Visteon Corporation

At this time, I would like to turn the call over to Mr. Chris Doyle, Vice President of Investor Relations. Please go ahead.

Good morning. I'm Chris Doyle, Vice President of Investor Relations and FP&A. Welcome to our earnings call for the first quarter of 2025. Before we begin this morning's call, I'd 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 Information in our earnings material for more detail. Presentation materials for today's call were posted this morning on the investor section of Vistion's website. You can download them at investors.vistion.com if you haven't already done so. Joining us today are Sachin Malande, President and Chief Executive Officer, and Jerome Ruke, Senior Vice President and Chief Financial Officer. We schedule the call for one hour, and we'll 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 again for joining us. Now I'll turn the call over to Sachin.

Thank you, Chris, and welcome back to Investor Relations. Good morning, everyone, and thank you for joining our first quarter 2025 earnings call. Vistion delivered another quarter of strong operating and financial results, illustrating the strength of our business and long-term strategy. Net sales of $934 million were essentially flat to prior year, but outperformed underlying customer production volumes, equating to a growth over market of 10%. Adjusted EBITDA was $129 million, representing a margin of 13.8%, another record for us. And adjusted free cash flow was $38 million. Our performance in this key financial metrics represents an outstanding start to the year. The performance of our display product line was a standout in the quarter, both in terms of sales and new business wins. Our multi-year investments in building best-in-class display capabilities for automotive are paying off, and Viztion has emerged as a top supplier of large displays to the industry. Our introduction of new cockpit technologies at the Consumer Electronics Show in Las Vegas in January was well received. In particular, our industry-first solution for AI for the cockpit generated significant customer interest. And while we're laying the base for a solid long-term future, we also had significant traction in the near term. New business wins came in at $1.9 billion for the quarter, which is a great start to the year. led by displays and digital cluster product wins with car makers in Asia and U.S. Operationally, Q1 was also a strong quarter. On a year-over-year basis, we grew margins by 290 basis points despite a muted production environment. And lastly, we ended the quarter maintaining one of the strongest balance sheets in the industry, positioning us well to navigate potential tariff-related industry headwinds. Turning to page three, the company did very well in executing our strategy for long-term growth in the first quarter. Just as a reminder, our strategy is based on product and customer expansion with a focus on faster-growing technology domains in automotive supported by an industry-leading cost structure. This page highlights some proof points of the progress we made in Q1 in executing our strategy. The trend of software-defined vehicles continues to evolve, with AI driving the next round of innovation in voice and vision technologies for the cockpit. In addition to high-performance electronics, this trend is also driving the need for larger displays to render content. With the increasing number of sensors such as cameras, radar, and LiDAR in and around the vehicle, displays are the primary interface to show safety, convenience, and entertainment content to the driver. In Q1, we capitalized on this trend and made meaningful progress in growing our displays business, both in sales and in new business wins. Moreover, our growing capabilities in design and industrialization of large and complex displays are now recognized as industry leading. We also made progress on our customer and market expansion. We have built a strong book of business with Toyota over the past couple of years, and in Q1, we extended our collaboration with this customer. We won a new digital cluster business that will launch on five different vehicle models, plus a displaced business for the luxury brand. And reinforcing our strategy of expanding our business with targeted growth customers in rest of Asia outside of China, we won new business with six different OEMs in that region in the first quarter. For China, we secured our first business win with Cherry, one of the fastest growing domestic OEMs for a large cockpit display. With the slowing domestic market, Chinese OEMs are increasingly looking for opportunities outside of China, and Visteon is well positioned to support them. They're also carefully expanding our business with Chinese OEMs to offset the decline in market share of global OEMs while ensuring profitable growth. We also made progress on our expansion in the two-wheeler market. In Q1, we secured digital cluster wins with Hero Motor Corp and Royal Enfield, two large two-wheeler OEMs in India. These wins illustrate the growing trend of digitalization, transforming the two-wheeler market, offering incremental growth opportunity for Visteon. As we advance a growth strategy, we're doing it in a disciplined way. We continue to leverage our platform-based product development and best cost global footprint to drive margin expansion and cash flow generation. As noted previously, a strong balance sheet differentiates us from many of the suppliers and allows us flexibility in our capital allocation approach. Turning to page four, industry production volumes increased 1% in Q1 while production at our top customers decreased 4% on a revenue-weighted basis. The largest decreases were in North America and Europe, where customer production was down approximately 6% in both regions. Sales for Visteon were up $1 million compared to prior year, with all regions increasing except for China. We saw strong performance in the Americas and Europe driven by the ramp up of recently launched display and infotainment products that drove significant market or performance. In Europe, we also benefited from the continued growth of our commercial vehicle business. In Asia, our footprint in India continues to expand driven by the success of our partnership with Mahindra and the growth of our two-wheeler business. Finally, the launch of a digital cluster program with Toyota also contributed to the growth of our market in both Americas and rest of Asia. In China, as expected, we saw a year-over-year decline mainly due to the market share loss of global OEMs and the lower sales with the domestic OEM due to lower export volumes. On a sequential basis, our sales in China declined due to seasonality in line with industry production. It was encouraging, however, to see that in Q1, the market share for global OEMs didn't decline further on a sequential basis and, in fact, modestly improved. Overall, our Q1 sales performance underscores strong demand for our technology, our ability to execute successful launches, and meaningful progress against our strategic priorities with target growth customers, commercial vehicles, and two-wheelers. Turning to page five. We booked $1.9 billion in new business in Q1 led by displays and digital cluster product wins. The right-hand side of the page highlights some of the key wins in the quarter. We won a 12-inch digital cluster for a key large SUV platform for Toyota that I mentioned earlier. This digital cluster will be equipped on several mass market and luxury brand vehicles with that OEM. We also won a separate 12-inch driver display business for a luxury brand vehicle with Toyota, illustrating the growing relationship with this important customer for Visteon. Next been highlighted is for a 12-inch driver side display and a 16-inch center display for the electric SUV and trucks platform with the Scout brand of VW Group. This platform will initially launch with two vehicle models in the U.S. in 2027, and adds a new customer logo to our portfolio. As mentioned earlier in the presentation, part of our strategy in China is to support domestic OEMs with their expansion outside of China. We won a 25-inch curved display module business with Cherry for two SUV models that will be sold in different regions of the world. Cherry is a large domestic OEM in China with vehicle production estimated to cross 3 million units this year as they continue to expand globally. We expect to leverage this first win into a bigger business with this OEM over time. The two-wheeler wins were with two major Indian OEMs, including one program for the premium segment and another mass market program. The mass market program is for a multicolor LCD cluster with integrated connectivity and will be used on three high selling models. The last thing highlighted on the page is for a BMS system with a luxury OEM in Germany, our fourth customer for this product line and second in Europe. This BMS system is for a new EV platform that's expected to launch in 2028 and will support 400 and 800 volt systems for maximum flexibility. The first quarter provided a great start for our new business bookings for the year, highlighting the market fit of our products and technologies. The pipeline of new opportunities for the rest of the year also looks robust. Turning to page six. The first quarter was also strong in terms of new product launches with our digital cockpit and BMS products launching on 16 vehicle models across the world. This page highlights some of the key launches. It's notable that 10 of the 16 launches were on mass market vehicles and included a mix of powertrains with hybrid electric gaining momentum. In addition, our launch of BMS on the Buick JL8 was for a hybrid electric vehicle, and the customer also launched two all-electric models in the quarter with the same product, illustrating the flexible nature of our BMS technology. With $1.9 billion in new business wins and 16 new product launches in the quarter, they're well positioned to drive continued growth of the business in the future. Turning to page seven, I would like to provide a perspective on tariffs and the impact to the automotive industry and to Visteon. Our manufacturing plants that supply parts to auto customers in North America are in Mexico. As of today, USMCA compliant parts are not subject to tariffs when crossing the Mexico-U.S. border, and nearly all our products brought into the U.S. from Mexico, approximately 97%, are USMCA compliant. Thus far, the 25% tariffs on cars imported from Mexico and Canada and other non-auto tariffs have had a minimal impact on the industry and on Visteon. However, while our customers have not updated their production schedules as yet, they're starting to see industry production forecasts for the remainder of the year being revised downwards. In addition, the executive order of April 3rd directs the Secretary of Commerce and the CBP to establish a process to apply 25% tariff to non-U.S. content of auto parts that are currently exempt under USMCA. These tariffs are expected to go into effect on or after the 3rd of May. This proposed tariff would impact approximately $10 million of Viztion products imported from Mexico into the U.S. on a weekly basis. And depending on the final definition and scope of this tariff, it could equate to a weekly cost of approximately $2.5 million. However, more recently, the administration has indicated that they are evaluating options to reduce the disruption to the auto industry. In the event the administration allows USMCA-compliant automotive components to be exempt from tariffs as they are today, we would not incur the additional weekly costs. We anticipate that tariffs on currently exempt automotive parts will add to the uncertainty in the industry and will further impact industry production volumes and vehicle and product mix. As we work through various scenarios, We have seen a variety of forecasts attempting to estimate the negative impact on industry vehicle production volumes this year. The range is quite wide, from 1% down compared to prior year to a high single-digit decline. As OEMs react to this highly dynamic and fluid environment, we expect significant change to our customers' production volume and schedules as the full scope and cost of the tariff becomes clear. Because of the increased uncertainty due to tariffs, we are not reaffirming guidance at this time. We will provide regular updates as the tariff and production environment becomes clearer. Jerome will provide more information on our tariff playbook later in the presentation. Turning to page 8. In summary, the company continues to lay the foundation for future growth with a technology-driven product portfolio that's well aligned with industry trends. And while tariffs present new uncertainties, I want to remind everyone that this is not the first such cycle that we have been through. We face similar levels of uncertainty at the beginning of the COVID-19 pandemic and the subsequent global supply chain disruptions. Each cycle reshapes global production volumes and mix for the short term before the industry begins to stabilize. We again find ourselves at the beginning of another cycle, and we're working closely with our customers to mitigate tariff impact in the near term while remaining focused on our long-term strategy. I'm confident that our global manufacturing footprint, proven supply chain management capabilities, An industry-leading cost structure and balance sheet will enable us to emerge stronger from this cycle, just as we have done previously. Now I will turn the presentation over to Jerome.

Thank you, Sachin, and good morning, everyone. We had a solid start of the year, both operationally and financially, with all our key financial metrics coming in strong. Sales were $934 million with robust market outperformance, offsetting headwinds from lower customer production, normal annual pricing, lower customer recoveries, and unfavorable FX. Adjusted EBITDA for the quarter was $129 million, reflecting continued operational execution and cost discipline. Adjusted EBITDA margin for the quarter was robust at 13.8% and benefited from some favorable one-time commercial items. On a more normalized basis, our margins are slightly above 12% and in line with our original expectations for the full year. Adjusted free cash flow was $38 million, driven by solid EBITDA performance and a modest inflow from working capital. Lastly, we returned $7 million to shareholders at the beginning of the quarter in the form of share repurchases before pausing all activity due to the uncertainty related to tariffs and their impact on the overall economy. We remain committed to our balanced and flexible capital allocation framework and have shifted our focus to preserving cash and further fortifying our balance sheet in the near term. Overall, we delivered a very strong first quarter. Turning to page 11. Sales were $934 million for the quarter, a $1 million increase compared to the prior year. Our market outperformance of 10% was partially offset by lower customer production of 4%, lower recoveries, as well as normal price downs for customers, which were in line with prior year's levels. Finally, FX negatively impacted sales in the quarter by 2%, mostly driven by a strong dollar. Our growth of the market was driven by recent product launches combined with strong demand for our display products. Excluding customer recoveries, base sales grew approximately 2%. On a regional basis, sales growth was driven by the Americas and Europe, where we have ongoing benefit from recently launched programs, including several Ford programs, which were originally delayed at the beginning of 2024, but are now ramping up. China was the one region which was down, consistent with our original expectations for the quarter and for the full year. On a product line basis, the highlight for the quarter was around our display products, which grew 50% despite customer production volumes being overall down mid-single digits. Adjusted EBITDA for the quarter was 129 million, Compared to prior, adjusted EBITDA improved as a result of higher volumes, favorable timing of commercial items, manufacturing efficiencies, lower engineering and SG&A, partially offset by foreign exchange. Net engineering as a percentage of sales was 5.6% and includes the recent German acquisition we made in Q3 2024. On a year-over-year basis, net engineering costs were down due to lower personal costs and favorable timing of program expenses and engineering recoveries. We continue to leverage our platform approach, our best cost footprint, and have embarked as well on many initiatives that improve engineering productivity while continuing to invest in critical engineering capabilities, including vision, speech, and AI. Adjusting SG&A, also lower on a year-over-year basis, benefited from our cost optimization and resources rebalancing initiatives started in 2024, ongoing cost controls, all while investing in key technologies that will further improve productivity. As mentioned, we also benefited from several one-time commercial items in the quarter, which are related to costs incurred in prior quarters. Excluding these one-timers, our normalized margin is coming in slightly above 12%. Turning to page 12. Vistion generated 38 million of adjusted free cash flow in the quarter. We continue to benefit from a robust adjusted EBITDA and were able to convert EBITDA into cash flow at a rate of approximately 30% in the first quarter, in spite of the traditional Q1 seasonality that we normally experience. Trade working capital was a slight inflow for the quarter and included a modest inventory built early in the quarter in our U.S. warehouses. This temporary inventory increase allowed us to minimize tariffs that went into effect for a few days in early March. Cash taxes were higher this quarter, reflected our continued improvement in profitability in most jurisdictions, as well as timing of cash payments. Net interest continues to be a modest positive, as the interest income earned on our cash slightly exceeds the interest expense paid on our debt. We also had an outflow in Q1 related to our 2024 Annual Incentive Program, which was paid out at higher levels due to the strong financial and operational performance Visteon posted last year. Capital expenditures were $35 million, representing 3.7% of sales and slightly below our original full-year expected run rates. In Q1, we continued to invest in several insourcing initiatives in addition to our ongoing investments to support customer programs. We ended the quarter with $658 million of cash and a net cash balance of $343 million. Turning to page 13. We're not reaffirming full year guidance at this stage due to the uncertainty created from tariffs and the range of potential outcomes it creates for the automotive market, most likely in the second half of the year. I would like to provide some additional context. Absent the announced tariff and the latest economic developments, we would be tracking in line with our original guidance. We had anticipated Q2 sales would look fairly similar to Q1 sales and adjusted EBITDA margins would be in line with our normalized margins of about 12%. Our recent outlook for the second half of the year was consistent with our expectations when we originally set guidance. Putting all this together, we were confident we would be within our original guidance and likely towards the midpoint. However, the level of uncertainty has increased significantly since our last earnings call. The first round of automotive tariffs went into effect on April 3rd, with a tariff of 25% on all vehicles imported into the US. Although we have seen minimal changes in customer production schedules so far, we anticipate OEMs will begin adjusting production schedules based on a range of variables, including their manufacturing footprint, global supply routes, dealer inventory levels, their pricing and market share strategies. We anticipate the impact to industry production volumes will be negative, but the range of outcomes at this point is wide, especially when forecasting production at the customer and vehicle level. To further compound the uncertainty, there is the potential for another round of tariffs expected on or after May 3rd, in which the non-US content of US MCA parts could begin to incur tariffs of 25%. This would increase the cost to build a vehicle even further and create another layer of uncertainty on vehicle production schedules. If these additional tariffs are implemented as announced, the direct impact could be approximately 2.5 million per week based on the volumes assumed in our original guidance. As one data point, S&P issued their monthly industry production forecast update last week. For 2025, Their forecast was reduced by 1.6 million units, assuming tariffs remain on imported vehicles and the additional tariff on auto components goes into effect. In this scenario, our customers' production would decline in high single digits compared to prior year, a 3 percentage point decline from our original expectations, with most of this decline in the second half of the year. Using this scenario, our financial outlook for 2025 would be near the bottom end of our original guidance. This assumes that decremental margins on lower volumes are in the mid 20% range. It also assumes we would begin incurring tariff costs, which we intend to pass along to our customers to better reflect the new cost of producing a vehicle. This is one scenario out of many. Other scenarios include different rates and implementation dates for tariffs with different outcomes for industry production volumes and vehicle mix. Given the uncertainty, not reaffirming guidance is prudent. However, we intend to provide updates as visibility improves. In this environment, we have taken many actions to ensure we can navigate through various scenarios. Earlier in the year, we created a cross-functional task force to work closely with our customers to reduce the impact tariffs could have on our business and our customers, simplifying, for example, our supply chain where possible. Following these actions, about a third of our sales from our Mexico plants will be shipped within Mexico, reducing the direct tariff exposure. We are also in discussions with suppliers and looking at options to resource based on the component's country of origin. In parallel, we continue to evaluate the optimal location for production utilizing our existing global footprint. We are keeping all options open and will be ready to operationalize some of these options depending on the nature and size of the potential tariffs that will be in effect. However, there will be limits on how much we can reduce the direct cost of tariffs and we intend to pass along any remaining costs to our customers. In addition, we are working to minimize the potential flow through on volume, leveraging our best costs footprint and ongoing focus on cost controls, and we will be ready to implement some of the past playbooks that allowed us to emerge stronger in similar situations. We have also pivoted our capital allocation priorities, temporarily pausing share repurchase activity to shift our focus on building our cash position and further fortifying our balance sheets. We ended the quarter with over $650 million of cash on our balance sheets and have access to an additional $400 million of liquidity with our revolver. With a debt balance of $315 million that doesn't mature until 2027, our net cash position is a robust $343 million. We will also continue to opportunistically look for technology accretive acquisition. and as the market gets more stable, we will reassess our position and may look to restart shareholder distributions. This illustrates our flexible capital allocation approach that is supported by strong cash flow generation and one of the best balance sheets in the industry. Finally, I would like to echo the comments from Tachin. This is not the first industry headwind we are facing. Over the last few years, we have demonstrated our ability to emerge from previous challenges in a strong position, and I am confident we will be able to overcome this challenge as well. Turning to page 14. VISTON remains a compelling long-term investment opportunity despite some of the current market uncertainty. We expect to benefit from higher demand for more digital content in the cockpit, regardless of powertrain. Vision is 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. Thank you for your time today. I would like now to open the call for your questions.

question and answer session. At this time, if you would like to ask an audio question, please press star, then the number one on your telephone keypad. Again, that is star and the number one. We will pause just a moment to compile the Q&A roster. Our first question comes from the line of Mark Bellany from Goldman Sachs. Sir, please go ahead.

Yes, good morning. Thanks for taking my question, and thanks for all the details you provided in the presentation this morning. You mentioned you're looking hard at your supply chain and would expect to offset any remaining tariff costs, but can you help us better understand your confidence in being able to achieve that if the exception for tariffs on USMCA compliant parts does go away based on some of the conversations you're having with customers at this point?

All right, thanks, Mark. So yes, so let me first start by saying that we have not been impacted by tariffs as yet, as we mentioned earlier. And we have, at the same time, started discussions with customers in terms of recoveries. But our focus, our primary focus so far has been on working with our customers to reduce exposure to tariffs. And I would say on both fronts, those discussions have been very constructive. We do expect that we would be able to reduce our exposure by working together, but as Jerome mentioned earlier in his remarks, there is going to be a limit to that, and depending upon what happens post-May 3rd, we will have to approach the customers to recover the extra tariff costs. We fully intend to recover those costs, which we believe, if the tariffs stay, will reflect the true cost of building those products and ultimately building the vehicle, and as a result, will have to be passed on to the customers. Anything you would like to add to that?

Yes, thanks, Sachin. Mark, maybe just to clarify the Q1 impact on tariff. It was very immaterial for us. As you know, the tariffs went into effect for three days, the full tariffs, and we had built inventory. We had essentially built inventory that had crossed the border and therefore was not subject to tariffs. So we were able to use that inventory during these three days, and that has minimized the tariff impact in Q1. So very material for us in Q1 as such, I should say.

Thank you both for that helpful context. My other question was just around bookings and the bookings environment. You're off to a very good start with bookings in the first quarter relative to the prior six-plus target for the full year. Maybe help us better understand what the current engagement environment looks like. Are customers still active with working on new vehicle designs and conducive to getting additional awards this year, or has there been any pause or delay in some of those engagements, given the macroeconomic and tariff environment that perhaps is taking up more of your auto OEM customer focus at the moment? Thank you.

Yeah, Mark, I think that's a very good question. And as part of our engagement with customers, especially in this time, I have been personally in front of almost all of our customers in Asia, Europe, and in north america and i would say that the environment has been remarkably stable both in terms of just the operating environment as well as uh the longer term uh plans of customers and that's reflected in our q1 our performance as you can see both in terms of sales but also new business wins And I expect that as customers are working through this tariff-related challenges, that they will continue to look through the cycle and want to make sure that they are positioned well when this thing does come to a conclusion, whichever way it does. So I expect that new business activity will remain robust throughout the year. The pipeline of opportunities that we see is pretty robust. across all of our product lines. So we feel that with the start that we've had in Q1, that we would be in a good position to achieve our target and also cross our performance that we've had over the last couple of years in terms of new business wins. And that will continue to position as well going forward. Thank you.

Thank you. Our next question comes from the line of Dan Levy from Barclays. Sir, please go ahead.

Hi. Good morning. Thank you for taking the questions. First, can you just give us a sense to what extent there's been any sort of impact to the production schedule you've seen, any call-off activity? And maybe you could give a sense how much pull forward of volume there's been. We've heard about some customers sort of building up some excess inventory in preparation for May 3rd.

Yeah, yeah. So it's really interesting that we didn't really see any meaningful pull ahead from our customers. In fact, Customer orders were remarkably stable throughout Q1, so the levels at the beginning of the quarter almost through the end were the same. And yet we did see that dealer inventories did get pulled down, which probably suggests that some of the consumer pull ahead might have been managed through the existing dealer inventories. I would say that the order scenario looks pretty stable even for what we would consider as a high confidence range in Q2. So it doesn't reflect any reduction on production. So we will have to wait and see, but so far so good.

Okay, great. Thank you. As a follow-up, maybe you can give us a sense of your supply chain. If you've seen any incremental costs hitting, I know that you're mostly manufacturing in Mexico. Has there been any impact on your supply chain, any costs hitting you? And then should we look at, to the extent that you do incur costs, how much was the chip crisis of 21, 22, and your negotiations with OEMs and a comp for how discussions may play out with your customers.

Yeah, yeah. So the short answer to the supplier question is that we have not seen any meaningful increases in cost. In fact, I would say virtually none. And I think part of the reason is that our suppliers, their direct costs have not been impacted as far as we can tell. from what has happened with respect to the global tariff situation. So again, just to be clear, we really don't have any supplier-driven cost increases that we anticipate that we would have to work through. So that's the growth situation. In terms of your question about what can we learn from the last crisis, there's a lot that we have learned and we have put in place. One of the things that we have done very well is to diversify our supply base and where we have now many more options in terms of finding alternate forces or components. Obviously, there will be some that will always be more challenging than others, but we are in a much stronger situation now to be able to deal with any sort of a supply-related situation as compared to the last cycle.

Okay. Thank you.

Thank you. Our next question comes from the line of Jones back from UBS. Sir, please go ahead.

Thank you. And I just want to commend you for all the detailed information, especially given all the uncertainty. It's, I think, supremely helpful. Jerome, just in your example you gave about if it plays out like S&P says and, you know, you think you'd be sort of the lower end of your guidance range. So if I'm following your math, right, that would be $130 million, you know, annual impact, so about $65 for the back half of the year when the tariffs come in. So to get to the low end of your guidance range versus the midpoint you said you were tracking to, are you sort of assuming like, you know, 80% sort of offset to that cost or like you know, what is your plan to sort of price? Like, what would you be baking in on that in terms of that outlook based on your conversations with your customers?

Yeah, thanks, Joe. So, SMP, and we wanted to give this in our prepared remarks, is just one scenario, and there are many out there, but just on that one, your math is correct. Our customers would go or would decline a further 3%, and that's about $130 million dollar of impact in terms of sales, we are using and assuming, based on what we've seen in prior years, a 25% incremental impact. We would assume as well that we are recovering 1% of the tariff impact, which at 2.5 million times four weeks times eight months would be about 80 million. So the impact would be essentially on the volume. We would be able to offset some of that with a good head start that we had in Q1 and with some minor adjustment as well to our spending. So that would give us essentially a 450 number for the full year, which is at the low end of our original guidance. Now it's just one scenario and we are going to way to have a little bit more clarity on tariff and visibility on production schedules before we come out with something. The key thing, as Sachin mentioned, we are very active these days on potential actions that we can take, not just on the supply chain side, but as well on our cost structure, and we're busy on those points.

Yeah, no, thanks. I appreciate that there's a lot of moving parts. I just wanted to get a better sense for sort of what you guys were trying to assume on your end in a potential scenario, understanding there's many. The second question is, you know, I think in 24, about 7% of your sales were in China, but not for China, exported to other markets. But I don't think, was any of that destined for the US or is that really more for the rest of Asia Pacific and Europe? And is there any impact from, you know, the business, I guess you do in China for export, not for domestic consumption?

Yeah, Joe, I think very little of what we do in China actually makes its way to the U.S. I think specifically there are some Nissan vehicles that carry some content that we manufacture in China, but it's very small.

Thanks so much.

Thank you. Our next question comes from the line of Emmanuel Rosner from Wolf Research. Sir, please go ahead.

Thank you very much. Actually, another question on China, if I may. So it continues to be a very challenging region for a lot of companies, but certainly including Vistion. Can you remind us your strategy there, where you are in your efforts to sort of rebalance customer mix? And I guess from a timeline point of view, when would you anticipate to sort of really improve this growth on the market situation?

Yeah.

Yeah. No, that's a great question. And China does remain one of the challenges that I think we will be working through this year and probably also into next year. But one thing I would like to say is that the whole trend of global OEMs losing market share, which has continued, In Q1, although from a year-over-year perspective, it looks like they've lost for the ground, at least from a sequential basis, we're starting to see some sort of a floor developing. Now it's just one quarter's worth of data, so we will not claim any relief just yet, but it's encouraging nonetheless to see that. So what is our strategy? Our strategy is to work with a mix of domestic OEMs that are are doing well in China. They have scale, but also global ambitions, and that's important. And then with global OEMs, we will be working with those that we believe will still have a meaningful share in that market over the next few years. In the latter group, we believe those would be the German OEMs in particular, luxury OEMs, and some Japanese OEMs, in particular Toyota. If you look at Toyota's performance in China in Q1, it was actually a positive gain that they had in that region. And they have recently announced that they will have their first fully owned manufacturing plant for Lexus brand in China. And that's a very good sign. And as you know, we have been growing our relationship with Toyota and that has progressed very well. Now with the Chinese domestic OEMs, we mentioned on this call our very first win with Chery And Cherry is a great example of the type of OEMs that we want to promote business with. The OEMs that have scale will probably hit 3 million units this year of vehicle production with a significant portion of that to send for exports. And that's where we can help them. And in turn, we expect that that would help us with them also to a certain extent in China. So that's our strategy. Now, in terms of when would this start to actually look that way in the numbers? We expect this year to be kind of our transition year for our business in China. We expect to start to slowly grow next year onwards. And our expectation is in the time frame, say, 27, 28, that we would be back to where we used to be at, say, in 2023 and 24 at the beginning of this down cycle that we saw during 24. So we hope to be able to recover the lost sales in China by then.

That's great, Collar. My second question is around your stated focus on building a cash position in the current uncertain environment. Can you just maybe tell us what this involves? I think there was some mention of reducing some discretionary expenses. I'm curious how to think about other spending such as CapEx. So just broadly, what's in this year's strategy from a cash preservation point of view?

Yes, and I would say, Emmanuel, we are continuing, as we've done in the past, to focus on cost controls as well as cash generation. So nothing really fundamentally changes here. And we've done a good job in executing very well uh quarter in quarter out uh and this quarter is also another demonstration that we're able to do that very well uh so we've got a few scenarios whereby depending on the volume uh uh change severity we would action uh different plans so i won't go into details but uh it would go from uh minor discretionary spending reduction to a little bit more structural changes, again, without jeopardizing the future investments that we've been making in both CAPEX, but as well in engineering, especially as we are making sure that we are supporting our strategic objectives. So nothing maybe to discuss in great detail during this call, but we are, again, scenario planning.

Great. Thank you.

Our next question comes from the line of from Wells Fargo Bank. Please go ahead.

Oh, great. Thanks for taking my question. Just a basic question. I believe your comment was that margins in the quarter normalized would be slightly over 12%. I think there were 13.8. That sounds like there's 16, 17 million of unusual items in the quarter. Is that right? And what are those unusual items?

That is correct, yes. So we had close to $15 million of what I would characterize as one-timers. Most of them were commercial items that we were able to close out in Q1. Many of these, in fact, were expected to close throughout the year, but thanks to the diligence of the team, we were able to close them out early and very late in most cases to cost recoveries that we have negotiated with our customers. For example, when a program changes, we potentially incur costs and we are recovering these costs. So a lot of these costs, in fact, most of them were related to prior year and we're able to successfully close these items. You'll find the impact of these one-timers pretty well spread on the P&L. So just a minor amount in sales, in manufacturing, as well as in engineering recovery. So it's kind of spread all over. And you're correct, our normalized margins without this would have been slightly over 12%.

Got it. And then just, you know, if we think about tariffs, any view on how the competitive landscape could change, particularly if maybe tariffs on stuff out of Mexico are lower than what maybe ends up around the rest of the world? Are all your competitors also in Mexico, or is there the potential that other competitors are more disadvantaged if they face a higher tariff in some other part of the world?

That's a very good question, and the answer is that not all of them are in Mexico, and some have been shipping products from Asia, which certainly would be a disadvantage in this situation. There are some, obviously, that are in Mexico like us, But there are also a few that have their operations in Asia. And if that turns out to be the case, like you discussed, it would certainly be an advantage to the ones that are operating out of Mexico, such as us.

Got it. All right. Thanks for taking my questions.

Thank you. Our next question comes from the line of Federico Mirandi from Bank of America. Please go ahead. Hello, Mr. Federico. I guess you're on mute.

Let's go to the next question.

Let's move on to the next question, please.

Our next question comes through landline of Itai McKellie from TD Cowen.

Great. Thanks. Good morning, everybody. Just going back to the new business that wins in the quarter, the $1.9 billion. Sachin, was that above your internal expectations? And could you exceed the $6 billion target for the year? And then a bigger picture question is to to the new business wins. As you've been booking kind of six plus billion the last few years, does that set up the company to potentially see some revenue acceleration beyond the 5% that you've laid out through 2027, sort of in a mid to longer term as these wins translate to revenue in the future?

Yeah, to answer the second question first, the stronger we perform new business wins in the earlier portion of that period that you mentioned, clearly it helps us perform better. And our plan, obviously, is to exceed what we have communicated. So that's clearly the objective here. In terms of the timing of the events, sometimes the timing is difficult to predict because of when the award decision gets made. What I would say is that coming into the year, We had seen the pipeline to be very robust. In fact, this is one of the strongest pipelines of new business opportunities I've seen. I would say over the last five years because the last few years we have been impacted by some sort of a crisis or the other, and it was really refreshing to see the industry kind of getting back into the mode of innovation and design. Very strong. displays opportunities driven by the larger displays starting to migrate into the mass market, which is exactly what we had been anticipating. And we have set ourselves up to take advantage of that trend by equipping all of our plants in different regions to be able to build displays that makes us pretty unique in terms of our capability versus the competition. So we do expect to have a disproportionate share of that market. We also see a very strong pipeline in CDCs, copy domain controllers and instrument clusters even, which we thought would start to taper down, but we see a robust activity, especially in Asia. And so I would say that it sets us up very well for this year. Maybe this is also an indication of what we will expect to see the industry get into this new cycle coming out of the last few years.

That's very helpful. Thank you. A quick follow-up, Sachin. I hope you could give a bit more color on the conquest win with the domestic Chinese OEM and maybe just talk about potential further opportunities for additional conquest wins going forward. Thank you.

Absolutely. And I think we mentioned that the customer there is Cherry. And We have not done business with Cherry in the past, and this is a customer that also has evolved quite a bit. If you know Cherry from, I would say, 10 years ago, they're not anything like they used to be now. They have a very broad range of products. They've been very successful in exporting their vehicles, and they are now focused on Europe as an export market and South America. So our first win with them is for a large display that is going into the European market. And we have subsequent opportunities of following up with them. In fact, our team is in China this week for the Shanghai Auto Show, as you may know. And there have been follow-on discussions with Cherry and with other customers as well. We certainly expect that this first win will translate into subsequent more business opportunities with them. but we will have to first execute this one very well. It's a very aggressive timeline in terms of production, which also helps us because it impacts our revenue positively earlier. And I think this is kind of the examples that you will see more of, especially with those OEMs who are moving very quickly. They have They are our targets for exports, and we are in a good position to support them in their export ambitions. So we hope this would be first of many with this OEM and others that we have targeted in China.

Terrific. That's all very helpful. Thank you.

Thank you. Our next question comes from the line of Luke Zhang from Baird. Please go ahead.

Good morning. Thanks for taking questions. Sasha, maybe we could start just with some additional context around your expectations for display growth this year in terms of what's within your control relative to where newer programs are ramping right now, just where they are in the ramp. Additional launches, you have a line at iTunes, kind of just the overall shape of demand in displays as we go through this year. Certainly comps pretty high.

pretty easy in the first quarter here that normalizes to some extent going forward so just want to don't want to over extrapolate what we saw here in the first quarter year on year yeah yeah so first of all in terms of um new product launches you know we started the year pretty strong with 16 launches and we have a pretty uh robust set of launches planned for the rest of the year um i believe that number is uh somewhere around 90 if i'm um collect here, which would indicate a pretty robust activity. And if you see in terms of the growth of our displays, it was a robust, strong double digit growth in Q1. We expect this to continue because we have a strong pipeline of new launches coming through and displays will grow in terms of our share of the revenue. Today, there are already a couple of points greater than last year, and we expect that to continue this year to improve and also next year. So we have, I think, set ourselves up well for this place to emerge as one of our leading product growth categories in addition to distilled clusters.

Got it. And then follow-up question, maybe a little bigger picture in nature, but just like to get your thoughts on working with China Local OEMs on export business and to what extent it is or isn't maybe fundamentally different in terms of design cycles, pricing, things of that nature relative to China for China business, just where you're able to get better traction from an export standpoint. Is it different engaging in terms of export business, or is it more so that there's a different quality excitation as they're exporting into the West, which gives you some advantage versus local peers? Thank you.

Yeah, absolutely. And as you know, there are very distinct differences in we are in a very good position to support these OEMs. So what doesn't change, however, is they are very aggressive time schedules, which is typically a year or at most a year and a half. And we at Visteon have been anticipating this, and especially for displays they're able to leverage the capabilities that we have put in place. Now, in terms of cost and pricing, in China, it is also a lot more challenging. And again, it goes hand in hand with the technical requirements. If the requirements are a little more flexible, let me put it that way, then that also takes a different direction in terms of pricing and cost. But as you export, you have to meet different requirements than what is the case in China. And so we are able to defend our pricing a little bit better for exports. Very helpful.

Thank you.

Thank you. Our next question comes from the line of Tom Ryan from RBC. Please go ahead.

Yeah, thanks for taking the question. Yeah, I guess I just want to understand how the contracts you guys have with the OEM customers work. So if there are production cuts, presumably they'd be a portion of makeup that the already designed within the contracts. Or is this all negotiated? Just I'm trying to understand how how that works.

Yeah, so there is a certain level, a range, let me call it that, that is contemplated in the contracts typically. So if the production cuts still keep it within the range, then it's normal business. Outside of the range, yes, then that requires a discussion and negotiation on the cost recoveries.

And I would add some of the commercial items that we have been negotiating, not necessarily this quarter, but in past quarters, were related to these kind of topics where volumes were lower, and we went back and were able to negotiate.

It sounds like normal range would not obviously include what's happening here. So is it safe to say that the S&P global numbers happen? Okay, so most of it's negotiated. Yes. And then, you know, prior to all these tariff announcements, there were a series of deal announcements from across the tier ones, some M&A, some messengers, stuff like that. I think you mentioned in the prepared comments about potentially doing M&A once clarity is gained. But just curious how you would characterize the M&A environment. You know, presumably it might be a good time to do deals given the price range. valuations or is the uncertainty kind of the trump card that kind of stops you from maybe contemplating that in nature?

Yeah, no, no. I think that's a very good question. And we do think the same way that this is a very good environment to be on the lookout for adding some capability or perhaps, you know, even different product lines. But our first priority, as you can appreciate, is to ensure that we are able to safely negotiate the current environment of tariffs. Assuming that that is something that we can address in the next couple of quarters, I think Visteon is in a very good position to continue to grow, and some of that will happen through M&A. So we do continue to look. And we do agree with you that it's a good time to be looking, and we should look at what opportunities that might present to ourselves.

And maybe, as mentioned in prior quarters as well, we have a pipeline of bolt-on acquisitions, so we're pretty active on this topic.

Thank you.

Thank you. Our next question comes from the line of Ron Josico from Guggenheim. Please go ahead.

Oh, yeah. Good morning, Satya and Jerome. Thanks for taking my question. Maybe this first one's for Jerome, but just for a clarification on the commercial recovery items, kind of that 16 to 17 million benefit in the first quarter, none of that was in advance of kind of potential future tariff procurement costs and then also that bucket in the 10q looks like it was a 30 million dollar top line benefit this quarter but that does include design changes um i'm just kind of curious if there's anything else worth calling out that kind of drove that line this quarter yeah to your first question nothing is obviously in anticipation it's everything is well related to past uh costs that we've incurred

that we've recovered in Q1. So again, it's outside of Q1 from a cost standpoint and therefore is truly a one-timer. Maybe back to your first question, if you don't mind repeating it.

Just that bucket in the 10Q where that sits, I think it includes design changes as well. It was plus 30 million versus the same quarter last year. Is there anything worth calling out? I think with annual price reductions and things like that, it does look like a pretty big source of top line upside this period.

Yeah, so we always have design changes. So these are, I would say, regular items. So they were in the $15 or $16 million one-timers that we had this quarter. You did have some impact to engineering recoveries, but it's different from design changes. So, again, these were truly one-timers that are truly outside of the normal course of business. And that's why we wanted to highlight them.

Okay. That's super helpful. And then, Sachin, you noted the stabilization and kind of Chinese OEM share shifts this quarter, which I do think has been quite surprising and maybe a bit underreported for the industry, I guess. Yes. Is your sense that that is kind of the start of a new trend or a bit of an aberration? Because I guess just with kind of the price cuts we seem to see every quarter from Chinese local OEMs, it's tough to imagine this trend continues. But I imagine you're a bit more connected than we are to that.

Yeah, no, no. I do believe that the rapid declines that we saw in 2024, that was bound to at some point turn a corner. are primarily because the global audience are also not just standing still, right? So they are launching new vehicle models and there has been a slew of announcements at Shanghai Auto Show this week about the models that they are launching exactly in response to some of the things that they have learned about the Chinese market. So as those changes and those launches flow through, we expect that there would be some more stabilization of their market shares in that region. And Toyota's performance really is a good indication. Toyota mostly sells ICE vehicles in China. Yes, they have a few EVs, but that's not what's driving their sales. And yet they have been able to hold their own, which is a clear indication that the consumers there do look for quality for brands. And in that regard, I would not count the global OEMs, especially those that have strong branch, reputation for quality, customer service, et cetera. I wouldn't count them out just yet. So I do believe it's an underreported story, like you said. But again, I think it's just one quarter in the making, so maybe it will catch more traction as we go forward.

Thank you. I really appreciate you taking my questions.

Thank you. Our next question comes from the line of Edison Yu from Deutsche Bank. Please go ahead.

Hi, thank you. This is Winnie Ong for Edison. I was wondering if you can walk us through the facilities in North America outside of the US and potentially how relocations here might look like. Is that in the playbook, eventually, we see these tariffs gaining? Or is the direct hit from tariffs It's really manageable, you know, recovery from customers that it's not something that you would have to think about.

I guess if you're asking whether we would consider a plant in the U.S. away from Mexico, I would say that it really all depends on how the tariffs settle out and what our customers' production plans are as a result of that. So our focus always is to be a good partner to our customers, number one, right? And if it means that if we have to make change in our manufacturing footprint, as long as the business case is there to justify it, we would be fully prepared to do so. At this point in time, the way it is currently set up, it's not clear that there will be any benefit of making a change, but that can change at any moment, as you know. I think the key takeaway for you is that we are fully capable of doing it. We have a tremendous execution competence here at Visteon. They're extremely close and working closely with our customers to figure this out, but it will depend on ultimately what the, at least a midterm visibility looks like, if not long-term for us to be able to make this kind of decisions.

And that has been echoed by our customers as well, saying don't make harsh decisions until there is clarity on the tariff. And that is essentially our position for now.

Gotcha. Thank you. Very clear. And then my follow-up is, I was wondering if you can comment on the BMS sales and EQ1, how that is relative to expectations. And then you mentioned a fourth European EVOEM. I'm just wondering how the one came about and if you can help us size sort of like the revenue opportunity there.

Thank you. Right. As I mentioned, I think in the last quarters earnings call, our customers for BMS in North America had built a pretty robust level of inventory with anticipation of a higher sell-through of EVs. And while EV sales have gone up, in the US, those sales levels have not been at the levels that were anticipated. So there is sufficient inventory in the supply chain and in the channel for those OEMs. So we were anticipating our PMS sales to be lower this year than last year. And there was a factory shutdown also in Q1 at GM that was also planned by the way, so nothing that was a surprise to us. So our Q1 sales reflects all of that. Now with the tariff-related uncertainty, we'll be able to see how that develops. And if you notice, S&P Global has pulled down their expectation for GM EV sales, perhaps acknowledging some level of impact there. So we'll have to see how that develops. Now, on the other question, right, the fourth customer that we have won, outside of China, what we see with respect to electrification is that customers are taking a step back and consolidating and revisiting their plans to build electrified vehicles. And I say electrified because combination of fully electric as well as plug-ins And with a lot of focus on cost, first and foremost, but also performance. Because it's become very clear that for EVs to be successful, and they have to be, there will be a bigger portion of the powertrain mix than it is so far, the focus has to be on those two attributes, cost and performance. And I take a lot of, you know, good feeling from the VIN because it was a VIN of a very high profile business out there that was computed heavily by every supplier. And our capabilities with respect to technology and cost were very well recognized. And that's why we were successful. So it tells you that our power electronics products and BMS are both competitive and technology leading. And for us in particular, we need to be present in those types of products because EVs are the ones that will drive the electrification-related innovations in the industry. And that's what will impact ultimately how cockpit electronics will look like. So all of those things are related, and our presence in those segments are very important for us to have that capability that can impact a broader portion of our business.

Great, thank you so much.

This concludes our earnings call for the first quarter of 2025. Thank you everyone for participating in today's call and your ongoing interest. Thank you.

This concludes this year's third quarter 2025 results earnings call. You may now disconnect.