Mr. Darren Kirk reports

EXCO RESULTS FOR SECOND QUARTER ENDED MARCH 31, 2024

Exco Technologies Ltd. has released results for its second quarter of fiscal 2024 ended March 31, 2024. In addition, Exco has declared a quarterly dividend of 10.5 cents per common share, which will be paid on June 28, 2024, to shareholders of record on June 14, 2024. The dividend is an eligible dividend in accordance with the Income Tax Act of Canada.

"Exco's second quarter results demonstrate solid progress executing upon our various growth initiatives," said Darren Kirk, Exco's president and chief executive officer.

"Despite challenging global macro conditions, we remain confident our results will see continued gains through the quarters ahead."

Consolidated sales for the second quarter ended March 31, 2024, were $163.8-million compared with $155.5-million in the same quarter last year -- an increase of $8.3-million, or 5 per cent.

The automotive solutions segment reported sales of $85.8-million in the second quarter -- an increase of $2.7-million or 3 per cent from the prior-year quarter. Foreign exchange rate changes increased segment sales minimally in the quarter ($200,000). The sales increase was driven by the ramp-up of newer programs, stable vehicle production volumes and select pricing actions to compensate for inflationary pressures, as well as favourable vehicle mix. Blended vehicle production volumes in North America and Europe were essentially unchanged from the prior-year quarter, indicating continued gains in content per vehicle. Looking forward, industry growth may be tempered by elevated interest rates, relatively high vehicle average transaction prices, rising dealer inventory levels and softening global economic conditions. Nonetheless, vehicle sales remain encouraging (particularly in North America), dealer inventory levels remain well below pre-COVID-19 levels and original equipment manufacturer incentives are rising. Exco's sales volumes will benefit from recent and future program launches that are expected to provide continuing growth in its content per vehicle. Quoting activity also remains encouraging, and the company believes there is ample opportunity to achieve its targeted growth objectives.

The casting and extrusion segment reported sales of $78.0-million for the second quarter -- an increase of $5.6-million or 8 per cent from the same period last year. Foreign exchange rate movements were negligible in the quarter. Demand for its extrusion tooling recovered from weaker conditions in the prior sequential quarter in both North America and Europe due primarily to December holiday shutdowns at its customers. High interest rates have negatively influenced the building, construction and recreational vehicle extrusion end markets, but automotive and sustainable energy extrusion end markets remain strong, and the company is further positioning its businesses to benefit from continued strength in these markets. It 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. Management is developing the benefits of its Castool greenfield locations in Morocco and Mexico, which provide the opportunity to gain market share in Europe and Latin America through better proximity to local customers. In the die-cast market, which primarily serves the automotive industry, demand and order flow for new moulds, associated consumable tooling, and rebuild work have increased as industry vehicle production volumes remain healthy and new electric vehicles, hybrids and more efficient internal combustion engine/transmission platforms are launched. In addition, demand for Exco's additive (3-D printed) tooling continues its strong contribution as customers focus on greater efficiency with the size and complexity of die-cast tooling continuing to increase with the rising adoption of gigapresses. Sales in the quarter were also aided by price increases, which were implemented to protect margins from higher input costs. Quoting activity remains robust, and its backlog for die-cast moulds remains at record levels.

Consolidated net income for the second quarter was $8.1-million or basic and diluted earnings of 21 cents per share compared with $6.3-million or 16 cents per share in the same quarter last year -- an increase of net income of $1.8-million or 29 per cent. The consolidated effective income tax rate was 23 per cent in the current quarter compared with 21 per cent in the prior-year quarter. The income tax rate in the quarter and year to date was impacted by non-deductible losses from the company's Castool Morocco facility, offset by geographic distribution and foreign rate differentials.

The automotive solutions segment reported pretax profit of $8.4-million in the second quarter, a decrease of $300,000 from the prior-year quarter. Second quarter segment pretax profit increased sequentially 3 per cent over the first quarter. Variances in period profitability were due to product mix shifts, higher raw material pricing, rising labour costs in all jurisdictions and foreign exchange headwinds. Labour costs in Mexico have been particularly challenging in recent years and are seeing added pressure in fiscal 2024 given the significant rise in minimum wage levels. Offsetting these factors were improved stability in vehicle production volumes, which have led to improvements in labour scheduling and reduced expedited shipping costs. As well, pricing action and efficiency initiatives helped temper inflationary pressures while higher volumes from new program launches improved absorption of fixed costs. Production volumes have largely stabilized from a macroeconomic and global perspective. Management is cautiously optimistic that its overall cost structure should improve margins in coming quarters. Pricing discipline remains a focus, and action is being taken on current programs where possible, though there is typically a lag of a few quarters before the impact is realized. As well, new program awards are priced to reflect management's expectations for higher future costs.

The casting and extrusion segment reported $5.5-million of pretax profit in the second quarter -- an increase of $1.6-million from the same quarter last year and $1.9-million from the first quarter fiscal 2024. The pretax profit improvement is due to higher sales volumes within extrusion and large mould groups, program pricing improvements, favourable product mix, and efficiency initiatives within the large mould group; improved efficiency in the extrusion die business; and the prior-year one-time January, 2023, cyber incident costs of $600,000. Volumes at Castool's heat treatment operation continue to increase, providing savings and improved production quality. Offsetting these cost improvements were start-up losses at Castool's greenfield operations and a $700,000 increase in segment depreciation associated with recent capital expenditures. 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.

Corporate segment expenses were $1.2-million in the second quarter compared with $2.6-million in the prior-year quarter. The improvement relates to current quarter foreign exchange gains partially offset by higher selling and travel costs and prior-year second quarter $1-million January, 2023, cyber incident costs.

Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) for the second quarter totalled $21.2-million compared with $17.8-million in the same quarter last year -- an increase of $3.4-million or 19 per cent. Included in the second quarter fiscal 2023 results were $1.6-million of costs associated with the January, 2023, cyber incident. Excluding the impact of these costs, EBITDA increased 9 per cent in the second quarter. For the quarter, EBITDA as a percentage of sales increased to 13.0 per cent in the current period compared with 11.5 per cent the prior year driven by an improvement in casting and extrusion segment margins (15.5 per cent compared with 13.6 per cent), and the automotive solutions segment decreased slightly (12.0 per cent compared with 12.7 per cent).

Exco generated cash from operating activities of $17.3-million and free cash flow of $13.2-million in the quarter compared with $6.0-million and $1.0-million, respectfully, in the prior-year quarter. Maintenance fixed asset additions were $1.8-million, and interest was $2.2-million in the second quarter. During the quarter, the company invested $3.4-million in growth capital expenditures, $4.1-million in dividends and $700,000 in share buybacks. Exco ended the quarter with $16.7-million in cash, $111.3-million in bank and long-term debt, and $40.1-million available in its credit facility, continuing Exco's practice of maintaining a strong balance sheet and liquidity position.

Outlook

By fiscal 2026, Exco is targeting to produce approximately $750-million annual revenue, $120-million annual EBITDA and annual earnings per share of roughly $1.50. Exco has made significant progress toward achieving these targets since they were announced and continues to believe its revenue and EBITDA targets remain obtainable. These 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 original equipment manufacturing plants in September and October, 2023, the overall outlook is favourable across Exco's segments into the medium term. Consumer demand for automotive vehicles remains stable in most markets. Dealer inventory levels have been increasing, 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. This bodes well for strong levels of future vehicle production and the sales opportunity of Exco's various automotive components and accessories. 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 movement toward 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 are 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 lightweight metals such as aluminum, in particular, to reduce vehicle weight and reduce carbon dioxide emissions. This trend is evident regardless of powertrain design -- 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 subframes 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 which appear likely to follow this trend. Accordingly, Exco is positioning its operations to capitalize on these changes. 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 and solar panels.

On the cost side, inflationary pressures have intensified post-COVID while prompt availability of various input materials, components and labour has become more challenging. The intensity of these dynamics has generally moderated in recent quarters with the exception of labour costs in Mexico, which continue to see significant increases. The company is offsetting these dynamics through various efficiency initiatives and taking pricing action where possible although there are typically several quarters of lag before the countermeasures yield results.

The Russian invasion of Ukraine and the Israeli/Palestine conflict have added additional uncertainty to the global economy. 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, as well as logistics costs, and could weigh on consumer sentiment.

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

For further information and prior-year comparison, please refer to the company's second quarter condensed financial statements in the investor relations section posted at the Exco website. Alternatively, please refer to SEDAR+.

Quarterly conference call -- May 2, 2024, at 10 a.m. Toronto time

To listen to the live audio webcast, please log onto the Exco website a few minutes before the event. Those interested in participating in the question-and-answer conference call may register to receive the dial-in numbers and unique PIN for 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 May 2, 2024, an archived version will be available on the Exco website until May 16, 2024.

About Exco Technologies Ltd.

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

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