Linamar Corporation

Good afternoon, ladies and gentlemen, and welcome to the Linnemore Second Quarter 2025 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, August 13, 2025. I would now like to hand the call over to Linda Hasenfratz, Executive Chair of Linomar. Please go ahead, ma'am.

Thank you so much. Good afternoon, everyone, and welcome to our second quarter conference call. Before I begin, I'll draw your attention to the disclaimer currently being broadcast. Joining me this afternoon, as usual, are Jim Jarrell, our President and CEO, and Dale Schneider, our CFO, both of whom will be addressing the call formally. Also available for questions are Mark Stoddard, Kevin Hallahan, and some other members of our corporate IR marketing, finance, and legal team. I'll start us off with some highlights of this quarter. I think a good place to start is always a quick reminder of the key value drivers that make Linnemar such a great investment and how they played out this quarter. First, Linnemar has a long track record of consistent, sustainable results driving out of our diverse business She, too, was not a great example, with fallen earnings growth and our mobility business going a long way to offset some very soft markets in our industrial business. Being invested in both businesses helped trim those big swings up and down in individual markets and leaves us with a more consistent, sustainable level of performance. Strong mobility performance this year will carry us to a profit for the year. despite a tough year for industrial, just like two years ago when industrial took us to a profit for the year, despite a tough year in mobility. The second key point is our flexibility to mitigate risk. Our equipment is programmable, flexible equipment that can be used on a large variety of types of products across different vehicle platforms and types of propulsion. Continued softness on electric vehicle platforms has allowed us to continue to reallocate capital into launching hybrid electric or internal combustion uplift programs, keeping our capital bills down, as you saw down this quarter, down almost 25% over last year. We're also using that flexible equipment to our advantage at the moment to help us win takeover business. Third, we've always run a prudent conservative balance sheet. We target keeping MedVet's EBITDA under 1.5 times. Q2 fund net debt to EBITDA at 1.02, an excellent level to be at, given great opportunities in the market today. Lastly, returning cash to shareholders is a key value creation driver at Linnemar as well. You saw that play out this quarter with some continued repurchase of shares early in the quarter under our NCID, which we do intend to be more active on in the upcoming quarter. Okay, turning the highlights to the corner, I would identify these as our most relevant accomplishments. First, we continue to be largely untouched by U.S. tariffs, thanks to a well-thought-out long-term strategy. We'll review the tariff situation in more detail in a minute. Secondly, we saw a fantastic level of free cash flow of nearly $180 million, thanks to strong earnings, careful management of capex, and working capital. Third, it's great to see our mobility segment really delivering at the moment with 20% operating earnings growth and margins continuing to be back into our normal range of 68%. Our teams have been doing an outstanding job of operational improvements and cost recovery initiatives to drive those results. Finally, we saw market share gains in every business in key areas for each, which is helping to temper soft markets across the board. Turning to the numbers, we saw sales at $2.6 billion. That's down 7% of the last year, and markets down significantly more, as Jim will outline for you in a moment. Sales were down 22% in our industrial business, with both VA businesses and SkyJax down, and markets dramatically down. Sales were flat in the mobility segment, with launching business really helping to offset very soft markets. North America was down 2%. 4%, Europe down 2%, both very important markets for us. Normalized net earnings were $158.4 million, or 6.4% of sales. Normalized EPS went $2.81 down over last year, but up a little from Q1 of this year. That would summarize our results this quarter as being most impacted by operational improvements and cost reductions in both segments, launching business in the mobility segment, And some effects fell in, offset by steep declines in both ag and access markets, as well as declines in the North American and European vehicle markets, notably EVs. Cash flow was very strong at $278 million as noted. We expect to continue to generate significant free cash flow in 2025 for another strongly positive result this year. Finally, let's look at an update on the tariff size. Despite the myriad of tariffs put in place over the last several months, Linnemar continues to have minimal bottom-line impact. We have some impact in a few areas, but not at a material level, as you can see here detailed by each type of tariff active at the moment. I think there's four key reasons for this. Number one, we have long followed a strategy of producing our products in the same continent as our customers and not chasing low-cost labor around the world. As a result, we're not making product in Asia or Europe that ships to the U.S. and therefore triggers tariffs, helping us to completely avoid that. For products produced in Canada and Mexico, our products are USMCA compliant for virtually everything we ship into the U.S., meaning no tariffs for our customers on the mobility side where they are the importers of record. or for us on our industrial products where we are the importer of record. Third reason is our largest business is our automotive business where our customers, again, are the importer of record and would therefore be responsible for paying tariffs in the event any did become applicable. And finally, I would note that our U.S. footprint is reasonably small at just 10 of 75 plants globally, meaning tariffs on any imported product from a supply chain perspective is not material to our overall business performance. Of course, manufacturing locations located in the U.S. are bearing all the burden of the tariffs. So less plants in the U.S. does mean less tariffs overall. I do worry about the growing impact of tariffs on our automaker customers, however, as they continue to build up, whether they be metal tariffs, vehicle tariffs, parts tariffs for the offshore purchase rules, The cost to our customers, as we've seen, are in the billions, and I do have some concern about the potential impact of vehicle pricing and, therefore, demand longer term. On the positive side, we are seeing customers looking at on-shoring parts and systems they are currently buying from Asia or Europe. We are building up a list of new business opportunities that are in the quotation process for our North American plants. The U.S. is still respecting the USMCA agreement, meaning these parts can be supplied from the U.S., Canada, or Mexico tariff-free at the moment, as long as they are USMCA compliant. Where the job goes will depend on where we have capacity, experience, teams available to take on the work, as well, of course, as customer preference. We believe that our governments in North America will prioritize a USMCA 2.0 renegotiation to cement in place what I think of as fortress North America in terms of territory trade, with likely some amendments, which would be positive, of course, for our business in North America. In addition, we believe there may be an opportunity for market share increases for domestic producers in North America as consumers avoid imported vehicles that are subject to between 15% and 25% tariffs. High volumes for vehicles produced in North America will absolutely drive sales growth for our mobility business. With that, I'm going to turn it over to our CEO, Jim Gerald, to review industry and operations updates in more detail. Over to you, Jim.

Great. Thank you, Linda, and great to be with everyone listening in tonight. As I said last quarter and what you see on the screen remains the key theme that keeps our team at Linnemar focused in 2025. and basically will remain consistent for the foreseeable future. Growing our revenue, growing our profits, and growing our team during this timeframe is fundamental for our long-term success. We run everything through these three strategic filters. If it doesn't hit at least one, it's a hard pass. No time wasted, no energy spent. We stay focused, fast, and relentlessly aligned as a team, staying focused, in times of uncertainty is no small feat and visibility challenges are real for every business. Linda noted tariffs are one piece of the puzzle, yet we continue to navigate confidently through global market volatility, shifting customer demands, evolving technology trends, cost pressures, talent dynamics, and regulatory changes. What sets us apart to succeed is our entrepreneurial mindset. We don't just react, we seize on the opportunities, We stay anchored to our long-term vision, operate with lean discipline, and make fast, flexible decisions. At the core, our resilient culture is what powers us forward. Speaking about resilient culture, I'd like to start with a story about how the Little Mart team overcomes remarkable circumstances. And I do this by sharing some fantastic news we received in the quarter, which was being selected as Supplier of the Year by Ford Motor Company, which you can see on the screen here. In particular, the award was in recognition for crisis management stemming from Linnemar's coordinated response to Hurricane Belene that devastated parts of North Carolina in late September last year. As I've highlighted in my opening couple of slides and commentary, responsiveness and execution in times of crisis is something that sets Linnemar apart and is a testament to the leadership of the Linnemar team. Linnemar has significant operations in Asheville, North Carolina area, we were directly impacted. Despite extreme damage to highways, infrastructure, factories, and even employees' homes that followed after the storm, Littemar was able to mobilize response teams from our global locations, set up relief operations, quickly restore operations, and ensure no disruptions to our customers happen. This way, the way that the Littemar North Carolina team came together during that crisis supported by their global team truly inspiring. It is great to see one of our top customers recognize that really responsive effort. And with that, I'll provide a business update for the quarter on our two reporting segments we're in. First, starting at SkyJack and the Access or AWP market. First off, the market overall has experienced what I would call a sustained environment of sluggish volumes compared to what we had expected earlier in the year. Year-to-date, we've seen tariff uncertainty, some rental customer consolidation, and interest rates that have remained at higher levels with no change since late 24. So in the market, there seems to be some holding off on the projects that drive construction and AWP volumes. In Q2, Skyjack stayed ahead of the market and increased unit volume sales by 6.3%. while the industry as a whole was down 24.5 versus Q2 24. Year-to-date, SkyJax is down just 3.8, while the market overall has experienced a 29% decline. The critical thing for all of us to know is SkyJax has to ensure that they are staying ahead of where the market is, and that is exactly what they're doing. SkyJax had market share increases in several categories during the second quarter, Most notably, scissor lifts globally and booms in Europe. It's great to see the reputation for simply reliable AWP equipment continues to be valued in an otherwise uncertain market. Next, turning to ag industry volumes, we are well into the 25 growing season, and many early crops such as winter wheat or spring cereals have largely been harvested, In most cases, the good news is that yields are slightly positive when compared to last year. We await the fall harvest of North American row crops. The crop conditions look strong, though some late summer hot and dry conditions in western regions could impact that going forward. This fact, along with the equipment order writing programs that begin later this year, will largely determine the outlook for 26. Today, dealer inventories overall remain high. as do interest rates, which are also additional key factors influencing overall ag market demand. The full year 2025 expectation is mostly unchanged from our prior update. The large ag industry continues at its well-documented multi-year down cycle, with a 30% decline in expected year-over-year in our primary North American market. Europe is performing better and is expected to be down only 5%. while the rest of the world looks to be flat overall. Through the first six months of 25, Linnemar's three ag divisions of MacDon, Salford, and Borgo have experienced a unit combined volume decline of 18%, while the addressable markets they compete in are down nearly 26%. Again, the technology advantage of short-line brands have outpaced the overall market and achieved share gains. Sharing some recent news from the quarter, Borgo has once again been recognized for its excellent product and after-sales support with Dealer's Choice Award for short-line OEMs from the North American Equipment Dealers Association. At MacDon, we continue to deliver product innovation, this time with the introduction of the FT2 Plus header. The FT2, already the market leader for Draper header technology, now offers a flexible cutter bar, allowing even better ground following. performance that prevents seed loss by ensuring no crops are left on the ground. While market cycles are beyond our control, our continued success stems from focusing on what truly drives value for our customers. These are two excellent examples that illustrate why we remain leaders in the market. Next to the mobility segment, Q2 stock industry vehicle production volumes decreased by 3.8% in North America, 2% in Europe, with Asia Pacific up 6.1%. Industry experts have begun to ease some of the negative impacts from tariffs they originally had built into their annual forecast for both 2025 and 26. Linda already reviewed how tariff impacts are playing out and how the existing USMCA policy is keeping supply chains flowing and production lines running. The latest view for full year 2025 is an industry decline of 3.9%. in North America, a 2.5% drop in Europe, and Asia up about 2.5% when compared to 2024. Linnemar's content per vehicle remains stable and consistent with a modest increase in the second quarter versus Q2 prior year in North America, a significant increase in Asia Pacific, and not surprisingly, a slight decline in Europe. All told, global CPV for the second quarter was 82.35%, consistent with the sequential prior quarter, but down slightly from the same quarter last year, but trending above full-year 2024 level. Key point in business, that is what we are telling our commercial teams. And so far this year, they have delivered in two key areas, takeover work and in the commercial vehicle sector. New business wins overall totaled 328 in the second quarter. $103 million of that is for components for commercial vehicle applications, an area of opportunity we identified earlier this year. Linnemar has a long history in supplying commercial and industrial customers, and near the end of last year, we renewed our keen focus, and it is paying off. Takeover work business wins were over $50 million in the quarter, including the suspension and chassis component example you see here, which helps to grow our propulsion agnostic sales book. That takes the total annualized value of takeover new business wins to well over $225 million, and that's what we've been able to secure over the past 8 to 12 months. As mentioned earlier with the customer recognition for crisis management, this is a prime example of how our reputation for delivering in distressed situations continues to pay off. Controlling what we can by executing and being opportunistic in times of uncertainty ensures we remain a leading supplier in the market. when the current headwind is clear. So, with that, I will pass it over to Dale, our CFO, for a more in-depth financial review.