Good day and welcome to Aptiv's First Quarter 2022 Earnings Conference Call. My name is Marion and I'll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Chris Tillett, Aptiv's Director of Investor Relations, you may begin your conference.

Thank you, Marion. Good morning. And thank you for joining Aptiv's first quarter 2022 earnings conference call. The press release and related tables along with the slide presentation can be found at the Investor Relations portion of our website at aptiv.com. Today's review of our financials excludes amortization, restructuring and other special items, and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our Q1 financials as well as for our full-year financials, as well as our full-year 2022 outlook are included at the back of the slide presentation and the earnings press release. During today's call, we will be providing certain forward-looking information, which reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the COVID-19 pandemic, the ongoing supply chain disruptions and the conflict between Ukraine and Russia. Joining us today will be Kevin Clark, Aptiv's Chairman and CEO, and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business and Joe will cover the financial results in more detail before we open the call to Q&A. And with that, I'd like to turn the call over to Kevin Clark.

Thank you, Chris. And thanks, everyone, for joining us this morning. Beginning on slide 3, Aptiv had a solid start to the year showcasing our ability to continue to outperform in a volatile market. Revenues totaled $4.2 billion, up 4% from the prior year, driven by strong demand across our portfolio of safe green and connected technologies. Operating income and earnings per share totaled $324 million and $0.63, respectively, reflecting continued revenue growth despite a decline in vehicle production in the quarter, more than offset by material inflation and increased operating costs associated with the ongoing supply chain disruption. The highlights for the quarter include 11 points of growth over underlying vehicle production, with all regions reporting strong growth over market, driven by continued growth in our key product lines, which I'll touch on in more detail on the next slide. New business bookings reached $6.1 billion, the result of growing demand for our portfolio of industry-leading advanced technologies. As the world continues to grapple with the ongoing COVID-19 pandemic and the related supply chain challenges, Aptiv's business has not been immune to the effects of the various disruptions. We continue to monitor the situation in Ukraine and lockdowns in China, which will impact the balance of the year, but at this point in time, we remain confident in our full-year outlook. Our team is doing an exceptional job executing in a very fluid environment, working to mitigate the challenges we're facing and our sustainable double-digit growth over market and pace of new business bookings during the quarter are a testament to our ability to continue to deliver for our customers. Turning to slide 4. Revenue growth across our key product lines continues to outpace the market. In our ASUX segment, Aptiv safety revenue growth remained strong, up 9% during the quarter, driven by the continued penetration of advanced ADAS systems. And user experience revenues increased 10%, the result of the launch of key infotainment programs in Europe and North America. In our Signal and Power Solutions segment, high voltage revenues increased 10% during the quarter, driven by the accelerated launch of electric vehicle programs, particularly in Asia and Europe. And our non-automotive revenues, which now represent roughly 16% of Aptiv sales increased 5%, the result of strong growth in the general industrial, semiconductor and datacom markets. A portfolio of advanced technologies aligned to the safe, green and connected megatrends has uniquely positioned Aptiv to solve our customers' biggest challenges, which we've capitalized on to increase our market share with new customers and expand our share of wallet with existing customers. Moving to slide 5, consumer demand remains very strong, requiring us to proactively manage through the ongoing supply chain disruptions, while also offsetting the increased material inflation. As I mentioned already, our team is doing an excellent job confronting these issues head-on. They've taken several actions to offset the headwinds related to macro factors, including further reducing overhead costs, while selectively investing in initiatives related to high voltage electrification, smart vehicle architecture, and software development. Our recently announced agreement to acquire Wind River, which we expect to close mid-year, has translated into several direct OEM engagements, including the commercial agreement with Hyundai that was announced earlier this week. We're also working closely with our supplier partners and our customers on several product redesign initiatives to both mitigate parts shortages and offset material price increases, over 50 of which have already been implemented and roughly another 50 will be implemented during the balance of the year. Lastly, we're making progress on other cost recovery initiatives, including price reductions from our suppliers and commercial recoveries from our customers, which will have a more meaningful impact during the back half of the year. We continue to confront the supply chain and inflation challenges and are focused on strengthening the underlying resiliency of our business model and reaping the full benefits once these headwinds subside. As shown on slide 6, first quarter bookings totaled $6.1 billion, the highest first quarter level over the last several years. Advanced Safety and User Experience bookings totaled $800 million for the quarter, in line with our expectations, representing the timing of customer program awards during the year. Notable customer awards during the quarter include a central vehicle controller for a European OEM. New business bookings for the ASUX segment for the balance of the year remain very strong, with several ADAS, user experience and smart vehicle architecture programs scheduled to be awarded. The second quarter is off to a strong start, with over $3 billion of ADAS awards and a central vehicle control award with lifetime revenues totaling $1.5 billion. Bookings for our Signal and Power Solutions segment reached $5.3 billion during the quarter, including $1.2 billion in high voltage electrification. The strength of our competitive position and the size of our funnel for high voltage electrification programs gives us confidence in reaching over $4 billion of customer awards during 2022. Our strong track record of new business bookings is proof that our portfolio of advanced technologies is perfectly aligned to the areas of significant growth in vehicle content. And our unique position as the only provider of both the brain and nervous system of the vehicle is presenting Aptiv with opportunities to capitalize on the acceleration towards the electrified software-defined vehicle. Turning to the highlights from our Advanced Safety and User Experience segment on slide 7. Revenues for the first quarter increased 7%, 14 points over underlying vehicle production, driven by strong product line growth in both active safety and user experience. During the first quarter, we received the new business award from a leading German OEM for a central vehicle controller on the next wave of its leading EV platforms. This award is another strategic win for our portfolio of smart vehicle architecture solutions, and is a key building block for this OEM's new electric vehicle platform, which is fully aligned with Aptiv's design for smart vehicle architecture. Moving to slide 8. First quarter revenues in our Signal and Power Solutions segment rose 2%, 9 points better than the declining global vehicle production, reflecting increased demand for high voltage architecture solutions and continued strong revenue growth in non-automotive markets. Our industry-leading portfolio of power and data distribution, connectors, electrical centers and cable management solutions, combined with our global scale, uniquely position Aptiv to both design and manufacture optimized vehicle architecture systems for customers located virtually anywhere in the world. As a proof point, a leading global electric vehicle OEM awarded Aptiv an additional vehicle architecture program to support the further expansion into Europe. In addition, we continue to support the growth of a German OEM's electric vehicle platform and the award of this charging device underscores our strong market position in electric vehicle charging. The first quarter's new business bookings validates the value we bring with our system level approach to optimizing vehicle architecture, which reduces vehicle weight and mass, thereby reducing costs for our OEM customers. We remain confident that our competitive position, combined with the accelerating demand for electrified vehicles, positions Aptiv for profitable growth in the Signal and Power Solutions segment for the next several years. Turning to slide 9. Despite the current challenges, we remain focused on increasing the underlying resiliency of our business model to deliver sustainable value creation. Although the macroenvironment remains very challenging and difficult to navigate, we continue to focus on increasing the flexibility of our operating model by leveraging our advanced technologies for both the brain and nervous system of the vehicle, providing more content for the software-defined vehicles of the future. Deploying capital to further strengthen our portfolio of safe, green and connected technologies, including expanding our portfolio of software solutions to meet the increasing needs of our customers, and intelligently diversifying our revenue base into less cyclical non-automotive markets, which will better position Aptiv for value creation from the acceleration of the trend towards fully electrified software-defined vehicle, increased market share gains, and continued operational efficiency and cost structure optimization. This translates into revenue growth, margin expansion and cash flow generation, which can be reinvested in the business to create an even more resilient business model. With that, I'll turn the call over to Joe to go through the financial highlights in more detail.

Thanks, Kevin. And good morning, everyone. Starting with a recap of the quarter on slide 10. The business generated strong top line performance, while successfully navigating through several industry-wide operating challenges. Revenues of $4.2 billion were up 4%, 11% ahead of vehicle production, which was down 7% in the quarter. Adjusted EBITDA and operating income were $478 million and $324 million, respectively, reflecting strong flow-through and higher volumes and the benefit of savings and cost reduction actions. Price downs that were effectively flat year-over-year and the negative impact of supply chain disruption costs, FX and commodities and material inflation. Earnings per share in the quarter were $0.63. Lastly, we had operating cash outflows of $202 million, driven primarily by our decision to maintain a higher working capital investment to help, in part, mitigate the impact of supply chain disruptions. Capital expenditures were $247 million, driven by investments to support program launches across our key product lines. Looking at the first quarter revenues in more detail on slide 11, we saw growth over market in all regions despite production disruptions in Europe from the Russia-Ukraine war, as well as COVID-related shutdowns in China, which impacted the final weeks of the quarter. The FX commodity impact on the top line was minimal as the passthrough of the higher copper prices for our customers offset the impact of the lower euro. As I previously noted, the negative impact of price downs was minimal, almost flat on a year-over-year basis. From a regional perspective, North America revenue was up 7% on an adjusted basis or 8% above vehicle production, driven by our active safety, high voltage and non-automotive product line. European growth above market was 13% despite a contraction in vehicle production of 18% in the quarter, led by strength in our active safety and high voltage product lines, as well as the launch of several user experience programs. Lastly, in China, revenues were up 14% over a flat market, as both segments posted strong double-digit growth despite the impact of COVID disruptions in late March. Moving to the segment recap on slide 12. Advanced Safety and User Experience revenues increased 7% in the quarter, reflecting 14% growth over underlying vehicle production, including growth in both active safety and user experience. As we've discussed, the increase in material input costs, primarily semiconductors, has negatively impacted segment profitability. Segment adjusted operating income was $16 million in the quarter, down $52 million compared to Q1 of last year. Volume growth contributed approximately $25 million of adjusted operating income in the period, reflecting flow-through of 35%, and annual price downs were effectively flat to prior year. A reduction in supply chain disruption costs and the benefit of higher performance and cost actions partially offset the impact of the previously mentioned material inflation. We are actively pursuing multiple paths to mitigate and/or offset the material inflation costs impacting ASUX. In addition to commercial and pricing negotiations with our customers, we are also pursuing product engineering and redesign. A number of these activities involved the redesign of products to open up multiple supplier sourcing opportunities, primarily as it relates to semiconductors, including the sourcing of semiconductors from newer market entrants in all regions where we operate. Signal and Power Solutions revenues were up 2%, reflecting 9 points of growth over market, with meaningful outgrowth in all regions. We continue to see strength in high voltage as well as our engineered components product lines, and the segment's reported growth comes despite a difficult year-over-year comparison, given the H1 2021 distribution channel replenishment we discussed last year. Adjusted operating income in the segment was down $98 million as the flow-through and incremental volumes and the benefits of improved performance and cost-saving actions were offset by COVID and supply chain disruption costs, as well as the impact of FX, commodity and material inflation, primarily copper passthrough timing and resins. The full-year outlook included on slide 13 remains unchanged from our original guidance provided in February. As noted in February, the full-year outlook excludes Wind River as that transaction is expected to close mid-year. We expect the Wind River transaction to be neutral to 2022 earnings per share. We believe the material inflation and continuous supply chain constraints were substantially addressed in our original guidance. And although we are seeing current year increases to material costs, the actions we're taking with our customers, supply base and cost structure are helping to offset the impact of these additional increases. As it relates to the more recent 2022 disruptions, we believe the second quarter will be significantly impacted by the COVID-related lockdowns in China. We are not providing a formal guide for the second quarter, however, we do believe it is possible that the second quarter is at or slightly below the first quarter revenue and earnings levels. As it relates to China, assuming the COVID-related lockdowns ease during the second quarter, we currently expect that market to recover lost vehicle production in the second half of the year. With respect to Europe, as we have previously discussed, we have mitigated our direct production exposure to Ukraine. Barring a broadening of the conflict, we do not expect our other European production facilities to be impacted. Although we have seen softening in European vehicle production to date, we believe that lost production will either be rescheduled for later in the year in Europe and/or offset by stronger North American production. Accordingly, we continue to expect revenue in the range of $17.75 billion to $18.15 billion, up 15% at the midpoint compared to 2021. This assumes global vehicle production growth of approximately 6%, with some shifting between regions from our original forecast. EBITDA and operating income are expected to be approximately $2.6 billion and $1.9 billion at the midpoint. We continue to estimate adjusted earnings per share to be $4.35 for 2022, an increase of 42% over the comparable 2021 total. And we expect 2022 operating cash flow to be just over $2 billion with CapEx at approximately 5% of sales. Moving to slide 14, before I turn the call back to Kevin, we've received several questions recently regarding the long-term 2022 forecast we provided at our 2019 Investor Day. We thought it would be helpful to lay out the changes relative to where we are today. Our long-term forecasts provided in 2019 estimated 2022 revenues of $17.5 billion, a 14.2% adjusted operating margin, and assumed global vehicle production of approximately 98 million units. When adjusting for current vehicle production of 83 million units, the forecast would now be $15.2 billion of revenue, with an operating margin of 12.6%. Growth over market contribution was significantly higher than our 2019 forecast, driven by the strength of our key product lines, offsetting about 70% of the impact from the decrease in vehicle production. The combination of price, performance, labor economics and investment is also favorable to the original long-term forecast. As a result, after adjusting for the change in global vehicle production, the combined impact of COVID and supply chain disruption costs, and recent material inflation total the difference between our current outlook and the prior long-term forecast for 2022. While we are proud of our disciplined revenue growth and operating performance over the past several years, we understand the importance of long-term margin expansion. We are confident that the COVID and supply chain disruption costs, currently estimated at approximately $250 million, will abate as conditions normalize. And as we have discussed, we are laser-focused on developing offsets and mitigating the impact of material inflation over the next couple of years. We believe Aptiv's underlying cost structure is well situated to drive incremental margins from the recovery in global vehicle production over the coming years. With that, I'd like to hand the call back to Kevin for his closing remarks.

Thanks, Joe. I'll wrap up on slide 15 before we open up for questions. Our commercial momentum is stronger than ever, as we're able to leverage our unique brain and nervous system portfolio of advanced technologies to accelerate our customers' path to the fully electrified software-defined vehicle of the future. We continue to closely monitor the current macros, including supply chain disruptions and material inflation, as well as the more recent war in Ukraine and lockdowns in China. Our team is doing an excellent job executing in this challenging environment, keeping our customers' production lines connected while at the same time implementing initiatives to optimize our cost structure to help offset the macro headwinds, all while we continue to invest in the development of advanced technologies, which we're confident will further enhance our competitive position and increase the resiliency of our business model. Thanks again for your time. And let's open up the line for Q&A.

We will take the first question from Emmanuel Rosner from Deutsche Bank. Please go ahead.

First one is on the material side? Can you provide some numbers and a little bit of color around what was the material pressure in the quarter on a net basis? What are you expecting for the full year and how that compares with previous expectations?

On the inflation aspect of it, Emmanuel?

Yes, it is.

That's total, in the quarter, call it, right around $80 million for the entire business on a year-over-year basis. So, that's the increase. Just the way the price increases started to come in, over the course of last year, we really didn't see price increases in Q1. Those tended to start at the end of Q2 and then build through the balance of the year, right? So, the year-over-year is going to be higher in Q1, just given that we – in the Q1 of last year, it's more of a constraint issue than it was constraints and inflation that we saw in the back half year. As you can see, we're obviously doing a lot on a net basis to offset those costs. We talked about the original guide, there being about $200 million, a little over – $205 million of net inflation that had sort of fallen through to the bottom of the guide that we were working to offset. Round numbers, that is still really what we're dealing with. As I mentioned in my prepared comments, we have had some price increases flow through during the current period. But we've also been able to do a lot on the pricing side. So, at the moment, we're still really dealing with that net number, which was some of the longer term product redesign, chip swap out type initiatives that we needed to do so. Again, I think as Kevin mentioned in his comments, the team across the board, the sourcing, engineering team, the business team is doing a really good job of holding the line at this point.

Looking forward, I guess the final slide comparing with the previous framework, even 2019, seems to be somewhat optimistic around the ability to recover or eliminate or offset some of this pressure in the midterm. I guess, what would be the process for this? Are there any additional recoveries you can have? Is some of it contractual? Is it negotiation? Is it mostly on the cost side? I guess what would be required to sort of eventually claw back this margin pressure?

It's exactly what we've been saying really for the past two or three quarters now. There's nothing's changed. There's obviously commercial discussions with our customers around recoveries and price, which you've seen us execute on in Q1. Continual pushback on the supply base, just around the reasonableness of the overall cost increases and the availability of parts. That is now, I would say, moving in, as I just mentioned, to a redesign effort where if we can't get to reasonable economics with a supplier, we are looking at how to swap them out or at least introduce competition into that sourcing. And I think there's a number of – even in semiconductors, a number of what I'll call newer market entrants across the world that are going to provide some opportunity for that, and we're actively pursuing that on all fronts. And then, part of it – and again, we've had this muscle in the company for the last – as you know, for the past five or six years. We're maniacal on the cost structure. And we're, again, continuing to look at the cost structure and find ways – if we can't directly mitigate the cost increases, find other ways through manufacturing or SG&A performance to help offset them. So, I don't think those levers have changed really over the past three or four quarters.

You covered it. I guess the only thing I'd add to Joe's point is there's a proportion of – when you look at that performance, inflation, there's a portion of the supply chain disruption, the COVID costs that, as things loosen up a bit, would normally fall away. To Joe's point, the more challenging areas in and around material inflation, and that's an area where we have a high level of confidence based on our competitive position and our capabilities to be able to offset, whether that be through negotiations or through product redesign efforts.

We will now take the next question from John Murphy from Bank of America.

I would like to follow up on this. The fact that the headwinds have significantly increased since we last spoke – I understand there are many actions and negotiations happening with your partners at various levels. Could this potentially lead to much higher incremental margins as the world stabilizes over time, or is some of this situation somewhat temporary due to the current volatility?

It's going to evolve. As I said in my earlier comments, it's over the next couple of years as it relates to material inflation, right? It's not going to go away tomorrow. But I do think, at least on the material inflation side, the COVID and supply chain disruption costs, as we talked about, those should abate as things normalize, so that'll be helpful to margin. I quantify that at about $250 million. We've bumped that up a little bit from the original, just given some of the disruption in Q2 in China, but still within a manageable number. And it's non-structural, these types of sort of transaction costs that occur when you have to close plants quickly and such. So, as those costs abate, and I think and – when you take a step, and this is why we get a lot of questions on that slide 14 in the deck and why we wanted to put the numbers out there, I think when you have an appreciation for the fact that our original 2022 estimate was at 98 million units of production and we're now operating at 83 million, round numbers, as we start to work our way back there, structurally, the business, I think, has sped up very well from a footprint perspective, from a workforce cost perspective to drive incrementals as volumes go up. You never want to be a business that's completely relying, obviously, on volumes to expand margins, but it's going to be a positive tailwind over the next couple of years as we start to get back into the 90s on vehicle production.

John, I think if you look at the mix of business and the flow on the mix of business, it's more profitable today, when you exclude the material inflation and supply disruption than what it was back in 2019. So, to the extent you get normalization from an inflation standpoint and stabilization of the supply chain, you should see improved incrementals and lower decrementals, quite frankly.

It just seems like you might be more of a coiled spring. I wouldn't put those words in your mouth. But I might say that, then we might be appreciated on the margin recovery as the world normalizes. That's some time off. Right? We all know that. Just a second question. On the business bookings, you kind of highlight there, record levels. There's a lot going on in the world. And it's kind of a similar question where everybody's a little bit distracted, but you're winning business like crazy. And that's even before Wind River comes on. I'm just curious, is this a timing issue? Or there's just a surge of new programs coming, which it seems like is the case, you're driving those wins. And then also, as we think about Wind River coming on, how do you think about the competitive set or you'd be going up against when you put Wind River products and software in front of your customers? Is it other suppliers or is it internal? And really, what's the competitive set as you go to market there?

It sounds like there's two parts to your question. So, as you look at where we are from a funnel standpoint, new business opportunities standpoint, we did attribute it to a couple of factors. One, when you think about our product portfolio and what we refer to as a brain and nervous system of the vehicle, the industry is aligned and virtually all OEMs out there are rethinking vehicle architecture and are on a path towards a software-defined vehicle. So, we're seeing an acceleration of that trend that given the nature of our product portfolio, we're benefiting from. In addition to that, you're seeing the acceleration of battery electric vehicles, which, again, given our vehicle architecture capabilities and some of the other product areas that we're working on, that we're seeing significant benefit from. So, the commercial momentum in the traditional portions of our business is stronger than it's ever been. And then, you overlay on top of it, a kind of second and third generation of advanced ADAS solutions, in-cabin sensing solutions, user experience solutions that are more dependent on software capabilities, which inherently we have based on our legacy business, and then you overlay the incremental capabilities that Wind River has and that they'll ultimately bring when they're a part of Aptiv, there really isn't anyone out there with the same sort of competitive position. And as we've talked about from a software standpoint, all of our customers are challenged by the level of software that's going into the vehicle, all of them are looking for help. And again, we feel like given our capabilities and the nature of our product portfolio, we're perfectly positioned to benefit from that trend.

We will now take the next question from Chris McNally from Evercore.

I wanted to focus in on maybe the implied second half margin first. And obviously, I know you have a range – given you sort of reiterated the full year, just give us the quick calcs. If I look at the midpoint of your guidance, it implies sort of second half margins over first half are over 300 basis points better. And then, the top end, which I think a lot of people will be curious, since you kept, would be almost 150 basis points to 200 basis points better. So, 500 basis points more which imply margins in the 13%. Can you just walk us through that? Since you said Q2 looks like Q1, what is so different about second half? We obviously get better volumes. But how much of it is known price recoveries and the lag, which is hurting first half? Just any more qualitative on that? Because it's so stark second half versus first half?

Chris, it's Joe. I'll start and then Kevin can obviously add. Listen, I think you're right. Order of magnitude, we'd agree with you. It's not a change from where we saw the year to be honest with you in February. Obviously, didn't know about the war in Ukraine and China COVID. But it was tilted to that. Some of it is comps. If you recall, just the back half of last year, August, September, October, COVID in Malaysia, those were the low points from a volume perspective. They were the high points from a cost disruption perspective. We had our EDS plants closed, the wire harness plants were closed for days at a time, week after week after week. So, we're picking up that benefit. We're not assuming that's recurring. And in addition to that, you've got building volume growth as we go through, building volumes as we start to go through some of the launches, particularly around things like user experience and there's some high voltage launches in the back half of the year. And our price recovery, just the way that negotiations have worked with customers over the past three or four months, tend to be somewhat back-end loaded, in that they start to pick up with the volume on the back half of the year. So, not a surprise to us within – and appreciate, we didn't give quarterly guidance, it was harder for folks to see. But that tilt was there in the existing guide. Now, we've got a little bit more pressure on it, if you assume a rough Q2 in China, which we are. But that market has demonstrated several times now its ability to rebound quickly. And from everything we're seeing at the moment on the ground over there, that's what we're assuming.

Chris, maybe I'll add just taking a step back on Joe's comments. If I can just make one comment. So, we managed to COVID in 2020 and supply chain challenges in 2021 and Q1 of 2022. And at the same time, continued to advance our strength in our product portfolio. And all of that activity benefited our customers because we kept them connected and, quite frankly, our growth over market benefited our supply base. Right? And all of that as it relates to Aptiv has created a tremendous amount of commercial momentum, which is in our bookings and our growth over market. And to Joe's point, as you think about it, we have some structural initiatives underway where we're, quite frankly, reengineering out alternatives and bringing in lower cost alternatives. We're also leveraging the significant volume we have with the existing supply base. We're selectively pursuing this. Just given the strength of the funnel that's in front of us, we can be very selective about the business we pursue. And we're really focused on those customers where we have a much more strategic relationship with. And it's not a tactical relationship where we're fighting day to day about price. And all that is translated into significant improvement as we roll out through the balance of the year. Now, we run into particular periods where, like Q1, to keep customers connected, maybe broker buys were higher than what we would like, but as we look at the balance of the year and how we sit from a supply chain standpoint, we think even those sorts of disruptions are reasonably manageable.

Can we talk about a little bit by division? You referenced a lot of SPS. But, obviously, we've been waiting for sort of the margin uptick in ASUX. And if I think about it on a two-year basis, your margins in the second half of 2020 were in the, call it, 8% plus range for ASUX. That would seem to be implied. Again, if I just do the midpoint of your second half because it's such a – we've now been in the low-single digits for ASUX for six quarters. I just wanted to confirm that both divisions would see that uptick.

Yeah. Both do, Chris. ASUX is a little bit more challenged, obviously, just given – that is where a lot of the semiconductor spend is, right? So, round numbers, when I give an inflation number, I mentioned that $80 million to Emmanuel, two-thirds of that plus is hitting ASUX. And what does hit in SPS, some of that is copper timing, right, because we're indexed on the metals by there. So, would expect ASUX to finish the year, call it, back to mid-single digits. So, just like it's bearing the cost of a lot of that semiconductor pain at the moment, it's going to receive the benefits of the commercial recoveries in price. So, we are targeting mid-single-digit for the full year in ASUX. So, obviously, that would put us closer to high-single digits in the back half. SPS has a bit more of a straighter trajectory. It's low double digits now or just about low double digits now, and it moves sort of mid-double digits for the full year.

This is really super straightforward one. High voltage, the plus 30%, the industry looks like it's growing 50% or 60%. Again, you have tough comps because of the great year last year. Just any color you can talk about sort of the potential to have upside in high voltage.

It's growing really strong. It is a tough comp. I think it was – I don't know, it was 128% or something last year growth. So, you've got to tough year-over-year. There's a couple things there. Obviously, there was some European production disruption, which hits high voltage. There was some China disruption in the back half, which obviously now it's hit high voltage. So, those are sort of the transactional things in the quarter. There's two other things that I'd probably highlight there. One is – Kevin's talked about and just referenced, we tend to be very selective on who we're doing high voltage with. We want to make sure they're going to build the cars, want to see them – OEs that are going to transform their portfolio where we're committing long-term to those platforms. So, as you see – particularly in other parts of the world, and China, as you see some of the smaller OEs, just see some of the other platforms kick in, we're selecting not to be on every car there, obviously, but we've got great content, we're on about 50% of the launches over the next two years. So that is what I would sort of frame as the sort of the bigger picture. But you did have some transactional things in the quarter that just, given the importance of high voltage in Europe and China, that's going to impact that number there.

We will now take the next question from Mark Delaney from Goldman Sachs.

To start off, I was hoping to better understand how the recoveries that you're seeing this year are being structured? And is it more about surcharges that are maybe temporary or perhaps a more sustainable change in price? And I'm asking because I'm trying to better understand the ability that Aptiv has to hold on to the recoveries you're expecting to see in 2H as you head into 2023 and then hopefully make progress toward the 12% plus longer-term EBIT margin target you have?

Yeah, Mark, I'm sorry. You were a little bit faint from a question standpoint. I think you were asking about structurally how we see a path back to more normalized margins.

Are the recoveries you're seeing in the second half of the year more about temporary surcharges, or are you structuring these as long-term pricing changes for the products? I'm trying to understand how sustainable these changes are.

To the point that Joe made earlier when he walked through the several – they're all permanent structural initiatives that that translate into either reduced cost from a permanent standpoint. And that could be done through price negotiations with suppliers, or engineering and lower cost solutions, which requires work between our engineering and sourcing organization, or it's price discussions, commercial recovery discussions with our customers, all of which would be permanent and structural in nature.

I was hoping to follow up on was this redesigning of chip suppliers. You mentioned it several times on the call today, maybe you can remind us what needs to happen to go ahead with that in terms of testing of this system with a new chip, what kind of software rewrites might be necessary? How long does that take? But then just give me a sense of how far along you are in this effort in 2022? Because, again, you spoke to it multiple times now in the calls. It seems like you're having some good success there.

It really varies by the nature of the product. There are some situations, although rare, where it's a fairly easy switch with a minimal amount of validation. Given the nature of where we play, when you think about user experience, when you think about high voltage electrification, advanced ADAS solutions, the bulk of what we do require some element of reengineering and validation activities that take place at Aptiv as well as with our customer. Those can range anywhere between six months to a year plus. These have been initiatives that have been underway for – really since kind of early to mid-2021. So, we're well underway. It's close to 100 engineers today who are solely focused on that hardware redesign as well as to the extent software needs to be changed. As you said, software redesign initiatives, I think we had a little over 100 programs underway. 50, as I mentioned, in my prepared comments, have already been implemented, and then another 50, which will be completed and implemented through the balance of the year. So, most of it requires investment from an engineering standpoint and some element of time, but it's something that's been underway for a fairly lengthy period of time.

We will now take the next question from Joseph Spak from RBC Capital Markets.

I just want to go back to, holistically, talk about some of the parts here because it sounds like there's more pricing recoveries assumed in your outlook than prior. And your light vehicle production or your vehicle production outlook at 6% weighted to Aptiv is sort of unchanged. So, it would seem like the – to sort of hold the guidance, somewhere like the core or base outgrowth has to be a different assumption. So, maybe you could just help us out with that sort of puzzle. And, like, how much of the recoveries is really helping the top line and your guidance now versus prior?

Yeah, not really changed, Joe. We did talk about at the time of the guide, the economics were always in the guide. They weren't on the price line. And I think we've talked about the reasons why we did that because we're not necessarily sure how or all of the recoveries are going to come from. But, no, the economics remain fairly consistent with what was in the original guide, which is in part how we're holding. Like I said, there are some increases we're seeing coming through during the current year, but we've obviously got activities and we're able to absorb a little bit more of that. So from a net economic basis, really no change. On the top line assumption, we're at approximately 6%. Understand, there's a lot of movements – I think the world has effectively come down closer to 6%. Right? We were, I think, probably a little bit more realistic at the start of the year. And listen, as I mentioned, they're most likely going to be some puts and takes across regions. Our view was that the industry probably could have done more in North America to begin with, if it wasn't for some of the supply chain constraints. So, to the extent you get some softening in Europe, parts availability, chip availability goes up because of softness in Europe, we think North America could potentially do more, at least based on what we're hearing from our customers. And then, I said our assumption around China, which is our assumption based on the feedback we're getting from our teams on the ground and our customers there is they're expecting to recover pretty quickly from what is now a prolonged lockdown going into sort of mid-second quarter. It started mid-March, right? So, it's been going on for a while. And that's a region and a part of the industry that has demonstrated several times now their ability to come back pretty quickly and pretty robustly. So, that's what we're currently assuming, but really no changes in sort of net economics. Like I said on the original guide and my prepared comments, we try to think through what was realistically coming down, coming down on us in 2022 from an inflation perspective, and what we're going to have to go do from a recovery perspective.

Kevin, you talked about Wind River a little bit. And obviously, all these automakers are undergoing big decisions about architecture and software, they want to make sure all the boxes can talk to each other. That's a refrain we hear quite, quite often. Are you really – even though it's sort of not closed, are you really able to have those discussions with the automakers? It sounds like you are. And again, maybe just a little bit more color on the receptivity to using a solution like Wind River because it's obviously a very important and complex decision for the automakers?

Let's start with how we work with Wind River. So, as we mentioned when we announced the transaction, our first step with Wind River was really reaching a commercial arrangement where we were partnering on the development of middleware and a software tool chain. And today, we operate under the terms of that commercial agreement. So, we jointly go to customers, discussing what we're developing and the capabilities that Aptiv brings, as well as the capabilities that Wind River brings. So, those commercial engagements have been extensive, with a very high level of interest. I would say separate from that, given our capabilities on ADAS and user experience in the traditional areas of software, kind of feature development, software building blocks, where we have a legacy or history, there are separate discussions going on there as well. whether it's an OEM that we're also talking to about middleware and what we're doing with Wind River or we're not. There's increasing need for support as it relates to their software activities. As we talk about, Joe, it's, it's a meaningful opportunity. A bulk of the industry is really struggling with it. And we feel like we're very well positioned to assist in the transition to the software defined vehicle.

We will now take the next question from Brian Johnson from Barclays.

Just want to follow up on related themes this morning. So, first is around price recovery. Second, just further drilling down into the tier 2 issue. If I'm running an OEM, it seems like I've been assaulted by or requested by every tier 1 on Earth for recovery, tier 2 pressures coming through to the extent it's a direct to buy. So, just at what level of the OEM are you having these discussions? And kind of related to that, as we've discussed over the years, to what extent is your C suite access, talking about autonomy, electrification, software defined vehicle facilitate those cost recovery discussions?

Just to be clear, our focus is on both reducing the cost of the input. So, there's a lot of activity – with the supply base, there's a lot of focus on how do we continue to reduce our own cost structure as well, and then there are discussions with the OEM about price increases, especially in those areas where we're seeing a tremendous amount of price inflation. And semiconductor is a great area. Those discussions tend to take place at, to your point, the most senior levels within the OEM. I'd say we've had actually a fair amount of success in those discussions, especially with those OEMs, where we have a more strategic long-term focused relationship. And the nature of what we do, whether it's battery electric vehicles, whether it's ADAS systems or solutions, those tend to be programs or initiatives that are much more long-term in nature and require alignment between supplier and customer. And I'd say we're having more success with those particular customers or in those relationships.

And second, a follow on to the questions around semiconductor substitution and software. Is there actually a margin opportunity of the midterm to the extent you swap out a semiconductor supplier with embedded firmware and replace that with Aptiv software that could be in a domain or a zone or even central computer unit?

Yeah, absolutely. And those are some of the initiatives that we're working on now. We don't have any in play or in place at this point in time. But that is a part of our whole SVA strategy and our whole software strategy.

Brian, it's Joe. You might recall as well, and this is a couple of years out, but we did talk about over $100 million of synergies from Wind River, which is in part taking out some of the middleware, the RTOS that we currently pay for from other suppliers, and start to leverage the Wind River products once we own them. Now, that's a couple years out, but that is thematically consistent with what you're talking about as well.

The next question comes from Ryan Brinkman from J.P. Morgan.

Thanks for taking my question, which is on power electronics. Of course, the disposition of Delphi Technologies materially increased your overall growth and margin profile. Although I've been noting over the past year that the power electronics piece of that powertrain business, which was I think transferred from the remainco just prior to the spin, it's been winning a ton of awards, first for inverters and now yesterday for battery management system. So, obviously, electrical architecture is very attractively levered to high voltage. Now, you're getting into even higher margin other areas, like software with Wind River, et cetera. But just wanted to sort of gauge your appetite or ability to participate in some of these power electronics areas which are high growth and where previously I don't know, maybe there are non-competes or other obstacles which could cause you to want to focus on other areas?

I mentioned in my comments areas where we're investing. So, a number of customers, given our history and given our capabilities in software and even in high voltage electrification, have come to us with interest in the power electronics and battery management system space. And that's an area where we've built out teams or actually in the process of working with OEM customers in developing those product solutions. So it's an incremental opportunity for us today, and we'd hope by the end of this year have more commercial activity to be discussing on calls like this. So that's something that's been underway for, like, frankly, the last couple of years.

Ryan, it's Joe. We're not precluded in any way from that space. And if you recall back in 2017 – I'm sorry, 2019 when we spun the powertrain business, it was – 2017. It was the right thing to do. We were focused on making sure that business had the ability to grow beyond its internal combustion footprint and power electronics made sense there, just given at the time, how it was sold into the customers. But we're not precluded in any way from participating in that part of the market.

The next question comes from David Kelley from Jefferies.

I think you mentioned non-autos is now 16% of revenues. You clearly have Wind River closing soon. The macro has changed quite a bit since 2019. But you've been targeting kind of non-auto revenue mix at 25%, I believe, by 2025. So, I guess, could you update us on that goal and how you're thinking about the organic and acquisition opportunities to bridge the 16% to the 25%?

It's Joe. I think over the next couple of years, we've got really good growth in that non-automotive business. We think that closes the gap to, call it, almost 20%. Now, we've got the other product lines growing faster, so it doesn't quite get to 20% organically. It's probably good news, in that the other product lines – things like high voltage have continued to grow really fast. But still have some work to do on the inorganic side. We've talked consistently M&A strategy. We'll continue to include businesses like Winchester Interconnect, which was non-automotive in a product line category that we understand really well, or businesses like HellermannTyton that have a really good balance of industrial and aerospace and automotive. So, continue to focus both on the organic and inorganic. As we've always said, that was a high-level target. That was an ambition. We're not going to take a big student body right just to hit that number, but we think we're on a really good trajectory to get there.

Maybe one quick clarification on the autos business as well. I think you noted revenue growth of 5% in S&PS from non-autos. And I think you also mentioned CB and industrial product growth of 1% elsewhere in the deck. So, I guess bridging that gap, is that all datacom or is there some other factor we should be considering there?

No, no, no. The 5% is total Aptiv. Right? So, ASUX has some commercial vehicle business and some recent launches that are growing quite nicely. So it's total Aptiv. SPS was down 1% this quarter, which is low, but impacted by – primarily the China shutdowns impacted that commercial vehicle space in the quarter. The one other comment just that I mentioned this, we did have that channel replenishment in Q1 last year in the engineer components business, connectors and HellermannTyton, a part of that falls into that non-automotive business. Obviously, we're replenishing the distribution channel. So, you've got a little bit of a year-over-year comp that impacts non-auto as well.

We will now take the next question from Itay Michaeli from Citi.

Just two questions from me. Going back to the second half margin, your implied margin, is that a good way to think about the go-forward margin beyond 2022? Are there any potential kind of one-time recoveries or benefits we should be thinking about in the bridge beyond 2022? And maybe for Kevin, on the 50 projects for product redesigns, maybe talk a little about what is the cost savings from that? How big are those projects and the timing for some of the savings from those.

It's Joe. Let me start with the question. Not going to quite, at this point in the year, get into sort of exit margins or sort of run rates coming out at the end of the year. The way I would think about it more for 2023 would be – and what we're looking at is obviously how do the COVID and supply chain costs come down over the course of next year and then, obviously, over the next couple of years, addressing the material inflation. I think things are still a little choppy to sort of take one quarter or one period of time and try to extrapolate for a year. But the margin improvement that we talked about first half to second half, we would expect to sustain that going forward. But I think it's a little choppy at the moment to sort of try to go out and take a stab at 2023 margin.

Itay, to your question about those initiatives, it varies. Right? Some are longer term, as I mentioned, and more complex. Some are shorter term and less complex. When you think about savings, you think about the offset to material inflation that we're seeing – that we saw late last year and this year, plus the benefit of incremental volume in the out years. So, it's meaningful savings as the volume rolls out and the products replaced.

We will now take the next question from Dan Levy from Credit Suisse.

I want to ask a couple questions on the disruptions you're seeing in Europe and China. So maybe we just start with Europe. Maybe you could just be a bit more granular on the impact to S&PS in Europe. A, do you have any remaining operations in Europe? And I know you mentioned customers are paying for the moved production. And then, you can give us a sense of how much volume you've lost or whether there's other leakages. And is there any potential to take additional business from perhaps other competitors that are over-indexed to Ukraine?

Maybe let's break it down. So, we have a facility in Russia. Russia is not operating at this point in time, at least if you believe customers' schedule, their production picking up some time late this quarter. That's something that we'll watch closely. When you think of Ukraine, we've talked about this. Or you look at Ukraine, we talked about in the past, we have four manufacturing facilities. Two of those facilities, production has been fully moved, again, paid for by the customer. Up and running, whether it be in North Africa, Poland, or Serbia, in existing footprint. So, supporting Western European OEMs. We have two facilities in the very western part of the Ukraine that are operating at this point in time at very low production levels. But there's some production going on supporting a one Western European OEM. A few OEMs have come to us asking us to pick up volume or pick up programs from other suppliers who weren't able to move as quickly as we were able to move. Just given where we were, just given economics, those weren't situations we pursued. And my guess is, things continue to evolve, we'll have ongoing discussions with those OEMs whether or not it makes sense for us to take over that business. But it has presented some potential incremental revenue opportunities.

Net-net, it sounds like the actual impact from what's going on in Ukraine has actually been more limited. Is that a fair assessment?

Yeah. There's been a revenue and operating income impact in the grand scheme of things. I wouldn't call it out separately if we're in a situation where you have long-term China lockdowns and challenges in Ukraine and Russia could be a bigger number, but at this point in time, I wouldn't get into specifics. We've managed through it. We started already moving production before conflict or war actually started. So, we got ahead of it. As I said, we had a couple OEMs who were very focused on it. And we partnered with them, we had existing space, we're able to move production pretty easily, and they supported us from a cost and logistics standpoint in actually doing that.

And in locations where we're – the western parts sort of along the Polish-Romanian border, that production will be moved. There is the ability to manufacture those products in other locations. Those customers were just a little bit slower to respond. And to Kevin's point, and one of the reasons we're not talking about this, some of the cost bucket, we just went with a – if you want to move, this is what it's going to cost. And customers have effectively agreed to that and are paying it.

Maybe you could also give us a sense on more specifically what is happening in China right now, to what extent has your production been outright halted? Where does it stand today? And I think we've seen in the past when your production is outright halted, the decrementals start to get pretty ugly. So, why isn't this more of a pressure to the business if you're having sort of outright production shutdown?

Well, I think Joe said it. It is a pressure near term, depending on the length of the lockdowns. I'd say at this point in time, all of our facilities are up and operating. Our engineered components facilities at a higher capacity utilization levels. We have several facilities that never shutdown. We have a few in the Shanghai area from a wire harness standpoint that actually did. Those wire harness facilities are now, on average, operating at a 50% to 60% capacity utilization level. So, there is an element of production that's actually taking place. The question is, how long does the situation stay as it is and we don't see ramp up in production or does the situation deteriorate? And we're just watching that very closely.

Dan, it's kind of what we talked about last year, just different timing. Right? As I said in my prepared comments, we do expect Q2 to be heavily impacted. That is a market our business team and industry, our customers that have recovered quickly in the past. There's time left in the year where this is – we're talking about a March, April, May, not November, December type disruption. And it was a little bit of the same dialogue we had last year. Depending on when the disruption occurs, demand is still strong, customers want to buy the cars, inventory levels at the dealers are still low. So, there is a desire by our customers to recover quickly. And just given where we are from a point in time in the year and from what we're seeing from customers' desires and our capabilities, we have the ability to – if it is Q2 and sort of stays contained within Q2, we do have the ability to recover the balance of the year.

That will conclude today's question-and-answer session. I would now like to hand back to Kevin Clark for any closing remarks.

Great. Thank you, everyone, for your time. We appreciate it. Have a nice rest of the day.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.