The operator introduces the Aptiv Q2 2024 Earnings Call and turns it over to Jane Wu, Vice President of Investor Relations and Corporate Development. She gives an overview of the financials and addresses the exclusion of certain items. She also mentions that forward-looking information will be discussed and introduces Kevin Clark, Chairman and CEO, and Joe Massaro, Vice Chair and CFO. Kevin discusses the record earnings and EPS in the second quarter, attributed to solid execution, lower supply chain disruption costs, and restructuring of the Motional joint venture. He also mentions significant revenue headwinds from select customers.

In the second quarter, Aptiv faced challenges in certain markets, but saw growth in ADAS revenue and strong cash flow performance. They announced a new $5 billion share repurchase plan and released their annual sustainability report. They also booked $4.3 billion in new business awards, bringing the year-to-date total to over $17 billion. Advanced Safety & User Experience bookings totaled $900 million, and Signal & Power Solutions new business bookings totaled $3.4 billion. Bookings with Chinese local OEMs increased by 27% compared to last year.

The Advanced Safety and User Experience segment achieved record revenues and earnings in the quarter, driven by the strength of our product portfolio and operational efficiency. We secured new ADAS and radar programs with Chinese and Japanese OEMs, respectively, and continue to expand our customer base. While user experience revenues were impacted by lower multinational OEM production in China, supply chains have stabilized and our China semiconductor sourcing initiative is gaining traction. This has led to a reduction in disruption costs and a decline in engineering expenses, improving our profitability.

Wind River has been successful in implementing efficiency measures, such as using Wind River Studio for software development and shifting activities to tech centers in lower-cost countries. The company has also seen significant commercial success, with $200 million in bookings year-to-date in various end markets, including aerospace and defense, telco, and industrial and automotive. Wind River Studio developer is gaining traction, with three software engineering service providers and Aptiv adopting it. Wind River is also the prime sponsor of the Elixir project, an open source Linux solution for the intelligent edge.

In this paragraph, the company discusses their partnerships with various companies and their commercial opportunities. They also mention the decline in revenues in their Signal and Power Solutions segment due to reduced production schedules from certain customers. However, they have booked a significant amount in customer awards and are diversifying their future revenues. The segment's operating income and margins were strong due to lower supply chain disruption costs and good performance. The company is also addressing labor issues in Mexico and aligning their manufacturing capacity with lower production schedules.

Aptiv's Engineered Components product line provides highly engineered, ruggedized, and mission-critical solutions for automotive and industrial markets. This includes interconnect, cable management, and fastening solutions. The Connection Systems business has over $4 billion in revenue and is the second largest global provider in this market. HellermannTyton, with almost $2 billion in revenue, is the top provider of cable management and fastening solutions globally, with half of its revenue coming from the automotive market. Winchester Interconnect specializes in advanced interconnects and cable assemblies for various industrial markets. These businesses are key to Aptiv's growth and diversification strategies and are well-positioned to benefit from global trends such as the transition to electric power and increased connectivity and automation in the automotive industry. While the pace of electric vehicle adoption may be slower than expected, the demand for lower CO2 emissions continues to drive the growth of electrified vehicles.

Aptiv, a leading global technology company, is experiencing strong demand from consumers for advanced safety solutions and edge-to-cloud connectivity. Despite some challenges, customers are committed to making vehicles more safe, green, and connected, and Aptiv is well-positioned to help them achieve this. The company's board has approved a $5 billion share repurchase program, demonstrating their confidence in Aptiv's long-term growth prospects. This program represents over 25% of the company's current market cap and is in addition to the almost $9 billion returned to shareholders since the company's IPO in 2011. Aptiv is confident in its ability to continue growing earnings and cash flow and delivering value to shareholders while also investing in advanced technologies.

Aptiv had a strong quarter with improved operating performance and increased operating margin. However, there was a 2% decrease in revenue due to lower production volumes at certain customers, including a European OEM, a global EV-only OEM, and two multinational OEMs in China. Despite this, adjusted EBITDA and operating income were both at record highs and earnings per share increased by 26%. Operating cash flow was strong and revenue was mainly impacted by lower production volumes in the electrical distribution and user experience product lines.

Despite a decrease in revenue due to customer and product line dynamics, the company saw growth in its Active Safety and Engineered Components product lines, thanks to positive net price and commodities. The company also saw growth in China with local OEMs, offsetting the impact of lower production at multinational OEMs. The ASUX segment achieved record revenue and earnings, driven by strong growth in active safety. The Signal Power segment saw a decrease in revenue due to declines in the electrical distribution product line, but segment adjusted operating income was still strong thanks to performance initiatives and cost reduction actions. The company's updated macro outlook remains positive.

The company has adjusted its global vehicle production outlook for 2024, expecting a 3% decrease instead of the previous estimate of 1%. This is due to changes in customer schedules and reductions in production across all regions and powertrains. The company remains confident in its performance and cost reduction measures. The updated outlook includes a revenue range of $20.1 billion to $20.4 billion, representing a 1% growth. The company expects an operating income of $2.4 billion and an increase in operating margin to 12%. The EPS estimate has been increased to $6.30 at the midpoint, with the early completion of the Motional JV transaction and lower share count offsetting the impact of lower earnings.

The paragraph discusses Aptiv's expected operating cash of $2.15 billion, which is a 13% increase from the prior year. The company also announces a $5 billion share repurchase authorization, with an accelerated share repurchase plan of $3 billion starting tomorrow. This is possible due to the company's confidence in long-term trends, strong balance sheet, and improved margins. The remaining authorization will be used for future purposes. The company's focus on maintaining a strong financial position has allowed for accelerated capital return to shareholders while maintaining their financial policy. The completion of the Motional transaction also provides additional funds for capital deployment. The company's capital allocation plans fit within their financial policy and they will continue to invest in the business and reduce debt.

The company had a successful second quarter despite revenue challenges and is confident in its strong operating performance for the rest of the year. They have revised their financial outlook and believe their portfolio is well positioned for the future of the automotive industry. The company plans to take advantage of the current market and increase capital return to shareholders. The management team is committed to creating shareholder value and will continue to focus on developing advanced technologies and strong operating execution. The call was then opened for questions.

The speaker discusses the decision to increase leverage and the company's historically conservative approach to debt. They attribute the decision to strong confidence in the business's future cash flow and opportunities in areas such as electrification and active safety. They also mention that the company's share price is undervalued and that increasing leverage is the most attractive investment option.

The company is confident in its business performance and future outlook, and plans to continue investing in the business while also considering other opportunities to increase value. They have a plan to delever by 2025 without relying on one-time cash sources. In regards to the Chinese market, the company's revenues and bookings are already majority from local OEMs and they are growing into this market share shift. They are closely monitoring the situation and do not have an exact estimate for any potential bookings headwinds.

In the paragraph, Kevin Clark and Joe Spak discuss the company's strategy and philosophy regarding their cap reallocation and buyback plans. They mention that the company has been working on changing their mix and gaining traction with local OEMs in China, but they are facing challenges with multinational customers. They also mention that they believe their shares are undervalued and that the buyback plan will provide a good ROI.

The speaker agrees that the company's stock price is undervalued and mentions that they have scaled back investments in certain areas such as high-voltage electrification and smart vehicle architecture. This has freed up engineering dollars, and the company's engineering factory is executing well with efficiency initiatives and rotation of their footprint. They also mention that they will reduce engineering spend by $75-100 million this year. The speaker then mentions that HellermannTyton currently has a revenue of $2 billion.

The speaker discusses the success of an acquisition made in 2015, which has doubled in revenue and had a 15% CAGR. They also mention other potential acquisitions that could further expand their core business. The speaker emphasizes the importance of investing in and cross-pollinating their high-margin businesses. A question is then asked about the company's volatile top line and resilient margin.

The speaker asked about the company's organic growth and incremental margin path in the medium term, as well as how Q2 bookings compared to internal expectations. The company remains confident in its $35 billion target for the year, but revenue may be impacted by four customers in a negative way. The company is targeting mid-single-digit growth for next year, assuming no help from the market. The CEO added that some OEMs are up and some are down, but the net impact is affected by the four customers.

During the Q&A portion of the conference call, William Tackett from Morgan Stanley asks about the long-term growth outlook for the company in light of the new aggressive capital return strategy. CEO Kevin Clark responds by saying that they will evaluate customer mix and market dynamics to determine if the current mid-single digit growth on a flat market is a longer-term outlook. Tackett then asks about the potential for OEM customers to adopt more advanced L2+ systems on non-software-defined vehicles and non-EV architectures. Clark explains that regardless of technology adoption, OEMs will continue to upgrade and enhance vehicles, presenting significant opportunities for the company.

Dan Levy from Barclays asks about the company's margins and how much of the improvement is due to inflation, engineering, and footprint reduction. Joseph Massaro, speaking on behalf of the company, says that the improvement is balanced across these initiatives, with COVID and supply chain disruption costs coming out and engineering costs coming down. He also mentions that pricing and commodities are contributing, but not as much as in previous years. Dan also asks about the company's discussions with customers regarding SBA, but no update is provided.

The speaker is discussing the $2 billion cancellation and the remaining $8 billion in the pipeline for smart vehicle architecture. They mention that more and more OEMs are recognizing the need to re-architect their hardware and software, but executing this can be difficult. They also mention that their approach to smart vehicle architecture allows customers to buy parts of their solution, putting them in a good position to serve demand from customers.

The company is facing delays and push-offs in their programs, but they have existing platforms that need to be upgraded. They have over $10 billion in opportunities to help OEMs bridge the gap, and these opportunities are available for both ICE and EV platforms. The company's solutions for SVA are strong and they are selective in pursuing business. They are not focused on gaining share, but rather on standardizing technologies across multiple OEMs. They are well positioned in this area due to their portfolio of products and experience.

The company's planned launches in the second half of 2024 are expected to drive growth over market, but there is still a need for a significant increase in revenue compared to the first half. The timing of the launches is carefully monitored and the company has not experienced any cancellations. The majority of the revenue reduction in the second half of the year is attributed to select customers.

The speaker discusses the current situation with four specific customers, which account for the majority of the company's shortfall and takedown for the year. They also mention the expected growth for Wind River, with a focus on opportunities in Aerospace, Defense, Telecommunications, and Automotive. The company has had success in the Chinese automotive market and is gaining traction with their Wind River Studio developer.

The company is seeing cost tailwinds in the quarter, including the elimination of supply chain and COVID costs, resulting in a net performance and productivity gain of $175 million. They are also seeing strong performance in their operations. These factors are expected to contribute to a margin enhancement of 12.5%, in line with their projections for 2025.

The company has seen equal improvements in manufacturing, logistics, engineering, and SG&A over the past three years. They made a decision to reduce overhead costs by $50 million, which has been successful. This has resulted in a projected EBIT margin of 12.5% by 2025. The trade-off between SVA architectures and traditional architectures is that SVA has lower margins but there may be opportunities in other areas such as engineered components and high-voltage connectors. Customers' needs are constantly changing.

The company is pausing or delaying certain aspects of their vehicle lineup, which creates opportunities for incremental revenue. This includes enhancing and upgrading their ADAS, user experience, and other solutions. The company has a strong cash position and a low debt to EBITDA ratio.

The company is in a good financial position to implement an ASR and repurchase stocks. They plan to maintain investment grade and return to their current position by the end of next year. The market for SVA is not divided by mass market and premium OEMs, but rather depends on individual preferences. The company's focus is on providing efficient and cost-effective solutions for power and data distribution.

The speaker states that their company is focused on avoiding customized solutions for OEMs and will only pursue such business if it is profitable. They mention their pipeline includes programs with 20 different OEMs, a significant increase from two years ago. The call concludes with thanks to participants.

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