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

Benjamin Owens - RBC Capital Markets Aaron MacNeil - TD Securities Elias Foscolos - Industrial Alliance Securities Inc.

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 first quarter 2018 earnings press release that is available on SEDAR and on the Company's website at shawcor.com. I'll now turn it over to ShawCor's CEO, Steve Orr.

Good morning and thank you for joining us on this morning's conference call. In our last quarter's call, we highlighted our expectation that Q1 of 2018 would be a step down from what we delivered in Q4 2017, and a set up for the full-year 2018 that is expected to be aligned to Q4 2016 adjusted EBITDA annualized.

Our results were as we expected, adjusted EBITDA in the first quarter of 2018 was $35 million, a decrease of 48% over the fourth quarter 2017 and the revenue was $351 million, a decrease of 18%. This quarter's results demonstrate that actions that have been made to diversify the portfolio are gaining traction and confirm ShawCor's positions as a late cycle player.

The first quarter's results were materially negatively impacted from the absence of a large pipe coating project to replace the Sur de Texas - Tuxpan work that was completed in 2017. On the positive side, the quarter saw a continued demand for our products and services in North America and slight improvement in overall plant utilization, but not enough to offset.

Shawcor's financial performance is dependent on industry capital spending. Capital spending in turn requires our customers who have confidence in the longer-term market fundamentals that determine their project, investment, economics.

Approaching the supply and demand balance, years of poor investing and limited access or spare offline production has reached a point that our customers have the confidence they need and are now moving forward in their programs. For Shawcor, the impact of the current reloading will not be fully visible in 2018 results, but it does provide the support that 2018 has the potential to be a pivotal year.

Pivotal due to the fact that our base business is expected to continue to grow beyond prior downturn levels aided by our expanded portfolio in the tailwinds of North America and soon international markets and the Company's expectation of securing pipe coating projects for future years. With increased confidence in the base business performance, project being sanctioned and a healthy balance sheet coupled with strength and unidentified long-term fundamentals, we are back to executing our growth strategy.

Our comments 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 first quarter financial results.

Thanks, Steve. As Steve noted earlier, our results this quarter were in line with our expectation.

Revenue in the first quarter decreased by 18% over the fourth quarter of 2017 primarily due to a lower activity levels in the Pipeline segment Latin American region as the Sur de Texas-Tuxpan project was substantially completed in the end of 2017. This was partially offset by higher revenues in North America driven by continued demand for our composite pipe products and small diameter coating.

The Petrochemical and Industrial segment delivered increased revenues due to higher activity levels for our automotive, heat shrink products in the EMAR region and for our wire and cable products in North America. Compared to the first quarter from a year-ago, revenue decreased by 3%, mainly due to lower and large project activity in the pipeline segment reflecting the completion of the Sur de Texas to expand and the Shah Deniz projects in 2017.

This was partially offset by higher revenues in North America mainly from demand for our composite pipe products, small diameter coating and non-destructive testing services. Revenue for Petrochemical and Industrial segment was flat compared to the prior year first quarter.

Reported consolidated gross margins for the first quarter were 33.3% lower from the 37.9% in the fourth quarter of 2017 and also lower than the 36.1% in the first quarter a year ago. The Pipeline segment gross margin for the first quarter decreased to 33.6% from 36.7% a year ago reflecting lower large project activities and the related lower utilization of facilities.

The Petrochemical and Industrial segment gross margin was 31.3% which are lower than the gross margin of 32.2% that was reported in the first quarter of 2017. On a consolidated basis, adjusted EBITDA for the first quarter is $35 million compared with $67 million in the fourth quarter of 2017 which excludes an $8 million in impairment charges booked in the fourth quarter.

The decrease in adjusted EBITDA was primarily due to the decrease in gross profit of $45 million from lower large project activity and related plant utilization, partially offset by a $14 million decrease in SG&A expenses. The decrease in SG&A expense in the first quarter compared to the fourth quarter was largely due to decreases of 6.7% in compensation and personnel-related expenses and a $7 million in restructuring costs.

Adjusted EBITDA for the first quarter was also lower than the $43 million reported in the first quarter of 2017. The $8 million decrease is primarily due to lower gross margins from decreased large project activity from the Shah Deniz and Sur de Texas projects being completed, partially offset by higher activity on our North American business.

Let's now discuss cash flows for the quarter. Before changes in non-cash working capital, cash flow provided from operating activities for the first quarter is $23 million down from the $42 million that was provided from operating activities in the first quarter a year ago, primarily related to a lower net income, lower non-cash expenses, and higher settlement of other provisions.

Compared to $59 million in the fourth quarter of 2017, the first quarter was also lower due to lower net income, lower non-cash items, and higher amounts paid to settlement provisions. The change in non-cash working capital in the first quarter was a net cash outflow of $52 million compared with a cash outflow of $66 million in the first quarter of 2017.

The $52 million cash outflow from working capital in this quarter reflects higher accounts receivable and inventory, lower income taxes payable, partially offset by lower contract assets and higher accounts payable. Cash flow used in investing activities in the first quarter was $9 million, primarily due to capital expenditures and property, plant and equipment in all of our businesses support current activity levels.

During the first quarter, financing activities used net cash of $9 million reflecting the payment on our regular quarterly dividend of $10.5 million. Net cash outflow for the first quarter in 2018 was negative $41 million compared to positive $78 million in the fourth quarter of 2017 and negative $50 million a year ago.

With respect to the balance sheet, our financial position remains strong. The company's cash and short-term investments position decreased during the first quarter to $248 million mainly due to investments and working capital to support current activity levels.

Total net non-cash working capital at the end of the first quarter was $150 million compared with $89 million at the start of the year. The increase in net non-cash working capital occurred during the first quarter was expected and reflects investments to support the continued growth of our base business in North America and the timing of collections related to large project activity in the fourth quarter of 2017.

From a debt perspective, the company continues to maintain a low debt leverage ratio with a long-term debt of $253 million and $68 million of standard letters of credit as of March 31, 2018. The company also has available unutilized credit facilities that are approximately $405 million as of March 31, 2018.

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

Thank you, Gaston. I'll first start with some additional commentary on Q1 2018.

The quarter highlights the importance of the large project pipe coating to the overall performance of the company, as the coating work associated with the Sur de Texas - Tuxpan pipeline was completed in 2017 and no alternative project replaced it and the emergence of a growing based business. Q1 provides confidence that investments and efforts that have been made to diversify the portfolio both in terms of products and services and geographies are gaining traction and will raise the base level of the performance of the company.

Additionally, Q1 also is supported that the tailwinds from the industry is impacting the results of the company without question in North America, but now starting to see it internationally. Q2 and the remainder of 2018 results are going to be heavily influenced by our ability to continue to capture and execute work associated with the expected sustained strong activity in North America land and the resuming of activity in the international and offshore markets that are related to FIDs that move forward in the second half of 2016 and 2017 that in most cases were smaller investments decision such as step outs and tie-in.

Although, we continue to expect our results for the full-year will be aligned to Q4 2016 adjusted EBITDA analyze, there were several factors that may influence our performance quarter-to-quarter that should be deemed positive for the long-term, remain negatively impact short-term performance. The first relates to the increased demand for our products and services in North America and the existing resources available to services demand.

The logistics are moving products that have a heavy Canadian production footprint to the United States are now seeing issues. As a result, our composite pipe products that are manufactured in Calgary will need broader base of shippers to keep up with demand.

On the service side, we have now reached the first stage of staffing of our field crews. The first stage was supported by both the return to work of experience hires and our on boarding and training programs.

The next stage will be probably the latter and with confidence in the future we have increased the staffing programs that in turn will increase short-term costs, but also increase the revenue generating potential going forward. If it certainly the case for our conventional Non-Destructive Testing services where the market is under-served and our existing technician pool are also the pool that are being trained to deliver higher level Non-Destructive Testing technology and event services.

The second area is the efforts and associate cost to ready and reactivate our plans to securing of work or technology acceptance. As we expected and is the legacy case, our pipe coating work is late cycle business and we'll just reach the bottom next quarter.

The moving of the bottom is supported by a build in our backlog that at the end of Q1 was $459 million which does not come from just one large project, but from several and therefore we were require multiple plans to be turned back on and staffed. Of note is the increase in the number of individual projects that we have bids outstanding that one quarter ago, we're not even visible.

We expect this trend to continue. Should we be correct and the industry sediment and actions remain positive, we would not hesitate to accelerate upfront spending to capture work.

Example of this is the preparation of our Italian coating facility in Adria that is in reactivation for the recently announced Qatar project and our Channelview Texas facility that is now preparing for production schedule well into 2019 from work that is already secured. Investing post technology acceptance is critical in successfully expanding.

ShawCor has an installed base of more than 30,000 kilometers of proprietary composite pipe solutions, converting customers to trust a composite solution requires investment upfront for testing a certification, field and application specific trials and training of the local install personnel. This approach as a resulted in the strong steel to composite conversion rate North America that we are seeing today and the acceptance in targeted geographies internationally.

One of these geographies, the Middle East, after many years of efforts has reached the level where we strongly believe our customers see the value of composite over steel. As communicated by our recent press release, we are moving ahead to position ourselves to capture our share of the expected growing market.

The final area is the pursuit of large projects. As we have communicating the past quarters, we are in the pursuit of multiple large $100 million plus projects.

These projects in all cases are complex and require planning multiple different scenarios, technology and expertise to bid, win and execute. For ShawCor to deliver as promise to our customers and not risk the long-term independence of the company should we be choosing, we must ensure we position correctly upfront.

The Sur de Texas - Tuxpan project for examples are peak quarterly cash outlay of more than $4 million as we move to derisk and position our solution before any contract was signed. We expect the project that we are pursuing will move forward and like Sur de Texas - Tuxpan, we will not hesitate to invest upfront to secure and derisk potential future awards.

Stepping aside from the financial results, 2018 is shaping up to be a pivotal year for the Company. The overall industry indicators that's one for the positive as year-over-year spending is forecasted to increase.

20% in North America and 5% in international market, and in the view of many, these numbers are underestimated. Now underpinned by industry recovery, our expanded portfolio was gaining traction and we resulted in a base business level that was not present before the downturn and we will see plant utilization increase as more projects are get sanctioned.

Also and always important is a growing confidence that 100 million project will be awarded this year. Backing up this excitement that 2018 could be a pivotal year is the continued strength of our bid book that is now over $1 billion and our budgetary that remains strong that $1.5 billion.

On a large 100 million plus project awards, we had in our bid 100 million plus project and the first stage of a second project that has the potential to be 100 million plus. Should these projects stay on plan, we would expect to know if we are successful between June and September this year.

Additionally, there are several large 100 million plus projects in the budgetary. One of which we would expect to move to the bid in the second quarter.

ShawCor's is aligned to capitalize on the long-term fundamentals of aging infrastructure, reservoir depletion and energy sustainability. We are more optimistic than ever that these fundamentals are shaping investment decisions and the Company has positioned correctly and will be rewarded.

In summary, confidence in our long-term outlook is supported by our portfolio of products and services that has been enhanced by recent expansion efforts, project visibility movements, our ability to execute, strong 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 James, the operator to open up for any questions you may have for Gaston and I.

Hi, good morning.

Good morning, Ben.

On the two large projects you said pursuing in the near-term, did I hear correctly that you expect to hear the results on both of those projects between June and September.

Yes, so the current schedule for the projects considering that the customers still FID as they have communicated. We would expect to hear one large so an announcement of a large 100 million plus project between June and September is what we're looking at and to be clear, a project first stage or Phase I of a project, which actually positions the Company that wins they're very strongly for the second phase and those two phases combined are over 100 million again between in June and September timeframe.

Okay. Perfect thanks for the clarity on that.

So on the backlog - backlog was up nicely in the quarter. I was wondering if you could talk about some of the specific projects or products that moved in the backlog during the quarter.

I'd imagine the winning Qatar was a piece of it, but could you give us color on what else moved into the backlog?

Yes, I think - and we haven't communicated all the awards - our threshold is $30 million, you see $30 million we would announce, most of the projects that FID in late 2016 and 2017 were below that threshold. And so what had happened was we secured work, but it was outside the 12 months and then recently we're seeing smaller projects come back to the normal state that was in 2014 were quarter-to-quarter we would know that project and it would be bid one in the quarter that would go back into the backlog right.

So projects of mentioning that would be reflective would be the Qatar - beginning of the Qatar project would start becoming into backlog now, but very small percentage of it. Of course the tail end of PTT, the 5th Transmission line would be in the backlog.

Then would be several projects that would be classified say is tie-in for example Mad Dog would now be in the backlog that would be executed in Q1 2019 for example which is interesting because Mad Dog kind of shows the late cycle of the Company. Mad Dog started drilling in January 2018 and we will quote in late 2018 early 2019.

So it tells you our cycle for pipe coatings is about 12 months after the drilling. Also in some of our contracts we were now are under NDA.

The other ones I could mention, I guess, is the Liza is in the backlog as well now, Phase 1 Liza is in the backlog, we wouldn't press release and it's around that threshold, but it wasn't over the $30 million.

That's great. That's really helpful color.

On the $1 billion in the bid figure, can you just give us an indication of how that's distributed by geography kind of where that $1 billion is coming from all around the globe?

I think I can give you - I wish not to break it down, but I can give you geographies of interest and I can give you an indication where those geographies are strongest whether it would be in the bidding budgetary. I think that would be helpful.

Yes. That would be very helpful.

Okay. So to start with, I think the first thing I could mention is in the budgetary and it's not all captured, but we are starting to see the emergence of the second wall of work in Asia Pacific related to the replacement of LNG.

And again, I would mention it, it's only the tip of the edge of the iceberg that's coming. So we expect and I think it's in the media and public domain, so Browse, Scarborough, [indiscernible].

All these projects are starting to now be visible in the budgetary, right, but not all of them, so we expect more to come. Captured in the bid and partially in the budgetary would be East Africa, it would be Europe, mostly around maintaining of gas share into Europe of gas also the diversification from Russian supply is in there.

Certainly we're now starting to see early stages of Brazil, so an example would be Peregrino. But then additionally finger is crossed, we have now started to see a movement on reactivation of discussions with Western Canada customers on the transmission lines.

And as you are aware there is probably two letter in the dialogue mostly which is the Trans Mountain project and the LNG project that's been sponsored by Shell. The other area I could give some commentary on that is quite interesting for us right now, is working in the Middle East, so in Qatar we've already announced, but there's additional lines that now are being - that are now becoming visible in the Middle East.

So that's kind of the areas that we're interested. So it's a very nice geographical diversity that fits up nicely for our current plant infrastructure.

Maybe allow me one other comment that I made in my prepared presentation. So the other thing that we've seen which is kind of novel this quarter and has been absent.

We are now seeing projects that are skipping the budgetary and are moving directly into the bid. These projects in general are smaller, so therein the $5 million to $10 million, but this is a very positive sign that the volume of FIDs are increasing all over the project, numbers are smaller.

And this is going to be critical for us for plant utilization to get to work overall, right.

That's all really helpful color. I appreciate it.

I'll hand the call back. Thanks.

Good morning, guys.

Good morning.

Good morning, Aaron.

A couple questions, so first, is it fair to assume that the mobilization of the Altamira plant is related to one of the two large bids you referenced in your remarks?

No, I don't. Most of the concrete weighted plans are in the process of repositioning, but it would not be anything that would be exceptional.

So we're moving them back where we think they'll be used next. But it's not referenced to a project that would be in our bid right now, it's probably more in the budgetary.

Okay.

So they are being repositioned, you probably are aware. One facility came from Siberia and the other one was newly built.

We believe there are two regions in the world have an opportunity for the plant, so we're repositioning them back to those opportunities, but they are in the more focused towards the budgetary.

Understood. With respect to the volume of FIDs increasing in the projects that are skipping the budgetary into the bid.

Given that they're smaller projects, do you think that you'll see that the positive impact on margins in 2018 or is that probably still at 2019, sorry?

So I think that's a very good question. So I think we will not see much of an impact in the backlog from the smaller FIDs because they get consumed very quickly, right and they might have.

But I do expect which is probably addresses a question that was asked last quarter that we will see stronger margins or performance of the Company towards a later half of the year. So we've singled very strongly that 2018 will be an annualized run rate of Q4 2016.

I would expect and we are modeling and forecasting that it will be stronger as we get towards the end of the year. And so you will see a margin and it's based solely on our model where - if we have day-to-day smaller projects going from a facility, the absorption rates and utilization is much better.

That's really - pricing is important in pipe coating, but what probably the dominant factor on margin is utilization of plant.

Okay, and then last one for me, could you provide any more detail on your Flexpipe expansion to the Middle East in terms of timing, potential revenue et cetera, anything you'd be willing to share?

Yes, I think maybe give references and then maybe you can put some color on. So we have said and if you recall, as the downturn took hold that our North American business and we actually put it in the investor presentation was about CAD500 million on a peak run rate level and on that CAD500 million Flexpipe contributed about CAD180 million for the peak rate.

So my starting point would tell you that we are certainly back to that CAD180 million mark for Flexpipe.

Right, okay.

And then if you then look at the press release, we gave an indication of the additional capacity and it's in the press release, you could take that portion of the CAD180 million and that would kind of give you a benchmark for the additional revenue that could be made from the Middle Eastern plant. That's probably a good way to approach it.

Okay.

So I'll let you do the math. And we have single that we expect the plant to be running in 2019.

And then would it be fully utilization or could it be at full utilization by the end of 2019 or is it further along?

I think the market is supportive, so I would expect we would get in with full expectation with that capacity if we need it but the original capacity would certainly be there by 2020, right?

Understood. Okay, that's perfect.

That's all for me. Thanks.

Good morning.

Good morning, Elias.

Something that I didn't hear in the prepared remarks, but maybe I missed it is that the Company has tremendous balance sheet flexibility and growth has - have been focused, as I've listened to the call mostly on organic or internal organic project. Is there anything outside that scope that you could be looking at that we might consider?

Yes, sure. Elias, it's Gaston.

So I think first let me just talk about where we're using our balance sheet today and how we see it as we are investing in working capital and support the current activity levels. We do have our capital expenditures and we have spoken about those numbers in the past about maintenance CapEx being about $45 to $50 million a year.

Now with our announcement with the expansion for composites another other expansion capital that we have line of sight and there's probably another $20 million or $30 million on top of that. And then we have a placeholder for large projects and the pursuit of large projects.

We'd be happy to spend all of that because that's all related to growth beyond 2018. Now we still - with all that in mind we still have cash and unutilized room on our facility is that we can start looking at inorganic opportunities and really focused on tuck-unders and technology blocks to build where we can build our existing businesses on top for new growth opportunities.

So inorganic is being discussed and we are looking at it, but there is a lot of organic opportunities that we see in the business and we're investing beyond.

Okay. Thank you for that.

Stepping back to North American composite, did I hear things clearly that the - a bit of the - your ramp up is held back by logistics and it's not plant capability, is that correct?

So I think it's fair to say that there was revenue that could have been realized in Q1 because of our need to reach out and add additional suppliers for logistic into the U.S. Plant capacity, we're running quite hard.

It's not the threshold today, so it's not the pinch point which we were surprised by the trucking and in particular the qualified drivers of trucking of the company that we're using were now being stressed partly because - and I think you guys are following it. The amount of oil field equipment that's moving from Canada to the U.S., and the challenges of getting backhauls from the U.S.

into Canada is putting trucks and train drivers at a premium. And so in Q1, and obviously, really what's visible in the beginning of Q2 are now having to return to a different supplier base and work compensation deals that allow them to be compensated for backhauls that have minimum load time.

So that's how it's going. And the point that I was trying to make is that there will be additional cost to get the egg through the snake because of the constraints that we had, but we certainly have not missed any orders from customers and we continue to go ahead.

But it is showing strange from a Canadian production standpoint or trying to get into the U.S., there is this risk of the logistics, right. I would add one further comment, normally there is another contingency plan that we have that hasn't been that reliable which is railway.

And I think you guys are following the potential union or strike until you haven't been that confident to reach out and go through rail, right.

Okay, and one last question, just it will focus on backlog, but maybe a slightly different approach in terms of what I would call maybe quality of backlog. Backlog in the past maybe had some very large projects like Sur de Texas - Tuxpan.

It seems like backlog now probably has a much more use the word normal distribution, but maybe not skewed towards large projects. So kind of two questions, is that a correct assessment that maybe it's a more resilient type of backlog then the higher backlog numbers we've seen in the past?

And also in terms of the smaller projects, which might have been absent and you alluded to I'm not sure where we put the cutoff between small and mid-size projects that don't hit the threshold, are you happy with the intake that's coming in on those?

So first we're very relieved that the backlog doesn't drop directly proportionate to the large project conception. So in the last past quarter, we would have executed $90 million to $100 million of Sur de Texas and it was very reflective in the backlog and there was no replacement.

So I think a backlog as a current number plus or minus $10 million, $20 million is probably a much healthier sustainable backlog. So I think that your observation is correct.

May be - and I think it's okay to clarify that the way we kind of think about it is a large project, we've kind of forced it into a box of a $100 million plus. A small project, I think it's fair to say, it's probably under $7 million, under $10 million and for small project because you will win it.

It's not reflective in the backlog because you can easily chew it up in a plant in one corner. It doesn't really carry.

So if you can replace that it really doesn't show. So of the backlog there's only two large projects that are influencing the backlog that we've announced.

One is the 5th Transmission line in Thailand and the second is the recent Quintero, where we are very - and so that takes for the rest is in fact these projects that are in the probably the largest - well there was one as I mentioned related threshold of the $30 million and the rest are smaller.

Good that that add some color, so I appreciate that that's all for me. So I'll turn it back.

Thank you.

Well, thank you all very much for taking the time to join us on the call. And my guess - myself and Gaston certainly look forward to discussing with you in next quarter, the outlook for the Company and the performance in Q2.

So thank you very much.