Download - DELPHI AUTOMOTIVE PLC (DLPH) Earnings Report: Q1 2016 ... · Industry: Automotive Event Description: Q1 2016 Earnings Call ... DELPHI AUTOMOTIVE PLC (DLPH) Earnings Report: Q1 2016

CompanyName:DelphiAutomotivePLCCompanyTicker:DLPHSector:ConsumerGoodsIndustry:Automotive

EventDescription:Q12016EarningsCallMarketCapasofEventDate:20.46BPriceasofEventDate:70.09

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

DELPHIAUTOMOTIVEPLC(DLPH)EarningsReport:Q12016ConferenceCallTranscriptThefollowingDELPHIAUTOMOTIVEPLCconferencecalltookplaceonMay4,2016,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

ElenaRosman;DelphiAutomotive;InvestorRelationsKevinClark;DelphiAutomotive;President&CEOJoeMassaro;DelphiAutomotive;CFO

OtherPart icipants

RodLache;DeutscheBank;AnalystJohnMurphy;BoAMerrillLynch;AnalystBrianJohnson;BarclaysCapital;AnalystItayMichaeli;Citigroup;AnalystPatrickArchambault;GoldmanSachs;AnalystRyanBrinkman;JPMorgan;AnalystDavidLeiker;RobertW.Baird&Company,Inc.;AnalystColinLangan;UBS;AnalystAdamJonas;MorganStanley;AnalystJacobHughes;RBCCapitalMarkets;AnalystDavidLim;WellsFargoSecurities,LLC;AnalystEmmanuelRosner;CLSA;AnalystMattStover;SusquehannaFinancialGroup;AnalystChrisMcNally;EvercoreISI;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetoDelphiQ12016earningsconferencecall.

(OperatorInstructions)

IwouldnowliketoturnthecallovertoElenaRosman,Delphi'sVicePresidentofInvestorRelations.Elena,youmaybeginyourconference.

ElenaRosman (InvestorRelations):

Thankyou,Operator.Goodmorning.ThankyouforjoiningDelphi'sfirstquarter2016earningsconferencecall.

Tofollowalongwithtoday'spresentation,ourslidescanbefoundatdelphi.comundertheInvestorssectionofthewebsite.

Consistentwithpriorcalls,today'sreviewofouractualandforecastedfinancialsexcludesrestructuringandotherspecialitemsandwilladdressthecontinuingoperationsofDelphi.




ThereconciliationbetweenGAAPandnon-GAAPmeasuresisincludedinthebackofthepresentationandthepressrelease.Pleaseseeslide2foradisclosureonforward-lookingstatements,whichdoreflectDelphi'scurrentviewofthefuturefinancialperformance,whichmaybemateriallydifferentfromouractualperformance.

JoiningustodaywillbeKevinClark,Delphi'sPresidentandCEO;andJoeMassaro,CFOandSeniorVicePresident.

Asseenonslide3,Kevinwillprovideanoperationsupdate,aswellasanoverviewofthequarter.AndthenJoewillcoverthefinancialresultsandthe2016outlookinmoredetail.Withthat,IwouldliketoturnthecallovertoKevinClark.

KevinClark(President&CEO):

Thanks,Elena.Goodmorning,everyone.Thankyouforjoiningus.

BeforeJoegetsintoourfinancialresults,IwouldliketoprovidesomecoloronwhatwasagreatquarterforDelphi.Solet'sbeginwiththehighlightsonslide5.

Insummary,wehadanotherverysolidquarter,meetingourcommitmentsanddeliveringstrongrevenueandearningsgrowth.Adjustedrevenuegrowthwas6%,drivenbymarketshareandcontentgainsacrosstheportfolio.Operatingincomeincreasedto$509million.

Marginsexpanded20basispointsto12.6%;andearningspershareincreased12%to$1.36.Andlastly,wereturnedapproximately$450millionofcashtoshareholders.

Weremainveryconfidentinour2016guidance,asoriginallycommunicatedbackinJanuary.Thereisnothingweseetodaythatchangesourviewoftheunderlyingmacroenvironment,withsomethingsstronger,offsettingshortfallselsewhere.

I'lltouchonthemacrosingreaterdetailonthenextslide.Theramp-upofnewprogramlauncheswillcontinuetodriveacceleratedrevenuegrowthandastrongfocusonleveragingourrobustbusinessmodelwillenableustoflexourcoststructuretomeetthechallengesofvirtuallyanyenvironment.

Inaddition,wemadeanumberofimportantannouncementsduringourrecentInvestorUpdateMeetinginLondon.Weunveileda48-voltvehiclesolution,whichimprovesengineperformance,whileloweringCO2emissionsbymorethan10%.I'llcoverthisinmoredetaillater.

I'll--wealsoannouncedtheIRSSection7874issueisbehindusandthatwe'veprevailedinourappeal,contendingthatDelphishouldbetreatedasaUKtaxentityundertheUStaxcode.

Weannouncedanew$1.5billionsharerepurchaseprogram.Coupledwiththerecentdividendincrease,thisunderscoresconfidenceinourmedium-andlong-termoutlook,whichisdrivenbythesafe,green,andconnectedmegatrendsthatarecreatingnewrevenueopportunitiesforDelphi.

Continuedmaterialandmanufacturingperformance,whichisfundingincrementalgrowthinvestmentsanddrivingmarginexpansion,whichwilltranslateintocashflowgeneration,providingadditionalleverstodriveshareholdervalue.

Duringthequarter,wealsoacquiredPuredepth,Inc.,theleadingproviderofmulti-layer3-Ddisplaytechnology.OurcollaborationwithPuredepthwasondisplayattheConsumerElectronicsShowinaconceptMustang,whichhasdrivensignificantcustomerinterest.

Slide6isanupdateonourviewofthemacroenvironment,which,asIjustmentioned,continuestoremainbalancedrelativetotheassumptionsunderlyingour2016guidance.I'llhitafewofthehighlights.




Startingwithpositivesontheleft,regulatorytrendsandconsumerdemandscontinuetoinfluencefueleconomy,emissions,andvehiclesafetystandards,drivingcontentpervehiclegrowth.Andwecontinuetoexpectsteadygrowthinglobalvehicleproduction,drivenbycontinuedgrowthinChina,NorthAmerica,andWesternEurope.

Movingtothemiddleofthechart,consistentwithourinitialplanningassumptions,weexpectcommoditiesandpricingtoremainrelativelyneutralforthebalanceoftheyear.Whilewe'recurrentlyseeingaslightlystrongerEuro,thisisbeingmorethanoffsetbytheweakenedChineseRMB,withChinabeingameaningfulpartofourbusiness.

Movingtothechallengesontheright,we'veseenfurtherdeclinesinvehicleproductioninbothSouthAmericaandEasternEurope,andincreasedweaknessintheglobalcommercialvehiclemarket,nowexpectedtobedownlowsingledigits,drivenbydouble-digitdeclineintheNorthAmericanoff-highwaymarket.

Lastly,workingcloselywithoursuppliersandOEMcustomerstomitigateanynear-termsupplydisruptionsduetotherecentearthquakesinJapan,whichwillaffectthesecondquarter,butwillbemadeupduringthebalanceoftheyear.

Joewillprovidemorecontextonthisalittlebitlater.Giventhevariousputsandtakes,ouroveralloutlookremainsinlinewithourpriorguidance.

MoreonChinaonslide7.IjustreturnedfromtheBeijingAutoShow,whereImetwithseveralofourtopcustomers.WeheardarelativelyconsistentviewoftheChinamarket,bothglobalandlocalOEMsremainveryconfidentChinawillcontinuetodriveincreasedglobalvehicleproduction,estimating2016growthinthe4%to6%range,resultingfromcontinuedstrongdemandforSUVsandcrossovers.

There'salsoincreasingdialogueregardingnewenergyvehiclesandelectrificationinthismarket,whichgivenourproductportfolio,providesfurtherrevenueopportunities.

Delphiremainswell-positionedinthismarketandexpectstogrow10to12pointsabovevehicleproductionin2016,benefitingfrommarketsharegainsandthetrendtowardhighercontentvehicles.

GrowthintheChinamarketsreflectedinournewbusinessbookingsonslide8,whichtotaledapproximately$7billionduringthefirstquarter.Wehadanumberofimportantcustomerbookings,aswellasseveralconquestwins,includingamajorelectricalarchitecturalwinwithFCAontheRamtruckinNorthAmerica;powertrainwinswithChang'AninChina;andFordinNorthAmerica;andkeyinfotainmentwinswithVolkswageninNorthAmerica,aswellaswithSGMinChina.

Therightsideofthechartreflectsthebalancedgeographicmixofourbookings,whichwilldrivestrongrevenuegrowthoverthenextfewyears.Theincreasedgeographicandcustomerdiversityensuresthatwe'renotdependentonanyoneregion,segmentorcustomerforgrowth.

Now,givenourportfolioofsafe,greenandconnectedtechnologysolutions,andourtrackrecordofflawlessexecution,we'reincreasinglybecomingastrategicpartnerofchoiceforanumberofourcustomers,whichisreflectedinourrecordbookingsoverthelastfewyears.

Turningtoslide9,thesearejustafewexamplesoflaunchprogramsdrivingrevenuegrowththispastquarter.OurElectricalArchitecturesegmentisbenefitingfromincreasedcontentontheBMWX5withanonboardchargerforplug-inhybridpowertrains.

AlsowithBMW,ourPowertraindivisionlaunchedseveralcomponentsonthenewActiveTourer.AndtheElectronicsandSafetydivisionislaunchingmultipleprograms,includingshort-rangeradarintheKiaCadenza;aninfotainmentcontentontheLincolnMKX;BuickExcelle;andDodgeRamtruck.




Movingtoslide10,aswehighlightedatourInvestorDayandwasreinforcedinBeijinglastweek,customerinterestinelectrificationisgainingmomentum.OurcustomersincreasinglyseetheneedforelectrificationofthepowertraintoclosetheregulatorygapsonCO2emissionsandfueleconomy.And48-volthybridsareanaffordable,nocompromisesolution.

AnoptimizedElectricalArchitectureSystemsisnecessaryfortheelectrificationoftoday'svehicles,whichistheveryfoundationforourvolt,48-voltsolution.

Customerresponsehasbeenstrongforourtotalsystemssolution,whichrepresentsapproximatelyfourtimesthecontentopportunitycomparedtoatraditionalinternalcombustionengineforDelphi.Now,inadditiontothetwoglobalcustomerprogramswe'vealreadybeenawarded,wereceivedstronginterestfromseveralautomakerstoexplorecollaboratingonthisveryinterestingtechnology.

Turningtoslide11,Delphicontinuestoberecognizedforitstechnologyleadershipbybothcustomersandindustryexperts.Delphiisproudtoreceivethefirst-everGeneralMotorsInnovationAwardforourV2Xmodule,whichwillbeintroducedontheallnewCadillacCT6.Wearethefirsttomarketwiththisbreakthroughtechnology.

Wealsowonour18thAutomotiveNewsPaceAward,afteronceagain,leadingtheindustrywiththreenominations.TheDualRoleHubisacustomUSBapplicationthatenablesAppleCarplay,allowingtheradioandaniPhonetoberecognizedsimultaneouslyasahostdevice.It'stheonlysolutiononthemarketwiththisversatilefunctionality.

Leadingininnovationisthefoundationofourstrategyforgrowth.Andtheseindustryawardsareastrongvalidationthatwe'resolvingourcustomers'mostchallengingproblemswithindustry-leadingtechnologies.

Movingtoslide12,beforeIhandthingsovertoJoe,Iwanttounderscoreourcommitmenttodrivingconsistent,sustainable,andimportantly,profitablegrowth.SinceourIPO,we'vecompletedseveraltransactionsthatenhancedourtechnologyportfolioandbetterpositionedusforthefuture.

OurAdvancedTechnologiesarealignedtothemegatrendsofsafe,greenandconnected,positioningusforacceleratedrevenuegrowth.

Ourleancoststructureandglobalfootprintallowsustofurtherleveragebothourscaleandregionalcapabilitiestodriverevenuegrowthandmarginexpansion.

Andlastly,wewillcontinuetoexecuteaverybalancedandverydisciplinedcapitalaccretion--allocationstrategytodriveincreasedshareholderreturns.Ourtrackrecordconveysourexecutioncapabilitiesandweareveryconfidentwewilldelivercontinuedoutperformanceforyearstocome.

InowwanttoturnthecallovertoJoe.

JoeMassaro (CFO):

Great.Thanks,Kevin.Goodmorning,everyone.

Iwillstartbycoveringourfirstquarterperformanceandthendiscussoursecondquarterandfull-year2016guidance.Let'sstartonslide14,withasnapshotofourfirstquarterfinancialperformance.AsKevinmentioned,wewerepleasedwithourresults,whichreflectedbothstrongrevenueandearningsgrowth.

Revenuewasup7%,or6%adjustedforcurrency,commodity,acquisitionsanddivestitures.Ouroperatingmarginsexpanded20basispoints.Earningspersharegrew12%,largelytheresultofincreasednetincome,andinthequarter,wepurchased5.6millionsharestotalling$370million.Theadjustedtax




ratewas18%forthequarter.

Slide15providesgreaterdetailofrevenueforthequarter.Startingontheleft,youcanseewehadstrongsalesgrowth,includingtheimpactofM&A,primarilyHellermannTyton,whichhadorganicgrowthof13%inthefirstquarter.Foreignexchangeandcommoditieswereaslightlybiggerheadwind,primarilydrivenbydollarstrengtheningagainsttheChineseRMBandthepriceofcopper.

Movingtotheright,NorthAmerica,EuropeandAsiasawstronggrowthinboth--onbothareported,aswellasanadjustedbasis.Asyoucansee,theSouthAmericanmarketremainsveryweakandwearenotplanningonanear-termrecovery.

Accordingly,wehavetakensignificantstepsinthepastyeartoreduceourSouthAmericanfootprintandcoststructure,includingexitingourbusinessinArgentinaandreducingthenumberofBrazilianmanufacturingfacilitiesfromninetofour.AndwhileweremainabletoserveourglobalcustomersinSouthAmerica,wehavesignificantlyreducedtheimpactofthemarketdownturnonDelphi.

Turningtooperatingincome,slide16walkstheyear-over-yearchangeforthefirstquarter.Ouroperatingresultswereconsistentwithourexpectations.Strongflow-throughfromvolumegrowthcontributedtomarginexpansioninthequarter,helpingtooffsettheimpactsoflaunchandgrowth-relatedactivitiesonournetperformance.

TheimpactoftheChinavolumerampandtheaddedcosttosupportnewprogramlaunchesinE&SandEEAtotaledapproximately$35millioninthequarter.TheChinainefficienciesdiscussedpreviouslyrepresentedapproximately$5millioninQ1andwillnothaveanimpactgoingforward.Theremaininglaunchcostswillfurthermoderateoverthecourseoftheyearandcontinuedtobefactoredintoourfullyearof2016guidance.

Slide17takesusthroughtheperformancebysegment.ElectricalArchitecturehadadjustedgrowthof5%andHellermannTytoncontributedapproximately$200millionofrevenueinthequarter.EEAmarginsexpanded70basispointsyearoveryear.

Powertrainalsodelivered5%organicgrowth,drivenbygassystems,partiallyoffsetbylowercommercialvehiclevolumesandpowertraincontinuestodeliverstrongmargins,despitenearly40basispointsofFXheadwinds,primarilydrivenbytheChineseRMB.

Electronics&Safetyorganicgrowthacceleratedto13%onnewprogramlaunches,particularlyinactivesafetyandinfotainmentprogramsinEuropeandChina;partiallyoffsetbylowermechatronic,whichrepresenteda3%negativeimpactonE&Sgrowthinthequarter.Activesafetyandinfotainmentcontinuetoseestronggrowthofapproximately70%and10%,respectively.

OurE&Smarginsof10.3%wereasexpectedandreflectthelaunch-relatedactivitiesIjustdiscussed.Asitrelatestotheremainderof2016,weexpectcontinuedstronggrowthfromnewlaunchesandformarginstoexpandoverthecourseoftheyear,aswerampproductionvolumesandimproveperformance.

Turningnowtoslide18,wesawtotalEPSgrowthof$0.15,or12%forthequarter,including$0.11fromincreasedearnings.Sharerepurchasescontributed$0.07,morethanoffsettingtheimpactofahighertaxrate.Asyouknow,thetaxratecanvaryfromquartertoquarter.However,thereisnochangetoour17%full-yearestimate.

Now,turningtotheoutlookonpage19,asKevinmentioned,giventheputsandtakes,therearenochangestothe2016guidance.Revenuewasdrivenbyacceleratingorganicgrowththroughouttheyear,andthefull-yeareffectoftheHellermannTytonacquisition.




Weexpecttoexpandmarginsbyroughly50basispointsand2016EPSisexpectedtobeintherangeof$5.80to$6.10,reflectingyear-over-yeargrowthof14%.

Second-quarterrevenuewasforecastintherangeof$4.125billionto$4.225billion.ThisincludestheimpactofthesupplydisruptionsfromtheJapaneseearthquakes,estimatedtobe$75millionofrevenueand$20millionofoperatingincomeatthemidpointofourguidance.

Whilewecontinuetomonitorandassessthepotentialimpact,conversationswithourcustomersindicatethatanynear-termproductiondisruptionswillbemadeupoverthebalanceoftheyear.WeexpectsecondquarterEPSintherangeof$1.50to$1.60,up16%atthemidpoint,whichincludestheimpactfromtheearthquakesupplydisruptions.

Ourstrongbalancesheetandcapitalallocationstrategy,outlinedonslide20,remainsanimportantlevertoenhanceshareholdervalue.Ontheleft,weexpectcashflowfromoperationstogrowapproximately$2billion,upalmost20%from2015.

Andthedeploymentprioritiesontherightareconsistentwithourstrategy,maintainingastrongbalancesheetandinvestmentgraderating.Weareinvestinginourbusinessthroughincreasedcapitalexpenditures,supportingnewprogramlaunches,informationsystemsthatincreaseefficiencyandproductivity,andongoingfootprintrotationtobest-costcountries.

Wearecommittedtopayingacompetitivedividendandtotheextentwehaveexcesscash,wehaveatrackrecordofreturningittoshareholdersviasharerepurchases,asevidencedbythe$370millionofrepurchaseswedidinthefirstquarter.

Aswesitheretoday,wedonotexpectrepurchasestocontinuewiththefirstquarterpace.However,weintendtobeopportunisticwhileremainingcommittedtoexecutingabalancedanddisciplinedcapitalallocationframework.

Now,beforeIhandthingsbacktoKevin,turningtoslide21,wearefocusedonexecutingvalue-enhancingportfoliomodifications.Assuchinthequarter,wecompletedthefinalstepinthedivestitureoftheThermalbusinesswiththesaleofourstakeofaChinesejointventure.

AndwehaveacquiredPuredepth,theleadingproviderofpatented3-Dmulti-layerdisplaytechnology.Youcanexpectustocontinuetopursueinvestmentsthatenhanceourexistingtechnologyportfolio,strengthenourcompetitiveposition,anddriveincreasedvalueforourshareholders.

I'llnowturnitovertoKevinforsomeclosingremarksbeforeweopenupthecalltoquestions.


Thanks,Joe.

Now,summarizingonslide21,wedeliveredanotherstrongquarter,executingontherelevantadvancedtechnologiesthatenableustooutgrowthemarketsweserve.Webelievewe'rewellpositionedtodeliveronourcommitmentsin2016--highsingle-digitorganicgrowth,roughly50basispointsofmarginexpansion,solidmid-teensEPSgrowth,and$1.2billionoffreecashflow.

Wecontinuetooptimizeourcoststructure,increasetheflexibilityofourworkforce,andexecuteflawlessly.We'reinvestinginprofitablegrowthwhereweseeopportunities.Weremaindisciplinedinourallocationofcapital,investinginbothorganicandinorganicgrowth,andreturningexcesscashtoshareholdersthroughsharerepurchasesanddividends.

Throughallofthis,wecontinuetodemonstrateourabilitytodeliveronourcommitments,evenagainst




thebackdropofadynamicenvironment.

Sowiththat,we'llnowopenupthelineforquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

RodLachefromDeutscheBank.

RodLache (Analyst-DeutscheBank):

Goodmorning,everybody.


Goodmorning,Rod.


Hadacouplequestions.Oneisonthepricing,itlookslikeitcameinat2.1%thisquarter.Iknowyou'veconsistentlyguidedto2%,butit'sbeenrunninglower,upuntilrecently,andwaswonderingifthisisjustgrowingElectronics&Softwareandhowyouarelookingatoffsettingthat.

Andthenalso,noticedthattheFX/commodityimpactontheEBITbridgewaspositive.Lookedlikeitwasnegativeonthetopline.IsthatsomehowrelatedtotransactionaleffectswiththeEuroappreciatingversustheEEcurrencies,oristhatsomethingelse?


Sowhydon'tIstartonthepricingandthenyoucanaugmentit,Joe,andthentalkaboutFXandcommodities.SoRod,withrespecttoguidanceonpricing,weremain--ourguidanceintherangeis1.5%to2%pricing.Ithinkthisquarterwasslightlyhigherthanthat.GivenourmuchfastergrowthinE&Soverthenext12months,growthisroughlydoubleouroverallcorporategrowth.

Andaswe'vetalkedaboutinthepast,E&Stendstohavepricedown2%to3%versusabalanceofourportfoliothatislessthan2%andtherapidgrowthinthatsegmentiswhat'sdrivingtheoverallincreaseinpricedownsonayear-over-yearbasis.Otherthanthat,nothinghaschangedfromabusinessmodelstandpoint.Joe,doyouwantto--

JoeMassaro (CFO):

Sure.Rod,ontheFXcommodities,wedid--aswementionedacoupleoftimesduringthepreparedremarks,theRMBdidimpactusnegativelyduringthequarter,frombotharevenueandOIperspective.Apartfromthat,everythingelsewasfairlybalancedout.Wealsodidseeabouta$40millionheadwindfromcopper,decreasedcopperpricinginthequarter.

Butaswe'vetalkedaboutbefore,thathasaverylowOIflow-through,giventhefactthatwemostlyhavepass-throughstocustomersandhavetheresthedgedout.Sorevenue,slightlybiggerimpact.OI,withtheexceptionoftheCNY,everythingelsebalancesout.


Okay,butitdidlooklikecommoditiesandFX,ifI'mreadingyourchartcorrectly,waslikea$6million




positive,eventhoughitwasanegativeonthetopline.Sosomethingmusthave--isthatatimingissue?

JoeMassaro (CFO):

No.It's--you'vegota--I'msorry.WhenIsaybalance,youdohaveabouta$6millionpositive,abouta$4millionnetfromFX,everythingoffsettingtheRMB.Andthenabout$2millionflow-throughforcommodity.


Thatwouldallbetransactional-related.

JoeMassaro (CFO):

Transactional-typestuff.Andthenlagonthecopper.


Okay.Thatmakessense.Andjustlastly,canyoujustcommentonhowweshouldbethinkingabouttheeffectoflaunchcostsoverthecourseofthisyear,asobviously,yourorganicgrowthstartstoaccelerate?AndtherewasanuptickinD&Athisquarter.Isthatsomethingthatweshouldassumeasarunrategoingforward?


Withrespecttolaunchinthegeneraltrend,andI'llletJoetalkaboutthespecifics,aswetalkedaboutonourfourthquarterearningscall,wecertainlysawtheeffectofChinaacceleratedlaunchinQ4.China'sbehindusinQ1.IthinkJoereferencedinhiscommentsthateffectivelyitwasa$5millionheadwindinQ1goingtozero.L

aunchcostsinE&SandEEA,whichdeclinedfromQ4toQ1,andthenwillcontinuetodecreaseinQ2andeffectivelygoawayinthebackhalfoftheyear.Joe,doyouwantto?

JoeMassaro (CFO):

Yes.Imentionedwe'reabout$30millioninlaunchcostsacrossE&SandEEAinQ1.Another$5millionforChina.The$5milliondoesgoaway.Thisisthelastquarterwe'llhavethoseinefficiencies,Rod.ThenIthinkyoustarttosee--youwillseeitcomedownroughly$20millioninQ3--I'msorry,inQ2.Andthenbelowthat,inQ3,andbasicallyworkingourwayoutofitbytheendoftheyear.


Okay.AndtheD&A?

JoeMassaro (CFO):

D&A,Idothinkyoushouldthinkaboutthatasarunrate,aswe'veputmorecapitalintosupportlaunches.


Great.Okay.Thankyou.

Operator :

JohnMurphyfromBankofAmerica.




JohnMurphy(Analyst-BoAMerrillLynch):

Goodmorning,guys.


Goodmorning.


Joe,justonefollow-up.Yousaid$20millionontheopincomelineinthesecondquarterfortheJapanesehit;isthatcorrect?Andthatprobablywouldjustequatetoabout$0.05inthequarter.Isthataboutright?

JoeMassaro (CFO):

Yes,that's$20millionatthemidpoint,about$0.06ofEPS.


Okay,great.Thenjustasecondquestion.TherewasrelativestrengthinEurope,up9%.I'mjustcuriousifyou'reseeinganythinggoingonwiththerewithmixortakeratesonsomeofyourproduct.Also,inconjunctionwiththat,youhighlightedtheideathatyouhadfurthercostrotation,alow-costsourcing.I'mjustcuriouswhat'sgoingontherevenuelineorinmix,andthenalsoonthecostsideandthepotentialgoingforward?


SoI'llstartit.Listen,inWesternEurope,we'reseeingthebenefitsofastrongermarket.Iwouldsaythat'spartiallyoffsetbyweakeninginRussia.Withrespecttothestronggrowth,Iwouldreallytieittomarketimprovement,aswellasjusttimingoflaunchingnewprograms,John.Idon'tthinkit'sanythingparticularto--oruniquetocontentgainsoranythinglikethat.

Withrespecttofootprint,andJoeshouldcommentonthis,wecontinuetoaggressivelyattackourcoststructure.Abigpieceoftherestructuringthatwe'vebeendoingoverthelastfewyearsandwe'llcontinuetodoisfocusedonrotatingfootprintoutofWesternEurope,intoEasternEurope.Joe?

JoeMassaro (CFO):

Ithink,John,aswe'vebeenabletodoovertheyears,you'veseenusmaybeinitiallymovetheEEAorsomeoftheE&SplantstoEasternEurope.We'renowatthepointwherewecanmovesomeofthePowertrainfacilities,whichhavemuchmorecomplicatedmanufacturingprocesses,butwe'venowbuiltabaseofPowertraincapabilitiesinEasternEuropeandwe'restartingtomovethoseproductionactivitieseastaswell.Sothat'sacontinuedprocess,andagain,Ithinkinlinewithouroverallbestcostcountryrotationplan,aswellasourmarginoutlookforthecomingyears.


Soaswethinkaboutthat,though,what'stheopportunity?BecauseImean,itseemedlikealotofthathadbeenexecutedalready,butjustsoundslikeagoodpieceofnews.Areyouhalfwaydoneorthree-quartersofthewaydone?Andthenaswethinkaboutthe$7perhourlaborcosts,Imean,isthis--couldthispotentiallyhaveapositiveimpactonthatgoingforward?

JoeMassaro (CFO):

Ithinkitwillcertainlyhelpusmaintainourcurrentlabordollars.Asyouthinkaboutjustglobally,there's




obviouslyupsanddownsinlaboreconomicsandinpart,we'redoingthistosortofmaintainourposition.IwouldsayasyouthinkaboutPowertrain,theyarereallyinthefirstthirdofthisrotationisthewayIwouldthinkaboutit.


Okay.


Imean,John,ifIcan--solisten.Everythingwedohasa--likethishasaverypositivereturn.Soit'stwothings.It'sone,toJoe'spoint,it'saboutstrategicallypositioningourfootprintoverthelong-termsothatwemaintaintheindustry'smostcompetitivecoststructure.

Andit'sallaboutdrivingincreasedreturn.Sonet-net,yes,there'sanincrementalprofitimprovementimpact,youknow,thatwillflowthroughournumbersintheoutyears.Sotherecertainlyisabenefitontopofmaintainingourcoststructureandactuallyimprovingit.


Okay,that'shelpful.Andthenlastly,itjustseemslikethere'ssomeincrementalwinsgoingonhereininfotainment.I'mjustcurious,areyougainingmarketsharethere?Andcuriousifyouare.Isthatjustpurelybecauseofcontent,oristhatalsoyourabilitytobackwardintegrate--ortointegrate,notbackward,butintegrateintotheelectricalarchitectureofthevehicle?


Yes,listen.I--wedon'treallysellthatasapackage.Ithink,youknow,underpinningeverythingwedofromavehicleelectrification,systemintegrationstandpoint,Ithinkwewouldtellyouwe'reatacompetitiveadvantagegivenourelectricalarchitecturecapabilities,becauseforitalltohappenflawlessly,theelectricalarchitectureisanimportantcomponentonthere.

Sointernally,,wecertainlypartnerandworktogether,butintermsofhowwegotothecustomer,youknow,customerstendtobuyspecificproducts.Youknow,ourbookingsinE&Shavebeencloseto$2billionperyeareachyearoverthelastfouryears;wewouldexpectto--actuallyover$2billion.Wewouldexpecttobookroughly$2billionagainthisyear,whichisroughly2timesourcurrentrunratefromarevenuestandpoint.

Infotainment'sgoingtobeourfastestgrowing,oroneofourfastestgrowingsegments,growingroughly20%overthenextfewyears.That'sfasterthantheoverallmarket.Ithinkwe'rebenefitingfromwherewesitinmedium-andhigh-endsystems,whereyouseecontentgrowth.Andthenwe'reprobablyalsogainingsomeshareincertainmarkets.


That'sincrediblyhelpful.Thankyou.

Operator :

BrianJohnsonfromBarclays.

BrianJohnson (Analyst-BarclaysCapital):

Yes,goodmorning.IwanttotalkalittlebitonPureDepth,especiallyinthecontextofcockpitelectronicsandinfotainment.Maybeacoupleofthings.Whereareyourightnowintermsofcockpitelectronicsor




whatwewouldcalldashboards?Second,howdoyouseethatplayingoutinthenextthreetofiveyearsalongacoupledimensions,youknow,first,thetransitionfromgaugesanddialstoflatscreens,orIguessforyou,3-Dflatscreens?

Andthenkindofwhendoyouexpectthatinflection?Andsecond,towhatextentwillthisbepurchasedbyOEMsasamodulealongwiththecenterstackinfotainmentorisitstillaseparatepurchase?Andthenfinally,anydetailsonPureDepthintermsoftransactionamounts,ifyoucoulddiscloseit?


Yes.Joe,cantalkaboutthetransactionamount.Whydon'tIstartwithwhereweare.Clearly,Ithink,Brian,asyouknow,thecockpit'smovingtodigitalandwhatPureDepthgivesusiseffectivelyenhancedgraphicsand3-Dcapabilities.IcantellyouattheConsumerElectronicsShow,andIknowyouvisitedourbooth,the3-DgraphicsontheclusterwehadgotmoreattentionfromourcustomersthananyothertechnologyweshowedatCES,includingourautomateddrivecapabilities.

Soitisaveryinterestingtechnologythatwe'reintegratingintoourclusterbusiness.Youknow,wherewesittoday,wesellclusters,wesellscenterstacks,asyouknow,withinfotainmentsystems.You'regoingtoseemoredisplay;you'regoingtoseemoreglassincars.We'reconvincedofthat.You'regoingtoseethathappenoverthenexttwo,three,four,fiveyears.

Fromourperspective,it'simportantthatwe'rewellsituatedandwebelieveweareandwethinkthat'sreflectedinourstronginfotainmentwins.Theclusterbusinessisabusinessthatis,forus,notreallargetoday,butisgrowingrapidlyandwethinkPureDepthtechnologyissomethingthatwillhelpusadvanceourgrowth.Joe,doyouwantto--

JoeMassaro (CFO):

Sure,Brian.Fromatransactionperspective,justacoupleofthings.Relativelysmallfromavalueperspective,about$50millionwepaidfortheacquisitionofPureDepth.We'veworkedcloselywithPureDepth,atCESShowoverthelastcoupleofyears,soweknowthemwell.

Integrationwasfairlyeasy.We'vebasicallycompletedit.Thisisn'tadealthatwillhavealong-runonintegration.Soit'snowtuckedinandthedevelopmenteffortsareunderway,astheyarenowfully-ownedcompanyversusjustadevelopmentpartner.Soitwasprettymuchtakencareofinthequarter.


Okay.Andjustfollowingupacoupleofthings,youmentionedit'snotreallargeforyou.CanyougiveusasenseofeitheryourshareoftheglobalinstrumentclustermarketorwhatshareofE&Sinstrumentclustersis?


It'ssmall.It'ssmall.


AndIguesssecond,theonequestion,becauseIknowIhadalotofthem,iskindofwhoarethebuyersatyourOEMsforinstrumentclustersversusinfotainment,andasthey--asinstrumentclustersgodigital,howisthatshifting?


Ithinkyou're--youknow,today,itvariesabitbycustomer.Somecustomers,theyareseparatebuying




groupsandengineeringgroups,buttheyareincreasinglybecomingmoreintegratedwiththeinfotainmentfunction.


Okay.


Sothatisthetrendanditwillcontinue.Okay?


Thankyou.

Operator :

ItayMichaelifromCiti.

ItayMichaeli(Analyst-Citigroup):

Great,thanks.Goodmorning,everyone.Maybejustaquestionontheorganicgrowthinthesecondhalfoftheyear,givensomeofthemovingpartsaroundJapanandthebacklog.CanyoumaybehelpusthinkaboutQ3andQ4andalsomaybewhattheroughbacklogsplitisbetweenthefirsthalfandsecondhalfthisyear?

JoeMassaro (CFO):

Sure,Itay.It'sJoe.Obviously,firstquarter,wesaw6%organicgrowth.Secondquarter,we'rerightaround8%,justalittleunder8%.Japan'sworthabout2pointsofthat,sowebasically,that's--thatnegative'salreadyincludedinthe8%.Soweseethatmovingtothebackhalfoftheyear.

Rightnow,weseeQ3andQ4between12%and10%,respectively.That--thosenumbersgetalittlecloudyobviouslythoughjustonayear-over-yearcompbasis,justgivensomeoftheactivitiesonChinalastyear.Butrightnow,we'relookingat12%growthand10%growth,Q3,Q4.


Andonarelativebasis,ifyouremember,China,veryweakQ3,verystrongQ4.Andobviously,thoserevenuegrowthnumbersincludesomesnapbackrelatedtoJapan.

JoeMassaro (CFO):

We'recurrentlyassuming,forlackofabetterbarometeratthispoint,justwepickuphalfinQ3,halfinQ4.Soit'sabout1pointineachofthetwoquarters,Itay.


That'sveryhelpful.Andthenmaybejustonthesharebuybacks,andIknow,Joe,youmentionedthatthefirstquarterratedoes--shouldn'tbemodeledcontinuouslythroughouttheyear.Butmaybeadditionalhelpintermsofhowtomodelthattherestoftheyear?Shouldweassumemaybethatsameratio,freecashflowinthenextfewquarters,oristheresomeotherguidelinetothinkabout?

JoeMassaro (CFO):

Yes,Iwould--it'scertainlynottheQ3activity.We--Ithink--I'msorry,theQ1activity.WewereobviouslyfairlyaggressiveinQ1.Sawthedislocationinthemarketplace.Aswesaid,wewillbeopportunistic,as




thosethingshappen.Ithinkformodelingperspective,Itay,tobehonest,thatwouldbearound$50millionto$75millionperquarter.

Ithinkwe'regoingto-we'vegot--we'regoingtobe,obviously,continuingdownthepathofourcapitalallocationstrategy,butwe'llbemindfulofM&Aopportunitiesand,youknow,thestock'sobviouslycomeupoffthelowsthatwesawintheFebruarytimeframe.Sowewouldbethinkingobviouslyisprobablytheright--fromamodelingperspective,realizingwewillobviouslyreservetherighttobeopportunisticaswellgoingforward.


Great.Lastly,quickly,maybeforKevin,justwiththeconquestwinsyou'vebeenabletohaveand$7billionofQ1bookings,any--Iknowit'sstillearlyintheyear,butanyinitialthoughtsofwheremaybebookingscantrackthisyearrelativetoprioryears?


Yes,Iwould,Itay,Iwouldexpectbookingstoberoughlyatthelevelsthatwedidlastyear,$26billion,orabitmore.Thatcanbeaffectedbytimingofawards,soIwarnyouonthat.Butgivenourcurrentlineofsightandgiventhenumberofopportunitiesandtheestimatedtimingofthoseopportunities,weshouldbeatroughly$26billionormore.


That'sveryhelpful.Thanks,everyone.


Thankyou.

Operator :

PatrickArchambaultfromGoldmanSachs.


Goodmorning,Patrick.

PatrickArchambault (Analyst-GoldmanSachs):

Goodmorning,guys.

JoeMassaro (CFO):

Hi,Patrick.


Justonequickfollow-upontheJapanissue.Imean,canyoujustdimensionthatalittlebitforus?Iknowtherewasanothercompanythat--also,aninfotainment,thathadanimpactaswell.And,youknow,what'sthevisibility?Imean,howbroad-basedhasthisimpactbeenonyoursupplychain?

Aresomeofthesefacilitiesnowbeginningto,youknow,kindofturnaroundandstartproduce--like,isthereanyvisibilityastowhentheymightcomebackonline?What'syourconfidenceonwhenthatcomesback?





Listen,Ithinkthere'sareasonableamountofvisibility,butIwouldsaythesituation'sevolving.Patrick,Ithinkasanindustry,fromasupplychainstandpoint,wedoaverygoodjobof--andthisisacrosstheboard.ThisisasupplybaseaswellastheOEs,workingtogethertoidentifywhereissuesareandidentifyingeitheralternativesourcestomanufactureorsubstituteproductsthattheOEsapprove,tomitigatetheoverallimpactofthesetypesofsituations.

Soweallhaveavestedinterestinensuringthere'sasmuchvisibilityaspossibleandthatwe'reworkingtogethertoresolvetheproblemtoensurethatourOEshavetheproducttobuildthecar.Joe,maybeyoucouldcommentmoreonthenumbers?

JoeMassaro (CFO):

Sure.Ithinkfrom,again,aswelookatthenumbers,that'salotofdialoguewiththesuppliers.Wehavetwosuppliers,one'salittlebitmoresignificantthantheotherthat'simpactedhere.Obviously,wetalktothecustomersaswell.Iwouldsaytoputitinperspective,ifyoucanthinkbacktothetsunami,thereyouhadphysicaldamagetomanufacturingfacilitiesandthattendedtobeoveralongerperiodoftime.

Whatwe'vebeentoldsofarandwhatwe'reseeing,thisismoreacaseofdamagetoin-processinventorythanthefacilitiesthemselves.Sothatgivesussomeconfidencethatthedelayswillbebothshorter-terminnatureandrecoveryshouldbequicker.Atthemidpoint,we'veestimated$75millionofrevenue.Thatincludesbothdirectandit'sabout50/50,bothdirectimpact,aswellasindirect.

Sodirectwouldbewherewedon'thavesupplyandcan'tshiptoacustomer.IndirectandGMisagoodexampleofthat,wouldbeacasewhereacustomerhastoldustheyareimpactedbyanothersupplierandwon'tbeproducing,sotherefore,we'renotgoingtoshiptothemeither.

Atthehighend,itcouldbe$100millionofrevenueandcloseto$30millionofOI.That'sreflectedinthelowendofourguidance.SohighendofJapaneserisk,lowendofourguidance.Atthehighendofourguidancerange,it'sabout$50millionofrevenueand$10millionofOI.


Gotit.


Patrick,wehave--sowehaveateamofsupplychainandmanufacturingpeoplewhohavebeeninJapannowforweeks,workingwiththesupplybasethere,aswellaswithourcustomers,tryingtodevelopandthenultimately,implementsolutionstoanyoftheseproblems.Soit's--veryproactive.


Gotit.No,appreciateallthedetailsonthat.Veryhelpful.Justonesecondquestion,Imean,we'vetouchedonitalittlebitinthiscallsofar,butcanyoujustremindus,Imean,obviouslytheCAGRthatyou'veoutlinedintheinfotainmentbusiness,backattheanalystdayof20%,youknow,it'sdoubleyourindustryforecastof10%,double--prettyclosetodoubleoursaswell.

Socanyoujustremindme,clearly,there'sbeenalotofcontentopportunitythereandsomesharegains,butspecifically,youknow,whereareyouwinningbusinessfromothersthat'sallowingyoutoseesomuchrelativegrowth,ifyouwill?





Well,whenyoulookatgrowthininfotainment,itreally,forus,it'sacrosstheboardbyregion.It'sprobablyfastestgrowing,asyoucanimagineinChina,offofasmallernumber.WhenyouthinkabouttheChinamarket,youknow,forusthat's--forplayerslikeourselves,Iwouldcharacterizeitastheperfectopportunity.

It'ssolidvehicleproductiongrowth,aswellaswhenyoulookatmixofvehicles,theytendtobehigher-endSUVs,crossoversorsedanswithsignificantcontent.Andgiventhefactthattheyaresignificantcontentandwe'rewinningbusinessinregions,inareaslikethat,we'rebenefitingfromthatstronger,muchstrongermix.Butwe'realso,youknow,we'vewonandwe'relaunchingbigwinswithsomeoftheEuropeanOEs,bothwhatIwouldcallthemassmarketaswellasluxury,aswellashereintheUS.


Terrific.Appreciatethecolor,guys.Thanksalot.

Operator :

RyanBrinkmanfromJPMorgan.

RyanBrinkman (Analyst-JPMorgan):

Hi.Thanksfortakingmyquestion.


Hi,Ryan.


Hi.MaybeonemoreonPureDepth.JustfrommyquickGooglingherethismorning,itseemsliketherewasastrongnon-autosmarketfocuspriortotheacquisition,primarilyinthesortofgamingandmobileindustry.SoI'msurethemotivationobviouslyistoenhanceyourtechnologycapabilitiesanddriveinformationsystems.

ButlikewithHellermannTyton,areyouhappytocontinuewiththenon-automotivebusinessaswell?Thenwhatisyourgeneralphilosophytowardnon-autobusinessesthatmaysortofperipherallycomealongasyoumake,Iguess,increasinglytechnology-typeacquisitions?


No,I--andlisten,that'sagreatquestion.Theoriginaltechnologystartedinthegamingindustry,andinfact,we'renotheretoannouncewe'reheadingintogaming.Therealityisthathasbeenatechnologythattheyde-focusedandisrunningoffandthesolefocusisintheautomotivespace.Butthatiswheretheirrootsactuallybegan,Ryan.Soit'saverygoodquestion.


Okay,gotit.Thanks.Andthenjustlastone,IthoughttocheckinwithanotherquarterpastVolkswagenemissionsissue,ifyou'reseeinganycorollaryuptickandinterestin48-voltproducts,becausetherehavebeensomearticlesrecentlydiscussinghowwhereasEuropewasmaybebehindJapanandtheUSintermsofelectrificationthatmaybenowthere'sgoingtobeabiginflection.

Soperhapsremind,whatisembeddedinthelong-termguidancefromtheAnalystDayrelativetoelectrificationinEuropeandI'mcuriousifitalreadyincorporatesabigincreaseorwhethertheremightbemoreupsidebaseduponyourlatestconversations?





Well,listen.Ouroutlookforelectrificationisit'skindofhigh.It's--whatisit,roughly25%in2025,acouplepointsofEP--20%--sorry.20%in2025.About2pointsofthatmixispureEVs.Thebalanceishybridand48-volt.Andourestimateis48-voltisroughlyhalf,socallit9or10points.Ithinkthatreflects,youknow,fairlyrapidgrowthonthehybridand48-voltside.

IfyoulookatIHSandbasedonconversationswithcustomers,thatmixofEVandhybridsoutin2025hasactuallyincreasedoverthelastsixmonths.And,listen,I'djustsaythereismaybeanopportunitythatacceleratesfurther.Clearly,there'smoredialogueandmoreinterestfromourcustomersastheyfocusonsolutionstoreducingCO2emissionsandincreasingfueleconomy.

Andthingslike48-voltwhereyoucangetasignificantbenefitatafractionofthecost,it'sagreatvalueproposition.It'saterrificvalueproposition.Sowe'rehavingincreasingdialogue.Andit'sreallyacrosstheglobe.It'snotjustinEuropeandinNorthAmerica.

There'sactuallyacouplecustomersinChinathatwe'reworkingwithnowon48-voltsystemsolutions.Andwhatpositionsusreally,reallywellisyouthinkaboutitbeinginthePowertrainbusiness,intheElectronics&Safety,andthenimportantly,inthatElectricalArchitecturebusiness,weactuallyhavesolutionstoeverysingleaspectyouneedtoprovideacompletesystemsolutiontotheOE.


(multiplespeakers)Okay,great.Thanksalot.

Operator :

DavidLeikerfromBaird.


Hi,David.

DavidLeiker (Analyst-RobertW.Baird&Company,Inc.):

Goodmorning.

JoeMassaro (CFO):

Goodmorning,David.


Askindoffollow-upalittlebitonthediscussionthatRyanwasjustgoingthrough,youknow,inChina,aroundtheAutoShowandyouwalkthefloorthere,itseemslikemuchmoreinterestinelectrificationthanhereintheUS.Iwasjustwonderingifwecouldtalkaboutthenewenergyvehicles,astheyarecallingthemandbringingthemtomarketandmaybeyouansweredpartofthis.ButalittlebitmorefocusspecificallyintermsoftheopportunityinChinawhereDelphiispositionedrelativetocompetitionthereandtheproductsandtechnologiescapabilitiesthatyouhavethatyoucanbringtomarketthere?


Sure.Sowhenyouthinkaboutit,letmestartwith,asyouknow,David,youwerejustthere.We'vebeenintheChinamarketforcloseto25yearsservingtheChinamarket.Whenyoulookatourcapabilities,everywherefromengineering,designdevelopmenttomanufacturing,Iwouldsaythereisn'tasupplierouttherethathasthesamecapabilities.Andwe'relocalizedinvirtuallyallofourproductlines.




Ithinkofour33productlines,we're30or31arelocalized.Sowehaveafullportfoliothatwecanprovidetoourcustomerbaseinregion.Andwecanmeettheirneedsfromadesignstandpoint,aswellasacoststandpoint.Ithinkthatstartswithelectricalarchitecture.Ithinkit'saugmentedwithinverters--converters,youknow,batterypacks,thingslikethat,thatwecanbringtobear.

Andthoseproductsthatwedon'tmanufacturetoday,likeelectricmotors,therearepartnersthatwe'reusingstrategicallytosellthewholesystemsolution.Whenyoulookatthemarket,ifthereisamarketthatisrightforelectrification,whereitshouldbeeasiertoimplement,it'stheChinamarket.Basedondiscussionswithboththeglobals,aswellasthelocalOEs,everyoneisconvincedthatthegovernmentisfocusedonenforcingregulationsandreducingCO2emissionsandaddressingthepollutionproblem.

Soenforcementisthere.Theinfrastructureinvestmentiseasytomake.Andfromagrowthstandpoint,it'sprobably--itprobablyisoneofthebiggestopportunities.We'llseehowquicklyitcomestofruitionthoughatthispointintime.


Okay,great.That'sperfect.Thanks.ThenjustanotheritemhereontheADASself-drivingcars,autonomousvehicles,justwanttogetaperspectiveofwhereyoustandtodayonyourcapabilitiestoessentiallyprovideaturnkeysolutiontoanautomakerwhomightbefoundlackingabitintheinvestmentorbehindthepackofsomeoftheleadersinthisspace?Areyouatthepointthatyoucanofferaturnkeysolutiontoanautomakerwhowantstoplaycatch-up?


Yes,wecancertainlyofferaturnkeysolutionfromatechnologystandpoint.Andwearehavingdialogueswithvariouspartieswithrespecttothat.Ithinkthechallengeforbothcustomers,aswellasfolkslikeourselves,arekindoftwofold.Nearterm,it'scost,andit'showyousellcommercially,youknow,commerciallyeffectivesolution.

Andthensecond,it'stheregulatory/legalenvironmentandhowyoucrossthosevariousbridges.Imean,aswesaidinthepast,thebiggestchallengetogettofullyautomatedisnotgoingtobethetechnologyorthecosts.It'sreallygoingtoberegulationandlegalliability.Ithinktheimportantthing,fromourperspective,iswesit--welookatautomateddrivingas,quitefrankly,thefarendofthespectrumonactivesafety.

WhatexcitesusmostisgettingtoLevel2automateddriving,whichisfullycommercializabletoday.Youcangetto80%oftheactivesafetybenefits.Soreallyatafractionofthecost,andthatisreallywhywe'reseeingthetremendousdemandforactivesafetysolutions.

AsJoementionedinhiscomments,ouractivesafetyrevenuesgrew70%inthequarter.Weexpect,fromacompoundedgrowthratestandpoint,overthenextfewyearstogrowatroughly50%.It'sthatsortofcostbenefitanalysisthat'sdrivingthatgrowth.


Great.Thankyouverymuch.


Thankyou.

Operator :




ColinLanganfromUBS.

ColinLangan (Analyst-UBS):

Great.Thanksfortakingmyquestion.


Hi,Colin.


AnycoloronthecadenceofPowertrainmarginsaswelookout?Youmentionedinthecommentarythere'sa40basispointhitfromFX.Shouldthatcontinuethroughtheyear,orshouldweseethesemarginsstarttorecover?

JoeMassaro (CFO):

Colin,it'sJoe.Ithinkthe--justtotouchonthat,oneofthethingsweareseeinginPowertrain,andittiesinwiththeRMBdiscussion.That--PowertraindoeshavesometransactionalFXdisclosureasitrelatestoRMB.Andthat'sbasicallydrivenbythefactthatourChinesePowertrainbusinessdoesimportfortheheavydutydieselbusiness,someofitsproductsfromourEuropeanandUKplants.

SothereissometransactionalFXthatimpactsthatbusiness.That'sreallywhat'sdrivingthat40basispoints.That'sgoingtobeveryRMB-dependent.Iwouldsayapartfromthat,weareseeingthemarginprogressioninPowertrainthatwewouldexpecttojustgiveinthevolumeincreasesandourtypicallevelsofexpectedperformance.Soit'sgoingtobeRMB-dependentandit'sveryspecifictothatheavydutybusinessinChina.


Andcurrentoutlookfortheyearisroughly25basispointsofmarginexpansion.

JoeMassaro (CFO):

InPowertrain.


Okay.AndcanyouremindusyourcommercialtruckexposureoverallandhowmuchofitisinPowertrain?Iimaginetheyaremoreofanoutsideexposuretocommercial.

JoeMassaro (CFO):

Yes,ourtotalcommercialvehicleisabout10%ofourfull-yearvolumeandabouttwo-thirdsofthatroughlyisinPowertrain.


Gotit.AndjustonE&S,Imean,youmentionedinthecommentarythere's$30millioninlaunchcostsbetweenIguessE&SandEEA.Evenifit'sjusthalfE&S,that'saprettybigmarginhitforthatsegment.Sodoesthatgive--shouldwebemodelinginprettysignificantmarginupsideinthesecondhalfoftheyearasthat$30millionshrinksdownintheE&Ssegment?Becausethatcouldbealmost200basispointsof--ifyoulookathalfofitthisquarter.

JoeMassaro (CFO):




No,itisasignificantpieceofthequarter.Iagreewiththat.IthinkouroverallguidanceforE&Sremainsunchanged,is25basispointsgrowthonafull-yearbasis.Andourguidancefromthebeginningoftheyearhasincorporatedtheselaunchcosts,asI'vetalkedabout.

Weknewtheselauncheswerehappening.They're--theydon't--theyarenotasurprise,ifyouwill.Sowefactoredthatintoourfull-yearmarginguidance.Sothat--usingthat25basispointsexpansiononafull-yearbasisiswhatIwouldsuggest.


Gotit.Andjustonelastquestion.OntheimpactfromJapan,isthereanyparticularsegmentthat'smoreimpacted,orisitacrossallthreeor(multiplespeakers)--

JoeMassaro (CFO):

Youknow,allthreeseeit.Iwouldsaythe--ifyouthinkaboutthe$75millionofrevenue,roughly$40million,$45millionofitisinEEA.That'snot--it'snotnecessarilyspecifictoEEAproducts,butEEAbeingsuchalargebusinesspicksupwhatI'llcallsomeoftheimpactfromourotherDelphibusinesses,particularlyE&S,losingdirectsupply.

Butitwasalsoimpactedbysomeoftheindirectandparticularly,theGMpull-aheadoftheplant,beforeplantshutdownfromJulytoJuneisimpactfultoEEA.SoEEAisthelargest,althoughittendstosuffermorefromindirectthandirect,isthewayIwouldthinkaboutit.


Okay.Allright.Thankyouverymuch.

Operator :

AdamJonasfromMorganStanley.

AdamJonas (Analyst-MorganStanley):

Hi,everybody.


Hi,Adam.


Hi.Good,howareyouguysdoing?


Good,good.


Kevin,aquestionhere,kindofhighlevel.We'rehearingalotofautoexecutives,andIthinkyourselfincluded,sayingthingsliketheautomobileshouldchangemoreinthenextfiveyearsthaninthelast50years.Ithinkyou--kindoflikefromahighlevelagreewiththatsentiment,right?


Yes,Idon'tknowifit'sexactlyfive,but--





Right.


Plus,Ithinkingeneralwe'regoingtoseealotofchange.


Ifwejusttakethatostensiblyatfacevalue,could--onecouldarguethatcouldmeanthatinfiveorsevenorwhateverthatnumberofyears,certainlywithinengineeringcycle,thatcarsontheroad,allcarsontheroadaregoingtofeelliketheyare50yearsold.Now,doyousee--justcuriouswhereyou--Iknowyoudon'thaveacrystalball,butcuriousifyourteamatahighlevel,fromaproductioncapacityanddemandplanningstandpoint,thinkaboutthepossibilityofthissupercycleofacceleratorplacementdemandaskindofbuyinganewcarisseenasalife-savingdecision.

Andasmoredatacomesoutaboutthedangersofhumandrivingunassistedrelativetothe--youknow,towhat'savailableonthemarketandthegreatproductsyouprovide,whethertherecouldbeamovementandevenkindofaneffortinWashingtoneventosay,listen,we'vegottogetthesedeathtrapsofftheroadandaccelerate.Justcuriousatahighlevel--Iknowit'snotquasi-lobbying-typequestion,butdoesthatgetanyairplaywithyou?


Listen,Iunderstandyourpoint.Ithinkyou'regoingtoseeatremendousamountofchange,moredigitization,moreelectrification,andquitefrankly,safervehicles.AndIwouldarguefirst,Adam,wedon'tneedtogetallthewaytofullyautomatedtomakethathappen,right?


Ofcourse.Right.


WecangettoLevel2.Unfortunately,governmentsdon'tmoveasquicklyasmarketsdoandoftentimes,ascitizensandconsumerswantthemto.Butit'scertainlysomethinginternally,we'remakingsurethatwehavethecapabilities.It'swhyweboughtcompanieslikeOttomatika;it'swhyweinvestedincompanieslikePureDepth.

It'swhywehavethe40engineersinSiliconValley.It'swhyI'mheadedtoIsraelnextweektomeetwithtechnologypartnersthere.Soit'scertainlysomethingthatweneedtobereadyfor.AndIthinkthechallengeforplayerslikeuswhohavecommitmentstofolkslikeyouandinvestorsishowdowestrikethebalanceaboutmakingsurewe'reperfectlypositionedforthefuture?Andatthesametime,ensuringthatwe'redeliveringseveralfinancialreturnsbetweennowandthen?

Andthosearethetrade-offsthatweconstantlythinkabout,butobviously,there'smoreandmorefocusonsoftware,onsystemsintegration,onelectrification,andthere'sfarmoreinvestmentinthatarea.Whenyoulookatadvancedengineeringforusasapercentofourtotalengineering,I--youknow,Ithinkwe'reup10%or20%andabigpieceofthatisinvestmentsoftware.


Well,andthenmaybeasafollow-upthen,invest--notjustinvestmentinsoftware,butmaybeinvestmentinhumanbeings.Canyoukindofgiveareal-timeupdateofkindofwhereyou'reshort?Weobviously




knowthatthecompetitionfortalentisbrutalanditgoes--youoverlapway,waybeyondtraditionalautoindustryintermsoftryingtogetthebestpeopleintheorganization.

You'recompetingwithallsortsofothertechfirmsandsoftwarefirms.Butwhereareyoukindof--whereisthattalentbattle?Isitgettingworse?Kindofwheredoyouneedpeoplemost,eitherbydisciplineorgeography?(multiplespeakers)Thanks.


Listen,whenyouthinkaboutitfromthemostrapidgrowthfromanengineeringstandpointisclearlyonsoftwareandsystems.Theyare25%--thoseengineersare25%ofourengineeringworkforcetodate.Ithinkweexpected--JoetalkedaboutitinourInvestorDay,closetodoublingthatnumberoverthenextfiveyears.Thatdoesn'tmeanyouneedtodoitinSiliconValley.

YoucandoitinplaceslikeBangalore,wherewe'relocated;inplaceslikeShanghai.We'relookingatotherlocationstoactuallyrecruitandputthosepeople.Andquitefrankly,whereitmakessense,wepartnerwithoutsideserviceprovidersandleveragetheircapabilities.Butthat'sbeenourbiggestfocus.Tobehonest,wehaven'thadachallengeingettingthosepeople.It'snotbeenaconstraint.

It'snotgettingourway--gotteninthewayofourproductdevelopmentorrevenuegrowth.Ithinkpartofthatisbecauseoftherealinterestingthingswe'redoingfromanautomateddrivestandpoint,fromaninfotainmentstandpoint,fromasystemsintegrationstandpoint.Ithinkwe'vebenefitedfromthat.And,youknow,it'sclearlysomethingwe'revery,veryfocusedon.


Great.Thanks,Kevin.Thanksteam.

Operator :

JoeSpakfromRBCCapital.


Hi,Joe.Howareyou?

JacobHughes (Analyst-RBCCapitalMarkets):

Hi.ThisisJacobHughesonforJoe.Howareyoudoing?


Hi,Jacob.


Hi.Justhadacoupleofquickfollow-ups.Oncommodities,whenyouguysaresayingnothingneutralyearoveryear.Wastheresomesortoftightwintertailwindlastyear?Justtrying--howtothinkaboutthat?


No,Ithink--well,it'sjustthat,Jacob,commoditiesforusisreallyadiscussionaroundcopper,particularlynowthatwe'vedivestedofthermal.Sowe've--copperpricingcontinuestomovedown.Wehaveforabout80%ofourpass-throughsagreementswithourcustomers,sowe'reneutraltoprice,butitdoesimpacttherevenueline.Wepass-throughstheexactprice.




Soyouseeitcomedownonrevenue,butthere'sreallynoOIimpact.Sothat'sallwe'retalkingabouthere.Soascopperpricescomedown,wedohavelessrevenue,butit'sreallyno--there'snoimpactonOI,veryminimalimpactonOI.WhatthereisonOI,it'sreallyjustmoreofatimingthananythingelse.


Okay.Andsecondly,obviously,gotsomegoodnewsontaxthatyougaveattheAnalystDay.DidyouguysevaluateanyofthisearningsstrippingcomponentwiththeIRSruling?Doesthatimpactyourtaxsituationatall,ordoesthatnotmatter?

JoeMassaro (CFO):

No,thatdoesnotmatter.Noneoftherulesthatcameoutoverthelastcoupleofweeks,whichwerefairlytargeted,Ithink,atacquisitionsthatwereeitherinprocessorbeingcontemplated,noneofthatimpactsusatthispoint.


Okay.Allright.Thankyou.

Operator :

DavidLimfromWellsFargoSecurities.

DavidLim(Analyst-WellsFargoSecurities,LLC):

Hi,goodmorning,Kevin,Joeandteam.


Hi,David.


Hi.Thanksforallthegreatcolor.Justtwoquestions.Onthereconfigurablecluster,areyouseeingOEMstryingtodo,like,apackagedeal,ifyouwill,withinfotainment?Joe,Ithinkyoumentionedone-thirdoftherotationtobest-costcountrieswithPowertrainhasbeencompleted.Isthereaparticulartimelineonwhenthatwillbefullycompleted?

JoeMassaro (CFO):

Sure.Wantmegofirstandthenyoucan--?Sure.Sowe'vekickedoff--whenIsaycompleted,it'sinprocess.Overthenexttwoyears,we'llseearotationofacouplesignificantWesternEuropeanPowertrainplantseastandsomemoreconsolidation.Soit'sreallyforus,a2016,2017,maybealittlebitinto2018event,soit'srelativelyshort,asitgoesfroma--Europeanrestructuringperspective,arelativelyshorttimelineaswegetthoseplantsmoved.


AndthenDavid,I'lltalkabout--Ithinktoday,therearecustomersthataretalkingabouttheintegrationofbetweenclusterandinfotainment.Therearenotanythatwe'reworkingwiththatarebuyingthetwotogetherasapackage.It'sheadedinthatdirection.Ultimately,Ithinkwe'llget,youknow,we'llgetthere,butwe'renotthereatthispointintime.





Great.Thankyousomuch.

Operator :

EmmanuelRosnerfromCLSA.


Hi,Emmanuel.

EmmanuelRosner (Analyst-CLSA):

Hi,goodmorning.Justacoupleofremainingquickonesforme.Onactivesafety,youweretalkingaboutrevenuesup70%andobviously,sinceit'sasmallbase,Iunderstandthere'ssomelumpinessthere.

Areyouseeing,ingeneral,somesortofaccelerationintermsofwhenyoudiscusswiththeautomakersasaresultoftheircommitmenttomakeautomaticemergencybrakingstandard?Isthat--areyouseeingmaybeahigherpaceofadoptionthanyouwereseeingsixmonthsago?


Yes.Listen,I'dtellyou,IthinktheadoptionofAEBcreatessometailwind.Idon'tthinkit'sthebiggestdriver.Ithink,inreality,whenyoulookatit,we'vebeentalkingaboutitforprobablythelast12,24months.Itisaconsumer-drivendemanditem.

Andasaresult,OEsaremakingsurethattheyhavethatcapabilityintheirproduct.Andthat'swhat'sreallydrivingthedemandandcontinuestodrivedemand.I'dtellyou,itcontinuestoacceleratebutIthinkit'swhatourOEsneedtosellthecars.


Okay.Andthenonyourguidanceslide,youhavethisinterestingcommentarythatyou'remonitoring,obviously,afewfactors,includingglobalproduction,FX,commercialvehicle,Japanimpact.Alotofthesefactorsseemdownsiderisk,like,andIknowyouwereveryclearthatyouwereseeingingeneraltheriskprettybalancedhere.Whatissortofliketheupsideriskthatyou're--that'sresurfacingthatgiveyouoverall--thecomfortinyourfull-yearview?

JoeMassaro (CFO):

Ithinkthat'sagoodwaytothinkaboutit.Thematically,weseeQ1asbeingverybalanced.Weseethatcontinuingthroughtheyear.Sowe'repotentialstrengthinChinaandEuropeanmarkets,Kevinmentionedthat.

Atthispoint,beingsomewhatoffsetbyBrazilandthecommercialvehiclespace,particularlyCVinNorthAmerica,butagain,balance.IthinkthechartonSlide19,hopefully,iscommunicatingafairlybalanced,afairlybalancedlookatthispoint.Andagain,wherewe'recomfortablewithwhereweareonfull-yearoutlook.


Emmanuel,Iwouldtellyou,ifIweretotakeastepbackandlookatthings,ifyoulookatthefirstquarter,asanexample,andyouadjustforFX,we'reattheverytopendofourrevenuerange.We'reatthetopendofourOIrange.Andwe'recertainlyatthetopendofourEPSrange.

AndIthinkifyoudothesamesortoflookatourQ2guidanceandadjustitfortheJapanearthquakeissue,you'reinasimilarsituation.Solisten,wefeelgoodaboutwherethemarketis.ThepointonJoe's




slide,wewatcheverything,right?Andwemakesurethatwecanreacttoeverything.

Andfortunately,wehaveacoststructurethatisveryflexible,thatwecanmoveveryquicklyon.WecontrolallofourjointventuresinChina,sowemakethetactical,aswellasstrategicdecisionstorampuporrampdown.Sowe'reincontrol.Andbecausewe'reincontrol,wemonitorandreacttoeverythingthat'soutthereandwanttobeinfrontofthingsversusbehindthem.


That'sgreattohear.Thenjustonelasthousekeeping,ifImay.Inthe--whenyoufirstinitiatedtheguidanceattheDetroitAutoShow,Ithinktheunderlyingsharebuybackwas$400millionfortheyear.You'vedoneobviously$370millionasofQ1.What'sembeddedinthecurrentguidance?

JoeMassaro (CFO):

Yes,IansweredthatquestionearlierforItay,Ibelieve.SoIwould,atthispoint,ifyou'rethinkingaboutoutgoingquarters,Q2,Q3,Q4,Iwouldberanging$50millionto$75millionperquarter.


Perfect.Thankyou.

Operator :

OurnextquestioncomesfromthelineofMattStoverfromSIG.


Hi,Matt,howareyoudoing?

MattStover (Analyst-SusquehannaFinancialGroup):

Hi,thanks.I'mverywell.Hopeyouguysarewell.Twoquestions,ifIlookattheEEA,themarginscontinuetobereally,reallystrongthere.Iknowthecoppereffectkicksin.Youprobablygetsomesynergy.Ifyoucouldwalkthroughthewalkyeartoyear,thatwouldbehelpful.

JoeMassaro (CFO):

Sure.Soforthefull-yearEAwalk,justtobeclear,Matt?


No,justthequarter.

JoeMassaro (CFO):

Justthequarter?


Yes.

JoeMassaro (CFO):

Sure.Holdononesecondhere.





Andthenifyou'relookingforsomething,anotherquestion,justabiggerpictureonbacklog.It'salwayshardformetomakesenseofthebookingsnumber.AndifIlookat--Itendtolookatitonarollingfour-quarterbasisandIknowthisstuffcanbelumpy.

Butifyoulookattherollingfour-quarterintothefirstperiod,itlookslikeyou'veseenanoticeabledecline.I'mjustwonderingiftherewasactivitythatwouldnormallyhavebeentakingplaceinthefirstquarterthatperhapsshiftedorhowweshouldthinkaboutthat?


No,that'sagreatquestion.Whydon'tIstartwiththat,instead?Lastyearinour$10millionbookingforthefirstquarter,wehada$3billionwinwithalargeglobalOE,soIwouldsaythatwouldhaveskewed--thatwouldhavesignificantlyskewedbookingsinthefirstquarteroflastyear.


Okay.

JoeMassaro (CFO):

SoMatt,ifyouwalkthroughtheEEAwalk,Q12015toQ12016,youknow,strongmaterialperformance,callitabout$30million,strongSG&A,justagain,justyear-over-yearperformanceofabout$10million,somewhatoffsetbythelaunchoftheengineeringcoststhatwe'retalkingabout.

Sothinkaboutthatasthat'sabout$50millionofupsideandabout$10million,$15millionofthat'scomingoutinengineeringandlaunchcoststuff.


Matt,asyoulookatit,IthinkouroutlookfortheyearisEEAwill--marginexpansionwillberoughly75basispoints,right,onayear-over-yearbasis,whichissolidrevenuegrowth.We'llhaveverysolidmarginexpansion.AndIthinkitreally--wecangothroughallthedetails,butitreallycomesdowntoexecution.

It'sthebenefitofvolumeflow-through.Theyareanorganizationthatoperatesvery,verywell.Totheextentyouputvolumethroughthemachine,thatmachinetendstoconvertitintoearnings.Andwe'reseeingthebenefitfromthat.


Thankyouverymuch.Appreciateit.


Sure.

Operator :

OurfinalquestioncomesfromthelineofChrisMcNallyfromEvercore.


Hi,Chris.

ChrisMcNally(Analyst-EvercoreISI):

Thanks,guys.Justaquickfollow-onontheorganicincrementalmargin.InQ1,thewayyouguysreported,it'sroughly30%.It'sbeentrackinginthat30%sortofrangeforthelastcoupleofquarters.Youhadsome




headwindsinChina.Canweassumethat,thatnumbermayhavesomeupsideaswegetintothesecondhalfoftheyear,particularlyasthehigherR&DfromthenewprogramsinQ1sortofsubsides?


IthinkJoecanbespecific.Ithinkastheyearrollsoutandtheexception,basedonourassumptionfortheJapanearthquake,isreallyQ2.Butifyounormalizeforthat,wewouldexpecttocontinuetosee--Ithinkonasequentialbasis,youactuallydo,year-over-yearmarginexpansionquartertoquarter.Andit'saresultoftheroll-throughorflow-throughoftheitemsJoehadtalkedaboutearlier.Joe?

JoeMassaro (CFO):

You'reright.Thedrop-throughonthesalesgrowthisinlinewithhistoricaltrends.Thatdoesbouncearoundalittlebit,butit'swherewewouldhaveexpectedittobe.Marginprogressionthroughtheyear,headingtoour50basispointsexpansionyearoveryearwillaccelerateaswegettothebackhalfoftheyear.

SoIthinkandthat'seffectivelythesamethingswe'retalkingabout.Thevolumepicksup.Performancegetsbetter.Inpart,weperformbetterinthebackhalfoftheyear,asourinitiativesstarttopickuponafullrunratebasis.AndwealsogetoutofthelaunchcoststhatwehavebeentalkingaboutinQ3andQ4.


Perfect.Sothelaunchcosts,basicallythereissomeinQ2still,butthenessentially,theyfalloffinQ3andQ4?

JoeMassaro (CFO):

Effectively.Theyfalloff.There'ssomestillinQ3andthentheyfalloffinQ4.Butit's--theyaredown.TheycutthemselvesinhalfbyQ3andbasicallygoneinQ4.


Soremember,Joereferencedinthispresentationroughly$35millionoflaunchandChinacostsinQ1,decliningto$20millioninQ2,andthenfallingofffromthereinQ3andQ4.


Perfect.Thankssomuch,guys.


Thankyou.

Operator :

ThatconcludestheDelphiQ12016earningsconferencecall.

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