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Edited Transcript of XTC.TO earnings conference call or presentation 2-Aug-19 2:00pm GMT

Q3 2019 Exco Technologies Ltd Earnings Call

Markam Aug 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Exco Technologies Ltd earnings conference call or presentation Friday, August 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Darren Michael Kirk

Exco Technologies Limited - President, CEO, COO & Director

* Matthew James Posno

Exco Technologies Limited - CFO & VP of Finance

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Conference Call Participants

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* Ben Jekic

GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research

* Chang Ding

BMO Capital Markets Equity Research - Associate

* David Ocampo

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

* Michael Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* Navdeep Malik

Industrial Alliance Securities Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Exco Technologies Limited Third Quarter Results 2019. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Darren Kirk, our Chief Executive Officer. Please go ahead.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [2]

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Thank you, Charlie. Good morning, ladies and gentlemen. Welcome to Exco Technologies Limited's Fiscal 2019 Third Quarter Conference Call.

I am Darren Kirk, Chief Executive Officer of Exco. I will lead off with an operations overview. Matthew Posno, our CFO, will then review the financial results. There are a number of analysts, shareholders and brokers on the line with us today. In addition, call-in details have been widely disseminated to the public through the news release process. This call is also being simultaneously webcast at our website where we have also posted a short presentation that we will loosely reference. We welcome all participants this morning.

The format of this conference call will be the same as in the past. After the presentation, we will take questions. The call will end at about 10:40. (Operator Instructions)

You should have received our news release by now. If not, it is available at our website at www.excocorp.com or www.sedar.com.

Before we begin, I would like to make some comments about forward-looking information. In yesterday's news release, and on Page 2 of the presentation, you'll find cautionary notes in that regard. While I won't repeat the content of the cautionary notes, we do claim their protection for any forward-looking information that we might disclose on the conference call today.

Needless to say, our results this quarter did not meet our expectations. While revenues mostly held up across our various businesses, some of the increased costs that we experienced in our second quarter did not recede as quickly as we envisioned. As well, market conditions generally became more challenging during the quarter, particularly within the Extrusion group. Nonetheless, across our businesses, we are winning share, we see lots of opportunity and we continue to expect some near-term relief on recent cost pressures. So despite challenges, we remain very optimistic on our prospect for generating improved earnings in the quarters ahead.

For more detail on the quarter, I'll start on Slide 4 with our Automotive Solutions segment. Here of course, we are talking about the combined results of Polytech, AFX, Neocon and Polydesign. Of course, the segment no longer includes the results of ALC. That business was deconsolidated from our financial statements during our second quarter, as we previously disclosed.

Overall, industry light vehicle production in North America was off by about 2%, while production in Europe was down by roughly 7%. Nonetheless, excluding foreign exchange fluctuations and prior year contributions from ALC, segment sales were up 2%. Segment sales were supported by a number of program launches for both new and existing products, particularly at Polydesign and Neocon. Revenue contributions from these launches were -- more than offset declines at AFX and Polytech, which were impacted by mix issues and lower demand on certain programs before others ramp up.

Despite generally softer industry production levels, we see ample opportunity for future growth supported by robust quoting activity for new programs in both North America and Europe. Profitability within the segment was adversely impacted by a number of factors versus the prior year period. In particular, we discussed -- as we discussed last quarter, cost at our Polytech and AFX operations in Mexico were impacted by higher wages and bonus payments to production staff associated with the union negotiations and strike in January of this year. Certain of these costs will remain at elevated levels through our last quarter of fiscal 2019 but, then, are expected to decline.

Catch-up costs associated with lost production days during the strike, as well as severance costs associated with improving future efficiencies, also negatively impacted our results during the quarter. These costs, however, were much less pronounced than in Q2. But we also faced sizable cost increases as we absorbed front end inefficiencies associated with several new product launches at Polydesign, Neocon and AFX. Revenue contributions from these program launches are not yet fully evident. However, we are incurring substantial cost to staff up and train related workforce requirements, which is clearly a challenge in context of relatively tight labor markets. We are, nonetheless, making progress on this front and continue to expect a near-term pickup in both our overall efficiency levels and profitability as these programs season.

Moving on to the Casting and Extrusion segment on Slide 5, and starting with our large mold group, sales there declined year-over-year due mainly to the completion and wind-down of uneconomic programs, as we previously discussed. In fact, despite the revenue decline, profitability within the group improved over the prior year period as well as sequentially.

Our 5-axis manufacturing cell performed very well this quarter, with record levels of spindle uptime and the promise of further efficiencies to come.

As well, we continue to receive heightened interest in our additive capabilities following receipt of the prestigious PACE Award for 3D-printed die components last quarter. We see a number of opportunities with both new and existing customers, where we can leverage our various strengths. And during the quarter, we further positioned ourself to take advantage of expected volume growth with an investment in 2 additional 5-axis machines.

At Castool, the group's innovative portfolio of products remains very well positioned, and it is clearly an industry leader that is gaining share. As in recent quarters, Castool continues to experience higher demand for its capital equipment globally. Demand for its consumable product, however, was again more varied during the quarter, with softer market evident, particularly in Asia. We believe demand has slowed in this region due to -- in part, to a redirection of Chinese exports there, following implementation of U.S. tariffs.

Looking forward, Castool is well underway with its 20,000-square foot Uxbridge plant addition and is also moving forward with its third plant called Castool 90. As discussed in recent quarters, we expect this new plant will enable the group to better penetrate European customers where Castool is currently at a disadvantage given that it lacks proximity to that market.

In our Extrusion Tooling operations, we saw North American market conditions weaken during the quarter driven by an apparent slowdown in the building and construction markets. This caused the group's overall sales to be relatively flat, despite solid initial top line contributions from our new tooling facility in Mexico, which began commercial production on April 1. Group profitability was negatively impacted by reduced overhead absorption at our mature facilities as well as start-up losses in Mexico. While it is difficult to say how long the market slowdown will persist, we remain focused on further improving our efficiency and expect the start-up losses in Mexico will quickly decline as we ramp that plant up.

In summary, it was a difficult quarter operationally, particularly on the cost side of things. Overall, market conditions are a challenge, but we are winning more than our share of new business and continue to expect some relief on cost in the quarters ahead. Meanwhile, we are making significant investments to better position and grow our businesses for future success, even while returning meaningful cash to shareholders and maintaining our exceptional financial strength.

With that, it concludes my operations overview. I will now pass the call over to Matthew to discuss the financial highlights of the quarter.

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Matthew James Posno, Exco Technologies Limited - CFO & VP of Finance [3]

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Thanks, Darren. Good morning, ladies and gentlemen.

Consolidated sales for the third quarter ended June 30 were $119 million, a decrease of 21% or $32.8 million compared to last year. This reduction was essentially due to ALC's prior year sales of $31 million.

A stronger U.S. dollar, partially offset by weaker euro, increased Exco's revenue by $1.9 million. Casting and Extrusion revenue declined by $4.9 million, and Automotive Solutions sales, excluding ALC, increased $1.7 million.

Consolidated EBITDA for the third quarter totaled $14.5 million, a decrease of $5.6 million or 28%. The decline from prior year is primarily driven by results in the Automotive Solutions segment, reflecting a $3.7 million decrease and up -- or 29%, while Casting and Extrusion declined $1.3 million or 15%.

Consolidated results for Q3 2019 yielded EPS of $0.18 per share versus $0.27 per share in the prior year quarter.

Tax rates were down in the quarter at 20% due to onetime tax credit. The year-to-date tax rate was 29% due to the impact of $6.4 million ALC expenses that cannot be tax affected.

Free cash flow was $11.2 million in Q3, and Exco repurchased 230,000 shares for $1.95 million.

Net debt was $4.2 million at the end of Q3, which is a slight improvement of $2.1 million from Q2.

Turning to the Automotive Solutions segment on Slide 12. Sales in Q3 were $71 million, a decrease of $28.9 million over last year. As noted earlier, the decline is driven by the elimination of ALC. Excluding the impact of ALC and foreign exchange movement, segment sales were up $1.7 million. Polydesign and Neocon continued the positive performance into Q3, while AFX and Polytech were down slightly.

Pretax margin rates were unchanged at 11%, though segment income decreased $1.5 million to $7.9 million due to labor negotiations in Mexico, unfavorable product mix and launch cost in the quarter.

Slide 13 shows third quarter revenue in Casting and Extrusion segment was $48.9 million, a decrease of $3.9 million or 6%. The Extrusion business and Castool were down slightly. Most of the decline is from the Casting Group, whereas quoting activity remained strong, but actual sales were low due mainly to the completion of lower-margin programs.

The Casting and Extrusion segment reported lower pretax profit of -- in Q3, a decrease of $1.4 million or 26% from last year.

North American extrusion die sales were lower, affecting margins due to lower absorption on fixed cost, plus start-up costs at our new Mexican facility. These were partially offset by slight increases in large mold profitability as loss-making programs are now complete.

Castool group's margins were under pressure due to slower market conditions in Asia and change in product mix, given a greater weighting to capital goods equipment.

Cash flow from operating activities was $15.6 million in Q3 and $35.4 million year-to-date, despite significant investments in noncash working capital.

During the quarter, the company reduced long-term debt obligations by $5.6 million, purchased $1.9 million of shares through the normal course issuer bid and paid dividends of $3.7 million and invested net $4.3 million in property, plants and equipment. Even with these investments and financing transactions, we reduced our overall net debt to $2 million from Q2. Exco's balance sheet and liquidity remain very strong. The company's trailing 12-month EBITDA of $70 million, Exco's net debt to EBITDA is less than 0.1.

That concludes my comments. We can now transition to the Q&A portion of the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Michael Doumet with Scotiabank.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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So could you help us break out the sequential EBIT decline at Automotive Solutions to get a better understanding of the margin rates there? I assume about $0.5 million is attributable to the bonus payments, but how does the balance break out between the cost associated with the labor disruptions and the different end inefficiencies? Just trying to get a better sense of dlljfor the timing for when margins should pick back up.

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Matthew James Posno, Exco Technologies Limited - CFO & VP of Finance [3]

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Yes. Thanks, Michael. Yes, you're right. About $0.5 million of the decline was due to increased bonus payments during the quarter. And I would say that most of the rest of it was attributable to inefficiencies that we had with program launches versus Q2. Q2 did have incremental costs associated with some of the catch-up requirements for the strike that happened, whereby we had some overtime cost and premium freight, more so in Q2 than Q3. But the bulk of the difference is related to program launch inefficiencies at the front end.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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And when do you suspect that normalizes there?

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Matthew James Posno, Exco Technologies Limited - CFO & VP of Finance [5]

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Well, it should begin to dissipate in Q4, probably partly through Q4. And then increasingly, in the first quarter and beyond of next year.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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Great. And maybe just for the second question to go at a higher level. I mean for a number of years, Exco has produced return on equity in the high teens. Obviously, there've been a couple of unfortunate circumstances with ALC and higher wage inflation pressures in Mexico. But the Casting and Extrusion returns have also trended down. Meanwhile, U.S. tariff is still hovering around $16 million, $17 million and industry profits are still relatively flat. I mean are there any businesses that you're looking at in particular and saying in this environment, we should be making a lot more money? And what are some of the longer-term initiatives that you're thinking or considering here?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [7]

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Yes. So profitability has come down in the segment, and that has largely been driven by the Casting Group, which has, as you know, gone through a massive transition as to the way we manufacture our products, together with much lower pricing that's available in the market. And it's been a good couple of years where we've expected that we've reached the inflection point there, and we would start to trend higher, but it's taken longer than we've believed. But where we are right now in the market is we have largely wrung out the inefficiencies with our new production process. As I mentioned, we did order 2 new 5-axis milling machines during the quarter, and that really demonstrates our view that we're past the hump here.

And on top of that, just the number of quoting -- the amount of quoting activity that's going on out there for new programs is really at a high level for us, and we firmly expect that some of these programs are now going to start to bite. And that's going to help improve the profitability of the large mold group and the segment.

Now on top of that, we have obviously spent a considerable amount of money to build the new Mexican tooling facility on the Extrusion group, and that facility is incurring losses as they typically do before they ramp up. And we think that you'll quickly see an improvement in the losses that the Mexican extrusion facility is currently generating, and that will help future returns.

Now against that, we are continuing to make investments, greenfield investments, in the Casting and Extrusion group, mostly on the Castool side of things, where we see a lot of opportunity. And so while you have an improvement coming perhaps from Extrusion and Castool, Castool is now going to bear some losses as it ramps up its new greenfield facility in Morocco. But these are things and investments that we make. And over time, we expect that they're going to improve the profitability of the group and that the return on capital should begin to recover.

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Michael Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [8]

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That's helpful. And maybe with all the investments and the operational improvements that you guys are executing on, would you venture to maybe put out a medium-term target to margins for that segment to help us really think about how to model this going forward?

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Matthew James Posno, Exco Technologies Limited - CFO & VP of Finance [9]

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I'm not going to spit out a number, but that segment has had EBITDA margins kind of north of 19% in the past. And I think we've been running closer to 15% in recent quarters. And I think we certainly see a path back there. And I guess, you're going to have to take a stab at how long you think it takes us to get to that level.

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Operator [10]

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Your next question comes from the line of Nav Malik with Industrial Alliance.

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Navdeep Malik, Industrial Alliance Securities Inc., Research Division - Research Analyst [11]

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So I just wanted to ask first on the Automotive Solutions side. With the new product launches, could you maybe elaborate on that and maybe give us a sense of timing as to when you see those starting to make an impact on your profitability?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [12]

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Sure. And those product launches, I guess, have been going on for a couple of quarters at Polydesign and Neocon, in particular. And they've had some pretty good revenue growth at each of those entities for that time period, but without the improvement in profitability given but -- given the front-end inefficiencies. And so we're going to start to see improvement we expect from both Polydesign and Neocon from profitability in the next quarter and beyond. But against that, AFX is now launching and ramping up a bunch of new programs that they've been awarded and that will cause some inefficiencies in the other direction. So I think you'll see a gradual improvement over the next year or so, but there's 2 kind of tensions there that are offsetting each other to some extent.

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Navdeep Malik, Industrial Alliance Securities Inc., Research Division - Research Analyst [13]

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Okay. But I guess like in terms of timing as to when you start to, I guess, operate those or, I guess, start to realize profitability from those here, it's still a few quarters out before you kind of are more into the higher profitability from those programs.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [14]

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I think on a net basis, between those elements, we should start to see improvements probably towards the tail end of the next quarter.

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Navdeep Malik, Industrial Alliance Securities Inc., Research Division - Research Analyst [15]

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Okay. And then on the -- I just want to move to the Casting and Extrusion segment on the large mold side. So you mentioned that you're -- you eliminated some uneconomic programs. What would you say kind of going forward? Or when you look at the business, what's the mix now? Like is -- are there -- is there more revenue that you want to take out or more business that you just feel it's uneconomic and want to replace? Like, what's kind of the mix now? And how much of that business is -- how much does it need to be turned over, I guess, is my question.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [16]

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Well, we're at the point where we don't have loss-making programs anymore in our Casting group, not of any magnitude anyway. And so those have been flushed out. And we do have a capacity that has been, I guess, generated by removing those loss-making programs, but also capacity additions through the purchase of these new 5-axis machines that we've just purchased. And I think you'll start to see the revenue ramp up there through probably towards mid- to late next fiscal year. And it's that kind of timeframe that we'd be looking at. These new pieces of equipment generally take about 11- or 12-month lead time to get installed and get up and running.

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Navdeep Malik, Industrial Alliance Securities Inc., Research Division - Research Analyst [17]

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Okay. And when you do add new sort of programs now in that segment, what's the duration of the new programs maybe just on a absolute basis, but even just relative to historical?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [18]

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Well, they vary by customer and they vary by program. Some of these programs are kind of multiyear rebuild programs where you get a firm commitment. And other programs, you've got to kind of like tooth and nail to get the next release of every die that you get. So it's a mix, I would say, generally. Programs today are shorter than they have been in the past, but that just means that you've got to keep proving yourself in order to get the subsequent die release.

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Operator [19]

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Your next question comes from the line of David Ocampo with Cormark Securities.

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David Ocampo, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [20]

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My first question is on Automotive Solutions. When I think about production volumes, they're kind of trending down here at a low, mid-single-digit rate. If you can give us a sense on your CPV, is that tracking high enough where it can offset the volume decline you typically see revenue growth in the segment?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [21]

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Well, I guess, for a point of reference, I would say that in Q3, North American production volumes were off by 2%. And in Europe, they were probably off by 7% or 8%. But yet, if you normalize our Automotive Solutions segment for removing ALC and you back out FX fluctuations, we were actually up 2%. So if the baseline is dropping by 3% or 4% on a blended basis, and we're up 2%., and I think that gives you an idea that we're taking some market share and growing our content per vehicle.

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David Ocampo, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [22]

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Okay. And next question is just on free cash flow. What are you going to do with it going forward, just increasing the dividends or just focusing on share buybacks?

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Matthew James Posno, Exco Technologies Limited - CFO & VP of Finance [23]

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I think the answer is yes, yes to both. We are strongly committed to our dividend and growing our dividend over time. But we would still see surplus cash flow being generated, even after the elevated levels of CapEx and the dividend payments. And we'd expect to use most of that cash flow to chip away at the share count.

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David Ocampo, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [24]

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And so the new 2 machines that you guys ordered, was that in your old CapEx guidance?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [25]

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That will be absorbed in the CapEx of 2020.

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Operator [26]

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Your next question comes from the line of Ben Jekic from GMP Securities.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [27]

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I have 2 questions. And just I'll ask the first one sort of at the risk of sounding similar to Michael's previous question. Darren, you mentioned that the unprofitable programs in Casting and Extrusion are now mostly flushed out.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [28]

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Yes.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [29]

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So my question is -- and if you can maybe answer it at least qualitatively, I think that the theme of some of these unprofitable programs has been with us now for a few quarters. And I just wanted to get a sense, it may be self-explanatory, but what led to these programs being loss-making? Were they -- or low margin? Were they -- is this something that Exco maybe took on deliberately to absorb some of that for the sake of maybe potential future business? Or is it the question of you launch a program and then some costs escalate unexpectedly? Like, what would be some of the common themes why these programs have been dilutive to margins?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [30]

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Sure. Well, they were aggressively priced programs that we undertook, in part, to get exposure to both new customers and new kind of program sizes -- or program opportunities in the past. Our Casting group has been focused on the powertrain business as its bread and butter. And some of these new programs were structural programs, where there's a bit of an increased learning curve. So they were in hindsight priced too aggressively for us for the amount of work that was required. And that was compounded by the fact that we had expected to get our manufacturing -- 5-axis manufacturing cell up to a level of efficiency much earlier than it actually occurred. And so we had to outsource some of the manufacturing components, and that caused incremental costs in order to stay on our delivery commitments. And so now with these programs gone, I think we certainly were not interested in taking such aggressively priced programs on anymore. And we should get the benefit of the efficiency improvements that our manufacturing cell is capable of now.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [31]

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So I guess I'm assuming that the 2 5-axis machines will be a lot more productive sort of right off the bat.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [32]

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Yes, yes. The learning curve has been dealt with now. And we would expect it's going to have a much greater spindle uptime right out of the gate.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [33]

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Okay. And my second question is if you can just jog our memory on the extra costs in Mexico in the Automotive Solutions. What is -- if you can repeat again, what is the portion that is increased salary? And what is the portion of the bonus payments? And sort of which of the 2 -- I'm assuming it's the bonus payments, but which are the 2 will unlikely occur in 2020 or not occur to the same extent?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [34]

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Yes. So the wages are now in the mix, and those won't go down going forward. But the bonus payment is really what's going to change next year. And so again, the bonus payments this year were largely or effectively driven by a doubling of the minimum wage in Mexico along the border states. And the fact that our union contracts embedded reference to that minimum wage increase as it relates to bonus payments. And so presuming that the minimum wage is not going to be doubled again next year, those bonus payments should go down, and that's aggregated to about $4.5 million for the year, $1 million last quarter and $1.5 million this quarter and $1.5 million next quarter.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [35]

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So it will affect first quarter of fiscal 2020.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [36]

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No, it will impact the fourth quarter of 2019, but then we would get relief in the first quarter of 2020.

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Ben Jekic, GMP Securities L.P., Research Division - Director and Special Situations Analyst, Equity Research [37]

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Okay. So the bonus payment is the $4.5 million on an annual level.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [38]

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Yes.

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Operator [39]

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(Operator Instructions) Our next question comes from the line of Peter Sklar with BMO Capital.

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Chang Ding, BMO Capital Markets Equity Research - Associate [40]

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This is Chang filling in for Peter. A lot of my questions has been asked, so I'll make it quick. You mentioned that in the large mold business, there's a customer timing issue. Just can you give us some context of the time line and kind of when you expect to recognize revenues on those orders?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [41]

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I'm sorry, Chang. I missed the timing issue. What was the -- could you repeat the question?

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Chang Ding, BMO Capital Markets Equity Research - Associate [42]

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Yes, of course. So in the MD&A, you indicated that the large mold group for the Q3 had some minor customer timing issues, timing requirements. So just can you give us a little bit more context on that and kind of the time line as to when you could kind of send those orders and then also when you'll recognize revenue?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [43]

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Yes. I guess it's hard for us to say. I mean we kind of go into the year with an expectation of the number of dies that are going to be released to us for rebuild where core customer demand requirements for new dies, and we kind of build our plan around those expectations. I think it has been a good couple of quarters where the releases for certain programs have -- for rebuild work, in particular, have been lower than what we expected for some of the programs. It's hard to say exactly when that's going to resolve itself. But typically, it wouldn't persist for more than kind of a 2- or 3-quarter lag. So by that nature, it should be in the next quarter or 2 that we would stop talking about these delays in customer releases on that front.

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Chang Ding, BMO Capital Markets Equity Research - Associate [44]

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Okay. Cool. And also you mentioned earlier that the bonus payments were as a result of you needing to pay a higher minimum wage. And so I guess in terms of, like, the contract negotiations with the union, it's, like, how often does that happen?

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [45]

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They're -- it's an annual discussion, but the bonus payments were tied to the -- not the minimum wage level, but the change in the minimum wage. And that change in the minimum wage was 100% last year, and that's kind of never happened before, nor would we expect it to happen again.

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Operator [46]

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We have no further question at this time. I will now turn the call over back to the presenters.

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Darren Michael Kirk, Exco Technologies Limited - President, CEO, COO & Director [47]

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Great. Well, thanks, everyone, for participating, and have a great long weekend.

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Operator [48]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may disconnect.