Greetings, welcome to the Q4 and year-end 2022 results and 2023 outlook conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. If you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Friday, February 10th, 2023. I would now like to turn the conference over to Louis Tonelli, Vice President of Investor Relations. Please go ahead. Thanks, Chris. Hello, everyone, and welcome to our conference call covering our 2022 results and our 2023 outlook. Joining me today are Swamy Kotagiri, Vince Galifi, and Patrick McCann. Yesterday, our board of directors met and approved our financial results for 2022, as well as our 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. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide today included in our presentation that re-relates to our commentary. This morning we'll cover our 2022 highlights as well as our Q4 results. We'll then provide our 2023 outlook, lastly, run through our financial strategy. With that, I'll pass it over to Swamy. Thank you, Louis. Good morning, everyone. Today, I'll recap 2022, comment on our results, and address our outlook. 2022 was another difficult year for the automotive industry and for Magna. The year started with continued supply chain disruptions, most notably the lack of semiconductor chips, which was expected to improve considerably during 2022, but instead remained an issue throughout the year. Although vehicle build recovered from the 2021 levels, OEM production schedules remained volatile throughout 2022, which drove significant inefficiencies in our operations, including trapped labor, overtime, and staffing availability issues, to name a few. It also had an adverse impact on our ability to achieve our continuous improvement plans and optimize our cost structure across the company. We also started 2022 expecting net input cost inflation of about $275 million year-over-year. The conflict in the Ukraine created additional input cost pressure, particularly in energy. China's zero COVID policy resulted in lockdowns and further supply chain pressures. These factors drove an additional $290 million of net cost headwinds, primarily energy-related. Despite significant cost volatility through 2022, we were able to slightly improve from our revised $565 million in net input cost from our April Q1 call. We ended at $530 million for the year. In the context of this industry environment, a tremendous amount of effort was expanded by our team to manage through the challenges, launch business, negotiate customer recoveries, and resolve commercial items. We were also successful in booking a record amount of business for Magna. While we are not happy with our 2022 results as a whole, and especially with underperformance in some of our facilities, I am appreciative of the tremendous efforts made across the company. Unfortunately, we ended a difficult year with disappointing Q4 results relative to our expectations entering the quarter. Our sales of $9.6 billion in the fourth quarter of 2022 were up 5% year-over-year compared to our outlook, Q4 sales were lower and mix was negative, with our operating segments down almost $400 million, excluding complete vehicles and the impact of foreign exchange. Turning back to year-over-year, EBIT margin for Q4 declined to 3.7%. This was due to both internal and external factors. Internal factors included higher warranty expense, which cost us about 35 basis points, provisions against certain balance sheet amounts, about 30 basis points, and operating underperformance at a facility in Europe, approximately 25 basis points. External factors included continued inefficiencies caused by ongoing last-minute reductions in OEM production schedules and a customer footprint decision that resulted in our having to take asset impairment charges, which was about 5 basis points. These were partially offset by higher commercial resolutions which positively impacted us by about 25 basis points. Our adjusted EPS was $0.91 for the quarter, ending the year at $4.10. Mainly as a result of lower EBIT, free cash flow in Q4 was $340 million, which was below our 2022 outlook. I recognize that we have operations that have underperformed our expectations this past year. Operational excellence remains core to Magna, a key differentiator and a fundamental element of our strategy going forward. Although we incurred additional costs to do so, we once again managed to minimize disruption to OEM production despite continued supply chain challenges and volatile schedules. Our customers continue to recognize our efforts in operational excellence and innovation. Last year, we received 107 customer awards. Our progress continues towards net carbon neutrality in our operations. Part of how we address operational excellence is through a focus on people. We developed the Operational Management Accelerator program to enhance the technical breadth of our future general managers and leaders. This will ensure we can fill the pipeline of future leadership across Magna. I'm proud that Magna received 14 leading employer recognitions this past year, including from Forbes for the sixth consecutive year as world's best employers. Turning to sales growth, we outgrew our markets in 2022 by 7%. Once again, we achieved this outgrowth in each of our major regions, North America, Europe, and Asia. We were awarded a record amount of business, about $11 billion annually for 2022. This represents more than 30% above the average of our last 5 years of awards. We expect this to drive strong sales growth over market and improved returns as these programs launch. We signed an agreement to acquire Veoneer Active Safety. This will further accelerate our growth and position us as a leader in the fast-growing ADAS market. We have begun planning to ensure a smooth integration of the business once the transaction closes this year. Finally, we remain committed to innovation. We were awarded substantial new business in a number of core innovation areas. This includes battery enclosures, eDrives, driver monitoring systems, and SmartAccess power doors. We won another Automotive News PACE Award, our sixth such award in the past 8 years. Our commitment to innovation continues. As we communicated last year, we increased our R&D investments in mobility megatrend areas in 2022 to support awarded programs and opportunities. With that, Pat, I'll pass it off to you. Thanks, Swamy. Good morning, everyone. I'll start with a detailed review of our financial results. As Swamy indicated, our 2022 results were impacted by continued significant disruptions in OEM production schedules, mainly due to supply chip shortages and input cost inflation in our primary markets to levels we have not experienced for decades. Overall, global light vehicle production increased 6% in 2022 or 5% weighted for our geographic sales. Our consolidated sales rose 4% year-over-year. On an organic basis, our sales increased 12%, driving a 7% weighted growth over market for the year and partially due to customer recoveries. Our adjusted EBIT margin and EPS declined during 2022, the single most significant factor being input cost headwinds, net of customer recoveries, which reduced our consolidated EBIT margin by about 160 basis points. The start/stop production impacts, while difficult to quantify, were also a meaningful headwind, negating some of the positive impact of higher sales. In addition, operating inefficiencies at an ES facility in Europe cost us about 35 basis points, and higher engineering to support our activities in electrification and ADAS negatively impacted margin by 25 basis points. Partially offsetting these favorable was favorable commercial resolutions that benefited margin by about 45 basis points. For the fourth quarter, global light vehicle production increased 5% as North America increased 7%, China increased 3%, while Europe declined 1%. On a Magna weighted basis, production increased 5% in the fourth quarter. Our consolidated sales were $9.6 billion, compared to $9.1 billion in Q4 2021. We had strong relative sales performance in the quarter, with organic sales outperforming weighted production by 8%, again, in part due to customer recoveries. Continued OEM production schedule volatility negatively impacted our pull-through on the higher sales. We had disappointing EBIT margin performance in the quarter, which resulted in Q4 EPS that was also lower than we expected and lower than 2021. Let me take you through the specifics on our margin. Adjusted EBIT was $356 million, and adjusted EBIT margin decreased 190 basis points to 3.7%, which compares to 5.6% in Q4 2021. The lower EBIT percentage in the quarter reflects higher engineering spend for electrification autonomy, increased net warranty expense, higher launch costs, operational inefficiencies at a facility in Europe, and provisions recorded against accounts receivable and other balances. These are partially offset by the impact of foreign currency translation, commercial resolutions, and higher contribution on sales, although significantly hampered by OEM production volatility. We indicated in our early warning press release last month, some of these items were not anticipated when we provided our outlook in early November 2022. In particular, the net warranty costs, the provision against AR and other balances, and the timing of net engineering expense. Turning to a review of our cash flows and investment activities. In the fourth quarter of 2022, we generated $501 million in cash from operations before changes in working capital and a further $755 million from working capital. Investment activities in the quarter included $750 million for fixed assets and $186 million for increase in investments, other assets, and intangibles. Overall, we generated $340 million of free cash flow in Q4. We also paid $126 million in dividends in the quarter. Growing our dividend remains an element of our stated financial strategy. Yesterday, our board approved an increase in our quarterly dividend to $0.46 per share, reflecting the board and management's collective confidence in the outlook for our business. We have increased our dividend per share at an average growth rate of 11% going back to 2010. Now I will pass it back to Swamy for comments before I get into the specifics of our outlook. Please note that our outlook excludes the pending acquisition of Veoneer Active Safety. Thanks, Pat. Over the past couple of years, we've been highlighting our go-forward strategy to propel our business into the future. While it is still early days and despite the difficult industry environment, we are making progress in our strategy. You're going to see that this progress is reflected in our 3-year outlook, mainly through investments in megatrend areas. We start to see some results of our strategy over the next 3 years, but most of the benefits are expected to be realized beyond our outlook period. As always, our outlook reflects both tailwinds and headwinds. In terms of tailwinds, we are launching content on a number of new programs, which is contributing to sales growth. Compared to 2022, we anticipate higher global auto production growth during our outlook period, although the growth rate is well below what we expected a year ago. As I said earlier, we continue to increase our business in megatrend areas, particularly electrification and autonomy. This additional business is leading to increased investment. In terms of headwinds in our outlook, while we experienced some improvement in 2022, we expect continued OEM production schedule volatility, primarily due to semiconductor supply constraints. Our business is facing further inflationary input cost impacts compared to 2022, especially in labor and energy, as well as lower scrap revenue. We expect incremental input cost headwinds, net of recoveries of approximately $150 million for 2023. However, I'll tell you that we continue to pursue additional recoveries associated with ongoing input cost inflation. Our prices need to more closely reflect the cost environment we are currently operating in. Lastly, with the existing macro environment, there is a risk that auto demand may be negatively impacted. How does all this translate in our key financial metrics? We expect continued strong organic sales growth in the range of 6%-8% on average per year over our outlook period. We anticipate margin expansion of 230 basis points or more from 2022 to 2025. Our engineering investments in megatrend areas should continue to average about $900 million annually before customer recoveries. Capital spending is expected to increase mainly to support our significant business growth, particularly in megatrend areas. Lastly, we expect our free cash flow generation, which has been impacted by the industry environment over the past couple of years, to significantly improve over our outlook period as margins expand and we get through our heavy period of investment for growth. As a result of the increased investment spending and the pending acquisition of Veoneer Active Safety, we plan to increase our debt during 2023. As we continue to execute against our long-term strategy, our number one priority in 2023 is operational excellence to improve margins and returns, as well as the seamless integration of the Veoneer Active Safety business once the transaction closes. I'll pass the call back to Pat to take you through the details. Thanks, Swamy. I'll start with the key assumptions in our outlook. Our outlook reflects relatively modest increases in vehicle production in each of our key regions relative to 2022. For 2023, our global light vehicle assumption is up about 2%. In North America and Europe, our two largest markets, volumes in 2023 remain well below levels experienced in 2019. However, we expect increased production in both markets through 2025. In China, we expect a modest decline in 2023 and growth from 2023 to 2025. We assume exchange rates in our outlook will approximate recent rates. This reflects a slightly weaker Canadian dollar and Chinese RMB, and slightly stronger euro, in each case relative to 2022. Net-net, the impact of currency to our outlook is expected to be negligible. I will start with our consolidated outlook. We expect consolidated sales to grow by 6%-8% on average per year out to 2025, reaching almost $45 billion and potentially as high as $47 billion. The growth is largely driven by the higher vehicle production and content growth, including as a result of the launch of new technologies across our portfolio. These are partially offset by the end of production on certain programs and the disposition of a manual transmission facility. On an organic basis, we expect consolidated sales growth to also be between 6% and 8% on average per year out to 2025. Excluding complete vehicles, we expect our organic sales to grow between 8% and 10% on average. For 2023, we expect organic sales growth of between 5% and 9% compared to global production of 2% or weighted growth of about 3.5%. You'll see that this growth requires additional capital. In addition, we are expecting significant sales growth from unconsolidated joint ventures over the next few years, including our LG JV for electrification components and systems, our integrated eDrive JV in China, and a new seating JV in North America. We expect our consolidated margin to be in the 4.1%-5.1% range in 2023. As Swamy noted, we expect continued input cost pressures in 2023, but we are focused on mitigating higher manufacturing costs via operational improvements and additional inflation recoveries. Relative to 2022, our 2023 margin is expected to benefit from contribution on higher sales, operational improvement initiatives, lower warranty costs, and the impact of certain AR and other provisions incurred in the fourth quarter of 2022. Offsetting these are lower expected commercial resolutions compared to 2022, higher net input costs of about $150 million, including $50 million related to lower scrap sales, lower license and royalty income, and higher launch and new facility costs. While we do not provide a quarterly outlook, we do expect 2023 earnings to be lowest in the first quarter of 2023, in fact below the Q4 level, and improve sequentially as we move throughout the year. We expect a step-up in margins from 2023 to 2025. This is largely driven by a contribution on higher anticipated sales, continued execution of operational improvement initiatives, higher equity income, and lower launch and new facility costs. Many of the same factors that are impacting consolidated sales and margins out to 2025 are also impacting our segments. In the interest of time, we will not run through the segment detail. However, we are happy to discuss any questions. Next, I would like to cover some of the highlights of our financial strategy. We have been consistent in communicating our capital allocation principles over the years, and I'd like to reiterate these. We want to maintain a strong balance sheet, ample liquidity with high investment grade ratings, invest for growth through organic and inorganic opportunities along with innovation spending, and finally, return capital to shareholders. As we begin 2023, our leverage ratio is just above the high end of our target range, substantially due to the recent impacts of the auto environment on our EBITDA. As Swamy noted earlier, given our investment needs in capital spending, working capital, and to fund the acquisition of Veoneer Active Safety, we plan to increase debt in 2023. We expect to maintain high investment-grade ratings with credit rating agencies and based on our current plans, we anticipate bringing our leverage ratio back into our target range by the end of 2024. We are entering a period of somewhat cyclical capital investment to support growth, similar to what we experienced in 2016-2018. We expect capital spending to be approximately $2.4 billion for 2023 and to modestly decline from these levels out to 2025. Compared to our 2022 level, about $1 billion of our incremental capital spending in the 2023-2025 period relates to our upcoming sales growth in megatrend areas during and beyond our outlook period. This includes almost $500 million in capital in 2023 alone. Based on our current plans, CapEx to sales will reach a peak this year before beginning to decline again. The global in-industry challenges have hampered our free cash flow over the past few years and based on our increased capital spending in the near term, will impact free cash flow. Based on our current plans, we expect significantly improving free cash flow throughout our outlook period. In summary, we expect continued organic sales above market, increased investments to support further growth and opportunities in megatrend areas, margin expansion over outlook period, including through ongoing operational improvement activities, and increasing free cash flow as sales and margins expand and our growth spending subsides. As Swamy said, we are highly focused on the integration of Veoneer Active Safety and getting back into our targeted leverage range over the next couple of years. Thank you for your attention. We'd be happy to answer your questions. At this time, if you would like to register for a question, please press the 1 followed by the 4 on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and 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. Once again, to register for a question, please press the 1 followed by the 4. Our first question is from the line of John Murphy with Bank of America. Please go ahead. Good morning, guys. Just a couple of questions on the, sort of the near term and midterm, you know, outlook. I mean, if we look at the 2022 to 2023 numbers, I mean, you could certainly argue there's a small decremental margin, right? As earnings could go down, even as sales go up on the low end, but then you could get something to sort of 13% or sort of mid-teens, depending if you wanna include the unconsolidated sales in there. You know, it's kind of a wide range. I know you kinda highlighted some of the factors here, but I mean, you know, if you were to think about sort of the extreme to the downside, what do you think would really drive that? I mean, the upside seems like it's kind of more normal in the, in the process, but the downside seems like it's pretty extreme. I mean, what would take you to that sort of low end of the range? Good morning, John. I think some of the things that I mentioned, right, have been difficult to quantify, and the one significant that shows up in my mind is the production volatility. Just to give a context and put some amount of magnitude around it without naming customers or platforms, if I just look across the major customers that we have, there are some programs where the volumes are in the 50%-60% of the contracted plan. On top of that, at these low volume numbers, the variability of the production schedules is hovering anywhere between 35%-50%. That is a significant inefficiency hit in terms of managing labor, looking at cap labor or just looking at the overall cost structure. I would say that is one significant impact. The other one is energy in Europe, how it ends up and how it progresses. Obviously, the third one is a significant headwind in terms of inflation and input costs. It's a complex equation that we're trying to solve here. You know, that's kind of the reason why, and looking at the geopolitical and macroeconomic issues that I think are the reason for the broader range that we're looking at. I think we'll be able to get a little bit more granularity as the year goes by. Swamy, the one plant or it seems like there's one plant in Europe that's causing you problems. I mean, it just kinda happens from time to time that there's, you know, you know, one underperformer in the, in the large portfolio. Can you kind of highlight or give us some details around what's going on with that? 'Cause it sounds like it's called out as one specific plant and what the turnaround process is there. Yes, John. It's a BES facility, and I think I talked about it in the last two quarters. It's basically, you know, the planning and efficiency, and I talked about a little bit in looking at the specifications and how it was underestimated, which led to a lot of constraints on production capacity and scrap. The good news is that over the last two quarters, it has been stabilized, and the expected impact that we had planned in Q4 came as we expected. I think the facility is stable, and we are continuing to improve in 2023. I think I've mentioned in the past, it takes a little bit of time to balance the capacity back to normal. Some of the outsourcing that we bring back in, get the stability that is needed, put the capacity that was needed. I'm confident that we are on the right path in that one, but you're right, that is the one facility that has had a significant impact in the numbers, on the underperformance bucket. Okay. Then just a second on the midterm, the 2023-2025, your guidance. I mean, you once again kind of have, like, 27% incremental. After what we're seeing from 2022-2023, I think there's a little bit of consternation that those might be a little bit on the optimistic side. You know, I mean, is this really a question of the markets normalizing on volume and volatility, and, you know, cost inflation normalizing, or is there something else that you can really control that will drive that kind of upside? There's a few factors, John. I think one definitely is, you know, we can't just hope, right? We are hoping that the market stabilizes, but we can't just bank on that. Some of it is accelerated, continuous improvement, how we are looking at it. We have had discussions in 2022 on recoveries with customers. They continue to have them, and we have started those discussions for 2023 already back in the Q4 of 2022, so they really know where we stand. It's not just limited to 2023. There is pre-2023 discussions that continue to be had. It's a mix of all of those. But I think they're also looking at the operational efficiency and excellence that I talked about is gonna be a key priority, right? Get back to their cash flow generation, looking at not even having the surprises that they've had, looking at root causes and how do we make it better. It's a combination of those. Seems like you're being awful polite given the volatility in the schedules that you're being given. Just lastly, real quick on Veoneer. What will be the financial impact, if you can just remind us on cash out the door, accretive, you know, when it becomes accretive, and if we think about that in the context of the balance sheet, does that put us in a position where there's likely to be no buybacks in 2023 and 2024 as capital is allocated in that direction, the balance sheet normalizes? Hi, John, it's Pat. Let me answer those in reverse order, if that's okay. If you, if you think about the share buybacks, you know, our financial strategy's been pretty clear, which is number 1 priority is investment grade ratings, number 2 is to grow the business. Then if there's cash left over after those activities, we'd be returning it through share buybacks. Given the capital levels and the acquisition of Veoneer, our intention would be that we're not gonna have any share buybacks in 2023, and we will normalize come back within our targeted leverage ratios. Then we would obviously revisit that in 2024. Veoneer itself, on the acquisition, we're still targeting a midyear close on that transaction. On a standalone basis, they're expected to be close to breakeven in 2023 on a full year basis, where it's gonna be marginally decremental in 2023 given the PPA that we have in there. As we move into 2024, the first full year of ownership, we expect it to be breakeven at the Magna level, excluding PPA. Got it. Pat, I mean, the cash, the cash out the door for that? The transaction price is approximately $1.5 billion. Great. Thank you very much, guys. Thanks, John. Our next question is from the line of Adam Jonas with Morgan Stanley. Please go ahead. Thanks. Hey, Pat and Swamy. A question on your actions. What are you doing specifically? What's the plan to improve these very disappointing results, Swamy? I mean, I see you call out cutting discretionary costs and securing more inflation recoveries, which, you know, may or may not be in your control, but let's assume, I think the market's gonna assume not fully in your control. You address a plant in Europe, is it time from my history covering Magna, there's never really been. It's been a long time since you've done like a more sweeping restructuring because you always have the Magna way, and it's just like continuously happening. Is this a chance when your margins are falling and your CapEx is rising into this environment where you need to do something a little more significant on the restructuring side? If you could be specific with how we should think of that'd be great. Thanks. Good morning, Adam. Good question. I think if you think back from 2018 timeframe, we did actually restructure and talked about the cost base. Unfortunately, with the COVID and everything, we didn't see the impact that we thought we would. but we did see it, and it got offset by a lot of stuff. That's one. discretionary spending and cost recoveries are just a couple of elements that we're talking about. I think, like I said, one of the key factors is looking at, you know, production volatility is given. hopefully it gets better, but it's been there long enough. We are looking at how, what discussions to be had and how do we address it, so we can have a little bit of a more stable run rate and look at cost optimization across, whether it is to offset, you know, the labor inflation side of things or some of the other, cost inputs that are coming. That's gonna be important for us. That, I would say, is the more broad sweeping initiative across the company. In terms of restructuring, I think that is an annual process that we go through to see, reconsolidation, divestitures. If you look back in the last three years, we've done that and we continue to do so. I think the key is going to be looking at how do we get the cost base, a new cost base, given the volumes that we're seeing over the near term and the midterm, which is not really recovering to the 2019 levels. I would say that is going to be the fundamental focus and priority for us, to get the cost bases to where we need to given the volumes. I think the volatility is something we have to take into account. We'll be there, and we have to address it. if I can just add, Swami. Thank you. You know, sorry, Adam. You think about that restructure, Swami mentioned we have done significant restructures. We've looked at the products portfolio and taken out, you know, whether it's significant groups. The outlook we do provides on a, I would say a adjusted basis. We do have significant restructuring. Even in our 2020 through 2022 period, we recorded significant charges in Q4, and we're gonna continue to restructure our footprint for a couple of reasons. One is as ICE transitions to BEVs, we're gonna have a transition has to happen there. We're also transitioning our footprint from higher cost regions into best cost countries, and that's gonna continue. When you look historically where we have those costs, those are gonna continue in the future as we move forward. Some of the margin improvement we're anticipating on the earlier question is driven by these restructuring actions. Thanks, Pat. Just, one follow-up. Thanks, Adam. on, the Sure. Capital intensity. You look back 10 years, 20 years on Magna, and your CapEx has been around 4% of sales. I've never seen it at 6. You're gonna be near there this year. You called out that that's kinda temporary, and it'll decline thereafter. Beyond that, as we think of the shape of decline from 6, is 4 the wrong number? Is a new normal maybe closer to 5? It, it seems like the capital intensity in the business might be structurally rising for the next few years. Am I wrong there? Should we kinda throw that 4% out the window? Thanks. I think in the near term, Adam, the 4% would be below. You know, I was at a very. Actually, Swamy myself, we were at a very capital intensive group in our career. Really what you see when you look at a cycle, where you have awards, the growth is just not lumpy. Right now, with the growth that's ahead of us, you're putting heavy investment in. This is beyond a Magna issue as well, where you're growing with a new industry, where you're looking at EV penetrations going up, we're transitioning our portfolios from one to the other. More importantly, we're growing with new products. That requires significant capital. We are above 5. We expect to be above 5 through our outlook period, it's gonna normalize. You know, where is it gonna normalize down to? I see no reason it wouldn't normalize back down to where we've operated historically. A little bit more color, Adam, I think we operated generally around $1.8 billion or so, even for 2022, and we ended up at $1.7 billion. Some of it was deferrals into 2023. As I mentioned, we had a record level of awards in 2022. That means requires capital prior to program launches. As I said, this is at 30% higher than five-year average bookings. So I would say about $500 million of that is in 2023 alone, is in the megatrend areas. This includes battery enclosures, which is the lion's share, and along with powertrain electrification, ADAS, and new mobility. But I think as Pat mentioned, we expect this to be back to the normal levels. you know, we are confident that's how we see it, unless there is new business, which would be good news at that point. The ratio should be back to where we historically have been. Adam, if I could just add, just to be clear, these investment decisions are return-based transactions, and we haven't compromised our return expectations. This is capital that we're growing. If you come back to our capital allocation strategy, its number one priority is to grow the business, grow it internally, externally, whether it's greenfield, brownfield. If we're generating returns at our appropriate expectations, that's our priority, and we continue down that path. We haven't made a decision to decrease returns with the objective of growing sales. The objective is to grow returns in the future and drive value for shareholders. Thanks, Pat. Thanks, Swami. Thanks, Adam. Our next question is from the line of Peter Sklar with BMO Capital Markets. Please go ahead. Hi, good morning. Hi, Peter. Yeah, good morning. You've talked this morning about the, you know, the elevated level of engineering costs that you're incurring. You know, it sounds like they're mostly related to vehicle electrification and ADAS. Can you talk about, like, how do you get a return on that investment? Is there customer reimbursement and this is a timing issue, or do you recover it through the programs? I would assume you recover these costs through the programs. When is the crossover point when these programs are of a sufficient... You know, they've ramped, they've begun, they're of a sufficient scale that you start to recover some of these costs. Peter, I'll start and Swamy jump in. So, so when you think about the engineering spend, we say they're elevated. I would say they're fairly consistent with our previous outlook, where we would've been guiding. When you think about some of these new types of products we're getting into, they're higher engineering. Adam just spoke about capital intensity, and that applies in our industrial group where you're buying assembly lines, brick and mortar, that type. When you move into electrification and ADAS type programs, your capital spend tends to be lower, but it's replaced with an engineering analysis. But our program analysis, our quoting models don't change. It's still viewed as a we treat it effectively as a capital spend. So that's kind of the return profile. When you think about the engineering spend that goes through our books, as you said, it's two pieces. There is a piece that's up lump sum upfront payments prior to program, prior to SOP. The second portion is you might have it recovered, so you'll see this other asset spend we refer to, and this is guaranteed spending that we recover over the program life. The third obviously just comes through piece price, piece price recoveries. All that being said, long answer, our expectations are we're gonna win, we're gonna recover all that engineering spend, and the returns on those programs are equal to the returns we achieve in the rest of our portfolio. I think that's one of the things we said, that we are expecting the net engineering to be relatively neutral to earnings through our outlook period, and it's gonna be $900 million annually as we had talked in the past. We're just talking about the Q4 is just a matter of timing. Okay. I believe I heard you say, Pat, that you expect that earnings are going through 2023, quarterly earnings are gonna improve sequentially, and that the earnings. Mm-hmm -level on adjusted basis in Q1 would be less than the Q4 that you just reported to date. When I look at the just looking at the industry, you know, vehicle production volumes, like North America and Europe are gonna be up quarter-over-quarter. Why what are the dynamics that's causing Q1 to look a little bit weaker than Q4? We, if you think about Q4 and you normalize it for some of the unusuals, and we take that out, I would say that's factors going one way. When we move into Q1, we did have some positive commercial settlements in Q4 that just the nature of how these discussions proceed, Peter, and a split of what's continuing versus what's new, those discussions will tend to resolve. We're conservative in our accounting procedures, so we're gonna only record those recoveries as incurred or received. I think it's, you know, it's slightly below Q4 levels, Peter, and then we're gonna see growth as we come through. The other factor you have to consider is, as we go through the year, we're expecting volatility in the industry to improve just as we move throughout the year. I would say it's a combination of unusual items in Q4. It's the inflation recoveries being pushed into Q2, Q3, Q4, similar to what we experienced this year, and then normalization of the OEM production schedules. Just lastly, like one of the issues that you've raised for the on the Q4 earnings has been higher warranty accrual. What's going on? Is there any one program that caused this, or is it just kind of random from quarter to quarter? No, Peter. I think this was specific, one product line or one program product in electronics, that caused the warranty issue in the P&V segment. Can't get into the specifics, obviously, with the customer and all of that, but it was one specific program, contained and understood. It's done, it's behind us, and it's related to electronics. Okay. Thank you for your comments. Thanks, Peter. Our next question is from the line of Mark Delaney with Goldman Sachs. Please go ahead. Yes, good morning. Thank you for taking the questions. The company's 2025 EBIT margin outlook is about 100 BIPS lower than what the company thought it was going to do for 2024 when you gave that three-year plan a year ago. The revenue views are pretty similar, what you think you'll do in 2025 versus what you thought in 2024. It doesn't seem like there's any change to the revenue view that, you know, three years forward, but margins are now 100 BIPS or so lower. Could you bridge us what's changed on the EBIT margin potential of the business in three years? Yeah. Good morning, Mark. I would say the most meaningful change from what we said last February to what we're talking about is lower volumes, right? We talked about the higher level of net input costs and lost sales and contribution from our business in Russia. I would say those are the significant points that account for the change. You've got to look at margin loss, right? Our percentage has been negatively impacted by increased revenues and costs from inflation. I keep repeating this, but if you take into account the loss due to the volatility in production schedules, the inefficiencies, you know, we are not discounting that it'll be fully done. Hopefully it does, but that's been a, you know, negating factor too. Got it. Thanks for that, Swamy. My second question was on the pricing environment and the ability for Magna to get recoveries from customers. Maybe you can elaborate a little bit more specifically on what happened in the fourth quarter because, you know, I know it was a positive in the quarter, but I don't think it was as much of a positive as the company had originally been guiding for. What happened in the fourth quarter on recoveries? Can you talk a little bit more on what's assumed in recoveries for 2023 in terms of what would get the company to the lower end of the guidance and what would have to happen with recoveries to get to the higher end of guidance? I think Mark, maybe I just wanna clarify. You know, we have guided to, from a net cost, inflation-wise, was about $565 million in our Q1, April, and we ended up at $530. That was one. I mean, when we talk about settlements, I think we gotta take all of this into account as we have discussions, right? Some of it is coming in terms of more process-oriented, long-term adjustments. In terms of recovery, some of it is coming in lump sums. And some of it is offset to givebacks and so on. When the customers have, for example, a change in production footprints or, you know, volume agreements that were there in contracts, that ends up in commercial settlements. Our guide to what we said the net inflation cost was going to be, I think we held and did better. Commercial settlements are really a little bit in terms of negotiations overall, which ended up, you know, in the fourth quarter. I think, Swamy, just to add to that. Swamy, you're exactly right. Relative to expectations, we outperformed, and that's what drove the decrease from the 550 down to the 530 mark. On a year-over-year basis, you're correct, where we do have headwinds on a year-over-year basis. Relative to expectations, we outperformed on a year-over-year basis. It's off for the quarter. Okay. Just one last one for me, if I could please. The, you know, the warranty expense, I believe I heard it's contained to 2022, so you're not expecting that to be an issue in the 2023 guide. This underperforming facility, maybe elaborate how much of a headwind do you expect that to be? Thanks. Relative to 2022, Mark, the operating facility in Europe is expected to be a positive. As we said earlier, we have the headwinds of 2022 relative to expectations. We move into 2023, we're seeing improvements. We have, this is full focus. We have a team dedicated to it, and we're driving to execute everything Swamy's talking about as far as increasing capacity, reducing the outsourcing, and we're seeing the benefits of those actions take place already, and they're gonna continue to improve both throughout the year. Okay, thank you. Thank you. Our next question is from the line of Itay Michaeli with Citi. Please go ahead. Great. Thank you. Good morning, everyone. Just two questions for me. I was hoping we could go through some of the segment margin walk on slide 30, and particularly on complete vehicle assembly for 2023 and 2025. Then just secondly, hoping you could also comment on kind of what you're seeing, the latest on overall production volatility by region, and whether you're starting to see any signs of stabilization that kind of supports the outlook for improvement in Q2 and beyond. You know, morning, Tay. It's Pat. I'll start with the first one as far as the margins in complete vehicles, and Swamy can jump in on the schedules. Looking at the complete vehicles, the margin from 2022 into 2023, there's a few factors that are, that are driving that. In 2022, we did benefit from some customer settlements and licensing income, so we had licensed out an E/E architecture. Both of those are expected to recur in 2023. Those two factors are a negative drag of about 70 basis points. The second bucket I would refer to is we do have higher input costs. This is an operation in Europe, where we do have significant labor and energy headwinds. At the same time, we do have engineering program specific costs that are accelerating in 2023 versus 2022. Those two factors combine for about a 90 basis point impact. Obviously, as we've discussed previously, we're transitioning that facility as we move certain programs out and launch new ones, and those costs are a drag on earnings, just by the nature of incurring costs and lower revenues. Perfect. That's very helpful. Maybe just a comment on the production volatility? Yeah. I think the production volatility in terms of a couple of programs, right, significantly lower than what the expected volumes were. We always plan to some degree on launch-related costs, but there's more, you know, more than estimated sometimes, you know, as these launches go through. I think there is a little bit in terms of that level of costs associated with this transition that's being a drag. Got it. This year. Yeah. Perfect. Thank you. That's very helpful. Thank you. Our next question is from the line of Colin Langan with Wells Fargo. Please go ahead. Thanks for taking my questions. Just wanted to follow up on input costs. You noted it was $150 million for this year. Any color on what% recoveries you're kind of assuming in that so we could kind of gauge the sort of expectations there? You said you ended at $530 million for 2022. Is the long-term plan to get 100% of that? Any color on that? Of that, when you negotiated last year, is all of that locked in or do you have to renegotiate if costs don't come down for some of that address? Good morning. As I said in my previous comments and to a previous question, you know, some of these settlements, right, are long term. That means the changes in piece price going forward, programs being indexed, you know, which takes away the volatility and so on. Some of it is just addressing the amount specific to the year of 2022, but it does give us a framework and a precedent. It's a combination of addressing both. Together, we won't get into the specifics ofYou know, customers and how and what. I can definitely say that, you know, we've started the discussions in Q4. The customers know where we stand. Obviously, we want the economics to reflect the current state in terms of where the market is. It's a combination of those. you know, like Pat mentioned, there's a lot of these discussions ongoing, and we're gonna use what we had in 2022, but the discussions on 2022, even of pre-2023, I would say it's not even that, right? We continue to pursue recoveries on all aspects, not just for 2023, but some elements of 2022. Okay. I guess, just put it another way, I mean, are you thinking of this as this the cost that you're gonna have to find ways of coming out over time? Or you're thinking customers, eventually you'll be able to get this through customers in some period? Because I think other suppliers have talked about some of this is just their responsibility at this point. Some of it is. It's both, right? There are some which are indexed, some which are. I talked about production volatility and scheduling. We definitely want to be partners in helping, and as we said, we did not cause any disruptions, but it comes at a cost. We have to work together to figure out how to reduce that volatility so we can address the cost base and, you know, health efficiency overall. On the other hand, we are not saying it's just everything outside. In my prepared comments, I did talk about, you know, continuous improvements and resetting, I would say, the cost base, but that can be done, you know, only if you work together. It's kind of a bilateral, but there are some issues which we continue to push in terms of recoveries, whether it's labor, energy, or commodity costs. Got it. Just if I go to the slides last year, you targeted a pretty impressive $6 billion in free cash flow from 2022 to 2024. If I look at the slides this year, the same period looks like it's adding up to something less than $2 billion. I mean, what are the main drivers here? Is it Obviously, CapEx has stepped up. Kind of why is that? Because it's only been a year. You know, I assume a lot of it's the margin weakness. Anything else from a working capital perspective that's sort of, you know, impacting that number that we should be considering? Hi, Colin. It's Pat. When I think of where we were last year and where we stand today, I think the biggest variances are a few, right? Swamy touched earlier on the margin question if we just focus out to 2025. We're impacted by We've seen significant volume of geopolitical issues in Europe that are driving volumes down for those effectively on throughout our whole outlook period, too, which is driving inflation significantly. If you think about our outlook we provided last year, we updated it in April, and we reflected an additional $290 million primarily of energy costs. You have... The third thing is, as Swamy said earlier, is we were forced out of our Russian operations. On the P&L side, you have those factors driving our earnings. Then we have significant growth above where we expected last year. When you think about that growth, that flips into what we see on our cash flow statement, which is driving higher capital, whether it's accelerated, but it's significant capital-driven growth. Long answer, but I think it's a combination of volumes, input costs offset, and thirdly, just the growth that's driving the cash. Okay. All right. Thanks for taking my questions. Our next question is from the line of Rod Lache with Wolfe Research. Please go ahead. Hi, everybody. As, as we look out to 2025, you do have the company getting back to over $3 billion of EBIT, similar to where you were back in 2018, but on much higher revenue and more capital than we saw back then. I was just hoping you can address whether the business is structurally less profitable going forward. I'm still not sure I understand what you're assuming with regard to the, I guess, it's $680 million of higher input costs, the $150 this year and the $530 last year. Are you assuming that that essentially gets recovered by mid-decade? Rod, maybe Marty, I'll answer the second part of that question. Swamy can jump in on the first. For 2022 versus 2021, we had net input cost headwinds of $530 million, and that's what was reflected as an EBIT hit, I would say. As we move into 2023, the additional $150 is a combination of headwinds. We have inflationary costs primarily in Europe for labor. Labor is actually global, but we're seeing labor headwinds where we're operating where the increases are in the mid digits, mid digits for above standard across the globe. We also have continued energy headwinds in Europe. Those are the first two buckets driving headwinds into 2023. The other part of it. That's $100 million on a net basis, net of recoveries. The second part is scrap, these are contractual scrap balances month to month per contract. To answer your question, we have a $150 million incremental EBIT charge in 2023 versus 2022. Rod, to you. Yeah, Mike. Sorry, go ahead. Sorry. I was asking about whether you have that reversing by 2025. The combination of these headwinds, are you anticipating that in this $3 billion of EBIT that you're projecting by then, that that has been fully recovered or resolved somehow? No. It's a portion would roll off, Rod, as contracts launch. You have a combination of old economics, new economics. As we continue our business, and you think about a launch period, you know, these inflationary headwinds started hitting roughly this time last year. As we move forward and launch new business, that would reflect new economics. Out to 2025, a portion would reflect a combination of old and new. The answer is somewhere in between. Some of this rollover changes like, you know, labor inflation is gonna be sticky, and we have to offset that in terms of continuous improvements and other, call it, structural improvements going forward and accelerate the continuous improvement as we talked about. To address the first part of your question, Rod, I'm confident that it is not a fundamental shift in the profile of the business, right? I think some of the things that we talked about is actually the transition of all this input cost effects and the higher investment that we're making for the businesses that we have won. I think as we transition through in the long term, I believe there is no foundational or fundamental change in the profile of the business. The 2018, in terms of percentages of ratios, we can get back to, but I think the more important part is, you know, that's weighing on us is the uncertainty of what's going on in the industry right now. Thanks for that. Just Swamy, just in light of what's happening in the market and strategies of some of your peers, are you still of the view that diversification is a net positive for Magna? Just given the complexity of issues in different parts of the company that we've seen over years, is there more benefit from focus on and having some of the businesses kind of in-independent-? Yeah, I hear you. ... respond. Yeah, Rod, I think if I understood your question, you're talking about the portfolio of products and the focus related question. I tend to kind of look at what's happening in the industry and how the car of the future is gonna be designed or how is it gonna be sourced is changing. Our customers are, you know, shifting their organization even, whether it is the sourcing side of things or engineering side of things, to be looking at more highly integrated systems. Some of the OEMs have already changed their organizations to address that aspect of it. I think we're at Magna, not looking at, you know, body and chassis and seats and electronics and, you know, powertrain as independent, but more as what are the systems that are gonna evolve going forward, and how do we bring those synergies to give a system approach solution to it. With that said, you know, we continuously look at each of these products, how they evolve and how relevant are they going forward and what synergy values that we can bring. If they're not, as we have done in the past, you know, we'll do what is necessary. All right. Thank you. Our next question is from the line of Michael Glen with Raymond James. Please go ahead. Thanks. Just wanna zone in a bit on the Body Exteriors & Structures margins. Can you just highlight how the megatrend or incremental spending with megatrend is impacting that specific business? Is battery enclosures part of that segment? I guess I always thought it was somewhat agnostic to megatrend, but I'm just wondering if there's something there we should be thinking about. I would say when we say it's agnostic, I think most of the content that we have had and continue to have remains, although it evolves a little bit, in material and process, irrespective of the propulsion system. An added, you know, addition to the product in that segment would be battery enclosures, right? As the electrification continues and we have the material knowledge, the joining technologies, as well as the asset base, that has become a significant growth area. We have seen that both in terms of wins of programs, but also you see the amount of investment we're making on business that's already been awarded. In some cases, it's expanding the volumes of the business that has been awarded. Okay. For that $900 million number, are you able to break that down across how that splits across the various segments? I would say the $900 million is predominantly on the P&V segment. As Pat talked about. This area in whether it's electrification or electronics and, you know, and so on are more call it engineering-intensive. When we talk about BES, it's more capital intensive, right? We also have to keep in mind that the asset base that we have, which is not program specific, is an advantage for us, right? Again, we follow the same philosophy of getting the right returns and looking at each of the programs. Yeah, okay. The $11 billion of new business wins that you spoke about, so A, can you give some idea of how those spread across the various segments? As well, can you describe how the margin profile embedded in that $11 billion is different from what we've seen historically? Is it much lower on the front end of that versus what we've seen historically? I think as I said in my comments, I won't get into breaking up $11 billion by product line, but I definitely will have mentioned and will repeat, it's across Magna. There is definitely a incremental business for the megatrend areas, and I talked about whether it's eDrives, whether it's battery enclosures, whether it's driver monitoring systems and so on. And I just want to reiterate, the business growth is always on the financial hurdles that we have followed before, which is returns-based, and the profile remains the same, right? It is not at lower margins or lower hurdles financially. I believe as we launch this business going forward, our returns profile and cash flow generation, you know, it gets better. Okay. Thank you. Welcome. There are no further questions on the line at this time. I'll turn the presentation back to Swami for any closing remarks. Thank you, Chris. Thanks everyone for listening in to our call today. Industry conditions continue to be tough. We remain focused on controlling costs across the organization, improving underperforming operations, and pursuing inflation recoveries from customers, all while executing our go-forward strategy. Enjoy the rest of your day. Thanks for listening again. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect.