Magna International, Inc.

Thank you for standing by and welcome to the Magna International first quarter 2024 results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. Finally, a reminder that this conference is being recorded. I would now like to turn the conference over to Luis Tonelli, Vice President of Investor Relations. Please go ahead.

Thank you, Operator. Hello, everyone, and welcome to our conference call covering our first quarter of 2024. Joining me today are Soumy Kodagiri and Pat McCann. Yesterday, our Board of Directors met and approved our financial results for the first quarter of 2024. We issued a press release this morning outlining our results. You'll find the press release today's conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review, all 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. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to our reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swami.

Thank you, Louis. Good morning, everyone. I appreciate you joining our call today. Let's jump right in. There are some notable takeaways from the quarter that I would like to highlight before getting into some of the details. We are pleased that our Q1 results for sales and earnings, excluding fiscal impairments, came in ahead of our expectations. This was in part due to our continued operational excellence activities, which are on track to collectively contribute about 75 basis points to margin expansion over the next two years. We are maintaining our adjusted EBIT margin outlook for 2024 despite the negative impact of assuming no additional Fisker Ocean production and lower sales on program delays and mix. Our operational excellence activities, continuing efforts to contain costs, and commercial recoveries are all expected to contribute to this. And we issued $400 million of senior notes in Q1 to refinance debt coming due this quarter. We expect to be back into our target leverage range during 2025. So far this year, we have experienced more stable production schedules relative to what we experienced in recent years. This is contributing to improved operating results. We anticipate a relatively flat vehicle production environment over our outlook period, particularly in our key markets of North America and Europe. As a result, our continued content growth is contributing to our higher sales. As we said earlier this year, inflation continues, in particular for labor. However, we have been working hard to mitigate cost increases, including ongoing discussions with customers for additional recoveries. Lastly, our customers continue to evolve their electrification strategies, particularly in North America. We are assessing the potential impacts on our sales, earnings, capital, and free cash flow, and are working with our customers to optimize investment and capacity plans. We'll continue to update when we have more clarity on major impacts, if any, to our business. It is important that I provide an update on our current status for the Fisker Ocean Program. Production of the vehicle is currently idle. Our current outlook issued today assumes no further production. Consistent with disclosure we provided in our annual information form, this assumption reduces our 2024 sales by about $400 million and impacts our adjusted EBIT margin by about 25 basis points. we fully impaired our operating assets and warrants in the first quarter, totaling $294 million. We have $195 million in deferred revenue associated with the fiscal contract that could offset the $294 million in asset impairments that cannot be recorded in Q1. This amount will be recognized in income as performance obligations are satisfied or upon termination of the fiscal contract manufacturing agreement. In order to mitigate the impact of the lower sales on this program, we recorded additional restructuring costs of $22 million in the quarter. We continue to monitor the situation and will evaluate opportunities to further mitigate the impact on our business. Overall, We expect to offset the adjusted EBIT margin impact from this item through actions taken and strong execution across the company. I would like to comment on how we are proactively managing to address challenges and further improve our financial performance. Our operational excellence activities are on track to contribute about 75 basis points of improvement over the next two years. In addition, input costs, which were expected to be a 30 basis point headwind to EBIT margin this year, have been reduced to about 25 basis points now. We are optimizing engineering spend, which is expected to be down about 50 million from our February outlook. We are lowering our capital spending outlook to the $2.4 to $2.5 billion range, and we are continuing restructuring activities to optimize our footprint. As a result, our leverage ratio is on track to be back in our target range during 2025. We have a continuing focus across Magna on margin expansion and free cash flow generation. Electrification remains an important industry trend, although the take rates are uncertain in the short and mid-term. Our EV strategy with respect to customers, programs, and regions in which we want to participate is both targeted and deliberate. And as you have heard us say for many years, we are coding business based on our volume assumptions, not our customers. With all this in mind, we continue to win business and advance our position in electrification. We have been awarded specialized eDrive business to support one of our customers' high-end vehicle platform. This primary rear drive system delivers over 700 kilowatts of power and exceptional performance, reflecting our expertise in electric powertrain system engineering and integration. Lastly, before I pass the call over to Pat, I want to highlight recognitions received by Magna, which I am very proud of. Magna was named a 2024 Automotive News PACE Award winner, one of only 13 winners for our integrated driver and occupant monitoring system. We also received PACE pilot recognitions in seeding for our EcoSphere, a 100% melt recyclable foam and trim, and in exteriors for our modular and scalable active grill shutter assembly. Magna was the only company to receive both a PACE award and multiple recognitions for PACE pilot innovations to watch. and reflected in our ongoing commitment to operational excellence is the recognition we receive from our customers. Typically, Magna receives more than 100 launch and quality awards from various global automakers around the world each year. Most recently, General Motors recognized Magna with five awards across four product areas. This brings our total to 30 GM supplier of the year awards over the last five years. With that, I'll pass the call over to Pat.