Steve Orr - CEO Gaston Tano - SVP, Finance and CFO

Benjamin Owens - RBC Capital Markets Aaron MacNeil - TD Securities Wesley Nixon - National Bank Financial Elias Foscolos - Industrial Alliance Securities Inc.

Great. Thank you, operator.

Good morning everyone and thank you for joining us this 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 4 of the third quarter 2017 earnings press release and that’s available on SEDAR and on the company’s Web site at shawcor.com. I will now turn it over to ShawCor’s CEO, Steve Orr.

Steve?

Good morning and thank you for joining us on this morning’s conference call. As you’ll recall in the second quarter of this year, we communicated that our financial results in the third quarter would be at similar levels to the second quarter results.

We’re very pleased to report that our financial performance in the third quarter exceeded our expectations and what we delivered in the second quarter. Adjusted EBITDA in the third quarter of 2017 was 64 million, an increase of 19% over the second quarter and revenue was 397 million, an increase of 3% over the second quarter.

This quarter’s performance demonstrates our ability to execute as we have delivered five consecutive quarters of EBITDA growth from the low point of Q2 2016. The third quarter results were positively impacted by our continued flawless execution, particularly in the Sur de Texas project in Altamira, Mexico with two mobile plants operating at full production levels and our ability to meet increased demand for our products and services in North America and in the minimization of the impact of under utilization of our global facility footprint.

ShawCor’s financial performance over the next several quarters will be impacted by three factors; North American land drilling and completion activity, overall industry capital spending and large projects with increased competence that North American land will maintain a minimum level of activity and overall strengthening in capital spending, particularly in international markets. The overall base business of the company will improve.

However, it should be clear that it is becoming more unlikely that any material contribution from one or more of the large projects we are pursuing will not happen in 2018. With increased confidence in base business performance and large projects being sanctioned coupled with the company’s current position and strength in identified long-term fundamentals, we have resumed the execution of our growth strategy.

I will comment in more detail on this and our outlook in a moment, but first I’ll ask Gaston Tano, our CFO, to provide some details on the third quarter financial results.

Thanks, Steve. As Steve noted earlier, we are pleased with the positive results in the third quarter.

Revenue in the third quarter increased by 3% over the second quarter of 2017, primarily due to higher activities in Latin America and North America, partially offset by lower volumes in the EMAR and Asia Pacific regions. Compared with the year ago, third quarter revenue increased by 53% reflecting higher activity in the Pipeline segment in North America and Latin America, partially offset by lower revenues at both EMAR and Asia Pacific and slightly higher revenues in the Petrochemical and Industrial segment.

Reported consolidated gross revenues were 38%, an improvement over the 37.5% in the second quarter of 2017 and also much higher than the 33.6% in the third quarter a year ago. The Pipeline segment gross margin for the third quarter improved to 39.1% from the 34.8% a year ago while the Petrochemical and Industrial segment gross margin improved to 30.1% from 27.7% reported in 2016 third quarter.

On a consolidated basis, adjusted EBITDA for the third quarter is 54 million compared with 53 million in the second quarter of 2017. The improvement in EBITDA was primarily due to the increase in gross profit of 7 million from higher activity and plant utilization and 5 million of net foreign exchange gains, partially offset by the company’s $3 million share of impairment losses recorded by an associate.

Adjusted EBITDA for the third quarter was a significant improvement over the 7 million reported in the third quarter of 2016, primarily due to higher gross margins from increased large project activity, improved North America business activity and plant utilization, partially offset by higher SG&A related to increases in personnel-related incentive compensation expense. Let’s now discuss cash flows for the quarter.

Before changes in non-cash working capital, cash flow provided from operating activities for the third quarter is 66 million, up from the 1 million that was provided from operating activities in the third quarter a year ago, primarily related to higher net income, partially offset by lower non-cash items. Compared to 37 million in the second quarter of 2017, the third quarter was also higher due to increases in net income and non-cash items.

The change in non-cash working capital in the third quarter was a small net cash outflow of 272,000 compared with a cash inflow of 22 million in the third quarter of 2017. The net cash outflow for the working capital in this quarter was primarily attributed to decreases in deferred revenue, inventory, prepaid expenses and foreign exchange, also entirely offset by a net decrease in accounts receivable.

Cash flow used in investing activities in the third quarter was 4 million with capital expenditures on property, plant and equipment of 8 million, partially offset by proceeds of $4 million from our loans receivable. The capital expenditure in the third quarter were related primary to the investments to support higher activity in our Composite Production Systems and Connection Systems benefits.

During the third quarter, financing used in net cash of $11 million reflecting the payment of a regular quarterly dividend of 10.5 million. Net cash flow for the third quarter in 2017 was positive 44 million compared to 22 million positive in the second quarter in 2017 and 1 million negative a year ago.

With respect to the balance sheet, our financial position remains strong. The company’s cash and short-term investments position increased to 213 million in the third quarter of 2017, an increase of 44 million over the second quarter primarily related to the improved business activity.

Total net cash working capital at the end of the third quarter was 129 million compared with 82 million at the start of the year. This reinvestment of working capital was expected with a growth in revenue and the exceptionally low level of working capital at the end of 2016, but it is lower than 146 million of non-cash working capital at the end of the second quarter of 2017 reflecting execution to the Sur de Texas project.

In addition, the company has available unutilized credit facilities of approximately 389 million as of September 30th. As stated during our last quarter’s conference call, we are pleased to confirm that the company benefitted by 2 million of lower financing costs through the third quarter of 2017 compared to the second quarter as higher pricing from the debt amendments made in December 2016 were no longer in effect.

I will now turn it back to Steve for his commentary on our outlook.

Thank you, Gaston. I will start first with Q4 with the continued execution of the coating work for the Sur de Texas project which has approximately 30% of the work remaining to be completed, along with the continued base level of demand for our products and services linked to drilling and completion activity in North America and Latin, the company expects to deliver EBITDA in the fourth quarter 2017 with a new range reported in the previous two quarters.

Also swings in the quarter would be from the influence of annual seasonal events and the degree of strengthening of day-to-day work that is important in plant loading. Now turning to 2018, we are cautiously optimistic on our ability to deliver solid profitable performance in 2018 even without the contribution from $100 million plus project.

We are excited as delivering a profitable year without a large project will demonstrate the traction the company has made in expanding the portfolio both in terms of products and services but also geography served. Adding to the excitement, several of the large projects we are in pursuit of are moving ahead and we believe the company is well positioned to capture its share.

A large project award will certainly add significantly to the momentum as we move through 2018 and beyond. Staying to the near term, as we have alluded in previous calls, there are three elements that will impact our performance; North America and upstream activity, capital spending and large material projects.

In North America, while the number of rigs have pulled back from earlier quarters, we’re seeing a robust level of activity in wells completed and our customers are indicating that they will continue current spending levels and are now expressing concerns about supply. This will drive the demand for our gathering line pipeline products and services and OCTG tubular services that are strongly aligned to bringing new production online.

Additionally, the need for infrastructure to handle increased production volumes coupled with growing acceptance of nonmetallic solutions to address corrosion and wear provides a drive for our 6-inch and 8-inch FlexFlow composite pipe and ShawCor line tubing technology. It is fully expected that as we exit 2017, our North American upstream-related businesses will have recovered to pre-downturn levels as a result of increased activity but also due to addition of new products and services to the portfolio.

The next stage in the North American land activity that in the most part has been absent but should start moving is pricing. With the global oil markets showing signs of balance, capital spending in our market space is slowly improving as is evident by the greater number of final investment decisions in 2017 than '16, and the recent signs that offshore has reached bottom.

At this time, we are seeing projects such as brownfields and step outs being sanctioned as they have shorter payback periods with greenfield FID by exception only. However, with increased confidence and stability, offshore greenfields will move forward.

Increased oil and gas capital spending will drive the demand for ShawCor’s transmission and infield-related pipe coating, girth weld inspection and wire and cable. Capital spending is expected to continue to strengthen with a result in increase in the company’s plant utilization and positive impact in margins.

With increasing confidence in our base business and the prospect of winning one or more of the multiple large project opportunities, the company has resumed its growth strategy involving both organic and inorganic investments. We have come out of the 2016 low point in this cycle with a lower cost base and a high degree of execution ability to capitalize on the longer term drivers of aging infrastructure, the impact of depletion and energy sustainability.

The signs are positive that the company is on the right path. For example, with the majority of the world’s pipeline infrastructure older than 20 years, operational certainty will require inspecting, repairing and replacing 1,000 of kilometers of pipelines.

Recently, our integrity management group was awarded a three-year service contract with a major transmission line operator for an inspection integrity program. The leveraging of Lake Superior’s engineering capabilities and domain knowledge with the workforce capabilities of ShawCor inspection and services in enabling ShawCor to provide solutions into the OpEx workflow of our customers.

The impact of depletion will have to be addressed through investments in finding and developing new sources. Shale oil and gas production comes with greater depletion rates than conventional reservoirs but like conventional reservoirs requires handling of water as they mature, which in turn requires the build out of additional infrastructure.

Our FlexFlow product line is now commercial and is installed in both the Canadian and U.S. markets.

FlexFlow is providing a cost effective solution for the movement of corrosive produced water. Finally, there are several examples of larger transmission projects that are not directly tied to the price of oil but are driven by energy security or greener alternatives.

The PTT Thailand fifth transmission and the Sur de Texas projects are two such examples. Additionally, the company is well positioned for the return of large offshore projects with our global footprint, proven execution ability, technological advantage and balance sheet strength.

On the technology front, in the third quarter, the company successfully installed the new NEMO field joint solution which uses advanced materials to address both the extreme parameters of the offshore and the need to reduce overall capital investment. This is an example of how we continue to innovate and leverage our technology capabilities to maintain our strong position in this market.

Let me now tieback our optimism for the fourth quarter of 2017 and beyond to the backlog and budgetary numbers we released. The order backlog at September 30, 2017 of 483 million is lower than the 572 million reported at the end of second quarter.

This decline does highlight our success in winning new work which partially offsets over 110 million of concrete weight coating that was executed for the Sur de Texas - Tuxpan project. The new work includes several offshore projects that fit the quick cycle return profile that I spoke of earlier and a large international order for composite line pipes.

There is also a positive trend in our bid and budgetary figures. The bid number is in excess of 600 million, up from the 500 million reported last quarter and still does not contain any project with potential revenue over 100 million.

As communicated in our last call, we had expected to submit a formal bid for a large 100 million plus project before the end of Q3. However, the submission was delayed until mid-October and therefore not reflected in our bid figures for the third quarter.

As an additional note, in early November, we also submitted a firm bid for the first phase of a second 100 million plus project we are pursuing. The third quarter’s budgetary figures remain strong and have increased to 1.7 billion.

We continue to gain greater visibility on the progress of large projects and with a large project execution in 2018 is becoming unlikely, beyond 2018 there is potential for several walls of work. Due to our geographic footprint, technological expertise, execution history and balance sheet strength, the company is well positioned to capture significant share of these large projects.

In summary, we expect to deliver results in the fourth quarter of 2017 within the range of the previous two quarters. Despite the likely absence of a large project activity in 2018, we expect that our base business related to North America and upstream activity and increased capital spending will continue to grow and enable the company to deliver solid profitable results in 2018.

Beyond 2018, we continue to see forward movement on several large projects for execution in 2019 and 2020. With increasing confidence in our base business, multiple large projects being pursued and a strong balance sheet, we’re looking to capitalize on our growth momentum through organic and potential inorganic investments.

On that note, I’ll now turn the call over to Danielle, the operator, for any questions you may have.

Hi. Good morning, guys.

Good morning.

Just curious, what’s the expecting timing for the product awards for the large projects that went into the bid stage during the fourth quarter?

So I would expect before we close Q1 2018, we will know whether the projects in particular will go ahead and our success in securing them.

Okay, that’s helpful. Can you share the geographies that those two projects are located in?

I think, Ben, this time it’s particularly difficult. It’s going to take much time – the projects that we’re bidding are under NDAs.

What I can say is that the geographies that are of a particular importance for us for the next three to four years are of course the return in the Brazil deepwater, East Africa, the changes that are happening around gas export into Europe and probably lower on the list but still visible of course to us is anything that would happen in large diameter export lines here in Canada.

Okay, got it. That’s helpful.

Just a last one for me. With the rig count turning over in the U.S.

in recent months, would you expect sales of FlexFlow products for gathering applications to decline a bit in the coming quarters, or is there still a chance to see some growth there via share gains or maybe the duct [ph] backlog getting work down?

Certainly, Flexpipe has regained all the traction that it’s had in the pre-downturn, so it’s a very nice story. I think any offset in the rig count will be easily compensated for increased conversion from steel to condensate.

So that’s why we’ve made this comment multiple times with a minimum level of activity and the expansion to our portfolio – and the expansion to portfolio, I would add the conversion rate from steel to condensate. So we don’t see any scenario where condensates would not be strong like 2018.

Got it. That’s helpful.

Thanks, guys. I’ll turn it back.

Good morning, guys.

Good morning, Aaron.

Just given your comments, is it fair to assume that your tone has improved on the ability to win a large project in the next 12 months relative to the prior quarter, I presume?

No. I think it’s always when you discuss large projects, there’s two components.

Number one, will a large project move ahead and be sanctioned? And then the second component, will we be successful in securing the large project?

I think if there’s any pickup in optimism, it’s primarily the first component. The projects are moving ahead and we are now in the process of firm bidding and the negotiations that are associated post the firm bid.

But our competitive position hasn’t – it’s pretty strong and I think optimism was already there. If they moved ahead, we had a chance of winning our fair share.

But I think the optimism if there’s any pickup, it is that the projects are moving ahead. And I made a comment we have now bid the first stage of a second large project in Q4.

Got you. Of the two large projects that were bid subsequent to the quarter end and similar perhaps to the Sur de Texas pipeline project, you touched on it a bit, but do you think you have a competitive advantage with either of those projects from a certainty of delivery or balance sheet or other perspective?

I think the large projects that we excel at are ones that have a component of complexity or high execution risk technology. And so the ones that we’re pursuing both have those elements.

And then the balance sheet component is it’s always a competitive advantage but it can be mitigated by a reduction in pricing in some cases, right. So I think to answer your answer, the ones that we are pursuing are the type that the company historically has excelled at delivering and can deliver a value proposition to the customer, so they’re technology and complex.

Okay. And last question for me, switching gears a bit, but with Brent above $60, do you think – or are your customers, has their tone changed on the potential for returning offshore activity?

So first of all, what we’re seeing is of course the brownfields and tie-ins and the work that is helping to offset the backlog reduction because of Sur de Texas, the work that we’re winning are these tie-ins and brownfields. The Gulf of Mexico has had several tie-ins and brownfields that we are going to participate in that we have secured.

So that’s happening and that’s very positive and that’s the biggest delta between the FIDs in '17 over '16. What we’re also starting to see is projects that were offshore that were frozen or halted that were in advanced stages in '14 now quickly came to a conclusion or shelved in as the downturn started, they’re coming back.

And the difference now is the discussion with the customers are tying them into existing infrastructure, meaning that – in Asia, for example, there’s a project that we had pursued. It was on the bid list when I joined the company back in 2013 and it was on the final stages of sanctioning.

That project went away as the price of oil dropped. That project now is coming back but it’s going to tie into infrastructure of a project that was sanctioned in the meantime.

So that’s what’s happening, so we’re having discussions because the economics of the capital that’s required is less because another field has a depletion rate and it can use this production. So that’s the types that are coming back.

But I still – my belief is that the offshore and in particular the international offshore is at bottom right now, so the uptrend we should start seeing.

Okay, great. I’ll turn it over.

Good morning, gentlemen.

Good morning.

Are the recent wins for Turk Stream and Nord Stream 2, are those reflected in the 482 million backlog or not?

So first of all, Nord Stream was secured by a competitor. So it would be reflected in the backlog.

And Turk Stream with the exception of some field joint coating has also been completed. So both Nord Stream and Turk Stream there’s no material impact, potentially some million-dollar range of field joint coating in there.

Okay. Yes, that’s what I was referring to.

Thanks for the clarity. Another one, when the Sur de Texas - Tuxpan falls off largely at the end of the first quarter in 2018, is it reasonable to assume that the Lat Am segment revenues sort of falls back to that $10 million to $30 million range that we saw in 2016, absent any additional wins?

Maybe phase the question again for me so I get the details exact.

Once the Sur de Texas rolls off and that work is completed maybe close to the end of the first quarter of 2018, as we start thinking about the activity levels in Lat Am for the balance of the year, would it be reasonable to assume that the revenue sort of falls back into that $10 million to $30 million range that we saw throughout 2016 per quarter?

Yes, I think that’s a – we’ve given the number of 110 million in the quarter, so you can subtract that then assume that there’s some strengthening in that marketplace as well. So I think your estimate is correct.

Okay. Thank you.

And then just in terms of the competitive positioning and the competitive bidding process on some of these large, the international projects that are under pursuit, can you speak to any fundamental differences in that process versus prior to the downturn?

No, not the drill bids but we have seen competitive companies that we’re competing against for the work. Our opportunity to secure, as I already alluded to, it is a function of the complexity of the project and the technology.

Complexity often is a function of the number of plants or facilities whether it be in country or out of the country to do it. So that hasn’t changed.

We have not reduced our footprint nor has the competitor added additional plants. And then on the technology front, the projects that we’re pursuing have advantages on our technology portfolio that would put us in a competitive advantage.

But it doesn’t say that the competitors could not develop a solution and compete. So I would say on those fronts, it’s very similar.

And the balance sheet, I can’t really speculate on the competitive landscape on their balance sheet except what’s in the public domain that you also have access to. Our cash position is certainly strong and Gaston may before the call is over address what we may do with that cash, but it certainly enables us to provide advanced funding of pursuits, right.

Right, got it. One last one for me.

Maybe some additional color just on how the ramp up of FlexFlow is going? Have you added any additional shifts or an additional line?

If not, do you plan on doing so and just sort of how the capacity utilization is tracking at that plant?

Good question. So we’re now I believe most of the individuals on this call on the analyst side have visited the FlexFlow facility.

So the plant right now is staffing up and we’re running through the timing of putting the second winder in place. And in some cases, we’re even backing off production right now so that we can go back and fine tune the speed in which we can ramp up both 6-inch and 8-inch, because we really want to demonstrate in 2018 that there’s a material revenue stream from that facility.

So if there’s one message I can pass is that it’s not a function of is there a marketplace for this product, derisking the ramp up to ensure that we can turn the switch both on the 6-inch and 8-inch at the highest capacity. First-time quality for the 6-inch is there now and the 8-inch first-time quality is getting fine tuned in the fourth quarter so that we can make money at the model.

So we’re quite excited about this.

Sounds great. Congrats on a solid quarter.

Thank you.

Good morning.

Good morning.

My first set of questions will focus a bit on backlog. Did we have any negative impact on backlog at the end of Q3 as a function of the strengthening Canadian dollar?

Yes, there is a foreign exchange impact that is based on the rates that we had at the end of June to September. So that’s a fair question, Elias.

Okay. Sort of staying again on the backlog, it is just a 12-month outlook.

Can I make the assumption that there is some dollars in there off the PTT job that are not included in the backlog that was reported?

Without identifying a particular project, there is now work being secured beyond the 12 months. There is a function of PTTEP another window was added in the quarter.

But because of the scale or the magnitude of it, we’re not giving visibility to it.

That’s fine. I just focused on the fact that that one project that was disclosed was to be completed in Q4, so I just wanted to confirm that that’s not sort of moving ahead of schedule.

One other comment, Steve, and it has to do with orders not showing up in backlog because of compressed timeframe. A little bit of clarity on that.

Is that a change in the absolute dollars that you’re seeing that are churning through in the quarter versus relative given that the backlog’s falling? In other words, is it becoming larger on an absolute basis?

It probably is on a percentage basis.

Yes, and I think that’s what we’re messaging. It’s the absolute dollar to the company from call it a day-to-day or book in turn and services revenue is increasing, and in particular those that are leveraged to the North American upstream and the increase in capital spending overall.

And that was if you recall back in early 2014 we made that very clear that we really wanted to expand the base business. And that’s the excitement around 2018 if the company indeed has been successful to doing so, we were hoping to show it to the marketplace in 2018, so a solid profitable year without a large project.

Okay, got that. One last question, you’ve alluded to it but I’ll probably be a little more direct on it.

The balance sheet is very strong with cash and it will probably continue to surge next quarter also. And you implied inorganic growth looking back over the last – although there was a void in this past year, can you give some color on the kinds of things that you’re looking at on the acquisition side without get too specific, just maybe the types of more recurring revenue type things or where would it focus?

Yes, I think it’s always good to give some color on where we’re looking. So often we spoke about three areas and where inorganic was attracted to it; technology, tuck-unders and platforms of growth.

And technology doesn’t always mean that you will fully own but you may take a minority position so that you can ensure long-term access to a technology block. And I think the best example I can call out is the company or the delisting of Zedi.

So Zedi is percolated throughout the whole company. Now we have a minority position but the technology of moving, serving and hosting data is throughout the company now.

So that’s the technology. I would see going forward that possible around GIS or displaying attributes on a geographical reference point is an area that we’re interested in.

So that’s an example of using technology going forward. If we look at tuck-unders, we have matured the model of our product business through Canusa and DHATEC where we have a very nice distribution market using partner channels that allows us to enter and to move products very quickly.

So when we acquired DHATEC, DHATEC was primarily a European product business and now it’s on every continent in the world. We have recently started signing licensing agreements with complementary products that we’re pushing through our distribution.

We will do acquisitions in the products business that we’ll push into this rapid deployment through our now mature model of our distribution channel. And then platforms of growth, as we look across the horizon or to stay true to oil and gas pipelines or pipelines and associated assets has always been at the core.

We now need to contemplate other adjacent basis such as mining and water, so we may do an acquisition that gives us a foothold in some of these other adjacent market spaces.

Okay. Well, thank you very much for that color.

I will turn the call over.

All right. So, Danielle, we can bring the call to a close.

Before I do, I’d like to thank everyone for their participation and interest and we look forward to updating you again at the end of the next quarter. Thank you.