Martinrea International Inc. Q1 2023 Earnings Call
Good evening, ladies and gentlemen, and welcome to the Martin We all 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 will the board. Please go ahead Sir.
Good evening everyone.
Thank you for joining us today, we always look forward to talking with our shareholders and we hope to inform you well and answer questions.
We also note that we have many other stakeholders, including many employees on the call and our remarks are addressed to them as well as.
As we disseminate our results and commentary through our network.
With me are packed to Raimo, Martin Ranch, CEO , and president and our CFO Fred di Tosto.
Today, we will be discussing <unk> results for the quarter ended March 31 2023.
I refer you to our usual disclaimer in our press release and filed documents.
Speak then Fred let me and then we will do some Q&A and now here's Todd.
Thanks, Rob and good evening, everyone as noted in our press release, we generated an adjusted net earnings per share of 54, and adjusted operating income of $75 million in Q1 up approximately 7% over the previous quarter and 70% year over year compared to the first quarter of 2022.
Production sales came in at 1.24 billion up 6% over the previous quarter and 12% year over year adjusted EBITDA of $153 million was another quarterly record for the company.
Adjusted operating income margin came in at five 8% step up from the five 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 first quarter as we experienced production disruptions with some key programs, having long periods of unplanned downtime due to the 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.
Of course, we continue normal improvements in our operations. Despite these ongoing supply chain disruptions. We also.
<unk> continue to face inflationary cost headwinds, although improved in some areas of the business compared to last year.
Efforts to offset these inflationary cost 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 the current 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 22.
And what we expect are the early stages of a strong cycle with most of our plants running at capacity as such our 2023 outlook is unchanged. As a reminder, this outlook calls for total sales to be between 4.8 and $5 billion.
Adjusted operating income margin to be between six and 7% and free cash flow to be in between 150 and 200 million.
Dollars.
As you know we are particularly focused on free cash flow and we're excited about the prospects 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 favorable commercial settlements with our customers as well as a lower level of tooling sales in the quarter.
We are operating in 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'll recall that in Q4, we concluded several commercial agreements and 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.
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 two key customers. This was partially offset by indirect cost recoveries in Brazil at this point.
Production volumes in China are not 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 million of new business since our last call consisting of $50 million in our lightweight structures commercial group on Gm's, New electric pickup truck and $20 million in our propulsion systems group with G M and Tesla.
Since the beginning of 2022, we have secured approximately $250 million in new business. In addition to being awarded another $250 million in replacement business. 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 EBIT to plan.
Warm gms, new bed, three and the EV pickup trucks and the Audi PPE among others. Some of this work is complex as it involves combining unlike materials using advanced joined methods. What we refer to as breakthrough technologies. This offers a high degree of value add for our customers.
Over the next year, we expect a quarter of our sales to come from EV or hybrid programs and we see this potentially growing to half of our sales over the next several years at the same time, we continued 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 are products will remain relevant.
Lastly, I wanted to touch on the recently completed bolt to explore transaction, where we sold our 50% equity stake in the Volta explore joint venture to nano explore for an aggregate equity consideration of $10 million paid in nano explore shares resulting in a gain.
On disposal of $5 $3 million is reflected in our financial statements.
Post transaction nano explore now owns 100% of the equity and the intellectual property and volt to explore and.
And we increased our equity ownership in nano explore from 21.1% to 22, 7%. We also extended our existing graphing supply agreement with nano explore by another five years or to 2033.
Over the last two years Martin ran nano explore 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 explore looks to take the next steps towards building a battery facility, including securing financing commitments. The JV partners decided that it is in Volta explores best interest to engage with partners that can offer a deeper level of financial support from Martin raise purse.
Spectre. 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 both of them explore through our enhanced equity position in nano explore and we will also continue to work with nano explore to develop graphing based solutions within Martin rare.
Sure to the mandate, we have set out for Martin Ray of innovation development ore mined we have helped the bolt explore flourished through the incubation phase with operational support manufacturing Knowhow and financial commitments that has enabled the joint venture to establish a demonstration facility improve its technology.
With the volt explore demonstration facility now establish he wished the team the best as they continued to capitalize on this exciting technology. We are happy to continue to be along for the ride through our equity stake in nano explore.
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 work that needs to be done to continue to progress towards better days ahead.
I want to sincerely, thank and applaud our people for all of their efforts with that I'll pass it to Fred.
Yes.
Thanks, Pat and good evening everyone.
As Pat indicated our financial results in the first quarter were solid with adjusted EBITDA setting another quarterly record.
While our company in the auto industry in general continues to deal with ongoing challenges from uneven production schedules supply chain issues cost inflation and tight labor market conditions.
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 and supply chain disruptions subside inflation normalizes and production volumes and without.
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 2020 three.
Taking a closer look at our performance quarter over quarter production.
Production sales increased 6% on higher production volumes.
As Pat noted, we continued 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 environment stability 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 and promoting.
Adjusted operating income margin came in at five 8% better than the five 5% regenerated last quarter due as Pat noted to a lower level of tooling sales during the quarter, which 10th or no or low margins.
Adjusted earnings per share was 54 cents in Q1.
Lower than the 50 years since generated in Q4.
And reflective of an unusually low tax rate and a $3 million foreign exchange gain in the fourth quarter, which did not repeat in the first quarter.
Normalizing for FX and the tax rate adjusted EPS in Q4, 'twenty two would have been 52 cents compared to the 54 cents of generated in Q1 of 'twenty three.
Free cash flow was negative $32 million, reflecting an increase in working capital.
This was not unexpected as we typically build working capital in the first quarter and released it through the remainder of the year.
We expect to generate positive free cash flow in the coming quarters as our twenty-three all the 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 of Q1 and a significant improvement over Q4.
Looking at our performance on a year over year basis first quarter adjusted operating income of $75 million was up 70% over Q1 of 'twenty two.
Production sales they were 12% higher.
Recall at this time last year, we were just beginning to vigorous cells out of a low point in our industry when supply related production disruptions are at their worst.
Still the strong year over year performance is nice to see especially free cash flow.
It was negative 52 million in Q1 of 'twenty, two compared to negative $32 million in Q1 of 'twenty three a nice improvement.
We expect further gains or the balance of the year as we deliver on our 'twenty three targets.
Yes.
Turning to our balance sheet net debt increased by $47 million quarter over quarter to $956 million in Q1.
The increase was driven by a seasonal increase in working capital as noted earlier.
Our net debt to EBITDA ratio continued its downward trend ending the quarter at one nine times down from 195 times at the end of Q4 of 22 and 2.43 times at the end of Q3 of 'twenty two.
We are at a comfortable level well below our covenant maximum of three times.
Our leverage ratio should naturally improve in the coming quarters, as we generate an increasing amount of EBITDA and free cash flow.
We expect to continue to trend towards our target range of one and a half times plus or minus over the coming quarters.
A portion of our free cash flow will go towards debt repayment.
We have noted publicly we also put a normal course issuer bid in place late last month late last month.
Our expectation is they would be buying back some stock at these levels overtime.
And with that I'll now turn it back over to Rob.
Thanks, guys.
I have only two points to cover and I'm gonna be brief I know what Stanley Cup season, Theres. Some good hockey Awash Tonight, So let's get to it.
One is the resilience and strength of our Martin Ranch team.
I'm going to tell you what hockey.
Last Thursday I was at the leaf playoff hockey game, a four two loss by the Maple Leafs to Tampa Bay, and an elimination game for Tampa.
I was disappointed.
I came home and never my 2022 tax forms for me and my family members.
And before I went to bed I reviewed them I know, what you're thinking what I'll loosely.
But I got to work done.
The next morning, I was reflecting that told my son, you know Sun there are three certain things in life.
Death taxes, and Maple leaf playoff collapses it even rhymes.
By the way I'm very happy to lease then broke the traditional collapsing in the first round.
But then I was thinking hockey is a sport played by men at least an N H L.
We're really grown up boys, playing a game, there's work and sacrifice and challenges in tough losses, and sometimes great results.
And 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 etcetera.
And then I was thinking about our team and Martin ran.
Last year on this call I spent some time talking about the world we live in and two characteristics of our team's resilience and entrepreneurship two of our leading qualities.
Andre printer ship means ownership, we own what we do.
So then I thought about us as a sports team I.
I believe someone has said business is the ultimate team sport.
Whether the ultimate sports I don't know, but it is certainly a team sport.
And we have Martin ran a really really good at our sport, we excel in what we do industry, leading safety statistics.
Tremendous growth over the pandemic, we can make anything well, we are really really good at making things industry, leading employee satisfaction.
Coming out of the pandemic and industry supply shortages high levels of sales earnings operating income margin EBITDA margin, leading many of our peers Pat.
Pat and Fred went over the results and frankly, they're really good.
Our team at Martin ran is resilient our team culture is outstanding.
We find ways to get things done we do not have playoffs collapses, we don't choke.
When the going gets tough we dig in and perform our people show up every day every game you.
You will get our best we are winners.
The character of our team at Martin ran up against any sports team.
And if you don't believe us as some of our competitors if we're good competition.
I believe we are very tough to beat how well we do.
And one more thing we love this game, we love, what we do and we excel at it.
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 or had been one of the fastest growing companies in our industry.
And we are stronger today than we've ever been we're 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 six and proxy materials will be posted shortly.
The message to shareholders is to me an important one.
It reminds all of us have our culture and our strengths highlights of the past year and our approach to governance. These are important messages for us all to reflect upon.
Please read the message.
Now it's time for questions, we see 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.
Thank you we will now take questions from the telephone lines.
You have a question and you're using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices Keypad you may canceled your question at any time by pressing Star two please press star one at this time I show. The question there would be a brief pause while participants register we thank you for your patience.
Our next first question is from David Ocampo from Cormack Securities.
Please go ahead.
I think that evening everyone.
Yeah.
And you guys talked about and I touched on that you guys are still experiencing protection issues or disruptions with the scheduling 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.
Okay.
Quantifying the impact of the volume instabilities actually quite tough to do it because it's a various places various programs, it's not necessarily full week shutdowns anymore, which is which was a common theme that back in 'twenty, one and parts of 'twenty two.
If it's also just four homes during the week thinking that a customer will pull acts and they ended up pulling ex U.
A certain percentage.
Oh, sorry, I'm going to go there, but needless to say, it's a it's been an impact on us and are continuing to be one in Q1.
Okay.
And I guess you guys don't have enough visibility for the Q2 to provide that any quarterly numbers there.
Oh, we actually like the idea of not doing quarterly guidance in and see where you guys are doing with your [laughter] and you guys are good at it.
So you know in.
In the in that in that context. There is it's not just chips theres. Some theres. Some other things and you know would may have a UAW strike in the second half of the year or whatever.
I think we'll probably resolve that there's always there's always something but overall the trend line as we say is up into the right. Despite what we're seeing with the interest rates, which we think it was ridiculous for the fed to raise rates in the U S. Again, I think at some point, there I realize that but the underlying economy.
I'd say, it's as good a pterosaur, there's pent up demand.
April SAR numbers were really quite good so theres a lot of positive stuff.
As there is demand there and as we work through production issues will smooth out a number of those things but.
It is better than it was before we think it's going to get better and and we'll see that as we go month by month I would say that most of the disruptions are not chips.
Or are there other supply issues that were you know.
Below the water during the chip.
Issues and we discussed this was probably somewhat predictable, though it seems to linger.
Longer than we expected.
But it's not a I would argue it's not primarily chips anymore at least not that what we're seeing.
Got it that makes sense, and then Fred or Pat I mean, you guys have.
At least philosophy quarters that ive been announcing quite a bit of E. V Awards, I guess I'm curious the content per vehicle on those platforms are they greater than what you would've otherwise experience for ice and just curious about the margin profile of those awards as well are they consistent with the overall <unk>.
Of the 6% to 7% are they materially higher.
I would say in our lightweight structures group as far as the.
Type of parts, the assemblies and those types of things and very similar you know differences in design a little bit more.
More unlike materials are more aluminum.
You know more casting is more high high strength steels, and then we would see otherwise, but the basic design. If you look side by side are very similar.
You get close unrealized wonder a lot later.
And I think from a margin perspective are 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 any DS.
So going forward you shouldn't expect any a huge variation.
I noticed some of these products are a little bit more complex, so and those type of situations, where you got more value add you you potentially can make more money, but but ultimately generally speaking where we're targeting similar margins and returns.
That's perfect. That's my two questions I'll pass it on.
Thanks very much.
Our next question is from Michael Glen from Raymond James. Please go ahead.
Hey, good evening so Pat.
If I'm circling back to the last conference call.
<unk> Conference call you described Q2 during that call. It the real test of everything that you've been putting place and in all of the accuracy that put in together. So as I think of the way Q1 transitions into Q2 or are you still.
Expected us to see some of these some some more significant contributions come in to play in terms of how we progressed towards that 6% to 7% margin I think we will see I think we'll see some progress.
But the fluctuation from the customers I can't predict Unfortunately, I would tell you was greater in Q1 than I anticipated.
Supported I think than most anybody anticipated.
So if production snooze I'm.
Certainly I think Q2 is gonna be a good quarter. If continues to be bumpy will have to adjust based on that bumping is now.
Also what I had said if you recall is prior to the pandemic Q2 was always the highest volume quarter.
Annually.
During the pandemic that was not the case. So one of the questions are or thoughts was you know what at some point, it's going to start look more normal again in Q2 will be a higher.
To be the highest quarter out there I don't think it will necessarily be the highest quarter of this year.
Based on what we're seeing but I think it will be a better quarter than what we see as far as the customer goes.
And we you know we've seen some more consistency in some of the plants that were disruptive in the first quarter already this quarter, but we're not even halfway through it so well have to wait and see.
As you know it used to be Q3 was the weakest quarter.
That hasn't been the case in the recent past them.
You can predict that this year.
In Q3, it could be quite strong too.
I do think in time, it will start to look more like it did before the pandemic.
But.
A lot of these disruptions that are being seen when you start to whittle away.
Boils down to in a lot of cases manpower tier two and tier threes in particular don't spend a lot of places U S 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.
Yeah.
Okay and then the second question chip.
You talked about the potential margin profile on our knees, a Z platforms ramp but on the other side of that can you talk about.
What's the visibility you have on what your margins on the legacy platform.
Well there they would obviously be dependent on volume and so forth, but the thought would be that they would be strong and that'd be mature products.
We're anticipating some of these ice platforms are likely get extended which we view as a positive because again, they're mature platforms in which we're making.
Some are you know good market margins on.
So it's hard to tell how that transitions in and it takes shape, but.
Comfortable with our current margin profile and.
Specced it to be a similar if not even better I see them get into the the next transition to evs and so forth.
I think you'll see the industry running parallel.
Quite a while.
And if you if you look at the strategy behind a number of the Oems you know theyre running evs in some plants and their continuing around nice and the other in there kind of.
They know they're not gonna both hit the highest volume, but theyre going to shift over time, and we're seeing that.
So the ice products glass longer I think that that's a I don't see that as a negative at all.
Okay.
Thanks for taking the questions.
Okay great.
Thank you.
Our next question is from Brian Morrison from TD Bank. Please go ahead.
Good evening, just wanted 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.
Oh that would be the the expectation.
As supply chain disruptions subside and normalize and inflation starts getting more relief unwritten inflation and so forth.
Oh that would be the expectation again as Pat noted, it's really hard to predict where we're sitting right now all of that kind of takes shape, but the expectation as we progress throughout the year as some of these challenges improve I can say, it's getting better quarter over quarter, it's not getting us.
So there's good English necessarily but it's not getting us better as fast as we thought it would.
It's taking longer and longer.
Yes.
We're not necessarily saying because we got to work through the quarter and some of these things are lumpy, including windows downtime on that type of stuff that Q2 will be better than Q1, Q3 will be better than Q2 Q4 will be better.
Q3, we think the trend line is up as we've said and you.
You know theres, a little bit of Lumpiness in our in our industry and everyone's experiencing the same thing.
We think we're a we're at a good spot and we might have a quarter that surprised to the upside and one that's a little down because of the timing of some different things, but trend wise in the right direction and then in some of the downtime we saw from some of our customers. This past quarter were downright head scratchers nobody saw them come in including the customer, but you know some of this.
Fly basis got some issues still.
D escape had a major impact on the quarter and did that up and flowing for you again.
You know escape, we supply from multiple plants in different parts of the world, even and definitely you know it was down longer than than expected and we've seen better performance from that.
Product this quarter already.
You'll note in our Investor presentation at the top three platform for US there is a significant platform.
Alright, that's why I asked 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 and more recoveries anticipated through the year is that correct and so you just Claire yes. It was.
That's pretty much it was pretty much an yeah. We got some very good tailwind in Q4 for energy.
That didn't necessarily repeat this quarter to the same extent.
We have seen some sales drop off on some some platforms.
And then we've seen some increases in others, but overall, it's sort of down.
We expect that'll continue to smooth out we're also launching in a couple of our plants over there. Some some I'd say multiple launches in the same groups.
Some of that's just natural.
Headwinds, but are those all past, but the volume has been bumpier over there than expected as well.
Has there been any change in the process of inflation pass through.
I'm going to say on the Big picture no I'm on the on the Oh, the typical arm wrestling, it's taking longer in some cases than you did before but generally precedents were set.
Indexes were provided or agreed to.
So there's you know there's a model to follow.
But yeah.
The environment changes too. So if you are negotiating something like energy with a customer and then Germany came out with a new program then it creates a different type of animal that you have to wrestle through instance, its new some of those things still are unresolved.
But we 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 cost as an example.
Okay last question Rob.
You said, you're going to be active with T and say what is the driver and you get enacted with ascend CIB.
Is it price is it is it.
A couple of things I think I think.
You know first quarter is negative cash flow as it always is.
There's less negative cash flow this quarter than the first quarter of last year I think we'll we'll we'll be in the market.
But at the same time, we want to we want to generate some positive cash flow to I think I think if.
You're looking at it from a shareholder perspective.
If I was a shareholder and I wanted to see that come down a little bit when I see some free cash flow I want to make sure that you are taking advantage of some opportunities that you are taking advantage of and I want to see your buyback some stock so.
How much we buy we will sit and have a discussion we do think that valuation is compelling at these levels.
And you know 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 and you know.
As we buy it we gotta file basically on a daily basis.
I enjoyed again Tonight.
Thanks Scott.
Thank you next question is from Peter Sklar from BMO capital markets. Please go ahead.
I'm, sorry, Pat I know you've addressed Europe , but I just want to go back there because you know we're just kind of went from $10 billion of operating profit in Q4 two zero.
You talked about.
Less commercial settlements in Q1 versus Q4 is that what you mean by Q4 had a tailwind for energy you had at <unk>.
You had some settlements energy yes.
Yeah. So it was spread out through because this was the first round of negotiation.
Last year. So it wasn't just everything from that quarter. It was looking back over 'twenty two to some extent.
So it wasn't like a hard and fast. This is what you get for the fourth quarter. It was you know it was depending on the customer and in different situations you had different negotiations.
And he 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. You know people are still trying to consume it and understand it 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 than they did in the fourth quarter of last year.
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 or less volume remark mark.
<unk>.
Talked about this a little bit in the past when you get unplanned downtime and it's not you know two weeks three weeks Oh, you know you don't see it coming you still have everybody sitting in the plant. So all of a sudden you're down.
So for a couple of days and then they picked back up again unknown, but its work that weekend and make up some of the volume. So we've wrestled through a lot of those issues. This quarter again, we expected that to get better.
Then the last year and it is but it is taking longer to get leveled out than we anticipated.
And I think he will probably here.
Anybody in the supply base, probably say something similar they are 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 let's get on with it but.
You know, we don't see it come in sometimes and it's something we just have to wrestle through.
So that was in this quarter there were certainly some 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.
Okay, So I like that.
Like you talked about that there.
Like there are the 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 yeah, well I would tell you as we've 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's still there's still manpower issues, especially in the U S. There are some in some other countries too, especially in rural areas, but in the U 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 they 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 one supplier or if its a tier one supplier that's having the trouble you know of.
Of course, it affects all of us.
And sometimes they don't see it coming because as you know to suppliers doing its best to try to keep the customer in parts, but they don't have enough people to manage the weekly volumes. So it's still a problem okay.
Okay and in Europe , where the disrupt what were the disruptions there.
But we saw some some products drop off we've had launches and in a couple of the plants, which that was expected that that would be in some inhibitions and that that's it's not like the launches during the pandemic, where we couldn't move people around and add resources, but I would say, it's a 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.
And when you talk about launches are you talking about.
The drag in your plant because you're launching are you talking about the Oems are launching of their production schedule or volatile some of it. It's us it's us launching them in some cases, it's volume ups and a lot of cases or anticipated volume ups. It's interesting if you start digging into Europe , despite its drive toward electric vehicles.
The ice vehicles are actually doing pretty well.
So it's not a car, it's an SUV or something like that so we're seeing a lot of a lot of different behavior than.
And then we saw last year, even but.
There are launches specifically on new products or additional volume on other products.
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 anymore.
Anticipate it'll T O T will definitely show improvement.
Europe .
Okay, and then just one last question.
On a different topic I, just always like on a consolidated basis.
Your SG&A, which was about 75, sorry, $78 5 million, that's really up from the quarterly run rate of last year, which was kind of 70 to 72 million. So was there anything in particular, there or this is just cost inflating and this is what it is now well the the biggest element of that.
At can point to actually our stock price because it's been a significant increase in our stock price all the strike.
Strike restricted share units and performance share units and deferred share units that are hanging out there so a big mark to market bump.
So that was I think close to $6 million in the quarter in Q1.
If we can figure out what drives the share price down then that number would come down.
Yeah.
[laughter].
That's all I have thank you.
Thanks, Thanks, Peter all of Us.
Thank you. Please press star one at this time, if you have a question.
Our next question is from Chris <unk> from CIBC go ahead.
Alright, Thank you for taking my question.
And maybe just to follow up on the labor comment how are you finding labor for yourself or are you having difficulties sourcing labor or is that okay.
We had I would say we had.
Or difficulty middle of last year, and we put a lot of programs in place in the communities in which we.
We have plants.
We tend to have a decent reputation of being a good employer and having you know a decent culture and working with people.
And 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 kinds of things.
So we will do those kinds of things, we're working with homeless shelter in Michigan.
And where we're taking people through a company that is run by one of our old general managers.
Debt to.
To train a 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 so these are things that you know you wouldn't have done.
Five years ago, maybe but.
Pulling out the stops were seeing some 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 for.
No.
But we've really worked hard we've got some really unique and innovative ways that we brought people back to work and we still have areas, where we're short.
But we're able to manage through.
Okay, Great and then I just.
Wanted to ask a question on <unk>.
And on the Oems It sounds like.
Most of the most of it.
Disruptions in our supply chain or labor related but have you heard of any ramping down just to control inventory like G. Yes earlier. This year yeah. There's been there's definitely been some of that so you know and I wonder why.
When I 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 as suppliers don't have enough people, but from what I can see that that's what I, that's what I believe.
Related to control inventory reductions absolutely we've seen some of that.
And you know 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.
Keeping the prices up I think we looked at the chart today was 36 days on average where before the pandemic. It was between 70 and 80 typically so they're managing that down the question will be when the first well.
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 you know at some point that may very well happen and then I think you'll see things.
We never go back to where they were before but certainly headed that direction a little bit.
Where you're discounting cars and so forth.
But right now they've done a pretty damn good job of maintaining that low inventory and keeping prices high and you can see it in their results.
Yeah.
Sure. Thank you very much I'll jump back in queue.
Thank you.
Thank you there are no further questions registered at this time, so I'll return the meeting back over time.
Paul.
Thanks, very much sites for very much for taking time off on our playoffs night, we had a great quarter record EBITDA high operating income.
Got their EBITDA ratio.
Our record sales and that's up.
That's a good position to be and we look forward to the future, we're very very bullish about our industry and our place in it.
If any of you have further questions or would like to discuss any issues.
Concerning our company.
Please feel free to contact us and Angola scope Tonight. Thank you.
Yeah.
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