Martinrea International Inc Aktie

Good evening, ladies and gentlemen. Welcome to the Second Quarter 2026 Results Conference Call.

I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead.

Hi, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business, answering your questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network.

With me are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the second quarter ended June 30, 2026. I refer you to our usual disclaimer in our press release and our filed documents. On this call, Pat will touch on some key priorities for the business over the next few years, discuss operations and outline some key highlights for the quarter. Fred will provide an overview of our operating segments and highlight some new business wins and growth opportunities. Peter will discuss the Q2 results and 2026 outlook, and I will conclude with some brief comments on trade, geopolitics and capital allocation.

To kick things off, here's Pat.

Thanks, Rob. Good evening, everyone. I want to start by providing an update on how we see our business unfolding over the next few years. We have a three-year strategy that we update annually where we lay out key priorities. These include focusing on margins and free cash flow, growing our core automotive business, partnering in regions that have more risk or where we don't have scale or other competitive advantages and limiting our investment in those regions, growing our nonautomotive business and ensuring our investments are successful. I'll take a moment and elaborate on each of these, starting with margins and free cash flow.

We continue our strong focus on operational excellence, driven by our lean manufacturing principles. This continuous cost reduction and AI machine learning installations across the plant network will be key in driving margin expansion. As we enter 2027, we'll be intensifying our plant-specific performance targets with a view on consolidating or exiting underperforming operations where appropriate. We are targeting an adjusted operating income margin of 6.5% to 7% by 2028. And these are the levers we will pull to get there by also getting some help from projected better volumes and the move to next-generation programs where we can reprice the business to meet our expected hurdle rates. We will maintain our capital discipline in line with our previously communicated framework of CapEx roughly in line with depreciation and amortization. Improved capital efficiency should flow naturally through better operating performance, resulting in even stronger free cash flow.

Moving on, we foresee good growth in our core automotive business based on recent new business wins and strong performance at our customers. We are seeing a high level of quoting activity where we can be selective while growing at a faster pace than the overall market. Fred will elaborate on recent new business wins in his remarks. As always, we have a relentless focus on quality, which is a big part of what's helping us win new business. We are being recognized for this as evidenced by more than 30 awards we won from customers and industry organizations last year alone, in areas, including quality, delivery, sustainability, workplace excellence, communications and industry leadership. We have won awards from multiple customers, including the most notable General Motors Supplier of the Year Award, along with Ford, Toyota, just to name a few.

As we've indicated on prior calls, sales growth will be focused on North America, but we will look to maintain our book of business to open capacity and expand margins in Europe. We will limit our exposure in other markets that comprise our Rest of the World segment. Aligned with this strategy, we reached an agreement to sell 85% interest in our fluids plant in China, partnering with a local Chinese supplier, and we're looking at other potential dispositions of noncore assets.

Turning to nonautomotive markets. We continue to see growth in our industrial business with both our core customer base as well as new customers and new market verticals such as power generation and defense. We also recently entered the school bus market through our acquisition of Lyseon North America, which we now call Martinrea Tulsa and see strong growth prospects in this business. In addition, we have a meaningful book of heavy truck business.

We spoke on the last call about TruNorth Kaizen, our lean consultancy business that we recently launched. We've already won a few contracts in defense and aerospace, including one worth USD 5 million from Raytheon to work with them on improving manufacturing throughput on some key defense products. Thus far, in a short period of time, we've had a lot of success helping them, clearly demonstrating our strength in how we approach operations. This success is expected to lead to more business opportunities for TruNorth Kaizen. We expect to sign more contracts at TruNorth, which could expand the business by as much as 4x by the end of 2026. The business has significant room for growth, and we believe that over time, the relationships we forge through TruNorth could lead to opportunities to participate more directly in the defense manufacturing business. Importantly, TruNorth is a higher-margin business and was profitable in its first quarter of operation. Similarly, our MiNDCAN software subsidiary continues to see steady growth with an expectation to be profitable in 2027. This is great progress for a new software start-up.

As you can see, we are diversifying the business into markets with attractive growth prospects using existing skill sets, capabilities and equipment and for very little to no incremental capital investment. That dovetails nicely into our final pillar, which is to ensure investments are successful. The strategy here is to invest in new technologies and capabilities that can be a differentiator for our business and support those investments with resources, including human capital. The strategy also involves monetizing certain investments that have completed their incubation period and are self-sustaining.

Now let's shift to the quarter. I'll be brief, and Peter can fill in the details. We're pleased with our Q2 performance, considering the impact we had from lower volumes, including lost sales from the Ford Escape program, which ended at the end of last year, negative foreign exchange and higher aluminum costs, which is expected to reverse at some point. As we have articulated before, aluminum costs are a pass-through to our customers, though the pass-through occurs at about a 90-day lag. Given the spike we saw in the aluminum prices because of the Iran conflict, we had to absorb some extra costs in Q2. We expect to recover the amounts in the coming quarters as prices normalize with the timing dependent on how the Iran conflict plays out. The good news is volumes were up quarter-over-quarter, and we were able to offset cost pressures, including aluminum costs through operating improvements and commercial recoveries. This allowed us to also improve margins quarter-over-quarter.

Overall, based on our performance in the first half of the year and considering the various puts and takes, we are confident that we will meet our 2026 outlook. We're on track. Peter will elaborate on our financial results and our outlook. With that, I'd like to thank the Martinrea team for all their hard work and ongoing commitment to make this business better every day.

With that, here's Fred.

Thanks, Pat. Good evening, everyone. We continue to execute well, both operationally and financially while navigating through industry dynamics pertaining to trade, tariffs, electric vehicle volumes and the Iran conflict. We are doing well, managing what's in our control and pursuing growth opportunities in a prudent manner, as Pat outlined.

Turning to our segments, starting with North America. Q2 adjusted operating income margin came in at 8.3%, 20 basis points lower than the 8.5% margin in Q2 of last year on production sales that were 1.2% lower. We continue to consistently perform at a high level in North America, the main growth engine in our business where over 75% of our business resides with a solid margin profile, a good place to be. Europe recorded a CAD 7.5 million operating loss in the quarter, which compared to a CAD 1.8 million operating profit in Q2 of 2025 on production sales that were down about 8% year-over-year. The weaker year-over-year performance was a function of decremental margins on the lower production sales, higher aluminum prices, which is expected to reverse at some point, as Pat pointed out, and a lower level of commercial settlements.

Clearly, this is not where we want to be in Europe. However, we have actions in place that should improve European performance in the second half with a path toward breakeven for the full year 2026, including anticipated commercial recoveries related to the significant shortfall in electric vehicle volumes. From there, we are planning for and expect 2027 to be better in Europe year-over-year. As we've said on prior calls, our results in Europe reflect the volume environment that remains well below expectations. The European volume environment has been challenging across the auto supply base. Our disciplined approach, maintaining a presence for customer support while avoiding aggressive growth is the right strategy for this cycle. Over time, we believe Europe can return to a mid-single-digit margin profile as volumes recover, particularly given the operating improvements and restructuring actions we have taken.

While the reality of our performance in Europe is not lost on us, our approach remains disciplined and deliberate. Our strategy is to maintain a presence and fill open capacity rather than pursue aggressive growth. We think it's important to be there to support our customers globally and to win business with German OEMs in both Europe and North America. This is demonstrated through some considerable new business we were recently awarded from BMW in North America, which wouldn't have been possible without our manufacturing presence and capabilities in Europe.

Next, adjusted operating income in our Rest of the World segment was approximately breakeven compared to CAD 1.4 million in Q2 of 2025, reflecting decremental margins on lower production sales. As we have stated before, this segment is small, representing less than 3% of our consolidated sales and results can vary quarter-to-quarter. Our strategy in this region is to maintain only the footprint required to support our global business. As Pat noted, we sold a majority stake in our fluids plant in China during the quarter, further reducing our presence in the region, and we are exploring other potential divestitures.

Moving on, I'm very pleased to announce that we have been awarded a new business worth CAD 110 million in annualized sales and mature volumes, consisting of CAD 55 million in various structural components in our Lightweight Structures Commercial Group with Ford and Volkswagen Scout, CAD 40 million in our Propulsion Systems commercial group for Volvo, BMW, Rolls-Royce and Volkswagen Scout, CAD 10 million in our flexible manufacturing group with Isuzu and John Deere and the CAD 5 million consulting contract with Raytheon through TruNorth Kaizen that Pat mentioned earlier. New business awards during the last 12 months totaled CAD 440 million.

Quoting activity remains robust, and we continue to be awarded program extensions and takeover work from financially troubled or underperforming suppliers. We're also seeing opportunities from OEMs localizing or onshoring production to North America, some of which we have already benefited from.

I'll end it there. Thanks for your time. I'll now turn it over to Peter to discuss our financial results and outlook in more detail.

Thanks, Fred, and good evening, everyone. Before we dig into the financials, I want to frame our second quarter results through the two lenses that we use to evaluate the performance and running of the business; how well we are operating and our effectiveness in deploying capital. Each is a leading indicator of the value creation arc that we are on.

Regarding operations, Q2 adjusted operating income margin was 40 basis points higher than last quarter despite the temporary aluminum cost headwinds. Our operating performance continues to demonstrate the strength of our lean and continuous improvement mindset. The improvements we are making through the scaling of our AI, machine learning and other initiatives as well as the positive flow-through impact from higher production volumes should provide meaningful operating leverage as we advance towards our 2028 targets. Our capital allocation priorities remain unchanged: invest in the business, maintain a strong balance sheet and return capital to shareholders through dividends and share buybacks at appropriate times.

On the balance sheet, net debt ended the quarter at CAD 801 million, down from CAD 819 million in quarter 1. Our net debt to adjusted EBITDA ratio was 1.63x, roughly the same as last quarter and broadly in line with our target of 1.5x. We did this while repurchasing approximately 919,000 shares for CAD 10 million, consistent with the amount we spent last quarter. This is a disciplined approach. We continue to balance share repurchases against maintaining balance sheet flexibility, funding organic growth and pursuing strategic acquisitions.

Looking closer at the results, adjusted operating income margin came in at 5.9%. This is a decline from the 6.8% margin we generated in quarter 2 of last year, which was a high watermark for us. Let me be clear. The year-over-year margin decline is driven largely by temporary factors, the aluminum cost spike from the Iran conflict, which we expect to recover with a 90-day lag, and the production from the Ford Escape program and negative FX on our Mexican labor cost base. Strip those out and our underlying margin trajectory is improving as evidenced by the 40 basis point sequential improvement from quarter 1.

Reported free cash flow before principal lease payments under IFRS 16 was CAD 52.8 million. After principal lease payments, free cash flow was CAD 36.9 million. Free cash flow came in somewhat lower than expected given the timing of certain trade and other receivables, which we expect to collect by the end of the year. Overall, we remain on track to meet our 2026 free cash flow outlook. We are generating a healthy level of free cash flow from the business, and we expect this to continue. I'll have more to say on our 2026 outlook in a few moments.

Year-over-year, reported earnings per share increased to CAD 0.61 compared to last year's reported Q2 EPS of CAD 0.52, primarily because restructuring charges were lower, finance expense declined and the effective tax rate was lower. From an operating perspective, however, adjusted EPS of CAD 0.61 decreased compared to CAD 0.66 in quarter 2 2025 as a result of the aforementioned lower sales and compressed margin, which is primarily attributed to the Ford Escape program ending as well as the decremental margin impact of lower production volumes, mainly Europe.

Moving on, we are reaffirming our 2026 outlook, which calls for total sales of CAD 4.5 billion to CAD 4.9 billion, and adjusted operating income margin of 5.5% to 6% and a free cash flow of CAD 125 million to CAD 175 million, with approximately CAD 300 million in CapEx. The outlook is indicative of strong operational execution in a relatively flat market. Recall that our guidance assumes a modest decline in sales compared to 2025, reflecting the end of the Ford Escape program and lower tooling sales. Based upon our performance year-to-date and what we currently see in front of us, we believe our full year 2026 results will fall within the range of our guidance.

Our focus remains consistent execution and free cash flow generation through cycles based upon the elements of the business that are within our control. Q2 is one data point in a multiyear transformation. Since 2023, we have expanded margins, generated record free cash flow, restructured Europe toward breakeven, won more than CAD 1 billion in cumulative new business, are deploying machine learning at scale and have returned capital to shareholders through share buybacks. By 2028, we are targeting CAD 5.3 billion to CAD 5.5 billion in sales at a 6.5% to 7% adjusted operating income margin with an improved return on invested capital profile. That is the arc.

With that, I now turn you back over to Rob.

Thanks, Peter. I'll make a few takeaway comments on where we are at with USMCA and trade and geopolitical issues as well as capital allocation. As you've heard, there are many great things happening in our company. We had a good start to 2026 despite much noise on geopolitics and trade.

Regarding the USMCA and trade discussions, while there's always a lot of noise, it seems pretty clear to me that we will be very likely not seeing any tariffs on North American-made auto parts. Scott Bessent himself told me tariffs on auto parts is a very bad idea. He's right. This is good for us, but this is a consensus view in Washington, Mexico and Canada. I also foresee no tariffs ultimately on Canadian-made autos. That's what we are negotiating for, and that's what the entire industry wants. Meanwhile, as to timing, who knows? We did not expect a deal on USMCA by July 1, and that should not be a surprise to anyone.

But let me repeat an observation I made on the last call. Over 97% of our sales are made to assembly plants that are not in Canada. That is less than 3% of our revenues worldwide are made from sales of our products to Canadian assembly plants. Most of what we make in Canada is shipped to U.S. assembly plants already, tariff-free. Our U.S. footprint is much bigger than Canada. It's clear to me that our North American auto parts sales are likely not materially impacted even if, for example, Canada faces a tariff on assembly or USMCA discussions don't go well between Canada and the United States. I do believe there is huge consensus in our industry, OEMs and suppliers alike for a tariff-free North American auto industry, autos and parts makers. See, for example, the industry submissions to the administration and Congress, and I think we'll get there. But even if we don't, we'll be fine.

In terms of the USMCA and other negotiations, we are heavily involved in the consultations. Like all of you, we would like to see clarity and a good result, but we are patient, and we will deal with. I believe that the U.S. tariffs on other jurisdictions on parts and vehicles in whatever form they take, will, over time, encourage more manufacturing in North America, again, good news for suppliers and Martinrea, and we have seen some of this already. The tariff issues are really part of the overall geopolitical environment we face and are impacted by it. For example, the various conflicts in the Middle East and Ukraine as well as broader areas are clearly a primary focus of our largest trading partner.

The USMCA is not the or even a top priority item for the U.S. at this time in my view. That's not to say it isn't important, but the fact is the tariff issues are much more in the news here than in the U.S., and that's just the way it is. At the same time, I believe the geopolitics of the U.S. and China ultimately favor a fortress North America approach. This industry supports it even if for this industry only. And I think it is in the best interest of the U.S. to have a good deal with Canada and Mexico. And in my view, both Canada and Mexico should hold out for that.

Now let's turn briefly to capital allocation. Our framework is shown on this slide. We've consistently followed it over the years. First, to be profitable and sustainable for the long term, you have to invest in your business. Over the past decade, we have grown organically with some tuck-in acquisition activity. Some of our recent growth includes takeover work, as Fred noted. As a result, we're extremely well perceived as a supplier in our industry. As Pat noted, we are better operators today than we were in the early days. We have not made any large acquisitions, but have invested in our footprint and frankly, brought up the high standard in number of plants we acquired over the years. As our history shows, we've been very good at buying distressed assets and fixing them up.

We have also invested in R&D and made some strategic investments. We're not venture capitalists. We invest in relationships that make us more competitive and that bring us something, Graphene being one example, additive manufacturing using Equispheres Powder being another. And we bring them something, too, maybe a customer relationship, expertise in scaling up or customer access. Remember, we were a start-up at one time and still have a highly entrepreneurial culture. Our focus on improving operations and the use of leading edge technology in our business has brought us opportunities through consulting, which are already bearing fruit. These investments have led to better operational performance and are paying off.

Second, we maintain a strong balance sheet. This is paramount and something we will never compromise on. It's important to our customers. It enables us to win takeover business from other suppliers and take advantage of opportunities when they come along. This is a business that fluctuates and you want to be able to be nimble as we are. We've seen many competitors lose the value of their equity over the years by being overleveraged. As we've stated, we've won significant new business and our strong balance sheet has been a key enabler of this.

Third, we returned capital to shareholders. As noted, we bought back some shares in the quarter. We renewed our NCIB. We've now bought back about 20% of our company in the past decade or so and over 2.5% this year-to-date. And we paid a consistent dividend for years.

This chart is interesting as it shows how we deployed our free cash flow over the past 3 years and illustrates what has been a balanced and prudent approach. In the three years from 2023 to 2025, we generated close to CAD 600 million in free cash flow. With this, we reduced our net debt by over CAD 200 million, strengthening our balance sheet in some trying times, as you know. We repurchased approximately CAD 100 million of our shares, representing over 10% of the company's outstanding shares, which is now approximately 13% with share repurchases we've made year-to-date. We also paid CAD 45 million in dividends over this time. That's a balanced approach. Our shareholders vary in their views on how to spend the cash, and I'm sure you can appreciate when we talk to them and listen to them.

So where are we today? We continue to invest in the business. Peter talked about capital expenditures, and you have our outlook for this year and our 2028 targets. We must invest to grow in a prudent and profitable manner. We intend to maintain leverage at our target of 1.5x net debt to EBITDA or better, and we'll buy back some shares.

In terms of capital allocation, we have divested our fluids plant in China, as Pat noted, and we're involved in discussions on other potential asset dispositions that we generate cash to fund our business and other capital priorities.

Now it's time for questions. We have shareholders, analysts, employees, even some competitors on the phone, hello. So we may need to be a little bit careful with our comments, but we will answer what we can, and thank you all for calling in.

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions] With that, our first question comes from the line of Ty Collin with CIBC.

I appreciate all the commentary on the call so far. I guess to start, just wondering if you could share any sort of high-level expectations around cadence for sales and margins in Q3 and Q4 and any sort of timing factors or unusual items to take note of.

Okay. Thanks, Collin. Good to hear from you again. Yes, I'll refer back to what I had said in the last couple of calls. What the shape of the guidance, if you will, for this year is kind of like I've said before, a mountain shape. So we started off with a 5%, 5.5% quarter 1, a good quarter 2 and quarter 3 should be similar, I would say, to last year and then a little bit of a more sluggish quarter 4, similar to last year. I wouldn't say that quarter 4 is similar to last year, only that the shape is low in quarter 1, low in quarter 4 and the best quarters of the year for us would be the second and the third quarter.

Okay. Got it. Appreciate that. And then you called out a couple of factors within your Q2 margin performance, aluminum on the negative side, commercial settlements being favorable. I'm just wondering if you could help us kind of quantify those impacts to your Q2 results and what your expectations are specifically around both of those pieces in the coming quarters.

Sure. So as far as the aluminum is concerned, right? So on a year-over-year basis, it was substantial, if you will, it's about 50 or so basis -- a little bit less than that, maybe about 40 basis points because of the Iran conflict, which obviously wasn't contemplated at the time of guidance at all. So it's about 40 basis points on a year-over-year basis. As we move forward through the remainder of the quarters, you should expect that it will get slightly better in quarter three, but not completely reverse itself on the lag since the peak let's say, that we experienced was around CAD 3,800 per ton. It's come down now to the low CAD 3,000s, but not to where it started out the year, what we had planned for, if you will. So that reversal probably wouldn't take place until starting in quarter 4, maybe bleed into next year, just obviously dependent upon the trajectory of the Iran conflict.

Okay. And the commercial settlements, any sense of how meaningful that was in Q2?

Yes. We talked about as well in quarter 4 last year, quarter 1 this year that we were expecting a significant commercial settlement with one of our customers in North America. That did happen. However, it didn't take place in terms of, let's say, the timing or the lump sum. So let's say, format because it can take multiple formats. When you move forward here, so that's behind us. But moving forward, we still are working on several other commercial settlements, primarily in the European segment.

Okay. That's great. And if I could sneak in one more, maybe for Rob, just around USMCA and specifically the proposed 50% U.S. content requirement that has been put forward. I would take it based on your comments that your view is that this maybe isn't likely to get implemented, but that has been a long-standing ask for the U.S. So if something like that were to get implemented, is there a possibility that, that could disproportionately impact Mexican vehicle assembly and maybe have some sort of outsized impact on your footprint there?

Yes. A couple of comments. I mean the comment was raised in Mexico. Mexico told the U.S. to pound, so I'll tell them that one. The 50% requirement is actually kind of there right now in the context of -- in order to qualify for rules of origin, you've got to have a labor value content of USD 16 per hour absent benefits, which is basically an anti-Mexico provision, right? Like if you recall back in 2018, that was the original ask by Lighthiser, Canada and Mexico says, no, we're not going to do that. And they kind of backdoored it in the context of the labor provision. So you've kind of got that there anyway.

And then I think in the context of whatever your overall rules of origin, the 50% application goes toward the calculation of the overall rules of origin, which are in flux as well. So the interesting thing is that we aren't that far away from effectively that level anyway. It's how you play it. But in the context of the discussions from both the Canadian side and the Mexican side as well as basically every market player in the U.S. OEMs and supply folks is that's a problematic proposition, and it shouldn't take place. So I think we're going to basically be okay there.

And your next question comes from the line of Brian Morrison with TD Cowen.

Peter, can you maybe just start with the aluminum commentary you just had? I understand that there's the lag the 60, 90 days. But I would have thought with aluminum prices having come down substantially post the end of June that it would have been a benefit in Q3. Can you just walk me through what your budgeted amount was and how the recoveries work?

Yes. So the budgeted amounts were slightly less than CAD 3,000 a ton. So when they're approaching CAD 3,100 right now or so, right? So we're still not where we had planned it to be. So they've come down recently, but they're not where they -- let's say, where we'd expect them to be relative to the planning of our financials.

Sorry, but call it, CAD 3,500 or CAD 3,600 a ton in the last quarter, I thought you would have recovered that differential from the OEMs in Q3, no?

Let's put it this way. It's more on the 90-day lag than on the 60, right? So when we reprice at the 90-day mark on the average, it's always on an average now that will start to come back. So it depends on the timing of when the prices go down. And obviously, when we buy at the higher price, that also has an impact based upon the volumes at the time. So there's going to be the impact of what you buy, when you buy based upon the volumes of the releases and then the averaging of what that is relative to the lag on the contract, the lag language on the contract.

Going into Q4 with a better run rate.

Yes. Quarter 4, you should see a bigger impact. Like I said with Ty's question, I would think we would have some improvement, but it won't be completely, let's say, negated. So I think the kind of the scenarios we're running based upon the amount of material that we purchased based upon the releases would be -- some of that comes back, let's say, half of that deviation comes back, but not the entire amount won't come back.

Maybe the way to say it is the second half of the year is going to be -- its trend line is moving in the right direction for the second half. The material index is trending in the right direction, correct, barring we are going to another war.

Understood. You've been a little bit more open with respect to forthcoming noncore assets. Specifically, you mentioned China. I assume that real estate might be in there as well. Can you maybe just frame potential magnitude of some of these divestitures that you're alluding to?

I think that -- I mean, we talked about the sale of Anting. That's not a big ticket item. We have a few things in the hopper that we'll consider. Obviously, you got to get the right pricing. But I would say, looking at my colleagues, CAD 50 million to CAD 100 million maybe.

Yes. I mean, ultimately, if some of these things materialize, you can be in that vicinity, I would think, those deals material.

Is that 2026 events or later?

It could be 2026 or early 2027.

Okay. And then maybe, Pat or Fred, maybe you could just elaborate on the drivers to breakeven in the second half in Europe outside of the improved commercial recoveries?

So there's really 2 -- well, 3 elements, I would say. We got some operational improvements that we're planning on in the back half of the year. So those are going to continue. We talked about the aluminum cost reversal. So we're anticipating that, that will be a benefit in the back half of the year, largely, I would say, in Q4. And then on the commercial front, we are working actively on closing some open items with some core customers there in relation to the EV volume shortfall. And we anticipate that we'll have those done by the end of the year as well. And those items will all essentially benefit the European segment.

Okay. Sorry, one last question. I guess I'm a little bit -- I guess this is an unfair question, but your free cash flow yield hitting the numbers, you're like 15%. You're trading below 3x EBITDA. You have noncore assets. Are you at all concerned that you could be a target for M&A?

No. I mean I'll just make a very general comment in the sense. This is a business where private equity is involved, you've got to get consent to the management teams and the people where you lose important assets. The other thing I would say is with respect to strategics, the customer has a big say. We found this, obviously, in acquiring assets over the years. Customers like to ensure that they have two or three good suppliers in the bucket, so to speak, and do not look very favorably with strategic acquisitions of people in the same line of business. So I'll be very open people have said for 25 years, maybe Magna buys you or something like that. I don't think that's snowball's chance in hell of happening because the customers have said, you've effectively -- you're effectively competitors, why would I want to essentially hurt myself with that.

And so that's kind of the nature of the business. But at the same time, one can always speculate, but we think we're undervalued. We think that there's a USMCA cloud over Canada, in particular, that you don't really see in the United States we cross the border into the United States. Everyone is trying to help our industry and our company and everything else. And I think, unfortunately, we have the USMCA uncertainty. But if you got rid of that uncertainty and a few other things, I think people would be making investment decisions. I think it's park up in value and then M&A takeover bid target stuff kind of goes away.

[Operator Instructions] Your next question comes from the line of Michael Glen with Raymond James.

Just going to follow up on the Europe conversation. So you guys talked about the mid-single digit, a return to kind of mid-single-digit margins in Europe. When I look back historically, you had those margins, say, in 2019 and 2018, but you were on quite a bit lower revenue base in Europe at the time. Production revenue was kind of CAD 620 million or CAD 650 million, and now you're run rating like CAD 950 million in Europe, and you're below breakeven. So can you just help me understand exactly like that incremental, let's call it, CAD 300 million. Is that just mispriced work? Or like what's really overhanging the margin over in Europe right now?

Well, I think there's a pretty simple answer to it. At the end of the day, we invested in a number of EV programs. A lot of them were in Europe and the volumes have not materialized. So we've been burdened with more depreciation and more overhead, but the volumes aren't supporting. So if the volumes were there today, I think the margin would be definitely positive. Would they be in the mid-single, maybe not that high, but they're definitely be positive right now. So it's a big volume story that over time, we'll have to rectify.

And we had [indiscernible] that's for a while -- a lot of EV is as well. So it's pretty much the whole European story has been that way. Pretty consistent across the board.

So is there a big carrying value on the balance sheet then associated with the EV program? If the volumes aren't taking place to your expectation, shouldn't you be taking write-offs associated with the value of those assets on the balance sheet?

Yes, we have. I mean, if you look at the last couple of years, you have taken some EV-related write-downs. The accounting rules don't -- they allow you to write them down to a level of recoverability, right? So it's not like you're writing down to 0 and then booking profits later. That's just not the way it works.

Okay. And then for yourself, I know you're active on the buyback, and you're talking about -- maybe first, just on the asset dispositions that you're talking about in the CAD 52 million, CAD 100 million, that would be rest of world, specifically something over in China. That's what was being referred to? Or could it be other segments?

We're in discussions in different places, rest of world and local. We've got some capacity that we can potentially adjust, but like I said, we're in discussions. Nothing of material significance in any of those circumstances, but you put it together, and we're looking to fine-tune our footprint.

Yes. I think if you look at it in terms of EVs, which not just in Europe but worldwide, you create holes because of the lack of production and the right move, we don't see that changing anytime soon. So the right move is to try to figure out how do you fill those holes, whether it be takeover business or whether it be consolidation in certain spots. So there's some opportunities out there that we're studying very closely.

And some of those issues where you have capacity, you might want to hold on something because of what you're quoting in different. I think we spent a lot of time on this call talking about -- everyone is talking about defense. We need the right PO, of course, for that, but we have capacity to grow in nonautomotive, whether it's defense, whether it's trucks, whether it's buses. And so in that context, you look at where your footprint is and that kind of drives the decision meanwhile our salespeople and our people in our business units are full board seeing opportunities all over the place, putting takeover work. So something that you might be saying, I'm not sure I need to be there, that could change very quickly. So that's why we're fudging the discussion a little bit, but reality changes pretty quickly in this business.

And Rob makes a good point on the -- relative to the RFQs, the volume of RFQs we're seeing now, which we anticipated a couple of years ago, is really quite high, pre-COVID type levels back '17, '18 comparisons in my view. And a lot of that's switching back to ICE, switching to hybrids, a lot more engine opportunities. Three years ago, there wasn't an engine quote to be had out there. And now every single OEM is back in the process of introducing new engines, which that was one of our core real strengths in our aluminum business. So we foresee a very fruitful future when it comes to some of this.

Let's do a hypothetical example. So there's a big package of work available that is over CAD 100 million on an annual basis. And we can put it in a particular location, but we have to assess the CapEx. Let's say the CapEx is CAD 100 million, and the margin isn't that high. That's something that we would probably walk away from or not to win, right? At the same time, if you have something that the capital is significantly less or the margin is higher or whatever, you make a different determination. We have said there is a lot of work for quote, both original stuff and a lot of takeover business. And a lot of what we've won has been takeover business from other folks in that context.

So I think that we're -- in the one sense, despite a lot of the uncertainty from the USMCA and people are making investment decisions, especially in North America and so forth. At the same time, there's a lot of quoting activity, a lot of opportunity there. And as you can see, I mean, we're winning a significant amount of business, but we're quoting a lot more and making those types of determinations based on the cost benefit of a particular program.

Okay. And just my final question with the balance sheet and the initiatives that you're talking about, are you still looking at M&A deals yourself? Or is it something that has been completely deprioritized at this point?

I think look, so we're 25 years old if -- we probably looked at 1,000 M&A deals. You take the latest one we did was Tulsa. That was actually a consulting deal that turned into an acquisition, so kind of an M&A deal. We look at the opportunities in the context of everything. So we never say we're never looking. If nothing else, when things are potentially available or for sale, then you do look because it provides a lot of information often where there might be opportunities in order to go hard at something or see where other people might not be going. So I would say we're always looking, but don't expect us to overpay for anything.

And I think the other thing on top of that is Martinrea has always done a pretty good job of acquiring and fixing businesses, but our capability to fix now is, in my view, unparalleled in our industry. And so much so that we started this consulting business and have been hired by aerospace to help with throughput and have been quite successful at it so far and see quite a bit of growth. So having that same type of resource and capability in-house, our ability to fix things has become very secondhand. We're very good at it.

And I'm showing no further questions at this time. I would like to turn it back to Mr. Rob Wildeboer for closing remarks.

Well, thank you, everyone, for your time and attention. You know how to get a hold of us. We're always happy to talk to our investors, and everyone, have a great day. Thank you.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Good evening, ladies and gentlemen. Welcome to the Martinrea International First Quarter 2026 Results Conference Call. I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead.

Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business, answering your questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the first quarter ended March 31, 2026.

I refer you to our usual disclaimer in our press release and our filed documents. On this call, Pat will discuss operations and outline some key highlights for the quarter. Fred will provide an overview of our operating segments and highlight some new business wins and growth opportunities. Peter will discuss financials and 2026 outlook, and I will conclude with some comments on trade, geopolitics and capital allocation. To kick things off, here's Pat.

Thanks, Rob. Good evening, everyone. Before I comment on the quarter, I want to take a moment and highlight what makes our company unique. Simply put, we're great operators. Many of our plants are some of the best plants I've ever seen in my time in the auto industry. This is demonstrated in our results with our margin profile at the upper end of our peer group. We have industry-leading safety record and our employee survey results demonstrate that our employees believe that this is a great place to work.

Our customers view us as trusted partners with a great reputation for delivery and quality as evidenced by many supplier awards that we have won, including the GM Supplier of the Year award. These outcomes reflect disciplined execution across the organization, not onetime benefits. Innovation at Martinrea is practical and execution-driven. Many initiatives originate on the plant floor and are scaled across the network.

Our advanced manufacturing team continues to deploy machine learning solutions such as adaptive welding, press health monitoring and vision systems with PolyML providing the core intelligence behind these solutions. We're scaling these solutions across multiple facilities and making good progress. These initiatives are contributing to improved operating efficiency and our margin profile. We are also applying advanced manufacturing selectively to core product categories. We recently won an award in an additive manufacturing trade show called Rapid+TCT, which took place in Boston earlier this month for a product that we designed in partnership with Equispheres. It's essentially a heat exchanger that is a 3D printed into an electric motor housing. This is a great example of innovation taking place in Martinrea innovation development that is strategic to our core business with direct applications to existing products. Another example is a new business we call TruNorth Kaizen, which we kicked off at the beginning of this year.

11 years ago, lean manufacturing was introduced as one of our key strategies to improve our operations and ultimately, the bottom line. Recall that prior to the pandemic, this initiative was key in driving our adjusted operating income margin from 4% to just under 8%. I remember, I was asked on one of my early earnings calls. How long will this lean thing take to implement? I replied about 10 years to become embedded in our culture. Part of the process was to bring expertise from my days at Toyota. Recall, I was VP of Manufacturing at Toyota's largest plant before I moved to the supplier side. I worked with many colleagues at Toyota that had been at the company for 20, 30 years and have developed a great appreciation for the Toyota production system. We brought this skill set over to Martinrea in 2015 as well as very strong subject matter experts.

And for the last 11 years, lean has become the standard operating procedure across the organization. We're well advanced on our lean journey. We call it MOS, the Martinrea operating system. It is so well integrated into our plants that I can say with confidence that our operations are as good as or better than any supplier in our space. So what's the so what?

About a year ago, a supplier came to us and asked if we would be willing to share our expertise because they were struggling to keep up with their customer, which was also a customer of ours, albeit a smaller one at the time. Long story short, after creating a road map and with the customers' blessing, the supplier asked us if we would acquire the operation and fix it as opposed to helping them fix it. That operation was Lyseon North America, now known as Martinrea Tulsa. In a matter of months, we have gone from a 7-day operation on 4 shifts to a 5-day operation on 3 shifts. We improved throughput by 32% in this time frame. And while we were at it, we consolidated the footprint and have made 50% of the plant available for future business.

Further improvements are continuing. We recognize we're pretty good at this, and we no longer rely on past Toyota employees to teach the masses. The masses has developed the internal capability to continuously perpetuate lean at Martinrea. The maturation of this process has allowed us to establish a lean consultancy for customers outside of Martinrea. We call it TruNorth Kaizen. Almost immediately, we won our first contract with Vaupell, a U.S.-based supplier of complex high-performance components, primarily for the aerospace industry. More recently, we were able to land a significant job with a large aerospace defense company in the U.S. focused on increasing throughput of a key product. The good news here is that the new business will add to our bottom line in the first year. We are also confident that our success in this area could ultimately give us the inside track to manufacture aerospace or defense-related products in North America. I'm truly excited about the prospects of this business.

And I believe that with our strong track record of execution, we will be able to create significant value for our shareholders over the long haul. Now on to the quarter. We're pleased with our performance in Q1, both operationally and financially. Adjusted operating income margin was up year-over-year despite lower production sales as we continue to drive operating improvements throughout the organization. Our first quarter results were a nice improvement over Q4 with adjusted operating income margin almost a full percentage point higher.

We spoke on the last call about some commercial settlements that we are expecting to fall in the first half of this year. Discussions with our customer are advanced, and we expect to close these in Q2. We continue to successfully navigate through the impact of tariffs on our business. As we've said before, the vast majority of our parts that we export from Canada or Mexico into the United States are complying with the terms of the USMCA and therefore, are not subject to tariffs. We do have some exposure as it relates to Section 232 tariffs on the derivative steel and aluminum products that affect some of our raw material inputs.

The adverse impact is modest and absorbed by our customers or otherwise mitigated. As such, we do not expect any impact on our financial results from recent tariff changes. Overall, we've had a great start to the year, and we remain on track to meet our 2026 outlook. Peter will elaborate on our outlook later in the call. With that, I'd like to end by thanking the Martinrea team for all their hard work and ongoing commitment to make this business better every day. And now here's Fred.

Thanks, Pat. Good evening, everyone. As Pat noted, we continue to execute operationally and financially in the face of ongoing industry dynamics pertaining to trade, tariffs, electric vehicle volumes and the Iran conflict. Again, we are doing very well managing what's in our control and mitigating what isn't in our control through a focus on continuous improvement, overhead cost reduction, leveraging investments in automation and machine learning and recovery of costs related to tariffs and volume shortfalls in EV programs through commercial settlements with our customers. We have full confidence in our team, and I would like to thank our people for their dedication and hard work in delivering these results.

Turning to our segments, starting with North America. Q1 adjusted operating income margin came in at 7.5%, up 50 basis points year-over-year on production sales that were 5% lower. This demonstrates our success in offsetting lower vehicle production volumes through exceptional operational performance, including efficiency improvements and cost reduction and favorable commercial settlements. We continue to deliver stellar margins in North America, the main growth engine of our business.

Europe recorded a $2 million operating loss in the quarter, which was better than Q4 operating results on lower quarter-over-quarter sales. We expect further improvements in the region over time, subject to market volumes. At the current time, as we talked about on the last earnings call, Europe is running at around breakeven with quarter-to-quarter variability driven primarily by industry volumes, reflecting a volume environment that remains below expectations.

At normalized volumes with the improvements we have made across our European operations, we would be positive in the region. Historically, we generated adjusted operating income margins in the mid-single-digit range in Europe on average when production volumes are much higher than they are today. We believe we can get back to those historical margin levels in an improved volume environment, particularly given the operating improvements and restructuring actions we have taken.

Our strategy in Europe remains disciplined. We are not pursuing growth for the sake of growth, and we are focused on managing costs, capital and risk. While a return to historical margin levels and improved industry volumes will take some time, we remain comfortable with our footprint in the region. It's also important to understand that for us, it is key to have a presence in Europe, especially in Germany, as it is a center of excellence for design and engineering, which supports our ability to win business with our German OEM customers, including for our North American operations.

You may have noticed that we have won a considerable amount of new work for BMW recently, some of which is for our North American operations. This type of result is difficult to achieve without our presence and capabilities in Germany.

Next, our Rest of World segment posted positive operating income in the first quarter, lower year-over-year on lower sales and reflecting a lower level of favorable commercial settlements. As I have stated before, this segment is small, representing less than 3% of our consolidated sales and results can vary quarter-to-quarter. Our strategy in this region is to maintain only the footprint required to support our global business.

Moving on, I'm very pleased to announce that we've been awarded new business worth $90 million in annualized sales and mature volumes, consisting of various structural components in our lightweight structural Commercial Group with General Motors and BMW. New business awards during the last 12 months totaled $370 million. As noted on previous calls, we are quoting a lot of business at the moment. We feel like we have some good momentum in this area. We have also recently won a lot of work on program extensions with various customers with a value exceeding well over $1 billion in annualized sales and mature volumes.

Extensions are good for our business, generally requiring less capital for the same amount of volume compared to new programs, supporting our sales margin and free cash flow outlook. Of the $370 million of new business we have won over the last year, approximately $150 million reflects takeover work we have secured from financially troubled or underperforming suppliers, largely in our lightweight structures commercial group. This reflects the confidence our customers place in us based on our track record for quality, on-time delivery and innovation as well as our strong financial position and balance sheet.

Based on this momentum, we expect a strong 2026 new business awards, which will largely start launching in '27 and '28. OEMs localizing or onshoring production for North America is a meaningful opportunity for us that we are already benefiting from. In one example, we have been awarded additional volumes in a vehicle destined for sale in the U.S. market that is being produced in both the U.S. and abroad. The customer decided to localize a portion of the volume to the U.S., which has enabled us to fully utilize our assets dedicated to that program.

We're having discussions with other customers on potential onshoring of production, including with Asian-based OEMs, and we will be there to service them if and when as needed. On that note, I'd like to highlight that our customer exposure has become increasingly diversified in recent years.

In 2018, the Detroit 3 OEMs accounted for just over 70% of our sales, whereas today, that number is just under 60%. We did this by increasing our book of business in non-North American OEMs, particularly with Mercedes-Benz. We have also grown rapidly with Asian-based OEMs, including Toyota, where we see opportunities to further increase our penetration. Thank you for your time.

I'll now turn it over to Peter to discuss our financial results and outlook in more detail.

Thanks, Fred. I'll start with a quick scorecard. In quarter one, free cash flow was negative $35.2 million due to seasonal working capital flows. We repurchased $11 million worth of stock, equal to approximately 1.5% of the company's outstanding shares and net debt-to-EBITDA ended the quarter at 1.6. Importantly, we are reaffirming our 2026 free cash flow outlook of $125 million to $175 million and our overall 2026 guidance. We generated a record level of free cash flow in 2025 at just under $200 million, and we delivered a consistently high level of free cash flow in the $150 million to $200 million range in each of the last 3 years.

Our track record as a solid cash-generating business is well established at this point, and we expect that to continue. Now let me walk you through the puts and takes for the quarter. Operationally, quarter one reflected solid margin performance on lower production sales. This shows continued execution progress consistent with our full year objectives.

Quarter one adjusted operating income was $61.6 million, consistent with quarter one of last year on production sales that were down roughly 4%. This largely reflected the end of the Fort Escape program, partially offset by sales from the Lyseon acquisition, now Martinrea Tulsa.

Adjusted operating income margin came in at 5.5%, up 20 basis points year-over-year, driven by higher margins in North America, reflecting continued operating improvements. Quarter-over-quarter, adjusted operating income margin improved by 90 basis points. We overcame the sales headwind through operating efficiencies, lower depreciation from the quarter 4 impairment, lower equity-based compensation expense and some favorable mix.

Adjusted net earnings per share were $0.45, up from $0.41 in quarter one 2025. This reflects the sales and margin drivers discussed plus lower finance expense from lower debt and interest rates, a lower net foreign exchange loss and a modestly lower effective tax rate. The drivers are straightforward. Execution is holding margins, working capital unwinds through the year, and we're maintaining capital discipline while funding launches.

Turning to our outlook. introduced on the last call, 2026 continues to be about strong operational execution in a relatively flat market. We are reaffirming our full year 2026 guidance, sales of $4.5 billion to $4.9 billion, adjusted operating income margin of 5.5% to 6% and free cash flow of $125 million to $175 million. Our outlook assumes a modest decline in sales compared to 2025, reflecting the end of the Fort Escape program and lower tooling sales. It does not incorporate possible downsides from a protected Iran conflict.

Our focus remains consistent execution and free cash flow generation through cycles based upon the elements of the business that are within our control. At the midpoint, adjusted operating income margin is higher than 2025. The flow-through impact of lower production sales is offset by continued operating improvements, including investments in automation and machine learning and ongoing commercial recoveries for EV volume shortfalls in North America and Europe.

Free cash flow remains strong and assumes CapEx of about $300 million, higher than last year given substantial new business awards and certain capital items that shifted from quarter four 2025 into 2026. Looking at the quarter, our quarter one margin performance was solid in a tepid volume environment. In quarter two, we are seeing softer EV volumes and a temporary margin headwind from higher aluminum costs related to the Iran conflict.

Our aluminum contracts include pricing pass-through with an approximately 90-day lag. So the margin impact is timing related and resets as the pass-through catches up. Overall, we are well positioned to deliver on our 2026 outlook, and we are reaffirming our guidance.

Looking beyond this year, we see meaningful organic growth opportunities consistent with our 2028 outlook. We plan to further diversify our customer base with European and Asian customers in North America and increased penetration in commercial vehicles. On the path to 6.5% to 7% margin, expansion is driven by increased sales, scaled use of AI on the shop floor, MOS and vertical integration projects.

With that, I turn you now back over to Rob.

Thanks, Peter. On the last call, I spent some time on share price and company performance and expressed optimism for both, especially as we finalize trade discussions with the U.S. I noted that we are in a good position.

Tariff impacts will be very limited, and we had very little exposure in terms of parts shipments to Canadian assembly plants. Less than 3% of our shipments in our auto business go there. Indeed, as we sit here today, our stock price is up considerably from where it was a year ago when tariff concerns were at their highest. I also talked about the Iran conflict, which is affecting energy prices and could affect vehicle sales, but we have not seen any meaningful impact on volumes. People still need vehicles and parts for them.

But now let's talk about longer-term performance. This chart shows how we stack up today on some key metrics versus where we were in 2014 prior to embarking on our Martinrea 2.0 journey. The 2020 has been a tumultuous time for our industry, including COVID, chip and other supply shortages, inflation, the EV volume slop and so on. Our company, with Pat leading us and our team working very hard, has performed well on virtually every financial metric.

So since 2014, sales are up more than $1.2 billion or about 30%. That growth in sales alone would put a supplier in the top 100 in North America. Adjusted operating income is up more than 80%, adjusted operating income margin was up significantly pre the pandemic and today is much higher than it was then. Adjusted EBITDA is up considerably. As Peter has mentioned, we have become a consistent free cash flow generator. Our balance sheet has strengthened considerably on a net debt-to-EBITDA basis. We've repurchased over 16% of our company's shares, rewarding our shareholders with a higher percentage of ownership in our company without writing a check. And our book value per share has more than tripled, all positive numbers and trends. I believe all this positivity will be reflected in a higher valuation and share price eventually.

Financial performance means something, all driven by the excellent work of our employees. As this chart shows, it's clear there is significant embedded value in the stock. At 4x enterprise value EBITDA, this company would be a $20-plus stock. On a discounted cash flow analysis, value is higher. I do believe we will work through the USMCA renewal and our continued improving performance heading into our 2028 guidance will reward shareholders, which include all the executives and many employees of our company.

So now let's turn to capital allocation. Our framework is shown on this slide, and we've consistently followed it over the years, as I will show you on the next slide. First, to be profitable and sustainable for the long term, you have to invest in your business. Over the past decade, we have grown organically with some tuck-in acquisition activity. Some of our recent growth includes takeover work, as Fred noted. As a result, we are extremely well perceived as a supplier in our industry.

As Pat noted, we are better operators today than we were in the early days. We have not made any large acquisitions but have invested in our footprint and frankly, brought up the high standard a number of the plants we acquired over the years. As our history shows, we've been very good at buying distressed assets and fixing them up.

We have also invested in R&D and made some strategic investments. We are not a venture capitalist. We invest in relationships that make us more competitive and that bring us something, graphene being one example, additive manufacturing using Equisphere's powder being another. And we bring them something too, maybe a customer relationship, expertise in scaling up or customer access.

Remember, we were a start-up at one time and still have a highly entrepreneurial culture. Our focus on improving operations and the use of leading-edge technology in our business has brought us opportunities through consulting, as Pat mentioned, as well as a software business in MiNDCAN that was originally focused on developing internal software solutions and is now marketing these solutions to external parties. These investments have led to better operational performance and are paying off.

Second, we maintain a strong balance sheet. This is paramount and something we will never compromise on. It's important to our customers and enables us to win takeover business from other suppliers and take advantage of opportunities when they come along. This is a business that fluctuates and you want to be able to be nimble as we are. We've seen many competitors lose the value of their equity over the years by being overleveraged.

Third, we return capital to shareholders. As noted above, we bought back over 16% of our company in the past decade or so and 1.5% this year-to-date. We have paid a consistent dividend for years. This chart is interesting as it shows how we deployed our free cash flow over the past 3 years and illustrates what has been a consistent and prudent approach. As Peter noted, we are now a consistent free cash flow producer. We generated close to $600 million in free cash flow in the last 3 years.

We have reduced net debt by over $200 million in that time frame, strengthening our balance sheet in some trying times, as you know. We have repurchased approximately $100 million of our shares, representing 12% of the company's outstanding shares. We have paid $45 million in dividends. That is a balanced approach. Our shareholders vary in their views on how to spend the cash, as I'm sure you can appreciate, but we talk to them and listen to them, there are a variety of views.

So where are we today? We are investing in the business. Peter talked about capital expenditures, and you have our outlook for this year into 2028. We're a growth story. We have to invest to grow in a prudent and profitable manner. We intend to maintain leverage within our target of 1.5x net debt to EBITDA, and we will be buying back shares. As noted, we bought back 1.5% of our equity last month. We intend to be active on our normal course issuer bid next week.

We will renew our normal course issuer bid to buy 10% of our float over the next year, and we intend to be quite active on it, given what I just said about value and the tariff discussions. On the latter point, recall, we are a major U.S. supplier of parts. And in that country, the administration is trying to help us. In terms of capital allocation, we are involved in some asset dispositions that will generate some cash to fund our business and other capital priorities.

For example, we are in the process of selling a majority stake in our fluids plant in China to a partner that will bring in some cash, allowing us to reduce our spending there. We see some other opportunities that I will not talk about just now, but we will, of course, do so when appropriate, which will bring in cash, which we will deploy appropriately.

My last slide is on trade and tariffs. I won't say much, but we're open to questions. As I have said consistently, things are working out pretty well for us as a supplier. No tariffs on parts, which make little sense in North America. We will work on removing tariffs on North American assembled vehicles, which makes sense to us. North American rules of origin requirements are good for us. Tariffs on vehicles assembled outside North America encourages more assembly in North America, which is good for us. I think it's important to restrict Chinese vehicles and parts. The U.S. wants to preserve and enhance its automotive assembly and parts industries. That is a good thing.

I will end with this. We are heavily involved in the discussions, not just in Canada, but in Mexico and the U.S. We are in the room, so to speak, with the negotiators. And I think our industry is getting aligned to our way of thinking. Now it's time for questions. We have shareholders, analysts, employees, even some competitors on the phone. Welcome. So we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in.

[Operator Instructions] And your first question comes from the line of Ty Collin with CIBC.

Maybe just to start off, I want to circle back around to the discussion around the Iran war and impacts there. I appreciate the comments that you haven't seen any impact to volumes at this point, and there's a bit of an impact on aluminum. But are there any other areas of cost pressure that you're seeing at this point, whether that's energy costs, resins, any other sort of petroleum derivative products? And if you aren't seeing those today, how should we think about the risks if the conflict continues to drag on and how that can evolve?

Sure. Ty, it's Peter. To answer your first part of your question, we don't see the impacts at the moment in Q1, but we would start to see them as the conflict is protracted or would be protracted. You can think about it in a way that it's mostly energy costs from Europe, right? So our big products of aluminum are produced there primarily. Those very energy intensive. So for natural gas and for electricity, we would see that we would imagine those to go up as they did several years ago during the Ukraine war as well.

So as you probably know, we have most of those energy inputs hedged, roughly around 70% or so. So depending on volumes, how they, let's say, matriculate the rest of the year, you may see a tail end effect if the conflict is protracted through the next, let's say, several quarters. But for the most part, we're hedged. And again, there will be a tail effect depending on how volume moves. So primarily Europe-based.

Not in North America, we would maybe see if again, if it goes up, would be -- we'd probably see some diesel price going up on trucking costs, but it's an indirect impact to us. I'd say another way I think maybe another one more item just to tell you about, we did talk about aluminum in our comments. Right now, we don't see that much of an impact in it. And as you know, we've got -- as I mentioned, we've got a lag effect. So if the prices go up, we'll see that temporarily until the price resets anywhere from 1 month to 3 months depending on the type of contract we have with the customer.

Corollary to that, if the price goes down dramatically, then we would see a benefit in the short term and then it would normalize to price meets cost.

Okay. That's helpful. And to the extent that you do end up having to absorb some higher energy costs in Europe, for example, what's your level of confidence that you'd be able to pass those along to your customers or otherwise mitigate them?

Yes. I think we would -- we've had cooperative situation, like I said, during the Ukraine conflict. So we had different types of arrangements with the customers. They don't do it immediately. So the conflict would have to be well protracted for us to get into those types of commercial discussions. But I would use history as a guide, and we were successful at that time, and I would imagine that would be the same.

Okay. Great. And then if I could just sneak one more in. Peter, I appreciate the -- some of the details and puts and takes you gave on Q2 margins. I'm just wondering if you could help us think about how we should think about Q2 margin on a year-over-year basis? And how should we think about the impact of the commercial settlement that you're expecting to close in the quarter? I don't know that I heard you mention that as one of the moving pieces there.

Yes. So Pat mentioned the near closure of that commercial event. So I won't mention it specifically as it's still not completely closed, and we wouldn't disclose our negotiation to that level of granularity. What I can help you with is how to shape it up in terms of the movements here going forward. Roughly in the year for a full year guidance, the first half is more or less the same as the second half in terms of the profile. You probably see, I would call it like a mountain effect. It starts off a little bit lower in the first quarter and builds up in the second and third and then comes back down seasonally in the fourth. And I know that we haven't seen that type of pattern in a while, but that's the way it looks currently. minus, let's say, any protracted effect from the Iran conflict. So I would expect similar to -- not a number that's similar, but let's say, directionally, a good quarter in the second quarter.

Similar to last year, Ty, if you recall, last year, quarter two was quite good for us.

And the next question comes from the line of Michael Glen with Raymond James.

Maybe, Rob, you touched on the trade dynamic. What do you think about any sort of risk that auto parts lose their exemption from the cross-border trade situation?

I don't think that's going to happen. So I was in the White House a few days after the original announcement, February 8, I was there with Kevin Hassett, and I said, you realize that if you put tariffs on auto parts, you shut down the industry within a week, don't you? And I said, no. Why would that be? Well, because what happens is the Tier 2 and 3 guys don't ship, and that's the way it is. And that's the view in auto.

And then when I was in Washington in April, I met with Scott, who's a very smart guy. And we went over the context of USMCA and he said to a room full of Canadian CEOs, we have come to the conclusion that tariffs on auto parts is a really bad idea. And I agree with him because it is a really bad idea. So I don't think we're going to see tariffs on parts.

Okay. And then just circling in on the commentary surrounding the Chinese OEMs. Are you at all -- have you looked at or have you looked to align with any of the JVs or partnerships that have maybe been suggested with respect to Chinese OEMs entering different parts of North America?

A few comments. First thing is we have some very good relationships with different Chinese entities. We talked about the sale of Anting. We're actually taking a minority position with some that will be the majority partner, some that we've worked with in the past. That process is going through an escrow release and all that type of stuff. It's amazing how a sales process works in China. But anyway, we're working on it.

And we have Chinese OEM customers and so forth. With respect to the setup of Chinese companies in North America, I'd refer you to some of the stuff that's happening in the U.S. in the Congress and in a number of presentations that are made just in the last week, Congress just sent a letter to USTR, essentially saying that the U.S. position should be to keep OEMs and suppliers out of the United States. And that discussion has turned into one that in the context of the USMCA discussions, Mexico and Canada should align from the American perspective with the United States. So that's the background there. I think it's a fluid situation. And I think unlikely, we're going to, for example, see a Chinese OEM set up in Canada.

At the same time, we do talk with people from time to time. And if something makes sense, we'll do it. Those discussions and so forth are, of course, confidential. And if as and when we get stuff like winning contracts, we announce them every quarter.

Okay. And then just on the European outlook in terms of production coming back to a normalized level. I'm just trying to -- you're much closer to what's happening in the European auto market than I am. Like with the level of Chinese competition being faced there, do you think that, that -- is that an aggressive assumption that some of the legacy OEMs will get themselves back to those, call it, normal production levels? From my perspective, I don't think that's an unreasonable view, just given our customer base and mix. I think you got to kind of look at the current situation here. Most of the volume headwinds we're dealing with is on the EV front, right? And it's probably more maybe of a mix issue than anything.

So as that kind of gets rectified and we get into next-generation platforms, what we're seeing now is a lot of our German OEMs, one in particular is moving down to adopting a more flexible approach to their lines. So they're building the next platform where they can adapt to the market and build ICE plug-ins or BEVs off the same lines, which is a smart way to approach it, right? So as that kind of gets rectified, we do see a scenario where some of our core customers can see a bit of an increase in volumes, not necessarily gaining market share per se, but addressing some of the EV headwinds we're dealing with today.

And Mike, to add, this is Peter, to add another positive aspect to the outlook, let's say, in Europe is somewhat similar to what was happening in the U.S. with some carbon credit and other CO2, let's say, regulations being loosened up for ICE engine vehicles. In the research that we've done and talking to customers, the European Commission is thinking about overturning what they had planned to ban combustion engines starting 2035. So that may be favorable as well as we've also seen some resurgence in interest for engine block production, not only in North America, but also for some of the smaller hybrid engine blocks in Europe.

I guess the other thing to add is to build off the Chinese OEMs conversation, and you may see a higher probability that they may end up setting up shop in Europe. And we're open to doing business with them as well. I mean we can act as suppliers and participate in that if and when it happens.

We're are actually quoted.

Yes. So we do have some activities with some Chinese OEMs, and we do have a presence in China. So we have some business there with some of the local OEMs. And reason that as starting points to engage in conversations in other parts of the world, namely in Europe.

Okay. And just my last question is, can you help me understand exactly that the cash adjustment on the balance sheet for the year-end cash balance, like where did that adjustment, does that fall into other parts of the balance sheet? I'm just trying to understand some of the accounting that underlies that?

Yes, sure. So it's an amendment to the -- sorry, it's an amendment to the IFRS 7 and 9 accounting regulations. And so what it technically does is it regulates recognition and derecognition of your assets and liabilities. And in our case, what that means is when there is a deposit in transit, it was in the past, counted as cash on, let's say, a day 1 -- now that's refined wording is prohibited. So instead of realizing the cash when the button is pressed, you have to realize it when it's settled in your bank. So it affects all electronic transfers. So that's mostly on the, I call it, the receivable side for us when we receive money for payment of product from the customer, but it also applies to payments. So when we press the button to pay our suppliers, that wouldn't be considered a payment or, let's say, a release of cash, we would keep that on our balance sheet as well.

So the up and the down of that is roughly $44 million beginning cash balance for 2026. It primarily is there in the beginning cash balance. The other effect, albeit modest, is also on our adjusted net debt calculation. So it would take -- it takes the factor to 1.6, which is what we show. Without that, IFRS 9 accounting adjustment that would have been more close to 1.53%, about 7 basis points is what you would expect.

This accounting refinement has always been out there, shown actually on our Page 6 of financial statements. It was announced back in ' 24, effective for everyone under IFRS accounting standards to take effect January 1 of this year. So we are not exempt -- we're not special regarding that accounting change. We're in the same boat as everybody else.

That's a fascinating analysis. Very detailed, wow, good job.

You wanted to understand it. So hopefully, it's true. [indiscernible].

No, I understand.

Any other questions there?

[Operator Instructions] The next question comes from the line of Brian Morrison with TD Cowen.

The shift back to ICE and hybrid that's taking place right now, I assume that has some benefits for you. Are you seeing a resurgence in things like engine demand? And are you one of the few suppliers that can accommodate that? And when it comes to heightened RFPs, are you seeing this because you have spare capacity to accommodate or because of your lightweight capabilities or both?

Yes. So I appreciate the question. Good question. Yes, there's quite a bit of quoting activity. I think a lot of it -- let me back up. So some of it is takeover in nature. So there are some troubled suppliers out there, suppliers that are maybe underperforming, maybe there's some commercial stress in the system as well. So creating a number of opportunities for us. And we do have some capacity just given some of the EV volumes and so forth. So we're aligned nicely there to take advantage of some of those opportunities. And you're right, I mean, a lot of the work we're winning is on the structure side of the business and our lightweighting strategy fits in really nicely there.

With that said, though, we are, as you know, seeing a bit of resurgence on the engine block front. So with the EV transition not evolving as expected, a lot of our core customers are turning towards their engine programs and either extending them or even on designing some new engines and so forth just to kind of adapt to the market.

And we've been open for business on that front over the years. We continue to invest in it. We see it as a very good business. We're really good at it. We're one of the few companies that can help in these situations with our customers. So we're actually engaged in a lot of fronts there, and we're seeing a lot of opportunities there. So we'll see how that kind of plays out, but we're aligned nicely to take advantage of this change, I guess, the shift to ICE vehicles.

If you think 3 years back, there were almost no new engine programs anywhere in the world and a number of OEMs had actually said they're not going to be in engines any longer after X year. that has all completely changed. Almost every OEM has a new engine program someplace in their portfolio.

That's what I thought, Pat. That's why I asked that. I guess you do mention you have spare capacity. I'm curious with the decline in the -- or pardon me, the discontinuation of the Escape. Is the Kentucky facility, is that what you would call capacity for operations? Or would that be surplus capacity for sale?

We're not going to get into a lot of detail there. So there's a lot of discussions going on about that. There's always different options to address that situation. Right now, that plant is sitting idle. We got a little bit of business in there, and we're just kind of weighing our options in terms of what to do as next steps.

If you want to take a look at -- when you think about open capacity company-wide or throughout the industry, a lot of it is really driven from EV capital that's underutilized. And a lot of that capital, certainly in our case, you can convert to ICE or hybrid. So I think you have a number of companies that have that capability, including us.

Right. I guess where I'm going with this is Rob is out there touting your valuation discount, and I'm curious what you think the value of your own real estate is?

Yes. We did some assessments of that. What was it? $400 million or so?

Yes, hundreds of millions of dollars.

Hundred.

A lot higher than our book values, put it that way.

Yes.

$300 million to $400 million.

So about half of our real estate is owned now. We also have a very good bank facility that is unsecured. One of the reasons it's unsecured and your bank is one of the banks is because they know we have assets, including real estate. So it makes for a very flexible credit facility. But yes, there is value in our real estate in our assets. And I think it's the one chart that we put out there showed our book value has increased a fair bit as well.

Okay. Last question, and I apologize if I didn't see it. I think last quarter -- I think last question, you mentioned some 2028 guidance. And I think you said a large percentage of it was booked. I assume that nothing has changed on that front with respect to your targets?

No, nothing's changed since the last we spoke, Brian.

We are quoting heavily.

Nothing's changed, no, Brian.

Yes. I mean there's still some work to be done to book some of those sales, but we see more than enough opportunity to be able to do that. Just given timing, we're in '26. And as you know, the lead times are 2 years to 3 years out. A lot of times, some of the work we're quoting will hit '28 at some point, but a lot of it is probably going to end up kicking in more so in '29 at this point. So still a little bit of work to be done, but we feel pretty good about the guidance for '28.

Yes. And the ebb and flow there could be about -- Brian, if one of the customers delays one of their programs that we've already booked, that will play into the movement that Fred talked about.

And I guess because there's distressed opportunities out there such as the Lyseon, it could potentially come through tuck-in acquisitions as well, correct?

Yes. Those are some of the most attractive ones, frankly. That -- and you can take over the business with your capacity that was made available through the EV issues. So some of the takeover work we've had, we're actually putting in our current facilities. In fact, the majority of it.

And I'm showing no further questions at this time. I would like to turn it back to Mr. Rob Wildeboer for closing remarks.

Well, thank you all for spending some time with us. We look forward to the questions, excellent questions this evening. If you have any more questions, you can contact information in the press release. Any of us and Neil Forster are available to have discussions with you on anything. Have a great evening.

Thank you. And ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.

Good evening, ladies and gentlemen. Welcome to the Fourth Quarter 2025 Results Conference Call. I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead.

Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering your questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network. With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis.

Today, we will be discussing Martinrea's results for the fourth quarter and full year ended December 31, 2025. I refer you to our usual disclaimer in our press release and our filed documents. On this call, Pat will outline some key highlights and achievements in 2025, touch briefly on the quarter and comment on some of our key initiatives, including machine learning and artificial intelligence. Fred will discuss operations. Peter will go over the financials and our outlook for 2026 and beyond. And I will conclude with some comments on the current trade environment, capital allocation and valuation. Then, we'll open it up to Q&A. So without further ado, here's Pat.

Thanks, Rob, and good evening, everyone. Let me start with a few highlights from this past year. Our safety results continue to be world-class. Our total recordable injury rate or TRIF was 0.71 in 2025, which is among the very best in our industry and much better than the average, which is around 3. We've said it before, there's no better way to show your people that you care about them than to keep them safe. Moving on, we generated just under $200 million in free cash flow in 2025, a new record for the company. This is now the third year in a row where we have generated free cash flow in the $150 million to $200 million range. We have delivered on our commitment of being a consistent generator of strong free cash flow. Our track record is now well established and will continue going forward.

We accomplished this while continuing to invest in the business with $238 million in capital expenditures, which is lower than we spent in recent years. This reflects improved capital management, including optimization and reuse of our existing assets. Given the strong cash performance, we were able to reduce our leverage with net debt to adjusted EBITDA ending the year at 1.35x and below the upper end of our target of 1.5x or better. We achieved this while resuming our NCIB activity, spending $8 million to repurchase approximately 779,000 shares in the fourth quarter.

Next, we improved our adjusted operating income margin as we continue to drive operational improvements across the organization and obtained commercial recoveries from our customers for EV volume shortfalls and lingering inflationary costs. We also won multiple supplier awards, including the General Motors Supplier of the Year Award and awards from Toyota, Volvo, Nissan, ZF and Caterpillar. Next, our advanced manufacturing team or AMT has made good progress on the machine learning installations across the plant network. To better support our machine learning strategy, we acquired a 10% equity stake in Polyalgorithm Machine Learning or PolyML, a provider of advanced machine learning and data analytics solutions that serve as the core intelligence behind Martinrea's machine learning AI.

PolyML uses a proprietary technology called feature importance insights or Fiins AI to expose the most valuable signals in complex data sets. Most conventional black box machine learning focuses on predictive accuracy, and you can't see inside. PolyML technology creates more accurate models that are transparent and fully explainable. This is a unique breakthrough feature. This approach is driving significant improvements in weld quality, efficiency and energy usage. It's also deployed in our press health monitoring, providing an early warning system that will substantially reduce unplanned downtime and maintenance costs. Fiins AI is a key component of Martinrea's machine learning initiative, and we expect our relationship with PolyML to grow over time.

Back in October, we acquired the assets of Lyseon North America. As a reminder, Lyseon was a single plant operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and subassemblies for school buses in the U.S. This acquisition adds business with International Motors, formerly Navistar, a high-quality customer that the company sees a lot of opportunity to grow with over time in both buses as well as commercial vehicles. It also broadens our product offering and further diversifies the business in nonautomotive markets. I'm happy to say that the integration is going very well. We are pleased with the progress that we're making there and the prospects of eventually adding more business to the facility in the future. 2025 was a busy year with notable achievements on all fronts. I would like to thank our team for their hard work and dedication in delivering these results.

Turning to the fourth quarter, we're pleased with our performance, both operationally and financially. Adjusted operating income margin was up year-over-year as we continue to drive operating improvements and negotiated commercial recoveries with our customers, largely for volume shortfalls on EV programs. Also recall that Q4 of last year was impacted by an inventory correction in North America that affected some of our key programs, most notably with Stellantis. We continue to navigate through the impact of tariff costs on our business. For us, the vast majority of parts that we export from Canada or Mexico into the United States is compliant with the terms of the USMCA and therefore, not subject to tariffs. We do have some exposure, most notably as it relates to Section 232 tariffs on steel and aluminum products that impact some of our components.

I'm happy to report that we've been successful in recovering the vast majority of our tariff costs through commercial settlements with our OEM customers. This is a remarkable achievement. Our supply chain operations, sales and commercial teams worked tirelessly to make this happen, and we're proud of it, and we appreciate all of their efforts. Looking at the full year of 2025, we met our outlook for sales and adjusted operating income margin, which came in at 5.6%, above the midpoint of our 5.3% to 5.8% outlook range. We spoke on our last call about the ongoing negotiations with our customer on some sizable commercial items mainly related to EV volume shortfalls. And that these could fall in either the fourth quarter of '25 or the first half of 2026. These discussions are progressing well, and we intend to close on these items in the first half of the year.

Most importantly, and as I mentioned earlier, we generated a record free cash flow for the year at just under $200 million, well above our outlook of $150 million to $175 million, reflecting our operational performance and our CapEx discipline. We expect another strong year in 2026, and Peter will have more to say on our outlook for 2026 and beyond later in the call.

With that, I'd like to end by thanking the Martinrea team for their tireless work and continued dedication to make our business better every day. And now I'll turn it over to Fred.

Thanks, Pat. Good evening, everyone. As Pat noted, we are executing well, both operationally and financially in the face of ongoing industry dynamics pertaining to trade, tariffs and electric vehicle volumes. We are doing well, managing what's in our control and mitigating what isn't in our control through a focus on continuous improvement, overhead cost reduction, leveraging investments in automation and machine learning and recovery of costs related to tariffs and volume shortfalls on EV programs through commercial settlements with our customers. We have full confidence in our team, and I'd like to thank our people for their dedication and hard work in delivering these results.

Turning to our segments, starting with North America. Q4 adjusted operating income margin came in at 6.9%, up 110 basis points year-over-year on the flow-through impact of higher production sales, improved operating performance and higher favorable commercial settlements year-over-year. We ended the full year 2025 at an adjusted operating income margin of 7.3%, up from 6.7% in 2024, a nice year-over-year increase. We continue to operate at a healthy margin in North America, the main growth engine of our business and expect that to continue.

In Europe, our Q4 adjusted operating income margin improved significantly year-over-year, narrowing the loss to negative 1.4% from negative 3.6% in Q4 of last year, driven by better flow-through on higher production sales and the benefits of the restructuring actions we previously undertook. For the full year, we are approximately breakeven, a result reflective of a volume environment that remains below expectations and normalized volumes with the improvements we have made across our European operations, we will be positive in the region. Strategically, our objective is to maintain a disciplined, stable presence in the region rather than pursue aggressive growth.

Our Rest of World segment delivered a much improved full year performance ending 2025 with a positive operating income margin of 1.3%, a significant increase from the negative 2.1% in 2024. The fourth quarter did show an operating loss, which reflected a lower level of favorable commercial settlements year-over-year. As we have stated before, this segment is small, representing less than 3% of our consolidated sales and results can vary quarter-to-quarter based on program timing and commercial settlements. Our strategy in this region remains deliberate and focused on maintaining only the footprint required to support our global business. In line with that approach, we signed an agreement to sell a small plant in Anting, China after the quarter. We have a strong relationship with the buyer, and we retain a minority interest through a planned transition period.

Moving on, I'm very pleased to announce that we've been awarded new business, inclusive of some nice takeover work worth $210 million in annualized sales and mature volumes, which includes $180 million in structural components in our lightweight structures commercial group from Stellantis, Toyota, General Motors and Audi, $20 million in our Propulsion Systems group with Stellantis and Ford and $10 million in our Flexible Manufacturing Group with Volvo Truck and JCB. New business awards during the last 12 months totaled $340 million. Quoting activity is quite robust at the moment, and we have recently won work on a number of program extensions with various customers with a value of over $1 billion in annualized sales and mature volumes. It's important to note that while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we have had to absorb over the last few years.

Extensions also require less capital for the same amount of volume compared to new programs, which supports our free cash flow. As you can see, we had a strong quarter of new business awards with a diverse group of customers, which we are very happy with. We feel like we have some good momentum building in this area with a very healthy pipeline of quoting activity and opportunities in front of us. A strong quarter of new business awards underscores not only the confidence our customers place in us, but also our ability to deliver the service, expertise and innovation they rely on. Winning new business, in particular, takeover work reflects our team's capacity to respond quickly to customer needs and provide solutions that create real value. That's what we do. We solve customer problems, and we're really good at it.

At this point, based on this momentum, we expect a strong 2026 of new business awards, which ultimately will largely start launching in 2028, supporting our 2028 outlook, which Peter will speak to in a few moments. Thank you for your time. And I turn it over to Peter.

Thanks, Fred. Looking at the results year-over-year, adjusted operating income came in at $55.1 million, up 37% year-over-year on production sales that were up about 7% or 6% on an organic basis, excluding $14 million in sales from the Lyseon acquisition. Adjusted operating income margin came in at 4.6%, up 110 basis points year-over-year. The margin improvement was a function of the flow-through on higher volumes and operational improvements. Free cash flow came in at $108 million before IFRS-16 lease payments or $93.3 million after IFRS-16 lease payments, up from $76.4 million before lease payments or $63 million after lease payments in quarter 4 of last year, driven mainly by lower CapEx as well as higher EBITDA and lower cash interest and taxes paid.

As Pat noted, 2025 free cash flow, excluding these lease payments came in at $199 million, which is a new record for the company. Some of this is timing related, but overall, our free cash flow performance is a function of improved capital discipline and optimization and reuse of our existing assets. Adjusted net earnings per share came at $0.67, up from a loss of $0.21 in the fourth quarter of 2024. Recall that quarter 4 of last year was impacted by an abnormally high tax rate, reflecting a noncash loss that flowed through our tax expense on the P&L due to the rapid depreciation of the Mexican Peso against the U.S. dollar, and this reduced EPS by $0.40. This year, in quarter 4, the peso appreciated and we had the opposite effect, resulting in a noncash gain flowing through our tax expense on the P&L, increasing EPS by $0.30. Again, these are accounting adjustments that exist only under IFRS and do not impact cash or operating income.

Turning now to our balance sheet. Net debt, excluding IFRS-16 lease liabilities, decreased by approximately $73 million over quarter 3 to $695 million, reflecting the strong free cash flow generation in the quarter. Our net debt to adjusted EBITDA ratio ended the quarter at 1.35. Our target is 1.5 or better, so we are well within our target. We did this while resuming our share buyback activity under our normal course issuer bid, repurchasing approximately 779,000 shares during the quarter for $8 million. We reduced long-term debt by approximately $113 million in 2025, lowering our financing costs by about $12 million. We believe in a balanced approach between share repurchases and debt reduction. This maintains a strong balance sheet while serving our investors and leaves us well positioned to take advantage of opportunities like we did with the recent acquisition of Lyseon and other investments we've made.

Rob will have more to say on our capital allocation priorities in a few moments. Subsequent to year-end, we amended our banking facility, extending our maturity out to 2030 from 2027. We also brought 2 new banks into the syndicate, which is now up to 12. The size of the facility is unchanged other than the accordion feature being increased from USD 300 million to USD 400 million. Covenant terms remain unchanged. We have a great relationship with our lenders, and we thank them for their ongoing support and continued vote of confidence. As for the future, we are rolling out our 2026 outlook, which calls for sales of $4.5 billion to $4.9 billion and adjusted operating income margin of 5.5% to 6% and free cash flow of $125 million to $175 million.

Unpacking this, starting with sales, the midpoint of the $4.5 billion to $4.9 billion range reflects a modest year-over-year change that is largely driven by 2 known and isolated factors. The wind down of the Ford Escape program, which contributed roughly $200 million of sales in 2025 and an expected decrease of tooling sales compared to an unusually strong 2025 level. Excluding these items, our underlying production sales are expected to be broadly consistent with 2025. Moving on, our adjusted operating income margin outlook range of 5.5% to 6% assumes an increase from 2025. The main assumption here is that the flow-through impact of the lower sales is expected to be offset through continued operating improvements, including our investments in automation and machine learning that Pat discussed. It also assumes ongoing commercial recoveries for EV volume shortfalls and recovery of the majority of our tariff-related costs similar to what we achieved in 2025.

Lastly, we are projecting another strong year of free cash flow in the $125 million to $175 million range. This assumes CapEx comes in at approximately $300 million, which is higher than where we landed last year, in part due to some of the new business award that Fred discussed. There was also some timing impact with certain capital items getting pushed out of the fourth quarter and into 2026. But overall, CapEx is at a good level, reflective of our ongoing capital discipline.

As Pat noted, we continue to build on our track record of strong consistent free cash flow generation, which is now well established. Looking further out, we see a lot of opportunity for our business, including inquiries from our customers asking us to look at taking over business from distressed suppliers. We also see opportunities from the rebalancing of global trade that should result in meaningful volumes being reshored to the U.S., increasing quote activity and potential acquisitions. We recently completed our annual budget process and the cadence of our launches should contribute to meaningful organic sales over the next few years. Fred spoke about these new business awards, product extensions and quoting activity in his remarks, and these factors solidify our view.

Based on our Board-approved budgets, we expect total sales of between $5.3 billion and $5.5 billion in 2028, assuming no acquisitions. Again, this reflects the cadence of our launch activity as well as some modest improvement in the overall vehicle production volumes. Importantly, 75% of our projected production sales for 2028 is already booked and the balance coming from replacement work where we are the incumbent supplier and high probability new business opportunities. So good organic growth in a relatively flat market. This should help drive adjusted operating income margin to a range of 6.5% to 7% in 2028, which reflects the flow-through impact of higher sales volumes, continued operating improvements, including gains from our automation and machine learning initiatives and lower SG&A costs as we realize and sustain the full benefit from our $50 million in targeted savings.

Note that 2027 will be a busy launch year, so more of the growth in sales and margin will come in 2028. The key takeaway is our future is bright, notwithstanding the ongoing issues from tariffs and slow EV sales, which we are effectively navigating through. With that, I would like to thank our people for their hard work and commitment in these continually evolving times. I now turn you over to Rob.

Thanks, Peter. Now that you've heard from our team, I want to make a few takeaway comments on where we are at with USMCA and trade issues, capital allocation and valuation. I'll touch briefly on the Mid East conflict as well. As you have heard, there are many great things happening in our company. We had a good 2025, better than many anticipated in the middle of much trade and tariff uncertainty. Operations are running well. We're embracing new technologies in a prudent way. We are seeing and capitalizing on opportunities. Our financials are really good, and we have a bright future.

Regarding the USMCA and trade discussions, while there is always a lot of noise, it seems to me pretty clear that we will very likely not see any tariffs on North American-made auto parts. Scott Bessent himself told me tariffs on auto parts is a very bad idea. This is good for us, but this is a consensus view in Washington, Mexico and Canada. I also foresee no tariffs on Canadian-made autos eventually. That's what we are negotiating for, and that's what the entire industry wants. But let me make an observation that I don't think many realize, and that's perhaps our fault for not emphasizing it more. The fact is over 97% of our sales are made to assembly plants that are not in Canada. That is less than 3% of our revenues worldwide are made from sales of our products to Canadian assembly plants. Most of what we make in Canada is shipped to U.S. assembly plants already, tariff-free. And our U.S. footprint is much bigger than Canada, and our Mexican footprint is even bigger.

It is clear to me that our North American auto parts sales are likely not materially impacted even if, for example, Canada faces a tariff on assembly or USMCA discussions don't go well between Canada and the United States. I do believe there is huge consensus in our industry, OEMs and suppliers alike for a tariff-free North American auto industry, autos and parts makers. See, for example, the industry submissions to the administration and Congress, and we will get there. But even if we don't, we will be fine.

In terms of the USMCA and other negotiations, we are heavily involved. Mexico is moving forward with the U.S. on a renewed USMCA and Canada is definitely involved in discussions, too. Both Mexico and Canada are insistent on a tripartite deal. I note that Prime Minister Carney recently announced Canada's auto policy in our Alfield plant on February 5, my birthday. It was a good birthday present. The PM and the people wish me a happy birthday. And my present was their declaration that auto is Canada's core manufacturing industry and that this federal government is committed to it with a Made in Canada auto policy. This is good news. I strongly support the government's policy on remissions to reward companies that make vehicles here and to use the remission system as a carrot and a stick to get more assembly in Canada. Good news for parts makers and us.

I strongly support the tax and grant incentives to invest here, good news again. And I support the removal of a hypothetical and unachievable EV mandate with a somewhat more realistic approach. I, like others, have some concerns about Chinese EVs in the market, but that is a quota, and Chinese EVs do not qualify for government incentives. Overall, the government has recognized the need for a strong auto industry here, and this is a good time for us in that regard. I also note that governments in the U.S. and Mexico support us as a parts maker unequivocally. The USMCA rules of origin provisions will be tightened in some fashion and the penalties for noncompliance will be increased, which is good news for North American parts suppliers and Martinrea.

I believe that the U.S. tariffs on other jurisdictions on parts and vehicles in whatever form they take, will over time, encourage more manufacturing in North America. Again, good news for suppliers and Martinrea. When I go to the U.S. or Mexico, the first question I generally get is what can we do to support you, promote you, get you to invest more, get you to hire more people. It's a great environment. Our company and our industry are simply loved in the U.S. and Mexico. As you recall, we showed growth, much of it in North America over the next few years. By the end of the decade, I believe we will be at around $6 billion in revenues, give or take, without major acquisitions. I note some of our increased revenues could be from taking over a plant here or there as we did with Tulsa in November, but I don't call out a major acquisition.

Now let me talk about share price and start with the USMCA context. Before Donald Trump ran for office and started threatening Canada and just about everybody with tariffs, our share price was significantly higher than today. I believe there is a USMCA cloud over our stock. As the things I've just talked about get sorted out, I believe that cloud will disappear. Canadian investors and analysts won't have to read a report every day about something going wrong in the auto industry. Note that we and other auto parts companies saw stock prices come under pressure during Trump's first term, then a recovery once the USMCA was signed. But I think there's a bigger issue here, and it's the receptivity of Canadian shareholders to auto parts companies and their valuations, at least at this time. I might not be the only person who sees this or says this. And I say that's a perception problem and not a real problem with risk or operations.

Canadian headquartered auto parts suppliers are among the most competitive in the world. Look at our growth, especially outside the country. Our metrics compare favorably to any of our competitors, especially internationally. The average EV or enterprise value to EBITDA ratio for public U.S. traded auto parts companies is well over 4x, closer to 5x or more in most cases, yet we trade at a discount. And if you look at comparisons to our peer group, companies that are in similar spaces, our margins are top end in comparison, our free cash flow is top end of the range. Our leverage ratio is near the bottom of the range or very strong. And you cannot say the discount is because we are a company that has major revenue exposure to Canadian assembly plants. We have more North American sales than most of them, and our exposure to Canadian assembly plants is relatively low.

I believe this discount will go away over time, starting with clarity in the North American tariff environment. Our share price was up 15% or so last year in 2025. That's a decent return. Our share price is pretty flat year-to-date. If we trade at 4x EBITDA even, our price is around $20, depending, of course, on debt levels, share levels and so forth. Our job is to get it there and a simple look at valuations in the U.S. market shows where valuations sit.

Now let's touch briefly on the Mid East Iran conflict, which has rolled to markets this week and may do so for a while. Wars are generally not good for markets in general, although they could be positive for some sectors such as oil and defense stocks. Sustained high oil prices are generally not good for automotive sales, at least ICE vehicles. We anticipate that the current situation will eventually stabilize and that oil prices will stabilize too. As one industry player once said, the cure for high oil prices is high oil prices. Over the next few years, we remain bullish on the industry and our place in it.

Now let's chat about capital allocation. Our philosophy has been set out on our website. We have followed it very well over the past number of years, even through COVID, chip shortages, inflation, the EV Fiasco and tariff issues. We have invested first to maintain, grow and improve the business organically through strategic investments in technology. We are a stronger company because of it and stronger today than ever before. We have maintained a strong balance sheet. Important for this industry as a supplier bidding on jobs. We have targeted a net debt-to-EBITDA ratio of 1.5x or better, and we're better now. That's where we were in 2019, and we have brought it down from over 3x in early 2022. We paid down over $200 million in debt in the past 3 years to the end of 2025. That's good, we believe. At the same time, we have repurchased shares when appropriate. In the past 3 years, we have repurchased 10% of our outstanding shares and are now down to about 72 million shares outstanding.

Since 2009, our last share issuance, we have bought back almost 20% of our outstanding shares on a fully diluted basis. We are not buying back much in the last year, taking a prudent approach given the tariff situation, but resumed in Q4. We will continue to balance our capital allocation, but frankly, the intrinsic value of our shares is higher than the market value as I see it. So we have to work on that, and we will. I see the way companies in the U.S. are valued more richly than we are, and I reflect we are as much a U.S. company as most of them are. I do remember times when we and other Canadian companies trade at a premium to our U.S. counterparts. I hope we get there again.

Peter talked about us being a consistent free cash flow producer. We will use that cash to invest in our company, strengthen the balance sheet and buyback some shares. We're making decent money. As the stock market grew, we all know once said, at some point, making good money has got to stand for something. Thanks for your time. Our future is bright. Our people are great and our time in the sun is coming soon. Now it's time for questions. We have shareholders, analysts, employees, even some competitors on the phone. So we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in.

[Operator Instructions] Your first question comes from the line of Ty Collin from CIBC.

Maybe just to start on the 2026 guidance. I mean, what sort of assumptions underpin the high and low ends of those ranges that you've given? How would you kind of frame those 2 ends of the outlook?

Yes. Thanks, Ty. So one of the main underpinnings is that we've got compensation on our tariffs, as we mentioned, at the same level or near the same level as 2025. So that's a base assumption in both the low end and the high end of the range, okay? Then second, we would assume that our operational efficiencies, some of the ones that Pat talked about and also what we talked about, I think, in the second quarter earnings call with our development of the AI and moving that through our footprint is also a major underpinning depending on how quickly we can deploy some of those cost savings. That would be in more of the, say, the high end of the range. Then we've got some recovery of some of our plants that make fluid products is another major underpinning in our range.

Okay. Great. So the expectation is that recoveries are neutral from a margin perspective year-over-year. Did I hear that right?

Yes. Basically, year-over-year will be margin neutral, Yes, on the tariffs side, yes.

Okay. And what about on the EV side or just other commercial-related recoveries, what are the expectations around that in the 2026 outlook?

Sure. So also, a good question. You'd have to expect that we will have commercial negotiations and offsets as the oscillation and the EVs fits and starts continue to happen. So that will be a part of our business going forward here in the middle term. So as far as performance, if you will, more or less the same on a year-over-year basis. It's going to be in terms of timing, a little bit lumpy. Like we mentioned actually last quarter, we were working on a major negotiation and it didn't happen to fall when we kind of wanted it to, if you will, but we're still working on that. And so the lumpiness of the OCIs, as we call them here, the commercial issues that we negotiate will still be there. But as far as being a component of our guidance, it will be a component of that throughout 2026.

Had that OCI hit last year, I think it's safe to say that year-over-year will probably be down because I do believe that, that activity as -- although it continues, is starting to normalize, become -- becoming less reliant on that, just given the fact that the volume is starting to stabilize in a particular band. So the whole industry is starting to adjust.

Right. Okay. And yes, I guess sticking on that question in the EV business. Obviously, as you said, there's been a pretty significant reset there in terms of expectations. I mean, do you think production plans at this point are kind of appropriately aligned with where the market is? Or do you still think that EVs are maybe an area of risk this year?

This is Pat. They've bottomed out quite a bit, as you know. I don't anticipate significant changes in any of our customers from this point up or down this year. I think they're going to be pretty level for the most part.

Yes. I think some of the recent General Motors announcements of their EV platforms ending a little bit early, that's a part of our outlook as well at the moment. So those have been already announced.

Okay. Great. And if I could just sneak one more in on the 2028 outlook that you guys gave. Obviously, some very significant growth baked into that. How should we think about the level of investment needed over the next few years to support that outlook?

Yes. So good question as well. So for that, roughly $700 million, I think, in the next couple of years. The way to think about that is roughly around the $300 million range, I would say, approaching, I would say, the depreciation and amortization levels that we've got. As we talked about, some of the -- that's a lot of growth actually and needs a lot of capital. But on the other hand, we've talked about that we are deploying our capital in a more flexible way. So our new generation of, let's say, weld cells and so forth, these are more flexible, can be redeployed with new growth. So that helps mitigate our costs. In addition, we talked about our replacement business. So that takes less capital and also some of these extensions that the customers have talked about. So Fred mentioned as well, that will inherently take less capital than a brand-new program. So for those reasons, we think around $300 million is a good number to go with at the moment.

Yes. And I think it's important to understand, Peter said it, but we've become particularly good at being able to reutilize capital. If you recall, 5 or 6 years ago, as we started to invest in all the new lines when we won all the work in '18 and '19, we said there would be a number of them would be multigenerational, and we're starting to see that pay off as we go forward.

Your next question comes from the line of Michael Glen from Raymond James.

Just on Europe specifically, I'm sort of -- is it safe to assume that this recovery that you're alluding to in the first half of the year is related to the European business?

I don't think we'll speculate on. Why does it matter?

No, but it does matter because your European business is losing money, okay? And like what is the outlook for Europe? Because now you're telling us you're not going to be spending any more money in Europe. So are you committed to Europe? What's the outlook for Europe? And do you think Europe having European exposure is an overhang for your stock?

Okay. Now thanks for the clarification, Michael. So I would say in broad terms, the restructuring we've undertaken in the recent past will -- is helpful for us going forward. And it really is a function of, I'd say, the EV recovery in Europe, the volume recovery in Europe. We're at a volume level of industry vehicles around 17 million vehicles in Europe, we're talking about some margins between breakeven and obviously less than in North America, but a decent number for Europe. Our strategy in Europe is to keep the footprint because it is helpful for us when it comes to European customers that are looking to reshore some of their operations, especially in North America. We've seen some of that recently.

So for that reason, it's strategic for us. That also occurs in the Asian segment as well. So a lot of our customers in Asia are European-based, and so very helpful there. So while we don't intend to grow the business significantly, we would like to maintain it for customer strategic reasons.

And it has made a significant impact on our local wins in North America.

Yes. And I would not expect, though, that, Michael, that we would have margins in the area of our North American segment. That we've mentioned as well that those margins in Europe, while we expect to be better than breakeven depending on some of the commercial issues that we negotiate with our customers on occasion, that the restructuring we've taken is starting to bear fruit.

A good chunk of our growth is from European customers.

And how -- is Europe right now, can you -- is it a drag on your free cash profile?

I mean I wouldn't necessarily say that. I think the market has not been kind right now from a volume perspective there. And I don't know if you picked up on our comments. If the volumes were more normalized, we would be positive. We have proven that in the past that we can actually make money in Europe. So we do expect to get back there at some point, but we need some cooperation from the markets. And while that happens, we're managing our capital profile there and making sure that it doesn't necessarily create a big drag from a free cash flow perspective. So we're working within, call it, internal constraints, if you will.

Okay. And final question, are you guys -- a few years ago, you used to provide quarterly guidance for us. And I would tell you that, that was always a very helpful item in terms of some of the forecasting we did. Is there any plan in place to return to that single quarterly forecast?

Not at the moment, Michael. No, there's not a plan to do that, especially with some of -- just every week, there's something new here. So we don't feel prudent at the moment to provide that again at the moment.

That's compounded by the lumpiness that Fred talked about, too, in the commercial settlements because you really don't know when you're going to land them. You know you're going to land them, but they don't necessarily happen when you think they're going to happen.

We also had some comments that what would be helpful is what the next year look like and then update that and going 3 years out or effectively trend lines. But the customer and people dealing with tariff issues and everything else, they don't go by a calendar. They go by -- it's a more detailed, complicated process in terms of where we are. And yes, there's some lumpiness, especially when you get into the commercial discussions.

[Operator Instructions] Your next question comes from the line of Brian Morrison from TD Securities.

I missed a little bit of the call, but the EV shortfall settlement that Michael was just asking about, what was the high-level magnitude or basis point impact in Q4 that shifted into the first half of next year?

Yes. We're not going to disclose that since we're still in the negotiation phase for that particular commercial issue.

Okay. Maybe, Peter, if you use the midpoint of your '26 and '28 sales and margin guide, your incremental margin is 13.5%. Is this not typically around 20% with your fixed cost structure? Just clarify how you think of increments? Or is this maybe lower-margin European business?

No. I would -- it's a good assumption to say that our normal flow-through is 20% to 30% flow-through on incremental sales.

So why then is the '26 to '28 increment 13.5%?

So we'll have some launch cost in there in the middle, right? So most of the revenue and the margin that I mentioned will take place in the '28 time frame. So there'll be some launch costs there in the middle that we'll have to work ourselves through.

That impacts '28 as well?

So there'll be normal inflation that we've got to offset in that year and the incremental depreciation that will take place in that year.

I would say there would be some launch costs in '28 as well because not all this work will be launching on Jan 1. It will be throughout the year.

The year could be...

So that will be an element of a drag, I guess, in '28 as well. But you'll see more of it in '27.

Work that we're winning now, a lot of that is launching in 2028, and we just had a really good quarter of winning work. That will be 2028 work for the most part.

Right. One of the things that's very encouraging is we're seeing a lot more activity from the OEMs more recently as far as RFQs and so forth. So we expect it to continue to get busier.

Okay. That makes sense. Maybe just -- maybe for Peter, just when I look at the margin profile, the increase from '25 to '26, just the drivers, I assume it's operating efficiencies, restructuring benefits, the benefit of the settlement that we talked about from '25 and then offset by margin decrements to get a net positive impact on the margin outlook. Are those the key drivers? Is there anything else that I'm missing?

No, those are the main drivers. We're going to have, let's say, the plant operating elements that Pat mentioned and some of our AI built in there, if you will, machine learning activities for improvements of quality and being able to do that faster. Then we've got material improvements through some resourcing as we work through these tariff elements. Then you'll have the offsets of the normal inflation in there.

Okay. Okay. And maybe last question, and Rob, it's more of a curiosity than anything else, but why the long focus upon the valuation discount? I mean it's even greater when you include Nano as cash. Is this -- does this do you think put you on the screen as a target? Or does it make you think that your leverage is below your target and strong free cash flow, you should do an SIB. I'm just -- I'm curious why the focus on it today.

Just reflecting thoughts. So some people have asked us the question to, okay, why don't we just talk to it? A lot of our investors hear the call, a lot of our shareholders hear the call, our employees hear the call. We get that question a lot and just figured we'd address it. I got to come up with something. We don't want to just talk about tariffs all the time.

Nobody does.

I agree with you 100%.

There are no further questions at this time. I would like to turn the call back to Mr. Rob Wildeboer for closing comments. Please go ahead.

Well, thanks very much for giving us part of your evening. Look forward to any follow-ups, any questions, you know where to get a hold of us and always happy to talk to you. Have a great night.

This brings to a close today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.

Good evening, ladies and gentlemen. Welcome to the Third Quarter 2025 Results Conference Call.

I would now like to turn the meeting over to Mr. Rob Wildeboer. Please go ahead.

Good evening, everyone. Thank you for joining today. We always look forward to talking to our shareholders, updating you on our business and answering questions. We also note that we have other stakeholders, including many of our employees on the call, and our remarks will be addressed to them as well as we disseminate our results and commentary to our network.

With me this evening are Pat D'Eramo, Martinrea's CEO; our President, Fred Di Tosto; and our CFO, Peter Cirulis. Today, we will be discussing Martinrea's results for the third quarter ended September 30, 2025.

I refer you to our usual disclaimer in our press release and our filed documents. On this call, I'll make a few short comments on the trade and tariff situation, geopolitics and capital allocation at the end. Pat will outline some key highlights of the quarter and make some comments on the business and some industry issues. Fred will discuss operations, and then Peter will review some financial highlights, and then we'll do Q&A.

And now here's Pat.

Good evening, everyone. We're pleased with our performance in the third quarter, both operationally and financially. Adjusted operating income margin was up year-over-year as we continue to drive operating improvements and negotiated commercial recoveries from our customers, largely for volume shortfalls on EV programs.

We generated positive results, notwithstanding the current environment as it relates to tariffs and the production disruption from a cybersecurity attack at Jaguar Land Rover, a key customer of ours. Results would have been even better absent these issues. Good news, production at JLR has resumed and is ramping up, and we expect them to return to normal by Q1.

On tariffs, we are at advanced stages of negotiating with our customers for relief. Ultimately, we expect to recover the vast majority of our tariff exposure. We anticipate these negotiations to be complete before the end of the year.

We are having a good year as our Q3 year-to-date results show as we continue to drive operating efficiency improvements on the shop floor, along with other cost savings, including our SG&A reduction program. We expect operating margins to continue to improve year-over-year in 2026.

Note that we have been impacted to a degree by supply chain disruptions from the Novelis fire and Nexperia semiconductor chip issue. This is reflected in our outlook. Peter will elaborate on our third quarter results and 2025 outlook shortly.

Shifting gears, we expect more production to come to North America over the next few years via reshoring or friend-shoring. Between the push to localize from the U.S. administration, coupled with the USMCA, we believe that all 3 countries, Canada, the U.S. and Mexico will benefit ultimately.

As you know, North America accounts for more than 3/4 of our production sales. So we are spending a lot of time looking at our footprint in the region and continuing to find ways to open more capacity through continued operational improvement and optimization of floor space in anticipation of work flowing into North America. Fred will also touch on this by discussing a recent acquisition we made in the U.S.

We're doing a lot on the people side to prepare for and avoid labor shortages, particularly in the skilled areas, and we're ahead of the curve in this regard. At Martinrea, we focus on internal development as well as internal promotions. We target 80% promotion from within and 20% from outside.

One example of our unique approach is our semi-skill positions. This is a pre-apprentice program giving direct labor team members an opportunity to enhance their skills, freeing up time for higher skilled trades workers to focus on more advanced problem solving and plant improvements. This fosters promotion and advancement as well as an avenue for women to enter the nontraditional roles.

Women make up 50% of the workforce, yet less than 25% enter manufacturing. These efforts have been recognized by the Automotive Women's Alliance Foundation, who recently selected Martinrea for its 2025 Change Champion Award. This award recognizes a company who has contributed significantly to the acceptance and advancement of women in the automotive industry.

These efforts also extend to high school graduates, something like 60% of high school graduates pursue higher education such as university as well as other programs. The remaining 40% are looking for a good job and tend to want opportunity for advancement as well, and we're providing an avenue for them to pursue it. This is just one of a number of labor-related strategies we employ. We're very proud of this activity, which feeds our strong culture at Martinrea.

Longer term, as more manufacturing moves to North America, we will continue to invest in our people, while enhancing our productivity through initiatives, including automation and machine learning.

I'd like to end by thanking the Martinrea team for their hard work and continued enthusiasm.

With that, I'll turn it over to Fred.

Thanks, Pat. Good evening, everyone. We continue to execute well, both operationally and financially. Simply put, we're doing a great job of managing the factors that are in our control. We have the right team in place, and I'd like to thank our people for their dedication and hard work in delivering these results.

Turning to our segments, starting with North America. Adjusted operating income margin came in at 6.9%, a continued healthy level. Absolute results were consistent year-over-year as the impact from slightly lower production sales was mostly offset by a higher margin, reflecting lower tooling sales, operating improvements and higher favorable commercial settlements.

In Europe, adjusted operating income was about breakeven for the third quarter. While margins remain below potential given low volumes of certain programs, in particular, EVs, results are much improved from early this year and late last year.

Profitability in our Rest of World segment was positive in Q3, ending the quarter at an adjusted operating income margin of 5.4%. As you know, this is a small segment for us, accounting for less than 3% of our consolidated sales and changes in volumes on a small number of programs as well as timing of commercial settlements can result in swings in profits in this segment from quarter-to-quarter. As we indicated on previous calls, our strategy is to maintain a minimal footprint in this segment, and this has not changed.

Moving on, I am pleased to announce that we've been awarded new business worth $30 million in annualized sales and mature volumes, which includes $15 million in structural components in our lightweight structures commercial group from General Motors and Toyota, $12 million in our Propulsion Systems group with Stellantis and Ford and $3 million in our flexible manufacturing group of Volvo Truck and Central Power for energy storage products.

New business awards over the last 4 quarters have totaled $170 million. Quoting activity remains robust. And we have recently won work on a number of program extensions with various customers with a value of approximately $1 billion in annualized sales.

It's important to note that, while extensions are replacement work, they support our sales outlook and ultimately help our margin profile as we can generally reprice the business to fully build in the inflationary costs that we've had to absorb over the last few years. Extensions also require less capital for the same amount of volume compared to new programs, which supports our free cash flow.

We also continue to see several takeover business opportunities, which, if prudent, we will look to capitalize upon. We recently closed on one such opportunity with Lyseon North America. Lyseon is a single plant operation in Tulsa, Oklahoma, engaged primarily in manufacturing metal parts and assemblies for school buses. This was a distressed situation where we are stepping in to support our customer, International Motors, formerly Navistar. The price we paid was nominal.

We'll have to make some investments in the business, but we expect it to be accretive within a reasonable amount of time. This acquisition adds work for a great customer that we are under penetrated with, and we see a lot of opportunity to grow in international over time in both buses as well as commercial vehicles.

In addition, it allows us to broaden our product offering and further diversify nonautomotive end markets, where we see some good opportunities for our business. This transaction also expands our footprint in the U.S.

Note, our growing footprint in the U.S. built up over 2 decades is now more than twice the size of our Canadian footprint. We will continue to grow where we see opportunity. We're excited to welcome the Lyseon team to Martinrea and look forward to growing our business with them over the long term.

And with that, I'll turn it over to Peter.

Thanks, Fred. Looking at the results year-over-year, adjusted operating income came in at $65 million, similar to quarter 3 of last year on consistent production sales. Adjusted operating income margin came in at 5.5%, up 20 basis points year-over-year. The margin improvement was a function of lower tooling sales, operational improvements and lower depreciation, partially offset by higher SG&A expense, reflecting higher mark-to-market stock-based compensation expense given the increase in our share price in the third quarter.

Assuming a constant share price quarter-over-quarter, adjusted operating income margin would have been 40 basis points higher or 5.9%, reflecting a very strong performance by all accounts.

Free cash flow before IFRS 16 lease payments came in at $44.5 million, down from $57 million in quarter 3 of last year, largely reflecting less cash generated from noncash working capital. This is mainly due to the disruption from the JLR cyberattack that Pat mentioned, which resulted in a delay in the collection of certain receivables from JLR.

This is a timing issue, and receivables have been since collected in the early part of the fourth quarter. Including lease payments under IFRS 16 accounting, free cash flow was $30.5 million, down from $43.9 million in quarter 3 2024.

We remain on track to meeting our full year 2025 free cash flow outlook of $125 million to $175 million. Based upon our solid year-to-date performance and the typical seasonal pattern where the fourth quarter is usually the strongest from a free cash flow perspective as we tend to harvest a relatively large amount of cash from working capital. Based on how things are currently playing out, we expect to be closer to the high end of our outlook range on free cash flow.

Moving on, adjusted net earnings per share came in at $0.52, up from $0.19 in the third quarter of 2024. Recall that in quarter 3 of last year, EPS was impacted by an abnormally high tax rate of 70.2%. Additionally, it is worth noting that adjusted EPS would have improved further, if we did not have the JLR production disruptions resulting from the cyberattack.

Turning now to our balance sheet. Net debt, excluding IFRS 16 lease liabilities, decreased by approximately $24 million over quarter 2 to $768 million, reflecting the free cash flow generation in the quarter. Less debt means less interest cost, which is a nice tailwind.

Our net debt to adjusted EBITDA ratio ended the quarter at 1.5, consistent with quarter 2 and at our target of 1.5 or lower. We think this is a good place to be as it allows us to execute on our capital allocation priorities while maintaining a solid balance sheet. Year-to-date, we have repaid approximately $51 million in debt and reduced our financing cost by approximately $9 million, with further improvements expected in quarter 4 from lower interest rates and reduced debt levels.

As you can read about in the automotive news sources, there is some distress in parts of the automotive supply base. This provides not only takeover opportunities in the moment like Lyseon, as Fred mentioned, but it's also a reminder to customers that financially healthy suppliers do not provide undue credit risk to them. We have a strong balance sheet.

We are maintaining our 2025 outlook, which calls for total sales of $4.8 billion to $5.1 billion and adjusted operating income margin of 5.3% to 5.8% and free cash flow of $125 million to $175 million. We are on track to meet this outlook based upon our solid year-to-date performance.

As we indicated on the last call, we expected production sales to be lower in the second half of the year compared to the first half based upon a typical seasonal pattern in our industry, with the summer and holiday season shutdown periods in the third and fourth quarters.

We also expect lower EV volumes as some demand was likely pulled forward ahead of the expiry of the U.S. EV tax credit on September 30. We also have some softness in heavy truck volumes. These issues impact all parts suppliers engaged in these segments.

On a positive note, vehicle sales in North America have been resilient, notwithstanding some monthly variation due to the timing of incentives and expiry of electric vehicle tax credits that resulted in some sales being pulled forward.

Underlying demand for vehicles remains strong. More specific to us, JLR volumes are expected to improve quarter-over-quarter in quarter 4 as they ramp up following their cyberattack-related shutdown. We are also negotiating with customers on some EV-related commercial settlements, which could fall either into the fourth quarter or the first half of next year, depending on how the customer discussions go over the next few weeks. In any case, we will be prudent and take the necessary time to get the right deals in place.

Looking further out, we see a lot of opportunity for our business. As Fred noted, we are seeing an increasing number of inquiries from our customers asking us to look at taking over business from distressed suppliers.

We also believe that the rebalancing of global trade will result in meaningful volumes being reshored to the U.S., which will ultimately benefit North American suppliers. Our customers are asking about our readiness plans for moving volumes or relocating next-generation programs into the U.S., and we are well positioned to accommodate them in our North American-centric footprint.

As Pat noted, we are having a good year, and we expect our operating margin performance to continue to improve on a year-over-year basis in 2026.

And with that, I would like to thank our people for their hard work and perseverance in these dynamic times. And now I turn you back over to Rob.

Thanks, Peter. A few comments on the broader geopolitical trade and tariff situation. I've outlined my view of a 5-part plan for the automotive industry, OEMs and suppliers in North America and said that this is where I think we should get to, which would be best for the North American auto industry and supply base, consistent with the U.S. view of a stronger U.S. industry. Here are the 5 points.

One, free trade in autos and parts between the U.S., Canada and Mexico, Fortress North America, the best place to build autos in the world, focusing on the strengths and markets of the U.S., Mexico and Canada.

Two, higher North American content in vehicles produced in North America in terms of higher rules of origin requirements or stricter interpretation rules. The U.S. has been advocating for that in interpreting the current USMCA. Canada and Mexico have opposed as of automakers, but this is a good way to go, and it will be good for all North American-based auto suppliers who are located everywhere throughout North America. Studies have shown that stricter content rules in the USMCA have increased production and jobs in the U.S. and North America.

Three, higher penalties for noncompliance with rules of origin, not a 2.5% penalty, which many simply accept, but higher and punitive like 25%.

Four, measures to attract assembly into North America, make it worth it to build here if you sell here. This could include carrots, such as investment and tax incentives or potential sticks, such as quotas or tariffs. Note that North Americans buy between 19 million and 20 million new vehicles a year, but imports account for close to 5 million. Imagine another 2 million to 3 million vehicles built in North America. Everybody wins here, including the supply base with North American content rules. We used the CARE approach to encourage EV investments in Canada. Even though EV adoption is stagnated, there is an effective way to encourage investment. The U.S. agreements with the EU, Japan and South Korea for a 15% tariff encourage this to happen to some extent.

Five, I believe tariffs on China are appropriate. But more than that, North America should not support direct Chinese investment in parts or auto companies in North America. The reality is that all Chinese part suppliers and OEMs are in effect extensions of the state and subsidized by it, and their investments do not add new investment, but they displace investment from market-oriented firms. Do all this, and we have a really solid North American market. And all this can happen quickly with the U.S. being the biggest beneficiary in my view.

I believe we are lurching toward this. I think it is important for Canada and Mexico to continue to fight for 0 tariffs on autos assembled in their jurisdictions eventually as part of a USMCA renewal or otherwise.

Over time, I believe in North America. I believe it is in the best interest of the U.S. to have a strong North America. I believe it is good for all of us, and I believe we will have a prosperous U.S. and North America over the coming decade. The clouds and overhang will not last.

I would like to make one further point about some of the moves by OEMs in terms of not proceeding with production of certain previously announced programs, ending production of certain programs or moving existing or planned programs. I will not get into the various announcements, but talk generally.

First, a number of previously announced EV programs have been scaled back or canceled. That obviously reduces EV production numbers, but there is a lot of program extension on ICE vehicles and hybrid vehicle production is up. The extensions are good news for us. But note that as we have been and are largely propulsion agnostic, we have limited risk and some good opportunity with what I could call the reversion to reality, namely to produce vehicles people want to buy and will buy.

Second, a move of a program that we are on is less of a risk for us because we generally have capacity to produce most of what we make in locations in different countries. Our plants are located throughout North America. Third, while we started in Canada, note that our total sales are mainly international. Less than 15% of our total sales, for example, are in Canada. And even there, currently, approximately 75% of what we make goes into U.S. assembly plants. Some of what we make in Michigan goes into Canadian assembly plants, too, but we are well poised to deal with some of these movements. Investors in our company are buying into a truly international company with a great North American footprint.

Finally, I'd like to close with some brief comments on capital allocation. We continue to take a balanced approach to allocating our capital that is investing in the business, maintaining a solid balance sheet and returning capital to shareholders when appropriate.

In the past several months, we invested in our business and did the Lyseon acquisition. In addition, we invested $5.6 million in NanoXplore shares subsequent to quarter end as part of a bought deal private placement financing that raised close to $26 million in gross proceeds for the company.

We invested in the deal on a pro rata basis to maintain our ownership position. We think the future is bright for graphene and for Nano, particularly considering the recent supply agreement signed with Chevron Phillips to supply graphene for use in drilling fluids. This is the largest graphene contract in history, to my knowledge. We think this is the beginning. NanoXplore is poised for graphene-related growth.

Recall that we paused -- our buyback program earlier this year given an uncertain outlook mainly related to tariffs. We see some of these clouds clearing, although storm clouds reappear on a regular basis. We see a continued tariff exemption for USMCA-compliant auto parts.

As such, we may resume some share purchases as early as this quarter, though we will likely be gradual in our approach. As Peter said and showed, less debt is a good thing, too. Note that our net debt is now the lowest it has been since 2020.

Now, it's time for questions. We have shareholders, analysts, employees and even some competitors on the phone. So, we may need to be a little bit careful with our comments, but we will answer what we can. And thank you all for calling in.

[Operator Instructions] Your first question comes from the line of Michael Glen from Raymond James.

So just to start, I want to start with Europe. And I'm just looking to understand what's realistic in terms of operating margin assumptions for this segment? Should we expect a catch-up to take place in Q4 in terms of some recoveries or customer settlements? Any insights there about what the realistic margin profile would be helpful.

Yes, sure, Michael. So this -- the outlook there for Europe, I'd say, on a longer-term basis is improving. As you know, we did our restructuring last year and then to a large extent this year. So those restructuring savings will start to take hold here as it's essentially been completed here as of the middle of the summer.

So we would expect that those results start to come in. Now of course, that could be offset by, again, timing of some of these commercial issues, which we work through with our customers. So that's to be determined as we move through in the next couple of quarters.

I'm just looking at prior years, and there were some pretty lumpy EBIT contributions coming out of Europe, I think, over the past 3 years. Is there any expectation that we should think about Q4 seeing a big pickup from Europe?

Yes. I would say being in a high-cost area just in general, we wouldn't see a step change in terms of large, large margins, but you will see improving margins, again, but it depends on the lumpiness of these commercial settlements that we have with multiple customers in the region. It's primarily based upon the EV challenges. So we're -- relative to other regions in Europe, a significant portion, I'd say, of our revenue is based upon some of the EV programs. So, I would continue to expect that there would be some lumpiness in that segment of our business.

Yes. And Michael, we did highlight in our opening remarks some commercial activity or negotiations that are ongoing right now, and we'll have to assess how that goes over the next few weeks. And those can land in the fourth, they can land in the front half of next year. It all depends on when we're able to close them. So, I think lumpiness is something you should expect over the next little while as these commercial activities and negotiations kind of take hold.

I think the other thing is you can't -- we're not going to settle unless we have the right number. So that's really important in all of this is we're not going to get pushed up against a quarter or something like that. We're going to make sure the number is the right number, whether it's this quarter or next quarter, we're not relying on it in this quarter.

We focus more on results and timing.

And just stepping back overall, these customer recoveries and customer settlements that we've seen in everybody's results over the past few years, nothing's really quantified into the size of the contributions or what they contribute to margin. So, what -- how should we think about the levels of these recoveries or settlements in '26 versus '25? Do you see any potential changes in OEM behavior or their view on these amounts? And what do we need to take into consideration as we go into 2026?

Sure. So, I think overall, you should expect that across the industry, including here at Martinrea, that these commercial settlements will still be a portion of our ongoing business, especially given the EV fits and starts. So that's a big part of it. And then as part of our, I'll call it, tariff compensation negotiations, that's in some customers' cases, playing a part of it as well. They're weaving that into some of these negotiations. So, I would expect it to continue for the foreseeable future. But I would say that, it's probably, I would say, relatively less than maybe in the recent past, but it will still be a portion of our business going forward for sure.

Your next question comes from the line of Ty Collin from CIBC.

Maybe just to start, could you help us quantify or otherwise understand the impacts from the Novelis, Nexperia and JLR issues within the Q3 quarter? And also, how should we think about each of those impacting Q4?

Okay. Sure, Ty. So, in terms of quarter 3 versus quarter 4, so in the Novelis and Nexperia headlines, those are not affecting our quarter 3, but mildly affecting quarter 4. In fact, we had a JOEM just recently tell us today, hey, there's some disruptions here. We're going to be shut down for a week. So, these happen every couple of days, it seems in the last few weeks relative to Novelis and Nexperia, although one could argue that Nexperia has calmed down a little bit. So, there's some, let's say, indirect impacts there for our customers, the ones that we service. We're on several of those programs that are Ford affected.

As far as JLR, that is primarily a quarter 3 issue or was a quarter 3 issue. So, they were down for practically a month. and then they'll start ramping up again here. They won't be at what was expected, let's say, prior to quarter 3, but they are plant by plant coming back up to speed. So, we would expect that to be past us here as we enter into quarter 1. So, we won't specifically say quantifying those numbers only because we wouldn't want to go through the profile that we have with that customer.

We don't know what we don't know.

Yes.

Got it. Okay. That's really helpful. And then just a question on the guidance. I mean, is there any reason you decided not to raise or at least narrow the operating margin guide? I mean, the low end of that guidance or even really the midpoint implies a very low margin rate for Q4. I don't have a strong reason to suspect that, that would materialize. And maybe you could just help us understand some of the puts and takes from a margin perspective in Q4 outside of what's already been discussed.

Sure, Ty. So, the approach that we took was primarily, as you've said, in terms of the puts and takes. So, a lot of the, let's say, external elements we face similar to other customers in our space, right? So seasonally, quarter 3 versus quarter 4 volumes will be seasonally down. You hear about all the EVs, so that's affecting us as well. So, some of the programs that we're on continue to reduce here in quarter 4 versus quarter 3 because primarily of some of that prebuy that we experienced.

And as you know, a portion of our business is commercial vehicle related with some of the transmission products that we sell. So that overall, as you know, and probably heard from other earnings calls, that's a little bit of a sluggish segment as well. So, you've got that going on. But of course, then offsets, we've got our performance. We mentioned some benefit from the depreciation, which we experienced from the write-down. And also, we've got these -- we talked about earlier here today, the commercial negotiations that we have, right?

So, several of them are in motion and so we would rather not talk too much about negotiations in motion here. But there is a high likelihood that we will be middle of the range to the upper half of that range, but we just decided to keep the statement at guidance. So, within our range of 5.3% to 5.8%.

And so one of the things we do is we give our yearly guidance in March related to our budgets, how we see things. And we think that's actually a good practice as opposed to necessarily changing it every quarter because what we find and what we certainly found this year is things come out of the woodwork pretty quickly. We can't necessarily tell the timing of different things. We did not expect a cyber attack with one of our customers. We just read this morning that one of our customers is facing or is involved in a lawsuit with a Canadian supplier that might shut down a couple of its plants. So, these types of things happen. So, in that context, there's still 6 weeks to go. Having said that, I think Peter has answered your question.

Yes. And I think, Ty, the other thing to take a look at and consider is that looking at our industry over time, again, because of some of the lumpiness of these commercial negotiations need to take more than a quarter-by-quarter look. We had a very strong year-to-date result. And I'd say relative to some of our companies in our peer group, very good results.

In fact, some of our peer group is now they raised guidance in the fourth quarter to where we've already -- where we are already at in our range. So, let's consider the longer-term aspect, not just the quarter at a time, given the lumpiness of the commercial issues, which we've talked about with Michael.

Okay. Yes. Understood. And if I could just sneak in one more. I'm wondering if you could also give a bit of an update on the conversations you've been having with OEMs around onshoring. I'm wondering, if those discussions have evolved at all since the summer now that some more trade deals have been reached? I mean, are you still optimistic in general that there will be opportunities around that?

I think -- this is Pat. Ultimately, yes, there'll be a little bubble in between now and then because of what Pete talked about, there was a lot of EV capacity put in place, equipment, buildings, things like that. that aren't being fully utilized. And so, I think the onshoring will allow us to fill some of that over the next couple of years. But certainly, the industry, it's not just myself, but amongst my counterparts and so forth, we all are looking forward to more onshoring.

So, some of the OEMs have announced changes of bringing things into North America. Some have taken product or volume out of Asia and moved it already into North America. And so, these bring opportunities pretty quickly. But of course, you got to put the tooling and those type of things in place. But we certainly see a pretty positive outlook from the movement. And not just in the U.S., but I think at the end of the day, when the USMCA gets settled or resettled, if you will, the benefit is going to stay there. And the content, as Rob indicated, will probably be higher in North America, which will draw even more work here. I think all 3 countries will ultimately benefit over the next few years.

[Operator Instructions] Your next question comes from the line of Brian Morrison from TD Cowen.

I just want to follow up on the questions with respect to Q4. I appreciate that you've had a very strong year-to-date in Q4, there is some lumpiness in it. But when I take a look at the mid- to high end, it implies sort of a 5% or lower margin for Q4. And just what's the largest component of the ones that you listed? Is it the commercial vehicle sluggishness or the Novelis fire that's impacting you the most in Q4?

Yes. So, the element of, let's say, reduction, I would say, mostly comes from the EV area. So, the reduction in the EVs quarter 3 to quarter 4 has a very large impact for us. I mean, there are certain customers that we've got with EVs that are down, let's say, 10%. And then we've got one on the far end, far end is over 80% reduction because of some of these prebuys, which took place because of the expiry of the U.S. credits. As far as headwinds are concerned.

I also just want to add just -- I said it earlier, just the commercial settlements. We're going into the end of the year. We've got a number of them that are still in progress. We're not going to back ourselves into a corner. So, we don't want to lock ourselves into a particular band. We'll make the right deal and whether it pops in the fourth quarter or the first quarter or the second quarter next year, we're going to do the right thing. right? So, I think based on what we see here today, I think Peter said it, we are expecting for the year to be in the upper half of our guidance range based on our year-to-date performance and what we see. But there are obviously some puts and takes potentially as we close out the year.

I think if you look at the number of -- that many, but some suppliers have raised their guidance. And we're all in the same market, as Pete said, we're all servicing the same customers, and we're all dealing with the same disruptions. The likelihood is there's a settlement. And that's how -- that's really the easiest way in the fourth quarter, given the current conditions in the industry to raise guidance.

Okay. Let's look forward for a moment because there was a disclosure in your press release earlier that said you expect 2026 margins to be higher. I wonder if you can just talk to me about what your North American production assumptions are in that commentary. I believe that you should have at least 50 basis points from operating efficiencies that are to fall to the bottom line. Like there are many key drivers here, whether it be improved contract pricing, whether it be your operating efficiencies, whether it be machine learning that you're doing very well at. Like what kind of cadence should we look at like in terms of improvement year-over-year? I don't want to box you into a corner, but it does seem like 50 basis points should kind of be a minimum threshold.

Yes. You do.

Rob, I want to back you into a corner. Maybe you can do.

I think you laid out a lot of really good things there. There's still some uncertainty, obviously, with the tariff discussions and so forth. In terms of overall volume, I believe working people are assuming lower production for next year in North America. We'll have to see if that's correct. I personally believe that, that's conservative. But those are numbers that we're seeing. And I think that they don't necessarily factor in the reshoring or the new shoring or whatever you want to call that I think is going to happen, which I talk generally. But I think those numbers are kind of there. In terms of what the other guys see, I'll turn it over to Peter or Fred.

Yes. So, like we've said in previous calls, we see a flat market based upon the '25 to '26 in terms of the market assumptions, just based upon what everyone else is looking at as well. So, we based our North America production number at $14.5 billion, $14.7 billion, somewhere in that range. So that's kind of where we see the business.

As far as opportunities, we've talked about these as well. With the challenges in EV, Brian, we are seeing new inquiries on propulsion product, right, for engine blocks and so forth, which is something refreshing, and that's a very good business for us, especially in our aluminum product lines. So, we see some benefits there to offset some of that flatness, if you will, that you see from the EV challenges.

What we will do is we typically do is at our year-end, which we'll announce at the end of February or First week of March this year.

March. First week of March.

We'll try and give a sense of the year that we see and which includes cash flow revenues and margin.

Yes. And I think it goes back to the earlier statements on the call today, Fred and Pat and myself. It really depends on some of what we're working through here in the fourth quarter with the commercial negotiation, right, to get the right deal, maybe it falls into quarter 1, depends.

Okay. I appreciate that. Last question, free cash flow for next year. You're establishing a pretty good track record here. I'm just wondering with the near-shoring opportunities that you have, if we should think of this surplus free cash flow as it gains momentum later this year and into next, whether we should think of it more being allocated towards potential opportunities, takeover business opportunities? Or I did hear you say, Rob, that you will be active with your NCIB to a certain extent. But should we really think that maybe there's just more opportunity in takeover business in the near term?

I think so. We hope so. We want to grow our business with the right opportunities, help customers build deeper relationships with existing customers and benefit from that trend. So, we invest in the business first, the technologies related to the business. We think there's opportunities out there and the Lyseon, -- example that we talked about was a very good, very difficult, very messy. But at the end of the day, it's a nice chunk of business. We've got a new plant in the U.S. We'll fix it, and we got a much deeper customer relationship with a great customer.

I think -- there's another benefit here also to think about. And if you recall, over the years, we've talked a lot about our flexible equipment and how we've been able to carry it over into other programs. And with the EV downturn and the excess capacity, some of this takeover work doesn't necessarily mean a big tax on capital. So, I wouldn't say it, necessarily a direct relationship like new business might be. So, I think we can actually make some really good deals and bring in new work.

And I assume those new deals, Pat, will have contract restructuring within them as well in terms of pricing to ensure that your hurdle rates are met and your margins are maintained.

I would say consistently, that's happened, yes.

That would be a prerequisite for any deal that we do in that space, let's say.

Your last question is from the line of Michael Glen from Raymond James.

I just want to follow up on the takeover work and the bidding exercise. Can you characterize what the bidding -- were there a number of bidders lined up for this asset? Just trying to get a sense as to what the competitive set looks like when you're trying to pursue some of these deals.

So this happens a couple of different ways. In the Lyseon deal, it was kind of interesting. We've started a little side business where we're helping people in manufacturing improve their floor and their efficiencies and so forth because as you guys know, we brought a lot of lean people in over the years and educated our folks in the same light.

So, the company hired us to go in and see what we could do to help them out. And we spent a couple of weeks there, gave them the list, here's what you need to do and here's what we can help you do, and they came back a week later and said, you know what, we think we're out of our league. Would you guys buy it? And that's pretty much how that deal went down. In other cases where we have takeover activity happening in discussions is 9 times out of 10, the customer will come to us and say, Hey, supplier X over here is struggling. We need some help. Would you be willing to help? That may be a purchase of a plant or just a movement of work based on our open or capable capacity. So, it can happen usually 1 of those 3 ways when it comes to takeover work.

And I guess, Martinrea, the history of the company has been put together by pursuing a number of these types of acquisitions over time. Is the way you -- how has the approach to these types of transactions changed now versus what it might have looked like 10 to 15 years ago? Has there been a change at all?

Yes. I think there's been a change. But historically, of course, we wanted to build a footprint when we said build or buy. A lot of stuff we purchased was insolvent or close to or perhaps should have been insolvent. And that's how we built our footprint in the U.S., for example, and also the aluminum business.

I think that here, we're looking at it on a job basis. We aren't necessarily looking for something that's in distress. But often, there is an issue that the customer has with the supplier when they're asking us to work on something. It's not necessarily that the job is a bad one or that the customer is insolvent.

At the same time, we're willing to look for good things, too, right? And I think that, there are -- we're in an industry that the pricing actually is not as bad as it used to be. So, we would look at situations like that, too. We are not committed to basically saying, we want to look for insolvent companies where we have to put a lot of capital and it's going to take 5 years to turn around and all that type of stuff. 15, 20 years ago, that's what was there. That's what we did. The Lyseon situation, for example, is a very quick turnaround situation. We expect that -- we expect that to be accretive within the first 12 months, and that's a good position to be in. Some of the things we bought in the past took longer.

I would also argue that, we're a lot better at fixing things faster today than we've ever been. We've learned a lot.

Thanks for asking. Any more questions, I'm sure.

There are no further questions at this time. I would like to turn the call back to Mr. Rob Wildeboer for closing comments. Sir, please go ahead.

Well, thank you very much for taking part of your evening with us. Really appreciate your time and work getting to know us and spreading the word on us. If anyone has any further questions, please feel free to contact any of us or Neil Forster. Happy to answer your questions and have a great evening.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.