Q4 2022 Aptiv PLC Earnings Call
Please standby we're about to begin.
Good day and welcome to the Q4 2022 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jessica Parker, Vice President of Investor Relations.
Please go ahead.
Thank you.
And thank you for joining <unk> fourth quarter 2022 earnings conference call. The press release are related to people along with the slide presentation can be found on the Investor relations portion of our web site. After the Dot Com today's review of our financials exclude amortization restructuring and other special items well address the continuing operations.
The reconciliation between GAAP and non-GAAP measures, our Q4 financials as well as our full year 'twenty 'twenty. Two outlook are included at the back of the slide presentation and the earnings press release.
During today's call, we won't be providing certain forward looking information, which reflect <unk> current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings.
Including uncertainties posed by the COVID-19 pandemic, the ongoing supply chain disruptions and the conflict in Ukraine, and Russia, joining us today will be Kevin Clark I'm, just the chairman 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 more detail before we open the call to Q&A with that I'd like to turn the call over to Kevin Clark.
Thanks, Jessica and thanks, everyone for joining us this morning, let's begin on slide three.
2022 was another year with record new business bookings and strong growth over market driven by our industry, leading portfolio of advanced technologies as well as our continued flawless execution. That's kept our customers connected in this challenging environment highlights.
Highlights for 2022 included $32 billion of new business bookings driven by significant active safety high voltage and smart vehicle architecture Awards $17 5 billion of revenues, representing 15 points of growth over vehicle production during the quarter, bringing our full year growth over market to 11 points.
Operating income and earnings per share for the full year of just under $1 6 billion and $3.41, respectively reflected the benefit of strong revenue growth and customer recoveries, partially offset by costs related to COVID-19.
<unk> supply chain disruptions, which Joe will cover in greater detail a little later.
We also enhanced our portfolio of safe Green and connected technologies with the additions of wind River Intercable automotive both of which closed during the fourth quarter.
I will see it on me as well as our enhancements to our operating model on the next slide.
As the industry transitions to fully electrified software to find vehicles, we continue to enhance both our operating model and industry, leading portfolio to further strengthen our capabilities to solve our customers' toughest challenges.
As legacy functional and domain based architectures are increasingly replaced by approaches wanted to after the smart vehicle architecture. It impacts both the way, we design and sell our solutions.
This means further strengthening our one active account based model positioning us to engage earlier in the development process, and therefore, more effectively design and specify and deliver optimized solutions across our portfolio.
<unk> and stronger customer relationships and greater ability to capture value from our full system solutions. We further enhanced our regional operating model by increasing local capabilities and empowering those closest to the customer to address their needs quickly and efficiently. Additionally.
Additionally, the continued rollout of our net promoter system has resulted and actionable insights to improve our efficiency, our resiliency and service levels, thereby increasing customer intimacy.
Lastly, proactive initiatives and risk mitigation actions related to our supply chain have contributed to our ability to keep customers connected through significant disruptions.
Them confidence in our ability to execute our current and future platforms.
At the same time, we recognize that the software to find electrified vehicles consumers are demanding will require innovative new solutions, and we're investing organically and inorganically to vision to position ourselves for that future.
Our acquisition of wind river significantly strengthens our capabilities in software with an industry first cloud native software platform.
These development streamlines deployment and enables full lifecycle management for the software defined vehicle significantly reducing cost and time to market for our customers. While also unlocking new business models.
The acquisition of <unk> cable automotive enhances our portfolio of high voltage bus bar and interconnect technologies and provides near term synergies as we expand cables manufacturing capacity in North America and in China.
Lastly, we're also investing organically in solutions that further expand our portfolio of industry, leading high voltage electrification solutions, such as integrated power electronics and battery management systems to help fund. These initiatives, we've implemented structural cost reductions that will say roughly $100 million in annual expense, which will take.
For <unk> throughout 2023.
These actions further improve the efficiency of our underlying cost structure, while allowing us to make investments that better position <unk> for long term outperformance.
As shown on slide five nowhere is the strength of our track record in portfolio more evident than our in our new business bookings performance.
2022 bookings reached a record 32 billion an increase of over 30% from last year's record of 24 billion.
Advanced safety and user experience bookings totaled a record 12 billion driven by $4 2 billion of customer awards for our smart vehicle architecture solutions across three different Oems, including Central vehicle controller empower data central bookings power data center bookings, sorry, with the Volkswagen group, bringing cumulative.
For rewards for SBA products since our launch to over $5 billion with five different Oems.
Active safety bookings of $5 2 billion, representing a combination of next gen hardware and perception software building blocks as well as full system Turnkey awards, including an award from a large European based global OEM as well as the Chinese OEM BYD.
Which represents the seventh customer to slot Abdus scalable platform to efficiently support a wide range of advanced safety features.
The strength of our portfolio of active safety solutions is reflected in the $20 billion of cumulative bookings since 2018.
Signal and power solutions business bookings reached a record 20 billion for the year.
Result of strong growth and low voltage vehicle architecture.
Putting a 2 billion dollar like commercial vehicle booking with a major north American OEM in the fourth quarter and continued strong bookings in adjacent markets.
Record $4 2 billion hours of high voltage electric electrification bookings up from roughly $2 billion, just a few years ago, including awards from several North American European and China based Oems.
Representing both traditional and new mobility providers across our electrical architecture and engineered components product lines, bringing.
Bringing cumulative high voltage customer awards to 14 billion since 2018.
Our industry, leading portfolio combined with our unparalleled ability to execute a highly complex programs even in today's challenging environment positions us to continue to win new business, resulting in clearer line of sight to roughly 32 billion of business Awards during 2023.
Moving to slide six to review the segment highlights.
Beginning with the advanced safety, our safety and user experience segment. This past year, we became the first technology provider to successfully launch a full stack hands free level, two plus Adas system with a European based global OEM.
This is a great example of our full system capabilities applied to active safety as well as our flexible business model and open platform approach, which allows Oems to leverage their own innovations as well as those from active and other third parties to deliver a unique high performing driving experience.
We're also deeply engaged with several customers regarding when rivers cloud native software platform, which we're confident will lead to commercial awards over the course of 2023.
Turning to signal and power solutions segment, we continue to be perfectly positioned with an industry leading portfolio of electrification solutions that span multi voltage distribution connection and cable management.
Reflecting the accelerating demand for battery electric vehicles, the $4 2 billion of high voltage new business bookings I referenced on the prior slide accounted for over 20% of the segment's total bookings and high voltage revenues increased 33% over the prior year 28 points over vehicle production.
In addition, our new offerings in power electronics and battery management systems are gaining traction.
Demonstrated by a significant integrated power electronics, and BMS Award from a North American based global OEM, where our solution will be used across all their best platforms, beginning in 2025, and the pipeline of customers evaluating the deployment of a similar solution is growing.
Our customer our customers recognize our track record of flawless execution.
Which is the driver behind that.
Customer service quality and supply chain awards, we've received the cost recoveries, we negotiated and the record level of new business bookings we've been awarded.
Our full system edge to cloud vehicle architecture solutions have enabled us to pursue high growth margin accretive opportunities that position us to continue to deliver outsized revenue growth and margin expansion for years to come.
Yeah.
Moving to slide seven.
At this year's CES event in Las Vegas, we brought the software defined vehicle to life showcasing apt as unique full stack capabilities. We debuted when rivers software platform fully integrated with the vehicle powered by FCA.
This non vehicle demonstration of the industry's first end to end cloud native apps tool chain and vehicle software platform showed how these solutions improve improve development speed quality and efficiency a lot of new business models and enables software functionality to evolve and improve over the lifecycle of the vehicle.
Okay.
We also showcased our turnkey Gen six adas platform, including differentiating Kpis in a public road demonstration.
Our radar centric solution, which is vision agnostic utilizes artificial intelligence and machine learning to increase the availability robustness and efficiency of the perception system.
<unk> and a solution that can be up to 65% more energy efficient and 25% more cost effective than equivalent vision centric solutions.
Lastly.
We continue to highlight the commercial readiness of our smart vehicle architecture solution first by deeply integrating it into a production vehicle, which enabled us to demonstrate a wide range of in cabin user experience features as well as the fusion of our interior and exterior sensing, resulting in greater safety comfort and <unk>.
Convenience for passengers.
Through our SBA demonstrator, which enabled guests to see firsthand how these advanced architectures reduce complexity weight and mass while also showcasing our latest high voltage electrification solutions.
With over 400 customers 150 partners 75 suppliers visiting the App. The CES pavilion. This year, we reinforced our growing pipeline of commercial opportunities and sets has set the stage for the deeper more tailored engagements, which I referenced earlier.
Moving to slide eight before I turn the call over to Joe I wanted to touch on our outlook for 2023, which Joel will cover in more detail.
Building on the foundation from 'twenty to 'twenty, two we expect a very strong year for new business bookings revenue growth over market and margin expansion.
Our robust business model and portfolio of advanced technologies are resulting in sustainable value creation.
We continue to widen our competitive moat with investments in advanced technologies and capabilities that drive our operational excellence.
This has enabled us to demonstrate strong outperformance even in a weak production environment.
As demonstrated by our 2023 outlook, where we continue to expect eight to 10 points of growth over vehicle production and 140 basis points of operating margin expansion and strong cash flow growth.
With that I'll now turn the call over to Joe to go through the numbers in more detail. Thanks, Kevin and good morning, everyone, starting with a recap of the fourth quarter on slide nine.
As highlighted earlier the business drove strong growth in the quarter with revenues of $4 $6 billion up 19% over prior year, and representing 15 points of growth above underlying vehicle production.
The outgrowth was was across all segments. Despite continued semiconductor supply chain constraints and COVID-19 disruptions in China that negatively impacted customer production.
Adjusted EBITDA and operating income were $674 million and $523 million respectively.
<unk> margins expanded 380 basis points versus prior year.
<unk> strong flow through on incremental volumes.
The benefit of customer recoveries of direct material cost increases and cost reduction actions taken earlier in 2022.
Supply chain disruption costs were favorable by approximately $25 million from prior year.
And foreign exchange was negative in the quarter, reflecting approximately 20 basis points of headwind.
EPS in the quarter was $1 27, an increase of 87% from the prior year driven by overall earnings growth and interest income from higher cash balances maintained prior to the closing when river.
Partially offset by interest expense and tax expense on higher earnings.
The emotional EPS impact was a loss of 29.
And <unk> increase over last year.
Lastly, operating cash flow totaled $933 million and capital expenditures were $178 million for the quarter.
Looking at the fourth quarter revenues in more detail on slide 10.
Our growth was broad based across all regions. Despite the disruptions in China and continued supply chain constraints.
<unk> net cost recoveries and commodities was favorable by approximately $100 million.
Foreign exchange negatively impacted revenue by approximately $300 million in the quarter and late quarter shutdowns in China was a negative $60 million.
From a regional perspective, North American revenues were up 21% or 13% above market driven by our active safety and high voltage product lines.
In Europe , which continues to be impacted by acute supply chain constraints in macro.
Concerns adjusted growth was 22% driven by strength in both segments and in China revenues were up 8% or 14 points over market.
Moving to the segments on the next slide.
Advanced safety and user experience revenues rose, 15% in the quarter or 11 points of growth over underlying vehicle production.
Segment, adjusted operating income was $77 million up over 100% year over year, reflecting strong flow through on incremental volumes as well as favorable net price and recoveries.
Partially offset by the negative impact of foreign exchange in the quarter.
Signal and power revenues rose, 20% in the period or 16 points above market segue.
Segment operating income approved improved by 64% driven by strong flow through on incremental volumes phase.
Favorable net price recoveries in commodities.
And lower supply chain disruption cost that partially offset the negative FX impact.
Turning now to slide 12, and our expectations for global vehicle production in 2023.
Based on customer schedules, we are forecasting a decrease of 1% for the year, reflecting approximately 85 million units of global production.
Regionally, we expect North America flat at approximately 15 million units.
Europe down, 2% or approximately 16 million units and China flat at approximately 27 million units.
As we discussed during the fourth quarter of last year, we remain cautious about the impact of macroeconomic considerations, particularly in Europe .
As well as the impact of customer supply chain disruptions, including continued constraints of certain semiconductors.
Although the overall supply of semiconductors has improved sequentially, we continue to see acute constraints, particularly in Europe , and North America that impact overall customer production levels.
Moving to slide 13, you'll find our 2023 full year outlook, which now includes wind river and Intercable automotive.
We expect revenue in the range of $18 $7 billion to $19 3 billion up 8% at the midpoint compared to 2022 with nine points of growth over market.
Note that our growth over market excludes the impact of acquisitions.
As noted previously we remain confident in our multi year growth over market target of 8% to 10%.
<unk> by continued success in our key product lines and high demand for our portfolio of advanced technologies.
EBITDA and operating income are expected to be approximately $2 7 billion.
$2 billion at the midpoint, reflecting strong flow through on volume growth.
Continued margin expansion in high growth product lines, and lower COVID-19 and supply chain disruption costs.
Adjusted earnings per share, excluding amortization is estimated to be $4 25.
EPS growth of 25% is driven by strong earnings growth, partially offset by an increase in the expected tax rate of 14, 5% and higher net interest expense.
The loss related to emotional of $310 million represents a 7% increase over last year.
We expect 2023 operating cash flows of $1 9 billion.
The higher earnings as well as improved working capital during the year.
Capital expenditures are expected to be approximately 5% of revenues or $950 million for the year.
With respect to capital deployment in 2023.
We will continue to maintain a well balanced approach to capital allocation as.
As we continue to prioritize organic investments in the business to support our portfolio of advanced technologies and record New business Awards.
Execute our M&A strategy and focus on transactions that enhance our scalability across both the brain and nervous system of the vehicle.
Accelerate our speed to market with relevant technologies and access new markets.
And while we will continue to maintain our current financial policy as it relates to our balance sheet leverage profile to the extent, we can take advantage of market disconnects, we will be opportunistic in our share buybacks.
Turning cash to our shareholders.
To that end, our 2023 guidance assumes we offset the impact of stock comp stock compensation dilution in 2023 via share repurchase a practice, we had in place prior to 2020.
On slide 14, we provide a bridge from 2023 revenue and operating income guidance as compared to 2022.
Starting with revenue.
Our growth over market combined with a decrease in global vehicle production resulted in a net contribution to revenues of over $1 billion.
The full year benefit of direct material cost recoveries will effectively offset changes in index commodity.
And price Downs.
FX is estimated at a negative $300 million and lastly, we expect wind river and Intercable to contribute approximately $700 million for the year.
Turning to adjusted operating income, we expect margin expansion of 110 basis points are for the benefit of acquisitions driven by continued strong flow through on incremental volumes of approximately 30%.
The negative impact of price downs commodities in incremental inflation, partially offset by customer cost recoveries.
And higher direct labor and other indirect costs are more than offset by increased operating performance, including the benefit of cost saving actions improved manufacturing performance as well as a reduction in supply chain disruption costs.
Which are estimated to be $180 million in 2023.
The addition of wind River and inner cable will increase 2023 operating income to $2 billion or 10, 5%, reflecting margin expansion of 140 basis points and incremental margins of over 27% for the year.
With that I'd like to hand, the call back to Kevin for his closing remarks, thanks, Joe I'll wrap up on slide 15 before opening the lineup for questions.
As a management team reflects on 2022, it's clear that we strengthened our competitive moat and accelerated our commercial momentum.
Supported by a highly differentiated portfolio of safe Green and connected technologies together with our strong track record of operating execution abdomen has never been better positioned to provide our customers with full system solutions that advance the industry's vision of the software defined vehicle.
As a reminder, we're hosting our 2023 Investor day on February 14th in Boston, where we will provide our view on the industry and how we plan to Usher in the next phase of our business strategy and.
In closing I am proud of what the App Dev team accomplished during 2022 and has never been more excited about what we will deliver in the years ahead as youll see in here on February 14th the best is yet to come operator, let's now open the lineup for questions.
Thank you if you would like to ask a question. Please press the star key followed by the digit wanted to place your line in the Q. We do ask that you. Please limit yourself to one question and one follow up today that is the start Keith followed by the digit wanted if you have a question or comment we'll pause for a moment.
I will take your first question from Rob glass.
Good morning Rod.
Yeah.
Yeah. So I guess my first question is on your bridge for 2023, you have $400 million.
Of additional labor depreciation economics price.
You offset that with $400 million of performance in.
It was either a 135 or $180 million of lower disruption costs I'm. Just wondering about just in light of the still inflationary environment that we're seeing.
Pricing is still negative and at what point do you think you start to kind of get ahead of this and and recover some of the.
Is that some of these disruption costs or headwinds.
Well, Rob it's Joe I'll start I mean, I feel like.
I think we have got ahead of it to be honest with you I mean, our business equations working rate performance is offsetting.
Labor inflation.
And the pricing and the material inflation, you see in that $100 million.
We've done it out from a from a topline perspective customer recoveries. This year, which are obviously benefiting from a full year of factor will effectively offsetting price downs on the top line.
So I think our view and Kevin can jump in I think our view is that the team's done a great job of pushing direct material costs through.
And we've started to get performance op, including.
Working hard to get the.
Supply chain disruption costs out of the P&L.
I guess just to just maybe maybe clarify my question Joe like I think that you had talked about $295 million of disruption that you would start to recover over six quarters and when I say ahead of it.
In my mind at least that means that the the positives are greater than the negatives it looks like they're sort of matching.
When optically when you look at the bridge.
Certainly offsetting yes, we ended that we ended 2022 with about $330 million of supply chain disruption costs with.
We've taken that down to a 180.
And the outlook, so we're still assuming a $180 million of disruption cost.
It continues to be a difficult operating environment for certain customers and we're still seeing some.
Some disruptions obviously, China in Q4 December in particular was heavily disrupted with Covid. So listen I think we continue to work through it I think youre right. We had always talked about sort of four to six quarters. So we've got some to continue to work through.
But feel like we've made a pretty big step here in 'twenty, yes, maybe if I can add right I think that's a great. It's a great question I think one of the challenges when you talk about getting full ahead of it you need to have better better predictability of what Youre getting ahead of and I think Joe's point on.
In the fourth quarter of 2022 and December specifically to give you example, roughly 90% of our employee base in China was suffering from Covid.
Tough to predict.
Yet at the same time.
We were able to.
Keep our factories running and keep our customers connected which has been our ultimate objective right. So so operating in a less efficient way and being somewhat reactive in an environment, where we can't always predict what's going to happen from a supply chain standpoint, our COVID-19 steel.
Okay. Thanks for that and just secondly, when you announced the closing of the wind River deal.
You in your release, you talked about some recurring operating expenses and costs that led to changes in the terms.
Hoping you can maybe talk a little bit about what.
What you meant by that and what were the implications financially going forward.
Yes, I think the net results for wind river from a from a revenue growth standpoint.
Margin standpoint.
Accretion dilution standpoint.
We remain largely unchanged.
Get into all the specifics, but operationally there were some changes that.
We needed to make and in light of that we were in a position to renewed renegotiate the transaction yes.
Yes, the only thing I'd add is a nuance, but I think it's important.
Particularly as it relates to the magnitude of the cost the price reduction we said was in part due so it's not a direct correlation between sort of the.
The increase in expenses in the amount of the reduction so to Kevin's point, it gave us an opportunity to.
To talk to talk to the sellers about pricing, we did but the deal remains accretive in this year.
And again as we as we said in our press release. Its note no changes in sort of the strategic outlook or our view on the long term.
Long term opportunities wind river.
Thank you.
Okay.
Okay.
We'll hear next from Adam Jonas from Morgan Stanley .
Hey, good morning, Adam just wonderful.
I wanted to follow up on rods.
<unk> about production disruption because the the guide for down 1% does seem it seems.
Surprising to some people given if you look at like the PMI.
Shipping index back to pre Covid levels in terms of you know.
Implying logistics.
Or taking down supply because they they have seen that kind of just in case.
Channel buildup is kind of running its course.
So you are highlighting a couple of companies and I respect that there's still some choppiness, but.
It seems like you're you're implying that production disruption in 2023.
Yes, worse, I mean, you're implying that headwinds right, you're implying gets worse than in 2022 helped me understand that because that's a pretty weak comp.
Pretty sure of how bad things were last year.
Yes, Adam listen as we've talked about in the past when we provide our guidance and build our forecast it's off customer schedules and when you look at the nature of our business, especially our.
Our Sps business, where on one in every 333 and a half vehicles globally. So we get a very good view to the underlying market. We also given the nature of our Es UX business.
Get very a very good view to what's going on from an overall semiconductor availability and supply chain standpoint, and I think when you look at the semiconductor challenges.
As they've evolved from 'twenty, one 2021 to 2022 and 2022 to 2023, it's really much more focused on rather than a general supply constraint standpoint, us specific suppliers, who are causing constraints.
And we expect that to continue to continue into 2023. It certainly was the case in 2022 and those two factors are effectively they are impacting our overall outlook for the full year, which again as Joe said in the past is based on the customer schedules that.
We received.
Sure.
Alright, I appreciate that and just a follow up.
Imitation is the ultimate form of flattery Qualcomm wants.
And on the software defined and kind of.
The kinds of products Youre doing.
Safe and connected mobile I wants to compete with you.
Recall used to quote at 70% type of win rate and <unk>.
As an ASU broadly I think that sounds familiar right.
I always felt that was a bit too high.
So kind of a high watermark, but how has that trended in recent quarters now that you're seeing.
Competition may be creeping in on a forward. Thanks, Yeah I think.
It depends on on your baseline and what comparison you are trying to make whether it's a full system solution a platform solution or it's a unique to our perception system. As an example, our radar solution.
Obviously eight apps as a pet.
Penetration is accelerated and continued to increase over the last over the last several years I haven't seen or we haven't done the math on the pursuit relative to win I would say it was it's still relatively high on a platform basis I would say, we're very focused on.
On investing our efforts in those areas, where we have a high likelihood of winning so based on that sort of approach.
Pursuing aaas platforms I would say it would continue to be relatively high im not sure if it's quite at 70%.
But we still continue to have a very strong position and again, it's reflected in our bookings in 2022, our outlook and bookings for 2023.
And our revenue growth relative to market and.
I mentioned in my comments the Nextgen Gen succeed.
That form which will launch in 2025 or be available for <unk> in 2025.
<unk> already had one customer award it's an open system. It provides its module is it provides a lot of flexibility for ourselves.
As well as for our OEM customers and importantly, it is very cost effective so.
So we believe we're going to continue to see significant demand.
Thanks, Kevin So you guys on Valentine's day will bring the chocolate.
Let's see.
We'll hear next from John Murphy from Bank of America.
Good morning, guys.
Theres been a lot of price action recently by some of your customers on Evs that are probably going to drive significantly higher volume relative to initial expectations. I'm. Just curious how you think about that and what kind of opportunity there might be here in 2023.
Well listen we've been talking about high voltage electrification and what we've been doing from a portfolio standpoint bookings continued to be strong right. Obviously, we had another another year of record bookings and it wouldn't surprise us if we had 2023.
Even stronger bookings from our high voltage electrification standpoint.
So, we'll see where we're optimistic having said that as we've said in the past.
We're very very focused on pursuing opportunities with those Oems.
Who have battery electric vehicle platforms that they're taking globally that we have a high confidence level that they are going to.
Meet their schedules.
<unk>.
Effectively generates significant revenues over a over a platform.
Which ends up.
Better financial proposition for for ourselves and obviously lower risk.
John It's Joe I'll just add.
We've talked a lot about being north of a 30% growth rate in high voltage <unk>.
2023 as well.
North of 30% based on the customer schedules, we're seeing today.
And obviously you got additional opportunities as we add in the <unk> portfolio. So continue to see a very strong with schedules today to extent the price actions.
Sort of increase the mix of increase the take rates on that technology, I think will be very well positioned to take advantage of it.
Got you okay.
If you look at stuff like the model three and why I mean, it's kind of the here and now.
Given the price cuts I mean, these guys might be doing another 500000 units relative to expectations. I mean are you thinking.
That's possible in that and that's in your numbers at this point.
And actually the Chinese manufacturers, while I mean, there is a real heavy stuff I mean, we're not.
Talking about like three to five years on backlogs were talking about like hundreds of thousands if not millions more evs this year than I expected.
Yes, I think as you heard me, saying Jos in the past, we our forecast is based on customer schedules. So to the extent those schedules go up we will benefit from a revenue standpoint.
But when we pursue business when we put initial capacity into the ground. Obviously there is some flexibility is based on what we see from a customer standpoint customer schedule standpoint, and again, so if we see a big a big uptick in demand where players like Tesla and others are volume will scale with them.
And to date, Jonathan those actions have happened in the last couple of weeks, we have not seen big schedule moves yet not saying they won't happen but.
Okay, you'll have haven't seen material changes at this point okay.
And then just one quick follow up on the bridge I mean on the recoveries I mean, it does seem like some of the automakers have almost a little bit rewards that recoveries were a little bit high last year, whether it be for commercial sediments around volatility and schedules are raj.
I mean, what is your kind of expectation there in these customer discussions this year do you expect them to be a little bit tougher.
Tougher I mean, they were I wouldnt call them generous last year, but they were more realistic last year then.
And that in decades, do you think theyre going to be a little bit tougher this year and there might be some reversal. There I mean, what are those discussions like at the moment.
John as you said there are always tough its an industry with a tough pricing environment.
All the time, so those conversations are never easy.
And what we've done in the past and what we are really focused on continuing to do is to bring value to our customers one by keeping them connected.
And then to providing them with <unk>.
Solutions that solve their toughest challenges that are cost effective solutions and to the extent you are able to do both of those.
I would say those conversations are less difficult, but theyre never not difficult.
And.
Our outlook of the team did a great job Joe mentioned the team did an outstanding job.
In 2022, both having those discussions and negotiating those.
Those price increases and at the same time.
Delivering record bookings and that's a process, we'll continue to go through in 2023.
Great. Thank you very much guys.
Thanks, John .
Emmanuel Rosner from Deutsche Bank. Your line is open.
Thank you very much good morning.
Hi, Emmanuel.
Yes.
Couple of questions of margin on margins if I can.
First one for the quarter.
I think the margins were.
Quite a bit softer than we had anticipated, especially in light of very.
Solid.
Revenue outcome for the quarter could you. Please go back over some of their factories or business I, obviously heard you speak.
Covid disruption.
China anything else and specifically within <unk> in the U S. It seems to be quite pronounced.
Okay.
Yes, Joe Youre right I mean, we continue to deliver on the top line and I think this speaks to sort of a little bit of a around rods question. It just continues to be a very disruptive environment right so where.
Working through China, 20, plus million dollars of of impacts in the very near end of the quarter.
From both customer shutdowns as well as just the us.
Kevin mentioned.
90% of our staff of 30000 people coming out with Covid in the fourth quarter. So you know.
It was a very disrupted production environment, we saw some of that in the U S as well as customers wrestle through the through the supply chain challenges.
And we still got a lot of the stop start production.
So that combined with sort of the FX impact.
Call that I think I've mentioned 20 basis points call it about $40 million in the quarter.
And again some of those disruptions fall heavily into into <unk>. So I think to some extent it's more than the same I think I think what you saw us be able to do this year, which to some extent compounds. The disruption cost perspective, we were able to come back.
<unk> run over time on the business as hard in.
Pushed the revenue out at the end of the day, our most of the revenue out at the end of the day, but it's just a inefficient operating environment and that's as part of the guide.
Again, north of $300 million of disruption costs in 2022.
We laughed about.
We certainly don't think it will be as bad next year right. We were hoping for sequential improvement, we're seeing sequential improvement, but we did leave a $180 million of COVID-19 disruption costs in the P&L.
For 2023, just to give ourselves some room to continue to deal with this.
Okay. That's helpful color and then I guess as a follow up I think one of the.
Wages I think encourages to locate it.
Yes.
Whereas maybe in the compared to the performance versus the second half of 2022 to the extent that.
Some of the price recoveries in commercial agreement you had with customers, where you're more in the second half of 2022 I guess, what you feel is sort of like a good clean base in terms of second half margin.
For which to build off as we try to understand your 2023, alright guidance and what would sort of the puts and takes versus past.
Yes, I think Thats a good question and we spend time looking at that I think the way to think about it we talked about originally.
10 to 10, and a half and then with some of the FX nine five to 10 so.
So we think about probably 10 as a good jumping off point.
I think what you see with <unk>.
You can sort of and I think we've sort of captured it quite honestly within the range of the guide right.
If you look at some of the benefits of pricing.
You look at the reduction in the Covid supply chain cost you can get up to sort of that call that that 10 710 eight level. You then work down some of the FX and.
Some of the volume changes, which is really how we sort of think about that sort of mid tens that 10, five. So I think we're sort of there I think 10 sort of ended at the right jumping off point.
And we sort of build back from from there and I think we have it covered generally speaking within the guide.
Okay. Thank you very much.
Thanks.
Yes.
We'll hear next from Thomas <unk> from Citi.
Great. Thanks, Good morning, everyone. Just two questions for you one Bill I was hoping you could share expectations for margin cadence throughout the year and.
Secondly on active safety, maybe talk about what you're expecting this year for both top line growth as well as if you can talk about booking expectations. After a very strong 2022.
Yes, let me start with bookings and I'll work my way down as Kevin mentioned.
We think it was in Kevin's presentation.
We see line of sight to call it another $32 million above 32 billion of bookings in.
And 2023.
I would say general mix should be generally consistent with where 2022.
They always can be a little lumpy, but continue to expect growth in SBA and active safety, obviously in high voltage, but I think that profile sort of the current profile is probably a pretty good proxy again bookings are lumpy they always have been but.
That I think is probably the best proxy, we did want to provide a target obviously for.
For next year, which is something new but we've got a lot of confidence in what we're seeing from a segment perspective.
<unk>.
If you want to talk sort of growth of growth over market.
Full year I would have asked UX at around 12% growth over market full year.
At about 8% growth over market full year.
And then I'll give you I'm not going to go quarter by quarter, obviously on the margin cadence, but if you think about sort of full year margins by segment.
And again, you got to work through the disruption cost and some of the FX, we've talked about but I would think about Sps in that 11% 12% range.
And I ask you act in that 8% to 9% range full year Oi margin.
Terrific. That's all very helpful. Thanks, so much.
Okay.
Yeah.
As a reminder, this with Barclays.
Followed by that does it.
Please limit your question has been answered you mean remove yourself from the queue by pressing star followed by the digit to move.
I move next to Mark Delaney from Goldman Sachs.
Yes, hi, good morning, Thank you for taking the questions first on margins to the extent the stop start schedule volatility in the input cost inflation environment were to moderate or do you think after it could get back into that historical target of 12% to 14% type EBIT margins or given how pricing discussions with customers have evolve.
In the last few years with more things now on pass through CTG. Thanks to those lower cost may actually get passed on to the Oems.
Listen I think.
I think if the disruptions and.
The significant material inflation that's occurred over the last couple of years goes away.
We definitely get back towards our historical margin trajectory was and then when you overlay what we've done from a portfolio standpoint, and where we sit whether that's mix or more high voltage electrification more advanced Adas solutions, the benefits of wind river and enter cable actually have the ability to go above that.
It's a combination of both.
That's helpful. Thanks. My second question was on Wind River, you spoke a bit on this already in the prepared remarks, but could you elaborate more specifically on what <unk> will do this year to help wind river have improved customer dialogue.
With the automotive.
The types of companies in particular.
Given all of that expertise and relationships with that industry.
Sure so.
In reality going back we signed a commercial agreement with twin river over a year ago.
And well over a year ago.
And in reality, our teams have been working closer together both in terms of developing the final product for automotive applications as well as in commercial discussions I'd say the track the traction we've hit over the last.
A quarter or so has hit a significant level at this point in time, so a number of introductions across the various regions.
As I mentioned in my prepared comments there is a.
Deep level of engagement with several Oems in every region at this point in time.
And we're very optimistic and very confident that youll see meaningful announcements in 2023 with respect to when rivers.
Penetration of the automotive space.
Thank you.
Yeah.
Well move next to Chris Mcnally from Evercore.
Thanks, So much team basically follow ups to what's been already asked.
On the on the Adas wins 20 20 billion.
Could you talk about just the diversification of some of the the tier twos I think historically.
You've been a majority and installer of one perception compute system, but obviously theres various out there 20.
<unk> 20 billion in such a big number it seems like Youll, probably winning business with multiple computer perception provider. So I just wanted to confirm that.
Yes, Chris just to be clear, our Adas business.
Got into kind of two.
Two buckets, one bucket is a platform solution.
<unk>.
Date has has traditionally been with.
The mobile AD vision solution, then there is another bucket, where our perception system <unk>.
Perception systems are integrated into an Adas solution.
In those particular cases, it could be a variety of vision providers in fact actually.
Is so it's a real mix the Gen. Six eight house platform is a platform that we've developed first we've developed to be vision agnostic. So Oems have the ability to select what vision provider and they would like to utilize.
For the overall platform.
And kind of answer your very helpful. Yes.
Yes.
That's great is it fair to put the bucket one bucket two is sort of 70 30.
Okay.
No I would say I would say, it's probably a little bit closer to 50 50.
I'd say 50 50, if you go back four years ago, we had.
We had roughly 14 Adas customers today, we have 21 ETS customers and that's the mix of growth in that platform solution as well as.
Providing a portion of the overall ETF solution to Oems.
Okay.
Super Helpful. And then just on the production that Youre question for Joe and then Theres going be a little bit of a nitpick.
Just can you remind us how you guide a global production is at a weighted average by your customers by your revenue one of the reasons, obviously minus one looks maybe low to what what we all think.
But when I look at also 2022, you call production, 4%, we look at the global average of six or weighted average of five so I just wanted to sort of understand if we get a three or 4% global production.
Am I able to flow through a fall.
Four 5% type.
Our revenue upside.
Yes, its weighted towards our production that basically means for us Chris high level, taking out Japan production basically in waiting it towards the markets, where we're strong we obviously don't do a lot on.
For Japanese Oems in Japan, so that.
Call that 20 plus million units right that we sort of wait wait away from that and Thats. The same we've been calculating at the same way for since the IPO for 11 years now.
Very consistent.
Okay.
Yes.
That's very helpful and I think that weight weighted number obviously is promote wet.
Suppliers, who we don't have the Japanese customers at the same weight. Okay. Thanks, so much team I appreciate it.
Thanks, Chris.
We'll hear next from David Kelley from Jefferies.
Hey, Good morning, guys also a couple of follow ups from my end and maybe starting with kind of the semiconductor discussion and impact on <unk> and UX.
Curious if youre seeing any signs of plateauing pricing, there or even potentially to take back some price from your suppliers.
Obviously timing is difficult to predict but given your traction in value add with customers is there may be in an emerging opportunity where you could see some sticky pass throughs for ASN UX as your own pricing starts to come down.
Yes, David.
So great question, I'd say with respect to.
The level of bookings we were awarded in 'twenty 'twenty. Two is we've been put in the position to have discussions about no price increases in some situations.
That's been effective I would say, we're not at a point, though where we're actually seeing year over year product productivity or lower.
Price increases from the semiconductor players, we will see how that plays out as.
Based on on volume outlook for automotive and the other places that those those players play but at this point in time.
Not seeing it and it's not in our numbers.
Yes.
Okay got it thank you and a quick follow up on S&P as the product line margin expansion.
Referenced I think you mentioned kind of in high growth areas.
Confirm that that's high voltage or or maybe it's kind of non autos or Cvs or maybe just give us a bit more color on some of the specific product lines or where youre seeing some nice movement.
Yes, I would sort of characterize David is on the <unk>.
Margin profile in that business overall is very strong but.
High voltage.
Jason market, particularly commercial vehicle accretive.
But also we.
We're very strong if you think about engineered components right.
The connected the interconnect type business.
Those that business just has traditionally a very strong margin profile in <unk>.
Certainly scale as well with with volume and is accretive with additional volume. So it's really a it's a pretty balanced portfolio in that business.
Okay got it thanks guys.
Thanks, David.
Yes.
Operator.
At this time, we only have time for one more question, we'll move to James pick a rally with BNP Paribas.
Hi, guys.
Just a quick one on the.
Key business vertical growth, so active safety user experience high voltage electrification non auto can you can you share what the what the growth rate expectations are for this year within the guide.
Yeah sure no generally very consistent James I mentioned high voltage to John we still continue to see that.
North of 30%.
Excluding inter cable.
As we mentioned at the time of the deal Intercable obviously.
Obviously, the M&A deals arent in the organic growth numbers at this point, but intercable in and of itself.
<unk>, well above 30% per year, so consistent with our high voltage business.
We're active we're actually seeing some active safety.
The acceleration growth this year it had been in call. It the low to mid Twenty's over the last couple of years.
We're actually seeing that accelerate close to 30% in 2023.
As we launched to Kevin's comments, just launched a number of new.
Number of new number.
The new full system so.
I think those we've talked in the past about what the CAGR is the multiyear care. So those product lines are sort of high 20% to 30% for active safety north of 30% for high voltage.
Those continue to be.
That continues to be the case.
<unk>, we've talked about it.
User experience, we are going through a product transition there.
We expect that business to grow sort of high or high single digits. This year.
As we move from.
Legacy systems to these more robust integrated cockpit solutions and eventually we see infotainment being sort of up integrated into the SBA systems, which is what we're working on with our customers now so.
But again continue to grow above market and its.
It's an important part of the business, but obviously the higher growth coming from active safety and high voltage.
Got it that's Super helpful. And then just with respect to the $135 million and lower disruption costs for this year.
Can you confirm what that overall cumulative impact is entering this year I believe the number was.
$295 million with the expectation as of last quarter. It seems as though the fourth quarter incurred some additional challenges tied to China. So.
Yes, if you could share maybe the timeline to fully recapture this solid bucket what that is.
Great.
Yes, I wish I wish I could give you the timeline of recapture we'd have 180 yen.
We finished last year, a little over $300 million, so thats whats coming down from where taken a 135 down to the 180.
Okay.
Over time this will.
These are these cost challenges are fully addressable, yes, no listen I'd Rod Rod and his comment was correct right. We said at the beginning we think 4% to six quarters from the beginning of 2023, we're going down over the next four quarters that $135 million.
We're working hard to get them down again.
It's things like premium freight is things like plant downtime that are either either COVID-19 or supply chain disruption related.
We're seeing sequential improvement, but expect to continue to see sequential improvement.
But it's what you saw in the fourth quarter. This year right. There are things that pop up that should make it an expensive operating environment.
I think it's important to note setting aside fourth quarter Covid. When you think about car and inputs to a car supply chain disruption can start with just.
A shortage of one part.
And the issues related to excess labor premium shipments.
Manufacturing loss of manufacturing productivity and that's all it takes and there is a ripple effect and those dollars obviously are those inefficiencies and costs.
Mostly add up so.
Although it does to Joe's point it overall.
Apply chain situation is improving there are still continue to be some unique situations.
We're outstanding or occurred in 2022 that we're going to continue in 2023 was specific specific semiconductor suppliers and then periodically there are surprises.
That affect the industry the players like ourselves need to react to and our real focus has been how do we make sure we keep our customers connected so we've consciously made the decision to absorb a portion of that cost near term go back to the customer for <unk>.
Leaf once we've once we address the issue and we've kept them connected and we think that's translated into the <unk>.
Frankly, the bookings that we've had in 2022 weeks that Kevin in 2023, and quite frankly their posture on price recovers.
So.
It's tough to predict thank you.
Thanks, Jeff Thanks.
Thanks.
That does conclude the Q&A portion of today's call at this time I would like to hand, the conference back over to Kevin for any additional or closing remarks, alright. Thanks.
Thanks, operator, and thanks, everybody for your participation today take care and we'll see you on the 14th.
That does conclude today's teleconference. We thank you all for your participation.
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