Mr. Darren Kirk reports

EXCO TECHNOLOGIES LIMITED ANNOUNCES RESULTS FOR FOURTH QUARTER AND YEAR ENDED SEPTEMBER 30, 2023

Exco Technologies Ltd. today released its results for its fourth quarter and year ended Sept. 30, 2023. In addition, Exco announced a quarterly dividend of 10.5 cents per common share which will be paid on Dec. 29, 2023, to shareholders of record on Dec. 15, 2023. The dividend is an eligible dividend in accordance with the Income Tax Act of Canada.

• Record annual sales of $619.3-million;
• Fourth quarter sales of $160.2-million compared with $140.4-million the prior year;
• Quarterly net income of $9.2-million represents a 65-per-cent increase over prior year;
• Fourth quarter EPS (earnings per share) of 24 cents compared with 14 cents last year;
• EBITDA (earnings before interest, taxes, depreciation and amortization) of $22.9-million compared with $16.5-million the prior-year quarter;
• Confirms F2026 revenue and EBITDA targets of $750-million and $120-million; revises F2026 EPS target to $1.50;
• Quarterly dividend of 10.5 cents per common share to be paid Dec. 29, 2023.

"Exco's F2023 results clearly demonstrate our aggressive growth strategy is on the right track," said Darren Kirk, Exco's president and chief executive officer. "In addition to substantial financial growth we pushed operational excellence throughout our businesses again this year. It is truly inspiring to see the numerous examples of innovation in both products and processes happening across Exco which I'm confident will propel us towards our lofty growth ambitions. I want to thank all Exco employees for their continued dedication to innovation, efficiency and excellence -- the driving force behind our success."

Consolidated sales for the fourth quarter ended Sept. 30, 2023, were $160.2-million compared with $140.4-million in the same quarter last year -- an increase of $19.7-million, or 14 per cent. Foreign exchange rate movements increased sales by $4.8-million in the quarter.

The automotive solutions segment experienced a 33-per-cent increase in sales, or an increase of $21.6-million, to $87.6-million from $66.0-million in the fourth quarter of 2022. Excluding the impact of foreign exchange, segment sales increased $19.2-million, or 30 per cent. Sales increased at all four of the segment's operations. The sales increase was primarily driven by new program launches and to a lesser extent higher vehicle production volumes. North American vehicle production was up 9 per cent compared with a year ago and European vehicle production was up 6 per cent. During the quarter, there was virtually no impact of the UAW strike action which started in mid September before being resolved by late October. Exco expects a muted impact from these strikes in its first quarter results in F2024. In the midterm, industry growth may be tempered by rising interest rates and emerging indicators of a global recession. Exco will nonetheless benefit from recent and future program launches that are expected to provide continuing growth in the company's content per vehicle. Quoting activity remains encouraging and the company believes there is ample opportunity to achieve its targeted growth objectives.

The casting and extrusion segment recorded sales of $72.6-million in the fourth quarter compared with $74.4-million last year -- a decrease of $1.8-million or 2 per cent. Excluding the impact of foreign exchange movements, the segment's sales were down 6 per cent for the quarter. Demand for the company's extrusion tooling was lower in the fourth quarter as the impact of higher interest rates and potential for a global recession reduced orders, mainly from the building and construction markets. Demand for extrusion tooling for automotive and sustainable energy markets remains strong and growing, but the building and construction market is the largest driver of extrusion tooling. Management remains focused on standardizing manufacturing processes, enhancing engineering depth and centralizing critical support functions across its various plants. These initiatives have reduced lead times, enhanced product quality, expanded product breadth and increased capacity, all of which position the extrusion group favourably in the future. In the die-cast market, which primarily serves the automotive industry, demand and order flow for new moulds, associated consumable tooling (shot sleeves, rods, rings, tips, et cetera), and rebuild work continued to pick up as industry vehicle production recovers and new electric vehicles and more efficient internal combustion engine/transmission platforms are launched. In addition, demand for Exco's industry leading additive (3-D printed) tooling has continued to gain significant traction as customers focus on greater efficiency with the size and complexity of die-cast tooling continuing to increase. Sales in the quarter were also aided by price increases, which were implemented to protect margins from higher input costs. Also impacting revenue during the quarter was the considerable period-over-period variance to the recognition of revenue from some of the larger new-build moulds, which have high price points relative to other products in the segment. Quoting activity remains very robust and the company's backlogs remain at record levels, which is expected to bode well for sales into fiscal 2024.

The company's fourth quarter consolidated net income increased to $9.2-million or earnings of 24 cents per share compared with $5.6-million or earnings of 14 cents per share in the same quarter last year. The effective income tax rate was 25 per cent in the current quarter compared 26 per cent in the same quarter last year. The change in income tax rate in the quarter was impacted by geographic distribution and foreign tax rate differentials. Fourth quarter pretax earnings in the automotive solutions segment totalled $10.0-million, an increase of $3.5-million or 54 per cent over the same quarter last year. Although production volumes continue to experience some challenges with semiconductor and supply chain constraints, the impact of these factors has reduced considerably. This has allowed all four businesses to benefit from improved efficiencies and absorption of fixed costs to offset the higher raw material and labour costs experienced in recent years. In addition, the stabilized production volumes mean improvements to scheduling and managing labour downtime, fewer expedited shipping, and overtime costs experienced by this segment. Apart from UAW strike-related impacts, management is cautiously optimistic that its cost structures have improved to relatively normal levels such that margins should improve with strengthening and stabilizing volumes.

Fourth quarter pretax earnings in the casting and extrusion segment totalled $5.3-million, an increase of $2.8-million or 108 per cent over the same quarter last year. The pretax profit improvement is due to improved efficiency in the extrusion die business, including improvements at Halex and the elimination of fiscal 2022 one-time costs associated with outsourcing due to the extrusion heat treatment implementation. As well, there was improved absorption and efficiencies as Castool's heat treatment operation ramps up, stabilizing raw material and labour costs, and lower Castool Morocco start-up costs. Program pricing and mix has also improved in the Large Mould group as demand has picked up in recent quarters while efficiency initiatives continue to take hold. Offsetting these reduced costs is a $500,000 increase in depreciation costs associated with the increased capital expenditures and start-up losses at Castool's new operations in Mexico. Management remains focused on reducing its overall cost structure and improving manufacturing efficiencies and expects such activities together with its sales efforts should lead to improved segment profitability over time.

The corporate segment in the fourth quarter recorded expenses of $800,000 compared with $100,000 last year due to higher compensation expenses in the current quarter and higher foreign exchange gains in fiscal 2022. As a result of the foregoing, consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) in the quarter was $22.9-million (14.3 per cent of sales) compared with $16.5-million (11.8 per cent of sales) last year.

Operating cash flow before net changes in working capital was $23.5-million in the quarter compared with $17.5-million in the prior-year quarter. Higher fourth quarter net income, depreciation, deferred taxes and interest expense contributed to the increased operating cash flow in the current quarter. Net change in non-cash working capital was $5.9-million cash used in fiscal 2023 compared with $21.5-million cash used last year. Cash used for working capital was driven by higher accounts receivable associated with higher fourth quarter sales and increased inventory reflecting the strength of the company's backlog and ramping up new facilities. Investment in fixed assets of $9.6-million compared with $16.4-million in the prior-year quarter. Included in the current year quarter is $5.2-million in growth capital. The difference relates to timing of equipment purchases and the completion of major projects from the prior year. Exco ended the quarter with $94.2-million in net debt. The company has $43.0-million in available liquidity under its banking facilities at year-end.

Outlook

In late fiscal 2021, Exco announced it was targeting a compounded average annual growth rate (excluding acquisitions) of approximately 10 per cent for revenues and slightly higher levels for EBITDA and net income through fiscal 2026, which was anticipated to produce approximately $750-million in annual revenue, $120-million in annual EBITDA and an annual EPS of roughly $1.90 by the end of this time frame. Exco has made significant progress toward achieving these targets since they were announced and continues to believe its revenue and EBITDA targets remain obtainable. However, Exco revised its EPS target lower -- to approximately $1.50 -- to reflect the significant rise in interest rates as well as elevated levels of depreciation due to higher-than-planned capital expenditures associated with future growth initiatives. These revenue, EBITDA and revised EPS targets are expected to be achieved through the launch of new programs, general market growth and also market share gains consistent with the company's operating history.

Despite current macroeconomic challenges, including tightening monetary conditions and strike-related production shutdowns in some North American OEM (original equipment manufacturer) plants, the overall outlook is very favourable across Exco's segments into the medium term. Consumer demand for automotive vehicles remains robust in most markets, despite supply constraints by strike-related activity in the United States, a worldwide shortage of semiconductor chips and, to a lesser extent, availability of other raw materials, components and labour. Dealer inventory levels have been improving, but remain below historical norms, while average transaction prices for both new and used vehicles are near record highs and the average age of the broader fleet has continued to increase to an all-time high. This bodes well for higher levels of future vehicle production and the sales opportunity of Exco's various automotive components and accessories as supply chains normalize. In addition, OEMs are increasingly looking to the sale of higher margin accessory products as a means to enhance their own levels of profitability. Exco's automotive solutions segment derives a significant amount of activity from such products and is a leader in the prototyping, development and marketing of the same. Moreover, the rapid movement towards an electrified and hybrid fleet for both passenger and commercial vehicles is enticing new market entrants into the automotive market while causing traditional OEM incumbents to further differentiate their product offerings, all of which is driving above average opportunities for Exco.

With respect to Exco's casting and extrusion segment, the intensifying global focus on environmental sustainability has created significant growth drivers that are expected to persist through at least the next decade. Automotive OEMs are utilizing light-weight metals such as aluminum, in particular, to reduce vehicle weight and reduce carbon dioxide emissions. This trend is evident regardless of powertrain design -- whether internal combustion engines, electric vehicles or hybrids. As well, a renewed focus on the efficiency of OEMs in their own manufacturing process is creating higher demand for advanced tooling that can enhance their profitability and sustainability goals. Certain OEM manufacturers have begun utilizing much larger die cast machines to cast entire vehicle sub-frames using aluminum-based alloy rather than stamping, welding and assembling separate pieces of ferrous metal. Exco is in discussions with several traditional OEMs and their tier providers who appear likely to follow this trend. Exco is positioning its operations to capitalize on these changes accordingly. Beyond the automotive industry, Exco's extrusion tooling supports diverse industrial end markets which are also seeing increased demand for aluminum driven by environmental trends, including energy efficient buildings, solar panels, et cetera.

On the cost side, inflationary pressures have intensified post COVID while prompt availability of various input materials, components and labour has become more challenging, though the intensity of these dynamics have generally moderated in fiscal 2023. The company is offsetting these dynamics through various efficiency initiatives and taking pricing action where possible although there is typically several quarters of lag before the counter measures yield results.

The Russian invasion of Ukraine and the Israeli/Palestine conflict have added additional uncertainty to the global economy. And while Exco has essentially no direct exposure to these countries, Ukraine does feed into the European automotive market and Europe has traditionally depended on Russia for its energy needs. Similarly, the conflict in the Middle East creates the potential for a renewed rise in the price of oil and other commodities and could weigh on consumer sentiment.

Exco itself is also looking inwards with respect to ESG (environmental, social and governance) and sustainability trends to ensure its operations are sustainable. The company is investing significant capital to improve the efficiency and capacity of its operations while lowering its carbon footprint. Its 2023 sustainability report is available on its corporate website.

Quarterly conference call -- Nov. 30, 2023, at 10 a.m. (Toronto time)

To access the listen only live audio webcast, please log on to the company website a few minutes before the event. Those interested in participating in the question-and-answer conference call may register on-line (link available in original version of this news release) to receive the dial-in numbers and unique pin to access the call. It is recommended that you join 10 minutes prior to the event start (although you may register and dial in at any time during the call).

For those unable to participate on Nov. 30, 2023, an archived version will be available on the Exco website until Dec. 15, 2023.

About Exco Technologies Ltd.

Exco Technologies is a global supplier of innovative technologies servicing the die-cast, extrusion and automotive industries. Through the company's 21 strategic locations in nine countries, the company employs approximately 5,000 people and services a diverse and broad customer base.

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