Martinrea International Inc.

This conference is being recorded. Our participants, please stand by. Your conference is now ready to begin. Good evening, ladies and gentlemen. Welcome to the fourth quarter results conference call. I would now like to turn the meeting over to Rob Wildeboer. Please go ahead.

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 to our network. With me this evening are Patrick Rameau, Martin Reyes' CEO, our President, Fred DiTosto, and our CFO, Peter Cerullis. Today we will be discussing Martin Reyes' results for the year and quarter ended December 31, 2024. Lots to talk about. I refer you to our usual disclaimer in our press release and filed documents. As you probably know, to avoid technical difficulties, we generally prerecord our calls. We'll start with that. And then in our Q&A, we will address the immediate tariff issues in more detail as the situation is evolving sometimes by the hour. On this call, I will provide a brief overview of the current industry, geopolitical and trade environment. Then Pat will outline some key lights and highlights of our 2024 year and make some comments on the business, then Fred on operations, then Peter on the financials, and we'll do Q&A. 2024 was an eventful year for Martin Ray in many ways. We saw some major events take place on the world stage that are affecting our industry and our business, including a major slowdown in EV electrification growth, especially in North America and the European Union, geopolitical tensions in many areas which affect trade and other relationships, and the United States election that has introduced increased focus on tariffs, trade, and the renegotiation of the USMCA. Before we get to some company highlights, let's reflect briefly on the environment in which we operate. Our company started its history as an auto parts company in 2001. Indeed, one of our first activities was to buy three stamping presses in September. Just after signing the purchase order, we had 9-11. We and our industry had a major challenge. Our industry made it through very successfully, as did we, raising money to pay for the presses. We have seen many challenges since that time, including the financial crisis of 2008 and 9, where two of our customers went bankrupt, a renegotiation of NAFTA, a pandemic where our industry shut down completely, a major semiconductor chip shortage which caused huge distress, and a move to electric vehicles that has not met expectations in terms of rollout. A great many challenges. And there will be more. We will say this with confidence. After every challenge, we have emerged stronger as a company with better operations and with a strengthened corporate culture. These situations have provided opportunities to get better at what we do and to grow over time. We are still a relatively young company in our industry, and we have grown from a startup to a $5 billion company in 24 years to over 50 locations and 18,000 people in many countries and continents. Challenges create opportunities. We have bought assets or built new plants to satisfy and grow our customer base consistently over time. And we think this will occur over the second half of this decade also. People need mobility, they need vehicles, and they need parts for vehicles. Our industry needs strong suppliers. We'll be there. On a shorter-term basis, the EV revolution, as some call it, has not rolled out as quickly as many believed. EV take-up by consumers is difficult for many given the cost of EVs and the lack of infrastructure. Many consumers do not want an EV, but would prefer to drive an ICE or internal combustion engine vehicle or a hybrid. The reality is that EV mandates don't really work. You cannot force people to make what consumers do not wish to buy, and eventually the market speaks. The consumer is indeed king. And in democracies, every consumer is also a voter. And elected officials will listen to their voters. So we are seeing EV mandates pulled back and sales and production of EVs have flattened. This is a structural challenge for our industry and has created huge overcapacity in the automotive industry. We and many others, even those of us who are conservative in our forecasts, have underutilized capacity on EV-related lines. The geopolitics of the day is also very relevant for our company and industry. It seems fairly obvious to us that there is a security and economic divide in our world, headed by the United States on the one hand and China on the other. This affects our company and industry, as policies adopted by the United States and others are dealing with the growth of Chinese companies. either exporting parts and vehicles or attempting to establish assembly or parts plants in North America or Europe. We have increasingly seen tariff and trade policies to address that. In this context, given our strong footprint in North America, there are opportunities for us to grow. Also, higher local rules of origin requirements are good for companies like ours. We have always believed in a fortress North America approach in the sense that the North American auto industry is very strong with a production footprint that utilizes the strength of the United States, Canada, and Mexico. Given the geopolitics, we're also focused on intra-regional footprints, and so we are limiting our footprint in China, as Pat and Fred will discuss. The third challenge we face as a company and an industry relates to tariffs. We were very close to the negotiations of the new NAFTA several years ago, and we believe that the resulting USMCA was very good for the industry and our company. The USMCA was a nice update and upgrade in many ways, and the higher local content rules for North American suppliers were positive for us. When signed, we knew that a renewal of the USMCA was due by mid-2026, and frankly, we have spent the last two years as an industry considering what that means. Well, it now appears that we are effectively into the negotiation process. Each participating country is reviewing the agreement, and we believe there will be intense negotiation of several aspects of the agreement. Regarding automotive, there will be a push for higher rules of origin by the United States, which could benefit suppliers such as ourselves. Despite much public speculation, we see a path to a modernization of the agreement to preserve and enhance the development of North America's largest manufacturing industry. Tariffs on autos and parts within North America hurt the industry and ultimately increase costs to consumers and are not in the interest of the United States, Canada, or Mexico. We need to align. We will need to negotiate a new agreement, but there is opportunity. In the meantime, We will adjust appropriately to any tariffs as we did for steel and aluminum tariffs several years ago. Our public and private posture is and will be to encourage free trade in the automotive industry within North America. It benefits consumers and producers in all three North American countries. We're going to have to work through these issues over the next while. Turning to the year just past, with some comments on 2025 as well, Pat will outline a few highlights. Note that we have much detail in our year-end filings, including our annual information form and our sustainability report, as well as our financial filings. Companies do not live by a calendar, as we all know. We have to report results over a finite time period. But our long-term view is that sustainable companies are those that look to the future, embrace it, and capitalize on the opportunities presented by it. That's what we do. We look forward to 2025 and beyond with great confidence. We are stronger today than we were a year ago. Our people support us in that view, and we thank them for their service. Our strength is in our people. We look forward to sharing the future with you. And now, here's Pat.

Thanks, Rob. Good evening, everyone. Let me start with a few highlights from this past year. Our safety results continue to trend in the right direction. Our total recordable injury rate, or TRIF, In 2024, among the very best in our industry. There's no better way to show your people you care. In that regard, 2024 was a great year. Our employee survey results continue to come in strong. We work to make people's lives better with our golden rule approach. It's a living thing, not just a slogan. When you visit our locations, it's clear, and we're proud of our people and our progress, meeting the challenges of this business. There were some sales headwinds in the fourth quarter, hence revenues were down slightly in 2024 at just over $5 billion. At the same time, our adjusted EBITDA came in at roughly the same place as it did in 2023, and our EBITDA margin percentage actually increased as we continued to drive improvement into our facilities. A year ago, when we announced our 2024 outlook, we indicated that our adjusted operating income margin would likely be higher in the first half of the year than the second half, and that's exactly what happened. In the fourth quarter, many of our customers slowed or halted production across multiple platforms, mostly to adjust inventory levels. Despite that, our adjusted operating income margin came in at 5.3% for the year in the top third of our peer group. We're confident this will continue to climb. We maintained a strong balance sheet with a net debt to adjusted EBITDA ratio under our target of 1.5 times or better. At the same time, we returned significant capital to our shareholders in 2024. We maintained our dividend and repurchased over 5 million shares under our normal course issuer bid. A lower share count bodes well for the shareholders as we see improvements in the future financial results. We won multiple quality awards from a variety of customers in 2024, a strong base for new business awards and replacement work. We invested in our business with approximately $275 million in capital expenditures in 2024. We made good progress reducing carbon emissions, reducing them by 17% since 2019 toward our goal of 35% in 2035 without the use of carbon credits. With this, we became more energy efficient, reducing our energy intensity, that is our energy consumption relative to sales, by 23% since 2019. We have also reduced the amount of waste destined for landfills by 54% since 2019. 83% of our locations now divert more than 90% of their waste away from landfill. Good progress on our journey toward our zero landfill initiative. We are embracing technology in both our operations and in our strategic investments. Our advanced manufacturing team is moving forward machine learning installations across the plant network to improve the performance of our lines and heavy assets. As discussed on the last call, we expect these efforts to produce significant benefits in terms of safety, speed, and quality. Our MineCAN software subsidiary is increasing its book of business with new customers. Our Martin Rea innovation development portfolio includes companies that are leading edge in graphene, aluminum powder for additive manufacturing, aluminum-air batteries, and ultracapacitor technology. We are helping our strategic partners incubate these innovative technologies with many benefits for our company, both strategic and financial. Turning to business, on the last call we pointed out that production sales would likely drop in the fourth quarter as Stellantis and other OEM customers adjusted their vehicle inventories. This impacted our results in the fourth quarter with sales and margins falling below normal levels. While this correction continues to some extent in the first quarter, we believe we will see better production volumes in the coming quarters. We continue to establish ourselves as a consistent generator of strong free cash flow, with 2024 full year free cash flow coming in at just a bit below last year's record high. Our continuous drive to find efficiencies by reusing flexible capital, as well as some program extensions which require less capital, contributed to the strong performance. We expect another solid free cash flow year in 2025. Peter will elaborate on this. As previously discussed, EV volumes have been weak, both in Europe and North America. Our European operations have more exposure to EVs as a percentage of sales. Since we believed EV volumes would be slower to ramp up than many other industry observers expected, we protected ourselves by negotiating what we call complex contracts and we were paid upfront capital, depending on the platforms. However, we continue to see volumes lower than even we expected. In fact, some EV programs are running at less than 20% of the volumes that we reported when we won the program and invested the capital. Given this dynamic, like others in our space, we wrote down some EV assets during the fourth quarter, which Fred will elaborate on. Additionally, we will further restructure for operations in Germany in 2025 and look at consolidation opportunities at some of the other facilities which are underutilized due to the low EV sales. It continues to be important to have a presence in Europe to support the customers and their global programs. Plus, it's a hub for engineering and innovation. Outwithstanding, given the high cost nature of the region, specifically in Germany, Our focus will be less about growth and more about maintaining our footprint and making the operations leaner and stronger. The Chinese market in general is focused on EV growth and has a lot of excess capacity. We're very small in China, and we are negotiating with local partners to minimize our footprint and exposure. We believe partnerships are the best avenue for growth in Asia. While maintaining our presence in Europe and pursuing growth opportunities in the Americas, continued emphasis on localizing production in North America, primarily from Asia, we see a lot of opportunity for our largest footprint. We are also announcing an enterprise-wide project to reduce our annual SG&A expenses by approximately $50 million, which will take 12 to 18 months to implement, with the savings coming from a combination of reduced corporate overhead costs as well as expense reduction at the plant level. we already see leaner ways of operating as a business with a focus on optimizing processes and eliminating redundancy. We expect to generate significant results from this activity. While the ramp up of EV volumes is slow, we are seeing more ICE extensions filling the gap. This is a bit of a silver lining, particularly since most of these programs were capitalized years ago. So from a pure volume standpoint, we are protected as fewer EV sales means more ICE vehicles are being sold, all things being equal. We will be underutilized on certain assets, so we expect some drag on margins until the volumes improve or current programs roll over and we can reset economics. There is some stagnation in new programs as OEMs revamp their new vehicle portfolios. We will take this time to focus on more cost reduction to improve profits and what will likely be a relatively flat market over the next few years. Despite a flat market, we see margins improving with our continued focus on operations and the various cost-saving projects I discussed. With that said, I'd like to thank the entire Martin Rea team. I appreciate all our people's hard work. And now I'll turn it over to Fred to discuss operations in more detail.