Good day and welcome to the Aptiv Fourth Quarter 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Tillett, Director of Investor Relations. Please go ahead..

Thank you, Kevin. Good morning. And thank you for joining Aptiv's fourth-quarter and full-year 2021 Earnings Conference Call. The press release and related tables along with the slide presentation can be found on the Investor Relations portion of our website at aptiv.com.

Today's review of our financials excludes restructuring and other special items, and will address the continuing operations of Aptiv. Reconciliations between GAAP and non - GAAP measures for our Q4 and full-year financials, as well as for our full-year 2022 outlook are included in the back of the slide presentation and the earnings press release.

During today's call, we will be providing certain forward-looking information, which reflects after its current view of future financial performance, and maybe materially different from our actual performance for reasons that we site in our Form 10-K and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the supply chain and global economy.

Joining us today will be Kevin Clark, Aptiv 's President and CEO and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business, and Joe will cover the financial results and 2022 outlook in more detail before we open the call to Q&A.

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

Thank you, Chris and thank you everyone for joining us this morning. Beginning on Slide 3.

During 2021, we experienced record growth over market and record new business bookings driven by our industry-leading portfolio of advanced technologies aligned to the safe, green, and connected megatrends, as well as our success keeping our customers running through the ongoing supply chain disruptions.

Despite the increased efforts to keep our customers connected, our financial results validate the strength of our competitive position and the resiliency of our business model.

Focusing on the highlights for the full year, new business bookings reached $24 billion and revenues totaled $15.6 billion, representing 15% growth, 15 points over underlying vehicle production.

Operating income and earnings per share totaled $1.2 billion and 261 respectively, reflecting the benefit of strong revenue growth, partially offset by increased operating expenses related to supply chain disruptions and material cost inflation, which Joe will cover in greater detail in a few minutes.

Lastly, we continue to invest in organic growth initiatives. And as you know, recently announced an agreement to acquire Wind River, a leading provider of intelligent and software solutions, representing one more step in accelerating the intelligent transformation of Aptiv, and positioning us to enable the software-defined future.

This transition -- this transaction uniquely positioned Aptiv to provide comprehensive solutions that enabled software to be developed faster, deployed more seamlessly, and optimized throughout the vehicle life cycle. Setting the supply chain challenges aside, the Aptiv team is executing exceptionally well.

Continuing to proactively position the company for the future, increasing the efficiency of our underlying cost structure while investing in high-growth, high-margin advanced technologies that increased the resiliency of our business model, which will lead to a stronger competitive position and increased value for our shareholders.

Turn to Slide 4, as already mentioned, we remain laser-focused on executing our strategy and further enhancing our industry-leading capabilities.

The macro headwinds we've faced over the past two years have validated the resiliency of our business model, showcased by the [indiscernible] execution of new -- new program launches, as well as the record new business bookings and record revenue growth over market.

Looking ahead, Aptiv will be in even better positioned to capitalize on the Safe, Green, and Connected megatrends just as the path to the software-defined vehicles accelerating. Our scalable advanced ADAS in-cabin sensing solutions, increased system performance while lowering cost enabling the democratization of Aptiv safety features.

Our extensive portfolio of both low-voltage and high-voltage electrification solutions allows us to develop optimized vehicle architectures that significantly reduced vehicle weight and mass, and lower overall vehicle cost.

And our vehicle connectivity solutions provide our OEMs as the data analytics and insights that allow for continuous enhancements through the vehicle lifecycle and our fleet customers with a vehicle health data to minimize vehicle downtime.

Collectively, each of these offerings is a key foundational element for our smart vehicle architecture solution. And 2021 was a proof point for the market relevancy of our industry-leading portfolio of advanced technologies which gives us the confidence to increase our framework for revenue growth to eight to 10 points over vehicle production.

As shown on Slide 5, 2021 new business bookings totaled a record $24 billion, a $6 billion increase over the COVID impacted 2020 amount and a $2 billion increase over the previous record of $22 billion.

Our unique portfolio of safe, green and connected technologies combined with our flawless operating execution, continues to position Aptiv as a partner of choice for our customers. Advanced safety and user experience segment bookings totaled $6 billion for the year, including $2.8 billion in Aptiv Safety awards.

Bookings for our Signal and Power Solutions segment reached $18 billion, including a record $3.5 billion of high-voltage electrification awards.

The cumulative amount of our new business bookings over the last few years across our portfolio of advanced technologies gives us confidence in our ability to sustain strong above-market growth across both of our business segments further validating the resiliency of our business model.

Turning to the highlights from our Advanced Safety and User Experience segment on Slide 6. Revenues for the fourth quarter declined 1%, 15 points better than the reduction in global vehicle production.

For the full year, revenues increased 13%, 13 points over vehicle production reflecting the benefit of new program launches and increased penetration rates which resulted in strong growth over market in our Active Safety product line, and continued strong growth in our user experience in connectivity and security product lines, driven by the launch of infotainment programs in Europe and in-cabin sensing programs in both North America and Europe.

As the demand increases for more advanced Active Safety and User Experience features, the need for more advanced software development, integration, and compute capabilities is required.

And our industry-leading capabilities presents us with additional market share opportunities, as evidenced by a new business award from Stellantis for our ADAS Satellite Architecture Solution on the Ram pickup truck, building off of our earlier success launching a similar scalable active safety solution on the Jeep Grand Cherokee and Wagoneer.

Several new business awards from Ford for the extension of our ADAS satellite architecture solutions across additional new vehicle platforms. Awards from Volvo for the extension of the first of its kind android infotainment solution powered by native Google automotive services with real-time OTA onto new additional vehicle platforms.

And lastly, further commercial validation of our smart vehicle architecture solution in China with a new business award from Baidu for the development of a central vehicle controller.

This high performance computer platform will launch in 2023 on a vehicle produced by the Geely-Baidu joint venture Jidu and will up integrate central body functions and control the flow of data in and out of the vehicles.

Moving to Slide 7, fourth-quarter revenues in our Signal and Power Solutions segment declined 6%, 10 points better than the declining global vehicle production for the full year, revenues increased 16%, 16 points over vehicle production, reflecting the increased production high-voltage electrified vehicles resulting in increased demand for both our low voltage and high-voltage architecture solutions, from traditional and emerging electric vehicle OEMS.

And continued strong demand from engineered components, for both automotive and not automotive applications.

We're perfectly positioned to support our customers globally, with an industry leading portfolio of high-voltage distribution, connection, and cable management solutions, which has translated into a significant increase in new business awards for high-voltage solutions, including an award for Rivian for low-voltage content on the electrified R1S and R1T models, an extension of our 2019 award on these vehicles.

An award for high-voltage vehicle architecture covering several next-generations, Stellantis vehicles. An important win is more European platforms migrate to full-battery electric vehicles. High-voltage architecture awards with VW for additional IT models on their MEB platform, building off several high-voltage bookings on the MEB platform in 2020.

And lastly, an award from a major North American OEM for a wireless charging solution double launch on several of their vehicle platforms. These new business awards validate our leadership position in optimizing high-voltage power distribution for new vehicle architectures that deliver value for our customers.

We continue to see an acceleration of powertrain electrification driven by both more stringent CO2 regulations and the increasing momentum for consumer acceptance.

The fact that we have content of more than 50% of the battery electric vehicles launching over the next few years, we're confident that we will continue to experience very strong revenue growth from our high-voltage electrification product line.

Turning to Slide 8, as I mentioned in early January, we announced the agreement to acquire Wind River, a global leader in intelligent edge connected systems. This acquisition reflects our commitment to accelerating Aptiv's software strategy.

Together, we'll be able to provide a comprehensive edge-to-cloud software solutions spanning the full intelligence system lifecycle across multiple industries.

Our complementary software offerings will create new growth and value creation opportunities for Aptiv and our customers through a cloud-native platform that enables the development, deployment, and operation of software across the full vehicle life-cycle.

As smart vehicle architecture enables the evolution of vehicle architecture and advanced feature adoption across domains, Wind River 's proven solutions for mission-critical applications will play a key role in enabling the software defined vehicle. Slide 9 provides an overview of our software strategy.

When the tipping point in the automotive industry transition to the software-defined vehicle, consumers are demanding more advanced features for vehicle safety, comfort, and convenience.

5G in the cloud or creating opportunities to deliver vehicles at leverage connectivity and lower battery costs are accelerating the penetration of high-voltage electrification. All of which has enabled through a significant increase in the amount of software content in the vehicle, growing from $30 billion today to $90 billion by 2030.

OEMs are beginning to separate software from the underlying hardware, both tactically as a transition to smart vehicle architectures and in how they're sourcing new programs.

After this enabling OEMs to accelerate their transition to electrified software-defined vehicle by employing more holistic engineering and development approach to optimize the hardware, the software, and the system solution that spans the full vehicle stack.

Our industry-leading position, and the development of high-performance, cost-optimized, automotive-grade hardware, and deep software development capabilities deployed across millions of vehicles with multiple OEMs across the globe gives us confidence in our unique competitive position.

The combined expertise and complementary technologies of Aptiv and Wind River further augmented with TTTech's deterministic framework that enhances active safety software applications are uniquely positioned to assist OEMs and cost-effectively accelerating the development and the deployment of the software-defined vehicle.

After smart vehicle architecture solution optimizes the vehicle infrastructure while providing the necessary network redundancy and resiliency.

Wind River Studio cloud-native platform allows for the development, deployment, operation, and servicing the vehicle software stack, shortening development cycles, speeding time to market and enabling full lifecycle management.

And an open development environment allows for future adoption and development from multiple sources, including Aptiv's active safety and user experience software, as well as OEM developed software.

In short, our strategy continues to be focused on accelerating the transition to the software-defined vehicle by offering a complete stack from high performance hardware to cloud connectivity that enables value-added services.

A software architecture that is open, that scalable and containerized, easily upgradeable, and providing OEMs of flexibility to efficiently integrate their own as well as other software and feature development. And they can be continuously certified, for safety critical applications.

And providing full life cycle management capabilities, that enable attractive new business models. Moving to Slide 10, some of the advanced technologies we've discussed were on display at this year's CES event in Las Vegas.

Outside the pavilion, we showed a number of future rich vehicles with Aptiv's vehicle architecture, Aptiv's safety and user experience content already onboard. Inside the pavilion, we featured up fully functioning smart vehicle architecture and continuous delivery platform.

We hosted over 400 customers, both in-person and virtually, from over 50 companies, including 25 OEMs. This year, CES event provided our customers with the opportunity to validate Aptiv's full system portfolio, generating significant interest in the future-defining products that we continue to develop and deliver to OEMs.

Moving to Slide 11, before I turn the call over to Joe, I wanted to comment on our outlook for 2022. As we've already discussed, we continue to face headwinds related to supply chain disruptions and material cost inflation.

However, as we manage through these day-to-day challenges, we remain laser-focused on executing our strategy to build a more sustainable business and deliver lasting value creation, which has translated into market share gains, accelerated revenue growth, and increased underlying profitability driven by the development of advanced technologies that are accelerating the transition to electrified, software-defined vehicles.

As I mentioned earlier, as a result of the confidence we have in our competitive position, we've increased our outlook for growth over market to eight to 10 points, further validated by recent strong revenue growth and new program awards.

In our advanced technologies focused on Safe Green and Connected Megatrends are enabling market share in content gains, which will translate into margin expansion and earnings growth. Unfortunately, we expect supply chain -- we expect supply chains to remain tight and disruptions to continue, but begin improving in the back half of this year.

And inflationary effects including rising material costs are likely to be around for some time. [Indiscernible] we're managing our cost structure and working to recover the increase of material costs through various pricing, product redesign, sourcing, and footprint strategies.

Our strategic focus and operating execution, as well as the current headwinds, are reflected in the full-year 2022 guidance that Joe will review with you shortly which anticipates a continued expansion of our competitive moat which will leverage into increased new business bookings, accelerated revenue growth, and increased margins in cash flow generation.

With that, I'll now turn the call over to Joe to talk through the numbers..

Thanks, Kevin. And good morning, everyone. Starting with a recap of the fourth-quarter financial on Slide 12. As Kevin highlighted earlier, the business drove strong growth over market while supporting our customers despite ongoing disruptions in the supply chain.

Revenues of $4.1 billion were down 4% with 12 points of growth above underlying production. Adjusted EBITDA and operating income were $461 million and $273 million respectively.

Reflecting flow-through on lower volume as we [indiscernible] the rapid second half recovery in 2020, partially offset by strong growth in our key product lines with new program launches in high-voltage, Aptiv's safety, and user experience.

COVID and supply chain disruption costs of $85 million, of $15 million increase over Q4 2020, and the net negative impact of approximately $80 million for material inflation and foreign exchange.

Earnings per share in the quarter were $0.56 with the lower operating income levels being partially offset by favorable tax expense, including the tax benefits related to the supply chain disruption costs. The equity income loss at motional had a $0.21 negative impact.

Lastly, operating cash flow with $669 million, including a positive contribution from working capital, partially offsetting the lower earnings level. Capital expenditures increased $86 million year-over-year to a $181 million for the quarter reflecting the timing of investments ahead of major 2022 program launches.

Looking at the fourth quarter revenues in more detail on Slide 13, we saw a strong double-digit growth over market in all regions and across both segments, reflecting the continued strength of our product lines despite lower vehicle production in the quarter and continued supply chain disruptions.

FX and commodity movements were also a net favorable to revenue as compared to the prior period, largely due to copper price escalations. From a regional perspective, North America revenues were down 2%, representing 11 points of growth over market.

Driven by favorable model mix as truck and SUV production continued to outperform passenger cars, as well as active safety and high-voltage In Europe, we saw a strong double-digit outgrowth of 11% as user experience launches offset a steep market decline from continued supply chain disruptions in the region.

Lastly in China, revenues reflecting 17 points of growth over market resulted from new program launches in our Aptiv safety, high-voltage, and user experience businesses.

The continued strong growth above market in the fourth quarter closed out a record year for Aptiv as strong revenue outperformance and record bookings highlighted by Kevin continues to demonstrate the relevance of our core technologies.

Moving to the segments on the next slide, Advanced Safety and User Experience revenues fell 1% in the quarter, which translates to 15 points of growth over underlying vehicle production. This includes growth in Active Safety, where revenues were up 7% despite the semiconductor supply shortages driven by program ramps in North America and Europe.

User experience growth was down for the quarter due to the timing of program launches, but up 5% in the full year. Segment EBITDA was down $82 million due to higher input costs. Inflation, and semiconductors and other inputs accounted for roughly $50 million of that decrease.

Signal and Power Solutions revenues were down 6%, representing 10% growth over market. The market outperformance was driven by continued strength in our high-voltage product line, as well as strong performance in the engineered components product lines.

Commercial vehicle and industrial revenue growth of 7% for the quarter, including strength in commercial vehicle, despite a flat market. EBITDA in the segment was down a $135 million in the quarter on lower sales volume and higher supply chain disruption and material costs. Together, those two drivers accounted for roughly $70 million of the decrease.

For our -- for 2021, our high-voltage product lines reported revenues of approximately $1 billion in achieved bookings of 3.5 billion, records on both fronts. In addition, high-voltage margins exceeded the segment average for the year. Turning now to Slide 15 in our 2022 macro environment.

For 2022, we are expecting global vehicle production to increase 6% to approximately 83 million units on an active weighted production basis. We expect 2022 to start slowly as supply chain and COVID constraints continue to impact the industry. Accordingly, we see vehicle production as being roughly flat in the first half of the year.

We see supply chain constraints easing as we move through the year and we expect vehicle production to increase 15% in the second half. Looking at the regions in North America, we expect overall production growth of 9% with continued favorable truck and SUV mix.

In Europe, we anticipate 10% overall production growth, a stronger recovery given the relatively greater European production disruption last year. China is expected to be down 1% for the year at approximately 25 million units. On Slide 16, you'll find our 2022 outlook for Aptiv.

This current outlook excludes Wind River as the transaction is not expected to close until the third quarter of the year. As was the case in 2021, we will only be providing full-year 2022 guidance as supply chain disruptions continued results in production scheduled volatility at our customers.

We expect revenue in the range of $ 17.75 to $18.15 billion, up 15% of the midpoint compared to 2021. With global vehicle production expected to grow 6% for the full year, this translates in a nine points of growth above market in line with our updated 8% to 10% growth over market range.

Consistent with prior forecast, this range is multiyear and covers 2022 and 2023. ASUX growth over market of 19% is driven by the continued ramp of Active Safety and User Experience programs in Europe and North America while SPS growth over market of 6% is driven by further penetration in our high-voltage and engineered components businesses.

EBITDA and operating income are expected to be approximately $2.6 billion and $1.9 billion is the midpoint with margin expansion of profitable segments.

Consistent with 2021, although our core product line profitability continues to be aligned with our expectations, we will incur meaningful costs related to COVID safety protocols, supply chain disruptions and material inflation. COVID and supply chain disruption costs are estimated at $230 million, an improvement of a $100 million over 2021.

We expect the improvement to come in the second half of the year as supply chain disruptions lessen and we [indiscernible] the heavily disrupted third quarter of 2021. We expect materials inflation to increase approximately $200 million in 2022.

While we continue to make progress in mitigating these costs, we expect these efforts to take until 2023 as we have noted in prior quarters. And FX and commodities will have a negative impact of $60 million versus 2021, driven by copper pricing at $4.40 and our Euro rate of 114.

As we discussed in our January 12 Wind River acquisition call, beginning in 2022, we will change our definition of adjusted EPS to exclude amortization. Annual amortization in 2022 is estimated to be a $150 million. The appendix to this presentation includes a reconciliation highlighting the change, including the prior year.

For 2022, We estimate adjusted earnings per share to be $4.35, an increase of 42% over the comparable adjusted 2021 totals. We expect 2022 operating cash flow of just over $2 billion driven by the earnings increase in favorable working capital of roughly $400 million. Lastly, we estimate total CapEx to be approximately 5% of sales.

Slide 17 includes the puts and takes for our 2022 revenue and EBITDA guidance as compared to 2021 Starting with revenue on the left, we've already discussed our expected industry recovery of approximately 6% for the full year. And our new growth over market framework of 8% to 10% has approximately $1.75 billion of additional revenues.

We expect a slight headwind from FX and commodities and assume price downs of 2%. For adjusted EBITDA on the right-hand side of the slide, we expect to see the benefit of our flexible and scalable cost structure driving strong volume flow-through on higher revenues, partially offset by the impact of price downs.

As noted, while COVID and supply chain disruption costs remain in 2022, we are expecting a year-over-year improvement of a $100 million. And FX and material inflation costs, our net headwind of approximately $265 million for the year, driven by rising semiconductor and resin prices, and unfavorable FX rates year-over-year.

EBITDA totaled $2.6 billion at the midpoint. An increase of approximately 28% over 2021. Turning to Slide 18, we wanted to provide a few more details around Wind River. Noting again that we expect the transaction to close later this year and the Wind River financials are not included in the 2022 guide.

As we talked about in January, the Wind River product portfolio of intelligent edge operating systems and middleware has been a long established leader in edge devices, requiring robust compute performance.

In early 2021, the company introduced Wind River Studio, a software subscription offering that incorporates their core products, as well as the cloud-enabled tools for the development, deployment, and full lifecycle management of intelligent and software solutions.

Targeted and multiple industries including Telecom, Aerospace defense, as well as automotive, studio has grown quickly and represented over 10% of revenues in 2021. In 2022, revenue will continue to accelerate, with top-line growth of 12% to 15%. Wind River studio is expected to reference that 40% to 50% of the revenues by the 2024,2025 time frame.

The growth in studio driven by further penetration in key industries, including automotive, will help Wind River achieve approximately 1 $ billion dollars of revenue, by 2026.

As noted during our January call, the Wind River acquisition also brings financial benefits to Aptiv, including acceleration of ASUX revenues and reduced spending on third-party software. By Year 4 following the transaction, these benefits will equal an incremental$125 million of run rate earnings for Aptiv.

With that, I'd like to hand the call back to Kevin for his closing remarks..

Thanks, Joe. I'll now wrap up on Slide 19 before we open it up for questions.

As we reflect on 2021 and are out for 2022, it's clear that our constant focus on innovation and flawless execution has positioned us to better support our customers and is resulting in a stronger competitive position, which we've converted into record new business bookings and revenue growth over market.

While we expect near-term headwinds to persist through the better part of 2022, we remain confident in our operating execution, in our product portfolio aligned to the safe, green and connected megatrends. I'm proud of the Aptiv team and all we accomplished during a challenging 2021 but I'm even more excited about what we'll deliver during 2022.

We're well-positioned to continue to outperform as a purpose-driven company with a track record and strategy to deliver significant value for our customers, our employees, and our shareholders. Operator, let's open up the line for questions..

Thank you. [Operator Instructions]. Please ensure that your mute button has been switched off to allow your signal to reach our equipment. And in the interest of time, we ask that you limit yourselves to one question and one follow-up. [Operator Instructions]. The first question today comes from Adam Jonas of Morgan Stanley..

Thanks, everybody. And great details on the presentation. Kevin, I asked you this a few weeks ago, but I'll ask you again.

Of your order book, your record order book, are you able to give us a sense of how much of it is coming from pureplay EV customers? Customers that really have no -- that have never sold internal combustion cars versus, let's say, that the legacy group that's making the transition. And that's my first question. I got follow-up..

Yeah.

I think when you look at our mix on battery electric vehicles, and you -- or high-voltage electrification and we look at the mix between legacy and the traditional OEMs and includes some of those battery electric good companies have been around for a while, I'd say net-net about a third is with the newer battery electric vehicle companies and two-thirds with the legacy, [indiscernible] the traditional OEMs.

And Adam, I would say as we move forward and as you look at growth, it's probably that mix stays roughly the same, maybe improved slightly as it relates to some of the traditional OEMs as they bring on their better electric vehicle models..

Great. And just a follow-up on China. Would love a little color what you're seeing there. It seems like on the low-end, the domestic Chinese players are making some pretty damn good cars, Kevin, like really, really good quality, more competitive in every way.

And then the higher end and on the EV side, the domestics are getting a lot more capable on the EVs and maybe to the extent, naming them, I quote a "premium." So I'm wondering if that's consistent with what you're seeing.

Do you see that China -- what would be the trends in terms of domestic competency versus that kind of incumbency of the foreign players? Do you see that changing and becoming a little more in play over the next few years? Are you seeing any evidence there in real time? Thanks, Kevin..

I would see on the OEM side, domestic competency is certainly strengthened and improved over the last 5 plus years. I think we'd say, Adam into areas that you talked about electrification.

So we certainly seen an acceleration there when you look at our mix of bookings and our current revenues related -- related to battery electric vehicles, largest market we're serving. Today's Europe, the second largest is China, but China is certainly accelerating. The second area is in and around software and software-defined vehicles.

We're seeing a tremendous acceleration in demand for what we're doing as it relates to smart vehicle architecture both on the hardware side and software side. And I mentioned in my prepared remarks the award that we received from Baidu related to a CVC on a vehicle that they're building with our joint venture partner that will launch in 2023.

We also were awarded a CVC -- a CEC with Great Wall Motors last year as well. So we're seeing tremendous acceleration in the overall China market when you consider what you think about technology..

Appreciate it, Kevin. Thanks..

Okay. Now, I go to Chris McNally of Evercore..

Thanks so much, guys. If I could ask maybe just specifically around the secular drivers within the good GOM guide of ADAS and EV high-voltage, specifically. You've sometimes given some broad range is what you're expecting.

Could you talk about 22 growth for [indiscernible] EV and ADAS?.

Yeah, Chris, they will continue to see -- We've talked about high voltage at that of 40% growth rate. [Indiscernible] CAGR over the next couple of years continue to see that. Obviously we are getting -- it's coming down a bit just given a larger numbers and continue to see strong high [indiscernible] growth in Active Safety as well.

Again, it's starting to get not necessarily as high as it's historically been, but starting to get to rather big product lines there..

And then Joe, on the EV specifically, is it fair -- because some of the guidance we've given is it's [indiscernible] of the market growth that we've seen be better than expected. Is that 40% in-line with market growth? So if market growth is better, we can use as a broad proxy that EV growth would be better..

I think if EV growth is stronger, that number should -- that number should be strong -- stronger as well, right? Whereas Kevin mentioned, we're on 50% of the launches. We've obviously got some take rate assumptions in there built on -- built on initial estimate. So we've seen -- and I think you see that to some extent in the bookings number as well.

Bookings came in at 3.5 billion, obviously stronger than we were initially thinking. So I think that's a fair way to think about it..

And then the last one, because it is related to the 8% to 10% multiyear outlook. It's great to hear that up from the old six to eight. Is it fair that a lot of the growth is ADAS and EV? The numbers have been coming in better than expected.

The orders have better than expected, but that's all pre - Wind River, right? If we start, we'll get more multi-year outlooks. But your growth over market, including sort of that -- the acquisition we could actually get maybe a point above that, just looking at the Wind River, a high-level growth over the next three to four years..

Yeah. The guide -- yeah, there is completely separate at this point, right? Just given we haven't closed the deal yet. So the Wind River numbers are separate. As we talked about on January 12th call, there's good growth coming from that new subscriptions studio product. We see that continuing and really being the growth driver there.

And that would obviously be incremental to what we've talked about in the 8% to 10%. That does not include Wind River..

Okay, great, thanks so much, guys..

Our next question comes from Rod Lache of Wolfe Research..

Hi, everybody..

Good morning Rod.

Hey Rod?.

Kevin, during your prepared remarks, you mentioned strong underlying profitability improvement.

I'm looking at the midpoint of your 2022 guidance with an EBITDA margin of 10.5% and obviously between 2014 and '18, you were doing 12%, 13% margins pretty routinely, and I get that inefficiencies and premium freight and input costs have been I think maybe even 400 basis points of drag here in the between '21 and '22.

But could you talk a little bit about what you're targeting over the next couple of years, and how you get there because I don't see much difference on the pricing side, at least in your near-term forecast..

Yeah. Rod, that's a great question.

Listen, I think as you think about the environment that we've been operating in over the last two years and continue to operate in as it relates to COVID safety protocols, more recently the level of supply chain disruption that has resulted in inefficiency in the supply chain, just as you mentioned, increased freight both inbound as well as outbound.

When you think -- when you look at manufacturing inefficiencies, when you look at material cost inflation, the numbers are significant just as you said. They're massive. And that's something that we're working -- where we continue to work through. What we've made progress on during 2021, we'll continue to make more progress on 2022.

But we're [indiscernible] away. Underneath that when you look at how we're operating from a manufacturing performance standpoint, separating those periods where we're dealing with [indiscernible] or volatility in production.

When you look at what we're doing from an engineering productivity standpoint, when you look at what we're doing from a footprint standpoint S G&A productivity standpoint, we continue to make significant progress. So we continue to make significant progress.

And then overlay on top of that, the places where we operate in the mix of our product portfolio as it relates to ADAS, as it relates to high-voltage electrification, as it relates to both engineered components within the automotive and non-automotive space, and then software, the reality is those are much higher margin product areas.

And as they continue to ramp, as we normalize the supply chain, as -- hopefully, there's reduced pressure as it relates to COVID and some of the safety protocols that we have in place, all that drops to the bottom line.

Now, having said that over the last couple of years, we've also made the decision to invest incremental dollars in advanced development programs in and around principally smart vehicle architecture, both hardware and software.

That's translated into a significant competitive position which gives us tremendous opportunity as we look out into the future, both hardware as well as software. Over the last 12 months to 18 months, as we said before, I think we've done 10 advanced development programs.

We've been awarded four or five programs commercially as it relates to CVCs and PDCs from a from a SVA standpoint. We have line of sight to over 20 additional programs that relate to SVA, the transition to SVA software and hardware, and we're well-positioned to win a significant amount of that business. So it was smart investment.

So as we look out into the future in terms of growth, obviously, we've increased our outlook for growth over market given the investments we've made. As we worked through the challenges related to supply chain and COVID, you'll see obviously significant margin enhancement as a result of reduction in those costs.

And then the nature of our product portfolio where we sit, we think you ultimately end up with a much higher margin, much more cash-generative business out in the future..

Can you just remind us what mid-decade margin targets look like? And just my second question is nice to see the bookings. I was hoping you can maybe drill down in the Active Safety.

That $2.8 billion of bookings, how does that compare versus the past couple of years? And are you seeing any changes to the nature of what you're winning? Our automakers or even your partner, [indiscernible], they're taking on different responsibility and you taking on different responsibilities.

Is that something that we should be cognizant of it in any way?.

Sure. So the bookings this year, $2.888 billion, it's not our highest year from an overall active safety booking year. I think our record year was close to $4 billion reflecting the wins on our initial satellite architecture programs across five OEMs that are currently rolling out across those OEMS.

There's a whole next-generation of advanced ADAS solutions that we'll be pursuing during 2022 and 2023, as we continue to enhance our active safety platform as it relates to our competitive position. Our perspective is it's actually strengthening. Aptiv safety, as you know, is an important feature for our OEM customers.

The market today, 60% of the vehicles being put on the road today have Aptiv safety systems, that leaves a significant portion that will be adopting Aptiv safety over the next several years, so significant market growth opportunity and penetration opportunity.

The fastest growth areas in and around L2 and L2 plus, which is actually where most strongly positioned from a competency standpoint, given our overall platform and our capabilities. As it relates to OEMS, I would say it's -- Rod, it's all over the map.

We have OEMS where we're doing the full platform for the OEMs, all the future development, the hardware, the software, the sensor fusion, the integration. We have other OEMs where we're integrating their solution into our platform. And we want to provide our OEM customers with the flexibility to do that.

As it relates to other competitors, listen, it's a huge, fast-growing market, right? Any market where your players like ourselves growing north of 20% per year, it attracts attention. And there are a number of players who are trying to enter the market. I think it's a challenge if you haven't been in it a long period of time.

We have business with over 20 OEMS across the globe. So our ability to develop, deliver cost-effective solutions, I would argue is better than anyone else's out -- anyone else out there, including OEMs who may decide to do more on their own.

But we're about enabling OEMs to go down the path that they would like to go down -- the path that they want to go down and while we do that, obviously generate revenue and profitable revenue growth. But having said that, big opportunity, we have a strong competitive position in this area that we're certainly focused on..

Rod, it's Joe. Just on the mid-decade margin targets, obviously, we're still very much focused on the targets we laid out in 2019. There's obviously, as Kevin laid out, challenges with the disruption and the inflation costs.

So it's a question of how long to work back to those and we will have a Capital Markets day in the second half of this year and we'll be updating the long-term view then..

Okay. Thank you..

Yeah..

We can go to Joe Spak of RBC Capital Markets..

Thanks. Good morning. Joe, just to go back to maybe some of the puts and takes in the '22 outlook. The $200 million performance you're talking about, that seems to mostly offset the 2% price-downs you're seeing. I think throughout '21, you talked about all these inefficiencies and the plan from choppy schedules and higher logistics.

So I guess I'm a little bit surprised that maybe that performance number is not a little bit higher. Are you assuming that some of that scheduled volatility remains or is some of that [indiscernible] into that supply chain cost bucket? Maybe you could just help a little bit with that.

Yeah, that's in that a $100 million Joe the bulk of that was the disruption costs shutting down plant. So we've assumed obviously some of that stays. I'd say schedules in the first half of the year. You start with smooth schedules, right? Nobody plans, nobody plans to lumpiness.

We actually had a little bit of disruption in January at the end of the month that we knew was coming. But that performance, the improvement is really included in that $100 million.

We took that out of performance just to be able to keep the two buckets that we've outlined, sort of the supply chain -- the COVID and supply chain disruption bucket, and the inflation buckets. We wanted to sort of maintain those into 2022 just to give people line-of-sight with what was happening with them.

And then on just on the pricing, can you talk about the conversations you're having with automakers and the ability to recover or price for some of those inflationary headwinds?.

Yeah. We're in conversations with several OEMs. I would say we're making actually very good progress but it's something that we continue to work through. I think, by and large, the OEM community recognizes the challenges in the supply chain and the costs suppliers have incurred in keeping them connected.

We made a decision, Joe, and we've talked about this that we were going to do everything we could to make sure that our OEM customers are building cars.

And that's resulted in incremental costs and I would say most of the OEMs that we've been negotiating with have appreciated that, have supported us -- have supported what we've done and effectively we reached satisfactory resolution in terms of the sharing of some or all that cost..

Okay. Thank you. Maybe -- just one quick one. I noticed in the guidance the [indiscernible] loss picks up. That makes sense as I think you're getting closer -- or they're getting closer to commercialization or launch. Can you just update us on the capitalization and funding there? Because I think when Hyundai put in $1.6 billion.

So based on this run rate, it seems like maybe around 23 or 24 there could be capital requirements, but maybe you could just give us an update there on your thinking..

Yeah, we were thinking from a -- we'll call it a full-year perspective, Joe. It really hasn't changed. When we did the deal, we had cash through 2024. They still have cash through 2024,.

Obviously, this may pull them up a couple of quarters, but that multiyear of level of funding is still in that we talked about March of 2020. So next couple of years are fully funded, and we'll obviously -- over the coming quarters, we'll be working with Hyundai and the Motional team on next steps there. But you're right.

They are making really good progress. They're starting to commercialize or they're ready for commercialization. So the activity is ticking up..

Thank you..

Our next question comes from John Murphy of Bank of America..

Good morning, guys. I just wanted to follow-up on those question around pricing. The reality is you guys are bringing a lot of technology to the table and helping your automakers advance their products, stuff that they can price for. But at the same time, you're getting jammed on cost inflation, on raws and labor, and everything else.

And they're able to pass this through and offset it through the pricing at the retail level, but they're not really helping you guys out here.

So I'm just curious as these discussions move forward, even just outside of what's going on at the moment and the extreme pressure at the industry and the supply chain is facing, is there anything changing in the dynamic of the relationship here on pricing or loss, or collaboration? Because it just seems like they need you more than ever.

But right now, they're making out pretty well from passing pricing through. But you're getting stuck in the sandwich share..

Yes. John, it's a good question. Listen, periodically we've been asked question about the pricing environment in the automotive industry, and I think our standard answer, it's true today is it's a challenging industry as it relates to pricing. And our OEM customers are always looking for price.

However, I would say in this particular case, there actually is a fair amount of recognition, cooperation, and collaboration between most OEMs and the supply base. There are some, it's a bit more challenging and we're working through.

There are various levers that we have in terms of ensuring that we get compensated as it relates to incremental costs that are above and beyond, and overextended period of time, the costs that we would normally incur. But I would say by and large, the environment hasn't changed and -- from a pricing standpoint.

And we just need to work through the various cost levers, both on the supply side, as well as on the customer side to offset that, and I'll take a little bit of time to do that. I'd say there is an element of the costs we're incurring as I mentioned. We're doing it consciously. We're supporting the OEMs as they launched some of these key programs.

And we think over the medium to long term, that will create a lot of benefit. As it relates to your point on dependency, listen, I know there's this increase narrative. I think it's a great question, because there's this increase narrative about OEMs doing more.

But the reality, I can tell you, there is virtually no OEM that we are launching programs that have a high software content level where OEMs are actually coming back to us and asking us to do more of the software development application activity than what was originally in the program.

And as we announced the -- after we announced the Wind River acquisition, one of the great things about it is I -- we got calls from several OEMs with respect to, can we schedule meetings to sit out, to talk about what we in Wind River can bring to help them as they wrestle through the challenges associated with the growth of software in the vehicle, and those areas that they have an interest in developing the software, as well as those areas where they have other suppliers that are struggling and delivering the software solution.

So again, understand there's a lot of narrative about in-sourcing and vertically integrating, especially in areas like software. I think a lot of that is driven by impression related to a West Coast-based battery electric vehicle company.

But I would say our automotive OEM -- but I would say with the exception of that automotive OEM, virtually all the OEMs that we're doing business with are struggling with software development..

Yeah. That makes a lot of sense. Just two housekeeping real quick. The bookings of 24 billion, what kind of volume assumptions are going into that? They could be $85 million or $100 million. We're time on how you think about the backdrop of volume [indiscernible] that bookings number.

How do you think about that Joe?.

Yeah. John, [indiscernible] for our revenue forecast, we obviously use our customer schedules and stuff. But for bookings, we always use IHS when the bookings are struck. So there's no -- we always have a reference point to go back to. So the Q4 bookings would have been based on IHS outlooks for those years going out.

Once we get into start production stuff, we always use IHS for bookings..

So if anything, the long-term value of those might be undercut by some of the near-term pressures.

Is that a fair statement?.

Yeah. They will flex with vehicle production. I mean, I think we've over time have gotten to a point where we're comfortable -- well I'll say washes out from a bookings perspective as it gets time for revenue, it's close enough, but we never wanted to introduce momentary subjectivity into quantification of bookings. We always use IHS..

And then just wanted to follow-up I'm sorry. It CSD, Kevin, you mentioned you had 50 companies run through the booth. 25 we're automakers are OEMs, who are the other 25? Where they supplier partner in TTTech Companies. A lot of Big Fish looking at make acquisitions here I'm just curious who else came through the fruits and there's other 25 Companies..

[Indiscernible] partners. So I would say 50 parties came through the booth, 25 OEMs, some of them physically, some of them virtually. So I want to make sure I'm clear on that. Actually, a lot of them virtually.

But as you can imagine, a lot of OEM interest across both our SPS as well as our ASUX business, so people in and around vehicle architectures as well as Advanced Safety and User Experience. And then a number of our supplier partners or potential supplier partners..

Okay, great. Thank you very much, guys..

Thanks, John..

We can go to Brian Johnson of [indiscernible] please..

Thank you. Just want to follow up on your comments on Wind River and the opportunities in the software stack that it opens. I guess two questions. First, Wind River under intel, it doubled in value, but [indiscernible] amount compared to what TPG eventually sold it to you for.

Some of the feedback from the semi-community was that Wind River was kind of lackluster. Some people point to fingers at Intel, Intel fans point the finger at management.

I know TPG brought in new management, but first question is, can you give us a sense of their momentum coming into the acquisition? And then the second question is, RTOS definitely needed in some ADAS applications, but some of the questions we've been getting is that so far down the stack that it really doesn't get you much in terms of discussions around application software.

So you can talk about that?.

Yeah. Now, it's a great question.

As it relates to Wind River, listen, I think there was an element of history Wind River where it was a sleepy company at one point in time and you highlighted the fact that under TPG ownership they came in and they significantly refreshed the management team and put in a very strong present CEO who's brought in a very, very strong talent with, I'd say, contemporary software capabilities.

And Brian, we had the opportunity, well in advance, of deciding that we should evaluate a more strategic relationship.

We had the ability to work with the team as it relates to designing, developing a tech roadmap that we could take from industries like telecommunications, aerospace, and defense that had or have some of the same challenges that we're experiencing in automotive today.

But solutions were developed and delivered by Wind River, where they've had a tremendous amount of success. And we had the chance to effectively test drive as a part of our commercial negotiations. So a tremendous amount of time spent with the management team accompany with a very, very strong management team.

As you look at automotive and you look at the broad portfolio, listen, it's not just about our costs. The benefit, it's a company that's familiar with automotive vehicle architecture and middleware, they have experience as it relates to in-device software, both with VxWorks as well as Linux Lx with hypervisors.

So they know what legacy approaches were, but they come with the benefit of having developed more contemporary approaches from the telco, and aerospace, and defense industries.

And when you look at it, it's not just about in-device software in the operating system, right? It's really about the off-device software platform that really provides or will provide customers or users with the ability.

Again, we look at it from a development deploy, operate in service the overall vehicle, over the life of the vehicle versus your certainly familiar with this, the current model where you layer in Middleware and the vehicle once and you're done.

So it's not just about our costs, it's not just about the in-device software, it's also about the tool chain. And the optimized software and platform that makes software development much more efficient, much more effective..

Brian, it's Joe. I'll just --.

Okay. Sure..

Sorry, just on the numbers. Listen, I think -- and that's why we provided some of the information in the deck. I mean, clearly, the business, I think, languished under Intel. I don't know why. I wasn't there, obviously. But I but it went down to about $300 million in revenues.

I think it actually contracted and it was at that level for a number of years and as you can see, it's growing now. It's grown over the last couple of years and that growth is accelerating.

The Studio product which is what Kevin's referring to which is this containerized RTOS and middleware was launched in Q1 of 2021 [indiscernible] already represents over 10% of the business.

So that's really where the growth is and I think your statement is true as of today, right? There are several middleware RTOS solutions that you can technically put into a vehicle. What we're really talking about is the containerized full lifecycle management typing. Wind River is the only containerized RTOS out there at this point.

The others used an automotive are none. And so, there's a little bit of where the puck is going versus where it is today when we talk about their capabilities..

Okay. And just as a follow-up, is this -- you mentioned the calls that you are getting. As you mentioned earlier, a lot of OEMs are building up big software organizations, often recruiting leaders from outside automotive to run those.

Are you getting into those kind of senior management levels? You don't have to say the names, but I'm thinking someone like a Doug Field over at Ford level of person leading the software groups..

Yeah. Our engagements are at very, very senior levels within the OEMs..

Okay. Thanks. Look forward to continuing in that for the few weeks in [indiscernible] conference..

Thanks, Brian..

Now, we can go to David Kelley of Jefferies..

Hey, good morning, guys. Thanks for squeezing me in. The next-gen driver monitoring platform launches you noted. Are you finding that you're winning the active safety platforms attached to DMS as well? We're just curious if there's correlation in some OEM bias to consolidate there.

And is there a way to think about DMS content per vehicle opportunity for you?.

Yes. Listen, traditionally when you think about the DMS, it's historically fallen in a category that was in around User Experience versus Active Safety. But as you've seen more advanced Active Safety programs introduced to the market.

So when you think about L2 plus L3, the need for driver monitoring, we've referred to it really is in-cabin sensing of a much broader application and just driver monitoring.

You've seen an uptick of demand and more discussion or more integration in and around the Active Safety system or Active Safety platform, which we think, given our position in ADAS, especially in the L2 plus space, given our experience with DMS, as well is now increasingly in-cabin sensing, it puts us in a great opportunity.

As it relates to market, the market's decent size today is one of the fastest-growing markets that we operate in. I don't have the numbers, Joe. I don't know if you have market size numbers or content per vehicle, but it's certainly meaningful..

Yeah. No. They are really interesting thing, the content per vehicle for this type of stuff varies a lot, as Kevin said, it depends on where it's going in and what it's replacing. But what's interesting is a lot of it's incremental. So if you're talking about $10 or $12 for DSM software per vehicle, that's really incremental.

It's going in on top of what's in there now, so it really depends on what you're -- what part of it you're referring to, but you tend to see a lot of incremental content going into existing either user experience systems, if it's still within the cockpit, like gesture recognition, those types of things, or some of the perception systems that are being used augmenting the active safety..

Okay. Got it. Thank you. And then maybe one follow-up, the wireless charging conquest win.

Can you just give us a sense high level of your role there? What you'll be providing and is that on vehicles only or is there an infrastructure aspect to it as well?.

That particular program is on vehicle. It's both hardware as well as software. As I think you know, we obviously do provide charge couplers and other things that are off vehicle for OEMs but not in this particular case..

Okay. Got it. Thank you..

And we can go to Ittai Miceli of Citibank..

Great. Thanks. Good morning. Just two quick follow-ups for me on the new eight to ten points GOM target. First, can you maybe articulate what annual bookings number you would target to achieve the eight to ten points? And then maybe what portion of the eight to ten points is coming from non-auto? Thank you..

Ittai, I am not sure. As you know, bookings can be lumpy. So from an annual standpoint, I think it's tough to give you a direct or an exact number. I guess one where when you look at our current ratio between revenue and bookings, it would be something consistent. Last year as we mentioned, we did $24 billion this year.

We expect to do $24 billion or more on our baseline of revenues. So I would say on an annual basis somewhere in that zip code. Joe, I don't know about non-automotive..

Yeah, I'd call it about a point. Ittai, it generally adds to that growth over market, the commercial vehicle and industrial..

Got it. Great, that's all I have. Thank you..

Our next question comes from Dan Levy of Credit Suisse..

Hi. Good morning. Thank you for squeezing me in. First, I want to go to the end-market guidance. You're assuming production up six globally, that's below the third-party forecasts. And then more recently we heard GM talked about 25% to 30% volume growth, which is a sizable customer for you.

So maybe you could just help reconcile your assumption versus some of the other views in the market or is it just conservatism more than anything else?.

At this point, it's schedules, Dan. So we are looking at customer schedules and have those layered in. Obviously, for the first four or five months, there fairly detailed schedules. And then obviously, there longer-term production forecast.

So, there's no sort of overlay at this point, particularly in the near-term because we have to obviously be ordering inventory and getting the plants ready to produce. I'd tell -- I'd say the biggest difference, I think, I just.

is eight. I tell you the biggest difference when we look at some of the third party is probably the ramp in the year. As we look at customer schedules, it's a slow start to the year. I referenced that in my prepared remarks. We think the first half's flat - ish -- flat, flattish, and then ramping in the back half of the year.

And I think that's just where we are relative to supply chain constraints and ability to ramp up. So as we do look obviously, and calibrate our schedules off what others are saying. That tended to be the biggest difference that we saw..

Okay. Got it. Thank you. And then my follow-up. Sorry, I want to go back to the in-sourcing question. I want to ask it in a different way.

In the quarter we saw a large automaker from JV with one of the chip companies and one of the things they're talking about is, not only just how they're sourcing chips for components but also maybe taking more of a proactive design on -- a more proactive approach on inputting the design of those components and specifically on the electronics side whereas in the past maybe they would just buy a box from you or name another supplier that is -- you control all the sourcing and the design.

Now, they want to take a more proactive approach.

So how much of that is a trend?And if there is a more proactive approach from the OEMs on dictating design of what they're getting from you, how does that affect what you're providing them?.

Yeah. Listen, I think as your specific question as it relates to OEMs and OEMs interacting with semiconductor players, that's actually gone through a number of years. And on certain applications, whether it be within the user experience or infotainment space, or the ADAS space, there are OEM preferences as it relates to certain semiconductor players.

More often than not, that relates to economics and volumes versus technology, as it relates to the OEM being more involved in chip design or technology or software going on the chip, I think it depends on what activity the OEM is considering or bringing to the table for what particular application. So I would need more specifics on that.

I would say a lot of -- again, going back to my initial point, software in the vehicle is tripling over the next eight years. So there's a lot of software going into the vehicle. So a big opportunity, obviously, OEMs want to be involved in a part of that just like they have in the past. So I would say that's too.

I think as it relates to that, the interactions with semiconductor players, that's going on for years. It thinks it's probably heightened a bit from a supply chain standpoint, just given what we've all gone through the last year or so. And I'd say you'd see a bit of a mixed bag.

There is some OEMs who are trying to get closer to the semiconductor players. There are other OEMs that really the business model has not changed, but certainly want more visibility, more transparency, more understanding of the supply chain..

And are you seeing your customer is dictating more to you which chips you need to use? Or is that just the trend that's always been going on, that sometimes you will have some customers that you have to use chips from such and such company is?.

Yeah. I wouldn't say at this point in time we're seeing any more or less than what we have historically. I think we've seen more announcements..

Got it. Thank you..

Our final question today comes from Steven Fox of Fox Advisors..

Hi, thanks for squeezing me in. Good morning. I just one question from me. When you look to the full-year guidance and the back-half improvements. We were sitting here a year ago talking about back-half improvements have been happening for various reasons, not necessarily of your fall.

So I'm just trying to gauge the confidence level that we reached a period here where you could start to see some improvements in supply chain and inflation and any kind of risk you're gauging going forward. Thanks..

Yes. Listen, it's obviously we're -- we put out a guide. We're confident in the guide for the full year. Supply chain disruptions are getting better. There are still constraints. But if you look at it and some of this, or particularly in the back half is going to be just lapping what was very, very disruptive production schedules.

If you look at August, September into October, so things -- flow is getting better. We've got line of sight on the supply we need for the balance of the year from the chip guys. Things are still tight. It's expensive to operate. The chips are costing more. There's still going to be some premium freight, that's really reflected in those disruption costs.

But again, we do see it getting better and we do see line of sight to things flow -- product flow improving as the year goes on..

And the risks to the forecast on all the supply chain inflation issues?.

The way we've thought about it, it's really within the range, Steven. So at the lower end of the range, we've obviously got -- our view would be that would bring in more costs.

So we've tried to manage that within the full-year range which -- again one of the reasons, it's hard to call that obviously by quarter but I'd really think of it at this point.

The risk is really within the range to the downside and to some extent if things were to get better faster from a material flow perspective, that's reflective of the -- in the higher end of the range..

Great, that's really helpful. Thank you..

Thank you..

Ladies and gentlemen, that is all the time we have for today's fourth quarter Aptiv 2021 earnings call. We'll be [indiscernible] for your participation. You may now disconnect..