Aptiv PLC

Please stand by. We're about to begin. Good day and welcome to the Aptiv Q1 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 first 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 for our first quarter results, as well as our financial outlook, are included at the back of the slide presentation and the earnings press release. 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 CEO, and Varen LaRoya, EVP and CFO. Kevin will provide a strategic update on the business, and Varen 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. Let's begin on slide three. Aptiv started 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 strategies. including the separation of our EDS business, which remains on track. Touching on a few of the first quarter highlights, revenue totaled $4.8 billion, down 1% as a result of lower vehicle production in North America and Europe and negative customer mix. Operating income reached a first quarter record of $572 million, an increase of over 5%, reflecting 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. And lastly, operating cash flow totaled $273 million, positioning us to accelerate our original deleveraging plan. We completed our $3 billion accelerated share repurchase program on April 1st, which reduced our share count by 18%, bringing the percentage of shares retired over the last 12 months to 20%. 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. Turning to slide four, we're confident that the long-term growth drivers of our business remain fully intact. The future is electrified, software-defined, and connected, and Apt is well-positioned to enable this transition across multiple land markets. 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. We've not experienced major changes to underlying demand in our business to date. We delivered strong first quarter results, and our second quarter is tracking well, with limited changes to OEM production schedules. However, it's difficult to determine how the changing market dynamics will impact the second half of the year. Given the situation, while we remain confident in our initial full-year outlook that excluded the impact of tariffs, we'll continue to closely monitor any demand changes in the markets we serve, and we'll provide an update to our full-year outlook when visibility improves, hopefully later this quarter. In the meantime, we're proactively adapting our business to the evolving landscape of trade policies customer mix, and EV adoption. 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. 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. 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. As a result, our cross-regional trade exposures between the U.S. and China and the U.S. and Europe, for example, are minimal, with activities ongoing to further reduce any exposures. As we've discussed, our principal trade exposure is within North America, with more than 95% of our U.S. trade flows actually between the U.S. and Mexico. We import just under $5 billion of product annually from Mexico, of which over 99% is USMCA compliant. 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., strategically building inventory of select products to ensure flawless execution on current programs and new launches, while also preserving balance sheet flexibility. And any remaining tariff amount that cannot be mitigated will continue to be passed on to our customers. Our team is doing a great job navigating the dynamic environment while continuing to serve our customers maximize our operating performance, and deliver value to our shareholders.

Moving to slide six to review our new business awards.

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. Bookings in the engineer components group reached $2.1 billion, ranging across the segment's full product portfolio and multiple end markets. and electrical distribution systems bookings totaled $1.5 billion, including $1 billion in electrified vehicle platforms. 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. While demand for our portfolio solution remains strong, the uncertainty related to trade policy and regulatory changes have led to delays in customer program awards, causing shifting timelines across our business. Despite 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. Turning to slide seven to review the first quarter highlights for our 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. Active safety revenues increased 9%, and revenues for smart vehicle compute and software grew double digits, driven by strong growth in Wind River revenues. We're proud to announce that during the quarter, Aptiv won the Automotive New Pace Pilot Innovation Award for a radar-based AI ML and ML behavior planner. These integrated solutions offer significant advancements over conventional software for vehicle safety, including 99% better classification rate in all weather conditions and 80% better object size estimation. In addition, Wind River was ranked number one in edge operating systems by VDC Research, retaining its longstanding position as a global market leader in real-time operating systems and embedded Linux. And 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. 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, where our unique ability to leverage the local ecosystem has enabled us to provide solutions that meet our customers' needs at a competitive cost. An 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 commercial awards validate APTA's industry-leading technologies, as well as the value that our innovation provides to our customers. Here's slide 8 for an update on our engineer components group during the first quarter. Revenues increased 1%, reflecting strong growth with Chinese local OEMs and mid-single-digit growth in traditional interconnect and specialty product revenues for the non-auto markets. ECG's ability to further penetrate new customers and markets is supported by continuous product innovation, including highly engineered solutions focused on increasing performance while reducing weight and costs, is reflected in the recently launched mini-coax, a smaller, lighter, more flexible version of the traditional coaxial cable connectors, widely used in a variety of high-speed data applications. As I mentioned, ECG booked approximately $2.1 billion in new business across product lines and end markets, including a high-speed cable assembly award for Ethernet applications from a global OEM, which enables seamless data transmission for connected vehicles, an electrical center award with a luxury European OEM that will help accelerate its transition to a next-gen 48-volt architecture across multiple vehicle lines, and multiple awards in the semi-fab equipment, mass transit, medical, and general industrial markets. Turning to slide 9 to review electrical distribution systems' first quarter highlights, 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. We also continued to leverage our proprietary internally developed engineering software tool chain, iHarness. We engaged with several customers on advanced development programs targeting vehicle architecture design optimization and manufacturing automation. 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 JAC Motors in China, and our first grid energy storage award in North America. Lastly, we've made progress executing our plan to position EDS 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.

Moving to slide 10.

Before I hand the call over to Varen, I'd like to highlight a recently announced strategic partnership with ServiceNow, which demonstrates our progress commercializing our edge-to-cloud offerings in the enterprise space. The integration of ServiceNow's AI-powered platform and CRM workflows with Wind River's cloud platform, which is a cloud-native, on-premises private cloud solution, and Elixir Pro, Wind River's enterprise Linux offering for AI and mission-critical workloads, will drive intelligent automation and operational resilience across industries. The strategic partnership includes a joint go-to-market plan across our sales teams targeting the telco, automotive, enterprise, and industrial sectors. We also announced yesterday an expanded partnership with Capgemini to deliver next-generation private cloud solutions for the enterprise sector. Our joint solution combines Wind River's cloud platform and Elixir Pro with Capgemini systems integration, transformation, and application modernization capabilities. These partnerships 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. I'll now turn the call over to Varen to go through the numbers in more detail.

Thanks, Kevin, and good morning, everyone. starting with the first quarter on slide 11. Aptiv 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 a backdrop of a dynamic market environment. 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 EDS business. Adjusted EBITDA and operating income were $758 million and $572 million, respectively. Operating income margin expanded 80 basis points versus prior year, primarily driven by strong execution of our operating performance initiatives, including the continued rotation of our engineering and manufacturing footprints to best cost locations. These actions more than offset the impact of FX and commodities, which was a 50 basis point headwind on margin. 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. Operating cash flow was strong, totaling $273 million, and capital expenditures were $197 million in the quarter. Looking at first quarter revenues in 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. Net price and commodities were a positive to the top line. while foreign exchange was a headwind of 64 million, primarily related to the euro, China renminbi, and the Korean won. Moving to the right panel of the slide, despite a weaker production environment in North America, revenues were only down 2%, supported by strong growth in active safety. 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 growth with several local OEMs, partially offsetting significant production volume declines with a specific EV customer. Moving to the ASUX segment on the next slide, revenue was flat in the quarter. 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. 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. 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. 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. Segment-adjusted operating income was $155 million with a record first quarter margin of 10.9%, up 10 basis points over the prior year, going to ongoing performance initiatives and strong flow-through on Wind River volume growth. and the continued rotation of our engineering footprint to best cost locations. These actions offset an 80 basis point margin headwind going to FX and commodities in the quarter. Turning to the ECG segment on slide 14, 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. 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 and commodities. Turning to the EDS segment on slide 15, Revenue in the first quarter was approximately $2 billion, with a 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. China revenues were down 3%, representing single-digit growth with local China OEMs and multinational joint ventures, offset by a global EV manufacturer that experienced significant volume reductions in the quarter. Segment-adjusted operating income was $143 million, or 7.1%, up 60 basis points over prior year, with strong execution on footprint optimization to enhance manufacturing efficiency and to align to customer production levels, including 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. Foreign exchange was a slight positive, primarily due to the Mexican peso. Turning to slide 16, 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 $5.12 billion, down 1% year-over-year at the midpoint. Operating income and adjusted EPS are expected to be $575 million and $1.80 at the midpoint of the range, respectively. 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. However, we acknowledge the uncertainty related to global tariff policies and intend to update our full year guidance as we get further visibility. For further context, I'd like to provide a framework. The midpoint of our full year guidance range we provided in February excluded any tariff-related impact and reflected active weighted global vehicle production down approximately 3% for the year, 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. We hope you find this information useful. With our 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. Before handing the call back to Kevin, I wanted to highlight our strong cash flow generation and strength of our balance sheet on slide 17. 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 paying down approximately $530 million of debt, including the outstanding balance on our term loan A. We further accelerated our debt pay down schedule and in April retired the remaining balance of approximately $175 million of a pan-European factoring facility. In total, since the start of the year, we have paid down approximately $700 million of debt, putting us almost three quarters ahead of our original deleveraging plan. With liquidity of over 3.4 billion and net leverage at 2.2 times, our strong balance sheet provides us with the flexibility to continue to execute on our strategic initiatives while selectively pursuing growth opportunities.

With that, I will turn the call back to Kevin for his closing remarks. Thanks, Aaron. I'll wrap up on slide 18 before opening the line for questions. 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. As Varen 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. And we'll update our full year outlook once we have greater visibility to customer demand for the second half of the year. In the meantime, we hope that the added visibility we've provided to our tariff exposure and the actions we're taking to mitigate the impact, as well as the framework we've provided to consider different vehicle production scenarios and and the corresponding impact on earnings and cash flows has been helpful. With our 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. With our solid business foundation, we believe that Aptis' approach to innovation will drive continued penetration of our electrified, software-defined and connected solutions across industries, further accelerated by the separation of EDS, which will create two independent public companies, each with its own unique product portfolio and financial profile, with greater flexibility to pursue their own market opportunities and capital allocation strategies, and optimally positioned to address customers' needs while accelerating value creation for shareholders. Operator, let's now open the line for questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We request that you limit your questions to one initial with one follow-up so we may take as many questions as possible. Again, that is star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal.

And our first question comes from Joe Speck with UBS.

Thanks. Good morning, everyone.

Kevin, just want to sort of go over the outlook and the messaging and make sure I understand. So is it fair to assume that for the second quarter, everything is based on what you're seeing now, including any tariff impact and mitigation? And in the second half, you know, taking 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 the tariff impact. And if that's the case, I guess what markers are you really looking for to give you some more confidence to provide an update for that back half? Is it what your customers do with the pricing? Is it some economic markers? Just want to understand how you're thinking about it. No.

Joe, I think you did a pretty good job kind of encapsulating our view on things. We have the businesses operating extremely well. We're executing well. And that's reflected in our first quarter results. And we have visibility, obviously, to April production, May production schedules, and through June. And we feel fairly confident in those. We clearly have our arms around tariff and tariff impact. As we tried to highlight in our comments, for us, they're very manageable given the guidance that's been given from the administration with respect to their plan as it relates to USMCA and where we actually have tariff exposure. So there are things that we're doing working with our customers in terms of obviously minimizing those tariffs, and to the extent we're unable to, we will continue to pass those costs on to our customers, and they'll pass those costs on as price increases to their end customers. As it relates to the back half of the year, we really want to give it some time to see how longer-term schedules play out. So the question for us is really vehicle production, which hinges on consumer demand, what the pricing strategies will be for our OEM customers, and And, you know, 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 exposure is actually pretty small. It's something we can manage through, and to the extent we can, you know, we've been working with our customers to push that through to them.

Okay. That's helpful.

Maybe just one more question. big picture question on, on sort of some of the more recent developments, you know, I think in your prepared remarks, you mentioned, you know, the possibility to look to move high value production back to the U S I understand this is probably like very early stage. Um, uh, but in the context of thinking about the different parts of your business, I don't think that means, you know, the harness business, um, maybe you can just provide some indication of sort of what type of, uh, manufacturing you think could move back. And if there's any rule of thumb to sort of think about some of the capital costs to relocate a facility.

Sure. Yeah, it is early days. It definitely does not include the wire harness business. That's not a business that would fit or make sense to do production in the United States. So it may be certain parts of our portfolio within ASUX. ECG business where we can highly automate the manufacturing process and working with our OEM customers you know we can increase US manufacturing to it in a cost-effective way we do have open today in the US I would Presume early days, we would leverage that existing manufacturing footprint for at least early steps or the initial steps in terms of increasing manufacturing, but we haven't finalized or gotten to a point where I could provide you with capital investment or overall impact or percentage of our manufacturing that we would move here.

Thank you very much.

We will go next to Dan Levy with Barclays.

Hi, good morning. Thanks for taking the question. Kevin, I'm wondering if you could first just talk to perhaps real-time, what are you seeing on advanced content, bidding, launches? Has any of that been impacted or delayed given some of the macro uncertainty?

Yeah, I would say the activity is as robust as it has been for a long time. I would say OEM settling on an ultimate path forward and ultimately translating that to customer award, Dan, that has dragged out. We've seen that drag out for the last couple quarters. If you recall, it's actually not too dissimilar to last year when earlier in the year, booking awards were a bit lower, and then 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, but the amount of activity, engagements, and dialogue with our OEM customers, I would say, is at prior levels or, quite frankly, even higher.

Okay, great. Thank you. And then the second question is, perhaps you can just update us on the EDS spin. With all of the macro uncertainty and given the heavy footprint in Mexico, does any of what's happening change or make you rethink parts of the plan? Or is it that, hey, you can still, you're going to maintain your footprint there There's still a presence you can pass through all the tariffs. It doesn't change any of this. So how does this change EDS?

Yeah, as it relates to the – if the question is around our plan to separate the EDS business, it doesn't change it at all. Our real focus with EDS is how do we continue to grow the business? How do we accelerate the standardization of the wire harness so that we can accelerate Manufacturing automation and assembly automation in our customers' plants. How do we minimize overall costs, be it labor or material? And then how do we continue to not only grow in automotive but grow outside of automotive? And we think with the separation, it positions that business to more efficiently, more effectively, more rapidly. that so it's a great business it's the industry lead across all the regions that it operates in and there's there's you know obviously tremendous opportunity out there for that business to grow great thank you we will move next to Sriya Patel with wolf research hey thanks a lot for taking my question

Maybe just to start with, I'm curious how to interpret the volume decline that would be implied in the guide in the back half, because I think, Varun, you were mentioning the low end of the guide would imply a 7% year-over-year decline. If I'm just looking at IHS, which had incorporated the latest cuts due to tariffs, I believe they're only assuming production would be down roughly 3%. So is the message that there's just not enough visibility to have confidence on a number, or do you feel like third-party forecasts still don't accurately reflect the potential risks here to volume even after incorporating tariffs?

Yeah, I'll start, and then Varen should add to it. Listen, we use multiple sources, but we principally rely on customer schedules and our experience with customers as it relates to schedules and actual production. And as you guys know, IHS is a useful baseline. It's a useful baseline, especially for customers. production schedules, but it's not what we build our plans and forecasts off of. And the full year outlook really, as we try to make clear, that is not guidance. What we try to provide is a baseline of our initial assumption back in February. And then if you were to look at that range from the midpoint to the bottom end of the range, what our assumption was for vehicle production, And then I think what Varen was trying to provide you with, 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 that's the framework from which you guys can run whatever sort of vehicle production scenarios you would like to run to come up with your view on, you know, how does the business model perform in various scenarios volume environments.

Okay. No, I think that's pretty much it. Yeah, just to kind of reiterate a couple of points that Kevin mentioned, Shreyas. You know, so Q2, so Q1, actuals were active weighted multiples down 2%. What we're guiding for Q2 is down 4. 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 7 in the second half. That's the framework to just build into your model.

Okay. And that's really the crux of the, that's really the focus, I guess, is what I'm saying, right? In other words, it's really just a volume question in the back half, and there's still uncertainty around that. Okay. Yeah, sure. Just to be clear.

So the direct impact of tariffs, we have our arms around that. We have high levels of confidence in that. we will not be impacted. What we don't have control of is the impact of tariffs ultimately on vehicle production. And obviously, as we get further out, we feel less comfortable and have less visibility there. The numbers that we 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. It's not guidance. We're trying to provide you with data points that you can use to run scenarios based on what your views are.

Okay, that's really helpful. Maybe just a really quick one. Just what you're seeing on the ground in China at the moment, you highlighted a number of new awards with Chinese OEMs, including Jiao Mi, but when I looked at the quarter, It looked like production was up about 10% and revenues were up, too, for you. So, just curious how you're seeing that market.

Market remains strong. As Varen was talking about, we were significantly impacted by a global EV manufacturer that from a production standpoint, was down significantly on a year-over-year basis. So that impacted our growth in that particular region. But we're still seeing strong growth. We're still seeing rapid adoption of advanced technologies. We're still seeing a push towards electrification. So the trends we've been seeing over the last couple of years certainly remain intact.

Okay, great. Thanks.

We will go next to Mark Delaney with Goldman Sachs.

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 2Q. To what extent have customer schedules for April and May shown softening due to tariffs? And to what extent are you including your expectation that tariffs will lead to lower schedules this coming quarter beyond what customers are currently indicating?

Yeah, so we – I'll start. So, again, we base our forecast on what we see from our customers as it relates to vehicle production schedules. They're more reliant the closer they are to production date, as you all know. OEM by OEM, platform by platform, on a regular basis we go through and based on past experience in our outlook for the market, we adjust those schedules as it relates to our financial forecast and what we communicate externally. So that's what's reflected in our Q2 guidance. We haven't seen a significant swing in schedules at this point in time. It would be difficult for us to identify what's directly tied to tariffs and what is not, as you can imagine. But we would say that schedules are largely in line with what we had anticipated back in February, with slight movement between OEMs and between platforms.

That's helpful. Thanks, Kevin. My other question was on EBIT margins. The 1Q EBIT margin was quite strong and better than I had expected, I think, above your guidance as well. You talked about some cost actions as one of the drivers, but can you elaborate a little bit more on the different pieces and how impactful they were to the 1Q margin? And then if I look at the 2Q implied margin, it's down, obviously off of a very good 1Q level, but maybe just help us understand the walk on margins from 1Q to 2Q, please.

Yeah, Mark, let me take that. So, yes, Q1, the team just operationally performed incredibly well. Whether it was material cost, strategic sourcing, engineering, each of those elements came through strongly and served on the flip side of it more than offset any of the FX and commodity side of things. And then clearly, you know, the rest of the guide that we just provided, we saw volume upside. And the flow through on volume was strong also. 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, 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 Engineering, for example, we're kind of doing some work on that front. And then 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 a good floor for us a year ago. On a year-over-year basis, as we think about that, that will be impacting. So we really won't get any of the upside. Until the time we don't get past the 2075 level, and then obviously with the weakening of the U.S. dollar against major currencies such as the euro and the Chinese or NIMBY, that's the other element which impacts Q2. But otherwise, operationally, the teams are doing just an outstanding job in delivering margin all the way to the bottom line.

If I can just add to it, just without going through numbers, just to remind everybody, in 2024, we reduced our SG&A costs by over 10%. And in 2025, entering the year, we mapped out a plan and we're executing on it to further reduce our SG&A expense by another 5%. And in light of just concern about the macro environment, have been more aggressive in terms further reduce costs. So, you know, 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. And the team, you know, under Varian's leadership has done a great job across our functions and across our business units doing that.

Thank you.

We'll go next to Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions. Maybe I just want to make sure I understand the tariff commentary. So you have $5 billion of goods being imported. You said 99% is USMCA compliance. That would imply almost no tariff cost, if I'm right. And any thoughts on the new rules? It sounded like, based on the wording of the White House release, that it's a, switching to US MCAs might be permanent. So the only risk for you would be really if it goes to a US sourcing role. Is that the right way to think about your exposure there?

Yeah, I think that's a fair way to think about it. Yeah, we would say as it relates to at least current guidance and where we believe things are headed, exposure on the flows between Mexico and the US, at least at this point in time, is de minimis. right? So it's over 99% is USMCA compliant. And when you look at trade flows outside of Mexico as a partner, it's a relatively small number, and most of that relates to directed buy from our OEM customers, and those are areas where we're working with them, quite frankly, to relocate manufacturing or move to other supply bases, suppliers.

Got it. And if I look at the sales guidance the way it is, it looks like you're down maybe a percent 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. You're talking about markets actually getting worse. So Does 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? How's that acceleration?

Well, again, we're not providing guidance for the second half. So I think that's the clear point. We tried to, again, provide you with a framework of scenarios to walk through for you folks to consider. At this point in time, Colin, we don't have the visibility to forecast revenue for Q3 and Q4. And as soon as we feel like, you know, we have the visibility, we'll update our output for the back half and provide full year guidance.

Okay. All right. Well, thanks for taking my question.

We will take our final question from Edison Yu with Deutsche Bank.

Hi. Thanks so much. This is for Edison. I was wondering if you can provide an update to that 400 performance number that you have provided back in February. It seems like you are boosting some performance action, so how should we think about maybe some of the incremental performance benefits for this year, something within your control?

Yes, let me take that one, Kevin.

the first quarter, the team did an outstanding job in going a long way in that number that you just mentioned. Q2 also we see moving in the right direction. Again, it's the material, the manufacturing side of things, you know, offsetting labor economics. We've talked about labor economics being a headwind in a certain relation related to labor in certain markets, such as Mexico, while it has come down some. 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 know Kevin gave me credit, but it takes a village to deliver these pieces, is just the relentless focus on our cost structure. And so SG&A also is kind of coming through, but overall... The first half, with regards to Q1 and what we're forecasting for Q2, the performance numbers are intact. We made tremendous traction. And again, as of now, for the second half of the year, a lot of it really depends in terms of what consumer sentiment will be, what production numbers will be. But needless to say, this is a management team that has time and time again risen to the challenge to deliver whatever the market environment may be, and I have no doubt that we do the same thing again for the second half also, as soon as we get more clarity.

Yeah, I would just add the biggest components of that are really manufacturing, engineering, and SG&A. Those are the big components as it relates to performance.

Perfect. Thank you so much. My second question is on China mix. Can you remind us of the strategy there? Again, in Q1, we see that, you know, market grew by 10% versus, you know, 2% for Aptiv. Just for that market, how should we think about growth for the year? And then you mentioned, you know, Q1 being mainly impacted by the EV customer. I believe for the full year, you have previously mentioned, you know, that you're only up single digits for that EV customer. So I'm wondering if you can help us frame the impact for the year for China specifically.

Well, again, we're not going to give full year guidance. I think what we've previously said is in quarter to quarter, just based on some customer mix matters and their decisions on production, it can that single OEM that impacted our overall mix. When you look at our bookings right over the last couple of years, we've been moving at a level across each of the three segments that should bring us more in line with the forecasted mix of China local OEMs relative to the non-local, including multinationals and that large EV manufacturer that I was referring to. So by the end of the year, you should expect that our revenues mix are roughly 70% with the China locals and 30% with the balance of the customers operating in or OEMs operating in that market.

Got it. Thank you.

I would now like to turn the conference back to Kevin Clark for any additional or closing remarks.

Great.

Thank you, everybody, for joining us today. We really appreciate your time. Take care.

Thank you. This does conclude the AAPTA Q1 2025 earnings call. We thank you for your participation. You may now disconnect and have a great day.