Good day, and welcome to the Aptiv Q3 2022 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jessica Kourakos, Vice President of Investor Relations and ESG. Please go ahead.

Thank you, Bettina. Good morning, and thank you for joining Aptiv's Third Quarter 2022 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 www.aptiv.com. Today's review of our financials excludes amortization, restructuring and other special items and will address the continuing operations of Aptiv. The reconciliation between GAAP and non-GAAP measures for our Q3 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. With that, I'd like to turn the call over to Kevin Clark.

Thank you, Jessica, and thanks, everyone, for joining us this morning. Beginning on Slide 3. We had a strong third quarter, so let me touch on a few of the highlights. New business bookings totaled over $5 billion, bringing the year-to-date total to over $25 billion, already outpacing last year's record full year amount of $24 billion, and cementing another record year in 2022. Revenue increased 33% to $4.6 billion, representing 9 points of growth over underlying vehicle production, driven by the strength of our safe, green, and connected product portfolio. We continue to execute well despite the constrained environment and macro headwinds. EBITDA and earnings per share totaled $673 million and $1.28, respectively, reflecting flow-through on volume growth and material cost recoveries partially offset by costs related to material inflation and supply chain disruptions. We remain on track to reach this year's target of $500 million in material cost recoveries and $100 million in cost reductions, increasing our profitability and enhancing the resiliency of our business model. And lastly, we continue to invest in growth opportunities as reflected by our agreement to acquire Intercable Automotive Solutions, which further strengthens our high-voltage product portfolio. Turning to Slide 4. Aptiv's industry-leading portfolio of electrical architecture products and full system-level capabilities uniquely positions us to optimize vehicle architecture systems. Intercable Automotive is an industry leader in the design and manufacture of high-voltage busbars and interconnect solutions. The company has an outstanding management team that has developed a portfolio of innovative high-voltage power solutions, including their seventh-generation busbar product that they've leveraged into very strong relationships with several leading European automotive OEMs. The partnership between Aptiv and Intercable will enhance the strength and breadth of our combined product portfolios, allow Intercable to leverage Aptiv's global scale and manufacturing footprint, especially in North America and China, further strengthen our capabilities to design and deliver fully optimized high-voltage architecture solutions that reduce vehicle weight, mass, and costs, and we can leverage these synergies to accelerate the revenue and earnings growth of our combined businesses. We look forward to closing this transaction later this year and welcoming Intercable Automotive to the Aptiv team. Turning to Slide 5 to review our segment highlights. Our full system solutions across both the Brain and Nervous System are accelerating the development of the electrified software-defined vehicle of the future. In the Advanced Safety and User Experience segment, our portfolio of technologies is helping to increase the penetration of advanced active safety solutions, including a third quarter business award from a major local Chinese OEM for our next-generation ADAS platform, representing our seventh major active safety platform customer. In addition, during the quarter, we secured a high-volume award with a large customer in Asia to provide our next-generation integrated cockpit controller. And lastly, we continue to build a growing pipeline of software revenue opportunities with an increasing number of North American, European, and Asian OEMs, which we're confident will begin to turn into customer awards in 2023 and beyond. In the Signal and Power Solutions segment, as the demand for vehicle electrification continues to accelerate, we're experiencing significant growth in our high-voltage business, which will reach $1.2 billion in revenues this year and accounts for 25% of year-to-date new business awards in the segment. In addition, we continue to successfully leverage our vehicle architecture capabilities to drive revenue diversification and strong growth in the commercial vehicle and nonautomotive markets, which increased 24% during the quarter. And lastly, our industry-leading position as a full system solution provider of high-voltage architecture, combined with our capabilities in vehicle electronics and software systems, has uniquely positioned us to expand our portfolio into power electronic solutions and battery management systems, further broadening our offerings and strengthening our position as the industry leader in vehicle architecture. Moving to Slide 6, how we put innovation in motion. During the quarter, Aptiv was named a 2022 PACE Award winner for our Central Vehicle Controller, which is scheduled to begin production in 2023 with a major Chinese OEM. This high-performing compute platform is a key piece of the architecture that translates software code into physical action, efficiently and securely controlling the flow of data on and off the vehicle, managing communication for current and emerging high-speed protocols and reducing complexity by up-integrating critical body functions. This particular central vehicle controller is a first-to-market solution and a critical element of our smart vehicle architecture and is essential to enabling the software-defined vehicle. We are increasingly collaborating with our OEM customers to bring these innovative solutions to market as evidenced by our recent participation in the IZB 2022 Conference in Wolfsburg, Germany, where we showcased our portfolio of full system solutions for both hardware and software to VW CEO, Oliver Blume, and his management team pictured here. With Aptiv's Brain and Nervous System capabilities, we're uniquely positioned to reduce complexity through architecture optimization while enabling the full abstraction of software from hardware. Increasingly important to automotive OEMs, our system-level design capabilities enable breakthrough levels of assembly automation, increasing quality while also reducing complexity and costs. And as customers migrate to next-generation architectures capable of supporting software-defined solutions, it's important that they have the right software tools to develop the applications they support. This is why Aptiv is investing in end-to-end cloud-native software development tools, which we previewed at IZB and will unveil at CES in 2023. Feedback from IZB was overwhelmingly positive, providing an opportunity to increase our level of collaboration with OEM customers and further validating Aptiv as a trusted technology partner. Turning to Slide 7 to provide an update on new business awards. As I mentioned, third quarter new business bookings totaled $5.1 billion, bringing our year-to-date total of $25.4 billion surpassing our previous full-year record, further validation of the strength of our portfolio of advanced technologies and our ability to deliver exceptional value for our customers. Advanced Safety and User Experience bookings during the quarter totaled $1.4 billion, bringing the year-to-date total to a record $11 billion. Driven by the continued strong adoption of advanced active safety solutions, including the new business award I mentioned previously from a major local Chinese OEM for our next-gen ADAS solution, which we will leverage our scalable ADAS platform to support a wide range of advanced safety features. Bookings for our Signal and Power Solutions segment reached $3.7 billion during the quarter, including another strong quarter for high-voltage electrification awards, bringing the year-to-date total to roughly $3.5 billion. We've seen a very balanced bookings profile across our high-voltage product offerings, underscoring the strength of our industry-leading portfolio of advanced technologies. Another strong quarter of new business awards while at the same time successfully negotiating material cost recoveries with our OEM customers is further validation of the uniqueness of our portfolio, the strength of our customer relationships, and our flawless operating execution. Turning to Slide 8. Despite the constrained environment and macro headwinds, we continue to take actions to increase the underlying resiliency of our business model and deliver sustainable value creation by enhancing our portfolio of full system solutions to increase our addressable content on the electrified software-defined vehicles of the future, recovering increased material input costs, and optimizing our cost structure, smartly deploying capital to further strengthen our capabilities to meet the evolving needs of our customers, and intelligently diversifying our revenue base into less cyclical nonautomotive markets. We're confident that these actions will position us to continue to create value as the industry transitions to the electrified software-defined vehicle and will be reflected in an acceleration in new business bookings, continued strong revenue growth over market, meaningful margin expansion, and strong cash flow generation. 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 third quarter financials on Slide 9. As Kevin noted in his opening comments, revenues of $4.6 billion were up 33% with 9 points of growth above underlying vehicle production. Adjusted EBITDA and operating income were $673 million and $525 million, respectively. EBITDA margins expanded 330 basis points versus third quarter last year and grew 560 basis points sequentially, reflecting flow-through on increased volumes of approximately 32%, both year-over-year and sequentially, continued progress on customer recoveries of direct material inflation, as well as other performance and cost savings actions, partially offset by a return to a more normalized price-down environment and the impact of FX, commodities, and non-material cost increases. EPS in the quarter was $1.28, an increase of over 150% from the prior year, reflecting higher net earnings. And operating cash flow totaled $437 million, a significant improvement from prior year and sequential quarters. As I will discuss in a moment, we will be updating our full-year cash flow guidance to reflect the higher expected investment in certain key inventories to help better navigate supply chain constraints and prepare for 2023 launch activities. Capital expenditures for the quarter were $212 million. Looking ahead at the third quarter revenues in more detail on Slide 10. Adjusted revenue growth of 33% reflected both our growth over market as well as the rebound in global vehicle production from the prior year, which was heavily impacted by semiconductor shortages. Growth across all regions was led by our key product lines, including high voltage and active safety and reflect some improvement in supply chain conditions. However, despite this relative improvement, we continue to operate in a constrained environment with both direct and indirect impacts on our customers and operations. Direct material inflation recoveries totaled $199 million, and price downs were $64 million, approximately 1.8%. The FX and commodity impact was significant, totaling $226 million, primarily related to the weaker Euro and RMB. Regionally, North American revenues were up 31% or 7% above market as production at several of our larger North American ASUX customers was impacted by supply chain constraints. In Europe, we saw outgrowth of 9%, driven by continued high voltage and active safety growth. And in China, revenues were up 42% or 11 points over market driven in part by a significant increase in launch activity in our Signal and Power segment. Moving to the segments on the next slide. Advanced Safety and User Experience revenues rose 26% in the period or 2% over market. As previously noted, ASUX experienced lower North American growth over market as several customers experienced supply chain constraints that impacted their vehicle production in the quarter. Excluding these customers, ASUX growth over market was in line with expectations and prior periods. Segment adjusted EBITDA was $122 million or 10.2% of revenues reflecting strong flow-through on incremental volumes, the previously discussed material cost recoveries, improved operating performance, and the benefit of engineering credits. Signal and Power Solutions revenue rose 35% in the period or 11% above market. The outperformance was driven by strength in several product lines, including high voltage. Segment EBITDA of $551 million or 16.1% of revenues include strong flow-through on incremental volumes and incremental material cost recoveries, partially offset by the impact of FX and commodities. Moving to our full-year outlook on Slide 12. Our outlook for revenue, operating margins, and EPS remain unchanged from the guidance provided last quarter despite the negative impact of foreign exchange, which has increased significantly since we provided our full-year guide. We remain confident that we are well positioned to continue to execute despite the ongoing concerns on supply chain constraints, COVID impacts in China, and disruptions in Europe. We expect revenue in the range of $17 billion to $17.3 billion, a growth over market for the year to be within our previously communicated range of 8% to 10%. EBITDA and operating income of $2.2 billion and $1.6 billion at the midpoint, respectively, and earnings per share of $3.30, an increase of 8% over last year, despite a meaningful drag from FX and commodities. We are updating our cash flow guidance, and we now expect to finish the year at $1.35 billion versus the prior guidance of $1.5 billion. As I previously noted, the updated cash flow guidance reflects our decision to carry increased inventory of certain key components to help mitigate the impact of supply chain constraints as we begin to prepare for a number of new customer launches in early 2023. Before turning the call back to Kevin, I wanted to touch briefly on 2023 as we have started the early phases of planning for next year. Although given the ongoing macro challenges, it is too early to provide any specific guidance. However, our strategy remains unchanged, and we continue to be well positioned to lead the transition to higher contented software-enabled vehicles. And although we expect to benefit from overall demand for key technologies like smart vehicle architecture, high voltage, and active safety, the progress we have made on material cost recoveries and operational performance and the inclusion of the Wind River and Intercable acquisitions, we remain cautious of the lingering headwinds and believe continued supply chain tightness and deterioration in economic conditions, particularly in Europe, will negatively impact overall 2023 vehicle production levels as well as the smoothness of vehicle production schedules, making it potentially more challenging to recapture operating leverage. And we would expect the FX commodity headwinds to persist into 2023 as the more meaningful impacts of changes in the euro and RMB did not occur until the second half of this year. With that, I'd like to hand the call back to Kevin for his closing remarks.

Thanks, Joe. I'll wrap up on Slide 13 before opening up the call to questions. Our business is built on a strong foundation and continues to gain momentum as we close out 2022 despite the constrained environment and macro headwinds that Joe just touched on. Our strategic alignment with our OEM customers has never been better as reflected in our continued strong revenue growth over market and the pace of our new business bookings. We continue to make progress recovering the increases in material input costs while also further optimizing our cost structure, and we continue to smartly deploy capital both organically and inorganically to further strengthen our competitive position. These actions have translated into a significant improvement in our margins as evidenced by this quarter's results and are providing momentum and a strong entry point for 2023. As Joe just mentioned, in light of the current macro environment, we'll provide a detailed update on our 2023 outlook when we release fourth quarter earnings, but you can expect us to focus on delivering continued strong revenue growth over market and margin expansion in a challenging environment. With that, we can open up the line for questions.

Our first question today comes from Rod Lache of Wolfe Research.

Good morning, everybody. I was hoping first to just maybe better understand the year-over-year earnings bridge that you had this quarter. So you did on an adjusted basis, 256 of EBIT, and you're getting to $525 million this year. You mentioned 32% conversion on the $1 billion of volume, which obviously will be more than accounting for that growth. Could you just talk to the net impact of commodities? That $199 million tailwind, what was the net effect netting that out? And were there any out-of-period benefits in that number?

Yes, Rod, it's Joe. Let me start by saying that our revenue related to foreign exchange is approximately $226 million year-over-year. The operating income associated with foreign exchange and commodities is about $20 million. We are seeing a decrease in the euro and the beginning of a weakening in the renminbi towards the end of the third quarter, which will continue to affect us in the fourth quarter based on our observations. Looking at an out-of-period perspective, there are various factors at play with customer recoveries, inflation, and some premium freight costs that we will be reimbursed for next quarter, but there isn't anything significantly material on a net basis. Essentially, there are numerous elements impacting the quarter in different ways. However, with the volume flow and the effects of foreign exchange, we've captured the net impact effectively.

Okay. So it sounds like mostly FX in that number and that recovery was mostly offset by higher costs, if I understand that correctly?

Yes. The only other thing I would mention is that we are observing a return to a more typical price reduction environment. Currently, we have a price decrease of 1.7%. We had been postponing price reductions until we completed all customer recovery. As we indicated last quarter, we anticipated a return to a more regular operating rhythm with our customers. So we have that price decrease of 1.7% as well.

Okay. And you opened the door to 2023. And I know you can't really give a lot of detail yet. But last quarter, you mentioned that on a seasonally adjusted basis, we should be thinking that margins are around 10% in the back half. And it seems like you're kind of tracking to that. You're at an $18 billion run rate of revenue. So that's about $1.8 billion of EBIT. Is it still correct that there's around $100 million of additional kind of unrecovered costs that you're that you need to go after for next year?

I'm not sure we talked about a 10% to 10.5% jumping off point. I think that's generally holding operationally from everything we're seeing. We're sort of tracking to that. My only caution there would be, I think we're going to have to evaluate or one should evaluate sort of the FX impact. There could be about 0.5 point of headwind to that range if these FX rates hold going into next year. But operationally, I'd say things are happening as we had expected.

Rod, maybe if I can just chime in on price recoveries. The team has done an excellent job as it relates to recapturing material cost increases and translating that now into POs with our OEM customers. So we feel good about heading into 2023 with respect to that particular category. Obviously, what we need to go after next year is partly influenced by what we see from a material inflation standpoint, if there's some incremental increases going into 2023. So we're well positioned as it relates to what we've translated into POs this year heading into next year. If there's more material inflation, we'll go back to OEM customers with increased prices. The OEM customers are aware of that. And then secondly, just to Joe's point on FX, I think Joe highlighted it in his comments a couple of times. When you look at the recent movement in the Euro and the RMB, we've seen a significant change over the last month or two. So I think there's a question there as it relates to what's the trend in currencies heading into 2023 and what sort of movements do we see.

Great. And just lastly, Kevin, any updated thoughts on investment in Motional just in light of what we've heard from Ford and just elsewhere in the market?

Motional continues to be very successful in advancing the technology roadmap. You may have seen the announcement regarding Uber and the plan to integrate Motional vehicles into the Uber network in the United States. With the Ford announcement related to Argo, our perspective on autonomy may differ from most OEMs. When we initially invested in Automatica and nuTonomy, a key part of our strategy focused on how to leverage those technologies for vehicle autonomy and integrate them into active safety solutions, which is what we're currently implementing. A portion of that technology and know-how is embedded in our current generation ADAS platform. Additionally, Motional is a customer of Aptiv, particularly in areas like perception systems. We have always considered autonomy as the far end of the spectrum in relation to active safety. Therefore, from both a strategic and business perspective, it's well integrated into our current operations.

Okay. Thank you.

Our next question comes from Itay Michaeli of Citi. Please go ahead.

Great, thank you. Good morning, everyone. I have two quick questions. First, regarding the Q4 guidance, could you share your latest views on LVP for the year and whether you have any bias towards the low or high end of the confirmed range for 2022? Secondly, Joe, looking ahead to 2023, do you have any initial thoughts on how you're considering global LVP for next year?

Yes, Itay. Let me start with 2023. We're still working through that, and there are a lot of variables at the customer level that we haven't scheduled yet. So it's really too early for us to clarify the numbers or the direction. Regarding Q4, we're essentially maintaining our guidance. There is potential for upside, especially with production in China. However, recently we have observed more reductions in Chinese production schedules than increases. Nonetheless, I understand there is a strong desire in that market to produce more vehicles. At this moment, I feel confident in the midpoint of our guidance, with a possibility of leaning towards the higher end of the range. The situation will depend on increases in vehicle production in China, stability in Europe, and how much foreign exchange impacts the top line. We're monitoring these factors closely, particularly the potential revenue from China, which we acknowledge is possible, even if we don't see it reflected in the schedules yet. We are also aware of the revenue implications from the foreign exchange perspective.

Itay, I can just qualitatively, I just want to reiterate Joe's point. Although supply chains seem to be improving. The reality is we're seeing continued volatility in customer schedules, right? And maybe more recently, more volatility to the downside on the China production schedules, which we did not see in Q3.

Got it. That’s helpful.

Our next question comes from Joe Spak of RBC Capital Markets. Please go ahead.

Thanks so much. Good morning. Joe, maybe just a little bit more on this decision to build inventory. It sounds like it's pretty customer or launch specific? I just want to get a little bit more understanding of your thinking because we just saw a competitor at least on the connector side, they had sort of built prior inventory and they're sort of letting some of their inventory go down now because they feel better about the supply chain. So, is this just you being extra cautious in terms of building your own stock? And is that a new normal? Or should we expect that to come down over the course of a year or so?

I think, broadly speaking, in the electronic space, particularly with passive electronics and semiconductors, we're anticipating significant launch activities in the first half of next year. We want to ensure we have adequate supply, so we’re securing it whenever possible. Additionally, my comments regarding growth suggest that customers are still feeling the effects of limited availability. While I understand the points made by TEL, the issues we're observing across the electronics supply chain are not isolated; there are still constraints affecting semiconductors and passive electronics. Therefore, we decided not to reduce our inventory as much as we initially intended for the fourth quarter and to maintain what we have while still placing orders to ensure we are protected for next year. It's difficult to predict how things will unwind at this point. I don't believe we're facing a new normal that will persist for several years, but it is possible that we may operate at higher levels for most of 2023, depending on improvements in the situation.

If I can add, I think we should be really, really clear. Sorry, Joe. It relates to specific programs that we're launching in 2023 and relates to specific vendors who've been challenged from an overall supply chain standpoint. And to Joe's point, it's not the new normal to the extent their capabilities or their capacity increases, we have the ability to ratchet down orders during 2023. So we're doing what we can to protect our customers and, quite frankly, protect ourselves from a supply chain standpoint.

Okay. One, maybe just a question on sort of probing '23 a little. I understand you mentioned that could weigh on that 10% to 10.5% jumping point you previously mentioned. But I guess, we don't really know like maybe the recoveries continue and that's going to sort of continue to be a drag or next year. I guess I just want to understand like what sort of assumption on recoveries was in that 10% to 10.5% starting point?

Yes, it was $0.5 billion, and we are focusing on covering that amount of inflation with recoveries. This is on track, and we will incorporate it into pricing next year. It is not related to the foreign exchange or the discussion about the 10% to 10.5% range. Operationally, we are meeting our goals. However, I want to emphasize that the foreign exchange impact we saw in the third quarter will also be significant in the fourth quarter. If you compare the key exchange rates from the first half of 2022 to the current levels, there will be an effect.

Okay. Maybe just one quick one. You mentioned Wind River for '23. I think it's been 10 months since you made that announcement. Any update?

Yes. We're just - we continue through the regulatory process at this point in time. So that's where we stand.

Okay, thank you.

Our next question comes from Adam Jonas of Morgan Stanley. Please go ahead.

Thanks, everybody. First question is on commoditization of ADAS. You have this pretty dominant Tier 2 supplier of ADAS system on a chip that's looking to become a Tier 1. Qualcomm announced this monster auto backlog integrating ADAS into infotainment. Apple is reportedly speccing out a 10 camera path of optical system and expanding CarPlay. So how fast is ADAS becoming commoditized in your opinion? And what does this mean for the ASUX business?

Yes, I'll take that. We don’t see it as becoming commoditized. As I mentioned, we recently secured another full platform program in China in addition to a significant European project awarded earlier this year. It’s crucial for suppliers, whether they are Tier 1 or Tier 2, to possess capabilities across multiple perception systems, including sensor fusion, integration, and building domain controller hardware. Regarding the competitors you mentioned, I’m not aware of any that have the experience and capability in all those areas. We consider ADAS a critical segment and believe it will not become commoditized as we've discussed before. It's a vital feature for our customers, assists them in selling cars, and generates significant revenue. We remain well-positioned in this area and continue to invest to enhance and solidify our standing in the market.

Kevin. Just a follow-up on decelerating EV penetration or the risk of decelerating penetration. I mean, we're still going to have growth from a low base of EVs, but we're seeing battery cost inflation and geopolitics at least at the margin work against affordability, the affordability argument of EVs and many legacy OEMs still struggling to get accessible, affordable models out. I'm thinking, do you agree that there's a risk that could flatten at the margin flat in that EV adoption curve? And if the pace of EV growth is slower, and we sell more ICE architectures for longer, can you remind us, is that a positive, negative or neutral to your SPS margin?

Well, yes, it's a great question. I'd say kind of two things on it. I think what you referenced as a potential risk to EV adoption, it is a possibility that it slows EV adoption. Our view is that it doesn't flatline EV adoption. With respect to our position from a high-voltage electrification standpoint, we're effectively the only player that can provide the full vehicle architecture solution. What we're finding is more and more customers coming to us to take more of the overall content to provide the cable management, the wire harness, the connector and now within our cable automotive, the busbar content as well. So regardless if we see slowing, we think there is a huge opportunity for us to capture more content. And then as I mentioned in my comments, in addition, we're investing in capabilities in and around power electronics as well as battery management systems. We're in discussions with customers as it relates to both products as we speak. And we'd expect customer awards to be forthcoming. So we believe it will be a continued high-growth area, and we feel as though we're well positioned, quite frankly, to expand our share of wallet in that space. When you look at the content differential to get to the last part of your question, high-voltage electrification, especially battery electric vehicles, probably what you're alluding to, the content opportunity for Aptiv is significant. Internal combustion engine typically has content vehicle architecture content of about $500 per vehicle. When you move to a fully battery electric vehicle, that's closer to $1,500. So it's a meaningful uptick in the content opportunity.

Thank you, Kevin.

Our next question comes from Chris McNally of Evercore. Please go ahead.

Thanks, team. Joe, I appreciate your insights on the potential bias towards the middle or upper end of the range, especially as production still seems a bit uncertain. FX has clearly been a challenge as the quarter progressed with spot rates. Can we explore your comments about China and the scheduling volatility further? One key question is what the baseline for that comment is. Your Q2 outlook indicated a decrease of 4%. Now, the volatility seems to suggest a range where China could be up 5% to 9%. So, is it reasonable to think that things might be considerably better than your previous estimates, potentially contributing to organic growth? Additionally, there are questions regarding the implications of the last two months for 2023.

Yes, Chris, I believe you are correct. The original full-year guidance was down 4%, but it has clearly improved. My main point is to consider how much higher it could potentially be and how much of that might be impacted by foreign exchange rates. Currently, I think achieving something above 5% could be challenging based on what we’re hearing from customers. However, our optimistic outlook within the guidance is primarily influenced by production in China, which is reasonable.

Okay. Super clear. And Joe, do you think right now the base for how customers are ordering is assuming that the VAT status, the tax payments will not be renewed sort of typical China, we won't find out until January 3, but the history here is like '16 and '17 is that you typically get 2 years. So do you have a view on whether we'll have the stimulus renewed into next year? And could we see a pickup in the China order rates once that happens in Q1?

I think I would say what we're seeing, there's a lot of noise in that market. I think it's hard to pull out incentives and sort of the puts and takes, pull heads at the moment. They're obviously, I think, coming out of that Party Congress. There's some discussions there around sort of market and how friendly the market gets over the coming couple of quarters. There is some heightened concern around COVID lockdown so that we're hearing, certainly not to the extent we saw in Q2, but renewed concern about that. So I think it's hard to pull out sort of one particular facet of that at the moment, Chris, Kevin, I don't know if you have...

No, I think you've covered it.

That's perfect. If I could just add one more question for 2023. Should we consider the 8% to 10% as a baseline for the growth, depending on the final production figures?

Yes, yes, that's fair.

We will now take a question from Emmanuel Rosner of Deutsche Bank. Please go ahead.

Thank you very much. I guess in some of the words of caution that you were expressing earlier for 2023, one piece is there is clearly the FX headwinds, which is understandable. The other piece seems to be supply chain tightness, which I think you said could make it more challenging to recapture operating leverage. Are you thinking that this is the sort of volatility that would result into lower incremental margins than usual?

Yes. What I was referring to, Emmanuel, there, and we've talked about it really for different regions for the past couple of years, right? I mean one of the big benefits to our customers, ourselves, and I'm sure it's just not us from a supply perspective, it's the smoothness of production. Even if you're at a lower number, the ability to sort of set up and run without these stop-starts from supply chain disruptions, just make for greater efficiency. And I think we'll be better year-over-year, obviously, just cautioning that to the extent we continue to see some of these disruptions, particularly in the first half of the year, again, as an industry, I mean, the disruptions we saw in North America in Q3 were not related to our supply chain, but our customers were impacted. So it's just speaking to the abruptness of shutdowns and restarts. It does hurt from an operating leverage perspective.

Okay. And then also curious, how are you thinking about cost trajectory exiting the year and into next year? I found it interesting that you're back to more normalized price down. Obviously, you would sort of like need a more stable cost base to sort of like be able to continue like this. So how should we think about it in terms of additional going forward, cost trajectory and any additional actions that would be needed?

Is your question around price downs, Emmanuel, or input costs?

The question is mostly around input cost, but I was wondering if going back to normal price downs, like suggests that you're saying costs are stabilizing or not.

Yes. I'll address Joe's last response to your question. What we're conveying as a management team is that while Q3 showed improved results, our overall perspective is that the supply chain is getting better, but challenges remain. We are still experiencing inflation and fluctuations in schedules, which lead to irregular production, resulting in increased costs for staffing and transportation of goods. Some of these costs are already factored into our current operating rate, allowing us some flexibility to support our customers. We have actively approached our customers to implement those cost increases, and they have been supportive. We anticipate that this situation will continue into 2023, particularly in the first half of the year. Given the unpredictability of macroeconomic challenges, we are preparing for the possibility that some of these issues may persist. While we're trying to pass along as much of the cost increase as possible, it's challenging to provide exact predictions on margin expansion and other related items for the early part of 2023.

Okay. Thank you for the color.

We will now take our question from David Kelley of Jefferies. Please go ahead.

Good morning. And thanks for taking my questions. Maybe I want to follow up on Intercable. I was hoping you could talk a bit more about their product portfolio and your opportunity to leverage their expertise within your platform? And then how should we think about their potential contribution to that $1,500 BEV content opportunity you referenced earlier?

Intercable holds a robust position in high-voltage electrification and is currently on their seventh generation of busbar technology, establishing themselves as a leader in this space from a technological perspective. They also offer other products, including interconnect solutions and electrical centers, which align well with our offerings. Their expertise in busbars surpasses what Aptiv currently possesses. The busbar market, valued at over $1 billion today, is projected to grow at a compounded rate of about 30%, potentially exceeding $4 billion by 2026 or 2027. This represents a significant revenue opportunity. The content per vehicle, depending on the busbar solution and vehicle type, ranges from approximately $100 to close to $200, indicating its importance. Intercable has a strong presence with European OEMs and a solid manufacturing base in Europe along with operations in China. We see potential to expand their manufacturing capabilities and introduce them to more customers, creating significant synergies. Joe, did I cover everything?

No, I think that covers it.

Okay. Got it. Really helpful color. And just more broadly, realizing Wind River is still pending, but can you talk about your approach to acquisitions in 2023, given what feels like a shifting macro here?

Yes, David, it's Joe. I'll start that one. Listen, I think we continue to obviously want to grow the portfolio, both organically and inorganically. I think from an M&A perspective, obviously, you've got to be mindful of valuations as the macros are challenging for us to forecast. Obviously, as challenging to sort of potentially value other businesses. And on the private side, it usually takes a few quarters for valuations to catch up to public market. So we'll proceed cautiously, but we're still very much interested in the types of transactions like Intercable that strengthened bolt-on transactions, larger bolt-on transactions that strengthen the SPS portfolio around key growth areas. And then mindful of software opportunities that can help accelerate sort of the organic plan around SBA and the software-defined vehicle. As we've always said, though, we're very careful to make sure we're building our strategy and building our plan to hit from an organic perspective and that M&A, the added capabilities or added product lines that come with M&A would be in addition to that. But obviously in market, we need to be a little bit more careful around valuations, but continue to execute on that strategy.

Got it. Thank you.

We will now move to John Murphy of Bank of America. Please go ahead.

Good morning, everyone. I have two quick questions. First, regarding the volatility and schedules, I understand it’s frustrating given the impact on potential margins. This situation has been persisting for nearly two years. We keep hearing about improvements, but then things seem to revert. What indicators are you looking for to see some stability in schedules? It seems like fluctuations are happening week-to-week and month-to-month, making it hard to predict when things will smooth out. Kevin Clark: Sure, John, I’ll start. Currently, the fluctuations are occurring on a weekly and daily basis. The good news is that the swings we're observing are smaller now, showing a tighter range compared to before. However, when we think about staffing in manufacturing and the costs of inbound and outbound freight, those expenses are still higher than usual. We have a strong connection with our strategic semiconductor suppliers and our customers. Our supply chain and manufacturing teams are in daily communication to manage these issues quickly. While Q3 was better than Q2, we anticipate Q4 will improve further, though supply chain tightness remains a challenge. Any disruption can have a ripple effect on vehicle production. We're trying to manage this closely and want to assure you that the challenges are ongoing, and we wish they were resolved, but we’re doing our best to navigate through it. Okay. And then just a second question, as we look at Slide 7. Obviously, the bookings are pretty remarkable this year, about $13.5 billion and what you're hiding in your active safety, high-voltage, and SVA, there's almost $12 billion that's outside of those three technologies. I'm just curious if you can give us some color on those. And as we think about those rolling on, maybe they roll on faster because they're sort of less leading-edge technology, but they might come on faster at higher margins and higher returns. So any color around that almost $12 billion is outside of those three.

Yes, it includes areas such as user experience, our traditional connector solutions, and cable management solutions. These are applicable in low-voltage vehicles and conventional vehicle architectures. I mentioned user experience, which encompasses infotainment systems, cabin sensing systems, and body and security systems. There are various products and product lines that contribute to those bookings.

Is it fair to say, Kevin, though, that those come on at higher margins and returns in the near term potentially? So those are important to watch for?

Yes. I think it depends on what the product line is. I'd say most are basically in line with what our traditional margin structure is across all of our product lines. Some of those that are higher volume, it may be a little bit higher.

Okay. Thank you very much, guys.

Our final question today comes from Mark Delaney of Goldman Sachs. Please go ahead.

Yes, good morning. Thank you very much for taking my questions. First on the implied 4Q revenue guidance, I think it's down sequentially relative to 3Q, even if we assume the company is coming in at the high end of the full year revenue outlook. Could you help us bridge what's going on with 4Q revenue compared to the third quarter? And then how much is maybe FX as opposed to other factors?

Yes, it is slightly down sequentially in terms of launch activity in the third quarter. In response to Chris' question, we are considering the potential for increased volumes in China while also managing the impact of foreign exchange. Compared to last year, we are still up 9%. It’s important to note that last year's fourth quarter experienced some recovery from a very low third quarter, which adds some complexity to the year-over-year comparison. Ultimately, the key factors to consider are the potential growth from China and the foreign exchange offset when looking at that revenue figure.

Okay. And then specifically on Europe. Last quarter, the company spoke of some weakness with some of the OEMs in Europe relative to reductions to their scheduled forecast, could you elaborate a little bit more on what you've seen transpire in Europe relative to the last update you gave 90 days ago, and as the magnitude or breadth of OEM schedule reductions in Europe changed at all?

Yes, that's a good question. I believe Europe has generally helped with the schedules, as we've observed. I realize our numbers were lower than many others in the market. However, some of those forecasts have come down, and while they may not be exactly where we are, they are much closer than where they originally started. Our tracking of European customer schedules indicates that while there are still concerns about economic disruptions in Europe, customers seem more confident that they won't face impacts in the fourth quarter compared to our discussion in August. Nonetheless, as I mentioned earlier in 2023, Europe continues to present a challenging environment for the foreseeable future, considering everything happening there.

Thank you.

Thanks. That concludes today's question-and-answer session. I would now like to turn the call back to Kevin Clark for any additional or closing remarks.

Great. Thank you, operator. Thanks, everyone, for joining us today. We really appreciate you taking the time. Take care.

That will conclude today's call. Thank you for your participation. You may now disconnect.