Good day, and welcome to the Aptiv Q4 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, Lynnette. Good morning and thank you for joining Aptiv's fourth 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 aptiv.com. Today's review of our financials excludes amortization, restructuring and other special items and we'll address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our Q4 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.

Thanks, Jessica, and thanks, everyone, for joining us this morning. Let's begin on slide three. 2022 was another year with record new business bookings and strong growth over market, driven by our industry-leading portfolio of advanced technologies, as well as our continued flows execution that's kept our customers connected in this challenging environment. Highlights for 2022 included $32 billion of new business bookings, driven by significant active safety, high-voltage and smart vehicle architecture awards. $17.5 billion of revenues, representing 15 points of growth over vehicle production during the quarter, bringing our full year growth over market to 11 points. Operating income and earnings per share for the full year of just under $1.6 billion and $3.41, respectively, reflected the benefit of strong revenue growth and customer recoveries, partially offset by costs related to COVID and ongoing supply chain disruptions, which Joe will cover in greater detail a little later. We also enhanced our portfolio of safe, green and connected technologies with the additions of Wind River and Intercable Automotive, both of which closed during the fourth quarter. I'll expand on these, as well as our enhancements to our operating model on the next slide. As the industry transitions to fully electrified software-defined vehicles, we continue to enhance both our operating model and industry-leading portfolio to further strengthen our capabilities to solve our customers' toughest challenges. As legacy functional and domain-based architectures are increasingly replaced by approaches aligned after smart vehicle architecture, it impacts both the way we design and sell our solutions. This means further strengthening our One Aptiv account-based model, positioning us to engage earlier in the development process and, therefore, more effectively design, specify and deliver optimized solutions across our portfolio, resulting in stronger customer relationships and greater ability to capture value from all our full system solutions. We further enhanced our regional operating model, by increasing local capabilities and empowering those closest to the customer to address their needs quickly and efficiently. Additionally, the continued rollout of our Net Promoter System has resulted in actionable insights to improve our efficiency, our resiliency and service levels, thereby increasing customer intimacy. Lastly, proactive initiatives and risk mitigation actions related to our supply chain have contributed to our ability to keep customers connected through significant disruptions, giving them confidence in our ability to execute on current and future platforms. At the same time, we recognize that the software defined electrified vehicles consumers are demanding will require innovative new solutions and we're investing organically and inorganically to position ourselves for that future. Our acquisition of Wind River significantly strengthens our capabilities in software with an industry-first cloud data software platform that speeds development, streamlines deployment and enables full life cycle management for the software-defined vehicle, significantly reducing cost and time to market for our customers while also unlocking new business models. The acquisition of Intercable Automotive enhances our portfolio of high-voltage busbar and interconnect technologies and provides near-term synergies as we expand Intercable's manufacturing capacity in North America and in China. Lastly, we're also investing organically in solutions that further expand our portfolio of industry-leading high-voltage electrification solutions such as integrated power electronics and battery management systems. To help fund these initiatives, we've implemented structural cost reductions that will save roughly $100 million in annual expense, which will take full effect throughout 2023. These actions further improve the efficiency of our underlying cost structure while allowing us to make investments that better position Aptiv for long-term outperformance. As shown on Slide 5, nowhere is the strength of our track record and portfolio more evident than in our new business bookings performance. 2022 bookings reached a record $32 billion, an increase of over 3% from last year's record of $24 billion. Advanced safety and user experience bookings totaled a record $12 billion, driven by $4.2 billion of customer awards for our smart vehicle architecture solutions across three different OEMs, including central vehicle controller and Power Data Center Bookings with the Volkswagen Group, bringing cumulative customer awards for SBA products since our launch to over $5 billion with five different OEMs. Active safety bookings of $5.2 billion, representing a combination of next-gen hardware and perception software building blocks as well as full system turnkey awards, including an award from a large European-based global OEM as well as the Chinese OEM BYD, which represents the seventh customer to select Aptiv's scalable platform to efficiently support a wide range of advanced safety features. The strength of our portfolio of active safety solutions is reflected in the $20 billion of cumulative bookings since 2018. Signal Power Solutions new business bookings reached a record $20 billion for the year, the result of strong growth in low voltage vehicle architecture, including a $2 billion like commercial vehicle booking with a major North American OEM in the fourth quarter and continued strong bookings in adjacent markets. A record $4.2 billion of high-voltage electrification bookings, up from roughly $2 billion just a few years ago, including awards from several North American, European and China-based OEMs, representing both traditional and new mobility providers across our electrical architecture and engineered components product lines, bringing cumulative high-voltage customer awards to $14 billion since 2018. Our industry-leading portfolio, combined with our unparalleled ability to execute highly complex programs, even in today's challenging environment positions us to continue to win new business, resulting in clear line of sight to roughly $32 billion of business awards during 2023. Moving to Slide 6 to review the segment highlights. Beginning with the Advanced Safety & User Experience segment. This past year, we became the first technology provider to successfully launch a full stack hands-free Level 2+ ADAS system with a European-based global OEM. This is a great example of our full system capabilities applied to active safety, as well as our flexible business model and open platform approach, which allows OEMs to leverage their own innovations, as well as those from Aptiv and other third parties to deliver a unique, high-performing driving experience. We're also deeply engaged with several customers regarding Wind River's cloud-native software platform, which we're confident will lead to commercial awards over the course of 2023. Turning to Signal & Power Solutions segment. We continue to be perfectly positioned with an industry-leading portfolio of electrification solutions that span multi-voltage distribution, connection and cable management. Reflecting the accelerating demand for battery electric vehicles, the $4.2 billion of high-voltage new business bookings I referenced on the prior slide, accounted for over 20% of the segment's total bookings, and high-voltage revenues increased 33% over the prior year, 28 points over vehicle production. In addition, our new offerings in power electronics and battery management systems are gaining traction as demonstrated by a significant integrated power electronics and BMS award from a North American-based global OEM, where a solution will be used across all their platforms beginning in 2025. And the pipeline of customers evaluating the deployment of a similar solution is growing. Our customers recognize our track record of flawless execution, which is a driver behind the customer service, quality and supply chain awards we received. The cost recoveries we negotiated and the record level of new business bookings we've been awarded. Our full system edge-to-cloud vehicle architecture solutions have enabled us to pursue high-growth margin accretive opportunities that position us to continue to deliver outsized revenue growth and margin expansion for years to come. Moving to Slide 7. At this year's CES event in Las Vegas, we brought the software-defined vehicle to life, showcasing Aptiv's unique full stack capabilities. We debuted Wind River software platform, fully integrated with a vehicle powered by SBA. Designed vehicle demonstration of the industry's first end-to-end cloud-native DevOps tool chain and vehicle software platform, showed how these solutions improve development speed, quality and efficiency, unlock new business models and enable software functionality to evolve and improve over the life cycle of the vehicle. We also showcased our turnkey Gen 6 ADAS platform, including differentiating KPIs and a public road demonstration. Our radar-centric solution, which is vision agnostic, utilizes artificial intelligence and machine learning to increase the availability, robustness and efficiency of the perception system, resulting in a solution that can be up to 65% more energy efficient, and 25% more cost-effective than equivalent vision-centric solutions. Lastly, we continue to highlight the commercial readiness of our Smart Vehicle Architecture solution. First, by deeply integrating it into a production vehicle, which enabled us to demonstrate a wide range of in-cabin user experience features as well as the fusion of our interior and exterior sensing, resulting in greater safety, comfort and convenience for passengers. And second, through our SVA demonstrator, which enabled guests to see firsthand how these advanced architectures reduce complexity, weight and mass, while also showcasing our latest high-voltage electrification solutions. With over 400 customers, 150 partners and 75 suppliers visiting the Aptiv CES pavilion this year, we reinforced our growing pipeline of commercial opportunities and set the stage for the deeper, more tailored engagements, which I referenced earlier. Moving to slide eight. Before I turn the call over to Joe, I wanted to touch on our outlook for 2023, which Joe will cover in more detail. Building on the foundation from 2022, we expect a very strong year for new business bookings, revenue growth over market and margin expansion. Our robust business model and portfolio of advanced technologies are resulting in sustainable value creation. We continue to widen our competitive moat with investments in advanced technologies and capabilities that drive our operational excellence. This has enabled us to demonstrate strong outperformance even in a weak production environment, as demonstrated by our 2023 outlook, where we continue to expect 8 to 10 points of growth over vehicle production, and 140 basis points of operating margin expansion and strong cash flow growth. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Thanks, Kevin. Good morning, everyone. Starting with a recap of the fourth quarter on slide nine. As highlighted earlier, the business drove strong growth in the quarter, with revenues of $4.6 billion, up 19% over prior year and representing 15 points of growth above underlying vehicle production. The outgrowth was across both segments, despite continued semiconductor supply chain constraints and COVID disruptions in China that negatively impacted customer production. Adjusted EBITDA and operating income were $674 million and $523 million, respectively. OI margins expanded 380 basis points versus prior year, reflecting strong flow-through on incremental volumes, the benefit of customer recoveries of direct material cost increases and cost reduction actions taken earlier in 2022. Supply chain disruption costs were favorable by approximately $25 million from the prior year, and foreign exchange was negative in the quarter, reflecting approximately 20 basis points of headwind. EPS in the quarter was $1.27, an increase of 87% from the prior year, driven by overall earnings growth and interest income from higher cash balances maintained prior to the closing of Wind River, partially offset by interest expense and tax expense on higher earnings. The notional EPS impact was a loss of $0.29, an $0.08 increase over last year. Lastly, operating cash flow totaled $933 million and capital expenditures were $178 million for the quarter. Looking at the fourth quarter revenues in more detail on slide 10. Our growth was broad-based across all regions, despite the disruptions in China and continued supply chain constraints. Price downs net cost recoveries and commodities were favorable by approximately $100 million. Foreign exchange negatively impacted revenue by approximately $300 million in the quarter, and late quarter shutdowns in China were a negative $60 million. From a regional perspective, North American revenues were up 21%, or 13% above market, driven by our active safety and high-voltage product lines. In Europe, which continues to be impacted by acute supply chain constraints and macro concerns, adjusted growth was 22%, driven by strength in both segments. And in China, revenues were up 8% or 14 points over market. Moving to the segments on the next slide. Advanced Safety and User Experience revenues rose 15% in the quarter or 11 points of growth over underlying vehicle production. Segment adjusted operating income was $77 million, up over 100% year-over-year, reflecting strong flow-through on incremental volumes as well as favorable net price and recoveries, partially offset by the negative impact of foreign exchange in the quarter. Signal and Power revenues rose 20% in the period or 16 points above market. Segment operating income improved by 64%, driven by strong flow-through on incremental volumes, favorable net price recoveries and commodities and lower supply chain disruption costs that partially offset the negative FX impact. Turning now to Slide 12 and our expectations for global vehicle production in 2023. Based on customer schedules, we are forecasting a decrease of 1% for the year reflecting approximately 85 million units of global production. Regionally, we expect North America flat at approximately 15 million units; Europe, down 2% or approximately 16 million units; and China flat at approximately 27 million units. As we discussed during the fourth quarter of last year, we remain cautious about the impact of macroeconomic considerations, particularly in Europe, as well as the impact of customer supply chain disruptions, including continued constraints of certain semiconductors. Although the overall supply of semiconductors has improved sequentially, we continue to see acute constraints, particularly in Europe and North America that impact overall customer production levels. Moving to Slide 13, you'll find our 2023 full year outlook, which now includes Wind River and Intercable Automotive. We expect revenue in the range of $18.7 billion to $19.3 billion, up 8% at the midpoint compared to 2022 with 9 points of growth over market. Note that our growth over market excludes the impact of acquisitions. As noted previously, we remain confident in our multiyear growth over market target of 8% to 10%, supported by continued success in our key product lines and high demand for our portfolio of advanced technologies. EBITDA and operating income are expected to be approximately $2.7 billion and $2 billion at the midpoint, reflecting strong flow-through on volume growth, continued margin expansion in high-growth product lines and lower COVID supply chain disruption costs. Adjusted earnings per share, excluding amortization, is estimated to be $4.25. EPS growth of 25% is driven by strong earnings growth, partially offset by an increase in the expected tax rate of 14.5% and higher net interest expense. The loss related to Motional of $310 million represents a $0.07 increase over last year. We expect 2023 operating cash flows of $1.9 billion reflecting the higher earnings as well as improved working capital during the year. Capital expenditures are expected to be approximately 5% of revenues or $950 million for the year. With respect to capital deployment in 2023, we will continue to maintain a well-balanced approach to capital allocation as we continue to prioritize organic investments in the business to support our portfolio of advanced technologies and record new business awards. We will execute our M&A strategy and focus on transactions that enhance our scalability across both the brain and nervous system of the vehicle, accelerate our speed to market with relevant technologies and access new markets. And while we will continue to maintain our current financial policy, as it relates to our balance sheet leverage profile to the extent we can take advantage of market disconnects, we will be opportunistic in our share buybacks, returning cash to our shareholders. To that end, our 2023 guidance assumes we offset the impact of stock compensation dilution in 2023 via share repurchase, a practice we had in place prior to 2020. On slide 14, we provide a bridge of 2023 revenue and operating income guidance as compared to 2022. Starting with revenue, our growth over market, combined with the decrease in global vehicle production, resulted in a net contribution to revenues of over $1 billion. The full year benefit of direct material cost recoveries will effectively offset changes in index commodity and price downs. FX is estimated at a negative $300 million. And lastly, we expect Wind River and Intercable to contribute approximately $700 million for the year. Turning to adjusted operating income, we expect margin expansion of 110 basis points before the benefit of acquisitions, driven by continued strong flow-through on incremental volumes of approximately 30% and the negative impact of price downs, commodities and incremental inflation are partially offset by customer cost recoveries and higher direct labor and other indirect costs are more than offset by increased operating performance, including the benefit of cost-saving actions, improved manufacturing performance, as well as a reduction in supply chain disruption costs, which are estimated to be $180 million in 2023. The addition of Wind River and Intercable will increase 2023 operating income to $2 billion, or 10.5%, reflecting margin expansion of 140 basis points and incremental margins of over 27% for the year.

Thanks, Joe. I'll wrap up on slide 15 before opening the line up for questions. As the management team reflects on 2022, it's clear that we strengthened our competitive moat and accelerated our commercial momentum, supported by a highly differentiated portfolio of safe, green and connected technologies. Together with our strong track record of operating execution, Aptiv has never been better positioned to provide our customers with full system solutions that advance the industry's vision of the software-defined vehicle. As a reminder, we're hosting our 2023 Investor Day on February 14 in Boston, where we'll provide our view on the industry and how we plan to usher in the next phase of our business strategy. In closing, I'm proud of what the Aptiv team accomplished during 2022 and have never been more excited about what we will deliver in the years ahead. As you'll see and hear on February 14, the best is yet to come. Operator, let's now open the line up for questions.

And we'll take your first question from Rod Lache.

Good morning, Rod.

Yes. My first question is about your bridge for 2023. You mentioned $400 million in additional labor depreciation economics and pricing, which you offset with $400 million from performance and either $135 million or $180 million in lower disruption costs. Given the ongoing inflationary environment and the negative pricing, when do you anticipate starting to overcome these disruption costs or headwinds?

Well, Rod, it's Joe. I'll start. I mean, I think we have gotten ahead of it, to be honest with you. I mean, our business equation is working, right? Performance is offsetting labor inflation and the pricing and the material inflation, you see in that $100 million. We've vetted out from a top line perspective, customer recoveries this year, which are obviously benefiting from a full year effect or effectively offsetting price downs on the top line. So I think our view, and Kevin can jump in. I think our view is that the team has done a great job of pushing direct material costs through. And we've started to get performance up, including working hard to get the supply chain disruption costs out of the P&L.

Yes, I guess, to just maybe clarify my question, Joe. Like I think that you had talked about $295 million of disruption that you'd start to recover over six quarters. And when I say ahead of it, in my mind, at least that means the positives are greater than the negatives. It looks like they're sort of matching at least when optically, when you look at the bridge?

Certainly offsetting. Yes, we ended 2022 with about $330 million of supply chain disruption costs. We've taken that down to $180 million in the outlook. So we're still assuming $180 million of disruption costs. It continues to be a difficult operating environment for certain customers, and we're still seeing some disruptions, obviously, China in Q4, December, in particular, was heavily disrupted with COVID. So I think we continue to work through it. I think you're right. We had always talked about sort of four to six quarters. So we've got some to continue to work through, but feel like we've made a pretty big step here in 2023.

Yes. Maybe if I can add on, I think it's a great question. I think one of the challenges when you talk about getting full ahead of it, you need to have better predictability of what you're getting ahead of. I think Joe's point on the fourth quarter of 2022 in December, specifically to give you an example, roughly 90% of our employee base in China was suffering from COVID. That's tough to predict. Yet at the same time, we were able to keep our factories running and keep our customers connected, which has been our ultimate objective, right? So operating in a less efficient way and being somewhat reactive in an environment where we can't always predict what's going to happen from a supply chain standpoint or COVID stand.

Thanks for that. And just secondly, when you announced the closing of the Wind River deal, in your release, you talked about some recurring operating expenses and costs that led to changes in the terms. I was hoping you can maybe talk a little bit about what you meant by that? And what were the implications financially going forward?

Yes. I think the net results for Wind River from a revenue growth standpoint, a margin standpoint, accretion dilution standpoint remain largely unchanged. We're not going to get into all the specifics, but operationally, there were some changes that we needed to make. And in light of that, we are in a position to renegotiate the transaction.

Yes. Well, the only thing and it's a nuance, but I think it's important, particularly as it relates to the magnitude of the costs, the price reduction we said was in part due. So it's not a direct correlation between sort of the increase in expenses and the amount of the reduction. So to Kevin's point, it gave us an opportunity to talk to the sellers about pricing we did, but the deal remains accretive in this year. And again, as we said in our press release, it's no changes in sort of the strategic outlook or our view on the long-term opportunities Wind River.

Thank you.

We'll hear next from Adam Jonas from Morgan Stanley.

Hi, good morning, Adam.

Hi, I want to follow up on Rod's question about production disruptions because the forecast of a 1% decline seems surprising to some. Considering the PMI shipping index has returned to pre-COVID levels, suggesting logistics costs and shipping times are normalizing, chip companies are reducing supply as the "just in case" inventory buildup is leveling off. While I appreciate that there are still fluctuations, it seems you're suggesting that production disruptions in 2023 will worsen, implying net negative impacts compared to 2022. Can you clarify this? Last year's situation was already quite weak.

Yes. Adam, listen, as we've talked about in the past, when we provide our guidance and build our forecast, it's off customer schedules. And when you look at the nature of our business, especially our SPS business, we're on one in every 3, 3, 3.5 vehicles globally. So we get a very good view to the underlying market. We also, given the nature of our ASUX business get a very good view to what's going on from an overall semiconductor availability and supply chain standpoint. And I think when you look at the semiconductor challenges as they've evolved from 2021 to 2022, then 2022 to 2023, it's really much more focused on rather than a general supply constraint standpoint, specific suppliers who are causing constraints. And we expect that to continue into 2023. It certainly was the case in 2022. And those two factors are effectively, they're impacting our overall outlook for the full year, which again, as Joe said in the past, is based on the customer schedules that we received.

All right. Appreciate that. And just a follow-up. Imitation is the ultimate form of flattery. Qualcomm wants in on software defined and kind of the kinds of products you're doing in safe and connected. Mobileye wants to compete with you. I seem to recall you used to quote a 70% type win rate in ADAS and ASUS broadly. I think that sounds familiar, right. I always felt that was a bit too high, kind of a high watermark, but how has that trended in recent quarters now that you're seeing the competition may be creeping in on the forward X?

Yes. It really depends on your baseline and the comparison you're making, whether it's a comprehensive system solution, a platform solution, or something specific like a perception system, such as a radar solution. Clearly, the adoption of ADAS has accelerated and grown over the past few years. I haven't analyzed the pursuit relative to winning lately. I believe it remains fairly high on a platform level. Our focus is on investing in areas where we have a strong chance of success. Based on this strategy for pursuing ADAS platforms, I would say our position remains strong, though I’m not sure it's quite at 70%. Nonetheless, we continue to maintain a robust position, as reflected in our bookings for 2022, our outlook for 2023, and our revenue growth compared to the market. I also mentioned the next-gen Gen 6 ADAS platform, which will be launched in 2025 and available for SOPs that year. We have already secured a customer award. It is an open, modular system that offers flexibility for us and our OEM customers. Importantly, it's also very cost-effective, so we expect to see significant demand going forward.

Thanks, Kevin. See you guys on Valentine's Day. I'll bring the chocolate.

We’ll see you.

See you.

We'll hear next from John Murphy from Bank of America.

Good morning, guys. There's been a lot of price action recently by some of your customers on EVs that are probably going to drive significantly higher volume relative to initial expectations. I'm just curious how you think about that and what kind of opportunity there might be here in 2023.

Well, listen, we've been talking about high-voltage electrification and what we've been doing from a portfolio standpoint, bookings continue to be strong, right? Obviously, we had another year of record bookings, and it wouldn't surprise us if we had 2023 even stronger bookings from a high-voltage electrification standpoint. So, we'll see, we're optimistic. Having said that, as we've said in the past, we're very, very focused on pursuing opportunities with those OEMs who have battery electric vehicle platforms that they're taking globally, that we have a high confidence level that they're going to meet their schedules and effectively generate significant revenues over a platform, which ends up a better financial proposition for ourselves and obviously, lower risk.

Yes. John, it's Joe. I'll just add. We've talked a lot about being north of a 30% growth rate in high voltage. 2023 is as well north of 30%, based on the customer schedules we're seeing today and, obviously, got additional opportunities as we add in the Intercable portfolio. So continue to see a very strong schedules today to extent the price actions, sort of increase the mix or increase the take rates on that technology, I think, we'll be very well positioned to take advantage of it.

Got you. Okay. I mean, if you look at stuff like the Model 3 and the Y, I mean, it's kind of the here and now. I mean given the price cuts, I mean, those guys might be doing another 500,000 units relative to expectations. I mean are you thinking that's possible, and that's in your numbers at this point. And the action by the Chinese manufacturers well. I mean it's a real heavy stuff here. I mean we're not talking about like three to five years on backlogs. We're talking about like hundreds of thousands, I mean, if not millions more EVs this year than expected?

Yes. I think as you heard me say and Joe say in the past, our forecast is based on customer schedules. So to the extent those schedules go up, we'll benefit from a revenue standpoint, but when we pursue business, when we put initial capacity into the ground, obviously, there's some flexibility, it's based on what we see from a customer standpoint, customer schedule standpoint. And again, so if we see a big uptick in demand for players like Tesla and others, our volume will scale with them.

And to date, John, those actions have happened in the last couple of weeks, we have not seen big schedule moves yet. Not saying they won't happen, but haven't seen material changes at this point.

I have a quick follow-up regarding the recoveries. It seems that some automakers might feel a bit regretful about the high recoveries from last year, possibly due to market sentiments related to schedule volatility or raw materials. What are your expectations in discussions with customers this year? Do you think it will be a bit more challenging? Last year was not overly generous, but it was a more realistic approach than we've seen in decades. Do you anticipate a shift this year? How are those discussions going at the moment?

John, as you mentioned, the industry always presents a challenging pricing environment. Those conversations are never easy. In the past, and going forward, our focus has been on providing value to our customers by keeping them connected and offering solutions that effectively address their most significant challenges in a cost-effective manner. When we succeed in doing both, those discussions become somewhat easier, but they always remain challenging. Our team performed exceptionally well in 2022, successfully navigating those discussions and negotiating price increases while achieving record bookings. We will continue this process into 2023.

Great. Thank you very much, guys.

Thanks, John.

Emmanuel Rosner from Deutsche Bank. Your line is open.

Hi, Emmanuel.

Thank you very much. Good morning.

Yes, Emmanuel, it's Joe. You're right. We continue to perform well on the top line, which relates to Rod's question. The environment remains quite disruptive. We are managing the effects from China, which brought in over $20 million in impacts near the end of the quarter, due to both customer shutdowns and our own challenges. As Kevin mentioned, about 90% of our 30,000 staff contracted COVID in the fourth quarter, adding to the production disruptions. We experienced similar issues in the US, where customers face supply chain challenges, leading to ongoing stop-start production. Additionally, there was a foreign exchange impact of approximately 20 basis points, or around $40 million this quarter, with significant disruptions affecting ASUX. While we faced these difficulties, we were able to adapt by running overtime and pushing most of the revenue out by the end of the day. However, the operating environment remains inefficient. For our guidance, we anticipate over $300 million in disruption costs for 2022, but we believe next year will not be as severe. We expect sequential improvements and have accounted for $180 million in COVID and disruption costs in our P&L for 2023, allowing us some leeway to address ongoing issues.

Okay. That's helpful color. And then, I guess, as a follow-up, I think one of the ways you, I think, encourage us to look at it, I guess, this upcoming year was, maybe, compare the performance versus the second half of 2022 to the extent that some of the price recoveries and commercial agreement you had with customers who are benefiting you more in the second half of 2022. I guess, what do you feel is sort of like a good clean base in terms of second half margin, for which to build off, as we try to understand your 2023 guidance? And what would sort of like the puts and takes versus that.

Yes, that's a good question, and we've considered it carefully. Originally, we discussed a range of 10% to 10.5%, and then with some foreign exchange factors, it adjusted to 9.5% to 10%. Therefore, we view around 10% as a solid starting point. As we look at factors like pricing benefits and reduced COVID supply chain costs, we could potentially reach levels around 10.7% to 10.8%. However, we need to account for the impact of foreign exchange and volume changes, which is how we determine a mid-10% range, around 10.5%. We believe we are positioned well, with 10% being an appropriate starting point, and we have accounted for everything generally within our guidance.

Okay. Thank you, very much.

Yes. Thanks.

We'll move next to Mark Delaney from Goldman Sachs.

Yes, good morning. Thank you for taking the questions. First, on margins to the extent the stop start schedule volatility and the input cost inflation environment were to moderate. Do you think Aptiv could get back into that historical target of 12% to 14% type EBIT margins, or given how pricing discussions with customers have evolved in the last few years with more things now on pass-throughs. Do you think some of those lower costs may actually get passed out to the OEMs?

Listen, I think if the disruptions and the significant material inflation that's over the last couple of years goes away, we definitely get back to what our historical margin trajectory was. And then when you overlay what we've done from a portfolio standpoint, and where we sit, whether that's mix of more high-voltage electrification, more advanced ADAS solutions, the benefits of Wind River and Intercable actually have the ability to go above that. So it's a combination of both.

That's helpful. Thank you. My second question was on Wind River. You spoke a bit on this already in the prepared remarks, but could you elaborate more specifically on what Aptiv will do this year to help Wind River have improved customer dialogue with the automotive types of companies, in particular, given all of Aptiv's expertise and relationships with that industry. Thanks.

Sure. So in reality, going back, we signed a commercial agreement with Wind River over a year ago well and over a year ago. And in reality, our teams have been working closely together, both in terms of developing the final product for automotive applications as well as in commercial discussions. I'd say the traction we've hit over the last quarter or so has hit a significant level at this point in time. So a number of introductions across the various regions. I think as I mentioned in my prepared comments, there's a deep level of engagement with several OEMs in every region at this point in time. And we're very optimistic, and I'm very confident that you'll see meaningful announcements in 2023 with respect to Wind River's penetration of the automotive space.

Thank you.

We'll move next to Chris McNally from Evercore.

Thanks so much, team. Basically, follow-ups to what's been already asked. On the ADAS wins, $20 billion, could you talk about just the diversification of some of the Tier 2s? I think historically, you've been a majority installer of one perception compute system. But obviously, there's various out there. $20 billion is such a big number. It seems like you're probably winning business with multiple computer perception providers. I just want to confirm that.

Yes, Chris, to clarify, I categorize our ADAS business into two areas. One area focuses on a platform solution, which has primarily been based on the Mobileye vision solution. The other area involves our perception systems being integrated into an ADAS solution, which can involve various vision providers. It’s quite a mix. The Gen 6 ADAS platform we developed is designed to be vision agnostic, allowing OEMs to choose their preferred vision provider for the overall platform.

Yes. No, that's great. Is it fair to put the bucket one versus bucket two is sort of 70-30?

No, I would say, it's probably a little bit closer to 50-50. I'd say, it's 50-50. If you go back four years ago, we had roughly 14 ADAS customers. Today, we have 21 ADAS customers, and that's a mix of growth in that platform solution, as well as providing a portion of the overall ADAS solution to OEMs.

Okay. That's super helpful. And then, just on the production, question for Joe, and this is going to be a little bit of a nitpick. Just can you remind us how you guide global production? Is it a weighted average by your customers, by your revenue? One of the reasons, obviously, minus 1% looks maybe low to what we all think, but when I look at also 2022, you called production 4%. We look at a global average of 6% or weighted average of 5%. So I just wanted to sort of understand, if we get a 3% or 4% global production, am I able to flow through a full 4%, 5% type of revenue upside?

Yes. It's focused on our production. This essentially means for us, Chris, at a high level, we are excluding Japan production and emphasizing the markets where we have a strong presence. We don’t engage much with Japanese OEMs in Japan. So that equates to about 20-plus million units that we adjust for. We have been calculating this in the same manner since our IPO 11 years ago, maintaining consistency.

Yes No, that's very helpful. And I think that weighted number obviously is for most western suppliers who we don't have, the Japanese customers in the same way. Okay. Thanks so much, team. Appreciate it.

Thanks, Chris.

We'll hear next from David Kelley from Jefferies.

Hi. Good morning, guys. Also, a couple of follow-ups from my end and maybe starting with kind of the semiconductor discussion and impact on AS and UX. Curious if you're seeing any signs of plateauing pricing there or even potentially to take back some price from your suppliers. And obviously, timing is difficult to predict. But given your traction and value-add with customers, is there maybe an emerging opportunity where you could see some sticky pass-throughs for AS & UX as your own pricing starts to come down?

Yes. David, that's a great question. I'd say with respect to the level of bookings we were awarded in 2022, we've been put in the position to have discussions about no price increases, and in some situations, that's been effective. I'd say we're not at a point though where we're actually seeing year-over-year productivity or lower price increases from the semiconductor players. We'll see how that plays out as based on volume outlook for automotive and the other places that those players play. But at this point in time, we're not seeing it, and it's not in our numbers.

Yes, I would describe the margin profile in that business overall as very strong. The high voltage sector, particularly in commercial vehicles, is beneficial. Additionally, we have a strong presence in engineered components, particularly in the interconnect segment. This area has traditionally maintained a very robust margin profile and definitely benefits from increased volume. Overall, it represents a well-balanced portfolio in that business.

Okay. Got it. Thanks, guys.

Thanks, David.

Operator?

At this time, we have time for one more question. We'll move to James Picariello with BNP Paribas.

Hi, guys. Just a quick one on the key business vertical growth. So active safety, user experience, high-voltage electrification, non-auto, can you share what the growth rate expectations are for this year within the guide?

Yes, certainly. Generally, the growth has been quite stable, James. I mentioned high voltage to John, and we are still seeing growth over 30%, excluding Intercable. As you noted during the deal, Intercable is not included in the organic growth figures right now. However, Intercable itself is growing significantly, above 30% annually, which aligns with our high voltage sector. We're also observing some acceleration in active safety growth this year. It had been around the low to mid-20s over the past few years, but it's now approaching 30% in 2023. With Kevin's comments in mind, we've recently launched several new full systems. Previously, we discussed the compound annual growth rates (CAGRs) for these product lines, estimating high 20s to 30% for active safety and over 30% for high voltage. This trend remains consistent. Regarding infotainment, we are experiencing a transition in the product line. We expect growth in the high single digits this year as we shift from older systems to more integrated cockpit solutions. Eventually, we anticipate that infotainment will be integrated into the SVA systems, which is currently in progress with our clients. Overall, we continue to outperform the market, and active safety and high voltage are driving the higher growth rates.

Got it. That's very helpful. Regarding the $135 million reduction in disruption costs for this year, could you confirm the overall cumulative impact as we enter this year? I believe the expectation was around $295 million as of last quarter. It seems that the fourth quarter faced some additional challenges related to China. If you could provide a timeline for fully recapturing this total amount, that would be appreciated.

Yes. I wish I could provide the complete timeline for recapture. We have had $180 million in. We finished last year at a little over $300 million. So that's what we are working with. We're reducing the $135 million down to the $180 million.

Okay. And then, over time, will these cost challenges be fully addressable?

Yes, Rod was right in his comment. We believe that over the next four quarters from the beginning of 2023, we will work hard to reduce the $135 million. This involves factors such as premium freight and plant downtime, which are related to COVID or supply chain disruptions. We are seeing improvement over time and expect this trend to continue. However, as we saw in the fourth quarter of this year, there are challenges that create a costly operating environment.

It's important to highlight that aside from the COVID impact in the fourth quarter, supply chain disruptions in the automotive sector can stem from the lack of just one part. Issues like excess labor, premium shipments, and reduced manufacturing productivity contribute to this problem, leading to a cascade of negative effects where inefficiencies and costs accumulate. While, as Joe mentioned, the overall supply chain situation is improving, there are still specific challenges from 2022 that will carry over into 2023, particularly with certain semiconductor suppliers. Additionally, unexpected industry events can arise that require swift reactions from companies like ours. Our priority has been to ensure our customers remain connected, leading us to absorb some short-term costs and seek relief from customers once we've resolved the issues. We believe this approach has positively impacted our bookings in 2022 and expectations for 2023, although predicting pricing recovery remains challenging.

Thank you.

Thanks, James.

That does conclude the Q&A portion of today's call. At this time, I would like to hand the conference back over to Kevin for any additional or closing remarks.

Thanks, operator, and thanks, everybody, for your participation today. Take care, and we'll see you on the 14.

That does conclude today's teleconference. We thank you all for your participation.