Q1 2022 Visteon Corp Earnings Call

Good morning, I'm Crystal Lail, Vice President of Investor Relations and Treasurer.

Welcome to our earnings call for the first quarter of 2022.

Please note. This call is being recorded and all lines have been placed on listen only mode to prevent background noise.

Before we begin this morning's call I'd like to remind you that this presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements are not guarantees of future 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 were posted on the investors section of <unk> website. This morning. Please.

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

Joining us today are thoughtful Honda, 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 assumptions <unk> remarks.

Please limit your questions to one question and one follow up.

Thank you for joining US now I will turn the call over to Scott.

Thank you Chris Good morning, everyone and thank you for joining our first quarter 2022 earnings call.

As outlined on page two visteon continued to execute on our growth strategy, despite the challenging environment.

Product trends, we highlighted on our Q4 earnings call continued in Q1, but most of our key products significantly outperforming underlying customer vehicle production.

First quarter sales were $818 million, an increase of 11% year over year, and excluding currency and 22% over market as vehicle production at our customers declined approximately 11%.

Sales came in better than anticipated as we benefited from automakers prioritizing higher content vehicles.

And on account of a proactive approach of mitigating semiconductor shortages through product redesign and purchasing chips from the open market.

Adjusted EBITDA was $71 million or eight 7% of sales an increase of $7 million when compared to last year.

Our strong commercial discipline and focus on operations helped mitigate the disruptions and inflated costs and supply chain.

Adjusted free cash was a negative $37 million in the quarter is uneven supply of parts resulted in higher inventory.

We launched 16, new products in the first quarter, which is an outstanding performance given the challenging supply chain situation.

It sets the stage for another strong year for product launches, which are a key part of our growth strategy.

New business wins, but approximately $950 million.

We will continue to drive our growth in the mid term and beyond.

Large displays in the cockpit is an emerging trend in the industry.

With industry, leading capabilities in design and manufacture of large displays plus the unique and proprietary IP for advanced display features we are in a great position to address the needs of carmakers for the future cockpit displays.

We are excited about the industry's digital connected and electric future and are confident that visteon product portfolio will continue to facilitate this key industry trends.

Our focus on supporting our customers and commitment to technology innovation will continue to drive sales growth margin expansion and cash flow generation in both the near and long term.

I will provide an update on the market environment and our first quarter performance in more detail on the subsequent pages before handing it over to Jerome to discuss the financials.

Turning to page three.

The wall renew crane and Covid related Lockdowns in China caused additional disruption to the industry, resulting in reduced vehicle production in Q1 and lowering of estimates for production for the full year.

The direct impact to Visteon from the water in Ukraine was relatively small as we do not have any operations in Ukraine. However, other suppliers' manufacturing facilities in Ukraine was affected which resulted in our European customers the ability to produce vehicles.

The outbreak of COVID-19 in China, and the resulting lockdowns, mainly in Shanghai and junction impacted vehicle production at some of <unk> largest customers in China.

These events resulted in a lower production by Visteon customers in Q1, as compared with the rest of the industry, causing negative customer mix in the quarter.

Semiconductor supply continued to be a challenge throughout the quarter with demand significantly exceeding supply.

We saw a modest improvement in the supply of analog chips in the quarter compared to our initial expectation of a sequential decline from the fourth quarter level.

While supply of all semiconductors is constrained does analog chips are the most critical bottleneck.

Despite these headwinds visteon sales grew 11% year over year, when excluding currency the market outperformance was driven by a combination of factors first Oems continue to prioritize higher trim level vehicles, which typically have higher visteon content.

This trend combined with the high number of new products launched by Visteon in 2021, most of which go on these higher trim vehicles.

Resulted in stronger than anticipated demand in the first quarter.

Second we are redesigning some of our high volume products to use alternate chips, better where possible to mitigate semiconductor shortages.

Combined with the modest improvement in the supply of analog chips and the proactive sourcing of chips from the open market, we were able to ship more products in Q1 than we were initially anticipating it resulting in the higher sales for the quarter.

Lastly, the recoveries of incremental supply chain related costs from our customers are recorded as revenue further boosting our sales growth.

On the next page I would like to provide some context on how our products performed in this environment turning to page four.

In the first quarter industry production volumes decreased 4% compared to prior year.

Vehicle production at our customers decreased 11% with our European customers driving most of the negative mix as discussed on the previous speech.

Despite the lower vehicle production Visteon sales came in strong at $818 million up 11% compared to prior year, when excluding the impact of currency.

This was also the highest level of quarterly sales since I joined the company in 2015.

The transformation of our product portfolio over the past few years has put us in a great position to take advantage of the key trends impacting the industry.

Cluster sales, which represent about 50% of this Jones total sales increased 11% year over year, driven by the ongoing shift to digital clusters.

It'll clusters, but up 38% year over year and now represent nearly 60% of our total cost of sales.

On a unit volume basis digital clusters to represent only 40% of total cluster shipments, which provides a long runway of future growth as our customers continue to fully digitize the cockpits.

In addition to new product launches, we continue to see our customers prioritizing high content vehicles.

For instance in Europe , our sales with Ford benefited from higher take rates of digital clusters on the Cougar SUV.

Three of the four trims for this SUV Getty, a 12 inch digital cluster, all except the beef trim.

And to supply limited environment, the OEM prioritize the production and sale of the higher level trims to maximize their sales and revenue.

The Cougar is a competitively priced firmly SUV. This one of forbes' best selling vehicles in Europe .

Also a good example of how digital clusters are migrating into mass market vehicles.

Smart core sales now account for 10% of total Visteon sales up from 6% in Q1 of 2021.

This equates to a year over year sales growth of nearly 80%.

Smart core will continue to contribute to visteon growth for the foreseeable future given the continued ramp of this programs as well as additional launches planned over the next couple of years.

Displays were up 13% year over year, driven by strong demand for our lives displays and accounted for about 16% of our total sales in the quarter.

Like in the case of digital clusters. So a couple of years ago. The industry is starting to shift rapidly towards larger displays in the mid segment of the market.

I expect this place to be the next growth opportunity for Visteon in the cockpit after digital clusters and Smartwater.

Infotainment continued to be the most impacted product line in the first quarter in terms of semiconductor shortages.

As a result sales of infotainment, we're down year over year, but still managed to outperform customer production volumes.

The strong fit of our product portfolio with the key trends impacting the industry into commercial and operational discipline on part of the team to maximize production and recovery of incremental costs, but the main driver of our outperformance in the first quarter.

Turning to page five.

Launching new electronics products in an environment of widespread semiconductor and other power shortages is very challenging to say the least.

I'm very pleased to report that Visteon launched 16, new products in the first quarter, which is a strong testament to the operational capability of the team.

This fiction products were launched across 12 different Oems and on some of their most important vehicle models and in all regions of the world.

Some of these launches are highlighted on this page.

We launched a digital cluster on the highly anticipated F 150, lightening electric truck from Ford.

This 12 inch digital cluster offer state of the art functionality and high quality graphics and the software Upgradable.

What noting that the ice version of the F. 150 also comes with our all digital cluster.

Uses the same hardware as the cluster on the electric version of the truck.

If you also launched an audio system on the Ford Ranger truck, which is the first of several additional launches of the audio system on the T. Six small truck and SUV platform at Ford.

Mazda has historically offered small displays in their vehicles.

<unk> eight inch or less with the market trend shifting towards larger displays mazda's offering larger N. In 12 inch displays envelope by Visteon for new vehicles.

In Q1, we launched a 12 inch center information display on the new flagship model for Mazda CX 60 plug in hybrid SUV for the European market.

There are additional vehicle launches planned with these larger displays in the coming quarters.

With Honda, we launched a 10 inch digital cluster on the first EV model in China, the E and S. One.

Honda has been very successful in China that ice vehicles, having a market share in high single digits.

With the growth of electric vehicles Honda is launching new EV models in China, and Europe with Visteon supply digital clusters.

Other notable clustered launches include a 10 inch digital cluster on Nissan's popular two door Sportscar Dizzy.

And our digital cluster on Vw's I D electric vehicles in China.

These are high quality launches both in terms of the product and the vehicle models that one.

We expect these products to benefit from the ongoing acceleration of the digital cockpit trends and contribute to our market outperformance in the coming quarters.

Turning to page six.

Okay.

We had a strong start to the year with approximately $950 million of new business wins in the first quarter. Several new business awards were pushed out due to supply chain and other disruptions, particularly in Europe . Nevertheless, we were able to maintain our win rate consistent with our goal of achieving market share gains.

From a regional perspective sourcing activity was higher in Asia in the first quarter and we expect it to pick up in Europe and U S going forward.

New business wins were well distributed across our products, representing the ongoing evolution of the cockpit.

We had several large displacements.

People all digital cluster events, and we also added a new OEM customer for Smartwater.

New business wins would also diversified across powertrain and end markets with 20% of the new business wins targeting electric vehicles, including an all electric two Wheeler.

On the right side of the page, we highlight a few key wins in the first quarter.

The first win highlighted is for a cross car platform digital cluster with food that will launch initially on the Kennedy in 2024.

This is our first multi vehicle and global business win with Toyota and it builds upon the cluster programs. We have recently launched with that OEM in China.

It adds another large global OEM to our growing portfolio of customers for digital clusters, and we hope to extend that engagement to other concrete product in the future.

The second win highlighted as for the digital cockpit system for the electric tubular with an OEM in India.

We have previously highlighted the emerging trend of digital cockpits and the tubular market.

This system uses a seven inch display which is large for two wheelers will offer navigation and smartphone connectivity using Wi Fi and Bluetooth wireless technologies.

The tubular segment has traditionally used lauren meters, but is now starting to follow passenger vehicles and offering higher value digital cockpit systems.

In China light pickup trucks are mostly basic utility vehicles used in rural areas, but cities restricting their used to manage traffic congestion.

With many cities now relaxing this restrictions.

Pickup trucks are poised to grow in China as Oems are looking to replicate the success of these trucks in the U S and other markets.

The third win highlighted as for the smart haul system, a domestic OEM in China for a new light pickup trucks.

This system offers state of the art digital cockpit features including cloud services and apps over the air software updates and augmented reality, leveraging our Qualcomm Snapdragon based smart core platform.

The last win highlighted on this page is a multi screen display module under one seamless cover lens, what an existing Japanese customer <unk>.

This program will launch in 2024 across multiple vehicles and includes two idiots with display sizes of 24, and 20 inches for mass market in premium vehicles.

It is representative of the emerging trend of multi screen displays in the cockpit, which is an exciting area of growth for Visteon, and which I will discuss in more detail on the next page.

Turning to page seven.

Multi screen displays on an exciting growth opportunity for visteon, but the industry is starting to follow a replacement cycle like what's happening with digital clusters.

Consumer demand for Adas and connected services has resulted in Oems using larger displays in the cockpit to offer an improved experience to the driver and passengers.

Display trends driven by consumer electronics products, such as smartphones and tablets have shipped some of the trends in cockpit displays, including narrow borders and hypersexual quality.

In addition requirements that are unique to automotive such as really ability in bright sunlight low power consumption and limiting driver distraction of driving future trends and cockpit displays.

Visteon was early to identify displays as a growth opportunity and launched our first large display system with BMW in 2019.

This program introduced new features such as curved covenants with optical bonding to the LCD panel to provide a nicer look and feel.

With multiple display products launched and more under development Visteon has developed strong expertise in the design and development of key elements of the display technology stack, including backlight unit covenants and optical bonding.

We are now regarded as a technology leader in the industry for large displays.

Over the three year period from 'twenty to 'twenty, one 'twenty two 'twenty three we expect to launch over 20 multi screen display systems across several Oems.

In addition, Visteon has developed a unique and proprietary intellectual property such as Microsoft to enhance perceptual quality of the display true color for dynamic image enhancement for improved readability in bright light conditions.

Privacy technology and others shown on this speech.

These are new features that are being requested by Oems for second generation of large displays that are scheduled to launch in 2024 and beyond.

These features will launch first and premium vehicles, and then migrate down to mass market vehicles.

Traditionally automotive industry lagged consumer electronics, when it came to displace.

This is now changing rapidly and automotive is driving its own technology roadmap for displays.

Visteon has built a strong technology and manufacturing expertise and displaced and is positioned nicely to take advantage of this fast growing trend in the industry.

After digital clusters, and smart core we expect large multi screen displays to be the next growth driver for cockpit electronics for the company.

Turning to page eight.

On this page I would like to discuss our thoughts on the outlook for vehicle production and visteon growth over market for the full year.

The recent developments in China with respect to COVID-19, and the water in Ukraine has resulted in the outlook for vehicle production to be lower than our initial expectations.

The COVID-19 related Lockdowns in Shanghai, and other cities in China has reduced vehicle production and introduced additional disruption to the automotive supply chain, most of which will be felt in the second quarter.

We expect authorities in China to allow critical industries to progressively restart operations within the second quarter.

We anticipate that the impact of the water new clean on vehicle production to moderate in Q2 and beyond as suppliers relocate production from Ukraine to facilities elsewhere to.

This should help reverse the negative customer mix, we experienced in the first quarter.

For the full year, we expect global vehicle production to grow modestly at low single digit percentage range on a year over year basis.

This puts our estimate in line with the latest IHS outlook, which is about 81 million units for the full year.

Expect our customer mix to be neutral for the full year.

While vehicle production is lower than our initial expectations. The factors that helped our market. Our performance in Q1 are expected to continue to benefit us for the rest of the year.

For the full year, we anticipate growth over market to be in the mid teens as Oems continue to prioritize higher content vehicles, and we mitigate the impact of semiconductor shortages through redesigns and open market purchases of chips.

Recoveries of higher costs from the customers and the new product launches will contribute to strong level of growth over market.

Based on these assumptions, we are maintaining our full year guidance with Jerome will discuss in more detail later.

Turning to page nine.

In summary, the company performed very well in the first quarter, we delivered record sales outperforming vehicle production at our customers by 22 percentage points.

Simply execution of our commercial and operational plans resulted in a solid adjusted EBITDA margin of eight 7%.

The company continues to build on the foundation for future growth with the launch of 16, new products and.

And new business wins of approximately $950 million in the quarter with.

We secured incremental business that expanded relationship with key customers and continued to build momentum for key growth drivers for years to come.

The industry has some other challenges in the near term, but the fundamentals continue to indicate that we will be entering a multiyear up cycle in production volumes with key mega trends driving technological change.

<unk> product portfolio and the strength of our customer relationship positions the company well for continued outperformance.

Now I will turn the presentation over to Jerome to review the financial results.

Thank you Sachin and good morning, everyone. Despite a challenging market visteon delivered robust year over year sales growth and improved EBITDA margins. This quarter. We are pleased with the progress of our commercial negotiations in Q1, which helped us mitigate the impact of the elevated semiconductor.

Supply chain related costs the investments we've made over the last few years to optimize our cost base are paying off and supporting our results.

Q1 sales were $818 million, an increase of 11% versus prior year, when excluding the impact of currency.

Compared to our origin all expectations at the beginning of the quarter sales came in higher due to better than expected semiconductor supplies from our existing suppliers added flexibility from our engineering redesigns as well as better availability of semiconductors in the open market higher cost recoveries.

Which are recorded in sales were also a positive factor.

We continue to see strong customer demand driven by recent product launches as well as our customers, giving priority to higher trim models. This strong demand improved supply and higher customer recoveries were the key contributors for a robust growth of a market of 22%.

Adjusted EBITDA was $71 million, representing a margin of eight 7% for the quarter.

Adjusted EBITDA benefited from ongoing commercial and cost disciplines. We did see an increase in cost in Q1 related to the global semiconductor and supply chain shortages, which came in higher than we originally had anticipated.

We were very active in Q1 addressing these increases with our customers and we were able to partially offset this impact in the quarter, we were able to finalize agreements with many of our customers. Although we had a few customer negotiation slip into Q2.

Consistent with our original full year guidance, we're still anticipating a full year net impact will be approximately negative $20 million.

With Q1, representing the peak margin headwind.

Adjusted free cash flow was negative 37 million, primarily driven by an increase in inventory levels. We ended the quarter with total cash of 405 million, representing a net cash position of $56 million.

Our balance sheet remains very strong and our net leverage is negative 0.2 times for.

For the full year, we are maintaining our guidance for sales adjusted EBITDA and adjusted free cash flow I will provide more context later in my presentation.

Turning to page 12.

First quarter sales were $818 million, representing an increase of 72 million compared to last year. This increase was driven by recent product launches Oems prioritizing higher trimmed vehicles as well as by customer recoveries more than offsetting the 11% decline in.

Our customer production volumes.

Q1 represents the 12th quarter in which Visteon sales outperformed the market driven primarily by ongoing launches of new products. As you may recall, we had a significant number of new product launches in 2021, including the launch of several new programs with GM North America.

<unk> core program with Julie and a digital cluster with VW just to name a few.

In addition, Oems prioritized higher trim levels vehicles in the quarter, increasing the take rates of our products.

Finally sales were also positively impacted by semiconductor and supply chain cost recoveries in a normal environment. We typically provide annual price downs to our customers, however cost recoveries more than offset our annual pricing to customers and drove a net increase in sales of approximately 5%.

This quarter.

Although we anticipate visa recoveries to remain elevated throughout the year the year over year increase to sales will moderate in the second half of this year as we started to recover costs from customers in the second half of last year.

The level of customer recoveries in the coming quarters will be highly dependent on weather cost remain at these elevated levels or starts to moderate.

Adjusted EBITDA was $71 million, an increase of $7 million compared to prior year.

Adjusted EBITDA margins were favorably impacted by higher volume and higher engineering recoveries, which were partially offset by the unfavorable impact from higher semiconductors and supply chain related costs as well as the dilutive impact from cost recoveries.

In addition, the proactive cost reset that we initiated in 2020 as well as the ongoing focus on controlling cost remains a positive contributor to EBITDA.

As a result of these actions gross engineering and adjusted SG&A continue to be significantly lower than they were in 2019, despite higher sales.

Actions have helped us navigate the ongoing industry challenges, while also positioning us well to leverage our cost structure as the industry improves in the future.

Turning to page 13.

The last two years have reinforced the importance of having a strong balance sheet in the automotive sector and Visteon is balance sheet continues to be one of the best in the industry.

We ended the quarter with total cash of 405 million, representing a net cash position of 56 million with a net leverage ratio of negative <unk> two times.

Our strong balance sheet and liquidity position provides ongoing flexibility to invest in the business and delivering on our growth strategy.

Adjusted free cash flow was an outflow of $37 million in the quarter adjusted.

Adjusted free cash flow benefited from our continued focus on improving profitability, while optimizing capital expenditures.

However, Q1 cash flows were negatively impacted by an increase in inventory levels and annual incentive compensation payments.

Inventory levels have increased throughout the semiconductor shortage. These elevated levels are driven by uneven OEM production schedules combined with an uneven supply pattern.

In addition, we have increased the level of safety stock on certain components to ensure any near term disruption as a more muted impact on sales.

The majority of the inventory increase is in semiconductors and displays and will be assembled into finished products as production schedules normalize and as we receive missing critical semiconductors, we expect to have a higher level of inventory this year and we normally would but we do anticipate we will start to see a reduction.

In inventory going forward as we take actions to ensure we optimize inventory levels, while balancing supply availability.

Going to page 14.

Although the headwinds facing the automotive industry have increased in the last two months, we are maintaining our full year guidance. We now anticipate production volumes for our customers will be up in the low single digits for the full year compared to our original expectations of 9%.

In line with latest IHS forecast, although we're not factoring any positive visteon customer mix for the full year.

The production environment continues to be very volatile with the COVID-19 related lockdowns in China, creating additional near term uncertainties. Both in terms of China production volumes as well as the potential downstream impact due to logistics and supply chain disruptions.

On the positive side, we anticipate we will benefit from higher customer content and elevated customer recoveries, both of which will contribute to a higher growth of a market for the full year.

We now expect growth of our market will be in the mid teens this year.

Although we're not providing any formal quarterly guidance I do want to provide some insight on how we see the second quarter playing out.

Production volumes will likely be lower in Q2 compared to IHS current forecast as a result of the COVID-19 related Lockdowns in China at this stage our assumption is that the additional units lost in Q2 will be made up in the second half of the year.

Adjusted EBITDA for the second quarter will therefore be negatively impacted by the lower sales levels.

We also anticipate a modest increase in net engineering. However, we do expect a slightly better run rate on cost recoveries as we finalized customer agreements in quarter, two partially offsetting lower sales and a higher net engineering costs.

The automotive market remains very dynamic and we will provide updates throughout the year turning to page 15.

Visteon remains a compelling long term investment opportunity, we have positioned the company for top line growth margin expansion and free cash flow generation, while our strong balance sheet continues to provide significant flexibility.

Thank you for your time today I would like now to open the call for your questions.

At this time, if you would.

An audio question. Please press Star then the number one on your telephone keypad.

Again that is.

And the number one.

We will pause just a moment to compile the Q&A roster.

And our first question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.

Yes, hi, good morning, and taking a very much for taking the questions. The first question is on the full year outlook, which I understand that you are keeping unchanged. Despite the lower auto production environment, you mentioned a couple of offsets.

Could you be a bit more specific on how much that areas offset earnings contributing to the added growth over market and related to that should we still be thinking about the full range of guidance be inappropriate or do you think the company's tacking towards the lower end and given that reduced production levels.

Thanks, Thanks, Mark I will take the question first and then hand, it over to Jerome for more color.

As I've said in my prepared remarks.

Demand from our customers has been very strong.

It was strong in Q1, and we expect it to remain strong.

The rest of the year.

So we are in some ways in the room.

I would say disconnected from the underlying vehicle production not that it doesn't matter for metals less in this environment now.

Now we were also able to ship more products than we had initially anticipated on account of some of the proactive measures we have been taking including redesigning some of our.

Products to use alternate semiconductor chips broaden.

The sourcing of availability of semiconductors, and also by being more proactive and purchasing chips on the open market.

So this combined with the.

Modest improvement in the supply of some of the critical analog chips that I've mentioned.

The main drivers.

Higher sales and go to market and these dynamics, we expect to continue to remain in place throughout the rest of the year.

Also on top of that we have had.

One of the companies Mitch.

Also expect to remain in place Jerome and it didn't work.

So well we are confirming the guidance at $3 billion. In 2015, we are maintaining the range as is and not indicating whether or not we'll be at the low end or the higher end.

<unk> said, a good first quarter, which really positions us very well for achieving the full year targets and it's really on the back of very strong growth of our markets.

Which we think will continue probably not at the level that we've seen in Q1, given that we are assuming that the maybe the mix coming from higher trim levels will moderate a little bit we will see as well even if we keep on recovering.

From our customers in terms of the cost inflation, we'll see probably these cost lapping all these recoveries lapping year over year. So we're maintaining the guidance for the full year on the sales side as well as on the EBITDA. The one of the key assumption that we have for the full year is the fact that we are capping.

Inflation leakage at the level of $20 million exactly per our original guidance and again the good success that we've had in Q1 and what we're going through at the moment in terms of recovery of negotiation with suppliers with customers indicate that well still achieved that target.

That's helpful and for my second question was on the new business wins and the companies that are there.

In the prepared remarks that.

The market share.

Which of those weighted Westwood tracking very well, but but the overall number was down from a new business wins that you reported in the first quarter over the last couple of years, you mentioned some push outs that had occurred.

And any opportunity set on the fourth quarter call. It sounds like there's still some.

When opportunities that pushed out again, so hoping to better understand.

Business, where it is shaping up for this year.

In the roughly 5 billion need it.

Last year. Thank you.

Yes.

Very good question.

Yes, Youre right, our new business wins have been lower in the past few quarters on account of the disruptions that we.

<unk> been facing in the industry and as you know in the first quarter. We had added concerns of water in Ukraine, and the Lockdowns in China.

Which took a lot of attention.

So in that environment.

Performance.

$950 million in new business wins.

Very.

Commendable and Im, particularly pleased that we were there.

To add a new smart core customer as well as.

We recorded our first global win but Toyota both of which are.

Really great additions to our customer portfolio and will contribute to future growth of our business so given that.

With the performance, but in terms of the pipeline itself of new opportunities remains very strong as I mentioned displays is developing into a very good.

<unk> product line for us complementing our.

Based on customers in smartphone.

Also we do expect a fairly strong second quarter and that should put us in a good position to target $6 billion in new business wins.

Rest of the year.

The next question.

Next question is from.

James Picariello with BNP Paribas. Your line is now open.

Hey, good morning, guys.

Good morning.

Wondering if you could talk about the BMS.

Trajectory over over the next few years in terms of.

Three customers.

In the pipeline.

Are you currently shipping with.

With GM on the Altium platform.

Yes, again curious.

If you could share any thoughts on the multiyear trajectory and maybe the margin profile.

This business is CMS going to be a margin accretive product, yes, yes, yes, no. That's a great question.

As you know, there's a lot of activity around new EV platforms and models in the industry.

Mostly the most of.

Significant transformation.

<unk>.

Undergoing right now in the industry and one of the first decisions and Oems to make after deciding the battery technology.

And supplier.

Choice of the BMS system.

And with that experience.

Capabilities, especially in wireless BMS.

Imagine we are as a result of that engaged with several Oems.

The future of BMS needs.

We should be able to grow our current portfolio of three.

OEM customers that we have today.

Based on these discussions and as they progress through the course of the rest of the year.

And just to complete the picture of at least three Oems that we have we have several.

Vehicle launches planned over the next three years.

Across our portfolio and from next year onwards, BMS will start to contribute in a very meaningful manner water annual sales.

The margin profile of BMS.

The way I would describe that would be.

Think of it as being similar to what digital cluster margin profile a lot of the underlying technologies are very similar and so we are very happy but pretty excited about what this means to us.

Future growth both in terms of sales and profitability.

That's great color I appreciate that.

Just maybe a point of clarification, hopefully I didn't miss this but.

The previous guidance I believe taken a net 20 million supply chain benefit year over year, just curious if theres an update on that or if I missed it and yet how should we be thinking about the cadence.

In terms of the quantified impact this quarter and the rest of the year. Thanks, Alright, James So that that guidance is unchanged. We had last year and negative 40, and we were and we are guiding to an improvement of $20 million. This year, which will give you a net negative 24 this year in terms.

Of guidance.

Cadence sorry the.

We started a little bit slower.

And then the full <unk>.

Full year recoveries and that was expected we had guided that Q1 would had lower levels of recoveries just because of the negotiations are taking place mostly in Q1. So we are anticipating this level of recoveries to improve.

Aggressively throughout the year.

Hard to tell if Q2 will be a full recovery yet or if it will be more Q3, but for the full year were definitely.

Guiding to a negative 20, which is to your point an improvement of $20 million year over year.

Yeah.

Yes.

Is there any sizing in terms of the recovery revenue stream, what close to the top line.

Within your guidance. Thank you.

We have not given any specific guidance on this.

What I can tell you is that in Q1, our net pricing, which includes not only the recoveries, but as well the <unk>.

Annual price downs that we give to customers was a net of 5%.

So that and it's traditionally a negative number or it has been at least in the in the prior years. So each year in Q1, we've seen a positive five and the negotiations are as you can imagine contemplating not just the recoveries, but as well the annual price down so it's in some cases, it's very.

A separate tailing in some cases, it's it's commingled so.

So I think the best way to look at it is to look at the net pricing.

Yeah.

Thank you.

Alright, thank you.

Comes from the line of Michael Phillips with Bamberg Capital. Your line is now open.

Yes.

Alright, Thanks for taking my question guys. Just a quick one for me and I'm just looking at your 2000 22023 assumptions of $4 billion of revenue.

To get to that 12% target.

We look at sort of the implied disruption cost for this year 20 million I think in order to get to it in the full year guidance for this year. If you try to get to that 4 billion of revenue next year and 12% margin you basically have to have no disruption costs I think that's sort of like the baseline assumption. If you assume 22% incremental margins, which I think of your normalized levels is that is that realistic.

There's sort of no incremental disruption costs or no lingering disruption costs or should we be assuming maybe higher incremental margins relative to your normalized level next year.

Yes, no that's a good question.

Our assumption for next year is that the supply situation is going to be a much better environment than it has been in 2022. So if there is any disruption costs I would expect that to be fairly minimal level that we should be able to absorb in the course of our overall.

Business operations so.

<unk>.

In terms of the $4 billion.

Self.

What I would say is that in terms of demand.

See the demand even this year as I've said before so it's not an issue of demand we expect demand to be strong next year as well.

Based on the incremental 50 also new business or new product launches I should say that we would have this year.

And so.

So it's going to be driven again, largely by supply and availability now on that front with respect to semiconductors, what we are seeing.

Sort of a new development through Q1 is that.

Demand for <unk>.

Automotive semiconductors has remained very strong that has been a slowdown.

For demand.

Contractors that come from the consumer electronics side of the market.

And we believe that's on the account of.

Fading away of some of the pandemic driven demand for laptops, Tvs and smartphones et cetera.

Which should provide some relief to automotive.

It would be more capacity available for automotive semiconductors. So this we expect to see continue as we go through the rest of the year.

On top of that.

Our incremental capacity investments that have been made for automotive that are expected to come online.

Year, which will contribute to higher availability of.

Of course for us and on top of that.

I mentioned already.

We are redesigning some of our higher under products to have a broader base of suppliers for critical parts. So the combination of those factors, we believe should put us in a pretty good position next year to not only.

We have a higher level of sales, but also to manage our cost from the supply chain.

Understood. Thank you and just pivoting a little bit I just wanted to know if there was any updates around drive core and sort of any of your aaas sort of commercialization opportunities.

Since the last time, we heard about it.

Yeah I think.

What we are seeing.

As a.

Exploration of some of the trends that we have been discussing earlier the industry is evolving quite rapidly.

Use of high performance computing systems for the cockpit like Smartwater.

And that in combination with use of multiple external external candidates typically fall.

Six cameras means that we can now offer. It has features that are integrated with the digital system.

Notwithstanding type of Adas features.

Used in say offered by level, one and level two adas system, such as our departure wanting sort of forward collision warning.

The next level of features such as remote surveillance augmented reality et cetera.

And so we are working on leveraging our core software and expertise that we have to develop and launch. These types of next level features for the cockpit.

So it's something to understaffed peak.

We're talking about more as we go further into it.

Rest of the year.

So just to clarify one thing so it so should we think about drive core is still an independent stand alone offering.

Or is it more so becoming integrated into the smart core product.

It is actually becoming more integrated into digital cockpit, which is where we see.

Opportunity to differentiate.

All types of technology.

Apologies.

Understood. Thank you.

Our next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is now open.

Well. Thank you very much I was actually hoping to follow up on your initial thoughts on going into going into next year. So obviously last quarter you.

Explicitly confirms.

On target two 4 billion in revenues and also 12%.

Margins at 89 million units or so obviously this year you confirm the outlook, which is very impressive. So are you still feeling comfortable about the margin trajectory going into next.

Next year as well since you're on track with your 'twenty two targets or is the.

Latest industry production, which is a little bit less than the 89 million units that you were initially contemplating for next year.

Would that would that make this more difficult.

Yeah, Yeah. So.

Nothing fundamental has changed with respect to how we think about next year in terms of the top.

Top line as well as the profitability.

So the demand.

Remains strong.

And even with the reduced.

Outlook for next year IHS in terms of vehicle production.

<unk> reduced.

Any.

And the demand from customers one of the things that we see.

You'd also mentioned is in order to be in a better position to manage the supply chain, we have been working with our customers to provide longer term visibility.

The supply chain and that is.

Longer term, but definitely means 24 months and based on that we see that the demand.

<unk> quite strong we should be in a position to achieve the $40 million in sales.

As to the supply as well as governance and improves.

No.

Nothing to really offer has it changed in terms of.

And prospective 123 and that also applies to the profitability and if you want to answer on the EBITDA drivers.

Very much unchanged and it's really all about commercial and operational execution.

So we'll continue to mitigate.

Inflation.

In line with what we've been doing now for the last two years and then on the operational side will continue to leverage.

Ed.

Positive structure that we have.

Which will really will allow us to benefit from additional scale. So again nothing is fundamentally changed.

Okay, that's great to hear and then a follow up is coming back to.

Gross over the markets.

And in the outlook in particular going from.

<unk> you.

You had guided around 9% for the year and now something more like mid teens.

Which is impressive would you be able to put a final point on this and all of the factors you have our clients either.

Rank them or sort of quantify you know obviously six points of additional growth over market. It seems like some of it is recoveries. Some of it is stronger demand just trying to better understand the size of the dynamics there.

Sure. So we had a very strong across other markets in Q1, 22% and I would say the first factor is the fact that we've got a very good underlying growth of the markets on the back really all the product launches that we've had in the last couple of quarters.

<unk> thousand 21, so a lot of new launches I've mentioned that in my opening remarks, and that's really the foundation for our strong growth over market in Q1 on top of that we had.

Very positive mix treme coming from some of our customers and Thats helped our growth of the market even further on top of that and you mentioned it.

Recoveries did help as well growth of our markets.

So that's the reason for the 22% in Q1, so with this in mind we are.

Firming for the full year outgrowth of a market to be in the mid teens and again that's on the back of a very good underlying growth of the market. What we do assume in our guidance is the fact that.

Mix will potentially moderate to live it and as well the recoveries as we will start to lap recoveries year over year as we started to negotiate price increases last year in Q3, and Q4 with our customers. So it's still a very strong growth of the market, but not obviously a strong as what we saw in Q1 obvious reasons.

Our next question comes from the line of Joseph Spak with RBC capital markets. Your line is now open.

Thanks, Tom maybe.

Pick up right there because.

You said no change on net inflation.

It was 20 versus $40 or 20 million year over year tailwind and when you unpack unpack that within the context of your revenue guidance.

If net inflation is unchanged and it's kind of suggest the pricing assumptions unchanged. So the higher outgrowth seems to be really more driven by demand for visteon product is that right or is it the case that maybe both costs and price are higher than you thought three months ago as well and so it's.

Still a net 20.

Yes.

It's both in fact, we are definitely seeing a very good momentum on what I would call our underlying growth of our markets, but it's true that the recovery since we've seen in fact, a pretty steady increase of cost in I.

I would say towards the end of Q4, but as well in Q1, we had to pass on more to our customer thats as well benefits not only sales but growth over market. So thats, what youre seeing as well in Q1 and to some extent as a continuation into the rest of the year.

Okay.

And Sachin maybe just.

Just to build off on your comments earlier about future visteon potential in BMS I mean during the quarter, we saw general Motors and Honda announced what those are.

Pretty significant expansion I think I said millions of Evs out of their partnership on Altium I.

I know, it's early days and there are clearly, saying that product's not till 2027, but then you said BMS as one of the first decisions that has to be made so has that conversation.

Scatter and what do you what do you see as the scope of like the longer term visteon opportunity there.

Yes.

A lot of ongoing discussions with <unk>.

TM.

BMS loyalty as you can imagine and so without going into a lot of detail.

I will say that yes, those discussions are happening in terms of.

Preparing for.

<unk>.

While the mobile business.

We expect that to continue to show not just GM, but also with the other Oems with whom we have just started the development of the Miss.

System for them.

Okay. Thank you.

Our next question comes from the line of Colin Langan with Wells Fargo. Your line is now open.

Oh, great. Thanks for taking my questions.

Just to go back to the customer pricing help obviously pick up in the quarter and indicated.

What was the original.

Applied outlook and guidance I mean, it sounds like if it was five and fading, maybe 3% help us sort of the overall for the year that's about right.

With that kind of how you were thinking when you started the year or is that actually trending better and adding to some of the crossover.

Growth of our market outperformance.

We Didnt, hi, Colleen and we Didnt give any specific numbers around.

The recoveries as we went with our guidance and.

The reason is that we are.

Taking the costs as it as it comes and we are obviously, you're negotiating with suppliers, but we're passing that on to our customers. So it's a it's been a very volatile market and environment as you know and things have changed so.

We've seen higher costs than we had anticipated in Q1 and as a result, we've passed on higher.

Dollar amount to our customers, we've not passed on everything yet.

And we're still working on this and hope to finalize most of our agreements in Q2, but thats essentially the dynamic that is going on.

<unk>.

Got it.

He also mentioned in your comments customer mix would.

What would be sort of neutral for the year, but it's been several years of calling out sort of negative customer mix as a headwind. So why isn't that starting to reverse over the next chairmanship of customer start catching back up at some point or is that just upside to your outlook, how should we think about that.

Yes, I think one of the major drivers.

If you look back to last year's second quarter.

Low production quarter.

And we expect that to catch up and reverse this year.

And so we haven't really made any.

Bigger assessments.

Assumptions outside of that for the rest of the year.

And we'll have to see how it develops but in terms of our outlook. We do believe we had a particularly negative mix in the first quarter.

On account of this.

Dynamic, but or but also but.

European customers recovery.

From some of the impact the phase in the first quarter from the board in Ukraine.

Got it.

Yes.

Yes, we're talking earlier about the semi supply and quite frankly, your comments sounded quite optimistic and I think last quarter. You said, there was sort of 8% to 9% help from the nonrecurring sufficient last year, there's been a lot of obviously disruption.

Your current situation, but it doesn't seem like so far that's been a big disruption on the semi side I mean since that's the mitigating factor I mean do you think there's maybe upside to the IHS numbers, 4%.

Since if semi production could stay on track and have that second half recovery.

Well I think some of the recovery was already factored into the IHS outlook and the way we expect.

The supplier to double up just in terms of that.

<unk>.

The quarterly progression.

Yes, we saw some improvement in.

Q1, as compared to our initial estimates.

And we do expect a general recovery in terms of suppliers, we will forward. However.

Sure.

Adventure dip in Q2.

This is where we probably maybe a little more conservative.

Is that in terms of vehicle production because of the Lockdowns.

Diana.

So what has happened is that on.

Several facilities of semiconductor suppliers.

Shanghai better for back end processing or in some cases distribution centers, which have to be.

Lockdown operate at lower capacity on account of what's happening in Shanghai that will cause an air bubble in the supply that will impact us as an industry in the second quarter, but that issue is much less severe.

The other disruptions with face for example last year, because there has been no loss of any bottom.

<unk> wafers is mostly.

Lower activity can be picked up and resumed SMS operations.

I'll put it at a higher level.

Randy.

And so we expect a little bit of a dip in Q2, and then a pickup in the second half now what is it.

<unk>.

Perhaps was not fully contemplated at the beginning of the year was the slowdown in demand from consumer electronics, which should help free up some capacity.

So the combination of the underlying efficiencies.

Improving yes different no.

We're not assuming anything beyond lockdown.

The macro impact on the supply.

That should help.

I don't know what the subtype overall for the full year.

Captured all contributed to slightly better than maybe a year.

Nevertheless supply.

Yes.

Our next question comes from the line of David Kelley with Jefferies. Your line is now open.

Hey, Good morning, guys. Just a couple of questions on cost performance and redesigned can you speak to if there were any outsize freight and logistics costs are factored into the quarter and then curious how youre thinking about those progressing through the balance of the year.

Hi, David Yes, we continue to see very elevated.

Inspiration costs so.

Year over year, we've seen an increase compared to our base and we are as we negotiate with our customers, we integrate not only the raw material costs, but as well.

Freight increases that we see so that's.

That's part of the inflation that we are seeing and that we are actively trying to recover.

Okay got it. Thank you and then one quick follow up on the redesign discussion.

If we're expecting the chip supply to improve.

In the second half.

Did those redesign the headwinds start to abate here, just just curious how the cadence tracks and what's baked into the guidance there.

Yes, yes, I think the new designs.

Very critical for us to be able to get to the level that we would like improvements in supply is still pretty modest and the gap to where we stand with respect to demand is still pretty significant.

So the Redesigns that we're talking about are critical not only for this year, but also for next year to put us in a position where sort of being dependent on one supplier to meet all of our demand.

But I think the demand across multiple suppliers.

And so we will continue to go down that path, we have seen really good success.

Q1 performance.

That's something we will continue to drive it more nimble.

<unk>.

A broader set of suppliers other than just being depleted.

Okay.

Okay.

Great. This concludes our earnings call for the first quarter of 2022. Thank you everyone for participating in today's call and your ongoing interest in Visteon.

Any follow up questions. Please contact me directly thank you.

Okay.

This concludes <unk> first quarter 2020 results earnings call you may now disconnect.

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Okay.

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Yes.

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