Versigent Aktie

All right. Welcome back, everyone to the 2026 UBS Auto and Auto Tech Conference. Super pleased to have with us next from -- the new kid on the block, I guess, on the [indiscernible] although been here for a while, I guess, Doug Ostermann, Chief Financial Officer from Versigent. So, Doug, thanks for joining us today.

Yes, thanks for having us, Joe.

I think a lot to get to -- there's obviously been a lot of interest in the name, and I think it's a pretty unique and interesting story. Maybe just to right off the bat to start, you laid out in your outlook sort of certain targets and assumptions for vehicle production for this year. There's been some changes, I guess, to sort of third-party estimates here and -- since then. And we're also sort of hearing some -- various different things about whether there was maybe some pull forward of demand earlier on in the year and maybe some incremental concern over schedules in the back half of the year. You guys typically have some pretty good visibility at least for sort of the quarter ahead.

So I guess maybe you could just sort of comment broadly on how you're sort of seeing production play out in the quarter and what your sort of view and expectation is for the year? And what would be sort of the factors that would cause production to come in maybe a little bit better than you sort of expected versus some potential downside?

Yes. I mean, to your point, we do have a good relationship with our OEM customers. We have a fairly broad set of customers. As we've talked about, we do manufacture for all 10 of the largest OEMs around the globe. And in addition to receiving, of course, their schedules, we also have a regular dialogue with them about how they're seeing the environment, various macro elements that are playing out.

Right now, I would say all the schedules that we're seeing, the discussion and dialogue that we're having, we think that volumes throughout the year will be supportive and consistent with our full year outlook. We don't see right now significant deviations that could cause that to be an issue. That being said, there are a lot of macro factors in play as there always are in auto. I mean that's what makes it such an interesting business, right?

And we talked about some of those headwinds. Of course, we saw IHS bring the market down a little bit, particularly in Asia towards kind of third and fourth quarter. We, of course, are always monitoring copper prices very closely. That's a big impact for our business in particular. We've seen higher gas prices, and we're watching to see how that plays out. American consumer, at least seems to be pretty resilient at this point. And of course, there are always the individual events progress in the discussions and the war in the Middle East, et cetera.

But right now, we see schedules being kind of fairly supportive really of the outlook that we've put out right now. And of course, our performance is somewhat different than general market performance. Our revenue is growing faster than general vehicle production because of some of the issues we talked about on content and things like that.

And of course, you saw the differentiation in our production and our results in the first quarter where we outperformed the market, I think, significantly. We had absolute growth in revenue about 9%, adjusted growth of 3% in a market that was down a couple of percent with particular strength in the APAC region. So our results are a bit different than general market. But that being said, we think the outlook looks fairly supportive still.

Yes. I want to touch specifically on that last point you mentioned, which is the outgrowth, particularly in China, which, as you mentioned, was pretty strong in the first quarter above market. I mean, maybe you could just sort of help us and recap for the audience sort of what drove the strength in the region and how you sort of view those trends progressing over the balance of the year?

And also, if you don't mind, just sort of for a refresher, maybe you can sort of also talk a little bit about the exposure within China, whether that's like domestic versus foreign OEMs and -- or if you even know sort of export versus domestic demand because there's been some changes there, high end versus low end. So anything to sort of help us with some of that color?

Yes. I mean, Asia has been a real strength for us with a big focus of it being China. In China, we have a strategy, which is consistent with our strategy around the globe, really to try to work on and target those wiring harnesses, those electrical architectures that are the most complex -- that's where we think we can add the most value. That's where customers, frankly, seek us out because we have such a strong global engineering team and this kind of proprietary tool set that we've developed over time to help them out.

And I would say what's different about China is we specifically -- there's a huge number of OEMs in China, over 100 OEMs. And so we're not going to work with 100 different OEMs. So we specifically have targeted the bigger players with more complex wiring harnesses and specifically those that are involved in export. And really, because of that, we are over-indexing with those exporters, and you saw that in our first quarter results.

So if you look at the China market as a whole in first quarter, domestic consumption of automobiles was down, right, like I think something like 20%. And export was -- and it continues to grow every single quarter. And the growth was very significant in the first quarter. I think year-over-year, it was like 50-plus percent growth. And that's why our results were so strong. Now I would say we also have a unique value proposition to these OEMs, which is a real differentiator.

In wiring harnesses, there are really only about 3 or 4 truly global players. And so part of our discussion with the Chinese OEMs has been, look, we can help you with your domestic vehicles for sure. We can help you understand the requirements for international markets, and we can help you with export, which is what we're doing today. But importantly, we can also help you progress along that journey because eventually, you're going to localize, right? And because we're one of the very few global players, we can help you along that entire journey. And that's been very effective in building the relationships that we have today.

[indiscernible] my questions, I guess, but maybe to sort of piggyback off that, like have you been having those discussions about -- because like some of these companies already are sort of beginning plans, if not already sort of starting some localization. So how are those conversations going? And how would you sort of say your strategy has paid off in terms of sort of a win rate with them as they sort of look to localize?

Yes. I mean it's really paying off, I think, right now in the export, but increasingly, we're seeing more awards and more opportunities to bid on their localizations based on our good work to date. And I think that's going to pay off long term because, obviously, we see the penetration numbers that are happening, particularly in markets like Europe, for example, and increasingly, they are all looking to localize within those markets.

And I think there is a shift there because I think it will be difficult for them to achieve the levels of vertical integration that you see in China as they move into these new markets. A lot of their local suppliers would not be able to make that journey with them. And so I think it's going to create opportunities in the Tier 1 space. And I think it's important that Tier 1s really think through that strategy and position themselves well to be a player as those opportunities open up. And I think we've done that.

Yes. That's an interesting comment. I guess maybe on that and maybe the competitive set within China, I know you mentioned there's only a handful of sort of local -- global, sorry, wire harness players. There are clearly some Chinese for China sort of harness players. But I don't want to presume here, but I guess by your comments, what I'm gathering is that you think your level of sophistication and being able to sort of handle harnesses is above sort of that local competition. Is that what you're seeing that where there is more sort of local Chinese competition, it's more sort of at the lower end simple parts of the harness?

Well, what I would say is that when you look at our team in China, and I think this is a broader lesson that we've all learned over time is that our team in China is extremely China focused. We don't have any expats in that team. It's all locals, right? And they run at the same speed as the local Chinese OEMs. So that's what you have to do to be successful there.

What I'm saying is that as those Chinese OEMs increasingly look to international markets, the fact that we are a global player and we can provide those services in multiple markets, and we can carry through solutions, we can help them across markets. That's a real differentiator. But in China, we're extremely kind of China-focused, right, with a very China-focused engineering team that really operates at a very, very fast pace.

Has that China fast-paced knowledge -- are there lessons you can take from those operations and scale them to operations in the Americas and Europe to sort of better improve the processes there? Or is it really sort of more dependent on the customers because the customers there are just sort of moving faster and maybe some of the legacy automakers don't move at the same pace?

I'd say it's a combination of things. One, we have the highest levels of automation in all of our plants in China. And so now we are working to extend that automation to many of our plants around the world, which I think is going to allow us really to have a significant margin increase over time. But the other thing is that we just see the pace of innovation in China is extreme, right?

And so a lot of the things that we are learning and that we're building on and working with local OEMs on wiring harnesses where we're tearing down vehicles in China and looking at what the competition is doing, even wiring harnesses that we don't do that maybe have done in-house by certain competitors, et cetera. We're taking those lessons and those learnings and we're applying them to our customers around the world. And it's been a real opportunity for us because the pace of change in China is dramatic, right? And so if you're well positioned there, you're a big player and you can really be on the inside track, I think you can provide a lot of value.

I want to touch back on a comment you made on just sort of the automation and the highest level of automation being in China because I know this is something we've talked about in the past that I think is maybe actually underappreciated because I think people think of wire harnesses, they think of very labor-intensive processes.

But I think there are other areas around sort of the plants and facilities that you are able to automate. So maybe you could just talk a little bit about what functions have been automated in China that maybe are not yet automated in other parts of the world and really also how you sort of view that automation path over time, whether it's in China or the rest of the world, what can still be done there?

Right, right. And I think for the most part, when you look at final assembly of a wiring harness, it still is a very manual intensive process. And I have huge respect for the people who work online doing that. I've tried it myself. It's not easy work. And -- but I would say when we see advancements in electrical architecture, there is more automation that can be done on final assembly for sure. But a lot of that will be -- is frankly, dependent on the advancements that the OEMs make, and we don't want to be held up by that or waiting for that, right?

What do you mean by that? Why is it depending on the automakers? It on their assembly process, do you mean?

On some of the innovation of the wiring harnesses themselves. And so -- and we're helping to do that to make those -- the manufacturability of the wiring harness itself easier and more automated. But that's kind of a long path, right? And we will take advantage of those opportunities where and when they occur, right? But the kind of low-hanging fruit, if you will, right, the big opportunity that we've been exploring is all the peripheral activities.

So these are areas where automation, I think, has been employed in plants around the world. Much of that technology is very mature, but we haven't applied it as much within the wiring harness industry, you don't see it applied that much. And so we're talking about like how goods are received into the plant, right, how they're warehoused, how they're picked out of the warehouse, how they're prepped, how they're brought to line side, how they're presented to line side, how the wiring harness is tested at the end of the line, right? How it's packaged, how it's shipped. All those are ripe for automation.

Are there any -- is there any quantification of how much savings you've been able to see as you've implemented some of these factors in China, just so we get able a sense of scale for us sort of the opportunity in the rest of the world?

Yes. We haven't shared specific like plant-to-plant comparisons for obvious competitive reasons. But we have talked about the fact that we think that, that opportunity over the next 3 years will add 50 basis points to our margin.

Okay. Perfect. Maybe going back to -- let's actually go back to the outlook because we got a little sidetrack there. Just one thing I wanted to also sort of touch on, which sort of comes up a lot with investors is right, the margins, you look at sort of what you did in the first half, you look at sort of margin guidance for the year, it does imply a step-up, I guess, over the course of the year. So maybe just sort of a little bit of the puts and takes that you sort of see that sort of drive the margins higher and how some of those efforts are progressing.

Right. So the first thing to recognize is that seasonally, historically, in this business, Q1 is typically the lowest margin period. And so it would be normal for our margins to progress throughout the year. Typically, seasonally, third quarter is typically the highest margin for us. And the reason is really, it relates to production. As you know, in the automotive industry, first quarter typically is the lowest production quarter. We're coming out typically of a Q4 that typically ends with a lot of pull-ahead incentives, activity, and you have some downtime for the holidays, right, and you're trying to ramp back up from that in early January.

Then, of course, if you're a global player like Versigent, you have -- your customers for the Chinese New Year typically shut down, right? So first quarter tends to be the lowest production quarter. And so because our business does respond to volume, our contribution margin is roughly around 23% on average. The higher volume in Q2, 3 and 4 helps margins overall, right? In addition, this year, we should see some copper catch-up, right, which was a drag on margins in the first quarter. As our contracts adjust second quarter and on, that should become -- go from being a headwind to a tailwind. Then it's basically our productivity efforts that kind of play out over the course of the year should help as well. So -- but we do expect margins to advance over the course of the year.

You mentioned copper, and you mentioned that as an important -- even earlier on that as an important factor for the business to consider. So I know a lot of -- I know, as you mentioned, there's sort of the contractual pass-through. I think you also do some hedging as well. But maybe you could just sort of walk us through a couple of things on copper here. How big is the annual buy? How does sort of the -- how does sort of the contractual sort of pass along really work? I think you've said in the past about 3, 4 months, maybe lag. And then how do you handle sort of the portion that's sort of more exposed?

Right. So -- so really, what -- because copper is the biggest exposure from a commodity standpoint by far, you'll find that over 75% of our contracts have a specific clause related to the escalation of copper prices. The issue that we have, though, is that within those contracts, typically, it's a 3- to 4-month lag between the time when the copper price moves up and when we adjust the pricing. And with our wire suppliers, we're typically adjusting the price every month. And so that creates this gap, right?

On the other 25% or so of our exposure that doesn't have a specific escalation clause, we do hedge those exposures, and we typically hedge them over a 2-year period. So given where copper has gone over the last 2 years, you can imagine those hedges are pretty attractive prices. And so that's why even when you see a really significant impact, a really significant move in copper like we saw in the first quarter, like 25% move impact, I would say, relative to the amount of copper we use for it to be $28 million is not that large, I would say, for a 25% move in the price of the material.

And that's because of these hedges and things like that. But certainly, there is a timing aspect to the escalation. And so we are looking forward to getting some catch-up on that in the second quarter as those escalations take place. But to the extent that copper continues to move up, that is a bit of a headwind for us, of course.

A few things there. Roughly how much copper do you buy annually?

Yes. We don't share that figure, but it's a significant buy for us. I would say that in some ways, we found this period is an opportunity because it also has stimulated a lot of discussions with our customers because they obviously feel the impact as the contract escalates. So we come back and we say, "Hey, can you guys help us think this through? Like how can we substitute for copper? How can we reduce the copper content? And because we have the strongest engineering team, it allows us again to show value in the relationship with our customers.

Okay. And the second thing, and this is sort of like maybe a little bit of sort of semantics. But when you sort of say, okay, so you're buying copper every month, right, those contracts are set every month. And then -- but then 75% of those contracts, you get sort of reset 3 months later, let's say, there's no retroactive part, right? Like you're not able to sort of go back and say, hey, over the last 3 months, like we were able -- so you basically -- you're saying like copper is going up 3 months from now, we're charging you based on sort of where copper is now?

Right, right. So a very -- this is overly simplified, right? But the way I think about it is if -- in the first quarter, we produce all the wiring harnesses we normally would for our customers. But because of the move in copper, they cost me net of hedges, $28 million more than normal.

That's gone.

Right. Then my adjustment happened in the second quarter, again, overly simplified. I get the $28 million additional in my revenue and then it still is in my COGS, right? So it equals out my ability to earn my EBITDA over time is restored. But what they don't do, to your point, is they don't go back and say, "Versigent, we feel so bad that you paid an extra $28 million, let's make that up to you."

[indiscernible] industry for that.

Right, right. So it's a onetime impact that stays with us. That being said, if we see a mean reversion in the price of copper...

Yes. Exactly, you got a good guy. Maybe actually, since we have you up here as CFO, like just bigger picture, I know this year is sort of set. But as we sort of think about Versigent into '27 and really beyond, how would you sort of describe your approach towards handling copper in your outlook and your guidance. And the only reason I sort of ask is because as you sort of mentioned, it is such an important input and it can be such a factor. So how do you think about sort of communicating what's embedded or even sort of planning for the business for copper?

Yes. So I think any time we put out guidance, we want to be clear about what our assumptions are. So that the investment community can understand the context in which those projections are made. And we are actively looking at our strategies in those regards. Part of the exposure, of course, is of our own making, right? Because we have agreed with our suppliers to escalate every month. We've agreed with our customers to escalate only every 3 or 4 months, right? So...

Is that structural? Or can that change?

No, there are opportunities. Most of the wiring suppliers that we talk to are open to us locking in for longer periods of time. And that's something that we're looking at. So there are -- we are actively looking at the ways in which we handle this exposure. So far, I think if you look at, like I said, in the first quarter, relatively in copper, they only have a net impact of $28 million, I think, it shows that we do a decent job of managing the exposure. That being said, there's always room for improvement, right?

Sure. So you mentioned a couple of times, right, the strength of the engineering team and the complexity of the wire harnesses, and I think you focus on those high-value programs relative to the build-to-print type of programs. Just maybe you could sort of remind us and sort of talk a little bit about like why you feel it's sort of more important to focus on those higher, more complex programs. And how that is balanced by OEMs' desire to maybe try to simplify or reduce some of the wiring.

Right. Yes. So I think it plays out in a couple of ways. Clearly, we have a strategy to go after the most complex wiring harnesses, the most complex electrical architectures in the industry. We have built a team around excellence in that area. So we have 8,000 engineers, 1,000 of which sit at our customers, helping them develop and optimize those solutions. We've developed proprietary pieces of software that help in that, roughly 5 different software -- suite of 5 different software tools that we call iHarness that allows us to really do a good job in those areas.

And really, I think the trends are playing in our favor because with the massive increase in feature set, the increase in powertrain complexity, hybrids and BEVs and new architectures like zonal, there's plenty of opportunity for a highly engineered team, a team that is strong in engineering like ours to increasingly add value. And that's why if you look at all the wiring harnesses that we produce today, over 75% of them are ones in which we have contributed to the design or optimization along the development path. If you look at that statistic just 3 or 4 years ago, it was more like 50%, 55%.

And so what we see is OEMs increasingly turning to us for help and value add in these areas. Now why is that important to us? Well, it plays out really in 2 ways. One is the extent to which OEMs turn to us increasingly for that type of help, those relationships tend to make the business very sticky. So we have a very high incumbency win rate. And the second way it plays out, of course, is in margin because to the extent that we can provide more creative solutions, reduce the cost for our customer that allows us to still provide great value to them and maybe keep a bit for us.

So as you sort of -- you mentioned zonal, and I think like one overarching way that people think about that is a simplification and a reduction in the wiring. But your argument would be actually, it's -- there's more engineering involved in getting to that point. So it's actually not necessarily a headwind?

Yes, I would agree with that. We've helped a number of customers, particularly in China with solutions that are in the direction of zonal architecture, right? I would say the other thing is that typically, when we see the transition to zonal, it's on all new platforms. And those new platforms tend to be EV or hybrid and they also tend to be extremely feature-rich.

So most of our customers, particularly in China, have gone in that direction with new architectures. Those vehicles just have an incredible feature set. And so the total content, even though yes, the zonal architecture allows for a bit more elegant solution for wiring harness space, net-net helps to reduce total content. The overall content when we look at it on those vehicles is very high.

Yes. So I know this is always a little bit of a gray area and a fine line. And I think like some of your customers like to say they are in charge of things when very often -- I mean if you would walk through, you see sort of there's engineers from suppliers sort of embedded with these teams. But there have been a number of examples we just had Ford on stage, and I sort of toured their next-generation sort of platform facility and they're sort of very clearly talking about how they sort of design the electrical architecture and that they will just have someone make it for them built to print.

I understand the sort of truth might be a little bit more sort of in between, but how do you sort of counter that narrative? Or what are you actually sort of seeing in terms of sort of automakers actually looking to sort of design and then sort of make it build to print because if you believe that narrative, right, like your value-add engineer build-to-print mix seems like it might shift over time.

Yes. And I wouldn't want to speak to a specific customer.

I was just using that as an example.

But in general, look, what I've seen or what we've seen is that, yes, when it comes to designing, for instance, going from traditional architectures where you have a whole bunch of boxes in the vehicle with kind of simpler chipsets that are driven by different sets of software, oftentimes that are designed by the supplier, the Tier 1, right? The transition to zonal that a lot of the OEMs are working on and some are pretty far down the path on, frankly, is to fewer boxes, if you will, right, with a stronger chipset that runs on a common software.

Oftentimes, it's designed by the manufacturer themselves. Not an easy transition by any means. Most of the time, they're focused on what is the right chipset, what is the right number of boxes, what functions do we want to combine into these boxes and how do we make that software happen, which is really, really tough. The wiring that connects it all, oftentimes not something they want to focus their valuable engineering time on, frankly. Oftentimes, that piece of it is, look, we're very focused on the software and all that. Why don't you help us with the wiring...

Connect it all...

Connect it all, right? That's the function that we play. And it's often, that's not where they want to focus their efforts.

Let's shift gears a little bit. Obviously, I think a big focus, increasing focus among investors here in auto space is sort of looking at core competencies and where else those core competencies might be applied, especially to sort of some nonautomotive opportunities. I know this is like -- I know you've some commercial vehicle, but if you sort of take out like just vehicles, like this is a very small percentage of your revenue today.

But you have sort of talked about certain capabilities. You have sort of -- you did announce an award on a BESS system, for instance. Maybe you could just talk about, one, what you're seeing, whether it's sort of push or pull demand, what the sort of effort is to sort of try to diversify the company, how those conversations go. And more importantly, and I know this is something we're talking a little bit about offline is what the timeline and process looks like?

Because I think in auto, we're all very familiar with you're winning business 2, 3 years ahead of time and then that program will run for 7 years and so you've got good visibility. Here, it seems like when you win business with something like BESS, like it might come on pretty quickly. But how does sort of that contract and duration and durability of that look like?

Right. So when we look at the adjacent market opportunities, they're attractive for a number of reasons. One, because a lot of those areas seem like they're going to have a pretty strong CAGR. Even though they're small today, the growth projections are impressive. We believe that if we can become a preferred supplier there, the margins also might be very attractive. And we have seen that really -- the fit in terms of our existing engineering skill set, our existing toolset, our existing manufacturing footprint is very organic. And so it's very encouraging at this stage.

And I would say that when we think about the ways in which we add value through our engineering teams, it's not just in the upfront design, but it's also in making a wiring harness, whether it's for a vehicle or a battery energy storage, also optimized for the manufacturing within our plants, right, which OEMs don't understand, right, necessarily, it's something that we can optimize and again, produce a better cost for them and ultimately, how that wiring harness then makes its way into the final product and make sure it's also optimized for that installation, right?

But when we look at these adjacent opportunities, you're right, some of them can come to fruition much quicker. So we see in China, for instance, a quicker path from award to start of production even in the OEM space. But this piece of battery energy storage business, for instance, that was awarded in the third quarter. It went into production -- serial production in the first quarter. So again, an even shorter time period from award to production. And so we're pretty excited about those opportunities.

I would caution, though, to say that when we look at our 3-year horizon and the 3-year numbers that we've shared, these adjacent markets are not a significant portion of that outlook, right? It's beyond that. And really, it could be upside to that if some of them come on quicker, but it's not a heavy component of us making those numbers. So I would say -- I would caution people -- if you see awards in this area, it's not that -- if you don't see a certain amount of awards, we won't be able to make our 3-year numbers.

But battery energy storage, exciting area. We've got our first piece of business. It allows us to demonstrate our skill set. And we really are developing a go-to-market team that can really address that and try to get more of that business for us. When we look at commercial business, as you said, most pieces of automotive will go into production. They might be in production for 5, 6, 7 years. A lot of commercial vehicles will be in production for 10 years, right? So it's really attractive from a CapEx profile, right, and returns profile.

So we want to get more of that business, whether it's on-highway with our existing OEMs, but also increasingly off-highway opportunities. So like agriculture, construction, even like things like personal watercraft or ATVs, those are all opportunities for us. And then certainly a little bit further afield, [indiscernible] robots. We are doing some prototyping for, again, OEM customers where they have decided to explore those adjacencies when they come along, right? And so we're doing the prototyping, one in North America, another one in China. And again, we feel like we can add a lot of value from an engineering standpoint and from a manufacturing standpoint, should fit right into our existing facilities.

Can I -- obviously, when you sort of talk about something like humanoid robots, that's sort of a new area. But when you talk about other areas, whether it's BESS or commercial vehicle or maybe, I don't know, maybe A&D or some other areas, like what is sort of the incumbency look like? Like is BESS sort of just like because it was historically a small area and didn't have a lot of focus and didn't have a lot of sort of sophistication and like now you with your processes are able to offer these customers a lot more efficient and cost savings and robust product?

Yes. I mean, we have looked at that in all these adjacent markets. And what you find is a mix. Some of it is traditional suppliers that we've run up against in automotive many, many times over the years. And others are more smaller kind of specialized players. And really, we think we have kind of 2 natural inroads in these areas, right? One is, of course, the existing one, which is a lot of these adjacencies are being explored by our existing OEM customers.

So in particular, for instance, a number of our customers in North America find that they have lots of battery capacity and expertise. And so they want to go into that area. And so they know us. They know our capabilities. They know the quality that we produce. And so they're asking us to bid on those projects. I would say the other, though, is that we can bring a skill set, a tool set and a scale, frankly, that a lot of these local players just can't bring to the party, right? So I think that's another real opportunity for us to displace some people in these kind of growing markets.

USMCA was in the news again last week, and there's reports that the government is pushing for 50% U.S. content. Clearly, if you look at your sort of Americas footprint, you're more in Mexico. How do you sort of see this evolving? And what sort of changes, if any, do you think you might need to make for your business to sort of help customers?

Yes. It's something we're monitoring, and we'll see how it evolves. My gut is that even if we do go to a higher percentage of U.S. content that wiring harnesses are probably not high on the list in terms of where the OEMs would seek to reach that content. Obviously...

Is it possible there's an exclusion for things like wire harnesses or you just think like they'll look for other areas to...

I think both because there are very, very few if any -- very, very few wiring harnesses being produced in the United States today. It'd be very difficult. It is very labor-intensive.

I guess maybe just to close, capital allocation, which I think is a big part of the story, right? You're talking about $1 billion of free cash over the coming 3 years. You put the dividend out there. You start -- there's a repurchase program. You mentioned wanting to fund buybacks with operational cash flow. So how should we think about the timing of some of that cash relative to sort of when you look to buy back stock and sort of when you want to take advantage of what you think is a dislocation on sort of valuation?

Yes. So we have talked about $1 billion of free cash flow generation over the 3-year horizon. That's beyond kind of the built-in 3% of revenue that we will use as CapEx, which is high for our historical averages, right? And that's because we're trying to address some of these really attractive opportunities in automation and things like that, right? Now of course, if I could pull ahead some of those, that would be my preference rather than giving money back to buyback or things like that, right?

But right now, all of those opportunities we see right now is being contained within the 3% CapEx. So the $1 billion is something that we wanted to give clarity to the investment community on. We've talked about the fact that we will go back to the Board after we have Q2 earnings and talk about the dividend. We gave what we think is the right target for the Board. But obviously, that's a Board decision ultimately, but we would like to declare a $0.13 a share quarterly dividend. When we talked to the Board about a buyback program, they did approve $250 million. So up to $250 million of buybacks.

But we would like to time that with the cash flow of the business. This business historically has significant ramp-up as we talked about the seasonality of working capital in the first and second quarters. So typically not much cash generation in that period. Historically, third and fourth quarter is when all the cash is generated. So my expectation is that we wouldn't get active or think about utilizing that authorization until probably third or fourth quarter.

Okay. Maybe just to close, and I know we're running out of time, so this could be a fairly simple yes, no answer. But when we sort of talk about some of the other opportunities you see in some of these other adjacent end markets or just other end markets, do you feel you have the capabilities to compete there? Or could there be some assets that could be worth a look to acquire inorganically to sort of help participate in those markets?

I think there's a lot of opportunity that is very organic. So I think commercial vehicles, robotics, energy storage, et cetera, very organic. There are some further field stuff that we've been looking at that could be attractive down the road. We'd like to diversify our revenue base. It could be that there are opportunities, aviation, defense, et cetera, where you might need to look at different certifications and things like that. But I think there's plenty of opportunity within the existing target set right now.

Okay. Perfect. With that, we're out of time. So Doug, really appreciate you joining us today.

Thanks very much for having us, Joe. I appreciate it. Thank you.

Thank you.

Welcome to [indiscernible] the Fast Lane. My name is Edison Yu, and I lead the U.S. Autos, Mobility and Robotics research here at the bank. We are recording ahead of the Deutsche Bank Autos Conference in New York next week, and we're delighted to welcome Versigent to the program. And joining us from the company, the CEO, Joe Liotine; and the CFO, Doug Ostermann. Thank you both for joining us today.

Edison, pleasure. Thanks for having us.

Yes. Thanks for having us, Edison.

For some background, Versigent is a leading global auto supplier with over 140,000 employees. It generated about $9 billion in revenue last year. Versigent actually has content on 1 out of every 6 vehicles made in the world and, within that, 1 out of every 3 battery electric vehicles.

So a very large company with tremendous reach across the globe. To kick off, for those tuning in who aren't as familiar with the company, Joe, could you give us an overview on the main products and offerings you have? And generally, who are, sort of, the competitors we should think about in the same realm?

Yes, sure. Happy to. So as you mentioned, we're about a $9 billion business. Principally, our work is to design, engineer, and manufacture wire harnesses, and that's both low voltage and high voltage. So our revenue really is pretty spread out across the globe evenly, about 40% North America, 25% in EMEA and about 1/3 in APAC. And we're principally focused on all vehicles, irrespective of powertrain.

So we're powertrain agnostic. So we'll produce and design ICE architectures, hybrid and BEV. And within that, really, we're always looking to design the entire architecture. And so if it's low voltage or high voltage, it's distributing signal or data or power, it really doesn't make a difference to us. We're looking to optimize all of those. So from a product portfolio standpoint, low voltage, principally on ICE, on hybrid, you have both.

And actually on BEVs, you have both as well. And so really, the only product line part of our business is kind of the charge cords. That's a separate high-voltage only product for BEVs and for some hybrids. The rest of it really usually is done as an overall architecture, kind of mixing both low voltage and high voltage together.

Great. And I'll just provide a little context. Generally, I think the 2 competitors that often are brought up are, I believe, Yazaki and Sumitomo, is that correct?

Yes. I mean the way I would think about it is the landscape is kind of broken out in 2 groups, broadly speaking. One group is global competitors, the 2 you mentioned as well as Versigent. And then the remaining, I would say, are more kind of tied to either an OEM specifically or a region specifically or even a country specifically. And so they're using that at global scale, little bit different characteristics there. But the 3 you mentioned are typically thought of as the global players.

Got you. So myself having followed us for a long time, we obviously watch the -- what recently happened with the spinout. Can you just remind people perhaps not as close to the situation? What was the rationale? And what are your top priorities moving forward for the next 12 months?

Yes. So Versigent was spun out of Aptiv, greater Aptiv. And Aptiv essentially had 3 main business units: wire harness being one, connectors and some other businesses being the second and then software and sensing, ASUX, things like that being the third.

And so when Aptiv looked at the overall strategy of the company, looked at the investor base and what they aspired to achieve and frankly, capital deployment, they realized there were pretty different strategies across the businesses, namely in the wire harness side of things, essentially, we had been, I think, a little bit maybe the second priority as the company looked to grow in software and other areas.

And so as we discussed how best to really fuel our strategy, it became pretty clear that competing capital priorities was maybe limiting the ability for Versigent to grow. And so been discussed over probably many years on what to do and when to do it. And then ultimately, it felt like it was the right time for various reasons to spin off.

And so for us, the exciting part really is a sharpened, more focused strategy regarding wire harnesses, low voltage, high voltage and the future that's coming, a sharper, more deployed resource set, both internally as well as externally. And then lastly, just capital, how to put capital behind some of these big ideas that we think are very value creating, in particular, things like automation and digitalization where we see really big opportunities.

We already have quite a bit of progress in our China manufacturing environment. And we see what we could do with a little bit more precise strategy, a little bit more capital deployed to those ideas. And so that excites us. And so I think that really was the reason for the change. We'll continue to look for opportunities within Versigent to deploy capital to the biggest ideas, and we've already kind of demonstrated when doing so, we can generate more growth and frankly, better margins. And so that's a pretty big part of our story.

Excellent. We'll definitely come back to some of those points you made. Let's start talking about, I think, more about the company and what you're seeing. I think in May, a lot has happened this year, I think, in the industry. Can you give us just some insight, I guess, into what you're seeing on the ground, perhaps by region? It seems the dynamics are a bit different. But given your reach, given your scale and also given the kind of events that transpired just in the last couple of months, what are you seeing on the ground?

Yes, as you opened with, there's really 2 or 3 of us globally that kind of have that same perspective across all the regions. And so for us, the regional differences probably are the most amount of change we've seen in the last couple of years. And what I mean by that is, obviously, the geopolitical things related to tariffs and potentially conflicts and war, but also as it pertains to the knock-on effects to consumers.

So in the U.S., the EV growth has slowed. It's still growing, but it slowed versus what people thought in a pretty significant way. And publicly, OEMs made certain disclosures about write-offs and changes of strategy and implications. So that was pretty big. I think at the same time, hybrids might be growing a bit faster in North America than people thought as a consequence of some of those things.

And then if you contrast that with Asia Pacific and specifically China, the BEV movement has not slowed down. I would say it's probably exactly what people thought, maybe even continues to move in that direction. And whereas hybrids might not be quite as strong in its growth as we're seeing. And so I think that doesn't really surprise anyone, but it is quite different from the 2 regions.

And then EMEA, I would say, from a powertrain standpoint, probably continuing on the trend that we're at, maybe a little different than what people thought, but pretty close. I think the bigger phenomenon that's taking place in EMEA is the export level from China to EMEA, really started probably in Q4 of last year, but it's ramped up and continues to ramp up with really no real end in sight.

And I would say that's a pretty pronounced change when you're talking about 1/4 of the biggest country's production being exported to another region. There are obviously knock-on effects and consequences of that, that sooner or later will have to come through both to consumers, but also to the industrial footprint. And that might then drive another set of either geopolitical things or something else.

So I think from a market standpoint, that's pretty big. And again, that was supportive. We were out in China just a couple of weeks ago at the Beijing Auto Show. And I would tell you, it was very consistent from all the local Chinese OEMs, the focus was on both export and on localization in outside markets.

And that was consistent like for everyone. And I think when you start talking about the implications of that over a 1-, 2-year period of time, it's pretty significant. So from an industry standpoint, those dynamics continue to be quite large. And then I think the tariff question kind of floats in and floats out pretty quickly. And so if that changes again in any market, there's going to be implications of that.

I wanted to double-click a little bit on China. You obviously yourself had a very, very strong quarter there in the first quarter of this year. Can you talk about why you're able to do so well there? And on the export side, as being a German bank, we can see a lot of the Chinese automakers coming to Europe. How much or what do you think the next couple of quarters looks like? Do you think the exports will continue to be quite strong?

Yes. So just from the China market standpoint, we've been in that market decades, so a long time. Our team is really skilled, very much localized to the market, understands the elements and characteristics well from supply all the way to customer. And separately from China, but more for Versigent, we always look -- our strategy in market is to match the market.

Whatever its composition is, we want to match that, generally speaking, because we know that insulates us from, I'll say, being out of place if things change. And so for us, we're typically looking in all markets, what is the most complex programs, where can we add the most value, where do OEMs need us the most help in terms of predevelopment, development optimization.

So we're always gravitating toward the most complex programs. In addition, we want players at scale, and we want players that have global growth potential. So understanding OEM strategies around export and localization is also pretty important. And so the byproduct of that, the natural selection is we -- there's 100-plus labels or brands in China, local Chinese brands.

We obviously don't do business with all 110 or 120, whatever it is, because there's high fragmentation. So our strategy helps us get to a natural selection point. We're kind of picking some of these individuals that have the most potential. And that played out both last year as well as this year, where, yes, the market is down almost 20% year-to-date, but we were really working with the biggest OEMs on the biggest programs that actually did the best, both domestically, but also via exports into other markets.

And so we were essentially insulated from a lot of that downward pressure in China from an industry standpoint because of our process, our strategy, who we partner with and the mix of the programs that we're on. And so that was quite helpful thing, and that was both from a customer selection, program selection and it has a knock-on effect powertrain, right?

Since BEVs are the powertrain growing so strongly, BEVs typically have more than 70% more content than an ICE vehicle. And so there's a little bit of a product mix within the customer and program mix as well.

And I would just add that our over-indexation with these exporters in China is really a factor of both our strategy and of course, the way in which we are positioned within the market. As we talked about, there's only a handful of truly global players in this market. And I think our customers recognize that those that are focused on export, they recognize that we can help them as exporters.

And then as they localize in those markets around the world, we can also support them there. There are only a couple of competitors who can really provide that type of support. And I think that really makes us quite attractive to those companies.

Let's dive a bit more into the operational aspects of the business. I think we've got a pretty good sense on the market. As we as we know, but I don't know if everyone knows out there, wiring, wire harness, the process is very labor-intensive. Can you walk us through the milestones for some of your automation and some of the initiatives? And what percentage do you think of your backlog is -- sorry, backlog is on these kinds of new automated efforts?

Yes. So it's a complex topic that has a lot of potential. So it's obviously very important to us. The first thing I would say is automation is a piece of it, but the readiness or the enablers in order to really leverage the benefit of automation happen well beyond that. So the engineering design work in terms of bill of process is really important. So you can make it as efficient as possible to be manufactured no matter what the design is.

And that's something we do quite well. In addition, process standards, we have something we call enterprise operating system. How we really just do our work every day, all day long is really quite robust, and it's something that was first established in the Delphi days. So we've evolved it since then. And so really lastly is automation.

So if you don't have excellent bill of process and you don't have excellent process work and you don't have digitalization already contemplated in your plants or in your workflows, then automation is essentially going to automate like a bad idea in isolation as an island. And it's really not going to have the network power that it could have if these other things are foundationally there.

And so for us, China is our most advanced location where we do quite a bit of both, all the process work and digitalization work, but also the automation work. And so really driving toward that is important to make it beyond just theory and beyond a PowerPoint slide, but in practice. And so our plant in Shanghai is actually quite automated. We've taken those learnings and started to build essentially like a plan of record of what we want to do globally.

And then we're now rolling into kind of a phasing or feasibility of how do we roll those things out. Now it's not as simple as saying we do it in China, so let's do it everywhere else because the business cases, the labor wages, the incentives, the architectures all have different characteristics. So you're really optimizing like a set of data to say what makes sense.

And for us, we're really focused on automation that sits on top of a great foundation, a, and b, that has really good paybacks. Two years or less is kind of the general take for us. If we can identify those and execute them 2 years or less, we know that's going to be value-creating for us and value creating for our customers. So we're kind of focused there. And so that road map varies a little bit by region. It can vary by product.

The complexity of certain architectures has different characteristics on how automatable it is with the right kind of efficiency. And so all that is contemplated. And what we've said publicly is 0.5 point of our 2-point margin improvement over the next 3 years comes from automation. Now that will vary across the regions. It won't be a static percent in every place. But it really is kind of the goal for us.

And then you referenced our -- you said backlog, but maybe I'll correct and say bookings because they're actually not orders, but bookings, we can automate low voltage or high voltage. We can automate ICE, hybrid or BEV. So that's not really maybe as big a differentiator as people think it is. They sometimes gravitate toward BEV is the only thing that can be automated.

That's not exactly right. Smaller harnesses can be, the periphery of the plant can be. There's lots of things that can be automated irrespective of the architecture characteristics. And so for us, we're tackling, I would say, the plant environment first, and the architecture second because, a, we control the plant environment.

So we should control our own destiny, waiting for architectures to evolve or demonstrate characteristics that are automatable essentially waiting for someone else to create our strategy. We don't want that. Now we'll always take advantage of that as architectures evolve, as there's simplicity that gets presented and if they can be automated, we'll absolutely do that.

But we don't want to wait for others to dictate our strategy. So we're really going to attack the entire perimeter of the manufacturing facility, first and foremost. And so I would say early days today, mostly in China with some specialization in some other areas in Europe and North America, but then a road map to get us to this 0.5 point of margin improvement by the end of the 3-year window that we laid out.

Is there any kind of cool example or interesting example you can maybe help us visualize the automation and work? Anything worth calling out?

Yes. I mean the cool example, I mean, it depends on what you think is cool. I think all this is cool. So I can do this all day long. I think when you've seen a facility that's high velocity and everything is moving in the facility, like material movement, I mean, specifically with AGVs, with big robotic grocery stores, everything is getting packaged with big transfer lines, it's really quite amazing to see.

I think that's kind of more on the general footprint. As it pertains to actual wires, when you see like taping automated, it's pretty impressive because the speed in which this thing is happening is quite fast. And even the fidelity, you're talking about very small spaces to engineer robotics in, and they're able to navigate in these really high-fidelity spaces and do things very, very quickly. That's pretty cool to see. I think the other piece I would talk about really is more on the digitalization.

Like what we're able to do now with digitalization and some, I would say, early days AI in terms of sequencing in the plants, really timing all the operations to be as efficient as possible, potentially identifying micro stoppages to really extract out inefficiencies. The amount of power in that data set is not like it ever was before. It would take you days to do some of this analysis. Now it's being done for you. So we think the potential there is actually quite significant.

Incredible. Okay. Well, yes, we'll definitely -- we'll have to get some videos from here or something at some point to showcase. I wanted to move on to the content side. We talked about sort of the automation and some of the initiatives. But I think one question that often comes up is, look, there's varying types of content depending on the powertrain and some are higher and some are lower.

How do you think about balancing this going forward? And I would also say that in the context of there are architectures kind of, I think, emerging that are trying to reduce the amount of content, but maybe not the value of the content. So how do you think about by powertrain the content and also some of these trends on next-gen architectures that are looking to, I guess, reduce the weight and the cost of the content?

Yes. It's a really complex evolving domain area. And the thing for us is our differentiation, the reason what makes us great is engineering capability and proprietary engineering toolkits. That really is the reason why we're able to generate almost 2x margins. It's the reason why our revenue, 75% of our revenue, is on architectures we influence or help design in some capacity.

It's the reason why our growth over market is better than competitors and has been consistently over the last, let's say, quarters and maybe years. And so that expertise -- that capability is about solving problems. So anything that's complex, we don't really care if it's low voltage or high voltage. We don't really care if it's ICE, hybrid or BEV. Actually, we don't even care if it's on an auto, commercial vehicle, battery energy storage or robotics.

So for us, it's about applying a set of capabilities that are unique and differentiated that are better than others that people seek us for in solving their problems and doing it in a way that creates value for our customers and hopefully value for us. So that really is the goal. And then when it comes to content, I think there are some things that are may be misunderstood. First and foremost, we love complexity, and we want to solve it as smartly and as efficiently as possible.

Second, the secular trends are not going to subside. And what I mean by that is there's -- every vehicle that's launched in the future, doesn't matter what powertrain it is, will have more autonomous features, period. Every vehicle that's launched in the future will have more in-cabin features and entertainment and connectivity. It's not going to slow down. Every new vehicle that's launched is going to have some migration toward hybrid and EV greater than today.

Now it might vary by region. It might vary by BEV versus hybrid, but it's still more. And both those are always more content per vehicle. So like second bucket is content per vehicle is only going up. There's no headwinds there. Third is maybe like a 2A, I guess it is, when people talk about optimized zonal, things like that, a couple of things to understand. One, it takes a lot of engineering to move to those new architectures. Two, they only happen on clean slate, new programs, new platforms.

No one is doing that on an existing platform. There's only so many of those that happen each year, every couple of years. They need help to get to those zonal things, which is us oftentimes, and we can create a lot of value in that predevelopment development journey with OEMs. And then what does come out oftentimes is copper. And copper is a pass-through for us. So it's not that meaningful to us if we're reducing copper because we don't really get paid on it anyway.

Now there's some small dilutive aspects to it when you do it over time. But in general, the tailwinds, combined with our ability to participate in that design, far outpace or exceed any of the potential reductions on content or zonal. And really, I think everyone gets this wrong. The data is super clear. Like if you look at the data, data is clear, there's no new architectures that are left, either because of BEV or hybrid or autonomous or in-cabin features.

And everything in a car or any vehicle, a sensor, a massaging seat, a screen, any functionality that's put in the car essentially needs either low voltage or high voltage to bring it from A to B. It's not going to get there on its own. Now you can make it more elegant, you can make it more optimized, but it still needs to go from A to B. And we're only creating more and more A to Bs, not less over time.

And so I think for us, and we've depicted this in a couple of different examples, but without maybe trying to have a crystal ball to say how much everything grows because we don't know. But all we know is, for sure, it's a net tailwind, not a headwind. And I think that's really important to understand why our growth over market has been so strong.

Well, it's not because we're taking production share. It's because the content is growing at a faster rate than production is growing, and we gravitate for the most complex vehicles with the most content per vehicle. So it's natural to see us grow a bit faster than everyone else.

And I would only add, Edison, that we do have a number of customers globally who are pretty far down that path of zonal architectures, particularly in China. We have a number of customers who have moved to that. And those are still extremely feature-rich vehicles with a lot of wiring content.

Yes. No, that was great. I think that was a great breakdown. A couple of follow-ups to that. I think everyone agrees that the feature set of content is growing. I guess can you provide some -- maybe some real-life examples of how -- or instances where, to your point, like the wiring or harness content goes down and then you provide A, B, C, D that actually increases the total value of the program? Like is there some easy examples you can maybe bring up?

I mean, to Doug's point, we're in second, third generation of BEVs that have, I'll say, some zonal aspects, not complete, not perfect because there's consequences of that. And those vehicles generate a lot of content per vehicle for us, a lot, and they're growing, they're not shrinking. We have other examples in North America, where there are certain aspects of zonal in certain architectures and yet the content per vehicle is quite high for us even with those zonals in there.

And so I think the A to B part is important. What do they optimize in some of these zonals? It might be more processors, it might be more ECUs, it might be more software, but you still got to get from A to B. And so that might be more elegant because at some point, you can't just keep stacking one more idea onto this architecture. So it does require a little bit of reengineering, rethink to optimize, but it's still net more.

And again, if you look at just the heuristics, hybrids have some optimizations in there, they're 50% more content. BEVs had some zonal and other optimizations in there. They're greater than 70% more content. And so the role of high voltage is really power. It doesn't do anything besides power. The role of low voltage does everything else. autonomous connectivity in cabin, massaging seats, whatever it is.

So high voltage as a product is only power. Low voltage is literally everything else. And so as all these things grow, I think people sometimes take this shortcut of BEV is high voltage, not really, like there's way more low-voltage content than there is high-voltage content, and they have different roles in the architecture. They're not substitutable.

Understood. Understood. Okay. Just thinking about just the -- to your point, right, you have some OEMs in China who are -- who have kind of gravitated more to zonal. But I think outside of China, maybe outside of, call it, Tesla and Rivian, the adoption, I believe, I guess, we can call next-gen architecture is still fairly low. Is that picking up? Are you getting any sense that's picking up at all?

I mean I think it's going to pick up over time. But again, I go back to like there's only so many clean slate architectures done annually. Like it's just -- it's like the opposite with the K curve, right? There's only so many that are -- and there's consequences. It takes a ton of engineering to do that. There are massive knock-on effects to many, many other things in the vehicle that need to be addressed.

Although you can take out weight in copper and some other things, there's some costs as a consequence, more ECU because it's centralized. You need to get everyone on the same software library stack. There are other consequences that I think aren't as simple.

And so people get a little enamored with the zonal concept. But as I said, it never happens in isolation. And b, there are other like very, very big consequences of those things. Not everyone can do that all at the same time without really, really big investments. And some of that investment is engineering.

Some folks want to spend their engineering on powertrain or want to spend their engineering on performance. They don't want to spend all their engineering on what I would say, behind the green line architectures that may or may not be the most compelling feature for that brand to consumers, depending on what the brand is and the consumer use cases.

Understood. Understood. I want to ask about -- you mentioned the copper dynamics, pass-through dynamics. And just more generally, obviously, we've seen some pretty big moves in commodity prices. Can you just remind us how the pass-through mechanism works? And kind of what's -- what are you assuming and how -- what protections you have in place or hedges you have in place?

Yes. Maybe I'll turn this one over to Doug to help with that.

Yes. Thanks, Joe. Yes, as you mentioned, copper is our largest commodity exposure. And because of that, you'll find that around 75% of the contracts that we have with OEMs have a specific escalation clause within the contract that increases the price as we see copper step up. And so the issue that we have there is that roughly the delay factor, the lag between when the copper price actually moves and when the contract adjustment is made typically is around 3 to 4 months.

And so we do see some impact from that. The other 25% roughly of our contracts that don't have a specific escalation clause, we do hedge. We hedge over a 2-year horizon. And really, that just gives us some time to have those discussions with the OEMs about the increase and how it's affecting our cost structure. Those conversations are fairly transparent. I mean they know how much copper is in their product.

We know how much is in there. we can observe the various indexes and have a pretty productive discussion around what the impact has been and how to adjust for it, but it takes a little bit of time. And so that's really what we see impacting kind of the first quarter. We talked about the fact that, that was about a $28 million impact in the first quarter on a year-over-year basis, some of which we have built into our business budget and business plan.

We plan for copper to be around $5.50 on average per pound for the full year. And we'll see how that plays out, but we do have hedges in place. And we look at really our hedge strategy, our exposure, our coverage rates on a regular basis. So we've been doing some adjustments as of late.

Go through a couple of financial questions since we're kind of on that topic and then have a couple of strategic ones after that, we can maybe close off with a little bit more fun and maybe a little bit more controversial. So on the financial one, I think one strong aspect of the story, I think your goal is to do roughly $1 billion in cumulative free cash flow by 2028. How do we get there? And are there any sort of assumptions that you would highlight that are sort of crucial to hitting that target?

Yes. I mean we've talked about a couple of things, $1 billion total free cash flow over the 3-year horizon. We mentioned that this year will be a bit more muted kind of in the range of $200 million to $300 million and that we expect cash flow to, of course, step up over the next 2 years. A lot of that step-up has to do, frankly, with kind of some onetime costs that we have as a result of the separation.

So we talked a little bit about the fact that we have about $70 million or so of onetime separation costs that will hit in 2026. Most of that is related to just standing up our own IT systems. That number should drop to about half that figure next year and then disappear altogether. And so that obviously will impact the progression of cash generation.

We've also talked a little bit about the fact that we expect to grow faster than market. We expect that vehicle production, just like IHS will be -- expectations will be a little bit down this year over the 3-year horizon, be a CAGR of around 1% growth. We expect growth in the 3% to 4% range because of all these kinds of content per vehicle tailwinds that we just discussed. And of course, we've talked about margin expansion.

Joe outlined one of the drivers of that, which is the automation piece, but there are a number of drivers that we think will help expand margins. And so all that combined makes for a pretty powerful story at the bottom line in terms of top line growth, margin growth, reduction in onetime expenses. So you'll see -- we expect to see progression in terms of the cash generation over the 3-year period. But cumulatively, we're looking at about $1 billion.

We got some debt holders who probably want me to ask this leverage. So I think you launched -- or you came out, I think you had to do about $2 billion, a little over $2 billion to fund the dividend to Aptiv. How does one think about the leverage ratio and how aggressive you will be with kind of early debt retirement versus reinvestment?

Yes. I mean right now, we feel pretty comfortable with the capital structure that we have in place. I think historically, there have been spins that have been heavily laden with debt. That's not the case with Versigent. We have a pretty healthy balance sheet, I would say, a nice credit rating as a highly rated high-yield name.

And we're pretty comfortable with the ratio when you look at kind of net debt to EBITDA of about 2x. We've talked about a gross debt-to-EBITDA ratio that we'd like to maintain between 2 and 2.5x. I think that metric will improve over time, one, because we'll be growing EBITDA; and two, because we do have some -- a little bit of natural paydown in the debt structure. Part of the structure is a $500 million TLA that has an amortization of about $100 million over a number of years.

So we'll have a little bit of debt paydown that is natural. But I think we feel pretty comfortable with the strength of the balance sheet at this point and where we sit from a credit ratings perspective. So I don't think there's a lot of work to be done there. And I guess the message to the investment community is at this point, I don't see a lot of change in terms of the ratios that we're talking about in terms of leverage and that sort of thing.

Great. I wanted to conclude with a couple of strategic questions. First, both of you have been in the industry a long time. I remember maybe 10 years ago, there was talk about maybe more consolidation in electrical architecture, so maybe some of the regional players. So what's -- I guess, what's the latest thinking on just the industry dynamics? Have we consolidated enough now? Do you think there's more coming? And if so, would you want to be the one to initiate that? Curious your thoughts there.

Yes. I mean I don't have a crystal ball on how others view it or what will transpire. I think there has been some consolidation, not so much maybe in Americas and EMEA, but more on the APAC side of things over the last couple of years. For us, we look at ourselves as we're the best or one of the best operators. We're growing faster than others. So we're focused on our strategy.

We're focused on fueling that. I think there's implications if we're as successful as we'd like to be, if our competitive advantage really resonates the way we think it should and does. But for us, I think consolidation is probably more a priority for others than it would be for us to talk about because we're winning. And we think we have even more value we can create once we start fueling these strategies that maybe were a little bit under fueled in the past.

So I wanted to ask about some of the secular markets outside of autos. I think you mentioned battery storage before. You also had some announcements, I think, about robotics. How does one think about those opportunities and the time line into making inroads there?

Yes. So as we shared as we opened, about 10% of our revenue comes from non-auto. And much of that is commercial vehicles, heavy equipment on-road, off-road, agriculture. But growingly, we've better understood our engineering capabilities fully apply in those other sectors. They don't require any real change or incremental investment.

It's really just the requirements or input change for us, which is easy to manage. Our manufacturing environments also apply quite well without big changes to that either. And so really for us, it's really about go-to-market and sales, which is a smaller, quicker kind of investment for us to really build up the team to better know the players, to better know the process and really be a lot more proactive.

Historically, of that 10% revenue, all of it was essentially reactionary. Someone came to us and asked us to do it. But what if we were actually proactive? What if we were actually focused? What if we put resources behind it, what could it be? I'm assuming bigger than 10% if 10% is just us fulfilling requests.

And so we're focused there. It's early days. Our first serial battery energy production was in Q1. We're in predevelopment on some more battery energy storage, and we're on predevelopment with a few robotics players as well. And so we think those areas will grow.

The commercial vehicle is probably an easier extension for us because we're already doing it today. And then these other areas are smaller, more nascent sectors, but their CAGRs are quite strong. And so we're excited about that complement to our overall revenue profile for the future.

Fantastic. I think we could talk for another hour, but I appreciate both of you joining us today. It's been a great session. And until next time, thank you again.

Thank you. Good to see you again. Thank you.

Yes. Take care.

Good day, and welcome to the Versigent Q1 Earnings Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Annalisa Bluhm. Please go ahead.

Thank you, and good afternoon, everyone. I'm joined today by Joe Liotine, our Chief Executive Officer; and Doug Ostermann, our Chief Financial Officer.

Today's call includes forward-looking information reflecting our current view of future financial performance and may be materially different for reasons that we cite in our Form 10-Q, earnings materials and other filings with the Securities and Exchange Commission, including the Risk Factors section of our registration statement on Form 10 and 12B&A filed on March 6, 2026.

Our guidance reflects management's current expectations and should not be relied upon as a guarantee of future performance. We undertake no obligation to update these statements, except as required by law. We may also reference non-GAAP financial measures during the call. Reconciliations to the most directly comparable GAAP measures are included in today's earnings release and are available on our Investor Relations website.

I will now turn the call over to Joe.

Thank you, Annalisa, and good afternoon, everyone. Today marks an important moment for Versigent. On April 1, we entered the public market with clarity about who we are, how we compete and how we create value. Versigent launched from a position of strength, generating close to $9 billion in annual revenue, not as a concept, but as a scaled, profitable and disciplined business and I'm pleased to be here speaking with you today on our first earnings call as an independent company.

Before we get into the numbers, I want to take a moment to thank the hundreds of customers, thousands of suppliers and our incredible employees, nearly 140,000 of them around the world who made this historic moment possible.

As we begin, I want to take a moment to outline how we will spend our time this afternoon. I'll start by describing what Versigent does and the problem we solve, then walk through how our business model drives sustained growth and margin expansion, outline our strategic imperatives as a stand-alone company and then provide a brief update on how the first quarter unfolded. Doug will then walk you through the financials in more detail. As a reminder, the financial information we will discuss today reflects results from a period when Versigent operated as part of Aptiv and is presented on a carve-out accounting basis.

Versigent exists to solve a challenge that is intensifying across many sectors, including mobility, industrial and energy systems. Today's innovations are creating products with more autonomy, more connectivity and more features, resulting in increased power demand, increased sensing capabilities and much more sophisticated and complex products. Customers need to deliver these innovations while still finding ways to reduce complexity and create productivity opportunities. That's where Versigent comes in.

Power and data distribution are critical to unlock advanced functionality. It is the nervous system of modern products, and that shift plays directly to our strength. At its core, Versigent designs, manufactures and delivers low- and high-voltage power, signal and data distribution architectures. Each architecture is unique. These advanced systems connect and power the critical components that enable modern vehicles and equipment to function safely and reliably.

Increasing complexity means these architectures must be carefully designed early, optimized holistically and executed consistently at scale. That is where Versigent operates. What differentiates Versigent is not just scale, but how we apply it. Our systems are embedded in the design of leading OEM programs globally. And we work with every major auto manufacturer, including growing automotive leaders in China. More than 75% of our revenue comes from solutions our engineers influence, often early in the program life cycle when architecture decisions matter most.

While Versigent is often categorized alongside other automotive suppliers, we operate as a highly engineered design-driven company supported by an intelligent and proprietary design and engineering tool suite. These tools allow us to model, simulate and optimize complex electrical architectures, helping customers reduce weight, cost and risk, while accelerating development and improving quality and the efficient manufacturability of these products.

Importantly, they are deeply integrated into our engineering workflows and customer engagements creating a sustained competitive advantage. Our unique engineering capabilities provide expertise that differentiate us from others. As architectures evolve, simplified systems remove pass-through content such as copper and increase the value of optimization with elegant systems and digital design capabilities.

That is where Versigent leads and why our new architectures are margin accretive over time. This shift towards greater capabilities played directly into our operating model. We combine design influence, proprietary tools, disciplined manufacturing and automation to drive structural margin improvement through execution.

Versigent is fundamentally resilient. Our growth is content driven, supported by long-term secular tailwinds, including electrification, connectivity and software-enabled functionality. We are platform agnostic, whether customers deploy ICE, hybrid or battery electric architectures. The complexity of these programs continues to rise and Versigent benefits.

We also see attractive opportunities beyond automotive, adjacent markets face many of the same pressures we already solved for, more content and features, greater reliability and tighter tolerances. We are approaching these adjacencies selectively, extending proven capabilities into areas such as commercial vehicles, energy storage and selected industrial applications without changing our operating model, our execution discipline or our technical expertise.

As we begin this next chapter, Versigent enters the market with clear priorities, strengthen our market-leading position by leveraging our full service capabilities, continue optimizing our cost structure through automation and footprint discipline, deliver consistent financial results through execution, allocate capital in a disciplined manner to drive long-term shareholder value. These priorities reflect how we operate as an independent company, focused, accountable and execution driven. With those priorities as our foundation, the first quarter provided clear evidence of how they are taking shape in the business.

The progress we delivered across launches, customer wins and quality reflects disciplined execution and reinforces our positioning with leading OEMs and global programs. During the first quarter, our teams executed across a broad set of programs globally with a high level of launch activity and complexity. We successfully delivered multiple launches across regions and programs including complex premium and high content vehicle programs requiring advanced electrical architectures in close coordination with OEM engineering teams, all with stable ramps, with more than 99% quality and more than 99% on-time performance. We also continue to build go-to-market momentum through new program wins and extensions with leading OEM customers.

These awards span regions and programs and reflect continued demand for Versigent's low- and high-voltage solutions as electrical content and system integration requirements increase. Quality and delivery remained a clear differentiator in the quarter. Customer recognition and quality awards reinforced Versigent's reputation as a partner that executes consistently, particularly on complex global platforms where reliability and performance are critical.

In addition, we made tangible progress in nonautomotive markets, beginning [indiscernible] on an energy-related power program. This program expands our served applications beyond traditional vehicle architectures while leveraging the same engineering, manufacturing and systems capabilities that underpin our automotive leadership.

Together, these execution outcomes supported the volume growth achieved in the quarter and demonstrate how our priorities are translating into results. From a financial standpoint, the quarter was a strong start to the year for Versigent. Revenue increased 9% year-over-year to $2.2 billion with 3% adjusted growth, adjusting for foreign currency and commodity pass-through, reflecting solid underlying volume performance across the business.

Doug will walk through the financial details in more depth. But at a high level, the results reflect strong execution and demand across the business. In addition, we had a strong start to the year with $2.6 billion in new bookings this quarter and the start of 24 new programs, putting us on track for the most new major launches in our history, including the production on an energy storage program.

Regionally, performance was strong in the Americas where adjusted growth was 6% year-over-year, supported by higher volumes on key programs and new business wins. In Asia Pacific, adjusted revenue growth of 12% was driven by new platform launches, including a greenfield program in India and continued momentum with both global and regional OEMs.

In EMEA, revenue was down 12% on an adjusted basis, consistent with the softer production environment. We continue to see progress through incremental program wins and successful launch of our premium vehicle mid-cycle refresh. Overall, the regional results reinforce the strength of Versigent's global footprint and customer relationships with the volume growth driven by launches, program execution and expanding content on key programs.

Taken together, the quarter reflects a solid operational and financial performance as we move into the rest of the year and reinforces our confidence. As Versigent enters the next phase, we do so to unlock greater value. We are highly engineered, globally scaled and cash-generative industrial company, supported by clear priorities, strong execution capabilities and disciplined capital allocation.

With that, I'll turn the call over to Doug Ostermann, our Chief Financial Officer, to walk through the financial details of the quarter and our outlook for 2026.

Thanks, Joe. I'll begin with a review of our first quarter financial results. As a reminder, results for the quarter are presented on a carve-out basis, reflecting Versigent's operations as part of Aptiv through March 31. The separation was completed on April 1 and financial information for periods prior to that date have been prepared as if Versigent had operated as a stand-alone entity derived from Aptiv's historical accounting records. With that context, I'll walk through the quarter starting with revenue on the next slide.

Overall, Versigent had a strong first quarter. First quarter revenue was $2.2 billion, representing 9% growth year-over-year on a reported basis and 3% growth on an adjusted basis, excluding the impacts of foreign exchange and commodity pass-throughs. The quarter reflected solid underlying volume performance driven by sustained demand from core OEM customers.

Despite the lower global vehicle production environment, volumes increased across a number of key programs and demand remains strong. Growth in the quarter was supported by Versigent's solid position on global platforms where electrical architectures are becoming more complex and increasingly integrated into vehicle performance and functionality. We continue to work closely with our OEM partners in the early stages of design, which supports both volume growth and durability of business over time.

In the Americas, we achieved adjusted growth of 6%, driven primarily by higher volumes on truck and SUV platforms and strong execution across ongoing programs. Versigent continues to be well positioned with leading North American OEMs, particularly on large truck and SUV platforms where electrical architectures require high levels of reliability, scale and integration.

In Asia Pacific, adjusted growth was 12%, reflecting growth with both global OEMs and domestic customers. Performance in the region was supported by launch activity, program extensions and continued demand across China, India and other growth markets. One area where we continue to see growth is with customers in China that are benefiting from the increased demand for vehicles exported to different countries. As architectures evolve and regional platforms become more differentiated, customers increasingly value Versigent's distinct engineering depth and local manufacturing capabilities, which contributed to the quarter's volume growth.

In EMEA, revenue declined 12% on an adjusted basis, reflecting lower production levels in the region and the end of production of certain programs. Customer engagement across the region remains strong, and the program portfolio continues to support future growth as production normalizes. Across all regions, the quarter reinforced the importance of Versigent's global footprint and its ability to consistently support OEMs across continents, platforms and vehicle segments.

Adjusted EBITDA for the first quarter was $203 million. That's an increase of 3% year-over-year with an adjusted EBITDA margin of 9.2%. Adjusted EBITDA reflects contributions from higher volumes, alongside ongoing operational execution, offset primarily by foreign currency exchange and commodity headwinds.

As you can see on Slide 10, the increase in sales specifically related to foreign currency exchange and commodity pass-through was $122 million. This increase alone drove a degradation of about 50 basis points of margin in the quarter on a year-over-year basis, but we believe we are on track to meet our full year margin targets.

EBITDA performance in the quarter was driven by operational execution and certain cost dynamics, such as material productivity from supplier negotiations, value-add engineering and content reduction initiatives. The quarter also reflected higher commodity costs and foreign currency exchange impacts, including the timing of customer pass-throughs.

You can see on Slide 11, an unfavorable impact of $46 million on a year-over-year basis. This primarily reflects 2 factors: first, an increase in the copper index of over 25%, driving about 2/3 of the impact; and second, a strengthening of the Mexican peso of about 15%, which is the primary driver of the remaining impact.

For copper, we have escalation agreements that cover roughly 3/4 of our exposure. However, there is a lag on average of about 3 to 4 months between when our costs increase and when we update the pricing with our customers. This causes temporary margin dilution when indices increase rapidly as we saw in Q1. Assuming copper indices stay consistent with Q1 average rates, we expect the lag impact to cease as our prices will be adjusted to align with our costs. We factor both higher copper prices and stronger Mexican peso into our planning for the year. We will continue to manage these risks through customer agreements, financial hedges and cost reduction initiatives. Looking ahead, margin performance is expected to continue to be driven by profitable growth, execution on manufacturing and materials initiatives with cost actions in place to manage external pressures.

Turning to income taxes. The U.S. GAAP income tax benefit for the first quarter was $9 million compared with an income tax expense of $29 million in the prior year quarter. The quarter-over-quarter change was driven almost entirely by a favorable tax reserve adjustment during the first quarter of 2026. For full year 2026, we expect an adjusted effective tax rate of approximately 23% with a comparable cash tax rate.

Operating cash flow in the first quarter was $36 million, and free cash flow was an outflow of $30 million. Cash flow in the quarter reflected several timing-related factors. Capital expenditures totaled $66 million. In addition, the quarter included restructuring cash outflows aligned with actions already underway as well as $26 million of onetime separation costs. Working capital was also a use of cash during the quarter as we experienced our typical seasonal build required to ramp back up from customer shutdowns during the last couple of weeks of the calendar year.

As the year progresses, continued execution and working capital normalization will support significant free cash flow generation. From a financial position standpoint, Versigent ended the quarter with $282 million of cash on hand, $1.1 billion of overall liquidity. This is supported by an $850 million revolving credit facility that remains undrawn.

Our cash balance at quarter end reflects the timing of certain separation-related cash settlement with our former parent company, much of which has been settled after the quarter end, bringing our cash balances directionally in line with the $400 million pro forma level outlined in our Form 10.

Turning to our outlook for the full year. We are reaffirming our financial guidance for 2026, for the year, we expect revenue of $9.1 billion to $9.4 billion, which represents approximately 2% adjusted growth despite a production environment that is expected to be down about 1% year-over-year.

From a profitability standpoint, we expect adjusted EBITDA of $950 million to $1.03 billion, with an adjusted EBITDA margin of approximately 10.7% at the midpoint. This outlook reflects profitable sales growth and continued progress on operational and performance initiatives. This includes manufacturing efficiency, material productivity, and automation, which are expected to drive continued margin expansion.

From a cash flow perspective, we expect free cash flow of $200 million to $300 million for the year, which includes approximately $70 million of separation-related costs. Our free cash flow outlook reflects the expected cadence of earnings growth, working capital normalization and the reduction of separation cash outflows as the year progresses.

Turning now to capital allocation. Versigent remains committed to a disciplined and balanced capital allocation framework. Prioritizing continued growth while returning cash to shareholders. As part of our capital allocation framework, we intend to return a portion of future earnings to shareholders through a regular dividend.

This policy reflects our confidence in the durability of our cash flow profile and our ability to support recurring returns to shareholders. The initial dividend is expected to be declared following the end of the second quarter in the range of $0.13 per share per quarter.

Of course, any dividend is subject to the approval and declaration by our Board. In addition, our board approved a share repurchase program for up to $250 million. The program does not have an expiration date and may be amended, suspended or terminated by the Board. Under the program, we intend to repurchase shares opportunistically from time to time subject to management's discretion.

Our intention will be to fund share repurchases with operational cash flows, which typically are weighted towards the latter half of the year. Together, the dividend policy and share repurchase program reinforce our commitment to returning capital to shareholders while enabling continued execution of our business priorities and maintaining a disciplined balance sheet.

With that, I'll turn it back to you, Joe.

Thanks, Doug. Versigent launched into the public market with a strong vision. We delivered solid performance with strong revenue growth, all while reinforcing our position as an industry leader. Above all, our team remains focused on the right things, driving revenue, increasing cash flow and executing with a high level of operational discipline across the business to unlock greater value for our customers and our shareholders.

With that, we are happy to take your questions. Operator, please open the line.

[Operator Instructions] We'll now take your first question coming from the line of Chris McNally with Evercore ISI.

Congratulations on the first quarter out of the box. Maybe just one housekeeping and then we'll go a little bit more strategic. On the housekeeping, could you just kind of give a sense for how -- you mentioned the 3 to 4 months on copper, Q1 seasonally light and took the copper hit. Could you just give us a sense for how we may see those sort of the earnings cadence over the course of Q2 to Q4? And when probably at this sort of $6 level, what's a good quarter that we could sort of expect to be fully recouped by?

Yes. Thanks for the question, Chris. We saw a pretty significant move up in the copper price during the first quarter, as you know, and it seems to have stabilized a little bit in the last week or two. But really with this kind of 3- to 4-month lag that we talked about that's built into the escalation of the contract. Typically, we're going to see that start to play out in the first month of the second quarter and really should be, for the most part, normalized by the time we get to kind of end of the second quarter, beginning of the third quarter. That, of course, assumes that copper pricing stays stable. But that really should be kind of the cadence of the catch-up.

Now in addition, as you know, we do hedge the portion of our contract -- or our copper exposure that is not covered by contract escalation. And really, that just provides us some time to have conversations with our customers about the amount of copper and the change in the price and that sort of thing. But that's really the other 25%. But that obviously has an immediately offsetting effect.

No, that makes sense. And we've seen that smoothing effect in years past like 2024 when you had the copper strike. Okay. That all makes sense. Maybe a little bit on the strategic side. I think we talked a little bit about it in your parent or former parent in Aptiv, sort of the secondary TAM extensions that we're seeing in industrial and you had some pretty exciting news over the course of marketing Versigent, about $150 million of wins to battery storage, $3 billion TAM. Is it fair to think of a couple of years out that you could be a significant player here sort of that similar mid-teens, 20% market share that you've carried in auto? I just think investors -- we all don't know a lot about wire harness in that market. So anything that you can add about color of who's playing in that market now because it seems like there's a lot of runway for you to grow?

Yes. Thanks, Chris. This is Joe. Just if we zoom out a little bit, we we're focused there for a reason. We've looked at our engineering skills and capabilities, and they apply quite well there without a lot of change or adaptation. We've looked at our manufacturing and that applies as well. So from an asset intensity and a capability development standpoint, we really don't require effort there. What we have seen though is there is some go-to-market weakness and nuances that we need to kind of refine to make sure we're ready for all those opportunities. We're in quite a few predevelopment programs already. We have our first serial production here launched in Q1. So this is beyond just theory, we're seeing progress there.

I think the competitive market there from a supply standpoint is pretty diverse versus battery storage or robotics or even commercial vehicles. So it's not necessarily 1 cohesive group. But everything we've seen points to either customers are coming to us and asking us to participate or we're engaging with customers and getting very good receptivity.

Now again, the battery side and robotics side is quite small today. So even if the growth is big, the starting point, the absolute value is smaller. But we feel really good about both our applicability and the potential of those TAMs. So I would say early days, but we're just essentially reinforcing the strategy and the thesis that we laid out just a couple of months ago.

Yes. And the customer overlap is really, really encouraging.

We'll take your next question coming from the line of Joseph Spak with UBS.

This is Gabriel on for Joe. Doug, you outlined the $0.13 quarterly dividend. So maybe a 1.4% current div yield. Can you help us think about how that could evolve over time, especially given similar auto supplier peers generally screen somewhat higher? Is this more of a starting point that will be reevaluated. And I guess just more broadly with the new authorization, how should we think about the balance across your capital priorities going forward?

Thanks for the question, Gabriel. And really, what we wanted to do was -- we have stated previously that we would have a competitive dividend. We wanted to provide some additional definition around that. We think the $0.13 a share is a good range that we'll discuss with the Board at the end once we have kind of Q2 earnings in the bag. And we think that's a good way to start returning some capital to our shareholders. Of course, as earnings progress we'll revisit that with board from time to time. But I think that should help you get some order of magnitude on what we mean by a competitive dividend out of the chute.

Now when we look, of course, at the authorized buyback program that we discussed with the Board, I just want to revisit the fact that really when we look at our overall capital allocation strategy, our #1 priority, of course, is to continue to grow the business. And we have a lot of nice organic opportunities. Joe just discussed a few of those. But really, even running at kind of the 3% of revenue in terms of CapEx, we should be generating a lot of cash beyond that. And so we thought it was important to get a buyback program authorized by the Board.

Of course, we would seek to time that in coordination when the cash is being generated by the business. And as you probably know from our history, cash generation is typically a second half. So I wouldn't see us getting -- or even thinking about getting active on that front until kind of that time period.

Got it. That's really helpful. And Joe, just following up on a question that was asked on the Aptiv call this morning on the conquest business, a competitor announced. I know there was a lot of color provided, but wanted to ask if you had any further comments on your own on that? And more broadly, can you discuss your competitive positioning going forward as a stand-alone company versus when you were a part of Aptiv?

Yes. Appreciate the question. Just to maybe clarify or reiterate a couple of things that were said by Kevin, again, we retain the vast majority of that program. A small amount was awarded to a competitor and on smaller, more basic harnesses. And so I thought Kevin did a really good job bringing facts to the discussion, in a comprehensive way and a well-constructed way, and not just hyperbole.

I think it's important that GM took the time, so I'm appreciative of that, they took the time to say the things they did in a sanctioned [indiscernible] real comments that they stand behind and they cited us as the gold standard in wire harnesses. They cited us as a company in which they expect us to have incremental opportunities. And then they also cited that we had 0 operational issues. So it's just a testament to, I would say, a very valued customer of ours to go out of their way to do that.

And I think maybe the last thing I would say is if we zoom out and look at the facts, in 2025, our growth over market was strong and better than competition as was our bookings. In Q1, our growth over market was strong and better than competition as was our bookings.

And then our future outlook in terms of what we shared in our Investor Day and our thesis was strong growth over market as well. And so if you take all of those, that's a comprehensive view of business. That's not just the shiny object to maybe distract from the broader dialogue. And I think that's important to keep that context together.

We'll now take your next question come from the line of Emmanuel Rosner with Wolfe Research.

Great. I was curious if you could give us a little bit of color on how do you think potentially about the current quarter. I think what makes it a little bit complicated in terms of understanding cadence exactly. So, obviously, these commodity headwinds were very large, but then the recovery suggests -- I would think that makes it a little bit more back-end-loaded when you get the recoveries, but in terms of margin. But anything you can give us in terms of how do you think you do about Q2 or about the cadence of first half versus second half?

Yes. Thanks for the question, Emmanuel. We certainly started with a strong first quarter, and that gives us a lot of confidence in reaffirming our guidance. But in terms of cadence, as you know, in the automotive industry, typically, from a volume perspective, Q1 is a bit lower. So if you look at kind of the seasonality of the industry, we would expect more production in Q2, Q3 and Q4.

For us, our margins historically have kind of peaked in Q3. And really, when I look at this year, as we talked about, if copper prices stay relatively stable. We should see a majority of this copper headwind from a timing perspective that we saw in Q1 work its way through the system kind of by the end of Q2, beginning of Q3. So we would expect margin progression. The other thing is, of course, you know from our business that when we have higher volumes as we expect in Q2, Q3 and Q4 had a 23% contribution margin, that also enhances of course, our overall margin.

So I would say -- when we think about the guide that we have kind of the midpoint, say, at 10.7% adjusted EBITDA margin for the full year, I would say, as we progress probably 2/3 of that would be additional volumes that we expect in coming quarters above kind of our current run rate, maybe 1/3 of that would be related to this copper escalation as well as additional performance initiatives that will offset some of the headwinds that are a natural part of our business.

And maybe just to support the comments made by Doug, if you look at what we did in Q1, and maybe what we did operationally in 2025 in terms of improvements, we're essentially just continuing some of these things on the revenue side, the mix side and operational improvements. Obviously, the commodity side is a little bit more nuanced. And so there isn't a big change in business composition to achieve that. It's more a continuation.

Okay. Just one quick clarification, and then I've got another question, but Doug, when you're saying that by end of Q2 and start of Q3, most of it would basically be an offset. Do you mean that the entirety of the net headwind that we saw in Q1 would already be recovered sort of like by end of Q2, beginning of Q3 or that this is when it's no longer a headwind and then you have to recover it in the second half?

Yes. If the copper prices stay relatively stable, what we would see is the escalation that's built into the contracts, we'd see the commodity portion of the headwind, right, work its way through. Today, it's just in our cost, but it would join -- go into our revenue as the contracts escalate the pricing, right? And so what you're left with is really just a little bit of dilution to margin, which should be relatively small overall from the higher copper price. But majority of that headwind would have worked its way through.

Okay. And then just coming back to the color you gave and Kevin gave about this GM business and I think a lot of the fair points that you've highlighted. I think one of the things Kevin was saying was, hey, this is a sort of build to print type of business, sort of like lower margin. Can you clarify from a strategic and focused point of view on a go-forward basis. Is that still sort of like attractive business you're looking to win and capture and continue to grow? Or is there sort of like also a strategy, which is to sort of like refocus on a more profitable part of the business?

Yes. So I think it's a great question. I think if you come back to what we've talked about is our competitive advantage and what we've demonstrated over a long period of time, that really stems from engineering expertise. And I'd say a tool suite that's proprietary from an engineering standpoint. So we certainly want to gravitate toward the things that are most complex towards the things that are most innovative.

So that's true. And maybe it's a bit of a bias in our strategic approach for sure. Having said that, we want to win all the business we can, in many cases. So I wouldn't say it was necessarily us deselecting but there is a bit of a natural bias for us. And sometimes, we're willing to do things a little more or a little less based on the margin profile that's certainly a consequence there. And so what Kevin was trying to share is "hey, this is a little bit of the more basic things. And so it's not going to have the best margin and characteristics like that." Having said that, we do a lot of that product as well. So I don't want to make it sound like we never do that because that wouldn't be accurate. But we certainly have a bias to the biggest, most complex and that will remain going forward, for sure.

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

This morning, I think Aptiv said that commodities were about a 50 basis point margin drag relative to their expectations. I assume you were using a similar assumption on raw materials. So you were able to hold the guide. So how much worse was commodity and what are the offsets that you were seeing that enables you to hold the guide?

Yes. Thanks for the question. I think when we look at the 50 basis points. That's really the portion of the commodity activity that has been built into our pricing and our cost now. So that -- when you look year-over-year, right, there is some copper movement that happened prior to Q1 that has now worked its way into our contracts. It is in our revenue line. It is also in our cost line, but there's no margin associated with that. So it has a bit of a dilutive effect, right? That's the 50 basis points that we talked about.

The more important headwind is when we have it built into the cost as we saw the rapid rise in copper in the first quarter, right, that builds into our cost, but has not worked its way into the escalation of the contracts yet. We expect that to happen in the -- majority of that to happen in the second quarter, right? And that headwind then will be significantly reduced. So if you look at the kind of 210 basis points that we talked about for FX and commodities, in the chart on the adjusted EBITDA walk, about 2/3 of that is commodity related. Once that's passed through, that will drop to like 20 basis points, that portion of it. So -- in terms of just dilution, right, from the revenue being higher.

So it's a headwind that is transitory and temporary in nature because of the way we've structured our contracts but it needs to work its way through the system. And I think it's important of us to understand the margin profile in Q1 versus what we expect for the rest of the year. And really, as it works its way through, that's why we're still very confident in being able to, of course, meet our margin projections for the full year.

I guess just a follow-up on this. Shouldn't this have raised your sales, the higher copper pass-through going through revenue and dilute your margin. I guess I'm trying to understand what maybe the offset would be? And is -- I guess, on that, is production lower now then? Is that the offset that higher copper and more lower production?

No. I mean when we get higher copper and it passed through the contracts, of course, it raises the overall margins -- sorry, it raises the overall revenue picture. And that's why we typically will talk about this adjusted growth on revenue, where we adjust out the commodities and FX to give you an idea of kind of what is the organic growth, and that's the 3% adjusted figure that we talked about in the call dialogue earlier.

So that's really the driver in terms of this kind of enhancement to revenue. Now once that -- as I said, once it moves from our cost to also being in the revenue line, those equal each other out, but there's no margin on that piece of it. So it's a bit dilutive because the divisor being larger, right, in terms of the overall revenue picture. But really, the key to understand the commodities exposure, I think, is to understand that 75% of our contracts have escalation in them. The other 25% we hedge on a 2-year horizon. So we do have coverage for this. It just takes time to work through the system.

Okay. If I look at Slide 11, you had really strong net performance of $31 million. And if I look at the Aptiv slides from this morning, they actually said something about favorable commercial. Is some of that a commercial settlement in there that's helping that? Or is that the run rate we should be thinking about for the rest of the year? It seems quite helpful.

Yes. Really, what you're seeing in that performance of -- positive performance of $31 million is materials performance. I talked a little bit about this in the dialogue. So materials performance that is negotiation with our suppliers. And importantly, value add and value engineering done by our engineering teams. And this is really a big differentiator that Joe has talked about many times about the value that our engineering teams are adding to our customers' products. And really that material performance as well as some manufacturing productivity and things like that, are outweighing the labor economics and some of the mix that we see within the net performance figure. So positive number overall this quarter. And we expect to have further gains in that category as the year progresses.

Yes. And just as a build, a little bit to my comments earlier, we had demonstrated that ability in full year 2025 as well. Much of that came out of North America, we will continue those efforts because we believe there's more value across the globe to continue that. And hence, that's part of our story as we talk about a 2-point margin improvement over the next couple of years, so part of that is the operational improvements along the way.

Okay. But there's no -- because I think the Aptiv slide said favorable timing of recoveries was a help. So we shouldn't expect that there's a one-off nature in this number and that it maybe softens the rest of the year because there was some one-off recovery.

Yes. No, I would think of it as a relatively clean quarter in terms of income or profit. We did have obviously some onetime events related to the restructure or the separation. But from a profit standpoint, relatively clean quarter, nothing lumpy from a recovery standpoint, nothing that would subtract from Q2 to Q4.

Next question will come from the line of Itay Michaeli with TD Cowen.

I just wanted to start off to talk about kind of growth over market or your outlook there for the rest of the year. I think Q1, you were about roughly 5 points above market. It sounds like the guide for the year is more like 3. Maybe just talk about the puts and takes of how we should think about the rest of the year and maybe -- whether there's any kind of upside potential to that?

Yes. I mean I think you're exactly on when you're looking at kind of our growth above market in the first quarter was pretty strong. And really, I think some of the positives we saw in the first quarter, as you saw from the regional detail that we shared was we kind of over-indexed with some of the customers in China who are very focused on export and frankly, outperformed some of the volumes that we had assumed in the budget and business plan. So some nice upside there that may or may not continue through the year, but right now, has been pretty strong. I would say when we look at kind of the overall growth. You're right. When we look at the way the market is expected to progress in terms of volumes, we would need to run at just a couple of percent above market growth to be well within the range of the guidance that we provided from a revenue standpoint.

So that's -- we feel pretty comfortable that right now, given the outlook. And we have pretty good visibility, of course, on schedules in Q2 at this point. So we feel pretty comfortable reaffirming our guidance. When we look at puts and takes, of course, there are a couple of things to keep in mind as the year progresses. One, we've talked about whether commodities will kind of stabilize or continue to move around. Now of course, that's something that we're used to and that we deal with on a regular basis. But that could impact kind of the cadence from quarter-to-quarter. We do have some very significant launches this year. It's a big launch year for us.

So as you can imagine, our team is laser-focused on execution this year, a very important year for some big launches. Of course, the macro impacts, as everybody, we're focused on all the geopolitical events and whether there could be knock-on effects on overall vehicle demand among our customer groups. And then I would just say, really taking a look at our plans and really being focused on controlling the controllables. So the things that we execute on daily, our team is going to deliver day in, day out, and that's really where our focus is. But when you ask any kind of puts and takes, those are kind of, I think, the big hitters that I see.

Very helpful. And then just to ask 2 quick follow-ups. First, it looks like kind of the gross incremental margin was more like 30%, just looking at the volume on EBITDA versus revenue. I'm curious if that potentially could be sustainable as well? And second, on the bookings in Q1, I think that was up year-over-year, but curious just any thoughts there and any perhaps target to share for 2026 for bookings.

You're just comparing the EBITDA contribution from volume of 20 over the 66 volume?

That's right.

Yes. I think that's pretty much in line with the 23% that we typically quote as our contribution margin. So I don't see -- it's maybe kind of right in that range. Sometimes, there can be some smaller recoveries or things like that impact the number a bit, but...

A little bit of mix in there as well. We did have favorable program growth in North America and a little bit on the export side. So a little bit of mix in there as well.

Got it. That's very helpful.

And the second part of your question was? Sorry, then back to bookings. Yes. So we did have a good Q1, frankly, exactly on plan. So we feel good about the bookings progress, and we feel good about the full year revenue forecast, as Doug shared just a few moments ago. So from that standpoint, I'd say exactly on track.

We'll now go to your next question coming from the line of Tom Narayan with RBC Capital Markets.

This is Thomas Ito on for Tom. So we've been seeing some improving electrification trends through Europe recently, especially with like hybrids and EVs, given the elevated energy prices. Can you just help us understand whether that's translating into any potential increased demand for your high-voltage portfolio?

Yes. So as it pertains to EVs, both hybrid and full battery electric. I think it's important to understand and remember that all BEVs have low voltage and high voltage. And all hybrids have both low voltage and high voltage. And so oftentimes, people maybe take a shortcut, assuming high voltage is just BEV. But a lot of the content on a BEV is low voltage. And so what I would say is we are seeing some of those trends. They vary a little bit by region, a bit more hybrid in America, a bit more BEV and maybe a lot more BEV in APAC, specifically China. And so as we've shared in other discussions, it's about a 50% increase of content for a hybrid and greater than a 70% increase for BEV.

So as those trends continue, they also happened in unison, right, they always happen together with more autonomous, more connected and more features. So those things are all kind of moving at the same time. And so as that continues, we do think vehicles get more complex, architectures get more complex and the content per vehicle generally moves in those kind of heuristic trends. And so that is going to be beneficial if they continue to move maybe more than people expected.

Okay. Got you. Very helpful. And then as a quick follow-up. So on your APAC growth and maybe specifically to focus on China, are there any updates you can give us on maybe your overall exposure to the Chinese OEMs versus some of the global OEMs? And maybe is there like any target percentage of APAC revenues coming from the Chinese OEMs?

Yes. So for us, strategically, and this is true across every region, our goal, our aspiration is always to match the market with how the market is constructed. And then after that, what we do is we layer in our strategy and our strategic filters. And what that does is there's a natural selection toward more complex vehicles, as we talked about a little bit toward things that really fit for us. And so the China market, in particular, has greater than 110 or 118 brands. We don't necessarily need to match 118 or 110. So we picked the ones that kind of really have the right volume, have the right complexity, we think are most sustainable. We biased toward the OEMs that do a lot of export and they also want to localize in other regions because, again, as a global provider, we're a very good partner as they want to do those things.

And so as we look at that, we're continuing to increase our local Chinese OEM share, and that's been true for the last couple of years. And I think we've shared publicly in 2025 greater than 75% of all of our bookings was with local Chinese OEMs. So essentially showing the trend, showing our competitiveness and our credibility in that market, and that will continue. But again, we will look to match the market but with our strategic filter in place as well.

Next question will come from the line of Edison Yu with Deutsche Bank.

Great. Congrats on the first quarter out. I want to come back on the growth. Is there anything you can kind of break down the growth for both the quarter and the full year for your expectations for high versus low voltage?

So yes, as we talked about, growth in the first quarter, year-over-year was 9%. Once we adjust out the FX and commodities, we're roughly at 3%. When we think about growth over market, the market was down 2% or 3%. So growth over market, probably 5% to 6% overall in the first quarter. When we look at our outlook and the guidance that we've reaffirmed, if we look at the step up in volumes, it's just part of the seasonality of the industry, right? We see volumes growing significantly as does IHS in Q2, Q3 and Q4. And really to hit our guidance, we would need to run at just a couple of percent above that, which is typical for us from a revenue standpoint to run a couple of percentage above just a standard vehicle production growth. So that's really where we need to run. It's just a couple of percentage above market growth. And then in terms of electrification mix, Joe, I don't know if you want to take that.

Yes. I would say continue growth there kind of with the market, nothing unique about the composition of our revenue in Q1 that was different than the market trends, again, different by region. So weighting that to our business in the region, but within region, fairly consistent with the IHS trends on electrification.

Got it. And just a follow-up on China. Anything you can point to in terms of the dynamics there, whether it's on high voltage versus low voltage or on the growth over market going through the rest of the year?

Just generally, I think what we saw, I would say, really in the back half of last year in 2025 in terms of trends, in terms of the export volume, in terms of electrification and BEVs specifically, less so on hybrid. Those trends continue, frankly, even accelerated a little bit in Q1, export in particular, I think as that local market has a bit more downward pressure. There on the market, you're seeing the export and the localization dialogue increase from the local Chinese OEMs and, frankly, from the global OEMs who are based in China. And so I think thematically, that's probably the biggest move in the last 6 or 9 months is that how will that dynamic play out? How long will those export trends happen, how much localization will happen in EMEA or South America or elsewhere. That's probably the biggest new news that really is kind of maturing.

We will now go to our next question coming from the line of Steven Fox with Fox Advisors.

I had 2 as well. I guess, first of all, I just was wondering, structurally in terms of passing through and then recovering higher copper costs. Is it -- is this industry standard sort of here to stay? The reason I ask is because I know in other industries like network and cable, the recovery can be like within a month. So what's the prospects for sort of improving on that recovery time? And I don't know if it has improved over the years. And also, just can you address how you're hedging as well? And then I had a follow-up.

Maybe I'll start with some of the contract and strategy and then Doug can complement on the hedging approach and strategy as well. I think on the copper, whenever there's big changes, everyone kind of wants to reevaluate the structure of everything as they should. So the context is quite different. We've not seen necessarily the amount of movement in a small window of time that we've seen in the last let's say, 6 or so months.

So maybe there's going to be some changes that come. I would say there are some differences already by region, and there are some differences already by customer. And so it's really thinking about if the context is going to be a bit more dynamic, are there better mechanisms to do this, both from the supply standpoint as well as the customer standpoint, because those need to be kind of done in unison. And so I would say, reevaluating some of those things. We'd obviously like less gap, less lag and some of these things. And so we'll see if anything changes.

Part of that has to do with negotiation with customers. And then by region, there's different nuances as well. So I would say that's more an open question than it is maybe a commitment that something is going to be different in the future. But when there's times change, we should probably reevaluate and say there are better way to do things. So that's going to be more on the contract strategy side, and I'll turn it back to Doug on the hedge strategy side.

Yes. On the portion that -- where we don't have escalation built specifically into the contracts, for that roughly, say, 20% to 25% of our overall copper buy, we do hedge that position through the financial markets. We hedge it typically on a 2-year horizon, we kind of leg into those positions over time. So it basically kind of delays the impact of the copper move on our financials and gives us time, frankly, to have some discussions with those customers about the impact that it's having on the cost structure of the products that we provide to them.

And that those conversations are pretty transparent. I mean our customers understand how much copper is in their product. We can -- obviously, the indexes are easily observed. And so those tend to be pretty transparent and productive discussions. But the hedging obviously gives us some time to have those conversations and then work out the proper adjustment.

Great. That's helpful. And then just as a follow-up. I know build to print is not a big portion of your revenue base. But, I guess, how do we think about it? Is it a necessary evil to maintaining these customer relationships? Why can't you sort of move entirely away from that and focus more on where you have design control and can make a better margin?

Yes. So to your point, about 25% of our revenue is non-influenced design. It's not necessarily synonymous with build-to-print because there are instances that, that are somewhere in the middle. And I think what I would say is, we obviously do those things today and we do them for a reason. And there could be very complex build-to-print architectures that still fall into what we think are important and still can drive quality improvements and other design improvements along the way as we see them.

So to me, it's not as simple as build-to-print or not. What's more critical is it's complexity and the value we can drive along the way. It's just common though that some of the more basic, simpler, shorter, smaller harnesses end up being build to print. Because there isn't much to solve for. So -- but they're not exactly synonymous. I would say, we evaluate things based on our criteria, value creation, our ability to really make a better product for our customer, even more, even better.

And then sometimes there's some consequences where build-to-print product just doesn't meet our criteria and they fall out or we don't necessarily bid or maybe we don't necessarily win in some cases. And I think that's okay. Our goal is not to win everything. Our goal is to win the most value-creating businesses and support our business behind that, where we're adding the most value to customers.

We'll now take your next question coming from the line of James Picariello with BNP Paribas.

Hi, everybody. So I want to ask about the free cash flow for this year. So $250 million at the midpoint, the $70 million of separation costs go to 0 for next year. Is that right? And then is your restructuring cash spend also running elevated this year as well. Just any color on that amount for this year and the normalized run rate would be great.

Yes. So I can give you some perspective on that. We did talk about restructuring -- onetime restructuring expenses of about $70 million for the full year. Our -- sorry, onetime separation expense of $70 million for the full year. Those expenses really in the first quarter were right around $26 million within the cash flow. So we're kind of a little bit higher run rate than the $70 million. But we really, as I kind of outlined, expect those to decline over time. So we feel like we're pretty much on track for the $70 million that I mentioned.

We do expect those to drop in about half that number for next year and then disappear altogether. So onetime total between the 2 years of about $100 million, but constantly declining from kind of the $26 million that we saw this quarter. And then if we look at restructuring, some years is higher than others, tends to be kind of lumpy. This year, we did talk about the fact that restructuring would be kind of higher than normal right around the kind of $100 million range. And we saw roughly 1/4 of that kind of in the cash impact, about $26 million, $27 million in the cash flow this quarter.

So I would say right on track. I would say the other thing to recognize when we look at year-over-year cash flow is that last year, we had a relatively low level of CapEx spending for this business. So last year, when I look at the CapEx, we only spent about $160 million. This year, we've talked about kind of 3% of revenue right around the $240 million range. So you should expect kind of that $80 million difference to play out over the quarter. So roughly say, $20 million more per quarter.

And because of the launch expenses, this quarter, we were more like $30 million more than a year ago first quarter. So that's really, I would say, back to a more normalized level of CapEx. But in terms of go forward kind of more normalized rate, I think like I said, next year, you'd see that $70 million drop into about half. We don't have a full restructuring plan for next year, but I think this year will be kind of unusually high. So I would anticipate that, that may come down as well a bit.

And then in terms of cadence, I think your second part of your question was kind of cadence throughout the year. I would just say that if you look at our history, typically, we're ramping up from kind of the seasonal downtime with our customers at the end of the calendar year in the first quarter that tends to be an outflow of working capital. We typically also see a step-up in use of working capital second quarter. Third and fourth quarter is really where we see the stronger cash generation typically.

Perfect. No, that's really helpful. And then just to go back to Colin's question, maybe it's addressed in other questions as well. But on the full year FX and commodities margin dilution, right, the first quarter combined, it was 260 basis points dilutive, right, which speaks to the great underlying profitability that you guys showed in the first quarter. Is the full year expectation still at that 50 basis points dilution target? Or is it running a little heavier with some offsets?

Yes. I think if commodity prices stay roughly in the range where they're at today, I think we might see another, say, 15 to 20 basis points of headwind as we work it into the revenue picture. So you're talking about total headwinds from just the larger revenue base of maybe 70 basis points overall. But we do feel like there's a real opportunity to offset that. And so we are still holding our guidance at the 10.7%. We have a lot of productivity initiatives that we're working on. We feel pretty good about the margin outlook as volumes increase later in the year. And we think that the 10.7% that we've guided towards is still very achievable.

Your final question is coming from the line of Dan Levy with Barclays.

I wanted to ask more of a strategic question. And sort of in light of the copper prices that continue to go up and could just be structurally going up. You're 75% pass-through. Now we've also heard that on the performance side, you've talked a lot about automation. I guess the question is, where are you on the automation journey? How much more is there to unlock on automation? And is that effectively sort of the structural hedge against the higher copper prices that as it just becomes more expensive, you're going to lean more heavily on the automation side?

Yes. Good question. I think of it slightly differently. The automation side is more of a natural hedge for labor wage inflation because we're able to essentially do the work differently, and as a consequence, have less direct labor. So I think that's more the natural hedge.

The copper side of things is more on engineering design, engineering optimization, potentially substrate and metallurgy changes. We can do with aluminum or other things. So that's more on the technical side for copper because you're really changing the product and the characteristics of the product have to meet performance requirements about thermal and peak and other things, whereas the automation is changing how we construct the product, not the product itself. Hence, it's more of a labor wage hedge. It's maybe the simple way to think about it, not perfect, but simple, I think.

Right. And so where are you in that journey on automation?

Yes. So I would say we've made a lot of progress. Most of our progress stems in our China model in plants. And so we've done a really good job there. We have essentially a strategic approach on how to tackle it. We have a lot of really productive ideas that we think have really short paybacks. And so we're really kind of amplifying that work and that scaling. And so that's one of the things, as we look at what conversion do differently and better as a separate stand-alone company. Frankly, capital deployment is one of the big value creators and part of our thesis to really fund these ideas that improve our operations that likely have a benefit to margin, as we talked about, 0.5 point over the next couple of years of the 2-point improvement. And then, frankly, quality and other benefits on top of that.

So I think that's what you really see to date. We've made progress globally, but specifically, and maybe most in China and really our plan for the next couple of years is to accelerate that scaling throughout the globe because we think they're quite good in terms of payback standpoint.

Great. And then a follow-up, again, another strategic question. It was asked earlier on build-to-print and that on the flip side, 75% of your revenue is highly engineered. Can you maybe talk about where the booking trends are, especially as automakers are starting to revisit some of their architectures. How is that impacting that 75% rate of highly engineered versus 25%, that's a bit more sort of base content build-to-print?

Yes. So obviously, the world is getting more and more complex and so these architectures are getting more and more complex with it. So no matter what people would like to do, there's the natural practicality of sometimes you need to help to get these complex solutions to be more optimized. And 5 years ago, I think it is, we were 20 points less revenue that were -- it was influenced by our engineers than we are today.

So the trend in the last 5 years has grown dramatically. We were at about 50, 55 points, and now we're at 75 points of revenue. And I expect some continued appreciation there, but it's not like we're going to go to 100%. There's lots of reasons for that. But I don't see it going or reverting back towards the 50% anytime soon either.

And then as we enter adjacent markets, I think those needs are the same. If you think about autonomous, remote diagnostics, connectivity, all these complexities are absolutely growing in those areas as well. And so that need for technical expertise that need for joint development, predevelopment, I don't see that going dramatically different than where it is today. It might not increase to 100%, but kind of where we are today feels like a pretty good equilibrium what we're seeing in the future. I have no reason to believe it's different than what we're doing today.

And it appears there are no additional questions at this time. I will now turn it back to Joe for closing remarks.

Great. Thank you. Thank you all for joining us today and for your interest in Versigent. On behalf of our entire leadership team, we're pleased with the execution and progress delivered in the first quarter and remain focused on building on the momentum as we move in through 2026. We look forward to sharing further updates with you next quarter. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.