Aptiv PLC (APTV) — Q4 2021 Earnings Call Transcript

Thank you, Kevin. Good morning. And thank you for joining Aptiv's fourth-quarter and full-year 2021 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 restructuring and other special items, and will address the continuing operations of Aptiv. Reconciliations between GAAP and non-GAAP measures for our Q4 and full-year financials, as well as for our full-year 2022 outlook are included in the back of the slide presentation and the earnings press release. During today's call, we will be providing certain forward-looking information, which reflects Aptiv's current view of future financial performance and may be materially different from our actual performance for reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the supply chain and global economy. Joining us today will be Kevin Clark, Aptiv's President 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 and 2022 outlook in more detail before we open the call to Q&A. With that, I'd like to turn the call over to Kevin Clark.

Thank you, Chris, and thank you everyone for joining us this morning. Beginning on Slide 3. During 2021, we experienced record growth over market and record new business bookings driven by our industry-leading portfolio of advanced technologies aligned to the safe, green, and connected megatrends, as well as our success keeping our customers running through the ongoing supply chain disruptions. Despite the increased efforts to keep our customers connected, our financial results validate the strength of our competitive position and the resiliency of our business model. Focusing on the highlights for the full year, new business bookings reached $24 billion and revenues totaled $15.6 billion, representing 15% growth, 15 points over underlying vehicle production. Operating income and earnings per share totaled $1.2 billion and $2.61 respectively, reflecting the benefit of strong revenue growth, partially offset by increased operating expenses related to supply chain disruptions and material cost inflation, which Joe will cover in greater detail in a few minutes. Lastly, we continue to invest in organic growth initiatives and have recently announced an agreement to acquire Wind River, a leading provider of intelligent software solutions, representing one more step in accelerating the intelligent transformation of Aptiv and positioning us to enable the software-defined future. This transition uniquely positions Aptiv to provide comprehensive solutions that enable software to be developed faster, deployed more seamlessly, and optimized throughout the vehicle lifecycle. Setting the supply chain challenges aside, the Aptiv team is executing exceptionally well. Continuing to proactively position the company for the future, increasing the efficiency of our underlying cost structure while investing in high-growth, high-margin advanced technologies that increase the resiliency of our business model, which will lead to a stronger competitive position and increased value for our shareholders. Turn to Slide 4, as already mentioned, we remain laser-focused on executing our strategy and further enhancing our industry-leading capabilities. The macro headwinds we've faced over the past two years have validated the resiliency of our business model, showcased by the efficient execution of new program launches, as well as the record new business bookings and record revenue growth over market. Looking ahead, Aptiv will be in an even better position to capitalize on the Safe, Green, and Connected megatrends just as the path to the software-defined vehicles accelerates. Our scalable advanced ADAS in-cabin sensing solutions increase system performance while lowering costs, enabling the democratization of Aptiv safety features. Our extensive portfolio of both low-voltage and high-voltage electrification solutions allows us to develop optimized vehicle architectures that significantly reduce vehicle weight and mass, and lower overall vehicle costs. Our vehicle connectivity solutions provide our OEMs with the data analytics and insights that allow for continuous enhancements throughout the vehicle lifecycle and our fleet customers with vehicle health data to minimize vehicle downtime. Collectively, each of these offerings is a key foundational element for our smart vehicle architecture solution. 2021 was a proof point for the market relevancy of our industry-leading portfolio of advanced technologies which gives us the confidence to increase our framework for revenue growth to eight to 10 points over vehicle production. As shown on Slide 5, 2021 new business bookings totaled a record $24 billion, a $6 billion increase over the COVID-impacted 2020 amount and a $2 billion increase over the previous record of $22 billion. Our unique portfolio of safe, green, and connected technologies combined with our flawless operating execution continues to position Aptiv as a partner of choice for our customers. Advanced safety and user experience segment bookings totaled $6 billion for the year, including $2.8 billion in Aptiv Safety awards. Bookings for our Signal and Power Solutions segment reached $18 billion, including a record $3.5 billion of high-voltage electrification awards. The cumulative amount of our new business bookings over the last few years across our portfolio of advanced technologies gives us confidence in our ability to sustain strong above-market growth across both of our business segments, further validating the resiliency of our business model. Turning to the highlights from our Advanced Safety and User Experience segment on Slide 6. Revenues for the fourth quarter declined 1%, 15 points better than the reduction in global vehicle production. For the full year, revenues increased 13%, 13 points over vehicle production reflecting the benefit of new program launches and increased penetration rates that resulted in strong growth over market in our Active Safety product line and continued strong growth in our user experience in connectivity and security product lines, driven by the launch of infotainment programs in both North America and Europe. As the demand increases for more advanced Active Safety and User Experience features, the need for more advanced software development, integration, and compute capabilities is required. Our industry-leading capabilities present us with additional market share opportunities, as evidenced by a new business award from Stellantis for our ADAS Satellite Architecture Solution on the Ram pickup truck, building off of our earlier success launching a similar scalable active safety solution on the Jeep Grand Cherokee and Wagoneer. Several new business awards from Ford for the extension of our ADAS satellite architecture solutions across additional new vehicle platforms. Awards from Volvo for the extension of the first-of-its-kind Android infotainment solution powered by native Google automotive services with real-time OTA onto new additional vehicle platforms. Lastly, further commercial validation of our smart vehicle architecture solution in China with a new business award from Baidu for the development of a central vehicle controller. This high-performance computer platform will launch in 2023 on a vehicle produced by the Geely-Baidu joint venture, Jidu, and will integrate central body functions and control the flow of data in and out of the vehicles. Moving to Slide 7, fourth-quarter revenues in our Signal and Power Solutions segment declined 6%, 10 points better than the declining global vehicle production. For the full year, revenues increased 16%, 16 points over vehicle production, reflecting the increased production of high-voltage electrified vehicles resulting in increased demand for both our low-voltage and high-voltage architecture solutions from traditional and emerging electric vehicle OEMs. Continued strong demand from engineered components for both automotive and non-automotive applications. We're perfectly positioned to support our customers globally, with an industry-leading portfolio of high-voltage distribution, connection, and cable management solutions, which has translated into a significant increase in new business awards for high-voltage solutions, including an award for Rivian for low-voltage content on the electrified R1S and R1T models, an extension of our 2019 award on these vehicles. An award for high-voltage vehicle architecture covering several next-generation Stellantis vehicles. An important win as more European platforms migrate to full-battery electric vehicles. High-voltage architecture awards with VW for additional IT models on their MEB platform, building off several high-voltage bookings on the MEB platform in 2020. Lastly, an award from a major North American OEM for a wireless charging solution launched on several of their vehicle platforms. These new business awards validate our leadership position in optimizing high-voltage power distribution for new vehicle architectures that deliver value for our customers. We continue to see an acceleration of powertrain electrification driven by both more stringent CO2 regulations and the increasing momentum for consumer acceptance. The fact that we have content in more than 50% of the battery electric vehicles launching over the next few years gives us confidence that we will continue to experience very strong revenue growth from our high-voltage electrification product line. Turning to Slide 8, as I mentioned in early January, we announced the agreement to acquire Wind River, a global leader in intelligent edge connected systems. This acquisition reflects our commitment to accelerating Aptiv's software strategy. Together, we'll be able to provide comprehensive edge-to-cloud software solutions spanning the full intelligence system lifecycle across multiple industries. Our complementary software offerings will create new growth and value creation opportunities for Aptiv and our customers through a cloud-native platform that enables the development, deployment, and operation of software across the full vehicle lifecycle. As smart vehicle architecture enables the evolution of vehicle architecture and advanced feature adoption across domains, Wind River's proven solutions for mission-critical applications will play a key role in enabling the software-defined vehicle. Slide 9 provides an overview of our software strategy. When we reach the tipping point in the automotive industry transition to the software-defined vehicle, consumers are demanding more advanced features for vehicle safety, comfort, and convenience. 5G and the cloud are creating opportunities to deliver vehicles that leverage connectivity and lower battery costs, accelerating the penetration of high-voltage electrification. All of this has enabled a significant increase in the amount of software content in the vehicle, growing from $30 billion today to $90 billion by 2030. OEMs are beginning to separate software from the underlying hardware, both tactically as a transition to smart vehicle architectures and in how they're sourcing new programs. After this enabling OEMs to accelerate their transition to electrified software-defined vehicles by employing a more holistic engineering and development approach to optimize the hardware, the software, and the system solution that spans the full vehicle stack. Our industry-leading position in developing high-performance, cost-optimized, automotive-grade hardware and deep software development capabilities deployed across millions of vehicles with multiple OEMs across the globe gives us confidence in our unique competitive position. The combined expertise and complementary technologies of Aptiv and Wind River, further augmented with TTTech's deterministic framework that enhances active safety software applications, are uniquely positioned to assist OEMs and cost-effectively accelerate the development and deployment of the software-defined vehicle. Our smart vehicle architecture solution optimizes the vehicle infrastructure while providing the necessary network redundancy and resiliency. Wind River's Studio cloud-native platform allows for the development, deployment, operation, and servicing of the vehicle software stack, shortening development cycles, speeding time to market, and enabling full lifecycle management. An open development environment allows for future adoption and development from multiple sources, including Aptiv's active safety and user experience software, as well as OEM developed software. In short, our strategy continues to be focused on accelerating the transition to the software-defined vehicle by offering a complete stack from high-performance hardware to cloud connectivity that enables value-added services. A software architecture that is open, scalable, containerized, easily upgradeable, and provides OEMs with flexibility to efficiently integrate their own as well as other software and feature developments. This can be continuously certified for safety-critical applications and provides full lifecycle management capabilities that enable attractive new business models. Moving to Slide 10, some of the advanced technologies we've discussed were on display at this year's CES event in Las Vegas. Outside the pavilion, we showcased a number of future-rich vehicles with Aptiv's vehicle architecture and Aptiv's safety and user experience content already onboard. Inside the pavilion, we featured a fully functioning smart vehicle architecture and continuous delivery platform. We hosted over 400 customers, both in-person and virtually, from over 50 companies, including 25 OEMs. This year's CES event provided our customers with the opportunity to validate Aptiv's full system portfolio, generating significant interest in the future-defining products that we continue to develop and deliver to OEMs. Moving to Slide 11, before I turn the call over to Joe, I wanted to comment on our outlook for 2022. As we've already discussed, we continue to face headwinds related to supply chain disruptions and material cost inflation. However, as we manage through these day-to-day challenges, we remain laser-focused on executing our strategy to build a more sustainable business and deliver lasting value creation, which has translated into market share gains, accelerated revenue growth, and increased underlying profitability driven by the development of advanced technologies that are accelerating the transition to electrified, software-defined vehicles. As I mentioned earlier, as a result of the confidence we have in our competitive position, we've increased our outlook for growth over market to eight to 10 points, further validated by recent strong revenue growth and new program awards. Our advanced technologies focused on Safe, Green, and Connected Megatrends are enabling market share and content gains, which will translate into margin expansion and earnings growth. Unfortunately, we expect supply chains to remain tight and disruptions to continue, but begin improving in the back half of this year. Inflationary effects, including rising material costs, are likely to be around for some time. We are managing our cost structure and working to recover the increase in material costs through various pricing, product redesign, sourcing, and footprint strategies. Our strategic focus and operating execution, as well as the current headwinds, are reflected in the full-year 2022 guidance that Joe will review with you shortly, which anticipates a continued expansion of our competitive moat that will leverage into increased new business bookings, accelerated revenue growth, and increased margins and cash flow generation. With that, I'll now turn the call over to Joe to talk through the numbers.

Thanks, Kevin. And good morning, everyone. Starting with a recap of the fourth-quarter financials on Slide 12. As Kevin highlighted earlier, the business drove strong growth over market while supporting our customers despite ongoing disruptions in the supply chain. Revenues of $4.1 billion were down 4% with 12 points of growth above underlying production. Adjusted EBITDA and operating income were $461 million and $273 million respectively, reflecting flow-through on lower volume as we lap the rapid second half recovery in 2020, partially offset by strong growth in our key product lines with new program launches in high-voltage, Aptiv's safety, and user experience. COVID and supply chain disruption costs of $85 million, which is a $15 million increase over Q4 2020, resulted in a net negative impact of approximately $80 million for material inflation and foreign exchange. Earnings per share in the quarter were $0.56, with the lower operating income levels being partially offset by favorable tax expense, including tax benefits related to the supply chain disruption costs. The equity income loss at Motional had a $0.21 negative impact. Lastly, operating cash flow was $669 million, including a positive contribution from working capital, partially offsetting the lower earnings level. Capital expenditures increased $86 million year-over-year to $181 million for the quarter reflecting the timing of investments ahead of major 2022 program launches. Looking at the fourth quarter revenues in more detail on Slide 13, we saw a strong double-digit growth over market in all regions and across both segments, reflecting the continued strength of our product lines despite lower vehicle production in the quarter and continued supply chain disruptions. FX and commodity movements were also a net favorable to revenue as compared to the prior period, largely due to copper price escalations. From a regional perspective, North America revenues were down 2%, representing 11 points of growth over market driven by favorable model mix as truck and SUV production continued to outperform passenger cars, and active safety. In Europe, we saw strong double-digit outgrowth of 11% as user experience launches offset a steep market decline from continued supply chain disruptions in the region. Lastly, in China, revenues reflected 17 points of growth over market resulted from new program launches in our Aptiv safety, high-voltage, and user experience businesses. The continued strong growth above market in the fourth quarter closed out a record year for Aptiv, as strong revenue outperformance and record bookings highlighted by Kevin continue to demonstrate the relevance of our core technologies. Moving to the segments on the next slide, Advanced Safety and User Experience revenues fell 1% in the quarter, which translates to 15 points of growth over underlying vehicle production. This includes growth in Active Safety, where revenues were up 7% despite the semiconductor supply shortages driven by program ramps in North America and Europe. User experience growth was down for the quarter due to the timing of program launches but up 5% for the full year. Segment EBITDA was down $82 million due to higher input costs. Inflation, and semiconductors and other inputs accounted for roughly $50 million of that decrease. Signal and Power Solutions revenues were down 6%, representing 10% growth over market. The market outperformance was driven by continued strength in our high-voltage product line, as well as strong performance in the engineered components product lines. Commercial vehicle and industrial revenue growth of 7% for the quarter, including strength in commercial vehicle, despite a flat market. EBITDA in the segment was down $135 million in the quarter on lower sales volume and higher supply chain disruption and material costs. Together, those two drivers accounted for roughly $70 million of the decrease. For our 2021 segment, our high-voltage product lines reported revenues of approximately $1 billion, achieving bookings of $3.5 billion, records on both fronts. In addition, high-voltage margins exceeded the segment average for the year. Turning now to Slide 15 in our 2022 macro environment. For 2022, we are expecting global vehicle production to increase 6% to approximately 83 million units on an active weighted production basis. We expect 2022 to start slowly as supply chain and COVID constraints continue to impact the industry. Accordingly, we see vehicle production as being roughly flat in the first half of the year. We see supply chain constraints easing as we move through the year, and we expect vehicle production to increase 15% in the second half. Looking at the regions, in North America, we expect overall production growth of 9% with a continued favorable truck and SUV mix. In Europe, we anticipate 10% overall production growth, a stronger recovery given the relatively greater European production disruption last year. China is expected to be down 1% for the year at approximately 25 million units. On Slide 16, you'll find our 2022 outlook for Aptiv. This current outlook excludes Wind River as the transaction is not expected to close until the third quarter of the year. As was the case in 2021, we will only be providing full-year 2022 guidance as supply chain disruptions continue to result in production scheduled volatility at our customers. We expect revenue in the range of $17.75 billion to $18.15 billion, up 15% from the midpoint compared to 2021. With global vehicle production expected to grow 6% for the full year, this translates to a nine points of growth above market in line with our updated 8% to 10% growth over market range. Consistent with prior forecasts, this range is multiyear and covers 2022 and 2023. ASUX growth over market of 19% is driven by the continued ramp of Active Safety and User Experience programs in Europe and North America, while SPS growth over market of 6% is driven by further penetration in our high-voltage and engineered components businesses. EBITDA and operating income are expected to be approximately $2.6 billion and $1.9 billion at the midpoint with margin expansion of profitable segments. Consistent with 2021, although our core product line profitability continues to be aligned with our expectations, we will incur meaningful costs related to COVID safety protocols, supply chain disruptions, and material inflation. COVID and supply chain disruption costs are estimated at $230 million, an improvement of $100 million over 2021. We expect the improvement to come in the second half of the year as supply chain disruptions lessen and we lap the heavily disrupted third quarter of 2021. We expect material inflation to increase approximately $200 million in 2022. While we continue to make progress in mitigating these costs, we expect these efforts to take until 2023, as we have noted in prior quarters. FX and commodities will have a negative impact of $60 million versus 2021, driven by copper pricing at $4.40 and our Euro rate of 1.14. As we discussed in our January 12 Wind River acquisition call, beginning in 2022, we will change our definition of adjusted EPS to exclude amortization. Annual amortization in 2022 is estimated to be $150 million. The appendix to this presentation includes a reconciliation highlighting the change, including the prior year. For 2022, we estimate adjusted earnings per share to be $4.35, an increase of 42% over the comparable adjusted 2021 totals. We expect 2022 operating cash flow of just over $2 billion, driven by the earnings increase in favorable working capital of roughly $400 million. Lastly, we estimate total CapEx to be approximately 5% of sales. Slide 17 includes the puts and takes for our 2022 revenue and EBITDA guidance as compared to 2021. Starting with revenue on the left, we've already discussed our expected industry recovery of approximately 6% for the full year. Our new growth over market framework of 8% to 10% has approximately $1.75 billion of additional revenues. We expect a slight headwind from FX and commodities and assume price downs of 2%. For adjusted EBITDA on the right-hand side of the slide, we expect to see the benefit of our flexible and scalable cost structure driving strong volume flow-through on higher revenues, partially offset by the impact of price downs. As noted, while COVID and supply chain disruption costs remain in 2022, we are expecting a year-over-year improvement of $100 million. FX and material inflation costs are a net headwind of approximately $265 million for the year, driven by rising semiconductor and resin prices, and unfavorable FX rates year-over-year. EBITDA totaled $2.6 billion at the midpoint, an increase of approximately 28% over 2021. Turning to Slide 18, we wanted to provide a few more details around Wind River, noting again that we expect the transaction to close later this year and the Wind River financials are not included in the 2022 guide. As we talked about in January, the Wind River product portfolio of intelligent edge operating systems and middleware has been a long-established leader in edge devices, requiring robust compute performance. In early 2021, the company introduced Wind River Studio, a software subscription offering that incorporates their core products, as well as the cloud-enabled tools for the development, deployment, and full lifecycle management of intelligent and software solutions targeted at multiple industries, including Telecom and Aerospace defense, as well as automotive. The studio has grown quickly and represented over 10% of revenues in 2021. In 2022, revenue will continue to accelerate, with top-line growth of 12% to 15%. Wind River studio is expected to represent 40% to 50% of the revenues by the 2024-2025 timeframe. The growth in studio driven by further penetration in key industries, including automotive, will help Wind River achieve approximately $1 billion dollars of revenue by 2026. As noted during our January call, the Wind River acquisition also brings financial benefits to Aptiv, including acceleration of ASUX revenues and reduced spending on third-party software. By Year 4 following the transaction, these benefits will equal an incremental $125 million of run-rate earnings for Aptiv.

With that, I'd like to hand the call back to Kevin for his closing remarks. Thanks, Joe. I'll now wrap up on Slide 19 before we open it up for questions. As we reflect on 2021 and are out for 2022, it's clear that our constant focus on innovation and flawless execution has positioned us to better support our customers and is resulting in a stronger competitive position, which we've converted into record new business bookings and revenue growth over market. While we expect near-term headwinds to persist through the better part of 2022, we remain confident in our operating execution, in our product portfolio aligned to the safe, green, and connected megatrends. I'm proud of the Aptiv team and all we accomplished during a challenging 2021, but I'm even more excited about what we'll deliver during 2022. We're well-positioned to continue to outperform as a purpose-driven company with a track record and strategy to deliver significant value for our customers, our employees, and our shareholders. Operator, let's open up the line for questions.

Thanks, everybody. And great details on the presentation. Kevin, I asked you this a few weeks ago, but I'll ask you again. Of your order book, your record order book, are you able to give us a sense of how much of it is coming from pure-play EV customers? Customers that really have never sold internal combustion cars versus, let's say, the legacy group that's making the transition. That's my first question. I got a follow-up.

Yeah. I think when you look at our mix on battery electric vehicles, and we look at the mix between legacy and the traditional OEMs, it includes some of those battery electric companies that have been around for a while. I'd say net-net about a third is with the newer battery electric vehicle companies and two-thirds with the traditional OEMs. As we move forward and look at growth, I think the mix stays roughly the same, maybe improves slightly as it relates to some of the traditional OEMs as they bring on their better electric vehicle models.

Great. And just a follow-up on China. Would love a little color on what you're seeing there. It seems like on the low end, the domestic Chinese players are making some really good cars, Kevin, like really high quality, more competitive in every way. And then on the higher end and on the EV side, the domestics are getting a lot more capable on the EVs and maybe to the extent, naming them, I quote, a premium. So I'm wondering if that's consistent with what you're seeing. Do you see the trends in terms of domestic competency versus that kind of incumbency of the foreign players changing and becoming a little more in play over the next few years? Are you seeing any evidence there in real time? Thanks, Kevin.

I would see, on the OEM side, domestic competency is certainly strengthened and improved over the last five plus years. I think as you talked about electrification, we've certainly seen an acceleration there when you look at our mix of bookings and our current revenues related to battery electric vehicles, the largest market we're serving today is Europe, the second largest is China, but China is certainly accelerating. The second area is in and around software and software-defined vehicles. We're seeing a tremendous acceleration in demand for what we're doing as it relates to smart vehicle architecture, both on the hardware side and software side. I mentioned in my prepared remarks the award that we received from Baidu related to a central vehicle controller on a vehicle that they're building with our joint venture partner that will launch in 2023. We also won an award with Great Wall Motors last year. So we're seeing tremendous acceleration in the overall China market when you consider the technology.

Thanks so much, guys. If I could ask maybe just specifically around the secular drivers within the good GOM guide of ADAS and EV high-voltage, specifically. You've sometimes given some broad ranges of what you're expecting. Could you talk about 2022 growth for EV and ADAS?

Yes, Chris. We will continue to see strong growth in high voltage at around a 40% rate. We also expect strong growth in Active Safety. While it’s becoming a larger product line and may not reach the historically high levels, there are still strong growth rates anticipated.

And then Joe, on the EV specifically, is it fair to say that some of the guidance we've given is, since some of the market growth we've seen has been better than expected, is that 40% in line with market growth? So if market growth is better, we can use that as a broad proxy that EV growth would also be better.

I think if EV growth is stronger, that number should be stronger as well, right? As Kevin mentioned, we're involved in 50% of the launches. We've obviously got some take-rate assumptions built on initial estimates. So we've seen, and I think you see that to some extent in the bookings number as well. Bookings came in at $3.5 billion, obviously stronger than we were initially thinking. So I think that's a fair way to think about it.

And then the last one, because it is related to the 8% to 10% multiyear outlook. It's great to hear that up from the old six to eight. Is it fair that a lot of the growth is ADAS and EV? The numbers have been coming in better than expected. The orders have been better than expected, but that's all pre-Wind River, right? If we start, we'll get more multi-year outlooks. But your growth over market, including the acquisition could actually be a point above that, just looking at Wind River in the high-level growth over the next three to four years.

Yeah. The guidance there is completely separate at this point, right? Just given we haven't closed the deal yet. The Wind River numbers are separate. As we talked about on the January call, there's good growth coming from that studio product. We see that continuing and being the growth driver there. That would obviously be incremental to what we've talked about in the 8% to 10%. That does not include Wind River.

Hi, everybody.

Good morning Rod. Hey Rod?

Kevin, during your prepared remarks, you mentioned strong underlying profitability improvement. I'm looking at the midpoint of your 2022 guidance with an EBITDA margin of 10.5%. Between 2014 and '18, you were doing 12% to 13% margins pretty routinely, and I get that inefficiencies and premium freight and input costs may have been a drag here between '21 and '22. But could you talk a little bit about what you're targeting over the next couple of years, and how you get there because I don't see much difference on the pricing side, at least in your near-term forecast?

That's a great question. Listen, as you think about the environment that we've been operating in over the last two years, we've seen steady challenges related to COVID safety protocols and the level of supply chain disruption that has resulted in inefficiency in the supply chain. The numbers are significant, just as you said, they're massive, and that's something that we're continuing to work through. What we've made progress on during 2021, we’ll continue to make progress on through 2022. Underneath that, when you look at how we're operating from a manufacturing performance standpoint, separating those periods where we're dealing with volatility in production, we can highlight what we're doing from an engineering productivity standpoint and our S G&A productivity. You'll see significant progress. We’re also investing in advanced development programs in and around smart vehicle architecture, both hardware and software. That's translated into a significant competitive position which gives us ample opportunity as we look out into the future.

Can you just remind us what mid-decade margin targets look like? And just my second question is nice to see the bookings. I was hoping you can maybe drill down into the Active Safety. That $2.8 billion of bookings, how does that compare versus the past couple of years? And are you seeing any changes to the nature of what you're winning? Our automakers or even your partner, they're taking on different responsibilities and you taking on different responsibilities. Is that something that we should be cognizant of in any way?

Sure. The bookings this year, $2.8 billion, it's not our highest year from an overall active safety booking standpoint. I think our record year was close to $4 billion reflecting the wins on our initial satellite architecture programs across five OEMs that are currently rolling out across those OEMs. There's a whole next-generation of advanced ADAS solutions that we'll be pursuing during 2022 and 2023, as we continue to enhance our active safety platform as it relates to our competitive position. Our perspective is it's actually strengthening. Aptiv safety, as you know, is an important feature for our OEM customers. The market today, 60% of the vehicles being introduced on the road today have Aptiv safety systems, but this leaves a significant portion that will be adopting Aptiv safety over the next several years. So there's significant market growth opportunity and penetration opportunity. The fastest growth areas are around L2 and L2+, which is where we're strongly positioned from a competency standpoint, given our overall platform and our capabilities. As it relates to OEMs, I would say, Rod, it's all over the map. We have OEMs where we're doing the full platform for them, all the future development, the hardware, the software, the sensor fusion, and the integration. We have other OEMs where we're integrating their solution into our platform. We want to provide our OEM customers with the flexibility to do that. In a fast-growing market such as this, it attracts attention. There are players trying to enter the market, but we have business with over 20 OEMs globally, which gives us the capacity to deliver cost-effective solutions.

Rod, it's Joe. Just on the mid-decade margin targets, obviously, we're still very much focused on the targets we laid out in 2019. There are challenges with the disruption and the inflation costs. So it's a question of how long it takes to reintegrate those margins and we will have a Capital Markets day in the second half of this year and we’ll be updating our long-term view then.

Thanks. Good morning. Joe, I want to revisit some factors in the 2022 outlook. The $200 million performance you mentioned seems to primarily counterbalance the 2% price reductions you've been experiencing. Throughout 2021, you pointed out various inefficiencies along with plans for unpredictable schedules and increased logistics costs. Therefore, I'm somewhat surprised that performance figure isn't higher. Are you considering that some of this scheduled volatility persists, or is part of it included in the supply chain cost category? Perhaps you could clarify that for me.

Yeah, that's a good question, Joe. The bulk of that was the disruption costs shutting down plants. So we've assumed obviously some of that stays. Schedule in the first half of the year starts with smooth schedules. We actually had a little bit of disruption in January at the end of the month that we knew was coming. But that performance improvement is included in that $100 million. We took that out of performance just to be able to keep the two buckets that we've outlined; the COVID and supply chain disruption bucket, and the inflation buckets. We wanted to maintain those into 2022 just to give visibility on what's happening.

And just on the pricing, can you talk about the conversations you're having with automakers and the ability to recover or price for some of those inflationary headwinds?

Yes, we're in conversations with several OEMs and making good progress, but it's an ongoing situation. By and large, the OEM community recognizes the supply chain challenges and the costs suppliers have incurred in keeping them connected. We've made decisions in the past to do our best to support our OEM customers in building cars, which has resulted in incremental costs, and most of the OEMs we've been negotiating with have appreciated that.

Okay, thank you. Maybe just one quick one. I noticed in the guidance that the equity loss picks up, and that makes sense as I think you're getting closer or they're getting closer to commercialization or launch. Can you just update us on the capitalization and funding there? Because I think when Hyundai put in $1.6 billion. Based on this run rate, it seems like maybe around 23 or 24 there could be capital requirements, but maybe you could just give us an update there on your thinking.

Yeah, we were thinking from a full-year perspective, Joe. It really hasn't changed. When we did the deal, we had cash through 2024. They still have cash through 2024. Obviously, this may pull them up a couple of quarters, but that multiyear funding is still in place as we talked about in March of 2020. The next couple of years are fully funded and we'll be working with Hyundai and the Motional team on steps ahead.

They're making really good progress and they're starting to commercialize, so the activity is increasing.

Good morning, guys. I just wanted to follow-up on those questions around pricing. The reality is you guys are bringing a lot of technology to the table and helping your automakers advance their products, which they can price for. But at the same time, you're getting squeezed on cost inflation with raws and labor. And they're able to pass this through and offset it through retail pricing but they're not really helping you guys out here. So I'm just curious as these discussions move forward if there is anything changing in the pricing dynamic with customers? Because it seems like they need you more than ever. But right now, they're making out pretty well from the pricing, but you seem to be getting stuck in the middle.

I understand your point, John. It's a challenging environment. However, I would say in this particular case, there is a fair amount of recognition and collaboration between most OEMs and the supply base. Some are more challenging, and we're working through those. There are various levers we have in terms of ensuring we get compensated as it relates to incremental costs that are above what we normally incur. The OEMs we’re negotiating with have largely appreciated that we support them in launching key programs.

Yeah, that makes a lot of sense. Just two housekeeping real quick. The bookings of $24 billion, what kind of volume assumptions are going into that? Are they around $85 million or $100 million? We're trying to think about how you consider the backdrop of volume related to that bookings number?

For our revenue forecast, we obviously use customer schedules and such. But for bookings, we always use IHS when the bookings are struck. So there’s no momentary subjectivity in quantifying the bookings. We always use IHS.

So if anything, the long-term value of those might be undercut by some of the near-term pressures. Is that a fair statement?

They will flex with vehicle production. I think we've historically gotten to a point where we’re comfortable they wash out from a bookings perspective as it gets time for revenue. It's close enough.

And I just wanted to follow-up, I'm sorry. The CES, Kevin, you mentioned you had 50 companies run through the booth, 25 were automakers or OEMs, who were the other 25? Were they supplier partners, TTTech Companies, a lot of big fish looking to make acquisitions here? I'm just curious who else came through.

I would say 50 parties came through the booth, with 25 being automakers or OEMs, some attending in person and others virtually. I want to clarify that a lot of them participated online. There was significant interest from OEMs in both our SPS and ASUX business sectors, particularly concerning vehicle architectures and Advanced Safety and User Experience, along with several of our supplier partners or potential supplier partners.

Thank you. Just want to follow up on your comments on Wind River and the opportunities in the software stack that it opens. I guess two questions. First, Wind River under Intel, it doubled in value, but some of the feedback from the semi-community was that Wind River was kind of lackluster. I'm aware TPG brought in new management, but first question is, can you give us a sense of their momentum coming into the acquisition? And then the second question is, RTOS was needed in some ADAS applications, but some questions we've been getting is that so far down the stack that it really doesn't get you much in terms of discussions around application software. So you can talk about that?

That's a great question. As it relates to Wind River, there was history there where it was a sleepy company. Under TPG ownership, they refreshed the management team and brought in a strong present CEO with contemporary software capabilities. We had the opportunity to work with the team on a tech roadmap we could take from industries like telecommunications, aerospace, and defense that have faced similar challenges to automotive today. We had a chance to effectively test-drive as part of our commercial negotiations. They have experience as it relates to in-device software and legacy approaches but come with the benefit of having developed contemporary approaches. It's not just about in-device software. It’s also about off-device platforming providing customers the ability to develop, deploy, operate, and service the vehicle over its life cycle versus the traditional one-and-done approach.

Brian, it's Joe. Just on the numbers, it's true that the business languished under Intel, but it has been growing over the last couple of years and that growth is accelerating. The Studio product, which is containerized RTOS and middleware, was launched in Q1 of 2021, and represented over 10% of the business. For 2022, we expect top-line growth of 12% to 15%.

As a follow-up, you mentioned the calls you are receiving. Many OEMs are building substantial software organizations and often bringing in leaders from outside the automotive sector to manage these teams. Are you engaging with those senior management levels? You don’t need to mention names, but I’m thinking of someone at the level of Doug Field at Ford who is leading the software groups.

Yes, our engagements are at very, very senior levels within the OEMs.

Hey, good morning, guys. Thanks for squeezing me in. The next-gen driver monitoring platform launches you noted. Are you finding that you're winning the active safety platforms attached to DMS as well? We're just curious if there's correlation in some OEM bias to consolidate there. Is there a way to think about DMS content per vehicle opportunity for you?

Yes. When you think about the DMS, it's historically fallen into a User Experience category, but as you've seen more advanced Active Safety programs introduced to the market, you've seen demand increase for more advanced in-cabin sensing. So there's been an increase in demand for driver monitoring integrated into the Active Safety system.

The market is decent-sized today and is one of the fastest-growing markets that we operate in. The content per vehicle for this type of stuff varies but is significant.

Yes, the market’s decent size today and is one of the fastest-growing markets we operate in. I don't have the specific numbers, but it certainly is meaningful. That particular program is on vehicle. It's both hardware as well as software. We provide charge couplers and other things that are off the vehicle, but not in this particular case.