Q2 2023 Aptiv PLC Earnings Call
Okay.
Good day and welcome to the active Q2 'twenty two 'twenty three earnings call today's conference is being recorded.
At this time I would like to turn the conference over to Jean Wood, Vice President of Investor Relations and corporate development. Please go ahead.
Thank you good morning, and thank you for joining the second quarter 2023 earnings Conference call.
Yes release and related tables, along with the slide presentation can be found on the Investor relations portion of our website at <unk> Dot com.
Today's review of our financials exclude amortization restructuring and other special items and will address the continuing operations in.
Reconciliations between GAAP and non-GAAP measures for our second quarter financial as well as our full year 2023 outlook are included at the back of the slide presentation and earnings press release.
During today's call, we will be providing certain forward looking information that reflects <unk> current view of future financial performance and may be materially different reasons that we cite in our Form 10-K and other SEC filings.
Joining us today will be Kevin Clark.
Chairman and CEO , and Joe Massaro, CFO and senior Vice President.
Kevin will provide a strategic update on the business.
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.
Thank you Jane and thanks, everyone for joining us. This morning, beginning on slide three we delivered a record quarter, demonstrating outperformance and improving supply chain environment.
Got a few of the highlights revenue increased 25% to $5 2 billion, a new record for quarterly revenue, representing 10 points of growth over underlying vehicle production driven by strong demand across our portfolio as well as across all geographic regions.
Revenues in our active safety and high voltage electrification product line increased almost 50% underscoring the strength of our safe green and connected product portfolio.
D. A N operating income totaled a record $695 million and $530 million, respectively, reflecting solid flow through on volume growth and fewer supply chain disruptions, partially offset by unfavorable foreign exchange rates commodity prices and ongoing material and labor inflation.
New business bookings totaled $6 1 billion further validating our industry, leading portfolio the strength of our customer relationships and our ability to execute flawlessly in a dynamic environment.
Turning to slide four our first half performance was substantially in line with our expectations.
New business bookings totaled over $20 billion, driven by customer awards for our S. T. A compute and software high voltage electrification user experience and active safety solutions.
Record revenue, representing 20% growth eight points over underlying vehicle production in line with our long term framework record EBITDA and operating income as well as significant year over year margin expansion as a result of strong volume growth and increase operating efficiencies, partially offset by the headwinds I mentioned.
On the prior slide.
And we're ahead of plan for both wind River and inner cable automotive solutions with both companies experiencing an uptick in commercial engagements and customer rewards.
Although supply chain issues persist, we experienced a sequential improvement in the supply of semiconductors, resulting in more stable vehicle production schedules.
From a macro and industry perspective global vehicle production has been strong with the North American and European markets being the most resilient.
Given the current industry backdrop, we're updating our outlook for the full year. We now expect global vehicle production increased 3% to 4% principally driven by stronger vehicle production in North America and Europe .
Our updated outlook does not take into account any labor disruptions in North America, Although we do recognize that this is a real risk.
Joe will provide a more granular update on our revised outlook when we review the financials.
Regardless of the market backdrop, we remain laser focused on enhancing our portfolio of safe Green and connected solutions executing on our commercial strategy and optimizing our business model, which will continue to position us to benefit from the secular tailwind.
Moving to slide five.
I already mentioned new business bookings during the quarter were $6 1 billion, bringing our year to date total to over $20 billion.
Vance safety and user experience bookings totaled $1 7 billion, driven by $1 billion and user experience bookings, including awards for apt as integrated cockpit controller and driver state sensing solutions.
Signal and power solutions bookings reached $4 4 billion.
One 4 billion in bookings for our high voltage electrification solutions comprised of awards across our high voltage product portfolio with both traditional and new battery electric vehicle manufacturers given.
Given the strength of our commercial pipeline, we have clear line of sight to exceed last year's $4 2 billion in high voltage business Awards, and we remain highly confident in achieving our full year bookings target of 32 billion further validating the strength of our portfolio of advanced technologies, and our ability to deliver exceptional value for.
Our customers.
Turning to slide six to review, our advanced safety and user experience segment second quarter highlights.
Yes, you actually achieved record revenue of $1 5 billion, increasing 24 points above the underlying vehicle production.
Active safety revenues increased 49% with strength across North America, Europe , and China as well.
Launch of our level, two and level two plus Adas solutions continue to ramp.
User experience revenues increased 33% driven by volume growth across key programs in both Europe , and North America, and lastly, smart vehicle computer software revenue grew 30%, reflecting a wind river its commercial success in both the automotive and non automotive markets, which I'll cover in more detail on the next slide.
In terms of new business bookings, we were awarded over $400 million of active safety bookings, including program extension award with a north American customer.
As I mentioned were also awarded roughly 1 billion of user experience bookings, including a significant program extension with the VW group.
This particular award is for an integrated cockpit controller first launch on the porch ICANN and now being rolled out across numerous other vehicle platforms.
As vehicle lifecycle is gets shorter the ability to cost effectively extend our solutions across both luxury and mass market vehicle platforms reinforces the absolute value as a strategic partner and as demand increases for more advanced active safety and user experience solutions.
Need for more advanced compute software development and integration capabilities as required.
Our ability to provide a full suite of flexible platform solutions that are cost effective while providing our customers with choice differentiates us from our competitors and as a result, we've experienced an increase in the number of strategic customer engagements and are confident that additional business Awards will follow later this.
Year.
Moving to slide seven wind river delivers edge to cloud software solutions for mission critical applications.
<unk> software defined systems that require the highest levels of safety security and performance the.
The winner of our team's done a great job increasing the partnership ecosystem, while also winning new business, particularly in the aerospace and defense Telecom and automotive markets, including a new program award for an A&D customer G. M D to provide its edge software and what's the global European truck manufacturer to provide its Linux edge.
Software and services for their next generation communication gateway, providing a nice entree into the commercial vehicle market.
But whenever team continues to be actively engaged with several automotive customers and enabling the software defined vehicle of the future.
In addition, they've announced several new partnerships to expand their ecosystem.
Including with Samsung to develop a fully integrated software and hardware solution for the automotive industry.
This solution will be enabled by wind river as helix virtualization platform, which will allow end users to utilize a diverse set of runtime environments, including the VX works, our TASS Linux and Android.
Last month, the team also announced a strategic collaboration with Horizon robotics to provide when rivers complete edge to cloud portfolio for horizon automated driving compute solutions for the China market.
These partnerships in automotive along with when rivers continued commercial success in its traditional markets allow <unk> to capitalize on the transition to a more software defined future.
Together with wind River <unk> is well positioned to provide cloud native software solutions that help customers reduce complexity, while enabling flexibility lower total system cost faster speed to market and new business models.
In order to provide you with a deeper look at our software strategy and the value that we can deliver to customers. We will be hosting a software teach in in September . We're excited to tell you more about the App you wind river opportunity and we'll provide more details as we get closer to the date.
Turning to the signal and power solutions segment on slide eight.
<unk> second quarter revenues increased 21%.
Six points over vehicle production. The result of strong revenue growth in China as we lap the COVID-19 disruptions during the second quarter of last year.
A 48% increase in high voltage revenues, reflecting strong growth across all regions and product lines and a 32% increase in commercial vehicle revenues the.
The $1 4 billion in high voltage bookings that I mentioned previously included another strong quarter from an inner cable automotive, which I'll touch on in more detail on the next slide <unk>.
Multiple awards with Hyundai Motor group, including for both power distribution and battery pack electrical architecture.
In our high voltage Electrical Center award from a global European truck manufacturer further increasing our penetration of the commercial vehicle market as it begins to transition to battery electric vehicle platforms.
Moving to slide nine.
As I mentioned earlier, we're well on our way to exceeding last year's record of $4 2 billion of high voltage bookings, we continue to enhance the breadth of our high voltage product portfolio as we introduce new offerings in power Electronics Battery management systems, and the addition of Intercable automotive solutions expands our portfolio to include.
High voltage bus bars solid state electrical centers and battery cell interconnect solutions further widening our competitive moat.
We expect to enter cable revenues to increase roughly 30% per year over the next several years.
Strengthening our position as the only full system provider of high voltage solutions.
With approximately 1 billion in bookings year to date Intercable has already exceeded its 2022 full year bookings amount.
And their pipeline for 2023, New business Awards is now more than 2 billion validation of the strength of their best in class high voltage electrification technologies.
Thousand suppliers for the top spot in the category of global performance champion <unk>.
Technician for a product innovation and the ability to keep Volkswagen connected during these challenging times.
The VW adaptive strategies are fully aligned and our teams have been working closely over the last three years to design and develop the vehicle architecture that will enable the software defined vehicle in the future.
The <unk> team is extremely proud of this award and looks forward to continue to innovate and further strengthen our long standing in strategic partnership with a VW group.
With that I'll now turn the call over to Germany to go through the numbers in more detail.
Thanks, Kevin and good morning, everyone starting on slide 11.
As Kevin highlighted after reported another quarter of strong financial results, reflecting robust execution across both segments and continued improvement in operating performance.
Revenues were up 25% to five $2 billion or 10% above underlying vehicle production, excluding the impact of acquisitions.
With outgrowth driven in part by strengthen our Asus's segment, particularly inactive safety.
As well as continued traction in our high voltage and commercial vehicle product lines.
Justin EBITDA in operating income was 695 million $530 million, respectively, reflecting flow through an increased volumes of approximately 30%.
Continued progress on our ongoing performance initiatives, including a $70 million improvement and supply chain disruption costs from last year and.
Margin headwinds of 90 basis points from effects in commodities.
Marilee due to the stronger Mexican peso and weaker Chinese RMB.
Earnings per share in the quarter or $1.25, an increase of adult of one dollar three from the prior year.
Driven by higher operating income, which more than offset the negative effects in commodity impact.
Operating cash was $535 million, which was $440 million above the same period last year, primarily driven by higher earnings to reduce working capital investments during the quarter.
Capital expenditures for $222 million.
Looking at revenues in more detail on slide 12.
Revenue in the second quarter was a record $5.2 billion, representing adjusted growth of 25%.
Both was broad based across regions in segments and our recent acquisitions added $176 million of revenue in the quarter.
That price and commodities were positive more than offsetting the FX impact on revenue.
From a regional perspective, North American revenues were up 19%, 4% above market, reflecting program timing it several customers with increased launch activity expected in the second half of the year.
In Europe revenues increased by 28%, 14% above market support by growth in active safety and user experience.
And China revenues grew 41% or 20% over market, reflecting the strength of our underlying product portfolio, particularly in active safety and high voltage.
Moving to the segments on the next slide.
Advanced safety and user experience revenues rose, 39% in the quarter or 24 points over vehicle production the.
<unk> performance was driven by strength and several product lines, including active safety, where revenues were up 49%.
Segment, adjusted operating income was $138 million up $168 million when compared to the same period last year, Despite a 90 basis points headwind from effects.
With strong flow through an incremental volumes of approximately 30% as well as net price at operating performance that offset higher material and higher labor costs.
Signal and power revenues were up 21% six points above market.
Market outperformance was driven by strength in several key product lines, including high voltage and commercial vehicle.
Segment operating income totaled $392 million up 61% from the prior year, despite an FX in commodity headwind of 90 basis points.
Driven by strong flow throughout incremental volumes offsetting the net price of commodities impact as well as improvements and operating performance, including lower disruption costs, which more than offset the impact of higher labor costs in the quarter.
Turning to slide 14, and are updated 2023 macro outlook.
We have increased our outlook for adjusted gross to 11th 13% for the full year, a meaningful increase from our original range of 7% to 9% and.
And we continue to expect to outgrow the market by 9%.
The change in outlook, primarily reflects increases in customer production schedules in North America, and Europe , resulting in vehicle production growth of approximately 4% and 5% at the mid point respectively.
Please note that our production outlook does not assume any significant north American labor disruptions.
We expect China to be essentially flat on a year over year basis in line with our prior guide, although we continue to see strong EEV penetration, particularly with our Chinese OEM customers.
In addition to changes that vehicle production volumes. We have also reflected current foreign exchange and commodity rates into the updated guide.
The next slide summarizes are updated 20th twenty-three outlook.
We now expect revenue in the range of $19 $95 billion to $20 two 5 billion.
EBITDA in operating income are expected to be approximately 2.8 and $2.1 billion at the mid points respectively.
This reflects year over your operating income flow through 21%.
In line with our historical range of 18% to 22% despite significant FX and commodity headwinds.
Adjusted earnings per share of $4.75 at the midpoint.
Almost 40% from prior year.
Driven by higher earnings, partially offset by higher tax and interest expense.
Operating cash flow of approximately $2 billion, an increase of approximately $100 million over the prior guidance.
Slide 16 walks prior guidance to our current outlook.
Starting with revenue sales volume increases by $700 million, reflecting higher European and North American customer schedules.
Net price commodities in foreign exchange contribute positively to revenue driven by the rate changes I previously discussed.
Ah just had operating income is up $125 million over prior guide as flow through on sales growth and higher operating performance is partially offset by the negative impact of foreign exchange and the timing of copper price adjustments to our customers.
Net pricing, which includes the impact of customer price downs price recoveries and material inflation remains in line with our original guidance.
As previously discussed the impact of foreign exchange movements, particularly the stronger pace of weaker already be have been significant this year, representing 100 million dollar headwinds to the original guidance.
However, assuming rates for the balance of the year remain relatively consistent with the right shoes and are updated guidance, including a stronger euro that partially offset the negative peso and RMB impact. We believe the majority of the negative impact has been reflected in the first half results.
In summary, we are pleased with the App. This year to date performance, including the continued growth of our key product lines strong bookings and continued margin expansion.
Our performance initiatives, including efforts to significantly reduce and ultimately eliminate disruption costs and too often offset significant labor inflation are on track and will continue to build throughout the year.
Although we remain cautious about potential negative macroeconomic conditions over the next few quarters and the potential for labor disruptions in North America, we remain confident in our ability to meaningfully outgrow vehicle production.
We also believe we are well positioned to take advantage of stronger market conditions should the noted concerns not materialize.
With that I'd like to have a call back to Kevin for closing remarks.
Thanks, Joe I'll wrap up on side 17 before opening the line for a question.
2023 is off to a good start with a record first half revenues EBITDA in operating income and strong margin expansion. We've maintained our momentum new business awards for optimize full system solutions that deliver increased performance at lower costs to our customers.
Our outlook for industry volumes has increased and easing supply constraints have led to fuel production disruptions and improved operating efficiencies and we continue to focus on optimizing our cost structure to further enhance our operational resiliency.
[noise] would you like to ask a question.
Things.
The one on your telephone keypad.
If you are using a speakerphone please make sure your mute.
Function.
Now your signal to reach our equipment.
Participants may only ask one question.
Question.
Again.
Star one to ask a question.
Just a moment.
She just sticking out of the question.
We will take.
Question.
John Murphy from Bank of America. Please go ahead.
Good morning, guys. Thanks for all the gambling in this morning is it just.
Just a simple question first on 86th.
You know it seems like you're something just kind of.
Got you escape velocity here and I'm just curious if that's kind of a a fair statement, particularly these martin's at 9% they're way down by some other factor. So I mean on a normalized basis. They actually were approaching 10% in any you know these ramp up of somebody's grow segments. I mean is this is this where we're here we should be thinking it or is it <unk>.
<unk> for margins are there was something else going on in the quarter other than just kind of escape velocity being reached.
Yeah.
I'll start in Jones, certainly should should Edwin clearly the environment for semiconductors and supply chain associated with semi conductors has improved.
I think as an industry with the semiconductor manufacturers, we've been working over the last couple of years to enhance visibility.
To enhance alternatives or choices and with the slowdown in some of the consumer electronics.
Markets, certainly freed up incremental incremental supply.
As a result is made.
It's it's made our supply chain much more efficient, which results in lower costs from a manufacturing standpoint, as well as from up.
You know from a freight and other standpoint, that's reflected in our numbers to date and then we would expect that to continue ended up obviously into the back half of the cameras slower.
Sorry, it sounds like we had a little feedback as we have lower disruption costs more operating efficiency, we're able to operate more efficiently.
And then continue into 2024 and beyond.
Okay, and then just one follow up on one intercable using that sort of as a test case for.
You know somebody's acquisitions that you're making I mean, it sounds like you can't sell this or explain it well enough as to how the for the expansion of opportunity is in front of you for it for Intercable I'm just curious in the current base of customers.
And the billion dollars it's been one.
Year to date or book year to date are we still looking at a European centric revenue base as far as the customers and there's just extreme opportunity in other regions and with other automakers outside of the European automakers to try to understand where this is ultimately going to go.
Yeah, I make sure I understand the question I I I think.
Today, the bulk of their revenues are related to European.
Programs, but as we talked about previously one of the reasons that we Ah.
Acquired in our cable is in addition to their technical capabilities and they're broad portfolio of you that we could easily provide them with entrees into the north American market.
Which we've done to date as I mentioned in our prepared comments.
We're all already producing products and one of apt as existing manufacturing facilities in Mexico.
And will be delivering product to a north American OEM starting.
Starting this quarter and we see significant opportunities with the other North American Oems and then similarly with with China, Although they have manufacturing capabilities in China.
Given our knowledge of the market and our experience there we feel as though that week.
We are a great leverage point for them to sell their product into that market as well so as I mentioned there.
Ronald for bookings opportunities as well over $2 billion. So the opportunities are really significant within our cable they have a great portfolio. They have an even stronger management team. So we're really excited about the acquisition.
Great. Thank you very much.
We will take our next question from.
Hi, Michelle.
Please go ahead.
Great. Thank you. So good morning, everybody just two questions for me to just for a signature I was hoping we could just walk through the how do you think about the the H two verse eight one margin bridge.
And your guidance and interest secondly, I did notice restructuring expense since kind of moved up in Q2, I think you raised your outlook. There maybe just hopefully you could elaborate on where you're seeing these restructuring opportunities and how much more of a level that could be going forward for for margin expansion.
Yeah, Let me start with that one and then go to H one H two <unk> I would say that that is you know we've talked about that not necessarily in the context of the restructured dollars, but things like pivoting engineering to best course countries those.
Those types of activities, it's obviously, what you're seeing eye and you know what should we laid out an investor day, particularly with engineering, that's really part of the established margin guidance into 2025, right. So I have to think of that as US you know.
Taking the necessary actions over time too.
To continue to move towards that that commitment versus versus something incremental from a from a bridge perspective.
From a <unk> to not going to give them a lot of detail, but you're going to see a couple of things.
You know, there's a slight volume uptick a little less than $100 million that sort of close that call at 30% on volume.
FX will be better.
You know we had about you know be better by about $30 million. We don't expect that these current rates to have as much <unk>.
Trends App transaction.
As we did in the first half as we adjusted down and then you've got you know what I'll call performance initiatives as well as some inflation recovery. That's that's gotta be over $100 million, that's really the big bucket some of that coming out of disruption caused the other as I noted is going to be you know it continued I continued march on these.
Forms initiatives that we've talked about mill they'll continue to improve our the back half of the year.
Perfect I appreciate all that detail. Thank you.
We will now move to.
Mmm.
Please go ahead.
Good morning, everybody.
We wanted to just ask you what kind of.
A couple of Big picture things one is in.
In the margin bridge that you presented from 2022 to 2025 at your Investor Day, you had a bucket of 1.7 billion. It was I think you called it performance. It was elimination of Covid costs part of it with some supplier costs.
Can you just update us on where that bucket stands now and what proportion of that 1.7 billion. You think we will actually see.
In 2023.
[noise], Yeah, it's Joe let me start so.
Remember that bucket of big that was a 22 to 25 bridge right. So you had.
The biggest individual item in that billion seven is about over 300 million called 330 to 350 of supply chain disruption costs.
We expected a lot of that to come out this year, we had $130 million in the original guide. It's improved now maybe 100 around $160 million coming out this year the balance will come out next year.
The.
The remaining is just sort of what I'll call sort of those annual materials and manufacturing improvements for the three years 23 24 25.
Yeah, I would say you could sort of take those across each of the years or a little back end loaded they grow into 24 and 25, but for the most part we're on track. It's really what you are seeing sort of come through.
And the performance bridges as we've talked you know just just even over the past this past quarter right $70 million improvement in supply chain disruption costs alone. So I'd say, we're tracking in line with with those expectations.
Okay. Thanks for that and just switching gears a few western companies.
We're just too expensive and I've already seen Volkswagen reach out to xiaopeng to use their platform and.
Seemingly there's a few other discussions in the industry about using Chinese platforms I'm just wondering.
From <unk> perspective, how you.
How'd that affects you you did mention again on the call that you've been working with Volkswagen on the architecture of the future. So would you would you be agnostic to that or is there. Some are there. Some implications for you is if that is something that continues.
Right, maybe I'll start with a list.
Listen I think as we've talked about in the past.
Our overall outlook for.
Penetration and battery electric vehicles, and electrocution overall has been I'd say a bit on the conservative side relative to kind of industry perspective, so so that that that has been.
Been our underlying perspective, and a significant amount of that perspective is shaped on.
Cos and an understanding of R O M customers and sensitivity to cost and sensitivity to.
To the cost of new technologies.
So so that's one two just given.
Given the breadth of our product portfolio given are full system approach too high.
High voltage electrification in this particular case.
We have an opportunity to present, our customers with a solution that is much lower cost than than a traditional.
Approach to battery electric vehicle architecture, and we've had examples when we've talked about this in the past.
Where existing customers with existing platforms have come to us asked us to evaluate opportunities to optimize.
And using our our design capabilities in our portfolio of solutions, we've been able to reduce weight and mass by 25% to 30%.
And overall systems cost.
20% or more.
So given our historical capabilities given or strengthen.
From a product portfolio standpoint, and our knowledge of vehicle architecture, we bring a lot to bear I see the third piece is.
We've talked about this transaction transition to better electric vehicles, which in reality has been underway for a long period of time, we've seen elements of fits and starts during that period and.
And we've been impacted by those fits and starts we've been very selective as it relates to those customers those platforms that we operate on and we operate on those that we have a high level of confidence there'll be <unk>. They are designed specifically for battery electric.
Vehicle platforms, therefore will get volume.
And then from a contracting standpoint, we can track very carefully to the extent.
We see volume reductions there's there there are changes in pricing.
So just just given our past experience again as we've seen better electric vehicles developed in in in in the attempt to introduce them into the markets for the last several years.
We've learned a lot of lesson, we've lessons and we've established really I would see a fairly conservative approach in terms of how do we manage risk but at the same time, how do we develop a portfolio capability that.
That provides our customers with lower cost solutions, because we are big believers that over a period of time, you're going to continue to see significant penetration of electrification in our industry.
Okay. That's helpful. Thank you.
We will take our next question.
Chris Mcnally from.
Please go ahead.
Thanks, so much team and maybe maybe I could start.
On the top line in macro I know it gets kind of confusing talking about North America with the upcoming.
U a W issue. So maybe we could we could focusing on on Europe .
Just some quick numbers on the 4% to 6% of production, which is lower than the forecasters I think we have something like 15, 16% in the first half so that would imply down.
In the second half.
Obviously inflation prices and cost of living et cetera, but just curious if yours.
Being anything specific you obviously have a lot of insight there or if it's just a bit of conservative.
Service has been built in for the next couple of months that I had scheduled for a month ago.
Yeah, Chris.
It's a good place to start I would say.
Q3, we're on a production schedules right. So we've we've we're sort of walked in at this point with our customers and we've already asleep have been through July .
Certainly and as I said in my prepared remarks, certainly to the extent there was more production in the back half of the year I think we would certainly benefit from it remaining a little cautious just given all the.
You know all all the potential you know sort of macro ups and downs.
It's still the environment's not perfect. It's still it's still a challenging environment. It says Kevin said, it's much better, but yeah, a little bit of caution and and but more in the fourth quarter than that and the third and third we're fairly locked it at this point in customer schedules.
Okay. That's that's really helpful. If I could just follow up some numbers <unk> comments on on a S. You activate the margin progression does seem like it's starting to take off I think from your 8% to 9% full year and sort of implied the back half roughly 10% you. We usually you know I think because of.
Some of the price issues, we can sort of use it as like a base and you have a 13 and a half.
Per cent at 13, 13, and a half target for 25.
Given that I think that $190 million you just laid out I'm in recovery a lot of that will come in and ask <unk> is it assuming that we have okay up small low single digit volume next year that we can kind of split the difference and start to think about 24 be somewhere in between the halfway.
Can't have that 10 in what's called 13.5% or is there anything that that takes a longer wild why it would be more of a back end loaded 13% plus margin and 25.
Yeah. It looks like we were made I'm not gonna I'm not gonna get into 24 total terror too early in the year to do is I think we we remain confident in the 25 numbers for both total active as well as the segments.
You know I would think it will be a steady March of continued volume growth and the key product lines continued improvement the price of the team has done a good job on reflation recoveries. The environment. You know you can still have lumpy quarters between that in 2025, but feel like it's gonna be a pretty <unk>.
March exactly you know where 2024 falls out it's obviously something we've got to work out but as we looked at.
What's rolling on in that business increased software content those types of things I'm still remain confident about 2025 ranch.
Very helpful. Thank you bye.
We'll take our next question from Adam Jonas.
Please go ahead.
Thanks, everybody and Kevin I thought your your answer to Roger about hearing entourage.
Yep.
There's a bit of an echo on the pulling back of the more conservative easy targets, giving your experiences as it was really well done I.
I guess, if I follow up on that if there was a scenario where.
2025 in any longer term easy assumptions were really dominated by Tesla Chinese like I'm thinking.
75% plus share of <unk>.
The the market being those two regimes.
Would that would that be mix adverse for you.
Or yeah.
Yeah, I I, just kind of leave that open and it just kind of.
Curious how you would approach that level of concentration because there may be some scenarios, where there's a winner take most on these global platforms and then I have a follow up thanks yeah.
Yeah, not gonna talk about specific customers and I'm I I would say when you look at.
Our revenue mixed by region, we're pretty balance between North America, North America, Europe , and in China growth opportunities in China, I would see on a relative basis are more significant so.
From a funnel standpoint, any bookings opportunities standpoint that is an area that were.
We're very focused on your comment on winner take all our China high voltage or bed Bath customers are very focused not only on the.
China market, but increasingly regarding exports into other markets, which I think is a part of of of what you're leading to art, China customers from a system standpoint tend to be more inclined to buy a full system solution for us from us so that tends to be a higher <unk>.
<unk> solution relative to selling component.
<unk>, so I'm not sure if that's a net benefit for US we're just Ah.
Neutral.
Okay, Kevin Thanks for that and either Kevin or Joe emotional can you give us the latest update on.
On the capital needs there in terms of cash.
Cash consumption than than what you've got left in the tank before we need to put put more in the Kitty.
X.
Yep Yep, no Adam no changes on that front since the last couple of quarters they have cash through.
Or at least into Q2 of next year continue to make progress on the technical and commercial side of things and as we've said previously.
Probably not the most receptive capital markets at this point, obviously, our partner Hunter and ourselves are looking at it you know.
If we had to.
If we had to call. It today I'd say the partners spawned another year of operations haven't made that decision yet but that.
That would be the most likely outcome I think if we had to call. It today and you know they're going through about 500 $550 million of cash per year. So would it be you know a.
A split of that.
Thanks, Joe Thanksgiving.
Yep.
Thank you.
We will take our next question from Dan Levy. Please.
Please go ahead.
Hi, Good morning, Thank you for taking the questions.
Wanted to just ask on on commodities. It was you noted it was it was a headwind.
Headwind in the quarter.
Maybe you could just provide us with a bit more color on what the dragon. The quarter was was related to and more broadly what are you seeing in semi is there. It sounds like the environment is getting better. It's more stable is there any path to to relief on the the the cost pressures that.
You saw the recent years in semiconductors.
So too.
Two distinct questions. There, let me take commodities for us commodities is still mainly copper.
Sort of nothing nothing's changed over the last couple of years of that we.
Corporate were index to copper with our customers for the vast majority 80 per cent of our copper by those prices get adjusted either quarterly or.
In some cases semi annually, we have one customer a large customer we actually do monthly so all we're dealing with there is really the lag.
How much copper we have in at a certain price before we can pass it along or before we can in this case increase the prices. So you wind up with.
That lag every once in a while and comprehends to be more of a margin right.
Impacted margin dollars as it relates to Sammy we've obviously passed along.
The price increases that we have received to date, we've been sort of direct.
A chip goes up we pass that cost along to our customers.
We will continue to do that as if and when we see additional inflation coming in a year.
I would tell you at this point and you know don't see any.
Any indications of chip prices coming down.
And I think if you look at least in some of the chip chip folks that are have a large automotive president's I think they've been sort of echoing that at least be the potential to hold or maybe even go up and some of their public comment. So we remain vigilant, we would expect to pass additional price increases through to our through to our customers.
It certainly don't see any any downside on those prices at this point.
Okay. Thank you and then start related question if we.
Zoom out and look at the last few years, obviously the results have been <unk>.
Dragged by.
All of the material inflation headwind largely semiconductors.
And I assume that when you're booking your your bookings.
That pricing is based on the commodity or or input cost out look at that time, but obviously, it's progressive <unk>.
A bit tougher since then so what steps are you taking to ensure that as as your backlog rolls on it that becomes revenue and launches that you're gonna get the appropriate pricing to ensure that the margins are in line with what you'd like them to be as opposed to being dragged me.
<unk> bye.
An input cost outlook.
From a prior time.
So Dan and and we've talked about this a couple of times before so that should the renegotiation on price with customers covered in process.
Products right products that were being manufactured in things that were near launch.
Caller within sort of 12 months plus two to launch.
For programs that are longer further out from the start date perspective, we we have the opportunity and we've done this even before semiconductors prices have gone up typically before we really started to put capital in the ground right you got a sort of a two to three year window before program start there are various touch points with customer.
<unk> around the economics of the program customers want that we want that suppliers want that those tended historically had been around volumes.
If a if a program looks like it's gonna be significantly higher volume that he wants to have a discussion if it's gotta be lower volume the supplier wants to have a discussion uhm bomb costs are historically part of those so as we get you know you know up to the point of starting production or putting capital to work to start production.
<unk> you know we have a mechanism in place and the and the team does a good job with it to go back to customers on the overall economics of the program and bomb costs are Gonna. You know obviously now are included in that have always been but are now sort of.
At the top of the list, particularly with semiconductors of things that get discussed and.
And sorted out to get the program back to the original economic deal that was struck.
Again, if I, if I could add one comment.
Show did a great job, explaining how we can track and how we operate with our customers at the same time last Coupla years has been a lot of focus on one keeping our employees safe and then more recently, obviously just supply chain connectivity keeping our customers.
Connected and as Joe articulated passing on price increases tub to customers at.
At the same time, you know we've been very focused on how do we continue to enhance our business model. So from a supply chain standpoint, whether it's semiconductor.
Semiconductor chips or is resin or other inputs to what we manufacturer we've been very focused on how do we redesign product and take out content more cost.
How do we operate with our supply base more efficiently and more effectively to lower cost.
How do we operate with our customers from a supply chain standpoint, as well too.
To increase efficiency.
And take out cost and then at the same time when you when you look at inflation in around here is like labor, how do we continue to rotate where we do things how do we increase our product how.
How do we move manufacturing engineering other.
As well as how do we improve the productivity within the existing four walls. So that we you know again in a in an organic basis, we're driving down our cost of operating [noise].
So it's really a two pronged approach in terms of pushing you know an incremental inflation onto our customers. While at the same time trying to operate more efficiently whether or not we're getting we're experiencing material inflation and other items.
Thank you that's helpful.
He will take our next question from Marc Delany from.
From Goldman Sachs. Please go ahead.
Good morning. Thank you very much for taking my question you mentioned that active has been a little bit more conservative on volume projections, given the cost of those platform. So I'm, hoping you can clarify has there been a change it on after his own outlook for EV volumes. This year, because some Oems I've certainly talked recently about seeing some slow sorry, gimme growth, but perhaps summer.
All of that is being offset by upside the other Oems maybe realizing.
No listen our our assumptions have always been lower than than than what.
What I think some of the industry.
Forecasts have so I'd say from a baseline standpoint.
<unk>, that's penetration Heibel meltage penetration has been lower and has been for a.
Extended period of time, as we evaluate business cases for specific platforms or or or customers are assumptions on volume tend to be.
On the more conservative side, and as I mentioned as it relates to contracting and pricing we have some levers that we included to provide us with some some.
Some risk mitigation. So nothing has changed in terms of our our overall look I would say the industry is probably coming closer to where where our initial perspectives were is related to best penetration having.
Having said that although we're we're more conservative revenue.
Revenue growth in second quarter on high voltage solutions as close to 50%, So [laughter] and we're still expecting very significant growth from.
The balance of the year in in in the out years, Yeah markets. Joe I mean, we had talked about Investor day.
High voltage being at least 30% grower per year for 23, 24, 25 and that that view has not changed at all so.
That's that that was reflective of sort of where we were on our estimates relative to the broader sort of forecasting community.
That that's very helpful contacts. Thank you. My other question was just around software and when river Oems have continued to struggle with.
Understandable large challenge of software integration.
Mentioned momentum with wind River and I'm curious if you could elaborate a bit more on the types of engagements when river is seen with Ottawa, We m's and perhaps there's been a recent uptick related to some of these challenges that the industry is facing that wind river can help to address thanks.
Yeah, I'm not sure there's an uptick I think the industry still Russell's with software.
Still major challenges.
When rivers announced a number of program wins.
With Oem's I'd say today were.
Actively engage with I don't know 10 to 12 oem's as it relates to their their underlying kind of software architecture and some of the needs that at wind River.
Can provide so a lot of momentum there as I mentioned in my prepared comments would expect by the end of the year to have some additional announcements.
To me so those challenges presented an opportunity for wind River and then when you think about.
Above the the middle where it's a real time operating system as it relates to apt of whether it be in user experience or ats or other areas certainly opportunities for the after this well.
Thank you.
Yeah.
We will be taking her.
Question.
Tom.
From our B C.
Please go ahead.
Hi, Thanks for taking the question gets Joe maybe can you help us understand <unk> timing in 2023.
I remember from Q1, I think there were some orders that may have been pushed out did those really come in and and Q2 or.
They're kind of more to come there on each too and I know they were.
I think there was some engineering credits that you're expected later in the year just trying to understand how how we should think about <unk> business.
Yeah on the.
But on the engineering credits, that's a very normal slow that happens every year on Asus's last year by way of example was about $40 million of credits in the back half of the year.
Not saying there'll be that amount this year, but that's order of magnitude.
Call it somewhere.
20 to 40 million is sort of a good good range to use on that.
As it relates to your right as it relates to Q1 ASU acts had a couple of launches that launch, but we're ramping slower than expected due to supply availability at from other suppliers as we talked about at the time those programs really came back online in March.
And it had been heading schedules sense and that was in North America I think they asked you actually north America's growth over market was north of 20 per cent and in the second quarter. So you know those are those are back.
What you saw now in North America, I reference, we've got which is again nothing to do with supply chain sort of getting back to sort of normal ebbs and flows of the business. We've got some on the Sps side, we've got some programs winding down we've got a heavier launch calendar in the back half of the year. So I think as you get to the end of the year North America growth over market will look like the <unk>.
Best of the business, but you always get a little bit of Lumpiness from time to time and some of those some of those numbers.
I don't know if you guys can answer this but.
You know on the whole UAW situation and this might be a question really for the Oems but.
Have you guys noticed om's kind of building inventory ahead of it or maybe put another way you know looking back at what happened in 2019 for you guys is there anything you've learned from that experience that could help you prepare in the event something happens.
Yeah I was I think we redirect you do early on customers. So we we don't we don't have.
You EW workforce in North America, so from a direct employee standpoint, that's not something where we have exposure, where we have exposure I think we would we.
Let me say, having gone through it in 2019, there's some small operational lessons learned as it relates to kind of supply chain management inventory management and things like that but I think it's a question more appropriate for for our customers.
Got it thank you.
Question and answer session.
At this time I was trying to conference back to you for any additional are closing remarks.
Great. Thank you very much we appreciate everyone. Joining us this morning have a great day take care.
This concludes today's call.
For your participation.
Now disconnect.
Mmm.
[music].