Martinrea International Inc.

Rob Wildebauer, please go ahead.

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 note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat DiRamo, Martin Reyes' CEO, our President, Fred DiTosto, and our CFO, Peter Cerullis. Today, we will be discussing Martin Reyes' results for the third quarter ended September 30, 2025. I refer you to our usual disclaimer in our press release and our filed documents. On this call, I'll make a few short comments on the trade and tariff situation, geopolitics, and capital allocation at the end. Pat will outline some key highlights of the quarter and make some comments on the business and some industry issues. Fred will discuss operations. And then Peter will review some financial highlights. And then we'll do Q&A. And now, here's Pat.

Good evening, everyone. We're pleased with our performance in the third quarter, both operationally and financially. Adjusted operating income margin was up year over year as we continued to drive operating improvements and negotiated commercial recoveries from our customers, largely for volume shortfalls on EV programs. We generated positive results, notwithstanding the current environment as it relates to tariffs and the production disruption from a cybersecurity attack at Jaguar Land Rover, a key customer of ours. Results would have been even better absent these issues. Good news, production at JLR has resumed and is ramping up, and we expect them to return to normal by Q1. On tariffs, We are at advanced stages in negotiating with our customers for relief. Ultimately, we expect to recover the vast majority of our tariff exposure. We anticipate these negotiations to be complete before the end of the year. We are having a good year as our Q3 year-to-date results show, as we continue to drive operating efficiency improvements on the shop floor, along with other cost savings, including our SG&A reduction programs. We expect operating margins to continue to improve year over year in 2026. Note that we have been impacted to a degree by supply chain disruptions from the Novellus Fire and Xperia semiconductor chip issue. This is reflected in our outlook. Peter will elaborate on our third quarter results in 2025 outlook shortly. Shifting gears, we expect more production to come to North America over the next few years via reshoring or friendshoring. Between the push to localize from the U.S. administration coupled with the USMCA, we believe that all three countries, Canada, the U.S., and Mexico, will benefit ultimately. As you know, North America accounts for more than three-quarters of our production sales, so we are spending a lot of time looking at our footprint, in the region and continuing to find ways to open more capacity through continued operational improvement and optimization of floor space in anticipation of work flowing into North America. Fred will also touch on this by discussing a recent acquisition we made in the U.S. We're doing a lot on the people side to prepare for and avoid labor shortages, particularly in the skilled areas, and we're ahead of the curve in this regard. At Martin Rea, we focus on internal development as well as internal promotions. We target 80% promotion from within and 20% from outside. One example of our unique approach is our semi-skill positions. This is a pre-apprentice program giving direct labor team members an opportunity to enhance their skills, freeing up time for higher skilled trades workers to focus on more advanced problem solving and plant improvements. This fosters promotion and advancement, as well as an avenue for women to enter the non-traditional roles. Women make up 50% of the workforce, yet less than 25% enter manufacturing. These efforts have been recognized by the Automotive Women's Alliance Foundation, who recently selected Martin Rea for its 2025 Change Champion Award. This award recognizes a company who has contributed significantly to the acceptance and advancement of women in the automotive industry. These efforts also extend to high school graduates. Something like 60% of high school graduates pursue higher education, such as university, as well as other programs. The remaining 40% are looking for a good job and tend to want opportunity for advancement as well. And we're providing an avenue for them to pursue it. This is just one of a number of labor-related strategies we employ. We're very proud of this activity, which feeds our strong culture at Martin Rea. Longer term, as more manufacturing moves to North America, we will continue to invest in our people while enhancing our productivity through initiatives including automation and machine learning. I'd like to end by thanking the Martin Rea team for their hard work and continued enthusiasm. With that, I'll turn it over to Fred.

Thanks, Pat. Good evening, everyone. We continue to execute well both operationally and financially. Simply put, We're doing a great job of managing the factors that are in our control. We have the right team in place, and I'd like to thank our people for the dedication and hard work in delivering these results. Turning to our segments, starting with North America, adjusted operating income margin came in at 6.9%, a continued healthy level. Absolute results were consistent year over year, as the impact from slightly lower production sales was mostly offset by a higher margin. reflecting lower tooling sales, operating improvements, and higher favorable commercial settlements. In Europe, adjusted operating income was about break-even for the third quarter. While margins remain below potential given low volumes of certain programs, and in particular EVs, results are much improved from earlier this year and late last year. Profitability in our rest of the world suddenly was positive in Q3, ending the quarter at an adjusted operating income margin of 5.4%, As you know, this is a small segment for us, accounting for less than 3% of our consolidated sales, and changes in volumes and a small number of programs, as well as timing of commercial settlements, can result in swings and profits in this segment from quarter to quarter. As we indicated on previous calls, our strategy is to maintain a minimal footprint in this segment, and this has not changed. Moving on, I am pleased to announce that we have been awarded new business worth $30 million in annualized sales and mature volumes which includes $15 million in structural components in our lightweight structures commercial group from General Motors and Toyota, $12 million in our propulsion systems group with Stellantis and Ford, and $3 million in our flexible manufacturing group of Volvo Truck and Central Power for energy storage products. New business awards over the last four quarters have totaled $170 million. Coordinated activity remains robust. and we've recently worked on a number of program extensions with various customers with a value of approximately $1 billion in annualized sales. It's important to note that while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we've had to absorb over the last few years. Extensions also require less capital for the same amount of volume compared to new programs. which supports our free cash flow. We also continue to see several takeover business opportunities which, if prudent, we will look to capitalize upon. We recently closed on one such opportunity with Lyceon North America. Lyceon is a single-plan operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and assemblies for school buses. This was a distressed situation where we are stepping in to support our customer International Motors, formerly Navistar. The price we paid was nominal. We will have to make some investments in the business, but we expect it to be accretive within a reasonable amount of time. This acquisition adds work for a great customer that we are underpenetrated with, and we see a lot of opportunity to grow the international over time, in both buses as well as commercial vehicles. In addition, it allows us to broaden our product offering and further diversify non-automotive end markets. we'll receive some good opportunities for our business. This transaction also expands our footprint in the U.S. Note our growing footprint in the U.S., built up over two decades, is now more than twice the size of our Canadian footprint. We will continue to grow where we see opportunity. We're excited to welcome the Lyceum team to Martin Rea and look forward to growing our business with them over the long term. And with that, I'll turn it over to Peter.

Thanks, Fred. Looking at the results year over year, adjusted operating income came in at $65 million, similar to quarter three of last year on consistent production sales. Adjusted operating income margin came in at 5.5%, up 20 basis points year over year. The margin improvement was a function of lower tooling sales, operational improvements, and lower depreciation, partially offset by higher SG&A expense, reflecting higher marked-to-market stock-based compensation expense, given the increase in our share price in the third quarter. Assuming a constant share price quarter over quarter, adjusted operating income margin would have been 40 basis points higher, or 5.9%, reflecting a very strong performance by all accounts. Free cash flow before IFRS 16 lease payments came in at 44.5 million, down from 57 million in quarter three of last year, largely reflecting less cash generated from non-cash working capital. This is mainly due to the disruption from the JLR cyber attack that Pat mentioned, which resulted in a delay in the collection of certain receivables from JLR. This is a timing issue and receivables have been since collected in the early part of the fourth quarter, including lease payments under IFRS 16 accounting, free cash flow was 30.5 million down from 43.9 million in quarter three 2024. We remain on track to meeting our full year 2025 free cash flow outlook of 125 to 175 million. Based upon our solid year to date performance and the typical season or pattern where the fourth quarter is usually the strongest from a free cash flow perspective as we tend to harvest a relatively large amount of cash from working capital. Based on how things are currently playing out, we expect to be closer to the high end of our outlook range on free cash flow. Moving on, adjusted net earnings per share came in at 52 cents, up from 19 cents in the third quarter of 2024. Recall that in quarter three of last year, EPS was impacted by an abnormally high tax rate of 70.2%. Additionally, it is worth noting that adjusted EPS would have improved further if we did not have the JLR production disruptions resulting from the cyber attack. Turning now to our balance sheet, net debt excluding IFRS 16 lease liabilities decreased by approximately 24 million over quarter two to 768 million, reflecting the free cash flow generation in the quarter. Less debt means less interest costs, which is a nice tailwind. Our net debt to adjusted EBITDA ratio ended the quarter at 1.5. consistent with quarter two and at our target of 1.5 or lower. We think this is a good place to be as it allows us to execute on our capital allocation priorities while maintaining a solid balance sheet. Year to date, we have repaid approximately $51 million in debt and reduced our financing costs by approximately $9 million, with further improvements expected in quarter four from lower interest rates and reduced debt levels. As you can read about in the automotive news sources, there is some distress in parts of the automotive supply base. This provides not only takeover opportunities in the moment like Laceon, as Fred mentioned, but it's also a reminder to customers that financially healthy suppliers do not provide undue credit risk to them. We have a strong balance sheet. We are maintaining our 2025 outlook which calls for total sales of 4.8 to 5.1 billion and adjusted operating income margin of 5.3 to 5.8% and free cash flow of 125 to 175 million. We are on track to meet this outlook based upon our solid year to date performance. As we indicated on the last call, we expected production sales to be lower in the second half of the year compared to the first half based upon the typical seasonal pattern in our industry, with the summer and holiday season shutdown periods in the third and fourth quarters. We also expect lower EV volumes as some demand was likely pulled forward ahead of the expiry of the US EV tax credit on September 30th. We also have some softness in heavy truck volumes. These issues impact all parts suppliers engaged in these segments. On a positive note, vehicle sales in North America have been resilient, notwithstanding some monthly variation due to the timing of incentives and expiry of electric vehicle tax credits that resulted in some sales being pulled forward. Underlying demand for vehicles remains strong. More specific to us, JLR volumes are expected to improve quarter over quarter in quarter four as they ramp up following their cyber attack related shutdown. We are also negotiating with customers on some EV related commercial settlements, which could fall either into the fourth quarter or the first half of next year, depending on how the customer discussions go over the next few weeks. In any case, we will be prudent and take the necessary time to get the right deals in place. Looking further out, we see a lot of opportunity for our business. As Fred noted, we are seeing an increasing number of inquiries from our customers asking us to look at taking over business from distressed suppliers. We also believe that the rebalancing of global trade will result in meaningful volumes being reshored to the U.S., which will ultimately benefit North American suppliers. Our customers are asking about our readiness plans for moving volumes or relocating next-generation programs into the U.S., and we are well positioned to accommodate them in our North American-centric footprint. As Pat noted, we are having a good year, and we expect our operating margin performance to continue to improve on a year-over-year basis in 2026. And with that, I would like to thank our people for their hard work and perseverance in these dynamic times. And now I turn you back over to Rob.

Thanks, Peter. A few comments on the broader geopolitical trade and tariff situation. I've outlined my view of a five-part plan for the automotive industry, OEMs, and suppliers in North America and said that this is where I think we should get to, which would be best for the North American auto industry and supply base, consistent with the U.S. view of a stronger U.S. industry. Here are the five points. One, free trade in autos in parts between the U.S., Canada, and Mexico. Fortress North America, the best place to build autos in the world, focusing on the strengths and markets of the U.S., Mexico, and Canada. Two, higher North American content and vehicles produced in North America. In terms of higher rules of origin requirements or stricter interpretation rules. The U.S. has been advocating for that in interpreting the current USMCA. Canada and Mexico have opposed, as have automakers, but this is a good way to go, and it will be good for all North American-based auto suppliers who are located everywhere throughout North America. Studies have shown that stricter content rules in the USMCA have increased production and jobs in the U.S. and North America. Three, higher penalties for noncompliance with rules of origin. not a 2.5% penalty, which many simply accept, but higher and punitive, like 25%. Four, measures to attract assembly into North America. Make it worth it to build here if you sell here. This could include carrots, such as investment and tax incentives, or potential sticks, such as quotas or tariffs. Note that North Americans buy between 19 and 20 million new vehicles a year, But imports account for close to 5 million. Imagine another 2 to 3 million vehicles built in North America. Everybody wins here, including the supply base with North American content rules. We used a carrot approach to encourage EV investments in Canada. Even though EV adoption has stagnated, there is an effective way to encourage investment. The U.S. agreements with the EU, Japan, and South Korea for a 15% tariff encourage this to happen to some extent. Five, I believe tariffs on China are appropriate, but more than that, North America should not support direct Chinese investment in parts or auto companies in North America. The reality is that all Chinese parts suppliers and OEMs are in effect extensions of the state and subsidized by it, and their investments do not add new investment, but they displace investment from market-oriented firms. Do all this, and we have a really solid North American market. And all this can happen quickly, with the U.S. being the biggest beneficiary in my view. I believe we are lurching toward this. I think it is important for Canada and Mexico to continue to fight for zero tariffs on autos assembled in their jurisdictions, eventually as part of a USMCA renewal or otherwise. Over time, I believe in North America. I believe it is in the best interest of the US to have a strong North America. I believe it is good for all of us, and I believe we will have a prosperous US and North America over the coming decade. The clouds and overhang will not last. I would like to make one further point about some of the moves by OEMs in terms of not proceeding with production of certain previously announced programs, ending production of certain programs, or moving existing or planned programs. I will not get into the various announcements, but talk generally. First, a number of previously announced EV programs have been scaled back or cancelled. That obviously reduces EV production numbers, but there is a lot of program extension on ICE vehicles and hybrid vehicle production is up. The extensions are good news for us, but note that as we have been and are largely propulsion agnostic, We have limited risk and some good opportunity with what I could call the reversion to reality, namely to produce vehicles people want to buy and will buy. Second, a move of a program that we are on is less of a risk for us because we generally have capacity to produce most of what we make in locations in different countries. Our plants are located throughout North America. Third, while we started in Canada, note that our total sales are mainly international. Less than 15% of our total sales, for example, are in Canada. And even there, currently approximately 75% of what we make goes into US assembly plants. Some of what we make in Michigan goes into Canadian assembly plants too. But we are well poised to deal with some of these movements. Investors in our company are buying into a truly international company with a great North American footprint. Finally, I'd like to close with some brief comments on capital allocation. We continue to take a balanced approach to allocating our capital, that is investing in the business, maintaining a solid balance sheet, and returning capital to shareholders when appropriate. In the past several months, we invested in our business and did the Lecion acquisition. In addition, we invested $5.6 million in Nano Explorer shares, subsequent to quarter end, as part of a bought deal private placement financing that raised close to $26 million in gross proceeds for the company. We invested in the deal on a pro-rata basis to maintain our ownership position. We think the future is bright for graphene and for nano, particularly considering the recent supply agreement signed with Chevron Phillips to supply graphene for use in drilling fluids. This is the largest graphene contract in history, to my knowledge, we think this is the beginning. Nanoexplorers poised for graphene related growth. Recall that we paused our flyback program earlier this year given an uncertain outlook mainly related to tariffs. We see some of these clouds clearing although storm clouds reappear on a regular basis. We see a continued tariff exemption for USMCA compliant auto parts. As such we may resume some share purchases as early as this quarter though we will likely be gradual in our approach. As Peter said and showed, less debt is a good thing too. Note that our net debt is now the lowest it has been since 2020. Now it's time for questions. We have shareholders, analysts, employees, and even some competitors on the phone, so we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. If you would like to withdraw from the polling process, please press star then the number two. If you are using a speakerphone, please make sure to lift your handset before pressing any case. Your first question comes from the line of Michael Glenn from Raymond James. Please go ahead.

Hey, good evening. So just to start, I want to start with Europe, and I'm just looking to understand what's realistic in terms of operating margin assumptions for this segment. Should we expect a catch-up to take place in Q4 in terms of some recoveries or customer settlements? Any insights there about what the realistic margin profile would be helpful?

Yeah, sure, Michael. So the outlook there for Europe, I'd say on a longer-term basis, is improving. As you know, we did our restructuring last year and then to a large extent this year. So those restructuring savings will start to take hold here as it's essentially been completed here as of the middle of the summer. So we would expect that those results start to come in. Now, of course, That could be offset by, again, timing of some of these commercial issues which we work through with our customers. So that's to be determined as we move through in the next couple of quarters.

I'm just looking at prior years, and there were some pretty lumpy EBIT contributions coming out of Europe, I think, over the past three years. Is there any expectation that we should think about Q4 seeing a big pickup from Europe?

Yeah, I would say being in a high-cost area just in general, you wouldn't see a step change in terms of large, large margins. But you will see improving margins. Again, but it depends on the lumpiness of these commercial settlements that we have with multiple customers in the region, primarily based upon the EV challenges. So relative to other regions in Europe, significant portion, I'd say, of our revenue is based upon some of the EV programs. So I would continue to expect that there would be some lumpiness in that segment of our business.

And Michael, we did highlight in our opening remarks some commercial activity or negotiations that are ongoing right now and we'll have to assess how that goes in the next few weeks. And those can land in the fourth, they can land in the front half of the next year. It all depends on when we're able to close them. So I think lumpiness is you know, something you should expect over the next little while as these commercial activities and negotiations kind of take hold.

The other thing is you can't, we're not going to settle unless we have the right number. So that's really important in all of this is we're not going to get pushed up against a quarter or something like that. We're going to make sure the number is the right number, whether it's this quarter or next quarter. We're not relying on it in this quarter.

Yeah, we focus more on results and timing. And just stepping back overall, these customer recoveries and customer settlements that we've seen in everybody's results over the past few years, nothing's really quantified into the size of the contributions or what they contribute to margin. So how should we think about the levels of these recoveries or settlements in 26 versus 25? Do you see... any potential changes in OEM behavior or their view on these amounts and what do we need to take into consideration as we go into 2026?

Sure. So I think overall you should expect that across the industry, including here at Martin Rea, that these commercial settlements will still be a portion of our ongoing business, especially given the EV fits and starts. So That's a big part of it. And then as part of our tariff compensation negotiations, that's in some customers' cases playing a part of it as well. They're weaving that into some of these negotiations. So I would expect it to continue for the foreseeable future. But I would say that it's probably, I would say, relatively less than maybe in the recent past. but it will still be a portion of our business going forward for sure.

Okay. Thanks. I'll get back into this queue.

Your next question comes from the line of Ty Collin from CIBC. Please go ahead.

Hey, good evening, everyone. Thanks for taking my question. Maybe just to start, could you help us quantify or otherwise understand the impacts from the Novellus, Nexperia, and JLR issues within the Q3 quarter, and also how should we think about each of those impacting Q4?

Okay, sure, Ty. So in terms of 43 versus quarter four, so in the Novellus and Nexperia headlines, those are not affecting our quarter three, but the mildly affecting quarter four. In fact, we had a JOEM just recently tell us today, hey, there's some disruptions here. We're going to be shut down for a week. So these happen every couple of days, it seems, in the last few weeks relative to Novellus and Nexperia, although one could argue that Nexperia has calmed down a little bit. So there's some, let's say, indirect impacts there for our customers, the ones that we service. We're on several of those programs that are forward affected. As far as JLR, that is primarily a quarter three issue or was a quarter three issue. So they were down for practically a month. And then they'll start ramping up again here. They won't be at what was expected, let's say, prior to quarter three, but they are, you know, plant by plant coming back up to speed. So we would expect that to be past us here as we enter into quarter one. So we won't specifically say quantifying those numbers only because we wouldn't want to go through the profile that we have with that customer.

Got it. Okay. That's really helpful. And then just a question on the guidance. I mean, is there any reason you decided not to raise or at least narrow the operating margin guide in the low end of that guidance or even really the midpoint implies a very low margin rate for Q4? I don't have a strong reason to suspect that that would materialize, but maybe you could just help us understand some of the puts and takes from a margin perspective in Q4 outside of what's already been discussed.

Sure, Ty. So the approach that we took was primarily, as you've said, in terms of the puts and takes. So a lot of the, let's say, external elements we face similar to other customers in our space, right? So seasonally, quarter three versus quarter four volumes will be seasonally down. You know, you hear about all the EVs, so that's affecting us as well. So some of the programs that we're on continue to reduce here in quarter four versus quarter three, because primarily of some of that pre-buy that we experienced. And as you know, a portion of our business is commercial vehicle related with some of the transmission products that we sell. So that overall, as you know, and probably heard from other earnings calls, that's a little bit of a sluggish segment as well. So you've got that going on. But of course, then offsets, we've got our performance We mentioned some benefit from the depreciation, which we experienced from the write down. And also, we've got these, we talked about earlier here today, the commercial negotiations that we have, right? So several of them are in motion. And so we would rather not talk too much about negotiations in motion here. But there's a high likelihood that we will be middle of the range to the upper half of that range. But we just decided to keep the statement at guidance, so within our range of 5.3 to 5.8.

And so one of the things we do is we give our yearly guidance in March related to our budgets, how we see things, and we think that's actually a good practice. every quarter because what we find and what we certainly found this year is things come out of the woodwork pretty quickly if we can't necessarily tell the timing of different things we did not expect the cyber attack with one of our customers we just read this morning It's involved in a lawsuit with a Canadian supplier that might shut down a couple of its plants. So these types of things happen. So in that context, there's still six weeks to go. Having said that, I think Peter's answered your question.

I think, Ty, the other thing to take a look at and consider is that looking at our industry over time, again, because of some of the lumpiness of these commercial negotiations, need to take more than a quarter-by-quarter look. We had a very strong year-to-date result, and I'd say, you know, relative to some of our companies in our peer group, very good results. In fact, some of our peer group is now they raised guidance in the fourth quarter to where we are already at in our range. So let's consider the longer-term aspect, not just a quarter at a time. given the lumpiness of the commercial issues which we've talked about with Michael.

Okay, yeah, understood. And if I could just sneak in one more. I'm wondering if you could also give a bit of an update on the conversations you've been having with OEMs around on-shoring. I'm wondering if those discussions have evolved at all since the summer, now that some more trade deals have been reached. I mean, are you still optimistic in general that there will be opportunities around that?

I think, this is Pat, ultimately, yes. There'll be a little bubble in between now and then because of what Pete talked about. You know, there was a lot of EV capacity put in place, equipment, buildings, things like that, that aren't being fully utilized. And so I think the onshoring will allow us to fill that. some of that over the next couple of years, but certainly the industry, and it's not just myself, but, you know, amongst my counterparts and so forth, we all are looking forward to more on-shoring. So, you know, some of the OEMs have announced changes of bringing things into North America. Some have taken product or volume out of Asia and moved it already into North America. And so these bring opportunities, you know, pretty quickly. But, of course, you've got to put the tooling and those type of things in place. But we certainly see, you know, a pretty positive outlook from the movement. And not just in the U.S., but I think at the end of the day when the USMCA gets settled or resettled, if you will, the benefit's going to stay there. And the content, as Rob indicated, will probably be higher in North America than which will draw even more work here. I think all three countries will ultimately benefit over the next few years.

All right, thanks for the answers. I'll pass the line. Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by the number one on your touchtone phone. If you are using a speakerphone, please make sure to lift your handset before pressing any case. Your next question comes from the line of Brian Morrison from TD Cohen. Please go ahead.

Good evening. I just want to follow up on the questions with respect to Q4. I appreciate that you've had a very strong year's date in Q4. There's some lumpiness in it. But when I take a look at the mid to high end, it implies sort of a 5% or lower margin for Q4. What's the largest component of the ones that you listed? Is it the commercial vehicle sluggishness or the novellus fire that's impacting you the most in Q4?

Yeah, so the element of, let's say, reduction, I would say, mostly comes from the EV area. So the reduction in the EVs, quarter three to quarter four, has a very large impact for us. I mean, there are certain customers that we've got with EVs that are down, let's say, 10%. And then we've got one on the far end. Far end is over 80% reduction. because of some of these pre-buys which took place because of the expiry of the U.S. credits.

As far as Edwins are concerned. I also just want to add, I said it earlier, just the commercial settlements. We're going into the end of the year. We've got a number of them that are still in progress. We're not going to back ourselves into a corner, so we don't want to lock ourselves into a particular band. We'll make the right deal, and whether it pops in in fourth quarter or the first quarter, second quarter next year, we're going to do the right thing. So I think based on what we see here today, I think Peter said it, we are expecting for the year to be in the upper half of our guidance range based on our year-to-date performance and what we see. But there are obviously some puts and takes potentially as we close out the year.

I think if you look at a number of suppliers, not that many, but some suppliers have raised their guidance and We're all in the same market, as Pete said. We're all servicing the same customers, and we're all dealing with the same disruptions. The likelihood is there's a settlement at hand, and that's really the easiest way in the fourth quarter, given the current conditions in the industry, to raise your cousins.

Right, right. Okay, let's look forward for a moment, because there was a disclosure in your press release earlier that said you expect 2026 margins to be higher. I wonder if you can just talk to me about what your North American production assumptions are in that commentary. I believe that you should have at least 50 basis points from operating efficiencies that are defaulted to the bottom line. Like there are many key drivers here, whether it be improved contract pricing, whether it be your operating efficiencies, whether it be machine learning that you're doing very well at, like what kind of cadence should we look at or like, in terms of improvement year over year. I don't want to box you into a corner, but it does seem like 50 basis points should kind of be a minimum threshold.

Oh, yes, you do. Oh, yes, you do. Rob, I want to back you into a corner. Maybe you can do it.

I think you laid out a lot of really good things there. There's still some uncertainty, obviously, with the tariff discussions and so forth. In terms of overall volume, I believe most people are assuming lower production for next year in North America. We'll have to see if that's correct. I personally believe that that's conservative, but those are numbers that we're seeing, and I think that they don't necessarily factor in the reshoring or the new shoring or whatever you want to call that I think is going to happen, which I talk generally. But I think those numbers are kind of there. In terms of what the other guys see, I'll turn it over to Peter and Fred.

So like we've said in previous calls, we see a flat market based upon the 25 to 26 in terms of the market assumptions, just based upon what everyone else is looking at as well. So we based our North America production number at 14.5, 14.7, somewhere in that range. So that's kind of where we see the business. As far as opportunities, we've talked about these as well. With the challenges in EV, Brian, we are seeing new inquiries on propulsion product for engine blocks and so forth, which is something refreshing, and that's a very good business for us, especially in the aluminum product lines. So we see some benefits there to offset some of that flatness, if you will, that you see from the EV challenges.

What we will do is we typically do is at our year end, which we'll announce the end of February or first week of March this year, is we'll try and give a sense of the year that we see, which includes cash flow revenues in March.

Yeah, and I think it goes back to the earlier statements on the call today from Fred and Pat and myself. It really depends on some of what we're working through here in the fourth quarter with the commercial negotiation, right? To get the right deal, maybe it falls in the quarter one. It depends. Yeah.

Okay, I appreciate that. Last question, free cash flow for next year. You're establishing a pretty good track record here. I'm just wondering what the nearshoring opportunities that you have, if we should think of this surplus free cash flow as it gains momentum later this year and in the next, whether we should think of it more being allocated towards potential opportunities, takeover business opportunities. or I did hear you say, Rob, that you will be active with your NCIB to a certain extent, but should we really think that maybe there's just more opportunity to take over business in the near term?

I think so. We hope so. We want to grow our business with the right opportunities, help customers build deeper relationships with existing customers, and benefit from that trend. So we invest in the business first, the technologies related to the business. We think there's opportunities out there And the Lyceum that we talked about was very difficult, very messy, but at the end of the day, it's a nice chunk of business. We've got a new plant in the U.S. We'll fix it, and we've got a much deeper customer relationship with a great customer.

I think there's another benefit here also to think about. If you recall, over the years, we've talked a lot about our flexible equipment and how we've been been able to carry it over into other programs. And with the EV downturn and the excess capacity, some of this takeover work doesn't necessarily mean a big tax on capital. So I wouldn't say necessarily a direct relationship like new business might be. So I think we can actually make some really good deals and bring in new work.

And I assume those new deals, Pat, will have contract restructuring within them as well in terms of pricing to ensure that your hurdle rates are met and your margins are maintained.

I would say consistently that's happened, yeah.

That would be a great deal that we do in that space, let's say. Thank you all. Thank you.

Your last question is from the line of Michael Glenn from Raymond James. Please go ahead.

Okay, I just want to follow up on the takeover work and the bidding exercise. Can you characterize what the bidding, were there a number of bidders lined up for this asset? Just trying to get a sense as to what the competitive set looks like when you're trying to pursue some of these deals.

So this happens a couple different ways. In the Lyceon deal, it was kind of interesting. We've started a a little side business where we're helping people in manufacturing improve their floor and their efficiencies and so forth because, as you guys know, we've brought a lot of lean people in over the years and educated our folks in the same light. So a company hired us to go in and see what we could do to help them out, and we spent a couple weeks there, gave them the list, here's what you need to do and here's what we can help you do, and They came back a week later and said, you know what? We think we're out of our league. Could you guys buy it? And that's pretty much how that deal went down. In other cases where we have takeover activity happening in discussions, nine times out of ten, the customer will come to us and say, hey, supplier X over here is struggling. We need some help. Would you be willing to help? That may be a purchase of a plant or just a movement of work. based on our open or capable capacity. So it can happen usually one of those three ways when it comes to takeover work.

And I guess, you know, Martin Rea, the history of the company has been put together by pursuing a number of these types of acquisitions over time. How has the approach to these types changed? of transactions change now versus what it might have looked like 10 to 15 years ago? Has there been a change at all?

Yeah, I think there's been a change, but historically, of course, we wanted to build a footprint when we said build or buy. A lot of stuff we purchased was insolvent or close to or perhaps should have been insolvent, and that's how we built our footprint in the U.S., for example, and also the aluminum business. I think that Here we're looking at it on a job basis. We aren't necessarily looking for something that's in distress, but often there is an issue that the customer has with the supplier when they're asking us to work on something. It's not necessarily that the job is a bad one or that the customer is insolvent. At the same time, we're willing to look for good things too, right? And I think that there are, we're in an industry that the pricing actually is not as bad as it used to be, so we would look at situations like that too. We are not committed to basically saying we want to look for insolvent companies where we have to put a lot of capital and it's going to take five years to turn around and all that type of stuff. 15, 20 years ago, That's what was there. That's what we did. The Lycian situation, for example, is a very quick turnaround situation. We expect that to be accretive within the first 12 months, and that's a good position to be in. Some of the things we bought in the past took longer.

I would also argue that we're a lot better at fixing things faster today than we've ever been. We've learned a lot.

Okay. Thank you for taking the question.

Thanks. Thanks for asking. Any more questions? I'm sure.

There are no further questions at this time. I would like to turn the call back to Mr. Rob, but we'll debar for closing comments. Sir, please go ahead.

Thank you very much for taking part of your evening with us. Really appreciate your time and work getting to know us and spreading the word on us. If anyone has any further questions, please feel free to contact any of us or Neil Forster. Happy to answer your questions, and have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.