Q2 2024 Martinrea International Inc Earnings Call
Mr. Robb will de Boer. Please go ahead Sir.
Instructions for submitting questions will be provided to you later in the call.
Good evening everyone.
Robert Wildeboer: I would not like to turn the call over to Mr. Rob Wildeboer.
Speaker Change: Thank you for joining us today, we always look forward to talking with our shareholders. 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 we disseminate our results and commentary through our network.
Robert Wildeboer: Please go ahead, sir.
Robert Wildeboer: Good evening, everyone. Thank you for joining us today. We always look forward to talking with our shareholders. We hope you 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 we disseminate our results and commentary through our network.
Speaker Change: With me Tonight are fat to Raimo, Martin CEO or president of Fred to coastal and our new Chief Financial Officer, Peter surplus.
Robert Wildeboer: With me tonight are Pat Duramo, Martin Reyes, CEO, our president, Fred Tosto, and our new chief financial officer, Peter Cirulis. As you know, Peter is new to the call. Going forward, we will generally all be on the call to address questions you may have, but we'll balance out the presentations. Sometimes all will say a few words; sometimes not all. We'll provide a variety for you.
Speaker Change: As you know Peter is new to the call.
Speaker Change: Going forward, we will generally all beyond the call to address questions. You may have but will balance out the presentations, sometimes I'll say a few words, sometimes not all will provide a variety for ya.
Speaker Change: Today, we will be discussing Martin <unk> results for the quarter ended June 32020 for a solid quarter as you see from our press release.
Robert Wildeboer: Today, we will be discussing Martin Reyes' results for the quarter end of June 30, 2024, a solid quarter, as you see from our press release. I refer you to our usual disclaimer in our press release and file documents.
Speaker Change: I refer you to our usual disclaimer in our press release and filed documents.
Speaker Change: First Pat will make some comments, then fred's and Peter than me and we will do Q&A and now here's Scott.
Robert Wildeboer: First, Pat will make some comments; then Fred, then Peter, then me. Then we'll do Q&A.
Scott: Thanks, Rob good evening everyone.
Scott: As noted in our press release, we generated adjusted net earnings per share of <unk> 58, and an adjusted EBITDA of $166 million in the second quarter, a new record for the company.
Pat Duramo: And now here's Pat. Thanks, Rob. Good evening, everyone. As noted in our press release, we generate an adjusted net earnings per share of 58 cents and an adjusted EBITDA of $166 million in the second quarter. A new record for the company. Adjusted operating income margin came in at 6.3%. 30 basis points better than our first quarter on similar production sales quarter over quarter. A nice improvement. Operationally, we're performing well. We continue to effectively manage the larger headwinds; supply constraints, inflationary cost pressures, and tight labor markets are generally improving. The slower than expected ramp up in electric vehicle programs has resulted in underutilized capacity across the automotive industry.
Speaker Change: Adjusted operating income margin came in at six 3% 30 basis points better than our first quarter on similar production sales quarter over quarter.
Speaker Change: A nice improvement.
Speaker Change: Operationally, we're performing well, we continue to effectively manage the larger headwinds supply constraints inflationary cost pressures and tight labor markets are generally improving.
Speaker Change: The slower than expected ramp up in electric vehicle programs has resulted in underutilized capacity across the automotive industry.
Speaker Change: We're able to mitigate some of the volume reductions with many of our customer contracts.
Speaker Change: Some of which include volume adjustments capital paid upfront a recovery early in the contract term along with other measures.
Pat Duramo: We are able to mitigate some of the volume reductions with many of our customer contracts, some of which include volume adjustments, capital paid up front, or recovery early in the contract term, along with other measures. We continue to progress related to our commercial negotiations with customers. In addition to obtaining compensation for ED volume shortfalls, we may seek compensation for some ongoing inflationary items. We expect this activity to continue for the foreseeable future, as ED volumes are likely to remain at lower levels for at least the next couple of years. North America results are consistent quarter over quarter on steady production sales.
Speaker Change: We continue to progress related to our commercial negotiations with customers. In addition to obtaining compensation for EV volume shortfalls, we may seek compensation for some ongoing inflationary items. We expect this activity to continue for the foreseeable future as EDI volumes are likely to remain at lower levels for at least the next.
Speaker Change: Couple of years.
Speaker Change: North America, our results are consistent quarter over quarter on steady production sales in general we're performing well in North America, both operationally and financially our U S plants of let a lot of the post pandemic improvement.
Pat Duramo: In general, we're performing well in North America both operationally and financially. Our U.S. Plans have led a lot of the post-pandemic improvement. In Europe, we've made progress in proving our operations, and our restructuring efforts are varying through. Overall, we're happy with the performance in Europe, considering the volumes in this segment, mainly EVs, remaining well below planned levels. Turning to our rest of the world segment, results were better quarter over quarter, as we are now ramping up on a new program with BMW in China. In addition, we have had some favorable commercial settlements. This segment is smaller relative to the other operations, which we view as a benefit in the current environment.
Speaker Change: In Europe, we've made progress improving our operations and our restructuring efforts are bearing fruit.
Speaker Change: Overall, we're happy with the performance in Europe, considering the volumes in this segment, mainly evs remained well below planned levels.
Speaker Change: Turning to our rest of the World segment results were better quarter over quarter. As we are now ramping up on a new program with BMW in China. In addition, we have had some favorable commercial settlements.
This segment is smaller relative to the other operations, which we view as a benefit in the current environment.
Overall, our performance was steady quarter over quarter and year over year, we have capacity for a higher level of business. So it will take time to get margins back to pre pandemic levels.
Pat Duramo: Overall, our performance will steady both quarter over quarter and year over year. We have to pass the times for a higher level of business, so it will take time to get margins back to pre-pandemic levels. Having said that, operations are solid. We're launching better with every program, and our margins are up, as you've seen in Q2.
<unk> said that operations are solid.
Speaker Change: Launching better with every program and our margins are up as you've seen in Q2.
Speaker Change: Moving on I'm pleased to announce that we have been awarded new business with $125 million in annualized sales that mature volumes, which include $75 million in our lightweight structures commercial group consisting of various structural components with multiple customers, including Volvo Honda Mercedes General Motors, along with <unk>.
Pat Duramo: Moving on, I'm pleased to announce that we've been awarded new business worth $125 million in annualized sales at mature volumes, which include $75 million in our lightweight structures commercial group consisting of various structural components with multiple customers, including Volvo, Honda, Mercedes, General Motors, along with some others, and $50 million in our propulsion systems group with Ford. Overall, we're pleased with our second quarter performance, while EV softness and higher industries are resulting in a relatively flat year-over-year industry production volume profile. We expect 2024 will be a good year with steady production sales and strong positive pre-cash flow.
Speaker Change: Others.
Speaker Change: And $50 million in our propulsion systems group with four.
Speaker Change: Overall, we're pleased with our second quarter performance, while <unk> softness and higher interest rates are resulting in a relatively flat year over year industry production volume profile. We expect 2024 will be a good year with steady production sales and strong positive free cash flow.
Speaker Change: Looking out longer term, we are well positioned within our industry first.
Speaker Change: While we are not immune to the slowdown in that it affects the short term. The fact that we are mostly propulsion agnostic enables us to adapt to any mix of vehicles over the long term.
Pat Duramo: Looking out longer term, we are well positioned within our industry. First, while we are not immune to EV slowdown and that it affects the short term, the fact that we are mostly propulsion agnostic enables us to adapt to any mix of vehicles over the long term. Our product applies to all vehicle types and architectures. This is relevant, particularly in the context of the current political environment in the United States. Given the stark contrast and views on EV mandates between the Democrats and Republicans in an election year. Next, interest rates, although higher than recent historical standards, appear to have peaked.
Speaker Change: Our product supply to all vehicle types and architectures. This is relevant particularly in the context of the current political environment in the United States given the Stark contrast in views on <unk> mandates between the Democrats and Republicans.
Speaker Change: In an election year.
Speaker Change: Next interest rates, although higher than recent historical standards appeared to have peaked.
Speaker Change: Already coming down in Canada, and seem likely to come down in United States as well.
Speaker Change: This means vehicle affordability should improve which bodes well for the future production volumes and sales.
Pat Duramo: They are already coming down in Canada and seem likely to come down the United States as well. This means vehicle affordability should improve, which boasts well for the future production volumes and sales. Lastly, our North American centric orientation in limited footprint in China is a positive. Given the current geopolitical environment, the trend towards reshoring or near-shoring of supply chains, the USMCA, and the fact that the environment in China has become more challenging for four NOEMs who are losing market share to domestic brands. For all those reasons, we believe we are well positioned in this environment.
Speaker Change: Lastly, our north American centric orientation and limited footprint in China is a positive given the current geopolitical environment.
Speaker Change: <unk> towards re shoring or near shoring of supply chains U S. MCA and the fact that the environment in China has become more challenging for foreign Oems, who are losing market share to domestic brands.
Speaker Change: For all those reasons, we believe we are well positioned in this environment.
Speaker Change: With that I would like to thank the entire Martin Ray a team for their hard work and dedication in these continued challenging times.
Pat Duramo: But that, I would like to thank the entire Martin Rea team for their hard work and dedication in these continued challenging times.
Gary: Gary spread.
Gary: Thanks, Pat and good evening everyone.
Gary: Pam noted our Q2 results were strong consistent with the prior quarter and general line with our expectations.
Fred Tosto: Here is Fred. Thanks, Pat, and good evening, everyone. This patent noted that our Q2 results are strong, consistent with the prior quarter and genuine line with our expectations. Overall, we are driving a healthy level of free cash from the business that we believe is sustainable. We are executing on our capital allocation priorities, including returning capital to shareholders through substantial share buyback activity in the quarter, and our balance sheet remains in great shape.
Speaker Change: Overall, we are driving a healthy level of free cash flow from the business that we believe is sustainable we are executing on our capital allocation priorities, including returning capital to shareholders through substantial share buyback activity in the quarter and our balance sheet remains in great shape.
Speaker Change: We held our AGM back in June where we discussed among other things our performance relative to some of our peers.
Speaker Change: To summarize the discussion our financial metrics are among the best in our industry.
Fred Tosto: We held our AGM back in June, where we discussed, among other things, our performance will take to some of our peers. The Sunrise of Discussion, our financial metrics are among the best in our industry; the trailing 12-month margins and free cash regeneration as a percentage of sales that are among the best in our peer group, and a leverage ratio in the lower range of our industry peers as of Q1. This is a notable achievement, and something that just doesn't get noticed enough, quite frankly. I'm very proud of our team and the work they have done in delivering this performance.
Speaker Change: Trailing 12 month margins and free cash flow generation as a percentage of sales that are among the best in our peer group.
Leverage ratio in the lower range of our industry peers as of Q1.
Speaker Change: This is a notable achievement and something that just doesn't get noticed enough quite frankly.
Speaker Change: I'm very proud of our team and the work they have done in delivering this performance.
Speaker Change: Switching gears as many of you know.
Speaker Change: <unk> stepped away from the CFO role.
Speaker Change: We're continuing to serve the company as president overseeing operations in some of the more strategic aspects of the business.
Fred Tosto: Switching years, as many of you know, I recently stepped away from the CFO role, so I continue to serve the company as president, or we're seeing the operations of some of the more strategic aspects of the business. It's been an honor serving as CFO for the last 13 years, as it continues to be an honor to serve as president. My plans remain active on the investor relation side, so I continue to participate on an earnings call as well as investor conferences and meetings moving forward.
Speaker Change: There has been an honor serving as CFO for about 13 years as it continues to be an honor to serve as president.
Speaker Change: I plan to remain active on the Investor Relations side. So we'll continue to participate on an earnings calls as well as investor conferences and meetings moving forward.
Speaker Change: At this point I would like to introduce Peter <unk>, our new Chief Financial Officer.
Peter: Peter has over 30 years' experience in the automotive parts industry and has been with <unk> since 2018 most.
Fred Tosto: At this point, I'd like to introduce Peter Cyrillis, our new Chief Financial Officer. Peter is over three years experiencing the automotive parts industry and has been with Martin Ray since 2018, most recently as Executive Vice President of our aluminum group and head of our lightweight structures commercial group. Prior to joining Martin Ray, Peter worked with Dana Incorporated in a variety of operational financial roles, including Vice President, Finance, and Operational Excellence for Dana's Commercial Vehicle Group, a role in which you report the path. Before that, he worked for Robert Bosch in a variety of financial leadership roles.
Peter <unk>: Most recently as executive Vice President of our aluminum group and head of our lightweight structures commercial group.
Peter <unk>: Prior to joining <unk>, Peter work with Dana incorporated in a variety of operational and financial roles.
Speaker Change: <unk>, Vice President Finance and operational excellence for Dana its commercial vehicle group.
Speaker Change: <unk> enrolled in which you report the path.
Speaker Change: Before that he worked for Robert Bosch, and a variety of financial leadership roles.
Speaker Change: It's been an absolute pleasure working with Peter in the last six years.
Speaker Change: I am confident that the finance function will be in strong hands under Peter's leadership.
Fred Tosto: It has been an absolute pleasure working with Peter over the last six years, and I am confident that the finance function will be in strong hands under Peter's leadership, and that is a good move for our company and our business. In addition to being CFO, Peter will remain head of our lightweight structures commercial group. This will provide the right balance of financial and operational experience in the role.
Speaker Change: And that is a good move for our company and our business.
Speaker Change: In addition to being CFO Peter over to remain ahead of our low restructured commercial group.
Peter <unk>: This will provide the right balance of financial and operational experience in the rollout.
Peter <unk>: So without further Ado, here's Peter to discuss the second quarter financial results in more detail.
Peter <unk>: Thanks, Brad I'm excited about my new role at the company and look forward to meeting many of you.
Peter Cirulis: So, without further ado, here is Peter to discuss the second quarter financial results in more detail.
Peter <unk>: Taking a closer look at the results quarter over quarter, we generated an adjusted operating income of $81 6 million up slightly from $79 $2 million that we generated in quarter, one on similar level of production sales.
Peter Cirulis: Thanks, Fred.
Peter Cirulis: I'm excited about my new role at the company. I look forward to meeting many of you. Taking a closer look at the results quarter over quarter, we generated an adjusted operating income of 81.6 million, up slightly from 79.2 million that we generated in quarter one, on a similar level of production sales. Tuning sales declined by over 40% quarter over quarter, as they continued to moderate from the elevated levels that we saw in 2023, as expected. Adjusted operating income margin came in at 6.3% of 30 basis points quarter over quarter, largely reflecting the decline in tooling sales, which generally carry low margins.
Peter <unk>: Tooling sales declined by over 40% quarter over quarter as they continued to moderate from the elevated levels that we saw in 2023 as expected.
Adjusted operating income margin came in at six 3% up 30 basis points quarter over quarter, largely reflecting the decline in tooling sales, which generally carry lower margins.
Note that adjusted operating income excludes $5 4 million in restructuring charges and as expected and discussed on the last call, reflecting some right sizing activity across our operations.
Peter Cirulis: Note that adjusted operating income excludes 5.4 million in restructure and charges and has expected and discussed on the last call. Reflecting some right sizing activity across our operations. We have essentially concluded this exercise, although we continue to evaluate ways to drive additional costs out of the business. Moving on, adjusted net earnings per share came in at 58 cents. After taking into account net foreign exchange rate fluctuations, which were bigger tailwind in quarter one in quarter two, adjusted EPS was fairly consistent quarter over quarter. We also experienced a higher effective tax rate in quarter two compared to quarter one.
Peter <unk>: We have essentially concluded this exercise, although we continue to evaluate ways to drive additional cost out of the business.
Moving on adjusted net earnings per share came in at 58.
Peter <unk>: After taking into account net foreign exchange rate fluctuations, which were a bigger tailwind in quarter, one and quarter two adjusted EPS was fairly consistent quarter over quarter.
Peter <unk>: We also experienced a higher effective tax rate in quarter, two compared to quarter one.
Peter <unk>: Free cash flow before <unk> 16 lease payments came in at $51 7 million higher than the negative $1 4 million in quarter, one reflecting the typical seasonality in working capital flows.
Peter Cirulis: Free cash flow before IFRS 16 lease payments came in at 51.7 million, higher than the negative 1.4 million in quarter one, reflecting the typical seasonality and working capital flows. However, it's also a significant improvement over the 26.5 million of free cash flow we generated in quarter two of 2023, reflecting lower capital spending. Excluding lease payments under IFRS 16 accounting, quarter two 24 free cash flow was 38.3 million compared to 14.6 million in quarter two of last year. As we indicated on the last call, the 100 to 150 million of free cash flow, excluding lease payments that we expected to generate in 2024, is expected to be weighted to the back half of the year, which is consistent with the 2023 experience.
Peter <unk>: However, it is also a significant improvement over the $26 5 million of free cash flow, we generated in quarter two of 2023.
Reflecting lower capital spending.
Peter <unk>: Excluding lease payments under <unk> 16, accounting quarter $2 20 for free cash flow was $38 3 million compared to $14 6 million in quarter two of last year.
Peter <unk>: As we indicated on the last call the $100 million to $150 million of free cash flow excluding lease payments that we expect to generate in 2024 is expected to be weighted to the back half of the year, which is consistent with the 2023 experience.
Peter <unk>: Now looking at our performance on a year over year basis second quarter. Adjusted operating income of $81 6 million was largely consistent with quarter two of last year on production sales that were roughly flat and our adjusted operating income margin of six 3% was up 20 basis points from the six 1% generated in quarter two of last year.
Peter Cirulis: Now, looking at our performance on a year-over-year basis, second quarter adjusted operating income of 81.6 million, which is largely consistent with quarter two of last year on production sales that were roughly flat. And our adjusted operating income margin of 6.3% was up 20 basis points from the 6.1% generated in quarter two of last year. I refer you to our quarter two MDNA for commentary on our year-over-year variances. Overall, the results were consistent year-over-year, though free cash flow was a lot better, as I just noted.
Peter <unk>: Here.
Peter <unk>: I refer you to our quarter two MD&A for commentary on our year over year variances.
Peter <unk>: Overall, the results were consistent year over year, the free cash flow was a lot better as I just noted.
Peter <unk>: Now turning to our balance sheet net debt again, excluding <unk> 16 lease liabilities decreased by approximately $4 million quarter over quarter to $852 million.
Peter Cirulis: Now, turning to our balance sheet, net debt, again excluding IFRS 16 lease liabilities, decreased by approximately 4 million quarter over quarter to 852 million. This reflects the free cash flow profile for the quarter, as previously outlined, as well as the funding of approximately 7.3 million in cash restructuring costs. And roughly 24 million spent to repurchase approximately 2 million shares to our normal course issue were bid during the quarter. Our net debt to adjusted EBITDA ratio ended the quarter at 1.49 times; that was slightly from the 1.51 times at the end of the quarter, 1.24. Our leverage ratio remains within our long-term target range of 1.5 times, or better, and we intend to maintain our leverage within that range over time.
Peter <unk>: This reflects the free cash flow profile for the quarter as previously outlined as well as the funding of approximately $7 3 million in cash restructuring costs and roughly $24 million spent to repurchase approximately 2 million shares through our normal course issuer bid during the quarter.
Peter <unk>: Our net debt to adjusted EBITDA ratio ended the quarter at 149 times down slightly from the $1 five one times at the end of the quarter one 2024.
Peter <unk>: Our leverage ratio remains within our long term target range of one five times or better and we intend to maintain our leverage within that range over time.
Peter <unk>: Turning to our 2024 outlook that remains unchanged and we're on track to meet it based upon our year to date performance.
Peter <unk>: As a reminder, our 2024 outlook calls for total sales between five and $5 3 billion.
Peter Cirulis: Turning to our 2024 outlook, it remains unchanged, and we're on track to meet it based upon our year-to-date performance. As a reminder, our 2024 outlook calls for total sales between $5.3 billion and adjusted operating income margin of between $5.7 and $6.2, and the free cash flow, excluding IFRS 16 lease payments, of between $100 to $150 million. These payments are currently running at approximately 13 million per quarter, so the free cash flow outlook, including IFRS 16 lease payments, is roughly $50 to $100 million. Looking at the back half of the year, we're starting to see a return of the more normal seasonal pattern within our industry, where sales are higher in the first half of the year and lower in the second.
Peter <unk>: And adjusted operating income margin of between $5 $7 six two in the free cash flow, excluding <unk> 16 lease payments of between $100 million to $150 million.
Peter <unk>: These payments are currently running at approximately $13 million per quarter. So the free cash flow outlook, including <unk> 16 lease payments is roughly $50 million to $100 million.
Speaker Change: Looking at the back half of the year, we're starting to see a return of the more normal seasonal pattern within our industry, where sales are higher in the first half of the year and lower in the second.
Speaker Change: Compared to the last few years, we are now seeing Oems, taking seasonal shutdowns and more of their operations. This summer our supply chain to have improved and production has stabilized.
Peter Cirulis: Compared to the last few years, we are now seeing OEMs taking seasonal shutdowns in more of their operations this summer, as supply chains have improved and production has stabilized. As we indicated on the last call, we expect to generate the bulk of our free cash flow for the year in the second half, given the typical seasonal unwind of working capital within our industry. Overall, we expect a solid year, both financially and operationally, and we continue to perform at a high level, and a balance sheet is in great shape.
Speaker Change: As we indicated on the last call, we expect to generate the bulk of our free cash flow for the year in the second half given the typical seasonal unwind of working capital within our industry.
Speaker Change: Overall, we expect a solid year, both financially and operationally and we continue to perform at a high level our balance sheet is in great shape.
Speaker Change: With that I'll turn it now over back to Rob.
Rob: Thanks Peter.
Rob: Final brief note related to capital allocation our approach as described in the Investor note on our website in.
Robert Wildeboer: With that, I turn you now over back to Ralph.
Robert Wildeboer: Thanks, Peter.
In Q2, we generated approximately $108 million in cash from operations.
Robert Wildeboer: A final brief note related to capital allocation. Our approach is described in an investor note on our website. In Q2, we generate approximately $108 million in cash from operations. Capital expenditures are about $53 million, as we continue to invest in support of new business wins and incremental equipment needs. Next, we pay our usual dividend to our shareholders, approximately $4 million; $16 million on an annualized basis. Lastly, as Peter noted, we purchased approximately 2 million shares for cancellation under our normal-course-ish orbit, representing about 2.5% of the outstanding shares of the company. Total cash spent was approximately $24 million.
Rob: Capital expenditures or about $53 million as we continued to invest in support of new business wins and incremental equipment needs.
Rob: Next we paid our usual dividend to our shareholders approximately $4 million $16 million on an annualized basis lash.
Rob: Lastly, and as Peter noted, we purchased approximately 2 million shares for cancellation under our normal course issuer bid representing about two 5% of the outstanding shares of the company.
Peter <unk>: Total cash spend was approximately $24 million, we believe our stock is a great investment, particularly at the current valuation, which is near its historic low on a multiple basis, we intend to continue to buyback some stock at these levels.
Robert Wildeboer: We believe our stocks are a great investment, particularly at the current valuation, which is near its historic low on a multiple basis. We intend to continue to buy back some stock at these levels.
Peter <unk>: To summarize we've invested in our business made some positive strategic investments kept our balance sheet strong.
Robert Wildeboer: To summarize, we have invested in our business, made some positive strategic investments, kept our balance sheet strong, and returned capital to shareholders in the quarter with our dividends and bought back. In terms of allocating capital, we will consider anything that makes Martin Ray a better, but not at the expense of our strong financial status. We believe consistent free cash flow generation is the road to a higher valuation.
Peter <unk>: And return capital to shareholders in the quarter with our dividends and buy back.
Peter <unk>: In terms of allocating capital, we will consider anything that makes martin ramp better but not at the expense of our strong financial status. We believe consistent free cash flow generation is the road to a higher valuation.
Speaker Change: Finally, a big thank you to our people. Thank you for your dedication every day I note that many of our plants have one supplier quality and other awards from customers in the last 12 months, our people are performing very well their dedication and ingenuity underpin our numbers.
Robert Wildeboer: Finally, a big thank you to our people. Thank you for your dedication every day. I note that many of our plans have won supplier quality and other awards from customers in the last 12 months. Our people are performing very well. Their dedication and ingenuity underpin our numbers.
Speaker Change: Now it's time for questions, we see we have shareholders analysts employees and even some competitors on the phone.
So we may have to be a little careful with our answers, but we'll answer what we can and thank you all for calling in.
Robert Wildeboer: Now, it's time for questions. We see we have shareholders, analysts, employees, and even some competitors on the phone. So we may have to be a little careful with our answers, but we will answer what we can. And thank you all for calling in. Thank you.
Speaker Change: Thank you.
Speaker Change: We will now take questions from the telephone lines. If I have a question. Please press star one on your devices.
Speaker Change: You may canceling a question at any time by pressing star two.
Operator: We will now take questions from the telephone lines. If you have a question, please press star one on your devices. Keep that. You may cancel your question at any time, but we're saying star two.
Speaker Change: The first question is from Penny Chen from BMO capital markets. Please go ahead.
Speaker Change: Hi, good afternoon. Thanks for the question starting with Europe here.
Tanisha: The first question is from Tanisha from Be More Capital Markets.
Tanisha: Please go ahead. Hi, good afternoon. Thanks for the question.
Penny Chen: Can you talk a bit about that segment I think generally.
Speaker Change: We were assessing particularly on the customer recoveries I think historically, that's been more back half weighted but yes.
Tanisha: Starting with Europe here. Can you talk a bit about that segment? I think generally, we were expecting particularly under customer recovery. I think historically, that's been more back half-weighted, but the first half of this year, that segment's been quite strong. Can you just talk a bit about how we should think of the performance in the first half of this year and what to expect in the first half? So, generally speaking, I think all of the different segments we were doing in the EEDVL and some particular, some of our poll customers there. So expect that to continue the foreseeable future, as we've noted.
Half of this year that segment has been quite strong. So can you just talk a bit about how we should think of.
Speaker Change: Performance in the first half this year and what to expect in the back half.
Speaker Change: So generally speaking I think.
Speaker Change: The biggest headwinds where we've been doing.
Sure.
Speaker Change: The Evo and <unk> in particular with some of our core customers there.
Speaker Change: Do you expect that to continue in the foreseeable future as we've noted so thats its a bit of a headwind I think in the front half of the year, we did benefit from some commercial settlements.
Speaker Change: And I expect that to normalize in the back half of the year, We've always said that Europe in general.
Tanisha: So, that's a bit of a headwind. I think in the front half of the year, we did benefit from some commercial settlements. and I expect that to normalize in the back half of the year. We've always said that Europe, in general, compared to North America, will always be a lower margin of segment for us, and we expect that to be the case this year. Although, you know, we've made some improvements there, done some restructuring, so we're expecting, you know, the segment to perform at a reasonable level, considering some of the long headings that we're dealing with.
Speaker Change: Compared to North America will always be a lower margin segment for us.
Speaker Change: We expect that to be the case this year.
Speaker Change: Although we've made some improvements there done some restructuring so we're expecting.
Speaker Change: The segment to perform at a reasonable level.
Considering some of the long items that we're dealing with.
Speaker Change: Got it okay and on the recoveries in general I think you are aware.
Speaker Change: Adding to it.
Speaker Change: With respect to electric vehicles volumes, they'll probably be lower for some time.
Tanisha: Got it. Okay.
Tanisha: And on the recoveries in general, I think, you know, you were alluding to, with respect to the electric vehicles, volume sale, probably be lower for some time. The general sense in terms of negotiating for these recoveries going forward, or should we expect that it's still a similar amount, or are you finding that will normalize itself as well, relative to the last few years that you've received? Sure. Thanks for the question. I would expect that the commercial recoveries continue as a part of our, the part of our normal business, for the foreseeable future, given the fact that you mentioned the easy landscape looks a little bit rocky at the moment.
Speaker Change: The general sense in terms of negotiating for these recoveries going forward or should we expect that it's still similar amount or are you finding that will normalize itself as well relative to the last few years.
Speaker Change: Steve.
Steve: Sure thing thanks for the question.
Steve: I would expect that the commercial recoveries continue as a part of our.
Speaker Change: Part of our normal business for the foreseeable future given the fact that you mentioned the easy landscape looks a little bit rocky at the moment. So currently we're tracking to a run rate I would say that similar to the recent past so it's expected to be.
Tanisha: So, currently we're tracking to a, to a run rate I would say that's similar to at least in past, so it's expected to be a continuing part of our business going forward. Yeah.
A continuing part of our business going forward.
Speaker Change: I think there is maybe a bit of a change in <unk> and some other things a return address so look at the pass throughs more geared to recoveries on inflationary cost increases there is still some of that going forward.
Tanisha: Now, I think there's maybe a bit of a change in some of the things that we're trying to address. So, you know, look at the past. It was more geared to recoveries on inflationary cost increases. There's still some of that going forward; managed to bake some in into the piece price, but not in all cases. So, we're going to continue to negotiate those as we move forward here. And, you know, a lot more that's getting out of the way to the long shortfalls I've been dealing with. Got it. Thank you very much.
The biggest amendment piece price, but not in all cases, so we're going to continue negotiate those as we move forward here.
Speaker Change: And a lot more <unk> weighted to the volume shortfalls that were dealing with.
Speaker Change: Got it thank you very much.
Speaker Change: Thank you.
Christopher <unk>: The next question is from Christopher <unk> from CIBC. Please go ahead.
Christopher <unk>: Hi, Thanks for taking my question.
Chris Staff Reason: Thank you. The next question is from Chris Staff Reason, from CIBC.
Christopher <unk>: I was just wondering if you could speak to your guidance. So you've been able to hold at this quarter you held it last quarter.
Chris Staff Reason: Please go ahead. Hi, I'm interested in my question. I'm just wondering if you could speak to your guide. And so, you've been able to hold at this quarter; you held it last quarter in the face of production forecast, kind of coming down so this year. And given, I think the industry typically has 20 to 25 percent decarimental margins.
Christopher <unk>: Face.
Speaker Change: Production forecast kind.
Kind of coming down for this year.
Speaker Change: And given I think the industry typically is 20% to 25% decremental margins can you speak to how you've been able to to hold that guide and mitigate some of these.
Speaker Change: These forecasted numbers that arent as great as they were to beginning of the year.
Chris Staff Reason: Can you speak to how you've been able to hold that guide and mitigate some of these forecasted numbers that aren't as great as they were at the beginning of the year? Yeah, thank you very much, Chris. So, we're, we'll be consistent with our guidance at this point. As we mentioned in previous calls as well, we have some commercial activities which are a little bit lumpy, as you might say, quarter to quarter. So, those will, as I mentioned in the previous question, those will continue into the third and fourth quarter. So, we expect that some of those commercial activities also keep us consistent with the guidance, despite some of the inventory bill that you mentioned.
Speaker Change: Yes, Thank you very much Chris so.
Speaker Change: Consistent with our guidance at this point as.
Speaker Change: As we've mentioned in previous calls as well.
Speaker Change: We have some commercial activities, which are a little bit, let's say lumpy as you might say quarter to quarter. So those will as I mentioned in the previous question. Those will continue into the third and fourth quarter. So we expect that some of those commercial activities also.
Speaker Change: <unk> is consistent with our guidance. Despite some of the inventory build that you mentioned.
Speaker Change: Know also that the.
Speaker Change: Saar or was the highest it's been in July at the $16 7 million vehicles, So where we're seeing some strength there if you will.
Chris Staff Reason: We know also that the SAR was the highest it's been in July at 16.7 million vehicles. So, we're seeing some strength there, if you will. So, going into the second half, we'll remain consistent with our guidance.
Speaker Change: Going into the second half.
Speaker Change: We remain consistent with our with our guidance.
Speaker Change: For <unk> in July of our U S segment I think the most important thing, though is as I understand the forecast and the forecasts have been wrong.
Chris Staff Reason: Yeah, during the 58th thing in July, I think the most important thing to know is to understand the forecasts, and the forecasts have been wrong every year for the last four years. So, yeah, the one thing, as we said, our remarks, the traditional approach to the industry pre-COVID was pretty strong. Q1, Q2 was often the strongest quarter. Q3 saw adjustments, particularly in North America, as the audience takes some shutdowns, and Q4 tend to also see some of that, depending on where inventory levels start at the end of the year, in holidays. Yeah, and I think there's, there's someone certain is the second half of the year, typically the first half of the year, and I say, typically pre-COVID, first half of the year was generally better than the second half, and we may see some of that.
Speaker Change: Every year for the last four years.
Speaker Change: Yes.
Speaker Change: One thing as we said on our remarks.
Speaker Change: The traditional approach to the industry.
Speaker Change: Pre Covid was pretty strong Q1, Q2 is often our strongest quarter Q3, you saw adjustments, particularly in North America as Oems different shutdowns in Q4 tended to also see some of that depending on where inventory levels are at the end of the year and holidays and I think theres some uncertainty.
Speaker Change: <unk> is the second half of the year typically the first half of the year I would say, it's typically pretty solid first half of the year with share better than the second half and we may see some of that I think there's some questions out there. However.
Speaker Change: Through customers deal with inventory levels out of the deal with incentives that type of thing and we just got to work through.
Chris Staff Reason: I think there's some questions out there as how do customers deal with inventory levels, how do they deal with incentives, and that type of thing, and we just have to work through it.
Speaker Change: The other reason that our numbers are pretty good as our operations are running very well right now and we've spent a lot of time focused on that and there's a reason that we have the margin profile that we do our operations for the most part are running well.
Chris Staff Reason: The other reason that our numbers are pretty good is our operations are running very well right now, and I was still a lot of time focused on that, and you know, there's a reason that, you know, we have the margin profile that we do. Our operations, for the most part, are learning well. Okay, great. Thank you for the answer, and I'll jump back in the queue. Thanks. Thank you.
Okay, great. Thank you for the answer and.
Speaker Change: I will jump back in the queue. Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Michael Glen from Raymond James. Please go ahead.
Speaker Change: Okay.
Michael Glen: Good evening.
Michael Glen: The next question is from Michael Glenn from Raymond James. Please go ahead. Okay, good evening.
Michael Glen: Just looking at the operating margin.
Michael Glen: Guidance.
Speaker Change: Is there a path to we're talking about the business.
Michael Glen: So just looking at the operating margin, guidance, is there a path to, we're talking about the business, like seasonality, returning to something that looks like pre-COVID? Is there also a path that we can think about this business as a whole, getting back to pre-COVID operating margin levels? Yeah, I think over time, certainly, that's our target. You know, our biggest, biggest tenwind had been the inflationary costs, which we've recovered, you know, quite a bit of that, and put a lot of it into the peace prices, spread earlier indicated. But, as new models, our new launches come on stream, and older ones drop off, that becomes the best opportunity to get your peace price back in order, like it was pre-COVID, and that takes a couple of years.
Speaker Change: Seasonality returning to something that looks like.
Speaker Change: Covid is there.
Speaker Change: So a path that we can think about this business as a whole getting back to.
Pre COVID-19 operating margin levels.
Speaker Change: Yes.
Speaker Change: I think over time, certainly that's our target.
Speaker Change: And our biggest.
Speaker Change: The biggest headwind has been the inflationary costs, which we've recovered quite a bit of that and put a lot of it into the peace prices spread earlier indicated.
Speaker Change: But as new models or.
Speaker Change: New launches come Onstream and old ones drop off that becomes the best opportunity to.
Speaker Change: Pete your piece price back in order like it was pre Covid and that takes a couple of years. We will continue to work on it between now and then on current models and certainly any extensions gives you an opportunity as well.
Michael Glen: We'll continue to work on it, you know, between now and then on current models. It's certainly in the extensions, gives you an opportunity as well, and we are starting to see a number of extensions given the EV shortfalls. But it still takes that drop off of, you know, current generation of vehicle, as you'll want us to new one, to really solidify that. You know, operationally, as I said, we're running, you know, as good as we've run, at least in my ten years here. So it's really about gathering up some of these other stones, and, you know, put them out to pasture before we can, you know, say we're back at that 8% type level, or better.
Speaker Change: And we are starting to see a number of extensions given the EV shortfalls.
Speaker Change: But.
Speaker Change: It still takes that drop off of.
Speaker Change: Gen current generation of vehicle as you launched a new one to really solidify that.
Speaker Change: Operationally as I said, we're running it as good as we've run at least in my 10 years here.
Speaker Change: So it's really about gathering up some of these other stones and.
Speaker Change: Put them out to pasture before we can.
Speaker Change: Say, we're back at that 8% type level.
Speaker Change: Better.
Speaker Change: Yeah and abroad since the industry kind of sorted itself out right. So so we've got EV mandates in some places of kind of distort the market we've got people.
Michael Glen: Yeah, and abroad, the industry's got to sort of self out, right? So, so we've got EV mandates in some places that kind of distort the market. We've got people buying hybrids; we've got ICE vehicles. To a certain extent, that creates distortions in the market. And ultimately, the consumer is going to decide. We're very propulsion agnostic, and for the most part, as we noted. But at the same time, you know, it's very important that we don't just lurch from model to model and trend to trend and everything else. And I think that that's one of the clouds overhanging the industry as we work through it.
Speaker Change: Bar and hybrids.
Speaker Change: Got ice vehicles to a certain extent that creates distortions in the market and.
Speaker Change: Ultimately the consumer is going to decide where various propulsion agnostic for the most part as we've noted but at the same time.
Speaker Change: It's very important that we don't want to lurch from model to model and trimmed a trend and everything else and I think that.
Speaker Change: That's one of the clouds overhanging the industry as we work through it but ultimately the overall volume of vehicles is probably going to be very solid for the rest of the decade and.
Speaker Change: We're poised to deal with it it's just it's a little lumpy when somebody launches a new model whatever it is and the volume was 25% or 40% of us predict and that's what's that's what is hurting a lot of people, including only remember <unk> space.
Michael Glen: But ultimately, the overall volume of vehicles is probably going to be very solid for the rest of the decade. And we're point to deal with it. It's just, you know, get a little lumpy when somebody launches a new model, whatever it is. And the volume is 25% or 40% of what's predicted. And that's what's that's what's hurting a lot of people including all the lumpy states.
Speaker Change: And when you bid now would you say the way you bid in.
Speaker Change: I'm not really focused on the ENV dynamic here, but.
Michael Glen: And when you bid now, would you say that the way you bid, and I'm not really focused on the EV dynamic here, but just when you bid on a contract now, is it substantially the same form as you would have bid pre-COVID, or are there meaningful differences now versus how you would have been bid-fed? There are definitely meaningful differences. First off, relative to the EVs, as we've said in the past, we worked some more dynamics into a number, not all, but a number of our contracts as far as volume protection and capital upfront, just dependent on who we were dealing with.
Like when you bid on a contract now is it substantially the same.
Speaker Change: Farm as you would have been pre COVID-19 or is there is there are meaningful differences now versus how you would have been a bit further.
Speaker Change: They are definitely meaningful differences first off relative to Evs as we've said in the past we worked some more dynamics into a number not all but a number of our contracts as far as the volume protection and capital upfront just dependent on who we were dealing with so that helps some.
Speaker Change: Got it doesn't cure the problem of the current lack of volume, but it certainly helps a bit.
Speaker Change: Sure.
Michael Glen: So that helps somewhat. It doesn't cure the problem of the current lack of volume, but it certainly helps a bit. I would say that, in general, a lot of suppliers, as well as the OEMs, have put a lot of money out on the table over the last few years and aren't happy with the current volumes. What that means, in terms of an OEM purchasing person, is suppliers in general, including ourselves, are being pickier about what they decide to bid on. And what we do bid on, we want to make sure we hit our hurdle rates.
Speaker Change: I would say that in general a lot of suppliers as well as the Oems have put a lot of money out on the table over the last few years and are happy with the current volumes what that means in terms of an OEM purchasing person is.
Speaker Change: Suppliers in general, including ourselves are being pickier about what they decided to bid on.
Speaker Change: And what we do better and we want to make sure we hit our hurdle rates.
So.
Speaker Change: Would say that we are definitely moved from what can we win how can we grow what can we win two let's be selective let's be smart, let's continue to grow but lets assure we hit our hurdle rates and so there is more discipline in the system.
Michael Glen: So I would say that we are definitely moved from what can we win, how can we grow, what can we win to, let's be selective, let's be smart, let's continue to grow, let's assure we hit our hurdle rates. And so there's more discipline in the system than I've ever seen, frankly, in my almost 40 years. So I think that's opportunity at the end of the day for us.
Ever seen frankly in my almost 40 years.
Speaker Change: So I think thats all.
Speaker Change: The opportunity at the end of the day for Us.
Speaker Change: Okay.
Speaker Change: Okay, and then I will.
Speaker Change: Just ask another question here like for Europe.
It's trending well so far this year.
Michael Glen: Okay, and I'll just ask another question here, like, for Europe. It's trending well so far this year, but it has been shown volatility and, you know, the market does look to be quite difficult. Like, when you look at your business in Europe, like, how core do you view that to Martin Ray? Yeah, I think that the customers in Europe are important; they're global, they're North America as well as in Europe. But I think, you know, it certainly has its challenges over there. As Fred said, our, you know, we don't expect the same margin profile in Europe as we do in North America, but we do have the same customers.
Speaker Change: It has been shown volatility in.
Martin Ram: The market does look to be quite difficult like when you look at your business in Europe like how core do you view that to Martin Ram.
Speaker Change: I think that.
Martin Ram: The customers in Europe are important they're global.
Martin Ram: There are in North America, as well as in Europe.
Martin Ram: But.
Speaker Change: <unk> certainly has its challenges over there as Fred said are we don't expect the same margin profile in Europe as we do in North America, but we did have the same customers and they are important customers.
Speaker Change: And they tend to do a pretty good job I'll say evs aside.
Michael Glen: And they're important customers, you know; they tend to do a pretty good job. I'll say EBS aside of predicting their volumes and hitting their volumes. And that's, you know, from a supplier point of view, that's a blessing. So it's important to us.
Speaker Change: Predicting their volumes and hitting their volumes and thats from a supplier point of view that's a blessing.
Speaker Change: It is important to us.
Speaker Change: But.
Speaker Change: Growth in Europe, I would say, we would have to be.
Speaker Change: Very disciplined and very attractive for us, especially in western Europe.
Michael Glen: But, you know, growth in Europe, I would say, would have to be, you know, very disciplined and very attractive for us, especially in Western Europe, to pursue something like that. But we're happy with our current footprint. Something comes along that says, "Hey, this is a great deal." Then, you know, we might look at it, but put in the moment. It's important, but pretty stable.
Speaker Change: Pursue something like that.
Speaker Change: But we're happy with our current footprint and if something comes along and says Hey. This is a great deal then we might look at it but.
Speaker Change: But in the moment.
Speaker Change: It is important but pretty stable.
Speaker Change: I think the biggest issue in Europe as Fred said is the lack of the lack of VB sales that were expected there because most people thought Europe would run away with it similar to China, but that has not been the case so far.
Michael Glen: I think the biggest issue in Europe, as Fred said, is the lack of the lack of the sales that were expected there, because, you know, most people thought Europe would run away with it, similar to China, but that has not been the case so far.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thank you as a reminder, you May press star one to ask a question.
Michael Glen: Okay, thanks for taking the questions.
Speaker Change: The next question from Brian Morrison from TD Cowen. Please go ahead.
Operator: Thank you.
Operator: As a reminder, you may press star one.
Brian Morrison: Oh, thanks, very much good evening.
Brian Morrison: If you have a question, the next question is from Brian Morrison, from TD Cohen.
Brian Morrison: Rob I think you mentioned the supply of inventory I was a little high certainly seems that way.
Brian Morrison: Please go ahead. Oh, thanks very much.
Brian Morrison: Yes.
Brian Morrison: Good evening. Robert, I think you mentioned Dave Supply; the inventory was a little high. And certainly feeds that way. That's a big OEM, 3D3.
Oems using three I'm just wondering maybe if you could talk later or Pat can talk the production visibility you have on their key programs with these Oems and the potential for an extended summer shutdowns.
Brian Morrison: I just want to maybe if you could talk about or pack and talk about the production visibility you have on your key programs with these OEMs and a potential for an extended summer shutdown. To hear the last part of the question on the shutdown, I'm just wondering if there's a potential for an extended summer shutdown to normalize the inventory a little bit. No, I don't think we'll see anything change so much in the summer than what's normally planned. I think if there's any type of adjustment at all this year, it would be in December. You know, they might extend, you know, Christmas shutdown or something like that, but we haven't seen it so far.
Speaker Change: I didn't hear the last part of the question on the shutdown.
Speaker Change: Im just wondering if theres a potential for an extended summer shutdown to normalize the inventories a little bit.
Speaker Change: No I don't think well see anything change so much in the summer than what's normally planned.
If there is any type of adjustment at all this year it would be into December.
Speaker Change: They might extend.
Speaker Change: This must shut down or something like that but we haven't seen it so far.
Speaker Change: Again, there is some anticipation as we've already said that the second half is going to lower a little bit but.
Speaker Change: But again forecast the one thing that's been great about the forecast of the name wrong.
Brian Morrison: Again, there's some anticipation as we've already said that the second half is going to lower a little bit, but, again, you know, forecast the one thing that's been great about the forecast of the game are all. I'm constantly and consistently, once we got into the pandemic, so no one's made but a harness to understand that just yet. Can I understand why? Because there was a tremendous anticipation that EVs were going to rocket, which they didn't, and so there's a lot of adjustment going on. But, but, you know, so far volumes, at least in the Q2, Q3, member, relatively stable.
Speaker Change: <unk> constantly.
Speaker Change: <unk> once we got into the pandemic, so no one's been able to harness and understand that just yet and I understand why because there was a tremendous anticipation that evs, we're going to rocket, which they didn't and so theres a lot of adjustment going on.
Speaker Change: But.
Speaker Change: So far our volumes at least in the <unk>.
Q2, Q3, and then relatively stable.
Speaker Change: We haven't seen any.
Speaker Change: Major fluctuation yet.
Speaker Change: Certainly and certainly the stability.
Brian Morrison: And we haven't seen any major fluctuation yet. Certainly, certainly the stability this year has been substantially better than the stability of 23 and 22.
This year has been substantially better than the stability in 'twenty, three and 'twenty two.
The other thing is as we look forward.
Speaker Change: <unk>.
Speaker Change: It's not really a quarter by quarter basis. So I know that that's how we report.
Brian Morrison: The other thing is, as we look forward, it's not really a quarter-by-quarter basis. I know that that's how we report. And we tend to look at our broader basis. The audience will adjust at some point when volumes are lower. Once again, our longer term view is actually pretty bullish on North America. We think the US economy, despite the way where numbers that came out, is in pretty good shape. We think that the average age of the vehicle is now approaching 13 years. There's a lot of demand there. We think there's spent-up demand. We think that one of the reasons for the inventory bill was perhaps that the customers have to recognize they can't quite charge as much for a vehicle.
Speaker Change: And we tend to look at our broader basis, the Oems will adjust at some point when volumes are lower once again, our longer term view is actually pretty bullish on North America, we think the U S economy. Despite the flavor numbers that team is in pretty good shape.
Speaker Change: Thats the average age of the vehicle is now approaching 13 years or so a lot of <unk>.
Speaker Change: Demand there, we think there's pent up demand we think that.
Speaker Change: One of the reasons for the inventory build is perhaps of the customers up to recognize the can't quite charge as much for a vehicle as they could've been done I can sort those things out but overall there is good underlying demand in the marketplace for the next number of years.
Brian Morrison: If they could have been, then I can sort those things out. But overall there's good underlying demand in the marketplace for the next number of years. And by light, it is the industry environment. I think it's pretty clear right now that rates are on how. Depending on how fast that happens. And the weather starts impacting the back half this year to be determined, but the thing at some point that they will. I think it'll really depend on what the OEMs are willing to put on the hood. You know, they've been blessed during the pandemic with amazing margins on their products and not having to put any money on the hood. To now they got to make the determination.
Speaker Change: The other things we highlighted is the interest rate environment I think it's pretty clear right now that rates are going down.
Speaker Change: Hang on how fast that happens.
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: But whether it starts impacting the back half of this year to be determined.
Speaker Change: I think at some point that will.
Speaker Change: I think it will really depend on.
What the Oems are willing to put on the hood.
Speaker Change: They've been blessed during the pandemic was amazing margins on their products and not having to put any money on the hood to know they've got to make the determination do I do it.
Speaker Change: How much do I do it and do I want to get back to my old habits or do I want to at least have a hybrid between the pandemic and now and I think they are wrestling with that but we are starting to see more money thrown on the third of a lot of vehicles right now.
Brian Morrison: Do I do it? How much do I do it? And do I want to get back to my old habits, or do I want to at least have a hybrid between the pandemic and now? I think they're wrestling with that. But we are starting to see more money thrown on the hood of a lot of vehicles right now. So that happened. It helps burst in sales.
Speaker Change: So that happens could help spur some sales as well.
Speaker Change: Right, maybe if I can just take that one step further then when I think out to 2025 understand theres going be low volumes.
Brian Morrison: Well, maybe if I can just take that one step further than when I think out to 2025, I understand there's going to be low EV volumes. What are the key opportunities for you to take your margin guidance or increase your margins in 2025? Are we talking scale or operating efficiencies, pricing, contract, offenses? What could be drivers that you could improve your margins next year? Well, I mean, if the market stays flat, let's say, certainly our best opportunity is operational, continued operational improvement, which we still have some room. And recovery of some of the volume problems that Peter talked about earlier, as well as there’s still some inflationary issues that we have not resolved 100% and continue to negotiate on that front as well.
Speaker Change: What are the key opportunities for you to take your margin guidance or increase your margins in 2025, and we're talking of scale of operating efficiencies pricing contract extensions what can be drivers that you can improve your margins next year.
Speaker Change: Well I mean.
Speaker Change: If the market stays flat, let's say certainly our best opportunity is.
Speaker Change: Operational continued operational improvement, which we still have some room.
Speaker Change: And a recovery of some of the volume.
Speaker Change: Problems that Peter talked about earlier as well is there still some inflationary issues that we have not resolved, 100% and we continue to negotiate on that front as well.
Speaker Change: But I think if I was at.
Peter <unk>: Say everything stays steady I think operational improvements probably our best opportunity.
Brian Morrison: But I think, you know, if I was to say everything stays steady, I think operational improvement is probably our best opportunity. And the other thing is we look for margin improvement over time. I personally think the EV market, the hybrid market, the ICE market, you'll lump you over the next couple of years forward on sort of that. I think that's what real opportunity is over time. We've got some really exciting things going on in the manufacturing side that, you know, that we're just getting started on beyond our normal lean discussion that can really have some significant impact over time.
Peter <unk>: And the other thing is we look for margin improvement over time.
Peter <unk>: I personally think the EV market and the hybrid market <unk> going to be lumpy over the next couple of years, but we're going to sort of.
Peter <unk>: And I think that.
Peter <unk>: That's where our real opportunity is over time.
Peter <unk>: <unk> got some really exciting things going on in the.
Peter <unk>: Manufacturing side that.
Peter <unk>: We're just getting started on beyond our normal lien discussion that can really have some significant impact over time.
Peter <unk>: Made some organizational changes to enhance that.
Peter <unk>: As far as adding different types of technology into our lines that can improve their efficiency.
Brian Morrison: Make the organizational changes to enhance that as far as adding different types of technology into our lines that can improve their efficiency, along with our lean activity that's been ongoing. That I think over the next few years can make a pretty good impact. One other thing to add as customers move through their plan is going to be some extension of the ice programs. And as these ice programs extend, it's always obviously easier to keep producing product that you don't need to launch on. You'll avoid a lot of starting to cost that way as well. So that's an opportunity for us going forward through this transition.
Peter <unk>: Along with our lean activity, that's been ongoing that I think.
Peter <unk>: Over the next few years can make a pretty good impact.
Peter <unk>: One other thing to add as customers move through there.
Peter <unk>: The plan is going to be some extension of ice programs.
And as device programs extend its always obviously easier to keep producing.
Peter <unk>: Product that you don't need to launch on you avoid a lot of startup costs that way as well. So that's an opportunity for us going forward through this transition and those extensions off we have an opportunity to also replace a product inflation.
Peter <unk>: And you can see that in 2020.
Brian Morrison: And those extensions offer you an opportunity to also replace a product. And you could see that in 2025. Yeah, we're already getting a lot of requests for extensions. We've got some extensions already underway. There are a lot that we believe will come to pass. They just haven't yet, but you know, the OEMs need to make product, and if people aren't buying EVs and they're still buying ICE products, you're going to see a letter to extend wherever they can, in my view.
Speaker Change: Yes, yes, we're already getting a lot of requests for extensions. We got some extension is already underway.
Speaker Change: There are a lot that we believe will come to pass they just haven't yet but.
Speaker Change: The Oems need to make product and people arent buying evs and they are still buying ice products youre going to see a lesser to extend wherever they can and might be.
Speaker Change: Okay.
Speaker Change: The only thing of note I want to be clear that these discussions and negotiations aren't easy.
Speaker Change: A discussion on this work can be done and being able to tap into those type of opportunities next year.
Brian Morrison: One thing I want to be clear: these discussions and negotiations aren't easy. There's work to be done in being able to tap into those types of opportunities. Yeah, I understand.
Speaker Change: Understood. Thank you and last question Peter.
Peter <unk>: You're going to your first call, but what's your what's your tax rate for the year, obviously, it looks like your product.
Brian Morrison: Thank you.
Peter <unk>: Key high tax rate and maybe mid 2019, or 29 point something whats your forecast tax rate can you. Please.
Brian Morrison: And last question, Peter. What's your tax rate for the year? Obviously, it looked like you had a pre-high tax rate in meeting in 29 or 29. Something.
Speaker Change: Yes, so good.
Good question, Brian So the Mexican peso exchange.
Peter Cirulis: What's your forecast tax rate for the year, please? Yeah, so good question, Brian. So the Mexican pay so exchange, you know, have a significant impact. You can see on our ETR in the quarter, both by the beginning of the pay, so here just quickly and recently. Right. So we would expect that that same impact carries forward into the second half of the year. I mean, exchange rates are always volatile, unpredictable, and so forth, but it would be expected to be higher here, going into the rest of the year.
Speaker Change: Significant impact you can see on our ETR in the quarter.
Speaker Change: Both by the weakening of the peso here just quickly in recently.
Speaker Change: So we would expect that that same impact carries forward into the second half of the year.
Exchange rates are always volatile unpredictable and so forth, but it would be expected to be higher here going into the into the rest of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you there are no further questions at this time I would like to turn the meeting back over to Mr will double.
Brian Morrison: Okay, thank you. Thank you.
Speaker Change: Thank you. Thank you all for coming along and have some questions and have a discussion.
Operator: There are no further questions.
Robert Wildeboer: At this time, I would like to turn a meeting back over to Mr. Wildeboer.
Speaker Change: We end the call let me summarize three takeaways for you.
Robert Wildeboer: Thank you. Thank you all for coming on and asking questions and having a discussion.
Speaker Change: One propulsion agnostic support solid results in a volatile environment I think we've got a little bit of discussion about how we see it and we think that's going to play out.
Robert Wildeboer: Are we in the call? I mean, summarize three takeaways for you. One, the post-magnosticism support solid results in a volatile EV environment. I think we had a little good discussion about how we see it and we think it's going to play out in that way. We're producing good results with solid margins and free cash flow within this year, and we think there's a lot in the stock.
Speaker Change: In that way.
We're producing good results with solid margins and free cash flow again, this year and we think that's out in the stock.
Speaker Change: If any of you have further questions or would like to discuss any issues concerning lark RF.
Speaker Change: The contacts are on the press release feel free to talk to any of the Forrester <unk>.
Robert Wildeboer: If any of you have further questions or would like to discuss any of the issues concerning Mark Graham, the contacts are on the press release, and feel free to talk to any of us at Neil Forster.
Speaker Change: Good evening.
Speaker Change: Thank you the conference has now ended.
Speaker Change: Please disconnect your lines at this time and thank you for your participation.
Operator: Have a great evening. Thank you.
Operator: The conference has now ended. Please disconnect your lines. At this time, thank you for your part.