Q1 2023 Magna International Inc Earnings Call

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[music].

Yeah.

Greetings and welcome to the Q1 2023 results call.

The presentation all participants are in a listen only mode. Afterwards, we'll conduct a question and answer session.

At that time, if you have a question. Please press the one with a four on your telephone.

The conference you need to reach the operator, you May press Star zero.

A reminder, today's call is being recorded Friday may five two.

2023.

Now I would like to turn the call over now to Louis Tonelli VP Investor Relations. Please go right ahead.

Thanks, Tommy Hello, everyone and welcome to our conference call covering our first quarter of 2023.

Joining me today are swamy, quoting Gary and Pat Mccann.

Just yesterday, our board of directors met and approved our financial results for the first quarter of 'twenty three we issued a press release this morning outlining our results.

You'll find the press release today's conference call webcast. The slide presentation to go along with the call and our updated quarterly financial review all 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 in these statements.

Please refer to today's press release for a complete description of our safe Harbor disclaimer.

Please also refer to the reminder, slides included in our presentation that relates to our commentary today and with that I'll pass the call over to Swamy.

Thank you Louis and good morning to everyone.

I appreciate you joining our call today, and let me jump right in.

There are some notable takeaways to highlight before getting into some of the details.

Organic sales grew by 15% outperforming rated production by 8% driven by growth across our portfolio.

Our strong Q1 operating performance reflects strong earnings on higher organic sales.

We are raising the lower end of our adjusted EBIT outlook by 60 basis points based on the strength of these results and targeted actions to reduce expenses and optimize our cost structure.

We are highly focused on executing our strategy and remain confident in our ability to meet our long term growth and margin outlook.

Given our sales growth.

<unk> $8 billion in the next three years, particularly on new program launches.

Investing in the business and expect Capex to sales ratio to normalize by 2025.

Our capex outlook is unchanged for 2023.

In the quarter, we issued $1 6 billion of debt to finance, our pending acquisition of <unk> active.

Active safety and we plan to be back in our target leverage range by the end of 2024.

And our successful debt offering was done while maintaining our investment grade rating and strong investor interest despite a challenging market environment for debt issuance in Q1.

As you all know our global economy continued to experience some interlocking challenges.

<unk> higher inflation rising interest rates geopolitical risks and slowing economic growth, which continued to have an impact on our industry.

We have remained focused on driving operational improvements working with our customers to recover inflationary costs and executing on our strategy to deliver long term value.

Let me share some of the specific operational improvements and where we have intensified our actions, giving us confidence in achieving not only this year's outlook, but our plans beyond 2023.

We have undertaken a number of actions to mitigate the short and mid term macroeconomic pressure we are facing.

Including the consolidation and restructuring of some corporate functions manufacturing footprint optimization and repricing of some programs that are underperforming our expectations.

At the same time, we have and continue to intensify actions that are core to our daily business, including automation activities in.

In fact about 15% additional productivity has been identified including a possible 120 automation installations over and above the planned 70, all to be completed within the year.

Additionally, our corporate enterprise wide global purchasing initiative that started last year is helping reduce direct component pricing freight optimization and overall supplier management among others things.

We are starting to see traction here.

And finally smart factory initiatives with a digital ecosystem implementation, which include leading indicators analytics and higher levels of automation all aimed at achieving higher productivity levels are all well underway.

We expect these initiatives to help us achieve our 2023 outlook and will be key to expanding long term margins.

Now looking at our sales and megatrend areas that are increasing part of our plan.

Sales for these product areas were just under $1 billion combined last year.

And I would expect it to roughly double to just under $2 billion. This year.

Double again by 2025 and be up to $7 billion by 2027.

These products have a sales CAGR of around 50% in the period from 2022 through 2027.

Pending acquisition of <unk> is expected to add meaningful growth on top that.

As the sales growth continues a roughly $900 million of engineering spending in these areas is expected to be relatively flat over our outlook period.

Given that these product areas are reaching an inflection point and we are beginning to leverage our engineering spend to the point, where we expect these businesses to be profitable by 2025.

We recently announced a few key product wins contributing to our growth in these areas, including clear view vision systems on the Ram <unk> 500, 3500 heavy duty models.

Battery enclosures business on General Motors, EV pickups, and Suvs and E drive systems for our Europe based global premium OEM just to name a few.

Yes.

We are expecting overall growth for magna of around $8 billion from 'twenty to 'twenty two 2025.

This is partially driven by the record business awards, we achieved in 'twenty twos, which were 30% above our five year average.

This high growth cycle is driving the near term capital investment.

Capex to sales ratio is expected to decline to historical levels of low to mid fours by 2025.

Just as a reference point, we exceeded a 5% threshold during other periods of growth in 2016 and 17.

More than $1 billion of our expected capital investment over the next three years, including about $500 million. This year alone is to build on our strong position in battery enclosures.

Our market position that we believe we can maintain over the long term and generate strong returns from investments across multiple program life cycles.

And it's important to point out that we continue to win business across our core product areas as well, including seed complete assemblies on Gm's EV pickup trucks at Orient Assembly.

Engineering and complete vehicle Assembly for Ineos Automotives off road EV.

And smart access power door systems on our priority programs.

Lastly, before I pass the call over to Pat reflected and our ongoing commitment to operational excellence is the recognition we received from our customers.

Typically magna received more than 100 launch and quality awards from various global automakers around the world each year.

Most recently general Motors recognized Magna with a total of eight awards seven supplier of the year Awards and one Overdrive Award we were one of only two suppliers to win both awards and the only supplier to win six or more in a given year and we have done it for $3.

<unk> of years with that I'll pass the call over to Pat.

Thanks, Swamy and good morning, everyone.

As <unk> indicated we delivered strong first quarter results coming in ahead of our expectations.

Now comparing the first quarter of 2023 to the first quarter of 2022.

Consolidated sales were $10 7 billion up 11% compared to a 3% increase in global light vehicle production.

EBIT was $437 million.

While EBIT declined 120 basis points to four 1%. It was up 40 basis points from the fourth quarter of 2022.

Adjusted EPS came in at $1 11 down 13% year over year in part due to a lower tax rate last year.

And free cash flow used in the quarter was $279 million compared to $99 million in the first quarter of 2022.

In part, reflecting higher capital spending to support our strong growth.

During the quarter, we paid dividends of $132 million.

And we are raising our sales outlook as well as the low end of our EBIT margin range. Let me take you through some of the detail.

North American light vehicle production was up 8% Europe was up 7% while production in China declined 5%, netting a 3% increase in global production.

Our consolidated sales were $10 7 billion up 11% over the first quarter of 2022.

On an organic basis, our sales increased 15% year over year from an 8% growth over market in the first quarter.

Or 5% growth over market, excluding complete vehicles.

The increase was primarily due to higher global vehicle production and complete vehicle Assembly volumes, the launch of new programs and price increases to recover certain higher input costs.

These were partially offset by the impact of foreign currency translation lower sales due to the substantial idling of our operations in Russia, net divestitures and normal course customer price give backs.

Adjusted EBIT was $437 million and adjusted EBIT.

Margin was four 1% compared to five 3% in Q1 2022.

The lower EBIT percent in the quarter reflects.

About 80 basis points of nonrecurring items, the most significant of which relates to lower net favorable commercial items and a warranty accrual.

About 70 basis points of operational items, including inefficiencies at a BS facility in Europe , which we highlighted beginning in Q2 of last year, which impacted us by about 40 basis points in Q1.

And higher program related engineering spend and launch costs.

Partially offset by productivity and efficiency improvements at certain facilities.

In addition, higher net input cost impacted us by about 60 basis points.

These items were partially offset by earnings on higher sales and higher equity income.

Interest expense declined slightly reflecting a make whole payment made last year to early redeem debt as well as increased interest income earned due to higher current rates.

Our adjusted income tax rate came in at 21, 6% largely in line with our 2023 expectations, but higher than Q1 of last year.

Net income attributable to Magna was $319 million compared to $383 million in Q1 2022.

Reflecting lower EBIT and higher tax rate, partially offset by lower interest expense and minority interest.

Adjusted diluted EPS was $1 11, compared to $1 28 last year.

The decrease was the result of lower net income partially offset by fewer shares outstanding.

The reduced number of shares outstanding primarily reflects the impact of share repurchases during or subsequent to Q1 of 2022.

Turning to a review of our cash flows and investment activities.

In the first quarter of 2023, we generated 568 million of cash from operations before changes in working capital, while we invested $341 million and working capital.

Investment activities in the quarter included $424 million for fixed assets and a $101 million increase in investments other assets and intangibles.

The 424 million and Capex was higher than $238 million in Q1 of last year due to additional investments we are making in our business to support growth.

Overall, we used free cash flow of $279 million in Q1.

We also paid $132 million in dividends in the quarter.

Yes.

Our balance sheet continues to be strong at the end of Q1, we had $5 9 billion in liquidity, including over $2 4 billion in cash.

We completed several debt transactions. This past quarter. This debt will be used primarily to fund the acquisition of <unk> active safety, our capital spending program, including a megatrend areas and to refinance our euro debt set to mature this year.

Currently our adjusted debt to adjusted EBITDA is 219 times.

Excluding cash we're holding to pay down our euro debt our ratio is two times.

As Swamy said earlier, we anticipate a return to our target leverage ratio of one to one five times by the end of next year.

Next I will cover our updated outlook, which incorporates slightly higher than expected vehicle production in both North America and Europe .

As a result of better production in Q1.

Our assumption for production in China is unchanged from our previous outlook.

We also assume exchange rates in our outlook will approximate recent rates.

We now expect a stronger euro and slightly lower Canadian dollar for 2023 relative to our previous outlook.

Yeah.

We are increasing our expected sales range, largely reflecting the higher north American and European production in Q1, as well as the higher euro.

We're increasing the bottom end of our adjusted EBIT margin range. We are now at four 7% to five 1%.

Swamy indicated the increase reflects our better than expected Q1 and actions undertaken to reduce expenses and optimize our cost structure.

Partially offset by an increase in launch related spending for 2023.

As a result of increase in the ranges for sales and the low end of adjusted EBIT margin. We're also raising our range for net income attributable to Magna.

And our interest expense equity income tax rate capital spending and free cash flow expectations are all unchanged from our last outlook.

<unk>.

Yes.

In summary, we had a strong operating performance in the first quarter.

Once again, we outgrew our end markets by 8% on a consolidated basis and 5% excluding complete vehicles.

We're taking additional steps to reduce our expenses optimized our cost structure and improved margins.

As a result of our strong Q1 and incremental cost optimization actions, we are raising the low end of our EBIT margin outlook expectations for the year.

We are determined to deliver on our outlook, but recognize there is plenty of work ahead, particularly with respect to input cost recoveries from our customers.

We are laser focused on execution.

Finally, we expect to close to be in your active safety transaction in the second quarter and remained highly focused on the integration of this business.

Thank you for your attention and we'll be happy to answer your questions.

Thank you very much and once again, if you'd like to register your question. Please press the one by the four on your telephone.

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One follow up.

By country.

One moment please for our first question.

Okay.

And we'll get to our first question on the line from John Murphy with Bank of America right ahead.

Good morning, guys.

I just wanted to touch on on slide 10.

Battery enclosures specifically.

As we look at this you are talking about having the battery and closures for all of Gm's EV EV trucks.

I'm just curious could that go beyond trucks to the Altium platform more broadly and then also should we be thinking about this battery enclosure business on the trucks, specifically or maybe even more widely similar to what you did on the hydro form frames for GM back in.

90, 899, changeover and that may be somewhat of a similar opportunity to be sole source and have a very large profitable business with great returns.

Good morning, John .

Swamy.

Yes.

I think.

Kind of hit on some of the key points.

<unk> business is a product line that is not restricted to Suvs and trucks.

That's where we have a lot of the traction very Paul but should be after cable product.

B B.

Has that.

Different versions of the battery Tokyo strike and any material.

The key is that we are excited about in this product line is the existing product process and asset base that we have and the capabilities. So.

Different dose.

From processing technology that we are able to bring and do what's right for the product. So we actually see proliferation of.

This product line.

At Cros.

And to your second point.

If you just look at the investment that we are maintaining Blackberry data MB frame business in the mid to late nineties.

We see this as multiple program lives.

Once we have an investment in place.

Incremental returns and margins because we actually see this as a multi lifecycle.

Awards going forward.

The expertise that we have.

That's helpful. And then second question on the short term here on schedules it sounds like things normalized quite a bit in the first quarter and continue to do so in the second quarter and hopefully for the remainder of the year how much of an impact did that have in the quarter.

And you're improving the margin sequentially because it seemed like a lot changed here from the fourth quarter and fourth quarter, we're still playing with a lot of uncertainty and volatility and schedules.

How big a deal but that play in the quarter sequentially and how should we think about that going forward.

Okay.

John its part.

When you look at the schedule of volatility.

We've been guiding that we expect improvements as we progress throughout the year.

We did still we are still experiencing some volatility as we come through from Q4 to Q1, the improvements weren't where we hope they would be so we're still seeing some volatility in our schedules.

But what we've seen more recently in April we are starting to see some some subtlety.

So I think maybe to add.

As said, we continue to see the volatility we've taken a lot of initiatives internally.

And also some collaborative discussions with the customers to have a little bit more visibility.

Beyond the normal time, even looking into February and March we saw a lot of stock stops.

But better communication as an example, with some customers we did not run on <unk> are working together.

And figuring out how to minimize some of the inefficiency that could cost based on stops, but moving from March to April we are starting to see a little bit of improvement, but looking forward to that stability John .

Okay, and then just lastly, higher input costs on the raw side, but then labor energy and logistics I'm just curious Pat as you think about the as we work through the year you are talking about recoveries in commercial settlements take to get some of these costs back I mean, how should we think about the buckets of raws, particularly on steel labor energy.

<unk> and logistics and how successful do you think youre going to be on a sort of a net or gross and maybe net basis.

What we've seen right now what we're projecting for the year Jon related to the various buckets.

From when we started the year, we've seen energy curves clinical forward basis come off.

We've had strong success, so net recovery so that.

The pull through into our margin improvements.

100% just on the reductions we've also.

Talked in the past as well as we do have some hedging programs related to energy to secure supply and partial hedges. When you look at the steel piece steel is up relative to our expectations in February .

A lot of the steel when you get to this point of the year, John has already purchased and locked in for.

For the full year, so a lot of the benefit of the hit on that is not flowing through at the flip side is we actually see a benefit on scrap steel, which is repriced most of the month. So we do have when you look at our outlook, we do have the benefit of about $20 million.

From our previous 50 of scrap headwinds. So we're down to 30 and then on the labor we haven't really seen much of a change on labor assumptions because those rates are locked in at the beginning of the year.

But the ability to get recovery on labor.

At this point I mean with me with the automaker customers I mean, how are you seeing there are you able to go to them and say, hey, listen we're getting more labor inflation potentially logistics inflation and can you get recoveries or do you feel like youre at the level of steel right now where it's locked in for the year and into 2020 for discussion.

It's not locked and John the discussions continue not just even for 'twenty three 'twenty four but back into 'twenty. Two as you know, we always offset normal.

Normal inflation with productivity improvements and so on but.

With the I'll call. It they have normal inflation that they had either in Mexico or in Europe , where based on that particular contract shows we were looking at seven 5% to 9% in some areas wage inflation. So we are in discussions with the customers on call it above normal.

But it's not as discrete as to say since labor versus commodity we are.

Holistic and looking at it to say.

This is the normal growth. This is where we are including some of the inefficiencies that are caused by the customers on the start stop so a lot of.

Top discussions, but I would say constructive.

We're making progress in the first quarter and hope to make more and record.

Card some of the ongoing recoveries in beyond the first quarter.

Okay. That's helpful. Thank you guys.

Thanks Tommy.

Thank you and we'll proceed with our next question on the line.

Adam Jonas with Morgan Stanley go right ahead.

Hey, Swamy Hey, Pat.

So I just wanted you to comment on.

On the changing environment. It just seems like from the last in the end of last year to now there's been a really pretty sharp change in supply and demand in evs like really narrative changing I mean, you've got Tesla, who seem to be willing to run the business at a loss potentially.

And kind of a really signs of an over saturated market in.

In China I was just wondering if from your lens do you think that.

Business as usual.

And expected or or do you think that the narrative shift is significant enough for something to change.

In your strategy over the next two or three years out and how nimble are you staying and then I have a follow up.

Okay.

Good morning, Adam.

And we would have to stay nimble or we don't survive in this industry.

We always tapped into our product strategy of how do you get as Marty Levine as capable as possible.

Even in the perspective of manufacturing processes. The same thing applies toggle deal have scalable modules, how do you plan lines in such a way that.

You can have some amount of flex. It obviously does not have an infinite amount of flexibility to volumes and some of it is the terms that you have with the customers in total so volume take rates than what you put in fixed assets in dedicated assets versus being able to move from one to the other.

Just generally in terms of the products.

We are very focused on what we think we can address and how do we address even TV or not.

E B E drive platform, we look at let's say here in the low to mid teens plus do we address the entire.

Market in all segments not really.

We are looking at the platform before we take the business and risk adjust it to the volumes that are being assumed and in some cases there are platforms, where you have both oregon's rate as an example in our transmission and DCD is we have the dct's and the hybrid <unk> drives.

So there is some amount of hedge there doesn't work through an all platform so on product.

Yes, it's a lot of moving pieces, but.

We continue to look at that I wouldn't say, we are perfect and there is no risk.

Okay and then my follow up is just specifically on the on the Chinese Oems, particularly the more aggressive ones in the export market BYD and Geely.

It seems there's a director from Beijing for the Chinese Domestics to go forth right.

I believe you.

Senior member you recommended a book about 12 13th century.

Events that also kind of maybe.

Seems seemed relevant in terms of just how the industry is evolving swamy.

Tell us what your exposure is.

Are you.

Adequately proportionately content that on those more aggressively expanding EV Chinese names does that or does that represent a potential.

Global CTV atrophy for you. Thanks.

I don't think there is an atrophy at this point as I look at the business. We have I would say we are more indexed.

In North America, and Europe is the primary market, Adam, but we do have presence a bit.

The global Oems in China, but also.

The Chinese Oems in China. As example, the ones that you mentioned BYD Julia and others.

I Couldnt.

Could not comment with full conviction, whether its I would say it's.

At normal content growing with them I don't know whether it would be equal to the average that we have in Europe or North America.

<unk>.

But I think weather Postbank right, we are very focused on.

Manufacturing for the Oems locally and.

Not just moving things from one region to the other producing and one going to be either second one I think we just look at the region look at the platform and the OEM and the program itself in terms of.

The risk adjustment too.

Put hurdles on our financials before we go through it.

That framework is pretty.

Pretty much applies to all programs typically look at.

Yeah.

Thanks Swamy.

Thank you very much.

Well go to our next question on the line from Peter.

Peter Sklar with BMO capital markets go right ahead.

Good morning.

Looking at the vehicle Assembly segment Steier.

It seem to perform well during the quarter both in terms of revenues.

And margins and the profit you generated there.

Can you just talk a little bit about the context of what's going on because I believe the BMW X five was ramping down and the Fisker Ocean was ramping up and there was the possibility you might have had quite a bit of.

Disruption at the facility during the quarter, which was negatively impacted results. So can you just talk a little bit how things are unfolding at steier.

Yeah, Good morning, Peter.

I think we're side, we were really satisfied with our star performance in Q1, what we did see was volumes come in above expectations for the quarter and the mix on those volume increases were positive.

Just one point of clarification that vehicle that is andina inch tires. The BMW five series Nokia X five and Thats, Okay ramping down and then Q3 Q4 of this year. So it's still running at this point in time, we did have sales outperformance and Shire.

In the quarter, but also we're still seeing some strength in the back half of the year.

They did have some engineering margins come through as they settled some contracts related to the accounting.

But those are the big factors driving that and they are still focused on on turning over the plant and ramping hard as they come up in the back half of the year.

And what is the <unk> ocean ramping up.

Correct.

Sorry.

When Pat in the second half as the five series ramps down.

Correct.

When you go through the launch see.

The heavy ramp as we as we move on forward from this point, but it'll it'll be the timing.

Okay.

Pat on another question on as I recall on the fourth quarter Conference call management indicated that you expected.

Q1 results to be weaker than Q4, but we got the opposite where Q1 results were actually stronger than Q4. So can you talk about like what what changed in the business.

Since since you initially provided that viewpoint for a weaker Q1.

And I think.

First and foremost it was volume so if you look at volume expectations, our expectations were relatively in line with IHS and when you look at that.

Approximately 300 330000 units up from from those expectations. So our sales were higher than.

Than we had expected the up strong we had strong pull through on those sales and we say strong pull through it's a lot of things that it's easy to say you just have pull through but there's a whole bunch of operational excellence you need to have those pollsters coming at a strong margin and we really execute it that in the first quarter.

That was really the big driver and.

When you look at it.

The big drop from Q4 to Q1, the expectation was and it did exist was the customer recoveries are going to be back half of the year.

Incurred so if you look last year Q4, we had strong recoveries in Q1, we're tracking we're pushing hard we've had really good traction in agreements already but its definitely below the Q4 level.

But in line with expectations.

<unk>.

Okay, and then just lastly on the.

The body exteriors plants in Europe , where you have been having the difficulties.

Okay.

I believe its financial performance has gotten worse quarter over quarter. I think you said on this call negatively impacted margins by 40 basis points in.

Correct me, if I'm wrong, but I think you said for Q4 had a negative impact of 25 basis points. So can you just kind of summarize.

What's going on at that plant and what the outlook is for improvement.

Good morning, Peter because this is swamy.

<unk>.

The last time I communicated the planned performance is going to be eliminating all losses by end of 2024.

We are on track for that just a little bit of clarification, when we talked about.

<unk> performance, what Pat was doing is comparing.

Q1 'twenty two.

This quarter 23 comparison.

And as I said the real.

Issue started in the second quarter of 'twenty two so therefore, it looks worse in comparison to that Carter.

But if you look at the <unk>.

Progress as we have indicated there is a little bit of puts and takes here and there, but we are on track.

For 2023, and getting to eliminating losses by 2024, So I would say we are in good shape.

Okay. Good good to hear that's all I have thank you.

Thanks Peter.

Thank you very much.

Our next question on the line is from Tom Narayan with RBC go right ahead.

Yes, Thanks, guys I had a follow up actually on the last question on complete vehicle.

Yes, I understand the strength in the quarter, but curious I guess why you were guiding for the margins to come down I guess for the for the remainder of the year, where there were there specific things that are maybe in that segment that benefited that are isolated in Q1.

Yes.

When we look at the guide from as we exited 22 coming into St. Peter touched on a couple of them number one once we are expecting a big changeover that facility. So what youre seeing is the X puffs and I'm seeing the five series is coming to an end and then we're in the middle of <unk>.

<unk> are ramping up the fees.

The the Fisker and so a couple of things what's happening as you get closer to a launch of a vehicle.

Youre launch costs and your cost incurred increased significantly.

Disproportionately I would say as you get closer to Sop. That's one two is you're just missing contribution margin while that five series and there was a gap in production three when you had 2022 we had.

Some licensing income related to.

Platform sales or licensees on certain technology, we had that amortization is an accounting issues coming to an end.

And then finally, we had strong.

Engineering.

Margins in 2022, and then finally, we have energy headwinds and labor headwinds in the business for 'twenty. Three so those are the five or six big buckets driving the guide down for 'twenty three.

Okay. Thanks, and then maybe kind of similar to that power and vision.

Youre guiding for that too.

Upshift in the in the remainder of the year, just curious as to maybe what's what's behind that.

Okay.

Yes, so when you look at the.

Yes.

Really what's happening in that is we're seeing some sales growth in the back back half of the year related to.

Year over year, we're seeing sorry, not back half of the year year over year, we're seeing strength in.

What we're seeing in this product, particularly as we up ticket.

Is some of the.

Sorry lost my train of thought there, we're seeing strong pull through on some of the sales.

Flip side to that is.

The down as we came into 'twenty three once we do have engineering spend in that product area related to those some new technologies that we're launching that to drive but this group is really benefiting from a lot of the operational excellence activities that Swamy was talking about previously and we expect to execute those as we go into.

Yes.

Third plan now they're being executed we're going to benefit from those the other thing Tom to be aware of we did have the warranty item in Q1 of this.

'twenty three and those tend to be lumpy.

And when you look at our history, we're going to run warranty between 125 lumpy, it's probably going to normalize for the full year and that the traditional historical range. So that warranty drops off operational execution drives margins for the rest of the year.

I see Okay, and then lastly on the on the disclosures on <unk> just curious.

What kind of information, we'll get on that.

Profitability et cetera, where are we going to get that at all.

On earnings or how should we think about that it's something that a lot of folks are eagerly anticipating.

Hi, Tom Good morning.

B S.

Pat mentioned.

We are on track to be able to close midyear.

Let me get close our intent is to be able to give.

The revised 2023 outlook, including <unk>, when we come to our next earnings call in August .

And we are even contemplating.

Couple of weeks out.

After the earnings call.

To have a investor update where we can give you a little bit more color.

So that's where I think we can talk to.

We've been talking about the Adas growth and.

<unk> programs and so on and so forth, we can give some more color on that once the closing is done.

First in the earnings call followed.

A couple of weeks later, where we can talk in jumbo.

Overall.

It's great I think that'll be really appreciate it. Thank you.

Okay.

Yeah.

Thank you very much we'll proceed with our next question on the line.

He told.

Mckellen from Citi. Please go right ahead.

Great. Thank you. Good morning, everyone. Just two questions for me first for patent maybe you could just talk through how we should think about the cadence of total company margins the rest of the year as well as.

Fleet vehicle.

And then second.

Swamy, maybe back to <unk> I was hoping you could just provide an update on kind of the overall booking environment the competitive environment and then any progress both on the imaging radar side and dropped the monitoring as well. Thank you.

Good morning <unk>.

Just as far as the.

The margin profile as we go through the year, but we're.

Our expectation from our outlook from February really Hasnt changed our expectations is that as we progress through the year, we expect to have margin expansion driven by.

We have sales we have launches getting behind us and then the customer recoveries and then as well what we have as you start to get scale on a lot of these automation and other optimization projects. So our view, we don't give quarterly guidance, but we expect.

Positive margin improvement as we go quarter to quarter.

In the case of Shire.

Youre going to have a lull and I don't want to get into too much detail, but just as we go through the quarter you have a lull again because of missing the contribution on sales and then launch costs as we as we get closer to fully ramping that vehicle.

And on the question of data I think.

We talk about the CAGR, so where the business plan period, we continue to track that as we go through.

<unk>.

From a portfolio perspective, you know that digital radar has been launched or is launching in one of the programs. We continue to have conversations with.

Other customers two or three activity going through that.

You know that.

Allergy coming into production into more programs.

Yeah as I sit here and look at it we continue to track to plan that would be put.

Put in place.

The planned period so b.

B B retractor market, we continue to.

Make progress.

To hit the plan that they have in place.

Terrific that's very helpful. Thank you.

Thank you we'll go to our next question on the line.

From Colin Langan with Wells Fargo go right ahead.

Oh, great. Thanks for taking my questions.

If I recall the original guidance I think it had about 150 of input headwinds it sounds like that.

Honestly improve to about 130.

You have the $70 million and the non recurrence of some warranty provision.

And I believe there was like $170 million of sort of non recurrence of a favorable commercial settlements in the initial guide.

Can you just sort of provide color on what are those settlements with sort of normal how are they trending in Q1 and are you still expecting sort of that year over year.

Drag this year.

So I think.

Just to hit one by one to $1 50 that you're talking about of course, the inflation headwinds that we talked about 50 of that crap related and as Pat mentioned.

We're looking at 15 to be 30, so it's a pickup of 'twenty.

The other 100 bullets relate it to be incremental inflation had been saying 2023 and as I talked we are looking at offsetting that are you know.

Turning to look at ways to mitigate that base of operational improvements customer recoveries and hopefully the.

The trend of the energy and commodities and other things if they go in the right direction.

It helps us.

Reduce the risk of recovery.

And that's the reason for our increase in the lower end of the margin.

You talked about the commercial settlements they are really not inflation related for example, when an OEM changes to programs scope or shuts down a plant those are the type of discussions and we have to get those recoveries and they cannot be.

Linearly predicted as you can imagine right. So we had some of those in the last year.

<unk>.

We obviously cannot plan for such things this year and for the visibility that we had we said we don't see the same magnitude of commercial settlements this year and therefore, the variance is going to be.

Compared to last year to this year the settlements will be lesser and therefore, it has a negative impact overall.

Got it.

Sort of a $170 range of up to help last year that youre not expected to reoccur at the same kind of large windows when I'm looking at the numbers.

Yes, it hasnt changed that much.

But versus Nielsen versus our outlook.

Okay got it.

Just wanted to follow up and the disclosures. It says there's 450 of balance sheet explode exposure related to EV startups like this occur in Q1, that's actually up from about 400 in the annual report.

How should we think about this exposure over time and how are you thinking about counterparty risk with the sort of newer EV startups took millions I believe youre exploring adding capacity in North America.

Yeah.

Hum.

Good morning, Collyn, when we think about that.

We're tracking.

New entrants right. So that that exposure you talked a bunch of call it exposure our balance sheet amounts related.

Two programs that we're launching with new entrants, it's a combination of working capital.

Fixed assets other assets that number grew in the first quarter, that's primarily us.

As you are investing for program launches that number will increase.

Whether it's for tooling and engineering and a big portion of that is paid prior to launch so that number is going to bounce up and down just as we go throughout the year.

As far as when we think about Evs.

And doing work with them.

Swamy spoke earlier on Adam's question regarding Chinese new entrants when we've looked at them, we think of the appropriate risk return investment.

Terms for these programs.

We're obviously we have to have a business case, we have to have the appropriate <unk>.

<unk> terms.

We make a decision whether we invest or not but we're always cautious more so than with our traditional customers.

That being said, we have a 450 on our balance sheet at about $20 billion asset base rates. So we're still close to 90% with eight customers. So that just for a little perspective, as well and just for chronic pain, even further Pat on the topic of our plans for North America, It's not trading plans. It is.

From a roadmap to say that we are open to look at footprint in North America, but we always have it has to be a multi line programs.

Risk adjusted and so on but just more openness rather than say that we have a different plan.

Got it alright, thanks for taking my question.

Thank you.

Okay.

I will proceed with our next question on the line from Dan Levy with Barclays Go right ahead.

Yes.

Hi.

Good morning, Thank you taking questions.

I know you discussed.

Some of the pace of disruption is lightning.

Maybe you can give us a sense of.

What type of incremental margins, we should be expecting as the peso disruptions continues to.

Dissipate.

Then maybe you said disruptions in watch sorry, I didn't get catch the award production disruptions.

Oh, Okay, yes, the production disruptions.

Our start stop where we either lease and then it changes either on volume strike or the dates and so on and as you can imagine that.

Leads to a lot of inefficiency of planning craft labor and so on and so forth. So we've been working with the customers very collaboratively and they come back in.

Starting to give us longer visibility.

We are finding a way to redo the production schedules as an example of it run up or customers be figured out a way not to work on weekends. So that there is no premium costs.

So a lot of that is internal initiatives for us to figure out how to address that inefficiencies and we've been able to do that but still the customers are coming to the table to figure out like I said give us better visibility and figure out a way to hit the volumes that we can do it without too much cost.

With that said.

We looked at the downtime hours.

And February was not a whole lot better than what we saw in Q4.

But if you're going from March to April we are starting to see any benefit.

Improvement in <unk> cost due to the semiconductors are you know.

Some of it are.

Supply chain constraints.

And customers managing.

Their product lines and so on.

And in the type of incremental margins, we might accept we might expect.

The pressure is dissipated.

Good morning, Dan when you think about the margins, it's obviously going to vary by segments. So we usually do more of a bottoms up type margin analysis I think when you go through those.

The historical pull throughs, our incrementals should be.

What we've seen historically the one caveat I would help those when you look at a lot of this growth is coming in where you do require new facilities youre not getting a full pull through where youre going from two shifts to three in Europe . So are being fixed costs. So you do have.

Some of the new facilities are lower more.

Yeah.

Not necessarily contribution margin more of an EBIT margin pull through.

But again, thank you and then.

Look.

Okay.

Okay. Thank you and then just wanted to follow up on the prior commentary you gave on cost actions.

And may be repricing in the contract what type of visibility you have.

What the magnitude of the benefit.

Might be.

And.

Just general tone and tenor.

How much low hanging fruit there is to improve.

Dan I wouldn't be able to categorize how much specifically Alan the program repricing. This is.

Hygiene issue is I would say going through operations and looking at every single detail.

You know, we kind of looked at the management SG&A and generic consolidations restructuring plans we looked at.

Excellent waiting some of the restructuring activities that we already had in the plan and the outlook and how do we pull forward some of those things and as part of this process by the terms.

Has there been looked at some of the or not some pretty much across to see each other programs, where we had contractually.

Ways to look at repricing our programs that were not meeting our expectations in terms of profitability margins in good times.

We looked at that automation and a whole bunch of productivity improvements that we're going through and that was the reason for us to talk about incremental margins going from 23 to 25 have you been able to pull forward. Some of those things talked about the purchasing initiatives. We are looking at print optimization.

<unk>.

Looked at some analytics data working with our tier two suppliers. So it's a whole bunch of activities that are adding it's bits and bytes, but that's how you chip away.

There is not one baked.

Baked magic wand that you know is contemplating into a lump sum here just grinding away at every detail.

And it's not a footprint issue correct, it's not an issue I would say in a place like Europe , where that will be.

Lower than capacity.

We're not talking about footprint actions necessarily correct.

No it's not a foundational footprint issue. It's just you know.

Optimizing every little thing that they have and rebalancing, but it's not a.

Foundational footprint issue no.

Thank you.

Yeah.

Thank you very much well go to our next question on the line is from Michael Glen with Raymond James Go right ahead.

Hey, good morning.

I wanted to circle back to something.

Talked about earlier and as we think about these Oems launching these evs and they seem to be.

Fairly aggressively targeting a path to breakeven.

These EV programs like to what degree and you are putting up capital to participate on these programs like to what degree are they going to be able to come back on you and.

Put additional pressure on you to help them in their in their motivation to reach breakeven is there any pricing risks. So like how do you characterize the pricing risk in the leap program.

It's a normal course of action Michael we have already you know pricing discussions on productivity and give backs and so on and so forth.

Yes.

If you have the product in.

Being able to bring value to them. That's how we get the products I mean, there is always going to make conversations.

But we are looking for what we have in our framework to me dollar margin and returns profile.

Just like David when we have our shareholders.

So I think it's going to be an ongoing discussion we have to look at bringing value with the product and process and the innovations that we have.

We don't see anything beyond that and we wouldn't know how to entertain that I mean, we have to grow the business we have to right.

Michael just for perspective. These are long term contracts, they're not subject to annual repricing.

Cuts both ways. So these are we're entering two with significant investments under long term contracts.

And most of our customers we have strategic relationships, it's not just a.

Tactical.

Discussion, it's a long term.

That's across so many product areas.

I think we do have an advantage there.

Okay, and then on the other side of this you have all of these legacy platforms.

We are facing.

Some some degree of volume decline structural volume decline over time, so how do you view what happens with margins in those programs as we as we think out beyond 2025.

I think they have to look overall some when you talk about programs there is a certain aspect to beaches.

The asset that is not dedicated to the program like a press sort of an extrusion and so on and so forth.

Are they machine center are in water, but if you look at the assembly line that might be dedicated to a specific program and that's where we'd have to think.

And make judgments on how do you put the flexibility so that we can use certain parts of assets in one versus the other we've always talked about as an example.

A large part of the assets and capital that we have in our transformation and all of them in fact propylene drive business.

Also applies to do the product in the <unk> business not all of it but a significant part so we have to have the discipline to figure out when we put capital and how relevant is that going forward for the products for the car of the future. So I would say.

A very thorough exercise that we go through.

Okay.

Just one more for me can you just empowered envision there what that was.

The majority of the the other charges were in that segment can you provide a better description of what the action was taken there on the restructuring.

I think the two charges that you might've seen one was the voluntary reserve that Pat talked about and the other one was b.

Engineering spend that we had a couple of programs.

Right.

Great and I think and Michael if you refer to the the actions taken regarding restructurings those were in the <unk> space and it's really I would call. It two buckets. One is protein. So if you look at the restructuring we took in the.

The quarter some of it was.

We have some consolidations and we are adopting we're not.

Static we're looking at our our portfolio, we're looking out far.

We further than our outlook period, and we're taking actions to consolidate our footprint become more efficient and then the other piece that came through was we did have internal restructuring that drove.

Costs related to our management rework and Thats driving.

Further cost optimization, that's when we had talked about earlier and the payback is with a strong payback.

Okay. Thank you.

Yeah.

Thank you very much missed.

Mr. <unk> there are no further questions at this time I'm not trying to cut back to you for any closing remarks.

Thanks, Tom and thanks, everyone for listening in today I'm.

I'm happy with our progress in the first quarter, but a lot of work ahead of US. This is just the beginning and we feel confident with our progress and our long term strategy. Thanks have a great day.

Thank you very much and that does conclude the conference call for today.

Thank you for your participation and I say disconnect your lines Heska downwind.

Sure.

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Greetings and welcome to the Q1 2023 results call.

All participants are in a listen only mode. Afterwards, we'll conduct a question and answer session.

At that time, if you have a question. Please press the one where the four on your telephone.

The conference you need to reach the operator, you May press the star zero.

I was reminded today's call is being recorded Friday may 12.

2023 now.

Now I would like to trip cost over now to Louis Tonelli VP Investor Relations. Please go right ahead.

Thanks, Tommy Hello, everyone and welcome to our conference call covering our first quarter of 2023.

Joining me today are swamy coding, Gary and Pat Mccann.

Just yesterday, our board of directors met and approved our financial results for the first quarter of 'twenty three we issued a press release this morning outlining our results.

You'll find the press release today's conference call webcast. The slide presentation to go along with the call and our updated quarterly financial review all the Investor Relations section of our web site 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 in these statements.

Please refer to today's press release for a complete description of our safe Harbor disclaimer.

Please also refer to as a reminder, slide included in our presentation that relates to our commentary today and with that I'll pass the call over to Ms Swamy.

Thank you Louis and good morning to everyone.

I appreciate you joining our call today, and let me jump right in.

There are some notable takeaways to highlight before getting into some of the details.

Organic sales grew by 15% outperforming rated production by 8% driven by growth across our portfolio.

Our strong Q1 operating performance reflects strong earnings on higher organic sales.

We are raising the lower end of our adjusted EBIT outlook by 60 basis points based on the strength of these results and targeted actions to reduce expenses and optimize our cost structure.

We are highly focused on executing our strategy and remain confident in our ability to meet our long term growth and margin outlook.

Given our sales growth by about $8 billion in the next three years, particularly on new program launches, we are investing in the business and expect capex to sales ratio to normalize by 2025.

Our capex outlook is unchanged for 2023.

In the quarter, we issued $1 6 billion of debt to finance, our pending acquisition of <unk>.

Active safety and we plan to be back in our target leverage range by the end of 2024.

And our successful debt offering was done while maintaining our investment grade rating and strong investor interest despite a challenging market environment for debt issuance in Q1.

As you all know our global economy continued to experience some interlocking challenges, including higher inflation rising interest rates geopolitical risks and slowing economic growth, which continued to have an impact on our industry.

We have remained focused on driving operational improvements working with our customers to recover inflationary costs and executing on our strategy to deliver long term value.

Yeah.

Let me share some of the specific operational improvements and where we have intensified our actions.

Giving us confidence in achieving not only this year's outlook, but our plans beyond 2023.

We have undertaken a number of actions to mitigate the short and mid term macroeconomic pressure we are facing.

Including the consolidation and restructuring of some corporate functions manufacturing footprint optimization and repricing of some programs that are underperforming our expectations.

At the same time, we have and continue to intensify actions that are core to our daily business, including automation activities.

In fact about 15% additional productivity has been identified including a possible 120 automation installations over and above the planned 70, all to be completed within the year.

Additionally, our corporate enterprise wide global purchasing initiative that started last year is helping reduce direct component pricing freight optimization and overall supplier management among others.

We are starting to see traction here.

And finally smart factory initiatives with a digital ecosystem implementation, which include leading indicators analytics and higher levels of automation all aimed at achieving higher productivity levels are all well underway.

We expect these initiatives to help us achieve our 2023 outlook and will be key to expanding long term margins.

Now looking at our sales and megatrend areas that are increasing part of our plan.

Sales for these product areas were just under $1 billion combined last year.

And I would expect it to roughly double to just under $2 billion. This year.

<unk> again by 2025 and be up to $7 billion by 2027.

These products have a sales CAGR of around 50% and the period from 2022 through 2027.

The pending acquisition of <unk> is expected to add meaningful growth on top of that.

As the sales growth continues a roughly $900 million of engineering spending in these areas is expected to be relatively flat over our outlook period.

Given that these product areas are reaching an inflection point and we are beginning to leverage our engineering spend to the point, where we expect these businesses to be profitable by 2025.

We recently announced a few key product wins contributing to our growth in these areas, including clear view vision systems on the Ram <unk> 500, 3500 heavy duty models.

Battery enclosures business on General Motors, EV pickups, and Suvs and E drive systems for our Europe based global premium OEM just to name a few.

Yes.

We are expecting overall growth for magna.

<unk> 8 billion from 2022 through 2025.

This is partially driven by the record business awards, we achieved in 'twenty twos, which were 30% above our five year average.

This high growth cycle is driving the near term capital investment.

Our capex to sales ratio is expected to decline to historical levels of low to mid fours by 2025.

Just as a reference point, we exceeded a 5% threshold during other periods of growth in 2016 and 17.

More than $1 billion off our expected capital investment over the next three years, including about $500 million. This year alone is to build on our strong position in battery enclosures and market position that we believe we can maintain over the long term and generate strong returns.

<unk> from investments across multiple program life cycles.

And it's important to point out that we continue to win business across our core product areas as well, including seed complete assemblies on Gm's EV pickup trucks at Orient Assembly.

Engineering and complete vehicle Assembly for Ineos Automotives off road EV.

Smart access power door systems on a variety of programs.

Lastly, before I pass the call over to Pat reflected and our ongoing commitment to operational excellence is the recognition we received from our customers tip.

Typically magna received more than 100 launch and quality awards from various global automakers around the world each year.

Most recently general Motors recognized Magna with a total of eight awards seven supplier of the year Awards and one Overdrive Award we were one of only two suppliers to win both awards and the only supplier to win six or more in a given year and we have done it for $3.

<unk> with that I'll pass the call over to Pat.

Swamy and good morning, everyone.

As <unk> indicated we delivered strong first quarter results coming in ahead of our expectations.

Now comparing the first quarter of 2023 to the first quarter of 2022.

Consolidated sales were $10 7 billion up 11% compared to a 3% increase in global light vehicle production.

EBIT was $437 million.

While EBIT declined 120 basis points to four 1%. It was up 40 basis points from the fourth quarter of 2022.

Adjusted EPS came in at $1 11 down 13% year over year in part due to a lower tax rate last year.

And free cash flow used in the quarter was $279 million compared to $99 million in the first quarter of 2022.

In part, reflecting higher capital spending to support our strong growth.

During the quarter, we paid dividends of $132 million.

And we are raising our sales outlook as well as the low end of our EBIT margin range. Let me take you through some of the detail.

North American light vehicle production was up 8% Europe was up 7% while production in China declined 5%, netting a 3% increase in global production.

Our consolidated sales were $10 7 billion up 11% over the first quarter of 2022.

On an organic basis, our sales increased 15% year over year from an 8% growth over market in the first quarter.

<unk>, 5% growth over market, excluding complete vehicles.

The increase was primarily due to higher global vehicle production and complete vehicle Assembly volumes, the launch of new programs and price increases to recover certain higher input costs.

These were partially offset by the impact of foreign currency translation lower sales due to the substantial idling of our operations in Russia, net divestitures and normal course customer price give backs.

Adjusted EBIT was $437 million and adjusted EBIT margin was four 1% compared to five 3% in Q1 2022.

The lower EBIT percent in the quarter reflects.

About 80 basis points of nonrecurring items, the most significant of which relates to lower net favorable commercial items and a warranty accrual.

About 70 basis points of operational items, including inefficiencies at a BS facility in Europe , which we highlighted beginning in Q2 of last year, which impacted us by about 40 basis points in Q1.

And higher program related engineering spend and launch costs.

Partially offset by productivity and efficiency improvements at certain facilities.

In addition, higher net input cost impacted us by about 60 basis points.

These items were partially offset by earnings on higher sales and higher equity income.

Interest expense declined slightly reflecting a make whole payment made last year to early redeemed debt as well as increased interest income earned due to higher current rates.

Our adjusted income tax rate came in at 21, 6% largely in line with our 2023 expectations, but higher than Q1 of last year.

Net income attributable to Magna was $319 million compared to $383 million in Q1 2020 to.

Reflecting lower EBIT and higher tax rate, partially offset by lower interest expense and minority interest.

Adjusted diluted EPS was $1 11, compared to $1 28 last year.

The decrease was the result of lower net income partially offset by fewer shares outstanding.

The reduced number of shares outstanding primarily reflects the impact of share repurchases during or subsequent to Q1 of 2022.

Turning to a review of our cash flows and investment activities.

In the first quarter of 2023, we generated $568 million of cash from operations before changes in working capital, while we invested $341 million and working capital.

Investment activities in the quarter included $424 million for fixed assets and a $101 million increase in investments other assets and intangibles.

The $424 million in Capex was higher than $238 million in Q1 of last year due to additional investments we are making in our business to support growth.

Overall, we used free cash flow of $279 million in Q1.

We also paid $132 million in dividends in the quarter.

Yes.

Our balance sheet continues to be strong at the end of Q1, we had $5 9 billion in liquidity, including over $2 4 billion in cash.

We completed several debt transactions. This past quarter. This debt will be used primarily to fund the acquisition of <unk> are active safety, our capital spending program, including a megatrend areas and to refinance our euro debt set to mature this year.

Currently our adjusted debt to adjusted EBITDA is 219 times.

Excluding cash we're holding to pay down our euro debt our ratio is two times.

As Swamy said earlier, we anticipate a return to our target leverage ratio of one to one five times by the end of next year.

Next I will cover our updated outlook, which incorporates slightly higher than expected vehicle production in both North America and Europe .

As a result of better production in Q1.

Our assumption for production in China is unchanged from our previous outlook.

We also assume exchange rates in our outlook will approximate recent rates.

We now expect a stronger euro and slightly lower Canadian dollar for 2023 relative to our previous outlook.

We are increasing our expected sales range, largely reflecting the higher north American and European production in Q1, as well as the higher euro.

We are increasing the bottom end of our adjusted EBIT margin range. We are now at four 7% to five 1%.

As Swamy indicated the increase reflects our better than expected Q1 and actions undertaken to reduce expenses and optimize our cost structure partially.

Partially offset by an increase in launch related spending for 2023.

As a result of increase in the ranges for our sales and the low end of adjusted EBIT margin. We're also raising our range for net income attributable to Magna.

And our interest expense equity income tax rate capital spending and free cash flow expectations are all unchanged from our robust outlook.

Yes.

Yes.

In summary, we had a strong operating performance in the first quarter.

Once again, we outgrew our end markets by 8% on a consolidated basis and 5% excluding complete vehicles.

We're taking additional steps to reduce our expenses optimized our cost structure and improved margins.

As a result of our strong Q1 and incremental cost optimization actions, we are raising the low end of our EBIT margin outlook expectations for the year.

We are determined to deliver on our outlook, but recognize there is plenty of work ahead, particularly with respect to input cost recoveries from our customers.

We are laser focused on execution.

Finally, we expect to close the <unk> active safety transaction in the second quarter and remained highly focused on the integration of this business.

Thank you for your attention and we'll be happy to answer your questions.

Thank you very much and once again, if you'd like to register your question. Please press the one by the four on your telephone.

<unk> hundred <unk> technology request.

It has been as I like to draw your registration.

One followed by country.

One moment please for our first question.

Okay.

And we'll get to our first question on the line from John Murphy with Bank of America. Please go ahead.

Good morning, guys.

I just wanted to touch on on slide 10, and battery closures specifically.

As we look at this you are talking about having the battering closes for all of Gm's EV EV trucks.

Just curious could that go beyond trucks to the to the Altium platform more broadly and then also should we be thinking about this battery enclosure business on the truck specifically or maybe even more widely similar to what you did on the hydro form frames for GM back in.

90, 899, changeover and that may be somewhat of a similar opportunity to be sole source and have a very large.

Profitable business with great returns.

Good morning, John .

Swamy.

I think you kind of hit on some of the key points.

Enclosures business is a product line that is not restricted to Suvs and trucks.

That's where we have a lot of the traction very Paul but should be after cable product so any b b.

Yes.

Different versions of the battery and closure site and any material.

The key is that we are excited about in this product line is the existing product process and asset base that we have and the capabilities. So.

Different materials different processing technology that we're able to bring and do what's right for the product. So we actually see proliferation of.

This product line.

Cros.

And to your second point.

If you just look at the investment that we are maintaining blackbeard data NB frame business in the mid to late nineties.

We see this as multiple program lives.

And once we have the investment in place.

Incremental returns and margins because we actually see this as a multi lifecycle.

Awards going forward.

The expertise that they have.

That's helpful. And then second question on the short term here on schedules it sounds like things normalize quite a bit in the first quarter and continue to do so in the second quarter and hopefully for the remainder of the year how much of an impact did that have in the quarter.

And you're improving the margin sequentially because it seems like a lot changed here from the fourth quarter and the fourth quarter was still plagued with a lot of uncertainty and volatility and schedules.

How big a deal to that play in the quarter sequentially and how should we think about that going forward.

Okay.

Hey, John its part when you look at the schedule of volatility.

We've been guiding that we expect improvements as we progressed throughout the year.

It did still we're still experiencing some volatility as we come through from Q4 to Q1, the improvements weren't where we hope they would be so we're still seeing some volatility in our schedules.

But what we've seen more recently in April we're starting to see some some subtlety.

So I think maybe to add.

<unk> said, we continue to see the volatility have taken a lot of initiatives internally.

And also some collaborative discussions with the customers to have a little bit more visibility.

Beyond the normal time, even looking into February and March we saw a lot of stock stops.

But better communication as an example, with some customers we did not run on <unk> are working together.

And figuring out how to minimize some of the inefficiency that could cost based on stops, but moving from March to April we are starting to see a little bit of improvement, but looking forward to that stability John .

Okay, and then just lastly, higher input costs on the raw side, but then labor energy and logistics I'm just curious Pat as you think about the as we work through the year you are talking about recoveries in commercial settlements state to get some of these costs back I mean, how should we think about the buckets of raws, particularly on steel labor.

Energy and logistics and how successful do you think youre going to be on a sort of a net or gross and maybe net basis.

What we've seen right now what we're projecting for the year Jon related to the various buckets.

From when we started the year, we've seen energy curves on a go forward basis come off.

We've had strong success financial recovery so that.

The pull through into our margin improvement.

100% just Don on the reductions we've also.

Talked in the past as well as we do have some hedging programs related to energy to secure supply and partial hedges. When you look at the steel piece steel is up relative to our expectations in February .

A lot of the steel when you get to this point of the year, John has already purchased and locked in for.

For the full year, so a lot of the benefit of the hit on that is not flowing through at the flip side is we actually see a benefit on scrap steel, which is repriced most of the month. So we do have when you look at our outlook, we do have the benefit of about $20 million.

From our previous 50 of scrap headwinds. So we're down to 30 and then on the labor we haven't really seen much of a change on labor assumptions because those rates are locked in at the beginning of the year.

But the ability to get recovery on labor.

At this point I mean with me with the automaker customers I mean, how are you seeing there are you able to go to them and say, hey, listen we're getting more labor inflation potentially logistics inflation and can you get recoveries or do you feel like youre at the level of steel right now where it's locked in for the year and into 2020 for discussion.

It's not locked and John the discussions continue not just even for 'twenty three 'twenty four but back into 'twenty. Two as you know, we always offset normal.

Normal inflation with productivity improvements and so on but.

They call it they have normal inflation that they had either in Mexico or in Europe , where based on that particular contract shows we were looking at seven 5% to 9% in some areas wage inflation. So we are in discussions with the customers.

Call it above normal.

But it's not as discrete as to say this is labor versus commodity we are holistic and looking at it to say.

This is the normal growth. This is where we are including some of the inefficiencies that are caused by the customers on the start stop so a lot of.

Top discussions, but I would say constructive making.

Making progress in the first quarter and hope to make more.

Credit card some of the ongoing recoveries in beyond the first quarter.

Okay. That's helpful. Thank you guys.

Thanks, Tom.

Thank you and we'll proceed with our next question on the line.

Adam Jonas with Morgan Stanley go right ahead.

Hey, Pat.

So I just wanted you to comment.

On the changing environment. It just seems like from the last in the end of last year to now there's been a really pretty sharp change in supply and demand in evs like really narrative changing I mean, you've got Tesla, who seem to be willing to run the business at a loss potentially.

And kind of a really signs of an over saturated market in.

In China I was just wondering if from your lens do you think that.

Business as usual.

And expected or or do you think that the narrative shift is significant enough for something to change.

In your strategy over the next two or three years, how nimble are you staying and then I have a follow up.

Okay.

Good morning, Adam.

And we have to stay nimble or we don't survive in this industry.

We always kept in our product strategy of how do you get as Marty Levine as capable as possible.

Even in the perspective of manufacturing processes. The same thing applies say Pablo do you have a scalable modules how do you plan lines in such a way that.

You can have some amount of flex. It obviously does not have an infinite amount of flexibility to volumes and some of it is the terms that you have with the customers in total so volume take rates than what you put in fixed assets in dedicated assets versus being able to move from one to the other.

Just generally in terms of the products.

We are very focused on what we think we can address them how do we address you on the TV or not.

E V E drive platform, we look at let's say here is the low as the mid tiers are made plus do we address the entire.

Market in all segments not really.

We are looking at the platform before we take the business and risk adjusted to the volumes that are being assumed and in some cases that our platforms, where you have both origins right. As an example in our transmission and DCD is we have the <unk> and the hybrid <unk> drives.

So there is some amount of hedge there doesn't work through an all platform so our product.

Yes, it's a lot of moving pieces, but.

We continue to look at that I wouldn't say, we are perfect and there is no risk.

Okay and then my follow up is just specifically on the on the Chinese Oems, particularly the more aggressive ones in the export market BYD and Gili.

It seems there's a director from Beijing for the Chinese Domestics to go forth right.

I believe you.

Senior member you recommended a book about 1200 13th century.

Events that also kind of maybe.

It seems seemed relevant in terms of just how the industry is evolving swamy.

Tell us what your exposure is.

Are you.

Adequately proportionately content did on those more aggressively expanding EV Chinese names does that or does that represent a potential.

Global CTV atrophy for you. Thanks.

Ah.

I don't think there is an atrophy at this point as I look at the business. We have I would say we are more indexed in.

In North America, and Europe is the primary market, Adam, but we do have presence.

With the global Oems in China, but also.

The Chinese Oems in China as examples there ones that you mentioned BYD Julia and others.

I could.

Could not comment with full conviction, whether its I would say it's.

At normal content growing with them I don't know whether it would be equal to the average that we have in Europe or North America.

<unk>.

But I think we're there with Postbank right, we are very focused on.

Manufacturing for the Oems locally and not just moving things from one region to the other producing and one going to be either second one I think we just look at the region look at the platform and the OEM and the program itself in terms of.

The risk adjustment too.

Put hurdles on our financials before we go through it.

That framework is pretty.

Pretty much applies to all programs that we look at.

Yeah.

Thanks Swamy.

Thank you very much.

Well go to our next question on the line from.

Peter Sklar with BMO capital markets go right ahead.

Good morning.

Looking at the vehicle Assembly segment Steier.

It seem to perform well during the quarter both in terms of revenues.

And in margins and the profit you generated there.

Can you just talk a little bit about the context of what's going on because I believe the BMW X five was ramping down and the Fisker Ocean was ramping up and there was the possibility you might've had quite a bit of.

Disruption at the facility during the quarter, which was negatively impacted results. So can you just talk a little bit how things are unfolding at steier.

Yeah, Good morning, Peter.

I think we.

We were really satisfied with our star performance in Q1, what we did see was volumes come in above expectations for the quarter and the mix element with volume increases were positive.

Just one point of clarification that vehicle that is ending inch tires. The BMW five series not the X five and Thats ramping down in the Q3 Q4 of this year. So it's still running at this point in time, we did have sales outperformance and Shire.

In the quarter, but also we're still seeing some strength in the back half of the year.

They did have some engineering margins come through as they settled some contracts related to the accounting.

But those are the big factors driving that and they are still focused on turning over the plant and.

Ramping hard as they come up in the back half of the year.

And what is the Fisker ocean ramping up.

Correct.

Sorry.

When Pat in the second half as the <unk>.

Series ramps down.

Correct.

When you go to the launch see.

The heavy ramp as we as we move on forward from this point, but it'll it'll be the timing.

Okay.

Pat on another question on as I recall on the fourth quarter Conference call management indicated that you expected.

Q1 results to be weaker than Q4, but we got the opposite where Q1 results were actually stronger than Q4. So can you talk about like what what changed in the business.

Since since you initially provided that viewpoint for a weaker Q1.

And I think.

First and foremost it is volume. So if you look at volume expectations, our expectations were relatively in line with IHS and when you look at that.

Approximately 300 330000 units up from from those expectations. So our sales were higher than.

And then we had expected to be up strong we had strong pull through on those sales and we say strong pull through it's a lot of things that it's it's easy to say, you're just helped pull through but there's a whole bunch of operational excellence you need to have those pull throughs coming at a strong margin and we really executed that in the first quarter.

That was really the big driver and.

When you look at that.

The big drop from Q4 to Q1, the expectation was and it did exist was the customer recoveries are going to be back half of the year.

Incurred so if you look last year Q4, we had strong recoveries in Q1, we're tracking we're pushing hard we've had really good traction in agreements already but its definitely below the Q4 level.

But in line with patients.

<unk>.

Okay, and then just lastly on the.

The body exteriors plants in Europe , where you've been having the difficulties.

Okay.

I believe it's.

Financial performance has gotten worse quarter over quarter I think you said on this call negatively impacted margins by 40 basis points.

Correct me, if I'm wrong, but I think you said for Q4 had a negative impact of 25 basis points. So can you just kind of summarize.

What's going on at that plant and what the outlook is for improvement.

Good morning, Peter and Swamy.

<unk>.

The last time I communicated the planned performance is going to be eliminating all losses by end of 2024.

We are on track for that just a little bit of clarification, when we talked about.

<unk> performance, what Pat was doing is comparing.

Q1 'twenty two.

This quarter 23 comparison.

As I said the real.

Issue started in the second quarter of 'twenty, two so therefore, it looks worse than competitors into that cargo.

But if you look at the <unk>.

Progress as we have indicated there is a little bit of puts and takes here and there, but we are on track.

For 2023, and getting to eliminating losses by 2024, So I would say we are in good shape.

Okay, great good to hear that's all I have thank you.

Thanks Peter.

Thank you very much.

Our next question on the line is from Tom Narayan with RBC go right ahead.

Yes, Thanks, guys I had a follow up actually on the last question on complete vehicle.

Yes, I understand the strength in the quarter, but curious I guess why you were guiding for the margins to come down I guess for the for the remainder of the year, where there were there specific things that are maybe in that segment that benefited that are isolated in Q1.

Well.

No.

When we look at the guide from as we exited 22 coming into St. Peter touched on a couple of them number one what we are expecting a big changeover that facility. So what youre seeing is the X parts and I'm, saying that the five series is coming to an end and then we're in the middle of <unk>.

<unk> are ramping up the the the Fisker and so a couple of things what's happening as you get closer to launch of a vehicle.

Youre launch costs and your cost incurred increased significantly.

Disproportionately I would say as you get closer to Sop. That's one two is you're just missing contribution margin, while Thats five series and there is a gap in production three when you had 2022 we had.

Some licensing income related to.

Platform sales relates in scenes on certain technology, we had that amortization is that accounting issues coming to an end and then finally, we had strong.

Engineering.

Margins in 2022, and then finally, we have energy headwinds and labor headwinds in the business for 'twenty. Three so those are the five or six big buckets driving the guide down for 'twenty three.

Okay. Thanks, and then maybe kind of similar to that power and vision.

Youre guiding for that too to.

Shift in the in the remainder of the year, just curious as to maybe what's what's behind that.

Okay.

Yes, so when you look at the.

Really what's happening that is we're seeing some sales growth in the back back half of the year related to <unk>.

Over here, we're seeing sorry, not back half of the year year over year, we're seeing strength in.

And what we're seeing in this product, particularly as we up ticket.

Some of the.

Sorry, I lost my train of thought there, we're seeing strong pull through on some of the sales the flipside to that is.

As we came into 'twenty three once we do help engineering spend in that product area related to those some new technologies that we're launching that to drive but this group.

Really benefiting from a lot of the operational excellence activities that Swamy was talking about previously and we expect to execute those as we go into them.

Is there any plan now they're being executed we're going to benefit from those.

Tom to be aware of we did have the warranty item in Q1 of this.

2023, and those tend to be lumpy.

And when you look at our history, we're going to run warranty between 125.

Lumpy, it's probably going to normalize for the full year and the traditional historical range. So that warranty drops off operational execution drives margins for the rest of the year.

I see Okay, and then lastly on the on the disclosures on <unk> just curious.

What kind of information, we'll get on that.

Profitability et cetera, where are we going to get that at an earnings or how should we think about that it's something that a lot of folks are.

Eagerly anticipating.

Hi, Tom Good morning.

B as Tau pet <unk>.

Yeah.

We are on track to be able to close.

Let me get close our intent is to be able to give.

Revised 'twenty to 'twenty three outlook, including <unk>, when we come to our next earnings call in August .

And we are even contemplating a couple of weeks out.

After the earnings call.

To have a investor update where we can give you a little bit more color.

So that's where I think we can talk to.

We've been talking about the Adas growth and programs and so on and so forth. We can give some more color on that once the closing is done.

First in the earnings call followed.

A couple of weeks later, where we can talk in general.

Overall.

It's great I think that'll be really appreciate it. Thank you.

Okay.

Yeah.

Thank you very much we'll proceed with our next question on the line.

From.

Kelly from Citi. Please go right ahead.

Great. Thank you. Good morning, everyone. Just two questions for me first for Pat maybe you could just talk through how we should think about the cadence of total company margins the rest of the year as well as.

Fleet vehicle segment, and then second.

Swamy, maybe back to <unk> I was hoping you could just provide an update on how the overall booking environment the competitive environment and then any progress both on the imaging radar side and drive the monitoring as well. Thank you.

Yes.

<unk>.

Just as far as the.

The margin profile as we go through the year, but we're.

Our expectation from our outlook from February really Hasnt changed our expectations is that as we progressed through the year, we expect to have margin expansion driven by.

We have sales we have launches getting behind us and then the customer recoveries and then as well what we have as you start to get scale on a lot of these automation and other optimization projects. So our view, we don't give quarterly guidance, but we expect.

Positive margin improvement as we go quarter to quarter.

In the case of Shire.

Youre going to have a lull and I don't want to get into too much detail, but just as we go through the quarter you have a low again because of missing the contribution on sales and then launch costs as we as we get closer to fully ramping that vehicle.

And on the question of Beta I think.

We talk about the CAGR, so where the business plan period, we continue to track that as we go through.

<unk>.

From a portfolio perspective, you know the digital radar has been launched or is launching in one of the programs. We continue to have conversations with.

Other customers two or three activity going through that.

You know that technology coming into production into more programs.

Yeah as I sit here and look at it we continue to attract a plant that would be put.

Put in place.

The planned period so.

B B.

The market continued to.

Make progress.

To hit the plan that we have in place.

Terrific that's very helpful. Thank you.

Thank you.

Next question on the line.

It's from Colin Langan with Wells Fargo go right ahead.

Oh, great. Thanks for taking my questions.

If I recall the original guidance I think it had about 150 of input headwinds it sounds like that.

Honestly improved about 137.

$70 million and the non recurrence of some warranty provision.

And I believe there was like a $170 million of sort of non recurrence of favorable commercial settlements in the initial guide.

Can you just try to provide color on what are those settlements with sort of normal how are they trending in Q1 and are you still expecting sort of that year over year.

Drag this year.

So I think.

Just do it one by one to 150 that you're talking about of course, the inflation headwinds that we talked about 50 of that crap related and as Pat mentioned.

We're looking that 50 to be 30, so it's a pickup of 'twenty.

The other 100 was related to the incremental inflation had been saying 2023 and as I talked we are looking at offsetting that or.

Turning to look at ways to mitigate that base operational improvements customer recoveries and hopefully the.

The trend of the energy and commodities and other things if theyre going in the right direction.

It helps us reduce the risk of recovery.

And that's the reason for our increase in the lower end of the margin.

You talked about the commercial settlements, they're really not inflation related for example, when an OEM changes to programs scope or shut down a plant. Those are the type of discussions we have to get those recoveries and they cannot be.

Linearly predicted as you can imagine right. So we had some of those in the last year.

And.

Obviously cannot plan for such things this year and for the visibility that we had we said we don't see the same magnitude.

Commercial settlements.

And therefore, the variance is going to be.

To last year to this year the settlements will be lesser and therefore, it has a negative impact overall.

Got it.

Sort of a $170 range of up to help last year that you're not expecting to reoccur at the same kind of launch when I was looking at the numbers.

Yes, basically it hasnt changed that much.

But versus Nielsen versus our outlook.

Okay got it and then just.

Wanted to follow up and the disclosures.

There's 450 of balance sheet explode exposure related to EV start ups like this occur in Q1, that's actually up from about 400 in the annual report.

How should we think about this exposure over time and how are you thinking about counterparty risk with the sort of newer EV start ups, particularly as I believe youre exploring adding capacity in North America.

Yeah.

Hum.

Good morning, Collyn, when we think about that.

We're tracking.

New entrants right. So without that exposure you talked about I should call it exposure our balance sheet amounts related.

Two programs that we're launching with new entrants, it's a combination of working capital.

Fixed assets other assets that number grew in the first quarter and it's primarily us.

As you are investing for program launches that number will increase.

Whether it's for tooling and engineering and a big portion of that is paid prior to launch so that number is going to bounce up and down just as we go throughout the year.

As far as when we think about Evs.

And doing work with them.

When we spoke earlier on Adam's question regarding Chinese new entrants when we look at them, we think of the appropriate risk return investment.

Terms for these programs.

We're obviously we have to have a business case, we have to have the appropriate <unk>.

<unk> terms.

We make a decision whether we invest or not but we're always cautious more so than with our traditional customers.

That being said, we have a 450 on our balance sheet at about $20 billion asset base rates. So we're still close to 90% with eight customers. So that just for a little perspective, as well and just subtract out even further Pat on the topic of our plans for North America, It's not trading plans. It is.

From a roadmap to say that we are open to look at port print in North America, but we always said it has to be a multi light programs and risk adjusted and so on it's just more openness rather than a say that we have a different plan.

Got it alright, thanks for taking my question.

Thank you.

Yes.

I will proceed with our next question on the line from Dan Levy with Barclays Go right ahead.

Yes.

Hi.

Good morning, Thank you taking questions.

I know you discussed.

Some of the pace of disruption.

As lightning.

Maybe you can give us a sense of what type of incremental margins, we should be expecting as the peso.

Disruptions continues to.

Dissipate.

Then maybe you said disruptions in watch sorry, I didn't get catch toward production disruptions.

Okay, Yeah, the production disruption.

Our start stop where we either lease and then it changes seen better volume strike or the dates and so on and as you can imagine that.

Leads to a lot of inefficiency of planning craft labor and so on and so forth. So we've been working with the customers very collaboratively and they come back in.

Starting to give us longer visibility.

We are finding a way to rebuild the production schedules as an example of it run up or customers be figured out a way not to work on weekends. So that there is no premium costs.

So a lot of that is internal initiatives for us to figure out how to address that inefficiencies and we've been able to do that but still the customers are coming to the table to pick it up like I said give us better visibility and figure out a way to hit the volumes the way, we can do it without too much costs.

With that said.

We looked at the downtime hours.

In February was not a whole lot better than what we saw in Q4.

But if you're going from March to April we are starting to see them.

Improvement in <unk> cost due to the semiconductors are.

Some of it are.

Supply chain constraints.

And customers managing.

Their product lines and so on.

And in the type of incremental margins, we might accept we might expect.

Some of the pressures dissipate.

Good morning, Dan when you think about the margins, it's obviously going to vary by segments. So we usually do more of a bottoms up type margin analysis I think when you go through those.

The historical pull throughs, our incrementals should be.

What we've seen historically the one caveat I would have though is when you look at a lot of this growth is coming in where you do require new facilities you are not getting a full pull through where you're going from two shifts to three in Europe soybean fixed costs. So you do have some.

The new facilities are lower more.

Yeah.

Not necessarily contribution margin more of a an EBIT margin pull through.

But again, thank you and then.

Look.

No.

Okay. Thank you and then I just wanted to follow up on the prior commentary you gave on cost actions.

And may be repricing in the contract what type of visibility you have.

What the magnitude of that.

The benefit.

Might be.

And.

Just general tone and tenor.

How much low hanging fruit there.

To improve.

Dan I wouldn't be able to categorize how much specifically on the program right pricing. This is.

Hygiene issue, but I would say going through operations and looking at every single detail.

We kind of looked at the management SG&A and Canadian consolidation restructuring plans, we looked at.

Excellent waiting some of the restructuring activities that we already had in the plan and the outlook and how do we pull forward some of those things and as part of this process. We have the terms, where they're being looked at some of the or not some pretty much across to <unk>.

Each of the programs, where we had contractually.

Ways to look at repricing our programs that were not meeting our expectations in terms of profitability margins in good times.

We looked at that automation and a whole bunch of productivity improvements that we're going through and that was the reason for us to talk about incremental margins going from 23 to 25 have you been able to pull forward. Some of those things talked about the purchasing initiatives. We are looking at.

Turning to optimization.

At some analytics data working with our tier two suppliers. So it's a whole bunch of activities that are adding it's bits and bytes, but that's how you chip away.

There is not one.

Baked magic wand that you know is contributing to a lump sum here just grinding away at every detail.

And it's not a footprint issue correct, it's not an issue I would say in a place like Europe , where the LDP.

Lower than capacity.

We're not talking about footprint actions necessarily correct.

No it's not a foundational footprint issue. It's just you know.

Rising every little thing that they have and rebalancing, but it's not a.

Foundational footprint issue no.

Thank you.

Okay.

Thank you very much we'll go to our next question on the line is from Michael Glen with Raymond James Go right ahead.

Hey, good morning.

I wanted to circle back to something.

Talked about earlier and as we think about these Oems launching these evs and they seem to be.

Fairly aggressively targeting a path to breakeven.

These EV programs like to what degree and you are putting up capital to participate on these programs like to what degree are they going to be able to come back on you and.

Put additional pressure on you to help them in their in their motivation to reach breakeven is there any pricing risk. So like how do you characterize the pricing risk in the leap program.

It's a normal course of action, Michael we have already pricing discussions on productivity and give backs and so on and so forth.

Yes.

If you have the product.

You know being able to bring value to them. That's how we get the products I mean, there's always going to make conversations.

But quite a few of them.

King for what we have in our framework to meet the outer margin Andrew tons profile, just just like they have but when we have our shareholders.

So I think it's going to be an ongoing discussion we have to look at bringing value with the product and process and the innovations that we have.

We don't see anything beyond that and we wouldn't know how to entertain that I mean, they have to do the business we have to right.

Michael just for perspective. These are long term contracts they are not subject to annual repricing.

Both ways. So these are we're entering two with significant investments under long term contracts.

Most of our customers, we have strategic relationships, it's not just a.

Tactical.

Discussion, it's a long term.

That's across so many product areas.

I think we do have an advantage there.

Okay, and then on the other side of this you have all of these legacy platforms.

We are facing.

Some degree of volume decline.

Structural volume decline over time, so how do you view what happens with margins in those programs as we as we think out beyond 2025.

I think they have to look overall right.

When you talk about programs there is a certain aspect which is.

Off the asset that is not dedicated to the programs like a press certain extrusion and so on and so forth.

To machine center are in water, but if you look at the assembly lines that might be dedicated to a specific program and that's where we'd have to think.

And make judgments on how do you put the flexibility so that we can use certain parts of assets in one versus the other we've always talked about as an example.

A large part of the assets and capital that we have in our transformation and all of them to appropriately drive business.

It applies to do the product and they drive business not all of it but a significant part so we have to have the discipline to figure out where we put capital and how relevant is it going forward for the products for the car of the future. So it's a very thorough exercise that we go through.

Okay, and just one more for me can you just.

Empowered envision there was there was the majority of the the other charges were in that segment can you provide a better description of what the action was taken there on the restructuring.

I think the two charges that you might've seen one was the warranty reserve that Pat talked about and the other one was b.

Engineering spend that we've had a couple of programs.

Right.

Yes, I agree.

And I think and Michael if you refer to the the actions taken regarding restructurings those were in the <unk> space and it's I would call. It. The two buckets. One is protein. So if you look at the restrictions we took in the.

The quarter some of it was we have some consolidations and we are adopting we're not.

Static we're looking at our portfolio, we're looking out as far.

We further than our outlook period, and we're taking actions to consolidate our footprint become more efficient and then the other piece that came through was we.

We did have internal restructuring that drove.

Costs related to our management rework and that's driving.

Further cost optimization that swamy had talked about earlier and the payback is with a strong payback.

Okay. Thank you.

Yeah.

Thank you very much.

Mr Clinic area. There are no further questions at this time I'm not trying to come back to you for any closing remarks.

Thanks, Tom and thanks, everyone for listening in today.

I'm happy with our progress in the first quarter, but a lot of work ahead of US. This is just the beginning and we feel confident with our progress and our long term strategy. Thanks have a great day.

Thank you very much and that does conclude the conference call for today.

Thank you for your participation and ask you disconnect your lines.

Hamlin.