Aptiv PLC ($APTV) Q2 2025 Earnings Call

Thanks, Betsy. Thanks everyone for joining us this morning. Starting on slide three, we had a solid quarter both operationally and financially. Our strong business foundation coupled with strength in the underlying markets we serve enabled us to produce record second quarter results. Our unique capabilities from the sensor to the cloud provide our customers with flexibility and scalability while further strengthening our competitive moat. Our product portfolio is aligned to the accelerating trends of electrification, automation, and digitalization that are happening across multiple industries and it's reflected in our new business bookings. Over the last decade, we built a resilient business model that has enabled us to operate efficiently even in this dynamic environment. We leverage our global scale while executing in region for region close to our customers in the most important geographic markets around the world. And we're constantly working to increase the efficiency of our operations and further optimize our cost structure, which allows us to remain agile, respond quickly to changes, and closely partner with our suppliers and customers to avoid any production disruptions. I'm proud to tell you that as a result of those efforts, we received the Volkswagen Group Award for resilient supply chains during the quarter. The recognition reflects the real-time end-to-end visibility that we have across our global supply network that's enabled by the digital twin we have built over the last five years, giving us the ability to react quickly and keep our customers connected. Lastly, with a focus on maximizing shareholder value, the spin-off of electrical distribution systems remains on track and we look forward to sharing more information on our progress at the upcoming investor day in November. Moving to our results, our second quarter revenue growth of 2% reflects strength across multiple areas of our business and the benefit of stronger than expected vehicle production in the North American market. Operating income totaled $628 million, reflecting flow-through on volume growth and strong operating performance, more than offsetting significant headwinds related to foreign exchange and commodity prices. And when combined with the lower share count resulting from our recently completed accelerated share repurchase program, drove record earnings per share. Lastly, we generated $510 million of operating cash flow, further strengthening our balance sheet and providing us with capital allocation flexibility. Jot will discuss each of these elements in more detail later. Moving to slide four to review our second quarter new business bookings. Our portfolio of advanced technologies and industry-leading supply chain capabilities led to $5.4 billion of new business awards, positioning us for another year of strong bookings. We'll get into more detail on each of our segments shortly, but a few of the highlights include advanced safety and user experience business awards totaled $1.8 billion driven by active safety bookings of $1.2 billion. Customer awards in our engineered components group reached $2.4 billion, ranging across our full portfolio of interconnect, high-speed cable assemblies, bus bars, and cable management products across a broad range of customers and end markets. And new business bookings in electrical distribution systems totaled $1.2 billion and included both low voltage and high voltage customer awards across each of our geographic regions. Let's move to the key developments in each of our business segments during the second quarter. Moving to slide five for an update on our advanced safety and user experience segment where revenues declined low single digits in the quarter, the result of mid-single-digit revenue growth in active safety and Wind River, offset by the ongoing rolloff of legacy user experience programs we've referenced previously and a recent slowdown in production schedules on select Xpeng and NIO programs in China. We expect these to remain headwinds for the next few quarters. Looking ahead, we executed multiple strategic program launches across each of our product lines. The highlights include an ADAS system spanning multiple brands for a leading European OEM, enhancing the performance of their current ADAS solution and enabling them to meet the latest regulatory requirements; an in-cabin sensing solution across multiple brands with a leading European OEM, our first in-cabin sensing program with this customer, opening the door to other opportunities; and a user experience solution for one of the flagship platforms of a luxury European OEM. Moving to new business bookings, we continue to see momentum with our flexible and scalable Gen 6 AS platform as evidenced by two major awards. First, a leading North American OEM has selected Aptiv for their next-gen ADAS solution that runs across a range of vehicles supporting features which scale up to hands-free driving. We're also awarded a full system ADAS program with Leapmotor, a Chinese EV OEM for the European market, which includes an RTOS from Wind River running on a China local SoC, and an AI-powered vision stack from StradVision. These awards demonstrate how our global ADAS expertise, open-architected platforms, and global footprint make us a partner of choice for a wide range of OEMs. In user experience, we were awarded a next-generation digital cockpit program for a German luxury OEM, which incorporates Wind River Studio for over-the-air updates and lifecycle management, providing enhanced connectivity, performance, and personalization. Wind River also had a range of strategic customer awards across multiple end markets which include Wind River Studio for Hyundai Mobis to power their software development and deployment and lifecycle management for automotive applications; Wind River cloud platform for a multinational telecom company; an edge platform solution and safety certification for a leading US aerospace and defense prime; and an edge platform for advanced medical imaging systems with a leading healthcare equipment provider. At the same time, we expanded Wind River's edge AI ecosystem by establishing multiple strategic partnerships with AI players, including Zadax, Nota AI, Sema.ai, and DeepX, which will help advance the deployment of AI across diverse edge applications and industries. Moving to slide six to review the highlights for our engineered components group which delivered solid mid-single-digit revenue growth in the quarter. We launched several strategic programs and secured strong new business awards across our portfolio. Notable program launches include a high-voltage charging inlet on a luxury European OEM platform enabling expanded charging access across multiple regions; low-voltage ECU connectors for a leading Chinese OEM's commercial vehicle program; and an up-integrated high-voltage electrical center for a large Korean OEM for next-generation electrical and electronic architectures. Moving to new business bookings, these awards underscore our role in advanced signal, power, and data distribution. During the quarter, we received high-speed cable assembly awards to enable next-generation features, including L2++ hands-free driving for local Chinese OEMs such as BYD, Geely, and Changan. Intercable Automotive's first bus bar award for a new autonomous vehicle program with a leading US-based EV manufacturer; a high-voltage inlet award for a luxury European OEM; and an award for our rapid power reserve providing highly reliable redundant power for a variety of critical functions for Seres with Huawei Systems. Notable awards outside of the automotive sector include an award in aerospace and defense with a leading manufacturer and operator of small satellites for use in low earth orbit and bookings for mission-critical applications from a leading US defense company. Moving to slide seven to review the second quarter highlights for our electrical distribution systems segment which delivered solid mid-single-digit revenue growth. Beginning with new program launches, we gained incremental high-voltage content on a recent launch of a refreshed vehicle platform from a US-based global EV manufacturer. We also launched a high-voltage battery wiring program for a leading Korean OEM that'll be used across multiple electric vehicle programs for the Asia-Pacific market. Moving to new business awards, we continue to book programs in both high and low voltage architectures. We increased our share of wallet on current vehicle programs with local Chinese OEMs, including Leapmotor's new flagship SUV and a new extended-range electric SUV from IM Motors, SAIC's EV brand. In India, we were awarded low-voltage harnesses for a next-gen platform with Tata and a significant low-voltage harness award on a top 10 European battery electric vehicle platform with a luxury European OEM. Turning to slide eight, I'd like to provide some context on our outlook before Jot takes you through our update in more detail. As intended, we're providing third quarter and updating our full-year 2025 financial guidance. Our first half results benefited from stronger than forecasted vehicle production, likely reflecting some pull-forward of demand, and we capitalized on this market backdrop with strong manufacturing, engineering, and supply chain performance across each of our segments. Looking at the second half of the year, we remain in a period of uncertainty driven by evolving trade and regulatory policies and remain cautious that consumer demand could weaken in the back half of the year, which we've reflected in our updated guidance. Our team remains relentlessly focused on navigating the dynamic environment, serving our customers, and delivering strong financial results that enhance shareholder value. I'll now turn the call over to Jot to go through our second quarter results and third quarter and full year 2025 guidance in more detail.

Thanks, Jot. I'll wrap up on slide 15 before we address any questions. We exceeded expectations in the second quarter, delivering record revenue, operating income, and earnings per share, and we remain well positioned to continue our strong operating performance through the balance of the year. Our continued strong execution despite the macro uncertainty is a function of our resilient business model and our proactive efforts around our product portfolio and cost structure to position Aptiv to perform in all macro backdrops. We continue to see robust demand for our portfolio of industry-leading products across our full sensor-to-cloud technology stack which is uniquely positioned to benefit from the continued transition towards a more electrified, automated, and digitalized future across multiple end markets and remain vigilant on positioning Aptiv for long-term success through proactive portfolio management with the forthcoming separation of EDS being a great example of our commitment to increasing value to our shareholders. Operator, let's now open the line for questions.

Yeah, as we've talked about previously, we get schedules out through based on where we sit today, out through the end of the year. Obviously, the closer to where we are today, the stronger the schedule. So, I'd say fairly firm EDI schedules typically ranging from two to four weeks out from where we sit today and then less firm as you move beyond that. At this point in time, we've not seen any significant change in schedules relative to where we were a month ago. I think there's an element of as we look at what actually will flow through from a production standpoint given the dynamic market, given the strength that we saw in the second quarter, given our kind of discussions with OEMs and kind of a view that there was some element of pull-forward and that OEMs to some extent manage the supply base through their demand hand signals. We took a relatively conservative outlook for the back half of the year, which we previously had when we initially gave guidance in February in the front half of the year. So, we get visibility, but just in light of the dynamics, we've decided to be somewhat conservative or believe it's prudent to be conservative.

You're talking about movement from EVs to ICE vehicles increasing?

Yeah. So to be transparent, we've already seen some of that this year. We saw some of that in the second quarter. So, our outlook for growth in EV that we originally had at the beginning of the year will certainly end up below our original outlook. That has been more than offset with both production schedules as well as content. So absolute production schedules as well as content certainly on large trucks in North America. So we've in fact offset that headwind from a slowdown of EV adoption in North America.

Yeah. So there is a cadence for bookings. I would say we have a very strong funnel with significant visibility to bookings. I would say we have a high level of confidence sitting here that we will achieve the target that we've presented to investors. I would also tell you it's taking a little bit longer to get bookings finalized and documented just in light of the environment we're in. The reality is our OEM customers across the globe are spending a lot of time kind of managing through the evolving trade and regulatory landscape in addition to working with suppliers like ourselves on new business awards. So I would say we have a reasonable level of confidence that we'll be back-end loaded. We saw some amount of protracted periods between RFQs and awards last year and we had a strong year last year. I think you'll continue to see us have a strong year this year as well.

Yeah, so growth has been was certainly strong in the first quarter. It was kind of low single digits this quarter. In the back half of the year, based on our visibility, we believe it'll be solid double-digit growth. I mentioned during my prepared comments from a booking standpoint both within the ECG business as well as the ASUX business, awards in the industrial sector whether it's aerospace and defense or

It's broadly speaking industrial, and we'll end this year with that particular customer category or sector being our fastest growing market. So we're making significant progress and gaining traction.

Yeah, I think first when you look at growth on a year-over-year basis, you certainly need to focus on Q4 of last year and what we saw from a global vehicle production relative to current outlooks, ours or IHS. So I think you got to keep that in mind when you unpack our acceleration of growth in the back half. Where you see the most significant sort of pickup is certainly within the ASUX business. You also see significant pickup in growth as it relates to our EDS business. So those would be the two biggest drivers. I would say from an overall growth rate, ECG stayed roughly in line with how it's grown year to date.

And then if you unpack ASUX, a big piece of that is the ongoing launch of ADAS programs principally in North America and Europe, partially offset by that reference to the two Chinese OEM programs that will be a headwind, but we'll still see acceleration and growth. And at EDS, we see strong growth continuing, certainly in the third quarter, part of that year-over-year comp, and then actually slowing a little bit in the fourth quarter, which is also a, if you remember, fourth quarter last year, EDS had a very strong fourth quarter last year. So the comp is pretty tough.

No. Listen, we're launching this year, we'll launch over 2,500 programs, Dan. So it's multiple programs that are being launched during the year that affect that back half inflection.

Sure. So first, just we're not pulling the EDS spin forward. We're still on a path where we'll spin the business at the end of the first quarter of 2026. We're obviously, just given the size of that business, there's a lot of time spent by management focusing on moving that, continue to move that forward. So wanted to make sure I correct you on that. As it relates to capital allocation starting with the EDS spin, that's a business that we're very focused on having very manageable leverage out of the gate. So there'll be an element of leverage on that business and a dividend to Aptiv. That cash will be used to pay down some amount of debt. We'll continue to delever during the back half of this year and into 2026, certainly at Romano, partly as a result of earnings growth, partly as a result of select debt paydown. When we look at priorities from a capital allocation standpoint, as of right now, we've made the decision for the first couple quarters that we're going to really sit on cash, evaluate the environment. We'll continue to sit on cash during this quarter and then priorities are really first M&A opportunities in the engineered components and in the ASUX space, principally in assets that have exposure outside of the automotive market.

Well, I'll answer that. Yeah, I think an element of both, the schedules we receive from our customers and the number of vehicles our customers produced. So I think it's a mix, obviously those two are aligned. I think Joe, it's difficult to be precise on how much of that took place, but just based on our dialogue with customers and kind of the timing of changes, I think it's reasonable to assume that there's some element of pull forward in production.

Yeah, from a year-over-year growth rate, it's really important that you look at the prior quarters, right? And to a certain extent, we were impacted slightly differently by business Q3 and Q4 last year. And if you look at overall production, you'll see a few anomalies in Q3 and Q4, right? Q4 vehicle production last year was the highest Q4 it's been, I think you can go back for a very long period of time, and I think on a sequential basis it was up roughly 10% give or take a couple points. So when you look at that fourth quarter growth rate on a year-over-year basis, a portion of our business, especially our EDS business, gets impacted Q3 given our customer mix. In Q3, obviously you'll see strong growth there. So I think it's important you look at it that way. I think as you look at margin, how margin plays out in Q3 Q4, it's really about the continued benefit of the cost actions we've taken last year and this year and the timing associated with those. And then it's to your point Joe, it's the timing of engineering credits which tend to be back-end loaded in our business, principally more of that in the fourth quarter than the third quarter.

Yeah, listen, we've been talking about this for quite some time. I wouldn't say it's new focus. It's focus we've had for the last couple years where we're making progress. Joe, you're familiar with our China team. It's a China-based team that's localized. Our product capabilities, our engineering capabilities, manufacturing, supply chain are all focused on the China market and have been for a very, very long period of time. So I think it's the strength of our product portfolio. I think we leverage our global scale. I referenced in my prepared comments the award from Leap Motor for their European vehicles, our Gen 68 solution. We have other awards across our segments that relate to programs in China and outside of China. The major players, we have business awarded for both export as well as for programs that they're launching out of Europe or South America. There's more to come there. So it's an area we continue to focus on. And to your point in terms of between award and launch, I would say one year is long. I would say it's 6 to 9 months quite frankly at this point in time from a pace standpoint, and that ranges anywhere from wire harnesses to interconnects to active safety or user experience systems. So it's very rapid. Having said that, it's a very dynamic environment. I made the comment about the Zeekr and NIO programs, which they're important customers, but we were on a couple vehicle platforms, for example, with Zeekr, where those platforms are not doing well in the China market, and we saw a fairly rapid reduction in production schedules beginning Q2 that will affect us in Q3 and Q4 that we're working through. The positive is we continue to book a lot of business and we're confident we're able to replace that volume as we exit Q4 and head into next year.

Yeah. So it's a great question and it's a business that sits in a place where content per vehicle is growing. Emanuel, as you know, we have a headwind that we've talked about in terms of that legacy user experience program that when you look at our overall growth rate on a quarter-to-quarter basis, year-over-year basis, however you want to look at it, it's worth two to 300 basis points as that program winds down and we get to finally lapping it beginning in Q1 next year. So that wind-down ends at the end of the fourth quarter this year. So that's had over the last, this past year, certainly an impact on our overall growth rate. Active safety, our outlook for active safety is that it'll grow roughly 6% this year. So mid-single digits, that unfortunately is a bit impacted by the Chinese programs that I just mentioned, those OEM programs I mentioned. A couple of those are actually ADAS programs. So that is a bit of a headwind, but as you head into 2026, we're confident that we're in that kind of mid-single digit sort of growth rate as it relates to the ASUX business just given new program launches as well as that headwind coming to an end, that user experience headwind coming to an end.

It's, listen, this quarter was all FX and commodity prices. So that was the headwind. We're facing significant headwinds principally as it relates to the peso. We're hedged down to 19 and I'll let Baron talk about it, but that's been a significant headwind for that business, for the margin profile of our EDS business, and then to some extent lesser extent our ASUX business. And I should let you answer this.

Yeah, I try to avoid political policy. We can share with you our view. USMCA will definitely stay in place. There'll be some recalibration of certain aspects of USMCA. The administration is focused on bringing high-paying jobs back to the US. Our OEM customers in North America are supportive of that and are working with them to do that. So that will be the principal target. I can't answer Chris, I'm not smart enough whether there will be a lever where to the extent vehicles reach some sort of US content but manufactured in Mexico whether or not they'll be subject to a lower tariff regime or not. I can say for us, I think this is the important thing, and Von talked about, I talked about in his prepared comments, for US production, 95% of our product comes from Mexico, 99% of that is USMCA compliant. The announcement yesterday with respect to copper tariffs, we're clear that will not impact wire harnesses. So that won't be an issue for us as we size a potential headwind based on what we know now. And we still don't have the information to give precise estimates but it's relatively small and something that we can manage. So from our standpoint, whether the vehicle is manufactured in Mexico or it's manufactured here in the US, given how we're positioned and given how we think things will play out, we're in a good place.

Yeah, I think it's two things. I think it's a year-over-year comp with Q4 last year from a vehicle production standpoint. And then the presumption is that we have weaker consumer demand, whether that's driven by vehicle pricing or other issues that consumers are wrestling with, which obviously affects OEMs and OEM production, right? So Chris, just taking a step back, as we look at the world, our presumption when we gave guidance in February was we're going to be more immediately impacted by tariffs under the presumption they were going to be implemented much sooner. They haven't been. Our reasonably educated view is that there was some pull forward of production by our North American customers. Can't give you an exact number. And now we have that same concern we had back in February for the back half of this year. If we're wrong and vehicle production is stronger, we'll benefit just like we did in Q1 and Q2. But sitting here today, we felt the most prudent thing to do was to be a bit more, and I don't know if you want to call it conservative, that'll depend upon what plays out, that we should assume that there is an impact on vehicle production in the back half given the implementation of changing trade policies and tariffs.

Yeah, I think it depends. Listen, Colin, we were making significant progress over the last two years and we'll continue to make progress. Our target was to be at the same mix as industrial production in China at the end of this year, roughly at the end of this year. We were on that track. These vehicle programs that I mentioned with respect to Zeekr and NIO obviously have a negative impact and set us back. So we'll continue to focus on where can we play, where we can bring the most value and obviously drive the most profitability. China is a very dynamic market right now, extremely dynamic and it's a critically important market for Aptiv and we're very focused on it. But we're very focused on not only revenue growth but how do we make sure that we get the margin expansion and the return on investment as it relates to that market. And we're confident of that and we have a low cost structure. We continue to aggressively reduce that cost structure by rotating engineering activities, by leveraging global platforms, by reducing our sourcing costs as it relates to our supply chain. So the team's doing a great job, but it's important that we be focused on doing business with the right customers on the right platforms and ensuring that we don't end up in a situation like we're talking about today with respect to a couple customers on a few platforms that they've significantly reduced volumes having an impact on us. So we're working our way towards that. But our real focus is how do we grow earnings both in China as well as on an aggregate Aptiv basis.

No. So this is not, this is derivative so it's non-232, but it's manageable based on our analysis and we don't have all the specifics but we can, and I can confidently tell you this is something we can manage through from a supply chain standpoint and to the extent we're not able to offset all of it, it's something that we've been having conversations with our customers regarding and we'll be able to push it through.

No, Tom, it's a great question. It's across the board. So we've been winning significant business, for example, with BYD over the last, in our ECG business over the last couple years. In our EDS business over the last 12 months, with opportunities in ASUX that we're working on now. Our focus is on strategic programs in China, vehicle programs, as well as an additional focus on where are those OEMs taking vehicles offshore, whether that be through export or through production in Europe. There are a few of them that we're spending a lot of time on their European or South American supply chain as they move production out and try to ramp up. So we're in front of those particular vehicle programs but making progress. So I would say it's a bit of a two-prong, but we feel like we can bring the most value quite frankly or we can bring incremental value for those that need support outside of the China market.

Yeah. So our ADAS awards are in North America, Europe, and China. We would tell you just given cost pressure that our OEM customers are under, tariff and other, they're very focused on, I would say there's incremental focus and willingness to look at full system solutions that save them money. We talked about the award from Leap Motor for their European vehicles that include locally sourced China-based SoCs, strategy and vision solution, which is our reference vision solution for our Gen 68 platform and then our Gen 68S platform. So very cost-effective. Similarly with the North American OEM, a different vision solution but it's an enhancement of our existing Gen 68S solution adding more features, more capability, more scalability with significantly more focus on the trade-off between performance and cost of performance.

Yeah, we would tell you now we're seeing from OEMs less desire to do things internally. Now there may be some things with particular OEMs where it might be a feature or some features within an ADAS stack, but that we're going to do it all ourselves, and listen, you're familiar with the OEMs that have tried doing that, have spent money doing it and have not been overly successful. We would say that trend has reversed course. We would say though all of our OEMs are looking for open-architected solutions where they have flexibility, that they're scalable so that they can put higher performing high-cost systems on a more luxurious vehicle and lower cost systems on entry vehicles. And to the extent you can do that with a single platform, it's less engineering cost for them. So all of them are looking for that sort of approach to things. So in a strange way all the cost pressure going on in the industry is actually helpful to our business model. But again, we're willing to provide the full system solution or part of the solution depending upon what the customer is looking for.

Thank you, operator. And thanks everybody for spending time with us this morning. We really appreciate your questions. Have a great rest of the day. Thanks.