Good morning. My name is Paula, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Delphi Q3 2017 Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to Elena Rosman, Delphi's Vice President of Investor Relations. Elena, you may begin your conference. .

Thank you, Paula. Good morning, and thank you to everyone for joining Delphi's Third Quarter 2017 Earnings Conference Call. To follow along with today's presentation, our slides can be found at delphi.com under the Investors section of the website.

And consistent with prior calls, today's review of our actual and forecasted financials excludes restructuring and other special items and will address the continuing operations of Delphi. The reconciliation between GAAP and non-GAAP measures is included in the back of the presentation and the press release. .

Please see Slide 2 for a disclosure on forward-looking statements, which reflects Delphi's current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-K and other SEC filings..

Joining us today will be Kevin Clark, Delphi's President and CEO; and Joe Massaro, CFO and Senior Vice President. As seen on Slide 3, Kevin will provide a strategic update on the business, and then Joe will cover the financial results and our outlook for 2017 in more detail. .

With that, I would like to turn the call over to Kevin Clark. .

Thanks, Elena. Good morning, everyone. Thanks for joining us. I'm going to begin by reviewing the highlights from the third quarter and then provide some additional commentary on the strategic vision that we shared at our September investor conference in Boston.

Joe will then take you through our financial results for the third quarter and outlook for the fourth quarter and full year. .

So let's begin with the highlights on Slide 5. Our financial results reflect continued positive momentum, including record third quarter sales, operating income and margins and earnings per share.

We delivered another strong quarter with mid-single-digit revenue growth, representing continued robust growth over market; solid margin expansion while continuing to invest in strategic growth initiatives in connected services, smart architecture and automated driving; and double-digit operating income and earnings per share growth, demonstrating the benefits of volume growth and our industry-leading cost structure.

Based on our year-to-date operating results, we're raising our revenue and earnings guidance for both the fourth quarter and full year. Joe will walk you through the details of that in a few minutes. .

Importantly, we delivered these record results while continuing to make progress on the spin of Delphi Technologies. We also announced last week the acquisition of nuTonomy, an industry leader in advanced automated driving technology.

We believe the combination of nuTonomy and Ottomatika will accelerate the development and commercialization opportunities for advanced active safety and automated driving solutions for both our commercial and traditional OEM customers. I'll provide more detail on this later in my presentation. .

Let's turn to Slide 6, where I'd like to spend a minute highlighting the takeaways from our recent Investor Day. We formally introduced our 2 new independent companies, Aptiv and Delphi Technologies, at our recent investor conference.

As we said previously, the transition of today's vehicles to a software-defined platform is driving significant change in our industry. And with this change, both Aptiv and Delphi Technologies are uniquely positioned to address the rapidly changing needs of our customers. .

Aptiv enables Smart Mobility Solutions through a comprehensive technology portfolio that delivers data and power distribution; software-enabled compute platforms and connected services, which can be optimized with our industry-leading advanced architecture and systems integration capabilities.

Aptiv is strategically positioned to help our customers navigate the increasing complexity of vehicle features and functions and capture the rapidly developing opportunities in electrification, automated driving and data management..

Delphi Technologies is uniquely positioned to enable solutions for advanced vehicle propulsion.

The company's portfolio of highly engineered technologies assist our customers in meeting increasingly stringent regulatory standards while, at the same time, enhancing vehicle performance and provide the power needed to support the increasing electrical content being added to the vehicle. .

In summary, both businesses are perfectly positioned for accelerated growth as we sit at the forefront of new opportunities to monetize future mobility and propulsion solutions..

Turning to Slide 7. You can see how our portfolio of advanced technologies, aligned to the safe, green and connected megatrends, are leading to a new customer awards.

Recent new business wins in our Electrical Architecture and Electronics and Safety segments reflect a shift in vehicle architectures and computing power, which are necessary to enable the increased software functionality that serves as the building blocks for infotainment, active safety and automated driving. .

Our Powertrain segment continues to strengthen its position in advanced gas propulsion solutions with recent GDi in advanced engine control business awards in China.

Since 2011, the customer awards related to our advanced technologies represent an increasing portion of our total bookings and will drive accelerated growth in both businesses going forward, which underscores the success we've had bringing new technologies to market and is reflected in our year-to-date bookings of almost $19 billion, putting us on a clear path to finish the year above 2016 record of just under $26 billion..

Slide 8 further highlights our technology leadership position in infotainment and user experience. The evolution of our infotainment platform with integrated displays, reconfigurable 3D clusters, [ juster ] control, edge compute and cloud connectivity, is unlocking the next-generation of software-enabled vehicle functionality.

These high-speed computing platforms are a huge competitive advantage for Delphi, linking our Electrical Architecture and Electronics and Safety capabilities, enabling more connected vehicle content..

As shown in a prior slide, we booked $14 billion in cumulative customer awards since 2011, including multiple high-profile conquest wins with OEMs such as Ferrari, Audi and Volvo, underscoring our strength as an integrated solutions provider, creating a software and hardware foundation for new features and functions while optimizing the total system costs and complexity.

As a result, our infotainment and user experience revenues will double between 2016 and 2020, increasing from $1 billion to over $2 billion, representing mid-teen compounded growth. .

Slide 9 highlights how we're leveraging investments and asset safety to establish a strong position in automated driving. As you saw on Slide 7, we booked almost $7.5 billion in active safety awards since 2011, with a record $2 billion of bookings 2017 year-to-date.

Active safety revenues increased over 70% during the third quarter and remain on pace for over 50% growth in 2017, reaching over $550 million.

And we expect to continue that strong growth rate through 2018, with revenues reaching over $800 million, driven by increased penetration with existing customers, conquest wins with new customers and further penetration in less mature markets. The demand for active safety solutions continues to accelerate.

Consumers want it, and OEMs are responding by deploying active safety systems across the full spectrum of their vehicle segment. .

We continue to gain market share through our deep systems knowledge, reflecting our unique ability to integrate the software, compute platforms and vehicle architectures necessary for Level 3 through Level 5 functionality, where demand's heating up.

Customers are increasingly looking to us as their partner of choice because we not only have the capabilities to seamlessly deliver today's solutions, but also future solution, as they migrate to increasing functionality..

And finally, with the addition of nuTonomy, we're on track for over $1 billion in automated driving revenues by 2025 and to further strengthen our industry-leading active safety position, which will translate into more than $2 billion of active safety revenues in 2025. .

Let's turn to Slide 10 to talk about how nuTonomy complements our existing automated driving capabilities. The combination of nuTonomy and Ottomatika provides scale and will accelerate our development and commercialization of Level 3 through 5 automated driving solutions for both traditional OEMs and commercial customers worldwide.

Building on our capabilities in providing active safety solutions and experience with functional safety, this acquisition reflects our commitment to develop and commercialize the highest-performing and safest automated driving system on the road.

Adding more than 70 engineers and scientists, including 25 Ph.D.s, a broad portfolio of advanced technology and strong partnerships and commercial relationships with leading aMod providers and OEMs, including Lyft, Grab and PSA, the addition of nuTonomy to our portfolio deepens our capabilities to pursue automated driving opportunities across the globe..

We're excited to begin leveraging our combined efforts, including integrating our software capabilities and leveraging our pilot programs in cities such as Singapore, Boston and Las Vegas.

We expect to have 60 automated vehicles on the road across 3 continents by the time the transaction closes at year-end, increasing to a fleet of roughly 150 vehicles by the end of 2018. And it's important to note that we can deliver on this operating plan while maintaining the financial framework we articulated at our September Investor Day..

Turning to Slide 11. In addition to our recent acquisition of nuTonomy, we also made strategic investments and entered into a partnership during the quarter.

LiDAR is a critical technology required for both advanced active safety and automated driving solution, and there's increased demand for solid state LiDAR solutions as customers seek to accelerate functionality while reducing costs.

Our LiDAR investments are targeted to provide customers with a comprehensive portfolio of LiDAR technologies, utilizing solutions that provide optimized functional performance at the absolute lowest cost. To meet this objective, we made 2 additional solid-state LiDAR investments in the quarter.

The first was in Innoviz, which leverages proprietary design to deliver high-performance, long-range scanning and object detection; and the second was in LeddarTech, which has developed an advanced signal processing technology to commercialize a low-cost solution.

We also announced a partnership with BlackBerry QNX to bolster our automated driving operating system. QNX will provide a safe and secure operating system that will support Delphi's proprietary automatic software algorithms and middleware to enhance performance and safety for a fully integrated automated driving solution launching in 2019. .

In summary, there's been a string of exciting developments as we continue to execute on our Smart Mobility Solutions strategy for Aptiv. .

With that, I'll hand the call over to Joe to take us through the third quarter results and our updated outlook for 2017. .

Great. Thanks, Kevin, and good morning, everyone. Slide 13 provides a summary of our third quarter financial performance where, as Kevin mentioned, we saw several quarterly records for sales, operating income, margin and earnings. .

Organic revenue growth of 4.4% on flat underlying vehicle production was led by strong growth in Electronics and Safety and Powertrain, partially offset by expected declines in Electrical Architecture. Our EBITDA margins expanded 20 basis points on a pro forma basis to 17.3%, and operating margins expanded 30 basis points to 13.1%..

Earnings per share grew 15%, primarily due to higher operating income and the favorable impact of FX rates, partially offset by our continued investments to support future growth. We generated operating cash flow before the payment of the unsecured credit resettlement of $461 million, a 16% increase year-over-year.

As previously discussed, the unsecured credit restatement of $310 million in the quarter was onetime in nature and was previously included in our full year operating cash flow guidance. Lastly, we returned $172 million of cash to shareholders, including almost $100 million of share repurchases in the quarter..

Let's look at revenue in greater detail on Slide 14. Beginning with a walk on the left, on a pro forma basis, excluding Mechatronics, price of 2% was in line with expectations and offset by the favorable impact of FX translation, primarily the euro and commodities.

Adjusted sales growth of 4.4% was driven by strong growth in Europe and Asia, where production growth as well as a strong active safety, infotainment, GDi and power electronics growth, more than offset North American production declines. North American revenues were down 7.5%, as vehicle production declined approximately 9% in the quarter.

The North American weakness was in line with our expectations and reflects continued softness in passenger car volumes across North American OEs. Finally, South America continues to recover, albeit on relatively small revenues. .

Turning to operating income growth. Slide 15 walks the year-over-year change in the quarter, adjusted for the sale of Mechatronics. Operating income was $566 million, up 10%, and operating margins were 13.1%, up 30 basis points over prior year.

Margin expansion was driven by strong flow-through on sales growth and continued improvements in operating performance. The impact of FX in the quarter was positive, reflecting both translational and transactional gains.

Margin expansion was partially offset by price as well as incremental investments in our new mobility technologies like automated driving. .

Turning to the segments on Slide 16. Let's start with Electrical Architecture on the left. Sales were down 1% in the quarter, primarily driven by the decrease in the North American market, as previously discussed.

The slowdown in North American passenger car sales, including last year's cancellation by FCA of several passenger car platforms, primarily impacts our Electrical Architecture segment. We expect Electrical Architecture to return to mid-single-digit revenue growth in 2018, driven by new product launches and the completion of a major model changeover..

Margin expansion in electrical architecture increased 60 basis points despite the decline in sales, as we remain focused on improving operating performance and leveraging our best cost country structures, consistent with what one would expect from Delphi. .

Moving to Electronics and Safety. Adjusted revenue grew 14% in the quarter, driven by active safety growth of 72%, reflecting continued new launches and increased penetration. And infotainment continues to see strong growth, up 11%, even while lapping strong prior year revenue growth and launch activity. .

E&S margins were down 150 basis points versus the prior year. E&S margins benefited from strong volume flow-through, over 30% in the quarter, offset by our planned increase in new mobility investments, which totaled a little over $10 million in the quarter or approximately 120 basis points of margin.

As a reminder, we remain on track with our original new mobility investment planned for the year of approximately $50 million to $60 million, with costs continuing to ramp in the fourth quarter. .

The Powertrain segment delivered 11% organic growth, with strong double-digit gains in power electronics, GDi and commercial vehicle volumes. Light-duty diesel revenues were flat in the quarter. Powertrain margins expanded over 100 basis points due to strong volume flow-through and benefits from prior restructuring actions. .

In summary, our revenue growth met or exceeded our expectations, and we remain relentlessly focused on improving our cost structure and expanding margins while investing in future growth opportunities..

Slide 17 walks our EPS year-over-year, which grew 15%, driven by organic sales growth and favorable FX. As a result of our operational performance, EPS was $0.12 higher versus prior year.

The net benefit of below-the-line items was approximately $0.01, as the benefit of a lower tax rate was offset by other items, including lower year-over-year equity income and higher minority interest expense. .

With that, let's turn to our guidance expectations on Slide 18. We've raised our guidance for both the fourth quarter and full year outlook. Our fourth quarter outlook is 1% organic growth, reflecting 2 points of growth over market, consistent with prior expectations, as we work through difficult year-over-year comparisons in key markets.

We expect margins to be flat to up slightly, reflecting the year-over-year increase in new mobility investments and the margin-dilutive flow-through on higher euro revenue translation.

Earnings per share is expected to be in the range of $1.75 to $1.85 per share, up 2% at the midpoint, reflecting the impact of the lower Q4 2016 tax rate of approximately 11%..

For the full year, revenues are now expected to be $17.4 billion at the midpoint, up roughly 5% on an adjusted basis and consistent with our expectations of mid-single-digit growth on a flat market.

Adjusted operating income is now expected to be $2.315 billion at the midpoint, and earnings per share are now expected in the range of $6.70 to $6.80, a $0.10 increase at the midpoint and reflects our expectation of approximately $400 million of share buybacks in 2017. Cash flow guidance remains unchanged at $1.85 billion. .

In summary, we are confident in our raised outlook for the year, reflecting strong sales growth, margin expansion and double-digit earnings growth. .

I'd now like to hand the call back to Kevin for his closing remarks. .

Thanks, Joe. Let me summarize on Slide 19 before opening the call up to Q&A. .

We delivered another great quarter, driven by continued strong demand for our industry-leading technologies and very solid operating execution. This positive momentum gives us confidence in our increased outlook for the fourth quarter and full year. .

As Joe mentioned, we continue to work tirelessly on increasing the efficiency and flexibility of our cost structure, and we're confident that our strong performance in 2017 will translate into continued strong performance in 2018 and beyond, as we prepare for the separation of Aptiv and Delphi Technologies into 2 very well-positioned, independent public companies.

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We look forward to sharing more with you on that front in the coming weeks and months and are very excited for another outstanding technology demonstration at our CES showcase in early January. We hope you can attend. .

So with that, let's open the lineup for questions. .

Thanks, Paula. We'll now take our first question. .

[Operator Instructions].

Your first question comes from Brian Johnson of Barclays. .

Kevin and Delphi and Aptiv team, wanted to talk a little bit more about nuTonomy, especially given your partnership with Intel, Mobileye, the work with BMW. What was missing in your view from the staff that you had earlier in the year that nuTonomy brings? Is it around LiDAR map comparing the LiDAR images to the pre-post-map.

Is it around driver policy? Is it around the user interface? Or just what does it get you that you didn't have in the stack before?.

Yes, Brian, I guess, a great question. Really, we view nuTonomy, and you're familiar with the company as well, as providing primarily incremental scale, but it doubles the amount of professional scientists, engineers that we have focused on autonomous driving, technologies, increasing our base from roughly 100 to 200.

They bring with them very strong skill set. And when you look at the automated driving space, it's really all about speed.

And they have developed capabilities, enhanced capabilities, commercial relationships, very strong IP and very strong, capable management team and resources that we felt could help us accelerate the development of the technologies that we have underway. .

And do you have a sense of the size of your autonomous fleet, say, in 2019 -- '18, '19 and '20, just how you plan to ramp that to start pushing the development of the software?.

Yes. So in my comments, I mentioned, we'll have 60 -- on a combined basis, we'll have 60 vehicles by year-end on 3 continents. That will grow to over 150 vehicles in 2018 and will continue to grow beyond that at a pretty fairly accelerated pace.

So we're very focused on getting vehicles on the road with commercial partners, one, to continue to advance the development of our technology; and two, to continue to identify sources of funding and revenue to help support the development. .

Yes. And second question around, you're now kind of 3 stakes over in the LiDAR world.

I guess, question is, have you shifted your focus or do you see a role for a LiDAR that is not magically as cheap as a radar you could get from a parts catalog online but so it's not the end-state low-cost LiDAR solution, but it would be a useful LiDAR solution for the early 2020 in terms of a higher cost point that the economics [ of a fleet ] business could absorb? Do some of these acquisitions reflect that instead of a search of the holy sub-$100 grail?.

Well, I think, there's 2 answers to that question. We're still on the pursuit for low-cost, solid-state LiDAR solution because our view is that they're absolutely critical for adoption in the consumer markets or by OEs. So ultimately, a very aggressive push to drive down costs and increase functionality.

And when you look at the LiDAR solutions, where we've made investments today is really focused on that activity and focused on specific technology or capability that they bring, whether it be long-range, shorter-range corner, whenever the case may be.

As it relates to commercial applications, the commercial customers, less pressure on solid-state solutions, more pressure on having a solution that operates well that functions and is available now. And for those applications, we're actually using mechanical LiDAR solutions for that market, electrical organic. .

Your next question comes from Chris McNally of Evercore ISI. .

Infotainment, if we could just switch to some of the detail you gave on Slide 8. Growing 15% '17 and '18, you have a $2 billion target for 2020. But obviously, the order momentum here has been great. Can you just sort of give us an idea of you have $3 billion in orders and that's been a pretty steady number for the last, call it, 18 months.

How should we think about that turning into revenue in maybe a little bit beyond the 2020? And maybe just some details on where you're seeing the success on the order book in the infotainment, specifically. .

Yes, Chris, it's Joe. I can give you some of the specifics sort of where we're seeing the bookings and how we see it roll out. Where this business plays, what I would call sort of mid- to high-end infotainment systems. So there's no audio in these numbers. This is really mid- to high-end infotainment.

Big wins with folks like Audi on hot conquest wins on high-end infotainment systems. That was one we booked last year for $1.2 billion in total. See those revenues rolling out on some of the more recent bookings, I would call it, from 2020 and beyond.

So we really do see solid revenue growth in this business, as Kevin mentioned, for the foreseeable planning period through 2020. And then our view, this is one area, as we talked about at Investor Day, the inflection point, the revenue acceleration beyond 2020 can certainly see this business participating in that as well. .

Okay, that's great. And then just maybe in a similar vein, the detail you gave on ADAS, growing 50% now. I think some of your orders on a run-rate basis are closer to $4 billion this year. And it seems like you're the #1 market share provider for Mobileye, which continues to have, seems like 80% of the market.

The number you threw out for 2025 of $2 billion plus, I mean, that would imply just that growth rates would slow down into the 20%. Are you just be conservative because it's such a far out number? Maybe you could just talk about some of the assumptions there because it seems quite conservative. .

Yes. Listen, I think Joe should comment on the specifics. I think a couple of things. One, these numbers reflect -- the active safety numbers reflect booked business, so the business that we have in hand. Obviously, between now and 2025, there's an opportunity to book incremental business. I'd say that's one. Two, growth has been extremely strong.

Growth in 2017 will be closer to 60% from 50%. But on a go-forward basis, as you know, you have the law of large numbers, right, and maintaining that same sort of growth rate becomes increasingly challenged -- challenging. Joe, I don't know if you want to... .

Yes, I think that's right. Chris, through 2020, we're going to have 40% CAGR in active safety. We continue to see strong double-digit growth in '21 and 2022. But as Kevin mentioned, I think, we're, I'd say, a little conservative as you get out to 23, 24, 25. And as those bookings fill in, we'll certainly, I think, be adding to that number. .

Your next question comes from Rod Lache of Deutsche Bank. .

A couple of questions. One is the investments in mobility, how much have you spent of the $50 million to $60 million so far this year? Can you give us some color on how nuTonomy affects the numbers going forward? I presume that adds some costs but not revenue.

And related to that, does the E&S margin recover to the levels we had seen? Or do -- should we be thinking about nuTonomy and some of these additional investments kind of keeping it tamped down a bit?.

Yes, let me start with nuTonomy, and I will go through the others. We're not going to give out obviously specific guidance, particularly on line items.

I think a good way that Kevin mentioned is -- I think a good way to frame nuTonomy spend would start with doesn't change our views from a financial framework perspective from what we gave from '18 to '20 at Investor Day in terms of margin expansion and profitability earnings growth.

Kevin mentioned it effectively doubles the size of our business and/or our resources in AD. Next year, we were planning to spend about $70 million prior to nuTonomy. So I think, sort of that doubling concept would work well as the guidepost for additional spend. As it relates to E&S margins, I think, and we had another great quarter.

We clearly think it makes sense to be investing in this business. The new mobility spend as well, as what I'll call, sort of pursuit and engineering costs related to the growth of active safety and infotainment. If you take out just the new mobility spend out of E&S, it printed at about 10.5% OI this quarter.

Excluding new mobility spend, over the coming years, between '18 and '20, we certainly see that E&S margin moving into the 11s and towards the high-end of the 11s over that time period. So we see good profitability in this business. As I mentioned in my prepared remarks, flow-through on increased sales volume was over 30% in the business this quarter.

So the margin and backlog and what we're seeing flowing through is right where we expected and consistent with margin improvement over time in that business. The active safety business, even at $550 million of revenue, is basically at segment margins today. So again, that's what I'll call heavy pursuit and heavy engineering for those businesses.

And when I adjust, I'm only adjusting, what I call, the automated driving and you mobility spend, the pursuit in engineering, we're leaving in that margin forecast. .

And Rod, I think it's important to note, we don't score it this way, and we shouldn't score it this way. But we believe that our investments in autonomous driving and our capabilities in automated driving really drive benefits in advanced active safety solutions.

That has and will continue to translate into increased bookings and, ultimately, revenue growth. .

Great. That makes a lot of sense, and it's helpful. Joe, maybe just one thing on the year-over-year bridge.

Can you explain why the FX and commodities would seem like it was so positive on the EBIT bridge this quarter?.

Yes, it's -- there's a couple of things. One, euro, stronger euro, that flows, Rod, call it, about 10%. And then as the euro moves, we picked up, what I'll call some transactional balance sheet benefits on other European countries. So we had -- and we don't talk about these a lot, but there were some moves.

There's Turkish lira and a couple of other, Eastern European countries moved in our favor. And we had a strong renminbi quarter that put some transactional gains. So I'd call it sort of half-and-half euro translation flowing through and then some onetime transactional gains that came through. .

Does that carry through into Q4?.

No, not that this point. We have assumed they stay where they are. Yep. .

All right. And lastly, was hoping you might be able to provide some color on the developments in Washington, either NAFTA or tax policy.

Any high-level thoughts on what you've been seeing there?.

Yes, listen, we're -- on NAFTA, obviously, we're watching that very, very closely, both from a Delphi perspective and from an industry perspective, Rod. As we've said, free trade's important to our industry. We operate in a global industry. The supply chain is very global. Soft supply chain has been optimized, quite frankly, over the last 25 years.

To the extent that gets affected in a negative way, I think it ultimately has implications for the cost of vehicles, which ultimately have implications for production and sale of vehicles. So that would not be positive, but we continue to watch it closely.

From a tax standpoint, listen, anything that brings down corporate tax rates in the right way here in the United States would be helpful. Again, that's something we're trying to get additional clarity on in terms of what gets proposed and ultimately what gets passed.

And we're a part of the dialogue that's going on from an industry standpoint and in Washington. So no specifics to offer upon it. .

Rod, real quick on your first question. Sorry, didn't mean to skip over it. We're thinking new mobility spend is about $60 million for the year. And we've got a little over $20 million to spend in the fourth quarter. .

Your next question comes from Itay Michaeli of Citi. .

Just wanted to talk about the $1 billion automated driving revenue by 2025. I think the last target at the Investor Day was about $300 million. So just love to get a little bit more detail around the path to $1 billion.

And particularly, too, is there any CSLP assumptions there? And for Level 4, 5, kind of how you're thinking about the content per vehicle and the portion of those vehicles are going into kind of Robo tax mobility on-demand in services?.

Yes, Itay, I think, the increase, obviously, relates to new -- to the nuTonomy acquisition, increased resources, things they have in the works really around the world with things like Robotaxi, Grab, Lyft. See, I think this is consistent. We see an earlier opportunity in mobility on-demand providers. To your point, we see that as a system.

So CSLP-type system first going in to the business. That's really what the increase -- the other thing we're seeing, and this was to Kevin's point on his slide around the sort of the convergence with active safety. We're seeing a lot of interest from OEs on, what I'll call, sort of Level 3 and Level 3-plus active safety.

And folks coming to us, specifically given our automated driving capabilities and our expertise in active safety, and trying to figure out how best to meld those technologies.

And I think, for us, that's going to be -- when you talk about 2023 through 2025, that is going to be an extension of our active safety business and, I think, some real strong early wins in automated driving. .

Great.

And with nuTonomy, given that they have a fleet in Singapore, I mean, would Delphi ever think about actually operating its own kind of Robotaxi autonomous fleet with retrofitted vehicles? Are you still thinking about this more as a systems approach to kind of sell to automakers and mobility providers?.

Yes. Listen, I think it'll be -- it will actually be a mix of both, principally a systems approach to provide to mobility providers and OEs. But to the extent we can advance the development of the underlying technology using our own vehicles, that's something that we will do. .

Your next question comes from David Tamberrino of Goldman Sachs. .

I want to pick up where we just left off. How easy will it be to integrate your CSLP solution into vehicle manufacturing, right? Because I think now your development vehicles, as I understand, are retrofitted.

What steps have you taken or plans have you made with OEMs to date to integrate into new vehicle production?.

Yes, listen, with new OEMs to date, we've had conversations and are actually working with a few OEMs as it relates specifically to the hardware and the architecture.

As it relates to, let's call it, vehicle manufacturers outside of a traditional OE space, you're starting with a clean sheet of paper and, quite frankly, a simpler starting point, a simpler vehicle, and quite frankly, it's easier to do. .

Got it.

So if I just think about the traditional OEMs in that hardware fitting into the existing frame of the vehicle, whatever you want to call it, how far away do you think you are from actually having it into, say, a mass-produced vehicle? Is that in line with your 2019 production ready system?.

I'm not sure I understand the question. Just repeat it one more time. .

Yes. What I'm trying to get at is there's a competitor that's out there, actually, one of your customers that's out there that is mass-producing vehicles with autonomous systems on top of it.

I'm trying to understand how easy will it be for an OEM to take your solution, that you should have booked production ready in 2019 and integrated into its architecture in the vehicle. .

;.

Yes. Well, listen, depending on the nature of the relationship and how integrated we are, we'll have the CSLP platform in 2019, so it's something that they could, in theory, have a good launch in 2019.

Depending on the level of autonomy, it could be sooner, right? We're on the zFAS platform with Audi that has Level 3 automated driving capabilities today. And we provide some of the hardware, some of the software and the integration solution for Audi. So it depends on what level of autonomy that you're looking for.

If it's a full Level 4, Level 5, it's 2019 or beyond. .

I think, David, the way we think about it, to Kevin's earlier point, you got somebody like Tesla who designed the car from their cars, from the ground up to be platforms for these technologies, right? So they're architected in such a way. I think traditional OEs will go through to -- go down 2 paths.

There will be things like the AA where they try to work through how best to integrate Level 3-type capabilities into the existing frame, the existing structure of the vehicle. Or this is really where we get into our smart architecture discussions.

When you talk about vehicles being launched in 2022, 2023, the discussions we're now having with the OEs is how to design that smart architecture. So in 2022, 2023, it accommodates Level 3, and that same architecture can grow into Level 4, Level 5 from 25 and beyond. So there is some sort of what you refer to as retrofitting.

There is some how to fit it into existing framework, those tend to be the higher vehicles like the AA.

But when you get into other discussions, it's really about how to redesign, and that was the big push we had during Investor Day talking about smart architecture and the discussions we're having with customers about how to design that car of the future. .

Okay, that's helpful. Just last one here on light-duty diesel for the fourth quarter.

What have you seen in production schedules? Are there any accelerating headwinds in Europe from this?.

Listen, nothing significantly different than what we've been talking about. It's actually flat in Q3. We expect it to be down. [indiscernible] total light-duty diesel for us. We expect it to be down about 4% for the -- our revenue growth down about 4% for the year. So I would say just in line with what we've been seeing.

A little choppy quarter-to-quarter, but it always is. But no major sort of [indiscernible] left on light-duty diesel. .

Your next question comes from Emmanuel Rosner of Guggenheim. .

First question is on Powertrain. You had obviously some very strong organic growth in the quarter. Does that provide some outside potential to your view -- you highlighted the Investor Day for maybe a midterm growth rate of only 2 to 3 points in Powertrain. And I guess, just on that guidance you communicated of 2 to 3 points of growth in powertrain.

I'm curious, I still struggle to sort of understand what the drivers are for that. I mean, there is Powertrain player, BorgWarner, looking for like mid -- around 7% growth still at the end of the decade with pretty similar diesel exposure and commercial vehicle exposure.

Can you maybe just go back over some of the drivers for your gross outlook over the next few years?.

Yes, listen, I'll start, and Joe can chime in. I think, let me answer your question first specifically. Is there a possibility that there's upside? Yes, there's a possibility that there's upside. I think, what you're looking at is strong year-over-year comps, right, which is the pure math.

That headwind as it relates to light-duty diesel and how quickly light-duty diesel declines. And do you continue to see the rapid growth in Gas Direct Injection? I think, for the quarter, GDI's up close to 60% year-on-year. Power electronics is up, although off a very strong number at a very high level.

So it's a mix between year-over-year comps as well as light-duty diesel penetration declines. And yes, I think as you head into -- you look at 2017, is there a possibility that there is an upside based on current performance of the business? There's a possibility, but it's -- hinges on what happens in light-duty diesel. .

Understood. And then just 2 quick financial follow-ups. The -- it seems the operating cash flow guidance was left unchanged.

Is there -- what's sort of the driver of that? And then in terms of the mobility investments in -- how should those trend into 2018? Is it an ongoing headwind? Do they keep going up? Or are you happy with your run rate of spending?.

Well, I think, it was cash flow guidance, we had updated in August for the unsecured creditors. We took that in. So that was fully baked in, it obviously came out of cash this quarter. So really had no significant adjustments to the cash flow number. We have done that in August. In answering Rod's question, again, we stay away from specific guidance.

We expect, pre-nuTonomy, our automated driving mobility spend to be, call it, roughly right around $70 million. We're still working obviously through our plans. That would be up, call it, $10 million year-over-year from where we end in 2017.

Again, if I had to use a benchmark for how much nuTonomy would run, as Kevin said, they sort of doubled our resources. So I think doubling the $70 million is a good initial proxy. Obviously, we're still working through our full year 2018 expectations. .

Your next question comes from Matt Stover from SIG. .

Appreciated. Just kind of following on to that question. So if the way I should think about that $70 million is an incremental investment and headwind into the margin so we just think through next year. .

Yes. .

Okay. The second question, I'm trying to just put into context the infotainment business. I look at your publicly-traded peers, the margin profile for their business is sort of slightly below where your margin profile is in E&S in total.

And I'm wondering, if your infotainment business now has a similar margin profile, A; and then B, to that question would be, as you put some of these new systems in, does the software scalability enable margin potential in that infotainment to be at or above your sort of current run rate average at E&S?.

Yes. Listen, as you think about the strategy as it relates to Aptiv, Matt, it really is focused on how do we leverage both our hardware capabilities and our software capabilities for both businesses.

And as you increase the amount of software that goes in the vehicle and you establish software platforms for these solutions, whether they be infotainment, user experience, active safety, automated driving, how do we do it in a way where we make sure it scales and it scales significantly with volume? So we think the margin opportunity on the infotainment side is strong relative to where we sit today.

And we're very, very focused on ensuring that we're developing platform solutions that can be leveraged across OEs, across models.

Joe, did you want to add to it?.

No, I think that covers it. .

Your next question comes from David Kelley of Jefferies. .

Just a quick one on the architecture business. You obviously saw a margin expansion despite the adjusted revenue decline.

As we see that segment start to reaccelerate into next year, how should we think about margins in the group and the opportunity going forward for maybe the next 12 to 18 months or so?.

Yes, we'd obviously expect to see margins continue to expand in that business as volume comes in. We got to do a really good job of running that business with cost structure front of mind. As we've seen in prior quarters, with additional volume, they tend to flow much, much more strongly.

Big part of our overall margin expansion plan at 20 to 40 basis points a year obviously comes from leveraging that business. So we'd expect to see margin expansion that sort of fits that framework in that business. .

Okay, great. And then one more on the architecture business as well. Just looking at Slide 7, referencing the Q3 win on automated vehicle architecture.

As we think back to your Investor Day, you kind of laid out that the path to more advanced and next-gen architecture, is this an example of that select domain centralization? Or how should we thing about this win and kind of where it fits and the future ramp-up of next-gen architecture solution?.

Yes, listen, it is an example. It's, I would say, the start of our smart architecture as it relates to automated driving or, I should say, the start -- at the beginning. There will be more advancements that will come.

We're in dialogue, quite frankly, with a number of customers, their architecture needs for advanced active safety systems, automated driving systems as well as advanced infotainment user experience systems. So this is an area that, again, we think we're uniquely positioned relative to our peers in this space.

And we think we can leverage for incremental sales on the infotainment side, on the active safety side, the autonomous driving side as well as we can use those software capabilities to leverage sales of our smart architecture. .

And David, the other part I'd will point out, and it's on that same slide, but it's a great, great aspect to the selective architecture business is this high-voltage business. So $4 billion of light to big bookings. We've already got over $300 million of revenue for high-voltage applications in electrified vehicles, whether it's hybrids or full EVs.

And that business is already at segment margins, even at the $300 million revenue level. It's a very profitable product line. And again, it speaks to sort of the future applicability of Electrical Architecture with these more complicated, whether it's smart architecture or electrified cars. .

Your next question comes from Brett Hoselton of KeyBanc. .

I was hoping you could talk a little bit about your free cash flow priorities or actually maybe limitations on your free cash flow uses as you move over the next few quarters year with the splitting of the 2 companies.

In other words, are there going to be restrictions on your share repurchase activity, restrictions on your M&A activity?.

No, no, let me speak for Aptiv. Aptiv capital allocation strategy will look very similar to Delphi. So prioritize investment in the business, engineering, CapEx. We'll have a competitive dividend. Obviously, those things will be sorted out as we move closer to the spin but dividend will remain competitive. We'll look to do strategic and accretive M&A.

And to the extent that's not available, we'll be in the market with share repurchases. Again, as I said before, that gun doesn't shoot straight on a quarterly basis, but trade-offs between timing of M&A and share repo. But overarching will not change. Delphi technology is obviously that's a decision that separate board of management make.

But as Liam has talked about a number of times publicly, he expects to take sort of Delphi DNA with him, and I think that will include capital allocation strategy. .

Yes, listen, if I can just augment, the financial profile of the 2 businesses really, really doesn't change. And it's our view that we've created tremendous value by returning excess cash flow to shareholders. And if we don't have the use for that cash, whether it be dividends or share repurchase, but that's something we can continue to do. .

And then secondly, I was hoping you could talk about maybe talk about the time frame of Level 2, Level 3 or Level 3-plus adoption versus Level 4 adoption.

What I'm really asking here is that, there's a lot of people out there, if you go to CES, who believe that Level 4 capability's going to be available in that 20, 25 time frame, let's say, and there's going to be a broad adoption of it.

But it seems as though there's significant cost inhibitor there as well as the fact that a geofenced car is restricted and therefore, it's probably going to limit the number of buyers for that vehicle.

So as you kind of look at over the next decade or 2 decades or so forth, how do you think about how aggressively we're going to see people purchase Level 3 capable cars versus Level 4 capable cars?.

Yes, listen, our -- that's a great question, and that's why we really have a two-pronged strategy as it relates to autonomous or automated driving. From a commercial market standpoint, it's our view that you'll see Level 4, Level 5 capabilities much sooner.

That customer base has economic incentive to develop and implement and execute on the technology and do it sooner. Near term, they'll do it in geo-fenced, low-speed, urban areas, that will come well before 2025.

As it relates to the traditional OEs or the traditional consumer market, our view that Level 4, Level 5 is a scenario that's quite frankly closer to 2025 than where we are today, and it's for all the reasons that you just highlighted, including costs. .

Your next question comes from Steven Fox of Cross Research. .

Just one question for me, just going back to nuTonomy and sort of the incremental investments. So I know it's not a big deal. You're talking roughly 3% or maybe operating profits incrementally. But what would -- but you're maintaining your sort of financial model from the meeting.

So what are the positive offsets to that? And then how do we get comfortable with where these investments maybe peak out and what you would anticipate having to do maybe to round out your skill sets going forward?.

So I think, yes, I go back to the financial frame work, right? So we, I think we got a great track record of this very focused on margin expansion, very focused on earnings growth, aggressively tackle our cost structure on a regular basis, whether it's through increased manufacturing performance, increased sourcing activity.

The other aspects of our margin expansion, we have a lot of product lines that still have a long way to go from a growth perspective. We talk about active safety going from $500 million of revenue today or a little over to $2 billion, infotainment doubling since 2016. That volume provides incremental margin opportunities.

So we feel very comfortable even with the additional spend in the new mobility segment that we'll continue to be able to meet the commitments as it relates to that financial framework.

I think, if I understood your second part of your question right, if you're talking about things we need to go out to buy for automated driving, we really feel like nuTonomy is a very good addition and really don't see the need to go out for similar acquisitions.

We'll continue to invest in the businesses, but this brings us a lot of capabilities, brings us a lot of know-how, positions us very well geographically. We now get strong bases of operations in Singapore, Boston, Pittsburgh, Silicon Valley.

So we feel, from a footprint perspective, this really does give the automated driving business what it needs to continue down the development roadmap. So I don't see big acquisitions down the future for other things like nuTonomy. .

Yes, Joe, and listen, I completely agree with Joe. We have all the parts we need to bring it all together now. I think the important thing to also note, though, is we're really -- these investments are about repositioning the company.

And I think when you look at the financial profile of the business that we are today, which is a great business, we're cash flow generative, we're high margin, we're cash flow efficient. As we become more software-oriented, the reality of the financial profile of this business improves.

And that's what these investments are ultimately about, making sure that we meet our commitments near term, which we get up in the morning every day to do, but also making sure that we are making the appropriate moves, the appropriate investments so that we can reposition the business for how the industry is going to change and have it be an even more profitable, higher-growth, cash flow generative business than it is today.

.

Your next question comes from Tavis McCourt of Raymond James. .

First, I don't know if I missed this somewhere in the presentation, but what was the overall bookings in the quarter?.

Bookings for Q3, hold on one second. .

Roughly $6 billion. .

Yes, it's about $7 billion -- about $7 billion for the quarter. .

Great. As I look at the balance sheet, it looks like the inventory trend is a little higher this year than typical. Looks like it's probably dragging $100 million or a little more out of cash flow.

Is that something that you should be able to get back in Q4? Or is there some specific reason why the inventory levels are kind of trending higher this year? And then a clarification on the $1 billion goal in autonomous technology in 2025.

Would that require some level of OE purchasing? Or do you think that $1 billion is achievable just through on-demand customers?.

OE assumptions in those numbers is around really around Level 3, so not Level 4, 5. So we see line of sight and some Level 3 revenues by 2025 that would be OE-related. As it relates to inventory, there are a few things going on as it relates to growth.

Talked about active safety and infotainment growth that's driving a little bit of higher volume here in inventory. Also add some, again, as we focus on the cost structure, there are some plans in place, which requires some stock builds, and those will be worked out, will all be worked out consistent by Q4.

I don't think I'd say that, but certainly over the next coming 2 quarters, you can see that coming down. .

Tavis, just to clarify, the year-to-date bookings are $19 billion in total for the year. Okay.

Kevin, do you have any closing remarks?.

Thank you very much for your time. We look forward to seeing you in January at CES, and we're very focused on executing for the balance of the year. Thank you. .

Thank you. .

Thank you. That concludes the Delphi Q3 2017 Earnings Conference Call. Thank you for joining. You may now disconnect..