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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. And welcome to the Aptiv Q1 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
I will now turn the conference over to Elena Rosman, Vice President, Investor Relations.
Thank you. Good morning, Crystal. And thank you everyone for joining Aptiv's first quarter 2018 earnings conference call.
To follow along with today's presentation, our slides can be found at ir.aptive.com. And consistent with prior calls, today's review of our actual and forecasted financials exclude restructuring and other special items and will address the continuing operations of Aptiv. The reconciliation between GAAP and non-GAAP measures is included in the back of the presentation and today's press release.
Please see slide two for a disclosure on forward-looking statements, which reflects Aptiv's current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-K and other SEC filings.
Joining us today will be Kevin Clark, Aptiv's President and CEO; and Joe Massaro, CFO and Senior Vice President. Kevin will provide a strategic update on the business, and then Joe will cover the financial results and our outlook for 2018 in more detail.
With that, I would like to turn the call over to Kevin Clark.
Thank you, Elena. Good morning, everyone. Thanks for joining us. I am going to begin by providing highlights from the first quarter, including key new business awards and recent developments across the portfolio. Joe, will then take you through our detailed financial results for the first quarter, as well as our outlook for the second quarter and the full year.
Our Q1 results reflect a great start to the year with a continuation of 2017s positive operating trends, in addition to the achievement of some important new milestones.
Aptiv had record first quarter revenue operating income and earnings per share, all above the high end of our guidance range. Revenue was up 8%, nine points over market. Operating margins expanded to 11.8%. Earnings per share increased 19% and new business awards totaled $5 billion supporting continued growth across our portfolio.
We reached an agreement to acquire KUM, an accretive bolt-on to our engineered components business, which will also strengthen our competitive position in the Asia Pacific market.
And lastly, I want to highlight that Aptiv was recognized as one of the top 10 most innovative companies by Fast Company magazine in both the transportation and artificial intelligence fields, underscoring the autonomous driving capabilities at Aptiv.
We're dedicated to developing and commercializing new technology solutions and the Fast Company Award recognizes our leadership position in enabling next generation vehicle features and functionality.
Turning to slide four. As you can see on the left side of the chart, we had a strong start to the year with significant new customer awards in both of our segments, which I mentioned totaled over $5 billion.
And while bookings can be lumpy from quarter-to-quarter, we're on track to exceed last year's bookings levels of $19.3 billion. These customer awards further highlight our portfolio alignment to the safe, green and connected mega trends, which is driving robust growth in both the Advanced Safety and User Experience and Signal and Power Solutions segments.
Our multi-year success is in large part the result of the strong foundation that we have to build upon, with leadership positions in fast growing areas of advance technology, including Aptiv Safety, where we're seeing a significant ramp up in customer awards as the Level one and two ADAS market continues to grow at more than a 15% compounded rate. As a result, our active safety bookings totaled $6 billion since 2016, supported continued strong growth for the next few years.
We're also experiencing a substantial uptick in Level two plus and Level three request for proposals from OEM customers, which dovetail nicely with our commercial Level four and Level five development program which is principally focused on opportunities in the automated, mobility, on demand market.
Infotainment and user experience bookings totaled over $5 billion cumulatively since 2016. Our strong backlog of awards gives us confidence that the pace of revenue growth in this product line will continue at roughly 15% per year for the next few years.
Turning to Signal & Power Solutions. Our engineered components business has booked over $10 billion of new customer awards since 2016. That includes $1 billion of high voltage connectors, which translates into mid to high single digit revenue growth for the next several years.
And industry experts are now estimating nearly 40 million electrified vehicles by 2025, which has translated into over 2 billion of new customer awards for high voltage electrification over the last two years.
In summary, these positive trends in new business bookings give us confidence that revenue growth will continue to be robust and accelerate beyond the end of the decade.
Turning to segment highlights and starting with Advanced Safety and User Experience on slide five. We're focusing our deep systems expertise in software and central compute platforms to deliver Advanced Safety, user experience and automated driving systems, enabling more connected content in the vehicle.
The Advanced Safety and User Experience segment has had nine consecutive quarters of strong double-digit growth, driven by over 55% annual growth in active safety and over 20% annual growth in infotainment and user experience in each of the last two years, which we're confident will continue going forward.
The competency is necessary to develop the advanced technologies that are driving today's strong revenue growth in this segment are in fact the building blocks required for the development of future functionality and mobility solutions.
Leveraging our portfolio of industry leading user experience technologies, Aptiv was selected by BMW to provide integrated gesture control and driver monitoring for their three and five series vehicles, an extension of our existing strategic partnership with BMW to enhance the consumer's overall in-cabin experience.
As vehicles become safer, more connected, we're helping our customers navigate the need for new vehicle architectures and the computing power necessary to enable the increased software functionality that serves as a building blocks for automated driving.
Underscoring that point, let's turn to slide six. The advanced work we're doing today on Level one two and three ADAS systems for our traditional OEM customers is being leveraged in the Level four and Level five automated driving solutions for mobility on demand providers and vice versa.
Our newly opened Las Vegas tech center will function as the North American operations and command center, in addition to a test lab to accelerate the development of our Level four and Level five autonomous driving solutions for the AMod market, as well as an innovation and customer showcase center.
Today, we also announced the deployment of 30 self-driving vehicles equipped with Aptiv's autonomous driving platform in Las Vegas. These vehicles will be available to the public via Lyft's ride-hailing app on an opt-in basis and riders will pay for rides in these vehicles just like the traditional Lyft ride, delivering our first automated driving revenue streams. We view these deployments as invaluable opportunities to learn how to best operationalize and commercialize automated driving technologies.
Together, these are important next steps for Aptiv on our path to commercialization for automated mobility on demand in a thoughtful, prudent and importantly safe manner, while gathering data and insights as we go across our global fleet of approximately 100 vehicles today.
Turning to slide seven. Our Signal & Power Solutions segment is focused on the increasing significance of next-gen architectures, requiring high speed data and high power electrical distribution to enable the necessary technologies for the future of mobility.
Leveraging our leading portfolio of architectural solutions, the business was awarded seven notable high voltage programs in Q1, bringing our cumulative bookings to $2 billion since 2016. This robust backlog of new business bookings translates in the mid single digit revenue growth over the next several years, which is what we experienced in Q1.
4% revenue growth, five points over market, driven by 64% growth in high voltage revenues and 7% revenue growth in our engineered components business, the result of strong growth in both the automotive and industrial end markets.
Revenue growth in this segment also benefited from new platform launches and a very balanced geographic mix, which more than offset the continued weakness in North American passenger car volumes.
Turning to slide eight. We've completed a number of transactions over the past few years that have better positioned Aptiv for faster and more profitable growth, including several accretive bolt-on acquisitions, including MVL, Antaya, Unwired and HellermannTyton, which has further strengthened our engineered components business.
And events technology acquisition, such as Ottomatika and nuTonomy complementing our portfolio of active safety technologies and enhancing our position in automated driving. In addition to Control-Tec and Movimento which are the foundation of our connected services platform.
As a reminder, the acquisition of MVL strengthens our position in the high voltage market and also enhanced our presence in the Asia Pacific region. The Antaya and Unwired acquisitions further expanded our portfolio of proprietary connector technologies and the addition of HellermanTyton provided significant growth opportunities in adjacent industrial end markets.
A significant part of our capital allocation strategy remains focused on bolt-on acquisitions in the engineered components space, providing further customer, regional and end market diversification.
Turning to slide nine. We're confident that KUM is another example of a great bolt-on acquisition. The company is a leading manufacturer of connectors and cable management solutions for a range of automotive applications.
The acquisition enhances our overall competitive position in the Asia Pacific market. We expect the transaction to close in the second half of the year with synergies that are consistent with our track record in the space.
As a result, we expect the acquisition to be modestly accretive to EBITDA margins and earnings per share in 2018.
In summary, we continue to execute our strategy to better position the company for faster, more stable and profitable growth.
And with that, I'll hand the call over to Joe to take us through the first quarter results and our increased guidance for 2018. Joe?
Thanks, Kevin. And good morning, everyone. Starting with the recap of the first quarter financials on slide 10. Results were ahead of the high end of guidance we provided back in February with revenue of $3.6 billion, up 8% or nine points over vehicle production, reflecting accelerated ramp of new program launches.
Operating income was $427 million with operating margins of 11.8% consistent with the previous guidance when you take into account the lower flow-through on FX and commodity related revenue in the quarter.
Earnings per share of $1.29 was up 19%, $0.10 above the mid-point of our guidance. And operating cash flow was $186 million in line with expectations, but down year over year due to increased working capital requirements to support the acceleration of growth and some spin-related payments in the quarter.
Turning to slide 11. Sales of $3.6 billion were approximately $300 million higher than expected. Half of the upside was due to stronger sales volume in both of our segments, while the remainder related to favorable FX and commodity price pass-throughs.
From a regional perspective we saw accelerated growth over market in all major regions of the world, despite lagging North American passenger car production which was down 15% in the quarter.
And we saw double-digit growth over market in China driven by improving underlying production, robust new launch volume and higher take rates on Advanced Safety and User Experience technologies.
Slide 12 walks our operating income performance year-over-year. Margins expanded 60 basis points to 11.8% and operating income was $427 million up 21%. Volume conversion on strong revenue growth and lapping of our prior year commercial settlement more than offset 2% price downs and higher mobility investment spending in the quarter.
FX and commodities were a positive in the quarter, including lapping of a prior year hedge loss, although as we've discussed in the past revenue from stronger FX and commodities are dilutive to operating margins.
Stronger operating income yielded higher earnings per share in the quarter, as shown on the walk on slide 13. EPS was $1.29 up 19%, $0.10 above the midpoint of our guidance, and you'll also note, we saw a modest improvement in share count related to the 1.7 million shares repurchased in the quarter and our tax rate normalized back to approximately 16% within the expected range of 15% to 16% for the year.
Moving to the segments on the next slide. Advanced Safety and User Experience revenues grew 20% in the quarter driven by strong new launch volumes and higher take rates globally in active safety and infotainment, which grew 57% and 17% respectively.
Operating margins expanded 220 basis points on a reported basis in the quarter or 480 points excluding the impact of mobility investments, driven by volume conversion on strong revenue growth and the lapping of last year's commercial settlement of a warranty item.
Our planned increase in mobility investments totaled roughly $30 million in the quarter and we remain on track to spend approximately $140 million in total for the year consistent with our previous outlook.
In summary, the Advanced Safety and User Experience segment is well positioned for continued growth and operating leverage in 2018 and beyond.
Turning to Signal and Power Solutions on the next slide. Revenues were up 4% in the quarter driven by robust new launch volume and strong growth in adjacent markets with an engineered components overcoming platform changeovers and passenger car weakness in North America.
Operating margins were up 20 basis points in the quarter, as volume favorability and performance initiatives more than offset unfavorable price and the dilutive impact of commodity headwinds.
For the year, we expect single-digit - mid-single-digit revenue growth to continue driven by new launches and improved market trends, yielding stronger operating performance and higher margins. In light of our strong first quarter revenue and operating income performance, we are raising our 2018 outlook as reflected on slide 16.
Starting with revenue walk in the left, you can see the sales volume upside for the year in addition to stronger FX and commodity pass-throughs. As a result, sales are now expected to be in the range of $13,950 billion to $14,350 billion [ph] and we are increasing our adjusted growth range to 6% to 7% for the year, up from 5% to 6%.
Moving to the right. Our updated operating income outlook of $1.75 billion to $1.83 billion reflects 12% growth at the midpoint, driven by higher sales volumes as well as a modest benefit from FX and commodities, which again as you can see from the chart is dilutive to the overall margin rate for the year.
Diving deeper into our revised outlook for the year on the next slide. We are targeting global vehicle production up 1%. Our outlook now assumes $1.18 euro rate for the remainder of the year, up from $1.15 and there's no change in tax rate assumptions for the year. Therefore, earnings per share are now expected in the range of $5.20 to $5.40 per share, up 14% at the midpoint and up from our prior guidance range of $5 to $5.20.
Operating cash flow is expected to be approximately $1.6 billion, up mid-teens over 2017 with CapEx unchanged at roughly 750. For the second quarter revenues are expected to be up 9% at the midpoint on production growth of roughly 4%.
We expect operating margins to expand 30 to 50 basis points and EPS in the range of $1.33 to $1.38, up approximately 19%, including a 15% to 16% tax rate.
Moving now to slide 18. We have a strong track record of execution acquiring and integrating bolt-on acquisitions like the ones listed on the page that strengthen our portfolio and allow us to penetrate new customers and expand into new markets.
In all cases, we have achieved or exceeded planned synergies and each of our acquisitions has been accretive to growth, earnings and cash flow, and as it relates to KUM, we're confident we will continue to build upon of this track record.
Turning to the next slide. I'm sure you've heard me say repeatedly, we are maniacal about our cost structure, allowing us to lower our breakeven levels, fund incremental growth investments and enable our strong track record of margin expansion and double digit earnings growth.
Our plan for eliminating stranded costs from the powertrain spin-off remain on track, as we continue working towards the goal of these costs effectively being removed by the end of 2019.
Also over the past few months, we evaluated options for relocating the company's global headquarters in the U.K. And after thorough consideration, we're pleased to announce our decision to move to Dublin, Ireland a vibrant technology hub and strong fit for Aptiv going forward.
The relocation to Dublin will allow us to consolidate a number of our corporate and European operations into a single location, streamlining these functions while reducing our non-manufacturing and non-engineering footprint and leverage the strong base of local talent to consolidate our corporate operations into a single location.
With that I'd like to hand the call back to Kevin for his closing remarks.
Thanks Joe. Let me summarize on slide 20 before turning it over for Q&A. Aptiv delivered another strong quarter with revenue and earnings above expectations driven by momentum across our portfolio.
Customers are increasingly looking to us as their partner of choice as reflected by our strong new business bookings performance both in the quarter and over the last few years.
Our strong finish to 2017 and great start to 2018 gives us confidence in our increased guidance for the year including 6% to 7% organic growth 20 to 40 basis points of margin expansion and 12% to 16% earnings per share growth.
We remain committed to driving future growth by continuing to invest organically and inorganically to strengthen our business foundation, further expand our competitive modes and capture opportunities in new markets.
And as Joe said, we remain relentlessly focused on improving our cost structure and leveraging operational efficiencies to both reinvest in the business and to expand margins, grow earnings and cash flow and deliver outside shareholder returns.
With that let's open up the line for Q&A.
[Operator Instructions] Our first question comes from the line of Joseph Spak with RBC Capital Markets.
Thanks. First question is just on the Lyft agreement. Is that separate from the deployment you mentioned earlier? So I guess, that would be in conjunction with the city and any more sort of details you could provide about how revenue sharing agreement would look like?
Sure, Joe. I'll start and Joe can chime in. As you know, we had a pilot with Lyft during CES in January of 2018 where we had vehicles on the Lyft network. This is an extension of that and I guess a more permanent structure as it relates to going forward in Las Vegas where we'll expand from roughly 10 cars on the road to 30 cars on the road.
So it's an opportunity for us to plug into their network for us to manage a fleet of 80 vehicles for us to continue to enhance our underlying technologies. It's an opportunity for Lyft to continue to use their commercial apps or consumer apps as it relates to connectivity with customers.
As it relates to revenue sharing, I don't want to get into the details of that quite frankly. It is however our first opportunity to actually generate revenue for automated driving ride. So we view it as a big step forward. Joe, you want to add?
I think that covers all.
Okay. And then Joe maybe just on capital allocation, so you spent about $500 million on KUM. That's sort of below the 50% of cash from ops or the $800 million free cash flow guidance for the year. And the cash balances are already a little bit higher with the dividend back from Delphi.
So it seems like you still have a good amount of firepower. Can you just talk a little bit more about the plans or sort of the pipeline M&A and what you want to do with the cash?
Yes. So Joe, good question. Capital allocation philosophy remains unchanged. We'll invest in the business, dividends in place, we believe it's competitive. M&A opportunities are - the funnel looks good.
KUM will close in the second half of the quarter. You're right about $500 million in cash. And also gave us the opportunity to buyback some shares about $150 million worth in Q1.
So we're going to continue to stay balanced as we have in the past. But I do think over the coming quarters even into next year we still see some opportunities on the M&A side.
Really and I think for us KUM is really in our sweet spot. That is a multiple that's in the sixes post synergies. It's a very attractive deal from our perspective. It is one that we're going to be able to integrate very quickly. We'd expect that integration to really take sort of a six month timeframe from close.
And it's a business that fits us very well. There's some overlap with HellermanTyton. We'll be able to get some leverage and some synergies there, as well as big connector portfolio. So certainly, the kind of deal we'd like and the kind of deal would like to do more of.
Thanks.
Our next question comes from the line of Brian Johnson with Barclays.
Take rates and active safety infotainment improved globally which help that organic growth numbers in Advanced Safety and User Experience. Could you give us a little more just kind of detail on just what was the impact of new business bookings, what you were seeing in take rates during the quarter? And kind of in infotainment, is there a trend, specifically. In infotainment, is there a trend to mid-to-high or other features that favor your product mix? And then in active safety is it take rates on A B? Is it A B plus more advanced features that's driving that?
Yes. So I'll start Brian. I think as it relates to both active safety and infotainment, you're seeing a ramp up in overall take rates. As it relates to product within areas like infotainment where you're seeing the biggest growth, quite frankly is in the mid-level systems, so continued strong growth in high, very strong growth in the mid-level systems and actually slower growth in the low end systems.
Take rates, I don't have off the top of my head, but we've been in a pretty consistent revenue stream of between 15% to 20% revenue growth in that product line for the last several years. And when you look at our bookings levels, our bookings levels have been consistently two times our historical revenues, so very strong growth.
On the active safety side, it's a mix of new wins as well as penetration. And to some extent, it's difficult to surgically decipher the two. So as an example, I believe a few years ago we had five customers that we had active safety business with. Today, we have 15.
So significant expansion across a number of customers, some of that is further penetration on existing programs, some of that is customers who are introducing new programs. So it's an area where again, we expect to continue to see rapid 50% plus growth over the next couple of years.
And we certainly have the bookings to support that. There are some customers China and other regions where more of the activity is in and around Level one sort of active safety, very high growth north of 100% growth rates in those sorts of markets but in less sophisticated active safety systems.
When you look at North America and Europe it tends to be a transition from Level one to level - advance Level one to level two. Joe you want to?
No, I think that covers it Brian. As they move particularly in active safety as they're moving across multiple platforms growth take rate versus volume does get a little hard to exactly figure out. But we are seeing both as Kevin said.
The other thing I mentioned bookings continue to be incredibly strong. We booked $900 million of active safety bookings in Q1. That's about the full year level for 2013 and 2014. So this is a business that is very well positioned to continue to grow and is very strong in the marketplace, very strong with customer wins.
And again just that is a big booking number for the quarter and we expect that - again bookings are always lumpy but we expect that trajectory to continue over the longer term.
So what does that mean for a book-to-bill?
Well book-to-bill just in the quarter alone, we did just point of reference lastly on active safety we had just under $600 million of revenues and in the first quarter we booked almost yes almost $900 million.
$900 million yes.
And just does what is this kind of take rate growth and just launch imply for the midterm organic growth rate for ASU 8?
You're solid double-digit growth - segment growth rate.
Segment growth rate, yes. As Kevin mentioned for active safety, we expect this plus 45%, plus 50% to continue.
And just final question over on signal and power solutions, any progress in the kind of senior level executive discussions around next gen architecture and kind of when some of those programs might actually become bookings?
Yes there is a lot as it relates to discussions. So we're in rare workshops I don't know roughly half a dozen OEs today most of them European, that transitional take place in stages.
First it'll be consolidation as it relates to consolidation within particular area like safety controllers, like Integrated Cockpit Controllers in that area and then kind of the second stage going to a more I guess a cleaner sheet approach as it relates to vehicle architecture.
So we see kind of the first stage is really, really happening from a significant growth standpoint and kind of 2021 and then 2025 for a more broader look at vehicle architecture.
But a lot of discussion - on the integrated topic side, we have three customers were rolled out or will be rolling out over the next year or so. I think we reviewed Brian with you and a number of investors and customers our CSP platform which crosses a number of multi domains and our number of domains and adds functional safety to controller capability. We did that at CES in 2018.
There is a lot of interest in and around that both what it does from a cost savings standpoint, a mass saving standpoint, the fact that you can connect eight domains to it versus the typical Integrated Cockpit Controller today does two.
So there is a great deal of interest, a great deal of dialogue, and importantly it gets us a really great seat at the table from a strategic discussion standpoint across all of our customers.
And I think quite frankly it's one of the reasons you've seen us have so much success with customers like BMW quite frankly who are at the forefront for automotive technology.
Okay. Thank you.
Thanks.
Our next question comes from the line of Chris McNally with Evercore ISI.
Hi, Chris.
Good morning, guys. Great results.
Thanks.
Thanks.
My question's on the cadence of the SBS and the single digit growth across the - you've given the GM change over. So Q1 was at 4%. It looks like Q2 is clearly something stronger. I get sort of high single digits.
Is it fair to think though that Q3 as a result of the changeover will sort of be a low point for the year and then Q4 strong again? You just wouldn't mind confirming if that's a broadly fair interpretation of the guide?
Yes, Chris I think it's a fairly steady march through the year for the segment from an adjusted growth perspective. We see it at the 4%. We see it sort of ending the year around 5%, so maybe a little bit of a tick up during the year.
But it's a fairly steady march. Q2 you're right we'll be a little bit higher, but we think this business is about a five call it round numbers of 5% growth for the year.
Okay. That's fantastic. And then just a longer term question. So we're clearly seeing some pickup in the pace of connectivity plans. I mean if you take a look at Ford's 2020 4G plan is as standard.
Is there a chance that we can see some of this upside flow through to your electrical business as we approach 2020? And if so would we see it in the EEG, the ECG businesses or potentially both?
So yes, when you think about connectivity Chris it's really - vehicle architecture is what enables it, right. I would say most of the plans as it relates to connectivity have been laid for years 2019, 2020, 2021. So I think that's reflected in the medium term guidance we've given for that segment.
Now having said that, if you see more rapid adoption if you see higher take rates there would be an upward bias in Electrical Architecture and that would affect our connector business. It would affect our cable management business and it would affect our electrical distribution systems business, our wire harness business, so all three.
Okay. Great. Thanks so much guys.
Our next question comes from the line of Rod Lache with Deutsche Bank.
Good morning, everybody.
Good morning, Rod.
Good morning, Rod.
I had a couple of questions. First at your Investor Day you talked about kind of a midterm 2022 revenue target of $17 billion. And it seems like that's no longer applicable since you've won $19 billion in 2016-2017 and it sounds like you're going to beat it this year. So I was hoping you might comment on how you're thinking about the longer term targets.
And related to that can you provide any color on what your market share looks like in high voltage. What's the booking opportunity there and what's your market share in active safety at this point?
Yes, Rod. We're obviously not going to redo the Investor Day long-term guidance here. I mean obviously from a fundamental perspective we're feeling very good about where some of those key businesses are, Active safety infotainment and high voltage.
The broader Signal and Power business is doing very well. As I mentioned in my prepared remarks, continue to see really good growth in the adjacent market side of the business things like that, half of the industrial electrical business within HellermannTyton.
So continue to feel very confident and have obviously taken the numbers up for 2018. And certainly would expect that confidence to continue. But we're not going to give out the numbers.
As it relates to, I will make a comment on high voltage and then Kevin can comment on the active safety. High voltage continues to be a very attractive space. You've heard us talk about it given our presence in Signal and Power Solutions we feel we have a very strong right to play, $2 billion worth of bookings since 2016 in high voltage, although growing off a small base expect that business to grow well over 50% in 2018.
So you've got a $300 million or so business that's effectively add segment margins growing over 50%, and ultimately believe, we have the ability to stake out in the market position in high voltage that we do in the low-voltage signal and Power Solutions business. That's certainly our goal internally and feels that's a reasonable expectation for us to set and for people to hold us to just given where we play on the low voltage side.
Yes. So right I guess the way I would to maybe augment Joe's comment I think based on what we're seeing in active safety based on what we're seeing in areas like vehicle electrification vehicle connectivity I'd say the bias is stronger than our view of it one year ago. So that gives us more confidence in the numbers that we obviously communicated.
Having said that, as you know, there is multiple items that affect those numbers like foreign exchange rates, like commodity prices, like OE decisions on mix. But I guess what I would say we feel even more confident in those underlying projections that we gave people.
As it relates to ADAS, when you look at the top five ADAS players we put ourselves at roughly number four today. We tell you based on our bookings that we'll end at number two close to number one, I think in 2020 or 2021. And we're doing that based on wins principally in the radar space and in the safety controller space.
And it's an area where we feel like we benefit significantly having capabilities in and around vehicle architecture as well as the software capabilities that we bring to perception systems like radar, like vision, as well as the incremental benefits that we're getting from our expertise and the experience in automated driving from Ottomatika and NuTonomy.
So we'd expect this year to book $3 billion and more of active safety bookings, which is in line a little bit less than what we booked roughly the same or a little less than what we booked last year, which is significantly higher than what we've booked in all the previous years.
Do you have a target for high voltage bookings for this year?
We don't necessarily have a target for high voltage bookings but there is a lot of activity in and around high voltage bookings, and the fact that really in the first quarter we booked close to $300 million.
We would expect to have a strong bookings year. As a point of reference last year we booked close to $1 billion. So we expect to be in that range or more in 2018.
And just two quick follow ups. Is your China high voltage share above below or at your segment average? And secondly, you're talking about 5% to 6% growth over market for the year, up from 5%, but in Q1 you did something like 9%.
So is there any specific reason why the growth over market would slow in the coming quarters?
Yes. I think Rod, there is no specific reason. Listen, I think the launch volume and the take rates came up quicker in Q1. That was in our guide. So we sort of got there a little bit quicker relative to our original outlook for the year.
Q2 we always had a strong. I think overall growth over markets a little tricky to call quarter in quarter out just given changes in production and to some extent the comps year-over-year. So nothing specific beyond sort of quarterly ins and outs and some of the comps.
We're very confident in our - that 5 to 7 points above market growth for the full-year. We think will still be there, and again, it's just a matter of the sort of ins and outs of the quarter.
I would say China at the moment, I would probably say it's going to be a strong electrification market where we think we should be but it's probably more in line with the segment at the moment than plus or minus.
Okay. Great. Thank you.
Thanks.
Our next question comes from the line of David Leiker with Baird.
Hey. Good morning, everyone.
Good morning, David.
Good morning.
On the KUM acquisition, I know you called out Asia Pacific customers high voltage customers. What's the mix of that business between automotive and non-automotive?
All automotive. So that's an all automotive one, David.
All?
Yes. So that's going to go - it's about 65%, 70% Korean manufacturers. There's another 30 plus, round number 30% in China. So it gives us some local OE. It gives us some China presence in there, very well run connector business. We've known the individuals, a family run business we've known the individuals for a while.
And our Asia PAC team led by Simon had done a nice job of maintaining those relationships. So as the business came up for sale we're actually able to deal with it in almost on an exclusively basis effectively, so we know the business.
And again, it's going to be a good - we need the capacity. It's going to be helpful from that perspective but there's a lot of opportunity for integration. And like we've done in the past placing our buy power on a business of that size will help from a material savings perspective which is where we think the majority of synergies will come from.
Okay. Great. And then on a second item, you mentioned the BMW the 3 and the 5 Series just control going on there. But we've seen some other things the interior of the Mercedes A Class. And it seems like the automakers are historically the newest technology would go on the top of the line of the car and over the next six years filter down in a successive order.
They seem to be a technology in the market when it's ready and whatever car is coming next, just how much of that do you think is happening and how pervasive do you think that is?
Yes. Listen, I think it's tough to give a precise number. I think it's happening more. It's certainly happening with those OEs were technology oriented and have a brand that can command price.
So I'd say that David that's where we're seeing most of it is with the German premium brands. And I think you're right. We're used to start with the S Class or the seven series or the 88 with Audi. It's now more pervasive across our broader lineup of luxury vehicles, you're right.
Okay. Thank you.
Thank you
Our next question comes from the line of John Murphy with Bank of America Merrill Lynch.
Good morning, guys.
Hey, John, how are you?
Good. How are you?
Good.
Just a first question on M&A and really what it means for growth rates here. I mean, when you guys talk about your growth of a market it's very much core organic growth, and then these acquisitions, which are bolt-on that are coming sort of consistently over time, are additive to that, correct?
And just trying to understand that because I think when you look at this it's kind of purchase R&D and business but it's funded organically. So it's kind of a twitchy thing we're somewhere between organic and acquired?
Yeah. I think the organic growth - your KUM is not in the guide at this point. We want to put it in until we closed. It's going to be H2 close. We don't expect any issues with the close. It just takes time to close deals in that part of the world. So, I think it's probably more of a 2019 impact of the numbers, that one will be integrated quickly too.
And it's relative to the connective business. It's an important deal but it's not particularly large to that connector business. So, yes, the organic growth above market in our event growth rate of that 6% to 7% that's our organic number effectively. That's what the businesses are doing.
And again KUM at this point will move that significantly just given its size to the extent we did larger deals as we've done in the past we're like HellermannTyton, a deal of that size we certainly called that out from the growth rate for the first year after acquisition.
I guess, I was just getting into question it's kind of semantics. I mean, it seems like you are understanding your organically funded growth rate to some degree when you talk about your future projections and there could be some real upside that's kind of what I was trying to get at, is that a fair statement.
I mean if these acquisitions are coming at when you talk about the M&A pipeline being fairly strong, is it being funded organically, it just seems like you're being very conservative in your future numbers?
Yes, if you're presuming that an acquisition like that is effectively purchased R&D right and it's kind of a make buy I guess you can look at it that way. I think the guidance we've given here and we've given historically doesn't include any acquisitions, does not include acquisitions that we've not closed on. So KUM is not in the numbers.
Okay. That's very helpful. And then just a second question. As we think about sort of the shift away from passenger cars in the North American market which may be followed globally. Just curious what that means to sort of some of these programs are hastily being canceled or exited and what that means to your business?
And if that's more of a risk or potentially a real opportunity as you have higher content and vehicles and there's more investment in a lower level of platforms?
Yes. Listen, this is something we've been working through and preparing for a while. I think long-term you're right. SUV truck is a better content profile for us particularly as you get to the higher end SUVs.
The Ford announcement we're obviously watching closely. We'll work through them on what that means and how quickly Ford revenue for us on the passenger car model we're talking about is a little over 200 million a year.
So it's a number over a three-year period. We feel like we could certainly work through with them. FCA was bigger than that when they sort of - FCA was over $300 million and that plug and pulled fairly quickly and we managed to work through it.
So we also think for particularly with folks like Ford and several of the others there is - we've got some upside and some opportunities to do more on their truck and SUV platforms as well over time.
Yes. John this is Kevin. Starting a couple of years ago, we started to really watch the trend closely on passenger car versus SUV and truck. And quite frankly we view it as a global trend in addition to our North American trend. So as we look at bookings, as we look at pursuits, we really refocus the team or increase the focus of the team on trucks SUV globally.
So we feel like we're in a position as Joe said to certainly manage through the recent announcement as it relates to Ford which is going to transition over a fairly lengthy period of time.
As Joe mentioned, FCA last year was a little bit more challenging. That was a decision to real quickly exit out of passenger car production. But we feel like we're in a good position to manage through near-term and longer term should benefit from it.
Okay. Great. And then just one last question on the Lyft Fleet or the Aptiv Lyft Fleet I should say out in Vegas. Who owns those vehicles? And how are they being service and managed sort of just physically and logistics out there?
Yes. So today with the fleet of the sites that we have today, we have 100 vehicles on the road globally. We have north of 30 in Las Vegas. But 30 will be a part of the full Lyft network, we're managing those, we're owning those.
As the fleet gets larger that's something where we'll be a third party customer. And whether they manage the fleet or we manage it on their behalf or quite frankly there are third parties that we are in discussions with about who are more experienced than a part of our business as fleet management from a day to day standpoint. That's something that we'd evaluate having a third party to actually do that on our behalf.
And I think John these cars, the 30 - to Kevin's point are an extension of the test fleet. So we'll own and operate them. We still go through obviously the updating of the software and the perception systems.
As we've talked about before as something like that were to grow to scale, we think there are folks out there from a finance perspective that would own those assets. We certainly wouldn't expect to put those in our balance sheet. But this is more given its nature and its size at the moment, we'll keep those cars.
And for right now, I assume there are safety drivers for those vehicles, is that correct?
Yes. Yes there will be safety drivers. They'll be at a normal configuration you use to see. So yes so two folks in the car performing those ride, and we're obviously working to move beyond that. But for commencement of operations with these 30 cars there will be our two engineers on the car.
Great, stuff. Thank you very much.
You next question comes from the line of David Tamberrino with Goldman Sachs.
Great. Hi, good morning. I want to follow up there because 30 vehicles in Vegas, seems like a good setup. I'm just wondering how you see this progressing with Lyft? Could you be going to additional cities?
Listen, our focus - so we're in discussions with multiple cities and mobility on demand providers. We could be entering additional cities with Lyft. We will be entering in partnership with others in other cities.
David, I think as you know, we announced the partnership with the City of Las Vegas. They will be rolling out in 2019 or 2020 for vehicles as well. So we're really focused on pursuing opportunities with multiple parties and really doing it globally, so operating in cities in the U.S. and Europe as well as in Asia.
I think today we operate - we have a pretty big footprint in Singapore, partnering with the Singapore LTA, and that's something that we'll continue to expand upon. So we're looking in - long winded answer saying, we're looking to partner within a number of different providers.
Right. I mean, is this still just more on the development side. It seems like you've got a pretty decent proof of concept for standing up on autonomous ride hailing solution. What's the data that you're going to be harvesting from these vehicles from both the sensor suite as well as the customer facing side, and how are you looking to monetize that going forward?
Well, what we're doing in Las Vegas today is the customer facing is Lift. That's where they have experience and expertise and that's where they do an outstanding job. Obviously, for us today, it's the vehicle. It's the vehicle software and the - as well as the architecture. We continue to do this because our target is to get the driver out of the car and to do it as quickly as we can.
So today to Joe's point, we really view this as a development activity and then an opportunity to collect dollars commercially to help fund or offset some of the cost related to that development, vehicle development or software development.
Yes. David, the way I would frame it and not to be overly nuance, but if you went back a year or two, the rides in Vegas, all of the cars on the road that we had were testing the technological applications of this, right. I would say this Lift is the first time we're testing the commercial application, right.
These cars in an automotive mobility on demand setting, what's best practice on how to run them, where do you start to get consumer adoption ? And so, I think, you could call it a pilot or a test, but it's more of a commercial pilot than a technology pilot, if that makes sense to you.
Okay. No, it does. It's helpful, because just to think about different partners and different announcements that come out, just trying to understand how it's all interwoven.
My next question, just on the active safety awards, you quote about $900 million, looks like annualizing that you're probably flat year-over-year. Are you seeing that from just premium luxury, are you seeing more mass market OEMs, and what's the pace of adoption to really once you have a product how long does it take for that OEM to validated it to then put it straight into their products out on the road in the...
Well, it depends on the product, it depends on the OE, active safety penetration is across the board with OEs.
Yes.
So luxury, as well as mass market, I guess, we'll differentiate as to the level of active safety's solutions. But every one, every OE is putting ADAS solutions on their cars. As it relates from award to validation and putting on a vehicle, I would say it's - in that space its averaging two years maybe three.
But there are - the reason, the two year with customers that we have existing active safety business with, and it's rather penetration of their fleet. The three years are those OEs that either we don't have active safety business with or we do. And then maybe a new perception system or more advanced perception system and you're going through testing and vehicle validation.
Got it. Thank you very helpful.
Thank you.
Thanks, Dave.
Our next question comes from the line of David Lim with Wells Fargo Securities.
Good morning everyone.
Good morning, Dave.
So the question I have is on electrification. Relative to maybe one quarter or maybe two quarters ago Kevin, do you see like a massive acceleration in maybe RFQs for electrified vehicles.
And having said that, what is your thought on maybe 2020 or 2025 electrification take rates? I know you mentioned I think $40 million or so a little earlier in the call.
Yes, I don't think we've seen an acceleration over a couple of quarters. I think relative to a year or so ago we've seen a ramp up in high-voltage RFQs out of our customers really across all regions. So I'd say there is a much more concerted effort on the OE side to have a broad portfolio of high-voltage vehicles.
I think as Joe mentioned last year our high-voltage revenues increased over 50% and this year our outlook is over 60% and we see that quite frankly for the foreseeable future from a revenue standpoint.
And as you look at bookings, bookings have been extremely strong. And book-to-bill ratio for us on high-voltage has been two to three times revenues. So it's something that we believe is real.
We believe it's something that although there's a lot of talk about it in China we're seeing that growth, but we're also seeing growth in Europe as well as North America. And we think it's going to translate into significant revenue.
Yes David, we use from a share perspective and just what's happening in the market we've been keyed of that 2025 IHS data for about the past 1.5 year. We think that's a good - it's a good time period. It's a good proxy.
And I think David over that to support Kevin's point over the past year they've moved there what I'll call electrified powertrain penetration up from about 25% of production to 35% of production BEB from 5% to north of 10%.
So that tends to be our guidepost. And I would say what we're seeing today would support an increase in that outlook in 2025 which they've reflected.
Great. Thanks. And just two more. On the functional safety standpoint, a lot of the startups autonomous vehicle companies from at least what we're hearing are just trying to put the technology together and thinking about functional safety sort of in a retroactive manner where they will design that later.
Can you sort of talk about your functional safety and how that's designed in at the very beginning. And how easy is it to retrofit vehicles with autonoumous capabilities on a volume basis?
And a follow up to that in my last question would be where are you guys from a radar technology standpoint. And can we see a moment in time where radar could actually displace LiDAR technologies? Thank you.
So it's Kevin. Let me start with the last. There are a number of questions, David.
Sorry, yes. Sir, just wanted to sneak it in as quickly.
So listen it there some longer answers than others. Listen as it relates to radar as you know we've been in the radar business for a really long time. And we're working very aggressively to continue to optimize and enhance short medium and long-term radar not necessarily, so that it replaces Leddar.
But maybe as you think about autonomous vehicle, you are less dependent on Leddar. So I think if you talk to our tech guys today if we have Glenn [ph] here, the reiterate in the fact, that we think it's important that you have three perception systems that you need the redundancy.
But there are multiple ways to skin the cat as it relates to those perception systems. But we are very focused and we have an initiative to enhance radar so that an automated driving vehicle is less dependent upon high cost Leddar.
Got you.
As it relates to functional safety listen we think and I think our industry believes that's the difference between those of us who've come out of the auto industry in been in it for a long period of time and those who have not.
There a part of the equation as it relates to solving the autonomous driving question is the software and algorithm tied to the ADAS stack but that's only a part of the overall solution right. And where players like ourselves and we think obviously we're more uniquely positioned than anyone else.
Who have the controller experience, who have the architecture experience, who have the software experience and have the automotive experience. We have the ability to approach these challenges and these problems concurrently with the software solution. And that's really why two years ago we kicked off the heavy effort the concerted effort as it relates to smart architecture smart vehicle architecture in the vehicle. It was really how do we bring together the perception systems the software systems.
And the hardware systems together to develop solutions that ultimately optimize our level for autonomous driving vehicle and between now and then quite frankly enhancing the active safety experience of your competition business all of those sorts of things for the OE customers. So we would say if you don't have experience across all those it is a big challenge.
We would say that we're better positioned than others and we're working really, really hard at it. So I think that's an answer to at least two of your questions. I don't know if there's a couple more in there as well.
No you answered it. And it's apparent that Aptiv's mode just becomes deeper and deeper. Thank you.
Thank you, David.
Kevin, we have time for one more question.
Our final question comes from the line of Itay Michaeli with Citi.
Great. Thank you.
Good morning Itay.
Good morning. Thanks and congrats. Just a first question on the quarter going back to Slide 15 on Signal and Power Solutions, so I think the label and you mentioned this in your remarks too you have stronger growth in North America despite the past and volatility. I'm just kind of a wondering what drove the upside in North America relative to expectations back in January kind of internally?
In North America specifically the launches we had some Q4 launches Itay that is we talked about launches just you launch a product Don. December one and that revenue curve over the first two or three months is it's a little hard to forecast until everybody starts getting into rhythm. So some of that hits right, we've got some launches on some new truck platforms even beyond the T1 SX that we're delivering some revenue in the quarter and will continue to do so for the year.
So as I mentioned, it was just more I would say the timing of when some of those started to hit what I'll call for a short that maybe what we had expected in the original guidance.
That's helpful and then going back to the lift commercialization any update on one, with the vehicles be operating in a kind of a fixed root similar to what we experienced at CES? And is the plan still to remove the driver by the end of 2019?
Well, this is Kevin. So yes, definitely plan to remove the driver by the end of 2019. That may or may not be part of the lift initiative quite frankly. It is a point to point system. It is similar to what we had at CES although broader and will continue to get broader, so more locations, multiple locations, more vehicles.
Great. That's very helpful.
All right.
Thank you.
All right. Bye, Itay.
All right, operator. Thank you very much. We appreciate everyone's time.
You're welcome. This concludes today's conference call. You may now disconnect, and have a wonderful day.