Q4 2021 Aptiv PLC Earnings Call
Good day and welcome to the up to the fourth quarter 2021 earnings Conference call.
Today's conference is being recorded at this time I would like to turn the conference over to Chris Taylor Director of Investor Relations. Please go ahead.
Thank you Kevin Good morning, and thank you for joining <unk> fourth quarter and full year 2021 earnings conference call. The press release and related tables and slide presentation can be found on the Investor relations portion of our website at <unk> Dot com.
His review of our financials exclude restructuring and other special items and will address the continuing operations of <unk>.
Reconciliations between GAAP and non-GAAP measures for our Q4 financials as well as for our full year 2022 outlook are included in the back of the slide presentation and the earnings press release.
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 in 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 will provide a strategic update on the business and Joe will cover the financial results in 2022 outlook in more detail before we open the call to Q&A.
I'd like to turn the call over to Kevin Clark.
Thank you Chris and thank you everyone for joining US. This morning are beginning on slide three during.
During 2021, we experienced record growth over market and record new business bookings driven by our industry, leading portfolio of advanced technologies aligned to the safe Green and connected Megatrends as well as our success keeping our customers running through the ongoing supply chain disruptions.
Despite the increased efforts to keep our customers connected to our financial results validate the strength of our competitive position and the resiliency of our business model.
Focusing on the highlights for the full year, new business bookings reached 24 billion in revenues totaled $15 6 billion, representing 15% growth 15 points over underlying vehicle production.
Operating income and earnings per share totaled $1 2 billion and $2 61, respectively.
Reflecting the benefit of strong revenue growth, partially offset by increased operating expenses related to supply chain supply chain disruptions and material cost inflation, which Joe will cover in greater detail in a few minutes.
Lastly, we continued to invest in organic growth initiatives and as you know recently announced an agreement to acquire wind River.
Leading provider of intelligent edge software solutions, representing one more step in accelerating the intelligent transformation of active and positioning us to enable the software defined future.
This transition this transaction uniquely positions app to provide comprehensive solutions that enable software to be developed faster deployed more seamlessly and optimized throughout the vehicle lifecycle.
Starting with supply chain challenges aside the App Dev team is executing exceptionally well continuing to proactively position the company for the future increasing the efficiency of our underlying cost structure, while investing in high growth high margin advanced technologies that increase the resiliency of our business model, which will lead to a stronger competitive position.
Increased value for our shareholders.
Turning to slide four as I already mentioned, we remain laser focused on executing our strategy and further enhancing our industry leading capabilities.
The macro headwinds we faced over the past few years have validated the resiliency of our business model showcase by the flawless execution of new program launches as well as a record new business bookings and record revenue growth over market.
Looking ahead after will be even better positioned to capitalize on the safe Green and connected Megatrends just as the path to the software defined vehicle is accelerating.
Our scalable advanced eight as an in cabin sensing solutions increased system performance, while lowering cost, enabling the democratization of active safety features.
Our extensive portfolio of both low voltage and high voltage electrification solutions allows us to develop optimized vehicle architectures that significantly reduced vehicle weight and mass and lower overall vehicle cost.
And our vehicle connectivity solutions provide our Oems with the data analytics and insights that allow for continuous enhancements through the vehicle lifecycle and our fleet customers with vehicle health data to minimize vehicle downtime.
Collectively each of these offerings is a key foundational element for our smart vehicle architecture solution. In 2021 was a proof point for the market relevancy of our industry, leading portfolio of advanced technologies.
It gives us the confidence to increase our framework for revenue growth to eight to 10 points over vehicle production.
As shown on slide five 2021, new business bookings totaled a record 24 billion a $6 billion increase over the COVID-19 impact in 2020 of them out.
At a $2 billion increase over the previous record of 22 billion.
Our unique portfolio of safe Green and connected technologies combined with our false operating execution continues to position <unk> as a partner of choice for our customers.
Advanced safety and user experience segment bookings totaled 6 billion for the year, including $2 8 billion in active safety Awards.
Bookings for our signal and power solutions segment reached 18 billion <unk>.
Including a record $3 5 billion of high voltage electrification awards.
The cumulative amount of our new business bookings over the last few years across our portfolio of advanced technologies gives us confidence in our ability to sustain strong above market growth across both of our business segments further validating the resiliency of our business model.
Turning to the highlights for from our advanced safety and user experience segment on slide six.
Revenues for the fourth quarter declined, 1% 15 points better than the reduction in global vehicle production.
For the full year revenues increased 13% 13 points over vehicle production, reflecting the benefit of new program launches and increased penetration rates, which resulted in strong growth over market in our active safety product line.
And continued strong growth in our user experience and connectivity and security product lines driven by the launch of infotainment programs in Europe and in cabin sensing programs in both North America and Europe as.
As the demand increases for more advanced active safety and user experience features the need for more advanced software development integration and compute capabilities as required and our industry, leading capabilities presents us with additional market share opportunities as evidenced by our new business Award from the Atlantis for Adas satellite architecture.
<unk> solution on the Ram pickup truck build.
Building off of our earlier success launching a similar scalable active safety solution.
<unk> Grand Cherokee and Wagoneer.
Several new business award from Ford for the extension of our <unk> satellite architecture solutions across additional new vehicle platforms.
Whereas from Volvo for the extension of the first of its kind Android infotainment solution powered by native Google automotive services with real time or.
On the new additional vehicle platforms, and lastly, further commercial validation of our smart vehicle architecture solution in China with a new business award from Baidu for the development of a central vehicle controller.
This high performance compute platform will launch in 2023 on a vehicle produced by the Geely Baidu joint venture G tube.
It will up integrate central body functions and control the flow of data in and out of the vehicles.
Moving to slide seven.
Fourth quarter revenues in our signal and power solutions segment declined 6%.
10 points better than the decline in global vehicle production for the full year revenues increased 16% 16 points over vehicle production, reflecting the increased production of high voltage electrified vehicles, resulting in increased demand for both our low voltage and high voltage architecture solutions from traditional and emerging electric vehicle Oems.
And continued strong demand from engineered components for both automotive and nonautomotive applications.
We're perfectly positioned to support our customers globally with an industry, leading portfolio of high voltage distribution connection and cable management solutions, which is translated into a significant increase in new business Award words for high voltage solutions, including an award for Arabian for low voltage content on the electrified or one S and.
Irwin T models and extension of our 2019 award on these vehicles.
Ward for high voltage vehicle architecture, covering several next generations to Lantus vehicles.
Important when there's more European platforms migrate to full battery electric vehicles.
High voltage architecture awards with VW for additional Ied models, and Theyre MEP platform building off several high voltage bookings on the <unk> platform in 2020.
And lastly, an award from a major North American OEM for a wireless charging solution that will launch on several of their vehicle platforms.
These new business awards validate our leadership position in optimizing high voltage power distribution for new vehicle architectures that deliver value for our customers.
We continue to see an acceleration of powertrain electrification driven by both our stringency ought to regulation and the increasing momentum for consumer acceptance.
Fact that we have content of more than 50% of the battery electric vehicles launching over the next few years. We're confident that we will continue to experience very strong revenue growth from our high voltage <unk>.
Electrification product line.
Turning to slide eight.
As I mentioned in early January we announced the agreement to acquire wind River, a global leader in intelligent edge connected systems. This acquisition reflects our commitment to accelerating after the software strategy.
The other will be able to provide a comprehensive edge to cloud software solutions spanning the full intelligence system lifecycle across multiple industries.
Our complementary software offerings will create new growth and value creation opportunities for after the end of our customers.
Through a cloud native platform that enables the development deployment and operation of software across the full vehicle lifecycle.
Smart vehicle architecture enables the evolution of the vehicle architecture and advanced feature adoption across domains. When rivers proven solutions for mission critical applications will play a key role in enabling the software defined vehicle.
Slide nine provides an overview of our software strategy.
We're at a tipping point in the automotive industry's transition to the software defined vehicle consumers are demanding more advanced features for vehicle safety comfort and convenience.
<unk> in the cloud are creating opportunities to deliver vehicles that leverage connectivity and low battery costs are accelerating the penetration of high voltage electrification.
All of which is enabled through a significant increase in the amount of software content in the vehicle growing from $30 billion today to 90 billion by 2030.
Oems are beginning to separate software from the underlying hardware both technically as a transition to smart vehicle architectures, and then how they're sourcing new programs.
After this enabling Oems to accelerate their transition to electrified software defined vehicle by employing a more holistic engineering and development approach to optimize the hardware the software and the system solution that spans the full vehicle stack.
Our industry, leading position in the development of high performance cost optimized automotive grade hardware and deep software development capabilities deployed across millions of vehicles with multiple Oems across the globe gives us confidence in our unique competitive position.
The combined expertise and complementary technologies of <unk> and wind River further augmented with TT tax deterministic framework that enhances active safety software applications are uniquely positioned to assist Oems and cost effectively accelerating the development and the deployment of the software defined vehicle.
After the smart vehicle architecture solution Optimizes, the vehicle infrastructure, while providing the necessary network redundancy and resiliency.
When river studio cloud Native platform allows for the development deployment operation in servicing the vehicle software stack shortening development cycles, speeding time to market and enabling full lifecycle management.
In an open development environment allows for future adoption and development from multiple sources, including apt as active safety and user experience software as well as OEM developed software.
In short our strategy continues to be focused on accelerating the transition to the software defined vehicle by offering a complete stack from high performance hardware to cloud connectivity that enables value added services.
Software architecture that is open and scalable and containerized easily upgradable and providing Oems with the flexibility to efficiently integrate their own as well as other software and future development and.
And that can be continuously certified for safety critical applications.
In providing full lifecycle management capabilities that enable attractive new business models.
Moving to slide 10, some of the advanced technologies, we've discussed run display at this year's CES event in Las Vegas.
Outside the pavilion, we showed a number of feature rich vehicles with apt as vehicle architecture active safety and user experience content already on board.
Inside the pavilion, we featured a fully functioning smart vehicle architecture and continuous delivery platform, we hosted over 400 customers both in person and virtually.
From over 50 companies, including 25 Oems.
This year's CES event provided our customers with the opportunity to validate <unk> full system portfolio generating significant interest in the future defining products that we continue to develop and deliver to Oems.
Moving to slide 11, before I turn the call over to Joe I wanted to comment on our outlook for 2022.
As we've already discussed we continue to face headwinds related to supply chain disruptions and material cost inflation.
However, as we manage through these day to day challenges, we remain laser focused on executing our strategy to build a more sustainable business and deliver lasting value creation.
Which has translated into market share gains accelerated revenue growth and increased underlying profitability driven by the development of advanced technologies that are accelerating the transition to electrified software defined vehicles.
As I mentioned earlier as a result of the confidence we have in our competitive position, we've increased our outlook for growth over market to eight to 10 points further validated by recent strong revenue growth and New program Awards and our advanced technologies focused on safe Green and connected megatrends are enabling market share and content gains which will trans.
Plate in our margin expansion and earnings growth.
Unfortunately, we expect supply chain, we expect supply chains to remain tight and disruptions to continue but begin improving in the back half of this year.
And inflationary effects, including rising material costs are likely to be around for some time.
But we're managing our cost structure and working to recover the increase in material costs through various pricing product redesign sourcing and footprint strategies, our strategic focus and operating execution as well as the current headwinds are reflected in the full year 2022 guidance that Joe will review with you shortly which Andy.
Dissipates the continued expansion of our competitive moat, which will leverage and to increase new business bookings accelerated revenue growth and increased margins and cash flow generation.
With that I'll now turn the call over to Joe to talk through the numbers.
Thanks, Kevin and good morning, everyone, starting with a recap of the fourth quarter financials on slide 12.
As Kevin highlighted earlier, the business drove strong growth over market, while supporting our customers despite ongoing disruptions in the supply chain.
Revenues of $4 $1 billion were down 4% with 12 points of growth above underlying production.
Adjusted EBITDA and operating income were $461 million $273 million respectively.
Reflecting flow through on lower volume as we lap the rapid second half recovery in 2020, partially offset by strong growth in our key product lines with new program launches and high voltage active safety and user experience.
Covid and supply chain disruption costs of $85 million or $15 million increase over Q4, 2020, and the net negative impact of approximately $80 million for material inflation and foreign exchange.
Yeah.
Earnings per share in the quarter were 50 success with the lower operating income levels being partially offset by favorable tax expense.
The tax benefits related to the supply chain disruption costs.
The equity income loss emotional had a 21 negative impact.
Lastly, operating cash flow was $669 million, including a positive contribution from working capital.
Partially offsetting the lower earnings level.
Capital expenditures increased $86 million year over year to $181 million for the quarter, reflecting the timing of investments ahead of major 2022 program launches.
Looking at the fourth quarter revenues in more detail on slide 13.
We saw strong double digit growth over market in all regions and across both segments.
Reflecting the continued strength of our product line.
Might lower vehicle production in the quarter and continued supply chain disruptions.
FX and commodity movements were also a net favorable revenue as compared to the prior period largely due to copper price escalations.
From a regional perspective, North America revenues were down 2%.
Representing 11 points of growth over market.
Driven by favorable model mix as truck and SUV production continued to outperform passenger cars as well as active safety and high voltage.
In Europe , we saw strong double digit outgrowth of 11% as user experience launches offset the steep market declines from continued supply chain disruptions in the region.
Lastly, in China revenues, reflecting 17 points of growth over market resulted from new program launches in our active safety high voltage and user experience businesses.
The continued strong growth above market in the fourth quarter closed out a record year for rapid.
Strong revenue outperformance and record bookings highlighted by Kevin continues to demonstrate the relevance of our core technologies.
Moving to the segments on the next slide.
Advanced safety and user experience revenues fell 1% in the quarter.
Which translates to 15 points of growth over underlying vehicle production.
This includes growth in active safety, where revenues were up 7%. Despite the semiconductor supply shortages driven by program ramps in North America and Europe .
User experience growth was down for the quarter due to the timing of program launches, but up 5% and the full year.
Segment, EBITDA was down $82 million due to higher input cost inflation in semiconductors, and other inputs accounted for roughly $50 million of that decrease.
Signal and power solutions revenues were down, 6%, representing 10% growth over market.
The market outperformance was driven by continued strength in our high voltage product line as well as strong performance in the engineered components product lines.
Commercial vehicle and industrial revenue growth of 7% for the quarter, including strength in commercial vehicle the split despite a flat market.
EBITDA in the segment was down $135 million in the quarter on lower sales volume and higher supply chain disruption and material costs.
Together those two drivers accounted for roughly $70 million of the decrease.
Brian .
For 2021, our high voltage product lines reported revenues of approximately $1 billion and achieved bookings of $3 5 billion records on both fronts and.
In addition high voltage margins exceeded the segment average for the year.
Turning now to slide 15, and our 2022 macro environment.
For 2022, we're expecting global vehicle production increased 6% to approximately 83 million units on an active weighted production basis.
We expect 2022 to start slowly.
Our supply chain and Covid constraints continue to impact the industry.
Accordingly, we see vehicle production as being roughly flat in the first half of the year.
We see supply chain constraints easing as we move through the year and we expect vehicle production to increase 15% in the second half.
Looking at the regions in North America, we expect overall production growth of 9% with continued favorable truck and SUV mix.
In Europe , we anticipate 10% overall production growth.
A strong recovery given our relatively greater European production disruption last year.
China is expected to be down 1% for the year at approximately 25 million units.
On slide 16, you'll find our 2022 outlook for active.
This current outlook excludes wind river as the transaction is not expected to close until the third quarter of the year.
As was the case in 2021, we will only be providing full year 2022 guidance as supply chain disruptions continued result, and production schedule volatility at our customers.
We expect revenue in the range of $17 75 to $18, one 5 billion up 15% at the midpoint compared to 2021.
With global vehicle production expected to grow 6% for the full year. This translates in a nine points of growth above market in line with our updated 8% to 10% growth over market range.
Consistent with prior forecast this range is multiyear and covers 2022 and 2023.
<unk> growth over market of 19% is driven by the continued ramp of active safety and user experience programs in Europe , North America well.
While Sps growth over market of 6% is driven by further penetration in our high voltage and engineered components businesses.
EBITDA and operating income are expected to be approximately $2 6 billion and $1 9 billion at the midpoint.
With margin expansion across both segments.
Okay.
Consistent with 2021, although our core product line profitability continues to be in line with our expectations, we will incur meaningful costs related to Covid safety protocols supply chain disruptions and material inflation.
Covid a supply chain disruption costs are estimated at $230 million, an improvement of $100 million over 2021.
We expect the improvement to come in the second half of the year as supply chain disruptions lesson and we laughed that heavily disrupted third quarter of 2021.
We expect materials inflation to increase approximately $200 million in 2022 wells.
While we continue to make progress on mitigating these costs. We expect these efforts to take until 2023 as we have noted in prior quarters.
And FX and commodities will have a negative impact of $60 million versus 2021.
Driven by copper pricing at $4 40.
And a euro rate of $1 14.
As we discussed on our January 12 Wind River acquisition call.
Beginning in 2022, we will change our definition of adjusted EPS to exclude amortization.
Annual amortization in 2022 is estimated to be $150 million.
The appendix to this presentation includes a reconciliation highlighting the change including the prior year.
For 2022, we estimate adjusted earnings per share to be $4 35.
An increase of 42% over the comparable adjusted 2021 totals.
We expect 2022 operating cash flow of just over $2 billion, driven by the earnings increase and favorable working capital of roughly $400 million.
Lastly, we estimate total capex to be approximately 5% of sales.
Slide 17 includes the puts and takes for 2022 revenue and EBITDA guidance as compared to 2021.
Starting with revenue on the left we've.
I already discussed our expected industry recovery of approximately 6% for the full year.
And our new growth over market framework of 8% to 10% as approximately 175 billion of additional revenues.
We expect a slight headwind from FX and commodities and assumed price downs of 2%.
For adjusted EBITDA on the right hand side of the slide we expect we expect to see the benefit of our flexible and scalable cost structure driving strong volume flow through on higher revenues.
Partially offset by the impact of price Downs.
As noted while Covid and supply chain disruption costs remain in 2022, we're expecting a year over year improvement of $100 million.
And FX and material inflation costs are net headwind of approximately $265 million for the year driven by rising semiconductor in resin prices and unfavorable FX rates year over year.
EBITDA totaled $2 6 billion at the midpoint, an increase of approximately 28% over 2021.
Okay.
Turning to slide 18.
We wanted to provide a few more details around wind river.
Noting again that we expect the transaction to close later this year and the wind River financials are not included in the 2022 guide.
As we talked about in January the wind river product portfolio of intelligent edge operating systems and middleware has been a long established leader in edge devices, requiring robust compute performance.
In early 2021, the company introduced wind River studio a software subscription offering that incorporates their core products as well as our cloud and the cloud enabled tools for the development deployment and full lifecycle management of intelligence that software solutions.
Targeted in multiple industries, including Telecom aerospace defense as well as automotive studio has grown quickly and represented over 10% of revenues in 2021.
In 2022 revenue will continue to accelerate with topline growth of 12% to 15%.
When were the studio is expected to represent 40% to 50% of the revenues by the 2020 for 2025 timeframe.
The growth in studio driven by further penetration in key industries, including automotive will help wind river achieve approximately $1 billion of revenue by 2026.
As noted during our January call. The wind River acquisition also brings financial benefits to <unk>, including acceleration of <unk> revenues and reduced spending on third party software.
By year four following the transaction these benefits will equal an incremental $125 million of run rate earnings for acid.
With that I'd like to hand, the call back to Kevin for his closing remarks.
Thanks, Joe I will now wrap up on slide 19, before we open it up for questions.
As we reflect on 2021 and our outlook for 2022, it's clear that our constant focus on innovation and flawless execution.
As position us to better support our customers and is resulting in a stronger competitive position, which we've converted into record new business bookings and revenue growth over market.
While we expect near term headwinds to persist through the better part of 2022, we remain confident in our operating execution in our product portfolio aligned to the safe Green and connected Megatrends.
I am proud of the <unk> team and all we accomplished during a challenging 2021, but I'm even more excited about what we'll deliver during 2022.
We are well positioned to continue to outperform as a purpose driven company with a track record and strategy to deliver significant value for our customers our employees and our shareholders.
Operator, let's open up the line for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. Please ensure that your mute button has been switched off to allow your signal to reach our equipment and in the interest of time, we ask that you limit yourself to one question and one follow up again star one to ask a question.
The first question today comes from Adam Jones of Morgan Stanley .
Thanks, everybody and great details on the presentation.
Kevin I ask you just a few weeks ago, but I'll I'll ask you again.
Of your order book you have record order book are you able to give us a sense of how much of it is coming from pure play E. Z customers customers that really have no that have never sold internal combustion cars versus let's say that the legacy group, that's making the transition. So that's my first question I got a follow up.
Yes, Yes, I think when you look at our mix on battery electric vehicles, and new U U or high voltage electrification and we look at the mix between legacy and the traditional Oems and.
And they include some of those battery electric companies have been around for a while I would say net net about a third is with the newer battery electric vehicle companies and two thirds with the legacy.
On the traditional Oems and Adam I would say is as we move forward and as you look at growth, it's probably that mix stays roughly the same maybe improved slightly as it relates to some of the traditional Oems as they bring on their battery electric vehicle models.
Great.
A follow up on China would love a little color, what you're seeing there.
It seems like that on the low end that domestic Chinese players are making some pretty damn good cars, Kevin like you know really really good quality more competitive in every way and then on the higher end on the <unk> side. The domestics are getting a lot more.
Capable.
On the on the Evs and maybe to.
To the extent that maybe like call it premium.
I'm wondering if that's consistent with what you're seeing do you see the China.
What would be the trends in terms of domestic.
Competency versus that kind of in competency of the foreign players do you see that kind of changed and become a little more in play over the next few years are you seeing any evidence of that in real time, thanks, Kevin Yeah.
I would say on the OEM side.
Domestic comp and competency is certainly.
Certainly strengthened and improved over the last five plus years I think we'd say Adam.
Two areas that you're talking about electrification. So we certainly seen an acceleration there when you look at our mix of.
Bookings in our current revenues related.
Related to battery electric vehicles largest market, we're serving today as Europe the second largest.
Is China, but China is certainly accelerating the.
The second areas is in and around software and software defined vehicles.
We're seeing a tremendous acceleration in demand.
What we're doing as it relates to smart vehicle architecture, both on the hardware side and software side.
And I mentioned in my prepared remarks, the award that we received from from Baidu related with CVC on a vehicle.
That they are there.
We're building.
With our joint venture with our joint venture partner in the launch in 2023, we also were awarded a CVC.
CEC with great Wall Motors last year as well so we're seeing tremendous acceleration in the overall China market. When you consider when you think about technology.
I appreciate it Kevin Thanks.
Thanks.
Hi can I go to Chris Mcnally of Evercore.
Thanks, so much guys.
If I could ask maybe just specifically around the secular drivers within the good GLM guide of eight and EV high voltage specifically.
You've sometimes given some broad range as what you were expecting and could you could you talk about 'twenty two growth or for bolt EV and Adas.
Yes, Chris I mean, we will continue to see.
We've talked about high voltage at that sort of 40% growth rate.
CAGR over the next couple of years continue to see that obviously, we're getting you know it's coming down a bit just given the law of larger numbers.
And continue to see strong sort of high teens growth.
In active safety as well again, it's starting to get not necessarily as high as it has historically bad but starting to get to rather big product lines there.
And then Joe on the EV, specifically is it fair because some of the guidance you've given us some of the market growth that we've seen it would be better than expected is.
Is that 40% sort of and in line with market growth with market growth is better we can kind of use as a broad proxy that EV growth would be would be better.
Yes, I think if EV growth is stronger that number should that number should be strong stronger as well right. I mean, we're as Kevin mentioned, we're around 50% of the launches. We've obviously got some take rate assumptions and they're built on built an initial estimate so we have seen and I think youll see that to some extent in the bookings number as well bookings came in at $3.
5 billion, obviously stronger than we were initially thinking.
So I think Thats, a fair way to think about it.
And then the last one because it is related to the 8% to 10% multi year outlook. It is great to hear that up from the old 606 to eight is it fair that a lot of the growth is eight us and even though the numbers have been coming in better than expected the orders and better than expected, but that's all pre wind river right I mean, if we start we'll get.
More multiyear outlooks, but <unk> growth over market, including sort of the acquisition, we could actually get maybe.
Above that just looking at the wind river sort of.
High level growth over the next three to four years.
Yes.
There is a completely separate at this point right just given we haven't closed the deal yet so the wind river numbers are separate as we talked about on the January <unk> call. There's there's good growth coming from that new subscription studio product, we see that continuing in really being the growth driver there and that would obviously be incremental to what we've talked about in the 8% to 10% that does not include <unk>.
River.
Okay, great. Thanks, so much guys.
Okay.
Our next question comes from Rod Lache of Wolfe Research.
Hi, everybody good morning.
Alright.
Yeah.
Kevin during your prepared remarks, you mentioned strong underlying profitability improvement.
You know I'm looking at the mid point of your 2022 guidance with an EBIT margin of 10, 5% and.
Obviously between 2014, and 18, you were doing 12% or 14% margins pretty routinely and I get that inefficiencies in premium freight and input costs had been I think maybe even 400 basis points of drag here between 'twenty one to 'twenty, two but could you talk a little bit about what you're targeting.
Getting over the next couple of years, and how you kind of get there because I don't see much difference on the pricing side at least in your your near term forecast.
Yes right.
That's a great question listen I think.
As you think about the environment that we've been operating in over the last two years and continue to operate in as it relates to Covid.
Covid Covid safety protocols more recently.
The level of supply chain disruption that has resulted in inefficiency in the supply chain. Just as you mentioned increased freight both both inbound as well as outbound when you think when you look at manufacturing inefficiencies.
When you look at material cost inflation the numbers R. R.
Our significant just as you said, they're massive and that's something.
That we're working we continue to work through we've made we made progress on during 2021, we'll continue to make more progress on 2022, but we're chiseling away.
Underneath that when you look at how we're operating from a manufacturing performance standpoint, separating those periods, where we're dealing with yellow or.
Volatility in production when you look at what we're doing from an engineering productivity standpoint, when you look at what we're doing from a from a footprint standpoint, SG&A productivity standpoint.
We continue to make significant progress.
So we continue to make significant progress and then overlay on top of that the places where we operate and the mix.
Of our product portfolio as it relates to Adas as it relates to high voltage electrification as it relates to <unk>.
Both.
<unk> components within the automotive and non automotive space and then software. The reality is those are those are much higher margin product areas and as they continue to ramp as we normalize the supply chain.
Hopefully there is reduced pressure as it relates to COVID-19 and some of the safety protocols that.
We have in place all of that drops to the bottom line.
Now having said that over the last couple of years. We've also made the decision to invest incremental dollars in.
And advanced development programs in around principally smart vehicle architecture, both hardware and software.
Thats translated into a significant competitive position, which gives us tremendous.
Opportunity as we look out in future bolt hardware as well as software.
Over the last 12 to 18 months as we said before I think we've done an advanced development programs, we've been awarded for four or five programs commercially as it relates to <unk>.
And pdc's from a from an from a SBA standpoint.
Sure.
We have line of sight to over 20 additional programs that relate to.
The transition to SBA software and hardware.
And we're well positioned to.
To win a significant amount of that business. So it was smart investment.
So as we look out into the future in terms of growth. Obviously, we have increased our outlook for growth over market given the investments we've made as.
As we work through the challenges related to supply chain Covid Youll see obviously significant margin enhancement as a result of a reduction in those costs and then the nature of our product portfolio and where we sit we think ultimately end up with a much.
A much higher margin much more cash generative business out in the future.
Can you just remind us what mid decade margin targets look like and just my second question is nice to see the bookings I was hoping you can maybe drill down into active safety.
That $2 8 billion of bookings, how does that compare versus the past couple of years and are you seeing any changes to the nature of what you're winning.
E R R automakers or even your partner mobile are they taking on different responsibility and you taking on different responsibilities that something that we should be cognizant of it in any way.
Sure.
So the bookings this year at $2 88 billion.
It's not our highest year from an overall active safety safety.
Safety booking year, I think our record year was close to $4 billion, reflecting the wins on our initial satellite architecture programs across five Oems that are currently.
Rolling out across those Oems.
There is a whole next generation of advanced Adas solutions.
That will be pursuing during 2022 and 2023 as we continue to.
To enhance our active safety platform.
As it relates to our competitive position.
Our perspective is it's actually strengthening active safety is as you know is an important feature for our OEM customers.
Market today, 60% of the vehicles being put on the road today have active safety systems.
That leaves a significant portion.
That will be adopting at active safety over the next over the next several years, so significant market growth opportunity and penetration opportunity the fastest growth areas in and around <unk> and <unk>, plus which is actually where we're most strongly positioned from a competency standpoint.
Given our overall platform and our capabilities.
As it relates to Oems I would say, it's it's rod it's all over the map.
We have Oems, where we're doing a full platform for the Oems all the future development of hardware software sensor fusion the integration we have other Oems.
Where were integrating their solution into our platform.
And we want to provide our OEM customers with the flexibility.
Flexibility to do that as it relates to other competitors listen it's a huge fast growing market right any market, where you've got players like ourselves growing north of 20% per year.
It attracts attention and there are a number of players who are trying to enter the market I think it's a challenge if you haven't been in been in it a long period of time.
We are a business with over 20 Oems across the globe. So our ability to develop deliver cost effective solutions I would argue is better than anyone else's out anyone else out there, including Oems, who may decided to do more on their own but we're about enabling Oems to.
To go down the path that they would like to go down.
They want to go down and while we do that obviously generate revenue and profitable profitable revenue growth.
But having said that big opportunity.
We have a strong competitive position in this area that we're certainly focused on.
Rod It's Joe just on the on the mid on the mid decade margin targets. Obviously, we're still very much focused on the on the targets. We laid out in 2019, Theres, obviously as Kevin laid out challenges with with the disruption and the inflation cost.
So it's a question of how long to work back to those and we will we will have a capital markets day in the second half of this year and be updating the long term view then.
Okay. Thank you.
Yes.
Well you can go to Joe Spak of RBC capital markets.
Thanks, Good morning.
Sure just to to.
Go back to sort of maybe some of the puts and takes in the 'twenty two outlook the $200 million performance Youre talking about that seems to mostly offset the 2% price downs youre seeing I think throughout 'twenty. One you talked about all these inefficiencies and to plan from choppy schedules and higher logistics, So I guess I'm a little surprised.
Is that maybe that performance numbers not a little bit higher are you assuming that some.
Some of that schedule volatility remains or is some of that should be getting into that supply chain cost bucket, maybe you could just help a little bit with that.
Yes, that's in that $100 million, Joe there are a lot of that the bulk of that was the disruption cost shutting down plants. So we've assumed obviously some of that stays I'd say schedules in the first half of the year.
You start with smooth schedules right nobody plans nobody plans the lumpiness, we actually had a little bit of disruption in January at the end of the month.
We sort of knew was coming but that that that performance. The improvement is really included in that $100 million. We took that out performance just to be able to.
We will keep the two buckets that we've outlined sort of the supply to the COVID-19 and supply chain disruption bucket and the inflation buckets, we wanted to sort of maintain those into into 2022, just to give people a line of sight with what was happening with them.
And then on just on the pricing can you can you talk about the conversations you're having with with automakers and the ability to recover price for some of those inflationary headwinds.
Yes, we're in we're in conversations with several Oems I would say, we're making actually very good.
Very good progress, but it's something that we continue to work through I think by and large.
The OEM community recognizes the challenges in the supply chain and the cost suppliers have incurred and keeping them connected.
We made the decision John we've talked about this that we were going to do everything we could to make sure that our OEM customers are building cars.
And that's resulted in incremental cost.
And I would say most of the Oems that we've been negotiating with have appreciated that have supported us.
Have supported what we done and effectively reach satisfactory resolution in terms of the sharing of some or all of that cost.
Okay. Thank you.
Maybe just one quick one I noticed in the guidance the emotional loss.
Ticks up that makes senses, I think youre getting closer or they're getting closer to.
Commercialization of our launch.
Can you just update us on the capitalization and funding there because I think when they put in $1 6 billion. So based on this run rate. It seems like maybe around 23 or 24, there could be.
Capital requirements, but maybe you could just give us an update there under thinking.
Yes, yes, we are thinking of promo.
Well go to a full year perspective, Joe It really hasnt changed when we did the deal we had cash through 2024.
They still have cash through 2024, obviously this may pull them up a couple of quarters. So.
But sort of that multi year level of funding is still intact that we talked about March of 2020. So.
Next couple of years are fully funded and we will obviously.
Over the coming quarters be working with Honda either emotional team on next steps there, but youre right. I mean, they are making really good progress there starting to commercialize or get ready for commercialization. So the activity is the activity is picking up.
Thank you.
Our next question comes from John Murphy of Bank of America.
Hey, good morning, guys.
Wanted to follow up on Joe's question around around pricing I mean, the reality is you guys are bringing a lot of technology to the table and helping your automakers.
Advanced products stuff that they can price for but the same time, you're getting jammed on cost inflation in raws and labor and everything else.
And they are able to pass this through and offset it through.
Pricing at the retail level, but theyre not really helping you guys out here. So I'm just curious.
These discussions move forward, even just outside of what's going on at the moment and the extreme pressure in the industry and sort of the supply chain is facing.
Is anything changing sort of the dynamic of the relationship here.
On pricing or raws or sort of collaboration because it just seems like they need you more than ever but right now.
Theyre, making out pretty well.
Passing pricing through but you're getting stuck in the sandwich here.
Yeah, John It's a good question listen.
Periodically we are going to ask question about the pricing environment in the automotive industry and I think our standard answer.
It's true today is it's a challenging it's a challenging industry as it relates to pricing and our OEM customers are always looking for price.
I would say in this particular case, there actually is a fair amount of recognition cooperation.
And collaboration between most Oems and the supply base. There are some it's a bit more challenging and we're working through.
There are various levers that we have in terms of ensuring that we get compensated as it relates to incremental costs that are above and beyond.
And over extended period of time.
The costs that we would normally incur.
But but I would say by and large the environment Hasnt changed and.
From a pricing standpoint, and we just need to work through the.
Various cost levers both on the supply side.
As well as on the customer side to offset that and it'll take a little bit of time to do that I'd say theres an element of the costs. We're incurring as I mentioned, we're doing it consciously we're supporting the Oems as they launch some of these key programs and we think over the medium to long term that will create a lot of benefit.
As it relates to your point on dependency listen I know there is this increased narrative.
Great question, because there is this increase narrative about Oems.
Doing more.
But the reality I can tell you there is virtually no OEM.
That we are launching programs that have a high high software content level, where Oems are actually coming back to us and asking us to do more of the software development application activity than what was originally in the program.
And.
As we announced after we announced the.
The wind River acquisition.
One of the great things about it is we got calls from several Oems with respect to can.
Can we schedule meetings to sit down to talk about what we and wind river can bring to help them.
As they wrestle through the challenges associated with.
With the growth of software in the vehicle and those areas that.
They have an interest in developing the software as well as though those areas where they have other suppliers that are struggling and delivering the software solution.
So again understand there is a lot of narrative about about in sourcing and vertically integrating especially in areas like software I think a lot of that is driven by.
The impression related to a west coast based battery electric vehicle company, but I would say.
Automotive volume, but I would say with the exception of that automotive OEM virtually all the Oems that we are doing business with are struggling with software development.
Yeah, no that makes a lot of just two housekeeping real quick the <unk>.
Bookings.
Bookings of $24 billion, what kind of volume assumptions are going into that I mean, if it could be $85 million or $100 million. We're in a weird time on how you think about sort of the backdrop of volumes to feed into that bookings number I mean, how do you think about that Joe.
Yes, John So we although for our revenue forecast, we obviously use our customer schedules and stuff, but for bookings, we always use IHS when the bookings are struck.
So theres no we always have a a reference point to go back to so Q.
Q4 bookings would have been based on IHS outlooks for those for those years going out.
Once we get into start production stuff, we always use IHS for bookings.
The long term value of those might be undercut by by some of the near term pressures is that a fair statement.
Yes, they will flex with vehicle production I mean, I think we've over time have.
Got into a point, where we're comfortable.
What I'll say sort of washes out from a bookings perspective is it just time for revenue, it's close enough, but we never wanted to introduce sort of momentary sort of subjectivity into quantification of the bookings we always use IHS. Okay. And then just wanted to follow I'm sorry, Kevin.
Kevin You mentioned you had 50 companies run through the Booth 25, where automakers are Oems who are the other 25 with a supplier partner with tech companies I mean, a lot of big fish looking to make acquisitions here I'm, just curious who else came through 'twenty.
25.
Supplier partners, so I would say.
50.
So 50 parties came through the through the Booth 25 Oems some of them physically some of them virtually so I want to make sure I'm clear on that actually a lot of them virtually but but as you can imagine.
A lot of OEM interest.
Cros.
Both are.
Both our Sps as well as our <unk> business, so people in and around vehicle architectures as well as advanced safety and user experience and then a number of our supplier partners or potential supplier partners.
Okay, great. Thank you very much guys.
Thanks, Jeff.
We can go to <unk>.
Brian Johnson of Barclays.
Hi, Thank you just wanted to follow up on your comments on wind River and the opportunities in the software stack that it opens I guess two questions first.
Wind River under Intel.
Doubled in value, but poultry amount.
Compared to what TPG eventually sold it to you for.
Some of the feedback from the semi community was that Red River was kind of lackluster some people point to figures at Intel Intel fans point figure. It management I know TPG provided new management, but first question is can you give us a sense of their momentum coming into the acquisition.
And then the second question is you know, our tos definitely needed and some adas applications, but some of the questions. We've been getting is that so far down the stack that it really doesn't get you much in terms of discussions around application software. So you can talk about that.
Yes no.
It is.
So it's a great great.
Great question as it relates to wind River listen I think there was an element of history when river, where it was a sleepy company.
At one point in time and you highlighted the fact that.
Under TPG ownership, they came in and a significantly refreshed management team and put in a very strong president and CEO , who was brought in very very strong talent with.
I'd say contemporary software capabilities and Bryan we had the opportunity well in advance of deciding that we should evaluate our more strategic.
Relationship we have the ability to work with the team as it relates to.
Designing developing tech roadmap debt that we could take from industries like telecommunications aerospace and defense.
That had or have some of the same challenges that we're experiencing in automotive today.
Solutions were developed and delivered by wind River, where they've had a tremendous amount of success and we had the chance to effectively test test drive.
As a part of our commercial negotiations.
So a tremendous amount of time spent with the management team a company with a very very strong management team as you look at automotive and you look at the broad portfolio, it's not just about our costs.
The benefit it's a company that's familiar with automotive.
Automotive vehicle architecture and middleware.
They have experience as it relates to <unk>.
In device software, both VX works as well as links of Lax with Hypervisor.
So they know what legacy approaches were.
But they come with the benefit of.
Having developed more contemporary approaches from the telco in aerospace and defense industries and when you look at it it's not just about in device software and the operating system is really about the off device software platform that really.
Provides or will provide customers where users with the ability.
Again, we look at it from a development deploy operate and serviced the overall vehicle over the life of the vehicle versus.
You are certainly familiar with this the current model, where you youll layer in middleware and the vehicle once and you're done.
So it's not just about our costs, it's not just about.
The in device software, it's also about the tool chain.
And the off device software and platform that makes.
Software development much more efficient much more effective.
Yes, Bryan it's Joe I'll just.
Sorry, just on the numbers I listen I think and that's why we provided the some of the information in the deck.
Clearly the business I think languished under under Intel don't know why wasn't there obviously, but when.
Down to about $300 million in revenue so they can actually contracted in.
It was at that level for a number of years and as you can see it's growing now it's grown.
Over the last couple of years and that growth is accelerating.
The studio product, which is what kevin's, referring to which is this containerized are tossed in middleware.
It was launched in Q1 of 2021 is already represents over 10% of the business. So that's really where the growth is in.
I think your statement is true as of today right. There are several middleware <unk> solutions that you can technically put into a vehicle.
We're really talking about is the containerized.
Full lifecycle management type and wind River is the only containerized are tossed out there at this point.
The others used in automotive or not and so there is a little bit of sort of where the puck is going versus where it is today when we talk about talk about their capabilities.
Okay, and just as a follow up is this you mentioned the calls that you are getting.
As you mentioned earlier a lot of Oems are building a big software organizations, often recruiting leaders from outside the automotive to run those are you getting into those kind of.
On your management levels.
I have to say the names, but I'm thinking of someone like Doug fields over at board level person, leading the software groups.
Yeah, Yeah, our engagements are at very very very senior senior levels within the Oems.
Okay. Thanks look forward to continuing weakness in a few weeks at our conference.
Thanks, Brian .
We can now go to Stephen <unk> of Jefferies.
Hey, good morning, guys. Thanks for squeezing me in the Nextgen driver monitoring platform launches. You noted are you finding that you are winning that active safety platforms attached to BMS as well. We're just curious if theres correlation and some OEM bias to consolidate there and is there a way to think about.
BMS content per vehicle opportunity for you.
Yes.
Yes, listen traditionally when you think about Dms historically fallen in a category that was in and around user user experience versus active safety, but but as <unk> seen more advanced active safety programs introduced to the market. So when you think about LTE plus L. Three.
The need for.
Driver monitoring we've referred to it really is in cabin sensing.
A much broader broader application.
Just driver monitoring you've seen you've seen an uptick in demand and more.
More discussion or more integration in and around the active safety system or active safety platform, which which we think.
Given our given our position in Adas.
Especially in the <unk> plus space.
Given our experience with BMS as well as now increasingly in cabin sensing it puts us in a great opportunity.
As it relates to market.
The market's decent sized today, it's one of the fastest growing markets that we.
That we operate in I don't have the numbers Joe I don't know if you have a market size numbers or content per vehicle, but it's certainly meaningful.
Yes.
And David one of the interesting thing is the content per vehicle for this type of stuff varies a lot as Kevin said, it sort of depends on where it's going in and what it's replacing but what's what's interesting is a lot of it's incremental.
So if youre talking about 10 or $12 for DSM software per vehicle.
That's really incremental right its going in on top of on top of what's in there now so it really depends on what your sort of what part of it you're referring to but you tend to see a lot of a lot of incremental content going into existing either user experience systems. If it's if it's still within the cockpit like gesture recognition those types of things.
Or some of the perception systems that are being used augmenting the active safety.
Okay got it. Thank you and then maybe one follow up the wireless charging conquest win can you just give us a sense high level of of your role there.
What youll be providing and is that on vehicle only or is there an infrastructure aspect to it as well.
So that particular that particular programs on vehicle.
Hardware as well as software.
As I think you know, we obviously do.
I'll provide charge couplers and other things that are off that are off vehicle for Oems, but not in this particular case.
Okay got it thank you.
And we can go to E time, Ms Shirley of Citibank.
Great. Thanks. Good morning, just two quick follow ups for me on the new eight to 10 points on AUM target first can you maybe articulate what sort of annual bookings number you would target two to achieve the eight to 10 points and then maybe what portion of the eight to 10 points is coming from non auto. Thank you.
I'm not sure as you know book.
Bookings can be lumpy.
So from an annual standpoint.
I think it's tough to give you.
A director or an exact number I guess, one where when you look at our current ratio between revenue and bookings it would be something consistent.
Last year as we mentioned we did we did $24 billion. This year, we would expect to do $24 billion or more on our baseline of revenues. So I would say on an annual basis basis somewhere in that that sort of up.
Sort of a ZIP code, Joe I don't know about non automotive, yes, I'd call. It about a point in time generally adds to.
Generally adds to that growth over market.
The commercial vehicle and industrial.
Got it great Thats all I had thank you.
Our next question comes from Dan Levy of Credit Suisse.
Hi, Good morning, Thank you for squeezing me in.
First just wanted to go to the end market guidance Youre seaming production up 6%.
Globally as well as in the third party forecast and then more recently we heard.
GM talk about 25% to 30% volume growth.
Sizable customer so for you. So maybe you could just help reconcile your assumption versus some of the other skus in the market or is it just.
Conservatism more than anything else.
At this point, it's schedules Dan.
We're looking at customer schedules.
And have those have those layered in obviously for the first four or five months. They are fairly detailed schedules and then obviously there there are longer term production forecast so theres no.
Sort of overlay at this point, particularly in the near term because we have to obviously be ordering inventory and getting the plant ready to produce.
I'd say the biggest difference I think IHS is eight.
I would tell you the biggest difference when we look at some of the third party is probably the ramp in the year.
As we look at customer schedules, it's a slow start to the year I referenced that in my prepared remarks, we think the first half's flat ish flat flattish.
And then ramping in the back half of the year and I think Thats, just where we are relative to supply chain constraints and sort of ability to ramp up so as we do look obviously in.
Calibrate our schedules off what others are saying that tended to be the biggest difference that we that we saw.
Got it. Thank you and then my follow up I'm, sorry, I wanted to go back to the in sourcing questions I wanted to sort of assets in a different way.
In the quarter, we saw.
Large automaker form a JV with one of the chip companies and one of the things. We're talking about is not only just how they're sourcing chips for for components, but also maybe taking more of a proactive design on a more proactive approach on.
On inputting that the design of those components and specifically on the electronic side, so whereas in the past maybe they would just buy a box from you or name another supplier that is.
You control all the sourcing the design now they want to take a more proactive approach. So how much of that is a is a trend and if there is a more proactive approach from the Oems on dictating design of what they're getting from you.
How does that affect what you're providing them.
Yes listen.
I think.
I think in your specific question as it relates to Oems and Oems interacting with on semiconductor players that's actually gone on for a number of <unk>.
Number.
Of years and on certain applications, whether it be.
Within the user experience or infotainment space or the Adas space there are.
OEM.
OEM preferences as it relates to <unk>.
Semiconductor players more often than not that relates to economics in volumes versus the versus technology.
As it relates to the OEM being more involved in chip design or.
Technology or software going on the chip I think it depends on what activity.
<unk> is considering or.
Bringing to the table for one particular application.
So I would need more specifics on that.
I would say a lot of again going back to my initial point.
Software in the vehicle is tripling over the next.
Over the next eight years, so there's a lot of software going into the vehicle.
So.
Big opportunity, obviously Oems.
I want to be involved in a part of that just like they have in the past.
So I would say that's too I think as it relates to that the interactions with semiconductor players that's been going on that's been going on for years I think it's probably heightened a bit from a supply chain standpoint, just given what we've all gone through <unk>.
The last the last year, or so and I'd say you'd see a mix you see a mix a bit of a mixed bag. There are some Oems who are trying to get closer to the semiconductor players.
There are other Oems that really the business model has not changed but certainly want more visibility more transparency more understanding of the supply chain.
Okay.
You're seeing your customer are dictating more to you, which chip you need to use or that's just a trend that has always been going on that sometimes youll have some customers that you have to use.
Chips from such and such companies.
Yes, I wouldn't say at this point in time, we are seeing any more or less than what we have historically I think we've seen more announcements.
Got it thank you.
Yes.
And our final question today comes from Steven Fox of Fox Advisors.
Hi, Thanks for squeezing me in good morning.
Just one question from me when you when you look to the full year guidance and sort of the back half improvements.
We're sitting here a year ago talking about back half improvements that didn't didn't happen for various reasons not necessarily your fault. So I'm just trying to gauge the confidence level that we sort of reached a.
Period here, where you can sort of start to see some improvements in supply chain and inflation in any kind of risk you're gauging going forward. Thanks.
Yes, yes.
Yes.
Obviously, where we put out a guide we're confident in the guide.
For the full year supply.
Chain disruptions are getting better there are still constraints.
But if you look at and some of this a particularly in the back half is going to be just the lapping what was very <unk>.
Very disruptive production schedules. If you look at August September into October .
So things flows getting better we've got.
<unk>.
Line of sight on the supply we need for the balance of the year from the chip guys things are still tight it's expensive to operate the chips are costing more theres still going to be some premium freight.
That's really reflected in those disruption cost but.
Again, we do see it getting better and we do see sort of line of sight to things flow product flow improving as the year goes on.
And the risk to the forecast on on all the supply chain integration issues.
The way we've thought about it it's really within the range Steven So at the lower end of the range. We've obviously got our view would be that would that would bring in more costs.
So we've tried to sort of manage that within the full year range, which again one of the reasons, it's hard to call that obviously by quarter, but I'd really think of it at this point.
The risk the risk is really within the range to the downside.
To some extent if things were to get better faster from a material flow perspective.
Reflective of the.
The higher end of their age.
Great that's really helpful. Thank you.
Thank you.
Ladies and gentlemen that is all the time, we have for todays fourth quarter active 2021 earnings call. We thank you for your participation you may now disconnect.
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