Aptiv PLC — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are to the same periods in 2022. Aptiv supplies automotive electrical architecture, vehicle technology, safety, connectivity and software solutions.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $5.200 billion | $4.057 billion | $10.018 billion | $8.235 billion |
| Gross margin | $864 million; 16.6% | $440 million; 10.8% | $1.624 billion; 16.2% | $1.029 billion; 12.5% |
| Operating income | $410 million | $97 million | $758 million | $353 million |
| Net income attributable to Aptiv | $242 million | Loss of $45 million | $404 million | $44 million |
| Net income attributable to ordinary shareholders; diluted EPS | $229 million; $0.84 | Loss of $61 million; loss of $0.23 | $375 million; $1.38 | $12 million; $0.04 |
Quarterly sales increased 28%; first-half sales increased 22%. Management attributed growth to higher volumes across regions, favorable pricing and acquisitions. Volumes rose 22% in Q2 and 17% in the first half; acquisitions contributed $176 million and $354 million of sales, respectively. Foreign exchange was unfavorable by $40 million in Q2 and $168 million in the first half. Aptiv reported favorable pricing, net of contractual price reductions, of $138 million and $256 million, respectively.
Q2 operating margin was approximately 7.9%, compared with 2.4% a year earlier; first-half operating margin was approximately 7.6%, compared with 4.3%. Segment adjusted operating income, a non-GAAP management measure, was $530 million in Q2 and $967 million in the first half, versus $213 million and $537 million. Both segments improved; Advanced Safety and User Experience shifted from an adjusted operating loss to income.
Equity-method losses were $73 million in Q2 and $155 million in the first half, primarily reflecting Motional, Aptiv’s autonomous-driving joint venture. First-half interest expense increased to $139 million from $99 million, reflecting the 2022 notes issuance and higher rates on the term loan. The Q2 effective tax rate was 9% and the first-half rate 10%; results included discrete tax benefits of approximately $22 million and $25 million, respectively.
Cash flow, debt and liquidity
- First-half operating cash flow was $526 million, versus cash use of $107 million in 2022. Working-capital movements remained a significant use of cash.
- Capital expenditures were $491 million, compared with $454 million. Operating cash flow less capital expenditures was approximately $35 million, a simple derived measure, versus approximately negative $561 million in the prior period.
- Investing cash use was $590 million; financing cash use was $181 million. Financing uses included $98 million of share repurchases and $32 million of preferred-share dividends.
- Cash and cash equivalents were $1.302 billion at June 30, down from $1.531 billion at December 31, 2022. Debt was $6.513 billion, including $6.476 billion long term; net debt was approximately $5.2 billion.
- Available liquidity was $3.793 billion, including cash, an undrawn $2.0 billion revolving credit facility and an undrawn European receivables factoring facility, subject to eligible receivables. Aptiv reported compliance with debt covenants and no revolving-credit borrowings.
Material changes and notable items
- Wind River, acquired in December 2022, and Intercable Automotive, acquired in November 2022, added sales and costs; Aptiv acquired microduct maker Hohle for $42 million in April 2023.
- All mandatory convertible preferred shares converted on June 15, 2023 into approximately 12.37 million ordinary shares, ending the preferred dividend obligation. Aptiv had 282.8 million ordinary shares outstanding at June 30.
- Aptiv restarted its share repurchase program in February 2023 and repurchased $98 million of shares in the first half; approximately $1.915 billion remained authorized at June 30.
- Restructuring charges were $42 million in Q2 and $53 million in the first half, including $27 million related to initiating closure of a Western European manufacturing site. Management expected about $20 million of additional charges for approved programs and approximately $45 million of restructuring cash payments over the next 12 months.
- Aptiv completed the sale of its Russian subsidiary in May 2023 for a nominal amount, with no incremental gain or loss. The prior-year comparison included a $51 million impairment charge related to that exit.
Outlook, risks and contingencies
- The filing provides no specific full-year revenue or earnings guidance. Management expected global supply-chain disruptions, including semiconductor shortages, to continue throughout 2023 and said existing cash, liquidity and operating cash flows were expected to fund operations, restructuring and capital expenditures.
- Management cited automotive production cyclicality, inflation and commodity costs, foreign exchange, customer pricing pressure, supply interruptions and potential customer claims for lost production. Aptiv said such supply-chain claims were not considered probable and recorded no reserve as of June 30.
- Several major customers’ U.S., Canadian and Mexican labor agreements were due to expire in the third quarter of 2023; negotiations could lead to strikes or production disruptions.
- Warranty reserves were $62 million; the reasonably possible amount to resolve claims above recorded reserves was estimated at zero to $20 million. Environmental reserves were approximately $4 million. Aptiv stated ordinary litigation was not expected to materially affect its financial position, results or cash flows.
- Motional reported a first-half net loss of $310 million. Aptiv noted that initial production deployments of Motional’s autonomous-driving platform were anticipated in Q4 2023; timing, adoption, development costs and competition remain uncertain.
- Other risks include geopolitical developments and sanctions, trade restrictions, tax-law changes, integration of acquisitions and execution of advanced vehicle technology programs. Aptiv reported no material change in its risk factors or market-risk disclosures.
Important facts for investors to verify
- Whether the improvement in margins and earnings is sustained as volume, pricing, commodity costs and supply-chain conditions change.
- How much of sales and profit growth comes from organic volume and pricing versus acquisitions, and the acquired businesses’ ongoing contribution and integration costs.
- Cash conversion and working-capital trends, particularly receivables and inventory, alongside continued capital expenditures and restructuring payments.
- Debt-service costs, covenant headroom and liquidity availability, including the terms and eligibility limits of the receivables facility.
- Motional’s funding needs, operating losses and deployment progress, as well as potential exposure to supply-chain customer claims, labor disruptions and warranty matters.