Aptiv PLC — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Aptiv is a global automotive technology and mobility architecture supplier, operating through Signal and Power Solutions and Advanced Safety and User Experience.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $3.654B | $3.668B | $11.484B | $8.854B |
| Gross margin | $516M; 14.1% | $647M; 17.6% | $1.845B; 16.1% | $1.161B; 13.1% |
| Operating income | $215M | $364M | $929M | $1.672B |
| Net income attributable to Aptiv | $101M | $299M | $559M | $1.505B |
| Diluted EPS attributable to ordinary shareholders | $0.32 | $1.05 | $1.89 | $5.63 |
- Cash flow: Nine-month operating cash flow was $553M, versus $614M. Investing cash outflow was $470M, including $430M of capital expenditures; financing cash outflow was $128M.
- Cash, debt and liquidity: At September 30, cash and cash equivalents were $2.741B and total debt was $4.008B; management reported net debt of $1.3B. Available liquidity was $5.267B, including a fully undrawn $2B revolving facility. Aptiv reported compliance with debt covenants.
- Working capital: Inventory rose to $2.119B from $1.297B at year-end 2020, principally as Aptiv carried components and materials amid supply disruptions. Current liabilities were $3.834B versus current assets of $8.104B.
- Segments: Q3 sales were $2.705B in Signal and Power Solutions and $959M in Advanced Safety and User Experience. Adjusted operating income was $199M and $20M, respectively, compared with $322M and $67M a year earlier.
Changes versus the prior comparable period
- Q3 sales were nearly flat year over year, while Aptiv’s volumes declined 4%; the company cited a 20% decline in global automotive production and continuing supply constraints. Favorable foreign exchange and commodity pass-through largely offset lower volume in sales.
- Q3 gross margin fell 3.5 percentage points and operating income declined $149M. Aptiv cited semiconductor and commodity cost inflation, logistics costs and other supply-chain inefficiencies. Management estimated supply-chain disruption impacts at approximately $70M for Q3 and $180M for the first nine months.
- Nine-month sales increased 30%, with volumes up 25%, in part because the 2020 comparison period was depressed by pandemic-related shutdowns. Nine-month operating income and net income were substantially lower than in 2020, which included a $1.434B gain from forming the Motional autonomous-driving joint venture. The 2021 period also included a larger equity-method loss, primarily from Motional: $146M for nine months versus $40M.
- Nine-month gross margin improved to 16.1% from 13.1%, but the comparison reflects the unusual pandemic-affected 2020 period. Q3 margin and segment adjusted operating income weakened year over year.
Outlook, commentary and risks
- Management anticipated that global supply-chain disruptions, including the semiconductor shortage, would persist into 2022. It expected global vehicle production to be flat for full-year 2021, despite year-to-date production recovery, and warned that disruption costs and operating inefficiencies could pressure revenue, operating income and earnings.
- Aptiv said existing cash, liquidity and operating cash flow were expected to be sufficient for operations, restructuring, capital expenditures, debt service and preferred dividends. The filing provides no specific earnings or revenue guidance.
- Customers indicated Aptiv might bear some responsibility for lost production and related costs caused by disruptions. Aptiv said a loss was not currently considered probable and recorded no reserve for these potential claims.
- Brazil claims totaled approximately $100M, with $20M accrued; reasonably possible losses above accruals were estimated at zero to $80M. Warranty reserves were $46M, with reasonably possible additional exposure estimated at zero to $10M. Ordinary litigation outcomes were not expected to materially affect the company, according to management.
- Aptiv expected about $50M in restructuring cash payments over the next 12 months and approximately $15M of additional costs for approved programs, primarily in Signal and Power Solutions. It continued to invest in advanced safety, connectivity and autonomous-driving technologies; Motional anticipated a production-ready platform for prototype-scale testing in 2022 and higher-volume deployment in 2023.
- Other risks discussed include automotive cyclicality, COVID-19 impacts, commodity and semiconductor price volatility, customer pricing pressure, foreign exchange, recalls, and the uncertain adoption, cost and regulation of emerging vehicle technologies.
Most important facts for investors to verify
- Whether semiconductor availability and related logistics costs improve as expected, and how they affect production, margins and the elevated inventory balance.
- Whether customers pursue claims for disruption-related costs, and whether Aptiv’s assessment that no loss is probable changes.
- How much of the nine-month year-over-year earnings comparison reflects the 2020 Motional gain and pandemic-affected base, versus current operating performance.
- Motional’s continuing equity-method losses and progress toward its stated commercialization milestones.
- Liquidity and covenant headroom, restructuring cash requirements, and the potential $0–$80M reasonably possible Brazil loss above recorded accruals.