Q1 2023 Aptiv PLC Earnings Call

Speaker 1: Oh.

Speaker 2: We are about to begin.

Speaker 2: Good day and welcome to the Aptiv Q1 2023 earnings call. Today's conference is due recorded. At this time, I would like to turn the conference over to Jane Wu, Vice President Investor Relations and Corporate Development. Please go ahead.

Speaker 2: Thank you, Ally. Good morning, and thank you for joining AFTIS first quarter 2023 earnings conference call.

Speaker 2: The press release and related tables, along with the slide presentation, can be found on the investor relations portion of our website at active.com.

Speaker 3: Today's review of our financials exclude amortization, restructuring, and other special items and will address the continuing operations of ACTIV.

Speaker 3: The reconciliations between GAAP and non-GAAP measures for our first quarter financials, as well as our full year 2023 outlook, are included at the back of the slide presentation and the earnings press release. Thank you every one for your support, stay curious,, related to the

Speaker 3: During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of the future of financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings.

Speaker 3: Joining us today will be Kevin Clark, Aptis Chairman and CEO , and Joe Massaro, CFO and Senior Vice President of Business Operations.

Speaker 3: 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.

Speaker 4: Thanks Jane and thanks everyone for joining us this morning. Beginning on slide three, we had a strong start to the year, showcasing our ability to continue to execute in a dynamic macro environment.

Speaker 4: Touching on a few of the highlights, revenue increased 15% to $4.8 billion, a new record for quarterly revenue representing six points of growth over underlying vehicle production supported by strengths across all regions and product lines, particularly in our ASUX segment.

Speaker 4: Operating income and earnings per share total 437 million in 91 cents respectively, reflecting solid flow through unvolume growth and contributions from our recent acquisitions, win, river, and ?dale, USA Ward.

Speaker 4: partially offset by periodic supply chain disruptions, and unfavorable foreign exchange and commodity prices.

Speaker 4: New business bookings total 13.9 billion driven by a record level of customer awards for our smart vehicle architecture and high voltage solutions.

Speaker 4: Further demonstrating our strategic value to our customers as the industry accelerates towards the fully electrified software defined vehicle.

Speaker 4: while the overall macro-environment remains challenging, we're beginning to see supply chain improvements that are broadly in line with our expectations.

Speaker 4: Our 15% revenue growth in the first quarter was supported by a 9% increase in underlying global vehicle production.

Speaker 4: principally driven by stronger than forecasted customer schedules in North America and Europe .

Speaker 4: We continue to benefit from consumer demand for more feature rich, highly electrified vehicles.

Speaker 4: which could further accelerate with more stringing government regulations, such as a recent EPA proposal that would result in electric vehicles representing at least half of US car sales in 2030.

Speaker 4: Although supply chain issues persist, we're now seeing sequential improvements in the overall supply of semiconductors.

Speaker 4: which is translated in a more stable vehicle production schedule.

Speaker 4: While we work to position ourselves to benefit from these near and long-term tailwinds, we remain focused on optimizing our business foundation, ensuring that we have the right talent and operational footprint to execute on our current and future platforms.

Speaker 4: We continue to enhance our regional operating model and expand our global execution capabilities by rotating our engineering resources to our technology centers located in Indian Poland and establishing new engineering centers in Cairo, Egypt and Monterey, Mexico, which are emerging hubs for software talent.

Speaker 4: We also continue to address increasing material and labor inflation through supply chain resilience initiatives and the rotation of our manufacturing footprint to best cost locations.

Speaker 4: The majority of our direct material spend is now mapped in our digital network model, providing greater visibility into our global supply chain and enabling us to better predict and minimize the impact of supply constraints.

Speaker 4: In addition, our execution of strategic long-term agreements for select semiconductors has better positioned us to secure supply for the future.

Speaker 4: ensuring that we're aligned to our customers' product roadmaps, and solidifying our position as a reliable and trusted partner of choice.

Speaker 4: Lastly, we continue to shift manufacturing capacity with higher direct labor content to best cost countries or regions.

Speaker 4: and invest in high return production automation initiatives.

Speaker 4: All of which has enhanced our operating execution and positioned us well for commercial pursuits.

Speaker 5: Moving to slide five.

Speaker 4: The pace of our new business bookings is a true testament to the value that we bring to our customers.

Speaker 4: not just for the strength of our portfolio of advanced technologies, but also for a track record of strong execution.

Speaker 4: As mentioned, first quarter new business bookings total $13.9 billion, more than double last year's first quarter amount, and just under last year's record quarterly booking of $14.2 billion.

Speaker 4: Advanced safety and user experience bookings totaled $6.4 billion.

Speaker 4: Driven by 5 billion smart vehicle architecture bookings, which doubled our cumulative customer awards for SVA to a total of 10 billion over the last two years with eight different OEMs.

Speaker 4: And nearly one billion in active safety bookings, including global radar program with a Japan-based global OEM, and a program with GLE, which represents the seventh OEM to adopt APTIS 8-AS platform, leveraging our full system solutions to optimize 8-AS performance up to L2 plus. Signal and Power Solutions new business bookings totaled 7.5 billion, including a record 1.8 billion in bookings for high voltage electrification solutions.

Speaker 4: comprise of awards from both traditional and new battery electric field Williams across our high voltage electrical architecture and engineered components product line. We continue to see a very balanced bookings profile underscoring the strength of our high voltage portfolio and providing a clear line of sight to exceed last year's 4.5 billion in high voltage business awards. Overall the pace of our strategic engagement with customers is only accelerating and we remain highly confident.

Speaker 4: achieving our target of $32 billion in new business awards for the full year. Further validations of the value we deliver as the only provider of end-to-end full system solutions.

Speaker 4: During the slide 6 to review our Advanced Safety and User Experience segment highlights, in the first quarter, ASUX achieved record revenue of $1.4 billion, growing 9 points above underlying vehicle production. Growth in active safety was strong across all regions as production of our Level 2 and 2-plus ADAS solutions continued to ramp, while user experience grew in line with the market, consistent with our expectations.

Speaker 4: As I mentioned, we are experiencing strong commercial momentum with our Smart Vehicle Architecture solution.

Speaker 4: The 5 billion of new business awards during the quarter includes a large zone control award with a major North American based global OEM and an additional award from a major European based global OEM for a central vehicle controller. Diving more deeply into our progress with Wind River, although the acquisition only closed at the end of last year, we've experienced an acceleration in customer engagement and potential revenue opportunities. In the last year, the per corn continuous financial analysis was successful despite scoring more without a data?. But in the public longer supporting a money fund we forgot. todas slaves mog? ?? wisdom » Estonteini »

Speaker 4: In February , we announced our early success leveraging Wind River software offerings.

Speaker 4: integrated into Afta's ADAS platform to support L2 Plus automation for the GLEE program I mentioned earlier.

Speaker 4: building off this early success in China, in March a major local Chinese OEM selected Aptiv and Wind River for a joint advanced development program to design their next generation vehicle architecture.

Speaker 4: Spanning the full suite of software and hardware solutions from both win-river and active.

Speaker 4: Outside of the automotive market, Wind River continues to expand its business across the other mission-critical industries it serves.

Speaker 4: aerospace and defense and telecom companies, for example, are relying on win-river solution to develop, deploy, operate, and service their software-defined products.

Speaker 4: And there's been a tremendous amount of commercial activity in these markets here today, including the expansion of Winrower's Edge software within several leading aerospace and defense customers for dozens of new programs.

Speaker 4: further establishing the company's leadership in the 5G landscape where powers the majority of 5G deployments with global operators. These Wind River offerings were also showcased at Mobile World Congress in Barcelona where Wind River successfully demonstrated how its studio platform is transforming the 5G in Oran space.

Speaker 4: We're confident that these strategic engagements will lead to additional customer awards in the months to come. Turning to the Signal Power Solutions segment on slide 7.

Speaker 4: We remain perfectly positioned to deliver next-gen vehicle architecture solutions that are optimized for weight, size, and total system cost, all the way from the grid to the vehicle.

Speaker 4: SPS growth of a market total 5% during the quarter supported by strong outgrowth in China of 13%, which is partially driven by increased demand for battery-electric vehicles and a 28% increase in high voltage revenues, reflected strong growth across all regions. The record 1.8 billion in high voltage clocking during the quarter.

Speaker 4: Included a $400 million dollar high voltage charging award with the North American base global OEM, which will be used across their best portfolio on platforms beginning to launch in early 2024.

Speaker 4: And our previously announced Power Electronics Award with an Integrated Battery Management System.

Speaker 4: spanning both hardware and software, demonstrating our ability to develop new products to further expand our competitive mode.

Speaker 4: Moving to our other key acquisition, Intertable Automotive.

Speaker 4: Strong growth in the quarter was driven by program launches with key European customers.

Speaker 4: In addition, Intercable booked 500 million in new business awards reflecting continued market demand and commercial traction with multiple OEMs.

Speaker 4: During the quarter, we've made significant progress expanding intercables operations in North American China, now adding manufacturing capacity in Mexico to more effectively serve North American customers.

Speaker 4: As the global technology leader in high voltage bus bars and interconnects, Intercables continue to develop and expand its product portfolio. Intercables recently won their first cell-to-cell connection system award with a German OEM marking the first time they brought their technology from outside.

Speaker 4: to inside the battery. Intertables focus on continuous product innovation combined with active support in expanding their global manufacturing capabilities.

Speaker 4: has increased our pipeline of new business opportunities by 40% compared to last year, with the funnel continuing to grow.

Speaker 4: pipeline of new business opportunities by 40% compared to last year, with the funnel continuing to grow. Moving to slide 8.

Speaker 4: Building on our full stack solution approach, we continue to see increased adoption of our smart vehicle architecture pool.

Speaker 4: approach, we continue to see increased adoption of our smart vehicle architectural platform.

Speaker 4: As already highlighted, we have now successfully transitioned from the introduction of smart vehicle compute as a concept back in 2017 to 10 billion in cumulative SVA bookings today.

Speaker 4: And the accelerating demand for battery electric vehicles is providing a further catalyst for OEMs to take a clean sheet approach to vehicle architecture.

Speaker 4: Today, we've completed multiple advanced development programs for our smart people solution, and many of these programs have translated into new business awards.

Speaker 4: Successfully validating that SVA can reduce complexity, improve scalability, and unlock new software-enabled functionality, while lowering the total system cost of the vehicle.

Speaker 4: With the addition of WinRever, we're now seeing increased interest in app to providing a full system solution for both hardware and software from our customers.

Speaker 4: The industry is recognizing that the underlying software architecture of the vehicle must be modernized alongside the hardware architecture.

Speaker 4: in order to unlock the full value of the car of the future.

Speaker 4: This involves truly up integrating and serverizing the compute platform while addressing the demands of safety critical real-time applications.

Speaker 4: All of which are SCA solution, including Winnerberg's cloud enabled software platform, can deliver.

Speaker 4: We're now engaged in discussions with a number of OEMs around the world regarding the combined active win-river solution.

Speaker 4: Particularly in China, where customers move faster and have more quickly embraced what one river can enable in the software to find vehicle.

Speaker 4: The automotive industry also needs to adopt a true DevOps approach in order to take full advantage of this new software hardware architecture paradigm, creating new business models enabled by full lifecycle management.

Speaker 4: which will lead a faster speed to market and increase flexibility while at the same time reducing software development, deployment, and warranty costs for OEM customers. Before I turn the call over to Joe, I want to take a minute on slide 9 to reiterate how active

Speaker 4: is uniquely positioned to create long-term value. Our portfolio of advanced technologies enable optimized, full system solutions that improve performance, that lower cost, and accelerate the path of the fully-electrified software-defined vehicle. Executing our strategy has positioned us.

Speaker 4: to further leverage the accelerating safe, green and connected mega trends. And as a result, active is uniquely positioned to capitalize on opportunities in both the automotive and adjacent markets. As we've shown in our first quarter results, we're solidly on track to meet our 2023 commitments.

Speaker 4: and well on our way to delivering on our 2025 financial targets and our perfectly positioned to further expand our competitive mode and deliver continued outperformance as a fast-growing more profitable business. With that, I'll now turn the call over to Joe to go through the numbers to more detail. Thank you.

Speaker 6: Thanks, Kevin, and good morning, everyone. Starting on slide 10.

Speaker 6: Aptiv delivered strong financial results in the first quarter, reflecting robust execution across both segments and sequential improvement in the supply chain, although disruptions still persist.

Speaker 6: Revenues were up 15% to a record $4.8 billion or 6% of underlying vehicle production without growth across all regions and strength in ASUX.

Speaker 6: The growth and reviuical production was driven by active safety and high voltage launches in China and Europe . But with America was negatively impacted by program timing and acute supply chain constraints with certain large North American customers.

Speaker 6: which are not expected to carry over to the remainder of the year. Note that our growth over vehicle production excludes the impact of acquisitions.

Speaker 6: Adjusted EBITDA and operating income were $594 million and $437 million respectively, reflecting flow-through on increased volumes at roughly 30%.

Speaker 6: higher manufacturing and material performance, which offset an $80 million increase in labor costs in the quarter, and FX in commodities that negatively impacted OI margins by 100 basis points.

Speaker 6: primarily due to a stronger Mexican peso and weak-garare in B. And as Kevin noted, both Wind River and Intercable posted strong results for the core in line with our expectations. Wind River saw strong growth in both the telecom and AMDN markets.

Speaker 6: And although that business may be lumpy on a quarterly basis, we remain on track for strong, full-year growth.

Speaker 6: Earnings per share in the quarter were 91 cents, an increase of 44% from the prior year. Due to higher operating income, partially upset by higher tax expense and equity losses diagnostic.

Speaker 6: Operating cash was an outflow of $9 million, which was $193 million above the same period last year, primarily a result of lower year-year working capital investors during the quarter. Capital expenditures were $269 million in line with our expectations.

Speaker 6: support launch and booking activity. And lastly, we completed $70 million in share of purchases in the quarter. Looking at the first quarter revenues on slide 11, our record revenue of $4.8 million reflects growth across all regions.

Speaker 6: driven by the ramp up in key product lines and approximately $180 million from our recent acquisitions. That price and the impact of commodities were slight positive in the quarter offset by the negative impact of FX headwinds.

Speaker 6: From a regional perspective, North American revenues were up 14% or 4% above market. Adjusted growth was driven by increases in active safety and a continued ramp up of high voltage while negatively impacted by the program timing and supply chain constraints I noted earlier.

Speaker 6: In Europe , revenues increased by 24 percent as volumes lacked the prior impact of the Ukraine-Russia war and active safety programs continue to scale.

Speaker 6: In China, revenues grew 10 points over market.

Speaker 6: driven in part by growth in high voltage as demand for battery electric vehicles remains strong and active safety up over 30% in the quarter.

Speaker 6: by growth in high voltage as demand for battery electric vehicles remains strong and active safety up over 30% in a quarter. Coming to the segments on the next slide.

Speaker 6: Advanced safety and user experience revenues rose 18% in the quarter or 9.5% of growth over underlying vehicle production.

Speaker 6: The segment adjusted operating income was $63 million. Up $47 million year or a 310 basis point improvement in margins.

Speaker 6: as a result of strong flow through on incremental volume and higher material and manufacturing performance.

Speaker 6: So you go and power revenues rose 14% in the period for five points above market.

Speaker 6: Segment operating income total $374 million in the quarter, a 90 basis point margin improvement, despite the margin rate headwinds from FX and from moderns.

Speaker 6: operating income total $374 million in the quarter, a 90 basis point margin improvement, despite the margin rate headwinds from FX and Commoders. Turned by strong flow through on incremental volume.

Speaker 6: lower COVID and supply chain costs of $30 million, and material and manufacturing performance improvements. Turning to slide 13 and our 2023 macro outlook.

Speaker 6: We continue to believe that we have appropriately reflected the current market dynamics and our guidance for full year 2023, which reflects approximately 85 million units of global vehicle production.

Speaker 6: At Discussed during our prior earnings call, we expect sequential improvement in the supply chain through the year, but ongoing supply chain disruptions and macro challenges are impacting overall customer production levels.

Speaker 6: Turning your full year outlook on the next slide.

Speaker 6: As noted, our Q1 results were in line with our expectations and accordingly our full year financial outlook is unchanged from the guidance provided last quarter.

Speaker 6: We continue to expect revenue in the range of $18.7 billion to $19.3 billion, up 8% on the midpoint compared to prior year. EBITA operating income of approximately $2.7 billion and $2 billion at the midpoints respectively, and earnings per share of $4.25.

Speaker 6: Despite near-term concerns about the broader macro environment, we remain confident that we are well positioned to deliver market outgrowth in a range of 8 to 10%.

Speaker 6: Turning to the next slide, our strong outgrowth is supported by several key product lines.

Speaker 6: each of which are well aligned with the accelerating megatrends. Starting with our active safety business.

Speaker 6: Despite supply chain disruptions, level 2 and 2-plus platforms are continuing to scale, driving 30% adjusted growth in 2023.

Speaker 6: We also continue to make meaningful investments in our high voltage electrification portfolio further enabling APNIC to provide the power and data infrastructure solutions required for the next-gen vehicle architectures.

Speaker 6: We expect our high voltage product line to grow over 30% in 2023, driven by our strong legacy portfolio, and then further benefiting from inter-table automotive's differentiated modular bus bars and high voltage interconnects. Lastly, our smart vehicle compute and software product line.

Speaker 6: which we highlighted during our Capital Markets Day, is expected to grow 20% this year on a pro forma basis.

Speaker 6: This largely reflects Wind River's already strong growth in middleware and DevOps outside of the automotive industry.

Speaker 4: With that, I'd like to hand the call back to Kevin for his closing remarks. Thanks, Joe. I'll wrap up on slide 16 before opening up the line for questions.

Speaker 4: As I mentioned, 2023 is off to a great start with customer markets, supply chain tailwinds, all contributing to our strong first quarter performance. Customer engagement for APTA's SVA solutions and wind river software offerings are incredibly strong. As we continue to deliver value by providing optimized full system solutions.

Speaker 4: with increased performance at lower cost. As expected, we've seen sequential improvements in the supply of constrained parts resulting in fewer production disruptions.

Speaker 4: And we continue to optimize our cost structure to improve our operational resiliency.

Speaker 4: That being said, we remain laser focused on mitigating the impact of persistent macro challenges, including ongoing material and labor inflation, as well as the periodic supply chain disruptions. We remain laser focused on mitigating the impact of persistent macro challenges, including

Speaker 4: These are focused on mitigating the impact of persistent macro challenges, including ongoing material and labor inflation, as well as a periodic supply chain disruption. In summary,

Speaker 4: We're experiencing tremendous commercial momentum, and we've never been more confident in our ability to execute our strategy, deliver on our commitments, and maintain our track record of outperformance. All of which will drive sustainable value creation.

Speaker 4: experiencing tremendous commercial momentum and we've never been more confident in our ability to execute our strategy, deliver on our commitments and maintain our track record of outperformance, all of which will drive sustainable value creation for our shareholders.

Speaker 2: Operator, let's now open up the line for questions. Of course, thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is released to allow your signal to reach our equipment.

Speaker 2: We ask that you do limit yourself to one question and one follow-up question. As a reminder, it is star one. If you like that's a good question. We'll pause just for a brief moment to allow everyone an opportunity to signal.

Speaker 4: And we'll go ahead and take our first question from Chris McNally with Evercore. Please go ahead. Good morning. Thanks, team. So two quick questions on sort of Auto 1.0. So I guess the first, if we start with the obvious on production.

Speaker 4: The slide, Joe, you call it an in-line quarter, but I think we're all starting to see better production Q1, the schedules for Europe , full year. So I think the main question is, your minus one goal of production, are you seeing something in your call-offs that are quite different than sort of the L&C, IHS, and the other ones

Speaker 4: four to five percent or Joe is it just too early in the year to update that and you'll have more visibility maybe in the middle of the year. Yeah I think it's the latter Chris and the schedules were in line with what we expected for the most part in Q1 as I said in North America we did have.

Speaker 6: a couple of OEs that got impacted by supply chain constraints not related to us. So we weren't the constraint, but we were obviously impacted. They didn't build as many vehicles as they thought, but again overall I'd say in line. And I think that generally speaking an in line quarter, we continue to be tied out to customer schedules in Q2. Understand there's some optimism out there in the back half of the year, but our view is it's a little earlier.

Speaker 7: which is giving us a little bit of that confidence just on yours specifically.

Speaker 6: Yeah, I would say Europe has progressively gotten, I would say from a customer perspective and what we're seeing on the ground, you know, sentiment has been improving since the late fall of last year and I think that continues. Again, a little for us, a little too early to put it into the numbers.

Speaker 7: obviously a big number for SBA. Does that have any negative impact to the guys? You know, we're prior expectations. Sometimes there's engineering expense that falls when orders are this big, just as you can comment on that. Thank you.

Speaker 4: You know maybe I'll take that Chris. I think just given the nature of the strategic nature of those SVA programs the bulk of that activity has been preceded with you know advanced development programs so there's very clear line of sight as it relates to investment required in timing of that investment.

Speaker 4: that's obviously incorporated into the outlook for this year as well as beyond 2023.

Speaker 4: operated into the outlook for this year as well as beyond 2023. Thanks so much.

Speaker 4: We'll go ahead and move on to our next question from John Murphy with Bank of America. Please go ahead. Good morning, guys. A first question around the price cuts that are going on in EVs, both in China and the U.S. to a lesser extent and Europe also to a lesser extent.

Speaker 8: What could that mean for volumes for EVs for you? Kevin, I know with Wind River and SVA, there's kind of a view of sort of the full lifecycle management. It seems like there's a developing strategy of lower margin at the front end on the vehicle and higher margin or profit over time from the lifetime of the vehicle. How could those SVA?

Speaker 4: you should see the opportunity for more pull through, more sales, more retail demand. I'd say near term we haven't seen much of a change but having said that you know Joe walked you through the numbers. I talked about the bookings. We see tremendous amount of demand for...

Speaker 4: vehicle electrification that we obviously benefit from. As it relates to SVA, both the hardware solution as well as the software solution, really it's an effort from an OEM standpoint to enable ongoing revenue opportunities. And I'm not sure any of them have have...

Speaker 4: John concluded that upfront, you know profit on the vehicle will be less. I think the real focus is on how do they drive efficiency as it relates to designing, engineering, manufacturing and ultimately delivering a vehicle and then how can they on an ongoing basis either

Speaker 4: address issues that minimize warranty costs as well as to provide revenue, ongoing revenue opportunities with enhanced ADAS solutions, enhanced user experience opportunities, opportunities on the battery as it relates to increasing battery life or

Speaker 4: range. So it's really that end game that's really driving the demand. And I think given what the industry's gone through over the last couple of years as it relates to heading towards software-defined vehicles, given the challenge associated with that, I think there's been a lot of learnings and I think as a result there we've been involved.

Speaker 8: We might start, start talking about global production, and you might start talking about, you know, sub or how much of your revenue could be, you know, the on point of sale that would be much more profitable over time. Yeah, you know, I don't have a specific number of others saying it's big, to the extent we have solutions that...

Speaker 4: its user experience. So to the extent we're creating revenue opportunities for our customers.

Speaker 4: The size of the market increases and there's an opportunity for us to benefit in that increased market.

Speaker 4: market increases and there's an opportunity for us to benefit in that increased market. Great, thank you very much.

Speaker 2: Our next question will come from Rob Lash with Wolf Research. Please go ahead.

Speaker 7: Good morning everybody. Hey Rod. I wanted to ask first about the numbers. This quarter you achieved 15% organic growth. That's 625 million. You mentioned, Joe, that you're achieving the 30% conversion. So that would be about 180 year over year.

Speaker 7: I see the 113 million of ebibic growth, and you mentioned manufacturing and productivity was kind of a wash. It sounds like effects and commodities might have been a 50 million hour drag, but wasn't there some benefit from the pricing that you took in the middle of last year or maybe no. I'm not seeing it in the growth over market in the quarter. So

Speaker 6: Yeah, it was a slight benefit Rod, but net price and commodities basically are netting out to what I'd call a slight benefit on the top line. And to your point, the

Speaker 6: on the top line, there actually a slight negative on the bottom line, so from an ally perspective.

Speaker 6: Again, that's what drove, if you really think about it, and it was in the prepared comments, the 100 basis point margin impact of FX is in part driven by top line, you know, the

Speaker 6: going one way, a lie going the other way on the commodity side of things. So I think there's a little bit of mix there. But I think the big piece is, if you look at it,

Speaker 6: you know FX up particularly on the RMB in the Mexico peso total FX impact is about sixty five million dollars in the quarter so just think about you know incremental revenue flowing strongly I mean that at least in our view that's sort of you know

Speaker 6: came out sort of in total where we were expecting, but the incremental volume or the vault flow through on any additional volume really got taken up by the FX impact, particularly you know the peso for us which is isn't usually an impact but it was particularly strong. It strengthened a lot this quarter. A lot of folks don't expect that to continue but that was that was certainly a you know meaningful number of the quarter.

Speaker 7: for your companies in the industry with Tesla being your fifth largest customer and

Speaker 7: Gilly now, and I was hoping you might be able to address this phenomenon of the Chinese starting to export a lot more and whether you think that that actually is something that could move the needle for active over time.

Speaker 6: Yeah Rod, from an FX perspective, haven't changed our assumptions from the start of the year. So the peso's in at 2050, RMB's a little under seven. Obviously I think just given the volatility in those markets, for us we'll…

Speaker 6: You know at the mid-year point take a look at where we are and update those assumptions. But those and they're in the deck with the FX assumptions. They have not changed from the original guide. Sorry, no, that's great. Yeah, I think Rod just to add to that I think.

Speaker 4: light of or assuming rates stay where they are effectively as you fall out into the balance of the year sequentially it should be less of a headwind across our business.

Speaker 4: So it should be in that positive there. Listen, as it relates to our exposure to, you referred to them, some of the growthier OEMs, we've made tremendous progress with players like Tesla. As you all know, we've grown with them across models across.

Speaker 4: I referenced Julie in the L2 plus ADAS program that we're awarded that will initially focus on the China market, but is intended to be used on vehicles that will be exported outside of China as well. So it.

Speaker 4: That is certainly an opportunity as you look at the major local OEMs in China based on our discussions. They are clearly focused on how do they begin to export vehicles outside of China. Their general view is they have technologies and they have quality.

Speaker 4: at a level where they can meet you know kind of consumer standards outside of the China market and you know provide themselves with additional opportunities for growth. So it certainly is an opportunity I'm not quite sure how large it is for us at this point in time but given the progress we've seen the locals make over the last three years.

Speaker 7: has been significant. I think it would be a fairly good opportunity. Just to clarify, Kevin, I know that the locals are like half of your China backlog. What percentage of your business?

Speaker 6: in China's account for by the local OEMs. Today from a revenue standpoint, it's about 40%, 35% to 40%. It's grown. If you go back to 2019, that number, we were 75% global, 25% local. And from a revenue perspective today, we sit at about 60, 40, global local, and bookings are about 50%.

Speaker 2: Thank you. Our next question comes from Adam Jonas with Morgan Stanley . Please go ahead. Thanks everybody. Hey guys, hey Kevin, it really seems...

Speaker 9: like the narrative around supply and demand for EVs has changed pretty markedly this year and from my read at least in kind of an adverse way. I mean when you hear Tesla talking about selling vehicles for no profit and you see the Ford Model E losing 60.

Speaker 9: 60 grand per car and names like Rivian, Lucid, and Fisk are really really struggling to kind of you know get by here. If Western OEM volumes end up being lower than expected...

Speaker 9: What would the impact be on Aptiv margins, medium term?

Speaker 4: Yeah, our high voltage margins mixed out, and if you were to focus on North America in Europe , are slightly higher than our overall SPS margins at this point in time. If you think about it, it's...

Speaker 4: It's engineered components from our connection business, cable management solutions from HellermannTyton, as well as bus parts from Intercable and wire harnesses. So it mixes out at slightly higher than our SPS margins.

Speaker 4: Our two biggest markets from a revenue standpoint today are Europe and China, then followed by North America I believe from a revenue standpoint, although they're all relatively close.

Speaker 4: It's relatively balanced. So maybe Joe can take a shot at it. North America is about 29% of high voltage volume in the year.

Speaker 9: You know, you'd call that to Kevin's point, North America slightly above SPS segment margins on a high voltage basis. I appreciate that and just as a follow-up going back to Rod's question about the Chinese OEMs again, they have a clear mandate from Beijing to accelerate exports into international markets like ASEAN.

Speaker 9: that folks like BYD and Jeeley are here to stay. But I'm thinking if there was a surprise, all else equal of those two names specifically.

Speaker 9: taking more share out of China, given where you are on those products today, would that represent a positive, negative, or neutral mixed shift for you?

Speaker 4: We're going to back. Yeah, the idea of Julie were to grow outside of the China market in a disproportionate way. What impact does that have on margins? I want to make sure I fully understand. Thank you. It would be positive.

Speaker 2: Thank you. Thank you. Thank you for it. And our next question will come from E. Time Shelley with City. Please go ahead.

Speaker 9: Great, thanks. Good morning everybody. Just two questions for me. First, maybe for Joe, can you just help us and just talk about how you expect just a cadence of margins for the business throughout the rest of the year? And second, maybe for Kevin, back on the bookings with Q1, can you just talk about how you expect to be a cadence of margins for the business throughout the year?

Speaker 4: I think the last five quarters are now running or averaging about $9 billion. Was Q1 another just lumpy quarter or is it a potential upside to 2023 bookings relative to your expectations? Matt Fingerti Maybe I'll take the first Joe for the second if that's okay. Listen, as Joe has always said, bookings are lumpy. I think when you

Speaker 4: especially when you factor in some of these smart vehicle architecture programs with OAM, they are significant programs that go across all vehicle lines over a number of years. So when we're awarded that business, I think you're going to see a disproportionate impact on bookings. Having said that, when you look at the underlying trend about domain consolidation and up integration,

Speaker 4: I think it's fair to expect you to tie the amount of our bookings to actually go up naturally, just given the nature of the products that we're selling.

Speaker 4: Hard for me right now to give you an exact hour amount, but we would expect that trend to continue. We'd say we have a high level of confidence in the $32 billion of bookings that we've communicated for this year. Is there an opportunity to beat that? Yeah, there is.

Speaker 6: quarterly cadence of margin.

Speaker 6: you know, we should be returning to what I'll call sort of that 2018-2019 our historical cadence, right, of

Speaker 6: just sort of the natural flow that's in the business. So Q1 will be weaker, will build up over the year, Q4 will be a stronger year, and will average to the full year margin. That's historically how the business behaves through 2020. And we've, and I realize we're not even quarterly guidance, but that's how we've talked about margins building up through the year. So I think just on reference points, you can sort of go back to those years. 2019, you got to.

Speaker 6: costs. We believe those are probably more weighted to the first half of the year as they roll out than the second half, just given the sequential improvement. And those costs were 50, a right round number is 50 million dollars in Q1, which is a 30 million dollar improvement year over year. So you got to make an assumption of how the 180 rolls out, but apart from that, I'd sort of go back to.

Speaker 6: how the business would flow sort of pre 2020. And I think we're getting may not be perfectly on that, but I think that's a good proxy. If that's helpful. Yeah, that's very helpful. Thank you.

Speaker 4: Our next question will come from Dan Levy with Barkley. Please go ahead. Hi, good morning. Thank you. Joe, want to start with just a follow-up on ETI's question there. And a bit more specific to ASU actually. If you just did roughly 4.5% margin.

Speaker 9: on those supply chain pressures dissipating over the year?

Speaker 6: Yeah, there's, there's, there's, I think it's a combination, right? There's the natural flow in the business. Q4 is much happier for ASU actually get those engineering credits. That's, you know, that's unrelated to COVID and unrelated supply chain disruption. That's my earlier comment on how the business flows. I do think it'd be low double digits in Q4. I think that's, you know, that's a reasonable proxy. I think it's a reasonable proxy.

Speaker 6: So you have the sequential improvements, you have the normal flow of the business, and then you're going to have volume growth. That business is going to grow throughout the...

Speaker 6: throughout the year. We've got some strong launches coming in in the second and third quarter. And the visibility on those recoveries, is that just based on historicals or, you know, you have a good sense with your customers that you'll get those recoveries? Yeah, I mean, when those are in, right? You've got a lot of them. We did a lot of it last year.

Speaker 9: And I wanted to follow up on something that everyone Between those assume that Alfred

Speaker 4: the prior line of questions on the EV peer plays. And I think one of your very large customers, their strategy clearly has been to reduce a tremendous amount of cost to unlock lower price points. So I just want to understand in an environment where.

Speaker 4: And I presume that's their strategy, but others will follow that strategy as well. In the environment where you have customers that are trying to cut costs out of their system as much as possible to unlock these lower price points, to what extent does that make it a tougher commercial environment for you or can you still hold firm on your margins?

Speaker 4: The result of that sort of situation and the result of customers thinking that way is we tend to get more content.

Speaker 4: We tend to get more of our own content which not only translates to higher revenues, it translates into higher margins.

Speaker 4: You know, and a great example, I think we've talked about this in the past. We've had a couple of OEMs come to us and asked us to take a look at their vehicle architecture kind of soup tenets, both low voltage as well as high voltage.

Speaker 4: come up with ideas where you know we can reduce weight mass and costs and there have been a number of situations where you know we've been able to reduce overall cost by 20 to 30 percent and we're able to do that you know saving the customer money while at the same time.

Speaker 4: enhancing our profitability. So those are situations that are really good for us. And as we evolve into the challenges that our customers are having with software, which we've talked about previously.

Speaker 4: In terms of that debate about insourcing versus outsourcing and the fact that we're having more of our customers come to us to provide solutions.

Speaker 4: When you think about when river, when you think about when river studio, when you think about what we're doing with the overall software stack, those are all things intended to drive flexibility and reduce cost.

Speaker 4: and you know we fully understand that we need to enable our customers to achieve their objectives. And a big piece of that is you know delivering technology at lower cost. So to be candid with you, it might sound a little crazy, but you know that's the sort of environment that we're actually looking for and we think we really prosper in. Great, thank you.

Speaker 4: Next question comes from Emmanuel Rosner with Deutsche Bank. Please go ahead. Thank you very much. A couple more questions if I may on I guess expected cadence for the rest of the year. First, I guess on the gross of a market, six points in the first quarter and then obviously your normal framework of 8 to 10 for the full year. In terms of the

Speaker 6: It wasn't yeah launches will we'll strain through throughout the year, but the six I think more the Sort of the abnormal number there right we just and this happened You know Q2 or Q3 last year too. We just had a Couple of customers strictly North America. They were launching they were accelerating ramp those ramps load Just given some supply chain constraints. So we're you know, just relative to market they weren't at

Speaker 6: strong. So those problems are clearing up. They're getting better in this quarter. So it's more of a returning to the framework than something needs to happen to get us to the framework. And we've always said, you know, and I appreciate it.

Speaker 6: I appreciate it's a long-term guide and we've historically been well within it, but it's always going to be a little lumpy. It's historically been lumpier to the high side with launches, but this is more a specific thing to Q1 than a longer-term concern.

Speaker 4: And just quickly following up on this, are you expecting these volumes to be made up? Or are you just saying that there's enough sort of a growth of a market in the back cap, in the rest of the year? I understand. Yeah, there's enough.

Speaker 6: I think if they can make it up, that's going to depend on the other suppliers being able to get the cards. I think the supply is at least returned to where they can hit schedules, so we'll be back. I will see how much they can make up.

Speaker 4: Okay, thank you. And then the second piece would be on the margin and I appreciate the comments around cadence and sort of like normal flow of the business. Can you just maybe just remind us in terms of the margin improvement in the back half, the big pieces of it. Bye. Transcribed by https://otter.ai

Speaker 4: The cadence of 2019 is extremely helpful. Just interested if there's pieces that you could quantify either in terms of lower disruption costs or sort of like more price recovery, I guess. You know, just how much is the mass. Yeah, the net price benefit is really gonna be first half if you think about when that case...

Speaker 6: labor costs and it did offset a little to the positive side actually. So that's going to continue and then you see volume build through the back half of the year that I think you have that normal cadence of a strong Q4 as well around engineering credits and those types of things. But the net price, the customer recoveries are really a first half just given the timing of those last year when they started to kick in.

Speaker 10: Okay, thank you.

Speaker 11: Next question comes from Mark Delaney with Goldman Sachs. Please go ahead. Yes, thank you for taking my questions. Good morning. Another one on the cadence and on the revenue side in particular. If I take the one key revenue, you're annualizing to nearly the high end of guidance around $19.3 billion.

Speaker 6: Yeah, listen, I think it sort of goes back, Mark, it goes back to Chris's first comments, right? Q1 is off to it, was a good start. I think we're very happy with delivery. It's obviously FX and as I mentioned North America, but on balance.

It's a quarter that was very much in line with our expectations we feel good about and would expect Q2 to be the same and then I think we reassess where we are for the year. I think on the margin side, as I said, there's you know, we're starting to get back to what feels like to Kevin and I sort of the normal cadence and flow of the business historically.

With the exception of the 180, just when do these disruption costs hit? Ideally, those go away much faster. We saw good improvement in Q1, 80 million in 2022, and out of 50 million this year. And again, I think we see how Q2 plays out and we'll have a better sense of where we are in disruption costs. Do we continue to see sequential improvement?

and then can look at what customers actually do in their detailed production schedules for the back half of the year. Okay, that's helpful Joe. Thanks. My second was on Wind River and good to hear all of the momentum that you're seeing with customers. You did talk about potential lumpiness in Wind River in the prepared remarks, so maybe you could just double click a little bit on that.

in line with expectations. Acquisitions are accretive to the margin for total active margin. So it's positive on both the revenue and the OI. My comment around Wind River, just trying to set some expectation ahead of time, it's not necessarily on telecom weakness or any particular weakness in the market. Relative to that. I should be able to switch your view ofpid to it.

and it's a very important business, but it's a relatively small revenue stream. It's about, there'll be over half a billion this year, up from a little less than $4.50 last year. They tend to have some big deals come in on a quarterly basis. So it's more of a cadence within that business. It's always existed of timing of when some of the larger revenue opportunities get signed up. And much like our bookings, it's not necessarily a straight line

that makes sense. Yeah, it's really it's the accounting for the revenues. Yeah. The nature of the

Thank you. And our last question will come from Tom Narayan with RBC Capital Markets. Please go ahead.

Hi, thanks guys. Yeah, a quick follow up on, I think Rod's question. It sounded like you said that the FX assumption was based in at the end of Q4 and now it's changed in Q1 and that has impacts in Q1. Just curious.

If FX is at the Q1 level, how does that change your guidance, specifically like EBITDA or EBITDA margin? Is it, how would that be impacted if it stays at? Let's be clear though, right? We've left the rates in place for guidance. The impact we're talking about is the year-over-year FX.

And again, our assumptions are there. We haven't changed them since the beginning of the year. We've seen some volatility in those FX markets. And again, I think as we get to the mid-year, we'll assess macros, vehicle production FX, commodity prices, and look ahead to the next six months and see what we think. But the impact is really year over year versus we didn't have a guide out there.

It's really the year-over-year impact I was talking about. Okay, thanks for that. And then the follow-up would be, you know, there is a large ADAS provider that this earning season noted that one of their OEM customers I think, you know, reduced a kind of purchase order pretty substantially in China. It's a specific OEM. Just curious if your specific OEM exposure in China...

How would you characterize, I mean certainly your guidance suggests really strong growth over market despite the challenges there, but is there anything noteworthy in terms of your specific Chinese OEM exposure? Yeah, no, our outlook is related to China market, our customer base hasn't changed since the beginning of this year when we gave guides. So we were...

We at least don't see any significant changes. So I... And with that, that does conclude our question and answer session for today. I would now like to hand the call back over to Kevin Clark for any additional closing remarks.

Thank you. Thank you everybody for your time today. Have a great rest of the day. And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.

Thank you everybody for your time today. Have a great rest of the day. And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.

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