Mattr Corp. (MATR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Shawcor Third Quarter 2020 Results Webcast Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Paul Pierroz, Senior Vice President for Corporate and Investor Relations. Please go ahead, sir.

Thanks, Josh, and good morning. Before we begin this morning's conference call, I'd like to take a moment to remind all listeners that today's conference call includes forward-looking statements that involve estimates, judgments, risks and uncertainties that may cause actual results to differ materially from those projected. The complete text of Shawcor's statement on forward-looking information is included in Section 5 of the third quarter 2020 earnings release that is available on SEDAR and on the company's website at shawcor.com. I'll now turn it over to Shawcor's CEO, Steve Orr.

Thank you, Paul, and good morning, and thank you for joining us on this morning's conference call. Yesterday, we released our Q3 2020 results. As expected, the pressures associated with the dual impact of COVID-19 global pandemic and the reduced capital spending of E&P operators continued from Q2 and made Q3 another operationally challenging quarter. Focusing on what we can control, ensuring that we put our full attention and energy into a very narrow set of priorities, we are gaining traction, and it is resulting in an improving position of the company to manage through this period of unprecedented uncertainty. As we have communicated in past quarters, the priorities for the company are just 3: number one, protecting the health of our employees; number two, delivering the products and services needed by our customers; and number three, strengthening the balance sheet through cost reductions and conserving cash. Before I go any further, I'd like to acknowledge the support and dedication of the employees of this company. The current environment in which we all find ourselves is truly foreign and very dynamic. I am continually impressed and appreciative of how well the employees of Shawcor are able to adapt and execute in such times. I wish for all of them and their families to stay healthy. Ensuring the health of our employees is requiring constant resourcing and vigilance. I believe we've done very well. And although we have had several positive cases within our work sites, we've been able to limit propagation and support the impacted individuals. Operationally, the management of COVID-19 has resulted in changes in where our employees work, the physical separation of our employees, and in some cases, temporary production line shutdowns. As we ramp up activity in the fourth quarter, the management of COVID-19 will continue to be very important, and we must take very seriously if we're going to be successful. Now turning to Q3 2020. Adjusted EBITDA was $17.8 million compared to $4.3 million in the second quarter of 2020. Revenue for the quarter was $268 million, flat from the previous quarter. Overall quarter's results had to benefit from the Canadian Wage Subsidy Program. Operationally, the results were primarily due to the positive impact of continued strong demand for composite tanks for the retail fuel market, wire and cable products for the industrial applications and engineering integrity services in the midstream energy space. There was also demand recovery in the quarter for heat shrink products for automotive applications. Apart from composite pipe, the company's products and services related to North American drilling and completions saw little or no improvement from the low point of Q2. Although pipe coating activity related to projects were set up for improvement in Q3, a combination of pipe delivery delays, start-up inefficiencies and supply chain disruptions due to Hurricane Laura pushed the forecasted improved performance out of the quarter. Some additional color on the quarter. The Payara project moved from pending FID to firm order with coating production to start in Q4. We also continued to reduce cost structure of the company during the quarter, including the initiation of closing 1 of 2 of our pipe coating facilities that are located in Southeast Asia and further reduction in the company's salaried headcount, bringing the total reduction year-to-date to now over 19%. Looking into Q4, we are expecting a much stronger performance. The stronger performance will come primarily from increased pipe coating activity from projects that are under order, continued strength in demand for composite tanks and the continued recovery of automotive-linked business. Furthering improvement will be the positive impact of cost measures we have taken. However, we do not anticipate any improvement in Q4 demand for our products and services that are tied to North American drilling and completion market. The combination of improved activity and cost measures is expected to result in adjusted EBITDA, net of government's assistance, in the $25 million to $30 million range for Q4. Our direction to give specific Q4 guidance reflects the need to address the market's current perception of the company's performance and financial position at this time. Although it's still difficult to forecast, we expect the improved performance we have visibility on for Q4 will continue into 2021. In 2021, we expect that our book and term business will see gradual improvement in demand, that work we have secured will remain firm and will be executed and that we'll see a real tangible benefit from the cost we've already taken out or are in the process of taking out. Although the quarter-on-quarter performance will vary due to pipe coating project execution timing and yearly seasonal elements, overall 2021 outlook, due to the factors I've just mentioned, is much better than we expect to deliver in 2020. Beyond this period, I would again highlight, it's difficult to forecast. However, we do expect that our diversified portfolio, which has both early and late cycle oil and gas exposure and a growing non-oil and gas component has positioned the company to weather the storm and emerge a stronger, more profitable organization when spending recovers in energy, transportation and infrastructure markets. I'll provide more detailed comments in a moment. I will now turn it over to Gaston Tano, Shawcor's CFO, to discuss the numbers.

Thanks, Steve. As Steve mentioned earlier, operational results in the current quarter continued to be negatively impacted by the COVID-19 pandemic and the volatility of the oil and gas markets. Consolidated revenue in the third quarter was $268 million, 32% lower than the third quarter of 2019. The Pipeline and Pipe Services segment revenues decreased by 36% compared to the prior year quarter, primarily due to decreased activity levels resulting from the ongoing COVID-19 pandemic, the lower demand for pipe coating and girth weld inspection services as a direct result of the significant capital spending cuts by North American E&P operators and continued delays in land transmission line projects. The current quarter was also negatively impacted by lower production levels in our Channelview facility related to supply chain issues caused by Hurricane Laura. The Composite Systems segment revenues decreased by 35% compared to the third quarter of 2019, primarily due to the continued lower demand for our composite pipe products as a result of the decline in North America drilling and completion activity across the segment's customer base as operators aggressively reduced their capital spending. While revenues in our composite tank business remains strong due to continued demand in the retail fuel and water and wastewater markets. In Automotive and Industrial segment, revenues were lower by 8%, primarily due to lower demand for our automotive heat shrink products resulting from the impact of production shutdowns and government lockdown restrictions from COVID-19 at the majority of automotive OEM assembly plants in North America and EMAR regions earlier in the year, which have yet to return to full capacity as of the end of the third quarter. Consolidated results for the third quarter were negatively impacted by nonrecurring items outside of the company's normal course of business. The current quarter includes $12 million of restructuring cost and $4 million impairment charge as a result of the ongoing saving initiatives completed in the quarter, including the recently announced closure of a pipe coating facility in Asia Pacific. The current quarter reflects a gain of $1 million for land in Western Canada and a gain of $8 million from investment from associates. While the prior year third quarter benefited from a gain of $5 million on the sale of land in Western Canada, offset by ZCL acquisition costs of $4 million and a loss of $2 million for Argentina hyperinflationary accounting. Adjusted EBITDA for the quarter was $17.8 million, significantly lower than the $42.4 million reported in the third quarter of 2019. This decrease is primarily due to lower revenues in all 3 segments, the impact of lower production activities due to the COVID-19 pandemic, partially offset by lower SG&A. The decrease of $22 million in SG&A is primarily due to the completed restructuring and cost control initiatives that resulted in decreases of $12 million in compensation costs and $4 million in travel and entertainment expenses. The current quarter also benefited from the receipt of COVID-related government subsidies of $17 million, of which $9.5 million was recorded in cost of goods sold and $7.5 million in SG&A expenses. Adjusted EBITDA margin in the third quarter was 7% compared to 11% for the prior year third quarter due to the reasons mentioned earlier. The Pipeline and Pipe Services segment margins decreased to a negative 9% compared to positive 3% in the prior year. The Composite segment -- Systems segment experienced an increase of 26% in the current quarter compared to 21% in the third quarter 2019. And the Automotive and Industrial segment also increased to 19% compared to 18% a year ago. The company delivered positive cash flow in the quarter. Cash flow provided from operating activities in the third quarter was $7 million, a slight decrease compared to the $8 million provided in the third quarter of 2019. This decrease in cash flow was primarily driven by a loss in the current quarter, lower noncash items and partially offset by a positive change in noncash working capital. The change in noncash working capital in the quarter was a cash inflow of $9 million, which includes a $5 million increase in restructuring liabilities compared to a cash outflow of $19 million in the same period of 2019. Cash flow from working capital primarily is driven by higher accounts payable, lower contract assets and lower inventories, offset by higher accounts receivable and prepaid expenses. Cash provided by investment activities in the third quarter was $3 million, reflecting $6 million in proceeds on sale of property plant equipment and offset by $3 million of purchases of property and plant equipment. This increase from the $2 million used in investing activities at the prior year quarter, which reflected $10 million in purchase of property plan equipment, offset by $7 million in proceeds from disposal of property plant equipment. During the third quarter, cash used in finance activities was $7 million, reflecting the payment of our core lease obligations and a slight decrease in long-term debt. This compares to $45 million used in second quarter of -- reflecting -- in 2019, which reflected the repayment of debt of $29 million, the payment of dividends of $10 million and the repayment of lease liabilities of $5.5 million. Net cash flow for the third quarter in 2019 was positive $3 million compared to an outflow of $40 million in the third quarter of 2019. With respect to cash and debt, the company has a cash balance of $107 million, debt of $435 million and $47 million of standard letters of credit as of September 30, 2020. In addition to the successful completion of the debt amendment at the beginning of this quarter, the company's liquidity position has benefited from the significant progress made to date on our targeted $60 million sustainable annual SG&A savings and $40 million in incremental cash generation. During the quarter, the company completed further actions to reduce its salaried workforce, bringing the total reduction to over 19%; announced the closure of one of its pipe coating facilities in Asia Pacific; and reduced capital budgets further to the $30 million to $35 million range for the full year of 2020. As a result, the company remains on track to meet its goal of quarterly normalized sustainable SG&A run rate of $70 million, which includes a targeted incentive compensation costs. The company has also delivered positive cash flow in the first 9 months of the year, reflecting $47 million from reduced working capital, excluding the impact of restructuring liabilities; and $17 million from proceeds of asset sales. Based on these actions completed and planned, its diversified business and current backlog, the company expects to generate sufficient cash flows to fund its operations, working capital requirements and capital program. I'll now turn it back to Steve for some additional commentary on the company's performance and outlook.

Thank you, Gaston. I'll first start by providing details on Q3 by segment. The Pipeline and Pipe Services segment revenue is closely tied to the capital spending of exploration and production operators in the upstream and that of transmission line companies in the midstream of the energy sector. As a result of uncertainty in forward-looking economics, our customers are under pressure and have reacted by severely cutting capital budgets and delaying decisions on large capital expenditures. Additionally, driven to reduce costs and gain scale, strategic alternatives such as mergers and acquisitions, are moving forward, and this is resulting in the consolidation of the end customer base that Shawcor serves in the PPS segment. As a result of these factors, the third quarter continued to be very challenging for the segment. Depressed demand for small diameter pipe coating and girth weld inspection, which are tied to North American drilling completion activity, continued at Q2 levels as a result of the reduced spending in this market. Girth weld inspection of larger diameter pipe was up from the low level of Q2 as projects started to be mobilized as COVID-19 measures were implemented and regulatory-induced delays experienced some advancements. Pipe coating in the quarter was not as expected, even though we had firm production schedules. This was due to lower-than-expected run rates in our relief operations due to customer pipe quality issues, and our Channelview facility halted production as a key raw material was not available from our supplier. The root cause of the supply chain disruption was Hurricane Laura's damage to electrical grid servicing the supplier's facility. Of note, alternative sourcing solutions were available, but were rejected by both Shawcor and our customer due to the perceived higher risk to the insulation coating performance. The supply chain issue has now been addressed. The Channelview facility is now back to production, and we estimate that the impact of the incident will be approximately $6 million in EBITDA from a combination of work being moved out into later quarters and additional holding costs within the quarter. Engineering and consulting services demand, as in the first half of the year, continued to be resilient as North American transmission companies look for expertise to move forward with integrity programs on existing assets. We continue to make progress in the quarter on reducing the cost structure of this segment, including the initiation of shutting down 1 of our 2 pipe coating facilities in Southeast Asia. The facility shutdown is well underway and will be concluded in early 2021 after the completion of work that the facility has under order. With this facility closure, we have reduced our pipe coating facility footprint by 5 fixed plants year-to-date. We will continue our efforts to reduce our pipe coating footprint in the upcoming quarters with a specific focus on ones servicing international markets. One additional point pertaining to the Pipeline and Pipe Services segment for the quarter that is important to note is the preparation that has occurred to derisk the step-up in activity that will start in the fourth quarter from work that is in our backlog. Furthermore, work under order for both pipe coating and large diameter girth weld inspection had positive developments in the quarter. Pipe coating with finalization of the Payara project contract and girth weld inspection with an award of approximately $20 million related to construction of a major U.S. land transmission line. The Q3 results for the Composite Systems segment in the third quarter had 2 main components. The first was continued very strong demand for composite tanks from the retail fuel market and increasing demand for our tanks in water and wastewater applications. The second was the improved demand for composite pipe in both North America and international markets from the very low level of Q2. As a result of increased composite pipe volumes in the quarter, this business was able to be a positive contributor to the overall results. High demand for tanks is expected to be resilient as convenience store margins remain high. There remains an inventory of aged tanks that need replacing, which now includes older generation single-walled composite tanks. And from the traction we are gaining in our strategy for water and wastewater. Let me go into a little more detail on our strategy for water and wastewater. One of our markets we are targeting in the water sector is storm water. Studies have shown that 30% of the pollution in North American waterways comes from untreated storm water runoff. Our strategic approach in storm water is to connect our tank products with third-party components and build integrated systems that treat and clean storm runoff water before it returns to the waterways. One of our systems is capable of processing 2.5 million gallons of storm water per year or the equivalent to 4 Olympic swimming pools. By cleaning storm water runoff, our integrated systems can protect our community's potable water sources, control storm water flow and reduce flooding risk, and thus creating a core future demand element for our composite segment. Composite pipe demand has improved from Q2 low point as completion activity in North America has improved and our customers hold low inventory levels and from project orders in international markets. Continued recovery in the quarters ahead will be tied very tightly to the increasing well completion activity in North America and our presence with select operators that will be active. This business benefits from a very low support cost base that results in material torque and profitability as volumes increase. The most recent outlook has indicated that most active operators will be those that have adopted composite pipe over steel pipe. Currently, it does appear that Q2 will be the low point for our composite pipe business. The Automotive and Industrial segment results in the quarter benefited from, one, the return of demand for heat shrink products for automotive applications as vehicle assembly plants in North America and Europe resume production; and two, continued demand for wire and cable products from electrical utilities and communication providers. Although we do expect some impact from the usual seasonal slowdown in the fourth quarter, the fundamentals of the segment are turning supportive for a faster recovery than we had first anticipated. Low interest rates, the increasing importance of personal transportation in response to the pandemic and electrical and high-grade purchasing incentives are all positive factors for this segment. We are cautiously optimistic that returning to our pre-COVID-19 level for this segment could now occur in late 2021. I'll now turn to Q4 and into 2021. Q4 is set to be a much better quarter for the company. And as I stated earlier, we expect that we will deliver adjusted EBITDA, net of government COVID-19 assistance, in the $25 million to $30 million range. We anticipate the improved performance will be sustained into 2021, although this step-up in performance should be expected to have quarter-on-quarter volatility due to project execution timing. The improvement is based on our expectation that the start of recovery that we are now seeing will continue and there will be a return to a minimum level of spending from our customers. This will positively impact our book and term businesses, but it will also result in revenue generation from the execution of work that is captured in our $542 million 12-month backlog and growing secured work outside of 12 months. Additionally, we have taken to date -- additionally, the actions we have taken to date and will take such as reducing the salaried headcount by over 19%, closing facilities and aggressively reducing the variable costs and match a much lower forecast, will assist in improving the bottom line. In terms of project activity, our backlog is holding, a no book project has been canceled, and we are seeing projects that were pending award in March of this year starting to be revisited with associated pipe delivery schedules, albeit 12 to 18 months delayed from what was originally being considered. Our bid and budgetary numbers, an indication of future opportunities, have remained high at $2.5 billion. Bid is just over $870 million. Resilience and bid is related to submissions associated with natural gas in the Middle East and Asia regions and the offshore markets of the Gulf of Mexico, Brazil and Norway. I would note our bid at the end of Q3 does contain over $120 million that we have been awarded, but is conditional on FID. Before we open up for questions, I'd like to make the following points. Shawcor's diversified portfolio of late and early cycle oil and gas and non-oil and gas businesses provides a hedge that would be a benefit in these uncertain times. Shawcor has a substantial book of work for execution over the upcoming 12 months, and the work is holding firm. Additionally, we are starting to see the start of recovery in many of our book and term businesses. Shawcor has taken and is taking the necessary and difficult actions to reduce cost and preserve cash, which is needed in these very uncertain times. These actions include the analysis and consideration of exiting markets and divesting full businesses. Shawcor's future success continues to be underpinned by supportive long-term fundamentals that will drive investments in energy, transportation and infrastructure. With that, I'll now turn the call over to Josh, the operator, and we can open up for questions that you may have for Gaston and I.

[Operator Instructions] Our first question comes from Aaron MacNeil with TD Securities.

Composite Systems seemed to have a very good quarter in Q3 from a sequential revenue perspective. Can you give us a sense of how much of the sequential increase was the ZCL business versus the composite pipe business? And maybe what the approximate revenue split for those 2 subsegments were in Q3?

So Aaron, as we've discussed before, we don't split the revenue in the composite business by tank, pipe or line tubing. So we don't split it. In my prepared remarks, I did comment that we had a better quarter for pipe in the quarter. So you can assume that, therefore, the revenue was higher because it is now profitable where it wasn't in Q2. And tank, we had, as usual, we -- historically, tanks are better in Q3 than Q2 and should be good in Q4 as well. So I think the incremental improvement was equal around tanks and pipe and little to nothing from the oil field asset management or the line tubing business.

Understood. And that's helpful. I wasn't trying to get into specifics. So I was just trying to get a sense of the quarter-over-quarter change. I'm also hoping to get a bit more details on the guidance of $25 million to $30 million, excluding subsidies. Obviously, if I take your Q3, excluding subsidies, I'm basically at a breakeven on an EBITDA basis. And so I'm wondering if you could perhaps bridge the gap from quarter-to-quarter. Or in other words, can you walk us through how you get from Q3 EBITDA to Q4 EBITDA? What are all the main moving parts in each segment? I know you mentioned the $6 million in nonrecurring items in the pipe coating segment, but just trying to get a sense of bridging the gap quarter-to-quarter.

Yes. I think it's fair to say. If you look at the Q3 numbers and you do it by segment, the biggest improvement, certainly that we've messaged, is in the PPS segment. And the major uplift will be pipe coating, but also in the IM business and girth weld inspection because of the work that I stated that we had won. So it's primarily in the PPS segment. That being said, we expect that the composite segment will have a strong quarter. Pipe is off the bottom of Q2, and we -- of course, we have a view because October is close to being finalized. So pipe will be strong. And tanks in the fourth quarter, usually in December, there's a little bit of a pullback, but it will be strong. So I don't think there's much movement there. Automotive and Industrial in the $25 million to $30 million, it is probably the largest variable, I would say, because as you're probably seeing in other sectors in automotive, there is a spike in activity in the fourth quarter that nobody anticipated, and we expect that we will participate in it. So if you kind of back through what I just said, so the major difference will be in the PPS segment and the variable in the range is probably in the Automotive and Industrial segment.

Okay. Does the PPS segment need to be -- need to have positive EBITDA for you guys to hit that $25 million to $30 million, excluding subsidies?

Substantially positive EBITDA.

Got it. And then I know your guidance...

Maybe I'll give some additional color, right? So guidance is something we don't usually do. So we did it this time, in particular, because we had signaled the second half of the year was going to be stronger. And projects do move. And so with the EBITDA that we put on the table in Q3, we wanted to make sure the market understood that our view in the second half remains exactly the same, but it means a stronger Q4. In order for us to give guidance, you have to imagine the confidence that we have to have in the number. And if it's a project-based work, it cannot be one facility. So projects are now being executed in Asia, Norway, Scotland, Channelview, and we're starting the Guyana project in Veracruz. And so we're finally getting back to the point where the utilization, and I would say, better margin projects are going to start running through our pipe coating facilities in Q4, and our hedges, we have more than one facility running.

Understood. Last question for me. I know your guidance excludes wage subsidies, but can you give us a sense of what Q4 wage subsidy proceeds might be as well as what restructuring costs would be if any? And can we expect any other major facility closures in the coming quarters?

Yes. So I think looking in the short term on the wage subsidy side, Aaron. It's going to be significantly less. If you -- periods 3 to 7 represented the amount of $17 million that we booked this quarter. We basically, at this point in time, only have 2 more to book. The Canadian government has extended the wage subsidy. We're still reviewing what that impact is for us. But we're not expecting the number to be greater than $2 million to $3 million in the fourth quarter at this point. On the restructuring, there is some further restructuring, but it will not be to the extent that we've had in the last 2 quarters. So right now, it is going to be in the range about -- I would recommend about $3 million to $5 million, and that's probably on the lower -- probably more appropriate, the low range of the low -- that bottom of that range from that perspective. And yes, we will continue to look at facilities for closure. It may not be in the fourth quarter but in -- probably more into early 2021.

Our next question comes from Michael Robertson with National Bank Financial.

I thought it was an interesting jump quarter-over-quarter in the value of the budgetary estimates to $2.5 billion. From a high level, what's the sort of composition of that $2.5 billion in terms of oil, gas and non-oil and gas? And has that composition shifted significantly relative to the second quarter?

Yes. Let me kind of break it apart a little bit so that we're very clear. So the budgetary is -- and as you're aware, but I'll clarify for everybody on the call. Budgetary is when we give a number to a customer on a given scope of work so that he can make an estimate. In that number, I think it's somewhat inflated because there is a project in East Africa that's now in the budgetary number that we put in there after removing it from a previous period of time that's several hundred million dollars. So I would -- it's there -- it's a project that we're actively discussing, but I really don't anticipate the likelihood of it going ahead or Shawcor getting an attractive return on participation in the near term. So you need to back that out of the number. Then the number that I'm quite comfortable that is staying in strength is the bid number that I mentioned. And in that, which is numbers that we actually have put in proposals through tender process or direct, and we have a line of sight of pipe, it is primarily gas in the Middle East, and gas in the Middle East for domestic consumption, but also export of LNG. Asia for export of LNG. So it's heavily gas related. But the offshore markets of Brazil, the Gulf of Mexico and Norway are oil. So if I actually look and break down the $800 million that's in there, it's probably 60-30 towards the gas, so 60% gas, 30% oil.

That's good color. And has that sort of changed significantly over the recent quarters? Or is it sort of holding steady at that ratio?

I think it's -- oil has come back a little bit in it, but the bigger projects continue to be gas related.

Got it.

So the biggest way to move that number is gas.

Got it. You noted expected improvement in financial performance heading into 2021. Would it be fair to assume that you're expecting quarterly EBITDA performance that is sorted in the ballpark with what you guided to in Q4 as we enter the new year?

I think on average for next year, I think that's a safe assumption. So on average. But the portfolio of the company -- so for example, ZCL seasonally has a slowdown in Q1. It's a fact, right? So we ship less tanks in Q1. Also, it's really difficult in the pipe coating business, and it was demonstrated in Q3. We have production schedules in Q2 for Q3 of this year, and we were pretty confident it was going to go. It's really not unusual for pipe to show up with scale that takes a second cleanup trip through the facility that will push revenue out. So I think it's a very safe assumption that we will average the Q4 number into -- across 2021, but there's going to be volatility per quarter. So the guidance that we've given for Q4 is something nobody should expect us doing again, right?

Got it. Got it. Yes, I understand the difficulty in this environment.

Our next question comes from Matthew Weekes with Industrial Alliance Securities.

I was just going to ask specifically about the North American Pipeline and Pipe Services. It looks like on a sequential basis, in terms of revenues, we saw about a $15 million decline there. I was wondering if it'd be possible to break out kind of how much of that can be attributed to closures of facilities in the second quarter versus how much is attributable to the one-time impacts resulting from Hurricane Laura.

Your question is quarter-on-quarter, correct?

Yes, that's correct.

Okay. So as we mentioned, not much from North America completions because Q2 was a low point and we saw no improvement in Q3. So if you look at the PPS, whether it be in our small diameter girth weld inspection or our small diameter pipe coating, and of course, we've removed a lot of capacity out of the market, there's not much. So what you're really seeing in the delta, and we expected it to actually be an increase, is the 3 things that I commented about. So first of all, Channelview, as we said, the overall impact -- and I didn't give a revenue number, I gave an estimated EBITDA, but you can figure it out. Quite a bit of revenue in Channelview was pushed out, and that's included in the North America. The second comment I would make on the revenue drop is there was a delay in pipe arrival that also affected the Channelview facility, and we had a slow or delayed start in our IM business. So it's kind of those 3 things that pushed it out. But not -- Q2, Q3, if I look at the North America drilling and completion, with the exception of composite pipe, it's still at the Q2 level. So there's not much.

Okay. So really, the quarter-on-quarter decline was mostly due to these kind of delays rather than any kind of worsening of activity?

I think the majority of the drop that you see in the PPS segment were things that we didn't anticipate in the quarter.

Our next question comes from Miguel Ladeira with Cormark.

So you flagged potential plant closures, but also stated that you would not rule out existing product lines. Could you provide some color as to what specific product lines you view as noncore?

It's a very, very good question. I think what I want to make clear, and we were in the prepared remarks, is that we are working through the complete portfolio of the company, and we're not ruling out divestitures of businesses whether it be a one product line. So we recently have divested of a product line within the automotive industrial business that will be visible in the fourth quarter, which is a couple of million dollars of sale of a trademark and a product line that is better fit with somebody else. That's an example. But we are looking at full businesses, and it's difficult for me to identify them on the call. Some of them are in process, and some are just in consideration.

Perfect. That's very helpful. Last one for me. With the rebound expected in Q4, how should we think about Capex? And if there is an uptick in CapEx, where do you think this will be directed?

Yes. So as we communicated in our documents and the prepared remarks, we've reduced our overall range for planned capital expenditures to the $30 million or $35 million. So probably -- again, probably conservatively more at the bottom of that range for the things. And really what that continues to reflect is our maintenance CapEx that we have and a bit of growth CapEx for key growth segments like the composite tank business. And a little bit of CapEx required for increased activity in the pipe coating side in the plants that we expect to continue to have revenue generation going forward. So that's really where we're at right now.