Q2 2021 Aptiv PLC Earnings Call
Good day and welcome to the second quarter 2021 and the earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Elena Rosman average.
Eric Vice President of Investor Relations. Please go ahead ma'am.
Thank you Elena good morning, and thank you for joining <unk> second quarter 2021 earnings conference call.
This release and related tables, along with the slide presentation can be found on the Investor relations portion of our website at IR <unk> com.
Today's review of our financials exclude restructuring and other special items and will address the continuing operations of.
The reconciliation between GAAP and non-GAAP measures for both our Q2 financials as well as our outlook for the full year 2020.1 and are included in the back of the slide presentation and the earnings press release.
Turning to the next slide.
During today's call, we will be providing 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 its future course and impact on the supply chain and global economy.
Joining us today will be Kevin Clark, <unk>, President and CEO, and Joe Massaro, CFO and senior Vice President of business operations Kevin.
Kevin will provide a strategic update on the business and Joe will cover the financial results and the updated outlook in more detail before we open the call to Q&A with that I would like to turn the call over to Kevin Clark. Thanks, Elena and thank you everyone for joining us. This morning, beginning on slide 3 GAAP. This first half performance, which includes record growth.
And so over market and record New business awards validates the strength of our portfolio of market relevant technologies, and our success, keeping our customers running and a challenging environment.
Revenues and the second quarter were $3.8 billion and increase of 85%.
Lapping prior year shutdowns in North America, and Europe, and representing 17 points of growth over underlying vehicle production.
Operating income and earnings per share and the second quarter total $301 million and 60, respectively.
Meaningfully impacted by ongoing COVID-19 related expenses as well as the increased supply chain disruption and input costs, resulting from material shortages.
Despite these headwinds, which we expect to somewhat eased during the balance of the year, we're raising our outlook for the full year driven by continued strong customer and customer demand for our solutions, continuing our track record of outperformance and value creation for all stakeholders.
Turning to slide 4 our updated 2021 outlook also reflects our flexible and sustainable business model, which positions us to support the record number of customer program launches that are driving incremental volume and market share gains this year, while mitigating the supply chain headwinds.
As I mentioned, we expect to supply chain tightness to begin easing over the next few months and we're happy with consumer demand levels and our customers intend to make up as much of the first half production shortfalls as possible, which is the reason we've made no change to our outlook for growth and global vehicle production, which we still expect to be roughly 10.
<unk> for the full year.
At the same time the demand for our portfolio of advanced technologies is benefiting from the acceleration of the safe Green and connected Megatrends, which has led to an increase and our outlook for revenue growth and growth over market from 6% to approximately 10% for the year.
Our team is diligently working to efficiently launch high complexity program and the advanced safety and user experience segment. While we also deliver on the launch of a record number of high voltage electrification programs and our signal and power solutions segment.
That said, we will continue to be more expensive to operate and the current environment as customers canceled production shifts and idle plants and response to supply chain constraints, creating temporary labor inefficiencies and our operations and input cost increase as a result of material shortages also which have been factored into our.
Updated full year outlook.
Our sourcing and commercial teams are actively pursuing recovery actions with suppliers and with customers.
And our engineering teams are developing and validating product redesigns and providing access to incremental sources of supply and helping to offset the impact of increased input costs.
Setting the near term challenges aside we're performing very well and continue to proactively position after for the future by investing in high growth high margin technologies that further enhance the resiliency of our business and.
And by leveraging our unique brain and nervous system capabilities to deliver more content on the electrified software defined vehicles, other future, which taken together yield accretive growth opportunities on the path to the software defined and vehicle enabled through smart vehicle architecture or SBA.
And as evidenced by our recent bookings and the size and quality of our new business pursuit pipeline.
Yeah.
As shown on slide 5 second quarter, new business bookings reached $6 billion, bringing the year to date total to a record $11.2 billion.
Our unique portfolio of advanced technologies combined with our flawless operating execution has positioned us as a partner of choice for our customers by enabling the transition to new architectures and software defined features with our optimized solutions that enhance system performance, while also lowering the vehicles total cost.
Our brain and nervous system capabilities and holistic platform approach sets us apart.
While our global scale and execution capabilities have allowed us to increase our share of wallet with both traditional and emerging OEM customers and strengthen our overall competitive position, which youll hear more about and our upcoming segment discussions.
Turning to the highlights from our advanced safety and user experience segment on slide 6.
Second quarter revenues increased 83%.
15 points over market, reflecting the benefit of new program launches and content gains, which translated into strong growth over market interactive safety product line.
And continued growth and our user experience and connectivity and security product lines. Despite the supply chain constraints impacting the segment.
Consumers are demanding more safety and connectivity features and their vehicles, which are increasingly delivered through software enabled by more advanced sensing and compute platforms.
This presents us with additional opportunities to increase our customer share of wallet.
The evolution of feature rich and more automated vehicles is playing out just as we planned.
We anticipate our customers' needs and took the actions necessary to position and active as a strong collaboration partner.
As a result, we're experiencing first and the commercial validation of SBA with 9 advanced development programs underway or recently completed.
Which we're confident will lead to new customer awards during the next year.
And a new business award during the second quarter from Great Wall Motors for the development of our central vehicle controller.
This is a new high performance compute platform that will first launch with great Wall's way brand and 2023, which up integrate critical body functions and controls the flow of data in and out of the vehicle, making it a first to market solution globally and also representing a key SBA commercial milestone.
Moving to slide 7 we are at a pivotal point and our industry's transition as consumers want more advanced features for safety comfort and convenience.
More stringent regulations regarding <unk> emissions and lower battery costs are accelerating the industry's move to high voltage electrification.
And <unk> technology, and the cloud are creating opportunities to deliver vehicles that leverage connectivity, even more than they do today, all which is being enabled through significant increase and the amount of software going into the vehicle.
Providing us with increased software content and new business model opportunities.
To put the opportunity into context, the total automotive software market, which includes integration feature development and validation and verification services total is an estimated $30 billion today and is expected to grow to roughly $80 billion by 2030.
This represents a significant opportunity for active.
We're confident that we have a right to play across the full software stack with over 5000 and software engineers, who successfully deployed advanced software solution across literally millions of vehicles with multiple OEM customers across the globe.
Including our advanced Adas systems currently launching on the Jeep Grand Cherokee and Wagoneer, which includes radar camera perception and future software, enabling 360 degree sensing and scalable Adas functionality through L..2 plus and with the addition of in cabin sensing technology will also include enhanced reactive.
Driving assist we're also helping to enable ultra plus Adas system capabilities for Ford as well as other Oems with our scalable Adas platform, which includes modular software building blocks and industry, leading perception systems.
And lastly, mobiles Polestar 2 was first to market with native Android automotive running Google automotive services and.
<unk> Android based software and hardware platform powers. This best in class infotainment system and enables real time over the year updates.
These examples underscore as a software and systems capabilities as well as our role as a partner of choice delivering more advanced higher value margin accretive solutions for our customers.
Turning to slide 8.
Our signal and power solutions segment as the industry leader and high speed high fidelity data transmission multi voltage electrical distribution and automotive grade cable management and connection systems.
Revenues increased 86% during the quarter 18 points over market.
Driven by Oems prioritizing the production of more highly contented vehicles as.
As well as the increased production of high voltage electrified vehicles, resulting and increased demand for both on our low voltage and high voltage architecture solutions and continued very strong demand for engineered components for applications and the automotive commercial vehicle and industrial markets.
We're well positioned to support our customers globally with a comprehensive portfolio of vehicle architecture solutions that leverage a high degree of vertical integration.
Which has translated into a significant increase and new business awards for high voltage electrified platforms, where we've been able to design and deliver fully optimized vehicle architecture that provides up to a 40% reduction and weight and mass.
Significantly lowering the total system cost and electrified vehicle platform <unk>.
Positioning us to have content on more than 50% of the battery electric vehicles launching over the next few years.
In addition, several Oems have asked us to help to find their next generation electrified vehicle architecture with advanced development programs, including our multi voltage pre development partnership with a major German OEM on their premium electrified vehicle platform.
And development of the next generation electrical architecture for a future battery electric vehicle platform with a major high volume global OEM.
These these customer awards validate our leadership position optimizing power and data distribution for new vehicle architectures that deliver significant value for our customers.
Turning to slide 9 in June we hosted our virtual electrification teaching, which showcased our industry Lee high and low voltage technology portfolio.
Accelerated outlook for the new for the EV market and how those translate into sustainable and profitable growth wrapped up.
The recent increased demand for electric vehicles has been encouraging but it is nothing compared to what's on the horizon as governments around the world fuel a green recovery never his app this value proposition and had more meaning than it does today.
European Union recently proposed regulations, calling for zero <unk> missions from vehicles by 2035 and.
And the U S administration has recommended targets for significantly higher EV penetration, both of which are driving an increase and commercial activity.
Every major global customer has announced an increase and pull forward of investment and the development of new electric vehicle platforms and combined Oems are now targeting to launch over 400 vehicle programs between now and 2025, which is translated into a tenfold increase in business pursuit activities over the last.
Few years.
We've been quick to support our customers globally with high voltage New business awards totaling $1.4 billion year to date and a clear line of sight to future Awards. We now expect high voltage bookings to exceed $2.5 billion for the year, that's an increase of 25% over our prior record of $2 billion and we expect our high voltage revenue.
<unk> to increase from just under $1 billion and 21.
So over $2.5 billion and 2025, making high voltage electrification, our fastest growing product segment.
Our success has been driven by our end to end full system level capabilities, which enable a more efficient path to vehicle electrification.
Our portfolio of advanced technologies enables faster charging improved reliability performance and packaging as well as increased safety and security while optimization on the vehicle architecture design leads to reduce complexity enables more flexible and scalable implementation and as I've mentioned results and significant.
<unk> and cost savings on the past before SBA.
All of which is developed and delivered to our customers flawlessly and will do.
Due to our global scale and manufacturing excellence.
Our industry, leading position and high voltage electrification solutions positions us to pursue additional opportunities and deliver incremental value to customers through a much broader system level design and software solution.
Moving to slide 10, we're proud of the progress we've made on our enterprise wide commitment to corporate social responsibility, which can be further explored and our 2021 sustainability report that was published in July.
This year. This year's report includes our sustainability strategy in 2025 commitments for each of our foundational pillars, which include people products planet and platform and enhanced disclosures, specifically around our approach to diversity inclusion and human capital development, our path to carbon neutrality by 2040.
Our lean to no initiatives focused on product quality and execution and the governance and operating processes around our sustainability objectives.
AH report also highlights the tremendous contributions made by our team during the pandemic and how each of US live the asset values thinking and acting like owners and always doing the right thing the right way.
Through our team's resiliency and dedication and we've continued to deliver on our mission, creating product that helps transform society by saving lives.
<unk> carbon emissions and connecting people and new ways.
We believe that our long term success and ability to create value for our stakeholders are directly linked to building more sustainable business that continuously delivers on this mission and our strategy.
As a result, we're proud to be an early adopter linking our sustainability commitments with our bottom line and our recently amended credit facility with the show is going to cover more detail shortly.
And we fully understand that reaching our goals will take a comprehensive strategy intense coordination and operating execution by all of our team members over a sustained period of time.
So with that I'll hand, the call over to Joe to take us through the financials in more detail. Thanks.
Thanks, Kevin and good morning, everyone.
Starting with slide 11, the recovery momentum and the second quarter generated strong results. Despite the challenging environment environment, Kevin referenced <unk>.
Revenues of $3.8 billion were up 85%, 17% ahead of vehicle production with strong market outgrowth and every region.
Adjusted EBITDA and operating income were $498 million and $301 million respectively.
And reflecting headwinds of $55 million of Covid safety and supply chain disruption costs and $80 million from FX commodities and other input costs.
Earnings per share and the quarter were 60 and.
And operating cash flow was strong at $297 million driven by higher earnings despite increased inventory levels to support customer schedules.
Looking at second quarter revenues and more detail on slide 12 broad demand recovery contributed to strong growth over market across regions.
Favorable volumes and the impact of FX and commodities were partially offset by normal price downs and the quarter.
From a regional perspective, North America revenues were up 154%, representing 24 points of growth over market driven by the ramp and active safety launch volumes and favorable truck and SUV platform mix.
And Europe strong double digit outgrowth of 37% was driven by robust customer launch activity and higher volumes and our high voltage electrification and industrial product lines.
Lastly, and China revenues grew by 2% or 9 points over market lapping last year's strong market recovery with outgrowth driven by the engineered components product line.
Yeah.
Moving to the segments on the next slide.
Advanced safety and user experience revenues increased 83% and the quarter, reflecting 15 points of growth over underlying vehicle production. Despite the semiconductor supply constraints segue.
Segment, EBITDA increased by $113 million driven by higher sales volume.
Partially offset by supply chain distribution, I am sorry supply chain disruption and higher input costs.
Signal and power solutions revenue were up 86%.
Record growth was driven by broad based recovery across the auto commercial vehicle and industrial end markets and the ramping of high voltage vehicle production.
EBITDA and the segment increased by $443 million and the quarter on higher sales volume, partially offset by FX and commodities, primarily copper and additional costs and inefficiencies from the supply chain constraints and result, and disruptions to customer production schedules.
Turning now to slide 14, and our 2021 macro outlook.
We continue to plan for global vehicle production to be up 10% for the year.
As expected the semiconductor constraints were more impactful on the second quarter due to the impact of the noncompliance and spring weather events.
And while ongoing challenges with semiconductor supply will continue to impact vehicle production. We believe we have adequately reflected these dynamics and our outlook for the second half.
Which estimates vehicle production to be down 4% Lee.
Lapping last year's second half production, snapback, which creates difficult comps and all regions.
Accordingly.
We expect second half production in North America to be flat.
While Europe, and China are expected to be down, 5% and 10% respectively.
In summary, while our supply chain remains tight we are working closely with customers and suppliers to optimize deliveries to be customers and demand.
And given continued variability and customer production schedules, we are not and are positioned to provide third quarter financial guidance.
However, we are confident and our updated 2021 outlook reflected on slide 15.
We now expect revenue and the range of $16, 1 to $16.4 billion.
Up 20% with 10 points of growth over market at the midpoint.
4 points higher than our prior guidance demonstrating.
Demonstrating the relevance and diversity of our portfolio and product lines.
EBITDA and operating income and now expect $2.42, and $1.63 billion at the midpoint with strong year over year sales conversion.
Despite COVID-19 and supply chain disruption costs, which are now estimated to be $250 million for the year up $110 million over last year, and FX commodity and other rising input costs.
And lastly, we expect earnings per share of $3.75.
And at the midpoint and operating cash flow of $1.8 billion.
Turning to slide 16.
We thought it would be helpful to provide more detail on the full year guidance update compared to the initial guidance we provided back in February.
Starting with the revenue walk on the left on.
Our.
Updated outlook reflects an increase of $455 million from growth above vehicle production as well as a $385 million tailwind from FX and commodities.
EBITDA guidance has increased driven by the $215 million benefit of higher growth and performance.
However, the increase was offset by higher costs.
Proximately $70 million associated with managing through the supply chain disruptions and volatile customer production schedules.
In addition, we are experiencing higher FX and commodity pricing, mainly copper as well as increases in certain input costs, including semiconductors and resin pricing of $125 million versus our initial guidance.
As it relates to these higher commodity price and input costs, we have already started taking actions to offset and mitigate these headwinds.
We believe it is prudent to assume that these costs are not transitory and will persist into future periods.
In addition, a passing along higher prices, where possible, including copper price Escalations and we are a number of other initiatives, including supplier recovery strategies engineering redesign and alternative source evaluations as well as engaging and commercial discussions with our customers.
Moving to slide 17.
Sustainability is core to our business from the products, we make to the way in which we operate.
We are proud to be 1 of the force companies to integrate our targets and to a financing structure that underscores our commitment to cleaner air and safer work environments and.
On June we entered into and amended and restated $2 billion revolving credit facility utilizing our existing sustainability metrics and commitments.
The amendment extends the maturity of the credit facility to 2026 and utilizes a pricing mechanism that lowers the borrowing rate, which we maintained throughout the term of the facility as long as we meet our previously published sustainability Committee.
Which include a decrease and scope 1 and 2 carbon emissions by 25% by 2025 and maintaining an industry best lost work day case rate.
The amended facility includes a debt to EBITDA leverage covenant of 3.5 times with up to $750 million cash netting and flexibility to increase the aggregate borrowing capacity and leverage and connection with any future M&A activity.
Turning to slide 18.
As we have discussed our business model enables us to convert more income to cash generating higher operating cash flow and free cash flow conversion.
We expect operating cash flow of $1.8 billion and 2021 above 2019 levels driven by higher earnings, partially offset by investments and inventory to support customer schedules.
The decisive actions we've taken the last few years to strengthen our capital structure has allowed us to maintain a strong balance sheet, while continuing our disciplined capital deployment and track record.
Which is evidenced by the $12.6 billion deployed from 2015 through 2020 focus on value enhancing investment opportunities.
We continue to remain a consistent and we continue to maintain a consistent approach line to our strategic framework.
And that includes reinvesting in our growth businesses with high ROI Capex investments largely to support new customer wins and the expansion of key growth product lines.
Enhancing our auto tech capabilities and software artificial intelligence machine learning and systems engineering.
As well as continuing to increase scale and diversification and our signal and power solutions segment.
The consistent execution of our strategy even in the face of today's challenges is a major differentiator for <unk> and an important lever for shareholder value generation going forward.
With that I'd like to hand, the call back to Kevin and for his closing remarks. Thanks, Joe I will now wrap up on slide 19 before opening it up for questions.
As we reflect on the quarter and outlook for the year, it's clear that our relentless focus on innovation and flawless execution is allowing us to better support our customers and is resulting in stronger new business win rates record bookings and faster revenue growth over market further validating our industry, leading portfolio of advanced technologies at the intersection of.
The safe Green and connected Megatrends, and strengthening the breadth and depth of our customer relationships and thereby widening our competitive moat and advancing our vision of the company and 2025 and beyond.
This will result, and an improved and more predictable growth profile increased profitability driven by the leverage of our global scale and the flawless execution of the accretive growth opportunities that are squarely on the path to the electrified and software defined vehicle, which results in the compounding of earnings and cash flow generation and provides additional opportunities for value.
Creation through the disciplined deployment of cash.
We're well positioned to continue to outperform as a purpose driven company with a roadmap to create significant value for our customers employees and shareholders leveraging our technology relevance strong financial position and the flexibility to constantly reinvent reinvest and our people and our processes and in our portfolio.
And so with that let's open up the line for questions.
Thank you. Thank you would like to ask a question. Please signify by pressing star 1 on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to another channel to reach our questions and the interest of time, we ask you to limit yourself to 1 question and 1 follow up question. Thank you and thanks again.
On Star 1 to ask a question Lee with policy, but just a brief moment to allow everyone an opportunity to signal.
And our first question comes from Chris Mcnally of Evercore. Please go ahead.
Thanks, So much guidance look I know there'll be a lot of questions around the <unk>.
Margins and production in the current environment I'll leave that to some of the other guys I wanted to talk around SBA.
The benign disclosure.
And initial customers that you're working with debt.
A pretty big number compared to what you've always talked about I think was 3 to start. So if you could just give a little bit more and more detail there and.
At 1 point and when we sort of get revenue associated with SBA. Just so we can sort of everyone. So excited about it but we have no idea how to size as you can for for 2025, and there will be some nomenclature because some goes into ASU some goes into Sps.
But if you could just kind of framed because this is it seems monumental that youre getting this much traction this quickly on SBA.
Yes, Chris it's Kevin.
No we've seen I.
I would say post COVID-19 with the acceleration.
And on battery electric vehicles, and and customer demand.
4 and increased portfolio of battery electric vehicles and acceleration of the work in and around FCA.
I think the simple way to think about SPN and we've always talked about it is as a journey right starting with domain centralization.
And then moving to vehicle architecture, simple simplification and and ultimately to kind of encase SBA, which is post 2025, we break that down and to 3 big product areas and in the first and zone controllers, and we've talked about the trend towards on controllers, we've talked about our work and our actual commercial wins and <unk>.
<unk> zone controllers.
And the second is in and around advanced development programs for Pdc's.
The third.
Would relate to the CVC win with Great Wall Motors.
And then the force is in and around the OSP.
So we feel like we've checked the box on 3 of the first 4 stages as it relates to SBA.
On the 4 stages that OSP and we're in discussions with several Oems regarding advanced development programs.
And that particular area.
And what's really important news all of those ADP programs ultimately translate into real commercial opportunities and to the extent youre working closely and strategically with their customer.
Youre doing advanced development programs, you're helping them frame design of the vehicle design the architecture of both hardware and software.
It puts you in a really good position to effectively.
The awarded the follow on business.
So Lee.
Long weighted way of of we've always described this as a journey.
Sitting here today, we would tell you its accelerated from where we thought it would be from a customer demand standpoint, a little over a year ago.
It's being driven by the trend towards battery electric vehicles, and the opportunity to rethink vehicle architecture as you trend towards battery electric vehicles.
And we're well positioned just given our history and domain controllers, given our history and vehicle architecture, and our capabilities in and around zone controllers, and our activities with Oems and the ADP programs that we've had in and around Pdc's. The.
The award from Great Wall Motors on the CDC and the discussions we're now having with Oems and in and around the OSP.
So.
We have wins today, we have revenue today. If you were to think about the transition to SBA, but we think the real revenue opportunity as 2025 and beyond as you see.
So yeah, [noise] rough a rake and Kevin and rough rough number I'm thinking that the legacy Oems account for net round number about 95% of.
Of auto sales global even if I include.
And if I include China, and there and include their established let's say companies his legacy.
Her icy guys.
I'm curious Ah for your order backlogs, whether that mixes materially different could you give us maybe a sense of what the non legacy portion of your backlog is.
If it's not 5% is it is it more than that or are you seeing that the front and a that moving materially higher and then I have a follow up.
Yeah, and I'm like Joel tickets through specific numbers, if you break down on revenues a couple of ways to cut it 1.
Total revenue total automotive revenues represent roughly 85% of our total revenues with 15% being non automotive and some of which is commercial vehicle a growing component which is industrial.
Defense Aerospace other.
Other when you look when you breakdown, our current revenues and and bookings, we've seen and acceleration of both bookings and revenue and I'd characterize 2 areas 1.
The new.
The newer battery electric vehicle manufacturers, some of which are more mature and have been around and North America. Some that are a little less mature and are are launching vehicles.
Now in North America.
And then a significant.
Swing and probably a bigger mix change quite frankly in China with our new battery electric vehicle.
Customers that tend to be more domestic so to put in perspective 5 years ago.
20% of our revenues and bookies and China were.
With.
Local Oems today is closer to 30.
And a big piece of that is in and around some of the the new battery electric vehicle companies.
Yeah, and it's just a little bit more context, I think it's I don't have the exact number I think at this point for me. If you think it is sort of traditional OAS, it certainly and <unk>.
Hands on where you put Tesla, obviously, but and that 90% plus.
But obviously if it's on.
Obviously concentrated and the newer technology. So if you think of sort of just 8.
Accumulative bookings over the past past 5 years.
There's there's $10 billion of the total call at around $100 million of cumulative bookings over that time period.
About 9 billion of it's in.
And high voltage close to $20 billion of that is inactive safety. So even if you have we still have obviously just given the way the market is a strong concentration and legacy, but very much position and the newer tacked that's going on to those onto those vehicles and and.
And a meaningful way from a bookings perspective.
Okay, Okay, and just just 1 follow up and.
You know I I I I don't expect this is gonna be impacting any of your quarters for any of her very long amount of time, but urban and mobility E V. Tol, you're seeing a lot of a lot of development there.
From car companies and and aviation It strikes me as your <unk>.
And and nervous system and electrical architecture on a car.
Vehicles has a very high transferability, there I'm just thinking at a high level could you tell us or is this something that you have it.
Do you are you devoting resource to this and the aviation electric aviation market.
At this point curious your thoughts there even if it's 10.20 years out I don't care I think it's and alignment with what you're with your products and what they can do.
We're just we're just love your view on that cause some other scenarios, where we're running a number of of.
Of things on the air could exceed the number of vehicles on Earth. So I was just just wanted to know your opinion on that thanks, yeah.
And it's a potential opportunity I mean, a reminder are are emotional joint venture partner H M. G. Obviously is very focused and making meaning meaningful and investments and air mobility.
The team emotional is evaluating multiple markets. In addition to the the mobility on demand market.
The general use that that's a bit further out so in terms of meaningful investment that hasn't been made at this point in time.
The team views, it as real and and opportunity.
For potential future growth and and something is under evaluation from and <unk> standpoint.
We do have exposure as I mentioned 2.
Military aerospace principally and our Sps segment.
It's something alternative markets as an area that we're we're certainly pushing in that particular business.
And that particular business segment, but I would say the overall exposure to day is relatively small.
The color.
Thank you.
Thank you. Our next question comes from Brian Johnson of Patties. Please go ahead and.
Good morning, 1 of our new App.
Chris is comments on SBA, but really drill down and other parts of the <unk>. If if we go back to the.
2013 model as it not only was and electric not only does it have.
Domain controllers also had advanced digital cockpit and and of course later on level 2 plus we haven't heard a lot about your kind of advanced digital cockpit user experience side of and.
And she works so kind of a couple of questions. There given there's lots of competition at the low and everything and that that segment and general too when you sit down with it and like I C. O M C O who wants to get into the modern world with the bees does that conversation naturally go over to S. B a digital clock.
It and level 2 plus 8 as in and out of the synergies there and then kind of 3 you know related to the whole software overlay on the car or their acquisitions you might be looking at similar to say what other multi industrials have done that a software footprint to their business.
So that's a number of questions. So I need a frame it up remember we have a we have a a user experience business within our asus's business.
And that does that and around numbers 1 billion southern and Ah revenues and is is growing at a at a fairly healthy clip. This year previous periods last year was affected by.
And we exited the display business. So so we had when there, but it's growing very strong.
Integrated cockpit controllers and that whole digital experiences is a huge aspect of of what we're doing from and SBA standpoint, ICC gets up integrated.
And as a part of our SCA solution.
A hole in cabin sensing is a very important aspect as it relates to advanced <unk> solutions, Brian So and in addition to.
In addition to the the experienced in the car the user experience and the car the ink, having sense and net sensing is necessary.
To advance 2 L 's and plus to.
L..3 becomes increasingly important and I think as we speak today I think we're about to launch over the next 12 months on 3 or 4 in Kevin sensing programs that are tied to effectively adolf's capabilities and I think and my prepared remarks, and my reference 1 O.
That as we.
As we are launching their aydar solution now the next phase of it is actually that fully integrated and cabbage sensing that allows them to further advance her driver's capabilities.
So it's extremely important and it's a very important aspect is released.
To SCA as it relates to software yeah, we're trying to be really smart in terms of of of where we focus our resources and capital.
I think Joseph mentioned and the path past that uhm acquisitions in and around the software space that are additive to what we do today that help us for their product ties.
Software or give us capabilities to develop incremental features whether it's inside auto or outside auto is 1 of the areas that the team is very focused on is something that obviously, we'd like to do but it needs to make strategic business and financial sense obviously.
Okay.
Thank you.
Our next question comes from Mcenany, I've called me and Faxed. Please go ahead.
Yes, and good morning, and thank you very much for taking the questions. The first 1 is on the increased growth over market assumption that the company articulated this morning, and now again for about a thousand basis points compared to 600, and <unk> basis points previously and your 6800 basis points a longer term target you and when you think about that that increase your now expecting for this.
Here can you talk about whether or not you think that's going and and get you and demand and me and so through or it was potentially some of this going to do some of those vehicles that we're hearing Oems have been partially building and and and perhaps this is gonna be something you're gonna have as a as a headwind for 2022.
No markets Joseph.
The at least for US here, the sort of what I'll call soda. The lot holds inventories not not particularly large numbers. So that's certainly not big enough to move.
Growth over market on the back half back half of the year I do think we're we're seeing very strong.
Product mix, obviously, which is certainly help and growth over market and and this year as well as as Kevin mentioned, just a high voltage and active safety grow so.
Certainly elements of that that will that will carry into into 2022, not not clear at this point, obviously don't Wanna get into next year, how how much of that margin mix will carry and so there. There's a couple of moving pieces there but on.
It is it is real it's not some sort of you know a lot whole, that's that's driving up back half and and we obviously on a very strong first half of.
Of growth over market as well so I do think certainly we've been confident and that 6% to 8% for a long time.
But just given the strength, we're seeing it again with the addition of sort of this margin.
<unk> that's going on is as always really decide how to how best to allocate be effectively the semiconductors platforms. It's obviously been on but it really good tailwind force this year.
Meanwhile, I'll and I, just I as I can and 2 things too and I think structurally set aside.
Semiconductor shortages resin tightness things like that.
The reality is L. L..2 L..2 plus category with and active safety is the fastest growing segment.
And was predicted to be pre.
Pre pre the current support.
Supply chain situations, so that obviously drives growth.
Consumers.
Safety and they pay for safety and Joseph point and.
Market like today's market where.
Our customers need to be success need to be.
I think.
And you to make decisions about vehicle platforms are building their focused on fully content and vehicle platform. So so that's sure that's driving some benefit but the underlying structural trend is towards more advanced systems, which and <unk> system for us goes through and OEM for a thousand and $1200. So it's a significant amount of revenue.
The other piece, though is high voltage electrification high-voltage electrification revenue will increase 60% this year and.
And we talked about and are prepared remarks going from under $1 billion and revenues to 2 and $5 billion and revenues based on our current bookings trajectory and.
And if you.
If you follow what they're driving and Europe from a C O 2 emission standpoint.
On the discussions out of the current administration here and the U S in terms of on.
What day would like commitments from North American Oems to deliver from a battery electric and standpoint, there will be a significant pole.
And demand for high voltage electrification, which were perfectly positioned to benefit from.
That's very helpful. Thanks, and for my follow up question was related to the supply chain and and Kevin and you're prepared comments I believe you said you expect it to start to ease and the next couple of months and that's direction and consistent with what we're hearing from some of the other companies, although it's a little bit more specific and some of the other companies I've said the situation is still very fluid and especially with the.
Rising COVID-19 cases, unfortunately impacting Malaysia, and and a lot of the assembly and test assistance and maybe you can talk a little bit more about what you're seeing and and and what lead you to that comment of over the next few months, yeah, you're expecting it to I started yeah.
I would answer that it's kind of a multi layered question. So when you separate or when you look at the current supply chain.
Constraints and if you want to see specific to semi.
Semiconductors, but there are effects and other areas like like like residences and example.
It's multi layers 1 is just just capacity versus demand and and and the semiconductor side and the resin side. We're seeing easing we are seeing on supply come in and.
And to the market being provided to Iems.
And more and daily contact with the semiconductor suppliers.
The fab folks.
Across the whole supply chain.
From a semiconductor standpoint, so that is improving.
You have a situation where earlier and the year you had bad weather and the southwest Joe reference that impacted.
Supply availability late Q1 and into the queue to you had to knock a fire and Japan.
And the first quarter that and implications for the second quarter that situation is improving production is coming on line not as fast as we'd like but it's certainly improving however, you are running into situations like today.
Where you have COVID-19 challenges and southeast Asia, most specifically today and Malaysia, that's interrupted production with some of the semiconductor suppliers that is affecting availability of chips over the short term that will impact schedules were watching Indonesia, we're watching Philippines were watching Singapore, Taiwan.
And very closely those areas seem to be under control.
But the supply chain tight and any sort of event you see like Covid, and Malaysia has and outside impact relative to what typically would occur so we'd say structurally the situations and proving but there's going to be periodic headwinds that we potentially run into do things like COVID-19.
Thank you.
And.
And next question comes from Danny D of credit. Please. Please go ahead.
Hey.
Good morning, Thank you for taking my question again.
Hey, So first I just wanted to clarify on on the guidance and.
Thank you you called out and in the quarter.
55 million of Covid and supply chain disruption call.
Last quarter, you said 2 weeks combined 70 million and so that's 125 million a year to date and I see on your on on Slide 15 here 110 to your outpacing that amount says that to say that.
And we're expecting some some recoveries or efficiencies into the back half and then.
I I realize it's way too early to <unk> to get any sort of definitive color on 22, but.
As we're thinking about the supply chain is 22, how does this influence the type of profile that you'd get on incremental margins on any volume recovery.
Yeah, Yeah day, and let me start it's jealousy is and has been it's obviously, a very fluid situation right and and to some extent and this quarter, we just sort of talking about the COVID-19 and supply chain costs on a combined basis because to some extent they are starting to.
Darting to blur or if you're if you're incurring a lot of premium frayed getting parts out of her way getting semiconductors out on Malaysia.
Because of plantsman shutdown with Covid sort of where do you want on which 1 do you want to call that so.
But we actually have seen there have been some cases, where we talked about $100 million of COVID-19 cost for the year running a 25 million and a quarter.
That's coming down a little bit and it's just and some places and it's about that's come down about 20 million Bucks.
For the rest for the back half of the year.
Really there were still spending what we need to on on a personal protection and stuff, but some of the just inherent inefficiencies and it came with I'll say the first take on social.
Social distancing and spacing out and the plants and some of the inefficiencies. That's created the team has found better ways to manage through that so some of those COVID-19 costs have have really have to have sort of used a bit.
And it's obviously not going to speak to 2022, and what we have made the comments before though I I would expect COVID-19 cost certainly to continue its 2022.
And as I said, we're now expecting about $80 million of that for.
For the full year I think that would continue and you know you're clearly seeing.
Vaccinations matter and it's a little hard to call vaccination rates and all of the places where we do business. So I think that up and abundance of caution and we're certainly going to leave the employee protection costs.
And and spend that money until we're really comfortable.
We're not we're not putting we're not putting employees at risk the supply chain disruption caused those are directly tied to and a lot of cases premium freight expedited manufacturing.
There's obviously some inefficiencies now creeping into our plants as customers shut down for.
Periods of time, and that's not we're not necessarily causing the shutdowns, but we're obviously impacted by them and.
That and packs if you think about the indirect impact there.
And that impacts Sps as well because it's customer shutdown lines for 3 or 4 days, where obviously shutting down on that part of the business as well. So uhm I think those cosby to you need to sort of a line those with how long do you think the supply chain disruptions are going to continue.
And then I would.
I break it down because I think it's important there is an element to the extent supply comes and more normalized and into the market.
You see a pretty rapid reduction and premium freight and Labour inefficiencies right, Joe talked about and we go through a really choppy production schedule now Kevin given what Oems are doing from a production standpoint and.
Very near term announcements, which really don't allow us to flex labor as efficiently and we're launching a number of programs and in certain cases.
2 guys were keeping extra labor to make sure. His programs come back we have trained trained hourly employees to actually launches programs falsely and the second these were doing from and input standpoint, which Joe talked about is is something.
Something that we need to work through over a longer period of time, we have a supply chain operating committee that really does 2 things 1 supply chain and commercial.
Specialists, who are focused on both 1 day to day, how do we make sure that we keep customers connected with our suppliers.
And then 2 longer term what is it that we need to do strategically working with engineering and we have a number of engineering initiatives underwear and close to 100.
We're we're redesigning products changing out input costs or inputs to 1 provide additional and.
Incremental availability or capacity to to reduce overall expenses now those tend to take a little bit longer to do 1 they're harder than more complex to the ultimately need to be validated by the customer.
So that's an area that we're very much focused on so although it's going to be a challenge to work through is something that we're certainly focused on reducing and ultimately eliminated.
You've got it and then you just just to just to clarify and cause I think you just changed some of the factory that you're and that you provided because you are like on Covid and supply chain, you're already running ahead and the 1 and that.
And that you guys, but they are you <unk>, there's something else that you're you're netting on.
On that that.
Is that now include the other 1 is the.
<unk> is the increase year over year and we can.
And some of those.
Last year. So your 250 total spend on 2021 and the 110 is the change and the total cost last year were $100 million and the supply chain and deficiencies are about 40 and.
Mustard on it.
Got it okay. Thank you and then the second 1 and this is I guess more so just to follow up post to the electrification teach and you know I think what we've seen over the years, both when you can and.
And your time and App that bill so back to the Delphi day does that you're constantly you seem to be making calls and how to allocate resources between the different product areas. So I think we know high voltage is probably get on your highest.
<unk> Prada that and SCA. So at a group level to what extent are you reallocating resources, whether it's because sales staff or.
Capex or engineering <unk>, the high voltage and F. B a away from other product areas or is the resource allocation more incremental.
Yeah, I would say the resource.
Allocation is more and incremental I mean, Fortunately, we feel like we have a portfolio that's perfectly positioned across our 2 segments.
You know.
To pursue and win very profitable growth, whether that active safety, whether it's user experience, whether that's high voltage electrification are engineered components.
And.
In certain areas, obviously, we make decisions about where we allocate more or less I would say is a business. We're at a point out given the portfolio actions, we've taken historically, where it's not pulling out of others is on.
Out of 1 product, Gary and allocating the others, it's quite frankly incremental investment in areas, where we see more growth. So high voltage electrification is a great example, last year as we saw demand increase.
Within our Sps business reporting to our Sps leader, we created effectively a high voltage electrification product line.
That includes a combination of what we do and our business and our engineered components business as well as and are.
And are held him and tightened cable management business with a complete go to market and we're aggressively looking for opportunities in and around power electronics battery management systems software other areas that customers are asking us if we can provide them a more additive full system solution.
So that's an area, where we're adding resources and around smart vehicle architecture, both within those and sit within a as UX those within eds.
We're both adding and re could reconfiguring, how we operate right. So that we have a more coordinated.
Team that can develop products, whether they flow through ASU acts and it's and <unk> solution that ultimately fits into our and a.
<unk> platform that citizens.
And our SCA solution.
Or it's something in around battery management systems, and it gets up integrated into the.
Yeah.
And to into SCA. So there are areas, where making incremental investments there aren't areas other than the normal efficiency drive that we're taking investments and we're away from and a lot of what we're doing to and quite frankly is reconfiguring, how we make sure 2 separate organizations are cooperating and and working together.
To drive a product or build a product that goes across.
Historical business lines.
Okay. Thank you.
Thank you. Our next question comes from Joseph Pack off I think she kept on markets. Please go ahead.
Thanks for everyone manager, if we could talk a little bit about uhm.
Copper uhm, so I know you've wanted to ethics and commodity together for 80 million and the quarter and how much was the copper and packed Oh, I and and what was the associated top line and Packers I know usually there is a margin impact, but I don't think it impacts.
The dollars as much so it seems like there might have been a timing issue here and and I'm wondering how we sort of think about that you know as as we move through the balance of the year.
Yeah Joe.
Non issue is just the way the Escalations work so the rate impact was call and sort of 60 basis points.
We did have a dollar impact of copper around numbers $40 million and a quarter.
And that's basically the timing of the way our Escalations work right. So we we have to buy copper, obviously, our price adjustments to customers generally happens on a quarterly basis summer monthly a couple of semi annually, but the average out to be mostly quarterly adjustments. So we've reset those prices too.
What we were buying at and Q2, and we'll obviously have less of an impact going forward assume there's some reasonable amount of stability and right. So you know and.
And a quarter and we've had this in the past you can never go on the other way too if you have a big move and price over a relatively short period of time.
Particularly just given the fact that we are volume, but growing up we've been buying a lot of copper and you get the.
The timing between the buying the copper and and resetting prices with customers, but that happens automatically is contractually for about 80% of the spend.
So that's essentially been pass through or being pass through as as we speak.
Okay. So then you know of the other 150.
Input Uhm, Oh, I impact for the year.
And.
If if you should and does that price and sure comes through is it fair to assume that you know maybe resins and semi he's become a little bit more of an issue and and the back half as copper starts to normalise.
Yeah, I think that's the way to think about I think on a full year, we'd expect copper to be probably between 70 and $80 million of that with some 75% of that impact and the first half of the year, because we were gonna be resetting prices and you've got you've got resin kicking and semiconductor cooking and there's some other input costs that are that are going up but those are the those with the <unk>.
To.
Those are the 2 main ones and that and that category.
Okay, and then just quickly I guess on on the growth of our market and and that's M. P. S. Like you know the guidance and <unk>, it's sort of goes down to the low single digits and the back half can you just remind us uhm, what's really driving that step down from that high teens level and the first half.
Yeah, <unk> got listen <unk>, there's a couple of things I would say generally speaking, it's it's sort of just the normal and I say normal sort of pre COVID-19. This sort of exist and the business just the laughing and want cycles and we obviously had some strong strong launch and snapback activity and in the back half of last year.
Particularly in China.
And you see some of that some of that having that's a bit more of the year over year I would tell you the first and and this was primarily license isolated and the first quarter.
There were a few points of growth and we talked about it at the time just related to what I'll call sort of channel replenishment and engineered components business.
Obviously, creating a favourable mix, we talked about it being worth about 4 points of the outgrowth and Q1.
That was really isolated to Q1, it did and we didn't see much of that at all and Q2 and don't expect it and the back half. So that's that's another sort of just a.
First half second half Delta and just to clarify that the second half outlook and plan outlook.
And plaza, roughly 7 planes and breath of and.
Alright, and the second half.
Okay. Thank you.
Thank you. This concludes today's question and answer session I would like to turn to call back to 10 o'clock for any additional how can we take on Max.
Right. Thank you very much. Thank you everyone for joining us today.
We appreciate and participating and a call have a great rest of the day.
Thank you and check and then discuss it today.
Thank you can't <unk> nation, you may now disconnect.
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