Aptiv (NYSE:APTV) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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Summary

Aptiv generated 2% revenue growth with a 10 basis points expansion in EBITDA margin in Q2 2025, driven by diversification into non-automotive markets.

The company faced challenges in the traditional automotive market, particularly due to prolonged sales weakness in the domestic China market, leading to a lowered 2026 guidance.

Aptiv secured $5 billion in new business awards in Q2, bringing the year-to-date total to $10 billion, with a target of $20 billion for the full year.

Capital allocation included $250 million in share repurchases in Q2, with plans for over $600 million in buybacks for the full year.

Non-automotive revenue grew 12%, with significant progress in robotics and drone markets expected to reach $300 million in annual revenue in the coming years.

The company lowered its full-year 2026 revenue guidance by $300 million due to changes in customer production schedules, program launch delays, and software sales timing.

Despite challenges, Aptiv remains focused on long-term opportunities across diverse end markets, aiming for margin expansion and strong free cash flow generation.

Management emphasized a more conservative approach to forecasting, particularly regarding the volatile China market.

Full Transcript

Betsy, Investor Relations

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, and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to Kevin.

Kevin Clark, Chair and Chief Executive Officer

Thank you, Betsy, and thanks everyone for joining us this morning. Starting on slide 3, during the second quarter we generated 2% revenue growth and 10 basis points of EBITDA margin expansion, and we continue 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. And 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 and also leading to a further reduction in schedules from luxury European OEMs for vehicles exported to the China market. Varen 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.

And 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. And now that the separation of EDS is complete, we'll continue to evaluate additional opportunities to maximize value for shareholders over the long term. Now 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 Gen8 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; and 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, and reaching long-term supply agreements as 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 and 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.

And 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 Gen6 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; and 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; and 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 Gen8 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; and 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; and 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 6 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; and 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; and collaborating on 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; and lastly, achieving a key software milestone in cybersecurity rating for 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's 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; and 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 7, 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 demand 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: in robotics, we secured partnerships with three leading robotics manufacturers, and one of those partnerships has advanced to a meaningful commercial agreement, and we expect to be making additional commercial announcements during the balance of the year. In drones, in July we secured our first commercial award from a leading drone manufacturer with total lifetime revenues of over $500 million over a five-year program.

This award will be included in our third quarter bookings numbers. We're actively engaging discussions with several drone manufacturers that we expect to translate into commercial agreements during the balance of the year. The content-per-device opportunity in the robotics and drone markets is significant, and our initial awards represent a large portion of that total content opportunity, and both of these markets present time-to-market advantages versus our experience in automotive.

In summary, we're increasingly confident in the broad relevance of our product portfolio across multiple end markets, which will significantly change our business mix. We have a high degree of confidence in achieving annual revenues from the robotics and drone markets of about $300 million over the next few years. We believe we're also uniquely positioned to benefit from growth opportunities in the space, energy storage, and data center markets, which we'll talk more about in the future.

I'll now turn the call over to Veren to go through our financial results and guidance in more detail.

Arun, Chief Financial Officer

Thanks, Kevin, and good morning, everyone. Starting on slide 8 with our second quarter financial results, we delivered revenues of $3.3 billion, which grew at an adjusted rate of 2% and were just shy of the midpoint of our guidance. Looking at revenue growth by region, North America grew 10%, driven by strength across both segments. In Europe, revenue was down 8%, primarily reflecting volume pressures with select luxury OEMs, predominantly in Intelligent Systems, and in Asia Pacific, revenue increased 6%, including 5% growth in China, driven by improved mix with local OEMs partially offset by a slowdown in production for the domestic market.

Adjusted EBITDA totaled $613 million and adjusted EBITDA margin increased 10 basis points. This came in ahead of our guidance due to the timing of recoveries and operating performance. FX and commodities amounted to a 30 basis point headwind to margin in line with our expectations. Earnings per share was $1.63, an increase of $0.12 from the new Aptiv pro forma results in Q2 2025, reflecting higher operating income, the benefit of share repurchases, and interest and other income, partially offset by higher tax expense.

Free cash flow for the quarter was an outflow of $33 million and included approximately $70 million in cash separation costs associated with the Versigen spinoff, which we highlighted last quarter. Moving to slide 9 and starting with highlights on the consolidated business, we generated strong results in strategically important non-automotive revenues with 12% growth while absorbing some customer mix headwinds in our automotive business. In the second quarter, where revenues declined 1%, adjusted EBITDA margin increased 10 basis points, driven by flow-through on revenue growth, strong performance across material and manufacturing, and a benefit in timing of certain recoveries more than offsetting the impact of stranded costs following the Vessigen spin, which we are aggressively working to eliminate. Turning to Intelligent Systems, revenue of $1.5 billion was flat versus the prior year, which reflects strength in the non-auto, which was driven by software and services, and this was offset by automotive revenues, which were impacted by weakness with certain European OEMs and lower production at a North American OEM impacted by a supplier fire in Intelligent Systems.

Adjusted EBITDA margin declined 120 basis points, primarily driven by investments in non-auto markets and the impact of stranded costs. Moving to Engineered Components, revenue of $1.8 billion grew 3% versus the prior year, driven by double-digit growth in non-auto markets, and more specifically in diversified industrials and aerospace and defense. While automotive revenues were essentially flat, adjusted EBITDA margin increased 100 basis points and reflects flow-through on volume growth, favorable timing of the previously mentioned recoveries, and performance initiatives, partially offset by stranded costs.

Turning to our full year 2026 financial guidance on slide 10, as a reminder, historical new Aptiv pro forma financials are on the Investor Relations website under the Quarterly Financial section, and those correspond to our guidance that treats Q1 as new Aptiv pro forma. Starting with the full year, we now expect revenue in the range of $12.6 billion to $12.8 billion, which implies adjusted growth of 2% at the midpoint. I'll discuss the changes here in detail on the next slide.

We expect adjusted EBITDA in the range of $2.31 billion to $2.37 billion and an EBITDA margin of 18.4% at the midpoint, reflecting the impact of lower revenue growth, which is partially offset by performance. We now expect adjusted earnings per share in the range of $5.60 to $5.80, with the midpoint of $5.70, reflecting lower operating earnings partially offset by a slightly lower effective tax rate and a lower share count. This also includes the projected impact of an additional $300 million in share repurchases through the remainder of the year, as Kevin mentioned.

Lastly, free cash flow is expected to be in the range of $625 million to $725 million, reflecting the reduction in EBITDA. As a reminder, this includes the one-time cash separation costs associated with the Vessigen spin-off, which have already been largely incurred year to date, and the continued investments in supply chain resiliency for semiconductors. For the third quarter, specifically, we expect adjusted revenue growth of 1% at the midpoint, adjusted EBITDA of $560 million and EBITDA margin of 17.7% at the midpoint, and earnings per share of $1.30 at the midpoint.

Turning back to our full year guidance to discuss the key changes to revenue in further detail, we are reducing full year revenue guidance at the midpoint by $300 million, which reflects the following: first, approximately $150 million related to changes in customer production schedules. These schedule revisions are primarily related to weakness in the domestic China market with both local China OEMs and European OEMs that export to China. Second, $100 million related to delays in program launches and ramps, specifically delayed ramp in production volumes on certain programs in China and the launch with a European OEM where the launch is delayed by the OEM and we did not benefit from the expansion to additional car lines as we originally anticipated. And finally, approximately $50 million related to the timing of enterprise sales in software and services. While these items have impacted both business segments, the Intelligent Systems business is disproportionately impacted by the above factors. Now translating this to the implied ramp in year-over-year revenue growth from the first half to the second half that we outlined last quarter.

As a result of what I just described, the following have changed: first, the 150 basis points improvement in growth from lapping of previously identified headwinds, specifically the lower production with a major North American customer due to a supplier fire and program cancellations with local China OEMs, is unchanged. Second, launches and ramps are now expected to contribute 200 basis points to revenue growth in the second half of the year. This is lower by 100 basis points than initially anticipated, reflecting the programs I previously described.

And beyond that, the outlook for vehicle production in the second half has turned from a tailwind to a headwind. This is further amplified by our customer and program mix due to the schedule changes I outlined earlier, which are cumulatively now a 150 basis point headwind to revenue growth in the second half. I want to wrap up with some closing comments on these revisions. First, the China domestic market, which has and continues to be a more volatile region, has clearly deteriorated relative to when we last updated you.

And second, we were not conservative enough in certain assumptions, particularly around launches and ramps. To that end, we have incorporated an additional element of conservatism in the second half of this year. I'll close by noting that we continue to see long-term opportunity across a diverse set of end markets and across regions where we are delivering solid progress as evidenced by our revenues, bookings, and commercial awards. With that, I will turn the call back to Kevin for his closing remarks.

Kevin Clark, Chair and Chief Executive Officer

Thanks, Arun. I'll wrap up on slide 12. Excuse me. In summary, we remain confident in the significant long-term opportunity resulting from secular trends that are demanding solutions that can sense, think, act, and optimize, and the customer needs they introduce for high performance and cost-optimized solutions. However, we also acknowledge the more near-term challenges to our business driven by ongoing volatility in the domestic China market and the related impact on our broader automotive customer mix.

To be clear, our customer mix in China has improved and dramatically moved towards the local OEMs. However, this improvement has not been enough to offset the rapid shift of local OEMs' business toward export platforms as well as a reduction of European vehicle exports into the China market. Holistically, we continue to focus on improving the revenue mix of our business both inside and outside of automotive. We also remain laser focused on execution, delivering margin expansion, earnings growth, and strong free cash flow generation across a variety of different macro backdrops.

And we're keenly aware that these efforts need to translate into increased shareholder value. Based on the significant value opportunity we see in our stock combined with the strength of our cash flow generation and balance sheet, we intend to remain active buyers of our shares, utilizing approximately 50% of our expected free cash flow on a more regular basis over the next few years to repurchase our shares, and in 2026, our repurchases will be materially above this level.

We're also committed to continually evaluating our business portfolio in light of changes in the macro environment to maximize shareholder value. We're confident that we'll continue to deliver value for our customers, drive profitable growth, and create sustainable long-term value for our shareholders. Operator, let's now open the line for questions.

OPERATOR

Thank you. If you would like to ask a question, please signal by pressing star one 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 do ask that you limit your question to one initial with one follow-up so that we may take as many questions as possible. Again, you can press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions.

We'll now go to your first question, and it will come from the line of Itai Michaeli with TD Cowen.

Itai Michaeli, Analyst at TD Cowen

Great. Thank you. Good morning, everyone. I know it's a little bit early to talk about 2027, but I'm just curious kind of how some of the changes you're seeing in the second half of the year inform you in terms of just the prior 4% to 7% growth framework into 2027 and beyond, and kind of how we should think about that just given some of these changes here in the second half.

Kevin Clark, Chair and Chief Executive Officer

Yeah, sure. Thanks. Itai, listen, our long-term view of what the business is capable of remains intact. Now, clearly, drivers of growth are constantly changing, especially in an environment that is as dynamic as this environment is. You know, when you look at the automotive sector, IHS has brought down the growth outlook for future vehicle production. Clearly, material cost inflation is increasing in light of various macroeconomic factors. However, having said that, within the automotive sector, for the second straight year, we're running with very strong bookings across both of our businesses with the leading automotive OEMs inside and outside of China. On the non-auto side, opportunities are materializing much faster than we had initially expected, and that's across both of our business segments. And we've had a tremendous amount of success leveraging our automotive portfolio into these new markets. So that's an area that we're very optimistic, but the environment certainly is dynamic. I won't get specifically into 2027 at this point in time. As we move later into the year, that's something that we'll certainly provide incremental information about and updates on.

Itai Michaeli, Analyst at TD Cowen

Great, that's helpful, Kevin. And as a quick follow-up, good to hear a bit more conservatism in the second half guidance. I think the Q4 results revenue guide still implies a pretty healthy uptick versus Q3. Maybe just talk about some of the drivers and puts and takes and degree of visibility kind of into that Q4 ramp. Thank you.

Arun, Chief Financial Officer

Hi, good morning. It's Arun here. Listen. Yes, in terms of when you think about the year-over-year second half and also Q4 in particular, essentially it's a couple of points, right? The first is the year-over-year uptick in the production with the North America customer which had a fire at their supplier a year ago, so that unwinds from a comp perspective. The second is growth in our software and services business. As I mentioned, the $50 million reduction in software enterprise bookings is from a timing perspective, so we expect Q3 to be softer but again return to high single- to double-digit levels in the fourth quarter, and then just growth in our engineered components business.

OPERATOR

Your next question will come from the line of Mark Delaney with Goldman Sachs.

Mark Delaney, Analyst at Goldman Sachs

Good morning. Thank you very much for taking the questions. Kevin, you mentioned that even though Aptiv has been making good progress with its bookings for the Chinese domestic OEMs, not enough of those were on the export vehicles. Maybe you could talk a bit more on that. I would have thought Aptiv was very well positioned for exports given the global nature of Aptiv and your strength in other regions. So maybe talk a little bit more on what's happening and what Aptiv is going to do on that front going forward.

Kevin Clark, Chair and Chief Executive Officer

Yeah. So Mark, that's a great question and a very fair one. So we are very well positioned. I would say over the last couple of years the real focus was on how do we get a stronger mix with the leading local OEM. When you take a look at our revenues today in China on export platforms, it's about 10% of total revenues. So the mix is more heavily weighted for the domestic platforms. As you look at our bookings over the last two years, that percentage has significantly increased.

So the benefit of our product portfolio and our capabilities outside of the China market are certainly coming into play. But right now our revenues don't match the bookings mix over the last two years and that's something we're working on and that's something, quite frankly, we've been making progress on over the last year or so.

Mark Delaney, Analyst at Goldman Sachs

Okay, thank you. I also wanted to ask about the non-automotive opportunities, and nice to see the solid growth the last couple quarters there. You mentioned specific progress in drones and robotics. I think you said that business could approach $300 million of revenue in the next few years. What does that mean in terms of profitability? I know non-auto can be higher margin, but maybe there's also a number of investments you're making. So if you could speak a bit more on what you're seeing there and how to think about the profit implications.

Yeah, thanks.

Kevin Clark, Chair and Chief Executive Officer

Yeah. So from a run-rate standpoint, margin profile, as you can imagine, is much higher than what it is in automotive. We're investing in non-automotive capabilities today from a product and go-to-market standpoint that we talked about. There's minimal capital investment because we're using existing facilities, existing machinery and equipment. So from a capital standpoint that's less of an upfront cost and initial drag, but both markets are much higher margin profiles than what we experience in the automotive industry.

Mark Delaney, Analyst at Goldman Sachs

Thank you.

OPERATOR

Next question will come from the line of Emanuel Rosner with Wolfe Research.

Emanuel Rosner, Analyst at Wolfe Research

Great, thank you so much. One quick question on the change in guidance. It seems like, so I understand some of the revenue drivers, but it seems that the EBITDA line, maybe the implied decremental would be pretty high, like around maybe 40% which seems maybe a little bit above the normal. So can you maybe just talk about the change in the EBITDA guidance?

Arun, Chief Financial Officer

Emanuel, it's Arun here. Listen, the specific one really is the software timing item that I mentioned. So that really is to do with product mix. So that's the one which kind of leads to the second half. The $50 million reduction that I'm talking about, that really is what impacts that.

Emanuel Rosner, Analyst at Wolfe Research

Okay, so this is a very, very high decremental. And so therefore on average the total is around that 40%.

Arun, Chief Financial Officer

Yeah, I think typically the mix would be, the decremental would be less than that. I think just given the size of the software revenue reduction was roughly $50 million in the back half, the flow-through on that tends to be higher. Therefore the overall decremental in that particular period is higher.

Emanuel Rosner, Analyst at Wolfe Research

Understood. And then I understand the software revenue change is, you know, timing. Can you maybe just give a little bit more color around, you know, what's going on on the ground and just sort of like how to think about growth in software on a go-forward basis.

Arun, Chief Financial Officer

Yeah, so growth in software. So we've been growing high single-digit to low double-digit over the last several quarters in the software business. Our software business is kind of twofold when you break it down: embedded, SOL, which I would say tends to be less lumpy, and then enterprise solutions that go into markets like telco and industrial markets which tend to be larger in terms of their overall size, Emanuel. And at times they can shift for various reasons, and when they shift it has a more pronounced impact on a particular quarter's growth rate.

Emanuel Rosner, Analyst at Wolfe Research

Okay, but on a go-forward basis, what sort of growth rate would you expect?

Arun, Chief Financial Officer

Yeah, I think our growth rate will continue in the double-digit sort of growth rate with a target to getting to that mid-teens sort of growth rate. We've been a bit below that over the last few quarters.

OPERATOR

Thank you. Next question will come from the line of Joe Spak with UBS.

Joe Spak, Analyst at UBS

Thanks. Good morning everyone. Look, I appreciate sort of the coming clean on not being conservative enough and, you know, you think you built in more percussion going forward, but, you know, we've been here before. So maybe you could just sort of walk through, you know, how or what you're doing to sort of changing your plan, your planning process for some of this uncertainty. Because like I know it's schedule changes and ramps but really it's all sort of the same, right?

It's all one of the same. It's volume. So, you know, how are you thinking about, you know, one, planning the business and two, sort of communicating that on a go-forward basis. Like what's changing from here?

Kevin Clark, Chair and Chief Executive Officer

Yeah, yeah, I think, no, and Joe, that's a fair question. So I think as it relates to, as China becomes a bigger part of our overall revenue base, as the China local OEMs become a bigger part of our overall mix, as you know as well as I do, China OEMs have a number of different nameplates or a higher mix of nameplates relative to the Western OEMs. Just a more significant haircut from an overall conservatism standpoint, I think that is the major change in terms of our process, in terms of how we operate internally and how we forecast externally.

So to date we've had a process where we've discounted those schedules, obviously have not discounted them enough. I would say the China domestic market is significantly weaker at this point in time than what it's been over a number of years. With domestic retail sales down 20%, I think most people in our industry would have expected that the China government would have stepped in to provide some element of support as it relates to the industry. It hasn't yet.

And assuming that they would provide some support obviously near term was a mistake. So I think it's just an overlay of significantly more conservatism.

Joe Spak, Analyst at UBS

Okay, thanks for that, Kevin. And then maybe just some quick hitters on some of the non-auto things. One, like how quick can sort of the drone business, you know, come into sales. I noticed you said you're collaborating on 800 VDC. Can you just describe that a little more? Is that something you're licensing and building or are you creating your own solution? And then the optical M&A, is that a tech buy and something you need to commercialize or is there a book of business?

Kevin Clark, Chair and Chief Executive Officer

Yeah, so there's a couple layers to that. So as it relates to whether it's drone, robotics or energy storage, depending on the customer, the path to market is much faster. On the robotics and drone awards this year will have revenues in 2027, so I would expect typically roughly six months path to revenue. On the energy storage data center side, most of our product portfolio is in and around power side transition to 800 volt. Given our existing portfolio, 800 volt presents incremental opportunities.

We're working with several players. We'll be talking about more commercial awards I'm sure over the next couple months. Today in that space we have under $50 million in revenues. We expect that to grow at a very rapid rate, Joe, over the next three years. And again most of that is in and around power, both to the rack and now with some capabilities in the rack. And the M&A acquisition is just building out our portfolio as it relates to products that we can take, quite frankly, across multiple markets.

Joe Spak, Analyst at UBS

Thanks, Kevin.

OPERATOR

Your next question will come from the line of Colin Langan with Wells Fargo.

Colin Langan, Analyst at Wells Fargo

Oh great. Thanks for taking my questions. We've talked a lot about China being weak. I'm not sure if I'm looking at slide 8 wrong, but you actually, looks like you outperformed in China. According to that slide, you were up 5 and the market down 3, and it was pretty weak in Europe. So is that really the bigger issue? Because I think you mentioned also in comments about European exports to China weakening. Is that the bigger factor that's causing a headwind here, and is that possibly why, you know, we've seen other suppliers haven't cut guidances?

Do you have higher exposure to some of those players and that's having a bigger impact?

Kevin Clark, Chair and Chief Executive Officer

No. So there's a couple aspects. So we talked about traction in commercial awards in China with the local OEM, so we have made significant progress and that is what's reflected in our overall year-over-year growth. Having said that, that year-over-year growth was not as strong as we had initially forecasted and included in our guidance. So, yep, we showed strong growth, strong outgrowth, but not where we expected it to be. As it relates to the impact of China, the domestic market, the decline in the domestic market, the reduction in schedules impacted the local OEMs, impacting both our EC business as well as our IS business.

Our IS business was disproportionately impacted by the number two player in the China market who we were launching several active safety programs with. From a European standpoint, it really is principally the export of vehicles into the China market from two luxury European OEMs that we saw a significant reduction in their schedules, depending on the OEM, late June or July. I think they're the OEMs that have been the most public about their challenges in the China market, so you can identify who those are.

So that's where the biggest impact, quite frankly, is.

Colin Langan, Analyst at Wells Fargo

Got it. And just to follow up on earlier questions, the margins seem to, kind of the quarterly cadence here is a little odd. It's like there's a pretty negative decremental sequentially and then a big incremental into Q4. Is this all recovery driven? Is there some cost headwinds in Q3?

Arun, Chief Financial Officer

There are three things. So here's how I would look at it. One is just volume flow through Q2 to Q3, the incremental impact of a piece of that being software. So higher margin going from Q3 to Q4, bounce back in software, higher margin, volume pickup, just underlying volume and flow through on that volume. And third, as you know, engineering credits, recoveries, things like that tend to be stronger in the fourth quarter than they are in other quarters.

So that's the walk. There is an element of Q3 margin that's impacted by Varun, mentioned in his comments, timing on recovery. So normally that would have shown up in Q3. So Q3 is a little bit, let's call it artificially lower than what we would have expected. That has some general impact. But my comments about the walk as it relates to volume, software, recoveries, that's the biggest piece.

OPERATOR

Your next question will come from the line of James Piccarello with BNP Paribas.

James Piccarello, Analyst at BNP Paribas

Hi everyone. Kevin, can you share some thoughts behind the portfolio changes you had indicated at the tail end of your prepared remarks?

Kevin Clark, Chair and Chief Executive Officer

Listen, I don't have any specific comments I would make at this point in time. Clearly we're operating in a very dynamic market. And that's across regions and across technologies. And as we always do, we're evaluating that mix of products, that portfolio, and how we optimize and drive shareholder value. So I would just leave it at that.

James Piccarello, Analyst at BNP Paribas

Yeah, understood. And then just, can you share segment-level color on the updated guide here for the full year? What's embedded for each segment's non-auto growth in the outlook? Thanks.

Arun, Chief Financial Officer

Yeah, I think non-auto growth for both for the full year are relatively strong. Third quarter in the Intelligent Systems segment it'll be weaker given that software adjustment that I talked about. But we see a strong bounce back in the fourth quarter. Non-automotive revenue growth across both of the businesses has been very strong and in line with our 8% to 10% sort of framework that we've provided previously.

James Piccarello, Analyst at BNP Paribas

And then just, like, revenue core growth and margins by segment, or just directionally would be great. Thank you.

Arun, Chief Financial Officer

Yeah, just to be sure. Are you asking that for the full year or...

James Piccarello, Analyst at BNP Paribas

Yeah, yes, full year.

Arun, Chief Financial Officer

Yeah. Listen, in terms of both businesses, based on the latest updates that we've mentioned, as I mentioned, the revision in guidance is largely impacting the Intelligent Systems business, right, and we kind of gave you the puts and takes associated with that. So from an Intelligent Systems perspective, we would expect the business at this point in time to be approximately flat on a year-over-year basis on a revenue basis, with Engineered Components growing in the low- to mid-single digits.

So that's point number one. And then with regards to margins, margins essentially what we've kind of talked about previously, you know, solid margins coming through both businesses, with EBITDA margins in Intelligent Systems, call it the mid-teens level on a full-year basis, and then on our Engineered Components business in the, call it, low 20s — so roughly about 22 points of margin for the full year.

James Piccarello, Analyst at BNP Paribas

Thank you.

OPERATOR

Your next question will come from the line of Tom Narayan with RBC.

Tom Narayan, Analyst at RBC

Good morning, Kevin, Arun, and Betsy. Just one more question on this three buckets of exchange. Okay. So it looks like, yeah, look, the schedule change, you have the, I think, the European OEMs, the Chinese market, the delayed programs, and the timing one coming back in Q4. The timing one's fairly obvious, but just curious on the other two. I guess, do you have any level of confidence that those other two buckets — you clearly gave those buckets distinctly for a reason — potentially coming back in 2027?

Is this what's reliant on the Chinese government coming back with stimulus, or are some of those, like, you know, you're getting back? And then I have a follow-up.

Kevin Clark, Chair and Chief Executive Officer

And Tom, you're speaking to all three buckets, or are you speaking to reduction in H2 customer schedules?

Tom Narayan, Analyst at RBC

Just the non-timing one. We already know it's going back in Q4, but then you had two other items, right — schedule changing and delayed program. So just curious of those two buckets potentially coming back in 2027.

Kevin Clark, Chair and Chief Executive Officer

Yeah. So there's two aspects to the China local market aspect. One is domestic China market with domestic local OEMs and how that plays out during 2027. It's, at least for us, difficult to envision another year where the China local market is down 20% and production schedules are therefore adjusted to that point. So it's difficult to envision that. But those are some of the things that we're working through. There's a second piece as it relates to within that.

So the bulk of that 150 that Varun talked about is China local OEMs, and then there's a part that is effectively European exports into China. I think it's possible that those European exports into China, we don't see a bounce back during 2027 in light of the competitiveness of the China market. As it relates to the program delays and launch ramps, listen, the local China OEMs — I'm confident that you'll continue to see their launches ramp at a lower slope than what was originally forecasted.

There's one program from BYD that we're confident will be launched; it just was shifted, and that's an export vehicle program. And then there is the program that Varun talked about that was a European OEM — that was a delayed launch from a European OEM that initially the view was it was going to be rolled across multiple programs. But that program is launching as we speak, so that will be a tailwind from a revenue standpoint as we head into 2027.

Tom Narayan, Analyst at RBC

That's very helpful. It wouldn't sound as bad as then — the non-automotive question. I have — you mentioned this is coming in ahead of expectations, and I know you discussed this in depth at the investor day and these are all very different verticals. But just curious what you're seeing on the competitive side here that you're able to win so much here. I would have thought that there'd be incumbents in these verticals, or is this simply just lack of competitors and kind of a rising tide lifts all boats?

Just how have you guys been so successful in capturing these new business wins here?

Kevin Clark, Chair and Chief Executive Officer

Yeah, so I think — so I put them into two buckets. I would put the drone and robotics buckets where we're playing, and our principal focus on the drone and robotics areas is in and around autonomy. So robotics, it tends to be AMRs, although we have commercial opportunities with a few of the humanoid players. Our view on significant volume will be more likely to come from players like AMRs. It tends to be more of a nascent industry. I know there's a lot of talk about the size and growth, but it's a bit more nascent.

And it's not only our technology where we bring opportunity, but it's also our capability as it relates to systems, systems engineering, bill of material, supply chain, and manufacturing that is differentiated from the typical players in a nascent industry. On the drone side, that's even more so the case. There's significant demand for reasons that you're aware of. There is a requirement of a non-China supply chain, a number of different technologies.

That's something that we have visibility to, and we can provide our perception systems and compute, and the ability to take bill of material costs out is unique relative to their current supply base, which isn't very mature and isn't quite as organized as what we're accustomed to. So I would say it's a mix of bringing our technical capabilities, but there's an equal part of what we do day in and day out from an automotive standpoint. So there aren't really the traditional competitors, if I could say.

It's an area that we're moving very fast in. We've invested in capabilities, as Varun talked about. We're going to continue to invest and actually ramp up our investment in this area because the potential opportunity near term is significant. And as I said, the margin profile — pricing here is more value-based than cost-based. So the nature of those two markets are very good. I should now go to, if I can, just to the energy storage/data center. Listen, our sweet spot is power. That's what it is. We've put a team very focused on those two specific markets based on our backgrounds in power distribution. We are working with players who are well known in the automotive space for energy storage, including a now Texas-based global OEM as well as the leading China OEM, as it relates to leveraging our automotive relationship. And then we're working with several players that I alluded to who support those markets today for incremental opportunities.

And today again, our revenues are relatively small. But the size of the commercial pursuits and bookings we're confident will ramp up revenues certainly much faster than what we experience in the automotive.

Tom Narayan, Analyst at RBC

Thanks a lot.

OPERATOR

Your next question will come from the line of Rajat Gupta with JP Morgan.

Rajat Gupta, Analyst at JP Morgan

Great, thanks for taking the question. Just wanted to start with one clarification on the first quarter restatement. If I look at the press release and take the six-month EBITDA number, it implies a lower 1Q than what was provided in the 1Q deck and the financials on the website. Just want to make sure if that is just an accounting nuance that we need to be aware of.

Arun, Chief Financial Officer

Yeah, thanks, Rajat, it's Arun out here. Listen, that's all codo associated with the Versigen spin. So what you need to look at is the Q1 pro forma on our investor relations portal.

Rajat Gupta, Analyst at JP Morgan

Understood. So that's the right number. Okay, got it. And just to follow up, you know, just in the bookings mix within the Intelligent Systems — you know, year-to-date bookings or just second-quarter bookings — are you able to share any more detail in terms of how much is full stack ADAS including software versus modular? And I'm curious if that mix has changed at all over the last few months as a lot of manufacturers try to build more internal capability. Thanks.

Kevin Clark, Chair and Chief Executive Officer

Yeah, the trend that we're seeing — and I want to make sure, I think you're talking about the Intelligent Systems and tech stack — is more of a separation of software and hardware, and, quite frankly, more software opportunities. And I referenced the full tech stack award from a Gen 6 ADAS standpoint. We're seeing or experiencing a significant portion of our bookings in 2026 will be ADAS, Gen 6 ADAS solutions, the bulk of which will include our hardware and our software.

So we're seeing more momentum there. We're seeing more OEMs come to us as they work on their path to software-defined vehicles, asking us to do some of that software development in and around areas like middleware and other portions of their software tech stack. So I know we often get asked that question about insourcing from an OEM standpoint, and it varies a bit by OEM. But we would tell you our experience has been the overall trend — we've not seen that, and in fact we've seen several OEMs who have attempted to do broad-based software that have decided to go down a different path and be more reliant on suppliers.

Rajat Gupta, Analyst at JP Morgan

Got it. Got it. That's helpful. Thanks for that color, and good luck.

OPERATOR

And that was our last question. This will now 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, Chair and Chief Executive Officer

Thank you, everyone, for joining us today. Have a great day.

OPERATOR

This call is now complete, and thank you so much for joining.

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