Q3 2024 Aptiv PLC Earnings Call
Speaker Change: Police standby, we're about to begin.
Speaker Change: Good day and welcome to the app to have 23 2024 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jane Wu, Vice President of Investor Relations and Corporate Development. Please go ahead.
Speaker Change: Good morning and thank you for joining after 3rd quarter 2024 earnings comes to us call. The press release and related tables, along with the slide presentation, can be found on the
Speaker Change: Today's review of financial exclude amortization and restructuring and other special items that will address the continuing operations of active.
Speaker Change: The reconciliation between Gap and non-Gap measures for a third quarter result, as well as our 2024 outlook, are included at the back of the flight presentation and the earnings press release.
Speaker Change: During today's call, we will be deciding certain forward-looking information that reflects apt-to-scurring view of future financial performance and may be materially different for reasons that we cite in our phone 10K and other SEC filings.
Speaker Change: Joining us today will be Kevin Clark, active chairman and CEO and Joe Massaro, Vice Chair and Chief Financial Officer.
Speaker Change: and 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. Was that I'd like to turn the call over to Kevin Clark? Thanks, Shannon. Thanks everyone for joining us this morning. Let's begin at Slide 3.
Kevin Clark: During the quarter, we're busy executing on a record number of urnate vehicle program launches, which were more than offset by further weakness in production schedules from the D3 North America, especially with a large European-based billion.
Kevin Clark: and from select global OEMs in Europe and continue to witness in production schedules with the multinational JVZ in China. As a result, third quarter revenues decline 6% as we experienced more headwinds and previously anticipated, weighted more towards our electrical distribution product line.
Kevin Clark: Despite the dynamic market environment, we deliver record-served collaborating in commons margin, as well as an all-time record for quarterly earnings per share, reflecting our continued strong operating performance.
Kevin Clark: David Don operating margins expanded 180 basis points and 120 basis points respectively. An EPS increased 41% versus the prior year. benefiting from strong operating performance as well as completion of the motion restructuring and a lower share count.
Kevin Clark: Decide 4.
Kevin Clark: Although we're encouraged by our strong year-to-date operating execution, we're updating our 2020 for outlook to reflect a weaker industry backdrop that includes an incremental flood on an EV adoption and an overall reduction in global vehicle production further impacted by our customer mix.
Kevin Clark: and Joel will cover her updated output later.
Kevin Clark: However, we're made confident that the long-term trends towards the software to find electrified future will continue. And as a result of the resilient business model we've built, our revenue growth will re-accelerate once industry and customer dynamics have stabilized.
Kevin Clark: and the meantime, we've implemented additional profit and proven actions, including prioritizing investments and product-high solutions, both on flexible, open platforms, which enable higher performance at lower cost.
Kevin Clark: and the company, for actively diversifying our customer and market exposure. In consolidating our manufacturing footprint and reducing direct and indirect labor across each of our regions.
Kevin Clark: We make confident that our portfolio of advanced technologies coupled with our optimized cost structure, physicians us to deliver long-term value to our customers and our shareholders.
Kevin Clark: We'll decide for us.
Kevin Clark: During the third quarter, we booked 3.6 billion of new business awards, bringing the year to date total to just under 21 billion. The advanced safety and user experience booking total 3.8 billion year to date, driven by continued strong momentum and active safety bookings in the quarter.
Kevin Clark: Signal Empower Solutions new business bookings total just under 17 billion year today, including new program awards across the automotive, commercial vehicle, aerospace and defense, and industrial and markets.
Kevin Clark: Our pipeline of new business opportunities continues to expand. We've seen some delays in customer program awards, causing shifting timelines across our business.
Kevin Clark: These delays in our represent program losses or cancellations, but do impact our expectations for timing related to new business bookings, which are reflected in our updated 2024 bookings target of 30 billion.
Kevin Clark: Our industry leading portfolio of cost-effective full system solutions and global scale continues to position us to win new business and support our customers in navigating both the near and long-term market dynamics.
Speaker Change: and I'm going to be on the second slide.
Speaker Change: Signed to Chief Record Irings in Margin during the quarter. Understanding the strength of our product portfolio and benefits associated with our product to be initiatives.
Speaker Change: Revenue is to climb 1% 1.4 billion in the quarter, reflecting growth over vehicle production across our major regions. Act of safety revenues increase mid-team, partially offset by declining user experience revenues.
Speaker Change: Operating in Contolled Record 196 million representing margins of 13.7% reflecting benefits from manufacturing and engineering productivity initiatives.
Speaker Change: We continue to build strategic supplier partnerships and further local supplies are vendor base to both increase supply chain resiliency and lower cost.
Speaker Change: This is demonstrated by our investment in Max Yadering the Quarter, a China-based vision software supplier that provide the local perception alternative for E-DAS platform.
Speaker Change: and commercial highlights include a new radar award with a local OEM in India.
Speaker Change: A smart camera solution with Julie that utilizes an SOC provided by China B6 era and a vision solution provided by Maxi. Underscoring the benefits of the open, abstracted architecture of our Gen 6AD solution.
Speaker Change: and Howard Leveraging this in the China market.
Speaker Change: and the Extension of an existing ADAS program with a large North American based OEM, which, as a reflection of our strong performance, includes increased content and will be launched across additional vehicle programs.
Speaker Change: During the corridor, we also launch multiple new vehicle programs, including our ADAS solution for Julie, which incorporates our Gen 7 radar, the industry's first base level for facing radar with 40 capability.
Speaker Change: Our user experience solution from Hinges SUV, which will be followed by additional vehicle program launches early next year. That utilized our integrated tactic controller, which consolidates multiple ECUs into a single compute platform.
Speaker Change: and the Blue Supply Higher Levels for Formants and Skillability.
Speaker Change: A Significant ADAPH program for a large multinational OM that is fully scalable up to level 2 plus.
Speaker Change: and lastly, the successful launch of Wind Rivers, Elitzer Pro, the first enterprise-grade Linux solution for the cloud edge continuum.
Speaker Change: The solution expands the open source Linux ecosystem and enables the deployment of mission critical and data intensive workloads including AI, ML and computer vision.
Speaker Change: Dr. Rangagian for a list, Elixir has been promising and we're planning further expansion of Windrivers portfolio to drive growth.
Speaker Change: Moving to the next slide, we recently held an ADAS investor round table to dive deeper and or ADAS technology stack, which delivers high-performing scalable solutions at a very competitive cost.
Speaker Change: The Foundation of our solution is a services based architecture and cloud native tool chain that support module a software running on abstracted hardware.
Speaker Change: This approach enables our OEM customers to accelerate software development, streamline deployment, and optimize lifecycle management.
Speaker Change: Our full system solution efficiently scales from compliance, up to hands for urban driving, and even level 3 autonomy, enabling greater flexibility at a much lower cost.
Speaker Change: for need to our single power solution segment on slide eight.
Speaker Change: Revenue is in the segment we're down 8% during the quarter, reflecting declining revenues in our electrical distribution system and engineered component product lines of 12% and 4% respectively.
Speaker Change: EES revenues were impacted by customer schedule reductions, particularly from select OEMs in North America and Europe. While engineering component revenues benefited from strong growth in not-automotive and market, including continued traction in aerospace and industrial.
Speaker Change: Operating in total 397 million representing a margin of 11.5% reflecting the impact of lower production volumes, partially offset by savings related to operating performance initiatives.
Speaker Change: Take the long power solutions, both approximately 3.2 billion in new customer awards in the quarter.
Speaker Change: including program extensions with two major global VMs for the North American market. Conquest awards with the largest Chinese local EV manufacturer across low and high voltage electoral architecture solutions.
Speaker Change: As mentioned, we also delivered a record number of vehicle program launches you're today.
Speaker Change: including major EV launches for both the Chinese OEM and a Korean OEM. This will several programs across our portfolios for OEMs in North America.
Speaker Change: and in Europe.
Speaker Change: Bring this slide down.
Speaker Change: Looking behind the port, I'd like to highlight a few of our recent technology show showcases, which are great opportunity for us to display our cost-effective solutions, and engage with the engineering, purchasing, and executive teams across the broad range of customers, regions, and markets.
Speaker Change: At East Indies of Ants, active hosted hundreds of customers for the New York Times, live demonstrations and technical details, resulting in new commercial opportunities across our entire portfolio.
Speaker Change: and China, we hosted numerous technology showcases with fast growing local OEMs, including BYD, Chang'an and Great Wall Motor.
Speaker Change: and we just returned from ICB and Wolfsburg, where we're able to operate the opportunity to host the Volkswagen Group's Executive Leadership Team in our vehicle, in our vehicles on the road and in our booth, as well as engage with partners and customers across the power supply tank.
Speaker Change: In addition to the automotive market, we're also pursuing opportunities in other markets. Our presence at the IIT Transportation with well received is farce interest from many major commercial vehicle customers.
Speaker Change: As industry landscapes evolve, these technology showcases are increasingly important, and are one of the levers we used to for the solidifier position as a part of choice with leading customers.
Speaker Change: is like 10 before I turn it over to Joe. I'd like to remind everyone that consistent with prior years will be unveiling our newest innovations at the Consumer Electronics Show in Las Vegas this coming January.
Speaker Change: We showcasing solutions at the intersection of software and hardware and functional, fully integrated vehicles on the roads of Las Vegas, demonstrating how we can partner with our customers to build the software to find cloud natives in electrified vehicles of the future.
Joe Massaro: The that I will now turn the call over to you. Thanks, Kevin, and good morning everyone. Starting with the third quarter on slide 11.
Speaker Change: Hi, Laura Revenue's active delivered strong earnings growth in the quarter, as we continue to drive operating performance across the business. Revenue was $4.9 billion, down 6% or down 1% compared to underlying global vehicle production.
Speaker Change: Consistent with the second quarter revenue growth is impacted by lower vehicle production that select customers, including a European OEM with a large North American presence as well as multinational customers in China. In certain cases, the reductions in vehicle production did exceed our prior expectations.
Speaker Change: and as I will discuss in more detail shortly, these scheduled options as well as the continued slowdown in electric vehicle production impacted certainty product lines more than others.
Speaker Change: 3rd quarter of Chester DBTA and operating income were $778 million and $590-$3 million respectively.
Speaker Change: and proved operating performance across both segments, combined with the cost production steps we took at the end of 2023 and proactive management of car and year expenses, increased operating margin by 120 basis points over the prior year. F-axing commodities were a $12 million headwind in the quarter.
Speaker Change: We delivered record quarterly earnings for share of gallery D3 and an increase of 41% from the prior year, which reflects the flow through a earnings as well as the benefits of share purchases and the restructuring of the emotional zone venture earlier this year.
Speaker Change: Operating Caspo Flow totaled $499 million and capital expenditures for $173 million.
Speaker Change: and finally during the quarter we also invested $80 million in two vision technology providers, including a company focused on the China market as well as repaying $700 million of debt.
Speaker Change: Moving to slide 12.
Speaker Change: Revenue of $4.9 billion, down 6% negatively impacted by lower vehicle production in the quarter, offset by sectoral growth in key product lines.
Speaker Change: Net Christ in commodities were posited in the quarter and then that affects impact was minimal.
Speaker Change: Remany performance was generally consistent across regions with North America down 7% and Europe and China both down 6%.
Speaker Change: North American was driven by law or production, partially offset by 20% growth in active safety.
Speaker Change: European Performance was heard by KELVILD, the Jigros Natta St. off-step by lower production volumes.
Speaker Change: and in China, sales to local OEM's group 3% in the quarter and represented approximately 54% of total-time revenues.
Speaker Change: in the slide 13.
Speaker Change: Within our ASU ex-segment, year-of-year revenues were down by 1% or 4% above global vehicle production.
Speaker Change: The active safety product line grew 14% the quarter or 19% above the above production with growth across all regions.
Speaker Change: Provinac of Safety in China was 26% as we rent several new program launches with Chinese local OEMs, more than offsetting the impact of lower multinational volumes on the product line.
Speaker Change: Mark, vehicle computer software product line is root 3% in the quarter or 8% of our market benefiting from new program launch.
Speaker Change: This growth was offset by user experience, which was down 17% in the quarter, reflecting a wind out of a legacy program, as well as lower Chinese multinational vehicle production.
Speaker Change: Takement of Justice, Operating Income, and Marching in the Quarter were record $196,000,000 and 13.7% respectively.
Speaker Change: Resulting from significant year-over-year improvement and operating performance consistent with our expectations. And our continued focus on cost containment and improvement initiatives, including the rotation of engineering resources to best cost locations.
Speaker Change: Turning to signal and power on slide 14.
Speaker Change: and Kevin U. The quarter was $3.4 billion by decrease of 8% or 3% below vehicle production.
Speaker Change: Within signal and power solutions, vehicle production headwinds and a significant decrease in EV volumes have impacted growth over the past several quarters.
Speaker Change: or this negative impact has been much more concentrated within the electrical distribution systems product line.
Speaker Change: Electrical distribution was down 12% in the quarter or 7% below market, including the impact of low-reve volumes, which was down 20%.
Speaker Change: Electrical Distribution was also negatively impacted by lower production and select customers.
Speaker Change: including one of the product lines, Largest OEMs whose Q3 global vehicle production was down by over 20% and a quarter and down 35% in North America.
Speaker Change: The engineer from Pontus Product Line was down 4% in the quarter as lower production and select out our motor customers, which partially offset by 9% growth in our aerospace and industrial interconnect product lines.
Speaker Change: Thank you for joining us at the operating income of $397 million or $11.5% reflecting the flow through a lower revenues. Partially offset by improved operating performance as well as net price and commodities.
Speaker Change: The year over year, FX impact was not significant.
Speaker Change: in the 5 16th.
Speaker Change: Turning to our full year outlook. As we continue at the room, as we look at the remainder of the year, we expect continued pressure on global vehicle production and customer schedules.
Speaker Change: I'll ever remain confident that the actions we have taken to improve.
Speaker Change: Performance and Reduced Costs will continue to drive strong operating performance and cashwood generation.
Speaker Change: Our outlook includes revenues in the range of $19.6 billion to $19.9 billion, down from the prior bid point of $20.25 billion, representing a trusted revenue growth to percent.
Speaker Change: We are assuming global vehicle production will be down 4% and 2024. Let us as our prior look, out look at down 3%.
Speaker Change: Academy of Equal Production is expected to be up 1% while North American Europe are down 3% and 6% respectively.
Speaker Change: Operating income of $2.35 billion and operating margin of 11.9% at the midpoint reflecting margin expansion of 130 basis points over prior year.
Speaker Change: We are also revising our ETS estimates to $6.15 at the midpoint. A decrease of 15 cents from our guide driven by lower earnings.
Speaker Change: We are holding our operating cash forecast at $2.15 billion, up 13% from the prior year, as we continue to drive improvements in working capital and adjust capital spending for current market conditions.
Speaker Change: Before handing this all back to Kevin, I would like to touch your bottom, continue strong performance as it relates to cash flow generation and capital allocation.
Speaker Change: Here today we have generated almost $1.4 billion in operating cash flow and increase of 9% over the last year.
Speaker Change: This is a lot after to continue invest in the business both organically and integrantly, including investments in two-vision software partners during the quarter. Significantly increase our return of capital shareholders while maintaining our financial goals.
Speaker Change: Our strong operating performance and relentless focus on optimizing our cost structure, enables us to convert more income to cash, allowing us to maintain a well balanced approach to capital locations that we believe helps drive shareholder value.
Speaker Change: and with that I'll throw the call back to Kevin for his closing remarks. Thanks, Joseph. I'll make some final remarks on slide 17 before opening the lineup for questions.
Kevin: We executed wellness recorder despite continued near-term revenue headlines with records recorded earnings margins and EPS.
Kevin: While our updated financial outlook reflects a revised forecast for global vehicle production, where well-positioned to deliver strong earnings growth and margin expansion during the balance of the year and in the 2025.
Kevin: We've actively shaped our business model and portfolio solutions for provider customers with better performance and greater flexibility and a lower cost.
Kevin: and the resulting strong competitive physician we stake now, combined with our industry-leading cost structure ensures that we're well-positioned to deliver strong financial results and share all the returns even in this dynamic environment. Operator, let's open the line for questions.
Speaker Change: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one initial question and one follow-up to allow everyone the opportunity to signal.
Speaker Change: again, that is star one to ask a question.
Speaker Change: We will not take our first question from Chris McNally with Evertwar.
Chris Mcnally: Thanks so much team.
Chris Mcnally: So the operating environment is extremely tough, but clearly the decrementals, as you mentioned, are managing, you know, a quick, quick calculus from the beginning of the year, is almost a...
Chris Mcnally: 1.9 billion dollar revenue guide reduction, but only roughly 200 million.
Chris Mcnally: and related to EBIT, so that's almost 11% of the fundamentals of your obviously typically when revenue falls.
Speaker Change: your decomences are much higher. So my question is how to think of the ebook lock from this period of second half and get 25, low 12 percent margin second half.
Speaker Change: That's probably, I don't know, 11.5, maybe a little bit better on a real current face to sexy, you know, the R&D reimbursement. Can we think about that 11.5 to 12% as a starting point?
Speaker Change: for 2025 and I know I'm not trying to have you give a guide. Just curious the underlying, how much of this momentum we're seeing in margin execution can be carried forward into 2025.
Speaker Change: Hey Chris, it's Joel. Let me start on the 17th to jump in. We have to be very fortunate at this point with 2025. I think we've...
Speaker Change: You know, I think as you've seen our customers have been great in August of 2025. So we're going to stare away from that. We're obviously very focused.
Speaker Change: on large intermargin expansion. We took a number of initiatives all the way back to 2023, including what we just got to that investor day, to get the cost structure and the margin performance of the business back to where it was before all of the disruptions of the prior year. So.
Speaker Change: The initiatives will continue.
Speaker Change: Oh my god.
Speaker Change: I would just caution it is a challenging environment and as I mentioned my prepared remarks we have one large customer that drops production 35% in the third quarter from the schedules we had the last time we were on the earnings on an earnings call.
Speaker Change: and I think we'll react as best we tend to the organization. We're very focused on it. We're proactive on the cost side. But I, in coming to Joe Ben, I would not underestimate the volatility of the market at the moment.
Speaker Change: and then maybe my file up is for both Kevin and Joe. Can we think about in preparing for what will be, I think, we all agree that 2025 is going to be continued volatility, particularly from some of those.
Speaker Change: I think the premise of the debate is that you have to think about the way to think about cost buckets, either what you're doing in Quarmental or maybe what has been done in the second half that we can think about carrying over into 2025. Anyway, to think about proactively what you're doing now to get ahead of some of the issues. Thanks so much. Yes. So Chris, it's a great question. And listen, I think what we're trying to make sure start from a baseline standpoint. I think the premise and the baseline that you talked about.
Speaker Change: is a reasonable one for us. Sitting here is operators, though, when we see third-quarter production by no-am, one of our large-royams, drop by 35%.
Speaker Change: It obviously creates a level of constant concern. We've been in front of it all year last year we reduced overall salary count by 10%.
Speaker Change: and the process of taking another large production as a release of Saarid Headcount.
Speaker Change: In addition, we're in the midst of consolidating manufacturing facilities in China and in North America. And as a part of that, we're taking out a direct and indirect labor.
Speaker Change: and now we're very focused on in addition to those opportunities, how do we optimize engineering? I made comments to focusing investments on productizing solutions.
Speaker Change: is well as what we can do from a material cost standpoint. For the last couple years we've been talking about building up our capabilities from a China SOC, semiconductor sourcing standpoint.
Speaker Change: We have several OEMs in China that are now adapting those technologies. I refer to it with my prepared remarks rolled up to Western alternatives. Those are delivering class savings of anywhere between 10% and 30% relative to the Western and social science and semiconductor.
Speaker Change: Suppliers and now we have a number of, uh, principally European-based OEMs that are evaluating those as alternate as well.
Speaker Change: So we're focused on every one of those, every one of those levers to improve profitability and to be, you know, to be honest, we were in front of it before we saw this last step down in vehicle production and the third quarter and rolling into the fourth quarter.
Speaker Change: and the
Speaker Change: from John Murphy with Bank of America.
Speaker Change: Good morning, guys. Not surprisingly, I probably want to follow up on the line of questioning Chris just had. Kevin, is you think about what's going on here at that one large customer, I think we all.
Speaker Change: Know that is which is basically 2x peak to trough decline on the cycle So that's kind of amazing that something like that happens in a quarter You're getting a rebasing of some of your sort of incumbent and traditional
Speaker Change: customers sort of to the downside particularly around EVs. At the same time you're now overexposed to the Chinese
Speaker Change: domestics and you said 54% in the quarter.
Speaker Change: And at the Tesla Robotaxi day, I think, you know, there were sneak peeks at a lot of your technology, particularly the wireless charging, the kind of...
Speaker Change: crept up and Tesla's a big customer. So if you think about it, you're waiting.
Speaker Change: and your products as we go forward.
Speaker Change: seem to be set up to recreate an acceleration of growth above market, even in what might be a choppy market. Is that a correct characterization? And how do you think about that? Without getting into 25 Guide, but it does seem like... No, no, it's... No, John... There's a re-acceleration coming. Yeah, that's a great question.
Speaker Change: Yeah, no, so you look at baseline, we would sit here and say in a normalized environment, absolutely. When we look at the amount of revenue that has come out of our forecast,
Speaker Change: and come out of certain product lines from the beginning of the year towards where we sit today.
Speaker Change: We would say normalize. We're in a great position for strong growth in 2025 and beyond.
Speaker Change: We would say that. I think what you... So I'd start with that, one. Two, Joe and I and the team feel very good about our ability to control cost and manage margin.
Speaker Change: We do that very, very well. And we work real hard to be in front of things. And we have a number of initiatives over the last three years in and around our cost structure, in and around our supply chain that Joe has led.
Speaker Change: that are starting to pay dividends and we feel will pay dividends in 2025 and beyond.
Speaker Change: What we're concerned about is when we see the level of volatility in schedules from our OEMs, it's tough to predict quarter-to-quarter
Speaker Change: how that lost volume plays out, right? And for us to deliver earnings, it's certainly helpful.
Speaker Change: and a, you know, almost 11% increase in operating income, almost a 30% increase in EPS. But doing that, you know, year in, year out, quarter to quarter, we just want to alert our investors that that's a challenge to do.
Speaker Change: and you know we're well positioned in a product portfolio you know our mix of customers and in China we've made significant progress so when you break down you know you look at our mix roughly 33% today are the traditional globals
Speaker Change: And the balance are the local Chinese OEMs and a U.S.-based global EV manufacturer.
Speaker Change: and you know we're booking several opportunities with those local OEMs out in China and outside of China. So we feel good about where we are, what we don't feel good about is the volatility in the schedules from our OEM customers.
Speaker Change: That's incredibly helpful. And just a follow-up on the portfolio, you know, you've been a master as a team in portfolio rebalancing. You know, we've seen this with Motional in and out, Delphi, Spin, and other things. And, you know, we're hearing this.
Speaker Change: you know, this comment a number of times through the call of the investment in these two vision...
Speaker Change: your software partners and this reduction in SOC. Is there something that you know that might change in the portfolio you know more in that direction and kind of becoming a more holistic supplier with that SOC those SOC partners or there even other things in the portfolio Kevin that you might you might consider?
Speaker Change: Those actions have created a lot of shareholder value over time, just curious if there's anything there. John, we're always looking at how do we optimize value through changes in our portfolio.
Speaker Change: to the extent we see opportunities to drive incremental shareholder value, those are things that we'll move forward with.
Speaker Change: We have two great businesses and two great segments. You know, the ASUX business, it's playing out as we plan. We're building much more of a software business with advanced software technologies.
Speaker Change: within the SPS business. We have the industry-leading power and data distribution business that unfortunately is being hit with the headwinds associated with EV adoption compounded with customer mix.
Speaker Change: and then we have an engineer components business that is growing over market within that segment that has you know very strong you know
Speaker Change: 20% plus sort of operating margin.
Speaker Change: So we have a great portfolio. We'll continue to evaluate what we do in terms of maximizing value.
Speaker Change: Kevin is there anything specific on those vision you know the vision software side of things that might be going on?
Kevin Clark: Well, the Gen 6 ADAS solution is a vision agnostic solution, so we're very focused on open architecture that allows the integration of any vision solution that our OEM customers desire. Those two investments are what we would call reference.
Kevin Clark: reference vision solutions. One is a Korean based company that has very very strong AI ML capabilities.
Kevin Clark: and mirroring that with our very strong radar capabilities, we can deliver...
Kevin Clark: better performance relative to what we're seeing in the market today and what's going to be introduced in the future at lower cost. So we're in an environment where our customers are really screaming for better solutions.
Kevin Clark: with a real emphasis though on lower cost and that's what we're trying to do.
Kevin Clark: China market, our view of the China market is we've been building out localizing our supply chain.
Kevin Clark: that it's more than likely at some point in time our Chinese customers are demanding only Chinese source product, whether that be SoC, whether that be vision solutions, whether that be software solutions. And that's the capability that we've built out for those customers.
Speaker Change: Very helpful. Thank you.
Speaker Change: We'll go next to Joe Speck with UBS.
Joe Speck: Thanks, good morning.
Joe Speck: Look, you guys have clearly done a good job on the cost side in a difficult operating environment. I guess I just want to
Joe Speck: better understand one dynamic and sort of how you deal with some of this volatility, and I'll use sort of the S&PS margins of this quarter as an example.
Joe Speck: because I we saw you know sequentially
Joe Speck: like a $39 million drop in OI versus $69 million drop in revenue. So I think that's because of that higher labor intensity in that segment, but I just want to make sure that that's what that is, if there's anything else going on.
Joe Speck: since that is the case, like what are some other actions you could do if you think schedules are going to remain pretty volatile here over the near term?
Speaker Change: Yeah, the big challenge there, and Joe can walk through the numbers, Joe, as you think about it, when we see late changes in schedules
Speaker Change: We have massive amounts of labor sitting idle.
Speaker Change: And, and, um...
Joe: No revenue, right, to effectively pay for that.
Joe: When we have advance notice, we have the ability to more quickly recalibrate our manning tables and our labor in the plant.
Joe: and do layoffs or reductions or whatever the case may be. But based on what we saw, especially in North America,
Joe: third quarter.
Joe: Schedules were dropping with a couple OEMs, literally on a day-to-day basis, so reacting to that was impossible.
Joe: What have we done on a go-forward basis? Transparently, we've taken the current run rate of those customers' schedules and we've reduced capacity in line with what we're seeing now.
Joe: So there may be a pinch on the upside if production schedules increase rapidly.
Joe: but we'll deal with that but the challenge in terms of you know the cost associated with supporting
Joe: their volatility, it's just too expensive. And when we were last on the earnings call, we talked about schedules coming down in an incremental, significant layer of conservatism that we overlaid and manning to that more conservative level.
Joe: the reality, it ended up more volatile and even lower.
Joe: So, Joel, myself, and the team decided we're taking the labor out now, we're going to start rotating footprint and consolidating facilities, and we'll manage to the extent there's upside. It'll be less efficient, but we won't be left holding the bag on the downside.
Speaker Change: But it's fair to say that lower efficiency on the upside, given how you're planning now, is still lower than the inefficiency you've seen in that
Speaker Change: sharp declines like you experienced this quarter, correct? Yeah, I think that's a very fair point. And I agree with everything Kevin just said, Joe. I think there's a little bit of it's timing, right? Reacting to a 35% reduction of the top three customers in a quarter.
Speaker Change: We're not just going to get it all done in that quarter, right? It's just hard to pivot that quickly. We're moving, you're just not going to see it in the results of the quarter where that volume comes down, right?
Speaker Change: Okay, and just as a second question on the bookings, I mean, you're not the only ones that we've heard from, you know, OEMs doing some decisions. I think given all this uncertainty, we just talked about, presumably though, that's with the...
Speaker Change: With the legacy players I'm wondering if it's just if there if it's across all types of products you you serve or specific products
Speaker Change: and then you did talk about some positives on the China front and they seem to move faster so is there some you know maybe potential offset there as you continue to make progress in that in that region?
Speaker Change: yeah from a China standpoint just given the nature of the programs and and how many new introductions or enhancements
Speaker Change: that we typically see on a vehicle program, you know, that's an area where we're actually bookings are very strong this year on a year-over-year basis. I don't have the numbers in front of me, but they're stronger than what we're seeing in other regions and it's across our broader portfolio. I think as it relates to North America
Speaker Change: In Europe, Joe, listen, we have a number of opportunities in the funnel that we think decisions are going to be made between now and year end.
Speaker Change: We do, there's a couple that we decided in terms of outlook for investors. We should assume those happen in the first quarter of next year just to be prudent.
Speaker Change: It's possible they could happen before you're in and provide, you know, an upside surprise but just
Speaker Change: Just in terms of trying to be prudent a little bit conservative We just assume those get good pushed out But but OEM customers are still working on advanced ADAS solutions the funnel for SVA opportunities are significant The funnel for quite frankly whether it's EV or plug-in hybrid opportunities is significant as well And we'll start seeing the benefit of those
Speaker Change: from a booking standpoint and, to a certain extent, revenue standpoint as we head into 2025 and beyond.
Speaker Change: Thank you.
Speaker Change: We'll go next to Emanuel Rosner with Wolf Research.
Speaker Change: Bye.
Emanuel Rosner: Thank you so much.
Emanuel Rosner: So just back on the very challenging environment and the production cuts being done on very short notice.
Emanuel Rosner: It seems like, obviously, big impact on Q3, but backing into, I guess, implied Q4, I think maybe you expect a bit of a
Emanuel Rosner: re-acceleration, certainly over like market expectations. So I guess what gives you that level of confidence into you know the the current quarter in light of how you know how quickly some of these decisions are being made?
Speaker Change: Now, obviously, I think we've, you know, we've taken, I mean, I'll start, you know, we've obviously taken down folio, right, that's in addition to just what we had for a month.
Speaker Change: Two, three minutes. I will tell you, vehicle production, those customers that we've highlighted continue to be challenged.
Speaker Change: I think offsetting that, you know, we talked over the course of this year about what we expected to be
Speaker Change: some meaningful launch activity in the back half of the year. Those launches, as Kevin talked about, are happening. They're at slightly lower volumes because the world's building fewer cars, obviously, but the launches themselves are happening. So, and then, you know, as I talked about, just, you know, in my prepared comments,
Speaker Change: We're dealing with vehicle production coming out. There's still some great secular growth in the active safety business, including active safety business in China. That was up 26% a quarter in Q3. So we still have product lines that are.
Speaker Change: rowing and launching new products that's giving us a mix, but it's just obviously not enough to offset the drops in global vehicle production.
Speaker Change: Okay. And I guess just, you know, shifting with a focus on the next slide. Hey, Manuel, it's Kevin. Hey, Manuel, can I interrupt you one second? Just, and the other thing I, when you talk about year-over-year growth.
Kevin Clark: Just remember last year on an apples-to-apples basis, there was a strike in North America, so when you look at year-over-year growth, it's impacted to some extent by that. And I think when you look at the sequential Q3 to Q4,
Kevin Clark: The incremental revenue is less than $100 million, right? I think it's roughly $80 million of revenues coming off of what we consider to be a fairly low base in Q3.
Kevin Clark: So...
Speaker Change: Yeah, no, that's that's helpful context
Speaker Change: And with an eye on next week's U.S. elections, I think there's a bit of investor concerns around, you know, potential...
Speaker Change: depending on the outcome, potential future rhetoric on, you know, maybe duties and tariffs, and in particular...
Speaker Change: on things being, you know, shipped from Mexico. Can you maybe just remind us in terms of your exposure, how much, you know, actually sort of like crosses the border and then, you know, just holistically, how you would think about managing that risk or environment depending on the scenario and outcome?
Speaker Change: Yeah back in 2016 given you know all the noise and and all the challenges
Speaker Change: We went through a very active regionalization push from a supply chain standpoint, and Joe actually led that activity. When you look at manufacturing, we manufacture 90% of what we sell in Region 4 Region.
Speaker Change: When you look at supply chain, so what we source and what we move around, it's roughly 80% of what we source is in region, for region.
Speaker Change: Those areas that we're short tend to be areas in and around some electronics, some semiconductor products. So we've done a lot. We feel like we're way in front of it and to the extent, and we'll see ultimately what happens.
Speaker Change: that we see tariffs, that it's pretty manageable for us relative to others. Joe should add to my comment.
Joe Massaro: No, I agree with that, and again, we've been through a version of this before. We made permanent changes, to Kevin's point, to our supply chain and our product flows that are still in place.
Joe: The current administration did not significantly change some of those tariff regimes as well, right? So, we'll obviously need to react to what happens, but I think the team is well-versed in what to do and ready to react.
Speaker Change: Great, thank you.
Speaker Change: We'll move next to Mark Delaney with Goldman Sachs.
Mark Delaney: Yes, good morning. Thanks very much for taking my questions.
Mark Delaney: I was hoping to better understand how pricing negotiations with OEMs for 2025 are tracking relative to the historical low single-digit declines that have been traditional in the industry and do you think Aptiv will be able to secure economics that better reflect the volatility the company is dealing with?
Speaker Change: It's a good question. So, we're constantly in discussions with our customers about price. I mean, it's an ongoing activity. I would say, as we head into 2025,
Speaker Change: the discussions aren't aren't really any different. I would say with with one caveat I think with most of our OEMs we're spending a lot more time on how do we how do we together strategically figure out ways to lower costs.
Speaker Change: and I think that's that's certainly true in North America.
Speaker Change: is true with some of our customers in Europe and then in Asia. So how do we look at full system solutions?
Speaker Change: How do we take out unnecessary content from a full system design standpoint? That's one of the big benefits of what we've done from an ASUX standpoint in terms of our product high solutions. It's one of the things we've done.
Speaker Change: when you think about our vehicle architecture solutions. So we're seeing more traction there and more focus from OEMs in terms of how do we identify those sorts of engineered in savings, which is helpful.
Speaker Change: From a footprint standpoint, we've talked about labor costs in Mexico with you in the past. They remain high.
Speaker Change: and there's several OEMs in North America that we're working with on rotating footprint as we head into 2025 and 2026. So I'd say to a certain extent more collaborative, although the time is a bit more of a challenging time for them.
Speaker Change: Thanks a lot, Kevin. My second question was around the connectors and engineered components. Earlier this week, the leading North American EV OEM announced a plan to simplify its connector use and announced the low-voltage connector standard, I believe targeted at 48 volts. I realize Aptiv has been quite active in helping its OEM customers to be more efficient with their electrical and electronic architectures, and you've got SVA, but I'm hoping to better understand how news like that may affect Aptiv. Thank you.
Speaker Change: That particular customer we've made a lot of progress with over the years across vehicle lines and regions.
Speaker Change: We're very active in terms of always how do we take out costs, and part of that is standardization. And working with them, it's translated into more content.
Speaker Change: and more revenue opportunities both on the vehicle as well as off the vehicle. We would expect that to continue to happen.
Speaker Change: It's an important customer that we're certainly well, we're certainly invested in from a commitment from an engineering standpoint, so we see opportunities there.
Speaker Change: Thank you.
Speaker Change: We'll go next to Dan Levy with Barclays.
Dan Levy: Hi, good morning, thanks for taking the questions.
Dan Levy: I want to start with ASUX, pretty material year-over-year increase in margins from what we thought was supposed to be a seasonally weaker period. Maybe you could just explain you know the move which I think you know says in the DEC engineering manufacturing performance initiative you know is this the right starting point for ASUX? Was there something unique about timing of recoveries?
Speaker Change: Overall, there's nothing unique, right? We talked about it even going back to the Investor Day at 2023.
Speaker Change: February 2023 and I realize a lot's changed from a volume perspective but as we talked about you know there were a number of initiatives in place to get them to restore effectively where that margin was in that business pre
Speaker Change: Pre-supply Chain Disruptions and
Speaker Change: You know, you've heard us talk a lot about what we've done from a supplier perspective, the China SOCs.
Speaker Change: You know, to some extent, even if you don't have Trent SOCs in hand at the moment, it just helps with a little bit of the cost dynamic. And we continue to work the manufacturing side of that business. So, you know, we talked about in February of...
Speaker Change: of 23, the material performance, the engineering performance, the rotation of best-cost countries, the material performance, and, you know, despite...
Speaker Change: volume headwinds.
Speaker Change: where the team is delivering on a lot of those. So I think it's very consistent with what we've seen. You know, to our comments about volatility, could you see it bounce around a little bit quarter to quarter just depending on what happens?
Speaker Change: From a customer volatility perspective, but long-term we talked about this business getting to low team margins In the 2025-2026 time period and that's what you're seeing
Speaker Change: Okay, great. Thanks. And then as a follow-up, I wanted to just ask something along the lines of what Mark was asking, but a bit more just, you know, post a lot of the programs that you booked in the past.
Speaker Change: We look at the bookings, obviously very high numbers in the past.
Speaker Change: clear delays, volume is not coming in, you know, as expected.
Speaker Change: You've incurred already a lot of the validation expense, maybe some of the tooling for these programs. Maybe you could just talk about the process of incremental recoveries, what opportunity may exist given clearly the programs that you booked, the volumes aren't coming in as planned.
Speaker Change: Thank you for watching.
Speaker Change: Yes, so what tends to happen, and it's a great question, what tends to happen, and it varies a little bit by OEM, some have a very formulaic process, others, it's a mix of that and negotiation. What tends to happen...
Speaker Change: and then a discussion about replacement programs.
Speaker Change: That tends to be how it works, with a view that the supplier is made whole from an investment standpoint.
Speaker Change: negotiation about kind of that lost profitability and then more often than not other commercial opportunities to fill what you know you'd consider to be a revenue hole.
Speaker Change: So, you know, you can imagine just given the environment today, we're having those sorts of discussions with customers, I'd say, by and large, they're going relatively well. It's just a matter of, you know,
Speaker Change: sitting down and walking through those and just getting them over the goal line.
Speaker Change: and maybe you can just remind us of the resource outlay that you've had on these, you know, books but not yet launched programs. Is this mostly CAPEX or is this stuff that would have appeared in OPEX, just validation expense to start to look?
Speaker Change: Great question. It's a mix and it would vary a little bit. It would vary a bit by program and vary a bit by how close you were to launch.
Speaker Change: So, first phase would be advanced engineering.
Speaker Change: Starting three years ago, as we mentioned previously and it's in our prepared remarks, we really focused our investment, our engineering investment on productized solutions so that we're not
Speaker Change: We're now providing engineering services that aren't, to some extent, reusable, and that varies a little bit by...
Speaker Change: by business and by program. So that would be the first phase, so-called advanced engineering. The second phase would be
Speaker Change: basically development of the actual solution or introduction of the actual solution which is all about, as you highlighted, integration, testing, validation.
Speaker Change: and then late in that process you're investing in equipment, tooling, maybe manufacturing floor space depending upon upon what it is and that would be the last phase prior to launch.
Speaker Change: Thank you for listening.
Speaker Change: Great, that's helpful commentary. Thank you.
Speaker Change: We'll go next to Tom Narayan with RBC Capital Markets.
Tom Narayan: Thanks for taking the question. Apologies if you've already answered this. There's a couple other calls going on including the...
Tom Narayan: customer that cut production 35%
Speaker Change: The growth over market expectations for the full year, Joe, have you revised that post 3Q?
Joe: Yeah, you look at it, if you follow through the numbers, you're looking at revenue growth and I referenced this in my prepared remarks. Revenue growth is 2% down in a market that we view as 4% down.
Speaker Change: Okay, and then the peso was down...
Speaker Change: Okay, and the Mexican pace was down quite a bit in...
Speaker Change: in the quarter, in the past, that appreciation has hurt your margins. Was that a meaningful contribution, margin-wise, the weakening peso?
Speaker Change: FX overall was fairly neutral from a quarter perspective, just you know there was there were some movements. A weaker peso is helpful but it's not particularly material in the quarter.
Speaker Change: And then my last one.
Speaker Change: You know if you think about Europe, there's large European OEM commented on their call
Speaker Change: yesterday that you know on one hand they're expecting kind of like a 14 million production number for Europe and used to be 16 million or sales number but on the flip side there's this expectation that the EV push has to be a lot bigger next year because of co2 compliance
Speaker Change: In a world with, in Europe let's say, with much lower overall production, but much stronger EV production, I know it's hard to kind of...
Speaker Change: net that out, but I would think you guys would be a net beneficiary of that on SPS. Is that fair to say?
Speaker Change: In a good comments, Kevin, it depends on customer and program mix, right? And I know you know that. But, you know, if you were to normalize, you would say, you know,
Speaker Change: If it's a BEV, it's two times the content opportunity, if it's a plug-in hybrid, it's a little bit less than that, if it's a hybrid, it's a one and a half. So, you're right.
Speaker Change: a net incremental sort of revenue opportunity that should be out there but again it's dependent it's dependent on platform and in OEM
Speaker Change: Thank you for watching!
Speaker Change: All right, thanks. We're turned over.
Speaker Change: Hey, guys.
Speaker Change: So my question, can you just speak to the 18% stake in MaxEI and how that unlocks opportunities for Aptiv in China? Any additional color on that because I know you did reference that. And then there was an announcement yesterday by Siemens, I believe it was yesterday, to acquire Altair in a 10 billion dollar deal.
Speaker Change: Can you just shed any light on just where Althera plays within the automotive software stack, assuming you might be familiar, and whether this could have any competitive influence in the areas that Aptiv and Wind River play in? Thanks.
Speaker Change: I'll take Max, then Kevin can speak to Altair. So, as everyone knows, right, the development of active safety in China requires a significant local presence.
Speaker Change: Right, there's regulatory, um...
Speaker Change: requirements around where you do mapping, where the data is stored, those types of things. There's obviously, as we're seeing, a, you know, a customer bias to China Tech first in China among the local OEMs. We see that with SOC. We've been talking about it.
Speaker Change: So from a, you know, having a vision agnostic...
Speaker Change: Gen 6 active safety system, for us, it makes perfect sense to have a China Vision solution that plugs into that system.
Speaker Change: because you then have the ability to sell and develop systems within China that are, you know, look very consistent with the local Chinese OEMs have. So Max has a great company. We've gotten to know them over the last couple years and
Speaker Change: You know, for us, you know, and you've seen us do this in the past, making some smart investments in these types of businesses that have, you know, a clear path to helping us from a commercial perspective is, as I said, really something we've done from the past. Kevin, if you want to... Yeah, yeah, so Altair, they play in kind of the, I'd call it, the systems engineering
Speaker Change: That's a small part of the engineering toolchain, is a part of what Wind River delivers and is launching within the automotive industry.
Kevin Clark: I'm not aware of Altair having a real strong position in that particular space, so I wouldn't view them as an overall competitor, but it's really about how do you make, they're really about how do you make software development a much more efficient process.
Speaker Change: That's a small part of what Wind River does today. We're hoping to make it a bigger part. I'd say we're more focused on the automotive space, they're more focused on the kind of the industrial landscape, broader industrial landscape.
Speaker Change: Very helpful. Thanks, guys.
Speaker Change: Thank you.
Speaker Change: We will take our final question from Colin Langan with Wells Fargo.
Colin Langan: Oh great, thanks for taking my question.
Colin Langan: Just want to follow up on the very beginning question to make sure I understand what you're trying to indicate. I think in the past you talked about sort of mid-single growth over market next year and I think you've talked about trying to get to a 12.5% margin. You seem a bit more cautious on it now.
Speaker Change #100: are we interpreting that it's just there's so much volatility that if we don't see that volatility those sort of targets are on track and it's just there's a lot of skepticism given all we've seen in Q3. Yeah, it's pretty clear. Yeah, in terms of mix or whatever.
Speaker Change #101: Yeah, Collin, just to be clear, yeah, if we don't see that level of volatility, we're comfortable with that sort of performance. Just the volatility we're seeing...
Speaker Change #101: right now with no clear line of sight as to when.
Speaker Change #101: that potentially goes away. Obviously it makes us cautious.
Speaker Change #101: So, the underlying business, as you see in the numbers, is performing extremely well. I mean, again, underscoring for investors, and we know revenue growth is really important, but we have a business that's going to, revenues are going to climb 2%, and earnings are going to grow 10%, EPS is going to grow almost 30%.
Speaker Change #101: So we feel really good about the business. What we feel concerned about is our visibility to the production schedules of our customers.
Speaker Change #101: and they're much more volatile in a much shorter sort of time frame now than what the management team here is accustomed to.
Speaker Change #101: So that's what you should read into our comments.
Speaker Change #102: Thank you for clarifying. And then touching on earlier, someone asked about EV growth. And can you remind us how has that business done this year?
Speaker Change #103: And then, shouldn't that actually start to turn the corner next year, because you do have, you know, assuming the regulations get enforced in Europe and then the EPA standards get tougher in the U.S., is that still like almost locked good news because of the regulatory push into next year?
Speaker Change #104: Yeah, I'll let Joe go through the numbers. Listen, I think in theory you're absolutely right, but our customers need to build the cars.
Speaker Change #104: You know, that's been very choppy this year.
Joe Massaro: Yeah, Colin, as I mentioned in my prepared comments, the EV product line or the EV business was down 20% in the quarter. You know, you're likely to see something like that for the full year number. Maybe a little bit, maybe a little bit lower, but it's in that range of 15 to 20% down.
Speaker Change #105: To Kevin's point, we have the technology, but they have to build the cars.
Speaker Change #105: And, you know, we're obviously in a very strong position in China. That market is, as we've talked about, is fully going EV. But you have some headwinds, you know, and certainly in Europe.
Speaker Change #105: and North America is obviously taking a big step back down this year. So, very well positioned, we've got the right tech for full EV, we've got the right tech for the hybrid, plug-in or sort of straight hybrid, but it's really just when do we see that production meaningfully return.
Speaker Change #106: Got it. All right, thanks for taking my questions.
Speaker Change #107: Thanks all.
Speaker Change #108: That will conclude the Q&A session. I would now like to turn the conference back to Kevin Clark for any additional or closing remarks.
Kevin Clark: Thank you very much, operator. Listen, to wrap up, maybe the way
Kevin Clark: I would or we would kind of leave investment in terms of how we're thinking about things. It's really, for us, it's about controlling what we can control. And that's what we're very much focused on. And I'd say there are two prongs to that strategy. Their prong one is...
Kevin Clark: Delivering to our customers solutions that lower their total cost of ownership. We are very focused on how to deliver solutions that lower their cost.
Kevin Clark: and lower them over the life cycle of the vehicle.
Kevin Clark: which we believe is attractive to our customers and we'll see more interest in and more adoption, especially in light of the environment we're in.
Kevin Clark: The second is we're taking several cost actions off of the baseline that we're operating at today.
Kevin Clark: So, to the extent we do see upside from an electrification standpoint or schedule standpoint, we will see some benefits. There may be some inefficiencies that we need to deal with.
Kevin Clark: But those inefficiencies will be less than what we're absorbing today with excess capacity and excess resources.
Kevin Clark: So that's really what the team is very much focused on. Again, we feel very good about how the business is operating. We feel very good about the robustness of the business model.
Kevin Clark: We feel very concerned about just the volatility that sits in the environment today and the need to react to it. As a result, we're narrowing our focus to those simple things.
Speaker Change #109: So listen, we appreciate your time today. Thanks for taking the time to listen to our call. We appreciate you as investors and If you have any further questions, please let us know. We'll follow up with you.
Speaker Change #110: And ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect and have a great day.
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