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 third 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 third quarter 2019 earnings conference call. To follow along with today's presentation, our slides can be found at ir.aptiv.com. Consistent with prior calls, today's review of our actual and forecasted financials excludes restructuring and other special items and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for both our Q3 financials as well as our outlook for the fourth quarter and full year 2019 are included in the back of the presentation and in the earnings press release. Please see slide two for 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, Aptiv'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 the rest of 2019. With that, I'd like to turn the call over to Kevin Clark.

Thanks, Elena. Good morning, everyone. I'm going to begin today's earnings call by providing an overview of our third quarter highlights and our updated outlook for the remainder of the year. Joe will then take you through our third quarter financial results, as well as our fourth quarter financial outlook in much more detail. Third quarter revenues sustained strong above-market growth despite declining vehicle production. Revenues increased 6%, representing eight points of growth over underlying vehicle production. Operating income and earnings per share totaled $410 million and $1.27 respectively, driven by flow-through and volume growth and continued traction on our overhead cost reduction and material and manufacturing performance initiatives, partially offset by the headwind from the GM labor strike, which totaled $70 million of revenue, $30 million of operating income, and 10 cents of EPS during the quarter. Moving to the right side, in September, we announced our autonomous driving joint venture with Hyundai, which we're confident will advance the commercialization of level four and level five self-driving technologies and further strengthen our industry-leading capabilities in the development of advanced driver assistance systems, vehicle connectivity solutions, and smart vehicle architecture. We believe it's critical that we continue to invest in our safe, green, and connected technologies to further expand our competitive moat and better position Aptiv for long-term sustainable growth through organic investments in our engineering capabilities, minority investments in technology companies, and the acquisition of companies such as Gabicom, a bolt-on to HellermannTyton that broadens our existing cable management capabilities. In summary, it was another strong quarter in a challenging environment, further validating that our business strategy, our operating model, and our technology portfolio can deliver sustainable, strong performance in any environment. Moving to slide four, let me provide some color on the inputs to the update of our full-year outlook. Starting on the left side of the slide, our third quarter financial performance benefited from solid revenue growth. and operating income and EPS were above the top end of our guidance range when you exclude the impact of the GM strike. In addition to delivering strong financial results during the quarter, we also continued to execute our strategy with the announcements of our autonomous driving joint venture with Hyundai and the acquisition of Gabacon, both of which I'll cover in more detail shortly. Moving to the right side, Although our operating performance during the quarter was stronger than forecasted, the GM strike had a significant impact on our financial results in the third quarter and will continue to be a headwind in the fourth quarter as GM works back up the full production schedules during the month of November. Joe will take you through the details in a moment, but for the full year, we expect a headwind of $250 million in revenue, $135 million in operating income, and $0.45 of EPS related to the strike. While our operating teams in North America are aggressively working to mitigate these headwinds, we've included the estimated impact in our fourth quarter outlook. In addition, foreign exchange continues to be a headwind in 2019, as the Euro and RMB exchange rates are weaker, and global vehicle production for the year is now expected to decline 5% versus our previous forecast of down 4%, largely driven by the GM strike in North America. Our updated outlook reflects stronger year-to-date operating performance, offsetting the increased headwind from foreign exchange and lower volumes, but the effect of the GM strike is an incremental headwind to our prior full-year outlook. Turning to slide five, third quarter new business bookings totaled $4.2 billion, highlighting our portfolio alignment to the safe, green, and connected megatrends. We now believe that we're on track to achieve over $20 billion of full-year bookings, reflecting a few large program awards shifting to early 2020. Our updated outlook for 2019 actually represents an increase versus the prior year when you factor in the current outlook for lower global vehicle production. Our ASUX segment booked just under $1 billion of new customer awards in the quarter. Our expertise in central compute systems is helping us deliver smarter, safer, and more integrated solutions both outside the vehicle with advanced active safety systems as well as in the cabin to enhance user experiences. Through the third quarter, active safety new business bookings totaled $2.5 billion and are expected to reach approximately $4 billion for the full year. And year-to-date user experience customer awards total just under $1 billion. Our SPS segment had new business bookings totaling $3.3 billion during this quarter, including over $500 million in high-voltage awards, bringing our high-voltage electrification bookings to $1.2 billion year-to-date, on track to meet or exceed last year's record of $2 billion. Our recent customer awards reinforce our revenue outlook for 2022 and underscore our relevant portfolio aligned to key secular growth trends. Turning to our advanced safety and user experience segment on slide six. Third quarter revenues increased 9%, 11 points over market. The continued strong demand for active safety solutions drove product line revenue growth of 29%, lapping prior year record growth of 68% during the quarter. And as expected, the roll-off of revenues tied to our discontinued displays business is a headwind in our user experience product line revenues. Our customers are increasingly looking for our support in developing solutions that include more compute power and high-speed connectivity, positioning us to leverage our system's design and validation knowledge, further expanding our competitive moat. Recent industry recognition of our unique capabilities includes our selection as a 2020 PACE Award finalist for Android Infotainment Compute Platform. This revolutionary system will launch first on the Polestar and then on Volvo's popular XC40 model, powering the first Android infotainment system with native Google automotive services and real-time OTA, enabling a best-in-class in-cabin experience. And underscoring Afta's leading agile solutions development capabilities and role as a partner of choice, serving as the best bridge between the automotive industry and tech industries. Turning to slide seven in vehicle safety, according to data recently released by the National Highway Traffic Safety Administration, fatality rates per 100 million miles driven in the United States are declining as active safety penetration increases from initial level zero applications to level one applications and beyond. Our investments in scalable approaches to advanced safety solutions are not only seeding our next wave of growth, but they're also helping to drive the democratization of advanced safety systems globally. APTA's flexible satellite architecture approach has been a game changer in the industry and has been selected by multiple OEMs to help them democratize active safety solutions across their multiple vehicle platforms. Turning to slide eight, our recently announced 50-50 joint venture with Hyundai not only brings us closer to enabling tomorrow's self-driving vehicles, it also helps accelerate the development of today's advanced active safety solutions for our existing OEM customers. Hyundai's ability to advance the development of production-ready autonomous driving systems, both cost-effectively and at scale, along with its shared vision and timeline for applications in the robot taxi market, validate them as the right OEM partner for the commercial deployment of Level 4 systems beginning in 2022 and beyond. Aptiv is contributing its autonomous driving technology, intellectual property, and roughly 700 employees focused on the development of scalable Level 4 systems for the robo-taxi market. Hyundai is contributing $1.6 billion in cash at close, $400 million in vehicle engineering and R&D services, and access to intellectual property. Hyundai will be a close technical partner, strengthening APTA's existing foundation in automated driving solutions, while, as I mentioned, also enhancing APTA's competitive position in ADAS, vehicle connectivity, and smart vehicle architecture. APTA will continue to provide commercial solutions, including compute platforms, perception systems, and power and data distribution solutions to the joint venture. just as it does to other OEM customers, while maintaining access to the joint venture's automated driving technology. We expect the transaction to close in the second quarter of 2020 and be accretive to both ASUX and Aptiv margins and cash flow. In summary, Aptiv is working to realize our mission of making the world more safe, green, and connected, while also delivering outside shareholder returns. Turning to slide nine, 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 and are driving sustained growth in this segment. Revenues increased 4% during the quarter, 6 points over market, including the impact of the GM strike. Excluding the impact, revenues would have increased 8 points over market due to strong launch volumes particularly in Europe and in China. High-voltage electrification revenues increased 30% in the quarter, while non-auto revenues were up 34%. During the quarter, we rewarded several new business bookings, including the low-voltage distribution system on the new Rivian truck and SUV electric vehicle platforms and the high-voltage charging inlet for Porsche and Audi. These customer awards underscore our strength in optimizing power and data distribution for complex vehicle architectures, as well as our ability to flawlessly serve customers through a focused strategy on quality and consistent launch execution. Turning to capital deployment on slide 10, as I previously highlighted, our acquisition of Gabacom, which specializes in highly engineered, high-quality cable management and protection solutions, expands our engineered components portfolio. Gabacon's product portfolio is highly complimentary to HellermannTyton and builds upon our existing telecom product offering, strengthening our capabilities in the most attractive areas of the telecom market and further diversifying our industrial and market revenues. With our track record of successfully integrating accretive bolt-on acquisitions, we're confident Gabacon will enhance our cable management portfolio, and accelerate revenue and earnings growth in our engineered components product line. So with that, I'll hand the call over to Joe to take us through the third quarter results and outlook for 2019.