Mattr Corp. (MATR) Earnings Call Transcript & Summary

Thank you. Good day and thank you for standing by. Welcome to MATTER's second quarter, 2026 results webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, on one of your telephone. You will then hear this automated message advising your hand is raised. To answer your question, please press star one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today.

next turn. Please go ahead. Good morning. Before we begin this morning's conference call, I would like to remind listeners that today's 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 matters statement on forward-looking information is included 4.0 of the second quarter 2026 earnings press release in the MD&A that is available on CDAR Plus and on the company's website at matter.com. those joining via webcast, you may follow the visual presentation that accompanies this call. I'll now turn it over to Matters President and CEO, Mike Reeves.

Good morning, and thank you for attending our second quarter conference call. Today, Megan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway. The second quarter represented a significant step forward for MATA. We generated a new high watermark for revenue and adjusted EBITDA as, once again, our global team delivered effectively against strategic and operational priorities. Within connection technologies, our wire and cable businesses levered operational efficiency gains and particular strength in global mining markets to report substantial sequential growth. More broadly, the segment executed well against a favorable mix of mining, oil and gas, and data center demand, while capturing further share gains within North American utility and infrastructure markets. Within composite technologies, Xerxes set new manufacturing efficiency and output records, which drove new quarterly revenue records in both fuel and water products, enabling year-over-year revenue growth of more than 15% during the first half of 26. Accelerating order capture across the Xerxes portfolio, including rising data center opportunities where we secured additional customer commitments during the quarter, ensured a stable quarter-end backlog at near record levels. Our FlexPipe team took full advantage of seasonally stronger North American activity levels and modest late quarter project acceleration by select customers, while also delivering against a growing international backlog. parallel, FlexPipe captured the first commercial revenue from its recently released 8-inch technology and secured incremental orders that expand our backlog into Q4 for this important growth driver. Across MATA, we remain focused on operational execution, technology development, and disciplined capital allocation. The actions we have taken over the past several years to modernize our manufacturing footprint and refine our portfolio to prioritize highly attractive end markets are translating into strengthening financial performance. could not be more proud of the massive team members who are making this possible through their hard work, creativity, and dedication. Lastly, we were pleased to secure a GICS code reclassification late in Q2. Matter is now classified within the industrial sector, which we believe more appropriately reflects the critical infrastructure markets we serve and should improve comparability with a broader group of industrial peers over time. Tom will walk us through some additional financial details. Thanks, Mike.

Revenue in the second quarter of 2026 increased significantly compared to both the prior year period and the first quarter, reflecting strong commercial execution across multiple businesses, higher production volumes, and continued operational efficiency improvements. Adjusted EBITDA also increased substantially versus the prior year quarter, driven by improved operational performance, favorable order capture, and delivery in several key end markets and a favorable product mix. Connection Technologies delivered strong year-over-year growth in both revenue and adjusted EBITDA, primarily attributed to its wire and cable businesses. Performance was supported by robust mining activities, continued growth in data center application sales, and ongoing share gains in utility and infrastructure markets. Composite Technologies delivered another strong quarter with meaningful increases in revenue and adjusted EBITDA driven by record production levels, robust fuel and water demand, and continued manufacturing improvements. Higher production throughput and improved manufacturing performance also enable Xerxes to capture additional orders and establish new records for both shipments and revenue within its water business. Overall, MATTER delivered record revenue and adjusted EBITDA in the second quarter. We are incredibly proud of the teams who have worked so hard over the years to reshape this organization and enable delivery of results like these. Turning to cash flow, the second quarter delivered slightly negative operating cash flows as necessary working capital investments offset strong operational results. Strong late quarter sales led to an increased accounts receivable balance, while inventories moved higher as we positioned the business for a robust second half of the year. Cash used in investing activities was primarily capital spending on property, plant, and equipment, which was $6.3 million during the second quarter. This cash outflow includes approximately $1.6 million that was previously accrued and then paid in the second quarter of 2026. We continue to expect fully year capital spending to be in the $35 to $45 million range. During the quarter, our strengthened outlook resulted in lowering of the net debt to adjusted EBITDA ratio and positioned the company to resume share repurchases under our NCIB at the end of the second quarter. We expect to remain active and opportunistic on the recently renewed NCIB for the foreseeable future, albeit at modest levels, while debt repayment remains a priority. Although Q2 required modest incremental borrowings to support rapid growth and the associated working capital needs, stronger earnings and rising cash generation are expected to drive continued deleveraging as the company progresses through the second half of 2026.

and I'll turn it back over to Mike. Thank you, Tom. As we look across our key end markets, the demand landscape remains generally favorable. Fundamentals in the mining, power generation and distribution, retail fuel, water management, and data center sectors are strong and expected to remain so. Address matters data center exposure on the next slide. Within domestic oilfield markets, customer activity improved during the second quarter, although it remained below the prior year quarter. Looking ahead, we currently expect North American well completion activity will increase modestly again in Q3. While global oil and refined product inventory levels point to a need for continued production growth, recent fluctuations in underlying commodity prices are likely to ensure any activity increases are gradual. We currently anticipate normal late-year slowing in North American activity as capital budgets are exhausted, although the potential remains for some clients to pull incremental capital into 2026, which would offer some upside to our current outlook. In parallel, we continue to see encouraging customer engagement and quoting activity in certain international markets, with our backlog strengthened by the large committed order we secured in early Q2. Supported by an expanding product portfolio and enhanced production capacity, FlexPipe is well positioned to pursue international opportunities as they develop. Automotive markets remain subdued, with global production expectations continuing to face pressure, particularly in Europe. Despite these market conditions, we continue to see average electronic content in newly launched vehicle platforms increase, creating ongoing opportunities for MATA to continue delivering year-over-year auto-related revenue growth. We constantly monitor evolving trade, commodity, and geopolitical developments and have not experienced any meaningful recent disruption to raw material availability. While go-forward trade policy remains a source of uncertainty, particularly following early Q3 U.S. tariff announcements, MATA is positioned with robust mitigation protocols to limit business impact under all foreseeable scenarios. Regardless of the external environment, our priorities remain unchanged, executing for our customers, improving operational efficiency, advancing technology development, and growing in markets where we see sustainable demand and attractive returns. These initiatives continue to strengthen the business, and we're important contributors to our strong, sustainable business. second quarter performance. Briefly taking a closer look at the data center sector, we see that demand continues to develop positively across multiple business lines, including Xerxes, Amacable, ShoreFlex, and DSG Canoosa. Data center applications are becoming an increasingly important contributor to matters near and midterm growth, with current year sales expected to more than double versus 2025 and likely to represent around 5% of consolidated revenue this year. Data centers are expected to be an important growth driver across both segments in the coming years. But our objective here, as in all end markets, is to pursue profitable growth, not simply market share gains. We prioritize those data center opportunities that lever our technical differentiation and yield sustainable margins, and will continue to lever our diverse end-market exposure to ensure matter avoids becoming overly reliant on any one source of demand. Turning to our outlook, the company's expectations for full-year revenue and adjusted EBITDA have further increased since our last earnings release, reflecting both stronger-than-expected second-quarter performance and improving visibility for the balance of the year. We currently believe third quarter business performance will be similar to the second quarter before normal seasonal slowing takes effect in Q4. combination, this drives a current outlook for second half adjusted EBITDA that is similar to the first half. We believe normal fluctuations will cause connection technologies revenue in Q3 to have a less favorable mix than Q2, with lower deliveries into mining projects and higher deliveries into data center applications. In contrast, we anticipate composite technologies performance will move sequentially upwards in Q3, driven by rising shipments of Xerxes fuel and water products, improving FlexPipe domestic and international activity, and further operational efficiency gains. Beyond Q3, we continue to have a constructive view of demand across all primary markets in both segments. Within connections, we believe our mining, utility, nuclear, data center, and other infrastructure markets are in the early stages of multi-year up cycles. In composites, Xerxes Fuel and Water customers are extending their planning horizons further than we've ever seen, with firm orders now in backlog for delivery throughout 2027. FlexPipe's addressable market continues to expand meaningfully through our investments to develop and release new products, including the recently launched 8-inch product where customer order capture is accelerating and backlog continues to build. These demand factors, combined with high conviction in the value our differentiated technologies bring to customers and significant remaining opportunities for increased operational efficiency, underpin our confidence that MATA remains well positioned to deliver meaningful growth and EBITDA margin expansion over the coming years. I'll now turn the call over to the operator and open it up for any questions you may have for myself, Tom, or Megan.

Thank you. As a reminder, if you would like to ask a question, please press star 1-1 on your telephone. You will hear the automated message device in your hand is raised. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. The first question will be coming from the line of Nathan Poe of National Bank of Canada Capital Markets. Please go ahead.

Hi, good morning. Thank you for taking my question. So my first one is historically the composite segments EBITDA has had a higher torque to sequential growth rates like we saw in Q2. This quarter gross margins were up almost 300 basis points quarter over quarter, but EBITDA margins only 60 basis points. Could you give us some color on what was perhaps behind that and what could have been perhaps holding segment margins back?.

Yes, good morning. So I think the important thing to remember about the composite segment is that there's two fairly different businesses within there. Xerxes, where underground tanks are sold into fuel and water applications, and FlexPipe, selling into oil field applications. And historically, FlexPipe has maintained a higher EBITDA. Ebitda Margin and Xerxes. And as a consequence, the relative mix of revenues coming from those two businesses tends to influence the Ebitda Margin for the segment overall. We've seen Xerxes margins work their way upwards over the course of the last few quarters and are very pleased with that trajectory. But still, the relative mix of revenue makes a difference. So in Q2, we saw Xerxes become a bigger relative share of revenue in that segment versus the prior year, and at the same time, or flex pipe begin to deliver into that large international order that we communicated at our last earnings call, and that order has a slightly lower margin profile than their traditional North American business. So those are the two primary factors. I would tell you that pricing leverage in both businesses remains strong, so I am not concerned. by the relative movements that I've just discussed. I think both Xerxes and FlexFight are on trends that will yield continued margin expansion for the segment.