Aptiv(APTV) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue increased 15% to a record $4.8 billion, 6 points above underlying vehicle production [4] - Operating income and earnings per share were$437 million and $0.91, respectively [4] - New business bookings totaled$13.9 billion, driven by Smart Vehicle Architecture and High-Voltage solutions [5] - Adjusted EBITDA and operating income were $594 million and$437 million, respectively, with a 30% flow-through on increased volumes [21] Business Line Data and Key Metrics - Advanced Safety and User Experience (ASUX) segment achieved record revenue of $1.4 billion, growing 9 points above vehicle production [10] - Signal and Power Solutions (SPS) segment grew 14$6.4 billion in ASUX bookings, including $5 billion in Smart Vehicle Architecture [8][11] - Intercable Automotive contributed$500 million in new business awards, with significant progress in North America and China [14][15] Market Data and Key Metrics - North America revenues grew 14%, 4% above market, despite supply chain constraints [23] - Europe revenues increased 24%, driven by active safety programs and recovery from the Ukraine-Russia war impact [23] - China revenues grew 10 points over market, driven by strong demand for battery electric vehicles and active safety growth of over 30% [23] Company Strategy and Industry Competition - The company is focused on optimizing its business foundation, expanding global execution capabilities, and addressing material and labor inflation through supply chain resilience initiatives [6][7] - Aptiv is leveraging its Smart Vehicle Architecture platform and Wind River software to provide full system solutions, reducing complexity and lowering total system costs [16][17] - The company is well-positioned to capitalize on the accelerating trends of safe, green, and connected vehicles, with a target of $32 billion in new business awards for 2023 [9][18] Management Commentary on Operating Environment and Future Outlook - Management highlighted sequential improvements in the supply chain, particularly in semiconductor availability, but noted ongoing challenges with material and labor inflation [5][6] - The company remains confident in achieving its 2023 commitments and 2025 financial targets, with strong commercial momentum and a focus on long-term value creation [19][28] - Full-year 2023 revenue is expected to be in the range of$18.7 billion to $19.3 billion, with EBITDA and operating income of$2.7 billion and $2 billion, respectively [25][26] Other Important Information - The company completed$70 million in share repurchases during the quarter [22] - Wind River is expanding its business in aerospace, defense, and telecom industries, with significant commercial activity in 5G and O-RAN spaces [12][13] - Intercable Automotive is developing new products, including a cell-to-cell connection system, and expanding its global manufacturing capabilities [15] Q&A Session Summary Question: Impact of EV price cuts on volumes and Aptiv's strategy - Management noted that price cuts on EVs could drive higher retail demand, benefiting Aptiv's high-voltage electrification business [39] - The company's Smart Vehicle Architecture and Wind River software solutions enable ongoing revenue opportunities for OEMs, such as enhanced ADAS and battery management systems [40][41] Question: Revenue and profit opportunities beyond initial point of sale - Management emphasized the potential for significant revenue and profit opportunities through life cycle management and software-enabled upgrades, particularly in ADAS and battery management systems [42][43] Question: FX impact and Chinese OEM exports - FX headwinds, particularly from the Mexican peso and RMB, negatively impacted operating income margins by 100 basis points [21][46] - The company sees opportunities in Chinese OEMs exporting vehicles, with 35-40% of China revenue coming from local OEMs, up from 25% in 2019 [50][52] Question: EV market challenges and Aptiv's margin outlook - Management highlighted that Aptiv's high-voltage margins are slightly higher than overall SPS margins, with balanced exposure across Europe, China, and North America [55][56] - The company benefits from cost-cutting efforts by OEMs, as its full system solutions enable cost reductions while enhancing profitability [71][73] Question: Cadence of margins and revenue growth - Management expects margins to follow historical cadence, with stronger performance in Q4 due to engineering credits and volume growth [63][67] - Revenue growth is expected to accelerate in the back half of the year, driven by product launches and supply chain improvements [76][81] Question: Wind River's performance and lumpiness - Wind River's revenue may be lumpy due to the timing of large deals, but the business is on track for strong full-year growth [87][89] Question: FX assumptions and guidance impact - FX assumptions remain unchanged, with the $65 million year-over-year impact primarily due to the Mexican peso and RMB [93] Question: ADAS demand in China - Management noted no significant changes in its outlook for the China market, with strong growth expected despite challenges [95]