Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Héroux-Devtek's fiscal 2024 third 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 question and answer session. If you would like to ask a question during this time, simply press star, then the 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 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 the press release 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, Wednesday, February 7, 2024, at 8:30 A.M. Eastern Time. I will now 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, Joelle, and good morning, everyone. Welcome to our third quarter earnings conference call for fiscal 2024. I invite you to follow along by referring to the financial statements, MD&A, and press release, which can be found in the Investors section of our website. We're pleased to announce that our sales for the last quarter total CAD 164 million, a 16.1% increase compared to the same quarter last year, and that brings our trailing twelve-month sales above CAD 600 million, or representing 98% of our record year in fiscal 2020. This strong throughput is a sign that our focus on stabilizing our production system is beginning to pay off. The increase in volume, along with the effect of our pricing initiatives in response to inflationary pressure, drove our EBITDA margin up to 15%, marking a significant 500 basis point improvement over last year. These results are rapidly approaching our historical performance in terms of profitability. While we are pleased with our progress, there remains work to be done. Linearity in our deliveries within the quarter remains a challenge, especially given the ongoing pressure in the aerospace supply chain environment. However, we have demonstrated resilience and adaptability, and we are confident in our ability to navigate and make further progress in overcoming these challenges. Looking beyond these immediate challenge, we see positive long-term dynamics for the aerospace industry. Global traffic is back to pre-pandemic levels, and IATA is forecasting continued growth. The resurgence in travel demand is once again driving new aircraft orders, and this, combined with long-term fleet replacement forecasts, is pushing OEMs to increase production rates. Geopolitical tension has also added urgency to the defense industry's effort to maintain, develop, and launch new aircraft programs in the United States, the United Kingdom, Western Europe, and the Pacific area. At this point, I would like to turn it to Stéphane for a review of our third quarter financial performance. 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. Our consolidated sales in Q3 increased by 16.1% to CAD 163.5 million, compared to CAD 140.9 million last year. Civil sales rose 41.4%, reflecting increased deliveries for the Boeing 777 and Embraer Praetor program, while defense sales remained relatively stable year-over-year. Gross profit increased to CAD 29.1 million, or 17.8% of sales, from CAD 19.9 million, or 14.1% of sales last year, due to higher throughput and pricing initiatives, partly offset by the effect of inflation on costs. Operating income increased to CAD 15.6 million, or 9.5% of sales, from CAD 5.1 million, or 3.6% of sales last year, reflecting higher gross profit combined with a 1% year-over-year positive foreign exchange impact. For the same reason, adjusted EBITDA increased to CAD 24.5 million, or 15% of sales, from CAD 14.1 million, or 10% of sales last year. Reported and adjusted net income for the third quarter stood at CAD 9 million or CAD 0.27 per diluted share, compared to CAD 1.8 million or CAD 0.05 per diluted share last year. Cash flow related to operating activity reached CAD 11 million in the third quarter, compared to CAD 5.2 million last year. The improvement in cash from operation occurred despite continued investment in inventory to stabilize our production system and sustain future sales growth. Our leverage ratio at quarter end improved as a result of our increased profitability, with net debt to adjusted EBITDA decreasing to 2.8 times from 3.1 times at September 30th, 2023. Back to you, Martin. Yeah, thanks, Stéphane. While we're pleased with our performance this quarter, as our return to our historical levels of volume and improvement in profitability has arrived sooner than expected, more work needs to be done. Our focus remains on the execution of our priorities to restore the health of our supply chain, automate manufacturing processes wherever feasible, to reduce our cost, and continue our pricing initiatives in response to inflationary pressures. Outside of the immediate headwinds, however, the long-term outlook for our industry is promising, with robust forecast and new aircraft program on the horizon for both the civil and defense sectors. This outlook, the new business opportunities and the momentum of our strategic initiatives over the next few years allow us to foresee a continued upward trend in sales volume and profitability beyond the sales and margin we have generated in the past. In closing, I'd like to thank our team again for their efforts throughout these last few quarters, and I'm confident we can achieve even more in the months and the years ahead. Joelle, we're now ready to answer questions. Thank you. If you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Again, if you have a question, please press star one. We will pause for just a moment to compile the Q&A roster. Your first question comes from Benoit Poirier with Desjardins Capital Markets. Please go ahead. Good morning, Martin. Good morning, Stéphane, and congrats for the very impressive quarter. Thank you, Benoit. Good morning. Yeah. Could you maybe provide some comments about the overall supply chain issues? It seems that we've seen an improvement, and whether the strong throughput that was achieved in Q3 is sustainable in Q4, especially as Q4 tends to be the strongest quarter of the year. So I'm just wondering whether there's something not sustainable that impacted Q3. Yeah, I think the increased level in inventory, you know, is helping us to stabilize our internal production systems, where we see better improvement, better efficiencies and more linearity in our throughput month after month. So that issues, you know, having inventory give us a good feeling over the last quarter, which is historically our strongest quarter. So it's still fragile environment, Benoit, but the teams are has developed the tools and the mechanism and the agility necessary to deliver our product. Okay. And specifically on the Boeing 777 and 777X program, I was wondering if you could provide an update. If you look at the backlog, it stands at 514 units. Boeing was successful, booking 98 orders, and they also announced that they resumed production on the 777X. So I was wondering if you could provide us an update about what, what do you foresee on, on, on this specific program? Well, not much that, not much more than what you just explained. I think, that's a very good program. Entry service is very critical, so we have no news about delays or, in- introduction. So we're still following what, what Boeing is telling us, and that's true. We have resumed production on the 777-9 or the 777X. Yeah. Okay, that's great. And on the business jet side, could you comment about the, what do you see these days, especially on the Praetor? It looks like there has been a strong ramp up, but also if you could provide an update on the 6X and 10X with the Dassault. The Falcon 6X has entered service last quarter. They are delivering airplanes as we speak. As you know, we're supplying landing gear, so we're ahead of their forecast. It's a strong program, and we continue to deliver. It's a beautiful airplane. I think Dassault has made... And we're very proud of the system that we have developed for them. That will generate the future sales for us in the upcoming years. Also, the Falcon 10X is, so we're in the certification campaign. We have delivered our gears to them, or we're qualifying the gears that it's ready. We're in the certification campaign. As far as the entire program, I cannot tell you much more, but we're there, and we're supporting very well our customer there. Okay. The Praetor brand, it's, it's very good. Like you said, it's going up in rates. We see it in the numbers, and we should see it in their numbers, too. Okay, and last one for me, Martin. The press release, you mentioned that you foresee a continued upward trend in sales and volume and profitability, beyond the sales and margins that you've generated in the past. So when looking at the margins, you were quite good about bringing EBITDA margin around 15%, 16%. So, just wondering, when you say profitability beyond historical levels, what do you intend to achieve from a profitability standpoint? Volume is magic. Stability is magic. Efficiency is magic. Automation is magic, and the pricing initiative also helps, you know, to continue that growth. So, we see we're very busy. We see that the aerospace industry is booming in all of the segments, even more, you know, new and aftermarket. So we're in a good position, right now, Benoit. Okay, thanks, very much for the time, and congrats again. Thank you very much, Benoit. Your next question comes from Konark Gupta with Scotiabank. Please go ahead. Thanks, operator. Good morning, everyone. Good morning. Morning. My first question is on the margin side. I was a little bit surprised to see a 15%. It's so early, and I understand there's a one percentage point in contribution from FX, I guess, compared to last year. But even if you strip it out and say it's 14% like to like, it's still a pretty good margin number in this environment. And I know you pointed out the volume and pricing that they are contributing here. Were there any surprises from either volume or pricing side to you guys? Or was it the inflation that did not materialize as much as you anticipated initially? Like, I'm just looking for any surprises from your perspective, which would have contributed to this strong margin. Yeah, Konark, every business unit realized their plan. So that's the thing. So sometimes, you know, we're in the decentralized environment, so we have a... And every business unit has generated their plan. So no one has, you know, dragged this. So when you all add up, so that makes good surprise. I see. Okay, so it's basically everything added up. Yeah. There was nothing lagging this time compared to, like, previous quarters. We saw a few plants had issues with profitability. Yeah, and we still foresee some improvement. Yes. Okay, great. Thanks. Okay, and then on the Boeing side, I understand you are not highly exposed to the narrow-body market, either Boeing or Airbus. But the whole issue with Boeing, with FAA and their quality, and their suppliers' quality, not including you, obviously, it's gonna eventually come down to questions on some of the aircraft types, possibly. I mean, is there any discussion with Boeing where you foresee, Boeing probably controlling production rates on all aircraft types, not just the 737? Just so that they can ensure the quality and compliance with FAA. Well, so the first one to entry in service is a 777X. That will have to go through all the requirements with the FAA. That's one thing, but I can tell you that Boeing is taking the quality assurance and the quality initiative very seriously. We have meeting every month with them, where all the industry participate with that. So it's a very good initiative, so they take that very seriously, and our industry will benefit from that. So, that's what I can say right now, Konark. You know, makes sense. Thanks. Last one for me. So- I'm not now when you are- But I don't want to look, you know, on the phone, you know, optimistic or put my head in the ground, but it's unfortunate, these events. So that makes the industry realize that we do a very important job, and we take that very seriously as an industry. So that's mainly the message I wanna take, I wanna pass. Fair enough. Thanks, and last one for me. Now you are at a point where perhaps a lot of production stability has happened, and, you know, maybe the big chunk of the cost inflation issues are behind you, perhaps. Is there any point when you think you can start guiding again on, on sales or margins? We have not made that decision yet, Konark, so I cannot have an answer, a clear answer for you at this time. Okay, no worries. Thanks for taking my question. Thank you. Okay, Konark. Thank you. Your next question comes from Tim James with TD Cowen. Please go ahead. Thanks, good morning, everyone. Great, great quarter. Just wanna turn to the, the revenue and the, and the strong revenue performance in the quarter. You know, the increase from the second quarter to the third quarter was historically strong, and in particular in civil, where revenues were up, call it $10 million from the second quarter. Could you talk about sequentially, what drove that? What's in that additional $10 million in revenue? I know you called out sort of the Praetor and 777, which I think is a reference to year- over- year. But is it, are those two programs also the primary reason for that big sequential jump in revenue? Well, we have the orders, Tim. We said it in the previous call, the matter that the challenge is to execute them and improve the throughput. So as far as the two program that were cited, we all know that the OEMs have published, you know, not Embraer, but Boeing has published an increased production rates, and we're following that. And also, you know, Embraer, they sign up last year, a very important order. So their backlog, you know, what I can say is their backlog is full, so we're executing per what they tell us to do. So that's why we see an improvement in specifically in these two programs. So it's not a problem of demand that we have, it the challenge is remains to deliver, you know, that continued growth. That's why we have, and we told you that we need to invest in inventory, not only to make our shop more efficient, but also to answer this increased volume. Okay, that's helpful. Then just turning to margins, and you talked about this earlier, and you've, you've said, you know, there's, there's more opportunity for margin expansion from here. You're at 15% in the quarter. You know, pre-pandemic, you, the company got into that 15%-16% range, and it sounds like, you know, now there's the, there's an opportunity to, to surpass that in the coming years. Could you just talk about the differences between the pre-pandemic margin of, you know, when it got into that 15%-16% range, and what allows the company to go beyond that in the future? Because, you know, pre-pandemic, we didn't have the inflation issues, some of the inefficiencies, supply chain, et cetera. So what's, what's left in the business in terms of propelling margins higher in the future? Is it about mix? Is it, you know, further along without not as many development programs that are maybe a drag on margins? If you could just compare pre-pandemic peak margins to kind of the, the opportunity to go higher than that in the future. Well, pre-pandemic, we were also foreseeing an improvement in margin, right? So Tim, so we, but right now the strategic initiatives is allowing us, you know, to see even further improvement. Like we said, you know, for many quarters now, stabilization of our production system. Once the supply chain environment is much more stable, stable, we will gain more efficiencies in our shop. Automation also, the pandemic allowed us to review all of our programs and look at the ways to do and to absorb any increase in volume. You know, like we said in previous call, increase in volume, our challenge, our goal is to absorb all this increase with the same amount of resource. So that's what we've seen in the third quarter, and we intend to continue. The pricing initiatives in to compensate some inflationary pressure is also another one. Now we need to relook at our costs and you know stabilize this supply chain environment so we could have some cost reduction there, too. And also, we're busy. The outlook in the aerospace is busy. It's busy everywhere. Defense, you know, we're not talking a lot about defense, but the geopolitical situation is increasing demand in both new programs and maintaining programs right now. So it's not a secret that all the NATO countries, you know, needs to replenish their stock, and we foresee again some volume there. So we will be very busy. The outlook is pretty good. It's pretty promising that, like I said, you know, during my opening remarks. This is how you should think about, you know, going further. Volume is magic in our business. And Tim, if you recall, we had just made four acquisition. So it was very recent in 2020. So the team has worked very, very hard over those years, even though we had a pandemic, to improve the business. So we took out some fixed costs as well through the pandemic. So we're in a good position because of the action that were taken also during the pandemic time. Okay, that's really helpful. Thank you. Stéphane, maybe just a quick question on the working capital. Obviously, those investments you've been making have paid off, or it certainly looks that way given the quarter you've put together and the progress you've made on the revenue and the margin. Should we think about the investments you've made in working capital, and I guess inventory in particular, as sort of a new baseline, or does some of that reverse and generate cash, you know, in the coming quarters or years? Or do you feel this inventory, relative to the level of sales and volume, is just the new baseline and this is kind of an indefinite investment that you'll need to maintain going forward? The comment I made on the previous call was that we were carrying CAD 50 million more inventory to stabilize our production system. So, eventually this will normalize, but it's not in the coming quarters. It's gonna take some time before we see this normalizing. But in due time, this will come back, right? To the level that we used to have. So in terms of inventory terms. So now that combined with the growth that we're having in both of our market is supporting also that growth. So, it's not a short-term thing. It's really more after the next year or so that we will see those gradual improvement with the environment that we are operating in. Okay, that's helpful. Thank you very much. Thank you. Thank you, Steve. Your next question comes from Cameron Doerksen with National Bank Financial. Please go ahead. Yeah, thanks. Good morning. Good morning. So, just on the, I guess the repricing of contracts, I mean, it certainly based on the margins you've generated, it looks like you're having some pretty good success there. Just wondering where we are in that process. You know, I guess, how much is left to do? I mean, obviously, it's an ongoing process, but on some of the sort of bigger contracts, where are we as far as, you know, repricing some of those inflation-impacted contracts? Yeah, thank you for the question. So we will not get into the specific of this, of this initiative, Cameron, at this time, but we have several ongoing discussions that we expect to finalize. So in terms of scope, what we can say is we're taking a very good approach, looking at all of our contracts and customer has established, you know, what we believe are reasonable objectives. So as you know, you know, again, we have three type of contract: life of the program contract with the indexation formula. We do have contract with the duration, where adjustment can be made at the end of the specific contract again, so we still have some. And PO- to- PO basis that are generally, you know, that we can adjust pricing, you know, after every PO. So we're in that cycle as we speak, Cameron, so that's, that's what I can tell you. But again, demand for aerospace product is very strong in both segments, right? And a balanced approach is always in our discussion with the customer and have always been the foundation of our strong relationship with them. So every situation is looked at, you know, with this in mind and differently, so. Okay. And I guess as far as some of those discussions you're having, does some of that maybe involve an increase in volumes or, you know, an expansion of the scope of the work you're doing for some of the customers? I mean, you know, are those part of the repricing discussions? I'm just trying to think about your opportunity to win additional volumes, you know, given that you're delivering as an aerospace supplier, and maybe some of the OEMs would like to do more business with you. Yeah, all of the above. All of the above. Okay. Our strategy is the selling price higher than the cost. Yeah, definitely a good strategy. Maybe second question for me, obviously, you spent maybe the last couple of years kind of working through the, the supply chain issues, the inflation, and maybe, acquisitions have been on the back burner somewhat. I'm just wondering where, what, what your thinking is these days, you know, things seem to stabilize a lot more for you and for the aerospace industry generally. So how, how are you thinking about M&A these days? We have so many opportunities ahead of us, and the multiple of these M&A opportunities, so we're laser focused on executing the organic growth and internal opportunity that we have ahead of us. We always have that in mind, so it's a disciplined approach, Cameron, and we ain't gonna do an acquisition just so to do an acquisition. It needs to be accretive for our shareholder. Okay, got it. All the rest of my questions were answered, so thanks very much. Thank you. Thank you. Have a good day. As a reminder, if you would like to ask a question, please press star one on your telephone. Your next question comes from Jonathan Lamers with Laurentian Bank Securities. Please go ahead. Yeah, good morning and congratulations on the strong quarter. Thank you, Jonathan. Thank you. Yeah. Martin, Stéphane, it sounds like you're seeing strong demand in excess of your capacity across both the defense and civil markets. So you have a nice problem to have here in terms of, you know, ramping production toward that. Can you help us think about the magnitude of the production increase that we could see into next year, fiscal 2025? Can you do you have any metrics on the number of ship sets that you expect to deliver this year and the number that you might be able to do next year, for example? Yes, Jonathan. So thanks for the question. We have so many platforms, right, and so many different segments, but the majority of them are increasing. So, we see improvement, you know, some of them, you know, and also some newer aircraft entered into service. I'm thinking about the Falcon 6X. I'm thinking about the 777, 777X. I'm thinking about the Praetor is selling well. I'm thinking in the defense area also with the platform, JSF is still strong. So all of the platform, n o, and when you look at the peers, because we don't provide guidance, and I'm very cautious there, so we have all the metrics, right, in front of us. But what I can tell you is the challenge will not be to get the orders. The challenge will be to deliver them on time and efficiently. Still there, and we see again, the supply chain environment, you know, and when you listen to all of my peers and all of my colleagues there, they all say that it, it's a concern, and we see stabilization improvement, but it's still unstable. So some are, some are saying 18 months of instability, some are saying 12. So, so that's, that's, and I agree with these statements, so. Once all the industry fully recover from the up and down swing, you know, caused by the pandemic and everybody stabilize their production system, yes, that will be even greater. Does that answer your question, Jonathan? That provides me with a good sense, although I still don't have a good guess as to the magnitude, whether you can increase production 5% or, you know- I don't provide that. Before COVID, you talked about... No, I know. But before COVID, you talked about having production capacity for CAD 650 million-CAD 680 million of sales. Given how strong, you know, inflation on your costs and how successful your repricing initiatives have been, I would think that your total capacity has moved beyond that now. Would you have an update for us on, you know, where you see- That's a fair assessment, Jonathan. That's a fair Jonathan. That's a fair assessment. So it's a fair assessment that that's moved up. Okay. Thank you. And- And, Jonathan, Jonathan, just look at the third quarter, right? I don't want to imply times four, you know, but, you know, you see every quarter the growth we've had versus the prior year. So we are, we have done a lot of work in the past few years, especially in the past year. And, obviously, this is paying off, but it's not the end of it, right? So that's what we're trying to give you, right, what we see in front of us without, you know, providing you guidance. So I think it's, we're in a bit of a unique position, right? Both markets are very busy, the business is strong, and we are recovering, right, from a tough year last year, so. Martin, civil sales were much stronger this quarter, but you've spoken to a lot of indications that the defense programs are adding up to a lot of demand. You know, I know some of that is for, you know, much later years. As you look to next year, do you think you'll, well, you'll see stronger production growth to the defense or civil markets? Yes. Yes. Yes. And it's gonna take, you know, like you, you're well aware, that our production cycles are not, you know, 3 months, 6 months, it's even longer. But yes, we'll see some upcoming orders. Now it's gonna be to deliver them on time. Yes. Okay, and just the last question, if I can, on the margin. I understand you're not providing guidance. Do you have any monthly breakdown in front of you showing sort of where gross margin percentage was at the exit of the quarter versus at the beginning? You mentioned that you had seen continued linear improvement in throughput over the months. But we still have not achieved a linearity on a monthly basis. Some business units are doing that, have achieved that, but some other are not. So when you look at it on a month-by-month basis, you still have fluctuations from the last month versus the previous and second month. But we see the improvement compared to last year when we look at each of the month. That's what we've seen in Q3, the previous quarter. So- Okay, thanks for your comments. I'll leave it there. At the end, Jonathan, this, this is an opportunity to further improve, right, for us. Because as things are stabilizing and we're able to do more, linearity on a month-to-month basis in our sales, this will, this will remove some of the costs we're bearing to expedite deliveries at the end. So it sounds like there's room for further improvement, particularly as you continue on your efforts to automate certain facilities. That's the plan. The plan doesn't change. Okay, thanks for your comments. Thank you, Jonathan. Your next question comes from Tim James with TD Cowen. Please go ahead. Thanks. I just have a follow-up. It actually ties in a little bit to the previous question. As you look out across your facilities, are there anywhere you feel like you need to win new work? And, you know, thinking about your projections, the growth that you already have planned and in the pipeline, are there any gaps where you say, "Gosh, you know, that facility is gonna remain underutilized?" And, I guess what I'm wondering is, do you really need to win new work? I kind of feel like just given the growth outlook across the board that you're probably in pretty good shape. Maybe with the exception of the capacity that was created related to the original 777 contract. Outside of that, when you think about your expectations for volume growth based on the work you already have, is there anywhere that you say, you know, it would be great to win new work and bring new throughput to a particular facility? Yeah, well, as you pointed out, the facility where we invested on the 777, right? To go up to 100 aircraft per year, we went as low as 24 aircraft, right, recently. Now, the last quarter in Q3, we did the equivalent of 10 ship sets. Last year, we did six. So, obviously the increase rate on the 777 going forward with the entry and service of the X, combined with the demand, right? Like, Benoit Poirier said earlier, the demand on that aircraft is strong, right, with the increase order book. Now, this is investment we've done to be in the large commercial sector. 777 is an example, but obviously, more in due time, we will be invited, right, eventually, when there's a new aircraft coming in the market. So that investment is there and obviously will pay off. Other than that, I think we have capacity. Some units are more busy, more crowded, but we have capacity still to improve the top line. Thank you. There are no further questions at this time. Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.