Aptiv Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 2, 2023

Key Takeaways

  • Aptiv achieved a record $32 billion in new business bookings in 2022, led by Active Safety, high-voltage electrification, and Smart Vehicle Architecture awards.
  • Full-year 2022 revenues reached $17.5 billion, growing 15 points above vehicle production, yielding operating income of ~$1.6 billion and EPS of $3.41 amid strong flow-through and customer recoveries.
  • 2023 guidance targets $18.7–$19.3 billion in revenues (+8% year-over-year) with 9 points of growth over market, operating income of $2.0 billion (~10.5% margin), and EPS of $4.25.
  • Persistent supply chain disruptions and COVID-19 shutdowns in China are expected to cost $180 million in 2023, contributing to a modest 1% global vehicle production decline outlook.
  • Strategic acquisitions of Wind River for cloud-native vehicle software and Inter Cable Automotive for high-voltage interconnects bolster Aptiv’s full-stack capabilities and industry portfolio.
AI Generated. May Contain Errors.
Earnings Conference Call
Aptiv Q4 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

Good day, and welcome to the Aptiv Q4 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jessica Karakos, Vice President of Investor Relations and ESG. Please go ahead.

Speaker 1

Thank you, Lynette. Good morning and thank you for joining Aptiv's 4th quarter 2022 Earnings Conference Call. The press release and related tables along with the slide presentation can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items and will address the continuing operations of Aptiv. The reconciliations between GAAP and non GAAP measures for our Q4 financials as well as our full year 2022 outlook are included at the back of the slide presentation in the earnings press release.

Speaker 1

During today's call, we will be providing certain forward looking information, which reflects Aptiv's current view of future financial performance It may be materially different for reasons that we cite in our Form 10 ks and other SEC filings, including uncertainties posed by the COVID-nineteen pandemic, The ongoing supply chain disruptions and the conflict between Ukraine and Russia. Joining us today will be Kevin Clark, Aptiv's Chairman and CEO and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business and Joe will cover the financial results in more detail before we open the call to Q and A. With that, I'd like to turn the call over to Kevin Clark.

Speaker 2

Thanks, Jessica, and thanks everyone for joining us this morning. Let's begin on Slide 3. 2022 was another year with record new business bookings and strong growth over market, Driven by our industry leading portfolio of advanced technologies as well as our continued flawless execution that's kept our customers connected in this challenging environment. Highlights for 2022 included $32,000,000,000 of new business bookings, driven by significant active safety, high voltage and smart vehicle architecture awards $17,500,000,000 of revenues, representing 15 points of growth over vehicle production during the quarter, bringing our full year growth over market to 11 points. Operating income and earnings per share for the full year of just under $1,600,000,000 $3.41 respectively, Reflected the benefit of strong revenue growth and customer recoveries, partially offset by costs related to COVID and ongoing supply chain disruptions, which she'll cover in greater detail a little later.

Speaker 2

We also enhanced our portfolio of safe, green and connected technologies With the additions of Wind River and Inter Cable Automotive, both of which closed during the Q4. I'll expand on these as well as our enhancements For operating model on the next slide. As the industry transitions to fully electrified software defined vehicles, We continue to enhance both our operating model and industry leading portfolio to further strengthen our capabilities to solve our customers' toughest challenges. As legacy functional and domain based architectures are increasingly replaced by approaches aligned to Aptiv Smart Vehicle architecture, It impacts both the way we design and sell our solutions. This means further strengthening our 1 Aptiv account based model, Positioning us to engage earlier in the development process and therefore more effectively design, specify and deliver optimized solutions across our portfolio, resulting in stronger customer relationships and greater ability to capture value from all our full system solutions.

Speaker 2

We further enhanced our regional operating model By increasing local capabilities and empowering those closest to the customer to address their needs quickly and efficiently. Additionally, the continued rollout of our Net Promoter system has resulted in actionable insights to improve our efficiency, Our resiliency and service levels, thereby increasing customer intimacy. Lastly, proactive initiatives and risk mitigation actions related to our Supply Chain have contributed to our ability to keep customers connected through significant disruptions, giving them confidence in our ability to execute on current and future platforms. At the same time, we recognize that the software defined electrified vehicles consumers are demanding will require innovative new solutions And we're investing organically and inorganically to position ourselves for that future. Our acquisition of Wind River Significantly strengthens our capabilities and software with an industry first cloud data software platform that speeds development, Streamlines deployment and enables full lifecycle management for the software defined vehicle, significantly reducing cost and time to market For our customers, while also unlocking new business models.

Speaker 2

The acquisition of Inter Cable Automotive enhances our portfolio of High voltage busbar and interconnect technologies and provides near term synergies as we expand Intercable's manufacturing capacity In North America and in China. Lastly, we're also investing organically in solutions that Further expand our portfolio of industry leading high voltage electrification solutions such as integrated power electronics and battery management systems. To help fund these initiatives, we've implemented structural cost reductions that will save roughly $100,000,000 in annual expense, which will take full effect throughout 2023. These actions further improve the efficiency of our underlying cost structure, while allowing us to make investments that better position Aptiv for long term outperformance. As shown on Slide 5, nowhere is the strength of our track record and portfolio more evident than in our new business bookings performance.

Speaker 2

2022 bookings reached a record $32,000,000,000 an increase of over 30% from last year's record of $24,000,000,000 Advanced Safety and User Experience bookings totaled a record $12,000,000,000 driven by $4,200,000,000 of customer awards for our Smart Vehicle Architecture Solutions Across 3 different OEMs, including Central Vehicle Controller and Power Data Central bookings Power Data Center bookings, sorry, with the Volkswagen Group. Bringing cumulative customer awards for SVA products since our launch to over $5,000,000,000 with 5 different OEMs. Active Safety bookings of $5,200,000,000 representing a combination of next gen hardware and perception software building blocks, As well as full system turnkey awards, including an award from a large European based global OEM, as well as the Chinese OEM BYD, which represents the 7th customer to Slark's Aptiv's scalable platform to efficiently support a wide range of advanced safety features. The strength of our portfolio of active safety solutions is reflected in the $20,000,000,000 of cumulative bookings since 2018. Sigma Power Solutions new business bookings reached a record $20,000,000,000 for the year, the result of strong growth in low voltage vehicle architecture, Including a $2,000,000,000 light commercial vehicle booking with a major North American OEM in the Q4 and continued strong bookings in adjacent markets.

Speaker 2

A record $4,200,000,000 of high voltage electrification bookings, up from roughly $2,000,000,000 just a few years ago, Including awards from several North American, European and China based OEMs, representing both traditional And new mobility providers across our electrical architecture and engineered components product lines, bringing cumulative high voltage customer awards To $14,000,000,000 since 2018. Our industry leading portfolio combined with our unparalleled ability to execute highly complex programs Even in today's challenging environment, positions us to continue to win new business, resulting in clear line of sight for roughly $32,000,000,000 of business awards for 2023. Moving to slide 6 to review the segment highlights. Beginning with the Advanced Safety and User Experience segment, this past year, we became the 1st technology provider To successfully launch a full stack, hands free Level 2 plus ADAS system with a European based global OEM. This is a great example of our full system capabilities applied to active safety as well as our flexible business model and open platform approach, which allows OEMs to leverage their own innovations as well as those from Aptiv and other third parties to deliver a unique high performing driving experience.

Speaker 2

We're also deeply engaged with several customers regarding Wind River's cloud native software platform, which we're confident will lead to commercial awards over the course of 2023. Turning to the Signal and Power Solutions segment. We continue to be perfectly positioned with an industry leading portfolio of electrification solutions That span multi voltage distribution, connection and cable management. Reflecting the accelerating demand for battery electric vehicles, The $4,200,000,000 of high voltage new business bookings I referenced on the prior slide accounted for over 20% of the segment's total bookings And high voltage revenues increased 33% over the prior year, 28 points over vehicle production. In addition, our new offerings in power electronics and battery management systems are gaining traction, as demonstrated by a significant Integrated Power Electronics and BMS award from a North American based global OEM, where our solution will be used across all their best platforms Beginning in 2025 and the pipeline of customers evaluating the deployment of a similar solution is growing.

Speaker 2

Our customers recognize our track record of flawless execution, which is the driver behind the customer service, Quality and supply chain awards we've received, the cost recoveries we negotiated and the record level of new business bookings we've been awarded. Our full system edge to cloud vehicle architecture solutions have enabled us to pursue high growth, margin accretive opportunities That position us to continue to deliver outsized revenue growth and margin expansion for years to come. Moving to Slide 7. At this year's CES event in Las Vegas, we brought the software defined vehicle to life, Showcasing Aptiv's unique full stack capabilities, we debuted Wind River's software platform fully integrated with a vehicle powered by FCA. This on vehicle demonstration of the industry's first end to end cloud native DevOps toolchain and vehicle software platform Showed how these solutions improve development speed, quality and efficiency, unlock new business models And enable software functionality to evolve and improve over the lifecycle of the vehicle.

Speaker 2

We also showcased our turnkey Gen 6 ADAS platform, including differentiating KPIs and a public road demonstration. Our radar centric solution, which is vision agnostic, Utilizes artificial intelligence and machine learning to increase the availability, robustness and efficiency of the perception system, resulting in a solution that can be up to 65% more energy efficient and 25% more cost effective And Equivalent Vision Centric Solutions. Lastly, we continue to highlight the commercial readiness of our smart vehicle architecture solution. First, by deeply integrating it into a production vehicle, which enables us to demonstrate a wide range of in cabin user experience features, As well as the fusion of our interior and exterior sensing, resulting in greater safety, comfort and convenience for passengers. And second, through our FCA demonstrator, which enabled guests to see firsthand how these advanced architectures reduce complexity, weight and mass, while also showcasing our latest high voltage electrification solutions.

Speaker 2

With over 400 customers, 150 partners and 75 suppliers Visiting the Aptis CS Pavilion this year, we reinforced our growing pipeline of commercial opportunities and set the stage for the deeper, More tailored engagements, which I referenced earlier. Moving to Slide 8, before I turn the call over to Joe, I wanted to touch on our outlook for 2023, which Joe will cover in more detail. Building on the foundation from 2022, We expect a very strong year for new business bookings, revenue growth over market and margin expansion. Our robust business model And portfolio of advanced technologies are resulting in sustainable value creation. We continue to widen our competitive moat With investments in advanced technologies and capabilities that drive our operational excellence,

Speaker 3

this has

Speaker 2

enabled us to demonstrate strong outperformance even in a weak production environment. As demonstrated by our 2023 outlook, where we continue to expect 8 to 10 points of growth over vehicle production and 140 basis points of operating margin expansion and strong cash flow growth. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Speaker 4

Thanks, Kevin. Good morning, everyone. Starting with a recap of the Q4 on Slide 9. As highlighted earlier, the business drove strong growth in the quarter With revenues of $4,600,000,000 up 19% over prior year and representing 15 points of growth above underlying vehicle production. The outgrowth was across both segments despite continued semiconductor supply chain constraints and COVID disruptions in China that negatively impacted Customer Production.

Speaker 4

Adjusted EBITDA and operating income were $674,000,000 $523,000,000 respectively. OI margins expanded 380 basis points versus prior year, reflecting strong flow through on incremental volumes, The benefit of customer recoveries of direct material cost increases and cost reduction actions taken earlier in 2022. Supply chain disruption costs were favorable by approximately $25,000,000 from prior year and foreign exchange was negative in the quarter, Reflecting approximately 20 basis points of headwind. EPS in the quarter was 1.27 An increase of 87% from the prior year, driven by overall earnings growth and interest income from higher cash balances maintained prior to the closing of Wind River, Partially offset by interest expense and tax expense on higher earnings. The motional EPS impact was a loss of $0.29 an $0.08 increase over last year.

Speaker 4

Lastly, operating cash flow totaled $933,000,000 And capital expenditures were $178,000,000 for the quarter. Looking at the 4th quarter revenues in more detail on Slide 10. Outgrowth was broad based across all regions despite the disruptions in China and continued supply chain constraints. Price downs, net cost recoveries and commodities was favorable by approximately $100,000,000 Foreign exchange negatively impacted revenue by approximately $300,000,000 in the quarter and late quarter shutdowns in China was a negative $60,000,000 From a regional perspective, North American revenues were up 21% or 13% above market, driven by our active safety and high voltage product lines In Europe, which continues to be impacted by acute supply chain constraints and macro concerns, adjusted growth was 22%, driven by strength in both segments. And in China, revenues were up 8% or 14 points over market.

Speaker 4

Moving to the segments on the next slide. Advanced Safety and User Experience revenues rose 15% in the quarter or 11 points of growth over underlying vehicle production. Segment adjusted operating income was $77,000,000 up over 100% year over year, reflecting strong flow through on incremental volumes As well as favorable net price and recoveries, partially offset by the negative impact of foreign exchange in the quarter. Signal and Power revenues rose 20% in the period or 16 points above market. Segment operating income improved by 64%, Driven by strong flow through on incremental volumes, favorable net price recoveries in commodities and lower supply chain disruption costs That partially offset the negative FX impact.

Speaker 4

Turning now to Slide 12 And our expectations for global vehicle production in 2023. Based on customer schedules, we are forecasting a decrease of 1% for the year, reflecting approximately 85,000,000 units of global production. Regionally, we expect North America flat at approximately 15,000,000 units Europe down 2% or approximately 16,000,000 units and China flat at approximately 27,000,000 units. As we discussed during the Q4 of last year, we remain cautious about the impact of macroeconomic considerations, particularly in Europe, As well as the impact of customer supply chain disruptions, including continued constraints of certain semiconductors. Although the overall supply of semiconductors has improved sequentially, we continue to see acute constraints, particularly in Europe and North America That impact overall customer production levels.

Speaker 4

Moving to slide 13, you'll find our 2023 full year outlook, Which now includes Wind River and Ener Cable Automotive. We expect revenue in the range of $18,700,000,000 to $19,300,000,000 Up 8% at the midpoint compared to 2022 with 9 points of growth over market. Note that our growth over market As noted previously, we remain confident in our multi year growth over market target of 8% to 10%, Supported by continued success in our key product lines and high demand for our portfolio of advanced technologies. EBITDA and operating income are expected to be approximately $2,700,000,000 $2,000,000,000 at the midpoint, reflecting strong flow through on volume growth, Continued margin expansion in high growth product lines and lower COVID and supply chain disruption costs. Adjusted earnings per share excluding amortization is Estimated to be $4.25 EPS growth of 25% is driven by strong earnings growth, Partially offset by an increase in the expected tax rate of 14.5% and higher net interest expense.

Speaker 4

The loss related to motional of $310,000,000 represents a $0.07 increase over last year. We expect 2023 operating cash flows of $1,900,000,000 reflecting the higher earnings as well as improved working capital during the year. Capital expenditures are expected to be approximately 5% of revenues or $950,000,000 for the year. With respect to capital deployment in 2023, we will continue to maintain a well balanced approach to capital allocation As we continue to prioritize organic investments in the business to support our portfolio of advanced technologies and record new business awards, Execute our M and A strategy and focus on transactions that enhance our scalability across both the brain and nervous system of the vehicle, Accelerate our speed to market with relevant technologies and access new markets. And while we will continue to maintain our current financial policy As it relates to our balance sheet leverage profile, to the extent we can take advantage of market disconnects, we will be opportunistic in our share buybacks, Returning cash to our shareholders.

Speaker 4

To that end, our 2023 guidance assumes we offset the impact of stock compensation dilution in 2023 Via share repurchase, a practice we had in place prior to 2020. On Slide 14, we provide a bridge of 2023 revenue and operating income guidance as compared to 2022. Starting with revenue, Our growth over market, combined with the decrease in global vehicle production, results in a net contribution to revenues of over $1,000,000,000 The full year benefit of direct material cost recoveries will effectively offset changes in index commodity and price downs. FX is estimated at a negative $300,000,000 And lastly, we expect Wind River and Ener Cable to contribute approximately $700,000,000 for the year. Turning to adjusted operating income, we expect margin expansion of 110 basis points before the benefit of acquisitions, Driven by continued strong flow through on incremental volumes of approximately 30%, the negative impact of price downs, commodities and incremental inflation are partially offset by Cost recoveries and higher direct labor and other indirect costs are more than offset by increased operating performance, Including the benefit of cost saving actions, improved manufacturing performance, as well as a reduction in supply chain disruption costs, Which are estimated to be $180,000,000 in 2023.

Speaker 4

The addition of Wind River and Inter Cable will increase 2023 operating income to $2,000,000,000 10.5%, reflecting margin expansion of 140 basis points and incremental margins of over 27% for the year. With that, I'd like to hand the call back to Kevin

Speaker 2

for his closing remarks. Thanks, Joe. I'll wrap up on slide 15 before opening the line up for questions. As the management team reflects on 2022, it's clear that we strengthened our competitive moat and accelerated our commercial momentum, Supported by a highly differentiated portfolio of safe, green and connected technologies. Together with our strong track record of operating Aptiv has never been better positioned to provide our customers with full system solutions that advance the industry's vision of the software defined vehicle.

Speaker 2

As a reminder, we're hosting our 2023 Investor Day on February 14 in Boston, where we'll provide our view on the industry And how we plan to usher in the next phase of our business strategy. In closing, I'm proud of what the Aptiv team accomplished during 2022 And have never been more excited about what we will deliver in the years ahead. As you'll see in here on February 14, the best is yet to come. Operator, let's now open the line up for questions.

Operator

Thank do ask that you please limit yourself to one question and one follow-up today. And we'll take your first question from Rod Lache.

Speaker 2

Good morning, Rod.

Speaker 5

Yes. So, I guess my first question is On your bridge for 2023, you have $400,000,000 of additional labor depreciation, economics Price, you offset that with $400,000,000 of performance and it was either $135,000,000 or $180,000,000 of lower Disruption costs, I'm just wondering about just in light of the still inflationary environment that we're seeing, Pricing is still negative. And at what point do you think you start to kind of get ahead of this and recover some of these disruption costs or headwinds.

Speaker 4

Well, Rod, it's Joe. I'll start. I mean, I feel like, I think we have gotten ahead of it, to be honest with you. I mean, our business equation is working, right? Performance is offsetting labor inflation and the pricing and the material inflation you see in that 100,000,000 We've netted out from a top line perspective customer recoveries this year, which are obviously benefiting from a full year effect or effectively offsetting price downs on the top line.

Speaker 4

So I think our view and Kevin can jump in. I think our view is that the team has done a great job of pushing direct material costs through And we've started to get performance up, including working hard to get The supply chain disruption costs out of the P and L.

Speaker 5

Yes. I guess just to just Maybe clarify my question, Joe. Like I think that you had talked about $295,000,000 of disruption that you'd start to recover over 6 quarters. And When I say ahead of it, in my mind at least that means that the positives are greater Then the negatives, it looks like they're sort of matching, at least when optically when you look at the bridge.

Speaker 4

They're certainly offsetting. Yes, we ended 2022 with about $30,000,000 of supply chain disruption costs. We've taken that down to $180,000,000 in the outlook. So we're still assuming $180,000,000 of disruption It continues to be a difficult operating environment for certain customers and we're still seeing Some disruptions, obviously China in Q4, December in particular was heavily disrupted with COVID. So it was, I think we continue to work through it.

Speaker 4

I think you're right. We had always talked about sort of 4 to Order, so we've got some to continue to work through, but feel like we've made a pretty big step here in 2023.

Speaker 2

Yes, maybe if I can add, Rod, I think It's a great question. I think one of the challenges when you talk about getting full ahead of it, you need to have better predictability of what you're getting ahead of. And I think Joe's point on the Q4 of 2022, in December specifically, to give you example, Roughly 90% of our employee base in China was suffering from COVID. That stuff is tough to predict. Yet at the same time, We were able to keep our factories running and keep our customers connected, which has been our ultimate objective, right?

Speaker 2

So operating in a less efficient way and being somewhat reactive in an environment where we can't always predict what's going to happen from a supply chain standpoint or COVID standpoint.

Speaker 5

Thanks for that. And just secondly, when you announced the closing of the Wind River deal, In your release, you talked about some recurring operating expenses and costs that led to changes in the terms. I I was hoping you can maybe talk a little bit about what you meant by that and what were the implications financially going forward?

Speaker 2

Yes. I think the net results for Wind River from a revenue growth standpoint, margin standpoint, Accretion dilution standpoint remain largely unchanged. We're not going to get into all the specifics, but operationally, there were some changes We needed to make and in light of that, we are in a position to renegotiate the transaction.

Speaker 4

Yes, Rod, the only thing I'd add is a nuance, but I think it's important, particularly as it relates to the magnitude of the cost. The price reduction we said was in part So it's not a direct correlation between sort of the increase in expenses and the amount of the reduction. So to Kevin's point, it gave us an opportunity To talk to the sellers about pricing, we did, but the deal remains accretive in this year. And again, as we said in our press release, it's no changes in sort of the strategic outlook or our view on the Long term opportunities, Wind River.

Speaker 5

Thank you.

Operator

We'll hear next from Adam Jonas from Morgan Stanley.

Speaker 4

Hey, Adam. Good morning, Adam.

Speaker 6

I just want to Follow-up on Rod's question about production disruption, because the guide for down 1% does seem it seems Surprising to some people given if you look at like the PMI shipping index back to pre COVID levels in terms of Implying logistics costs and shipping timing more back to normal, chip companies are taking down supply because they've Seeing that kind of just in case channel buildup is kind of running its course. And so you are highlighting a couple of Companies and I respect that there's still some choppiness, but it seems like you're implying that production disruption in 2023 Gets worse. I mean, you're implying net headwinds, right? So you're implying it gets worse than in 2022. Help me understand that because that's a pretty weak comp, Pretty shitty comp in terms of how bad things were last year.

Speaker 2

Yes. Adam, listen, as we've talked about in the past, when we Provide our guidance and bill our forecast. It's off customer schedules. And when you look at the nature of our business, especially Our SPS business, we're on 1 in every 3, 3, 3.5 vehicles globally. So we get a Very good view to the underlying market.

Speaker 2

We also, given the nature of our ASU X business, get A very good view to what's going on from an overall semiconductor availability and supply chain standpoint. And I think when you look at the semiconductor challenges, As they've evolved from 2021 to 2022, then 2022 to 2023, it's really much more focused on rather than a general Supply constraint standpoint, specific suppliers who are causing constraints. And we expect that to continue To continue into 2023, it certainly was the case in 2022. And those two factors are Effectively, they're impacting our overall outlook for the full year, which again, as Joe said in the past, is based on the customer schedules that we receive.

Speaker 6

All right. Appreciate that. And just a follow-up, imitation is the ultimate form of flattery. Qualcomm Once in on software defined and kind of the kinds of products you're doing And safe and connected Mobileye wants to compete with you. I seem to recall you used to quote a 70% type Win rate in ADAS and ASUS broadly, I think that sounds familiar, right?

Speaker 6

I always felt that was a bit too high, kind of a high watermark, but how has that trended in recent quarters now that you're seeing Competition may be creeping in on the forward. Thanks.

Speaker 2

Yes. I think it depends on your baseline and what Comparison you're trying to make, whether it's a full system solution, a platform solution or it's a unique to a perception System as an example, a radar solution. Obviously, ADAS penetration has Accelerated and continued to increase over the last several years. I haven't seen or we haven't done the math on the Pursuit relative to Wynn, I'd say it's still relatively high on a platform basis. I would say we're very focused on investing our efforts in those areas where we have a high likelihood of winning.

Speaker 2

So based on that sort of approach to pursuing ADAS platforms, I would say it would continue to be relatively high. I'm not sure if it's quite at 70%. But we still continue to have a very strong position. And again, it's reflected in our bookings in 2022, Our outlook in bookings for 2023 and our revenue growth relative to market. And I mentioned in my comments the NextGen, Gen 68S platform, which will launch in 2025, will be available for We've already had one customer award.

Speaker 2

It's an open system. It provides it's modularized. It provides a lot of flexibility for ourselves As well as for our OEM customers and importantly, it's very cost effective. So we believe we're going to continue to see significant demand.

Speaker 6

Thanks, Kevin. See you guys on Valentine's Day. I'll bring

Speaker 7

the chocolate.

Speaker 2

See you.

Operator

We'll hear next from John Murphy from Bank of America.

Speaker 7

Good morning, guys. There's been a lot of price action Recently, by some of your customers on EVs that are probably going to drive significantly higher volume relative to initial expectations. I'm just curious how you think about that and what kind of opportunity there might be here in 2023.

Speaker 2

Well, listen, we've been talking about high voltage electrification and what we've been doing from a portfolio standpoint. Bookings continue to be strong, right? Obviously, we had another year of record bookings and it wouldn't surprise us if we had 2023 Even stronger bookings from a high voltage electrification standpoint. So We'll see. We're optimistic.

Speaker 2

Having said that, as we've said in the past, we're very, very focused on Pursuing opportunities with those OEMs, who have battery electric vehicle platforms that they're taking globally, that we have a high confidence level that they're going to Meet their schedules and effectively generate significant revenues over a platform, Which ends up a better financial proposition for ourselves and obviously lower risk.

Speaker 4

John, it's Joe. I'll just add. We've talked a lot about being north of a 30% growth rate in high voltage. 2023 is as well North of 30% based on the customer schedules we're seeing today. And obviously, we got additional opportunities as we add in the inter cable portfolio.

Speaker 4

So Continue to see it very strong with schedules today to extend the price actions, sort of increase the mix or increase the take rates On that technology, I think we'll be very well positioned to take advantage of it.

Speaker 7

Got you. Okay. I mean, if you look at stuff like the Model 3 and the Y, I mean, it's kind of the here and now. I mean, given the price cuts, I mean, these guys might be doing another 500,000 units Relative to expectations, I mean, are you thinking that

Speaker 8

that's possible and that's in

Speaker 7

your numbers at this point? And actually, the Chinese manufacturer

Speaker 8

as well. I mean,

Speaker 7

there's some real heady stuff here. I mean, we're not talking about like 3 to 5 years on backlogs. We're talking about like 100 of 1,000, I mean, if not millions more EVs this year than expected.

Speaker 2

Yes. I think as you heard Me say and Jose in the past, we our forecast is based on customer schedules. So to the extent those schedules go up, we'll benefit from a revenue standpoint. But when we pursue business, when we put initial capacity into the ground, obviously, there's some flexibility. It's based on what we see from a customer standpoint, customer schedule And again, so if we see a big uptick in demand for players like Tesla and others, our volume will scale with them.

Speaker 4

And to date, John, those actions have happened in the last couple of weeks. We have not seen big scheduled moves yet. Not saying they won't happen, but Okay. I haven't seen material changes at this point.

Speaker 7

And then just one quick follow-up on the bridge. I mean, on the recoveries, I mean, it does seem like some of the automakers have Almost a little bit remorse that recoveries were a little bit high last year, whether it be for commercial settlements around volatility on schedules or raws. What is your kind of expectation there in these customer discussions this year? Do you expect them to be a little bit tougher? I mean, they were I wouldn't call them generous last year, but they were more realistic last year than they have In decades, do you think they're going to be a little bit tougher this year and there might be some reversal there?

Speaker 7

I mean, what are those discussions like at the moment?

Speaker 2

Yes. And John, as you said, they're always tough. It's an industry with a tough pricing environment all the time. So those conversations are they're never Easy. And what we've done in the past and what we are really focused on continuing to do is to bring value to our 1, by keeping them connected and then 2, providing them with solutions that solve their toughest Challenges that are cost effective solutions.

Speaker 2

And to the extent you're able to do both of those, I would say those conversations are less difficult, But they're never not difficult. And our outlook, the team did a great job. Joe mentioned the team did an outstanding job In 2022, both having those discussions and negotiating those price increases and at the same time, Delivering record bookings and that's a process we'll continue to go through in 2023.

Speaker 7

Great. Thank you very much guys.

Speaker 9

Thanks, John.

Operator

Emmanuel Rosner from Deutsche Bank, your line is open.

Speaker 9

Thank you very much. Good morning. Hi, Emmanuel. Couple of questions on margins, if I can. First one for the quarter, I think the margins were quite a bit softer than maybe we had anticipated, especially And I had a very solid revenue outcome for the quarter.

Speaker 9

Can you please go back over some of the factors of this? I obviously heard you speak about COVID disruption in China, anything else and specifically within AS and U. S, it seems to be quite pronounced?

Speaker 4

Yes, Vamil, it's Joe. You're right. I mean, we continue to deliver on the top line and I think this speaks to sort of a little bit of around Rod's question. It just continues to be a very disruptive environment, right? So we're working through China $20 plus 1,000,000 Of impacts at the very near end of the quarter, from both customer shutdowns as well as just us.

Speaker 4

As Kevin mentioned, we had 90% of our staff of 30,000 people come down with COVID in the 4th quarter. It was a very disrupted production environment. We saw some of that in the U. S. As well as customers wrestle Through the supply chain challenges, and we still got a lot of the stop start production.

Speaker 4

So that combined with sort of the FX impact, call that, I think you mentioned 20 basis points, call that about $40,000,000 in the quarter. And again, some of those disruptions fall heavily into ASU X. So I think to some extent, it's more than the same. I think what you saw us be able to do this year, which To some extent, compounds the disruption cost perspective. We were able to come back, run over time, run the businesses hard and Push the revenue out at the end of the day or most of the revenue out at the end of the day, but it's just an inefficient operating environment.

Speaker 4

And that's as part of the guide, Again, north of $300,000,000 of disruption costs in 2022, we left about We certainly don't think it will be as bad next year, right? We were hoping for sequential improvement. We're seeing sequential improvement. But we did leave $180,000,000 of COVID and disruption costs In the P and L, for 2023, just to give ourselves some room to continue to deal with this.

Speaker 9

Okay. That's helpful color. And then I guess as a follow-up, I think one of the ways you, I think, encourage Just to look at it, I guess, this upcoming year was maybe comparing the performance versus Yes, the second half of twenty twenty two to the extent that some of the price recoveries and commercial agreements you had with Customers were benefiting you more in the second half of twenty twenty two. I guess, what do you feel is sort of like a good clean base in terms of second half margin For which to build off as we try to understand your 2023 guidance and what would sort of might be the puts and takes versus that?

Speaker 4

Yes, I think that's a good question and we've spent time looking at that. I think the way to think about it, we talked about originally, 10% to 10.5% and that was Some of the FX, 9.5% to 10%. So we think about probably 10% as a good jumping off point. I think what you see with You can sort of and I think we've sort of captured it quite honestly within the range of the guide, right? We can sort of if you look at some of the benefits of pricing, You look at the reduction in the COVID supply chain costs, you can get up to sort of that, call that that 10.7%, 10.8% level.

Speaker 4

You then worked down some of the FX and some of the volume changes, which is really how we sort of think about that in the sort of mid-ten percent, that 10.5 percent. So I think we're sort of there. I think 10 sort of ended at the right jumping off point, and we sort of build back from there and I think we have it covered, generally speaking, within the guide.

Speaker 6

Okay.

Speaker 9

Thank you very much.

Speaker 2

Thanks.

Operator

We'll hear next from Itay Micheli from Citi.

Speaker 10

Great. Thanks. Good morning, everyone. Just two questions for me. One, Joe, I was hoping you could share expectations for margin cadence throughout the year.

Speaker 10

And secondly, on Active Safety, maybe talk about what you're expecting this year for both top line growth as well as if you talk about booking expectations after a very

Speaker 4

Yes, let me start with bookings and I'll work my way down. As Kevin mentioned, we think It was in Kevin's presentation. We see line of sight to call it another $32,000,000 of book $32,000,000 of bookings In 2023, I would say mix should be generally consistent With 2022, they always can be a little lumpy, but continue to expect growth in SVA and active safety, obviously, in high voltage. But I think that profile, the sort of the current profile is probably a pretty good proxy. Again, bookings are lumpy.

Speaker 4

They always have been, but That I think is probably the best proxy and we did want to provide a target obviously for For next year, which is something new, but we've got a lot of confidence in what we're seeing. From a segment perspective, If you want to talk sort of growth or growth over market, full year, I'd have ASUX at around 12% growth over market full year, SPS at about 8% growth over market full year. And then I'll give you I'm not going to go quarter by quarter obviously on the margin But if you think about sort of full year margins by segment, and again, kind of work through the disruption And some of the FX we've talked about, but I would think about SPS in that 11% to 12% range, and ASUX in that 8% to 9% range Full year OI margin.

Speaker 10

Terrific. That's all very helpful. Thanks so much.

Speaker 8

As a

Operator

reminder, it is the star key followed by the digit 1. If you find that your question has been answered, you may remove yourself from the queue by pressing the star key followed by the digit 2. We'll move next to Mark Delaney from Goldman Sachs.

Speaker 7

Yes, good morning. Thank you for taking the questions. First on margins, To the extent this stop start schedule volatility and the input cost inflation environment were to moderate, do you think Aptiv could get back Into that historical target of 12% to 14% type EBIT margins or given how pricing discussions with customers have evolved in the last To hear more things now on pass throughs, do you think some of those lower costs may actually have to get passed out to the OEMs?

Speaker 2

Listen, I think if the disruptions and the significant material inflation that Since the quarter last couple of years goes away, we definitely get back to what our historical margin trajectory I was. And then when you overlay what we've done from a portfolio standpoint and where we sit, whether that's mix of more high voltage more advanced ADAS solutions, the benefits of Wind River and Ener Cable actually have the ability to go above that. So it's a combination of both.

Speaker 7

That's helpful. Thanks. My second question was on Wind River. You spoke a bit on this already in the prepared remarks, but could you elaborate more specifically on what Aptiv will do this year to help Wind River have improved customer dialogue with the automotive types of companies in particular, given all of Apta's expertise and relationships with that industry. Thanks.

Speaker 2

Sure. So in reality going back, we signed a commercial agreement with Wind River over a year ago And well over your help. And in reality, our teams have been working closely together both in terms of Developing the final product for automotive applications as well as in commercial discussions. I'd say the traction we've hit over the last A quarter or so has hit a significant level at this point in time. So, a number of introductions across the various regions.

Speaker 2

Hi, guys. As I mentioned in my prepared comments, there's a deep level of engagement with several OEMs in every region at this point in time. And we're very optimistic and very confident that you'll see meaningful announcements in 2023 with respect to Wind River's Penetration of the automotive space.

Speaker 4

Thank you.

Operator

We'll move next to Chris McNally from Evercore.

Speaker 4

Thanks so much team. Basically,

Speaker 8

to follow-up to what's been already On the ADAS wins, dollars 20,000,000,000 could you talk about just the diversification of some of The Tier 2s, I think historically, you've been a majority installer of 1 perception compute system, but obviously there's various out there. $20,000,000,000 is such a big number. It seems like you're probably winning business with multiple computer perception providers. I just want to confirm that.

Speaker 2

Yes. Chris, just to be clear, our ADAS business, I'd put into kind of 2 buckets. One bucket is a platform solution, Which to date has traditionally been with the Mobileye Vision solution. Then there's another bucket where our Perception systems are integrated into an ADAS solution. And in those particular cases, It could be a variety of vision providers and in fact actually is.

Speaker 2

So it's a real mix. The Gen 6 ADAS platform is a platform that we've developed. 1st, we've developed to be vision agnostic. So OEMs have the ability to select What vision provider they would like to utilize for the overall platform.

Speaker 4

Yes. No, that's great.

Speaker 8

Is it fair to put the bucket 1 versus bucket 2 as sort of seventythirty?

Speaker 4

No, I would say it's probably a

Speaker 2

little bit closer to fifty-fifty. I'd say it's fifty-fifty. If you go back 4 years ago, we had We have roughly 14 ADAS customers today. We have 21 ADAS customers and that's the mix of growth in that platform solution as well as Providing a portion of the overall ADAS solution to OEMs.

Speaker 8

Okay. That's super helpful. And then Just on the production, your question for Joe, and this is going to be a little bit of a nitpick. Just can you remind us how you guide Global production, is it a weighted average by your customers, by your revenue? One of the reasons, obviously, minus 1 looks Maybe low to what we all think, but when I look at also 2022, you call production 4%, we look at Global average of 6% or weighted average of 5%.

Speaker 8

So I just wanted to sort of understand if we get a 3% or 4% global production, Am I able to flow through a full 4% or 5% type revenue upside?

Speaker 4

Yes. It's weighted towards our production. That basically means for us, Chris, high level taking out Japan production basically and weighting it towards The markets where we're strong, we obviously don't do a lot on for Japanese OEs in Japan. So that and call that 20 +1000000 units, right, that we sort of wait away from that. And that's the same we've been calculating that the same way for since the IPO for 11 years now.

Speaker 2

Very consistent question.

Speaker 8

Yes. That's very helpful. And I think that weighted number obviously is for most Western suppliers who have we don't have the Japanese customers at the same way.

Speaker 4

Okay. Thanks so much team. Appreciate it. Thanks, Chris.

Operator

We'll hear next from David Kelley from Jefferies.

Speaker 11

Hey, good morning guys. Also a

Speaker 3

couple of follow ups from

Speaker 11

my end and maybe starting with kind of the semiconductor discussion and impact on AS and Curious if you're seeing any signs of plateauing pricing there or even potentially to take back some price from Your suppliers and obviously timing is difficult to predict, but given your traction and value add with customers, Is there maybe an emerging opportunity where you could see some sticky pass throughs for AS and UX as your own pricing starts to come down?

Speaker 2

Yes. David, that's a great question. I'd say with respect to The level of bookings we were awarded in 2022, Vince, we've been put in the position to have discussions about no price increases in some situations. That's been effective. I'd say we're not at a point though where we're actually seeing year over year productivity or lower Price increases from the semiconductor players.

Speaker 2

We'll see how that plays out as based on volume outlook Automotive and the other places that those players play. But at this point in time, we're not seeing it and it's not in our numbers.

Speaker 11

Okay, got it. Thank you. And a quick follow-up on S and PS. The product line margin expansion You referenced, I think you mentioned kind of in high growth areas. So A, can you confirm that that's high voltage or maybe it's Could have non autos or CV's or maybe just give us a bit more color on some of the specific product lines or were you seeing some nice movement?

Speaker 4

Yes. I would sort of characterize David as I mean the margin profile in that business overall is very strong, but High voltage, the adjacent market, particularly commercial vehicle, accretive. But also, we're very strong. If you think about engineered components, right, sort of the connector the interconnect type business, That business just has traditionally a very strong margin profile and certainly scales well with volume and is So it's really a it's a pretty balanced portfolio in that business.

Speaker 11

Okay, got it. Thanks guys.

Speaker 4

Thanks,

Speaker 9

David.

Speaker 1

Operator?

Operator

At this time, we have time for one more question. We'll move to James Picarie with BNP Paribas.

Speaker 3

Hi, guys. Just a quick one on the key business Vertical growth, so active safety, user experience, high voltage electrification, non auto. Can you share what the growth rate expectations are for

Speaker 4

Yes, sure. No, generally very consistent, James. I mentioned high voltage to John. We still continue to see that North of 30%, that's excluding inter cable. As we mentioned at the time of the deal, inter cable, I mean, we're Obviously, the M and A deals aren't in the organic growth numbers at this point.

Speaker 4

But inter cable in and of itself grows well above 30% per year, so consistent with our high voltage business. We're actually seeing some active safety acceleration growth this year. It had been in, call it, the low to mid 20s over the last couple of years. We're actually seeing that accelerate close to 30% in 2023 As we launched to Kevin's comments, just launched a number of new full systems. I think those we've talked in the past about what the CAGR is, the multi year CAGR for those product lines are sort of high twenty 30% for active safety, north of 30% for high voltage.

Speaker 4

Those continue to be that continues to be the case. Infotainment, we've talked about it, our user experience. We are going through a product transition there. We expect that business to grow sort of high or high single digits this year as we move from Legacy systems to these more robust integrated cockpit solutions and eventually we see The infotainment being sort of up integrated into the SBA systems, which is what we're working on with our customers now. So But again, continue to grow above market and it's an important part of the business, but obviously the higher growth coming from active safety and high voltage.

Speaker 3

Got it. That's super helpful. And then just with respect to the $135,000,000 in lower disruption costs for this year, Can you confirm what that overall cumulative impact is entering this year? I believe the number was Something like $295,000,000 was the expectation as of last quarter. It seems as though the Q4 incurred some additional challenges tied to China.

Speaker 3

So Yes, if you could share maybe the timeline to fully recapture this all in bucket, what that is, that would be great.

Speaker 4

Yes. I wish I could give you the full the timeline of recapture. We have 180 in. We finished last year a little over 300,000,000. That's what's coming down from we're taking the 135 down to the 180.

Speaker 3

Okay. And then over time, This will these cost challenges are fully addressable.

Speaker 4

Yes. No, listen, Rod and his comment was correct, right? We said at the beginning, we think 4 to 6 quarters from the beginning of 2023, we're going down over the next 4 quarters, that 135,000,000 Working hard to get them down. Again, it's things like premium freight. It's things like plant downtime That are either either COVID or supply chain disruption related.

Speaker 4

We're seeing sequential improvement, but expect to continue to see sequential improvement. But it's what you saw in the Q4 this year, right? There are things that pop up that make it an expensive operating environment.

Speaker 2

Yes. I think it's important to note, setting aside Q4 COVID, when you think about car and inputs to a car, Supply chain disruption can start with just a shortage of one part. And the issues related to excess labor, premium shipments, manufacturing, loss of manufacturing productivity. And that's all it takes. And there's a ripple effect in those dollars, obviously, or those inefficiencies and costs, obviously, add up.

Speaker 2

So, although it does, to Joe's point, it overall, the supply chain situation is improving. There are still continued to be some unique situations that were outstanding or occurred in 2022 that are going to continue in 2023 Specific semiconductor suppliers. And then periodically, there are surprises that affect the industry, the players like ourselves need to react to. And our real focus has been how do we make sure we keep our customers connected. So we've consciously made the decision To absorb a portion of that cost near term, go back to the customer for relief Once we've addressed the issue and we've kept them connected and we think that's translated into the, quite frankly, the bookings that we've had In 2022, we expect to have in 2023 and quite frankly, their posture on price recoveries.

Speaker 2

So It's tough to predict. Thank you. Thanks, Jeff. Thanks.

Operator

That does conclude the Q and A portion of today's call. At this time, I would like to hand the conference back over to Kevin for any additional or closing remarks.

Speaker 2

Thanks, operator, and thanks everybody for your participation today. Take care, and we'll see you on 14th.

Operator

That does conclude today's teleconference. We thank you all for your participation.

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