Aptiv PLC (APTV) — Q3 2025 Earnings Call Transcript

Thank you, Jess. Good morning, and thank you for joining Aptiv's Third Quarter 2025 Earnings Conference Call. The press release and related tables, along with the slide presentation can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials excludes amortization, restructuring, and other special items and will address the continuing operations of Aptiv. 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. Kevin will provide a strategic update on the business, and Varun will cover the financial results in more detail before we open the call to Q&A. 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 3. 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 nonautomotive markets. Our resilient operating model has allowed us to proactively respond to shifting global trade policies, keeping our customers connected with minimal impact to our operations and profitability, thanks to our in-region, for-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. 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 our portfolio of advanced technologies. Revenues increased 6% to $5.2 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. Lastly, we generated $584 million of operating cash flow and deployed $250 million for share repurchases and debt paydown. Varun will discuss each of these in more detail later. Moving to Slide 4 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 $8.4 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 5 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 roll-off 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 for Mahindra's market-leading BE6 and XEV 9e high-volume electric SUVs further underscores Aptiv'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 our 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 Black Box, a global leader in digital infrastructure solutions, software applications, and VxWorks RTOS 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 Latent AI to bring AI capabilities to real-time edge platforms for mission-critical infrastructure, Toradex to advance innovation for aerospace and defense by uniting certifiable reliability with rapid development and SOCE, integrating its time-sensitive networking solution with VxWorks RTOS to create a scalable, secure, and certifiable foundation for mission-critical applications. Moving to Slide 6 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 midsized 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 busbar 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 in high-end passenger rail vehicles and equipment and interconnects across energy, data centers, and A&D applications. Turning to Slide 7 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 Leapmotor 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 U.S.-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 Motors, Changan, and Xiaomi. Turning to Slide 8. Before I pass the call to Varun 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 Varun 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 of which are difficult to precisely forecast. Regardless, our team remains relentlessly focused on navigating the challenges in the current environment, flawlessly serving our customers and delivering strong financial results that increase shareholder value. We will 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 Varun to go through our financial results and our full year and fourth quarter guidance in more detail.

Thanks, Kevin, and good morning, everyone. Starting with our third quarter financials on Slide 9. Aptiv delivered record financial results in the third quarter, reflecting strong execution in a better-than-expected vehicle production environment, double-digit growth in non-auto end markets, the timing of certain customer settlements, as well as the benefits of ongoing capital allocation initiatives. Revenues were a record $5.2 billion, up 6% on an adjusted basis. Adjusted EBITDA and operating income grew 9% and 10%, respectively, also reaching record levels. Operating income margin expanded 30 basis points, primarily driven by strong volume flow-through, manufacturing performance, and the benefits from our ongoing cost initiatives. These efforts helped offset the unfavorable impact of FX and commodities, a 130 basis point headwind to margin on a consolidated basis, largely driven by the impact of the Mexican peso and copper. Earnings per share totaled $2.17, an increase of 19%, reflecting the flow-through of higher operating income and the benefit of share repurchases and lower interest expense, partially offset by higher tax expense versus the prior year due to the timing of certain discrete items. Operating cash flow was also strong in the quarter, totaling $584 million, and capital expenditures were $143 million. Before we go into details on the quarter and our updated outlook for the year, I wanted to discuss the noncash goodwill impairment charge that we recorded in the third quarter and is excluded from our adjusted results. The impairment charge of $648 million for Wind River is the result of our regular impairment testing of our reporting units. The charge reflects slower than originally expected growth in the business over 2023 and 2024, owing to delays in 5G adoption and the launch of software-defined vehicles. That being said, this impairment does not change our expectation for the long-term structural growth and value that Wind River represents for our business overall as evidenced by solid double-digit growth year-to-date and our expectation to deliver mid-teens growth in 2025. Turning to the next slide and looking more closely at third quarter adjusted revenue growth on a regional basis. In North America, revenue grew 14%, driven by double-digit growth in AS & UX, primarily within active safety and Wind River, while EDS also grew double digits. In Europe, revenue was down 3%, driven largely by AS & UX, while both ECG and EDS grew low single digits. In China, revenue was flat, which reflected the impact of unfavorable customer mix in the AS & UX segment that we discussed last quarter, offset by strong growth in ECG. Moving on to our segment performance on Slide 11. And again, I'll refer to revenue growth on an adjusted basis. Starting with AS & UX, revenue of approximately $1.4 billion was in line with the prior year with strong growth in Wind River, up over 20% and strength in our North America business, which was offset by the roll-off of a legacy infotainment program and customer mix in China, headwinds we discussed last quarter. As a reminder, we expect these dynamics to continue through the end of this year before abating into next year. AS & UX adjusted operating income was down 16%, which reflected a $21 million headwind associated with the lapping of a customer settlement from a year ago, which I discussed last quarter. Excluding this item and unfavorable FX of 80 basis points, margin would have been essentially flat in the segment. For ECG, revenue of $1.7 billion increased 6% and was driven principally by growth in China, more specifically, nearly 30% growth with local OEMs and continued strong growth in the non-auto end markets. ECG adjusted operating income grew 10% and margin expanded by 20 basis points, driven by flow-through from stronger volumes, which was partially offset by a 120 basis point impact of unfavorable FX and commodities. Lastly, for our EDS business, revenue of $2.3 billion increased 11%. This was driven by growth across all regions, though principally North America, which benefited from an easier comparison as one of our major customers took substantial production downtime in the third quarter of last year in addition to benefiting from strong EV production ahead of the EV tax credit phaseout. EDS adjusted operating income grew by 54% with over 200 basis points of margin expansion. This was driven by favorable volume flow-through, performance in manufacturing, and timing of a $15 million customer recovery, all of which more than offset a 150 basis point impact of unfavorable FX and commodities. Now let's review our balance sheet on the next slide. We generated $584 million of operating cash flow in the third quarter with the increase versus the prior year, owing primarily to higher earnings and also lower net working capital. We ended the third quarter with over $1.6 billion of cash and $4.2 billion in total liquidity. This is net of nearly $250 million in proactive capital allocation in the quarter, including $96 million of share repurchases and $148 million of debt paydown. Since the beginning of the third quarter of last year, we have deployed approximately $3.2 billion in cash towards share repurchases, including our ASR program. Additionally, we have paid down roughly $1.2 billion of debt on an LTM basis, net of $700 million of refinanced euro notes. Given the strength of our operating model and our balance sheet, we expect to continue these efforts through the end of the year. With gross leverage now at 2.4x and net leverage at 1.8x, our net leverage is now consistent with the levels prior to our ASR program. Turning now to our guidance, which we are raising for the full year. Starting with our growth outlook on Slide 13. We now forecast active weighted global vehicle production to be approximately flat for full year 2025, equating to approximately 95 million units, and this is consistent with the industry's performance year-to-date. Relative to our prior 2025 outlook, this reflects stronger volumes in China and North America. Based on our vehicle production assumptions, we expect full year adjusted revenue growth at the midpoint of our guidance to be up 2% on a global basis, including North America up 5%, Europe down 3%, and China down 1%. For the fourth quarter specifically, we forecast active weighted global vehicle production to be down 3%. Within this production backdrop, we expect fourth quarter adjusted revenue growth in North America to be up 7%, driven by growth in AS & UX as a result of new product launches, continued growth at Wind River as well as growth in EDS. Europe down 4%, driven by low to mid-single-digit declines across all segments and China down 4%, reflecting customer mix in the AS & UX segment. Moving on to other components of our guidance. Our full year revenue outlook of $20.3 billion at the midpoint continues to reflect an adjusted growth rate of 2%. The higher midpoint is largely the result of FX, primarily the euro as well as stronger vehicle production, offset by recent supply chain disruptions and production adjustments at some of our OEM customers in North America and Europe. Adjusted EBITDA and operating income are expected to be approximately $3.22 billion and $2.45 billion at the midpoint, each up 4% versus the prior year. The higher midpoints largely reflect the stronger third quarter performance, offset by lower expectations for the fourth quarter, which I'll talk more about in a moment. Adjusted earnings per share is estimated to be in the range of $7.55 and $7.85, up 23% at the midpoint. This is $0.25 higher than our prior range, reflecting the higher operating income as well as the benefits of our capital allocation actions. Lastly, we continue to expect operating cash flow of approximately $2 billion and capital expenditures of roughly 4% of revenue. Our fourth quarter guidance implies a revenue growth of 1% on an adjusted basis at the midpoint. This is slightly below what was implied by our full year and third quarter guidance provided in July, which primarily reflects the impact of recent developments at certain customers and within the broader supply chain. Specifically, based on our current visibility into customer schedules, we estimate that recent known disruptions and production adjustments at a few of our OEMs in North America and Europe create a revenue headwind of approximately $80 million. Beyond this, our guidance has contemplated an element of conservatism related to amplified trade tensions impacting semiconductor supply chains. Our fourth quarter guidance implies an operating income margin of 11.8% at the midpoint. Relative to our prior guidance, the margin reflects the impact of the flow-through of the known customer disruptions I just mentioned, elevated copper prices, and the timing of certain customer settlements that were realized in the third quarter rather than the fourth. Lastly, we forecast fourth quarter adjusted EPS to be in the range of $1.60 to $1.90. As with prior updates, our current guidance reflects our exposure to tariffs based on trade policy as it currently stands and does not include the impact of tariffs that have not yet been implemented. As a reminder, our direct exposure to tariffs is minimal, in large part because of high compliance with USMCA and our low level of non-USMCA imports into the United States. In the limited areas where we have exposure and cannot change sourcing owing to the industry setup, we have largely been able to pass on the incremental costs. That said, with our resilient business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results. With that, I'd now like to hand the call back to Kevin for his closing remarks.

Thanks, Varun. 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.

Kevin, thanks so much for all the detail on the many headwinds on Q4. So if we could just break that down. I think you said $80 million known and then obviously, an added uncertainty because I think the NextEra is really just starting. I was wondering if we could call out Oswego as part of the $80 million because obviously, your North America was raised while it looked like your Europe brought down 2%. So it seems like it's focused on Europe. And so I just wanted to see if we can rank kind of where we saw the weakness. And then I'll follow up on the chip issue.

Thank you, Chris. The $80 million reflects some impact from the facility issue, specifically the fire in Oswego. Additionally, there are various unique customer-specific situations with OEMs affecting our outlook for production in Europe. We also consider a level of conservatism in our projections for both the European and North American markets due to supply chain challenges linked to current geopolitical tensions and trade issues.

Okay, that makes sense. We're likely to exceed $100 million in Q4, which presents a 2% headwind. Without going into customer details, could you share your insights on what's happening with NextEra? It appears to be more of a political issue now. While we can adapt over time, it seems necessary for the Dutch government and China to reach a near-term solution; otherwise, we might face significant challenges, especially considering that European chips comprise about 80%. How are you approaching this issue, as it seems it could escalate in the coming weeks?

You are correct in framing it as a political issue between the Dutch government and China. It's important to understand the parties involved. As for the situation, we can confirm that products are still flowing in China. Currently, we are not being affected and we do not expect production in China to be impacted. This is an area where the industry generally has alternative sources. There are companies like ours that have already validated solutions to manage risk. This seems to be a similar scenario across the supply chain. Some suppliers may be more advanced than others, but the industry has been considering this issue. It appears that the problem is more pronounced in Europe than in North America at this time. I can’t provide a solid explanation for this, but based on what we’re hearing, it seems some suppliers are feeling the impact more than others which affects OEMs. If there is a political resolution, it can be addressed quickly. If not, it will take longer to resolve, but it is doable. From our perspective, it's hard to predict exactly how things will play out, and that’s why we've included some caution in our outlook for Q4. We have about three months of inventory and are confident that there won’t be any impact on OEMs in the fourth quarter. Additionally, we have alternative solutions validated across most of our product portfolio that align with NextEra.

I want to follow along that conversation and maybe some of the impact to the margin guidance, specifically for the fourth quarter. I know there's a ton of moving parts here as Kevin and the team just sort of went through. But the midpoint of fourth quarter is 11.8%. Even the high end is 12.4%. You just did 12.5%. Now I know it sounds like that third quarter number, if you adjust for that recovery is maybe 20 bps, so it's a little bit lower. And then you're talking about some conservatism in the revenue for fourth quarter. But even that seems like it would only add like 10, 20 bps, if my math is correct. So I'm just wondering, is there anything else going on on the cost side or on the margin side in the fourth quarter? Because historically, there's been a bigger sequential improvement, if you will, given engineering recoveries, et cetera.

Joe, it's Varun Laroyia. Let me try and answer that one. Great question. So listen, I'd say kind of three key pieces to think about. One is just the flow-through on the weaker volumes that Kevin just referenced, right, that $80 million to $100 million of kind of lower revenue coming through. So the flow-through on that, as you rightly pointed out, the one customer recovery that I called out of about $15 million that we had anticipated in the fourth quarter, but that came in, in the third quarter. And then the final one I'd like to highlight is just the elevated copper prices. I'd say the first two items, so this is the flow-through on weaker volumes and the elevated copper prices. Those are marginally higher than the kind of 20-plus bps that you calculated from the recovery timing. So think of it from that perspective those are the kind of three key drivers in terms of kind of where we're guiding towards for fourth quarter margin rate.

Joe, I would say you have volume and timing related to customer recovery. Additionally, the year-over-year impact from foreign exchange and commodity prices is substantial. This is primarily influenced by the peso and copper. Based on our calculations, this impact exceeds 100 basis points year-over-year. This might be a factor to consider when assessing operating income and margin rate, as you may not have complete visibility into it.

Super helpful. Regarding copper, I want to clarify that it has a margin impact, but the dollar impact is less significant because it is passed through.

Well, there's some dollar impact. It's timing. It ends up being timing. You're right. You're typically right. But depending on how quick the movement is from a copper price standpoint, it can have more or less of an impact on the earnings number.

Okay. Maybe just bigger picture and maybe we'll hear more about this at the Analyst Day in a couple of weeks. But non-auto, you highlighted, grew 14%. I know smaller numbers, but you're starting to sort of show some of these other areas, the EDS energy storage. Any way to sort of contextualize how big an opportunity you think that is? And is there any opportunity in that, in let's say, an energy storage business for the ECG business out there?

Yes, the opportunity is significant, and we will discuss this in detail at the upcoming Investor Day for each of our businesses. The potential is substantial, particularly in sectors such as energy storage, robotics, and drones. We are focusing on areas within our business units where we have existing products and the ability to compete effectively. We may explore making additional investments in certain product areas to make the most of our current product offerings and market presence to grow in these sectors. The opportunity is considerable. Currently, our non-automotive revenues are nearing $3 billion, and during the last quarter, we experienced a mid-double-digit growth rate in this area, driven by our ECG, AS & UX, and EDS portfolios. While AS & UX growth has not been exceptional this year, our GAAP software revenue in that segment has surpassed $600 million, with growth exceeding 20%. We have bookings and plans to continue expanding in this area.

I wanted to drill down on some of the growth dynamics in the quarter because I think you had given us maybe some parameters early on, some of the customer issues that were going on in China, but on the flip side, there are some launch activity. So maybe you could just help us decompose within the 3Q regional results where we saw North America do really well, Europe underperformed, China underperformed. How much of that was the launch activity coming through versus maybe things like JLR or the Zeekr, NIO issues that are maybe more temporary. So maybe just help us decompose and the line of sight to just growth in aggregate being better and specifically in China.

I will start with a high-level overview, and then Varun can provide some regional numbers. Currently, we are experiencing minimal delays in program launches, with only a few cases, but no significant trend. Launch volumes are lower than expected, affecting our performance. In Europe and China, the main issues are linked to specific OEM volume challenges, particularly with a large German OEM impacting our AS & UX and EDS business, as well as a French global OEM that has reduced its production schedules for the European market. In China, our major setback this year resulted from the three program cancellations related to NIO and Zeekr in the second quarter. Additionally, there is a minor headwind affecting our growth rate when comparing our EDS mix to the overall market mix, although this segment is narrowing the gap. The impacts we face are primarily influenced by specific customer situations, which differ by region and customer.

Kevin, I want to provide some additional context regarding our guidance from July for the third quarter, specifically about North America production. Initially, we expected a decline of around 3%, but it turned out to be nearly 4 points higher than that. We definitely benefitted from the strong vehicle production that Kevin mentioned earlier. Sales growth was a major factor, with North America performing exceptionally well. EDS saw double-digit growth, and both AS and UX also experienced double-digit increases. This strong performance was a significant driver in the third quarter, leading to positive flow-through on operating income as a result of this sales growth.

Great. As a follow-up, I wanted to maybe follow up to Joe's prior question. And as far as the growth opportunity in some of these adjacent areas inorganically, and I'm sure you're going to double-click on this at your Investor Day in a couple of weeks. But just the rough M&A framework and specifically, how you look at the willingness to do deals when reality is maybe some of the assets you might be pursuing are going to be at multiples that are higher than where you are. What is the willingness to deals that maybe on the surface appear dilutive and what the framework is in approaching that?

That's a great question. Each situation is unique. We can analyze our multiple in relation to the multiples of some of those assets. Generally, to achieve meaningful diversification from a market and revenue perspective, M&A will play a crucial role. This means that the transactions must generate significant synergies, both in terms of costs and sometimes revenue. We will need to consider factors like size, potential synergies, ease of integration, and ultimately how this positions us for growth in markets beyond automotive. There isn't a single answer; it truly depends on each individual situation. We are dedicated to growth in other markets, and part of that involves M&A. We have a large pipeline of potential opportunities that we continuously assess, taking into account our multiple compared to other market multiples and the current dynamics at play.

Can you speak to how active safety growth performed in the quarter and just how you're thinking about the second half? I believe you guys referenced challenges, temporary challenges in China. So curious on the progress and the outlook there. Also for user experience, I thought the communication was that there's some stabilization on the near-term horizon. So curious what the assessment is there as well.

When we look at active safety growth for the quarter and the latter half of the year, we anticipate it will be in the low single digits compared to the high single digits in the first half of the year. This slowdown is specifically related to the three programs we mentioned, which have substantial active safety components. These two OEMs or programs are affecting the growth rates for the second half of the year. Over the past few years, we've secured solid bookings in active safety, with year-to-date bookings approaching $3 billion, and we expect to book more in the fourth quarter. We are also making progress in China, considering the unique characteristics of that market and the shorter timeframe from program awards to launches. Therefore, we believe there will be a strong return to growth in 2026.

Understood. And then I know this one is...

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-off, 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.

Understood...

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.

I would like to revisit the discussion on revenue growth possibly accelerating into 2026. Could you provide more details on the underlying assumptions for LVP, such as the mix and EV, as well as any considerations we should keep in mind regarding the expected OI margin for next year?

Those are a lot of specific questions about 2026 as we sit here in October and consider some of the market dynamics. At a high level, Itay, we currently view the market as likely flat or possibly slightly down. This perspective influences how we manage our cost structure and our investments, as we tend to be conservative concerning vehicle production. As Varun and the team are going through the planning process now, that's our baseline. Nevertheless, we have had a strong couple of years in bookings, and we are experiencing strong launch activity during 2024 and the first half of 2025, which will result in increased revenue. We've also managed to annualize the electrification challenges we faced last year and earlier this year, which we believe are largely behind us now. Additionally, we're seeing significant growth in China and solid growth in Europe, which should act as a tailwind. Demand for features like active safety continues to rise, and we are experiencing robust growth outside the automotive sector in adjacent markets that are increasing at double-digit rates. Taking all these factors into consideration, we believe the conditions are reasonably favorable, although we need to acknowledge the uncertainties surrounding geopolitics and potential changes in trade policies and tariffs that we cannot fully predict at this time. From a margin expansion perspective, we are always focused on our cost structure, and we believe that revenue growth will lead to margin expansion. I am not ready to delve into specifics today, but we will provide more information during our Investor Day regarding our plans for achieving this. Overall, despite the macro trends we've been contending with, the business has performed well, growing and increasing profitability year over year. If you look at our performance this year in light of foreign exchange headwinds, we expect to expand margins by approximately 120 basis points on an FX-adjusted basis, despite all the trade and other challenges we are facing. Our business model is well-established, and we feel optimistic about the momentum we are carrying as we move from 2025 into 2026.

Kevin, I want to add one more point regarding our ongoing growth in the non-auto sectors. This encompasses commercial vehicles as well as markets like aerospace and defense, IT, data, telecommunications, and other industrial areas. This segment is currently valued at over $3 billion and is quickly nearing $4 billion. Overall, these businesses are experiencing growth in the high single digits, approaching double digits. As we look ahead to 2026, we anticipate that this growth will align with our current trajectory and will continue to outpace the auto sector. Considering the products and services offered within these end markets, such as Wind River, we see a higher margin profile. I wanted to ensure that we provided a thorough response to you, Itay, regarding both our non-auto growth and our significant focus on non-auto markets.

Yes. That's incredibly helpful. As a super quick follow-up, I'm curious how you frame the opportunity within the Gen 8 radar products, if you think you might be able to gain share from other Tier 1s? Is it more of a CPV? Or there's an opportunity to displace ultrasonics for surround sensing?

So the Gen 8 radar, we're confident is industry-leading versus any of our competitors. 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 which 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 a significant amount of pull.

First, I was hoping to better understand the degree of conservatism assumed in guidance from Nexperia as well as broader trade tensions that you referred to for 4Q guidance. It looks like sequentially, 4Q revenue is guided down roughly $160 million. About half of that you said is from customer-specific downtime. So when I look at typical seasonality, it tends to be flat to up. So it would seem to imply there's maybe $80 million or a little bit more than $80 million from some of these trade factors that's conservatism. But if I'm misunderstanding, are there other ways to better frame that, it would be helpful.

Yes. 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. That's what's translated into our outlook for the fourth quarter. I think Varun 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 is so broad 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.

Understood, Kevin. And then my other question was just around bookings. Your guidance for the year of roughly $31 billion implies a meaningful pickup in the fourth quarter. Maybe if you could talk about what areas you're seeing the most momentum as you look into the fourth quarter bookings. You did say that potentially some awards may move into '26. Any context as to why that may be occurring?

Yes. I believe the changes are simply a matter of timing, mainly due to OEMs making their decisions. There is certainly some potential disruption related to trade policy that complicates decision-making. We have several large AS and UX awards scheduled for the fourth quarter, which are either finalized or in the process of being signed. Our discussions with OEMs are going well and progressing at this time. These discussions primarily focus on ADAS user experience and some SVA opportunities in North America, Europe, and China.

This is Winnie Dong, for Edison. I wanted to drill a little bit down on the China mix. How much was it as a headwind to your growth over market for the full year? Based on your bookings and what you might be seeing in the pipeline for next year, what might be expecting for China mix into 2026?

I'll start with your last question. I'm not sure we'll provide an exact dollar amount for the headwind for a couple of reasons. This year, 85% of our bookings are with local OEMs. Our focus with these local companies is primarily on the top 10, with additional attention on those involved in exports and manufacturing outside of the China market. For this year, the growth in that segment is approximately 84% year-over-year, showing very strong growth across our categories. I'm specifically talking about export revenues. Our goal in China is to support and work with successful companies profitably, helping them take their products to international markets where we can add significant value. I doubt we'll ever completely align the revenue mix with the production mix, considering there are 76 OEMs in China based on my latest count, and many of them aren't strategically ideal for us to work with.

Got it. And then my follow-up is on SVA specifically. I was wondering if you can give us maybe a latest update on the bookings you have in place and then just as you're engaging with your customers, how they are thinking about this particular solution. I think in the market right now, we're seeing maybe a mixture of in-house developments versus outsourcing. So just curious what you're seeing there.

Yes, 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 of years are in the range of $5-plus billion 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. 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 million to $200 million and growing at about a 10% sort of growth rate into the out years. I would say Varun in his comments talked about a bit of a pushout on the software-defined vehicle. Obviously, that's reflected in some of the SVA activity. It's not slowed at all in China. It's accelerated. Europe and North America 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 18 in New York City. Have a great day and a great rest of the week. Thanks.