Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Héroux-Devtek's Fiscal 2023 fourth quarter and fiscal year results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, please press star two. Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. We refer you to slide 2 of the accompanying presentation available on the company's website for the complete forward-looking statement. I would like to remind everyone that this conference call is being recorded today, Thursday, May 18th, 2023, at 8:30 A.M. Eastern Time. I will now turn the conference over to Mr. Martin Brassard, President and Chief Executive Officer, and Mr. Stéphane Arsenault, Vice President and Chief Financial Officer of Héroux-Devtek. Mr. Brassard, please go ahead. Thank you very much, Sylvie, and good morning, everyone. Bonjour a tous. On behalf of all of us here in Longueuil, welcome to our fourth quarter and fiscal 2023 earnings conference call. As usual, I invite you to follow along by referring to the financial statements, MD&A, press release, and presentation, which can be found in the investors section of our website. During the fourth quarter, we continued to improve our financial performance, and I am proud to say that we have mounted a strong recovery from the beginning of the fiscal year. We generate CAD 156 million of sales last quarter, bringing our second half total to CAD 297 million. We continue to operate in a challenging and dynamic environment. The situation is improving, but we are still facing headwinds. The reliability of the supply chain has an effect on our production system and our ability to deliver products steadily to our customers. Labor availability remains a constraint for us and for our supply chain, and inflation continues to negatively impact our cost. Fiscal 2023 was a year of adjustment for the aerospace industry. After a significant two-year drop in civil aerospace demand, we've seen a rebound in the demand for civil products. As a result, OEMs order books are filled with orders for new aircraft as well as aftermarket parts and services. In fact, OEMs are raising their delivery guidances for calendar 2023 and on. Meeting this demand efficiently in the current global production environment while facing the effect of inflation is challenging. Our last quarter results are a testament to our ability to navigate the current challenges, but there's still work to be done. Specifically, our production is still more heavily loaded towards the end of each quarter than we would like to. This has led to cost inefficiencies that, combined with the raising prices for production supplies, are keeping our margin lower than they should be. I would like now to turn it to Stéphane to discuss our Q4 results. 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. In Q4, sales for the quarter rose 5.8% year-on-year to CAD 156 million, compared to CAD 147.5 million last year and CAD 140.9 million in Q3 of this year. Civil sales were up 28.9%, mainly driven by increased delivery for the Boeing 777, Embraer Praetor, and Dassault Falcon 6X program, while defense sales were relatively stable at CAD 107.1 million. Foreign exchange had a positive impact of CAD 6 million on sales compared to last fiscal year. Gross profit decreased to 14.6% of sales compared to 17.6% last year due to production system disruption and the impact of inflation on our cost supplies and utilities. Last year, gross profit was also bolstered by pandemic relief measure representing 0.7% of sales. Operating income totaled CAD 9.9 million, or 6.2% of sales, down from CAD 11.5 million at this time last year, reflecting the lower gross margin and higher selling and administrative costs. Similarly, adjusted EBITDA reached CAD 19.6 million, up from CAD 14.1 million in Q3, but lower compared to CAD 22.1 million in Q4 of last year. Net income stood at CAD 6.3 million or CAD 0.18 per share compared to CAD 11.5 million or CAD 0.33 per share last year. Cash flow related to operating activity reached CAD 4.5 million in the quarter, reflecting lower profitability and an investment in inventory to stabilize our production system and mitigate the effect of supply chain delays. At the end of Q4, our financial position was solid, with net debt at CAD 165 million compared to CAD 152.1 million at the end of last year. Back to you, Martin. Thank you. As we close the book on an exceptionally challenging year for the industry in terms of supply constraints, we look ahead with prudent optimism. To be clear, supply chain constraints remain, and the skill aerospace labor market is exceptionally tight. However, we are pleased with our backlog, which is near a record level, and our focus remain on three priorities to deliver on it and return to higher level of profitability. First, we will continue to work on restoring health to our supply chain and therefore stabilizing our production system. We are continuing to qualify new sources of supply and strengthen our presence in our suppliers' operation to better track and manage quality and delivery. Second, we are re-examining our production processes to identify efficiency gains, whether through streamlining processes or by optimizing automation in our machining centers of excellence. These measure can all be implemented with limited additional capital requirements. Third, we are reviewing a pricing structure with customers and suppliers to offset the effect of inflation, conversation with stakeholders have been constructive and ongoing. To achieve these priority, we are fortunate to be able to draw on Héroux-Devtek's long-standing history as a successful company. Our strong balance sheet allows us to take steps to facilitate production, such as investing inventory and growth projects. Looking ahead, we have a record backlog, a strong team, and opportunities for margin improvements. As a trusted suppliers of systems and components for critical platforms, we are well-positioned to capitalize on the attractive growth rate in demand for defense, large civil and business aircraft, as demonstrated by the recent Embraer announcement of their NetJets order for up to 250 Embraer Praetor jets. As a reminder, we have developed a landing gear system for this aircraft, which entered in service in 2014 and now counts more than 250 aircraft in services. Another step towards stabilizing our production system is the renewal of our Longueuil facility collective bargaining agreement, which now extends to April 2026. This agreement covers approximately 200 employees and plan 12% salary increases over the next 3 years. The revised agreement also features amendment which will improve the flexibility and agility of our operations. I want to express my deep appreciation and gratitude to our 1,800 employee worldwide who have put in countless effort and hard work for the benefit of our customers. With their support and dedication, we are confident in our ability to deliver continued success. Thank you for your support. I look forward to updating you on our progress in the coming months. Sylvie, we are now ready to answer questions. Thank you, sir. Ladies and gentlemen, as stated earlier, if you would like to ask a question, please press * then the 1 on your telephone keypad. If you would like to withdraw from the question queue, please press star then 2. Please go ahead and press star one now should you have any questions. Your first question will be from Konark Gupta at Scotiabank. Please go ahead. Thanks, operator. good morning, Martin Brassard and Stéphane Arsenault. How are you? Good morning. Good morning. Thank you. Yes, well. Great, congrats on a good quarter, given the challenging environment. My first question is on the margins, actually. I know you noted a lot of things with respect to how production systems are still not fully back to normal, and labor availability issues, supply chain, et cetera. When we look at your margin performance over the last 4 quarters, you have 10% margins in 2 quarters and 12% plus in 2 quarters. I know it's not really a consistent, you know, track or path for margins here. Can you explain us what's really happening with the margins here from quarter to quarter? What's really driving this fluctuation? Is it the mix or is it really the stability of the supply chain and production that's kind of driving the quarterly variation? First there's the volume. Obviously, in the year we had, we had volume the first quarter at CAD 114 million, right? This was very low. In the back, in this last six months, we have experimented more the inflation, right? On our work cost. Overhead costs, utilities, supplies, maintenance. We are seeing that, and that's why. We're focusing on reducing those costs, but also looking at with our customer on some adjustment on the pricing. Okay. Makes sense. Thank you. I know you mentioned, you know, on the, dependence on the end of the quarter for production. Is there anything you can do to, you know, make it more smooth, over the quarter or, you know, not even at the end of the quarter, but maybe like middle of the quarter or something? Is there anything you are doing right now or you're planning to do with customers? Right now I think we're focusing on supply chain as Martin has described in previous quarters. We have people at suppliers' place to make sure that we get our parts. On the manufacturing production, it's really where we see for the parts we manufacture to have obviously the higher delivery at the beginning of the quarter, so we can translate that into sales. I think that's for now the focus is really to stabilize it month by month. Like, we don't have the wave that we currently have at the end of the quarter, the end of the last month and the last week. That's the focus now. Okay. Perfect. Thanks. Last one before I turn it over. The backlog looks pretty solid here, not too far off from what you saw in the previous quarter. How much of this current fiscal year, fiscal 2024, revenue would you say is in the backlog right now? What's your sense on the margin progression this year? We are very confident. We have the orders to deliver a strong throughput. Obviously, our manufacturing plan is higher than we're delivering on a quarterly basis. We're very confident with these orders to improve, maintain our production system to deliver our already spoken to. We have the orders. With these orders and a stable flow, like Stéphane said, coming from the supply chain and from our manufacturing plan, machining plan, margin should improve. Okay. That makes sense. Thanks a lot, for the questions. Thank you. Thank you. Thank you. Thank you, Konark. Next question will be from Tim James at TD Securities. Please go ahead. Thank you. Good morning, everyone. Just wondering if you can provide a little bit of additional color on the inventory investments that you took on in the quarter. Are there any particular programs that are notable in there? You know, is it more defense? Is it more commercial? Just any sort of additional insights. Maybe if you can reflect on, you know, is this sort of current level of inventory sort of a new run rate that should continue going forward? Or do you anticipate a time, you know, whether it's a couple of quarters or a couple of years from now, where you could kind of recover some of that inventory investment and then when things normalize, you can bring that down again? Absolutely. I can give you few example, but it's in mainly in many programs, right? Like F-15, you know, we have industrialized that order, so we are industrializing it. That one is inventory is higher than what we should be because we have few parts that are needed to be more reliable on the production system in terms of quality. As soon as we fix that, and we're almost there, we should see a better throughput on that program and a reduction there. We also have some development program that we're working on at our engineering, namely, you know, namely classified defense program that also contributing, you know, to increase inventory because we are prototyping the test article as we speak. We don't delay the orders, obviously we're not aiming for the perfect reception on the supply chain, right? We get the parts in, because we need all the parts to make those systems, right? Also the development program, we have the Falcon 10X that we are currently certifying in the test campaign, in qualification test campaign. That's a commercial program. Obviously, there's a lot of demands for civil business jet, like the Embraer one. We perform well on this, right? That's a good one also, but it's contributing and growth is seen. Right, Stéphane? Did I forget? The 6X entrance into service, right? 777 rate is, as you know, has increased. It's increasing. I think it's really reflective of the growth we're seeing in our both civil program and the new program that Martin Brassard described on the defense side. Okay. That's really helpful. Maybe if I could just to help me understand, just summarizing it. If I think about-The inventory investment in the quarter, is it equally balanced between sort of growth or needs because of growth in programs and sort of dealing with existing supply chain challenges? I mean, is it a balance of both? If we weren't in this supply chain sort of challenged market, would inventory investments have been less, I guess is where I'm going. It's a combination of both of those things driving inventory higher. Is that correct? That's correct. That's correct. Okay. You know, inventory turns should be between 3-4 turns, right? Right. Okay, Just a quick question on the F-18. You've called that out as one of the drivers of growth there in the defense business, for the top line for revenue. Through what period does that revenue continue to grow on a year-over-year basis? When does it... Like, I'm trying to just get a sense for when it sort of reaches what you believe will be sort of a steady rate for you. For which program? Sorry. The F-18. The F-18. Okay. Okay. The F-18, I think, we have delivered many products, you know, in the aftermarket and also the OE business. Now we are entering into the phase of MRO, as you know. Those sales, you know, the sales of aftermarket will reduce, but the. It will be compensated by the MRO activity that we're still expecting from the Navy. We have few assets to repair, and we're expecting more to come. The challenge here is to get the asset in the shop, to fully. We're ready. We have the people, but we don't have enough asset yet to repair. Okay, great. Just my last question turning to CESA. I'm just wondering if you could give us a bit of an update on that business today. you know, what are the key programs there, key platforms now, and any opportunities you might be looking at for that particular business? No, I cannot talk about it now. There's some growth opportunity. There's some projects that we're working on well in advance. Again, you know, the demand is there. We have interesting things on the table, right? In terms of in all the segments. Stéphane, do you have anything to complement there? No, no. We have a strong demand on our product, right? Spares, aftermarket, existing business. I mean, it's the demand is there at CESA. You have the ramp up of the Boeing actuators, right? That we have announced two years ago. We're gonna complete the ramp up in the coming quarters. New program, as Martin said, I mean, there's a lot of new things, like, also in the equation. Okay. Thank you very much. Thank you, Tim. Thank you. Your next question will be from Cameron Doerksen at National Bank Financial. Please go ahead. T hanks. Good morning. Good morning. Good morning. I wanted to follow up on a couple other questions around inventory working capital. You explained the inventory investment fairly well, but there was also a pretty big increase in accounts receivable in Q4. I'm just wondering if you can maybe talk about that and I guess maybe overall, what your expectation is for kind of working capital investment or maybe cash from working capital in the next fiscal year. Good point. It's receivable when Martin described the environment earlier in the call. I mean, we still, we're still heavy loaded at the end of the quarter. The receivable are reflecting this. It's really the timing of our sales. It's heavy loaded at the end of the quarter, and that's why receivable are higher. Okay. As you look ahead for the next 12 months, I mean, what's your expectation for working capital investment overall? I mean, should we expect another big investment in 2024, or do you think you can actually start to unwind some of this by the end of the year? As the production, you know, system stabilizes, right? That we are more comfortable at some point, you'll need less inventory than what we need today. This will also reflect, you know, a more balanced sales in the quarter and, you know, receivable at a level that is more, as what we've seen historically. Okay. Maybe to that point on the supply chain and the throughput, I mean, you've talked about, you know, kind of hitting that CAD 150 million per quarter run rates and kind of stabilizing that for this year. I mean, obviously, there's gonna be some quarter-to-quarter variability here, we understand that. You know, are you fairly comfortable that you're kind of at that roughly CAD 150 million per quarter kind of run rate, where you feel, you know, comfortable around stability of the supply chain? We have our plans. Our plans support this. It will be a question of the reliability of the supply chain. Yes, things are improving, and that's what we, our manufacturing plan, our production plan, that's what we're targeting. That's what it supports. Okay. No, that is helpful. Maybe just a final thought here on M&A. You know, is that something you're still, you know, looking at? Obviously, supply chain distraction here. sorry, Cameron, I just want to remind you know, that the second quarter is also, you know, a quarter that historically is lower, right? Right. Because of, you know, summer shutdowns and things like that, and we see a bit of impact in Q1. I just want to remind you this. All right? Right. Right. Yep, no, understood.. There's obviously gonna be seasonality quarter-over-quarter. Maybe just some thoughts around M&A. Is that something that's still kind of on the table for you, or do we, you know, more focused on the supply chain for this year and M&A's a kind of, you know, put on the back burner for now? Well, it's not our focus, you know, M&A. It's more. The focus is more on getting back, restoring, you know, the production system, get the throughput stabilized, you know, generate the target that you just mentioned, right? Improve our margin, right? M&A, however, depending of the size, depending of the strategic nature of the M&A, of course, we need to look at it, right? Of course, we need to look at it because we believe that for the, we believe that we have a solid business. We're healthy. We financially are, you know, our conservatism with the balance sheet, we have a strong balance sheet. We'll look at it, but on the long term, we have a solid business, and we believe that we can build on this, right? Well, absolutely. I appreciate the thought. Thanks very much. Thank you. Thank you. Your next question will be from Benoit Poirier at Desjardins Capital Markets. Please go ahead. Good morning, Martin. Good morning, Stéphane, congratulations for the improvement over the last quarter. Thank you very much, Benoit. Good morning. . Last quarter, you talked about some key actions to improve margins, which include obviously qualifying new sources, increased automation, and third, review pricing with customers. Could you talk about the progress made in the quarter on each of those initiatives and what needs to be done in fiscal year 2024? Basically on restoring, we're still increasing our presence, you know, our suppliers to get the parts in, making sure that we have the right systems, the right signal. We have not finalized our resourcing or sourcing different projects, so we have few items here and there. Some progress have been made, but it's not as fast as we would like to. All right? On the automation, we're seeing some very good progress as we speak. We increasing the level of unattendance at the machining in our manufacturing site everywhere. Machining site is Springfield, Kitchener, Cambridge, and Nottingham, very good results there. We're seeing some improvement in unattended hours, and we need to continue. Programs are being updated, toolings are being changed. Again, it takes time, so I would like to have it faster. The team has a solid plan, and they're sharing all information from one site to the other. We have weekly calls or bimonthly, let's say every 2 weeks, where everything, you know, very ideas are shared with best practices and implemented in each of the machining sites. In terms of the pricing structure, pricing revision, obviously we're working with our customer. We're being transparent with them. We're showing all of our costs. We're showing the detail of our operation, and then we have a discuss because we're not there to harm their business. We're just there to explain the situation, and we are discussing about ways of how we can do both, you know, be better. We have some constructive discussion with the targeted customers that we target, you know, the first waves that we target. There's some improvement. Again, this take time. There's some improvement being made. Okay. Just in terms of hiring efforts, where are you in terms of having the right amount of people to deliver the CAD 150 million throughput, Martin? We do have the right amount of people. Maybe, you know, let's say, 3%, 5%, you know, here and there because it's the balance. It's the nature. It's the nature of the turnover, Benoit. Sometimes we do have when we leave, you know, we replace quite, we have a very good team here, the human resource team. We, we are able to replace. We stabilize it somewhat in the last quarter. That's, you know, so. I'm prudent, right? I'm prudent optimistically. Because, you never know. It's, every day is a different day. I'm remaining prudent, but we have the people, and we have been able to cope and to fulfill those departure and turnover. Okay. with respect to the big order we saw with NetJets and Embraer on the Praetor 500, if you look at Embraer's comment on the last conference call, there's a steep increase in production rate that is expected for the foreseeable future on the Praetor. Is it something that you can deliver, and what are the actions you can undertake to make sure that you delivers on Embraer's initiatives? We have increased significantly our production rate in the last two years. It's very difficult for me to comment on their announcement, but we're not impacting their delivery line, let's say. Okay. That's, that's great color. How should we be thinking about, Martin, on the impact on the backlog? Is it something that should be added to your backlog at the end of Q1? Sorry, can you repeat that? Is this going to translate to firm PO the 250 order? Eventually. Eventually, it's going to transfer into POs. Now it's an order that will be delivered, I believe, and don't quote me there, right? I believe it's going to be over 10 years, right? Okay, perfect. Just in terms of backlogs stable last quarter, still very strong. How would you qualify your bidding pipeline right now? Maybe if you could talk about the opportunities you see for actuation system now that you're ramping up the a nice contract with Boeing. Just wondering if it could provide you more opportunities on actuation system as you build up your reputation on that front. That's right. You know, we have designed, developed two critical system for our contracts, you know, and, in Spain, you know, replacing supply chain, you know, on defense programs. That's also an opportunities, right? That's also a significant accomplishment. We have two programs, namely that we had some performance issue that we are developing, you know, programs, or products, so with Spain. Okay. Also don't forget, you have the passenger-to-freighter conversion program that we're still developing for Embraer. Those are also, you know, opportunities that we're working. We need to digest those, you know. We need to deliver on the customer expectations and then ramp up production. Okay. Maybe last one for me then. MQ-25, initial operational capability has been delayed, somewhat by another 10 months by the U.S. Navy. Any short-term impact for you? No. No, no. We're well advanced into the qualification. We're gonna be waiting for LRIP production orders, right? We have been exceeding or meeting or advancing or whatever you can say that the qualification customer is very happy. We're waiting for the production now. Okay. Okay. Thank you very much for the time. Thank you, Benoit. Thank you, Benoit. Thank you. Once again, ladies and gentlemen, if you do have a question, please press * followed by 1 on your touchtone phone. Your next question will be from Jonathan Lamers at Laurentian Bank Securities. Please go ahead. Thank you. Morning. Good morning. Good morning. There was a very strong step-up in the civil sales, in particular, sequentially from the Q3. They were up by about CAD 15 million. That's more than we would have expected based on seasonality. Was that all volume improvement or was there some pricing improvement from the contract discussions that you talked about? Was there any pricing in the sequential step up we saw? It's volume improvement mainly. Based on the contract discussions you're having, do you have visibility to any improvement in pricing, flowing through later this year? Yes. Indexation formula will kick in, right? namely for civil product. It should improve, you know, our sales pricing.. Okay, thanks. Stéphane, I believe in some prior quarters you provided a EBITDA margin bridge. Do you have any of those figures in front of you? We're gonna publish something. If you have specific question, it's not a problem. You can ask. Well, clearly the volume improvement would have been one driver of the margin step up. You know, it sounds like, I don't know if you wanna go through it versus the prior quarter, but that's kind of what I'm the most interested in. You know, is the margin improvement that we saw all from the higher volumes? It sounds like there was no benefit of inflation. And then just, I'd just like to know if the production or the product mix were worse versus the prior quarter, that's all. Volume is the key driver when you look at Q4 versus Q3. Right. On the cost side, what we experimented in Q3, we saw the same thing in Q4. It's inflation in the specific costs is not going away for supply, maintenance and utilities. We see some, let's say improvement on that side, on the utility costs in Europe, but in Spain. In U.K., we had a fixed contract, we see higher costs on that front. All in all, it's still higher like Q3 compared to historical level for utility costs for us. Okay, thanks. The change in the U.K. energy subsidies and pricing that just took effect, how are you expecting that to impact margins in the upcoming quarters? , good question. This is ending at the end of March. At the same time, as I said, when you look at the indices, we see that, you know, it's going the right direction for us. The cost has reduced from December to today. We are looking at opportunity maybe to fix that cost. We are looking at that at this stage, and this is built up in our in our fiscal 2024 budget. The pricing with the customer, the, you know, that's why it's, it's reflected as well. We're passing that inflation in the U.K. because of it's exceptional. so net-net is still gonna be higher than what we experimented this year because of this grant, special grant in the U.K., but the cost is going down, so. Thanks. We noticed that there was some activity on the NCIB over the past quarter. How are you thinking about using the program for the next fiscal year? This, the NCIB, is expiring, right, in May. We have not put yet a new one in place, so we'll look at that, and we'll look at the quarter to quarter, let's say, situation. This one is expiring now and then there's not one starting right after. Okay, thanks for your comments. Thank you. Thank you, Jonathan. There are no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines.