The Aptiv Q1 2024 Earnings Call began with Jane Wu, Vice President of Investor Relations and Corporate Development, welcoming participants and introducing the speakers. She also provided information on where to find the relevant materials for the call. The call would cover the continuing operations of Aptiv and would include forward-looking information. CEO Kevin Clark and CFO Joe Massaro would provide updates on the business and financial results, respectively. Kevin Clark highlighted the company's strong operational performance, with new business bookings reaching almost $13 billion.

In the first quarter, the company had a strong start, with new business bookings reaching $13 billion and revenue of $5 billion, representing 2% growth. EBITDA and operating income also saw significant growth, while earnings per share increased by 27%. Despite challenges such as slowing electric vehicle production and increased labor inflation, the company was able to maintain margins through productivity initiatives and cost actions. Additionally, $600 million worth of stock was repurchased during the quarter. Overall, the company demonstrated its ability to execute and deliver solutions to customers while improving operating efficiencies and reducing costs.

The company is updating its 2024 outlook due to the continued weakness in electric vehicle production and negative impact of foreign exchange rates. This includes a $450 million reduction in revenue guidance and a $50 million reduction in operating income. However, the company is maintaining its high standard of execution and has implemented cost-saving initiatives to strengthen its sustainable business model. The company remains confident in its revenue growth in the second half of the year and expects an 11.8% operating margin and 80% growth in operating income.

The company has announced a formal agreement with the Hyundai Motor Group for their joint venture, and they believe their stock is undervalued. They have doubled their share repurchase target and remain committed to delivering value to shareholders. In the last quarter, they reached nearly $13 billion in bookings, with a record for Signal and Power Solutions new business bookings. This includes a significant award for active safety and user experience, bringing their cumulative bookings for this segment to $33 billion, and a record-breaking $70 billion for Signal and Power Solutions since the first quarter of 2021.

In China, we received $3 billion in new business awards from both local and multinational OEMs, putting us on track to exceed our full year 2023 bookings of $6 billion. Our Advanced Safety and User Experience segment reported 5% growth, driven by a 24% increase in active safety. We continue to focus on productivity improvements, including consolidating engineering centers and using Wind River Studio for improved workflow performance. We have also made progress in validating local Chinese semiconductor suppliers to meet the increasing demand from local OEMs. In the first quarter, we were awarded a radar program from a global Japanese OEM for multiple vehicle platforms in different markets.

In summary, Wind River Studio developer has been chosen by a major local Chinese OEM to increase efficiency and reduce costs for intelligent edge systems. Additionally, an emerging electric vehicle OEM has selected Aptiv's Gen 6 ADAS platform for turnkey ADAS solutions, with production starting in 2026. This award showcases the flexibility, scalability, and cost-effectiveness of the Gen 6 platform. In the Signal and Power Solutions segment, Aptiv continues to benefit from its industry-leading portfolio and global scale in designing and developing optimized vehicle architecture solutions for all types of powertrain platforms.

In the first quarter, revenues for Aptiv increased by 1%, driven by strong growth in China but offset by a decline in high voltage revenues due to a decrease in electric vehicle production in North America and Europe. The company also received over $10 billion in new business bookings, with a focus on gaining traction with top OEMs in China. To address increased labor inflation, Aptiv has taken steps to consolidate manufacturing and increase automation. As consumer demand and emission requirements shift, Aptiv is well-positioned to deliver high-performance and cost-effective solutions for electric vehicles, with a significant increase in addressable content per vehicle. This presents an opportunity for the company to apply its existing capabilities to a larger market.

Despite potential fluctuations in global penetration rates for hybrids and battery electric vehicles, the long-term outlook for electrification remains strong. The company has a conservative approach to electrification but still sees significant market opportunity. The company's diverse portfolio across regions, powertrains, and platforms helps to mitigate any potential industry headwinds. Recent customer events, such as exhibiting at Mobile World Congress, have highlighted the company's ability to support 5G deployments and improve performance and reliability for customers.

Aptiv's ability to support the convergence of telco infrastructure with software-defined vehicles was of great interest to their telco customers. During the 2024 Beijing Auto Show, Aptiv strengthened their partnerships in China and discussed key technology trends and consumer expectations unique to the Chinese market. Aptiv is well-positioned to deliver solutions in this market with increased flexibility, higher performance, and faster speed to market at a lower cost. Across all regions and end markets, customers are requesting the right hardware, software, and engineering tool chain for software-defined functionality. Aptiv's edge-to-cloud portfolio positions them to capitalize on the automotive industry's transition to software-defined vehicles and the digital transformation and convergence of multiple industries. This puts Aptiv in a position for sustained long-term profitable growth.

Aptiv had a successful quarter with strong financial results, driven by cost savings and margin improvement actions. Revenues were $4.9 billion, up 2% from the previous year, but growth was impacted by slowing electric vehicle production. Adjusted EBITDA and operating income also increased, with a 200 basis point margin expansion. Earnings per share grew by 27%, partially due to share repurchases. Operating cash flow was strong at $244 million.

The company experienced strong revenue growth driven by active safety and commercial vehicle sales, but high-voltage revenue was lower. Revenues outpaced vehicle production in all regions, with North America and China showing growth and Europe showing a decline. The ASUX segment saw a 5% increase in revenue, with active safety driving most of the growth. User experience and Wind River revenues were down, but Wind River is expected to see mid-teens growth for the full year. Segment adjusted operating income was up significantly, and operating income margin was 10.8%. The Signal and Power segment will be discussed on the next slide.

In the first quarter, revenue increased by 1% to $3.5 billion due to growth in engineered components and a decline in high-voltage revenue from BEVs, partially offset by growth in hybrids. China revenues were up 11% thanks to growth with local and foreign OEMs. Segment adjusted operating income was $389 million, up 40 basis points from the previous year. The company has updated its macro outlook, estimating a 1% decrease in global vehicle production and a 5% revenue growth for the year. The company also expects headwinds for the remainder of the year, causing a revision and derisking of their full year outlook.

The company has revised its outlook for the year, with lower revenues and operating income due to customer schedule reductions and current market conditions. However, they have increased their EPS estimate and operating cash flow, and plan to increase share repurchases. The changes to the outlook include a decrease in global vehicle production and high-voltage revenue growth, offset by increases in ICE production schedules and net price. The decrease in operating income is also attributed to negative foreign exchange impact, particularly with the Mexican peso remaining stronger than expected.

The company has updated its guidance to reflect a more accurate exchange rate and expects benefits from cost savings and performance actions to mitigate the impact of macro headwinds. In the second half of 2024, the company expects a revenue increase of approximately $800 million, driven by new program launches with key customers. This includes a significant launch for an active safety program with a global OEM, as well as launches for internal combustion vehicles and trucks in various markets. This increase in sales will result in higher margins, although there will be some FX headwinds due to the peso.

Aptiv has reached a definitive agreement with Hyundai that will provide additional funding of $475 million for Motional, with Hyundai acquiring 11% of Motional's common equity and Aptiv converting 21% of their common equity to preferred stock. This will result in a lower dilution for Motional and an increase in EPS, with an expected incremental EPS of $0.90 per share beginning in 2025. Despite lower vehicle production levels and a slowdown in high voltage, Aptiv is confident in their measures to improve operating income and cash flow for the rest of the year.

The company's earnings and cash flow growth, along with the proceeds from a recent transaction, will allow them to continue their balanced capital deployment strategy, including returning capital to shareholders. The CEO reiterated the company's focus on providing flexible and high-performance solutions to customers, executing well, and optimizing their cost structure. The company recently won contracts with Japanese OEMs for radar and high-voltage hybrid systems, and they are also pursuing partnerships with Chinese OEMs who are seeking locally sourced semiconductors.

The speaker, Kevin Clark, addresses concerns about the potential for a shift towards locally supplied products and how this may affect Aptiv as a supplier to Japanese and Chinese companies. He explains that they have a long-standing presence in China and are viewed as a local supplier by their customers. They have also focused on developing their Tier 2 and Tier 3 supply chain, especially in the semiconductor space, to meet the demands of their Chinese customers.

The company is partnering with Chinese semiconductor manufacturers to deliver solutions to the automotive market in China. They are also working with non-Chinese OEMs to reduce costs and material savings. They have recently made progress with Japanese OEMs and are focusing on the Japanese market. The company plans to automate 30% of labor by 2026 and 50% by 2030, which will solve problems related to labor availability, cost, and complexity of vehicle architecture. The savings will be a significant percentage of labor hours.

In a recent conference call, Kevin Clark and Joe Massaro discussed the current state of automation, with Clark stating that they are currently running at 15%. They also discussed a recent Gen 6 award, but did not disclose specific details. The award includes ADAS, in-cabin sensing, and Wind River solutions, with a potential for 15-30% savings for customers. When asked about their long-term growth over market (GOM) framework, Massaro stated they are currently closer to the lower end of the 6-8% range for 2024, but it is too early to predict 2025 due to customer schedule changes.

During a conference call, Joseph Massaro, Chief Financial Officer of the company, stated that the AS and UX margins for the quarter were strong and exceeded street expectations. He mentioned that there were no one-off events that stood out and that the company has been working hard to improve margins through cost reduction measures. He expects the margins to be maintained at a high level for the rest of the year, with some fluctuations in the third quarter. In response to a question about the company's position in the Chinese market, CEO Kevin Clark mentioned that they have been working with emerging players like Xiaomi and Huawei, and that the recent partnership between VW and Xpeng on electrical architecture may present opportunities for the company in the Chinese market.

The speaker discusses the changes in the Chinese market, with a shift from multinational joint ventures to local Chinese OEMs. They mention that their bookings have also shifted towards more local Chinese clients, and they expect this trend to continue. They are also working with Chinese OEMs who are looking to expand into Europe and North America. In terms of overall bookings, 70% are from local Chinese clients.

The company has seen significant growth in the past year, with a 60% increase. They expect this trend to continue for the next year or two. In regards to their SPS division, they anticipate a margin of around 12-12.5% and low to mid-single digit growth over market. The company plans to continue with their buyback program, which could potentially be sustained at current levels for several years.

The company believes their stock is undervalued and they hope to see stock price appreciation through building their software capabilities and diversifying their revenues in the industrial markets. They anticipate a significant amount of acquisition activity in the future. The company expects a growth rate of 6-8% in a flat market, with current growth over market at 6%. They are facing some headwinds, such as high voltage schedules coming down, but are seeing growth in hybrid and internal combustion volumes. They have a diverse portfolio to service all powertrains.

The company is expecting incremental performance savings this year, which are tied to automation initiatives and footprint actions. They have been focusing on reducing costs and are seeing the benefits of this, as well as other initiatives discussed at Investor Day. FX headwinds are expected for the rest of the year, with the peso being the more significant factor.

The company's high-voltage revenue for Q1 was consistent with the previous year, and the peso is expected to strengthen over time, but is not currently happening. The company has adjusted its guide to account for this and has a hedge in place to protect against further weakening of the peso. The company's customers are still committed to introducing battery electric vehicles, but there may be a higher mix of plug-in hybrid vehicles in the near-term. The company has faced challenges in high-voltage revenue growth in recent months due to reduced schedules, but remains optimistic about the long-term outlook.

The company's growth rate is expected to stabilize in the middle of the year, with a higher mix of plug-in hybrids compared to battery electric vehicles. The first quarter of 2021 had the best EBIT margin since 2018, which is attributed to improved efficiency and planning due to a stabilized macro environment and reduced costs through operational and organizational initiatives.

The business typically sees margin expansion in the second half of the year due to increased production. However, there is less clarity this year due to recent events. The company expects continued improvement in all aspects of their cost structure. They also saw a 25% increase in active safety results and expect over 20% growth for the year, with strong consumer demand and new program launches driving revenue.

The speaker discusses the dynamics of price versus inflation in the company's cost structure. They mention that there has been a slowdown in direct material costs and a shift towards labor inflation. The company is in discussions with customers about this issue and is taking cost actions to address it. They expect to return to a net price of around 1.7% long-term, but in the current quarter, pricing was about $35 million positive on the revenue line due to factors such as copper inflation.

Adam Jonas, from Morgan Stanley, asks Kevin Clark and Joe about the advantages of Level 2+ systems in software-defined electric vehicles compared to internal combustion vehicles. Kevin responds that while it is uncertain if the consumer experience would be better, the BEV architecture would be more optimized and allow for cost savings and flexibility for upgrades and enhancements. He also mentions the momentum towards electrification, smart vehicle architecture, and software-defined vehicles, which is driven by performance and cost.

The speaker agrees that AI/ML is changing the way products like radar solutions and perception systems are developed, allowing for faster advancement at a lower cost. However, there are concerns about the complexity and lack of traceability that AI/ML can introduce, particularly in the automotive industry where safety is a key factor.

The speaker discusses how customers are interested in understanding the failure of integrated systems and how it needs to be balanced between traditional rules-based and AI/ML-based approaches. They also address the impact of different powertrains on their S and PS business, stating that there may be some overlap and ability to pivot, but it should not have a significant effect on their financial framework.

The speaker discusses the impact of legacy OEMs reducing their dealer inventory levels and cutting production in the past quarter. They mention that some OEMs are increasing production for internal combustion engines, but overall production for BEVs is down. They also mention that schedules have been coming down in the past 4-5 weeks for both legacy global and EV-only OEMs, leading to a decrease in the top line. The speaker concludes by thanking the listeners and ending the call.

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