Q1 2021 Magna International Inc Earnings Call
Yeah.
Greetings and welcome to the first quarter 2021 results conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time and if you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach and operator, Please press star zero.
As a reminder, this conference is being recorded Thursday may six F. 2021.
I would now like to turn the conference over to Louis Tonelli VP of Investor Relations. Please go ahead.
Thanks, Helena and Hello, everyone and welcome to our first quarter 2021 results Conference call. Joining me today are swamy quota, Gary and Vince Cliffy.
Yesterday, our board of directors and met and approved our financial results for Q1 2021.
We issued a press release this morning outlining our results.
If on the press release today's conference call webcast. The slide presentations go along with the call and our updated quarterly financial review all on the Investor Relations section of our website at Magna Dot com.
Before we get started just as a reminder, the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation.
Such statements involve certain risks assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied and these statements.
Please refer to today's press release for a complete description of our safe Harbor disclaimer.
As we review financial information today. Please note that all figures discussed on U S dollars.
We've included in the appendix a reconciliation of certain key financial lines for Q1, 'twenty one between reported results and results excluding unusual items on.
Our quarterly earnings discussion and say excludes the impact of unusual items into Q1 'twenty one.
Please also note that won't use the term organic and the context of sales movements, we mean, excluding the impact of foreign exchange acquisitions and divestitures.
Lastly, we held a virtual investor event on April 13th for those that were not able to join us for the event. It's archived on our website and the Investor Relations section and with that I'll pass it over to Swamy.
Thanks, Louis and good morning, everyone.
To start off I hope, everyone is staying safe and healthy.
I'm happy to be reporting the results from the first quarter in my role as the CEO.
Before I start I would like to thank the management team and the employees of Magna for their diligence and staying safe and healthy while continuing to operate successfully.
I would also like to extend my appreciation to our customers for working collaboratively and navigating the industry supply chain issues.
That I'm really pleased with our strong Q1 performance despite ongoing industry supply challenges.
It was another solid quarter per our margins in part as a result of our focus on operational excellence.
Longer term our portfolio positions us to continue driving sales growth over market as well as strong free cash flow generation and we remain really excited and what magna's future, particularly given our systems and complete vehicle Knowhow and approach.
Before we get into the current results, let me reiterate the key points from our Investor event last month to drive growth in both topline and bottom line, we will accelerate our capital deployment towards the megatrend and high growth areas.
Operational excellence to further improve performance and unlock new business models and market by leveraging the full breadth of our capabilities.
We have recently highlighted some of our activities and the focus areas associated with this strategy.
And the area of electrification, we are developing and bringing to market our largest generation.
Our latest generation of E mobility products and technologies.
This cover a range of powertrain configurations and vehicle segments. We have received significant interest from many Oems on these new products and.
In fact, we recently received a program award for our latest E drive technology photo and upcoming battery electric vehicle.
Our opportunities and electrification extend beyond the powertrain.
We have a strong competitive position and battery and closures.
Product that has significant technology and engineering content that is needed on every high voltage vehicle.
We already have two program awards for this technology and there is a lot more interest and the pipeline.
And the area of autonomy, we have highlighted a program award for a driver monitoring system launching next year.
Here, we are combining our experience and both cameras and mirrors to develop fully integrated systems.
Lastly, we recently entered a strategic collaboration agreement with Reed and E mobility startup to explore future vehicle development opportunities across a variety of use cases, and then the area of mobility as a service and the.
Light commercial vehicle market.
So lots of exciting things on the go at Magna.
Let me turn to some of the market dynamics that are affecting our business right now.
Following a challenging 2020 with a negative impact of COVID-19 per.
Clearly in the first half we are experiencing a recovery and global vehicle demand.
And a corresponding increase and global auto production.
<unk> segment mix globally has been shifting towards light trucks over the past few years and.
And this continued this past quarter in both North America and Europe.
We have a higher proportion of our sales and truck segments relative to the market and each of these regions and compared to 2020, a weaker U S dollar relative to a number of currencies and which we operate is also creating a tailwind in our reported sales this year.
In terms of headwinds.
And tire industry is experiencing supply constraints in particular, a global semiconductor chip shortage.
We expect the chip shortage to continue to have an impact throughout the year.
Supplier issues, particularly in chemicals, and resins are driving higher commodity costs for us and the remainder of the year.
And the ongoing pandemic continues to impact the industry, including through stay at home orders and other restrictions.
COVID-19 remains a risk to the industry through this year, the health and safety of our employees remains our <unk>.
Top priority.
Overall, we continued our strong performance in Q1, despite some of the operating challenges we faced.
Consolidated sales increased to $10 2 billion, reflecting 3% weighted sales growth over market day.
EBIT margin increased to seven 6%.
Our adjusted EPS more than doubled to $1 86.
And mainly as a result of our higher earnings.
Free cash flow increased to over $400 million in this quarter.
We also returned $280 million to shareholders and raised our financial outlook for the year.
All in all another good quarter from Magna and with that I will hand, it over to Vince to take you through the specifics rents.
Thank you Swamy and good morning, everyone and I hope, you're all staying safe and healthy.
And just start with a review of the quarter.
And looking at debt global vehicle production, it increased 18% and the first quarter, driven by and 87% increase and China and.
And North America, and Europe, our two largest markets light vehicle production was essentially level and up 5% respectively.
On a magna weighted basis light vehicle production increased 6% and the first quarter of 2021.
Our consolidated sales were $10 2 billion.
And that's up 18% over the first quarter of 2020.
The increase was primarily due to the higher global vehicle production and higher assembly volumes, including an estimated $1 $1 billion negative sales impact from the COVID-19 pandemic during the first quarter of last share partially.
<unk> offset by the negative impact of supply disruptions, including the semiconductor chip shortage during the first quarter of 2021.
In addition to higher sales and the quarter reflected the positive impact of currency translation velocity programs and business combinations, partially offset by the end of production on certain programs and net customer price concessions.
On an organic basis, our sales grew 9% year over year for a 3% weighted growth over market for the first quarter.
Organic sales exclude currency translation, which was a $465 million tailwind and business combinations, which increased sales by about $240 million.
Adjusted EBIT increased 91% to 770 million and the quarter on.
Our adjusted EBIT margin increased 290 basis points to seven 6%, which was ahead of our internal expectations. This compares to four 7% and the first quarter of last year.
130 basis points of this increase relates to particularly strong improvement in our power and vision segment of 110 basis points is due to an increase and body exteriors <unk> structures and 10 basis points is due to the higher seating margins and 40 basis points is related to our corporate segment.
I'll get into the specifics and our segment review.
Equity income increased $17 million year over year to $47 million and the first quarter of 2021 about two thirds of this increase was related to earnings on higher sales and equity accounted operations and the remainder was largely a result of business combinations.
Our effective income tax rate came in at 23, 3%, which was in line with our expectations.
Net income attributable to magna and with $566 million compared to $261 million and Q1 of 2020, reflecting the higher EBIT, partially offset by higher income taxes interest expense and minority interest.
Diluted EPS increased $1 per 116% to a dollar and 80 success for the quarter.
The increase reflects the higher net income partially offset by a modestly higher number of shares outstanding.
The higher number of shares outstanding primarily reflects the exercise of stock options and an increase and the number of diluted shares related to stock options outstanding.
As a result of the increase and our share price.
These were partially offset by the impact of share repurchases during or subsequent to the first quarter of 2020.
Net income attributable to Magna was $566 million compared to 261 million and Q1 of 2020, reflecting the higher EBIT, partially offset by higher income taxes interest expense and minority interest.
And that process.
At the same page on her twice book.
Now, let me take a look at our segments.
Body exteriors and structure sales were $4 billion and the first quarter and 9% increase from a year ago.
The increase reflects higher vehicle production and the launch of new programs and the positive impact from foreign currency translation of $130 million.
These were partially offset by the end of production of certain programs and net customer price concessions and.
Body exteriors <unk> structures EBIT increased to $327 million and Q1 of 2021 margins increased by 270 basis points to eight 1% and the quarter.
Increase reflects earnings on the higher sales and cost savings and operating efficiencies, including as a result of restructuring actions implemented and lower commodity costs.
Were partially offset by lower transactional FX gains and higher launch costs and net settlements of customer claims and the quarter.
Power and vision segment sales increased 25% to $3 2 billion and in the quarter. This increase primarily reflects higher vehicle production and the consolidation of <unk> entities, and the quarter, which added $162 million and sales of $116 million positive impact from foreign currency.
<unk> and the launch of new programs.
These were partially offset by net customer price concessions.
Power and vision EBIT increased to $297 million and EBIT margin increased to nine 4% compared to five 4% and the first quarter of 2020.
The increase primarily reflects earnings on higher sales and lower net application engineering costs related to three upcoming Adas program launches and the net impact of the consolidation of the <unk> entities and cost savings and operating efficiencies, including as a result of restructuring actions implemented.
Seating sales were $1 3 billion, which was up 3% from the first quarter of last year, reflecting the acquisition of <unk>, the launch of new programs and a $30 million positive swing and foreign currency translation.
And these were largely offset by lower volumes on certain high content programs and net customer price concessions.
Seating EBIT increased by $15 million to $55 million for the quarter, while EBIT margins increased by 100 basis points to four 2%.
This increase primarily reflects productivity and efficiency improvements at and underperforming facility.
Equity income on cost savings and operational efficiencies, including as a result of restructuring actions implemented these were offset by lower earnings due to the unfavorable mix of production and the quarter.
And finally complete vehicle sales rose by $529 million from last year to $1 85 billion, representing a 40% increase.
The increase is primarily due to higher assembly volumes, which were up 30% and.
And foreign currency translation, which increased sales by $155 million.
Complete vehicles, EBIT increased to $80 million per quarter.
EBIT percent rose from three 8% to four 3% and Q1 of 'twenty one.
As a result of earnings at higher volumes net of contractual fixed cost recoveries on certain programs higher margins on engineering programs favorable program mix and earnings related to our arrangements with SR.
These factors were partially offset by favorable engineering program resolution and the first quarter of last year.
I'm now going to review, our cash flows and investment activities.
During the first quarter of 2021, we generated over 1 billion cash from operations before changes in working capital and investing $372 million and working capital.
Investment activities and asset to $319 million, including $212 million and fixed assets $104 million increase and investments other assets and intangibles and a $3 million and.
Investment and private equity investments.
Free cash flow increased 13% to $414 million and the first quarter.
We repurchased $162 million of our shares representing $1 8 million shares and paid $130 million and dividends.
Our adjusted debt to adjusted EBITDA is one seven and four down from $1 98 at the end of 2000 and continuing the sequential quarterly improvement we've experienced since the second quarter of 2020 on.
Our liquidity remains strong at $7 billion at the end of the first quarter.
After the quarter, we amended our revolving credit facility, including and extension of the maturity dates for $2 6 billion to June of 2026.
We also updated our 2021 outlook compared to February on.
Our assumptions for light vehicle production had been lowered for North America, reflecting the ongoing impact of the semiconductor shortage and increase in China. As a result of continued strong production.
We have also slightly increased our expectations for the Canadian dollar and slightly lowered our expectations for the euro and each case compared to the U S. Dollar.
These currency changes have a negligible impact on sales and margin and our outlook.
We moved up our range for consolidated sales, reflecting modest increases for our power and vision in complete vehicle segment and a modest reduction proceeding.
We increased our adjusted EBIT margin range by 10 basis points and is now seven 2% to seven 6%.
We increased our equity income range by $35 million substantially related to our power envisions segment.
Interest expense has been lowered to approximately 100 million from approximately $110 million previously.
Net income attributable to Magna has been increased reflecting the higher sales and margin and lower interest expense and our tax rate and capital spending expectations are.
Are unchanged from our last outlook.
And.
We also increased our free cash flow expectations to one six to one 8 billion compared to one four to $1 6 billion range previously to.
And this mainly reflects increases increased expected earnings and a lower expected investment and working capital for the year free.
Recall from our February presentation that we expect free cash flow and the 'twenty one to 'twenty three time period of between five five and $6 billion.
In terms of segment margins, we've increased our margin range for power and vision, reflecting among other things to higher expected sales and equity income.
Increased margins per complete vehicles, largely due to improved program mix relative to our previous expectations.
We've lowered our margin range for body exteriors <unk> structures, mainly as a result of higher anticipated commodity costs and we've lowered our seating margin range, primarily to reflect the impact of lower aspect itself.
In summary.
I think we had a good strong start to the year on organic sales once again outpaced weighted global vehicle production adjusted EBIT margin improved 290 basis points to seven 6% despite production disruptions, including as a result of the ongoing chip shortage free.
And free cash flow was strong up 13% to $414 million and we modestly increased our outlook for the year.
Thanks for your attention this morning and we'd.
And we'd be happy to answer your questions at this time.
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One moment please for the first question.
Our first question comes from the line of John Murphy from Bank of America Merrill Lynch. Please go ahead with your question.
Good morning, guys. Thanks for all the information.
Just a first question and.
And I recognize this might be.
The answer exactly.
Vincent we looked at the outlook and didn't have the benefit of knowing everything that was going on and the world. It would look pretty good.
So it's impressive.
The first quarter results, but can you gauge or ballpark for us what you think the negative impact of the production disruption and the semi disruption.
It is having on on your results.
Hey, John and I guess, there's a couple of things one is what's the impact on the quarter and what do you expect the impact is going to be for the balance of the year.
And we actually looked at.
What we thought was kind of lost production as a result of some of the.
Customer shutdowns and so we're able to quantify that but what we weren't able to quantify as if our customers shifted production to certain other programs and we had higher volumes how much of that was as a result.
And the chip shortage and our customers' reallocating.
What vehicles, they wanted to produce and I'm really not comfortable kind of quantifying exactly what we think the chip shortages is a little different when you have a strike and you can say on lost production.
And then really challenging and I can tell you.
It certainly would have an impact and our operations.
And the seating and some of the impact there in particular.
We had some offsets I think higher volumes and certain programs that we weren't anticipating for all and all.
It would have been a headwind not only to sales, but also to profitability because as we were trying to manage through the semiconductor.
Issue and we never disruptive production for our customers, which is really key and swamy.
Our employees and management FERC that big focus as well as our customers, helping us on that but it does create some inefficiencies and productions I think that was a little bit of a hit for us from a profit perspective, but john and difficult to really quantify.
Okay, and then second question on on visibility on your production schedules and obviously that's tough right. Now you guys are admirably, taking a stab at it and talking about actual numbers, where other folks are those from the automakers are backing away from.
Volume.
Specifics.
And if you think that there tends to be some downside risk to production going forward.
<unk> seen it made up by mix and a big way. So far do you expect that or are we at a point, where the mix has been so rich and we see production downtime.
Incremental production downtime and it could be more of a hit.
Yes.
John.
And when we put our forecast together we're looking at.
Current production schedule, so that would have impacted or that would've had included in there.
Customer plans for production.
Of course impacted by the the chip situation.
Yes, I think.
And there's probably if you look at some of the customers and some of the comments that they've made over the last couple of days.
Interest and some risks theyre.
Shorter term debt.
Question on my mind as you know Kansas.
And just to be made up later on and the year and Thats really an unknown and I think when you look at what we've done to North America production and bringing on.
Our estimates down by 300000 units that and in part reflects our view of the chip situations. So we expect some of the loss production for us and 2021 will spill into 2022.
On.
Yeah, we don't have we don't have a crystal ball exactly and what's going to happen in 'twenty, one, but I think we took a good stab at it.
And we're just going to have to evaluate its on.
And we'll see where that comes out at the end of the second quarter.
Okay, and then Swamy on slide 10, and you talked about the two battery and closure of awards that you have so far theyre both on trucks.
And I'm just curious what you think the opportunity set is for battery and closures over time for you is it more focused on body on frame trucks or is there an opportunity.
On on unit body structures on cars and Suvs.
And who else are you kind of competing with in that and that.
That arena it seems like you'd be a leader, but I'm just trying to understand if it's automakers themselves in house or other external suppliers.
Alright, Great question good morning, John.
I would say the battery and closures.
Have to be on any of the high voltage vehicles right.
And look at it from that context, I would say day price too.
Segment of vehicles.
And given our position and how we're doing the truck I think there is a.
Great opportunity for us to do more than just the enclosure, but how do you create a system that.
<unk>.
Helps manage crash and BH terminal and so on and so forth. So.
David and significant opportunity there.
From from the perspective of capabilities I think as we go forward you need to have something that is.
It's Marty.
And need to be able to.
And make this product with different processes and different materials.
Given the expertise that we would have in.
And magna on whether it's different types of materials of different processes and I would say we would.
And uniquely positioned to deal with it.
Can't comment on who the others would be but looking at our interaction with Oems and our conversations.
And really good position John.
Okay, and then just lastly events real quick on the working capital 372 million to use and the quarter. I mean do you expect some of that to reverse during the course of the year as is typical seasonal stuff.
Free cash flow was very strong as it stands but the big big use on working capital.
Curious about how that will progress through the course of the year.
Yes, Jonathan again, working capital is pretty seasonal sales typically invest and coupon and you get it back in Q3, a bigger part and Q4, my only sort of just color to working capital John that you'll recall, we exited last year with.
A pretty low level of.
Working capital.
And I would've expected debt our investment would have been a little higher in Q1, we came in better than what I thought.
But having said that it doesn't change sort of the main thesis that as you get to the end of the year, we should see a reversal of some of that working capital.
Okay, great. Thank you. Thank you very much guys.
Thank you. Our next question comes from the line of it.
Peter Sklar of BMO.
BMO capital markets. Please go ahead with your question.
Okay. Good morning.
Power and vision segment.
And particularly strong.
I believe some of it has been the debt.
Yeah Engineering support that you had to provide for the three programs that I believe.
Are all of them are and launch so so those so those costs have dropped off maybe youre getting some contribution from the programs, but could you just review in further detail.
Why the power and vision.
Such a strong result this quarter.
Yes, good morning, Peter and I hope Youre doing well.
Yeah sure let me, let me talk a little bit of it whatsapp.
And what's happened at power and vision.
And you think about kind of where we were last year to this share recall that we talked about COVID-19 plaster impacting.
And on margins like 200 to 250 basis points.
So that's kind of reversed.
I'd say that there's a <unk>.
My mind.
Just a three things that really stand out and there's a lot on sort of pluses and minuses all the time, but I would say three things stand out.
I'd say, that's the biggest items Peter is the fact that.
Volumes were.
Higher.
Ignoring the impact of COVID-19 and and even our estimate of what production could have been on semiconductor.
Shortage and the incremental.
Margins on the higher volume is typically going to be higher right just from a.
Typically on more capital intensive business, so as volumes pick up you start to see some pretty good incrementals on this.
And we talked on prior year's about the investment we're making on these three advanced.
Adas programs for some European customers.
And I'm talking about.
The engineering starting to step down as we get closer to launch and we're certainly seeing the benefit of that and Q1.
We're expecting that to continue for the balance of the year.
Just like every other operation and Magna, we took the restructuring charges last year.
And we're seeing the benefits of that and this group and as well as continued operating efficiencies.
And we started to consolidate.
<unk> joint venture and some of the operations, we acquire from Ford.
And sales were pretty good and margins came on at a pretty decent levels.
And what we are anticipating I think that's kind of sort of balance out.
And the balance of the year, but certainly at a higher and Q1 that we were anticipating and that <unk>.
It makes up really the improvement.
And our provision and higher equity income helped as well.
But those are the real big pieces of stand out in my mind that book.
At the current vision.
Okay. Thanks, and then just wanted to.
Ask if you could give us an update on.
Where you're at on the electric drive program Awards.
Believe you've been.
Or did I I believe it's free.
Free programs.
Perhaps you could talk a little bit about them.
Where those programs are and what joint ventures and.
Quoting activity looks like and what do you anticipate seeing unfolding.
Say over the next.
12 to 24 months in terms of quoting activity and potential program Awards.
Good morning, Peter maybe a couple of points on the we've talked about in the past the programs were launching the two and <unk>.
Kinda.
With our Haskell joint venture continues to progress well.
One of them, we are launching as we speak.
And we talked about.
Two others on one battery electric vehicles vehicle.
And has been awarded.
We continue we continue to have discussions on other programs with customers.
Based on the two or three product lines that we talked about on Investor day, and even today briefly.
On.
Including the current existing product line and not just the TB showed but net.
E drive debt.
We have as a platform.
Several discussions ongoing there.
So I would say on the next relative to 24 months. This line.
A discussion and so obviously, we cannot pay too fine.
In terms of the customer and two rehab.
But there is a good pipeline.
Klein.
And interest from a product perspective from various customers and the recent award that I talked about today.
On the Bam is from.
The wholly owned Magna powertrain side of things.
Okay and Swamy.
Partnership or joint venture that you're developing with with LG.
Matt.
Breast enough where it.
It is quoting on on electric drives as well or is that joint venture is still in its infancy, and it's not up and running yet.
Peter as we talked about I think we have to finish and.
And the formalities and is progressing well.
Hopefully by we'll be able to talk about it and have this quarter.
As we mentioned the highway business of about 150.002 million 19, and we see.
Good.
Pipeline and we've talked about a 50% CAGR.
For the planned period going forward.
Once we finish this.
The formalities and go through the details of the program.
We can give more granularity on it from now from the component side of things and obviously with.
Yeah.
The strength of having the <unk> machine and the merger and.
And the discussions we are having on that also opens and.
Discussions at the system level for the entire E drive.
So as we get through the next three to six months and finish the formalities and go through it we'll be able to provide a lot more granularity, but they are on.
Opportunities are liquidity excited.
Yes, it's not yet closed Peter.
Okay.
Thanks very much.
Thank you. Our next question comes from the line of Chris Mcnally Evercore ISI. Please go ahead with your question.
Thanks, so much team.
Just wanted to maybe dive a little bit further into some of the and the discussion you just had around around power and envision because I think what we're all realizing as maybe over the last two years you've had a lot of these one offs that were.
And sort of depressed margins and.
And you've done a great job of highlighting those numbers, but.
I'm kind of curious around just actually on the pure.
Our powertrain business, where maybe some of the issues could we sort of truck back for three or four years, and particularly around the drive things like black for strike clutch and <unk>.
It's a long list.
I'm curious how much you've actually been able to really pull out costs.
And from that business of debt.
Could end up being a significant driver even beyond 2023 margin potential.
Hey, good morning, Chris.
And you look back at par and vision.
And we've got some and some businesses their debt.
And we've had for quite some time that continues to grow to continue to generate.
Decent returns and I think a better mirrors business, our mechatronics business and there's a lot of interesting and exciting things going on in that space.
And then we have I'd say a couple of businesses that were making some some we have made and continue to make some pretty significant investments and electrification.
And as well as aid us and.
Yes.
Apart from the past about investing and based technology platform technology.
And youre, making those investments today Youre expensing all of that the sales are not coming to that sometime down the road and what we're seeing as we're looking at even 'twenty one and beyond.
Is that the sales are starting to trickle in.
And so that's helping and.
Our investments and on the engineering front and have started to stabilize.
And so that's that's been a contributor and I expect that to be on a continuing contributor going forward.
And we certainly talked about some of the challenges.
Challenges, we've had from it and engineering standpoint on some of those advanced Adas programs and that's now under under control and.
We're seeing that we're.
We're getting closer to current production so that's stabilized.
All of that sort of is plus plus plus.
And I think about our <unk> entity.
Over the years on personal we did take a number of impairments on this business and.
I've kept on saying.
And the same thing and I'll look at that business. There was parts of that business debt outperformed our initial expectations. When we bought it and some of those parts of that business.
Underperformed and you kind of put it altogether. It all kind of worked out Europe was our strength.
And in China and in some cases was a negative to us.
We had been working on certainly operating efficiencies I think that the new structure. We have in place gives us more control and those operations. We've also been very successful and.
And <unk> business and walking in.
A significant amount of transmission businesses.
And I go out for a very long period of time.
It's a business that we've had it continues to evolve and we're leveraging our capabilities and good track.
And to the electrification sales so.
And there's a lot of moving pieces, Chris but kind of put that all together.
I'm excited about some of the things I'm seeing and our electrification.
<unk> and Adas business, and our entire power and vision segment.
That's great.
It sounds like maybe even 'twenty clinically that's sort of the 10% to 11% margin may not be debt debt.
The top and you need to have some margins from guidance when I look back that included 12% plus so it seems like there's a long runway there just on the on the core business.
Real quick if I could just ask about and active safety.
Qualitatively.
How the order book is and also just high level are you seeing strong attach rates, we're seeing a push towards premium vehicles. We're seeing major players like GM really started to push on level two.
Level, two plus and products. So I know you won't provide a quantitative numbers, but just qualitatively how we think about active safety.
Yeah, I think the Chris Good morning, we continue to make progress.
And winning business like <unk> talked about on the three programs as we stabilize.
Some of the.
Call It the base technology development actually even helps.
Proliferate into on.
And the business activities as we look at it and.
And you know as.
As we looked at the last year.
Booking business and in the near term I think we talked about a 20% sales CAGR out through 2023.
And even beyond that as we look towards the outer years from 23 to 27.
We are looking at a 15% to 20% CAGR rate.
And just not looking only at the active safety piece of it but there are certain building blocks there.
Debt are opening opportunities as we've talked about the clear view and the integrated systems with meters and so on so I think the.
Our path forward looks positive.
And we need to continue to focus on the execution on the programs that we're launching and.
Pieces of this.
Our development could become or is.
Becoming foundational.
And for other opportunities that are coming along.
Great. Thanks, so much.
Thank you. Our next question comes from the line of Brian Johnson of Barclays. Please go ahead with your question.
Hi, yes, good afternoon.
Your line.
Just wanted to ask a couple questions around some of the products.
Interesting so for.
With regard to the D M S.
What are you seeing in terms of pipeline activity around that and that's certainly a big focus of debate and the Adas community with a certain automaker.
Allegedly not doing a good job of driver monitoring.
Are you seeing increased interest and that is it going beyond just the high end luxury and then related to that are you involved with are aware of any discussions, particularly around euro and cap debt would move to standards that may not and mandate dms, but make it needed for or even Mandy.
<unk> or somehow consider requirement that would almost required DNS.
Good morning, Brian.
Definitely see increased interest and pool.
And various discussions with Oems and like you mentioned year end cap is.
And in Q1 on the drivers.
And there is a lot of.
Tuck in Europe, but although it starts with the legislative.
And it obviously is going to start becoming a standard going forward, just and comparative purposes, and I don't think it's just limited to premium segments. Like you said it didn't get prove it beyond.
Beyond the premium across and we start.
We're starting to see quite a bit of discussions even outside Europe. So I think it's going to be pretty much a global.
Market, that's going to look at driver monitoring systems, and I think from our perspective.
About the real estate, where we have inside the.
The camera technology and fusion capabilities.
And I think we are really excited to see.
The role we can play in that market segment.
And I assume youre using infrared on that.
Not necessarily I wouldn't say that there are different types of technologies, but.
No I wouldn't say interest is a necessity.
Okay and second thing on that page.
<unk> vision.
Pickup truck, which what looks like a solid beam axle with and E motor around that we've seen that and the commercial and the medium duty heavy duty world with products from the likes of data and America.
Dana and Meritor is this something Youre look clearly you are pretty low, but what would it mean for the traditional axle makers. If an OEM does this route and is it likely when you and pickup trucks debt.
And we'll be the chosen and approach some sort of solid beam E motor as opposed to.
Something without as much structural cash capability.
Brian I think from our perspective, the idea is to.
Not sacrifice any of that capability.
And I will say pickup truck in terms of.
Turing our load.
Low capacity.
The second aspect of reduced to minimize the disruption to the packaging and.
Suspension.
On the full frame vehicles.
So if youre looking at day driving the front by putting this E beam axle with minimum disruption to packaging, we're able to provide all the capabilities so from a normal.
Yes, you read pickup segment.
This provides the opportunity to have a electric variant.
So that's really the key attributes that makes it really attractive.
Okay, and what about the re automotive and how would it fit into that because that's a completely different actual design does that are you.
Looking at things with complete vehicle Assembly of credit kind of new van bodies also their platform.
Brian I think it's more like east skateboard.
But it doesn't stop there and it gets into the corner and modules and kind of dealing with.
And how we can have a discussion on this from us versus on strong and.
And how we can have different variance of the shell on the top of our quality bodies.
And use it for delivery or for other last mile.
Variance that you can come up with there is a lot of interesting possibilities there.
And.
Just just with the capabilities that we have and commercializing and scaling.
And we think it's a good fit.
Okay. Thanks.
Yes.
Thank you. Our next question comes from the line of.
Dan Levy of Credit Suisse. Please go ahead with your question.
Hi, good morning.
Thank you.
Wanted to start with a question.
On the low margin outlook can you just did.
<unk>.
Seven six and the quarter.
And.
Youre looking at a guide of 72 to 76 and you're implying there.
Essentially some downside to what you just did and the first quarter.
Does that sound side, just simply a function of the end market uncertainty or risk on volume is there something there on commodities and then I would just ask given.
Given that there is obviously this end market uncertainty, maybe you could provide us with a comment on them on cadence here.
But what we should expect over the remaining quarters and the year.
Hi, good morning.
Dan.
I don't think he can typically look at.
Q1, and draw conclusion as to what that means for the balance of the year, you've got some seasonality.
Built into a couple of quarters.
Typically have.
The July shutdowns or do you have and impact of July of and impact on out over the Christmas holidays. So that typically does have a negative impact on margins and a particular quarter and.
And I would say that the biggest factor I'd look at our revised margin guidance, which is up 10 basis points.
As with new sales up.
FX and have much of an impact on our ranges that we move.
Range up on sales couple of hundred million dollars.
Adjusted EBITDA margin up 10 basis points, we're bringing down volumes in North America, where we do we do generate typically higher margins.
But some of the negatives as I look at the total.
The next nine months and the areas I would say the biggest negative is commodity costs.
And I look at two two line.
And on.
And I'd say year over year.
And just a little bit of a help to us and Q1.
But when I look at the impact for Q2, Q3, and Q4 and in particular as I look at resins.
And it's been a pretty significant change and overall our outlook from where we were in February.
So I think you've got to take all that into account.
And looking at margins. So I think the better metric to look at is really on an annual basis and $17 seven and says what does that really mean and how does that compare and then how does the chorus fit into all of that but I think the quarter is completely in line and seasonality is going to have an impact on on margins as we get through the balance of the year.
Great and just.
On that maybe you could just on the commodity point just to remind us because I know you have a few different exposures and there are some things going on with the scrap and the offset.
But let's just say.
Rice's remain where they are today, how much of the net headwind would that would carry over into 2022 that wouldn't see and 2021 and given sort of the timing of cash.
Contract.
The setting.
Yeah.
I don't have the answer for you there and I think when I look at the commodity side and the impact in 'twenty expected impact on 'twenty, one it's residents and one that's.
And impacting us.
And with the disruptions and.
Texas is really driving our price system.
Yeah.
Hoping that as we get into 'twenty, two that would get into a more normal environment I don't think its going to be a long term sort of impact.
And I expect there will be some recovery, how whether that takes place and me on the balance of 'twenty, one or sometime in 2002. So.
Hard to say exactly incrementally 22 versus 21, what that impact could be at this point and time.
Okay and then my second question is just on complete vehicles and obviously, we continue to see the margin next year, meaning pretty solid and I know that mix plays a role and specifically the engineering services and so I'm just wondering.
If you could maybe and we'll probably give us an update on the.
The tone or tenor of the types of discussions you're engaged in with different automakers on engineering services, because obviously, we've seen one thing that's changed and the narrowed about complete vehicles, it's more than just the vehicle manufacturing side is that there is.
And engineering service capability as well that you're providing so maybe you could give us an update on.
And what types of incremental conversations you're engaged with different automakers be it on the legacy side or the startup from.
I think.
As we talked about we have mentioned.
Our capability in terms of full vehicle manufacturing and expanding it.
Is an enabler.
And in many ways not just with startups, but we continue to have.
Have you had conversations.
No.
With not just the new entrants but.
Incumbent and sort of established Oems are looking at.
And possibilities of variants, whether it is electric or otherwise and as they are looking at there.
Current spend and the Mega trends.
No.
We are fortunate to be at the table to have all these conversations obviously, we cannot talk.
Pacific So rich programs programs and how.
But we are having debt conversations.
Conversations it pretty much across all regions of the world.
I think lindsay anything to and from their perspective on the pipeline.
Yes.
You look at kind of the interest and Magna Sarah and one of the challenges. We've had is kind of how that how they allocate resources.
And.
I think picking the right programs and picking programs that we can leverage some of our production capability to me is really key.
And also thank the team has done a really good job and focusing on on cost and efficiencies and that's helping to drive some of the margin on the engineering side as well and expect that to continue.
Okay, great. Thank you.
Thank you. Our next question comes from the London of James Picariello.
Key Bank capital markets. Please go ahead with your question.
Hey, good morning, guys.
Good morning, just on the upward revision to.
The equity income for the year.
Depending on the sustainability of that trajectory I mean can this potentially drive a book.
From a revision to your 2023 target.
For this earnings stream I mean, just in the past the company has made.
And do the revisions to its equity income. So just curious if you know.
We see another quarter a better contribution if this is a likely outcome and if not why.
And it might be the nonrecurring benefits this year.
Yeah. Good question James.
Haven't really focused on on 2023 after our outlook in February and March.
And are dealing with the quarter and our 2021 outlook.
And I expect that.
Thread or joint ventures that we do not consolidate and just like our other businesses are focused on growing sales and looking at.
Operating efficiencies I hope, there's some upside there, but it's yes at this point really truly to Jive and focused on that.
At this point and in great detail.
Okay, and I might have missed this on commodities, but I mean, I know I believe the Cosmo business. It does benefit from rising scrap prices, which of course is playing out.
And the marketplace.
Yes, and again my apologies if I missed it I mean, just context on the Companys net commodity exposure and how we should be thinking about the full year.
So in terms of exposure for the full year.
And we were expecting about $40 million as we started the year and our outlook and it's mainly driven by resin and the increase but we're expecting that it could be even double that 40 for the year. So it's and we have.
Certainly scrap as a positive and you sit with rising scrap prices, but net net we're still going to be up.
For the full year, and we were positive and the first quarter. So it gives you a sense of what we're expecting for the remainder of the year.
And then just on free cash flow another upward revision there.
Clearly very very strong free cash flow great balance sheet.
How are we approaching what's the latest and greatest.
Capital allocation front.
Yes, I mean free cash flow.
And as her up.
And my formal comments on two things really one of those earnings on weather has put a little bit better value on our working capital cycle.
Capital allocation.
Philosophy, and our strategy Hasnt changed.
At all.
And we're going to continue to look at opportunities too.
Grow the business.
Whether that's organically or inorganically things that from on organic basis Bill.
Sales on our strength continuing to focus on and.
And I think as a result, and allocate more capital to some of the Mega trends type areas of our business, we talked about that extensively.
Investor Day.
Inorganically looked at.
And opportunities that could strengthen us.
Pay a dividend that grows over time and to the extent that we.
We have excess liquidity.
Moving on the market buying some stock.
Dave.
We were in the market. This quarter I don't think you can take any sort of conclusion from one quarter to another because we have.
One two and three share plan that we kind of look at but that's that's the mix of things that we focus on and strategy Hasnt Hasnt changed.
Thanks.
Yeah.
Thank you. Our next question comes from the line of Michael Glen of Raymond James. Please go ahead with your question.
Hey, Thanks for taking the question and I'll just ask one on the chip shortage.
When you look at your supply chain, so that tier two and tier three so.
Pliers that you are communicating with us and.
And I imagine that you are likely purchasing components from them that would have these chips embedded in them or are any of them communicating to you any any risk they see in terms of supplying components over and over the coming quarter.
Hi, good morning.
It's such a fluid situation to answer your question yes.
Have work streams with radius.
Chip companies weather.
It's a different level from where we are getting and integrating into components ourselves and some of the chip is part of a system that we get.
And so we have two or three layers into the value chain as we comp.
We are constantly monitoring it.
There are situations, where you have visibility, but some of them as the mix changes.
Either from the customer.
And the time from the vehicle and how theyre changing their planning process. So it's a every day.
Hum.
Exercise that we looked at various work streams to manage through.
Globally.
The visibility and Tom's right, we are trying to manage and learn as much as possible collaboratively with the customers.
To see how we look at what's available and how long it's difficult to give a specific answer yes, I think the next quarter is going to be still.
Type work.
As we manage through but hopefully we see a little bit of relaxation beyond the second quarter, but it's still very fluid.
Okay.
And then just another question. So there's this and we see this evolution taking place in terms of powertrain do you see any opportunity from magna with everything thats happening with electrification and are there opportunities opening up more for you to potentially penetrate the commercial truck market.
Yes, I think the way we look at it.
And we talked about really is.
Looking at the platform strategy and figuring out what is the best way to define the platforms.
And different segments and how they apply so we can optimize the.
On the development time and relative to capital base.
We definitely see an increasing opportunity as this transition happens we've talked about it both from a content per vehicle perspective also as an addressable market perspective.
Yeah.
Yes. It is.
And throughout the.
Overall segment up to be.
The light commercial vehicle truck SUV, but.
Whatever we are looking at.
We are trying to figure out how do we look this.
And clearly scalable platforms, where you can engineer once and deploy many times. So we have the optimization in terms of capital and development activities.
But overall definitely a bigger addressable market and higher content.
Okay. Thanks for taking my questions.
Yes.
Thank you if you would like to register for a question. Please press one four.
At this present time, we do not have any additional questions. Please continue with your presentation or closing remarks.
Thanks, everyone for listening and and I appreciate everybody dialing in despite the short term challenges.
We're off to a really good start in 2021, and we remain focused on executing our plans and delivering solid results.
Everybody stay safe and enjoy the rest of your day. Thank you.
Thank you that does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Yeah.
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