Q3 2022 Aptiv PLC Earnings Call
Speaker 1: They'll previously discuss material cost recoveries, improved operating performance, and the benefit of engineering credits. Signal and power solutions revenue rose 35% in the period, or 11% above market. Yell performance was driven by strength in several product lines, including high voltage.
Speaker 1: Segment EBITDA of $551 million, or 16.1% of revenues, includes strong flow-through on incremental volumes and incremental material cost recoveries.
Speaker 1: partially offset by the impact of effects on commodities.
Speaker 1: Moving to our full year outlook on slide 12.
Speaker 1: Her revenue, operating margins, and EPS remain unchanged from the guidance provided last quarter, despite the negative impact of floor exchange.
Speaker 1: which has increased significantly since we provided our full year guide.
Speaker 1: We remain confident that we are well positioned to continue to execute despite the ongoing concerns of supply chain constraints, COVID impacts in China, and disruptions in Europe .
Speaker 1: We expect revenue in the range of $17 to $17.3 billion and growth over market for the year to be within our previously communicated range of 8 to 10 percent.
Speaker 1: ETA and operating income of $2.2 billion and $1.6 billion at the midpoints respectively.
Speaker 1: earnings per share of $3.30, an increase of 8% over last year despite a meaningful drag from FX and commodities.
Speaker 1: We are updating our cash flow guidance and we now expect to finish the year at $1.35 billion versus the prior guidance of $1.5 billion.
Speaker 1: As I previously noted, the updated cash flow guidance reflects our decision to carry increased inventory of certain key components to help mitigate the impact of supply chain constraints as we begin to prepare for a number of new customer launches in early 2023.
Speaker 1: Before turning the call back to Kevin, I wanted to touch briefly on 2023, as we have started the early phases of planning for next year. Although given the ongoing macro challenges, it is too early to provide any specific guidance.
Speaker 1: However, our strategy remains unchanged and we continue to be well positioned to lead the transition to higher contented software enabled vehicles.
Speaker 1: And although we expect to benefit from overall demand for key technologies like smart vehicle architecture, high voltage and active safety, the progress we have made on material cost recoveries and operational performance, and the inclusion of the Wind River and inter-cable acquisitions, we are also looking at the potential for a better future for our industry. So, thank you very much. I'm going to turn it over to the panel. Thank you, Bill. Thank you, Bill. And I think that's it for this presentation. I think we're going to stop there. We're going to stop there. I think we're going to stop there. We're going to stop there. Thank you. We're going to stop there. We're going to stop there. We're going to stop there. We're going to stop there.
Speaker 1: We remain cautious of the lingering headwinds.
Speaker 1: and believe continued supply chain tightness and deterioration in economic conditions, particularly in Europe , will negatively impact overall 2023 vehicle production levels, as well as the smoothness of vehicle production schedules.
Speaker 1: making it potentially more challenging to recapture operating leverage.
Speaker 1: And we would expect the FX commodity headwinds to persist into 2023, as the more meaningful impacts of changes in the euro and RMB did not occur until the second half of this year.
Speaker 1: With that, I'd like to hand the call back to Kevin for his closing remarks. Thanks, Joe. I'll wrap up on slide 13 before opening up the call to questions.
Speaker 2: Our business is built on a strong foundation and continues to gain momentum as we close out 2022 despite the constrained environment and macro headwinds that Joe just touched on.
Speaker 2: Our strategic alignment with our OEM customers has really never been better, as reflected in our continued strong revenue growth over market, and the pace of our new business bookings.
Speaker 2: We continue to make progress recovering the increases in material input costs while also further optimizing our cost structure and we continue to smartly deploy capital both organically and inorganically to further strengthen our competitive position.
Speaker 2: These actions have translated into a significant improvement in our margins, as evidenced by this quarter's results, and are providing momentum and a strong entry point for 2023.
Speaker 2: As Joe just mentioned, in light of the current macro environment, we'll provide a detailed update on our 2023 outlook when we release fourth quarter earnings.
Speaker 2: But you can expect us to focus on delivering continued strong revenue growth over market and margin expansion in a challenging environment.
Speaker 2: With that, we can open up the line for questions.
Speaker 3: Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker 3: Please restrict yourself to one question and one follow-up question.
Speaker 3: Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions.
Speaker 3: Our first question today comes from Rod Laas of Wolf Research.
Speaker 4: Good morning, everybody.
Speaker 4: I was hoping first to just maybe better understand the year-over-year earnings bridge that you had this quarter. So you did on an adjusted basis 256 million a VBIT and you're getting to 525 million this year. You mentioned 32% conversion on the billion of volume, which obviously that would be more than accounting for that growth. Could you just talk to the net impact?
Speaker 4: commodities that that hundred ninety nine million tailwind
Speaker 4: What was the net effect netting that out and were there any out of period benefits in that number?
Speaker 1: Yeah Rod, let me start. So FX, we mentioned the revenue numbers about 226 on the year over year. On the OI, that flow through is about $20 million round numbers.
Speaker 1: on FX and commodities. So obviously picking up lower euro and then the.
Speaker 1: really the start of the RMB weakening at the end of the third quarter, although that obviously it picked up in the fourth quarter as well. It will pick up in the fourth quarter based on everything we're seeing.
Speaker 1: I listen from an out of period perspective, you know a lot of puts and takes with customer recoveries, inflation, some premium freight that we'll get reimbursed for for next quarter, but nothing nothingly overly material from a net perspective. You know really just you know again, there's a lot going on in the quarter so you got a few things going in different directions, but if you got the volume through through the FX impacts you really got sort of the net
Speaker 1: you know, the debt there.
Speaker 4: Okay, so it sounds like mostly FX in that number and...
Speaker 1: That that recovery was mostly offset by higher higher cost if I understand that correctly. Yeah Yeah, the only other thing I'd say we and I mentioned in my prepared remarks, you know We're seeing a return to a more normalized price down environment. So we've got price down to 1.7% You know that had been we've been holding off on you know price downs until we got through all the customer recovery. So as we Communicated, you know last quarter we expected to return to sort of more of a normal operating cadence with our art
Speaker 4: customers, so you got that price down at 1.7% as well. Okay, and you opened the door to 2023 and I know you can't really give a lot of detail yet, but last quarter you mentioned that on a seasonally adjusted basis we should be thinking that margins are around 10% in the back half.
Speaker 4: And it seems like you're kind of tracking to that. You're at an $18 billion run rate of revenue, so that's about a billion eight of EBIT. Is it still correct that there's around $100 million of additional kind of unrecovered costs that you need to go after for next year?
Speaker 1: I'm not sure. We talked about a 10 and 10 and a half percent jumping off point. I think that's generally holding operationally from everything we're seeing. We're sort of tracking to that. My only caution there would be, I think, you know, we're going to have to evaluate one should evaluate sort of the effects impact.
Speaker 1: You know, there could be about a half a point of headwind to that range if these FX rates hold going into next year. But operationally, I'd say things are happening as we had expected. Yeah, Rod, maybe if I can just chime in on price recoveries. The team's done an excellent job as it relates to...
Speaker 2: to recapturing material cost increases and translating that now into POs with our OEM customers. We feel good about heading into 2023 with respect to that particular category.
Speaker 2: Obviously, what we need to go after next year is partly influenced by what we see from a material inflation standpoint if there's some incremental increases going into 2023.
Speaker 2: So we're well positioned as it relates to what we translated into POs this year heading into next year if there's more material inflation We'll go back to OEM customers with increased prices The OEM customers are aware of that And then secondly to just to Joe's point on FX I think Joe highlighted on it in his comments a couple times when you look at the recent movement in the euro and the RMB We've seen a significant change over the last
Speaker 2: You know month or two, so I think there's a question there is really tough. You know. What's the trend in? In in in in currencies heading into 2023 and what sort of movements do we see?
Speaker 4: Great, thank you. Just lastly, Kevin, any updated thoughts on investment in Motional, just in light of what we've heard from Ford and just elsewhere in the market?
Speaker 2: Yeah, I listen, I'm emotional continues to be very successful in terms of advancing the technology roadmap. I'm sure you saw the announcement.
Speaker 2: as it relates to Uber and you know the plan to integrate the emotional solution or emotional vehicles in the Uber network in the United States.
Speaker 2: As it relates to you know, the Ford announcement as it relates to Argo. Listen, I think there's an element of
Speaker 5: of.
Speaker 2: You know, our perspective on autonomy has probably been a bit different than most OEMs that are out there. When we originally made our investments.
Speaker 2: in automatic.
Speaker 2: and and newtonomy a big piece of our our our strategy was was with respect to how do we take those technologies that are utilized for vehicle autonomy and how do we pull those forward into active safety solutions
Speaker 2: Which is what we're doing today, which is, you know, that technology or portion of that know-how is embedded in our current generation ADAS platform.
Speaker 2: In addition, you know, Motion was a customer of Aptus. When you think about perception systems and other items, they're actually a customer. So,
Speaker 2: You know, we've always viewed, right, we've talked about in the past, we've always viewed autonomy as kind of the far end of the spectrum as it relates to active safety. So from a strategic standpoint, a business standpoint, you know, it's fairly well integrated into what we're doing operationally today.
Speaker 4: Thank you.
Speaker 3: Our next question comes from Itai Micheli of Citi. Please go ahead.
Speaker 2: Great, thank you. Good morning, everybody. Just two quick ones. First, on the Q4 guide, just hoping you can maybe share your latest LDP views for the year and maybe any particular bias at the low or high end of the confirmed range for 2022. And then, Joe, going back to 2023, any early thoughts of how we should be thinking or how you're thinking about global LDP for next year?
Speaker 1: Yeah, Etan, let me start with 2023. It's just there. You know, we're still working through that. There's a tremendous amount of puts and takes at the customer levels. We haven't seen schedules, so it's really too early for us to have a view on the numbers or the direction. Listen, as it relates to Q4, we're still working through that.
Speaker 1: You know, we're basically holding the guide. I think if we were to look at it, there's certainly some potential for upside, particularly with China production. Although more recently we've seen probably more pullbacks in some China production schedules versus increases, but understand there is a desire in that market to build more vehicles. You know, the way I view the guide at the moment, we're certainly confident in the midpoint to the extent there's.
Speaker 1: bias to the top end of the range, I think it's going to be a trade-off between vehicle production increases in China, Europe holding steady, and then just how big an FX impact does sort of offsets on the top line. So that's really what we're looking at and really sort of the driver of holding the guide is, to the extent you pick up some revenue on upside in China, which we'd admit is possible, we don't quite see it yet in schedules, but understand the bias there from customers.
Speaker 1: We are mindful of just the revenue impact from the FX perspective.
Speaker 2: I can just qualitatively, I just want to reiterate Joe's point.
Speaker 2: although supply chains seem to be improving.
Speaker 2: The reality is we're seeing, you know continued volatility in customer schedules, right? week to week and maybe more recently more volatility to the downside on the China production schedule.
Speaker 2: which we did not see in Q3.
Speaker 5: Got it. That's all very helpful. Thank you.
Speaker 6: Thanks for your time.
Speaker 4: Our next question comes from Joe Spack of RBC Capital Markets. Please go ahead. Thanks so much everyone, good morning. Joe, maybe just a little bit more on this decision to build inventory. It sounds like it's pretty customer or launch specific. I just want to get a little bit more understanding your thinking because you know we just saw a competitor.
Speaker 4: at least on the connector side, you know, they had sort of built prior inventory and they're sort of letting some of their inventory go down now because they feel better about supply chain. So is this just you being extra cautious in terms of building your own stock? And is that a new normal or should we expect that to come down, you know, over the course of a year or so?
Speaker 1: Yeah, listen, I think it is broadly speaking, Joe, in the electronics space, passive electronics, semiconductors, obviously a big part of that.
Speaker 1: I'd say it's, you know, it is specific around some heavy launch activity we expect in the first half of next year, wanting to make sure we've got adequate supply, sort of getting the supply when we can. There's also an element, and you know, my ASUX comments around growth over market, so to speak to it, you know, we are still seeing customers impacted by lack of availability. So, you know, I understand the comments you're referring to from a...
Speaker 1: from tell, but I, you know, broadly speaking across that electronics supply chain, I don't think this is just an active issue because some of the impacts we're seeing on customers weren't, we were not the what for. You're still seeing some constraints on semis and passive electronics. So it's making sure we're running into, you know, the decision was basically not to take inventory down as much as we originally planned in the fourth quarter and hold on to what we have continuing to order to make sure we've protected
Speaker 1: We've protected next year And I would say from an unwind it's very hard to call at the moment I don't think this is a new normal, you know Multiple years could we sort of be running at higher levels for you know, the bulk of 2023? I think that's possible depending on how we see things improve. Yeah, if I can add I think we should be really really clear. Sorry, Jill.
Speaker 2: It relates to specific programs that we're launching in 2023.
Speaker 2: relates to specific vendors who've been challenged from an overall supply chain standpoint.
Speaker 2: And to Joe's point, it's not the new normal to the extent their capabilities or their capacity increases. We have the ability to ratchet down orders during 2023.
Speaker 2: So we're doing what we can to protect our customers and quite frankly protect ourselves from a supply chain standpoint.
Speaker 4: Okay, one, maybe just a question on sort of probing 2023 a little. I understand, you know, you mentioned that FX could weigh on that 10 to 10.5% jumping point you previously mentioned. But I guess I just, you know, if most of the cost recovery you talked about in this third quarter were in period in response to sort of the prior question, it would seem like that alone sort of, you know, weighed by 50 bps. So is that...
Speaker 4: Is that an offset? I mean I guess we don't really know like maybe that maybe the recoveries continue and that's going to sort of continue to be a drag or next year. I guess I just want to understand like what sort of assumption on recoveries was in that 10 to 10 and a half starting point.
Speaker 1: Yeah, it was the half billion and sort of, you know, it was the half billion and basically getting that, you know, getting that half billion of inflation covered with recoveries, round numbers and that's happening and then we'd roll that into piece part next.
Speaker 1: piece price next year. So that is on track. That's really not connected to the FX or the...
Speaker 1: or the 10 to 10 and a half discussion. Like I said, operationally, I think we're, you know, we're hitting the things we need to do. I just, again, it's a caution. The FX number significant in Q3 is going to be significant in Q4. And if you look at just where, you know, some of those key rates were the first half of 2022 versus, you know, if we were to ever end at sort of current spot levels, there is going to be an impact there.
Speaker 4: Okay, maybe just one quick one. You mentioned Wind River for 23. I think it's been 10 months since you made that announcement. Any update?
Speaker 2: Yeah, we continue through the regulatory process.
Speaker 2: point in time.
Speaker 2: where we stand.
Speaker 5: Thank you. Thank you.
Speaker 5: Thanks, Jeff.
Speaker 3: Our next question today comes from Adam Jonas of Morgan Stanley . Please go ahead. This is forMusic's
Speaker 7: Thanks everybody. First question is on commoditization of ADAS. You have this pretty dominant tier two supplier of ADAS system on a chip that's looking to become a tier one. Qualcomm announced this monster auto backlog integrating ADAS into infotainment. Apple's reportedly speccing out a 10 camera passive optical system and expanding CarPlay. So how fast is ADAS becoming commoditized in your opinion? And what does this mean for the ASUX business? —
Speaker 2: Yeah, Adam, I'll take that. Listen, we don't view it as becoming commoditized. You know, we have, as I mentioned, we want another full platform program in China in addition to the large European program that we were awarded earlier this year. It's important that, you know, as a supplier, whether you're a Tier 1 or you alluded to Tier 2.
Speaker 2: that you have the ability from a perception system standpoint across multiple perception systems, you have the ability to do sensor fusion, you have the ability to do integration, and you have the ability to build domain controllers hardware. And with respect to the players that you're referencing, I'm not aware of any of them that have had the experience or the capability across each one of those areas.
Speaker 2: So, you know, we view ADAS as an important area. We don't view it as an area that will become commoditized, as we've talked about in the past. It's obviously an important feature for our customers. It's obviously a feature that helps them sell cars, and it's a feature that they make a lot of money on.
Speaker 2: you know, we continue to be very well positioned in it. We continue to invest and to further enhance and strengthen our position in the space.
Speaker 7: Thanks, Kevin. Just a follow up on decelerating EV penetration or the risk of decelerating penetration. I mean, we're still going to have growth from a low base of EVs, but we're seeing battery cost inflation in geopolitics.
Speaker 7: at least at the margin, work against affordability, the affordability argument of EVs, and many legacy OEMs still struggling to get
Speaker 7: accessible affordable models out. I'm thinking, do you agree that there's a risk that could flatten at the margin, flatten that EV adoption curve, and if the pace of EV growth is slower,
Speaker 7: and we sell more ice architectures for longer, can you remind us, is that a positive, negative, or neutral to your SPS margin? Thanks. Well, I, yep, it's a great question. I'd say kind of two things on it. I think what you reference as a potential risk to...
Speaker 2: EV adoption. It is a possibility that it slows EV adoption. Our view is that it doesn't flatline EV adoption.
Speaker 2: With respect to our position from a high voltage electrification standpoint, we're effectively the only player that can provide the full vehicle architecture.
Speaker 2: solution what we're finding is more and more customers coming to us to take more of the overall content to provide you know the cable management, the wire harness, the connector in...
Speaker 2: You know now with inter-cable automotive the bus bar content as well. So, you know regardless if we see slowing we think there is a huge opportunity for us to capture more content.
Speaker 2: And then as I mentioned in my comments, in addition, we're investing in capabilities in and around power electronics as well as battery management systems. We're in discussions with customers as it relates to both products as we speak, and we'd expect customer awards to be forthcoming. So we believe it will be a continued high growth area and we feel as though we're well positioned, quite frankly, to expand our share of wallet at them in that space.
Speaker 2: When you look at content differential to get to the last part of your question, high voltage electrification, especially battery electric vehicles, you know, it's probably what you're alluding to, the content opportunity for Aptiv is significant. Internal combustion engine typically has content, vehicle architecture content of about $500 per vehicle when you move to a fully battery electric vehicle that's closer to $1500.
Speaker 2: So it's a meaningful, meaningful uptick in the content opportunity.
Speaker 5: Thanks, Kevin.
Speaker 3: Our next question comes from Chris McNally of Evercore. Please go ahead.
Speaker 2: Hi, thanks so much, team. And Joe, I appreciate the sort of the added color on maybe some of the bias to the middle or the upper end of the range with sort of production still a little bit unclear, aspects obviously a drain as the quarter went on in terms of spot rates. But could we dive in a little bit more to your China comments and some of the volatility around schedules? I think one of the obvious questions for people is...
Speaker 2: what is the baseline for that comment? I guess your Q2 outlook was minus 4%. It seems the volatility now, or the question, is some range of China up five to maybe China up nine. So it's obviously, is it fair to say better, a lot better than what you had previously, maybe adding to the organic growth, and then some of the questions is more around the last two months.
Speaker 1: and what that means into 23. Yeah, Chris, I think you're right. That original full year guide was down four. It's obviously strengthened. I think for us, that's exactly the point I was trying to make is how much higher could it be.
Speaker 1: And then relative to you know as it relates to that guide just how much of that gets sucked back in by
Speaker 1: by FX. I'd say right now, you know, again, I think something north of five, at least what we're seeing from customers, would be tough to achieve. But no, our bias to the upside within the guide is related to China production. That's fair.
Speaker 8: Okay, super, super clear. And Joe, do you think right now that the base for how customers are ordering is assuming that the VAT stimulus, you know, the tax stimulus will not be renewed? You know, sort of typical China, we won't find out till January 3rd. But, you know, the history here is like 16 and 17 is that you typically get two years. So do you have a view on whether we'll have this stimulus renewed into next year? And could we see?
Speaker 1: the market gets over the coming couple of quarters. You know, there is some heightened concern around COVID lockdown so that we're hearing, certainly not to the extent we saw in Q2, but renewed concern about that. So I think it's hard to pull out sort of one particular facet of that at the moment, Chris, Kevin, I don't know if you have a... No, I think you've covered it.
Speaker 8: That's perfect. And if I could just sneak in one for the 2023, is it also, I'm not sure if you mentioned this, should we use the 8 to 10% as sort of a base to the outlook, whatever production entropyOL and non nonBILL.
Speaker 9: Yeah, yeah, that's fair.
Speaker 10: Thanks, Steve.
Speaker 11: Thank you, Chris.
Speaker 3: We will now take a question from Emanuele Rosner of Deutsche Bank. Please go ahead.
Speaker 8: Thank you very much. So I guess in some of the words of caution that you were expressing earlier for 2023, one piece is theoretically the FX headwinds, which is understandable. The other piece seems to be supply chain tightness, which I think you said could make it more challenging to recapture operating leverage. Are you thinking that this is the sort of volatility that would…
Speaker 1: result into lower incremental margins than usual? Yeah, what I was referring to Emmanuel there and we've talked about it really for different reasons for the past couple years, right, I mean one of the big benefits to our customers, ourselves, and I'm sure it's just not us from a supply perspective, you know, it's the smoothness of production. Even if you're at a lower number the ability to sort of set up and run without these stop starts from supply chain disruptions.
Speaker 1: just make for greater efficiency for greater efficiency and I think we'll be better year over year but obviously just cautioning that the extent we continue to see some of these disruptions particularly in the first half of the year again as an industry I mean the disruptions we saw in North America and Q3 were not related to our supply chain but our customers were impacted so it's just speaking to the abruptness of shutdowns and restarts does hurt from an operating leverage perspective.
Speaker 2: Okay. And also, Chris, how are you thinking about cost trajectory exiting the year and into next year? I found it interesting that you're back to more normalized price balance. Obviously, you would serve like need a more stable cost base to be able to continue like this. So how should we think about it in terms of additional going forward cost trajectory in?
Speaker 2: any additional actions that would be needed. Is your question around price downs of annual or input costs?
Speaker 2: There are questions mostly around input costs, but I was wondering if, going back to normal price dance, sort of like suggest that you're seeing costs are stabilizing or not?
Speaker 2: Yeah, so maybe I'll take a shot at it in going back to...
Speaker 2: Joe's last answer to your question. I think what you're hearing from us as a management team
Speaker 2: is although Q3 obviously improved results, our general view that the supply chain is improving, all the challenges aren't behind us.
Speaker 2: and we continue to see inflation, we continue to see volatility in schedules.
Speaker 2: which translates into volatility in production.
Speaker 2: that translates into a higher cost load as it relates to manning in our facilities, as it relates to transporting goods, so inbound and outbound freight.
Speaker 2: that to a certain extent is built into our current run rate so that we have an element of flexibility to continue to support our customers. Now our customers are, you know, we've been aggressively going to our customers and pushing through that price, those cost increases to our customers. Our customers have been supportive of that.
Speaker 2: we would expect that there's an element of that that continues into 2023, certainly at least in the first half of the year.
Speaker 2: And just given the volatility in the overall macro headwinds.
Speaker 2: You know, that at this point in time, you know, we're planning that some of that doesn't go away. We're pushing through as much of it as we can. But it's, you know, it's difficult to be precise as it relates to your predictions on what you think margin, you know, margin expansion and other items are going to be in the early part of 2023.
Speaker 10: Okay.
Speaker 10: Okay, thank you for the call.
Speaker 12: Thanks, ma'am.
Speaker 3: We will now take a question from David Kelly of Jefferies. Please go ahead.
Speaker 4: Good morning and thanks for taking my questions. Maybe you wanted to follow up on Intercable. I was hoping you could talk a bit more about their product portfolio and your opportunity to leverage their expertise within your platform. And then how should we think about their potential contribution to that $1500 Bev content opportunity you referenced earlier?
Speaker 4: Good morning and thanks for taking my question. Maybe you want to follow up on Intercable. I was hoping you could talk a bit more about their product portfolio and your opportunity to leverage their expertise within your platform. And then how should we think about their potential contribution to that $1,500 Bev content opportunity you referenced earlier?
Speaker 2: Yeah, Intercable, strong position obviously in high voltage electrification. I mentioned in my comments they're on their seventh generation bus bar technology, so clearly the industry leader from an overall technology stand.
Speaker 2: standpoint. When you look at, they have other products as well, interconnect, high voltage interconnect solutions as well as electrical.
Speaker 2: So it's a nice fit with what we do. Very strong position as it relates to bus bars, a stronger position than what Aptiv currently has. So when you look at that product portfolio, certainly additive to the overall solution that we can bring to market. I think when you look at the overall bus bar market, it's a little over a billion dollars today. I think by 2026, it's expected to grow at about a 30% compounded rate.
Speaker 2: 2026-2027 it gets north of $4 billion. So significant revenue opportunity.
Speaker 2: Um, uh, content per vehicle it's depending, uh, depending on the, the nature of the bus bar solution. And, um,
Speaker 2: The nature of the vehicle it's anywhere between low-end call it $100 to high-end close to $200 of vehicle
Speaker 13: content.
Speaker 2: So it's certainly meaningful.
Speaker 2: They have a very strong position in Europe with European OEMs, a very strong manufacturing position in Europe , manufacturing footprint in China. We think there's an opportunity given our footprint in Asia, given our footprint in North America, to expand their manufacturing footprint and introduce them to additional customers. So we view it as a very strong position in Asia.
Speaker 2: is really a great opportunity to generate significant synergies. Joe, did I miss anything? No, I think that covers it.
Speaker 14: Okay, got it. Really helpful, color. Thank you. And just more broadly, you know, realizing Wind River still pending, but can you talk about your approach to acquisitions in the 2023, given what feels like a shifting macro here?
Speaker 1: Yeah, David, it's Joe. I'll start that one. Listen, I think we continue to obviously
Speaker 1: Look to grow the portfolio both organically and inorganically. I think from an M&A perspective,
Speaker 1: Obviously, you've got to be mindful of valuations, as the macros are challenging for us to forecast. They're obviously as challenging to potentially value other businesses. And on the private side, it usually takes a few quarters for valuations to catch up to public markets. So we'll proceed cautiously, but we're still very much interested in the types of transactions like intercable that strengthen bolt-on transactions, larger bolt-on transactions that strengthen the SPS portfolio around key growth areas.
Speaker 1: in addition to that. But obviously, a market where you need to be a little bit more careful around valuations, but continue to execute on that strategy.
Speaker 14: Got it. Thank you.
Speaker 3: We will now move to John Murphy of Bank of America. Please go ahead.
Speaker 2: Good morning guys. Just two quick ones here. First, just on the volatility in schedules. I understand that it's depressing obviously the potential for incremental margins, but this is something that's been going on for almost two years now. It just seems like we keep hearing the echo of this and it seems like it's getting better, but then it's not and that's certainly not your purview. It's outside of what you can control. What are the signs that you're looking for that we get some stability in schedules?
Speaker 2: Sounds like it's just kind of popping up week to week and month to month and it's very difficult to understand when it actually will start smoothing out.
Speaker 2: Yeah, John , I'll start. It's Kevin. Listen, it does start week to week and day to day, to be honest with you. I'd say what we're seeing now are the swings are smaller. So with respect to
Speaker 2: You know, peak to valley, you're seeing, you know, a much tighter, much tighter curve. So that aspect is better. But there's still an element of when you think about manning from a manufacturing standpoint, when you think about inbound, outbound freight, those sorts of expenses, you're continuing to incur it, you know, certainly at a higher level than sort of normal run rate. I'd say we feel like, you know,
Speaker 2: We're very close connected with our strategic semiconductor suppliers. We're very closely connected with our customers. Our supply chain and manufacturing teams are integrating, are talking to them and integrating with them on a day-to-day basis. So we have our arms around it and are able to react faster when we see swings, but they're still occurring. And
Speaker 2: Q3 supply chain was better than Q2. We expect Q4 to improve over Q3. But again, we're still seeing the supply chain tightness. And if there's any sort of event that occurs during a given day, week or month, you seem to have a boomerang effect in terms of the overall, the overall coming on ultimately vehicle production. And it's just something we're trying to...
Speaker 2: stay close to is something that we're trying to manage through and we just want to make sure that you guys understand it's still going on. It's not completely behind us.
Speaker 2: And we wish it were, but it's not. And we're doing our best to manage through it.
Speaker 2: Okay, and then just a second question. As we look at slide seven, obviously the bookings are pretty remarkable this year. About 13.5 billion are what you're hiding here in active safety, high voltage, and SVA. There's almost 12 billion that's outside of those three technologies. I'm just curious if you can give us some color on those. And as we think about those rolling on, maybe they roll on faster because they're sort of less leading edge technology, but they might come on faster at higher margins and higher return. So just a little bit more color around that, almost $12 billion outside of those three.
Speaker 2: Yeah, well, yeah, it ranges for areas like user experience, like our traditional connector solutions, our traditional cable management solutions. They go on low voltage vehicles, our traditional vehicle architecture on low voltage solutions. I mentioned user experience, so infotainment systems, in-cabin sensing systems, body insecurities.
Speaker 15: So there's a whole, there's a number of different products, number of different product lines that fill the balance of those bookings.
Speaker 2: Is it fair to say, Kevin, that those come on at higher margins and returns in the near term potentially?
Speaker 2: So those are reporting to watch as well.
Speaker 15: Yeah, I think it depends on what the product line is. I'd say most are basically in line with what our traditional margin structure is across all of our product lines.
Speaker 15: Some of those that are higher volume, it may be a little bit higher.
Speaker 2: Okay, great. Thank you very much, guys.
Speaker 2: Okay great, thank you very much guys.
Speaker 3: Our final question today comes from Mark Delaney of Goldman Sachs. Please go ahead.
Speaker 4: Yes, good morning. Thank you very much for taking my questions. First, on the implied 4Q revenue guidance, I think it's down sequentially relative to 3Q, even if we assume the company is coming in at the high end of the four-year revenue outlook. Could you help us bridge what's going on with 4Q revenue compared to the third quarter and how much is maybe affects as opposed to other factors?
Speaker 4: Yes, good morning. Thank you very much for taking my questions. First on the implied 4Q revenue guidance, I think it's down sequentially relative to 3Q, even if we assume the company is coming in at the high end of the four-year revenue outlook. Could you help us bridge what's going on with 4Q revenue compared to the third quarter and how much maybe affects as opposed to other factors?
Speaker 1: Yeah, listen, I think, you know, sequentially it is down a little bit, launch activity in Q3, you know, the answer to Chris's question mark. You know, obviously we are, you know, potentially looking at additional volumes in China and balancing the FX impact of that. You know, year over year, and there's just some ebb and flows here as you think about the year over year as well, right? Year over year, we're still up 9%. If your call Q4 last year had some...
Speaker 1: I think, you know, the answer to Chris's question mark, you know, obviously we are, you know, potentially looking at additional volumes in China and balancing the FX impact of that. You know, year over year, and there's just some ebb and flows here as you think about the year over year as well, right? Year over year we're still up 9%. If you recall Q4 last year had some
Speaker 1: was rebounding a bit from Q3 of last year, which was very depressed. So you've got a little bit of the ins and outs. But it really comes back to how much upside is from China and what the offset is with the FX. I think if you're looking at that sort of revenue top line number.
Speaker 16: Okay, and then specifically on Europe , last quarter the company spoke of some weakness with some of the OEMs in Europe relative to reductions to their schedule forecast. Could you elaborate a little bit more on what you've seen transpire in Europe relative to the last update you gave 90 days ago, and has the magnitude or breadth of OEM schedule reductions in Europe changed at all? Thanks.
Speaker 1: Yeah, no, good question. No, listen, I think we've, Europe for the most part has sort of held the schedules. It's what we've seen. I realize we're lower than sort of a lot of other folks out there, I think some of those other forecasts have come in, not necessarily right to where we were, but have come in a lot sort of closer to us than maybe where they started. So I'd say European customer schedules, again, we're tracking, I think there's...
Speaker 1: you know remains concern around you know economic disruptions in Europe
Speaker 1: And obviously, you know, there's, you know, potential impact from energy shortages, although I would say the customers are a little bit more confident that they won't be impacted in Q4 than they were when we spoke in August . But no, we, you know, we, as I mentioned in my comments in 2023, I think Europe remains a challenging environment for the foreseeable future, just giving everything going on there.
Speaker 17: Thank you.
Speaker 3: That concludes today's question and answer session. I would now like to turn the call back to Kevin Clark for any additional or closing remarks.
Speaker 15: Great, thank you operator. Thanks everyone for joining us today. We really appreciate you taking the time. Take care.
Speaker 18: Thank you.
Speaker 3: That will conclude today's call. Thank you for your participation. You may now disconnect.