Aptiv PLC quarterly report, Q2 FY2021

Aptiv PLC — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021. Aptiv designs and manufactures vehicle components and electrical, electronic, active-safety, connectivity and mobility technology, primarily for automotive customers.

Financial results

MetricQ2 2021Q2 2020Six months 2021Six months 2020
Net sales$3.807 billion$1.960 billion$7.830 billion$5.186 billion
Gross margin$602 million; 15.8%$13 million; 0.7%$1.329 billion; 17.0%$514 million; 9.9%
Operating income (loss)$285 million$(311) million$714 million$1.308 billion
Net income (loss) attributable to Aptiv$163 million$(366) million$458 million$1.206 billion
Diluted earnings (loss) per share$0.54$(1.43)$1.57$4.66
Operating cash flowNot stated for the quarterNot stated for the quarter$549 million$55 million
  • Revenue and margins: Sales increased 94% in Q2 and 51% in the first half year over year. Volumes rose 87% and 46%, respectively; favorable foreign exchange also contributed. The comparison reflects severe COVID-related shutdowns in 2020.
  • Operating performance: Q2 segment adjusted operating income was $301 million, compared with an adjusted operating loss of $229 million a year earlier. First-half adjusted operating income was $738 million versus $2 million. These are non-GAAP segment measures.
  • Cash flow and investment: First-half operating cash flow was $549 million; investing cash outflow was $314 million, including $261 million of capital expenditures; financing cash outflow was $103 million. Cash, cash equivalents and restricted cash rose $125 million during the period.
  • Liquidity and debt: At June 30, cash and cash equivalents were $2.926 billion, total debt was $4.047 billion, and net debt was approximately $1.1 billion. Reported available liquidity was $5.463 billion, including a $2.0 billion undrawn revolving facility and available factoring capacity, subject to eligible receivables.
  • Balance sheet: Current assets were $8.055 billion and current liabilities $3.905 billion. Inventories increased to $1.801 billion from $1.297 billion at year-end 2020.

Material changes versus the prior comparable period

  • Growth and improved margins mainly reflect recovery from 2020 pandemic-related shutdowns and higher vehicle production; they should not be read as purely underlying year-over-year growth.
  • First-half 2020 results included a $1.434 billion pre-tax gain from forming the Motional autonomous-driving joint venture with Hyundai. That gain materially elevated 2020 operating income and EPS; it did not recur in 2021.
  • Motional equity-method losses were $55 million in Q2 and $100 million in the first half of 2021, compared with $21 million and $22 million, respectively, in 2020.
  • Restructuring charges fell to $14 million in Q2 and $20 million in the first half, from $72 million and $100 million in 2020. The prior-year Q2 charges included about $60 million related to pandemic actions.
  • On June 24, 2021, Aptiv refinanced and extended its term loan and $2 billion revolving facility to June 2026. The amended agreement reinstated a maximum leverage covenant of 3.5-to-1, with a temporary 4.0-to-1 limit after qualifying material acquisitions. Aptiv reported covenant compliance at quarter-end.

Outlook, commentary and risks

  • Management said global vehicle production increased 29% in the first half of 2021, or 30% on Aptiv’s weighted-market basis, and anticipated a modest increase in full-year 2021 production. The filing provides no specific company revenue or earnings guidance.
  • Management expected global supply-chain disruptions, particularly the semiconductor shortage, to persist through much of the remainder of 2021. Aptiv cited higher semiconductor and commodity costs and logistics disruption; related costs were approximately $65 million in Q2 and $110 million in the first half.
  • Some customers have indicated Aptiv may bear responsibility for their lost production and related costs arising from supply disruptions. Aptiv said a loss was not considered probable at June 30 and recorded no reserve for these claims.
  • Other principal risks include COVID-19 effects, automotive production cyclicality, commodity and currency fluctuations, customer pricing pressure, customer concentration, product quality and recalls, trade restrictions, and the uncertain timing and costs of adoption of advanced-safety and autonomous-driving technologies.
  • Brazil claims totaled approximately $110 million; Aptiv had accrued $20 million and estimated reasonably possible losses above accruals at zero to $90 million. Warranty reserves were $48 million, with reasonably possible additional exposure estimated at zero to $10 million. Management considered ordinary-course litigation outcomes not expected to materially affect the company, while noting estimates may differ from ultimate outcomes.
  • Management expected existing cash, liquidity and operating cash flows to fund operations, restructuring, preferred dividends and capital expenditures. It expected about $60 million of restructuring cash payments over the next twelve months and about $20 million of additional costs for programs approved by quarter-end, primarily over the next 24 months.
  • Motional anticipated a production-ready autonomous-driving platform for prototype-scale testing in 2022, with higher deployment volumes in 2023; these are forward-looking expectations, not guaranteed outcomes.

Important facts for investors to verify

  • Whether reported sales and margin recovery persists after accounting for the unusually depressed 2020 comparison period.
  • The duration and financial impact of semiconductor shortages, commodity inflation, logistics costs and any customer claims related to production losses.
  • Cash conversion and working-capital trends, particularly the increase in inventories and the impact on operating cash flow.
  • Progress on Motional, including the effect of continuing equity-method losses and the timing of commercialization.
  • Debt covenant headroom, future term-loan amortization beginning September 2022, and potential dilution from the mandatory convertible preferred shares, which convert in 2023.
  • Developments in Brazil litigation and other contingencies, and execution and cash costs of restructuring programs.