Exhibit 99.3
REFINITIV STREETEVENTS REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. RE VISED EDITED TRANSCRIPT MG.TO - Q3 2023 Magna International Inc Earnings Call EVENT DATE/ TIME: NOVEMBER 03, 2023 / 12:00PM GMT
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call CORPORATE PARTI CI PANTS LouisTonelli Magna International Inc. - VPof IR Patrick W. D. McCann Magna International Inc. - Executive VP& CFO Seetarama Swamy Kotagiri Magna International Inc. - CEO & Director CONFERENCE CALL PARTI CI PANTS Christopher Patrick McNally Evercore ISI Institutional Equities, Research Division - Senior MD Colin M. Langan Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst Dan Meir Levy Barclays Bank PLC, Research Division - Senior Analyst Gautam Narayan RBC Capital Markets, Research Division - Assistant VP JamesAlbert Picariello BNP Paribas Exane, Research Division - Research Analyst Jonathan Goldman Scotiabank Global Banking and Markets, Research Division - Associate Joseph Robert Spak RBC Capital Markets, Research Division - Former Autos and Leisure Analyst Mark Trevor Delaney Goldman Sachs Group, Inc., Research Division - Equity Analyst Michael W. Glen Raymond James Ltd., Research Division - Director PRESENTATI ON Operator Greetings, and welcome to the Q3 2022 results. (Operator Instructions). As a reminder, this call is being recorded today, Friday, November 3, 2023. I would now like to turn the conference over now to Louis Tonelli, Vice President, Investor Relations. Please go right ahead. Louis Tonelli - Magna International Inc. - VPof IR Thanks, Tommy. Hello, everyone, and welcome to our conference call covering our third quarter of 2023. Joining me today are Swamy Kotagiri and Pat McCann. Yesterday, our Board of Directors met and approved our financial results for the third quarter of 2023 as well as our updated '23 Outlook. We issued a press release this morning outlining our results. You'll find the press release, today's conference call webcast, the slide presentationsto 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 statementswithin the meaning of applicable securitieslegislation. Such statementsinvolve certain risks, assumptionsand uncertaintieswhich may cause thecompany's actual or future results and performance to be materially different than 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. And with that, I'll pass it over to Swamy. 2 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 3 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director T h a nk y ou , L ou i s . G oo d m o r n i n g , e v e r y on e . I a p p r ec i a t e y o u a l l j o i ning ou r c a ll t o d a y a s w e s h a r e ou r t hi r d q u a r t e r e a r n i n g s r e s u l t s . B e f o r e I s h a re s o m e o f t he d e t a il s , I w a nt t o t h a nk m y t e a m f o r t h e ir c o n t in u e d p r o g r e s s a nd s o li d r e s u l t s . S o l e t ' s g e t s t a r t e d . S o m e k e y h i g h li g h t s t o m e n t i o n b e f o r e I d i v e in t o t he d e t a il s . O u r o rg a nic s a l e s g r e w b y 10 % y e a r - o v e r - y e a r s u r p a s s i ng w e igh t e d p r o d u c t i o n by 4 % , e x c l u d i ng c om pl e t e v e h i c l e s a nd 2 % , i n c l u d i ng c om pl e t e v e hi c l e s . O u r t hi r d q u a r t e r s h o w c a s e d s t r o ng o p e r a t i ng p e r f o r m a n c e w i t h h i g h e r o rg a n i c s a l e s on c e a g a i n c o n t rib u t i ng t o r o b u s t e a r n i n g s t h a t r e pr e s e n t e d a s i gni f i c a nt i m pr o v e m e nt y e a r - o v e r - y e a r . W e c on t i n u e t o b e n e f it fr om ou r a c t i v i t i e s in o p e r a t i o n a l exc e ll e n c e a nd c o s t c o n t a in m e nt l e a d i ng t o i m p r o v e d m a r g i n s . We have raised our 2023 Adjusted EBITMargin and Adjusted Net Income outlook rangesfor 2023 ,demonstrating solid operating performance even with the negative impact of the UAW strike in the third and fourth quarters . And we recently announced our commitment to achieving Net - Z ero across Magna by 2050 . O u r ind u s t ry c o n t in u e s t o e x p e r i e n c e i n c r e m e n t a l i m p r o v e m e n t s , i n c l u d i ng r e d u c e d s u p p l y c on s t r a in t s , s t r o n g e r a nd m o re s t a b l e pr o d u c t i on s c h e d u l e s a nd r e s il i e nt a u t o s a l e s i n a n u m b e r o f m a r ke t s . H o w e v e r, t h e g l o b a l e c o n o m y c o n t i n u e s t o f a c e s o m e i n t e r l o c k ing c h a l l e ng e s , i n c l u d i ng c o n t in u i ng e l e v a t e d l a b o r in f l a t i o n, h i g h e r i n t e r e s t r a t e s , g e o p o l i t i c a l r i s k s a nd s l o w ing e c o n om ic gr o w t h . T h e s e c h a ll e ng e s a re i m p a c t i ng our e n t ire i nd u s t r y . In North America, the Detroit 3 experienced UAW labor stoppages for about 6 weeks, which cost the industry approximately 220,000 units. The UAW has now reached tentative agreements with all 3 OEMs, which need to be ratified. Our Outlook reflects the full extent of the strike. We remain highly focused on containing costsand improving our margins. This isbeing achieved through ongoing operational improvement and cost recovery initiatives as well as executing flawless launches across Magna. At our virtual investor event in September, we provided an update on the progress of our go - forward strategy. Our ongoing investments in mega - trend areas are driving significant growth over the coming years, including 35 + % in powertrain electrification, 75 + % in battery enclosures and 45 + % in active safety. Most importantly, our portfolio is substantially aligned with the Car of the Future, which we expect to drive sales growth regardless of the pace of powertrain electrification. Where possible, we are working to mitigate risks, including by installing capital in tranches and employing different cost sharing models with our customers. At the same time, we have been accelerating our activitiesaround operational excellence to ensure we remain at the forefront of manufacturing and exceeding our customers' expectations in all areas . We expect about 150 basis points of margin expansion from our collective efforts here, including about half that amount this year . And we are leveraging capabilities that already exist within Magna to unlock opportunities with new models and markets as they develop . It is early days for us in this area, but we have already had some traction . We have experienced 5x growth in battery swaps in our Battery - as - a - Service joint venture, and are experiencing about 1,000 deliveries a day utilizing Magna - produced ‘ bots. We expect about $300 million in New Mobility Sales by 2027 with a significant runway for additional profitable growth beyond that. We expect our strategy to deliver continued growth above market, improved margins and returns and further shift in our portfolio towards mega - trend areas. This should drive increased shareholder value in the years to come. We also took a significant step forward in our commitment to sustainability, and environmental stewardship by submitting Net - Z ero emission targetsfor validation by Science - Based Targets initiative, with a goal to achieve Net - Z ero by 2050 , together with meeting our near - term Scope 1 , 2 a nd 3 t a r g e t s b y 2 0 3 0 . A m o ng t he s t e p s in v o l v e d i n m e e t i n g t h i s t a rg e t i s t r a n s i t i on i ng t o 1 00 % r e n e w a b l e e l e c t r i c i t y u s e i n ou r E u r o p e a n o p e r a t i o ns b y 2 0 2 5 a nd g l o b a l l y b y 20 3 0 . W e h a v e a l r e a dy m a de p r o g r e s s t o w a rds p r e v i ou s l y e s t a bli s h e d s u s t a in a bi l i t y a c t i on s . T h i s y e a r , w e a re o n t r a c k t o a c hi e v e ou r c o mm i t m e nt t o r e d u c e g l o b a l e n e rgy i n t e n s i t y b y 1 0 % in a ll m a n u f a c t u ring f a c i li t i e s w i t h a t a rg e t o f 20 % r e du c t i o n b y 2 0 27 a nd m o re t h a n 3 0 M a gna d i v i s i o ns h a v e a c h i e v e d c a r b o n n e u t r a l i t y o v e r t he l a s t 2 y e a r s . With that, I'll pass the call over to Pat.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call Patrick W . D . McCann - Magna International Inc . - Executive VP& CFO Thanks, Swamy, and good morning, everyone . As Swamy indicated, once again, we delivered strong earnings thispast quarter, despite the onset of the UAW strike in September . C o m p a r i ng t he t h i rd q u a r t e r o f 2 0 2 3 t o ' 2 2 , c on s o li d a t e d S a l e s w e re $ 1 0 . 7 bi l li on , u p 15 % c om p a r e d t o a 4 % i n c r e a s e i n g l o b a l li ght v e hi c l e p r o d u c t i on . A d j u s t e d E B I T w a s $ 6 1 5 m i l li o n a nd A d j u s t e d E B I T M a rg i n in c r e a s e d 9 0 b a s is p o i n t s t o 5 . 8 % . A d j u s t e d E P S c a m e i n a t $ 1 . 4 6 , u p 33 % y e a r - o v e r - y e a r a nd F r e e C a s h F l o w g e n e r a t e d in t h e q u a r t e r w a s $ 2 3 m il l i o n c o m p a r e d t o a $ 2 1 0 m il l i o n u s e in t h e t h i rd q u a r t e r o f ' 2 2 d e s p i t e our h i g h e r c a pi t a l s p e nd t h i s q u a r t e r t o s u pp o rt r e c o rd pr o gr a m a w a r ds i n ' 2 2 . During the quarter, we paid dividends of $ 128 million, and we increased our Adjusted EBIT Margin and earnings outlook despite the negative impact of the UAW strike . Let me take you through some of the details . North American and European light vehicle production were up 7% and 14%, respectively, while Chinese production declined 2%, netting to a 4% increase in global production. Our consolidated Sales were $10.7 billion, up 15% over the third quarter of '22. On an organic basis, our Sales also increased 10%year - over - year for a 2%growth - over - market or 4%growth - over - market,excluding Complete Vehicles.The Salesincrease wasprimarily due to higher global vehicle production, thelaunch of new programs, adjustmentsto recover certain higher input costs, theacquisition of Veoneer Active Safety, net of the divestiture of our manual transmissions 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 and an estimated $55 million impact from the UAW strike. Adjusted EBIT was $615 million and Adjusted EBIT Margin was 5.8%, compared to 4.9% in the third quarter of '22. Our continued focus on operational excellence and performance on cost initiativesisdriving strong earnings on higher Sales. Thiswasdespite the negative impact of a program changeover in Complete Vehicles, the UAWstrike, which we estimate cost us about 10 basispoints, and acquisitions net of divestitures. Combined, we generated 40 basis points of net improvements. Adjusted EBIT Margin was also positively impacted by ; about 60 basis points of net operational items, which include productivity and efficiency improvements at certain facilitiesand lower net engineering costs ; about 50 basispointsrelated to lower net input costs ; and higher equity income which benefited margin by about 15 basis points. EBIT Margin was negatively impacted by commercial items that had a net unfavorable impact in the quarter, which subtracted about 75 basis points year - over - year. Interest expense increased primarily reflecting senior notes issued and borrowings in the first half of the year as well as higher interest rates . Our adjusted effective income tax rate came in at 21 . 9 % , largely in line with our ' 23 expectations but lower than Q 3 of last year . Adjusted Net Income Attributable to Magnawas $ 419 million, up 32 % over the third quarter of ' 22 , reflecting higher EBITand thelower tax rate, partially offset by higher Interest Expense and Minority Interest . Adjusted Diluted EPSwas $ 1 . 46 , up 33 % compared to Q 3 last year . This increase is the result of higher Net Income and fewer shares outstanding . The reduced number of shares outstanding substantially reflect the impact of share purchases in 2022 . Turning to areview of our cash flowsand investment activities . In thethird quarter of ' 23 , we generated $ 821 million in Cash from OperationsBefore Changes in Working Capital, up $ 230 million or 39 % from ' 22 and we invested $ 24 million in working capital . Investment activities in the quarter included $ 630 million for Fixed Assetsand $ 176 million for Investments, Other Assetsand Intangibles . As expected, CapEx was higher than the $ 364 million in Q 3 last year to support our record program awards in 2022 . Overall, we generated Free Cash Flow of $ 23 million in the third quarter . We also paid $ 128 million in dividends . Our balance sheet continuesto be strong with investment - graderatingsfrom the major credit agencies. At the end of Q3, we had over $4.5 billion in liquidity, including about $1 billion of cash. Currently, our Adjusted Debt to Adjusted EBITDA ratio is 2.02x. Excluding cash we're holding to help pay down our EUR550 million Senior Notescoming due in the fourth quarter, our ratio would be 1.98x. Thisratio continuesto decline and istracking better than were expected at the end of last quarter as a result of our improved operating results. We anticipate a reduction of our leverage ratio by the end of this year and a further decline through 2024. 4 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call Next, I will cover our updated Outlook, which incorporateshigher than previously expected vehicleproduction in both Europe and China, including as a result of better production in Q3. Our assumption for production in North America is unchanged from our previous Outlook as stronger - than - expected production was offset by the impact of the UAW strike. We have not assumed any lost D3 production is made up in the fourth quarter. We also assume exchangerates in our Outlook will approximate current rates. We now expect aslightly weaker EUR, CAD and RMBfor 2023 relative to our previous Outlook. We have narrowed our expected Sales range with essentially the same midpoint as our last Outlook . This mainly reflects higher European and Chinese vehicleproduction in the second half of ' 23 , offset by thenet stronger U . S . dollar relative to our last Outlook and theestimated $ 310 million impact of the UAWstrike . We communicated last quarter that beginning in Q 3 , Magna'sAdjusted EBITwould exclude the amortization of all acquired intangibles . Our August Outlook excluded our estimate of the amortization intangibles associated with the acquisition of Veoneer Active Safety, about $ 30 million for half of ' 23 . Our final analysis of all other acquisitions resulted in about $ 50 million of additional annual amortization to be excluded from our Adjusted EBIT calculation . This additional adjustment amounts to approximately 10 basis points in EBIT Margin . We have updated our historical presentation of Adjusted EBIT to reflect these revised calculations . As a result of our strong performance so far in '23, our expectations for continued operational execution and despite the negative impact of the UAW strike which we estimate to be between 10 and 15 basis points, we have narrowed and raised our Adjusted EBIT Margin. We now expect our EBIT Margin for '23 to be in the range of 5.1% to 5.4%, which compares to 4.9% to 5.3% previously, adjusted by the 10 basis points to reflect amortization of all acquired intangibles. We're increasing our Equity Income range, mainly reflecting our better - than - forecasted performance in Q3. Asa result of increasing our Adjusted EBITMargin range, we are also raising our rangefor Adjusted Net Income Attributableto Magna. Our Interest Expense, Tax Rate, Capital Spending and Free Cash Flow expectations are all unchanged from our last Outlook. I n s um m a r y , w e a re p l e a s e d w i t h ou r s t r o ng o p e r a t i ng p e r f o r m a n c e i n t h e t hi r d q u a r t e r . O n c e a g a i n, w e ou t g r e w ou r e nd m a r k e t s b y 2 % o n a c o n s o li d a t e d b a s i s a s a p e r c e n t , e x c l u ding C o m p l e t e V e hi c l e s . W e r a i s e d ou r ou t l oo k f o r 2 0 2 3 , a n d w e h a v e c o n t in u e d c o n f i d e n c e i n ou r pl a ns f or m a rgin ex p a n s i o n f o r t h e y e a rs t o c o m e . Thank you for your attention . We will be happy to answer your questions . QUESTI ONS AND ANSWERS Operator (Operator Instructions) And with this, with our first question on the line from Chris McNally with Evercore. Christopher Patrick McNally - Evercore ISI Institutional Equities, Research Division - Senior MD Thanks so much, team. I appreciate all the detail. Maybe we could start with the - - obviously, the big topic of the week is around EV demand. And maybe just kind of just level set, just remind us your exposure, particularly in powertrain, you have $800 million and last year growing to - - I think it's about a billion thisyear, you have targets of - - of, I think, $4 billion out in the out years. What percentage ismaybe pure EV versus 48 - volt and hybrid, that would be helpful?And then just a pace on battery enclosures, which is obviously a new growth area. Just sort of anything around '23, '24, again, you've given longer - term targets?And just remind us maybe some of the programs or geographic exposure?Those are the big questions I think that you'll probably get several times in the queue from the rest of the analysts. So maybe we can start there. 5 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Chris, good morning, we will try to address the different aspects of the questions. I think from an EV perspective, just generally to address macro, we have always said electrification isa secular, irreversible trend, and it'shere to stay but the question wasgoing to be the predictability of the take rates, right?How soon is it going to come?So it's basically the very long tail, and it's still very early days of electrification. A l s o , i f y o u l oo k a t t he l a s t 3 o r 4 y e a r s , a s w e t a l k e d a b ou t e l e c t r i f i c a t i o n, w e h a v e g e n e r a l l y s a i d t h a t g l o b a l p e n e t r a t i o n w i ll b e s o m e w h e re i n t he m i d - 3 0 s in p e r c e n t a g e b y 2 0 3 0 . G i v e n t h o s e c i r c u m s t a n c e s , ou r p o li c y o r ou r c a l l i t s t r a t e gy h a s b e e n t o l oo k a t t h e v o l u m e s b y p r o g r a m , by c u s t o m e r, l oo k a t e x t e rn a l s ou r c e s , I H S a nd ou r o w n i n t e rn a l v o l u m e p r e d i c t i on s , a nd h a v e b ee n u s i ng t h a t t o c o m e u p w i t h t he n u m b e r s t h a t y o u t a l k e d a b ou t . In the past, like it ’ s not just related to EV, right? The volume uncertainty is has been there on every program. If you go back a few decades. And we have a mechanism to go through that in our own planning process and how we put the capital forward, how we plan scalability and modularity but beyond that, even have the discussions with the customers when there is a significant change in volumes. B u t a l l t h a t s a i d, a f e w q u e s t i on s s p e c i f i c a ll y t h a t y o u a s k e d a b ou t , i n e l ec t r i f i c a t i o n o f p o w e r t r a in s p e c i f i c a ll y , w e t a l k e d a b ou t $ 3 bil l i o n in 2 0 25 M a n a g e d S a l e s a nd a b ou t $ 4 b i ll i o n d u r i ng ou r I n v e s t o r D a y in 20 2 7 . A nd w h e n w e t a l k a b ou t t h o s e n u m b e r s , w e ' v e a l w a y s t a k e n in t o a cc ou nt t he m e c h a ni s m t h a t I t a l k e d a b ou t o f c om i ng u p w i t h ou r o w n v o l um e s , l oo k i ng a t m u l t i p le s ou r ce s , l oo k i ng a t t he t a k e r a t e s , w h i c h I w ou l d s a y a re a li t t le b i t m o re c o n s e r v a t i v e t h a n w h a t t he c u s t om e rs a nd t he m a r k e t s h a v e b e e n t a l k i n g , r i gh t ? S o t h a t ' s o ne p i e c e . On the battery enclosure side, I think, Louis, we are in the $ 300 - $ 400 million thisyear . And we were talking about $ 1 . 6 billion by 2025 . And there, we talked about the product lines where we are using existing assets, whether it's castings or extrusions or stampings, presses and so on . And their dedicated assembly lines are considered tooling, which are paid by the customer, right?So that continues, and that isalso a strategic product i n t he s e n s e t h a t w h e n y o u l oo k a t t he f r a m e s a nd t h e u nd e r b od y a nd s o o n, w e s e e a p a t h g o ing f o r w a r d, a nd w e t a l k e d a b ou t t h e a n a l o gy t o t he f r a m e s i n t h e p a s t , w h e re w e did i n t he l a t e ' 9 0 s , a nd w e c o n t i nu e t o do t he t h i r d a nd f ou r t h g e n e r a t i o n o f t he s a m e pr o d u c t t o d a y . S o t h i s i s a l o ng - t e rm p l a y , a nd w e f ee l p r e t t y g oo d a b ou t t h a t . I know I tried to address different aspects of the question . Did I miss anything there? Louis Tonelli - Magna International Inc . - VPof IR Ande the 48 - volt is just under 1 / 4 of our Sales in ' 27 , of that Managed Sales number . Christopher Patrick McNally - Evercore ISI Institutional Equities, Research Division - Senior MD A nd t h e n w h a t a b ou t pl u g - i n a s w e ll ? B ec a u s e o b v i ou s l y , t h e r e ' s d e f i ni t e l y m o r e o f a c o n c e rn a r o u nd p u re E V t h a n pl u g - in h a s s o r t o f c o n t i n u e d? T h e re i s a d e c e nt a m ou nt o f P H E V , r i gh t , in y ou r h i g h - v o l t a ge f o r p o w e r t r a i n a s w e l l . 6 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call Seetarama Swamy Kotagiri - Magna International Inc . - CEO & Director Y e s . I t hink m o s t o f ou r - - i f y o u l oo k a t t he g e n e r a l s a l e s , o v e r a l l p o w e r t r a i n , a t s i g n i f i c a nt p a c e , I t h i n k , i s i n t he 4 8 - v o l t s u b s t a n t i a l l y i n t he h y br i d s . T h e re i s a p r o d u c t li n e t h a t w e t a l k e d a b ou t i n t he P H E V s , b u t i t ' s pr e d o m in a n t l y i n 48 - v o l t s , w h i c h c ou l d b e a p p l i e d t o t h e P H E V p a r t o f i t a nd p u re E V s w i t c h e s i n t h e e - d r i v e s . Christopher Patrick McNally - Evercore ISI Institutional Equities, Research Division - Senior MD O k a y . A nd t h e n t he o n l y l a s t b i t o f d e t a i l - w i t h i n b a t t e ry e n c l o s u r e s , s i n c e i t ' s n e w , a nd o b v i ou s l y , t h e r e is on e l a r g e p l a t f o r m t h a t y o u d i s c u ss e d a w i n o n . H o w d i v e r s i f i e d i f I l oo k t hr ou gh 2 0 2 5 , i s t h a t s o rt o f $ 1 . 6 bil l i o n ? A r e w e t a l k i ng a h a nd f u l o f O E M s ? O r is i t 5 o r 5 t o 8 ? Seetarama Swamy Kotagiri - Magna International Inc . - CEO & Director S o I t hink w e a re t a l k i ng a b ou t 8 O E M s , C h r i s . W e t a l k i ng t he ou t e r y e a r s t h a t ' s in c l u d e d i n t he p r o j ec t i on s t h a t w e m e n t i on e d in t h e f i g u r e s , t h a t ' s 8 O E M s . Louis Tonelli - Magna International Inc. - VPof IR And that's global. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director And it's global. Christopher Patrick McNally - Evercore ISI Institutional Equities, Research Division - Senior MD That's great. And if I could just squeeze one last one on pricing recoveries. Obviously, you've talked so much about EVs over the last week that we kind of forgot about the older issues that we all used to talk about on Q2. Could you talk about the pace of recoveries, how it's going?Maybe just what'slasted in termsof could thisbe an extended tailwind into '24 because obviously you get theannualization of any price recoveriesyou've gotten in the second half? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director We've been disclosing, I would say, the net impactsrather than specific amounts, right?And if you look at thecertain costsin energy have declined, there isa improving trend in commoditiesin certain cases. And I would say we are on track to obtain the recoveriesnecessary to meet our Outlook. Maybe a little bit of color. We talked about the $100 million at the beginning of the year as headwinds. And in our last call, we talked about that being reduced to $50 million. And as we stand here today, we are at 0. That means the $100 million has been brought down to 0, but we continue our discussions and the focus still remains, right, on all the things, whether it is operational excellence, whether it is looking at every program and continuing discussions with customers, not specific only to '23, we have always talked about looking at it holistically from '22 and even going forward planning into '24. 7 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 8 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Operator Proceed with our next question on the line. It is from Mark Delaney with Goldman Sachs. Mark Trevor Delaney - Goldman Sachs Group, Inc . , Research Division - Equity Analyst First, as you guys are thinking about your prior target to reach profitability in megatrend areas in 2025 , as you're seeing some of the traditional OEMs revisit the radar ramps around EVs and including some in North America, where you've disclosed wins, do you still think you can reach that profitability target in 2025 ?And if so, are you contemplating having to make some changes in order to still get there? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Good morning, Mark. Yes, when we talk about the mega - trend areas, it's not purely electrification. Part of it is ADASalso and other products that are included in there. We have to go through the customer changesin the road map, if any, as we are going through the plan right now. But I would say we have, in some cases, had call it, different businessmodels, which are kind of tied, not completely tied to volumes. But I can give you an example thisyear on one program where there was a change in volume, we had a commercial settlement, right?And in some cases, we are looking at modelswhere the capital inlay is put forward by the customer related to an EV program. S o t h e r e a re m u l t ip le w a y s w e a r e l oo k i ng a t i t t o m i t i g a t e o r m i n i m i z e r i s k , o b v i ou s l y , c a nn o t t a k e a l l t h e r i s k a w a y . W e ' v e b ee n do i ng t h i s , b u t I t h i nk t his i s a li t t l e bi t m o r e d e l i b e r a t e a nd m o r e pr o a c t i v e w h e n w e t a l k a b ou t t he E V p l a t f o r m s . B u t I t hink w e ' l l b e a bl e t o g i v e m o re c o l o r w h en w e c o m e b a c k in F e br u a ry f o r t h e O u t l oo k . Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO And I think, Mark, when we talk about the megatrends, there is a big improvement in the ADASbusiness, specifically as we start launching these programs, and that's regardless whether it were distributed across ICE and EVs in that space. So you're expensing significant engineering today. And as those revenues launch, we should have a lot of contribution margin dropping to the bottom line. So it's really not just an EV explanation into '25. Mark Trevor Delaney - Goldman Sachs Group, Inc., Research Division - Equity Analyst Very helpful. And in terms of the updated EBIT Margin guide, you're taking up your margin guidance on pretty similar revenue and despite the UAW strike headwind that you're now having to overcome. You gave us a number of metrics around various puts and takes, but maybe just level set us and summarize a bit what's driving the better EBITmargin despite some of these headwinds?And is there anything unusual that you would say that's more temporal helping the margins in the second half of this year? Or do you think this is a illustrative of the profit potential and gives you guys some good momentum towards the at least 230 bps of margin expansion by 2025 that you'd previously talked about? Patrick W . D . McCann - Magna International Inc . - Executive VP& CFO I can start and Swamy jump in. When you look at the - - I think, guide to guide, we're really just executing where we expect it to be. Volumes have come in a little bit stronger. I f y o u l oo k o n a n a nn u a l b a s i s , w e ' v e s a i d f r o m - - s in c e b e g i n n i ng o f F e b r u a ry t h a t w e ' r e g o i ng t o i m p r o v e ou r m a r g i ns a s w e go t h r ou gh t he y e a r, a nd t h a t w a s dr i v e n b y l a u n c h e s , s o m e c h a ng e o v e r s , b u t a l s o j u s t t he t i m ing o f r e c o v e r i e s o f ou r c o mm e r c i a l s e t t l e m e n t s . I t hink w e ' re t r a c k ing on t h a t p l a n . T he on e c h a n g e , I w ou l d s a y , s i n c e F e b r u a ry r e a ll y h a s b e e n t he exec u t i o n o n t h e o p e r a t i o n a l f r o nt t h a t w e ' re exc e e d i ng ou r t a r g e t s f or
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 9 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. whether it'scost recoveries or cost containment and our acceleration of our improvement plans. I think that'sthebig drive. And that'swhat'sgiven us confidence. We're reiterating what we said in September that we have confidence in our '25 numbers. Louis Tonelli - Magna International Inc. - VPof IR And we're taking our input cost down - we said there was going to be a headwind of 50 last time around saying it'sbasically neutral now. So that's another contributor to the Outlook to Outlook improvement. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Yes. In summary, I would say, Pat, we - - there is not any temporal topic that has added to the expansion, but it's just operational excellence and the right trend of the materials and energy. Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Correct. Operator We'll proceed with our next question on the line from Tom Narayan with RBC. Gautam Narayan - RBCCapital Markets, Research Division - Assistant VP The first one, I'm sorry, I missed thisin the prepared comments. Could you review the UAW impact on just their absolute revenue and EBITimpact that you - - or EBITDA or EBIT impact that you've had thisfar or you expect in '23 first? Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Yes. Tom, it's Pat. So just for just a level set, our Q3 impact was $55 million in Sales, about 10 basis points on margin. Q4, we're estimating an additional about $255 million. So, a full year basis, $310 million of Sales with an impact of 10 to 15 basis points on our guide. Gautam Narayan - RBCCapital Markets, Research Division - Assistant VP Okay. I mean, obviously, the next question is on the EV side. So I guess the question has to do with how orders work - how the order book works?We saw some commentary yesterday from a couple of suppliers, suggesting maybe some caution on the order book. Just curious in terms of how susceptible or how would - - how concerning could cancellations be should this downturn get more severe or "EV slowdown" gets severe? Just I mean, do you have a lot of visibility on the orders. It's a situation of like 50% growth going to 30% growth, so you have enough inertia to help you. Just trying to get a sense of the visibility on the order book around electrification. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Tom, as we look at it, it's - - we haven't really seen any cancellations. And as I mentioned to one of thepreviousquestions, if there isa volume change in terms of the planning. It is a discussion that we have with the customer. And I wouldn't say we have seen anything significant, Maybe, on, I think one topic on one point that might help. If you look at just non - electrification but all content on EV platforms, we are in single digits as a percent of Sales, right, in 2023. Going out to 2025, maybe 1/5 of our business, roughly, is connected to EV platforms.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call But again, I want to reiterate. We always look at volume planning from our perspective based on customer, based on platform, based on segment of the vehicle, looking at IHSdata and other sources. So there is a, call it, the Magna volume that we have to have a judgment on. That's one aspect of it. The other one, like I said, look, even on ICE, there are several programs which don't hit the volumes that we have predicted. And we have mechanismsto have those discussionswith their customers. Thisis besideshaving capital outlay in tranches, having flexiblemanufacturing so that we can flex as the volumes change obviously within reason. And there are some cases where the volumes are up. So it's a complex, variable equation here, but we've had this with customers. And there is a little bit of uncertainty, and that's where I said, in some cases, the models on EV platforms, the customer has come forward with the capital. And some, we already had settlement, some where the volumes change significantly. And in some cases, we are looking at the same product where the platform has both ICEand EV. So depending on which does better, there is a little bit of hedge. So there'sa lot of these thingsthat we look at it from our planning perspectiveto again mitigaterisk,not completely,but it givesusenough comfort. Gautam Narayan - RBCCapital Markets, Research Division - Assistant VP Okay.And another thing that we heard yesterday wasthat there seemsto be thiskind of divergence of opinion on the EVdecline story geographically with a lot of Americans, let's say, thinking that we're in this Armageddon scenario. And then over in Europe, it's kind of an opposite view. Just curious in terms of your OEM exposure on to EV specifically, investment, is that something that'spretty geographically balanced?Or how would you characterize that your EV kind of exposure to geographically on OEMs? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Yes. I think generally, if you look at it, our overall Sales, we are about 60% or so in North America and about 35% in Europe and therest in other but predominantly China. And we have said from a regional perspective, the electrification take rates are higher in China, followed by Europe, followed by North America. But Tom, this is very specific on platforms. We have to not just look overall at a weak segment. It's a little bit of a judgment to say where do we have relationshipswith the customer? Where are we having reasonable conversations in terms of businessmodels?Which platform?A lot of that comes in rather than a generic view on region by region. Gautam Narayan - RBCCapital Markets, Research Division - Assistant VP G o t i t . Y e s . M y l a s t o ne i s j u s t o n t h a t o t h e r t o p i c , t he p r i c e / m i x t o pi c . O b v i ou s l y , t he O E M s b e n e f i t e d o n t h e w a y u p in t he p a s t 3 ye a r s . A nd i f we do g e t a n o r m a l i za t i o n i n p r i c e m i x , on e o f t he f e a rs i s t h a t p o t e n t i a ll y t h e O E M s c ou l d go t o s u ppli e rs a nd a s k f o r p r i c e d o w n s . H o w h a s t h at h a pp e n e d h i s t o ri c a ll y in t he p a s t ? I s i t t h a t y o u g u y s t y pi c a l l y b e n e f it o n v o l u m e r e c o v e ry r e g a rd l e s s i f p r i c e / m i x i s c om i ng d o w n f o r y ou r O EM c u s t o m e r s ? O r do t h e y h a v e t h e a bil i t y t o s q u ee z e y o u g u y s a s p r i c e / m ix c om e s d o w n? Seetarama Swamy Kotagiri - Magna International Inc . - CEO & Director Y e s . T h o s e c o n v e r s a t i o n s h a v e n e v e r b e e n e a s y . A nd li k e y o u s a i d, e v e n w h e n t h e y w e re d o ing w e ll i n t h e l a s t 3 y e a r s , I w ou l d s a y t h e c o n v e r s a t i o ns s t i ll w e r e n o t e a s y . B u t I c a n s a y t h a t w e t a l ke d a b ou t v a r i ou s t h i n g s a nd r ec o v e r i e s , l oo k i ng a t u nd e rp e r f o r m ing p r o g r a m s c o m i n g t o a n e n d . I n p ut c o s t in f l a t i o n , w h e t h e r it w a s s e m i c o nd u c t o r s o r o t h e r s . T h e y w e r e t ou gh c o n v e r s a t i o n s , a nd I t a l k e d a b ou t g e t t i ng t h e h e a d w ind s t o b e n e u t r a l i z ed this year. All I can say is they will continue to be. They recognize that we have been living in this tough environment of inflation and chip shortages and supply constraints over the last 3 years. So we already have been living in that, right? So I think we are not going to change our thinking process to be speaking of just with a little bit of data. We have had our conversations, but I would say they were fair and cordial. 10 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 11 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Operator We'll get our next question on the line. It is from Dan Levy with Barclays. Dan Meir Levy - Barclays Bank PLC, Research Division - Senior Analyst I wanted to just follow up on the last - - on the last question. And specifically, the commercial recoveries in the quarter, just any color with that at all, was it retroactive?Is it piece price?Just any color on what the recoveries were in the quarter that you saw?Magnitude as well. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director I think we talked about it again, net impact rather than gross, and I talked about the $100 million, right? And there's a complexity of talking productivity versus inflation recoveries and a whole bunch of other things. I would say about 2/3 of therecoveries in general are more related to flow - through purchase ordersindexing and so on that would continue going forward and about roughly 1/3 are one - time, right? So the ones that are more mechanism - based, whether getting on an index or purchase orders and so on and so forth will flow - through into thefollowing years. And the conversation on the one - time dependson, for example, energy and where they are versus what the recovery needs to be. So it's kind of a mix. Patrick W . D . McCann - Magna International Inc . - Executive VP& CFO A nd D a n, i f I c a n j u s t a dd, w h e n y o u c o m p a r e it t o ou r ex p e c t a t i o n s , w e d i dn ' t h a v e a w i n o n r e c o v e ri e s o r c om m e r c i a l i n ou r g u id a n ce . R e a ll y , w h e n w e ' re t a l k i ng a b ou t ou r i n c r e a s e o n n e t i nf l a t i o n t o p i c k u p . I t ' s r e l a t e d t o l a s t y e a r o n t he c o mm e r c i a l s i d e . A nd w e ' v e b e e n g u i d i ng a l l ye ar t h a t w e h a d r ou g h l y a 4 5 b a s i s p o i nt h e a d w i nd r e l a t e d t o c o m m e r c i a l i ss u e s , a nd t h a t ' s w h a t ' s c o m i ng t hr ou g h . Dan Meir Levy - Barclays Bank PLC, Research Division - Senior Analyst Okay. And then just the second, if you could maybe give us a sense of what's happening within the segment. And specifically, Seating, I know it doesn't get a lot of airtime, but this is the best margin you posted in a while. So just any voiceover on Seating?And then Complete Vehicles, we know that you said that there would be a changeover and that would drag it negative margins, I don't think any of it is unexpected. Maybe you could just give us a sense of when you get past this changeover and where those margins in complete vehicles should normalize to? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director So I think, again, as we talk a little bit about Seating. I think we've been saying over the last few quarters and some calls that we had really unfavorable mix in '22. And with the chip supply getting better, we are seeing a more normalized volume on some of the big platforms that we have. And therefore, we see the flow - through materializing. And a lot needs to be said about the team continuing to focus on executing as we had talked about various initiatives. So that's - - I'm glad we've been talking about Seating that it was a mix issue, and it is really showing now, right? I think you're right on the Complete Vehicles where we have said that the changeover and the launch cycle, is what ’ s impacting and it's still in line with the expectation that we have in that segment. And I think as we get past this year into the next year, we'll be able to give more color when we come back in February . But as we stand here today, I think it's tracking to what we expect . Operator We'll proceed with our next question on the line from Colin Langan with Wells Fargo .
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 12 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Colin M . Langan - Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst I f I l oo k a t t h e i m p li e d s ec o nd h a lf m a rgin, i t ' s a r ou nd 5 . 6 % , w hi c h i s c l e a r l y a b o v e y ou r f u l l y e a r g u id a n c e - - f u l l y e a r O u t l oo k . S h ou ld w e b e t h i n k ing o f t h a t a s t h e r i ght s o rt o f j u m ping o f f p o i n t a s w e go in t o ' 2 4 ? O r y o u k i nd o f m e n t i o n e d t h a t t h e r e ' s s o rt o f a c a d e n c e o f r ec o v e r i e s ? S o i s t h e r e s o rt o f a l i tt le h e lp fr o m t h e r ec o v e ri e s i n t h e f i r s t h a l f t h a t ' s h e l p i n g t h a t s e c o nd h a lf m a rgin m a k i n g i t , s o rt o f m a y b e n o t a g oo d b a s e t o b e t hin k i n g a b ou t ? Patrick W . D . McCann - Magna International Inc . - Executive VP& CFO I t hink w h e n y o u l oo k a t t he s e c o nd h a l f , y ou ' re c o r r ec t , b u t t his is w h a t w e h a v e b e e n e x p ec t i ng t h a t a s w e g e t t h r ou gh t h e b a c k h a l f o f t h e y e a r , t he r ec o v e ry i s g o ing t o be m o r e b a c k h a l f l o a d e d . A s w e m o v e i n t o - - a nd a s S w a m y s a i d e a r li e r, w e ' re s t i ll c o m f o r t a b le w i t h w h e r e w e ' re g o ing in ou r ' 2 5 p r o j e c t i on s . A nd w e ' re in t he m i dd l e o f ou r B P p r o c e s s , b u t w e do h a v e t o g e t t hr ou gh v o l u m e s a nd a ss um p t i on s a nd w h a t no t . B u t c o m ing i n, do w e e x p ec t t o h a v e a r e d u c t i o n in m a rgins in t o ' 2 4 ? N o . D o w e t hink w e c a n l a u n c h f r o m t h e m i d - 5 s u p w a rd s ? I a gr e e w i t h t h a t t h ou gh t . Colin M . Langan - Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst O k a y . G o t i t . A nd t h e n - - y o u m e n t i on e d b e f o re y o u - - s o h o w s hou l d w e t hink a b ou t t h e c a d e n c e a s w e go in t o n e x t y e a r ? B e c a u s e it s ou nds li k e y o u s t il l h a v e 1 / 3 o f y ou r r e c o v e r i e s m i ght n e e d t o g e t r e n e g o t i a t e d i n s om e f o r m . S o d o e s t h a t m e a n t h e r e ' s g o i ng t o be t h e s o r t o f c o n t in u e d s o rt o f t ou gh e r Q 1 u n t i l y o u g e t t h o s e r e c o v e r i e s ? O r i s t h i s b ec om ing m o re o f a n a u t o m a t ic f o r m u la b ec a u s e i f c e r t a i n c o nd i t i o ns a re m e t , y o u c an k i nd o f j u s t g e t t h e m J a n u a ry 1 . Louis Tonelli - Magna International Inc . - VPof IR I think it's way too early to comment on cadence in 2024. We need to get through our planning process and we'll have a better sense of that. Colin M. Langan - Wells Fargo Securities, LLC, Research Division - Senior Equity Analyst I g u e s s I w a s t r y i ng t o g e t a t m a y b e li k e h o w i t n o r m a ll y w o r k s ? D o e s - - do y o u h a v e t o s t a rt t h o s e n e g o t i a t i o ns a t t h e b e gin n i ng o f n e x t y e a r a g a i n? O r is i t m o r e o f a - - t r y i ng t o u n d e r s t a nd t he t r i gg e rs t h a t w ou l d h e l p y o u g e t t h o s e r ec o v e ri e s f o r w h a t e v e r i s n o t l o c k e d in t o p i e c e pri ce . Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director S o C o l i n, I t h i n k , l i k e I s a i d, t h e o ne t h a t i s in a m ec h a n i s m b a s is t h a t k ind o f f l o w s t hr ou g h , b u t t he o t h e r w il l b e d a t a b a s e d o n w h e re ou r s e t of a ss u m p t i o ns a r e in t e r m s o f e n e r gy a nd c o mm o d i t i e s a nd s o o n, r i gh t ? S o t h a t w il l b e a v e ry f a c t b a s e d . S o s o m e c o n v e r s a t i o ns f o r ' 2 4 a r e a l r e a dy o n t he t a b le t o t he e x t e nt t h a t w e k n o w t he in f o r m a t i o n . A nd i f y o u r e m e m b e r i n t h e l a s t 2 c a l l s , I s a i d i t ' s - - w h e n w e t a l k ' 2 3 , i t ' s n o t j u s t o n l y ' 23 , s o m e o f i t i s ' 2 2 a nd s o m e o f i t i s f o r w a r d - l oo k i ng t o t h ink a b ou t w h a t ' 2 4 w ou l d l oo k li k e . B u t li k e L ou i s s a i d, t h a t w il l b e c o m e m o r e d e f in i t i v e o n c e w e f i n i s h ou r s e t o f a ss u m p t i o ns a nd h a v e t h e p l a n in f r o nt o f u s . Operator We'll proceed with our next question on the line from Joseph Spak with UBSSecurities.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 13 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst Maybe a little bit of housekeeping just to start because I'm a little bit confused on the amortization color you provided. Like you adjusted your prior guidance by about 10 basis points, which suggests about $40 million. But then when I look in the quarter, it looks like you added back $32 million in the quarter. So, how do we square that because it doesn't seem like that, was the amortization like abnormally high in this quarter? Like why would it step down like and maybe you could just give us a better sense of sort of what you think - - what the full year amortization was last year or this year?And what the right run rate is going forward so we can properly adjust our models? Patrick W . D . McCann - Magna International Inc . - Executive VP& CFO Y e s . S o o n t he a m o r t i za t i o n, s o w e ' re t r y i ng t o g e t a n a pp l e s - a nd - a ppl e s c o m p a r i s o n . S o w h a t w e ' v e d o n e , w h e n y o u l oo k a t o u r f i n a n c i a l r e p o r t i ng t h a t w i l l c om e ou t t o d a y , i t ' s v e r y c l e a r l y l i s t e d o n ou r a n a l y s t r e p o rt o n ou r f i n a n c i a l s . B u t j u s t s p e c i f i c a ll y t o t h e n u m b e r s , w h e n w e g u i d e d in A u g u s t , w e s a i d $ 3 0 m i l li o n f o r h a l f a y e a r f o r V e o n e e r . S o V e on ee r is a b ou t $ 6 0 m i l li o n o f a n i m p a c t a n n u a ll y . W h e n w e d i d ou r f i n a l s c r u b o f a l l t he o t h e r a c q u i s i t i o ns t h a t w e h a d ou t t h e re o n a n a nn u a l b a s i s , t h e r e ' s a p pr o x i m a t e l y a n o t h e r $ 5 0 m i lli o n t h a t is g o i n g t o f l o w t h r ou gh . S o o n an a nn u a l b a s i s f o r t h e n e x t c ou pl e o f y e a r s , i t ' s g o i ng t o e b b a nd fl o w a s s t u f f r o l l s o f f, b u t y ou ' re in t h a t $ 1 1 0 m i l l i o n r a nge - - a nd l a s t y e a r w ou l d h a v e b e e n a b ou t 50 - 5 0 . Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst So it's $50 million and going forward, it's one time. Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Correct. And this year would be 80 - 80. Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst Right. So then - - the - - I know you think you said year - year sort of prior year, maybe this is in the document and I sort of didn ’ t get a chance to look through, but like as we think about fourth quarter, is the - - what's sort of the right jumping off point for the new measure of Adjusted EBIT?Is it like that seem like $11 million or $11 million or so that we need to add back to the fourth quarter? Louis Tonelli - Magna International Inc . - VPof IR Y e s . $ 1 1 m i l li o n r e l a t i v e t o w h a t w e s a i d l a s t q u a r t e r b e c a u s e w e b a s i c a l l y w ou l d h a v e i m p li e d $ 1 5 m i lli o n . S o a b ou t $ 1 1 m il l i o n i s w h a t w e w ou l d h a v e i n c r e m e n t a l t o w h a t w e s a id l a s t q u a r t e r . Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst O k a y . T he s e c o nd q u e s t i o n i s if w e l oo k a t B E S m a r g i n s l i k e i m p li e d i n t h e f ou r t h q u a r t e r , a nd y o u l oo k a t y ou r f u l l y e a r g u i d a n c e f o r s e g m e n t , t h e r e ' s a s t e p d o w n . I k n o w t h a t , t h a t s e g m e nt h a s b e e n p e r f o r m ing b e t t e r y e a r - t o - d a t e i n p a r t , I t h i n k , w i t h s o m e b e t t e r p e r f o r m a n c e a t s o m e of t h o s e u nd e r p e r f o r m i n g f a c i l i t i e s . B u t h o w m u c h o f t h a t s t e p d o w n i s s t r i k e - r e l a t e d b e c a u s e I k n o w t h e r e ' s s om e bi g c u s t o m e rs t h e r e . H o w m u ch o f i t i s m a y be a li t t l e b i t o f a p u s h - ou t f r o m t h e b a t t e ry e n c l o s u r e s b u s i n e ss ? A nd I g u e s s r e l a t e d t o t he b a t t e ry e n c l o s u r e s b u t I k n o w y ou ' v e m a de sort of big CapEx investment . Is there any thinking to sort of maybe slow or re - time some of that spend?Or is this something you just need to invest through?
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Yes. So I think there's 2 parts to the question. So I'll start with the first one. So from Q3 into Q4, you're correct, the impact of the strike at the UAW is higher in the fourth quarter relative to the third. So that's a drag on margins. The other issue, or not issue, is just a fact, iswe continue to launch business, we tend to launch businessmore in the fourth quarter relative to the third. So that'sdragging margins. But that would have been as expected. This is really a change from guidance to guidance, and that's reflected in our increased guidance range for BESfor the full year. On the second part of the question related to battery trays. Battery trays really aren't dragging the margin in the sense that most of the spend in the battery trade space is related to capital and it gets put onto the balance sheet. As far as timing of spend, we're sequencing our capital as required - - just to be clear, we're not in a situation of building something and waiting for business to happen. We have facilities and we're scaling the build related to the customers' production plan. So we're scaling our capital as needed. As Swamy said earlier, if those planschange. We're going to adapt as well so that we can delay our spend to the amount needed or as necessary. But we have to push forward in this space, but it's not really a margin impact related to this year. Louis Tonelli - Magna International Inc. - VPof IR Yes. I would just add, in terms of the UAW strike, it is a little more weighted not only Q4 versus Q3, but a little more weighted to BESthan the other segments. So I think that'sdragging. If you look at our implied fourth quarter, it really didn't changethat much. So it isn't really salesit hasimpacted really in any one segment, all that meaningfully. It's really just the – were waiting and the UAW strike, I think in that BES. Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst So isit likesomething that aneed handle, a better underlying rate for that business at thispoint if we sort of back out some elevated launch activity in the fourth quarter and the strike? Louis Tonelli - Magna International Inc. - VPof IR Well, I mean, we're implying kind of a range of 5% to 6.5% for the fourth quarter, right? Joseph Robert Spak - RBCCapital Markets, Research Division - Former Autos and Leisure Analyst Right. But I thought you mentioned there's some unusual stuff in the fourth quarter, right, at least the strike? Louis Tonelli - Magna International Inc. - VPof IR Yes. I mean we're not going to comment on where we're expecting to go beyond this, we'll give more color on I think in February. Operator We'll get to our next question on the line. It is from James Picariello from BNB Paribas. James Albert Picariello - BNP Paribas Exane, Research Division - Research Analyst J u s t b a c k o n t he S e a t i ng b u s in e s s . S o I k n o w y o u g u y s d o n ' t p r o v i de a b a c k l o g, b u t o f c ou r s e , y o u h a v e o n e . O ne o f y ou r c o m p e t i t o rs - a nd a l so b a c k o n t he E V t o pi c . O ne o f y ou r c om p e t i t o r s , t h e y s t a t e d t h a t t h e i r n e w b u s in e s s b a c k l o g, a b ou t 80 % o f i t f o r n e x t y e a r w a s t i e d t o E V p r o g r a m s . A nd t h e y w e n t a h e a d a nd c u t t h a t b a c k l o g c o n t ri b u t i o n f o r n e x t y e a r b y 20 % j u s t b a s e d o n t h e ir p e r ce i v e d v i s i b i l i t y o r r e a l v i s ib i l i t y i n w h a t t h o se 14 REFINITIV STREETEVENTS | www . refinitiv . com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 15 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. EV build scheduleslook like. So - - just curious what your EV program mix in the new business draw for the coming years?What that could look like in the Seating business? And, if any other major product categories that are, of course, powertrain agnostic come to mind in terms of this EV exposure? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director I think one of the things I mentioned overall, if you look at Magna thisyear, right, like all content or total sales related to EV platforms is less than 10%, right?And if you look at the specific question, I think you're talking about in Seating, I think Louis, thecontent for us on EVplatformstoday in Seating is not material. So we don't see that impact. Obviously, going forward into the outer years, which is too premature to comment, right, in terms of volumes because given the type of operations and so on, in outer years as we launch, I think we'll have to recalibrate with the customers if there is a significant change. Again, going back to my previous comments, we'll work with them to see how we need to recalibrate and what needs to be really put in place if there is a substantial change. James Albert Picariello - BNP Paribas Exane, Research Division - Research Analyst Okay. Understood. And then just one quick one on the LG/powertrain JV. Yes, as we think about the targeted revenue ramp to $1.5 billion or $1.6 billion, whatever the number is over the coming years, just in terms of the customer, regional mix of that joint venture, what that looks like? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Yes. I think we were roughly talking about $1 billion this year, Louis, right?And if you look at it, the customer mix is between North America and we are getting into Europe, right?And it is on programs that have been already there. And obviously, some will be going forward and launching. And this is what I would call a building block, which is like the e - machine and the inverter which are like a platform. And we think not specific only to a program. There isa certain amount of specificity to a program, but there isalso a generalized asset, which appliesto e - machinesin general. So I think there is a certain amount of flexible as we talk about the manufacturing and the engineering related to this and it's not tied to one program. S o a g a i n, g o i ng b a c k t o , t his i s w h e re w e t a l k e d a b ou t f l e x i b i li t y t h e r e . A g a i n , w e ' l l h a v e t o l oo k a t t he n u m b e rs a s w e g e t fr o m t he c u s t o m e rs if t h e r e i s a s u b s t a n t i a l c h a n g e . B u t a s w e s i t h e r e t o d a y a nd l oo k a t w h a t ' s ou t t h e r e . W e h a v e n ' t s e e n a b i g dr o p o r c h a ng e , b u t w e ' l l b e a bl e t o u p d a t e b a s e d o n ou r pl a ns c om ing b a c k in t o F e br u a ry a g a i n . Operator And we'll proceed with our next question on the line from Jonathan Goldman from Scotiabank. Jonathan Goldman - Scotiabank Global Banking and Markets, Research Division - Associate S o j u s t a q u i c k o ne o n t h e m a c r o . I b e li e v e y ou r p r e v i ou s N o r t h A m e r i c a n pr o d u c t i o n ou t l oo k d i d n o t f a c t o r i n t h e i m p a c t f r o m s t ri k e s . S o i f w e s t rip ou t t he i m p a c t t h a t y ou ' re p r o j e c t i n g , y ou r u nd e r l y i ng p r o d u c t i o n ou t w ou l d be u p f r o m pr e v i ou s e x p e c t a t i on s ? C a n y o u j u s t di s c u s s w h a t y ou ' re s e e i ng i n t he m a c ro e n v ir on m e n t t h a t s u p p o r t s t he r e l a t i v e l y b e t t e r O u t l oo k ?
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 16 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Yes, exactly. So when we guided in August, we guided ex - - we didn't assume any UAW or Unifor issues at 15.2 million units. Our estimate is that we lost 220,000 units as a result of the UAW labor disruptions, which would imply 15.4. Of the $15.4 of the $200 million increase that primarily came through in the third quarter. Jonathan Goldman - Scotiabank Global Banking and Markets, Research Division - Associate Does that mean new progress or product launches or market growth or any puts and takes there? Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Can you repeat the question?You just broke up a bit? Jonathan Goldman - Scotiabank Global Banking and Markets, Research Division - Associate Yes. So the incrementally positive market outlook, could you just discuss any puts and takes that you're seeing? Louis Tonelli - Magna International Inc. - VPof IR Just higher volumes - draws from our customers relative to what we were anticipating. Jonathan Goldman - Scotiabank Global Banking and Markets, Research Division - Associate Okay. Fair enough. And then another housekeeping one. You raised the margin guidance, but it looks like below the line items are flat and you maintained the free cash flow guidance for the year. Could you just help me bridge the delta there? Patrick W. D. McCann - Magna International Inc. - Executive VP& CFO Yes. I think the simple answer is that it's just a movement within the range. When you work through the math, we were comfortable holding the range where it was at. Jonathan Goldman - Scotiabank Global Banking and Markets, Research Division - Associate And there's nothing particularly going on with working cap or anything else? Louis Tonelli - Magna International Inc. - VPof IR No, exactly. Operator We'll get to our next question on the line from Michael Glen with Raymond James.
NOVEMBER 03, 2023 / 12:00PM, MG.TO - Q3 2023 Magna International Inc Earnings Call 17 REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us ©2023 Refinitiv. All rightsreserved. Republication or redistribution of Refinitivcontent, including by framing or similar means, is prohibited without the prior written consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. Michael W. Glen - Raymond James Ltd., Research Division - Director Can you just talk a little bit about Power & Vision margins?Like what I'm just trying to understand is the sequential uptick from Q2 into Q3. And even excluding the amortization of intangible dynamic, like you're showing a pretty notable lift from Q2 into Q3. Was Veoneer accretive to Power & Vision margin in the quarter?Just trying to figure out exactly what's behind the lift? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director Michael, I think if you look at the first half, we had a warranty item and there was a net negative commercial item in the Q2, and there was higher engineering costs. So that's kind of some in the first half. If you look at the second half, and obviously, we also had net input costs, which were a headwind in the first half. So if you look at the higher Sales in the second half and you take out all the one - timers, the warranty item, the higher engineering cost out that added to the bottom line, and the equity income was higher. Michael W. Glen - Raymond James Ltd., Research Division - Director Okay. And Veoneer, any comments on the contribution of Veoneer in the quarter to EBIT - - Power & Vision EBIT? Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director I would say the commentsthat we gave in the last call that we are in line with the expectations that we had during closing with Veoneer, and we continue to have good traction to realize the synergies that we talked about. Michael W . Glen - Raymond James Ltd . , Research Division - Director Okay . And then what - - just in terms of North America, I know that this quarter, there is a strike and everything like that . But would you say performance thisquarter was consistent?Like I'm trying to assess at the platform level and you identify your larger platforms each year in the AIF . Would you say there wasa pickup in the quarter acrosssome of the smaller programsthat you have in North America?Or wasit generally consistent with prior periods?As in, are the larger and more profitable programs at the level you expected in the period? Louis Tonelli - Magna International Inc . - VPof IR To be completely honest, I don't have that in front of me, so it's really hard - we don't look at it by region. So I'd have to look at it and see how we compares to what we see historically. I don't think there was anything notable that I can see in the quarter, but I'll look at it more closely. Operator And Mr. Kotagiri, there are no further questions at this time. I'll now turn the call back to you for any closing remarks. Seetarama Swamy Kotagiri - Magna International Inc. - CEO & Director T h a n k s , e v e r y o n e , f o r li s t e n i ng in t o d a y . H a pp y w i t h ou r c o n t i n u e d p r o g r e s s i n 2 0 2 3 . W e h a v e a r e l e n t l e s s f o c u s o n exec u t i o n o f ou r s t r a t e gy a nd m ee t i ng ou r m i d - a nd l o ng - t e rm t a rg e t s . A nd w e h a v e o ng o i ng c o n f i d e n c e i n ou r a b i l i t y t o m e e t ou r pl a n s . T h a nk y ou , a nd h a v e a gr e a t d a y . Operator And that doesconclude the conferencecall for today. We thank you for your participation as you disconnect your lines. Have a good day, everyone.
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