Aptiv PLC (APTV) 2015 Q1 法說會逐字稿

Good morning. My name is Kayla, and I will be your conference facilitator. At this time I would like to welcome everyone to the Delphi Q1 2015 earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Jessica Holscott, Delphi's Vice President of Investor Relations and Treasurer. Jessica, you may now begin your conference.

Thank you, Kayla, and thank you for joining Delphi's first-quarter earnings call. To follow along with today's presentation our slides can be found at www.Delphi.com under the investor 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 us today will be Kevin Clark, Delphi's CEO and President, and Mark Murphy, our CFO. As seen on slide 3, Kevin will provide an operations update as well as an overview of the quarter, and then Mark will cover the financial results and 2015 outlook in more detail. With that I would like to turn it over to Kevin.

Thanks, Jessica. Good morning, everyone. Thank you for joining us. Before Mark gets into our financial results, I would like to provide some context around our very solid performance in the first quarter, even when taking into account some of the headwinds we faced. So let's start with the macro environment on slide five.

Western European vehicle production appears to be gaining momentum, and vehicle production in North America and China remained solid in line with our prior outlook. The positive outlook for these regions is largely offsetting the increased weakness in South America. Other macro factors are helping to counter a portion of the negative translation effect of the weaker euro.

Moving to slide 6 to touch on our first-quarter results. The highlights included strong revenue growth of roughly 6%, record operating income of $472 million and operating margins of 12.4%, and we returned over $310 million of cash to shareholders through share repurchases and dividends.

With the first quarter complete, we remain confident in our full-year outlook, which includes accelerating revenue growth reaching 8% for the full year; that's roughly six points over market. Operating margin expansion of 70 basis points and EPS growth of roughly 10%.

A significant portion of our revenue growth during the first quarter can be attributed to the increased content on the vehicle platform shown on slide 7. Our electrical architecture segment benefited from increased content on Ford's CD4 platform, which includes the Edge, and Landrover's D8 platform, which includes the Discovery and Discovery Sport.

Revenues in our powertrain segment were partially driven by gas and diesel fuel systems content on the VW Golf, and our electronics and safety segments benefited from a range of active safety, body security, infotainment and center systems on the Cadillac Escalade, the Volvo XC90 and the Audi Q7.

Moving to slide 8, Delphi's recent coast-to-coast drive with our automated vehicle served as a valuable next up in testing our technology. The car traveled roughly 3,400 miles through 15 states, 99% of that distance was automated.

We collected roughly three terabytes of data during the trip, giving us key insights into our technology and software algorithms that will accelerate future product development, and ultimately enable the further democratization of automated driving features.

The drive was really a tremendous effort from the Delphi engineering team, and, importantly, it generated significant increased interest from our customers across the globe that we believe will translate into increased demand for automated driving features and a significant increase in vehicle content.

More on the China market on slide 9. We just returned from the Shanghai auto show. The size and scale of the show continues to grow and really underscores how seriously the largest and fastest-growing market in the world is about the automotive industry. Both our global and local customers remain confident that the China market will continue to drive growth in global vehicle production for the foreseeable future.

And we left the Shanghai auto show even more optimistic regarding improved vehicle mix, a great example of this is the increased demand for SUVs, as well as continued growth in content per vehicle. Now given the scale and maturity of our local design, engineering and manufacturing capabilities, we believe we are very well positioned to provide the safe, green and connected technologies that are in demand by consumers in the China market.

Moving to our bookings for the quarter on slide 10, which came in at roughly $10 billion. That's an increase of almost $6 billion over the prior year. Awards during the quarter included a wire harness award for a major Japanese OEM, a GDI award from Chang'an in China and an infotainment award from Fiat Chrysler for multiple North American platforms.

This quarter's booking performance puts us solidly on the path to exceed our 2014 bookings amount.

The right side of the chart reflects the geographic mix of our first quarter bookings. A few larger awards in North America have skewed the regional mix, but we expect future bookings will continue to reflect our revenue rotation to a more balanced regional distribution.

Moving to slide 11. During the quarter, we continued our track record of executing a balanced and disciplined capital allocation plan to drive shareholder value. We expect to close on the sale of our thermal division to Mahle during the third quarter, allowing us to further focus our portfolio on our higher growth, higher margin and higher return electrical architecture, powertrain and electronics and safety segments.

We plan to use the cash proceeds from the transaction to fund acquisitions and repurchase shares.

Summarizing the quarter on slide 12 we had another great quarter marked by solid revenue and earnings growth, which gives us significant confidence in our revenue and earnings outlook for the balance of the year, and positions us to continue to drive significant shareholder value.

So with that I will turn it over to Mark for a more detailed look at our performance in the quarter. Mark.

Thanks Kevin, and good morning, everyone. I will cover the first quarter in greater detail and then discuss second-quarter and full-year guidance. Consistent with prior calls, today's review of our actual and forecasted financials exclude restructuring and special items. The reconciliation between GAAP and non-GAAP is included at the back of this presentation and the press release.

With the announced sale of our thermal operation, the entire thermal business has been reclassified for all periods presented and reflected as discontinued operations. My review will address the continuing operations of Delphi.

Slide 14 provides a snapshot of our first-quarter financial performance. Reported revenue totaled $3.8 billion up 6% on an adjusted basis, which is four points over market. First-quarter operating income increased to a record $472 million, and operating margins expanded 50 basis points to 12.4%. Earnings per share increased 4% to $1.21 or approximately 15% excluding the effects of currency and commodities.

Lastly, operating cash flow totaled $121 million up from last year despite currency headwinds. As Kevin said, during the quarter we also returned over $310 million to shareholders through dividends and share repurchases.

Slide 15 provides greater detail on revenue. Revenue of $3.8 billion reflects over $300 million of year-over-year currency and commodity headwinds, mostly offset by strong underlying volume growth. In Europe, strong powertrain volume growth was partially offset by the anticipated roll off of certain programs in the electrical architecture division and continued pruning of reception systems and mechatronics products in our electronics and safety business. With program launches across all segments, we project Europe growth to strengthen through the year to high single digit or more in the second half.

North America adjusted revenue increased roughly 7% or 4 points over market due principally to electrical architecture and powertrains. Growth in Asia remains strong at 15%, driven by strong growth in China on content growth and share gain. South America was down on continued macroeconomic weakness.

Slide 16 walks the year-over-year change in operating income to $472 million. Operating margins expanded 50 basis points year-over-year to 12.4%, primarily due to volume leverage and continued productivity gains.

Slide 17 covers our segments. On an adjusted basis electrical architectures revenue increased 6% with strong growth in North America and Asia. Powertrain launches of gas and diesel programs drove growth of 7% excluding currency. Electronics and safety was flat, due in part to the previously mentioned rationalization of mechatronics and reception systems.

Based on product launches in active safety and infotainment, we expect electronics and safety growth to accelerate in the second half. With respect to operating margins, powertrain expanded 160 basis points on volume leverage, while electronics and safety expanded 60 basis points due principally to operating performance. Electrical architecture margins remained strong at roughly 13%.

Turning to slide 18, earnings per share grew 4% due to operating earnings growth and share repurchases. Excluding currency and commodity effects EPS growth was approximately 15%. Taxes were in line with expectations at 17%.

Slide 19 provides our full-year guidance assumptions. We expect global vehicle production growth of 1% to 2%. By region, we assumed 3% growth in North America. We expect vehicle production in Europe to be up roughly 1%. In China, we expect 7% growth. In South America we are now forecasting production being down 10%. Our guidance assumes a $1.10/euro rate.

Our second-quarter and full-year guidance is on slide 20. For the year, we expect revenues at $15.3 billion to $15.7 billion, an 8% adjusted growth rate or roughly 6 points over market. We are maintaining OI guidance of $1.98 billion to $2.08 billion.

As mentioned during investor day due to the divestment of our thermal business, we expect EPS to be near the low end of our guidance range. For the quarter we expect revenues of $3.825 billion to $3.925 billion reflecting growth of 5 points over market. We expect operating income in the range of $500 million to $520 million, and EPS of $1.27 to $1.37. In line with the full year, we expect the second quarter tax rate to be 17%.

In summary, it was a solid start to the year. In the first quarter we grew 4% over market and expanded operating margins 50 basis points. For the year, we project growth over market to expand across all segments with consolidated operating margins expanding 70 basis points. Despite currency, our profit outlook remains intact, and our cash flow outlook remains strong.

Kayla, at this time we would like to open up the call to questions.

(Operator Instructions)

Our first question comes from the line of Rod Lache from Deutsche Bank.

Good morning, everybody. I have a couple of questions. It looked like, first of all, on the slide where you show the EBIT bridge that you had something like a 36% conversion on volume, was there anything unusual in that number? Obviously, it's quite a bit higher than the traditional 30% that you've been guiding to.

Why don't I start with some context, and, Mark, you can touch on the numbers. I think, as we've talked about previously, Rod, when you look at our Powertrain business where we had very solid growth in the quarter on a year-over-year basis, that profitability in that business tends to flow at a very high level. So, as a result, we get a significant amount of incremental flow-through from the Powertrain business. I think we also probably got some benefit related to mix within our E/EA business. Mark?

I would just support that statement. And I would just note, Rod, that on a net basis we'll have flow-through of closer to 25%. But you are correct; on a volume flow-through basis, we were over 30%.

Okay. And your price deflation in the quarter was like 1.5%. Is that more characteristic of the businesses ex-thermal? And the margin affect on FX looks likes it is higher than the typical 10% that you had guided to previously?

Why don't I comment on the pricing level for the quarter. Consistent with what we've talked about in the past, we'd expect pricing to be 1.5% to 2%. That continues to be our outlook for the balance of the year. When you look at price downs for Delphi, with and without thermal, in reality they were fairly consistent -- price downs in the thermal business relative to the balance of the Delphi portfolio.

As we've talked about in the past, the area where we tend to see the highest level of price downs is in the electronics-based business. And that's just really the nature of the shorter product life cycles and the consumer products nature of that product line. Do you want to cover the second?

What was your second question, Rod, if you don't mind?

So, you had a pretty good -- or a pretty high impact from the FX. I guess there might be some translational --.

Yes. That's a mix of translational and transactional. Translational, the biggest impact is the euro/dollar. When you look at transactional, there are situations like the Brazilian reais/US dollar sort of exposure where, in certain circumstances on certain product lines, we are importing product into Brazil.

Okay. And, lastly, I want to make sure that we're calibrating properly. What is the -- is the comparison for EBIT in the second quarter of last year, ex-thermal, something like 525?

You're on -- what would Q2 -- your question is Q2?

Q2 of 2014, when you've adjusted for thermal?

It's 520, Rod.

520.

And it is adjusted for thermal, correct.

Okay. So, you are thinking that there's a bit of a decline in the second quarter, but then things will accelerate in -- towards the back half?

There is a decline in the second quarter, but I think you have to look at the FX effect on a year-over-year basis. Mark can give you specifics, But the headwind is fairly significant at a $1.10 euro.

Rod, there's about $60 million of FX headwinds in the second quarter. I will note that margins are expanding year-over-year at 40 basis points in the second quarter.

Great. Okay, thank you.

Our next question comes from the line of Brian Johnson from Barclays.

I just wanted to -- I guess, two questions; one around organic growth and second around kind of industry structure broadly. I can't resist. Following up on yesterday's conference call with one of your customers.

First, on organic growth, it looks like you are saying 500 to 600. Can you clarify; A, what you are kind of saying in terms of organic growth above the market? I think you're saying 600 basis points now. That seems to be up from the investor day and from earlier in the year, your outlook for the year. So I kind of want to get clarification on that, what is driving it, what business units in particular we think we can see that in.

So, for the quarter, growth over market is roughly 4 points. We see that accelerating through the balance of the year. For the full year, we'd expect it to be roughly 6 points over market. You're right, that's slightly stronger than what we communicated at the time of the investor day.

The primary driver of that is, quite frankly, stronger growth at E/EA -- and that's our Electrical Architecture segment -- and that's both in North America as well as in Europe, from a regional standpoint.

And underlying that, is it platform share, or is it more content per platform?

I think it's really more content per platform. So, richer product, vehicle mix, is driving the increased content.

Okay. And, second, on the infotainment award, could you give any more color on when your award with Fiat Chrysler might kick in, if that's mid-level, high level, what kind of infotainment system that's for, if you can?

It's really across the board, so it's a scalable platform. I believe it kicks in about two years out, similar to typical programs within our E&S division. As we have talked about in the past, you're going to -- and Mark mentioned, you are going to see a significant ramp-up in growth in our E&S division, beginning in the third quarter of this year.

So, you will see a significant acceleration in year-over-year growth and, ultimately, I think Mark said, we will be roughly 6 points over market within our E&S division for the full year, and roughly operate at market, maybe a little bit above market in the first half. So, we see very strong growth.

Okay. And sort of on a broader industry strategy question, yesterday, the chairman of Fiat Chrysler had a long conference call. Argued return on capital for OEMs was unattractive -- we would agree; argued that there was a lot of redundant powertrain, electronic, and other R&D and CapEx going on across the OEM industry -- we would agree; and then argued that a horizontal consolidation of OEMs is the way to go.

We kind of posed the question, but we would like to pose it to you as well. Is there a better solution that would actually have more and more of the modules of the car being outsourced up to the supply chain, e.g., you could not just make engine components but engines? He made the point that who cares what a four-cylinder engine in.

He dismissed that as unlikely, but just wondered if you had any points of view on the desirability, if there's any potential to have significant chunks of the R&D and CapEx coming out of OEMs and being shared by a supplier like you?

We think, at the end of the day, what we bring to bear is technology and technology capabilities. And the more control, the more involvement in technology, the more value we add. The more integration of systems that we can do, the more value we add. So, our view is net net that sort of trend would be a positive for suppliers like Delphi.

Any evidence that any of the industry is willing to go that direction?

I think it is wait and see. I think the level of that activity really varies by OE, and there are several OEs where there's a fair amount of integration and systematization that is going on in actuality as well as dialogue about the opportunities to do more.

And could any of the newer rumored entrants -- and Apple, Google, both rumored to be doing cars by 2020 more -- go more to sell, call it, the Foxconn outsourced approach?

Listen, at the end of the day, we think those of us who have been in the industry for a long time that have the capabilities that understand the automobiles, that know how to integrate it, and do it at a quality level that the OEs need and require is very differentiated, and that is something the industry is going to continue to need.

Okay. Thanks.

Our next question comes from the line of John Murphy from Bank of America.

Good morning, guys.

Good morning, John.

A first question on ForEx. You've been able to keep your operating income outlook largely unchanged, even though we've seen a strengthening of the dollar basically versus every other currency out there. I'm just curious if that's purely just math at this point or if there are any significant levers that you've had to pull to really keep your operating income where it is, or your outlook where it is, and if you can pull those levers even harder if we see a further strengthening of the dollar?

Listen, we work hard every day from a manufacturing material performance standpoint, you know that. Mark, why don't you comment on the specifics?

I would just say, John, that, from the $1.20 to the $1.10, we had sufficient offsets to maintain our OI guidance, which is what we did. As you know, the euro right now is about $1.12, but if it were to weaken, we would have euro translation effects. We've talked about those before, at about $50 million annualized revenue impact for every euro penny flow at the Company margin rate. We would expect to offset part of that effect through operating actions, and then our ability to offset the rest of it really depends on what happens to other currencies and commodities.

Okay. But if we were to think about the dollar versus euro going closer to parity by maybe year end, as rates in the US rise and QE ramps up in Europe, where do you think you start taking on water? I mean is that -- I know it's a tough question to put an exact point on. But do you have room down at $1.05, or parity, to have some offsets? Or do you start taking on that $50 million in revenue and 10% margin off of that as we get below $1.10?

I say at $1.10 it starts to get more challenging -- below $1.10, we would have some ability to offset, but it would get more challenging

Okay. Okay.

I agree.

Okay. And then, second question, as we think about the three sales at thermal, really, the one that's being completed, and then the Shanghai portion and the Korean portion. When do you think you will have an idea of when those will get settled -- or, really, the Shanghai and Korean portion?

And, as we think about those combined, my understanding is they are roughly one-third of the business. So, if we are to think about it linearly, you would get about half the revenue -- I'm sorry, half the proceeds that you are getting from the core business that is going to MAHLE. I'm just trying to understand the potential magnitude of the proceeds from the remaining business and the timing on that.

Yes. You have to remember -- so, timing -- the way I would do it, think about timing, the Korean joint venture should happen some point this year; the Chinese joint venture is sometime in 2016. With respect to size they're not -- from a size of profitability standpoint, they are not half of what we have in the North American and European business. So, the dollar value of those transactions would not be half of the $727 million transaction value that we talked about for the US, European, and South American business. It would be significantly less than that.

Okay. Roughly, what are their sales versus the North American, European business sales?

I don't want to get into it. I would say the multiple on the earnings would be consistent with what we sold the US -- the wholly-owned thermal business.

Okay. And then, just lastly, being in Shanghai last week as well, there's a lot of shifts that are going on in that market. And it seems like the domestic players are gaining market share. And then the Germans -- the German lux guys are moving away from the Chinese market a little bit, maybe shifting some of their production -- or, I'm sure, shipping some of their production to the North American market, so there's a lot of moving pieces based on what's going on in China.

I'm just wondering if you can comment, with those potential market share shifts in China as well as some of the German lux vehicles ending up in North America as opposed to China, what you would see on content or business potential in China specifically? And those vehicles that are being shipped to the US instead of China, potentially, if there's any delta in content for what you would provide there?

No. Listen, we came away from China -- as a management team -- very, very optimistic. And it's really for two reasons. As a backdrop -- to give you some background -- as you know, we supply both the global OEs there as well as the locals. The disproportionate amount of growth in that region has historically been with the global OEs on heavily contented vehicles. You are absolutely right, the local OEs are starting to increase the quality and increase the content in their vehicle and, as a result, appear to be strengthening.

We -- the positive for us is we have two things going on. On a relative basis you have strong vehicle production growth in the region. We have the benefit of serving both customer base. To the local OEs, we actually do more systems work. So, dollar revenue and profitability tends to be greater when we serve those customers, which is beneficial.

But, what we are seeing is a significant ramp up in content per vehicle, and that's what really explains the strong growth that we had in the first quarter -- we were more than 10 points over market. We'd expect to be more than 10 points over market for the balance of the year. And when you look at our fastest-growing segments in that region, it's the E&S division and Powertrain, which really shows the maturing of that market.

So, Kevin, would it be fair to say the Great Wall Havals have significantly more content for you than would a GM and Ford crossover in China?

I don't know, offhand. I would say they are probably fairly consistent. I would say they are probably fairly close. I don't have the specifics of those two platforms in front of me, but I think they would be relatively consistent.

Okay. Great, thank you very much.

Our next question comes from the line of Ravi Shanker from Morgan Stanley.

Thanks. Good morning, everyone. If I can just follow up on something Brian Johnson asked earlier about the comments yesterday from Sergio. I don't know if you listened in to that call. If you don't, I strongly recommend it, especially with a glass of whiskey and a cigar in your hand. But I'm interested in your thoughts on what he said.

He was really pushing for significant global OEM consolidation as a means to basically make the industry much healthier. As one of the largest and most powerful suppliers in the industry, what is your view on that? Do you think that is necessary? Or you think you're pretty happy with the status quo?

Listen, I think everyone familiar with this industry is aware that there is a fair amount of over capacity among the OEs globally, right? That is the reality. I think that is something that the OEs need to ferret out and figure out how they deal with it.

I think, from our perspective, whether there are fewer or not; given volume -- given our volume outlook, given what is the trend in terms of the technology that is going into the vehicle, and the complexity related to that technology; given the amount of integration that needs to go on, suppliers like Delphi, who sit in the high-tech spaces, are in a really good position. So I think, at the end of the day, we benefit either way, and I'm not sure at this point in time I could comment on how that would really change the game for us.

Understood. Second question. You mentioned earlier about a wiring harness going into a Japanese OEM, I believe. Can you give us any other color on that -- what region, what type of vehicle -- and whether this kind of shoves open that door that was closed for a long time by the Japanese OEMs?

We've talked about -- we've been talking over the last couple of years about one of the great benefits and one of the things that the thermal division did a great job of was really cracking the door with the Japanese OE and giving the opportunity for the balance of our businesses to pursue business there. And we have seen some benefits from that.

It's been slower going. It's primarily happening in the North America market and the China market. This specific OE is a well-known OE, the vehicle is a -- what I would characterize as a mass-market, high-volume vehicle for the North American market, and it is a great customer to be working with.

Got it. If I could just ask, is it a J3 OEM, or is it one of the smaller ones?

No, it's a J3 OEM.

Okay, got it. Thank you so much.

Our next question comes from line of Pat Archambault from Goldman Sachs.

Thank you very much, good morning. A couple of questions, just clarifications. It's been talked a little bit about, but, ex-currency -- if I have these numbers right -- your first half expectations, including what you reported today is about 6%, your full year is about 8%, so that leaves kind of around 10% ex-currency growth in the second. And, I think, you know we talked about E&S as being a driver here based on some of the contracts and their timing. Anything else that is supporting that acceleration that you guys are modeling in?

Pat, this is Mark. We are seeing, in the second half, we believe all segments will be either high-single digits or low-double digits, with the strongest growth, as you mentioned, being E&S in the second half.

Is that just the timing of, you know, customer backlog rolling on, or anything else?

It's a lot of new programs. In the case of Powertrain, you've got diesel ramp in Europe, and you've got GDI ramp in China. In the case of the Electrical Architecture business, you have the ramp of some large programs in Europe. And then, as mentioned, in the case of Electronics and Safety, you have some large infotainment ramps and active safety business in the second half.

Okay. Got it. And then, you know, talking about electrical distribution. I think you mentioned it, but -- so, pardon if I'm asking you to repeat stuff. But that was like the one segment which saw a little bit of a margin drag. Can we just talk about sort of what happened there and the outlook for the year?

It was -- I?ll note that it was solid margins, and we got some volume leveraging. And they could have performed a little bit better, but a very strong performance. Some -- a few nonrecurring items, but, overall, very strong quarter, and expect to expand margins in that business through the year.

Yes. I think that's one in the quarter. I think we had a commercial settlement in that quarter that affected margins on a year-over-year basis. And if you eliminated that commercial settlement, you'd see strong margin expansion, to Mark's point. We had great volume, we had great manufacturing performance, that is partially offset with a commercial settlement.

And that was like a one-time benefit in the first quarter last year that did not repeat?

No, it's actually a cost in this quarter.

Oh, okay. Any sort of estimate of what that was, dollar wise?

A warranty-related item, roughly $10 million.

Got it. Okay. Last one for me is just, on the Europe piece, you mentioned it is getting stronger, and I guess maybe two parts to the question. You guys and everybody else in the quarter generally saw positive growth X-currency, but not quite as positive as what some of the headline sales numbers reported for the market would suggest.

So, I am just curious, why is production appearing to lag a little bit? What we see on the sales side, maybe there's kind of an export market issue there that we need to think about. How do you assess the upside risk? That's kind of the second part of that question, for that particular market where it seems like things are actually coming in better than people thought.

You're speaking about which market in particular? Europe, at this point in time?

Yes, I guess I should actually mention the market, right? (Laughter). Yes, Europe is what I was actually asking about.

I like the upside risk.

Yes, it's not Brazil.

Exactly. Western Europe, at least for us as we look at the market, for the first time in a while appears to be getting better, which is an overall positive. I'm sure there's a certain amount of inventory reduction that's going on within the network. We will see how long sales continue at a relatively robust rate, and at what point that triggers -- does it trigger incremental production growth?

I think if you look at IHS and you look at our build schedules when we originally gave guidance versus where we ended up for the first quarter, production levels actually did end up stronger. I think the question is, do they get incrementally stronger? And, if they do, we should benefit.

I think then the question is, what is the outlook for Eastern Europe and South America which, in reality, continue to be challenging markets. South America -- our initial outlook heading into the year was the market would be flat. Our outlook for the full year is it's now going to be down 10%, and it was worse than that in the first quarter. And, we tell you, looking at it now, we don't see it getting any better for quite a while.

Got it. Okay. So, puts and takes seem fairly evenly balanced. All right, guys, that's all I had. Thank you.

Operator, is there another question?

Yes. Our next question comes from the line of Dan Galves from Credit Suisse.

Good morning. The net performance improvement was well below the pricing headwind in Q1, is that typical for early in the year? What is your outlook for the remainder of 2015? And, what is your assumption for kind of overall incremental margins, X-currency for the full year?

Let me make one comment, and then I will turn it over to Mark. I think it is important, when you look at year-over-year and you consider performance, just to give a bit of context. So, in the first quarter of this year, we had over 300 vehicle launches. That is a 50% increase relative to the number of launches that we had last year, and it supports all the growth in the back half of the year that Mark talked about. So, to give context, I think it's important to have that in mind. And, typically -- yes, typically what happens is material manufacturing performance is lower in the first quarter and strengthens through the year. Mark?

I would say that, Dan, we did have the commercial settlement as well in the first quarter, and so if you -- on a go-forward basis, we do expect performance to meet or beat the price number. And, as Kevin said, you know, if you exclude IT and engineering increases, which we are doing in order to support the growth, furthermore you've got performance beating price.

Yes, I think it's -- to Mark's point, as we said -- as we did last year, and it's what we've communicated this year, it's our plan -- to the extent we can certainly meet our financial commitments -- there are certain areas that we would like to continue to incrementally invest in the business: active safety, automated driving, in and around powertrain; and we'll invest incrementally in engineering.

There's some IT initiatives that we have to better position our business to make it more leveragable on a future basis, so we are looking to make incremental investment in IT as well.

So, those are discretionary items that we can do to the extent that we perform at levels that are acceptable, and we can throttle back if the macros cut against us, just like we did last year.

Okay. That's great to know. Thanks. And then, just one other sort of housekeeping question. Can you tell us what the share count assumption is within the full-year EPS guidance? And, just curious, you've been saying that EPS should come in towards the lower end, and it sounds like you are still saying that. Why didn't you just to make kind of the low end the midpoint? Just curious about that.

Yes, Dan, we set our range, and we wanted to maintain our range for share count assumptions. You can assume that we are going to roughly buy back in line with last year, and then we will use a portion of the proceeds of the thermal transaction for a potentially additional buyback. However, for both our routine buyback and that use of proceeds, we modulate that based on acquisition opportunities.

Dan, I think the overlay as we've told people, when we gave guidance after our Q4 earnings call and our investor day, that we would be at the low end of the range. The low end of the range is $5.35. We have confidence in the $5.35, given where the market is, and given how our business is performing. And, as a result, we wanted to keep that as the low end of our range.

Okay, excellent. Thanks, guys.

Our next question comes from the line of Joseph Spak from RBC Capital Markets.

Hi, guys, this is Jacob Hughes on for Joe. How are you doing?

Good.

I just had a quick question, sorry if I missed this. But, could you provide what the infotainment and active safety growth was in the quarter? And, also, I was just curious what your underlying assumptions are under take rates and if you've seen any acceleration of that since the Toyota announcement that they're going to make, essentially, a $500 active safety in every vehicle.

As we have talked about in the past, we think that is beneficial from a penetration rate standpoint. When you look at the quarter -- and we're affected by timing -- infotainment growth was effectively flat. That's going to accelerate significantly strong double-digit growth rates beginning in Q3, and that ties to some of the program launches that Mark alluded to earlier.

From an active safety standpoint, year-over-year growth in the quarter was roughly 20%. We expect the full year to be roughly 50% growth. And that's driven by launch of new programs as well as increased penetration.

Okay. And I guess on the -- have you seen, I guess, any acceleration since this Toyota announcement, or is it too early at this point?

I think it's too early to tell. I think the way we would answer it is, we booked a $1 billion of business in 2013, $1.4 billion in 2014. We expect to be well north of $1 billion this year as we look at the opportunities that are out there. And you look at that from a book-to-bill ratio, it is, you know, it is 5, 6 times the level of revenue that we had in 2014. So, I think that gives you the order of magnitude in terms of future growth in this product line.

Okay. Thank you very much.

Our next question comes from the line of Matthew Stover from SIG.

Thank you very much. Most of my questions have been addressed. I did have a couple of sort of detailed questions. On the cash flow, there was another outflow of about $52 million. It was a bit unusual versus last year. Is there anything we should be aware of there?

I don't think it's anything major. It's just other assets -- other assets, other liabilities, so --.

Okay. If we look at the headwind from FX and commodities, at 8%, how much of that was commodities?

The bulk of it's FX. There's a small amount that's commodities.

Okay. And if we look at the loss on the disc ops, how should we think about the tax treatment of proceeds from the sale of thermal?

Net-net cash proceeds on the $727 million transaction, we should get about $600 million to $650 million.

Okay. Thanks very much.

Our final question comes from the line of Brett Hoselton from KeyBanc.

Good morning.

Good morning, Brett.

First is kind of a conceptual question with regard to margins. Obviously, you're going through a significant ramp-up phase in terms of your new product launches and so forth. At times, for various suppliers, I think significant increase in launch activity results in margin compression, yet you are expecting margin expansion through the back half of the year.

The main question I have for you is really twofold. One, what is driving that margin expansion through the back half of the year? Is this more profitable new business? Or is it just operating leverage?

And, secondly, as far as risk is concerned, how would you address an investor's concern that maybe higher launch activity might result in increased risk? You certainly have been successful over the past years in terms of ramping up. But how do we think about that?

If I can answer the second, Mark can address the first. I think, in reality, higher launch activity does create incremental risk for the enterprise. But that is something that we deal with and we operate with, and we do well day in and day out.

And you look at the level of launches, beginning in 2011, 2012, 2013, 2014 and on, the reality is, each and every year, we've had an increased amount of launch activity, and we've dealt with it well. We execute extremely well, and we are confident that we have our arms around it as we look at the launches in 2015.

Mark, do you want to address the first?

I would agree, certainly, Kevin. It's just -- fundamentally, Brett, it's operating discipline helps us manage the risk. We're also, as Kevin mentioned earlier, increasing our engineering spend to manage the risk. And then, we have projected steady margin expansion over the next several years related to this increased volume growth, in all segments. Sticking with what we said at the investor day, we are expecting 14% operating margins across each segment, a combination of just the volume contribution and the continued operating discipline and associated productivity improvements.

And then, you've mentioned a couple of times, on the call, switching gears -- M&A, and the potential for some bolt-on acquisitions. My simple question is, right now, what does the pipeline look like and what do you think the probability of doing an acquisition, maybe in 2015, might be? And, size wise, would you consider it to be more of a bolt-on versus maybe something of an order of magnitude of $2 billion, $3 billion, $4 billion or something like that?

Listen, I think the pipeline remains robust. I think, by the end of the year, I can say with a very high level of confidence, whether they're acquisitions or investments, we will be making a number of those in high-technology software area. So we have been very, very active in that space in and around powertrain, in and around electronics and safety, infotainment, connected car, active safety -- so I'm highly confident.

In addition to that, our funnel includes some larger transactions that I would say, from a transaction value, would range from $1 billion to $3 billion-ish from an overall mix of potential opportunities. I would say the larger ones are always a little bit more difficult to predict. I would say, as we look at calendar year 2015, it's a greater than 50/50 probability that we complete something.

As far as the larger one is concerned, would that just be consistent with your existing portfolio, or is there a possibility of you expanding materially outside of your existing portfolio of products?

Consistent with what we've talked about before. Our focus area is really augmenting the existing product portfolio that we have -- either strengthening it in product areas where we are not quite as strong, or areas that we are strong and may not have a customer presence, adding on transactions that enhances our customer geographic presence.

Excellent. Thank you very much, gentlemen.

You're welcome.

That is the end of our Q&A session. I will now hand the call back over to Jessica Holscott for any closing remarks.

Great. Thanks for participating in today's call. As always, we will be available for any additional questions you may have after the call today. Thank you.

That concludes Delphi Q1 2015 earnings conference call. Thank you for joining. You may now disconnect your line.