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Edited Transcript of DLPH.N earnings conference call or presentation 31-Oct-19 12:30pm GMT

Q3 2019 Delphi Technologies PLC Earnings Call

Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Delphi Technologies PLC earnings conference call or presentation Thursday, October 31, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Richard F. Dauch

Delphi Technologies PLC - CEO & Director

* Sherief Bakr

Delphi Technologies PLC - VP of IR

* Vivid Sehgal

Delphi Technologies PLC - CFO

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Conference Call Participants

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* Christopher Patrick McNally

Evercore ISI Institutional Equities, Research Division - MD

* Dan Meir Levy

Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst

* Emmanuel Rosner

Guggenheim Securities, LLC, Research Division - Former MD and Autos & Auto Parts Analyst

* John Joseph Murphy

BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst

* Joseph Robert Spak

RBC Capital Markets, Research Division - Analyst

* Noah Duke Kaye

Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst

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Presentation

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Operator [1]

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Good morning. My name is Jurgen. And I will be your conference facilitator. At this time I would like to welcome everyone to the Delphi Technologies Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded and simultaneously webcast.

I would now like to turn the call over to Sherief Bakr, Vice President of Investor Relations. Sherief, please go ahead.

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Sherief Bakr, Delphi Technologies PLC - VP of IR [2]

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Thank you, Jurgen. And good morning and good afternoon to everyone. Welcome to Delphi Technologies' Third Quarter 2019 Earnings Call. With me today in Rochester is our Chief Executive Officer, Rick Dauch; and our Chief Financial Officer, Vivid Sehgal.

This call includes a discussion of our third quarter 2019 financial results as disclosed in today's press release as well as our updated outlook for 2019. In order to follow along with today's presentation, you can find an accompanying set of slides on our Investor Relations website at ir.delphi.com. Please note that our discussion includes references to non-GAAP financial measures which are reconciled to the corresponding GAAP measures in the tables within our press release.

In addition, references to changes in revenue are on an adjusted basis, excluding the impact of foreign exchange movements. Now before we begin, I'd like to remind you that certain statements made on this call may constitute forward-looking statements. Forward-looking statements can vary materially from actual results and are subject to a number of risks and uncertainties, including those contained in the company's Form 10-K and 10-Q, as well as other filings with the SEC. I would encourage all of you to review these risk factors listed in these documents.

And with that, I would like to turn the call over to Rick.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [3]

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Thank you, Sherief. And good morning and good afternoon to everyone on the call. Over the last 3 quarters you have heard me talk about the tremendous opportunity we have here at Delphi Technologies to create value for our shareholders. Despite the near-term challenges our industry is facing, I remain confident and passionate about the opportunity to create a stronger and more profitable Delphi Technologies over the next 2 to 3 years.

Becoming the CEO here you heard me talk about the process I have gone through to fully understand both our strengths and our weaknesses as a company. As you will have seen in today's press release, we are taking the necessary actions to address one of our weaknesses in order to reshape and refocus our company into the industry's propulsion technology leader.

We will become a leaner and more flexible organization. Now that we are a truly independent company we have the freedom to do just that. Doing so will allow us to significantly improve our profitability and our cash flow profile, enabling us to invest for profitable future growth. I'll come back to this in a few minutes and take you through our key operational initiatives and our restructuring plans in more detail.

Like many of you on the call today, our working assumption is that our industry, both in the passenger car and commercial vehicle sides will continue to see softness through 2020, albeit with some areas of strong growth in our advanced technologies, specifically higher-pressure fuel injection systems and Power Electronics. The good news for Delphi Technologies is that we have industry-leading technology in both and a launch profile supported by booked business that is set to deliver significant growth in 2020 and beyond in these 2 key areas of our portfolio.

With the steps we are taking to address our cost structure and the improvements we are making in our operational performance and program launch and execution capabilities, we are fully committed to deliver on our vision to be the pioneers of propulsion and create significant value for all stakeholders.

Turning to our third quarter performance on Slide 2. At a macro level our 8% year-on-year drop, revenue decline was a couple of points lower than the outlook we gave last quarter, primarily driven by softer global production primarily in China, India and Europe. Adjusted operating margin of 6.9% was negatively impacted by lower volumes, incremental FX headwinds, internal operating issues as well as a strike at General Motors.

Despite this, operating cash flow was a relatively robust $59 million, and we remain highly focused on improving our cash flow performance in 2020 and beyond. Vivid will talk more about this in more detail during his remarks.

From an operational and commercial perspective, we had another quarter of strong progress, hitting a number of important milestones as well as moving quickly on our critically important lean systems implementation initiatives. We exited our final transition service agreement with our former parent on August 31, which for the first time since our separation gives us the ability to drive structural efficiencies and improvements, particularly in the area of IT.

Finally, we secured approximately $1 billion of new gross bookings in the quarter across our fuel injection and powertrain parts portfolios.

Moving to Slide 3. In addition to weaker-than-expected global production in Q3, we continue to be impacted by a number of industry-wide technology transitions as well as macroeconomic and customer headwinds. And as I mentioned in our last quarter's call, we expect this choppiness and uncertainty to continue over the coming quarters. These dynamics include the accelerated transition from passenger car diesel to gasoline engines, especially in Europe; the near-term projected growth and timing of electrification, mostly in China and Europe, which has happened slower than originally forecasted this year. The expected cyclical decline in heavy-duty trucks, especially North America. And shorter-term demand softness in the Aftermarket space largely from some de-stocking by certain customers in Europe which we expect to continue in Q4, as well as the ongoing political, trade and tariff dynamics across the globe.

In addition, we have also seen the strike action at General Motors which has impacted production and supply chain in late Q3 and early Q4. And we are happy to see this issue resolved and we are ready to get back to supplying key GM facilities in North America. At a high level we now expect global light vehicle production to decline by approximately 7% in 2019. And this is an update to our prior view of an approximate 5% decline.

Looking forward, we expect the challenging industry and macro dynamics to continue into 2020. We need to become a far leaner and more agile to adapt to these market pressures, as well as overcome our own near-term transitional and business mix headwinds. At the same time, it's also clear that the long-term secular growth drivers of our business remain intact. In the long-term structural shift, the more efficient powertrains is accelerating. This presents a tremendous concept for vehicle and revenue growth opportunity for us.

We have strong relationships with customers across the globe, which is reflected in the business wins we have secured in Power Electronics, GDi and commercial vehicle fuel injection systems over the last couple of years.

Let's move to the next slide. Building on our commercial successes we remain committed to delivering pioneering technology to our customers, from groundbreaking higher pressure internal combustion engine systems to our next-generation inverter technology for electrified vehicles. And on the subject of breaking down, we were delighted to cut the ribbon on our new electronics electrification plant in Blonie, Poland in early September. This new world-class facility is one of the 5 dedicated to electrification. Over the last 2 years we have invested approximately $50 million to establish our global manufacturing presence in preparation for the electronic propulsion systems growth we see in the future.

We are working to train our people in qualifying on new process equipment at these new sites in order to complete the final operational separation from our former parent by Q1 2020. At the IAA motor show in Frankfurt we showcased our industry-leading 500 bar GDi system as well as our 800 volt silicon carbide inverter which helps to significantly extend range and reduce charging times relative to today's state-of-the-art systems.

We also announced that we are partnering with Cree and we'll use their Wolfspeed silicon carbide-based MOSFETs for our future generation of inverters.

Feedback from our customers was terrific. And we will continue to be highly selective on future pursuit opportunities, adhering to our robust profitability and ROIC hurdles. Our focus is on improving profitability and return to the good segue into the transformational plan we announced this morning which will fundamentally realign and reshape Delphi Technologies into a leaner and more competitive propulsion systems supplier. Slide 5 takes you through some of those details.

On last quarter's call I commented that we had a legacy overhead cost structure and engineering footprint. And when benchmarked to both our industry peers and the future needs of our company, we identified it to be a target-rich opportunity to meaningfully improve our cost structure and profitability.

Today's announcement underscores that view. Vivid will take you through the financial details and the expected benefits to our operating income and cash flow performance. But at a high level our Board of Directors has approved a comprehensive restructuring plan which is expected to reduce our cost by more than $150 million in 2022, eliminate 9 engineering sites and more than 2,000 positions, more than 10% of our total workforce, and improve our free cash flow by $300 million over the course of the plan.

We have been very thorough in our analysis, taking a methodical and phased approach to give us the flexibility to adapt to market -- changing market conditions without disrupting more than 160 ongoing new product developments and customer programs that we'll launch in 2020 to 2023.

These actions, while difficult for those affected, are necessary. And we will work with urgency and focus to ensure we deliver on our targets. I strongly believe that these actions combined with our Aftermarket 2020 initiative and our focus on lean capabilities will accelerate our return to profitable growth. We estimate that the average payback on our restructuring is only slightly over 1 year and with the bulk of the savings expected to be realized in 2021 and 2022.

Go to Slide 6. Starting with our engineering footprint. We currently have 23 engineering sites in 13 countries, many of which are underutilized or are simply not in the right location. A function of our heritage and legacy structure as well as our evolving customer and powertrain technology mix. As you can see on Slide 6, we plan to close 9 of our sites, 4 in Europe, 2 in North America, 2 in Asia Pacific and 1 South America. This will transform our engineering footprint and cost structure, making us more focused on our future growth technologies, Power Electronics, fuel injection systems, both GDi and commercial vehicle diesel, as well as select powertrain components where we are market leaders.

We will be well-positioned to meet our customers' changing technology needs in all 3 of our major operating regions. Following the completion of the plan, our engineering footprint will be focused on 6 global engineering centers of excellence, 3 for electrification 1 in each region, 1 for advanced gasoline fuel injection systems, 1 for select gasoline powertrain products and 1 for high pressure diesel systems for commercial vehicles.

In total, we expect to reduce our engineering headcount by more than 1,500 or close to 30% of our total engineering workforce, and also reduce our total engineering footprint by more than 40%. From a product perspective, approximately 2/3 of the engineering headcount reductions are in diesel and legacy powertrain products, which will result in a more efficient and growth-oriented engineering base.

The balance of the cost savings are expected to come from reductions related to our SG&A and operations, some of which are tied to our geographically dispersed engineering footprint. Ultimately, these actions will make us a stronger and more profitable company, one that is better-positioned to meet the changing needs of our customers, while providing us with a more capital allocation optionality in the future.

Let's move to Slide 7. Before turning the call over to Vivid I wanted to update you on the operational progress we have made over the last 3 months, as well as sharing some of our key priorities as we look forward into 2020. Overall, we continue to make solid progress, while laying the foundation to generate sustainable improvements in a number of key areas. That said, given our financial performance and the prevailing industry headwinds we are facing, we have to work with even greater speed and urgency to improve our performance.

First, as I mentioned, we continue to be on track to becoming a truly standalone company. This presents a major opportunity for us to move to common systems and business processes over the next few years. Second, I remain pleased with the progress we have made with our GDi business and continue to expect breakeven probability for GDi by the end of 2020. Between now and then we have a number of key launches that must be executed flawlessly both internally by our team and also by our supply chain partners.

Third, crucially we are continuing to prioritize technology investments that deliver real value to our customers, allowing them to meet increasingly stringent regulatory standards and highlight our technology-led strategy across the range of advanced propulsion systems. The restructuring program we have announced today will allow us to selectively increase our investments to further differentiate our technology leadership in areas such as our next-generation inverter for Power Electronics, 500 bar and above GDi for passenger cars, and our 3,000 bar diesel system for commercial vehicles, all aligned with future regulatory timelines and standards across the globe.

Fourth, we are continuing to build on the foundational work our leadership team has done to improve the profitability and position our Aftermarket business for accelerated global growth. The Aftermarket business is a nice business for us here at Delphi.

Fifth, last quarter I referenced some of the new leadership talent we have brought into the organization to address some of our key challenges. Specifically in our manufacturing, quality and program management launch systems. These are critically important areas for us to address given our recent business wins and upcoming launch activities. Our multiyear journey to become a true lean systems company is well underway, with significant opportunities already identified to improve our cash flow conversion cycle.

We have added two new executives, both experts in lean systems who have worked with me at prior companies. Together we have implemented a multistep process to implement lean operating systems at over 50 sites around the world. Read the book 50-50-20 if you want to understand the processes we are implementing here at Delphi Technologies.

We will focus our efforts on improving the overall value streams and cash conversion cycles of the company. Today we have over 40 days of inventory in hand. World class Tier 1 automotive suppliers operate with 20 to 25 days of total inventory. That's a huge target-rich environment for us to address.

We also have quickly identified several operational issues at specific sites or suppliers that can be improved in the areas of capacity utilization, machine uptime, first time quality and scrap. These are fundamental operating issues that can and will be addressed with training, improved process discipline and minimal investments in machinery and tooling. Our teams are already hard at work attacking these opportunities for improvement.

And of course we are now operating at full speed to implement our transformation plan and take the necessary steps to improve our financial performance. During the third quarter we initiated an SG&A-focused restructuring which will eliminate 200 positions by early 2020. This will help kick start our cost savings momentum starting in Q4 this year.

Moving to Slide 8. To become the CEO of Delphi Technologies we have faced a number of incremental macro and industry headwinds that we need to absorb and overcome. No doubt, we have a lot of work ahead of us. But my confidence and motivation to lead Delphi Technologies through its journey into becoming a great company in the pioneers of propulsion technologies solutions and services has never been stronger.

It all starts with our technology and compelling value proposition to our customers. That is not in question. What is also not in question is that we have an uncompetitive legacy overhead cost structure and footprint which we will transform over the next 2 to 3 years. Through the actions we have announced today, we will soon be a more focused, leaner and more agile company.

Ultimately, we are focused on delivering margin expansion and significantly higher levels of free cash flow over the long term, which we believe provides a compelling value creation opportunity. Our call today has been held here at Rochester, New York, one of the impacted R&D sites in the restructuring. While we will treat every impacted employee with the respect they deserve, my presence here today shows the urgency I place on enacting and delivering on our restructuring commitments. Our leadership teams around the world are also working with an urgency. That gives me confidence in the tremendous potential of Delphi Technologies.

With that, I'll turn the call over to Vivid.

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Vivid Sehgal, Delphi Technologies PLC - CFO [4]

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Thank you, Rick. Good morning and good afternoon to everyone on the call. My remarks will focus on our Q3 performance and revised full year outlook, taking you through the details and phasing of our 3-year transformation plan which we expect will deliver significant cost savings and support margin expansion from next year and providing some commentary on 2020 and why I'm confident we can generate significantly higher free cash flow next year.

Looking at our Q3 performance in more detail on Slide 9. Revenue of $1.03 billion in the quarter declined by 8% year-on-year, driven by growth in GDI and our Aftermarket business, which was more than offset by decline in passenger car diesel revenues in Europe, lower sales in China and India, lower overall global production and the impact of the GM strike.

Adjusted operating income of $71 million or 6.9% margin declined year-on-year and came in slightly below our prior outlook. Excluding the impact of the GM strike, as well as the incremental foreign exchange headwinds, our adjusted operating margin would have been 20 basis points higher at 7.1%. Adjusted EPS came in at $0.56, while operating cash flow of $59 million increased by $5 million versus 2018. As we look out to 2020 and beyond, cash flow performance remains a key priority for us.

Turning to Slide 10, which provides more detail on our revenue progression in the quarter. We estimate that global light vehicle production declined by close to 4% -- 3 percentage point lower than we assumed 3 months ago. In addition, we saw an incremental softness in global commercial vehicle production, particularly in North America, Europe and India. This is a trend we see continuing as we look ahead into Q4 and into next year.

Importantly, GDI revenue growth accelerated in Q3 given our launch activity in Europe and China. And we remain confident that we will see strong revenue growth for our 350 bar GDi technologies in 2020. As expected, Power Electronics revenue declined by approximately 15% in the quarter, given the ongoing changes in government regulations and incentives in China. While we expect this to result in continued choppiness in our quarterly performance, we anticipate Power Electronics returning to revenue growth in Q4 and beyond, driven by our technology leadership, commercial wins and the increasing global shift towards electrified vehicles.

On the right-hand side of the slide you can see our regional revenue performance in Q3. Revenue in Europe declined by 6% as growth in commercial vehicle and GDi was again offset by the ongoing decline in passenger car diesel revenues. Revenue in China declined by 15% as new 350 bar GDi launches were offset by overall market softness as well as our own customer mix. Finally, our sales in North America declined by 7%, driven by the ongoing OEM customer decisions to exit certain segments in the region and to a lesser extent by the GM strike.

Slide 11 walks through our operating income performance for Q3. Adjusted operating income was $71 million, down from $108 million in the prior-year quarter. This was primarily driven by unfavorable mix, primarily GDi versus passenger car diesel; lower industry production, particularly in China; as well as higher depreciation expense. This was partially offset by ongoing improvements in material and manufacturing performance, planned lower engineering spend, as well as overall cost control.

Turning to our segment performance on the next slide. On a year-on-year basis, Powertrain Systems' adjusted revenue declined by 10% in the quarter as growth in GDi was more than offset by lower revenues in passenger car diesel in Europe and India, OEM decisions to exit certain segments in North America, lower power electronics revenues, and to a lesser extent the GM strike. Adjusted operating margin of 5.5% was down primarily due to the fact as I've just described, most notably unfavorable mix and lower overall global volumes, particularly in China.

Turning to our Aftermarket segment on Slide 13. On a year-on-year basis, Aftermarket revenues increased by 2% in Q3, as higher sales to independent Aftermarket customers more than offset planned lower OEs revenues and some market softness in Europe. Adjusted operating margin of 10.3%, increased by 290 basis points, primarily due to continued improvement in operational performances consistent with our focus on driving sustainable, profitable growth. This was partially offset by higher year-on-year tariff costs.

Now let's move on to our updated outlook for 2019. Slide 14 highlights our revised outlook for the year. Relative to our prior outlook, the change is predominantly driven by the incremental industry and macro headwinds and the related impacts on our diesel revenues for both passenger car and commercial vehicles. In addition, we have also incorporated the impact of the GM strike through to the last week of October, which equates to approximately $20 million in revenue.

We now expect full year revenues to be in the range of $4.3 billion to $4.325 billion, which on an adjusted basis represents a 7.5% to 8% year-on-year decline. Compared to our prior outlook, this represents a 200 basis point to 250 basis point reduction in growth, which is largely consistent with our lower global production assumption for the year. Approximately 2/3 of this change in outlook is related to lower diesel revenue assumptions for passenger car and commercial vehicle.

Adjusted operating income margin is now expected to be between 7% and 7.2%, with an adjusted tax rate of approximately 19%, or around 1 point higher. Our revised adjusted EPS range is $2.25 to $2.35. Operating cash flow is now expected to be between $235 million and $250 million, primarily due to the higher cash restructuring cost which we now anticipate being between $60 million to $70 million.

We now see CapEx to be in the $350 million to $360 million dollar range, the increase driven by an acceleration of our IT spend, as well as the completion of our new manufacturing site, both of which will allow us to fully separate from our former parent and accelerate cost efficiencies in 2020. Importantly, we see CapEx as a percentage of sales declining significantly next year. This is expected to be a key driver of our free cash flow improvement in 2020, and I'll come back to this in a couple of slides.

In terms of some of the key assumptions for Q4, we estimate year-on-year global light vehicle production to decline by approximately 8%, with China declining by approximately 9%. In addition, we expect commercial vehicle production to decline in the low teens, driven by weakness in North America. And as I mentioned earlier, we expect to see Power Electronics return to year-on-year revenue growth, driven by new launch activity.

Turning to Slide 15. Our prior adjusted operating margin outlook of approximately 8% for the full year implied a second half adjusted margin improvement of approximately 100 basis points compared to the first half. This assumed a combination of Delphi Technologies initiatives, partially offset by market and macro headwinds. While the expected benefit from the Delphi Technologies specific initiatives are largely unchanged, the market and macro headwinds have increased, such as lower global production for both light and commercial vehicles, particularly in India, the GM strike as well as unfavorable FX dynamics.

In total, we now see approximately 200 basis points of additional market and macro headwinds in the second half of the year, predominantly in Q4.

Given these market and industry-wide challenges, and as Rick highlighted in his comments, we simply have to become a leaner and more flexible organization. Through the execution of the restructuring plan we have announced today, I am confident that we are on the path to deliver both margin expansion and a significant improvement in our cash flow performance.

Slide 16 outlines the estimated cost and savings related to our 3-year plan, as well as the expected phasing over the period.

At a high level we are targeting more than $150 million of cost savings in 2022. This is expected to have an approximately $200 million of associated restructuring cost, with average payback of little over 1 year. Of the total cost reduction, we expect approximately 80% to come from engineering savings with the balance split between SG&A and operations.

And as you can see on Slide 16, we expect to achieve roughly 1/3 of the savings in the first year, or approximately $50 million in 2020. In addition, we expect to see a significant free cash flow improvement over the course of the plan, generating approximately $300 million of cash flow benefit through the end of 2023.

While we are not providing a specific 2020 outlook at this stage of the year, I want to share some directional color on Slide 17 on how we see next year shaping up and some of the expected key drivers. In terms of the trends and headwinds that are impacting us in the second half of the year, our base case assumption is that those trends continue into 2020 with an accelerated decline in commercial vehicles.

Starting with revenue. While our initial view is that both light and commercial vehicle production could decline next year. From a more Delphi Technologies perspective, we expect the trend in passenger diesel revenues to continue with lower sales of our legacy Powertrain products, offset by growth in GDi and Power Electronics and to a lesser extent by Aftermarket.

Moving to adjusted operating margin. Positive drivers include the benefits of restructuring, lower year-on-year spin-related cost and the expected improvement in profitability for both GDi and Power Electronics. Offsetting this, we see the mix headwinds in our business accelerating related to the shift from passenger car diesel revenues towards GDi and Power Electronics, as well as the expected cyclical downturn in Commercial Vehicles.

While we see a number of pluses and minuses to our revenue and profitability performance in 2020, we see a clear path to a significant year-on-year improvement in free cash flow. Slide 18 highlights some of the cash flow tailwinds. Importantly, they are all independent of revenue or are within areas that we control.

In total, we have identified up to $200 million of free cash flow benefits in 2020, which are the combination of 4 drivers. First CapEx, which we see declining by $90 million to $100 million relative to 2019. This reduction is a combination of the absence of approximately $40 million of spin-related CapEx as well as a returning underlying CapEx towards 5% of sales. Second, the net benefit from incremental restructuring savings and costs. Third, we see a $35 million to $40 million year-on-year benefit due to the absence of one-time separation costs incurred in 2019. Fourth, lower year-on-year pension cash contributions following the elevated levels of cash in 2019.

In addition, and as Rick mentioned, we see further opportunities to improve our working capital efficiency through the implementation of lean initiatives focused on reducing our days on inventory on hand.

So while we continue to expect uncertainty related to the volume and mix impacts on our cash flow performance in 2020, we see a very clear pathway to deliver higher year-on-your cash flow.

With that I'll turn the call back to the operator for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Your first question comes from the line of John Murphy from Bank of America.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [2]

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Just as we think about the reduction in the engineering the facilities, 23 going down to 14, that's a big change, and it's lot of folks going out. I'm just curious, Rick, as you look at this, is there duplication in your efforts across facilities as they exist right now? Or will some work need to be ported to the remainder of the 14 facilities that stick around?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [3]

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We do have some redundant capabilities at our sites. Example is we have 9 materials laboratories around the world. We don't need 9. So we can move that work very quickly and move forward there. There are certain test equipment we have. Example we have over 80 dynos around the world. There's different sizes of dynos as I've come to learn here. So we can move some of the dyno work around.

Three, the downturn in the future development of IC engines is going to allow us to shutdown some of those dynos and potentially sell them because we won't be doing some of the calibration work we've done in the past, okay?

There will be some equipment we have to pick up and move from sites that are being impacted and relocate them to open facilities in the open floor space we have. So I don't see a lot of CapEx in terms of building additions, et cetera. There's one area where we do handle gasoline where you have to have like bomb proof type facilities. And we got to make some small adjustments in two of our facility to do that. So does that answer your question?

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [4]

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Yes, it does. I mean I guess maybe simplistically, this might be more (inaudible) when you think about ER&D as a percent of sales, I mean what is the opportunity, what is the best-in-class number that you think of and where you think you ultimately get like, just like forget about the exact number - dollar numbers you're talking about now, percent of sales what should we think about going forward?

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Vivid Sehgal, Delphi Technologies PLC - CFO [5]

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Sure, John. Just actually before that, I just want to sort of raise another point that Rick was touching upon. I think one of the important things that we have not factored in to our restructuring plans right now is any type of asset sale that could actually allow also a very significant contribution to cash flow and mitigate any type of requirements for moving CapEx or any other type of

(technical difficulty)

We sit on some pretty good sites at this point in time. And that will provide certain benefits if we move forward with that. But that's not encased within our current assumptions right now. But I think just overall if I look at the engineering, what's clear is that we've already made some pretty good strides in this. If you look in the first half of this year engineering was north of 9%. And even I think with Rick sort of focusing very hard right now on cost control we're going to end the year in H2 closer to 8%. And sequentially, you can actually see that in Q3 we were down, close to sort of 20 million less than in Q2. So we've already made some pretty good strides right now in terms of engineering.

So I think long term we'll have to of course depend on revenue, but I think Rick called it out before, there's at least 200 basis points at a minimum of opportunity within engineering which would largely drive our focus into the long-term closer to the 6% range.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [6]

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And John, we have done -- we've taken a deep dive into the public powertrain companies, the drivetrain companies and the driveline companies, all right? And the type of technology changes between as you move from the engine back to the drivetrain to the driveline and so -- but we know where we stand versus our publicly traded powertrain competitors. We think we have an opportunity to get equal to or better than them in the next 2 years, okay?

And we have a very clear plan. We've taken some extra time. We've gone site by site, program by program, name by name, equipment by equipment. We now have a very clear plan. It's built over 4 phases. Phase zero started already. As Vivid said, in the third quarter we're starting to see some result of Phase 1 moving forward as of today. And Phase 2 and 3 were finalized and that was ready to go, okay? So this is a -- we're going to run this just like we run a program, a detailed month-by-month, site-by-site, name-by-name who is going out the door and who is moving to new locations.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [7]

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That's helpful. And then just a last question. I mean, you keep alluding to the Aftermarket opportunity. Obviously this is a growth story as opposed to a cost rationalization story, although it might be both. What do you think you can ultimately do there? And what are the key levers or drivers of Aftermarket growth? And how big could this be? I mean is it a very significant revenue opportunity?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [8]

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Yes, let me. I inherited when I got here a plan called Aftermarket 2020, which I vetted the first 30 days with my predecessor and the team. And it's a damn solid plan. We have some strong targets there to grow both the revenue and our profitability there. I think this has been an under-focused asset for a long time. I think under our Delphi Technologies leadership we're doing a better job. We have significant opportunities to grow globally.

We have some pockets where we have some portfolio gap so we can take a look at doing some things here to fill that. And from an efficiency standpoint, Alex Ashmore and his team are doing a great job. One area that I've tasked them to do is I think we do about 3.5 turns in the Aftermarket parts right now and we think the benchmark is somewhere between 5 and 5.5. So we have too much inventory. And once we get after that, you will see even a better business for us in the Aftermarket. Back to Vivid.

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Vivid Sehgal, Delphi Technologies PLC - CFO [9]

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Yes. And I think just touching on Rick's point. The Aftermarket 2020 program was effectively a 3-year plan which was to bring the focus on operating income margin and cash flow. And I think the Aftermarket team has done an extraordinary job in both of those. They've really turned this business into driving operating income margin as well as a very strong cash contribution. I think what you're going to see from the company as part of the 2020 plan, if it comes to -- through to 2020, we've always said that the Aftermarket business can return to mid-single-digit revenue growth.

That's still a plan that I think we hold as a credible option for this company. It will probably be through the end of 2020 that they will carry on focusing on the margin and the cash. But there is no reason right now given especially the focus on the independent Aftermarket business that this business segment that is doing well should return to that mid-single-digit revenue growth.

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Operator [10]

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

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Joseph Robert Spak, RBC Capital Markets, Research Division - Analyst [11]

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I guess I wanted to focus on the 2020 free cash flow and some of the walk you provided here. So you're guiding 2019, I'll use midpoints here, down about a burn of a 110, you're saying about 190 call it, under your control better. So that gets you to maybe plus 75. And then I guess we can make our own industry assumptions about what happens. I guess the missing piece should be working capital. And Rick, I heard you sort of talk about initiatives, especially on inventory. But how should we think about that in 2020? Is that going to be harder to get that in a lower-volume environment?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [12]

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One thing we're taking a look at is not just the dollars of inventory but days-on-hand inventory. And we did some training at the end of the third quarter to -- on lean manufacturing systems. The interesting thing is lot of that training had been done a decade ago. And inside the four walls of our factory we're pretty efficient. But we've expanded our look at the value stream outside the four walls of our factory. And what we've discovered is it's almost incredible to me, okay, as an industry veteran here right.

I think we have over 41 days of inventory on hand right now. The majority of that inventory is in the raw materials. We are now in the process of mapping from every single supplier to every warehouse we've identified that we didn't know about maybe before. And there is a significant opportunity to get after that right now.

That doesn't take the industry downturn or upturn. We just got to get more efficient, okay? We have a couple of sites where I've identified, our team has identified, we bring parts into an outside warehouse, we offload it, we store it for a week or 2 weeks, then we take it to our own warehouse and we store it for another week and then we use it. That's just like ask backwards. That kind of system left the industry about 25 years ago. So we've got to change the way we do business.

We've restructured the organization that reports to me. I now have someone reporting to me directly for purchasing, but also somebody reporting to me on lean and logistics. And so we're going to get after that. I also think part of our inventory issue is we also have a freight issue. We're averaging almost 4.6% of sales in freight and logistics, and that's also not benchmark in the industry. So it's a target-rich environment, its one we've identified. Our plans are pretty good, shaped.

Like I said, there is a few operating issues. We can get there and get better. And we got to get a better handle on our scheduling systems across our factories. I think we've inherited 67 different parts scheduling systems as we've migrated off the old Delphi Automotive systems. And so we have to get after that as well down the road, okay?

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Vivid Sehgal, Delphi Technologies PLC - CFO [13]

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And Joe, just let me add, financially. I think your questions are very pertinent because I think we're going to see some natural inventory improvements next year. And that's going to come from the fact that as we exit this year we are holding some buffer stock at this stage. So there are 2 main buffer stocks that are in place. The first one is around as we come off the final contract manufacturing arrangement with our former parent at the end of Q1, we are holding additional inventory through the end of the year. And we are also holding at this stage some Brexit inventory with the uncertainty that is happening currently within the U.K. So there is going to be, sort of to Rick's point, a 1 to 2-day reduction in days on hand anyway. And I think the whole organization is running at pace to implement the lean. And it's a cultural shift for us right now. And it's being embedded pretty quickly.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [14]

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Yes. And Joe, my experience at Axle and Accuride and Acument is this kind of process, now that we have the maps being done, we'll get after it. It takes a good 18 to 24 months to really see some significant improvement. But we have some low-hanging fruit here we can get after quickly in 2020 for sure, okay? But to really get a robust system where you go to runners, repeaters and strangers and you get rid of some of the dogs and you put the right inventory at the right location and have the buffers, that takes some hard work and math to get that done. But it's something we're beefing up the team to do that right now.

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Joseph Robert Spak, RBC Capital Markets, Research Division - Analyst [15]

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Okay. So just to summarize then. I mean it sounded like based on what you feel confident you control we're looking at a base of $75 million of free cash flow and then we got to layer in maybe some benefit from working capital and then whatever we think from the industry. Those are the buckets to think about.

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Vivid Sehgal, Delphi Technologies PLC - CFO [16]

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Yes. I mean I'm not going to get into this sort of -- obviously the macros are there. I mean, yes, I think -- yes -- Joe, you're absolutely right. I think right now we have a lot of opportunities that are within our control that are related to the current spin and related to the fact that we're not going to be doing certain activities and coming off some of the buffer inventory. Yes. So you're right.

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Joseph Robert Spak, RBC Capital Markets, Research Division - Analyst [17]

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Okay. Just one housekeeping, maybe I missed it. I didn't see a total bookings number in the quarter. I saw a year-to-date Power Electronics booking. Is that something you could disclose? Or are we seeing a slowdown in the…

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [18]

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I think I mentioned it. We didn't put a slide in, but it's about $1 billion bookings in the quarter.

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Vivid Sehgal, Delphi Technologies PLC - CFO [19]

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It was in Rick's, yes.

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Operator [20]

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Your next question comes from the line of Chris McNally from Evercore.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [21]

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I wanted to spend just a little time on the 2020 walk. I know it's early and we can't give too much on a quantitative basis. But of two of the items that you highlighted in the graphic on I think '17 and '18, for the separation cost specifically it's in the free cash flow walk. Will that also be a similar benefit in that kind of $35 million to $40 million range on an income statement basis between '19 and '20?

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Vivid Sehgal, Delphi Technologies PLC - CFO [22]

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No, that's adjusted out, Chris. So it's a cash benefit but not in a just [OI] number benefit, no.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [23]

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But should we get anything in terms of the cost benefits that you've already done from the separation perspective on top of obviously the cost transformation that you highlighted right now that could be maybe $40 million to $45 million in 2020?

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Vivid Sehgal, Delphi Technologies PLC - CFO [24]

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Yes. So I think the element that we are certainly going to see an improvement on in 2020 is the absence of the spin cost, the TSA mark-ups, the CMSA mark-ups that we currently have. All of that will be coming through. I think the numbers will not be at the level of $35 million or $40 million. But I think it's going to be a good uptick to our OI margins going forward. And we will provide that color on the Q4 call. But that will be a benefit into 2020.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [25]

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Okay. Perfect. And then to the other side on the negative. I think the one area that surprised me was you highlight mix. Does that mean China PHEV could be a continued concern next year? What specifically were you calling out in terms of vehicle mix outside of light vehicle and commercial vehicle?

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Vivid Sehgal, Delphi Technologies PLC - CFO [26]

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I think really, Chris, the -- commercial vehicle is the main sort of mixed headwind right now. If you look at the sort of decremental margins of the company, certainly some of our highest margin products at this stage are passenger car diesel and commercial vehicles. So obviously at this stage we did call out that we see the commercial vehicle softening in 2020. And that will create for us some degree of mixed impacts next year. We see right now our own estimate is that commercial vehicle from a global perspective will be sort of down mid single digit with sort of North America being sort of 20% plus, Europe being sort of low single digit as well as China being mid single digit at this stage. So I think the new news in terms of the mix of our business is basically CV at this stage. Everything else is pretty much on track with where we thought it.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [27]

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Okay, that makes sense. And then one real quick one, just high level in terms of the -- if we go to the top line and think about the inflection on content per vehicle, right? It seems like forever ago when you -- you laid out some of the positive drivers because it's been an issue from light vehicle production. But can you just talk about when we could really see that big inflection coming from power electronics? I mean I think it was in the 2020 timeframe. It's get going above $500 million. But it really doesn't -- a lot of your programs are 2022 and beyond. So could you just give a timeframe for where this -- your couple points of content per vehicle could become something much, much greater.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [28]

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Yes, Chris, this is Rick. Two things. There was one program that was supposed to launch this year with one of our Asian OEMs, and it's been delayed until next year. So I think we'll see a jump in that. We did see some orders come in, in the 15-week releases that are going to show some bills in fourth quarter. So that gives us some confidence. So that's one big step up. And then next big step up is some of the programs we went out into 2022 we launch and we do a lot of pilot, do a lot of engineering and testing in '20 and we do some pilot in '21, you'll start seeing production in the back half of '21, '22.

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Vivid Sehgal, Delphi Technologies PLC - CFO [29]

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Yes, we certainly will, I think to Rick's point. I think what you're going to see or we expect at this stage is to see a return to material growth in power electronics in 2021. I think certainly what happened in China given the NEV credit situation and the mix shift of CN5 to CN6 definitely impacted our Power Electronics performance this year.

But right now most of that inventory adjustment and noises is beginning to disperse. And I think what's really good news for us is that our launch profile starts moving towards the full BEV, not just the PHEV which most of our platforms are on today. So I think Chris what you're going to see from us is an expectation of some pretty material growth in power electronics starting in 2020.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [30]

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And Chris, it took me a while to understand how all the systems work here at Delphi Technologies from a product standpoint. But we talk about the downturn in light-duty diesel, that's not just in the fuel injectors, that's in the controllers that go on those light-duty diesel vehicles as well. That was something that -- it's kind of a double whammy for us, both on our fuel injection system business and our electronics business, okay? So that will all stabilize as we get through the transition and we'll start launching more. So GDi is going to pick up significantly next year. We've got a couple of tranches of new capacity going in. We have two additional launches for new OEM customers. So we're really busy on the GDi side. That will help us get across that fixed cost structure that we had put in place the last few years.

And then Power Electronics where the guys are working feverishly to get things qualified. The equipments are now in place. We're going to slow down our capital spend at some of our sites. When I first got here people were talking about we're going to be out of capacity. Hey, hold on a second, let's fill up the capacity and floor space we have first and then we'll talk about future down the road. So I think we can defer some of the capital that was in our original plan out a couple of years, to '25, '26.

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Operator [31]

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Your next question comes from the line of Emmanuel Rosner from Deutsche Bank.

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Emmanuel Rosner, Guggenheim Securities, LLC, Research Division - Former MD and Autos & Auto Parts Analyst [32]

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First question on the transformation plan. I'm a little bit surprised that it takes 3 years to sort of create some of the savings here to the extent a decent chunk of them come from headcount reduction where usually the savings basically happen as soon as the headcount reduction is sort of realized. Is the fact that it's staggered over 3 years and with just one sort of coming next year, is that sort of a -- out of a focus on trying to preserve cash or like figuring that you don't want to fund all the cost in 1 year? Or is there any particular operational impediment to making this savings happen faster?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [33]

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Good question. So, as you know, we support -- our revenue base is very diverse. We have no customer with more than 10% of our sales. So that also means we have a bunch of programs that are being designed, developed and tested for a bunch of customers. And it's -- one of the reasons we took a little longer to go forward on our restructuring plans, we had to go through every single program we're working with a customer. Whether it's currently in a calibration stage and we got to finish the contract we have until it finishes or in development test days where we're launching '21, '22, '23. So we have over 160 different programs that are tied to specific customers across these 23 sites. So we got to make sure we hand these programs off, either finish them at a site before it closes or hand it off from one side to another without dropping the ball, okay?

So we will move as fast and as aggressive as we can. Our board gave us very clear direction to do that. We feel comfortable with what we have right now. And after our last board meeting we're going back to see if we can pull ahead some of those restructurings, okay?

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Vivid Sehgal, Delphi Technologies PLC - CFO [34]

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And I think Emmanuel, following on from that. I think the other area -- look, I think from our perspective I think close to a 1-year payback is a good return given everything that's going on. I would also highlight on, Rick mentioned in his prepared remarks that much of the work we're doing is in Western Europe. Now, what's really important is that this is a fundamentally important move from the company given our footprint and looking for best cost locations. Now we're going to do everything in the right way. We're going to do it with speed. But obviously working in Western Europe has its own issues that we will deal with. And we have a very clear pathway how to get these restructuring activities done efficiently, quickly. But when you're dealing with certain countries, you have to fall in line with the regulations that are underway. And we have a very clear plan of how we're going to do that. And we're very confident that we'll get through them very fast.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [35]

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Emmanuel, before we had this call today, over in Europe our team met with the European Works Councils that represent the workers at our tech centers. There's follow up site council meetings this week. And so we'll go through and work through those. Here in North America you can go a little faster, in Mexico, United States and South America and Asia. But in Europe, you got to work through. The fact that we're going to be able to close 9 tech centers, lay off 1,500 people and have just slightly over a year payback is pretty incredible. If we can do better, we'll execute it.

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Emmanuel Rosner, Guggenheim Securities, LLC, Research Division - Former MD and Autos & Auto Parts Analyst [36]

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Understood. And regarding the puts and takes the 2020 operating margin on Slide 17. I wanted to see if you can help us a little bit more on the mix headwinds, which I feel have the potential to sort of be material. Is there any sort of rule of thumb you can give on what sort of decremental margin you could experience when you see decline in the commercial vehicle business and/or the light vehicle diesel business? Obviously not all your businesses are starting from the same point. So anything that -- if we make our own assumptions on the magnitude of the top-line decline, what sort of like decremental impact does it have on margin?

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Vivid Sehgal, Delphi Technologies PLC - CFO [37]

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Yes. I think what we've said in the past, Emmanuel, still holds true today. I think the decremental margins of the company are in that sort of 30% range. And if you look at CV and passenger car diesel, you're looking more in the 30% to 35% range in terms of decrementals. Obviously, as we go forward, I did call out that we see the CV market at this stage on a global production level, being closer to mid-single-digit decline. So obviously that will have a mixed headwind opportunity.

However, to be very clear, we also have a series of very good opportunities in terms of margin expansion. We have the restructuring plan in place. We've been very clear and Rick has been clear the GDi and Power Electronics are well on their way. So the growth potential in margin that we expect them to be and to get to breakeven.

And again, Aftermarket. You've just seen today again another 290 basis points of margin expansion in the quarter. And the team is doing an outstanding job in driving margin expansion. So CV will be a headwind. And we've called that out. But I also want to focus very hard on the margin expansion opportunities that we also have in this business.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [38]

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Yes. I'd say we're not happy that we have degradation margins of 30% to 40%. That's unacceptable, quite honestly. We should be no more than 20%, 25%. So we have to address some of the overhead cost structure and we got to move a little quicker when the downturns come, right? Our guys have that message. And hopefully they learn. Lot of intent here, grow the business, put the plants in, and guess what, the market turned in our face. Electronics is not coming as fast as we thought. GDi is a tougher launch than we thought. So we got some work to do. The guys understand that.

So we understand is what I said, we had some internal operating issues, we understand where they're at now. We're going to address them. We had to fix some equipment, we got to fix some suppliers. And so we'll get after that quickly, so.

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Operator [39]

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Your next question comes from the line of Dan Levy from Credit Suisse.

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Dan Meir Levy, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [40]

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I want to just touch on bookings. You mentioned it was $1 billion in the quarter. So if I'm correct, you guys have, call it like $6.5 billion in bookings year-to-date through 3Q. And fully recognize that bookings are very lumpy. But to be flat with the $9 billion of bookings you put up in 2018 you need something like $2.5 billion in the fourth quarter, which really is a lot based on what you've done in prior quarters.

So as we're sort of nearing the end of 2019, how do we interpret what may end up being a lower year-over-year for bookings? Is it just simply that it's lumpy and we shouldn't read too much into it? Or is there some indication that at the moment commercially maybe or a little less focused on securing new business and rather really the focus right now, the key priority is just trying to support the business that you currently have secured.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [41]

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Well, we haven't given up on our targets for 2019. We're still in negotiations on some fairly large programs, both on -- in U.S. and in Europe right now and in Asia. We're going to take profitable business. I won't -- when we got this business there was a few things that were taken prior to Vivid and I joining the company where we took some business that now we're going back and fix, whether that's with price increases or we have to reduce some prices from our suppliers.

So we want -- we have a very clear return on invested capital targets, probability targets for this business. We aren't going to take business that doesn't make money, doesn't do you any good. Okay, you spend a hell of a lot of money on engineering and tooling but you'll make money that have a 6- or 7-year payback, that doesn't make sense for us, okay?

So let's see how the fourth quarter shakes out. How's that? We're 100% focused. I mean 100% focused on growing the business, okay? But growing it in a profitable way. And we also are trying to put some discipline this company that we have to get these commercial negotiations done in a way where you give the engineering team and the manufacturing supply chain teams the opportunity to execute those programs successfully.

You don't take them at the very last minute and then you don't have time to get your equipment installed and launched and then you get into a disastrous launch, all right? We've been fighting through some of those the last couple of years.

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Vivid Sehgal, Delphi Technologies PLC - CFO [42]

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Yes, I would also just add, Dan, that I think the focus of the business on Power Electronics, GDi, you saw last quarter a $2.7 billion win that our largest ever win in terms of Delphi Technologies. But obviously given what we're talking about in commercial vehicle right now, should we expect to see some lumpiness within the CV business that has been a very strong bookings for us in the past? The answer is yes, given where we are in the cycle at this stage.

However, that doesn't mean we're not going after business. And we've got some great sort of opportunities ahead. But there is going to be some CV softness as we go into 2020. But that's not unusual. And we don't think that's any type of concern. Because Power Electronics, we have some very large wins already banked and we're going after some pretty big wins going into next year.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [43]

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And I'll make A little bit, few more comments. We're gaining market share on GDi. And we're gaining market share that's profitable. We are winning more than our fair share of the electronic side of the house, because of our advanced technologies on Viper technologies and how we can fit a smaller controller into the engine side.

On the powertrain product side of the house, which is our non-fuel-injection-system business. I think that was an area that we probably didn't focus on enough. And we've got the sales team now going after big targets there. We have some open capacity. And on the aftermarket side, I think there's certain regions of the world where we're under-representative. So we're going in 4 different ways to grow the business as well.

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Dan Meir Levy, Crédit Suisse AG, Research Division - Director & Senior Equity Research Analyst [44]

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Great. And then just to just to be clear, the transformation plan that you've unveiled this morning. This has -- this is not in any way a comment of what your future sort of commercial endeavors maybe, this is purely -- we should just interpret this as your push to be more efficient with what you have and that the commercial push is still unchanged. Is that correct?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [45]

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That's exactly right. I'll give you an example. I have 4 sites in the world that work on ignition. The ignition business is around $200 million business for us. I don't need 4 engineering sites working on ignition, maybe 1 or 2, all right? We don't need 9 materials labs. We just have a legacy structure that grew up under 2 previous owners that needs to be addressed and resized, okay, so…

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Vivid Sehgal, Delphi Technologies PLC - CFO [46]

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And the focus really, Dan, at the moment is 2/3 of the engineering will be in legacy programs, including passenger car diesel, in some of the legacy PCP programs. If you actually look at the engineering that we have in Power Electronics, it's very, very little touch there in terms of change. And I think what you're going to see from us, and we called this out a number of times, it will actually allow us to have the optionality of further investments in advanced technologies. So I actually believe that what we're doing is freeing up cash flow in legacy areas of the businesses to actually give us some optionality to actually invest more in and be selective in what we do. So we look at that as a very positive trend within our investment profile.

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Operator [47]

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And your last question comes from the line of Noah Kaye from Oppenheimer.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [48]

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So first, just to level set, with all this discussion around decrementals, is this -- am I reading this slide right that your initial bias for next year is towards flattish operating margins?

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Vivid Sehgal, Delphi Technologies PLC - CFO [49]

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What we're saying is that we are really subject to the market at this point in time. So we are -- we clearly see the opportunities of margin expansion opportunity within our business. That includes the restructuring, the absence of spin costs and an improvement within the GDi and Power Electronics profitability. Obviously this year the market going backwards, and we're now calling it 7% down on a global basis, much of our margin profile will be subject to how volumes in light vehicle and commercial vehicle actually trend out into Q4 and into next year. What we are calling out is that we have margin expansion opportunities.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [50]

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Understood. And I think you've given us some idea that you're initially thinking about mid single digit EV declines next year, continued LPP softness. So I guess just to clarify, is this sort of -- is this slide contemplating the order of magnitude in -- when you talk about the mix headwinds? In other words, is this -- is that what you're sort of baking in to your initial outlook?

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Vivid Sehgal, Delphi Technologies PLC - CFO [51]

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No, we're not giving outlook right now. I think in Q4 we will provide much deeper color. I think we want to get through the Brexit issues. We want to understand Q4 of where we actually end up. What we are saying is that we have a number of opportunities given the mixed headwinds that we see within commercial vehicle to offset that. And the restructuring should actually provide us with optionality to try in the longer term to grow. But I'm -- we're going to provide very clear color in terms of 2020. What we are saying is we got some very controlled and good opportunities to expand margin next year. We are going to wait for the macros to find out where they actually go.

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Noah Duke Kaye, Oppenheimer & Co. Inc., Research Division - Executive Director and Senior Analyst [52]

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Understood. And that's very helpful. I guess just around the comments for expectation for more bookings and growth in Power Electronics, it really looks like you're pulling a lot of technology levers here to support a more robust Power Electronics architecture. You have the Cree partnership announcement, the PolyCharge investment. I guess just to understand how quickly do you see your customers' needs evolving with respect to Power Electronics. And I guess in light of this transformational plan and the investments you've made in standing up your PE capacity, just what kind of flexibility, Rick, do you see that you have to do incremental product engineering, any changes to product launches and just kind of keep pushing down the technology curve?

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [53]

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Yes, great. Those are great questions. First of all I'd say that the technology changes and demands happen almost every single day. There's been big bets by some of the largest OEMs in the world on electrification. They don't have the experience inside their own company to do some of the work and so they've taken us in as partners. I think there is one OEM we've worked for over 2 years where they funded our engineering to help them get both the hardware in terms of the technology and the systems that control that technology across a very complex infrastructure of that vehicle, right? So that's #1.

And we have a legacy of over 3 decades of being electronic leaders, back to the GM original Volt and stuff like that or [E1] I think it was called. The fact that we've won electronics business with some of the largest OEMs in China, the OEMs in Europe, is really critical for us, we got there.

Second, I think we have asked our team to take a look at what we installed at each one of our 5 E&E sites around the world. Does it make sense to be 100% integrated? Or we should move some of that work out to reduce our capital? Is there any capital that's running only one shift right now or only 2 shifts? And I can defer some of that capital or move it to a new location where we have to put in capital. So it's a very fluid situation is what I touched on.

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Vivid Sehgal, Delphi Technologies PLC - CFO [54]

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And I think Noah, just -- I mean the one -- there can be no doubt, and I don't think that anybody thinks any other way. I mean electrification is going to get more important in every region of the world whether you're looking at China right now, if you're looking at Europe, North America, you know as we move towards the next range of regulatory targets that come out, for example, 2025 in Europe. We passionately believe that high voltage solutions are going to be the way forward, that the majority of our customers today are going to hit those CO2 and regulatory targets. I don't think they have a choice in the matter. And I think what we're really looking at right now is obviously the pace of that change. But as I said, we think that we're going to return some pretty decent growth on Power Electronics in 2020. We're moving towards the BEV platforms on a high voltage basis. So we have not changed our strategy on power electronics whatsoever. We see ourselves as a market leader on that. We see the market in every region evolving towards that. And we think we're going to be a key player in actually the pathway to electrification.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [55]

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So one thing I understand when I'm here now is that we have 10 plans inside the Delphi system out of our 24 sites that are in some kind of launch mode or resizing mode. We have 3 brand new greenfield or brownfield sites in E&E that were built from the time we spun. And we're going through qualifications with multiple customers. Our Blonie plant right now is hosting 1 or 2 customers a week to get certified, to get -- to be approved to become a supplier because that work still gets done for us adaptive. And so that will be done by first quarter. It's easy to put that on a PowerPoint. To actually have the people prepare, to have the customers come in and do all the audits, line by line, machine by machine takes a lot of work. And I give the team in Blonie a great credit for getting their plant built on time, equipment installed. We've got from 0 people when I got here to over 200 people in that plant now making parts, so beginning to source that work, okay. Hell of a job by John Lipinski and his team there. So we have 6 GDI sites around the world. 2 in China, very stable; 2 in Eastern Europe, they are still going through their last parts of their launch bugs; and 1 in Western Europe. And we're launching a new site next year in Mexico. 6 plants putting brand new technology, brand new equipment, brand new designs. And it's going to last us for 20 years. We got to go to the growing pains there. And then we're in the process of consolidating one of our U.K. plants and moving out equipment to 3 different locations in the world. So we've still got about 12 to 18 months to get the fundamental operation of this company stabilized while we are executing a spin and putting the new IT system. So there's a lot of work going on here. And we have much better days ahead of us here at Delphi Technologies.

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Operator [56]

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I'm showing no further questions at this time. I would now like to turn the conference back to Rick Dauch.

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Richard F. Dauch, Delphi Technologies PLC - CEO & Director [57]

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Well I appreciate everybody joining the call. I know it's a busy day for all you analysts out there with a lot of announcements and some of the big news in the industry between OEMs, consolidating or Tier 1s in Japan consolidating. So we appreciate your interest in Delphi Technologies. We'll see you on the road. Thanks. Have a good day.

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Operator [58]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation. And have a wonderful day. You may all disconnect.