ABC Technologies Holdings Inc.

Greetings, and welcome to ABC Technologies' fourth quarter and fiscal 2022 earnings conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to your host, Nathan Barton, Vice President, Investor Relations. Thank you, sir. You may begin.

Thank you, and thanks to everyone for joining us today. With me on the call are ABC's newly appointed President and Chief Executive Officer, Terry Campbell, and David Smith, Chief Financial Officer of ABC Technologies. This call is being webcast live on ABC Technologies' Investor Relations website. The webcast and accompanying slides will be available. for replay for 12 months following this call. The content of today's call is the property of ABC Technologies. It cannot be reproduced or transcribed without prior written consent from the company. Before we begin, I would like to remind you that today's call will include forward-looking statements within the meaning of applicable securities laws, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the Canadian Securities Regulatory Authorities on CDAR. Please review the disclaimer on slide two of the earnings presentation for additional information. We assume no obligation to update any of these forward-looking statements or information unless required by law. I want to remind our investors that we are on a fiscal year that began July 1st, 2021, All references to Q4 fiscal 2022 are to our fiscal quarter ended June 30, 2022, and Q4 fiscal 2021 are to our fiscal quarter ended June 30, 2021. References to fiscal 2022 are to the 12 months ending June 30, 2022, and fiscal 2021 are to the 12 months ending June 30, 2021. I also want to note that while ABC shares trade in Canadian dollars, the company reports its financials in U.S. dollars. With that, we'll move to slide four. As we announced on August 16th, the Board of Directors has appointed Terry Campbell as ABC's new President and Chief Executive Officer, taking over the position from Todd Shuffelman. His transition has been in the works since Terry joined ABC earlier this year, bringing with him a strong track record of operational leadership from his time with other major Tier 1 suppliers, including Magna, Johnson Controls, and most recently, the Woodbridge Group. where he was Chief Operating Officer overseeing more than 10,000 employees in 60 locations across 14 countries. The Board of Directors, along with the rest of ABC, look forward to supporting Terry as the company continues to grow its leadership in the automotive plastics and lightweighting space. With that, I'd like to turn the call over to our newly appointed President and Chief Executive Officer, Terry Campbell.

Thank you, Nathan, and good morning, everyone. I'm very excited to be taken on the position of President and Chief Executive Officer here at ABC, and I want to take this opportunity to thank the Board for the confidence they've shown in me to lead this great organization. As I look forward, I'm excited about the opportunities that ABC has ahead, from new business wins and product portfolio tailwinds as the automotive industry transitions to electric vehicles, to the integration of our recent acquisitions and the runway ahead of us for future M&A. and most importantly, working with all the great people that make ABC a leader in the lightweighting space. I hope that my 25-plus years of experience leading other Tier 1 suppliers in operations, manufacturing, launch, and strategy will bring a new perspective to the organization and help us continue to build on ABC's existing strengths while guiding the company into its next phase of growth as an innovative supplier of automotive plastics. With that said, I will now turn to our results for the quarter and the year on slide six. David will provide additional data on our financials and his remarks. But to summarize, though, we saw some promising trends this quarter. Top-line strength continued to be offset by industry-wide cost inflation pressures and operational challenges at a few of our plants, brought on by the production volatility from our OEM customers. These pressures could not be adequately offset by cost controls and operating efficiency improvements. resulting in margins that still significantly miss both our internal targets and those that we have previously communicated with the investment community. The contribution from last quarter's acquisitions of DLH Bulls and Carl Etzel elevated consolidated gross margin, but not enough to offset the continued profitability pressures in core ABC operations. However, given the challenging macro environment we still find ourselves in, The senior leadership of ABC and I are exploring several measures, controls, and actions to bolster future performance, streamline operations, and manage costs. And finally, you have seen in our CDAR filings and press release from this morning, ABC entered into an agreement to acquire Continental's washer systems product line for approximately 20.5 million euros just prior to the end of the quarter. This acquisition will add to our growing washer systems portfolio and expand our ability to serve our customers globally. Moving to the fiscal year 2022 highlights on slide seven. Our full year revenue remained roughly flat at about $972 million against revenue of $971 million last year. Adjusted EBITDA was $45.7 million for the year and adjusted free cash flow came in at a negative $46.2 million, largely due to working capital cash usage as production volumes fell off a cliff in fiscal Q1 during the worst of the semiconductor crisis and the resulting OEM production shutdowns. As anyone covering the auto universe is aware, the supply chain issues that began to impact the industry in our fiscal Q3 2021 continued through the entirety of our fiscal 2022, severely impacting our financial results. Semiconductor shortages, raw material price increases, labor shortages, as well as wage inflation and utility cost inflation all drove results that fell well short of our expectations. We have seen resin, steel, and other components remain elevated at historically high levels. In fact, management estimates the impacts of these various macro factors was $240 million of revenue and over $150 million of EBITDA when you include stranded labor costs, components, and non-resident raw materials. The significantly higher negative flow-through on profitability was driven by the elevated costs I've just discussed that have no associated revenue with them. However, against this backdrop, ABC made several strategic strides by closing on two acquisitions, signing a third, and signing a large sale leaseback, which will bring in approximately $50 million of capital that we will use to pay down debt. Taken together, these moves will continue to strengthen ABC's long-term competitive position, providing additional scale and runway for growth. The additional runway from the acquisitions complements success in our top line seen through our business wins, which exceeded target for second year in a row, with $2.2 billion in life of program revenue. ABC also benefited from the largest year ever of electrical vehicle wins, with $435 million in lifetime revenue. As we have spoken about extensively each quarter, the industry witnessed significant operational challenges during the fiscal year that were both unpredictable as well as out of ABC's control. What we can say is that following the dismal industry-wide performance during our fiscal first quarter, production stabilization did improve with our financial results following suit to some degree. albeit at levels well below where we would expect to operate under normal conditions. As we enter calendar 2023, we are hopeful that production begins to look something closer to normal. While we expect continued impact from supply chain issues in the fiscal 2023, we are hopeful that the OEM production levels will continue to improve. As a result of the expectation that cost pressures will continue, ABC has taken actions to mitigate the impact on our results. and improve margins in the near term, as well as strengthen the normalized operating margin of the business for the future when production returns to a more normal cadence. Moving on to slide eight for a review of the broader auto market related to production and inventory. On the left, you can see the total U.S. inventory has remained depressed, though on a slight improvement path since October 2021. With roughly 1.2 million vehicles on dealer lots, average inventory of 24 days is roughly 65% lower than dealers had historically kept on hand pre-COVID. Now shifting our focus to the production environment. Though IHS has reduced the production forecast through Q2 2027, a more normalized production environment is still expected to resume in calendar year 2023 as macroeconomic challenges abate, with inventory built potentially beginning in late calendar 2023. IHS is projecting that we'll see an average of 4.1 million vehicles produced each quarter from calendar 2023 through 2029 or later. Depressed inventory levels combined with a strong consumer and an aging North American vehicle fleet indicate robust long-term demand for both the industry and ABC going forward. However, it remains to be seen when the supply side will bounce back to meet the demand or when semiconductor shortages and inflated input costs might abate. With the added uncertainty of the economic slowdown, ABC continues to push operational improvements and investigate strategies to offset ongoing challenges. Moving to slide nine, where you will see some of our important launches and product wins during fiscal 2022. In the year, we launched a number of products on the new Ford Bronco, along with two important halo EV platform launches with GM via the new Cadillac Lyric, as well as the GMC Hummer. Through these launches, ABC continues to demonstrate the positive mix shift in the top line performance that align with some key trends in the auto industry, specifically the shift towards light trucks and electric vehicles. ABC also launched exterior system products on the Honda Civic, a consistently top-selling vehicle in North America, which enables us to continue broadening our customer base with key Asian OEM customers, with which we expect to see additional growth over the next several years. Though industry-wide production has been temporarily affected given a challenging macroeconomic environment, OEM's new business quoting activity signals expectations for robust future production. For example, on new business wins, we had 1.2 billion lifetime revenue win on a US-based OEM truck along with a large lifetime battery electric vehicle win with a luxury OEM. In addition to these two notable platform wins, ABC has also exceeded its new business win target for the second year in a row. We were awarded 84 distinct program wins across 15 different OEMs for approximately $2.2 billion of lifetime program revenue. Importantly for the future growth of the company, 33 of these programs were EV wins on 19 different vehicles, representing approximately 25% of total awarded annual and roughly 20% of life of program revenue. We continue to expect that ABC will book further meaningful EV wins in the upcoming fiscal year. With that, I will turn the call over to David.