Aptiv PLC — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparison is with the corresponding 2021 periods. Aptiv supplies automotive electrical architecture, safety, connectivity and software technologies through Signal and Power Solutions and Advanced Safety and User Experience.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $4.614 billion | $3.654 billion | $12.849 billion | $11.484 billion |
| Gross margin | $793 million; 17.2% | $516 million; 14.1% | $1.822 billion; 14.2% | $1.845 billion; 16.1% |
| Operating income | $470 million | $215 million | $823 million | $929 million |
| Net income attributable to Aptiv | $301 million | $101 million | $345 million | $559 million |
| Net income attributable to ordinary shareholders | $286 million; diluted EPS $1.05 | $86 million; diluted EPS $0.32 | $298 million; diluted EPS $1.10 | $512 million; diluted EPS $1.89 |
- Q3 sales increased 26%; Aptiv reported volume growth of 29%, versus 27% growth in global automotive production. Price recoveries helped, while foreign exchange reduced sales by $217 million.
- For the first nine months, sales increased 12%, but operating income fell 11%. Higher volume and price recoveries were offset by elevated semiconductor, commodity and logistics costs, restructuring and Russia-related charges.
- Q3 operating margin was approximately 10.2%, versus 5.9% a year earlier; nine-month operating margin was approximately 6.4%, versus 8.1%. Q3 adjusted operating income, a company-defined non-GAAP measure, was $525 million versus $256 million; nine-month adjusted operating income was $1.062 billion versus $1.068 billion. Aptiv changed this measure’s definition in 2022 to exclude intangible amortization and revised prior-period presentation.
- Nine-month equity-method losses were $202 million versus $146 million, primarily reflecting Motional, Aptiv’s 50%-owned autonomous-driving joint venture. Motional reported a $419 million net loss for the period.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $330 million, down from $553 million. Capital expenditures were $666 million, implying cash flow after capital expenditures of negative $336 million.
- Cash and cash equivalents were $4.850 billion at September 30, 2022. Total debt was $6.352 billion, including $6.336 billion of long-term debt; reported net debt was approximately $1.5 billion.
- Available liquidity was $7.288 billion, including cash, an undrawn $2.0 billion revolving credit facility and $438 million available under a committed European receivables-factoring facility. The company reported compliance with debt covenants and no revolving-credit borrowings.
- Debt increased from $4.067 billion at year-end 2021. Aptiv issued $2.5 billion of senior notes in February 2022; proceeds were intended to fund part of the proposed Wind River acquisition. Interest expense rose to $157 million for the nine-month period from $114 million.
- Cash from financing activities was $2.376 billion, largely reflecting the note issuance. Investing activities used $913 million, including $666 million of capital expenditures and $220 million for acquisitions and other transactions.
Material changes, outlook and risks
- Operating environment: Management said semiconductor and broader supply-chain disruptions were expected to continue into 2023. Inflation, volatile commodity and semiconductor costs, customer production changes and foreign-exchange movements remain pressures. Aptiv is pursuing customer price recoveries and cost and footprint adjustments.
- COVID-19 and production: China lockdowns adversely affected first-half 2022 revenue by an estimated $210 million. The duration and potential recurrence of disruptions remain uncertain.
- Russia and Ukraine: Aptiv recorded a $51 million pre-tax impairment as it planned to exit its majority-owned Russian subsidiary, classified as held for sale at quarter-end. Ukraine-related asset impairments and other charges were also recorded. The conflict creates ongoing sanctions, supply, logistics, energy and geopolitical risks.
- Restructuring: Nine-month charges were $52 million, versus $21 million. Aptiv expected about $50 million of additional costs for approved programs, primarily within the next 12 months; MD&A also cited approximately $45 million of cash payments over the next 12 months for currently implemented programs.
- Acquisitions: The proposed $4.3 billion Wind River purchase remained subject to approvals, with closing targeted in 2022. Aptiv also agreed to acquire 85% of Intercable Automotive for €595 million, targeting a fourth-quarter 2022 close. Aptiv expected to fund Intercable with cash on hand and Wind River primarily with cash, including note proceeds.
- Liquidity outlook: Management expected cash, available liquidity and operating cash flows to remain sufficient for operations, restructuring, preferred dividends and capital spending, while also supporting the planned acquisitions.
- Contingencies: Brazil claims totaled approximately $100 million; Aptiv had accrued $20 million and estimated reasonably possible losses above accruals of zero to $80 million. No reserve was recorded for potential customer claims relating to supply-chain-driven lost production because management did not consider a loss probable. Warranty losses in excess of reserves were estimated at zero to $10 million.
- Other notable items: Aptiv’s $4.3 billion Wind River financing included mandatory redemption provisions for specified notes if the acquisition did not close by July 10, 2023 or the agreement was terminated. The 5.50% mandatory convertible preferred shares are scheduled to convert on June 15, 2023. No ordinary shares were repurchased in the quarter.
Important facts for investors to verify
- Whether automotive production and semiconductor supply recover as anticipated, and whether Aptiv can sustain customer price recoveries against input-cost inflation.
- Cash conversion and working-capital trends: receivables and inventories increased, while nine-month operating cash flow declined.
- Final cost, funding and integration implications of the Wind River and Intercable transactions, including Wind River’s note-redemption terms.
- Future Motional losses and their effect on equity-method earnings, alongside the timing and commercial prospects of autonomous-driving programs.
- Potential additional Russia/Ukraine costs, Brazil claim outcomes and any customer claims tied to supply disruptions.
- The effect of preferred-share conversion on ordinary-share count and per-share results in June 2023.