Steve Orr - Chief Executive Officer and Chairman Gaston Tano - Chief Financial Officer

Benjamin Owens - RBC Wesley Nixon - National Bank Financial Elias Foscolos - Industrial Alliance

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 4 of the fourth quarter's 2017 earnings press release 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. In our last quarter's call we highlighted our expectations at Q4 2017 within the range of the previous two quarters.

I'm very pleased to report that our financial performance exceeded our expectation and what we delivered in the third quarter. Adjusted EBITDA in the fourth quarter of 2017 was 66 million, an increase of 5% over the third quarter and revenue was 426 million, an increase of 7% over the third quarter.

Again this quarter's results demonstrates that execution is a core strength of the company as we navigated the cycle and delivered a strong 2017. The fourth quarter's results were positively impacted as the Sur de Texas project pipe coating activity was completed as in two mobile plants exceeded targeted production range.

We met the increased demand of our products and services in North America and managed loading to drive a slight improvement in overall plant utilization. ShawCor's financial performance is heavily weighted to three elements; North America drilling and completion activity, overall industry capital spending and the securing and executing of large 100 million plus pipe coating projects.

In 2018, there is potential to be a pivotal year for the company, as continued activity in North America is expected and off the bottom spending across the industry will be seen, which is critical to asset utilization coupled with recent portfolio expansion, will enable the company to deliver solid profitable results even with the absence of any contribution of a large 100 million plus project. However, should be clear that in the absence of any material contribution of a large project in 2018, the financial results would be a step down from what we delivered in 2017, starting in Q1 2018.

Adding to the support 2018 could be a pivotal year in the movement we're seeing in projects and the increasing confidence that our backlog will reach an inflexion point during the year. With increased confidence in the base business performance, projects being sanctioned and a very healthy balance sheet coupled with strength in unidentified long-term fundamentals, we're back to executing our growth strategy.

I'll comment in more detail on this in our outlook in a moment, but first I'll ask Gaston, our CFO to provide some details on the fourth quarter financial results.

Thanks, Steve. As Steve noted earlier, we're pleased again with our positive result this quarter.

Revenue in the fourth quarter increased by 7% over the third quarter of 2017, primarily due to higher activity levels in all regions in the Pipeline segment. Compared to the fourth quarter a year ago revenue increased by 29%, reflecting higher activity in the Pipeline segment primarily in Latin America due to the execution of the Sur de Texas project and also in North America from increased demand from our composite pipe products and small diameter coating.

This was partially offset by lower Pipeline segment revenues in EMAR and Asia Pacific. Revenues for the Petrochemical and Industrial segment were slightly higher than the prior year fourth quarter.

Reported consolidated gross revenues were 37.9%, slightly lower than the 38% in the third quarter of 2017, but much higher than the 32.7% in the fourth quarter a year ago. And also higher than the adjusted gross margin of 34.2% a year ago, after excluding the non-recurrent inventory valuation adjustment of 4.8 million booked in the fourth quarter of 2016.

The Pipeline segment's gross margin for the fourth quarter improved to 38.9% from the 33.1% a year ago, while the Petrochemical and Industrial segment gross margin was 28.1% compared to 29.7% reported in the fourth quarter 2016. On a consolidated basis, adjusted EBITDA for the fourth quarter is 66 million compared with 64 million in the third quarter of 2017.

Adjusted EBITDA for the fourth quarter excludes 8.1 million in impairment charges related to our [ph] operations that was booked in the fourth quarter of '17. The improvement in adjusted EBITDA was primarily due to increases in gross profit of 11 million from higher activity and plant utilization, partially offset by higher SG&A expenses of 8 million and lower foreign exchange gains of 2 million.

The increase in SG&A expense in the fourth quarter compared to the third quarter was largely due to increases of 2.2 million of compensation and personnel-related expenses, 5.5 million of higher restructuring cost and higher professional fees of 1.1 million. Adjusted EBITDA for the fourth quarter was a significant improvement over the 33 million reported in the fourth quarter of 2016, which excludes gains of 5.6 million from the sale of land and 19.2 million gained from an arbitration award.

The increase is primarily due to higher gross margins from increased large project activity, primarily the Sur de Texas project, higher activity in the North America upstream business and plant utilization, partially offset by higher SG&A expenses mainly due to higher compensation and personnel-related expenses and higher restructuring cost. Let's now discuss cash flows for the quarter.

Before changes in non-cash working capital, cash flow provided from operating activities for the fourth quarter is 58 million, up from the 34 million that was provided from operating activities in the fourth quarter a year ago, primarily related to higher non-cash items and partially offset by lower net income. Compared to 66 million in the third quarter of 2017, the fourth quarter was lower due to lower non-cash items and higher amounts paid to sub divisions.

The change in non-cash working capital in the fourth quarter was a net cash inflow of 39 million compared to a cash inflow of 21 million in the fourth quarter '16. The higher cash inflow from working capital in this quarter was primarily due to higher proceeds from accounts receivable and inventory, partially offset by reduction in differed revenue and higher payments for accounts payable and accrued liabilities.

Cash flow used in investing activities in the fourth quarter was 8 million, primarily related to capital expenditures on property, plant and equipment of 9 million. These capital expenditures in the fourth quarter were related primary to investments to support higher activity in our Composite Production Systems and our Connection Systems benefits.

During the fourth quarter, financing activities used net cash of 11 million reflecting our payment on our regular quarterly dividend of 10.5 million. Net cash flow for the fourth quarter in 2017 was positive 70 million compared to positive 44 million in the third quarter in 2017 and slightly below the positive 80 million a year ago.

With respect to the balance sheet, our financial position remains strong. The company's cash and short-term investments position increased during the fourth quarter to 289 million, primarily to improve business activities.

Total net cash working capital at the end of the fourth quarter was 89 million compared with 83 million at the start of the year and 129 million at the end of the third quarter. The change in non-cash working capital that occurred during 2015 was expected with the growth in the business, the execution of the Sur de Texas project in 2017 and the exceptional low level of working capital at the end of 2016.

From a debt perspective, the company continues to maintain a low debt leverage ratio with a long-term debt of 246 million and 72 million of standard letters of credit as of December 31, 2017. As stated in last quarter's call, the company returned to a leverage ratio that was in compliance with non-admitted covenants of our debt agreements.

The company also has available and newer life credit facilities of approximate 389 million as of December 31, 2017. I will now turn it back to Steve for his commentary on our outlook.

Thank you, Gaston. I will first Q1 2018, with the execution of the coating work for the Sur de Texas project now complete, the results will be determined by the demand for our products and services linked to drilling and completion activity in North America land, working capital associate with 2016 and '17 FIDs and overall increase of capital spending across the industry.

With the expectation in North America we remain at current levels and we're able to execute cleanly multiple projects as planned, the company expects to deliver EBITDA in the first quarter 2018 that will be a step down from the results reported in Q4 2017. Our Q1 2018 results are expected to be comparable to Q4 2016.

Looking beyond Q1 2018, for the full year commentary, it is similar. We have confidence that the company will deliver solid profitability for 2018, but superior performance like we delivered in 2013 will not be possible until a large 100 million plus project is contributing.

Possible swings in the quarter could and would be from the influence of unforeseen projects and mobilization delays or advancements and the degree of strengthening of the day-to-day work that is important in asset loading. In my opening comments, I highlighted that 2018 has the potential to be a pivotal year as we set out to deliver profitability without a large pipe coating project, demonstrating the strength of the diversity of the company's expanded portfolio, expansion that we've seen in both products and services and geographies served.

Supporting the optimism that 2018 to be a pivotal year is the fact that large projects that we're in pursuit of are moving ahead and we believe that the company is well positioned to capture share. A large project award announcement would certainly add significantly to the momentum as we move through 2018 and beyond.

In our pipeline performance growth seen also proprietary reconciliation system is now accepted by our customers beyond the Norwegian and North Sea market. In 2017, we delivered also for a customer in offshore Australia from the facility in Malaysia.

In 2018, we will deliver ULTRA to a customer in Brazil from a new in commission facility in Brazil. In 2018, our Channelview coating facility will be applying a product called diamond-like coating a proprietary internal fluorescence coating for a customer in the Gulf of Mexico.

These are just two examples of how we have continued to expand our offering in coatings and enhanced our volatility to deploy them globally. Staying with the pipeline performance growth team we have integrated Dhatec, a leader in pipe storage, preservation and transport with Canusa-CPS, a leader in field joint protection into a best in-class products business.

We have maintained brand strength while maximizing the benefits of channel to market and back office support structure that includes partnership management and supply chain. With the product business now established Dhatec solutions are present beyond Europe sales now on every continent and we are adding and scaling additional brands, NRI, a composite based coating solution being our latest.

In our composite production system growth team the adoption and acceptance of the benefits of composite pipes over steel for gathering lines continues. FlexFlow, our proprietary large diameter pipe platform brings all the benefits of a 100% metallic free system in an easy to handle discreet length of stick configuration.

Driven by increasing produced water volumes, harsh corrosive environment and a high cost of trucking our FlexFlow plant ramp up is underway with little concern on the available market or update. Turning to the core product of our composite pipe offering our 2 inch, 3 inch and 4 inch movable products continue to gain traction outside of North America.

I've mentioned, would be the recent orders that we received in several Middle East countries following years of work to meet qualifications. As a result we expect a rapid move to composites from steel in this market.

The Integrity Management growth team is transforming daily as we execute on our plan of pulling together the blocks of acquisition technology, field service, data and domain knowledge. At the core we continue to invest in [indiscernible] technology.

In 2018 we'll bring to the market real time radiography, large diameter double wall capabilities. This technology has already been contracted for several straits for pipeline in West Virginia and we expect that it will prove to be a differentiator in the North American transmission market.

ShawCor inspection services formally Desert now deploys crawlers and event services such as corrosion mapping on pipeline integrity leaks in addition to their legacy offering of conventional NDT on a regular basis. Using domain knowledge inundated together is proving critical and building a re-occurring revenue streams.

One such example is the recent agreement that we entered to provide cathodic protection services for several years for a large transmission operator in the Great Lakes region. That is expected to generate in excess of 6 million per year.

The work involved the yearly surveys to determine protection effectiveness and recommended remediation and repairs. Key to being selected for this work was Lake Superior's domain knowledge and a proven ability to actively collect, host and serve data in GIS or Geographic Information System format.

We are now preparing to commercialize similar workflows for hydrostatic testing and wellhead integrity. In 2018, ShawCor integrating management offering has expected to continue to gain traction.

ShawCor's Oilfield optimizing [ph] growth team has yet to recover from the cycle in their core business of inspection, repair and management of OCTG tubular. This is primarily due to the fact that their waging is in a depressed Canadian market.

However, here we've also not stayed idle and have expanded the on drilling and moved into products and services related to production. Like the services offered for OCTG tubular, today ShawCor rides also run through the facilities.

Additionally, we are bringing to our customers a solution for production tubing corrosion and wear by offering line tubing. The final example that highlights ShawCor recent expansion is in our connection systems growth team.

In DSG-Canusa we deliver solutions that seal, protect and insulate. In most cases the substrates that we apply these solutions on is electrical wires.

Supported by the expectation of increased electrical components in vehicles and increased demand for electrical vehicles, we invested in additional capacity in our China and German facilities in 2016 and '17. This added capacity is now forecasted to be fully utilized by mid-2018, which has given us the confidence to sanction additional capital.

Investments made since 2016, and those recent green lighted which will come online in 2018 have increased the overall capacity of DSG-Canusa business by greater than 25%, which is key in continuing the growth in this business. Now turning to pipe coating projects, projects including those that exceed 100 million are moving and it is reflected in the increase in our bid number which now is in excess of 800 million at the end of the quarter, up from 600 million before the end of the third quarter 2017.

As expected this increase was supported by one large project of a 100 million plus moving from budgetary. Phase 1 of the second life project along with several other projects such as the recently announced offshore Qatar projects for EEW that we will execute in our pipe coating facility in Italy.

There are several examples of large transmission projects not being tied directly to the price of oil, but being driven by other factors such as energy security, greener alternatives and/or drive regional independence. This is the case for the large project we are in pursuit on.

In terms of timeline should the one large project we have bid continues to progress and be sanctioned as planned, we would expect a decision on the coating supplier between May and September this year. The fourth quarter's budgetary numbers remain strong with an aggregate value of approximately 1.6 billion.

Geographies of most interest include, North America where shale production is required - is requiring new infrastructure to get product to market; East Africa, where investments are required to development both onshore and offshore untapped acreage. Europe, where pipeline networks are being built to both maintain market share and diversify supply and Asia, where capital will be spent in pipelines to access additional reserves to address forecasted decline in production.

Additionally, offshore developments are now present in both our bid and budgetary and although in most cases they are related to building out of existing infrastructure and therefore are smaller, for example tie-ins. There are Greenfield developments now visible which suggest that the offshore market is poised to move out flatten.

ShawCor's is aligned to capitalize on the long term fundamentals of aging infrastructure, reservoir depletion and energy sustainability. We are optimistic that these fundamentals are shaping investment decisions and that the company that precisions correctly will be rewarded.

So, in summary, confidence in our long-term outlook is under pinning by our portfolio of products and services that has been enhanced by recent expansion efforts, project visibility movements, our ability to execute, our balance sheet and the continued strength of long term fundamentals in which we are positioning the company's growth strategy. I'll now the turn call over to the operator to open up for questions you may have for Gaston or I.

Hi, good morning.

Good morning Ben.

Steve, on the last conference call, it sounded like you thought you potentially have some news on one or more, large project award decisions by the time you closed the books in the first quarter. Based on your commentary about May to September time frame for the one project and then the MD&A about potential second half award, is it fair to assume that the timeline on the award of some of those large projects you are tracking is put to the right a little bit?

So, I think it hedged our bids and I stated May to September timeframe, the communication from the customer is still a Q1 entity and to be clear everything was to move on track, it could be a Q1 announcement. But, I think we've hedged our bid between May and September because as expected - as these large projects go through multiple cycles, first with project teams and then procurement organizations often will see delays.

But FIG has not moved.

Okay understood. To follow-up on the one large project together completed in Sur de Texas, how much of the revenue recognition on that project is expected to hit in that first quarter?

I think we are all - with the exception of some load out, we're all about done, so in fact it will be noted as well.

Okay.

I should probably expand because we - we've been speaking a lot about one large 100 million plus project that is in our bid. There is also another project that the total project will be over a 100 million, but it will bid in phases.

So we have bid the first phase of another total scope of over a 100 million, but they were awarded in phases and the first phase is less than a 100 million. But also in the budgetary we now have visibility on 100 million to Canadian $100 million plus projects that I expect will move into bid as we go through the year.

So we really have focused on the one that is in our bid, but there are several that is budgetary that could accelerate and even surpass the one that we are tracking today.

Okay, got it. As you guys are tracking those projects and then bid on them and how much of the bump up in first quarter G&A was related to expenses around bidding activity?

I think it is difficult for us significantly, but, I would tell you that depending on the project and Sur de Texas was an example, where we can get a burn rate in the quarter up to 3 million for one project pursued. And it just comes down to often - depending on do we move ahead and preposition equipment as we did in Sur de Texas before the award and secured land.

Also [indiscernible] escalating the pre product qualification that we do in products to prove certainly of the products capabilities before the contract goes through and that is the case with the one we are pursuing. So it can exceed 3 million in a quarter for a large $100 million project.

I'm a little uncomfortable to disclose because it is a little bit out of our strategy in pursuing them.

Sure, understood. Last question from me, if you can give us a little bit - obviously some news out of Washington on - around steel an aluminum perhaps, so I was just wondering if you guys had any thoughts on how that could potentially impact your business?

I would assume there're some possible positives on the composite pipe side and then may be some potential drawbacks, but just was curious about your opinion on that?

So maybe it's happened from - any additional duties that are put in US steel. The composite is - the composite technology has advanced a lot since the introduction of composites into the oil and gas space.

And we're seeing - because of system designs we see increased operating envelopes for two of the things that were quite negative for composites which is cyclic performance and permeability that traps gas between the two layers. So you are seeing a larger market available for composites and I think this is going to drive acceptance in International market.

So we are quite optimistic about composites to the point we are really questioning our current ability to supply in the market. If you look at the recent announcement, it's pretty fresh although we expected it to come.

But it does bored wells for facilities that we have in US, in particular one that we in Port and that is well operating right now.

Okay, great. Appreciate the color, I'll hand it back.

Thank you.

Thank you.

Good morning, this is Wesley Nixon filling in for Greg Coleman this morning.

Good morning Wesley, how are you?

Doing well, thanks. So the balance sheet is in extraordinary shape, cash balance is at a tight level since 2012, almost 300 million, likely to climb in the quarters to come.

Kind of may be wondering about the run down and what the top priorities are in terms of the uses of that cash in the coming years?

Yeah, I think you are right that we are - the cash balance has grown and we look at it from the perspective of - first looking at organic investments, delivering some of our organic plans that we have both in composites and our connection systems businesses as we see that both businesses growing in demand for the products that we have there. And then also looking at making sure that we secure our products as Steve mentioned earlier, there are costs involved in securing some of the large projects and some fees paying that we do, it's part of our strategy to secure that work that we feel important.

Beyond that I think we will invest - continue to invest in working capital, as the businesses continue to grow, but we are looking at other opportunities to use that cash and that may be in smaller tuck-in acquisitions as we talk tuck-ins or technology blocks that we can leverage in our businesses today. And then finally looking at what else we can do that beyond, but it's still, I think - is really to see how the results go in 2018 as Steve mentioned earlier the step-down in EBITDA that we expect because we don't have a large project contribution.

So that's critical for us to ensure the sustainability of our earnings today.

I would imagine, as you mentioned a portion of that, probably a significant portion would be earmarked for the future large contracts. Is there sort of an estimate as to what proportion might be earmarked for potential future contract wins of the cash comps?

No, we would not hesitate to use the balance sheet to secure higher margins in a contract and to differentiate from a competition. So, I guess, we would roll - we would allow the cash drive down to be a lot stronger in a large project that we view that we could get a better return on the margin or it differentiated the company.

Okay, North America, highest revenue and of course Q4 '15 and now well over 600 million for the full year. Kind of curious as to how much more revenue recovery you think is left in North America going forward?

It's a great question. So, first of all, I'm quite happy as we explained - demonstrating that the portfolio had expanded to get us back to 500 million run rate in the North American businesses where we were in 2014 with less re-count overall, right, so I am quite happy that we are there.

If you look at the delta between 2017 and you remove Sur de Texas project, I'm sure you guys all have the number around 350, and then you say okay, where is the rest of the potential upside is going to come from? It will come from two places, overall general capital spending and North America.

So and I think we can continue the trend from what we saw in - because the portfolio is not the same anymore, I think we still have one more step up on a run rate in North America.

Okay, and, I guess on - to that point, as the business grows, I guess how comfortable are you with the existing working capital on the business and I guess in particular on FlexFlow which has been ramping up. Do you expect that in 2018 there will be a pretty significant working capital build?

So we are - we need to add - so our composite businesses is very successful, right now very busy, FlexFlow is an interesting product offering, so when you sell FlexFlow you don't sell small lengths, perhaps the opportunities that we have are in fact of a couple of kilometers. So we will build inventory in FlexFlow that is different than what we do in our core product.

But I don't think it's going to be material or extreme, but the FlexFlow business model is different than our core product because you need to have kilometers on the ground to fulfill the orders, the orders are much larger. I wish we could build inventory right now to tell you the truth, in our competitive business because the international business opportunities are now because we've been qualified or have a potential to take capacity away from the plant in a very strong North American business.

And what's constraining further inventory builds of the FlexFlow pipe?

Demand.

Got it, last question from me, just in terms of CapEx, if we assume no major contributions from large project work in 2018, would it be fair to assume that the run rate from Q4 is appropriate for 2018, about 8 to 10 million per quarter?

Yeah, it's probably little slightly higher, I think we always talk about $50 million, $45 million or $50 million being our minimum CapEx required that. But it always depends on how fast some of these large projects that we are tracking, trying to factor in also some other opportunities on the organic side like I spoke about for additional support of business activity that we see, but that's what we're looking at, but I would say, you should probably look at about 50, so slightly - so a little bit higher than what the fourth quarter was.

That's great. Thanks for your time.

Thank you.

Good morning.

Good morning Elias.

Just interested in sort of major project which is may be plus $100 million wins. I just want to step back about a year ago and just your comments on how likely you saw it one year ago, you would have secured a $100 million project by this time and how do you feel about the next twelve months and the ability, so I am looking sort of for a relative last year to this year's?

I see as probably a step change, so last year we had visibility on $100 million project, so at that time which was - we were in discussions with customers and we had found on the radar some other ones. Where we are now in this cycle, operators are now responding and we see - and I made a comment to it, some of the conventional 100 million plus projects that we were used to in the past which were in the offshore market in particular are now visible.

So I would - much higher confidence now is that the '19 and '20 period will have a more than - our best intention essentially because there's more than $100 million project that is moving ahead versus the one year ago. The other comment I would make is, we have secured larger projects that we don't announce and those projects that we've secured, and I made comment to it without identifying the actual projects, they were related to FIG's that are in '16 and '17.

And interesting is in the time period when the deltas got hit, the conversion time was almost infinite. We were losing projects, so projects within our data budgetary and they were selling or the dates would expire and we would take them out.

That's not the case now, what we are seeing is that operators are now reaching out and as we've done these smaller projects FIG's and now engaging us on the larger ones. And in some cases and a customer in particular, they've moved ahead their schedule and they are asking the current land contractor and not the pipe coating company to provide pricing without a bid, if they were to move the price again what would be the pricing?

Because everybody is now in the field, and is impressive, so much higher confidence rates to answer you right.

Okay, so if I can sort of summarize that you see a few more projects and plus kicking at the tires more serious comment -

Yeah, and that's important I highlighted that there are the conventional historical100 million projects that are Greenfield offshores. We are very strong at that.

Okay, moving to the sort of P&I segment and I think I am going correct from memory, because I was bombarded with a lot of earnings releases last night. We saw some quarterly sequential weakness, is this may be a bit of an anomaly for Q4 or is there may be something else in there?

No, I think petrochemical industry usually we have - in the DSG business, we have a seasonal debt - we build inventory in the fourth quarter and the basic result is drawn by the designing the automobile industry. And in particular the nuclear that is a very important short flex that's ever happened in the fourth quarter.

Yes, so I'm not concerned in either actually.

Okay and the last question I've got, and I appreciate this. It related to some Q1 '18 guidance being the analyst that I am; I want to kind of push that a bit.

Do we see that - we are going to see decline in Q1 '18, you've telegraphed that. But looking forward into Q2, Q3, do you see a potential drift upwards from that or sort of a steady type run rate or potentially even a decline from that point, given that backlog I think it is kind of hit an inflexion point?

So, we don't give guidance, so we've been very nice to everybody this time in giving you place holder for Q1 2018 and we - our commentary says that it will be similar for the whole year. So I think the math would be four times Q4 2016 and we expect to deliver that, right.

I think that's how l would look at it. And I made some commentary in my prepared remarks, what may happen is, projects could usually also can accelerate that may make one quarter stronger than the other, but on average I think we are quite comfortable on Q4 2016 times four for the year.

Perfect, thank you very much.

Thanks for letting me back in. Just a quick one for me, you guys, you spent a lot of time talking about your composite pipe product and you talked about some of the recent orders in the Middle East.

And I would imagine you probably don't want to disclose the value of those. But just curious if could you remind us what the current market share is in that region for steel pipe versus composite and then maybe, you talked about gaining share, may be what do you think kind of the path forward is for composite in that region?

Good great question. In fact it's frequency, so I would say, low single digits that's why it's so exciting.

It's very small - there are some countries that where - in some countries we're the first ones in to be qualified for the use of composites, other ones have been using composites, but a different configuration than we supply and now we're into that market place. So it's single digit 3%, 4%, very, very low.

A lot of it is because the challenges are larger diameters, higher temperatures and higher GOR or gas ratio.

Okay, that's great, appreciate the follow-up there.

Well thank you everyone for joining us today on the call and for your participation and certainly on the questions and interests. We look forward to talking to you next quarter and giving you another update.

Thank you very much and have a good day.