Aptiv PLC ($APTV) Q4 2025 Earnings Call

Thanks, Betsy, and thanks everyone for joining us this morning. Starting on slide three, we capped off 2025 with another solid quarter in which we seamlessly navigated ongoing changes in the macro environment. Our resilient operating model, which leverages our industry-leading engineering innovation, integrated global supply chain and manufacturing footprint, and best-in-class commercial capabilities, enables us to execute flawlessly in this dynamic environment. As we discussed at our recent investor day, we've been successfully leveraging our product portfolio and operating model to penetrate non-automotive markets where the shared secular trends of automation, electrification, and digitalization are aligning customer needs for mission-critical applications across automotive, A&D, telecom, industrials, and other markets. And our momentum continued during the fourth quarter across all segments as reflected by our partnership announcements with two robotics companies, Robust AI and Vecna Robotics, spanning sensing, compute, and software in intelligent systems; the launch of our modular connector series developed jointly by our automotive and aerospace teams in engineered components for multiple end-market applications; and a new business award for energy storage and management in electrical distribution systems. Overall, we posted strong bookings in the quarter, validating customer confidence in our operating model across both geographic regions and end markets. During the quarter, we finalized a leadership team for our electrical distribution systems business, which remains on track to spin out as Versiv on April 1st under the leadership of Joe Massaro, who you'll hear from in a moment. We're confident that Versiv is well positioned to deliver continued value to their customers and create value for their shareholders. Turning to our financial highlights, we reported record fourth quarter revenue of $5.2 billion, an increase of 3%, reflecting strength across multiple areas of our business. Adjusted operating income totaled $607 million as flow-through on volume growth and strong operating performance helped offset stronger than anticipated headwinds from FX and commodities. And combined with lower net interest expense and a lower share count, earnings per share totaled $1.86. Lastly, we generated $818 million of operating cash flow, more than half of which we deployed towards share repurchases and debt reduction. Varun will discuss each of these in more detail a bit later. I'd like to turn to slide four to touch on our achievements during 2025 and review the progress we made further strengthening our business model and increasing shareholder value. First, we continue to enhance our product portfolio with the launch of a number of new innovations across each of our segments, including interconnect product lines that leverage our expertise in both the automotive and aerospace markets; next-generation sensing and AI-powered software solutions that deliver market-leading performance at a competitive cost for applications across a broad range of end markets; and lastly, high-power distribution solutions for applications in energy storage. Second, we continue to gain new business with target automotive OEMs and further penetrate higher growth, higher margin non-automotive markets as reflected by almost $4 billion of new business bookings with leading local China OEMs; new business awards with non-China Asian OEMs that total just under $4 billion, representing an increase of 20% over the prior year; and non-automotive new business bookings that reached more than $4 billion. Third, we continue to strengthen our operating model to further enhance our execution capabilities and enable profitable growth, including the continued enhancement of our supply chain digital twin with 95% visibility down to at least tier three levels and 99% of our semiconductor supply chain down to tier five levels; the opening of a new engineering technical center in Chennai, India to support our growing software and services business; and further optimization of our manufacturing footprint through the consolidation of seven facilities in North America, EMEA, and Asia Pacific. All of which enabled us to deliver record financial performance including the impact of headwinds associated with tariffs, FX, and commodity prices, further complemented by disciplined capital allocation which Varun will talk about in more detail shortly. Moving to slide five to review our new business bookings. As expected, customer awards were strong in the fourth quarter, leading a record second half of the year bookings, bringing full-year new business awards to $27 billion, short of our target of $31 billion, the result of customer awards shifting to the first half of 2026, as we previewed in the last quarter. Customer awards were strong across each of our segments and were highlighted by awards in the China market totaling $5 billion, of which almost $4 billion was with the leading local China OEMs; awards with Japanese and Korean OEMs that totaled $3 billion, representing a mid-single-digit increase over the prior year; and new business bookings in the rapidly growing India market which increased significantly to over $800 million. We exited the year with a large and growing pipeline of commercial opportunities and expect 2026 bookings for total Aptiv including Versiv to increase to over $30 billion. Let's now review each segment in more detail. Moving to slide six to review fourth quarter and full-year highlights for our Intelligent Systems segment. A couple notable program and product launches in the quarter include numerous launches of local China OEMs across our product portfolio, including a Gen 7 radar launch with a time-to-market of just four months, a smart camera launch also leveraging Wind River VxWorks, and launches that leverage local China-for-China solutions for SoCs and software; the launch of an interior sensing system for a leading commercial vehicle OEM incorporating advanced biometric and intention monitoring software features; the launch of new ADAS software features on an existing system for a leading European OEM; and the introduction of next-generation radar solutions as well as the Wind River cloud platform for AI-ready private cloud applications. Moving to new business bookings which were principally driven by strong demand for our active safety products: a Gen 6 ADAS system award spanning multiple models and variants with a leading Indian commercial vehicle OEM that includes the full software stack and Gen 8 radar solution; a next-generation high-performance compute solution spanning multiple platforms developed in partnership with a top global OEM; and a full-stack ADAS system for a large Korean OEM incorporating active software and sensors reflecting the continued expansion of our technology partnership. In addition, we announced multiple new partnerships featuring integration with our innovative sensing solutions such as Pulsed, advanced compute, and Wind River software suite with Vecna Robotics to co-develop next-generation autonomous mobile robots, or AMRs, enhancing safety, intelligence, and cost-effectiveness across warehouses and factories; and Robust AI to co-develop AI-powered cobots accelerating innovation in warehouse and industrial automation. We're encouraged by the momentum we have in the robotic sector and look forward to sharing further developments during 2026. Lastly, Wind River established a strategic partnership with a leading global cybersecurity provider to jointly pursue next-gen software tech stack opportunities in the automotive market. Moving to slide seven to review the fourth quarter and full-year highlights for our Engineered Components segment. Our product and program launches as well as our new business awards validate the strength of our product portfolio and operating capabilities across multiple end markets. Notable new product program launches during the quarter include the LightSpeed single-pair Ethernet technology for applications across increasingly connected and space-constrained end markets such as A&D, industrial automation, and next-gen mobility; a compact connector featuring high-speed data interfaces for seamless integration with sensors for a Japanese OEM's SUV models; a next-generation safety-critical rapid power reserve for a local Chinese OEM's all-electric SUV; and a high-voltage connector launch for a European OEM's global EV platform. New business bookings included a modular connector award for a major European OEM, enabling scalability across platforms to support next-gen architectures; an award from a leading North American OEM on their top-selling truck and SUV platform, including high-speed interconnects, connectors, and terminals; and a ruggedized high-performance interconnect award for use in marine applications validating the lightweight, flexible, and highly durable nature of our products. Turning to slide eight to review our Electrical Distribution Systems segment. New program launches reflected the strength of our new business awards over the past few years, including a launch for a high-volume SUV program for the leading North American-based global electric vehicle OEM; the launch of a BEV and extended-range EV for a local China OEM that are planned for export markets; a launch for a major India OEM's premium SUV; and a complete low-voltage commercial vehicle launch for a next-generation high-performance agricultural vehicle. Moving to new business awards which spanned all major geographic regions and include an award with a leading China-based global electric vehicle OEM for production in Europe serving as a key enabler of their regional manufacturing expansion; an award with a leading European-based global OEM on their new software-defined vehicle architecture; an award for low and high-voltage content across brands, models, and powertrains for a Korean OEM; and lastly, an award for a high-efficiency energy storage solution engineered for grid optimization. In summary, we executed well throughout 2025 and finished the year with strong momentum in the fourth quarter. Each of our three segments is enhancing their market positioning, deepening their customer engagement, and broadening their revenue mix through the penetration of new end markets and regions. The customer awards we've received validate our strategy and the investments we're making to capture the opportunity ahead. I'll now turn the call over to Varun to go through our financial results and our full-year and first quarter guidance in more detail.

Thanks, Joe. As I wrap up today's call, I want to provide some additional context on 2025 and our outlook for 2026. Let me start by level setting on where we've been. During 2025, we continue to enhance the resiliency of our business model with the introduction of a broad range of market-relevant products and solutions, the continued increase in bookings with target customers across regions and end markets, and the ongoing enhancement of our supply chain and manufacturing capabilities. During the year, we also illustrated our ability to execute in a dynamic environment. We navigated changes in geopolitical trends and global trade policies as well as customer-specific challenges and delivered earnings growth in the face of FX and commodity headwinds that were significantly larger than we had initially anticipated. As we look ahead to 2026, we expect the macro environment to continue to remain dynamic, but with the strength of our operating model, we're confident that we're well positioned to execute our strategy. We're poised to capture commercial opportunities that are higher growth and higher margin across multiple end markets. And we'll continue to invest in our product portfolio and go-to-market capabilities to execute on these opportunities while also continuing to further optimize our cost structure and eliminate the stranded costs associated with the spin. 2026 is a very exciting year for both Aptiv and Versiv. As we unlock value through the formation of two independent, optimally positioned public companies, our team remains relentlessly focused on navigating the challenges and opportunities ahead, flawlessly serving our customers, and delivering strong financial results that enhance shareholder value. Operator, let's now open the line for questions.

So it's Kevin. Let me start with just sizing it. So to put it in perspective, memory, the purchase value is roughly $175 million as we sit here in 2026, and the majority of that is DRAM 3 and DRAM 4. So those are the categories. Pricing or price increases for us in calendar of 2026 are low double digits. And that's the result of the supply chain management strategy that we've been implementing over the last couple years that included higher inventory levels as well as longer-term contracts with our semiconductor suppliers. As we head into 2027 or look at 2027, those negotiations actually had started months ago. So we're well ahead of kind of the current outlook for overall price increases. And we're confident that we'll be able to come in at a level that won't be consistent with 2026. It will be higher, but a level that is certainly below the 100 to 120% price increases that you're hearing thrown around today as it relates to whatever that price increase ends up being. We've been successful in the past obviously pushing through price increases or cost increases associated with various aspects, our various inputs including semiconductors. I think this is an area we've already had conversations with all of our OEM customers so that they understand the situation. And not that we won't have to have some difficult conversations, but we're highly confident we'll be able to push those cost increases through to our OEM customers.

Yeah, a little less than 100% but pretty close.

If I, Dan, if I could just augment what Varun just talked about, it really comes down to vehicle production and assumption. If you look at where we were and IHS was for the 2026 calendar year back in October, November on an average weighted-to-market basis, our outlook was vehicle production up 1%. As we sit here today, our outlook and where IHS actually sits is actually for, on a comparable basis, for vehicle production to actually be down 1%. So it's that swing in global vehicle production and the weighting by market.

Yeah, definitely. I mean, we're still confident in our ability to expand margins at RemainCo by 200 basis points and obviously to do the same in the Versent business. 2026 as it relates to RemainCo, obviously there's the impact of stranded costs that Varun talked about. There's some incremental investment in engineering, go-to-market capabilities that he walked through. Those are more 2026 related than they are 2027 and 2028. Stranded costs obviously will come out of the system in 2027 and be gone by 2028. There's a bit more that comes out in 2027 than in 2026 as we sit here today. So Kai, we remain very confident in our ability to expand margins by 200 basis points.

Yeah. So, it's Kevin. I'll start and Varun will provide you with numbers. Obviously as you look at the first quarter, at least four to six weeks out, we're on customer schedules. Now, we have forecasts from most of our OEMs out for the full year. And as we sit here today, the schedules support a relatively weak year-over-year market in the first quarter, right? So vehicle production being down, you know, roughly 4%, we're seeing weakness or we see weakness in China in line with what IHS is forecasting at this point in time. Beyond that, the forecasts we receive from our customers, we see continued strengthening into Q2, Q3, Q4. Those aren't schedules that are locked in at this point in time but as the order continues to evolve, we'll get increasing visibility and to the extent we're out communicating in the open market, we'll share updates to investors in terms of what we're seeing from a market outlook standpoint, but right now we would say it very closely mirrors exactly what we're forecasting from a 2026 vehicle production standpoint.

Yeah, win rates continue to be strong. The shifting we saw in the fourth quarter related to programs in North America and Europe. We're well positioned. We're confident that those are programs that will be awarded. It's just a matter of timing. I think when you're in markets like we've been over the last year or so with the dynamics of trade, with tariffs, with for some products shortages or tightness, for some OEM customers if they're having specific unique supply chain issues, the focus of the procurement organization tends to shift to managing those situations versus awarding business. But ultimately, if they don't want to impact SOPs, business needs to be awarded so that engineering organizations can start working on those programs.

So let me start with the last and then Varun can walk you through your first few questions. Listen, as it relates to commercial recoveries, that's an activity and dialogue that quite frankly is going on with customers all the time as it relates to various whether they're distinct or unique programs that are cancelled or other items. As it relates to some of the larger decisions principally in North America as it relates to EV programs, those are discussions that are underway now at this point in time. Certainly, the resolution of those is factored into our 2026 outlook. I wouldn't consider it upside to our overall operating performance. They still need to be negotiated and finalized. I think some of the larger programs with some of the OEMs that we deal with, especially in North America, I would say there's strong agreement that the situation needs to be resolved and they need to support the supply base. So I don't think it's a matter of negotiating those recoveries. It tends to be how much. So yes, they're in our outlook at a level that we have high confidence in. But Joe, the nature of this business is there's an amount of that activity that goes on year in and year out. And it could be things like labor economics, program cancellation, program delays, commodity pricing, things like that that maybe there isn't a contractual mechanism to deal with that need to be dealt with separately.

Yeah, our outlook for EV growth as a company is roughly 15% year-over-year. The majority of that growth is driven in China. And it's a mix of BEV and slightly faster growth rate and plug-in hybrids and in hybrids. So very low growth here in North America, moderate growth in Europe and then stronger growth in Asia Pacific principally China. So I think we're roughly Colin, I think we're roughly five or six points from a growth rate assumption standpoint below where IHS sits today.

Yeah, so Wind River I would say is from a software standpoint the tip of the spear. So they serve multiple markets including the robotics markets today with Linux solutions, with RTOS solutions and other software products. So it's a TAM that we estimate to be about $6 billion. When you look at a comparable to our content per vehicle that we use for the automotive sector, it's roughly $4,000 to $5,000 of content on a robot. When we look at sensor solutions, when we look at so that could be vision or camera as well as radar. When we look at the software tech stack and then when we look at the interconnect and the cable or wire harness solutions. So we view it as a very attractive market. The partnerships that we've announced to date, we're making meaningful progress with. We think during the first quarter we'll have more commercial relationships or partnerships that we'll be announcing that will show the traction that we have in place and that's what quite frankly gives us the confidence to increase the investment targeted at that specific market just given the opportunity.

Thank you everyone for joining us today. We really appreciate your time and we look forward to speaking with you and meeting with you over the coming months. Have a nice day.