Q4 2023 Magna International Inc Earnings Call

Operator: Please stand by; the conference will begin momentarily. We thank you for your patience and ask that you please remain on the line. Greetings and welcome to the Magna International Q4 and year-end 2023 results and 2024 Outlook conference call. During the presentation, all participants will be in a listen-only mode.

Please standby the conference will begin momentarily we thank you for your patience and ask that you. Please remain on the line.

[music].

Okay.

Speaker Change: Greetings and welcome to the Magna International Q4, and year end 2023 results and 2024 outlook conference call. During the presentation, all participants will be in a listen only mode.

Operator: Afterward, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. Should you require operator assistance at any time, please press star 0.

Speaker Change: Afterwards, we will conduct a question and answer session.

Speaker Change: At that time, if you have a question. Please press the one followed by the four on your telephone.

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Operator: As a reminder, this conference is being recorded today, Friday, February 9, 2024. I would now like to turn the call over to Louis Tonelli, Vice President, Investor Relations. Thanks. Hello, everyone. And welcome to our conference call covering our 2023 results and our 2024. Joining me today are Swami Kotagiri and Pat McCann.

Speaker Change: As a reminder, this conference is being recorded today Friday February 19, 2024, I would now like to turn the call over to Louis Tonelli, Vice President Investor Relations.

Louis B. Tonelli: Thanks, Hello, everyone and welcome to our conference call covering our 2023 results and our 2020 for outlook.

Louis B. Tonelli: Joining me today are so let me quit or Gary and Pat Mccann.

Louis B. Tonelli: Yesterday, our board of directors met and approved our financial results for the fourth quarter of 2023, as well as our 2024 financial outlook. We issued a press release this morning outlining both of these. 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 in the investor relations section of our website at magna.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.

Louis B. Tonelli: Yesterday, our board of directors met and approved our financial results for the fourth quarter of 2023, as well as our 2024 financial outlook.

Louis B. Tonelli: We issued a press release this morning outlining both of these.

Louis B. Tonelli: 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 in the Investor Relations section of our website at Magnum Dot com.

Louis B. Tonelli: 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.

Louis B. Tonelli: Such statements involve certain risks assumptions and uncertainties, which may cause the company's actual or future results and performance to be.

Louis B. Tonelli: Totally different from those expressed or implied in these statements.

Louis B. Tonelli: Please refer to today's press release for a complete description of our safe harbor description. Please also refer to the reminder slide included in our presentation that relates to our commentary today. This morning, we will cover our 2023 highlights, as well as our Q4 results. We will then provide our 24-hour outlook, and lastly, run through our financial strategy. And with that, I'll pass it over to Swami. Thank you, Louis. Good morning, everyone.

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

Louis B. Tonelli: Please also refer to the reminder, slides included in our presentation that relates to our commentary today.

Speaker Change: This morning, we will cover our 2023 highlights as well as our Q4 results.

Speaker Change: I will then provide our 24 outlook and lastly run through our financial strategy and with that I'll pass it over to Swamy.

Swamy: Thank you Louis good morning to everyone.

Louis B. Tonelli: I appreciate you joining our call today. And let's jump right in. Overall, I was pleased with our 2023 operating performance, including good launch execution that helped us to continue to drive organic sales growth over the market and record sales of $42.8 billion. Great efforts at all levels to offset inflationary pressures and significant traction in removing costs and improving efficiencies across the company. We ended the year with solid Q4 results, considering we were slightly hampered by a couple of discrete items. Relative to our expectations, Pat will cover the rest.

Swamy: Appreciate you joining our call today, and let's jump right in.

Swamy: Overall I was pleased with our 2023 operating performance, including good launch execution that helped us to continue to drive organic sales growth over market and record sales of $42 8 billion.

Swamy: Great efforts at all levels to offset inflationary pressures and significant traction and removing costs and improving efficiencies across the company.

Swamy: We ended the year with solid Q4 results considering we were slightly hampered by a couple of discrete items relative to our expectations path will cover those.

Seetarama Kotagiri: Our sales of $10.5 billion in the fourth quarter of 2023 were up 9% year-over-year, despite the UAW strikes that reduced sales by $275 million in the quarter and contributed to a negative vehicle production mix for us relative to the comparable period in 2022. Adjusted EBIT increased 52% to $558 million in Q4, and EBIT margin increased 150 basis points to 5.3%. Adjusted EBIT margin ended the year at 5.2%, up 70 basis points year-over-year and in the middle of the 5.1 to 5.4% range we guided to in November of last year.

Swamy: Our sales of $10 5 billion in the fourth quarter of 2023 were up 9% year over year. Despite the UAW strikes that reduced sales by $275 million in the quarter and contributed to negative vehicle production mix for us relative.

Swamy: <unk> to the comparable period in 2022.

Swamy: Adjusted EBIT increased 52% to $5 $58 million in Q4, and EBIT margin increased 150 basis points to five 3%.

Swamy: Adjusted EBIT margin ended the year at five 2% up 70 basis points year over year and in the middle of the five one to five 4% range, we guided to in November of last year.

Seetarama Kotagiri: Our adjusted EPS for the quarter was up 41% to $1.33 and ended the year at $5.49. And free cash flow in Q4 was $472 million, up $132 million relative to Q4 last year. Turning to key accomplishments in 2023, we executed on a number of short and midterm operational excellence activities that contributed about 75 basis points to margin expansion this past year and is expected to contribute a further 75 basis points combined over the next two years. Our customers continue to recognize our efforts in operational excellence and innovation. Last year, we received 107 customer awards in recognition of quality and operational performance.

Swamy: Our adjusted EPS for the quarter was up 41% to $1 33 and ended the year at $5 49.

Swamy: And free cash flow in Q4 was $472 million up $132 million relative to Q4 last year.

Speaker Change: Turning to key accomplishments in 2023.

Speaker Change: We executed on a number of short and midterm operational excellence activities, which contributed about 75 basis points to margin expansion. This past year and is expected to contribute a further 75 basis points combined over the next two years.

Speaker Change: Our customers continue to recognize our efforts in operational excellence and innovation.

Speaker Change: Last year, we received 107 customer awards and recognition of quality and operational performance. One reason, we continue to win business.

Seetarama Kotagiri: One reason we continue to win business. And in 2023, be committed to achieve net zero emissions by 2050. Operational excellence is enabled by our ongoing focus on people development. This past year, we launched our Operational Management Accelerator Program aimed at identifying and cultivating individuals within Magna to become future leaders in our division. For the second year in a row, Magna has been named one of the world's most ethical companies.

Speaker Change: And in 2023 be committed to achieve net zero emissions by 2050.

Speaker Change: Operational excellence is enabled by our ongoing focus on people development.

Speaker Change: This past year, we launched our operational management accelerator program aimed at identifying and cultivating individuals within magna to become future leaders in our divisions.

Speaker Change: For the second year in a row Magna has been named one of the world's most ethical companies.

Seetarama Kotagiri: And I'm proud that Magna received 16 leading employer recognitions this past year, including Fortunes, the world's most admired company, and Forbes Best Employers, both for the seventh consecutive year. With respect to sales growth, we once again outgrew our markets in 2023. We were awarded about $12 billion in new business, which will contribute to further sales growth above market as these programs launch in the future. And we are on track with integration and synergies for the V&A acquisition. Lastly, our commitment to innovation has helped us win business in core areas, including advanced high volume front camera modules with a European-based global OEM, battery enclosures with four global OEMs, and E-Drive Systems with a European-based and North American-based global OEM. With that, I will pass it over to Pat to cover our financials in more detail. Thanks, WAMI, and good morning, everyone.

Speaker Change: And I am proud that Magna received 16, leading employer recognition this past year.

Speaker Change: Including Fortune's world's most admired companies and Forbes best employers.

Speaker Change: For the seventh consecutive year.

Speaker Change: With respect to sales growth, we once again outgrew our markets in 2023.

Speaker Change: We were awarded about $12 billion in new business, which will contribute to further sales growth above market as these programs launch in the future.

Speaker Change: And we are on track with integration and synergies for the <unk> acquisition.

Speaker Change: Lastly, our commitment to innovation has helped us win business and core areas, including advanced high volume front camera modules with a European based global OEM.

Speaker Change: Battery enclosures with four global Oems and E drive systems with a European based and North American based global OEM.

Speaker Change: With that I will pass it over to Pat to cover our financials in more detail.

Pat McCann: Thanks, Swamy and good morning, everyone I'll start with a review of our results.

Pat McCann: I'll start with a review of our results. As Swamy indicated, we were pleased with our 2023 operating results. Overall, global light vehicle production increased 8% in 2023, or 9% weighted for our geographic sales. Our consolidated sales rose 13% year over year.

Pat McCann: As Swamy indicated we were pleased with our 2023 operating results overall global light vehicle production increased 8% in 2023 or 9% weighted for our geographic sales.

Pat McCann: Our consolidated sales rose, 13% year over year on an organic basis, our sales increased 11% driving at 2% weighted growth over market for the year. Despite the negative impact of the UAW strikes in the third and fourth quarters.

Pat McCann: On an organic basis, our sales increased 11%, driving a 2% weighted growth over market for the year, despite the negative impact of the UAW strikes in the third and fourth quarters. Our adjusted EBIT margin improved 70 basis points to 5.2%, reflecting earnings on higher sales, including improved margins due to the impacts of operational excellence, cost initiatives, productivity improvements, and lower costs at previously underperforming facilities. These were partially offset by higher costs associated with new assembly business and the negative impact of the UAW strike.

Pat McCann: Our adjusted EBIT margin improved 70 basis points to five 2%, reflecting earnings on higher sales, including improved margins due to the impacts of operational excellence cost initiatives productivity improvements and lower costs at previously underperforming facilities.

Pat McCann: These were partially offset by higher costs associated with new Assembly business the negative impact of the UAW strikes the net unfavorable impact of commercial items.

Pat McCann: The Net Unfavorable Impact of Commercial Items, lower amortization related to the initial value of public company security, higher launch costs, and the impact of acquisitions net of divestiture. Nevertheless, mainly as a result of our sales growth and margin expansion, Adjusted EPS increased 29% to $5.49. For the fourth quarter, sales increased 9% to $10.5 billion, adjusted EBIT improved 150 basis points to 5.3%, and adjusted EPS rose 41% to $1.33. I'll take you through some of the details.

Pat McCann: Lower amortization related to the initial value of public company Securities.

Pat McCann: Higher launch costs and the impact of acquisitions net of divestitures.

Pat McCann: Mainly as a result of our sales growth and margin expansion adjusted EPS increased 29% to $5 49.

Pat McCann: Yes.

Pat McCann: For the fourth quarter sales increased 9% to $10 5 billion adjusted EBIT improved 150 basis points to five 3% and adjusted EPS rose, 41% to $1 33.

Speaker Change: I'll take you through some of the details.

Pat McCann: North American, European, and Chinese light vehicle production were up 5%, 7%, and 12%, respectively, resulting in an overall 7% increase in global production. Breaking down North American production further, while overall production increased 5%, production by our Detroit-based customers, which were targeted in the UAW strikes, actually declined 11% in the fourth quarter. Our consolidated sales were $10.5 billion, up 9% over the fourth quarter of 2022. The sales increase was primarily due to higher global vehicle production, the launch of new programs, the acquisition of Bioneer Active Safety, net of the divestiture of our manual transmission plant in Europe, and the net strengthening of currencies against the U.S. dollar. These are partially offset by lower complete vehicle sales, mainly due to a program changeover in Graz, Austria and an estimated $275 million impact from the UAW strikes in North America. On an organic basis, our sales increased 4% year over year, or 7% excluding complete vehicles. This compares to a 6% increase in weighted global production. Once again, lower production, largely driven by the UAW strike, unfavorably impacted our year-over-year sales growth in the fourth quarter...

Speaker Change: North.

Speaker Change: Ericksen European and Chinese light vehicle production were up 5%, 7% and 12% respectively, resulting in an overall, 7% increase in global production.

Speaker Change: Breaking down North American production further while overall production increased 5% production by our Detroit based customers, which were targeted and the UAW strikes actually declined 11% in the fourth quarter.

Speaker Change: Our consolidated sales were $10 5 billion up 9% over the fourth quarter of 2022.

Speaker Change: The sales increase was primarily due to the higher global vehicle production the launch of new programs. The acquisition of <unk> active safety net of the divestiture of our manual transmission plant in Europe, and the net strengthening of currencies against the us dollar.

Speaker Change: These were partially offset by lower complete vehicle sales, mainly due to a program changeover in Graz, Austria, and an estimated $275 million impact from the UAW strikes in North America.

Speaker Change: On an organic basis, our sales increased 4% year over year or 7%, excluding complete vehicles disc.

Speaker Change: This compares to a 6% increase in weighted global production.

Speaker Change: Once again negative production mix, largely driven by the UAW strikes unfavorable unfavorably impacted our year over year sales growth in the fourth quarter.

Speaker Change: Sure.

Pat McCann: Adjusted EBIT was $558 million, and adjusted EBIT margin was 5.3% compared to 3.8% in Q4 of 2022. Our continued focus on operational excellence and performance on cost initiatives, in addition to higher volumes, is driving strong earnings on higher sales. This was despite the negative impacts of a program changeover in complete vehicles and the UAW strikes in North America, which we estimated cost us about 50 basis points. The net effect of these generated 30 basis points of net improvement. Adjusted EBIT margin was also positively impacted by about 80 basis points of net operational items, which include productivity and efficiency improvements at certain facilities and higher tooling contributions. Non-recurring items, which together had a net favorable impact of about 30 basis points and about 20 basis points related to lower net input costs. EBIT margin was negatively impacted by lower equity income, which reduced it by about 10 basis points.

Speaker Change: Adjusted EBIT was $558 million and adjusted EBIT margin was five 3% compared to three 8% in Q4 of 2022.

Speaker Change: Our continued focus on operational excellence and performance on cost initiatives. In addition to higher volumes is driving strong earnings on higher sales.

Speaker Change: This was despite the negative impacts of a program changeover in complete vehicles and the UAW strikes in North America, which we estimated cost us about 50 basis points.

The net effect of these generated 30 basis points of net improvement.

Speaker Change: Adjusted EBIT margin was also positively impacted by about 80 basis points of net operational items, which include productivity and efficiency improvements at certain facilities and higher tooling contribution.

Speaker Change: Nonrecurring items, which together had a net favorable impact of about 30 basis points and about 20 basis points related to lower net input costs.

Speaker Change: EBIT margin was negatively impacted by lower equity income, which reduced margin by about 10 basis points.

Pat McCann: Earnings on higher unconsolidated sales were more than offset by the finalization of year and tax balances and some negative product mix in 1GV. In addition to these items, relative to our expectations, there was some re-timing of expected customer recoveries into 2024. As Swami alluded to earlier, relative to our expectations for the fourth quarter, the lower equity income, together with a foreign exchange loss on the devaluation of the Argentinian peso, cost us about $35 million, or about $0.11 per share. Now, a review of our cash flows and investment activity. In the fourth quarter of 2023, we generated $660 million in cash from operations before changes in working capital, up $127 million, or 24% from 2022. We also generated $918 million in working capital for a total cash from operations of $1.6 billion for the quarter.

Speaker Change: Earnings on higher on consolidated sales were more than offset by the finalization of year end tax balances and some negative product mix and one JV.

Speaker Change: In addition to these items relative to our expectations. There were some re timing of expected customer recoveries into 2024.

Speaker Change: As swamy alluded to earlier relative to our expectations for the fourth quarter, the lower equity income together with a foreign exchange loss on the valuation devaluation of the Argentinean peso cost us about $35 million or about <unk> 11 per share.

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

Speaker Change: In the fourth quarter of 2023, we generated $660 million in cash from operations before changes in working capital up $127 million or 24% from 2022, we also generated $918 million in working capital for total cash from operations of $1 6 billion for the quarter.

Pat McCann: Investment activities in the quarter included $944 million for fixed assets, largely to support program awards, and $189 million for investments, other assets, and intangibles. Overall, we generated pre-cash flow of $472 million in Q4. And we also paid $133 million in dividends in the quarter. Growing our dividend remains an element of our financial strategy, and yesterday, our board approved an increase in our quarterly dividend to $0.475 per share. This is our 14th consecutive year of increased fourth quarter dividends, reflecting the board and management's collective confidence in the outlook for our business. We have increased our dividend per share at an average annual growth rate of 11% going back to 2010. And now, I'll pass it back to Swami to cover our...

Speaker Change: Investment activities in the quarter included $944 million for fixed assets largely to support program awards and $189 million for investments other assets and intangibles.

Speaker Change: Overall, we generated free cash flow of $472 million in Q4.

Speaker Change: And we also paid a 133 million in dividends in the quarter.

Speaker Change: Growing our dividend remains an element or a financial strategy.

Speaker Change: And yesterday, our board approved an increase in our quarterly dividend to <unk> 47, five per share our 14th consecutive year of increased fourth quarter dividends, reflecting the board and managements collective confidence in the outlook for our business we.

Speaker Change: We have increased our dividend per share at an average annual growth rate of 11% going back to 2010.

Speaker Change: And now I'll pass it back to Swamy to cover our outlook.

Swamy: Thanks Pat.

Over the past three years, we have been highlighting our go forward strategy to propel our business into the future.

Swamy: The key aspects of our strategy are unchanged, despite continuing industry challenges and we are making significant progress in our strategy.

Swamy: This progress is reflected in our outlook and we expect to realize further benefits beyond our outlook Peter.

Seetarama Kotagiri: Thanks, Pat. Over the past three years, we have been highlighting our go forward strategy to propel our business into the future. The key aspects of our strategy are unchanged.

Swamy: As always our outlook reflects both tailwind and headwinds.

Swamy: In terms of tailwind we are launching content on a number of new programs.

Swamy: Which is contributing to sales growth.

Swamy: Our megatrend business is expected to continue to grow significantly.

Seetarama Kotagiri: Despite continuing industry challenges, we are making significant progress in our strategy. This progress is reflected in our outlook, and we expect to realize further benefits beyond our outlook period. As always, our outlook reflects both tailwinds and headwinds.

Swamy: Which we anticipate will drive profitability as we leverage the sales growth.

Swamy: And we expect further traction in our operational excellence activities contributing to additional margin expansion.

Swamy: In terms of headwinds included in our outlook.

Swamy: We anticipate further net input cost increases substantially related to continued elevated inflation driving higher labor rates and scrap prices are expected to continue to decline.

Seetarama Kotagiri: In terms of Tailwinds, we are launching content on a number of new programs, which is contributing to sales growth. Our Megatron business is expected to continue to grow significantly, which we anticipate will drive profitability as we leverage the sales growth. And we expect further traction in our operational excellence activities, contributing to additional margin expense. In terms of headwinds included in our outlook, we anticipate further net input cost increases substantially related to continued elevated inflation driving higher labor rates. And scrap prices are expected to continue to decline.

Swamy: The industry appears to be moving from supply constrained demand constrained as macro challenges persist.

Swamy: And expected EV penetration rates have been pushed out which is having some negative impact on our anticipated short and mid term sales growth.

Speaker Change: So how does all of this translate in our key financial metrics.

Speaker Change: We expect continued solid organic sales growth over market in the range of 3% to 5% on average per year over our outlook period.

Speaker Change: We anticipate margin expansion of 180 basis points or more from 2023 through 2026.

Speaker Change: Our engineering investments and megatrend areas should average about one 2 billion annually before customer recoveries.

Seetarama Kotagiri: The industry appears to be moving from supply-constrained to demand-constrained as macro challenges persist, and expected EV penetration rates have been pushed out, which is having some negative impact on our anticipated short and midterm sales growth. So how does all this translate into our key financial metrics? We expect continued solid organic sales growth over the market in the range of 3 to 5% on average per year over our outlook period. We anticipate margin expansion of 180 basis points or more from 2023 to 2026. Our engineering investments in megatrend areas should average about $1.2 billion annually before customer recovery. This includes about $300 million related to the acquisition of V&A Air Active Safety.

Speaker Change: This includes about $300 million related to the acquisition of <unk> active safety.

Speaker Change: We expect a modest decline in megatrend engineering spend in 2026 relative.

Speaker Change: Relative to 2024, and 2025 levels, while sales are increasing.

Speaker Change: Capital spending is expected to decline beyond this year and Capex to sales is on a path to return to more normal levels as we have highlighted previously.

Speaker Change: Lastly, we expect our free cash flow generation to increase each year over our outlook period as sales continue to grow margins expand and capex to sales normalize.

Speaker Change: We anticipate over 2 billion in free cash flow by 2026.

Speaker Change: Last year, we highlighted our significant expected sales increases in megatrend areas and the fact that our engineering spend in absolute dollars was largely unchanged through our outlook.

Seetarama Kotagiri: We expect a modest decline in megatrend engineering spend in 2026 relative to 2024 and 2025 levels, while filtering increases. Capital spending is expected to decline beyond this year, and CapEx to sales is on a path to return to more normal levels, as we have highlighted previously. La, We expect our free cash flow generation to increase each year over our outlook period as sales continue to grow, margins expand, and capex to sales normalize. We anticipate over $2 billion in free cash flow by 2026. Last year, we highlighted our significant expected sales increases in megatrend areas and the fact that our engineering spend in absolute dollars was largely unchanged through our outlook. While our mid-term sales in mega-trend areas have been somewhat impacted by lower expected volumes, particularly related to EVs, the trajectory of our sales growth in these areas remains considerable, growing by over $4 billion in the next three years. Lower expected megatrend profits on the reduced sales are the most significant factor, shifting our profitability inflection point from 2025 to 2026. While our outlook reflects a modest 2025 loss here, we continue to work to reduce or eliminate this loss.

Speaker Change: While our midterm sales and megatrend areas have been somewhat impacted by lower expected volumes.

Speaker Change: Particularly related to Evs.

Speaker Change: Trajectory of our sales growth in these areas remains considerable growing by over $4 billion.

Speaker Change: In the next three years.

Speaker Change: Lower expected megatrend profits on the reduced sales is the most significant factor shifting our profitability inflection point from 2025 through 2026.

Speaker Change: While our outlook reflects a modest 2025 last year, we continue to work to reduce or eliminate this loss.

Speaker Change: Regardless, we expect significant improvement in our results in these areas for our outlook period and solid profitability by 2026.

Speaker Change: Next let me cover our consolidated outlook.

Speaker Change: In terms of key assumptions in our outlook reflects essentially no growth in weighted global light vehicle production.

Speaker Change: And only modest growth of about 1% on average over the 23 through 2006 period.

Speaker Change: In other words, it's a content growth that is driving our organic sales.

Speaker Change: We assume exchange rates in our outlook will approximate recent rates.

Speaker Change: Net net the impact of currency to our outlook is expected to be negligible.

Speaker Change: We expect weighted sales growth all market between three and 5% over our outlook period.

Speaker Change: From 23 to 24 sales growth substantially reflects the launch of new and replacement programs.

Speaker Change: Higher amount of directed content on the new Mercedes G Class Assembly program.

Speaker Change: The acquisition of <unk> active safety.

Seetarama Kotagiri: Regardless, we expect significant improvement in our results in these areas over our outlook period and solid profitability by 2026. Next, let me cover our Consolidated Outlook. In terms of key assumptions, our outlook reflects essentially no growth in weighted global light vehicle production and only modest growth of about 1% on average over the 23 to 26 period. In other words, it's our content growth that is driving our organic sales. We assume exchange rates in our outlook will approximate recent rates. Net net, the impact of currency on our outlook is expected to be negligible.

Speaker Change: These are partially offset by lower sales in the remainder of our complete vehicles business largely as a result of the end of production of certain programs and a higher proportion of vehicles assembled whose sales we account for on a value added basis.

Speaker Change: From 2024 to 2026, the most significant contributors to sales growth are the launch of new and replacement programs and increase.

Speaker Change: Directed content sales on the Mercedes G class as volumes ramp.

Speaker Change: In addition, we expect an 8% to 9% compounded sales growth from unconsolidated jv's.

Speaker Change: Our outlook period, including from our LG JV for electrified components and systems.

Seetarama Kotagiri: We expect weighted sales growth over the market between 3% and 5% over our outlook period. From 23 to 24, sales growth substantially reflects the launch of new and replacement programs, a higher amount of directed content on the new Mercedes G-Class Assembly Program, and the acquisition of Viennier Active Safety. These are partially offset by lower sales in the remainder of our complete vehicle business, largely as a result of the end of production of certain programs and a higher proportion of vehicles assembled whose sales we account for on a value-added basis.

Speaker Change: Our E drive systems, JV in China, and our seating JV.

Speaker Change: We expect another step up in consolidated margins in 2024 to a range of $5, 4% to 6%.

Our 2020 for margin is expected to benefit from contribution on higher sales and ongoing operational excellence activities.

Speaker Change: Partially offsetting these are higher launch and new facility costs.

Speaker Change: <unk> with new programs as well as higher net input costs expected to impact us by about 30 basis points.

Speaker Change: While we do not provide a quarterly outlook similar to last year, we expect our 2020 for earnings to be lowest in the first quarter of 2024 and improve meaningfully in the second quarter.

Seetarama Kotagiri: From 2024 to 2026, the most significant contributors to sales growth are the launch of new and replacement programs and increased Directed content sales on the Mercedes G-Class as volumes run. In addition, we expect an 8 to 9% compounded sales growth from unconsolidated JVs over our outlook period, including from our LG JV for electrified components and systems. Our eDrive systems JV in China and our seating JV. We expect another step up in consolidated margins in 2024 to a range of 5.4 to 6%. Our 2024 margin is expected to benefit from contribution on higher sales and ongoing operational excellence activity. Partially offsetting these are higher launch and new facility costs associated with new programs as well as higher net input costs expected to impact us by about 30 basis points.

Speaker Change: We expect a further step up in margins to the seven to seven 7% range from 2024 through 2026.

Speaker Change: This is largely driven by further contribution on higher sales.

Speaker Change: Continued operational excellence activities, the reversal of launch and new facility costs as programs come on.

Speaker Change: Lower engineering spend and growing equity income.

Speaker Change: These are partially offset by a 10 basis point impact from higher directed content on the G class as volume strength.

Speaker Change: Many of the same factors that are impacting consolidated sales and margins out through 2026 are also impacting our segments.

Speaker Change: In the interest of time, we will not run through the segment detail. However, we are happy to discuss any questions on that.

Speaker Change: I'll pass it back over to Pat to cover some of the highlights of our financial strategy.

Pat McCann: Thanks Swamy.

Pat McCann: We have been consistent in communicating our capital allocation principles over the years and I would like to repeat these.

Pat McCann: We want to maintain a strong balance sheet ample liquidity and high investment grade ratings.

Pat McCann: Invest for growth through organic and inorganic opportunities along with innovation spending and return capital to shareholders.

Seetarama Kotagiri: While we do not provide a quarterly outlook similar to last year, we expect our 2024 earnings to be lowest in the first quarter of 2024 and improve meaningfully in the second quarter. We expect a further step up in margins to the 7 to 7.7% range from 2024 to 2026, largely driven by further contribution from higher sales.

Pat McCann: Our balance sheet continues to be strong with investment grade ratings from the major credit agencies.

Pat McCann: At the end of Q4, we had over 4 billion in liquidity, including about $1 2 billion in cash.

Pat McCann: Currently our adjusted debt to adjusted EBITDA ratio is at 189.

We anticipate a reduction of our leverage ratio to.

Pat McCann: To be back within our targeted range during 2025.

Pat McCann: We expect capital spending for 2024 to be approximately $2 5 billion.

Pat McCann: This includes about 100 million that will be funded by our customers.

Seetarama Kotagiri: Continued Operational Excellence Activities, the Reversal of Launch and New Facility Costs as Programs Come On, Lower engineering spend, and growing equity income. These are partially offset by a 10-basis point impact from higher directed content on the G-class as volumes rise. Many of the same factors that are impacting consolidated sales and margins out to 2026 are also impacting our sector. In the interest of time, we will not run through the segment detail.

Under U S. GAAP such customer funded amounts are included in deferred revenue, whereas previously they were netted against capital spending in other words this capex.

Pat McCann: Cash flow neutral and capital spending would be $2 4 billion.

Pat McCann: Our 24 to 2026 capital spending outlook also includes approximately $400 million related to recent program awards from a high volume OEM.

Pat McCann: Were not included in our previous outlook.

Pat McCann: Despite these new awards, we expect Capex as a percent of sales to decline over the 24 to 2026 timeframe in line with what we had been indicating over the past year.

Pat McCann: However, we are happy to discuss any questions on that. I'll pass it back over to Pat to cover some of the highlights of our financial strategy. Thanks, Swami.

Pat McCann: EV volumes remain uncertain and we continue to have discussions with customers for both future plans.

Pat McCann: We remain laser focused on capital to assess where we may have the opportunity to stagger delay or eliminate capital from our plan.

Pat McCann: We have been consistent in communicating our capital allocation principles over the years, and I'd like to repeat that we want to maintain a strong balance sheet, ample liquidity, and a high investment grade rating. Invest for growth through organic and inorganic opportunities along with innovation spending and return capital to shareholders. Our balance sheet continues to be strong, with investment grade ratings from the major credit agencies. At the end of Q4, we had over $4 billion in liquidity, including about $1.2 billion in cash.

Pat McCann: As a result of growing earnings and declining Capex levels, we expect free cash flow to accelerate through our outlook period, we anticipate over $2 billion in free cash flow by 2026.

Pat McCann: In summary, we expect continued organic growth above market with more than $4 billion increase in mega trend sales over outlook period.

Pat McCann: Further margin expansion this year and in each of the next two years, including through ongoing operational excellence activities and at least $1 7 billion and increased EBITDA over our outlook period through 2026.

Pat McCann: Currently, our adjusted debt to adjusted EBITDA ratio is at 1.89. We anticipate a reduction in our leverage ratio to be back within our targeted range during 2025. We expect capital spending for 2024 to be approximately $2.5 billion. This includes about $100 million that will be funded by our customers. Under U.S. GAAP, such customer-funded amounts are included in deferred revenue, whereas previously they were netted against capital spending.

Pat McCann: We anticipate that these increasing metrics will lead to accelerating free cash flow generation over the next three years.

Pat McCann: We remain confident in executing our plan and continuing to drive our strategy forward.

Thank you for your attention we would be happy to answer your questions.

Speaker Change: At this time, if you would like to register for a question. Please press the one followed by the four on your telephone.

Speaker Change: You will hear us raton prompt to acknowledge a request.

Speaker Change: If your question has been answered and we'd like to withdraw your registration. Please press the one followed by the three.

Pat McCann: In other words, this CapEx is cash flow neutral, and capital spending would be $2.4 billion. Our 2024-2026 Capital Spending Outlook also includes approximately $400 million related to recent program awards from a high-volume EBOEM that were not included in our previous outlook. Despite these new awards, we expect CAPEX as a percent of sales to decline over the 24 to 2026 timeframe in line with what we had been indicating over the past year. EV volumes remain uncertain, and we continue to have discussions with customers about future plans. We remain laser-focused on capital to assess where we may have the opportunity to stagger, delay, or eliminate capital from our plan.

Speaker Change: If you're using a speaker phone please lift your handset before entering your request.

Speaker Change: Once again to register for a question. Please press the one followed by the four.

Speaker Change: One moment please for the first question.

And our first question is from the line of John Murphy with Bank of America. Please go ahead.

John Murphy: Good morning, guys. Thanks.

John Murphy: Thanks for all the info, particularly on the 26 outlook.

John Murphy: If we think about on slide 35, and then 36. It seems like you are remaining very committed to your Capex plans.

John Murphy: Certainly certainly it seems like you are on the R&D side, but swamy, there's obviously tectonic shifts that are going on here.

John Murphy: Very quickly in a way to sort of the expectations are evolving for EV penetration.

John Murphy: Program potential cancellations or at least push outs.

Pat McCann: As a result of growing earnings and declining capex levels, we expect free cash flow to accelerate through our outlook period. We anticipate over $2 billion in free cash flow by 2026. In summary, we expect continued organic growth above market with more than $4 billion increase in megatrend sales over the outlook period. Further margin expansion this year and in each of the next two years, including through ongoing operational excellence activities, and at least $1.7 billion in increased EBITDA over our outlook period through 2026. We anticipate that these increasing metrics will lead to accelerating free cash flow generation over the next three years. We remain confident in executing our plan and continuing to drive our strategy forward. Thank you for your attention. We would be happy to answer your questions.

John Murphy: How flexible.

John Murphy: Is your capex spending and R&D spending to potentially be pushed down into.

John Murphy: And to the right.

John Murphy: To deal with that and potentially even deal with us digitally.

Cancellations in programs.

Speaker Change: Good morning, John.

John Murphy: Great question. If you just think through whats happening I think one of the key things we have been focused on and have been discussing is the capex.

John Murphy: You can look at the Capex ratio being a capex to sales we have been talking about going back to the.

John Murphy: Low to mid course, and happy to say, we are on track to that.

John Murphy: When we talk about this year Pat.

John Murphy: <unk> his prepared comments that $100 million of the two five that we are showing it.

John Murphy: Jamie.

John Murphy: Given by the customer.

John Murphy: And we actually talked about a program.

John Murphy: Put another about $150 million to $200 million spend which was not contemplated but we felt given the program.

Pat McCann: At this time, if you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please lift your handset before entering your request.

John Murphy: It was a good idea to.

John Murphy: Yes.

John Murphy: We invest in that program going forward strategically right. So those were the two otherwise could have been at on the coupon 2 billion in Capex. So that's one part of it.

John Murphy: The second part of the question that you asked regarding R&D.

John Murphy: <unk> always talked about the 900 million left with the Vmware 300, the one two.

John Murphy: With the sales increasing.

Operator: Once again, to register for a question, please press the 1, followed by the 4. One moment, please, for the first question. And our first question is from the line of John Murphy with Bank of America. Please go ahead.

John Murphy: Again, the ratio of R&D spend to revenue was going to decline.

John Murphy: But having said that we are looking very seriously into the <unk>.

John Murphy: Spending of that if it is not related to the direct launch of their program.

John Murphy: Then everything is under scrutiny and again in the prepared comments, we talked about it.

John Murphy: Good morning, guys. Thanks for all the info, particularly on the 26 Outlook. You know, if we think about slides 35 and then 36, you know, it seems like you're remaining very committed to your CapEx plans. You know, it certainly seems like you are on the R&D side, but Swami, you know, there's obviously tectonic shifts that are going on here very quickly in the way that the expectations are evolving for EV penetration, you know, program potential cancellations or at least pushouts. You know, how flexible is your CapEx spending and R&D spending to potentially be pushed down and to the right to deal with that and, you know, potentially even deal with potential cancellations in programs? Good morning, John.

John Murphy: We're also looking at capital income so.

John Murphy: With discussion with customers, obviously is how can we stagger given push out of the.

John Murphy: Date for the launches.

John Murphy: Just even in terms of the volume ramp so we're looking at <unk> capital.

John Murphy: Looking at the modularity, having discussions with the customers.

John Murphy: Also impact in how we look at.

John Murphy: Volumes on <unk> programs by the customers, although we have to.

John Murphy: Ron that right for them at deeper and so on.

John Murphy: We take into account the volume assumptions when we look at revenue on such programs.

John Murphy: So we're looking all of that so pushing out in terms of Capex spend our R&D engineering spend.

John Murphy: Depending on the program cadence absolutely, yes, just to give us a sample over the last three weeks.

Seetarama Kotagiri: Great question. If you just think through what's happening, I think one of the key things we've been focused on and have been discussing is the — — — If you look at the capex ratio, we have been talking about capex to sales, and we've been talking about going back to the, you know, the low to mid force. And, you know, happy to say we are on track to do that. When we talk about this year, Pat...

John Murphy: I along with the senior management team has spent at least about 40 hours a line by line on all projects and we are looking at.

John Murphy: <unk> proposition of each project, what it brings to us.

John Murphy: Keeping in mind, obviously that cannot put the future and cannot hurt the launch.

Speaker Change: Okay. That's very helpful and then Pat.

Pat McCann: If we were to suspend disbelief and say you guys are being too conservative on your volume forecasts.

Seetarama Kotagiri: Touched on his prepared comments that 100 million of the 2.5 that we are showing is really, you know, given by the customer. And we actually talked about a program for another about 150 to 200 million spend, which was not contemplated, but we felt given the program, it was a good idea to...

Pat McCann: Let's say there is a 2% to represent upside in global LBP in 'twenty, four or maybe even just think about it sort of was 1%.

Pat McCann: Youll hire any claim in OE being $450 million more of revenue do you have capacity.

Pat McCann: Obviously this is kind of a generic question, but two.

Pat McCann: Take that on and what kind of incremental would we be thinking obviously, if all of a sudden sales came in 2% to 3% higher than you were thinking because LDP was higher.

Seetarama Kotagiri: Invest in that program going forward strategically, right? So those were the two, otherwise it would have been around $2.2 billion in CapEx. So that's one part of it. The second part of the question that you asked regarding R&D, and we've always talked about the 900 million plus with the V&AIR 300, it's 1.2. With the sales increasing, again, the ratio of R&D spent to revenue was going to decline.

Pat McCann: Yeah.

Speaker Change: Good morning, John.

Speaker Change: In that scenario there when I think.

Speaker Change: That's probably the best case scenario. If you go back to <unk> comments, where we have capacity installed up to.

Speaker Change: The planning volumes right. So if we flex up.

Speaker Change: You might be you could speed up the line or add another shift and Thats why we have a lot of leverage in your model. So here you are.

Speaker Change: <unk> also not scenario be quite strong and that would be what we've seen historically.

They are different by segment, but.

Speaker Change: The <unk> for <unk>.

Seetarama Kotagiri: But having said that, we are looking very seriously into the spending of that if it's not related to the direct launch of a program. Then everything is under scrutiny, and again, in the prepared comments, we talked about it. We're also looking at capital in terms of, with discussion with customers, obviously, how can we stagger given the push out of the dates for the launches, or just even in terms of the volume ramps. So we're looking at staggering capital, looking at the modularity, having discussions with the customers, and also a little bit on how we look at volumes on given programs by the customers, although we have to run at a rate for them at PPAP and so on; we take into account the volume assumptions when we look at revenue on such programs.

Speaker Change: And then seating depending on the region 12 to 17, 5% and starts a little bit different John.

Speaker Change: Because of all the recoveries.

Speaker Change: Recoveries, but.

Speaker Change: I think that would be a best case scenario for Magna.

Speaker Change: The worst case scenario is when you you have to put in new facilities and Thats. When you go through our business plan and you look out into the future some of the incremental foreign debt that let's say twentyish percent and it's because they are coming through more of the corporate average, where youre, adding bricks and mortar in new facilities and overhead so long answer but.

Speaker Change: The scenario, you're describing the best case for Magna.

And then just one last question can you comment on what region that high volume EV manufacturer is.

Speaker Change: <unk> news in the North American manufacturer, China manufacturer and it is therefore battery tray or battery structure or is there something else that that capex is allocated for the $400 million.

Seetarama Kotagiri: So we are looking at all of that, so pushing out in terms of CAPEX spend or R&D engineering spend depending on the program cadence, absolutely yes, just to give an example from the last three weeks. I, along with the senior management team, have spent at least about 40 hours going line by line on all our projects, and we are looking at the value proposition of each project, what it brings to us, keeping in mind, obviously, that it cannot hurt the future and cannot hurt the launch. That's very helpful. And then Pat, if we were to kind of suspend disbelief and say you guys are being too conservative with your volume forecast, and let's say there's, you know, a two to 3% upside in global LVP in 24, or maybe even just think about it sort of as a 1%, you'd hire, you know, in a plain middle way being 450 million more in revenue. Do you have any capacity?

Speaker Change: John under strict confidentiality, we are not able to give too much detail, but I can say that.

Speaker Change: This is.

Speaker Change: Material investment in southern U S and Mexico.

Speaker Change: For a significant future product of Tesla.

Speaker Change: Okay.

Speaker Change: Very helpful. Thank you very much guys.

Speaker Change: Thanks, Sean Thanks, Sean.

Speaker Change: Our next question is from the line of Chris Mcnally with Evercore. Please go ahead.

Chris Mcnally: Alright. Thanks, so much gentlemen, one really benign question on PD and then maybe on the capital.

Chris Mcnally: Buybacks, so CD Swamy can we take a step back.

Chris Mcnally: Is now been an underperformer for a couple of years I mean, you. Obviously you have a different ROIC to a slightly different margin compared to peers.

Chris Mcnally: I know you can't be happy with the margin has perpetually been targeted and so that $5 to 6% range.

Chris Mcnally: Can you can you help us walk through what are some of the issues and what will get us eventually to that five 6%.

Pat McCann: Um, you know, obviously, this is kind of a generic question, but to take that on, and what kind of incremental would we be thinking of if all of a sudden, you know, sales came in two to 3% higher than you were thinking because LVP was higher? Morning, John. In that scenario, when I think of, that's probably a best case scenario, if you go back to Swami's comments where we have capacity installed up to, to planning volumes, right? So if we flex up, you know, you might be able to speed up the line or add another shift. And that's where you have a lot of leverage in your model. So your incrementals in that scenario would be quite strong. I mean, that would be what we've seen historically. You know, they're different by, by, by segment, but, you know, the 20s for BSP, and then seeding, you know, depending on the region, 12 to 17 and a half percent. And Steyr's a little bit different, John. It's because of all the...

Speaker Change: Good morning, Chris.

Speaker Change: If you look at the last couple of years.

Speaker Change: <unk> impact on ceding half being the mix and certain programs.

Speaker Change: Significantly underperforming the volume expectations compared to the planned volumes right and as you know in seating.

Speaker Change: Once once you have the facility and you have the labor pretty much dedicated to the program.

Speaker Change: We do our cost to collect.

Speaker Change: But.

Speaker Change: Not hospitals to negate everything so that has been one of the primary reasons.

Speaker Change: The one other thing that you will see in the dynamics looking this year and going forward and then bid.

On the seating last year, we had assumed that we would exit the high volume.

Low margin program.

Speaker Change: And we were having discussions with the customer.

Speaker Change: And during the process, we were able to secure.

Speaker Change: Fair and appropriate margin and return on the next generation.

Speaker Change: So we are maintaining the existing business model, so that having a negative impact in the short term the new program. The next generation with the appropriate margins and returns.

Speaker Change: Starting to launch in 2026, it's a staggered launch, but it will start on the 2026.

Speaker Change: Also that seating team has been extremely focused on.

Pat McCann: I think that would be the best possible scenario for Magna. The worst-case scenario is when you have to put in new facilities, and that's, you know, when you go through our business plan and you look out into the future, some of the incrementals aren't at that, let's say, 20-ish percent, and it's because they're coming through more at the corporate average, where you're adding bricks and mortar and new facilities and overhead. So, long answer, but the scenario you're describing is the best case for Magna.

Speaker Change: All of the items of operational excellence, so looking at all the details during our planning software.

Speaker Change: Sure.

Minus the big program that I talked about growing out Andrew 'twenty six 'twenty seven I feel comfortable that we're on the path.

Speaker Change: To the margins that we talked about that is in the 5% to 6%.

Speaker Change: Okay Super Super helpful detail on that problematic platform can we just now maybe move to capital allocation and the ideas of the buybacks.

Speaker Change: I know you have sort of the debt.

Speaker Change: Debt to EBITDA ratios you used in the past, obviously net debt is a little bit more attractive.

John Murphy: And then just one last question. Can you comment on what region that high-volume EV manufacturer is domiciled in? Is it a North American manufacturer or a Chinese manufacturer?

Speaker Change: And also given where your stock is.

Speaker Change: Can you talk about what the potential for more of a historical buyback ratio.

Speaker Change: Could be obviously the free cash flow goes up every year 24 to 26, but yes.

Seetarama Kotagiri: And is that for the battery tray or battery structure, or is there something else that CapEx has allocated for the $400 million? John, under strict confidentiality, we are not able to give too much detail, but I can say that... This is a material investment in the southern US and Mexico for a significant future product of Tesla. Okay. Very helpful.

Speaker Change: Sort of like your investors buying low.

Rather than buying high and it's always sort of a favorable that strategy. So just how you're thinking about getting ahead of some of those better free cash flow numbers in the years to come.

Speaker Change: I think the capital allocation strategy.

Speaker Change: We are looking at that.

Speaker Change: <unk> talked about in the prepared comments remains.

John Murphy: Thank you very much, guys. Thanks, John. Our next question is from the line of Chris McNally with Evercore. Please go ahead.

Speaker Change: Truly as an offset for us Chris.

Speaker Change: You can look at the leverage ratio in 2024, our first priority is to get back to the one to one five right.

Chris Mcnally: Thanks so much, gentlemen. One really benign question on seeding and then maybe on capital and the buyback. So seeding, Swami, can we take a step back?

Speaker Change: We have seen given the EBITDA profile and the sales.

Speaker Change: We see that in the early part of 2020 cost.

Chris Mcnally: So once we start having the.

Seetarama Kotagiri: You know, this has now been an underperformer for a couple of years. I mean, obviously, you have a different ROIT on a slightly different margin compared to peers. But I know you can't be happy with the margin that has perpetually been a target. And, you know, so that five or six percent range. Can you help us walk through what are some of the issues and what will get us, you know, eventually to that five to six percent? Good morning, Chris.

Chris Mcnally: Cash.

Chris Mcnally: And the cash flow operational rice is on track to what we expect it to be.

Then we go back to our priority of being.

Chris Mcnally: Investing organically or in <unk>.

Chris Mcnally: Organically for the appropriate returns.

Chris Mcnally: Got it accretive to value and anything.

Chris Mcnally: Remaining obviously did their preference is to go back to the share buybacks. So we will be looking at it towards the end of 2024.

Chris Mcnally: In the normal course of platform.

Chris Mcnally: Okay.

Chris Mcnally: Getting back on staying in the level of pressure that we talked about.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Thanks, Chris.

Speaker Change: Our next question is from the line of Tami Chen with BMO capital markets. Please go ahead.

Seetarama Kotagiri: I think if you look at the last couple of years, the significant impact on feeding has been the mix and certain programs. Significantly underperforming volume expectations compared to the planned volumes, right? And as you know, in seeding, I think once you have the facility and you have the labor, it's pretty much dedicated to the program. We do a response to flux. It's not possible to negate everything, so that has been one of the primary reasons.

Tamy Chen: Thanks, Good morning.

Tamy Chen: First question is just on the low end of your 24 EBIT margin guidance I mean, you would imply very modest year over year.

Tamy Chen: Improvement of 23, which had a number of headwinds.

Tamy Chen: With inflation.

Speaker Change: Morning, BS facility unfavorable production schedules and of course, the UAW strike so.

Speaker Change: I'm just wondering can we just go back to what assumptions you've got in there.

Seetarama Kotagiri: The one other thing that you will see in the dynamics looking ahead a little bit. On the seating, last year, we had assumed that we would exit a high-volume... We had a low-margin program, and we were having discussions with the customer. But during the process, we were able to secure a fair and good appropriate margin and return on the next generation. So we are maintaining the existing business now, and that's having a negative impact in the short term. The new program, the next generation with the appropriate margins and returns, is starting to launch in 2026. It's a staggered launch, but it will start in 2026.

Speaker Change: For the low end of the range like are you baking in just a degree of conservatism.

Speaker Change: Yeah.

Speaker Change: Good morning Tammy.

Speaker Change: I don't think it's conservative, but I think we have a well balanced plan there was a fair amount of volume uncertainty and.

Speaker Change: Inflation continues to be a headwind.

The one part Jay do you have to consider is the impact of the G plus re pricing. So the key club at Shire as a new contract that's launching.

Speaker Change: In 2024, and effectively what's happened with all the inflation their bill of materials has increased so we have higher revenue.

Speaker Change: Exactly same higher cost of sales so a dollar margin neutral, but you have a drag.

Seetarama Kotagiri: Also, the seating team has been extremely focused on all the items of operational excellence, so looking at all the details during the planning process. You know, minus the big program that I talked about going out into 26, 27, I feel comfortable that we are on the path to the margins that we talked about, that is in the 5 to 6 percent. Okay, super, super helpful detail on that problematic platform.

Speaker Change: That's impacted us by about 10 basis points, just on that one program alone. So.

Speaker Change: I think just the starting point apples to apples would be 10 basis point difference and then you start going through we burn a plus volume scenario.

Speaker Change: We do have.

Speaker Change: Some negative mix and and then we have.

Speaker Change: Headwinds again also on scrap scrap sale, but I think when you put them all together I think a couple of things to think about is last year. We were at a 100 basis point spread we've tightened our gap because we feel more confident in our plan and you got the 10 basis points I think.

Chris Mcnally: Can we just now maybe move to, you know, the capital allocation and the idea of the buyback? So I know you have, you know, sort of the debt to EBITDA ratios you used in the past. Obviously, net debt is a little bit more attractive.

Speaker Change: <unk> content.

Speaker Change: Okay.

Speaker Change: On the continuing cost inflation at this point.

Speaker Change: Do you expect you could still.

Speaker Change: Realized some additional recoveries from customers or at least sort of it I guess work environment versus last year with respect to recoveries in OEM.

Speaker Change: Yes, I think remind me we talked about.

Seetarama Kotagiri: And also, given where your stock is, you know, can you talk about what the potential for more of a historical buyback ratio could be? Obviously, the free cash flow goes up every year 24 to 26. But, you know, sort of like your investors buying low, you know, rather than buying high, as always, sort of a favorable strategy. So, you know, just how you're thinking about getting ahead of some of those better free cash flow numbers in years to come. I think the capital allocation strategy and how we are looking at that, as Pat talked about in the prepared comments, remains truly an all-star for us, Chris. If you look at the leverage ratio in 2024, our first priority is to get back to 1 to 1.5. Right?

Speaker Change: Inflation in some of these topics still as continuing headwinds last year.

We've talked about a 100 million magnitude and as of November we said, we weren't going to mitigate that with various activities including recoveries.

Speaker Change: We achieved that.

Speaker Change: And this year, we still have embedded.

Speaker Change: <unk>.

Speaker Change: Inflation in terms of labor.

Speaker Change: Some things have.

Speaker Change: Trended down like energy and so on but there is some stickiness on some of the products steel commodities.

Speaker Change: Including labor.

Speaker Change: So it's going to be a combination of recoveries as well as definitely our continued efforts on operational excellence.

Speaker Change: Okay got it and sorry, one last question here back on the customer funded Capex that you highlighted 24 at a $100 million.

Speaker Change: So is that a new thing.

Speaker Change: <unk> had that any just high level now and is that the only one in your 2000 and for Capex guidance.

Seetarama Kotagiri: And, given, you know, the EBITDA profile and the sales, we see that in the early part of 2025. So once we start having cash, and the cash flow operationally is on track to what we expect it to be. Then we go back to our priority being, investing organically or inorganically for the appropriate returns, you know, that equity to value, and anything remaining. Obviously, the preference is to go back to share buybacks.

Speaker Change: Customer funded and fingers, calling that out.

Speaker Change: It's a new program that was awarded Tammy and.

Speaker Change: Previously you would have just showing it as a subsidy under the old tools, but effectively what's happened more broadly when you think about the commercials.

Speaker Change: Issues.

Speaker Change: We went to the customer and said they wanted our support and we said we need your support to do that and in that scenario. What we did was we looked at it on a cash basis and you have some crazy accounting happening, but on a cash flow basis.

Speaker Change: You have higher Capex, and you have higher deferred revenue and <unk>.

2024 of our cash neutral so we didn't look at the account we didn't.

Chris Mcnally: So we'll be looking at it towards the end of 2024 in the normal course of action, you know, getting back on staying in the levels ratio that we talked about. Okay, thanks so much.

Speaker Change: We looked at the business decision, which was it's a good program that good customer and the customer is paying for the capital we have the open space. So we took on the program.

Speaker Change: Okay.

Speaker Change: So let me just.

Speaker Change: Just to add to that.

Operator: The Bulletproof Executive 2013. Our next question is from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Speaker Change: Not normal for customers to invest in capital They fund and owned tooling typically.

Speaker Change: But this is one of the things that we've been considering and working through.

Tamy Chen: Thanks, good morning. First question is, I guess on the low end of your 24 EBIT margin guidance, which would imply a very modest year over year improvement of 23, which I have a number of headwinds, such as cost inflation, the underperforming BES facility, unstable production schedules, and, of course, the UAW strike. So I'm just wondering, can we just go back to what assumptions you've got in there for the low end of the range? Like, are you baking in just a degree of conservatism? Morning, Tamy. I don't, you know; I don't think it's conservative.

Speaker Change: Right.

Speaker Change: Thank you.

Speaker Change: Thanks Tammy.

Speaker Change: Yes.

Speaker Change: Our next question is from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Mark Trevor Delaney: Yes. Good morning, I appreciate you guys taking the questions.

Mark Trevor Delaney: The new outlook for Megatrend revenue can you help us better understand how conservative Magna was with us with its assumptions around customer build schedules in EV volumes, especially given that some of the North America Oems and emphasize are going to be flexible on how fast they plan to ramp up their new EV programs.

Speaker Change: Good morning, Mark.

Speaker Change: Over the last number of years I would say going back even six to eight years.

Speaker Change: Typically been saying that.

The global EV market penetration would be somewhere in the low thirties globe.

Speaker Change: <unk>, obviously higher in China, followed by Europe, and North America.

Pat McCann: I think we have a well-balanced plan. There's a fair amount of volume uncertainty. And, you know, inflation continues to be a headwind. The one part you do have to consider is the impact of the G-Class repricing. So the G-Class at Steyr is a new contract that's launching in 2024.

Speaker Change: I think we still believe it's in that ballpark.

Speaker Change: And I also said previously as we look at program by program, whether its <unk> or not.

Speaker Change: We tend to have our own viewpoint.

Speaker Change: The program volumes for revenue calculation purposes site to estimate our revenues, although we have to hit the run rates.

Speaker Change: Definitely we are weighted.

Pat McCann: And effectively, what's happened with all the inflation, their bill of materials has increased, so we have higher revenues, and exactly the same higher cost of sales that are dollar margin neutral, but you have a drag. That's impacting us by about 10 basis points, just on that one program alone. So, you know, I think just the starting point, apples to apples, would be a 10 basis point difference. And then you start going through it.

Speaker Change: A little bit in OEM.

Speaker Change: Oems production in North America.

Speaker Change: For the megatrend areas, so called electrification.

Speaker Change: That tends to have a decline.

Speaker Change: Have a negative impact and like I said, we will do everything to staggered capital work with the customers look at Martinez and program.

Speaker Change: Both products and processes.

Speaker Change: Do you have a negative impact, but I think the.

Speaker Change: No.

Speaker Change: Magnitude of impact we're seeing on the revenue.

Speaker Change: It would be a little bit lower.

Speaker Change: And then what the market is seeing based on the assumptions we made before.

Seetarama Kotagiri: We were in a flat volume scenario. We do have some negative mix, and then we have headwinds again, also on scrap sales. So when you put them all together, I think a couple of things to think about is that last year we were at a 100 basis points spread. We've tightened our gap because we feel more confident in our plan. And when you add the 10 basis points, I think it's a pretty balanced plan. Okay, I see. And on the continuing cost inflation at this point, do you expect you could still realize some additional recoveries from customers, or are we sort of in a different environment versus last year with respect to recoveries from the OEM? Yeah, I think so. Good morning, Tamy.

Speaker Change: But this is a something.

Speaker Change: It's something that we need to watch continuously and be agile about it.

Speaker Change: So thats a long answer.

Speaker Change: Very helpful. I appreciate all the context, and I know a very dynamic situation.

Speaker Change: <unk> for you all to deal with.

Speaker Change: Unrelated topic as Oems are adjusting generally lower their EV build plans right, there's perhaps some offset towards hybrid and <unk> are you seeing any.

Speaker Change: Higher revenue coming from different different powertrains, and maybe talk a little bit more to what extent with the.

Speaker Change: <unk> 24 in 2026 outlooks that you gave you have you assumed some some increased revenue coming from.

Seetarama Kotagiri: We talked about inflation and some of these topics still as continuing headwinds last year. We talked about a hundred million magnitude, and as of November, we said we were going to negate that with various activities, including recoveries. And we achieved that. And this year, we still have embedded inflation in terms of labor. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: And hybrid vehicles.

Speaker Change: Yeah, I would say.

Speaker Change: The market, whilst majority of our capabilities are really agnostic to the powertrain right but.

Speaker Change: In some cases like in the powertrain.

Speaker Change: <unk>, our dual clutch transmission as a packaged neutral.

Speaker Change: Hybrid option that we are currently producing with three Oems.

Speaker Change: Too early to say like how the dynamics of the volumes are playing out.

Speaker Change: We also have either add capabilities that can support high voltage hybrid.

Tamy Chen: Okay, got it. And one last question here, back on the customer-funded CapEx that you've highlighted for 24, the 100 million. So is that a new thing? Or have you had that, and you're just highlighting it now?

Speaker Change: And as you know as you would remember that JV can supply electrification components like motors and Inverters that balance with LIFO the hybrids.

Speaker Change: So.

Speaker Change: In some cases, we are on both platforms, both ice and.

Pat McCann: And is that the only one in your 24 CapEx guidance that's customer funded? And so you're calling that out? Thanks. It's a new program that was awarded, Tamy, and... Previously you would have just shown it as a subsidy under the old rules, but effectively what's happened more broadly when you think about the commercials issues is we went to the customer and said they wanted our support, and we said we need your support to do that, and in that scenario what we did was we looked at it on a cash basis, and you have some crazy accounting happening, but on a cash flow basis it's you have higher capex and you have higher deferred revenue, and in 2024 we're cash neutral, so we didn't look at the account, we didn't, We looked at the business decision, which was, it's a good program, it's a good customer, and the customer is paying for the capital, and we had the open space, so we took on the program. I think, I mean, just to add to that is... Not normal for customers to invest in capital. They fund and own tooling, typically.

Speaker Change: Evs for example on seating.

Speaker Change: But that dynamic we have to see how it goes but on 2027 looking out.

Speaker Change: I would still say the targets that we provided in terms of the mega trend areas.

Speaker Change: We feel comfortable that we are still on track.

Speaker Change: Thank you.

Speaker Change: Our next question is from the line of Tom <unk> with RBC. Please go ahead.

Tom: Hi, Thanks for taking the questions.

Tom: A couple of little housekeeping, one slide 31.

Tom: The segment outlook or guidance for 2024.

Tom: Feeding top lines coming down in 'twenty four just I'm sure you may be explain that apologies if I missed it just curious what's going on there.

Speaker Change: In complete vehicle, thanks, Pat for talking about the G class repricing.

Speaker Change: Explaining the margins coming down despite topline revenue going up.

Speaker Change: Are there any other things we should be aware of explaining that dynamic in 'twenty four for complete vehicle.

Speaker Change: Good morning, Tom on the seat like go through it firstly, so if you look at the seating piece the volume decline is.

Tom: It's effectively mix we have.

Tom: The way of seating business works is you have dedicated.

Tom: Jet facilities.

Tom: One of our.

Tom: Our programs in North America, the volumes from the customer is down on a year over year basis. That's the primary driver of this in the seating space.

Tom: On the on the maintenance Shire piece or the complete vehicle piece.

Tamy Chen: But this is one of the things that we've been considering and working through. Right, I see. Thank you. Thanks Tamy. Our next question is from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Tom: The volume is up.

Tom: As I mentioned because of the G wagon primarily.

Tom: And then within there there's also a little bit but that's the majority of the reduction but we also have we.

Mark Trevor Delaney: Good morning. I appreciate you guys taking the questions. With the new outlook for Megatrend revenue, can you help us better understand how conservative Magna was with its assumptions around customer build schedules and EV volumes, especially given that some of the North American OEMs have emphasized are going to be flexible on how fast they plan to ramp up their new EV program? Good morning, Mark.

Tom: We had some commercial benefits in 2023 that we don't expect to recur and there is a little bit of amortization related to some of the warrants.

Tom: Are some of the engineering.

Tom: The fiscal program that's rolling off.

Tom: Do you still have growth over market in seeding through that 'twenty two 'twenty six periods. So the 24th of a blip, but we still see contractor.

Speaker Change: Got it.

Speaker Change: And then my next one.

Speaker Change: Heard some inventory build.

Seetarama Kotagiri: Over the last number of years, I would say, going back even six, eight years, we have typically been saying that, you know, the global EV market penetration would be somewhere in the low 30s. Globally, obviously higher in China, followed by Europe and then North America. I think we still believe it's in that buffer.

Speaker Change: Chatter from a particular supplier.

Speaker Change: In 2023 that impacted their 2024.

Speaker Change: Of guidance that companies.

Speaker Change: Basically is there one market so but just curious is that something you guys were seeing at all.

Speaker Change: On your guidance and just the inventory build that might be impacting your <unk> your <unk>.

Seetarama Kotagiri: And I also said previously, as we look at program by program, whether it's eBee or not, we tend to have our own viewpoint on the program volumes, for revenue calculation purposes, try to estimate our revenues, although we have to hit the run rate...

Speaker Change: 2024 outlook, we're not.

Speaker Change: <unk> not seen that.

Tony: Go ahead Tony.

I think Tom.

I would say the simple answer is no we don't see that impact in.

Tony: The other way of looking we even looked at I would say is safe.

Tony: Safety stock last two versus going into this year, if anything thats, even reducing we were.

Seetarama Kotagiri: It definitely We are weighted a little bit in OEM production in North America for the migration areas, called electrification. As that tends to have a decline, we'll have a negative impact. And like I said, we'll do everything to stagger capital, work with the customers, look at modularity in programs, both products and processes. But it will have a negative impact. But I think the magnitude of the impact we are seeing on revenue would be a little bit lower than what the market is saying based on the assumptions we made before. But this is something that we need to watch continuously and be agile about. So that's the long answer. Very helpful. I appreciate all the context, and I know it is a very dynamic situation for you all to deal with.

Tony: And the magnitude of $200 million received now towards the $100 million.

Tony: So short answer materially we don't see that happening in market.

Speaker Change: Okay, great. Thank you.

Speaker Change: Okay.

Speaker Change: We don't have the ability to do what they're doing.

Speaker Change: We're at a pull system. So we only we're only able to sell to our customers what they call off so we don't have an ability to push it up into the supply into our customers.

Speaker Change: Compared to that.

Speaker Change: Company here I'm, referring to.

Speaker Change: Got it maybe I'll just do a quick <unk>.

Speaker Change: Follow up.

Speaker Change: At CES you guys showcase some really impressive adas capabilities, we met folks from venier et cetera.

Speaker Change: Did you just curious as you see things.

Speaker Change: Move evolved with with autonomy level, three et cetera.

Speaker Change: We met with some some Q2's lidar makers to at CES, who are kind of I don't know lack of better where it had trouble.

Seetarama Kotagiri: On a related topic, as OEMs are adjusting, and generally lowering their EV build plans, there's perhaps some offset toward hybrid and ICE builds. Are you seeing any higher revenue coming from different powertrains? Maybe talk a little bit more about the extent to which the 2024 and 2026 outlooks that you gave are correct. Have you seen some increased revenue coming from ICE and hybrid vehicles? Yeah, I would say, Mark, a vast majority of our capabilities are really agnostic to powertrain, right? But, in some cases, like in the powertrain, our DCT or dual clutch transmission has a package-neutral, you know, hybrid option that we're currently producing with three OEMs. Too early to say how the dynamics of the volumes are playing out. We also have e-drive capabilities that can support high-voltage hybrids. And as you recall, the LGJV can supply electrification components, like motors and inverters, that also apply to the hybrid.

Speaker Change: It seems like the tier ones like you guys are really well positioned in.

Speaker Change: In Adas.

Speaker Change: As the time horizon for things like level forward get pushed out farther and farther.

Speaker Change: Do you guys view.

Speaker Change: These Q2 lidar players as potential.

Speaker Change: Acquisition targets for you guys or is that something you would potentially do organically, if and when we ever get to level four happening. Thanks.

Tom I think we've been pretty consistent in saying our focus is very much on what I call the driver assist systems.

Speaker Change: Away from autonomy to a high degree of driver assist systems as I call. It trade because there's so much ambiguity on what we call out to a plus <unk> three that's why I use the term term.

Speaker Change: Driver assist functions.

Speaker Change: Given that.

Speaker Change: We believe we are in a good position from.

Speaker Change: Sensor capabilities.

Speaker Change: The software associated and the integration capabilities to bring all defenses together the compute.

Speaker Change: Call it an issue or a domain controller of all types.

Speaker Change: So I think we're really focused on.

Mark Trevor Delaney: So. You know, in some cases, we are on both platforms, both ice and, www.magnatrends.com. Thank you. Our next question is from the line of Tom Narian with RBC. Please go ahead. Alright, thanks for taking the questions. A couple of little housekeeping ones.

Speaker Change: Getting through the integration.

Speaker Change: Process that we have which is growing on track and we are happy to report that.

Speaker Change: So we want to get that through and there is a lot of interest from the customers and programs and that's launching.

Speaker Change: As you look into the future of the way you've talked about.

Speaker Change: We are really focused now on getting the market share and launching the programs and getting the growth that we've talked about.

Tom Narion: Slide 31, that's the segment outlook or guidance for 2024. Seeding, uh, top lines coming down in 24, just, I'm sure you've maybe explained that, apologies if I missed it, just curious what's going on there. Then, on complete vehicle, thanks Pat for talking about the G-Class repricing, that's explaining the margins coming down despite the top lines, and the revenue going up. Are there any other things we should be aware of explaining that dynamic in 24 for, um, complete vehicle? Morning, Tom. I think on the seat. I'll go through it first.

Speaker Change: On the head towards 2027 Lewis I think we were in the $4 billion to $5 billion range.

So we are on track and we.

Speaker Change: We're focused on that so we'll be obviously looking at some building blocks of the future yes.

Speaker Change: But detriments to see methane, we can give more color as we.

Speaker Change: Get towards the end of the year.

Speaker Change: Great. Thank you so much.

Speaker Change: Our next question is from the line of ITI Mccalley with Citigroup.

Chris Mcnally: Please go ahead.

Chris Mcnally: Great. Thanks, Good morning, everybody just a couple of questions from me Firstly, just going back to the margin bridge. This year I just want to ask a question on the operational excellence activities, but just curious how much line of sight you have on those initiatives how much you've already identified and then kind of just remind us what youre seeing in terms of.

Pat McCann: So if you look at the seating piece, the volume decline, https://www.larryweaver.com; our programs in North America, the volumes from the customer are down on a year-over-year basis. That's the primary driver. On the Magna Steyr piece, or the complete vehicle piece, the volume is up, as I mentioned, because of the G-Wagon primarily, and then within there, there's also a little bit of, that's the majority of the reduction, but we also have some commercial benefits in 2023 that we don't expect to recur, and there's a little bit of amortization related to some of the warrants or some I got it.

Chris Mcnally: Broader production stability and kind of what youre, assuming for production volatility or stability for 2024.

Speaker Change: Good morning.

Speaker Change: If you just look at the prepay.

Speaker Change: Prepared comments I talked about achieving 75 basis points this year, which we achieved.

Speaker Change: We have good line of sight for achieving this 75 basis points in 'twenty four 'twenty five.

Speaker Change: Typically we have continuous improvement activities.

Speaker Change: On top of the initiatives that we worked through our operational excellence initiatives I should say that we worked through.

Speaker Change: They are very very granular very.

Speaker Change: Very defined streams of work that are championed by executive team.

Speaker Change: All the way.

Speaker Change: Into the divisions.

Speaker Change: Feel pretty good about the <unk>.

Speaker Change: Visibility of those going forward.

Tom Narion: And then my next one, you know, we heard some inventory build chatter from a particular supplier in 2023 that impacted their 2024 kind of guidance. That company is, basically, its own market. So, but just curious, is that something you guys were seeing at all? You know, on your guys and just inventory bill that might be impacting your 2024 outlook? Or were you not seeing that?

Speaker Change: But again in the beginning of the call I made a few comments on.

Speaker Change: Given the volume volatility and whatever else is happening in terms of programs being pushed out and so on we are not stopping there right. We'll continue to look at.

Speaker Change: Any dollar spend does it provide the value and at what time and maybe it's not right now.

Speaker Change: Tax value in the future, we'll go back to it but we're looking at all of that aspect, we feel pretty comfortable.

Speaker Change: From a visibility perspective for the 75 basis points coming up or adding to the bottom line in 'twenty four 'twenty five 'twenty four 'twenty five collectively it's about each year to drive the two year over two year period.

Tom Narion: I think, Tom, for us, I would say the simple answer is no, we don't see that impact. And, you know, the other way of looking at it, we even looked at it this way: I would say, Thank you for watching. Okay, great, thank you. We don't have the ability to do what they're doing.

Speaker Change: That's helpful.

Speaker Change: Quick follow up on the outlook.

Speaker Change: Outlook for.

Speaker Change: For 2026, so just curious what portion of the revenue outlook is already booked and maybe broadly if you can just comment on what you're seeing along the pace of a desk bookings and penetration there.

Speaker Change: Yes, I think.

Speaker Change: Just mentioned a little bit linked while ago that looking at 2027% rate, we were talking about the $4 billion to $5 billion roughly.

Seetarama Kotagiri: We're on a pull system. So we're only able to sell to our customers what they call off. So we don't have an ability to push stuff into the supply chain for our customers compared to that company you're referring. Got it. Maybe I'll just do a quick follow-up that, you know, at CES, you guys showcased some really impressive ADAS capabilities. We met folks from Vienna Air, et cetera.

Speaker Change: And I think we are on track to that right. That's what we have talked about at our Investor day.

Speaker Change: In the megatrend areas, we've talked about.

Speaker Change: Vaccine closures in addition to aid us in powertrain.

Speaker Change: Again looking at the 2000 2007 timeframe.

Speaker Change: We were over 445 or $4 billion in their powertrain electrification managed sales I think we are still on track to that vaccine closures. We've talked in the range of two to $2 5 billion.

Tom Narion: Just curious, you know, as things evolve with autonomy, Level 3, you know, et cetera. You know, we met with some Tier 2s, let's see, LIDAR makers, too, at CES, who were kind of, for lack of a better word, in trouble. It seems like the Tier 1s, like you guys, are really well-positioned in ADAS as the time horizon for things like Level 4 gets pushed out farther and farther. Do you guys view, you know, these Tier 2 LIDAR players as potential acquisition targets for you guys, or is that something you would potentially do organically if and when we ever get to Level 4? Thanks.

Speaker Change: We are on track to that.

Speaker Change: We have to keep in mind that if the volumes.

Speaker Change: Certain programs changed drastically obviously will have to come back and talk about it but we.

Speaker Change: We are working through those I feel pretty comfortable to the numbers <unk> talked about in 2027 Lewis I don't have that yet.

Speaker Change: That's very helpful. Thank you.

Speaker Change: And just to add maybe for 2026.

Speaker Change: 90% of our sales is booked.

Speaker Change: 90, great. That's very helpful. Thank you.

Itay Michaeli: Tom, I think we've been pretty consistent in saying our focus is very much on what I call the driver assist systems, away from autonomy, to a high degree of driver assist systems, as I call it, right, because there's so much ambiguity in what we call L2 plus and L3, that's why I use the term, Driver Assist Function. So given that, we believe we are in a good position from the software associated with it So I think we're really focused on getting through the integration process that we have, which is going on track, and we are happy to report that.

Speaker Change: Our next question is from the line of Christopher <unk> with CIBC. Please go ahead.

Christopher: Hi, Thanks for taking my question.

Christopher: And just on here on the margin guide for 2026.

Christopher: And then just seven seven.

Christopher: And then looking back to the Investor Day that 2025 guide at least the top.

Christopher: Seven eight.

Speaker Change: 2026 is about 10% lower at the top end can you just walk us through.

Speaker Change: What led you to this and is it mostly the mega trends.

Speaker Change: Our production environment.

Speaker Change: Good morning Christa.

Speaker Change: Big Big picture when you look at the puts and takes in 'twenty five itself. We just look where we are today projecting for 25 million.

Speaker Change: Compared to last year, we do have a lower volume assumptions as we go through the plan and.

Itay Michaeli: So we want to get that through, and there is a lot of interest from customers and programs and us launching. So as you look into the future, the way you talked about... We are really focused now on getting the market share and launching the programs and getting the growth that we talked about on the ADA towards the 2027 loss. I think we were in the 4.25 billion range.

Speaker Change: We have some higher launch and new facility costs, just because of the book business, increasing but offsetting that is some operational improvements at <unk>, while we touched on earlier so the net effect of those at the mid point. We were previously at 73, 5% the impact of those about 30 30 basis points.

Speaker Change: And then.

Speaker Change: The last piece again, I'm going to come back to the Mercedes Benz G wagon pricing the impact in 'twenty five as we ended two to 26 or 20 basis points alone.

Seetarama Kotagiri: So we are on track, and we are focused on that. So will we be obviously looking at some building blocks of the future? Yes, but that remains to be seen. I think we can give more color as we get towards the end of the year. Great, thank you so much. Our next question is from the line of Itay Michaeli with Citigroup. Please go ahead.

So apples to apples I would say, we're aligned with the midpoint of our range.

Speaker Change: Great. Thank you and maybe just.

Speaker Change: Keeping one have you seen any.

Speaker Change: Supply chain impacts and issues going on in that let's see right now.

Seetarama Kotagiri: Great things. Good morning, everybody. Just a couple of questions for me. First, just going back to the margin bridge this year, I just want to ask a question about the operational excellence activities. Just curious how much line of sight you have on those initiatives, how much you've already identified. And then kind of just remind us what you're seeing in terms of broader production stability and kind of what you're assuming for production volatility or stability for 2024. Good morning, Itay.

Speaker Change: Okay.

Speaker Change: Nothing material I haven't seen we haven't seen really anything material.

A lot of the industry disruptions, whether it was chips.

Speaker Change: More into what we would've seen historically for for Oems going down there is not a real.

Speaker Change: It's very different than it was 18 months ago Kristen.

Speaker Change: Okay, great. Thanks, I'll jump back in the queue.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Our next question is from the line of Rod Lache with Wolfe Research. Please go ahead.

Rod Lache: Good morning, everybody.

Rod Lache: I wanted to ask about just a couple earnings bridge questions. I believe your Adas business was 181 9 billion revenue in a few hundred million dollars loss, making in 2023 since your gross profit.

Seetarama Kotagiri: If you just look at the prepared comments, I talked about achieving 75 basis points this year, which we did. We have a good line of sight for achieving 75 basis points in 24 and 25. Typically, we have continuous improvement activities and on-top initiatives that we work through, or operational excellence initiatives, I should say, that we work through. They're very, very granular.

Rod Lache: Couldnt really at that point to offset the R&D spent in the business I think it's about two thirds of your Mega trend spending.

Rod Lache: Are you still expecting a das revenue of $3 billion in EBIT at around breakeven in 2024, and then corporate average margins in 'twenty five.

Speaker Change: Good morning Rod.

Seetarama Kotagiri: There are very defined streams of work that are championed by the executive team all the way, you know, into the divisions. So we feel pretty good about the visibility of those going forward. But again, at the beginning of the call, I made a few comments about, Given the volume volatility and whatever else is happening in terms of programs being pushed out and so on, we are not stopping there, right? We'll continue to look at it. Any dollar spent, does it provide value? And at what time?

Rod Lache: I think there are a couple of things I think when we talked about <unk>.

Speaker Change: One of the key things was being EBITDA neutral.

Speaker Change: In 2004.

Speaker Change: I think we are on track to get there.

Speaker Change: And we feel comfortable about it.

Speaker Change: At the.

Speaker Change: Sales for 2024, I think we are on track and we're still there.

Speaker Change: And as I mentioned, we are looking at the.

Profitability of.

Speaker Change: Sure.

Speaker Change: Adas.

Speaker Change: Overall as we look at that.

Speaker Change: Segmental that piece of the Mega trend.

Speaker Change: We feel comfortable.

Seetarama Kotagiri: And maybe it's not right now, and if it adds value in the future, we'll go back to it. But we're looking at all of these aspects, and we feel pretty comfortable, from a visibility perspective for the 75 basis points coming up, or adding to the bottom line in 24-25. That's 24-25 collectively, not each year.

Speaker Change: <unk> at the spend on the programs that we have unless the program mix changes and as you know we have to still launch the programs and worked through the stuff and if the revenue gets smaller.

Speaker Change: Based on volumes it might impact us.

Speaker Change: Otherwise I think we feel we are progressing.

Speaker Change: From the spend to revenue and towards the profitability.

Itay Michaeli: Right, right. Over a two year period. That's helpful.

Speaker Change: In the right way.

Speaker Change: Okay.

Speaker Change: <unk>.

Seetarama Kotagiri: Just as a quick follow-up on the Megaton's outlook for 2026, just curious what portion of the revenue outlook is already booked, and maybe broadly, Swami, if you could just comment on what you're seeing along the pace of ADAS bookings and penetration there. Yeah, I think I just mentioned a little bit a little while ago that looking at 2027, right, we were talking about 4.25 billion roughly. And I think we are on track to do that. That's what we talked about during our investor day. In the megatrend areas, we've talked about battery enclosures in addition to ADAS and powertrain. Again, looking at the 2027 timeframe, we were over 4.5 billion in powertrain electrification managed sales. I think we are still on track to that. Battery enclosures we talked in the range of 2 to 2.5 billion. Again, we are on track to that.

Speaker Change: Yes, I'm just thinking about the midpoint of your revenue and the midpoint of your margin guidance.

Speaker Change: <unk> is about $300 million of earnings growth this year in 2024 versus 23.

Speaker Change: And.

Speaker Change: I had thought that the the Aaas improvement alone I know you had about $70 million is the in year synergies and it seemed like there was a.

Speaker Change: A meaningful amount of improvement year over year, and eight ounce and.

If you get half of the 75 basis points of performance.

Speaker Change: This year.

Speaker Change: That's another $150 million.

Speaker Change: Is there something that I'm missing in terms of the headwinds.

Speaker Change: On a year over year basis that brings it back down to about $300 million of earnings growth in 'twenty four.

Yes, good morning, Rod I think your math, you're throwing it out as is in the ballpark for the our Adas business.

Speaker Change: Thank you you're bang on there.

Speaker Change: Couple of pieces just to consider as well is when you look big picture, our sales are flat year over year.

Speaker Change: The third time, I said I feel like a broken record, but our G wagon impact as our sales are up $620 million. So what we are seeing is some some volume weakness beyond that given the.

Speaker Change: Environment.

Speaker Change: Beyond that we also then have.

Seetarama Kotagiri: We have to keep in mind that if the volumes on certain programs change drastically, obviously, we'll have to come back and talk about it. But we are working through those. I feel pretty comfortable with the numbers we talked about in 2027. Louis, I don't know if you agree with that.

Speaker Change: We do have.

Speaker Change: <unk> inflationary headwinds and <unk>.

Speaker Change: And lower scrap pricing, which.

This impact is in the range of about 30 basis points.

Speaker Change: And then.

Speaker Change: And then we do have some.

Speaker Change: That's the positive offset is the is the operational excellence that swamy spoke about.

Speaker Change: And then and then the last piece really is what you referred to on the.

Speaker Change: On the Adas piece and some of the Megatrends as the sales growth. So net net that works out to your 300.

Seetarama Kotagiri: Yep, that's very helpful, thank you. And just to add, maybe for 2026, 90% of our sales are booked. Ninety, great. That's very helpful, thank you.

Okay.

Speaker Change: And then just lastly.

Speaker Change: It sounds like Youre not.

Speaker Change: Anticipating any recovery on the 30 basis points of higher input costs can you just give us a little bit of color because it seemed like.

Itay Michaeli: .., www.ArmintasSinkevicius.com. Our next question is from the line of Krista Friesen with CIBC. Please go ahead.

Speaker Change: You had some significant impact in 2021 2022, you kind of neutralized the headwind in 2023, but had not yet recovered.

Krista Friesen: Hi, thanks for taking my question. Just on here on the margin guide, so for 2026, 7 to 7.7. And then looking back to the investor day, the 2025 guide, I believe the top end was 7.8, so 2026 is about 10 bits lower at the top end. Can you just walk us through what led you to this?

The cost that you had absorbed prior to that and now it sounds like there is another round of material cost headwinds.

Speaker Change: Just on a very high level basis, how are you thinking about the recoveries for what you've absorbed in these.

Speaker Change: These additional headwinds.

Speaker Change: Yes.

Speaker Change: It's primarily not material related headwinds other than the scrap rates of scrap re prices every month and it's just a factor when you are selling your engineered scrap back into the dealers, but the primary driver of higher cost as the elevated inflation that we're seeing globally.

Pat McCann: And is it mostly the megatrends or a lower production environment? Morning Krista, the big, big picture when you look at the puts and takes and in 25 itself, we just look where we are today projecting for 25 and compared to last year, you know, we do have lower volume assumptions as we go through the plan, and we have some higher launch and new facility costs just because of the book business increasing, but offsetting that are some operational improvements. That's why we touched on that earlier.

Speaker Change: And it's driving higher labor rates Rod. So if you think about.

Speaker Change: Traditionally you would be in North America, whether you are U S or Canada, Germany, Austria are big regions you'd be operating pick a number say roughly 2% labor inflation on a year over year basis, we're seeing increases that are above that.

Pat McCann: So, the net effect of those at the midpoint, we were previously at 7.35%; the impact of those is about 30 basis points, and then the last piece, again, I'm going to come back to this Mercedes-Benz G-Wagon pricing, the impact in 25 and into 26 is 20 basis points alone on it. So, apples to apples, I would say we're in line with the midpoint of our range. Great, thank you. Maybe just a housekeeping one.

Speaker Change: I'd say in North America, So in Canada U S. We're seeing increases.

Speaker Change: Maybe a couple of points above that and in Europe, we're seeing bigger and bigger impact and is primarily driven by the higher energy costs that the the local residents are feeling so.

Speaker Change: There is embedded inflation through the the labor side the flip side to that is we do have assumed recoveries from our customers to offset those amounts were not taking it lightly but swamy said earlier the more important thing is how do we how do we become more efficient so that we're actually changing our fixed cost structure that.

Krista Friesen: Have you seen any sort of supply chain impact from any of the issues going on in the Red Sea right now? Nothing material. We haven't seen really anything material. A lot of the industry disruptions, whether it was chips, we're probably more into what we would have seen historically for OEMs going down. It's very different than it was 18 months ago. Okay, great. Thanks. I'll jump back in the queue.

Speaker Change: These labor impacts aren't as impactful.

Speaker Change: Magna overall as we go forward.

Speaker Change: Yes.

Speaker Change: Makes sense.

Speaker Change: For the clarity.

Speaker Change: Thanks Rod.

Speaker Change: As a reminder.

Speaker Change: Winder, if you'd like to register for a question. Please press the one followed by the four.

Speaker Change: Our next question is from the line of Brian Morrison with TD Securities. Please go ahead.

Brian Morrison: Thanks, Good morning, Pat I, just wanted to clarify from your perspective engineering cost and the increase or the duration has been extended from your prior outlook and then my second question is I know, it's not typical that you talk about your prior three year guidance, but you did reiterate your guidance for 2025 back in his latest November.

Rod Lache: Thank you. Our next question is from the line of Rod Lache with Wolf Research. Please go ahead.

Brian Morrison: Im wondering if you can provide us an update on what your outlook is for that or at least the cadence from $5. Seven this year to I guess, its seven and three 735% in 2026.

Seetarama Kotagiri: Good morning, everybody. I wanted to ask you just a couple of questions about the earnings bridge. I believe your ADAS business was 1.8 1.9 billion revenue and a few hundred million dollars in losses in 2023. Since your gross profit couldn't really, at that point, offset the R&D that's spent in the business. I think it's about two-thirds of your Megatrend spending. Are you still expecting 8x revenue of $3 billion and EBIT at around break even in 2024 and then corporate average margins in 2025? Good morning, Rod.

Pat McCann: Hey, Bryan good morning.

Bryan: Two questions. So on the first one being the the megatrend engineering spend so.

Speaker Change: We're projecting on average one 2 billion per year over our outlook period. That's in line with what we provided US an update in September. So it's really so last year's outlook. We had talked about the 900 range. We increased it to one to fully reflect the acquisition of <unk> in here. So no change in our engineering profile.

Speaker Change: When you talk about our 2025 margin from September.

Speaker Change: I took krista through.

Speaker Change: But the work so long story short.

Speaker Change: When you look at our 2025 numbers.

Seetarama Kotagiri: I think we have a couple of things. I think when we talked about being here, you know, one of the key things was being EBITDA neutral in 2024. I think we are on track to get there, and we feel comfortable about it. Looking at the.

Speaker Change: We do see some headwinds related to volumes.

Speaker Change: Some some launch costs and new facility costs, given some of the recent awards, but it's partially being offset.

Speaker Change: By operational improvements at Swamy covered in detail so the net of those.

Seetarama Kotagiri: Sales for 2024. I think we are on track. We're still there.

At our midpoint to 'twenty five we were $7 35, the impact of those three categories is about a 30 basis point negative impact and then lastly, we have.

Seetarama Kotagiri: And as I mentioned, we are looking at the profitability of AIDAS, you know, overall, as we look at that segment of that piece of the megatrend. We feel comfortable looking at the spend on the programs that we have unless the program mix changes. And, as you know, we have to still launch the programs and work through the stuff.

Speaker Change: Again, this G wagon pricing, which is about a 20 basis point headwind.

Speaker Change: So just just to be clear when we're talking about updating 25, we wanted to make sure we could incorporate the impact of a V. In the air and import incorporate the impact of the amortization, but I think we have a footnote that said that based on the assumptions that we had when we started the year right. We're right in the middle of our business plans and we're giving that information volunteered changed since then.

Rod Lache: And if the revenue gets smaller, only based on volumes, it might impact. Otherwise, I think we feel we are progressing from the spend to the revenue and towards profitability in the right way. OK. Yeah, I'm just thinking about the midpoint of your revenue and the midpoint of your margin guidance, which implies about $300 million of earnings growth this year in 2024 versus 2023. And I thought that the ADAS improvement alone, I know you had about 70 million in veneer synergies, and it seemed like there was... a meaningful amount of improvement year-over-year in ADAS, and if you get half of the 75 This year, that's another $150 million. Is there something that I'm missing in terms of the headwinds on a year-over-year basis that brings it back down to about $300 million of earnings growth in 2014? Good morning, Rod.

Speaker Change: And mix has changed.

Speaker Change: That's fair just looks like it's a mid six margin for 2025 is what you're implying I appreciate it. Thank you.

Speaker Change: Yes.

Speaker Change: Our next question is from the line of.

Speaker Change: Pardon me. Our next question is from the line of Colin Langan with Wells Fargo. Please go ahead.

Colin Langan: Oh, great. Thanks for taking my questions.

Colin Langan: Any color on your exposure to <unk>, obviously, there's some concerns there if something happened I mean, what kind of sales or earnings impact could you say.

Speaker Change: Morning, Collyn when you take a boat.

Speaker Change: The exposure obviously <unk>.

Speaker Change: A big customer for our assembly operations and.

Speaker Change: As far as our our exposure to them.

Speaker Change: We do disclose in our financial statements our exposure related to all new entrants.

Speaker Change: When I talked about exposure, it's basically related to <unk>.

Speaker Change: Working capital long term assets dedicated type assets and.

Yes.

Speaker Change: There's a statement the numbers aren't out, but it's going to be in the range that that gross number is probably in the range of about $600 million. The majority of that has disappeared.

Speaker Change: Got it any but if sales were to go away to there'd be some earnings drag should we should be thinking about it there's a risk there.

Speaker Change: It's a little bit tricky Collyn I don't want to bog you down in this call but.

Pat McCann: I think your math you're throwing out is in the ballpark for the R8S business, so I think you're bang on there. A couple of pieces just to consider as well are, when you look at the bigger picture, our sales are flat year over year. It's going to be the third time I say it, I feel like a broken record, but our G-Wagon impact is that our sales are up $620 million. So what we are seeing is some volume weakness beyond that, given the flat environment.

The contracts, we have with Shire, not only with <unk>, but all of the contracts there they are a little bit more complicated than you'd see in the normal.

Speaker Change: Industry, where it is.

Speaker Change: I know volume requirement Peel. These have more much more complex contracts, where you have fixed cost recoveries depending on.

Speaker Change: Fixed cost incurred and.

Speaker Change: And then assumptions on original volume projections versus actual so there is a true up mechanism.

Speaker Change: So it's not an easy answer.

Speaker Change: Okay.

Rod Lache: Beyond that, we also then have, we do have continued inflationary headwinds and lower scrap pricing, which has impacted us in the range of about 30 basis points. And then, And then we do have some, and that's the positive offset, is the operational excellence that Swami spoke about. And then the last piece really is what you referred to in the 8S pieces of the megatrends as sales grow. So net, net, that works out to your 300.

Speaker Change: That was a quick.

Speaker Change: So that's why you don't see CVA margins move around as revenues will increase or decrease.

Speaker Change: Like our other segments.

Speaker Change: Okay.

Speaker Change: Just a quick one equity income I think there's only $3 million in the quarter, but the guidance is.

Speaker Change: $121 50 for next year.

Speaker Change: What what was the unusual issue in Q4 and the confidence in getting back to those higher numbers.

Speaker Change: Yes, I think Q4, there was a I would say there was one was operational which was we had a mix issue within one joint venture between products that drove.

Speaker Change: So even though you don't see it but even though the revenue within the joint venture was consistent we had negative product mix and then you had margin negative headwinds on that.

Pat McCann: Okay, and then just lastly, it sounds like you're not anticipating any recovery on the 30 basis points of higher input costs. Can you just give us a little bit of color because it seemed like you had some significant impact in 2021 and 2022. You kind of neutralized the headwind in 2023 but had not yet recovered the cost that you had absorbed prior to that. And now it sounds like there's another round of material cost headwinds. So on a very high level basis, how are you thinking about the recoveries for what you've absorbed and these additional headwinds? They're primarily not material-related headwinds, other than the scrap, right?

Speaker Change: We also had some commercial items that we had expected to collect in the fourth quarter that had been pushed into 2024.

Speaker Change: And then the.

Speaker Change: The most significant piece of it or it was.

Speaker Change: When we did the <unk>, but when the joint venture partner data Finalization of all the deferred tax assets for U S. GAAP purposes, there was an adjustment to our final tax numbers.

Speaker Change: And began because equity income on an after tax basis that flows through.

Speaker Change: That line.

Speaker Change: Okay got it alright, thanks for taking my questions.

Speaker Change: Alright. Thanks.

Speaker Change: Our next question is from the line of Joseph Spak with UBS Securities. Please go ahead.

Joseph Spak: Thanks, Good morning, everyone just quickly back on the customer funded capex.

Pat McCann: So scrap prices go up and down every month, and it's just a factor when you're selling your engineered scrap back to the dealer. But the primary driver of higher costs is the elevated inflation that we're seeing globally, and it's driving higher labor rates, Rod. So if you think about, you know, traditionally, you'd be in.

Joseph Spak: Is it possible to sort of indicate what product line that is or is it across product lines and as some of that.

Joseph Spak: Associated revenue already considered in the 26 guidance.

Speaker Change: Yes, I think the associated.

Speaker Change #100: Revenue is included for sure.

Speaker Change #101: I don't think we can get into the specifics of the product line.

Speaker Change #102: Got it.

Stuart: It's Stuart.

Pat McCann: North America, whether you're the US or Canada, Germany, Austria, or big regions, you would be operating, pick a number, say roughly 2% labor inflation on a year-over-year basis. We're seeing increases that are above that. I would say in North America, so in Canada and the US, we're seeing increases. The flipside to that is we do have assumed recoveries from our customers to offset those amounts. We're not taking it lightly.

Stuart: And I would say yes.

Stuart: Okay.

Speaker Change #104: Maybe two.

Speaker Change #104: Hello on from some rods question before if we look at.

Speaker Change #104: Power and revision.

Speaker Change #104: If im looking at.

Speaker Change #104: The 24 to 26 like the incremental margins there are.

Speaker Change #104: Our significantly stronger, which I imagine is in part driven by the breakthrough in the active safety business, but is there anything else sort of driving that like our synergies maybe coming in maybe.

Speaker Change #104: Better than that $70 million that you sort of originally targeting or anything else driving the strong incrementals there.

Speaker Change #104: So.

Brian Morrison: But as Swami said earlier, the more important thing is how do we become more efficient so that we're actually changing our fixed cost structure so that these labor impacts aren't as impactful to Magna overall as we go forward. Yeah. The Bulletproof Executive, 2013. Thanks for the clarification. Thanks, everyone. As a reminder, if you would like to register for a question, please press 1, followed by 4. Our next question is from the line of Brian Morrison with TD Securities. Please go ahead.

Speaker Change #104: Part of it is the synergies.

Speaker Change #104: Talking about the $70 million run rate by end of.

Speaker Change #104: Carnify so.

Speaker Change #104: Seem to be a good talk to that so really hit 24 half of that run rate going forward. That's one of the other one is also the sale of seven new coming right in keeping the.

Speaker Change #104: R&D costs and maintaining spend constant.

Speaker Change #104: If you look at the trajectory that we've talked about going into 'twenty five 'twenty six.

Pat McCann: Thanks, good morning. Pat, I just want to clarify from a V&A perspective: your engineering costs, have they increased, or has the duration been extended from your prior outlook? And then my second question is, I know it's not typical that you talk about your prior three-year guidance, but you did reiterate your guidance for 2025 back in as late as November. I'm wondering if you can provide us an update on what your outlook is for that, or at least the cadence from 5.7 this year to, I guess it's 7.35 in 2026. Hey Brian, morning.

Speaker Change #104: That also contributes.

Speaker Change #104: To the margin expansion compared to where we were in 'twenty three.

Speaker Change #104: Okay.

Speaker Change #105: If I could.

Speaker Change #106: So the other thing to add to that is when Swami refers to the sales growth and we're starting to see that inflection point in the Mega trends in most of the Mega trends are in the PSV Group Swamy has also referring to on consolidated sales. So when you look at our equity income, we're seeing a benefit come through equity income and.

Speaker Change #106: Equity fund.

Speaker Change #106: Sales were seeing about a 15 basis point benefit just even out of equity income on its own.

Speaker Change #107: Okay, that's super helpful.

Speaker Change #107: Maybe just one more quick one if I'm if I'm not mistaken I think you did push out your mega trend breakeven.

Pat McCann: I think we have two questions here. So on the first one, being the megatrend engineering spend, we're projecting on average $1.2 billion per year over our Outlook period. That's in line with what we provided as an update in September. So it's really...

Speaker Change #107: By a year and I just want make sure is that basically solely related to some of the slower.

<unk> development, you've talked about or is there anything else going on there.

Speaker Change #107: So it's purely related to the.

Volume and program.

Pat McCann: So last year's Outlook, we talked about the $900 range. We increased it to $1.2 billion fully to reflect the acquisition of V&E. So no change in our engineering profile. When you talk about our 2025 margin from September, when I took Krista through the walk. So we're not, you know, long story short, when you look at our 2025 numbers, we do see some headwinds related to volumes and some launch costs and new facility costs, given some of the recent awards, but it's partially being offset by operational improvements that Swami covered in detail. So the net of those, if you look at our midpoint for 2025, we were 7.35. The impact of those three categories is about a 30 basis point negative impact.

Speaker Change #108: <unk> being pushed out Joseph nothing different I've got like I said again.

Speaker Change #109: We will continue to look at it from.

Speaker Change #109: From R&D and <unk> spend and all of that start to see.

Speaker Change #109: What opportunities we have to bring it back.

Speaker Change #110: Okay. Thank you very much.

Speaker Change #110: Our final question is from the line of Michael Glen with Raymond James. Please go ahead.

Michael Glen: Hello, Thanks for getting me in.

The $900 million of Mega trend spending.

Michael Glen: That sits as part of the one two.

Michael Glen: Are you able to give a kind of a rough breakdown of what those buckets consist stuff across the segments.

Michael Glen: Yeah.

Speaker Change #112: Good morning, Michael I think typically when we do that there is some.

Speaker Change #113: Call It cross synergies growing between whether it's Australia or were there some other aspects of it but predominantly it is in the electrification and the Adas area. It will be difficult to break it down exactly what those are there is some overlapping.

Brian Morrison: And then lastly, we have again this G-Wagon pricing, which is about a 20 basis point head. So just to be clear, when we're talking about updating 25, we wanted to make sure we could incorporate the impact of V&A or incorporate the impact of amortization. But I think we have a footnote that says, based on the assumptions that we had when we started the year, right? We were right in the middle of our business plans when we gave that information. Volumes have changed since then, and Michel Schoen. That's fair.

Speaker Change #113: Areas that reduce spend to keep the synergies where we need to.

Speaker Change #114: So okay.

Speaker Change #114: Michael just to be Crystal is the vast majority of it is in the <unk> segment.

Michael Glen: Okay and.

Michael Glen: How do we think about if you.

Michael Glen: Are you able to shut that level of spend like the $1 2 billion. If we're thinking about that are you able to turn that off pretty quickly.

Michael Glen: It depends on the projects.

Michael Glen: Product associated with.

Michael Glen: Engineering or efforts that are towards the launch of aortic program.

Michael Glen: We have to be cautious and we work with the customers to see how we can work through it and again. The one two is the growth spend at the end of the day right. So some of it will be recovered on awarded programs and we have to.

Colin Langan: It just looks like it's a mid-six percent margin for 2025, is what you're implying. I appreciate it. Our next question is from the line of, Pardon me. Our next question is from the line of Colin Langan with Wells Fargo. Please go ahead.

Michael Glen: Make sure we keep the efforts going.

Michael Glen: On the future like if youre looking at a specific project out three or four years.

Pat McCann: Oh, great. Thanks for taking my questions. Any color on your exposure to Fisker?

There is not a specified program associated with it then obviously, we can turn that off or defer it for the future.

Colin Langan: Obviously, there are some, you know, concerns there. If something happened, I mean, what kind of sales or earnings impact could you see? Morning, Colin.

Michael Glen: Yes.

Speaker Change #115: And just one more.

Speaker Change #115: So if we think of the history of Mega trend spending.

Speaker Change #115: How do we and.

Pat McCann: When you think about the exposure, obviously Fiskars is a big customer for assembly operations. You know, as far as our exposure to them is concerned, we do disclose in our financial statements our exposure related to all new entrants. And when I talk about exposure, it's basically related to, you know, working capital, long-term assets, and dedicated type assets.

Speaker Change #115: In terms of what we've seen from the results.

Speaker Change #115: What what's the takeaway on that we should have with respect to return on invested capital with six investments up till now because it just it doesn't.

Speaker Change #115: Look good from what we've seen so far and I'm just looking for some commentary that works against that in terms of we're not seeing what's taking place beneath the surface or something like that.

Pat McCann: And the numbers aren't out, but it's going to be in the range of, that gross number is probably in the range of about $600 million. The majority of that is fiscal. But if sales were to go away too, there'd be some earnings dragged too. We should be thinking about if there's a risk there. It's a little bit tricky, Colin.

Speaker Change #115: Yes, we have talked about this $900 million for a few years now right.

Speaker Change #115: They are all a.

Speaker Change #115: Part of the Mega trend spend for programs that we have won and are launching.

Speaker Change #115: There are some which are actually for the evolution of the product line going into the future. So we don't have a melting ice cube. This is a long term view of how to keep stability in the business as the industry is evolving.

Pat McCann: I don't want to bog you down on this call, but the contracts we have with Steyr, not only with Fisker, but all the contracts, they're a little bit more complicated than you'd see in the normal industry, where it's a no-volume requirement PO. These have much more complex contracts, where you have fixed-cost recoveries, depending on... Fixed Costs Incurred and Assumptions on Original Volume Projections vs. Actuals. So there is a true-up mechanism. So it's not an easy answer. Okay, that was a quick... Sirs.

Speaker Change #115: How do we go up market is just.

Speaker Change #115: As we get a project, we look at what programs and what platforms reach customers what is the market size.

Speaker Change #115: And what is the right to win.

Speaker Change #115: Those are some of the questions we answered before.

Speaker Change #115: <unk>.

Speaker Change #115: We started investing on a project.

Speaker Change #115: The one way to measure it is.

Speaker Change #115: The program ramps that we are getting like we talked about the mega trends.

Colin Langan: That's why you don't see CBA's margins move around as revenues increase or decrease, like our other, Okay. Just a quick one. Equity income, I think it was only $3 million in the quarter, but the guidance is $120 million, $150 million for next year. What was the unusual issue in Q4 and the confidence in getting back to those higher numbers? Yeah, I think Q4 there was a, I would say there was, One was operational, which was we had a mix issue within one joint venture between products that drove.

Speaker Change #115: Growing in revenue from 22.

Speaker Change #115: 200 million to 2027.

Speaker Change #115: And as I mentioned in my previous comments.

Speaker Change #115: That we are on track for Aspira impactful electrification managed sales and on track.

Speaker Change #115: For battery and closures.

Speaker Change #115: Some measure of the return we're getting.

Speaker Change #115: And also getting the mix that we need that means the.

Speaker Change #115: Line is evolving as the industry and.

Speaker Change #115: The future is evolving.

Colin Langan: So even though you don't see it, but even though the revenue within the joint venture was consistent, we had a negative product mix, and then you had margin negative headwinds on that. We also had some commercial items that we had expected to collect in the fourth quarter that had been pushed into 2024. And then the most significant piece of it was when the joint venture partner did a finalization of all the deferred tax assets for U.S. GAAP purposes, there was an adjustment to our final tax numbers. And because equity income is on an after-tax basis, that flows through that line. Okay, I got it. Thanks for taking my question. All right, bye. Our next question is from the line of Joseph Spack with UBS Securities. Please go ahead.

Speaker Change #115: So that's the discipline, we have and we feel pretty good how we're going about it and like I said, we continue to look at it as market conditions change.

Speaker Change #117: Okay. Thank you for taking the questions.

Speaker Change #116: Thanks, Michael.

Speaker Change #118: So thanks, everyone for listening in today Im pleased with the progress we made in 2023.

Speaker Change #118: And want to reassure we remained highly focused on executing our strategy and meeting our mid and long term outlook.

Speaker Change #118: And we are confident that we can achieve them. Thank you and have a great day.

Speaker Change #118: Okay.

Speaker Change #118: Okay.

Speaker Change #118: Yeah.

Speaker Change #118: Tom.

Speaker Change #118: Yes.

Speaker Change #118: [music].

Speaker Change #118: Okay.

Speaker Change #118: Okay.

Joseph Spack: Thanks. Good morning, everyone. Just quickly back on the customer-funded CapEx. Is it possible to sort of indicate what product line that is? Or is it across product lines?

[music].

Speaker Change #118: Sure.

Speaker Change #118: Okay.

Speaker Change #118: [music].

Speaker Change #118: Okay.

Speaker Change #118:

Speaker Change #118: Sure.

Speaker Change #118: Okay.

Speaker Change #118: Okay.

Speaker Change #118: [music].

Seetarama Kotagiri: And is some of that associated revenue already considered in the 26, Yeah, I think the associated revenue is included, for sure. I don't think we can get into the specifics of the product line. Okay.

Speaker Change #118: Yes.

Okay.

Speaker Change #118: Okay.

Speaker Change #118: Okay.

Speaker Change #118: [music].

Speaker Change #118: Alright.

Speaker Change #118: [music].

Joseph Spack: It's towards electrification, I would say. Okay, maybe to follow on from some of Rod's questions before, if we look at power and vision, and if I'm looking at, you know, the 24 to 26, like the incremental margins, they are significantly stronger, which I imagine is in part driven by, you know, the breakthrough and the active safety business. But is there anything else sort of driving that?

Speaker Change #118: Thanks.

Speaker Change #118: [music].

Speaker Change #118: Okay.

Speaker Change #118: Yes.

Speaker Change #118: [music] per unit.

Speaker Change #118: Okay.

Speaker Change #118: [music].

Speaker Change #118: Yes.

Speaker Change #118: Okay.

Pat McCann: Like our synergy is maybe coming in maybe better than that 70 million that you sort of originally targeting or anything else sort of driving the strong incrementals? The Bulletproof Executive 2013, So just so I Part of it is the synergies, but I, you know, talked about 70 million run rate by the end of 25. So it seems to be a good task to that. So we'll hit 24, half of that run rate going forward. That's one of the problems.

Speaker Change #118: [music].

Seetarama Kotagiri: The other one is also the sales revenue coming, right, and keeping the R&D costs and engineering spend constant. If you look at the trajectory that we talked about going into 25, 26, that also contributes. You know, the margin of expansion compared to where we were in 23. Okay. If I could, another thing to add to that is, when SWAMI refers to the sales group, and we're starting to see that inflection point in the megatrends, and most of the megatrends are in the P&V group, SWAMI is also referring to unconsolidated sales, so when you look at our equity income, we're seeing a benefit come through equity income, and as equity income goes up in those sales, we Okay, that's super helpful. Maybe just one more quick question, and if I'm not mistaken, I think you did push out your megatrend break even by a year, and I just wanna make sure is that basically solely related to some of the slower EV development you've talked about? Or is there something else going on here?

Joseph Spack: Oh, it's purely related to the volume and programs being pushed out. Joseph, nothing different, and like I said, again... We will continue to look at it from the R&D and spend and all that stuff to see what opportunities we have to bring it back. Okay, thank you very much. The Ultimate Parody Site! Our final question is from the line of Michael Glenn with Raymond James. Please go ahead.

Speaker Change #118: [music].

Michael Glen: Oh, thanks for getting me in. The 900 million dollars of megatrend spending that sits as part of the 1.2. Are you able to give kind of a rough breakdown of what those buckets consist of across the segment? Yeah. Good morning, Michael. I think typically when we do that, there is some, Transcription by Trans-Expert at Fiverr.com areas that we do spend to keep the synergies where we are. So, okay. Michael is to be consoled.

Seetarama Kotagiri: The vast majority of it is, segment. Okay, and how do we think about, if you like, are you able to shut that level of spend down to the 1.2 billion if we're thinking about that? Are you able to turn that off pretty quickly?

Seetarama Kotagiri: It depends on the project, the part associated with the engineering or efforts that are towards the launch of an awarded program. We have to be cautious, and we work with the customers to see how we can work through it. And again, the 1.2 is the gross spend at the end of the day, right? So some of it will be recovered on awarded programs, and we have to. Thanks for watching. If there is not a specified program associated with it, then obviously, we can turn that off or defer it to the future.

Seetarama Kotagiri: And just one more. So if we think of the history of megatrend spending, how do we, and in terms of what we've seen from the results, like what, what, what's the takeaway on that we should have with respect to return on invested capital with these investments up till now? Because it just, it doesn't look good from what we've seen so far.

Seetarama Kotagiri: I'm just looking for some commentary that works against that in terms of us not seeing what's taking place beneath the surface or something like that. Yeah, we've talked about this 900 million for a few years now, right? And they're all a part of the megatrend spent on programs that we have won and are launching. And there are some which are actually for the evolution of the product line going into the future. So we don't have an melting ice cube.

Seetarama Kotagiri: This is a long-term view of how to keep stability in the business as the industry is evolving. How we go about it is, just as we get a project, we look at what programs and what platforms, which customers, what the market size is, and what our right to win is. Those are some of the questions we answer before we start investing in a project. The one way to measure it is...

Seetarama Kotagiri: The program wins that we are getting, like we talked about the megatrends, you know, going in revenue from 22 in a few hundred million to 2027. Right. And as I mentioned in my previous comment, we're on track for ADAS. We're on track for electrification managed sales, and on track for battery enclosures. So that's a measure of the return we are getting and also getting the mix that we need. That means the product line is evolving as the industry and, you know, the car of the future are evolving. So that's the discipline we have.

Seetarama Kotagiri: And we feel pretty good about how we're going about it. And like I said, we continue to look at it as market conditions change. Okay, thank you for taking the question. Thanks, Michael.

Louis B. Tonelli: So thank you everyone for listening in today. I'm pleased with the progress we made in 2023 and want to reassure you that we remain highly focused on executing our strategy and meeting our mid and long-term outlook. And we are confident that we can achieve them. Thank you.

Operator: Please see the complete disclaimer at https://sites.google.com or at www.google.com, BF-WATCH TV 2021............ ................ The Ultimate Parody Site! Greetings and welcome to the Magna International Q4 and year-end 2023 results and 2024 Outlook conference call. During the presentation, all participants will be in a listen-only mode.

Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. Should you require operator assistance at any time, please press star 0.

Louis B. Tonelli: As a reminder, this conference is being recorded today, Friday, February 9, 2024. I would now like to turn the call over to Louis Tonelli, Vice President, Investor Relations. Thanks. Hello, everyone.

Speaker Change #118: [music].

Louis B. Tonelli: And welcome to our conference call covering our 2023 results and our 2024 financial outlook. Joining me today are Swami Kotagiri and Pat McCann. Yesterday, our board of directors met and approved our financial results for the fourth quarter of 2023, as well as our 2024 financial outlook. We issued a press release this morning outlining both of these. 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 in the investor relations section of our website at magna.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.

Louis B. Tonelli: Please refer to today's press release for a complete description of our Safe Harbor. Please also refer to the reminder slide included in our presentation that relates to our commentary today. This morning, we will cover our 2023 highlights, as well as our Q4 results. We will then provide our 24-hour outlook, and lastly, run through our financial strategy. And with that, I'll pass it over to Swami. Thank you, Louis. Good morning, everyone.

Seetarama Kotagiri: I appreciate you joining our call today, and let's jump right in. Overall, I was pleased with our 2023 operating performance, including good launch execution that helped us to continue to drive organic sales growth over market and record sales of $42.8 billion. Great efforts at all levels to offset inflationary pressures and significant traction in removing costs and improving efficiencies across the company. We ended the year with solid Q4 results, considering we were slightly hampered by a couple of discrete items relative to our expectations. Pat will cover the rest.

Seetarama Kotagiri: Our sales of $10.5 billion in the fourth quarter of 2023 were up 9% year-over-year, despite the UAW strikes that reduced sales by $275 million in the quarter and contributed to a negative vehicle production mix for us relative to the comparable period in 2022. Adjusted EBIT increased 52% to $558 million in Q4, and EBIT margin increased 150 basis points to 5.3%. Adjusted EBIT margin ended the year at 5.2%, up 70 basis points year-over-year and in the middle of the 5.1 to 5.4% range we guided to in November of last year.

Speaker Change #118: [music].

Seetarama Kotagiri: Our adjusted EPS for the quarter was up 41% to $1.33 and ended the year at 5.49. And free cash flow in Q4 was $472 million, up $132 million relative to Q4 last year. Turning to key accomplishments in 2023, we executed on a number of short and midterm operational excellence activities that contributed about 75 basis points to margin expansion this past year and is expected to contribute a further 75 basis points combined over the next two years. Our customers continue to recognize our efforts in operational excellence and innovation. Last year, we received 107 customer awards in recognition of quality and operational performance.

Seetarama Kotagiri: One reason we continue to win business. And in 2023, be committed to achieve net zero emissions by 2050. Operational excellence is enabled by our ongoing focus on people development. This past year, we launched our operational management accelerator program aimed at identifying and cultivating individuals within Magna to become future leaders in our division. For the second year in a row, Magna has been named one of the world's most ethical companies.

Speaker Change #119: Greetings and welcome to the Magna International Q4, and year end 2023 results and 2024 outlook conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.

Seetarama Kotagiri: And I'm proud that Magna received 16 leading employer recognitions this past year, including Fortunes, the world's most admired company, and Forbes Best Employers, both for the seventh consecutive year. With respect to sales growth, we once again outgrew our markets in 2023. We were awarded about $12 billion in new business, which will contribute to further sales growth above market as these programs launch in the future. And we are on track with integration and synergies for the V&A acquisition. Lastly, our commitment to innovation has helped us win business in core areas, including advanced high-volume front camera modules with a European-based global OEM, battery enclosures with four global OEMs, and E-Drive Systems with a European-based and North American-based global OEM. With that, I will pass it over to Pat to cover our financials in more detail. Thanks, WAMI, and good morning, everyone.

Speaker Change #119: Should you require operator assistance at any time. Please press star Zero as a reminder, this conference is being recorded today Friday February 19, 2024, I would now like to turn the call over to Louis Tonelli, Vice President Investor Relations.

Louis B. Tonelli: Thanks, Hello, everyone and welcome to our conference call covering our 2023 results and our 2024 outlook joining.

Louis B. Tonelli: Joining me today are swamy quarter, Gary and Pat Mccann.

Louis B. Tonelli: Yesterday, our board of directors met and approved our financial results for the fourth quarter of 2023, as well as our 2024 financial outlook.

Louis B. Tonelli: We issued a press release this morning outlining both of these.

Louis B. Tonelli: 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 in the Investor Relations section of our website at Magnum Dot com.

Louis B. Tonelli: 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.

Pat McCann: I'll start with a review of our results. As Swamy indicated, we were pleased with our 2023 operating results. Overall, global light vehicle production increased 8% in 2023, or 9% weighted for our geographic sales. Our consolidated sales rose 13% year over year.

Louis B. Tonelli: Such statements involve certain risks assumptions and uncertainties, which may cause the company's actual or future results and performance to be.

Louis B. Tonelli: Materially different from those expressed or implied in these statements.

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

Louis B. Tonelli: Please also refer to the reminder, slides included in our presentation that relates to our commentary today.

Pat McCann: On an organic basis, our sales increased 11%, driving a 2% weighted growth over market for the year, despite the negative impact of the UAW strikes in the third and fourth quarters. Our adjusted EBIT margin improved 70 basis points to 5.2%, reflecting earnings on higher sales, including improved margins due to the impacts of operational excellence, cost initiatives, productivity improvements, and lower costs at previously underperforming facilities. These were partially offset by higher costs associated with new assembly business and the negative impact of the UAW strike.

Speaker Change #120: This morning, we will cover our 2023 highlights as well as our Q4 results.

Speaker Change #120: I will then provide our 24 outlook and lastly run through our financial strategy and with that I'll pass it over to Swamy.

Swamy Quarter: Thank you Louis good morning to everyone.

Swamy Quarter: Appreciate you joining our call today, and let's jump right in.

Swamy Quarter: Overall I was pleased with our 2023 operating performance, including good launch execution that helped us to continue to drive organic sales growth over market and record sales of $42 8 billion.

Swamy Quarter: Great efforts at all levels to offset inflationary pressures and significant traction and removing costs and improving efficiencies across the company.

Pat McCann: The Net Unfavorable Impact of Commercial Items, lower amortization related to the initial value of public company security, higher launch costs, and the impact of acquisitions net of divestiture. Nevertheless, mainly as a result of our sales growth and margin expansion, Adjusted EPS increased 29% to $5.49. For the fourth quarter, sales increased 9% to $10.5 billion, adjusted EBIT improved 150 basis points to 5.3%, and adjusted EPS rose 41% to $1.33. I'll take you through some of the details.

Swamy Quarter: We ended the year with solid Q4 results considering we were slightly hampered by a couple of discrete items relative to our expectations path will cover those.

Swamy Quarter: Our sales of $10 5 billion in the fourth quarter of 2023 were up 9% year over year. Despite the UAW strikes that reduced sales by $275 million in the quarter and contributed to negative vehicle production mix for us.

Swamy Quarter: Relative to the comparable period in 2022.

Swamy Quarter: Adjusted EBIT increased 52% to $5 $58 million in Q4, and EBIT margin increased 150 basis points to five 3%.

Pat McCann: North American, European, and Chinese light vehicle production were up 5%, 7%, and 12%, respectively, resulting in an overall 7% increase in global production. Breaking down North American production further, while overall production increased 5%, production by our Detroit-based customers, which were targeted in the UAW strikes, actually declined 11% in the fourth quarter. Our consolidated sales were $10.5 billion, up 9% over the fourth quarter of 2022. The sales increase was primarily due to higher global vehicle production, the launch of new programs, the acquisition of Vioneer Active Safety, net of the divestiture of our manual transmission plant in Europe, and the net strengthening of currencies against the U.S. dollar. These are partially offset by lower complete vehicle sales, mainly due to a program changeover in Graz, Austria and an estimated $275 million impact from the UAW strikes in North America. On an organic basis, our sales increased 4% year over year, or 7% excluding complete vehicles. This compares to a 6% increase in weighted global production. Once again, lower production, largely driven by the UAW strike, unfavorably impacted our year-over-year sales growth in the fourth quarter...

Swamy Quarter: Adjusted EBIT margin ended the year at five 2% up 70 basis points year over year and in the middle of the five one to five 4% range, we guided to in November of last year.

Swamy Quarter: Our adjusted EPS for the quarter was up 41% to $1 33 and ended the year at $5 49.

Swamy Quarter: And free cash flow in Q4 was $472 million up.

Swamy Quarter: $132 million relative to Q4 last year.

Speaker Change #122: Turning to key accomplishments in 2023.

Speaker Change #122: We executed on a number of short and mid term operational excellence activities, which contributed about 75 basis points to margin expansion. This past year and is expected to contribute a further 75 basis points combined over the next two years.

Speaker Change #122: Our customers continue to recognize our efforts in operational excellence and innovation.

Speaker Change #122: Last year, we received 107 customer awards and recognition of quality and operational performance. One reason, we continue to win business.

Speaker Change #122: And in 2023 be committed to achieve net zero emissions by 2050.

Speaker Change #122: Operational excellence is enabled by our ongoing focus on people development.

Speaker Change #122: This past year, we launched our operational management accelerator program aimed at identifying and cultivating individuals within magna to become future leaders in our divisions.

Pat McCann: Adjusted EBIT was $558 million, and adjusted EBIT margin was 5.3%, compared to 3.8% in Q4 of 2022. Our continued focus on operational excellence and performance on cost initiatives, in addition to higher volumes, is driving strong earnings on higher sales. This was despite the negative impacts of a program changeover in complete vehicles and the UAW strikes in North America, which we estimated cost us about 50 basis points. The net effect of these generated 30 basis points of net improvement. Adjusted EBIT margin was also positively impacted by about 80 basis points of net operational items, which include productivity and efficiency improvements at certain facilities and higher tooling contributions. Non-recurring items, which together had a net favorable impact of about 30 basis points and about 20 basis points related to lower net input costs. EBIT margin was negatively impacted by lower equity income, which reduced it by about 10 basis points.

Speaker Change #122: For the second year in a row Magna has been named one of the world's most ethical companies.

Speaker Change #122: And I am proud that Magna received 16, leading employer recognition this past year.

Speaker Change #122: Including Fortune's world's most admired companies and Forbes best employers.

Speaker Change #122: For the seventh consecutive year.

Speaker Change #122: With respect to sales growth, we once again outgrew our markets in 2023.

Speaker Change #122: We were awarded about $12 billion in new business, which will contribute to further sales growth above market as these programs launch in the future.

Speaker Change #122: And we are on track with integration and synergies from the <unk> acquisition.

Speaker Change #122: Lastly, our commitment to innovation has helped us win business and core areas, including advanced high volume front camera modules with a European based global OEM.

Speaker Change #122: Battery enclosures with four global Oems and E drive systems with a European based and North American based global OEM.

Speaker Change #122: With that I will pass it over to Pat to cover our financials in more detail.

Pat McCann: Earnings on higher unconsolidated sales were more than offset by the finalization of year-end tax balances and some negative product mix in 1GV. In addition to these items, relative to our expectations, there was some re-timing of expected customer recoveries into 2024. As Swami alluded to earlier, relative to our expectations for the fourth quarter, the lower equity income, together with a foreign exchange loss on the devaluation of the Argentinian peso, cost us about $35 million, or about $0.11 per share. Now, a review of our cash flows and investment activity. In the fourth quarter of 2023, we generated $660 million in cash from operations before changes in working capital, up $127 million, or 24% from 2022. We also generated $918 million in working capital for a total cash from operations of $1.6 billion for the quarter. Investment activities in the quarter included $944 million for fixed assets, largely to support program awards, and $189 million for investments, other assets, and entanglement. Overall, we generated free cash flow of $472 million in Q4.

Pat: Thanks, Swamy and good morning, everyone I'll start with a review of our results.

Pat: As Swamy indicated we were pleased with our 2023 operating results overall global light vehicle production increased 8% in 2023 or 9% weighted for our geographic sales.

Pat: Our consolidated sales rose, 13% year over year on an organic basis, our sales increased 11% driving at 2% weighted growth over market for the year. Despite the negative impact of the UAW strikes in the third and fourth quarters.

Pat: Our adjusted EBIT margin improved 70 basis points to five 2%, reflecting earnings on higher sales, including improved margins due to the impacts of operational excellence cost initiatives productivity improvements and lower costs at previously underperforming facilities.

Pat: These were partially offset by higher costs associated with new Assembly business the negative impact of the UAW strikes the net unfavorable impact of commercial items.

Pat: Lower amortization related to the initial value of public company Securities.

Pat: Higher launch costs and the impact of acquisitions net of divestitures.

Pat: Mainly as a result of our sales growth and margin expansion adjusted EPS increased 29% to $5 49.

Pat: Yes.

Pat: For the fourth quarter sales increased 9% to $10 5 billion adjusted EBIT improved 150 basis points to five 3% and adjusted EPS rose, 41% to $1 33.

Speaker Change #124: I'll take you through some of the details.

Pat McCann: And we also paid $133 million in dividends in the quarter. Growing our dividend remains an element of our financial strategy. And yesterday, our board approved an increase in our quarterly dividends to 47.5 cents per share, our 14th consecutive year of increased fourth quarter dividends, reflecting the board and management's collective confidence in the outlook for our business. We have increased our dividend per share at an average annual growth rate of 11% going back to 2010. And now, I'll pass it back to Swami to cover our...

Speaker Change #124: North.

Speaker Change #124: Ericksen European and Chinese light vehicle production were up 5%, 7% and 12% respectively, resulting in an overall, 7% increase in global production.

Speaker Change #124: Breaking down North American production further while overall production increased 5% production by our Detroit based customers, which were targeted and the UAW strikes actually declined 11% in the fourth quarter.

Speaker Change #124: Our consolidated sales were $10 5 billion up 9% over the fourth quarter of 2022.

Speaker Change #124: The sales increase was primarily due to the higher global vehicle production the launch of new programs. The acquisition of <unk> active safety net of the divestiture of our manual transmission plant in Europe, and the net strengthening of currencies against the U S dollar.

Seetarama Kotagiri: Thanks, Pat. Over the past three years, we have been highlighting our go forward strategy to propel our business into the future. The key aspects of our strategy are unchanged.

Speaker Change #124: These were partially offset by lower complete vehicle sales, mainly due to a program changeover in Graz, Austria, and an estimated $275 million impact from the UAW strikes in North America.

Seetarama Kotagiri: Despite continuing industry challenges, we are making significant progress in our strategy. This progress is reflected in our outlook, and we expect to realize further benefits beyond our outlook period. As always, our outlook reflects both tailwinds and headwinds.

On an organic basis, our sales increased 4% year over year or 7%, excluding complete vehicles disc.

Speaker Change #124: This compares to a 6% increase in weighted global production.

Seetarama Kotagiri: In terms of Tailwinds, we are launching content on a number of new programs, which is contributing to sales growth. Our Megatrend business is expected to continue to grow significantly, which we anticipate will drive profitability as we leverage the sales growth. And we expect further traction in our operational excellence activity, contributing to Additional Margin Expansion. In terms of headwinds included in our outlook, we anticipate further net input cost increases substantially related to continued elevated inflation driving higher labor rates, and scrap prices are expected to continue to decline.

Speaker Change #124: Once again negative production mix, largely driven by the UAW strikes unfavorable unfavorably impacted our year over year sales growth in the fourth quarter.

Speaker Change #124: Sure.

Speaker Change #124: Adjusted EBIT was $558 million and adjusted EBIT margin was five 3% compared to three 8% in Q4 of 2022.

Speaker Change #124: Our continued focus on operational excellence and performance on cost initiatives. In addition to higher volumes is driving strong earnings on higher sales.

Speaker Change #124: This was despite the negative impacts of a program changeover in complete vehicles and the UAW strikes in North America, which we estimated cost us about 50 basis points.

Speaker Change #124: The net effect of these generated 30 basis points of net improvement.

Seetarama Kotagiri: The industry appears to be moving from supply constraints to demand constraints as macro challenges persist, and expected EV penetration rates have been pushed out, which is having some negative impact on our anticipated short and midterm sales growth. So how does all this translate into our key financial metrics? We expect continued solid organic sales growth over the market in the range of 3 to 5% on average per year over our outlook period. We anticipate margin expansion of 180 basis points or more from 2023 to 2026. Our engineering investments in megatrend areas should average about $1.2 billion annually before customer recovery. This includes about $300 million related to the acquisition of V&A Air Active Safety.

Speaker Change #124: Adjusted EBIT margin was also positively impacted by about 80 basis points of net operational items, which include productivity and efficiency improvements at certain facilities and higher tooling contribution.

Speaker Change #124: Nonrecurring items, which together had a net favorable impact of about 30 basis points and about 20 basis points related to lower net input costs.

EBIT margin was negatively impacted by lower equity income, which reduced margin by about 10 basis points.

Speaker Change #124: Earnings on higher on consolidated sales were more than offset by the finalization of year end tax balances and some negative product mix and one JV.

Speaker Change #124: In addition to these items relative to our expectations. There were some re timing of expected customer recoveries into 2024.

Speaker Change #124: As swamy alluded to earlier relative to our expectations for the fourth quarter, the lower equity income together with a foreign exchange loss on the valuation devaluation of the Argentinean peso cost us about $35 million or about <unk> 11 per share.

Seetarama Kotagiri: We expect a modest decline in Megatrend engineering spend in 2026 relative to 2024 and 2025 levels, while sales are increasing. Capital spending is expected to decline beyond this year, and CapEx to sales is on a path to return to more normal levels, as we have highlighted previously. We expect our free cash flow generation to increase each year over our outlook period as sales continue to grow, margins expand, and capex to sales normalize. We anticipate over $2 billion in free cash flow by 2026.

Speaker Change #124: Turning to a review of our cash flows and investment activities.

Speaker Change #124: In the fourth quarter of 2023, we generated $660 million in cash from operations before changes in working capital up $127 million or 24% from 2022, we also generated $918 million in working capital for total cash from operations of $1 6 billion for the quarter.

Speaker Change #124: Investment activities in the quarter included $944 million for fixed assets largely to support program awards and $189 million for investments other assets and intangibles.

Seetarama Kotagiri: Last year, we highlighted our significant expected sales increases in megatrend areas and the fact that our engineering spend in absolute dollars was largely unchanged through our outlook. While our mid-term sales in mega-trend areas have been somewhat impacted by lower expected volumes, particularly related to EVs, the trajectory of our sales growth in these areas remains considerable, growing by over $4 billion in the next three years. Lower expected megatrend profits on the reduced sales are the most significant factor, shifting our profitability inflection point from 2025 to 2026. While our outlook reflects a modest 2025 loss here, we continue to work to reduce or eliminate this loss.

Speaker Change #124: Overall, we generated free cash flow of $472 million in Q4.

Speaker Change #124: And we also paid a 133 million in dividends in the quarter.

Speaker Change #124: Growing our dividend remains at element of our financial strategy.

Speaker Change #124: And yesterday, our board approved an increase in our quarterly dividend to <unk> 47, five per share our 14th consecutive year of increased fourth quarter dividends, reflecting the board and managements collective confidence in the outlook for our business we.

Speaker Change #124: We have increased our dividend per share at an average annual growth rate of 11% going back to 2010.

Speaker Change #124: And now I'll pass it back to Swamy to cover our outlook.

Swamy Quarter: Thanks Pat.

Swamy Quarter: Over the past three years, we have been highlighting our go forward strategy to propel our business into the future.

Swamy Quarter: The key aspects of our strategy are unchanged, despite continuing industry challenges and we are making significant progress in our strategy.

Seetarama Kotagiri: Regardless, we expect significant improvement in our results in these areas over our outlook period and solid profitability by 2026. Next, let me cover our Consolidated Outlook. In terms of key assumptions... Our outlook reflects essentially no growth in weighted global light vehicle production and only modest growth of about 1% on average over the 23 to 26 period. In other words, it's our content growth that is driving our organic sales. We assume exchange rates in our outlook will approximate recent rates. Net net, the impact of currency on our outlook is expected to be negligible.

Swamy Quarter: This progress is reflected in our outlook and we expect to realize further benefits beyond our outlook Peter.

Swamy Quarter: As always our outlook reflects both tailwind and headwinds.

Swamy Quarter: In terms of tailwind we are launching content on a number of new programs.

Swamy Quarter: Which is contributing to sales growth.

Swamy Quarter: Our megatrend business is expected to continue to grow significantly rich.

Swamy Quarter: Which we anticipate will drive profitability as we leverage the sales growth.

Swamy Quarter: And we expect further traction in our operational excellence activities contributing to additional margin expansion.

In terms of headwinds included in our outlook.

Seetarama Kotagiri: We expect weighted sales growth over the market between 3% and 5% over our outlook period. From 23 to 24, sales growth substantially reflects the launch of new and replacement programs, a higher amount of directed content on the new Mercedes G-Class assembly program, and the acquisition of Viennier active safety. These are partially offset by lower sales in the remainder of our complete vehicle business, largely as a result of the end of production of certain programs and a higher proportion of vehicles assembled whose sales we account for on a value-added basis.

Swamy Quarter: We anticipate further net input cost increases substantially related to continued elevated inflation driving higher labor rates and scrap prices are expected to continue to decline.

The industry appears to be moving from supply constrained demand constrained as macro challenges persist.

Swamy Quarter: And expected EV penetration rates have been pushed out which is having some negative impact on our anticipated short and mid term sales growth.

Speaker Change #125: So how does all of this translate in our key financial metrics.

Speaker Change #125: We expect continued solid organic sales growth over market in the range of 3% to 5% on average per year over our outlook period.

Speaker Change #125: We anticipate margin expansion of 180 basis points or more from 2023 through 2026.

Seetarama Kotagiri: From 2024 to 2026, the most significant contributors to sales growth are the launch of new and replacement programs and increased Directed content sales on the Mercedes G-Class as volumes run. In addition, we expect an 8 to 9% compounded sales growth from unconsolidated JVs over our outlook period, including from our LG JV for electrified components and systems. Our eDrive systems JV in China and our seating JV. We expect another step up in consolidated margins in 2024 to a range of 5.4 to 6%. Our 2024 margin is expected to benefit from contribution on higher sales and ongoing operational excellence activity. Partially offsetting these are higher launch and new facility costs associated with new programs as well as higher net input costs expected to impact us by about 30 basis points.

Speaker Change #125: Our engineering investments and megatrend areas should average about one 2 billion annually before customer recoveries.

Speaker Change #125: This includes about $300 million related to the acquisition of <unk> active safety.

Speaker Change #125: We expect a modest decline in megatrend engineering spend in 2026 relative.

Relative to 2024, and 2025 levels, while sales are increasing.

Speaker Change #125: Capital spending is expected to decline beyond this year and Capex to sales is on a path to return to more normal levels as we have highlighted previously.

Speaker Change #125: Lastly, we expect our free cash flow generation to increase each year over our outlook period as sales continue to grow margins expand and capex to sales normalize.

Speaker Change #125: We anticipate over 2 billion in free cash flow by 2026.

Speaker Change #125: Last year, we highlighted our significant expected sales increases in megatrend areas and the fact that our engineering spend in absolute dollars was largely unchanged through our outlook.

Seetarama Kotagiri: While we do not provide a quarterly outlook similar to last year, we expect our 2024 earnings to be lowest in the first quarter of 2024 and improve meaningfully in the second quarter. We expect a further step up in margins to the 7 to 7.7% range from 2024 to 2026. This is largely driven by further contribution on higher sales, and continued Operational Excellence activities, and the reversal of launch and new facility costs as programs come on. Lower incinerating spend and growing equity income. However, these are partially offset by a 10-basis point impact from higher directed content on the G-class as volume stress.

Speaker Change #125: While our midterm sales and megatrend areas have been somewhat impacted by lower expected volumes.

Speaker Change #125: Particularly related to Evs.

Speaker Change #125: Trajectory of our sales growth in these areas remains considerable growing by over $4 billion in the next three years.

Lower expected megatrend profits on the reduced sales is the most significant factor shifting our profitability inflection point from 2025 through 2026.

Speaker Change #125: While our outlook reflects a modest 2025 last year.

Speaker Change #125: Continue to work to reduce or eliminate this loss.

Speaker Change #125: Regardless, we expect significant improvement in our results in these areas for our outlook period and solid profitability by 2026.

Seetarama Kotagiri: Many of the same factors that are impacting consolidated sales and margins out to 2026 are also impacting our. In the interest of time, we will not run through the segment details. However, we are happy to discuss any questions on that. I'll pass it back over to Pat to cover some of the highlights of our financial strategy. Thanks, Swami.

Speaker Change #126: Next let me cover our consolidated outlook.

Speaker Change #126: In terms of key assumptions in our outlook reflects essentially no growth in weighted global light vehicle production.

Speaker Change #126: And only modest growth of about 1% on average over that 23 through 2006 period.

Seetarama Kotagiri: We have been consistent in communicating our capital allocation principles over the years, and I'd like to repeat that we want to maintain a strong balance sheet, ample liquidity, and a high investment grade rating. Invest for growth through organic and inorganic opportunities along with innovation spending, and Return Capital to Shareholders. Our balance sheet continues to be strong with investment grade ratings from the major credit rating agencies. At the end of Q4, we had over $4 billion in liquidity, including about $1.2 billion in cash. Currently, our adjusted debt to adjusted EBITDA ratio is at 1.89.

Speaker Change #126: In other words, it's a content growth that is driving our organic sales.

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

Speaker Change #126: Net net the impact of currency to our outlook is expected to be negligible.

We expect weighted sales growth all market between three and 5% over our outlook period from.

Speaker Change #126: <unk> from 23 to 24 sales growth substantially reflects the launch of new and replacement programs.

Speaker Change #126: Higher amount of directed content on the new Mercedes G Class Assembly program and the acquisition of <unk> active safety.

Speaker Change #126: These are partially offset by lower sales in the remainder of our complete vehicles business largely as a result of the end of production of certain programs and a higher proportion of vehicles assembled whose sales we account for on a value added basis.

Pat McCann: We anticipate a reduction in our leverage ratio to be back within our targeted range during 2025. We expect capital spending for 2024 to be approximately $2.5 billion. This includes about $100 million that will be funded by our customers. Under U.S. GAAP, such customer-funded amounts are included in deferred revenue whereas previously they were netted against capital spending.

Speaker Change #126: From 2024 to 2026, the most significant contributors to sales growth and the launch of new and replacement programs and increase.

Speaker Change #126: Directed content sales on the Mercedes G class as volumes ramp.

Speaker Change #126: In addition, we expect 8% to 9% compounded sales growth from unconsolidated jv's over our outlook period, including from our LG JV for electrified components and systems.

Pat McCann: In other words, this CAPEX is cash flow neutral, and capital spending would be $2.4 billion. Our 2024-2026 capital spending outlook also includes approximately $400 million related to recent program awards from a high-volume EBOEM that were not included in our previous outlook. Despite these new awards, we expect CAPEX as a percent of sales to decline over the 24 to 2026 timeframe in line with what we had been indicating over the past year. EV volumes remain uncertain, and we continue to have discussions with customers about future plans. We remain laser-focused on capital to assess where we may have the opportunity to stagger, delay, or eliminate capital from our plan.

Speaker Change #126: Our E drive systems JV in China.

Speaker Change #126: Our seating JV.

Speaker Change #126: We expect another step up in consolidated margins in 2024 to a range of five 4% to 6%.

Speaker Change #126: Our 2020 for margin is expected to benefit from contribution on higher sales and ongoing operational excellence activities.

Speaker Change #126: Partially offsetting these are higher launch and new facility costs associated with new programs as well as higher net input costs expected to impact us by about 30 basis points.

Speaker Change #126: While we do not provide a quarterly outlook similar to last year, we expect our 2020 for earnings to be lowest in the first quarter of 2024 and improve meaningfully in the second quarter.

Pat McCann: As a result of growing earnings and declining capex levels, we expect free cash flow to accelerate through our outlook period. We anticipate over $2 billion in free cash flow by 2026. In summary, we expect continued organic growth above market with more than $4 billion increase in megatrend sales over the outlook period. Further margin expansion this year and in each of the next two years, including through ongoing operational excellence activities, and at least $1.7 billion in increased EBITDA over our outlook period through 2026. We anticipate that these increasing metrics will lead to accelerating free cash flow generation over the next three years. We remain confident in executing our plan and continuing to drive our strategy forward. Thank you for your attention. We would be happy to answer your questions.

Speaker Change #126: We expect a further step up in margins to the seven to seven 7% range from 2024 through 2026.

Speaker Change #126: This is largely driven by further contribution on higher sales.

Speaker Change #126: <unk> operational excellence activities, the reversal of launch and new facility costs as programs come on.

Speaker Change #126: Lower engineering spend and growing equity income.

Speaker Change #126: These are partially offset by a 10 basis point impact from higher directed content on the G class as volumes ramp.

Speaker Change #126: Many of the same factors that are impacting consolidated sales and margins out through 2026 are also impacting our segments.

Speaker Change #127: In the interest of time, we will not run through the segment detail power, we are happy to discuss any questions on that.

Pat McCann: At this time, if you would like to register for a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speakerphone, please lift your handset before entering your request.

Speaker Change #127: I'll pass it back over to Pat to cover some of the highlights of our financial strategy.

Pat: Thanks Swamy.

Pat: We have been consistent in communicating our capital allocation principles over the years and I would like to repeat these.

Pat: We want to maintain a strong balance sheet ample liquidity and high investment grade ratings.

Pat: Invest for growth through organic and inorganic opportunities along with innovation spending and.

Operator: Once again, to register for a question, please press the 1, followed by the 4. One moment, please, for the first question. And our first question is from the line of John Murphy with Bank of America. Please go ahead.

Pat: And return capital to shareholders.

Pat: Our balance sheet continues to be strong with investment grade ratings from the major credit agencies.

Pat: At the end of Q4, we had over 4 billion in liquidity, including about $1 2 billion in cash.

John Murphy: Good morning, guys. Thanks for all the info, particularly on the 26 Outlook. You know, if we think about slides 35 and then 36, you know, it seems like you're remaining very committed to your CapEx plans. You know, it certainly seems like you are on the R&D side, but Swami, you know, there's obviously tectonic shifts that are going on here very quickly in the way that the expectations are evolving for EV penetration, you know, program potential cancellations or at least pushouts. You know, how flexible is your CapEx spending and R&D spending to potentially be pushed down and to the right to deal with that and, you know, potentially even deal with potential cancellations in programs? Good morning, John.

Pat: Currently our adjusted debt to adjusted EBITDA ratio is at 189.

Pat: We anticipate a reduction of our leverage ratio.

Pat: To be back within our targeted range during 2025.

Pat: We expect capital spending for 2024 to be approximately $2 5 billion.

Pat: This includes about $100 million that will be funded by our customers.

Pat: Under U S. GAAP such customer funded amounts are included in deferred revenue, whereas previously they were netted against capital spending in other words this capex.

Pat: Cash flow neutral and capital spending would be $2 4 billion.

Pat: Our 24 to 2026 capital spending outlook also includes approximately $400 million related to recent program awards from a high volume OEM.

Pat: Were not included in our previous outlook.

Pat: Despite these new awards, we expect Capex as a percent of sales to decline over the 24 to 2026 timeframe in line with what we had been indicating over the past year.

Seetarama Kotagiri: Great question. If you just think through what's happening, I think one of the key things we've been focused on and have been discussing is the, If you look at the capex ratio, we have been talking capex to sales, we've been talking about going back to the, you know, the low to mid force. And, you know, happy to say we are on track to that. When we talk about this year, Pat...

Pat: EV volumes remain uncertain and we continue to have discussions with customers for both future plans.

Pat: We remain laser focused on capital to assess where we may have the opportunity to stagger delay or eliminate capital from our plan.

Pat: As a result of growing earnings and declining Capex levels, we expect free cash flow to accelerate through our outlook period, we anticipate over $2 billion in free cash flow by 2026.

Seetarama Kotagiri: Touched on his prepared comments that 100 million of the 2.5 that we are showing is really, you know, given by the customer. And we actually talked about a program for another about 150 to 200 million spend, which was not contemplated, but we felt given the program, it was a good idea to...

Pat: In summary, we expect continued organic growth above market with more than $4 billion increase in mega trend sales over outlook period.

Pat: Further margin expansion this year and in each of the next two years, including through ongoing operational excellence activities and at least $1 7 billion and increased EBITDA over our outlook period through 2026.

Seetarama Kotagiri: Invest in that program going forward strategically, right? So those were the two; otherwise, it would have been around $2.2 billion in CapEx. So that's one part of it. The second part of the question that you asked regarding R&D, and we've always talked about the 900 million plus with the V&AIR 300, it's 1.2. With sales increasing, again, the ratio of R&D spent to revenue was going to decline. But having said that, we are looking very seriously into the spending of that if it's not related to the direct launch of a program. Uh, then everything is under scrutiny.

Pat: We anticipate that these increasing metrics will lead to accelerating free cash flow generation over the next three years.

Pat: We remain confident in executing our plan and continuing to drive our strategy forward.

Speaker Change #128: Thank you for your attention we would be happy to answer your questions.

Speaker Change #129: At this time, if you would like to register for a question. Please press the one followed by the four on your telephone.

Speaker Change #129: You will hear about <unk> prompt to acknowledge a request.

Speaker Change #129: If your question has been answered and we'd like to withdraw your registration. Please press the one followed by the three.

Seetarama Kotagiri: And again, in the prepared comments, we talked about it. We're also looking at capital in terms of, with discussion with customers, obviously, how can we stagger given the push out of the dates for the launches, or just even in terms of the volume ramps. So we're looking at staggering capital, looking at the modularity, having discussions with the customers, and also a little bit on how we look at volumes on given programs by the customers, although we have to run at a rate for them at PPAP and so on, we take into account the volume assumptions when we look at revenue on such programs. So we are looking at all of that. So pushing out in terms of CAPEX spend or R&D engineering spend, depending on the program cadence, absolutely yes. Just to give an example from the last three weeks.

Speaker Change #129: If you're using a speaker phone please lift your handset before entering your request.

Speaker Change #129: Once again to register for a question. Please press the one followed by the four.

Speaker Change #129: One moment please for the first question.

And our first question is from the line of John Murphy with Bank of America. Please go ahead.

John Murphy: Good morning, guys. Thanks.

John Murphy: Thanks for all the info, particularly on the 26 outlook.

John Murphy: Youll be if we think about on slide 35, and then 36. It seems like you are remaining very committed to your Capex plans.

Speaker Change #130: Certainly certainly it seems like you are on the R&D side, but swamy, there's obviously tectonic shifts that are going on here.

Speaker Change #130: Quickly in a way to sort of the expectations are evolving for EV penetration.

Speaker Change #130: Program potential cancellations or at least push outs.

Speaker Change #130: How flexible.

Speaker Change #130: Is your capex spending in R&D spending to potentially be pushed down into the right deal with that and potentially even deal with us digitally.

Seetarama Kotagiri: I, along with the senior management team, have spent at least about 40 hours going line by line on all our projects, and we are looking at the value proposition of each project, what it brings to us. Keeping in mind, obviously, that it cannot hurt the future and cannot hurt the long term. That's very helpful. And then Pat, if we were to kind of suspend disbelief and say you guys are being too conservative with your volume forecast, and let's say there's, you know, a two to 3% upside in global LVP in 24, or maybe even just think of it sort of as a 1%, you'd hire, you know, in a plain middle way being 450 million more in revenue. Do you have capacity?

Speaker Change #130: Cancellations in programs.

Speaker Change #130: Good morning, John.

Great question. If you just think through whats happening I think one of the key things we have been focused on and have been discussing is the capex.

Speaker Change #130: If you look at the Capex ratio being a capex to sales we have been talking about going back to the the <unk>.

Speaker Change #130: Low to mid course, and happy to say, we are on track to that.

Speaker Change #130: When we talk about this year Pat touch.

Speaker Change #130: Touched on his prepared comments that $100 million of the two five that we are showing it.

Randy: It's Randy.

Given by the customer.

Randy: And we actually talked about the program.

Randy: Put another about $150 million to $200 million spend which was not contemplated but we felt given the program.

Pat McCann: Um, you know, obviously, this is kind of a generic question, but to take that on, and what kind of incremental would we be thinking of if all of a sudden, you know, sales came in two to 3% higher than you were thinking because LVP was higher?...morning, John.

Randy: It was a good idea to.

Randy: We invest in that program going forward strategically right. So those were the two otherwise could have been at on the <unk> 2 billion in Capex. So that's one part of it.

Randy: The second part of the question that you asked regarding R&D.

Randy: We've always talked about the 900 million left with the Vmware 300 is the one two.

Pat McCann: In that scenario, when I think of, that's probably a best case scenario, if you go back to Swami's comments, where we have capacity installed up to... to planning volumes, right? So if we flex up, you know, you might be able to speed up the line or add another shift. And that's where you have a lot of leverage in your model. So your incrementals in that scenario would be quite strong. I mean, that would be what we've seen historically. You know, they're different by, by, by segment, but, you know, the 20s for BSP, and then seeding, you know, depending on the region, 12 to 17 and a half percent. And Steyr's a little bit different, John. It's because of all the...

Randy: With the sales increasing.

Randy: The ratio of R&D spend to revenue was going to decline.

Randy: But having said that we have.

We're looking very seriously into there.

Randy: The spending of that if it is not related to the direct launch of their program.

Randy: Then everything is under scrutiny and again in the prepared comments, we talked about it.

Randy: We're also looking at capital income so.

With discussion with customers. Obviously is how can we be CAGR given the push out of the base for the launches.

Randy: Or just even in terms of the volume ramp so we're looking at staggering capital.

Randy: Looking at the modularity, having discussions with the customers also impact in how we look at.

Randy: Volumes on <unk> programs by the customers, although we have to.

Randy: The run rate for the MLP path and so on.

Randy: We take into account the volume assumptions when we look at revenue on such programs.

John Murphy: I think that would be the best possible scenario for Magna. The worst-case scenario is when you have to put in new facilities, and that's, you know, when you go through our business plan and you look out into the future, some of the incrementals aren't at that, let's say, 20-ish percent, and it's because they're coming through more at the corporate average, where you're adding bricks and mortar and new facilities and overhead. So, long answer, but the scenario you're describing is the best case for Magna. And then there is just one last question. Can you comment on what region that high-volume EV manufacturer is domiciled in? Is it a North American manufacturer or a Chinese manufacturer?

Randy: So we're looking all of that so pushing out in terms of Capex spend our R&D engineering spend.

Depending on the program cadence absolutely yes.

Randy: To give an example over the last three weeks.

Randy: I along with the senior management team has spent at least about 40 hours a line by line on all our projects and we are looking at.

Value proposition of each project, what it brings to us.

Randy: In mind, obviously that cannot put the future and cannot hurt the launch.

Speaker Change #132: Okay, that's very helpful.

Randy: And then Pat.

Pat: Were going to suspend disbelief and say you guys are being too conservative on your volume forecasts.

Pat: And let's say there is a 2% to represent upside in global LBP in 'twenty, four or maybe even just think about it sort of has a 1%.

Seetarama Kotagiri: And is that for the battery tray or battery structure, or is there something else that CapEx has allocated for the $400 million? John, under strict confidentiality, we are not able to give too much detail, but I can say that... This is a material investment in the southern US and Mexico for a significant future product of Tesla. Very helpful. Thank you very much, guys. Thanks, John. Thanks, John. Our next question is from the line of Chris McNally with Evercore. Please go ahead.

Pat: Higher any claim in a way being $450 million more of revenue.

Pat: Do you have capacity.

Speaker Change #133: Obviously this is kind of a generic question, but two.

Take that on and what kind of incremental would we be thinking obviously, if all of a sudden sales came in 2% to 3% higher than you were thinking because LDP was higher.

Speaker Change #133: Yeah.

Speaker Change #134: Good morning, John.

Speaker Change #135: In that scenario there when I think.

Speaker Change #136: That's probably the best case scenario. If you go back to <unk> comments, where we have capacity installed up to.

John Murphy: To planning volumes right. So if we flex up you might be you could speed up the line or add another shift and Thats why you have a lot of leveraging your model. So here youre incrementals in that scenario to be quite strong and that would be what we've seen historically.

Chris Mcnally: Thanks so much, gentlemen. One really benign question on seeding and then maybe on capital and the buyback. So seeding, Swami, can we take a step back?

John Murphy: They are different by segment, but.

John Murphy: The <unk> for <unk>.

John Murphy: And then seating depending on the region 12 to 17, 5% and starts a little bit different John.

John Murphy: Because of all the recoveries.

Seetarama Kotagiri: You know, this has now been an underperformer for a couple of years. I mean, obviously, you have a different ROIT, so a slightly different margin compared to peers. But I know you can't be happy with the margin that has perpetually been a target. And, you know, so that 5% or 6% range. Can you help us walk through what are some of the issues and what will get us, you know, eventually to that 5% to 6%? Good morning, Chris.

John Murphy: Recoveries, but.

John Murphy: I think that would be a best case scenario for Magna.

John Murphy: That's the worst case scenario is when you you have to put in new facilities and Thats. When you go through our business plan and you look out into the future some of the incremental foreign debt that let's say 20 ish percent in its because theyre coming through more of the corporate average, where youre, adding bricks and mortar in new facilities and overhead so long answer but.

John Murphy: The scenario, you're describing the best case for Magnum.

Speaker Change #137: And then just one last question can you comment on what region that high volume EV manufacturer is.

Speaker Change #138: <unk> is in a north American manufacturer, China manufacturer and it is therefore battery tray or battery structure or is there something else that that capex is allocated for the $400 million.

Seetarama Kotagiri: I think if you look at the last couple of years, the significant impact on seeding has been the mix and certain programs significantly underperforming the volume expectations compared to the planned volumes, right? And as you know, in seeding, once you have the facility and you have the labor, it's pretty much dedicated to the program. We make our attempts to flex. It's not possible to negate everything, so that has been one of the primary reasons.

Speaker Change #138: John under strict confidentiality, we are not able to give too much detail, but I can say that.

Speaker Change #138: <unk>.

Speaker Change #139: This is.

Speaker Change #139: Material investment in southern Europe.

Speaker Change #139: In Mexico.

Speaker Change #139: For a significant future product of Tesla.

Speaker Change #139: Okay.

Speaker Change #140: Helpful. Thank you very much guys.

Speaker Change #141: Thanks, John Thanks, Sean.

Speaker Change #141: Yeah.

Speaker Change #141: Our next question is from the line of Chris Mcnally with Evercore. Please go ahead.

Chris Mcnally: Alright, thanks, so much gentlemen, one really benign at question on PD and then maybe on the capital.

Seetarama Kotagiri: The one other thing that you will see in the dynamics looking forward a little bit. On the seating last year, we had assumed that we would exit at a high volume. We started with a low-margin program, and we were having discussions with the customer. And during the process, we were able to secure a fair and good appropriate margin and return on the next generation. So we are maintaining the existing business now. So that's having a negative impact in the short term. The new program, the next generation with the appropriate margins and returns, is starting to launch in 2026. It's a staggered launch, but it will start in 2026. Also, the seating team has been extremely focused on all the items of operational excellence, so they are looking at all the details during the planning process. You know, minus the big program that I talked about going out into 26, 27, I feel comfortable that we're on the path to the margins that we talked about that are in the 5 to 6%. Okay, super, super helpful detail on that problematic platform.

Chris Mcnally: And the buyback.

Chris Mcnally: <unk>.

Chris Mcnally: Swamy can we take a step back.

Chris Mcnally: This is now been an underperformer for a couple of years I mean, you obviously you have a different Roe.

Chris Mcnally: It to a slightly different margin compared to peers.

Swamy Quarter: I know you can't be happy with the margin that is perpetually in the target and so that five or 6% range.

Swamy Quarter: Can you can you help us walk through what are some of the issues and what will get us.

Swamy Quarter: Actually that 5% to 6%.

Speaker Change #142: Good morning, Chris.

I think if you look at the last couple of years.

Speaker Change #143: The significant impact on seating have been in the mix and certain programs.

Speaker Change #143: Significantly underperforming the volume expectations compared to the planned volumes right and as you know in seating.

Speaker Change #143: Once bumps you have their facility and you have the labor pretty much dedicated to the program.

Speaker Change #143: Our cost to collect.

Speaker Change #143: <unk>.

Speaker Change #143: Not profitable to make everything so that has been one of the primary reasons.

Speaker Change #143: The one other thing that you will see in the dynamics looking this year and going forward <unk>.

Speaker Change #143: On the seating last year, we had assumed that we would exit the high volume.

Speaker Change #143: Low margin program.

Speaker Change #143: And we were having discussions with the customer.

Speaker Change #143: And during the process, we were able to secure.

Chris Mcnally: Can we just now maybe move to, you know, the capital allocation and the idea of the buyback? So I know you have, you know, sort of the debt to EBITDA ratios you used in the past. Obviously, net debt is a little bit more attractive.

Speaker Change #143: Fair and appropriate margin and return on the next generation.

Speaker Change #143: So we are maintaining the existing business now so that having a negative impact in the short term the new program. The next generation with the appropriate margins Entercom.

Speaker Change #143: It's starting to launch in 2026, it's a staggered launch, but it will start on the 2026.

Seetarama Kotagiri: And also, given where your stock is, you know, can you talk about what the potential for more of a historical buyback ratio could be? Obviously, the free cash flow goes up every year 24 to 26. But, you know, sort of like your investors buying low, you know, rather than buying high, as always, sort of a favorable strategy. So, you know, just how are you thinking about getting ahead of some of those better free cash flow numbers in years to come? I think the capital allocation fantasy and how we are looking at that, as Pat talked about in the prepared comments, remains truly an all-star for us, Chris. If you look at the leverage ratio in 2024, our first priority is to get back to 1 to 1.5. Right?

Speaker Change #143: Also the seating team has been extremely focused on.

All of the items of operational excellence, so looking at all the details during our planning software.

Speaker Change #143: Sure.

Speaker Change #143: Minus the big program that I talked about growing out Andrew 'twenty six 'twenty seven I feel comfortable that we're on the path.

Speaker Change #143: To the margins that we talked about that in the 5% to 6%.

Speaker Change #144: Okay Super Super helpful detail on on that problematic platform.

Speaker Change #144: Now maybe move to capital allocation and the idea is the buyback still.

Speaker Change #144: I know you have sort of the debt to EBITDA ratios you used in the past obviously net debt is a little bit more attractive.

Speaker Change #144: Also given where your stock is.

Speaker Change #144: Can you talk about what the potential for more of a historical buyback ratio.

Speaker Change #144: B, obviously, the free cash flow goes up every year 'twenty four to 'twenty six but.

Speaker Change #144: Sort of like your investors buying low.

Chris Mcnally: And we think, given, you know, the EBITDA profile and the sales, we see that in the early part of 2025. So once we start having cash, and the cash flow operationally is on track to what we expect it to be. Then we go back to our priority being, investing organically or inorganically for the appropriate returns, you know, that equity to value, and anything remaining. Obviously, the preference is to go back to the share buyback.

Speaker Change #144: Rather than buying high and is always sort of a favorable that strategy. So just how you're thinking about getting ahead of some of those better free cash flow numbers in years to come.

Speaker Change #144: I think the capital allocation strategy and we.

Speaker Change #144: We are looking at that as Pat talked about in the prepared comments remains.

Speaker Change #144: Truly as an offset for us Chris.

If you look at the leverage ratio in 2024, our first priority is to get back to the one to one five right.

Speaker Change #144: We have seen given the EBITDA profile and the sales.

Speaker Change #144: We see that in the.

Speaker Change #144: The early part of 2020 cost.

Speaker Change #144: So once we start having the.

Speaker Change #144: Cash.

Speaker Change #144: And the cash flow operational rice is on track to what we expect it to be.

Speaker Change #144: Then we go back to our priority of being.

Chris Mcnally: So we'll be looking at it towards the end of 2024 in the normal course of action, you know, getting back on staying in the levels ratio that we talked about. Okay, thanks so much.

Speaker Change #144: Investing organically or inorganically for the appropriate returns.

Speaker Change #144: Got it accretive to value.

Speaker Change #144: Remaining obviously did their preference is to go back to the share buybacks. So we'll be looking at it towards the end of 2024.

Tamy Chen: The Bulletproof Executive 2013. Our next question is from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Speaker Change #144: In the normal course of platform and.

Speaker Change #144: Getting back on staying at the levels that we've talked about.

Speaker Change #145: Okay. Thanks, so much.

Speaker Change #146: Thanks, Chris.

Pat McCann: Thanks, good morning. My first question is, I guess on the low end of your 24 EBIT margin guidance, I mean, it would imply a very modest improvement over your 23rd, which had a number of headwinds, such as cost inflation, the underperforming BES facility, unstable production schedules, and, and of course, the UAW strike. So I'm just wondering, can we just go back to what assumptions you've got in there for the low end of the range? Like, are you baking in just a degree of conservatism? Morning, Tamy. I don't, you know; I don't think it's conservative.

Speaker Change #146: Our next question is from the line of Tami Chen with BMO capital markets. Please go ahead.

Tamy Chen: Thank you good morning.

Tamy Chen: First question is just on the LOE.

Tamy Chen: And of your 'twenty for EBIT margin guidance, I mean, you would imply very modest year over year.

Tamy Chen: Improvement of 23, which had a number of headwinds.

Speaker Change #147: <unk> inflation.

Speaker Change #147: For MBS facility on stable production schedule again and of course, the UAW strike so.

Speaker Change #147: I'm just wondering can we just go back to what assumptions you've got in there.

For the low end of the range like are you baking in just a degree of conservatism.

Speaker Change #148: Good morning Tammy.

Tammy: I don't think it's conservative, but I think we have a well balanced plan there was a fair amount of volume uncertainty and.

Seetarama Kotagiri: I think we have a well-balanced plan. There's, there's a fair amount of volume uncertainty. And, you know, inflation continues to be a headwind. The one part you do have to consider is the impact of the G-Class repricing. So the G-Class at Steyr is a new contract that's launching in 2024.

Speaker Change #150: Inflation continues to be a headwind.

Speaker Change #151: The one part Jay do you have to consider is the impact of the GE plus re pricing. So the G cloud at Shire as a new contract that's launching.

Speaker Change #151: In 2024, and effectively what's happened with all the inflation their bill of materials has increased so we have higher revenue.

Pat McCann: And effectively, what's happened with all the inflation, their bill of materials has increased, so we have higher revenues, and exactly the same higher cost of sales that are dollar margin neutral, but you have a drag. That's impacting us by about 10 basis points, just on that one program alone. So, you know, I think just the starting point, apples to apples, would be a 10 basis point difference. And then you start going through it.

Speaker Change #151: And exactly the same higher cost of sales. So a dollar margin neutral, but you have a drag.

Speaker Change #151: That's impacted us by about 10 basis points, just on that one program alone. So.

Speaker Change #151: I think just the starting point apples to apples would be 10 basis point difference and then you start going through we burn a plaque volume scenario.

Pat McCann: We were in a flat volume scenario. We do have some negative mix, and then we have headwinds again, also on scrap sales. So when you put them all together, I think a couple of things to think about is that last year we were at a 100 basis points spread. We've tightened our gap because we feel more confident in our plan. And when you add the 10 basis points, I think it's a pretty balanced plan.

Speaker Change #151: We do have.

Speaker Change #151: Some negative mix and and then we have.

Speaker Change #151: Headwinds again also on scrap scrap sale. So I think when you put them altogether I think a couple of things to think about is last year. We were at a 100 basis point spread we've tightened our GAAP because we feel more confident in our plan.

Speaker Change #152: Yes, the 10 basis points I think it is.

Speaker Change #152: <unk> content.

Tamy Chen: Okay, I see. And on the continuing cost inflation at this point, do you expect you could still realize some additional recoveries from customers, or are we sort of in a different environment versus last year with respect to recoveries from the OEM? Yeah, I think so. Good morning, Tamy.

Speaker Change #152: Okay.

Speaker Change #152: On the continuing cost inflation at this point.

Speaker Change #152: Do you expect you could still.

Speaker Change #152: Realized some additional recoveries from customers or at least sort of it I guess that environment versus last year with respect to recoveries and Oems.

Speaker Change #153: Yes, I think good morning, Tammi, we talked about.

Seetarama Kotagiri: We talked about inflation and some of these topics still as continuing headwinds last year. We talked about a hundred million magnitude, and as of November, we said we were going to negate that with various activities, including recoveries. And we achieved that. And this year, we still have embedded inflation in terms of labor. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change #153: Inflation in some of these topics still as continuing headwinds last year we.

Speaker Change #153: We talked about a $100 million magnitude and as of November. We said, we were going to mitigate that with various activities including recoveries.

Speaker Change #154: And we achieved that.

And this year, we still have embedded.

Speaker Change #154: <unk>.

Speaker Change #154: Inflation in terms of labor.

Speaker Change #154: Some things have.

Speaker Change #154: Trended down like energy and so on but there is some stickiness on some of the products steel commodities.

Tamy Chen: Okay, got it. And one last question here, back on the customer-funded CapEx that you've highlighted for 24, the 100 million. So is that a new thing? Or have you had that, and you're just highlighting it now?

Speaker Change #154: Including labor.

Speaker Change #154: So it's going to be a combination of recoveries as well as definitely our continued efforts on operational excellence.

Speaker Change #155: Okay got it and sorry, one last question here back on the customer funded Capex that you highlighted for 2000 and for the $100 million.

Pat McCann: And is that the only one in your 24 CapEx guidance that's customer funded? And so you're just calling that out? Thanks. It's a new program that was awarded, Tamy, and... Previously you would have just shown it as a subsidy under the old rules, but effectively what's happened more broadly when you think about the commercials issues is we went to the customer and said they wanted our support, and we said we need your support to do that, and in that scenario what we did was we looked at it on a cash basis, and you have some crazy accounting happening, but on a cash flow basis it's you have higher capex and you have higher deferred revenue, and in 2024 we're cash neutral, so we didn't look at the account, we didn't, We looked at the business decision, which was, it's a good program, it's a good customer, and the customer is paying for the capital, and we had the open space, so we took on the program. I think, I mean, just to add to that is... Not normal for customers to invest in capital. They fund and own tooling, typically.

Speaker Change #156: So is that a new thing.

Speaker Change #156: <unk> had that and just highlighting it now and is that the only one in your 2000 and for Capex guidance.

Speaker Change #156: Customer funded and fingers, calling that out.

Speaker Change #156: It's a new program that was awarded Tammy and.

Speaker Change #156: Previously you would have just showing it as a subsidy.

Speaker Change #156: The old tools, but effectively what's happened more broadly when you think about the commercials.

Speaker Change #156: Issues.

Speaker Change #156: We went to the customer said they wanted our support and we said we need your support to do that and in that scenario. What we did was we looked at it on a cash basis and you have some crazy accounting happening, but on a cash flow basis.

Speaker Change #156: You have higher Capex, and you have higher deferred revenue and.

Speaker Change #156: 2024 were cash neutral so we didn't look at the account.

Speaker Change #156: We looked at the business decision, which was it's a good program that good customer and the customer is paying for the capital we have the open space. So we took on the program.

Speaker Change #156: Okay.

Speaker Change #157: Thanks Tommy.

Speaker Change #158: Just to add to that.

Speaker Change #159: Not normal for customers to invest in capital.

The fund and owned tooling typically.

Pat McCann: But this is one of the things that we've been considering and working through. Right, I see. Thank you. Thanks, Tamy. Our next question is from the line of Mark Delaney with Goldman Sachs. Please go ahead. Good morning.

Speaker Change #160: But this is one of the things that we've been considering and working through.

Speaker Change #160: Right.

Thank you.

Speaker Change #161: Thanks Tammy.

Speaker Change #161: Our next question is from the line of Mark Delaney with Goldman Sachs.

Mark Trevor Delaney: Go ahead.

Mark Trevor Delaney: I appreciate you guys taking the questions. With the new outlook for Megatrend revenue, can you help us better understand how conservative Magna was with its assumptions around customer build schedules and EV volumes, especially given that some of the North American OEMs have emphasized are going to be flexible on how fast they plan to ramp up their new EV program? Good morning, Mark. Over the last number of years, I would say, going back even six, eight years, we have typically been saying that, you know, the global EV market penetration would be somewhere in the low 30s. Globally, obviously higher in China, followed by Europe and then North America.

Mark Trevor Delaney: Yes. Good morning, I appreciate you guys taking the questions.

Mark Trevor Delaney: With the new outlook for Mega trend revenue can you help us better understand how conservative Magna was with us with its assumptions around customer build schedules in EV volumes, especially given that some of the North America Oems have emphasized are going to be flexible on how fast they plan to ramp up their new EV programs.

Speaker Change #162: Good morning, Mark.

Speaker Change #162: Over the last number of years I would say going back even six eight years.

Speaker Change #162: We have typically been saying that.

Speaker Change #162: The global EV market penetration would be somewhere in the low thirties.

Speaker Change #163: Obviously higher in China, followed by Europe, and then North America.

Seetarama Kotagiri: I think we still believe it's in that buffer. And I also said previously, as we look at program by program, whether it's eBee or not, we tend to have our own viewpoint on the program volumes, for revenue calculation purposes, try to estimate our revenues, although we have to hit the run rate...

Speaker Change #163: I think we still believe it's in that ballpark.

Speaker Change #163: And I also said previously as we look at program by program, whether its <unk> or not.

Speaker Change #163: We tend to have our own viewpoint.

Speaker Change #163: The.

Speaker Change #163: Graham volumes.

Speaker Change #163: Our revenue calculation purposes site to estimate our revenues, although we have to hit the run rates.

Seetarama Kotagiri: It definitely We are weighted a little bit in OEM production in North America for the migration areas, called electrification. As that tends to have a decline, we'll have a negative impact. And like I said, we'll do everything to stagger capital, work with the customers, look at modularity in programs, both products and processes, but it will have a negative impact. But I think the magnitude of the impact we are seeing on revenue would be a little bit lower than what the market is saying based on the assumptions we made before. But this is something that we need to watch continuously and be agile about. So that's the long answer. Very helpful, I appreciate all the context, and I know it is a very dynamic situation for you all to deal with.

Speaker Change #163: Okay.

Speaker Change #164: Definitely we are weighted a.

Speaker Change #164: A little bit and Oems.

Speaker Change #164: Oems production in North America for.

Speaker Change #164: For the Max and Avs or call the electrification.

Speaker Change #164: That tends to have a decline.

Speaker Change #164: Have a negative impact and like I said, we will do everything to staggered capital work with the customers look at Martinez and program.

Speaker Change #164: Both products and processes.

Speaker Change #164: Do you have a negative impact, but I think the.

Speaker Change #164: Sure.

Speaker Change #164: Magnitude of impact we are seeing on the revenue.

Speaker Change #164: It would be a little bit lower.

Speaker Change #164: Then what the market is seeing based on the assumptions we made before.

Speaker Change #164: But this is a something.

Speaker Change #164: Something that we need to watch continuously and be agile about it.

Speaker Change #165: So thats a long answer.

Speaker Change #166: Very helpful. I appreciate all the context, and I know a very dynamic situation.

Speaker Change #166: For you all to deal with.

Mark Trevor Delaney: On a related topic, as OEMs are adjusting generally lower their EV build plans, there's perhaps some offset toward hybrid and ICE builds. Are you seeing any higher revenue coming from different powertrains? And maybe talk a little bit more about the extent to which the 24 and 2026 outlooks that you gave are correct. Have you seen some increased revenue coming from ICE and hybrid vehicles? Yeah, I would say, Mark, a vast majority of our capabilities are really agnostic to powertrain, right? But, in some cases, like in the powertrain, our DCT or dual clutch transmission has a package-neutral, you know, hybrid option that we're currently producing with three OEMs.

Speaker Change #166: Unrelated topic as Oems are adjusting generally lower their build plans right. There's perhaps some offset towards hybrid ni's builds or are you seeing any.

Speaker Change #166: Higher revenue coming from different different powertrains, and maybe talk a little bit more to what extent with the <unk>.

Speaker Change #166: <unk> 24 in 2026 outlooks that you gave you have you assumed some some increased revenue coming from.

Speaker Change #166: And hybrid vehicles.

Speaker Change #167: Yes, I would say.

Speaker Change #167: The market, what's majority of our capabilities are really agnostic to the powertrain right but.

Speaker Change #167: In some cases like in the powertrain.

Speaker Change #167: <unk>, our dual clutch transmission as a packaged neutral.

Speaker Change #167: Hybrid option.

Speaker Change #167: That we are currently producing with three Oems.

Speaker Change #167: Too early to say like how the dynamics of the volumes that are playing out.

Seetarama Kotagiri: Thanks for learning with us today. You know, in some cases, we are on both platforms, both ice and, at the moment, we are just looking at EVs, for example, on seats. But the dynamic, we have to see how it goes. But looking ahead to 2027, I would still say the targets that we are provided with in terms of the mega-trend areas, we feel comfortable that we are still on track. Thank you. Our next question is from the line of Tom Narion with RBC. Please go ahead. Thanks for taking the questions. There are a couple of little housekeeping ones.

Speaker Change #167: We also have <unk> capabilities that can support high voltage hybrids.

Speaker Change #167: As you know as you would remember that <unk> can supply electrification components like motors and Inverters that balance with LIFO the hybrid.

Speaker Change #167: No.

Speaker Change #167: In some cases, we are on both platforms, both ice and.

Speaker Change #167: <unk> for example on seating.

Speaker Change #167: But that dynamic we have to see how it goes but on 2027 looking out.

Speaker Change #167: I would still say the targets that we had provided in terms of the mega trend areas.

Speaker Change #167: We feel comfortable that we are still on track.

Speaker Change #168: Thank you.

Speaker Change #168: Our next question is from the line of Tom <unk> with RBC. Please go ahead.

Tom: Hi, Thanks for taking the questions.

Tom: A couple of little housekeeping, one slides 31, that's the segment outlook or guidance for 2024.

Tom Narion: Slide 31. That's the segment outlook or guidance for 2024. We're seeing top lines coming down in 24. I'm sure you've maybe explained that.

Tom: Seating top lines coming down in 2000 and for just I'm sure.

Pat McCann: Apologies if I missed it. Just curious what's going on there. Then on complete vehicle, thanks, Pat, for talking about the G-class repricing. That's explaining the margins coming down despite the top lines, and the revenue going up. Are there any other things we should be aware of explaining that dynamic in 24 for complete vehicle? Morning, Tom.

Tom: Explain that apologies if I missed it just curious what's going on there.

Speaker Change #169: And then on complete vehicle, thanks, Pat for talking about the G class repricing.

Speaker Change #169: Meaning the margins coming down despite top line revenue going up.

Speaker Change #169: Are there any other things we should be aware of explaining that dynamic in 'twenty four for complete vehicle.

Speaker Change #170: Good morning, Tom on the seat.

Pat McCann: I think on the seat. I'll go through it first. So if you look at the seating piece, the volume declines. It's effectively mixed.

Tom: Through it firstly, so if you look at the seating piece the volume decline is it's effectively mix we have.

Pat McCann: We have, the way a seeding business works is you have dedicated JIT facilities, and one of our programs in North America, the volumes from the customer are down on a year-over-year basis. That's the primary driver. On the Magna Steyr piece, or the complete vehicle piece, the volume is up, as I mentioned, because of the G-Wagon primarily, and then within there, there's also a little bit of, that's the majority of the reduction, but we also have some commercial benefits in 2023 that we don't expect to recur, and there's a little bit of amortization related to some of the warrants, or So it's just 24, but do we still see it coming back?

Tom: The way of seating business works is you have dedicated.

Tom: Jet facilities.

Tom: And one of our.

Our programs in North America, the volumes from the customer is down on a year over year basis. That's the primary driver of this in the seating space.

Tom: On the on the maintenance Shire piece or the complete vehicle piece.

Tom: The volume is up.

Tom: As I mentioned because of the G wagon primarily.

Tom: And then within there there is also a little bit but that's the majority of the reduction but we also have.

Tom: We had some commercial benefits in 2023 that we don't expect to recur and there is a little bit of amortization related to some of the warrants.

Tom: Are some of the engineering on the fiscal program that that's rolling off.

Tom: Do you still have growth over market and seeding through that 'twenty two 'twenty six periods. So the 24th of a blip, but we still see coming back to us.

Tom Narion: Got it. And then my next one, you know, we heard some inventory build chatter from a particular supplier in 2023 that impacted their 2024 kind of guidance. That company is basically its own market. So, but just curious, is that something you guys were seeing at all? You know, on your guys and just inventory bill that might be impacting your 2024 outlook? Or were you not seeing that?

Speaker Change #171: Got it.

Speaker Change #172: And then my next one.

Heard some inventory build.

Speaker Change #172: Chatter from a particular supplier.

Speaker Change #172: In 2023 that impacted their 2024 kind of guidance that companies.

Speaker Change #172: Basically is there one market so but just curious is that something you guys were seeing at all.

Speaker Change #172: On your guys and just the inventory build that might be impacting your <unk> your <unk>.

Speaker Change #172: <unk> 2024 outlook, we're not seeing that.

Tom Narion: .. I think, Tom, for us, I would say the simple answer is no; we don't see that impact. And, you know, the other way of looking at it, we even looked at, I would say, If anything, that's even reducing. We were kind of in the magnitude of 200 million. We see it now approaching the 100 million. So the short answer, materially, we don't see that happening in our case. Okay, great, thank you. We don't have the ability to do what they're doing.

Swamy Quarter: Go ahead Swamy.

Swamy Quarter: I think Tom for US I would say the simple answer is no we don't see that impact.

Swamy Quarter: The other way of looking we even looked at I would say safety.

Swamy Quarter: Safety stock last two versus going into this year, if anything Thats 200, you seem to be better.

And the magnitude of 200 million MVC it now towards the $100 million.

Swamy Quarter: So short answer materially we don't see that happening in our case.

Speaker Change #173: Okay, great. Thank you.

Speaker Change #173: Okay.

Speaker Change #173: We don't have the ability to do what they're doing.

Pat McCann: We're on a pull system. So we only, we're only able to sell to our customers what they call off. So we don't have an ability to push stuff into the supply chain or into our customers compared to that company you're referring. Got it.

Speaker Change #173: We're on a pull system so we only.

Speaker Change #173: We're only able to sell to our customers what they call off so we don't have an ability to push stuff into the supply into our customers.

Speaker Change #173: Compare to that company.

Speaker Change #173: Company Youre, referring to.

Tom Narion: Maybe I'll just do a quick follow-up. At CES, you guys showcased some really impressive ADAS capabilities. We met folks from Vienna Air, et cetera.

Speaker Change #174: Got it maybe I'll just do a quick follow up.

Speaker Change #174: At CES.

Speaker Change #174: Guys showcase some really impressive adas capabilities, we met folks from G&A et cetera.

Seetarama Kotagiri: Just curious, as you see things evolve with autonomy, Level 3, et cetera; we met with some Tier 2s, let's see, LIDAR makers, too, at CES, who were kind of, I don't know, lack of a better word, in trouble. It seems like the Tier 1s, like you guys, are really well positioned in ADAS as the time horizon for things like Level 4 gets pushed out Do you guys view these Tier 2 LIDAR players as potential acquisition targets for you guys, or is that something you would potentially do organically if and when we ever get to Level 4? Thanks.

Speaker Change #174: Did you just curious as you see things.

Speaker Change #174: Move.

Speaker Change #174: Evolved with.

Speaker Change #174: With autonomy level III et cetera.

Speaker Change #174: We met with some some Q2s would you Lidar makers do you at CES, who are kind of I don't know lack of better word had trouble.

Speaker Change #174: It seems like the tier ones like you guys are really well positioned.

Speaker Change #174: In Adas.

Speaker Change #174: As the time horizon for things like level for getting pushed out farther and farther.

Speaker Change #174: Do you guys view.

Speaker Change #174: Sure.

Speaker Change #174: These Q2 lidar players its potential.

Speaker Change #174: Acquisition targets for you guys or is that something you would potentially do organically, if and when we ever get to the level before happening. Thanks.

Seetarama Kotagiri: Tom, I think we have been pretty consistent in saying our focus is very much on what I call the driver assist system. Driver Assist Function. So given that, we believe we are in a good position from the software associated with it and the integration capabilities to bring all the sensors together, the compute, call it an ECU or a domain controller of all types. So I think we're really focused on getting through the integration process that we have, which is going on track, and we are happy to report that. So we want to get that through, and there is a lot of interest from the customers and programs and us launching. So as you look into the future, the way you talked about... We are really focused now on getting market share and launching the programs and getting the growth that we talked about on the HEDAS towards the 2027 Luce. I think we were in the 4.25 billion range.

Speaker Change #174: Tom.

Speaker Change #175: Think we've been pretty consistent in saying our focus is very much on what I call the driver assist systems.

Speaker Change #175: Away from economy to a high degree of driver assist systems as I call. It trade because there's so much ambiguity on what we call out to a plus <unk>, 3%. That's why I used the term term.

Speaker Change #175: Driver assist functions.

Speaker Change #175: Given that.

We believe we are in a good position from.

Sensor capabilities.

Speaker Change #175: The software associated and the integration capabilities to bring all defenses together the compute.

Speaker Change #175: Call it an issue or a domain controller of all types.

Speaker Change #175: So I think we are really focused on.

Speaker Change #175: Getting through the integration.

Speaker Change #175: Process that we have which is growing on track and we are happy to report that.

Speaker Change #175: We want to get that through and there is a lot of interest from the customers on programs and that's launching.

Speaker Change #175: As you look into the future of the way you've talked about.

Speaker Change #175: We are really focused now on getting the market share and launching the programs and getting the growth that we've talked about.

Speaker Change #175: On the head towards 2027 Lewis I think we were in the $4 billion to $5 billion range.

Seetarama Kotagiri: So we are on track, and we are focused on that. So will we be obviously looking at some building blocks for the future? Yes, but that remains to be seen.

Speaker Change #175: So we are on track and we.

Speaker Change #175: We are focused on that so we'll be obviously looking at some building blocks of the future yes.

Speaker Change #175: Detriments to see methane, we can give more color as we.

Seetarama Kotagiri: I think we can give more color as we get towards the end of the year. Great, thank you so much. Our next question is from the line of Itay Michaeli with Citigroup. Please go ahead.

Speaker Change #175: To get towards the end of the year.

Speaker Change #176: Great. Thank you so much.

Speaker Change #176: Our next question is from the line of ITM Mccalley with Citigroup.

ITM Mccalley: Please go ahead.

Itay Michaeli: Good morning, everybody. I just have a couple of questions for you. First, just going back to the margin bridge this year, just want to ask a question on the operational excellence activities. Just curious how much line of sight you have on those initiatives, how much you've already identified, and then kind of just remind us what you're seeing in terms of broader production stability and kind of what you're assuming for production volatility or stability for 2024. Good morning, Itay.

ITM Mccalley: Great. Thanks, Good morning, everybody just a couple of questions from me Firstly, just going back to the margin bridge. This year I just want to ask a question on the operational excellence activities, but just curious how much line of sight you have on those initiatives how much you've already identified and then kind of just remind us what youre seeing in terms of.

ITM Mccalley: Broader production stability and kind of what youre, assuming for production volatility or stability for 2024.

Speaker Change #178: Good morning.

Seetarama Kotagiri: If you just look at the prepared comments, I talked about achieving 75 basis points this year, which we did. And we have a good line of sight for achieving 75 basis points in 24 and 25. Typically, we have continuous improvement activities and on-going initiatives that we work through, or operational excellence initiatives, I should say, that we work through.

Speaker Change #178: If you just look at the prepay.

Speaker Change #178: Prepared comments I talked about achieving 75 basis points this year, which we achieved.

Speaker Change #178: And we have good line of sight for achieving this 75 basis points in 2025.

Speaker Change #178: Typically we have continuous improvement activities.

Speaker Change #178: On top of the initiatives that we worked through our operational excellence initiatives I should say that we've worked through.