Versigent (VGNT) Q2 2026 earnings call transcript

Thank you, and welcome to everyone joining us. I'm joined today by Joe Liottini, our Chief Executive Officer, and Doug Osterman, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. Today's call includes forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks are described in our filings with the Securities and Exchange Commission, including the Risk Factor section of our amended Form 10-12-B registration statement filed on March 6, 2026.

As is customary, the content of today's call and presentation will be governed by this language. 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. In addition, during today's call, we will be discussing non-GAAP financial measures. Please refer to our earnings release and presentation materials for additional With that, I will now turn the call over to our CEO, Joe Liattini.

Thank you, Erin, and thank you all on the call for joining us today. Versigent delivered a solid quarter driven by the unique value we create for our customers, The agility of our global team and a firm commitment to disciplined execution at every level. Today, I'm joined by Doug Osterman, our Chief Financial Officer. Together, we're eager to walk through the financials and share our reflections on the first quarter as an independent company. When we stepped forward as Versigent, we did so with clear priorities. Strengthened our market-leading position by leveraging our full-service engineering capabilities. Continue optimizing our cost structure through automation and footprint discipline. Deliver consistent financial results through execution. And allocate capital in a disciplined manner to ultimately drive long-term shareholder value.

These priorities guide how our entire global team shows up every day. Focused, accountable, execution driven. And ready to deliver the mission critical power and data solutions our partners depend on. The proof is in our performance. Customers trust our ability to turn complexity into clarity, empowering them to act with certainty. This is reflected in another strong quarter featuring double-digit net sales growth and consistent performance over market, evidenced by our expanded bookings, totaling over $2.8 billion in new awards in the second quarter, and earned every day in our deep commitment to disciplined execution. With more launches planned this year than in our history, our global team launched 39 large-scale global programs, supporting 22 new and existing customers in the second quarter, all with more than 99% quality and 99% on-time delivery, while navigating a dynamic market.

Many of the programs launched this quarter reflect our unique market position, featuring trusted engineering expertise, working in close partnership with customers to solve their highly complex, incredibly challenging data and power needs, including new premium and high-content vehicle programs requiring advanced electrical architectures and seamless alignment between our engineering experts and OEM partners. A great example is a recent win from the leading European OEM who, following the successful award of another program, also awarded Versigent their high-voltage, high-complexity architecture, one exhibiting innovative characteristics related to compactness and modularity. This mid-production shift reflects their confidence in our ability to execute complex programs and ensure a seamless transition. Strategic investments in advanced engineering, operational excellence, and our inherently resilient interregion, four-region supply chain fortifies our long-term competitive position as a proven innovator, giving our customers the competitive edge they need in automotive and beyond.

Adjacent markets face many of the same pressures we already solved for, more content and features, greater reliability, and tighter tolerances. Complexity is compounding and accelerating faster than capability, which increases demand for Versigent's differentiated solutions, requiring a selective and disciplined approach to high-value additive growth. In the second quarter, we extended our proven engineering and manufacturing capabilities into new product wins, as well as launched important programs within the commercial vehicle and agricultural markets, all without changing our operating model Our execution in discipline, resource intensity, or risk profile. For example, by translating our capabilities in advanced power and data distribution from our automotive and commercial truck solutions, we're actively applying that specific expertise in other markets with similar requirements, including battery energy storage.

Redeploying our proven engineering and manufacturing strengths attracts new business and amplifies long-term growth. We are intentionally focusing our efforts to aggressively pursue the right adjacent opportunities, ones that play directly into our strengths. From an engineering and technical capability perspective, we have the right solutions. What we are actively building is the go-to-market muscle required to execute with the level of discipline and excellence Versigent is known for. Given the early stage of our adjacent market commercialization efforts in some of these new sectors, I want to reiterate that our previously communicated 2028 outlook does not rely on a meaningful contribution from these opportunities. We view them instead as a source of potential upside beyond our previously provided outlook.

In the meantime, we remain focused on executing our go-to-market strategy, expanding customer relationships, and positioning Versigent for long-term success in every market we pursue.

Operational excellence generated strong commercial momentum throughout the quarter. I had the honor of receiving the Poggio Ferrari Excellence Award on behalf of the entire Versigent team in June. The award, the first of its kind, recognized Versigent for three decades of outstanding partnership and customer service. This, in addition to important quality recognitions from VW and Mahindra, illustrates Versigent's global reputation as a valuable partner, particularly on highly complex global platforms where reliability and performance are critical. Together, these execution outcomes supported the volume growth achieved in the quarter and demonstrate how our priorities are translating into real results. As we look ahead to the second half of the year, we do so with confidence and purpose, guided by our commitment to create long-term value for our stakeholders.

Our disciplined approach to capital allocation prioritizes both investing in our business and generating attractive shareholder returns. Underpinned by the strength of our business and the durability of our cash flow generation, I'm proud to announce an important milestone for Versigent, the initiation of a quarterly dividend, which Doug will go into greater detail in his remarks. Together with our previously announced $250 million share repurchase authorization, these measures reinforce our confidence in our long-term outlook and fortify Versigent's ability to meaningfully impact our customers, employees, and shareholders alike. Guided by our strategic priorities, strong execution capabilities, and disciplined capital allocation, we are leading our industry as a highly engineered, globally scaled, and cash-generative company, ready to unlock even greater value.

With that, I'll turn the call over to Doug to walk through the financials of the quarter and our updated full-year 2026 guidance.

Thank you, Joe. So let's turn to our second quarter financial highlights on slide six. We delivered a strong set of results in our first full quarter as an independent company. Set against the backdrop of lower global automotive production, our double-digit net sales growth, underpinned by strong adjusted EBITDA margins and cash generation, reflects the resiliency of our business as well as the deep value customers place on our differentiated capabilities. Our second quarter net sales were $2.4 billion, up 11%, versus the second quarter of 2025. Excluding the impact of FX and commodity movements, adjusted net sales growth was approximately 5%. This was driven primarily by higher volumes in both North America and Asia Pacific, which were partially offset by softer volumes in EMEA.

Adjusted Divided Dow was $272 million, up 25% year-over-year. Adjusted Divided Dow margin expanded 120 basis points to 11.1%, reflecting both our disciplined operating execution as well as higher volumes. That income attributable to Versigen was $118 million, up 10% year-over-year, reflecting higher net sales and strong operating performance, despite $35 million of incremental interest expense primarily related to the debt financing completed in the first quarter of 2026. Adjusted net income was $138 million, and adjusted diluted EPS was $1.92, reflecting the strong operating performance delivered during the quarter. For the year-over-year EPS comparison, note that the Q2 2025 adjusted diluted EPS was calculated using 70.89 million Versigent ordinary shares that were outstanding immediately following the April 1st spinoff.

Our adjusted effective tax rate was 27% in the quarter compared to 16% in the second quarter of 2025. The higher tax rate in 2026 primarily reflects the year-over-year impact of discrete tax items, which were favorable in the second quarter of 2025 and unfavorable in the second quarter of 2026. While these items impacted the quarterly rate, our full-year expectations remain unchanged. We continue to expect our full-year 2026 adjusted effective tax rate to be approximately 23%, with a similar cash tax rate.

Pre-cash flow was $107 million in the second quarter, and was essentially in line with the prior year quarter, despite higher capital expenditures and separation-related costs. Which I will discuss in more detail in a moment. Moving now to slide 7, we see the primary drivers of the 238 million or 11% year-over-year increase in second quarter net sales. Before walking through the bridge, I would like to highlight that we have enhanced the level of detail in both our year-over-year net sales and adjusted IBTDA bridges by separately presenting net pricing, FX, and commodity impacts.

Which we believe provides additional transparency into the key drivers of our performance. We've also included the corresponding year-to-date bridges in the appendix. Net sales were $2.4 billion in the quarter. Volume contributed approximately $120 million of the year-over-year growth. Driven by higher production on key customer programs, particularly in North America and Asia Pacific. FX contributed approximately $40 million, while commodity-related pass-throughs contributed approximately $96 million. Net pricing, excluding commodity pass-throughs, was a headwind of approximately $18 million year-over-year, which was primarily driven by customary customer price downs, which were broadly consistent with our expectations for the quarter, partially offset by customer recoveries during the period. Just as a reminder, customer price downs are a normal feature of our business and typically average about 1% to 2% annually.

These reductions generally reflect the sharing of cost savings generated through engineering improvements, productivity gains, and other operating efficiencies achieved over the life of a program. Consistent with our commitments last quarter, we believe it is important to distinguish these underlying pricing dynamics from commodity pass-throughs. The net pricing category excludes the commodity-related movements, while contractual commodity pass-throughs are reflected separately in the commodity bucket.

Adjusted net sales growth excludes the impact of FX and commodity-related movements, providing a clearer view of underlying sales performance. On that basis, adjusted net sales growth was approximately 5% in the quarter compared to relatively flat to slightly down global automotive production. From a regional perspective, performance was strongest in the Americas and Asia-Pacific. In the Americas net sales were approximately 1 billion up 11 year with adjusted net sales growth of approximately 6 Growth was driven by higher volumes on key customer programs and continued strong execution across the region We remain well positioned with leading North American OEMs particularly on large truck and SUV platforms where increasingly complex electrical architectures require high levels of reliability integration and scale which play directly into our strengths In Asia Pacific, net sales were approximately 825 million, up 24% year-over-year, with adjusted net sales growth of approximately 15%.

Performance was driven by launch activity, growth with both global and local OEMs, and continued demand across key markets, including China. As we discussed last quarter, we continue to see growth with customers in China that are benefiting from strong export demand into other regions, Given these dynamics, we believe the Asia-Pacific and EMEA results should be considered together as some vehicle production serving European demand is increasingly occurring in China rather than the region itself. In EMEA, net sales were approximately 524 million, down 6% year-over-year, while adjusted net sales declined 11%. The decline reflected continued softness in regional production and the end of production impacts on certain programs. Overall, our regional performance reflects continued growth over market in the Americas and Asia Pacific.

In Europe, market conditions remain challenging and our volumes decline more than the market. We are taking targeted actions to improve competitiveness and accelerate performance in that region. Turning to slide 8, adjusted IVITDA increased $54 million, or 25% year-over-year, to $272 million. Adjusted IVITDA margin expanded 120 basis points to 11.1%. The bridge highlights the key drivers of the year-over-year improvement. Volume contributed approximately $30 million of benefit, reflecting strong flow-through of higher net sales. Net pricing, excluding commodities, was a headwind of approximately $18 million. FX contributed approximately $13 million, and net performance contributed approximately $38 million. The net performance category reflects the benefits of our operational execution, including purchasing cost savings, material productivity, value engineering, and content optimization initiatives, along with manufacturing productivity and footprint actions.

Net performance also included the recognition of approximately $7 million of IEFA tariff refunds during the quarter. Commodity impacts were a headwind of approximately $9 million in the quarter, and as we discussed last quarter, the rapid increase in copper prices during the first quarter created a temporary margin headwind, as higher input costs were incurred ahead of the customer pass-throughs. Approximately three quarters of our copper exposure is covered by contractual escalation agreements, which typically results in a three to four month lag between changes in the copper costs and the corresponding customer pass-throughs. The remaining portion of our exposure is managed proactively through financial hedges and customer recovery actions. While copper prices remained elevated, the pace of increase moderated significantly from the first quarter.

As expected, the associated timing headwind eased as customer pass-throughs began to catch up. However, due to the lag in our recovery mechanisms, commodities remained an approximately 90 basis point headwind to margins during the quarter. Assuming copper prices remain relatively stable, we expect this pressure to continue to diminish over the coming quarters. Importantly, these timing effects can influence margin performance from quarter to quarter, but do not change the underlying economics of the business.

As a result, we continue to focus on adjusted Ibitda growth and adjusted net sales growth as more meaningful measures of our underlying operating performance. Turning now to slide 9, we've expanded our cash flow disclosures this quarter by including a detailed walk from adjusted Ibitda to free cash flow. This additional transparency highlights the key cash flow drivers and how earnings translate into cash generation.

Pre-cash flow was $107 million in the second quarter, essentially in line with the prior period, reflecting continued strong cash generation. The walk highlights how higher operating earnings were offset by increased capital expenditures, separation-related costs, and higher working capital requirements. Capital expenditures were $51 million in the quarter, up $9 million year-over-year, reflecting investments to support higher launch activity planned in the second half of 2026. Separation-related costs were $22 million as we continued to establish our standalone operating structure.

Working capital and other uses of cash increased year-over-year, reflecting investments to support higher sales volumes, as well as launch-related timing and normal seasonal dynamics. In addition, certain restructuring-related cash payments, originally expected in the second quarter of 2026, have shifted into the back half of the year. This timing difference affects the quarterly cadence of cash flow, but did not change our full-year pre-cash flow outlook.

Turning to our financial position, we ended the quarter with approximately $554 million of cash on hand and total available liquidity of approximately $1.4 billion, including a fully undrawn $850 million revolving credit facility. Total debt was approximately $2.2 billion, resulting in net debt of approximately $1.7 billion and a net leverage ratio of approximately 1.8 times. We continue to believe our balance sheet provides the flexibility to invest in the business, support our growth initiatives, and return capital to shareholders, including the dividend announced today, which I'll cover in a moment.

Turning to slide 10, I'll review our updated full year guidance. Our first half performance was strong, with net sales, adjusted dividend, and adjusted dividend margin all above the prior year. As we look to the second half, our outlook reflects lower global industry production volumes than assumed when we initiated the guidance. Customer-specific production schedule reductions and near-term impacts associated with a significant number of program launches. As Joe noted earlier, we are managing the highest level of launch activity we have ever experienced in a year.

While these launches position us for future growth, they can create temporary volume and absorption-related headwinds as production ramps. We also continue to see software demand trends in certain regions. Despite those factors, we continue to expect approximately 2% adjusted net sales growth for 2026, reflecting Versigent's above-market growth on a global basis, strong launch execution, favorable customer and platform positioning, and increasing content on key programs. Based on updated FX and copper assumptions, we are raising and tightening our net sales guidance range to $9.4 billion to $9.6 billion, compared to our previous range of $9.1 billion to $9.4 billion. The increase solely reflects macro-driven factors, including higher copper-related pass-throughs and a stronger Chinese renminbi relative to the U. S. dollar, compared with our previous guidance assumptions.

While these factors benefit reported net sales, they are not expected to provide a meaningful benefit to profitability. As a result, we are reaffirming our adjusted dividend guidance range of $950 million to $1.03 billion. Our confidence in maintaining this outlook reflects continued volume growth and strong operational execution, while also incorporating a balanced view of the second half, including lower global automotive production volumes and significant We are also reaffirming our free cash flow guidance range of $200 million to $300 million, including approximately $70 million of separation-related costs. Our outlook continues to reflect earnings growth, improved working capital conversion, and lower separation-related cash spending, partially offset by elevated capital expenditures in the second half of the year. And lastly, turning to capital allocation on slide 11, we expect to generate approximately $1 billion of cumulative free cash flow between 2026 and 2028, providing flexibility to invest in the business while returning capital to shareholders over time.

Consistent with our disciplined capital allocation framework, we expect capital expenditures to remain at approximately 3% of annual net sales, supporting investments in growth, productivity, and capacity. And as Joe highlighted earlier, we achieved an important milestone in delivering on the commitments we made at separation with the Board's declaration of Versigent's inaugural dividend of $0.13 per ordinary share. This action reflects the progress we have made as an independent company and is fully aligned with the dividend policy framework we previously outlined. The dividend reflects the strength of our business, durability of our cash flow generation, and our confidence in the company's long-term outlook. The dividend will be payable on September 18th to shareholders of record at the close of business on September 4th.

Future dividend declarations remain subject to the Board approval and will be evaluated based on our financial performance, cash flow generation, and capital requirements, as well as market conditions. We also have $250 million available under our share repurchase authorization, providing flexibility within our capital allocation framework. Our capital allocation priorities remain unchanged, investing in organic growth, maintaining balance sheet flexibility, and And I will turn it back to Joe.

Thank you, Doug. Reflecting on our performance, Versigent proved it's not just what we do, but how we do it that matters. The progress delivered in the second quarter validates Versigent's potential to generate greater value for our stakeholders. Our strategy is well calibrated, designed to navigate dynamic market conditions. It's what we're built for. Our team is taking full advantage of the momentum generated in the first half of the year to power more innovation, more high value growth, and more opportunities for the customers we serve. At this time, we are ready to take your questions. Operator, please open the line.

Yeah, no, thanks, Chris, for the question. You know, I think that the update guidance, you know, is kind of a pragmatic approach. Obviously, we recognize, you know, the strong performance the company had in the first and second quarter. You know, but we also at the same time are trying to be pragmatic about some of the things we're seeing in the second half, right? One is, of course, you've seen IHS take industry volumes down. We continue to see some weakness in the China domestic market in particular. We are looking at our specific customer schedules and what they're communicating to us, and there are some volume adjustments there. And I think specifically we have a tremendous number of launches in the second half, right?

And those launches will ramp. They'll ramp from relatively low volumes up to higher volumes. That, of course, positions us really well for next year, but they will have a bit of an impact on the second half volumes that we anticipate. In terms of copper, you know, built into our guidance is an assumption now of kind of $6 average copper throughout the full year. You know, the good news is that, you know, the big move up that we saw in first quarter didn't occur again in second quarter. Second quarter, you know, copper seemed to moderate a little bit, and we'll see whether it stabilizes for the rest of the year or not, but it's not as big a factor in really where we see second quarter guide, because, of course, Even if we had a big move in copper up or down right now because of the kind of four-month lag in the adjustment mechanism, it would really only impact the last, you know, month or two of the year at this point.

So we feel pretty confident in the guidance that we've given and in our ability to hit those numbers.

That means demonstrating our engineering expertise, our manufacturing expertise, and really making sure we have the right partnership and connections with those firms. And then as that sector grows, we would grow with that. Now, we have had some one or two small serial production awards already happening, but they're really small. And then we've seen some pre-development and prototyping work in some areas that continue to mature. So, you know, today it's not a big part of our story because the revenue base for the sector is small, let alone for us. I think where we've been focused on is about 10% of our revenue in non-auto comes from commercial vehicles and agriculture. And so also growing that, which is a bit bigger sector, much more mature, obviously.

And so us growing that is probably the immediate opportunity in terms of revenue dollars and then us being positioned already in the sectors that are maybe a little bit less mature as they grow into 28, 29, 30. And really that story is kind of still to be unfolded, right? And we think we're in good position. We think we bring capabilities that are valued. In some cases, they're the same customers we work with in auto, and so that's a more translatable discussion. In other cases, they're actually new customers to us, so we're both learning each other. And so I'd say we're careful to talk about it because it isn't necessarily contingent upon what we do. In some cases, the sector isn't returning up yet, and I think you'll see that as we do, but we feel good about its potential.

We feel like strategically it makes a lot of sense, and so we're going to organize behind it. And essentially, we're going to really invest mostly on the commercial and go-to-market side because, as we've shared in the past, our engineering and manufacturing capabilities are very capable and very applicable right now. But maybe learning a little bit more about the process, some of the new customers with some commercial folks and go-to-market folks could help us be more proactive. And, again, that's all in the pursuit of being ready for when they're ready. And I think we're on track to do so.

Yeah, thanks for the question, Joe. You know, if we look at kind of where we, you know, have historically run, I think, you know, seasonally, of course, traditionally, second half is stronger margin than first half. And a lot of that has to do with volumes, right? So typically, you know, first quarter is the lowest volume period, second quarter, you know, is a step up, but third and fourth quarter are really the strongest volume periods. And so it's traditional that second half does have stronger margins. Now, of course, in addition to that, you know, the performance that we've seen out of the team, and you see it again this quarter in terms of things like purchasing, material usage, value-added, value engineering activities, and the like has been very helpful.

Of course, to your point, the tariff is kind of a one-timer. That's about $7 billion or so. So it's, I think, 30 basis points or so on the margin that is a kind of one-time impact this quarter. But certainly, I think, you know, those are kind of the drivers that we see going forward for, you know, our margin performance in the second half. So I'd say, again, you know, volume and our ability to continue to perform in the performance bucket. But maybe just one add, you know, obviously our assumption on copper for the remainder of the year in total also shows, you know, a much bigger change in the first half of the year than the second half of the year.

So that contributes to the performance of margin rates, half one versus half two.

Right, the recovery catch-up, right? Because if we see copper basically more stable, we do see the catch-up already happening second quarter, and we'll continue in through the rest of the year.

Yeah, you know, typically you don't break out the quarterly revenue profile. What I would say is, and Doug touched on this in a couple of his comments, the launches certainly are a big contributor to our year. And since they're disproportionately big launches, that's a little bit of a unique scenario. I think the other piece, I would say, the regional performance is also unique to us. Our amount of business in Asia Pacific and what's happening there and our exports, and then our performance in AMIA, both the regional performance broadly, but also our roll-off of projects is somewhat unique to us. So I would say those things are probably more important to consider than what you've heard broadly or elsewhere.

The only thing I would add to that is that cash, as I mentioned in my commentary, is a little bit lumpy because of some of the restructuring and separation costs. We did have some of that bump from second quarter, I would anticipate. Some of that inducting cash maybe in third quarter, but still strong cash generation second half overall.

Yeah, so I mean, I think, think about what we've shared historically, that was kind of built on a few layers. One was 1% growth in overall production globally, and then another 1% on content per vehicle growth as it pertained or generated from secular trends, things like electrification, autonomous driving features, and cabin features. So, you know, obviously the production outlook is a little bit more depressed than it was when we created that forecast, but we still feel good about the content per vehicle and the secular trends. We still feel good about our ability to execute. Obviously the launches were a feeder to that outlook that we had, so that's not new news per se. That's more confirmatory.

So I would say that the thing to watch is the vehicle production globally over the next couple of years, but we feel good about the other elements, And they're generally consistent with what we forecasted in that three-year look going forward. So the launches today were known and really do fuel our outlook for the next two or three years.

Yeah, so, you know, as you know, the bookings can be a little lumpy and can shift, frankly, from what we first expect when we build the plan. And then sometimes customers, you know, don't actually have the full, let's say, performance they expected when they created the booking. So I think those are all variables. So it's best to think of bookings kind of more directional than it is in terms of precision and extrapolating. But having said all that, I would say the performance through the first half of the year, we're exactly on track of where we expect it to be, and what created our three-year forecast. So I would say, you know, maybe a little different in some areas, but not maturely, and so on track in total and on track for our forward look.

But again, it's something that can have some variation by quarter. Not really insightful to over-read into that. It's more about the general trend, and are we generally winning the ones we anticipated? And I would say yes.

Yeah, I mean, I think, you know, when we look in general, you know, we do expect volumes to be generally stronger, you know, third and fourth quarter. However, we do have some ramp-ups that will impact that a little bit. I think from a market perspective, the big impacts are the things that we talked about. I would classify it maybe in three buckets. One, you saw that, of course, copper, the movement that we saw from Q4 to Q1 was about 15%, so a pretty big move. First quarter to second quarter, more like 5%, so a fraction of that. As a result, we've had some catch-up on copper that's going to continue to support the ongoing market, so we'll get rid of that significant headwind that we saw in certainly the first quarter.

So I'd say volumes first, copper catch-up would be second, and then continued improvement in the performance bucket. And those are things like our year-over-year purchasing savings, our year-over-year value added engineering savings, improvements in material usage and the like. So I think we have pretty good visibility to what second half should look like.

And maybe just to build on Doug's point, as a new company, the teams are looking really at everything we do and looking to drive efficiency, improvement, speed across all of our processes. Many of the things we've always done, so there are continuations, but maybe some of the things are new to us. And so as we're looking at opportunities there, we think there's additional things to go investigate and draw value out of. And so that's also a contributor to the back half and into next year.

Yeah, so, you know, I would zoom out a little bit on that question and say, you know, what's important to Versigent? You know, we start with what are we great at? What differentiates us? And so, you know, we kind of run everything through certain sets of criteria or filters. And for us, if it has low voltage, high voltage, data, high complexity, uniqueness, then those are the kinds of things that are interesting. If it's at scale, even better, I would say, or if it's going to get to scale. And so as we look at opportunities, we're running them through those filters so we can prioritize where we spend our time, our resources, and frankly, we want to pursue things that we think are high-quality opportunities that we can sustain and be the best at.

And so some things like battery energy storage kind of check the boxes, specifically as it pertains to infrastructure and let's say industrial settings, maybe less so in some smaller applications. If we look at data centers, well, as it pertains to battery storage, well, yes. As it pertains to data centers specifically, maybe not. And so we've not prioritized data centers because they don't really match our criteria on low voltage, high voltage, data, high complexity, weakness. And so, you know, as we navigate that, you know, there are really new opportunities. Having said that, we have investigated and explored other things that aren't maybe, you know, always the typical things because we're just testing our hypothesis. Are we really right about that?

Is that really a differentiator? Can we create value or can we learn something? And so I would say you know we going to continue to focus on off and on highway construction on agriculture because they more mature and you know 10 of our revenue is in that space already We strategically said robotics and battery energy storage have the characteristics that run through our criteria that are interesting to us although very nascent And there things that continue to pop up and they could be data centers or defense or other things and we evaluate them but we evaluate them with the same set of criteria And so I just say all that to say when you hear us giving updates, it's because we're sharing the things that we think are most material, So not just the things that are being talked about externally, because they may or may not be relevant to our revenue or our profit in the next one to two years, but they could be relevant, you know, two, three, four years on.

And so we balance that with strategic efforts and I'll say tactical day-to-day, you know, proven profitable efforts. So our approach I don't think is going to change very much in the next couple of years because it's been proven to be essentially effective and accurate.

Yeah, Colin. I mean, it definitely is a meaningful, you know, recovery because of the extreme move that we really saw in copper from Q4 to Q1. Like I said, about 15 percent move. Even this quarter, year over year, you can see in our net sales number, the recoveries coming through. The pass-through is 96 million year-over-year comparison there. Significant amount of copper recovery. Most of that, as we've talked about, is contractual. About three-quarters of our contracts actually have a clause specifically for us to recover the copper piece. The other quarter is really managed through a combination of hedges and customer discussions.

And so, yeah, I mean, it was a meaningful headwind of margins in the first quarter, a little bit less so here in the second quarter. As things stabilize out, you know, as I mentioned in my commentary, you know, should continue to abate, you know, through the rest of the year. And we have pretty good visibility now, right, because with the four-month adjustment mechanism, you know, we kind of know where things are going to be for the majority of the rest of the year.

And it is, you know, to your point, Colin, it is a factor in looking at kind of first quarter and second quarter margin performance versus, you know, the year.

And maybe just a quick build on that. You made the comment, get that back. We really don't get the Q1 or Q2 back. What we do is we equalize going forward. So just for clarification, maybe it was just semantics.

I'm not sure that was clear. Yeah, because mainly the change in the guide on revenue is related to those macros. So, it's driven primarily by the shift that we've seen in copper, which through the recoveries will basically We continue for the majority of the rest of the year, and a bit of FX as well, in terms of mainly Remembe and Euro having an impact a bit on our revenues as well. So they tend to pump up the revenue number, but in turn don't have much impact necessarily on the dollar-free cash flow. Yeah, the mechanics are straight past them, so there is no margin on those. So that's why revenue is the only thing affected.

Yeah, this is Joe. I'll start and Doug can compliment. You know, I think there's some pieces to think about in the APAC region. So first you have the local domestic production, which is down and has been down all year quite significantly. And then maybe a bit more unique to us, we over-index the China export production. And again, that's intentional, right? We selected customers and programs where we think have the most global applicability, which have a chance to scale and export. And so, you know, we're the benefactor as those programs have done that. And then in addition, there's another couple pieces. One is our ASEAN side of business continues to do quite well.

And then there's some produced volume that are exports that aren't to EMEA, but they're to the rest of the world. But it has also done quite well in the last few months. So I think for us, part of that is customer selection. Part of that is just the market dynamics. And then generally speaking, we've been in the right position with the right customers on the right programs and have benefited from that. But I'll let Doug also comment in a little bit more detail.

So, I mean, APAC for us, you know, performance in the first half has been, as you saw, very strong, really related to this strategy where we've been seeking out kind of the most complex wiring harnesses, those customers, you know, who are very involved in the export trend. And so that really has made the difference in why our performance, I think, in APAC stands out and is differentiated than what you see from, you know, many of the Tier 1s that have been reporting.

And, you know, it's a purposeful part of our strategy. That being said, you know, a good part of our business is also related to the divestment market there. And, of course, we are seeing, you know, some of the weakness on that side and customers adjusting some schedules. But, you know, overall, that China export trend just seems to really be on a strong trend of growth year over year. That's really helped our numbers. I would say outside of China, you know, we do have a pretty good business in the, you know, non-China part of APAC, and it's an increasingly positive story overall in our growth as well. And maybe on one of the future calls we can get into more detail there, but I think, you know, it's a – in fact, it's been a good story for us for sure.

Yeah, thanks for the question. Obviously, a very complex topic with a lot of things at stake, and so we're monitoring it closely. It's important to us. I think, obviously, the combination of OEMs and suppliers are all trying to understand what the implications would be. I think it's important to understand the history of how the industry is constructed and where production happens and then why production happens that way. So there are certain characteristics around production that make it, you know, either more or less palatable to move into onshore or reshore. And so I think, you know, as the industry kind of navigates that discussion, I think those characteristics will remain important. And so the reason we're set up the way we are, not just we, but all wire harness manufacturers, has certain characteristics on labor and maybe, let's say, logistics and just-in-time or maybe the lack of need of just-in-time.

And so I think as that conversation happens, we'll monitor it closely. It's a complex one. To date, we don't see any immediate implications, but as things change, we'll have to evaluate them. And it's one of those things that the details would matter quite a bit on what makes sense, what value categories OEMs will prioritize to reassure which ones they won't. And so it's going to be a little bit of a let's see where things land and what the reaction is, but there's more natural places to start that conversation, we think. And so, again, we'll monitor as we go. Hard to give a definitive answer until things finalize, though.

Yeah, Winnie, thanks for the question. With the strength that we've seen there in exports, and I think exports were up 50-plus percent in the first quarter. They're up like 60-plus percent year-over-year. I think second quarter in general for China. And as a result, of course, our mix has increased. So I think first quarter we said, you know, more than 25% of what we produced in China ended up on vehicles that were exported out of China. That has grown to, you know, I think in excess of 35% in the second quarter. So it's a strong trend that continues to benefit our performance. And to your point, you know, getting to be an even bigger part of our mix just because of the market dynamics, right?

Yeah, and to Doug's point, I think it's important to zoom out and understand kind of the causals, right? If the China local production remains very depressed, there's unutilized capacity that OEMs in China want to utilize. If the EMEA construct in terms of either tariffs or other, let's say, regulations are what they are, then there's a certain amount of applicability that those exports can get into the market in certain ways. So as those things change or get discussed about changes, that would have implications to production. In the end, it's still one consumer in EMEA that buys that vehicle, irrespective of if it's produced in EMEA or it's produced in China. And so I think understanding those causals gives us some insight into what would need to be true for something to be different.

Yeah, so for us, starting point matters a lot. So the starting point for us is 10% approximately of our revenue. It's not an area that we were overly proactive about historically. It was more kind of OEMs came to us asking for help, and we satisfied it, but I think we could be a lot more proactive. And so the industry itself, given our share is so small and how the market's going to perform, is actually not that important to us because we're timing. So we can grow irrespective of if the sector doesn't grow because we have a very small share. And so we're focused on big, complex programs where we can add a lot of value that have characteristics that match our strategy.

And then we're essentially looking to take share there irrespective of what the market does. If we take share and the market grows, well, that's a bust, but that doesn't have to be the case for us to be successful there and to grow. As I shared earlier, we're building more go-to-market capabilities, and we're oriented with more proactivity in that space than we ever have in the past. And we think that, combined with the applicability of our engineering expertise and manufacturing expertise, positions us well to grow. If we were 10% without being proactive, stands the reason we could be more than 10% if we are proactive, if we do place resources there. And so that's our intention.

Thank you. Versigent's solid second quarter results demonstrate our continued ability to unlock greater value, reflected in our strong net sales growth, evidenced by our expanding book of business, and earned every day by our deep commitment to disciplined execution. Thank you for joining today's call. We appreciate your continued interest in Versigent and look forward to sharing further updates with you next quarter.

This concludes today's call. We thank you for your participation.