Mattr Corp

OTC:MTTRF

Earnings Call Transcript

[Operator]

Good day and thank you for standing by. Welcome to the Mattr's Second Quarter 2025 Results Webcast Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I would now like to turn the conference over to your speaker today, Meghan MacEachern, Vice President, Investor Relations & External Communications. Please go ahead.

[Meghan MacEachern, executive]

Good morning. Before we begin this morning's conference call, I would like to take a moment to remind all listeners that today's call includes forward-looking statements that involve estimates, judgments, risks and uncertainties that may cause actual results to differ materially from those projected. The complete text of Mattr's statement on forward-looking information is included in Section 4.0 of the second quarter 2025 earnings press release and the MD&A that's available on SEDAR+ and on the company's website at mattr.com. For those joining via webcast, you may follow the visual presentation that accompanies this call.

I'll now turn it over to Mattr's President and CEO, Mike Reeves.

[Michael Reeves, executive]

Good morning and thank you for attending our second quarter conference call. Today, Meghan and I are joined by our Senior Vice President of Finance and CFO, Tom Holloway.

During the second quarter, Mattr's continuing operations delivered 5% year-over-year adjusted EBITDA growth, while navigating rising macroeconomic uncertainty and a rapidly evolving tariff landscape. In parallel, Mattr successfully achieved all initial onboarding objectives surrounding our recently acquired AmerCable business and concluded the final steps in our multiyear fundamental transformation with the completion of our North American production footprint modernization, expansion and optimization investments and the sale of our Brazilian pipe coating business.

With these key strategic initiatives behind us, Mattr is now positioned to focus intensely on enhancing our cash generation and margin profile by levering technology investments to accelerate high-margin market share gains by enhancing workforce experience and utilizing our modernized facilities to drive elevated operational efficiency and by moving with pace to minimize any negative impacts of substantial and unpredictable U.S. tariffs.

The sustained strength of our balance sheet ensures Mattr's ability to navigate current market uncertainty. We are committed to further lowering net debt while remaining alert to capital deployment opportunities, which accelerate shareholder value creation, including via organic growth investment, carefully timed accretive acquisitions and the continued repurchase of shares under our NCIB, which we exhausted and renewed during the quarter.

Looking at each of our segments. Connection Technologies achieved a new second quarter record for both revenue and adjusted EBITDA, with sales nearly doubling and adjusted EBITDA increasing by 28% compared to the previous year, despite the impact of over $7 million in noncapitalizable MEO costs tied to the final establishment of 2 new production facilities.

Year-over-year adjusted EBITDA improvement was driven by the addition of AmerCable, which more than offset the final quarter of segment MEO cost recognition, temporary disruption to Shawflex product shipments as the business completed its move into a new manufacturing site and higher manufacturing costs in DSG-Canusa as its new Ohio site continued to build workforce scale and proficiency.

Wire and cable revenue moved slightly down sequentially, primarily driven by previously anticipated reductions in AmerCable sales into specific large mining projects, which concluded in late Q1 and by lower shipments of Shawflex products, as the business navigated temporary bottlenecks tied to relocation of production activity into a new facility.

With this move complete, output from the new Shawflex site has rebounded to pre-move levels in early Q3 and is expected to move beyond pre-move levels during the second half of 2025. While tariff and broader economic impacts caused further slowing in baseline activity from some customers in mining and onshore oilfield markets during Q2, Mattr's AmerCable team were successful in securing offsetting industrial and marine orders in the quarter.

In addition, AmerCable and Shawflex together secured several initial orders arising from our cross-selling strategy and have already built a significant backlog of industrial and infrastructure opportunities for 2026. Looking forward, the recent introduction of U.S. tariffs on certain copper products are likely to impact Shawflex and AmerCable, both directly and indirectly.

Copper products and related services are Mattr's largest single material input cost with between $100 million and $130 million spent annually on such items. In both businesses, we purchased raw copper from U.S. and Canadian sources, relying on third parties to provide conversion and refinement services in both the U.S. and Canada and then consume these refined inputs in both the U.S. and Canada.

We preemptively took actions to reduce the potential risk tied to tariffs prior to August and are taking further steps designed to lower the impact of tariffs moving forward. Despite these mitigating actions, it is realistic to expect incremental tariff and logistics expenses will raise the cost of our finished wire and cable products if current tariffs prevail, costs that we anticipate passing onwards to customers.

While we generally believe our competitors in the wire and cable sector are likely to be similarly impacted; in certain submarkets, we may acquire a modest market advantage or disadvantage from these tariffs. It is not yet clear how customer buying behavior will be impacted by broadly higher pricing, but we anticipate some degree of noncritical order slowing or deferral during the second half of 2025 as supply chains rebalance. Given the uncertainty of future changes to current tariffs or the potential implementation of counter tariffs by Canada, it's too early to offer more specific details on future impacts.

Performance in the segment's DSG-Canusa business was modestly lower year-over-year and similar sequentially, as continued tariff-driven disruption to North American automotive activity and weakness in Eurozone manufacturing activity was largely offset by market share gains in both industrial and automotive markets. The business' new facility in Ohio made further output and efficiency gains in Q2.

And while it is slightly behind its anticipated mid-year output level, we remain confident that the facility will reach efficiency equivalent to the prior Toronto site around year-end before moving beyond these levels in 2026. During the quarter, the segment concluded its final MEO activities with production equipment installation occurring on time and on budget within the new Shawflex, Ontario and DSG-Canusa, Ohio sites.

The company expects the segment's third quarter adjusted EBITDA will be similar to the second quarter as the contributions from first half mining projects roll off, commodity price-driven declines in some mining and oilfield activity persist and copper tariff-driven input cost escalation and corresponding wire and cable customer ordering behavior changes unfold.

Offsetting these factors, in the third quarter, the segment will not incur MEO costs, anticipate stronger shipments of Shawflex products now that their production site relocation is complete and expect steady demand for higher-margin nuclear products.

We maintain our constructive outlook on longer-term electrification-driven demand across the segment and are very pleased with our enhanced position to serve this demand through the union of AmerCable and Shawflex. In the 6 months since Mattr acquired AmerCable, our teams have completed all intended back-office integration efforts with a small volume of remaining actions to be completed by year-end.

AmerCable has already delivered incremental sales into industrial applications, most notably in the data center sector, where AmerCable previously had no direct market presence and now has a secured backlog in excess of $10 million. Close collaboration between Shawflex and AmerCable sales teams have established a pipeline of additional incremental opportunities, which, given the typical length of order cycles, has the potential to convert into revenue during the early part of 2026.

Turning to the Composite Technologies segment. Second quarter revenue decreased by 5% year-over-year, driven primarily by lower sales of Flexpipe into international markets, partially offset by higher Flexpipe sales in the U.S. and increased sales of Xerxes fuel products.

Segment quarter adjusted EBITDA decreased by 10% year-over-year, primarily a result of lower revenue, a less favorable weighting between Flexpipe and Xerxes and higher manufacturing costs tied to the segment's new and newly refurbished production facilities, which are continuing to build workforce scale and proficiency. These impacts were partially offset by a lack of MEO-related expenses in the current quarter.

Xerxes revenue in the second quarter increased both sequentially and versus the prior year, reaching a new post-COVID quarterly record as customer demand for premium fuel storage and water management products remains high. Across our retail fuel, data center, fire suppression and broader infrastructure customer base, orders for Xerxes market-leading solutions have exceeded revenue generation throughout the first half of the year, and we currently have the highest delivery backlog in this business since 2021.

I've noted in prior calls that while Xerxes benefits from one of our company's most robust demand profiles, it also faces Mattr's most significant labor expansion requirement, seeking to establish a new workforce in its recently established South Carolina manufacturing facility while enhancing production teams across its site network following the rightsizing actions taken in 2023 and 2024.

Progress on this front fell short of our internal targets during Q2, limiting the pace at which tank production could accelerate and weighing on margins. Entering the third quarter, we've seen substantial improvement in hiring rates, although this will likely take until the fourth quarter to translate into meaningful output increases.

Workforce development will remain a focal point within Xerxes for the remainder of 2025. While total tank production capacity is currently slightly lower than expected, customer demand is exceptionally strong, and we believe the full Xerxes manufacturing network can reach new record levels of output during 2026.

Q2 saw Flexpipe continuing to deliver strong performance in its primary U.S. onshore market, onboarding incremental customers and setting a new revenue record for its large diameter product offering despite an 8% year-over-year decline in U.S. well completions. Flexpipe 's international revenue remained at the lower end of its recent historical range, leading to a modest decline in overall Flexpipe revenue versus the second quarter of 2024, which benefited from substantial international deliveries.

Crude oil has generally continued to trade in a range below USD 70 per barrel, with OPEC+ gradually increasing output and U.S. domestic production reaching a new all-time record in Q2. These conditions have continued to drive progressively lower customer capital spending and well completion activity in North America and have limited the initiation of large new international projects.

Against this backdrop, Flexpipe has consistently outperformed its primary market measures, driven by the introduction of new product sizes and capabilities. I'll speak more about this in a moment.

Productive output from Flexpipe's new Texas facility continued to elevate during the quarter, meeting internal expectations. While the business will carry elevated levels of manufacturing costs tied to this new location for the remainder of 2025, the site remains on track to reach normalized levels of efficiency during 2026 and freight savings arising from the Texas site are expected to virtually offset increased manufacturing costs by late this year.

Urgent, nimble action by the Flexpipe and Xerxes teams have so far limited tariff impacts within the segment. And entering Q3, we now have access to cost-competitive non-Chinese origin supply chains for all of the segment's input materials.

Looking forward, the company expects the segment's third quarter adjusted EBITDA will be modestly below the second quarter as further North American oilfield activity declines are partially offset by continued strength in demand for Xerxes products and further technology-driven Flexpipe share gains.

The Flexpipe business has proven highly resilient in the face of unfavorable market conditions these last 2 years. The strong performance of recently introduced 5- and 6-inch product variants has enabled substantial new customer capture, virtually offsetting declines in U.S. well completion activity.

Between 2021 and the first half of 2025, Flexpipe has more than doubled its revenue per completed well in North America. Despite this impressive performance, the opportunity for further Flexpipe growth remains robust with a majority of global gathering line applications still served by traditional steel pipe.

Within today's North American composite pipe market, over 1/3 is tied to products larger than 6 inches in diameter, which Flexpipe will introduce early in 2026, adding more than 50% to its immediately addressable market. Our commitment to technology development gives us confidence that Flexpipe's growth story has many years to run.

Tom will now walk through the company's second quarter financial highlights.

[Thomas Holloway, executive]

Thanks, Mike. The second quarter's revenue from continuing operations was $321 million, 33% higher than the second quarter of 2024 and reflecting an increase of $87.8 million in the Connection Technologies segment, along with an $8.1 million decrease in the Composite Technologies segment.

Adjusted EBITDA from continuing operations was $42.5 million, a 5% increase from the comparative period in the prior year, primarily attributed to the inclusion of AmerCable results in 2025 and higher Xerxes fuel and water product sales, offset by less favorable product mix and under absorption within certain manufacturing facilities.

We also recorded and reported as part of adjusted EBITDA, $7.3 million related to our modernization, expansion and optimization activities during the quarter with $6 million included in selling, general and administrative costs and $1.3 million in gross margin, all of which was recorded entirely within the Connection Technologies segment.

The company reported $8 million of MEO costs in the second quarter of 2024, all included in SG&A. The second quarter of 2025 marks the final quarter of MEO costs and completion of the non-capitalizable costs, which have reduced reported results. Mattr will not incur MEO costs on a go-forward basis.

In the second quarter of 2025, the company incurred $800,000 of costs related to the acquisition of AmerCable and an acquisition-related inventory adjustment, which decreased gross profit by $2.6 million. Share-based incentive compensation during the quarter resulted in an expense of $3.2 million compared to $1.6 million during the comparative quarter, reflecting the relative share price movements during those periods. All of these items were added back to adjusted EBITDA and are included in our reconciliation of non-GAAP measures.

We also completed the sale of the Thermotite business to Vallourec in early June for proceeds of roughly $24 million, subject to normal working capital adjustments. During the quarter and prior to its sale, the business was reported as discontinued operations and generated a loss of $3.1 million of adjusted EBITDA during the final 2 months of operations owned by Mattr as project activity slowed.

Turning to segment results. The Connection Technologies segment delivered a new second quarter revenue record of $176.5 million, which was 99% higher than the second quarter of 2024, primarily driven by the inclusion of the newly acquired AmerCable business. Segment adjusted EBITDA was $4.8 million higher than the prior year second quarter, primarily as a consequence of AmerCable's results being included into the segment's reported numbers. The increase in segment revenue was slightly offset by a less favorable product mix in our Shawflex business and the inclusion of previously mentioned non-capitalizable MEO cost of $7.3 million. The segment recorded minimal MEO costs in the second quarter of 2024.

Composite Technologies segment revenue was $144.4 million, a 5% decrease compared to the second quarter of 2024, while adjusted EBITDA decreased by 10% over the same time period. This decrease in revenue was primarily attributable to international project activity in the prior year for Flexpipe, which did not occur in 2025, partially offset by stronger Xerxes tank and water management product sales in the current year period.

Adjusted EBITDA was further impacted by an unfavorable revenue mix with Xerxes contributing a larger percentage of segment revenue than Flexpipe and higher manufacturing under-absorption tied mainly to the newly established production sites.

Turning to cash flow. Cash provided by operating activities from continuing operations in the second quarter was $10.6 million compared to cash used in operations in the comparative period in 2024 of $6.5 million, driven by solid working capital performance, including the positive impact of results from AmerCable. Discontinued operations related to the sale of the Thermotite business also contributed favorably as the business generated positive cash flow during the second quarter of 2025.

Cash used in investing activities in the second quarter was $11.2 million related to capital spend outflow on property, plant and equipment, primarily MEO projects. This cash outflow for capital spend includes amounts previously accrued that were paid in the second quarter of 2025. During the second quarter, cash used in financing activities was $26.8 million, primarily driven by a $14.5 million net repayment on the company's credit facility, repurchases of over 700,000 shares under the company's normal course issuer bid and lease liability payments. During the quarter, in early June, the company exhausted the previously authorized NCIB program. We renewed the program in late June, as expected.

As of June 30, 2025, we had a cash balance of $52.9 million, net debt of $534.3 million and $28.5 million of standard letters of credit. As of the end of the quarter, the company's net debt to adjusted EBITDA ratio was 3.5x, including lease liabilities, which reflects the additional debt raised to fund the acquisition of the AmerCable business. Adjusting for the AmerCable transaction earnings and the sale of Thermotite on a pro forma basis, our trailing 12-month net debt to adjusted EBITDA ratio at June 30, 2025, would have been 3.1x or 2.2x if lease liabilities were excluded. As discussed previously, we remain committed to returning to a normal course ratio of 2x or below.

Mattr retains financial flexibility and expects capital allocation priorities will continue to emphasize debt repayment, complete existing growth investments and continue share repurchases under our NCIB. We also continue to cultivate our pipeline of acquisition opportunities, primarily focused on further enhancement of our Connection Technologies segment.

Capital expenditures in the quarter were $14.5 million with $11.3 million of cash deployed, including $4.6 million of capital expenditures previously accrued in the first quarter. Of the capital expenditures, $10.9 million was related to growth expenditures. These were primarily related to new products and MEO projects, which are intended to increase production capacity and efficiency within both segments.

I'll now turn it back over to Mike.

[Michael Reeves, executive]

Thank you, Tom. Mattr has now concluded its multiyear transformation with our business portfolio rationalization and production network modernization, expansion and optimization activities completed. Over the last 3.5 years, we have fundamentally enhanced our ability to efficiently develop and deliver highly differentiated, critical infrastructure products from an optimized footprint that limits our direct exposure to ongoing trade friction.

Across the Mattr organization, we are intensely focused on accelerating workforce proficiency and operational efficiency to enable margin and cash flow enhancement. In parallel, we continue to exercise tight cost control, adjusting our cost base as needed to appropriately reflect activity levels. The frequency and magnitude of U.S. tariff policy changes and corresponding market uncertainty makes it very difficult to accurately predict business performance beyond the current quarter. However, we pride ourselves on our ability to embrace change, to be nimble and to act swiftly when opportunities or challenges arise.

I'm confident that the actions taken to revitalize our production footprint and diversify our supply chain have better positioned the company to navigate today's unpredictable geopolitical environment. While we expect market uncertainty will cause near-term slowing in buying patterns by some customers, the compelling need remains for investment into North American critical infrastructure renewal and expansion and underlying demand for our core products is expected to persist.

Given our current view of likely market conditions and customer demand, we expect our reported business performance in the third quarter will be modestly below the second quarter of 2025. We remain disciplined in capital deployment with a sustained focus on lowering net debt, investing in technology development and returning capital to shareholders through our NCIB. We firmly believe the company remains well positioned to deliver on its longer-term growth, profitability and cash flow objectives.

I'll now turn the call over to the operator and open it up for any questions you may have for myself, Tom or Meghan.

[Operator]

[Operator Instructions] Our first question comes from Ian Gillies with Stifel.

[Ian Gillies, analyst]

Could you maybe expand a bit upon what's transpiring in the Shawflex business? It seems like AmerCable is faring extremely well, but Shawflex is probably seeing a bit weaker top line growth. Obviously, tariffs are playing part of that, but maybe you could talk about end markets and the like.

[Michael Reeves, executive]

Yes, certainly. So, obviously, the Shawflex business is one that focuses primarily on the supply of wire and cable into the Canadian markets. We've seen stability and continued demand coming out of some of our key markets there, nuclear in particular. But we do see industrial demand in Canada remaining a little lower than we would have anticipated at the start of the year.

The other thing that has impacted Shawflex in the first half of the year, obviously, is the relocation to a brand-new manufacturing facility. We saw some impacts in Q2 as we finished that relocation, moved the final equipment. There was some backlog that we were unable to deliver during Q2 as we worked our way through that move. But that move is now complete. The facility is now up and running fully.

As I think I mentioned earlier, we are back to pre-move production levels here early in Q3. And I would expect by the time we get to the end of Q3, we will already be at run rates above pre-move levels. So, I think we've put the internal move-related challenges behind us.

Obviously, we've now put the MEO costs associated with those -- that move behind us, which has been dragging our margins for that business. And as we move through what's left of the year, I think what we'll see in Shawflex is a business where we have to work very hard to continue to find new higher-margin opportunities while we navigate a relatively low level of industrial demand in Canada. I think those opportunities are there, and now with incremental production capacity and the opportunity to offer that capacity at competitive lead times, we can begin to make further progress in both utility and other higher-margin markets.

[Ian Gillies, analyst]

Got it. You've talked previously about some pretty meaningful margin expansion by mid-2026, just given efficiencies of the plants and the like. Does that commentary still hold? Or the recent copper tariffs put in kind of put a lid on that at least for the time being?

[Michael Reeves, executive]

Yes. So, I mean, 2026 is certainly an interesting time period to try to predict. I think we'd start with the obvious statement that the biggest unknown is the demand environment that we'll face in some of our end markets, whether it's wire and cable or elsewhere. It's uncertain what the U.S. economy will look like in '26. It's uncertain what tariff and trade policies will look like in '26.

But what I can tell you is that I think across this organization, we've consistently demonstrated our commitment to technology allows us to grow market share even in some difficult business conditions. And I certainly would expect that, that will continue in '26.

Internally, the things we can control, I fully expect that in '26, we will see margin improvement from where we are in '25. And there's a few things that underpin that confidence. The first, obviously, is the elimination of MEO costs. So, we'll no longer be reporting expenses that dilute earnings and margins.

The second is the enhanced efficiency across our production networks in all businesses [indiscernible] is currently ramping up a new production site. And while some are about a year into that process, others are just a couple of quarters. So, we will see improved efficiency, and that will lead to improved margin profile.

I think we are very much on track to continue launching new technology, including in the Flexpipe business, which we expect will have a positive contribution in '26 and further elevate margin profile. And I think we will continue to see improvement in supply chain efficiencies. So, all of these things give me confidence that across the business, we will see margin improvement.

And then in one business in particular, Xerxes, which I'm not sure we'll talk, we see extraordinarily strong end market demand, and I do not expect that to change going into 2026. Our opportunity in Xerxes is to increase our productive output, which I have high confidence we can, which will drive not just revenue expansion, but margin expansion as well.

[Ian Gillies, analyst]

And then last one from me. Embedded in the notes of the financials, there was a small acquisition in the quarter. I'm just wondering if you could talk to that at all and what it may mean for the operating platform for the business, if much -- if anything?

[Michael Reeves, executive]

Yes. We'll likely talk more about that when we report [indiscernible]. But we did make a small post-quarter acquisition to vertically integrate some of the supply chain on the Composite Technologies side of the house, particularly around metallic components. While that's not a huge part of our supply chain, it's an important part, and it's one that historically has had some exposure to certain highs. So, this acquisition compresses that supply chain and allows us to be far more nimble, lower our cost of supply, lower our exposure to tariffs. And in that process, I think, we'll enhance modestly the margins of the Composites segment as we roll through late '25 [indiscernible].

[Operator]

Our next question comes from Atharva Zaveri with TD Cowen.

[Atharva Zaveri, analyst]

Atharva speaking on behalf of Michael Tupholme. Just can you provide more detail on how much exposure you have to U.S. copper tariff in your wire and cable business and for products you make in the U.S., exactly where and how you are impacted by copper tariff?

[Michael Reeves, executive]

So, as I said on the call earlier, the copper supply chain is our largest single source of cost when you look at our total corporation. So, we spend around CAD 100 million to CAD 130 million a year on copper, which includes copper cathodes, copper [indiscernible] as well as the services to convert copper from its starting point to the ending point.

I think in total, we would expect that the currently announced copper tariffs when combined with the mitigating actions that we've either already taken or are in the process of taking, probably leads to an increase in our overall spend of, let's say, mid-single-digit percentage. As I said earlier, I would expect that we pass that through to customers.

We are fortunate, our finished goods, both AmerCable and Shawflex brand are not listed on the current copper tariff HTS code listing, which means we are not paying and our customers are not paying a 50% tariff on the finished wire and cable, but there are elements of the supply chain where there's now increased friction and cost, which we will have to incorporate into the price of our finished goods.

Our Shawflex business, which is the Canadian manufacturing business has around about 15% to 20% of its revenue associated with products sold into the U.S. That is likely the most impacted revenue stream, as I said, not directly by a tariff, but by the risk that U.S. customers would either defer or delay orders placed to Shawflex because they are uncertain whether those products may become covered by this tariff.

As you've probably seen, the tariff announcement included notification that there may be enhancements to the HTS code listing in 90 days, which would be in October. So obviously, we are keenly aware of that, accelerating the shipment of all products that we already have U.S. orders for to ensure that they are delivered before that date and working with our customers to manage any concerns they may have as we approach that date.

If we can get past October without our products being directly tariffed, then I would generally say that my concerns in this space start to lower, but it's very difficult to know whether that is going to happen or not.

[Atharva Zaveri, analyst]

Very helpful. And sorry, just a follow-up. You talked about mitigation steps you're taking. Can you elaborate on that? What strategies are you using right now?

[Michael Reeves, executive]

Yes. Probably the largest is to procure more of the input materials within the U.S. So, our supply chain serving our wire and cable business, both short [indiscernible] been distributed both north and south of the border. And we've taken steps over the last 6 months, and we are taking further steps to consolidate that into the U.S. where we can. We're having success, and it's one of the reasons why the approximate cost impact to our supply chain is nowhere near the tariff rate.

[Operator]

Our next question comes from Arthur Nagorny with RBC.

[Arthur Nagorny, analyst]

Just touching on AmerCable a bit more. I know you don't want to get into the numbers, but can you give us a sense of how integration is going there? And I know you talked about the backlog kind of between AmerCable and Shawflex and how that's kind of building. But can you give us maybe a bit more of a sense of what that looks like as well?

[Michael Reeves, executive]

Yes. So, I'll just start, I don't think we could be any happier with the acquisition of AmerCable here 6 months post transaction. The team there have proven themselves to be an extraordinary group of individuals. The leadership team have adapted to life inside Mattr almost overnight.

The integration, which was already intended to be light touch is effectively complete. We have 1 or 2 steps at the tail end of the year, payrolls-related items. But other than that, we are effectively done. So, that gives us the opportunity to focus on optimizing business performance. And I think we already see that the combination of market knowledge and product offering between AmerCable and Shawflex is starting to gain some traction.

I mentioned we've secured orders modest at this stage for delivery in 2025. We've got a backlog of opportunities that is well in excess of $10 million at this stage, and I expect it will grow as we roll forward. And we've been -- we're pleased with the nimbleness of the AmerCable business over the course of the last quarter in particular. Their markets have been impacted by some of the economic uncertainty. Their oilfield market, obviously, is impacted by oil price. And we've seen some Canadian miners that have slowed activity in the [indiscernible] space around their cost base going forward.

What we found from the AmerCable team is the urgency and the ability to seek and secure opportunities to plug those gaps. So, I mentioned on the call that we've got substantial orders now in backlog for data center deliveries, which historically have not been a large part of AmerCable's business. And I think the scale of those opportunities continues to rise and 2026 could be a very interesting year when it comes to data centers for AmerCable.

So, all in all, sitting here today, I would expect that full year performance from AmerCable is going to meet or exceed the [ expectation ] at the time of the acquisition despite the insanity of the world around us, which is very, very positive.

[Arthur Nagorny, analyst]

All right. That's good to hear. And then DSG-Canusa seems to be performing well despite the disruptive operating background. Can you maybe detail out a bit more what you're seeing between your automotive and industrial customers globally?

[Michael Reeves, executive]

Yes. So, the DSG business has really done very well, I think, to perform at its current level despite what has been a very uncertain market for automotive. Largely, the most impactful changes in automotive have been in North America and have been tariff. And we have seen a little bit of weakness in the Eurozone auto market. But broadly speaking, what we are seeing are automotive customers that continue to prioritize technology evolution in their vehicles and the demand is for ever-increasing capabilities from heat shrink tubing that DSG provides.

We are very focused on that auto market, in that sales team and have continued to be able to capture share both in North America and in the Eurozone. And I've been particularly pleased with the early success of some strategic shifts we've made in China. And as you probably know, the Chinese auto market has seen a fairly substantial decline in activity from Western auto manufacturers, offset by a very substantial increase in activity from domestic auto manufacturers.

Historically, DSG had been focused on supporting Western auto manufacturers in China. We pivoted late last year and have already seen some very good success in that domestic Chinese market from our Chinese production footprint. So, on the auto side, we've performed very well.

On the industrial side, we are still a relatively small player and growing our share, both in North America and in Europe through the introduction of incremental technology management of our sales force over time. So, as we think about DSG rolling forward, moved into a brand-new facility in the U.S., which has both cost and efficiency benefits, I would expect we will see this business continue to drive growth in terms of both revenue and margin expansion as we move from '25 into '26.

[Arthur Nagorny, analyst]

All right. And then last one for me, just on Xerxes. I think you previously outlined that the backlog was kind of full for the year in that business. Just curious where that sits today, how that's kind of progressed, and I guess, between the fuel and stormwater market specifically?

[Michael Reeves, executive]

Yes. Both markets are very strong right now. So, if we look at fuel, for example, we -- I think when the year is complete, the customer base in the fuel markets for the U.S. will have built around 10% more new fuel stations than they did in 2024. And while not all of our customers in that space are public, those who have generally indicated that on average, they intend to grow by another 15% in 2026. And I think their indications are quite consistent with some of our larger private customers as well. So, broadly speaking, demand for new fuel station construction and therefore, for Xerxes brand fuel tanks is as high as we've ever seen it and likely to move higher.

The business set a new revenue record in Q2 and did so while, quite frankly, underperforming in terms of total productive output, which is something we control. And as we are continuing to take steps to move in the right direction. So, as we roll from midyear through to the end of the year and into 2026, what I think we will see with Xerxes is a continuous improvement in terms of productive output and site efficiency, which will enhance margin profile while [ enabling ] ever-increasing revenue generation.

So, I think the opportunity for Xerxes as we roll through the rest of this year and next year is very, very bright. The backlog right now extends well into the first half of 2026. And the same is true on the water side. Remembering that our water business includes the sale of [indiscernible] water tanks, same sites that produce fuel tanks. So, in fairness to our sales team on the water side, while they have set -- I expect they will set a new revenue record in 2025, they could have performed better than that if our production sites could keep up with tank production to the level that we'd like to see.

So, not quite where we'd like to be. The opportunity on the table for Xerxes is really robust and one that we will be pursuing very aggressively. So, I think the future, both near, mid and long term for Xerxes is very bright.

[Operator]

Our next question comes from Tim Monachello with ATB Capital Markets.

[Tim Monachello, analyst]

First question, just on end market demand elasticity for copper products. I would imagine that if you're servicing infrastructure and other sort of areas where the cabling isn't necessarily a huge component of total cost, a little bit of price increase on cable, which is a critical component and it seems like copper prices must be increased across the board might not necessarily have a huge impact on demand, but maybe I'm missing something there.

[Michael Reeves, executive]

I think you're right in many cases [indiscernible] our customers buy only at the moment that they intend to deploy the product, while others choose to maintain an inventory of their own so that they can act a little bit more nimbly. So, I think what we're likely to see is customers who have specific projects that require cable are going to buy cable. Obviously, we've got to ensure they continue to buy our cable, but that's a fight I'm willing to fight every day.

Where we have a little uncertainty is what will we see from customers, including some distributors who hold inventory of product. Will they use this next 6 months to draw down that inventory while they wait to see how this tariff situation will unfold? Or will they continue with buying behavior that is consistent with recent practice? That's why we offer, I would say, a cautious outlook. I think there is a pathway forward here where we see virtually no impact to the marketplace. But I can't be certain of that. And I think it's just prudent that we need to see a few months, perhaps a couple of quarters unfold here before we'll know exactly the environment we're working with.

[Tim Monachello, analyst]

Are you seeing dislocations in copper pricing between buying in the U.S. and buying in Canada? Like we've seen steel prices move a lot lower in Canada versus the U.S., and that's sort of level the playing field for steel made products. Are you seeing something similar in copper? Or is that not the case?

[Michael Reeves, executive]

We haven't seen that yet. Remembering that North American traded copper tends to be priced on COMEX, so there is some consistency on pricing. But it would not surprise me if we saw some dislocation over time here. I think the U.S. doesn't have sufficient copper supply to meet the entire demand. So, there is inevitably going to be some procurement from outside the U.S., and that likely keeps any dislocation to a fairly limited range. But let's see how things evolve over the next couple of quarters. I think we'll know generally what we're dealing with as we get into the tail end of the year.

[Tim Monachello, analyst]

Okay. That's helpful. In terms of 5- and 6-inch diameter pipe record revenue in the quarter, what percentage of Flexpipe revenue is large diameter at this point?

[Michael Reeves, executive]

It's obviously evolving as we continue to gain share. We're now, let's say, plus or minus 40% is in that 5- and 6-inch range. And I would not be surprised if it's closer to 50% as we get towards the second -- tail end of the second half.

[Tim Monachello, analyst]

Okay. Are you still gaining share in your small diameter pipe? Or is that sort of trending with the market?

[Michael Reeves, executive]

The way we try to look at that is through a metric revenue per completed well. And I'd tell you that our data tells us that our revenue per completed well for the 4-inch and smaller products has been fairly stable the last couple of years. So, I don't believe we've seen any substantial decline in consumption of that product.

Really, what we've seen is the elevation of 5-inch and 6-inch sales per well, and unfortunately, a decline in the total number of wells, which has largely offset the market share.

[Tim Monachello, analyst]

Okay. That's helpful. And then stormwater, can you talk a little bit about the growth rate that you're seeing in the stormwater management product lines on a year-over-year basis in the first half of this year?

[Michael Reeves, executive]

Yes. So, our water revenue stream is generally divided into 2. So, we have the storage tank revenue, which I referenced earlier. We'll set a new record this year in water storage tank sales, but it will be lower than it would otherwise have been if our production sites could keep up with demand there.

We are not production constrained on the second revenue stream, which is our infiltration chambers. And I think when all is said and done, the revenue from that side of the business will likely be close to double what it was last year. So, we are seeing substantial share gain. We are continuing to make positive progress on our strategic pathway to convert fuel customers to become water customers as well.

And I think as we emerge from this limitation of tank production as we [indiscernible] through the year and into the early part of next year, that will position the water team to deliver on a consolidated basis, an even higher percentage rate of growth next year than this year.

[Tim Monachello, analyst]

And where do you stand on, I guess, the longer-term aspiration of Stormwater being relatively the same size as the fuel end market? Like if…

[Michael Reeves, executive]

I still feel that that is an entirely achievable objective. I think we've probably fallen a little behind what I would have originally anticipated was our curve there, largely because of this production capacity limit on tanks. But I would think that over the course of the next, let's say, 4-ish years, we can get into a range that is similar to the fuel side of the business. The demand is there, the products are there. Our production capacity is the key. It's one of the reasons we invested in the new site in South Carolina.

[Tim Monachello, analyst]

Okay. That's helpful. And then as we think about Q4 relative to Q3 results, it sounds like you're going to get some margin expansion across probably most end markets as you get efficiency levels up in new facilities. Is there any other key attributes outside of the unknowns around U.S. copper tariffs that we should be thinking about in terms of the progression of consolidated results in Q4 versus Q3?

[Thomas Holloway, executive]

Yes. I think, obviously, the world around us has the potential to change, but let's assume it doesn't. Absent any modifications to tariff policies or economic conditions, I think we would fully expect that oilfield activity in North America continues to move down in Q4 from Q3. But outside of that, I'm not sure I see a lot in the marketplace that is likely to be materially different in Q4 from Q3.

So [indiscernible] Q3 moving into Q4 will be hard to know with certainty, but it wouldn't surprise me if it was similar to Q3, and we'll just have to see where things go. We have opportunities to move in a more favorable direction than that, but the external market is the piece that is [indiscernible] right now.

[Operator]

Our next question comes from Zachary Evershed with National Bank Financial.

[Zachary Evershed, analyst]

Could you tell us a little bit about the interplay between taking pricing in wire and cable and how that works through your backlog, where you think there might be stickiness on repricing?

[Michael Reeves, executive]

So, in the wire and cable business, we typically pursue 2 different pricing strategies. It depends on customer preference. One would be a fixed selling price and the other would be a price that is variable based on the cost of copper at the time of delivery. Obviously, tariffs are an overlay to that. In the majority of our fixed price contracts with customers, we have either pre-purchased or in some other ways, fixed our cost of copper. So, our exposure there is relatively limited.

And on the variable side, you will have noticed that copper price has moved down quite substantially since the tariff announcement. So that will factor into the ultimate cost that we charge our customer. And we're working with that customer base to ensure that any modest uplift in cost that is not specific to copper price, but is more about tariff, is appropriately shared. In some cases, I think we'll be able to pass it through entirely. In others, we may have to share the pain for a brief period of time. But everything that we're quoting or have quoted since the date that the tariff announcements came out, we have incorporated our expected costs to ensure that we are made whole. And broadly speaking, so far, that has been a difficult but ultimately successful conversation with customers.

[Zachary Evershed, analyst]

Got you. And on the international market in Flexpipe, can you maybe comment on how competitive you think your product is on the larger diameters as we did notice a bit of a pushback on the timing of when those orders may come back?

[Michael Reeves, executive]

Yes. I think the international market for the oilfield is one that has been a little quieter in '25 than we would have anticipated. Although given what's happened with commodity price and production versus consumption in that space, not entirely surprising. We've got customers internationally that typically procure in fairly large volume, and they do so sporadically, and then they will work down their inventory until they reach a point where they are ready to replenish.

We've certainly seen some of our customers who are willing to go to slightly lower levels of inventory this year than they normally would do just because they're trying to control their costs. What I would expect is that we'll start to see some larger international tenders come out later in the year, although I would expect any revenue associated with those to be '26.

Broadly speaking, from a technical perspective, what we can offer to the market internationally today serves a portion of the market. We certainly do not have the full range of temperature and sizes that every market internationally would choose to deploy, which is in large part why steel is still used so heavily internationally. But in the portions that we can serve, I can tell you that I don't believe we have lost any substantial tenders to anybody else. So, it's not a question of not winning. It's been a question of tenders not happening.

[Zachary Evershed, analyst]

And then on that last point on capabilities, I believe there are plans to introduce higher temperature rating products towards the end of this year. How is that going?

[Michael Reeves, executive]

Yes. Our technology team in Flexpipe are focused on 2 things, larger diameters and higher temperatures. As we've commented before, and I'll just remind everybody, we will be introducing the new larger diameter solutions as we cross from '25 into '26. And higher temperature, I would expect that we will have final customer sign off as we roll into the early part of '26. And if that's the case, then we could start to offer that product commercially during the course of 2026. So, all of that activity is on schedule. And so far, the technologies are performing well.

[Operator]

And I'm not showing any further questions at this time. I'd like to turn the call back over to Mike for any closing remarks.

[Michael Reeves, executive]

Thank you very much for your interest in Mattr. We look forward to speaking to everybody in another 90 days. Have a great day.

[Operator]

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.