Delphi Technologies reports fourth quarter and full year 2018 financial results, provides full year 2019 outlook

LONDON, Feb. 21, 2019 /PRNewswire/ -- Delphi Technologies PLC (NYSE: DLPH) ("Delphi Technologies" or the "Company"), a global leader in vehicle propulsion, today reported fourth quarter 2018 U.S. GAAP earnings of $1.52 per diluted share. Excluding special items, fourth quarter earnings totaled $1.06 per diluted share. The Company also reported revenue of $1.2 billion for the quarter and $4.9 billion for the full year, a decrease of 5% and flat revenue compared to the respective equivalent prior periods, on an adjusted basis.

Fourth quarter highlights

• Revenue of $1.2 billion, down 5%^(*) year-on-year
• U.S. GAAP net income of $135 million, diluted earnings per share of $1.52
• Excluding special items, earnings of $1.06 per diluted share
• U.S GAAP operating income of $93 million, or 7.9% margin
• Adjusted operating income of $125 million, or 10.7% margin
• Generated $126 million of cash from operating activities

Full year 2018 highlights

• Revenue of $4.9 billion, flat^(*) year-on-year
• U.S. GAAP net income of $358 million, diluted earnings per share of $4.03
• Excluding special items, earnings of $4.38 per diluted share
• U.S. GAAP operating income of $434 million, or 8.9% margin
• Adjusted operating income of $548 million, or 11.3% margin
• Generated $419 million of cash from operating activities
• At December 31, 2018 cash and cash equivalents equaled $359 million

(*) Adjusted for currency exchange and certain aftermarket revenue retained by the former parent

CEO comments
"2018 was a milestone year for Delphi Technologies. In our first full year as a public company we continued to build on our momentum in key growth technologies, resulting in a record $10 billion of new business awards. Our industry leading portfolio of technologies are at the heart of the propulsion revolution that enable vehicles to drive cleaner, better and further. We also made great progress in creating a strong foundation as a stand-alone company from which to drive long-term growth," said Richard F. Dauch, Chief Executive Officer of Delphi Technologies. "During my first two months as CEO, I have discovered that while 2019 is expected to be another transitional year with slower industry growth, we have an even greater potential to make this good company a great one. However, we clearly need to execute better and with more urgency and discipline to ensure we continue to support our customers and deliver value to our shareholders. Over the coming months, I expect to have a fuller perspective on the actions we will take to drive our operational and financial performance to ensure we capture the long-term profitable growth ahead of us. I look forward to the future with confidence."

Fourth quarter 2018 results
The Company reported fourth quarter 2018 revenue of $1.2 billion, a decrease of 9% from the prior year period. Adjusted for currency exchange and certain aftermarket original equipment service revenue retained by the former parent, revenue decreased by 5% in the fourth quarter. Adjusted revenue reflects a decrease of 6% in Powertrain Systems and growth of 3% in Aftermarket. On a regional basis, adjusted revenue also reflects a decrease of 26% in Asia Pacific, partially offset by growth of 6% in North America, 3% in Europe and 16% in South America.

The Company reported fourth quarter 2018 U.S. GAAP net income of $135 million and net income of $1.52 per diluted share, compared to $56 million and $0.63 per diluted share in the prior year period. Fourth quarter Adjusted Net Income, totaled $94 million, or $1.06 per diluted share, which compares to Adjusted Net Income in the prior year period of $117 million, or $1.32 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by reduced incentive compensation accruals.

Fourth quarter U.S. GAAP operating income was $93 million, compared to $106 million in the prior year period. Adjusted Operating Income was $125 million, compared to $164 million in the prior year period. Adjusted Operating Income margin decreased 200 basis points in the fourth quarter of 2018 to 10.7%, compared with 12.7% in the prior year period. The decrease in Adjusted Operating Income was primarily related to an unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by reduced incentive compensation accruals. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $53 million in the fourth quarter as compared to $57 million in the prior year period.

Interest expense for the fourth quarter totaled $20 million, as compared to $13 million in the prior year period, which reflects the interest related to the issuance of approximately $1.5 billion of debt in connection with the separation from the former parent.

U.S. GAAP tax benefit in the fourth quarter of 2018 was $63 million, resulting in an effective tax rate of approximately (81)%. This compares to U.S. GAAP tax expense of $27 million, or an effective tax rate of approximately 30%, in the prior year period. The income tax benefit recognized in the fourth quarter of 2018 is primarily due to net releases of deferred tax asset valuation allowances in various jurisdictions.

The Company generated cash from operating activities of $126 million in the fourth quarter, compared to $95 million in the prior year period, which reflects improvement in net working capital offset by a decrease in net income, excluding the impact of non-cash items. Capital expenditures totaled $80 million in the fourth quarter, compared to $86 million in the prior year period.

Full year 2018 results
For the full year 2018, Delphi Technologies reported revenue of $4.9 billion, flat compared to the prior year. Adjusted for currency exchange, and certain aftermarket original equipment service revenue retained by the former parent, revenue also remained flat during the year. Adjusted revenue reflects a decrease of 1% in Powertrain Systems and growth of 1% in Aftermarket. On a regional basis, adjusted revenue also reflects a decrease of 10% in Asia Pacific, partially offset by growth of 5% in North America, 2% in Europe and 11% in South America.

For the full year 2018, the Company reported U.S. GAAP net income of $358 million and $4.03 per diluted share, compared to $285 million and $3.21 per diluted share in the prior year. Full year 2018 Adjusted Net Income totaled $389 million, or $4.38 per diluted share compared to the prior year of $464 million, or $5.23 per diluted share. The decrease in Adjusted Net Income was primarily due to unfavorable product mix, spin-related costs associated with becoming a stand-alone public company and interest expense related to the issuance of debt in 2017. Those items were partially offset by favorable impacts related to operational performance, foreign currency and reduced incentive compensation accruals.

The Company reported U.S. GAAP operating income of $434 million, compared to $446 million in the prior year. For the full year 2018, Adjusted Operating Income was $548 million, compared to $637 million in the prior year. Adjusted Operating Income margin was 11.3% for full year 2018, a decrease of 180 basis points, compared with 13.1% in the prior year. The decrease in Adjusted Operating Income was primarily related to an unfavorable product mix and spin-related costs associated with becoming a stand-alone public company, partially offset by favorable impacts related to operational performance, foreign currency and reduced incentive compensation accruals. Depreciation and amortization expense (including asset impairment charges and amortization of deferred debt issuance costs) totaled $201 million as compared to $201 million in the prior year.

Interest expense for full year 2018 totaled $79 million, an increase from $15 million in the prior year, which reflects the interest related to the issuance of approximately $1.5 billion of debt in connection with the separation from the former parent.

U.S. GAAP tax benefit for full year 2018 was $9 million, resulting in an effective tax rate of approximately (2)%. This compares to $106 million, or an effective tax rate of approximately 25%, in the prior year. The income tax benefit recognized for full year 2018 is primarily due to net releases of deferred tax asset valuation allowances in various jurisdictions.

The Company generated cash from operating activities of $419 million in 2018, compared to $388 million in 2017, which reflects improvement in net working capital offset by a decrease in net income, excluding the impact of non-cash items. Capital expenditures totaled $265 million in 2018, compared to $197 million in 2017. The increased spending is primarily due to investments to support becoming a stand-alone public company and long-term growth in key technologies.

Reconciliations of Adjusted Net Income, Adjusted Net Income per Share and Adjusted Operating Income, which are non-GAAP measures, to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") are provided in the attached supplemental schedules.

Full year 2019 outlook
The Company's full year 2019 financial outlook is as follows:

Conference call and webcast
The Company will host a conference call to discuss these results at 8:30 a.m. (ET) / 1:30 p.m. (GMT) today, which is accessible by dialing 888.761.8621 (US domestic) or 703.925.2612 (international) or through a webcast at http://ir.delphi.com. The conference ID number is 3186973. A slide presentation will accompany the prepared remarks and has been posted on the investor relations section of the Company's website. A replay will be available two hours following the conference call.

About Delphi Technologies
Delphi Technologies is a technology company focused on providing electric vehicle and internal combustion engine propulsion solutions, in addition to solving emissions and fuel economy challenges for the world's leading automotive OEMs. Delphi Technologies also provides leading aftermarket service solutions for the replacement market. With headquarters in London, U.K., Delphi Technologies operates technical centers, manufacturing sites and customer support services in 24 countries. Visit delphi.com.

Basis of presentation
Prior to December 4, 2017, Delphi Technologies operated as the Powertrain Systems segment of Delphi Automotive PLC (the "former parent") and the historical financial information presented in this press release for periods prior to December 4, 2017 were derived from the former parent's accounting records and are presented on a carve-out basis as if Delphi Technologies had operated as a stand-alone company for all periods presented.

Use of non-GAAP financial information
This press release contains information about Delphi Technologies' financial results which are not presented in accordance with U.S. GAAP. Specifically, Adjusted Operating Income, Adjusted Net Income, Adjusted Net Income per Share and the Adjusted effective tax rate are non-GAAP financial measures. Adjusted Operating Income represents net income before interest expense, other income (expense), net, income tax benefit (expense), equity income, net of tax, restructuring, separation costs, and asset impairments. Adjusted Operating Income margin is defined as Adjusted Operating Income as a percentage of Net sales.

Adjusted Net Income represents net income attributable to Delphi Technologies before restructuring and other special items, including the tax impact thereon. Adjusted Net Income per Share represents Adjusted Net Income divided by the weighted average number of diluted shares outstanding for the period. Adjusted effective tax rate represents income tax expense less the income tax related to the adjustments noted above for Adjusted Net Income, divided by income before income taxes less adjustments.

Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position, results of operations and liquidity. In particular, management believes Adjusted Operating Income, Adjusted Net Income, and Adjusted Net Income per Share are useful measures in assessing the Company's ongoing financial performance that, when reconciled to the corresponding U.S. GAAP measure, provide improved comparability between periods through the exclusion of certain items that management believes are not indicative of the Company's core operating performance and that may obscure underlying business results and trends. Management also uses these non-GAAP financial measures for internal planning and forecasting purposes.

Such non-GAAP financial measures are reconciled to the most directly comparable U.S. GAAP financial measures in the attached supplemental schedules at the end of this press release. Non-GAAP measures should not be considered in isolation or as a substitute for the Company's reported results prepared in accordance with U.S. GAAP and, as calculated, may not be comparable to other similarly titled measures of other companies.

Forward-looking statements
This press release, as well as other statements made by Delphi Technologies PLC, contain forward-looking statements that reflect, when made, the Company's current views with respect to future events and financial performance and, in particular, the Company's 2019 outlook.  Such forward-looking statements are subject to many risks, uncertainties and factors relating to the Company's operations and business environment, which may cause the actual results of the Company to be materially different from any future results. All statements that address future operating, financial or business performance or the Company's strategies or expectations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "projects," "potential," "outlook" or "continue," the negatives thereof and other comparable terminology. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:  global and regional economic conditions, including conditions affecting the credit market and those resulting from the United Kingdom referendum held on June 23, 2016 in which voters approved an exit from the European Union, commonly referred to as "Brexit";  risks inherent in operating as a global company, such as, fluctuations in interest rates and foreign currency exchange rates and economic, political and trade conditions around the world; the cyclical nature of automotive sales and production; the potential disruptions in the supply of and changes in the competitive environment for raw material integral to the Company's products; the Company's ability to maintain contracts that are critical to its operations; potential changes to beneficial free trade laws and regulations such as the North American Free Trade Agreement; the ability of the Company to achieve the intended benefits from its separation from its former parent or from acquisitions the Company may make; the ability of the Company to attract, motivate and/or retain key executives; the ability of the Company to avoid or continue to operate during a strike, or partial work stoppage or slow down by any of its unionized employees or those of its principal customers; the ability of the Company to attract and retain customers; changes in the costs of raw materials; the Company's indebtedness, including the amount thereof and capital availability and cost; the cost and outcome of any claims, legal proceedings or investigations; the failure or breach of information technology systems; severe weather conditions and natural disasters and any resultant disruptions on the supply or production of goods or services or customer demands; acts of war and/or terrorism, as well as the impact of actions taken by governments as a result of further acts or threats of terrorism; and the timing and occurrence (or non-occurrence) of other events or circumstances that may be beyond the Company's control.

Additional factors are discussed under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's filings with the Securities and Exchange Commission. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect the Company. It should be remembered that the price of the ordinary shares and any income from them can go down as well as up. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events and/or otherwise, except as may be required by law.

SOURCE Delphi Technologies PLC

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