Please standby. Good day, and welcome to the Aptiv Q3 2023 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jane Wu, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, Marjorie. Good morning, and thank you for joining Aptiv's third quarter 2023 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 will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our third quarter financials, as well as our full-year 2023 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 that 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. 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, Jane, and thanks, everyone, for joining us this morning. Let’s begin on Slide 3. We delivered another strong quarter exceeding our expectations despite some headwinds. Touching on a few of the highlights, new business bookings totaled $6.6 billion, bringing the year-to-date total to a record $27 billion. Revenues increased 7% to $5.1 billion, 2 points over the growth in vehicle production, reflecting double-digit growth in ASUX revenues and S&PS revenue growth in line with global vehicle production, the impact of the UAW strike in North America, as well as customer mix. EBITDA and operating income were both records totaling $727 million and $560 million respectively, reflecting solid flow-through on volume growth and ongoing operating performance initiatives, partially offset by unfavorable FX, timing related to customer recoveries, and the impact of the UAW strike. We expect continued sequential margin expansion as the headwinds related to supply chain disruptions continue to dissipate, customer recoveries are closed and the benefits from further cost structure actions take hold. The team remains laser-focused on continuing this trend in the fourth quarter and into 2024 and beyond. Turning to Slide 4, touching on the key themes and macro trends that have had an impact on our operations this year. Our customer relationships and new business bookings are stronger than ever, driven by robust demand for smart vehicle compute and software, high voltage electrification and ADAS solutions. As automotive OEMs continue on the path toward fully electrified, software-defined vehicles, we are their partner of choice, delivering unique full system solutions that provide enhanced features and greater flexibility all at a lower cost. We're also benefiting from the transition to the software-defined future across several other industries with opportunities in the commercial vehicle, telecom, AMD, and industrial markets. Global automotive vehicle production has been stronger than we initially forecasted, as easing supply chain constraints have led to fewer disruptions enabling increased production. Our strong year-to-date results had put us well on our way to reach the top end of the full-year guidance we laid out in early August. However, the UAW strike, which affected the production schedules of our top three North American OEM customers, has had an impact on both our third and fourth quarter results. While tentative agreements have been reached with all three North American OEMs, there remains some uncertainty on vehicle build schedules as the OEMs work to finalize their plans to ramp up production during the balance of the fourth quarter. Our operating teams in North America are working closely with our customers and supply chain partners to help accelerate the ramp-up of production and minimize any potential disruptions. Moving to Slide 5. As already mentioned, new business bookings during the quarter were $6.6 billion, bringing our year-to-date total to a record $27 billion on track for our target of $32 billion for the full-year. Advanced Safety and User Experience bookings totaled $2.2 billion, driven by over $1 billion in active safety awards. Signal and Power Solutions bookings reached $4.4 billion, including $1.1 billion in bookings for our high voltage electrification solutions split across geographies, bringing the year-to-date total to $4.3 billion, already surpassing last year's record of $4.2 billion. As OEM strategies around their vehicle architecture platforms evolve, one constant will be the need for solutions that deliver improved performance at a lower cost. And Aptiv is perfectly positioned to leverage our full system capabilities to enable a fully electrified, software-defined vehicle. Turning to Slide 6, to review our Advanced Safety and User Experience segment's third quarter highlights. Revenues increased 13%, 8 points above vehicle production, the result of a 30% increase in active safety revenues, reflecting strength across all regions as the launch of our Level 2 and Level 2+ ADAS solutions continue to ramp. Operating income totaled $109 million, reflecting a 7.6% operating margin, an increase over the prior period, but sequentially lower than the second quarter due to the seasonality of Wind River revenues and the timing of customer recoveries. New business bookings totaled $2.2 billion and included $1.2 billion of active safety customer awards, including a major award with a large German truck manufacturer underscoring the strength of our high-performance radar technologies and their applications outside of the automotive industry. As demand continues to increase for more advanced active safety solutions, our unique insights and proven domain expertise position Aptiv to deliver differentiated value to our customers. To that end, we're excited to have recently launched our automated parking solution, an additional feature to our AI/ML-enhanced Gen 6 ADAS platform to address complex parking scenarios. Aptiv's unique solution enables fully modularized automated parking features that scale from Level 2 to Level 4, from auto parking assist to memory parking all the way to auto park delay. Automated parking is just one of the many features that we have under development in our Gen 6 ADAS technology roadmap, which will scale to a full Level 3 ADAS platform in 2026. Turning to the Signal and Power Solutions segment on Slide 7. Third quarter revenues increased 5% in line with global vehicle production. High voltage revenues increased 13%, reflecting strong growth across all product lines, partially offset by customer mix in Europe and Asia and the impact of the UAW strike in North America. The $4.4 billion in S&PS bookings that I mentioned previously included a low voltage architecture award with a Chinese OEM demonstrating the progress we're making further penetrating the local Chinese OEMs. Another strong quarter for Intercable Automotive with $400 million in new business awards, including a major award with a global customer in North America reflecting continued strong commercial traction and a high voltage system award with a European OEM that includes products across our electrical distribution, connection systems and Intercable Automotive portfolios, demonstrating how our full system approach sets us apart from the competition. Lastly, we're proud to announce that Aptiv has once again been recognized as an automotive PACE Award finalist. A Rapid Power Reserve solution is a groundbreaking technology that provides a highly reliable, redundant power source for a variety of critical functions, eliminating the need for a low voltage battery in the vehicle, significantly reducing weight, mass and costs. This recognition validates Aptiv's industry-leading technology as well as the value and impact our continuous innovation provides our customers. Turning to Slide 8. We're excited to showcase many of our new innovations at the Consumer Electronics Show in Las Vegas in early January next year. We'll bring our vision of the future to reality including vehicles with Aptiv smart vehicle architecture, running applications for next-generation ADAS and in-cabin user experience. Vehicles with our complete portfolio of optimized electrical vehicle solutions purpose-built for demanding power requirements and Wind River's edge-to-cloud platforms supporting the latest safe, green and connected applications from Aptiv. We'll be providing live demonstrations of how we're leveraging our deep insights into the brain and nervous system of the vehicle, along with Wind River's proven software technology to develop optimized and scalable solutions that meet OEM needs for performance, flexibility and lower costs. Moving to Slide 9. In recognition of our strong commitment to innovation, operational excellence and sustainability, Aptiv was recently named by Newsweek as one of America's Greenest Companies. At Aptiv, our business strategy is directly aligned with our sustainability goals. We provide solutions of the highest quality, designed, developed and manufactured responsibly that enable a safer, greener, and more connected world. In doing so, we take care of our people and our communities while minimizing our carbon footprint. Sustainability is an enterprise-wide commitment, and I'm proud of our entire team for helping us to achieve our goals and ensuring that our company, our customers and our planet continue to thrive. Moving to Slide 10. Before I turn the call over to Joe to walk through the financials, I wanted to touch on our current view of 2024. Building on the solid foundation we've established in 2023, we're well-positioned for continued strong revenue growth and margin expansion despite the macro headwinds. Our safe, green and connected product portfolio is perfectly aligned to the demand for feature-rich electric vehicles, as well as the acceleration of the software-defined future in adjacent markets. Our advanced technologies and capabilities will continue to drive strong performance across multiple industries. While some macro uncertainties remain, we're confident in our ability to execute flawlessly in a dynamic environment. With that, I'll now turn the call over to Joe to go through the numbers in more detail.

Thanks Kevin, and good morning, everyone. Starting on Slide 11, as Kevin highlighted, Aptiv reported another quarter of strong financial results exceeding our expectations, despite the impact of the UAW strike in North America. Revenue was up 7% to $5.1 billion, or 2% above underlying vehicle production, excluding the impact of acquisitions. As I will discuss shortly, our growth over market was negatively impacted by the UAW strike in North America, as well as customer mix and program timing in Europe and China. Active safety and high voltage electrification reported strong double-digit growth of 30% and 13%, respectively, and the UAW strike had a negative impact on revenue in the quarter of approximately $80 million. Adjusted EBITDA and operating income were $727 million and $560 million, respectively, reflecting strong flow-through on increased volumes, continued progress on our ongoing performance initiatives, including reductions in supply chain disruption costs that more than offset higher labor costs. The UAW strike had a negative impact of approximately $30 million, and foreign exchange was a headwind versus last year. Earnings per share in the quarter were $1.30, an increase of $0.02 from the prior year, primarily driven by the higher operating income, partially offset by higher interest expense. Operating cash was $746 million, a significant increase over the prior year, primarily driven by higher earnings and improved working capital levels. Capital expenditures were flat to the prior year at $212 million. Looking at revenue in more detail on Slide 12. Revenue in the third quarter was $5.1 billion, reflecting sales growth of $299 million, representing adjusted growth of 7%. The Wind River and Intercable acquisitions added $153 million of revenue and net price and commodities as well as foreign exchange were slightly positive in the quarter. From a regional perspective, North America revenues were up 10%, reflecting 2 points of growth over market as the UAW strike negatively impacted D3 customer volumes relative to overall North American vehicle production in the quarter. In Europe, revenue grew 10%, or 4 points above underlying vehicle production, driven by strong growth in active safety, partially offset by program timing and slowing growth for certain BEV platforms. In China, revenue was in line with underlying vehicle production due to our customer mix and slowing BEV growth. As noted earlier, despite the lower growth over market, our Q3 adjusted growth and revenue were in line with our expectations. The lower growth over market in North America is consistent with the strike impact we experienced in 2019, and as we have said in the past, growth over market will be lumpy given customer mix and program timing. Moving to the ASUX segment on the next slide. Revenue rose 13% in the quarter, or 8 points over vehicle production. The outperformance was driven by strength in active safety, where revenue was up 30%. User Experience was down 5% in the quarter, reflecting the timing of certain customer programs and a more difficult year-over-year comparison. Price downs in the quarter were less than 1%. Segment adjusted operating income was $109 million, up 35% when compared to the same period last year. Year-over-year ASUX margins in the quarter were negatively impacted by the timing of certain material inflation recoveries from customers, which partially offset the flow-through on incremental volumes and improved performance. Also, ASUX margins were lower on a sequential basis versus Q2 2023 due to expected seasonality in Wind River's Q3 results. We had noted this seasonality at the start of the year. The Q3 impact of the UAW strike on ASUX was relatively minimal, reflecting approximately $10 million of revenue and $5 million of operating income. Turning to Signal and Power on Slide 14. Performance in the quarter was strong, despite a challenging operating environment. Revenue in the quarter was $3.7 billion, an increase of 5% in line with vehicle production, despite a negative strike impact of approximately $70 million of revenue or 2 points of growth. High voltage electrification grew 13% in the quarter, reflecting a slowdown in growth rate from prior quarters. Despite the slowing of EV production, we continue to expect our high voltage business to have strong double-digit growth in 2023. Price downs in the quarter were less than 1%. Segment adjusted operating income was $451 million in the quarter, up 2% from the prior year, including a $25 million negative strike impact. Operating performance including lower supply chain disruption costs were positive in the quarter and offset the negative impact of higher labor costs. Customer recoveries offset material inflation and the negative commodity impact in the quarter, while foreign exchange, primarily the peso and RMB, continued to present a headwind on a year-over-year basis. However, the FX impact is in line with the updated guidance we provided in August. Adjusting for the impact of FX and the strike, adjusted EBIT margins for Signal and Power Solutions were 13.3% in the quarter. Moving to cash generation and the strength of Aptiv's balance sheet on Slide 15. As we have discussed in the past, our focus on cash flow generation and cash conversion is as disciplined as our operational improvement efforts. The past quarter was a clear example of that, as we saw the results of our efforts to reduce the higher working capital levels we maintained during the recent supply chain disruptions. Despite the operating challenges in North America, we were able to improve operating cash flow by over $300 million versus the prior year, resulting in cash flow conversion of 200% in the quarter and an ending cash balance of $1.8 billion. Given this strong performance, in October, we opportunistically paid down our $300 million term loan, Aptiv's most expensive borrowing, increasing our average tenor from 15 to 16 years. As we have discussed in the past, our sustainable business model is enabling us to convert more income to cash, and we believe there is no shortage of attractive deployment opportunities as we continue to maintain a well-balanced approach to capital allocation, including prioritizing organic investment in the business to support our portfolio of advanced technologies and record new business awards, executing our M&A strategy by focusing on transactions that enhance our scalability, accelerate our speed to market with relevant technologies and access new markets, maintaining our current financial policy as it relates to our leverage profile and opportunistically returning cash to shareholders. I will wrap up with our full-year outlook on Slide 16. Given our continued strong performance and a higher outlook for global vehicle production, we are maintaining our full-year outlook for 2023 despite the impact of the North American strike. Key assumptions now underpinning our outlook include global vehicle production up 6% plus for the year versus a prior estimate of 4%, driven by higher expected production levels in Europe and China. No significant strike impact beyond October 2023. During the month of October, we experienced a negative strike impact of $100 million in revenue and $50 million in operating income. Our outlook assumes a restart of customer production and a return to pre-strike production levels over the coming couple of weeks and no further meaningful disruptions. Accordingly, we expect revenue in the range of $19.95 billion to $20.25 billion, including the impact of total lost strike revenue of $180 million. I would note that while our revenue and adjusted growth rate remain unchanged, given the Q4 strike impact, we are forecasting our growth over market for 2023 to be below our long-term forecast range of 8% to 10%. EBITDA and operating income are still expected to be approximately $2.8 billion and $2.1 billion at the mid-points, respectively, including total lost strike earnings of $80 million. No change to adjusted earnings per share of $4.75 at the mid-point, and operating cash flow of approximately $2 billion. As Kevin will discuss further in his closing remarks, despite the macro challenges of the North American strike and the significant foreign exchange headwinds, our relentless focus on improving operating performance and cash flow generation has allowed us to continue to deliver in a difficult operating environment.

Thanks, Joe. I'll wrap up on Slide 17 before we open the line for questions. As Joe and I have discussed, we experienced strong underlying business performance in the third quarter, driven by further easing of supply chain constraints, which partially offset layering headwinds related to material and labor inflation, unfavorable FX rates, and the UAW strike in North America. We continue to see tremendous momentum in new business awards and are well on our way to reaching our bookings target of roughly $32 billion by year-end. While our teams continue to work tirelessly to mitigate the impact of the UAW strike in North America, including the ramp up of North American production, we're executing on further cost structure actions to enhance our operational resiliency. Our portfolio of advanced technologies and strong operating execution gives us confidence in our ability to further strengthen our competitive position and deliver sustainable value creation for our shareholders. Operator, let's now open the line for questions.

Thank you, Mr. Clark. While we build that queue, we'll take our first question from Joe Spak from UBS. Please go ahead.

Thanks, everyone. Good morning.

Hi, Joe.

Kevin, Joe, regarding the growth over market for the quarter and the outlook, I know you mentioned it was partly influenced by the UAW strike. It seems to have decreased from 9% to 5%. That $180 million represents about 1 point year-over-year. Part of this is clearly related to the overall industry rather than just your growth over market. Can you elaborate on some of the other factors contributing to the lower growth over market for the year and particularly in the fourth quarter?

Yes, Joe, that's a good question. You're correct that there's a numerator effect from our actions, but the larger impact comes from the denominator. This denominator effect is influenced by various market changes over time. We are experiencing a slowdown in the D3, which accounts for about 65% of our North American business. Additionally, we see significant growth from Japanese manufacturers, which we have limited content with in North America. This creates a situation where the numerator is decreasing while the denominator is increasing. For example, the strong performance of Japanese OEMs had a notable impact in Q3, contributing around 4.5 to 5 percentage points against our growth relative to the market, Joe. To verify this calculation, we evaluate our performance against the D3 by itself, where we saw a 14% increase relative to their production. It indeed seems that, especially in North America, the situation is currently more about market dynamics. I have some caution regarding the full-year outlook, as we need to monitor how quickly things change. In terms of Europe and China, I mentioned that high voltage growth is slowing down. This has affected our growth by approximately one percentage point compared to the market. While it still contributes to our growth over the market, it is less than in previous quarters. Additionally, there is some fluctuation in program mix, particularly in Europe with infotainment, which saw a decline this quarter due to timing. We anticipate infotainment to finish the year with mid-single-digit growth. Overall, the impacts we've seen are more short-term, but you're right that the relative market components significantly influence the growth over market calculation.

Okay. To follow up on your mid-term targets, you mentioned a slowdown in BEV penetration in the U.S. and Europe, which has been well documented. I understand you’ve taken a more cautious stance on BEV penetration compared to some third-party forecasts for the mid to long term. How do the recent trends compare to what you presented during the February Analyst Day?

Yes. Hey, Joe, it's Kevin. Q3 has a lot of unique circumstances regarding our growth compared to the market. As we aim to provide a clearer perspective on our growth in the coming years, we need to observe how Q3 concludes. Nevertheless, we strongly believe we are well-positioned for growth given our operational landscape. Electrification and ADAS solutions are two of our fastest-growing areas, which we expect to continue expanding. We understand the questions around high voltage electrification and future growth rates; certainly, Q3 saw a decline compared to Q2 and Q1 this year. A significant portion of that impact can be attributed to the strike issue and other points that Joe mentioned. Additionally, as we developed our electrification strategy, we focused on a select group of customers and adopted a more conservative outlook on the overall electrification market and penetration rates. In short, it's too early to provide a more precise answer to your question, but we feel very positive about our positioning in terms of growth relative to the market.

Thanks. I'll pass it on.

Thank you very much. Next, we'll go to Rod Lache with Wolfe Research. Please go ahead.

Good morning, everybody.

Hey, Rod.

Just following-up on Joe's question, I know you've been a lot more conservative on high voltage and BEVs than just about everybody in the market, you had a 35% penetration by 2030. But can you just give us a little bit of maybe additional color on what your customer mix looks like within that backlog that was propelling the 30% annual growth? Just to get a sense of are you more exposed to the companies that are slowing down a bit, or are you sort of more dispersed among the faster growers?

Yes. So I'll start Rod, and Joe can fill in any blanks. So when you look at where the majority of our exposure is, it's with the European and the Chinese OEMs, that's where the bulk of our battery electric vehicle exposure is. When we look at kind of nearer-term and where we have those exposures are by and large on platforms that are BEV platforms. So they're dedicated BEV platforms. When we look out into the fourth quarter and into early next year, we're seeing very stable schedules as it relates to production. There's one exception with a North American OEM who I think has been pretty public about their plan for electrification, so that'll have some impact nearer-term, but offsetting that are a number of OEMs who are in the midst of launching BEV programs that we're on.

So high level, Kevin, when you look at this in its totality, do you feel like there's a material change to that original 30% that you were looking at? Or is our question not that specific, but how are you kind of viewing the expectation?

Yes. Listen yes, no, it's great. Yes. We feel really good about it. I think there's an element of I don't think we ever guided 30% forever. So there's a law of large numbers, right, that we need to keep in mind. We'll do just under $2 billion of high voltage electrification revenues this year; I think $1.8 billion or $1.9 billion. So that business has grown significantly. Q3 obviously was impacted by some of the dynamics that Joe talked about. Without a doubt, we will see some impact in Q4 and early next year related to the OEM that I referenced who is reducing BEV schedules. On the flip side, we have a number of OEMs where we look at current production schedules, what they have in place for Q4 and early next year where those schedules remain strong. And then in addition to that, we have a number of programs that are coming online during 2024. And the bulk of that activity is in China and is in Europe, two areas where we don't view any easing on CO2 emission regulations, and customers really focused on how do they continue to launch new BEV platforms.

Great. Thanks for that. And just lastly, obviously a lot of controversy around autonomous right now with crews slowing down, just hoping you can give us any updated thoughts on your investment plans there with Motional, whether that's influencing your thinking on that business at all. And then if Joe could just update us, you originally had a like a $1.7 billion performance and lower supply disruption kind of element to your 2022 to 2025 of rich. How much of that are you seeing this year?

Yes. So I'll start, so nothing new to report out. We're actively engaged with our partner Hyundai in terms of future funding. As it relates to Motional, as we said in the past, they're on track from a tech standpoint and commercial standpoint, but we're engaged in discussions at this point in time, certainly well aware of what we're reading about we're seeing in the market. Those are certainly things that we'll consider as we make our ultimate decision. Again, if we were to fund, we would fund half of their cash needs. We haven't determined our plan or finalized our plan at this point in time. We'll be in a position to report that out when we announce earnings in February of next year.

Hey, Rod, it's Joe. Just to answer your question, I think we're tracking well. If you recall, we had that on that walk I think you're referring to in the Investor Day from the end of 2022 to 2025, we had $1.7 billion of performance that was going to work to offset $900 million of labor inflation. We talked about that being fairly ratable over the three years. That wasn't sort of a 2025 thing. We were going to make progress on that through the year. I'd say 2023 is tracking very much to that sort of ratable approach on both the cost side as well as the performance, the price recovery side, so things are tracking well. Obviously, as we sit here today, and it's sort of stated obviously within the comments I made, right, we do have some higher volumes helping offset the strike impact, but for the most part, those performance initiatives are coming through as planned, and we're seeing that particularly on the offset of the labor expense.

Thank you. Next we'll go to John Murphy with Bank of America. Please go ahead.

Hi, good morning. I have a follow-up regarding the electric vehicles and the penetration rate potentially being slower than expected. Kevin and Joe, given this situation, an optimist might suggest that while EVs are taking a bit longer, we can continue to implement our current programs, which should improve margins and returns in the meantime. This would allow us to generate more cash and fund future initiatives more effectively, possibly outpacing market expectations, even if it means our earnings and cash flow might improve. Is that a possibility? Also, as you make these capital commitments to your programs, do you have the flexibility to adjust quickly without negatively impacting your returns, thus benefiting from a slower rollout?

Yes, it's a great question, John, and I'll start. We still believe in electrification and want to remind everyone that in the second quarter of this year, our high voltage revenue grew by 48% year-over-year, and this quarter it was 13%. Moving forward, we think it will normalize compared to where we were in the third quarter. As we've stated, our focus has been on an EV strategy primarily for Europe and Asia Pacific, particularly China, targeting OEMs that have developed BEV platforms and those leveraging global platforms across regions. This focus allows us to scale effectively. One of our goals, John, is to ensure that our capital investments scale and generate significant revenue. Most of these programs have a scaling price relative to volume, so if an OEM doesn't meet their targets, we can adjust prices contractually, protecting ourselves. Additionally, our baseline outlook has never suggested that 50% of vehicles manufactured in 2030 would be battery electric vehicles; we have a much lower projection. We believe we have a balanced approach. While there may be a few quarters where one OEM is revising their original timelines, impacting our growth rate, we remain optimistic about our competitive position and the potential for growth and margins.

Hey John, it's Joe. The only thing I'd add to, we've talked about this for a while, right? Particularly with the electrical architecture business, we were able to leverage existing facilities, existing equipment, existing supply chain, existing engineers, low voltage, high voltage, the products are different, but they're very complementary. So for us, and we've got obviously a very large architecture business. So I think leveraging that over the last couple of years has helped that product line get to segment accretive margins very quickly. But it's also helped from a return perspective, right, because we had a lot of that capital and plant and equipment in the ground.

Super helpful. Just one follow-up on the Wind River seasonality, because it did seem to we may have missed this in the quarter in our model and our estimates. Could you just Joe just run through this, how would you think about seasonality for Wind River? I know you talked about it earlier in the year, but just if you can remind us.

Yes. I briefly mentioned it in the guidance; they are part of their business. It's somewhat of a software business phenomenon that Q3 is a very slow quarter for them. Q2 and Q4 tend to be the strongest. They have a highly leveraged model, similar to a software business. Software renewals, licenses, and new licenses usually decline, and since it operates with an 80% gross margin, the declines occur at significant incremental rates. We observed this trend in previous years, which is why we issued a caution in February, so we are not surprised by these results. As you consider this and review the quarterly trends over the next couple of years, I believe this will be a recurring pattern.

Okay. That's helpful. Thank you very much.

Thanks.

Thank you. We'll next go to Adam Jonas with Morgan Stanley. Please go ahead.

Thank you, everyone. In response to Joe's, Rod's, and Murphy's questions, I want to address this topic as well. The transition to electric vehicles for traditional automakers has been a complete failure thus far. It's clear to see that these companies have struggled to achieve any reasonable return on capital, and I don't foresee a solution. Personally, it wouldn't surprise me, and likely many others on this call, if GM, Ford, and the German automakers significantly reduced their EV investments. While I understand you may not have the exact details at this moment, I'll frame my question differently. If these leading companies, including Tesla, are pulling back and facing challenges in profitability, how does that impact your operating margin targets of 14.5% for the mid-decade and over 17% for the longer term? I recognize that reaching those targets won't be straightforward, but to what extent do those targets rely on the expected pace of EV adoption?

Yes, I'll start. This year, we're expecting to generate $1.8 billion in high voltage or EV revenues out of our total revenues of approximately $21 billion. The growth rate we've assigned to high voltage electrification is higher than our overall average growth rate, so it will certainly have some impact. Many of these EVs are replacing vehicles with internal combustion engines, and most of the original equipment manufacturers where we provide vehicle architecture content are involved, so the trade-off isn't equivalent dollar for dollar. The high voltage content or margins tied to the SP&S base margins are beneficial by a couple of percentage points from a margin rate perspective, but it's not double. We believe we can manage this situation, and while it will affect profit, I don't expect it to have a significant impact given the current margins. Additionally, if these original equipment manufacturers don't meet their targets, their prices may rise significantly if they are reducing output. They also make one-time payments to us concerning our capacity to produce the product. That's my perspective on the matter.

Yes, Adam, I agree with that. Assuming total unit production remains consistent, we would transition back to content on the low voltage platforms. We have content on one out of every 3.5 vehicles manufactured. Additionally, to Kevin's point, we are looking at a slight increase in high voltage that we will need to address. However, there are funds that will replace that as long as production continues at the same level.

Yes. And Adam aside, I kind of I understand your question, and it's a fair one, it's a good one. I do wrestle with the industrial policies and they can always change of Europe, principally maybe U.S. secondarily and that can change. China from an environmental standpoint, but from a national security standpoint, technology standpoint, the push for EVs and the impact on OEM profitability, there's a question I would ask or a scenario that I would throw out where that the OEMs are going to be going to the governments, wherever they are, for support, to continue the rollout so that they can achieve the industrial policies that those particular governments have, right? Because all of this is tied to CO2 emission targets or national security. And if OEMs are uncomfortable or if the investment required is beyond which they can absorb and be profitable, ultimately, I think they're going to look for some support not too different from the semiconductor industry in the U.S. and Europe.

Yes, I appreciate that, Kevin and Joe. I have a quick follow-up. I want to confirm that out of the $1.8 billion or nearly $2 billion that you mentioned, can you clarify the figures?

$1.8 billion. So Adam, $1.8 billion, I use round numbers.

Thank you. Just want to confirm that. Tesla is the single largest component of that. I want to confirm that and then labor remind us how much of your sales is labor and what rate of inflation you're seeing in real time. Thanks, guys.

Yes. Regarding our customers, we cannot discuss specific details, so we won’t be able to answer that question. As for labor, I would suggest looking at it in the context of the overall business. Joe?

Yes. We've talked about it. Adam, we had in the Investor Day, $900 million of dollar increase between evenly split over the three years, that was about 10% to 11% increase and that's what we're seeing.

Thank you. Next we'll go to Chris McNally from Evercore. Please go ahead.

Thanks, team. I have a quick question regarding the $1.8 billion in high voltage. What number are you using for 2022? I might be mistaken, but I thought you had $1.2 billion in some of your previous slides. Could you please provide an update for 2022 and 2023?

Yes, that's accurate at $1.2 billion.

Okay. So is that an increase? I think the previous guidance for Q2 was a 30% increase. It appears to be more like a 50% increase for high voltage this year.

Chris, it depends on what you're doing with Intercable, right? We closed Intercable end of last year. So it wasn't in last year's call that just a little north of $200 million of revenue. So just thought if you pro forma for it, yes, it's growing, yes, and if you didn't, you got to look at that Intercable, yes.

That's exactly. Okay. Thank you, Joe. Intercable was exactly what I was asking for. And the second one, just to follow-up on Adam's, you forget about talking about the customer, but the $1.8 billion is only high voltage, right? So if there was a large EV player that you mostly did low voltage for, that low voltage revenue, even though it goes to an EV, would not be in the $1.8 billion, is that correct?

Yes, that's right. We talked about that. We really wanted to focus on just the high voltage product line, and that's when we started providing that guidance a few years back. So that's just high voltage and the low voltage is what's going in either vehicle, right? So you don't really see a big vehicle difference.

Either vehicle.

Yes.

Absolutely. And then, the last one for Q4, because obviously there's a lot of moving currents in Q3. On ASUX, I think you talked about 8% to 9% rough margins for the year. It sounds like from the commentary, some of the recoveries were pushed from Q3 to Q4. The first is that 8% to 9% still pretty good, even if it's the low end, because it points to a nice material pickup in the ASUX margins. And I think we've been sort of looking for that because that's a large portion of the drive towards the 2025 goal.

Yes.

Yes. Yes. Full-year, the current guide would have ASUX at 8% and S&PS at 11.6%.

Perfect. Three for three. Really appreciate it, team.

Thanks.

Thanks, Chris.

Next we'll go to Itay Michaeli from Citi. Please go ahead.

Great. Thanks. Good morning, everyone. Just a couple of thoughts for me. First, going back to the Q4 margin outlook, I was hoping you could just kind of dimension the seasonality factors in there. It looks like you'll be exiting closer to 13% ex-strikes just kind of curious how to think about the baseline as we look to bridge into 2024. And then second question, just hoping to talk more about the ADAS wins you had in Q3, maybe content per vehicle, and also any updated discussions with customers for Gen 6.

Yes, Itay, while I won't comment on 2024 at this time, I want to emphasize looking at the second half of the year rather than just the fourth quarter, as the fourth quarter often experiences significant factors like engineering recovery. So, I would focus on the second half, adjusted for strikes. As I mentioned to Rod, we are benefiting from volume increases that are helping to offset the impact of strikes. Our margin rates, both at the segment level and for the total company, are aligning with our initial guidance, which is consistent with the model we presented on Investor Day. Regarding the $1.7 billion in performance and the $900 million related to labor, those are coming together as expected. As we think about the second half, I believe it serves as a better indication than just focusing on the fourth quarter, and adjustments for strikes need to be considered.

On conversations with customers about Gen 6 ADAS platform, I would say we're in active dialogue with roughly a dozen Asian, European and North American so interaction there and strategic dialogue is very, very strong, going very well. As it relates to the Q3 bookings, the bulk of those bookings were in and around radar solutions that are being plugged into existing ADAS platforms with OEMs in Europe and in China.

Perfect. That's all very helpful. Thank you.

Thank you. Next we'll go to Emmanuel Rosner. Please go ahead.

Thank you very much. I was hoping you can help us frame and quantify the exposure to electric vehicles either in terms of current revenue or more importantly, actually in terms of future growth of a market or percentage of backlog, not just within high voltage, but generally speaking, because to your earlier point, you're selling low voltage components to like very large EV manufacturers. And obviously a lot of the new programs over the next few years would probably have been on new EV platform. So anyway, to maybe quantify when you sort of like look at this outgrowth expected over the next few years, how much of that would have landed on EV platform.

Yes, Emmanuel, it's Joe. I believe Kevin has captured our long-term perspective well. We took a conservative approach and didn't follow the trend of expecting 50% growth in the coming years. Based on our current insights, we remain confident in that outlook. We anticipate a slowdown in growth due to the law of larger numbers. As we approach nearly a $2 billion business, it's natural for growth rates to decelerate over time. Over the past eight quarters, high voltage has generally contributed about 2 points of growth relative to market averages, occasionally reaching up to 2.5 or 3 in certain quarters. This quarter, it offered a point of growth over the market, which is significant, though not comprehensive. Currently, 80% of our business, including revenue and bookings, is linked to European and Chinese OEMs. Historically, we haven't focused on North American products; the initial offerings were rather niche, primarily high-end SUVs and unique vehicles. We have some presence in that area, but it hasn’t constituted the majority of our business. I hope this provides some clarity on our position.

I appreciate it. Joe, the reason I'm asking for EV exposure outside of high voltage is, there's a large seating supplier that would be ideally the most powertrain agnostic product you could possibly sell slashing their backlog by 20%, because all these new seats were going to go on new EV platforms, basically, which are either being pushed out or it's sort of like lower volume.

Yes. I can't speak to the seating business, obviously like I said; we're 80% European and Chinese concentration. I'm not sure who you're talking about or what their portfolio looks like.

No, no, no. my comment was EV exposure outside of high voltage, any way to frame that?

No. I think we've provided what we're going to provide, Emmanuel.

Yes. Emmanuel, from our perspective, vehicle architecture just given the fact that we're on one of every three vehicles globally, if they're not building a BEV, they're building a vehicle with an internal combustion engine. And more likely than not, we're on that vehicle. So with that low voltage vehicle architecture. So for us, I would say there's virtually no impact.

That's helpful. My follow-up is on I think you were mentioning your mix impact. That's sort of like a little bit of a headwind in the quarter outside of just the strike, obviously, in North America. Can you just elaborate a little bit more on the other region? Was it sort of like I mean customer mix specifically, and which region?

Yes. It was customer mix across really all regions. And some examples were kind of outsized growth of the Japanese OEMs across North America, across Europe, as well as some significant growth in parts of Eastern Europe that are either products manufactured in Eastern Europe or in places like China that are exported. So areas where we have less customer exposure. So a lot of that, we think is related to semiconductor rebound and availability of chips for select OEMs. And the other piece is the impact of or the opportunity as it relates to the UAW strike in North America for select OEMs to potentially gain share.

Thank you. And we'll go to our last question from Dan Levy from Barclays. Please go ahead.

Hi, good morning. Thanks for squeezing me in.

Hi, Dan.

Wanted to start with your Slide 10 just the perspectives on 2024 here. And in the bottom half of the slide says continued inflationary environment, geopolitical uncertainty. Maybe you could just unpack the inflationary comment a bit. What is it that you're seeing that's incrementally worse? How does potential recovery on semiconductor costs factor in? And maybe you could just talk about the potential for better stability in production schedules to be a potential tailwind next year.

Yes. So it's Kevin, listen, as it relates to stability and production schedules, we're seeing that now. I mean, there's some element of disruption in COVID that remains, but we've seen a significant improvement throughout the year. We'd expect availability to continue, obviously into 2024. So should see some benefit there. Material inflation was significant in 2023. We expect in some areas, including semiconductors, that will remain significant in 2024. We're doing a number of things to address that. One, changing semiconductor partners, really across all the semi categories from core semis like SoCs, analog power PMICs to peripheral semis. So a lot of work being done by our engineering and sourcing teams, establishing commercial agreements or partnerships with the Chinese semiconductor space, which is ramping up capabilities very, very aggressively. And we're deep into that and are going to take advantage of that opportunity both to serve the China market as well as to bring some of these into the non-China market. So that'll free up lower-cost alternatives for ourselves and our customers. As it relates to customer recoveries, listen, those are always challenging discussions, but given where we have contracts, given where we are from a financial standpoint, we are passing 100% of those costs on to the customer. Again, it's not a simple discussion. It's not an easy discussion, but that's what the commercial team or how the operating team is operating. And that's something that will continue to the extent they're interested in some of these lower-cost alternatives. There's an opportunity for us to jointly benefit and we'll put those in front of them. But as of now, that's kind of the state. So the material inflation is relatively high. And then we're very focused on labor inflation in places like Mexico, Eastern Europe, North Africa. So those are areas that we're watching very, very closely. And then lastly, I should say, it's not related to the specific inflation on material or direct labor. We're very focused on continuing to prune our cost structure to provide additional room and ultimately additional margin.

Great. Thank you. And then, just as a follow-up on the EV side, just two quick ones there. Can you just confirm I know you said you're overweight to the European and Chinese? China, we've obviously seen a lot of uptake, especially from BYD. How should we think about the mix impact if we see outsized exposure from the Chinese? And then can you just confirm that on SVA that that is powertrain agnostic?

Yes. SVA is powertrain agnostic. It makes more sense if an OEM is rethinking and moving to a BEV platform, that is the time to really it's an easier time to implement and make that architecture change. But it would be powertrain, overall powertrain agnostic. As it relates to mix of BEV customers, I think it's relatively awash margins might be a little bit higher on our China OEM partners, given we tend to do more system solutions there. So are able to kind of connect a broader portion of our overall portfolio, but it wouldn't be significantly different.

Yes, Dan, regarding current revenues, the situation has evolved over the past few years to approximately 60:40 in favor of global versus local OEMs. From a revenue standpoint today, that figure would have exceeded 75% for global in the 2018/2019 period. Currently, bookings are at a 50:50 split, so we anticipate that the trend will shift towards local OEMs. Additionally, a significant amount of the electric vehicle production is happening over there.

Yes. I think actually, you look at our revenue mix I think 2024; it's almost 50:50 from a local multinational.

And I'd like to turn the call back to Mr. Clark for any final remarks.

Thank you, Operator. Thank you, everyone. We appreciate you taking your time this morning. Please let us know if you have any further questions. Thank you.

Thank you, ladies and gentlemen. That does conclude today's conference. We appreciate your participation. Have a wonderful day.