Exco Technologies Limited

Good day and thank you for standing by. Welcome to the Xcode Technologies Limited fourth quarter results 2021 conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Darren Kirk, CEO of Exco. Please go ahead.

Thank you, Gigi. Good morning, ladies and gentlemen. Welcome to Exco Technologies' fiscal 2021 fourth quarter conference call. I am Darren Kirk, CEO of Exco. I will lead off with an operations overview. Matthew Posno, our CFO, will then review the financial results before we open the call for questions. Before I begin, I would like to make some comments about forward-looking information. In yesterday's news release and on page 2 of the presentation that we have posted to our website, you'll find cautionary notes in that regard. While I won't repeat the contents, I want to emphasize that the cautionary notes apply to this discussion today. So, it was a challenging quarter, but we performed well, producing $0.18 of earnings per share. I must say our performance stands out against much weaker results shown by many other automotive suppliers in the current environment. It is a testament to what differentiates Exco, which I think is vastly underappreciated by the market. Our quarter capped off a year in which our results were also very decent, despite severe macroeconomic headwinds that saw microchip shortages and broader supply chain challenges forcefully restrain global automotive vehicle production. As well, we managed through rising input costs and a stronger Canadian dollar, which further crimped our results. Despite this, our full-year sales were up 12% compared to fiscal 2020, and we delivered $0.98 of earnings per share, a 42% improvement compared to $0.69 last fiscal year. I want to thank all of my EXCO teammates for their fantastic efforts and, of course, commitment to working safely through such extreme circumstances. Beyond our financial results, in fiscal 2021, we bolstered the foundation that will drive our future growth once current constraints inevitably ease and as the electric vehicle revolution continues to take hold. We promoted our core EXCO values, we enhanced our employee code of conduct, and published our first sustainability report. But we also secured sizable program wins, realized significant productivity gains, and mapped out investment plans and a growth agenda that we expect will enable our revenue, EBITDA, and EPS to more than double in the next five-year period. Our businesses directly support the electric vehicle revolution and worldwide movement toward reducing emissions. Consequently, as the world continues to push toward social and environmental sustainability, The future for our products has never been brighter. An increase in the use of aluminum across many industries is the primary driver of this tailwind, particularly in the automotive industry, our primary end market. One key trend that will continue to benefit EXCO is the increasing size and complexity of die-cast aluminum components. Tesla has really pushed the envelope on this front using massive gigapresses, which are much larger die-cast machines than those used previously. This enabled Tesla to cast entire subframes of the vehicle in one shot with gigacastings, rather than assemble numerous stamped metal components in the body shop, creating significant space and manufacturing efficiency gains. The tooling required to facilitate this process is very large and extremely complex, limiting the number of players able to compete effectively. Our cast tool division is already the primary supplier of all shot end tooling for Tesla's gigapresses globally. This provides a clear indication of the depth we have in the design and know-how required to meet the challenges of the industry. We expect traditional OEMs will follow Tesla's lead in using these larger die-cast machines as they transition to an EV future. Consequently, we are making significant additional investments in our people, equipment and processes to remain a leading supplier. Our aggressive capital agenda within our casting and extrusion segment is aimed at capturing growth from this development, but from higher expected demand for extrusion tooling across many industries. These investments are especially evident in our Cast Tool division. In November 2021, Cast Tool celebrated the opening of its latest production facility in Kenitra, Morocco. This new facility will enable Castool to better serve its customers in Europe, the Middle East, and Africa while providing increased capacity to meet market demands. Other projects within Castool include a new energy-efficient heat treatment plant located in our existing new market facility, which is expected to begin operations in the spring of 2022. This new equipment will be the largest in North America, providing us with unique capabilities for our internal needs. As well, Castool is moving forward with the construction of a new greenfield facility in Mexico, which will further increase manufacturing capacity and allow us to better serve the local market in Latin America, Mexico, and southern U.S., During the year, our large mold group made several investments in new equipment to harmonize its manufacturing processes within the group, further improve its efficiency, and better position us to capture growth in the very large die-cast segment. Installation of this equipment has commenced and will continue throughout fiscal 2022. In addition, our board approved three new projects in fiscal 2021 to enhance the extrusion group's heat treatment capabilities. All of these investments will further minimize our environmental footprint, enhance quality, and enable a reduction in lead times once completed in fiscal 2022. In our automotive solution segment, we are adding 40,000 square feet of manufacturing space to accommodate the launch of several new key programs. These programs will together contribute annual revenue in excess of $65 million once fully ramped up by the end of fiscal 2022. Over and above this growth, we expect to maintain our longer-term track record of content per vehicle growth in the 5% to 10% range. Of particular note, much of the segment's growth is being driven by content on electric vehicles, which are exceptionally well suited for our products. In total, we expect our capital spending will approximate $55 million in fiscal 2022, of which $43 million is for growth initiatives. With the benefit of these investments, we expect to achieve substantial growth in the years ahead. As detailed in our last quarter, over the next five years, EXCO is targeting a compounded average annual growth rate of approximately 10% for revenues and slightly higher levels for EBITDA and net income. If achieved, as we expect, EXCO's annual revenue would grow to $750 million and generate EPS of roughly $1.90 in fiscal 2026. Turning to the quarter and looking first at our automotive solution segment, overall vehicle production volumes in North America and Europe were materially lower year over year. Nonetheless, our foreign exchange adjusted segment revenues were only down a tick and again exceeded industry growth by a significant margin. This reflects continuing gains in our content per vehicle at levels well above our historical track record. On both a year-over-year and sequential basis, our segment revenues were down slightly, but well below levels we would have otherwise expected this quarter. This shortfall is mainly due to reduced vehicle production volumes as OEMs continued to be crimped by the shortage of microchips. As a result, North American and European vehicle production in the quarter was 25% to 30% lower than a year ago. Consumer sales were similarly constrained by the lack of supply, while sales incentives are declining and dealer inventory levels are now at record lows. This bodes well for a sustained period of higher vehicle production volumes once microchip supply issues ease, which we expect will begin to occur in the next couple of quarters. New program launches contributed to our results this quarter. and we also have high amounts of content on several vehicle models that are outperforming market trends. We did launch one additional key program this quarter, which will continue to contribute strongly to our results in the quarters and years ahead. Quoting activity has slowed somewhat, but remains decent. We are seeing a number of important wins and sizable new opportunities, particularly with electric vehicles for both new and established OEMs. On the cost side, our margins were relatively stable compared to Q3, but did slip from Q4 last year due mainly to reduced overhead absorption arising from lower vehicle production volumes. As well, we faced foreign exchange headwinds and heightened fluctuations in forecasts versus actual order releases again this quarter. This occurred as our customers juggled their own production schedules in response to the chip shortage issue. These challenges were pushed down to the supply base and placed strain on our production planning process. Moreover, raw material cost increases picked up further, and we faced various supply chain challenges of our own. These elements required us to be nimble and absorb a lot of extra costs related to overtime, material substitution, and expedited freight. In our casting and extrusion segment, we again had terrific results. Demand was strong in all three of our segment's business groups. As I've mentioned several times before, the automotive industry's transformation towards electric vehicles and focus on reducing emissions is extremely positive for EXCO's tooling business. We certainly saw the benefit in our results again this quarter. As OEMs make the change to greener vehicles and strive for greater manufacturing efficiency, There is an increased use of light metals and the demand for our associated tooling. There is also increasing demand for technical expertise at the supplier level as products become larger and more complex. This plays right into our strength. Again, as mentioned, Tesla with its Gigapress is a good example of this as they are now producing die-cast components that are much larger than anything produced previously. Castool is the primary supplier for much of Tesla's shot-in tooling for its gigapresses and expects to expand this relationship as Tesla ramps up its new facilities in Texas and Berlin any week now. More broadly, we also expect to benefit from the trend toward larger and more complex castings across the industry as traditional OEMs inevitably pursue a similar process. In addition, there is a heightened focus on efficiency by all manufacturers for sustainability initiatives, that will be very positive for the entirety of our tooling business. The extrusion market remains strong this quarter with high demand across the vast majority of end markets. Our extrusion tooling ultimately supports a diverse range of applications including residential and industrial building and construction, solar panels, consumer durable products, and various modes of transportation. This quarter, we again demonstrated we could keep up with sizable demand growth by utilizing equipment and labor more efficiently while leveraging the harmonized manufacturing process of our numerous group facilities. With regards to the latter, this initiative has allowed us to centralize certain processes such as programming and design and utilize our capacity on a network basis. All of this keeps our cost low, capacity high, and provides us with the ability to manufacture a quality product in a standardized manner. We are making significant strategic investments to further shrink lead times and drive down our operating costs by insourcing more of our own heat treat requirements, all while reducing our environmental footprint. Our large mold group performed well on the top line this quarter, although still suffered from reduced rebuild work due to lower automotive production. We did, however, have a number of program wins that will benefit future quarters. We are very bullish on the outlook of this business, given the growing demand for large and complex die-cast components, coupled with our leading market position, full service capabilities, and view that supply chains will become more localized over time. As well, our additive business continues to perform strongly and is a critical differentiator, providing us with an unmatched competitive edge. This business is now contributing strongly to our results, and we are very optimistic on where this business will go. Despite rising input costs, segment margins benefited in the quarter from absorption gains driven by higher sales, but more so by efficiency gains in the usage of both material and labor. This progress in part reflects our past and ongoing sizable investments in new equipment. But again, it is really driven by our people who continuously rethink the way of doing things and who push the envelope on innovation and product performance. So in summary, we had a decent fourth quarter in year. Despite the significant challenges we all face today, we are very well positioned to build on our results in the years ahead. With all of that, we know these goals can't be obtained without the dedication of our people. I'd again like to thank the entire team at EXCO for their focus, hard work, and immense flexibility during the past quarter and year. That concludes my operations overview. I will now pass the call over to Matthew to discuss the financial highlights of the quarter and year.

Matthew?