Martinrea International Inc.

Good evening, ladies and gentlemen, and welcome to the Martin Rea International Third Quarter 2024 Results Conference call. Instructions for submitting questions will be provided to you later in the call. I would now like to turn the call over to Mr. Rob Wildeboer. Please go ahead, sir.

Good evening, everyone. Thank you for joining us today. We always look forward to talking with our shareholders. 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 this evening are Pat DiRamo, Martin Reyes' CEO, our President, Fred DiTosto, and our Chief Financial Officer, Peter Cerullos. Today, we will be discussing Martin Reyes' results for the quarter ended September 30, 2024. Overall, as you will see, a good quarter. Our operating results met our internal expectations based on the reduced level of production volumes for the quarter, our free cash flow was strong, and our EBITDA was solid, with EBITDA margin up year over year. My colleagues will give you more detail. I refer you to our usual disclaimer in our press release and file documents. First, Pat will make some comments on the business, then Fred on operations, then Peter on the financials, then me on some geopolitical issues, including the implications of the U.S. election, as well as capital allocation, and then we'll do Q&A. And now, here's Pat.

Thanks, Rob. Good evening, everyone. As noted in our press release, we generated an adjusted EBITDA of $154.1 million and an operating income of $65.9 million in the third quarter. Q3 adjusted EBITDA margin came in at 12.5%, and operating income margin was 5.3% on production sales that were down about 8% quarter over quarter. On a Q3 year to date basis, our adjusted operating income margin was 5.9%, well within our 2024 guidance. On the last call, we mentioned that we expected a return to the historical seasonal pattern in our industry where sales were stronger in the first half of the year with Q3 being the lowest sales quarter and Q4 being better than Q3. While we saw this play out in the third quarter, we currently see production volumes receding somewhat in the fourth quarter as customers adjust inventory levels before the year end. As such, at this point, we expect Q4 production sales to be lower than Q3, which is atypical from a seasonality perspective. We are seeing what many of you are already aware of via our customers, and our data providers, such as IHS and awards. Vehicle inventories have grown at many customers, given affordability challenges and a high interest rate environment, coupled with a lull in purchases due to some poor OEM product planning. Generally, OEMs have not adjusted selling prices as supplies come back onto the market, which has resulted in higher inventories on several platforms, some of which are big programs for us. This will ultimately adjust, and we do expect volumes to improve beginning in Q1. Peter will have more to say on our 2024 outlook during his remarks. While the OEM inventory correction will sort itself out, our view is that EV volume weakness is likely to persist for longer. What this means is our plants with EV business will likely remain underutilized for a period of time. Now, when faced with lower volumes, The typical industry response is to lay off people to reduce costs and protect margins. Although this makes sense, reducing direct labor doesn't completely offset the pressure on margins in most cases. So the tendency for a lot of companies is to cut even deeper to make the quarter or the year look more acceptable. In my nearly 40 years in this industry, I've watched the lemons jump off the cliff time and time again with few exceptions. What I mean by this is during lower volume periods, our industry tends to cut too deep. This leads to an industry-wide brain drain, and when the volumes ramp up, which they inevitably do, sometimes very quickly, the OEMs and supply base miss an opportunity and fumble their way back, while missing out on what could have been a much better situation. Instead, when volumes ramp up, the industry works overtime, expedites products, cleans up from potential quality issues and scrap because it doesn't have enough people or it doesn't have enough of the right people. We end up recruiting skill that we previously laid off or retired early and end up paying more for less experienced people. There are exceptions. One example being Toyota, where I worked for many years. Yes, they have buyouts and they've laid off temporary employees when they absolutely had to, but the rest stay employed. And when volumes turn up, Toyota has historically been ready to capitalize on the opportunity because they have their people so they can produce. All you need to do is look at the numbers. Of course, this is not Toyota's only advantage, but it's a big one, and it demonstrates a commitment to their organization and speaks to their focus on success over the long term as opposed to short-term results. Lower volumes provide an opportunity to make operating improvements that will benefit the company when volumes ultimately improve. If we're not comparing ourselves to Toyota, they're an OEM and we're a Tier 1 that relies on many different OEM customers. But in this light, we are going to take better advantage of the lower EV volume period. Of course, we'll flex manpower throughout the company and we'll adjust overhead based on our expectation that EVs will continue to experience lower volumes for a period of time. but we will also use the lower volumes as an opportunity to install new innovative machine learning technology that will give Martin Rea a competitive advantage. This unique technology will promote efficiency gains on multiple fronts, including safety, speed, and quality. It will ultimately reduce the cost of key inputs, including labor, consumables, energy, just to name a few. Similarly, we expect to see significant uptime gains in both our major stamping and casting assets. Using our in-house resources will allow Martin Ray to reap substantial gains in the coming years at a cost that would otherwise be greater and take longer to achieve. By acting now, we can shave a few years off of what would otherwise take five to six years to complete. This new technology is consistent with our Martin Ray operating system and continuous improvement mindset. Our commitment to lean will help increase the speed of adoption of this innovative machine learning technology across our operations. We recently reinforced our advanced manufacturing team. The advanced manufacturing team is responsible for scaling our new machine learning technology, as well as other innovative technologies, many of which were incubated in our plants across our global operations. We're investing in the future of our business with great people and leading-edge technologies. With that, I'd like to thank the entire Martin Ray team for their steadfast commitment and for their continually rising to the occasion to take advantage of these great opportunities. Now here's Fred.