The Aptiv Q3 2023 Earnings Call began with Jane Wu, Vice President of Investor Relations and Corporate Development, welcoming participants and introducing the speakers. She mentioned that the financials discussed would exclude certain items and provided a link to the relevant information on the company's website. She also noted that the call would include forward-looking information and introduced the CEO and CFO. Kevin Clark, the CEO, highlighted the company's strong performance in the quarter, despite some challenges, and mentioned that new business bookings had reached a record high for the year.

The company's revenues increased by 7%, driven by growth in ASUX and S&PS revenues, as well as customer mix. EBITDA and operating income were both records, but were impacted by unfavorable FX, timing related to customer recoveries, and the UAW strike. The company expects continued margin expansion in the future. Customer relationships and new business bookings are strong, driven by demand for smart vehicle technology and electrification. The company is also benefiting from the transition to software-defined vehicles in other industries. Global automotive production has been stronger than expected, leading the company to revise its full-year guidance.

The UAW strike affected the production schedules of the top three North American OEM customers, causing uncertainty for the third and fourth quarter results. However, tentative agreements have been reached and the company is working closely with customers and supply chain partners to minimize disruptions. New business bookings for the quarter were $6.6 billion, bringing the year-to-date total to a record $27 billion. Advanced Safety and User Experience bookings totaled $2.2 billion, with a focus on active safety solutions. Aptiv is well-positioned to provide solutions for fully electrified and software-defined vehicles. In the third quarter, revenues for the Advanced Safety and User Experience segments increased by 13%, driven by a 30% increase in active safety revenues.

In the third quarter, Aptiv's operating income was $109 million with a 7.6% operating margin, driven by new business bookings of $2.2 billion, including a major award with a German truck manufacturer. Aptiv's unique insights and expertise in active safety solutions position them well to meet the increasing demand for advanced safety features. They have recently launched an automated parking solution and have a roadmap for Gen 6 ADAS technology. In the Signal and Power Solutions segment, revenues increased 5% in line with global vehicle production, with strong growth in high voltage products. They also received a low voltage architecture award from a Chinese OEM, showing their progress in penetrating the Chinese market.

Intercable Automotive has had a strong quarter with $400 million in new business awards, including a major award with a global customer in North America and a high voltage system award with a European OEM. Aptiv has also been recognized as an automotive PACE Award finalist for their groundbreaking Rapid Power Reserve technology. They will be showcasing their new innovations at the Consumer Electronics Show in January, including vehicles with Aptiv smart vehicle architecture and optimized electrical vehicle solutions. They will also be demonstrating how they are leveraging their insights and Wind River's software technology to develop scalable solutions for OEMs.

Aptiv has been recognized as one of America's Greenest Companies due to their strong commitment to innovation, operational excellence, and sustainability. Their business strategy is aligned with their sustainability goals, and they have a strong portfolio of safe, green, and connected products that are in high demand. Despite some macro uncertainties, they are confident in their ability to continue strong revenue growth and margin expansion. In the third quarter, Aptiv reported strong financial results, with revenue up 7% and exceeding expectations, despite the impact of the UAW strike in North America.

In the third quarter, our growth over market was impacted by the UAW strike in North America, as well as customer mix and program timing in Europe and China. Despite this, active safety and high voltage electrification reported strong double-digit growth. Adjusted EBITDA and operating income also increased due to higher volumes and progress on performance initiatives. The UAW strike and foreign exchange were negative factors, but earnings per share still increased slightly. Revenue in the quarter was $5.1 billion, with growth of 7%, driven by acquisitions and positive factors such as net price and commodities. North America and Europe saw growth above underlying vehicle production, but the UAW strike and program timing affected results.

In China, revenue was consistent with vehicle production due to customer mix and slowing BEV growth. Q3 adjusted growth and revenue were in line with expectations, but growth in North America was lower due to the strike impact in 2019. ASUX segment revenue rose 13%, driven by strength in active safety. User Experience was down 5% due to timing of customer programs and a difficult year-over-year comparison. ASUX margins were negatively impacted by material inflation recoveries and seasonality in Wind River's results. The UAW strike had a minimal impact on ASUX. Signal and Power had strong performance despite a challenging environment, with revenue increasing 5% and high voltage electrification growing 13%.

In the third quarter, Aptiv's high voltage business is expected to have strong growth in 2023 despite the slowdown in EV production. Price downs were minimal and adjusted operating income increased by 2% compared to the previous year. The negative impact of a strike was offset by positive operating performance and customer recoveries. Cash flow generation was strong and the company was able to pay down its most expensive borrowing in October.

The company's sustainable business model is generating more cash, allowing for strategic investments and potential returns to shareholders. Despite a recent strike in North America, the company is maintaining its full-year outlook for 2023 and expects global vehicle production to increase by 6%. The strike had a negative impact on revenue and operating income, but the company expects production to return to normal levels in the coming weeks. The company's revenue and adjusted growth rate remain unchanged, but their growth over market for 2023 may be lower than their long-term forecast range due to the strike.

The paragraph discusses the expected financial performance of the company, including EBITDA and operating income, which are expected to be around $2.8 billion and $2.1 billion respectively. Adjusted earnings per share and operating cash flow are also expected to remain stable. The company has faced challenges such as the UAW strike and foreign exchange headwinds, but its focus on improving operational performance and cash flow has allowed it to continue delivering in a difficult environment. The company also highlights its strong new business awards and is taking actions to mitigate the impact of the UAW strike. The company remains confident in its ability to create value for shareholders through its advanced technologies and strong operational execution. The call then opens for questions from analysts.

Joe Spak asks about the lower growth over market for the quarter and the outlook, which is partly due to the UAW strike. Joe Massaro explains that the impact is mostly due to the denominator effect, with the D3 slowing down and Japanese manufacturers increasing. They also look at how they did against the D3 standalone, where they were up 14%. In Europe and China, high voltage is growing slower, which contributes to about a point of growth over market.

The company's program mix in Europe caused a slight decrease in infotainment growth in the quarter, but they still expect mid-single-digit growth for the year. The slowing BEV penetration in the US and Europe has affected their projections for growth over market, but they still believe they are well-positioned in areas such as electrification and ADAS solutions. The strike and other factors have impacted their growth in high voltage electrification, but they have a conservative view on the overall market for electrification.

The speaker responds to a question about the company's growth and market position, stating that it is too early to give a precise answer but they feel confident about their growth. They also mention a backlog of orders and customer mix, with a majority of exposure to European and Chinese OEMs and stable schedules for production. They note one exception with a North American OEM, but overall they do not see a significant change to their original expectation of 30% growth.

The speaker discusses the company's high voltage electrification revenues, which have grown significantly but may see some impact in the upcoming quarter due to a reduction in BEV schedules from one OEM. However, there are still strong schedules in place for other OEMs and new programs coming online in 2024. They also mention their investment plans for autonomous vehicles with their partner Hyundai and discussions about Motional's future funding. There is currently no new information to report, but they are aware of the controversy surrounding autonomous vehicles.

The speaker is discussing the potential impact of the slow adoption of electric vehicles on the company's financial performance. They mention that if the company were to fund EVs, they would only cover half of their cash needs and that they have not yet finalized their plan. They also mention that their performance initiatives are on track and that they are seeing progress in offsetting labor expenses. The speaker then poses a question about whether the slower adoption of EVs could have a positive impact on the company's earnings and cash flow in the short term.

The speaker is responding to a question about the company's ability to adjust its capital commitments to electric vehicle programs in the event of slower growth. They state that they have a strong focus on electrification in Europe and Asia Pacific, with contracts that allow for price adjustments if OEMs do not meet their targets. They also mention that their baseline outlook for EVs is lower than the industry average, but they remain optimistic about their competitive position and growth opportunities.

The speaker discusses the success of the company's electrical architecture business and how they were able to leverage existing facilities, equipment, and engineers to achieve high margins and returns. They also mention the seasonality of their Wind River business, with Q3 being slow but Q2 and Q4 being strong due to software renewals and licenses. The speaker cautions that this trend will likely continue in the future.

The speaker discusses the struggles of legacy OEMs in the EV market and the potential impact on their targets if they were to dial back their EV spending. He mentions that a significant portion of their revenues come from high voltage electrification and any decrease in EV adoption would have an impact on their overall growth rate. However, he also notes that many of these EVs are replacing vehicles with internal combustion engines, so the trade-off is not a direct dollar for dollar loss.

The high voltage content or margins related to the SP&S base margins will have a small impact on profit, but it can be managed through. If OEMs are not meeting their targets, there may be one-time payments from them. The industrial policies in Europe, the US, and China may change, but the push for EVs and the impact on OEM profitability may lead to governments providing support for the rollout to meet CO2 emission targets and national security goals.

The speaker discusses the possibility of OEMs seeking support similar to the semiconductor industry in the U.S. and Europe if they are uncomfortable with the investment required for electric vehicles. They confirm that Tesla is the largest component of their $1.8 billion in electric sales and mention a 10-11% increase in labor costs. They clarify that the 2022 high voltage number is $1.2 billion, which is an increase from previous guidance.

In this paragraph, the speakers discuss the expected increase in high voltage revenue for the current year, taking into account the acquisition of Intercable. They also clarify that the $1.8 billion revenue guidance is only for high voltage products, and that low voltage revenue for electric vehicles is not included in this figure. They also mention that the ASUX margins for the full year are expected to be 8%, which will contribute to the company's 2025 goal.

Itay Michaeli asks about the Q4 margin outlook and the seasonality factors involved. He also asks about the ADAS wins in Q3 and if there are any updates on discussions with customers for Gen 6. Joe Massaro responds by cautioning against looking too far ahead and focusing on H2 instead of just Q4. He also mentions that the margin rates are on track and falling in line with the Investor Day model. Kevin Clark adds that they are in active dialogue with a dozen customers for the Gen 6 ADAS platform and the bulk of Q3 bookings were for radar solutions for existing ADAS platforms in Europe and China.

In response to a question about the company's exposure to the electric vehicle market, Joe Massaro, a representative from the company, states that they remain conservative in their outlook and expect growth to slow as the market reaches larger numbers. He also mentions that high voltage products make up 2 points of growth over market on average, and that 80% of their business is with European and Chinese manufacturers. They have not historically focused on North American products, which have been more niche.

The speaker is asking about EV exposure outside of high voltage and the potential impact on the company's seating business. The company's response is that they are primarily focused on European and Chinese markets, and their vehicle architecture allows them to be on one of every three vehicles globally, so there is minimal impact. They also mention that their mix impact in the quarter was affected by customer mix across all regions, with growth in Japanese OEMs and parts of Eastern Europe.

The speaker discusses the potential factors that could impact the automotive industry in 2024, including the rebound of semiconductor availability and the possibility of certain OEMs gaining market share due to the UAW strike. They also mention the potential for inflation in materials, particularly in semiconductors, and the steps they are taking to address this issue, such as changing semiconductor partners and establishing partnerships with Chinese semiconductor companies. They also mention the improved stability in production schedules and the potential for this to be a positive factor in 2024.

The company is expecting to see higher material and labor inflation, and they plan to offset this by offering lower cost alternatives to customers. They are also focused on reducing their cost structure to increase margin. They confirm that their SVA product is powertrain agnostic and that they have a mix of customers in the BEV market, with potentially higher margins from their Chinese partners.

The company's revenue mix has changed over the years, with current revenues being split 60:40 between global and local OEs. However, they expect this to shift in favor of local OEs, especially with the increase in EV production. By 2024, the revenue mix is projected to be 50:50 between local and multinational sources. The speaker thanks the participants for their time and invites any further questions.

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