Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to Héroux-Devtek's Fiscal 2023 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star then the number two. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. We refer you to slide two of the accompanying presentation available on the company's website for the complete forward-looking statement. I would like to remind everyone that this conference call is being recorded today, Friday, November 11, 2022 at 8:30 A.M. Eastern time. I will now like to turn the conference over to Mr. Martin Brassard, President and Chief Executive Officer, and to Mr. Stéphane Arsenault, Vice President and Chief Financial Officer of Héroux-Devtek. Mr. Brassard, please go ahead, sir. Thank you very much, Julie, and good morning, everyone. Welcome to our second quarter earnings conference call for fiscal 2023. I invite you to follow along by referring to the financial statements and the earnings press release, which can be found in the investor section of our website. We are encouraged by the improvement in our delivery compared to the first quarter, even though, as usual, annual shutdown and summer vacation affected our production capacity. Our profitability improved as well, despite the ongoing strength in the production environment. We have also stayed in close contact with our customers and continued to build on our reputation as a trusted partner. As such, our backlog has been growing, bolstered by upcoming deliveries of landing gear for business jet orders, as well as spare parts and aftermarket services. To this effect, we also announced this morning that we were selected by Embraer for a life cycle contract to supply a cargo door actuation system for the E190 and E195 freighter conversion program. This contract is the first for our Spanish operation with Embraer, and we look forward to bringing more top-tier customers to their portfolio. At this time, I would like to turn it over to Stéphane for a rundown of the second quarter results. Stéphane? Thank you, Martin, and good morning, everyone. As usual, please be aware that we will be referring to certain non-IFRS measures during the call, including adjusted EBITDA, adjusted net income and adjusted EPS. All non-IFRS measures are defined and reconciled in the MD&A issued earlier today. Consolidated sales for the quarter rose 1.1% to CAD 132.7 million compared to CAD 131.3 million last year, a strong rebound from CAD 114.1 million in the first quarter. Civil sales were up 10.7% to CAD 41.3 million as increased deliveries for the Embraer Praetor and Boeing 777 program more than offset production system disruptions. Defense sales were CAD 91.4 million, a 2.8% decline, partly offset by the ramp-up of delivery for the F18 program with Boeing. Gross profit decreased to 13.8% of sales compared to 16.9% last year. The decrease is attributable to product mix and production system disruption, while last year the impact of COVID-19 was compensated for by the Canada Emergency Wage Subsidy, representing an impact of 1.8% of sales. As a result, operating income was CAD 8.6 million from just under CAD 12 million at this time last year, but up from CAD 2.6 million in the first quarter of this fiscal year. Excluding non-recurring items, adjusted EBITDA decreased to CAD 16.2 million compared to CAD 21.2 million last year, while up from CAD 11.4 million in the first quarter. Net income stood at CAD 4.8 million or CAD 0.14 per share compared to CAD 7.5 million or CAD 0.21 per share last year. Excluding non-recurring items, adjusted EPS stood at CAD 0.10 per share compared to CAD 0.21 last year. Cash flow related to operating activities reached CAD 8.3 million in the quarter, a decrease from CAD 17.5 million reported at the same time last year, due mainly to an increase in inventory levels made to stabilize our production system and prepare for the sales ramp-up of the second half of the fiscal year. Our financial position remains strong at the end of Q2, with net debt at CAD 154.5 million, stable with March 31, 2022. Back to you, Martin. Well, thank you, Stéphane. Our management teams have worked hard and diligently to better align our resources to face the challenges of the current production environment. As a result, we believe we are in a better position to improve our throughput in the back half of the fiscal year. The current increases in financial costs could result in new growth opportunity, and the strength of our financial position gives us the flexibility to seize them, whether they are organic or acquisitional. Along with the discipline approach, it also enable us to navigate the current turbulence. Our focus continues to be on managing our business tightly to deliver quality products to our customer on time. Julie, we are now ready to answer questions. Thank you. If you'd like to ask a question, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, please press star two. Again, if you have a question, please press star one on your telephone keypad. We'll pause for a moment. Your first question comes from Konark Gupta from Scotiabank. Please go ahead. Thanks, operator. Good morning, Martin and Stéphane. My first question is on the inventory. I think you guys mentioned in the MD&A that the inventory increased by CAD 13 million sequentially here, which I think you alluded to previously to stabilize production and other ramp-ups going on. How much more inventory do you need to build, increase here to continue to do that in terms of production and support and ramp-up? I think, our view on this point, we have a strong, last six month, to do, right? With, typically the last semester, is always stronger than the first semester. It's particularly true in this case as well. We believe we have reached, the level that we want it to be to achieve the last, semester and then to prepare ourselves for the next fiscal year. We force inventory to decrease from now to the, end of the fiscal year. That's helpful. Thanks. Then you also mentioned about the challenges sort of continue over the coming quarters. What challenges are you facing at this point here? I mean, supply chain still seems to be an issue in the industry, I guess. Any particular pockets where you would point and say, like, "These are the challenges which you don't really, you know, have a clue when they will end. Konark, it's to get the production, the parts on time to make our assemblies, right? That's the main challenge. Our team are working very diligently to make sure that we receive all the parts needed to make an assembly. That's the main challenges. Okay. That, that's helpful. Thanks for the time. Okay. Thank you. Your next question comes from Benoit Poirier from Desjardins. Please go ahead. Hey, good morning, Stéphane. Good morning, Martin. Good morning, Benoit. Yeah. Martin, could you maybe provide an update on the three facilities where you were experiencing some issues with throughput last quarter, and how is Q3 and Q4 shaping up so far? One of these facilities have rebounded over our expectation, and it's going well in the U.K., namely in the U.K. We're very satisfied with that operation. We see a bright future ahead for that facility. Yes, it turned the corner faster than what we expected. In Michigan, lots of improvement for throughput. Now we need to work on profitability. It's not at the expected level, but the throughput is there, so that's a good first sign. In our Laval operations, we see some encouraging sign in September and October. It looks like they're gonna have a good Q2 and get ready for a strong Q4. Okay. That's great color. At the recent Boeing Investor Day, they've announced that the 777X production will jump to four planes a month in 2026. I'm just wondering whether the build-up is later than you had originally expected, or basically, you need to build up some parts in advance of the ramp-up. If you could comment about the expected production rate on the 777, 777X, that would be great. At four a month in 2026, it's maybe a bit pushed to the right, but not that much. We don't need extra capacity there to meet the production, the announced production rate. Okay. We don't see problem. No. Okay. The thing is that again it's more the risk will be more on the raw material, you know, with Russia and Europe, Ukraine, right? To get our material on time. That's what Boeing announced. That's why they pushed out a bit compared to our expectation. Okay. With respect to the recent award with Embraer for actuation system, I was wondering if you could provide some color about the timing and the potential size. Just wondering also how the bidding pipeline for actuation system has evolved now that you've secured some key contracts with Boeing and Embraer. Yeah, the cross-selling is working, you know, is showing results. It's compensating for the reduction in sales of the military program that we have with Airbus Defence. Glad that we are securing orders with Embraer and Boeing and we have orders with others too, right? For the timing, you know, I cannot disclose all this information, Benoit, in terms of value and timing, but I can tell you that, you know, that's a good opening door to for other products with Embraer and to show them the capacity or the capability that we have in Spain. Okay. Do you want to add something, Stéphane? No, I. You know, it's a design, it's a development, so it takes always two, three years in the actuation, you know, to get ready for production after that. Okay. Last one for me. The U.S. Navy recently stated that the MQ-25 will be the trailblazer for the uncrewed transition. It seems that they love the program. Do you see further momentum on the MQ-25 and any impact so far? It's great news, Benoit. Wow. We love that news. The MQ-25, we always believe in that capability and the technical. Now it's we're ahead of the schedule for our part, right? We performed well. Our system, our qualification testing is ahead of the customer schedule. Now it's we need to have that airplane certified and deliveries to the end customer. It's a great program. We're ready to ramp up to face production ramp up, and we look forward to get into LRIP phases. Okay. Thanks for the time. Thank you, Benoit. Thank you. Your next question comes from Cameron Doerksen from National Bank Financial. Please go ahead. Yeah, thanks. Good morning. Good morning, Cameron. Good morning. I just wanted to ask a question on a comment you made just with regards to and correct me if I'm wrong, but I think you sort of suggested that, you know, higher interest rate environment may be putting some stress on, you know, the financials of certain smaller companies and that potentially could be an opportunity for you guys for some organic growth. I just wanted to maybe clarify what you're sort of trying to say there. I guess, are you seeing some opportunities here for some business to come your way that maybe the OEMs are moving out of smaller suppliers to more financially secure suppliers like yourselves? Yes. Okay. Can you expand on that? I mean, or is this also, you know, I guess an M&A opportunity for you as well? There's some opportunity, Cameron, but we need to put the puck in the net. We're not alone, you know, in this competition. Yes, we see some opportunities there. Maybe you can provide an update in this sort of related question, but just on M&A. I mean, does the higher interest rate environment, you know, change your appetite for M&A, or is maybe the preferred path to just try to win some new business organically? We're gonna be working on both, Cameron. If the right opportunity present and it's accretive to shareholders, yes, we will do it. There are some that are moving, but we'll see if we can conclude an agreement. We're looking at both. I don't know which one will come first, Cameron. Okay. Fair enough. Maybe just lastly from me, I just wonder if you can give us an update on, I guess, the labor situation. I mean, you know, I guess there's an ongoing issue with you know, COVID absenteeism. I mean, I don't know if that's, you know, maybe ever gonna improve. Yeah, where do you stand on labor? I mean, are you gonna have to maybe ultimately hire more people than you would have had previously just because there's an expectation that people are gonna be off sick more often? Not off sick more often. It's more the turnover, right? We have 99% of our resource for the plan to execute our plan, right? Our forecast and budget. What we're seeing, yes, you're right, the COVID-related absenteeism is higher, so we have improved a bit in Q2. My wondering is the turnover in the support department. That we're not alone. We're all living the same thing, you know. In supporting the shop floor people, the shop floor employee is okay, but it's the supporting department that has a turnover. Our human resource department are doing very well there in that regard. When you have an employee that works for you for three, four years, and then he's up to speed, and then you have to restart. That's another challenge to the question of Konark's that we do have. So far, we've been able to fulfill the open position, but it's a constant battle, Cameron. Okay. That's great. Thanks very much for the questions. Thank you, Cameron. Your next question comes from Tim James from TD Securities. Please go ahead. Thank you. Good morning, everyone. I'm wondering if you can talk a little bit further. You kinda touched on the material risk that you're dealing with on 777 related to the Russia-Ukraine situation. I'm just wondering if you could maybe give us a bit more of a broad look at what that obviously comes into play here, but what are your primary concerns or risks that you're looking at in terms of supplies, material, as you look out over the next 12-18 months? What are your kinda watch points where you feel you need to do some extra work or secure alternative sources of supply to minimize risk? That's right. We're working with our customer right now for to compensate or to mitigate the risk of supply chain disruption on all the titanium provided from Ukraine. We have to resource it. Right now the plan is tight, but we have a plan to continue delivering on the production rate that's there. We're working very closely with our customer. We have success. You know, we've been able to reduce and mitigate the potential. We're working on this since February or since March with our customer, and we have a detailed part-by-part listing and re-qualification of all the forging, and the communication is extremely good. The other one is to secure the raw material in long term. We have asked our customer to give us more visibility, more firm contract, more firm orders, so that way we can go ahead and place PO with all of our supplier. Our PO are placed, it is a matter of following the execution and be in contact with our supplier, making sure that they are gonna be delivering on time. AerMet, 4340M, titanium, those are the watch item. Okay. That's helpful. When you say you're looking to your customers to give you longer term contracts so that you can go out and procure the necessary materials, are there particular sort of pain points there, certain metals that you are obviously titanium is coming into play in that, but are there other metals as well or other supplies that you feel you'd like to be able to kinda go out further into the future and enter contracts to purchase them in order to reduce the risk because you feel, you know, the risk to that particular supply is higher than you'd like it to be? Well, all the nickel alloy, you know, material and AerMet, that's, you know, on top of titanium. We have the orders and from the customer because the purchase order that it's important for us to have that secured because we do not procuring on forecasts and take the risk of having overstock, right? We need a legal contractual document, right? Because typically, customer were giving us a firm order from six months to one year. Now we're asking two years to make sure that they'll take the material if something happens to the demand. That's what I meant. We're acting very cautiously, right, to not expose the company to greater risk than necessary. Okay, that's really helpful. My next question on capital deployment. You've been buying back stock. How are you currently thinking about your capital deployment priorities? You know, de-leveraging further versus share buybacks and CapEx. How do you look at that in terms of prioritizing at this point? Again, we want to reinvest in our company in business acquisition, right? But again, with the right opportunity, if we need CapEx, we modernize our equipment, we definitely do it, and share buyback program. In terms of uncertainties, we have divergent opinion within the board, right? There's some people that were more conservative and some people are more, you know, in the capital deployment. The NCIB is there, it's a good tool. You know, to see the stock at that price, you know, it's a shame. We want to boost up the stock. Right. Okay, that's helpful. My last question is turning to the 777. As you sit here today, I mean, obviously the 777 rates aren't what was anticipated when, you know, years ago when you got into this contract. You've, you know, created a very efficient manufacturing process there for that aircraft, and I know you have capability to go much higher. As you look at that today and the earnings or the margins that are coming from your 777 content, is there a significant amount of upside, you know, as rates increase over, and I'm thinking very long-term, you know, over a kind of a three to five-year period. Have you managed to kinda downsize some of the costs in a way that you can still earn decent margins today on it, even though rates are much lower than originally anticipated? Yes. You're right. Listen, Tim, right now we're getting ready for that ramp up, you know, that Benoit said, three, four, five, you know, a month. What we're doing is we're putting a lot of effort to make our machining program much more robust. At the end of the day, we want to absorb these production rate increase without adding any variable costs. We look at this as a fixed cost. Our shops you saw, you saw our shops in Ontario and in Springfield and in Cleveland that are dedicated or not dedicated, but are working on the 777 program. These are the shops that are working most on the 777 program. They're all into initiatives of getting ready for that ramp up and that the margin will go up. What we want is we will absorb all these increases with the same amount of resources, right? You wanna add something? Does that answer your question, Tim? No, that's perfect. That's very helpful. Thank you. Oh, yeah. Um, actually I might- That's it to compensate all the inflation. That's the best so we will have. No, I truly believe in those initiatives, Tim. Okay. I might just squeeze in one more question if I could, very quickly. Returning maybe to a comment I think you made about the Michigan facility, your Michigan operations. The throughput is very good, you said, but there needs to be a little work on the profitability, on the margin there. What is it that is holding back the profitability even though throughput is strong? Stabilizing the production environment. Once you're stabilizing. Imagine, when you start an assembly and your assembler are lacking work at the beginning of the month, and all the parts are coming in at the end of the month, you're asking all your people, you know, to work overtime. That's a reason why, you know, efficiency or profitability is not there. Working on our revenues, on our pricing is also another initiatives. Working on automation also is the other initiative. We're working on three fronts over there. We'll get back and I believe, within the next 12 months, to historical profitability there. Okay, thanks very much, Martin. Very helpful. Good. Again, if you'd like to ask a question, please press star one on your telephone keypad. Your next question comes from Jonathan Lamers from Laurentian Bank Securities. Please go ahead. Good morning. Thanks for taking my question. Good morning. Nice step up in the civil and commercial sales this quarter. Although, you know, I'm sure they're still not where you would like them to be if you didn't have the supply constraints. Could you just provide a little more commentary on what's allowed you to increase the civil and commercial sales as much as you have? Has it been more driven by the demand side from Boeing and Embraer, or has it been some release of the supply constraints? Jonathan, our cycles, you know, when we get an order, our cycles is more like a year to deliver. A year and a half, 18 months. The orders are there. The backlog is healthy. We have the orders for commercial and military program, and it's very robust and it's all backed up by PO, firm purchase order. The challenge that we all face here is execution. It's really to get all the product on time, you know, and all the parts needed to assemble our products. I said a lot to all of my team because Stéphane and I were traveling a lot during the Q2. You know, the motto is, you know how many parts we need to assemble an airplane? We need all of them. If we're missing one part, we cannot deliver our product. The challenge here is operational and make sure that we have a steady flow of our parts. Yes, you have the raw material, you have labor constraints, and you do have, you know, some financial instability coming from the supply chain. We need in that environment to be agile. The main focus here is because when you resource products or we had some few suppliers that went, you know, that were financially not sound, that we have to resource. And that's what we're ready to take these urgent decisions in an expedited manner. Challenges is operational. Okay, I'll leave it there. Thank you. Thank you, Nelson. Thank you. Your next question comes from Bryan Fast from Raymond James. Please go ahead. Hey, good morning. Good morning, Bryan. Just one question for myself here, largely been answered, but could you talk a bit about the financial stability of some of your suppliers right now? I mean, as the economic backdrop shifts and rates rise, are you seeing any increase in risk from that side? Well, yes. Some of them, yes. That's why we need to look for it and be ready to have plan B's on those, you know? Our team is working relentlessly to identify those and get ready to resource, because resourcing process, it takes nine months, nine to 12 months. We have done it. That's why we have been able to increase our throughput, and that's why we're saying that, yes, if things are all being equal, we can have a strong six months ahead of us. Okay. That's good color. Thanks. Thank you, Bryan. There are no further questions at this time. Thank you very much, Julie. Thank you, everyone. Thank you very much, everyone, for having joined us for our second quarter earnings call this morning. Thank you as well for your interest and ongoing support towards Héroux-Devtek. Have a good day. Have a great day. Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.