Martinrea International Inc.

All participants, thank you for standing by. Your conference is about to begin. Good afternoon, ladies and gentlemen. Welcome to the Martin Riott International 2021 Second Quarter Conference Call. Instructions for submitting questions will be provided to you later in the conference. And I'd like to turn the call over to Mr. Rob Weldeboer. Please go ahead, sir.

Good afternoon or evening, everyone. Thank you for joining us today. We always look forward to talking with our shareholders, and we hope to inform you well and answer questions. We also note that we have many other stakeholders, including many employees, on the call, and our remarks are addressed to them as well as we disseminate our results and commentary through our network. With me are Pat DiRamo, Martin Reyes' CEO and President, and our CFO, Fred DiTosto. Today, we will be discussing Martin Reyes' results for the quarter ended June 30. I refer you to our usual disclaimer in our press release and filed documents. Pat will speak first, then Fred, And then I'll finish up and we'll do some Q&A. Here's Pat.

Thanks, Rob. Hello, everyone. As noted in our press release, our Q2 adjusted net earnings per share came in at 34 cents, just below the low end of our guidance range that we discussed on our Q1 call of 36 cents to 46 cents. Production sales came in at $839 million, also below our guidance range of 850 to 950 million. Our adjusted operating income margin for Q1 was 4.4%, a big improvement compared to a negative 14.9% when the pandemic impacted us in Q2 of last year, where we had few sales for close to two months. Margins remain below pre-COVID levels, given the short-term headwinds we continue to face, most notably from the industry-wide shortage of semiconductors. This is having a more dampening effect on production than many expected just a few months ago. We also continue to progress through our heavy new business launch cycle with programs on the Nissan Pathfinder and Rogue, the new Jeep Grand Cherokee and Grand Wagoneer, the Ford Mustang Mach-E, the Mercedes C-Class, as well as the recent launch of the new Lucid Air, among others. While launch costs are a normal part of business, they are having an overweighted impact on our margins this year compared to a typical year, as we have many programs ramping up at the same time. Basically, a combination of the delayed 2020 and the planned 2021 programs, all launching simultaneously. The good news is these programs will generate sales growth at strong margins once supply chain bottlenecks are removed and production gets back to normal. In fact, our current plant capacity will essentially be full across the globe once normal production returns from our customers. Hence, the future looks great for our industry as well as our company. Vehicle demand remains very strong and vehicle inventories are at record lows. Despite the industry challenges of poor chip visibility that we are dealing with in the short term, we foresee a multi-year period of strong production growth once supply chain pressures ease. One of the largest customers recently commented at a supplier update that inventory is so low that once supply chains are stable, it will take more than two years with substantial overtime to rebuild normal inventory levels. This gives us even more confidence in our longer-term outlook as our 2023 guidance of margins above 8% and free cash flow of over $200 million implies. Fred will have more to say on this momentarily. Turning to our operations, we continue to experience short-term disruptions and customer releases continue to fluctuate due to the shortage of semiconductors and other supply constraints. Sales mix has also been an issue as some of our higher volume programs, such as the Chevy Equinox and Ford Escape, have endured extended production shutdowns, as highlighted on our last call. Giving an update, General Motors' Kami plant, which produces the Equinox, has been mostly shut down since February and will remain shut down until the latter part of August. EM is also taking downtime at a number of North American plants, which is even affecting some pickup truck production. Similarly, Ford's facility that produces the Escape in Kentucky was down seven weeks in Q2. These are just a couple of examples in a long list of production shutdowns announced by the OEMs. In addition to supply chain issues, labor availability continues to be challenging in certain regions. And we've had to adjust wages in select locations as a result. But these increases in specific locations and COVID-related government relief easing some next month, we expect labor availability to continue to improve in the hourly ranks. On the salary side of the business, labor demand is very competitive. This is a consequence of the high post-pandemic demand for all types of products, auto and non-automotives included. With the high demand from our customers and all the launch activity, many facilities remain busy despite the supplier disruptions that cause release fluctuation. As travel restrictions have eased in many parts of the world, our ability to move resources in needed areas to support launches and operational enhancements is improving. This ability leaves us well positioned for the eventual recovery of volumes. Though I never completely stopped visiting plants during the pandemic, I'm happy to report that I'm visiting more facilities with the ability to cross borders with fewer issues. I'm impressed with what our plants have accomplished, despite the difficulties brought on by COVID and the resulting resource and supply chain challenges. I'm also very proud of the work our SEO team has done, both inside and outside of our plants. keep our lines fed with the necessary materials to meet our production needs. I'm pleased to announce that we have been awarded $40 million in new business since our last call. This includes approximately $30 million in lightweight structures with various customers including General Motors, Ford, and Toyota, and approximately $10 million in our propulsion systems group with Volkswagen and Ford. New business awards in 2021 to date now total approximately $170 million. The pace of new business awards in recent quarters and our schedule of launch activity gives us tremendous confidence in the outlook over the next few years. I want to take a minute and provide a quick update on VoltaExplorer, our EV battery joint venture with NanoExplorer. As a reminder, VoltaExplorer will build a one-megawatt-hour demonstration facility in Montreal, Canada with the purpose of proving our new technology with graphene-enhanced lithium-ion batteries Once we're satisfied with the results, the JV will determine next steps and how best to take advantage of the technology, including the possibility of commissioning a 10 gigawatt hour manufacturing facility. We've now secured the demonstration facility in Montreal, and the equipment is being delivered over the next number of months, which puts us on track to be up and running by early next year. We expect we will demonstrate the enhancements that graphene brings by mid-2022. We're excited about Volta Explorer and its prospects, as we believe graphene-enhanced batteries can provide some significant advantages over the current products in the marketplace. Simply put, graphene should enable faster charging speeds and longer battery life, which extends driving range. Graphene enables the use of silicone anodes, which is more efficient than graphite, the current standard. The challenge with silicone anodes is that they have a limited life as the silicone expands and eventually fractures when charged. Graphene can be used to coat the silicone spheres which reduces the swelling and prevents fracturing. The result is greater energy density and capacity retention which extends battery life and driving range. Graphene enhanced batteries should be safer as graphene has high thermal conductivity provides greater temperature control, and reduces the risk of thermal runaway, which has caused fires on some current batteries in the market. This makes our graphene battery technology unique. Volt Explorer also has the potential to fill a missing piece of the Canadian EV supply chain, the domestic production of EV batteries. This is noteworthy, given the government's EV ambitions and their recent OEM announcements regarding the production of electric vehicles in Canada. There are currently a number of concerns with the current EV battery technologies, fire risk, charging time and its impact on capacity, driving range, and battery life. Our work to date shows grabbing enhanced batteries should improve all of these current challenges, some significantly. On that note, I'd like to thank the entire Martin Rea team for their continued dedication and commitment in the face of the industry supply shortages and other near-term challenges. With that, I'll pass it to Fred.