Q3 2023 Visteon Corporation Earnings Call
Speaker 1: transcript
Good morning, My name is Anna and I will be your conference operator today.
At this time I would like to welcome everyone to the Visteon third quarter 2023 earnings call.
After the Speakers' remarks, there will be a question and answer session.
Speaker 1: transcript
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press to start one thank you.
Ryan Wentling you may begin your conference.
Speaker 2: transcript
I'm, Ryan Wentling, Vice President of Investor Relations and Treasurer welcomed.
Welcome to our earnings call for the third quarter of 2023.
Speaker 2: transcript
He's note. This call is being recorded and all lines have been placed on listen only mode to prevent background noise.
Speaker 2: transcript
Before we begin this morning's call I'd like to remind you. This presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker 2: transcript
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.
Speaker 2: transcript
Please refer to the page entitled forward looking information for additional details.
Speaker 2: transcript
Presentation materials for today's call were posted on the investors section of Visteon website. This morning. Please visit investors Visteon dot com to download the material. If you have not already done so.
Speaker 2: transcript
Joining us today are Sachin <unk>, President and Chief Executive Officer, and Jerome <unk>, Senior Vice President and Chief Financial Officer.
Speaker 2: transcript
We have scheduled the call for one hour and we'll open the lines for your questions after Sachin and drums remarks.
Please limit your questions to one question and one follow up.
Speaker 2: transcript
Thank you for joining US now I will turn the call over to Sachin.
Speaker 3: transcript
Thank you Ryan and good morning, everyone. Thank you for joining our third quarter 2023 earnings call.
H two provides a summary of our results for the third quarter. The company performed very well delivering strong results for the quarter and stenting Our foundation for long term growth.
Speaker 3: transcript
Third quarter sales were $1 billion and $14 million and excluding the impact from supply chain related pricing our basis grew 9% year over year further demonstrating the strong demand for our digital cockpit products.
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Adjusted EBITDA was $128 million or 12, 6% of sales an increase of $33 million when compared to last year driven by strong growth in our underlying business and a few favorable commercial items.
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As a result of our strong performance year to date.
Increasing the midpoint of our adjusted EBITDA guidance for the full year.
Speaker 3: transcript
Adjusted free cash flow was a positive cash inflow of $98 million, bringing our year to date cash flow to $93 million.
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The company delivered another quarter of strong product sales growth despite some emerging headwinds in the industry.
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In North America, our sales remained solid and the UAW strike had an immaterial impact to our sales as a Detroit customers continued to receive products throughout the quarter.
Speaker 3: transcript
In Europe, the strong order backlog at our customers has normalized due to weaker consumer demand, resulting in vehicle production at our customers coming in lower than we had initially anticipated.
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In China vehicle production, excluding exports was lower as well due to weaker consumer demand.
Speaker 3: transcript
With the market shifting more to electric vehicles domestic Oems in China are gaining market share over global car makers, which is resulting in a negative customer mix for visteon in that region.
Speaker 3: transcript
Despite these headwinds visteon product sales grew in the third quarter due to the ramp up of recently launched products.
Speaker 3: transcript
We launched another 33, new products in the third quarter, bringing our year to date total to over 100, new products, which will continue to drive our sales in the coming quarters.
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Our product and technology portfolio for digitalization and electrification is one of the best in the industry, which is a big driver of our new business win performance.
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In the third quarter, the $118 billion of new business, bringing our year to date total to $5 $8 billion.
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I'm also happy to report that we won our first customer for our automotive at store product that we highlighted at our Investor day and during CES earlier this year.
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This new connected services enable us to offer end to end solutions for car makers, which is unique amongst our peers.
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In the third quarter, we continued to deliver on the capital allocation commitment announced during our Investor day, and we repurchased an additional $4 million to $6 million of shares, bringing our total to $76 million through Q3.
Speaker 3: transcript
I will provide more details on our Q2 performance as well as our near term outlook on the subsequent pages before handing it over to Jerome to discuss the financials.
Turning to page three.
Speaker 3: transcript
Global vehicle production in the third quarter grew 4% year over year, although visteon customers vehicle production was flat for the quarter.
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Fast growth of electric vehicles, mostly by new Oems that tend to be vertically integrated combined with the slow start of global Oems. In this segment is one of the main drivers of this negative customer mix.
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As we anticipated semiconductor supply has gradually improved throughout the year and in the third quarter. Our open market purchases of chips were down significantly compared to last year.
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Excluding the unfavorable year over year impact from supply chain recoveries Visteon space product sales grew 9% year over year in the third quarter, Despite flat vehicle production at our customers.
Resulting in a robust growth over market of 9%.
Speaker 3: transcript
From a sequential perspective, our base product sales have continued to grow sequentially from Q1 of this year, mainly driven by the ramp up of recently launched products.
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Through the first three quarters, our base sales have grown a solid 17% versus the same period last year.
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Digitalization is one of the most significant trends in our industry and in Q3, our digital products, including digital clusters Smart core infotainment performed very well.
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Digital cluster sales grew more than 20% year over year, continuing the strong performance from prior quarters.
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These two clusters noted presents 60% of our total cluster shipments and this share will grow further in the coming quarters.
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There is ample runway for future growth for digital clusters, especially in the mass market segment with this trend is just starting to matrix impact.
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Displays are growing rapidly and automotive both in size as well as the number of displays Houston cockpits. Despite.
Despite this positive industry backdrop, we are being impacted this year, but the ramp down of a large program with BMW, which is masking. The overall performance of this product line.
Speaker 3: transcript
We're quickly approaching the end of production of their program. Therefore, it would be less of a headwind going forward.
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As new display programs come online expect this product line to return to growth.
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Smart core was our fastest growing product in Q3 with sales growing 25% year over year, we benefited from new launches Vitale, Davidson and Volvo and from the ramp up of programs launched earlier, the Chile and mine drop.
Speaker 3: transcript
This key product line noted presents a mid teen share of our total sales up from the mid single digits, just a few years ago.
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We are also seeing rapid growth of our infotainment systems product line, especially Android based infotainment.
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Standalone infotainment systems, featuring Android and offering connected services at an attractive proposition for many markets, especially for competitively priced vehicles.
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Lastly, our electrification business continued to ramp up in Q3 with the launch of additional electric vehicles by our customers.
Speaker 3: transcript
While sales of BMS for the first three quarters had from lower than anticipated. We're pleased to see sequential growth in BMS sales, which we expect will continue in the coming quarters.
Speaker 3: transcript
In summary, Visteon continues to benefit from their digitalization trend and sales of our digital cockpit products with very robust in Q3.
Turning to page four.
Speaker 3: transcript
We had another very successful quarter of product launches in the third quarter. The company launched its products in 33 vehicle models, which brings our year to date total to over 100 vehicle models launched with Visteon products across 18 different car manufacturers around the world.
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Our third quarter launches reflects the trend of digitalization impacting the industry across all vehicle segments.
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About two thirds of our product launches with clusters with the remainder being cockpit domain controllers and displays.
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Some of the key third quarter launches are highlighted on the speech.
With Mercedes we launched multiple digital clusters as mid cycle updates to existing models.
And on the new EQT electric SUV for the China market.
Speaker 3: transcript
Our collaboration with <unk> in China continues to grow and in Q3, we launched a smart core cockpit domain controller on the Volvo E X 30 electric SUV.
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As highlighted last quarter, we continue to make inroads in the tubular market Committee.
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<unk> bikes make up the bulk of this market and does vehicles are just beginning their digitalization evolution.
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In Q3, we launched a digital cluster with Honda on the Journal plus model. There is offered in Japan and other countries in Southeast Asia.
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We anticipate this segment to continue to evolve quickly towards larger displays and connected cockpits in the future.
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We had multiple launches with Ford in the quarter with our clustered in audio products, including on the transit light commercial vans in Europe in China.
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In Europe, we launched our eight inch hybrid cluster on two variants of the vehicle and the dual display and digital cluster system on China market variance highlighting the exploration of digitalization trend in that market.
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We launched our first digital cluster for heavy commercial vehicles with the launch of the 12 inches to cluster that Renault trucks in Europe.
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Additional launches are planned with this OEM in the coming quarters.
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India is one of the faster growing automotive market this year and our business is gaining momentum with carmakers in that region.
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In Q3, we launched a seven inch digital cluster on two models with Tata motors, including on the Nexon, which is the best selling electric vehicle in the market.
Turning to page five.
Speaker 3: transcript
Q3 was another quarter of strong new business wins, but $1.8 billion of business booked in the quarter, bringing our year to date total to $5 $8 billion.
About 40% of our Vince year to date are for electric vehicles, reflecting the growing share of evs in the industry, especially for the back half of the decade.
Speaker 3: transcript
On the right side of the page, we highlight a few key wins for the third quarter.
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First we won a cockpit domain controller platform program with a German luxury OEM, our first CDC program with this customer.
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This product will launch on all ice and EV vehicles from this car manufacturer starting from 'twenty to 'twenty six onwards, and will integrate digital cluster and connected infotainment features and functions.
This conquest win is visteon largest cockpit domain controller wins to date.
Speaker 3: transcript
Since launching our first Android based infotainment system in 2020, we have upgraded our offering with new more powerful silicon and additional features including our all grow at store OTI Smart voice assistant and camera based features such as surround view.
We believe we have the most advanced infotainment system in the industry today, especially for mass market vehicles.
Speaker 3: transcript
In Q3, we won an Android based infotainment system business with a global OEM for their vehicles in South America, which will go into production in 2025.
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This one's display capabilities are well recognized in the industry with a leading optical bonding and glass cover lens technologies.
The third lien highlighted on this page is a 25 inch multi display module and the separate pinpoint two five inch bessinger display for a global OEM to launch on an all electric midsize SUV in the U S.
Speaker 3: transcript
This is our first display win with this OEM and we are excited about the potential to grow with other vehicle models in the future.
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We have previously discussed our intent to bring advanced automotive specific connected services to the market.
I'm proud to announce that we have won our first business for our in house developed all go App store.
A large OEM in India.
Speaker 3: transcript
Out of White label, App store will be hosted and run by the car manufacturer to bring downloadable apps to their vehicles in the field.
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In addition, we also won our first customer for OTT services with the two Wheeler OEM in the quarter.
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We believe that the timing is right for offering connected services in automotive and we're excited about its potential.
Turning to page six.
Speaker 3: transcript
Car manufacturers are responding to consumers' increasing expectations of digital and connected experiences in the cockpit and are increasingly equipping new cars with built in connectivity to the internet.
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Digitalization of the cockpit has led to the exploration of the connected car trend with vehicles across all price segments offering connected experiences in the cockpit.
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In addition to Internet connectivity consumers expect the costs to include downloadable apps like they get with their smartphones and tablets.
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Like the closed infotainment systems of the past the transition to Android based infotainment opens the possibility of bringing third party apps into the vehicle cockpit.
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Visteon has been at the forefront of the digitalization trend and is also the leading supplier of Android based infotainment systems.
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It was logical that we take the next step and offer connected services that leverages, our in vehicle expertise and close the gap between mobile devices and in car infotainment for apps and content.
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Our all go App store is a white label software as a service offering that enables cloud Oems to provide a full fledged app store experience, we'd get in vehicle infotainment systems.
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That continuously growing the ecosystem of supported apps on the App store and also offer value added testing and lifecycle management services to the car Oems.
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Our analytics dashboard and deployment portal can be used by Oems to deploy and manage apps that are offered on the app store.
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We also offer additional cloud services on the <unk> platform that are addressing critical needs of Oems.
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We offer an over the air service that enables Oems to run full software update campaigns across that entire vehicle fleet in the field.
Our subscription management service enables consumers to opt in or out of services such as premium content for navigation maps.
These services are offered stand alone or bundled with the App store.
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In addition, we're developing vehicle analytics and remote commenced services to provide seamless access to critical vehicle health and diagnostics information from consumer smartphones.
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Our near term objective is to reduce friction for Oems to adopt and deploy these services widely in the vehicles.
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Therefore, while the initial revenue contribution from the August services will be minimal the long term opportunity is substantial.
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Our two connected services wins in Q3 demonstrate the revenue opportunities with our connected services.
Differentiated from our traditional model.
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We believe that our significant cross selling opportunities both to serve our existing infotainment as smartphone customers and to use our services platform to establish relationships with new customers.
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Have a healthy pipeline of additional opportunities for this cloud services that we are currently engaged on and hope to report more progress in future quarters.
Turning to page seven.
Speaker 3: transcript
This page shows our sales and revenue performance year to date and the outlook for the remainder of the year.
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We entered the year for the industry being supply constrained due to the lower vehicle production in prior years.
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But semiconductor supply improving and growing macroeconomic concerns we had anticipated vehicle production at customers to moderate due to slowing demand during the second half of 2023, which is happening.
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The transition from ice to EV is also offering more slowly for global Oems than they had anticipated.
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Despite these challenges <unk> product sales have increased sequentially each quarter this year.
Speaker 3: transcript
The company's strong product portfolio for the digital cockpit has enabled us to take advantage of the digitalization trends that are sweeping across the industry.
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The company has performed very well operationally launching a high number of products on vehicle models that are driving our revenue growth.
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This growth accelerated in the third quarter, despite the challenging customer and vehicle mix environment.
On the other hand sales of our BMS products have come in below our expectations due to the challenges faced by global Oems and ramping up electric vehicle production.
Operator: Good morning.
Emma: My name is Emma and I will be your conference operator today.
Emma: At this time, I would like to welcome everyone to the Visteon 3rd quarter 2023 earnings call. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you.
Speaker 3: transcript
Looking ahead to the fourth quarter, our performance will be driven by similar factors that drove our third quarter results.
Ramp up of recently launched products will drive robust growth over market, even with the slower ramp in BMS sales.
Speaker 3: transcript
We anticipate semiconductor supply to continue to improve with fewer critical parts, which will also reduce our open market purchases and the corresponding revenue.
Ryan Wentling: Ryan Wentling, you may begin your conference. Good morning.
Ryan Wentling: I'm Ryan Wentling, Vice President of Investor Relations and Treasurer.
Speaker 3: transcript
China will remain a challenge for global Oems as they will struggle to maintain their market share against domestic competitors, especially in electric vehicle segment.
Ryan Wentling: Welcome to our earnings call for the third quarter of 2023. Please note, this call is being recorded and all lines have been placed on listen only mode to prevent background noise.
Speaker 3: transcript
Lastly, the UAW strike at our customers' plants will create greater impact to our sales in Q4 than what we experienced in the third quarter.
Ryan Wentling: Before we begin this morning's call, I'd like to remind you 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 resulting 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.
Speaker 3: transcript
We anticipate that our fourth quarter product sales will grow sequentially as compared to the third quarter. Despite the headwinds are.
Our full year sales, including recoveries that are expected to come slightly below the midpoint of our previous guidance range due primarily to lower recoveries and Vms sales.
Speaker 3: transcript
However, we anticipate our full year adjusted EBITDA will likely be slightly higher in the earlier mid point due to our strong operational performance through the first three quarters, which we expect to continue into the fourth quarter.
Ryan Wentling: Presentation materials for today's call were posted on the Investor section of Visteon's website this morning. Please visit investors.visteon.com to download the material if you have not already done so.
Turning to page eight.
Ryan Wentling: Joining us today are Sachin Lwande, President and Chief Executive Officer, and Jerome Rookay, 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 Sachin and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you for joining us.
Speaker 3: transcript
In summary, the company performed very well to achieve another quarter of strong sales growth and position us well to meet our full year profitability targets.
We delivered record sales with strong growth relative to our customers' vehicle production continuing the trend of our performance for the past few years.
Speaker 3: transcript
Sachin Lawande: Now I will turn the call over to Sachin. Thank you Ryan and good morning everyone. Thank you for joining our third quarter 2023 earnings call. H2 provides a summary of our results for the third quarter. The company performed very well, delivering strong results for the quarter and strengthening our foundation for long-term growth. Third quarter sales were $1 billion and $14 million. When excluding the impact from supply chain related pricing, our base sales grew 9% year-over-year further demonstrating the strong demand for our digital corporate products.
The team continued to execute on our commercial and operational plans, which resulted in our strong adjusted EBITDA margin of 12, 6%.
Speaker 3: transcript
We continue to build momentum by launching our products on thirty-three vehicle models and winning one 8 billion in new business in the quarter.
Speaker 3: transcript
Finally, we are updating our full year guidance for revenue and adjusted EBITDA to reflect the strong performance year to date and the current outlook for customer demand now.
Now I will turn the presentation over to Jerome.
Speaker 4: transcript
Thank you Sachin and good morning, everyone.
Visteon posted a solid set of financial results in Q3, demonstrating another quarter of commercial and operational discipline.
Sachin Lawande: Adjusted to bidda was $128 million or $12.6% of sales an increase of $33 million when compared to last year driven by strong growth in our underlying business and a few favorable commercial items. As a result of a strong performance year-to-date, we are increasing the midpoint of our adjusted to bidda guidance for the full year. Adjusted fee cash flow was a positive cash inflow of $98 million, bringing our year-to-date cash flow to $93 million.
Speaker 4: transcript
We continue to build momentum with our sales growth margin expansion and cash flow generation.
Speaker 4: transcript
Q3 sales were slightly over $1 billion and when excluding the impact of supply chain recoveries grew 9% compared to prior year.
Speaker 4: transcript
This strong performance was supported by the ongoing demand, we see for digital clusters cockpit domain controllers and BMS programs combined with the benefit of recently launched programs.
Sachin Lawande: The company delivered another quarter of strong product sales growth despite some emerging headwinds in the industry. In North America, our sales remained solid and the UAW strike had an immaterial impact to our sales whether Detroit customers continued to receive products throughout the quarter. In Europe, the strong order backlog at our customers has normalized due to weaker consumer demand, resulting in vehicle production at our customers coming in lower than we had initially anticipated.
Speaker 4: transcript
While the UAW strike as added significant uncertainty to the automotive market in North America since mid September the impact was immaterial on our third quarter performance.
Speaker 4: transcript
Semiconductor supply has continued to improve and as a result, our reliance on open market purchases are significantly reduced year over year.
Speaker 4: transcript
However, we continue to see elevated prices from our traditional tier two suppliers.
Sachin Lawande: In China, vehicle production, excluding exports was lower as well due to weaker consumer demand. With the market shifting more to electric vehicles, domestic OEMs in China are gaining market share over global car makers, which is resulting in a negative customer mix for Visteon in that region. Despite this headwinds, Visteon's product sales grew in the third quarter due to the ramp-up of recently launched products. We launched another 33 new products in the third quarter, bringing IO to date total to over 100 new products, which will continue to drive our sales in the coming quarters.
Speaker 4: transcript
In the third quarter, we shared approximately $17 million of these higher costs with our customers.
Speaker 4: transcript
We are optimistic that the semiconductor market will continue to improve in the coming quarters and expect that the need to pass through these costs will decline over time.
Speaker 4: transcript
Adjusted EBITDA was $128 million for the quarter, an improvement of $33 million versus prior year.
Speaker 4: transcript
Adjusted EBITDA benefited from higher base sales improved operational efficiencies lower engineering spending as well as the timing of several favorable commercial items.
Sachin Lawande: Our product and technology portfolio for digitalisation and electrification is one of the best in the industry, which is the big driver of our new business win performance. In the third quarter, we won 1.8 billion dollars of new business, bringing IO to date total to 5.8 billion dollars. I'm also happy to report that we won our first customer for our automotive app store product that we highlighted at our investor day and during CES earlier this year.
This was partially offset by an increase in SG&A expenses.
Speaker 4: transcript
Our adjusted EBITDA margin was 12, 6%, but adjusting for some of the positive commercial items in the quarter as well as for a more normalized engineering spend all run rate was closer to 11%.
Speaker 4: transcript
Adjusted free cash flow was $98 million in the quarter.
Fitting from a strong EBITDA and a reduction in working capital.
Speaker 4: transcript
Sachin Lawande: This new connected services enable us to offer end-to-end solutions for car makers, which is unique amongst our peers. In the third quarter, we continued to deliver on the capital allocation commitment announced during our investor day and we repurchased an additional 46 million dollars of shares, bringing our total to 76 million dollars through Q3. I will provide more details on our Q3 performance as well as our near-term outlook on the subsequent pages before handing it over to Jerome to discuss the financials.
We ended the third quarter with a net cash position of $144 million, while being able to execute $46 million of share repurchases in the quarter.
Speaker 4: transcript
Our total share repurchases have been $76 million since we launched the program earlier this year.
Overall, we delivered a strong performance in the third quarter.
More importantly, we continued to build momentum and make progress towards our medium term targets turning to page 11.
Speaker 4: transcript
Sales were $1 billion and $14 million relatively flat compared to prior year when.
Sachin Lawande: Turning to page 3. Global vehicle production in the third quarter grew 4% year over year, although Vistian customers' vehicle production was flat for the quarter. The fast growth of electric vehicles, mostly by new OEMs that tend to be vertically integrated, combined with the slow start of global OEMs in this segment, is one of the main drivers of this negative customer mix. As we anticipated, semiconductor supply has gradually improved throughout the year and in the third quarter, our open market purchases of chips were down significantly compared to last year.
When excluding customer recoveries based sales were $945 million, an increase of 9% compared to prior year.
This increase in base sales was driven primarily by growth of our markets as visteon customer production was fairly flat in the quarter.
Speaker 4: transcript
Our growth over market was largely driven by the ongoing demand of our digital cockpit products recent product launches and increased BMS demands.
Speaker 4: transcript
Customer recoveries, which are illustrated in the dotted boxes declined year over year by 55% to approximately $17 million driven mostly by a decrease in open market purchases and the corresponding recoveries from our customers.
Sachin Lawande: Excluding the unfavorable year over year impact from supply chain recoveries, Vistian's based product sales grew 9% year over year in the third quarter, despite flat vehicle production at our customers, and resulting in a robust growth over market of 9%. From a sequential perspective, our based product sales have continued to grow sequentially from Q1 of this year, mainly driven by the ramp-up of recently launched products. Through the first three quarters, our base sales have grown the solid 17% versus the same period last year.
Speaker 4: transcript
Open market purchases were minimal in the third quarter and we expect this trend to continue in the fourth quarter.
Speaker 4: transcript
Recoveries related to higher costs from our traditional tier two suppliers are expected to remain stable in the fourth quarter.
As a reminder, recoveries although bucket. It is pricing are pass through in nature, increasing sales neutral for adjusted EBITDA, but diluted margin percentages.
Speaker 4: transcript
Adjusted EBITDA was $128 million for the quarter versus 95 million competitive prior year, an increase of 35% year over year.
Sachin Lawande: Digitalization is one of the most significant trends in our industry and in Q3 are digital products, including digital clusters, smart core and infotainment perform very well. Digital cluster sales grew more than 20% year over year, continuing the strong performance from prior quarters. Digital clusters now represent 60% of our total cluster shipments, and this share will grow further in the coming quarters. There's ample runway for future growth for digital clusters, especially in the mass market segment where this trend is just starting to make its impact.
Speaker 4: transcript
Primary improvement in adjusted EBITDA was due to higher base sales improved operational efficiencies and several favorable commercial items, we negotiated in the quarter.
Speaker 4: transcript
Net engineering declined $4 million year over year due to the timing of specific projects. This was offset by adjusted SG&A, which increased 4 million year over year, primarily due to personnel costs related to investments in our team to support our future growth.
Sachin Lawande: Displays are growing rapidly in automotive, both in size as well as the number of displays used in cockpits. Despite this positive industry backdrop, we are being impacted this year by the ramp down of a large program with BMW, which is masking the overall performance of this product line. We are quickly approaching the end of production of that program, therefore it will be less of a headwind going forward. As new display programs come online, expect this product line to return to growth.
Turning to page 12.
Speaker 4: transcript
We maintain one of the strongest balance sheets in the industry our.
Our balance sheet supports our growth and provides the flexibility needed to pursue our capital allocation priorities.
We ended the quarter with total cash of $485 million and a net cash position of $144 million.
In the third quarter, we repurchased shares for $46 million at an average price of $437 per share.
Sachin Lawande: Smartcore was our fastest growing product in Q3 with sales growing 25% year over year. We benefited from new launches with highly-device and involvement and from the ramp up of programs launched earlier with Glee and Mahindra. This key product line now represents a mid-teen share of our total sales up from the mid-single digits just a few years ago. We are also seeing rapid growth of our infotainment systems product line, especially Android-based infotainment.
Speaker 4: transcript
This brings our year to date share repurchases to 76 million.
Speaker 4: transcript
We will remain opportunistic in future share repurchases, which will depend on several factors, including our free cash flow generation and industry dynamics.
Speaker 4: transcript
We generated $93 million of adjusted free cash flow through the first nine months. This.
Speaker 4: transcript
Sachin Lawande: Stand-alone infotainment systems featuring Android and offering connected services are an attractive proposition for many markets, especially for competitively priced vehicles. Lastly, our electrification business continued to ramp up in Q3 with a launch of additional electric vehicles by our customers. While sales of BMS for the first three quarters have run lower than anticipated, we are pleased to see sequential growth in BMS sales which we expect will continue in the coming quarters.
This is a $133 million improvement as compared to the first nine months of the prior year, primarily due to the higher adjusted EBITDA and lower working capital build partially offset by higher cash taxes and higher capital expenditures.
Speaker 4: transcript
As anticipated the built in trade and other working capital from the first half of 2023 was partially reversed in the third quarter.
Speaker 4: transcript
Cash taxes were higher than prior year due to cash payments related to increasing profitability in some jurisdictions.
Speaker 4: transcript
Interest payments remained low and primarily relate to our term loan that matures in 2027.
Sachin Lawande: In summary, Vistian continues to benefit from the digitalisation trend and sales of our digital cockpit products were very robust in Q3, turning to page 4. We had another very successful quarter of product launches in the third quarter. The company launched its products in 33 vehicle models which brings a year-to-date total to over 100 vehicle models launched with Vistian products across 18 different car manufacturers around the world. Our third quarter launches reflects the trend of digitalisation impacting the industry across all vehicle segments.
Speaker 4: transcript
We have now repaid approximately $8 million year to date as a result of our quarterly amortization payments.
Speaker 4: transcript
This modest amortization payments will continue on a quarterly basis through the maturity of the facility.
Sachin Lawande: About two-thirds of our product launches were clusters with the remainder being cockpit domain controllers and displays. Some of the key third quarter launches are highlighted on this page. With Mercedes, we launched multiple digital clusters as mid-cycle updates to existing models and on the new EQV electric SUV for the China market. Our collaboration with EQRX in China continues to grow and in Q3, we launched our smart cockpit domain controller on the Volvo EX-30 electric SUV.
Speaker 4: transcript
Capex was $82 million in the first nine months, we expect capex to increase in the fourth quarter, reflecting seasonality and our ongoing investments in manufacturing and electrification. We continue to expect capex of around $130 million for the full year.
Turning to page 13.
Speaker 4: transcript
In light of our strong performance and the various factors impacting the industry. We are updating our guidance for sales we are tightening our guidance range to $3 billion $950 million to $4 billion and $25 million.
Speaker 4: transcript
Mid point of just under 4 billion represents a strong 14% year over year growth in base sales for the full year. Our underlying performance is expected to remain strong in the fourth quarter with continued growth over market driven by ongoing product launches and an increase in our BMS sales, although lower than originally anticipated.
Speaker 4: transcript
Sachin Lawande: As highlighted last quarter, we continue to make inroads in the two-wheeler market. Commuter bikes make up the bulk of this market and these vehicles are just beginning their digitalisation evolution. In Q3, we launched a digital cluster with Honda on the GeoNo Plus model that's offered in Japan and other countries in South East Asia. We anticipate this segment to continue to evolve quickly towards larger displays and connected cockpit in the future. We had multiple launches with Ford in the quarter, with a cluster in audio products, including on the transit light commercial van in Europe and China.
Speaker 4: transcript
As Hudson mentioned earlier, there are several emerging headwinds that are expected to weigh on our fourth quarter sales, including the customer mix headwinds in China weakening demand from our European customers and the impact of the UAW strike.
Speaker 4: transcript
Our Detroit customers I've, only recently reduced their orders due to the UAW strike actions in our guidance. We have assumed that the strike will continue at yesterday's levels through Thanksgiving, which has an estimated impact on our sales of approximately six to 7 million per week.
Speaker 4: transcript
Our guidance ranges do not incorporate further escalation of the strike either in duration or in a number of OEM plants being impacted for reference our weekly revenue from the Detroit three is $20 million to $25 million per week for <unk>.
Sachin Lawande: In Europe, we launched our eight inch hybrid cluster on two variants of the vehicle, and a dual display and digital cluster system on China market variants highlighting the acceleration of digitalization trend in that market. We launched our first digital cluster for a heavy commercial vehicle, with the launch of a 12 inch digital cluster with Renault trucks in Europe. Additional launches are planned with this OEM in the coming quarters. India is one of the faster growing automotive markets this year, and our business is gaining momentum with car makers in that region. In Q3, we launched our seven inch digital cluster on two models with automotors, including on the next one, which is the best selling electric vehicle in the market.
Speaker 4: transcript
Our adjusted EBITDA range upwards to $415 million to $445 million.
Speaker 4: transcript
This is primarily from the momentum our strong underlying operational performance. However, above average decrementals on lost sales as a result of the UAW strike are expected to be a headwind for the fourth quarter for SG&A and net engineering. We continue to expect the second half of the year will be roughly flat with the first half in dollar terms.
Speaker 4: transcript
<unk>.
We are maintaining our adjusted free cash flow range of $115 million to $165 million, which considers our assumption of the current adjusted EBITDA range of modest use of working capital and higher Capex spending in the fourth quarter turning to page 14.
Sachin Lawande: Turning to page five. Q3 was another quarter of strong new business wins, with $1.8 billion of business booked in the quarter, bringing our year-to-date total to $5.8 billion. About 40% of our wins here today are for electric vehicles, reflecting the growing share of EVs in the industry, especially for the back half of the decade. On the right side of the page, we highlight a few key wins for the third quarter. First, we won a cockpit domain controller platform program with a German luxury OEM, our first CDC program with this customer.
Speaker 4: transcript
Visteon remains a compelling long term investment opportunity, we have positioned the company for top line growth margin expansion and free cash flow generation.
We will continue to return cash to shareholders, while maintaining a strong balance sheet, which provides significant flexibility.
We have an exciting growth profile and have demonstrated a strong focus on operational and commercial discipline to deliver huge growth. Thank you for your time today I would like now to open the call for your questions.
Sachin Lawande: This product will launch on all eyes and EV vehicles from this car manufacturer, starting from 2026 onwards, and will integrate digital cluster and connected infotainment features and functions. This conquest win is Vistion's largest cockpit domain controller win-to-date. Since launching our first Android-based infotainment system in 2020, we have upgraded our offering with new, more powerful silicon and additional features, including our Algo App Store, OTA, smart voices system, and camera-based features, such as surround view.
Speaker 1: transcript
At this time.
I would like to asking audio question. Please press Star then the number one on your telephone keypad again that is star and the number one we have.
Pause for just a moment to compile the Q&A roster.
Speaker 1: transcript
Your first question comes from the line of Luke junk with Baird. Your line is open.
Speaker 5: transcript
Good morning, Thanks for taking the questions I guess I'll take the obvious topic to start with just the UAW strike and I'm just curious beyond the impacts to sales and operation is there downside risk do you see any silver linings to this strike in terms of I guess I'm thinking in a tight supply chain environment potentially reallocating chip.
Sachin Lawande: We believe we have the most advanced infotainment system in the industry today, especially for mass market vehicles. In Q3, we won an Android-based infotainment system business with a global OEM for their vehicles in South America, which will go into production in 2025. Vistion's display capabilities are well-recognized in the industry with our leading optical bonding and glass cover lens technologies. The third win highlighted on this page is a 25-inch multi-display module and a separate 10.25-inch passenger display for a global OEM to launch on an all-electric mid-size SUV in the US.
Maybe building safety stock continuing to drive down the open market purchases things like that.
Speaker 3: transcript
Thanks.
I look good.
Good morning, yes.
And we are looking at all opportunities not just the UAW strike to improve performance in the supply chain, just maybe take a step back when we had at the semiconductor suppliers.
Speaker 3: transcript
Sachin Lawande: This is our first display win with this OEM, and we're excited about the potential to grow with other vehicle models in the future. We have previously discussed our intent to bring advanced automotive-specific connected services to the market. I'm proud to announce that we have won our first business for our in-house developed Algo App Store with a large OEM in India. Our white-labored App Store will be hosted and run by the car manufacturer to bring downloadable apps to their vehicles in the field.
Though supply has gradually improved all throughout the year.
It has been.
Sachin Lawande: In addition, we also won our first customer for OTA services with a 2-wheeler OEM in the quarter. We believe that the timing is right for offering connected services in automotive and we are excited about its potential.
A good thing and that has lowered.
Our base still.
Still a few chips that are critical and.
And we're watching them very carefully in general I would say the investments in capacity and efficiency of Fabs.
Speaker 3: transcript
We have delivered in terms of supply.
Demand from automotive is not down much unlike some of the sectors.
Speaker 3: transcript
We have maybe picked up some benefit from that.
Lack of demand.
Speaker 3: transcript
Other sectors.
I would say that.
We still have a few chips that we need to work on that.
Sachin Lawande: Turning to page six. Car manufacturers are responding to consumers increasing expectations of digital and connected experiences in the cockpit and are increasingly equipping new cars with built-in connectivity to the internet. Digitalization of the cockpit has led to the acceleration of the connected car trend with vehicles across all price segments offering connected experiences in the cockpit. In addition to internet connectivity, consumers expect the cars to include downloadable apps like they get with their smartphones and tablets.
Trying to bid on them.
We'll obviously have some safety stock in any reduction in demand, whether it's we will describe any other.
Speaker 3: transcript
Factor would help in terms of building up that safety buffer so that service stand.
Okay.
Speaker 3: transcript
Thank you for that and then my second question a bigger picture question session and I would just be in terms of the customer reaction to the first power electronics win that you announced last quarter. Just curious if you have a better understanding of the <unk> opportunity in power electronics, and just general position in the mall.
Sachin Lawande: Unlike the closed infotainment systems of the past, the transition to android-based infotainment opens the possibility of bringing third-party apps into the vehicle cockpit. Visteon has been at the forefront of the digitalization trend and is also the leading supplier of android-based infotainment systems. It was logical that we take the next step and offer connected services that leverages our in-vehicle expertise and closes the gap between mobile devices and in-car infotainment for apps and content.
I guess my impression is that that part of the market is still somewhat immature, but I would think to go out there now with an actual award in hand that that would be a pretty meaningful factor. Thank you.
<unk> of the market as being in nature, I think is very apt and that is what I hear when I go out and talk to customers about power electronics now just to set some context.
Speaker 3: transcript
Speaker 3: transcript
Industry is going through a shift from 400 volt architectures to $800 and thats, creating new requirements for all electronics, which are significant and have caused a lot of challenges.
Speaker 3: transcript
Sachin Lawande: Our all-go app store is a white-labeled software is a service offering that enables car OEMs to provide a full-fledged app store experience with their in-vehicle infotainment systems that continuously growing the ecosystem of supported apps on the app store and also offer value-edit testing and lifecycle management services to the car OEMs. Our analytics dashboard and deployment portal can be used by OEMs to deploy and manage apps that are offered on the app store.
Speaker 3: transcript
Oems now these challenges existed even with the 400 volt architectures in terms of audited clients and specifically, we're talking about products like I will take junction box.
Speaker 3: transcript
And workers and onboard Chargers, but when you go up to 800 wards.
<unk> got that much more difficult and especially in terms of efficiency.
Sachin Lawande: We also offer additional cloud services on the all-go SaaS platform that are addressing critical needs of OEMs. We offer an over-the-air service that enables OEMs to run full-software update campaigns across their entire vehicle fleet in the field. Our subscription management service enables consumers to opt in or out of services such as premium content for navigation maps. These services are offered standalone or bundled with the app store. In addition, we are developing vehicle analytics and remote command services to provide seamless access to critical vehicle health and diagnostics information from consumer smartphones.
Volume and very importantly, thermal management.
Speaker 3: transcript
And since we are addressing many of these concerns.
A lot of interest in our solutions. So the way I would characterize this as yes. It is this win that we announced last quarter has put us on the map it has made us.
Speaker 3: transcript
Ultimate supplier and the <unk>.
And the industry that has generated a lot of discussions and interest at Oems.
I feel like we will still need a couple more quarters before we can fully understand the <unk>.
And to put us in this particular space, we remain very optimistic.
Sachin Lawande: Our near-term objective is to reduce friction for OEMs to adopt and deploy these services widely in their vehicles. Therefore, while the initial revenue contribution from the all-go services will be minimal, the long-term opportunity is substantial. Our two connected services wins in Q3 demonstrate the revenue opportunities with our connected services that have differentiated from our traditional model. We believe there are significant cross-selling opportunities both to serve or existing infotainment as smart core customers and to use our services platform to establish relationships with new customers. We have a healthy pipeline of additional opportunities for these cloud services that we are currently engaged on and hope to report more progress in future quarters.
Thank you for that I'll leave it there.
Thank you.
Speaker 1: transcript
Your next question comes from the line of Dan Levy with Barclays. Your.
Your line is open.
Speaker 6: transcript
Hi.
Good morning, Thank you.
I'm wondering first.
If you could maybe just give us a bit of a bridge from <unk>.
That.
Part of the decline is going to relate to the non repeat it from the commercial items.
The strike.
Wondering if you could also just sensitize for us.
Speaker 6: transcript
The strike just ended last night for your largest customer within the D. Three.
Yes sure.
Speaker 4: transcript
Sure Dan Good morning.
Sachin Lawande: Turning to page 7. This page shows our sales and revenue performance here today and the outlook for remainder of the year. We entered the year with the industry being supply constrained due to the lower vehicle production in prior years, with semiconductor supply improving and growing macroeconomic concerns, we had anticipated vehicle production at our customers to moderate due to slowing demand during the second half of 2023, which is happening. The transition from eyes to EV is also occurring more slowly for global OEMs than they had anticipated.
So maybe let's go back to Q3 for a moment.
Very pleased with how the quarter developed growth over market was 9% of our sales grew as well by 9% in a flat.
Customer environment to production for us.
Speaker 4: transcript
Our EBITDA run rate when you normalize for some of the timing items that we had was close to 11%. So it does two things first it confirms the good run rate that we had indicated we would have in Q3 at the end of Q2 and then it allows us to raise the midpoint of our EBITDA guide.
Sachin Lawande: Despite the challenges, Visteon's product sales have increased sequentially each quarter this year. The company's strong product portfolio for the digital cockpit has enabled us to take advantage of the digitalization trend that is sweeping across the industry. The company has performed very well operationally, launching a high number of products on vehicle models that are driving a revenue growth. This growth accelerated in the third quarter, despite the challenging customer and vehicle mixed environment.
<unk>, while absorbing some level of strike so talking about Q4 end.
Speaker 4: transcript
Looking at Q4 versus Q3 on the EBITDA side, we are still seeing.
Some benefits from extra volumes, even though we've got.
Speaker 4: transcript
Some impact of strike baked into our mid points.
Speaker 4: transcript
And we won't see obviously the.
One time items that I've called out in my prepared remarks, which are impacting a R.
Speaker 4: transcript
Sachin Lawande: On the other hand, sales of our BMS product have come in below our expectations due to the challenges faced by global OEMs in ramping up electric vehicle production. Looking ahead to the fourth quarter, our performance will be driven by similar factors that drove our third quarter results. Ramp up of recently launched products will drive robust growth over market even with a slower ramp in BMS sales. We anticipate semiconductor supply to continue to improve with fewer critical parts, which will also reduce our open market purchases and the corresponding revenue.
Our Q3 results by about 100 basis points and then what we'll have in Q4 is a bit more engineering costs than we had in Q3.
We had a fairly low level off.
Cost in Q3 in engineering, largely because of again timing and we will see some ramp up of these costs in in Q4. So overall.
Speaker 4: transcript
Still a very good quarter will be closer to 11% overall.
Overall in Q4 in terms of EBITDA.
Speaker 4: transcript
As far as the strike is concerned.
We've been watching obviously, the news and the announcements from yesterday.
Sachin Lawande: China will remain a challenge for global OEMs as they will struggle to maintain the market share against domestic competitors, especially in electric vehicle segment. And lastly, the UAW strike at our customers plans will create greater impact to our sales in Q4 than what we experienced in the third quarter. We anticipate that our fourth quarter product sales will grow sequentially as compared to the third quarter, despite the headwinds. Our full-year sales, including recoveries, are expected to come slightly below the midpoint of our previous guidance range due primarily to lower recoveries and BMS sales. However, we anticipate our full-year adjusted EBITDA will likely be slightly higher than the earlier midpoint due to our strong operational performance through the first three quarters, which we expect to continue into the fourth quarter.
<unk> changed the dynamic on the strike obviously.
Speaker 4: transcript
We still are exposed obviously two IGN.
Forward and we'll have as well to see how the ramp up of some of the Ford and GM or Ford plants.
Materializes.
Or are.
Yes.
Speaker 4: transcript
Is there an upfront that will be straightforward and without any hiccups. So this is something we're watching very closely and.
And we'll take it from there from now.
Speaker 6: transcript
Thank you.
You said weakly revenue $20 million to $25 million of that.
As for the <unk> three what percentage of that is for presumably the majority of its work.
Speaker 4: transcript
It's a little bit more tilted towards Ford, but it's.
It's <unk>.
Sachin Lawande: Turning to page 8 in summary, the company performed very well to achieve another quarter of strong sales growth and position as well to meet our full-year profitability targets. We delivered record-based sales with strong growth relative to our customers' vehicle production, continuing the trend of our performance for the past few years. The team continued to execute on our commercial and operational plans which resulted in a strong adjusted EBITDA margin of 12.6%. We continue to build momentum by launching our products on 33 vehicle models and winning 1.8 billion in new business in the quarter. Finally, we are updating our full-year guidance for revenue and adjusted EBITDA to reflect the strong performance year-to-date and the current outlook for customer demand.
Really large impact for us I think one other aspect to consider is the fact that we are already pretty much at the end of October and we've had already more than a month of strike impacting orders for the month of October. So we should take that into account as well as we think about the strike. There is already some level of impact that has been.
<unk> through our numbers.
Speaker 6: transcript
Okay, great. Thank you and then as a follow up wanted to ask about obviously the.
Speaker 6: transcript
Slow down or the reduced.
Excitement about evs that were seeing probably in the market and maybe you could just give us a sense of how we should think about the BNS piece of your backlog in light of the slowdown in the D.
I think we've generally seen Oems reserved some of their.
Best or more advanced content for EV platforms, I know youre really ice agnostic outside of DNS.
Jerome Rouquet: Now I will turn the presentation over to Jerome. Thank you, Sachin, and good morning, everyone. Visteon posted a solid set of financial results in Q3, demonstrating another quarter of commercial and operational discipline. We continue to build momentum with our sales growth, margin expansion, and casual generation. Q3 sales were slightly over 1 billion, and when excluding the impact of supply chain recoveries, grew 9% compared to prior.
Speaker 6: transcript
Oems are slowing down the pace of some of these launches how does that impact broader uptake of your.
Content, which has generally been reserved for.
The more high profile launches.
Speaker 3: transcript
Yes look let me take that as such and so I would say that in general the high content is not just specific to <unk> you are right that that is.
Speaker 3: transcript
More or higher content, especially digital content.
Jerome Rouquet: This strong performance was supported by the ongoing demand we see for digital clusters, cockpit domain controllers, and BMS programs combined with a benefit of recently launched programs. While the UAW strike has added significant uncertainty to the automotive market in North America since mid-September, the impact was immaterial on our third quarter performance. Semiconductor supply has continued to improve and as a result our reliance on open market purchases has significantly reduced year-of-a-year. However, we continue to see elevated prices from our traditional TR2 suppliers.
Speaker 3: transcript
And it was across the board, what we have seen and.
This has happened in Q3, and we expect that to continue into Q4.
Our customers have had some challenges in the production and sales of Evs.
Yes.
Dampened, our digital cluster sales by a little bit.
Speaker 3: transcript
Although as I mentioned in my prepared remarks, some clusters of growing still very well.
<unk> percent year over year, So that's still pretty strong cluster volume is pretty large and we can absorb.
Jerome Rouquet: In the third quarter, we share the approximately 70 million of these higher costs with our customers. We are optimistic that the Semiconductor market will continue to improve in the coming quarters and expect that the need to pass through these costs will decline over time.
Speaker 3: transcript
Impact of.
The slowdown for all coming from Evs now on the BMS front again as I mentioned earlier, our BMS sales continued to grow.
Speaker 3: transcript
For over a quarter and the ramp up.
We will continue in Q4 and into subsequent quarters.
Jerome Rouquet: Adjusted EBDA was 128 million for the quarter, an improvement of 33 million versus prior. Adjusted EBDA benefited from higher-based sales, improved operational efficiencies, lower engineering spending, as well as the timing of several favorable commercial items. This was partially offset by an increase in SGNX advances. Our adjusted EBDA margin was 12.6%, but adjusting for some of the positive commercial items in the quarter, as well as for a more normalized engineering spend, our run rate was closer to 11%.
Speaker 3: transcript
And now and next year, we have additional BMS launches as well.
Speaker 3: transcript
And at the same time in terms of odd estimates.
Not necessarily.
Speaker 3: transcript
Customer data base value. So if we have had some level of conservatism in our estimates.
Speaker 3: transcript
We expect to continue to grow quarter over quarter in terms of where we are at I expect that our exit rate this year in Q4.
To be where we thought we would be at the beginning of the year. So yes. It has taken a little bit.
Longer for those to hit stride, it has still grown pretty well from our estimation.
Jerome Rouquet: Adjusted free cash flow was 98 million in the quarter, benefiting from a strong EBDA and a reduction in working capital. We ended the third quarter with a net cash position of 144 million while being able to execute 46 million of sharey purchases in the quarter. Our total sharey purchases have been 76 million since we launched the program earlier this year.
Speaker 3: transcript
<unk>.
Our earlier estimates of about 5% revenue contribution from BMS.
Speaker 3: transcript
This year will be lower than that but we expect to be able to catch up next year, but we'll wait until the end of the year to fully understand.
Our customers' production plans.
The BMS contribution next year.
Jerome Rouquet: Overall, we delivered a strong performance in the third quarter.
Great. Thank you that's helpful.
Jerome Rouquet: More importantly, we continue to build momentum and make progress towards our medium-term targets, turning to page 11. Sales were 1 billion and 14 million, relatively flat compared to prior. When excluding customer recoveries, base sales were 945 million, an increase of 9% compared to prior. This increase in base sales was driven primarily by growth of a market as visioned customer production was fairly flat in the quarter. Our growth of a market was largely driven by the ongoing demand of our digital cockpit products, recent product launches and increased BMS demands.
Thank you.
Speaker 1: transcript
Your next question comes from the line of Joe Spak with UBS. Your line is open.
Yes.
Speaker 7: transcript
Thanks, Ron.
I guess just to maybe follow.
Up on on some of that in my comments that commentary.
I know Sachin last last quarter, you sort of really.
Tried to comps.
Comps on concerns about the longer term sort of.
LTM and EV trajectory in saying that you didn't sort of baked in what your customers did.
Speaker 7: transcript
Or do you think we're sort of a little bit closer now to what they're saying and and I guess, what I wanted to understand from you is clearly when you bid on the business you assumed certain volumes to be able to hit your return profiles like if those arent met what type of <unk>.
Jerome Rouquet: Customer recoveries, which are illustrated in adopted boxes, declined year-over-year by 55% to approximately 70 million, driven mostly by decrease in open market purchases and the corresponding recoveries from our customers. Open market purchases were minimal in the third quarter and we expect this trend to continue in the fourth quarter. Recovery is related to higher costs from our traditional TR2 suppliers are expected to remain stable in the fourth quarter. As a reminder, recoveries, although bucketed as pricing, are passed through in nature, increasing sales, neutral for adjusted EBITDA, but diluted in margin percentages.
Recourse do you have with the customers.
Speaker 3: transcript
Right and.
This state Joe what I would say is that.
We believe that the ramp up that I talked about will continue and our customers.
I am also in particular mentioned.
Not so much demand limited themselves as they are supply constrained.
Speaker 3: transcript
As they address some of the challenges they have in the module assembly and manufacturing of the sales, we expect that the demand to come up and the ramp up to to really okay.
Jerome Rouquet: Adjusted EBITDA was 128 million for the quarter, versus 95 million compared to the prior year, an increase of 35% year over year. The primary improvement in adjusted EBITDA was due to higher-based sales, improved operational efficiencies, and several favorable commercial items we negotiated in the quarter. Net engineering declined 4 million year over year due to the timing of specific projects. This was offset by adjusted FGNA, which increased 4 million year over year, primarily due to personal costs related to investments in our team to support our future growth.
Speaker 3: transcript
Get into a level, where we would be.
I would say pretty okay with it so to me it really depends on solve the additional launches not just for GM is doing but some of the additional launches that we have next year.
Speaker 3: transcript
We always have in the business this challenge of matching.
Capacity to demand.
Okay, well I'll go ahead and invest in capacity now.
Speaker 3: transcript
Jerome Rouquet: Turning to page 12. We maintain one of the strongest balance sheets in the industry. Our balance sheet supports our growth and provides the flexibility needed to pursue our capital allocation priorities. We ended the quarter with total cash of 485 million and an edge cash position of 144 million. In the third quarter, we repurchased shares for 46 million at an average price of 137 dollars per share. These brings our year-to-date share repurchases to 76 million.
Always also apply our own judgment in terms of.
Leave that capacity would actually come online. So we'll have to see how next year develops it's too early to say whether we.
Have to have any other discussion related to unabsorbed capacity.
Certainly don't.
Hope that that would be the case, but we will have to see how it develops.
Speaker 7: transcript
Okay, and then if I can sachin.
And then one other sort of big picture question.
Last quarter, you sort of talked about.
Speaker 7: transcript
The growth Youre seeing in China, and how how you're.
Jerome Rouquet: We will remain opportunistic in future share repurchases, which will depend on several factors, including our free cash flow generation and industry dynamics. We generated 93 million of adjusted free cash flow through the first nine months. This is a 133 million improvement as compared to the first nine months of the prior. Primarily due to the higher adjusted EBITDA and lower working capital build, partially offset by higher cash taxes and higher capital expenditures.
Maybe a little bit underexposed to some of the faster growing Oems and some of the efforts you are you undertaking to sort of try to get better position there.
Speaker 7: transcript
One thing that's become clear, though in China is great like the valve.
<unk> of the models and sort of what.
In terms of coming to market and even sort of whats popular in the market is just much much quicker and it seems like it's not sort of this typical what we're used to in the developed world in the Western World up seven year programs like things are just.
Speaker 7: transcript
Jerome Rouquet: As anticipated, the build in trade and other working capital from the first half of 2023 was partially reversed in the third quarter. Cash taxes were higher than prior due to cash payments related to increasing profitability in some jurisdictions. Interest payments remained low and primarily relate to our term loan that mature in 2027. We have now repaid approximately 8 million year-to-date as a result of our quarterly amortization payments. These modest amortization payments will continue on a quarterly basis through the maturity of the facility. CapEx was 82 million in the first nine months. We expect CapEx to increase in the fourth quarter, reflecting seasonality and our ongoing investments in manufacturing and electrification.
Coming up quicker than maybe burn bright, but then fall harder and if that's true like I'm curious like what.
How do we how does it kind of like Visteon sort of manage going after that that business because it seems like that's a little bit harder to underwrite.
Speaker 3: transcript
That's a great question, Joe and I think this is something that we all need to understand much better but what you have described is effectively a result of a market like China. There is large it's also a very young market.
Speaker 3: transcript
Average age of the customer of our systems in China is under 35 years in the more developed parts of the world it's much more than that.
And therefore, the systems that are being designed by our customers in China look very different for China, then they look for the rest of the world.
Jerome Rouquet: We continue to expect CapEx of around 130 million for the full year, turning to base 13.
Speaker 3: transcript
And just because they are more advanced in China. It doesn't mean that they would have the same appeal outside of China with the demographics that are different so we have gone as an industry from designing products for the rest of the world outside of China. The more developed markets first and then bringing them to China, where we have to.
Jerome Rouquet: In light of our strong performance and the various factors impacting the industry, we are updating our guidance. For sales, we are tightening our guidance range to 3 billion, 950 million, to 4 billion and 25 million. The midpoint of just under 4 billion represents a strong 14% year-of-year growth in base sales for the full year. Our underlying performance is expected to remain strong in the fourth quarter with continued growth of a market driven by ongoing product launches and an increase in our BMS sales, although lower than originally anticipated.
Speaker 3: transcript
Who changed their perspective and look at China, as even a more advanced market for digitalization than the rest of the world now how have we done in that context. So if you look at where we were at in 2018. This trend really started to slowly increase.
Speaker 3: transcript
Increase and then picked up momentum.
Speaker 3: transcript
About 15% of our revenues in 2018 came from domestic China Oems.
Jerome Rouquet: As Sachin mentioned earlier, there are several emerging headwinds that are expected to weigh on our fourth-quarter sales, including the customer-mixed headwinds in China, weakening demand from our European customers and the impact of the UAW strike. Our Detroit customers have only recently reduced their orders due to the UAW strike actions. In our guidance, we have assumed that the strike will continue at yesterday's levels through Thanksgiving, which has an estimated impact on our sales of approximately six to seven million per week.
Speaker 3: transcript
Today, if you look at this year, we will probably exit this year at about 40% of our revenues coming from that same chatter on domestic Oems not the global Oems and we've added customers like Genie and GMC and others that debt.
Speaker 3: transcript
Speaker 3: transcript
Some of the Oems that are on the vanguard of that trend. So we're doing exactly what we needed to do to make sure that we don't get trapped.
Older products that are not as effective in that market, but that doesn't necessarily mean that the rest of the world will follow exactly their lead. So they have to have this approach, which really does challenge.
Jerome Rouquet: Our guidance ranges do not incorporate further escalation of the strike, either in duration or in the number of OEM plans being impacted. For reference, our weekly revenue from the Detroit 3 is 20 to 25 million per week.
Speaker 3: transcript
Product development capabilities, but our platform approach that we have been talking about now for several years is really helping us.
Jerome Rouquet: We're tightening our electricity bit of range upward to 415 to 445 million. This is primarily from the momentum of our strong underlying operational performance. However, above average, the fundamentals on low sales, as a result of the UAW strike, are expected to be a headwind for the fourth quarter.
Develop this somewhat different solutions that are differentiated but at the end of the day Austin using fundamentally the same technologies, especially when it comes to software so.
Speaker 3: transcript
I think we have done well in terms of addressing this changing dynamic and this has happened very quickly.
And that's where we are seeing the proof off in the numbers China. This year will continue to grow for us. Despite the lower domestic production that we talked about earlier in the prepared remarks, and we expect to see continued growth going forward.
Jerome Rouquet: For us, Gené and Net Engineering, we continue to expect the second half of the year will be roughly flat with a first half in dollar terms. We are maintaining our adjusted free cash low range of 115 to 165 million, which considers our assumption of the current adjusted EBDA range, a modest use of working capital and higher cap expanding in the fourth quarter, turning to page 14.
Speaker 3: transcript
Thanks, Matt.
Thanks Sue.
Speaker 1: transcript
Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.
Jerome Rouquet: This beyond remains a compelling long-term investment opportunity. We have positioned the company for top-line growth, margin expansion, and free cash low generation. We will continue to return cash to shareholders while maintaining a strong balance sheet, which provides significant flexibility. We have an exciting growth profile and have demonstrated a strong focus on operational and commercial discipline to deliver its growth.
Yes, good morning, and thanks very much for taking the question.
<unk>.
Better understand your comments around some of the macroeconomic trends in particular in Europe.
Speaker 8: transcript
90 days ago about seeing some slowing there and it sounds like that's continued or maybe even picked up a bit.
Better understand the breadth and magnitude of the slower trends you may be seen in Europe, and how that's progressed.
Speaker 3: transcript
Okay. So yeah. So let's talk about how we are seeing the market develop when we talk about Europe in particular.
Jerome Rouquet: Thank you for your time today.
Operator: I would like now to open the call for your questions. At this time, if you would like to ask an audio question, please press star then the number one on your telephone keypad. Again, let us star and the number one. We will pause for just a moment to compile the Q&A roster.
Entered this year with.
The market essentially being a supply constrained market and they had on account of the pent up demand very strong order book.
That supported high levels of production in Q1, and Q2 of this year.
Luke Young: Your first question comes from the line of Luke Young with Baird. Your line is open. Good morning. Thanks for taking the questions. I guess I'll take the obvious topic to start with just the UAW strike-in. I'm just curious beyond the impacts to sales and operations that are downside risk. Do you see any silver linings to the strike in terms of I guess thinking in a tight supply chain environment, potentially reallocating chips, maybe building safety stock, continuing to drive down the open market purchases, things like that. That's the first question. Thanks. Hi Luke. Good morning. Yes, indeed.
Speaker 3: transcript
And we had anticipated that this change from a fundamentally a supply constraint to being more demand constrained what happened during this year and we started to see that in Q3. So if you look at the third quarter.
Vehicle production at our customers is reflecting the slowdown in the.
You see that going forward into Q4 as well.
Speaker 3: transcript
So that.
The order intakes.
Consumers are.
Others into the Oems and also the year had been lower than what the industry.
Speaker 3: transcript
As anticipated at the beginning of the year. So that's what is causing the slowdown which we expect to have some effect, which was factored into our guidance for Q4, and we'll have to wait.
Speaker 3: transcript
Sachin Lawande: We are looking at all opportunities, not just the UAW strike, to improve our performance in the supply chain. Just to maybe take a step back when we are at with semiconductor supplies, although supply has gradually improved all throughout the year, which has been a good thing and that has lowered our dependence on spot buys. There are still a few chips that are critical and we're watching them very carefully. In general, I would say the investments in capacity and efficiency of paths that we've discussed previously have delivered in terms of high supply, but demand from automotive has not gone down much, unlike from other sectors.
Wait and see how next year developed from this perspective, but that's what we're seeing with respect to Europe. We also talked about China, and the domestic market that being a little bit weaker.
Speaker 3: transcript
Speaker 3: transcript
We saw that in Q3, and we expect that we will also continue into Q4.
Speaker 3: transcript
And then there is the other dynamic that we have broadly.
Discussed here, which is the slowdown of our EV related production and sales. So those are the factors that Edward.
Speaker 4: transcript
As the macro factors that we need to consider both for Q4 and then for next year as we start to think about next year and I would add mark for this year, putting things into context and despite these headwinds we are seeing our sales growth by about 40% to 15% for the full year.
Sachin Lawande: While we have maybe taken some benefit from the lack of demand on the other sectors, I would say that we still have a few chips that we need to work on that we are trying to build our level of safety stock. Any reduction in demand, whether through the strike or any other factor would help in terms of building up that 50 buffer. So that's Thank you for that.
<unk> is a headwind so.
Speaker 4: transcript
Still a very healthy growth of our markets and definitely growth year over year in terms of our absolute sales.
Okay. Thank you for that context, and following up on some of the prior questions related to the intermediate to longer term outlook and some of the Oems are recalibrating their product launch.
Speaker 8: transcript
Sachin Lawande: And then my second question, a bigger picture question, Sachin. And that just be in terms of the custom reaction to the first power electronics when the Unions last quarter. Just curious if you have a better understanding of Visteon's opportunity in power electronics and just general position in the market. I guess my impression is that that part of the market is still somewhat immature, but I would think to go out there now with a actual award in hand that that would be a pretty meaningful factor.
Schedules in mix tied to Evs, just confirming there's no change to your 2026 targets that you outlined at the Investor day for about $5 5 billion of.
Speaker 8: transcript
Of revenue and about 13, 5% adjusted EBITDA margin.
Speaker 3: transcript
Yeah at this stage, we believe we are.
We needed to be I mean, if you think about where we are at.
Sachin Lawande: Thank you. Yeah, your description of the market has been a measure, I think, is very apt. And that is what I hear when I go out and talk to customers about power electronics. Now just to set some context, the industry is going through the shift from 400 volt architectures to 800 volts. And that's creating new requirements for power electronics, which are what's significant. And of course, a lot of challenges for OEMs.
At the midpoint of our guidance in terms of base sales for this year you would have added approximately $450 million in new sales this year.
Speaker 3: transcript
Sachin Lawande: Now, these challenges existed even with the 400 volt architectures in terms of power electronics. And specifically, we're talking about products like high voltage junction box, DC to DC converters and onboard charges. But when you go up to 800 volts, the requirements get that much more difficult and especially in terms of efficiency rate and volume and very importantly thermal management. And since we are addressing many of these concerns, there's a lot of interest at OEMs in our solutions.
<unk>.
That's pretty much what we need on the annual basis, all the way out to 'twenty to 'twenty six so although.
Sales moderated a bit on account of the factors that we mentioned this year is still pretty much on track as to where we needed to be.
Speaker 4: transcript
I would add on the EBITDA side again.
Run rate that we have at the end of Q3 and what we're protecting for Q4 indicates as well that we.
We are very much on strike and we'll be able to scale that up as we go with additional volumes.
Thank you.
Speaker 1: transcript
Your next question comes from the line of John Babcock with Bank of America. Your line is open.
Sachin Lawande: So the way I would characterize this is, yes, it has just written that we announced last quarter. It has put us on the map. It has made us a legitimate supplier of these in the systems in the industry. That has generated a lot of discussions and interest at OEMs. But I feel like we will still need a couple more quarters before we can fully understand the full potential for us in this particular space. We remain very optimistic. Thank you for that.
Speaker 9: transcript
Hey, good morning, and thanks for taking my questions.
I guess, just first of wet shave, you've obviously done well in terms of business trends this year and seem to be on pace to at least achieve if not exceed your target.
And recognizing that those funds can be lumpy and uncertain. Just generally do you expect you can keep a similarly strong pace in 2024 based on the discussions you've had throughout the <unk>.
Last couple of months months and quarters.
Speaker 3: transcript
Yeah. So that's actually a good question and I would say that we've done really well to evolve and grow our product portfolio over the last couple of years.
Luke Young: I'll leave it there. Thank you.
Dan Levy: Your next question comes from the line of Dan Lovie with Barclays. Your line is open. Hi. Good morning. Thank you. I'm wondering if you could maybe just give us a bit of a bridge from 3Q to 4Q. I appreciate that part of the decline is going to relate to the issue. You could also just sensitize for us, give in the strike just ended last night for your largest customer within the D3. Or it should be end. Yeah, sure. Sure, Dan. Good morning.
Both.
Digitalization front, but also for electrification so that puts us in a good position to address some of the biggest challenges the Oems are facing.
As we have shown this year this should translate into higher levels of new business wins.
Speaker 3: transcript
Which we think should be sustainable, but we'll still have to see again this.
Dynamics of the Lumpiness of some of the awards that Ken.
Straddle a quarter so it would be.
Not not appropriate to be too precise about what we think we can achieve but we have previously indicated this year, we would exceed $7 billion.
Dan Levy: So maybe let's go back to Q3 for a moment. We're very pleased with how the quality developed growth of a market was 9%. Our sales grew as well by 9%. In a flat customer environment, production for us. Our EBDA run rate when you normalize for some of the timing items that we had was close to 11%. So it does two things. First, it confirms the good run rate that we had indicated we would have in Q3 at the end of Q2.
I believe it should be in a position to do that but more importantly, we believe this is a sustainable performance in terms of having a higher level of new business wins now one thing I do want to mention because this could be also the next question that people may have.
Speaker 3: transcript
Speaker 3: transcript
Speaker 3: transcript
Many of the Vince this year.
Speaker 3: transcript
We're going to launch in either second half of 2025 or 2026, so the contribution to critically two six.
Our target certainly will be there and thats of course factored into us.
Dan Levy: And then it allows us to raise the midpoint of our EBDA guidance while absorbing some level of strike. So talking about Q4 and looking at Q4 versus Q3, on the EBDA side, we are still seeing some benefits from extra volumes, even though we've got some impact of strike baked into our midpoints. And we won't see obviously the one-time items that I've called out in my prepared remarks, which are impacting our Q3 results by about 100 basis points.
Assumptions for the midterm target, but more importantly, it puts us in a great position to continue to grow in the long term.
Speaker 9: transcript
Hi, guys. Thanks for that and then just as a follow on I was just wondering I mean based on the business wins that you've had obviously they generally tend to pertain to.
New models and I was just wondering if youre getting a sense from Oems as to how digital content is changing on some of those next product launches.
That would actually be helpful.
Speaker 3: transcript
Yeah, Yeah. So I think this is the good.
Dan Levy: And then what we'll have in Q4 is a little bit more engineering cost than we had in Q3. We had a fairly low level of cost in Q3 in engineering, largely because of again timing. And we'll see some ramp up of this cost in Q4. So overall, still a very good quarter will be closer to 11% overall in Q4 in terms of EBDA. As far as the strike is concerned, we've been watching obviously the news and the announcement from yesterday may change the dynamic strike.
Trend that we have been talking about for some time. So what we are seeing is that the displays in particular are really getting much bigger and also they are introducing a number so best decided displays are becoming more and more the norm and mid to upper end of the market and when it's done.
But a mass market the mid market segment.
Speaker 3: transcript
Still seeing the growth of displays from smaller 2000, eighteen's displaced or 10 and 12 inch displays.
Speaker 3: transcript
Those display is getting larger is also pulling a lot of additional content both.
<unk> as well as connected content so the shift towards.
Speaker 3: transcript
Dan Levy: Obviously, we still are exposed obviously to a GM, not to report. And we'll have as well to see how the ramp up of some of the Ford and GM, Ford plants materializes. We are a little bit By the wrong office ramp up will be straight forward and without any hiccups. So this is something we're watching very closely and we'll take it from there from now. Thank you. You know you said weekly revenue 20 to 25.9 of that is for the D3.
Connected services approach at Visteon I think is also very timely because we believe that that's going to generate.
Speaker 3: transcript
Lot of opportunities for us not only for incremental revenue and margin contribution directly from the connected services themselves, but also in terms of how they meet.
Bedded in vehicle products more competitive we believe we will be one of the few suppliers with an end to end capability from the cloud all the way into the car with connected services and the in vehicle content.
Speaker 3: transcript
Dan Levy: What percentage about in the forward? Presently the majority is forward? It's a little bit more tilted towards forward but it's GM is still a fairly large impact for us. I think one other aspect to consider is the fact that we are already pretty much at the end of October and we've had already more than a month of strike impacting orders for the month of October. So we should take that into account as well as we think about the strike. There's already some level of impact that has been going through our numbers. Great. Thank you.
I do not believe will be matched by too many other competitors.
Speaker 9: transcript
Okay great.
And then just last question before I turn it over.
Is it possible to get some sense as to the impact of the strike so far for Visteon, recognizing it's relatively limited <unk> would be great, but if you can provide there would be useful.
Speaker 10: transcript
Yes, it's Sean we've.
<unk> been impacted so far obviously with the with October orders coming down and I would say that they represented about half of what we've assumed.
Our.
Dan Levy: And then as a follow-up, I wanted to ask about obviously the slowdown or the reduced excitement about EVs that we're seeing probably in the market. Hey, maybe you could just give us a sense of how we should think about the BMS piece of your backlog and light of the slowdown to D. I think we've generally seen OEMs reserve some of their best or more advanced content for EV platforms. I know you're really ice agnostic outside of BMS.
Guidance.
So.
Assumption in guidance is about 25% to $30 million and half of that.
It's already baked into October.
Okay, that's <unk> right.
Yes.
Dan Levy: If OEMs are slowing down the pace of some of these launches, how does that impact the broader uptake of your content which has generally been reserved for the more high profile launches? Yeah, let me take that this is such. And so I would say that in general, the high content is not just specific to EVs. You are right that there is more higher content, especially digital content in EVs across the board.
Alright, perfect. Thank you.
Thank you.
Speaker 1: transcript
Your next question comes from the line of Emmanuel Rosner with Deutsche Bank. Your line is open.
Speaker 4: transcript
Alright. Thank you so much I was hoping to follow up on.
Some of the potential implications from the slowdown and you ramp up.
Some of your customers in Germany, more broadly by multiple automakers. So.
And just try and quantify for us how much is assumed in terms of the EMS revenues for <unk>.
This year and Youre in your current guidance and then.
What sort of effect.
Speaker 11: transcript
Growth rates are very active.
I assume I think you have a $600 million.
Guidance or outlook for 2026 in terms of revenues.
Dan Levy: What we have seen in this, this has happened in Q3 and we expect that to continue into four. As our customers have had some challenges in production and sales of EVs that has dampened our digital cluster sales by a little bit. Although as I mentioned in my prepared remarks, digital clusters have grown still very well 20% year over year. So that's still pretty strong. Our cluster volume is pretty large and we can absorb this impact of the slowdown coming from EVs.
What can you sort of it could be at risk based on some of the leaders.
Yes volume progression.
Speaker 3: transcript
Hi, Emmanuel I think it would be too premature to really talk about our midterm guidance and what could be at risk I think this challenges that our customers are facing specifically the one customer that.
Talk about the.
B.
The slower ramp of electric vehicles, we believe this on account of some production challenges that.
We are quite confident they would be able to overcome so.
Speaker 3: transcript
Dan Levy: Now on the BMS front, again, as I mentioned earlier, our BMS sales continue to grow quarter over quarter. And the ramp up, we expect to continue into Q4 and in subsequent quarters. In now in next year, we have additional BMS launches as well. And at the same time in terms of our estimates, you know, we don't necessarily take our customer data face value. So we have had some level of conservativeness in our estimates.
Yes. It has resulted in a slowdown this year versus factored into our guidance, but we're not reading into this anything beyond that and as I mentioned, we have always been conservative in terms of how we have assumed.
BMS volumes in particular, so we'll have to again look at it more closely.
Speaker 3: transcript
Not at a point today to be able to give you that insight we will have to get more data from our customers about next year and outer years, but we believe that is still sufficient headroom.
Speaker 3: transcript
I would assume that we should be in a better position than what might be implied by what youre getting about the slowdown in evs.
Dan Levy: So we expect to continue to grow quarter over quarter. In terms of where we are at, I expect that our exit rate this year in Q4 to be where we thought we would be at the beginning of the year. So yes, it has taken a little bit longer for us to hit stride. It has still grown pretty well from our estimation. And our earlier estimates of about 5% revenue contribution from BMS.
Speaker 11: transcript
Okay.
So I guess just.
Following up on this and just asking this a little bit differently.
Speaker 11: transcript
Much of your growth of the market over the next few years is assumed to be from from BMS and can you remind us the timing of your next launches in Dms.
Speaker 11: transcript
Dan Levy: This year will be lower than that, but we expect to be able to catch up next year. But we'll wait until the end of the year to fully understand our customers production plans. And the BMS contribution next year. Thank you. Great. Thank you. That's helpful. Thank you.
Speaker 3: transcript
Yeah. So again I think the growth of a market that we look at it as a combination of many things and we can't necessarily parse out exactly which losses coming from each one.
Speaker 3: transcript
So I would like to just again.
Context to this we need a growth of a market of about.
A high single digit to low double digit.
Sachin Lawande: Your next question comes from the line of Joe Spak with UBS. Your line is open. Thanks, everyone. I guess just to maybe follow up on some of that comments, the commentary. I know Sachin last quarter, you sort of really tried to, you know, calm some concerns about the longer term sort of, you know, Altium and EV trajectory and saying that you didn't sort of bake in what your customers did. Do you think we're sort of a little bit closer now to what they're saying?
In terms of being able to achieve our midterm guidance and we have assumed in that midterm guidance by 2026 electrification revenues to be about $600 million.
Speaker 3: transcript
So that's the first framework now we believe with where we stand today and the electrification plans for all of our customers. We believe we still have a path to get to that on account of us being conservative in our estimates for the volumes that we had anticipated if you go back to our analyst day.
Speaker 3: transcript
Earlier in the year.
We will remind everyone that we were being challenged as to why we were being conservative at the time with our estimates for electrification and BMS in particular.
Sachin Lawande: And I guess what I want to understand from you is, you know, clearly when you bid on the business, you assumed certain volumes to be able to hit your return profiles, like if those aren't met, what type of recourse do you have with the customers? Right. And at this stage, Joe, whatever to say is that we believe that the ramp up that I talked about will continue and our customers, as GM also in particular mentioned, they are not so much demand limited themselves as they are supply constraint.
Speaker 12: transcript
This is the reason why and therefore I believe we are today.
Shaped than what might appear.
Its value when you hear about this.
Messages coming from Oems.
Sachin Lawande: And as they address some of the challenges they have in the module assembly and manufacturing of the cells, we expect that the demand to to come up and the ramp up to to really get get into a level where we would be. I would say pretty okay with it. So to me, it really depends on some of the additional launches, not just what GM is doing, but some of the additional launches that we have next year.
Whenever the next launches.
Early next year.
Thank you.
Speaker 1: transcript
Your next question comes from the line of Jim <unk> with BNP Paribas. Your line is open.
Hi, everyone.
Speaker 13: transcript
Just on the on the favorable timing of recoveries in the third quarter.
Totaling $15 million.
It's entirely attributable to a pull forward from.
The fourth quarter or was there any unexpected retroactive retroactive recovery achieved in the quarter.
Speaker 4: transcript
Yes so.
So there are two items in this 150 basis points, you have about 100 basis points, which is related to commercial items, which are essentially commercial items that were settled in Q3 when costs were incurred in prior periods. So it's really neutral on a year to date basis and.
Sachin Lawande: We always have in the business this challenge of matching capacity to demand and we go ahead and invest in capacity. Now we always also apply our own judgment in terms of I believe that capacity would actually come online. So we'll have to see how next year develops. It's too early to say whether we have to have any other discussion related to unabsolved capacity.
As you do a walk from Q3 to Q4 will kind of reverse out.
Speaker 4: transcript
And then the 50 basis points remaining relates to.
The fact that our engineering spend was lower in Q3, largely because of project cost that.
Sachin Lawande: I certainly don't hope that that would be the case, but we'll have to see how it develops. Okay.
Had a different timing and thats going to impact Q4, So thats one of the reason why we have increased our engineering spend in Q4, because there is a move of expenses between Q3 and Q4.
Sachin Lawande: And then if I can, Sachin, like one other sort of, I guess big picture question, like, you know, last quarter, you sort of talked about the growth you're seeing in China and how, you know, you're maybe a little bit under exposed to some of the faster growing OEMs and some of the efforts you are you're undertaking to sort of try to get better position there. You know, one thing has become clear though in China is right, like the velocity of the models and sort of what in terms of coming to market and even sort of what's popular in the market is just much, much quicker and where it seems like it's not.
Speaker 13: transcript
Okay, all right that's clear and then.
Just to confirm the strike affected volume.
Speaker 13: transcript
In your guidance implies a near 30% decremental margin if that rate just given the weekly ranges for revenue and EBITDA that we provided and then I apologize if I missed this but based on the $20 million to $25 million per week strike impact embedded in the guide what would forward represent within that weekly revenue range. Thanks.
Speaker 4: transcript
So maybe first on the Decrementals, we think there'll be a little bit higher than our average decrementals.
Speaker 4: transcript
Sachin Lawande: Sort of this typical what we're used to in the developed world or in the Western world of, you know, 70 year programs, like things are just coming up quicker and maybe burn bright, but then, you know, fall harder.
One of the reason is that there may be some.
Speaker 4: transcript
Stop NGO freight expenses.
Everybody ramps up when strikes and so that's one of the reason why.
Sachin Lawande: And if that's true, like I'm curious, like, how do, how does it come in like this young sort of manage going after that, that business because it seems like it's a little bit harder to, you know. Wanderer. That's a great question, Joe, and I think this is something that we all need to understand much better, but what you have described is effectively a result of a market like China that's large. It's also a very young market.
Decrementals will be will be higher and then 40 is a little bit more heavy than GM, but Jimmy steal a fairly large portion of our business here in the U S.
Speaker 10: transcript
And then just within the weekly range.
Or was that without your answer was the heavier weighting to forward on the Decrementals.
Heavier support indeed.
Yes heavier to Fort Indeed.
Sachin Lawande: The average age of the customer of our systems in China is under 35 years. In the more developed parts of the world, it's much more than that. And therefore, the systems that are being designed by our customers in China look very different for China than they look for the rest of the world. And just because they are more advanced in China, it doesn't mean that they would have the same appeal outside of China, whether demographics is very different.
Alright. Thanks.
Thank you.
Speaker 2: transcript
This concludes our earnings call for the third quarter 2023 results. Thank you everyone for participating in today's call and your ongoing interest in Visteon. Thank you.
Thank you for attending you may now disconnect.
Speaker 14: transcript
Please wait the conference will begin shortly.
[music].
Sachin Lawande: So we have gone as an industry from designing products for the rest of the world outside of China, the more developed market first, and then bringing them to China to where we have to had to change our perspective and look at China as even a more advanced market for digitalization than the rest of the world.
Okay.
Sachin Lawande: Now, how have we done in that context? So if you look at where we were at in 2018, when this trend really started to slowly increase and then picked up momentum, about 15% of our revenues in 2018 came from domestic China OEMs. Today, if you look at this year, we'll probably exit this year at about 40% of our revenues coming from that same China domestic OEMs, not the global OEMs. And we've added customers like GLE and JMC and others that are some of the OEMs that are on the Vanguard of that trend.
Yes.
Yes.
Okay.
[music].
Yeah.
Okay.
Yeah.
Okay.
[music].
Sachin Lawande: So we're doing exactly what we needed to do to make sure that we don't get trapped with older products that are not as attractive in that market. But that doesn't necessarily mean that the rest of the world will follow exactly their lead. So we have to have this approach which really does challenge our product development capabilities, but our platform approach that we have been talking about now for several years is really helping us develop this somewhat different solutions, very differentiated.
Yes.
Okay.
Yeah.
Okay.
Yes.
[music].
Sachin Lawande: But the end of the day are still using fundamentally the same technologies, especially when it comes to software. So I think we have done well in terms of addressing this changing dynamic and this has happened very quickly and that's where we are seeing the proof of in the numbers. China this year will continue to grow for us despite the lower domestic production that we talked about earlier in the prepared remarks. And we expect to see continued growth going forward. Thanks for that.
Mark Delaney: Thanks you. Your next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open. Yes. Good morning. Thanks very much for taking the question. So we have to better understand your comments around some of the macroeconomic trends in particular in Europe. You talked 90 days ago about seeing some slowing there and it sounds like that's continued or maybe even picked up a bit. Can you help us better understand the breadth of magnitude of the slow trends you may be seeing in Europe and how that's progressed?
Mark Delaney: Okay. So yeah. So let's talk about how we are seeing the market develop. Now when we talk about Europe in particular, we entered this year with the market essentially being a supply constraint market and they had an account of the pent up demand. A very strong order book that that supported high levels of production in Q1 and Q2 of this year. And we had anticipated that this change from a fundamentally a supply constraint to being more demand constraint would happen during this year and we started to see that in Q3.
Mark Delaney: So if you look at the third quarter vehicle production at our customers is reflecting that slow down and we see that going forward into Q4 as well. So the order intakes the consumers orders into the OEMs all through the year have been lower than what the industry had anticipated at the beginning of the year. So that's that's what is causing this slow down which we expect to have some effect which is factored into our guidance for Q4 and we'll have to wait and see how our next year developed from this perspective.
Mark Delaney: But that's that's what we're seeing with respect to Europe. We also talked about China and the domestic market there being a little bit weaker. We saw that in Q3 and we expect that to also continue into Q4 and then then there is the other dynamic that we have broadly discussed here which is the slow down of our EV related production and sales. So those are the factors that I would think as the macro factors that we need to consider both for Q4 and then for next year as we start to think about next year.
Mark Delaney: And I would add Mark for this year putting things into context and despite these headwinds we are seeing ourselves grow by about 14 to 15 percent for the full year despite these these headwinds. So still a very healthy growth of a market and definitely growth year over year in terms of our absolute. Patils. Thank you for that context.
Sachin Lawande: If you've fallen up on some of the park questions related to the intermediate to longer-term outlook and some of the OEMs are recalibrating their product launch schedules and MIX tied to EVs, you're just confirming there's no change to your 2026 targets that you outlined at the investor day for about 5.5 billion of revenue and about 13.5% just an EBITDA margin. Yeah, at this stage, we believe we are where we need it to be.
Sachin Lawande: I mean, if you think about where we are at, at the midpoint of our guidance in terms of base sales for this year, we would have added approximately $450 million in new sales this year. And that's pretty much what we need on an annual basis all the way out to 2026. So, although our sales has moderated a tad bit on account of the factors that we mentioned this year, we're still pretty much on track as to where we need it to be.
Sachin Lawande: And I would add on the EBITDA side, again, the run rate that we have at the end of Q3 and what we're protecting for Q4 indicates as well that we are very much on strike and we'll be able to scale that up as we go with additional volumes. Thank you.
John Babcock: Your next question comes from the line of John Babcock with Bank of America. Your line is open. Good morning and thanks for taking my questions. Now, I guess just first of which, you've obviously done well in terms of business wins this year and seem to be on pace in it to at least achieve if not exceed your target. And recognizing business wins can be an uncertain.
John Babcock: Just generally, do you expect you can keep a similarly strong pace in 2024 based on the discussions you've had throughout the past couple of months and quarters? Yeah, so that's actually a good question. And I would say that we've done really well to evolve and grow our product portfolio over the last couple of years both on the digitalization front but also for electrification. So that put us in a good position to address some of the the biggest challenges the OEMs are facing.
John Babcock: And as we have shown this year, this should translate into higher levels of new business wins which we think should be sustainable but we'll still have to see, again, there are this dynamics of the lumpiness of some of the awards that can straddle a quarter, so it'll be not appropriate to be too precise about what we think we can achieve but we have previously indicated this year we would exceed $7 billion. We believe we should be in a position to do that but more importantly, we believe this is a sustainable performance in terms of having a higher level of new business wins.
John Babcock: Now, one thing I do want to mention because this could be also the next question that people may have, many of the wins this year are going to launch in either second half of 2025 or 2026. So the contribution to 2026 target certainly will be there and that's of course factored into our assumptions for the midterm target.
Sachin Lawande: But more importantly, it puts us in a great position to continue to grow and in the long term.
Sachin Lawande: I guess, thanks for that. And then just as, you know, a follow on, I was just wondering, I mean, based on the business wins that you've had, you know, obviously they generally tend to pertain to, you know, new models. And I was just wondering if you're getting a sense from OEMs as to how digital content is changing on some of those next product launches, you know, that that would actually be helpful.
Sachin Lawande: Yeah, yeah. So I think this, this is the good trend that we have been talking about for some time. So what we are seeing is that the displays in particular are really getting much bigger and also they are increasing a number. So passenger side displays are becoming more and more the norm in mid to upper end of the market. And when it's at the, when a mass market, the mid market segment, we're still seeing the growth of displays from much smaller, seven, 18 displays to 10 and 12 inches displays, those displays getting larger is also pulling a lot of additional content, both embedded as well as connected content.
Sachin Lawande: So the shift towards a connected services approach at Visteon, I think, is also very timely because we believe that that's going to generate a lot of opportunities for us, not only for incremental revenue and margin contribution directly from the connected services themselves. But also in terms of how they make our embedded in vehicle products more competitive, we believe we will be one of the few suppliers with an end to end capability from the cloud all the way into the car with connected services and the in vehicle content that I do not believe will be matched by too many other competitors.
Sachin Lawande: Okay, great.
Jerome Rouquet: And then just last question before I turn it over, you know, is it possible to get some sense as to the impact of the strike so far, Visteon recognizing it's relatively limited? 3Q and 4Q would be great, but I think you can provide that would be useful. Yes, it's Jerome. We've been impacted so far, obviously, with the October orders coming down. And I would say that they represented about half of what we've assumed. In our guidance, so the assumption in guidance is about $25 to $30 million and half of that is already baked into October. Okay, and that's 4Q on, right? That's four. Yes.
Jerome Rouquet: All right, perfect. Thank you.
Emmanuel Rosner: Your next question comes from the line of a manual rosner with Deutsche Bank. Your line is open. Thank you so much. I was hoping to follow up on some potential implications from the slowdown in EV ramp up by some of your customers and then generally more broadly by multiple automakers. So, it's just trying to quantify for us how much is assumed in terms of the MS revenues for this year in your current guidance.
Emmanuel Rosner: And then what sort of growth rate, sort of like if you assume I think you have a $600 million guidance or outlook for 2026 in terms of revenues, you know, what piece of it could be at risk based on some of the latest. Yes, following progression. Hi, manual.
Sachin Lawande: I think it would be too premature to really talk about our mid-term guidance and what could be at risk. I think this challenges that our customers are facing specifically, you know, the one customer that talked about the slower ramp of the electric vehicles. We believe there's an account of some production challenges that we are quite confident they would be able to overcome. So yes, it has resulted in a slow down this year, which is factored into our guidance, but we are not reading into this anything beyond that. And as I mentioned, we've always been conservative in terms of how we have assumed the BMS volumes in particular. So we'll have to again look at it more closely.
Sachin Lawande: We are not at a point today to be able to give you that insight. We'll have to get more data from our customers about next year and the outer years, but we believe there is still sufficient headroom in what we had assumed that we should be in a better position than what might be implied by what you are hearing about the slowdown in EVs. Okay.
Sachin Lawande: So I get just, you know, following up on this and just asking this a little bit differently, how much of your growths of the markets over the next few years is assumed to be from BMS. And can you remind us the timing of your next launches in BMS? Yes. So again, I think the growth of a market that you look at is a combination of many things and we can't necessarily parse out exactly from each one.
Sachin Lawande: So I would like to just again put a context to this. We need a growth of a market of about a high single digit to low double digit in terms of being able to achieve our midterm guidance. And we have assumed in that midterm guidance by 2026 electrification revenues to be about 600 million dollars. So that's that's the first framework. Now we believe with where we stand today and the electrification plans for all of our customers, we believe we still have a path to get to that on account of us being conservative in our estimates for the volumes that we had anticipated.
Sachin Lawande: If you go back to our end this day earlier in the year, I will remind everyone that we were being challenged as to why we were being conservative at the time with our estimates for electrification and BMS in particular. This is the reason why.
Sachin Lawande: And therefore, I believe we are today in a better shape than what might appear at face value when you hear about this messages coming from OEMs. When are the next launches early next few. Thank you.
Jim Picariello: Your next question comes from the lines of Jim Picarello with B and B Parabus. Your line is open. Hi, everyone.
Jerome Rouquet: Just on the on the favorable timing of recoveries in the third quarter, totaling 15 million was this entirely attributable to a full forward from the fourth quarter or was there any unexpected retroactive retroactive recovery achieved in the Corridor. Yeah, so there are two items in this 150 basis point. You have about 100 basis point, which is related to commercial items, which are essentially commercial items that were settled into three when costs were incurred in prior periods.
Jerome Rouquet: So it's really neutral on a year-to-date basis. And as you do a walk from Q3 to Q4, we'll kind of reverse out. And then the 50 basis point remaining relates to the fact that our engineering spend was lower in Q3, largely because of project cost that had a different timing. And that's going to impact Q4. So that's one of the reason why we have increased our engineering spend in Q4 because there's a move of expanses between Q3 and Q4.
Jerome Rouquet: Okay, that's clear. And then just to confirm the strike-affected volume in your guidance applies in your 30 percent decriminal margin, is that right? Just given the weekly ranges for revenue and EBITDA that were provided. And then I apologize if I missed this, but based on the 20 to 25 million per week strike impact embedded in the guide, Robert Ford represents within that weekly revenue range. Yeah, so maybe first on the decromatiles.
Jerome Rouquet: We think there'll be a little bit higher than our average decromatiles. One of the reason is that there may be some stop and go freight expanses as everybody ramps up when the strike ends. So that's one of the reasons why decromatiles will be higher. And then Ford is a little bit more heavy than GM, but GM is still a fairly large portion of our business here in the US. And then just within the weekly range, or was that with that your answer or was the heavier waiting to forward on the decromatiles? I have your support indeed. Yes, heavier to Ford indeed.
Jerome Rouquet: All right, thanks. Thank you.
Operator: This concludes our earnings call for the third quarter, 2023 results. Thank you, everyone, for participating in today's call and you're on going interest and vispion. Thank you. Thank you for attending.
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