Aptiv PLC — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited U.S. GAAP financial statements. Aptiv supplies vehicle electrical architecture, safety, connectivity and related technology through Signal and Power Solutions and Advanced Safety and User Experience.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $4.023 billion | $3.226 billion |
| Gross margin | $727 million; 18.1% | $501 million; 15.5% |
| Operating income | $429 million | $1.619 billion |
| Adjusted operating income* | $437 million | $231 million |
| Net income attributable to Aptiv | $295 million | $1.572 billion |
| Net income attributable to ordinary shareholders | $279 million | $1.572 billion |
| Diluted EPS | $1.03 | $6.14 |
| Operating cash flow | $252 million | $161 million |
| Capital expenditures | $134 million | $205 million |
*Company-defined segment measure; not a GAAP measure. Operating cash flow less capital expenditures was approximately $118 million, versus approximately negative $44 million in Q1 2020.
Business changes and segment results
- Sales increased 25%; Aptiv reported a 21% increase in overall volumes, with an additional $122 million favorable foreign-exchange impact. Growth reflects stronger vehicle production and comparison with pandemic-affected Q1 2020, particularly in China.
- Signal and Power Solutions sales were $3.022 billion, up from $2.330 billion; adjusted operating income was $371 million versus $225 million. Advanced Safety and User Experience sales were $1.011 billion, up from $902 million; adjusted operating income was $66 million versus $6 million.
- Gross margin improved to 18.1% from 15.5%. The filing attributes the increase chiefly to volume and operational performance, while citing about $45 million in supply-chain disruption costs, including semiconductor shortages.
- Q1 2020 results included a $1.434 billion pretax gain from forming the Motional autonomous-driving joint venture with Hyundai. That one-time item largely explains why reported operating income, net income and EPS were much higher in the prior-year quarter. In Q1 2021, Aptiv recorded a $45 million equity-method loss from Motional.
Liquidity, debt and capital
- Cash and cash equivalents were $2.830 billion; total debt was $4.024 billion, including $78 million current debt. Management reported net debt of approximately $1.2 billion.
- Available liquidity was $5.359 billion, including $2.0 billion of undrawn revolving credit capacity and an undrawn €450 million receivables factoring facility, subject to eligible receivables.
- Cash and cash equivalents plus restricted cash increased to $2.882 billion from $2.853 billion at year-end 2020. The company used $134 million in investing activities and $77 million in financing activities during the quarter.
- Aptiv reported compliance with debt covenants. The credit agreement’s temporary leverage covenant is 4.5:1 through July 1, 2021, versus the usual 3.5:1, and restricts ordinary-share dividends and repurchases during the relief period.
Outlook, risks and unusual items
- Management said global vehicle production had risen year over year in Q1 and anticipated modest growth for full-year 2021. The filing does not provide a clear company-specific revenue or earnings guidance range.
- Aptiv expected global supply-chain disruptions, especially the semiconductor shortage, to persist through much of the remainder of 2021. Fires at suppliers and severe weather also affected supply; the company said customers had raised potential claims over lost production, but no loss was considered probable and no reserve was recorded as of March 31.
- Management stated that cash, available liquidity and operating cash flows were expected to fund operations, restructuring, preferred dividends and capital expenditures. Ordinary-share dividends and repurchases remained suspended.
- Approved restructuring programs were expected to incur about $30 million of additional charges, primarily within 12 months; expected restructuring cash payments were about $60 million over the next 12 months.
- Brazil claims totaled approximately $95 million; Aptiv had accrued $20 million and estimated possible additional loss of zero to $75 million. Warranty reserves were $56 million, with reasonably possible additional exposure estimated at zero to $10 million. Ordinary-course litigation was not expected by management to materially affect results.
- Other notable items: mandatory convertible preferred shares carry a 5.50% annual dividend and are scheduled to convert in June 2023; Aptiv acquired Ulti-Mate Connector for approximately $45 million on April 30, 2021, after quarter-end.
Most important facts for investors to verify
- Whether semiconductor and other supply constraints persist as anticipated and materially limit customer production or create claims against Aptiv.
- Underlying earnings trends excluding the $1.434 billion Motional formation gain in Q1 2020, including segment margins and the Motional equity loss.
- Liquidity and covenant headroom as the temporary covenant relief period ends, including debt maturities and availability under committed facilities.
- Whether restructuring spending, warranty and Brazil litigation exposures remain within disclosed estimates.
- Potential ordinary-share dilution and cash dividend requirements from the mandatory convertible preferred shares.