Aptiv PLC ($APTV) Q4 2024 Earnings Call

Thanks, Jane, and thanks everyone for joining us this morning. Let's begin on slide three. Aptiv ended the year on a solid note with fourth quarter results in line with our expectations, demonstrating our ability to execute in today's dynamic market environment. Touching on a few of the highlights, new business bookings reached a fourth quarter record of 10.1 billion, reflecting the strength of our portfolio of industry-leading advanced technologies. Revenue totaled 4.9 billion. That's down 1%. The result of strong revenue growth from new program launches across key product lines, offset by continued weakness in production schedules at select OEMs, primarily in Europe and with multinational joint ventures in China. Quarterly operating income reached 623 million reflecting strong operating performance and ongoing cost reduction initiatives, which also along with share repurchases and the restructuring of Aptiv's ownership interest in the Motional joint venture drove earnings per share growth of 25%. Lastly, operating cash flow totaled a record 1.1 billion, allowing us to accelerate our deleveraging, which Vun will discuss shortly. In summary, our team is doing an exceptional job addressing the evolving needs of our customers while also operating efficiently and further optimizing our cost structure.

Moving to the next slide to cover our major achievements during 2024. Aptiv has continued to capitalize on the safe, green, and connected mega trends, reaching numerous technology milestones during the year, including two awards for full system Gen 6 ADAS platforms, one of which is from an EMEA based OEM that also includes in-cabin sensing and our full suite of Wind River embedded and studio developer software. Multiple program launches with Mahindra that utilize our integrated cockpit controller which consolidates multiple ECUs into a single compute platform capable of supporting higher levels of performance and scalability. And the expansion of our portfolio of 48-volt connectors to meet the increasing demand from OEMs. We're also capitalizing on strong commercial traction with the local Chinese OEMs leading the transition to software-defined vehicles, reflected in 16% revenue growth with the domestic OEMs and our recent SVA zonal controller award from Chery that includes both Wind River and Aptiv software. And lastly, Wind River's launch of Elixir Pro, which has generated significant interest from the broader enterprise Linux ecosystem with launch partners including AWS, Capgemini, Intel, SEIC, and Super Micro. These notable achievements during 2024 validate the strength of our industry-leading portfolio and have resulted in new business bookings of 31 billion, including record bookings for Signal and Power Solutions, record operating income and earnings per share, reflecting our strong operating performance and optimized cost structure, and record operating cash flow, positioning us to continue to invest in the business, while also accelerating the return of a significant amount of capital to shareholders, which will result in more than a 20% reduction in outstanding shares. We continued executing on our long-term strategy while also launching a record number of new vehicle programs and increasing the resiliency of our supply chain. We're extremely proud of our accomplishments in 2024 and the performance of the Aptiv team.

Moving to slide five to review new business awards. As I mentioned on the previous slide, our industry-leading portfolio of advanced technologies enabled us to reach just under 31 billion of new business awards during the year. Advanced safety and user experience bookings total 4.4 billion driven by active safety bookings of 2.7 billion, including the two Gen 6 ADAS platform awards I mentioned earlier, as well as Gen 6 radar awards with a German luxury OEM and two large Japanese OEMs. Signal and power solutions bookings reached 26.4 billion, including 8 billion in the engineered components group across the full product portfolio in multiple end markets and a record 18.4 billion in the electrical distribution systems business. And lastly, across all product lines, a record seven billion of new business in China, of which over five billion was with top local Chinese OEMs and a US-based global electric vehicle OEM. With a broad portfolio of advanced technologies that provides OEMs with increased flexibility at a competitive cost, we have clear line of sight to over 31 billion of new business awards in 2025.

Turning to slide six to review the highlights for our advanced safety and user experience segment, which achieved record revenue and earnings in 2024 underscoring the competitiveness of our product portfolio and the strength of our operating capabilities. Revenues increased 2% driven by double-digit growth in North America with local OEMs in China partially offset by low single-digit declines in Europe and Asia Pacific. Active safety revenues increased mid-teens partially offset by a decline in user experience revenues due to the roll-off of legacy programs. Operating margins were over 12%. The benefit of the continued rotation of our engineering footprint to India and our ongoing adoption of Wind River's DevSecOps tools which have improved the productivity of our software developers by over 20%. Wind River revenues increased 14% in the fourth quarter primarily driven by studio operator awards in telco but full-year revenues were down slightly, the result of the continued slowdown in investment in 5G infrastructure in telco impacting closure rates on commercial opportunities and a longer selling cycle for studio developer in the automotive and industrial markets. We increased investment in Wind River's commercial and product organization during the year to enhance our existing portfolio of products including VX Works operator and developer and also build new products such as Elixir Pro which we're confident will drive strong revenue growth in 2025. In addition, the advancements in AI are providing Wind River with incremental growth opportunities as customers look to reduce costs by moving AI workloads to the edge. Overall, advanced safety and user experience provide solutions that increase flexibility while lowering cost, making us a partner of choice for our customers. This is reflected in our recent awards, including a central computer award for active safety and user experience applications across multiple GLE brands, an award for an integrated cockpit controller from a major global truck manufacturer, additional awards with leading Japanese OEMs for a Gen 6 radar solution, and an award with Boost Mobile to provide core edge cloud infrastructure for the world's largest open RAN deployment, which demonstrates Wind River's leadership position in the telco industry.

Turning to the signal and power solution segment on slide seven. Revenues declined 3% during the year with electrical distribution systems impacted by lower vehicle production schedules with select OEMs in North America and Europe and two multinational JVs in China. The engineered components group benefiting from growth in non-auto markets offset by lower high voltage revenue drove further margin expansion in electrical distribution systems. We're accelerating the rotation of our manufacturing footprint to Central America and North Africa while also increasing the automation of select manufacturing processes targeting automation levels of 30% by 2026 and over 50% in 2030. As we've discussed previously, we've also demonstrated strong commercial momentum across all regions as reflected in fourth quarter bookings, including a significant electrical architectural award with a major North American OEM for their light and heavy duty truck platforms, over 1 billion of new business awards with leading local OEMs in China, and several customer awards for interconnect solutions in the aerospace and defense, space, and industrial markets.

Moving to slide eight, I wanted to touch on our recent announcement to separate the electrical distribution systems business from Aptiv, creating two optimally positioned independent companies, each with its own unique product portfolio and financial profile and with greater flexibility to pursue their own individual market opportunities and capital allocation strategies. By enhancing strategic and operational focus, we're positioning both Aptiv and EDS to more effectively address the evolving needs of our customers and to further capitalize on market opportunities, which we believe will drive even greater success and value creation for both companies. We're targeting the completion of the separation by March 31, 2026, subject to final approval by Aptiv's board of directors and customary conditions. In the meantime, we'll continue to keep investors updated as the separation progresses, and we'll host investor days for both Aptiv and EDS in the fall of this year.

Moving to slide nine in our outlook for 2025. We remain confident that the trend towards greater levels of electrification, automation, digitalization, and connectivity will continue. With our portfolio of advanced technologies, Aptiv is well positioned to address the evolving needs of our customers and to further capitalize on market opportunities across multiple industries. The market remains dynamic and the recent announcements regarding trade policy has created incremental uncertainty which could impact supply chains and vehicle production. As a result, as Vun will discuss shortly, we believe it's prudent to include additional conservatism for North American vehicle production in our current outlook for 2025. But to be clear, our outlook has not factored in changes in tax, trade, or tariff policy by the new administration. We'll monitor the situation closely and take actions as necessary while continuing to capitalize on growth opportunities, including the continued growth in electric vehicles and ongoing adoption of advanced ADAS solutions globally and improve customer mix by new vehicle program launches and continued penetration and accelerated growth with the leading local Chinese OEMs. And we'll continue to optimize our cost structure, pursue strategic capital deployment opportunities, including further debt paydown, bolt-on M&A and the opportunistic return of cash to shareholders, and flawlessly execute the EDS separation targeted for the first quarter of 2026. I now turn the call over to Vun to go through the numbers in more detail.

Thanks, Vun. I'll wrap up on slide 19 before opening the line for questions. As the management team reflects on 2024, we expect the market to remain dynamic and the pace of innovation to continue to accelerate and drive ongoing transformation across industries. Looking forward, while our 2025 guidance does not include the impact of future policy changes, including tariffs, we believe that we've taken an appropriately conservative approach to our outlook. We've purpose-built our technology portfolio to deliver flexible, high performance and cost-effective solutions that address our customers' needs all on a global scale. And at the same time, remain committed to flawlessly executing and delivering strong operational performance, enabling us to unlock incremental profitability and deliver long-term value to our shareholders. In closing, I'm proud of what the Aptiv team accomplished during 2024, and I'm excited about what we'll deliver in the years ahead. Operator, let's now open the line for questions.

Yeah, so John, let me start with just a preface on it. In light of a couple things: one, just the dynamics from a geopolitical standpoint, the dynamics as it relates to policy, whether that be trade, whether it be tariff, whether it be tax, we think it's very important at this point in time to be more conservative, quite frankly. And then when you overlay on top of that the fact that inventories in North America are still relatively high, especially for the D3 where we have a fair amount of exposure. That's something that we're watching closely as we look at the first quarter and the early part of this year. A lot of progress had been made reducing that during the fourth quarter of last year, but inventory still remained relatively high. So, as we came into the year and we thought about the first quarter, that was the context or the lens that we were viewing it through. As it relates to vehicle production in North America being stronger in the first quarter, it's a possibility. It's again, it's not in our guidance. We would expect volumes to flow in the range that we've traditionally talked about in that 18 to 22% sort of flow through range on volume. But again, we've not included that in our guidance and we've done that very intentionally just given the environment right now.

Well, I'm not sure if it's more rapid. It's been rapid the last 12 or 24 months. So I think we picked up roughly 10 points of share of mix with local Chinese OEMs during 2024, maybe a little bit less than that. I think our outlook for 2025 is a full 10-point increase. So at the end of 2025, early 2026 we should be at par with market mix in terms of vehicle production of locals versus the multinationals. So, we've made a lot of progress and, that's what accounts for, as you look at our outlook for the full year relative to where we are guiding in the first quarter. That's some of the pickup in revenue that we're seeing now and we expect to continue to the balance of 2025.

Yeah. As it again, as it relates to conservatism overall, the bulk of it sits in North America. I would say Europe and US, we have a more conservative outlook for EV growth market right now. I believe IHS is forecasting roughly 20% growth in EV production. Our outlook from a revenue standpoint is roughly 10% plus, so mid single digits. So we've taken a more conservative approach from a revenue outlook given, you know, our experience last year.

As you look at growth over market in North America, I would say it's really a couple things. It's pace of launch cadence, back half of this year and into the start of next year. So new program launches were up roughly 10% last year versus the prior year. A lot of that was really starting in Q2 through Q3 and Q4. And we'll benefit from that. And then I would say, Joe, there's a little bit of a normalization as it relates to a couple of the OEMs where we saw significant corrections or reductions in their vehicle production schedules in 2024, especially in the third and fourth quarters. We expect that to effectively normalize and not see the same level of decline. So I'd refer to it as stability basically in schedules.

Yeah, I would say the level of coordination is pretty good. I think the magnitude of what was initially proposed regarding tariffs within North America from an industry standpoint was a bit surprising. But I would say we've been working with our OEM customers late last year, early this year as it relates to where possible forward deploying inventory. As we've talked about a lot last year in terms of supply chain and supply chain visibility, that's something that we're very closely connected with our OEMs globally on. We've spent a lot of time with our North American OEMs making sure they understand our supply chains well. So we've developed, I would say, at least near-term plans in terms of addressing some of the challenges that if there was a flip of a switch how we would deal with that, including investments in inventory, including areas where we have duplicate manufacturing in North America, in other regions, and then some discussion, I wouldn't call them firm plans at this point in time, but some discussion questions about alignment of their production schedules and importantly product mix to simplify the situation so that we can pre-produce products in certain areas where it's a little bit more complicated to do, for example wire harnesses, products like that. So I would say we're reasonably coordinated to the extent this gets implemented, but ultimately obviously it would be somewhat disruptive.

Yeah. Listen, we're not going to provide kind of specific customer production schedules. Right. Chris, you understand that. Is our estimate for production lower than what customer schedules currently show? Yes, they are. They are. And in our forecasting process and guidance process and planning process, we've gone through customer by customer, platform by platform, region by region. So we've gone through it in detail. Have those been haircut? Yes. Have they been haircut more than they typically are for the first quarter? Yes. Last year was volatile, though, as you said, we don't want to go through that again. But then overlaid on top of that, what we do worry about is just given some of the announcements regarding trade policy and tariffs, that does introduce a certain amount of uncertainty into the system, which in our view will affect supply chains and when it affects supply chains, it will affect production. It's tough to predict exactly how much, but it will. So we've gone through that process and to the best we could estimated what we thought Q1 could look like in light of some element of that uncertainty. I know that's not a detailed answer.

Yeah. So no big tailwind as it relates to peso weakening if that continues to happen.

Yeah, we expect China locals to continue to take significant share, not to the extent that they did in 2024, but they'll continue to take significant share. We expect the multinationals, global traditional OEMs, to continue to lose a fairly significant share. That's factored into our outlook. I think the net impact for us is our revenue growth versus vehicle production in China is basically, our growth over vehicle production is down 1% versus what it was in 2024. So we're closing that gap. We have internally a more aggressive outlook for China local share gain relative to what IHS has. I mean we're north of 75% share gain in 2025. So we expect them to continue to take some share, and as I mentioned, we'll reduce the differential in growth versus market down to about roughly one point, and then in 2026, as I mentioned, we're at par.

The underlying outlook for domestic growth, our outlook is slightly higher than what IHS would have for vehicle production growth. And our growth with those customers is over their market share growth rate. So we're growing over market with the local OEMs in China.

Maybe I'll start at a high level and Vun can answer in more detail. That's okay. The last couple years, the last several years we've been very focused on reducing overhead. You've heard us talk about that. Last year we had a roughly 10% reduction in salaried workforce. This year within our plan we were targeting mid single digits. Given what we're hearing regarding trade policy, we'll be increasing that to some extent just to provide additional room and offset any incremental risk that's out there. So those are activities that we have a pretty good muscle for. I think as it relates to footprint rotation, that requires a bit more effort, but it's something that we obviously do. When you think about material cost savings, there's two aspects to that. There's the leveraging price to price, which the team has done a great job. I think the mapping of our supply chain, building our digital twin and significantly increasing visibility to BOM costs and where there's leverage, that's paying dividends. Although it requires negotiation, it requires effort, negotiating with both customer and supplier. And then when you think about what's more permanent, engineering in low-cost solutions or engineering out higher cost components, that's something the group has been doing for the last couple years. And a big portion of our year-over-year material performance in 2025 will be the result of that. It's important to note though that to do that it requires support from our OEM customers, and at times customers giving constraints on resources are less focused on it, but that's an area that we've made a lot of progress.

Yeah, Emanuel. So adjusted growth for EDS in 2024 was down 5%. A big driver of that were the customers we mentioned, but then an incremental overlay as it relates to high voltage or EV exposure. So put it in perspective, high voltage revenues for the EDS business were down, you know, just shy of 20% in 2024. So significant impact throughout the year. Our outlook for growth in 2025 is basically flat growth. So about three points over global vehicle production. In terms of our outlook for average weighted market growth, when you look at our view for EV penetration adoption and the impact on overall growth rate, we would expect roughly a mid-double-digit growth in EDS in the EV space to be a driver, as well as strong growth with commercial vehicle OEMs who we've had a concerted effort over the last couple years to diversify revenues more broadly in transportation. So they'll benefit there. So we would say as we look at 2025, those are the primary drivers. As we look beyond 2025, it's the continued pace of EV adoption, continued market share gains. We talked about our bookings in EDS in 2024, how strong they were. They were actually strong in 2023 as well. So it's low voltage as well as high voltage growth, market share penetration, and the roll-on of those new programs that will drive growth in the out years beyond 2025.

Yeah, listen, there's always an opportunity, Emanuel. So we're always focused on it. I mentioned what we're doing from payroll reduction, so that will continue. Footprint rotation especially within the EDS business has been accelerated, so we'll get benefits there. As well, material cost is a big piece of our cost structure in the BOM for OEM. So that's an area that we're really focused from an engineering standpoint. We got a lot of productivity out of engineering in 2024, I mean a lot. And we did that principally by, it wasn't about reducing advanced engineering or R&D, it was more about operating engineering. So program launch, manufacturing engineering within our facilities, software development engineering within ASUX. So those were areas where we were able to get that productivity, and we'd expect to continue to get productivity out of engineering in 2025. Transparently, it won't be as significant as it was in 2024 just given the size of the change in 2024.

Yeah. No, Adam, it's a great question. I would say it's one of the big pillars of our strategy that the board has us focus on in terms of diversification into adjacent markets, accelerating that, making sure that's a priority from a business plan, a strategy, and quite frankly from a compensation standpoint. Aerospace and defense is one of those priority markets. There are applications as you mentioned for what we do now in those markets today within the A&D space. When you consider what we have within the SPS business and ASUX business, it's probably about $400 million in revenues growing fast. It's a higher margin profile. It is a longer selling cycle. But we have strong relationships with all of the primes in the A&D space as well as the various parts of the armed forces. So they're existing customers today and we're looking to leverage the position that Wind River has and that our portfolio businesses within Winchester have to continue to penetrate that market, and obviously it's going to be a high growth market. I'd say the second area outside of aerospace and defense is around energy and energy distribution. There's a relationship that we have with a global EV OEM where that's one of the areas where we've been awarded business and we expect to continue to be awarded business and participate in that. So that is an exciting area. And then lastly, your point on robots, humanoids, others, whether it be the edge software from Wind River or the perception systems for ASUX or the vehicle architecture solutions or the wire harnesses and connectors from SPS, those are all opportunities. And again, there are a couple customers that we're actually working on that specific area. Now those revenues aren't quite as significant at this point though, to be transparent.

Thank you.

Yeah, maybe if I can add to it, Colin. I think the headwinds on FX are largely euro and RMB related. When you think about 2024 to 2025, so just that sort of walk, as said from a copper standpoint that's largely indexed with our customers, so that hedge remains in place. We hedge incremental amounts above what's not indexed, but that's not a huge amount. Those are the big pieces of that as it relates to price and price recoveries. Our expectation, I think we've talked about it, is pricing to be somewhere between 1.5% and 2%. Historically we've done a good job managing through that. As you know, we have some element of price recoveries in our plan, not remotely close to what we've had in historical periods, but there still is some element of labor recovery especially as it relates to Mexico, and still a few items related to material inflation from prior periods that we need to close out on.

Yeah. So first, we're very selective in terms of those programs and customers we're pursuing. As you've heard us mention previously, we're really focused on those that want to either export or expand manufacturing outside of China. We feel like we can bring more value in those programs, quite frankly have less price pressure. On average, you do see lower margins on those programs. We've been able to balance it to date, or I should say lower pricing on those programs, we've been able to balance it to date with further cost reductions. So our China team has been consolidating footprint as an example. To the extent we're investing in the development of new technologies, we're getting support from the Chinese government. To the extent we're investing in engineering, we've used the opportunity to shift footprint out of for instance Shanghai into other locations west to lower our overall cost, and again not only the hourly cost differential lower, but we've been able to get pretty good support from the Chinese government in terms of enabling that both from setting up facility standpoint as well as subsidizing the employees.

Yeah. No, Tom, good questions on both. So I would say that we're in more discussions with more OEMs as it relates to advanced ADAS. They like our cost-effective solution. I think several of them are dealing with kind of vehicle architecture decisions, platform mix decisions, which is making that decision and that process play out over a longer period of time. There's a lot of interest, lots of interest in our solution given its cost. I think fewer of the OEMs are now of the view that there's certain aspects of this that are religion and they need to own, that there's a more cost-effective approach from a supplier standpoint, especially in our case where we've developed solutions that are openly architected that gives them flexibility to contribute to the platform, to do more, to do less, and even supplier alternatives whether it be on the SoC or on the perception system. So we're trying to present them with that flexibility. So we're in the midst of negotiations and discussions with multiple OEMs across the globe. I feel like that will translate into significant bookings during 2025. I'd say a few of the decisions dragged out of 2024 into 2025, but we keep working at it. As it relates to UX, we have some programs that we're working on now that we expect will translate into awards. You're right, the traditional infotainment model that operated within automotive five years ago is very different today. Our real focus is in and around the software or the cockpit controller within user experience, especially given the trend to see the up integration of the user experience domain controller into the ADAS controller. So that's a place that we continue to play. There's a couple large pursuits that we're in the midst of at this point in time. Awards that will position that business for stronger growth. And you know, listen, we continue to evaluate our entire product portfolio in terms of where it sits, what it's enabling for our customers, what the return is, and how do we maximize value for shareholders. So that's one of the areas that we consistently, given some of the changes, we're consistently evaluating.

Yeah. Our concern is it's an industrywide dynamic. With the advancements in AI and the need for more compute, you're going to see more pull into computers, into laptops, into other areas. So a possibility that you see a shortage of semiconductors in areas similar to what we saw back a few years ago. So we're going to monitor the situation very closely for sure. And to the extent we start seeing extended periods in terms of order and delivery of product, we'll start ramping up investment in inventory. If we don't see it, we won't make the investment. But we thought it prudent to include in our outlook for free cash flow.

Listen, thank you everyone for participating in our call. We appreciate you joining us and look forward to seeing all of you in the upcoming NDRs and other conferences that we'll be attending. So thank you very much and have a great day.