 months have been kind of rough on the share price. I personally really believe the best thing for the share price is to run a company that's -- that focuses on customers, focuses on growing revenue and focuses on making money. If we do those things correctly, I know the share price will cover and shareholders will get the value and see the value that we see.

Excellent. This will be available. We are recording it. It will be distributed again on Monday for anybody that missed it. In the meantime, I'm always available for questions. Easy to reach at The Howard Group. Other than that, thank you both Randy and MJ and everybody for attending today.

Thanks, Jeff. Appreciate it.