Aptiv's Vice President of Investor Relations and Corporate Development, Jane Wu, welcomed participants to the Aptiv Q2 2023 Earnings Call and provided a review of the company's financials. Kevin Clark, Aptiv's Chairman and CEO, and Joe Massaro, CFO and Senior Vice President of Business Operations, then discussed the strategic update and financial results, respectively. The company reported a record quarter with revenue increasing 25% to $5.2 billion and 10 points of growth over underlying vehicle production, driven by strong demand across its portfolio and across all geographic regions.

Revenues in the company's active safety and high-voltage electrification product line increased by nearly 50%, resulting in record EBITDA and operating income despite unfavorable foreign exchange rates, commodity prices, and labor inflation. New business bookings totaled $20 billion, driven by customer awards for their solutions, resulting in 20% revenue growth and margin expansion. However, supply chain issues persist. Global vehicle production has been strong, especially in North America and Europe, and the company has updated its outlook for the full year.

In the second quarter, Advanced Safety and User Experience (ASUX) achieved record revenue of $1.5 billion, 24 points above underlying vehicle production. New business bookings totaled $6.1 billion, with $1.7 billion for Advanced Safety and User Experience and $4.4 billion for Signal and Power Solutions. Despite the market backdrop, Aptiv remains focused on enhancing its portfolio of safe, green, and connected solutions to benefit from the secular tailwinds. The company has a clear line of sight to exceed last year's $4.2 billion in high-voltage business awards and is confident in achieving its full-year earnings target of $32 billion.

Aptiv has seen growth in active safety, user experience, and smart vehicle compute and software revenue. They have been awarded over $1.4 billion in active safety and user experience bookings, including a significant program extension with the VW Group. Wind River provides edge-to-cloud software solutions for mission-critical applications, enabling software to find systems that require the highest levels of safety, security, and performance.

Wind River has had success in the aerospace and defense, telecom, and automotive markets and has announced several partnerships to expand their ecosystem, including with Samsung and Horizon Robotics. These partnerships, along with Wind River's continued success in its traditional markets, allow Aptiv to capitalize on the transition to a more software-defined future. A software teaching will be hosted in September to provide a deeper look at Wind River's software strategy and value that can be delivered to customers.

The Signal and Power Solutions segment had a strong second quarter, with 21% revenue growth, driven by strong revenue growth in China, a 48% increase in high-voltage revenues, and a 32% increase in commercial vehicle revenues. Intercable Automotive has also been awarded multiple contracts with the Hyundai Motor Group and a global European truck manufacturer, increasing their penetration of the commercial vehicle market. Intercable is expected to increase their revenues by 30% per year for the next several years, and they have already exceeded their 2022 full-year bookings amount, with a 2023 new business award pipeline of more than $2 billion.

Aptiv recently launched production from one of its facilities in North America, with customer deliveries scheduled to begin this quarter. They have a unique portfolio of high-voltage solutions and full system capabilities, and were recently recognized by Volkswagen with the prestigious VW Group Award for their product innovation and ability to keep Volkswagen connected. Aptiv reported another quarter of strong financial results, reflecting robust execution across both segments and continued improvement in operating performance.

In the second quarter of the year, revenues rose 25% to $5.2 billion, 10% higher than vehicle production. This growth was driven by strength in the ASUX segment, particularly in active safety, and traction in high-voltage and commercial vehicle product lines. Operating income and Earnings per share were also up, and operating cash was $535 million, $440 million higher than the same period last year. Revenues were up in all regions, with North America up 19%, Europe up 28%, and China up 41%. Net price and commodities were positive, more than offsetting the FX impact on revenue.

Advanced Safety User Experience revenues rose 39%, while Signal and Power revenues were up 21% in the quarter, both of which were higher than market expectations. The outperformance was driven by strength in several product lines and strong flow-through on incremental volumes, offsetting the net price and commodities impact as well as improvements in operating performance. The company has increased their outlook for adjusted growth to 11%-13% for the full year, primarily reflecting increases in customer production schedules in North America and Europe. China is expected to remain flat on a year-over-year basis.

The updated 2023 outlook for the company includes revenue in the range of $19.95 billion to $20.25 billion, EBITDA and operating income of approximately $2.8 billion and $2.1 billion respectively, adjusted earnings per share of $4.75, and operating cash flow of approximately $2 billion. This is due to increases in sales volume, net price, commodities, and foreign exchange, partially offset by the negative impact of foreign exchange and the timing of copper price adjustments to customers.

Aptiv is pleased with its performance in the first half of the year, with record revenues, EBITDA, and operating income, as well as strong margin expansion. The company has also seen an increase in industry volumes, fewer production disruptions, and improved operating efficiencies. Aptiv is continuing to focus on optimizing its cost structure to further increase its operational resiliency, and is cautiously optimistic about potential negative macroeconomic conditions over the next few quarters.

The semiconductor industry has been working to improve visibility and supply chain options over the last few years, and this has resulted in lower costs for manufacturing, freight, and other aspects. This has led to ASUX's strong commercial momentum and increased confidence in their ability to deliver sustainable value to their shareholders.

Intercable has a large customer base in Europe and has booked $1 billion in revenue year-to-date. Aptiv has leveraged their knowledge of the North American and Chinese markets to provide Intercable with opportunities to expand their business into these regions. The potential bookings opportunities for Intercable are estimated to be over $2 billion.

Joe Massaro explains that restructuring expenses have been rising in Q2 and that they are necessary to reach the established margin guidance by 2025. He goes on to explain that the bridge from H1 to H2 will be aided by a slight volume uptick, better FX, performance initiatives, and inflation recovery, which will be over $100 million.

Joe Massaro explains that the $1.7 billion bucket from the 2022 to 2025 margin bridge is mostly composed of $330 million to $350 million of supply chain disruption costs, with $130 million expected this year and the remaining coming out in 2021. The rest of the bucket is made up of annual material and manufacturing improvements over the three years. So far, they are on track and have seen a $70 million improvement in supply chain disruption costs this quarter.

Aptiv is a company that specializes in high-voltage electrification, and they have the ability to present their customers with cost-effective solutions. They have already had success in reducing weight and mass by 25-30% and overall system cost by 20% or more. Volkswagen has recently reached out to Xiaoping to use their platform, and Aptiv is agnostic to this, as they are confident in their capabilities and product portfolio.

Joe was asked to focus on Europe in terms of production and inflation. Forecasters predicted 15-16% production in the first half of the year, but Joe reported that the production is only 4-6% in the second half. He did not provide any specific reasons for this lower production rate.

Joe Massaro and Chris McNally discuss the production schedules for Q3 and the potential for more production in the back half of the year. Massaro is cautious due to the still challenging macro environment. McNally follows up with a question about ASUX margins, and Massaro suggests that it is too early to project the margins for 2024, but he remains confident in the 2025 numbers for both total active and the segments.

Kevin Clark does not want to comment on specific customers, but he does note that the revenue mix is balanced between North America, Europe, and China, with more significant growth opportunities in China. He does not comment on the potential of a "winner take all" scenario, but does focus on the funnel and bookings opportunities in the region.

Joe Massaro provided an update on Motional's capital needs, noting that they have cash through at least Q2 of next year and continue to make progress on the technical and commercial side. Massaro stated that the most likely outcome is that the partners fund another year of operations, with each partner contributing to the $500-550 million of cash per year. Massaro also provided an update on commodities, noting that it was a headwind in the quarter, and that the semiconductor environment is getting better and more stable.

Joe Massaro explains that the majority of their copper purchases are indexed to copper prices and adjusted either quarterly, semiannually, or monthly depending on the customer. He also states that chip prices do not appear to be going down and that they will continue to pass along any price increases to their customers. Massaro notes that the results of the last few years have been dragged by material inflation headwinds, largely semiconductors.

Joe Massaro explains that his team renegotiates prices with customers for in-process products and has a two to three year window before program start to discuss the economics of the program with customers, suppliers, and OEMs. Bond costs are included in these discussions, and are at the top of the list, especially with semiconductors.

Kevin Clark discussed how Aptiv has been focused on keeping their employees safe, keeping customers connected, and redesigning their product to lower cost. They have also been focused on moving manufacturing, engineering, and improving productivity to reduce cost. Clark also mentioned that Aptiv has been more conservative in their projections for EV volume given the cost of those platforms.

Kevin Clark and Joe Massaro both state that Aptiv's outlook for EV volumes has not changed and that high-voltage solutions are expected to have significant growth for the remainder of the year and beyond. Mark Delaney then asks about software integration, to which they do not respond directly.

Wind River has announced program wins with 10-12 OEMs and is expecting more by the end of the year. Aptiv is also seeing opportunities in user experience, ADAS, and other areas. Regarding ASUX, there are some orders that may have been pushed out, and engineering credits are expected to be around $40 million in the back half of the year.

ASUX North America had a growth of over 20% in the second quarter due to a few launches in the beginning of the year, which were delayed due to supply availability from other suppliers. Kevin Clark mentions that there will be a heavy launch calendar in the back half of the year, which will result in higher growth over the market. He also mentions that there are some small operational lessons learned from the UAW situation in 2019, such as supply chain and inventory management.

The Q&A session has concluded and Kevin Clark thanked everyone for joining. He wished everyone a great day and asked them to disconnect.

This summary was generated with AI and may contain some inaccuracies.