Q4 2023 Visteon Corp Earnings Call
Good morning, I'm, Ryan Wentling, Vice President of Investor Relations and Treasurer welcome to our earnings call for the fourth quarter and full year 2023. Please.
Please note. This call is being recorded and all lines have been placed on listen only mode to prevent background noise.
Forward looking statements are not guarantees of future results and conditions, but rather are subject to various factors risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.
Please refer to the page entitled forward looking information for additional details.
Presentation materials for today's call were posted on the investors section of <unk> website. This morning.
Please visit investors Visteon dot com to download the material if you have not already done so.
Joining us today are stops on the one day, President and Chief Executive Officer, and Jerome <unk>, Senior Vice President and Chief Financial Officer.
We have scheduled the call for one hour and we'll open the lines for your questions after assumptions and drums remarks. Please.
Please limit your questions to one question and one follow up.
Thank you for joining US now I will turn the call over to function.
Thank you Ryan and good morning, everyone. Thank you for joining our fourth quarter and full year 2023 earnings call.
I would like to start with a summary of our full year performance as outlined on page two.
In 2023, our team demonstrated a commitment to excellence across customers operations and financials.
We delivered a record performance across many of our metrics and further strengthened our foundation for long term growth.
The increased our base sales by about $400 million or 12% when removing the impact of supply chain recoveries.
Our full year sales reached $3 95 billion.
The demand for our products is strong as car makers respond to the trends of digitalization and electrification and the company delivered another year of strong product sales growth with digital clusters up more than 30% smartphone up by more than 20% and BMS more than doubling compared to the prior year.
Adjusted EBITDA was $434 million at a margin of 11% of sales.
The improved our margin by 170 basis points over the prior year, driven by strong growth as well as an excellent operational performance.
Our adjusted EBITDA came in above the midpoint of our guidance issued last year and at the beginning of the year.
Adjusted free cash flow was $150 million in 2023.
Our focus on cash flow conversion has yielded great results.
The 35% conversion of adjusted EBITDA to adjusted free cash flow for the year.
We also performed very well and strengthening our foundation for future growth.
Launched a high number of products on vehicle models in 2023, which will drive our sales growth in the coming quarters.
We also won over $7 billion of new business a record performance for the company.
Which will help sustain our growth in the midterm as these programs get into production.
We expanded both our product and customer portfolio in 2023 with the win of battery Junction box business and the addition of three customer logos for digital cockpit products.
We repurchased $106 million of shares during the year delivering on our balanced capital allocation strategy.
And we'll provide more details on our strong 2023 performance as well as our outlook for sales for 2024, and <unk> 26 on the subsequent pages before handing it over to Jerome to discuss the financials.
Turning to page three.
Okay.
This slide shows our base sales growth since the recovery of the industry from the lows of COVID-19, and the subsequent semiconductor supply shortages.
The company has done a great job of executing our strategic plan and growing its base is about $1 billion over the two years of 2022 and 2023, reflecting the high demand for our digital cockpit in electrification products.
In 2023, we continued our focus on executing our strategic objectives and delivered another year of strong base sales growth of 12% year over year.
Our sales growth would have been higher without a couple of one timers in Q4 that combined with the negative customer mix in China cost us a few points of growth.
We were impacted by the timing of the roll off of some older programs and the slower ramp up of follow on and new programs that created a temporary air pocket in our quarterly sales growth.
And the UAW strike.
Lloyd customers impacted our quarterly sales by about $20 million.
We also experienced a more negative customer mix in China in Q4 than the rest of the year.
I would also like to highlight some of our key accomplishments for 2023 that sets the stage for continued outperformance in 2024 and beyond.
Our digital cockpit products, including digital clusters, smart core and infotainment performed very well in 2023 is the trend of digitalization continues to gain momentum in the industry.
Sales of digital clusters was strong as recently launched products ramped up in production and.
And we solidified our position as the global market share leader in this product category.
Just over half of October close to shipments with digital clusters compared to about a third for the industry.
We strengthened our position in cockpit domain controllers by launching a smart core system with two new customers Harley Davidson in the U S and GMC Ford in China.
This brings the number of smart core customers to eight Oems, which is probably the most for any tier one supplier in this category considering how challenging it is to launch this complex systems.
Sales of Smart core had another year of robust growth and the new launches will help this product line to continue to grow in the coming quarters.
We moved up in the value chain in our digital cockpit products with new vision in cloud software solutions that are unique amongst our peers.
Our latest infotainment smart water systems offer advanced camera based driver monitoring and surround with features that are fully implemented in software, which avoids the need for separate and dedicated easy use as is the case today.
This in house developed software demonstrates the growing capabilities at Visteon in terms of developing automotive specific applications.
Last month at CES, we displayed the first cockpit domain controller with integrated level, one and level two adas features including driver monitoring.
As the next level of cockpit electronics integration that we believe will be a competitive advantage in the future.
We followed up on our first all go App store wins from the third quarter with two additional connective services wins in the fourth quarter, one with a global OEM and the other on a two liter.
Our App store technology continues to mature.
And we added several popular apps, including Spotify, Amazon music and reliance <unk> that makes it a compelling solution for connected cockpits.
We launched our BMS product on multiple electric vehicle models with GM in 2023 and made good progress with two other Oems that will go into production in 2024.
We also won our first power electronics business for the Smart battery junction box, extending our electrification product line beyond BMS.
This is a very important milestone for Visteon and we believe electrification offers us the potential to expand their product portfolio and consolidate battery electronics similar to what we've done in the cockpit.
Lastly, as I mentioned already we added three new customers in 2023, demonstrating the success of our go to market strategy.
Over the past three years alone we have added 18 customer logos.
This is a testament to the work that the team has put in developing relationships with prospective customers and winning business with them.
Turning to page four.
We had a successful year of product launches from 'twenty to 'twenty three with 102009 products launched on vehicle models across 24 different messenger commercial and tubular Oems around the world.
About 45% of the launches what for digital clusters, highlighting the continued growth of the largest product line at Visteon.
With global market penetration at about 35% that is still plenty of runway for growth for digital clusters.
Our other digital cockpit products, such as smart core infotainment and displays accounted for another 35% and the remainder with BMS and other products.
From a regional perspective about half of our launches with customers in Asia, which saw higher new model launch activity in 2023 and other regions.
About a third vote in Europe, and the rest were in North America.
Our digital cockpit products powertrain agnostic and digital clusters infotainment smart core and displays are well suited for both ice and electric vehicles.
During 2023, approximately 15% of our launches were on electric vehicles, including multiple vehicle models with our BMS system with GM.
These launches of the main driver of our BMS sales growth in 2024.
Now I would like to highlight several of our key fourth quarter lunches.
In China, we launched a smart core cockpit domain controller, and a 12 inch display with GMC afford for the Ranger are first with this customer.
There are additional vehicle models planned for launch with this product in the coming quarters, and we expect this customer to represent a significant source of future growth.
We also launched a smart core system and a dual tenants district cluster and display system on the Mahindra SUV 400, which.
This is the first electric SUV launched by that OEM for the Indian market.
This launch builds on the strong relationship we have with Mahindra.
And the continued inroads they've made with Oems in the fast growing Indian market.
Lastly, we launched a 12 inch digital cluster on the Nissan Rogue for the North American market.
This represents content on one of the best selling Suvs in the market and reinforces our ability to deliver value as a key supplier to Japanese Oems, which continue to be amongst the top selling brands in North America.
Turning to page five.
Our product and technology portfolio is one of the best in the industry. When it comes to addressing the trends of digitalization and electrification and is the key driver of our new business win performance.
The $114 billion in new business in the fourth quarter, bringing our total wins for the year to $7 2 billion a record new business wins total for the company.
The product mix in our full year, new business wins was well diversified across our product portfolio and powertrains.
We had substantial new business wins for ice EV and cross powertrain platforms as well as several extensions of current ice platforms.
Smart core in infotainment made up almost 40% of the total including a significant conquest win with a European luxury OEM and several platform Vince with global Oems.
Our electrification Vince we're primarily extensions of BMS business with current customers, including the addition of new models and extension of production until 2030.
It also includes the strategic win of our first power electronics product for the battery junction box with a European OEM.
We further built on our leadership position in digital clusters with the high number of new business wins.
And one displays business across several Oems.
And importantly, we've added three significant new OEM logos for our digital cockpit business in 2023 with significant potential to grow our business with them in the future.
On the right side of the page, we highlight a few key events for the fourth quarter.
We had two significant wins during the fourth quarter for our updated Android based infotainment system.
While cockpit domain controllers like Smartwater that use high performance silicon are great for mid and upper end of the market.
Mass market high volume vehicles need more cost effective solutions that also offer highly valued features such as camera based career and surround view system.
Natural language voice assistant.
Smartphone projection with currently and then auto and with the choice of connected apps and over the air software updates.
Our updated Android based infotainment products offer a very attractive value proposition to car makers, especially in the mass market segment of the industry.
Since its developed as a platform solution with a high degree of reuse, we can develop and launch this infotainment system with multiple customers faster than our peers.
The first win is for our beef segment compact SUV platform with a global OEM launch.
The launch on for SUV models in multiple Asian markets starting in early 2025.
The second win is with an Indian OEM and will feature on multiple vehicle models that launched at the beginning of next year.
The systems come with 10 inch display that's also supplied by Visteon.
The third win I would like to highlight is for a 12 inch digital cluster and the 13 inch center display.
On the luxury SUV platform with a German luxury OEM.
As a follow on win for the electric version of our platform that we've won the ice versus last year.
Turning to page six.
On this page I would like to share our outlook for 2024 for the industry and Visteon.
We are anticipating another year of strong sales growth for the company in 2024 with the double digit market outperformance.
We're expecting 20 to 24 global vehicle production to be largely in line with the S&P Global's January forecast of down slightly as compared to 2023.
Our customers' vehicle production is expected to be slightly more negative at about 1% down year over year.
From a regional perspective customer vehicle production is expected to be slightly higher in North America, largely due to non recurrence of the UAW strike.
While it is expected to modestly decline in Europe and China.
Forecasting electric vehicle production has become much more challenging over the past year.
In addition to the EV vehicles already launched with our BMS products with GM, we have several additional launches this year the GM as well as new launches with two other Oems This should drive higher sales for BMS in 2024.
Nevertheless, our outlook considers a more conservative EV vehicle production than customer forecasts and is more in line with S&P global.
Turning to the supply chain, we expect a much improved environment for semiconductors this year.
As a result, we forecast a lower need for open market purchases and resulting recoveries from our customers.
Our growth over market expectations are based on the ramp up of the products with launch throughout 2023 and the additional launches planned in 2024.
As these launches ramp up in production, we expect a modest rebound in Q1 from the lower growth over market in Q4 of last year and expect it to accelerate throughout 2024.
For the full year, we are anticipating a growth over market of low double digits in the 10% to 12% range.
Turning to page seven.
Looking beyond 2024, we expect our market our performance to continue as we execute our strategic growth plan.
We have an attractive multi year growth profile that is supported by an industry, leading product portfolio targeting two fast growing domains of automotive electronics, the cockpit and the electric powertrain.
<unk> growing capabilities in automotive electronics and software is very well suited to take advantage of the opportunities created by the Mega trends of digitalization and electrification, that's changing the industry and the fundamental manner.
And our proven operational and commercial excellence means that this growth comes with strong returns and cash flow generation.
We are targeting $5 billion in sales in 2026.
That's an increase of over $1 2 billion, when removing the impact of supply chain recoveries and representing low double digit growth over market annually over the two year period.
The fundamentals of the business remains strong and they have not changed substantially from early 2023, when we gave our midterm outlook on our Investor day.
The main drivers of growth through 2026 remain our digital cockpit and BMS products.
What has changed some market dynamics that we have been highlighting for the past few quarters.
As you can see on the bottom right of the page. There are three primary factors driving the reduction of sales compared to our original $5 5 billion target.
First the 2026 vehicle production forecast for our customers has been reduced by about 4% compared to the forecast from early 2023.
Second lower EV demand throughout the forecasting period has affected both our BMS and digital cockpit product sales on EV platforms.
Lastly, the growth of domestic Chinese Oems share of the China market at the expense of international brands, where we have stronger relationships is lowering our expectations in that region.
Overall, we have a strong foundation for growth and are confident in achieving our 20% to six targets.
And we do not expect our growth to stop in 2026, the new business wins that we secured in 'twenty to 'twenty three are largely expected to launch in 2026 and beyond.
This is a formula for consistent long term growth.
Turning to page eight.
In summary, the company performed very well and had a very successful 2023.
We delivered strong base sales growth of 12% driven by growth over market and higher industry production.
The team continued to execute on our commercial and operational plans, which resulted in our strong adjusted EBITDA margin of 11%.
We continue to build momentum for future growth by launching 129 new products.
<unk> vending seven 2 billion in new business.
Finally, we executed on our commitment to return capital to shareholders with $106 million of share repurchases.
Now I will turn the presentation over to Jerome.
Thank you Sachin and good morning, everyone Visteon posted a solid set of results in the fourth quarter, demonstrating another quarter of robust commercial and operational execution.
Q4 sales were $990 million.
When excluding the impact of supply chain recoveries based sales grew 1% against a difficult prior year comparable.
Our base sales performance was supported by strong customer demand, we continue to see for digital clusters cockpit domain controllers displays and the ongoing ramp of our BMS program.
Several factors impacted our fourth quarter sales, we experienced approximately $20 million in lost sales from the UAW strike.
We were as well impacted by the timing of roll offs and the slower ramp up of new roll ons as mentioned by touching earlier on.
We expect these headwinds to be largely transitory.
Consistent with the first three quarters of the year, we continue to experience customer mixed headwinds in China. We expect these to ease in 2024, and we continue to increase our exposure to domestic Oems.
The semiconductor supply situation has improved significantly compared to the fourth quarter of last year.
Supply chain recoveries declined by roughly $85 million year over year.
It has mostly been the result of our reduced reliance on open market purchases and related recoveries.
And market purchases were minimal in the second half of 2023, and we expect this trend to continue in 2024.
As a reminder, recoveries although bucket. It is pricing are pass through in nature, increasing sales neutral for adjusted EBITDA, but diluting margin percentages.
Adjusted EBITDA was $117 million for the quarter, an improvement of $14 million versus the prior year.
Adjusted EBITDA benefited from operational improvements and manufacturing efficiencies as well as lower engineering spending partially offset by a headwind from foreign exchange.
Lower engineering in the quarter was mostly the result of good cost controls.
<unk> of project spending and customer recoveries combined with a non recurrence of a onetime program expense from the prior year.
Our adjusted EBITDA margin was 11, 8%, but adjusting for a more normalized engineering spend and excluding the effect of foreign exchange all run rate was roughly 11%.
Adjusted free cash flow was $57 million in the quarter, our strong adjusted free cash flow performance was the result of a higher adjusted EBITDA and neutral trade and other working capital.
We ended the fourth quarter with a net cash position of 182 million and total cash of 518 million share.
Share repurchases were $30 million in the quarter and $106 million for the full year turning to page 11.
I am proud of what the Visteon team was able to achieve in 2023, we delivered on our operational initiatives, notably strong sales growth meaningful margin expansion and impressive cash flow generation.
Sales were a record $3 95 billion based sales, which excludes customer recoveries were $3 66 billion, an increase of 12% or $400 million compared to prior year.
The increase in base sales was driven by strong growth over market from robust product launches during the year and higher industry production cuts.
Customer recoveries, which are illustrated in the dotted boxes totaled approximately $300 million.
The roughly $200 million year over year decline in recoveries reflects the significant improvement in the semiconductor supply chain and the reduction in associated recoveries.
Adjusted EBITDA was $434 million for the year, an increase of $86 million or 25% year over year.
The increase in adjusted EBITDA, primarily reflects the impact of higher sales, while leveraging an efficient cost base with modest increases in engineering and SG&A.
Engineering increased $14 million year over year, as we continue to invest in technology to support future growth.
As a percentage of sales net engineering remained flat at five 3%.
Adjusted SG&A increased $17 million year over year, and as a percentage of sales increased slightly to four 5%.
Adjusted EBITDA margin improved to 11% in 2023, a 170 basis point improvement year over year.
While not on this slide I wanted to highlight our return on invested capital are Oh I see.
<unk> as calculated by tax effected adjusted EBIT over equity debt and leases was 16% in 2023.
The improvement in our return in past years has largely been driven by substantial improvement in adjusted EBITDA and modest increases in our invested capital base. This metric supports our view that visteon is an increasingly compelling investment opportunity turning to page 12.
Starting with the balance sheet, we ended the year with a total cash position of $518 million and a net cash position of $182 million.
We have no material near term debt maturities and an attractive current interest rates of approximately three 5%, we repaid approximately $13 million in 2023, as a result of our quarterly amortization payments.
In conjunctions with our March 2023, Investor Day, we announced a $300 million share repurchase authorization.
In the fourth quarter, we repurchased shares for $30 million at an average price of $126 $85 per share.
This brought our full year repurchases to $106 million.
We will continue to be opportunistic in our share repurchases in order to return capital to shareholders.
Turning now to cash flow, we generated $150 million of adjusted free cash flow in 2023.
This is a $49 million improvement compared to 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.
The outflow related to trade and other working capital declined year over year, primarily as a result of the stabilization of our supply chain and improvement in our inventory balances.
Cash taxes were higher than prior year due to cash payments related to increasing profitability in some jurisdictions both in the current year and in the prior year.
Related to Texas, I would like to explain briefly the significant tax item in the fourth quarter that impacted our net income and EPS, primarily as a result of our improved profitability in the U S. We had a noncash benefit of $313 million related to a reduction in the valuation allowance against USD.
Third tax assets.
Change in our valuation allowance had no impact on cash, but increased our net income and earnings per share for the period.
A positive sign of the health of our business, we do not expect any change to our go forward cash tax profile as a result of this valuation allowance reduction.
Interest payments remained low and were offset by higher interest income from increased rates.
Capex was $125 million or three 2% of sales, reflecting our ongoing investments in manufacturing and electrification.
We have steadily increased our free cash flow generation in recent years.
Our conversion ratio was 35% in 2023 and is in line with our medium term targets are improved cash performance as being largely due to the increase in adjusted EBITDA and diligent management of other cash items like trade working capital cash taxes interest and Capex.
Have structural elements that support consistent cash flow generation, including limited capital intensity across the both capex and working capital of debt like capital structure and substantial tax attributes.
In just a few years our team has successfully transformed <unk> into a robust cash flow generator and we expect this to continue for the years to come as our business grows turning to page 13.
For 2024, our guidance range for sales is four to $4 2 billion, which at the midpoint represents an 8% increase in base sales.
Focusing on the midpoint, we have assumed visteon customer production declines by approximately 1% while growth of our market is anticipated to be in the range of 10% to 12%.
On the pricing side, we're assuming a year over year headwind from lower customer recoveries. In addition to some level of standard customer price downs.
Adjusted EBITDA is expected to be between $470 million and 500 million, representing adjusted EBITDA margin of 11, 8% at the midpoint.
The year over year increase in adjusted EBITDA is primarily the result of higher base sales continued strong commercial performance and further operating efficiencies, partially offset by an increase in net engineering spend.
As a percentage of 2024 sales, we anticipate net engineering to be in the mid 5% range and SG&A to be in the mid 4% range as we continue to invest in technology and in our teams to support future growth.
Adjusted free cash flow is expected to be between $155 million to $185 million, which at the midpoint is a conversion of 35% of adjusted EBITDA into adjusted free cash flow.
We expect working capital will be a modest outflow for the year as a result of our continued growth capex is forecasted to be approximately $145 million as we invest for future growth. Despite these investments we expect capex as a percentage of sales to remain in the mid 3% range.
And finally, even though we are not providing quarterly guidance, we expect the first quarter to be lower sequentially and represent our low point of 2024, followed by a progressive ramp up of our sales and EBITDA over the course of the year similar to what we saw in 2023 turning to page 14.
Looking at the long term as such in noted earlier, our sales targets for 2026 5 billion.
This is an increase of over $1 2 billion in base sales between 2023, and 2026 with low double digit growth of market on an annual basis. Overall. This is an attractive growth profile and reflects our current expectations for our business and the market dynamics that touching outlined earlier.
Our adjusted EBITDA margin target is 13, 5%, a 250 basis point increase from 2020 threes.
This increase in margin is expected to be driven by the growth of the business as well as the ongoing leveraging of our fixed cost across manufacturing engineering and SG&A. In dollar terms. This represents approximately 675 million of adjusted EBITDA in 2026, which is a 16% CAGR over there.
Period.
We expect to convert 35% to 40% of adjusted EBITDA to adjusted free cash flow in 2026, I am very proud of what the team has been able to accomplish over the past few years, we have increased our sales by 1 billion compared to 2019, we have grown profitably compared to in 2019, our adjusted EBITDA.
As nearly doubled and we have been generating substantial cash flow in the same period with.
We're strengthening our foundation for future growth through record new business wins high level of product launches and continued investment in our people when I look at the next few years I'm excited to deliver on our plan for significant growth in sales EBITDA and free cash flow turning to page 15.
Visteon remains a compelling long term investment opportunity, we have positioned the company for top line growth margin expansion and free cash flow generation.
We have an exciting growth profile and have demonstrated a strong focus on operational and commercial discipline to deliver this growth profitably. Thank.
Thank you for your time today I would like now to open the call for your questions.
Thank you.
At this time, if you would like to ask an audio question. Please press Star then the number one on your telephone keypad.
If you would like to withdraw your question Press Star one a second time.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Joe Spak with UBS. Your line is open.
Thanks, and good morning, everyone.
Maybe just good morning.
Maybe just to start.
Joe Spak: Now a couple on the.
On the revised 26 I think.
Commentary from me.
You guys was that you aren't necessarily taking.
Managements.
Our targets for some of the EV programs. I mean, you were sort of making your own assessment now obviously the world has drastically changed even since.
Since those comments, but maybe you can provide us.
A little bit more more color as to sort of how what type of planning went into the revised.
2026 top line targets.
Yes.
I'll take that Joe.
Joe Spak: Paul.
It could be not all BMS all the EV production.
Driving the reduction there are really three factors.
<unk> is actually the overall.
Our vehicle production outlook for our customers.
And.
I would say that is contributing.
Okay.
Yes.
Then the second driver is lower production again.
And that affects both our digital cockpit products as well as PFS.
And the last one is the customer mix.
China Rich.
Has impacted us all.
And more I would say specifically in Q4 2023.
We expect this mix to moderate a little bit but to continue.
Continued to be a headwind.
All of them.
Thanks.
If you look at just the.
Specific.
Yes.
Revenues the volume projection for 2026 was not come down significantly lowered.
Lowered expectations from earlier in 2020.
But we are being a little more conservative than the volume.
Joe Spak: That has been shared with those customers.
I'd say that our expectations now are.
In line.
Joe Spak: All those.
Models and data production alcohols as for S&P Global for example, so I would say really two factors overall.
I'll be quick production number to lower production at our customers.
Joe Spak: Okay.
And.
BMS sales and then the customer mix.
Yeah.
I think thats more than China, having.
Having said that they're expecting all of our product lines.
Hello.
This new target that we have.
It means that our sales would grow each one of the years.
Joe Spak: Double digit level.
Joe Spak: He says.
Okay.
Thanks for that and maybe just a follow on to that.
Joe Spak: Has it on but.
The low double digit growth over market.
You're sort of assuming I guess like a relatively flattish environment. Some negative mix as you mentioned, but with growth of our market and we're seeing this across the supply base like you can't control that part.
Joe Spak: Part of that relative.
Comparison.
Now obviously some of that it sounds like you're sort of counting on some of that negative negative mix, but.
And share loss at some of your customers is clearly still possible, but would you say that.
Based on what you know now.
And the content that you have for what you won this sort of translates to like a high single digit low double digit organic growth rate in like understanding that.
If some of those customers that you don't have exposure.
Grow faster like your growth over market is going to look worse, even if your organic growth might still be a little bit relatively steadier.
So the first thing over to say Joe is that we have already factored in like.
Like you would.
Expect that some of the customers with whom we don't have helped customers, but Oems that we don't have business, but especially on evs.
We want to grow faster in this time period than our customers as far as the visa concerned so EV.
Gold production at <unk>.
Functions.
Certainly already taking into account this dynamic that we've talked about now.
Now.
Obviously the market all at all Ken can grow even faster because we don't control that and we don't have necessarily a.
Full exposure to that but we have been looking more specifically at our customers buy for us.
<unk> is not that far away in terms of.
Being able to understand what vehicles, we are on and what those production volumes.
It's going to be at.
Of your debt.
As fast since last year, beginning of last year, when we give our 2026.
Guidance, what I can say is that.
It is largely transpired the way we would have expected it to.
Except that the BMS sales has been more suppressed. So this the ramp up has been slower in 2023 than we expected.
It's almost like a year delayed and so we are expecting 2024 to look more like what we thought 2023 would look like in terms of BMO seats. In other words now 25, and 26 that has a certain level of ramp up of production that we have in that assumption.
And that has to come to pass.
Thus for us to be able to get to where we have set us.
But I believe that those are.
Oh.
A reasonable assumption in terms of what our customer support.
And should be able to accomplish.
I guess, maybe just slightly rephrase. The question I appreciate that that those comments, but when you say negative mix our faster growing with customers you don't have exposure for that.
That also factored in to your expectation for the volume for the programs that you are on sort of like that some of your customers may lead to spin a share. Okay. Thank you absolutely absolutely. Thank you.
And we will take our next question from EPA My Count at Pardon Me Mcnealy with Citi. Your line is open great.
Joe Spak: Thanks, This is Justin <unk>.
Justin: So maybe a quick one on slide 14, you are providing a high level overview, I guess of the base and kind of giving the recovery bucket. That's in there can you maybe let us know what the implied recoveries are for 'twenty four and then maybe what you're assuming in that 26 guide as well.
Yes, good morning, its social multi depth maybe.
Maybe let me step back a little bit on recoveries and generally.
We have seen recoveries coming down over the last few quarters.
2023, and Thats largely because our open market purchases have declined and therefore, the associated recoveries have declined as well so.
We were if you recall, we recovered including open market purchases close to.
$500 million in 2022.
In 2023 will have recovered close to 300 million.
Off recoveries, so a fairly substantial reduction.
Justin: And most of it is driven by open market purchases. There is a second factor that is now.
Impacting us in a positive way, which is the fact that we have.
Some positive impact as we go into 'twenty four as it relates to surcharges, we see some programs rolling off that are more burden.
Then the programs rolling on and therefore, we have that positive mix coming into play again as we go into 2024, so the two.
He does two way.
<unk> for 2024, which is going to contemplate a little bit less than 200 million of recoveries.
And then we see that as well coming down.
Because also of.
Cost reductions from suppliers into 'twenty six and we've kept our assumptions are the same for 26 as we had some back in March of 2020, threes and at least $100 million. So a slow reduction.
Levels that we had in 2002, all the way down to $1 million.
2026.
Perfect Super helpful. And then maybe sticking to 26 do you have the percentage of target already booked in terms of sales or if you can.
Speaker Change: Help us out maybe.
Yes.
We can talk a little about it so typically when.
When we look at that.
Sales that needs to be booked.
We have a range between 75% to 80% of the sales.
So and I would say that we had within that 426.
And as you know we had a pretty good robust level of new business wins in 2023.
We did our initial expectations.
<unk> is also helping and we also believe on account of some of the changes that have happened with Evs that we would see some program extensions, which are going to be helpful. In the near term as some of these ice and hybrid vehicles will it needs to be extent.
Good bye at customers.
As they rethink their EV model portfolio and go to market.
And we'll take our next question from Dan Levy with Barclays. Your line is open.
Hi, Good morning, Thank you for taking the questions.
First I wanted to ask a question about the margins and so.
Fourth quarter, you did 11, 8%.
That was weighed down by by the strike and Youre guiding to an 11, 8% midpoint for 2024.
Perhaps you could give us basically a bridge I recognize.
We shouldn't extrapolate too much from one quarter, but a bridge from.
The <unk> run rate to 2024, what are maybe some of the offsets that make the 11, 8% that you did.
The fourth quarter are not necessarily representative of the true run rate, which I think you said was closer to 11% yes.
Thanks, Dan.
So we always try to normalize.
On the margin as we report our earnings and have done that now for the last few quarters.
Just because they are.
Anomalies or exceptional items impacting EBITDA positively or negatively so for Q4, specifically, we had 11.8% as you mentioned and.
Most of that was.
All came from the fact that we had a pretty low.
Engineering spend in Q4, and it's fairly traditional I would say.
We were probably a little bit surprised by the amount of recoveries that we were able to book in Q4, but that's essentially improved our EBITDA for Q4, so when you take that out and take out as well.
Some level of negative FX that we had in Q4, our normalized EBITDA is closer to 11% maybe slightly slightly higher.
So that's kind of the run rate with as well our sales level.
Likely below $1 billion. So as we go into next year, we've got a 80 basis point improvement most of the improvement is going to come from the additional sales that will get in 2024 were growing at a level of 8% at face value and 10%. If you exclude the recoveries so thats a fairly significant.
Account improvement that will flow through EBITDA, we are continuing to see fairly.
Good level of operational efficiencies and <unk>.
Got you said that we've been seeing that's now for the last few quarters.
And then finally, we've got an upset by coming from.
Engineering, and as well as G&A, which are.
Let's say flattish.
In terms of percentage, but increasing in dollar terms and that's kind of the offset or partial offset to our.
EBITDA going into 'twenty, four I think generally I would say that we've been running pretty well and ahead of the curve or ahead of our Horizontals guidance in 2020 threes. We you may remember that we had guided.
Guided to 10, 5% EBITDA at the midpoint of our guidance and we finished the year closer to 11, so it kind of helps going into next year.
Therefore, we feel pretty comfortable with a 10.8 that we've closed.
Great.
But a follow up on that and then.
Second question just.
The follow up is maybe you could just comment on.
Within the decline of recoveries.
EBIT impact as it did.
It's neutral it's reduced recoveries on reduced cost.
And then my.
My second question.
Yes.
Ex BNS, we've heard about some extension of ice platforms as automakers are delaying Tvs I think we know theres generally that trend.
Speaker Change: Evs are adopting more of the premium content.
To what extent does your.
2026 outlook contemplate maybe some extension of the platform to what extent are the other products like.
Digital cluster or domain controllers.
Still intact, despite slower uptake thank you.
Yes.
I will take the first question.
Give me a second to <unk>. So in terms of recovery. That's a very good point in fact, we.
We are seeing a reduction in recoveries in 2024 as well.
<unk>.
Speaker Change: 2026, generally we are not assuming any negatives that impact largely because the two reasons for the decrease in 'twenty four or the fact that we're going to buy less open market purchases and therefore, we're going to recover less so it's neutral and the second reason I gave earlier on is the fact that we have this positive mix in some cases <unk>.
<unk> us.
<unk> way and therefore, the associated recoveries are matching as well the reduction in cost. So there is virtually no P&L impact on that side as we go into 'twenty four we have assumed a normal level of pricing like we normally give to our customers that has obviously an impact on P&L, but not.
The reduction in recoveries person thank.
Thank you gentlemen regarding this topic of the <unk>.
Content on.
Ice and.
<unk> hybrid vehicles, which are expected to.
Growth in the near term as well.
Eyes, or Saudi as full electric perhaps slowdown in their growth, we're extremely well positioned to take advantage of that we have.
Very good.
Digital cockpit.
Our portfolio of products already engineer.
Engineered and launched on many of the programs that are going to benefit from the extension or introduction of.
New models.
And the content increase that we're seeing is not just restricted to two <unk> by the way we are seeing a general increase in cockpit content, even on ice vehicles that has been if you look at the last couple of years.
The driver of our growth over market.
We have had 18 consecutive quarters of growth over market driven largely by the content increase that is happening in the cockpit and mostly on ice.
In the hybrid vehicles.
But our customers extremely well represented one data.
Data point is.
Digital clusters growth right. If you look at.
2023, roughly half of our shipments of.
Of clusters, all digital compared to about 30%, 35% for the industry. So there's a lot of runway ahead in terms of growth for digital content in general and I think.
To answer your question about how much of that has been already factored into our 2026.
Guidance there are a few programs, where we know those extensions.
Happening and we have factored those in and I would say there is some.
Further potential.
But we have not accounted.
Accounted for and we will only do so once we have more formal confirmation with the customers about the extensions so I would say.
EV is slated depressed net.
Net positive for us because majority of our revenue today is on ice and on the kind of content that is expected to grow to have these vehicles remain competitive.
And we will take our next question from Luke Young with Baird. Your line is open.
Good morning, Thanks for taking the questions.
Started I'm, hoping we could you could just disaggregate the 2020 for growth of our market drivers you highlighted in slide six specifically within that just wanted to better understand your approach to forecasting EV volume this year both.
In terms of.
China launches as well as <unk>.
BMS incrementally this year and then within that maybe if you could touch on China mix exiting 2023, and the Utah moderating impacts in 2004 here. Thank you.
Yes sure.
And so what I would like to say again, just to reiterate our expectations for 2024.
Vehicle production viewpoint as we have said on slide six.
We expect visteon customers to continue to face some headwind and we will see a negative customer mix.
Also in 'twenty, four but it would moderate as compared to what we saw in <unk> III and largely we expect that moderation to occur in China, as I said still negative but less so.
And as we look at the slide on the right. We have identified the major drivers of growth over market.
Which are the number one driver continues to be.
The high number of new products that we launched in 2023 as well as continuing into 2024 and as they start to ramp up in production.
The.
The first.
<unk> revenue growth over market.
The non recurrence of the one timers, that's contributing to about 1% to 2% of growth over market and then the third one which is.
This BMS sales, which I mentioned.
Sort of delayed in terms of their ramp up all through 2023 towards the end of 2023, we started to see them.
Grow we expect that growth to continue into <unk>.
2024, we have launched on I would say about seven vehicles with G. M. So far already and more are planned also in 2024 in addition to that.
The business of two additional Oems with whom we will be having our first launches this year.
So BMS is going to be a strong growth driver for us even though it is lower than our expectations earlier in the beginning of 2023 still.
Strong growth and I would say 10% to 12%.
If you think about 1% to 2% for the non recurrence of the one timers.
The rest is split between the other two factors this new model launches and the growth of BMS. BMS also includes new model launches.
Got it that's helpful session and then for my follow up hoping you could just comment on the award environment as we go into the beginning of the year here, obviously, oem's grappling with evolving dynamics around EV thinking about.
Some of the things you mentioned in terms of maybe extensions to existing ice and hybrid platforms just.
Hoping you could put a finer point on what that means good bad or otherwise for the number of awards and should we still be gearing to kind of a 6 billion plus number. This year is a good starting to look at absolutely and if you go back to what I've said earlier.
Think about our product portfolio and with the additions we have made to it.
Continuously expanded the market is available to us.
And so in terms of of the digital cockpit.
The product line itself.
Our pipeline of new business opportunities that we see is pretty robust similar I would say to what we had for two.
2023, and I would expect us to perform well there as well.
One of the things that we are seeing is that.
Infotainment in particular is going through a lot of.
Changes from a technology viewpoint with Android and connected services and vision services that are all coming together not just at the upper end of the market, but no ongoing more into the mass market vehicles. So very strong a pipeline of opportunities there now when it comes to electrification.
Beyond BMS.
As we discussed we have expanded our product line into power electronics, and we hope that we have repeat this year as well with an extension of the wind that we had last year and other customers as well so I would say that.
We would feel pretty comfortable saying that we would have a similar year from a new business win performance this year as last year.
And we will take our next question from John Babcock with Bank of America. Your line is open.
Hey, good morning, guys. Thanks for taking my questions I guess, just starting out as it pertains to the content that you guys provide in as Youre talking to Oems I'm, just kind of curious I mean, how much obviously a lot of this content has been much more used in higher end vehicles and I'm kind of curious as to what demand you are sorry.
To see for mass market vehicles, and how much of it is technology might carry down into those vehicles and how quickly over time and then I have a follow up on that.
Yeah, Great question, and if you look at the counter.
Content spell.
Especially digital clusters and infotainment.
A lot of Vinso coming now for more mass market vehicles right. The upper end of the market either has this product already and if we see opportunities to use our successor follow on opportunities.
The new opportunities Thats growing the market in terms of.
Adding more.
Speaker Change: More content is all coming at the mass market segments.
Segment, B and C.
Vehicles, which you would think in the past we're not typically the targets now what's driving that number one is the.
Digitalization trend right and within that.
We talk about larger displays talk about.
Infotainment content that.
In downloadable apps.
Connected services and.
Otas and that requires fundamentally more capable electronics.
And so that trend, we expect to see continue.
Somewhat irrespective of the powertrain.
But it is a small EV and <unk>.
Speaker Change: I sort of hybrid.
Trend is cutting across the powertrain and we will continue to drive.
Of business opportunities as we go forward.
Okay. Thanks for that and then just a quick follow up here is there a way to frame how much costs ultimately needs to come down for that to be carried into the mass Margaret segment.
I think as we have demonstrated in fact with the two wins that we talked about on this call.
Speaker Change: Two our infotainment wins both.
For mass market segment so.
Speaker Change: And the good work that Visteon has done is and working with the semiconductor supplier base as well as the display supply base to drive the cost of the systems to whether it is not very affordable for that segment of the market.
And so we believe.
As a result of that we have a good set of software technologies hardware platforms the manufacturing.
Integration vertical integration that we have done, especially for displays is putting us in a position to offer products at price points that.
Very competitive and affordable so we'd love to see that as a hurdle for the industry taking more of it as we go forward.
Okay. Thanks for the help.
And we'll take our next question from Colin Langan with Wells Fargo. Your line is open.
Colin Langan: Oh, great. Thanks for taking my question, just sorry, just as a recap I just have to make sure I got the puts and takes on the year so sales.
It's going to be up $150 million, but thinking of it more like 300, if we exclude the <unk>.
The impact of the lower semi recoveries is that right and then that would imply about <unk>.
$50 million.
Colin Langan: Increase in EBIT, it's about a 17% conversion on that but any other puts and takes we should be thinking on that conversion I know there was the recall impact is R&D and SG&A up it looks like those ratios look about flat and then you also mentioned in Q4. There is some normalization helped is that headwind as we go into next year or is that sort of.
Phil are continuing health.
Yes, hi, cleaning Soc at home.
Yes, so youre right the our sales at face value increased by 4% year over year.
But once you back out the impact of the recoveries, which are coming down you are in the in the low just below $300 million of additional sales.
So in term and that's obviously contributing to EBITDA. So in terms of other factors, we do have engineering going up year over year, we finished the year with engineering being a little bit lower.
And then what we had originally expected we were at five 3% of sales and we are forecasting for 2020 for a mid 5% saw an increase a slight increase in percentage, but as well obviously in dollar terms given the percentage of increase as well as the sales increase so that's a.
Negative as we go into next.
Next year, but we are obviously continuing to invest in engineering as we've done in the last few years SG&A will be fairly flat in percentage.
But again it will be a slight increase in dollar terms you have there in terms of other puts and takes slight negative FX that we've accounted for and then as well our normal pricing.
Gifts to customers all of this is offset as well by operational efficiencies that we've been.
Able to deliver over the last few years and will continue to delivering in 2024. So overall.
We've got Incrementals, maybe that's another way to look at it on base sales.
Colin Langan: About <unk>.
Colin Langan: Hi.
Colin Langan: Single digits double digits uptime going into next year, and that's very consistent with the way we've been.
Progressing in the last few years and Thats as well.
Incrementals, we have going all the way to 2026.
Alright, you mentioned negative effects or what are you referring to there the negative okay.
Yes, we do have a little bit off with the assumptions. We've made for some currency, we do have a bit of a negative FX going into 2024 on sales and as well EBITDA.
Colin Langan: Yes.
Just a quick question you mentioned tax wasn't changed.
What about your tax rate for that relationship.
What should we be thinking kind of backing into like 23, 24% is that the right range and why it doesn't change if youre releasing a deferred tax asset usually that's when you start paying higher yes, no. That's a good question. So we've had a large one timer in Q4 with our valuation allowance release in the U S.
To the tune of $313 million. So that's really a noncash tax item I think the key takeaways that from a cash tax standpoint, our profile will look very similar as we go into 'twenty four than what we've seen in prior years and generally our ETR is in the mid <unk>.
It varies obviously some variability as you said.
But I think if you can count on a mid 20% is a good proxy for ETR generally as well our cash taxes converge over time towards our.
Income.
Tax expense.
So I think that's a good proxy if you need to evaluate what cash taxes are going to be for 2024.
And we will take our next question from Mark Delaney with Goldman Sachs. Your line is open.
Yes, good morning, and thank you very much for taking my questions.
Company expects customer mix to remain somewhat of a headwind can you comment more on how visteon has positioned with Chinese domestic auto Oems and do you see an opportunity to improve your exposure with the Chinese domestic Oems.
Yes.
So very good question Mark and.
As you know.
China that has been what some might call a little bit of a wide list type of an environment lot of Oems.
Fighting it out for market share.
<unk>.
It's going to be very important for us not to be caught in that environment.
The ultimately what might be the wrong set.
Of customers.
We do not believe that this level of number of Oems and what's happening there in the market the sustainable in the long run we expect that to consolidate.
So that's one thing now having said that.
That is also a mix shift between domestic and JV Oems that we've touched upon previously as well that mix.
In 2023 was even more pronounced in favor of that.
Domestic Oems.
<unk>.
Now 60 40.
And.
Not too long ago, it used to be the round. So we have been addressing that by growing our business with domestic Oems and with domestic Oems that we believe have a longer term.
Play like Genie.
And others, we talked about the launch with GMC forward, we're very excited about the potential with them and.
We have very good content and a set of vehicles.
Our plan for launch.
We are taking a very measured steps to.
Our exposure to the domestic Oems without necessarily perhaps falling into some of the pitfalls. So far it has worked out well in the interim.
We will see some mix negative mix dynamic which will improve.
What we saw in Q4 and still be negative, but we believe we are.
Very good position to navigate those waters and delivered growth with profitability that we desire.
Thanks Sachin.
My next question was with regards to the new 2026 forecast what percent of your digital electronics revenue is coming from EV programs and can you give us a sentence, how agnostic you might be and if it.
Your own EV, if you're out OEM customers ship ice or hybrid vehicles instead of Evs.
Thank you sell similar digital electronics revenue onto those ice and hybrid.
It isn't your customers do next faster than you currently anticipate away from <unk>.
Yes.
As I mentioned earlier already.
<unk>.
Dean.
<unk>.
Sales on.
All evs or with our customers in line with the market in 2023.
Just over 10% of our total sales came from movies and only a small portion of that.
Low single digits was BMS. So we are today positioned with respect to the exposure to evs outside China.
As I mentioned, China is somewhat different in that regard, but outside of China.
Well positioned and we expect to grow with the market outside of China as our customers launch new EV models now.
Now.
Added to that.
BMS revenues.
See a faster acceleration thats net.
Mental revenue to us.
In addition to the.
The ramp up of.
Production of models with GM and the new launches that we will see with them. This year. I mentioned also that we are launching with two other Oems this year, which will further diversify and grow.
BNS business.
So 2026.
What we have assumed is largely.
A similar.
Sort of exposure to evs outside of BMS.
What we have with customers in Europe and Americas.
And then the BMS growth that will follow on account of the launches which.
As one of the faster growing parts of our business.
This concludes our earnings call for the fourth quarter and full year 2023 results. Thank you everyone for participating in today's call and your ongoing interest in Visteon.
And ladies and gentlemen, this concludes <unk> fourth quarter and full year 2023 results earnings call you may now disconnect.
Please wait the conference will begin shortly.
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