Aptiv PLC 2022 Form 10-K Summary
Business context and reporting period
Aptiv is a global automotive technology supplier with two segments: Signal and Power Solutions, which provides vehicle electrical architecture and components, and Advanced Safety and User Experience, which provides safety, connectivity, software, and computing technologies. This annual report covers the fiscal year ended December 31, 2022; it also reports unaudited fourth-quarter results. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $17.489 billion | $15.618 billion |
| Gross margin | $2.635 billion; 15.1% | $2.436 billion; 15.6% |
| Operating income | $1.263 billion | $1.189 billion |
| Adjusted operating income, non-GAAP | $1.585 billion | $1.378 billion |
| Net income attributable to Aptiv | $594 million | $590 million |
| Net income attributable to ordinary shareholders | $531 million | $527 million |
| Diluted earnings per ordinary share | $1.96 | $1.94 |
| Cash provided by operating activities | $1.263 billion | $1.222 billion |
| Capital expenditures | $844 million | $611 million |
| Total debt / cash and cash equivalents | $6.491 billion / $1.531 billion | $4.067 billion / $3.139 billion |
Net debt was approximately $5.0 billion. Available liquidity was $4.013 billion, comprising $1.531 billion of cash, an undrawn $2.0 billion revolving facility, and $482 million of unused committed receivables-factoring capacity. Cash and cash equivalents fell by $1.608 billion year over year. Operating cash flow less capital expenditures was approximately $419 million, a simple calculation rather than a company-reported free-cash-flow measure.
Fourth-quarter net sales were $4.640 billion versus $4.134 billion in 2021; operating income was $440 million versus $260 million; and net income attributable to ordinary shareholders was $233 million versus $15 million. Diluted EPS was $0.86 versus $0.06. Fourth-quarter 2022 included approximately $53 million of acquisition-related transaction costs.
Material changes versus the prior comparable period
- Annual sales rose 12%; reported volume increased 14%, partly offset by $676 million of unfavorable foreign-exchange effects. Price recoveries, net of contractual price reductions, contributed to growth.
- Gross margin dollars increased, but the margin rate declined to 15.1% from 15.6%. Aptiv cited approximately $565 million of higher semiconductor and commodity costs within operational performance.
- Adjusted operating income increased to $1.585 billion from $1.378 billion. This non-GAAP measure excludes specified items, and Aptiv changed its definition in 2022 to exclude intangible amortization; historical figures were revised for comparability.
- Interest expense rose to $219 million from $150 million, reflecting debt issuance. Total debt increased, in part to finance the acquisitions.
- Cash used in investing activities was $5.182 billion, mainly reflecting acquisitions and higher capital expenditures. Wind River was acquired for approximately $3.5 billion in December; Aptiv acquired 85% of Intercable Automotive for $606 million in November.
- Equity-method losses increased to $279 million from $200 million, primarily reflecting Motional, Aptiv’s autonomous-driving joint venture.
Outlook, commentary, risks, and unusual items
- Management said global supply-chain disruptions, including the semiconductor shortage, were expected to persist into 2023. Inflationary pressures were also expected to continue affecting input costs and profitability.
- China COVID-related lockdowns reduced 2022 revenue by an estimated $270 million. Aptiv reported approximately $65 million of revenue impact from Russia operations, a $51 million pretax impairment tied primarily to its planned Russia exit, and approximately $8 million of Ukraine-related asset impairments and other charges.
- The company expects approximately $230 million of amortization expense and $65 million of cash restructuring payments in 2023. Net research and development and engineering spending was expected to be approximately $1.2 billion in 2023. These are disclosed expectations, not comprehensive earnings guidance.
- Management cited record new business awards of approximately $32 billion, based on expected volumes and prices. Customer programs generally do not guarantee minimum purchases, so awards are not committed future revenue.
- Motional began prototype-scale testing of a production-ready autonomous-driving platform in 2022; higher-volume deployments were anticipated in late 2023. Commercial timing, customer adoption, development costs, and competition remain uncertain.
- Customer and market risks include cyclical vehicle production, customer concentration (the five largest customers represented approximately 39% of 2022 sales), pricing pressure, supply disruptions, commodity costs, foreign exchange, and exposure to China and geopolitical developments.
- Customers had indicated they may seek compensation for production losses associated with supply-chain disruptions. Aptiv said it did not consider a loss probable and recorded no reserve at year-end. Brazil claims totaled approximately $105 million; $5 million was accrued, with reasonably possible additional loss estimated at zero to $40 million.
- The 2022 statements received an unqualified audit opinion. Management and the auditor reported effective internal control, but Wind River and Intercable—together about 23% of year-end assets—were excluded from the internal-control assessment because of acquisition timing.
Important facts for investors to verify
- Whether Aptiv can recover elevated semiconductor, commodity, and other input costs through customer pricing, and whether margins improve from the 2022 decline.
- How acquisition integration, Wind River’s preliminary purchase-price allocation, and added debt affect earnings, cash generation, and covenant headroom.
- Whether the $32 billion of awarded business converts into actual customer orders and revenue, given the absence of guaranteed volumes.
- The progress and funding implications of Motional and the timing of commercial autonomous-driving deployments.
- The outcome of Brazil litigation and potential customer claims related to supply disruptions, as well as execution of the Russia exit.
- The mandatory conversion of the 5.50% convertible preferred shares on June 15, 2023, including the resulting ordinary-share dilution; the filing specifies a conversion range of 1.0754 to 1.3173 ordinary shares per preferred share, subject to adjustments.