Exco Technologies Ltd

TSX:XTC

Q4-2025 Earnings Call

[Operator]

Good day, and thank you for standing by. Welcome to the Exco Technologies Limited Fourth Quarter Results 2025 Conference Call and Webcast. [Operator Instructions]. Please note that today's conference is being recorded.

I would now like to turn the conference over to your speaker, Mr. Darren Kirk, President and CEO. Please go ahead, sir.

[Darren Kirk, executive]

Thank you, and good morning, everyone. Welcome to Exco Technologies Fiscal 2025 Fourth Quarter Conference Call. I'll begin with some high-level comments on our performance and the operating environment for the quarter and full year and then I'll turn the call over to our CFO, Matthew Posno, for a more detailed review of the financial results. After our prepared remarks, we'll open the line for your questions.

Before we start, I'd remind listeners that our discussion today will include forward-looking statements. These statements are subject to various risks and uncertainties, and actual results may differ. Please refer to the cautionary language in our Q4 press release, MD&A and annual report, all of which will be available on our website and on Sedar+.

Fiscal 2025 was a year that tested the resilience of our business model, and I'm pleased with how the organization responded. For the full year, we generated approximately $615 million of revenue, nearly $70 million of EBITDA and $0.63 of earnings per share. Free cash flow remained a clear highlight at roughly $41 million which we use to fund growth and strengthen our balance sheet. We invested about $16 million in growth capital expenditures, returned approximately $20 million to shareholders through dividends and share repurchases, and reduced net debt to about $67 million. These results capture the essence of our fiscal 2025 theme, resilient by design, a reflection of how our diversified product portfolio, geographic footprint and operating model allow us to navigate a difficult environment and still create value.

Let me briefly touch on our performance of the 2 segments. In Auto Solutions, fourth quarter sales were down about 2% year-over-year. The decline primarily reflects customer-driven launch delays and an unfavorable vehicle mix, including lower U.S. imports of certain foreign built vehicles where we have meaningful accessory content. Industry conditions remain challenging. Tariff uncertainty, shifting regulations and consumer affordability pressures continue to weigh on overall sentiment, even as OEMs supported demand with higher incentives and dealer inventories normalized. At the same time, we are encouraged by structural support, such as an aging vehicle fleet, the potential from lower interest rates and the continued adoption of advanced safety and connectivity features. These factors should underpin relatively stable North American and European production levels over the medium term.

Against this backdrop, our strategy in Automotive Solutions is clear. Increased content per vehicle through interior trim and accessory programs that enhance vehicle appeal and functionality, intensify our focus on higher-margin OEM accessory platforms and continue embedding automation, lean manufacturing and disciplined cost management across our operations. We've taken actions to streamline our operations, including selective restructuring and headcount reductions in this in prior periods, which have improved structural efficiency and position this segment to benefit as new programs ramp up and market conditions normalize. As well, newer programs are launching and healthier margins and our quoting pipeline for both interior and accessory products remains robust.

In the quarter and year, pretax profit in Automotive Solutions was impacted by lower sales volumes, product mix and higher labor costs, particularly in Mexico, partially offset by ongoing efficiency initiatives and pricing actions. We have incurred a modest amount of restructuring costs to support automation, lean manufacturing initiatives, and we expect -- that we expect will drive better margins over time.

Turning to Casting and Extrusion. Fourth quarter sales were down about 5% versus last year. The picture within this segment is mixed, but encouraging. Extrusion tooling continued to perform relatively well, supported by a diverse set of end markets including building and construction, transportation, electrical, AI infrastructure and sustainable energy. Our ongoing efforts to standardize processes, centralized certain support functions and increased automation have improved lead times, quality and capacity, which we believe is translating into market share gains.

In die-cast tooling, sales for new molds and related tooling remained comparably soft in the quarter, as customers previously delayed or reprioritized programs in response to slower EV adoption, regulatory uncertainty and tariff-related risks. However, we are now seeing a meaningful pickup in quoting activity and orders, particularly as OEMs pivot to work hybrid and smaller ICE platforms and move ahead with new powertrain programs after a period of reassessment.

We continue to believe that the slowdown in die-cast orders has been more about timing than structural change, as evidenced by our current backlog, which is now above historical norms. Regardless of the ultimate powertrain mix, EV, hybrid or internal combustion engine the industry's direction towards lightweight aluminum structural components is firmly aligned with our capabilities in both die-cast and extrusion tooling. We're also seeing growing demand for 3D printed tooling, particularly for larger and more complex applications, including giga-presses, our in-house additive manufacturing capabilities, combined with deep die-cast engineering experience allows us to deliver high-performance, highly complex solutions that will be difficult, if not impossible, to produce with conventional methods.

Our newer cash fuel facilities in Morocco and Mexico are progressing, bringing us closer to key customers in Europe, Latin America and the U.S. Sunbelt. While these greenfield sites are ramping up behind our prior expectations and remain a drag on near-term profitability, we are seeing operational improvement and expect them to become important contributors in volumes built over the year ahead. In casting and extrusion pretax profit was lower year-over-year, reflecting reduced die-cast volumes, higher labor and overhead and underabsorbed fixed costs related to newer facilities. At the same time, continued progress in AI-enabled automation, process standardization and value-added heat treatment services is enhancing productivity and improving the quality and cost effectiveness of our offerings.

Let me spend a moment on the broader environment and how it ties into our strategy. Fiscal 2025 was characterized by significant industry headwinds. U.S. tariff actions and retaliatory measures from trading partners, which disrupted trade flows and weighed on demand for certain foreign built vehicles and components. Shifting emissions regulations and policy uncertainty, which slowed the pace of EV adoption extended the life of ICE platforms and increased interest in hybrids, and softer macroeconomic conditions, particularly in Europe, combined with weaker consumer confidence and ongoing affordability concerns.

These factors affected many of our automotive-related businesses, including interior and accessory products, die-cast molds and rebuilds, consumable tooling and extrusion tooling for automotive applications. By contrast, we saw a healthy demand in a range of nonautomotive end markets such as building and construction, machinery and equipment, electrical, AI infrastructure, sustainable energy and nuclear energy. Nonautomotive extrusion tooling represents about 30% of Exco's overall revenue, and this diversity helps stabilize our results, underscoring the advantages of our multi-segment multi-market footprint.

Encouraging, we are seeing constructive developments across several fronts. In die casting, OEMs are moving forward with powertrain programs after a period of reassessment, and we are participating in a robust recovery in both quoting and award activity. As I mentioned, our backlog level in this segment has now been rebuilt above historical norms. There is also greater clarity on tariffs for several export markets into the U.S., which is supporting higher vehicle import volumes for models that feature our accessory content. Additionally, some OEMs are now planning to shift production for foreign built vehicles into the U.S. market as well, reassuring and supply chain regionalization in North America are gaining momentum, driving incremental demand for extrusion and high-pressure die-cast tooling where we have exceptionally strong competitive positions.

We also benefit from a balanced powertrain stance. Our operations are designed to support EV, hybrid and ICE platforms without relying on any single technology, that flexibility allows us to capture value in today's mix of ICE and hybrid programs while positioning ourselves for the next wave of EV platforms and advanced manufacturing technologies, such as giga-presses as they scale over time. Beyond automotive, we are increasing our involvement in nuclear energy and other critical infrastructure markets that is important as emerging pillar. Customers in these sectors are seeking domestic partners with high precision machining capabilities and long-term reliability and our capabilities are well aligned with those needs.

Our strategy is to build a company that is structurally resilient and positioned for long-term growth regardless of short-term macro volatility. On the operational side, we have expanded our casting extrusion footprint through acquisitions and greenfield investments, including newer Castool facilities in Morocco and Mexico and advanced in-house heat treat capabilities. We've invested heavily in automation and process standardization to drive product, quality and scalability and continue to optimize our automotive solutions headcount, aligning capacity with current and expected volumes while maintaining low-cost manufacturing base.

On the technology and innovation side, we are a leader in 3D printing of tool steel components, enabling complex geometries and optimize tooling that improve tool performance and reduce waste. We are increasing our use of AI and machine learning in CAD and CAM and operations to accelerate design -- reduce -- design, reduce rework, optimize tool pass and improve machine utilization and yield, and we're designing workflows and leveraging common systems to centralize select functions in lower-cost jurisdictions, improving consistency while reducing structural costs.

From a financial and strategic perspective, I'll reiterate a point that we made earlier this year. In light of the heightened uncertainty around global trade policy, particularly tariffs, we made the difficult decision in Q2 to withdraw our previously announced fiscal 2026 revenue, EBITDA and EPS targets. Those targets originally set in 2021 envisioned reaching $750 million in revenue, $120 million in EBITDA and approximately $1.50 in EPS by the end of '26.

While the current tariff environment makes it impractical to reaffirm that specific time frame, the underlying strategic drivers remain intact and in our view, achievable over a longer horizon. A key competitive advantage for Exco is that nearly all of our products are sold in North America -- that are sold in North America comply with USMCA rules of origin. We expect USMCA compliant products to remain exempt from tariffs, which positions us favorably versus many global peers. Our substantial North American footprint, particularly in the U.S. for extrusion dies and large die-cast molds means a significant portion of our business is inherently aligned with the ongoing trade and reshoring dynamics. At elevated tariffs on imports from noncompliant jurisdictions persist, we could see a further competitive tailwind as customers look for reliable local suppliers.

Stepping back, the long-term fundamentals of our markets remain attractive, continued light-weighting and increased use of aluminum and other advanced materials, gradual ramp-up of EV and hybrid platforms, continued investment in AI infrastructure, sustainable energy and nuclear and broad reshoring and supply chain localization trends across North America. We are realistic about the macro environment. We know it will remain choppy in the near term, but we are confident in Exco's long-term trajectory. Our balance sheet is strong. Our operations are becoming more efficient and technology-enabled and our teams around the world are executing at a high level.

With that, I'll now turn the call to Matthew for a detailed review of the financial results. After his remarks, I'll return with some closing comments before we open the line for questions.

[Matthew Posno, executive]

Thank you, Darren. Good morning, ladies and gentlemen. Consolidated sales for the fourth quarter ended September 30, 2025, were $150.7 million compared to $155.4 million in the same quarter last year, a decrease of $4.8 million or 3%. Foreign exchange movements increased sales by $4.1 million during the quarter. Consolidated net income for the quarter was $8.2 million or $0.22 per share compared with $7.7 million or $0.20 per share last year, primarily reflecting the reversal of provisions and recognition of previously unrecorded tax assets. Adjusting for these discrete items, our normalized tax rate was approximately 24.2%.

Quarterly consolidated EBITDA was $18 million, representing 11.9% of sales compared to $20.6 million or 13% in the prior year period. Fourth quarter sales for the Automotive Solutions segment were $77.9 million, down 2% from the prior year quarter. The decline primarily reflects customer-driven launch delays and an unfavorable vehicle mix, particularly reduced U.S. imports of foreign built vehicles where Exco has meaningful content. Tariff uncertainty, affordability pressures and broader macroeconomic softness continues to weigh on industry volumes. Despite these challenges, quoting activity remains solid and management expects to benefit from recent and upcoming program launches that should increase content per vehicle and support a recovery in both sales and margins.

Additionally, reductions in U.S. tariff rates for certain countries provide incremental relief and ongoing reshoring trends by foreign OEMs are expected to benefit future activity. Pretax profit for the Automotive Solutions segment was $5.1 million, down $2.7 million or 35% from last year. This decline was primarily driven by lower volumes, product mix shifts and higher labor costs, particularly in Mexico. The segment incurred $300,000 in restructuring charges, supporting lean manufacturing and automation initiatives aiming at improving cost competitiveness at current production levels and positioning the segment for stronger results as new programs ramp up.

Fourth quarter sales for the Casting and Extrusion segment were $72.7 million, a decrease of $3.5 million or 5% from last year. Extrusion tooling sales increased, supported by strong diversified end markets such as building and construction, transportation, sustainable energy, AI infrastructure and electrical components. Process standardization and centralized support functions continue to enhance lead times, quality and capacity contributing to market share gains. Die-cast tooling sales, however, remains relatively soft to previously delayed EV-related program launches and extended platform life cycles as OEMs reassess product strategies amid regulatory and tariff uncertainty.

Quoting activity and order intake for die-cast molds have improved meaningfully in recent months and demand for Exco's additive 3D printed tooling continues to grow, particularly in large and more complex applications such as giga-press molds. The segment reported pretax profit of $4.5 million, down $1.8 million or 29% from the prior year quarter. This was driven by lower volumes, unfavorable mix, higher direct labor and overhead and underabsorbed fixed costs. Start-up challenges at Castool's Mexico and Morocco facilities continue to weigh on profitability, although trends are improving. Management remains highly focused on pricing initiatives, operational efficiency, process standardization and automation, all of which are expected to drive improved results going forward.

Corporate expenses were $900,000 compared to $2 million last year. The reduction reflects foreign exchange gains and lower compensation and stock option expense. Operating cash flow before working capital changes was $14.9 million compared to $16.7 million last year. The variance primarily reflects difference in deferred income tax, interest and depreciation expense partially offset by higher net income. Working capital changes contributed $6.7 million in cash this quarter compared to $12.2 million in the prior year quarter. Cash generated from working capital was driven by favorable movements in accounts receivable, accounts payable, provisions and accruals, partially offset by higher inventory and reduced customer advanced payments.

Capital expenditures totaled $11.1 million, including $4.5 million of growth capital. Exco ended the quarter with net debt of $67.1 million compared to $73.4 million last year, we also had $61.6 million in available liquidity under our banking facilities. Our financial position remains strong, providing the flexibility to continue funding strategic investments growth initiatives, dividends and other opportunities that may arise.

That concludes my comments. We can now transition back to Darren for his closing remarks.

[Darren Kirk, executive]

Thanks, Matthew. Let me close with a few brief thoughts. Fiscal 2025 underscored both the challenges and opportunities in our markets. We faced softer automotive production, delayed program launches, trade-driven uncertainty and macro headwinds, particularly in Europe. Yet, in that context, Exco delivered solid profitability, strong free cash flow, lower net debt and continued investment and strategic growth initiatives. We are entering the new year with cautious optimism. The tariff environment remains complex but some of the extreme scenarios that we once contemplated have proceeded, and we are seeing evidence of greater clarity and stability in several key trade corridors. At the same time, secular trends such as reshoring, light-weighting and increased investment in critical energy and infrastructure are moving in our favor.

Most importantly, Exco today is a stronger, more agile and more innovative company than it was just a few years ago. We have expanded our footprint, deepened our capabilities and embrace new technologies while remaining disciplined stewards of capital and committed partners to our customers. I want to close by thanking our employees around the world for their dedication and resilience and customers for their trust and our shareholders for their ongoing support.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator]

[Operator Instructions] We are now going to proceed with our first question. And the question comes from the line of Nick Corcoran from Acumen Capital.

[Nick Corcoran, analyst]

Just my first question is on SG&A. If you take a step down in the quarter, is this reflecting the ongoing kind of restructuring that you've done?

[Matthew Posno, executive]

Yes. I'd say, definitely, we saw a reduction in salaries and wages and some of those overhead functions, for sure.

[Nick Corcoran, analyst]

Good. And then maybe on the demand side, what are you seeing in the first quarter so far?

[Darren Kirk, executive]

So I guess let me just take it by the kind of 3 pillars segments, but -- so on extrusion tooling, I would say that demand is consistent with the high level that we have been experienced over the last several quarters. So no change there. That business, of course, is very diverse, and it does seem that AI infrastructure spending is a bit of a tailwind there. Lots of extrusions go into AI data center structures and right through the racking systems for tooling and whatnot. So ultimately, that drives increased demand for extrusion tooling which can offset other sectors that may periodically be slower.

Die-cast tooling remains in a strong demand environment, as we've indicated, about 9 months ago, there was a falloff in demand for new orders for die-cast tooling as OEMs reassess their future vehicle platform plans, pivoting away from EVs towards hybrids. And that's obviously impacted our sales through the last couple of quarters for die-cast products, but the demand flow is continuing, and we should start to see the benefit of our sales -- that on our sales towards the end of Q1, but certainly by Q2.

And then in Automotive Solutions, I would say it's picked up a bit in the first quarter relative to the fourth quarter. One of the key factors for us there our performance for Q4 and fiscal '25 was the tariffs that U.S. imposed on foreign markets, particularly the Japanese and South Korean, Asian markets and that resulted in a reduction in vehicle imports from those territories. And there seems to be some stabilization there.

[Nick Corcoran, analyst]

And maybe a question for Matthew. What should we expect in terms of CapEx for fiscal '26?

[Matthew Posno, executive]

So our CapEx in '26, I'd say, $27 million, $28 million is kind of where we see things looking right now. We are watching it closely. As you know, we've spent a lot in recent years in some real growth areas. And it's not a maintenance CapEx, but it's getting closer to that.

[Nick Corcoran, analyst]

Good. And maybe one last question for me. What are you seeing on the M&A front right now? And what would potential verticals be of interest to you?

[Matthew Posno, executive]

Well, I think we've mentioned before, Darren and I are always looking at M&A targets or kind of looking at SIMs and ideas, but we want to be strategic. We want to find one best fit within our value stream and what we produce and what we know. Automotive side, we like the accessory market and -- but we're not going to take anything that doesn't provide an accretive value right away or that we don't have the management and the support to be able to take it on properly, I think...

[Operator]

[Operator Instructions] We have no further questions at this time. I will now hand back to you for any final remarks.

[Darren Kirk, executive]

Okay. Thank you, [ Raz ], and thank you, everyone, for joining us today. We look forward to speaking with you again in the New Year.

[Operator]

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.