Tuesday, Nov.
3, 2026 CALL PARTICIPANTS Chair and Chief Executive Officer - Kevin ClarkExecutive Vice President and Chief Financial Officer - Varun LaroyiaVice President, Investor Relations - Betsy Miller Frank Revenue -- $3.2 billion, representing 2% growth driven by a 16% increase in nonautomotive markets.Adjusted EBITDA Margin -- 17.7%, compared to 19.1% last year, reflecting lower software revenues and the timing of engineering credits.New Business Awards -- $4 billion in the third quarter, bringing the year-to-date total to more than $13 billion toward a full-year target of $20 billion.Share Repurchases -- $233 million in the third quarter, part of a plan to return at least $650 million to shareholders by the end of 2026.Nonautomotive Revenue -- $3 billion projected for the full year, including $2 billion from aerospace, defense, telecom, and datacom markets.Engineered Components Revenue -- $1.8 billion, representing 6% adjusted growth year over year across all geographic regions.Intelligent Systems Revenue -- $1.4 billion, a 3% adjusted decline due to production softness with two luxury German original equipment manufacturers.China Bookings -- 30% growth in the quarter, with more than 20% of awards tied to export programs.European Bookings -- more than doubled in the Intelligent Systems segment, countering current customer mix challenges in the region.Nonautomotive Awards -- $3.8 billion in the third quarter, which is more than double the amount secured in the prior year period.2027 Semiconductor Inflation -- $700 million in anticipated costs, primarily related to higher prices for memory chips.German OEM Revenue Headwind -- $200 million to $300 million in 2027, driven by program roll-offs and lower export production.Free Cash Flow -- $194 million in the quarter, with full-year guidance narrowed to a midpoint of $650 million.Inventory Investment -- $500 million total drag on 2026 free cash flow, reflecting strategic buffer stock for supply chain resilience.Full-Year Revenue Guidance -- $12.65 billion to $12.75 billion, narrowing the range while maintaining the midpoint of the previous outlook.Adjusted EPS Guidance -- $5.60 to $5.80 for the full year, reflecting share repurchase benefits and operational performance.Regional Performance -- 5% revenue growth in North America and 5% in Asia Pacific, offset by a 5% decline in Europe.China Export Mix -- 10% of total revenue in 2026, which management expects to reach the mid-teens in 2027 based on current bookings.Fourth Quarter Margin Outlook -- 19.4% adjusted EBITDA margin at the midpoint, driven by customer recoveries and engineering performance.Capital Expenditures -- $404 million year to date, focused on organic growth initiatives and capacity expansion.
Need a quote from a Motley Fool analyst? Email [email protected] Clark stated, "The industry is experiencing significant input cost inflation," noting that favorable memory chip pricing from 2026 will not repeat in 2027.Clark warned that "affordability pressures from the combination of higher MSRPs and lease rates could weigh on consumer demand" and lead to lower vehicle production.Laroyia noted that "ongoing supply chain constraints will continue to lead to intermittent production disruption" across original equipment manufacturer production schedules.
Aptiv PLC (APTV -5.29%) reported a 2% increase in third-quarter revenue, reaching $3.2 billion, as significant expansion in nonautomotive end markets and North American operations offset production declines in Europe.
Management maintained its full-year earnings guidance while narrowing its revenue outlook, citing strong new business bookings that reached $13 billion year to date.
The company is prioritizing shareholder returns, intending to repurchase at least $650 million in stock by year end and returning 100% of free cash flow through 2027.
For the 2027 fiscal year, the company adopted a cautious posture based on an anticipated $700 million semiconductor inflation headwind and specific program roll-offs with luxury vehicle manufacturers.
Management is expanding its presence in physical AI and robotics through a partnership with NVIDIA to deploy production-ready intelligent edge systems.The company secured its first radar program for a major North American commercial vehicle manufacturer in the third quarter.Clark stated, "As we focus on unlocking shareholder value, we are evaluating the composition of our business and product portfolio, and we will provide an update in the first quarter 27."A new ADAS platform award incorporates a localized technology stack to meet 2026 European NCAP five-star safety standards for export programs.The company's digital twin supply chain mapping now covers 95% of all parts and 99% of semiconductor purchases across at least four supply tiers.Clark stated, "The confidence combined with what we believe is a disconnect between the intrinsic value of our stock and its current trading value, is leading us to prioritize share repurchases in our capital allocation strategy." INDUSTRY GLOSSARY ADAS: Advanced Driver Assistance Systems, electronic technologies that assist drivers in driving and parking functions to improve vehicle safety.AMR: Autonomous Mobile Robots, robots capable of understanding and moving through their environment without direct human supervision.EDS: Electrical Distribution Systems, a former segment of Aptiv that provided wiring and power distribution solutions.NCAP: New Car Assessment Program, a government car safety program that evaluates new automobile designs for safety performance.SoC: System on a Chip, an integrated circuit that integrates all or most components of a computer or other electronic system.Zonal Controller: A hardware device that manages power and data for a specific physical section of a vehicle, simplifying electrical architecture.
Full Conference Call Transcript Operator: Good day, and welcome to the Aptive q 03/2026 Earnings Call.
Today's conference is being recorded.
At this time, I would like to turn the conference over to Betsy Miller Frank, Vice President, Investor Relations.
Please go ahead.
Betsy Miller Frank: Thank you, Jennifer.
Good morning, and thank you for joining Aptiv's Third Quarter 26 Earnings Conference Call.
The press release and slide presentation can be found on the Investor Relations portion of our website at aptive.com.
Today's review of our financials exclude amortization, restructuring and other special items, and year over year comparisons are based on Q3 25 pro forma NuAptiv results excluding the former EDS segment.
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 ks 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 will turn the call over to Kevin.
Kevin Clark: Thank you, Betsy, and thank you all for joining us this morning.
Starting on Slide 3, we delivered solid third quarter financial results, including revenue growth of 2%, which was consistent with the second quarter and EBITDA margin of 18.0% in line with our expectations.
We repurchased more than $230 million of stock in the quarter bringing our year to date total to more than $550 million.
And we remain active in the fourth quarter and plan to repurchase at least $650 million by year end, returning 100% of our free cash flow to shareholders during 2026.
Shifting to future business, we secured roughly $4 billion of new business awards in the third quarter, bringing our year to date total to more than $13 billion which reflects progress in the following strategic areas: In China, we grew bookings by 30%, of which more than 20% are tied to export programs.
In Intelligent Systems, we more than doubled European bookings.
Addressing the customer mix challenges we are facing in that region that are weighing on our growth.
And we booked $3.8 billion of non auto awards more than doubled the year ago period as we have established our presence in new end markets.
Including drones and robotics.
The momentum we built in nonautomotive has led to a significant revenue base that we are now leveraging to create incremental growth opportunities.
We are on track to generate more than $3 billion in 2026 revenues including $2 billion in A&D, telecom and datacom and diversified industrials.
As our revenues in these markets have scaled, so have the opportunities to further leverage the breadth of our product portfolio and the depth of our capabilities.
This is best exemplified by the award we received in July from a leading drone manufacturer that we discussed on our last earnings call.
And the 2 robotics awards we secured over the past 2 quarters as well as the increased amount of business we are being awarded in the energy storage and AI data-center markets.
I will talk more about our individual awards this quarter on the next 2 slides, But looking ahead, we have a large funnel of fourth quarter bookings opportunities and are on track to reach our $20 billion target.
That said, award cycles may lengthen as we finalize negotiations on commercial recoveries and the pass through of price increases, which we expect to increase meaningfully in 2027.
Now let's review our business segments through the lens of the automotive and nonautomotive end markets we serve.
Starting with the automotive market on Slide 4.
We continue to expand and diversify our OEM customer base creating more resilient revenue stream.
Notable program launches in the quarter included our next gen L2 ADAS smart camera, for a leading Chinese OEM exports to the European market.
The solution combines a Chinese SoC, Wind River VxWorks RTOS, a Vision Stack from StradVision, and Aptiv software features.
All brought together through Aptiv's global ADAS integration, validation, and safety capabilities to deliver a cost effective ADAS solution that meets stringent 26 European NCAP 5 star safety standards.
This solution demonstrates the power of our open, flexible, and modular ADAS architecture and our ability to deploy technology from China in global markets.
This is just the first of other planned launches with this OEM for export into the European market.
High speed cable solutions for the flagship SUV and truck program of a North American OEM and a Korean OEM's next generation EV platform, multiple advanced radar programs across Korean and major Japanese OEMs, reflecting our continued growth and technology adoption across global vehicle programs.
A zonal controller with integrated functionality from multiple premium electric vehicle brands at a leading Chinese OEM, and high voltage interconnect solutions deployed across multiple leading OEMs and flagship EV platforms.
We also secured several important new business awards in the quarter, including 2 strategic ADAS awards with a China based global EV market leader, for deployment across its next generation intelligent driving platforms.
In 2027: first, an L2 ADAS system incorporating a localized technology stack and components, and second, a next gen radar solution enabling L2++ functionality secured on an accelerated development timeline.
These awards highlight Aptiv's flexibility in delivering innovative, high performance technologies tailored to regional needs and evolving customer strategies.
A Conquest Award for High Performance cable management products, highlighting continued adoption across leading Japanese OEM platforms another award for our modular connector portfolio.
For a leading European OEM's next generation modular vehicle architecture and lastly, 2 integrated cockpit controller awards for Chinese OEM export programs further strengthening our competitive position as these customers expand globally.
Moving to slide 5, discuss our product progress in non automotive markets.
Where new business awards further strengthen our confidence in the growth potential of these markets.
We continue to deepen our network of strategic partnerships during the third quarter, including an expanded partnership with NVIDIA which brings together NVIDIA's edge platforms and Aptiv sensing compute, software and systems integration capabilities to accelerate the deployment of production ready physical AI and intelligent edge systems.
In a partnership with Samsung, leveraging our Wind River Cloud Platform solution to support the advancement of AI-RAN in Korea.
During the quarter, we also executed multiple new program launches across portfolio of high and low voltage interconnect products for a leading commercial vehicle manufacturer Collectively, these launches reinforce the applicability of our portfolio across vehicle architectures.
Lastly, we launched our first radar program for a major commercial vehicle OEM in North America, A few notable new business awards in the third quarter included an award in China for humanoid robots, incorporating high performance compute and interconnect technologies, high performance interconnect and connectivity solutions for data center and battery energy storage applications, reinforcing our portfolio supports next gen AI infrastructure.
An award in the medical device industry providing high performance cable assemblies for critical patient care applications where reliability and performance are paramount.
And lastly, a key software award with a leading telecom equipment provider supporting a range of critical network infrastructure applications.
Turning to slide 6.
I want to take a minute to talk about the setup for 2027.
Before Varun walks you through the numbers.
Starting with the challenges, which we believe present risks to third party vehicle production, forecasts, First, the industry is experiencing significant input cost inflation.
For memory chips, the favorable pricing we secured for our customers in 2026 will not repeat in 2027.
We are well ahead of this headwind in 2026 due to our robust supply chain strategy We began investing in buffer stock inventory in early 2025, for select customers, who are interested in the added insurance.
And over the same period, we have met regularly with these customers to flag our expectations for supply constraints, and material inflation.
Including on semiconductors and memory chips.
As you would expect, these customers are now more strategically positioned to mitigate any supply constraints which are starting to affect OEM production schedules.
On top of this, broader commodity inflation and tariffs continue to increase input costs.
Second, regarding assumptions for vehicle production, we believe ongoing supply chain constraints will continue to lead to intermittent production disruption.
Affordability pressures from the combination of higher MSRPs and lease rates could weigh on consumer demand, and could translate to lower vehicle production.
And the conflict in the Middle East and Ukraine as well as evolving global trade and tariff policies across Europe, The U.
S, Mexico and China could further increase input costs and exacerbate current supply demand imbalances.
Our outlook for 2027 is also influenced by current revenue headwinds driven by 2 luxury German OEMs that will continue through the fourth quarter of next year and largely abate in 2028.
Which Varun will touch on shortly.
As we position our business, we are taking a more cautious posture.
But these challenges have also presented several opportunities.
Our resilient global supply chain, which we execute on a regional basis, includes dual sourcing and validation of product alternatives and is backed by a digital twin that covers 95% of all the parts we procure.
Mapped down at least 4 supply tiers and covers 99% of the semiconductors we purchased mapped down at least 5 supply tiers.
And to the extent our customers face increased cost pressure, the resiliency of our supply chain enhances the value of our advanced technology solutions, which are high performing, open architected, scalable, and cost effective.
As a proof point, last week, we received a customer award that draws on all of our strengths.
Resulting in significant incremental ADAS content.
Replacing competitors' high cost vision, parking, and surround view monitoring systems with a fully integrated Aptiv ADAS platform built on our smart camera, with latest generation DDR5 memory for supply resilience that incorporates the vision solution from our partner, StradVision.
And Aptiv's full L2+ ADAS parking and in cabin software in hardware tech stack.
The challenging environment is creating incremental opportunities for our high performance, cost effective solutions although the impact on revenue will be more pronounced in 2028.
Outside of the automotive market, we are finding significant opportunity in the energy storage, data center, robotics and aerospace and defense markets.
By leveraging our world class supply chain capabilities as well as our portfolio of compute, perception systems, and high speed interconnects.
Varun will share more on how all this is shaping our 2027 financial outlook, So with that, I will hand it over to Varun.
Varun Laroyia: Thanks, Kevin, and good morning, everyone.
Starting on Slide 7 with our third quarter financial results, we delivered revenues of $3.2 billion which grew at an adjusted rate of 2%, consistent with the prior quarter.
The results include 11% growth in non auto, and a 1% decline in automotive.
Looking at revenue growth by region, North America grew 5%, driven by strength in both our Intelligent Systems and Engineered Components segments.
In Europe, revenue was down 5%, driven by a decline in the Intelligent Systems business where revenue was impacted by weakness with 2 luxury German OEMs, which we expect to persist through the end of 27.
This was partially offset by growth in the Engineered Components segment.
And in Asia Pacific, revenue increased 5%, including 13% growth in Asia ex China, mainly driven by growth in India.
And 1% growth in China driven by continued momentum in Intelligent Systems, which grew for the second consecutive quarter.
Adjusted EBITDA totaled $567 million, and adjusted EBITDA margin decreased 140 basis points due to product mix, including lower software revenues, and the timing of engineering credits.
Unfavorable commodities, partially offset by favorable FX and investments in both segments directed towards organic growth initiatives.
Earnings per share was $1.42 a decrease of $0.06, reflecting lower operating income offset by the benefit of share repurchases and lower tax expense.
Free cash flow for the quarter was $194 million, which brings our year to date pro forma free cash flow to $44 million I will talk more in a moment about full year expectations though our pacing through Q3 is consistent with our outlook for the full year.
Given the separation costs incurred in the first half of the year, related to the spin of our Electrical Distribution Systems business, inventory investments to ensure supply chain resiliency and seasonality.
Moving to Slide 8 to cover segment level financials.
In Intelligent Systems, revenue of $1.4 billion was down 3%, mainly driven by Europe, and partially offset by growth in North America and Asia Pacific.
Sensors and Compute revenues were lower by 2%, owing to softness in automotive.
Software and services declined 11% in line with our forecast that we updated last quarter.
Automotive revenues were down 4%, driven by program roll offs and lower exports to China, with 2 German luxury OEMs and excluding these, would have resulted in growth of 5% for the segment.
Nonautomotive revenues grew 3%, reflecting 15% growth in Sensors and Compute, partially offset by weakness in Software and Services.
Intelligent Systems adjusted EBITDA margin contracted by 240 basis points driven primarily by the lower revenues and higher margin software and services, and the timing of engineering credits.
Partially offset by performance initiatives.
Moving to Engineered Components, Revenue of $1.8 billion grew 6% versus the prior year, with growth across North America, Europe and Asia Pacific.
Automotive revenues grew 2%, while non auto markets grew 16%, mainly driven by growth in diversified industrials.
Adjusted EBITDA margin decreased 100-basis points reflecting commodity headwinds partially offset by flow through on higher volume.
Turning to slide 9 for our 2026 financial guidance.
As a reminder, our guidance is based on pro forma numbers, which are available on the Investor website under the Quarterly Financials section.
And for the full year, we are maintaining our income statement guidance from last quarter.
With the key metrics unchanged at the midpoint.
And the revenue range narrowed.
On free cash flow, we are narrowing the range for the full year and lowering the midpoint by $25 million to $650 million The initial $450 million drag on free cash flow associated with spin related costs and supply chain resilience is now $500 million.
With separation costs slightly lower than planned and inventory investments higher owing to inflation.
For the fourth quarter, we forecast revenue of $3.2 billion at the midpoint representing adjusted growth of 3%.
The sequential step up in revenue growth of 1% reflects production recovery at a North American OEM, and higher commercial vehicle revenues offset by lower vehicle production.
And I would also note that software and services revenues are forecast to be lower year on year in line with the third quarter decline owing to the timing of enterprise awards.
We expect adjusted EBITDA of $612 million and margin of 19.4% at the midpoint.
The sequential step up in margin is driven by customer recoveries engineering performance benefits including credits, and manufacturing performance.
For earnings per share, our guidance implies $1.45 at the midpoint.
I would like to conclude by sharing our initial thoughts on the 2027 financial outlook.
As Kevin shared, we are planning for challenges to vehicle production.
Third party forecast as of September are calling for flat vehicle production globally In our framework for production assumptions, we have anchored the top end of our range to this flat scenario which we think is optimistic given our expectations supply constraints and significant input cost inflation related to semiconductors, including memory chips.
Broader commodity inflation, and overall affordability pressures.
Our results will be impacted by 2 further items, First, pricing and recoveries were higher semiconductor prices will create a revenue benefit.
Currently, we are estimating approximately $700 million in inflation related to semiconductor prices primarily memory The second impact relates to our Intelligent Systems business, which will continue to be impacted by weakness with the 2 German luxury OEMs owing to net program roll offs that conclude at the end of 27.
And lower production assumptions for exports to China Beyond these items, our assumptions for revenue growth incorporate an incremental element conservatism, which we believe is appropriate at this stage.
Regarding bottom line impact, the recoveries will be neutral to EBITDA but create margin dilution given the lack of margin on higher prices being passed through.
We will provide more details when we issue formal guidance next quarter.
Outside of the points I mentioned, we expect it will be a flat to slightly positive year driven by the combined impact of revenues ex recoveries, continued growth in non automotive markets investments supporting organic growth and performance initiatives.
With that, I will turn the call back to Kevin for his closing remarks.
Kevin Clark: Thanks, Varun.
I will wrap up on Slide 11.
I want to close by underscoring that regardless of the near term challenges, continue to see significant long term opportunity in our business, supported by our differentiated portfolio of advanced technologies.
We are confident that the strategy we have built serving the automotive market positions us well as the industry adapts and evolves.
We are also confident in our opportunity beyond automotive where we continue to make organic investments across both business segments to accelerate our penetration building on the momentum we have already established.
The opportunities in the auto and industrial markets underpins our expectations that our revenue growth reaccelerates in 2028.
This confidence combined with what we believe is a disconnect between the intrinsic value of our stock and its current trading value, is leading us to prioritize share repurchases in our capital allocation strategy.
Which means we plan to return 100% of our free cash flow to shareholders through at least the end of 27.
Consistent with what we are doing in 2026.
As we focus on unlocking shareholder value, we are evaluating the composition of our business and product portfolio, and we will provide an update in the first quarter 27.
In summary, we are focused on shareholder value creation through strong operating execution, disciplined capital allocation, and portfolio optimization.
Operator, let's now open the line for questions.
Operator: Thank you.
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