Prepared remarks
Good day, and welcome to Versigent's Second Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. At this time, I'd now like to turn the call over to Erin Banyas, Vice President, Investor Relations. Please proceed.
Thank you, and welcome to everyone joining us. I'm joined today by Joe Liotine, our Chief Executive Officer; and Doug Ostermann, 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 Factors section of our amended Form 10-12B 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 information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. With that, I will now turn the call over to our CEO, Joe Liotine.
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 Ostermann, 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: strengthen 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 a 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 in-region, for-region supply chain fortify 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 and 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 Podio 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. Let's turn to our second quarter financial highlights on Slide 6. 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 EBITDA was $272 million, up 25% year-over-year. Adjusted EBITDA margin expanded 120 basis points to 11.1%, reflecting both our disciplined operating execution as well as higher volumes. Net income attributable to Versigent 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 1 spin-off. 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. Free 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'll 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'd like to highlight that we have enhanced the level of detail in both our year-over-year net sales and adjusted EBITDA 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. 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 $1.1 billion, up 11% year-over-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 strength. 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, including Europe. 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 declined more than the market. We are taking targeted actions to improve competitiveness and accelerate performance in that region. Turning to Slide 8. Adjusted EBITDA increased $54 million or 25% year-over-year to $272 million. Adjusted EBITDA 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 IEEPA tariff refunds during the quarter. Commodity impacts were a headwind of approximately $9 million in the quarter. As 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 result in a 3- to 4-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 EBITDA 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 EBITDA to free cash flow. This additional transparency highlights the key cash flow drivers and how earnings translate into cash generation. Free 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 continue to establish our stand-alone 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 does not change our full year free 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 1.8x. 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 EBITDA and adjusted EBITDA 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 softer 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 EBITDA 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 launch activity. 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. 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 18 to shareholders of record at the close of business on September 4. 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 returning capital to shareholders through a balanced and disciplined framework. With that, I'll 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.
Questions and answers
We'll take our first question from Chris McNally with Evercore.
Great quarter on your first quarter out of the box. So one technical question and then one on the longer-term growth over market. Doug, I appreciate the wide range for guidance and obviously copper and second half schedules remain a question mark for most. But I think the shorthand that we've kind of discussed as we look at your best programs—sort of D3, large Texas OEM and Chinese export—the second half, actually, the schedules look better than global schedules. Can you just talk about your confidence in the range on the guidance if copper was to stay here?
Yes. Thanks, Chris, for the question. I think the updated guidance is a pragmatic approach. Obviously, we recognize the strong performance the company had in the first and second quarter. At the same time, we are trying to be pragmatic about some of the things we're seeing in the second half. 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. Specifically, we have a tremendous number of launches in the second half, and those launches will ramp from relatively low volumes up to higher volumes. That 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, built into our guidance is an assumption now of about $6 average copper throughout the full year. The good news is the big move up that we saw in the first quarter didn't occur again in the second quarter. In the second quarter, copper seemed to moderate a little bit, and we'll see whether it stabilizes for the rest of the year. But it's not as big a factor in where we see the second half because, even if we had a big move in copper up or down right now, because of the roughly four-month lag in the adjustment mechanism, it would really only impact the last month or two of the year at this point. So we feel pretty confident in the guidance that we've given and our ability to hit those numbers.
That's great. So less copper volatility for the next two quarters given what you said in terms of visibility, and we'll track those specific programs. And then the quick one: Joe, you gave a lot of exciting commentary about some of these adjacent markets. It's not built into the guidance in 2028. Just curious on some of the further-out markets. You talked about ag and commercial vehicle launching now, battery storage, humanoid robotics. Could you give a qualitative update—could we start to at least win some awards even if the revenue is not expected in '29 or '30? Could we have some visibility in the next six months to a year on some of these big programs that seem far out?
Thank you for the question. Those sectors are relatively new and are growing themselves. Our job is to make sure we're in position to grow with them. That means predevelopment work, demonstrating our engineering and manufacturing expertise and ensuring we have the right partnerships with those firms. We have had one or two small serial production awards already, but they're really small. We've also seen predevelopment and prototyping work in some areas that continue to mature. Today, it's not a big part of our story because the revenue base for those sectors is small. About 10% of our revenue in non-auto comes from commercial vehicles and agriculture, which is a larger and more mature sector. Growing that is the immediate opportunity in terms of revenue dollars. We're positioning to be ready in the less mature sectors as they develop into 2028 and beyond. We bring capabilities that are valued, and in some cases they're the same customers we work with in auto; in other cases they're new customers. We're being careful in our commentary because many of these sectors aren't mature enough yet. We think we're in a good position, and strategically it makes sense to organize behind these opportunities. We'll invest mostly on the commercial and go-to-market side because our engineering and manufacturing capabilities are already applicable. We're preparing to be ready when the markets are ready, and I think we're on track to do so.
We'll take our next question from Joe Spak with UBS.
I want to unpack some of the half-over-half commentary. You talked about caution and production. But the guidance still has sales up half-over-half and 20% incremental. You also had the IEEPA recovery in the first half. When you back that out, you get to high 20s incremental. What are you seeing in terms of productivity? Is there seasonal engineering recovery or are stand-alone costs changing? What's driving the better second-half versus first-half margin performance?
Thanks, Joe. Historically, seasonally the second half is stronger margin than the first half, driven largely by volumes—first quarter is the lowest volume period, second quarter steps up, and third and fourth quarters are the strongest. So it's traditional that the second half has stronger margins. In addition to that, the performance we've seen from the team—purchasing cost savings, material productivity, value engineering—has been helpful. The tariff refund is a one-time benefit, about $7 million, or roughly 30 basis points on the margin this quarter. Those are the drivers we see for margin performance in the second half: volume and continued performance improvements.
Maybe just to add: our assumption on copper for the remainder of the year shows a much bigger change in the first half than in the second half. That also contributes to the half-over-half margin difference.
The recovery catch-up is happening. If copper stabilizes, we'll continue to see catch-up through the rest of the year.
We'll take our next question from Itay Michaeli with TD Cowen.
It sounds like the second half includes a number of launches that should position you well for next year. Given your strong first-half top line performance, how are you broadly feeling about the 3% to 4% growth framework previously discussed for 2027 and beyond?
Historically, that framework was built on a few layers: an assumed 1% growth in overall production globally and another roughly 1% of content per vehicle growth driven by secular trends such as electrification, autonomous features and cabin content. The production outlook is a bit more depressed than when we created that forecast, but we still feel good about content-per-vehicle secular trends and our ability to execute. The launches feed into that outlook. The key thing to watch is vehicle production globally over the next couple of years, but we feel good about the other elements and they are generally consistent with our prior forecast for the multi-year outlook. The launches announced are known and confirmatory to that view.
And on bookings, you had an uptick this quarter at $2.8 billion. Any target to share for the year? Are you tracking similar to last year's roughly $11 billion?
Bookings can be lumpy and shift from initial expectations. They are best viewed as directional rather than precise. Performance through the first half is exactly on track with where we expected to be and what created our three-year forecast. We may vary in some areas, but overall we're on track for our forward-looking plan. It's more about the general trend and whether we are winning anticipated programs. The answer is yes—we are on track.
And we'll take our next question from Emmanuel Rosner with Wolfe Research.
Following up on the half-over-half walk: you're assuming about a $40 million half-over-half increase in EBITDA at midpoint, with a bit less than $200 million of increase in revenue. I appreciate that some is recoveries, but focusing on the organic piece, what are the puts and takes from the first half to the second half?
We expect volumes to be generally stronger in Q3 and Q4. We have some ramp-ups that will impact that a little. From a margin perspective, the three primary impacts are: one, copper—the significant move we saw from Q4 to Q1 created a headwind that is abating; two, volumes; and three, continued improvement in the performance bucket—purchasing savings, value engineering, material usage improvements. We have pretty good visibility to what the second half should look like.
As a new independent company, teams are examining all aspects of the business to drive efficiency and speed across our processes. Some initiatives are continuations of past efforts; others are new. We believe there are additional opportunities to investigate and extract value from, which will contribute through the back half and into next year.
I appreciate that color. One question on energy storage: you noted it's less mature than other end markets, but battery energy storage has been around for some time. Can you talk through the addressable opportunity and timelines?
We start with what differentiates us and run opportunities through filters: low-voltage/high-voltage, data, high complexity and uniqueness. Scale or the potential to scale also matters. Battery energy storage can check those boxes, particularly in infrastructure and industrial settings, although less so in some smaller applications. Data centers, specifically, are not prioritized because the characteristics don't match our core differentiators. We've investigated other opportunities to test our hypothesis and may pursue them selectively. We will continue to focus on off- and on-highway construction and agriculture because they are more mature and already represent about 10% of our revenue. Robotics and battery energy storage have characteristics that interest us, though they are nascent. We'll evaluate opportunities consistently through our criteria and balance strategic efforts with proven, profitable tactical work. Our approach is unlikely to change significantly over the next couple of years since it has been effective.
We'll take our next question from Colin Langan with Wells Fargo.
How much copper recovery are you expecting? I recall FX and copper was mostly copper at about $46 million in Q1 and $9 million this quarter. Of that roughly $55 million, aren't you expecting to get most of that back by the end of the year given contractual recovery mechanisms?
Yes, Colin. It is a meaningful recovery because of the large move we saw in copper from Q4 into Q1—about a 15% move. You can see the recoveries coming through in our net sales number; commodity pass-throughs were $96 million year-over-year. Most of our contracts—about three-quarters—have clauses allowing us to recover copper costs. The remainder is managed through a combination of hedges and customer discussions. The headwind to margins in Q1 was significant and less so in Q2 as things stabilized. This should continue to abate through the rest of the year, and we have improved visibility now given the four-month adjustment mechanism.
To clarify: we don't get Q1 or Q2 back per se. What happens is we equalize going forward through the pass-through mechanism. That's an important semantic point.
Got it. One more: you raised sales guidance but left adjusted EBITDA unchanged. Why didn't any of the sales increase translate into incremental profit? Is it all copper pass-through in the sales guide?
The revenue guide increase is primarily driven by macro factors—copper pass-throughs and FX, particularly a stronger renminbi versus the U.S. dollar. Those factors increase reported net sales but do not materially impact EBITDA or free cash flow because they are pass-throughs without incremental margin.
Yes, the mechanics are straight pass-through, so there is no margin on those items, which is why revenue increases without an EBITDA increase.
We'll go to our next question from Gautam Narayan with RBC.
On Slide 19, APAC Q2 was up 15% adjusted for FX and commodity. Can you break out the China part of that? We heard today from another company about weakness where European OEM exports to China may not recover soon and some China OEM launches have been delayed. What are you seeing in China, especially into 2027 and what you saw in Q2?
There are several elements in APAC. First, local domestic production is down and has been down all year. More unique to us, we over-index on China export production by design: we selected customers and programs with global applicability and export potential. We have benefitted from those export programs. Our ASEAN business is also doing well, and some production exported to regions other than EMEA has performed strongly. So our mix and customer selection have helped drive stronger APAC performance. I'll let Doug add additional detail.
APAC performance has been strong due to our strategy of targeting complex wiring harnesses and customers involved in the export trend. That differentiates our APAC performance from many other Tier 1s. We do have exposure to the domestic market, where some weakness exists, but the China export trend has been a strong growth driver for us. Outside China, our non-China APAC business is also a positive growth story. We can provide more detail on a future call, but APAC has been a good and differentiated story for us.
One last question: there's been discussion at the administration level about a potential 50% U.S. content requirement. Most suppliers say costs are passed through to OEMs, but how could this affect you operationally? Could you increase capacity in existing U.S. facilities or would reshoring be required logistically? Is it feasible for you to adjust?
It's a complex topic with significant implications. We're monitoring it closely. The industry's production footprint reflects many factors: labor, logistics, just-in-time needs and supplier networks. Whether reshoring makes sense depends on the specifics of any policy, the value categories OEMs prioritize and the operational characteristics of the production being discussed. To date, we don't see immediate implications, but as policies evolve, we'll evaluate the detailed impacts and consider where it makes sense to adjust. The details will matter a great deal on what is practical and where production could shift.
And we'll take our final question from Winnie Dong with Deutsche Bank.
Can you provide the latest China export exposure? In the past you mentioned around 25% as an estimate of production in China that is exported. Is that still the right percentage or has it changed?
With the strength we've seen in exports, our mix has increased. In the first quarter we said more than 25% of what we produced in China ended up on vehicles exported out of China. That has grown to in excess of 35% in the second quarter. So it's a strong trend and is a larger part of our mix now due to market dynamics.
To expand on Doug's point, consider the causal dynamics: local China production is depressed, leaving OEM capacity underutilized and encouraging exports. If regulatory or tariff constructs do not change significantly, production decisions may favor exports. Ultimately, a consumer in EMEA buying a vehicle is the same consumer whether the vehicle is produced in EMEA or China, so understanding those causal drivers helps us anticipate changes. We will monitor developments and adapt as necessary.
On commercial vehicles, which represent about 10% of your revenue: that industry is recovering. Over the next couple of years, how do you think about revenue growth from that segment and could it grow as a percentage of your total?
The starting point matters. We are about 10% of revenue in commercial vehicles today. Historically we were not overly proactive there, but OEMs approached us and we delivered. We can be more proactive. Given our small share, the absolute size of the sector's growth is less important—there's opportunity for us to take share independent of overall market growth. We're focused on high-complexity programs that match our strategy and plan to grow by being more proactive and building go-to-market capabilities. If we place resources there and take share, we can grow the segment's contribution above 10% over time.
And now I'd like to turn the call back over to Joe Liotine.
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. You may now disconnect.