Aptiv PLC (NYSE:APTV) Q3 2022 Earnings Conference Call November 3, 2022 8:00 AM ET Company Participants Jessica Kourakos - Vice President, Investor Relations & ESG Kevin Clark - Chairman and Chief Executive Officer Joe Massaro - Chief Financial Officer and Senior Vice President, Business Operations Conference Call Participants Rod Lache - Wolfe Research Itay Michaeli - Citi Joe Spak - RBC Capital Markets Adam Jonas - Morgan Stanley Chris McNally - Evercore Emmanuel Rosner - Deutsche Bank David Kelley - Jeff ...

Financial Data and Key Metrics Changes - Revenues totaled $4.1 billion, up 9% from the prior year, driven by strong demand across the portfolio [11][26] - Operating income was $213 million, with earnings per share at $0.22, reflecting strong revenue growth offset by material inflation and supply chain disruptions [11][27] - Adjusted EBITDA was $365 million, with operating cash flow at $95 million [27] Business Line Data and Key Metrics Changes - Advanced Safety and User Experience revenues rose 7%, with Active Safety revenue up 21%, while User Experience revenues decreased by 6% due to semiconductor constraints [21][30] - Signal and Power Solutions revenues increased by 10%, driven by high-voltage product line growth of 22% [23][31] - Bookings for Advanced Safety and User Experience reached a record $8.8 billion, while Signal and Power Solutions bookings totaled $5.4 billion [18][20] Market Data and Key Metrics Changes - North American revenues were up 21%, reflecting strong demand, while European production faced significant weakness due to semiconductor shortages [28][29] - Revenues in China decreased by 1.9% due to COVID-related shutdowns, but the company outperformed the market by 7 points [29] - Overall vehicle production is estimated to be 81.5 million units, reflecting a 3% increase over 2021, with European production expected to decline [32][34] Company Strategy and Development Direction - The company is focused on improving profitability and cash flow while investing in growth initiatives, particularly in high-voltage electrification and smart vehicle architecture [10][15] - The acquisition of Wind River is expected to enhance software capabilities and drive future growth [15] - The company aims to balance short-term profitability improvements with long-term growth strategies, including cost reductions and pricing adjustments [10][40] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued constraints on production and inflationary pressures for several more quarters, but remains confident in the company's competitive positioning [8][25] - The company expects to finish the year with strong growth and margin expansion, despite macroeconomic challenges [25][37] - Management highlighted the importance of customer price recoveries and cost-saving initiatives to improve profitability [14][36] Other Important Information - The company has increased its estimate for total price recovery in 2022 to approximately $500 million [34] - The impact of the Wind River acquisition is included in the financial outlook, but the acquisition itself is excluded from revenue estimates [34] Q&A Session Summary Question: Confidence in second half performance and disruption costs - Management expressed confidence in achieving a 32% incremental conversion rate, with an expected $80 million improvement in disruption costs from the first half to the second half [43][44] Question: Future margins for Advanced Safety and User Experience - Management indicated expectations for mid to high single-digit margins in the second half for the Advanced Safety and User Experience segment [47][48] Question: Commitment to Motional and its impact - Management reaffirmed commitment to Motional, highlighting ongoing advancements and commercialization efforts [55] Question: Outlook for Europe and macroeconomic factors - Management acknowledged concerns regarding European macro conditions and semiconductor availability impacting vehicle production schedules [58][59] Question: Clarification on operating income guidance - Management clarified that the lower operating income guidance is primarily driven by European market conditions, while expecting strong performance in North America and China [60][61]

Financial Data and Key Metrics Changes - Revenues totaled $4.2 billion, up 4% from the prior year, despite a 7% decline in vehicle production [7][19] - Operating income was $324 million, with earnings per share at $0.63 [7][19] - Adjusted EBITDA was $478 million, reflecting strong flow through and higher volumes [19] Business Line Data and Key Metrics Changes - Advanced Safety and User Experience (ASUX) revenues increased 7%, reflecting 14 points of growth over underlying vehicle production [15][21] - Signal and Power Solutions revenues rose 2%, reflecting 9 points of growth over market [24] - High voltage revenues increased 10%, driven by electric vehicle program launches [10] Market Data and Key Metrics Changes - North America revenue was up 7%, 8% above vehicle production [20] - European revenue growth was 13%, despite an 18% contraction in vehicle production [20] - In China, revenues increased 14% over a flat market [20] Company Strategy and Development Direction - The company is focused on expanding its portfolio of safe, green, and connected technologies, including software solutions [18] - The acquisition of Wind River is expected to enhance competitive positioning and drive new business opportunities [11][48] - The company aims to strengthen its business model's resiliency and capitalize on the trend towards electrified software-defined vehicles [18][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain disruptions and material inflation as significant challenges but expressed confidence in the full-year outlook [8][25] - The company expects to recover lost vehicle production in China in the second half of the year [25] - Management remains optimistic about achieving revenue growth and margin expansion despite current macroeconomic challenges [18][30] Other Important Information - New business bookings reached $6.1 billion, the highest first-quarter level in several years [12] - The company is actively pursuing multiple paths to mitigate material inflation costs, including product redesign and supplier negotiations [22][36] Q&A Session Summary Question: Material pressure in the quarter - The material pressure was around $80 million for the entire business on a year-over-year basis, with ongoing efforts to offset these costs [31][32] Question: Process for clawing back margin pressure - The company is engaged in commercial discussions with customers and suppliers to recover costs, focusing on redesign efforts and sourcing alternatives [35][36] Question: Incremental margins as the world normalizes - Management indicated that while material inflation will persist, costs related to COVID and supply chain disruptions are expected to abate, providing a positive margin outlook [41][42] Question: Business bookings and competitive set with Wind River - The company is experiencing strong commercial momentum due to its unique product portfolio and the increasing demand for software-defined vehicles [47][48] Question: Second half margin expectations - The second half is expected to see improved margins due to volume growth and price recoveries, with a significant difference from the first half [50][51] Question: Semiconductor supplier redesign efforts - The redesign efforts are well underway, with approximately 100 engineers focused on hardware redesign and software changes, expected to take six months to a year [67][68]

Financial Data and Key Metrics Changes - New business bookings reached $24 billion, a $6 billion increase over 2020 and a $2 billion increase over the previous record [12] - Revenues totaled $15.6 billion, representing a 15% growth, which is 15 points over underlying vehicle production [7] - Operating income and earnings per share were $1.2 billion and $2.61 respectively, reflecting strong revenue growth but offset by increased operating expenses [8][29] Business Line Data and Key Metrics Changes - Advanced Safety and User Experience segment revenues increased 13% for the full year, 13 points over vehicle production, driven by new program launches [14] - Signal and Power Solutions segment revenues increased 16% for the full year, 16 points over vehicle production, reflecting increased demand for high-voltage electrification solutions [16] - Fourth-quarter revenues in the Advanced Safety and User Experience segment declined 1%, while revenues in the Signal and Power Solutions segment declined 6% [33][35] Market Data and Key Metrics Changes - North America revenues were down 2%, representing 11 points of growth over market, driven by favorable model mix [33] - Europe saw a strong double-digit outgrowth of 11%, while China reflected 17 points of growth over market due to new program launches [33] - The company expects global vehicle production to increase by 6% in 2022, with a forecasted 15% increase in the second half of the year [36][39] Company Strategy and Development Direction - The company is focused on executing its strategy to enhance capabilities in advanced technologies aligned with safe, green, and connected megatrends [10] - The acquisition of Wind River is aimed at accelerating Aptiv's software strategy and enhancing its position in the software-defined vehicle market [20][25] - The company aims to increase its growth outlook to 8-10 points over market, reflecting confidence in its competitive position and recent strong revenue growth [29][39] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain disruptions and material cost inflation but remains focused on executing its strategy for sustainable business growth [28] - The company expects supply chain constraints to ease in the latter half of 2022, with inflationary effects likely to persist [29][39] - Management expressed confidence in the company's ability to capitalize on market opportunities and enhance profitability through advanced technologies [46] Other Important Information - The company reported COVID and supply chain disruption costs of $85 million in Q4 2021, with an estimated $230 million for 2022 [31][39] - The company anticipates adjusted earnings per share to be $4.35 for 2022, a 42% increase over 2021 [41] - Capital expenditures are expected to be approximately 5% of sales, reflecting investments in major program launches [41] Q&A Session All Questions and Answers Question: What portion of the record order book is from pureplay EV customers? - Approximately one-third of the order book is from newer battery electric vehicle companies, with two-thirds from legacy OEMs [50] Question: What trends are observed in the Chinese market regarding domestic players? - Domestic competency in China has strengthened, particularly in electrification and software-defined vehicles, with significant acceleration in demand for smart vehicle architecture [52] Question: What is the expected growth for EV and ADAS in 2022? - High-voltage product lines are expected to grow at a rate of 40%, with strong growth anticipated in Active Safety as well [56] Question: What are the mid-decade margin targets? - The company remains focused on the targets set in 2019, with expectations to return to those margins as supply chain challenges are addressed [72] Question: How is the company managing pricing discussions with OEMs? - The company is making good progress in discussions with OEMs regarding cost recovery, with recognition of the challenges faced in the supply chain [75]