Aptiv PLC

Good day and welcome to the Aptiv Q1 2024 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jane Wu, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Jess. Good morning, and thank you for joining Aptiv's first quarter 2024 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 Aptiv.com. Today's review of our financials exclude amortization, restructuring, and other special items, and will address the continuing operations of Aptiv. The reconciliations between gap and non-gap measures for our first quarter results, as well as our 2024 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 that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chairman and CEO, and Joe Massaro, Vice Chairman of Business Operations and Chief Financial Officer. Kevin will provide a strategic update on the business. And Joe will cover the financial results in more detail before we open the call at the Q&A. With that, I'd like to turn the call over to Kevin Clark.

Thank you, Jane, and thanks, everyone, for joining us this morning. Let's begin on slide three. Operationally, we had a strong start to the year, demonstrating our ability to execute despite some headwinds. Touching on a few highlights, new business bookings reached almost $13 billion, reflecting the continued demand for our industry-leading product portfolio. First quarter revenue was just under $5 billion, representing adjusted year-over-year growth of 2%, impacted by continued slowing of electric vehicle production in North America and Europe. ...production and increased labor inflation. and earnings per share increased 27% to $1.16. Lastly, we repurchased $600 million of stock during the quarter,

Hello. Apologies.

We seem to have had a technical difficulty, so if it's okay, I'll start from the beginning. So, again, thanks, Jane, and thanks, everyone, for joining us this morning. Let's begin on slide three. Operationally, we had a strong start to the year, demonstrating our ability to execute despite some headwinds. Touching on a few highlights, new business bookings reached almost $13 billion, reflecting the continued demand for our industry-leading product portfolio. First quarter revenue was just under $5 billion, representing adjusted year-over-year growth of 2%, impacted by continued slowing of electric vehicle production in both North America and Europe. EBITDA and operating income totaled $720 million and $544 million, respectively, representing more than 20% growth and roughly 200 basis points of margin expansion, reflecting benefits from productivity initiatives and cost actions which offset lower vehicle production and increased labor inflation. And earnings per share increased 27% to $1.16. Lastly, we repurchased $600 million of stock during the quarter, bringing the total amount of shares repurchased to $900 million over the last two quarters. In summary, the team did an exceptional job delivering solutions to our customers, while at the same time increasing operating efficiencies and reducing our cost structure. Turning to slide four, While we were encouraged by our strong first quarter execution, we believe that it's prudent to update our 2024 outlook to reflect the continued weakness in electric vehicle production, including significant customer schedule reductions over the past few weeks and the current negative impact of foreign exchange rates. As a result, we're lowering our full year 2024 revenue guidance by $450 million, principally reflecting a reduction in our outlook for high voltage revenue growth. While we continue to believe that all regions are on the path to full electrification, some will move faster than others, so we consider it prudent to reduce our near-term revenue expectations. As the industry navigates the current headwinds, we are maintaining our high standard of flawless execution while continuing to reduce our cost structure and strengthen our sustainable business model. We're supporting our customers on a record number of new program launches. almost 2,300 in 2024, including over 750 program launches in the first quarter, the cadence of which gives us confidence in the acceleration of our second half revenue growth. We've also proactively executed initiatives that have lowered our cost structure. In early 2023, we launched several initiatives to improve engineering efficiency in both our ASUX and SPS segments. And in late 2023, we executed additional cost actions more than a 10% reduction in salary payroll. And in response to the recent softness of electric vehicle production schedules, we kicked off incremental cost actions that will generate an additional $50 million of cost savings through the balance of this year. The net result of these puts and takes is a $50 million reduction in our full-year outlook for operating income to $2.5 billion. Above the bottom end of our prior guidance range, representing 11.8% operating margin and just under 80% growth in operating income. I'm pleased to announce that we've reached a formal agreement with the Hyundai Motor Group regarding our Motional Joint Venture, which positions Motional for ongoing success while addressing the needs of both joint venture partners. Joe will go into more detail later in the presentation. Lastly, we continue to believe that our stock is undervalued and presents an attractive opportunity to return capital shareholders. As such, we're doubling our share repurchase target from $750 million to $1.5 billion during 2024. In summary, our conviction regarding the strength of our competitive position and the long-term value of our business is as high as ever, and we remain committed to delivering value to our shareholders. Moving to slide five, as mentioned, bookings reached nearly $13 billion in the quarter, Advanced safety and user experience bookings total $2.5 billion, driven by active safety bookings of $1.9 billion, including our first full system Gen 6 ADAS award, including in-cabin sensing and the full suite of Wind River embedded and studio developer software with an emerging EV player, bringing the cumulative active safety and user experience segment awards to $33 billion since the first quarter of 2021. Signal and Power Solutions new business bookings reached a record of over $10.3 billion, reflecting electrical distribution system bookings totaling a record $7 billion, including an award from a leading global Japanese OEM for both plug-in hybrids and battery electric vehicles for the North American market, and connection systems bookings totaling 2.5 billion, including an award from a leading electric vehicle OEM for high-speed cable assemblies on a global electric vehicle platform, bringing cumulative S and PF segment bookings to $70 billion since the first quarter of 2021. In China, across both segments, we were awarded $3 billion in new business awards with both local and multinational OEMs, including a vehicle architecture award from a leading local Chinese OEM for a low-cost battery electric vehicle, putting us on track to exceed our full-year 2021 to under $6 billion. With our industry-leading portfolio, our global scale, and our ability to execute highly complex programs, we remain confident in achieving our target of $35 billion of business awards during 2024.

Turning to slide six to review our advanced safety and user experience segments, first quarter highlights.

The segment recorded 5% growth, driven by 24% growth in active safety. which is on track for 20% full-year revenue growth, more than offsetting the challenging comparables for user experience in Wind River in the quarter. Solid revenue growth was coupled with ongoing productivity improvements, including the continued maturation of our global product organization, driving higher levels of platform usage and software reuse. The consolidation of engineering centers and the continued rotation of engineering resources to our tech center in Bangalore, India, which is driving our percentage located in best-cost countries to over 75%. The ongoing adoption of Wind River Studio, which is resulting in a roughly 40% improvement in workflow performance in the software building and scanning processes. And lastly, the continued progress we've made validating local Chinese semiconductor suppliers to meet the increasing demand from local Chinese OEMs for localized sources of supply, to provide our global OEMs with increased supply chain flexibility and resiliency at significantly lower costs. In terms of commercial highlights in the quarter, in addition to the Gen 6 ADAS award I mentioned earlier, we're awarded a radar program by Global Japanese OEM for applications across multiple vehicle platforms in the North American, European, and Asia Pacific markets. And Wind River Studio Developer was selected by a major local Chinese OEM to help increase efficiency and reduce costs associated with the development, deployment, operation, and servicing of intelligent edge systems. Moving to slide seven, as I mentioned earlier, an emerging electric vehicle OEM has selected the active Gen 6 ADAS platform to enable turnkey ADAS across a wide range of platforms and models with a start of production in 2026. This is our first full-system productized Gen6 ADAS platform award, building on APTA's proven hands-free highway, full-system solutions, which are already in production. This open, modular, and scalable ADAS platform will enable advanced hands-free urban and highway vehicle automation, driver safety, and region-specific features, including fully integrated sensors, tightly coupled with APTA's edge-to-cloud compute framework. A containerized feature stack enabled by APTA's AI ML enhanced solutions, including radar machine learning and ML-based vehicle behavior. And WinRiver's extensive offerings, such as WinRiver Edge with VxWorks and WinRiver Studio, develop, deploy, and operate the software over the life of the program. This awards a testament to our ability to deliver a full system, productized solution to our customers, while validating the value of our Gen6 ADAS platform, which includes flexibility across key layers of the staff to meet our customers' needs, scalability of hardware and software components from entry-level compliance up to level 3, and industry-leading performance at a very competitive cost. Turning to Signal Power Solutions' first quarter highlights on slide 8, We continue to benefit from our industry-leading portfolio, global scale, and experience designing and developing optimized vehicle architecture solutions across the entire range of powertrain platforms, from the internal combustion engine to battery electric vehicles. First quarter revenues increased 1%, driven by strong growth in China, partially offset by decline in high-voltage revenues. America and Europe that I mentioned earlier. New business bookings during the quarter totaled over $10 billion. We continue to gain traction with top local OEMs in China. During the quarter, electrical architecture bookings with China local OEMs reached more than $1 billion, including major awards across each of the five top local OEMs. And we received our first high-voltage integrated power electronics award for a DC-to-DC converter's from a global EV manufacturer for its next-gen vehicle platforms. As discussed previously, our signal and power solution segment continues to be impacted by increased labor inflation. To mitigate the impact, the operating team has initiated several actions, including the further consolidation of our manufacturing footprint, while rotating more of our footprint to Central America and North Africa, and modifying vehicle architecture designs to enable the increased automation of select manufacturing processes. So the target's increased automation to 30% of standard labor hours by 2026 and over 50% by 2030. Moving to slide nine, as our OEM partners adapt to the shifting pace of consumer electric vehicle demand and emission requirements, AFTED is positioned to deliver high-performance, cost-effective solutions the power train spectrum and adapt our capacity to align with the needs of our customers. Starting on the left of the slide, as we've discussed previously, we're benefiting from significant and increasing addressable content per vehicle, from approximately 800 in electrical architecture content for an internal combustion engine platform to approximately 2,300 for a full battery electric vehicle. In many cases, This incremental content represents an opportunity to apply existing capabilities to a much larger addressable market. Although global penetration rates for hybrids and value electric vehicles may fluctuate in the near term, we firmly believe that the long-term macro tailwind remains attractive as the industry continues down the path to full electrification. That said, we've taken a more conservative approach to the pace of electrification, and while we will continue to be more conservative than the broader market sentiment, our outlook still represents a significant market opportunity with meaningful future upside. Finally, on the right side of the slide, the strength of our current portfolio across regions, powertrains, and platforms significantly inflates the business from any single industry headwind. To illustrate this point, if we were to assume that growth of all electrified vehicle platforms on which we have content was reduced to zero in 2024, including low voltage solutions on battery electric vehicles, with no substitution from ICE vehicle platforms, our overall growth rate would decline by one to two points. As a result, we believe that we're uniquely positioned to deliver innovative solutions to our customers

and value our shareholders across all Powertrain platforms.

Moving to slide 10, before I turn the call over to Joe to walk through the financials, I wanted to touch on two recent customer events. In late February, the Wind River inactive team exhibited at Mobile World Congress in Barcelona, giving us the opportunity to collaborate with a wide range of Telco customers and partners. The team showcased our ability to support operations at scale for 5G VRAN and O-RAN deployments, while highlighting solutions being leveraged by our customers to improve performance and reliability, reduce costs, and unlock new business models. Among the many areas of interest to our telco customers was our unique ability to support the convergence of telco infrastructure with a software-defined vehicle, enabling the deployment and update of new services much faster and much more efficiently. Last week, we took the opportunity to further strengthen our strategic partnerships in China during the 2024 Beijing Auto Show. Led by our local China management team, we engaged with a wide range of customers to discuss key technology trends, consumer expectations, and performance and cost requirements that are unique to the China market. Local OEMs are demanding full system solutions spanning both hardware and software. while consumer interest is accelerating for higher levels of ADAPT and enhanced user experience. Aptiv is perfectly positioned in this market to deliver solutions with increased flexibility, higher performance, and faster speed to market, all at a much lower cost. While we have active engagement with customers across all regions and end markets, it's important to note that all are essentially asking for the same thing. the right hardware, the right software, and the right engineering tool chain to support software-defined functionality for mission-critical applications. And as a result, our unique edge-to-cloud portfolio positions apt to capitalize not only on the automotive industry's transition to software-defined vehicles, but also on the digital transformation and convergence of multiple industries as intelligence increasingly moves to the edge. By leveraging these proven solutions across industries, Aptis is positioned for sustained, long-term, profitable growth. With that, I'll now turn the call over to Joe.

Thanks, Kevin, and good morning, everyone. Starting with the first quarter on slide 11, Aptis delivered strong financial results in the quarter, reflecting robust execution across both segments and continued progress in our cost savings and margin improvement actions, resulting in operating margin improvement of 200 basis points over the prior year. Revenues were $4.9 billion, up 2%, or 3% above underlying global vehicle production, which was down 1% in the quarter. Growth was negatively impacted by the continued slowing of battery electric vehicle platforms in the quarter, particularly in North America and Europe, where we saw our high-voltage revenue down 2% and 6%, respectively. Revenues on ICE platforms and high-voltage solutions on hybrids were up 2% and 26%, respectively. As I will discuss shortly, given the continued weakness in electric vehicle production, including significant customer schedule reductions over the past few weeks, we are revising downward our 2024 outlook for the year. Adjusted EBITDA and operating income were $720 million and $544 million, respectively. Operating income margin expanded 200 basis points versus prior year. in part driven by cost reduction and recovery programs put in place in 2023, as well as continued achievement of our operating performance initiatives, including the continued rotation of our engineering footprint to best cost locations. The year-over-year effects and commodity impact were negligible. Earnings per share in the quarter were $1.16, an increase of 27% from the prior year, including year-over-year earnings growth of 24%, partially offset by higher tax expense, And sharer purchases completed in 2023 and the first quarter of 2024 added approximately 3 cents to EPS in the quarter. Operating cash flow was strong, totaling $244 million. Capital expenditures were $265 million. And sharer purchases totaled $600 million. Looking at first quarter revenues on slide 12. As noted, revenue of $4.9 billion was up 2%. Revenue growth was driven by strong active safety growth as well as growth in commercial vehicle and engineer components, partially offset by lower high voltage revenue. Net price and commodities were a positive to the top line, partially offset by foreign exchange. Moving to the right, revenues outgrew vehicle production in all regions. North American revenues are up 2%, or 1% above market, driven by increases in active safety and engineered components, partially offset by lower high voltage. In Europe, revenues are down 1% year-over-year, or 2 points above vehicle production, with lower EV production in the region, partially offset by double-digit growth in active safety. And in China, revenues grew 5 points over market, driven by growth with several key local OEMs.

Moving to the ASUX segment on the next slide.

Revenue growth was 5% or 6% above global vehicle production. Active safety was up 24% in the quarter, benefiting from new program launches as well as continued strong demand across all regions. User experience was down 8% in the quarter, primarily driven by the roll-off of a legacy program in North America and lower multinational JV volumes in China, as discussed during our year-end earnings call. Wind River revenue decreased 16% in the quarter due to a strong year-over-year comparison. As we have discussed, Wind River revenues are lumpy on a quarterly basis. For the full year, we expect mid-teens revenue growth at Wind River. Segment-adjusted operating income in the quarter was $155 million, up significantly over prior year. driven by cost reductions taken in the second half of 2023, as well as ongoing performance initiatives, including continued rotation of our footprint. Operating income margin in the quarter was 10.8%. Turning to signal and power on slide 14. Revenue in the first quarter was approximately $3.5 billion, an increase of 1% or 2% above vehicle production. Driven by growth in engineered components of 3%, declines in high-voltage revenue on BEVs were partially offset by growth in hybrids, which make up approximately 25% of our high-voltage product line revenues. And China revenues were up 11%, as we saw SPS growth of approximately 30% with local OEMs, while we saw growth of 2% with foreign OEMs. Segment-adjusted operating income was $389 million, or 11.2%, up 40 basis points over prior year, as our cost savings and operating performance initiatives significantly reduced the impact of higher labor costs, and pricing commodities were positive, and on a year-over-year basis, the OI impact of foreign exchange was minimal. Moving to slide 15 and our updated macro outlook. As Kevin mentioned, over the past several weeks, we have seen both legacy OEMs as well as global EV OEMs lower production schedules, primarily in North America and Europe. These reductions are being partially offset by select increases in ICE platforms, particularly in North America. As a result, we estimate global vehicle production to be down 1% for the year from a prior forecast of flat. Our outlook for revenue growth is now 5% for the year versus our prior outlook of 7%, reflecting growth over market of 6%. As for our key FX and commodity rates for the remainder of the year, we are now assuming copper at $4.35, Mexican peso at 17 pesos to the dollar, and the Chinese RMB at 7.15. Slide 16 has our updated full-year outlook. As discussed, our Q1 operating results were substantially in line with our expectations, including the benefit of our cost savings and performance actions. However, as we look at the balance of the year, we do see several likely and persistent headwinds that have caused us to revise and de-risk our full year outlook. The revised outlook includes revenues of $21.15 billion, down from the prior midpoint of $21.6 billion, representing adjusted revenue growth of 5%. The lower revenues result from the previously mentioned customer schedule reductions, as well as an additional reduction to our H2 revenue growth based on current market conditions. As a result, first half revenue growth has been lowered to 2% from our prior outlook of 4%, and second half growth is now 8%, down from over 9%. Operating income of $2.5 billion, or 11.8% of revenues, down $50 million from the prior midpoint. We are increasing our EPS estimate to $6.05 a share at the midpoint, as the negative impact of the reduction in earnings is more than offset by the benefit of our share repurchase activity, as well as the benefit of the previously mentioned motional transactions, which I will cover in more detail in a moment. We have increased our outlook for operating cash flows, primarily reflecting improved working capital. And we are now targeting share repurchases of $1.5 billion in 2024, up from our prior guidance of $750 million. Moving to the next slide, we lay out the more significant changes to our outlook. With respect to revenue, global vehicle production decreasing from our previous outlook of flat to now down 1%. Reduction of our full-year high-voltage revenue growth from 20% to 5%. The decrease in high voltage is partially offset by increases in ice production schedules, primarily in North America, as well as increases in net price and commodities, reflecting higher copper prices that offset the foreign exchange impact on revenues. The decrease in operating income is driven by the flow through on lower revenues, as well as the negative impact of foreign exchange, primarily the peso and RMB. As it relates to the Mexican peso, although many forecasts expect the peso to weaken over the course of the year, the peso has remained stronger than our initial expectations. Accordingly, we have updated our guidance to reflect an exchange rate of 17 pesos to the dollar. This is more in line with the current spot level and also represents the level at which we have hedged approximately 90% of our 2024 peso exposure. And finally, despite the macro headwinds, fully expect the benefits of the cost savings and performance actions we delivered in the first quarter to continue, partially mitigating the volume and foreign exchange impact. Turning to the next slide, we thought it would be helpful to walk our expected first half versus second half revenues in 2024. Second half revenue is expected to increase approximately $800 million. The increases in both segments are driven by new program launches with key customers in all regions. ASUX half over half revenue is expected to increase approximately $200 million. With over half of the increase coming from the launch of one of our largest active safety programs across additional platforms in North American Europe for a global OEM. These additional platforms are internal combustion vehicles and represent several of the OEM's best-selling platforms. Approximately 40% of the launch volume is with local Chinese OEMs, including several launches that have already commenced. The increase in signal and power of $500 million includes a launch totaling over $100 million on a large North American internal combustion SUV platform, an additional $100 million across two OEMs for new internal combustion truck launches in North America, and Chinese market launches and volume growth for both local and foreign OEMs of over $100 million. The increase in sales will deliver margins higher in the second half with volume flow through of approximately 30%, partially offset by incremental FX headwind of approximately $35 million due primarily to the peso. Moving to the next slide. As Kevin noted, we are excited to announce that we've reached a definitive agreement with Hyundai that provides for the future success of Motional while meeting the needs of the joint venture partners. As part of the agreement, Hyundai will provide Motional additional funding of $475 million. Hyundai will acquire 11% of Motional's common equity held by Aptiv for $448 million. And Aptiv will convert approximately 21% of our common equity interest to a preferred stock holding. Hyundai's funding of Motional will occur in the second quarter. and we expect the acquisition of active shares, which is subject to customary regulatory review, to close by the third quarter. The preferred stock conversion will coincide with the sale of our common equity to Hyundai. Our updated guidance includes approximately 30 cents of additional EPS, reflecting the benefit of the lower emotional common equity holdings beginning in the fourth quarter of this year. On a full year pro forma basis, The lower dilution promotional will develop an incremental EPS of approximately 90 cents per share, beginning in 2025. Before handing the call back to Kevin, I'd like to walk through our updated earnings per share expectations in more detail. Building off the strong performance in the first quarter, the year-over-year EPS growth of 24% is driven by higher earnings of $1.32, as well as the benefit of share repurchases in 2024, and the improvement resulting from the transaction with Hyundai to reduce Aptiv's common equity holdings emotional, more than offsetting the increase in Aptiv's tax rate, which was included in our original guidance. In summary, despite the lower vehicle production levels and slowdown in high voltage, we are confident that the measures taken to improve first quarter operating income and cash flow are sustainable for the balance of the year. The earnings and cash flow growth, combined with the proceeds from the emotional transaction, provide us the opportunity to continue our long track record of balanced capital deployment, including the return of capital to our shareholders. When combined with the 2023 share purchases, our outlook for 2024 results in almost $2 billion of capital return to shareholders in the past two years, increasing total capital return to over $9 billion since our IPO. With that, I'll turn the call back to Kevin for his closing remarks.

Thanks, Joe. I'll wrap up on slide 21 before opening the lineup for questions. Overall, our strategy remains unchanged. While the industry navigates the near-term headwinds, we'll continue to provide flexible, high-performance, cost-effective solutions to our customers that enable the transition to the electrified, software-defined vehicle. We remain focused on false execution and operational excellence, which enables us to delight our customers, while optimizing our cost structure to expand margins and deliver value to our shareholders. We executed well in the first quarter and are later focused on continuing to execute, which will position us well for the remainder of the year. Operator, let's now open 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 make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up. You may rejoin the queue for additional questions. Again, that is star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. And we will take our first question from John Murphy with Bank of America. Your line is open. Please go ahead.

Good morning, guys. I just wanted to ask first on the customer side and then second on automation. First on the customer side, Kevin, the winds with these Japanese OEMs on the radar and sort of the high voltage on the hybrid side sounds like a real positive. I'm just curious if you can comment about where you stand with the Japanese, because as I understand, they're very small in the book of business right now, but are they growing? And then also just on the Chinese OEMs you mentioned, that they were looking for locally sourced semiconductors, which I guess makes kind of sense, but it just kind of, I think, makes people nervous that they might be looking for more locally supplied, you know, everything. And I'm just curious how they view you, Aptiv, as a supplier, as being sort of a local or maybe a U.S. kind of a supplier, so Japanese and Chinese potentials.

Hey, John, hi.

No, the first part of the question is the potential with the Japanese, right? I mean, it sounds like you're making more headway there than you have in the past on the radar and then the high voltage just on the hybrid side. So it sounds like there's a real opportunity there that's beginning to grow.

Okay, thank you. Listen, let me start with the second part of the question, or the second question, and I'll come back to the first. The Chinese OEMs, especially the Chinese local OEMs, the reality is they are looking for local sources. It's one of their objectives to localize the supply chain. As you know, we've had this conversation. We've been in China for close to 30 years and have operated in China to serve the China market. the tier two, tier three supply chain to provide them with solutions. As you can imagine, given some of the geopolitics, they are especially focused on the semiconductor space. So that is an area just, again, given the strength of our supply chain and our historical presence in the market, we had some capabilities. 2021 and 2022, we doubled down on enhancing our capabilities in that particular market. I think I've mentioned previously, we're partnering with over a dozen semiconductor manufacturers in China to deliver their solutions to the automotive market in China. And that's from SOC down to the peripheral sort of semiconductor chips. So that's an area focused. Alternatively, we have a number of non-Chinese OEMs who are very focused on cost reduction and material savings who we're presenting these opportunities to. Several of them are interested in the options, and we'll report out when we actually have commercial links with them. That relates to the recent Japanese awards, especially on the ADF side, as well as on the plug-in hybrid and BEV side. Listen, over the last couple of years, we've been increasingly focused on Japanese OEMs, especially Japanese OEMs, and the Japanese market. So I think it's the net result of the progress we've made, and quite frankly, several of the players like Honda, like Nissan, and now we're starting to make progress with the largest Japanese OEM.

And just one quick follow-up on the automation comment. I mean, you said 30% by 2026, 50% by 2030. I mean, what's the baseline that we're starting from now, and what would that mean as far as labor as a percent of total sales? I'm just trying to understand if this is a cost-savings program cost mitigation program, or just what you're going to have to do going forward?

It's all of the above. So it solves the problem related to availability of labor. It solves the problem as it relates to cost of labor. of labor hours. So I don't have offhand the average number of labor hours on an average wire harness, but it's a 30% reduction in those labor hours. So it'd be a significant cost savings, as you can imagine.

And baseline on automation right now that we should think about?

Baseline right now, we're running at roughly 15%.

Okay, very helpful. Thank you, guys.

Our next question comes from Etai Michele with Citi. Your line is open. Please go ahead.

Great, thanks. Good morning, everybody. Just two questions on my end. First, on the Gen 6 award, Can you maybe share kind of what the CPV on that award is and maybe what the rest of the pipeline looks like? You know, could this award now catalyze additional wins? And second, maybe just, it looks like you're sticking with the long-term six- to eight-point GOM framework. Maybe talk a little bit about that. Is there maybe now bias more toward the lower end of the range, or could GOM potentially even accelerate next year?

I'll answer the first question. Maybe Joe can answer the second. As it relates to the Gen 6 ADAS award, I don't want to give specifics because, as you can imagine, from a pricing standpoint, it's somewhat sensitive commercially and competitively. We've talked in the past about L2 plus, sort of L3 content per vehicle, this particular and studio solutions. So as you think about that, you should think about it being roughly in that traditional range that we've talked about. Given what we're doing from an AIML standpoint with our radar solution, given our overall approach to sensor fusion, I guess we've talked in the past, our overall Gen 6 ADAS platform can deliver anywhere between 15% to 30% savings to our customers depending upon the configuration of the platform. So it's a very competitive solution.

And anytime it's Joe, on growth over market, yeah, just one of the prepared remarks, I think we're close to the 6% of that range based on how we see 2024 today. Obviously too early to rack up 2025, particularly with just some of the dynamics we've seen in customer schedules over the past, really over the past month. But I would think it's within that 6% to 8% range. I certainly wouldn't go up above that at this point.

Perfect. All that's very helpful. Thank you.

Our next question comes from Joe Speck with UBS. Your line is open. Please go ahead.

Thanks. Good morning, everyone. Joe, maybe to start, just ASNUX margins in the quarter – really strong, I think, a large surprise versus street expectations. Anything going on there specifically in the quarter we should think about, and how should we think about the margins in that business over the balance of the year?

Yeah, Joe, I would say, you know, nothing stands out in the quarter, you know, from a sort of a one-off perspective, certainly nothing material. I would I would say we've been working very hard on those margins for a long period of time, as you know, with both the supplier side of things and then taking costs out of the business. We had some cost actions that we put in place last year, and this engineering rotation has been going on for a period of time. So you'll, you know, I think you're talking about sort of seeing the high 10, you know, call it 10.5% to 11% margin in that business, you know, being maintained certainly for the full year. It's going to be, you know, it's a little lumpy. Q3 is obviously a little lower for us at times. But, you know, I think that's where we're starting to see this business and should come out of, you know, should come out of the year, call it in the mid-10s. Okay.

Thank you. And Kevin, I just want to go back to the China conversation and a couple of things here, because obviously there's a lot of volatility. There's a lot of new players. You see emerging players like Xiaomi and Huawei. So maybe you could sort of give us a sense of how you think your positioning is with some of even the new emerging players. And we all saw the news about VW and Xiaopeng on the electrical architecture. What does that mean for your prospects going forward in China? Back to John's question about one competitiveness, I guess, of vehicles in China, but also a desire for Chinese supply chain.

As you know, as I said, we've been in the China market for a long period of time, and You know, clearly the market has rotated from dominance by the multinational joint ventures to a much stronger localized Chinese OEMs. Over the past three or four years, we've talked about the rotation of our bookings and the mix of our bookings significantly rotating from the multinationals to the locals. I think over the last couple of years or so, dollar value of our bookings has roughly matched the mixed shades between the Chinese locals and the multinational JVs. We're still a little bit behind that from a revenue standpoint, but it's well over 50% that now is with the local Chinese OAMs. A significant portion of our bookings last year and this year will be with the Chinese locals. So that's an area where we think we'll continue to close that gap over the next 12 to 24 months from a revenue standpoint. There are several of those, the leading Chinese local OEMs who are very focused on export to Europe and possibly to North America as well as manufacturing in Europe and North America. I would say we are working now with virtually all those who are entertaining that, who are looking for... supply solutions that meet the requirements of the European and the U.S. markets, which tend to be a little bit different from what's in the China market. So we feel like we're well positioned for both growth in China as well as very well positioned as they decide to either export or move production outside of China.

Okay. Maybe just one quick follow-up. I know you mentioned that the the mix of business within China is sort of moving, and it sounds like it's now over 50-50, but what about, like, if we just think about your overall bookings, like, what percent of that is, you know, in China, domestic China? Do you have a sense?

Yeah, in China, we're running the exact number, probably close to 70% local bookings versus the multinational JVs. Last year, we were up over 60%. So it's been... certainly moving in that direction. And it should be, you know, a year to two years.

Sorry, like of the 34, 35 billion or whatever, like how much of that is local Chinese players? I think 70% of $6 billion.

So, yeah. Okay. Thank you very much.

We'll go next to Chris McNally with Evercore. Your line is open. Please go ahead.

Thanks so much, team. Two questions. One pretty simple. Just, Joe, you mentioned new margin for AF at 10.5%. Does that sort of imply, would you think SPS is probably on the lower end of something more like 12% to 13%? That's probably where you have more of the pace of exposure.

Yeah, one second, Chris. Let me make sure I'm getting the right number.

SPS, 11.2% in Q1. Yeah, I would say you're in the, you know, call it 12 to 12.5 for coming out of the year.

And then the same, the growth over market split, ASUX probably a high single digit and SPS because of the high voltage now at 5%. Is that closer to 3% or 3% to 4%? What's the split on growth over market?

Yeah, I'd say low to mid single digits on SPS, yep.

Perfect. And then the second question is, you know, is a bigger question. You know, when I, when I think about, you know, capital allocation, obviously, you know, one and a half billion for the buyback this year, you know, use words like, you know, opportunistic, obviously your stocks at a very low multiple. But when I look at the free cash flow generation over the next couple of years, you know, anywhere from a billion to this year to 2 billion in the next couple of years, could this sort of level of buyback or sort of this new priority, be something that stays for a multi-year basis you know traditionally you've been a lot more acquisitive both on the large acquisitions so i'm just curious if this could be something that's you know more sustainable of a higher level buyback for a multi-year basis or at least until the stock re-raises yeah chris i think i think at at current levels it's it's fair to assume we we um

we continue to buy back stock at fairly healthy levels. The reality is we view our stock as undervalued. Obviously, we'd like to see stock price appreciation and an important part of what we're trying to do is to build out our capabilities in and around the software stack, as we've talked about, and quite frankly, diversify our revenues further in the industrial markets as well.

2025 will be on.

Thanks so much.

We'll move next to Sriya Patel with Wolf Research. Your line is open. Please go ahead.

Hey, thanks a lot for taking my question. Maybe just thinking about where the underlying growth rate is for the business today. So you're pointing to six points of growth over market for this year. I know there are a lot of puts and takes, but I think in the bridge that you had provided, last quarter, it implied about maybe two points of tailwinds from price recoveries, for example, that were tied to semiconductor inflation last year. But there are also mixed headwinds in China, which sounds like you're mitigating with new launches. So just trying to get a sense of where the underlying rate of growth is today as you see it.

Yeah, I'm not sure I get the pricing comment or the recovery comment, but Listen, I think our long-term view, the framework is 6% to 8% in a flat market, right? So that growth over market is generally consistent with the adjusted growth rate. Obviously, to move a bit with vehicle production, we're obviously working through the high-voltage headwind at the moment. We've seen those schedules come down. But as I talked about in my prepared remarks, we're seeing good hybrid growth. We're seeing the internal combustion volumes come back up. So, you know, and Kevin talked about, you know, from a portfolio perspective, you know, sort of fully capable of, you know, servicing all powertrains.

There's really no capability or product line that we lack from that perspective.

Okay. I guess then, so if I'm thinking about the incremental performance savings that you're expecting this year, are those tied to the automation initiative you're talking about, or is that more... of the footprint actions, like in SPS?

Yeah, automation will be longer term, as Kevin talked about. We've, at the end of last year, second half of last year, really started to focus on, and again, the business has changed a bit, so I shouldn't surprise folks. We've looked at the cost structure. We've had a salary and overhead reduction, took out some overhead. We always do that. You know, we've been pretty vigilant over the past, you know, 10 years at least of managing that cost structure. And really what you're seeing now is the benefits of that as well as, you know, what we talked about in Investor Day. I mean, I appreciate the high voltage revenues come off, but, you know, a lot of other things we talked about in Investor Day are on track, right? We talked about that engineering rotation. We talked about getting engineering down as a percent of sales. We talked about, as you recall, that performance bucket with a few hundred million dollars of performance initiatives every year between 23, 24, and 25. And we are ticking the boxes on those, and that's where you're seeing that margin improvement.

Okay. And then maybe just a quick last one is just on FX, you didn't see much of an impact in the quarter, but it looks like the headwind is going to be for the rest of the year. I mean, last year when we saw the PAYSO increase, strengthening was kind of the opposite effect where it was largely impacting you in Q1. So maybe just trying to think about, you know, how much of that FX impact is Peso versus Brennan B. Just trying to get a sense of that.

Yeah, R&B is in there. The Peso is the more significant. Listen, I think you've got to distinguish between the actual year-over-year and the guide, right? The actual, the Peso... Unfortunately, in Q1, it's pretty consistent with where it was in Q1 of last year, between the 16 and low 17s. That's why there's not a significant impact on a year-over-year basis, comparing actuals to prior year actuals. The guide we had at 1825, as I said in my prepared remarks, we expect that pace to strengthen over time. It is obviously not happening, and I think our view is we do with most macro headwinds, once it's clear they're not abating, is we put it into the guide and we take out costs to offset it. And that's effectively what we've done. We also, as I said, have a benefit of a hedge we put in place where, you know what, 90% of our peso exposure is protected below 17, which is why we pegged to the 17 rate.

Okay, thanks. Yep.

We'll go next to Mark Delaney with Goldman Sachs. Your line is open. Please go ahead.

Good morning, and thanks very much for taking the questions. You took your view for high-voltage revenue for 24% to 5% from 20%. Beyond this year, does that have to think a 20% CAGR in high-voltage revenue is still achievable, and does the composition between BEVs and PHEVs change at all as you think about the longer-term high-voltage outlook?

I'll start with our customers.

In dialogue with our customers, our customers are still pushing forward with the introduction of battery electric PU. pushing in that direction. In addition to that, they're talking about launching incremental plug-in hybrid or hybrid programs as well to augment their overall product portfolio. So likely near term, our general view is you'll see a richer mix of plug-in hybrid relative to what we've had historically. On a go-forward basis from an overall growth rate of electrification, we'll see Obviously, it's been a couple of challenging quarters as it relates to our high-voltage revenue growth. As Joe and I have mentioned, over the back end of the quarter and in April, we saw a significant reduction in schedules. They seem to have stabilized, but as we get closer, maybe into the middle of the year, we'll be able to get more visibility as to what we think that growth rate looks relative to battery electric vehicle needs.

Thanks for that, Kevin. Second question I had was on margins. You had your best 1Q EBIT margin, I think, since 2018. Can you talk a little bit more on what led to the margin strength in the first quarter and specifically how much some of the footprint actions may have contributed? Typically, 1Q is the seasonal low point for the year, but can you talk about how 1Q may compare to the normal seasonality with EBIT margins and is you know, more of a typical year or something more unusual in one queue from 2024? Thanks.

Yeah, maybe I'll start. Listen, I think we go back to 2018. We went through COVID 2020, 2021, and then we went through semiconductor challenges. So we had, you know, three years there that were extremely, extremely choppy from an overall operational standpoint and margin standpoint. We feel like the... the macro environment has largely at least stabilized from an availability of products to keep the supply chain full. So we're able to operate much more efficiently and effectively, as are our customers, as are our suppliers. So it gives us greater ability to plan. As Joe mentioned in his prepared comments, Since 2023, when things stabilized, we've been really, really hyper-focused on how do we significantly reduce our cost structure. That's through operational initiatives within the four walls of our plants, as well as initiatives in our engineering factory, as well as continuing to reduce our overall overhead. Like I mentioned earlier, We reduced salary payroll last year over 10% by delayering, by consolidating, by making the organization operate more efficiently. That's something we'll continue to do. Typically, this is a business where you see margin expansion from first half to back half because back half tends to have more production than the first half. Then the first half does. We'll see how this year plays out. There's a little less clarity right now as we sit here. based on what we've seen over the last month, but we'd expect to see continued operating improvements, including continued performance improvement, really across all aspects of our cost structure.

So it's everything. It's really everything. Thank you.

We'll go next to Dan Levy with Barclays. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking the questions. I'm wondering if you could just address a couple points on active safety. Any voiceover on the solid result in the quarter? I think it was up 20, 25% or so. And then is the expectation to still see 20% plus growth in ADAS for the year? Are you still seeing launches, content growth in techs?

Yes, so as Joe mentioned, we're launching both new programs as well as launching existing programs across a broader set of models within OEMs. There continues to be increasing significant consumer demand for active safety solutions. So it continues to be an area that we believe will see strong revenue growth.

Yeah, Dan, it's Joe. We're forecasting 20% plus, a little bit over 20% for the year. So we'll have a, you know, like things, you know, as we go back to just the old way the business is historically run, it won't shoot perfectly straight every quarter, but we go into some very heavy launch activity, as I said in my prepared remarks, in the back half of the year. you know, launches run up and then have a bit. But, no, that business is strong and would see that continuing. As Kevin mentioned, we had close to $2 billion of bookings in this quarter alone on active safety.

So continue to see very strong traction on active safety.

Great. Thanks. And then as a follow-up, wondering if you could just provide some comments on the price versus inflation dynamics. Is inflation, and you talked to some incremental inflation coming into the cost structure this year, is that coming in as planned? And then how much pricing did you get in 1Q, and what's the pricing outlook for the year? Are we back to sort of typical 1.5%, 2% price downs? Is there any offsets that you're getting in your commercial discussions?

Yeah, Dan, I would say the dynamics move from direct material inflation to very much labor inflation. We're obviously in discussions with customers around issues around labor inflation. Some of that's recovery. Some of that, as Kevin mentioned, is going to be leaving places like Mexico that are becoming too expensive and reducing labor in those places, to Kevin's point on automation. I would say we've seen significant slowdown in those direct material costs that needed to be passed through with customers, and it's a It's more of an inflation discussion around labor. And those, you know, there's a couple of levers we have to pull on those. And like we talked about, you know, we've started to take cost actions to deal with it. And I think there'll be a number of things that you see. I think long-term, you know, and we've said this for a while, we'll return to, you know, that net price was right around 1.7% before all the material inflation. We expect that to continue long-term. I'd have that in the outlook. But I think labor inflation is something we'll deal with both at the customer level to the extent customers don't want to relocate facilities or get serviced out of other countries will have increases. And in other cases, we will move the plants.

Got it. And then just within the quarter, what was the pricing? Because I said price commodities was one bucket.

Price commodities, because you've got the copper and inflation in there as well, was about $35 million positive on the revenue line.

We'll go to our next question from Adam Jonas with Morgan Stanley. Your line is open. Please go ahead.

Hi, thanks for squeezing me in. So Kevin and Joe, nobody knows electrical vehicle architecture and active safety combined better than you. I mean, nobody. So I'd be curious in your opinion, from a user experience and from a capability perspective, do you see an advantage of level two plus systems fitted to a software-defined electric vehicle versus the capability and experience of the same system attached to an internal combustion non-software-defined vehicle system? Thanks.

Yeah, that's an interesting question.

I'm not sure if... the consumer experience ultimately would be better on an electric vehicle with a, you know, a BEV vehicle architecture versus architecture around an internal combustion engine. I think what we would say ultimately is the BEV architecture would be more optimized and ultimately would allow for savings both from an architecture standpoint and from an ADAS system standpoint, right? And would enable, you know, a much more optimized both vehicle architecture, hardware architecture, as well as software architecture. So it would provide more flexibility as it relates to upgrades, enhancement, things like that. It would make it easier. And maybe the way you translate easier is into more cost-effective architecture. So that's one of the kind of our views is we take a step back. We can't perfectly predict the timing of all aspects of the future, but we still believe there's a significant momentum towards electrification, towards smart vehicle architecture, towards a software-defined vehicle. And it all comes down to performance and cost. And there's an element of gravity there.

I appreciate that, Kevin. And I'm also, just as a follow-up, people in the robotics community are describing two years ago as the good old days, and that there seems to be a revolution in the last couple years with large language models and Gen AI now rolled into multimodal models with visual learning models to help autonomous systems and robotics learn faster and better without as much of the rules-based. They're really kind of attached to the flywheel of AI. I'm sorry if I'm speaking in platitudes here, but I think you know exactly what I'm talking about. I'd be curious if, A, you agree that there have been some profound changes in AI's role on robots and a car form factor, which is something you enable, and how that might be changing the decisions that you make and how your capital is deployed.

Thanks.

Yeah, that's a great question and a complex question. Listen, I agree that AIML has changed a number of things, and you're right. It's actually changed how we approach a number of the products that we develop, like radar solutions, right, is a great example, any perception solution. So I think it's a pretty easy argument to make today that the utilization of tools like AIML allows the advancement to move much faster in a much lower cost. And we're seeing that and we're benefiting and reduce cost. I think one of the items that, so we're using AIML, one of the items that we think is somewhat unique relative to the automotive industry, and I guess one could debate whether it's necessary or not, but the concept of safety and traceability, and the complexity that things like AIML can introduce to that in terms of lack of traceability, makes that calculus a bit more complex. And when we sit down with our customers today and talk about how systems that are integrated operate, they want to know why things or how things fail or how they can determine things fail. Now, we'll see if that changes at some point in time, you know, in the future. But now it needs to be a balance between, you know, an element of the traditional rules-based and, you know, a full AI system

I appreciate it, Kevin. Thanks, everybody.

And we will take our final question from Tom Narayan with RBC. Your line is open. Please go ahead.

Hey, thanks for taking the question. I'll try to be real quick. You know, you have your three power trains. You talked about ICE, hybrid, plug-in hybrid. Europe seems to be going more, a lot of hybrid growth. China is more plug-in hybrid, let's say. Maybe the U.S. is more ICE. Just curious, as these kind of dynamics change, how does that impact your guys' S&PS? Is it easy to pivot? Is there kind of retooling involved to try to change these different power trains, or is it just a really just straightforward change?

product line, so if it's pure BEV product, so whether it's a bus bar or it's a connector for a battery electric vehicle or a harness, it tends to have a specific set of equipment with specific tools. A lot of those are within existing facilities that we have that produce products for both low voltage as well as high voltage solutions, so there's a some ability to pivot there. When you think plug-in hybrid and hybrid, there's some overlap between that product portfolio that goes on a bed vehicle that would also go on a plug-in hybrid or a hybrid vehicle. There's some work that needs to be done, but it depends on the specific situation, and oftentimes it's not real significant to shift from one to the other.

Yeah, it's not something outsized, Tom, that you'd see like pop up in CapEx or something.

I think it can be managed within the existing business and financial framework.

Yeah. The other thing that's come up, there's some pretty big legacy OEMs or reported results this past week commenting on their efforts to reduce their dealer inventory levels. We saw some big just general production cuts on the quarter. I mean, they're all saying they're going to do big H2s. But I'm just curious if you're seeing or hearing any just overall high-level downside to overall global production, which would impact all powertrains.

Yeah, we brought our output for vehicle production down a point. The biggest piece of that is not related is Joe and I have, have talked about. There are some OEMs that we've seen an increase in production schedules for products that have internal combustion engines, but net-net, we view production to be down.

Yeah, as I said in my prepared comments, Tom, April was a month of schedules coming down, with a few exceptions. There were some ICE platforms that popped up, but I would say both legacy global OEMs and global EB-only OEMs, we saw schedules come down. in the past four or five weeks. And that's really what we're – that's what is driving the takedown in the top line.

Got it. Thanks a lot, guys. Great, thanks.

That will conclude the Q&A session. I'd like to turn the conference back to Kevin Clark for any additional or closing comments.

Thank you, everyone, for taking the time today to listen to our earnings call. Take care. Have a good day.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.