APTV

Good day, welcome to the Aptiv Q1 2026 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead.

Thank you, Cynthia. Good morning, and thanks for joining Aptiv's first quarter 2026 earnings conference call. The press release, slide presentation, and updated new Aptiv pro forma financials can be found on the investor relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring, and other special items and will address the continuing operations of Aptiv as of March 31st. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings.

Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer, and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'd like to turn the call over to Kevin.

Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on slide three, the first quarter concluded with the successful completion of the separation of our Electrical Distribution Systems business into a new independent public company, Versigent, which you'll hear more about following their earnings release and conference call after the market closes later today. This step in our portfolio evolution better positions Aptiv to enhance our advanced software and hardware tech stack, further diversify our end market mix, and accelerate our revenue and earnings growth. I'll start by covering our first quarter total Aptiv results. We continued to flawlessly execute for our customers in an increasingly dynamic environment, further amplified by the conflict in the Middle East, enabled by our operating rigor and the resilience of our business model.

We secured $7 billion of new business awards while also delivering solid financial results, including revenue of over $5 billion, an increase of 1% versus the prior year, despite a deterioration in underlying vehicle production. Adjusted EBITDA of over $750 million, driven by flow-through on volume growth and strong operating performance, which helped to offset significant year-over-year headwinds from FX and commodities. When combined with lower net interest expense and a lower share count, resulted in record earnings per share of $1.71. Varun will review our financial results in more detail later. Turning to slide 4, my remaining prepared remarks will be focused exclusively on new Aptiv, a leading provider of advanced software and optimized hardware solutions across multiple end markets that are being shaped by the acceleration of automation, electrification, and digitalization.

Our deep domain expertise and experience providing OEMs with our technology stack to enable their vehicles to sense, think, act, and continually optimize increasingly can be utilized for applications in other end markets, which I will talk more about in a moment. Competitively, we are well-positioned, with content on all market-leading platforms across automotive, commercial aerospace, and telecom. Roughly 1/4 of our business is in markets outside of automotive. We have several strategic priorities underway to further increase our penetration of those markets. We maintain a diversified regional revenue mix and have significant momentum gaining share with the leading local China OEMs on vehicle platforms sold in China, as well as exported to or manufactured in overseas markets. In addition, we have made significant progress further penetrating the leading OEMs serving the markets in Japan, Korea, and India.

Turning to slide 5 to spend a moment discussing new Aptiv's investment thesis. First, we've built a comprehensive portfolio that collectively powers intelligence at the edge by enabling devices and systems to sense, think, act, and continually optimize. Second, we deliver our unique product portfolio through a robust operating model that leverages our global engineering, supply chain, manufacturing, and commercial capabilities, enabling us to provide high-performance, cost-optimized solutions backed by a resilient supply chain on a global scale, ensuring flawless execution in a dynamic environment. Third, our unique product portfolio and robust operating model are leveraged to create an attractive financial profile that includes more diversified, higher-margin revenues. Lastly, generates a significant amount of free cash flow that can be allocated both organically and inorganically to enhance the earnings power of our business while also returning capital to shareholders.

We made solid progress across each of these pillars in the first quarter. Continued product innovation supporting new and emerging use cases across diverse end markets, including two that were showcased at last week's Beijing Auto Show. The advancement of our next-generation end-to-end AI-powered ADAS platform designed to deliver safer and more enhanced hands-free L2++ autonomy in both highway and urban environments.

In robotics, we partnered to enhance the functionality and performance of both an AI-powered collaborative robot and an autonomous mobile robot for material handling, each of which integrates our award-winning pulse sensor and advanced compute solutions. We successfully navigated ongoing geopolitical dynamics in the evolving macro environment by leveraging our resilient operating model to manage through changing vehicle production schedules and increasing headwinds associated with rising input costs, including resins and metals, enabling us to deliver strong operating performance in the quarter, more than offsetting ongoing headwinds while continuing to invest in key strategic initiatives.

Our financial results reflected continued momentum advancing our strategic priorities, including high single-digit revenue growth in non-automotive markets and double-digit revenue growth across our software and services product portfolio, as well as margin expansion of 30 basis points, excluding FX and commodities, a measure more reflective of the results of our business given we passed the majority of input cost inflation on to our customers. Lastly, we worked diligently through the Versigent separation to position both companies for success with strong operating models, resilient supply chains, and solid balance sheets. However, there's still more for us to do, and I'm confident that we'll continue to make progress further strengthening our value proposition and creating shareholder value.

Moving to slide 6, customer awards were strong in the first quarter, totaling $4.6 billion, an increase of approximately 15% from the 2025 quarterly average, and included roughly $900 million of bookings with non-automotive customers. Both business segments posted solid results with approximately $2.4 billion in awards for Intelligent Systems and $2.2 billion for Engineered Components. I'll talk more about some of the key customer awards across each segment in a moment, but would also note that we have a large and growing pipeline of commercial opportunities and expect 2026 bookings of more than $20 billion. Let's now review each segment in more detail, starting with Intelligent Systems on slide 7.

Our tech stack, which first enabled intelligence at the edge for automotive applications, is now gaining momentum for applications in other markets, such as drones within aerospace and defense and robotics within diversified industrials. During the quarter, there were a number of new program and product launches. A few of strategic importance include the launch of an intelligent interior camera that incorporates our entire software and hardware stack, enabling enhanced interior sensing functionality, including driver monitoring and driver view features for the flagship sedan vehicle platform of a luxury German OEM. The launch of an integrated high-performance cockpit controller for the high-volume mid-level variant of an Indian OEM's electric SUV lineup, which follows a successful launch last year of an entry-level model.

We also secured several important new business bookings in the quarter, including active safety awards from a large North American OEM that integrates our full tech stack from sensors to compute to software for incremental large truck and SUV platforms, underscoring the flexibility of our solutions and deep technology partnerships with several customers. Sensors and advanced compute awards for a leading China local OEM for their next generation EV platform, which support production for both the China market and export volumes. We also secured several notable software and service awards, including a VxWorks RTOS and a Helix Virtualization Platform award for a leading defense prime, building upon an established long-term partnership with this customer. A software tool chain award for a large North American OEM that will be used to build optimized deterministic software for mission-critical and safety-critical embedded systems.

This award supports this OEM's software factory initiative to move towards cloud-based development and software-defined solutions. Lastly, our commercial momentum has also accelerated in the robotics and drone markets. In addition to our partnership with Robust.AI and Vecna Robotics, this quarter we secured another partnership agreement with Comau, a top 10 industrial robotics company. In addition, we've been executing several proofs of concept and pilots in both the robotics and drone markets that we're confident will translate to commercial agreements, and we plan to share further progress on these efforts in the near future. Moving on to slide 8 to cover Engineered Components.

Notable new program launches during the quarter included a broad array of high-speed interconnect launches, including Mini Coax, Ethernet, and other flexible and modular assemblies across more than 2 dozen nameplates and OEMs, ranging from North America to Europe to China, powering next-generation software-defined vehicle architectures, high-voltage electrical centers for 2 major local China OEMs, which will support production for both the China market and export volumes. Continued proof points of the progress we're making growing in the China market, specifically with the top 10 local OEMs that are growing both domestically and overseas, and terminals across numerous models within the portfolio and across regions for a North American-based global EV automaker. Moving on to new business awards. We secured a high-voltage inverter award from a major Korean OEM that combines high performance at a competitive cost, supporting its next-generation multi-powertrain software-defined vehicle platform.

High-speed interconnects and components from multiple aerospace and defense primes, including for low Earth orbit satellite and subsea applications. A low voltage connection system award for an integrated high power energy storage solution from a North American-based global EV OEM that scales to support grid level performance and resilience. Collectively, these awards reflect the breadth of our solutions, meeting demanding performance and reliability requirements in automotive, which also translate across a range of other end markets. I'll now turn the call over to Varun to go through our financial results and our full year and second quarter guidance in more detail.

Thanks, Kevin, and good morning, everyone. Starting with first quarter on slide 9. Total Aptiv, including our EDS segment, delivered solid financial results in the quarter, reflecting robust execution amidst a dynamic market backdrop, where we once again navigated industry-wide and OEM-specific production disruptions and macro-driven input cost inflation. Revenues of $5.1 billion grew at an adjusted rate of 1%, driven by strength at EDS, while new Aptiv absorbed certain customer mix headwinds, but importantly progressed in diversifying revenues with 9% growth in non-automotive and 10% growth in software and services. Adjusted EBITDA was $752 million. EBITDA margin declined 90 basis points year-over-year, driven by FX and commodity headwinds of 180 basis points, well above the 120 basis points we had forecasted for the quarter.

It should be noted that the year-over-year impact for new Aptiv was lower. Earnings per share was $1.71, an increase of $0.02 from the prior year, reflecting the benefit of lower interest expense and lower share count, partially offset by a higher tax rate. Free cash flow for the quarter was negative $362 million, and this included approximately $260 million in transaction payments across new Aptiv and Versigent, consistent with our guidance for the year. It should be noted that we anticipate approximately $100 million in separation costs for new Aptiv in Q2. However, we will recoup approximately $80 million of transaction payments which were tax related later in the year. Turning to the next slide and looking at first quarter adjusted revenue growth on a regional basis for both total Aptiv and new Aptiv.

For total Aptiv, revenue growth of 1% on an adjusted basis was driven by growth in North America and Asia Pacific, which was partially offset by a decline in Europe. New Aptiv, as I mentioned earlier, faced some customer mix headwinds in the quarter, most of which are transitory, while generating strong results in strategically important areas. Looking at revenue growth by region for new Aptiv. In North America, revenue grew 7%, driven by double-digit growth in Intelligent Systems and strength in non-automotive markets. In Europe, revenue was down 5%, largely reflecting unfavorable customer mix, specifically with one of our largest customers in Intelligent Systems, due in part to a slower than expected ramp-up of next gen programs.

In Asia Pacific, revenue was down 5%, essentially in line with vehicle production, reflecting continued improvement in our business mix in China with local OEMs and growth with ex-China Asian OEMs. Moving on to our results on a segment level on slide 11 and starting with Intelligent Systems. Revenue of $1.4 billion decreased 1% versus the prior year, which reflects two discrete factors. As we have discussed previously, the cancellation of certain programs from local China OEMs in 2025, which will anniversary mid-year, and a greater than anticipated headwind from lower production at one of our largest North American customers owing to supply chain constraints following a supplier fire. Although this should be partially recovered in the second half of the year. Cumulatively, these two factors amounted to approximately 250 basis points of headwinds to Intelligent Systems revenue growth in the quarter.

These were largely offset by strength in other areas, including double-digit growth in software and services. Intelligent Systems adjusted EBITDA margin declined 90 basis points, primarily owing to a 60 basis point headwind related to FX and commodities, as well as incremental investments across product engineering and go-to-market to continue diversifying towards non-automotive markets. These were partially offset by performance improvements. Moving to Engineered Components. Revenue of $1.7 billion was flat on an adjusted basis. This reflects 6% growth in non-automotive, including double-digit growth in diversified industrials markets, offset by a 2% decline in automotive, which reflects some customer mix headwinds in China attributable to broad-based production volume declines there, including with the largest local OEM. Engineered Components adjusted EBITDA margin declined 90 basis points, which was entirely the function of a 140 basis point headwind related to commodities in FX.

Excluding this impact, margin expansion was driven by performance initiatives. Lastly, I'll briefly comment on our EDS business, which will move to discontinued operations starting in Q2. Revenue of $2.2 billion increased 3% on an adjusted basis, driven by strength in Asia Pacific, both in China via export volumes and in APAC ex-China countries, and favorable customer mix in North America, which offset broader production declines globally. EDS adjusted EBITDA margin declined 70 basis points versus the prior year, and this reflects a 260 basis point headwind related to FX and commodities, which was largely offset by the timing of certain recoveries and flow-through on volume growth. Moving to slide 12 to discuss our balance sheet before I discuss guidance. We ended the quarter with $3.2 billion of cash.

This was temporarily inflated as it included $2.1 billion of gross debt raised by our EDS subsidiaries, which was assumed by Versigent on April 1st. In conjunction with the spin-off, year-to-date, Aptiv has paid down $2.1 billion of debt, including $300 million in the 1st quarter and $1.8 billion in early April. This was funded by a $1.65 billion dividend on a net basis from Versigent upon the spin-off and $400 million from cash on hand. Pro forma for the spin of Versigent, new Aptiv gross leverage for the 1st quarter was 2.3 times, and net leverage 1.9 times, both of which are consistent with our leverage levels prior to the EDS program that was launched in Q3 of 2024.

We also deployed $75 million towards share repurchases in the quarter and plan to remain active on this front through the remainder of the year. Looking forward, we remain committed to a balanced approach to capital allocation, focusing on bolt-on acquisitions and investments, as well as continued return of excess cash to shareholders. Moving on to our 2026 financial guidance on the following slide. We are maintaining our full year 2026 financial guidance, which is presented on a pro forma basis to exclude our EDS segment in the first quarter. We continue to expect adjusted revenue growth of 4% at the midpoint, and this implies an acceleration through the course of the year, which is driven by the following factors, first half to second half. First, approximately 100 basis points from an improvement in vehicle production.

Second, approximately 150 basis points from the abatement of certain headwinds mentioned earlier, which are specific to our business and include the production impact at one of our customers related to a supplier fire in North America and select program cancellations in China in 2025. Third, approximately 300 basis points from the anticipated timing of program launches and ramps. We continue to expect adjusted EBITDA and EBITDA margin of $2.4 billion and 18.6% at the midpoint. I would call out that we are starting to see incremental inflationary pressures on materials as a result of the conflict in the Middle East. Relative to our prior guidance, we now anticipate higher input costs, primarily in commodities, some of which that occurred in the first quarter.

However, as in the first quarter and through last year, we expect to continue offsetting these macro headwinds through performance initiatives and, where appropriate, customer pass-throughs. We continue to expect adjusted earnings per share in the range of $5.70-$6.10, which assumes an effective tax rate of 18.5% and does not incorporate any meaningful incremental benefit from share repurchases. Free cash flow is expected to be $750 million at the midpoint, which is inclusive of transaction costs associated with the EDS separation, the majority of which are being incurred in the first half, as well as continued investments in supply chain resiliency for semiconductors.

For the 2Q specifically, we expect adjusted revenue growth of 2% at the midpoint, adjusted EBITDA and EBITDA margin of $580 million and 17.6% at the midpoint. Lastly, we expect earnings per share of $1.40 at the midpoint. Just as a reminder for everyone, on day one of the EDS separation, new Aptiv is burdened by $70 million in annualized stranded costs, which we are working to completely eliminate from our cost structure by the end of 2027. Finally, I'll close by reiterating that our robust business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results as well as enhance shareholder value. With that, I will turn the call back to Kevin for his closing remarks.

Thanks, Varun. Before I wrap up on slide 14, let me provide some additional context on our outlook. We continue to see significant long-term opportunity for our portfolio of products and solutions, while in the shorter term, we do see challenges that our industry will have to contend with. As Varun alluded to, the macroeconomic environment remains very dynamic. At present, and as reflected in our first quarter results in full-year guide, we're experiencing a meaningful increase in input costs broadly related to the ongoing conflict in the Middle East. However, as evidenced by 2025, we have a resilient business model with an ability to mitigate and offset these pressures through performance initiatives and through commercial recoveries. That being said, should the current situation persist, it could amplify these pressures from a macroeconomic perspective, which are difficult to precisely forecast at this point.

This uncertainty could present a challenge to the value chain across the markets we serve, which is a risk, but it's also an opportunity for Aptiv to demonstrate our value proposition to our customers, providing high performance, cost-optimized, market-relevant system solutions at global scale and with industry-leading service levels. Now to wrap up, after reporting our final quarter as total Aptiv, we're positioned to benefit from the sharper focus resulting from the completion of our strategic portfolio evolution. For the new Aptiv, we're now better positioned to accelerate our product development, enhance go-to-market activities to further penetrate multiple high-growth end markets. The number of high-quality opportunities we're actively engaged in is growing, and our momentum is accelerating. I'm confident these opportunities will result in incremental customer awards and strong financial results and will continue to remain relentlessly focused on delivering value for our shareholders.

Operator, let's now open the line for questions.

We will take our first question from Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions. Any color You kinda talked about some of the puts and takes, the sales and margin guidance are at the midpoint held, we know FX is different, commodities are different. Any puts and takes in terms of, you know, as FX now a little bit more of a tailwind? Is commodity now part of your, a bigger part of your sales? Is production now down? Any color on the sort of the recomposition of guidance given a lot of the changes in the quarter?

Yeah, it's Kevin, Colin. That's a great question, thanks for asking it. I think I'll start at a high level, and then Varun will walk you through the pieces. We're in a dynamic environment. I wouldn't say you made the comment or asked the question, is FX and commodities a bigger item for Aptiv, the new Aptiv? From a commodity standpoint, it certainly isn't. What's gone on as you follow the markets is we've had tremendous spikes in commodity prices over the last few months, and we do have product like copper, like silver, even to some extent gold that impacts that is included in our product, and we get impacted by those changes in commodity prices.

Clearly, what's going on, in the Middle East from a price of oil standpoint impacts resins. Those input costs, the spikes in those input costs have significantly impacted us, in the first quarter, and we believe for the foreseeable future. Relative to our traditional business pre-spin, I would say those are actually less from an overall buy and exposure standpoint. Varun, if you wanna walk through.

Yeah. I'll just kinda paraphrase some of the stuff that Kevin just mentioned. Colin, first of all, from a commodities perspective, copper, gold, silver, oil-based products such as resin, as Kevin mentioned, yes, we are seeing inflationary pressures. Those are up versus our guidance from, you know, 3 months ago. That is one aspect which is kinda weighing on overall updated guidance. Overall, FX remained positive for us on a year-over-year basis. Just wanted to share that with you. I think your final point was underlying vehicle production assumptions. Yes. From our perspective, first half to second half, we see Aptiv-weighted vehicle production down 2 in the first half and down 1 in the second half of the year.

We do expect to see an improvement underlying vehicle production first half to second half.

That would imply what for the year-end production? Is that in line with S&P of down 2%?

Yeah. It's roughly in line with S&P, yeah.

Got it. Just secondly, if we look first half to second half, I look at the midpoint of Q2 and the midpoint of full year guidance, you did explain pretty well the expected improvement in sales growth. There's pretty high conversion as well on margins. I think it's something like a 60% conversion on higher sales half-over-half. What's driving that? Is that just normal seasonal recoveries, or is that kinda skewed a little bit extra because of the commodity recoveries as well?

Yeah. I'd say a couple items. As you know, the mix of our business first half to second half, traditionally, we experience higher margin or higher flow-throughs giving timing of engineering recoveries and items like that. There may be a small amount of commercial recovery that's back half loaded, but I think that's fairly balanced, Colin, for the full calendar year. I think the margin profile of the business Our traditional EDS business is higher, so flow through on volume growth. Just given where our gross margins are now, you should expect that to be actually higher.

I don't have the numbers right in front of me, but I don't think there's anything unique relative to second half profitability versus first half, other than things like engineering recoveries.

Got it. All right, thanks for taking my questions.

We will take our next question from James Picariello with BNP Paribas.

Hey, good morning, everybody.

Good morning.

Can you speak to the active safety growth in the quarter and what your full year expectations are there? As well as, you know, separately for user experience. I know Colin just, you know, hit on this, but just on the margin front, you know, what differs this year in that first half, second half split on the year's margin cadence where, you know, we saw a more balanced split last year? Thanks.

I'm sorry, can you repeat the second half of your question? Not quite sure I understood it.

Yeah, just on the margins as we look at new Aptiv. Last year, the first half, second half split in profitability, like, just the margin was pretty balanced.

Yep.

Right? First half, second half. Then, you know, this year's guidance has a more significant second half step up in the-

Yeah.

On the margin front.

Okay. Okay. I'll let Varun walk through that. As it relates to ADAS UX growth, listen, as reflected in our disclosures in our presentations, we're starting to see convergence between different domains, UX and ADAS. When you think about things like in-cabin sensing, is that an ADAS product or a user experience product? When you see domain consolidation and some element of use of fusion chips where the ADAS controller or the UX controller consolidating, it's gonna continue to get fuzzier and fuzzier. That's why we're trying to give a more clear visibility and transparency to investors as you think about sensors and compute software and services breakdown. ADAS in Q1 was basically flat, though.

Having said that's principally driven because of that large North American OEM that had significant supply disruption given the fire at their aluminum supplier. As we look at the back half of the year, we see a significant ramp up related to that particular customer in ADAS growth. We'd expect ADAS to be in line with kind of the mid-single digit sort of growth rate. With respect to user experience, it's, you know, consistent with what we've talked about in the past as we introduce new programs get launched principally in China today. That's an area where we'll see second half more significant growth.

It was impacted to some extent in the first quarter, just given, small delays in launches in China, as well as some, soft production with a European OEM, in the UX sector. Viren, do you wanna talk about-

I will.

First half, second half?

I will, yes. James, good question, and thanks for raising it. The question was specifically in terms of first half versus second half profitability. Listen, there are 3 key items I would highlight. The first, as Kevin mentioned, is just a second half, third quarter, fourth quarter true-up associated with engineering credits, and that's something that we've seen in the years gone by also. That's kind of point 1. No change from that perspective. The second one I'd call out is just kinda recovery on commodities. There's something that we've always talked about. There is a timing lag. The higher commodity prices currently, there is a timing lag. 3, 4 months is what we've typically talked about. We expect those to kinda come through in the second half, as the second one.

The final point I'd kinda raise is, you know, we are happy with the way our software and services business has grown double digits in Q1, and that's an industry which continues to kinda have seasonality, weighed more towards the second half of the year. The margin profile associated with that product line also kinda adds to the overall profitability first half relative to the second half.

Great. No, that's very helpful. I appreciate all that color. I know Versigent will host its conference call after the close today, but just on EDS, if you're willing to discuss this business at a high level. A competitor recently announced a major conquest wiring award. Would just be interested in, again, any color on that competitor program announcement and any perspective on the broader bookings backdrop as it pertains to wiring systems. Thank you.

Sure. Thanks for asking this question. I typically wouldn't comment on an individual OEM program award. I certainly wouldn't speculate on the relationship between another supplier and an OEM customer. I find it inappropriate and to be very transparent, unprofessional. However, given the nature of the comments made and the inaccurate message that's in the marketplace, I think I have to comment on this particular matter and, in line with kind of standards that should be upheld by our industry, my comments, I wanna make sure everyone knows, have been approved by General Motors leadership. I think that's important for you to know. I'll confirm GM did award a very small portion of the wire harness content on the T1 program to another supplier.

This portion represents a simpler portion of the harness. It's a build-to-print portion of the harness. GM actually refers to it as the simple harnesses. We remain the supplier for the most complex portion of the program's wire harness content, firmly aligned with where our core strengths are. This is where most of the actual wire harness content is. The bulk of our EDS business is more complex, full service wire harnesses, where we design, we develop, we assemble the harness to bring more value to the OEM. This is the business we've been strategically focused on, I think as all of you know.

This is, quite frankly, the area where it's the highest margin, and it's growing the fastest, and it's least exposed to changes in vehicle architecture and the transition to things like zonal controllers. Build-to-print, it's a much smaller portion of the EDS segment. That's, I don't know, 20% of total revenues, maybe 20%-25% of total revenues. Much less complex, and it's much lower margin. For that reason, it's not as a strategic area of focus for us. Now, having said that, we want all of an OEM's wire harness business, and General Motors is a very important customer to us, and this is an important program.

Regarding comments related to our relationship with GM, which for me is the most disturbing, it in fact remains very healthy. Given the comments made, I've personally reconfirmed with GM leadership, and I can share with you some comments that were made by GM leadership. There have been zero service level issues. These are quotes. "There have been zero service level issues. That is never a problem with EDS. EDS is the gold standard for wire harnesses, and EDS is our strategic wire harness supplier. There'll be incremental full service wire harness opportunities for the E-EDS business with GM in the future." I hope these comments put these rumors and factually incorrect comments to bed. The EDS business is the leader in the wire harness space.

It's a great business, and I'm sure Joe and team will make some comments, during their earnings call, early evening.

Thank you very much, Kevin. Crystal clear.

Thank you.

We will take our next question from Chris McNally with Evercore.

Thanks so much, team.

Hey, Chris.

Kevin, on the call, I thought you sounded the most positive about some of these, you know, sort of additional areas of growing the Aptiv TAM that you've been in a long time. I think a lot of times we always discuss sort of, you know, M&A bolt-on opportunities in industrial, but, you know, just looking at the EC highlights on slide 8, I mean, you know, the awards now are in naval, space, you know, energy storage.

My question here is on some of the exciting opportunities that, you know, the world is all seeing in AI and data centers, and that some of your competitors, you know, have, you know, strong business opportunities in, could you just talk about what would have to happen organically for you to start to invest? You know, automotive is one of the harshest environments. You know, could you get into those businesses over, you know, the next year or two from an organic, you know, greenfield, brownfield, perspective? 'Cause it seems like a, you know, a pretty big TAM opportunity.

No, Chris, it's a great question, and I should start with, it's a great question. It's a great opportunity. The team's making significant progress, quite frankly, across each of our businesses. As it relates specific to the Engineered Components business, we've been very active over the last 1 and a half, 2 years, leveraging what we have in our Winchester product portfolio, which is principally targeted on non-automotive business, with a very strong position in areas like A&D, like diversified industrials. Developing solutions from that product portfolio with our traditional interconnect solutions and bringing those to non-automotive customers more as systems. We've made a lot of progress. That's an area we have been investing in, both from a product standpoint, as well as from a go-to-market standpoint.

We've been leveraging our customer relationships in the U.S. as well as in China, where there are strong OEM relationships that span across industries. Leveraging our capabilities and our relationships in those automotive businesses to take solutions into things like aerospace, into areas like data centers. We have a very focused initiative as it relates to building out our data center product portfolio, certainly our space product portfolio. There's been a great deal of focus in that space, and we're gaining real traction. To meaningfully move it, as we've talked about in the past, that really requires M&A. We have a long funnel of bolt-on M&A opportunities that the team is executing on that, you know, hopefully during the calendar year 2026, we're looking to close on.

You know, to wrap up, quite frankly, we're very excited and feel like we're very well-positioned to pursue these opportunities. We're very excited about our opportunities within automotive and the trends that are headed there. Near term, we're wrestling with a few customer mix issues and industry mix issues that we think as we move on through the year, you'll see improvements on.

That's great, Kevin. I mean, almost to paraphrase, you know, some of the small bolt-on acquisitions could go a long way to some of the internal initiatives that you've been working for. You know, with some of these bolt-on acquisitions comes the sales force and these relationships that then you may have. A one plus one equal three.

Exactly. It's not just the product portfolio piece, it's the industry positioning piece and building up sales organization and product organizations that have years of experience in a particular sector that we can leverage across a broader product portfolio. Absolutely.

Right. Then just the last follow-on. I mean, is it, you know, I kind of focused on AI and data centers, but, like, energy storage actually should be very easy given some of the customers now, obviously with a lot of battery, excess battery, capacity in the U.S. The customer set is almost the same for a good portion of that business. Is that one that could be done a little bit more organically?

Yeah, that's one that is being done very organically now. That's a focused effort with a focused product portfolio, with a focused sales team. There are a significant number of business awards we receive. They tend to be smaller relative to large OEM program awards, but we're gaining a significant amount of traction across multiple multiple OEMs. That is a that is certainly a tailwind. Listen, as it relates, you made a comment about AI, and this is true in the interconnect portfolio as well as in our software and services portfolio. As AI accelerates, it provides a structural tailwind for both of our businesses, whether that be some of the products that we have in Intelligent Systems or in Engineered Components.

As more and more is driven to the edge, as AI is driven to the edge, you know, they need high-speed interconnects, high-speed cable assemblies. We need RTOS solutions or Linux solutions to enable performance at the edge. You know, those are areas that within automotive, we've been enabling for a very long period of time. That's an area that we're confident will continue to get more traction.

Thanks so much, team.

We will take our next question from Joe Spak with UBS.

Thank you. Good morning, everyone.

Hey, Joe.

First question. Hey, first question is, you know, Varun, you mentioned, and appreciate all this, some of the margin drivers, half over half. I think I counted like 550 basis points. Your guidance is about 180 basis points half over half. I just wanna maybe understand if we could sort of talk through some of the offsets and sort of what exactly is baked in. Like, is some of that, some of the commodities and higher input costs, is that sort of what's sort of weighting that back down? Maybe we could sort of complete that bridge.

Yeah. Joe, it's Varun Laroyia. Listen, great question. Yes, you're right. I think in terms of the half over half walk on revenue, the 100 basis points, as I mentioned, is improvement in the underlying vehicle production, half versus half. A 150 basis points specific to us, you know, with regards to the production impact at one of our customers related to supply fire in North America, and then obviously select program cancellations in China in 2025, that will anniversary mid-year. The final one, as I mentioned, was just the 300 basis points of anticipated timing of program launches and ramps. That's the 550 basis points that you mentioned. With regards to the commodity side of things, yes, as I mentioned previously, we are seeing incremental inflationary pressures on input costs.

Over the last 90 days, since we initially gave guidance for pro forma new Aptiv to now, there is an uptick of about 60 basis points, you know, on the commodities and FX side of it. As I mentioned, basically it's commodities. FX remains a net positive on a year-over-year basis. It's again, it's the same things with regards to based on where copper is trading. While overall exposure levels to copper pre-spin to post-spin are markedly down, we still have some of those. Some of those are contractual passthroughs. The remainder of it is commercial negotiations. Also, we have exposure to gold and silver. If you see as to where those have been trading, you know, on a year-over-year basis, that's the other aspect of it.

Finally, you know, our connection systems and our HellermannTyton business as part of the Engineered Components portfolio does have a significant level of resin purchases. Clearly a key input cost into resin is oil. That's the other aspect that we're seeing come through that we expect to kind of ramp up. Yeah. Again, those will be-

That's all right.

-evident.

I may have misunderstood. That half of rev was the top line, we should think about the flow through on that top line and then some of the commodity inputs as sort of the offset to the when we're thinking about.

Yes

-the margins.

Yep.

Okay. Sorry.

No, that's right.

Okay. Okay. Kevin, just maybe to follow up off your last conversation with Chris. The non-auto awards in EC and space, energy storage, naval, $500 million. You know, I think we're all familiar with auto lead times, but maybe you could give us a sense for these businesses, like how quick do some of these business comes on? What's the sales process like? When can that convert to revenue? Maybe the same thing for IS, if you don't mind, in the non-auto.

Yeah. No, it's a good question. The sales cadence, it's in both segments the sales organization is a separate distinct sales organization. We have separate teams and separate product teams. Commercial teams, as well as product teams that support the go-to-market. The programs tend to between award and actual revenue can range as short as a few months to, I think at the far end, you're talking under a year. Call it nine months in those sort of typical areas. Much shorter from a long lead standpoint than what we have in our traditional business, automotive or in commercial vehicle.

Okay. Thank you.

We will take our next question from Mark Delaney with Goldman Sachs.

Yes, good morning. Thank you very much for taking the question. The company spoke already about the pickup in growth from the roughly flat year-over-year organic in Q1 to the 4% outlook for the full year for new Aptiv. Couple of those drivers you spoke about were timing related to new product launches and an assumption that auto production is more stable in 2H. I'm hoping you could share more on whether there's any conservatism in those assumptions relative to customer schedules, given that new launches can sometimes be delayed and the potential for macro headwinds to weigh on demand.

Yeah. There's an element of conservatism we always place in our outlook. We always incorporate some element of what we refer to as hedge. We rely upon both third-party sources as well as our customer EDIs or schedules. There are some areas like China, where schedules are a bit more fluid and changes are more can happen more quickly. That's less the case in places like Europe and North America. I think as Varun talked about, our outlook right now based on what we're seeing from a schedule standpoint and then triangulating with IHS with some amount of overlay is the 100 basis point improvement first half to second half from a vehicle production standpoint. There are some specific customer headwinds that we're aware of.

I mentioned the North American OEM who we were impacted more than we originally forecasted in Q1, given a further reduction in their schedules as it relates to addressing the issues with their supplier. We pick up a benefit in the back half of the year as things become that gets addressed and they come online. Then we talked about, we've been talking about since last year, the three China program cancellations that impacted us in the ADAS area, in the user experience area. We can size those. Those annualize at the end of the second quarter. Those two together are worth roughly 150 basis points. Then there's roughly 300 basis points of program launches first half to second half from a growth standpoint.

That's the area where we tend to overlay the most conservatism because things can shift. Some of that is in China. We did see some small delays as it related to Q1, but we're starting to see those programs launch now. That's what gives us confidence in the back half of this year, and the revenue ramp first half to second half.

Very helpful details and color, Kevin. Thank you for that. My other question was another one around the commodity and inflationary environment. Could you be a little bit more specific around to what extent Aptiv is seeing incremental headwinds tied to inflation in Q2 that you haven't been able to offset yet? For your full year outlook, you spoke about getting recoveries, but you also mentioned that can come through on a lag. I was a little unclear, do you assume that you're able to recapture all of the recent inflation in your full year outlook, or does some spill out into next year? Thanks.

I think, and Varun will correct me. I think as it relates to prior guide versus this guide, there's effectively roughly 50 basis points of FX and commodities that's come into our system. It's principally resin and commodity prices. Commodities would be copper. I mentioned them, copper, aluminum, areas like that. We expect to fully offset that, most of that, a significant portion of which will be operational. Performance initiatives that we have underway that we're able to offset the overall cost of the increased cost of those commodity prices. There will be some amount that we will push through to our customers. We're not relying on customer recoveries to achieve our full-year outlook.

Those are things that we have a high level of confidence that we can manage through internally and at the same time go back to our customers in areas where it's more challenging and pursue recoveries. You look at our past track record from a recovery standpoint, we've collected 95%-100% of what we pursue with our OEM customers because we do that operationally. We've performed extremely well, and we do that while we're presenting them with additional cost reduction opportunities to help support the recovery that we're asking for.

Thank you.

Does that answer your question?

We will take our next question from Itay Michaeli with TD Cowen.

Great. Thanks. Good morning, everyone. Just wanted to focus in on the strong new business bookings, the $5 billion and the $20 billion outlook. Kind of curious what's happening there on the auto side. Like, are we finally seeing major sourcing decisions being made for next gen architectures? Are you perhaps also winning some market share? Just kind of curious sort of what is driving the inflection.

It's a great question. I would say, first quarter relative to last year, we started to see programs we've been working on for a period of time free up and decisions made. We're starting to see OEMs look at next generation ADAS solutions, user experience solutions, vehicle architecture solutions, including what we refer to as Smart Vehicle Architecture. We're seeing more of those opportunities. Itai, we have a high level of confidence in the $20 billion of bookings for new Aptiv for the calendar year 2026, just given our funnel. I think that's to some extent dependent upon things stabilizing a little bit as it relates to the situation in the Middle East or not deteriorating. Maybe that's a better way to describe it.

We're seeing a significant amount of opportunities in and around the areas that's our sweet spot.

Terrific. As a quick follow-up, Tim, I think earlier you mentioned, of course, supply chain risks, to do the Middle East, but also potential opportunities that can come out of that. Hoping you could kind of comment a bit more on that. Like, could you actually end up seeing or leverage your supply chain capabilities better with OEMs and maybe kind of win more business going forward? Just kind of curious a bit on that comment?

Yeah, listen, we are today, Itai. I would say over the last two years, the job the team has done from a supply chain management standpoint, both from a service level standpoint as well as from a visibility and transparency, has created a lot of goodwill. There are a number of OEMs that we're partnering with now in terms of regular supply updates. I mean, we're now at a point where we're informing OEMs of where their particular pinch points are. As we look at areas, like memory, and other areas where there's concern about inflation availability or constraints, those are areas that we've been focused on, been aware of, anticipating, focused on for the last couple of years.

We've been bringing them alternatives as it relates to a part standpoint. It's also presented us with opportunities to bring to them solutions that include more Aptiv content, displacing some of their traditional suppliers. They're all very focused on it and listening. When we're able to say we're confident in memory supply for 26 and also 27, given the relationships and agreements we have with our suppliers, and we have actually multiple alternatives that we validated, that's very differentiating with our customers. It positions us extremely well.

When we take that supply chain capability outside of automotive to some of the areas like robotics, like drones, that is one of the big selling points we have in terms of supply chain visibility, knowing source down to multiple levels, being able to provide multiple solutions depending upon where the application takes place or is actually used. That's been one of the big areas that's been differentiating, for example, for us in the drone space.

That's very helpful. Thank you.

Okay.

We will take our final question from Emmanuel Rosner with Wolfe Research.

Great. Thanks for squeezing me in. Was hoping to ask, if you could just put this year's revenue growth in the context of the longer term targets. You're expecting some level of acceleration over the next couple of years, you know, for the 2020 targets, 4%-7%, you know, this year will be around 4%. Can you just remind us holistically, what are some of the drivers of revenue acceleration as we move past this year and towards the next couple of years of the plan?

Thanks, Emmanuel. That's a great question and appreciate you asking it. It's a mix of two things. In our prepared comments, Varun and I were talking about progress we're making with the China local OEMs focused on the top 10 OEMs for the China market. One of the fastest-growing areas for us is on export platforms, as well as with several OEMs now. We're very much focused on supporting their initiatives to manufacture overseas. So, we're supporting several of them in terms of evaluation and with some of them in terms of actual programs. We're working with European OEMs as well as Chinese OEMs as it relates to China sources for European products. We've been very engaged there.

That's an area where we expect to see a pickup. As it relates to APAC non-China, that's been a particular focus area, and as we've talked about in the past, that's one of the fastest areas of bookings growth for us. That's Japan, Korea, and India. We're seeing a benefit from that. Lastly, when you look at the non-automotive space, we're growing very strong non-automotive growth, which based on bookings and potential bookings we have in front of us, we're very confident.

When you look at the software space, both in automotive as well as outside of automotive, that's an area where bookings are strong and we're seeing solid and strong revenue growth that will drive us, you know, to the midpoint or higher in that 4%-7% growth range.

That's very helpful. I guess I was hoping to follow up on China. In the quarter, the year-over-year China growth, I think, was down 14%. You've mentioned some of the factors, including, you know, still the ongoing impact from cancellation of programs.

Yeah.

What is sort of like your estimate of when you believe China would sort of like become, you know, more-

Yeah.

you know, neutral and then eventually positive to your growth?

Yeah, great. Actually positive to growth you'll see in Q2. That's a result of a couple things. The launch of new programs, and we see the benefit from that. Two, in Q1, we were affected principally in our Engineered Components business by our exposure to the top OEM in China and their vehicle production reduction. I would say disproportionately given their year-over-year comp, that normalizes in Q2 and is not as big of a headwind. Lastly, as you get to the back half of the year, we talked about those three programs that were canceled in the second quarter of last year. From a comparison standpoint, we won't have to be dealing with that.

Great. Thank you.

We're expecting very strong growth in China and for the calendar year 2026.

I appreciate the call.

That will conclude today's question and answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks.

Great. Thank you everybody for your time. We really appreciate you participating in our earnings call. Have a great day.

The call is now complete, and thank you for joining.