Operator:

Good day and welcome to the Aptiv Q2 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.

Kevin Clark:

Thanks, Jane and thanks, everyone, for joining us this morning. Let's begin on Slide 3. Looking at the second quarter, we delivered record earnings and EPS, reflecting solid execution across the company as well as lower supply chain disruption costs, completion of the restructuring of the Motional joint venture, and lower share count. The strong earnings 180 basis points of operating margin expansion and 26% EPS growth was in spite of significant revenue headwinds from select customers, which Joe will provide more detail on later. These headwinds were partially offset by strong ADAS revenue growth in North America and Europe as well as double-digit revenue growth with the Chinese local OEMs. Our cash flow performance continued to be strong, positioning us to repurchase over $400 million of stock during the quarter. Building on that momentum, this morning, we announced a new $5 billion share repurchase authorization, which includes an accelerated share repurchase plan. reflecting our view that our stock is undervalued and does not reflect our significant market opportunities. Joe and I will provide more detail on the announcement later in the presentation. And lastly, we released our annual sustainability report, which provides an update on Aptiv's commitment to not only achieving our sustainability goals, but assisting our customers in achieving their goals as well. Moving to Slide 4. During the second quarter, we booked $4.3 billion in new business awards, bringing the year-to-date total to over $17 billion, putting us on track to achieve our full year target of $35 billion. Advanced Safety & User Experience bookings in the quarter totaled $900 million, driven by continued strong momentum in ADAS as well as awards across Wind River's product portfolio in the A&D, telco, industrial, and automotive markets. bringing year-to-date bookings to nearly $3.5 billion. Signal & Power Solutions new business bookings totaled $3.4 billion in the quarter and included an Electrical Architecture award with a leading Chinese local OEM on an export vehicle platform as well as a program extension with a global European-based commercial vehicle OEM, bringing year-to-date bookings to almost $14 billion. New business bookings in China across both segments continue to track to the changing customer landscape and market share gains made by the local OEMs. We Year-to-date, bookings with the Chinese local OEMs totaled over $1.8 billion, an increase of 27% over last year. Turning to our Advanced Safety and User Experience segment on Slide 5. The segment achieved record revenues and earnings during the quarter, reflecting the strength of our product portfolio as well as the efficiency of our operations. We continue to broaden our customer mix by leveraging our industry-leading ADAS portfolio. We booked a new ADAS program with a Chinese local OEM that utilizes the local SoC solution which customers in the China market are increasingly requiring as well as a radar award with a global Japanese OEM, representing the fifth RADAR program we've been awarded by Japanese customer over the last 12 months bringing total radar bookings with this customer segment to almost $1.1 billion. Revenue increased 2% to over $1.5 billion in the quarter as Aptiv's safety revenues increased mid-teens, partially offset by user experience revenues, which were impacted by significantly lower multinational OEM production in China. Operating income totaled a record $170 million, representing margins of 10.9%. As discussed during our last earnings call, supply chains have stabilized, which has led to a significant reduction in disruption costs. And as I mentioned, our China semiconductor sourcing initiative continues to gain traction with Chinese local OEMs and more global OEMs are requesting that we present them with similar options for both current and future programs providing incremental savings opportunities for our customers while also reducing our material costs and improving our profitability. Engineering expense also declined during the quarter, almost $20 million versus the same period last year, bringing the ratio of engineering to sales down 20 basis points, a trend that we're confident will continue. This has been the result of several efficiency initiatives, including the adoption of Wind River Studio for software development on new OEM programs, the rotation of software engineering activities to our tech centers in best cost countries and a reduction in advanced development activities to reflect changing market conditions. Moving to the next slide for an update on Wind River. As we discussed at our recent Wind River and software teach-ins, the digital transformation that reshape the consumer ecosystem is now driving change across other end markets. The strength of Wind River solutions to support that transformation is evident in our recent commercial awards across multiple end markets, totaling nearly $200 million year-to-date. This includes $90 million of aerospace and defense bookings where the need for certified mixed criticality software is driving demand for solutions such as VxWorks and Wind River Helix. In telco, the adoption of vRAN and O-RAN favors our open cloud-native solutions, resulting in $50 million in bookings year-to-date. And in industrial and automotive, the growth in connected software-defined devices, which are increasingly deploying AI at the edge, continues to present opportunities for Wind River's full portfolio as reflected in over $55 million in bookings year-to-date. To support the development, deployment and operation of these intelligent edge solutions, we're gaining commercial traction with Wind River Studio developer. During the quarter, we announced at three of the world's leading software engineering service providers are adopting studio developer. And as I mentioned, Aptiv's own adoption has meaningfully improved our software quality and increase the efficiency of our software development process. Lastly, Wind River just announced, it is the prime sponsor of the Elixir project in open source, Debian-based enterprise-grade Linux solution for the intelligent edge. AWS, Intel, Capgemini, Super Micro and SAIC have joined Wind River as project supporters and we will share more regarding the commercial opportunities associated with us in coming months. Turning to our Signal and Power Solutions segment on Slide 7. Revenues in the segment declined 3% during the quarter, principally the result of the reduction in production schedules by select customers, significantly impacting our electrical distribution systems business, which had revenues declined high single digits. Engineered Components grew low single digits in the quarter with solid revenue growth for traditional interconnect and specialty products in the automotive market and strong growth in the A&D and space markets, which is partially offset by a slowdown in orders from automotive Tier 1s. As I mentioned previously, Signal and Power Solutions booked approximately $3.4 billion in customer awards. We continue to diversify future revenues with Conquest Awards, including multiple engineered component awards for high-speed cable assemblies, high-end low-voltage interconnects and power distribution units with a Korean OEM. A high-voltage charging award with a Japanese OEM in North America, our fourth award to date that meets the North American charging standard. And lastly, our first grid energy storage award and although relatively small, we believe that this is just the start and that the energy storage systems represent an attractive end market for Signal and Power business. Operating income totaled $436 million, representing margins of 12.4% and reflecting strong operating performance resulting from lower supply chain disruption costs as well as manufacturing and engineering performance. We're aligning our manufacturing capacity in this segment across all regions to the lower OEM vehicle production schedules and continue to work closely with our OEM customers to address the labor situation in Mexico. Looking at Signal and Power in more detail. We wanted provide an update on our Engineered Components product line on Slide 8. Aptiv is a market leader in providing highly engineered, ruggedized and mission-critical interconnect, cable management and fastening solutions for automotive and industrial end markets. These solutions have a low cost relative to the overall bill of materials, but a high cost of failure and our integral to the safe and efficient distribution of power and data. Breaking it down further. Aptiv's Connection Systems business, which will have over $4 billion in revenue this year, is the number two global provider of automotive and commercial vehicle interconnect solutions. HellermannTyton is the number one of cable management and fastening solutions globally and is now almost a $2 billion business. Half of the revenue is automotive, and the other half of the business serves non-automotive end markets. Lastly, Winchester Interconnect provides highly specialized advanced interconnects and cable assemblies for A&D, commercial space, and other industrial end markets. Both HellermannTyton and Winchester provide access to growing markets benefiting from the same industry mega trends and customer needs in automotive and they're key to both our growth and diversification strategies, reducing our exposure to light vehicle production while strengthening through cycle resiliency. Moving to Slide 9. The global trends that included transition to electric power, edge to cloud connectivity and the path to higher levels of software and automation continue with some regions evolving faster than others. And these macro themes have been the tailwind for the safe, green and connected trends that have shaped the automotive industry over the last decade. And we strongly believe Aptiv remains well positioned to benefit from these trends. While the pace of EV adoption may be slower than recently anticipated, the demand for electrified vehicles that generate lower CO2 emissions continues to grow. Consumer demand for advanced safety solutions that meet global regulatory and rating agency standards remain strong and demand for edge to cloud connectivity that enables more intelligent solutions continues to grow. Despite some near-term challenges, our customers remain committed to making vehicles more safe, more green and more connected and require our expertise and assistance to develop optimized solutions that balance the trade-offs between performance and cost. And in cases where customers have or considering delaying their original next-gen technology adoption plans, we're being presented with several incremental near and midterm opportunities to enhance existing solutions. So OEMs can remain competitive in the market by addressing consumer demand for new features and applications that are more efficient, cost-effective and compliant with regulations. Moving to Slide 10. As the world continues to become more electrified and software-defined, we're uniquely positioned to enable this transition for our customers and are confident in our ability to meaningfully grow earnings and cash flow and deliver significant value to our shareholders and strongly believe that Aptiv shares are an attractive investment opportunity. Accordingly, our Board has approved a $5 billion share repurchase authorization including a $3 billion accelerated share repurchase program. The total authorization represents over 25% of our current market cap and is incremental to the almost $9 billion we returned to shareholders since our IPO in 2011. We're very excited about Aptiv's long-term growth prospects and believe that repurchasing our stock is a great investment. And given the strength of our financial performance, we can execute this repurchase program while continuing to invest in our portfolio of advanced technologies. With that, I'll now turn the call over to Joe.

Kevin Clark:

Thank you, Joe. I'll make some final remarks on Slide 20, before opening the lineup for questions. We executed well in the second quarter, despite the revenue headwinds with record earnings and strong cash flow. And we're well positioned to continue our solid operating performance through the remainder of the year. We believe our revised financial outlook is prudent, reflecting the lower OEM production schedules, plus an overlay of incremental management conservatism that Joe mentioned. And we're confident that our strong operating performance will translate into increased operating margins as reflected in our updated outlook. As the automotive industry navigates the near-term headwinds, we remain confident that the trends towards greater levels of electrification, connectivity and digitization will continue. And Aptiv's portfolio is well positioned to help our customers both transition to and benefit from a more electrified, connected and software-defined world, which we're confident will result in strong earnings and cash flow growth that will translate into significant value creation for our shareholders. Our conviction around the medium-to-long-term trend and our strong operating performance, has positioned us to take advantage of the market dislocation in our stock price, and allows us to increase our capital return to shareholders. Our management team remains focused on flawless execution and creating shareholder value, and we will continue to drive the business forwards, focused on developing our portfolio of advanced technologies, strong operating execution, returning cash to shareholders and maximizing the value of our portfolio of businesses. Operator, let's now open the line, up for questions.

Joe Spak:

Thanks. Good morning everyone. Kevin, just to start on the buyback, clearly, a strong signal from you and the management team, I know you as a leadership team, have been very focused on shareholder value. So can you just talk a little bit more about, how you came to this decision to sort of lever up versus maybe some other options? And then on the debt, you've historically also been pretty conservative. So is this just confidence in the next few years' cash flow to sort of bring this down? Or are there other some potential ways to maybe get some cash out of the business by like looking at some slower growth assets or something like that?

Joseph Massaro:

Joe, it's Joe. Just to follow up from a delever perspective, not assuming any cash from sort of one-off sources. We've built a plan here that allow us to delever over the course of 2025 and maintain the same view on financial policy that we've had before.

Joseph Massaro:

Yes, Joe, it's Joe. Let me start. I mean our revenues are over 50% at this point, local Chinese OEM and growing quickly. We're clearly growing into that market share shift. Bookings are 60-plus percent and have been for the last couple of years on the Chinese locals. So it's something - I don't have the exact bookings headwind number for you, but it's clearly something we're watching closely. It is something the team has been on for a while now. This isn't something we just started doing in the last couple of quarters. At one point, that business, as you know, was 70% global, 30% local. So we continue to see good transition. I think the challenge at the moment is just how quickly couple of these multinationals are actually dropping off more than a concern about how well we're growing with the locals. And it's something we're working with those customers on and obviously watching closely.

Joe Spak:

Thank you, guys.

Operator:

We'll move next to John Murphy with Bank of America. Your line is open. Please go ahead.

Kevin Clark:

Yes. So I agree with your first comment, stock price, share price is significantly undervalued with respect to priorities. Listen, it's important we position ourselves for the trends in our industry and the challenges that our customers are dealing with. Obviously, some of those have slowed a bit as we look at some of that - some of those slowdowns we have scaled back investment in certain areas - in areas like high-voltage electric electrification, some aspects of that; in areas like smart vehicle architecture, we've scaled back. We haven't completely stopped but slowed and that's freed up additional engineering dollars. At the same time, John, our engineering factory, both in the ASUX segment and the SPS segment is really executing extremely well, a number of the efficiency initiatives that we've put in place from an operational standpoint as well as the rotation of our footprint to best cost countries has certainly generated benefits. And from an outlook standpoint, we'll reduce engineering spend year-over-year by $75 million to $100 million this year, so a significant level of productivity.

Kevin Clark:

Well, I'm not sure I fully understand your question. So when we bought HellermannTyton, it was just under $1 billion of revenue. So it's effectively doubled over the time frame. From an M&A standpoint, been an absolute home run. It's a great business. It's global. Margins have expanded significantly. We've seen similar sort of growth rates over an extended period of time in the Winchester business from an engineered component standpoint. And the reality is when you look at our connection systems business, over the decade plus I've been here, John, those revenues have increased roughly fourfold. Now some of that is acquisition related. Some of that's organic. Clearly, they're strategically important businesses. As you know, they have high margin profiles, which make them very attractive. And those are areas that we're really focused on investing in taking those businesses and those products if they're in the automotive market into the nonautomotive markets, and for those that are in the nonautomotive markets, if it makes sense, leveraging our automotive business so that we kind of cross-pollinate product portfolio. So it's certainly a big area of focus for us.

Operator:

We'll move next to Itay Michaeli with Citi. Your line is open. Please go ahead.

Joseph Massaro:

Yes, Itay, let me start with the bookings question. It is lumpy. We're on track for the $35 billion. And again, we just - and if you look at the chart in the deck, right, you'll see the quarter just to move around based on size of awards, and we've had a couple of large awards in sort of given quarters. So nothing more than that normal lumpiness there and remain I think confident in the $35 billion at this point. As it relates to revenue, it wasn't very early, obviously, days to be going into next year. As we think about early planning assumptions, we're certainly targeting mid-single-digit growth, really assuming no help from the market at this point. So flat vehicle production, but a lot to work through, particularly just given the mix in platforms, the mix and powertrains, those types of things, and obviously, China.

Itay Michaeli:

Absolutely. That's very helpful. Thank you.

William Tackett:

Hi. This is William Tackett on for Adam Jonas. I'm curious, maybe expanding on Itay's question to go with how fast the trends are shifting in the industry? Do you reiterate that long-term growth over market assumption of 6% to 8% I guess, even with the new aggressive capital return strategy? Thanks.

William Tackett:

Got it. That makes a lot of sense. I guess next question, do you expect to see your OEM customers fit the more advanced L2+ systems on non-software-defined vehicles and non-EV architectures with any material volume? And I guess if so, is this something that's relatively easy for the customers to do? Thanks.

William Tackett:

Got it. Thank you, guys.

Dan Levy:

Hi. Good morning. Thank you for taking the questions. I wanted to just unpack the margins a bit more. And maybe you can just talk to the trajectory? And how much is inflation, dissipation playing a role here, getting more pricing and really just reversing some of the headwinds that we saw in past years versus other things like engineering or footprint reduction. So I'm just trying to disaggregate sort of the margin strength from here.

Dan Levy:

And the price recoveries from customers, is that continuing to play a role here?

Dan Levy:

Great. Thank you. Second question is just on SBA and your presence with customers. Obviously, I think we're hoping for just some sort of an update on where the SBA discussions are with your customers. You had mentioned over the quarter that there was a $2 billion cancellation. Maybe you could just talk about the line of sight on the remaining $8 billion, I think - coming through market share. Anything you've talked about. And then even if you're getting - if some of these programs are going away, can you just talk about the other content that still have that shows that even if that - you've lost that content, there is still some offset on the high voltage or other pieces of the architecture?

Dan Levy:

And maybe you could just anything on the share dynamics or just competitively how you think you're stacking up versus others on SVA?

Dan Levy:

Great. Thank you. That's helpful.

Mark Delaney:

Yes. Good morning. Thanks very much for taking my questions. The company had several launches that were supposed to occur in the second half of 2024 that allowed for an acceleration in growth over market with your now 4% growth over market assumption for 2024 that still does require a meaningful step up relative to what you reported for the first half. So maybe you can help investors better understand your confidence and visibility into those launches occurring and to what extent that's been a piece of the conservatism you mentioned compared to the schedules?

Joseph Massaro:

Yes, Mark, I'd say it's the launches themselves and we haven't seen any cancellations to Kevin's point. A lot of these have started at lower volumes earlier in the year. So they're impacted maybe by vehicle production total, schedules from customers. But generally, from a launch perspective, remain on track. I'll go back to Kevin's earlier comment, the select customers that we called out, there roughly 70% of the revenue reduction in the back half of the year, right? And then we have the conservatism overlay out sort of top of that. So this really is a very acute situation with those four customers. And we're really there's some schedules moving up and down a bit with other customers. But for us, it's really those four customers that we called out that where we're seeing. They were the vast majority of the shortfall and well over 70% of the full year takedown.

Kevin Clark:

Yes. So second half weighted from an overall growth rate, just given revenues last year were timed stronger in the first half of the year. So when you look at it from a year-over-year standpoint, strong opportunities and launches in Aerospace and Defense and Telecommunications and Industrial and Automotive. Growth opportunities in Automotive, we've had significant success in the China market, just given the nature of the new platform introductions. So it's easier to introduce a solution like the Wind River VxWorks Solutions or Helix Hypervisor on a platform that you are launching a new platform versus an existing platform. So largely on track from an automotive standpoint, we would say the opportunities remain solid. Gaining traction on Wind River Studio developer, especially in the automotive space and I would say that's across regions, just given the challenges that OEM customers are having with software development, the productivity that they're looking for, the fact that for the last few quarters, we've been using studio developer on our new program launches. So that integrates into the engineering organization, organizations of both Sows as well as OEMs, so they're seeing the benefits from a quality and efficiency standpoint. So the growth profile remains intact, and to-date, most of our progress in the automotive space has really been in China.

Operator:

We'll move next to Shreyas Patil with Wolfe Research. Your line is open. Please go ahead.

Joseph Massaro:

Yes. Listen, I think we're continuing to project less away from long-term sort of margin projections. We've obviously talked about where we thought 2025 looks and I think we're on that at 12.5%. I think we continue to track towards that if you look at where we'll be in the back half of the year. As I mentioned earlier, Shreyas, it's really a balance, right, where we're seeing really strong manufacturing performance, I agree with your COVID supply cost chain numbers coming - the disruption costs coming out, engineering coming back in line and we're seeing really strong performance coming out of the operations of the business as well. So it's really if you go back to sort of how we thought about margin enhancement over - back at Investor Day, we had that $1.7 billion of what we thought was going to be in performance over three years. About $300 million of that was the supply chain disruption coming out. The remainder, we talked about being sort of equal improvements over the course of the three years across manufacturing, logistics, engineering and SG&A and that's really what we're seeing. So it's fairly balanced. There's no big one-off items in there. It's really the business operating well. As we talked we talked about it at the end of last year, took a made a decision on what I'll call overhead costs and took out a significant amount of overhead costs. We about a $50 million number. We're seeing that come in. as well. So it's fairly well balanced. And I think it puts us if you look at where run rate margin or sort of back half H2 EBIT margins will be in sort of those mid-12s, that sets us up, I think, pretty well for the 12.5% we were talking about 2025.

Kevin Clark:

Yes. Well, the math we used to do, make sure I understand your question as it relates to SVA versus traditional architecture and our product portfolio is effectively if we had a full system, right, $3 would go in and roughly $150 would go out like that was the net. And most of that would be in and around the wire harness, right? That's where you see you see - would the net change. As it relates to incremental opportunities again, our customers don't remain static. So to the extent they are pausing on something delaying or stopping there are certain things that they need to do with that vehicle and vehicle lineup. And that can translate into incremental vehicle architecture or let's call it, a step change in vehicle architecture, not all the way to SVA, where the wire harness is changed. Mass is taking out and it's replaced with things like high-speed cable assemblies and other items like that, that reduce weight and mass improve performance and translate into more content for Aptiv. To the extent they're delaying a particular architecture like a zonal controller or a CBC, they are going to have to enhance and upgrade their ADAS, user experience and other solutions that's what I was referencing in the $10 billion opportunity that I talked about in this particular calendar year. So there are opportunities in and around those spaces that didn't exist previously, right, that weren't there for ourselves. So that's an incremental revenue opportunity as well.

Operator:

We will take our final question from Tom Narayan with RBC. Your line is now open. Please go ahead.

Joseph Massaro:

Yes. Cash. Hi, Tom, it's Joe. Cash from operations is, call it, $600 million to $800 million, we finished the quarter with $1.4 billion of cash. We have another €700 million actually of market like securities. So we're in a good position as we ended the quarter, adjusted debt to EBITDA, call it, right around 2 times net debt obviously lower. So, we're in a really good position. I mean we've really kept that balance sheet in really good shape over the last few years, right? We managed it well through COVID, in my view. We're generating a lot of cash. So we're in a really good position to do this from an ASR and putting on the debt to repurchase the stock, and we've talked to the rating agencies, intent is to maintain investment grade and work over the course of next year to - when we do the final debt offering support the ASR, we're going to include some prepayable debt, but it will allow us, in our view, to get back to effectively where we are today by the end of next year are certainly very early 2026.

Kevin Clark:

Yes. So we would say it's really OEM by OEM. When a comment like that, the question is, want to do more on their own, not quite sure what that means. It might mean kind of design of the particular smart vehicle architecture. That maybe touches on the point where I talked about. We don't view this as particularly differentiating for a unique OEM. Our focus, just given our years of history in and around power and data distribution is just how do you how do you do it effectively, efficiently at lowest cost, how you reduce weight and mass. So, we feel like, obviously, our solution is the best solution if a particular OEM wants to go down the path that you talked about, they certainly can. We're focused on avoiding customized solutions for OEMs. So, that's that business we have pursued or we would pursue. So, I'm not sure - I'm not sure that at the end of the day, it's that differentiating or important for an OEM to own, but if they elect to do it and if we have a product that meets their needs that we can sell profitably, that's certainly something we'll do. If not, it's something we'll do - we won't do, we'll move on to the next OEM. As I mentioned, our pipeline today includes programs with 20 different OEMs versus two years ago four. So there's plenty of opportunity that's out there.

Operator:

I will now turn the conference back to Kevin Clark for any additional or closing remarks.

Operator:

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.

Operator:

Good day, and welcome to the Aptiv Q1 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.

Kevin P. Clark:

Thank you, Jane, and thanks, everyone, for joining us this morning. Let's begin on Slide 3. Operationally, we had a strong start to the year, demonstrating our ability to execute despite some headwinds.

Aptiv is perfectly positioned in this market to deliver solutions with increased flexibility, higher performance and faster speed to market, all at a much lower cost. While we have active engagements with customers across all regions and end markets, and it's important to note that all are essentially asking for the same thing:

The right hardware, the right software and the right engineering tool chain to support software-defined functionality for mission-critical applications. And as a result, our unique edge-to-cloud portfolio positions Aptiv to capitalize not only on the automotive industry's transition to software-defined vehicles, but also on the digital transformation and convergence of multiple industries as intelligence increasingly moves to the edge. By leveraging these proven solutions across industries, Aptiv is positioned for sustained long-term profitable growth.

Joseph Massaro:

Thanks, Kevin, and good morning, everyone. Starting with the first quarter on Slide 11. Aptiv delivered strong financial results in the quarter, reflecting robust execution across both segments and continued progress on our cost savings and margin improvement actions, resulting in operating margin improvement of 200 basis points over the prior year. Revenues were $4.9 billion, up 2% or 3% above underlying global vehicle production, which was down 1% in the quarter. Growth was negatively impacted by the continued slowing of battery electrical platforms in the quarter, particularly in North America and Europe, where we saw our high-voltage revenue down 2% and 6%, respectively.

Kevin P. Clark:

Thanks, Joe. I'll wrap up on Slide 21 before opening the line up for questions. Overall, our strategy remains unchanged, while the industry navigates the near-term headwinds. We'll continue to provide flexible, high-performance, cost-effective solutions to our customers that enable the transition to the electrified software-defined vehicle. We remain focused on thought execution and operational excellence, which enables us to delight our customers while optimizing our cost structure to expand margins and deliver value to our shareholders.

John Murphy:

Just wanted to ask first on the customer side and then second on automation. Just first on the customer side, Kevin, the wins with the Japanese OEMs and the radar and to the high voltage on the hybrid side, sounds like a real positive. I was just curious if you can comment about where you stand with the Japanese because as I understand, they're very small in the book of business right now, but are they growing?

Kevin P. Clark:

John, I guess we had your second half of the question. The first half, you broke up a little bit with respect to, I think, it was a mix of electrification bookings or revenues.

Kevin P. Clark:

Listen, let me start with the second part of the question or the second question, and I'll come back to the first. As it relates to the Chinese OEMs, especially the Chinese local OEMs, the reality is they are looking for local sources. And it's one of their objectives to localize the supply chain. As you know, we've had this conversation. We've been in China for close to 30 years and have operated in China to serve the China market. So I think it's best as possible that you view us as a local supplier given the fact that we have fully localized capability for that particular market.

John Murphy:

And just one quick follow-up on the automation comment. I mean you said 30% by 2026, 50% by 2030. I mean what's the baseline that we're starting from now? And what would that mean as far as labor as a percent of total sales? I'm just trying to understand if this is a cost savings program, cost mitigation program or just what you're going to have to do going forward?

John Murphy:

And baseline on automation right now that we should think about?

Operator:

Our next question comes from Itay Michaeli with Citi.

Kevin P. Clark:

I'll answer the first question, maybe Joe can answer the second. As it relates to the Gen 6 ADS award, I don't want to give specifics because from, as you can imagine, from a pricing standpoint and somewhat sensitive commercially and competitively. We've talked in the past about L2+ sort of L3 content per vehicle -- this particular program in addition to our ADAS platform has our in-cabin sensing solution as well as the full suite of Wind River both embedded and studio solutions. So as you think about that, you should think about it being roughly in that traditional range that we've talked about, given what we're doing from an AI/ML standpoint with our radar solution, given our overall approach to sensor fusion. I guess we've talked in the past, our overall Gen6 ADAS platform can deliver anywhere between 15% to 30% savings to our customers, depending upon the configuration of the platform. So it's a very competitive solution.

Operator:

Our next question comes from Joe Spak with UBS.

Joseph Massaro:

Yes, Joe, I would say nothing stands out in the quarter from a sort of a one-off perspective, certainly nothing material. I would say we've been working very hard on those margins for a long period of time, as you know, with both the supplier side of things and then taking cost out of the business. We have some cost actions that we put in place last year. This engineering rotation has been going on for a period of time. So you'll -- I think you're talking about sort of seeing the high 10%, call it, 10.5% to 11% margin in that business being maintained certainly for the full year. It's going to be -- it's a little lumpy. Q3 is obviously a little lower for us at times. But I think that's where we're starting to see this business and should come out of the year, call it, in the mid-10%.

Kevin P. Clark:

Yes. Listen, as you know, as I said, we've been in the China market for a long period of time and clearly, the market has rotated from dominance by the multinational joint ventures to a much stronger localized Chinese -- only local Chinese OEMs. Over the past 3 or 4 years, we've talked about the rotation of our bookings and the mix of our bookings significantly rotating from the multinationals to the locals. I think over the last couple of years or so, our bookings -- dollar value of our bookings is lawfully matched, the mix change between the Chinese locals and the multinational JVs. We're still a little bit behind that from a revenue standpoint, but it's well over 50% that now is with the local Chinese OEMs. A significant portion of our bookings last year and this year, we'll be with the Chinese locals. So that's an area where we think we'll continue to close that gap over the next 12 to 24 months from a revenue standpoint.

Joseph Spak:

Okay. Maybe just one quick follow-up. I know you mentioned that the mix of business within China is sort of moving, and it sounds like it's now over 50-50. But what about like if we just think about your overall bookings, like what percent of that is domestic China? Do you have a sense?

Joseph Spak:

Sorry, like of the $34 billion, $35 billion or whatever, like how much of that is China is local Chinese players?

Operator:

We'll go next to Chris McNally with Evercore.

Joseph Massaro:

Yes, 1 second. Chris. Let me make sure I give you the right number. SPS 11.2% in Q1, yes, I would say you're in the, call it, 12% to 12.5% for coming out of the year.

Joseph Massaro:

I'd say low to mid-single digits on SPS, yes.

Kevin P. Clark:

Yes, Chris, I think at current levels, it's fair to assume we continue to buy back stock at fairly healthy levels. The reality is we view our stock is undervalued. Obviously, we'd like to see stock price appreciation and important part of what we're trying to do is to build out our capabilities in and around the software stack as we've talked about, and quite frankly, diversify our revenues further in the industrial markets as well. So we would like to assume that there's a fair amount of acquisition activity that happens during 2024, 2025 and beyond.

Shreyas Patil:

Maybe just thinking about where the underlying growth rate is for the business today. So you're pointing to 6 points of growth over market for this year. I know there are a lot of puts and takes, but I think in the bridge that you had provided last quarter, it implied about maybe 2 points of tailwinds from price recoveries, for example, that were tied to semiconductor inflation last year. But there are also mix headwinds in China, where it sounds like you're mitigating with new launches. So just trying to get a sense of where the underlying rate of growth is today as you see it.

Shreyas Patil:

Okay. I guess then from thinking about the incremental performance savings that you're expecting this year, are those tied to the automation initiatives you're talking about? Or is that more of the footprint actions like in SPS?

Shreyas Patil:

Okay. And then maybe just a quick last one is just on FX. You didn't see much of an impact in the quarter, but it looks like the headwind's going to be for the rest of the year. I mean last year, when we saw the peso strengthening was kind of the opposite effect where it was largely impacting you in Q1. So maybe just trying to think about how much of that FX impact is peso versus RMB? Just trying to get a sense of that.

Operator:

We'll go next to Mark Delaney with Goldman Sachs.

Kevin P. Clark:

Yes, I'll start with our customers and knowledge with our customers, our customers are still pushing forward with the introduction of battery electric vehicles. So you can hear from their public statements that they're still standing behind them and certainly pushing in that direction.

Mark Delaney:

Second question I had was on margins. You had your best 1Q EBIT margin, I think, since 2018. Can you talk a little bit more on what led to the margin strength in the first quarter? And specifically, how much of the footprint actions may have contributed?

Kevin P. Clark:

Yes. Maybe I'll start. Listen, I think you go back to 2018, we went through COVID 2020, 2021, and then we went through semiconductor challenges. So we had 3 years there that were extremely choppy from an overall operational standpoint and margin standpoint.

Dan Levy:

Wondering if you could just address a couple of points on active safety. Any voice over on the solid results in the quarter, I think it was up 25% or so?

Kevin P. Clark:

Yes. Yes. So as Joe mentioned, we're launching across -- we're launching both new programs as well as launching existing programs across a broader set of models within OEMs. There continues to be increasing significant consumer demand for active safety solutions. It's something that our customers are clearly looking for. So it continues to be an area that we believe we'll see strong revenue growth.

Dan Levy:

Got it. And then just within the quarter, what was the pricing? Because I said price commodities was one bucket.

Operator:

We'll go our next question from Adam Jonas with Morgan Stanley.

Kevin P. Clark:

Yes, that's an interesting question. I'm not sure -- and if the consumer experience ultimately would be better on an electric vehicle with a BEV vehicle architecture versus this architecture around an internal combustion engine.

Operator:

And we will take our final question from Tom Narayan with RBC.

Kevin P. Clark:

It's a different product line. So it's pure BEV product. So whether it's a bus bar or it's a connector for a battery electric vehicle or a harness, it tends to have a specific set of equipment with specific tools. A lot of those are within existing facilities that we had to produce products for both low voltage as well as high-voltage solutions. So there's some ability to pivot there.

Joseph Massaro:

Yes, it's not something outsized, Tom, that you'd see like pop up in CapEx or something. I think it could be managed within the existing business and financial framework.

Kevin P. Clark:

Yes, that's -- we brought our outlook for vehicle production down a point. The biggest piece of that is that is BEV related, as Joe and I have talked about. There are some OEMs that we've seen an increase in production schedules for products that have internal combustion engines, but net-net, BEV production is down.

Operator:

That will conclude the Q&A session. I'd like to turn the conference back to Kevin Clark for any additional or closing comments.

Operator:

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.

Operator:

Good day, and welcome to the Aptiv's Q4 2023 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, ma'am.

Kevin Clark:

Thank you, Jane, and thanks everyone for joining us this morning. Let's begin on Slide 3. Aptiv ended the year on a solid note with fourth quarter results broadly in-line with our expectations, demonstrating our ability to execute in a less predictable market. Touching on a few highlights, new business bookings reached $7.7 billion, the result of continued demand for our portfolio of industry-leading advanced technologies; revenue was $4.9 billion, with growth over market impacted by the UAW strike and customer mix, which Joe will go through in more detail later; operating income totaled $600 million, reflecting a 90 basis point margin increase; the strong flow-through on volumes and operating performance more than offset headwinds from FX, commodities, and the UAW strike; we repurchased $300 million of stock during the quarter, given our share price and cash position. In summary, our team is doing an exceptional job executing in a fast-changing environment, identifying opportunities to provide solutions to our customers, while at the same time, working to mitigate headwinds from ongoing cost pressures. Turning to Slide 4, we delivered on our commitments and achieved record results in 2023, despite having to navigate through unexpected developments. New business bookings were a record $34 billion, reflecting continued strong demand for our products. As vehicles become higher contented and more software defined, customers are increasingly seeing the value of Aptiv as an important technology partner, particularly across our smart vehicle architecture, active safety and high voltage electrification portfolio, where we lead the industry in delivering high-performance, flexible and cost-effective solutions. Aptiv is also positioned to benefit from the transition to the software-defined future across several other industries, with opportunities accelerating in the telecom, aerospace and defense, and industrial markets. Revenue increased 12% to over $20 billion in 2023, a new record level, principally driven by our high-growth active safety and high voltage product lines. Strong top-line growth contributed to a record $2.1 billion of operating income, operating margin increased 150 basis points to 10.6% as strong volume flow-through and operating performance more than offset the headwinds from FX, commodities and the UAW strike. Lastly, we generated record operating cash flow of $1.9 billion for the year, providing flexibility around capital deployment, allowing us to proactively repurchase shares and pay down debt. Moving to Slide 5, as I already mentioned, bookings reached $34 billion, our third consecutive year of record new business awards, and includes nine different customers, who each awarded Aptiv over $1 billion in new business. Advanced Safety and User Experience bookings totaled a record $12 billion, driven by active safety bookings of $3.4 billion, representing a combination of next-gen hardware and perception software building blocks, as well as full system turnkey solutions. The strength of which is reflected in over $11 billion of cumulative bookings over the last three years, and $5.2 billion of customer awards for our smart vehicle architecture solutions with three different OEMs, bringing cumulative awards since the launch of our SVA products to over $10 billion with eight different OEMs. Signal and Power Solutions new business bookings reached a record of over $22 billion, in part due to a record $6.2 billion in high voltage electrification bookings, up roughly $2 billion over 2022, representing awards from both traditional and new mobility providers, bringing cumulative high voltage customer awards to roughly $14 billion since 2021. Our industry-leading portfolio, combined with our global reach and ability to execute highly complex programs, perfectly positions Aptiv to win new business and gives us a clear line of sight to $35 billion of business awards in 2024. Turning to Slide 6 to review our Advanced Safety and User Experience segment's full year highlights. We achieved significant commercial success across all of our key product lines, further solidifying our position as a partner of choice with our OEM customers. Building on its leading market position, Wind River continues to experience solid commercial traction across a variety of end markets. In the fourth quarter, one of Canada's largest communication service providers selected Wind River Studio for their full O-RAN deployment in North America. OMRON, a leader in healthcare systems and industrial automation, also chose Wind River Studio for their industrial edge platform development. And within automotive, Hyundai Mobis expanded their existing relationship with Wind River by selecting Wind River Studio to help reduce development time and costs from product design to system validation and mass production testing. Demand for Aptiv's full system solutions across active safety, user experience and smart vehicle architecture also remains strong, with major bookings across all geographic regions, including with Japanese OEMs and emerging Chinese local players, bringing a growing pipeline of additional opportunities. To best support our customers, while further optimizing our cost structure, we implemented several initiatives across our engineering and supply chain functions. To accelerate and streamline our product development process, our AS&UX engineers have incorporated Wind River Studio's DevSecOps toolchain into their programs. We've also centralized our engineering activities in India to a new and larger technology center in Bangalore, where Aptiv and Wind River teams can better collaborate on our software product platforms, allowing us to double our engineering capacity in the country, thereby enabling the cost effective rotation of our engineering footprint. From a supply chain perspective, we're on track to fully map our global supply chain into a digital twin by year-end. During 2023, we fully mapped our semi providers, increasing our visibility and improving our ability to proactively mitigate potential sourcing risks. Lastly, we've closely partnered with roughly a dozen local Chinese semiconductor suppliers for both China and non-China applications that are positioning us to meet increasing demand from our Chinese customers with local sources of supply and increasing the resiliency and flexibility of our supply chain for our global OEM customers. Turning to Signal and Power Solutions' full year highlights on Slide 7. From a commercial perspective, we've continued to benefit from our industry-leading portfolio and global scale, which uniquely positions us to deliver optimized vehicle architecture solutions for both emerging EV players and leading global OEMs. During 2023, we were awarded significant vehicle architecture programs by a global EV manufacturer, including optimized electrical distribution and 48 volt connection systems. In China, while we remain highly selective in our customer and platform choices, we're actively driving increased penetration of a select group of local OEMs. In 2023, bookings with China local OEMs reached $3 billion, representing approximately 60% of the total SPS bookings in the region. Intercable Automotive had record new business awards and added four new global customers with their industry-leading busbar technology, which enables more efficient power distribution and optimized battery pack design. We've also seen an increase in customer demand for our solutions that reduce complexity, weight and cost, including our integrated power electronics solutions, which help integrate the onboard charger, battery distribution unit and DC to DC converter. From an operational perspective, we've also implemented several initiatives to improve manufacturing efficiency. Within our electrical distribution business, we're launching our first highly automated production line, covering all aspects of system assembly. With this new technology, we expect to increase current automation levels to approximately 30% by 2026, putting us on a path to over 50% automation by 2030, which will improve efficiency and product quality, while also reducing labor dependency and the associated exposure to inflationary pressures. At the same time, we've been building a more resilient and sustainable business by supporting the trend towards local production and minimizing cross-border flows of product. We continue to pursue manufacturing footprint rotations in multiple regions and have successfully established production capabilities for Intercable Automotive in North America to serve in-region customers. Turning to Slide 8, at this year's Consumer Electronics Show in Las Vegas, we showcased our industry-leading portfolio of products through a full range of functional, fully integrated solutions, both in our tech theater, as well as on the roads with drivable demo vehicles. This is best represented by our software defined vehicle demonstrator, which showcased advanced ADAS and user experience applications, embedded on Wind River's cloud native software platform and running on Aptiv smart vehicle architecture hardware. With our first time driving a vehicle -- this was our first time driving a vehicle on public roads, supported by SVA, further reinforcing our leadership in next-generation architectures. We demonstrated critical elements of our Gen 6 ADAS platform, including our urban point-to-point hands-free driving application, as well as in-cabin monitoring. We also showcased our high voltage capabilities with a custom-built 800-volt electric vehicle. This vehicle included optimized high voltage cabling and busbars, connection systems, and integrated power electronics. We also introduced Aptiv's containerized battery management system running on our central vehicle controller, both of which were supported by Wind River's VxWorks operating system, while telemetric data was visualized through Wind River Studio. Finally, all these solutions and more were available for deep dives in our technology theater. When taken together, the solutions on display represented our full system portfolio by showcasing capabilities from sensor to cloud. In total, we had over 1,000 stakeholders visit our pavilion, ranging across customers, vendors and the industry partners. And as a follow up to CES, we scheduled a wide range of customer engagements, including the Mobile World Congress in late February and customer-focused tech shows during the balance of this year. Our industry-leading product portfolio underscores our position as the partner of choice to develop and deliver next-generation solutions. Moving to Slide 9, before I turn the call over to Joe to walk through the financials, I wanted to provide some context on our outlook for 2024. As our industries continue to evolve, we're experiencing growing demand for our full system capabilities, spanning across hardware and edge to cloud software solutions. This increasing level of strategic engagement has turned into three straight years of record new business bookings, and in turn, will continue to drive strong revenue growth and implied growth above market. Joe will walk through our outlook for revenue growth in more detail, but we now expect our growth over market to be in the 6 point to 8 point range, reflecting the changing pace of EV adoption and customer mix. As I highlighted earlier, we have proactively taken actions to reduce our cost structure, to adapt to the changing market environment and to help offset ongoing inflationary pressures. We remain disciplined in our capital allocation approach, which will include further strengthening our competitive position with investments in advanced technology and capabilities that drive operational excellence. To that end, while our Motional joint venture continues to make progress on their technology roadmap, we've decided to no longer allocate capital to Motional and are pursuing alternatives to further reduce our ownership interest. Lastly, while we will continue to prioritize organic investments and strategic M&A opportunities that drive profitable growth, our stock price presents an attractive opportunity to return capital to our shareholders, and we're targeting up to an additional $750 million in share repurchases during 2024. The last few years have presented the industry with unprecedented macro challenges, including COVID and supply chain disruptions. During this period, the management team has remained laser-focused on execution, enhancing our competitive position and increasing the resiliency of our business model, which is reflected in our 2023 financial results and our outlook for 2024, and our conviction in the long-term value of our business is higher than ever, and we remain committed to delivering that value to our shareholders. With that, I will now turn the call over to Joe to go through the numbers in more detail.

Kevin Clark:

Thanks, Joe. I'll wrap up on Slide 20 before opening the line up for questions. As the management team reflects on 2023, we expect the pace of innovation to continue to accelerate and drive ongoing transformation across industries. Aptiv is perfectly positioned to benefit from this change, having identified the safe, green and connected megatrends over a decade ago. We have purpose built our portfolio to provide flexible, high-performance and cost-effective solutions that address our customers greatest challenges, all on a global scale. At the same time, we remain committed to flawless execution and operational excellence, enabling us to unlock incremental profitability and deliver value to our shareholders. In closing, I am proud of what the Aptiv team accomplished during 2023, and I'm excited about what we will deliver in the years ahead. Operator, let's now open the line for questions.

Joseph Spak:

Thanks. Good morning, everyone. I guess, just to start, appreciate the commentary on the long-term growth over market target. Back of the envelope, it would seem like the reduced growth would lower your longer-term margin goals by maybe 20 bps, 30 bps. Is that sort of reasonable? And can you sort of address any other factors that may impact the long-term margin goals?

Kevin Clark:

No, listen, I think you captured. I think, to the point Joe made, we'd say the bigger headwind quite frankly is labor inflation, especially in places like Mexico, relative to growth rate from high voltage electrification. Just to remind everybody, although it looks like adoption has slowed, growth rate is still on a relative basis, extremely high. So, just want to remind everybody that we are believers on the ongoing trend of the penetration of electrification in the automotive space.

Kevin Clark:

Yeah, maybe I'll start. Listen, Joe, your observation is a good one. Listen, our primary focus is on continuing to invest in the business for profitable growth. We'll underscore that. We feel like we have a very strong competitive position. We feel like there are opportunities to further widen the competitive moat. So, those are opportunities that we will continue to evaluate. But to the extent those opportunities don't present themselves, we'll certainly look at returning incremental cash to shareholders. So, we'll strike that balance. But it's important that we have some level of flexibility to react when opportunities present themselves.

Operator:

And our next question is going to come from Rod Lache with Wolfe Research. Please go ahead. I'm so sorry, this is going to be Chris McNally with Evercore.

Joe Massaro:

Yeah, it's obviously driven off of production schedules from the customer base, which would include launches. So, we do see higher launch activity and schedules picking up from the multinationals towards the second half of the year. In addition to that, and I think from what we're seeing, and I think it's generally consistent at this point with what you see from IHS is some of the local OEM growth, the 30%-plus you saw in the back half of the year, in '23, they started to lap some of that. So, from a growth -- again, the sort of relative growth rate that drives the growth over market calculations, some of that starts to come back in a little bit, just given the significant growth in the back half of 2023. And obviously, we tend to concentrate and call it the top 10 or 12 Chinese OEMs from a local perspective. So, we have their schedules, but also, Chris, looking to some extent at what the forecasting services are saying about that production level as well.

Chris McNally:

Yeah, that's perfect. That was my follow up. I mean, do you think sort of exiting '25 into '26, no, you don't have to get very specific with the timeline, that you start to become pretty agnostic, meaning that the targeted plan that you laid out, you should be pretty well adjusted, assuming the mix kind of normalizes as we get to '25, '26, but that domestic turnover happens around the '25 to '26, where we won't be talking about this mix issue as much?

Chris McNally:

That's great. And just as the last thing, because I know it'll come up. Joe, I think the 2025 was 14% to 14.5% margin, 100 bps to 150 bps off that. Can we just kind of take that as the new '25 as roughly 13% and then, like you said, push the year out to '26? I just know that will come up the rest of the call.

Chris McNally:

Perfect. Thanks so much.

Rod Lache:

Good morning, everybody. Just, first of all, to clarify some of the discussion off of Chris' question. Obviously, we've seen some ongoing share shift away from the western OEMs over the past couple of years, and it sounds like the reason why you don't expect that to reoccur in 2024 is because of the big uptick in backlog that you have from BYD, Changan and some of the other Chinese OEMs. Is that essentially it?

Rod Lache:

Okay.

Rod Lache:

Right. Okay. Understood. On high voltage, it looks like you're implicitly assuming a similar level of EV growth in 2024 versus what you saw in 2023. As you've observed, there's been some slowing late in the year in 2023. Maybe you can elaborate on the models or factors that you consider that lead you to conclude that the growth is pretty similar for EVs. And can you maybe also give us any color on the assumptions that you make behind those high voltage bookings? Do you have a penetration assumption? Or is there some color you can provide that helps you underwrite that level of revenue associated with the bookings?

Rod Lache:

Okay. All right, thank you.

Itay Michaeli:

Great. Thank you. Good morning, everyone. Just a first question on the long-term growth over market. I know that the Investor Day last year, there was an expectation of some acceleration beyond 2025. Obviously, a lot changing here in the near term, but the bookings are still strong and growing. So just a question, do you still think there's scope for some GOM acceleration in the second half of the decade?

Itay Michaeli:

That's very helpful. Thanks, Kevin. And just a quick follow up on the ADAS business. I was hoping you could share what you're expecting ADAS growth this year, and also maybe a bit more color on the wins with the Japanese OEMs, whether that provides further opportunities to penetrate with those OEMs.

Kevin Clark:

Yeah. As it relates to the wins with the Japanese OEMs, they were in and around radar. They're global wins. So, for the Japanese OEMs, in Japan, as well as in Europe, China and North America, it's to be transparent. The first time we've been able to penetrate in a meaningful way that customer base with our ADAS solutions. Part of that reflects where we are from an overall technology standpoint versus their traditional supply chain, which you are all familiar with. We're confident that that will present us with incremental opportunities on the ADAS side, on the user experience side, as well as on the vehicle architecture side. So, we're very excited about it.

Operator:

And John Murphy from Bank of America, please go ahead.

Kevin Clark:

Yeah. Listen, John, I think that's a good question. It's something that we watch very closely. Our advanced development spending as a percent of total engineering was higher in 2023 than it's been in the past. I'd say the bulk of that, quite frankly, has been working to productize our portfolio, which means significantly more reuse of existing technology on new platforms, which is what the industry needs. It's driving a significant amount of interest from OEMs in areas like electrification, like battery management systems, like ADAS, like software, which we think is going to translate into continued growth in bookings. We talked about the $35 billion is kind of our estimate as we sit here today for 2024. I would say that number could be higher. So, it's important that we continue to invest, and we continue to position ourselves for growth. I would say we've doubled down our focus though on how do we make engineering more efficient, how do we get more out of engineering, and again, how do we drive more reuse, which allows us to be more efficient and develop higher margin solutions and allows us to deliver them to our customers at much lower cost. And I'd say equal focus on cost-effective solution now as there is on innovation.

Kevin Clark:

But appreciate the question.

Joe Massaro:

Yeah, it generally jives, although to my comments, it's a build throughout the year. So, my comments around revenue growth and the calendarization very much tied out to what we're seeing in schedule. So, total is connected. I would say this year, unlike the last couple of years, we actually don't see much schedule disconnect between -- we don't see much disconnect between the schedules and the broader forecasting services. We did see some differences related to supply chain and stuff over the past couple of years, but they're pretty much in line. But it is back-end weighted. It's just not us that's back-end weighted. It is the customer production schedules at this point.

Operator:

And our next question is going to come from Mark Delaney from Goldman Sachs. Please go ahead.

Joe Massaro:

Yeah, Mark, it's Joe. Similar to '23, we have those bigger step downs in COVID on a year-over-year basis, supply chain disruption costs. So that is helping keep that incremental flow at the EBIT line a little higher than normal. I think that sort of 18% to 22% range that we usually talk about is still good in normalized times, but it is a little higher, much like it was last year. And then, listen, I think from a pricing perspective, there has been a lot of activity as we've talked about over the past couple of years, as we've worked through direct material inflation and stuff. I think we're as settled as we normally are on it. There is obviously ongoing discussions with customers, but I think we're in a relatively good place and a consistent place with where we've historically been this time of year.

Kevin Clark:

Yeah, it's Kevin. So, better electric vehicles are about 3x the content opportunity as an internal combustion engine vehicle. Plug-in hybrids are 2x, roughly 2x the content internal combustion engine. When you look at our mix of high voltage bookings and roughly the same from a revenue standpoint, roughly 25% to 30% of that relates to plug-in hybrid vehicles. So, hopefully that gives you a bit of context. So, we feel like we're very well positioned whether OEMs are producing plug-in hybrids or battery electric vehicles.

Operator:

Our next question is going to come from Dan Levy with Barclays. Please go ahead.

Joe Massaro:

Yeah, I'd start with -- I mean, there is -- again we say -- as Kevin mentioned, I've attended most of them, supplier meetings in CES. There was no automotive chip provider at the moment that's talking about price downs. We still have a couple that are talking about increased prices based on wafer cost increases that they're seeing. We'll obviously push back hard on those and deal with them if and when they come in. But we're not seeing anything from a price down perspective, nor would expect it. So, at this point, there's nothing in there from an opportunities perspective in the guide. Listen, as it relates to peso, last year, we were obviously hit well above $100 million by transaction and translation impacts, right, the FX moving significantly. This year, and I mentioned this in my prepared comments, Dan, we've assumed a stronger peso, basically in the underlying forecast, right, which makes our peso denominated cost more expensive. So, if you look at that bridge, it's not showing up on the FX line because it's now forecasted at that level. But you do have about $100 million round numbers going into primarily labor, going into the cost structure, which would appear in that other bucket. And it's really the amount that's rolling through into my 2025 comments.

Joe Massaro:

Hey, peso -- sorry, go ahead.

Joe Massaro:

I was just going to say peso assumption, just to remind folks, at Investor Day was 20.50, so you got about 10%-plus strengthening in the peso. Go ahead, Dan, sorry.

Kevin Clark:

Yeah. Dan, I'll take it. Listen, it's an interesting question, right? The question we get two years ago was kind of reconcile strong bookings with OEMs, comments regarding insourcing, all their activities. And I think now you hear from OEMs, and we experience directly first-hand all the challenges associated with attempting to do things that either you don't have the history of doing or don't have the capabilities, which quite frankly has presented perfect opportunities for us. And it's the reason why we've invested in the areas that we've invested in. It's reason why we're building kind of full platform solutions that are open, that are scalable, that provide flexibility and importantly lower cost. We fully recognize that, that we need to deliver lower cost options and solutions to our customers all the way from software and hardware development to delivery of a solution, and that's what we're focused on. And I would say that's the reason for the trend in bookings, that you've seen, a value proposition that economically makes sense for our customers as well as it does for Aptiv. And then, you augment that with the question about SoC material inflation, just to underscore Joe's point, we've not heard that from any of our western SoC suppliers. In fact, some are talking about additional constraints beginning in late 2025, going into 2026. So, we have deployed engineering assets in doing a couple of things. One, dual validating or qualifying additional alternatives, so there's more flexibility to move from one chip to another and bringing that to our OEM customers as a part of our overall value proposition. In my comments, I talked about the 12 Chinese SoC suppliers who we're working closely with in making significant traction in the China market, with, we believe, meaningful opportunities outside of China, especially in Europe, providing lower cost at roughly equal performance. And that goes from SoC technologies to radar technologies to peripherals. And by virtue of providing, again, like I said, those leading technologies in a more cost-effective way that again provide flexibility and choice to our customers, that holistic package is attractive, and it helps solve the challenges that you're aware of that they're dealing with.

Operator:

Your next question is going to come from Tom Narayan from RBC. Please go ahead.

Kevin Clark:

Yeah, it's Kevin. Listen, we should start with, Motional is on track to deliver the tech roadmap that's been laid out, and should underscore that HMG has been an absolutely outstanding partner. Better than -- as optimistic as we were at the start, even better as a partner from both operational and a strategic standpoint. Commercialization of the technology, i.e., the cost related to delivering the tech principally in and around hardware, really makes it challenging from an adoption standpoint, in the mobility on demand market. And as a result, kind of pushes out ultimately the revenue stream and the earnings stream for the business, and pushes out to a point where relative to other options or opportunities that we have to invest in that will deliver profitable growth, we had to make decisions. And again, a tough decision, but given where we sit today, given the benefit that we've gotten to date, which is real, which is in and around advanced ADAS solutions, and we'll work to continue to work with Motional commercially in and around bringing their technology into our ADAS platform, but when we look at ongoing funding of the technology and when it actually gets adopted in the mobility on demand market, it's just pushed too far out to make financial sense for us, given the other opportunities that we have in front of us.

Joe Massaro:

Yeah. I mean, like we've always said, the pipeline is very full. We maintain it on a regular basis. Certainly, don't see anything from a capital markets perspective that would preclude us from doing transactions. I think the balance sheet is in very good shape. We took a lot of care over the last couple of years to push out the tenor of the debt and such. So, I feel like we're in good shape from that. So, we're certainly not one of the ones that's raised any concerns on that side. I think you'd continue to see us do things like we've done in the past, right? You'd have both for AS&UX and SPS, there are bolt-on opportunities, things that enhance technology, regional presence in AS&UX, there certainly are some opportunities. It would obviously be smaller than Wind River, but continue to invest in our software capabilities. And then there's the adjacent markets, right? We've done a very nice job over the last couple of years -- excuse me, of growing our adjacent market presence, both organically and inorganically. And it's been accretive to growth rates, it's been accretive to margins, and I continue to expect us to do something like that.

Operator:

Okay. And our next question is going to come from Emmanuel Rosner. Please go ahead.

Joe Massaro:

Yeah. The walk -- we won't go into more components than we've laid out, Emmanuel. I think the walk sort of indicates within the range, certainly, the largest piece not to come back is the high voltage, right? You could have -- again, and it's a long-term forecasting range, you could have a little bit of movement in customer mix and just how things play out relative to Kevin's comments on the Japanese OEMs and the China mix. I think speaking to Kevin's comments, our growth rate, other than EV, which we talked about coming down to 20% from the 30%, our growth rate has been what we've expected, right? I mean, we've hit our revenue numbers, we've hit our growth rates. Our product lines are growing. There is a denominator element here to what we're seeing take place in the market, particularly in 2023, with the Japanese OEMs up plus 25% round numbers production in North America. So clearly, I've talked about HV slowing down. I think we've been transparent about that. But I just want to be clear, this isn't -- we're missing our growth numbers or we're missing our revenue numbers. This growth over market, a big piece of that is coming from what I'll call the denominator impact. I don't know, Kevin, if you have anything to add.

Emmanuel Rosner:

Okay. And then, one additional clarification on Motional, please. Can you just explain a little bit the mechanics of what you will essentially try to achieve? So, skipping no further funding rounds, is your JV partner okay to fund it? Because I believe there is a need for funding in the fairly near term. So, will that be covered by them at least in the interim? And then, will you be looking at other options on a go-forward basis? You spoke about uncertainty around the timing, but I'm not sure how much of it is already decided. And it's a timing question versus things that still need to be negotiated.

Emmanuel Rosner:

Understood. Thank you.

Adam Jonas:

Hi, thanks for taking the questions. It's been a good call. How much of your CapEx and R&D is being spent to support full BEV architectures?

Adam Jonas:

All right. Thanks, Kevin. And just again, I know the negotiations are ongoing, but anything to call out in terms of a breakup or walkaway fee, or I'd say at a high level, could investors anticipate the potential among your range of scenarios to have a potential payment to wind up your involvement with Motional?

Adam Jonas:

Okay. Thanks, everybody.

Operator:

And [that concludes] (ph) today's questions and answers, and I'll turn it back over to Kevin Clark. Please go ahead.

Operator:

And this concludes today's call. Thank you for your participation. You may now disconnect.

Operator:

Please standby. Good day, and welcome to the Aptiv Q3 2023 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jane Wu, Vice President of Investor Relations and Corporate Development. Please go ahead.

Kevin Clark:

Thanks, Jane, and thanks, everyone, for joining us this morning. Let’s begin on Slide 3. We delivered another strong quarter exceeding our expectations despite some headwinds. Touching on a few of the highlights, new business bookings totaled $6.6 billion, bringing the year-to-date total to a record $27 billion. Revenues increased 7% to $5.1 billion, 2 points over the growth in vehicle production, reflecting double-digit growth in ASUX revenues and S&PS revenue growth in line with global vehicle production, the impact of the UAW strike in North America, as well as customer mix. EBITDA and operating income were both records totaling $727 million and $560 million respectively, reflecting solid flow-through on volume growth and ongoing operating performance initiatives, partially offset by unfavorable FX, timing related to customer recoveries, and the impact of the UAW strike. We expect continued sequential margin expansion as the headwinds related to supply chain disruptions continue to dissipate, customer recoveries are closed and the benefits from further cost structure actions take hold. The team remains laser-focused on continuing this trend in the fourth quarter and into 2024 and beyond. Turning to Slide 4, touching on the key themes and macro trends that have had an impact on our operations this year. Our customer relationships and new business bookings are stronger than ever, driven by robust demand for smart vehicle compute and software, high voltage electrification and ADAS solutions. As automotive OEMs continue on the path toward fully electrified, software defined vehicles, we are their partner of choice, delivering unique full system solutions that provide enhanced features and greater flexibility all at a lower cost. We're also benefiting from the transition to the software defined future across several other industries with opportunities in the commercial vehicle, telecom, AMD and industrial markets. Global automotive vehicle production has been stronger than we initially forecasted, as easing supply chain constraints have led to fewer disruptions enabling increased production. Our strong year-to-date results had put us well on our way to reach the top end of the full-year guidance we laid out in early August. However, the UAW strike, which affected the production schedules of our top three North American OEM customers, has had an impact on both our third and fourth quarter results. While tentative agreements have been reached with all three North American OEMs, there remains some uncertainty on vehicle build schedules as the OEMs work to finalize their plans to ramp up production during the balance of the fourth quarter. Our operating teams in North America are working closely with our customers and supply chain partners to help accelerate the ramp up of production and minimize any potential disruptions. Moving to Slide 5. As already mentioned, new business bookings during the quarter were $6.6 billion, bringing our year-to-date total to a record $27 billion on track for our target of $32 billion for the full-year. Advanced Safety and User Experience bookings totaled $2.2 billion, driven by over $1 billion in active safety awards. Signal and Power Solutions bookings reached $4.4 billion, including $1.1 billion in bookings for our high voltage electrification solutions split across geographies, bringing the year-to-date total to $4.3 billion, already surpassing last year's record of $4.2 billion. As OEM strategies around their vehicle architecture platforms evolve, one constant will be the need for solutions that deliver improved performance at a lower cost. And Aptiv is perfectly positioned to leverage our full system capabilities to enable a fully electrified, software defined vehicle. Turning to Slide 6, to review our Advanced Safety and User Experience segments third quarter highlights. Revenues increased 13%, 8 points above vehicle production, the result of a 30% increase in active safety revenues, reflecting strength across all regions as the launch of our Level 2 and Level 2+ ADAS solutions continue to ramp. Operating income totaled $109 million, reflecting a 7.6% operating margin, an increase over the prior period, but sequentially lower than the second quarter due to the seasonality of Wind River revenues and the timing of customer recoveries. New business bookings totaled $2.2 billion and included $1.2 billion of active safety customer awards, including a major award with a large German truck manufacturer underscoring the strength of our high performance radar technologies and their applications outside of the automotive industry. As demand continues to increase for more advanced active safety solutions, our unique insights and proven domain expertise position Aptiv to deliver differentiated value to our customers. To that end, we're excited to have recently launched our automated parking solution, an additional feature to our AI/ML-enhanced Gen 6 ADAS platform to address complex parking scenarios. Aptiv's unique solution enables fully modularized automated parking features that scale from Level 2 to Level 4, from auto parking assist and memory parking all the way to auto park delay. Automated parking is just one of the many features that we have under development in our Gen 6 ADAS technology roadmap, which will scale to a full Level 3 ADAS platform in 2026. Turning to the Signal and Power Solutions segment on Slide 7. Third quarter revenues increased 5% in line with global vehicle production. High voltage revenues increased 13%, reflecting strong growth across all product lines, partially offset by customer mix in Europe and Asia and the impact of the UAW strike in North America. The $4.4 billion in S&PS bookings that I mentioned previously included a low voltage architecture award with a Chinese OEM demonstrating the progress we're making further penetrating the local Chinese OEMs. Another strong quarter for Intercable Automotive with $400 million in new business awards, including a major award with a global customer in North America reflecting continued strong commercial traction and a high voltage system award with a European OEM that includes products across our electrical distribution, connection systems and Intercable Automotive portfolios, demonstrating how our full system approach sets us apart from the competition. Lastly, we're proud to announce that Aptiv has once again been recognized as an automotive PACE Award finalist. A Rapid Power Reserve solution is a groundbreaking technology that provides a highly reliable, redundant power source for a variety of critical functions, eliminating the need for a low voltage battery in the vehicle, significantly reducing weight, mass and costs. This recognition validates Aptiv's industry-leading technology as well as the value and impact our continuous innovation provides our customers. Turning to Slide 8. We're excited to showcase many of our new innovations at the Consumer Electronics Show in Las Vegas in early January next year. We'll bring our vision of the future to reality including vehicles with Aptiv smart vehicle architecture, running applications for next-generation ADAS and in-cabin user experience. Vehicles with our complete portfolio of optimized electrical vehicle solutions purpose built for demanding power requirements and Wind River's edge-to-cloud platforms supporting the latest safe, green and connected applications from Aptiv. We'll be providing live demonstrations of how we're leveraging our deep insights into the brain and nervous system of the vehicle, along with Wind River's proven software technology to develop optimized and scalable solutions that meet OEM needs for performance, flexibility and lower costs. Moving to Slide 9. In recognition of our strong commitment to innovation, operational excellence and sustainability, Aptiv was recently named by Newsweek as one of America's Greenest Companies. At Aptiv, our business strategy is directly aligned with our sustainability goals. We provide solutions of the highest quality, designed, developed and manufactured responsibly that enable a safer, greener and more connected world. In doing so, we take care of our people and our communities while minimizing our carbon footprint. Sustainability is an enterprise-wide commitment, and I'm proud of our entire team for helping us to achieve our goals and ensuring that our company, our customers and our planet continue to thrive. Moving to Slide 10. Before I turn the call over to Joe to walk through the financials, I wanted to touch on our current view of 2024. Building on the solid foundation we've established in 2023, we're well-positioned for continued strong revenue growth and margin expansion despite the macro headwinds. Our safe, green and connected product portfolio is perfectly aligned to the demand for feature-rich electric vehicles, as well as the acceleration of the software defined future in adjacent markets. Our advanced technologies and capabilities will continue to drive strong performance across multiple industries. While some macro uncertainties remain, we're confident in our ability to execute flawlessly in a dynamic environment. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Kevin Clark:

Thanks, Joe. I'll wrap up on Slide 17 before we open the line for questions. As Joe and I have discussed, we experienced strong underlying business performance in the third quarter, driven by further easing of supply chain constraints, which partially offset layering headwinds related to material and labor inflation, unfavorable FX rates, and the UAW strike in North America. We continue to see tremendous momentum in new business awards and are well on our way to reaching our bookings target of roughly $32 billion by year-end. While our teams continue to work tirelessly to mitigate the impact of the UAW strike in North America, including the ramp up of North American production, we're executing on further cost structure actions to enhance our operational resiliency. Our portfolio of advanced technologies and strong operating execution gives us confidence in our ability to further strengthen our competitive position and deliver sustainable value creation for our shareholders. Operator, let's now open the line for questions.

Joe Spak:

Thanks, everyone. Good morning.

Joe Spak:

Kevin, Joe, just first on the growth over market for the quarter and I guess the outlook, I know you said it was in part driven by the UAW strike. I think it went from 9% to 5%. But that’s -- that $180 million is like 1 point, I think year-over-year. And part of that's obviously just the industry, not just your sort of growth over market. So can you sort of detail some of the other factors that are driving some of the lower growth over market for the year and in the fourth quarter?

Joe Spak:

Okay. And then I guess just to follow-up as we think about some of your mid-term targets and you pointed out some of the slowing BEV penetration in U.S. and Europe, and I think this has been pretty well documented right now. Does that -- I know you've taken a more conservative view of BEV penetration maybe than some third parties over the mid to long-term. So is this -- how does sort of the more recent trends, I guess, compare versus what you laid out back in the February Analyst Day?

Joe Spak:

Thanks. I'll pass it on.

Rod Lache:

Good morning, everybody.

Rod Lache:

Just following-up on Joe's question, I know you've been a lot more conservative on high voltage and BEVs than just about everybody in the market, you had a 35% penetration by 2030. But can you just give us a little bit of maybe additional color on what your customer mix looks like within that backlog that was propelling the 30% annual growth? Just to get a sense of is it -- are you more exposed to the companies that are slowing down a bit, or are you sort of more dispersed among the -- amongst the faster growers?

Rod Lache:

So high level, Kevin, when you look at this in its totality, do you feel like there's a material change to that original 30% that you were looking at? Or is it -- I guess our question is not that specific, but how are you kind of viewing the expectation?

Rod Lache:

Great. Thanks for that. And just lastly, obviously a lot of controversy around autonomous right now with crews slowing down, just hoping you can give us any updated thoughts on your investment plans there with Motional, whether that's influencing your thinking on that business at all. And then if Joe could just update us, you originally had a like a $1.7 billion performance and lower supply disruption kind of element to your 2022 to 2025 of rich. How much of that are you seeing this year?

Joe Massaro:

Hey, Rod, it's Joe. Just to answer your question, I think we're tracking well. If you recall, we had that on that walk I think you're referring to in the Investor Day from the end of 2022 to 2025, we had $1.7 billion of performance that was going to work to offset $900 million of labor inflation. We talked about that being fairly ratable over the three years. That wasn't sort of a 2025 thing. We were going to make progress on that through the year. I'd say 2023 is tracking very much to that sort of ratable approach on both the cost side as well as the performance, the price recovery side, so things are tracking well. Obviously, as we sit here today, and it's sort of stated obviously within the comments I made, right, we do have some higher volumes helping offset the strike impact, but for the most part, those performance initiatives are coming through as planned, and we're seeing that particularly on the offset of the labor expense.

John Murphy:

Hi, good morning, guys. I have another follow-up on this toggle on EVs, and the penetration rate maybe being a little bit slower than people had expected. Kevin, as you look -- Kevin and Joe, I mean, as you look at this, an optimist could say, hey listen, EVs are taking a little bit longer and we're going to run our programs as they exist right now, get better margins and returns in the interim, generate more cash and be able to fund the future more robustly, might be gross over the market a little bit, but our earnings and cash flow might be a bit better. Is that potentially true here? And as you're making these capital commitments to these programs, or do you have the ability to kind of toggle down reasonably quickly so it wouldn't dent your returns and you get that benefit of maybe a slower roll.

Joe Massaro:

Hey John, it's Joe. The only thing I'd add to, we've talked about this for a while, right? Particularly with the electrical architecture business, we were able to leverage existing facilities, existing equipment, existing supply chain, existing engineers, low voltage, high voltage, the products are different, but they're very complementary. So for us, and we've got obviously, a very large architecture business. So I think leveraging that over the last couple of years has helped that product line get to segment accretive margins very quickly. But it's also helped from a return perspective, right, because we had a lot of that capital and plant and equipment in the ground.

Joe Massaro:

Yes. We -- I mentioned it in passing in the guide, they are -- and it's in their business. I think it's somewhat of a software business phenomena, Q3 is just a very slow quarter for them. Q2, Q4 tend to be the highest. It's a highly leveraged model, like a software business would be, right? So software renewals, licenses, new licenses tend to drop at it's an 80% gross margin business, so they tend to drop at pretty high incremental rates. So we had seen this in the prior years. That's why we cautioned in February, and don't -- we're not surprised by this. So I think as you look at this and we talk about just the quarterly progression over the next couple of years, I think this will be something that we see as recurring.

Kevin Clark:

Thanks.

Adam Jonas:

Thanks, guys. So just look and follow-up to Joe's and Rod's and Murphy's question. I want to hit on this theme as well. This EV journey for legacy OEMs has just been an unmitigated disaster so far. I don't think you need to be pragmatic Bostonians to see that, to see through that. With respect to like the inability to generate anything close to a reasonable return on capital. And I don't see a path to it. So just speaking for myself here, guys, but it wouldn't surprise me, and I suppose a lot of people on this call, if GM, Ford, and the Germans pulled back their EV spending a lot, I mean, a lot. And I know you're not going to -- you're not in a position to answer the exact impact yet, so I'll phrase the question this way. If they did, if in a world where the undisputed leader Tesla is dialing back and barely profitable themselves. And others follow and really just reset because they can't sell negative 100% margins forever. Can you tell us how much your those -- the 14.5% mid-decade operating margin target or the over 17% longer-term target? And I realize there won't be a straight pass there, but how much of those targets really depend on the pace of EV adoption to continue the way you outlined, even conservatively outlined in February 14?

Joe Massaro:

Yes. Adam, I'd agree with that. Assuming unit production, total unit production stays in line, right? We'd be swapping back to content on the low voltage platforms. We've got content on one out of every 3.5 vehicles manufactured. And to Kevin's point, you're looking at a point or two of sort of accretive high voltage that we'd have to work through. But it's -- there are going to be dollars that replace that assuming the world continues to build the total number.

Adam Jonas:

Yes. Appreciate that, Kevin and Joe. Just one quick follow-up, if I may. Just want to confirm that out of the $1.8 billion or almost $2 billion of high voltage -- sorry, electric portion of the -- was the $2 billion -- sorry, of the $2 billion number that you quoted.

Adam Jonas:

Thank you. Just want to confirm that. Tesla is the single largest component of that. I want to confirm that and then labor remind us how much of your sales is labor and what rate of inflation you're seeing in real time. Thanks, guys.

Joe Massaro:

Yes. We've talked about it. Adam, we had in the Investor Day, $900 million of dollar increase between evenly split over the three years, that was about 10% to 11% increase and that's what we're seeing.

Chris McNally:

Thanks so much, team. Maybe we could just do a little housekeeping. Kevin and Joe, maybe I'm missing something, but the $1.8 billion in high voltage, what's the number you're using for 2022? Maybe I -- maybe it's been restated, but I think you had $1.2 billion in some of your old slides. Could you just update those 2022 and 2023?

Chris McNally:

Okay. And so that's actually -- is that an increase? I mean because I think the previous number guided to on Q2 was maybe a 30% increase. So it looks more like a 50% increase for high voltage for this year.

Chris McNally:

That's exactly. Okay. Thank you, Joe. Intercable was exactly what I was asking for. And the second one, just to follow-up on Adam's, you forget about talking about the customer, but the $1.8 billion is only high voltage, right? So if there was a large EV player that you mostly did low voltage for, that low voltage revenue, even though it goes to an EV, would not be in the $1.8 billion, is that correct?

Chris McNally:

Either vehicle.

Chris McNally:

Absolutely. And then, the last one for Q4, because obviously there's a lot of moving currents in Q3. On ASUX, I think you talked about 8% to 9% rough margins for the year. It sounds like from the commentary, some of the recoveries were pushed from Q3 to Q4. The first is that 8% to 9% still pretty good, even if it's the low end, because it points to a nice material pickup in the ASUX [sic] margins. And I think we've been sort of looking for that because that's a large portion of the drive towards the 2025 goal.

Joe Massaro:

Yes. Yes. Full-year, the current guide would have ASUX at 8% and S&PS at 11.6%.

Kevin Clark:

Thanks.

Operator:

Next we'll go to Itay Michaeli from Citi. Please go ahead.

Joe Massaro:

Yes. Itay, I think as you look at and we'll obviously stay away from 2024 at this point, but I think if you looked at I sort of give our standard cautions, right? I'd focus more on H2 versus Q4, because Q4 can be heavy with things like engineering recovery. So I think it's more H2 adjusted for strike. But listen, as I -- as you just go through the progression here, and as I mentioned to Rod, we're clearly have got the benefit of some volume increases offsetting strike. But our margin rates at the segments as well as total call -- total company are tracking to the original guide and that's tracking to that Investor Day model. And as I mentioned to Rod, the $1.7 billion of performance, the $900 million of labor are falling in. So if you go -- so I think we're on track. If you're going to start to look at back half, I would -- I think H2 is a better proxy than just Q4. And then you obviously have to adjust for the strike.

Itay Michaeli:

Perfect. That's all very helpful. Thank you.

Emmanuel Rosner:

Thank you very much. I was hoping you can help us frame and quantify the exposure to electric vehicles either in terms of current revenue or more importantly, actually in terms of future growth of a market or percentage of backlog, not just within high voltage, but generally speaking, because to your earlier point, you're selling low voltage components to like very large EV manufacturer. And obviously a lot of the new programs over the next few years would probably have been on new EV platform. So anyway, to maybe quantify when you sort of like look at this outgrowth expected over the next few years, how much of that would have landed on EV platform.

Emmanuel Rosner:

I appreciate it. Joe, the reason I'm asking for EV exposure outside of high voltage is, there's a large seating supplier that would be ideally the most powertrain agnostic product you could possibly sell slashing their backlog by 20%, because all these new seats were going to go on new EV platforms, basically, which are either being pushed out or it's sort of like lower volume.

Emmanuel Rosner:

No, no, no. my comment was EV exposure outside of high voltage, any way to frame that?

Kevin Clark:

Yes. Emmanuel, from our perspective, vehicle architecture just given the fact that we're on one of every three vehicles globally, if they're not building a BEV, they're building a vehicle with an internal combustion engine. And more likely than not, we're on that vehicle. So with that low voltage vehicle architecture. So for us, I would say there's virtually no impact.

Kevin Clark:

Yes. It was customer mix across really all regions. And some examples were kind of outsized growth of the Japanese OEMs across North America, across Europe, as well as some significant growth in parts of Eastern Europe that are either products manufactured in Eastern Europe or in places like China that are exported. So areas where we have less customer exposure. So a lot of that, we think is related to semiconductor rebound and availability of chips for select OEMs. And the other piece is the impact of or the opportunity as it relates to the UAW strike in North America for select OEMs to potentially gain share.

Dan Levy:

Hi, good morning. Thanks for squeezing me in.

Dan Levy:

Wanted to start with your Slide 10 just the perspectives on 2024 here. And in the bottom half of the slide says continued inflationary environment, geopolitical uncertainty. Maybe you could just unpack the inflationary comment a bit. What is it that you're seeing that's incrementally worse? How does potential recovery on semiconductor costs factor in? And maybe you could just talk about the potential for better stability in production schedules to be a potential tailwind next year.

Dan Levy:

Great. Thank you. And then, just as a follow-up on the EV side, just two quick ones there. Can you just confirm I know you said you're overweight to the European and Chinese? China, we've obviously seen a lot of uptake, especially from BYD. How should we think about the mix impact if we see outsized exposure from the Chinese? And then can you just confirm that on SVA that that is powertrain agnostic?

Joe Massaro:

Yes. Dan, just current revenues and it's got -- it's changed over the last few years, we're about 60:40 global versus local OEs. From a revenue perspective today, that would have been north of 75% global, back in the 2018/2019 timeframe. Bookings are running 50:50. So we'd expect that to increase in favor of the locals. And obviously, just given what's being made over there a lot of that EV.

Operator:

And I'd like to turn the call back to Mr. Clark for any final remarks.

Operator:

Thank you. Ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.

Operator:

Good day, and welcome to the Aptiv Q2 2023 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.

Kevin Clark:

Thank you, Jane, and thanks, everyone, for joining us this morning. Beginning on Slide 3. We delivered a record quarter, demonstrating outperformance in an improving supply chain environment. Touching on 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. EBITDA and operating income totaled a record $695 million and $530 million, respectively, reflecting solid flows 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 4. Our first half performance substantially in line with our expectations. New business bookings totaled over $20 billion, driven by customer awards for our SBA compute and software, high-voltage electrification, user experience, and active safety solutions. Record revenue, representing 20% growth, 8 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. The result of strong volume growth and increased operating efficiencies, partially offset by the headwinds I mentioned on the prior slide. And we're ahead of plan for both Wind River and Intercable Automotive solutions with both companies experiencing an uptick in commercial engagements and customer awards. 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 to increase 3% to 4%, principally driven by stronger vehicle production in North America and Europe. Our updated outlook does not take into account any labor disruption 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 tailwinds. Moving to Slide 5. As I already mentioned, new business bookings during the quarter were $6.1 billion, bringing our year-to-date total to over $20 billion. Advanced Safety and User Experience bookings totaled $1.7 billion, driven by $1 billion in user experience bookings, including awards for Aptiv's integrated cockpit controller and driver state sensing solutions. Signal and Power Solutions bookings reached $4.4 billion, including $1.4 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 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 earnings 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 6 to review our Advanced Safety and User Experience segment's second quarter highlights. ASUX achieved record revenue of $1.5 billion, increasing 24 points above underlying vehicle production. Active safety revenues increased 49%, with strength across North America, Europe, and China as the launch of our Level 2 and Level 2+ 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 compute and software revenue grew 30%, reflecting Wind River's commercial success in both the automotive and nonautomotive 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 awards with a North American customer. As I mentioned, we're 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 Porsche Taycan and now being rolled out across numerous other vehicle platforms. As vehicle life cycles get shorter the ability to cost effectively extend our solutions across both luxury and mass market vehicle platforms, reinforces Aptiv's value as a strategic partner. And as demand increases for more advanced active safety and user experience solutions, the 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 7. Wind River delivers edge-to-cloud software solutions for mission-critical applications, enabling software to find systems that require the highest levels of safety, security, and performance. The Wind River team has done a great job increasing the partner 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 GMV to provide its edge software and with a 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. The Wind River team continues to be actively engaged with several automotive customers on 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's Helix virtualization platform, which will allow end users to utilize a diverse set of runtime environments, including the VxWorks RTOS, Linux, and Android. Last month, the team also announced a strategic collaboration with Horizon Robotics to provide Wind River's complete edge-to-cloud portfolio for Verizon's automated driving compute solutions for the China market. These partnerships in automotive, along with Wind River's continued commercial success, in its traditional markets, allow Aptiv to capitalize on the transition to a more software-defined future. Together with Wind River, Aptiv 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'll be hosting a software teaching in September. We're excited to tell you more about the Active Win 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 8. S&PS second quarter revenues increased 21%, 6 points over vehicle production, the result of strong revenue growth in China as we lapped the COVID disruptions during the second quarter 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 $1.4 billion in high-voltage bookings that I mentioned previously included another strong quarter from Intercable Automotive, which I'll touch on in more detail on the next slide. Multiple awards with the Hyundai Motor Group, including for both power distribution and battery pack electrical architecture, High Voltage Electrical Center award, 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 9. As I mentioned earlier, we're 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 and 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 Intercable 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 award is now more than $2 billion, validation of the strength of their best-in-class high-voltage electrification technologies. Already a market leader with European customers, Intercable recently launched production from one of Aptiv's facilities in North America, with customer deliveries scheduled to begin this quarter. In addition to what Interconnect brings, we continue to experience significant commercial interest in our growing portfolio of power electronics and battery management system solutions for both battery producers and high-volume battery electric vehicle manufacturers. With our unique portfolio of high-voltage solutions and full system capabilities, we're perfectly positioned to be the partner of choice for customers around the world as they transition to an optimized electrified vehicle architecture. Moving to Slide 10. Before I turn the call over to Joe to walk through the financials, I wanted to take a minute to recognize an important achievement by the Aptiv team. In July, Aptiv was recognized by Volkswagen with the prestigious VW Group Award one of just a handful of suppliers. Aptiv was chosen for more than 40,000 suppliers for the top spot in the category of Global Performance Champion recognition for our product innovation and ability to keep Volkswagen connected during these challenging times. The VW and Aptiv 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 of the future. The Aptiv team is extremely proud of this award and looks forward to continuing to innovate and further strengthen our long-standing and strategic partnership with the VW Group. With that, I'll turn the call over to Joe to go through the numbers in more detail.

Kevin Clark :

Thanks, Joe. I'll wrap up on Slide 17 before opening the line for questions. 2023 is off to a good start with record first half revenues, EBITDA and operating income, and strong margin expansion. We maintained our momentum on new business awards for optimized full-system solutions that deliver increased performance at lower cost to our customers. Our outlook for industry volumes has increased and easing supply constraints have led to fewer production disruptions and improved operating efficiencies. And we continue to focus on optimizing our cost structure to further enhance our operational resiliency. Our culture of innovation and commitment to keeping our customers connected is clearly translating into strong commercial momentum, which gives us confidence in our ability to execute our strategy, maintain our track record of performance and deliver sustainable value creation for our shareholders. Operator, let's now open the line for questions.

John Murphy :

Good morning, guys. Thanks for all the information this morning. Just a simple question first on ASUX. It seems like you suddenly just kind of got into escape velocity here. And I'm just curious if that's kind of a fair statement, particularly with these margins at 9%, they're weigh down by some other factors. So, I mean, on a normalized basis, they're actually reapproaching 10%. In the ramp-up of some of these growth segments, I mean, is this where we should be thinking sort of the travel rate for margins? Or is there something else going on in the quarter other than just this kind of escape velocity being reached?

John Murphy :

Okay. And then just one follow-up on Intercable using that sort of as a test case for some of these acquisitions that you're making. I mean it sounds like you can't sell this or explain it well enough at how the -- or the expansion opportunity is in front of you for Intercable. I'm just curious in the current base of customers, and the $1 billion that's been won year-to-date or booked 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. I'm just trying to understand where this is ultimately going to go.

John Murphy :

Great. Thank you, very much.

Itay Michaeli :

Great. Thanks, and good morning everybody. Just two questions for me. Just first, I was hoping you could just walk through the how you think about the H2 versus H1 margin bridge embedded in your guidance? And then just secondly, I didn't notice restructuring expenses 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 the lever that could be going forward for margin expansion?

Itay Michaeli :

Perfect. I appreciate all that detail. Thank you.

Rod Lache:

Good morning, everybody. Had to just ask you kind of a couple of big picture things. One is 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 was 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?

Rod Lache:

Thanks, for that. Okay. And just switching gears. A few western companies seem to have lately realized that the EV forms that they were working on were just too expensive and we've already seen Volkswagen reach out to Xiaoping to use their platform and seemingly, there's a few other discussions in the industry about using Chinese platforms. So, I'm just wondering from Aptiv's perspective, how you -- how 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 be agnostic to that? Or is there some -- are there some implications for you if that is something that continues?

Rod Lache:

Great. That’s helpful. Thank you.

Chris McNally :

Maybe I could start on the top line and macro. I know it gets kind of confusing, talking about North America with the upcoming UAW. So maybe Joe, we can focus in on Europe. Just some quick numbers on the 4% to 6% production, which is lower than the forecasters, I think we have something like 15%, 16% in the first half, so it implies down in the second half, obviously, inflation prices and cost of living, et cetera. But curious if your seeing anything specific. You obviously have a lot of insight there or is there's just a bit of conservatism built in for the next couple of months as schedules firm up?

Chris McNally:

That's really helpful. And if I could just follow up some numbers to Mark's comments on ASUX where the margin progression does seem like it's starting to take off. I think from your 8% to 9% a full year it sort of implies the back half roughly 10%. So, we usually because of some of the price issues we can sort of use it as like a base, and you have a 13.5% -- 13% to 13.5% target for '25. Given that I think that $190 million you just laid out in recovery, a lot of that will come in ASUX assuming that we have, okay, up small, low single-digit volumes next year that we can kind of split the difference, and start to think about '24 being somewhere in between the halfway point of that 10%, and let's call it 13.5%. Or is there anything that takes longer, why it would be more of a back-end loaded 13% plus margin in '25?

Chris McNally:

Very helpful. Thank you.

Adam Jonas :

Thanks, everybody. Kevin, I thought your answer to Rob answer, a question -- there's a bit of an echo. On the pulling back on the more conservative EV targets given your experience was really well done. I guess if I follow up on that if there was a scenario where your 2025, and then longer-term EVs assumptions were really dominated by Tesla and the Chinese, like I'm thinking 5% plus share of the EV market being those two regimes, would that be mix adverse for you? Or, Yes. I just kind of leave that open-ended, but just kind of think -- curious how you would approach that level of concentration because there may be some scenarios where there's a win or take most on these global platforms. And then I have a follow-up. Thanks.

Adam Jonas :

Okay, Kevin. And either Kevin or Joe, on Motional, can you give us the latest update on the capital need there in terms of cash consumption? And then what have you got left in the tank before we need to put more in the kitty? Thanks.

Adam Jonas :

Thanks, Joe thanks, Kevin.

Operator:

We will take our next question from Dan Levy from Barclays. Please go ahead.

Joe Massaro :

So, 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 copper, we're indexed to copper with our customers for the vast majority, 80% of our copper buy those prices get adjusted either quarterly or in some cases, semiannually, we have one customer or a large customer, we actually do monthly. So, all we're dealing with there is really the lag. How much copper do 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 copper tends to be more of a margin rate impact in margin dollars. As it relates to semi, 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 the year. I would tell you at this point, don't see any indications of chip prices coming down. And I think if you look at least in some of the chip folks that are -- have a large automotive presence, I think they've been sort of echoing that, at least the potential to hold or maybe even go up in some of their public comments. So, we remain vigilant. We would expect to pass additional price increases through to our customers, but certainly don't see any downside on those prices at this point.

Joe Massaro :

So, Dan, we've talked about this a couple of times before. So, the renegotiation on price with customers covered in-process products, right, products that were being manufactured and things that were near launch, call it, within sort of 12 months plus to launch. For programs that are longer further out from a start date perspective, we have the opportunity, and we've done this even before semiconductors prices have gone up typically, before we really start to put capital on the ground, right, you got a sort of a two-year to three-year window before program start, there are various touch point customers around the economics of the program. Customers need that. We want that. Suppliers want that. Those tended historically to have been around volumes, right? If a program looks like it's going to be significantly higher in volume, the OEM wants to have a discussion, if it's going to be lower in volume, the supplier wants to have a discussion. Bond costs are historically part of those. So, as we get up to the point of starting production or putting capital to work to start production, we have a mechanism in place and the team does a good job at it to go back to customers on the overall economics of the program and bond costs are going to 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 sorted out to get the program back to the original economic deal that was struck.

Dan Levy :

Thank you, that was very helpful.

Mark Delaney :

Good morning. Thank you for taking my question. You mentioned that Aptiv has been a little bit more conservative on its EV volume projections given the cost of those platforms. I'm hoping you can clarify, whether has there been a change at all in Aptiv's own outlook for EV volumes this year because some OEMs have certainly talked recently about seeing some slower EV growth, but perhaps some or all of that is being offset by upside that other OEMs may be realizing?

Joe Massaro :

Yes, Mark, it's Joe. I mean we had talked about at Investor Day high-voltage being at least 30% grower per year for '23, '24, '25, and that view has not changed at all. So, I think that's -- that was reflective of sort of where we were on our estimates relative to the broader sort of forecasting community.

Kevin Clark :

Yes. I'm not sure there's an uptick. I think the industry still wrestles with software. I think there are still major challenges. Wind River has announced a number of program wins with OEMs, I think today we're, we're actively engaged with, I don't know, 10 OEM to 12 OEMs as it relates to their underlying kind of software architecture and some of the needs that Wind River can provide a lot of momentum there. As I mentioned in my prepared comments, I would expect by the end of the year to have some additional amounts to make. So, those challenges present an opportunity for Wind River. And then when you think about the middleware, real-time operating system as it relates to Aptiv, whether it be in user experience or ADAS or other areas, certainly opportunities for Aptiv as well.

Operator:

We will be taking our final question from Tom Narayan from RBC. Please go ahead.

Joe Massaro :

Yes. On the -- on the engineering credit, that's a very normal flow that happens every year on ASUX. Last year, by way of example, it was about $40 million of credits in the back half of the year. I'm not saying it will be that amount this year, but that's an order of magnitude, call it, somewhere sort of $20 million to $40 million is sort of a good range to use on that. As it relates to -- you're right, as it relates to Q1, ASUX had a couple of launches that launch, but we're ramping slower than expected due to supply availability from other suppliers. As we talked about at the time, those programs really came back online in March, and have been hitting schedules since -- and that was in North America. I think ASUX North America's growth over the market was north of 20% in the second quarter. So, those are back what you saw now in North America, I referenced, 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 heavy launch calendar in the back half of the year. So, I think as you get to the end of the year, North America's growth over the market will look like the rest of the business, but you always get a little bit of lumpiness from time to time in some of those numbers.

Kevin Clark :

Yes. Listen, I think we direct you to our OEM customers. So, we don't have a UAW 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 say, having gone through it in 2019. There's some small operational lessons learned as it relates to kind of supply chain management, and inventory management. Things like that. But I think it's a question more appropriate for our OEM customers.

Operator:

That concludes today's question-and-answer session. Kevin Clark, at this time, I will turn the conference back to you for any additional or closing remarks.

Operator:

This concludes today's call. Thank you for your participation. You may now disconnect.

Operator:

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

Kevin Clark:

Thanks, Jane, and thanks, everyone, for joining us this morning. Beginning on Slide 3. We had a strong start to the year, showcasing our ability to continue to execute in a dynamic macro environment. Touching on a few of the highlights. Revenue increased 15% to $4.8 billion, a new record for quarterly revenue, representing 6 points of growth over underlying vehicle production, supported by strength across all regions and product lines, particularly in our ASUX segment. Operating income and earnings per share totaled $437 million and $0.91 respectively, reflecting solid flow-through on volume growth and contributions from our recent acquisitions, Wind River and Intercable Automotive, partially offset by periodic supply chain disruptions and unfavorable foreign exchange and commodity prices. New business bookings totaled $13.9 billion, driven by a record level of customer awards for our Smart Vehicle Architecture and High-Voltage solutions, further demonstrating our strategic value to our customers as the industry accelerates towards the fully electrified software-defined vehicle. Turning to Slide 4. While the overall macro environment remains challenging, we're beginning to see supply chain improvements that are broadly in line with our expectations. Our 15% revenue growth in the first quarter was supported by a 9% increase in underlying global vehicle production, principally driven by stronger-than-forecasted customer schedules in North America and Europe. We continue to benefit from consumer demand for more feature-rich, highly electrified vehicles, which could further accelerate with more stringent government regulations, such as the recent EPA proposal that will result in electric vehicles representing at least half of U.S. new car sales in 2030. Although supply chain issues persist, we're now seeing sequential improvements in the overall supply of semiconductors, which has translated in a more stable vehicle production schedules. While we work to position ourselves to benefit from these near and long-term tailwinds, we remain focused on optimizing our business foundation, ensuring that we have the right talent and operational footprint to execute on our current and future platforms. We continue to enhance our regional operating model and expand our global execution capabilities by rotating our engineering resources to our technology centers located in India and Poland and establishing new engineering centers in Cairo, Egypt and Monterrey, Mexico, which are emerging hubs for software talent. We also continue to address increasing material and labor inflation through supply chain resilience initiatives and the rotation of our manufacturing footprint to best cost locations. The majority of our direct material spend is now mapped in our digital network model, providing greater visibility into our global supply chain and enabling us to better predict and minimize the impact of supply constraints. In addition, our execution of strategic long-term agreements for select semiconductors has better positioned us to secure supply for the future, ensuring that we're aligned to our customers' product road maps and solidifying our position as a reliable and trusted partner of choice. And lastly, we continue to shift manufacturing capacity with higher direct labor content to best cost countries or regions and invest in high-return production automation initiatives, all of which has enhanced our operating execution and position us well for commercial pursuits. Moving to Slide 5. The pace of our new business bookings is a true testament to the value that we bring to our customers, not just from the strength of our portfolio of advanced technologies, but also for a track record of strong execution. As mentioned, first quarter new business bookings totaled $13.9 billion, more than double last year's first quarter amount in just under last year's record quarterly booking of $14.2 billion. Advanced Safety and User Experience bookings totaled $6.4 billion, driven by $5 billion in Smart Vehicle Architecture bookings, which doubled our cumulative customer awards for SBA to a total of $10 billion over the last 2 years with 8 different OEMs and nearly $1 billion in active safety bookings including global RADAR program with a Japan-based global OEM and a program with Geely, which represents the seventh OEM to adopt Aptiv's ADAS platform, leveraging our full system solutions to optimize ADAS performance up to L2+. Signal and Power Solutions new business bookings totaled $7.5 billion, including a record $1.8 billion in bookings for high-voltage electrification solutions comprised of awards from both traditional and new battery electric vehicle OEMs across our high-voltage electrical architecture and engineered components product lines. We continue to see a very balanced bookings profile, underscoring the strength of our high-voltage portfolio and providing a clear line of sight to exceed last year's $4.5 billion in high-voltage business awards. Overall, the pace of our strategic engagement with customers is only accelerating, and we remain highly confident in achieving our target of $32 billion in new business awards for the full year. Further validation of the value we deliver as the only provider of end-to-end full system solutions. Turning to Slide 6 to review our Advanced Safety & User Experience segment highlights. In the first quarter, ASU achieved record revenue of $1.4 billion, growing 9 points above underlying vehicle production. Growth in Active Safety was strong across all regions as production of our Level 2 and 2+ ADAS solutions continue to ramp, while user experience grew in line with the market, consistent with our expectations. As I mentioned, we're experiencing strong commercial momentum with our Smart Vehicle Architecture solution. The $5 billion of new business awards during the quarter includes a large zone control award with a major North American-based global OEM and an additional award from a major European-based global OEM for a central vehicle controller. Diving more deeply into our progress with Wind River, although the acquisition only closed at the end of last year, we've experienced an acceleration in customer engagements and potential revenue opportunities. In February, we announced our early success leveraging Wind River software offerings integrated into Aptiv's ADAS platform to support L2+ automation for the Geely program I mentioned earlier. And building off this early success in China, in March, a major local Chinese OEM selected Aptiv and Wind River for a joint advanced development program to design their next-generation vehicle architecture, spanning the full suite of software and hardware solutions from both Wind River and Aptiv. Outside of the automotive market, Wind River continues to expand its business across the other mission-critical industries it serves. Aerospace and defense and telecom companies, for example, are relying on Wind River solution to develop, deploy, operate and service their software-defined products. And there's been a tremendous amount of commercial activity in these markets year-to-date, including the expansion of Wind River's Edge Software within several leading aerospace and defense customers for dozens of new programs and more recently, a significant deployment of 5G cloud-native capabilities to a major telco provider, further establishing the company's leadership in the 5G landscape where it powers the majority of 5G deployments with global operators. These Wind River offerings were also showcased at Mobile World Congress in Barcelona, where Wind River successfully demonstrated how its studio platform is transforming the 5G and O-RAN space, which has led to increased dialogue and new opportunities with additional large global telco operators. We're confident that these strategic engagements will lead to additional customer awards in the months to come. Turning to the Signal and Power Solutions segment on Slide 7. We remain perfectly positioned to deliver next-gen vehicle architecture solutions that are optimized for weight, size and total system costs all the way from the grid to the vehicle. SPS growth over market totaled 5% during the quarter, supported by strong outgrowth in China of 13%, which was partially driven by increased demand for battery electric vehicles and a 28% increase in high-voltage revenues, reflecting strong growth across all regions. The record $1.8 billion in high-voltage bookings during the quarter included a $400 million high-voltage charging award with the North American-based global OEM, which will be used across our BEV portfolio on platforms beginning to launch in early 2024. And our previously announced Power Electronics award was an integrated battery management system, spanning both hardware and software, demonstrating our ability to develop new products to further expand our competitive moat. Moving to our other key acquisition, Intercable Automotive. Strong growth in the quarter was driven by program launches with key European customers. In addition, Intercable booked $500 million in new business awards, reflecting continued market demand and commercial traction with multiple OEMs. During the quarter, we've made significant progress expanding Intercable operations in North America and China, now adding manufacturing capacity in Mexico to more effectively serve North American customers. As the global technology leader in high-voltage busbars and interconnects, Intercables continue to develop and expand its product portfolio. Intercable recently won their first cell-to-cell connection system award with a German OEM, making the first - marking the first time they brought their technology from outside to inside the battery. Intertables focus on continuous product innovation, combined with Aptiv [ph] support in expanding their global manufacturing capabilities has increased our pipeline of new business opportunities by 40% compared to last year with the funnel continuing to grow. Moving to Slide 8. Building on our full stack solution approach, we continue to see increased adoption of our Smart Vehicle Architecture platform. As already highlighted, we have now successfully transitioned from the introduction of smart vehicle compute as a concept back in 2017 to $10 billion in cumulative SVA bookings today, and the accelerating demand for battery electric vehicles is providing a further catalyst for OEMs to take a clean sheet approach in vehicle architecture. To date, we've completed multiple advanced development programs for our Smart Vehicle solution and many of these programs have translated into new business awards, successfully validating that SVA can reduce complexity, improve scalability and unlock new software-enabled functionality, all while lowering the total system cost of the vehicle. With the addition of Wind River, we're now seeing increased interest in after providing a full system solution for both hardware and software from our customers. The industry is recognizing that the underlying software architecture of the vehicle must be modernized alongside the hardware architecture in order to unlock the full value of the car of the future. This involves truly up-integrating and serverizing the compute platform, while addressing the demands of safety-critical real-time applications, all of which are SVA solution, including Wind River's cloud-enabled software platform can deliver. We're now engaged in discussions with a number of OEMs around the world regarding the combined Aptiv Wind River Solution, particularly in China, where customers move faster and have more quickly embraced what Wind River can enable in the software-defined vehicle. The automotive industry also needs to adopt a true DevOps approach in order to take full advantage of this new software hardware architecture paradigm, creating new business models enabled by full life cycle management, which will lead to faster speed to market and increase flexibility, while at the same time, reducing software development, deployment and warranty costs for our OEM customers. Before I turn the call over to Joe, I want to take a minute on Slide 9 to reiterate how Aptiv is uniquely positioned to create long-term value. Our portfolio of advanced technologies enable optimized full system solutions that improve performance to lower cost and accelerate the path to the fully electrified software-defined vehicle. Executing our strategy has positioned us to further leverage the accelerating safe, green and connected megatrends. And as a result, Aptiv is uniquely positioned to capitalize on opportunities in both the automotive and adjacent markets. As we've shown in our first quarter results, we're solidly on track to meet our 2023 commitments and well on our way to delivering on our 2025 financial targets and are perfectly positioned to further expand our competitive moat and deliver continued outperformance as a fast-growing, more profitable business. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Kevin Clark:

Thanks, Joe. I'll wrap up on Slide 16 before opening up the line for questions. As I mentioned, 2023 is off to a great start with customer market and supply chain tailwinds all contributing to our strong first quarter performance. Customer engagements for Aptiv's SVA solutions and Wind River software offerings are incredibly strong as we continue to deliver value by providing optimized full system solutions with increased performance at lower cost. As expected, we've seen sequential improvements in the supply of constrained parts resulting in fewer production disruptions. And we continue to optimize our cost structure to improve our operational resiliency. That being said, we remain laser-focused on mitigating the impact of persistent macro challenges, including ongoing material and labor inflation, as well as the periodic supply chain disruptions. In summary, we're experiencing tremendous commercial momentum and we've never been more confident in our ability to execute our strategy, deliver on our commitments and maintain our track record of outperformance, all of which will drive sustainable value creation for our shareholders. Operator, let's now open up the line for questions.

Chris McNally:

Good morning. Thank you. So two quick questions on sort of auto 1 [ph] I guess the first, if we start with the obvious on production, the slide, Joe, you call it an in-line quarter, but I think we're all starting to see better production in Q1, the schedule for Europe full year. So I think the main question is your minus one global production, are you seeing something in your call offs that are quite different than sort of the LMCI [ph] just 4% to 5%? Or Joe, is it just too early in the year to update that and you'll have more visibility maybe in the middle of the year?

Chris McNally:

And Joe, as a slight follow-up, is it fair to say that there's some early shoots in Europe on the production side? I mean we're sort of seeing it on the sales and regs, which is giving us a little bit that confidence just on Europe specifically?

Chris McNally:

Great. And then the last quick one. On the strong orders number, obviously, a big, big number for SVA. Does it - will that have any negative impact to the guide versus prior expectations? Sometimes there's engineering expense that falls when orders are this big. Just if you can comment on that. Thank you.

Chris McNally:

Thanks so much.

John Murphy:

Good morning, guys. First question around the price cuts that are going on in EVs both in China and the U.S., to a lesser extent, in Europe, also to a lesser extent. What could that mean for volumes for EVs for you? And Kevin, I know with Wind River and SVA, there's kind of a view of sort of the full life cycle management. It seems like there's a developing strategy of your lower margin at the front end on the vehicle and higher margin or profit over time from the lifetime of the vehicle. How could those SVA and Wind River maybe partake in that as well as help the automakers achieve that?

John Murphy:

Okay. Maybe just to follow-up to put it more so succinctly, how much opportunity for revenue and profit do you think you may have beyond initial point of sale? And maybe on these calls at some point in the future, we might stop talking about global production, and you might start talking about subs. Or how much of your revenue could be beyond point of sale that will be much more probable over time?

John Murphy:

Great. Thank you very much.

Rod Lache:

Good morning, everybody.

Rod Lache:

I want to ask first about the numbers. This quarter, you achieved 15% organic growth, that's $625 million. You mentioned, Joe, that you're achieving the 30% conversion. So that would be about 180 year-over-year. I see the $130 million of EBIT growth, and you mentioned manufacturing and productivity was kind of a wash. It sounds like FX and commodities might have been a $50 million drag, but wasn't there some benefit from the pricing that you took in the middle of last year or maybe no? So I'm not seeing it in the growth over market in the quarter.

Rod Lache:

Okay. And maybe just to follow up, how should we - how are you thinking about the FX transactional exposure, at least what you've embedded for the year? And just a question for Kevin. You've got obviously, a lot of exposure to some of the growth of your companies in the industry with Tesla being your fifth largest customer and Geely now. And I was hoping you might be able to address this phenomenon of the Chinese starting to export a lot more and whether you think that, that actually is something that could move the needle for Aptiv over time?

Kevin Clark:

Yes, I think, Rod, just to add to that, I think in light of - or assuming rates stay where they are effectively as you fall out into the balance of the year. Sequentially, it should be less of a headwind across our business. So it should be a net positive there. Listen, as it relates to our exposure to - you referred to them, some of the growth or OEMs, we've made tremendous progress with players like Tesla. As you all know, we've grown with them across models, across regions. I referenced, Geely, in the L2+ ADAS program that we were awarded that will initially focus on the China market but is intended to be used on vehicles that will be exported outside of China as well. So that is certainly an opportunity. As you look at the major local OEMs in China based on our discussions, they are clearly focused on how do they begin to export vehicles outside of China. I think their general view is they have technologies and they have quality, which is at a level where they can meet kind of consumer standards outside of the China market and provide themselves with additional opportunities for growth. So it certainly is an opportunity. I'm not quite sure how large it is for us at this point in time. But given the progress we've seen in the locals make over the last 3 years, which has been significant, I think, would be a fairly good opportunity.

Kevin Clark:

Today, from a revenue standpoint, I think it's about 40%. Yes, 35% to 40%.

Rod Lache:

Thank you.

Adam Jonas:

Thanks, everybody. Hey, guys. Hey, Kevin. It really seems like the narrative around supply and demand for EVs has changed pretty markedly this year and from my read, at least in kind of an adverse way. I mean, when you hear Tesla talking about selling vehicles for no profit, and you see the Ford Model losing $60,000 per car in names like Rivian, Lucid and Fisker are really, really struggling to kind of get by here. If Western OEM volumes end being lower than expected, what would the impact be on Aptiv margins medium term?

Joe Massaro:

Yes. North America is about 29% or expected to be about 29% of high-voltage volume, Adam, in the year. You'd call that, to Kevin's point, North America slightly above SPS segment margins on a high-voltage basis.

Kevin Clark:

Yes. BYD or Geely were to grow outside of the China market in a disproportionate way, what impact does that have on margins? Just want to make sure I fully understand. It would be positive.

Kevin Clark:

Thank you.

Itay Michaeli:

Great, thanks. Good morning, everybody. Just two questions for me, maybe for Joe. Can you maybe just help us and just talk about how you expect the cadence of margins for the business throughout the rest of the year. And then secondly, maybe for Kevin, back on the bookings with Q1, I think the last five quarters, you're now running or averaging about $9 billion. Was Q1 another just a lumpy quarter? Or is there potential upside to 2023 bookings relative to your expectations?

Joe Massaro:

Itay, thanks. I appreciate that question. We have talked about this a lot in the first quarter. I think with one exception, which I'll come to, I think you just think through quarterly cadence of margin, we should be returning to what I'll call sort of that 2018, 2019, our historical cadence, right, of just sort of the natural flow that's in the business. So Q1 will be weaker, will build up over the year. Q4 will be a stronger year and will average to the full year margin. That's historically how the business behaved through 2020. And we - and I realize we're not giving quarterly guidance, but that's how we've talked about margins building up through the year. So I think just on reference point, you can sort of go back to those years, 2019, you've got to watch out a little bit for the strike. But the flow is basically there. I think the one caveat this year that we're obviously managing closely, but it's just a little bit of an unknown still is the supply chain disruption costs and how those hit on a quarterly basis. As we talked about it in February, we have $180 million in the guide, full year COVID supply chain disruption costs. We believe those are probably more weighted to the first half of the year as they roll out in the second half just given the sequential improvement. And those costs were, round number, is $50 million in Q1, which is a $30 million improvement year-over-year. So you got to make an assumption of how the 180 rolled out. But apart from that, I'd sort of go back to how the business would flow sort of pre-2020. And I think we're getting - may not be perfectly on that, but I think that's a good proxy, if that's helpful.

Operator:

Our next question will come from Dan Levy with Barclays. Please go ahead.

Joe Massaro:

Yes. There's - listen, I think it's a combination, right? There's the natural flow in the business. Q4 is much heavier for ASUX. You get those engineering credits. That's unrelated to COVID, unrelated supply chain disruption. That's my earlier comment on how the business flows. I do think it'd be low double digits in Q4. I think that's a reasonable proxy. So you have the sequential improvement, you have the normal flow of the business and then you're going to have volume growth. That business is going to grow throughout the year. We've got some strong launches coming in, in the second and third quarter.

Joe Massaro:

Yes. I mean those are in, right? You got a lot of - remember, we did a lot of it last year. There was obviously some to take care of this quarter. But a lot of it last year and then that rolled in a piece price in the beginning this year. So yes, I would say visibility there is good. We've got confidence there, and it's in the guide.

Kevin Clark:

That's actually a perfect environment for us. We benefit from that. So when you think about a full system solution, our ability to integrate and our ability to optimize that integration, the result of that sort of situation and the result of customers thinking that way is we tend to get more content. We tend to get more of our own content, which not only translates to higher revenues, it translates into higher margins. And a great example, I think we've talked about this in the past, we've had a couple of OEMs come to us and asked us to take a look at their vehicle architecture, kind of soup to nuts, both low voltage as well as high-voltage and come up with ideas where we can reduce weight, mass and costs. And there have been a number of situations where we've been able to reduce overall cost by 20% to 30%. And we're able to do that, saving the customer money, while at the same time, enhancing our profitability. So those are situations that are really good for us. And as we evolve into the challenges that our customers are having with software, which we've talked about previously, in terms of that debate about in-sourcing versus outsourcing and the fact that we're seeing - we're having more of our customers come to us to provide solutions. When you think about Wind River, when you think about Wind River Studio, when you think about what we're doing with the overall software stack, those are all things intended to drive flexibility and reduce cost. And we fully understand that we need to enable our customers to achieve their objectives. And a big piece of that is delivering technology at lower cost. So to be candid with you, it might sound a little crazy, but that's the sort of environment that we're actually looking for, and we think we really prosper in.

Operator:

The next question comes from Emmanuel Rosner with Deutsche Bank. Please go ahead.

Joe Massaro:

Yes, launches will strengthen throughout the year, but the 6 points, I think, is more of the sort of the abnormal number there, right? We just - and this happened in Q2 or Q3 last year, too. We just had a couple of customers, particularly in North America, they we're launching, they were accelerating ramp. Those ramps slowed just given some supply chain constraints. So we're - just relative to market, they weren't as strong. So those problems are clearing up. They're getting better in this quarter. So we - it's more of a returning to the framework then something needs to happen to get us to the framework. And we've always said, and I appreciate it's - I appreciate it's a long term guide, and we've historically been well within it, but it's always going to be a little lumpy, right? It's historically been lumpier to the high side with launches, but this is more a specific thing to Q1 than a longer term concern.

Joe Massaro:

Yes, there's enough - I think if they can make it up, that's going to depend on the other suppliers being able to get the parts. I think the supply is at least returned to where they can hit schedule, so we'll be back. We'll see how much they can make up.

Joe Massaro:

Yes. The net price benefit is really going to be first half. If you think about when that kicked in last year was really not July or August time frame, a little bit in June. So we're sort of seeing that now. That will continue into Q2. And then really when you get to - we've started to see the material manufacturing performance improvement, right? We talked about that needing to offset labor costs and it did offset a little to the positive side actually. So that's going to continue. And then you see volume build through the back half of the year, then I think you have that normal cadence of a strong Q4 as well around engineering credits and those types of things. So - but the net price, the customer recoveries are really a first half just given the timing of those last year when they started to kick in.

Operator:

The next question comes from Mark Delaney with Goldman Sachs. Please go ahead.

Joe Massaro:

Yes. Listen, I think it sort of goes back - Mark, it goes back to Chris' first comments, right? We - Q1 is off to - it was a good start. I think we're very happy with delivery. Obviously the FX, and as I mentioned, North America. But on balance, it's a quarter that was very much in line with our expectations we feel good about. And we expect Q2 to be the same, and then I think we reassess where we are for the year. I think on the margin side, as I said, there's - we're starting to get back to what feels like to Kevin and I sort of the normal cadence and flow of the business historically with the exception of the 180 million, just when do these disruption costs hit. Ideally, those go away much faster. We saw good improvement in Q1, $80 million in 2022, down to $50 million this year. And again, I think we see how Q2 plays out, and we'll have a better sense of where we are in disruption costs so we continue to see sequential improvement. And then can look at what customers actually do in their detailed production schedules for the back half of the year.

Joe Massaro:

Yes. Yes. So both, as I mentioned, both acquisitions performed in line with expectations. Acquisitions are accretive to the margin for total Aptiv [ph] margin. So it's positive on both the revenue and the OI. My comment around Wind River, just trying to set some expectations ahead of time. It's not necessarily on telecom weakness or any particular weakness in the market. Relative to - that - it's a very important business, but it's a relatively small revenue stream, right? It's about - there'll be over $0.5 billion this year, up from a little less than 450 last year. They tend to have some big deals come in on a quarterly basis. So it's more of a cadence within that business. It's always existed of timing of when some of the larger revenue opportunities get signed up. And much like our bookings, it's not necessarily a straight line quarter-to-quarter-to-quarter. That's all I was cautioning about. So I think full year, they have a very good sense and have historically a very good track record. Quarterly, as a private company, they hadn't historically been managing the business quarterly, if you will, and some of those contracts to be a little lumpy. And I just - we wanted to caution that before the lumpiness appeared versus after. If that makes sense.

Mark Delaney:

Thank you.

Tom Narayan:

Hi. Thanks, guys. Yes, a quick follow-up on, I think, Rod's question. Just - it sounded like you said that the - Joe, like the FX assumptions based at the end of Q4 and now it's changed in Q1 and that has impacts in Q1. Just curious if FX is at the Q1 level, how does that change your guidance specifically like EBITDA or EBITDA margin? Is it - how would that be impacted if it stays it...

Tom Narayan:

Okay. Thanks for that. And then just the follow-up would be there's a large ADAS provider that this earnings season noted that one of their OEM customers, I think reduced kind of purchase order pretty substantially in China, the specific OEM. Just curious if your specific OEM exposure in China, how would you characterize? I mean, certainly, your guidance suggests a really strong growth over market despite the challenges there. But is there anything noteworthy in terms of your specific Chinese OEM exposure?

Operator:

And with that, that does conclude our question-and-answer session for today. I would now like to hand the call back over to Kevin Clark for any additional or closing remarks.

Operator:

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Aptiv Q4 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jessica Kourakos, Vice President of Investor Relations and ESG. Please, go ahead.

Kevin Clark:

Thanks, Jessica, and thanks, everyone, for joining us this morning. Let's begin on slide three. 2022 was another year with record new business bookings and strong growth over market, driven by our industry-leading portfolio of advanced technologies, as well as our continued flows execution that's kept our customers connected in this challenging environment. Highlights for 2022 included $32 billion of new business bookings, driven by significant active safety, high-voltage and smart vehicle architecture awards. $17.5 billion of revenues, representing 15 points of growth over vehicle production during the quarter, bringing our full year growth over market to 11 points. Operating income and earnings per share for the full year of just under $1.6 billion and $3.41, respectively, reflected the benefit of strong revenue growth and customer recoveries, partially offset by costs related to COVID and ongoing supply chain disruptions, which Joe will cover in greater detail a little later. We also enhanced our portfolio of safe, green and connected technologies with the additions of Wind River and Intercable Automotive, both of which closed during the fourth quarter. I'll expand on these, as well as our enhancements to our operating model on the next slide. As the industry transitions to fully electrified software-defined vehicles, we continue to enhance both our operating model and industry-leading portfolio to further strengthen our capabilities to solve our customers' toughest challenges. As legacy functional and domain-based architectures are increasingly replaced by approaches aligned after smart vehicle architecture, it impacts both the way we design and sell our solutions. This means further strengthening our One Aptiv account-based model, positioning us to engage earlier in the development process and, therefore, more effectively design, specify and deliver optimized solutions across our portfolio, resulting in stronger customer relationships and greater ability to capture value from all our full system solutions. We further enhanced our regional operating model, by increasing local capabilities and empowering those closest to the customer to address their needs quickly and efficiently. Additionally, the continued rollout of our Net Promoter System has resulted in actionable insights to improve our efficiency, our resiliency and service levels, thereby increasing customer intimacy. Lastly, proactive initiatives and risk mitigation actions related to our supply chain have contributed to our ability to keep customers connected through significant disruptions, giving them confidence in our ability to execute on current and future platforms. At the same time, we recognize that the software defined electrified vehicles consumers are demanding will require innovative new solutions and we're investing organically and inorganically to position ourselves for that future. Our acquisition of Wind River significantly strengthens our capabilities in software with an industry-first cloud data software platform that speeds development, streamlines deployment and enables full life cycle management for the software-defined vehicle, significantly reducing cost and time to market for our customers while also unlocking new business models. The acquisition of Intercable Automotive enhances our portfolio of high-voltage busbar and interconnect technologies and provides near-term synergies as we expand Intercable's manufacturing capacity in North America and in China. Lastly, we're also investing organically in solutions that further expand our portfolio of industry-leading high-voltage electrification solutions such as integrated power electronics and battery management systems. To help fund these initiatives, we've implemented structural cost reductions that will save roughly $100 million in annual expense, which will take full effect throughout 2023. These actions further improve the efficiency of our underlying cost structure while allowing us to make investments that better position Aptiv for long-term outperformance. As shown on Slide 5, nowhere is the strength of our track record and portfolio more evident than in our new business bookings performance. 2022 bookings reached a record $32 billion, an increase of over 3% from last year's record of $24 billion. advanced safety and user experience bookings totaled a record $12 billion, driven by $4.2 billion of customer awards for our smart vehicle architecture solutions across three different OEMs, including central vehicle controller and Power Data Center Bookings with the Volkswagen Group, bringing cumulative customer awards for SBA products since our launch to over $5 billion with five different OEMs. Active safety bookings of $5.2 billion, representing a combination of next-gen hardware and perception software building blocks as well as full system turnkey awards, including an award from a large European-based global OEM as well as the Chinese OEM BYD, which represents the seventh customer to select Aptiv scalable platform to efficiently support a wide range of advanced safety features. The strength of our portfolio of active safety solutions is reflected in the $20 billion of cumulative bookings since 2018. Signal Power Solutions new business bookings reached a record $20 billion for the year, the result of strong growth in low voltage vehicle architecture, including a $2 billion like commercial vehicle booking with a major North American OEM in the fourth quarter and continued strong bookings in adjacent markets. A record $4.2 billion of high-voltage electrification bookings, up from roughly $2 billion just a few years ago, including awards from several North American, European and China-based OEMs, representing both traditional and new mobility providers across our electrical architecture and engineered components product lines, bringing cumulative high-voltage customer awards to $14 billion since 2018. Our industry-leading portfolio, combined with our unparalleled ability to execute highly complex programs, even in today's challenging environment positions us to continue to win new business, resulting in clear line of sight to roughly $32 billion of business awards during 2023. Moving to Slide 6 to review the segment highlights. Beginning with the Advanced Safety & User Experience segment. This past year, we became the first technology provider to successfully launch a full stack hands-free Level 2+ ADAS system with a European-based global OEM. This is a great example of our full system capabilities applied to active safety as well as our flexible business model and open platform approach, which allows OEMs to leverage their own innovations, as well as those from Aptiv and other third parties to deliver a unique, high-performing driving experience. We're also deeply engaged with several customers regarding Wind River's cloud-native software platform, which we're confident will lead to commercial awards over the course of 2023. Turning to Signal & Power Solutions segment. We continue to be perfectly positioned with an industry-leading portfolio of electrification solutions that span multi-voltage distribution, connection and cable management. Reflecting the accelerating demand for battery electric vehicles, the $4.2 billion of high-voltage new business bookings I referenced on the prior slide, accounted for over 20% of the segment's total bookings, and high-voltage revenues increased 33% over the prior year, 28 points over vehicle production. In addition, our new offerings in power electronics and battery management systems are gaining traction as demonstrated by a significant integrated power electronics and BMS award from a North American-based global OEM, where a solution will be used across all their bet platforms beginning in 2025. And the pipeline of customers evaluating the deployment of a similar solution is growing. Our customers recognize our track record of flawless execution, which is a driver behind the customer service, quality and supply chain awards we received. The cost recoveries we negotiated and the record level of new business bookings we've been awarded. Our full system edge-to-cloud vehicle architecture solutions have enabled us to pursue high-growth margin accretive opportunities that position us to continue to deliver outsized revenue growth and margin expansion for years to come. Moving to Slide 7. At this year's CES event in Las Vegas, we brought the software-defined vehicle to life, showcasing Aptiv's unique full stack capabilities. We debut Wind River software platform, fully integrated with a vehicle powered by SBA. Designed vehicle demonstration of the industry's first end-to-end cloud-native DevOps tool chain and vehicle software platform, showed how these solutions improve development speed, quality and efficiency, unlock new business models and enable software functionality to evolve and improve over the life cycle of the vehicle. We also showcased our turnkey Gen 6 ADAS platform, including differentiating KPIs and a public road demonstration. Our radar-centric solution, which is vision agnostic, utilizes artificial intelligence and machine learning to increase the availability, robustness and efficiency of the perception system, resulting in a solution that can be up to 65% more energy efficient, and 25% more cost effective than equivalent vision-centric solutions. Lastly, we continue to highlight the commercial readiness of our Smart Vehicle Architecture solution. First, by deeply integrating it into a production vehicle, which enabled us to demonstrate a wide range of in-cabin user experience features as well as the fusion of our interior and exterior sensing, resulting in greater safety, comfort and convenience for passengers. And second, through our SVA demonstrator, which enabled guests to see firsthand how these advanced architectures reduce complexity, weight and mass, while also showcasing our latest high-voltage electrification solutions. With over 400 customers, 150 partners and 75 suppliers visiting the Aptiv CES pavilion this year, we reinforced our growing pipeline of commercial opportunities and set the stage for the deeper, more tailored engagements, which I referenced earlier. Moving to slide eight. Before I turn the call over to Joe, I wanted to touch on our outlook for 2023, which Joe will cover in more detail. Building on the foundation from 2022, we expect a very strong year for new business bookings, revenue growth over market and margin expansion. Our robust business model and portfolio of advanced technologies are resulting in sustainable value creation. We continue to widen our competitive moat with investments in advanced technologies and capabilities that drive our operational excellence. This has enabled us to demonstrate strong outperformance even in a weak production environment, as demonstrated by our 2023 outlook, where we continue to expect 8 to 10 points of growth over vehicle production, and 140 basis points of operating margin expansion and strong cash flow growth. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Operator:

[Operator Instructions] And we'll take your first question from Rod Lache.

Rod Lache:

Yes. So, I guess my first question is on your bridge for 2023, you have $400 million of additional labor depreciation economics price. You offset that with $400 million of performance and it was either $135 million or $180 million of lower disruption costs. I'm just wondering about -- just in light of the still inflationary environment that we're seeing pricing is still negative. And at what point do you think you start to kind of get ahead of this and recover some of these disruption costs or headwinds.

Rod Lache:

Yes, I guess, to just maybe clarify my question, Joe. Like I think that you had talked about $295 million of disruption that you'd start to recover over six quarters. And when I say ahead of it, in my mind, at least that means the positives are greater than the negatives. It looks like they're sort of matching at least when optically, when you look at the bridge?

Kevin Clark:

Yes. Maybe if I can add on, I think it's a great question. I think one of the challenges when you talk about getting full ahead of it, you need to have better predictability of what you're getting ahead of. I think Joe's point on the fourth quarter of 2022 in December, specifically to give you an example, roughly 90% of our employee base in China was suffering for COVID. That's tough to predict. Yet at the same time, we were able to keep our factories running and keep our customers connected, which has been our ultimate objective, right? So operating in a less efficient way and being somewhat reactive in an environment where we can't always predict what's going to happen from a supply chain standpoint or COVID stand.

Kevin Clark:

Yes. I think the net results for Wind River from a revenue growth standpoint, a margin standpoint, accretion dilution standpoint remain largely unchanged. We're not going to get into all the specifics, but operationally, there were some changes that we needed to make. And in light of that, we are in a position to renegotiate the transaction.

Rod Lache:

Thank you.

Joe Massaro:

Hi, good morning, Adam.

Kevin Clark:

Yes. Adam, listen, as we've talked about in the past, when we provide our guidance and build our forecast, it's off customer schedules. And when you look at the nature of our business, especially our SPS business, we're on one in every 3, 3, 3.5 vehicles globally. So we get a very good view to the underlying market. We also, given the nature of our ASUX business get a very good view to what's going on from an overall semiconductor availability and supply chain standpoint. And I think when you look at the semiconductor challenges as they've evolved from 2021 to 2022, then 2022 to 2023, it's really much more focused on rather than a general supply constraint standpoint, specific suppliers who are causing constraints. And we expect that to continue into 2023. It certainly was the case in 2022. And those two factors are effectively, they're impacting our overall outlook for the full year, which again, as Joe said in the past, is based on the customer schedules that we received.

Kevin Clark:

Yes. I think it depends on your baseline and what comparison you're trying to make, whether it's a full system solution, a platform solution or it's a unique to a perception system, as an example, a radar solution. Obviously, ADAS penetration has accelerated and continued to increase over the last several years. I haven't seen or we haven't done the math on the pursuit relative to win. I'd say, it's still relatively high on a platform basis. I would say we're very focused on investing our efforts in those areas where we have a high likelihood of winning. So based on that sort of approach to pursuing ADAS platforms, I would say, it would continue to be relatively high. I'm not sure if it's quite at 70%. But we still continue to have a very strong position. And again, it's reflected in our bookings in 2022, our outlook in bookings for 2023 and our revenue growth relative to market. And I mentioned in my comments, the next-gen Gen 6 ADAS platform, which we'll launch in 2025 will be available for SOPs in 2025. We've already had one customer award. It's an open system. It provides -- it's modularized. It provides a lot of flexibility for ourselves, as well as for our OEM customers. And importantly, it's very cost effective. So we believe we're going to continue to see significant demand.

Kevin Clark:

We’ll see you.

Operator:

We'll hear next from John Murphy from Bank of America.

Kevin Clark:

Well, listen, we've been talking about high-voltage electrification and what we've been doing from a portfolio standpoint, bookings continue to be strong, right? Obviously, we had another year of record bookings, and it wouldn't surprise us if we had 2023 even stronger bookings from a high-voltage electrification standpoint. So, we'll see, we're optimistic. Having said that, as we've said in the past, we're very, very focused on pursuing opportunities with those OEMs who have battery electric vehicle platforms that they're taking globally, that we have a high confidence level that they're going to meet their schedules and effectively generate significant revenues over a platform, which ends up a better financial proposition for ourselves and obviously, lower risk.

John Murphy:

Got you. Okay. I mean, if you look at stuff like the Model 3 and the Y, I mean, it's kind of the here and now. I mean given the price cuts, I mean, those guys might be doing another 500,000 units relative to expectations. I mean are you thinking that's possible, and that's in your numbers at this point. And the action by the Chinese manufacturers well. I mean it's a real heavy stuff here. I mean we're not talking about like three to five years on backlogs. We're talking about like hundreds of thousands, I mean, if not millions more EVs this year than expected?

Joe Massaro:

And to date, John, those actions have happened in the last couple of weeks, we have not seen big schedule moves yet. Not saying they won't happen, but haven't seen material changes at this point.

Kevin Clark:

John, as you said, they're always tough. It's an industry with a tough pricing environment all the time. So those conversations are -- they're never easy. And what we've done in the past and what we are really focused on continuing to do is to bring value to our customers, one by keeping them connected; and then two, providing them with solutions that solve their toughest challenges that are cost-effective solutions. And to the extent you're able to do both of those, I would say those conversations are less difficult, but they're never not difficult. And our outlook -- the team did a great job. Joe mentioned, the team did an outstanding job in 2022, both having those discussions and negotiating those – those price increases and at the same time, delivering record bookings. And that's a process we'll continue to go through in 2023.

Joe Massaro:

Thanks, John.

Emmanuel Rosner:

Thank you very much. Good morning.

Emmanuel Rosner:

A couple of questions on margins, if I can. First one for the quarter. I think the margins were quite a bit softer than maybe we had anticipated, especially of very solid revenue outcome for the quarter. Can you please go back over some of the factors of this? I obviously heard you speak about COVID disruption in China, anything else? And specifically within us and U.S., it seems to be quite pronounced.

Emmanuel Rosner:

Okay. That's helpful color. And then, I guess, as a follow-up, I think one of the ways you, I think, encourage us to look at it, I guess, this upcoming year was, maybe, compare the performance versus the second half of 2022 to the extent that some of the price recoveries and commercial agreement you had with customers who are benefiting you more in the second half of 2022. I guess, what do you feel is sort of like a good clean base in terms of second half margin, for which to build off, as we try to understand your 2023 guidance? And what would sort of like the puts and takes versus that.

Emmanuel Rosner:

Okay. Thank you, very much.

Operator:

We'll hear next from Itay Michaeli from Citi.

Joe Massaro:

Yes. Let me start with bookings. I'll work my way down. As Kevin mentioned, we think -- it was in Kevin's presentation, we see line of sight to, call it, another $32 million -- $32 billion of bookings in 2023. I would say mix should be generally consistent with 2022. They always can be a little lumpy, but continue to expect growth in SVA and active safety, obviously, in high voltage. But I think that profile, the sort of the current profile is probably a pretty good proxy. Again, bookings are lumpy. They always have been. But that, I think, is probably the best proxy, and we did want to provide a target, obviously, for next year, which is something new, but we've got a lot of confidence in what we're seeing. From a segment perspective, if you want to talk sort of growth or growth over market, full year, I'd have ASUX at around 12% growth over market full year. SPS at about 8% growth over market full year. And then I'll give you -- I'm not going to go quarter-by-quarter, obviously, on the margin cadence. But if you think about sort of full year margins by segment -- and again, we got to work through the disruption costs and some of the FX we've talked about. But I would think about SPS in that 11% to 12% range, and ASUX in that 8% to 9% range, full year OI margin.

Operator:

[Operator Instructions] We'll move next to Mark Delaney from Goldman Sachs.

Kevin Clark:

Listen, I think if the disruptions and the significant material inflation that's over the last couple of years goes away, we definitely get back to what our historical margin trajectory was. And then when you overlay what we've done from a portfolio standpoint, and where we sit, whether that's mix of more high-voltage electrification, more advanced ADAS solutions, the benefits of Wind River and Intercable actually have the ability to go above that. So it's a combination of both.

Kevin Clark:

Sure. So in reality, going back, we signed a commercial agreement with Wind River over a year ago well and over a year ago. And in reality, our teams have been working closely together, both in terms of developing the final product for automotive applications as well as in commercial discussions. I'd say the traction we've hit over the last quarter or so has hit a significant level at this point in time. So a number of introductions across the various regions. I think as I mentioned in my prepared comments, there's a deep level of engagement with several OEMs in every region at this point in time. And we're very optimistic, and I'm very confident that you'll see meaningful announcements in 2023 with respect to Wind River's penetration of the automotive space.

Operator:

We'll move next to Chris McNally from Evercore.

Kevin Clark:

Yes. Chris, just to be clear, our ADAS business, I put into kind of two buckets. One bucket is a platform solution, which to-date has traditionally been with the Mobileye vision solution. Then there's another bucket where our perception system -- perception systems are integrated into an ADAS solution. And in those particular cases, it could be a variety of vision providers and in fact, actually is. So it's a real mix. The Gen 6 ADAS platform is a platform that we've developed -- first, we've developed to be vision agnostic. So OEMs have the ability to select what vision provider they would like to utilize for the overall platform.

Kevin Clark:

No, I would say, it's probably a little bit closer to 50-50. I'd say, it's 50-50. If you go back four years ago, we had roughly 14 ADAS customers. Today, we have 21 ADAS customers, and that's a mix of growth in that platform solution, as well as providing a portion of the overall ADAS solution to OEMs.

Joe Massaro:

Yes. It's weighted towards our production. That basically means for us, Chris, high level, taking out Japan production basically and weighting it towards the markets where we're strong. We obviously don't do a lot on for Japanese OEs in Japan. So that -- and call that 20-plus million units, right, that we sort of weight away from that. And that's the same -- we've been calculating that the same way for -- since the IPO for 11 years now. Very consistent.

Joe Massaro:

Thanks, Chris.

David Kelley:

Hi. Good morning, guys. Also, a couple of follow-ups from my end and maybe starting with kind of the semiconductor discussion and impact on AS and UX. Curious if you're seeing any signs of plateauing pricing there or even potentially to take back some price from your suppliers. And obviously, timing is difficult to predict. But given your traction and value-add with customers, is there maybe an emerging opportunity where you could see some sticky pass-throughs for AS & UX as your own pricing starts to come down?

David Kelley:

Okay. Got it. And a quick follow-up on S&P. The product line margin expansion, you referenced, I think you mentioned kind of in high-growth areas. So a, can you confirm that that's high voltage or maybe it's kind of non-autos or CVs, or maybe just give us a bit more color on some of the specific product lines where you're seeing some nice movement.

David Kelley:

Okay. Got it. Thanks, guys.

Jessica Kourakos:

Operator?

James Picariello:

Hi, guys. Just a quick one on the key business vertical growth. So active safety, user experience, high-voltage electrification, non-auto, can you share what the growth rate expectations are for this year within the guide?

James Picariello:

Got it. That's super helpful. And then, just with respect to the $135 million in lower disruption costs for this year, can you confirm what that overall cumulative impact is entering this year? I believe the number was -- something like $295 million was the expectation as of last quarter. Seems as though the fourth quarter incurred some additional challenges tied to China. So, yes, if you could share maybe the time line to fully recapture this all-in bucket, what that is, that would be great.

James Picariello:

Okay. And then, over time, this will -- these cost challenges are fully addressable?

Kevin Clark:

Yes, I think it's important to note, setting aside fourth quarter COVID, when you think about car and inputs to a car, supply chain disruption can start with just a shortage of one part. And the issues related to excess labor, premium shipments, manufacturing, loss of manufacturing productivity. And that's all it takes. And there's a ripple effect and those dollars, obviously, are those inefficiencies and costs obviously add up. So, although it does, to Joe's point, overall, the supply chain situation is improving. There are still continue to be some unique situations that were outstanding or occurred in 2022 that are going to continue in 2023, with specific semiconductor suppliers. And then periodically, there are surprises that affect the industry, the players like ourselves need to react to. And our real focus has been, how do we make sure we keep our customers connected. So we've consciously made the decision to absorb a portion of that cost near term, go back to the customer for relief once we've addressed the issue, and we've kept them connected. And we think that's translated into the -- quite frankly, the bookings that we've had in 2022, we expect to have in 2023. And, quite frankly, their posture on price recovers. So it's tough to predict.

Kevin Clark:

Thanks, James.

Kevin Clark:

Thanks, operator, and thanks, everybody, for your participation today. Take care, and we'll see you on the 14.

Operator:

Good day, and welcome to the Aptiv Q3 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jessica Kourakos, Vice President of Investor Relations and ESG. Please go ahead.

Kevin Clark:

Thank you, Jessica, and thanks, everyone, for joining us this morning. Beginning on Slide 3. We had a strong third quarter, so let me touch on a few of the highlights. New business bookings totaled over $5 billion, bringing the year-to-date total to over $25 billion, already outpacing last year's record full year amount of $24 billion, and cementing another record year in 2022. Revenue increased 33% to $4.6 billion, representing 9 points of growth over underlying vehicle production, driven by the strength of our safe, green and connected product portfolio. We continue to execute well despite the constrained environment and macro headwinds. EBITDA and earnings per share totaled $673 million and $1.28, respectively, reflecting flow-through on volume growth and material cost recoveries partially offset by costs related to material inflation and supply chain disruptions. We remain on track to reach this year's target of $500 million of material cost recoveries and $100 million of cost reductions, increasing our profitability and enhancing the resiliency of our business model. And lastly, we continue to invest in growth opportunities as reflected by our agreement to acquire Intercable Automotive Solutions which further strengthens our high-voltage product portfolio. Turning to Slide 4. Aptiv's industry-leading portfolio of electrical architecture products and full system-level capabilities, uniquely positions us to optimize vehicle architecture systems. Intercable Automotive is an industry leader in the design and manufacture of high-voltage busbars and interconnect solutions. The company has an outstanding management team that has developed a portfolio of innovative high-voltage power solutions, including their seventh generation busbar product that they've leveraged into very strong relationships with several leading European automotive OEMs. The partnership between Aptiv and Intercable will enhance the strength and breadth of our combined product portfolios, allow Intercable to leverage Aptiv's global scale, manufacturing footprint, especially in North America and China, further strengthen our capabilities to design and deliver fully optimized high-voltage architecture solutions that reduce vehicle weight, mass and costs, and we can leverage these synergies to accelerate the revenue and earnings growth of our combined businesses. We look forward to closing this transaction later this year and welcoming Intercable Automotive to the Aptiv team. Turning to Slide 5 to review our segment highlights. Our full system solutions across both the Brain and Nervous System are accelerating the development of the electrified software-defined vehicle of the future. In the Advanced Safety and User Experience segment, our portfolio of technologies is helping to increase the penetration of advanced active safety solutions, including a third quarter business award from a major local Chinese OEM for our next-generation ADAS platform, representing our seventh major active safety platform customer. In addition, during the quarter, we secured a high-volume award with a large customer in Asia to provide our next-generation integrated cockpit controller. And lastly, we continue to build a growing pipeline of software revenue opportunities with an increasing number of North American, European and Asian OEMs, which we're confident will begin to turn into customer awards in 2023 and beyond. In the Signal and Power Solutions segment, as the demand for vehicle electrification continues to accelerate, we're experiencing significant growth in our high-voltage business, which will reach $1.2 billion in revenues this year and accounts for 25% of year-to-date new business awards in the segment. In addition, we continue to successfully leverage our vehicle architecture capabilities to drive revenue diversification and strong growth in the commercial vehicle and nonautomotive markets, which increased 24% during the quarter. And lastly, our industry-leading position as a full system solution provider of high-voltage architecture, combined with our capabilities in vehicle electronics and software systems has uniquely positioned us to expand our portfolio into power electronic solutions and battery management systems, further broadening our offerings and strengthening our position as the industry leader in vehicle architecture. Moving to Slide 6, how we put innovation in motion. During the quarter, Aptiv was named a 2022 PACE Award winner for our Central Vehicle Controller which is scheduled to begin production in 2023 with a major Chinese OEM. This high-performing compute platform is a key piece of the architecture that translates software code into physical action, efficiently and securely controlling the flow of data on and off the vehicle, managing communication for current and emerging high-speed protocols and reducing complexity by up-integrating critical body functions. This particular central vehicle controller is a first-to-market solution and a critical element of our smart vehicle architecture and is essential to enabling the software-defined vehicle. We are increasingly collaborating with our OEM customers to bring these innovative solutions to market as evidenced by our recent participation in the IZB 2022 Conference in Wolfsburg, Germany, where we showcased our portfolio of full system solutions for both hardware and software, to VW CEO, Oliver Blume and his management team pictured here. With Aptiv's Brain and Nervous System capabilities, we're uniquely positioned to reduce complexity through architecture optimization, while enabling the full abstraction of software from hardware. Increasingly important to automotive OEMs, our system-level design capabilities enables breakthrough levels of assembly automation, increasing quality while also reducing complexity and cost. And as customers migrate to next-generation architectures, capable of supporting software-defined solutions, it's important that they have the right software tools to develop the applications they support. This is why Aptiv is investing in end-to-end cloud native software development tools, which we previewed at IZB and will unveil at CES in 2023 Feedback from IZB was overwhelmingly positive, providing an opportunity to increase our level of collaboration with OEM customers and further validating Aptiv as a trusted technology partner. Turning to Slide 7 to provide an update on new business awards. As I mentioned, third quarter new business bookings totaled $5.1 billion, bringing our year-to-date total of $25.4 billion surpassing our previous full year record, further validation of the strength of our portfolio of advanced technologies and our ability to deliver exceptional value for our customers. Advanced Safety and User Experience bookings during the quarter totaled $1.4 billion, bringing the year-to-date total to a record $11 billion. Driven by the continued strong adoption of advanced active safety solutions, including the new business award I mentioned previously from a major local Chinese OEM for our next-gen ADAS solution, which we will leverage our scalable ADAS platform to support a wide range of advanced safety features. Bookings for our Signal and Power Solutions segment reached $3.7 billion during the quarter, including another strong quarter for high-voltage electrification awards, bringing the year-to-date total to roughly $3.5 billion. We've seen a very balanced bookings profile across our high-voltage product offerings, underscoring the strength of our industry-leading portfolio of advanced technologies. Another strong quarter of new business awards while at the same time successfully negotiating material cost recoveries with our OEM customers is further validation of the uniqueness of our portfolio, the strength of our customer relationships and our flawless operating execution. Turning to Slide 8. Despite the constrained environment and macro headwinds, we continue to take actions to increase the underlying resiliency of our business model and deliver sustainable value creation by enhancing our portfolio of full system solutions to increase our addressable content on the electrified software-defined vehicles of the future, recovering increased material input costs and optimizing our cost structure, smartly deploying capital to further strengthen our capabilities to meet the evolving needs of our customers and intelligently diversifying our revenue base into less cyclical nonautomotive markets. We're confident that these actions will position us to continue to create value as the industry transitions to the electrified software-defined vehicle and will be reflected in an acceleration in new business bookings, continued strong revenue growth over market, meaningful margin expansion and strong cash flow generation. With that, I'll turn the call over to Joe to go through the financial highlights in more detail.

Kevin Clark:

Thanks, Joe. I'll wrap up on Slide 13 before opening up the call to questions. Our business is built on a strong foundation and continues to gain momentum as we close out 2022 despite the constrained environment and macro headwinds that Joe just touched on. Our strategic alignment with our OEM customers has really never been better as reflected in our continued strong revenue growth over market and the pace of our new business bookings. We continue to make progress recovering the increases in material input costs while also further optimizing our cost structure, and we continue to smartly deploy capital both organically and inorganically to further strengthen our competitive position. These actions have translated into a significant improvement in our margins as evidenced by this quarter's results and are providing momentum and a strong entry point for 2023. As Joe just mentioned, in light of the current macro environment, we'll provide a detailed update on our 2023 outlook when we release fourth quarter earnings, but you can expect us to focus on delivering continued strong revenue growth over market and margin expansion in a challenging environment. With that, we can open up the line for questions.

Rod Lache:

Good morning, everybody. I was hoping first to just maybe better understand the year-over-year earnings bridge that you had this quarter. So you did on an adjusted basis, 256 of EBIT and you're getting to $525 million this year. You mentioned 32% conversion on the $1 billion of volume, which obviously will be more than accounting for that growth. Could you just talk to the net impact of commodities. That $199 million tailwind, what was the net effect netting that out? And were there any out-of-period benefits in that number?

Rod Lache:

Okay. So it sounds like mostly FX in that number and that recovery was mostly offset by higher costs, if I understand that correctly?

Rod Lache:

Okay. And you opened the door to 2023. And I know you can't really give a lot of detail yet. But last quarter, you mentioned that on a seasonally adjusted basis, we should be thinking that margins are around 10% in the back half. And it seems like you're kind of tracking to that. You're at an $18 billion run rate of revenue. So that's about $1.8 billion of EBIT. Is it still correct that there's around $100 million of additional kind of unrecovered costs that you're -- that you need to go after for next year?

Kevin Clark:

Rod maybe if I can just chime in on price recoveries. The team has done an excellent job as it relates to recapturing material cost increases and translating that now into POs with our OEM customers. So we feel good about heading into 2023 with respect to that particular category. Obviously, what we need to go after next year is partly influenced by what we see from a material inflation standpoint, if there's some incremental increases going into 2023. So we're well positioned as it relates to what we've translated into POs this year heading into next year. If there's more material inflation, we'll go back to OEM customers with increased prices. The OEM customers are aware of that. And then secondly, just to Joe's point on FX, I think Joe highlighted it on it in his comments a couple of times. When you look at the recent movement in the Euro and the RMB, we've seen a significant change over the last month or two. So I think there's a question there as it relates to what's the trend in currencies heading into 2023 and what sort of movements do we see.

Kevin Clark:

Yes. Listen, Motional continues to be very successful in terms of advancing the technology road map. I'm sure you saw the announcement as it relates to Uber and the plan to integrate the Motional solution or motional vehicles in the Uber network in the United States. As it relates to the Ford announcement, as it relates to Argo, listen, I think there's an element of -- our perspective on autonomy has probably been a bit different than most OEMs that are out there. When we originally made our investments in Automatica and nuTonomy, a big piece of our strategy was with respect to how do we take those technologies that are utilized for vehicle nuTonomy and how do we pull those forward into active safety solutions, which is what we're doing today, which is that technology or a portion of that technology, a portion of that know-how is embedded in our current generation ADAS platform. In addition, Motional is a customer of Aptiv. So when you think about perception systems and other items, they're actually a customer. So we've always viewed, right? I think we've talked about it in the past, we've always viewed autonomy as kind of the far in of the spectrum as it relates to active safety. So from a strategic standpoint, a business standpoint, it's fairly well integrated into what we're doing operationally today.

Operator:

Our next question comes from Itay Michaeli of Citi. Please go ahead.

Joe Massaro:

Yes. Itay, let me start with 2023. It's just there. We're still working through that. There's a tremendous amount of puts and takes at the customer levels we haven't seen schedule. So it's really too early for us to have a view on the numbers or the direction. As it relates to Q4, we're basically holding the guide. I think if we were to look at it, there's certainly some potential for upside, particularly with China production. Although more recently, we've seen probably more pullbacks in some China production schedules versus increases. But I understand there is a desire in that market to build more vehicles. The way I view the guide at the moment, we're certainly confident in the midpoint to the extent there's bias to the top end of the range. I think it's going to be a trade-off between vehicle production increases and China, Europe holding steady and then just how big an FX impact as sort of offsets on the top line. So that's really what we're looking at and really sort of the driver of holding the guide is to the extent you pick up some revenue on upside in China, which we'd admit is possible. We don't quite see it yet in schedules, but understand the bias there from customers. We are mindful of just the revenue impact on the -- from the FX perspective.

Itay Michaeli:

Got It. That’s helpful.

Joe Spak:

Thanks so much. Good morning. Joe, maybe just a little bit more on this decision to build inventory. It sounds like it's pretty customer or launch specific? I just want to get a little bit more understanding on your thinking because we just saw a competitor at least on the connector side, they had sort of built prior inventory and they're sort of leading some of their inventory go down now because they feel better about the supply chain. So, is this just you being extra cautious in terms of building your own stock? And is that a new normal? Or should we expect that to come down over the course of a year or so?

Kevin Clark:

If I can add, I think we should be really, really clear. Sorry, Joe. It relates to specific programs that we're launching in 2023 and relates to specific vendors who've been challenged from an overall supply chain standpoint. And to Joe's point, it's not the new normal to the extent their capabilities or their capacity increases, we have the ability to ratchet down orders during 2023. So we're doing what we can to protect our customers and, quite frankly, protect ourselves from a supply chain standpoint.

Joe Massaro:

Yes, it was the $0.5 billion and sort of -- it was $0.5 billion and basically getting that $0.5 million of inflation covered with recoveries round numbers, and that's happening and then we'd roll that into piece price next year. So that is on track. That's really not connected to the FX or the 10% to 10.5% discussion. Like I said, operationally, I think we're hitting the things we need to do. I just -- again, it's a caution, the FX number significant in Q3 is going to be significant in Q4. And if you look at just where some of those key rates were in the first half of 2022 versus if we were to ever end at sort of current spot levels, there is going to be an impact there.

Kevin Clark:

Yes. We're just - we continue through the regulatory process at this point in time. So that's where we stand.

Operator:

Our next question today comes from Adam Jonas of Morgan Stanley. Please go ahead.

Kevin Clark:

Yes. I don't - Adam, I'll take that. Listen, we don't view it as becoming commoditized. We have -- as I mentioned, we won another full platform program in China in addition to the large European program that we were awarded earlier this year. It's important that as a supplier, whether you're a Tier 1 or you alluded to the Tier 2 that you have the ability from a perception system standpoint across multiple perception systems, you have the ability to do sensor fusion, you have the ability to do integration and you have the ability to build domain controllers hardware. And with respect to the players that you're referencing, I'm not aware of any of them that have had the experience and the capability across each one of those areas. So we view ADAS as an important area. We don't view it as an area that will become commoditized as we've talked about in the past. It's obviously an important feature for our customers. It's obviously a feature that helps them sell cars. And it's a feature that they make a lot of money on. And we continue to be very well positioned in it. We continue to invest to further enhance and strengthen our position in the space.

Kevin Clark:

Well, yes, it's a great question. I'd say kind of 2 things on it. I think what you referenced as a potential risk to EV adoption, it is a possibility that it slows EV adoption. Our view is that it doesn't flatline EV adoption. With respect to our position from a high-voltage electrification standpoint, we're effectively the only player that can provide the full vehicle architecture solution. What we're finding is more and more customers coming to us to take more of the overall content to provide the cable management, the wire harness, the connector and now within our cable automotive, the busbar content as well. So regardless if we see slowing, we think there is a huge opportunity for us to capture more content. And then as I mentioned in my comments, in addition, we're investing in capabilities in and around power electronics as well as battery management systems. We're in discussions with customers as it relates to both products as we speak. And we'd expect customer awards to be forthcoming. So we believe it will be a continued high-growth area, and we feel as though we're well positioned, quite frankly, to expand our share of wallet, Adam, in that space. When you look at content differential to get to the last part of your question, high-voltage electrification, especially battery electric vehicles, probably what you're alluding to, the content opportunity for Aptiv is significant. Internal combustion engine typically has content vehicle architecture content of about $500 per vehicle. When you move to a fully battery electric vehicle, that's closer to $1,500. So it's a meaningful uptick in the content opportunity.

Operator:

Our next question comes from Chris McNally of Evercore. Please go ahead.

Joe Massaro:

Yeah, Chris, I think you're right. That original full year guide was down 4%. It's obviously strengthened. I think for us, that's exactly the point I was trying to make is how much higher could it be -- and then relative to -- as it relates to that guide, just how much of that gets sucked back in by FX. I'd say right now, again, I think something north of 5%, at least what we're seeing from customers would be tough to achieve, but no, our bias to the upside within the guide is related to China production. That's fair.

Joe Massaro:

I think I would say what we're seeing, there's a lot of noise in that market. I think it's hard to pull out incentives and sort of the puts and takes, pull heads at the moment. They're obviously, I think, coming out of that Party Congress. There's some discussions there around sort of market and how friendly the market gets over the coming couple of quarters. There is some heightened concern around COVID lockdown so that we're hearing, certainly not to the extent we saw in Q2, but renewed concern about that. So I think it's hard to pull out sort of 1 particular facet of that at the moment, Chris, Kevin, I don't know if you have...

Chris McNally:

That's perfect. And if I could just sneak in one for the 2023. Is it also -- I'm not sure if you mentioned this, should we use the 8% to 10% as sort of a base of the outgrowth, whatever production ends up being?

Operator:

We will now take a question from Emmanuel Rosner of Deutsche Bank. Please go ahead.

Joe Massaro:

Yes. What I was referring to Emmanuel there, and we've talked about it really for different regions for the past couple of years, right? I mean one of the big benefits to our customers, ourselves, and I'm sure it's just not us from a supply perspective, it's the smoothness of production. Even if you're at a lower number, the ability to sort of set up and run without these stop starts from supply chain disruptions, just make for greater efficiency. And I think we'll be better year-over-year, obviously, just cautioning that to the extent we continue to see some of these disruptions, particularly in the first half of the year, again, as an industry, I mean, the disruptions we saw in North America, in Q3 were not related to our supply chain, but our customers were impacted. So it's just speaking to the abruptness of shutdowns and restarts. It does hurt from an operating leverage perspective.

Kevin Clark:

Is your question around price downs Emmanuel or input costs?

Kevin Clark:

Yes. So maybe I'll take a shot and going back to Joe's last answer to your question. I think what you're hearing from us as a management team is although Q3 obviously improved results, our general view supply chain is improving. All the challenges aren't behind us. And we continue to see inflation, we continue to see volatility in schedules, which translates into volatility in production. That translates into a higher cost load as it relates to manning in our facilities as it relates in transporting goods, so inbound and outbound freight that, to a certain extent, is built into our current run rate so that we have an element of flexibility to continue to support our customers. Now our customers are -- we've been aggressively going to our customers and pushing through that price -- those cost increases to our customers. Our customers have been supportive of that. We would expect that there's an element of that, that continues into 2023. Certainly in the -- at least in the first half of the year. And just given the volatility in the overall macro headwinds, at this point in time, we're planning that some of that doesn't go away. We're pushing through as much of it as we can, but it's difficult to be precise as it relates to your predictions on what you think margin expansion and other items are going to be in the early part of 2023.

Operator:

We will now take our question from David Kelley of Jefferies. Please go ahead.

Kevin Clark:

Yes. Intercable strong position, obviously, in high-voltage electrification. I mentioned in my comments, they're on their seventh generation busbar technology. So clearly, the industry leader from an overall technology standpoint. When you look at -- they have other products as well, interconnect, high-voltage interconnect solutions as well as electrical centers. It's a nice fit with what we do. A very strong position as it relates to busbars, a stronger position than what Aptiv currently has. So when you look at that product portfolio, certainly additive to the overall solution that we can bring to market. I think when you look at the overall busbar market, it's a little over $1 billion today. I think by 2026, it's expected to grow at about a 30% compounded rate. So 2026, 2027, it gets north of $4 billion. So significant revenue opportunity. Content per vehicle, depending on the nature of the busbar solution and the nature of the vehicle, it's anywhere between low end, call it, $100 to high end, close to $200 of vehicle content. So it's certainly meaningful. They have a very strong position in Europe with European OEMs, a very strong manufacturing position in Europe, a manufacturing footprint in China, we think there's an opportunity given our footprint in Asia, given our footprint in North America to expand their manufacturing footprint and introduce them to additional customers. So we view it as really a great opportunity to generate significant synergies. And Joe, did I miss anything?

David Kelley:

Okay. Got it. Really helpful color. And just more broadly, realizing Wind River is still pending, but can you talk about your approach to acquisitions in 2023 given what feels like a shifting macro here.

David Kelley:

Got it. Thank you.

John Murphy:

Good morning, guys. Just two quick ones here. First, just on the volatility and schedules. I understand that it's depressing obviously the potential for incremental margins. But this is something that's been going on for almost 2 years now. And it just seems like we keep hearing the echo of this, and it seems like it's getting better, but then it's not, and that's certainly not your purview. It's outside of what you can control. What are the signs are -- what are the signs that you're looking for that we get some stability in schedules because, I mean, it sounds like it's just kind of popping up week-to-week and month-to-month, and it's very difficult to understand when it actually will start smoothing out. A - Kevin Clark Yes. John, I'll start. It's Kevin. Listen, it does start week-to-week and day-to-day to be honest with you. I'd say what we're seeing now are the swings are smaller. So with respect to peak to valley, you're seeing a much tighter curve. So that aspect is better. But there is still an element of when you think about manning from a manufacturing standpoint, when you think about inbound, outbound freight, those sorts of expenses, you're continuing to incur it, certainly at a higher level than sort of normal run rate. I'd say we feel like -- we're very close connected with our strategic semiconductor suppliers. We're very closely connected with our customers. Our supply chain and manufacturing teams are integrating, are talking to them and integrating with them on a day-to-day basis. So we have our arms around it and are able to react faster when we see swings, but they're still occurring. And Q3 supply chain was better than Q2. We expect Q4 to improve over Q3, but again, we're still seeing the supply chain tightness. And if there's any sort of event that occurs during a given day, week or month, you seem to have a boomerang effect in terms of the overall comment on ultimately vehicle production. And it's just something we're trying to stay close to. It's something that we're trying to manage through. And we just want to make sure that you guys understand it's still going on. It's not completely behind us. And we wish it were, but it's not. And we're doing our best to manage through it.

Kevin Clark:

Yes. Well, yes, it ranges for areas like user experience, like our traditional connector solutions, our traditional cable management solutions. They go on low-voltage vehicles or traditional vehicle architecture and voltage solutions. I mentioned user experience, so infotainment systems in cabin sensing. Systems, body and security systems. So there's a whole -- there's a number of different products, a number of different product lines that fill the balance of those bookings.

Kevin Clark:

Yes. I think it depends on what the product line is. I'd say most are basically in line with what our traditional margin structure is across all of our product lines. Some of those that are higher volume, it may be a little bit higher.

Operator:

Our final question today comes from Mark Delaney of Goldman Sachs. Please go ahead.

Joe Massaro:

Yes. Listen, I think sequentially, it is down a little bit launch activity in Q3. The answer to Chris' question, Mark, obviously, we are potentially looking at additional volumes in China and balancing the FX impact to that. Year-over-year, and there's just some ebb and flows here as you think about the year-over-year as well, right? Year-over-year, we're still up 9%. If you recall, Q4 last year had some -- it was rebounding a bit from Q3 of last year, which was very depressed. So you've got a little bit of the ins and outs, but it really comes back to how much upside is from China and what the offset is with the FX. I think if you're looking at that sort of revenue top line number.

Joe Massaro:

Yes. No, good question. No, listen, I think we've -- Europe, for the most part, has sort of helped the schedules. It's what we've seen. I realized we were lower than sort of a lot of other folks out there. I think some of those other forecasts have come in. Not necessarily right to where we were, but have come in a lot sort of closer to us than maybe where they started. So I'd say European customer schedules, again, we're tracking. I think there's remains concerned around economic disruptions in Europe. And obviously, there's potential impact from energy shortages, although I would say the customers are a little bit more confident that they won't be impacted in Q4 than they were when we spoke in August. But no, as I mentioned in my comments in 2023, I think Europe remains a challenging environment for the foreseeable future, just given everything going on there.

Operator:

Thanks. That concludes today's question-and-answer session. I would now like to turn the call back to Kevin Clark for any additional or closing remarks.

Operator:

That will conclude today's call. Thank you for your participation. You may now disconnect.

Operator:

Good day and welcome to the Aptiv Second Quarter 2022 Earnings Call. My name is Jennifer and I will be your conference operator today. [Operator Instructions] Thank you. Jessica Kourakos, Vice President of Investor Relations and ESG, you may begin your conference.

Kevin Clark:

Thank you, Jessica and thanks everyone for joining us this morning. Beginning on Slide 3, through the first half of the year, two themes stand out; the first is strong broad-based demand across our portfolio of product offerings reflected in over $20 billion in bookings during the first half of 2022, including a record $14 billion in the second quarter alone, almost double where we were at this time last year. The growth in bookings showcases our strong portfolio of technologies and the increasing strategic value we are providing our customers as they transform to meet the consumer demand for the electrified software-defined vehicle. The second theme relates to the persistent COVID and supply chain issues that continue to constrain automotive production impacting our first half revenue growth and our profitability. Looking ahead, we believe that these constraints on production and the record levels of inflation will continue for several more quarters and will be addressed with actions that we already have in place. Newer challenges in Europe are being addressed with incremental measures, including another round of customer price increases and increased number of product redesigns further consolidation of our supplier base and additional structural cost reductions, all of which will significantly improve our profitability in the short and long-term. Setting aside the near-term constraints, I can confidently say that our competitive positioning, reflected in our bookings momentum, has never been stronger and will drive the acceleration of our revenue and earnings growth as vehicle production stabilizes. So we are balancing improving our profitability and cash flow over the short-term while continuing to invest in those growth initiatives that will drive more meaningful margin expansion in the years ahead. We will talk more about these at our upcoming Investor Day in Boston on February 14. By then, our 2022 results and 2023 guidance will be out and we can update investors on our strategy to enable the fully electrified software-defined vehicle of the future and how that will accelerate profitable growth and improve through-cycle resiliency in the years ahead. Let’s now turn to our second quarter results. Revenues totaled $4.1 billion, up 9% from the prior year, driven by strong demand across our portfolio of safe, green and connected technologies. Operating income and earnings per share totaled $213 million and $0.22 respectively, reflecting strong revenue growth more than offset by material inflation, incremental costs related to supply chain disruptions, shutdowns in China and some softening in vehicle production schedules in Europe. Turning to Slide 4, revenue grew 8 points over underlying vehicle production, which increased 1% in the quarter. North America production remained strong, while Europe experienced significant weakness from a combination of semiconductor chip supply and macroeconomic factors. China had a very strong finish to the second quarter despite a slow start due to COVID-related production disruptions. While our team is doing an excellent job keeping production going in this very volatile environment, the challenges we are facing continue to have a meaningful impact on our business. With supply chain disruptions and persistent inflation continuing to translate into incremental costs and the increased likelihood of disruption of the gas supply into Europe, we have accelerated several initiatives to increase our agility and resiliency and improve our profitability in the near-term. Moving to Slide 5, the tremendous customer pull for our products has positioned us well in our pricing discussions for both new program awards as well as cost recoveries. The pricing on new business bookings support our long-term margin framework. And as these bookings move into production, they will naturally improve our margin profile. Over the near-term, cost recoveries we have already negotiated with customers and are coming in above plan, will have a more significant impact on second half profitability. For context, the timing of cost recoveries for semiconductor broker buys negatively impacted ASUX margins by 300 basis points in the second quarter but will benefit our results in the second half of the year and going – second half of the year. Going forward, all future premiums will be passed on to customers at the time of the transaction. We continue to validate more second sources on key components and are passing through increased input costs to improve profitability. In addition, we are implementing additional overhead cost reductions and further rationalizing our footprint, which we expect to yield $100 million in savings in 2023. We have also been working on several product redesign initiatives to both increase our sourcing flexibility and mitigate the impact of inflation. The benefits from these redesign initiatives will accelerate during late 2022 and into 2023. We believe the current macro headwinds will elongate the automotive growth cycle. So we are further optimizing our cost structure to position us for success in both the short and the long-term. That means executing these cost reduction actions, while still preserving investments in our highest growth opportunities, including high-voltage electrification, active safety and smart vehicle architecture as well as our product redesign and validation initiatives that are important for increased resiliency and improved profitability. Lastly, we are also excited about our software strategy and the many opportunities we see with the acquisition of Wind River. In summary, the resiliency of our business model has put us in a strong competitive position to capitalize on the mega trends of safe, green and connected. Turning to Slide 6, as reflected in the momentum of our new business bookings, Aptiv is clearly gaining a lot of traction. Our unique position as the only provider of both the brain and nervous system of the vehicle has translated into significant – to a significant competitive mode, allowing Aptiv to provide full system-level end-to-end solutions that enable an efficient path to the fully electrified software-defined vehicle. Our full vehicle – our full system level solutions and capabilities optimizing vehicle architecture and allow for reduced vehicle complexity, flexible and scalable platforms, improve quality, reliability and performance and translates into significant weight, mass and cost savings. We also accelerate the vehicle development efforts of our customers, positioning us to launch the first-to-market zone controller with Volvo early next year. Our smart vehicle architecture solution not only creates accretive value for Aptiv, but also lowers total systems cost for our customers, enabling more vehicle automation and the seamless integration of new features and functionality. The recognition of the need for smart vehicle architecture is accelerating and is reflected in the 20 engagements with 10 customers and almost $5 billion of new business bookings today, demonstrating how Aptiv is uniquely positioned to lead the industry to the fully electrified software-defined vehicle. Moving to Slide 7. The momentum of our new business bookings during the first half of the year gives us confidence in our ability to sustain strong above-market growth at or above our long-term margin framework across both of our business segments. Second quarter bookings totaled $14.2 billion, a record for any quarter in the company’s history. Advanced Safety and User Experience bookings totaled a record $8.8 billion during the quarter, bringing the year-to-date total to $9.6 billion, also a record for the full year, even though we are just halfway through 2022. As we discussed on the previous slide, we continue to make significant commercial progress on our smart vehicle architecture solution. The advanced development programs we have been involved in are translating into new business awards as evidenced by the large advanced zone controller booking during the quarter from a leading German OEM, in addition to the central vehicle control award we received in the first quarter from the same customer. We are extremely excited about our continued deep strategic partnership with this customer as we redefine vehicle architecture with the full adoption of our SVA solution. Bookings for our Signal and Power Solutions segment reached $5.4 billion during the quarter, including another strong quarter for a high-voltage product line with $1 billion in customer awards, bringing the year-to-date total to over $2 billion. Our bookings momentum validates the value we bring with our system level approach to optimizing vehicle architecture, which reduces vehicle weight and mass, thereby reducing costs for OEM customers. It is also a testament to our strong customer relationships, our One Aptiv approach and our portfolio of advanced technologies, which is perfectly aligned to the safe, green and connected megatrends. I am truly proud of the work the team has done to continue to build strong relationships with our customers as a partner of choice for both the brain and the nervous system of the vehicle. Turning to Slide 8 in our Advanced Safety and User Experience segment, active safety revenue growth remained strong, up 21% during the quarter, driven by the continued penetration of advanced ADAS systems partially offset by semiconductor shortages impacting production in Europe and North America and User Experience revenues were down 6% in the quarter, primarily the result of continued chip supply constraints in Europe and the impact of China shutdowns on volume, but we expect to finish the year with approximately 10% revenue growth. As mentioned, we continue to experience increased demand for smart vehicle architecture and see a very strong pipeline of customer activity for the remainder of this year and into 2023. We have leveraged our competitive position to enter into strategic dialogues with several OEMs on redesigning their software architecture in addition to optimizing their vehicle architecture. We offer unique capabilities to modernize software development and deployment to help our customers migrate to the software-defined vehicles of the future, which unlocks additional opportunities to further enhance the value of Aptiv’s and our customers’ software solutions. Active Safety also continues to show strong momentum with more than $4 billion of awards in the quarter, including just under a $3 billion award with a global OEM for their next-gen Level 2, Level 3 ADAS system, reinforcing our leading position as the ADAS Supplier of Choice for this customer. Moving to Slide 9. Second quarter revenues in our Signal and Power Solutions segment rose 10%, 9 points better than global vehicle production, reflecting high-voltage revenues that increased 22% during the quarter, driven by the launch of new electric vehicle programs, particularly in Asia and North America and revenues in non-automotive markets that increased 14%, the result of strong growth in general industrial, semiconductor, datacom and commercial space markets. Our industry leading portfolio of power and data distribution, connectors, electrical centers and cable management solutions, combined with our global scale uniquely positions Aptiv to both design and manufacture optimized vehicle architecture systems for customers located anywhere in the world. In the quarter, we are awarded a high-voltage architecture award with a major European OEM, positioning us for substantial growth for this customer as they increase their electrification offerings over the next several years. The strength of our competitive position and the size of our funnel for new programs, gives us confidence in reaching over $4 billion of high-voltage electrification new business bookings during 2022. Moving to Slide 10, we continue to execute on our plan to build a business that delivers outsized results in any market. We have the right safe, green and connected product portfolio, the right regional and customer mix, the right cost structure and track record of execution and the financial flexibility that translates into a more resilient business model. We would hope COVID, its associated supply chain constraints and production disruptions would be in the rearview mirror by now, and that we would be experiencing steady economic growth, but macro headwinds and other challenges do remain. While these may persist for several more quarters, we expect to end the year with strong growth while also expanding margins. And I am confident we have taken appropriate actions that will allow us to finish the year on a strong footing with an even more resilient business model. Any improvement in the macros or the supply chain will present potential upside from here. With that, I will turn the call over to Joe to go through the financial highlights in more detail.

Kevin Clark:

Thanks, Joe. Turning to Slide 18, I am happy with the bookings momentum, which will yield strong profitable growth in the years to come. We have work to do, but we’re making a lot of progress on several initiatives that will improve both earnings and cash flow in the near and long-term. As Joe discussed, we’re further optimizing our cost structure, increasing prices to offset inflation and attacking anything else that we can control or we can influence. I’m confident these actions will translate into a significant improvement in second half margins and cash flow and provide a solid action point as we move into 2023. More details around the progress on these initiatives will be presented when we provide 2023 guidance. But we clearly expect meaningful improvements in profitability during the coming months on relatively low vehicle production assumptions. Thanks, again, for your time. And let’s open up the line for Q&A.

Joseph Spak:

Thanks. Good morning, everyone. And thanks for the color. Can we start on Slide 17, just the first half or second half? Two things. One, the – what’s the confidence in sort of the 32% sort of incremental conversion given some recent performance? And then in the half-over-half performance and lower disruption costs of $166 million, I think that, right, $50 million from China, we know right off the bat. I guess what’s the rest? Is that some of those discrete recovery items you talked about or if maybe you could sort of help untangle those buckets.

Joseph Spak:

Okay. But you said those totaled $150 million. So I guess I am having a little bit trouble sort of understanding, I guess total into the $166 million unless I misunderstood the $150 million comment?

Kevin Clark:

So volume, some timing as it relates to NRE and other items, Joe?

Joseph Spak:

Okay. I guess moving on, just on AS & UX. So it sounds like going forward, you get more immediate recoveries for some of those open market purchases on semis. And I think you said that was about a 300 basis point headwind here in the quarter. So as we sort of go through to the back half of the year – I mean I think in the past, you sort of said that can get back to mid-single digits or maybe even high single just in the back half. Is that – given everything else sort of going on and now that you’re giving recoveries, is that still sort of the second half level for that segment?

Joseph Spak:

Okay, thanks. I will pass it on.