Alight Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 11 speakers on the call.

Operator

Good evening, ladies and gentlemen. Welcome to the Martinrea International First Quarter 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.

Operator

Please go ahead, sir.

Speaker 1

Good evening, everyone. Thank you for joining us today. We always look forward to talking with our shareholders, We also note that we have many other stakeholders, including many employees on the call, and our remarks are addressed to them as well and our CFO, Fred Di Tosto. Today, we will be discussing Martinrea's results for the quarter ended March 31, 2023. I refer you to our usual disclaimer in our press release and filed documents.

Speaker 1

Powell will speak, then Fred, then me, and then we will do some Q and A. And now here's Kai.

Speaker 2

Thanks, Rob. Good evening, everyone. As noted in our press release, we generated an adjusted net earnings per share of $0.54 and adjusted operating income of $75,000,000 in Q1, up approximately 7% over the previous quarter and 70% year over year compared to the Q1 of 2022. Production sales came in at $1,240,000,000 up 6% over the previous quarter and 12% year over year. Adjusted EBITDA of $153,000,000 was another quarterly record for the company.

Speaker 2

Adjusted operating income margin came in at 5.8%, A step up from the 5.5% we generated in Q4, reflecting a lower level of tooling sales, which typically earned lower margins for the company. Overall, our Q1 performance was solid in the face of some ongoing challenges. Most notably, production volume instability continued to be an issue in the Q1 as we experienced production disruptions With some key programs having long periods of unplanned downtime due to supply issues affecting multiple plants and multiple locations. While our overall production sales improved, sales and margins were below what they otherwise would have been in a smooth environment, thereby delaying progress To an extent. Of course, we continue normal improvements in our operations despite these ongoing supply chain disruptions.

Speaker 2

We also continue to face inflationary cost headwinds, although improved in some areas of the business compared to last year. Efforts to offset these inflationary costs commercially are ongoing and will likely continue for the foreseeable future As we try to find ways to counter the headwinds being created by the instability in

Speaker 3

the current

Speaker 2

environment. Looking forward, we continue to expect 2023 to be better year over year with higher production volumes, margins and free cash flow compared to 2022. Our 2023 outlook is unchanged. As a reminder, this outlook calls for total sales to be between $4,800,000,000 $5,000,000,000 Adjusted operating income margin to be between 6% 7% and free cash flow to be in between $150,000,000 $200,000,000 As you know, we are particularly focused on free cash flow and we're excited about the prospect of ushering in a new phase in the evolution of our company, Establishing ourselves as an effective and consistent generator of free cash flow. Looking at our global operations in North America, Our adjusted operating income margin improved by 190 basis points quarter over quarter in Q1 on higher production sales and favorable commercial settlements with our customers as well as a lower level of tooling sales in the quarter.

Speaker 2

We are operating at a healthy margin level in North America, and we are seeing The expected benefit from the normalization of launch activity and ramp up of volumes on new programs, although OEM production volume instability continues to be a challenge. Turning to Europe. Adjusted operating income was essentially a breakeven in the quarter, A notable decline from our prior quarter, reflecting a lower level of commercial settlements, uneven production schedules with key customers and some operating issues, Partly due to launching multiple programs concurrently. You will recall that in Q4, we concluded several commercial agreements in favorable terms related to the recovery of 2022 energy costs, which had a positive impact on our margins in this segment in Q4. While the expected recovery in our European results has been somewhat uneven, we expect volumes to level and results to improve in the coming quarters.

Speaker 2

In our Rest of World operations, a small portion of our overall business representing Approximately 3% of our Q1 production sales, adjusted operating income declined quarter over quarter given lower than expected production volumes in China with This was partially offset by indirect cost recoveries in Brazil. At this point, production volumes in China are not are trending as expected. As a result, we are working with our customers to address the issue. I'm pleased to announce that we have been awarded $70,000,000 in new business since our last call, consisting of $50,000,000 in our Lightweight Structures Commercial Group on GM's new electric pickup truck And $20,000,000 in our Propulsion Systems Group with GM and Tesla. Since the beginning of 2022, we have secured approximately $250,000,000 in new business in addition to being awarded another $250,000,000 in replacement business.

Speaker 2

We are winning an increasing amount of work on electric vehicle platforms and have launched or will soon be launching programs including the Mercedes Benz EBIT2 platform, GM's new Bed 3 and the EV pickup truck and the Audi PPE among others. Some of this work is complex Over the next year, we expect a quarter of our sales to come from ED or hybrid programs, and we see this potentially growing to half of our sales over the next several years. At the same time, we continue to see internal combustion engine vehicles as an important piece of the market In the foreseeable future. As those who have been following our story are aware, our business is largely agnostic to the propulsion type, Which means that whatever pace the transition is to EVs, our products will remain relevant. Lastly, I wanted to touch on for an aggregate equity consideration of $10,000,000 paid in NanoXplore shares, Resulting in a gain on disposal of $5,300,000 as reflected in our financial statements.

Speaker 2

Post transaction, NanoXplore now owns 100 percent of the equity in the intellectual property in Volatile Explorer, And we increased our equity ownership in NanoXplore from 21.1 percent to 22.7%. We also extended our existing agreement with NanoXplore by another 5 years or to 2,033. Over the last 2 years, Martinrea and NanoXplore partnered to construct and launch a demonstration facility showcasing the value proposition of graphene enhanced lithium ion batteries. Together, we created value within the joint venture. Now as Volta Explorer looks to take the next steps towards building a battery facility, including securing financing commitments, the JV partners decided that it is in Volta Explorer's best interest to engage with partners that can offer a deeper level of financial support.

Speaker 2

From Martinrea's perspective, we concluded we are not interested in building a battery plant based on our capital allocation strategy being focused elsewhere. We continue to believe in Graphene and all its benefits. While we have decided not to actively participate in the construction of the battery plant, We will still see a benefit from any success at Molto Xplore through our enhanced equity position in NanoXplore and we will also continue to work with NanoXplore to develop graphene based solutions within Martinrea. Due to the mandate we have set out for Martinrea Innovation Development or MIND, We have helped Voltix FLORRIS through the incubation phase with operational support, manufacturing know how and financial commitments That has enabled the joint venture to establish a demonstration facility and prove its technology. With the Volta Xplore demonstration facility now established, we wish the team the best as they continue to capitalize on this exciting technology.

Speaker 2

We are happy to continue to be along for the ride through our equity stake in NanoXplore. In closing, I'm very happy with the work Our team is doing. The challenges our industry continue to face from supply chain shortages, production disruptions and cost inflation have persisted for longer than anyone could have reasonably expected. Our people have persevered keeping focus and doing the hard I want to sincerely thank and applaud our people for all of their efforts. With that, I'll pass it to Fred.

Speaker 4

Thanks, Pat, and good evening, everyone. As Pat indicated, Our financial results in the Q1 were solid with adjusted EBITDA setting another quarterly record. While our company and the auto industry in general We have made and are making progress in offsetting these headwinds, improving our margin profile through strong operational execution and commercial activity. We expect further improvement over time as supply chain disruptions subside, inflation normalizes and production volumes smooth out. As Pat noted, our outlook is unchanged, which calls for higher year over year production volumes, sales, margins and most importantly, free cash flow in 2023.

Speaker 4

Taking a closer look at our performance quarter over quarter, production sales increased 6% on higher production volumes. As Pat noted, we continue to experience production related volume disruptions in the quarter impacting results. Although overall volumes are up quarter over quarter, volume instability did not really improve. Volumes and volume instability are expected to improve in the coming quarters And production should continue to trend higher, although given the continued volatility in the environment, it is unclear what pace and shape that expected improvement will take. Adjusted operating income margin came in at 5.8%, better than the 5.5% we generated last quarter, due as Pat noted to a lower level of tooling sales during the quarter, which tend to earn to low margins.

Speaker 4

Adjusted earnings per share was $0.54 in Q1, lower than the $0.58 generated in Q4 And reflective of unusually low tax rate and a $3,000,000 foreign exchange gain in the 4th quarter, which is now repeated in the Q1. Normalizing for FX and the tax rate, adjusted EPS in Q4 2022 would have been $0.52 This was not unexpected as we typically build working capital in the Q1 and release it through the remainder of the year. We expect to generate positive free cash flow in the coming quarters as our 23rd look complies, driven in part by lower CapEx In line with depreciation and amortization as a percentage of sales. We note that cash CapEx was essentially in this range in Q1 and a significant improvement over Q4. Looking at our performance on a year over year basis, 1st quarter adjusted operating income of $75,000,000 was up 70% out of a low point in our industry when supply related production disruptions were at their worst.

Speaker 4

Still, the strong year over year performance is nice to see, especially Free cash flow, which was negative $52,000,000 in Q1 of 2022 compared to negative $32,000,000 in Q1 of 2023, a nice improvement. We expect further gains over the balance of the year as we deliver on our 2023 targets. Turning to our balance sheet. Net debt increased by $47,000,000 quarter over quarter to $956,000,000 in Q1. The increase was driven by a seasonal increase in working capital as noted earlier.

Speaker 4

Our net debt to EBITDA ratio continued its downward trend ending the quarter 1.9x, down from 1.95x at the end of Q4 of 2022 and 2.43x at the end of Q3 of 2022. We are at a comfortable level, well below our covenant maximum of 3 times. Our leverage ratio should naturally improve in the coming quarters Generate an increasing amount of EBITDA and free cash flow. We expect to continue to trend towards our target range of 1.5 times plus or minus over the coming quarters. A portion of our free cash flow will go towards debt repayment.

Speaker 4

We have noted publicly we also put a normal course issuer bid in place Late last month, and our expectation is that we'll be buying back some stock at these levels over time. And with that, I now turn it back over to Rob.

Speaker 1

Thanks, guys. I have only 2 points to cover, I'm going to be brief. I know it's Stanley Cup season. There's some good hockey to watch tonight. So let's get to it.

Speaker 1

One is the resilience and strength of our Martin and Ryan team. I want to talk about hockey. Last Thursday, I was at the Leaf playoff hockey A four-two loss by the Maple Leaf to Tampa Bay and an elimination game for Tampa. I was disappointed. I came home and there were my 2022 tax forms for me and my family members.

Speaker 1

And before I went to bed, I reviewed them. I know what you're thinking, What a loser. But I got the work done. The next morning, I was reflecting and told my son, Sun, there are 3 certain things in life: death, taxes and Maple Leaf playoff collapses. It even rhymes.

Speaker 1

By the way, I'm very happy the Leafs then broke the traditional collapsing in the 1st round. But then I was thinking hockey is a sport played by men, at At least in the NHL, we're really grown up boys playing a game. There's work and sacrifice and challenges and tough losses And sometimes great results. There are losers and there are winners and frankly, there are many more teams that don't win their final game. Success in this sport comes from teamwork, working together to achieve results, learning from mistakes, resilience, And then I was thinking about our team in Martinrea.

Speaker 1

Last year on this call, I spent some time talking about the world we live in Two characteristics of our team, resilience and entrepreneurship, 2 of our leading qualities. Entrepreneurship means ownership. We own what we do. So then I thought about us as a sports team. I believe someone has said business Is the ultimate team sport.

Speaker 1

Whether the ultimate sports, I don't know, but it is certainly a team sport. And we at Martinrea are really, really good at our We excel in what we do. Industry leading safety statistics, tremendous growth over the pandemic. We can make anything well. We supply shortages, high levels of sales, earnings, operating income margin, EBITDA margin, leading many of our peers.

Speaker 1

Pat and Fred went over the results and frankly, they're really good. Our team at Martinrea is resilient. Our team culture is outstanding. We find ways to get things done. We do not have playoff collapses.

Speaker 1

We don't choke. When the going gets tough, we dig in and perform. Our people show up every day, every game. You will get our best. We are winners.

Speaker 1

I'll put the character of our team at Martinrea up against any sports team. If you don't believe us, ask some of our competitors if we're good competition. I believe we are very tough to beat at what we do. And one more thing, we love this game. We love what we do and we excel at it.

Speaker 1

You know our history, time doesn't permit, but I'm happy anytime To give a blow by blow of our history over the past 20 or so years, where we've been one of the fastest growing companies in our industry, and we are stronger today than we have ever been. Are winners in the infinite game of sustainable business. The second area I would like to address briefly is our upcoming shareholder meeting. Our AGM will occur on June 6 and proxy materials will be posted shortly. The message to shareholders is to me an important one.

Speaker 1

It reminds all of us of our culture and its strengths, highlights of the past year and our approach to governance. These are important messages for Now it's time for questions. We see that we have shareholders, analysts and competitors on the phone, But also employees, so we may have to be a little careful with our answers, but we'll answer what we can. Thank you all for calling.

Operator

Thank you. We will now take questions from the telephone lines. Our next first question is from David Ocampo from Cormark Securities. Please go ahead.

Speaker 3

Thanks. Good evening, everyone.

Speaker 5

Good evening.

Speaker 3

You guys talked about and touched on that you guys are still experiencing production I was just curious if you guys can quantify if we are 10%, 50% or 75% of the peak that we saw last year. And I guess I'm just trying to get a sense on when you guys can start reinstating your quarterly guidance numbers?

Speaker 6

Quantifying the impact of the volume instability is actually quite tough to do because it's in various places, various programs. It's not necessarily full week shutdowns anymore, which was a common theme back in 2021 and parts of 2022. It's also just lower volumes. We enter in the week thinking that the customer will pull X and they end up pulling X less a certain percentage. So I'm not going to go there, but needless to say, it's been an impact on us and continue to be 1 in Q1.

Speaker 3

And I guess you guys don't have enough visibility for the Q2 to provide any quarterly numbers there?

Speaker 5

We actually We like the idea of not doing quarterly guidance and seeing what you guys are doing with your and you guys are good at it. So in that context, there's it's not just chips. There's some other things and We may have a UAW strike in the second half of the year or whatever. I think we'll probably resolve that. There's always something, but overall, the trend line, We say is up into the right despite what we're seeing with interest rates, which we think was ridiculous for the Had to raise rates in the U.

Speaker 5

S. Again. I think at some point they're going to realize that. But the underlying economy in the United States is good. There's pent up demand.

Speaker 5

The April SAAR numbers were really quite good. So there's a lot of positive stuff. And As there is demand there and as we work through production issues, we'll smooth out a number of those things. It's better than it was before. We think it's going to get better and we'll see that as we go month by month.

Speaker 2

Yes. I would say that most of the disruptions are not chips. There are other supply issues that were below the water during the chip Issues and we discussed that this is probably somewhat predictable though it seems to linger Longer than we expected. But it's not I would argue it's not primarily chips anymore, at least not that What we're seeing.

Speaker 3

Got it. That makes sense. So then Fred or Pat, I mean, you guys have At least for the last few quarters, I've been announcing quite a bit of EV awards. I guess I'm curious, the content per vehicle on those platforms, are they Greater than what you would have otherwise experienced for ICE. I'm just curious about the margin profile in those awards as well.

Speaker 3

Are they consistent with the overall Business of the 6% to 7% or are they materially higher?

Speaker 2

I would say in our lightweight structures group as far as the Type of parts, the assemblies and those types of things are very similar. Differences in design a little bit, More unlike materials, more aluminum, more castings, more high strength steels Then we would see otherwise, but the basic design if you look side by side are very similar until you get close and realize one's a lot later.

Speaker 6

I think from a margin perspective, broadly speaking, of course, there's always some anomalies both up and down, but Our expectations are that the margin profile and returns are going to be similar for these investments in EVs. So going forward, you shouldn't expect any huge Variation. As Pat noted, some of these products are a little bit more complex. So in those type of situations where you got more value add, you potentially can make more money. But ultimately, generally speaking, we're targeting similar margins and returns.

Speaker 3

That's perfect. That's my two questions. I'll pass the line over.

Speaker 5

Thanks very much.

Operator

Thank you. Our next question is from Michael Glen from Raymond James. Please go ahead.

Speaker 7

Hey, good evening. So Pat, if I'm circling back to the last conference call, The 4Q conference call. You described Q2 during that call as a real test of Everything that you've been put in place and all of the efforts you've been putting together. So as I think of the way Q1 transitions into Q2, are you Still expecting us to see some of these some more significant contributions come in To play in terms of how we progress towards that 6% to 7% margin?

Speaker 2

I think we'll see some progress, But the fluctuation from the customers, I can't predict. Unfortunately, I would tell you it was greater in Q1 than anticipated, I think than most anybody anticipated. So if production smooths, certainly I think Q2 is Yes, going to be a good quarter. If it continues to be bumpy, we'll have to adjust based on that bumpiness. Now also what I had said, if you recall is Prior to the pandemic, Q2 was always the high volume quarter annually.

Speaker 2

But during the pandemic, that was not the case. So one of the questions or thoughts was, you know what, at some point, it's going to start looking more normal again and Q2 will be a higher It will be the highest quarter out there. I don't think it will necessarily be the highest quarter this year, based on what we're seeing, but I think it will be a better quarter Than what we've seen as far as the customer goes. And we've seen some more consistency in some The plants that were disruptive in the Q1 already this quarter, but we're not even halfway through it. So we'll have to wait and see.

Speaker 5

Yes. It used to be Q3 was the weakest quarter. That hasn't been the case in the recent past And I don't think you can predict that this year. We think Q3 could be quite strong too.

Speaker 2

Yes. I do think in time, it will start look more like it did before the pandemic. But a lot of these disruptions that are being seen when you start to whittle away It boils down to, in a lot of cases, manpower. Tier 2 and Tier 3s, in particular, don't in a lot of places, U. S.

Speaker 2

Being one of them, Have enough people to keep up with some of the demand. So the demand is there, but it's getting disrupted some.

Speaker 7

Okay. And then The second question, just you talked about the potential margin profile on these SZV platforms ramp. But On the other side of that, can you talk about which visibility do you have on what your margins on the legacy platform?

Speaker 6

We're anticipating some of these ICE platforms will likely get extended, which we view as a positive because again they're mature platforms and which we're making Some good market margins on. So it's hard to tell how that transitions and takes shape, but We're comfortable with our current margin profile and we expect it to be similar, if not even better, as we get into the next transition to EVs and so forth. Yes. I think you'll see the

Speaker 2

Yes. I think you'll see the industry run-in parallel quite a while. And if you look at the strategy behind a number of the OEMs, they're running EVs in some plants and they're continuing to run nice in the other and they're kind of They know they're not going to both hit the highest volume, but they're going to shift over time and we're seeing that. So if the ice products last longer, I think that that's a I don't see that as a negative at all.

Speaker 7

Okay. Thanks for taking the questions.

Speaker 5

Have a great night.

Operator

Thank you. Our next question is from Brian Morrison from TD Bank. Please go ahead.

Speaker 8

Good evening. Just want to circle back to that last question. When you talk about the margin profile, should we expect sequential improvement throughout the year? Is that the message?

Speaker 6

That would be Yes, expectation, as supply chain disruptions subside and normalize and inflation Again, more relief on inflation so forth. That would be the expectation. Again, as Pat noted, it's really hard to predict where we're sitting right now, how that kind of takes shape, but the expectation progress throughout the year as some of these challenges improve.

Speaker 2

I can say it's getting better quarter over quarter. It's not getting as this isn't good English necessarily, but it's not getting as better as fast as we thought it would. It's taking longer.

Speaker 5

It's taking longer. And we're not necessarily saying because we got to work through the quarter and some of these things are lumpy including When there's downtime and that type of stuff that Q2 will be better than Q1, Q3 will be better than Q2, Q4 will be better than Q3. We think the trend line is up as we've said and there's a little bit of lumpiness in our industry and everyone's experiencing the same thing. We think we're in a good spot and we might have a quarter that surprises to the upside and one that's a little down because of the timing of some different things, but John, trend line is in the right direction.

Speaker 2

And some of the downtime we saw from some of our customers this past quarter were downright head scratchers. Nobody saw

Speaker 8

on the quarter and is that up and flowing for you again?

Speaker 2

The escape we supply from multiple plants in different parts of the world even And definitely, it was down longer than expected. And we've seen better performance from that Product this quarter already.

Speaker 6

And you'll note in our investor presentation, it is a top three platform for us or it is a significant platform.

Speaker 8

Right. That's why I asked. Thanks. And Pat, in terms of Europe, I'm not sure I caught the operating margin comment that you made. I think you said that it was down from Q4 due to Lower customer settlements during the quarter and more recoveries anticipated through the year.

Speaker 8

Is that correct? And Yes. So it's just clear.

Speaker 2

Yes. It was pretty much we had some very good tailwinds in Q4 for energy That didn't necessarily repeat this quarter to the same extent. We have seen some sales drop offs on some platforms. And then we've seen some increases in others, but overall, it's sort of down. We That will continue to smooth out.

Speaker 2

We're also launching in a couple of our plants over there, some, I'd say multiple launches in the same groups. And some of that's just natural headwinds, but those will pass. But the volume has been Bumpier over there than expected as well.

Speaker 8

Has there been any change in the process of inflation pass through?

Speaker 2

I'm going to say on the big picture, no, on the typical arm wrestling, it's longer in some cases than it did before, but generally precedents were set, indexes were provided or agreed to. So there's a model to follow, but the environment changes too. So if negotiating something like energy with a customer and then Germany came out with a new program, then it creates different type of animal that you have to wrestle Since it's new, some of those things still are unresolved, but will get resolved once everybody understands how to utilize the program. And it was intended to help customers and the supply base recover, the high energy costs as an example.

Speaker 8

Okay. Last question, Rob. You said you're going to be active with TNC. What is the driver of you

Speaker 2

getting active with this NCIB?

Speaker 9

Is it price? Is it leverage target?

Speaker 5

Yes. Well, a couple of things. I think 1st quarter is negative cash flow. It always is less negative Cash flow this quarter than the Q1 of last year.

Speaker 2

I think we'll be in the

Speaker 5

market. But at the same time, we want to generate some positive cash flow too. I think if you're looking at it from a shareholder perspective, If I was a shareholder, I'd say, I want to see the debt come down a little bit. I want to see some free cash flow. I want to make sure that you're taking advantage of some opportunities that you're taking advantage I want to see buyback some stock.

Speaker 5

So, how much we buy, we will sit and have a discussion. We do think that valuation is compelling at these levels. And you might say, well, everybody says that when they talk about a normal course issuer bid, but we'll be buying some this quarter. And as we buy, we've got to file basically on a daily basis so people can see that.

Operator

All right.

Speaker 2

Enjoy the game today.

Speaker 9

Thanks.

Operator

Thank you. Next question is from Peter Sklar from BMO Capital Markets. Please go ahead.

Speaker 9

Sorry, Pat. I know you've addressed Europe, but I just want to go back there because It kind of went from $10,000,000 of operating profit in Q4 to 0. You talked about Less commercial settlements in Q1 versus Q4. Is that what you mean by Q4 had a tailwind for energy? You had a Like you had some settlements, energy related or

Speaker 2

Yes. So and it was spread out through because this was the 1st round of negotiation Last year, so it wasn't just everything from that quarter. It was looking back over 2022 to some extent. So it wasn't like a hard and fast. This is what you get for the Q4.

Speaker 2

It was depending on the customer and different situations you had, different negotiations. And as you came into this quarter, obviously energy has gone down some, But the negotiations are ongoing partially because the program that the government put in place to help the situation, People are still trying to consume it and understand how it affects them through the negotiation. So We still expect to get recovery like we got last year, but some things are taking longer than they did in the Q4 of last year.

Speaker 9

Okay. And then in your commentary, I think you said there were some customer operating issues. What did you mean by that, that there was more Less volume or more expected downtime?

Speaker 2

Yes, I've talked about this a little bit in the past. When you get unplanned downtime and it's not 2 weeks, 3 weeks, it's not you don't see it coming. You still have everybody sitting in the plant. So all of a sudden you're down. You go for a couple of days and then they pick back up again on, no, let's work the weekend and make up some of the volume.

Speaker 2

So we wrestled through a lot of those issues This quarter again, we expected that to get better than last year and it is, but it is Taking longer to get leveled out than we anticipated. And I think you will probably hear Anybody in the supply base probably say something similar. They're expecting it to smooth out faster than it has, but it is getting better. I don't want I don't want to paint the picture that it's not. It's just, okay, guys, let's get on with it.

Speaker 2

But we don't see it coming sometimes and it's Something we just have to wrestle through. And so there was in this quarter, there were certainly some plants, Customer plants that got unexpectedly hit with some downtime that wasn't planned. And it drives your cost up in the supply base.

Speaker 9

Okay. So I think like you talked about that there like there are these supply chain issues. They're not Primarily chips anymore. So what are these issues that the suppliers are having where they're shutting down OEMs? Like is it labor or?

Speaker 2

Yes. I would tell you as we dug into it and talk to customers and you can't always get all the detail that you'd like to get, but I can tell you that there is still manpower issues, especially in the U. S. There are some in some other countries too, especially in the rural areas. But in the U.

Speaker 2

S, it's particularly notable still. It's better than it was last year. So as the volumes come up, even though it's better, a lot of the smaller suppliers are ones that can't pay as much Or in rural areas where there aren't as many people who are working are struggling to keep up. And of course, when they Can't supply the Tier 1 supplier or if it's a Tier 1 supplier that's having the trouble, of course, it affects all of us. And sometimes they don't see it coming because the suppliers doing its best to try to Keep the customer in parts, but they don't have enough people to manage the weekly volumes.

Speaker 2

So it's still a problem.

Speaker 9

And in Europe, what were the disruptions there?

Speaker 2

We saw some products Drop off, we've had launches in a couple of the plants, which that was expected that would be in some inhibitions in that. That's It's not like the launches during the pandemic where we couldn't move people around and have resources, but I would say it's typical launch activity. And then of course, we didn't get the level of recovery that we had gotten in the previous quarter. We do anticipate we're going to get recovery, But it's just taking longer.

Speaker 9

And when you talk about launches, are you talking about like the drag in your plant because you're launching or are you talking about the OEMs are launching And their production schedules are volatile.

Speaker 2

Some of it, it's us launching. In some cases, it's volume ups in a lot of cases or anticipated volume ups. It's interesting if you If you start digging into Europe, despite its drive toward electric vehicles, the ICE vehicles We're actually doing pretty well, as long as it's not a car, if it's an SUV or something like that. So we're seeing a lot of different behavior Then we saw last year even, but there are launches specifically on new products or additional volume on other products.

Speaker 9

Okay. And so overall, like is this situation going to improve in Q2? Or like can you make money in Q2? Or is it going to be more

Speaker 2

Faded it will that Q2 will definitely show improvement in Europe.

Speaker 9

Okay. And then just one last question On a different topic, I just noticed like on a consolidated basis, your SG and A, which was about 75 sorry, $78,500,000 That's really up from the quarterly run rate of last year, which was kind of $70,000,000 to $72,000,000 So Was there anything in particular there or this is just cost inflating and this is what it is now?

Speaker 6

Well, the biggest element of that Can point to actually our stock price because there's been a significant increase in our stock price. All the restricted share units and performance share units And deferred share units that are hanging out there saw a big mark to market bump. So that was I think close to $6,000,000 in the quarter in Q1. Okay. So that was Yes.

Speaker 5

If we could drive the share price down, then that number would come

Speaker 9

Okay. That's all I have. Thank you. Thanks. Thanks, Peter.

Speaker 9

All the best.

Operator

Thank you. Our next question is from Chris Dafrejian from CIBC. Go ahead please.

Speaker 10

Hi, thank you for taking my question. Maybe just to follow-up on the labor comment. How are you finding labor for yourself? Are you having difficulties sourcing labor or is that okay?

Speaker 2

We had I would say we had more difficulty middle of last year and we put a lot of programs in place In the communities in which we have plans, we tend to have a decent reputation of being a good employer and having a decent culture working with people in their particular areas like we have one community in one area that loves the work second shift. It's a particular culture within the town and so they are dominating a second shift and we work with them. Their holidays are different. So we manage around those kind of things. So we'll do those kind of things we're working with, a homeless shelter in Michigan And where we're taking people through a company that is run by one of our old general managers That to train homeless people, help get them back on their feet and through his temporary service, we put them to work And we've actually had some really good success with that.

Speaker 2

So these are things that you wouldn't have done 5 years ago maybe, but We're pulling out the stops and we're seeing some pretty good success. We're big enough to be able to do those types of things, but Smaller suppliers and smaller plants don't necessarily have the resources to chase all these types of things. And I think that's probably where most of these disruptions, But not all of them by any means are coming from. But we've really worked hard. We've got some really unique and innovative ways that we brought people back to work.

Speaker 2

We still have areas where we're short, but we're able to manage through.

Speaker 10

Okay, great. And then I just I wanted to ask a question on the OEMs. It sounds like most of the disruptions in the schedule Why are labor related? But have you heard of any ramping down just to control inventory like GM worked earlier this year?

Speaker 2

Yes, there's been there's definitely been some of that. So and I want to say that I'm speculating to some extent that it's a manpower problem because I'm hearing that noise in the system, But I haven't been told that by a specific OEM is suppliers don't have enough people, but from what I can see that that's what I believe. Related to controlled inventory reductions, absolutely, we've seen some of it. And I think it's going to be interesting to see what happens in the OEMs because they're all doing a pretty good job of maintaining a low inventory Obviously keeping the prices up, I think we looked at a chart today was 36 days on average where before the pandemic it was between 70 80 Typically. So they're managing that down.

Speaker 2

The question will be when the first OEM throws money on the hood In the past, it tended to be a follow situation and then they start pulling more product. We haven't seen that happen yet, but at some point that may very well happen. And then I think you'll see things Maybe never go back to where they were before, but certainly head that direction a little bit where you're discounting cars and so forth. Right now, they've done a pretty damn good job of maintaining their low inventory and keeping the prices high, and you can see it in their results.

Speaker 10

Sure. Thank you very much. I'll jump back in queue.

Speaker 5

Thank you.

Operator

Thank you. There are no further questions are registered at this time. So I'll return the meeting back over to Mr. Will de Boer.

Speaker 1

Thanks very much. Thanks very

Speaker 5

much for taking time on a playoff night. We had a great quarter, record EBITDA, high operating income. We probably got the EBITDA ratio and record sales and That's a good position to be in. We look forward to the future. We're very bullish about our industry and our place in it.

Speaker 5

If any of you have further questions or would like to Any issues concerning our company, please feel free to contact us and go live, go tonight. Thank you.

Operator

Thank you. Your conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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Earnings Conference Call
Alight Q1 2023
00:00 / 00:00