Martinrea International Inc.

Good evening, ladies and gentlemen. Welcome to the Martin Rea International first quarter 2025 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 today. We always look forward to talking to our shareholders, updating you on our business, and answering questions. We also know that we have many other stakeholders, including many employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary through our network. With me this evening are Rob Wildeboer, Martin Reyes' executive chairman, our president, Fred Dottosto, and our chief financial officer, Peter Cirillus. Today, we'll be discussing Martin Reyes' results for the first quarter ending March 31st, 2025. We have a number of things to discuss. I refer you to our usual disclaimer and our press release and our filed documents. On this call, I will outline some key highlights of the quarter and make some comments on the business. Brenda will discuss operations, followed by Peter on the financials, and then Rob will provide an overview of the current industry, geopolitical, and trade environment, especially regarding tariffs, and then we'll do a Q&A. Turning to the first quarter, our financial results improved over the fourth quarter on higher production sales and better margins. As we talked about on the last call, our Q4 results were impacted by an OEM inventory correction, which mainly affected the Detroit 3 customer base in North America. While we continue to see some impact from these adjustments in the first quarter, volumes improved in Q1 compared to Q4. Inventories are now at a more normal level based on days of sales and in line with market demand. Peter will review the financial performance in more detail later on the call. Overall, Q1 was a pretty good start to the year. Looking forward, U.S. tariffs on automotive imports are clouding the outlook for our business and industry. These tariffs have already had a disruptive effect on our business, with OEMs announcing temporary shutdowns of assembly plans and volume reductions of certain programs while they get a handle on the impact. Some of this is also due to continued weak volumes on EV programs. So far, the direct impact on tariffs on our business has been manageable, though it could accelerate, particularly if the U.S. levies additional tariffs on automotive parts. The situation is very fluid, and Rob will discuss the latest in a few minutes. Tariffs on auto parts could be disruptive for both suppliers and OEMs alike, especially if previously announced tariffs are left as is, this would have a compounding effect on the industry. The supply chain could become more erratic, as deciphering what portion of the vehicle is non-U.S. and therefore subject to tariffs could prove to be difficult. This, along with many in the supply base disputing responsibility for paying the tariffs, could result in OEM plant shutdowns and a stop-start pattern of production, like we saw during the chip shortage. In this type of environment, it could be more difficult to flex costs depending on how our customers manage this disruption. There is also the issue of who would ultimately bear the costs of these additional tariffs based on the jurisdiction and who is the importer of record. Tier 2s and Tier 3s will try to push a portion of their costs to Tier 1s, and Tier 1s, such as ourselves, will try to push costs to the OEMs. It's safe to say more of the tariff impact would eventually be passed down to the customer in the form of higher vehicle prices, potentially resulting in lower demand, followed by reduced vehicle production. IHS recently lowered its North American light vehicle production forecast this year to around 14 million vehicles, with little growth in 2026, reflecting a fairly cautious tariff scenario, including tariffs on auto parts. While this scenario is not a foregone conclusion by any means, it would be an unfortunate outcome, somewhat self-inflicted and avoidable. As such, we need a resolution on the tariff issue, whether it be through refining the USMCA or by some other means. In the meantime, we are focusing on items that are within our control. That includes continued operating improvements, taking costs out of the business, including our recently announced SG&A Cost Down Project, where we are targeting $50 million in annual cost improvement, generating free cash flow, and continuing to maintain a strong balance sheet. On that note, we will temporarily pause our share buybacks under the normal course issuer bid until the tariff issue is resolved or we have more visibility on what the impact on our business is likely to be. In the meantime, free cash flow will mainly go towards paying down debt. We'll manage this as we have challenges in the past and we will continue to strengthen our business with all the improvements we are making, not only on cost, but also through our innovations in machine learning with our advanced manufacturing team, as well as investments in emerging technologies through our Martin Rea Innovation Development Initiative. Once again, many thanks to the Martin Rea team for their hard work. And with that, I'll turn it over to Fred.

Thanks, Pat. Good evening, everyone. Looking at our operations, overall, we are executing well in a tough market. We continue to drive operating improvements through our monitoring operating system, and recent and ongoing investments in machine learning and other innovations are starting to enhance our productivity. In addition, we continue to receive recoveries for long shortfalls and lingering inflationary cost increases through commercial negotiations with our OEM customers, with tariffs now being added to the list of items to be negotiated, unfortunately. While the tariff situation creates a lot of uncertainty for us and our industry, The improvements we are making in our business will pay off and position us to emerge from this challenge as a much stronger supplier. This will become more evident as the tide turns for industry, which it always does. Looking at our segments, starting with North America, adjusted operating income was down 8% year-over-year on lower production sales, though adjusted operating income margin held steady. Solid results. especially considering that we still had some impact from the OEM vehicle inventory correction that continued into the first quarter, as Pat discussed. Note that production sales are down about $90 million year-over-year. Tooling sales, which we earn little, if any margin on, were up, and we maintained our margins. We're executing very well in North America, and the segment continues to be the main profit driver of our business. Turn to Europe. Adjusted operating income was a loss again this quarter, but much improved from Q4 as we benefited from operating improvements as well as some restructuring. Still, results were sharply lower year-over-year as we continued to face weak production volumes, particularly on EV programs, coupled with a higher and less flexible cost structure compared to North America. The rest of the world's segments saw improved profitability both year-over-year and quarter-to-quarter, mainly reflecting the timing of commercial settlements. As you know, this is a small segment for us, accounting for less than 3 percent of our consolidated sales, and changes in bonds and a small number of programs, as well as commercial settlements, can result in big swings of profits in this segment from quarter to quarter. As you might recall from the last call, we said we would maintain a minimal footprint in China and serve our customers increasingly through partnerships, given the competitive dynamics in this region, as well as geopolitical considerations. Our view hasn't changed, notwithstanding the relatively good results we had in this segment in the first quarter. Moving on, I am pleased to announce that we have been awarded new business worth $60 million in annualized sales of mature bonds, which includes $55 million in structural components in our lightweight structures commercial group with Mercedes and General Motors, and $5 million in our flexible manufacturing group with Volvo Truck. New business awards are the last four quarters of total $260 million. We continue to have a robust pipeline of RFQs that we're working on with a higher than normal level of program extensions in front of us. These program extensions generally allow us to reprice business to fully build in the higher inflationary costs that we've had to absorb the last few years, which benefits our margins. With that said, I'd like to thank our people for their commitment to the long-term success of the company. We truly value your contribution. Thank you. Now, here's Peter.