Aptiv PLC (APTV) 2013 Q2 法說會逐字稿

Good morning. My name is Susan, and I will be your conference facilitator. At this time, I would like to welcome everyone to Delphi's second-quarter 2013 earnings conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions).

I would now like to turn the call over to Jack Monti, Delphi's Director of Investor Relations. Sir, you may now begin your conference.

Thanks, Susan, and thanks so much, everyone, for joining Delphi's second-quarter earnings conference call. To follow along with today's presentation, our slides can be found at delphi.com under the Investors section of the website. Please see slide 2 for a disclosure on forward-looking statements, which we will be making on today's call and only reflect Delphi's current view of future financial performance which may be materially different from our actual performance.

Joining today's call will be Rod O'Neal, Delphi's CEO and President, and Kevin Clark, our CFO. As seen on slide 3, Rod O'Neal will begin the call with an overview of our second quarter, followed by Kevin Clark, who will review our financial results in greater detail, discuss our third quarter and 2013 outlook and then open the line for Q&A.

With that, I will now turn it over to Rod.

Thank you, Jack, and good morning, everyone. We had another great quarter in what continues to be a rather challenging environment in Europe. Our results are further validation of our ability to execute flawlessly and continued to deliver value to our customers and to our shareholders. So let me share just a few highlights of the quarter, so if you could go to slide 5, please.

As I said, we had a great quarter. We had record margins. We increased earnings per share by over 20%. We continue to make progress optimizing our industry-leading cost structure to better position the business for both growth and profitability. Our restructuring program remains on track and reflects aggressive actions to rotate our western European footprint.

MVL, a very strategic acquisition, continues to be integrated seamlessly by the team with profitability and synergy targets tracking ahead of our expectations.

In the quarter, we repurchased $120 million of stock. Our Board approved a $0.17 quarterly dividend, representing $53 million of cash to the shareholder, and in total, our share repurchases and dividend programs bring the amount returned to shareholders to $600 million over the last 12 months.

Turning to slide 6. This slide includes several of the accolades we received from customers during the quarter. In June Delphi won the prestigious Volkswagen Group Award in the category of Global Champion, which we won for work on our advanced diesel common rail. I was personally in Dresden for the event and to receive the award. It was an honor and is a testament to the tremendous value Delphi employees bring to this very important customer. It also underscores our technology leadership in the key area of our product portfolio, fuel injection, to help VW meet ambitious fuel efficiency and emissions targets.

It is an important part of our strategy to win with the winners, and this award is a great example of our deepening relationship with Volkswagen.

We also received an innovation award from a German magazine, Automobile Production, in the Safe category for our RACam integrated RADAR and Camera system. We are particularly proud of this innovation award because RACam in our view is the way of the future with the Camera and RADAR integrated together. RACam was those customers are meeting the Euro NCAP 5-star ratings.

And lastly, we were recognized with a GO Further Award by Ford for our supply chain performance during 2012. The Go Further Award speaks directly to Delphi's leading execution capabilities, which we consider a competitive advantage. It is all enabled by our enterprise operating system and global scale. These awards reinforce that Delphi is providing customers with leading edge technical solution and flawless operational execution. Let us go to slide 7.

We booked $13 billion in new booking so far this year, which is ahead of our internal plan, and we're well on our way to our full-year target of roughly $26 billion. The pace of award activity accelerated in Q2, but we expect this momentum to continue as we see a significant increase in the level of bid opportunities during the second half of the year.

A few of the highlights of our Q2 bookings which further underscores our market leadership and value proposition, in Europe Audi awarded us a contract for GDI injectors. In Asia, Hyundai awarded us a radar safety system contract. And in North America, Chrysler awarded us both infotainment systems and our Electrical Architecture business.

Moving to slide 8, our focus has remained unchanged over the last several quarters. When you boil it all down, we had another great quarter where we continued to deliver on our promises to our customers and to our shareholders. As we move into the second half of the year, we are focused on continuing our tremendous momentum. We will continue to pursue disciplined revenue growth, while expanding margins and increasing earnings. We will further optimize our cost structure, and we will increase our investment in industry-leading technologies such as gas, direct injection and active safety solutions. And we will continue to deploy capital in a very disciplined manner and return cash to our shareholders.

Now I'd like to turn it over to Kevin.

Great. Thanks, Rod. Good morning, everyone. I will begin by covering our second-quarter results and then discuss third-quarter and full-year guidance. Today's review excludes all restructuring costs in order to provide clear visibility into the underlying operating performance of our business. The reconciliation between GAAP and non-GAAP numbers are included at the back of both the press release and the presentation for your reference.

So let me start on slide 10 with a snapshot of our second-quarter financial performance. As Rod already mentioned, our results were strong, actually exceeding our expectations for the quarter, reflecting reflecting than originally forecasted build schedules in Europe and North America, cost controls, and very strong operating performance. Although production was better than expected, European passenger car market and the commercial vehicle markets in North America and Europe continue to be relatively weak. As we look at the second half of this year, we expect our growth rates to improve and the year-over-year comparisons to become more favorable.

Despite the continued challenging macro environment, we reported record margins and strong earnings and cash flow. Revenue totaled $4.2 billion. That is up 6.1%. Adjusting for FX, commodities, acquisitions and divestitures, revenues increased 1%. EBITDA grew to $645 million, and EBITDA margins expanded 50 basis points to a record 15.2%. Operating income reached $513 million, and operating margins expanded to 12.1%, a 20 basis points year-over-your increase, including the additional depreciation and amortization from the MVL acquisition.

Net income totaled $388 million, and earnings per share increased over 20% to $1.24. And lastly, free cash flow totaled just over $400 million, representing a conversion rate of over 100% of net income.

So with that as a backdrop, move to slide 11, and I will review revenue in more detail. As I mentioned, revenue increased over $240 million, or 6.1%, to over $4.2 billion. Price downs of 1.6% and lower commodity pass-throughs, primarily related to copper, presented a combined $69 million headwind to year-over-year revenue growth. FX added $15 million to revenues and 40 basis points to our growth rate. Volume growth totaled $84 million, adding 2 points to our underlying growth rate, and the MVL acquisition added roughly $213 million of revenue or 5 points of growth.

On a regional basis, European revenues were down 7%. That was due to the continued softness in the passenger car and commercial vehicle markets that I referenced earlier, as well as the lower take rates on diesel fuel injection and high end infotainment systems.

North American revenues increased roughly 4%. That is just below the underlying market, reflecting customer and platform mix, including the transition of the GMC 900 production to the K2XX platform, and softness in the commercial vehicle market.

Asia continued to be one of our fastest-growing regions. Revenues increased 9%. In that region, China revenues increased over 11% as a result of strong growth with both the multinational and the local OEMs.

In South America, revenues increased 13% due to increased vehicle production, partially offset by unfavorable customer and platform mix.

Slide 12 reconciles the year-over-year change in EBITDA, which increased $56 million or just under 10% to $645 million, representing flow through on higher revenue, cost controls, solid operating performance, and benefits from the MVL acquisition, partially offset by unfavorable product mix, price down, and increased investments in engineering. EBITDA margins increased 50 basis points to 15.2%, as I mentioned previously, a record for Delphi.

Slide 13 details our segment results. Electrical Architecture continued to be our fastest-growing segment. Adjusted revenue, which excludes the impact of the MVL acquisition, FX and commodity prices totaled just over $1.8 billion. That is up over 6% from the prior period, driven by strong double-digit growth in North America, Asia and South America, partially offset by continued softness in European revenues.

Segment EBITDA increased to $325 million, representing 15.9% EBITDA margins, up 110 basis points from the prior year as a result of the MVL acquisition, flow through on revenue growth and continued strong operating performance.

Revenue in our Powertrain segment totaled almost $1.2 billion. That's down almost 8%, primarily the result of a double-digit decline in European revenues as a result of continued market weakness and the related lower sale of diesel fuel injection systems. Segment EBITDA declined $14 million to $190 million, but EBITDA margins remained flat at 16.4%, reflecting the effects of lower revenues and unfavorable product mix, offset by operating performance, restructuring benefits, and the timing of engineering rebuilds.

In our Electronics and Safety segment, revenue totaled over $700 million. That is roughly a 2% increase from the prior period, largely the result of double-digit growth in Asia and South America, partially offset by relatively flat revenues in Europe and North America. Segment EBITDA increased to almost $110 million, and EBITDA margins expanded 140 basis points to 14.8% due to flow through on higher revenues, benefits from restructuring initiatives, as well as a small commercial settlement during the quarter.

And lastly, Thermal revenues declined 3% to just under $390 million. Segment EBITDA totaled $23 million, and EBITDA margins decreased 6.2% as a result of lower revenues, increased new program launch expenses, and a gain on an asset sale that occurred in the prior period.

Turning to slide 14, earnings per share increased $0.21 or over 20% to $1.24, driven by increased earnings, a lower tax rate, as well as a lower share count, partially offset by an increase in depreciation and amortization expense.

Moving to slide 15, we ended the quarter with a strong balance sheet and a solid investment-grade credit metrics. We generated over $400 million of free cash flow, primarily the result of increased earnings and lower cash taxes and capital expenditures. During the quarter, we repurchased $120 million of stock, paid dividends of $53 million and paid down $52 million of debt. As Rod already mentioned, we've returned over $600 million of cash to shareholders over the last 12 months and roughly $350 million year-to-date through both share repurchases and dividends.

Balance sheet cash at quarter end totaled over $1 billion; total debt was $2.4 billion and net debt was just over $1.4 billion, roughly 0.7 times LTM EBITDA.

Slide 16 details the assumptions underlying our 2013 guidance. Based on several sources, including customer schedules and IHS, we are forecasting global production of just under 87 million units, which represents just over a 2% increase in global production. Although our current forecast for production is largely unchanged from our prior forecast, it does reflect an increase in first-half production, which is largely offset by a corresponding decrease in second-half vehicle production. Net-net, the result of a sequential decline of over 2% in second-half vehicle production relative to the first half.

Looking at our production forecast by major region, in North America our guidance now assumes a 5% increase in year-over-year production. That's over 1 point from our prior estimate. In China we continue to forecast production growth of 10% versus the last year with second-half production growth of 8%, lower than the 12% growth seen in the first half of the year. And we are now forecasting European production of just over 19 million units. That is down 3.5% versus last year, a 1 point improvement from our prior forecast, largely the result of stronger production in the second quarter of this year.

Although the market seems to have stabilized, we remain cautious and expect third- and fourth-quarter production to be down 2% and 1% respectively versus last year.

Turning to slide 17 to discuss our 2013 full-year guidance, we've tightened our guidance range for revenues to $16.3 billion to $16.5 billion, reflecting a stronger first-half production schedules, roughly offset by the reduction in second-half production schedules. Our revenue guidance represents above-market growth for the back half of the year. We have raised the bottom end of our EBITDA guidance by $25 million and now expect EBITDA to be in the range of $2.35 billion to $2.425 billion, reflecting flow through on higher first-half revenues, continued strong operating performance and benefits from the MVL synergies and restructuring initiatives, partially offset by the flow-through impact on slightly lower revenues in the back half of the year and increased investment in growth initiatives, including engineering and information systems.

As a result of the change in mix of our geographic earnings, we are now increasing our estimate for full-year tax rate from 16% to 17%, resulting in a $0.05 headwind to our full-year EPS guidance. Notwithstanding, we've raised our EPS guidance range to $4.22 to $4.45 as the impact of a higher tax rate is more than offset by higher earnings and a $0.01 benefit from a reduction in our average share count to 313 million.

We continue to expect cash flow before financing of $1 billion and CapEx of roughly $750 million.

Turning to the third quarter, we expect revenues to be in the range of $3.95 billion to $4.05 billion, representing a 9% increase versus the prior year, down 6% on a sequential basis, slightly better than the trend in our served market due to summer shutdowns in Europe and North America. On a year-over-year basis, our guidance reflects one fewer day of production globally, which for Delphi approximates $75 million of revenues during the quarter. EBITDA will be in the range of $540 million to $570 million, representing EBITDA margins of 13.7% to 14.1%, reflecting lower operating performance due to the inefficiencies associated with fewer production days during the quarter.

EPS will be in the range of $0.86 to $0.94, assuming an average share count during the quarter of 311 million and a 23% effective tax rate versus 15% last year.

With that, we'd like to open the line up to questions.

(Operator Instructions). Brian Johnson, Barclays Capital.

I apologize. I am actually in a K2XX. So if it is weak, I don't know if I should blame your input.

Want to drill down on the Powertrain and E&S in Europe and whether the take rate on diesel and higher end infotainment you talked about -- is that reflected just in production schedules or in sales as well, and do you get a point at which it is out of the comps and becomes less of a headwind?

Why don't I take a shot at it, Brian. Let me first start with, in the second quarter, we did not see improvement in take rates for diesel fuel injection systems or for high end infotainment systems in Europe. As we look at Q3, we really don't have any improvement included in our guidance or our forecast. That trend annualizes at the end of Q3, so on a comparison basis, you should see a slight improvement in those take rates in Q4.

And when you talk about take rates, do you mean in your production schedules or in the actual deliveries?

I mean in the headwind, in the year-over-year headwind associated with mix.

Okay. What are you seeing at the consumer level, any kind of switch back?

At this point in time, really no change, and we've included no change or no increase in take rates in our full-year guidance.

Okay. And are you seeing any uptick in mid-range acceptance to somewhat offset that with --?

Yes, some, but given the differential in price and in margin, that uptick does not offset the downward pressure from lower take rates on the higher end systems.

These two trends, are they affecting your premium customers, or is this more the take rates within the diesel and better option packages in the mass market customers?

Well, on an injection side, it's not -- I wouldn't call it isolated to premium because we also have diesel in the lower-end cars, and some of the lower-end cars haven't been very hot in Europe, as you know. So the diesel injection is just mix, and on the audio side, that has more to do with the premium side.

Okay. Thanks.

Rod Lache, Deutsche Bank.

This is Dan Galves standing in for Rod this morning. So I was just taking a look at the incremental margins on a sequential basis from Q2 to Q3. Your guidance seems to imply something in the high 30% decremental margin Q2 to Q3 this year, and last year it was in the low 30s. Just given the expected ramp in restructuring savings and I thought you would get some improvement in European -- or you thought there was a stepdown in European mix last year, just thought that those decremental margins would actually be better this year than last year. Can you give us any color on what's going on there?

Sure, Dan. It's Kevin. I will start anyway. Listen, at the end of the day, we are definitely on track with respect to restructuring benefits and the MVL synergies. As Rod mentioned, we're actually ahead of pace on the MVL synergies. I think when you look at the flow through or the decremental margins going from Q2 to Q3, one of the pieces that you have to account for is the lower production or one lower production day in Q3 this year versus last year, the summer shutdowns, the timing of those summer shutdowns, the inefficiencies from a manufacturing standpoint with respect to starting and stopping production. And unfortunately in Q3 this year, that will more than offset the incremental benefits we're going to get from restructuring savings and MVL synergies.

Okay. Got it. And if you could give us any color on your outlook for China and South America? Macro data has been coming in weak in China, and any sense of any change in production schedules from your customers? What's your sense of how growth rates should trend in the back half of the year?

China, China still continues to have tremendous momentum with our customer mix. So we are very confident with our growth rates maintaining what we have historically done.

South America is a little secular. It depends on the customer and also their macros. Particularly Brazil, the last quarter was pretty good, and our numbers were pretty good, and I'm hopeful that the government is going to work closer with business to continue to get the economy more stable. But in South America, it is somewhat secular, depending on the customer.

Okay. Thank you.

John Murphy, Bank of America.

Just a first question on the cadence of earnings in the third quarter and going into the fourth quarter. I mean the third quarter looks on an EPS basis particularly conservative, and then the fourth quarter looks pretty heavy. And I'm just curious what's going on that you are comfortable with that kind of an acceleration or strengthening in the fourth quarter?

John, I think part of it is when you look at tax rate, sequential change in tax rate first half of the year. We're running on average at roughly 14%, 16% in Q2. That jumps up to 23% in Q3, and we have a slightly lower tax rate in Q4 to average out at the full year of roughly 17%.

Okay. So a lot of this --

EPS. I think --

Okay.

-- when you look at that trend in operating earnings, so you go above that line and you look at our revenue forecast for Q3 and what is implied in Q4 and you look really sequentially at production schedules or the change in production schedules on a sequential basis, you will see our revenue, by and large, mirrors those changes. And, as you know, decremental margins are higher than incremental. Decremental margins, they tend to drop at a higher rate than incremental margins. I think if you do that math, you will flow through, and we have a high confidence level in our guidance for both periods.

But there is a very significant level of volatility in the tax rate between the quarters, as well, as you alluded to, right?

You go 16% to 23% in Q2 to Q3. So as you can --

Yes.

That is, I think, close to $0.10 of EPS on a sequential trend basis.

That's a big step up.

Okay. Second question, just on Europe, if you can just remind us what your mix of business is there for end markets? Just trying to understand the underperformance in the quarter if a lot of that had to do with commercial vehicles or after market.

Yes, a big piece of it continues to be in the commercial vehicle area, which is call it between -- is roughly 12.5% of our total revenues. Aftermarket is roughly 12.5%. Aftermarket performed better than the commercial vehicle market did for us. It was actually roughly flat on a year-over-year basis. Commercial vehicle was down significantly.

And then the balance relates to passenger car, which is a mix of luxury, which we do reasonably well from a unit volume standpoint, but we are being impacted by product mix, both on the ENF, as well as the diesel side. So that has been the challenge.

As you look at Q3 and Q4 in Europe, in Q3 we would expect to grow roughly at market. In Q4 we'd expect our European revenues to actually be significantly above market. So the trend improves in the back half of the year.

Okay. That's helpful. And then just lastly, as we look at slide 7, it sounds like you're talking about $26 billion or so of new business bookings this year, and you did $26.3 billion last year. That is a pretty significant acceleration from the years prior. I'm just curious, are we hitting in late this year, or is it really next year that we see a real inflection point of these cumulative years of real big growth in the backlog rolling in and supporting revenue growth, but also maybe more importantly, margin improvement is older, lower margin business rolls off and better, higher margin business rolls on.

I'm just trying to understand the inflection point. Because it's a pretty significant change in each business in the backlog.

Sure. As I said, in Q3, if you look at our guidance, we will grow roughly in line with market. If you look at the implied Q4, our revenue growth would be significantly above market. So that reflects the overall trend you're talking about. As it relates to profitability, the thing that I would focus you on is at midpoint of our guidance we have EBITDA margins at 14.6% for full-year 2013 on revenue growth when you look at first half/back half, which will effectively be just adjusting for foreign exchange and acquisitions in line with the overall market growth. So very, very strong profitability on not the strongest revenue growth on a full-year basis.

Great. And then just truly lastly here, on the MVL, the acquisition has gone so well. Does that really increase your appetite for potentially other acquisitions out there? I mean I know there's a lot of stuff on the Electronics side that is up for sale, probably not as high quality as MVL, but just curious if you are beating that warpath a little bit harder right now given the success with MVL.

Well, I wouldn't call it any harder. I think we've always had a very clear path of what it is that we wanted to accomplish with acquisitions. And one is I would just remind you that the core plan at Delphi, we don't need acquisitions to make it work as we've often said. But when you do one like MVL, it just makes a very good plan even better.

So our appetite is really focused on more of the same in terms of acquisitions like MVL. Very strategic in nature and ability to take a plan that is very good and make it even better.

Great. Thank you very much.

David Leiker, Baird.

Just a couple of things to follow-up on on the new business. Rodney, you talked about the Audi GDI, the Hyundai Radar and the Chrysler Infotainment Electrical Architecture. Is there -- if you took those wins and put them in buckets across the segments, how do you think that would look?

When you say segments, what do you mean?

Across your core business segments -- E&S, Powertrains, Thermal, EEA?

I'm not sure we are following your question. Maybe you can --?

If you take the bookings that you have in your backlog right now over the last 12, 18 months or so, how does that look if you broke it out across the different segments?

I don't know if we have it.

I think, David, in the past we really haven't given specific guidance on that. I think what we would say it is roughly in line with the current revenue mix of our business or --

Divisions.

-- or divisions.

Okay. And then the other item I would just kind of follow-up here on the Q3 guidance item, one thing that seems to be providing some upside on Q3 at other companies is the shorter shutdowns here in North America and in Europe. How much of a factor is that in offsetting some of these headwinds that you have seasonally on the third-quarter guidance?

Well, as it relates to us, when we look at Q3, at least the production schedules that we have visibility to, we actually see one additional day of shut down this year versus what we saw last year. So for us, that represents roughly $75 million of year-over-year revenue, and that is incorporated in the 6% sequential reduction in revenue going from Q2 to Q3 that we guided to.

Well, I mean here in the US we have much more significant lack of shutdowns than normal.

Yes, I'd --.

Yes, I would --

Than normal. I'm just want to figure out if you're just not on the vehicles that --

I would agree with you in North America. I think, however, when you look at Europe and the balance of the regions, at least from the vehicles that we're on, for us that is not the case. We are actually down a day on a year-over-year basis.

Because BMW talked about extending their summer -- not taking their summer shutdowns or export markets. Do you have different content on export vehicles than ones locally for Europe?

We wouldn't know. They would be fairly consistent. It might be slightly different, but I think largely in system.

Okay. Thank you.

Ravi Shanker, Morgan Stanley.

Again, I just want to follow-up on the earlier margin question, and I will say it a different way. You did over 15% EBITDA margin this quarter. Does that give you comfort that you can do over the 16% long-term guidance that you have given us as the backlog comes in?

That's a great question, and it's a fair question. The way Rod and I would answer it, it gives us greater confidence in hitting that 16% EBITDA margin.

Okay, understood. But you probably won't see macro flesh out a little bit more before you go above that?

I think that's fair.

Okay, understood. And we are also hearing from some other suppliers about OEMs, especially in Europe continuing to maybe push out some platforms. Are you seeing any of that, and do you expect that to have any impact on the backlog in the next year?

Well, we're seeing a little bit of delay. We really haven't spent a lot of time yet on 2014, to be honest with you. More to come on that later in the year. But at this stage I wouldn't call it major, major, but there is some slippage in some of the programs being delayed by some of the OEMs.

Thank you.

Itay Michaeli, Citigroup.

Just a question on the bookings. It seems like that the mix has grown substantially in North America year to date. Can you maybe talk a little bit about what's going on in there? And is it fair to say that that mix shift, if it continues, could be positive for your margins? Because North America I think is maybe your second-highest profitable segment globally.

I mean we still are continuing the journey of balancing out the Company geographically. Remember, the goal was to be like 30% here in North America, 30% in Europe, 30% in Asia and 10% in South America. And so what you're seeing, there's still that momentum, particularly in Asia is now I think we've booked almost 28%, 30% of the bookings were in Asia.

North America, we had a couple of huge wins here in some very key spaces. So I wouldn't call that a trend, but it was definitely an excellent outcome for this Company in terms of wins we got and the space that we got it on.

So the journey continues to continue to rotate geographically and customer base-wise. The focus is still on Asia. We're not turning our backs on other markets and particularly in Asia and China with the blend of the multinationals and what we think are going to be the winners of the Chinese OEs. So it was a good outcome, but I wouldn't call that a trend. It was just an event that occurred in the first half. It was a great event, though.

Absolutely. Thanks for all that detail.

And then just, Kevin, maybe on the tax rate, directionally how would you think about that beyond 2013 just given some of the geographic differences in volatility that we are seeing in the second half of the year?

I think it remains in the 16% to 17% range, no change from our prior guidance or direction.

Great. And then just a quick one lastly, I may have missed this, Kevin, but can you provide the sequential profit or margin walk in the Thermal business?

We didn't talk about it sequentially. We did talk about it on a year-over-year basis. And the big change there on a year-over-year basis was lower volume. We had a gain on an asset sale of business that we sold, small business within that division in the second quarter of last year. And then there's been a few incremental expenses associated with a launch of a couple of new programs within that division that accounts for the change in EBITDA and EBITDA margins.

Okay. Great. Very helpful. Thanks so much, guys.

David Lim, Wells Fargo Securities.

Just two quick questions. I was wondering if you guys could provide a little bit more color on how CV is going to play out in Q3 and Q4 from you guys, granted that Europe maybe seeing a pre-buy?

CV, what we're seeing from a production schedule and forecast from IHS and other sources is effectively an improvement in year-over-year growth rates in CV in the back half of the year. So improving in Q3 and stronger in Q4.

Got you. And then more on just more of a strategic product standpoint, there was a recent article about Mercedes working to integrate Google glasses with the infotainment system. Can you comment on that, and how would that affect your Electronics and Safety business?

I haven't seen the article, so I can't comment on it. I will go look it up and read it. Where did you see it at?

I will have to get back to you on that one. It did come across.

Yes, well, I would view that as well, we have our eyes on the horizon of all portable devices, both current and future, that would enter the space. We accept that as a given, and then we are working very hard technically to make sure that we are going to play no matter which way the market goes.

As you know, we put an office out in Silicon Valley to make sure that we were close to Ground Zero, some of the thinking and direction from a technology perspective.

So I haven't read the article. I guess what I would say, if it's coming in the car, we will welcome it.

Got you. And are you guys doing anything with Google, by any chance?

We are.

Okay. Thank you very much.

Brett Hoselton, KeyBanc.

Gentlemen, nice quarter.

Thank you.

Thank you.

Can you, and I apologize, I just haven't heard a really good explanation for this quite yet, but you have increased your production expectations in some of your core end markets, and the overall global production expectation kind of is flat. I understand the better first half versus second half and so forth, but overall the full-year numbers went up, but your sales has kept the same. I'm wondering is there a deterioration in mix or something like that, or is it more conservativism?

Rod, let me take a shot at it, and I apologize if we weren't clear on it.

In reality when you look at the full-year schedules, they are up slightly, very slightly. What really happened, when you look at current production schedules and forecasts, is you have re-timing, increased production in the first half, and that increased production has almost been completely offset with reduced production in the second half of the calendar year. So that is the net change from a production schedule standpoint.

So global production levels are up very slightly versus the prior forecast, and virtually all of that has occurred in the first half of the year.

And, let's say, with what appears to be the wrapup of some of the investigations in Europe, I'm thinking about your deployment of capital, and I'm wondering is there any possibility that you might accelerate your share repurchase? Or is this kind of pace that you have been at for the past four quarters pretty consistent with your expectations going forward?

Yes, I think it is the latter. It would be pretty consistent with our expectations on a go-forward basis. As we've told you and our investors, we want to be somewhat opportunistic as it relates to share repurchases, that we maintain flexibility to create shareholder value via share repurchases, as well as have dry powder available if an attractive acquisition becomes available.

Okay. And then just finally, you know your acquisition pipeline better than we do. What is your sense of the likelihood of a bolt-on acquisition or something like that occurring in the next, call it, 12 months?

That is tough to predict, right? To acquire something, it takes two parties to agree on multiple things. And as you know, that's always hard.

Listen, we're always looking at things. We very actively look at things. We learn something, we learn something about the markets, about customers, all that is important. So we try to look at everything that is in the space. We have been actively looking at things over the last 12 months since we announced the MVL transaction, and clearly we haven't found anything that meets our strategic operational and financial thresholds.

As Rod underscores, we don't need to acquire anything to meet our internal plan and continue to drive revenue growth and expand our margins. So we are extremely selective. We are very selective.

Excellent. Thank you very much, Kevin.

Ryan Brinkman, JPMorgan.

Obviously, the performance other line in your EBITDA walk on slide 12 continues to track very strong, and stronger I think than most had forecast or that was implied in your guidance, I'm guessing. So I know that a lot of this is just day to day blocking and tackling stuff, but could you maybe give us an example or some examples of specific actions you're taking to drive this performance? And any commentary you can make, too, as to the sustainability of the current run rate of performance savings would be very helpful. Thanks.

Sure. It is Kevin. Well, included in that [$97 million], a part of it is a benefit from the MVL transaction, so that is call it, roughly $45 million of EBITDA during the quarter. So that's a portion of it. The balance relates to initiatives associated with material cost savings, manufacturing, productivity initiatives, engineering and productivity initiatives and SG&A productivity initiatives. And it ranges from redesigning products to take material costs out to leveraging our supply base or consolidating our supply base to get more purchasing leverage to enhancing our overall footprint so that we get logistics and transportation savings.

On the manufacturing side, as you know, we are rotating our footprint to lower-cost countries, so benefits associated with lower labor costs, as well as more productive manufacturing processes. So it's a very long laundry list of initiatives that really sit in big buckets that we would characterize as material manufacturing, engineering and SG&A.

Okay. That is helpful. And I think it helps to partly answer my second and last question, which is just help on margin trajectory at EEA. I was curious how much of the margin improvement we're seeing there is merely a function of onboarding MVL versus maybe MVL-related synergies versus typical operating leverage or even cost reduction? And I ask the buckets just because I'm trying to better understand so I can model how much of the year-over-year margin improvement might continue as you cycle past the point at which you onboarded MVL in the year-ago period? And thanks and congrats on the quarter.

Well, thank you. As we told people when we acquired MVL, when we hit full run-rate synergies, we expected MVL to add roughly 100 basis points to the EEA margins. When you look at EEA on a year-to-date basis, a significant portion of that improvement is MVL-related. However, the base business is performing extremely well. We are getting flow through in volume. We're getting benefits from restructuring initiatives that are separate in a way from the MVL transaction, as well as just tight cost control.

So it's a mix of both. I would say it's more than 50%, though. It's probably 60% related to the MVL transaction.

Great. Thank you.

Kirk Ludtke, CRT Capital Group.

I just have a couple of follow-up questions. One on mix. Looking at the backlog, when do you think mix -- and I understand year over year it probably will be a drag again in the third quarter, if I heard you correctly, and then maybe year over year, it'll be neutral in the fourth. When do you think it might turn positive, year over year?

I think you are right. I see slightly positive in Q4 and then get the full benefits beginning in the first quarter of next year.

So maybe as early as the first quarter of 2014?

Yes.

Okay. Great. And then with respect to the new business, I think you mentioned that you don't really see, haven't seen any real change in launch schedules. And I know this is a relatively long lead time business, maybe four or five years, but is there a time when your new business wins will be reaching the market more quickly?

No, I mean the DNA of the business is what it is in terms of the lead times. It varies by product mix, so some of your Electronics are a lot faster than the Powertrain. But the business is sort of what it is, so I don't see any radical change in that.

Great. Thank you. I appreciate it.

Matt Stover, Guggenheim.

I'm just trying to think about the growth into the second half and into the next year. If I am doing my numbers right and I back out the impact of MVL for the third and fourth quarters, the implied revenue growth rate in the third quarter is sort of 3% to 4% year over year, and the implied revenue growth rate in the fourth quarter on the base business is closer to 9%. And that compares with a first half that was flattish on the underlying business.

Number one, do those numbers feel about right to you? Number two, if that fourth quarter comp is fair, is that a function of just business that is loading up heavy in the fourth quarter or mix that you are expecting in production, or do you anticipate that to be a durable revenue growth rate into next year?

Yes, I think you are about right on Q3, maybe a little high. Growth versus market in Q3, when you back out the MVL transaction, will be effectively in line with the overall increase in production. In Q4, the way I'd look at it now, is we'd be basically 5 points over the underlying market. Again, excluding the incremental -- the one month of incremental revenues associated with MVL that we have in this year's fourth quarter.

Okay. And then two housekeeping questions.

Sure.

What was the value of the acquisition-related expense, and what was that associated with? And then two, what was the value of the recovery?

The value of the acquisition-related expense -- can you try one more time, Matt? I'm sorry, I'm not --

You called off a $0.07 versus your operating related to both restructuring and acquisition integration-related expenses. I was just wondering what the value of those were?

Matt, this is Jack here. I am confused --

You call out the differential. There is a $0.07 restructuring and acquisition and integration-related expenses called out in the document. And I'm just wondering what the value of the acquisition and integration-related costs are?

Well, yes, are you looking at the press release right now?

I am, yes.

That is effectively our -- we will incur roughly $200 million of restructuring expense this year on an annualized basis. The $0.07 is worth about $35 million of EBITDA during the quarter.

Thank you.

Colin Langan, UBS.

Do you have any update on the restructuring, how much is complete, and when we really should see the benefit, or is that mostly done at this point?

Sure. No, it's not mostly done. We've generated some benefit in the first half of this year. The balance will primarily be focused on the -- generated in the back half.

As you can imagine, given something this large and complicated and focused on Europe, it takes a reasonable amount of time to negotiate and finalize. We're past that process. We're through that process. And we would expect to spend the bulk of the $200 million of restructuring spend in the back half of the year. So to date, we have spent roughly $50 million to $60 million, and we'd expect the balance in Q3 and Q4.

Okay. So from an operating results, we really haven't seen much of the restructuring benefits of the margin?

We've not seen a significant amount.

Okay. And I'm not sure if I missed this, but there seem to be very high contribution margins in E&S when you look year over year and even quarter over quarter. Is there anything unique in the quarter that is driving that?

Yes, tight cost controls. There is a small commercial settlement that that business had during the quarter that was worth roughly $5 million that that is an added benefit. But even excluding that, if you look at the flow through, it was extremely strong. So restructuring benefits and cost controls in that business have driven the high flow throughs for the quarter.

And in the past, you've mentioned that there is business rolling off in E&S. Is that mostly done at this point, or is there still more to come?

It will annualize at the end of this year, so there is still more.

All right. Thank you very much.

Patrick Archambault, Goldman Sachs.

Thank you. Most of mine have been answered, but just a couple.

On Thermal, there was the nonrecurrence of a benefit last year, but clearly there are some ways to go before it gets to your targeted margins there. Can you tell us how that plan is going and when we can expect some kind of improvement in there? And then one follow-up question on slide 11.

Well, there's a couple of things to Thermal in terms of what I would call the transformation, and the most important one is the top line. The team has had significant bookings over the past couple of years, and that business will start to roll in the 2015 time period from a top-line perspective.

And in terms of quantity and quality, in terms of the type of customers we book with, so it's just been good, the Germans and also Japanese. So we're really pleased with that.

In the meantime, the reality is that the volume has been down because of the mix issues, and we've worked hard and will continue to accelerate the cost reduction in that model. So we believe the business is stabilized, and now we will start our journey north here. But I see it flat at least for the remainder of the year, and then we will go forward.

Okay. Helpful color. And just one housekeeping one. The difference between the reported year-over-year revenue growth in Asia and the adjusted is very significant there. Is there anything more than M&A and FX there, or maybe just a little bit more on that?

No, it's really just M&A and FX.

Okay. And the M&A piece being the Asia --?

Yes, MVL.

-- aspects of MVL. Okay. All right. Great. Thanks a lot, guys.

That's the end of questions? All right.

Appreciate you joining the call. We had a very strong quarter, and I'm really pleased again by what this team has accomplished from an execution standpoint. We have a strong portfolio, and we have a very diverse customer base that includes the top OEMs around the globe. So going forward, we are going to continue our focus on strong financial results and creating value for the shareholder.

Again, thanks for joining the call. Stay safe. We will see you next quarter.

That concludes Delphi's second-quarter 2013 earnings release conference call. Thank you for joining. You may now disconnect.