Q1 2021 Visteon Corp Earnings Call

Initial results and conditions, but rather are subject to various factors risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.

Please refer to the page entitled forward looking information for additional details.

Presentation materials for today's call for <unk>.

On the investors section of Visteon website. This morning.

Please visit investors diversity on dot com to download the material if you have not already done so.

Joining us today are slots from Lewanda, President and Chief Executive Officer, and Jerome <unk>, Senior Vice President and Chief Financial Officer.

We have scheduled the call for one hour and we'll open the lines for your questions. After <unk> and Jerome remarks. Please limit your questions to one question and one follow up.

Thank you for joining us now I'll turn the call over to Sachin.

Thank you Chris Good morning, everyone page, one summarizes our first quarter results.

Visteon strong performance in the second half of 2020 continued in the first quarter of 2021.

Industry demand remained strong although supply shortages muted vehicle production growth at our customers.

Visteon first quarter sales of $746 million.

Ah represents a 14% year over year increase when excluding currency.

Adjusted EBITDA was $64 million or eight 6% of sales.

Incremental supply chain costs related to semiconductor shortages reduced adjusted EBITDA margin by about 190 basis points.

Adjusted free cash flow for the quarter was positive $9 million.

We ended the quarter with $486 million of total cash on our balance sheet.

Visteon new business booking in the first quarter was strong with $1 8 billion.

New business bookings included our first win for Microsoft display technology.

Microsoft is a recent market introduction and offers automakers an attractive alternative to OLED displays for their premium vehicles.

We also won significant smart core business in the quarter accounting for nearly 50% of our total events with.

With approximately $850 million in lifetime value.

I will discuss our Microsoft and smartphone wins in more detail later in my presentation.

Q1 incremental margins for approximately 30%.

Benefiting from the structural cost reductions, we started to implement near the end of Q1 2020 and.

And our continued spending discipline.

Our balance sheet remains strong with $137 million and net cash at the end of the quarter.

Overall, the company performed well across all areas of the business and delivered a solid first quarter.

I will discuss our operational performance in more detail on the following pages before handing it over to Jerome to discuss the financials.

Turning to page two.

This page shows Visteon Q1 sales performance relative to global and Visteon customer vehicle production volumes.

Global industry production increased 12% in the first quarter of 2021, despite semiconductor and other supply chain constraints that impacted vehicle production in all regions.

Most of the growth occurred in China.

As you may recall production volumes in China during the first quarter of 2020 was significantly reduced.

With production facilities being shut down for the majority of February and March of last year due to the pandemic.

Vehicle production in China in the first quarter of this year was robust and just under pre pandemic levels.

Resulting in a 75% year over year growth.

In the rest of the world.

Gold production was down in the Americas, and Europe and modestly up in the rest of Asia, Excluding China.

If not for parts supply shortages.

First quarter vehicle production growth would have been positive for all regions continuing the strong performance seen during the second half of last year.

As a result first quarter industry production growth was heavily weighted towards China.

Which represents about 25% of the global market.

While visteon has been growing its business in the China domestic market for us.

Still represents only about 16% of Visteon sales, creating a negative regional mix for the first quarter.

We anticipate this scenario will reverse itself in the second quarter and for the remainder of the year.

On the sales weighted basis, a customer's vehicle production was flat year over year.

Primarily driven by this negative regional mix.

In contrast, Visteon sales grew 14% on a year over year basis, excluding the impact of currency.

Most of this outperformance about two thirds was due to the contribution from new product launches over the prior four quarters.

The rest was due to the positive mix, resulting from the higher sales in China with some of our customers.

We estimate about one week of vehicle production was lost globally in the first quarter due to part shortages.

<unk> about $1 5 million vehicles.

And impacting visteon sales by approximately 6%.

Turning to page three.

We had a strong start to the year with $1 8 billion in new business in the quarter.

As noted previously about half of our first quarter, new business wins were for smart core cockpit domain controllers with two Oems one in North America and the other in Asia.

The transition to cockpit domain controllers with integrated Android based infotainment and digital clusters is accelerating across the industry.

With these wins Visteon is in production with our will soon deliver a smart core technology to 10 OEM customers globally.

Strengthening our position as the industry leaders in this emerging trend.

Similar to the Vince in 2020 about 20% of the total new business wins are for mid cycle updates and about half of the total events with launch within two years, which underscores the accelerating pace of digitalization in the industry.

Furthermore, one third of our total new business wins are for electric vehicles, reflecting the prioritization of investment in new electric vehicle platforms by Oems.

On the right side of the page of some key first quarter events.

As mentioned earlier, we secured our first win for Microsoft display technology.

Microsoft is a new display solution for premium automotive cockpit displays.

That's designed to meet the demanding requirements of large high quality displays for premium and luxury vehicles.

And we'll discuss microsome in more detail in a later page.

The second win highlighted here is for the smart core cockpit domain controller with a north American OEM.

This system offers integrated Android based infotainment and in all digital cluster.

With over the air software updates and connected applications.

This cockpit domain controller win extends our current business with this OEM beyond clusters and into Android based infotainment.

The system launches on multiple vehicle models starting in 2023.

The third win on this page is for a 10 inch digital cluster with a global OEM.

For two new vehicle models that are planned to launch in mid 2022.

This win extends our digital cluster business with this OEM in two additional vehicle brands that we do not currently have business today and are replacing debt incumbent supplier.

Turning to page four.

The auto industry is quickly adopting larger displays with touch capability similar to consumer electronics.

<unk> knobs and buttons are fading into history.

As mass market vehicles start to offer residential larger displays premium and luxury Oems are looking to differentiate their cockpits with more advanced display solutions.

Visteon develop microsome to address the industry demand for our high quality display that delivers a premium experience while meeting stringent automotive specific requirements.

Automotive displays larger than 12 inches require a wider color gamut to render images without bending effect.

Displays also require higher brightness and contrast ratios to work well and bright ambient lighting conditions.

Unlike consumer devices cockpit displays amounted at a fixed wing position and angle.

Displays must also be very energy efficient.

So that heat dissipation can be managed effectively.

Finally displays must have a life span of 10 years or more to match vehicle expense.

OLED is today's state of the our technology for high end displays in consumer electronics.

However, it is too significant drawbacks when it comes to automotive applications.

First as it is based on organic light emitting material.

OLED lifespan does not long enough for automotive applications.

Moreover, the brighter the display the quicker it deteriorates.

The second drawback is cost.

OLED is significantly more expensive to manufacture, especially for large size displays.

Visteon Microsoft display technology offers vehicle manufacturers are very good alternative to OLED.

It uses proprietary and patent pending technology to deliver exceptional optical performance, while meeting challenging automotive requirements at a cost that is less than OLED.

We introduced Microsome at the consumer electronics show in 2019 and have since continued to evolve its capabilities.

Today, we are pleased to announce our first Microsoft win.

The award is with a north American OEM for a multi display system that will be featured in multiple premium and performance vehicle models.

At about $250 million.

This business within this very significant and will launch in 2024.

Microsoft is an innovation developed entirely in house at Visteon.

Address specific automotive challenges.

As the high end solution that delivers a premium experience.

Microsoft carries a price premium over standard displays that use LCD technology.

Visteon will continue to offer display solutions based on LCD technology.

However, with Microsoft we can now address a broader section of the market and differentiate ourselves from the competition.

Turning to page five.

Along with the shift to larger displays car manufacturers are quickly adopting over the air software updates and Android based infotainment for their next generation cockpits.

Offering consumers a choice of connected services along with over the air software updates has become a critical requirement for new vehicles.

Visteon Smartcool solution uses advanced Silicon and software technologies.

For enable Oems to offer these kinds of advanced user experiences in the cockpit.

Our first quarter Smartcool win with a north American OEM.

As a second cockpit domain controller win in this region.

And reinforces visteon industry leadership.