Q1 2025 Aptiv PLC Earnings Call
Please standby we're about to begin.
Speaker Change: Good day and welcome to the after Q1 'twenty 25 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Betsy Frank Vice President of Investor Relations. Please go ahead.
Betsy Frank: Thank you Jess good morning, and thank you for joining <unk> first quarter 2025 earnings conference call.
Betsy Frank: The press release and related tables, along with the slide presentation can be found on the Investor relations portion of our website at <unk> Dot com.
Betsy Frank: Today's review of our financials exclude amortization restructuring and other special items.
Betsy Frank: And we will address the continuing operations about.
Betsy Frank: The reconciliations between GAAP and non-GAAP measures for our first quarter results as well as our financial outlook.
Betsy Frank: Are included at the back of the slide presentation and the earnings.
Betsy Frank: During today's call, we will be providing certain forward looking information that reflects <unk> 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.
Speaker Change: Joining us today will be Kevin Clark after its chair and CEO and Darren Lauria EVP and CFO.
Speaker Change: Evan will provide a strategic update on the business and Darren will cover the financial results in more detail before we open the call for Q&A.
Kevin Clark: With that I'd like to turn the call over to Kevin. Thank you Betsy and thanks, everyone for joining us. This morning, let's begin on slide three.
Kevin Clark: After starting the year strong with first quarter results exceeding our guidance range due to higher than expected vehicle production volumes, principally in China and solid growth in non automotive end markets as well as strong operating performance demonstrating our ability to adapt to a dynamic market environment, while continuing to execute on our strategy, including the <unk>.
Kevin Clark: Separation of our ETF business, which remains on track.
Kevin Clark: Touching on a few of the first quarter highlights revenue totaled $4 8 billion down 1%. The result of lower vehicle production in North America, and Europe and negative customer mix.
Kevin Clark: Operating income reached a first quarter record of $572 million, an increase of over 5%.
Kevin Clark: <unk> strong operating execution and the benefit of ongoing cost reduction initiatives, which along with share count reductions drove earnings per share to a first quarter record of $1 69.
Kevin Clark: Lastly, operating cash flow totaled 273 million positioning us to accelerate our original deleveraging plan.
Kevin Clark: We completed our $3 billion accelerated share repurchase program on April 1st.
Kevin Clark: We reduced our share count by 18%, bringing.
Kevin Clark: Bringing the percentage of shares retired over the last 12 months to 20%.
Kevin Clark: In summary, our team continues to do an excellent job executing on what we can control while also addressing the evolving needs of our customers and increasing the robustness of our business model.
Kevin Clark: Turning to slide four.
Kevin Clark: We're confident that the long term growth drivers of our business remain fully intact. The futures electrified software defined and connected and apt is well positioned to enable this transition across multiple end markets.
Kevin Clark: However, we're currently in a period of uncertainty due to rapid changes in global trade policies and their impact on demand in the markets, we serve particularly in the automotive market market.
Kevin Clark: We've not experienced major changes to underlying demand in our business today we.
Kevin Clark: We delivered strong first quarter results and our second quarter is tracking well with limited changes to OEM production schedules.
Kevin Clark: However, it's difficult to determine how the changing market dynamics will impact the second half of the year.
Kevin Clark: Given this situation, while we remain confident in our initial full year outlook. It excluded the impact of tariffs will continue to closely monitor any demand changes in the markets. We serve and will provide an update to our full year outlook when visibility improves hopefully later this quarter.
Kevin Clark: In the meantime, we're proactively adapting our business to the evolving landscape of trade policies customer mix in EV adoption.
Kevin Clark: Our resilient business model enables us to remain agile and responsive leveraging our in region for region commercial and supply chain strategy flexible cost structure and comprehensive portfolio of advanced technology solutions to adapt to the dynamic environment, while also addressing the needs of our customers.
Kevin Clark: Turning to slide five to provide you with additional detail on our exposure to the recent tariff announcements and the actions, we're taking to mitigate any impacts on our business.
Kevin Clark: We prioritize being close to our customers and over the last several years, we've worked to establish a localized supply chain and cost effective manufacturing footprint.
Kevin Clark: As a result, our cross regional trade exposures between the U S and China and the U S and Europe for example are minimal.
Kevin Clark: With activities ongoing to further reduce any exposures.
Kevin Clark: As we've discussed our principal trade exposures within North America with more than 95% of our U S trade flows actually between the U S and Mexico.
Kevin Clark: We import just under $5 billion of product annually from Mexico of which over 99% U S. MCA compliant.
Kevin Clark: We're working to mitigate the tariff impact by further optimizing our supply chain and identifying additional localization opportunities shifting our manufacturing footprint, including the possibility of relocating certain high value production to the U S.
Kevin Clark: Strategically building inventory of select products to ensure flawless execution on current programs and new launches, while also preserving balance sheet flexibility.
Kevin Clark: And any remaining tariff amount that cannot be mitigated will continue to be passed on to our customers.
Kevin Clark: Our team is doing a great job navigating the dynamic environment, while continuing to serve our customers.
Kevin Clark: Maximize our operating performance and deliver value to our shareholders.
Kevin Clark: Moving to slide six to review, our new business Awards.
Kevin Clark: Bookings for the first quarter were nearly 5 billion advanced safety and user experience bookings totaled $1 3 billion driven by active safety bookings of $800 million excuse me book.
Kevin Clark: Bookings in the engineered components group reached $2 1 billion ranging across the segments full product portfolio in multiple end markets.
Kevin Clark: Electrical distribution systems bookings totaled $1 5 billion, including $1 billion in electrified vehicle platforms.
Kevin Clark: We also continued our strong bookings traction in China, reaching over $1 4 billion with over $1 2 billion of new business awards across each of our segments with local Chinese Oems.
Kevin Clark: While demand for our portfolio of solutions remained strong yet.
Kevin Clark: Certainty related to trade policy and regulatory changes have led to delays in customer program awards, causing shifting timelines across our business.
Kevin Clark: These dynamics, we continue to collaborate with our customers on delivering high performance cost effective solutions and remain confident in reaching our target of over $31 billion in new business Awards. This year.
Kevin Clark: Okay.
Kevin Clark: Turning to slide seven to review the first quarter highlights for advanced safety and user experience segment revenues were flat driven by high single digit growth from customers in North America and over 20% growth from non automotive customers.
Kevin Clark: Active safety revenues increased 9% and revenues for smart vehicle compute and software grew double digits driven by strong growth in wind River revenues.
Kevin Clark: We're proud to announce that during the quarter after for the automotive news pace pilot Innovation Award for our radar based AI ml and ml behavior planner.
Kevin Clark: These integrated solutions offer significant advancements over conventional software for vehicle safety.
Kevin Clark: Including 99% better classification rate in all weather conditions, and 80% better object size estimation.
Kevin Clark: In addition, whenever was ranked number one in edge operating systems by VDC research retaining its long standing position as a global market leader in real time operating systems and embedded Linux.
Kevin Clark: Last week, we showcased a broad range of fully localized solutions for the China market at the Shanghai Auto show, which garnered tremendous interest from local Chinese Oems and has expanded our pipeline of new business opportunities in the region.
Kevin Clark: Further underscoring the strength of our portfolio bookings during the quarter included multiple awards with leading local Chinese Oems in active safety and smart vehicle compute.
Kevin Clark: Our unique ability to leverage the local ecosystem has enabled us to provide solutions that meet our customers' needs at a competitive cost.
Kevin Clark: And in cabin sensing solution for a leading global OEM and wind River software platform awards from several customers in the A&D and industrial markets. These.
Kevin Clark: These commercial awards validate apt as industry, leading technologies as well as the value that our innovation provides to our customers.
Kevin Clark: Turning to slide eight for an update on our engineered components group during the first quarter.
Kevin Clark: Revenues increased 1%, reflecting strong growth of the Chinese local Oems and mid single digit growth in traditional interconnect and specialty product revenues for the non auto markets.
Kevin Clark: <unk> ability to further penetrate new customers and market is supported by continuous product innovation, including highly engineered solutions focused on increasing performance, while reducing weight and cost is reflected in our recently launched many coax.
Kevin Clark: Moller lighter more flexible version of the traditional coaxial cable connectors widely used in a variety of high speed data applications.
Speaker Change: As I mentioned ECG booked approximately $2 1 billion of new business across product lines and end markets, including a high speed Cable Assembly award for Ethernet applications from our global OEM, which enables seamless data transmission for connected vehicles and Electrical Center award with a luxury European OEM that will help accelerate us.
Kevin Clark: <unk> transitioned to a nextgen 48 volt architecture across multiple vehicle lines.
Kevin Clark: And multiple awards in the semi fab equipment mass transit medical and general industrial markets.
Kevin Clark: Turning to slide nine to review electrical distribution systems first quarter highlights.
Kevin Clark: Revenues declined 3% principally the result of lower light vehicle production, we executed on our footprint strategy during the quarter completing the closure of two additional manufacturing sites in China.
Kevin Clark: We also continue to leverage our proprietary internally developed engineering software tool chain I harness when.
Kevin Clark: <unk> engaged with several customers on advanced development programs targeting vehicle architecture design optimization optimization and manufacturing automation.
Kevin Clark: In addition, we demonstrated strong commercial momentum as reflected in our bookings, which included over $1 billion of New business Awards, with leading Asia Pacific Oems, including bookings with Xiaomi and GAC Motors in China.
Kevin Clark: And our first grid energy storage award in North America.
Kevin Clark: Lastly, we have made progress executing our plan to position <unk> as a standalone company as I mentioned, we remain on track for completion of the separation by the end of the first quarter next year.
Kevin Clark: Moving to slide 10.
Veron: Before I hand, the call over to Veron I'd like to highlight our recently announced strategic partnership with service now, which demonstrates our progress commercializing our edge to cloud offerings in the enterprise space.
Veron: The integration of service announced AI powered platform in CRM workflows with wind River as cloud platform, which is a cloud native on premises private cloud solution and elixir pro whenever enterprise Linux offerings for AI and mission critical workloads will drive intelligent automation and operational resilience across.
Veron: <unk> industries.
Veron: The strategic partnership includes a joint go to market plan across our sales teams targeting the telco automotive enterprise and industrial sectors.
Veron: We also announced yesterday, an expanded partnership with Capgemini to deliver next generation private private cloud solutions for the enterprise sector. Our joint solution combines widmer is cloud platform and elixir pro with cap Gemini systems integration transformation and application modernization capabilities.
Veron: These partnership.
Veron: <unk> will not only expand our global reach and extend our footprint in the enterprise space, but also drive faster adoption and deployment of our technology across industries, where security performance and reliability are critical.
Veron: I'll now turn the call over to Aaron to go through the numbers in more detail.
Aaron: Thanks, Kevin and good morning, everyone, starting with the first quarter on slide 11.
Aaron: <unk> delivered strong financial results in the quarter, reflecting robust execution across all three segments with continued progress on cost savings and margin improvement actions and cash flow generation in the backdrop of a dynamic market environment.
Aaron: Revenues were $4 8 billion down 1% versus the prior year and growth was impacted by lower vehicle production in North America, and Europe, as well as customer mix in China in particular for our ETS business.
Aaron: Adjusted EBITDA and operating income was $758 million and 572 million respectively.
Aaron: Operating income margin expanded 80 basis points versus prior year, primarily.
Aaron: Really driven by strong execution of our operating performance initiatives, including the continued rotation of our engineering and manufacturing footprint to best cost locations.
Aaron: These actions more than offset the impact of FX and commodities, which was a 50 basis point headwind on margin.
Aaron: Earnings per share was $1 69, an increase of 46% from the prior year, reflecting the flow through of higher operating income as well as the benefits of share repurchases net of higher interest expense and the restructuring of the emotional joint venture.
Aaron: Operating cash flow was strong totaling 273 million and capital expenditures were 197 million in the quarter.
Aaron: Looking at the first quarter revenues on slide 12 revenue of $4 8 billion was driven by lower vehicle production levels, partially offset by growth from new program launches and strong growth in adjacent markets, which were up mid single digits.
Aaron: Net price and commodities were a positive to the top line, while foreign exchange was a headwind headwind of $64 million, primarily related to the euro China Renminbi and the Korean won.
Aaron: Moving to the right panel of the slide despite the weaker production environment in North America revenues were only down 2% supported by strong growth in active safety.
Aaron: In Europe revenues were down 4% year over year, driven by volumes on select EV platforms.
And in China revenues grew 2% year over year, driven by group with several local Oems, partially offsetting significant production volume declines with this specific EV customers.
Aaron: Moving to the <unk> segment over the next slide.
Aaron: Revenue was flat in the quarter.
Aaron: Active safety was up 9% benefiting from new program launches and ongoing proliferation across platforms as well as continued strong take rates in North America and Europe.
Aaron: User experience was down 14%, primarily driven by the roll off of legacy programs that we have previously highlighted and were in line with expectations.
Aaron: We expect this trend to continue through the back end of the year before new launches related to software defined in cabin sensing and integrated cockpit controllers begin to ramp.
Aaron: SV compute and software revenue grew 12% due to strong commercial traction of wind River solutions, particularly in the aerospace and defense and industrial markets.
Aaron: Segment, adjusted operating income was $155 million with a record first quarter margin of 10, 9% up 10 basis points over the prior year, owing to ongoing performance initiatives and strong flow through on wind River volume growth.
Aaron: And the continued rotation of our engineering footprint to best cost locations.
Aaron: These actions offset an 80 basis point margin headwind going to FX and commodities in the quarter.
Aaron: Turning to E. Two the ECG segment on slide 14.
Aaron: Revenue in the first quarter was approximately $1 6 billion, an increase of 1% driven by China revenues up 24% as a result of significant traction with local Oems, which more than offset vehicle production in both North America and Europe.
Aaron: Segment, adjusted operating income was $274 million or 17, 3% up 140 basis points over prior year due to operating performance initiatives across manufacturing and supply chain, including strategic sourcing, which more than offset a 90 basis point headwind from FX.
Aaron: And commodities.
Aaron: Turning to the EES segment on Slide 15 revenue in the first quarter was approximately $2 billion, we decrease of 3% driven by strong growth in commercial vehicles of 14% offset by lower production schedules of select customers, primarily in North America and Europe.
Aaron: China revenues were down 3%, representing a single digit growth with local China Oems and multinational joint ventures.
Aaron: Offset by a global EV manufacturer that experienced significant volume reductions in the quarter.
Aaron: Segment, adjusted operating income was 143 million or seven 1% up 60 basis points over prior year with strong execution on footprint optimization to enhance manufacturing efficiency and to align to customer production levels.
Aaron: Moving site closures in China, and ongoing footprint rotation from eastern Europe to Northern Africa, and significant improvement in labor productivity, particularly in North America and Europe.
Aaron: Foreign exchange was a slight positive primarily due to the Mexican peso.
Aaron: Turning to slide 16.
Aaron: Building on our strong operating performance in the first quarter and visibility to customer schedules through April we are comfortable providing guidance for the current quarter and expect second quarter revenue to be in the range of $4 92 billion to five with one $2 billion down 1%.
Aaron: <unk> year over year at the midpoint.
Aaron: Operating income and adjusted EPS are expected to be $575 million and $1 80 at the midpoint of the range respectively.
Kevin Clark: As Kevin mentioned, given the strength of our first quarter performance and second quarter outlook. I. Just provided we are confident that excluding the impact of tariffs we would be above the midpoint of our previously issued full year guidance range.
Kevin Clark: However, we acknowledge the uncertainty related to global tariff policies and intend to update our full year guidance as we get better visibility.
Kevin Clark: Further context, I'd like to provide a framework.
Kevin Clark: The midpoint of our full year guidance range, we provided in February.
Kevin Clark: Excluded any tariff related impact and reflected active weighted global vehicle production down approximately 3% for the year.
Kevin Clark: While the lower end of our range reflected production down approximately 5%, which based on our first quarter results and second quarter outlook would imply second half volumes down 7% year over year.
Kevin Clark: We hope you find this information useful.
Kevin Clark: With a robust business model and relentless focus on optimizing performance, we remain confident in our ability to deliver best in class performance, regardless of the environment.
Kevin Clark: Before turning the call back to Kevin I wanted to highlight our strong cash flow generation and strength of our balance sheet on slide 17.
Kevin Clark: Our focus on operational improvement and disciplined approach to working capital management resulted in a record first quarter operating cash flow of $273 million and strong ending cash balance of $1 1 billion for the quarter. Despite.
Kevin Clark: Despite paying down approximately $530 million of debt.
Kevin Clark: Losing the outstanding balance on our term loan a.
Kevin Clark: We further accelerated our debt paydown schedule and in April retired the remaining balance of approximately $175 million of a pan European factoring facility.
Kevin Clark: In total since the start of the year, we have paid down approximately $700 million of debt pushing us almost three quarters ahead of our original deleveraging plan.
Kevin Clark: With liquidity of over $3 4 billion and net leverage at two two times.
Kevin Clark: Strong balance sheet provides us with the flexibility to continue to execute on our strategic initiatives, while selectively pursuing growth opportunities.
Kevin Clark: With that I will turn the call back to Kevin for his closing remarks, thanks, Sharon I'll wrap up on slide 18 before opening the line for questions.
Kevin Clark: We exceeded expectations in the first quarter driving strong operating execution. Despite a dynamic market with record first quarter earnings and cash flow and we're well positioned to continue our strong operating performance through the balance of the year.
Speaker Change: As Vern and I have reviewed we're confident in our second quarter guidance as well as our initial full year outlook, which excluded the impact of tariffs.
Kevin Clark: We will update our full year outlook once we have greater visibility to customer demand for the second half of the year.
Kevin Clark: In the meantime, we hope that the added visibility we have provided to our tariff exposure and the actions, we're taking to mitigate the impact as well as the framework, we provided consider different vehicle production scenarios and the corresponding impact on earnings and cash flows has been helpful.
Kevin Clark: With a resilient business model and the proactive cost structure actions and supply chain measures, we're taking to position. The company for continued success, we're confident in our ability to deliver operational efficiencies, while executing our long term strategy.
Kevin Clark: With our solid business Foundation, we believe that <unk> approach to innovation will drive continued penetration of our electrified software defined and connected solutions across industries further accelerated by the separation of media, which will create two independent public companies each with its own unique product portfolio and finance.
Kevin Clark: Profile with greater flexibility to pursue their own market opportunities and capital allocation strategy.
Kevin Clark: And optimally positioned to address customers' needs, while accelerating value creation for shareholders.
Kevin Clark: Operator, let's now open the line for questions.
Speaker Change: Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker Change: If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: We request that you limit your questions to one initial with one follow up so we may take as many questions as possible.
Speaker Change: Again that is star one to ask a question.
Speaker Change: Well pause for just a moment to allow everyone an opportunity to signal.
Joe Spak: And our first question comes from Joe Spak with UBS.
Joe Spak: Thanks, Good morning, everyone.
Speaker Change: Kevin just just wanted to sort of.
Speaker Change: Over the outlook and the messaging and make sure I understand so is it fair to assume that for the second quarter.
Speaker Change: Everything is based on what Youre seeing now, including any tariff impact in litigation and in the second half you know, it's taken a little bit of a wait and see approach, but it's it's really the volume part you don't have visibility on not not the tariff impact.
Speaker Change: And if that's the case I guess, what what markers are you really looking for to give you some more confidence to provide.
Speaker Change: Provide an update for that back half.
Speaker Change: Is it is it you know what.
Speaker Change: What your customers do with pricing is it some economic markers just just want to understand how youre thinking about it.
Speaker Change: No.
Speaker Change: Joe I think you did a pretty good job kind of encapsulating our view on things. We have the business is operating extremely well, we're executing well and that is reflected in our first quarter results and we have visibility obviously.
Speaker Change: April production may production schedules and through June and we feel fairly confident.
Speaker Change: And those.
Speaker Change: Clearly had our arms around tariffs and tariff impact.
Speaker Change: As we tried to highlight in our comments.
Speaker Change: For us they are very manageable.
Speaker Change: Given.
Speaker Change: The guidance Thats been given from the administration with respect to their plan as it relates to the U S MCA and where we actually have tariff exposure. So there are things that we're doing working with our customers in terms of obviously minimizing minimizing those tariffs and to the extent, we're unable to we will continue to pass those costs onto our customers and <unk>.
Speaker Change: <unk> <unk>.
Speaker Change: Costs on as price increases.
Speaker Change: To their end customers as it relates to the back half of the year, we're really.
Speaker Change: Want to give it some time to see how longer term schedules play out.
Speaker Change: So the question for US is really vehicle production, which hinges on consumer demand with our pricing strategies will be for our OEM customers.
Speaker Change: And again, how that translates to schedules and what that means for us from a vehicle production standpoint, as it relates to direct tariff impact the reality is our absolute.
Speaker Change: Absolute exposure is actually pretty small is something we can manage through and to the extent, we can we've been working with our customers to push that through to them.
Speaker Change: Okay. That's that's helpful.
Speaker Change: Maybe just one one more.
Speaker Change: Big picture question on sort of some of the more recent developments.
Speaker Change: I think in your prepared remarks, you mentioned.
Speaker Change: The possibility to look to move high value production back to the U S. I understand this is probably like very early stage.
Speaker Change: But in the context of thinking about the different parts of your business I don't think that means.
Speaker Change: The harness business, maybe you can just provide some indication of sort of what type of manufacturing.
Speaker Change: Manufacturing do you think could move back.
Speaker Change: And if there is any.
Speaker Change: Rule of thumb to sort of think about some of the capital cost to relocate our facility sure.
Speaker Change: Yes. It is early days it definitely does not include the wire harness business, that's not a business that.
Speaker Change: That's that would fit or makes sense.
Speaker Change: Do production in the United States. So.
Speaker Change: Maybe certain parts of our portfolio within ASU X.
Speaker Change: Or ECG business, where we can highly automate.
Speaker Change: The manufacturing process and.
Speaker Change: Working with our OEM customers.
Speaker Change: We can increase U S manufacturing do it in a cost effective way.
Speaker Change: We do have.
Speaker Change: Uh huh.
Speaker Change: Footprint today in the U S.
Speaker Change: Good.
Speaker Change: <unk> early days, we would leverage that existing manufacturing footprint.
Speaker Change: For at least early.
Speaker Change: Steps are the initial steps in terms of increasing manufacturing, but we havent finalized or gotten to a point, where I can provide you with capital investment or.
Speaker Change: Overall impact or percentage of our manufacturing that we would move here.
Speaker Change: Thank you very much.
Speaker Change: We will go next to Dan Levy with Barclays.
Dan Levy: Hi, good morning, Thanks for taking the question.
Speaker Change: Tom.
Speaker Change: Kevin I'm wondering if you could first just talk to perhaps real time, what are you seeing an advanced content bidding launches as any of them got been impacted or delayed.
Speaker Change: Given some of the macro uncertainty.
Speaker Change: Yes.
Speaker Change: I would say.
<unk>.
Speaker Change: <unk> activity.
Speaker Change: Is is as robust as it as it has been for a long time I would say Oems settling on.
Speaker Change: And ultimate path forward.
Speaker Change: And ultimately end.
Dan Levy: Translating that to customer award Dan that his dragged out we've seen that drag out for the last couple of quarters.
Dan Levy: If you recall it is actually not too dissimilar to last year when when earlier in the year of booking awards were a bit lower and then you know we had stronger awards in the back half of the year I think we're in a situation where it will play out similarly this year.
Dan Levy: But the amount of activity.
Dan Levy: Engagement and dialogue with our OEM customers I would say is at prior levels or quite frankly, even higher.
Dan Levy: Okay, great. Thank you.
Dan Levy: And then the second question is perhaps you can just update us on that.
Speaker Change: It's been with all of the macro uncertainty and given the heavy footprint in Mexico does any of what's happening.
Dan Levy: <unk>.
Dan Levy: You rethink parts of the plan or is it that hey, you can still you are going to maintain your footprint there.
Dan Levy: Presence you can pass through all the tariffs it doesn't change any of that so how do how does this change UBS.
Dan Levy: Yes.
Dan Levy: As it relates to the it's the question is around our plan to separate Eds's It doesn't change it at all.
Dan Levy: Our real focus with Eds is is how do we continue to grow the business.
Dan Levy: How do we.
Dan Levy: Accelerate the standardization of the wire harness so that we can accelerate.
Dan Levy: Manufacturing automation and assembly automation.
Dan Levy: In our customers' plants.
Dan Levy: How do we minimize overall costs be labor or material.
Dan Levy: And then how do we continue to not only grow in automotive book grow outside of automotive and we think with the separation.
Dan Levy: It positions that business too.
Dan Levy: More efficiently more effectively more rapidly quite frankly be able to do that.
Dan Levy: So it's a great business.
Dan Levy: As the industry leader across all the regions that it operates in and there is there is obviously tremendous opportunity out there for that business to grow.
Dan Levy: Great. Thank you.
We will move next to <unk> with Wolfe research.
Dan Levy: Yeah.
Speaker Change: Hey, Thanks, a lot for taking my question.
Speaker Change: Maybe just to start with I'm curious.
Speaker Change: How did how to interpret the.
Speaker Change: The volume decline that would be implied in the guide.
Speaker Change: In the back half because I think Vern you mentioned the low end of the guide would imply a 7%.
Speaker Change: Year over year decline.
Speaker Change: Looking at IHS, which had incorporated the latest cut.
Speaker Change: Cuts due to tariffs I believe the only assuming production would be down roughly 3%.
Speaker Change: No.
Speaker Change: Is the message is the message that alright.
There's just there's there's just not enough visibility to have confidence on our number.
Speaker Change: Or do you feel like.
Speaker Change: Third party forecast still don't accurately reflect.
Speaker Change: The potential risks here to volume.
Speaker Change: Even after incorporating tariffs.
Speaker Change: Yes, it's I'll start and then eventually should should add to it listen we use multiple sources, but we principally rely on customer schedule and schedules in our experience.
Speaker Change: With customers as it relates to schedules and actual production and as you guys know.
Speaker Change: Just as a useful baseline, it's a useful baseline especially for for.
Speaker Change: Folks that don't have direct access to vehicle production schedules, but it's not what we build our plans and forecasts.
Speaker Change: Off of and.
Speaker Change: The full year outlook really is we tried to make clear that is not guidance. What we tried to provide as a baseline of our initial assumption back in February and then if you were to look at that range from from the midpoint to.
Speaker Change: The bottom end of the range, what our assumption was for vehicle production.
Speaker Change: I think what.
Speaker Change: Arne was trying to provide you with.
Speaker Change: At that lower level of production. If you took our outlook for Q1 and Q2, what would vehicle production need to be to be at that level and thats. The framework from which you guys can run whatever sort of vehicle production scenarios.
Speaker Change: You would like to run to come up with your view.
Speaker Change: How does the business model perform in various <unk>.
Volume environments.
Speaker Change: Okay.
Speaker Change: Yes, just to just to kind of reiterate a couple of points that Kevin mentioned she has in her <unk>.
Speaker Change: For Q2, as the Q1 actuals.
Speaker Change: <unk> weighted market was down 2% would be guiding for Q2 is down for.
Speaker Change: When you take those two pieces into account to get to the bottom end of our previously provided guidance range that gets you to the down set within the second half that's the framework.
Speaker Change: Built into your model.
Speaker Change: Okay.
Speaker Change: And just.
Speaker Change: That's really the crux of the.
Speaker Change: <unk>.
Speaker Change: That's really the focus I guess is what I'm, saying in other words, it's really just a volume question in the back half and uncertainties around that okay.
Speaker Change: Sure. So the direct the direct impact of tariffs, we have our arms around that we have high level of confidence in that we will not be impacted but we don't have control of is the impact of tariffs ultimately and vehicle production and obviously as we get further out we feel less comfortable and have.
Speaker Change: Less visibility there the numbers that we walk to walk through both the midpoint of our initial guidance as well as the bottom end of the range. We're not trying to steer you anywhere not guidance. We're trying to provide you with data points that you can use to run scenario burials.
Speaker Change: Based on what your views are.
Speaker Change: Okay. That's really helpful. Maybe just have just a really quick one.
Speaker Change: Just what youre seeing on the ground in China at the moment.
Speaker Change: Highlighted a number of <unk>.
New awards with Chinese Oems, including Xiaomi.
Speaker Change: But when I looked at the quarter.
Speaker Change: It looked like the production was up about 10%.
Speaker Change: Revenues were up two for you. So just just curious how you or have you seen that market.
Speaker Change: Margaret remains strong.
Speaker Change: Varian was talking about we were significantly impacted by global EV manufacturer that.
Speaker Change: From a production standpoint was down significantly on a year over year basis, so that that impacted our growth in that particular region.
Speaker Change: But it's still we're still seeing strong growth, we're still seeing rapid adoption of advanced technologies, we're still seeing a push towards.
Speaker Change: <unk> electrification.
Speaker Change: Trends, we've been seeing over the last couple of years certainly remain intact.
Speaker Change: Okay, great. Thanks.
Mark Delaney: We will go next to Mark Delaney with Goldman Sachs.
Mark Delaney: Yes. Good morning, Thanks for taking my questions first on the auto production environment I'm, hoping to better understand how you arrived at the assumption for 4% lower production in <unk> to what extent of customer schedules for April and May shown softening due to tariffs and to what extent are you including your.
Mark Delaney: Expectation that tariffs will lead to lower schedules this coming quarter beyond where customers are currently indicating.
Mark Delaney: Yes, so I'll start.
Mark Delaney: So again, we base our forecast on on what we see from our customers as it relates to vehicle production schedules.
Mark Delaney: There are more reliant the closer they are to production date as you all know.
Mark Delaney: OEM by OEM platform by platform on a regular basis, we go through in and based on past experience and our outlook for the market.
Mark Delaney: We adjust those schedules as it relates to our financial forecast.
Mark Delaney: And what we communicate externally.
Mark Delaney: So that's what's reflected in our Q2 guidance we haven't seen.
Mark Delaney: A significant swing in schedules at this point in time.
Mark Delaney: It would be difficult for us to identify what's directly tied to tariffs and what is not as you can imagine.
Mark Delaney: But we would say that schedules are largely in line with what we added anticipated back in February.
Mark Delaney: With slight movement between Oems and between platforms.
Speaker Change: That's helpful. Thanks, Kevin My other question was on EBIT margin. The ones you EBIT margin was was quite strong and better than I had expected I think about your guidance as well you talked about some cost actions is one of the drivers, but can you elaborate a little bit more on the different <unk>.
Mark Delaney: And how impactful they were to the to the <unk> margin.
Speaker Change: If I look at the <unk> implied margin it's down.
Speaker Change: Have a very good <unk> level, but maybe just help us understand the walk on margins from <unk> to <unk>. Please.
Speaker Change: Yes.
Speaker Change: Let me take that so yes, Q1, the teams just operationally performing incredibly well.
Speaker Change: Material cost strategic sourcing engineering.
Speaker Change: Each of those elements came through strongly in soup on the flip side a bit more than offsets any of the FX and commodity side of things and then clearly the rest of the guide that we just provided.
Speaker Change: Volume upside and the flow through on volume was strong. So soon so those are kind of the key underpinnings of the better Q1 performance coming through all the way from actual adjusted Oi, All the way up to the margin level and then with regards to Q2.
Speaker Change: Again, it's essentially in line with what we've been doing so a lot of those activities obviously continue.
But again with regards to certain elements associated with that.
Speaker Change: Engineering for example, we have we've been kind of doing some work on that front.
Speaker Change: FX is the other piece that we see will be a headwind again. This goes back to some of the hedges we have specifically on the Mexican peso, which were good.
Speaker Change: Slow for us a year ago on a year over year basis, as we think about that that will be.
Speaker Change: Packaging, so we really won't get into would be upside.
Speaker Change: Till the time, we don't get past the 2075 level.
Speaker Change: And then obviously with the weakening of the U S dollar against major currencies, such as the Euro and the Chinese renminbi, that's the other element, which impact Q2, but otherwise operationally. The teams are doing just an outstanding job in delivering margin all the way to the bottom line.
Speaker Change: If I can just add to it without going through numbers just to remind everybody in 2024, we reduced our SG&A.
Speaker Change: Costs by over 10% and in 2025 entering the year, we mapped out a plan and we're executing on it.
Speaker Change: Further reduce our SG&A expense by another 5% and in light of just concerned about the macro environment had been more aggressive in terms of looking for opportunities to further reduce costs. So.
Speaker Change: Behind all of this is a concerted effort across the business to really focus on how do we drive overhead and SG&A costs out.
Speaker Change: And the team.
Speaker Change: Under <unk> leadership has done a great job across our functions and across our business units doing that.
Speaker Change: Thank you.
Colin Langan: We'll go next to Colin Langan with Wells Fargo.
Colin Langan: Oh, great. Thanks for taking my questions.
Colin Langan: Maybe I just wanted to make sure I understand that the tariff commentary. So you have $5 billion of goods being important you said, 99% is U S. MCA compliance that would imply almost no tariff costs if I'm right.
Colin Langan: And any thoughts on the new rules.
Colin Langan: I'd like based on the wording of the White House released that it's.
Colin Langan: Switching to U S MCA as might be permanent so you're the only risk for you would be really if it goes to a U S. Sourcing world is that the right way to think about your exposure there.
Colin Langan: Yes, I think Thats, a fair way to think about.
Colin Langan: But yeah, we would say as it relates to at least current guidance and where we where we believe things are headed exposure on.
Colin Langan: On the flows between Mexico, and the U S. At least at this point in time is de Minimis right.
Colin Langan: So it's over 99% is U S MCA.
Colin Langan: As U S MCA compliant and when you look at trade flows outside of Mexico as a partner is a relatively small its a relatively small number and it's most of that relates to directed buy from our OEM customers and those are areas, where we're working with them quite frankly.
Colin Langan: Later, we will relocate manufacturing or moved to other.
Colin Langan: Supply base of suppliers.
Speaker Change: Got it.
Speaker Change: And if I look at the sales guidance the way it is.
Speaker Change: It looks like you're down maybe 1% in the first half at the midpoint of Q2, and then I believe that implies you're up sort of 4% year over year in the second half.
Speaker Change: You're talking about market is actually getting worse so.
Speaker Change: Is that imply like a pretty major step up in growth over market in the second half and what kind of visibility do you have there.
Speaker Change: Does that accelerate well again, we're not we're not we're not providing guidance for the second half. So I think that's clear.
Speaker Change: We tried to again provide you with a framework of scenarios to walk through for you folks to consider at this point in time Collyn.
Speaker Change: We're not we don't have the visibility to forecast revenue for Q3, and Q4 and as soon as we feel like.
Speaker Change: We have the visibility we'll update our outlook for the back half and provide full year guidance.
Speaker Change: Okay, alright, well, thanks for taking my questions.
Speaker Change: Sure.
Speaker Change: We will take our final question from Edison Chu with Deutsche Bank.
Speaker Change: Hi.
Speaker Change: This is where the encore for Edison.
Speaker Change: I was wondering if you can provide.
Speaker Change: An update to that 400 gig.
Speaker Change: Remember that you have provided back in February.
Speaker Change: I think where you are boosting some quick ones actions or how should we think about maybe some more.
Speaker Change: Incremental performance benefit with this year something within your control.
Speaker Change: Yes.
Kevin Clark: Yes, let me take that one Kevin.
Speaker Change: With regards to our performance number.
Speaker Change: In the first quarter the team did an outstanding job and going a long way in that.
Speaker Change: Number that you just mentioned Q2 also we see moving in the right direction again, if the material the manufacturing side of things.
Speaker Change: Offsetting labor economics, we've talked about labor economics being a headwind.
Speaker Change: Inflation.
Speaker Change: Related to labor in certain markets, such as Mexico, while it has come down some.
Speaker Change: In the previous years, it's been running close to 20% even in this year, we see it to be mid teens. So again the material manufacturing engineering in Q1 also performed better and then the final piece, which I.
Speaker Change: 870, <unk> credit, but it takes a village to deliver these abuses of the relentless focus on our cost structure.
Speaker Change: And so SG&A also is kind of coming through but overall the first half with regards to Q1, and we would be forecasting for Q2 the performance numbers are intact.
Speaker Change: Tremendous traction and again as of now for the second half if we get a lot of it really depends in terms of what's consumer sentiment will be what production numbers will be but needless to say this is the management team that has time and time again.
Speaker Change: Risen to the challenge to deliver what type of the market environment, maybe and I have no doubt that we'll do the same thing again for the second half wholesale.
Speaker Change: As soon as we get more clarity.
Speaker Change: Yes, I would just I would just add the biggest components of that are really manufacturing engineering and SG&A. Those are the big are the big components as it relates to performance.
Speaker Change: Perfect. Thank you so much my second question is on.
Speaker Change: China.
Speaker Change: Can you remind us.
Speaker Change: <unk> in Q1.
Speaker Change: Market grew by 10 per song.
Speaker Change: Two questions were asked and.
Speaker Change: And just for Bob Martin, how should we think about growth for the year.
Speaker Change: And then you mentioned Q1 being an impact.
Speaker Change: Customer.
Speaker Change: I believe for the full year.
Speaker Change: The previous <unk>.
Speaker Change: Suddenly up single digits.
Speaker Change: All right.
Speaker Change: I Wonder if you can help us frame the impact.
Uh huh.
Speaker Change: Well, we're not we're again, we're not going to give full year guidance.
Speaker Change: I think what we've previously said is in quarter to quarter just based on <unk>.
Speaker Change: Some customer.
Speaker Change: Mix.
Speaker Change: Matters and their decisions on production it can it can swing, which as it did this quarter and we mentioned that.
Speaker Change: A single OEM that impacted our overall, our overall mix when you look at our bookings rate over the last couple of years, we've been moving at a level across each of the three segments.
Speaker Change: That is should bring us more in line with kind of the.
Speaker Change: The forecasted mix of China local Oems relative.
Speaker Change: Relative to.
Speaker Change: The non local including multinationals and in that large EV manufacturer that I was referring to.
Speaker Change: So by the end of the year you should expect that our revenues are mix of roughly 70% with the channel locals and 30% with a balance.
Speaker Change: Of the customers operating in or Oems operating in that market.
Got it thank you.
Speaker Change: Okay.
Kevin Clark: I would now like to turn the conference back to Kevin Clark for any additional or closing remark.
Kevin Clark: Great. Thank you everybody for joining us today, we really appreciate your time take care.
Speaker Change: Thank you. This does conclude the after Q1 2025 earnings call. We thank you for your participation you may now disconnect and have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.