Aptiv PLC — Earnings Call Q3 2026

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. Press star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We request that you limit your questions to 1 initial with 1 follow-up so that we may take as many questions as possible. Again, press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. We will take our first question from Dan Levy with Barclays. Dan Levy: Hi. Good morning. Thank you for taking the questions. I wanted to start first with the growth outlook and if you back out, obviously, the $700 million, it implies growth is roughly flat. Maybe you can just help for 2027. Maybe you could just help us understand some of the moving pieces. I know you said that is being weighed down by the reduced export business from Europe to China. What are the offsets that you are seeing there in terms of maybe some of your non auto business doing well and perhaps other pieces of the backlog or bookings that may be. So just some puts and takes within the growth to help us understand what is otherwise sort of a flat growth outlook ex the recovery. Varun Laroyia: Certainly, Dan. it is Varun Laroyia here. Thanks for the question. Listen, with regards to 2027, this is a preliminary outlook, and I do want to state given the points that Kevin and I raised with regards to the base case being at the top end, of our range, we think is optimistic, specifically given supply constraints, input cost inflation, broader commodity inflation, affordability pressures. Right? So that is kind of point number 1. As we think about the overall mix of our businesses, listen, we remain confident in our growth outlook for nonautomotive. That, as you have seen now for the past several quarters, is performing well. We expect that to continue, and that is backed up also by the bookings that we have seen, which have essentially doubled up on a year over year basis. So we feel good about that. The automotive business, which accounts for 3 quarters of our revenues at this point of time, that essentially is the challenge with regards to what the vehicle production outlook is. For the points that I just mentioned. As we think about areas where we are making progress, North America and also Asia Pacific China, Intelligent Systems in China now for the second quarter has delivered a second consecutive quarter of growth. Given a weak domestic environment, and, you know, our bookings on export platforms continue to increase. The final point I will share from a growth algorithm is our European business and Intelligent Systems specifically, where we have talked about the fact that we have been impacted by net new programs This includes the roll offs. And then also, the 2 German luxury OEMs which have exports from the EU into Europe being impacted we expect that to persist through the end of 27 before returning to growth in 2028. Kevin Clark: Yes. Maybe, Dan, I will-- Kevin. I will just add to Varun's comments that is what we are doing. Listen, high level, as we look at the market today, it is certainly dynamic. And Varun talked about the baseline off of IHS and then downside of the production down to In addition to that, concerned with respect to supply chain constraints that we are going to see some intermittent supply chain disruption. Actually, an increase in supply chain disruption, and that will have an impact both on vehicle production revenue growth as well as just overall operating efficiencies. So that is something that we are we are watching very, very closely. Now we are in a very good position to manage to manage through that. However, you know, we do not have the same visibility across supply base and the OEM base to fully understand how well their position. Varun mentioned the headwind from the European OEM that headwind will continue through the end of 2027. So I would say those are the. Are the overall kind of negatives that I would look at. Positives, look at bookings are strong. The mix of bookings with as Varun touched on, China local OEMs, both for export out of China into Europe and elsewhere. A specific programs we are working on now with, European OEMs with respect to some of the China based, solutions or technologies that they plan on implementing in the and other global markets, those are significant opportunities. And, again, the strength we are getting out of nonautomotive is very strong. Underneath all of that, though, we just overlaid an incremental level of conservatism above and beyond the range of down to, you know, flat to down to from a vehicle production standpoint, just to ensure that we captured anything that we could reasonably envision occurring in a market as dynamic as this market. So I think there is an element of a reconciling item that I would just characterize as a fairly significant level of conservatism as it relates to our outlook just given the environment. Operator: We will take our next question from Joe Spak with UBS. Joe Spak: Thank you. Good morning, everyone. Just first question, just want to start back on $700 million of recoveries that you are talking about for 2027. And understand it is preliminary, but like how set is that number in terms of like the conversations you have been having with your customers? And you made it seem like that is equal to your cost headwind because I think you said the margin impact is just sort of dilution. So I want to make sure you do not think there is going to be any leakage. So to speak, from the commodities? Or is some of that leakage embedded in that other 30-basis points impact you talked about from commodities and FX? Kevin Clark: Yeah. I would answer it this way, Joe. it is Kevin. Listen. I just given the order of magnitude of the inflation, 1. 2, we have been having, discussions with our customers for the last, I would say, 6 to 9 months with respect to sizing the potential risk, or issue. And, the negotiations we are having with respect to obviously, we cannot absorb this cost And, if our OEM customers, want parts, they need to sign up for the, increased prices related to semiconductors. So that is certainly our posture with our customers. that is the position that we are taking. And our commercial organization is executing on that plan. Joe Spak: Okay. Second question, Varun, just if you look at the preliminary 2027 looks like EBITDA is fairly flat year over year. You are talking about 100% of free cash flow being returned next year. Any guidance or commentary on CapEx plans? Should that be pretty flat? And what about working capital? Because I can imagine that being a little bit more of a headwind given the higher cost of inventory and maybe some timing issues with the receivables and the recoveries. But any color there would be helpful so we can calibrate you know, the free. The potential free cash flow return. Varun Laroyia: Yeah, Joe. I think that is a great question. Given the recoveries aspect of it as Kevin mentioned, good conversations taking place with our customers, and it is not just the point about recovering the cost inflation. But also the net working capital impact. Will not be giving a cash number here, but what I will share with you are a few elements within the framework. So for example, when you think about 2026, and the EDS spin related separation costs, we do not expect those to reoccur in 2027 in this preliminary view at this point of time. With that being said, with the inflation moving up, that essentially is what we are working through with our customers without getting their support and commitments, we cannot ship parts So we need those commitments coming through, including from a funding perspective. Beyond that, as you can imagine, we are, taking a fine wire brush working through CapEx plans and other elements to ensure wherever we can be more judicious about non contracted capital expenditures We are working through that piece, including working with our supplier communities and looking at structures whereby we could mitigate some of that networking capital impact. Kevin Clark: I would say, Joe, that maybe, again, getting back to the comment of the question that was asked earlier. Listen. Operationally, we have plans to address any of these sort of headwinds, whether it is inflation, whether it is investment in inventory, which you are right, given the inflation that would be a natural, outcome However, we have offsets in CapEx and expense, and payables in other areas of inventory that were we have in place to drive that investment down. And then on top of that, although our plans and our intentions are you know, our customers compensate us for all these investments. I mentioned we have incorporated an incremental level of conservatism into our outlook as it relates to 2027. To, contemplate things that we do not have perfect line of sight to at this sitting here in early November at this point in time. Joe Spak: Yeah. Very fair. Thank you. Operator: We will go next to Analyst with Morgan Stanley. Analyst: Great. Thanks for taking the question this morning. I just want to stick to 2027 here for 1 more second. You know, when we think about the revenue preliminary revenue outlook, I just want to make sure I understand the moving pieces here. Sounds like you are assuming. You are taking essentially market growth and assuming growth under market. Is that a fair way to kind of the preliminary you know, revenue guidance for 2027? And that is essentially offset by non auto growth. I just wanna make sure I understand kind of the conservatism and the moving pieces baked into the revenue guidance specifically for 2027 as it relates to the auto business. Varun Laroyia: Andrew, yes. it is Varun here. Yes. If you think about kind of the range, we start off with the base assumption that is how that. These are the September third party forecasts. So starting with that, that is at the top end of our range. And then below that is essentially where we are ranging it, you know, given the various elements from a macro perspective, but also supply constraints among other things. So that is correct. Okay. that is helpful. And then maybe if you could just talk a little bit about the incremental margin that you are assuming before some of the recoveries? Obviously, strong. Relative to what you have seen this year. So can you just maybe talk through what some of the assumptions are there in terms of what is the driver of the improvement in the incremental margins as we go into 2027? Yeah. Listen. So let me start for them, Kevin. You can certainly add if you have any additional comments. So putting aside the point of dilution from recoveries related to material inflation, Overall, incremental margin algorithm, you know, of the 26 to 27 points on revenue growth ex recoveries, that remains. Right? So starting off with that, given the broader inflation on commodities, oil, copper, gold, silver, and obviously the impact into resin. that is some of the FX and commodities and other commodity inflation we have seen, which essentially we plan to offset through performance initiatives. that is really how you should think of it. The overall growth algorithm for incremental revenue has not changed. But we are just highlighting the fact that there will be a margin dilution effect associated with the recoveries that we anticipate coming through the top line. Analyst: Okay. Thanks so much, guys. Operator: We will go next to Mark Delaney with Goldman Sachs. Mark Delaney: Yes. Good morning. Thank you for taking the questions. I wanted to better understand what is happening in China. And with bookings on China exports at over 20% of the mix year to date, can you help us better understand what that means for revenue for China exports next year compared to what I think was about 10% this year? And maybe more importantly, if you could also touch on the margins on that business, are you. That you are winning? Are there different margins associated with the recent bookings? Kevin Clark: Yeah. No. Mark, it is Kevin. So a good question. The China team has done a great job. As it relates to commercial pursuits. Quite frankly across both business segments. Portfolio. A lot of our discussion more recently has obviously been with respect to Intelligent Systems segment and their impact as it relates to exports out of China and the platforms they are on. This year, believe it is roughly 10% of our revenues are on export platforms. From China into Europe and elsewhere, again, within the intelligence systems segment, next year based on bookings. That increases to mid teens. So we have made significant progress There are more commercial opportunities that they will on the balance of the year that will likely increase that particular mix of business. And then we are working with, 3 of the China local OEMs on their, current activities as it relates to manufacturing in Europe and South America that will provide incremental benefit as well. As it relates to margin profile, it is roughly in line with our overall margin profile. That is dependent, on using China based materials and inputs, including China based SoCs. To the extent, 1 of our customers interested in a Western-based SOC. Obviously, that is a more expensive solution for that particular customer. But today, as I mentioned in my example, we have had a lot of success especially in Europe and Southeast Asia. Leveraging the China based cost structure and design capabilities. To meet the needs of Europe and other markets. Mark Delaney: Thanks for that, Kevin. My other question was about the program rollouts that you mentioned with the 2 German luxury OEMs. Maybe the company can size that headwind more quantitatively. And then just the reason for that occurring, is this a situation where Aptive did not win the follow on business and maybe needs to adjust its strategy in the future, or is this more about those German OEMs just having some challenges, international I think you are thinking about China and maybe those vehicle models just are not being, not continued in the future. Thanks. Kevin Clark: Yeah. it is-- it is-- there is an element of both, quite frankly. So it is, 2 luxury German OEMs it is a significant part of our I would say, in Europe, we are overweight German OEM revenue mix. About a third of the headwind in 2027 comes from just softer schedules, principally on export platforms. So I think you probably can guess who they are based on, historical dependence upon the China market for the premium brands. As of as a place of business. So that is about a third of it. The balance is a mix of legacy program, that we won some replacement business We alluded to it in our last quarter earnings call. That replacement business initially was going to be run across another vehicle brand. So The runoff of that particular program would be partially offset by the launch that actually started last quarter on 1 of the, 1 of the luxury brands. But did not end up, launching on the second vehicle platform. And we alluded to it in the last quarter earnings call. that is had an impact as well. So that would account for roughly a little over a third of the balance. And I think the total value is kind of a couple hundred million, $2 million to $300 million of headwind. Operator: We will go next to Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Oh, great. Thank you so much. First, starting with the expected $700 million in inflation recovery in 2027. I think in the past, you have quantified your memory buy, you know, around a $175 million. So $700 million would potentially be 4 times that. So can you just maybe just clarify what is in that $700 million Is that literally sort of like a forex inflation? Or are there, like, other pieces that are going into it? Kevin Clark: Yeah. It includes it includes. it is mostly memory. I mean, I know it is Kevin. it is mostly memory. there is semiconductor-- some semiconductor as well that is in that. That number. that is where those 2 areas of the year are where we are seeing the significant inflation. I think depending on node price increases on a year over year basis, are significant. It varies a bit by what technology, quite frankly, and note what technology that you are actually using. Some are actually. The year over year price increases are actually higher, some lower than that 4 times that you are talking. Got it. Emmanuel Rosner: And then you, Kevin, you conclude your remarks with, saying we are evaluating the composition of our business and product portfolio, and we will provide an update in the first quarter of 27. Can you just, you know, talk to that a little bit more? Obviously, the update is in the first quarter of 27, but what is. Kevin Clark: You know, what are you looking at? We are looking at our portfolio of businesses, our portfolio of products, on with the backdrop in context of current market challenges and market opportunities, our outlook for revenue growth and margin profile, and the competitive position that, those businesses are in. I would say, you know, what you would expect to Emmanuel. it is just a deep dive and a very detailed evaluation just given the current environment. Emmanuel Rosner: Understood. Thank you. Operator: We will go next to Itay Michaeli with TD Cowen. Itay Michaeli: Great. Thank you. Good morning, everyone. Maybe first question on the 2027 outlook. Can you share what you are assuming for China export versus domestic next year? I know this year it is been a significant drag on just overall outgrowth relative to LVP. Maybe just help us with what you are preliminarily assuming for next year on those fronts. Kevin Clark: Yes. Our preliminary estimate is down slightly Itay. Which I think is the expectation of most people given some of what we are hearing out of out of, Europe. China market flat is kind of our baseline outlook. We have the downside with the with the China market or China vehicle production actually declining. Listen, I think there is a scenario that is out there that, exports do not decline. They just move different markets. So African continent and elsewhere, But for now, our overall view has been fairly muted via production across quite frankly every region at the top end that Varun walked through. And then as I said, down, you know, down 2%, in the more conservative scenario. Itay Michaeli: that is helpful. And as a quick follow-up, maybe just talk more about the humanoid robot award, I think you mentioned with a Chinese OEM. I am curious whether that opens up additional awards for humanoids for you. Kevin Clark: Yeah. So, yes, it does. We are active in the robotics space across all regions, obviously, including China. In China, they are they are very much China based solutions in Europe and North America. They are very much a Western solution from an input standpoint. We talked about where we bring value perception systems, high speed cable assemblies, advanced compute, Those are the principal areas that we are, focused on. We see significant opportunity there. I think as we have talked about in the past, we think a more likely high volume use cases with AMRs versus humanoids at this point in time, our view is that is a more challenging technical challenge. We are working with, a few of the humanoid developers both in The U.S., as well as in Europe and in China. But most of our robotics focuses in and around AMRs. Itay Michaeli: that is very helpful. Thank you. Operator: We will go next to James Picariello with BNP Paribas. James Picariello: Hi, everybody. Hi, everyone. Just to first revisit Emmanuel's question regarding the 2027 revenue bridge. Is the $700 million in recoveries purely a year over year figure? Or is it relative to the base of $175 million in memory recoveries for 2025? Which I believe is incurring a low double digit low double digit percent increase this year. So, you know, is the year to year recovery $500 million or $700 million? Kevin Clark: Yep. it is $700 million. So the year over year is $700 million. 2026, just. And I do not know if it was a part of your question. As I mentioned in my prepare comments, Jim, we the team did a very good job in terms of in mid 25, locking up, both supply as well as price on memory. So 2026, as we have talked about in the past, impact, on Aptive as well as of our as well as our customers was actually relatively minimal. From an inflation standpoint, given the nature of the contracts we have had. As we head 2026 into 2027, given the what seems to be the continued tightness in the memory market. Obviously, prices have increased again depending upon the technology and the particular, supplier of memory. Got it. James Picariello: that is that is clear. Thank you. And then can you just share any 2026 guidance color by segment in terms of how you are thinking about core growth and EBITDA profitability for the fourth quarter here? For Engineered Components and Intelligent Systems? Varun Laroyia: Yes, James. it is Varun out here. Listen, overall, we good about the guide we have given from an enterprise perspective. For the fourth quarter. So that is put that piece out there. From a revenue perspective, I will share with you, as I mentioned in some of my prepared comments, its production recovery at a North American OEM that was impacted by a supplier fire a year ago. Our commercial vehicle revenues robust. And as Kevin mentioned also earlier, in his prepared comments, we have been winning some good business with next gen high voltage and low voltage programs. So that is gonna continue to come through strongly. It is offset by lower vehicle production more generally. I think that is out there in the market in any case. And then, obviously, the software and services piece also that I called out. Within the 2 businesses, our engineered components business will. Is expected to grow in line to maybe slightly higher than what they have been tracking to. And then our engineered our intelligence systems business, more specifically, continues to be impacted by the net program roll offs that we talked about, but also the exports going from Europe into China As I mentioned, excluding some of those declines, that segment would have grown. So that continues to impact the Intelligent business. With regards to margin, as you would have seen Q3 was still a net price decline. For us. As I mentioned, Q4 it is customer recoveries, engineering performance benefits, but also engineering credits. That typically occur in the fourth quarter. And then some incremental manufacturing and performance initiatives which is going to drive the margin. And that obviously is across both segments. Kevin Clark: Yes. So maybe just-- so Q4 revenue growth increasing, part of that is a year over year comp. Benefit. So revenue growth increasing. When you look at EBITDA margin and operating margins, as is typical, Q4 is typically our strongest quarter just given timing of engineering rebills and customer credits items like that. So that should translate into the highest EBITDA and operating income margin profile for the quarter. Current outlook has both segments growing. From an overall growth standpoint. And as is typical, the fourth quarter tends to be stronger margin profile for both businesses. Especially the Intelligent Systems business in Q4. Just given the nature of engineering credits and recovery there. James Picariello: Thanks. Operator: Go next to Tom Narayan with RBC. Analyst: Yeah. Thanks for taking the question. The first 1 on follow-up to Mark's question. Kevin, I think you said 10% of Chinese revenues you guys have around export platforms and intelligent systems. And next year, you would get to mid teens and they are making significant progress. Just curious how you are able to do this. You know, other tier ones we talk to say it is up to the Chinese OEMs. To determine what gets exported and what is used for domestic. Is this something specific to intelligence systems where you can impact the Chinese OEM decisions? Kevin Clark: Well, I think what is important, I think what is important, Tom, is that your engineering organizations, your commercial organizations deeply embedded with those OEMs, that they understand what their product plans are, what specific programs will have, will be for export which is you can imagine, they need to be homologated differently. Right? They need to meet different standards So there is an element of a different system, different features, different. Maybe some calibration of technology. So if you have a strategic relationship with the OEM or you foster 1, you will get visibility to what their product plans are. And then you need to be competitive. Right? So it is not a matter of 1 day a vehicle is a domestic platform and then the next day it is being exported. Right? Just the homologation requirements, the regulations of quite frankly every country requires certain amount of unique items or unique standards that you need to meet. Therefore, it needs to be contemplated or planned for in advance. Got it. No. That makes sense. And then as a follow-up to I think Itay's question on the 2027 China production forecast, your own forecast, You know, it looks like the EU finally has some teeth with some policy changes on Chinese exports. I think you heard. I think I heard you say you expect exports flat from China, and then flat to down on total China production. S&P has exports down in 2027, but then domestic sales up. With overall China production up. Just curious if you are guys just being conservative here or is this what you are kind of. What you are seeing and you expect? Yeah. I. Listen. I think there is a little bit of-- so at a high level, our general view is exports will be down. In China. Mhmm. The domestic market will be flat to up slightly. that is our view. there is some of that, 1 could argue, is. And that is our base. That baseline assumption that Varun talked about, the starting point. So that is our baseline assumption. We have a second scenario that we referred to where vehicle production is down 2% that is comparable for the China market. I think there is a question of how does that. How much do those export volumes or the potential slowdown in export volumes impact that down 2%.? So I would say at this point in time, we are not that precise. We would also say, though, there you know, discussions with our Chinese OEMs and the Chinese governments, exports may be down in Europe, but I think their base plans today are they will make up those declining exports in those markets with exports elsewhere. So we will see how that plays out. As it relates to vehicle production, we try to give investors a range. The baseline is off of IHS so that, from a comparability standpoint, it is easy to compare what we are saying to what others are saying. Overlay to on top of that was an incremental level of conservatism as it relates to revenue, earnings and cash flow that we overlaid on top of that. Contemplating some of the challenges that could arise in the market. And then our second scenario is vehicle production is down 2%,. Which, again, we overlaid a, an additional element of conservatism as it relates to revenue, earnings, and cash flow, again, to contemplate all the challenges and uncertainty that is, currently going on. So that is how we have bracketed the 2. And as I mentioned, we have included an incremental amount of conservatism to make sure that we could capture, everything that we could reasonably contemplate from an outcome in 2027 or an environment in 2027. Analyst: Got it. Thanks for providing the 2027 guidance. Operator: That will conclude today's question and answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks. Kevin Clark: Thank you, everyone, for your time this morning. We look forward to following up with you following this earnings call. So take care, and have a nice day. Operator: The call is now complete. And thank you for joining.