Q4 2024 Héroux-Devtek Inc Earnings Call
Joelle: Good morning. My name is Jolle, and I will be your conference operator today. At this time, I would like to welcome everyone to Héroux-Devtek's fiscal 2024 fourth quarter and fiscal year results conference call. All lines have been placed on mute to prevent any background noise.
Good morning, My name is joelle and I will be your conference operator today.
Joelle: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two.
Speaker Change: At this time I would like to welcome everyone to <unk> fiscal 2020 for fourth quarter and fiscal year results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Speaker Change: I'd like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star two before turning the meeting over to management. Please be advised that this conference call will contain statements that are forward looking and subject to a number of risks and uncertainties.
Joelle: Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. We refer you to slide 2 of the accompanying presentation available on the company's website for the complete forward-looking statement. I would like to remind everyone that this conference call is being recorded today, Wednesday, May 22, 2024, at 8.30 a.m. Eastern Time. I will now turn the conference over to Mr. Martin Brassens, President and Chief Executive Officer, and to Mr. Stéphane Larsonneau, Vice President and Chief Financial Officer, of Héroux-Devtek. Mr. Brassens, please go ahead, sir.
Speaker Change: That could cause actual results to differ materially from those anticipated.
Speaker Change: We refer you to slide two of the accompanying presentation are available on the Companys website for complete forward looking statement I would like to remind everyone that this conference call is being recorded today Wednesday may 22024 at 830, a M. Eastern time I will now turn the conference over to Mr. <unk>.
Speaker Change: President and Chief Executive Officer, and Mr. Stfan, Maisano, Vice President and Chief Financial Officer.
Speaker Change: <unk> Mr. <unk>. Please go ahead Sir.
Martin Brassens: Thank you very much, Jol, and good morning, everyone. On behalf of all of us here in Longueuil, welcome to our fourth quarter and fiscal 2024 earnings conference call. As usual, I invite you to follow along by referring to the financial statements, MD&E, press release, and presentation, which can be found in the investors section of our website. We're pleased this morning to announce a very strong quarter of sales and profitability for Héroux-Devtek. Our fourth quarter of fiscal 2024 marks the fourth consecutive quarter of growth in both revenue and profitability, a sign that our focus on stabilizing our production system is paying off
Speaker Change: Thank you very much joelle and good morning, everyone.
Martin Brassens: The increase in volume, along with the effect of our pricing initiatives in response to inflationary pressure, drove our Q4 EBITDA margin to 18%, marking a significant, 540 basis point improvement over Q4 last year. These improvements clearly demonstrate the success of the strategy we've implemented over the past two years, restoring the health of our supply chain. Stabilizing a production system, examining our production processes to identify efficiency gains, and reviewing our pricing and supply agreements to offset the effect of inflation. Beyond this, the broader aerospace and macroeconomic environments suggest more good news to come. But first, I would like to turn it over to Stéphane for a review of our fourth quarter financial performance in more detail.
Speaker Change: On behalf of all of US a year longer Hey, welcome to our fourth quarter and fiscal 2024 earnings conference call.
Speaker Change: As usual I invite you to follow along by referring to the financial statements MD&A press release and presentation, which can be found in the investors section of our website.
Speaker Change: Yes.
Speaker Change: We're pleased this morning to announce a very strong quarter of sales and profitability for <unk>.
Speaker Change: Our fourth quarter of fiscal 2024.
Speaker Change: Marks the fourth consecutive quarter of growth.
Speaker Change: In both revenue and.
Speaker Change: And profitability.
Speaker Change: A sign that our focus on stabilizing our production system is paying off.
Speaker Change: The increase in volume along with the effects of our pricing initiatives in response to inflationary pressure.
Speaker Change: Drove our Q4 EBITDA margin to 18%.
Speaker Change: Marking a significant.
Speaker Change: 540 basis point improvement.
Speaker Change: Over Q4 last year.
Speaker Change: Yeah.
Speaker Change: These improvements clearly demonstrate the success of the strategy we've implemented over the past two years.
Speaker Change: Restoring the health of our supply chain.
Speaker Change: Stabilizing our production system.
Speaker Change: Examining our production processes to identify efficiency gains and reviewing our pricing and supply supply agreements to offset the effect of inflation.
Speaker Change: Beyond this the <unk>.
Speaker Change: <unk> aerospace and macroeconomic environment suggests more good news to come.
Speaker Change: That's first.
Speaker Change: I'd like to turn it to Stephane for a review of our fourth quarter financial performance in more details.
Stéphane Larsonneau: Thank you, Mate, and good morning, everyone. As usual, please be aware that we will be referring to certain non-IFRS measures during the call, including adjusted EBITDA. Adjusted Net Income and Adjusted EPS. Our non-IFRS measures are defined and reconciled in the MD&A issued earlier today. Before I begin, I would like to take a moment to congratulate our teams for their hard work in resetting the business over the past year. The results we are presenting are a clear measure of their success.
Speaker Change: Thank you, Matt and good morning, everyone.
Speaker Change: As usual please be aware that who will be referring to certain non <unk> measure the render call, including adjusted EBITDA.
Stephane: The net income and adjusted EPS.
Speaker Change: Oh, no not yet various measures are defined and reconciled in the MD&A issued earlier today.
Speaker Change: Before I begin I would like to take a moment to congratulate our teams for their hard work on resetting that business over the past year.
Speaker Change: The results we are presenting are a clear measure of their success.
Stéphane Larsonneau: In Q4, sales for the water rose 18% year-on-year to a record $184.1 million compared to $156 million last year. Civil phase revenue rose 55% to $75.8 million from $48.9 million for the corresponding period last year, mainly driven by increased delivery for the Boeing 777 Embraer Creator NE2 program, while defense size rose 1.1 percent to 108.2 million from 107.1 million. For the 4th year in a row, thanks to that $629.8 million, a 15.8% increase over fiscal 2023, exceeding the pre-pandemic level.
Speaker Change: In Q4 sales for deepwater rose 18% year.
Speaker Change: Year on year to a record $184 1 million.
Speaker Change: <unk> $256 million last year.
Speaker Change: Stephen Saiz rose, 55% to $75 8 million from $48 9 million for the corresponding period last year, mainly driven by increased delivery.
Speaker Change: The Boeing Triple seven.
Brian: And Brian I appreciate there any two program.
Brian: While defense sales rose, one 1% to $108 2 million from $107 1 million.
Brian: For the full year, thanks toward that $629 8 million or 15, 8% increase over fiscal 2023.
Brian: Exceeding pre pandemic levels.
Stéphane Larsonneau: ...sales were up 42.6% to $243.4 million for the same reason as the fourth quarter, while defense sales were up 3.6% to $386.4 million. You may need to hire aftermarket business or a legacy program as well as higher delivery for the Sikorsky CH-53K and Lockheed Martin F-35 programs. The Sparta Diva MF was partly upset by lower demand for Boeing F-18 production.
It is phase were up 42, 6% to $243 4 million for the same reason as the Borgwarner, while defense sales were up three 6%.
Brian: 300, it needs to $6 4 million.
Brian: Mainly due to higher up still mark that business forward. It gets people as well as higher delivery for the Sikorsky CH 50, <unk> and Lockheed Martin F 35 program.
Brian: The spot the dividend Barclays step.
Brian: Lower demand for Boeing.
Brian: Production.
Stéphane Larsonneau: For the quarter, gross profit reached $39.4 million, or 21.4% of sales, compared to $22.7 million, or 14.6% of sales last year, reflecting the impact of higher volume and pricing initiatives, partly upset by the effect of inflation on costs. For fiscal 2024, gross profit was up $111.1 million compared to $73.5 million last year, or 17.6% and 13.5% of sales respectively. Operating income for the quarter rose to $27.6 million compared to $9.9 million at this time last year, and to $59.8 million, up from $26.2 million for the fiscal year.
Brian: For the quarter gross profit reached $39 4 million or 21, 4% of sales compared to $22 7 million.
Brian: Or 14, 6% of sales last year.
Brian: Reflecting the impact of higher volume and pricing initiatives, partly offset by the effect of inflation on costs.
Brian: As for fiscal 'twenty 'twenty four.
Brian: Gross profit was up $111 1 million compared to $72 5 million last year or 17, 6% and 13, 5% of seismic suspected for those same reasons.
Brian: Operating income for the quarter Rose to 27 6 million compared to $9 9 million at this time last year.
Brian: $259 8 million.
Brian: From $26 2 million for the fiscal year.
Stéphane Larsonneau: In both cases, the stronger performance was due to higher throughput and profitability, while also reflecting a $4 million provision reversal related to a previous business acquisition for which the indemnification period has expired. I just studied the D.A.
Brian: In both case the stronger performance was.
Speaker Change: Hi, <unk>.
Speaker Change: And profitability.
Speaker Change: While also reflecting a 4 million provision reversal related to a previous business acquisition.
Speaker Change: Which DM Didnt litigation as expired.
Stéphane Larsonneau: in Q4, total 33.1 million, up 68.8% from $19.6 million in Q4 of 2022. For the year adjusted, the BDA was 92.2 million versus 61.4 million in fiscal 2023, a 50% year-over-year improvement. Adjusted net income for the quarters was $16.7 million, or $0.49 per share, compared to $6.3 million, or $0.18 per share, in the same quarter last year. For the full year, adjusted net income was $34.3 million, or $1.01 per share, compared to $12.6 million, or $0.37 per share, in fiscal 2022.
Speaker Change: Adjusted EBITDA in Q4 totaled $33 1 million.
Speaker Change: Up 68, 8%.
Speaker Change: From $19 6 million in Q4 of <unk> Suisse.
Speaker Change: For the year adjusted EBITDA was $92 2 million versus $61 4 million in fiscal 2023.
Speaker Change: And 50% year over year improvement.
Speaker Change: Adjusted net income in the quarter stood at $16 7 million or <unk> 49 per share compared to $6 2 million or <unk> 18 per share in the same quarter last year.
Speaker Change: For the full year adjusted net income was $34 3 million or $1, one per share compared to $12 6 million or <unk> 37 per share in fiscal 2023.
Stéphane Larsonneau: Cash flow related to operating activity improved substantially in Q4, reaching $19.7 million versus $4.5 million last year, mainly reflecting the improved financial performance. As a result, at the end of Q4, our net debt-to-debt ratio improved to 2.3 times from 2.7 times at the same time last year and 2.8 times last quarter. Back to you, Martin.
Speaker Change: Cash flow related to operating activity improved substantially in Q4, reaching $19 7 million versus $4 5 million last year.
Speaker Change: Reflecting the improved financial performance.
Speaker Change: As a result at the end of Q4, our net debt to EBITDA ratio improved to two three times from two seven times at the same time last year and two eight times last quarter.
Martin: Back to you Martin.
Martin Brassens: Well, thank you, Stephan. I am very proud of our teams who have worked relentlessly this year. Their ability to deliver our throughput commitments in a still-challenging production environment is remarkable. Thanks to their support and dedication, we were able to deliver excellence to our clients. Thanks to our customers for their continued support and confidence. And finally, to our supplier, many thanks for helping us maneuver in this challenging production environment. These results represent a sustainable trend of performance, surpassing our historical levels, supported by lasting improvements and a record backlog of $951 million. The aerospace industry outlook remains very strong. Global passenger traffic is back to pre-pandemic levels, and IATA is forecasting continued growth.
Martin: Well, thank you Stefan.
Martin: I am very proud of our teams who have worked relentlessly this year.
Martin: Their ability to deliver our throughput commitments in this still challenging production environment is remarkable.
Martin: Thanks to their support and dedication we were able to deliver excellence to our clients.
Martin: Thanks to our customer for their continued support and confidence and finally to our supplier. Many thanks for helping us maneuvering in this challenging production environment.
Martin: These results represent a sustainable trend of performance, surpassing our historical levels supported by lasting improvements and a record backlog of $951 million.
Martin: The aerospace industry outlook remains very strong.
Martin: Global passenger traffic is back to pre pandemic levels and yet that is forecasting continued growth.
Joelle: On the defense side, geopolitical tensions have added urgency to the defense industry's effort to maintain, develop, and launch new aircraft programs, and we are very active on a number of defense platforms. The high demand we are seeing from prime contractors worldwide attests to the trust and recognition our customers have in the quality, safety, and excellence of our products. This recognition is further echoed in Boeing's $35 million commitment to partnering with us on the development of advanced landing gear technology via the new Aerospace Innovation Zone in Long Beach. Jol, we are now ready to answer questions.
Martin: On the defense side geopolitical tension at added urgency to the defense industry's effort.
Martin: Maintain the blob and launched new aircraft programs and we are very active on a number of defense platforms.
Martin: The high demand, we are seeing from prime contractors worldwide.
Martin: At test to the trust and recognition our customers have and the quality safety and excellence of our products.
Martin: This recognition is further at gold and boeing's $35 million commitment.
Martin: Partnering with us on the development of advanced landing gear technologies via the new Aerospace innovation zone and loyalty.
Martin: As well we are now ready to answer questions.
Speaker Change: Thank you.
Joelle: Thank you. If you would like to ask a question, simply press star, then the number on your telephone keypad. If you would like to withdraw your question, please press star, too. Again, if you have a question, please press star, then the number on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Kunar Gupta with Scotiabank. Your line is now open.
Speaker Change: I'd like to ask a question simply press Star then the wondering your telephone keypad, if he would like to withdraw your question. Please press star two.
Speaker Change: Again, if you have a question. Please press Star then the wondering your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from Kunal <unk> with Scotiabank. Your line is now.
Kunar Gupta: Thanks, Operator. Good morning, everyone. Good morning.
Speaker Change: Thanks, operator, and good morning, everyone.
Good morning, Mark.
Kunar Gupta: I think great results there, absolutely. If I can, you know, like dig into the margin performance, which was pretty strong, and I don't think we have seen something like that in a long time on a normalized basis, the warnings were great pricing. You said, obviously, it's offsetting inflation. It's not finally catching up.
Speaker Change: Great results there absolutely.
Speaker Change: If I can dig.
Speaker Change: Dig into the margin performance, which was pretty strong and I don't think we have seen something like that in a long time on a normalized basis.
Speaker Change: The one is one way pricing you said, obviously, it's offsetting inflation is now finally catching up problem.
Kunar Gupta: Probably that supports the margin expansion, and there's some operating leverage as well, maybe, right? And then you probably obviously restructured the business during the pandemic to support higher margins in the future. Do you think the 18% margin is a more sort of normalized reflection of your business today? You know, like in the fourth quarter, obviously, it's a stronger quarter normally, but it's an 18% reflection of what your business is capable of today? Or was there something unusual in the quarter that drove that or helped that? Or was there something that pushed the margin down? You know, like, could you have done more than 18%?
Speaker Change: Probably that supports margin expansion based some operating leverage as well may be right in that you, probably obviously restructured the business or the pandemic.
Martin Brassens: You said a lot of things, so essentially, we were asked the same question in Q3, right? Is this a one-off?
Speaker Change: Support higher margins in the future.
Speaker Change: These tend to be 18%.
Speaker Change: Margin is a more sort of normalized reflect chunk of your business today like in fourth quarter, obviously, its a its a stronger quarter normally.
Speaker Change: But its 18% reflection of walk to your business is capable of today or was there something one off in the quarter that drove that and held back or was there something that pushed the margin down you know like could you have done more than 18%.
Speaker Change: You want to go where you said.
Speaker Change: No you've said a lot of thing got Knoxville.
Speaker Change: And Tim Z E.
Speaker Change: We were asked the same question in Q3 right is that the one.
Martin Brassens: I think the team is delivering right on the order we asked. So, what you said, the operating leverage, right, all the initiatives we took in the past 18 months or two years are paying off. And I think you highlighted what was done during the pre-pandemic as well. So addressing, right, the cross-structure during that period of time. I think everything, when you sum it up, we are in a very good position, right, and we are delivering on those decisions.
Speaker Change: I think.
Speaker Change: The team is delivering right.
Speaker Change: On the order we add.
Speaker Change: So what you said the operating that rich right all of the initiatives. We took in the past 18 months or two years is paying off.
Speaker Change: And I think you highlighted what was done.
Speaker Change: During pre pandemic as well so addressing the cost structure during that period of time I think a good thing when you summed it up.
Speaker Change: And very good position and we are delivering on those results.
Stéphane Larsonneau: And just to add there, you know, Stephane, every business unit contributes to the bottom line when everybody, you know, delivers on their plan. That's what's happening.
Speaker Change: Just to add that rig business unit.
Speaker Change: Contribute to the bottom line so.
Speaker Change: Everybody you know the liberal in their plan.
Speaker Change: What's happening.
Kunar Gupta: Right. No, that's great. Thanks.
Speaker Change: Right no that's great. Thanks.
Speaker Change: Now in terms of the growth.
Speaker Change: Profile.
Kunar Gupta: Now, in terms of the growth profile, Sybil is still doing pretty well. Obviously, it is coming off of a low base. It's a 777, it's rebounding, and you have the Embraer platforms which are also performing well.
Speaker Change: The symbol is still doing pretty well, obviously this is coming off a low base.
Speaker Change: Triple seven it's rebounding and you have the Embraer platform, so it's performing well.
Kunar Gupta: You know, when you look at the backlog, Ian, I know you pointed out in your presentation remarks about the geopolitical tensions and all that. Plus, maybe some of the aftermarket pricing is getting a lot of traction these days. Volumes are going up as well because of all the supply chain issues. I'm wondering if the backlog, which went up by 10%, was all driven by defense, or would there be any contribution from Sybil? And I'm asking this because we are seeing, obviously, a lot of issues in the commercial aviation supply chain, including Boeing, of course. So, can you help us split out what the backlog drivers were this quarter?
Speaker Change: When you look at the backlog I know you pointed out and we are prepared remarks about.
Speaker Change: The geopolitical tensions and all that.
Speaker Change: Maybe some of the aftermarket.
Speaker Change: Pricing is getting a lot of traction. These days why things are going up as well because the bulk of the supply chain issues.
Speaker Change: I'm wondering if the backlog Mitch mentioned by 10% was it all driven by defense or would there be any contribution from civil.
Speaker Change: And I'm asking this because we are seeing obviously a lot of issues.
Speaker Change: Issues in the commercial aviation supply chain, including Boeing of course.
So can you help us split out what the back from drivers for this quarter. Thank you.
Martin Brassens: Well, the backlog increased in both segments, so we're very fortunate to be present in all of the segments of the aerospace industry, mainly CIVIL and DEFENSE, and then all the sub-segments, as you know, were present in everything. So we see demand and the backlog. It's always important to remind ourselves that these are only firm POs. It's not the committed order.
Speaker Change: Well the backlog increase in both segments.
Speaker Change: So we're very fortunate to be present in all of this segment of the aerospace may.
Speaker Change: Maintenance email and defense and then all of the sub segments. As you know we're present and everything so we see the man in the backlog. It's always important to remind that this is only for mpls. It's not the committed orders. So there's a time also timezone because if we had to include all the contracts that we sign over.
Martin Brassens: So there's a time also, a time zone, because if we had to include all the contracts that we signed, you know, over and above the PO, we would be well above the $1 billion mark. So, we saw, you know, so like I said in my remarks, you know, we see strong demand in both segments, you know, and the platform, the driving platform in the Civils are 777, Creator, the Falcon, CIS-X will go up in revenue, right, E-2 is also, you know, the E-2 jets, and in the main defense platform, we see growth in the CH-53K, we see growth in the CH-47, we see growth in many defense platforms, and also, you know, The F-18 program, you know, will phase out, as you know, production, but we're entering in the phase, you know, that we had strategically thought, you know, back when we won that contract in the aftermarket revenue and in the MRO revenue. So we're well positioned to continue our trade.
Speaker Change: And above the deal we would be well above the 1 billion Mark. So we saw you know so like I said in my remarks, we see strong demand in both segments.
Speaker Change: And the platform the driving platform and the savings are triple seven creator.
Speaker Change: <unk> will go up in revenue right.
Speaker Change: Two was also you know that E jets and the and the main defense platform, we see growth in the CH 53 games, we see growth in the in the CH 47, we see growth in that in many defense platform and also you know.
The F 18 program, you know will phase out as you know production, but we're entering in the face.
Speaker Change: But we had strategically thought back when we won that contract.
Speaker Change: And the aftermarket revenue in the MRO rubbing salt, so we're well positioned to continue our trend.
Kunar Gupta: That's great, and if I can follow up on that aftermarket comment before I turn it over. Have you seen any substantial, or significant interest from customers in aftermarket. And I know you are more into aftermarket in defense as compared to civil, but given the supply chain mess up right now we are seeing globally, are you seeing a lot of demand for aftermarket products? And did you see that in the quarter zone?
Speaker Change: That's great and if I can follow up on that upmarket comment before I turn it all works.
Speaker Change: Have you seen any substantial.
Speaker Change: Our significant interest from customers and aftermarket and I know you have more aftermarket and defense that's compared to civil.
Speaker Change: But given the supply chain mess up right. Now we are seeing globally are you seeing a lot of demand for aftermarket products and did you see that in the quarter itself.
Martin Brassens: Not in our actual results yet, but we see that there's going to be some opportunity there, right, especially in defense. You know that we choose not to produce or manufacture landing gear for all the USAF platforms, so that could be a good opportunity for us. But also, you know, it's active, but the growth is going at the same rhythm as the OE business.
Speaker Change: Nothing in our actual results yet.
Speaker Change: But we see that there's going to be some opportunity there right.
Speaker Change: Especially the defense.
Speaker Change: You know that turns up to two two to produce or to manufactured landing gear for all the new SAP platform, so that could be a good opportunity for us.
Speaker Change: But also it's active but the growth has to go with the same within months of the <unk> business for us.
Kunar Gupta: That's great. Thanks, and congrats again.
Speaker Change: Okay. That's great. Thanks, Congrats again.
Joelle: Thank you. Thank you, Conor.
Speaker Change: Thank you. Thank you got it.
Benoit Poirier: Your next question comes from Benoit Poirier with Desjardins. Your line is now open.
Speaker Change: Your next question comes from Ben Wyatt plaque with dish.
Speaker Change: <unk> is now open.
Benoit Poirier: Hey, good morning, my friend, good morning, and congrats on the Héroux-Devtek.
Speaker Change: Hey, good morning, Thanks, Good morning, Jeff.
Speaker Change: Their responsiveness.
Martin Brassens: Thank you very much.
Speaker Change: Thank you Bella, Illinois.
Benoit Poirier: Just in terms of organic growth, we see very strong organic growth, especially on the silver side, with 65% of feed in this quarter. Could you maybe provide more granularity about the contribution from pricing actions taken?
Speaker Change: Yes.
Speaker Change: The organic growth, obviously very strong organic growth, especially on the civil side.
Speaker Change: 55% of Steve in the quarter.
Speaker Change: Can you provide more granularity about the contribution from.
Speaker Change: Right.
Speaker Change: Thank you.
Speaker Change: Well we have.
Speaker Change: Yes.
Speaker Change: Salaries linked directly we have been very difficult to hear you.
Sorry.
Speaker Change: Okay, sorry, guys Lucky seizure, okay. It should be better now just in terms of better yes, yes, okay. Just in terms of the organic growth you achieved 55% for civil in the quarter. So very strong performance could you may be talk about the the impact from pricing.
Benoit Poirier: Okay, it should be better now, just in terms of...
Speaker Change: Action taken in <unk> should we expect Burger pricing benefits going through fiscal year 'twenty five.
Stéphane Larsonneau: Well, essentially, we have growth in the platform we listed right in our MD&A, so this is a continuous initiative. You cannot, in our business, have a repricing or adjusted pricing in the same fiscal year, so this will be over a couple of fiscal years before we will see the pricing effect from the contracts expiring and also the full benefit from the one implemented this fiscal year. So this is where we stand, but the demand is strong, right, as Marte said earlier, the order book or the backlog. We see growth in both civil and defense.
Speaker Change: Well essentially we have a growth in the platform, we listed right in and that we're in.
DNA.
Speaker Change: So this is a continuous it initiative right.
In our business.
Speaker Change: No.
Speaker Change: Re pricing or I, just the adjusted pricing in the same.
Speaker Change: Same fiscal year. So this will be over a couple of a fiscal year that we would see.
Speaker Change: You know the pricing effect from contracts expiring and also the full benefit from the one implemented this fiscal year. So so this is where we stand but the.
Marty: The amendment is strong right as Marty said earlier, the order book for the backlog.
Marty: We see growth in both civilian and defense.
Stéphane Larsonneau: And it's a combination, margin improvement, it's a combination of several factors.
Marty: And it's a combination of margin improvement its a combination of.
Marty: Several factors.
Benoit Poirier: Okay, that's great. And this week, earlier, we saw a nice announcement with Boeing. They are going to invest here in Quebec, but also in Longueuil, and Héroux-Devtek will benefit as well. So could you talk about the positive impact, and what is your expectation in terms of the benefits with Boeing going forward?
Okay, that's great and this week earlier, we saw a nice announcement with Boeing we are going to invest the ear in Quebec, but also in longer.
Speaker Change: The tech will benefit as well so could you talk about the the positive implication and what is your expectation in terms of.
Speaker Change: And it fits with the Boeing going forward.
Martin Brassens: Well, it's always good news and a good opportunity for us, you know, to have leaders such as the largest OEM in the world come here and express their desire to work with us in developing new driving gear technologies. So it could be technology, right? It could be new platforms. It could be everything.
Well, it's always a good news and good opportunity for us to have leaders such as.
Speaker Change: The largest OEM in the world.
Speaker Change: Come here.
Speaker Change: And expressed their desire to work with us and of lapping luteinizing geared technology. So it could be technology breakthroughs could be new platforms that could be everything so it's always.
Benoit Poirier: So it's always, you know, refreshing. And it's always good to put in new keys when we have leaders in the aerospace industry that clearly express their desire to work with us. We'll see where the future is going to lead us, Benoit, but we enjoy a strong relationship with many customers, and Boeing is one of them.
Speaker Change: Refreshing it is always good opportunities when when we have.
Speaker Change: Leaders in the aerospace industry.
Speaker Change: Could you be expressed their desire to work with us.
Speaker Change: We'll see where the future is going to lead us but in what.
Speaker Change: But we.
Speaker Change: We enjoy a strong relationship with many customers and Boeing is one of them.
Stéphane Larsonneau: In terms of free cash flow, very good performance. Looking at your leverage, it went down. You haven't been active in terms of buyback in the quarter. Was there any reason why, and given your leverage ratio significantly improved, is M&A now back on the table?
Speaker Change: Okay and in terms of free cash flow very good performance looking at your leverage went down.
Speaker Change: You haven't been active in terms of buyback in the quarter was was there any reason why given your leverage ratio significantly improve us.
Speaker Change: Now back on the table.
Benoit Poirier: So you see, Benoit, as you said, free cash flow was a good free cash flow quarter. We need some stabilization and generation of free cash flow before going as aggressive as we have been in the past for the NCIB. So we just want to be prudent because it's still a challenging environment. Our strategy is paying off, but let us deleverage a little bit and then we'll be back.
Benoit: So you see Benoit.
Speaker Change: And you said it in our free cash flow was.
Speaker Change: A good free cash flow quarters, we need some stabilization in generation of free cash flow before going as aggressive that we had been in the past four.
Speaker Change: In CIB.
Speaker Change: So so we just wanted to be prudent because it's still a challenging environment.
Speaker Change: And all of that our strategy is paying off.
Speaker Change: But let us deleverage a little bit and then we will be back.
Joelle: Okay, thank you very much, and congrats again.
Speaker Change: Okay. Thank you very much and congrats again.
Speaker Change: Thank you.
Cameron Dirksen: Your next question comes from Cameron Dirksen with National Bank Financial. Your line is now open.
Speaker Change: Your next question comes from Cameron Derksen with National Bank Financial your line is now.
Cameron Dirksen: Yeah, thanks. Good morning. Good morning. I wanted to ask you about the bidding process. You mentioned that you were very active, especially on the defense side. Obviously, you're not going to go into specific things that you're bidding on here, but just wondering if there's business out there that you're bidding on now that would contribute to revenue growth over the next couple of years, or are you looking at more things that are kind of longer-term programs?
Speaker Change: Yeah. Thanks, good morning.
Martin Brassens: Just any color there would be helpful.
Speaker Change: Good morning.
Cameron Derksen: So I wanted to ask you about the the bidding activity I mean, you cited you'll very active especially on the defense side.
Speaker Change: Youre not going to go into specific things that you're bidding on here, but just wondering if there's a if there's business out there that you're bidding on now that would contribute to revenue growth over the next couple of years or is it more things that youre looking at that are kind of longer term programs just any color there would be helpful.
Cameron Dirksen: Both. It's both, you know, depending on the system we're working on. It is both, but we're also working actively on a long, long-term plan. So, you know what's happening in the U.S., you know what's happening in Europe, you know what's happening in South Korea. So, uh, so... Of course, you know, there's not many Landing Gear people out there, you know, electro-mechanical actuation and actuation and defense, specialized defense products. We have all that in our portfolio, so yes, all the business units are very active in defense programs.
Speaker Change: It's both.
Speaker Change: On the funding of the of the system, we're working on.
Speaker Change: It is.
Speaker Change: Both.
Speaker Change: We're also working on that.
Speaker Change: Actively on long ongoing platform.
Speaker Change: You know what's happening in the U S. You know what's happening in Europe, you know what's happening in South Korea. So.
Speaker Change: So of course, you know there's not many landing gear people, you know electromechanical actuation and actuation and defense specialized defense product, we have all of that in our portfolio of salt.
Speaker Change: Yes, all the business units are very active in defensible runs right now.
Martin Brassens: And I just wonder if you can provide some, I guess, some sort of estimate around what you think the CapEx will be in fiscal 2025. And just thinking kind of longer term. You've had a significant rebound here in revenue, you know, above pre-pandemic levels. How much more can you grow without having to, I guess, invest more in plant and equipment? I mean, I guess the question is, where are you as far as capacity utilization is concerned?
Speaker Change: Okay.
Speaker Change: And I just wonder if you can provide some I guess some sort of estimate around what you think the capex will be in fiscal 2025.
Speaker Change: And then just thinking kind of longer term I mean, you've had a significant rebound here and then the revenue.
Speaker Change: Above the pre pandemic levels, how much more can you grow without having to I guess invest more in plant and equipment. I mean, I guess the question is where where are you as far as capacity utilization.
Stéphane Larsonneau: It's always a difficult question to answer, but we do our forecast for over five years. But the thing, like I explained in previous calls, you know, we're trying hard, you know, the automation, reducing the machining hours, is reducing the need for CAPEX. So we started that initiative two years ago. And again, you know, we always told you that, you know...
Duane: It's always a difficult question Duane So look we do our forecasting over five years.
Speaker Change: Right.
Speaker Change: But the things like I explained in the past calls.
Speaker Change: Hi.
Speaker Change: The automation.
Reducing the machining hours is reducing the need of the Capex. So we've started that initiative two years ago and again, you know that we always told you that.
Stéphane Larsonneau: It's between 4% to 5% of sales that you should really consider.
Speaker Change: It's between 4% to 5% of sales.
That you should you should really gone through and we've got the new life itself.
Speaker Change: Okay.
Alright, I'll pass along thanks very much.
Cameron Dirksen: We had mentioned in the previous quarter that pre-pandemic, we were growing at that time, and we had guidance in place at that time, anywhere between 650 and 680. This is where we were growing at that time. But these were with 2020 pricing, right?
Speaker Change: Ameren right.
Speaker Change: We have mentioned that in the previous quarter.
Speaker Change: <unk> where are we.
Speaker Change: We're growing at a time.
Speaker Change: We have guidance in place at that time.
Speaker Change: Anywhere between 650 and succeed and this is where we were going at that time.
Speaker Change: But these were with we need to win the pricing right. So.
Stéphane Larsonneau: So... inflation has come, and obviously contracts are reflecting more and more the new pricing. So we have capacity ahead of us to continue to grow. And CAPEX-wise, it's the same answer we're giving typically, right? It's around the 5% mark, so in terms of CAPEX that we're spending annually, typically. So that will continue to be our plan. Okay, so that's helpful.
Speaker Change: Inflation, that's come in obviously contract.
Speaker Change: Reflecting more and more of the new pricing so.
Speaker Change: We have capacity ahead of us.
Speaker Change: Two to continue to grow in.
Speaker Change: And Capex wise.
Speaker Change: The payments or would giving.
Speaker Change: The key right its around the 5% Mark so in terms of the Capex that we're spending annually typically.
So.
Speaker Change: So that's that will continue to be our plan.
Cameron Dirksen: Okay, so that's helpful. Thanks very much.
Speaker Change: Okay. That's helpful. Thanks very much.
Darren: Thank you Darren.
Joelle: Your next question comes from Tim James with TD Cowan. Your line is now open.
Speaker Change: Your next question comes from Ken James with TD Cowen. Your line is now open.
Tim James: Thank you. Good morning.
Ken James: Thank you good morning, great quarter.
Speaker Change: Just wondering stephane could you comment on or provide any any thoughts around sort of remaining working capital investments that are required for.
Tim James: Great quarter. Just wondering, Stefan, could you comment on or provide any thoughts around the sort of remaining working capital investments that are required for the balance of the year? How should we think about the need for cash to go into working capital, sorry, for the balance, for fiscal 25 at this point? Yes, sure. So.
Ken James: For the balance of the year, how should we think about it.
Speaker Change: The need for cash to go into working capital it sorry.
Speaker Change: Sorry for the balance for fiscal 'twenty five at this point.
Stéphane Larsonneau: Sure, so as you have seen, we are in a growth mode, right? Everything is pointing out in that direction.
Stephane Could: Okay sure so.
Speaker Change: As <unk> seen.
Speaker Change: We are in a growth mode right every everything is pointing out in that direction.
Stéphane Larsonneau: The other book, which is 40% higher than two years ago, and we have an inventory to support growth, especially our work in process position. We're very well positioned to start the year of fiscal 2025. So as this year is completing, I think we'll see more stabilization of our inventory over the year. So I think we pointed out at that time, 18 months. I think it's going to be around that period in the next fiscal year. I think things will be stabilized in fiscal 2025, and essentially, the investment, as you see that we've done in inventory, is in support of the growth we are experiencing in our business.
Speaker Change: The order book, which is a 40% higher than two years ago.
We have the inventory to support.
Speaker Change: Wrote suspicious suspicion you or work in process position.
Speaker Change: We're very well positioned to start the year.
Speaker Change: Fiscal 2025, so as as this year is completing I think we'll see more stabilization of our <unk>.
Terry: And then Terry.
Over the year. So I think we pointed out at that time 18 months.
Terry: I think it's going to be around that 30 and in the next fiscal year I think things will stabilize into.
Terry: Fiscal 2025.
Terry: Essentially the investment as you see that we've done.
Terry: In theory is in support of that we are entertaining in our business.
Speaker Change: Okay. Thank you.
Tim James: When you look at the opportunities, the bidding that you're doing, the opportunities that you see ahead, whether it's over the next couple of years or the very, very long-term opportunities, Um, can those be achieved if you have success on those? Can those you be successful in winning some significant work packages?
Speaker Change #100: When you look at the opportunities that the bidding that youre doing the opportunities that you see ahead, whether it's over the next couple of years with a very very long term opportunities.
Speaker Change #100: Are those can those be achieved if you have success on those can those.
Speaker Change #100: Okay.
Speaker Change #100: <unk> be achieved.
Speaker Change #100: Delivered while keeping capex in that kind of 5% plus or minus range or.
Speaker Change #100: Could there be opportunities, where you have a capex commitment that more closely resembles.
Speaker Change #101: Going back to the see the triple seven investment that you've made many years ago I realize that was a bit unique and one off.
Speaker Change #102: Could you just talk about what capex might be required. If you are successful in winning some significant work packages.
Martin Brassens: Yes. So, to give you the perspective, Tim, is that we, you know, we've been introducing many platforms over the years. If you look at where we were in 2008 and where we are today, if you exclude the 777, it's easy to get in the program when you're at the beginning of our program. So your CAPEX profile, you know, will go with and will better match the revenue.
Speaker Change #103: Yes so.
Speaker Change #104: I'll give you the perspective.
Speaker Change #104: <unk>.
We you know we've been introducing many platform over the over the years.
Speaker Change #104: If you look at where we were in 2008 and where we are today you know.
Speaker Change #104: If you exclude the triple seven east Capex, it's easy to get in the Pearl Brad.
Speaker Change #105: Or are you at the beginning of our call. So your capex profile.
Speaker Change #105: We'll go with will better match with our risk with the revenue when you haven't obviously when you have a triple seven.
Martin Brassens: When you have, obviously, when you have a triple seven, right, and you're at zero, and you need to produce capacity to get to a hundred ships a year, I haven't seen many landing gear companies doing that in the industry. So those are, you know, big challenges, and we demonstrated that we could do them. So, if we don't have things like that, the 777, GAPEX profile, normally follows the revenue generation in a more steady flow than what we had when we did the 777.
Speaker Change #105: And Europe zero, and you need to produce capacity to get to 100 chipset the year.
Speaker Change #105: Haven't seen many landing gear company doing that in the industry. So those are big.
Big challenges and we've demonstrated that we could do it so.
Speaker Change #105: So if we don't have you know things like that the triple seven Capex profile.
Speaker Change #105: No normally falls that revenue generation.
Speaker Change #105: In the more steady year flow than what we had when we did the triple seven.
Stéphane Larsonneau: So we have many, many platforms on which we have embedded growth because of these reasons that Martin explained, right? It's an investment we've made in the past, in the past years when production rates are increasing. The 53K is an example. The investment we've made in our program, either Creator, 6X, 10X, these are all programs that will have an increased rate or entry in service in the next couple of years.
Speaker Change #105: So we have many many platforms that we have embedded growth because of these resume that mark Thanksgiving right.
Speaker Change #105: Investment we've done in the past.
Speaker Change #105: In the past years debt.
Speaker Change #105: Production rates are increasing to 53 days, an example, right.
Speaker Change #105: The investment we've done.
Speaker Change #105: Our program either create or six six index right. These are all program.
Speaker Change #105: It will increase.
Speaker Change #105: Increase rate or entry into service in the next couple of years. The key effects. It's also another example in Q 'twenty five in Q1 than I am.
Stéphane Larsonneau: The KFX is also another example. And the MQ25. And then it can go on and on and on. So, to your question, I mean, those platforms, right, will enter into service or grow in rate in the next couple of years, which will...
Speaker Change #106: Go on and all of the nominees.
To your question I mean does platform right.
Speaker Change #106: We'll enter into service overall in the rate in the next next couple of years, which will accelerate our growth.
Speaker Change #106: Yeah.
Tim James: Yeah, I'm thinking, you know, primarily, as you've addressed, Martin, sort of future opportunities that you might win as opposed to those new ones that you've got that are ramping up. And just if there's any way any of them could sort of require, you know, CapEx measured in the, you know, tens of millions.
Speaker Change #106: Yeah.
Speaker Change #106: I'm thinking primarily.
Speaker Change #107: As you've addressed marchand sort of future opportunities that you might win as opposed to those new ones that you've got that are ramping up.
Speaker Change #108: And just if theres any way any of them could sort of require capex measured in the tens of millions.
Speaker Change #109: And before I would take for a particular trip particular with another triple seven.
Martin Brassens: It's again, it's that when you're entering into a new program, so that your customer goes from 1 to 5 to 10, should be set up, and it takes, you know, 4 or 5 years to get the rate, right? So you're developing these platforms, and then you build up your capacity slowly, gradually, and you don't even see it, right, in the numbers. But if you have a big one where you have zero, and you need to meet the rate within a specific period of time, let's say two, three, four, five years, this is really where, depending on the rate, that will generate the CAPEX above the 5% rate.
Speaker Change #109: Another driven.
Speaker Change #110: It's again, it's that when you are entering in a new program. So that your customer going from one to five to 10 ships set up and it takes four or five years to get the rate right. So you had the lumping. These platform over and then you build up your capacity slowly gradually and you don't even see it.
Speaker Change #110: And the numbers, but if you have a big one where you had zero.
Speaker Change #110: And you need to meet rate within a specific period of time. That's a 2345 years. This is really where depending of the rate.
Speaker Change #110: We'll generate the capex above the 5% threshold.
Speaker Change #111: Yes, yes.
Speaker Change #112: When you reflect back on triple sediment and the Capex that was required for that.
Speaker Change #113: Would you do anything differently.
Speaker Change #114: My view is you just you got caught the market took an unexpected turn shortly after that investment, but you know.
Martin Brassens: [inaudible] It's tough to fault you for that, but with the 777 experience and the timing of the CAPEX or the amount or the sort of terms of it, would you do anything different or if again in the future if something similar were to come along? But also, always, you know, with experience, we can always improve, but to get that contract put us on the map, and it propelled us to become, you know, a leader in our field.
Speaker Change #115: And it's tough to fault you for that but with the <unk>.
Speaker Change #115: Triple seven experience and the timing of the capex or the amount or the sort of terms of it would you do anything different or is it again in the future if something similar were to come along.
Speaker Change #116: I'll wait with experience, we can always improve but to get that contract with us on the map right.
Speaker Change #116: Proposal to us too.
Speaker Change #116: A leader in the in our field so.
Martin Brassens: So, you know, financially, like you said, 777, we built up capacity for 100 ship sets, and now we go as low as two ship sets a year, right? But, of course, we would have done something differently, you know. We're less naive than we were in 2013, right, obviously. So, I will not share that with you on the line, but, of course, we have experience now, and that makes us better, and we grow through this experience. So, and again, like I said, I want my shareholders to understand that. Not many teams would have done what we did. Okay, that's all. I'm very proud of you.
Speaker Change #116: Financially like you said you know triple seven we built up capacity people 100 chipset that now.
Speaker Change #116: We went to as little as two ship set the year right.
Speaker Change #116: But of course, we would we would have done.
Speaker Change #116: Something differently.
Speaker Change #116: Less naive than we were in 2013 right obviously.
Speaker Change #116: We will not show that on you would you want them.
Speaker Change #116: But of course any.
Speaker Change #116: We have experience now.
Speaker Change #116: And that makes us.
Speaker Change #116: Better than we grew through this.
Speaker Change #116: Through this experience so and again like I said.
Speaker Change #116: I wanted my shareholder to understand that is that many team would have done what we've done.
Speaker Change #117: Yeah, Okay, that's how very proud.
Tim James: If I could just squeeze one more in, just turning back to this quarter specifically, the fourth quarter. Was there anything that surprised you internally, positively, in the quarter, or was this really all kind of running according to plan?
Speaker Change #118: Yes, if I could just squeeze one more in just just turning back to this quarter specifically the fourth quarter was there anything that surprised you internally.
Speaker Change #119: Positively in the quarter that or was this really all kind of running according to plan.
Martin Brassens: Of course, because we always maneuver. We're a decentralized environment, right?
Speaker Change #119: Of course, all of US all of us.
Speaker Change #120: Because we always been maneuvering when decentralized environment right, there's always hiccups that we need to watch out but this one in all the stars aligned properly. So yes. We were surprised you know about these these days, but our plan supported that.
Martin Brassens: There are always hiccups that we need to watch out for, but this one, all the stars aligned properly. So yes, we were surprised about these things, but our plan supported that. So, it seems that the strategy, and all the strategies working with the suppliers, you know, uh, inventory, specifically stabilizing the production system, et cetera, et cetera, drove those results.
Speaker Change #120: It seems that the strategy in all the strategy working with the suppliers you know.
Speaker Change #120: Inventory, specifically stabilizing the production system et cetera et cetera.
Speaker Change #120: Drove those results, but I'm, not saying that we aimed to have bumps in the road yet.
Martin Brassens: But I'm not saying that we ain't going to have bumps in the road yet, you know. We always need to be cautious because it's still a difficult environment. It's still production. The orders are there, but it's challenging... And that's why I thank the customers, the suppliers, and the employees, because it's really a team effort to overcome all of these challenges. I'll business with you.
Speaker Change #120: You always need to be cautious because it's still a.
Speaker Change #120: It's still it's still a difficult environment.
Speaker Change #120: Production.
Speaker Change #120: The orders are there, but it's a challenging.
Speaker Change #120: And that's why I think the customers suppliers and employees.
It's really a team effort to overcome all of these challenges our business unit performed to their plan.
Stéphane Larsonneau: Our business unit performed to the planned timeframe. So it's just at the end, the level of contingency, right? managing the environment, right, it looks like. Things are stabilizing a bit, but the inventory investment that we did is paying off as well. Super, okay.
Speaker Change #120: So.
Speaker Change #120: That's out of the yen.
Speaker Change #121: Olaf contingency right.
Speaker Change #121: Managing.
Speaker Change #121: Right.
Speaker Change #121: Right.
Speaker Change #121: Things are stabilizing a bit but then Vince every investment that we did is paying off as well.
Tim James: Super. Okay. Thank you very much. Have a good day, Tim.
Speaker Change #122: Super Okay. Thank you very much.
Speaker Change #122: Have a good data.
Speaker Change #122: Yes.
Joelle: Ladies and gentlemen, as a reminder, should you have a question, please press star one. There are no further questions at this time. I will now turn the call back to management for closing remarks.
Speaker Change #123: Ladies and gentlemen, as a reminder, should you have a question. Please press star.
Speaker Change #123: One.
men Trepp: There are no further questions at this time I will now turn the call back to men Trepp for closing remarks.
Martin Brassens: Yes, thank you, Jol, and I... could not excuse myself before closing the call to not thank our shareholders for their continued trust and confidence in our company, in our team, and in our business. So thanks again for your interest, level of interest, and continued support of us. Thank you and have a good day.
Speaker Change #125: Yes, thank you as well and I could.
Speaker Change #125: Nothing excuse myself before closing the call to not thank our shareholder.
Their continued trust and confidence in our company and our team and in our business. So thanks again for.
Speaker Change #125: Your interest level in interest and continued support in us. Thank you and have a good day.
Joelle: Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
Speaker Change #126: Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.
Joelle: Thank you.
Speaker Change #127: So who would use board.
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Speaker Change #127: Okay.
Speaker Change #127: [music].
Speaker Change #127: Okay.
Speaker Change #127: [music].
Speaker Change #127: Yes.