Aptiv PLC

Good day and welcome to the Aptiv first quarter 2021 earnings conference call. My name is Anna and I will 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 Rossmann, Aptiv Vice President of Investor Relations. You may begin your conference.

Thank you, Anna. Good morning, and thank you for joining Aptiv's first quarter 2021 earnings conference call. The press release and related tables, along with the slide presentation, can be found on the investor relations portion of our website at ir.aptiv.com. Today's review of our financials exclude restructuring and other special items and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for both our Q1 financials as well as our full year 2021 outlook are included at the back of the slide presentation and the earnings press release. During today's call, we will be providing certain forward-looking information which reflects Aptiv's current view of future financial performance and 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 a future course and impact on the global economy. Joining us today will be Kevin Clark, Aptis President and CEO, and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business, and Joe will cover the financial results in more detail. before we open the call to Q&A. With that, I would like to turn the call over to Kevin Clark.

Thank you, Elena, and thank you everyone for joining us this morning. Beginning with slide three, we had a strong start to the year, reflecting our ability to outperform in a challenging environment. Our focus on execution translated into stronger revenues and earnings in the quarter. Revenues totaled $4 billion. That's up 20% from the prior year. driven by our industry-leading portfolio of safe, green, and connected technologies. Operating income reached $437 million, reflecting margins of 10.9%, an increase of 370 basis points from the prior year. Enterings per share totaled $1.06, an increase of 56%. The result of strong revenue growth, partially offset by labor inefficiencies and increased premium freight costs associated with a growing number of supply chain disruptions. The 5% growth in global vehicle production was principally driven by a 72% increase in China, lapping the impact of last year's pandemic-related shutdowns, partially offset by a decline in vehicle production of 4% in North America and 1% in Europe, as OEM customers idle plants in response to the tightening of the global supply chain. For the balance of the year, we expect the supply chain to remain stressed, and the near-term volatility in production schedules TO ACTUALLY INCREASE. HOWEVER, THE OPTIV TEAM IS DOING AN EXCELLENT JOB EXECUTING IN THIS VERY FLUID ENVIRONMENT, MINIMIZING THE EFFECTS OF THE SUPPLY CHAIN DISRUPTIONS AND KEEPING OUR EMPLOYEES SAFE WHILE DELIVERING FOR OUR OEM CUSTOMERS. TURNING TO SLIDE FOUR, THIS YEAR'S SUPPLY CHAIN DISRUPTIONS HAVE BEEN FURTHER EXACERBATED BY SEVERE WEATHER IN THE SOUTHWESTERN UNITED STATES AND A FACILITY FIRE AT ONE OF THE INDUSTRY'S MAJOR CHIP SUPPLIERS IN JAPAN. AS A RESULT, we continue to experience volatility in production schedules, elevated freight and logistics expenses, and higher raw material input prices as the industry struggles to meet strong customer demand levels. As I mentioned, based on our daily discussions with customers and suppliers, we expect supply chain disruptions to actually increase over the next few months before the environment begins to improve in the second half of the year. However, given the puts and takes, WE CONTINUE TO EXPECT GLOBAL VEHICLE PRODUCTION TO INCREASE 10% FOR THE FULL YEAR, REFLECTING CONTINUED STRONG CONSUMER DEMAND, THE ABSENCE OF LAST YEAR'S PANDEMIC-RELATED PRODUCTION SHUTDOWNS, AND CUSTOMER INTENTIONS TO MAKE UP FIRST HALF PRODUCTION SHORTFALLS IN THE SECOND HALF OF THE YEAR. MOVING TO SLIDE 5, DESPITE THE NEAR-TERM ECONOMIC UNCERTAINTY, WE CONTINUE TO REMAIN CONFIDENT IN OUR INITIAL FINANCIAL OUTLOOK FOR THE YEAR. OUR INDUSTRY-LEADING COST STRUCTURE PROVIDES THE INCREMENTAL FLEXIBILITY TO RAPIDLY ADJUST TO CHANGES IN CUSTOMER PRODUCTION SCHEDULES, AND OUR PORTFOLIO OF ADVANCED TECHNOLOGIES POSITION US TO BENEFIT FROM THE ACCELERATION IN SAFE, GREEN, AND CONNECTED SECULAR TRENDS, WHICH HAS LED TO INCREASED SHARE OF WALLET WITH BOTH LEADING AND EMERGING ELECTRIC VEHICLE MANUFACTURERS RAMPING UP PRODUCTION GLOBALLY, INCLUDING THE LEADING U.S. EV COMPANY, VOLKSWAGEN, VOLVO, RIVIAN, AND NIO. Our scalable satellite architecture ADAS platform is now being deployed across multiple OEMs and vehicle segments across the globe. And our connected services solutions are providing fleet owners with the information necessary to optimize vehicle uptime and lower operating costs, as well as OEM customers with the vehicle-level data to reduce product development and warranty expenses. We're very proud of the positive impact these technologies are having today, AND I WANT TO RECOGNIZE THE TREMENDOUS DEDICATION OF THE GLOBAL APTIVE TEAM, WHICH HAS LAUNCHED THESE COMPLEX AND HIGHLY INTEGRATED SOLUTIONS DURING THESE VERY CHALLENGING TIMES. IN SUMMARY, OUR FLEXIBLE AND SUSTAINABLE BUSINESS MODEL IS REINFORCED BY A CONSISTENT AND DELIBERATE MANAGEMENT APPROACH TO DISCIPLINE REVENUE GROWTH, AN INDUSTRY-LEADING COST STRUCTURE AND SUSTAIN THROUGH CYCLE RESILIENCY, ALLOWING US TO COMPOUND EARNINGS AND CASH FLOW AND REINVEST THAT CASH to create long-term shareholder value. Moving to slide six, first quarter bookings totaled $5.2 billion, reflecting a strong funnel of new business opportunities and robust customer win rates. Our advanced safety and user experience segment booked approximately $1 billion, reflecting the lumpiness of new business awards, further exacerbated by the semiconductor supply shortage, which has extended customer decision timelines as resources have been reallocated. As a result, a number of larger business pursuits are now slated for award in the second half of the year. New business bookings for our signal and power solution segment totaled $4.7 billion, including nearly $1 billion of high-voltage electrification awards driven by the increased demand for electrified vehicle platforms. Our strong track record of new business bookings is proof that our portfolio of advanced technologies is well aligned to the areas of growth within our industry. AND OUR POSITION AS THE ONLY PROVIDER OF BOTH THE BRAIN AND THE NERVOUS SYSTEM OF THE VEHICLE ENABLES US TO PROVIDE UNIQUE VALUE TO OUR CUSTOMERS. MOVING TO SLIDE SEVEN, WE BELIEVE THAT OUR LONG-TERM SUCCESS AND ABILITY TO CREATE VALUE FOR OUR STAKEHOLDERS ARE DIRECTLY LINKED TO BUILDING A MORE SUSTAINABLE BUSINESS THAT CONTINUOUSLY DELIVERS ON OUR MISSION AND STRATEGY. OUR MISSION TO DEVELOP SAFER, GREENER, AND MORE CONNECTED SOLUTIONS which enable the future of mobility is integral to both the products we create and the way we conduct business. Aptiv is committed to protecting human health, natural resources, and the environment in which we live and operate. Our commitment to environmental stewardship is company-wide, and we aggressively pursue initiatives to minimize our environmental impact. In 2012, we set a long-term target to reduce our carbon output by 30% between 2011 and 2019, which we actually exceeded, reducing emissions by over 40% during that period. In our 2020 sustainability report, we published new, more aggressive sustainability targets that include a further 25% reduction of CO2 emissions by 2025. In addition, we committed to the Science-Based Targets Initiative, joining the effort to create a zero-carbon economy to help prevent the effects of climate change. AND AS A RESULT, WE'RE EXCITED TO ANNOUNCE APTA'S PATH TO CARBON NEUTRALITY, WHICH INCLUDES BEING CARBON NEUTRAL ACROSS OUR GLOBAL OPERATIONS BY 2030 AND PROVIDING CARBON NEUTRAL PRODUCTS TO OUR CUSTOMERS AND ACHIEVING NET NEUTRALITY BY 2040. WE REMAIN COMMITTED TO ADDRESSING SOME OF MOBILITY'S TOUGHEST CHALLENGES WHILE AT THE SAME TIME REDUCING CO2 EMISSIONS GLOBALLY. WE PLAN TO SHOWCASE OUR INDUSTRY-LEADING ELECTRIFICATION PORTFOLIO AND CAPABILITIES AT OUR UPCOMING HIGH-VOLTAGE TECHNOLOGY TEACH-IN, WHICH IS SCHEDULED FOR EARLY JUNE. TURNING TO SLIDE 8, DESPITE THE CHALLENGES WE CURRENTLY FACE, WE REMAIN FOCUSED ON FURTHER STRENGTHENING OUR TRACK RECORD OF OUTPERFORMANCE AND LONG-TERM VALUE CREATION. WHILE OUR INDUSTRY CONTINUES TO BE TESTED, OUR OPERATING PERFORMANCE HAS VALIDATED OUR BUSINESS MODEL AND THROUGH CYCLE RESILIENCY. AS WE LOOK AHEAD, WE POSITION APTIV TO CONTINUE TO OUTPERFORM WITH FOCUSED INVESTMENTS THAT HAVE INCREASED THE RESILIENCY OF OUR BUSINESS AND EXPANDED THE MARKETS WE SERVE, LEVERAGING OUR UNIQUE BRAIN AND NERVOUS SYSTEM CAPABILITIES TO DELIVER EVEN MORE CONTINENTALLY ELECTRIFIED SOFTWARE-DEFINED VEHICLES OF THE FUTURE, WHICH TOGETHER YIELD ACCREDITIVE GROWTH OPPORTUNITIES AND PRESENT INCREMENTAL VALUE CREATION OPPORTUNITIES THROUGH SMART CAPITAL DEPLOYMENT, RESULTING IN MEANINGFUL SHAREHOLDER RETURNS AS THE ECONOMIC RECOVERY CONTINUES TO UNFOLD. So with that, I'll hand the call over to Joe to take us through the first quarter results in more detail.

Thanks, Kevin, and good morning, everyone. Starting with slide nine, the recovery momentum in the first quarter generated strong sales, income, and cash performance, despite the supply chain constraints Kevin referenced earlier. Revenues of $4 billion were up 20%, 15% ahead of vehicle production, which was up 5% on our weighted market base. Adjusted EBTA and operating income were $630 million and $437 million, respectively, reflecting stronger volumes in disciplined cost management, partially offset by approximately $70 million of COVID and supply chain-related costs. Earnings per share in the quarter were $1.06, reflecting higher operating income, offset by the emotional JV results, and higher share count and tax expense. Operating cash flow was strong at $252 million, driven by higher EBITDA, while CapEx was $134 million. Looking at first quarter revenues in more detail on slide 10, broad demand recovery and some inventory restocking in our engineered components businesses contributed a strong growth over market in every region. We also had favorable effects in commodities, partially offset by price downs of approximately 1% a quarter. From a regional perspective, North America revenues were up 5%, representing nine points of growth over market driven by new launch volume and favorable truck and SUV platform mix. In Europe, the trend of strong double digit market outgrowth continued with further adoption of our high voltage electrification and active safety solutions. Lastly, in China, revenues grew by 94%, reflecting 22 points of growth over market as the volume recovery led to production upside and inventory replenishment with our major customers. As a reminder, China operations were shut down between late January and March of last year. Moving to the segments on the next slide. Advanced safety and user experience revenues increased 11% in the quarter, reflecting six points of growth over underlying vehicle production, including double-digit active safety outgrowth, despite semiconductor supply shortages. Segment EBITDA increased 31%, excluding the impact of the emotional JVD consolidation, driven by higher sales and disciplined cost management, partially offset by supply chain disruption costs. Signal and power solutions revenues were up 23%, reflecting 18 points of market outgrowth. Record outgrowth was driven by continued strong demand for high-voltage electrification solutions in Europe and China, favorable truck and SUV platform mix in North America, and the benefits of inventory replenishment within the engineered components businesses. EBITDA in the segment increased 43% on strong sales conversion, driving meaningful margin expansion despite headwinds from supply chain costs, and that backs in commodities in the quarter. Both segments saw lower price downs in the quarter due to customer timing, which is expected to return to normalized levels over the course of the year. Turning now to slide 12 in our 2021 macro outlook. As Kevin mentioned earlier, the worldwide shortage of semiconductors impacting the auto industry continues to limit near-term production visibility. Based on discussions with our customers and suppliers, we expect supply chain disruptions to remain volatile in the second quarter, given the additional impact of the NACA fire and the Texas weather event. And while we don't expect the supply-demand imbalance to fully recover to normalized levels until 2022, the situation is expected to improve in the second half of the year to allow for partial recovery of lost vehicle production from the first half. Accordingly, we will not be providing guidance for the second quarter as there remains a high likelihood of vehicle production shifting between the cores. However, we continue to believe we have adequately reflected the current situation on our original guidance for four-year 2021, which estimates global vehicle production of 84 million units, up 10% with minor adjustments within the regions. Our assumption for North America has increased slightly, offset by our reduction in Europe as markets continue to face extended lockdown measures. While the supply chain remains extremely tight, We have taken swift action to mitigate these impacts to help customers prioritize certain platforms to meet increased levels of demand, which was reflected in the strong outgrowth we saw in the first quarter. Although we are not updating our full-year guidance, we remain confident our industry-leading portfolio of safe, green, and connected technologies will continue to yield market outgrowth in the range of 6% to 8%, consistent with the framework we've previously provided. Turning to slide 13, despite the uncertainty that remains near term, we are confident in the original guidance range we provided for 2021. For the year, we continue to expect revenues to be in the range of 15.1 to $15.7 billion, up 16% with six points of growth over market at the midpoint and a modest tailwind from FX and commodities, which combined more than offsets our normal price downs. EBTA and operating income are expected to be $2.4 billion and $1.6 billion at the midpoint, respectively, with strong year-over-year sales conversion. Despite operating with $100 million of COVID-related costs and incurring approximately $80 to $100 million in manufacturing and logistics costs related to supply chain shortages this year. Lastly, benefits of our ongoing initiatives are more than offsetting the $150 million of austerity measures taken primarily during the pandemic-related shutdowns in the second quarter of 2020. We expect earnings per share in the range of $3.35 and $3.85 a share or $4.20 to $4.70 per share when excluding the impact of the equity income losses of our emotional joint venture. And lastly, operating cash flow of approximately $1.9 billion. As a reminder, we will resume providing quarterly guidance when we have improved visibility on customer production schedules and global supply chain disruptions. With that, I'd like to hand the call back to Kevin for his closing remarks.

Thanks, Joe. Let's wrap up on slide 14 before opening it up for questions. As we navigate the road ahead, we're closely monitoring the current environment including the pace of economic recovery and the ongoing disruptions in the supply chain. That said, our portfolio of advanced technologies continues to outgrow the market, while world-class talent, leading cost structure, and strong track record of execution positions us to lead the industry forward in this recovery. Our performance is a direct result of our strong cultural foundation built on the values of thinking and acting like owners, and we remain laser-focused on delivering on our commitments to our customers, to our shareholders, and to our employees, while advancing our mission to create a more sustainable business and environment. Aptiv's industry-leading portfolio is enabling a more efficient and accelerated path to the electrified software-defined vehicle now demanded by consumers and required by our customers. We're helping to create a safer, greener, more connected world as we advance our path to carbon-neutral operations and products by 2040. At Aptiv, we're moving forward with purpose as a company with a strong financial position and the flexibility to reinvest in our people and our technology portfolio to create significant value for all of our stakeholders. Thank you again for your time. Let's open up the line for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please be sure to mute to mute your function to allow your signal to reach our equipment. Again, press star one to ask a question. We ask you to limit yourself to one question and one follow-up question. Thank you. We will take our first question from Joseph Spack of RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone. Kevin and Joe, I know you weren't sort of you know, giving quarterly guidance because of all the uncertainty. But it does sound like maybe the first quarter came in stronger than you had planned and obviously some strong performance in the growth drivers of high voltage and active safety and related margin performance. I guess what I'm trying to better understand in the context of your reiterating guidance is, is this sort of a cadence issue when you were sort of unclear about how things will or when things will come in? Or is there also a little bit more level of caution given some of the volatile in certain schedules we talked about and maybe some higher costs on ROS and 3 that you pointed to?

Maybe, Joe, I'll start and Joe can walk you through more of the details. Q1 was a strong quarter, without a doubt, in a very, very volatile environment. BASED ON WHAT WE HAVE VISIBILITY TO TODAY, Q2 WILL BE EVEN MORE VOLATILE THAN Q1. AND OPERATING IN THAT ENVIRONMENT PRESENTS CHALLENGES. NOW, WE'RE CONFIDENT FROM AN OPERATIONAL STANDPOINT, YOU KNOW, WE'RE BUTTONED DOWN AND WE'RE OPERATING WELL, BUT WE'RE CONFIDENT THAT WE'LL CONTINUE TO OPERATE AT A HIGH LEVEL AS WE HEAD INTO Q2. BUT AGAIN, IT'LL BE CHOPPY AS WE LOOK AT SOME OF THE CHALLENGES AND DISRUPTIONS IN THE SUPPLY CHAIN. Our focus is on ensuring that our customers get the parts they need to produce the vehicles that they're trying to produce that consumers want. And based on our forward visibility as we look into Q3 and Q4, all of our customers are very committed to producing the vehicles that they were unable to produce in Q1 and Q2 and Q3 and Q4. And we're all working very actively across the supply chain from this. Mike SanClements, Semiconductor providers to the you know the resin providers, all the way through the supply chain. Mike SanClements, To the customers and in a tough environment we're operating reasonably well, but again it's challenging it's requiring incremental resources incremental costs. Mike SanClements, From a day to day management standpoint in our factories, as well as from a from a transportation and logistics standpoint. INCREMENTAL ENGINEERING RESOURCES TO MAKE SURE THAT WE PROVIDE OUR CUSTOMERS WITH OPTIONS OR INCREMENTAL FLEXIBILITY TO THE EXTENT WE SEE PARK SHORTAGES, THAT WE PROVIDE THEM WITH ADDITIONAL OPPORTUNITIES. AND, YOU KNOW, Q1, WHEN YOU REALLY LOOK AT Q1, YOU KNOW, A BIG PORTION OF THE OUTGROWTH, AND JOE WILL TALK ABOUT IT, IS SOME ELEMENT OF, YOU KNOW, RESTOCKING OF THE OVERALL SUPPLY CHAIN IN AREAS LIKE cable management products as well as connectors, which certainly drive some benefit in the first half of the year. But that would be my voiceover in terms of how we view the environment as well as how we perform. Joe, if you can provide more visibility.

Yeah, no, I obviously agree with everything Kevin said. I did mention Joe a couple of times in my prepared comments around Just the replenishment within the connector side of the business in HellermannTyton, we were expecting that over the course of the year. I think as we look at it right now, to your cadence comment, it certainly looks like it's coming in the first half of the year. That's going to be worth a few points of growth in the first half of the year versus the back half. Again, it's good business. It's the tiers. replenishing, it's the distribution channels replenishing, and we had expected it in the year. So it's more of a sort of when it's happening. And then listen, as Kevin mentioned, you know, we're seeing increased volatility in Q2. You know, the original chip disruption or supply chain constraints that were sort of what I'll call sort of COVID demand related, you know, those are starting to ebb down in Q2 as we expected, but the The impact of the NACA fire and the Texas weather on Q2 unit production will, at least based on what we're seeing right now, could certainly be as big from a number of units perspective for the industry as the original disruption. And obviously all of that's coming in Q2. So we're just mindful of how much production the industry can get through in Q2, still confident to be made up in the back half of the year. but obviously have a fair amount of volatility we're managing through here over the next three to four months.

But I think it's fair to say one thing. I think if Joe and I were to bet, we would say Q2 disruption is bigger than Q1 disruption based on availability of semiconductor parts associated with that. The challenges with the weather down in southwest U.S. as well as that knock fire.

Okay. Thanks for all that. Just the second question, I guess it's just on the cash here. 2.8 billion, you're effectively pointing to another billion in free cash over the next three quarters. I know back when you raised some capital a year ago, you wanted a little bit of a war chest, so to speak. And you can't time the M&A, but it appears that war chest is going to get quite large. So any updated thoughts there on either buybacks or other uses of that cash?

Primary focus remains deployment for M&A, Joe. We're working at it. That pipeline's coming back strong. Obviously, there's, you know, some challenges from a travel perspective and meeting perspective around remaining COVID restrictions, particularly outside of the U.S., but continue to believe over the course of the year that that's where that cash gets utilized. Joe, it's important to note that...

You know, post-COVID, the reality, all the trends that we've talked about, safe, green, connected, have actually accelerated. Demand for high voltage solutions. You know, we talked in our prior call about, you know, high voltage pursuits increasing over the last couple of years from, you know, 10 to 15 to in the range of 50. We're up north of 100 now. So there's tremendous opportunity for us to invest organically or via acquisition. And there are a number of areas that Joe and the M&A team are focused on in and around advancing technologies to support the growth in high-voltage electrification, as well as to support increased needs for software in areas like ADAS, user experience, and smart vehicle architecture. So there are a number of opportunities to deploy that capital in a real smart way. Thanks for all that, Keller.

Thank you. Our next question comes from Rod Lash of Wolf Research. Please go ahead.

Good morning, everybody. I understand there's a lot of volatility here, replenishment in the first quarter, volatility in the second quarter. I was hoping you might be able to just take us out a little bit, maybe into the back half or into next year. and speak to whether there are any kind of long-term consequences from what you're seeing right now, either in terms of growth over market or cost for Aptiv. Are your customers, do you think, shifting towards a higher mix of vehicles, delaying launches, or doing anything that would affect you longer term?

Yeah, Rod, it's Kevin. I'll start first. WE HAVE A WE'LL START WITH A VIEW THAT THAT YOU KNOW OVER THE MEDIUM TERM YOU'RE GOING TO CONTINUE TO SEE SUPPLY CHANGE TIGHTNESS CERTAINLY FROM A SEMICONDUCTOR STANDPOINT AS WELL AS IN OTHER AREAS LIKE RESIN THAT WILL CONTINUE THROUGH 2022 THAT WILL CONTINUE FROM AN OVERALL DEMAND STANDPOINT CONSUMER DEMAND AS YOU KNOW IS VERY VERY STRONG which certainly creates significant amount of customer demand or customer pull for Aptiv. That demand, you know, is in and around the areas where we play, right? It's about accelerated electrification, increased demand for products like ADAS or ADAS solutions, more demand for connectivity solutions, all of which are places that we play. a much significant drive or increase from our customers on software-defined vehicle solutions, so pull for smart vehicle architecture. So as we take a step back and we look at consumer demands positive, customer pull strong, supply chain challenge, but we'll work through that. And, you know, today we're operating, I think we have 60 product redesign programs that we're going through providing our customers with either alternative choices from a product availability standpoint or cost reduction opportunities that we review with the team on a daily basis. So we think that's something that we'll manage through reasonably well. From a customer standpoint, on top of the strong consumer pull, all of our customers are focused on building their most profitable, most highly contented vehicles. So a portion of the benefit that we saw in Q1, and I'd expect we'd see in Q2, is a pull for more advanced ADAS solutions, more high voltage electrification, all those things that consumers want, which is a very strong tailwind. So as we sit here today, like everyone, we struggle day to day to deal with the supply chain challenges. We're operating extremely well. We're dealing with them very well. We're putting in the processes or or have the processes in place to offset that. But the underlying trend or demand for the areas that we play, we'd actually say has accelerated post-COVID. And this whole semiconductor issue probably further accelerates the fact or the demand for the areas that we play.

Thanks for that. And just secondly, you know, we're seeing so many automakers now talking actively about the things that you guys have been talking about for 10 years with respect to software-defined capability and architectures. But they're also increasingly talking about taking control of software competency in-house. You're hearing that from Ford with the FMV4, GM's hiring 5,000 engineers. Volkswagen's head of software said that they're going to go from 10% of the software value-add in a car, they're aspiring to 60%. Are you, from where you sit, seeing the same thing? And do you think that that has any implications for you in terms of the software value-add that you're delivering?

Listen, in some areas we are, in some areas we're not. And we're focused on developing solutions that ultimately integrate in that full SVA concept that you said we've been talking about for a number of years, which provides us with software content opportunities, integration content opportunities, and hardware content opportunities. And our real focus is on ensuring we provide our customers with whatever they want, all of it or part of it. And we know there are a lot of OEM customers who are talking about increasing their investment in software. For a number of them, that will make sense. For a lot of them, they will have challenges executing on that. And we're really focused on ensuring that we're there to help. And there are others who quite frankly don't view it as a core competency and will outsource it. So it doesn't IT DOESN'T, YOU KNOW, IT DOESN'T AFFECT OUR VIEW ON OUR STRATEGY. WE THINK IT VALIDATES WHAT WE'VE BEEN TALKING ABOUT AND THE NEED FOR THE COMPETENCIES THAT A COMPANY LIKE OURS HAS, AND IT'S AN AREA THAT WE'LL CONTINUE TO, YOU KNOW, AGGRESSIVELY INVEST IN. YOU KNOW, AND YOU'VE SEEN, YOU KNOW, YOU'VE SEEN THE POLL AS IT RELATES TO BOOKINGS IN AREAS LIKE ADVANCED AF SOLUTIONS, USER EXPERIENCE, HIGH-VOLTAGE ELECTRICATION. YEAH. So we continue to view it as an opportunity. It's reflected in the six to eight points of outgrowth that Joe has been talking about.

Yeah, that's a good point that we're seeing it in the bookings. So thanks for that.

Thank you. Our next question comes from Chris McNally of Evercar. Please go ahead.

Thanks so much, Tim. I wanted to ask two questions specifically about just the high-voltage and EV business. So the first one is around some market share math, and I know you won't be able to 100% confirm, so maybe just more tell me if I'm crazy about the math that I'm just going to lay out. So you have about $900 million in awards, Q1. We don't know where that will end the full year, but maybe that's $3 billion-plus. You've been running in this $2 billion-plus range. And I calculate that on 2025, maybe the industry is something like $8 to $9 billion awards. currently looking at 2025 EV numbers, $500 to $600 of content per vehicle, that would mean that you could have a share in the 40% range, which would be sort of above your traditional electrical architecture, but not sort of out of the realm of possibility. So does that math, is anything wildly off in sort of the calculations?

Yeah, I'm not sure if we've looked at it that way. Joe can comment on it. I think working backward at a high level, right, the industry is committed to spend about $300 billion investing, creating or developing high-voltage electrification platforms or vehicles, correct? I mean, you've seen the announcements from GM, $20 billion to deliver 30 new EVs. There was a recent BCG study that talked about 50% of vehicle production will be high voltage by 2026, which is a significantly higher percentage than what was predicted just a year ago. Certainly, there's a tremendous tailwind for high voltage electrification. OEMs have reached the point where They've made the choice between internal combustion engine and high-voltage or battery electric vehicles, and they've chosen the latter. And there's a significant investment in that area, and it's a huge opportunity for us. I mentioned just a few years ago we're pursuing 10 to 15 programs per year. This year we'll be pursuing somewhere between 75 and 100 programs. And when you look at our historical win rate, which is north of kind of 60%, 65%, and you look at our core capabilities and what we're able to bring in terms of a full system solution, you know, the opportunity is significant.

Yeah, Chris, I mean, like Kevin said, we haven't sort of backed into the math the way you just did. But qualitatively, you know, we've got – that business has one out of three and a half – you know, content on one out of three and a half vehicles manufactured today on the low voltage side, right? So we do play at very high levels from a, you know, capability and customer share perspective. And then when you add on top of that, I think one of the advantages we have for customers in high voltage, you know, is we're able to meet, you know, very high volume requirements very quickly, just given the scale of signal and power solutions. So we can get off you know, get out of the gates very quickly. You're seeing volumes ramp. I mean, we had, you know, our high voltage business with some of the launches, it grew 125% in Q1. Now, obviously, that's, you know, that's a very strong quarter. But, you know, you're really looking at the quality of the launches in Europe and China, the quantity and quality of the launches. And I think the other thing that's You know, one of the read-throughs here is that when OEs have to make decisions around which vehicles to build given the supply chain constraints, you know, they're focusing in North America on truck and SUVs, but certainly in Europe, they're continuing to focus on EVs. So, you know, again, we're at a, you know, we've got a very strong market position in low-voltage space. We'd expect that to certainly at least be the starting point for our high-voltage business over time and to be able to grow from there.

Great. Kevin, Joe, that's super helpful. And then the second quick question is just on the growth rate for this year. Correct me if I'm wrong. Maybe it's just an old projection, but I think you were targeting roughly 55% or 60% high voltage growth for the year. Joe, you mentioned 125% in Q1. Typically, the seasonality isn't weighted too much. If anything, we're going to get a second half push from both Europe and and production, looking at some of the major EV platforms. Is there some upward pressure to that 55% to 60% for the full year, assuming even chip shortages continue?

Listen, I think we're going to stay away from sort of the details on the back half just until, as we mentioned, the volatility settles down. We'll obviously remain confident in the full-year outlook, including the 55% to 60% growth from on high voltage, and I'd certainly acknowledge Q1's a good start in that direction, but we're going to stay away until the dust settles here, but hopefully over the coming quarter.

Okay. Great. Thank you.

Thank you. Our next question comes from Mark Delaney of Goldman Sachs. Please go ahead.

Yes. Good morning, and thanks very much for taking the questions. There's been an increase in auto OEM announcements recently about plans to bring new ADAS platforms to market. And I think Aptiv's ADAS business, if I'm remembering correctly, is north of a billion dollars of revenue already and has been growing quickly. But maybe you could elaborate on what the company has seen in terms of the design and pipeline opportunity with ADAS and what you're expecting for future growth in that business.

Yeah, demand for ADAS continues, right? You're going to see – You know, just a few years ago, 50% of global vehicle production had an ADAS system on it. I think today we're at about 35. We're at about 65% due. I'm sorry. And then in a few years, it'll be 75% or more. Regulations driving the requirement for ADAS, especially in places like Europe, NCAP's driving the demand for ADAS solutions in North America, Europe, as well as China. It's a, you know, whether it's an option or it's a standard, it's a product or a solution which helps OEMs sell cars, one. And two, it's typically a pretty profitable option. So they get price and margin for it. Consumers demand it. If you're in a car with an advanced ADAS solution, there's no way you're going backwards. So rebuy rates, I think, are up north of 95% on ADAS. So demand continues to be strong. I think our outlook this year is ADAS will grow roughly 35% on a year-over-year basis. Market growth is about half of that. But market growth will continue to be extremely strong, and we're well-positioned based on our our history and market position in ADAS to continue to grow well over market in this space. That's helpful.

Thanks. And then my follow-up question was about the company's commitment that it made today to CO2 reduction, and thank you for what the company is doing on that front. I recognize the cost of clean energy is falling, and you can actually be cheaper than traditional fuel sources, but As you think about meeting these objectives that you articulated today, is there any change we should be expecting in terms of the financial model and what sort of margins the company may be able to operate at? Thanks.

No, Mark, it's Joe. I mean, we're obviously, you know, feel comfortable achieving these targets within the existing framework. I mean, we really You know, taking these targets and the process to achieve them and really internalize them. We treat them very much like any other sort of performance target that we have in the business and have added it to, you know, really the list of things that need to be balanced to hit the financial framework. And we feel comfortable we'll be able to do that.

Thank you.

Thank you. Next question comes from Emmanuel Rosner of Deutsche Bank. Please go ahead.

Hi, good morning, everybody. Morning. I was hoping to put a final point around your growth over market outlook. So I think maintain at six points for the full year. Obviously, you had an extremely strong start with some things like, you know, refilling of, you know, stocks and all this. But Just generally, it feels like, as you said throughout this call, a lot of automakers are prioritizing a lot of the vehicles that have more content. And so can you just talk about the puts and take around the growth of a market for the full year still at six points, that's still towards the lower end of your normal framework, and why, you know, if there's any upside risk to this?

Yeah, again, I mean, we're going to stay away until really dust settles mid-year from, you know, from refining the full-year outlook. And, you know, obviously we're being very comfortable hitting, you know, hitting that original guy from January. As I mentioned, you know, we are seeing some channel replenishment within the engineered components businesses, both at the tiers on the auto side as well as on the industrial side of the businesses, the channel partners. You know, I think first half versus second half, I'd call that probably, you know, call that three to four points of growth moving from, you know, in the first half that won't repeat. You know, to us, it's really we expected it to happen in the full year. We had sort of assumed maybe back half, but as all things sort of bounce back related, they seem to be happening faster than original expectations. You know, there's a bit of a couple points in the first half that are from what I'll call the mix. you know, the heavy content mix as customers have to make choices around with vehicles to manufacture. They're leaning towards the trucks and SUVs, the EVs, as I mentioned. You know, right now the assumption is, and again, we just don't have the updated schedules to refine these. You know, I think as you work back to the full year 6%, you'd think through maybe those don't, you know, the mix goes back to a bit more of a normalized mix in the back half of the year. So there's a couple things like that. But was it overall? I mean, remember, that 6% to 8% for us is a long-term outlook. We're committed to that for the next number of years. And, you know, obviously feel very confident with it, both from a 2021 context as well as an out-year perspective.

Okay, that's helpful, Collar. Second question is about emotional, and in particular your partnership with Lyft. Can you update us on the status of sort of the next milestones of Obviously, over the last few weeks or so, there was also this announcement of Lyft selling their separate autonomous operations to Toyota, but there was also the potential for some partnership on the robo-taxi there as well. So any impact on your relationship, or are these things just two separate projects?

Yeah, it's Kevin. They're two separate activities. The emotional... TEAM IS DOING A FANTASTIC JOB. I THINK YOU SAW THE ANNOUNCEMENT IN FEBRUARY THIS YEAR, THE FIRST DRIVERLESS TESTING THEY'RE DOING IN LAS VEGAS. THE SELECTION OF THE HMG IONIQ 5 PLATFORM AS THE NEXT PLATFORM THAT THEY'RE GOING TO PUT THEIR GEN 2 AUTOMATED DRIVING PLATFORM ON. SO A BATTERY ELECTRIC VEHICLE, A REALLY ATTRACTIVE VEHICLE FROM HYUNDAI. THE TEAM CONTINUES TO MARCH FORWARD. LIFT IS A STRONG PARTNER. WE HAVE AN AGREEMENT WITH LIFT WHERE THEY'RE GOING TO BE PURCHASING VEHICLES FOR MOTIONAL AND LAUNCHING IN A SECOND CITY IN THE UNITED STATES IN 2023. SO MORE TO COME, AND IT'S A RELATIONSHIP THAT WE REALLY VALUE AND WE'RE LOOKING TO EXPAND.

THANK YOU VERY MUCH. THANK YOU.

Our next question comes from David Kelly of Jefferies. Please go ahead.

Good morning, everyone. A couple questions on signal and power. First was hoping you could provide some more color on the commodity headwinds in the quarter itself and maybe how you're thinking about the impact for the balance of the year.

Yeah, it's Joe. I'll certainly start. So, yeah, listen, I think that, you know, obviously the one at the top of the list is copper. You know, copper is, the price is up there. We haven't seen these levels since 2011. You know, I do think it's important to note we have been here before with copper, right? So, you know, there is precedent for how our, you know, how it flows through the P&L and how our sort of offsetting mechanisms work. We're about 80% pass-through on copper, so copper increases, changes in copper prices, both positive and negative pass-through to customers. The remaining 20%, we hedge, so we're fairly well insulated from copper. We've talked about this before. There will be a margin rate impact as higher copper prices flow through, right, because they flow through as a pass-through. They flow through as revenue on sort of a pass-through basis, so you tend to get some margin rate impact. But again, as we get through the back half or into the back half of the year and schedules start to straighten out, we'll obviously be updating for macros as well. But that's more margin rate than dollars. Seeing some inflation around things like resin. Obviously, we expect semiconductor prices will go up over the course of the back half of the year into next year. Semiconductor probably being more ASUX. I know your question was SPS. But at this point, the inflation that we're seeing and expecting, I would put into the context of manageable relative to our sort of broader commercial discussions with customers over the coming year, as well as just our mechanisms that we have in place to offset costs and find additional efficiency. Copper by far the largest, but structurally we're very well positioned to mitigate or pass through those increases.

Okay, got it. That's helpful. Thanks, Joe. And then one more follow-up on the restocking discussion. I guess could you just remind us of your distribution exposure? And then I was hoping you could talk about your expectations for kind of underlying CV and industrial market growth. you know, from our vantage point, things like industry-wide connector order books are at record levels right now. And understanding the visibility is a bit lower there, but we're just trying to get a sense for kind of the in-demand expectations versus the channel fill that's clearly taking place.

Sure. Let me start with CV, where obviously we've got strong growth. That's a contributor in that you know, both our industrial and end markets are contributors to that space. So we're seeing, and Elaine, if you have the growth rates right there, just the CV growth rates continue to be, our growth above market continues to be very strong in CV.

Yeah, we grew in CV just over 25% in the quarter.

Yeah. And then, and again, that, you know, that's really driven in part by the FPS business. Obviously, the connection systems business is developing a strong CV business. as well as some things like infotainment in the ASUX business. As it relates to the distribution channel, a smaller part of our business, it's in the hundreds of millions of dollars, obviously more of an impact in a particular quarter when we restock. That's within SPS, so the HellermannTyton business, as well as our connection systems business does push through distribution. But, again, it's framed in the hundreds of millions of dollars type – type volume, but impactful in the first half of the year, just given the level of replenishment distribution. And also, when we talk about restock, we are seeing increased levels go into the Tier 1s on the auto side, David. So that comments broadly restock would be both the Tier 1s as well as the distribution channels.

Okay, got it. That's helpful. Thank you.

Thank you. Our next question comes from Dan Levy of Credit Suisse. Please go ahead.

Hi, good morning. Thank you. I wanted to, sorry if you had mentioned this earlier, but I want to go into the growth of the market in the first quarter, the 15 points. If you could just provide any color by the drivers by region, I assume China, I know that there was obviously some lumpiness there, but pretty big growth of market there, but in the other region as well. And then Do you have any sense how much of the benefit you got from partially built vehicles and then how much of the benefit was mixed in the quarter?

Yeah, I mean, obviously the growth over market we've got laid out in the deck. You know, really strong growth over market and obviously China, as we talked about. But, you know, all regions showing growth. showing positive growth, 9%, 10% across North America and Europe, helped, obviously, by HV, high-voltage business, helped by the engineered components, not just the restock, but also just the underlying strength in that business. And, again, I would expect, you know, I think as you get into the back half of the year, particularly in China, we'd expect some of that growth over market to slow down as we just start to – So it was the market that first took off post-COVID, so had a very strong back half of the year last year. As it relates to partial vehicle bills, that's obviously we know they're happening. That's, you know, we get very little to really no visibility to that. In most cases, you know, because we're shipping and they're building and, you know, to the extent that's, You know, a part that we're contributing, obviously that remains an order for us, but really don't have any type of visibility into sort of broadly speaking what that means for the industry. Realize that, you know, people have commented there's a lot of, you know, there's a lot of yard hold vehicles at this point out there, but really don't necessarily, doesn't necessarily flow through to what we're seeing.

Okay, great. And then my second question, I just want to follow up on Rod's question earlier, specific to active safety. And I know about, I think it was a month ago or so, we saw a headline, you know, Volvo is expanding its collaboration with NVIDIA. And I think that's more on the compute side. But clearly, you know, it seems like you have more, you know, automakers trying to do a little more on the active safety side. And I recognize there's multiple ways you can work with a customer and, you know, bigger pie, you know, roles may change, but maybe you could just give us a sense of how that dynamic is working out with automakers. You know, are they taking, on the active safety side, are they taking more of an active role in forming their functionality versus relying on suppliers? And what's the piece that's always going to be with you, regardless of whether the automakers themselves want to bring in more functionality in-house.

Yeah, Dan, it's Kevin.

Listen, again, it's all over the place. So it depends on the OEM. And I think you have to start with the first point in terms of the overall market and penetration rates of active safety is increasing significantly in the fastest-growing areas really in and around that L2, L2+. So you have unit growth and then you also have significant content growth. There are OEMs who historically have and some who, it's an increased focus now, want to be more involved in that overall development of the active safety solution. It tends to be today in and around feature development. So how does the vehicle respond to to certain particular driving incidents so that they give it a feel of a particular brand, whether it be more aggressive or less aggressive. So most of what we've seen is in and around the feature side. We have some customers that we're doing soup to nuts, the full platform for. We have other customers who were doing the platform and were integrating some of the features that they would like to develop. And our Gen 2 ADAS platform, which is underdeveloped now, is going to give OEM customers the ability to do more or less of that and provide them with the tools necessary to actually develop features if that's something... THAT THEY WOULD LIKE TO DO AND MAKE IT EASY FOR US TO INTEGRATE THOSE INTO THE OVERALL PLATFORM. THE AREAS THAT I THINK IT WOULD BE MORE CHALLENGING FOR OEMS TO TAKE RESPONSIBILITY FOR IS, TO YOUR POINT, ON THE CONTROLLER SIDE, ONE. TWO, ON THE PERCEPTION SYSTEM SIDE, WHETHER THAT BE THE RADAR SOLUTION, THE VISION SOLUTION, THE LIDAR SOLUTION, on the sensor fusion side, so taking all of those inputs and fusing them and developing the software necessary to how does the vehicle perform and react to those various inputs. I think those would likely be the most challenging areas, but we'll see. I mean, some OEM customers may decide that's something that they want to try. I think there's, you know, as a company that's been in this particular area for a very long period of time, it's complex, as you know. It's a safety feature, so it needs to perform 100% of the time. And the benefit of history and experience, I think, creates a bit of a headwind as it relates to insourcing all that activity. But, again, our focus is on providing our customers with what it is that they're looking for in driving profitable revenue growth in doing that.

That's helpful. Thank you.

Thank you. Our final question comes from Brian Johnson of Barclays. Please go ahead.

Yes. Good morning or good afternoon if you're in Dublin. A different spin on a couple of questions that have come up around OEMs being more active in technology. This one, though, is about the impact of the chip shortage and what it means for, call it a high-performance procurement organization. At the OEMs, we had a consultant on a webinar talking about how his firm would be encouraging OEMs to look deep into the supply chain to understand where the chips are coming from. That was clearly best practice after Fukushima. but also to begin directed by many more chips. So it raises the question of if one is a built-to-print electronic box manufacturer, directed by would be detrimental to margins. So really two questions. One, do you see that trend as well as something you would encourage? And B, kind of as you think about your product lines and especially how you've evolved them towards higher margin software, how would Aptis fare in that kind of environment?

Yeah, that's a great question, Brian. Obviously, there's more semiconductor content going into the car, as you know, and having a good sense for the supply chain and capacity within various aspects of the semiconductor supply chain is extremely important. What you're referring to is you can see a scenario where that works for things like microcontrollers, where it's a more commodity-like Semiconductor product, there's very little customization. It's a fairly standard solution that goes across multiple areas within the car. When you think about the higher performing areas like active safety, like radar, like vision systems, obviously you're talking about a very different matter because the engineering activity and the relationship So, obviously, you need to know what capacity in the supply chain looks like. The architecture that we're headed down today, the reality is, as we see upward integration, as we see domain consolidation, the reality is the number of those microcontrollers that go into the car actually are significantly reduced, right? You basically cut that number in half. So I think there's an element of this activity that I do believe and very supportive that the OEMs will come with a much more focus on the supply chain to understand what does supply chain resilience look like? Where is there not only dual validation but dual capacity available? And how do we continue to minimize risk?

And just as a quick follow-on, is that suppliers, you know, some suppliers in Europe have been blamed by their customers for not handling the chip shortage. Would you say Aptiv for an OEM who wants to look further up his or her supply chain, is that the kind of, you know, service, visibility, transparency that you add, and does it actually help your OEM relationships?

Yeah, I think it helps our OEM relationships. I think we've fared well. very well through this challenging environment. I think in reality, you know, unless you were sitting on a year's worth of chips, I think it would be hard for anyone in this space not to be impacted by or impact a potential customer. I think that is the reality when you look at the effects of COVID. and you look at demand spikes outside of automotive as well as inside of automotive, there's an element of the perfect storm. But I think it's important we as an industry, you know, learn from it and make whatever adjustments, calibrations that need to be made. And, you know, we certainly have and, you know, we'll continue to improve in areas that we identify, whether that's redundancy or different ways of doing business.

Okay. Thank you.

Thank you. That concludes today's question and answer session. I would now like to turn the call back to Mr. Kevin Clark for any additional or closing remarks.

Great. Thank you very much. Thanks, everyone, for your time. Just a few closing comments, just to highlight as it relates to Q1 results and as we talk about the full year. Obviously, the business is performing well. Supply chain is obviously choppy, and it will continue to be choppy as we head into Q2. AND IMPROVE AS WE MOVE INTO Q3 AND Q4. INPUT COSTS ARE INCREASING IN LIGHT OF THE SUPPLY CHAIN TIGHTNESS. THEY'LL CONTINUE TO HAVE, WILL CONTINUE TO INCREASE SOME COST PRESSURE, BUT WE HAVE SEVERAL INITIATIVES UNDERWAY TO ENGINEER OUT THESE, ENGINEER OUT THESE COST PRESSURES AND, YOU KNOW, ACTUALLY MAINTAIN AND IMPROVE MARGINS. TAILWINDS ARE ACCELERATING IN AND AROUND SAFE, GREEN, AND CONNECTED POST-COVID. The demand for the solutions that we provide, whether it's high-voltage electrification, ADAS, vehicle connectivity, it's actually accelerating. So that's certainly a positive. As Joe mentioned, we're highly confident in our full-year outlook. Again, near-term, it's going to be a bit choppy, and as we look out beyond 2021, we think we believe we're on a path to multi-year growth, which is going to be both unit-based as well as content growth-based, as we see more demand for high-voltage electrification, for active safety solutions, and vehicle connectivity. So although a challenging environment right now, we're extremely excited about the balance of the year as well as the future. So thank you, everyone, for your time. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.