Q4 2020 Aptiv PLC Earnings Call
[music].
Good day and welcome to the active fourth quarter for 'twenty 'twenty earnings Conference call. My name is Simon and I'll be your conference operator today, all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you.
And they know rosman active vice President of Investor Relations you May begin your conference.
You Simon and good morning, and thank you to everyone for joining <unk> fourth quarter 2020 earnings conference call.
Follow along with today's presentation, our slides can be found at IR dot <unk> dot com today.
Day, and review of our actual financials exclude restructuring and other special items and will address the continuing operations of <unk>.
The reconciliations between GAAP and non-GAAP measures for both our Q4 financial as well as our outlook for the full year 2021 are included at the back of today's presentation and the earnings release the earnings press release.
Turning to slide two please see a disclosure on forward looking statements, which reflect <unk> current view of future financial performance, which may be materially different from our actual performance for reasons that we cite and our form 10-K, and other SEC filings, including uncertainties posed by the COVID-19, pandemic and the difficulty and.
Predicting its future course and impact on the global economy.
Joining us today will be Kevin Clark, <unk>, President and CEO, and Joe Massaro, CFO and senior Vice President of business operations Ken.
Kevin will provide a strategic update on the business and and Joe will cover the financial results and our outlook in more detail with that I would like to turn the call over to Kevin Clark.
Thank you Elena and thank you everyone for joining us today.
Our 2020 results and our outlook for the year ahead underscores the work we've done to build a stronger and more sustainable business, one that grows faster and more profitably and generate more consistent earnings and cash flows.
I am proud of how well our teams performed during these difficult times and it remains challenging to meet recovery demand, while managing through the COVID-19 pandemic and the further tightening of the global supply chain.
Our continued resiliency as a result of the passion and the commitment of our team members to deliver for our customers and our shareholders and as a result, we experienced strong fourth quarter financial results.
Revenue increased 14% to $4 2 billion, representing 13 points of growth over the underlying market.
Operating income and earnings per share totaled $476 million and $1 13, respectively, resulting.
Resulting from strong volume growth, partially offset by incremental manufacturing and logistic expenses associated with ongoing supply chain challenges, which I'll cover in more detail shortly.
Our 2020 results further validate our business strategy, including revenue growth of 10 points over market and $18 billion of new business awards, reflecting our unique position at the intersection of the safe Green and connected Megatrends that are accelerating and our industry.
Moving to slide four.
As we enter the start of the economic recovery, we face a new set of supply chain challenges. While also continuing to operate safely in the midst of the COVID-19 pandemic.
Our outlook for 2021 reflects market share gains and content growth and our key product lines, including high voltage electrification and active safety driving 16% revenue growth six points over underlying vehicle production and translating into strong margin expansion and earnings growth.
We also are forecasting significant cash flow generation and our ability to reinvest that cash to deliver incremental value creation is a key component of our investment thesis.
At the same time, we're closely monitoring and adjusting to the impact for the COVID-19, pandemic is having and our operating environment.
And our industry is now facing increased pressure from a global shortage and semiconductor chips impacting virtually all of our suppliers and customers around the world.
As a result, we expect the environment to remain challenging for at least the first half of the year and it reflected the uncertainty associated with OEM production schedules and the timing of replenished inventory levels and our full year forecast for vehicle production.
We now expect to increase 10% and 2021.
While our team is doing an excellent job minimizing these effects as customers idle plants and look to prioritize certain vehicle platforms the cost.
Associated with the related labor and manufacturing and efficiencies and higher logistics expenses have been included in our financial outlook for the full year.
Due to limited visibility to near term production schedules. This precludes us from providing guidance for the first quarter.
However, our confidence and the strength of the underlying economic recovery combined with the planned second half increase and semiconductor capacity does give us a reasonable level of confidence and our full year outlook, which Joe will cover in more detail shortly.
Turning to slide five despite the challenges. We currently face we remain focused on further enhancing our track record of outperformance and long term value creation.
While our business model has been tested over the last several months our performance has validated our industry, leading position and through cycle resiliency.
As we look ahead, we have positioned <unk> to continue to outperform with focused investments that have enhanced our business model and expanded the addressable markets. We served leveraging our unique brain and nervous system capabilities to deliver even more content on the electrified software defined vehicles of the future yielding accretive growth opportunities.
<unk> and our two business segments, and presenting incremental value creation opportunities through smart capital deployment and delivering meaningful shareholder returns as the economic recovery unfolds.
As shown on slide six fourth quarter, new business bookings totaled $7 5 billion.
Reflecting robust win rates and a ramp up and consumer activity.
Full year 2020 bookings reached $18 billion, roughly flat compared to 2019 levels. When you adjust for the current outlook for global vehicle production.
Our advanced safety and user experience segment, new business bookings totaled $4 7 billion for the year, including $3 7 billion and active safety Awards.
New business bookings for our signal and power solutions segment totaled more than $13 billion, including another $2 billion of high voltage electrification awards.
We continue to see and acceleration of powertrain electrification driven by both more stringent regulations, principally in Europe, and China, and the increasing momentum of consumer acceptance and the U S. R.
Our complementary high voltage distribution and connection systems as well as cable management solutions significantly reduce the weight and master the vehicle architecture through smarter more efficient design.
Perfectly positioning <unk> to benefit from the two fold increase in addressable addressable content on our high voltage electric vehicle.
In summary for the cumulative amount of our new business bookings over the last few years gives us confidence and our ability to sustain strong above market growth across both of our business segments.
Validating the strength of our portfolio of market relevant technologies aligned to the safe Green and connected Megatrends.
Turning to slide seven and <unk> is enabling our customers to accelerate their transition to electrified software defined vehicle by employing a more holistic engineering and development approach to optimize the software and system solutions that span the full vehicle stack.
Throughout the COVID-19 pandemic, we continue to fully fund strategic growth initiatives and last month, we unveiled the latest result of those investments and our innovation and motion and virtual event, which included apt and smart vehicle architecture.
Which represents apt and <unk> vision for the full electrical and electronic architecture of the vehicle.
FCA represents a scalable approach that lowers the total cost of ownership for our OEM customers, while unlocking more value and the vehicle at the point of aggregation and creating new hardware and software revenue opportunities for both active and our OEM customers.
Our industry, leading position and domain controllers and expertise and advanced Adas solutions provides a terrific launching pad as we work with our customers on their next Gen architecture solutions.
For customers on the path to SBA, we unveiled our next Gen <unk> platform, leveraging our deep systems expertise and learning from deploying the industry's largest most diverse safety installed base over the last 20 years with active safety technologies and used by 20 different global automakers.
We also highlighted our new approach to zone controllers, which leverage leverages insights from our unique position with both the brain and nervous system of the vehicle to safely and efficiently distribute power and up and a great body functionality, while simplifying the vehicle manufacturing process, thereby enhancing the scale ability of advanced vehicle Arca.
<unk> systems.
<unk> will be the first to market with zone control with a European OEM and 2022, and we have a robust pipeline of commercial pursuits planned for 2021.
Electrification is also an integral part of the FAA Road map and <unk> has emerged as a partner of choice capable of providing comprehensive and optimized high voltage solutions to our customers.
That agility has led to increase share of wallet with both leading and emerging electric vehicle manufacturers ramping up production globally.
Including a U S, including a leading U S EV company.
As well as companies such as <unk> Neo and Volkswagen.
Lastly, many of these same advancements apply inside the cabin.
And where we've developed a scalable user experience platform solution enhancing performance, while reducing total systems costs through seamless integration of multiple functional domains.
As we look to 2021 and beyond the innovation that we have and motion will further expand our competitive moat and take us closer to our mission of delivering a safer greener and more connected future of mobility.
Before turning it over to Joe on Slide eight I want to take a moment to highlight a number of commercial and technological milestones at motion all our automated driving joint venture with Hyundai Motor Group.
And December Motional announced an agreement with Lyft to launch a multimarket Robo taxi service in major U S cities beginning in 2023.
Utilizing a scalable automated mobility on demand vehicle platform developed in partnership with Hyundai and available to customers beginning in 2022.
Last year emotional also entered into a partnership with via to deploy self driving vehicles on their network and a city to be announced soon.
And in January <unk> announced a partnership to deploy Cox automotive mobility pivot as a premier fleet service provider.
Beginning with emotional self driving fleet and Las Vegas. This partnership lays the foundation to support the company as expands the market for Robo taxis and other major U S cities.
These commercial developments are underpinned by rigorous third party validation and safety assessments, which have allowed motions to receive approval for testing of fully driverless systems on public roads and Nevada in early 2021.
In summary, motional made tremendous progress delivering on its commitments in 2020 paving the way for commercial success and the years to come.
I'll now hand, the call over to Joe Massaro for an overview of our financial results Joe.
Thanks, Kevin and good morning, everyone.
Starting on slide nine the recovery and momentum in the fourth quarter generated strong sales and income and cash performance and the quarter, Despite significant incremental safety and manufacturing and logistics costs associated with operating with Covid and the mounting supply chain constraints Rev.
Revenues of $4 $2 billion were up 14% year over year significantly ahead of vehicle production, which was up 1% and a quarter.
The stronger than expected sales volumes resulted in adjusted EBITDA of $678 million up 40 basis points compared to the prior year, reflecting stronger volumes and disciplined cost management, partially offset by approximately $70 million of COVID-19 and supply chain related costs.
Earnings per share and the quarter were $1 13, reflecting higher operating income offset by the emotional JV and higher share count and tax expense.
Operating cash flow was strong at $799 million, driven by higher EBITDA and lower year over year cash taxes.
Lastly, capital expenditures were $95 million for.
Taking the total to $584 million for the year, just under our $600 million outlook.
Looking at fourth quarter revenues and more detail on slide 10.
Globally, we benefited from stronger vehicle production as well as increased demand for high voltage electrical architecture, and engineered components, primarily in Europe and China.
North America revenues grew 11%, despite the market being flat driven by new launch volume and favorable truck and SUV platform mix.
And Europe, the trend of strong double digit market outgrowth continued as the production rebound benefited active safety and high voltage electrification programs.
Lastly, our China growth was 9% outpacing the market and expectations as the stronger recovery and sales lead to production upside with our major customers, including high voltage launch volumes.
Moving to the segments on the next slide advanced safety and user experience revenues increased 7% and the quarter, reflecting six points of growth over underlying vehicle production, including double digit active safety growth and all three major regions.
Segment, EBITDA declined 1%, excluding the impact of emotional JV deconsolidation, primarily driven by the Covid and supply chain cost Kevin mentioned earlier.
Signal and power solutions revenue were up 17%, reflecting 16 points of growth over market.
We also saw strong growth across all product lines and regions, including demand for high voltage electrification products in Europe, and China favorable truck and SUV platform mix, and North America, and industrial and market recovery globally.
And the segment increased 17% and strong sales growth offset additional costs and FX and commodities and the quarter.
Turning now to slide 12, and the 2021 macro outlook.
As Kevin mentioned earlier, the worldwide shortage of semiconductors impacting the auto industry is limited near term production visibility.
Based on our discussions with customers and suppliers, we expect the intermittent disruptions to continue during the first half of the year and assume the industry should recover the majority of loss production units tied to these shortages during the second half of the year.
Accordingly, we will not be providing guidance for the first quarter as there was a highlight for you heard of vehicle production and production shifting between the first and second quarters.
However, we believe we are adequately reflect the current situation and our guidance for full year 2021.
Which estimates global vehicle production of 84 million units up 10%.
Looking at the regions and North America, and Europe improved levels of demand should support stronger production rates.
While a more modest recovery is planned for China, following a sharp bounce back and demand starting in the second quarter last year.
While the supply chain remain remains extremely tight and we're doing everything we can for our customers to meet increased levels of demand and we are confident our leading industry position and technologies aligned to the safe Green and connected Megatrends will continue to yield strong growth above market consistent with the framework we have previously.
<unk>.
Turning to slide 13.
Despite the uncertainty that remains near term, we are confident and the guidance range for 2021.
For the year, we expect revenue to be and a range of 15, 1% to $15 7 billion.
Up 16% at the midpoint with six points of growth over market driven by our portfolio of relevant technologies.
EBITDA and operating income are expected to be $2 4 billion and $1 6 billion at the midpoint, respectively with margins approaching 2019 levels.
Despite a $100 million of COVID-19 related operating costs, and given the volatility and customer schedules and supply chain disruptions. We are incurring additional manufacturing and logistics costs, which we have estimated at $80 million for the year.
Lastly benefits of our ongoing performance initiatives are more than offsetting the lapping of a $150 million of austerity measures taken in 2020 during during the pandemic related shutdowns.
We expect earnings per share and the range of $3 35.
And $3 85, a share or $4 20 to $4 70 per share when excluding the impact of the equity losses of our emotional joint venture.
High year over year noncash operating losses, and the emotional JV reflect the finalization of purchase accounting.
In addition, a higher spending as motion prepares to meet the commercial milestones Kevin highlighted earlier.
Lastly, we expect operating cash flow of $1 $85 billion.
Turning to slide 14, and the segments, beginning with advanced safety and user experience.
We expect growth over market of 13 points translating into approximately $4 $4 billion of revenue and 2021, driven by new launches and continued strong active safety growth.
EBITDA margins of approximately 13% reflects five points of expansion off 2000, twenty's depressed levels.
Signal and power solutions revenues of approximately $11 billion reflects four points of growth over underlying vehicle production with content accretive growth and high voltage electrification up 50% year over year.
Our CV and industrial end markets are also expected to outgrow the industrial market.
We expect EBITDA margins approaching 17% up 250 basis points year over year and reflect favorable volume growth, partially offset by the dilutive margin rate impact of higher copper prices.
We thought it'd be helpful to walk revenue and EBITDA compared to 2019 levels on slide 15.
Starting with revenue and the lapped despite a 10% reduction and industry volumes, we expect 2021 revenues to be 7% higher than 2019 at the midpoint.
The investments, we've made to add scale and our fastest growing product lines like active safety high voltage electrification and engineered components are generating sustained strong growth over market.
And we expect a modest tailwind on FX and commodities.
Which combined more than offset our normal price downs.
Moving to the right hand side of the slide and adjusted EBITDA and the benefits of our flexible and scalable cost structure and driving strong volume flow through on higher revenues and.
And the benefits of our performance initiatives, yielding EBITDA of $2 4 billion at the midpoint.
As you can see we are expected to recover to 2019 EBITDA margins in 2021, despite the ongoing operational impact of Covid and the supply chain disruptions.
This is a true testament to our relentless focus on disciplined and accretive revenue growth and cost structure optimization.
Creating and even more sustainable business with the ability to outperform and any environment.
Turning to cash flow on the next slide our sustainable business model is enabling us to convert more income to cash generating higher operating cash flow and free cash flow conversion.
As we approach and more normalized business environment, we expect operating cash flows of $1 $85 billion and 2021 above 2019 levels with free cash flow conversion and greater than a 100%.
This assumes approximately $160 million of restructuring cash outflows and capex of $750 million consistent with our target of funding levels of 5% of sales.
With cash flow growing strong double digits, there is no shortage of attractive reinvestment opportunities.
We will continue to maintain a consistent approach to capital deployment aligned to our strategic framework.
Our M&A strategy remains focused on transactions that enhance our scalability accelerate speed to market and also provide access to new addressable markets.
We believe highly disciplined capital deployment is a major differentiator for <unk> and an important lever for shareholder value generation.
With that I'd like to hand, the call back to Kevin for his closing remarks.
Thanks, Joe I will now wrap up on slide 17, before we open it up for Q&A as.
As we navigate 2021 and the new challenges ahead. It goes without saying that we remain laser focused on delivering on our commitments and continuing our track record of outperformance, while advancing our vision of the company and 2025 and beyond.
This vision is the extension of our business strategy, which is enabled by our industry, leading competitive position and execution capabilities.
Delivering our vision results and a more sustainable business defined by and improved and more predictable growth profile increased profitability through global scale and accretive growth opportunities on the path to electrified smart vehicle architecture.
The accelerated compounding of earnings and cash flow generation and additional value creation upside from the disciplined deployment of that cash.
We are well positioned to continue moving forward a company with a strong financial position low cost of capital and the flexibility to reinvest and its people processes and portfolio to create significant value for its customers for its employees and for its shareholders.
So with that we'll open up the lines for Q&A.
Thank you very much Sir ladies and gentlemen, if you would like to ask a question signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please be sure to mutual function is turned off to without a signal and reach our equipment. Please limit your questions to one and one follow up so once again that is star.
Wanted to ask a question and we'll now move to our first question over the phone which comes from Adam Jonas from Morgan Stanley. Please go ahead.
Hey, everybody so.
And Kevin Hey.
I never congratulate people on good quarters, and I'm not going to do that here because we all know good companies are not made on good quarters.
And on good strategy and what we're seeing here is really.
I think a great strategy coming together for this head to head to say that.
Well. Thank you. Thank you very much like the outlook just from the outside it really must be said.
And more to combat, but two questions first on emotional Okay. My first thought is if this thing really works and the emotional the emotional JV stake maybe.
And maybe your just your share of it could be worth more than all of assets, Okay and that there is an arms race going on as these autonomous players way Moe crews et cetera, and kind of get close to deployment and even by your own growth and the losses. It looks like you're keeping up with that so so what's the plan to add capital.
To access capital for that unit.
And could we see 2021 day, a year where.
We see greater visibility and and tapping different sources of capital. That's my first question and my follow up is more specific on.
F PCB or flexible printed circuit board technology, which I'm sure you're very familiar with.
Sure.
So maybe this is one for Glen but.
Starting to get questions about.
The role of this technology to really dramatically simplify electrical architecture, we understand Tesla wants to use it to.
And it's not really and production yet.
There's issues, it's just not ready for prime time, So would love your color on.
Is it for kind of where we're as active on that development path and when could you see that type of technology coming into production.
Okay, great those are two great questions so emotional.
Listen we've made tremendous progress over the over the last couple of years significant progress last year with our with our partner Hyundai and as I went through a list of announcements that were made during 2020.
You'll see more announcements made as it relates to 2021 from a technology standpoint, and from a commercial standpoint.
Adam.
Our business is on track from a resource standpoint, there's been a significant investment and resources in and around technology in and around.
Areas.
And that are accelerating the underlying technology as you know we have vehicles on the road today.
We finished or completed our gen one platform.
And which youll see out on the road and Las Vegas soon and we will have our gen. Two platform available for sale to customers commercially beginning in 2022.
And so a tremendous amount of progress as it relates to capital.
Recall the transaction.
<unk> contributed $1 billion for of cash back in March of 2020.
And we're using that cash to make the investments that we've talked about.
Both of US as partners are focused on how do we develop the technology and how do we maximize value. So we're completely aligned on value creation and value creation.
Within that business, if you know what I mean, so focused on how do we drive value through <unk>.
And to the extent we.
To the extent, we see opportunities, where our view and value of the business aligns with one's willingness to contribute capital.
And that's something that we as partners will will will evaluate.
And it's something that we'll continue to monitor but at this point and time, we feel like at this point and time, we have more than enough capital for the foreseeable future to continue to accelerate our investment.
But it's something again that we continue to watch and we watch closely.
I would not refer to capital is a constraint.
And on.
The flexible printed circuit boards.
As you as you know.
<unk>.
<unk> been very focused on vehicle architecture for the last several years and how do we develop solutions for customers.
<unk>.
Reduce the constraints associated with traditional vehicle architecture. So how do we remove copper content, how do we replace that with real value added content like the flexible printed circuit board technology that Youre talking about which overall is a part of our SBA solutions. So.
And that's technology that actually is underdevelopment, it's actually technology that we're in discussions with multiple Oems about.
And as you know we have relationships with several leading Oems, even though even those who I would say are less traditional Oems who have been evolving vehicle architecture and have been most aggressive as it relates to changing vehicle architecture. So that we can separate software.
From from hardware.
And there's going to be more to come there we feel like we're a leader given our position with the brain and nervous system. We feel like there is a number of opportunities for us as I mentioned, we've been in discussions and development programs with a number of Oems.
And we will keep you and others updated on our progress.
Thanks, Kevin.
Thanks.
We'll now move to our next question over the phone which comes from Joseph Spak from RBC capital markets. Please go ahead.
Thank you good morning, everyone.
And maybe to start first question just on <unk>.
Free cash flow, which was which is really strong this quarter and the guidance and a $1 one.
Impressive, especially for some of those 160 million restructuring and there I'm not sure. If you can sort of that and elevated level or more and going to be curious and their thoughts there but.
You mentioned the conversion over 1%, even if you if you back out and emotional losses still like around 90 day. So is that the right new level of conversion that we for that.
This company can can start converting that going forward.
Joe do you why don't you take care.
Yes, Joe.
And that has been the target for a while we've talked about moving sort of JV and if you go back to the capital market day in 2017 and 19 about.
Storage.
Steady March up to the 90% and that's where we believe we are you're right. The emotional math gives us a bit of a boost there as well but.
But yes, I think that's the right range.
Okay.
And and Kevin just because this is a question we've been getting.
And increasingly as there is a lot.
Lines flying around and we're seeing different automakers take different software strategy as Rajiv Volkswagen and trying to move some of that in house and others.
<unk> like for.
For it and Google announcement.
And believe that with this week.
And you view the role.
And I know you shipped a lot of software to the Oems, but to date, there really more takers and sort of integrating integration and software all over the place and.
You mentioned, the number of times and change and the electrical architecture and everyone's moving to more software enabled platform.
It seems like there's an opportunity for a player like active but you'd have to get involved even earlier and to work and work more closely with the Oems. So there's a role for you is is that a correct assessment and maybe you could just update us on what assets doing and the strategy there.
No.
Joe It's a great question and I think the point the point you make is right. So I think given where we play given where the industry is going.
Having a much more strategic relationship with the OEM customer as is a must right, where what we deal with where we operate and.
It's a cross section that is highly complex and.
And that's actually where we play so we have the benefit of our legacy kind of nervous system vehicle architecture combined with R. R.
And our newer capabilities in and around software that to your point started in areas like infotainment user experience and active safety.
All of those are coming together.
And merging and what we've been talking about in terms of smart vehicle architecture, all of them and and given our capabilities in both areas.
We've been positioned to.
Have strategic discussions and.
And quite frankly strategic development programs.
And with several of the leading.
Global Oems and I would say even strategic programs that we're on today, whether it's our gen one and Adas solutions.
Or are generate our gen. One integrated cockpit solutions that ultimately lead to debt.
And that lead to the FCA solution.
Clearly there is an acceleration of the separation and software and hardware it's happening and.
As we speak.
It presents a huge opportunity for us we talked about our gen. Two <unk> platform, where we give.
And where we can provide the full stack solution, but also provide OEM customers, who want the ability to do more of the software on their own the ability to do so for those who don't have the capabilities. We can provide the full solution and we do that today.
And there will be a there'll be a universe of OEM customers, who want to do more and we're going to enable that and and <unk>.
Provide both hardware software and integration services and those sort of scenarios there is going to be other OEM customers who.
Really don't have that capability and interested in investing in it and we will do more of a full stack solution and from our perspective, what's important is really to serve both.
So that we have net revenue opportunity and make sure that were the driver of change versus reacting to the change.
So that's why we made the comments and our prepared remarks about continuing to invest during 2020, which was a challenging year. We will continue to invest during 2021 and beyond on all of the solutions that we're developing the platforming of our various technologies.
And cannibalizing some of our traditional product lines and replacing them with higher Tech solutions.
<unk>.
Takeout mass that take outweighed that provide OEM customers with more flexibility and and really enable the technology that's going into the car.
So it's a long winded answer, but I hope I've addressed them.
And I appreciate the color. Thank you.
Well now move onto our next question over the phone which comes from Chris Mcnally from Evercore. Please go ahead.
Hey, Chris.
Hey, thanks, so much Pete so one.
And long term question and one one active safety questions. So if we take the top end of your margin by 10.
And 10, 7% and we actually look at some of the unit.
And you spoke about roughly $180 million.
And we expected in 'twenty, one and we add that back we get almost at 12% bar that we've been talking about for some for some time looking out and that's still a couple of billion before we're back to that $90 million pre COVID-19 production I.
I think it's pretty exciting to think about the underlying progress on margin because we've been waiting for asking me to come up for for some years could you talk about sort of the margin progression and when you may actually formalize some of the the old margin target and we get.
Q1, because it looks like you're about to go into a store.
Long period, where you you hit those margin targets, we've been speaking about for some years.
Joe do you want to share and yes.
Yes, Chris I think Eric listen I think you framed it correctly youre thinking about it we've obviously spent.
A lot have a lot of effort over the last couple of years on the cost structure of the business taking out overhead.
And I know as we talked about last year, we didn't have any sort of big moment, where we said because of Covid. We can change things we felt that the business had been structured pretty well and would continue to take advantage from a margin perspective as those product lines grew grew and of their own and started to add starting to add.
And increased volume.
And I think Youre right. If you take out what are a fair amount of investment around Covid and now the supply chain costs and.
And assume eventually we work out of those over the coming couple of years and we continue to see the strong.
Accretive product line growth and things like active safety high voltage and engineered components.
I think we are on that trajectory as far as the longer term update.
That will come as we.
And our next capital markets day.
Plan on for 2022.
But I do think your trajectory and the way Youre thinking about it is correct.
Great and then I guess the related question is inaccurate and safety right.
$4 billion of orders sort of on an average now.
You had a strong year even despite.
Covid, we're seeing a lot more emphasis on level, two plus where you have a sort of a higher market share. So there's a lot of momentum there clearly Lee.
18 months ago, you mentioned that you need to have a step up and spend and to keep up with the order pace and the mid day.
Could you just give us an update.
And when we may be you can see our second step up if we start to hit for 5 billion and then in orders or can we start to see some of the scalability because again, that's one of the important for driving.
Huey margins.
Yeah.
I'll start our real focus Chris.
As it relates to our next generation.
Adas solution is leveraging the software thats been developed to date.
Driving reuse of that software and.
And really driving platforms.
Within the Ats business and Thats really across the various <unk> product lines right on the journey to ultimately and SBA solutions.
So it's really about how do we how do we drive more more.
More leverage.
Listen I don't think we foresee any real incremental step up like we talked about previously that $90 million $90 million, which was really about.
And how do we drive additional pursuit opportunities, how do we better position ourselves as it relates to SV, a both from a hardware and software standpoint.
And now its taking advantage of that investment opportunity to drive drive more scale and widen our competitive mode now and now there maybe within quarters periods, where we decide we're going to invest.
More and more.
Given the competitive dynamic or to drive technology advancement.
But by and large given we've introduced Gen. One we're rolling out are launching on several vehicle programs now as we speak and we're heading into June Gen. Two you should start to see a fair amount of scale.
And come through.
Okay, great. Thank you.
Well now move to our next question, which comes from Mark Delaney from Goldman Sachs. Please go ahead. Your line is open.
Yes. Good morning, Thanks, very much for taking the questions I was hoping to start on.
The net safety business and.
And what the company has seen around level two level, two plus and level III.
And for some really nice growth over market and that segment this year, but and we start thinking out to.
For 2022, 2023 type of timeframe, there has been and increased.
<unk> announcements.
Deployments of those sorts of Aaas kept capabilities. So if you could talk a little bit more on what <unk> is seeing and out over the intermediate term for advanced safety and what opportunities there could be to maybe sustain that kind of a nice growth over market debt.
And what Youre seeing and advanced safety.
Yeah, I'll start with the qualitative and then Joe can walk you through all the growth rates I mean, our our booking activity has remained strong. It was very strong last last year and what was a very choppy environment, given given COVID-19 COVID-19 bookings, where we're close to $4 billion advanced sale.
Ft for our OEM customers is a solution that sells so the focus on driving advanced safety solutions from our customers is significant.
And solutions that reduce the on cost, but provide the sort of performance and consumers are looking for is in significant demand.
So it will continue to be a huge growth opportunity for us for the foreseeable future. Joe you should walk through all the numbers and I'll Mark.
Very consistent with what we are talking about this as a strong double digit grower.
We expect to be a little shy of $2 billion by by the end of 2021 and active safety revenue.
But continue to see that business growing at or above 20% from a CAGR perspective over the next three years and when you get to that 2022 2023 time frame. We expect that we expect to be the largest from from an industry perspective, we'll have active safety content over.
Over 20 Oems different different platforms on 'twenty OE, so that strong sort of 20 plus percent CAGR we've talked about.
<unk> continues continues to be in place and we obviously feel very good about it there is a little bit of a law of larger numbers, obviously with the growth rate as.
As the business continues to grow but a very strong very strong compounded growth rate over the next number of years.
That's helpful. Thanks, and then my second question is on motion on how to think about this level of equity.
Losses around $240 million for for 2021, and it should we think about that as a run rate or maybe even increasing and in terms of the degree of losses as you were trying to break in.
And your technology to market.
And then.
And as these programs start to ramp and the 'twenty 'twenty one to 'twenty 'twenty three time frame as you're articulating and in your prepared remarks, I mean is that going to be enough to to get these losses to start to decline or is that really from for further out in time.
Before we should think about equity losses, and mitigating that for emotional thanks.
Yes.
Real focus now and Joe can walk through the numbers. The real focus now is advancing and accelerating technology adoption rate, So thats, where our real focus is we've.
Completed the Gen. One platform you will see that on the roads Gen. Two for 2022 for sales to customers and 2022 on the road with lift in 2023, So that's where our real focus is now we have more than enough capital to meet our timetable and meet the tech roadmap that the.
Team as his mapped out to the extent we need capital.
We view that as something to the extent, we need capital and it reflects the value of the business. That's that's something with our partner will entertain Joe do you want to.
And in my.
Yeah.
And about half of the increase.
And from prior expectations. So just the finalization of the <unk>.
Finalization of the purchase accounting and so that's effectively noncash obviously coming through the P&L. So the remaining half is the step up and investment and to Kevin's point, we'll see that increase.
Over the next couple of years, but but it's still well within the plan and the original funding.
And when we formed the JV back at the beginning of last year and thought we had four to five years of funding and the JV and that continues to be the case.
Well now move on to our next question over the phone which comes from Emmanuel Rosner from Deutsche Bank. Please go ahead. Your line is open.
Hi, good morning, everybody.
Hey, good morning, Daniel.
Wanted to ask you about.
High voltage and.
Electrification bookings.
We're seeing all these announcements from automakers that's been true.
Signal and anthem acceleration towards the electrification from.
For the Bush volume targets by 2025 from 100% <unk> by 2030 fives from GM and.
And I was curious.
Should we expect to see.
Inflection higher into your original bookings for <unk>.
Turning on to being in the year so in electrification.
And then related to that I think last quarter you were talking about these really high win rate that you have.
High voltage bookings, 70% of so just wanted to see for this is something that you have seen or expect to see.
Yes, Emmanuel it's Kevin so, yes, so from a win rate standpoint, our win rate continues to be north of 70%.
I would say we have up to reiterate we've talked about previously a very focused strategy as it relates to high voltage electrification. So we're very focused on a select group of Oems who.
You don't have a strategy that brings high voltage electrification across multiple platforms. So we get the benefit.
And we get the benefit they get the benefit of significant volume.
A year or two ago. We were look we are basically evaluating 15 programs on an annual basis. This year, we will we'll be evaluating north of 40 <unk>.
Program, So so bookings activity and dollar value of bookings will certainly kick up in 2021.
And beyond it is important to note. The reason we're so successful as we are the only only competitor only player out there that has the ability to bring.
The vehicle architecture, the connector component the cable management component, the electrical center component and the wire harness component together and provide a fully optimized solution to an OEM that takes out mass. It takes out weight I mean, a significant amount of mass reduction Adam asked that question earlier.
With respect to.
Our flexible printed circuit board technology, but reducing masked by close to 40%, which takes out cost and gives the OEM space.
And the value of what we deliver the packaging and that full solicit full systems and has translated into significant win rates and a huge opportunity for active joke and walk through the numbers, but high voltage electrification will be our fastest growing product line for several years to come.
Yes.
And we're expecting just based on the bookings and increased activity and your point.
And I talked about that business growing at 40%.
And through 2020, and we expect it and that would be growing over 50% and 2021 and that's obviously on a larger number.
We will certainly be.
And above a $1 billion of revenue and 2022, our original target was to sort of get to or get close to a.
Two 1 billion and 2022, so we'll now we'll now be above that.
And continue to have sort of that same profit profile continues to trend above segment margins.
And is accretive to the SPS segment, So I would say both within the bookings and the revenue trajectory and the.
And the trends you're talking about.
<unk>.
From an OE perspective about greater levels of levels of electrification, we're seeing and the numbers as well.
Okay great.
And then just one point of clarification on your overall.
Outlook for growth over market this year fix.
Fixed points.
I think back and with third quarter, when you were giving sort of and initial view into 'twenty, one and I think you were.
Thinking six to eight points and so.
Can you, maybe just give us a finer point around.
What has changed and it is just the uncertainty and environment and to what extent you would impact of growth over market diversity.
For.
Joseph.
Yes, Kevin.
We remain very confident on this and our long term, 6% to 8% growth over market framework I don't think anything has.
Oh crap sort of strategically changed there at all.
We are at the lower and as you can imagine the chip constraints.
Obviously affect the.
The tech enabled products. So we are at the lower end of the range as we go into the year, but long term, we still have a high degree of confidence and that and that 6% to 8% and.
We've talked about a lot is that number doesn't shoot straight every perfectly straight every quarter, but I'm very confident within that range and I wouldn't say anything material has changed from that perspective.
Great. Thank you.
Okay.
Well now move to our next question over and so which comes from Dan Levy from Credit Suisse. Please go ahead.
Hey, Dan Hey, Hey, good morning, guys.
Thank you.
A couple of questions.
And one.
On an outgrowth and then another one promotional price on how growth and I know you mentioned and.
Investor Day, probably next year, but we did see your bookings accelerate and fourth quarter, presumably there's more opportunity into 2021 and maybe.
And get some of this post COVID-19 cash bonded and we haven't really been and anything related to ethanol.
And at the same time and harder to maintain growth.
As products mature so maybe you can give us a sense of what the bookings today and.
About your ability to meet that 68 points of how growth beyond the 2020 timeframe that you've talked about so how do we think about the bookings and six to eight points beyond that 'twenty 'twenty two time frame.
Yes, I think Joe I'll start.
And as Joe said.
Last year, and then and the first part of this year, giving the semiconductor.
Challenges are supply shortages.
Creates a chop a bit of a choppy environment and limits the amount of near term visibility.
However, everything that we see going through Covid and dealing with these challenges.
Really underscores our view that youre going to see and acceleration of technology adoption right, whether that's high voltage electrification.
Whether thats Adas solutions or connectivity that consumers want all of those want those products. They want more of them. So it gives us a high level of confidence beyond 2022 in the six to eight points of growth over market and.
And that's what's reflected in our bookings and quite frankly, that's what's reflected in our long term outlook from a revenue standpoint.
So management team is very confident and that level of outgrowth.
Joe.
And I would agree completely with that and Dan as you know we watch the sort of.
Longer term CAGR bookings growth carefully over over time for that ultimately is is what helped drive the outgrowth and when you look at the key growth areas around active safety high voltage engineered components connectors element type business.
Those bookings have remained.
And exactly to at or above where we need to be at that 6% to 8%. So we've got again, a very high level of confidence and that outgrowth range.
Okay and then thank you and then and the SBA piece, when you see that showing up and bookings.
And so well SBA you already.
Remember Dan SCA is as is and evolving solution right. So it's effectively and we've talked about previously it started with.
With the.
The consolidation of compute domain controllers integrated cockpit controllers and.
And like that it is now evolving.
Or continuing to evolve to zone controllers, we've already booked a program with a major.
A major global European European based global OEM, we have a number of.
And potential program wins in front of us during 2021, so more to come on that the program that we were awarded.
Previously we will launch on a vehicle in 2022.
And then there is a lot of activity that our SBA team has focused on our PDC solution, where we separate hardware from software so.
So I think over the next 12 months to 24 months.
You should get more visibility to the commercial wins, the commercial opportunities and the progression of revenue.
Great and then.
Thank you and then maybe a follow up just on emotional and maybe you know.
You could walk us through the key steps or milestones ahead between now and 2023 that we should watch out for up to now and commercialization and then just broadly on commercialization I believe that the goal and the path and that's really be a systems provider to others rather than.
And one operator, rather than you running a fleet. So and you can just give us a sense and where the business focus and announce it seemed like yes. It's on the Lyft network, but it seems like you are now running their fleets.
Yeah, no. The overall strategy Hasnt changed so it's really about providing the full systems and software stack for <unk>.
Sure.
Oems are fleet providers to put.
And place on their vehicles, so that strategy has not changed to the extent that we're we are partnering and operating rideshare networks, we get the benefit of validating the technology.
In real world situations and understanding.
Better understanding ultimately the customers who operate those networks or our ride sharing providers. So we have a great partnership with Lyft.
Theres a lot sharing a lot of share.
Sharing of information as it relates to technology as it relates to consumer experience.
As it relates to fleet management solutions.
And it allows them to be better and us to be better and we will continue to do that so it's almost.
It's validation of the underlying technology.
The key milestones over the next couple of years.
<unk>.
And the Gen one out on the road.
Doing real world testing, which youll see which will happen very very shortly.
Gen two.
And out on the road or available for customers in 2022, So we're a little over a year away on that the team is making significant progress on that vehicle.
It's a <unk> battery electric vehicle platform.
And then during calendar 2021, more commercial announcements related to partnership.
Whether it be the purchase of the underlying technology or plugging that technology into other networks.
So there is for.
Milan and right away as well.
And.
This year I'm sorry go ahead.
I was just going to say and we'd also we've announced one Kevin to your comments on the.
Prepared remarks, we would expect VR to be launching this year as well and <unk>.
To be determined.
Okay.
Due to time, ladies and gentlemen, we don't have time for any further questions I'll now hand, the call back over to Mr. Kevin Clark for closing comments.
Okay.
Thank you everyone. We appreciate you joining our call and we appreciate your support of active have.
Good day, and a good rest of the week stay safe.
Thank you.
Ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.
Yeah.