Visteon Corporation

Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to Vistion's first quarter 2023 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by number one on your telephone keypad. If you would like to withdraw your question, Again, star one. Thank you. It is now my pleasure to turn today's call over to Mr. Ryan Wendling, Vice President of Investor Relations and Treasurer. Sir, please go ahead.

Good morning. I'm Ryan Wendling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the first quarter of 2023. Please note that this call is being recorded and all lines have been placed in a listen-only mode to prevent background noise. Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks, and uncertainties that could cause our actual results to differ materially from those expressed in these statements. please refer to the page entitled forward-looking information for additional details. Presentation materials for today's call were posted on the investor section of Visteon's website this morning. Please visit investors.visteon.com to download the material if you have not already done so. Joining us today are Sachin Lawandi, President and Chief Executive Officer, and Jerome Roque, Senior Vice President and Chief Financial Officer. We have scheduled a call for one hour, and we'll open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you for joining us. Now I will turn the call over to Sachin.

Thank you, Ryan, and welcome to the Visteon team. Good morning, everyone, and thank you for joining our first quarter 2023 earnings call. Page 2 provides a summary of our results for the first quarter. The company continued to execute its growth strategy well, starting the year on a strong note. First quarter sales were $967 million, an increase of 22% year-over-year, excluding currency, compared to a 6% increase in global vehicle production. Our performance in sales was mainly driven by the strength of our product portfolio, which continues to benefit from the industry shift to digital and connected cockpit experiences. Our sales have now outperformed industry vehicle production for 16 consecutive quarters. Adjusted EBITDA was $99 million, or 10.2% of sales, an increase of $28 million when compared to last year. Our global team continues to demonstrate excellent operational and commercial discipline and deliver exceptional results despite the challenging industry environment. Proactive engagement with customers and suppliers helped us mitigate the impact of semiconductor shortages and was a critical factor in driving our overall performance in the quarter. Adjusted free cash flow followed historical patterns and, as anticipated, was a negative $37 million in the quarter. On the operational front, the company had a busy quarter with our products launching in 34 new vehicle models, which will help us to continue our sales growth in the near term. The company also had a strong start to the year with $1.5 billion in new business wins for the first quarter. This puts us on track to achieve our full year goal of $6 billion in new business wins. We continue to make good progress in our electrification business in the quarter with the extension of our existing BMS business to support additional electric vehicle models with existing customers and signing strategic joint development agreements for new technology with key car manufacturers. In summary, the company had a strong start to the year, and it puts us in a good position to achieve the full year guidance targets that we have provided earlier this year. Turning to page three. Q1 industry vehicle production volume was up in all regions of the world except in China, which was down due to a mix of demand pull ahead in Q4 of last year due to expiring incentives and weaker consumer sentiment. Visteon customers fared better than the general industry in Q1, with vehicle production at our top customers growing 9% year-over-year compared to 6% for the industry. Europe led the growth on account of a strong order backlog coupled with improved supply of semiconductors. Consumer demand in the US was also robust, driving double-digit vehicle production growth compared to prior year. And while vehicle production was down in China, it was offset by production increases in the rest of Asia. Semiconductor supply, which has been the primary supply constraint in recent years, continues to improve gradually. In Q1, the number of chips that were in critically short supply and impacting production was less as compared to prior quarters. However, even with the improved supply, there are still a number of key semiconductors that are below current demand, causing growth to be muted. Nonetheless, the improved supply enabled the industry to build more cars in Q1 than was initially anticipated. Semiconductor pricing, however, remained at elevated levels in Q1 despite the improvement in supply. Visteon sales benefited from higher customer vehicle production as well as the ramp up of recently launched products. In addition to the improved chip supply, our recent product redesigns to use alternate chips mitigated supply shortages of critical components. Our sales also benefited from the recovery of higher supply chain related costs that we had to share with our customers. Overall, the first quarter was positive in terms of consumer demand and vehicle production that was helped by improved semiconductor supply. The actions we have taken to mitigate impact of semiconductor supply have enabled us to ramp up production of new products quickly and drive faster than market sales growth in the first quarter. Turning to page 4, our digital cockpit products did well in Q1, continuing the strong performance from prior quarters. When excluding the favorable year-over-year impact from net pricing and the unfavorable impact from foreign exchange, visiting on sales in Q1 grew 20% year-over-year. Our cluster sales growth was driven by the ramp up of recent digital cluster launches with GM, Volkswagen, and Nissan on some of their high volume vehicle lines. Despite the high growth, it was still muted due to the constraint in supply of a key microcontroller used in several digital cluster products. We are working on a redesign that will help mitigate the impact going forward. Our cluster business continues to shift more towards all digital systems, And in Q1, shipment of digital clusters exceeded that of hybrid clusters for the first time. Overall industry penetration of digital clusters is much lower at about 25%, which provides substantial runway for future growth. Our smart core products also did well in Q1 with sales growing at all customers and particularly with Geely and Mahindra due to ramp up of recent launches on new vehicle models. The success of SmartCore in India with Mahindra is a good indication of the growing interest in high-performance cockpit systems for mid-segment vehicles. While we have launched several new displays recently with multiple car manufacturers, in the near term, our displays business is impacted by the roll-off of our business with BMW, which was first launched in 2018. As a result, we expect our display business revenue to be down this year before starting to grow again from 2024 onwards, all of which was factored into our full-year guidance. Lastly, sales of our infotainment and audio systems also did well in Q1 on account of improved semiconductor supply that helped us in our business with VW and Stellantis. Overall, demand for our digital cockpit products was strong in the first quarter. The improved semiconductor supply and the recent product redesigns helped in narrowing the supply gap, resulting in a strong quarter of product sales for the company. Turning to page five. We started the year on a strong note with $1.5 billion in new business wins in the first quarter. The combination of the strong start and a robust pipeline of opportunities across all core products positions us well to achieve our full-year target of $6 billion in total wins. The composition of the first quarter new business wins reflects the current focus of the industry on the electrification of the powertrain and connected and digital experience in the cockpit. We have highlighted a few wins on the right of the page. We added two more vehicle models to our smart core business with the Chinese OEM. High-performance computing in the cockpit is becoming increasingly important for market competitiveness, and especially for electric vehicles. The systems will launch within 12 months, which is very ambitious for systems of this level of complexity. We also added a new customer for a standalone Android-based infotainment business in India. With the addition of App Store and OTA capabilities, we are very competitive in the discrete infotainment product segment for mass market vehicles, especially in emerging markets. Lastly, we added more electric vehicle models to our wireless BMS product line with an existing global customers North American brands for launch in 2024. This win extends the program on several new vehicles including electric versions of the OEM's flagship full-sized SUVs and trucks. These additional vehicles are scheduled to go into production later in 2024 and in 2025 and across multiple brands in North America. The wins we have highlighted are a good example of the platform approach to sourcing that OEMs are increasingly taking for their electronic systems. The increased complexity and the shorter product introduction timelines make it more attractive to develop systems that can work across multiple vehicle models. On the following slide, I would like to spend a few minutes discussing the progress we made in our electrification business and the momentum we're building in this area. Turning to page six. The automotive industry has seen a rapid growth in sales of electric vehicles in the past three years, and in the first quarter of this year, battery electric cars made up about 10% of all passenger vehicle sales for the first time. Car manufacturers are responding to this trend by rapidly launching new electric vehicle models. Visteon's strategy in electrification is to help car makers build battery electric vehicles that offer superior range in charging performance through innovation in BMS and power electronics. This slide summarizes the progress we've made in building momentum in our electrification business over the past couple of years. We introduced the first wireless BMS system in the industry in 2020. and have continued to develop advanced features to improve measurement accuracy and safety while supporting the latest battery chemistries and cell configurations. In total, we have added three car makers to our customer portfolio for this first generation of wireless PMS system and have won over $5 billion in business across 24 new vehicle models that are just starting to launch. These wins will keep our team busy with upcoming launches and will generate significant revenue for the company for the rest of the decade. While the first generation electric vehicles are using 400 volt battery systems, the past two years have seen an increased interest in the use of higher voltage battery systems to reduce charge time and for other benefits. In addition to upgrading our BMS technology to support 800 volt batteries, We've also added power electronics products to our portfolio, focusing on bidirectional grid-to-cell charging and power conversion for high-voltage systems. Our goal is to facilitate the shift of the industry to 800-volt and higher battery systems, which we believe will help accelerate the shift to electric vehicles with a broader set of consumers. Earlier this year, at the Consumer Electronics Show in Las Vegas, We showcased our latest BMS system and new power electronics technologies with support for both 400 and 800 volt configurations. Since then, we have signed a joint development agreement with a high volume car maker in Asia to co-develop the next generation BMS solution that's targeted for launch in 2025. We have also signed an agreement with a luxury car maker in Europe to develop a prototype of a highly integrated onboard charger and multiple DC to DC converters to power their next generation of electric vehicles. These joint development programs validate Visteon's technology capabilities in electrification and positions the company well to win future business. In addition to these advanced technology development initiatives, We are in discussions with multiple car makers to develop 800-volt version of BMS systems for market introduction in the 2025-26 timeframe. I expect the company to announce additional customers and business for electrification through the rest of the year. I'm very pleased by what the team has been able to accomplish in electrification, and I'm excited for what is to come. Turning to page seven. The first quarter was busy for Visteon from an operational viewpoint. The company launched its products in 34 new vehicle models across the world in the first quarter, which is an incredible achievement for the team. Every new launch requires customization of the product to fit the unique requirements of each vehicle and market, in addition to ensuring sufficient supply of critical components like semiconductors to support customers' dynamic production plans. As more of our business is becoming platform-based and across multiple vehicle models, we have decided to highlight the number of product launches across all vehicle models instead of just the initial launch, which provides the more complete correlation to revenue contribution from the program and demonstrates our operational execution in the delivery of the products. We have highlighted a few key product launches to demonstrate the extension of programs that contribute to the growth of our sales. We launched our 12-inch digital clusters in heavy-duty versions of Chevy Silverado and GMC Sierra trucks with GM. These vehicles follow the other SUVs and trucks that we have already launched our 12-inch cluster in previously. Our digital cluster business has grown rapidly over the past two years with GM, and these launches will continue this performance in 2023. We launched our digital cluster and audio system for the 2023 Ford Ranger for Latin America, which is a midsize truck that's popular in the region. In China, we launched a smart core cockpit domain controller on the Zeker electric vehicle from Geely in partnership with eCarX. and a digital cluster on the Honda E-NP1, also an electric vehicle. About 20% of our new launches were on electric vehicles, reflecting the increased focus on EV model launches at CarMakers. Turning to page 8. Our outlook for full-year vehicle production at our customers remains unchanged, with production volumes growing at low single-digit level. we expect semiconductor supply will continue to improve, although some chips will remain tight throughout the year. As mentioned previously, our goal is to redesign and use alternate chips where necessary, and our objective is to not be limited by chip supply in the second half of the year. Consumer demand in U.S. and Europe has been encouraging thus far, and we expect that this demand will remain strong in the near term. With the economy improving in China, we expect consumer demand to also improve in that region. At the same time, the potential risk to consumer demand arising from high financing rates coupled with higher vehicle prices that we incorporated in our 2023 guidance remains. Our solid Q1 results and the robust near-term demand we are seeing from customers gives us confidence in our outlook for the rest of the year and we are reaffirming our full year 2023 guidance. Turning to page nine. In summary, the company executed well in the first quarter to deliver our 16th consecutive quarter of sales growing faster than vehicle production. Our disciplined execution of the company's operational and commercial plans resulted in strong sales growth of 22% excluding currency and adjusted EBITDA margin of 10.2%. New product launches and new business wins in the first quarter were in line with our expectations and puts us on track to achieve our goals for the full year. And lastly, we made good progress in our electrification business in the first quarter by adding more vehicle models to existing programs and engaging with new customers for future business. Now I will turn the presentation over to Jerome to review the financial results.