Aptiv PLC

Good day. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the active second 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 would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would 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, Chris. Good morning. And thank you to everyone for joining Aptiv's second 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 second quarter financials as well as our outlook for the third quarter and full year 2019 are included in the back of today's presentation and the earnings press release. Please see slide two for a disclosure on forward-looking statements, which reflect Apted'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, Apted's President and CEO, and Joe Massaro, CFO and Senior Vice President. Kevin will provide a strategic update on the business, and then Joe will cover the financial results and our outlook for 2019 in more detail. With that, I would like to turn the call over to Kevin Stark.

Thank you, Elena. Good morning, everyone. I'm going to begin by providing an overview of our second quarter highlights and then provide a perspective on the second half of the year. Joe will then take you through our second quarter financial results as well as our full year financial outlook in more detail. Second quarter was in line with the guidance we provided back in May while EBITDA, Operating income and earnings per share were all above the high end of our guidance range, reflecting very strong operating performance, even in a challenging macro environment. Revenues increased 4%, representing nine points of growth over underlying vehicle production, reflecting strong above-market growth across both segments and every geographic region. Operating income and earnings per share totaled $405 million and $1.33 respectively, driven by volume growth, overhead cost reductions, and very solid manufacturing and material performance. Our portfolio of industry-leading advanced technologies led to another strong quarter of new customer awards totaling $5.5 billion, bringing the year-to-date total to just under $10 billion. To put it simply, it was another good quarter in a tough environment, further validating our portfolio of safe, green, and connected technologies, flexible operating model, and sustainable business strategy. Moving to slide four. Given the weak macro environment, I'd like to provide a backdrop for our full year outlook, which remains unchanged. Starting on the left, we now expect global vehicle production for the year to decline 4% versus our previous forecast of 3.5%. Driven by a 5% decline in automotive light vehicle production, principally driven by further weakness in China, partially offset by a flat commercial vehicle market. Foreign exchange continues to be a headwind, as Euro and RMB exchange rates are weaker than the US-China tariffs also continue to be a headwind, although we're aggressively working to remediate the impact on our results. However, as I mentioned, our four-year outlook for revenue, EBITDA, and operating profit remains unchanged. As a result of continued strong growth over market, driven by both content per vehicle growth and market share gains, our balanced customer, regional, and end market exposure, and incremental overhead cost reductions, as well as the timing related to material and manufacturing productivity initiatives, all of which are gaining traction and translating into margin expansion in the second half of 2019. In short, our strong performance in the second quarter gives us confidence in our full-year outlook, and our ability to execute in a challenging macro environment. Turning to slide five, second quarter new business bookings totaled $5.5 billion, highlighting our portfolio alignment to the safe, green, and connected megatrends. In our advanced safety and user experience segment, our expertise in central compute platforms and sensing and perception systems are helping us deliver smarter, safer and more integrated solutions both outside the vehicle with advanced active safety systems as well as in the cabin through enhanced user experiences. In the second quarter, active safety new business bookings totaled $1.4 billion, which puts us on track to exceed $4 billion in 2019. Our signal power solution segment had new business bookings totaling $3.7 billion during the quarter, including $1.9 billion of electrical distribution and $1.8 billion of engineered components bookings. Within those numbers, we booked over $350 million in high-voltage electrification awards, bringing the year-to-date total to roughly $800 million, and we're on track to meet or exceed last year's record of $2 billion. Turning to our Advanced Safety and User Experience segment highlights on slide six. Second quarter revenues increased 8%. 13 points over market. The continued strong demand for active safety solutions drove product line revenue growth of 53%. And as expected, the roll-off of revenues tied to our displays business contributed to a decline in our user experience product line revenues. During the quarter, we were awarded the active safety system for the Jeep Grand Cherokee and Wagoneer nameplates, additions to our previously awarded satellite architecture programs with FCA. further underscoring our industry-leading position in advanced ADAS solutions. Turning to slide seven, our unique ability to leverage our capabilities in both the brain and nervous system of the vehicle has perfectly positioned us to deliver the advanced architecture necessary to support the feature-rich, electrified, and highly automated vehicles of the future. Smart vehicle architecture, or SVA, is an optimized and scalable architecture that lowers the total cost of ownership for the OEM, while also unlocking the opportunity for new business models. During our 2019 Investor Day in early June, we highlighted the two advanced development awards we received this year. And while customers are evolving their vehicle architecture roadmap at different speeds, we see many of them transitioning to more scalable systems, enabling full SBA in the future. Underscoring that point, we've won 11 different domain controller platforms, and recently were awarded the Zone Controller for a premium European OEM, effectively representing our first Power Data Center win. This award represents another step in the continued commercial validation of APTA's SVA approach, as well as our unique ability to conceive, specify, and deliver next-generation architecture solutions. Turning to slide eight, our signal and power solution segment is focused on enabling the high-speed data and power distribution technologies that are required to support the advanced safe, green, and connected applications that our customers are demanding. Revenues increased 2% during the quarter, seven points over market. High-voltage electrification revenues increased 67%, while commercial vehicle and industrial revenues were up 36%. During the quarter, we were awarded several new business wins, including the signal distribution on the new Tesla Model Y and the Model 3 launching in China. The low-voltage systems for the Fiat 500 battery electric vehicle, recall that last quarter we won the high-voltage system as well, and a new electrified large SUV platform in China with a premium OEM. These awards for both low and high voltage systems underscore our strength in optimizing electrical distribution for complex architectures, as well as our ability to serve customers globally through consistent launch execution. Turning to slide nine, all of our global customers are aggressively working to electrify their vehicle lineups. Beginning on the left side, you can see the progression of CO2 emissions in Europe. Between 2010 and 2018, CO2 emissions declined at an average rate of 2% per year. However, to meet future targets, OEMs will need to reduce CO2 emissions by a much more aggressive 7% per year through 2021, and then sustain 5% annual reductions through 2030. These are challenging targets, and OEMs have been responding by aggressively accelerating their electrification technology roadmaps. Moving to the right side of the slide, Aptiv's high-voltage new business bookings and revenue growth track the pace of deployment of our customers. Between now and 2022, OEMs are expected to launch roughly 45 new high-voltage platforms globally, spanning hundreds of nameplates, representing 13% of global vehicle production. Based on our $4.5 billion of new business bookings since 2016, High-voltage electrification is among our fastest-growing product lines, with revenues expected to be over $1 billion in 2022, a 40% compounded growth rate over the period. Turn to slide 10. Continued above-market growth in our signal and power solution segment is partially the result of our focused diversification strategy, allowing us to expand our capabilities into the commercial vehicle and industrial markets, both organically and inorganically. Our non-auto revenues are approximately 14% of total sales today. That's up from just 6% in 2015 and are expected to reach 25% by 2025. As previously highlighted, our acquisition of Winchester Interconnect provided us with a solid platform to build upon and execute our engineer components group diversification strategy. As shown on the slide, the Winchester management team has been actively adding accretive connector bolt-ons with a number of other acquisitions in the pipeline. In the last 12 months, Winchester acquired W Technology, a supplier of rotatable connectors and precision machine components, strengthening our capabilities in the oil and gas space. And more recently, Felmed, which specializes in ruggedized mission-critical cables and assemblies, further expanding our industrial revenues. Now, consistent across these businesses is the high cost of product failure and the need to meet the challenging temperature, vibration, and other design specifications. We are more confident than ever in Winchester's ability to serve as a platform for additional bolt-on opportunities in the engineer component space. Before I turn it over to Joe, I'd like to take a minute to recap our 2019 Investor Day. For those of you who participated either live or via the video webcast, I hope you came away with an even better understanding of our business strategy, our advanced portfolio of full system solutions, and rigorous execution culture. For those of you who missed the event, the video replay remains available on our website for your review. To summarize, we're focused on building a more predictable and sustainable business with robust downturn resiliency. better positioned to outperform in any macro environment. Our ownership mindset means that we remain disciplined and focused on driving the successful execution of our strategy and continue our track record of outperformance, the combination of which delivers significant value to our shareholders. So with that, I'm going to hand the call over to Joe to take us through the second quarter results and outlook for 2019.