Q3 2025 Earnings Call Transcript

Good day, and welcome to the Aptiv Q3 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead.

Thank you, Jess. Good morning, and thank you for joining Aptiv's Third Quarter 2025 Earnings Conference Call. The press release and related tables, along with the slide presentation can be found on the Investor Relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items and will address the continuing operations of Aptiv.

The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv's Chair and Chief Executive Officer; and Varun Laroyia, Executive Vice President and Chief Financial Officer.

Kevin will provide a strategic update on the business, and Varun will cover the financial results in more detail before we open the call to Q&A. With that, I'd like to turn the call over to Kevin.

Thank you, Betsy, and thanks, everyone, for joining us this morning. Starting on Slide 3. We had another strong quarter. We capitalized on the underlying growth in vehicle production in North America and Asia Pacific, while also continuing to experience strong revenue growth in nonautomotive markets. Our resilient operating model has allowed us to proactively respond to shifting global trade policies, allowing us to keep our customers connected with minimal impact to our operations and profitability, thanks to our in-region, for-region integrated supply chain network, underpinned by the end-to-end global visibility provided by our comprehensive supply chain digital twin.

Our robust operating model has been validated by the Supplier Quality Excellence awards we've received from Volkswagen and General Motors this year, underscoring how Aptiv is trusted by our customers to consistently deliver high-quality solutions on time. And when combined with our unique full system solutions, we're able to provide our customers with flexibility and cost savings, which expands our competitive moat and which we've leveraged to accelerate our penetration of other end markets. Lastly, with our focus on further maximizing shareholder value, we're progressing as planned with the separation of our Electrical Distribution Systems business by the end of the first quarter of 2026. Moving on to our third quarter financial performance.

The strength of our product portfolio and operating execution translated into another quarter of record financial results, including revenue, operating income and earnings per share. Our third quarter bookings of $8.4 billion validate customer confidence and strong market demand for our portfolio of advanced technologies. Revenues increased 6% to $5.2 billion, reflecting strength across multiple areas of our business as well as stronger-than-expected vehicle production in North America and China. Operating income increased 10% to $654 million, reflecting the flow-through on volume growth and continued strong operating performance.

Increased operating earnings and lower share count drove record earnings per share of $2.17. And lastly, we generated $584 million of operating cash flow and deployed $250 million for share repurchases and debt paydown. Varun will discuss each of these in more detail later. Moving to Slide 4 to review our third quarter business bookings. As expected, customer awards accelerated in the quarter.

Our portfolio of advanced technologies and track record of flawless customer service led to $8.4 billion of new business awards, including $1.6 billion in our Advanced Safety and User Experience segment, $2.1 billion in our Engineered Components Group and $4.7 billion in Electrical Distribution Systems, bringing our year-to-date new business bookings to roughly $19 billion. We exited the third quarter with momentum, and our customer award pipeline remains large and is growing. We continue to expect roughly $31 billion in new business bookings for the year, although timing of some program awards slated for the fourth quarter could shift into 2026. Let's move on to review each segment in more detail.

Moving to Slide 5 to review the third quarter highlights for our Advanced Safety and User Experience segment. Revenue was flat year-over-year, reflecting the launch of new programs and continued strong growth for Wind River, over 20% in the quarter, partially offset by the ongoing headwinds related to the roll-off of a legacy infotainment program and the cancellation of certain programs with 2 Chinese local OEMs, both of which we discussed last quarter. Third quarter program launches reflect the breadth of our product offering. Highlights include the launch of Aptiv's new Gen 8 radar product, which unlocks new possibilities for hands-free driving in complex urban environments with improved cost and efficiency for our customers.

The first high-performance cockpit controller launch for Mahindra's market-leading BE6 and XEV 9e high-volume electric SUVs, further underscoring Aptiv's ability to support different configurations based on customer needs and several launches for ADAS controllers with leading Chinese local OEMs, including Changan, incorporating an increased percentage of locally sourced components. Moving to new business bookings. We continue to experience strong demand for our active safety products as well as our next-generation user experience solutions, evidenced by multiple awards with global OEMs extending their L2 and L2+ ADAS programs, a full stack cross-platform next-generation in-cabin sensing solution for a major Korean OEM and awards with leading Chinese local OEMs, including Geely, Chery and Changan across numerous product lines, including advanced active safety.

Wind River was awarded new business across multiple end markets, including enterprise cloud offerings for Black Box, a global leader in digital infrastructure solutions, software application and VxWorks RTOS on mission-critical systems for an aerospace and defense prime and real-time operating system software for industrial market applications. Efforts to expand Wind River's Edge AI ecosystem continue with 3 new strategic AI partnerships forged this quarter, including with Latent AI to bring AI capabilities to real-time edge platforms for mission-critical infrastructure, Toradex to advance innovation for aerospace and defense by uniting certifiable reliability with rapid development and SOCE, integrating its time-sensitive networking solution with VxWorks RTOS to create a scalable, secure and certifiable foundation for mission-critical applications.

Moving to Slide 6 to review the highlights for our Engineered Components Group. Our new business awards and program launches validate the strength of our product portfolio and established position across multiple end markets. Notable program launches include high-speed connector assemblies for an all-new fully electric midsized SUV for a global OEM, high-voltage solutions for multiple Asia Pacific OEMs, including connectors for a mass market electric vehicle platform with a Japanese OEM and an electrical center for Voyah, Dongfeng's luxury electric vehicle brand. During the quarter, new business bookings included a cross-platform award for a large European OEM integrating our connectors and cables into our intercable automotive busbar application, enabling DC fast charging, high-voltage connector awards with multiple global OEMs, including a Conquest Award for next-generation EV platforms, customer awards for high-speed connector assemblies across nearly a dozen OEMs, including BYD, Chery and Changan, interconnects and assemblies for Alstom Transportation, a global leader of high-end passenger rail vehicles and equipment and interconnects across energy, data centers and A&D applications.

Turning to Slide 7 to review our Electrical Distribution Systems business, which delivered double-digit revenue growth, reflecting solid business performance and an easier year-over-year comp. New program launches reflected the pace of new business awards, including incremental content on a major SUV platform from a large North American OEM, multiple launches with select Chinese local OEMs that are focused on increasing their penetration of global markets, including Leapmotor and SAIC and the launch of our first program in the energy storage sector, demonstrating a market where automotive expertise easily translates. [indiscernible] Moving to new business awards.

We continue to book programs across low- and high-voltage architectures [indiscernible] as well as geographic regions. During the quarter, we were awarded incremental volume for a global OEM's top-selling North American truck platform as well as low- and high-voltage architectures for U.S.-based global EV manufacturers autonomous mobility program. We also booked over $1 billion of new business in China, a significant portion of which was with local OEMs, including Chery, Great Wall Motors, Changan and Xiaomi. Turning to Slide 8. Before I pass the call to Varun to take you through our financials in more detail, I'd like to briefly discuss our updated 2025 outlook and the setup heading into next year.

As Varun will discuss, we're raising our full year 2025 guidance, reflecting the strength of our third quarter results, partially offset by recent customer-specific production disruptions and an outlook for the fourth quarter that prudently incorporates an element of conservatism to reflect the amplified trade tensions beginning to impact semiconductor supply chains. Although it's early in terms of providing explicit guidance for 2026, as we sit here today, we're confident that our revenue growth will accelerate next year, driven by new automotive program launches and continued double-digit revenue growth in the other end markets we serve.

However, the macro environment remains very dynamic with changing geopolitical trends, regulations and trade policies as well as customer-specific challenges, all of which are difficult to precisely forecast. Regardless, our team remains relentlessly focused on navigating the challenges in the current environment, flawlessly serving our customers and delivering strong financial results that increase shareholder value. And we'll continue to provide you with as much visibility as possible into the macro dynamics we're facing. Lastly, the separation of our EDS business, which we'll talk more about at our Investor Day in a few weeks, will result in 2 independent companies that are well positioned to pursue their unique market opportunities and capital allocation strategies and will unlock incremental value for shareholders.

I'll now turn the call over to Varun to go through our financial results and our full year and fourth quarter guidance in more detail.

Thanks, Kevin, and good morning, everyone. Starting with our third quarter financials on Slide 9. Aptiv delivered record financial results in the third quarter, reflecting strong execution in a better-than-expected vehicle production environment, double-digit growth in non-auto end markets, the timing of certain customer settlements as well as the benefits of ongoing capital allocation initiatives. Revenues were a record $5.2 billion, up 6% on an adjusted basis. Adjusted EBITDA and operating income grew 9% and 10%, respectively, also reaching record levels.

And operating income margin expanded 30 basis points, primarily driven by strong volume flow-through, manufacturing performance and the benefits from our ongoing cost initiatives. These efforts helped offset the unfavorable impact of FX and commodities, a 130 basis point headwind to margin on a consolidated basis, largely driven by the impact of the Mexican peso and copper. Earnings per share totaled $2.17, an increase of 19%, reflecting the flow-through of higher operating income and the benefit of share repurchases and lower interest expense, partially offset by higher tax expense versus the prior year due to the timing of certain discrete items.

Operating cash flow was also strong in the quarter, totaling $584 million, and capital expenditures were $143 million. Before we go into details on the quarter and our updated outlook for the year, I wanted to discuss the noncash goodwill impairment charge that we recorded in the third quarter and is excluded from our adjusted results. The impairment charge of $648 million for Wind River is the result of our regular impairment testing of our reporting units. The charge reflects slower than originally expected growth in the business over 2023 and 2024, owing to delays in 5G adoption and the launch of software-defined vehicles.

That being said, this impairment does not change our expectation for the long-term structural growth and value that Wind River represents for our business overall as evidenced by solid double-digit growth year-to-date and our expectation to deliver mid-teens growth in 2025. Turning to the next slide and looking more closely at third quarter adjusted revenue growth on a regional basis. In North America, revenue grew 14%, driven by double-digit growth in AS & UX, primarily within active safety and Wind River, while EDS also grew double digits. In Europe, revenue was down 3%, driven largely by AS & UX, while both ECG and EDS grew low single digits.

And in China, revenue was flat, which reflected the impact of unfavorable customer mix in the AS & UX segment that we discussed last quarter, offset by strong growth in ECG. Moving on to our segment performance on Slide 11. And again, I'll refer to revenue growth on an adjusted basis. Starting with AS & UX, revenue of approximately $1.4 billion was in line with the prior year with strong growth in Wind River, up over 20% and strength in our North America business, which was offset by the roll-off of a legacy infotainment program and customer mix in China, headwinds we discussed last quarter. As a reminder, we expect these dynamics to continue through the end of this year before abating into next year.

AS & UX adjusted operating income was down 16%, which reflected a $21 million headwind associated with lapping of a customer settlement from a year ago, which I discussed last quarter. Excluding this item and unfavorable FX of 80 basis points, margin would have been essentially flat in the segment. For ECG, revenue of $1.7 billion increased 6% and was driven principally by growth in China, more specifically, nearly 30% growth with local OEMs and continued strong growth in the non-auto end markets. ECG adjusted operating income grew 10% and margin expanded by 20 basis points, driven by flow-through from stronger volumes, which was partially offset by a 120 basis point impact of unfavorable FX and commodities.

Lastly, for our EDS business, revenue of $2.3 billion increased 11%. This was driven by growth across all regions, though principally North America, which benefited from an easier comparison as one of our major customers, took substantial production downtime in the third quarter of last year in addition to benefiting from strong EV production ahead of the EV tax credit phaseout. EDS adjusted operating income grew by 54% with over 200 basis points of margin expansion. This was driven by favorable volume flow-through, performance in manufacturing and timing of a $15 million customer recovery, all of which more than offset a 150 basis points impact of unfavorable FX and commodities.

Now let's review our balance sheet on the next slide. We generated $584 million of operating cash flow in the third quarter with the increase versus the prior year, owing primarily to higher earnings and also lower net working capital. We ended the third quarter with over $1.6 billion of cash and $4.2 billion in total liquidity. This is net of nearly $250 million in proactive capital allocation in the quarter, including $96 million of share repurchases and $148 million of debt paydown.

Since the beginning of the third quarter of last year, we have deployed approximately $3.2 billion in cash towards share repurchases, including our ASR program. Additionally, we have paid down roughly $1.2 billion of debt on an LTM basis, net of $700 million of refinanced euro notes. Given the strength of our operating model and our balance sheet, we expect to continue these efforts through the end of the year. With gross leverage now at 2.4x and net leverage at 1.8x, our net leverage is now consistent with the levels prior to our ASR program.

Turning now to our guidance, which we are raising for the full year. Starting with our growth outlook on Slide 13. We now forecast active weighted global vehicle production to be approximately flat for full year 2025, equating to approximately 95 million units, and this is consistent with the industry's performance year-to-date. Relative to our prior 2025 outlook, this reflects stronger volumes in China and North America. Based on our vehicle production assumptions, we expect full year adjusted revenue growth at the midpoint of our guidance to be up 2% on a global basis, including North America up 5%, Europe down 3% and China down 1%.

For the fourth quarter specifically, we forecast active weighted global vehicle production to be down 3%. Within this production backdrop, we expect fourth quarter adjusted revenue growth in North America to be up 7%, driven by growth in AS & UX as a result of new product launches, continued growth at Wind River as well as growth in EDS. Europe down 4%, driven by low to mid-single-digit declines across all segments and China down 4%, reflecting customer mix in the AS & UX segment. Moving on to other components of our guidance.

Our full year revenue outlook of $20.3 billion at the midpoint continues to reflect an adjusted growth rate of 2%. The higher midpoint is largely the result of FX, primarily the euro as well as stronger vehicle production, offset by recent supply chain disruptions and production adjustments at some of our OEM customers in North America and Europe. Adjusted EBITDA and operating income are expected to be approximately $3.22 billion and $2.45 billion at the midpoint, each up 4% versus the prior year. The higher midpoints largely reflect the stronger third quarter performance, offset by lower expectations for the fourth quarter, which I'll talk more about in a moment.

Adjusted earnings per share is estimated to be in the range of $7.55 and $7.85, up 23% at the midpoint. This is $0.25 higher than our prior range, reflecting the higher operating income as well as the benefits of our capital allocation actions. And lastly, we continue to expect operating cash flow of approximately $2 billion and capital expenditures of roughly 4% of revenue. Our fourth quarter guidance implies a revenue growth of 1% on an adjusted basis at the midpoint.

This is slightly below what was implied by our full year and third quarter guidance provided in July, which primarily reflects the impact of recent developments at certain customers and within the broader supply chain. Specifically, based on our current visibility into customer schedules, we estimate recent known disruptions and production adjustments at a few of our OEMs in North America and Europe creates a revenue headwind of approximately $80 million. Beyond this, our guidance has contemplated an element of conservatism related to amplified trade tensions impacting semiconductor supply chains.

Our fourth quarter guidance implies operating income margin of 11.8% at the midpoint. Relative to our prior guidance, the margin reflects the impact of the flow-through of the known customer disruptions I just mentioned, elevated copper prices and the timing of certain customer settlements that were realized in the third quarter rather than the fourth. Lastly, we forecast fourth quarter adjusted EPS to be in the range of $1.60 to $1.90. As with prior updates, our current guidance reflects our exposure to tariffs based on trade policy as it currently stands and does not include the impact of tariffs that have not yet been implemented.

As a reminder, our direct exposure to tariffs is minimal, in large part because of a high compliance with USMCA and our low level of non-USMCA imports into the United States. In the limited areas where we have exposure and cannot change sourcing owing to the industry setup, we have largely been able to pass on the incremental costs. That said, with our resilient business model and relentless focus on optimizing performance, we remain confident in our ability to drive strong execution and financial results. With that, I'd now like to hand the call back to Kevin for his closing remarks.

Thanks, Varun. I'll wrap up on Slide 15 before we open the call to Q&A. We exceeded expectations in the third quarter, delivering record revenue, operating income and earnings per share, and we're well positioned to continue our strong operating performance heading into next year. Our continued strong execution despite ongoing uncertainty in the macro environment is a function of our robust business model and our proactive efforts to continually enhance our product portfolio and improve our cost structure.

We continue to experience strong demand for our portfolio of industry-leading products and remain uniquely positioned to benefit from the acceleration towards a more automated, electrified and digitalized feature that's happening across multiple end markets. We remain vigilant on positioning Aptiv for long-term success through proactive portfolio management and cost structure optimization with the separation of EDS being a great example of our commitment to increasing value for shareholders. We look forward to updating you more at our Investor Day in a few weeks. Operator, let's now open the line for questions.

[Operator Instructions] We'll go first to Chris McNally with Evercore.

Kevin, thanks so much for all the detail on the many headwinds on Q4. So if we could just break that down. I think you said $80 million known and then obviously, an added uncertainty because I think the [ NextEra ] is really just starting. I was wondering if we could call out [ Oswego ] as part of the $80 million because obviously, your North America was raised while it looked like your Europe brought down 2%. So it seems like it's focused on Europe.

And so I just wanted to see if we can rank kind of where we saw the weakness. And then I'll follow-up on the chip issue.

Sure, sure. Thanks, Chris. So as you look at that $80 million, it does encompass some volume impact associated with the facility issue or the facility fire in Oswego. So that is contemplated as a part of that $80 million.

There are other -- as you're aware of, there are other kind of unique customer-specific situations with OEMs, including OEMs in Europe that are impacting our outlook for European production. And then again, there's an element of not customer-specific, but an element of conservatism that we've overlaid in the European market and North America market as it relates to principally supply chain issues tied to some of the geopolitics and trade tensions going on.

Okay. Absolutely makes sense. So essentially probably getting into $100 million plus in Q4, which is a 2% headwind. So -- that makes sense.

Without speaking about customer specific, could you just -- what is your knowledge of what's going on with NextEra? I mean it seems like it's so much more of a political issue at this point. Obviously, we can resource over time. But there seems like there must be something where the Dutch government and China come to some near-term remedy, or we're going to have a larger -- I think it's an 80% of European chips.

Can you just -- how you are framing the issue because it seems like it's something that could be pretty bad over the next couple of weeks.

So you're right in framing it. It is a political issue, and it is a political issue between the Dutch government and China. So I think it's important to understand the parties involved. As it relates to the situation, we can tell you product is flowing in China.

So as we sit here today, it does not -- we're certainly not being impacted. We would not expect production in China to be impacted. I would say it's a product area where, by and large, the industry has alternative sources. And there are players like us that have already validated where we have solutions where we have risk.

I think that is likely a similar situation across the supply base. Some suppliers like ourselves may be further ahead versus others. But I think this is something that the industry has been contemplating. It appears as though the issue in terms of a noise standpoint, seems to be a bigger issue in Europe than it is in North America at this point in time.

I can't give you a great explanation as to why that's the case, Chris, but just based on what we're hearing in terms of suppliers that are being impacted and how they're impacting OEMs. If there's a resolution politically, it's something that will get fixed very, very quickly. If it's not resolved, it's something that will take some time to resolve, but is resolvable. And sitting here in our shoes, it's impossible to predict exactly between those 2 bookends where things fall out, which is one of the reasons we overlaid some of the conservatism into our outlook for Q4. For us, we have roughly 3 months of inventory.

We were confident we won't impact any OEMs in the fourth quarter. And as I said, we have second alternatives that have been validated across most of our product portfolio that falls -- that matches with [ NextEra ].

We will go next to Joe Spak with UBS.

I want to follow along that conversation and maybe some of the impact to the margin guidance, specifically for the fourth quarter. And I know there's a ton of moving parts here as Kevin and the team as you just sort of went through. But the midpoint of fourth quarter is 11.8%. Even the high end is 12.4%.

You just did 12.5%. Now I know it sounds like that third quarter number, if you adjust for that recovery is maybe 20 bps, so it's a little bit lower, and then you're talking about some conservatism in the revenue for fourth quarter. But even that seems like it would only add like 10, 20 bps, if my math is correct. So I'm just wondering, is there anything else going on, on the cost side or on the margin side in the fourth quarter?

Because historically, there's been a bigger sequential improvement, if you will, given engineering recoveries, et cetera.

Joe, it's Varun Laroyia. Let me try and answer that one. Great question. So listen, I'd say kind of 3 key pieces to think about.

One is just the flow-through on the weaker volumes that Kevin just referenced, right, that $80 million to $100 million of kind of lower revenue coming through. So the flow-through on that, as you rightly pointed out, the one customer recovery that I called out of about $15 million that we had anticipated in the fourth quarter, but that came in, in the third quarter. And then the final one I'd like to highlight is just the elevated copper prices. I'd say the first 2 items, so this is the flow-through on weaker volumes and the elevated copper prices.

Those are marginally higher than the kind of 20-plus bps that you calculated from the recovery timing. So think of it from that perspective, those are the kind of 3 key drivers in terms of kind of where we're guiding towards for fourth quarter margin rate.

Joe, I think -- so I would say you have volume, you have timing on that customer recovery. And then the year-over-year impact from an FX commodity standpoint is significant on a year-over-year basis. And it's both FX, principally the peso and copper. And that impact, at least based on our math, is north of 100 basis points on a year-over-year.

So that might be the piece when you look at operating income and margin rate, you don't have the full visibility to.

Super helpful. And just on copper, I just want to make sure I get that right. That's a margin impact, but not -- but less of a dollar impact, correct, because it's passed through.

Well, there's some dollar impact. It's timing. It ends up being timing. You're right. You're typically right. But depending on how quick the movement is from a copper price standpoint, it can have more or less of an impact on the earnings number.

Okay. Maybe just bigger picture, and maybe we'll hear more about this at the Analyst Day in a couple of weeks. But non-auto, you highlighted, grew 14%. I know smaller numbers, but you're starting to sort of show some of these other areas, the EDS energy storage.

Any way to sort of contextualize how big an opportunity you think that is? And is there any opportunity in that -- in, let's say, an energy storage business for the ECG business out there?

Yes. So the opportunity is very -- so one, we will talk about at the Investor Day across each of the businesses. So we'll share more. Two, the opportunity is very big, especially around areas like energy storage, like robotics, like drones, as an example, from a market standpoint.

There's incremental focus across each one of our business units in terms of where we have existing product and the right to play. And we'll talk about opportunities maybe to make some incremental investment in certain product areas to leverage our existing base, both from a product standpoint as well as a market standpoint to actually grow in those markets. And the opportunity is big. I mean today, when you think about nonautomotive revenues, we're approaching over $3 billion of total revenues.

During the quarter, we grew mid-single digit or mid-double -- mid-teens sort of growth rate in that particular area, and it's being driven across the ECG, the AS & UX and the EDS portfolio. And we'll talk a bit about when you look at AS & UX, and I know the growth right now this year has not been outstanding. But when you look at the software portfolio, the GAAP software portfolio, we're up north of $600 million in revenues, and that's growing north of 20%. And we have bookings and plans to continue to grow that particular area as well.

A good sneak peek for a couple of weeks.

We'll go next to Dan Levy with Barclays.

I wanted to drill down on some of the growth dynamics in the quarter because I think you had given us maybe some parameters early on, some of the customer issues that were going on in China, but on the flip side, there are some launch activity. So maybe you could just help us decompose within the 3Q regional results where we saw North America do really well, Europe underperformed, China underperformed. How much of that was the launch activity coming through versus maybe things like JLR or the Zeekr, NIO issues that are maybe more temporary. So maybe just help us decompose and the line of sight to just growth in aggregate being better and specifically in China.

Maybe I'll start with -- at a high level, and then Varun can go through some numbers by regions, Dan. So right now, we're actually seeing very little push out of program launches. There's 1 or 2 here or there, but it's not -- we've not seen a significant trend. We have seen launches at lower volumes or the curve, the slope of the curve from a volume standpoint being somewhat lower.

So that has had some impact. The bigger impacts for us in Europe and China tend to be tied to specific OEM volume issues in Europe as it relates to European volume, it tends to be a large German OEM, who is impacted both our AS & UX and EDS business as well as a French global OEM that we've seen reductions in existing production schedules for the European market. In China, the big impact for us this year were those 3 program cancellations that we talked about for NIO and Zeekr in the second quarter. There is some slight, I would say, headwind growth from a growth rate standpoint when you look at, for example, our EDS mix versus overall market mix, but that business is closing the gap.

So it tends to be, for us, significant sort of impacts by discrete customer situations, and they vary a little bit by region and they vary a bit by customer.

Kevin, the only piece I can add just to give a bit more context with -- when we kind of gave guidance in July for the third quarter is North America production, what we had anticipated going into the third quarter was roughly about down 3%, and that, as you all know, came through very strongly at almost 4 points above. So we certainly benefited from the stronger vehicle production that Kevin also mentioned previously. And so sales growth was the big aspect. And as I mentioned, also North America delivered and performed incredibly well.

EDS was double digits. AS & UX also was double digits. But that really is the big piece which came through in the third quarter. And then obviously, the flow-through on OI that comes on the back of that sales growth side of things.

Great. As a follow-up, I wanted to maybe follow up to Joe's prior question. And as far as the growth opportunity in some of these adjacent areas inorganically, and I'm sure you're going to double-click on this at your Investor Day in a couple of weeks. But just the rough M&A framework and specifically, how you look at the willingness to do deals when reality is maybe some of the assets you might be pursuing are going to be at multiples that are higher than where you are.

What is the willingness to deals that maybe on the surface appear dilutive and what the framework is in approaching that?

No, that's a great question. I'd start with each situation is unique. We can certainly do the math with respect to our multiple versus the multiples on some of those assets. We think the general view is in order to diversify meaningfully from a revenue -- market standpoint, revenue standpoint, M&A is going to have to be a part of that.

When you think about that, that means that those transactions will have to have meaningful synergies, right, from a cost and maybe in some cases, a revenue standpoint. And we'll need to think about the framework in terms of size, multiple synergies, ease of integration and ultimately, how does that position us for future growth in markets outside of automotive. So I don't think there's -- Dan, there's a one answer. I think it really depends on each unique situation.

I would say we are committed to grow in other markets. A part of that is M&A related. And we have a large funnel of potential opportunities out there that we continue to evaluate and consider and understand the parameters or kind of the current dynamics with respect to our multiple versus some other market multiples.

We'll go next to James Piccarillo with BNP Paribas.

Can you speak to how active safety growth performed in the quarter and just how you're thinking about the second half? I believe you guys referenced challenges, temporary challenges in China. So curious on the progress and the outlook there. And then also for user experience, I thought the communication was that there's some stabilization on the near-term horizon.

So curious what the assessment is there as well.

So when you look at active safety growth in the quarter and back half of the year, we would expect that to be low single digits versus first half of the year kind of high single digits. That is specifically the driver of those 3 programs that we mentioned. Those were active -- had significant active safety content. So those 2 OEMs or 3 programs, that's what's impacting growth rates in the back half of the year.

Listen, over the last couple of years, we've had solid bookings in active safety. This year, year-to-date bookings are close to $3 billion. So close to the size of our ADAS revenues today. We'll book more in the fourth quarter.

We're making progress in China, just given the nature of that market and the shorter time frame between program award and launches. So we think that's something where you'll see solid return to growth in 2026.

Understood. And then I know this one is...

And then you asked -- there was a second piece, I'm sorry to interrupt you, but you asked about also on the user experience side. So impact or growth on a year-over-year basis, back half of the year will be down low double digits. We were down 10% in the third quarter. That's the specific roll-off, the program that we talked about.

That will annualize end of the fourth quarter. So as we head into next year, we would expect to see user experience begin to return to a growth mode. We've similarly had program awards and other pursuits that are out there. So we'd expect that product line as well to return to growth mode in 2026.

Understood...

Sorry to interrupt.

No, no, not at all. And then, yes, I realize this is a sensitive question, but is the company potentially pursuing alternatives beyond just the spin-off of ADS concerning a potential asset sale? Or should we be squarely thinking about the spin-off in the first quarter?

Well, listen, we control the spin, right? At the end of the day, that's something that we have total control of. It's the path that we announced back in January. We're focused on driving shareholder value. So whatever outcome generates the best return, that's what the Board obviously will evaluate and ultimately make decisions on.

We will go next to Itay Michaeli with TD Cowen.

Just wanted to revisit -- good to hear the commentary on revenue growth potentially accelerating into 2026. I was hoping you could just share a bit more detail on some of the underlying assumptions for LVP, maybe mix, EV, anything you can share as well as if there are any puts and takes we should think of in terms of the kind of OI margin next year?

Those are a lot of specific questions about 2026 as we sit here in October and wrestle with some of the market dynamics. I guess at a very high level, Itay, as we think about the overall market, sitting here today, I think we would view the market is basically likely flat to maybe slightly down. Part of that is how we plan to be transparent. We tend to -- in terms of managing our cost structure and where we're making investments, we try to be conservative on the vehicle production side.

So as we're -- Varun and team are going through the planning process now, that's kind of where we're baselining. Having said that, we've had strong last couple of years of bookings. We are seeing -- we've had very strong launch activity during 2024 and the first half of 2025, which will translate into higher revenue. We've annualized on the electrification headwinds that we had last year and earlier this year.

So those headwinds are, by and large, we feel like behind us at this point in time. And at the same time, we're seeing significant growth in China, strong growth or solid growth, I should say, in Europe. So that should prove to be a tailwind. We continue to see demand for things like active safety.

We're having very strong growth outside of the automotive space in adjacent markets that's running double digits. So as we look at all of those sort of factors, we think the setup is a reasonably good setup, and we'll caveat that with the geopolitics and potential changes to trade policy and tariffs that we're not -- we don't have full visibility to at this point in time. From a margin expansion standpoint, obviously, we're always focused on our cost structure. With that, revenue growth will deliver margin expansion.

Not prepared to sit here and kind of walk through that today. We'll talk more about that during our Investor Day and the path on how we get there. But I guess suffice it to say, even with all the macro trends that we've been wrestling with, the business has done a great job growing and increasing profitability on a year-over-year basis. You look at what we've done this year with FX headwinds on a year-over-year basis.

And listen, you take a step back in reality, we'll end up -- on an FX-adjusted basis, we'll end up expanding margins by -- help me out -- sorry, by 120 basis points. And that's with all of the trade and other issues going on at this point in time. So the business model has been set up pretty well, and we feel good about the momentum we have as we leave 2025 and we head into 2026.

Kevin, if I can, I'm just going to add one more item. As you think about -- and we've talked about this, our continued growth in the non-auto sites. This includes commercial vehicles, but also end markets such as A&D, IT, data, telco, other industrial markets. That business is in the high $3 billion, rapidly approaching almost $4 billion.

And that entire set of businesses, that's kind of growing high single digits, almost double digits, right? So as you kind of roll the tape forward on that into 2026, we expect that growth to be significantly in line with where we are currently. So obviously, significantly faster than the auto side. And then also as you think of the product and services within that set of end markets such as Wind River, a higher margin profile.

Again, listen, we provide more details, but I just want to make sure that, Itay, we gave you a comprehensive response on both the non-auto, but also the big push into non-auto end markets.

Yes. That's incredibly helpful. As a super quick follow-up, I'm curious how you frame the opportunity within the Gen 8 radar products, if you think you might be able to gain share from other Tier 1s? Is it more of a CPV? Or there's an opportunity to displace ultrasonics for surround sensing?

So the Gen 8 radar, we're confident is industry-leading versus any of our competitors. So there certainly is an opportunity to grow and to take share across all the regions that we operate in. We have other products, I think part of which you're referring to a product we refer to as Pulse that leverages our radar capabilities and allows OEMs to actually eliminate ultrasonics, replace those with radar and enhance parking systems and a bunch of other things that in addition to additional performance, it reduces OEM costs pretty significantly. So that's a separate product where we're getting significant amount of pull.

We will go next to Mark Delaney with Goldman Sachs.

First, I was hoping to better understand the degree of conservatism assumed in guidance from Nexperia as well as broader trade tensions that you referred to for 4Q guidance. It looks like sequentially, 4Q revenue is guided down roughly $160 million. About half of that you said is from customer-specific downtime. So when I look at typical seasonality, it tends to be flat to up.

So it would seem to imply there's maybe to $80 million or a little bit more than $80 million from some of these trade factors that's conservatism. But if I'm misunderstanding, are there other ways to better frame that, it would be helpful.

Yes. I think to be honest, and it's a fair question, I think it's impossible to give you a specific answer to that. So we've looked at schedules. We've reduced our outlook for schedules.

And that's what's translated into our outlook for the fourth quarter. I think Varun gave you the direct visibility to what we have seen from a schedule adjustment standpoint to date as it relates to some of those specific customer supplier issues that you guys are all very well aware of. The range of the Nexperia outcomes are so broad, right, that it's really tough to give you a precise number. So it's one where we just overlaid some incremental conservatism into our estimate.

Understood, Kevin. And then my other question was just around bookings. Your guidance for the year of roughly $31 billion implies a meaningful pickup in the fourth quarter. Maybe if you could talk about what areas you're seeing the most momentum as you look into the fourth quarter bookings.

And then also, you did say that potentially some awards may move into '26. Any context as to why that may be occurring?

Yes. I would say the movement, it's just timing, just nothing more than OEMs making decisions. I think there's an element of certainly the disruption that we're -- or potential disruption that we see as it relates to trade policy doesn't help things from a decision-making standpoint. I would say there are a number of large AS & UX awards that are in the fourth quarter that are in and around or currently signed for the fourth quarter.

Discussions with OEMs are progressing very well. So they're moving along at this point in time. They tend to be around, as you can imagine, ADAS user experience as well as some SVA sort of opportunities, North America, Europe as well as China.

We'll move to our final question coming from Edison Yu with Deutsche Bank.

This is Winnie Dong, for Edison. I wanted to drill a little bit down on the China mix. How much was it as a headwind to your growth over market for the full year? And then maybe just based on your bookings and what you might be seeing in the pipeline for next year, what you might be expecting for China mix into 2026?

Yes. I'll start with your last and then -- I'm not sure we'll give you an exact dollar amount on the headwind for a couple of reasons. But on the mix, this year, 85% of our bookings are with China local OEMs. Our focus with the locals is pretty limited to the top 10 with incremental focus on those who are focused on export as well as manufacturing outside of the China market.

Growth in that category for this year, I believe, is in those particular -- those particular sort of programs is up like 84% on a year-over-year basis. So very, very strong growth across each one of our segments. And again, I'm referring to export revenues. So our focus for China is how do we make sure that we're with the winners that we can support and serve them profitably and that we can work with them to take their products into international markets where we can add the most value.

So I'm not sure we'll ever perfectly match the revenue mix with production mix given there are 76 OEMs in China today based on at least my last count. And there's a large portion of those that aren't strategically ideal for us to be supporting and serving.

Got it. And then my follow-up is on SVA specifically. I was wondering if you can give us maybe a latest update on the bookings you have in place. And then just as you're engaging with your customers, how they are thinking about this particular solution.

I think in the market right now, we're seeing maybe a mixture of in-house developments versus outsourcing. So just curious what you're seeing there.

Yes, it's a mix. Today, we have active engagements with roughly 20 OEMs across all regions. I would say real focused engagement with 10. If I were to dollarize today, the bookings opportunities over the next couple of years, it's in the range of $5-plus billion that we're really focused on in terms of real opportunities. It tends to be focused in and around zonal controllers at this point in time.

And I would say, today, we see much more activity in China. So a lot of our activity is there than we do in North America or Europe, but there are a few OEMs in North America and Europe that we're working with at this point in time. From a revenue standpoint, sitting here today, 2025 revenues from Smart Vehicle Architecture will be about $150 million to $200 million and growing at about a 10% sort of growth rate into the out years. So I think Varun in his comments talked about a bit of a pushout on the software-defined vehicle.

Obviously, that's reflected in some of the SVA activity. I would say it's not slowed at all in China. It's accelerated. Europe and North America slowed a bit.

But again, we're seeing a pickup in the activity and continue to have a lot of dialogues with OEMs and a number of pursuits that are out there.

That will conclude today's question-and-answer session. I will now turn the call back to Mr. Kevin Clark for any additional or closing remarks.

Great. Thank you, operator. Thanks, everybody, for joining us today. We look forward to seeing you on November 18 in New York City. Have a great day and a great rest of the week. Thanks.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.