Aptiv PLC — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; compared with the corresponding 2022 periods. Aptiv supplies automotive electrical architecture, safety, connectivity and software products and services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $5.114B | $4.614B | $15.132B | $12.849B |
| Gross margin | $893M; 17.5% | $793M; 17.2% | $2.517B; 16.6% | $1.822B; 14.2% |
| Operating income | $446M | $470M | $1.204B | $823M |
| Adjusted operating income | $560M | $525M | $1.527B | $1.062B |
| Net income attributable to Aptiv | $1.629B | $301M | $2.033B | $345M |
| Diluted EPS | $5.76 | $1.05 | $7.17 | $1.10 |
- Q3 sales rose 11%; nine-month sales rose 18%. Aptiv reported Q3 volume growth of 6% and nine-month growth of 13%. Acquisitions contributed $153M and $507M to sales, respectively; nine-month sales also faced $147M of unfavorable foreign-exchange effects.
- Q3 operating income declined despite higher sales, while gross margin improved modestly. Nine-month gross margin and adjusted operating income improved substantially year over year.
- Reported earnings were dominated by tax benefits: income tax benefit was $1.312B in Q3 and $1.248B for nine months, principally reflecting net discrete benefits of $1.386B and $1.411B, respectively, related mainly to actual and anticipated intra-company intellectual-property transfers and a Swiss tax incentive. These benefits are unusual and are not a measure of underlying operating performance.
- Equity-method losses were $72M in Q3 and $227M for nine months, primarily reflecting Aptiv’s share of Motional’s losses.
Cash, debt and liquidity
- Nine-month operating cash flow was $1.272B, versus $330M in 2022. Capital expenditures were $703M, resulting in operating cash flow less capital expenditures of approximately $569M, compared with negative $336M in the prior-year period.
- Cash and cash equivalents were $1.808B at September 30. Total debt was $6.462B and net debt was approximately $4.7B. Available liquidity was $4.281B, including cash, an undrawn $2B revolver and available European receivables factoring capacity.
- Long-term debt was $6.419B; the company reported covenant compliance. The $301M Tranche A Term Loan was repaid with cash on October 27, 2023, after quarter-end.
- Cash flow includes a significant noncash deferred-tax adjustment: deferred income taxes reduced operating cash flow reconciliation by $1.408B, primarily related to the tax benefits described above.
Material changes and business developments
- Growth reflected higher production and volumes, favorable pricing, and the contributions of Wind River and Intercable Automotive, acquired in late 2022. Hӧhle Ltd. was acquired in April 2023 for $42M.
- Signal and Power Solutions nine-month sales were $10.830B and adjusted operating income was $1.217B. Advanced Safety and User Experience sales were $4.339B and adjusted operating income was $310M; its year-over-year improvement includes the Wind River acquisition.
- Mandatory convertible preferred shares converted into approximately 12.37M ordinary shares in June 2023. Aptiv repurchased $98M of ordinary shares during the first nine months; none were repurchased in Q3.
- Aptiv completed the sale of its Russian subsidiary in May 2023 for a nominal amount, with no incremental gain or loss recorded in the sale period.
Outlook, risks and unusual items
- Management said available cash, liquidity and operating cash flows are expected to be sufficient for operations, restructuring and capital expenditures. The filing provides no specific full-year earnings or revenue guidance.
- Aptiv anticipated global supply-chain disruptions, including semiconductor constraints, could continue through the remainder of 2023. It reported elevated productive, raw-material and component inventories amid customer production volatility.
- Management estimated UAW-related work stoppages could reduce 2023 revenue by approximately $180M, assuming no further impacts after October; tentative agreements remained subject to ratification when the filing was prepared.
- Restructuring charges were $81M for nine months, including $27M related to initiating closure of a Western European manufacturing site. Aptiv expected approximately $45M of additional charges for programs approved as of September 30, and approximately $55M of cash restructuring payments over the next twelve months.
- Customers had indicated they may seek compensation for production losses linked to supply disruptions. Aptiv said a loss was not considered probable and recorded no reserve. Warranty reserves were $59M; reasonably possible additional resolution costs were estimated at up to $20M.
- Other risks include automotive production cycles, inflation and input costs, foreign exchange, geopolitical and trade developments, customer concentration, product recalls, and the cost, timing and adoption of advanced safety and autonomous-driving technologies. The company also noted that proposed Swiss tax legislation could produce an additional approximately $360M deferred tax benefit if enacted.
Most important facts for investors to verify
- How much of reported earnings and cash-flow improvement is attributable to nonrecurring tax benefits versus operating performance, and the future tax effects of the IP transfers and Swiss incentive.
- The duration and financial impact of supply constraints, elevated inventory, customer claims and UAW-related production interruptions.
- Whether segment margin gains persist after acquisition effects, input-cost inflation, foreign exchange and restructuring costs.
- Motional’s continuing losses and the expected funding requirements and commercial progress of autonomous-driving programs.
- Debt repayment and liquidity after the October 27 term-loan payoff, covenant headroom, and planned restructuring cash outlays.