May 16, 2023
Grant Howard
Good afternoon everybody. Thank you for joining us and there are still people being admitted to the webinar, we're going to get going.
I'm Grant Howard, President of the Howard Group, and we are also shareholders of the CEMATRIX. Going to get in a fairly detailed Q1 Webinar here.
[Operator Instructions] And we're going to get into this very quickly, so I will introduce Jeff Kendrickm, who is the President and CEO of CEMATRIX; and Randy Boomhour, who is the Chief Financial Officer. With that gentleman, I am going to turn over to Jeff first, who's going to get into a number of matters and update, and then Randy's going to kick in with the Q1 results.
Gentlemen?
Jeff Kendrick
Good afternoon everyone. I'm just going to share my screen right now.
First thing I wanted to do -- Randy and I wanted to thank everyone for coming today, but also thank Grant and The Howard Group for setting up our first webinar. This is first of many to come and part of the new era for CEMATRIX as we turn a new leaf at CEMATRIX post-COVID relief, and I will start with a general overview of the company and the unique position that we're in this year, talk about management perspectives, and then Randy will follow-up with report on the first quarter results, and then we'll -- both Randy and I will be around for questions at the end of the presentation.
Disclaimer first. There we go.
So, my part of presentation, I want to cover sort of highlights and prospects for 2023, talk about the unique position that we're in this current year as compared to others. Part of that unique position of course is the large North Carolina project that we landed a few years back and hasn't started because of COVID delays.
I'm going to talk about the record-breaking sales that we've been achieving. I'm also going to be talking about our backlog, not only that it is going to the ground, but it's also growing as well.
Then we want to go over sort of what our 2023 IR plan is going to be and for the future. And part of that plan is going to be introducing our investor audience to what we do and how we do it.
And so I'll go over a little bit about not only a project that -- a video that gives you a good overview of what we -- our setup is in particular projects and how we place projects, but also talks about a couple of the million dollar projects that we've already completed. And then I'll pass it on to Randy, again, to cover the first quarter introduction.
So, highlights and prospects. First, we're in a very unique position in 2023 with 11 large projects over $1 million, of course, many under $1 million as well.
One of those projects is the North Carolina project, it's CAD21.2 million in total. It will start to go into the ground this year, and I'll talk a little bit about that.
Talk about the record sales as mentioned. Now, I'll talk about the margin rebound and the growing -- strong growing background and the return to profitability.
I also mentioned right now that there is still an expected limited cement supply issue in select regions across North America, particularly areas like the Chicago, Detroit area where they actually are closing down the Chicago river and dredging it this year. And so getting supply of cement up into that region is going to be difficult.
But first, on -- before I move on, I'll talk about the margins and why we ended up in the margin situation we did last year and really, it started pre-COVID on the supply of cement or when COVID started, I should say. When COVID started in Europe, they started to close down plants.
In North America, 30% of the cement used to come from foreign markets. So, when COVID hit, they stopped bringing in cement and even if they did bring it in, it was at significantly higher cost not only because of the cost of cement, but also the cost of shipping went up significantly.
So, the unfortunate thing happened was, which is good for cement companies, was that 2020 and 2021 sales were the best cement sales ever. So, in order to meet the demand, they had to keep their plants running full time, 24 hours a day for 12 months a year.
And that happened throughout 2020 and 2021. By the time they got to 2022, they were all out of inventory.
They hadn't brought any cement in from overseas. And all of those plants -- not all of them, but let's say a majority of those plants started to crash in the winter and into the mid-year.
So, it wasn't till June of last year that we found out that we were going to have a cement supply issue and since most of our sales were coming in the second half, that was going to seriously affect our business. And although we are protected for the most part on our cement supply, meaning the price because we sign contracts or enter into arrangements when we land the contracts, those companies or cement suppliers that we had made arrangements with actually ran out of cement.
So, we had to buy it from others at 30% to 40% higher prices. Now, that wasn't the only issue.
Of course, we have, of course, faced like everyone inflationary pressures right across the board and that affected our margins. But we'll talk about the margins in a second.
We do expect that they will continue to improve this year as we've already seen in the first quarter. So, this unique position, we have 11 projects over $1 million for a total of $24.3 million to go into the ground this year.
Now, the contracts are actually higher. In fact, we could contract over $50 million this year-to-date, but only $24.3 million of those larger contracts will be going in place.
And this compares to seven projects last year for a total of $15.5 million. The balance of last year's $29 million sales were made up of small projects under a $1 million.
And this year, not only do we have the $24.3 million, but we have $11.7 million contracted or contract in process to-date, bringing our total to $36 million already this year compared to a total sales for last year of $29 million. So, trending in a very good and strong direction.
We've already talked about this margins, but what's making the margins better is we're getting -- our suppliers are providing us with a better cement supply situation and that's already been proven out in the first quarter. And we expect that that will continue for the balance of the year, but there will be pockets of issues as mentioned.
Also, we've protected ourselves on a contract side. So, all new contracts have protected us from sales price increase.
Our general contractors that we work for actually got caught in the same situation last year where they were -- couldn't get cement for their projects, the part that they were doing, so building bridges and things like that and so we were both in the same position. And nowadays, not only do our GCs, but we're in a similar position where we have contracts that the -- any price increases are passed on to the eventual or the owner of those projects.
And then, of course, we expect to -- because of strong sales and of course, stronger margins, we expect to return to profitability this year. So, under normal margin conditions, we would generally break even in the $25 million to $29 million range depending on what the makeup of sales is.
And so that didn't happen, of course, this past year because of the margin issues related to not only inflation, but mainly the cement supply issue. We do expect that our margins will start to return to what we expect to be normal margins by the end of the year and because of that, we should start breaking even in the range that we have talked about in the before.
And since we're going to be significantly above $30 million in sales, that we should be generating profits and cash flow and EBITDA as well. So, the key projects this was mentioned and -- are listed in a recent press release on our management perspective for the year.
You all can go back or go through this. I'll go on to the next slide to really show you where a lot of these projects are.
They're really right across North America and they involve numerous applications from tunnel grouting to a runway based to a backfill of over bridge abutments that are either with or without MSC panels to a large basement backfill protecting geothermal installations within that basement to a underlay for a walking path to pipe bedding and many other applications as well. One of those projects -- or the 11 we call them, the famous 11 projects, is the North Carolina project.
And this is a new freeway corridor that's being built in North Carolina, and it involves several phases. The first phase is includes five new overpasses.
And these will be backfilled using our cellular concrete through our Chicago office mix on-site. This total project is $21.2 million, and of course, it was originally slated to start in 2020, but because of COVID delays, it is finally going into the well.
It has started, the project itself, but our part of it will finally start to go into the ground this year. But ironically, even though we're seeing a huge or significant increase in sales, only $4 million of that relates to this project.
So, the balance will all be completed next year, which makes it great for next year. We're not losing the sale, it just makes -- it gives us very strong base going forward for 2024.
Now, the other thing that's very interesting about this project is that, as mentioned, it's the first phase. Well, the second phase is just recently we've been awarded to the contractor that is doing the first phase.
So, our general contractor typically would carry the same subcontractors onto the next phase. And if that is the case, that second phase may be even larger or -- than the first or smaller, but still a very big project for us and that we continue or is expected to start in the next two to three years.
So, record-breaking sales. Again, as mentioned, we did $29 million last year versus $22 million in 2021.
We had record sales in the first quarter that Randy's going to speak to at the balance of my -- at the end of my presentation. And since July 1 last year, we've had $27.1 million in sales for those three quarters ended March 31st, 2023.
So, if you add on $10 million for the second quarter, which we hope to do, then we're going to have a very good year. We're going to get up into very significant growth of sales as really under laid or under played by the discussion on the sales that we talked about already.
Backlog. Backlog is being realized that going into the ground as I'd mentioned, we've had record sales since July 1 of last year.
But the funny part is the backlog continues to grow as well and this is all organic growth, okay. So, even after sales up to the end of March, this has grown to $93.2 million.
And the backlog at the end of December was $79 million. So, before discounting sales put in the ground since January 1, our backlog has grown by 28% organically.
And we expect this to continue not only this year, but the foreseeable future. And the reason for that is it's still very early stage in a lot of our markets.
Even in the US, which is about 10 years ahead of the Canadian market. In our Eastern Canadian market, we barely scratched the surface yet, and there's huge growth opportunities there.
And we see that coming to fruition in the next year or two. So, our achievements, as mentioned, $27.1 million in sales, we've generated since August of this past year.
We have record -- landed a record number of contracts of $42.5 million in sales. Some of which have already gone to the ground this year and the balance will go on to the ground this year or into next.
Our backlog as mentioned is up to $93.2 million in sales and this comes from a pipeline that is over $430 million and continues to grow. And what's even more important for us as senior managers of CEMATRIX that despite all the work that we're doing across North America, where all of these contracts completing projects from abandonments to pipelines to airport runways, our staff continues to remain safe and committed to our future and that's a testament to our great people in Canada, and the United States.
So, we want to thank them for that, and continue to thank them for everything that we've been achieving to-date. Our IR plan for now in the future, and we've tried to do this in the past, but we want to do a better job and that is to enable our investors to really follow us through the success for 2023 and beyond.
So, we want to educate our investors, so they understand better not only what we are doing, but also what our backlog means and what the opportunity is in CEMATRIX. So, we'll continue with quarterly earnings updates as we're doing with this particular update.
We'll continue with webcast a couple of times a year, we'll also be restarted a digital marketing campaign that we started last year and continue to do one-on-one virtual upgrades, they're arranged by our IR teams. In fact, recently, just completed a virtual roadshow with 16 of our key investors and institutions that are either invested in CEMATRIX or are considering investing in CEMATRIX in the near future.
So, as part of this plan to educate our investor audience, I'm going to show you a short video. This is on a major infrastructure project in Southern Manitoba.
It's an overpass that's going over a perimeter highway there. And in this particular project, we're completing the bridge abutments on both side of the highway, and the reason they're using cellular concrete is that it is very weakened and stable soils in that area.
And hence, what our product does is provide a floating base for this infrastructure that is going along this highway. And if you actually watch the video, that goes quite quickly.
You can actually see the conditions in the soil that we're dealing with. As you can see, with this project, this shows the setting up of our equipment.
This particular trailer unit that you see there is a completely full of fully automated, computerized batch processing system that we can -- is fully automated such can plug in the density that we require, and it pumps out at the other end of the hose within very close tolerances. And this is one of the advantages of our technology.
Not only that they pour very lightweight with strength in high volume, but in very low densities that are required for these very unique bridge abutment and road type projects that require a little density to go over a weaken and see if it's up. This is the East abutment being built and you can see it's built in various lift.
That's how we set it up, so that we can pour a certain section each day and move it up. The only restrictions we have is weather.
In this particular project, we actually faced a lot of weather issue. You can see the soil conditions there.
The conditions are basically there's no bottom to soil, they're very weak, and that you need a very lightweight structure to build a lightweight base to build the infrastructure on top. That's what our problem.
All right, I'll just move on to the first of -- one of what we call the $11 million-plus projects that have been covered in our management -- recent management perspectives, press release. This is a tunnel that's been completed in the West Coast in January and early February.
It's not a large tunnel, but it's 11-meter tunnel constructed to carry new water lines, while meeting a very current and stringent seismic and other standards that have to be met in during this project. The project again was to grow out and protect three new water lines that are placed within this tunnel.
Usually, there's just one carrier pipe, and in this case, you have three, and that makes it a very difficult project. You have to be very careful not to float the pipe and which becomes even more difficult if there's a lot of water being generated in the tunnel, and in this case, it is.
So, two pictures on the left actually show the setup of our equipment and the preparation for the job. On the bottom right shows us setting up and pumping the grout into the tunnel from inside the pipe.
And so this is a very tricky thing where we may be placing hose up to five to 10 miles long, and then having a return hose as well to carry fluid out to clean out the hoses at the end of the day. And each of our operators and our [Indiscernible] men in this project have to manage the product such that is balanced on each side of the pipe when it's being placed, so as not to deform the pipe or cause a floating pipe issue, which is significant issue for not only this tunnel, but other tunnels as well.
This is the second of those large projects that we've completed before the end of the first quarter. This is a wharf expansion project in -- along the Gulf Coast.
It was a very tricky project. It was poured over in 19 days included 24,000 cubic yards of material, required really strict specification with a density -- a dry density.
So, not even wet density, but a dry density that had to be within a very specific range, which is very difficult to do because these are very humid conditions down there. In Calgary where it's very dry, we can get down to a dry density.
It's very low, but in areas like along the coast where it's very wet and very humid, you have to consider the humidity in the air and how much that product is going to dry out. But this project went very successfully, and we expect numerous other projects of similar nature to be done over the coming years that are very similar to this project.
So, that's really the end of my part of the presentation. I wanted to give you a good overview of not only the unique position that we are in right now and how our sales -- our record sales continue to grow and our backlog continues to grow, which bodes well for our future.
And I wanted to give you an introduction to some of the projects that we're talking about completing this year, so you get a better idea of what we're doing and what our backlog means and how it will be going into the ground. It's important to note that their backlog is typically a two year backlog tunnels, maybe three years.
And so with a 90-year backlog, you can basically get a good idea of where our sales are going over the next couple of years. So, from with that, I'll pass it on to Randy to go over the financial results for the end of the -- for the first quarter of 2023, and thank you, Randy.
Randy Boomhour
Thank you, Jeff. So, here you can see our financial.
I'm not going to go over these line-by-line, because that would obviously take quite a while, and they're hard to see. But if we flip to the next slide, what I will do is just kind of hit the highlights from the Q1 financial statements.
Jeff, could you forward to the next slide for me, please? So, the highlights we'd want to cover, and Jeff has already mentioned in most of these, is the revenue in the first quarter was up 41% to $7.2 million versus $5.1 million in the first quarter of last year.
Gross margins were also improved to positive $700,000 or 10% versus negative $100,000 or negative 1% versus last year. Our operating loss decreased by 33% in this quarter versus last quarter of last year, so $1.2 million loss versus $1.8 million loss last year.
Adjusted EBITDA improved by 53% to minus $700,000 versus minus $1.5 million. And cash flow from operations improved by 63% to -- from a use of cash of $300,000 versus a use of cash in Q1 last year of $800,000.
Cash on hand at the end of March was $9.6 million. So, if we go to the next slide, Jeff, a couple of trends that we've already chatted about is -- one trend that is quite obvious, and Jeff spoke about it quite detail at the beginning of the presentation, is our revenue each quarter continues to grow versus the previous year.
So, that's a really great sign for the health of our business. And then the other factor that we're really quite proud of here is we set those [Indiscernible] to simplify and de-lever our balance sheet.
And you can see in the chart here in the upper right corner, the amount of debt or borrowings or financings that we had at the end of 2020 versus our pro forma number here at the end of Q3 -- our end of Q2 for 2023, a very significant decrease in deleveraging of our balance sheet, which really helps us in two ways, A, it really increases the long-term viability of our business, but also actually significantly decreases the cash interest that the company was having to pay out each year. Along with the de-levering of the balance sheet here, you can also see the simplification of our capital structure that's happened in the recent past years, our convertible debentures were repaid in Q2, and all the existing warrants from all the previous financings have now expired.
So, our capital structure went from a fully diluted population of about 179 million shares give or take to now at the end of Q2 to a fully diluted shared position potentially of 140 million. So, significant overhang has been removed for the company.
The balance sheet really has been cleaned up and well-positioned for the future. And when you kind of couple that with all the success we're having on the revenue side, the company really isn't a great spot financially.
So, with that, I will stop my, kind of, quick review of the financials and hand the mic over so to speak to Grant, who will lead us through the Q&A section.
A - Grant Howard
Thank you, gentlemen. [Operator Instructions] And while we're waiting here, Jeff, maybe just might want to talk a bit about, we get back to, I guess, a more encompassing communication plan to keep shareholders apprised of what's going on.
How you're looking at providing updates on these major project and some of the things you would want to cover to really keep people in the loop and to show that progress is being made on all of these things?
Jeff Kendrick
Yes. Thanks, Grant and yes, you're exactly right.
We want to be able to -- we're going to be presenting essentially a lot of the projects to our investor audience through the year, not only presenting the start to them, but also during their projects, particularly their long projects they're going over a period of time. So, we're going to give you an idea of what the start looks like, but also as it -- as we progress through the projects and this will come by way of press releases.
It'll become by way of digital media, but it'll also be covered in each one of our quarterly earnings reports. We'll give an update on every quarter as to how the projects are progressing and going into the ground.
Grant Howard
And the we don't have the presentation up at the moment. It's going to that bar chart that you had up there and deleveraging.
So, you're bringing your interest cost down or interest servicing cost down. Can you give us some idea of how that look?
I guess, the pressure that that will take off the balance sheet?
Randy Boomhour
Yes, if you were to look at interest cost, for example, in 2020, Grant, our interest costs are about $1.5 million, and that that's interest from all sources. So, includes our bank operating line, included our financing leases, include our debt, include interest on convertibles.
And if we were to kind of forecast that out for 2024, we would expect that number to be in the neighborhood of $300,000. So, we've essentially reduced cash interest cost by about $1.2 million.
Obviously, that's contingent upon where interest rates go and what happens to interest rates, but it's in that order of magnitude. So, it's a very significant cost savings for the company annually.
Grant Howard
That is a good number. You're talking a $1.2 million in saving?
Randy Boomhour
Absolutely.
Grant Howard
By 2024. Okay.
We've got some questions coming in. We'll go those first.
Okay. All right.
So, pretty much look. I expected any idea, or do you want us to comment about what you expect for EBITDA in 2023?
Jeff Kendrick
Well, as mentioned, we're not going to give guidance, and -- but we will return to profitability this year and to cash flow and EBITDA. The strength of that will be somewhat constrained by if there are continued supply issues.
We still should make money even with those supply issues, which we are being told will be reduced significantly by our suppliers but because there's no guarantee in life, we're not going to give any guidance just that our investors should be quite pleased by the end of the year with those results.
Grant Howard
How does the $430 million pipeline compared to a year ago? And does your conversion rate from pipeline to backlog vary much?
What's the current trend?
Jeff Kendrick
Good question. The pipeline is up from last year, but early in the year, it probably would have been in the high 300s range.
And then by mid-year last year, it got up over 400,000, 420,000. So we expect the backlog or the pipeline to continue to grow this year to higher.
It's kind of during the period where it's at its lowest level and continues to grow. Our experience on landing projects in Canada is significantly high, getting up towards 50% of those projects that we actually bid on.
But again, the market is still early stage in Canada, and there's less competition. In the US, there's significantly more competition, but because of some changes we've made and some equipment we built, we've become very competitive in a lot of markets where we weren't competitive before, that being our regional expansion and southern and the eastern markets.
And so that has enabled us to land a higher percentage of projects than we have in the past and to do projects that we would typically do with a wet mix unit at a much higher cost in the past. So lots of good things happening in the marketplace.
And again, our success rate continues to grow and continues to be strong in Canada.
Grant Howard
You reflect on projects; how many projects are currently scheduled for the company to work on in this calendar year?
Jeff Kendrick
I honestly can't answer that question. I don't know whether Randy, but I can pass it over to Randy if you do.
I know it's building, right? So it's probably up close to 100 projects that we will do this year.
And probably more than that, but I honestly don't know the number.
Randy Boomhour
Yes, my guess would be we are over 200 projects that we completed last year. So we would be probably above that number this year as well.
It really does depend on the mix. So if we have more larger projects that are making up the bulk of our revenue number, the number of projects may actually decline.
But we're seeing significant success in smaller size and midsize projects, in part because of our change in strategy and our investment in equipment recently.
Grant Howard
My question, I just thought of this right now sitting here, we're talking about the number of projects I didn't realize that there were so many that were completed. Do you see getting to the point of where you start to turn down those smaller ones because it's not worth your while?
Jeff Kendrick
From my perspective, no. But it doesn't mean we may not change our strategy in the future.
The small to medium sized projects are generally higher in margin than the larger projects, because generally there's less competition in those areas. And generally, it's because of the products we were placed to as well.
So we're able to charge higher margins with respect to those particular applications. And they fill in and keep our people utilized.
And that's the key, is that when you only have a few large projects to do, you've got to maintain your staff. They might as well be outpouring projects as well, right?
Small to medium-sized projects throughout the year and that helps increase the profitability of the company.
Grant Howard
What is the current sales capacity of both equipment and people? Are any capital investments needed this year?
Jeff Kendrick
No, capital investments are planned except for replacement units. Our current capacity with an addition of two new dry mix units last year, one is delivered already, the other one will be delivered mid-year this year, is over $200,000 in seasonally adjusted capacity.
That's our equipment capacity. Our people capacity is probably somewhat less than that, but still strong because we're able to divide our current operating crews into two or three groups by taking operators and QC people and then splitting them up between two or three projects and hiring additional labor or using the labor of the contractors that we work with to expand our capabilities.
Grant Howard
Yes. If I heard correctly, you said $200,000.
I think you meant $200 million, didn't you?
Jeff Kendrick
Sorry, yes. $200 million, yes.
Grant Howard
Okay.
Jeff Kendrick
You're exactly right, and thank you for correcting me.
Grant Howard
Okay. There are one, two, three, four questions on Glavel about what has happened with that investment or what has happened with Glavel, and perhaps before you answer the question directly or the four questions directly, maybe just remind people who wouldn't be familiar with Glavel what it is first?
Jeff Kendrick
Glavel is a company that is engaged in the manufacture of foam glass. And foam glass is a lightweight aggregate that's used in the infrastructure and the building construction market as a replacement for other types of rigid insulation, lightweight aggregates, and mainly EPS block in the infrastructure applications.
Now, foam glass is 100% green, essentially. It's made from recycled glass using clean energy.
And so it's a very green product. So we, Glavel is a private company and we own only 20% of that company.
So we can't disclose a lot of what's happening there, but I can tell you that they have faced supply chain issues that we have. Their first kiln has been up and running since last spring and it's producing regularly, but with only one kiln, it's difficult for them to sell into the larger growing infrastructure market.
That second kiln is on order. And so currently, they're selling into the building construction markets or more floor under lays for flooring systems, insulated flooring system, roof decks, and things like small infrastructure projects.
They can manage those with their current capacity. And that has been growing better than expected.
But until that second kiln is purchased and put in place and they're able to produce more product, they're going to be unable to build a significant volume up in order to meet the larger infrastructure sales. They expect to be able to get to that position within the next year or two.
Grant Howard
Can you please talk about your competition and maybe focus mostly on the US because that's where the bulk of the competition is? What the major competition would be down there and what's your competitive advantage?
Jeff Kendrick
There's -- so the competition again is stronger in the US and we have significant competitive advantages over our competition that range from firstly being the, probably the most significant technical company in the world. In fact, we're probably the only company in North America that has an engineering team that's backing up what we're doing, okay?
Most of the companies that we compete with don't have that capability to be able to assist the engineers and to design and to make their projects better by using cellular concrete. We also develop significant material mix designs.
We have foaming agents that are proprietary. We have proprietary processing equipment that enables us for the most part to produce a material that's lighter and stronger than our competition.
And lighter and stronger is the best characteristics to have in most of the applications that we deal with. It isn't that there isn't other competitors that have some technology or comparable technology, but for the most part, we are the leaders in this field.
And there's very few competitors in our space, but there are a couple in the US or two to three in the US.
Grant Howard
And on acquisitions, if you have any plans and if you did, you probably wouldn't be able to say so right now anyways?
Jeff Kendrick
Well, it's a good question, honestly, Grant, because we actually curtailed our acquisition plan. It's not that we don't continue to look for them, or we haven't identified a couple of strong possibilities.
It's just that because of the way the market was going, and the issue that we had with the supply chain last year with respect to cement, we decided that we did not want to go out and buy companies with a share price that was trading at $0.20. Particularly when we knew that we were going to have a very good 2023, and that was going to continue on for the foreseeable future.
There's no guarantee in the stock market, you know, what the price may go to, but if we achieve what we have in place, not only this year, but for the next year and the years following, the share price should rebound to where it should be. And that will enable us to be able to go out and buy companies again and grow our market that way as well.
Grant Howard
What are the biggest factors increasing operating costs at this time? Are there internal efficiencies that the company is looking into, additionally to external factors that you expect would contribute to profitability?
Jeff Kendrick
Well, utilization is a big thing of not only our equipment, our people, but I'm going to pass this one under Randy because he does a lot of work on the cost side of it. And he can give us, you know, a good summary of what we're doing from a cost perspective and improving what we're going to be doing for our future.
Randy Boomhour
I think Jeff really hit the nail on the head. It's really about utilization.
The higher we can get in terms of utilization of our equipment and our crews, that is going to really contribute to profitability. When you look at our fixed costs, they're really driven by headcount.
And so at this time, we don't really see any significant or really any opportunities on the headcount side in terms of cost savings. I will say we are also, we are still experiencing inflationary pressures.
Jeff kind of referred to the cost of spend, but essentially the cost of everything across our business has gone up. And some of those increases are on the leading edge of those inflationary pressures.
So we've seen those materialize mostly last year, but we're also seeing inflationary pressures on some things that are on the lagging edge of inflation, things like salaries and wages. So, we still do expect some cost increases to come through.
But really what we're focused on is utilization and the top line to grow revenue in order for our company to become profitable.
Jeff Kendrick
Yes. And can I add to that Grant, just so that utilization, just so you know, like we carried a lot of people during the slow times being COVID because they were key people to us.
And that, when Randy talks about headcount, our headcount didn't change during COVID because the people that we carried were important to our future and so now the great thing is those people are here and they're with us. So, now as the sales grow, we already have the people in place to do those sales.
So those people are people that are operators and UC people and technical people that we've trained and cross-trained. So we're in a very good position going forward.
And prior and during COVID, our utilization of not only people and equipment was less than 50%, but we were able to do that. So if you get that utilization up to a nominal level of say 65% to 75%, that those costs are spread over a larger number of sales.
And of course the profitability on those sales becomes quite a bit stronger.
Grant Howard
Seasonality, are you seeing less of it in the volume of business?
Jeff Kendrick
Sorry, Grant, I missed that.
Grant Howard
Is there less seasonality in the business period?
Jeff Kendrick
No, we hope to reduce the seasonality of the business, but right now we're located in Canada, across Canada in various cities, and we're located in Bellingham, Washington, and Chicago. So to go into the Southern states, we have to travel a bit.
But our plan from a regional expansion perspective was build two new units to enable us to move further into the US and reduce the effect of seasonality of the business. And that's what we've done.
And you saw as one of the large projects that I previously discussed was a wharf expansion project on the Gulf Coast. More projects like that will help reduce our seasonality, but we will also have a seasonality part of our business.
Grant Howard
Randy, this will be one for you. Do you have enough funds to execute for the year?
And I think that's a pretty easy answer.
Randy Boomhour
Yes, absolutely. Keep the, keep the softballs coming, Grant.
The answer to that obviously is yes. Absolutely.
Grant Howard
Perfect. They asked that I didn't, because I think it's what, about $9.5 million?
What is on the balance sheet?
Randy Boomhour
At the end of Q1, but in Q2, we did have to make a pretty significant cash payment to repay the convertible debentures of $3.6 million plus some accrued interest. So call it $3.8 million.
So, you know, the cash balance will drop in Q2, but that's also part of de-levering the balance sheet and the long-term plan to reduce interest costs. But even after making that payment, we're very confident that we're going to be cash flow positive this year.
And if we're cash flow positive, we have more than enough cash to fund our operations this year and going forward.
Grant Howard
You commented in the past, engineers were not aware of your product or maybe not enough of them. Are you seeing greater understanding of the value add of your product amongst the engineering company?
Jeff Kendrick
Absolutely, Grant, and it's always a good question. In the US where the market is 10 years ahead of the Canadian market, they're really quite different.
So our salespeople can't keep up with the projects that are coming up for tender every day. So that's a testament to the continued organic growth in that market.
So we don't have to educate engineers as much anymore, but it still happens, okay? Part of the negative part about having so many projects come out to tenders, your salespeople in the US can't go out and do business development.
They don't have time to do it. And hence last year, and I think you may have seen everyone saw a press release where we added to our sales group throughout North America in order to not only keep up with the sales growth, but also to grow our business development side.
Now in Canada, because we're about 10 years behind, and I'll even split Canada in half. In Western Canada, it's more accepted.
You know, this is where we started. The market has been growing dramatically.
In Eastern Canada, it's been very slow to get acceptance. But we do see signs that that's starting to turn around now and expect to hopefully see some strong growth in the Eastern markets in the very near future, but it takes time.
And this is what makes it difficult others to come into the market. They actually have to get products approvals in those provinces, just like we had to get product approvals in those provinces and get product approval in the states that we sell into.
You know, it's not easy to get into the cellular concrete business. It's not like going and buying a piece of equipment online and hoping that you will be in the business tomorrow.
You'll be able to do some smaller projects but you won't be able to bid into the state infrastructure markets through the Department of Transportation or the provincial markets through their transportation of our transportation department. So again, it is getting easier.
Engineers are learning more and more about the product every day. And acceptance is growing every day, but we still have to do that business development, and more so in Canada than in the United States.
Grant Howard
Well, we could talk all day about the differences between Eastern and Western Canada and attitude, but we get into that, then we'll really light up the social media. That'd be all over.
So we'll stay away from that topic. How many people work at the CEMATRIX and will you be hiring this year?
Jeff Kendrick
Randy, do you want to take that one on?
Randy Boomhour
Yes, there's about just over 60 people that work in total at CEMATRIX Grant in Canada and the US. We don't really foresee any permanent hiring on the horizon.
There could be some short term seasonal hiring as we hit our real peak periods and as Jeff stated, we might look for an additional labor or two. But essentially we would expect our headcount to remain pretty stable at that level.
Grant Howard
And our last question, do you have any current analyst coverage? I'll take a shot at that.
The answer is no. There were two analysts that were covering the CEMATRIX.
like every industry and sector, people move on to other pastures. So I think that's part of the question, unless you want to embellish that at all, Jeff?
Jeff Kendrick
No, that's the right answer. Grant, we do have a number of analysts that are looking at us right now.
And I expect that we'll probably get coverage maybe before the end of the year based on the great year that we intend to have. And of course, the education process will go through working with yourselves in Bristol throughout the year to educate our investor public and hopefully bring on more institutions in the very near future.
Grant Howard
One more just popped up. Thank you, actually from Andrew Hood, that I was one of the analysts, still hold the name.
Thank you for that, Andrew.
Jeff Kendrick
Thank you, Andrew.
Grant Howard
You made everybody's day. Okay, that is the end of it.
Yep, Randy, thank you for that. Appreciate all those that submitted questions, a lot of very good questions.
I even learned something else today, even after all these years of working together. So we will be back and see you on a quarterly basis, but in between there will be a number of project updates.
Any closing comments, gentlemen?
Jeff Kendrick
Well, I'll let Randy go first. You want to go first, Randy?
Randy Boomhour
I would just say, we really appreciate the opportunity, Grant, that you provided us with connecting with our investors. And I think we're both really optimistic about the future of CEMATRIX and we hope that we're able to convey that to the rest.
Jeff Kendrick
And I will concur with Randy's comments and just add that, as Grant mentioned, just to keep an eye out for releases coming out on a regular basis. It's going to be a great year.
Please follow us through the year, and see what we do and see the backlog going into the ground. Let's all relish in this success by the end of the year, not only for our company, but hopefully the market turns around as well.
Grant Howard
Thank you to our participants. Again, Jeff, Randy, thank you.
And we will talk soon.
Jeff Kendrick
Thanks, Grant.
Randy Boomhour
Thanks, Grant.