Magna International, Inc.

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Magna International Third Quarter 2024 Results Webcast. 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star and one. I would now like to turn the call over to Louis Tonelli, Vice President of Investor Relations. You may begin.

Thanks very much. Hello, everyone, and welcome to our conference call covering our third quarter of 2024. Joining me today are Swami Kodagiri and Pat McCann. Yesterday, our Board of Directors met and approved our financial results for the third quarter of 2024 and our updated outlook for 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 the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass the call over to Swami.

Thank you, Luis. Good morning, everyone. I appreciate you joining our call today. As always, let's jump right in. Let me highlight a few key takeaways before we get into the details of the quarter. We are mitigating industry headwinds, including lower production volumes in each of our core regions, and continue to execute with an adjusted EBIT margin of 5.8% in line with Q3 2023, despite 4% lower global vehicle production. We expect our adjusted EBIT margin to be in the 5.4% and 5.5% range for 2024. Despite softer than anticipated vehicle production in North America and Europe, which has negatively impacted sales, we still expect our adjusted EBIT margin to be within our original 5.4 to 6% range from our February outlook, which highlights effective cost-saving strategies we have executed on. We continue to expect margin expansion in 2024 compared to 2023. Operational excellence activities remain on track to collectively contribute about 75 basis points to margin expansion during 24 and 25. and we are benefiting from our ongoing restructuring activities and the $90 million of reduced gross megatrend engineering spend for 2024. While we are reducing our spend, we maintain confidence in our long-term positioning and ability to reap the rewards of recent investments. We have a continued focus on strong free cash flow generation and capital discipline. We have further lowered our expected capex range by another $100 million for a reduction of up to $300 million for 2024 compared to our February outlook. And we are maintaining our free cash flow outlook range at $600 to $800 million. And we are leveraging the elements within our control, further reinforcing our conviction in our growing free cash flow beyond this year. As a result of this, we are planning to restart meaningful share repurchases this quarter. We continue to focus on free cash flow generation and capital discipline to preserve our ability to return capital to shareholders while ensuring balance sheet health. Turning to a high-level review of the numbers for the third quarter for 2024 compared to the third quarter of 2023. Consolidated sales were 10.3 billion, down 4%, mainly reflecting lower production in our key markets and the divestiture of a controlling interest in our metal forming operations in India, partially offset by new program launches. Despite the challenging production environment, including Detroit 3 North American production being down 12% in the quarter, we posted 1% sales growth over market. Adjusted EBIT was $594 million, up $17 million from Q2 2024, despite sequentially lower vehicle production in all key regions. Adjusted EPS came in at $1.28, inclusive of approximately $0.10 of net impact associated with the higher income tax rate, which Pat will cover later. And free cash flow generated in the quarter was $174 million, a strong $151 million increase from last year, reflecting continued capital discipline. Our capital discipline and allocation principles remain unchanged. We continue to maintain a strong balance sheet, ample liquidity, and high investment grade ratings to provide flexibility to invest for the future and manage through downturns. As we continue to invest for profitable growth, we also regularly review and refine our product portfolio to ensure all business lines are aligned with our strategy to be a leading player in relevant markets and to generate value for shareholders. And as we have for many years, we intend to continue returning capital to shareholders. Following a period of heightened investment, we are focused on returning to a more historical cadence in returning capital to shareholders. Overall, our disciplined, profitable approach to growth has served Magna and our shareholders well over the years and will remain a foundational principle going forward. At the end of Q3, we had about $3.7 billion in liquidity, including about $1.1 billion in cash. We have been reducing our adjusted debt to adjusted EBITDA ratio for a peak of about 2.2x in 2023. Currently, our ratio is at 1.93, and we are on a path to returning to our targeted range. When we talk about returning to a normal cadence, a look at the past dozen years provides some context to our capital allocation strategy. Overall, we believe our long-term approach to investing for future value creation and capital return to shareholders is balanced. Over the 2013 to 2023 timeframe, we invested about $20 billion into our business. almost 90% of which has been capital spending, including for new product areas, programs, and geographies to bolster or establish strong market positions. After a more recent period of investment in battery enclosure assembly capacity to support the ongoing transition to EVs, our capex as a percent of sales is on a path to more normal levels of mid-4% next year and around 4% by 2026. And over the same 2013 to 2023 period, we returned about $15 billion to shareholders in the form of dividends and share repurchases. As you can see, following a period of elevated investment in 2023-2024, we expect our capital allocation profile to normalize starting in 2025. With our free cash flow generation this year and our confidence in further free cash flow growth beyond 2024, we are optimizing value creation by meaningfully increasing our return of capital to shareholders beyond our consistent dividend policy. Our board approved a share repurchase plan for up to 10% of Magna's public float, or over 28 million shares. We expect to restart meaningful share repurchases this quarter. The repurchases are in addition to our ongoing quarterly dividend. We believe this capital allocation strategy provides the continued flexibility to both support future growth and further return capital to our shareholders. In summary, we are responding to the volatile operating environment and are focused on margin expansion, free cash flow generation, and increasing return of capital. With that, I'll pass the call over to Pat.