Aptiv PLC

Good day. My name is Mary, and I'll be your conference operator today. 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. Thank you. Elena Rosman, Aptiv's Vice President of Investor Relations. You may begin your conference.

Thank you, Mary. Good morning, and thank you to everyone for joining Aptiv's first quarter 2020 earnings conference call. To follow along with today's presentation, Our slides can be found at ir.aptiv.com. Today's review of our actual financials exclude restructuring and other special items and will address the continuing operations of Aptiv. The reconciliation between GAAP and non-GAAP measures for our Q1 financials are included in the back of today's presentation and the earnings press release. Turning to the next slide, please see our 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, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the global economy. 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 financials in more detail. With that, I'd like to turn the call over to Kevin Clark.

Thank you, Alina. Good morning, everyone. Before I begin, I'd like to first express my hope that everyone listening is staying safe and healthy, along with their family, friends, and colleagues amidst the current COVID-19 crisis. Top of mind these days is how our industry and Aptiv are positioned in this much more challenging environment, which Joe and I will attempt to address over the course of today's call. To kick things off, I'd like to start by thanking our 160,000 Aptiv team members globally for their dedication and efforts to ensure the health and safety of our employees and their continued flawless execution for our customers, all while executing additional initiatives to ensure the preservation of our financial strength. It's due to their collective efforts that we're so well positioned to weather this storm. Their unwavering support and commitment to do the right thing the right way have positioned Aptiv to be an even stronger company once this crisis is over. Turning to slide four, the deliberate actions we've taken over the last few years to transform Aptiv into a global technology company have better positioned us to respond and adapt in this more fluid environment. These actions include optimizing our portfolio of market-relevant technologies to enable a safer, greener, more connected future of mobility, exiting lower-growth commodity product lines, including thermal and mechatronics, and further increasing our focus on the brain and nervous system of the vehicle, continuing to improve our industry-leading cost structure, generating roughly $350 million in overhead savings over the last five years, and reinvesting those savings to further strengthen our capabilities in high-growth areas, including active safety, high-voltage electrification, and vehicle connectivity. We deliberately improved our revenue diversification across regions, across our customers, vehicle platforms, and end markets. As we've executed our strategic initiatives, we've improved our ability to perform through cycle with more sustainable cash flows, which has translated into a stronger balance sheet, and a solid investment grade credit rating. These actions better position Aptiv to navigate the significant uncertainty we're now facing. Moving to slide five, the first quarter proved to be much more challenging than we anticipated coming into the year. Revenues decreased 7% to $3.2 billion in a market that was down 24% overall, or 20% on an Aptiv weighted market basis. EBITDA and operating income totaled $411 million and $231 million respectively, and earnings per share totaled 68 cents after adjusting out the gain associated with the completion of the automated driving joint venture with Hyundai. Looking at the regions, vehicle production was down 48% in China during the quarter, reflecting year-over-year declines of 80% in February and 50% in March. As China's economic activity continues to improve, the recovery in vehicle production has been relatively slow as dealer inventories remain high and retail demand is slowly improving. Vehicle production declined 11% in North America and 20% in Europe, reflecting the early impact of customer shutdowns beginning in mid-March. While COVID-19 had a significant impact on global vehicle production in the first quarter, The complete shutdown of OEM operations in both North America and Europe and the current timetable for the restart and ramp-up activities means the impact on the second quarter will be much more severe and is now estimated to be down over 50% from the prior year. All active sites in China are currently operating, albeit at levels which are below normal capacity, with some sites in Europe now restarting production and a few sites in North America operating to support essential business needs. Although we currently lack clear visibility of the exact timing and pace of restarts in North America and Europe, we are prepared to safely ramp up in accordance with customer schedules and government approvals. Moving to slide six, the proactive steps we've taken to protect our employees, deliver for our customers, reduce expenses, and conserve capital has put us on an even stronger footing to deal with this current crisis. After initially seeing the effects of COVID-19 on our employees, suppliers, and customers in China, we implemented robust measures. We immediately established a global crisis management team with regional and functional representatives across our businesses that continue to meet daily to monitor the situation, exchange information, and manage every aspect related to this crisis. We halted all global travel and restricted visitors from entering our facilities. In response to customer shutdowns and government restrictions, we closed manufacturing facilities, technical centers, and administrative offices. We implemented austerity measures to further reduce our cost structure and preserve our financial health, including significant cuts in executive pay, suspended 401 matches in the U.S., as well as planned salary wage increases globally. implemented furloughs and temporary layoffs for our salaries and hourly employees in line with customer closures, and reduced capital expenditures and investment in working capital while eliminating all discretionary spending. We also took a series of actions to further enhance the company's liquidity. These included drawing down all remaining amounts on our $2 billion revolving credit facility and suspending our $225 million annual dividend. These actions represent an incremental $600 million of annualized cash generation actions that allow us to continue our planned investments in advanced technologies, enhancing the long-term opportunities for our employees, our customers, and our shareholders. Further, while our sites have always had robust safety measures in place in light of COVID-19, we've implemented additional safety protocols to ensure we protect our employees and deliver for our customers as operations resume. We've deployed these safe operation protocols across all of our facilities, which I'll highlight in greater detail on the next slide. Moving to slide seven, protecting the health and well-being of active employees, customers, suppliers, and the communities where we operate is our top priority. We work closely with medical and employee health and safety experts, government and union representatives, and our OEM customers and supplier partners and build upon the Aptive Safe Operations protocols to minimize risk to our workforce. These protocols are based on information and guidance from the World Health Organization, the Centers for Disease Control and Prevention, and various other government agencies, and are now up and running in all of our facilities. Aptive's strict safety measures include the cleaning and disinfection of sites multiple times per shift, conducting daily health and risk screenings for all employees and visitors, checking employee temperatures prior to entering buses and facilities, ensuring social distancing at all work areas, providing personal protective equipment for all employees and visitors, as well as utilizing physical barriers where necessary, and executing immediate response plans for suspected COVID-19 cases. As we've implemented the global COVID-19 pandemic plan across our business, We're also sharing our learnings with the entire ecosystem, which has been made available on our website. Additionally, as one of the largest employers in the communities in which we operate, we're doing our part in supporting local hospitals by supplying personal protective equipment, and we're helping our customers produce critical equipment with components for ambulances, diagnostic equipment, and ventilators. These are just a few of the many initiatives our team has undertaken to combat this crisis. Collaboration at all levels is more important than ever. We must come together to ensure consistent coordination, communication, and execution, and transform how we work day to day. Turning to slide eight, as I mentioned previously, the impact of COVID-19 on global vehicle production has been more sudden and severe than any recession scenario we've previously planned for. What started as extended production downtime in China after January's Lunar New Year EVOLVED INTO COMPLETE SHUTDOWNS IN EUROPE AND THE AMERICAS BEGINNING IN MID-MARCH. AS WE SIT HERE TODAY, THE SITUATION IS VERY FLUID. VISIBILITY IN THE TIMING AND PACE OF RESTARTS REMAINS VERY LOW. WE'RE ALSO CONCERNED ABOUT UNDERLYING CONSUMER DEMAND, TAKING INTO ACCOUNT THE RECORD UNEMPLOYMENT LEVELS, DECREASED PERSONAL INCOME, AND DECLINING CONSUMER SETTLEMENT. AS A RESULT OF THESE FACTORS, WE EXPECT VEHICLE PRODUCTION TO DECLINE IN THE RANGE OF 20 TO 30% IN 2020. with a view that the current list of puts and takes tilts the scale closer to 30% than 20%. Our outlook reflects a trough in the second quarter, with production declining over 50% and a slow ramp-up in the second half of the year. With extensive learnings from China and now some restarts in Europe and the Americas, we've gained meaningful experience in operating with our safe start protocols at low volumes. More meaningful production restarts in Europe and North America are expected to begin in mid-May and will be slow and phased. We believe the impact of COVID-19 will be with us for some time, and as a result, we anticipate operational inefficiencies to continue from the implementation of the incremental safety measures and supply chain disruptions given the breadth of customer and supplier shutdowns globally. As such, we're not expecting a rapid recovery in global vehicle production, and remain cautious as we begin our planning for post-2020. Turning to slide nine, it's in our culture to proactively manage change, innovate through disruption, and be resilient in the face of challenges. We believe that the secular megatrend are now as important as ever. And as a result, we continue to fully fund investments in strategic growth initiatives, including advanced technology, enabling safer, greener, and more connected mobility. THESE INCLUDE INVESTMENTS IN ACTIVE SAFETY, HIGH-VOLTAGE ELECTRIFICATION, SMART VEHICLE ARCHITECTURE, AND VEHICLE CONNECTIVITY. IN THE FIRST QUARTER, WE CONTINUE TO SEE IMPORTANT VALIDATION THAT OUR COMPETITIVE MODE IS EXPANDING AND THE LONG-TERM TRENDS REMAIN INTACT. NEW BUSINESS BOOKINGS TOTAL 2.8 BILLION, REFLECTING THE NEAR-TERM GLOBAL IMPACT OF COVID-19. WE CONTINUE TO EXPECT RAPID GROWTH IN ELECTRIFIED VEHICLE PLATFORMS. driven by more stringent CO2 regulations and the declining total cost of ownership. We had over 500 million of high voltage bookings in the first quarter, including one with a major European OEM for an innovative long-range EV launching in 2022. We also saw continued strong launch activity in the quarter. Our approach to flexible satellite architecture has been a game changer for the industry and our recent launch of an L2 Plus scalable ADAPT solution with an industry-leading customer in China marks the first in a series of launches with four other OEMs over the next 18 months. We also launched our best-in-class integrated cockpit controller with a major global OEM, which will be launched across all of their premium brands. This high-performance controller, which is fully OTA-capable, provides a fully reconfigurable cockpit managing up to four high-definition displays. Lastly, in March, we completed the formation of the Aptiv Hyundai Autonomous Driving Joint Venture, advancing our shared vision of making mobility more safe, green, connected, and accessible. As a reminder, Hyundai contributed $1.6 billion of cash at the close, funding the operations of the joint venture for the next few years, and is providing $400 billion of engineering and R&D services making them a close technical partner and strengthening Aptiv's existing foundation in automated driving solutions. Before I hand the call over to Joe, I'll wrap up on slide 10. As we've all seen, the impact of COVID-19 has been significant. To manage through the crisis, we remain laser focused on three key priorities. First, keeping our employees, their families, and the communities we operate in safe. Second, flawlessly executing our current and future customer programs while at the same time further differentiating our capabilities in safe, green, and connected advanced technologies. And third, running our business efficiently and effectively to minimize expenses and maximize cash conservation. These priorities will preserve our financial health, improve the sustainability of our business, and create value for our shareholders. While the way we operate day to day may not go back to normal as we knew it, we are committed to finding new ways of working that allow us to survive and thrive in this future. With that, I'll hand the call over to Joe to take us through the first quarter results in more detail.