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McCoy Global 2019 First Quarter Managements Discussion and Analysis

EXPLANATORY NOTES
The following Management’s Discussion and Analysis of Financial Results (“MD&A”), dated May 9, 2019, should be read in conjunction with the cautionary statement regarding forward-looking information and statements below, as well as the audited consolidated financial statements and notes thereto, for the years ended December 31, 2018 and 2017. The annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts in the following MD&A are in Canadian dollars unless otherwise stated. References to “McCoy,” “McCoy Global,” “the Corporation,” “we,” “us” or “our” mean McCoy Global Inc. and its subsidiaries, unless the context otherwise requires. Additional information relating to McCoy Global, including periodic quarterly and annual reports and Annual Information Forms (“AIF”), filed with Canadian securities regulatory authorities, is available on SEDAR at sedar.com and our website at mccoyglobal.com.

FORWARD-LOOKING INFORMATION AND STATEMENTS
This MD&A contains certain forward-looking statements and forward-looking information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward-looking statements. Forward-looking information is often, but not always, identified by the use of words such as “could”, “should”, “can”, “anticipate”, “expect”, “objective”, “ongoing”, “believe”, “will”, “may”, “projected”, “plan”, “sustain”, “continues”, “strategy”, “potential”, “projects”, “grow”, “take advantage”, “estimate”, “well-positioned” or similar words suggesting future outcomes. In particular, this MD&A contains:
• Forward-looking statements relating to McCoy Global’s:
• business strategy;
• future development and organic growth prospects;
• impact of re-structuring plans and cost structure;
• competitive advantages; and
• merger and acquisition strategy.
Forward-looking statements respecting:
the business opportunities for the Corporation that are based on the views of management of the Corporation and current and anticipated market conditions; and the perceived benefits of the growth and operating strategies of the Corporation; which are based upon
the financial and operating attributes of the Corporation as at the date hereof, as well as the anticipated operating and financial res
By their very nature, forward-looking statements involve inherent risks and uncertainties (both general and specific)
and risks that forward-looking statements will not be achieved. Undue reliance should not be placed on
forward-looking statements, as a number of important factors could cause the actual results to differ materially from
the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in the forward-looking
statements, including those set out below and those detailed elsewhere in this MD&A:
• oil and natural gas price fluctuations;
• domestic and foreign competition;
• technology;
• replacement or reduced use of products and services;
• international operations;
• ability to effectively manage growth;
• business mergers and acquisitions;
• supply chain;
• reliance on key persons workforce availability;
• legal compliance;
• litigation;
• breach of confidentiality;
• safety performance;
• foreign exchange;
• availability of financing;
• selling additional common shares;
• customers’ inability to obtain credit/financing;
• material differences between actual results and management estimates and assumptions;
• impact of the United States-Mexico-Canada Agreement;
• Greenhouse Gas (“GHG”) regulations;
• change in U.S. administration;
• conservation measures and technological advances;
• terrorist attack or armed conflict;
• sufficiency of internal controls;
• insurance sufficiency, availability and rate risk;
• information security; and
• challenges by taxation authorities.

Readers are cautioned that the foregoing list is not exhaustive.
The reader is further cautioned that the preparation of financial statements in accordance with IFRS requires management to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. These judgments and estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.
The information contained in this MD&A, including the documents incorporated by reference herein, identifies additional factors that could affect the operating results and performance of the Corporation. We urge you to carefully consider those factors.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this MD&A are made as of the date of this MD&A and the Corporation does not undertake and is not obligated to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.
DESCRIPTION OF GAAP MEASURES AND NON-GAAP MEASURES
Throughout this MD&A, management uses measures which do not have a standardized meaning as prescribed by IFRS and therefore are considered to be additional or non-GAAP measures presented under IFRS.
EBITDA is a non-GAAP measure defined as net earnings (loss), before:
• depreciation of property, plant and equipment;
• amortization of intangible assets;
• income tax expense (recovery); and
• finance charges, net.
• Adjusted EBITDA is a non-GAAP measure defined as net earnings (loss), before:
• depreciation of property, plant and equipment;
• amortization of intangible assets;
• income tax expense (recovery);
• finance charges, net;
• provision for (recovery of) excess and obsolete inventory;
• other losses (gains), net;
• restructuring charges;
• share-based compensation; and
• impairment losses.
The Corporation reports on EBITDA and adjusted EBITDA because they are important measures used by management to evaluate performance. The Corporation believes adjusted EBITDA assists investors in assessing McCoy Global’s current operating performance on a consistent basis without regard to non-cash, unusual (i.e. infrequent and not considered part of ongoing operations), or non-recurring items that can vary significantly depending on accounting methods or non-operating factors. Adjusted EBITDA is not considered an alternative to net earnings (loss) in measuring McCoy Global’s performance.
Adjusted EBITDA does not have a standardized meaning and is therefore not likely to be comparable to similar measures used by other issuers. Adjusted EBITDA should not be used as an exclusive measure of cash flow since it does not account for the impact of working capital changes, capital expenditures, debt changes and other sources and uses of cash, which are disclosed in the consolidated statements of cash flows.
OUTLOOK AND FORWARD-LOOKING INFORMATION
For the first quarter of 2019, McCoy reported revenue of $14.8 million, alongside positive earnings and adjusted EBITDA for the third consecutive quarter, proving our ability to drive profitability despite uncertain market fundamentals. This achievement was a result of McCoy’s continued discipline on implementing cost reductions and operating efficiencies, underpinned by improved industry fundamentals since the second half of 2018.
Market uncertainty in December, 2018 and early 2019 drove delays in project approvals for many customers, specifically in international and offshore markets, and as a result backlog declined to $9.9 million as at March 31, 2019. Although customer order activity began the year at a slow pace, it accelerated subsequent to the first quarter with $7.2 million of order intake reported for the month of April, 2019 and backlog of $13.2 million as at April 30, 2019. We expect our second quarter revenues to be impacted by the delays in order intake to some degree as a result of longer lead time requirements on many of these higher specification orders. To mitigate the impact, McCoy has taken calculated steps and made strategic investments in certain finished goods inventories throughout the first quarter to enable quicker order conversion.
For the remainder of 2019, international and offshore markets highlight an area of opportunity for McCoy as the market continues its gradual recovery. McCoy’s engineering capabilities and technology o fferings position the Corporation to partner with a diverse range of customers as a solutions provider to address complex challenges and drive new revenue opportunities.
In the US land market, the Permian basin remains highly competitive and increased market uncertainty has exacerbated pricing pressures and increased scrutiny over capital spending. McCoy has responded to the changing purchasing landscape by investing in its rental fleet and strategic finished goods equipment inventory to enable just-in-time customer purchases to better support the short-term contracts that are prevalent in this region.
McCoy has continued to focus on developing new technology, and during the first quarter invested $0.5 million in its ‘Digital Technology Roadmap’ as planned. McCoy has partnered with a global leading technology developer in this strategic endeavor. This initiative is a key priority for McCoy as the industry moves towards a focus on data driven solutions. McCoy anticipates launching the first of these new product solutions prior to the end of 2019. During, and subsequent to the first quarter, we continued to introduce and deliver the next generation of the McCoy Torque Turn (“MTT”) monitoring and control software product. Along with recently acquired ATEX certification for hazardous environments, the MTT has many improved functions and features that has so far received positive customer response. Revenue generated from new products developed over the past twelve months continues to trend towards
McCoy’s strategic target.
McCoy remains committed to protecting shareholders from dilution and to preserving its balance sheet during these unpredictable market conditions. As the market improves and McCoy realizes increased revenues and order intake,
McCoy’s team will continue its focus on improving margins and generating free cash flow through supply chain and operational efficiencies.