Q1 2021 Shawcor Ltd Earnings Call
Good morning, ladies and gentlemen, and welcome to the Shawcor first quarter 2021 results conference call.
This time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your attach and Don palette found as a reminder, this conference call is being.
And recorded I would now like to turn the conference over to your house.
Megan Mcgrath at current external communication and ESG director. Thank you. Please go ahead.
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.
<unk> estimates judgments risks and uncertainties that may cause actual results to differ materially from those projected.
And please text of Shawcor statement on forward looking information is included in section four point out of the first quarter 'twenty 'twenty. One earnings press release that is available on SEDAR and on the company's website at Shawcor Dot com.
Now I'll turn it over to Shawcor, CEO, Steve or and I.
Thank you Megan.
Morning, and thank you for joining us on this mornings conference call.
This morning, Megan and I are joined by our CFO guests on channel and President Mike Rees.
Before talking about our business I would once again like to express my deep appreciation for every member of the shock 14th.
Well, we see indications of a return to relative normality and many countries is vaccination rates rise. There is no doubt that employees across this organization and continue to face substantial challenges on a daily basis.
And so grateful for their commitment to keeping each other healthy and safe while continually meeting the needs of our customers around the world.
Yesterday, we released our results for Q1 2021.
During which the company generated adjusted EBITDA of 19 million on revenue of $279 million.
Revenue declined compared to Q4, 2020.
And by normal seasonal slowness and composite tank shipments and lower levels of pipe coating activity, which were expected, but amplified by impacts from acute U S winter weather and some project timing delays and.
Conversely.
Continued strong demand for his shake tubing and premium wire and cable products drove another record quarter within the automotive and industrial segment, which included the capture of a substantial communication cable supply contract the largest single customer contract and the history of this business.
At quarter end and the company's backlog stood at $521 million and increase of 68 million or 15% from the end of 2020.
This growth was a result of very strong.
Underground tank storage orders lower than expected backlog burn within our pipe coating business and an increase in orders within other parts of the organization.
Focus on cost management and restructuring activities continued during the quarter with Shawcor salaried workforce now 25 per cent below Q.
One in 2020 levels SG&A.
SG&A expense in Q1 was below our previously communicated 60 million per quarter run rate and included receipt of a $1 4 million and Canadian government subsidies.
Excluding government and subsidies, we now anticipate SG&A expense expense will average $55 million per quarter during 2021.
Thoughtful timing of investment decisions and limited capital spend during the quarter to $4 million, our full year Capex spend guidance remains unchanged at $40 million to $50 million.
During Q1, we announced that our pipe coating facility and the U K will close after it completes execution of the Baltic pipe project with the U K facility closure announcement.
<unk> has now completed or initiated seven pipe coating facility exits during early 2020.
Oh, sorry, I apologize since early 2020.
We will continue to assess further footprint optimization opportunities to lower our cost base, while retaining the right capabilities and strategic locations to meet future market demands.
Entering Q2, despite lingering impacts from COVID-19 and industry wide polymer supply chain interruptions, I anticipate a step up and revenue and earnings driven by continued strength and demand for automotive and industrial products, a rebound and comps to tank shipments tied to seasonal construction activity and execution and if so.
Scheduled type floating projects.
This organization remains intensely focused on those variables we can control.
With our priorities and are unchanged from those that I shared last quarter.
Number one protecting the health and safety of our employees.
Number two.
Livery and the products and services needed by our customers.
Number three strengthening the balance sheet and conserving cash.
And number four capturing our share of increased customer spend.
Although the exact timing of pipe coating projects remains subject to change and some volatility quarter to quarter is inevitable in line with our previously communicated expectations and we remain confident that 2021 full year, adjusted EBITDA will be higher than 2020.
This will be driven by the execution of pipe coating work secured and backlog.
Continued strong demand within our.
Non oil and gas businesses and the expected reduced quarterly SG&A expense run rate.
We also remain confident that Q1 result will ultimately prove to be the lowest of the year.
Check where as the first priority, including early and late cycle oil and gas exposure and a strong non oil and gas component has enabled the company to weather recent market challenges and emerge a stronger more profitable organization ready to create and secure opportunities as spending recovers in the energy transfer.
And and infrastructure markets.
Mike will provide more detailed comments later on this morning's call.
And I will now turn it over to guests on channel Shawcor CFO to discuss the numbers, yes on.
Thanks, Steve and Steve.
And you've mentioned earlier operational results and our current quarter reflected continued strong performance across the company's non oil and gas.
Offset by lower levels of pipe connectivity.
And the 19 and weather related supply chain disruptions and other.
Their customer and newest reasons.
And related revenue and the first quarter was $279 million 12 per cent and lowered in the first quarter of 2020.
The pipeline and pipe services segment revenues decreased by 20% compared to the prior year quarter, primarily due to the absence of $29 million of revenue related to the products sold in December 2020, excluding the impact of the product.
And the segment's revenue reflects lower pipe coating activity and North America, resulting from COVID-19, pandemic and whether a new supply chain interruptions, partially offset by higher activity levels in the EMEA region.
Composite systems segment revenue decreased by 20 per cent compared to the first quarter of 2020, primarily due to the continued lower demand for our composite pipe products. As a result from the continued capital discipline and focus of exploration and production operators, partially offset by slightly higher and demand for our comps and take products. Despite the typical seasonal low activity level.
And from customer and delivery delays due to weather.
And the automotive and industrial segment revenues were higher by 28%, primarily due to stronger demand for automotive heat shrink products across all regions and contributions from infrastructure spending on communication and transportation and you can have refurbishment projects.
Consolidated results for the first quarter were impacted by nonrecurring items outside of the Companys and over a course of business. The current quarter includes $3 4 million of net restructuring costs as a result on the ongoing cost saving initiatives completed in the quarter, including the recently announced closure of our pipeline facility and lease UK. Following the completion of the Baltic pipe project and.
A loss of $1 1 million for Argentina, Hyperinflationary accounting.
The prior year first quarter was negatively impacted by $203 million and impairment charges and a loss of a half a million from Argentina Hyperinflationary accounting.
Adjusted EBITDA for the quarter was $19 million between hiring and the $4 $4 2 million report and the first quarter of 2020.
The increase was primarily due to strong performance and the company's non oil and gas businesses and improved profitability and our pipeline and pipe services segment, reflecting the reduced operating cost base from the completed cost control initiatives and facility closures and the decrease of 22 million and SG&A compared to the first quarter of 2020 reflects the absence of $5 7 million.
Weighted to the practices and the positive impact from the cost saving initiatives complete to date and the continued discipline and managing discretionary costs and.
The current quarter also benefited from the receipt of COVID-19 related government subsidies of $2 4 million of which $1 million was recording cost control and $1 4 million and SG&A expenses.
Adjusted EBITDA margin for the first quarter were 7% compared to 2% from prior year first quarter and good to the reasons mentioned earlier the pipeline and pipe services segment margin increased to 3% from the negative 4% on the prior year, reflecting a lower operating cost base.
And the composite systems segment delivered 12% margin, which was in line for the first quarter of 2020, and automotive and industrial segment margin increased to 20% compared to 18% a year ago.
Turning to cash flow and the quarter cash flow used and our productivity from the first quarter was $19 million compared to 100000 provided by operating activities and the first quarter of 2020. This variance is primarily driven by net change and noncash working capital and foreign exchange offset by lower net losses, less and noncash items and increase and other items the change and non.
And cash working cap on the quarter with a cash outflow of $21 million, which includes $4 million decrease and restructuring liabilities. This working capital investment and the quarter reflects higher accounts receivable due to collections related to pipe productivity being delayed to early on April higher inventories from seasonal buildup and composite tanks, and higher demand and automotive and industrial segments and.
And lower accounts payable related to the timing of purchases and payments.
Cash provided by investing activities and the first quarter was $5 million, reflecting 6 million from investment Russell.
And $2 million and proceeds from disposal of property plant equipment, partially offset by $4 million on purchases of property plant equipment.
The prior year quarter had 0.3 million used in investing activities, reflecting 10 million and purchases of property plant equipment offset by $9 million from investment and associates.
During the first quarter cash use and financing activities was $6 million, reflecting the payment of our quarterly lease obligations. This compares to 17 nine years and the first quarter of 2020 that reflects the payment of dividends of $11 million and repayment of lease obligations of six.
Net cash used in the first quarter, and 2021 was 20 million compared to $12 million and the first quarter of 2020.
With respect to cash and debt. The company has a cash balance of $194 million debt of $434 million and $41 million of standard letters of credit as at March 31, 2021.
The company's liquidity position has benefited from the significant initiatives completed in 2020 to reduce cost and generate cash to address the uncertainty caused by the COVID-19 pandemic and the rapid decline in oil prices a year ago.
The company continued additional actions during the first quarter of 2021 which resulted in a further reduction in salary and force, bringing the total reduction to over 25% since March 2020, and announced the closure plans of its pipeline facility and lease UK as mentioned earlier.
Based on actions completed and its outlook the company expects to generate sufficient cash flows and have continued access to its credit facilities to fund its operations working capital requirements and capital program with this confidence the company repaid $75 million against these outstanding debt under its credit facility in late April which will result in reduced financing costs for the remainder of.
The year I'll now turn it over to Mike Rees Shawcor is present for some additional commentary on the company's performance and outlook.
Yes.
Thank you guys.
So I'll start by providing additional details by segment type.
Pipeline and pipe services segment revenue during Q1 and fell by $45 million or 24% compared to the fourth quarter of 2020, driven by expected pipe coating activity declines as projects were completed and all facilities and waste at the start of pending projects as.
And as we've discussed many times Shawcor pipe coating business is tied primarily to the timing of offshore pipeline projects being sanctioned which inherently leads to volatility from quarter to quarter and.
And Q1. These normal project timing effects were compounded by some ltd business interruption impacts from extreme U S winter weather and deferral of multiple smaller pipe coating projects in Latin America, which will now commence in Q2.
The second and third quarters of 2021, we will see higher levels of pipe coating activity before another project scheduling will likely occur later in 'twenty, one and into early 'twenty two.
During the quarter Shawcor publicly announced a substantial contract awards pending.
From a major north sea, operator from our proprietary ultra pipe coating technology.
Additionally, our unique lotus flow internal pipeline coating, which improves fluid flow efficiency.
And so a strong interest from multiple customers.
Both of these technologies will discussed on our last call and our compelling examples of the value our customers receive from <unk> investment and research and development across all business segments, which remains a core element of our strategy.
We continue to make progress on reducing the cost structure of the pipeline and pipe services segment, including initiating the shutdown of our least Scotland pipe coating facility during Q1, which will be completed by year end.
Including this exit we have reduced on pipe coating facility footprint by $7 and fixed plants. Since early 2020 and continue to assess other optimization opportunities within our international infrastructure.
But the less we are intensely focused on continued provision of world class service and value to our customers from a highly cost efficient strategically located footprint.
Our composite systems segment is primarily influenced by two market forces. The first is demand for premium underground storage tanks within the North American retail fuel and water management sectors.
Second as demand for reliable spooled composite pipe to connect newly completed oil and gas wells into existing processing and storage infrastructure.
First quarter composite systems segment revenue fell by 9 million or 11% when compared to the fourth quarter of 2020.
And this movement was driven by higher sales of composite pipe to operators in both Canada and the U S.
Set by lower shipments of tweaks, which is typical during the winter months, where frozen ground conditions make excavation more challenging.
Entering the second quarter, we have already seen the expected ramp up and shipments of composite tanks as retail fuel construction activity picks up.
Thank you inventory, which was strategically prebuilt and late 2020 and early 'twenty. One will ensure shawcor is able to meet continued robust demand. Despite the industry wide resin supply chain difficulties driven by damage to some of our vendors facilities. During the recent severe winter weather.
These supply chain challenges will likely persist into Q3, however, while shawcor is not immune and we believe we are favorably positioned to navigate the circumstances given the diversity of our supply chain.
Raw material supply constraints have driven cost increases, which shawcor is generally able to pass through to customers.
North American demand for composite pipe rose in Q1 versus the prior several quarters as well construction activities and the U S and Canada moved upwards Custer.
Customer held inventory levels of composite pipe declined and some of Shawcor is largest customers returned to work and the Permian basin.
We anticipate north American demand for our pipe products will remain similar to Q1 moving through the rest of 2021 with some upside potential that drilling rig count moves materially higher.
Demand for composite pipe and certain international markets is showing promise for the second half of this year and.
And beyond with Shawcor, securing a substantial pipe water early in Q2 for our clients and the middle East, which will be delivered over the course of becoming 24 months and several other meaningful project opportunities and waiting award.
Composite pipe business continues sorry, consumes significant volumes of polymer and glass fiber materials, and we remain vigilant around potential cost and availability changes in the coming quarters as global supply chain and recover from recent shocks.
During the first quarter Shawcor is automotive and industrial segment revenue rose $8 million or 14% compared to the fourth quarter of 2020, reaching a new record high and positioning the business to deliver pre COVID-19 performance levels during 2021.
The continued strong recovery of this business from the extremely low levels experienced in Q2 of last year has been driven by a return of demand for heat shrink products within automotive applications and continued consumption of engineered wire and cable products by electrical utilities and communication providers dynamics, we expect to continue into 2022 and <unk>.
Beyond that.
While the automotive market place has been challenged by a well publicized shortage of micro ships. At this time, we do not anticipate any material microchip driven disruption and demand for our products.
However, the polymer shortages and potential cost increases I noted earlier could modestly impact on heat shrink products business during Q2, and Q3 and our supply chain teams are working tirelessly to ensure any such impacts on minimized.
Within the short flex wire and cable business on largest single expense as copper commodity which has experienced sharp price rises in recent months.
Our teams have rapidly adapted quoted prices to incorporate these raw material cost changes.
Looking further into 2021, it is reasonable to expect that revenue from our wire and cable products will be measurably increased by this pricing adjustment during the second half of the year. However, this incremental revenue will deliver little or no gross margin and implement.
In summary, we expect our Q2 financial performance to be stronger than Q1, driven by seasonal increased shipments of composite tanks higher levels of pipe coating activity and continued strong demand for automotive and industrial products.
We believe that Q1 will mark the lowest earnings quarter for the company. This year and we remain confident that shawcor will deliver a higher adjusted EBITDA and 21 than in 2020. Despite continued quarterly variations and the ongoing challenges of supply chain stress and lingering impacts from COVID-19.
On a full year outlook remains subject to upward revision and the event North American onshore oil and gas activity experienced as a more substantial acceleration, which would drive demand for shawcor composite pipe and girth Weld inspection services.
Turning to backlog at the end of Q1, the company's committed backlog of work to be completed within the next 12 months stood at $521 million and increase of $68 million or 15% from the end of 2020.
This growth was the result of very strong and underground storage tank orders lower than expected backlog burn within a pipe coating business as a consequence of project timing adjustments during the quarter.
And an increase in orders within other parts of the organization.
As previously communicated the timing of expected pipe coating project awards and anticipated backlog zone will almost certainly result, and a decline and the companys backlog during Q2 and Q3 the full backlog moves upwards later in 'twenty, one driven by New awards and the movement of longer term committed work into the 12 month timeframe.
Sure cause bid number reflects the value of what where the company has issued a slim price with proposed contract terms against and explicit scope of work with a defined timeline for execution.
At the end of Q1, the big balance was very similar to year end 2020 remaining over $800 million and indicating the strength of potential future work beyond the coming 12 months included and bid on over $110 million of conditional awards pending the clients' final investment decision.
Sure of course budgetary number collecting the value of indicative pricing submitted to allow customers to build a project budget ahead of commencing formal procurement activities.
Fell to approximately $1 billion at quarter and declining compared to the prior quarter, primarily due to the removal of a very large east Africa and pipeline project with Shawcor and no longer anticipates participation.
Despite this quarter to quarter movement, the volume of mid and longer term projects expected to move through final approval in the coming years remains robust and supports our outlook for a strong rebound and pipe coating activity. During the latter part of 'twenty, two and into 'twenty three.
And when combined with a very constructive outlook for composite and automotive and industrial product demand gives me great confidence that shawcor will deliver substantial earnings growth in the coming years.
And finally, we continue to evaluate our ESG performance and look for opportunities to impact not only through the products and services that we provide that and managing our own footprint. One example of this is on running back facility in Germany, which during the first quarter of this year transition to a green power grid and the facility is now powered entirely by renewable.
Energy sources offsetting more than 1219 metric tons of Seo to the equivalent admissions over the course of the year.
I'll now turn the call back to Steve for closing comments Steve.
Thanks, Mike before.
Before we open up for questions I'd like to make the following points.
Having executed and material cost reductions and the divestment of several non core assets during 2020 and response to unprecedented global crisis Shawcor now represents a substantially more cost efficient organization with a smaller but more strategically located and global footprint and a greatly reduced net debt.
Net position.
While we continue to evaluate the appropriate strategic poured path. The company is now well positioned to create and take advantage of opportunities and our core targeted markets going forward.
Shawcor has a substantial volume of customer project commitments for execution and the next 12 months and expects to see favorable movement on several large capital projects. During the later half of 2021 and early 2022, which will drive meaningful pipe coating activity for several years.
My final point, we will see increase in demand across our book and term businesses and our outlook for 2022 and beyond continues to be positive underpinned by supportive fundamentals in the energy transportation and infrastructure sectors.
I'll now turn the call over to the operator Jerome.
And open it up for questions that you may have for gas on Mike.
I or Megan.
Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Your first question comes from Aaron Macneil with TD Securities You May ask your question.
Hey, good morning, I'll ask Steve clearly the on lower.
Pipe coating revenue in the quarter showcase some of the.
Changes you've made to the cost structure.
And the closure of the Leach facility can you give us a sense of.
Where youre at in terms of rationalizing the footprint and I know a focus for you and the past has been the ability to offer redundancy and sort of the deadline and security around project through multiple facilities I.
And I think I know the answer to this already but can you maybe give us a sense of your ability to offer that security around project timeline with the reduced footprint.
Yeah for sure and I think I'm going to let Mike answer the question Mike and.
And is working.
On a on a daily basis as we go through different projects and maybe you can give a better a better indication of our strategy and where we are on which pipe coating facilities and how we could still offer this execution certainty on projects that we bid on Mike you want and take the call. The question certainly yeah. Good morning Erinn.
I think you know our footprint rationalization activity has been substantial over the last 12 months as you noted we've announced the closure of our UK facility, which needs to finish the tail end of the Baltic pipe project, but then the closure activity will be completed before the end of the year.
I Wouldnt say, we are complete with footprint rationalization, but certainly we are substantially complete we're still looking closely at the remaining international footprint to be sure that it's appropriate for the foreseeable and activity levels regionally.
And I'd say that debt.
Our footprint is essentially smaller than it was 12 months ago, our ability to provide our customers with the certainty and.
Confidence to award US a complex and substantial contract awards is still there.
And I've been very strategic and those sites that we have exited and those sites that we have retained and the concentration of capabilities within our organization, particularly human capital into the smaller footprint means that we retain both the capability and the knowledge and the urgency necessary to meet our customers' needs.
Understood and then maybe a related follow up for GAAP time and.
And though the timing is probably not totally certain but.
And I'm thinking about it and the context of the $55 million per quarter SG&A guidance when will that leased facility actually close.
And will there be any restructuring and subsequent quarters as it relates to that facility.
And if so can you give us a sense of the magnitude.
Yes, so I think first of all.
That we do expect when we complete the bulk of pipe project later on this year.
And that's when day at least facility and be close so and we will be moved from that site.
From a restructuring cost perspective, we do expect additional restructuring.
And following quarters here as we have other initiatives that we have planned and are yet to announce and.
And you would probably see the same level of restructuring.
And the next couple of quarters.
And totality.
The level of those two quarters added together with mortality and to what we experienced in Q1, if you exclude.
The gain on scrap material that including the level. So that's approximately around that.
6 million to $7 million level for the back for the remainder of this year on restructuring costs at this point.
Got it and just it.
Sounds like you are.
Youre not wanting to give a specific timeline on leaf but is it.
Next week and the December like any sensitive.
The timing of that.
And it all depends when the customer takes the last joints of pipe, we still have a commitment to finish the project.
Got it okay debt.
Makes sense.
On.
In terms of.
The backlog can you give us a sense of.
How much of the quarter and backlog relates to new projects, how much it relates to projects that were already one by Shawcor, but were previously outside the 12 month window and perhaps you could also try to characterize it by pipe coating and composite segment.
Backlog as well.
And again.
And I got on led.
And Mike answered again, but I'll just set it up on them, but we really don't.
Give granularity into the backlog from <unk>.
Awful reasons, mostly because of.
Competition.
We've always said, there's two big components and the backlog, which is composite pipe tanks, which you can look up what the backlog has been historically for that business and it was publicly traded and we've been pretty clear it's higher than it has been historically and of course pipe coating. So Mike maybe you want to comment on what was burned what went in and what <unk>.
And.
Yeah, certainly Steve so.
As we look at the <unk>.
The backlog at the end of Q1, obviously as we commented in the prepared remarks. There was it was a modest amount of that backlog that had been anticipated to the burned during Q1 that wasn't true to some modifications and project timeline.
So.
That number is not a material number there were a number of incremental projects secured debt that were.
And were added to that backlog and.
And then there was a.
Say roughly equal amount that rolled into the 12 months timeframe over the course of the quarter. So.
A real mixture of new and existing awards that supplemented the backlog during the quarter and as Steve pointed out we really prefer not to provide too much granularity by segment on that but as we mentioned.
The contribution of the composite tanks business to the backlog during the quarter was substantial.
Understood that's helpful I'll turn it over thanks.
Your next question comes from the line of Keith Mckey.
From RBC. Your line is open you may ask your question.
Hi, good morning, Thanks for taking my question.
Just wanted to start out maybe with the bid and budget numbers moved around a little bit and the last couple of quarters, but just wondering if you can comment on what you think your likelihood of converting those and those bid and budget numbers into revenue has that improved.
On or stayed the same or gone down over the last.
And last quarter or two of B B health, perhaps some color on that.
Mike I'll again and it over to you.
Certainly.
Good morning, Keith So I'm.
And I'm not sure that I would describe it as a material change and all.
And likelihood of success looking at the bid number at the bid number quarter to quarter didn't change dramatically biggest.
Biggest changes there and we're simply things rolling from bid into backlog.
On.
On the budgetary side I would say our confidence level is slightly higher on that budgetary number of roughly $1 billion than it would have been on the nearly $1 5 billion dollar number that we reported at the end of last quarter and really that's because of the primary change and budgetary which was the removal of a very.
Large east Africa, and pipeline coating project debt.
We didn't anticipate.
We anticipate being a substantial part of our business going forward and during this quarter. We came to the conclusion that we were not going to participate in that project. So what's left and budgetary excluding that East African project on.
Projects that we think we have a very good chance of winning so I would say the budgetary percentage chance of wind has probably gone up rather than down as we've moved between the two quarters.
Hopefully thats helpful.
Got it thanks for that and.
And one more from me so the impact of the weather on margins and in the quarter and the impact of COVID-19 disruptions on the quarter, maybe if you can sort of segregate those two on on an absolute impact and and.
What percentage of each or how much do you expect to continue into Q2 with the lingering supply chain supply chain impacts just kind of wondering if it was like.
50%, whether that's now going to be over or is it like <unk>.
20%, whether 80% COVID-19 supply chain that might that might continue.
Mike you want to continue.
I will I will so.
When we think about Q1 and memories fade quite quickly.
And the severity of the winter weather.
<unk> and the southern U S was really quite spectacular.
When we look at our Q1 results I think you should assume that there was somewhere between two and $3 million.
Incremental.
It'll cost that came from under utilization of our resources directly related to those weather impacts and so we're talking there about underutilized and some cases completely paused production activity and our southern U S manufacturing sites, which would include both pipe coating and composite tanks.
But also having field crews that were unable to go to work for a period of time there. So some some human costs as well that are unrelated to manufacturing.
I'd say the rest of the impacts that we saw during Q1.
From that winter weather. So some modest delays of revenue generation are likely to wash out of what's left of the year.
So I think it's about $2 million to $3 million on.
On the utilization costs that hit us in Q1 that is unlikely to recur.
The direct impacts of COVID-19.
In terms of.
Facilities being unable to function because of COVID-19, we're very limited during the quarter, but as we've highlighted the the supply chain challenges are certainly there and we'll certainly be there during Q2, and we would we would expect will become.
Les and ideally, we'll move to <unk>.
Almost non existent as we move through Q3, it's very difficult to segregate the impact to supply chain of COVID-19. This is winter weather.
I'd say that.
They are equally involved and the process, but as we've stated during the prepared remarks, and I'll say again here Q2 will be impacted Q3, I think the impact from supply chain will be less substantial and given what we can see at this point and time, we would expect that the supply chain scenario returns to a more normal state.
As we move into the fourth quarter, certainly and the the late part of 'twenty one.
Okay. Appreciate the color. Thanks, that's it for me.
Your next question comes from the team wanted to yellow with a T V capital markets.
Your line is open you may ask your question.
Hey, good morning, everyone.
My first question here just on on composite pipe demand you noted and in the prepared remarks that you've seen a slight improvement there I'm curious if you're seeing any.
Substitution from your customers away from steel to comps it just given where steel prices are going.
Mike you visited the Permian and just recently, maybe you can give some color on that as well.
Absolutely, yes, good morning, I think restate.
And we certainly saw an improved level of demand for our composite product composite pipe products during the first quarter when you compare it to the prior three quarters.
Demand is still substantially below where it was and the first quarter, 2020 and and periods prior to that.
What we've seen is certainly a modest increase in activity in terms of total number of rigs total number of new wells.
But perhaps more importantly, we've seen that the pre existing inventory levels that our customers were holding as we enter 'twenty. One has been worked down in many cases, and they're now and a circumstance where they need to purchase to meet their.
Their activity demand moving forward so that's.
Something that gives me confidence that the levels of activity that we saw for composite pipe and Q1 of this year.
Will be sustained and obviously, we will work very hard to find opportunities to expand beyond that but at this point I would guide you to a repeat of the Q1 levels as we work our way through Q2 and beyond.
Really for US the most important thing is which customers are active.
There are there's a subset of the customer population that are.
And have fully embraced the use of composite pipe.
And they tend to be the larger public companies, which to this point have tended to be a smaller participant in the rig count increase although we did see some of those customers go back to work to a modest degree during Q1.
I think it's reasonable to believe that we can continue to convert customers from steel to composite pipe.
But it certainly doesn't happen overnight and.
And it's not something that I would've expected to cause a.
Meaningful or material change and demand for our product in the coming quarters.
So hopefully that gives you some insight.
Yeah, no that's very helpful.
And the automotive industrial segment and.
Theres, a big uptick and revenue quarter over quarter, and you mentioned that copper price inflation.
So revenue is up like 15% quarter over quarter. If you took out the impacts of of copper prices. How much do you think revenue would have been up.
Yes.
Sure.
I think we.
And we don't break it out.
And we don't have that breakout it is not that significant and this quarter. There was some increase and I have a greater impact going forward.
And from the copper increases that exists.
So the majority of what you see there is increased demand for automotive and also for cable and wire products.
Okay, and do you expect that that level on a normalized basis.
Ex inflation is a sustainable level.
For the rest of the year.
So I think.
And we continue to see high demand for automotive and the segment for the remainder of this year at this point and time.
A lot of it is being driven.
From our.
And our customer spending more on on platforms electrification of vehicles.
And then of course, you know infrastructure spending and as I spoke about and my hope and my remarks about communication.
Transportation nuclear refurbishment.
And so.
See a healthy growth for the remainder of this year for automotive and industrial segments.
But it's all of it has to be just to be clear, we should expect in automotive and industrial although it wasn't present in 2020 that Q4 will have a year and softness.
And traditionally has like I think we're going to go back to kind of the normal profile of the business. So Q4 is.
Is normally the lowest quarter for that business, although it wasn't in 2020, but nothing was really normal in 2020.
Okay. That's helpful and Steve in your prepared remarks, you mentioned a large you know I think you said it was the largest cable and wire and contracting company history and I'm wondering if you could expand on that a little bit.
Hmm.
Mike you want to say some words on kind of the market. It was it was it was based on.
And so happy to do.
Happy to do that so obviously, we're not and are positioned to provide too many specifics here but.
And this was an order that went into the communications and.
Marketplace. So as we think about the continued build out of five G. In multiple countries. The demand for premium highly engineered wire and cable continues to be there and we believe we have positioned ourselves well to participate in that market as it continues to evolve. This particular order was not big enough.
For us to press release, it as a standalone business. So that gives you feel free.
And the scale, but certainly was substantial and the <unk>.
Resulted a lot of hard work from many many people inside the Shawcor organization.
And we continue to be excited by the opportunities that the communications marketplace offers us in addition to the traditional strength of this organization and supplying highly engineered products into other energy and infrastructure marketplaces.
Okay. That's helpful and in the press release, it said something about Canadian five G is this.
Is this contract and are leading to more demand from the same customer and do you think that you can expand that five G demand network outside of Canada. Obviously, you guys have a big manufacturing presence in Canada.
So generally I believe we have opportunities to participate and at a more elevated level and the <unk> build outs.
Obviously.
From geography to geography, there are different requirements in terms of certification and in some geographies. There is a requirement that you produced locally to participate and the local market. So I would caution you that.
Our infrastructure of manufacturing.
Being located where it is gives us certain advantages and certain markets and and perhaps disadvantages and others. So there won't be a uniform growth and we have to be thoughtful about which customers and which geographies. We work with most closely.
Okay.
And then just the last one from me here is just around the.
The weather impacts and the quarter I was just.
I'm wondering if you can quantify just on a revenue basis, how much you think revenue would've been higher in the first quarter, if it hadn't been for supply chain and weather disruptions and the sort of Gulf of Mexico region, and southern Southern U S.
I guess on you on a yes so.
And we want it.
And we didn't give quarterly guidance as you recall for Q1.
We did expect a big step down from what we experienced.
In Q4.
But I think overall it.
Really related to the pipe current activity.
And on the worst the expectation that we had.
And you know I mean, it's Tim we don't we don't want to share the details, but I can tell you that.
It was still if you recall, we did say that Q1 was our lowest quarter and that we.
We would have.
Further quarters and respect to our guidance that we previously provided.
Okay. So how should we think about the second quarter, because youll have some revenue catch up.
And do you expect pipe coating revenue to be higher and the second quarter as a result of that than the third quarter.
We're talking.
And the higher than the second quarter will be higher than the first quarter I think we've been very clear that it will be a good quarter for pipe coating.
But I think it's it's uncomfortable for us to tell you with the third quarter it could be because the projects could move ahead or a little bit delayed into the fourth quarter, but certainly in line of sight right now on projects that are booked.
Overlap from Q1 into Q2, Q2 will be a good quarter for pipe coating, yet, but I think we can also play into.
And on the goalposts that it won't be as high as it was in Q4.
Okay, that's great I appreciate it guys.
Again, ladies and gentlemen, if you have questions at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key your next question comes from Matthew Weekes.
We.
I E capital markets. Your line is open you may ask your question.
Hi, good morning, Thanks for taking my question.
Most of mine have been asked at this point, but I was just wondering you.
You'd mentioned that.
$75 million and had been repaid on on the credit facility subsequent to the quarter.
It was kind of discussed last quarter that you weren't sure how much was going to really be repaid on investments had to be made and working capital and stuff like that was the amount of the repayments more or less than you would have been expecting a.
A few months ago.
And that's a tough question.
And basically doing all of the numbers at that point in time.
I think it.
Does highlight our confidence and our outlook and liquidity position for the remainder of this year.
And our ability.
And if a need occurs that you know we still have access to the credit facilities and there's a significant need for additional funding.
But I think you know and really drive to the level of liquidity that we see look going forward.
And our and our and.
And our ability to stay within our cash flow needs.
For our current capital working capital requirements, but of course, those could change depending on on demand.
It continues to evolve for our businesses.
Okay. That's everything for me thank you.
Again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you lease turn move yourself from the queue. Please press the pound key.
I'm showing no further questions at this time I would now like to turn the conference back to Steve on.
And thank you. Thank you everyone for their participation and interest and joining us in today's call.
We look forward to talking to you again at the close of the next quarter. So thank you all have a good day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day can meet all disconnect.
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