Q3 2024 Visteon Corp Earnings Call
Thank you for standing by at this time I would like to welcome everyone to <unk> third quarter 2024 results. After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. Thank you I'd now like to turn the call over to Ryan Wentling Bye Bye.
Speaker Change: As you can see on the bottom right our launches have been balanced across the regions. This year with roughly half of the launches in Europe, and Americas and remainder in Asia.
Speaker Change: Having 35% of launches in Asia, excluding China validates our success in diversifying our customer base in this key region.
Speaker Change: Launches were balanced across the product portfolio with digital clusters, representing nearly one third of our launches highlighting the continued penetration of digital clusters and mass market vehicles.
Speaker Change: Now I would like to highlight some of our key launches during the quarter.
Speaker Change: We launched infotainment and display systems for the Tata punch.
Speaker Change: Best selling compact SUV in the Indian market.
Speaker Change: We have been a long term crustal supplier to Tata Motors and this is our first infotainment system launch with them with potential to extend an additional vehicles.
Speaker Change: In North America, we launched a full digital cluster on the Ford Bronco sport, replacing our competitors' hybrid cluster.
Speaker Change: We also launched our latest audio system in the vehicle as well.
Speaker Change: We're two smartphone launches in Q3, we replaced a competitor's infotainment system with smart core on the latest Lincoln Corsair plug in hybrid vehicle model in Europe.
Speaker Change: We also launched smart core on the all new Reno Grand Colliers hybrid vehicle with initial launch in Korea. Following launches are expected in Europe, Middle East and South America markets.
Speaker Change: One of our digital cluster launches was on the Nissan <unk> Chi, which is a proper SUV in Europe.
Speaker Change: This vehicle has offered that mild hybrid and range extender powertrain options with our digital cluster being the default option on four of the five trim levels.
Speaker Change: Lastly, we launched our wireless battery management system with our second electrification customer to Lantus for the all electric <unk> S.
Speaker Change: We expect further launches in the coming quarters as to Lantus rolls out that electrified models in North America.
Speaker Change: Turning to page five.
Speaker Change: We delivered another strong quarter of new business wins with $1 8 billion in the quarter, bringing our year to date total to $4 $9 billion.
Speaker Change: Our quarterly wind levels have increased sequentially for each of the three quarters of 2024 with strong demand for our digital cockpit products more than offsetting the weakness in electrification.
Speaker Change: With the remaining pipeline of new business opportunities, especially for our digital cockpit products. We are on track to achieve our full year target of 6 billion plus for new business wins.
Speaker Change: From a product perspective, Q3 wins were led by digital clusters with extension of recently won business with Japanese and premium European Oems an additional vehicle models.
Speaker Change: And there is significant runway yet to go.
Speaker Change: Oems in Japan, India, and Korea represent more than a third of global light vehicle production, but only a small share of visteon revenue.
Speaker Change: Diversifying our China business with more domestic Oems is also a key priority for us going forward.
Speaker Change: Diversifying into adjacent end markets, such as two wheelers and commercial vehicles is another pillar of our growth strategy.
Speaker Change: While these markets only represent low single digits of our sales today had a significant upside as the digitalization trend strengthens in this markets and demand for digital cockpit products increases further.
Speaker Change: Lastly, we have identified a growing need for Oems to have a strong partner for advanced design and R&D services. In addition to our existing tier one suppliers status.
Speaker Change: These advanced capabilities and services also strengthen our product portfolio by bringing key insights gained from early engagement with car Oems across several critical technology domains, such as connectivity cybersecurity and functional safety.
Speaker Change: Overall, we are optimistic about the future for Visteon and I look forward to updating you more about our midterm views in our February earnings call.
Speaker Change: Turning to page eight.
Speaker Change: In summary, the company performed very well in the first nine months of 2024.
Our technology portfolio is aligned with key industry trends, including digitalization, the connected car and electrification megatrends that will drive future growth for years to come.
Speaker Change: We continue to deliver market, our performance compared to our customers' vehicle production with 6% growth over market expected for the full year.
The team continued to execute on our commercial and operational plans, which resulted in our strong adjusted EBITDA margin of 12, 2%.
Speaker Change: We continue to build our foundation for the future, but launching 71, new products and winning $4 $9 billion in new business.
Speaker Change: Now I will turn the presentation over to Jerome.
Jerome: Thank you Sachin and good morning, everyone Visteon delivered solid results in the third quarter, we successfully navigated another quarter of challenging market conditions and delivered strong operational performance both on the commercial and on the cost side.
Jerome: Our growth over market was in the mid single digits and in line with our expectations. We delivered an adjusted EBITDA margin slightly above 12% and generated strong cash flow.
Jerome: We also strengthened our future growth profile with 30, new product launches this quarter and $1 8 billion of new business wins.
Jerome: The end market and customer diversification initiatives that we have highlighted in recent quarters have continued to gain traction with $600 million of new business wins with rest of Asia Oems and further successes with commercial vehicle Oems and two Wheeler customers.
Jerome: Overall I am very pleased with this performance and continue to be confident in our prospects for long term growth and margin expansion.
Jerome: Turning now to our third quarter financial results in more detail.
Jerome: Q3 sales were slightly below 1 billion.
Jerome: Third to last year sales benefited from our market outperformance of 6% driven by new product launches and strong performance of our digital cockpit and electrification product lines.
Jerome: This was offset by lower customer volumes and lower recoveries from our customers.
Jerome: In terms of performance by geography, Americas had the strongest market outperformance rest of Asia was positive Europe declined slightly in China underperformed by double digits.
Jerome: Consistent with past quarters customer recoveries declined year over year as a result of improved semiconductor supply but were stable sequentially.
Jerome: Adjusted EBITDA was $119 million for the quarter or 12, 1% our strong EBITDA performance. This quarter is the result of our robust sales level and excellent operational performance, including strong cost controls and increased efficiencies.
Jerome: We believe our normalized EBITDA margin continues to run at approximately 12%.
Jerome: Adjusted free cash flow was $73 million in the quarter as a result of our solid adjusted EBITDA and improved working capital performance.
Jerome: Lastly, in the third quarter, we completed a bolt on acquisition for $48 million net of cash acquired.
Jerome: As I have mentioned in recent quarters, we are prioritizing bolt on M&A in our capital allocation framework as we believe there are meaningful opportunities to enhance our capabilities and grow our business our strong balance sheet with net cash of over 200 million provide us with significant flexibility to pursue.
Jerome: Our capital allocation priorities.
Jerome: Our team continues to operate well with strong focus on operational performance commercial excellence and cost discipline.
Jerome: We proactively adjust our cost structure to reflect business challenges and in that regard, we recognized approximately $28 million of restructuring costs outside of adjusted EBITDA in the third quarter aimed at improving our efficiency and further rationalizing our footprint. This is in line with our focus on continuous improvement.
Jerome: And maintaining our best in class footprint overall, I am proud of our solid third quarter performance turning to page 11.
Jerome: Sales were $980 million for the quarter, representing a slight decrease compared to the prior year, our market outperformance of 6% was offset by 6% lower customer production lower recoveries normal price downs customers and a 1% headwind from FX.
Jerome: Our growth over market was driven by recent product launches combined with strong demand for our digital cockpit products and the ramp up of our electrification products. Our next gen products continue to grow with digital clusters displays and electrification all showing year over year increases.
Jerome: Adjusted EBITDA was $119 million in the third quarter, representing a 12, 1% margin our strong performance. This quarter represented a decrease from the prior year, which had approximately 100 basis points of nonrecurring commercial items.
Jerome: Excluding those commercial items in the prior year, our adjusted EBITDA margin would have increased year over year in the third quarter of 2024.
Jerome: Exchange negatively impacted year over year, adjusted EBITDA by approximately $10 million driven mostly by the euro and the Brazilian real.
Net engineering cost as a percentage of revenue was four 8% below our expected full year average in the mid 5% range due to the timing of project spend higher recoveries and lower spending in China in respond to the challenges in the region SG&A as a percentage of revenue was $4.
Jerome: 5% in line with our expected full year targets turning to page 12.
Jerome: Our balance sheet remains among the strongest in the industry. We ended the quarter with $553 million in cash and a net cash position of $229 million.
Jerome: Our balance sheet supports our growth and provide flexibility for our capital allocation priorities.
Jerome: Turning to cash flow, we generated $73 million of adjusted free cash flow in the third quarter, bringing our year to date total to a record $135 million.
Jerome: This is a $42 million improvement compared to the first nine months of last year, primarily due to 40 million higher adjusted EBITDA year over year.
Jerome: Trade working capital was an outflow for the first nine months as we build additional working capital to support our future growth.
Jerome: Cash taxes were modestly lower than prior year as 2023 was impacted by the timing of some tax payments.
Jerome: Interest was a positive in the quarter with a net inflow as interest cost from our term loan were more than offset by interest income on our invested cash.
Jerome: Capex was $96 million in the first nine months, we expect these to increase in the fourth quarter due to timing we remain on track for $145 million for the full year.
Jerome: We're investing in projects to deliver on our future growth and margin expansion, including vertical integration.
Jerome: With our consistent cash flow generation and solid balance sheets were able to execute on our capital allocation priorities.
Jerome: As noted on the right side of the slide our first priority continues to be investing in organic growth.
Jerome: Our annual Capex spend of approximately three 5% of sales support projects that are critical to our sustainable profitable growth.
Jerome: Our second priority is bolt on acquisitions like the one we completed this quarter.
Jerome: We are targeting companies that not only enhance our capabilities or product offering but are also quickly accretive to our bottom line.
Jerome: Although these bolt on acquisitions are likely to be individually small we believe that in aggregate they can be a meaningful growth and profit driver in the medium term.
Our acquisition this quarter met these criteria and we will continue to be very selective and disciplined in executing on future M&A.
Jerome: Lastly, we intend to continue to return cash to shareholders through share repurchases since implementing our $300 million share repurchase program. In March 2023, we have repurchased 126 million of shares we're committed to a balanced capital allocation between these three priorities turning to page 13.
Jerome: Based on our year to date performance and our outlook for the fourth quarter. We are updating our 2020 for full year guidance for sales, we are tightening our guidance range to $3 85 billion to $3 9 billion.
Jerome: While still within our previous guidance, we brought down the top end of the range. As a result of continued weakness in the China market and some softness in Europe are forecast for light vehicle production are in line with SMP forecast with a reduction of 2%, while we expect our customer production to decline by approximately 3%.
Jerome: Our Q4 growth of our markets is expected to be in the mid single digits with double digit outperformance in the Americas and Europe, partially offset by underperformance in China. Despite.
Jerome: Despite the industry challenges this year, notably in China, and a slower adoption of electric vehicles, we still expect to deliver a solid full year growth over market of 6%.
Jerome: For adjusted EBITDA, we are raising our guidance range to 465 million to $480 million, reflecting our strong year to date commercial and operational performance.
Jerome: We have been able to flex, our net engineering and SG&A costs, which we expect to remain within our initial forecast of approximately 10% of sales.
Jerome: On a margin basis, a 12, 2% midpoint is slightly higher than our prior guidance as a result of our strong year to date performance.
Jerome: For adjusted free cash flow were increasing our guidance to 165 million to $185 million.
Jerome: Our full year range considers our assumption of the current adjusted EBITDA range of use of working capital and Capex spending of 145 million. Our adjusted EBITDA conversion ratio remains within our targeted range of 35% to 40% turning to page 14.
Jerome: Visteon remains a compelling long term investment opportunity, we expect to benefit from higher demand for more digital content in the cockpit, regardless of powertrain and the growth of electric and hybrid vehicles.
Jerome: Visteon is uniquely positioned for multiyear topline growth margin expansion and free cash flow generation, while our strong balance sheet provides us with significant flexibility. We appreciate your support and look forward to talking with you again in February when we will provide our 2025 and future guidance. Thank you for your time today I would like now to open.
Jerome: On the call for your questions.
Speaker Change: At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad again that is star and the number one.
Speaker Change: For just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line of Luke junk with Baird. Your line is open.
Luke Junk: Good morning, and thanks for taking my questions.
Luke Junk: Start off hoping to just expand on cluster growth, specifically fashion, just hoping to unpack it from both a product launch and sunset standpoint, as well as just geographic mix impacts that might be reflected right now just.
Speaker Change: The growth here pretty flattened.
Speaker Change: With over market basis, what are some of the conditions that you would see that we needed to get that business back to an overall growth posture. Despite continued digital growth.
Speaker Change: So from a good volume of look yes.
Speaker Change: So in terms of clusters received.
Speaker Change: The trend of digitalization really continues to be a strong driver for growth of that product line for us.
Speaker Change: And.
Speaker Change: In Q4, as well our digital clusters led product sales and excluding China grew double digit so what what we really see here is the impact of China.
Speaker Change: On the surface makes it feel like it did not really grow everywhere, but it's really just in China.
Speaker Change: Now if you look at our performance. This year, we have continued to launch.
Speaker Change: Several new cluster programs about 30% of our 71, new launches year to date were digital clusters.
Speaker Change: The percentage was about the same.
Speaker Change: The new business wins this year.
Speaker Change: So and at the same time as.
Speaker Change: As we go forward, but we are seeing is that <unk> and displays.
Speaker Change: I want to replace discrete digital clusters and infotainment in the premium and luxury segment of the market.
Speaker Change: However, we will continue to grow, especially digital clusters and Standalone infotainment in the mass market segment, and we are very well positioned to take advantage of both trends. So in fact, what we're seeing especially in this environment, where there's a lot of pressure on on.
Speaker Change: Prices at Oems in many parts of the world such as China is that the shift is also helping us in terms of.
Speaker Change: A higher sell through of our more mass market products. We also launched as you know a digital cluster with Toyota and we are expecting.
Speaker Change: Very good growth with that customer with that product line.
Speaker Change: We go forward. So overall I'm pretty pleased with where we stand with digital clusters of continues to be a very strong product line for us.
Speaker Change: And as we've seen with our displays performance.
Speaker Change: Second line is starting to shape up and I wouldn't be surprised if it becomes a bigger digital clusters put us in the next couple of years.
Speaker Change: Okay. Thanks for that session and then maybe a second question my follow up would be for <unk>.
Speaker Change: <unk> just on the R&D or engineering second quarter in a row that ran a little better than I expected can you just pull apart. The two pieces here in terms of project timing what that might mean to 2025 seems like maybe some spend is deferred and can pull back in and then recoveries just tracking higher can you continue to dry.
Speaker Change: A little bit higher than expected outcome on the recovery side and then you had mentioned also in your prepared remarks some.
Speaker Change: Some rationalization of R&D in China. So, hoping you can just expand on that and sort of balance of multi is coming under pressure in China, yet they need to still drive launches with local Oems there in terms of engineering investment. Thank you.
Speaker Change: Yes. Thanks, a lot good morning, So maybe let me step back a little bit on engineering we've.
Speaker Change: <unk> been running a fairly cost effective engineering organization in the last few years and maybe three points around that the first one is that our platform approach has been very successful.
Speaker Change: We've also have most of our engineers are located in best cost countries and that has been helping our model tremendously and then finally, we've been working very diligently on efficiencies.
Speaker Change: Within our engineering teams, ensuring that the produce quality software on time in a cost effective manner. So as it relates to Q3.
Speaker Change: The two pieces, obviously, the gross engineering piece as well as the recoveries if you step back and look at what we've achieved on our gross engineering side.
Speaker Change: Our cost.
Speaker Change: Costs have been fairly flattish for the last few quarter. So therefore, it has been in line with what we've been able to achieve.
Speaker Change: In the first half of the year recovery really is what has.
Speaker Change: Helped us this quarter and we had in <unk>.
Speaker Change: Improvement in recoveries versus.
Speaker Change: Prior quarter, but as well versus prior year and we've been running a little bit ahead. This year in terms of the recovery So timing is.
Speaker Change: Hard to predict on recoveries.
Speaker Change: And we think that we'll still be overall in terms of net engineering within our target of let's say mid single digit percentage of total sales.
Speaker Change: As we go into next year.
Speaker Change: We'll keep on.
Speaker Change: Looking at efficiencies and we will keep on this while investing in very critical area and that will allow us to grow on a go forward basis connectivity AI as well as.
Speaker Change: Other areas as it relates to China, we have now.
Speaker Change: Flex a little bit our engineering cost, especially in Q2 and Q3 to adjust for.
Speaker Change: What is going on in the in the region. So it is indeed a.
Speaker Change: A slight reduction over there just to adjust for the reality of.
Speaker Change: Of the market.
Speaker Change: Maybe just the China piece, if you could just a follow up on the local Oems just investment in engineering, specifically with that cohort Jeremy.
Speaker Change: Yes, we continue to.
Speaker Change: Be present in China, and we do want to stay very relevant as you know there is a lot of technology in China and varies as well a lot of focus on cost given the pricing that is going on the price war is going on so we keep on investing.
Speaker Change: Over there and we are still winning new business.
Speaker Change: But we'll obviously make sure that we are very selective in terms of the customers that we want to.
Speaker Change: Go along with that and may be charging for us and you want to.
Speaker Change: Indeed in fact, this topic of China may be of interest to everybody given how significant of an impact that it has been so let me elaborate on that a little bit.
Speaker Change: If you go back maybe last year of the year before channel represented about 15, 16% of our sales now that has come down to about 11% to 12% throughout this year and that's largely due to the loss of market share of our global OEM customers that offsets.
Speaker Change: And for China.
Speaker Change: Now if.
Speaker Change: If you look at our revenue profile in China about two thirds of our revenue in China come from global Oems, One third from domestic Oems, but were really well represented in that market of the top 15.
Speaker Change: <unk> that have more than 70% of the market in China nine at Visteon customers today.
Speaker Change: Those lines about three year domestic Oems.
Speaker Change: At the same time, it's a very competitive market. So there has been a lot of price based off.
Speaker Change: Of.
Speaker Change: Sort of war being fought by Oems and at the same time, the Oems so to keep the cockpit competitive. So we continue to see opportunities, but we have been very prudent in terms of where and how we want to engage because we want to make sure that we have a profitable business there.
Speaker Change: So our strategy has been to.
Speaker Change: Grow more with domestic Oems and also to grow share of the wallet with the Oems that we are currently present in China, now European and American Oems of done worse than.
Speaker Change: The Japanese and of course, the domestic Oems have taken a lot of market share. So we have a strategy of working with the ones that we think are going to do well, but it's going to take a little bit of time photos to recover from what has happened this year and.
Speaker Change: And we expect in a couple of years to see growth return to that part of our business.
Speaker Change: That's all great color. Thanks for jumping in there session I'll leave it there.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joe Spak with UBS. Your line is open.
Speaker Change: <unk>.
Joe Spak: Thank you and good morning, everyone.
Sachin maybe you could just sort of provide.
Speaker Change: A little bit of color on what Youre seeing out there.
Joe Spak: From your customers because it looks like.
Joe Spak: You are implying.
Joe Spak: Customer production is down maybe mid single digits in the fourth quarter.
Speaker Change: Just had another supplier report some pretty dire volume for the fourth quarter like minus 9%, including like significant deterioration in Europe in the fourth quarter. So.
Speaker Change: Just trying to better understand.
Speaker Change: Yes, what you are seeing.
Speaker Change: Yeah, absolutely thanks, Joe.
Speaker Change: The first thing I would say is at this point our outlook for the fourth quarter. It was really relying more on the direct orders that we have from our customers and.
Speaker Change: As you can imagine given all of the announcements that have been made we have been very diligent in terms of checking for integrity of those orders and we feel pretty good about where we stand so having said that.
Speaker Change: We do see softness in Europe. There is no question about it but our performance in Europe is driven more by new product launches and if it were not to have those I believe we would have seen is similar drop in our outlook for production as perhaps some of those might have been.
Speaker Change: Referring to so as you know we had a high number of launches even in Q3 and many of them were actually in Europe, and Thats benefiting us from a production perspective, if I look at the various regions for Q4, we see.
Speaker Change: Pretty much I would say a reduction in all regions, except our customers in Americas, and so <unk> to be doing relatively well is holding up pretty okay. All of the regions.
Speaker Change: A bit I would say on the negative side.
Speaker Change: Including Europe.
Speaker Change: Our performance.
Speaker Change: As Jeff is totally driven by new product launches so we see.
Speaker Change: A market outgrowth in all regions, except China and in China, We see more of a flattish performance relative to Q3.
Speaker Change: Even though that is.
Speaker Change: A seasonal uplift in production anticipated for Q4.
Speaker Change: Probably be I think prudent and not assuming.
Speaker Change: Any benefit from that there might be some some tailwind, but youre not assuming it in our outlook.
Speaker Change: Our pro forma.
Speaker Change: Hope that gives you some color yes.
Speaker Change: That's helpful.
I guess the second question.
Speaker Change: And it's sort of a little bit.
Speaker Change: Bigger picture, but I'm, just trying to sort of understand the types of conversations you're having with your customers.
Speaker Change: And how this could affect future sourcing because.
Speaker Change: Qualcomm for instance had.
Speaker Change: Lisa some auto product this past week and I know you use their product a lot.
Speaker Change: And there was a big step up in performance that allows AI et cetera, but.
If that products out now right, it's probably not getting into vehicles and 26 or so to maybe 27 correct.
Speaker Change: But it also seems like the pace of development on.
Speaker Change: The hardware side is.
Speaker Change: Really inflicting and so I would venture to guess that like a year from now there's another huge leap in performance. So how does that when you go to your customers and have that conversation like how do they think about that how does that impact your sourcing because things seem to be moving so quickly and accelerating and like you know you don't want to get caught with.
Speaker Change: Outdated.
Speaker Change: Jack I guess.
Speaker Change: Right No Thats, a great question and let me try to answer this this way so.
Speaker Change: As I mentioned in my prepared remarks is really what's going to drive.
Speaker Change: Cycle of content growth and increase in the cockpit in particular, but it's not going to come for free. So there is a pretty big step up when you go to the newest latest and greatest silicon that is actually capable of.
Speaker Change: Putting AI models.
Speaker Change: So therefore, that's not going to be applicable at affordable by all segments of the market. So what we're seeing here is more of a separation between let's say the premium luxury end of the market, which will have to compete on all of these features that we just talked about AI.
Speaker Change: AI not just in the cockpit, but also need us and connected features more and more camera based vision processing and features related to that also.
Speaker Change: So that's all good but thats really more in the upper end on account of the significant.
Speaker Change: Uplift in the price of these.
Speaker Change: Silicon in particular, which then impacts the overall system, we're talking about two or three X increase in price right now.
Speaker Change: Percent.
Speaker Change: So that also is.
Speaker Change: Causing.
Speaker Change: Our need for having more competitive.
Speaker Change: More feature rich not necessarily having all of the boats investments in AI in particular in the lower part of the market and this is going to be a big opportunity for us because we have existing solutions existing platforms that we can bring to these Oems and their stock just in passenger cars, we're starting to see this interest from <unk>.
Speaker Change: In commercial vehicles.
Speaker Change: Similar to what we see in Cogs in terms of features and content and to a lesser extent in two wheelers.
Speaker Change: <unk> the volumes are higher and the time to market is shorter.
Speaker Change: So in general.
Speaker Change: I see it as sort of a segmentation of tech that follows kind of the segmentation of vehicles that we have known for a long time.
Speaker Change: And the key is going to be to have solutions that are appropriate for each segment.
Speaker Change: And even for two wheelers and commercial vehicles.
Speaker Change: Specific and unique to that to those parts of the of the industry and that's what we've been really been focused on doing.
Speaker Change: All of this is to have a vertical integration strategy.
Speaker Change: That's what helps us drive costs, lower and make the system more affordable we can take it to a greater extent in software and displays to a lesser extent when it comes to silicon, but all of that helps and I think that also helps separate and differentiate visteon.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is open.
Mark Delaney: Yes, good morning, and thanks very much for taking my questions first I was hoping to better understand the key puts and takes behind the updated EBITDA outlook for this year and what's allowing the slight increase to the EBITDA guidance, even on slightly lower revenue and perhaps more importantly, as you're seeing some of the progress the company is.
Mark Delaney: Making within margins is there anything episodic, hoping that thats more temporary in nature or is this perhaps a sign of progress towards the medium term target of 13, 5%.
Speaker Change: Yes. Thanks.
Speaker Change: I would say generally we've been running pretty well ahead of targets on the margin side and we saw that in Q2, and we saw that again in Q3, and that's really the fundamental reason as to why we are increasing our full year guidance on the margin.
Speaker Change: And but as well as margin percentage standpoint.
Speaker Change: Despite a slight reduction in in volume for the for the full year were able essentially too.
Have better engineering cost, we are pretty much keeping our engineering percentage as is for the full year, and obviously with lower sales that implies lower dollars and we've been as well running well.
Speaker Change: In terms of efficiencies operational performance has been good and Thats. Another reason as to why we are able as well to improve our margin so 12, 2%.
Speaker Change: The number we are putting out there for the full year, it's essentially very much in line with what we've achieved.
Speaker Change: One and Thats, a very good run rates as we go into next year. So.
Speaker Change: Apart from the commercial items that I indicated.
Speaker Change: Impacted our.
Speaker Change: Financials in Q2, and it was not.
Speaker Change: Not a very large number it was 50 basis points of margin at the time.
Speaker Change: I don't see any major items that is temporary.
Speaker Change: As we go into next year, obviously next year, we'll have a lot of puts and takes that will we'll talk about that in February.
Speaker Change: Yeah. Thank you for that my question was around BMS and one of your key BMS customers spoke recently about a future plan to shift some of their cell manufacturing.
Speaker Change: Away from pouch towards prismatic cells, hoping to better understand if theres any implications of that for Visteon in your BMS business there. Thanks.
Speaker Change: So great great question and what.
Speaker Change: What I would say as Visteon is one of the few suppliers if not maybe the only supplier with BMS.
Speaker Change: Italy has a BMS design that is agnostic to.
The form factor, although the chemistry of the battery cell.
Speaker Change: Now this is something that is necessarily understood carefully because.
Speaker Change: Most BMS systems are designed to work with a specific.
Speaker Change: So chemistry, and we took a platform approach. This is part of what we do here for all of the product lines and the platform approach meant that we had to design at <unk>.
Speaker Change: To be able to work with different form factors different chemistries of the cell and therefore it requires no change on our part to support this transition.
Speaker Change: Eventually if for example, there were two there were two Google with solid state batteries. It would still allow them to go through that transition without needing to change it.
Speaker Change: The BMS.
Speaker Change: Unique.
Speaker Change: A key differentiator that we offer to our customers.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Colin Langan with Wells Fargo. Your line is open.
Speaker Change: Hey, guys. This is <unk> filling in for Collyn. My first question just on the restructuring you guys had been one of the cleanest suppliers on restructuring really this decade.
Speaker Change: I was wondering if you can give a little bit more color on the actions you took and maybe if you can quantify the savings you expect to see.
Speaker Change: Yes.
Speaker Change: Morning, I'll I'll take that question.
Speaker Change: Maybe stepping back on our footprint, we've as I mentioned earlier on we've got a pretty good footprint, but we're always looking for further improvements.
Speaker Change: We also want to ensure especially with the acceleration of the technical changes that we are rebalancing our resources.
Speaker Change: In order to meet the needs of the business is so the restructuring plan that we've put together.
Speaker Change: <unk>.
Speaker Change: September is essentially achieving that is as much a cost improvement that it is a rebalancing of resources in for example in Asia. We've mentioned earlier on some level of restructuring in China. We are then reinvesting.
Speaker Change: Some dollars in other area like rest of Asia, as we want to grow two wheelers or some very specific customers in Japan. So it's really as much a cost play than it is a rebalancing of our resources.
Speaker Change: Great. Thank you.
Speaker Change: And my second question, you guys called out some.
Speaker Change: Potential strength in Q4 in North America.
Speaker Change: My question is the D three of their inventories rather elevated.
Speaker Change: Guys have any downside risk to <unk> production in Q4 are factored into your guidance.
Speaker Change: Yeah.
Speaker Change: We do have a good visibility at this stage of the fall.
Speaker Change: The rest of the quarter. So I would say it is largely all factored in short of something that is dramatically different that might happen in the next few weeks, which we do not foresee.
Speaker Change: So the answer the short answer is yes, it affected it.
Speaker Change: Great and then just maybe one last one.
Speaker Change: Share repurchases that you've done $20 million year to date versus $76 million last year at this point, we expect to see a rather dramatic pickup in Q4.
Speaker Change: Okay.
Speaker Change: So we've generated a pretty strong cash flow this year.
Speaker Change: In the last 18 months, we've been very focused on share repurchases.
Speaker Change: This quarter are focused on M&A.
Speaker Change: What we want to achieve overall is a fairly balanced approach in our capital allocation.
Speaker Change: We have out of our 300 million of share.
Speaker Change: Repurchase authorization that we got last year, we've purchased so far $126 million. So we've got some room and we are very committed to continue to repurchase shares obviously, we go forward.
Speaker Change: Great. Thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of James Picariello with BNP Paribas. Your line is open.
Hi, everybody.
James Picariello: Can you just provide any clarity on what John is saying within the competitive landscape for smart core. It seems there are more and more tier two and three suppliers trying to buy for the cockpit domain controller as Oems consolidate their vehicle architecture, how important is it for visteon to win.
James Picariello: This hardware specific to the domain controller and just.
James Picariello: A better understanding of the interplay of smart core and your digital instrument clusters business there.
James Picariello: One zero sum game emerging between the two.
Speaker Change: So it's a good question and again I'll go back to what I said earlier about how do we see the market segmenting with respect to technology, but we tempered our normally think of these as zero sum, but the reality is that the technology is start at the upper end of the market and then migrate down to the mass market and it's not a very homogeneous environment out there.
Speaker Change: Arms of where things stand today. So what has happened is cockpit domain controllers.
Speaker Change: A lot of sense at the mid to the upper end of the market because it allows you to put more processing power and therefore drive more software defined features inside the vehicle mostly in the cockpit right now what has happened as we just talked about earlier that AI is starting to impact that which means that even further segmentation with.
Speaker Change: Then the cockpit domain controllers, where you would have.
Speaker Change: The class of those systems without AI capable versus your normal cockpit domain controller, which offers still much higher compute than a discrete digital cluster in a district infotainment. So if you think about this three step approach we are seeing growth in all three segments of this product as I just described.
Speaker Change: Not at all a zero sum game number to that.
Speaker Change: Complexity in terms of technology.
Speaker Change: Gross exponentially because although we talk about it as just maybe hardware capabilities. It is attracting a ton of software.
Speaker Change: At every stage of the step.
Speaker Change: And therefore, if you do not have the full portfolio of capabilities that are part of your platform already integrating all these various technologies from third parties and making it all work is a nightmare. That's what has been really the reason why if you just think about all of these Oems with all this.
Speaker Change: Hence investments that they've made and trying to bring that in house it hasn't really worked.
Speaker Change: We have built a platform.
Speaker Change: So I'm not going to comment on who are the emerging competitors and so on all those say that is that we do not see a lot of new competitors emerge is still there.
Speaker Change: Have the same set and even within that it's getting increasingly challenging to be able to execute.
A.
Speaker Change: A single supplier. So we do see as we go forward more of a collaboration between.
Speaker Change: The tier one suppliers, the OEM and some technology partners.
Speaker Change: That bring more and more of all of these other technologies that I mentioned, mostly software.
Speaker Change: And that's going to be the approach for the upper end of the market for the mid end below it's going to be business as normal.
Speaker Change: That's super helpful. Appreciate that and just my follow on and apologize if I missed this but can you provide shed any light on the German acquisition, you made for roughly $50 million, which is half of I think the intended target of.
Speaker Change: $100 million type of bolt on pipeline.
Speaker Change: The benefits are of that business and in the absence.
Speaker Change: The other $50 million or so toward M&A should we assume buybacks.
Speaker Change: Yes.
Return thanks.
Speaker Change: Yes, let's let me address that first and then I'll turn where Jerome to talk about the buybacks and maybe a little more detail. So the way, we look at how and where we're at in the industry with the latest technology trends impacting it the law.
Speaker Change: Last five years four years of digitalization and connected car.
Speaker Change: And the next five years, we believe are going to be more driven by software defined and AI defined.
Speaker Change: Vehicles as.
Speaker Change: As we just discussed right now our strategy is to make sure that we are in a position to lead through technology and offer all of the key capabilities required to business platforms. As I mentioned, if you do not have those capabilities you cannot hope to catch up and this trend is accelerating is not even.
Speaker Change: Stable, let alone slowing down so we have been continuously looking at the make versus buy decision on various technologies and we do a lot of make ourselves, okay and thats going to continue for example, we just launched.
Speaker Change: Vision based surround vision based technology for integrating multiple cameras and the CDC, but one of the very few that can do that today at even the entry.
Speaker Change: <unk> of the market now that was done in house.
Speaker Change: Now at the same time, we're looking at opportunities, where we can acquire specific capabilities and strengthen.
Speaker Change: Technology offerings and this company that we bought it's a small technology company based in Germany that focuses on connectivity in E mobility technology and today. They are engaged with German Oems supporting their technology development needs. They have deep expertise in that area.
Speaker Change: And it helps us as I said to strengthen our capabilities and maybe plug a few holes that we may have on top of that it enables us to engage in services engagements with Oems because they're also trying to figure it out what are they going to do in those areas beyond what we currently have defined four.
Speaker Change: Next generation cockpit, so what we are starting to define or referred to as outsourced R&D services.
<unk> is a very exciting area of potential growth opportunity for visteon.
Speaker Change: Maybe touching.
Speaker Change: Just to comment on the share repurchases versus M&A, we want to keep it very balanced overall and we'll continue to look at acquisitions, but in the short term with the cash that we've generated we should be able to do both continue to look at acquisitions, while theyre doing some share repurchases.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Edison <unk> with Deutsche Bank. Your line is open.
Speaker Change: Edison <unk> with Deutsche Bank. Your line is open.
Speaker Change: Let's see if we can take another one.
Speaker Change: I'll move onto the next caller.
Speaker Change: Next question comes from <unk> Patel with Wolfe Research Your line is open.
Speaker Change: Hey, Thanks, so much for taking my question.
Speaker Change: Just wanted to follow up on the commentary around displays.
Speaker Change: You mentioned that in the next couple of years, you could see that grow to about the same size as youre clusters business, which would be quite a significant amount of growth in.
Speaker Change: Just thinking about.
Speaker Change: How can you how to frame your current market position in displays any again any color on the kind of margin profile that you have in this business is it relatively in line with the corporate average so more like 14% margin.
Speaker Change: I would answer that first yes, absolutely I think the margin.
Speaker Change: Look very good and the way I would look at of displays different from maybe some other products is that it is lower software content, but it is a lot of the other value adds that we do that is driving margins.
Speaker Change: What we're seeing.
Speaker Change: Is that the value of displays that were doing especially for the premium and upper end of the market is significantly higher than let's say the ESP of a digital cluster and that's really what's going to drive.
Speaker Change: A pretty rapid growth in display revenue.
It depends to a certain extent on of how successful some of our customers are that.
Speaker Change: They are.
Speaker Change: Trick vehicle launch and production.
Speaker Change: Which as I've said before we do believe that.
Speaker Change: We.
Speaker Change: Entering into this.
Speaker Change: Our timeframe where to 'twenty six 'twenty seven.
Speaker Change: The state and federal mandates here in the U S and also in Europe with the emissions.
Speaker Change: The step up that is.
Being required.
Speaker Change: Drive more sales of those vehicles and that's going to also pulled this content more so we have we have.
Speaker Change: And the high number of new product launches around displays the values higher and we are pretty.
Speaker Change: Feeling pretty good about the growth profile there.
Speaker Change: Okay, Great and then I wanted to just.
Touch a little bit on a topic that came up earlier around the competitive landscape broadly.
Speaker Change: Mainly focusing on China in particular, we do see.
Speaker Change: Cockpit electronics players in that market in areas like displays cluster as cockpit domain controllers.
Speaker Change: They seem to be pricing their products quite competitively, while still generating decent gross margins and growing volume Im curious what youre seeing from a competitive landscape in China and do you see.
Speaker Change: Risks or are you seeing any any.
Speaker Change: Spansion of those players into markets outside of China.
Speaker Change: Yes, so let's talk first about what's happening in China, right and I mentioned that we have been pretty.
Speaker Change: I would say disciplined about how we go about the opportunities there.
Speaker Change: The pace of change of technology adoption being very rapid what we see is that very often those Oems are replacing those electronics faster than what would be good for returns on that business.
Speaker Change: So we do not really see even if the margins may look good.
Speaker Change: On paper the frequent changes are not driving profitability with most of the suppliers. If you look at many of the suppliers. There most of them are not profitable or.
Speaker Change: Not sufficiently profitable.
Speaker Change: No.
Speaker Change: The issue there and now at the same time, if you look at the cost structure of these we feel we are competitive with anybody.
Speaker Change: We've never seen that we somehow are at a disadvantage when it comes to cost no pricing is a different matter, but from a cost viewpoint. We are extremely competitive. So that's the other point now as far as those suppliers coming to outside of.
Speaker Change: China.
Speaker Change: We'll naturally see some suppliers come as to.
Speaker Change: The China Oems also start to export more as you know 20% of the vehicles produced in China exported.
Speaker Change: We have a very good footprint already in fact, that's one of our value propositions to Chinese domestic Oems has to be a partner to them for their business outside of China.
Speaker Change: And we do not see that there would be any different in terms of.
Speaker Change: Being a competitor to the ones that we have today outside of China.
Speaker Change: China.
And at the end of the day, we have to be able to live on our own competitive capabilities, which we feel good about.
Speaker Change: Okay.
Speaker Change: This concludes our earnings call for the third quarter of 2024. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: [music].