Aptiv PLC (APTV) — Q1 2026 Earnings Call Transcript

Thank you, Cynthia. Good morning, and thanks for joining Aptiv's First Quarter 2026 Earnings Conference Call. The press release, slide presentation and updated New Aptiv pro forma financials can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items, and will address the continuing operations of Aptiv as of March 31. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'd like to turn the call over to Kevin.

Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide 3. The first quarter concluded with the successful completion of the separation of our Electrical Distribution Systems business into a new independent public company, Versigent, which you'll hear more about following their earnings release and conference call after the market closes later today. The step in our portfolio evolution better positions Aptiv to enhance our advanced software and hardware tech stack, further diversify our end market mix and accelerate our revenue and earnings growth. I'll start by covering our first quarter total Aptiv results. We continue to flawlessly execute for our customers in an increasingly dynamic environment, further amplified by the conflict in the Middle East, enabled by our operating rigor and the resilience of our business model. We secured $7 billion of new business awards while also delivering solid financial results, including revenue of over $5 billion, an increase of 1% versus the prior year despite a deterioration in underlying vehicle production. Adjusted EBITDA of over $750 million, driven by flow-through on volume growth and strong operating performance, which helped to offset significant year-over-year headwinds from FX and commodities. When combined with lower net interest expense and a lower share count resulted in record earnings per share of $1.71. Varun will review our financial results in more detail later. Turning to Slide 4. My remaining prepared remarks will be focused exclusively on New Aptiv, a leading provider of advanced software and optimized hardware solutions across multiple end markets that are being shaped by the acceleration of automation, electrification and digitalization. Our deep domain expertise and experience providing OEMs with our technology stack to enable their vehicles to sense, think, act and continually optimize increasingly can be utilized for applications in other end markets, which I'll talk more about in a moment. Competitively, we're well positioned with content on all market-leading platforms across automotive, commercial aerospace and telecom. And roughly 1/4 of our business is in markets outside of automotive, and we have several strategic priorities underway to further increase our penetration of those markets, and we maintain a diversified regional revenue mix and have significant momentum gaining share with the leading local China OEMs on vehicle platforms sold in China, as well as exported to or manufactured in overseas markets. In addition, we've made significant progress further penetrating the leading OEMs serving the markets in Japan, Korea and India. Turning to Slide 5 to spend a moment discussing New Aptiv's investment thesis. First, we've built a comprehensive portfolio that collectively powers intelligence at the Edge by enabling devices and systems to sense, think, act and continually optimize. Second, we deliver our unique product portfolio through a robust operating model that leverages our global engineering, supply chain, manufacturing and commercial capabilities, enabling us to provide high-performance, cost-optimized solutions backed by a resilient supply chain on a global scale, ensuring flawless execution in a dynamic environment. Third, our unique product portfolio and robust operating model are leveraged to create an attractive financial profile that includes more diversified, higher-margin revenues. And lastly, generates a significant amount of free cash flow that can be allocated both organically and inorganically to enhance the earnings power of our business while also returning capital to shareholders. We made solid progress across each of these pillars in the first quarter. Continued product innovation supporting new and emerging use cases across diverse end markets, including two that were showcased at last week's Beijing Auto Show, the advancement of our next-generation end-to-end AI-powered ADAS platform designed to deliver safer and more enhanced hands-free L2++ autonomy in both highway and urban environments. And in robotics, we partnered to enhance the functionality and performance of both an AI-powered collaborative robot and an autonomous mobile robot for material handling, each of which integrates our award-winning pulse sensor and advanced compute solutions. We successfully navigated ongoing geopolitical dynamics and the evolving macro environment by leveraging our resilient operating model to manage through changing vehicle production schedules and increasing headwinds associated with rising input costs, including resins and metals, enabling us to deliver strong operating performance in the quarter, more than offsetting ongoing headwinds while continuing to invest in key strategic initiatives. Our financial results reflected continued momentum advancing our strategic priorities, including high single-digit revenue growth in nonautomotive markets and double-digit revenue growth across our software and services product portfolio as well as margin expansion of 30 basis points, excluding FX and commodities, a measure more reflective of the results of our business given we passed the majority of input cost inflation on to our customers. And lastly, we worked diligently through the Versigent separation to position both companies for success with strong operating models, resilient supply chains and solid balance sheets. However, there's still more for us to do, and I'm confident that we'll continue to make progress further strengthening our value proposition and creating shareholder value. Moving to Slide 6. Customer awards were strong in the first quarter, totaling $4.6 billion, an increase of approximately 15% from the 2025 quarterly average, and included roughly $900 million of bookings with nonautomotive customers. Both business segments posted solid results with approximately $2.4 billion in awards for Intelligent Systems, and $2.2 billion for Engineered Components. I'll talk more about some of the key customer awards across each segment in a moment, but would also note that we have a large and growing pipeline of commercial opportunities and expect 2026 bookings of more than $20 billion. Let's now review each segment in more detail, starting with Intelligent Systems on Slide 7. Our tech stack, which first enabled intelligence at the edge for automotive applications is now gaining momentum for applications in other markets such as drones within aerospace and defense, and robotics within diversified industrials. During the quarter, there were a number of new program and product launches which included the launch of an intelligent interior camera that incorporates our entire software and hardware stack, enabling enhanced interior sensing functionality, including driver monitoring and driver view features for the flagship sedan vehicle platform of a luxury German OEM. And the launch of an integrated high-performance cockpit controller for the high-volume, mid-level variant of an Indian OEM's electric SUV lineup, which follows a successful launch last year of an entry-level model. We also secured several important new business bookings in the quarter, including an active safety award from a large North American OEM that integrates our full tech stack from sensors to compute to software, for incremental large truck and SUV platforms, underscoring the flexibility of our solutions and deep technology partnerships with several customers. And sensors and advanced compute awards for a leading China local OEM for their next-generation EV platform, which support production for both the China market and export volumes. We also secured several notable software and service awards, including VxWorks RTOS and a Helix virtualization software award for a leading defense prime, building upon an established long-term partnership with this customer. And the software tool chain award for a large North American OEM that will be used to build optimized deterministic software for mission-critical and safety-critical embedded systems. This award supports this OEM's software factory initiative to move towards cloud-based development and software-defined solutions. Lastly, our commercial momentum has also accelerated in the robotics and drone markets. In addition to our partnership with robust AI and autonomous robotics, this quarter, we secured another partnership agreement with Comau, a top 10 industrial robotics company. In addition, we've been executing sub-proofs of concept and pilots in both the robotics and drone markets, that we're confident will translate to commercial agreements, and we plan to share further progress on these efforts in the near future. Moving on to Slide 8 to cover Engineered Components. Notable new program launches during the quarter included a broad array of high-speed interconnect launches, including USB, Ethernet and other flexible and modular assemblies across more than two dozen nameplates and OEMs, ranging from North America to Europe to China, powering next-generation software-defined vehicle architectures. High-voltage electrical centers for two major local China OEMs, which will support production for both the China market and export volumes. Continued proof points of the progress we're making growing in the China market, specifically with the top 10 local OEMs that are growing both domestically and overseas. And terminals across numerous models within the portfolio and across regions for a North American-based global EV automaker. Moving on to new business awards. We secured a high-voltage connector award from a major Korean OEM that combines high performance at a competitive cost, supporting its next-generation multi-power train software-defined vehicle platform. High-speed interconnects and components from multiple aerospace and defense primes, including for lower orbit satellite and subsea applications, and a low-voltage connection system award for an integrated high-power energy storage solution from a North American-based global EV OEM that scales to support grid level performance and resilience. Collectively, these awards reflect the breadth of our solutions, meeting demanding performance and reliability requirements in automotive, which also translate across a range of other end markets. I'll now turn the call over to Varun to go through our financial results, and our full year and second quarter guidance in more detail.

Thanks, Kevin, and good morning, everyone. Starting with first quarter on Slide 9. Total Aptiv, including our EDS segment delivered solid financial results in the quarter, reflecting robust execution amidst a dynamic market backdrop, where we once again navigated industry-wide and OEM-specific production disruptions and macro-driven input cost inflation. Revenues of $5.1 billion grew at an adjusted rate of 1%, driven by strength at EDS, while New Aptiv absorbed certain customer mix headwinds, but importantly, progressed in diversifying revenues with 9% growth in nonautomotive, and 10% growth in software and services. Adjusted EBITDA was $752 million. EBITDA margin declined 90 basis points year-over-year, driven by FX and commodity headwinds of 180 basis points, well above the 120 basis points we had forecasted for the quarter. It should be noted that the year-over-year impact for New Aptiv was lower. Earnings per share was $1.71, an increase of $0.02 from the prior year, reflecting the benefit of lower interest expense and low share count, partially offset by a higher tax rate. Free cash flow for the quarter was negative $362 million, and this included approximately $260 million in transaction payments across New Aptiv and Versigent consistent with our guidance for the year. It should be noted that we anticipate approximately $100 million in separation costs for New Aptiv in Q2. However, we will recoup approximately $80 million of transaction payments which were tax-related later in the year. Turning to the next slide and looking at first quarter adjusted revenue growth on a regional basis for both Total Aptiv and New Aptiv. For Total Aptiv, revenue growth of 1% on an adjusted basis was driven by growth in North America and Asia Pacific, which was partially offset by a decline in Europe. New Aptiv, as I mentioned earlier, faced some customer mix headwinds in the quarter, most of which are temporary, while generating strong results in strategically important areas. Looking at revenue growth by region for New Aptiv. In North America, revenue grew 7%, driven by double-digit growth in Intelligent Systems and strength in nonautomotive markets. In Europe, revenue was down 5%, largely reflecting unfavorable customer mix, specifically with one of our largest customers in Intelligent Systems due in part to a slower-than-expected ramp-up of next-gen programs. In Asia Pacific, revenue was down 5%, essentially in line with vehicle production, reflecting continued improvement in our business mix in China with local OEMs and growth with ex-China Asian OEMs. Moving on to our results on a segment level on Slide 11 and starting with Intelligent Systems. Revenue of $1.4 billion decreased 1% versus the prior year, which reflects two discrete factors. As we have discussed previously, the cancellation of certain programs from local China OEMs in 2025, which will anniversary midyear, and a greater-than-anticipated headwind from lower production at one of our largest North American customers owing to supply chain constraints following its supplier fire. Although this should be partially recovered in the second half of the year. Cumulatively, these two factors amounted to approximately 250 basis points of headwinds to Intelligent Systems revenue growth in the quarter. And these were largely offset by strength in other areas, including double-digit growth in software and services. Intelligent Systems adjusted EBITDA margin declined 90 basis points primarily owing to a 60 basis point headwind related to FX and commodities, as well as incremental investments across product engineering and go-to-market to continue diversifying towards nonautomotive markets. These were partially offset by performance improvements. Moving to Engineered Components. Revenue of $1.7 billion was flat on an adjusted basis. This reflects 6% growth in nonautomotive, including double-digit growth in diversified industrials markets, offset by a 2% decline in automotive, which reflects some customer mix headwinds in China attributable to broad-based production volume declines there, including with the largest local OEM. Engineered Components adjusted EBITDA margin declined 90 basis points which was entirely the function of a 140 basis point headwind related to commodities and FX. Excluding this impact, margin expansion was driven by performance initiatives. And lastly, I'll briefly comment on our EDS business, which will move to discontinued operations starting in Q2. Revenue of $2.2 billion increased 3% on an adjusted basis driven by strength in Asia Pacific, both in China via export volumes and in APAC ex China countries. And favorable customer mix in North America, which offset broader production clients globally. EDS adjusted EBITDA margin declined 70 basis points versus the prior year, and this reflects a 260 basis point headwind related to FX and commodities which was largely offset by the timing of certain recoveries and flow-through on volume growth. Moving to Slide 12 to discuss our balance sheet before I discuss guidance. We ended the quarter with $3.2 billion of cash. This was temporarily inflated as it included $2.1 billion of gross debt raised by our EDS subsidiaries, which was assumed by Versigent on April 1st. In conjunction with the spin-off, year-to-date Aptiv has paid down $2.1 billion of debt, including $300 million in the first quarter, and $1.8 billion in early April. This was funded by a $1.65 billion dividend on a net basis from Versigent upon the spin-off, and $400 million from cash on hand. Pro forma for the spin-off mechanics, New Aptiv gross leverage for the first quarter was 2.3x, and net leverage 1.9x, both of which are consistent with our leverage levels prior to the ASR program that was launched in Q3 of 2024. We also deployed $75 million towards share repurchases in the quarter and plan to remain active on this front through the remainder of the year. Looking forward, we remain committed to a balanced approach to capital allocation, focusing on bolt-on acquisitions and investments, as well as continued return of excess cash to shareholders. Moving on to our 2026 financial guidance on the following slide. We are maintaining our full year 2026 financial guidance which is presented on a pro forma basis to exclude our EDS segment in the first quarter. We continue to expect adjusted revenue growth of 4% at the midpoint. And this implies an acceleration through the course of the year which is driven by the following factors, first half to second half. First, approximately 100 basis points from an improvement in vehicle production. Second, approximately 150 basis points from the abatement of certain headwinds mentioned earlier, which are specific to our business, and include the production impact at one of our customers related to a supplier fire in North America, and select program cancellations in China in 2025. And third, approximately 300 basis points from the anticipated timing of program launches and ramps. We continue to expect adjusted EBITDA and EBITDA margin of $2.4 billion and 18.6% at the midpoint. I would call out that we are starting to see incremental inflationary pressures on materials as a result of the conflict in the Middle East. And relative to our prior guidance, we now anticipate higher input costs, primarily in commodities, some of which had occurred in the first quarter. However, as in the first quarter and through last year, we expect to continue offsetting these macro headwinds through performance initiatives and where appropriate, customer pass-throughs. We continue to expect adjusted earnings per share in a range of $5.70 to $6.10, which assumes an effective tax rate of 18.5%, and does not incorporate any meaningful incremental benefit from share repurchases. Free cash flow is expected to be $750 million at the midpoint which is inclusive of transaction costs associated with the EDS separation, the majority of which are being incurred in the first half, as well as continued investments in supply chain resiliency for semiconductors. For the second quarter specifically, we expect adjusted revenue growth of 2% at the midpoint. Adjusted EBITDA and EBITDA margin of $580 million and 17.6% at the midpoint. And lastly, we expect earnings per share of $1.40 at the midpoint. Just as a reminder for everyone, on day 1 of the EDS separation, New Aptiv is burdened by $70 million in annualized stranded costs, which we are working to completely eliminate from our cost structure by the end of 2027. And finally, outflows by reiterating that our robust business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results, as well as enhanced shareholder value. With that, I will turn the call back to Kevin for his closing remarks.

Thanks, Varun. Before I wrap up on Slide 14, let me provide some additional context on our outlook. We continue to see significant long-term opportunity for our portfolio of products and solutions, while in the shorter term, we do see challenges that our industry will have to contend with. As Varun alluded to, the macroeconomic environment remains very dynamic at present and is reflected in our first quarter results and full year guide, we're experiencing a meaningful increase in input costs, broadly related to the ongoing conflict in the Middle East. However, as evidenced by 2025, we have a resilient business model with an ability to mitigate and offset these pressures through performance initiatives and through commercial recoveries. That being said, should the current situation persist, it could amplify these pressures from a macroeconomic perspective, which are difficult to precisely forecast at this point. And this uncertainty could present a challenge to the value chain across the markets we serve, which is a risk, but it's also an opportunity for Aptiv to demonstrate our value proposition to our customers, providing high-performance, cost-optimized market-relevant system solutions at global scale and with industry-leading service levels. Now to wrap up, after reporting our final quarter as Total Aptiv, we're positioned to benefit from the sharper focus resulting from the completion of our strategic portfolio evolution. For the New Aptiv, we're now better positioned to accelerate our product development and enhance go-to-market activities to further penetrate multiple high-growth end markets. The high-quality opportunities we're actively engaged in is growing, and our momentum is accelerating. I'm confident these opportunities will result in incremental customer awards and strong financial results, and we'll continue to remain relentlessly focused on delivering value for our shareholders. Operator, let's now open the line for questions.

Any color? You mentioned some of the puts and takes, but sales and margin guidance at the midpoint are different, and we know FX and commodities are different. Any puts and takes on FX? Is it now a bit more of a tailwind? Are commodities now a bigger part of your sales, and is production down? Any color on the recomposition of guidance given the many changes this quarter?

Yes, it's Kevin, Colin. That's a great question, and thanks for asking it. I think I'll start at a high level, and then Varun will walk you through the pieces. We're in a dynamic environment. I wouldn't say that. You made a comment or asked the question: is FX, or FX and commodities, a bigger item for Aptiv, the New Aptiv? From a commodity standpoint, it certainly isn't. If you follow the markets, we've had tremendous spikes in commodity prices over the last few months. We use materials like copper, silver, and to some extent gold that affect our products, and we are impacted by those changes in commodity prices. Clearly, what is going on in the Middle East in terms of oil prices impacts resins, so those input costs and the spikes in them significantly affected us in the first quarter, and we believe they will continue to do so for the foreseeable future. Relative to our traditional business before the spin, I would say those exposures are actually smaller from an overall buy and exposure standpoint. Varun, do you want to walk through?

Yes. I'm just going to paraphrase some of the stuff that Kevin just mentioned. But Colin, first of all, from a commodities perspective, copper, gold, silver, oil-based products such as resin, as Kevin mentioned, yes, we are seeing inflationary pressures. Those are up versus our guidance from 3 months ago. So that is one aspect, which is kind of weighing on overall updated guidance. Overall, FX remained positive for us on a year-over-year basis. So I just want to share that with you. And then I think your final point was underlying vehicle production assumptions. Yes. So from our perspective, first half to second half, we see activated vehicle production down 2% in the first half and down 1% in the second half of the year. So we do expect to see an improvement in underlying vehicle production first half to second half.

Now does that imply went for the year-end production. Is that in line with S&P of down 2?

Yes. It's roughly in line with S&P.

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

Yes, I'd say a couple of items. As you know, the mix of our business from the first half to the second half typically results in higher margins or higher flow-through because of engineering recoveries and similar items. There may be a small amount of commercial recovery that is back-half loaded, but I think that's fairly balanced, Colin, for the full calendar year. The margin profile of the business, excluding our traditional EDS business, is higher, so the flow-through on volume growth, given where our gross margins are now, should actually be higher. I don't have the numbers right in front of me, but I don't think there's anything unique about second-half profitability versus the first half other than things like engineering recoveries.

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

I'm sorry, can you repeat the second half of your question? I didn't understand.

Yes. Just on the margins, as we look at New Aptiv, so last year, the first half, second half split in profitability like just the margin was pretty balanced. First half, second half, and then this year's guidance has a more significant second half step-up on the margin front?

Okay. I'll let Varun walk through that. As it relates to ADAS growth, listen, as we see reflected in our disclosures in our presentation, we're starting to see conversions between different domains, so when you think about things like in-cabin sensing, is that an ADAS product, or user experience product, when you see domain consolidation and some element of use of fusion chips where the ADAS controller or the user experience controller are consolidating. It's going to continue to get fuzzier and fuzzier. So that's why we're trying to give more clear visibility and transparency to investors as you think about sensors and compute software and services breakdown. ADAS in Q1 was basically flat, though. Having said that, that's principally driven because of that large North American OEM that had significant supply disruption given the fire at their aluminum supplier. As we look at the back half of the year, we see a significant ramp-up related to that particular customer and ADAS growth. So we'd expect ADAS to be in line with kind of the mid-single-digit growth rate. With respect to user experience, it's consistent with what we've talked about in the past as we introduce new programs that get launched principally in China today. That's an area where we'll see second half more significant growth. It was impacted to some extent in the first quarter just given small delays in launches in China as well as some soft production with a European OEM in the mid-level sector. Varun, do you want to talk about...

I will. Yes, yes. James, a good question, and thanks for raising it. The question was specifically about first half versus second half profitability. I would highlight three items. First, as Kevin mentioned, there is a second-half true-up associated with engineering credits in the third and fourth quarters, which we've seen in prior years. Second, commodity recoveries: there is a timing lag, typically 3 to 4 months, for higher commodity prices to flow through, and we expect those recoveries to come through in the second half. Third, our software and services business grew double digits in Q1, and that industry tends to be more seasonal toward the second half, so the margin profile of that product line also contributes to stronger second-half profitability relative to the first half.

Right. No, that's very helpful. I appreciate all that color. And then I will host this conference call later today. But just on EDS, if you're willing to discuss this business at a high level, a competitor recently announced a major wiring award. I would just be interested in, again, any color on that competitor program announcement and any perspective on the broader bookings backdrop as it pertains to wiring systems?

Sure. Thanks for asking this question. I typically wouldn't comment on an individual OEM program award. And I certainly wouldn't speculate on the relationship between another supplier and an OEM customer. I find it inappropriate and want to be very transparent. However, given the nature of the comments made and the inaccurate message that's in the marketplace, I think I have to comment on this particular matter, and in line with standards that should be upheld by our industry. My comments, I want to make sure everyone understands, have been approved by General Motors leadership. I think that's important for you to know. I'll confirm GM did award a very small portion of the wire harness content on the T1 program to another supplier. This portion represents a simpler portion of the harness. It's a build-to-print portion of the harness. GM actually refers to it as the simple harnesses. We remain the supplier for the most complex portion of the programs where harness content firmly aligned with where our core strengths are. This is where most of the actual wire harness content is. The bulk of our EDS business is more complex full-service wire harnesses where we design, we develop, we assemble the harness to bring more value to the OEM. And this is a business we've been strategically focused on. I think, as all you know. And this is, quite frankly, the area where it's the highest margin, and it's growing the fastest. And it's least exposed to changes in vehicle architecture and the transition to things like zonal controllers. Build-to-print is a much smaller portion of the EDS segment. That's, I don't know, 20% of total revenues, maybe 25% of total revenues, much less complex. It's much lower margin. And for that reason, it's not a strategic area of focus for us. Now having said that, we want all of an OEM's wire harness business. And General Motors is a very, very important customer to us, and this is an important program. Regarding comments related to our relationship with GM, which for me is the most disturbing, in fact, remains very healthy. And given the comments made, I've personally reconfirmed with GM leadership and I can share with you some comments that were made by GM leadership. There have been zero service level issues. That is never a problem with EDS. EDS is the gold standard for wire harnesses and EDS is our strategic wire harness supplier. And there'll be incremental full-service wire harness opportunities for the EDS business with GM in the future. So I hope these comments put these rumors and factually incorrect comments to bed. The EDS business is the leader in the wire harness space. It's a great business. And I'm sure Joe and the team will make some comments during the earnings call early evening.

Thanks so much, team. Kevin, on the call, I thought you sounded the most positive about some of these, sort of, additional areas of growing the active TAM that you've been in a long time. And I think a lot of times, we always discuss, sort of, M&A bolt-on opportunities in industrial. But just looking at the Engineered Components highlights on Slide 8. I mean, the awards now are in naval, space, energy storage. And so my question here is on some of the exciting opportunities that the world is all seeing in AI and data centers, and that some of your competitors have strong business opportunity in. Could you just talk about what would have to happen organically for you to start to invest? Automotive is one of the harshest environments. Could you get into those businesses over the next year or 2 from an organic greenfield, brownfield perspective because it seems like a pretty big TAM opportunity?

No, Chris, it's a great question, and I should start by saying it's a great question. It's a great opportunity. The team is making significant progress, quite frankly, across each of our businesses. As it relates specifically to the Engineered Components business, we've been very active over the last 1.5 to 2 years leveraging what we have in our Winchester product portfolio, which is principally targeted at nonautomotive businesses with a very strong position in areas like aerospace and defense and diversified industrials. We've been developing solutions from that product portfolio combined with our traditional interconnect solutions and bringing those to nonautomotive customers more as systems, so we've made a lot of progress. That's an area we have been investing in, both from a product standpoint as well as from a go-to-market standpoint. We've been leveraging our customer relationships in the U.S. as well as in China, where there are strong OEM relationships that span across industries, using our capabilities and those relationships from automotive to take solutions into aerospace and into data centers. We have a very focused initiative around building out our data center product portfolio and certainly our space product portfolio, so there's been a great deal of focus and we're gaining real traction. To meaningfully move it, as we've talked about in the past, really requires M&A. We have a long funnel of bolt-on M&A opportunities that the team is executing on that we hope to close during the 2026 calendar year. To wrap up, we're very excited and feel well positioned to pursue these opportunities, and we're also excited about our opportunities within automotive and the trends headed there. Near-term, we're wrestling with a few customer mix and industry mix issues that we think will improve as we move through the year.

That's great, Kevin. So, I mean, to paraphrase some of the small bolt-on acquisitions could go a long way to some of the internal initiatives that you've been working for. But with some of these bolt-on acquisitions comes to sales force and these relationships that then you may have a lot, so 1 plus 1 equal 3.

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

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

Yes. That's one that is being done very organically now. So that's a focused effort with a focused product portfolio with a focused sales team. So there are a significant number of business awards we received. They tend to be smaller relative to large OEM program awards. But we're gaining a significant amount of traction across multiple OEMs. So that is certainly a tailwind. Listen, as it relates to AI, and this is true in the interconnect portfolio, as well as in our software and services portfolio. As AI accelerates, it provides a structural tailwind for both of our businesses, whether that be some of the products that we have in Intelligent Systems, or in Engineered Components, as more and more is driven to the edge, AI driven to the Edge needs high-speed interconnects, high-speed cable assemblies. We need RTOS solutions, or Linux solutions to enable performance at the Edge, and those are areas that in automotive, we've been enabling for a very long period of time. And that's an area that we're confident we'll continue to get more traction.

First question is, Varun, you mentioned some margin drivers that add up to about 550 basis points half-over-half, and I appreciate that. But your guidance is about 180 basis points half-over-half. I want to understand if we could talk through some of the offsets and what exactly is baked in. Is some of that due to commodities and higher input costs, and is that what is pulling the margin back down? Or could you complete that bridge?

Yes. Joe, it's Varun. It's a great question. Yes, you're right. I think in terms of the half-over-half walk on revenue, the 100 basis points, as I mentioned, is improvement in the underlying vehicle production half-versus-half. About 150 basis points specific to us with regards to the production impact at one of our customers related to supply fire in North America and then obviously select program cancellations in China in 2025, that will anniversary midyear. And the final one to mention was just the 300 basis points of anticipated timing of program launches and ramps. So that's the 550 basis points that you mentioned. With regards to the commodity side of things, yes, as I mentioned previously, we are seeing incremental inflationary pressures on input costs over the last 90 days since we initially gave guidance for pro forma New Aptiv to now, there is an uptick of about 60 basis points on the commodities and FX side of it. As I mentioned, basically, it's commodities. FX remains a net positive on a year-over-year basis. And it's the same things with regards to based on where copper is trading. And while overall exposure levels to copper, pre-spin to post-spin are markedly down. We still have some of those. Some of those are contractual pass-throughs. The remainder of it is commercial negotiations. But then also, we have exposure to gold and silver. And if you see where those have been trading, on a year-over-year basis, that's the other aspect of it. And then finally, our Connection Systems business as part of the Engineered Components portfolio, does have a significant level of resin purchases. Clearly, a key input cost into resin is oil. But that's the other aspect that we've seen come through, that we expect to kind of ramp up. So yes. And again...

I may have misunderstood. So that what happened was the top line and then we should think about the flow-through on that top line, and then some of the commodity inputs is sort of the offset to when we think about the margins? Sorry.

Yes, yes. That's right.

Okay. Okay. And then Kevin, just maybe to follow up of your last conversation with Chris. The nonauto awards in Engineered Components and space, energy storage naval $500 million. I think we're all familiar with auto lead times, but maybe you could give us a sense for these businesses, like how quick do some of these business comes on? What's the sales process like? And when you kind of convert to revenue? And maybe the same thing for Intelligent Systems, if you don't mind?

Yes. It's a good question. So the sales cadence, it's in both segments, the sales organization is a separate distinct sales organization. So we have separate teams and separate product teams. So commercial teams, as well as product teams that support the go-to-market. The programs tend to, between award and actual revenue can range as short as a few months to as long as under a year. So call it, 9 months in those sort of typical areas, so much shorter from a long lead standpoint than what we have in our traditional business, automotive or in commercial vehicle.

The company spoke already about the pickup in growth from the roughly flat year-over-year organic in 1Q to the 4% outlook for the full year for New Aptiv. A couple of those drivers you spoke about were timing. We get 2 new product launches and an assumption that auto production is more stable in 2H. I'm hoping you could share more on whether there's any conservatism in those assumptions relative to customer schedules given that new launches can sometimes be delayed, and the potential or macro headwinds to weigh on demand?

Yes. There is an element of conservatism we always place in our outlook. So we will always incorporate some element of what we refer to is hedged. And we rely upon both third-party sources as well, as our customer EDIs or schedules. There are some areas like China where schedules are a bit more fluid and changes can happen more quickly. That's less the case in places like Europe and North America. I think as Varun talked about, our outlook right now based on what we're seeing from a schedule standpoint, and then triangulating with IHS with some amount of overlay is the 100 basis point improvement first half to second half from a vehicle production standpoint. There are some specific customer headwinds that we're aware of. I mentioned the North American OEM, who we were impacted more than we originally forecasted in Q1 given a further reduction in their schedules as it relates to addressing the issues with their supplier. We pick up a benefit in the back half of the year as things get addressed and they come online. And then we talked about we've been talking about since last year, the 3 China program cancellations that impacted us in the ADAS area, in the user experience area, we can size those, those annualized at the end of the second quarter. Those two together are worth roughly 150 basis points. And then there's roughly 300 basis points of program launches first half to second half from a growth standpoint. That's the area where we tend to overlay the most conservatism because things can shift. Some of that is in China. We did see some small delays as it related to Q1, but we're starting to see those programs launch now. That's what gives us confidence in the back half of this year and the revenue ramp first half to second half.

Very helpful details and color, Kevin. And my other question was another one around the commodity and inflationary environment. Could you be a little bit more specific around to what extent Aptiv has seen incremental headwinds tied to inflation in 2Q that you haven't been able to offset yet? And then for your full year outlook, you spoke about getting recoveries, but you also mentioned that can come through on a lag. So I was a little unclear. Do you assume that you're able to recapture all of the recent inflation in your full year outlook? Or does some spill out into next year?

As it relates to the prior guide versus this guide, there are roughly 50 basis points of FX and commodity impacts that have come into our results. The main drivers are resin and commodity prices such as copper and aluminum. We expect to fully offset most of that, largely through operational performance initiatives we have underway that reduce the overall impact of higher commodity costs. Some portion will be passed through to customers. We are not relying solely on customer recoveries to achieve our full-year outlook. We are confident we can manage most of it internally, while pursuing recoveries from customers in more challenging areas. Looking at our past recovery track record, we've collected 95% to 100% of what we pursued with our OEM customers because we execute recoveries operationally and perform well. We also present customers with additional cost-reduction opportunities to support the recoveries we request.

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

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

Terrific. And a quick follow-up. I think earlier you mentioned, of course, supply chain risks due to the Middle East but also potential opportunities that can come out of that. Hoping you can comment a bit more on that. For example, could you end up seeing or leveraging our supply chain capabilities with OEMs to win more business going forward? Just curious about that comment.

Yes. Listen, we are today, Itay. I would say, over the last 2 years, the job the team has done from a supply chain management standpoint, both from a service level standpoint as well as from a visibility and transparency has created a lot of goodwill and there are a number of OEMs that we're partnering with now in terms of regular supply updates. I mean, we're now at a point where we're informing OEMs of where their particular pinch points are. As we look at areas like memory, and other areas where there's concern about inflation, availability or constraints, those are areas that we've been focused on for the last couple of years. So we've been bringing them alternatives as it relates to a parts standpoint. It's also presented us with opportunities to bring to them solutions that include more Aptiv content, displacing some of their traditional suppliers. And they're all very focused on it and listening. When we're able to say we're confident in memory supply for '26 and also '27, given the relationships and agreements we have with our suppliers, and we have actually multiple alternatives that we validated, that's very differentiating with our customers. So it positions us extremely well. And when we take that supply chain capability outside of automotive, to some of the areas like robotics, like drones, that is one of the big selling points we have in terms of supply chain visibility, knowing source down to multiple levels being able to provide multiple solutions depending upon where the application takes place, or is actually used. That's been one of the big areas that's been differentiating, for example, for us in their own space.

I was hoping to ask if you could just put this year's revenue growth in the context of the longer-term targets. And so you're expecting some level of acceleration over the next couple of years for the targets. This year will be around 4%. Can you just remind us holistically, what are some of the drivers of revenue acceleration as we move past this year and towards the next couple of years of the plan?

Yes. Thanks, Emmanuel. That's a great question and I appreciate you asking it. It's a mix of two things. One, it's improved customer mix. So in our prepared comments Varun and I were talking about progress we're making with the China local OEMs focused on the top 10 OEMs for the China market. One of the fastest-growing areas for us is on export platforms, as well as with several local OEMs now. We're very much focused on supporting their initiatives to manufacture overseas. So we're supporting several of them in terms of evaluation and with some of them in terms of actual programs. We're working with European OEMs as well as Chinese OEMs as it relates to China assembly for European products. So we've been very engaged there. So that's an area where we expect to see a pickup. As it relates to APAC non-China, that's been a particular focus area. And as we've talked about in the past, that's one of the fastest areas of bookings growth for us, so that's Japan, Korea, and India. So we're seeing a benefit from that. And then lastly, when you look at the nonautomotive space, we're growing very strong nonautomotive growth, which based on bookings and potential bookings we have in front of us. We're very, very confident. And then when you look at the software space, both in automotive as well as outside of automotive, that's an area where bookings are strong, and we're seeing solid and strong revenue growth that will drive us to the midpoint or higher in that 4% to 7% growth range.

That's very helpful. And then I guess I was hoping to follow up on China. So in the quarter, the New Aptiv China revenue was down 14%. You've mentioned some of the factors, including still the ongoing impact from cancellation of programs. What is sort of like your estimate of when you believe China would, sort of, like become more neutral and then eventually positive to your growth?

Yes, great question. So actually positive growth you'll see in Q2, and that's a result of a couple of things, the launch of new programs, and we see the benefit from that. Two, in Q1, we were affected principally in our Engineered Components business by our exposure to the top OEM in China in their vehicle production reductions. So I would say disproportionately given their year-over-year comp, that normalizes in Q2, and it's not as big of a headwind. And then lastly, as you get in the back half of the year, we talked about those 3 programs that were canceled in the second quarter of last year from a comparison standpoint. We won't have to be dealing with that. So we're expecting very strong growth in China for the calendar year 2026.

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