Aptiv PLC 2026 Q2 Earnings Call

Please go ahead. Thank you, Shelley.

Good morning, thank you for joining Aptiv's second quarter 2026 earnings conference call. The press release and slide presentation 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, reflect the continuing operations of Aptiv as of June 30th, reflecting the treatment of our EDS segment as a discontinued operation for the second quarter 2025. 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 a pro forma 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 are Kevin Clark, Chair and Chief Executive Officer, Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to Kevin.

Thank you, Betsy, thanks, everyone, for joining us this morning. Starting on slide three, during the second quarter, we generated 2% revenue growth and 10 basis points of EBITDA margin expansion. We continued to demonstrate progress diversifying our business, evidenced by double-digit non-auto revenue growth in the quarter and new business awards in attractive high-growth markets that present expansion opportunities for Aptiv. While we're increasingly optimistic about the long-term opportunities presented in these areas, in the near term, we continue to contend with challenges in our traditional automotive market, which are leading us to lower our 2026 guidance, including prolonged sales weakness in the domestic China market, which is causing local OEMs to reduce second half production on vehicle platforms for the domestic market, also leading to a further reduction in schedules from luxury European OEMs for vehicles exported to the China market.

Varun is going to walk you through how these dynamics and other factors are impacting our guidance for the remainder of the year and what specifically has changed since we last spoke to you. I'll spend a bit more time discussing the actions we're taking, including how we're working to evolve our business mix in and outside of the automotive market to mitigate the challenges we're experiencing today. Now that the separation of EDS is complete, we'll continue to evaluate additional opportunities to maximize value for shareholders over the long term. Let's begin by reviewing our second quarter progress against our strategic priorities. During the second quarter, we continued the momentum we'd established, leveraging our product portfolio and operating capabilities across diverse end markets, including product innovations, where we secured our first Gen 8 Radar award, an important component of our ADAS platform.

Penetration into new end markets, where the products we've developed for automotive have applications in other markets, reflected in the award from Robust.AI, which I'll talk more about later. An expansion of our software partnership ecosystem with leading-edge AI players, including most recently with NVIDIA. This list represents a small portion of the $5 billion of new business awards during the second quarter, bringing our year-to-date total to $10 billion, putting us on track for our $20 billion full-year target. We also continue to increase the resiliency of our business model by leveraging our digital twin and end-tier tracking capabilities to provide our automotive and adjacent market customers with a step change in supply chain visibility. Reaching long-term supply agreements is part of our supply chain resiliency efforts.

These are both great examples of the actions we've taken to enhance the robustness of our operating model that are enabling us to keep our customers connected in this dynamic environment. It is one of the reasons we were recently recognized as Supplier of the Year by Ford in the supply chain category. On capital allocation, we repurchased $250 million of our shares in the second quarter, bringing our year-to-date total to $325 million, with an intention to repurchase a similar amount in the second half of the year and bring the full-year total to over $600 million. Over the next few years, we're committed to returning approximately half of our free cash flow to shareholders through share repurchases while simultaneously pursuing smaller bolt-on M&A transactions to diversify the business and better position us for the long term.

Turning to review our business segments through the lens of the automotive and non-automotive end markets we serve. Starting with the automotive market highlights during the quarter. We made some meaningful progress expanding our business with leading OEMs in Asia Pacific and driving growth in new business bookings across next-generation technology areas, including our full-stack Gen 6 ADAS system and in-cabin solutions like driver and cabin monitoring. Notable program launches in the quarter included within the Intelligent Systems segment, a full tech stack ADAS award across additional vehicle lines of a large European OEM, demonstrating the flexibility and scalability of our solutions and continued strength of our technology partnership. The launch of our next generation digital cockpit for a luxury European OEM, incorporating software-enabled functionality via over-the-air updates and lifecycle management capabilities.

Within the Engineered Components segment, the integration of our high-voltage interconnects on a European OEM's next-gen high-powered 800-volt architecture program. We also continue to innovate across our product portfolio, evidenced by the introduction of our advanced occupancy classification system, which is the industry's first occupant detection system that utilizes AI ML-based computer vision software and is powered entirely by an in-cabin camera, streamlining vehicle systems architecture as well as lowering cost. We also secured several important new business awards in the quarter. Within Intelligent Systems, these include a Gen 8 Radar award by Volvo Cars for its next-gen software-defined vehicle platform, where we will enable robust perception across increasingly complex environments and driving scenarios. As well as an award from a large North American OEM's next-generation software-defined vehicle architecture, a critical milestone in the transition to more centralized vehicle architectures.

Within Engineered Components, these include high-voltage bus bars across the North America and China markets for battery pack and charging applications, demonstrating continued penetration of both existing and new OEM customers on their next-generation EV platforms. The continued expansion of our business with the leading China local OEMs across our key product lines, including high-speed cable assemblies and high-voltage inlets across platforms for both the domestic and the overseas markets. Moving to slide six to discuss our progress in non-automotive markets, which reflects the applicability of our technologies across a diverse set of end markets, and the strong operating execution by our team. Starting with program launches during the quarter. In Engineered Components, we launched a new program providing high-performance interconnects for a utility-scale energy storage provider that leverages the same technology we're already delivering in automotive.

In Intelligent Systems, we launched our integrated cockpit controller for one of the industry-leading commercial vehicle OEMs. In terms of product development in the second quarter, this included expanding our high-performance interconnect product lines for complex aerospace and defense platforms, where space-efficient, high-density solutions are critical for customers. Collaborating on an optimized power solutions for 800-volt DC architectures with a leading developer of power electronics for next-generation infrastructures, including data centers, a market where we experience strong commercial momentum and see very meaningful growth opportunities over the next few years that will further accelerate with the transition to 800-volt architectures. Lastly, achieving a key software milestone in cybersecurity rating for our enterprise Linux operating system, which will expand our potential opportunities in the government and the defense markets.

A few notable business awards in the second quarter included Robust.AI selection of our intelligent perception solutions and compute, including AI and ML-based sensor fusion powered by our innovative PULSE Sensor for its Gen 3 Carter Cobot, which I'll talk more about on the next slide. In Engineered Components, an award for our high-performance cable management and protection solutions for large-scale solar energy and battery storage projects in the U.S. market. Lastly, we continue to expand our commercial presence in non-auto markets through our partnership ecosystem. First with NVIDIA, where we extended our partnership to provide Aptiv's production-grade software to edge AI customers using NVIDIA Compute. Second with Kyndryl, which is an important extension of our enterprise partner ecosystem, where Kyndryl will deploy our Wind River software as part of its mission-critical solutions portfolio.

Together, they enable customers to more easily deploy and operate mission critical systems while accelerating adoption through joint go-to-market initiatives and integrated offerings. Turning to slide seven. I want to spend a few minutes providing an overview of our progress capturing opportunities in new end markets, which we're confident will meaningfully diversify our non-automotive revenue mix over the next few years. The robotics and drone markets are higher growth, higher margin sectors where opportunity has materialized much faster than we previously anticipated, driven by the same demands for autonomous solutions that have been transforming automotive over the past decade. Since initially outlining our addressable market opportunity and growth targets for non-automotive markets, we've achieved the following.