00:03 Ladies and gentlemen, thank you for standing by and welcome to Exco Technologies Limited First Quarter Results 2022. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] 00:31 I would now like to turn the conference over to your speaker for today, Darren Kirk, President and Chief Executive Officer. You may begin.

00:39 Thank you, Tuanda. Good morning, ladies and gentlemen, welcome to Exco Technologies fiscal 2022 first 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. 01:00 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 will find cautionary notes in that regard. While I won't repeat the contents, I want to emphasize that they apply to this discussion today. 01:19 So, it was a challenging quarter with several factors catching up to us. Lower vehicle production volumes due to ongoing chip shortage was the biggest contributor. However, labor disruption due to the greater spread of the Omicron variant, widespread inflationary pressures, inventory destocking, broader supply chain issues and logistical constraints also contributed. But I want to emphasize that while the quarter was challenging and while our results were well below our recent performance, nothing has changed fundamentally for Exco or our medium-term outlook. We expect much stronger results in the quarters ahead. 01:59 In fact, with that in mind, I'm very pleased to announce that yesterday our Board of Directors approved a 5% increase in our dividend to an annualized rate of $0.42 per share. This is the 14th time Exco has increased its dividend in the last 13 consecutive years. I'm not sure how many other companies have done this, but I do know it's a pretty exclusive club. 02:24 Despite current headwinds we remain encouraged by the underlying trends across our various businesses that will contribute to our future growth. I've mentioned several times before, the automotive industry's transformation towards electric vehicles and focus on reducing emissions is extremely positive for Exco tooling businesses. As OEMs make the change to greener vehicles and strive for greater manufacturing efficiency there is an increased use of light metals in the demand for our associated tooling. 02:58 There is also increasing demand for technical expertise at the supplier level as products become larger and more complex. More broadly, we also expect to benefit from the trend towards larger and more complex castings across the industry as all OEMs seem likely to pursue this playbook. 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. 03:30 In anticipation of these trends, we continue to make sizable investments in order to better position our various businesses to capture these opportunities. We are investing record sums of CapEx this year across several initiatives and we made great headway on advancing these projects during the quarter. By this point, I think the constrained supply of microchips impacting the OEM's ability to manufacture vehicles is well understood. Most industry players and analysts do, however, expect an improvement in supply as we go through 2022. IHS, for example, is anticipating a 17% increase in vehicle volumes in 2022 and a further 11% in 2023. 04:16 It is important to understand that underlying demand for vehicles remains strong. This is evidenced by record high prices for used vehicles, significantly depleted dealer inventories and an aging of the on-road vehicle fleet to historic levels. 04:32 Turning to the quarter, and first looking at our automotive solutions segment. Overall, vehicle production volumes in North America and Europe were down about 20% year-over-year. This drove our segment revenues lower, but we were additionally impacted by unfavorable vehicles and product mix shift, inventory destocking of Exco’s products in the supply chain, as well as our own operational and logistical constraints. 04:59 New program launches contributed to our results this quarter, including one key new program where we are supplying sizable content on a fleet of commercial EV vans. This program will begin to ramp up more significantly in our third fiscal quarter and continue for several years. Moreover, we will continue to ramp up several other new key programs through 2023 that will provide outsized growth relative to our historical performance. Meanwhile, quoting activity and new program awards remains very decent. We are seeing a number of sizable new opportunities, particularly with electric vehicles from both new and established OEMs. 05:41 On the cost side, our margin suffered from greatly reduced overhead absorption due to the lower volumes. Employee severance costs were also a factor, although we also carried extra cost as we have retained surplus labor in anticipation that demand levels will rebound in the coming quarters. Fluctuations in forecast versus actual order releases were again problematic 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 own production planning process. 06:18 Moreover, raw material cost increases picked up and we faced various supply chain challenges of our own. These elements required us to be nimble and also absorbed a lot of extra costs related to over time material substitution and expedited freight. Pricing remains tough in this business and there is limited ability to use this tool as a lever. We did, however, take pricing action where possible to recover higher input costs. We will see the impact of these actions in our second quarter. 06:50 In our casting and extrusion segment, our top line held up fairly well. In fact, we recorded modest growth over the prior year. The extrusion market remains strong this quarter with high demand across a number 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 the sizable demand growth by utilizing equipment and labor more efficiently, while leveraging the harmonized manufacturing process of our numerous group facilities. 07:30 With regards to the latter, this initiative has allowed us to centralize certain processes such as programing 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 manufacturer a quality product in a standardized manner. We are making significant strategic investments to further shrink lead times, drive down our operating costs and in-source more of our own heat-treat requirements, all while reducing our environmental footprint. 08:01 The die-cast market, which is driven by automotive production, however, softened materially in the quarter as lower vehicle production was magnified by inventory destocking. This negatively impacted demand for Castool's consumable die-cast tooling, while The Large Mould group suffered from reduced rebuild work. Nonetheless, we achieved a number of program wins that will benefit future quarters. In fact, we achieved record levels of order intake in our Large Mould group, ending the quarter with the highest backlog in our history. 08:36 We are very bullish on the long-term 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 tooling business continues to perform very strongly, contributing record levels of sales and order intake during the quarter. Additive tooling is a critical differentiator, providing us with an unmatched competitive edge. We are extremely optimistic on where this business will go. 09:12 Looking at the Casting and Extrusion segment margins, we experienced weakness this quarter from levels that we have otherwise come to expect. Segment margins were impacted by unfavorable product mix, rising input costs, higher freight charges and labor disruption due to COVID, all of which outpaced ongoing efficiency gains. As well, front end losses at Castool's new plant in Morocco added to the margin pressure this quarter as revenue was only started to be generated towards the end of the quarter. We did take pricing action where possible through the quarter to protect our margins and expect the impact will be evident in our next quarter. 09:52 Lastly, as we announced during the quarter, we reached an agreement to acquire Halex, Europe's second-largest manufacturer of extrusion dies. There's not really much more of an update at this time, we continue to work towards closing the acquisition this spring and welcoming Halex employees to Exco at that time. 10:10 That concludes my operations overview. I will now pass the call to Matthew to discuss the financial highlights of the quarter. Matthew?

10:17 Thank you, Darren. Good morning. Consolidated sales for the first quarter ended December 31 were $101 million, a decrease of $20.4 million. Over the quarter the consolidated impact of exchange rate movements reduced sales by $3.5 million. Adjusting for the impact of foreign exchange, first quarter sales at our automotive solutions segment decreased $18.6 million or 24% and the Casting and Extrusion group sales were up $1.6 million or 4%. 10:46 Consolidated net income for the first quarter was $2. 7 million or earnings of $0.07 per share compared to $10.9 million or $0.28 per share in the same quarter last year, a 75% decrease in net income. The effective income tax rate for the current quarter was 26% compared to 22% in the prior year period. The income tax rate in the current year quarter was impacted by geographic distribution and foreign rate differentials. 11:11 The Automotive Solutions segment experienced a 27% decrease in sales in the first quarter or a decrease of $20.9 million to $55.2 million. The decrease in sales is attributable to lower OEM production volumes due to COVID-19 constraints, related supply chain disruptions, storage, including a shortage of semiconductor chips, unfavorable vehicle production mix, logistics challenges and the negative impact of foreign exchange. 11:38 First quarter pre-tax earnings in the automotive solutions segment totaled $3.4 million, which is a decrease of $8.2 million or 71% over the same quarter last year. The segment's lower pretax profit is due to the 24% reduction in sales causing lower overhead absorption and higher material logistics and labor costs. 11:58 The Casting and Extrusion segment recorded sales of $45.8 million in the first quarter compared to $45.3 million last year, an increase of $0.5 million. The Extrusion group experienced strong sales at locations reflecting steady demand for extrusion tools and market share gains. The Castool a Large Mould groups sales were down during the quarter due to the same supply chain disruptions caused by the semiconductor shortage, negatively impacting automotive vehicle production, lowering demand for consumable tooling for die casting and rebuild work for mould. The Large Mould group quoted and was awarded a number of programs from current and new customers in the quarter. As a result, inventories and backlog are increasing. 12:41 Pretax earnings in the Casting and Extrusion segment declined by $2.6 million or 7% over the same quarter last year to $4.6 million. The impact of inflationary pressure on raw materials and transportation combined with lower overhead absorption at Castool and Large Mould reduced pretax profit. Exco generated cash from operating activities of $8 million during the quarter and $5.2 million of free cash flow after $2.8 million in Maintenance Fixed Asset expenditures. This cash flow together with cash on hand was more than sufficient to fund fixed assets for growth initiatives of $8.2 million and $3.9 million of dividends. 13:19 Exco ended the quarter with $11.6 million in net cash and $35.3 million in available liquidity, including $26.3 million of balance sheet cash. Exco’s financial position remains very strong. As such, the company's balance sheet and availability under the existing credit facility allows considerable flexibility to support strategic initiatives like our Halex extrusion purchase announced in December 2021. 13:43 Our strong financial position, combined with our free cash flow creates a foundation for management to pursue high value growth capital expenditures, dividends and other opportunities that may arise. 13:53 That concludes my comments. We can now transition to the Q&A portion of the call.

13:59 Thank you. [Operator Instructions] Our first question comes from the line of David Ocampo with Cormark Securities. Your line is open.

14:27 Good morning, everyone.

14:26 Good morning.

14:27 Good morning, David.

14:27 Darren, I'm just curious, what percentage of the contracts that you guys have in place where you are able to reprice? And then just thinking about it more higher level, when you combine that with sort of that operational efficiencies that you guys are looking for, are you guys able to offset that inflationary pressure and hit your 50% target? Or are we thinking more longer term where we need to see some of these contracts roll off?

14:52 Okay. So I presume you're talking about the automotive solutions segment.

14:58 Yeah, that's right.

14:59 And -- Yeah, a lot of that business is kind of fixed price work that continues for a number of years. And you kind of are exposed to rising raw material costs. And our path back to kind of a 15% segment EBITDA margin certainly remains very achievable in our minds. That path includes kind of first getting back to normalized sales levels and then having the benefit of the new program launches for over-absorption of overhead that we planned through the next, at least couple of years. 15:52 And there are pockets of products within the segment where we do have some pricing power, and we're certainly -- and we have pursued that. So, it's probably the minority of products, and the rest we have to offset with efficiency gains, which we continue to do. There are other aspects, such as LTA's or long-term pricing adjustments, where you have an obligation to reduce prices through the program, but with pushed back we expect that we'll be successful in not taking those reductions. So that's kind of at a high level how we think about the impact of rising costs in that segment.

16:51 Okay, understood. And then, a lot of the discussion over the last few quarters has been on your Large Mould division and the impact on sales from the shift to EV, but one area that we haven't really touched on is the margin profile. So are the moulds for EV, in your view, similar to transmissions and engine blocks or could they even be higher than where your legacy business is today?

17:17 Yeah, I wouldn't say that there is a reason to expect a dissimilar margin for EV molds as opposed to powertrain. I mean, but just generally as moulds get larger and more complex, it reduces the number of players that can effectively compete in this space and requires much more sophisticated engineering and technical depth. And you would expect that that would be accompanied with higher value add over time, but we're certainly not modeling that in. But I think the logic folds together.

18:01 And then, last one for me. What kind of ramp can we expect at the new Castool facility? Is it something similar to what we've seen in the other greenfield facilities where it takes a couple of quarters to get up to profitability?

18:13 Yeah, that's right. I mean there is certainly a few quarters of drag in the profitability, but by the end of the fiscal year we would certainly expect that facility to be at least EBITDA breakeven, if not better. Our five year target that we have disclosed of realizing at least $30 million of revenue between Castool plant in Morocco and then there plants -- new plant in Mexico by the end of that time frame certainly holds true.

18:54 Okay. That's it from me. I'll hop back in the queue. Thanks guys.

18:57 Thank you.

18:59 Thank you. Our next question comes from the line of Peter Sklar with BMO Capital Markets. Your line is open.

19:07 Yeah. Good morning, Darren and Matthew. My first question is like, you've done a really good job explaining how the earnings deteriorated year-over-year, but I would just like to have a little bit of discussion versus quarter over quarter versus the fourth quarter. So, I think if you look at vehicle production volumes like they were stronger, global vehicle production volumes, North American vehicle production volumes were stronger in Q1 than they were in Q4, but like the earnings of the company in both segments really deteriorated rapidly or significantly versus the fourth quarter. So I'm just trying to figure out what has changed since the fourth quarter, because arguably the backdrop was pretty bad and was even worse in the fourth quarter, at least in terms of vehicle production volumes.

20:04 Yeah. It's a good question, Peter. And I would explain that we were more so impacted by inventory destocking in our first quarter than the fourth quarter. And that concept is really come to a head during our latest quarter. And just to kind of explain that, if you're running, call it, 6 die-cast machines, you might have 12 moulds, 6 in production and 6 back up. And as volumes go down then you first deplete your back up dies rather than adding new dies for rebuild. And we really saw the impact of that this quarter. 20:55 In fact, we only shipped 1 rebuilt die in the quarter, which is highly, highly unusual for us. And so, I guess the converse of that is on the way up. Not only do you get the benefit of higher vehicle production, but then you've got the inventory replenishment that needs to occur. And with our strong order flow that we saw in the quarter, rising to record backlog in the Large Mould group, we certainly think and expect that we're at the front end of that rebound.

21:40 Okay --

21:40 Similar dynamic would apply to Castool die-cast consumable tooling components which did see a more sizable dip this quarter than what we saw in prior sequential quarters.

21:56 Right, okay. And can you talk a little bit about plant labor. So have you had trouble getting labor in the plant and has that disrupted your operations?

22:12 Yeah, for sure. I think that phenomenon is pretty widespread across all entities. And it has been exacerbated by the Omicron variant in the last quarter where there were some weeks where 20% of the labor or more was out due to that factor. And so, it's a continuing challenge to just fine people and then that is compounded by just the disruption that's occurred due to COVID. And we continue to work against that. It forces you to think about how you produce things and ultimately you need to become more efficient. And I think that one of the benefit that we've had over the years as we've added a lot more equipment and we really haven't increased our head count. And so, we have become more efficient and we'll continue to do so.

23:29 And Darren, just back on this quarter over quarter theme, right? I understand, you gave a good explanation why the tooling businesses did worse, but also auto solutions did worse versus the fourth quarter. And vehicle production volumes were higher in the first quarter than in the fourth quarter. So what happened there?

23:51 So that is similar, inventory destocking I think was a big factor in that and then labor disruption as well. And there has been some elevated raw material and input cost inflation that we are -- have taken some measures to reverse. And as we've indicated in our comments and in the news release that we expect to see the benefit of that in our second quarter.

24:28 Yeah. And Peter another component that we look at is mix between different locations and we don't get into that level of detail on these calls, but we've have different mix of -- production might have been up in certain areas, but depending on how it fit our mix and our production and our locations that also caused some challenges there too.

24:50 Okay. And then just my last question is, in the write-up you talked about the additive manufacturing business. I don't think I’ve heard that wording before, what is that?

25:01 That's our 3D printed tooling components. And we'd love to have you up to our new market plan, but that's been a very strong growth business and differentiator for us. But what we're talking about there is making parts of the mould components by printing them with steel, so we basically print a steel component and that enables us to have water lines in tooling lines that follow the contour of the mould. And so we can target hotspots in the mould much better using 3D printed components than making those components traditionally. And that has an overall very positive impact on the cycle time and other measures such as scrap rates of the casting process. And we are leaders in this business, a couple of years ago we won the Automotive News PACE Award in recognition of our leadership of this business. And we're seeing greater and greater traction from many customers. 26:33 And so, we use these additively produce components in our own molds and we also sell some of them as kind of replacement components for mould rebuilt. So it's a very exciting part of the Large Mould group and we expect it will have very strong growth over the coming years.

26:59 I understand. Is it like a prototype tooling or is it a prototype –

27:05 No, it’s production tooling. They are used in the molds. And more and more of our moulds -- in fact most of them now have 3D printed mold components in them that serves to improve the efficiency of the overall mold.

27:22 Interesting. Okay, thanks. That's all I have.

27:25 Thanks, Peter.

27:26 Thanks, Peter.

27:28 Thank you. [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to Darren for closing remarks.

27:48 Well, thanks everyone for your time this morning. We look forward to speaking to again next quarter. Take care.

27:58 Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, you may now disconnect.