Aptiv PLC

Good day, and welcome to Apted's second quarter 2020 earnings conference call. My name is Shelby, 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 Rossman, Apted's Vice President of Investor Relations, you may begin your conference.

Thank you, Shelby. Good morning. Good morning. And thank you to everyone for joining Aptiv's second 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 Q2 financials 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 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, Senior Vice President and CFO. Kevin will provide a strategic update on the business, and then Joe will cover the financial results in more detail. With that, I would like to turn the call over to Kevin Clark.

Thank you, Eleni. Good morning, everyone. Beginning on slide three, I'd like to spend a minute providing an update on how Aptiv is responding and contributing to the fight against COVID-19. We've concentrated our efforts on ensuring the health and safety of our people, the communities where they live and where we operate, as well as a safe and efficient restart of our operations so that we can flawlessly serve our customers around the world. And at the same time, we've taken incremental actions to preserve our financial strength and enhance our competitive position as we emerge from this crisis. We're proud to be one of the global giving partners that are supporting hospitals and clinics treating COVID patients around the world, and our active team members have gone the extra mile delivering urgent healthcare supplies and volunteering their time and personal resources to help stop the spread of the coronavirus in their local communities. Our Safe Start protocols, the additional safety measures that we put in place at the very start of the pandemic, and have been shared with customers, suppliers, and government agencies across the globe, have allowed for the safe and successful restart of each of our facilities worldwide, allowing us to effectively ramp up operations. I'M PROUD OF HOW WELL WE PERFORMED IN THESE CHALLENGING TIMES, AND I'M GRATEFUL FOR OUR TEAM'S PASSION AND SENSE OF URGENCY, ENSURING OUR EFFORTS ARE MAKING A REAL DIFFERENCE. MOVING TO SLIDE FOUR, AS EXPECTED, THE SECOND QUARTER PROVED TO BE CHALLENGING, WITH COVID-RELATED SHUTDOWNS DRIVING UNPRECEDENTED DECLINES IN VEHICLE PRODUCTION IN BOTH NORTH AMERICA AND EUROPE. DESPITE THE DEPTH OF DECLINES IN APRIL AND THE SLOW PHASING OF RESTART OPERATIONS BEGINNING IN MAY, A rebound of vehicle production in China, combined with solid operating execution, contributed to better than expected financial results. Global vehicle production declined 54%, while our revenues declined 43% to almost $2 billion, 11 points favorable to the underlying vehicle production market. EBITDA and operating income losses totaled $49 million and $229 million, respectively, and earnings per share was a loss of $1.10. LOOKING AT EACH GEOGRAPHIC REGION, THE ECONOMY IN CHINA CONTINUED TO IMPROVE, RESULTING IN BETTER-THAN-EXPECTED BOUNCEBACK IN VEHICLE PRODUCTION, WHICH WAS UP 6%. VEHICLE PRODUCTION DECLINED 68% IN NORTH AMERICA AND 62% IN EUROPE, REFLECTING THE COMPLETE SHUTDOWN IN BOTH REGIONS DURING THE MONTH OF APRIL AND THE SLOW RESTART OF OPERATIONS BEGINNING IN MAY. WHILE RETAIL DEMAND IN NORTH AMERICA AND EUROPE HAS IMPROVED Production schedules remain somewhat volatile, primarily the result of periodic supply chain disruptions, principally in Mexico due to COVID-19. And visibility into the pace of recovery in the second half of the year remains low, which is reflected in our outlook for vehicle production to be down 10% to 15% versus the same period a prior year. The deliberate actions we've taken to strengthen our business model over the last few years including portfolio changes and cost structure initiatives, have positioned us to respond and adapt in this much more challenging environment. Turning to slide five, despite the challenging macro environment, the proactive steps we've taken to protect our employees, to deliver for our customers, and enhance our financial strength have put us in a strong position to continue executing our strategy. As it stands today, we're fully operational, with each of our 126 major manufacturing sites up and running, all employing our standardized safety protocols, allowing us to operate across our global network at roughly 85% of our normalized capacity, and even higher at some of our manufacturing locations. As our facilities prepare to restart operations, we have the resources in place to safely ramp up production once we received the necessary government approvals in alignment with customer production schedules, which were, as I mentioned, very volatile during the quarter. I'm happy to say that as a result of the strong coordination and collaboration with our supply chain partners, we had zero customer disruptions during our restart of operations. With the learnings from the successful restart of production, we've gained meaningful experience in operating safely with COVID-19, which is critical. We believe that the residual impacts will remain with us for some time, resulting in lower production volumes and continued operational inefficiencies. And as such, we're not expecting a rapid recovery and continue to be cautious as we plan for 2021. However, the demand for our industry-leading portfolio of advanced technology solutions aligned to the safe, green, and connected megatrends remains as strong as ever. as evidenced by the increase in program launch volumes here today. And as a result, we continue to make the necessary investments to support the strong pipeline of new business pursuits and new program launches in 2020 and beyond. Since the COVID-19 outbreak earlier this year, our teams have been working collaboratively, focusing on the health and well-being of our employees and then identifying unique value-added solutions for our customers. To do so, we've leveraged technology to do more with digital tools. By upgrading our data center hardware and network connectivity, we were able to significantly enhance the scale and the quality of our employee conferencing and collaboration capabilities, keeping our workforce connected and operating more efficiently, allowing for the uninterrupted execution of our strategic imperatives. In summary, we continue to build on our strong track record of execution and innovation, and remain focused on delivering for our customers, and at the same time, making Aptiv even more resilient. Turning to slide six, new business bookings totaled $5.9 billion year to date, reflecting the impact of challenges related to operating with COVID-19 over the last six months. As the situation stabilizes, we expect a more normalized run rate of new business awards to occur during the second half of this year. Our advanced safety and user experience segment booked approximately $1 billion in the first half of the year, as a handful of customer awards have been pushed to the second half of the year. And our signal and power solutions segment had new business bookings totaling roughly $5 billion year-to-date, including $700 million of high-voltage electrification awards driven by the rapidly increasing demand for electrified vehicle platforms, the result of more stringent CO2 regulations, and increasing consumer demand. So in summary, our new business bookings over the last several years reinforces our ability to sustain strong above-market growth well into the future, underscoring the strength of our portfolio of market-relevant technologies aligned to the safe, green, and connected megatrends. Turning to slide seven, our competitive mode is expanding just as a total addressable market in both our core automotive and new and adjacent markets continues to grow. Our core markets are expected to increase over 50% the next five years, reaching $120 billion, with the most significant portion of that growth coming from active safety and high-voltage electrification, two markets where we have a very strong competitive position. In addition, our traditional strengths in areas such as central compute, engineered components, and vehicle architecture enable us to unlock incremental opportunities in adjacent markets, AND OUR CAPABILITIES IN SOFTWARE DEVELOPMENT AND DATA ANALYTICS POSITION US WELL FOR OPPORTUNITIES IN NEW MARKETS, INCLUDING CONNECTED SERVICES AND AUTONOMOUS DRIVING, WHICH BRING NEW BUSINESS MODELS WITH RECURRING HIGHER MARGIN REVENUE STREAMS. THE OPPORTUNITIES IN OUR CORE AND NEW AND ADJACENT MARKETS POSITION US FOR MORE PROFITABLE AND SUSTAINABLE GROWTH IN 2025 AND WELL BEYOND. TURNING TO SLIDE 8, Our strong track record of new business bookings and revenue growth over market are proof points that our portfolio strategy is well aligned to the areas of growth within our industry. As a result, we continue to fully fund investments in several strategic growth initiatives, including advanced ADAS systems, high-voltage electrification, and vehicle connectivity, all markets that are poised for continued robust growth in the years ahead. Highlighting a few examples, in advanced safety and user experience, our unique approach to compute centralization and satellite sensors has been a game changer for the industry, with five OEMs launching our first in industry scalable ADAS platform over the next 18 months. We secured $8 billion of lifetime bookings on the satellite architecture platform to date, which will be deployed across 10 million vehicles over the next five years. More importantly, our Gen2 platform will increase our lead with the deployment of next-generation perception systems, the extensive use of AI, and a higher level of software abstraction that will deliver even more consumer value while enabling new business models for Aptiv. In our signal of power and solution segment, we're leveraging our industry-leading position in vehicle architecture to become the partner of choice for both our traditional OEMs and emerging customers planning to launch electrified platforms. By incorporating our portfolio of high voltage electrification solutions, including the conductors, connectors, electrical centers, and cable management systems, we're able to dramatically reduce the weight and physical size of the electrical distribution system by up to 40%, thereby reducing costs. And lastly, our customers are looking for more intelligent, connected, and integrated solutions to detect and address warranty issues faster and resolve them much more efficiently. We're currently working with one global EM to meet its goal of connecting 100% of all new vehicles with our connected edge hardware and software application, enabling a much higher level of customer satisfaction and significantly reduced warranty expense. Turning to slide nine, our ability to leverage our unique full-stack systems capabilities is helping our customers realize our future technology roadmaps. They understand that changes in vehicle architecture are critical to delivering the feature-rich, highly automated vehicles they need in the future. As a result, our customers are converging around new architectures to deliver the higher contented, more safe, green and connected vehicles of the future, where we know how to provide value. Thanks to our unique position as the only provider of both the brain and the nervous system of the vehicle, We serve as a strong collaboration partner for increasingly complex architectures on the path to SVA, with industry-leading capabilities in power and data, compute, perception systems, software, and sensor fusion. Our customers recognize Aptiv as a technology partner capable of both the design and manufacturing of advanced hardware, fully integrated into the most complex vehicle systems, which, combined with our differentiated and modularized software capabilities, creates value for our customers at every level of the stack, accelerating their development of the safe, green, and connected features consumers want with the proven automotive-grade systems that they can trust. Smart vehicle architecture is a scalable architecture solution that lowers the total cost of ownership for the OEM while also unlocking the opportunity for Aptiv to capture more value in the vehicle. I'll wrap up on slide 10 before I hand the call over to Joe. Despite the challenges we faced the last six months, we remain laser-focused on continuing our track record of outperformance and long-term value creation as we execute our strategy and deliver on our vision for the company. The vision is the logical extension of our business strategy, leveraging our unique position at the intersection of the safe green, and connected megatrends that are transforming our industry, allowing us to outperform in any environment. Through the rigorous execution of our strategy, we've been creating a more sustainable business defined by improved revenue diversification across regions, customers, vehicle platforms, and end markets, an accelerated and more predictable growth profile, increased profitability and cash flow, growing sales faster than cost, in converting more income to cash, with significant upside from disciplined capital deployment, all of which results in meaningful shareholder returns. With that, I'll hand the call over to Joe to take us through the second quarter results in more detail.