Ryan Ghazaeri: Good morning. I am Ryan Ghazaeri, Vice President of Investor Relations and Corporate Strategy. Welcome to our earnings call for the Q3 of 2026. Before we begin this morning's call, I would like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled "Forward-Looking Statements" in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website. Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.
Ryan Ghazaeri: We have scheduled the call for 1 hour and will open the lines for questions after Sachin's and Jerome's prepared remarks. Please limit your participation to one question and one follow-up. Thank you for joining us. I will now turn over the call to Sachin.
Sachin Lawande: Thank you, Ryan, and good morning, everyone. Visteon delivered strong sales growth in Q3 despite a challenging industry production environment. Customer-weighted vehicle production declined approximately 5 percentage points during the quarter, yet our sales grew 6% year-over-year to $970 million, resulting in approximately 10 percentage points of market outperformance, excluding the impact of memory recoveries and pricing. During the quarter, we recorded $77 million of specific warranty charges related to two instrument cluster programs with separate customers. The charges follow customer decisions made in the quarter and relate to two unrelated issues. In one program, we expect to remediate affected vehicles through software updates, in the other, through product replacement. The root causes have been identified and corrected, and the charges reflect our best estimate of the cost to complete these actions.
Sachin Lawande: As a result of these charges, our adjusted EBITDA for the quarter was $46 million, compared with $123 million excluding the charges. This represents an adjusted EBITDA margin of approximately 4.7% or 12.7% excluding the charges. While these charges had a significant impact on our profitability for the quarter, they relate to previously delivered products and our underlying operating performance remains strong. We have made good progress recovering higher memory costs incurred earlier this year. As component costs continue to evolve, we are actively working with customers and suppliers to mitigate the impact consistent with the disciplined approach we have followed during prior shortages. Adjusted free cash flow was neutral in the quarter as we increased inventory of critical semiconductor components in response to emerging parts shortages. We ended the quarter with net cash of $136 million.
Sachin Lawande: Beyond the financial results, we continue to execute on the strategic priorities we outlined at Investor Day. We launched 21 new products across 14 automakers, including our first SmartCore high-performance compute program with Chery. We also secured approximately $1 billion in new business awards, bringing year-to-date bookings to $3.9 billion. Finally, we completed our $200 million accelerated share repurchase during the quarter, marking the first step in executing the capital allocation framework we outlined at Investor Day. Let me now turn to our Q3 sales performance on page three. This slide shows our regional sales performance in what was a challenging production environment in most markets where we operate. Overall, customer vehicle production declined during the quarter, most notably in China. Yet our recent launches over the last few quarters enabled us to grow sales and outperform the market.
Sachin Lawande: In the Americas, our performance was impacted primarily by lower BMS sales to GM compared with elevated demand in the prior year quarter ahead of the expiration of the EV tax credits. This was partially offset by the ramp-up of new programs with Ford and Nissan. Europe was our strongest performing region, with sales growth of nearly 20%. Our panoramic multi-display and cluster program with Audi, display and cluster programs with Renault, and display launches with Mercedes all contributed to this growth. These more than offset roll-offs and lower volumes on legacy programs with BMW. In Asia, excluding China, our sales grew approximately 14%, led by new launches of our SmartCore domain controller in India with Mahindra, as well as digital clusters on two-wheelers with Royal Enfield and TVS.
Sachin Lawande: The strong performance in India more than offset the roll-off of a Mazda program in Japan and currency headwinds from the Indian rupee and Japanese yen. Finally, in China, customer production declined approximately 17%, in line with the broader industry, excluding exports. While lower domestic demand is impacting production at all OEMs, international OEMs are impacted more, including Visteon customers such as Volkswagen. While our international OEM customers continue to face lower demand, we are successfully repositioning our China business toward domestic OEMs that are gaining share. Domestic OEMs now account for approximately half of our China sales, compared with just over one-third a year ago. This is important as our strategy is increasingly aligned with premium segment brands of Chinese domestic OEMs that are gaining share in that market.
Sachin Lawande: With the anticipated launches of high-performance compute systems with leading domestic OEMs, Geely and SAIC, we expect our China sales to return to growth in Q4. Overall, the quarter demonstrated that while customer vehicle production declined, our launch execution and diversified customer portfolio enabled us to deliver strong sales growth and position the business well for Q4 and into 2027. Turning to page 4. We launched 21 new products across 14 automakers in Q3, continuing a year of high launch activity that sets the stage for 2027. The highlight of the quarter, shown on the right, is the launch of our SmartCore high-performance compute cockpit domain controller on the Chery Freelander 8 in China.
Sachin Lawande: The system consolidates more than 10 electronic control units into a single system and brings integrated edge AI capabilities into the cockpit, addressing one of the fastest emerging areas of product differentiation in the Chinese automotive market. This launch with Chery is the definition of China speed as it represents the first-to-market system on a new fifth-generation Qualcomm chip with a booking to start of production timeline of approximately 13 months. The program is following its planned launch ramp, with volumes expected to increase in Q4 and through 2027 as additional vehicles are introduced. With BMW, we launched our cockpit domain controller in Europe on the new i3, one of the first vehicles built on BMW's next-generation electric vehicle platform. This is an important high-volume program for Visteon, with launches in additional markets planned later this year, followed by expansion to other BMW models in 2027.
Sachin Lawande: Also in Europe, we expanded our panoramic display and cluster program with Audi through the launch of the A3, adding another vehicle to the successful program that has been an important contributor to our market outperformance this year. Beyond Europe, we launched a driver display for a new Lexus electric SUV serving the Japanese and North American markets. This is one of the several planned launches with Toyota that we highlighted at Investor Day, supporting our strategy to expand our business with this important customer. We also continue to expand our presence beyond passenger vehicles with launches of connected digital clusters for Royal Enfield and Honda two-wheelers, as well as cockpit domain controllers for Volvo Construction Equipment excavators in Korea and China. These programs demonstrate how we are leveraging our proven cockpit technologies to capture growth opportunities in adjacent mobility markets. Overall, these launches reinforce several important trends.
Sachin Lawande: First, our portfolio continues to migrate toward higher-value cockpit computing and display technologies. Second, our high-performance compute business has moved from new business awards into production. Finally, we continue to expand in adjacent mobility segments, supporting a more diversified growth profile. Turning to page 5, new business bookings were just under $1 billion during the quarter, bringing our year-to-date total to $3.9 billion. Several significant sourcing decisions that we anticipated in Q3 shifted into Q4 as carmakers evaluate changes in memory technologies and product architectures. These opportunities remain in our pipeline, although some final award decisions may extend into 2027. Importantly, we have not seen a corresponding change in the underlying demand for our products.
Sachin Lawande: Based on our current pipeline of opportunities and anticipated customer sourcing decisions in Q4, we continue to target $6 billion in new business bookings for the full year. Looking beyond 2026, we also see opportunities for new product designs and platform upgrades as customers transition to newer memory technologies, which we expect will further strengthen our pipeline. Our wins in Q3 also support a strategic objective of growing our business with targeted customers in Asia, including Toyota, Maruti Suzuki, and Tata Motors. Furthermore, reflecting the shorter time from award to launch, about half of our Q3 new business awards will launch in 2027, with another 25% launching in 2028. Let me highlight a few of the strategic new business wins from the quarter. First, we secured a cross-car platform display business with a Japanese OEM for its premium brand, covering multiple markets.
Sachin Lawande: The first launch is in China on an electric SUV in 2027, followed by a global launch on a hybrid crossover in 2028. Visteon is the sole supplier for this product and is well-positioned to win follow-on opportunities. Second, we won two display programs with a leading Indian OEM, marking our first display wins with this customer. This OEM has traditionally offered small displays in its vehicles, and the move to 12.3- and 12.8-inch displays represents a significant shift in its cockpit strategy. These displays go into production in 2028 on two vehicles, with opportunities to expand to additional models. We also won a 10-inch center information display for a light-duty commercial vehicle with a North American OEM. The initial launch is for the European market, with follow-on opportunities in other regions.
Sachin Lawande: Finally, we secured a center display and infotainment system with integrated vision processing across multiple vehicle models with an Indian OEM, further strengthening our position in one of the fastest-growing markets in the world. The program includes a 10.25-inch display along with a silver box that provides infotainment functions, rearview camera processing, and visualization. Overall, our Q3 and year-to-date bookings reinforce the strategy that we presented at Investor Day as we continue to diversify our customer base across Japan, India, and non-passenger vehicle markets. Turning to page 6, let me now turn to our outlook for Q4. Demand for our advanced cockpit products remains healthy, supported by recent launches and increasing content per vehicle, even as industry vehicle production and component availability remain challenging.
Sachin Lawande: Our recent launches, including the Audi cluster and display system, the BMW cockpit domain controller, and our Chery high-performance compute program, continue to ramp with volumes growing sequentially. We also have additional launches in Q4, including high-performance compute systems with leading domestic OEMs in China, a high-volume digital cluster program for a Japanese OEM in the North American market, and cluster programs for two-wheelers in India. Together, these programs are expected to more than offset normal program roll-offs and lower customer production volumes, driving strong market outperformance in Q4. Turning to the supply environment, memory and other electronic components have remained tight throughout the year. So far, we have successfully managed these constraints without impacting customer production, working closely with our supply chain partners.
Sachin Lawande: However, we are beginning to see greater industry-wide supply headwinds, particularly for memory and printed circuit boards, which could constrain vehicle production in Q4. To mitigate these challenges, we have taken several proactive measures. We have entered into strategic supply agreements with memory and printed circuit board suppliers, expanded our supplier base for DRAM and NAND memory, and undertaken product redesigns to reduce reliance on constrained components. These actions are already delivering benefits and are helping us maintain supply continuity, positioning us to finish the year with meaningful growth over market. Looking ahead to 2027, we expect memory costs to exceed the assumptions we outlined at Investor Day in June. We have made significant progress securing additional memory supply through strategic agreements with established suppliers and commitments from new suppliers.
Sachin Lawande: These actions have substantially improved our visibility into memory availability for next year, although this additional supply is coming at higher costs. We are actively working with our customers to address these increases and expect to provide greater clarity when pricing and commercial discussions progress, as we are still finalizing pricing with suppliers. Jerome Rouquet will provide our current planning assumptions at the end of our presentation based on the visibility we have today, but ultimately, the financial impact will depend on product mix, customer production volumes, and our commercial arrangements with customers. Turning to page 7. Let me conclude by summarizing what we accomplished this quarter. First, we delivered strong market outperformance of approximately 10 percentage points, driven by some high-value product launches with OEMs, primarily in Europe and Asia. Second, we maintained commercial and operational discipline in a difficult supply environment.
Sachin Lawande: We are working on securing the components we need to support our customer demand while working to offset cost increases through recovery agreements. Third, our growth pillars continued to build momentum. We launched new next-generation products in China, India, two-wheelers and commercial vehicles, as well as global programs with our Japanese customers. Finally, we completed our $200 million accelerated share repurchase program, continuing to execute the capital allocation framework we outlined at Investor Day. Overall, this quarter provided another proof point that the strategy we outlined at Investor Day is translating into market outperformance. We are addressing near-term operational challenges while continuing to execute our growth strategy with a strong pipeline of product launches and new customer opportunities heading into 2027. With that, let me turn the call over to Jerome Rouquet, who will review our financial results in more detail.
Jerome Rouquet: Thank you, Sachin, and good morning, everyone. Our Q3 results reflect three key themes. First, strong sales growth and launch execution. Second, resilient underlying profitability despite two distinct warranty charges and the timing of some customer recoveries. Third, deliberate working capital investments in inventory to improve supply chain resilience and support upcoming launches. For the quarter, sales were $970 million, up 6% from the prior year. We delivered growth over market of 10% relative to customer-weighted production, driven by strong launch execution, most notably in Europe and India. Adjusted EBITDA was $46 million or 4.7% of sales, including approximately $77 million for two specific warranty-related charges Sachin mentioned earlier. Excluding these charges, adjusted EBITDA would have been $123 million or 12.7% of sales, compared with 12.1% in Q2.
Jerome Rouquet: This demonstrates the resilience of our underlying performance despite additional inflation pressures beyond memory, mostly in PCBs and other electronic components for which customer recoveries are still being negotiated. Adjusted free cash flow was almost break even for the quarter. Cash flow performance reflected our deliberate decision to build inventory to secure more strategic supplies, increase safety stocks of selected components, and support upcoming product launches. At the same time, we continued to execute our capital allocation priorities. During the quarter, we completed a $200 million accelerated share repurchase program and paid $9 million in dividends, returning a total of $209 million to shareholders. We have now returned approximately half a billion to shareholders since our 2023 Investor Day in the form of share repurchases and dividends. We ended the quarter with net cash of $136 million, near the target outlined at our June Investor Day.
Jerome Rouquet: Overall, the quarter demonstrates strong market outperformance and launch execution, resilient underlying profitability, and disciplined deployment of our balance sheet while being able to manage near-term cost pressures and withstand working capital pressures. Turning to page 10. Sales for the quarter were $970 million, up $53 million or 6% from the prior year. It is now the second quarter this year that Visteon posted absolute year-over-year growth. Q3 customer-weighted production declined approximately 5%, with the most significant decline in China. Against that backdrop, we delivered growth over market of 10%, excluding pricing and recoveries. This outperformance was driven by the continued ramp-up of recent launches with Audi, Renault, Nissan, and Mahindra, partially offset by lower BMS volumes with GM and the roll-off of certain legacy programs.
Jerome Rouquet: Net customer recoveries for electronic cost inflation, including both legacy costs and 2026 inflation, contributed approximately $50 million to sales, a year-over-year increase of approximately $20 million, more than offsetting normal pricing reductions. Adjusted EBITDA was $46 million or 4.7% of sales, including approximately $77 million for two specific warranty-related charges highlighted earlier. Excluding these charges, adjusted EBITDA would have been $123 million, compared with $119 million in Q3 2025, demonstrating the resilience of Visteon's underlying performance. The year-over-year EBITDA bridge reflects higher volumes from recent launches, customer commercial recoveries, operational efficiencies, and lower accruals for incentive compensation. These benefits were offset by elevated warranty charges, higher supplier costs, and negative exchange rate impacts. Inflation-related recoveries remain an important driver of our 2026 results. In Q3, customer recoveries fully offset memory cost increases, consistent with the progress reported in Q2.
Jerome Rouquet: However, we incurred approximately $10 million of cost leakage from a second wave of inflation in PCBs and other electronic-related components that began in Q2. We are actively negotiating with customers to recover this cost along with ongoing memory inflation. Overall, the quarter reflects strong growth over market performance and launch execution, resilient underlying profitability excluding the specific warranty-related charges, and continued progress on recoveries and cost initiatives. Turning to page 11. Adjusted free cash flow was -$1 million in the quarter and -$4 million for the first nine months of the year, compared with $215 million in the same period last year. The year-over-year decline primarily reflects three factors: lower underlying earnings, a deliberate investment in working capital to strengthen supply resilience and support launches, and the timing of cash taxes and other annual payments.
Jerome Rouquet: First, year-to-date adjusted EBITDA was lower by $116 million compared to the prior year period. This primarily reflects $77 million of two specific warranty charges taken in Q3, which did not impact cash this quarter, cost inflation, and the timing of customer recoveries, as well as non-recurring commercial items that benefited prior year. Second, trade working capital was a use of cash of $99 million year to date. Inventory increased as we built safety stocks of critical components, absorbed higher component costs, and supported upcoming launches. This is a deliberate investment to improve supply chain resilience as the supply of certain components, including memory and other electronic components, is tightening while costs continue to rise. Receivables also increased due to higher sales and the timing of certain customer collections, which we expect to improve in Q4.
Jerome Rouquet: Third, cash taxes were $14 million higher year over year, including the one-time settlement in India related to prior years that we discussed in Q2. As in prior years, H1 cash flow also included the annual incentive compensation payments. Finally, year-to-date capital expenditures were $103 million, reflecting continued investment in new program launches, vertical integration, and capacity expansion in India and other growth markets. We ended the quarter with net cash of $136 million after returning $209 million to shareholders this quarter. This included the completion of our $200 million accelerated share repurchase by quarter end, which reduced outstanding shares by approximately 2 million or 7.5%. Turning to page 12. We are updating our full-year guidance to reflect our year-to-date performance, integrating our strong sales performance, the two distinct warranty-related charges discussed earlier, and our current outlook for component inflation and inventory.
Jerome Rouquet: We now expect sales to be between $3.8 billion and $3.85 billion, with the midpoint being $25 million above where we were trending too in Q2. This outlook reflects our year-to-date performance, successful Q3 launches, and confidence in our strong Q4 launch cadence. Key launches include displays with several of our fastest-growing OEM customers and the continued ramp-up of our high-performance compute programs in China. These benefits are partially offset by softer customer production. Overall, for the full year, we expect sales to grow low single digits year over year, resulting in growth over market in the mid-single digits. For adjusted EBITDA, we now expect $370 million to $410 million, compared with our prior range of $455 million to $495 million. The revised outlook primarily reflects the $77 million warranty-related charges highlighted earlier.
Jerome Rouquet: As discussed in Q2, inflation initially concentrated in memory has broadened to other purchased electronic components, and we now anticipate that these combined incremental costs will represent approximately 3.25% of total sales for the full year. We are in active negotiations with our customers to recover these costs. However, we do not expect to fully offset these cost pressures in 2026, largely due to recovery timing. The estimated margin impact to our full-year EBITDA represents approximately 85 basis points of margin, including dilution and leakage. Elevated memory and other component costs are projected to continue in 2027, and while vehicle volumes, content decision, supply dynamics, and other factors will drive the ultimate cost, based on current visibility, we anticipate additional costs in 2027 to be similar to the levels we saw in 2022.
Jerome Rouquet: As a result, given the higher cost levels we now anticipate, both the associated recoveries and the resulting margin dilution are expected to be greater than what we had assumed in June. As mentioned by Sachin Lawande, we continue to be actively engaged with our suppliers and customers, and we will be providing an update in February 2027. Turning back to Q4 2026, even with these headwinds, we expect margins to improve in Q4, supported by additional customer recoveries and the continued ramp-up of cost initiative across product, vertical integration, and engineering productivity. For adjusted free cash flow, we now expect $90 million to $130 million, compared with our prior range of $170 million to $210 million.
Jerome Rouquet: The revision primarily reflects higher inventory as we secured supply of critical components with our customers, along with the timing of customer collections for cost inflation recovery agreements expected to be finalized in Q4. We continue to expect strong Q4 cash generation driven by higher EBITDA and a cash inflow from working capital, mostly as a result of collections for receivables and customer recoveries. Turning to page 13. Visteon remains a compelling long-term investment opportunity. We are well-positioned for long-term top-line growth, margin expansion, and free cash flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. In summary, Q3 reflects a strong growth over market in a challenging production environment.
Jerome Rouquet: We remain confident in the long-term opportunity ahead as we execute on the plan that we outlined in June. Thank you for your time today. I would like now to open the call for your questions.
Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. Please give us a moment to compile the Q&A roster. Your first question comes from Mark Delaney with Goldman Sachs. Your line's open. Please go ahead.
Mark Delaney: Yes, good morning. Thank you for taking the questions. I guess maybe first to level set a bit on the 2026 top-line outlook, the company raised the midpoint by $25 million. I think there is higher pass-throughs now assumed, but you also have mentioned some softening, I believe, in the underlying business. Maybe put a little bit more detail around how big some of those different buckets are. Then to the underlying business and some of the softening, is that something that is more temporary in nature or you think potentially sustained into next year?
Sachin Lawande: Hey, Mark. Yeah, this is Sachin. I will take that question first. What we are seeing here is some volatility in production call-outs from some of our customers related to component shortages, not related to Visteon, by the way. So we have taken that into account as we are looking at our outlook for Q4. If those component shortages could be addressed and if the customers are able to recover that production this quarter, then we may have some tailwind, in terms of what we have currently given as our outlook.
Jerome Rouquet: And maybe, Sachin, to add some color on Q4 numbers. So we have put in our guidance close to $940 million in sales. That is fairly flat year-over-year and sequentially down by 3%. Our customer production is expected to be down by approximately 6%, and our growth to market will still be overall, in the mid-single digits. So it is still a very good performance despite these comments from Sachin. We see very strong launch cadence, including the HPC in China. We have also these new launches with Geely and SAIC over there. Overall, a pretty strong performance, which allows us to finish the full year on a strong note.
Mark Delaney: Understood. Thank you for those comments. My other question was better understanding the company's ability to recover costs. Given what you are seeing in Q4 and at the stage for 2027, can you share more detail on how the conversations with OEMs are going, at least qualitatively? Are you seeing any change in how willing they are to pay for the supply at now higher costs? Has that changed relative to what Visteon was able to recover over the last several years? Thanks.
Jerome Rouquet: Yes. I will take that, Mark. We have seen, as you know, earlier this year, a lot of cost increases on the memory side, and we have done a very good job in recovering most of it at the end of Q3. So we are pretty much set on that side. What we have seen, unfortunately, and it has accelerated since Q2, is inflation on other, what I would call electronic components, PCB, and even SoCs. These costs have developed quite fast in Q2 and have accelerated as well in Q3. So we have obviously started negotiation with customers for what we call a second wave of cost increases, and we are very committed to recover the large majority of these. But given the timing, we do think there is going to be some level of leakage in 2026.
Jerome Rouquet: We have therefore assumed that our guidance would be lowered as a result of this leakage. But generally, very committed. We have also started to talk to our customers on cost increases and recoveries for 2027. That is where we are in terms of stages with customers.
Mark Delaney: Thank you.
Operator: Your next question is from Andrew Percoco from Morgan Stanley. Your line is now open. Please go ahead.
Andrew Percoco: Yeah. Thanks so much for taking the questions. Good morning, everyone. Maybe just to pick up where you just left off there on the cost side of the equation. I am just curious if you can maybe double-click on the bridge to 2027, relative to maybe what you guided to with your Investor Day outlook. Obviously some incremental pressure here on the cost side of the equation. You gave some interesting data points in your prepared remarks around cost structure relative to, I think, 2022. But can you maybe just remind us what that could mean and just maybe provide some more numbers around the bridge to 2027?
Sachin Lawande: Yeah. Let me start maybe first with just describing how we see the cost develop. There are really two parts to the cost. One is the memory, and the other is the other electronics components that Jerome Rouquet mentioned. Let me first address the memory topic, because I think besides just the cost, I think it is important to understand where the industry is at with the sourcing of memory, where Visteon is at, and what we then think of the cost. Just taking a step back, DDR4 supply is more constrained next year than it is this year. We are already starting to see some constraints build in the Q4. The main reason for that is that some suppliers have exited the market for DDR4 for auto.
Sachin Lawande: Now, as we look at 2027, the first challenge is to secure sufficient supply to meet the anticipated demand that we have. We have, in that regard, made significant progress, as we started to address this challenge early in the year, working with our established suppliers, while also qualifying additional new suppliers. So what we can say is that for the 2027 anticipated demand, we believe that we have secured a substantial portion of that demand already through this combination with strategic supply agreements plus commitments that we have from new suppliers. Now, in terms of cost, we expected the cost to go up as we indicated on our Investor Day. That cost for DDR4 memory in particular, has continued to see significant upward pressure this year, and we expect that to continue into next year.
Sachin Lawande: Especially as we talk about the additional new suppliers that we are bringing on board to complement the supply that we have from Micron. I should mention, though, we are still in the process. We are working on it as we speak, to finalize pricing with Micron and these other suppliers. So it would be premature for us to give you exact, to quantify it more precisely. What we have said is, in combination with the other electronics components, PCBs in particular, but also some other components, we believe that the cost increase is going to be in the range of what we saw in 2022. If you go back to that year, it was roughly $500 million of incremental cost that we saw back at that time. We believe that it is going to be somewhere in that range.
Sachin Lawande: It will depend on the content mix at our customers, as well as production volumes. So these should only be taken as very indicative. I would say just a range that we should take as indicative of what we think is the likely outcome. Anything more to add, Jerome?
Jerome Rouquet: I would add as well that we are essentially, from a size standpoint, back to what we saw in 2022. We have demonstrated at the time, and I think also recently, that we are able to recover these kind of costs. Obviously, the fact that these costs are so large, it will become imperative to recover above. So our objective for 2027 will be to maintain our EBITDA dollar per our original guidance. There is going to be obviously some dilution on the margin percentage, but we want to keep the dollar intact. That is the objective for next year.
Andrew Percoco: Okay. Paul, that is super helpful commentary. Then maybe just to follow up on China, I think obviously the market continues, the domestic market continues to be quite weak. I know you guys in the past have talked about how you are a little bit more insulated, just giving your tilt towards the premium end of the market. But can you just maybe provide more context in terms of what you are seeing in China on the demand side, as well with exports and if there has been any maybe change in timing on some of the HPC launches, just given some of the weakness that we have seen in the market?
Sachin Lawande: Yeah. Thank you. As you mentioned, the domestic market in China is, I would say, even more than ever, driven by tech content and AI in the cockpit is emerging as one of the biggest areas of product differentiation. With the launch that we just had with Chery on the Freelander, we are really encouraged by the level of interest that we are seeing from other OEMs, in addition to the two additional OEMs that we are going to launch in Q4. The experience that we have gained in launching this first program is obviously helping us in making our technology platform that much more mature. It also allows us to demonstrate this technology to the other customers. We see really three distinct opportunities for expansion.
Sachin Lawande: One is these additional Chinese OEMs that we are now able to demonstrate and have constructive discussions about how we can accelerate their own plans to bring AI in the cockpit. The second is with the three customers that we are working with, Chery, we talked about SAIC, and Geely, who we are in the process of launching with, as we speak. Helping them take AI to their export markets, in particular, initially for Europe. The third are global OEMs that are evaluating AI for the next-gen cockpits. All those three are in active discussions at this stage, various stages of maturity. I believe that this is going to be a really important long-term growth driver for Visteon, not just in China, but also outside of China.
Sachin Lawande: In terms of the volumes that we are seeing, I would say that the Chery program is following its launch of volume plan as they had indicated to us initially. There are more vehicles coming online next year, and we will have to see how they perform in the market. I think this is a trend that we believe is kind of irreversible in terms of that market for sure, and we see a lot of good signs that it will likely also come into other markets outside of China.
Andrew Percoco: Awesome. Thank you so much for all the helpful context.
Operator: Your next question is from Shreyas Patil with Wolfe Research. Your line is now open. Please go ahead.
Shreyas Patil: Great. Thanks so much for taking my question. Maybe following up on the prior comment, Jerome, just wanted to understand some of the tools that you would have to maintain the EBITDA target for 2027, given the amount of inflation that you are talking about, which I believe would be almost 3 times higher than what had been discussed previously. Are there fixed cost reductions that you can implement? Are there reductions to R&D spending? I am just trying to think through some of the internal actions that you could take alongside recoveries.
Jerome Rouquet: Yes. No, my comment was mostly oriented around recoveries and the fact that we would maintain our EBITDA by recovering essentially the amount of cost that we are incurring with minimal leakage. That is essentially where my comment was. As we go into next year, there is going to be a lot of puts and takes. We will be obviously looking at productivity, material cost, other material cost, benefits, commercial recoveries. So there is a handful of tools that we will be using, obviously, to make sure that our EBITDA dollar amount stays untouched.
Sachin Lawande: One more comment I would like to add to what Jerome has just said. We do need to understand that the memory change that has happened is a structural change. It is not an increase that we expect just to impact the industry for one year, right? The industry is going to shift away from DDR4 to DDR5, and that is going to come at a higher cost. As we go forward, the way to think about it is that the industry across both suppliers and the car makers have to just accept this as the cost of doing business going forward. So we fully expect that we will be able to recover all of that incremental cost. Yes, the cost may moderate as we go further beyond 2027, but for 2027, there is no option other than to use this DDR4.
Sachin Lawande: We will have greater flexibility as we go forward to have greater mix of DDR5, but the costs are not going to go back to the 2025 levels. We are seeing a very significant shift, and the industry will just have to come to terms with it, therefore it will be very embedded in our cost of the product.
Shreyas Patil: Okay. On the other parts of the inflation PCBs, other electronic components, do you see that as also kind of structurally higher, or is some of that just a function of higher copper prices or some other input materials?
Sachin Lawande: Yes. It is different. I think in that particular case, it is a timing issue. There is a shortage of some specific components that go into making of the high layered PCBs. In fact, you can think of PCBs as essentially having two, one higher density, which are affected by the shortages, and that is where we see the higher prices, then the more normal automotive PCBs are not quite affected the same way. We expect that to correct as more supply comes online. So that may be more of a 2027 issue than the memory topic.
Shreyas Patil: Okay, great. Just a quick last one. Any thoughts on free cash flow? Just this year, obviously partly impacted by inventory building. Should we assume that that is kind of largely completed in 2026 or do that carry also into 2027? Thanks.
Jerome Rouquet: Yes. We will still see some level of last time buy next year that will probably put some strain early in the month, in the year, in the early months of next year. But for the full year at this point, and obviously we will give more updates in February 2027. But at this stage, we are comfortable with what we have for 2027.
Sachin Lawande: Just to give more color to what Jerome said. There are. We buy many different memory chips, 25 plus in DRAMs alone and then NAND. Some of those chips are essentially going out of production. So we are securing our 2027 supply by buying the full year's demand, and that requires some cash outlays early in the year. Obviously, we will recover that through the year, and for the full year, it is not going to have an impact on the cash flow, but it will be lumpy on account of this dynamic.
Shreyas Patil: Okay, thanks.
Operator: Your next question is from Rajat Gupta from JP Morgan. Your line is now open. Please go ahead.
Rajat Gupta: Great. Thanks for taking the questions. I wanted to follow up on the new business wins target for the year. It looks like you were suggesting that there has been a push-out of certain programs, but you are still reiterating the $6 billion guide for this year. I am curious, are there certain wins that you might have anticipated next year that is being pulled forward? I just want to make sure I am understanding those comments clearly. I have a follow-up.
Sachin Lawande: Well, essentially what happened in Q3 was on account of this memory topic. As you can imagine, as car makers are looking at the next generation of their cockpit systems, previously they were on a product architecture that still relied on the old DDR4 memory. Now they have to take into consideration what they want to do in this interim period, whether they stay on DDR4 or go to DDR5, which comes with it other implications such as what is the Micron that is associated with the memory. So that, in short, becomes a bigger product architecture decision. That has caused some delays in timing. It is important to understand that these are, again, timing delays, not necessarily the same thing as the planned vehicle production delays. They should not be linked.
Sachin Lawande: We continue to pursue those opportunities, and they are part of our new business pipeline in Q4. On top of that, one thing that I would also like to highlight is because of this dynamic with memory, this shortage situation, and this need to shift to more favorable architectures in terms of supply, that is creating additional opportunities that were not part of the pipeline when we started the year. So we are going to see a lot of dynamic changes that will happen in the industry from that perspective. With our platform approach, our speed of delivery, and our ability to launch products quickly, I think we are in a great position to capitalize on what we see as this opportunity that will arise for new business wins as we go forward.
Rajat Gupta: Understood. That is clear. Just wanted to also follow up on latest thoughts on the whole insourcing debate. Clearly a couple of the major North American manufacturers are going to come up with their new software-defined architectures the next couple of years. Curious where you are in discussions with them on potentially partnering in certain areas.
Rajat Gupta: I know you have hinted at maybe on displays or other areas. Then also in China, just hearing from the major manufacturers there is still a push to insource. I am curious if anything has changed around how you view the HPC penetration opportunity in the region as well. Thanks.
Sachin Lawande: Sure. There has been, I would say, an increasing realization at OEMs, and we should separate China from the rest of the world. Now this comment is regarding OEMs outside of China. There has been a greater awareness of the complexities of what we are talking about here with not only the underlying technologies complexity increasing, the supply chain related complexity is also starting to impact the OEM's realization of the challenges in bringing everything in-house. Therefore, we believe that in this memory situation and other supply situations that have arisen, this will drive even a bigger need for OEMs to balance what they do in their internal development versus what they do working with suppliers. We are starting to see this already, this dynamic is starting to now play out where they were initially trying to insource everything.
Sachin Lawande: They are now starting to work with us to understand how we can help them mitigate these challenges. I think this is only going to become a bigger issue as we go forward. When you think about Visteon, we have great cost structure, I would say best-in-class cost structure. We have, in terms of our ability to source semiconductors, perhaps the best abilities amongst our peers. We are in a great position to help them navigate these near-term challenges, and that will help us establish a better relationship, that balance between what they do internally versus what they rely on us for. I think this will create more opportunities for us.
Rajat Gupta: And then on the China piece?
Sachin Lawande: Yeah. With respect to China, here's the piece that I would like everyone to understand. The biggest opportunity for China OEMs right now is not within China. The market is incredibly competitive, and that will be the case as we go forward. Their biggest opportunity is exports. Visteon is very well positioned to support them in large portion because how successful we are in China helping them with their HPC systems. In China, the CDC is essentially old technology now, the cockpit domain controllers. And where they're at now is AI into the cockpit. There are not too many players outside of China that have the capability that we have when it comes to HPC and AI to support their export ambitions. We are starting to really focus on that as a business opportunity for Europe and for South America.
Sachin Lawande: I feel like we are in a pretty good spot with respect to our engagement with China. We understand the overall market pressures there, but we have a very specific strategy that is able to capitalize on what we can help them with.
Rajat Gupta: Understood. Great. Thanks for all the colors, and good luck.
Operator: Your next question is from Dan Levy with Barclays. Your line is now open. Please go ahead.
Dan Levy: Hi. Good morning. Thank you. Maybe we could just quickly start with a question on the warranty expense. I know you mentioned that there were a couple of issues here, and one is through an OTA, the other, there is a product replacement. I think the Q mentions it could be up to an additional $20 million of charges. Maybe if you could just double-click, what is the confidence that these charges are limited and after this is a full non-repeat into 2027? Thank you.
Jerome Rouquet: Yeah. Hi, Dan. I will comment on the $20 million. We have booked $77 million in the quarter, and we believe that this addresses both issues. We had a range of cost for one of the claims, and we recorded our best estimates. We do not anticipate additional costs, but as additional costs could be possible, not probable, we were required to disclose the top end of the range. That is why in the Q you have this mention of the $20 million. To be clear, we believe that we are currently accrued at the right level for these warranty items.
Dan Levy: Okay. Into 2027, so your view is that this is a full non-repeat, these were sort of very isolated incidents, and there is nothing sort of more broadly that is going on, just to confirm that?
Jerome Rouquet: Correct. These two warranty claims occurred in a quarter. We have corrective measures in place, and we do not anticipate additional charges for them.
Dan Levy: Okay. Thank you. The second question is just on trying to extrapolate what we saw in Q3, which was actually quite strong, especially in Europe and rest of Asia. I know you gave some targets at the Investor Day a few months ago, and I am not going to pin you down on updating your 2027 outlook. But the Investor Day commentary did show that sort of inflection in growth. I am just wondering, how much can we extrapolate what we just saw in the strong Q3, Europe, rest of Asia. You continue to see China doing better. How much does that support your view that we are going to see some growth inflection in 2027, even if the number, you will fine-tune it when we get the Q4 earnings?
Sachin Lawande: Yeah. I would say, Dan, that if you look at 2027, our growth is actually quite diversified. Yes, passenger cars, which has been primarily the drivers this year, will continue to grow on account of the launches, mostly in the regions that we have been discussing, which is Europe. China is going to return to growth on account of the launches there. India continues to be a very strong market for us. In addition to that, we have some very high value and high volume two-wheeler launches that are going to be coming online next year as well as commercial vehicles. Coming back to the topic that you asked about Europe and what is driving it, I think we have discussed this before, but just to reiterate, Europe is where we are seeing a lot of demand for our display systems and cockpit domain controllers.
Sachin Lawande: We talked about one launch in Europe this quarter. There is another cockpit domain controller that is launching next year that is also very high value. The combination of large displays, cockpit domain controllers, and the pressure that the OEMs there face on account of the competition from China, we expect to see content continue to grow. Yes, there is the market share loss of our OEMs to the Chinese OEMs. That, however, on the other side, helps us in driving greater content. But as I just mentioned on the previous comment that we fully expect to be able to do business with Chinese OEMs in Europe. Net-net, we expect to be able to exploit what is available to us as opportunities in Europe. Europe is going to be where the content growth will be the greatest on account of the competitive dynamics outside of China.
Sachin Lawande: After that, we see similar dynamics in India with respect to content growth. I think fundamentally, we see the demand for our products remain really strong. That has continued this year. This is why Q3 has been so strong, and Q4 also will be very strong. I think what we talked about on our Investor Day, we are starting to see exactly that play out, and we are very happy to see that despite the industry having challenges, we are able to execute to our plan.
Dan Levy: Great. Thank you.
Operator: All right. Thank you. This concludes our earnings call for the Q3 2026. Thank you for participating in today's call and your ongoing interest in Visteon. This concludes Visteon's Q3 2026 results earnings call. You may now disconnect.
