The operator introduces Jane Wu, Vice President of Investor Relations and Corporate Development, who welcomes listeners to Aptiv's Q4 2023 Earnings Call. Jane discusses the financials and provides a disclaimer about forward-looking information. CEO Kevin Clark and CFO Joe Massaro will also be speaking. Kevin gives a strategic update on the business, and Joe covers the financial results. The fourth quarter results were in-line with expectations, showing Aptiv's ability to perform well in an unpredictable market.

The company had a successful quarter with new business bookings reaching $7.7 billion and revenue at $4.9 billion. Despite challenges such as the UAW strike, the company saw a 90 basis point margin increase and strong flow-through on volumes and operating performance. In 2023, the company achieved record results with new business bookings at $34 billion and revenue at $20 billion, driven by demand for their advanced technologies in the automotive industry and other industries such as telecom, aerospace, and defense.

The third paragraph discusses Aptiv's strong financial performance, including record operating income and cash flow, as well as their record-breaking $34 billion in new business awards. The Advanced Safety and User Experience segment saw particularly strong growth, with record bookings of $12 billion and a total of $11 billion in cumulative bookings over the past three years. The Signal and Power Solutions segment also saw record bookings, driven by a significant increase in high voltage electrification awards. Aptiv's diverse portfolio and global reach make them well-positioned to continue winning new business and reach their goal of $35 billion in business awards by 2024.

In the fourth quarter, Wind River experienced significant commercial success across all product lines and solidified their position as a preferred partner for OEM customers. They secured contracts with a Canadian communication service provider, OMRON, and Hyundai Mobis. Demand for Aptiv's full system solutions also remains strong. To support customers and optimize costs, Wind River implemented initiatives in engineering and supply chain, including incorporating DevSecOps into their product development and centralizing engineering activities in India. They are also on track to fully map their global supply chain into a digital twin by year-end.

In 2023, we made significant progress in mapping our semi providers and partnering with local Chinese semiconductor suppliers to improve our supply chain. In terms of Signal and Power Solutions, we have continued to benefit from our portfolio and global scale, securing significant vehicle architecture programs and increasing penetration with local Chinese OEMs. Our Intercable Automotive division had record new business awards and we have seen an increase in demand for our solutions that reduce complexity, weight, and cost. We have also implemented initiatives to improve manufacturing efficiency.

In the electrical distribution business, the company is implementing automation technology to increase efficiency and product quality while reducing labor dependency. They are also focusing on local production to minimize cross-border flows. At the Consumer Electronics Show, they showcased their industry-leading portfolio of products, including a software-defined vehicle demonstrator with advanced ADAS and user experience applications. They also demonstrated their high voltage capabilities with a custom-built electric vehicle.

The article discusses Aptiv's participation in CES and their showcase of their full system portfolio, which includes solutions from sensor to cloud. They had over 1,000 stakeholders visit their pavilion and have scheduled customer engagements for the future. The company has experienced record new business bookings and expects strong revenue growth in the coming years, with a focus on EV adoption and cost reduction measures.

In the paragraph, the speaker discusses their disciplined capital allocation approach and their decision to no longer allocate capital to their Motional joint venture. They also mention their focus on organic investments and strategic M&A opportunities, as well as their plan to return capital to shareholders through share repurchases. The speaker also highlights the challenges faced by the industry in recent years, such as COVID and supply chain disruptions, and their commitment to delivering long-term value to shareholders. The speaker then hands over to Joe to discuss the numbers in more detail, including revenues of $4.9 billion and adjusted growth of 2%. The growth over market is attributed to the impact of the UAW strike, North American OEM production mix, customer mix in China, and slower high voltage growth.

In the fourth quarter, the company reported adjusted EBITDA and operating income in line with expectations, with operating income margins expanding. The increase in EPS was driven by higher operating income, partially offset by interest and tax expenses. Revenue for the quarter was $4.9 billion, with sales growth of $188 million and favorable contributions from net price downs and commodities. North American revenues were down due to the UAW strike and strong production growth from foreign manufacturers. In Europe, adjusted growth was in line with vehicle production, while in China, revenues increased due to growth with local OEMs.

In the fourth quarter, China's growth over market was 8 points lower than vehicle production, mainly due to lower production at multinational joint venture customers and slower high voltage growth. However, growth over market is expected to increase in 2024. In the AS&UX segment, revenue was flat due to the UAW strike and a shift in China customer mix. Adjusted revenue growth for the full year was 17%, with strong growth in active safety and user experience. Operating income for the quarter was $141 million, up 83% despite the strike impact. For the full year, operating income and margins were in-line with expectations, with a slight improvement in margins despite the strike impact. In the Signal and Power segment, revenue increased by 3% in the fourth quarter, with growth over market impacted by the UAW strike and OEM mix.

Despite a 2 point decrease in high voltage growth in Europe, the overall adjusted revenue growth for the year was 11%, with high voltage growth at 20% and segment growth in China at 13%. Despite a strike impact of $40 million, segment adjusted operating income was $459 million, up 3% from the previous year. Operating margins for the full year were up 50 basis points despite headwinds from foreign exchange and the strike. The company is forecasting global vehicle production to remain flat at approximately 93 million units in 2024, with North America up 1%, Europe down 2%, and China remaining flat. The company's macro assumptions also include copper at $4, Mexican Peso at 18.25, Euro at 110, and RMB at 7. The company's full year outlook for 2024 is expected to be in the range of $21.3 billion to $21.9 billion, representing a 7% growth over market.

Aptiv's 2024 outlook includes an estimated EBITDA of $3.28 billion and operating income of $2.55 billion, with adjusted earnings per share expected to be between $5.55 and $6.05. The company plans to target share repurchases of $750 million and is exploring ways to reduce its common equity holdings in Motional. The expected impact of Motional's losses on Aptiv's earnings is a non-cash equity loss of approximately $340 million. The company also expects operating cash flow of $2.3 billion and capital expenditures of approximately 5% of revenues in 2024.

In 2024, Aptiv will not provide quarterly guidance but expects adjusted revenue growth of 3-5% in the first half and 9-10% in the second half, with margins expanding throughout the year. The company anticipates a net contribution of $1.2 billion in revenue from growth over market and material cost recoveries. Adjusted operating income is expected to have a 120 basis point margin expansion, driven by strong flow-through on incremental volumes and offsetting factors such as net price and commodities. Aptiv's growth over market framework has been updated to 6-8% above global vehicle production, down from the previous range of 8-10%.

In the second half of 2023, our growth over market was negatively affected by the UAW strike, stronger Japanese OEM production in North America, and changes in Chinese customer mix. This resulted in a 5% decrease in growth over market for the year. In 2024, we expect the impact of the UAW strike and OEM production mix to reverse, and anticipate higher growth over market in China. However, high voltage growth is forecasted to slow to 20%, down from pre-2023 levels. Our updated framework for growth is 6% to 8%, taking into account these changes and contributions from other product lines. In 2023, we saw strong margin expansion despite the UAW strike and foreign exchange headwinds. Operating income margin increased by 150 basis points.

In 2024, the company expects to see strong sales growth, offset by net price in commodities and higher labor and operating costs. They are targeting a 120 basis point margin expansion and have taken cost reduction actions to achieve this goal. The company also plans to continue investing in the business and maintaining a disciplined approach to capital deployment. They generated a record $1.9 billion in operating cash flow and expect this to increase to $2.3 billion in 2024. They have also paid down their Term Loan A and purchased $400 million of stock, including $300 million in the fourth quarter.

Aptiv plans to invest in both organic and inorganic opportunities, as well as continue share repurchases in 2024. The company maintains a strong financial policy and believes its business model will drive shareholder value. The management team is optimistic about the future and expects the pace of innovation to accelerate, as Aptiv is well-positioned to benefit from industry changes. The company is committed to operational excellence and delivering value to shareholders. The reduced growth target may slightly impact longer-term margin goals.

Joe Massaro and Kevin Clark address factors that may impact Aptiv's long-term margin goals. They mention a 100-150 basis point headwind due to lower growth and a stronger peso, as well as labor costs in Mexico. They also note that the margin targets may be pushed out a year and will be updated as appropriate. The company remains optimistic about the growth of high voltage electrification. In regards to the recent buyback, the company still has a significant amount of cash on hand and a strong free cash flow guidance.

The speaker asks for clarification on the expected cadence of growth in the first and second half of the year. They also ask for more information on the expected improvement in domestic Chinese business, specifically if it is due to Aptiv's actions or the production schedule of their customers.

The paragraph discusses the factors driving growth in the automotive industry, specifically in China. These factors include production schedules from multinational companies and local OEM growth. The company is focused on working with top Chinese OEMs and is careful about their overall exposure. They expect to see an increase in revenues from domestic OEMs in the coming years.

The speaker discusses the company's plans for the coming years, including a more balanced customer mix and a focus on assisting Chinese customers in expanding outside of China. They also mention a revised margin target for 2025 of 12.5-13%.

The company has seen a shift in market share away from western OEMs in the past couple of years, but they expect this trend to level off in 2024 due to an increase in backlog from Chinese OEMs and new launches from multinational companies. They also expect the growth of EVs to be similar in 2024 as it was in 2023, despite some slowing late in the year.

The company is seeing strong bookings in their high voltage business, with a projected 20% growth rate for 2024. They attribute this growth to new product launches and a concentration of business in China and Europe. They believe their penetration rate will increase in the next few years, potentially reaching 10-15%. There may be potential for acceleration in growth over market in the second half of the decade, despite current uncertainties.

The company has seen significant growth opportunities in the last three years, with bookings increasing compared to the previous five years. This indicates a strong competitive position, although it is not a perfect measure. The company expects to see accelerated growth in the future, with a 6% to 8% growth rate over the market. The ADAS business is also expected to see strong growth, with a 20% increase in 2024. The recent wins with Japanese OEMs provide further opportunities for growth.

Kevin Clark, CEO of Aptiv, discusses the company's growth and how it is not immune to things like strikes, but the underlying fundamentals of the business, such as take rates and growth, will keep it above 20% next year. He also mentions the company's recent wins with Japanese OEMs and their global reach. Itay Michaeli from Citi asks about the company's R&D spend and if it may be too much, but Kevin Clark explains that they closely monitor this and are confident in their investments in technology.

The speaker discusses the increase in advanced development spending in 2023, largely due to efforts to productize their portfolio and increase reuse of existing technology. This has led to interest from OEMs in areas such as electrification and software, which is expected to result in continued growth in bookings. The speaker emphasizes the importance of investing and remaining focused on efficiency and cost-effective solutions, as well as innovation. The speaker also mentions that the current volume outlook is flat globally, but schedules are expected to increase throughout the year.

The speaker discusses the current schedule disconnect and back-end weighting, stating that it is not just the company that is affected, but also customer production schedules. They also mention that incremental EBIT margins for 2024 are in the mid-20% range, and attribute this to capturing remaining COVID disruption costs. They are confident in achieving this higher margin leverage and state that they are settled on pricing.

Dan Levy asked about the EBIT bridge and the impact of chip deflation and FX on Aptiv's guidance. He specifically mentioned the excess inventory of chips in the market and asked if Aptiv is factoring in any chip deflation in their guidance. He also mentioned the potential headwind from the unwinding of their FX hedge and asked for clarification on the impact of FX on their guidance.

Joe Massaro, the speaker, says that at the CES supplier meetings, no automotive chip provider has talked about reducing prices. Some have even mentioned increasing prices due to wafer cost increases. The company will push back on these increases if necessary. There are no opportunities for price reductions in the forecast. Last year, the company was impacted by transaction and translation impacts due to a strong peso, but this year they have assumed a stronger peso in their forecast. This will result in about $100 million in increased costs, primarily in labor. The peso assumption at Investor Day was 20.50, which is a 10% increase in strength. The speaker then addresses the strong bookings and how they reconcile with the reduced gross spend mentioned by OEMs.

The speaker addresses the question of how Aptiv's strong bookings activity can be reconciled with the challenges faced by automakers in executing on megatrends. He explains that Aptiv has invested in areas where OEMs struggle, such as insourcing and cost reduction, and that this has contributed to their success. He also mentions that they have not heard about SoC material inflation from their suppliers and have deployed engineering assets to address potential constraints.

The speaker discusses the progress of Motional, a promising enterprise in the Level 4 market. They mention that the industry is moving away from Level 4 and financing using capital markets may be difficult, but HMG has been an outstanding partner.

The cost of commercializing technology for the mobility on demand market has made it difficult for the company to generate revenue and earnings. As a result, they have decided to focus on other opportunities that will bring profitable growth. This may include potential M&A deals, as the company's balance sheet is in good shape and there are no obstacles from a capital markets perspective.

The speaker discusses the company's recent update on their growth over market framework. They mention that high voltage is the only component that is lower compared to the previous framework, but they do not provide further details on the other components. The speaker also mentions that there may be some changes in customer mix and how things play out in relation to comments made about Japanese and Chinese customers.

The speaker addresses comments about their company's growth rate and revenue, stating that they have met their expectations and that the growth over market is due in part to a denominator impact. They clarify that their joint venture partner will continue to fund Motional in the near term, but Aptiv intends to no longer participate in funding and is exploring options to reduce their holdings in the joint venture.

The speaker explains that due to the uncertain nature of joint venture agreements, they have included the full impact of Motional in their financial guide. They are currently working through the details, but the funding decision has been made. In response to a question, they state that 5-10% of their engineering spend is related to BEV development. They also clarify that there are no requirements for a breakup or walkaway fee in the joint venture agreement. The call concludes with the speaker thanking everyone for their time.

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