Q1 2021 Aptiv PLC Earnings Call
Good day and welcome to day. After this first quarter of 2021 earnings conference call. My name is on it and that will be a 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 Elena Rosman Vice President of Investor Relations you May begin your conference.
Thank you Ana good morning, and thank you for joining <unk> first quarter 2021 earnings conference call.
Press release and related tables, along with the slide presentation can be found on the Investor relations portion of our website at IR Dot Dot com.
Today's review of our financials exclude restructuring and other special items and will address the continuing operations without it.
The reconciliation between GAAP and non-GAAP measures for both our Q1 financial as well as our full year 2021 outlook.
And at the back of the slide presentation and the earnings press release.
During today's call, we will provide and we will be.
And certain forward looking information, which reflects <unk> current view of future financial performance.
And 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 in predicting and future course and impact on the global economy.
Joining us today will be Kevin Clark.
President and CEO, and Joe Massaro, CFO, and senior Vice President of business operations.
Kevin will provide a strategic update on the business and Joe will cover the financial results and more detail before we open the call for Q&A.
That I would like to turn the call over to Kevin Clark.
Thank you Elena and thank you everyone for joining us. This morning, beginning with slide three we had a strong start to the year, reflecting our ability to outperform and a challenging environment.
Our focus on execution translated into stronger revenues and earnings and the quarter.
Revenues totaled 4 billion, that's up 20% from the prior year, driven by our industry, leading portfolio of safe Green and connected technologies.
Operating income reached $437 million, reflecting margins of 10, 9% and.
And increase of 370 basis points from the prior year and earnings per share totaled $1, six and increase of 56%.
A strong revenue growth, partially offset by labor and efficiencies and increased premium freight costs associated with a growing number of supply chain disruptions.
The 5% growth and global vehicle production was principally driven by a 72% increase and China lapping the impact of last year's pandemic related shutdowns.
Really offset by a decline in vehicle production of 4% and North America, and 1% and Europe as OEM customers idled plants and response to the tightening of the global supply chain for.
For the balance of the year, we expect the supply chain and remains stressed and the near term volatility and production schedule to actually increase how's.
However, the <unk> team is doing an excellent job executing and this very fluid environment minimizing the effects of the supply chain disruptions and keeping our employees safe while delivering for our OEM customers.
Turning to slide four this year supply chain disruptions have been further exacerbated by severe weather and the southwestern United States and a facility fire at one of the industry's major chip suppliers and Japan.
As a result, we continue to experience volatility and production schedules elevated freight and logistics expenses and higher raw material input prices and the industry struggles to meet strong customer demand levels.
As I mentioned based on our daily discussions with customers and suppliers, we expect supply chain disruptions to actually increase over the next few months before and the environment begins to improve and the second half of the year.
However, given the puts and takes we continue to expect global vehicle production to increase 10% for the full year, reflecting continued strong consumer demand and the absence of last year's pandemic related production shutdowns and customer intentions to make up first half production shortfall and the second half of the year.
Moving to slide five.
Despite the near term economic uncertainty, we continue to remain confident and our initial financial outlook for the year.
Our industry, leading cost structure provides incremental flexibility to rapidly adjust to changes in customer production schedules and our portfolio of advanced technologies position us to benefit from the acceleration and safe green and connected secular trends.
This has led to increase share of wallet with both leading and emerging electric vehicle manufacturers ramping up production globally, including the leading U S E&P company.
Volkswagen Volvo Arabian and Neil are.
Our scalable satellite architecture and as platform is now being deployed across multiple Oems and vehicle segments across the globe and our connected services solutions are providing fleet owners with the information necessary to optimize vehicle uptime and lower operating costs as well as OEM customers.
With the vehicle level data to reduce product development and warranty expenses.
We're very proud of the positive impact. These technologies are having today and I want to recognize the tremendous dedication of the global <unk> team.
Which is launch these complex and highly integrated solutions during these very challenging times.
In summary, our flexible and sustainable business model is reinforced by consistent and deliberate management approach to disciplined revenue growth and industry, leading cost structure and sustained through cycle resiliency, allowing us to compound earnings and cash flow and reinvest that cash to create long term shareholder value.
Moving to slide six first quarter bookings totaled $5 2 billion, reflecting a strong funnel of new business opportunities and robust customer win rates, our advanced safety and user experience segment booked approximately 1 billion, reflecting the lumpiness of new business Awards further exacerbated by the.
Semiconductor supply shortage, which is extended customer decision timelines as resources have been reallocated.
As a result, a number of larger business pursuits are now slated for award and the second half of the year.
New business bookings for our signal and power solutions segment totaled $4 7 billion, including nearly $1 billion of high voltage electrification awards driven by the increased demand for electrified vehicle platforms.
Our strong track record of new business bookings is proof that our portfolio of advanced technologies is well aligned to the areas of growth within our industry and our position as the only provider and both the brain and the nervous system on the vehicle enables us to provide unique value to our customers.
Moving to slide seven.
We believe that our long term success and ability to create value for our stakeholders are directly linked to building and more sustainable business that continuously delivers on our mission and strategy.
Our mission to develop safer greener and more connected solutions, which enable the future of mobility is integral to both the products, we create and the way we conduct business.
<unk> is committed to protecting human health natural resources, and the environment, and which we live and operate.
Our commitment to environmental stewardship is companywide and we aggressively pursue initiatives to minimize our environmental impact.
And 2012, we set a long term target to reduce our carbon output by 30% between 2011, and 2019, which we actually exceeded reducing emissions by over 40% during that period.
And our 2020 sustainability report, we published new more aggressive sustainability targets that include a further 25% reduction of C. O. Two emissions by 2025. In addition, we committed to the science based targets initiative, joining the effort to create a zero carbon economy to help prevent the effects of climate change.
And as a result, and we're excited to announce <unk> path to carbon neutrality, which includes being carbon neutral across our global operations by 2030, and providing carbon neutral products to our customers and achieving net neutrality by 2040.
And we remain committed to addressing some of mobility toughest challenges while at the same time, reducing cotwo emissions globally.
We plan to showcase our industry, leading electrification portfolio and capabilities and our upcoming high voltage technology churn, which is scheduled for early June.
Turning to slide eight despite the challenges. We currently face we remain focused on further strengthening our track record of outperformance and long term value creation, while our industry continues to be tested our operating performance has validated our business model and through cycle resiliency.
As we look ahead.
We positioned opted to continue to outperform with focused investments that have increased the resiliency of our business and expanded the markets we serve.
Averaging our unique brain and nervous system capabilities to deliver even more content and on the electrified software defined vehicles, and the future, which together yield accretive growth opportunities and present incremental value creation opportunities through smart capital deployment, resulting in meaningful shareholder returns and the economic recovery continues.
And to unfold.
So with that I'll hand, the call over to Joe to take us through the third quarter results in more detail. Thanks.
Thanks, Kevin and good morning, everyone.
Starting with slide nine the recover and momentum in the first quarter generated strong sales income and cash performance. Despite the supply chain constraints, Kevin referenced earlier.
Revenues of $4 billion were up 20%, 15% ahead of vehicle production, which was up 5% on our weighted market basis.
Adjusted EBITDA and operating income were $630 million and $437 million, respectively, 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 six reflecting higher operating income offset by the emotional JV results and higher share count and tax expense.
Operating cash flow was strong at $252 million driven by higher EBITDA, while capex was $134 million.
Looking at first quarter revenues and more detail on slide 10.
Broad demand recovery and some inventory restocking and our engineered components businesses contributed a strong growth over market and every region.
We also had favorable FX and commodities, partially offset by price downs from approximately 1% and the quarter.
From a regional perspective.
And with America revenues were up 5%, representing nine points of growth over market, driven by new launch volume and favorable truck and SUV platform ex.
And Europe, the trend of strong double digit market outgrowth continued with further adoption of our high voltage electrification and active safety solutions.
Lastly, and China revenues grew by 94%, reflecting 22 points of growth over market as the volume recovery led to production upside and inventory replenishment with our major customers.
As a reminder, China operations were shut down between late January and March of last year.
Moving to the segments on the next slide.
Advanced safety and user experience revenues increased 11% and the quarter, reflecting six points of growth over underlying vehicle production, including double digit active safety outgrowth, despite semiconductor supply shortages.
Segment, EBITDA increased 31%, excluding the impact of the emotional JV consolidation driven by higher sales and disciplined cost management.
Partially offset by supply chain disruption costs.
Signal and power solutions revenues were up 23%, reflecting 18 points of market outgrowth.
Record outgrowth was driven by continued strong demand for high voltage electrification solutions in Europe and China.
Favorable truck and SUV platform mix, and North America, and the benefits of inventory replenishment and the engineered components businesses.
EBITDA and the segment increased 43% on strong sales conversion driving meaningful margin expansion, despite headwinds from supply chain costs, and FX and commodities and the quarter.
Both segments saw lower price downs, and the quarter due to customer timing, which is expected to return to normalized levels over the course of the year.
Turning now to slide 12, and our 2021 macro outlook.
As Kevin mentioned earlier, the worldwide shortage of semiconductors impacting the auto industry continues to limit near term production visibility.
Based on discussions with our customers and suppliers, we expect supply chain disruptions to remain volatile and the second quarter given the additional impact of the knock on fire and the Texas weather events.
And while we don't expect the supply demand imbalance to fully recover to normalized levels until 2022.
Our situation is expected to improve and the second half of the year to allow for partial recovery of lost vehicle production from the first half.
Accordingly, we will not be providing guidance for the second quarter as it remains a high likelihood of vehicle productive production shifting between the quarters.
However, we continue to believe we are adequately reflected the current situation on our original guidance for full year 2021.
Estimates global vehicle production of 84 million units.
10% with minor adjustments within the regions.
Our assumption for North America has increased slightly offset by a reduction in Europe as markets continue to face extended lockdown measures.
While the supply chain remains extremely tight we have taken swift action to mitigate these impacts to help customers prioritize certain platforms to meet increased levels of demand, which was reflected and the strong outgrowth. We saw on the first quarter.
Although we are not updating our full year guidance, we remain confident our industry, leading portfolio of safe Green and connected technologies will continue to yield market outgrowth in the range of 6% to 8% consistent with the framework. We previously provided.
Turning to slide 13, despite the uncertainty that remains near term we are confident and the original guidance range, we provided for 2021.
For the year, we continue to expect revenues to be and the range of $15. One at $15 $7 billion up 16% with six points of growth over market at the midpoint and a modest tailwind from FX and commodities.
Which combined more than offsets our normal price downs.
EBITDA and operating income are expected to be $2 4 billion and $1 $6 billion at the midpoint respectively.
With strong year over year sales conversion despite.
Operating with $100 million of COVID-19 related costs, and incurring approximately $80 million to $100 million and manufacturing and logistics costs.
Related to supply chain shortages this year.
Lastly benefits of our ongoing initiatives are more than offsetting the $150 million of austerity measures taken primarily during the pandemic related shutdowns and the second quarter of 2020.
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 income losses of our emotional joint venture.
And lastly, operating cash flow of approximately $1 9 billion.
As a reminder, we will resume providing quarterly guidance when we have improved visibility on customer production schedules and global supply chain disruptions.
With that I'd like to hand, the call back to Kevin for his closing remarks. Thanks, Joe.
And let's wrap up on slide 14 before opening it up for questions as we navigate the road ahead, we are closely monitoring the current environment, including the pace of economic recovery and the ongoing disruptions and the supply chain.
That said our portfolio of advanced technologies continues to outgrow the market, while world class talent, leading cost structure and strong track record of execution positions us to lead the industry forward and this recovery on.
Our performance is a direct result of our strong cultural foundation built on the values of thinking and acting like owners and we remain laser focused on delivering on our commitments to our customers to our shareholders and to our employees, while advancing our mission to create a more sustainable business and environment.
And <unk> industry, leading portfolio is enabling a more efficient and accelerated path the electrified and software defined vehicle now demanded by consumers and required by our customers and.
We are helping to create a safer greener more connected world as we advanced our path to carbon neutral operations and products by 2040, and we're moving forward with purpose as a company with a strong financial position and the flexibility to reinvest and our people and our technology portfolio to create significant value.
All of our stakeholders.
Thank you again for your time, let's open up the line for questions.
Thank you.
And you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone please be sure to mute.
To mute your function.
Allow me a second to retail equipment again press star one to ask a question. We ask you to limit yourself to one question and one follow up question. Thank you Lee.
We'll take our first question from Joseph Spak of RBC capital markets. Please go ahead.
Thank you good morning, everyone.
Yes.
And Kevin and Joe.
I know you you werent sort of.
Giving quarterly guidance because of all the uncertainty and but it does sound like maybe the first quarter came in stronger than you.
Had planned and obviously some strength strong performance and the growth drivers of high voltage and active safety and the related margin performance.
I guess, what I'm, what I'm trying to better understand and the context of your reiterating guidance is.
Is this sort of a cadence issue when you were sort of on clear about how things are when things will come in or is there also a little bit more level of caution given some of the volatile uncertain schedules, we've talked about and maybe some higher cost on raws and great. Thank you pointed to.
Maybe Joe I'll start and Joe can walk you through more.
More of the details.
Q1 was a strong quarter.
Without a doubt very very volatile environment and.
And based on what we have visibility to today Q2 will be even more volatile than Q1.
And operating in that environment presents challenges now we're confident from an operational standpoint.
We're buttoned down and we're operating well over confident that will continue to operate at a high level as we head into Q2.
But again it'll be choppy as we look at some of the challenges and disruptions in the supply chain. Our focus is on edge is on ensuring that our customers.
Get the parts they need to produce the vehicles that they're trying to produce the consumers want.
And based on our forward visibility as we look into Q3 and Q4 all of our customers are very committed to producing the vehicles.
That they were unable to produce and Q1 and Q2 and Q3 and Q4 and we're all working very actively across the supply chain from the semiconductor providers to the the resin providers all the way through the supply chain.
And the customers and and a tough environment, where operating reasonably well.
But again, it's challenging it's requiring incremental resources incremental costs.
From a day to day management standpoint, and our factories as well as from a from a transportation and logistics standpoint incremental engineering resources to make sure that we provide our customers with options or incremental flexibility to the extent, we see part shortages.
We provide provide them with additional opportunities.
And Q1, when you really look at Q1.
A portion of the outgrowth and Joel will talk about it is some element of restocking of the overall supply chain and areas like.
Cable management products as well as connectors, which certainly drive drive some benefit and the first half of the year.
But.
And that would be my my voice over in terms of how we view the environment as well as how we perform Joe <unk>.
He can provide more.
More visibility, yes, no obviously I agree with everything Kevin and said I did mention Joe a couple of times and my prepared comments around.
Just the replenishment within the connector side of the business and Halloran tight and we were expecting that over the course of the year.
I think as we look at it right now it's to your cadence comment coming certainly it looks like its coming and the first half of the year.
And that's that's going to be worth a few points of growth and the first half of the year vs.
Versus the back half.
Again, its good business its the tiers.
Replenishing its the distribution channels replenishing and we had expected it and the year. So it's more of a.
When it when its happening.
And then also as Kevin mentioned, we're seeing and increased volatility and Q2.
The original chip disruption or supply chain constraints that were sort of what I'll call sort of COVID-19 demand related.
Those are starting to add down in Q2, as we expected but the the.
And the impact of the Knocker fire and the Texas weather on on Q2 unit production will at least based on what we're seeing right now.
And certainly be as big from a number of units perspective for the industry as the original disruption and obviously all of that is coming in Q2. So we're just mindful of how much production. We the industry can get throw and Q2 still confident to be made up and the back half of the year.
But obviously have a fair amount of volatility we're managing through here over the next three to four months, but I think it's fair to say one thing I think if Joe and I were to.
We would say Q2 disruption is bigger than Q1 disruption based on availability of semiconductor parts associated with that the west the challenges with the weather down in South West U S as well as debt.
Okay. Thanks.
Thanks for thanks for all that.
And just the second question.
I guess you just saw on the cashier and a $2 8 billion, you're effectively pointing to another 1 billion and free cash over and extra quarters I know back when you raised some capital.
And you wanted a little bit of a war chest, so to speak and you.
<unk> and M&A, but it appears that war chest is going to get quite large so any updated thoughts there on either buybacks or other uses of that cash.
Our primary focus remains on deployment for for M&A, Joe we're working at it.
And that pipelines coming back strong obviously, there is some some challenges from a from a travel perspective and meeting perspective around remaining COVID-19 restrictions, particularly outside of the U S. But continue.
Continue to believe over the course of the course of the year that that's where that cash gets utilized.
Joe it's important to note debt.
Post COVID-19 the reality all the trends that we've talked about safe green connected have actually accelerated.
Demand for high voltage solutions.
We talked on a prior call about.
High voltage pursuits, increasing over the last couple of years from 10 to 15 and the range of 50 were up north of 100 now.
So there is tremendous opportunity for us to invest organically or via acquisition.
And there are a number of areas that Joe and the M&A tumor focused or focused on in and around <unk>.
Advancing technologies to support the growth and high voltage electrification as well as to support increased <unk>.
Increased needs for software and areas like Adas and user experience and smart vehicle architecture.
So.
There are a number of opportunities to deploy that capital and a real smart way.
Great. Thanks for all that color.
Thank you. Our next question comes from Rod Lache of Wolfe Research. Please go ahead.
Good morning, everybody.
Good morning.
And I understand there's.
Theres a lot of volatility here replenishment and the first quarter and volatility in the second quarter I was hoping you might be able to just.
Take us out a little bit maybe into the back half or into next year.
And and and speak to whether there are any kind of long term consequences from what youre seeing right now either in terms of growth over market or cost.
We're active.
And our people are are your customers you think shifting towards a higher.
Mix of vehicles, and delaying launches or doing anything that would affect your longer term.
Yeah, Rod, it's Kevin I'll start.
We have a.
And we will start with a view that debt over the medium term youre going to continue to see supply change tightness.
Certainly from a semiconductor standpoint, as well as and and others like resin that will continue through 2022.
That will continue on.
From an overall demand standpoint.
Sumer demand as you know is very very strong.
Which certainly creates significant amount of customer demand or customer poll for apt of.
That demand.
Is in and around the areas, where we play right. It's about accelerated electrification increased demand for.
Products like Adas or Adas solutions.
More demand for connectivity solutions, all of which are places that we play.
On a much.
A significant driver of increase from our customers on software defined vehicle solutions. So pull for smart vehicle architecture. So as we take a step back and we look at consumer demands and positive customer pull is strong.
Supply chain challenge, but we'll work through that and today. We're operating I think we have 60 product redesign programs that we're going through providing our customers with either alternative choices.
From a.
From a product availability standpoint or cost reduction opportunities that we review with the team on a daily basis. So we think that's something that we'll manage through.
Reasonably well.
From a customer standpoint on top of the strong consumer pull all of our customers are focused on building their most profitable most highly contented vehicles.
So a portion of the benefit that we saw in Q1 and I'd expect wed see in Q2.
Is is is pull for.
And more advanced Adas solutions more high voltage electrification all of those things that consumers want which is a very strong tailwind.
So as we sit here today.
Everyone. We struggle day to day to deal with the supply chain challenges, we are operating extremely well, we're dealing with them very well, we're putting in the processes or have the processes in place to offset that but the underlying trend or demand for the areas that we play we would actually say is accelerated post COVID-19.
And this whole semiconductor issue probably further accelerates the fact.
Or the demand for the areas that we play.
Mhm.
Thanks for that and just secondly.
We're seeing so many automakers now talking actively about the things that you guys have been talking about for 10 years.
With respect to software defined capability and architectures.
But they are also increasingly talking about taking control of software competency and house.
And you're hearing that from forward with the F&B for Gms hiring 5000 engineers.
Swagger and set of software said that Theyre going to go from 10% of the software value add and a card to aspiring to 60% are you from where you sit seeing the same thing and and do you do you think that that has any implications for you in terms of the software value add that you and your <unk>.
Deferring.
Yes.
Listen in some areas, we are and some areas.
We're not and and.
We're focused on developing solutions that ultimately integrate and that full SBA concept that as you said, we've been talking about for a number of years, which provides us with software content opportunities integration content opportunities and hardware content opportunities and.
And our real focus is on ensuring we provide our customers with whatever they want all of it or part of it.
And.
We know there are a lot of OEM customers, who are talking about.
And increasing their investment and software for a number of them that will make sense.
So the first one is around uhm, some market share math, and and and no you won't be able to 100 and confirm so maybe just more coming from crazy about about the math and I'm I'm just gonna lay out. So you about 900 million and awards Q1, and we don't know where they will and the full year, but maybe that 3 billion Clark you've been running and is 2 billion plus range.
And and I calculated on 2025, maybe the industry has something like eight and 9 billion Awards. Currently looking at 2025 E. V. Number is 500 and $600 of content per vehicle that would mean that you could have a share and the 40% range, which would be sort of above your traditional electrical architecture.
But not sort of out of the realm of possibility. So does that math is anything wildly off and and sort of the calculations.
Yeah, I'm not sure if we've looked at it that way joke joke joke and comment on and I think working backward at a high level right. The industry's committed to spend about $300 billion investing.
Creating are developing high voltage electrification platforms or vehicles correct I mean, you've you've seen the announcements from G. M $20 billion to deliver 30, New E vs. There was a recent BCG starts starting to talks about 50%.
Of vehicle production will be high voltage by 2026, which is a significant significantly.
Higher percentage and what was predicted just a year ago, certainly there's a tremendous tailwind for high voltage electrification odm's have reached the point, where there and they they they've made the choice between internal combustion engine and high voltage her battery electric vehicles, and they've chosen the ladder and.
And there is a significant investment in that area and it's a huge opportunity for us.
I mentioned, you know just a few years ago or pursuing 10 to 15 programs per year. This year, we'll be pursuing.
Somewhere between 75 and 100 programs.
And when you look at our historic win rate, which is north of 60, 65% and you'll look at our capabilities and what we're able to bring in terms of on full system solution.
The opportunities significant.
And Audi.
Isn't weighted too much if anything we're going to go and second half push.
From from both the Europe, and and production looking at some of the major EV platforms is there some upward pressure to that to that 55% to 60% for the for the full year.
Assuming even chip shortages continue.
Listen I think we're gonna oriented and stay away from sort of the details on the back half just until was as we mentioned the volatile until it settles down and were obviously remain confident and our full year outlook, including a 55% to 60% growth from.
On.
On high voltage and I, certainly acknowledge Q1's on a good start on that direction, but we're going to we're going to stay away until the dust settles here, but hopefully over the coming on over the coming quarter.
Okay, great. Thank you Tim.
Thank you.
Our next question comes from Mark Delaney with Goldman Sachs. Please go ahead.
Yes, good morning, and thanks very much for taking the questions there's been an increase and.
Auto OEM announcements recently about plans to bring on new Adas platforms to market and and I think after the Ddos business. If im remembering correctly is north of $1 billion of revenue already and it's been growing quickly and maybe you could elaborate on what the company has seen in terms of the design and pipeline opportunity with Adas and what youre expecting for future growth on that business.
Another question was about the company's commitment and said that it made today too I C O two reduction and and and thank you for what the company's doing on that front, yeah I recommend the cost of Green energy has fallen and you can actually be cheaper than traditional feel sources, but you think about meeting. These objectives that you articulated today is there any change we should be expecting in terms of the fighting.
Model and and what sort of margins the company may be able to operate it. Thanks.
No markets, Joe I mean, we're obviously.
Feel comfortable achieving and these targets within the existing framework I mean, we really.
You know taken taken these targets and the process to achieve them and and really internalize and we treat treat them very much like any other sort of performance target that we have and the business and and have added it to you know really the list of things that needs to be balance to hit the financial framework and and we feel comfortable with.
Be able to do that.
Thank you.
Thank you next question comes from and on your mind and Rossner I'll spell check on please go ahead and.
Hi, good morning and money.
And.
I was hoping to put a final point around your growth over market asthma since he's maintained that $6 for the full year. Obviously, you had and extremely strong start with some things like you know refilling of stocks and all this but.
Just generally it feels like as you said throughout this call a lot of automakers up prioritizing.
A lot of the vehicle to have more content and so.
Can you just talk about the fruits and take her on the growth of a market for the full year still at six point that still towards the lower end of your and normal framework and white.
If there is and you're upside rest of this.
Yeah, I got him and and we're going to stay away until totally dust settles mid year from from refining the full year outlook and and all.
Obviously remain very comfortable hitting hitting that original original guide for January.
And as I mentioned.
We are seeing some channel replenishment within the engineered components businesses both of the tears on the auto side as well as the.
And a separate autonomous operations two to three year average was also the potential for some partnership on the robo taxi there as well so any any impact on <unk>.
Your relationship or are these things just to two separate projects.
Yes.
It's Kevin.
Two separate activities, our relation and most of the emotional team is doing a fantastic job.
I think you saw the announcement in February of this year, the first driverless testing, you're doing and Las Vegas.
The selection of the.
The <unk> five platform as the next platform that they're going to put their gen. Two.
Automated driving platform.
On a battery electric vehicle really attractive vehicle from Hyundai.
The team could use to March March forward lift as a strong partner.
<unk> with Lyft, where.
Where theyre going to be purchasing.
Vehicles promotional and launching and a second city in the United States and 2023. So so so more to come in it's a relationship that we really value and we are looking to expand.
Thank you very much.
Thank you.
Our next question comes from David Kelley of Jefferies. Please go ahead.
Hi, Good morning, everyone. A couple of questions on signal and power first was hoping you could provide some more color on the commodity headwinds and the quarter itself and maybe how youre thinking about the impact for the balance of the year.
Yes, Joe let me.
And I'll certainly start so listen I think.
Obviously, the one of the top of the list is copper.
Copper is the price is up there we haven't seen these levels from 2011 since 2011 and I do think it's important to note we have been here before with copper right. So.
There is there is precedent for how are how it flows through the P&L and how are sort of offsetting mechanisms work.
80% pass through on copper, so copper increases changes and copper prices, both positive negative pass through to customers.
The remaining 20% we hedged so we're fairly well insulated from copper.
We've talked about this before there will be a margin rate impact.
As higher copper prices flow through right because they flow through and the pass through they flow through revenue on sort of a pass through basis. So you tend to get some margin rate impact.
But again as we as we get through the back half or into the back half of the year and scheduled start to.
Start to straight now and we'll obviously be updating for macros as well, but that's more margin rate the dollars.
Seeing some inflation around things like resin, obviously, we expect semiconductor prices will go up over the course of the back half of the year and into next year.
On semiconductor probably being more ASU Act I know your question was SBS, but at.
At this point the inflation that we're seeing and expecting I would put it into the context of <unk>.
Manageable relative to our sort of broader commercial discussions.
And with customers over the coming year as well as just our <unk>.
Second is that we have in place to to offset costs and find additional efficiencies so copper by far the largest but structurally we're very well positioned to.
And to mitigate or or pass through those increases.
Okay got it that's helpful. Thanks, Joe and then one more follow up on the restocking discussion and I guess could you just remind us of your distribution exposure and then I was hoping you could talk about your expectations for kind of underlying CV and industrial market growth from.
Our vantage point it seems like industry wide connector order books are at record levels right now and understanding the visibility is a bit lower there, but we're just trying to get a sense for kind of the and demand expectations versus the channel fill that has clearly taken place.
Sure let me start with.
Let me start with CB, where obviously, we've got strong growth, that's a contributor and that.
Both our industrial and end markets are contributors to that space. So we're seeing and Atlanta. If you have the growth rates right. They're just CV growth rates continue to be our growth above market continues to be very strong and CV.
CEB disproportionately hypersound and whatnot.
And then and again Thats really driven in part by.
The Fts business, obviously, the connection systems business is developing a strong a strong CV business as well as some some things like infotainment and the ex U S business as it relates to the distribution channel a smaller part of our business, it's and the one hundreds of millions of dollars.
Obviously more of an impact on a particular quarter when we restock.
Thats within Sps, so the Hallam and tightened business as well as our connection systems business does push through.
Does push through distribution, but again, it's framed in the hundreds of millions of dollars type.
Type volume, but impactful on the first half of the year, just given the level of given given the level of replenishment distribution and also when we talk about restock. We are seeing increased levels go into the tier ones on the auto side, David So that comments broadly restock would be both the tier ones as well as the distribution channels.
Okay got it that's helpful. Thank you.
Thank you. Our next question comes from Dan Nathan.
And maybe of credit Suisse. Please go ahead.
Hi, good morning.
You wanted to sorry, sorry, if you mentioned this earlier, but I wanted to go into the growth of the market and the first quarter.
Tim points.
If you could just provide any color by the drivers by region and I see and I know that there was obviously some lumpiness there but.
Okay, pretty big growth and market, there, but and the other regions as well and then.
Do you have any sense, how much of a benefit you got from partially built vehicles.
And then how how much of a benefit was mix and the quarter.
Yes.
Obviously the growth over market, we've got we've got laid out and.
And the deck.
<unk>.
And really strong strong growth over market and and.
And obviously, China as we talked about.
But all regions, showing showing positive growth, 9%, 10% across North America, and Europe helped obviously by HV high voltage business held by the engineered components not just the restock, but also just the strained underlying strength and that business.
And again I would expect I think as you get into the back half of the year, particularly in China, and we'd expect some of that to some of that growth over market of slowdown as we just start on China was out very sort of was the market that first took off post COVID-19. So had a very strong back half or back half of the year last year.
As it relates to partial vehicle builds that's obviously, we know they're happening.
And that's that's.
And yet very little to no really no visibility to that.
And in most cases.
And because where we are.
And we're shipping and they are building and on to the extent that's.
And part that we're contributing obviously that remains on order for us but.
Really don't have any type of visibility and sort of broadly speaking what that means for the industry realize that people will comment that there is a lot of.
There's a lot of yard holds and old vehicles at this point out there, but really don't necessarily doesn't necessarily flow through to what we're seeing.
Okay.
And then my second question and I just wanted to follow up on rods question earlier and spin.
<unk> and safety and I know about.
And with a month ago or so we saw a headline.
<unk> is expanding its collaboration with Nvidia.
Nvidia and I think that's more on the compute side, but clearly it seems like you have more.
Yes.
Auto makers trying to do a little more on the active safety side and I recognize there's multiple ways you can work with the customer and.
Bigger pie rules may change and maybe you could just give us a sense of.
How that dynamic is working out with automakers are they taking on the safe side are they taking more of an active role and forming their functionality versus relying on suppliers.
And whats the piece, that's always going to be with you regardless of whether the automakers himself and want to bring in more functionality and home.
Yeah, Dan, it's Kevin and listen again.
It's all over the place so it depends on the OEM and I think.
And you have to start with the first point in terms of the overall market.
And penetration rates of active safety is increasing significantly and the fastest growing areas really in and around that <unk> <unk>.
So you have unit growth and then you also have significant.
Content growth.
There are Oems who've historically have.
And some who its an increased focus now.
Want to be more involved in that that overall development on the active safety solutions.
Tends to be today in and around future development. So.
How does the vehicle and respond to certain.
Particular on driving incidents so that they give it a seal of a particular brand whether it be more aggressive or less aggressive and aggressive. So most of what we've seen is in and around the feature side.
We have some customers that were doing soup to nuts, the full platform.
And we.
Other customers, who were doing the platform and we're integrating some of the features that day.
We'd like to develop.
And our Gen. Two <unk> platform, which is underdeveloped now is going to give volume customers the ability to do more or less of that and provide them with tools necessary to actually develop features if that's if that's something.
And I think we'd like to do and make it easy for us to integrate those into the overall and the overall platform.
Is there and the areas that I think it would be more challenging for Oems to.
And just take responsibility for us to your point on the on the <unk>.
Lower side one.
And two on the perception systems side.
Whether that be the radar solutions Division solutions, the Lidar solution.
On the sensor fusion side, so taking all of those inputs.
And and fusing them and.
Developing the software and necessary to how does the vehicle perform and react to those various various inputs.
And those would likely be the most most challenging areas.
But we will see I mean, some OEM customers maintenance side thats something that they want to try.
I think there is.
As a company thats been in been in this particular area for a very long period of time.
It's complex as you know, it's a safety feature so on eastern performed 100% and the time.
And the benefit of history and experience.
I think creates a bit of a headwind as it relates to in sourcing all of that activity.
Great, but again I think our focus is on providing our customers with what it is that they're looking for and.
And driving profitable revenue growth.
And doing that Thats helpful.
Thank you.
Thank you. Our final question comes from Brian Johnson of Barclays. Please go ahead.
Yes.
Good morning, and good afternoon and here in Dublin.
A different spin on a couple of questions that come up around Oems trained more active and technology. This one though is about the impact of the chip shortage and what it means for call. It a high performance procurement organization at the Oems, we have consulted on a webinar talking about how his firm would be encouraging.
CMS deep into the supply chain to understand where the chips are coming from debt was clearly best practice for chemo, but also to begin directed by.
Any more on ships.
So and which raises the question of if one is a build to print electronic black box manufacturer directed buy would be detrimental to margins. So really two questions one.
Do you see that trend as well something you would encourage and be kind of as you think about your product lines, and especially how you've evolved them towards higher margin software, how would have to bear and that kind of environment.
Yes.
And that's a great question, Brian obviously, there's more there's more semiconductor content going into the car as you know and having a good sense from the supply chain and and.
And capacity.
Within various aspects of the semiconductor supply chain.
Is extremely important and what youre, referring to as you can see a scenario where that works for.
Things like Microcontrollers, where it's a more commodity like semiconductor product, there's very little customization, it's a fairly standard solution that goes across.
Multiple areas within the car.
When you think about the higher performing areas like active safety like radar.
Like vision systems, obviously, you are talking about a very different manner, because the engineering activity.
And the relationship with the semiconductor partner is extremely important.
Obviously, you need to know what capacity and the supply chain looks like but that engineering technology quotient is significantly higher.
And as you look at the path towards smart vehicle architecture debt.
And that we're headed down today and the reality is we as we see upward integration as we see domain consolidation. The reality is the number of those microcontrollers that go into the car actually are significantly reduced rate you go and basically I have that number and half.
So I think there is an element of this activity that debt.
And quite frankly takes care of itself.
Do I do believe.
And very supportive.
The Oems will come with a much more focus on the supply chain to understand what is supply chain resilience look like.
Where is there.
Not only dual validation, but dual capacity available.
And how do we continue.
To minimize risk.
And just as a quick follow on is that suppliers some suppliers in Europe and blamed by their customers for not handling the chip shortage would you say active four and OEM, who wants to look further up his or her supply chain is that the kind of service visibility transparency that you add and visit acts.
<unk> healthier OEM relationships.
Yes, I think it helps our OEM relationships I think.
And we've fared.
Very well through this challenging environment.
I think and in reality.
And unless you are sitting on a year's worth of chips I think it would be hard for anyone in this space not to be impacted by or impact.
A potential customer and that is the reality when you look at the effects of COVID-19.
And you look at demand spikes outside of automotive as well as inside of <unk>.
Automotive there is an element of the.
The perfect storm, but I think it's important we as an industry learned from it and make whatever adjustments calibrations that need to be made and.
We certainly have and will continue to improve and areas that we identify whether that's redundancy or different ways of doing business.
Okay. Thank you.
Thank you.
Thank you that concludes today's question and answer session I would now like to turn the call back to Mr. Kevin Clark for any additional or closing remarks.
Great. Thank you very much thanks, everyone for your time, just a few closing comments just to highlight as it relates to Q1 results and as we talked about the full year, obviously the business is performing well.
Supply chain is obviously choppy and it will continue to be choppy as we head into Q2 and improve as we move into Q3 and Q4 and.
<unk> costs are increasing and lighting supply chain tightness and they'll continue to have so we'll continue to incur some cost pressure, but we have several initiatives underway to engineer out these.
Engineered out these cost pressures and.
Actually <unk>.
Maintain and improve margins.
<unk> are accelerating and around safe Green and connected post COVID-19.
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