Aptiv PLC

Good day. My name is Jack, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Aptiv first quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. We would like to request that you limit yourself to asking one question and one follow-up question during the Q&A session. Thank you. Elena Rossman, Vice President of Investor Relations, you may begin your conference.

Thank you, Jack. Good morning, and thank you to everyone for joining Aptiv's first quarter 2019 earnings conference call. To follow along with today's presentation, our slides can be found at ir.aptiv.com. And consistent with prior calls, today's review of our actual and forecasted financials exclude restructuring and other special items, and will address the continuing operations of Aptiv. The reconciliation between GAAP and non-GAAP measures for both our Q1 financials as well as our outlook for the remainder of the year are included at the back of today's presentation along with other supplemental tables. Please see slide two for a disclosure on forward-looking statements which reflect Aptiv's current view of future financial performance which may be materially different from our actual performance for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, AAPTA's President and CEO, and Joe Massaro, CFO and Senior Vice President. With that, I'd like to turn the call over to Kevin Clark.

Thanks, Elena. Good morning, everyone. I'm going to begin by providing an overview of our first quarter highlights and provide some perspective on how we're thinking about the balance of the year. Joe will then take you through our first quarter financial results, as well as our updated financial outlook in greater detail. First quarter revenue, EBITDA, operating income, and earnings for share all finished above the guidance we provided back in January, reflecting our ability to drive sustained outperformance even in a more challenging macro environment. We delivered 4% revenue growth, despite vehicle production declining 5%, representing nine points of growth over market. The result of strong demand for our portfolio of technologies aligned to the safe, green, and connected megatrends. And operating income and earnings per share totaled $345 million and $1.05 respectively, driven by volume growth and our industry-leading cost structure. The strength of our portfolio of advanced technologies resulted in over $4 billion of new customer awards, which combined with an expanding funnel of new business opportunities puts us on track to exceed our prior year record of $22 billion. Given our win rate on new business bookings and the size and scale of our funnel of new business opportunities, we believe it's important that we continue to invest in our safe, green, and connected technologies, even in this more challenging macro environment. thereby further expanding our competitive moat and better positioning Aptiv for sustained value creation. In summary, it was another strong quarter, further validating our operating model, portfolio of advanced technologies, and our business strategy. Given the increasingly challenging and uncertain macro landscape, I'd like to provide some context for how we're thinking about the remainder of 2019 on slide four. Relative to our initial expectations, our first quarter financial performance benefited from stronger outgrowth in weaker end markets. The result of stronger than expected new program launches and content gains globally. In light of the weaker macro environment, we've implemented incremental overhead cost reductions in addition to manufacturing and supply chain initiatives to improve our cost structure and be in a position to fund our growth investments. In addition, we repurchased $226 million of our stock, opportunistically taking advantage of market discounts while maintaining a strong and flexible balance sheet. And we now expect share repurchases to total $450 million for the full year. Moving to the right side of the page, we've seen a deterioration in key macros underpinning our initial 2019 outlook. Joe will take you through the details in a moment, but we now expect global vehicle production to be down 3.5% for the year versus down 2.5% previously, primarily driven by weaker demand in both Europe and China. In addition, since our outlook in January, the euro is weakened relative to the dollar, and commodity prices, principally related to resins, have seen recent spikes as a result of tightening supply conditions. While our teams are aggressively working to mitigate these impacts with cost reductions and productivity initiatives, the combination of weaker end markets and the changes in FX rates and increased commodity prices are enough to cause us to lower our outlook for the remainder of the year. And as we look at the current implied second half ramp up in vehicle production, forecasted by many industry experts, we believe our balanced outlook represents a much more realistic perspective. Turning to slide five, we're focused on taking actions that increase the flexibility of our business model and position the company for better through-cycle performance. Despite our revised outlook for lower vehicle production resulting from the current weaker macro trends, we remain confident in our ability to continue to outperform. Driven by increased vehicle content and market share gains, the benefit of our more balanced customer, regional, and end market exposure, and our relentless focus on optimizing our cost structure. Our DNA is wired to constantly deliver material and manufacturing efficiencies while also reducing overhead costs. In 2018, we eliminated 50 million of overhead and stranded costs related to the powertrain spinoff. Turning to 2019, we're executing initiatives targeted to save an incremental 40 million of run rate overhead and stranded costs, including manufacturing and engineering footprint rotation to best cost countries, supply chain initiatives to improve supplier quality while reducing our overall spend, and corporate and back office consolidations that improve service levels while reducing costs. While we expect the benefits of these initiatives to gradually layer in over the coming quarters, we're continuing to prudently fund growth investments, including increased engineering investments to support the higher demand for advanced active safety solutions and increase investment to fund the further development of our automated driving platform, smart vehicle architecture, advanced development programs, and connected services data monetization opportunities. In summary, the constant focus on optimizing our cost structure improves our operational efficiency and frees up investment to fund future growth. Turning to slide six. First quarter new business bookings totaled $4.3 billion, further highlighting our portfolio alignment to the safe, green, and connected megatrends, as well as our strong competitive position in several advanced technologies. In our advanced safety and user experience segment, our expertise in central compute platforms, sensing and perception systems, and machine learning is helping to deliver a safer, smarter, and more integrated solution both outside the vehicle with advanced active safety systems as well as in the cabin through enhanced user experience and interior sensing solution. And as a result, we booked 600 million and 300 million of active safety and info and user experience awards respectively during the quarter. We believe a strong start to the year in active safety bookings puts us on pace to exceed 2018's record with well over 4 billion of new awards estimated for 2019. Moving to our signal and power solution segment, Engineer Components booked almost $1.7 billion in new customer awards during the quarter. And we also booked over $350 million in new high-voltage electrification awards and are on track to exceed last year's $2 billion of new business awards. Turning to segment highlights and advanced safety and user experience on slide 7, Revenues for the first quarter were up 7%. That's 12 points over market. The continued strong consumer demand for active safety solutions drove product line revenue growth of 69%. And as expected, the roll-off of revenues tied to our displays business contributed to a modest decline in info and user experience revenues. During the quarter, we booked an important conquest win with Porsche and Audi, to supply a smart actuator charging interface controller, which manages the flow of data coming into the vehicle while it charges. Industry experts have identified this as a potential intrusion point on the vehicle, and as such, this is an exciting growth area for our connectivity and cybersecurity product lines. Turning to slide eight, our investments in scalable vehicle architecture are seeding our next wave of growth. helping to drive the democratization of new mobility solutions globally. As a result, Aptiv is uniquely positioned to benefit today from our smart vehicle architecture and automated driving investments as the demand for advanced active safety solutions increases. We've booked multiple scalable level two plus customer awards, leveraging the integration of our unique satellite architecture and active safety domain controller with our perception systems. Underscoring our technology leadership position, last month our ASUX team was recognized with a PACE award for our work with Audi on our automated driving satellite compute platform. This industry-first platform, developed as part of our strong partnership with Audi, has been a game-changer in the industry and has since been selected by six other OEMs to help them realize and, in effect, democratize active safety solutions across their multiple vehicle platforms. which underscores our mission. As the complexity of technology increases, OEMs appreciate our value and contribution towards getting the architecture right today, which is critical to delivering the feature-rich, highly automated vehicles they need in the future. Moving to the right of the slide, we recently announced the expansion of our autonomous driving activities to the China market. Shanghai is now the fifth city where we've localized autonomous driving operations, joining Singapore, Las Vegas, Boston, and Pittsburgh. Our plans to bring autonomous driving to China by partnering with a transportation network company and others in the mobility ecosystem brings us one step closer to the broader adoption of automated mobility in the region. Turning to slide nine, our signal and power solution segment is focused on next-generation vehicle architecture. including high-speed data and high-power electrical distribution that enable the advanced technologies that will shape the future of mobility. Revenues increased 3% during the quarter, seven points over market, despite the weakening macros, driven by 65% sales growth for our high-voltage electrification products and almost 40% growth in commercial vehicle and industrial revenues. Underscoring our industry-leading position in vehicle architecture, we were recently awarded the High Voltage Electrical Architecture on the Fiat 500. This award validates the increasing need for optimized high-voltage architecture across a full range of vehicle types. Before turning it over to Joe, I'd like to take a minute to preview our upcoming 2019 Investor Day theme and topics of discussion. You've heard us talk before about our strategic imperatives and the importance of building a strong, sustainable business that delivers long-term value to all our stakeholders through the relentless focus on having the right people, a portfolio of market-relevant advanced technologies, and a continuous improvement mindset. We believe this formula leads to a more sustainable business that's better positioned to perform through cycle, And we've seen evidence of this the last two years with record growth over market despite declining vehicle production, putting us on the path to deliver on our 2022 revenue targets in a weaker macro environment, positioning us to see the investments in future growth initiatives that will lead to new solutions and new markets, and that will allow us to achieve our vision for the company in 2025, which we believe results in a differentiated and compelling investment thesis for Aptiv. In summary, we believe Aptiv is well on its way to becoming the tier zero partner of choice for our customers, capable of delivering the advanced architectures and optimized solutions that are making the future of mobility real. With that, I'll hand the call over to Joe to take us through the first quarter results and review our outlook for 2019.