Aptiv PLC ($APTV) Q3 2025 Earnings Call

Thank you, Betsy, and thanks everyone for joining us this morning. Starting on slide three, we had another strong quarter. We capitalized on the underlying growth in vehicle production in North America and Asia-Pacific while also continuing to experience strong revenue growth in non-automotive markets. Our resilient operating model has allowed us to proactively respond to shifting global trade policies, allowing us to keep our customers connected with minimal impact to our operations and profitability. Thanks to our in-region, four-region integrated supply chain network underpinned by the end-to-end global visibility provided by our comprehensive supply chain digital twin. Our robust operating model has been validated by the supplier quality excellence awards we've received from Volkswagen and General Motors this year, underscoring how Aptiv is trusted by our customers to consistently deliver high-quality solutions on time. And when combined with our unique full system solutions, we're able to provide our customers with flexibility and cost savings, which expands our competitive moat and which we've leveraged to accelerate our penetration of other end markets. Lastly, with our focus on further maximizing shareholder value, we're progressing as planned with the separation of our electrical distribution systems business by the end of the first quarter of 2026. Moving on to our third quarter financial performance, the strength of our product portfolio and operating execution translated into another quarter of record financial results, including revenue, operating income, and earnings per share. Our third quarter bookings of 8.4 billion validate customer confidence and strong market demand for a portfolio of advanced technologies. Revenues increased 6% to 5.22 billion reflecting strength across multiple areas of our business as well as stronger than expected vehicle production in North America and China. Operating income increased 10% to 654 million reflecting the flow through on volume growth and continued strong operating performance. Increased operating earnings and lower share count drove record earnings per share of $2.17. And lastly, we generated 584 million of operating cash flow and deployed 250 million for share repurchases and debt paydown. Von will discuss each of these in more detail later. Moving to slide four to review our third quarter business bookings. As expected, customer awards accelerated in the quarter. Our portfolio of advanced technologies and track record of flawless customer service led to 8.44 billion of new business awards, including 1.6 billion in our advanced safety and user experience segment, 2.1 billion in our engineered components group, and 4.7 billion in electrical distribution systems, bringing our year-to-date new business bookings to roughly 19 billion. We exited the third quarter with momentum, and our customer award pipeline remains large and is growing. We continue to expect roughly 31 billion in new business bookings for the year, although timing of some program awards slated for the fourth quarter could shift into 2026. Let's move on to review each segment in more detail. Moving to slide five to review the third quarter highlights for our advanced safety and user experience segment. Revenue was flat year-over-year, reflecting the launch of new programs and continued strong growth for Wind River, over 20% in the quarter, partially offset by the ongoing headwinds related to the rolloff of a legacy infotainment program and the cancellation of certain programs with two Chinese local OEMs, both of which we discussed last quarter. Third quarter program launches reflect the breadth of our product offering. Highlights include the launch of Aptiv's new Gen 8 radar product, which unlocks new possibilities for hands-free driving in complex urban environments with improved cost and efficiency for our customers. The first high-performance cockpit controller launch from Mahindra's market-leading BE6 and XEV9E high-volume electric SUVs, further underscoring AS&UX's ability to support different configurations based on customer needs, and several launches for ADAS controllers with leading Chinese local OEMs including Changan incorporating an increased percentage of locally sourced components. Moving to new business bookings, we continue to experience strong demand for active safety products as well as our next generation user experience solutions evidenced by multiple awards with global OEMs extending their L2 and L2+ ADAS programs, a full-stack cross-platform next generation in-cabin sensing solution for a major Korean OEM, and awards with leading Chinese local OEMs including Geely, Chery, and Changan across numerous product lines including advanced active safety. Wind River was awarded new business across multiple end markets including enterprise cloud offerings for Blackbox, a global leader in digital infrastructure solutions, software application and VxWorks software on mission critical systems for an aerospace and defense prime, and real-time operating system software for industrial market applications. Efforts to expand Wind River's edge AI ecosystem continue with three new strategic AI partnerships forged this quarter, including with Leighton AI to bring AI capabilities to real-time edge platforms for mission critical infrastructure, Toodex to advance innovation for aerospace and defense by uniting certifiable reliability with rapid development, and Saki integrating its time-sensitive networking solution with VxWorks to create a scalable, secure, and certifiable foundation for mission critical applications. Moving to slide six to review the highlights for our engineered components group. Our new business awards and program launches validate the strength of our product portfolio and established position across multiple end markets. Notable program launches include high-speed connector assemblies for an all-new fully electric midsize SUV for a global OEM, high voltage solutions for multiple Asia-Pacific OEMs, including connectors for a mass market electric vehicle platform with a Japanese OEM, and an electrical center for Voyah, Dongfeng's luxury electric vehicle brand. During the quarter, new business bookings included a cross-platform award for a large European OEM, integrating our connectors and cables into our inter-cable automotive bus bar application enabling DC fast charging, high voltage connector awards with multiple global OEMs, including a conquest award for next generation EV platforms, customer awards for high-speed connector assemblies across nearly a dozen OEMs, including BYD, Chery, and Changan, interconnects and assemblies for Alstom Transportation, a global leader of high-end passenger rail vehicles and equipment, and interconnects across energy data centers and A&D applications. Turning to slide seven to review our electrical distribution systems business, which delivered double-digit revenue growth, reflecting solid business performance and an easier year-over-year comp. New program launches reflected the pace of new business awards, including incremental content on a major SUV platform from a large North American OEM, multiple launches with select Chinese local OEMs that are focused on increasing their penetration of global markets including Leap Motor and SAIC, and the launch of our first program in the energy storage sector demonstrating a market where automotive expertise easily translates. Moving to new business awards, we continue to book programs across low and high voltage architectures as well as geographic regions. During the quarter, we were awarded incremental volume for a global OEM's top selling North American truck platform as well as low and high voltage architectures for US-based global EV manufacturers' autonomous mobility program. We also booked over 1 billion of new business in China. A significant portion of which was with local OEMs including Chery, Great Wall Motor, Changan, and Xiaomi. Turn to slide eight. Before I pass the call to Von to take you through our financials in more detail, I'd like to briefly discuss our updated 2025 outlook and the setup heading into next year. As Von will discuss, we're raising our full year 2025 guidance reflecting the strength of our third quarter results, partially offset by recent customer-specific production disruptions and an outlook for the fourth quarter that prudently incorporates an element of conservatism to reflect the amplified trade tensions beginning to impact semiconductor supply chains. Although it's early in terms of providing explicit guidance for 2026, as we sit here today, we're confident that our revenue growth will accelerate next year, driven by new automotive program launches and continued double-digit revenue growth in the other end markets we serve. However, the macro environment remains very dynamic with changing geopolitical trends, regulations, and trade policies as well as customer-specific challenges, all which are difficult to precisely forecast. Regardless, our team remains relentlessly focused on navigating the challenges in the current environment, policies serving our customers, and delivering strong financial results that increase shareholder value. And we'll continue to provide you with as much visibility as possible into the macro dynamics we're facing. Lastly, the separation of our EDS business, which we'll talk more about at our investor day in a few weeks, will result in two independent companies that are well positioned to pursue their unique market opportunities and capital allocation strategies and will unlock incremental value for shareholders. I'll now turn the call over to Von to go through our financial results and our full year and fourth quarter guidance in more detail.

Thanks, Von. I'll wrap up on slide 15 before we open the call to Q&A. We exceeded expectations in the third quarter, delivering record revenue, operating income, and earnings per share. And we're well positioned to continue our strong operating performance heading into next year. Our continued strong execution despite ongoing uncertainty in the macro environment is a function of our robust business model and our proactive efforts to continually enhance our product portfolio and improve our cost structure. We continue to experience strong demand for our portfolio of industry-leading products and remain uniquely positioned to benefit from the acceleration towards a more automated, electrified, and digitalized future that's happening across multiple end markets. We remain vigilant on positioning Aptiv for long-term success through proactive portfolio management and cost structure optimization with the separation of EDS being a great example of our commitment to increasing value for shareholders. We look forward to updating you more at our investor day in a few weeks. Operator, let's now open the line for questions.

Sure. Thanks Chris. So, as you look at that 80 million, it does encompass some volume impact associated with the facility issue or the facility fire in Asiggo. That is contemplated as a part of that 80 million. There are other, as you're aware of, there are other kind of unique customer-specific situations with OEMs including OEMs in Europe that are impacting our outlook for European production. And then again there's an element of not customer specific but an element of conservatism that we've overlaid in the European market and North America market as it relates to principally supply chain issues tied to some of the geopolitics and trade tensions going on.

Yeah. So, you're right in framing it. It is a political issue and it is a political issue between the Dutch government and China. So, I think it's important to understand the parties involved as it relates to the situation. We can tell you product is flowing in China. So as we sit here today, we're certainly not being impacted. We would not expect production in China to be impacted. I would say it's a product area where by and large the industry has alternative sources and there are players like us that have already validated where we have solutions where we have risks. I think that is likely a similar situation across the supply base. Some suppliers like ourselves may be further ahead versus others. But I think this is something that the industry's been contemplating. It appears as though the issue in terms from a noise standpoint seems to be a bigger issue in Europe than it is in North America.

America at this point in time. Can't give you a great explanation as to why that's the case, Chris, but just based on what we're hearing in terms of suppliers that are being impacted and how they're impacting OEMs. If there's a resolution politically, it's something that will get fixed very, very quickly. If it's not resolved, it's something that will take some time to resolve but is resolvable. And sitting here in our shoes, it's impossible to predict exactly between those two bookends where things fall out, which is one of the reasons we overlaid some of the conservatism into our outlook for Q4. For us, we have roughly three months of inventory. We were confident we won't impact any OEMs in the fourth quarter. And as I said, we have second alternatives that have been validated across most of our product portfolio that matches with Nexperia.

Yeah, I think if I can augment, Joe, I would say you have volume, you have timing on that customer recovery, and then the year-over-year impact from a FX commodity standpoint is significant on a year-over-year basis. And it's both FX, principally the peso, and copper. And that impact, at least based on our math, is north of 100 basis points on a year-over-year. So, that might be the piece when you look at operating income and margin rate. You don't have the full visibility to.

Yeah. So the opportunity is very big. One, we will talk about at the investor day across each of the businesses. So we'll share more. The opportunity is very big, especially around areas like energy storage, like robotics, like drones as an example from a market standpoint. There's incremental focus across each one of our business units in terms of where we have existing product and the right to play. And we'll talk about opportunities maybe to make some incremental investment in certain product areas to leverage our existing base both from a product standpoint as well as a market standpoint to actually grow in those markets. And the opportunity is big. I mean, today, when you think about non-automotive revenues, we're approaching over $3 billion of total revenues. During the quarter we grew mid-teens sort of growth rate in that particular area and it's being driven across the ECG, the ASUX, and the EDS portfolio. And we'll talk a bit about when you look at ASUX, and I know the growth right now this year has not been outstanding, but when you look at the software portfolio, the GAP software portfolio, we're up north of $600 million in revenues and that's growing north of 20%. And we have bookings and plans to continue to grow that particular area as well.

Maybe I'll start at a high level and then Von can go through some numbers by regions. Dan, so right now we're actually seeing very little push out of program launches there. There's one or two here or there, but it's not, we've not seen a significant trend. We have seen launches at lower volumes or the slope of the curve from a volume standpoint being somewhat lower. So that has had some impact. The bigger impacts for us in Europe and China tend to be tied to specific OEM volume issues. In Europe, as it relates to European volume, it tends to be a large German OEM who is impacted, both our ASUX and EDS business, as well as a French global OEM that we've seen reductions in existing production schedules for the European market. In China, the big impact for us this year were those three program cancellations that we talked about for NIO and Zeekr in the second quarter. There is some slight headwind growth from a growth rate standpoint when you look at, for example, our EDS mix versus overall market mix, but that business is closing the gap. So it tends to be for us significant sort of impacts by discrete customer situations and they vary a little bit by region and they vary a bit by customer.

No, that's a great question. I'd start with each situation is unique. We can certainly do the math with respect to our multiple versus the multiples on some of those assets. We think the general view is in order to diversify meaningfully from a revenue market standpoint, M&A is going to have to be a part of that. When you think about that, that means that those transactions will have to have meaningful synergies, right? From a cost and maybe in some cases a revenue standpoint. And we'll need to think about the framework in terms of size, multiple, synergies, ease of integration, and ultimately how does that position us for future growth in markets outside of automotive. So, I don't think there's a one answer. I think it really depends on each unique situation. I would say we are committed to grow in other markets. A part of that is M&A related and we have a large funnel of potential opportunities out there that we continue to evaluate and consider and understand the parameters or kind of the current dynamics with respect to our multiple versus some other market multiples.

So when you look at active safety growth in the quarter and back half of the year, we would expect that to be low single digits versus first half of the year kind of high single digits. That is specifically the driver of those three programs that we mentioned, those were active, had significant active safety content. So those two OEMs or three programs, that's what's impacting growth rates in the back half of the year. Listen, over the last couple years, we've had solid bookings in active safety. This year, year-to-date bookings are close to $3 billion. So close to the size of our ADAS revenues today. We'll book more in the fourth quarter. We're making progress in China just given the nature of that market and the shorter time frame between program award and launches. So we think that's something where you'll see solid return to growth in 2026.

And then you asked, there was a second piece. I'm sorry to interrupt you, but you asked about also on the user experience side. So impact or growth on a year-over-year basis back half of the year will be down low double digits. We were down 10% in the third quarter. That's the specific roll out the program that we talked about. That will annualize end of the fourth quarter. So as we head into next year, we would expect to see user experience begin to return to a growth mode. We've similarly had program awards and other pursuits that are out there. So we'd expect that product line as well to return to growth mode in 2026.

Well, listen, we control the spin, right? At the end of the day, that's something that we have total control of. It's the path that we announced back in January. We're focused on driving shareholder value. So whatever outcome generates the best return, that's what the board obviously will evaluate and ultimately make decisions on.

Those are a lot of specific questions about 2026 as we sit here in October and wrestle with some of the market dynamics. I guess at a very high level, as we think about the overall market sitting here today, I think we would view the market is basically likely flat to maybe slightly down. Part of that is how we plan to be transparent. We tend to, in terms of managing our cost structure and where we're making investments, we try to be conservative on the vehicle production side. So as Von and team are going through the planning process now, that's kind of where we're baselining. Having said that, we've had strong last couple of years of bookings. We are seeing or we've had very strong launch activity during 2024 and the first half of 2025 which will translate into higher revenue. We've annualized on the electrification headwinds that we had last year and earlier this year. So those headwinds are by and large we feel like behind us at this point in time. And at the same time we're seeing significant growth in China, solid growth in Europe. So that should prove to be a tailwind. We continue to see demand for things like active safety. We're having very strong growth outside of the automotive space in adjacent markets that's running double digits. So, as we look at all of those sort of factors, we think the setup is a reasonably good setup and we'll caveat that with the geopolitics and potential changes to trade policy and tariffs that we don't have full visibility at to at this point in time. From a margin expansion standpoint, obviously we're always focused on our cost structure. With that revenue growth, we'll deliver margin expansion. Not prepared to sit here and kind of walk through that today. We'll talk more about that during our investor day and the path on how we get there. But I guess suffice it to say, even with all the macro trends that we've been wrestling with, the business has done a great job growing and increasing profitability on a year-over-year basis. You look at what we've done this year with FX headwinds on a year-over-year basis. And listen, you take a step back and in reality, we'll end up, on an FX adjusted basis, we'll end up expanding margins by, help me out, 120 basis points and that's with all of the trade and other issues going on at this point in time. So the business model's been set up pretty well and we feel good about the momentum we have as we leave 2025 and we head into 2026.

That's a great point.

So the Gen 8 radar, we're confident is industry-leading versus any of our competitors. So there certainly is an opportunity to grow and to take share across all the regions that we operate in. We have other products. I think part of what you're referring to, a product we refer to as Pulse, that leverages our radar capabilities and allows OEMs to actually eliminate ultrasonics, replace those with radar and enhance parking systems and a bunch of other things that in addition to additional performance, it reduces OEM costs pretty significantly. So that's a separate product where we're getting significant amount of pull from.

Yeah, I think to be honest, and it's a fair question, I think it's impossible to give you a specific answer to that. So we've looked at schedules. We've reduced our outlook for schedules and that's what's translated into our outlook for the fourth quarter. I think Baron gave you the direct visibility to what we have seen from a schedule adjustment standpoint to date as it relates to some of those specific customer supplier issues that you guys are all very well aware of. The range of the Nexperia outcomes are so broad, right? That it's really tough to give you a precise number. So it's one where we just overlaid some incremental conservatism into our estimate.

Yeah, I would say the movement is just timing. Just nothing more than OEMs making decisions. I think there's an element of certainly the disruption that we're or potential disruption that we see as it relates to trade policy doesn't help things from a decision-making standpoint. I would say there are a number of large ASUX awards that are in the fourth quarter that are in and around or currently signed for the fourth quarter. Discussions with OEMs are progressing very well. So they're moving along at this point in time. They tend to be around, as you can imagine, ADAS, user experience as well as some SVA sort of opportunities, North America, Europe as well as China.

Yeah, I'll start with your last and then I'm not sure we'll give you an exact dollar amount on the headwind for a couple reasons, but on the mix this year 85% of our bookings are with China local OEMs. Our focus with the locals is pretty limited to the top 10 with incremental focus on those who are focused on export as well as manufacturing outside of the China market. Growth in that category for this year, I believe, is in those particular with those particular sort of programs is up like 84% on a year-over-year basis. So, very, very strong growth across each one of our segments. And again, I'm referring to export revenues. So, our focus for China is how do we make sure that we're with the winners, that we can support and serve them profitably, and that we can work with them to take their products into international markets where we can add the most value. So, I'm not sure we'll ever perfectly match the revenue mix with production mix given there are 76 OEMs in China today based on at least my last count. And there's a large portion of those that aren't strategically ideal for us to be supporting and serving.

Yeah, it's a mix. Today we have active engagements with roughly 20 OEMs across all regions. I would say real focused engagement with 10. If I were to dollarize today the bookings opportunities over the next couple years, it's in the range of five plus billion dollars that we're really focused on in terms of real opportunities. It tends to be focused in and around zonal controllers at this point in time. And I would say today we see much more activity in China. So a lot of our activity is there than we do in North America or Europe. But there are a few OEMs in North America and Europe that we're working with at this point in time. From a revenue standpoint sitting here today, 2025 revenues from smart vehicle architecture will be about 150 to 200 million and growing at about a 10% sort of growth rate into the out years. So I think Von in his comments talked about a bit of a push out on the software-defined vehicle. Obviously, that's reflected in some of the SVA activity. I would say it's not slowed at all in China. It's accelerated. Europe and North America, it's slowed a bit, but again, we're seeing a pickup in the activity and continue to have a lot of dialogues with OEMs and a number of pursuits that are out there.

Great. Thank you, operator. Thanks everybody for joining us today. We look forward to seeing you on November 18th in New York City. Have a great day and a great rest of the week. Thanks.