Visteon Corporation

Thank you for standing by. My name is Greg and I will be your conference operator today. At this time, I would like to welcome everyone to Vistion's second quarter 2025 results 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'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Chris Doyle, vice president of investor relations and FP&A.

Chris. Good morning. I'm Chris Doyle, vice president of investor relations and FP&A. Welcome to our earnings call for the second 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 meeting 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 .vistion.com if you haven't already done so. Joining us today are Sachin Mwande, president and chief executive officer, and Jerome Ruppei, senior vice president and chief financial officer. We scheduled 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 good morning, everyone. Thank you for joining our second quarter 2025 earnings call. Vistion delivered another quarter of strong operating and financial performance, demonstrating the strength of our business while continuing to execute on our long-term strategy. Net sales of $969 million came in higher than we had anticipated at the beginning of the quarter, driven by strong demand for our digital pocket products, particularly in North America and Europe. Despite the robust sales performance, lower BMS sales in the US and the ongoing market dynamics in China resulted in sales slightly underperforming customer vehicle production. This trend is expected to reverse in Q3 and for the second half, driven by new product launches and improving comps. Adjusted EBITDA was $134 million, representing a margin of 13.8%, and adjusted free cash flow was $67 million for the quarter. As a result of our strong first half and outlook for the remainder of the year, we are reinstating and increasing guidance for the full year. Operationally, the company performed very well, launching 21 new products, expanding profit margins through various productivity measures, and winning $2 billion in new business in the quarter. We continue to invest in the business, both organically and inorganically, while returning capital to shareholders. We closed another bolt-on engineering services acquisition a second in the past 12 months. In addition, we are initiating a quarterly dividend, starting in Q3, highlighting our confidence in generating free cash flow and our commitment to returning capital to shareholders. Turning to page three, our Q2 sales came in better than we had anticipated at the time of our first quarter earnings call earlier this year, despite the tariffs that went into effect in April and May of this year. To recap the tariff situation, in early April, the 25% tariff went into effect for all vehicles being imported into the U.S. In addition, starting in early May, the 25% tariff for all non-USNCA companies compliant auto parts went into effect, while USNCA compliant parts remained exempt. For Vistion, virtually all goods that were shipped from Mexico to the U.S. are USNCA compliant, and our direct exposure to tariffs under the current tariff structure is very low. In Q2, vehicle production schedules in North America remained stable, and were not materially impacted by the tariffs. For Vistion, sales of cockpit electronics products in America was strong in Q2. We benefited from the ramp up of several recently launched products, including clusters and displays on Ford vehicles, such as the Bronco, Maverick, and Explorer, infotainment systems on VW, Jetta, and Polo, and a large display on the Murano SUV with Nissan. Battery management system sales came in lower than anticipated, but grew sequentially from the first quarter. GM is our largest customer for BMS, and despite the general slowdown of EV sales in the U.S., they had a strong quarter. However, on a -over-year basis, our BMS sales are lower in Q2, as GM and Stellantis, our two customers for BMS in the U.S., were ramping up battery manufacturing in 2024. Q2 of last year was the highest quarter in terms of BMS sales to GM, which makes the -over-year comparison difficult for this quarter. Overall, in America's, the growth in corporate electronic sales partially offset the decline in BMS sales on a -over-year basis, resulting in a four-percentage point underperformance relative to customer vehicle production. In Europe, Vistion sales were up -over-year, driven by new product launches, despite a reduction in vehicle production. Electric vehicles performed well in Europe in Q2 with introduction of affordable hybrid and EV models by carmakers, and Vistion has cockpit electronics content on some that are doing well in the market. Key programs for Vistion in Q2 include displays and digital clusters on the R4 and R5 EVs from Renault, digital clusters on the Duster and Dicaster vehicles with Dacia that come in ICE and hybrid versions, and digital cluster and audio system on the popular Ford Transit that offers ICE, hybrid, and all-electric powertrains. Our sales in Europe also benefited from R&D services offered to carmakers through our recent acquisitions. While these services' revenues currently are relatively small, we plan to expand our services' engagement with additional automakers in Europe in the future. Overall, our sales outperformed vehicle production by eight percentage points in Europe in the second quarter. In rest of Asia, excluding China, we made good progress in Q2 on our strategic initiatives of growing sales with targeted carmakers, such as Toyota, Hyundai, Mahindra, and Mitsubishi, and with select two-wheeler manufacturers such as Honda and Royal Enfield. Overall, our sales continued the momentum from the first quarter with a growth overmarket of eight percentage points. In China, our Q2 sales were down year over year, primarily due to the ongoing market share shift towards domestic OEMs that we have previously discussed. However, I'm pleased to note that sequentially, our Q2 sales were higher than Q1, with higher sales on vehicles such as the new Buick GL8 with GM and the Toyota Corolla. We are in the middle of a product transition with Jili, our largest customer in China, replacing an earlier generation cockpit domain controller with a new and more powerful system that's also priced higher that helped our sales in Q2. Overall, China represented a significant drag on our global growth overmarket, lowering it by five percentage points in Q2. We anticipate second half sales in China to modestly increase compared to the first half, driven by new product launches. Combined with easier comps, we expect growth overmarket to improve and be less of a headwind in the second half. In summary, Q2 was a strong quarter for sales with the cockpit electronics products performing well and partially offsetting the anticipated decline in BMS revenues. Turning to page four, we had a very strong quarter of new business bookings with $2 billion of new business one in the quarter, bringing the -to-date total to just under $4 billion through the first half of the year. This performance, plus our pipeline for the second half of the year, gives us confidence that we will exceed our $6 billion target for new business wins for the full year. Carmakers are extending existing vehicle platforms with hybrid and electric powertrain vehicles and delaying development of all new electric vehicle platforms. Offering larger and greater number of displays in the cockpit is an attractive option to upgrade and refresh these vehicles, which is driving more opportunities for Vistion for displays and digital clusters. The right-hand side of the page highlights some of the key wins in the quarter. We won a 48-inch -to-pillar OLED display with a leading German luxury automaker for the new hybrid and battery electric vehicles with first launch in 2028. This display will feature in all of the top-selling sedans and SUVs from this carmaker. The next win is for a 16-inch display in digital cluster with Hyundai for the vehicles in India. Our localization efforts and investments in India was a key reason we were able to secure this business. We won a 5-inch digital cluster product with Honda for the 2-wheeler market. This large program, representing about $400 million in lifetime revenue, establishes Vistion as a leading supplier to Honda in this segment of the market. The last win highlighted is for a cockpit domain controller for Traeton, a leading commercial vehicle manufacturer. We are an existing supplier to Traeton for our smart code product, and this win represents the next generation of the product, which will go across the customer's new vehicle architecture. This significant win represents about $350 million in lifetime revenue and will help build the foundation of a growing commercial vehicle business. Turning to page 5, the second quarter was also strong in terms of new product launches. We launched 21 new products in the quarter with multiple automakers, including four products with commercial vehicle and 2-wheeler manufacturers. This page highlights some of the key launches, illustrating the diversity of launch activity across powertrains, products, and vehicle markets. We launched a digital cluster with Connected Services with Royal Enthard, a leading motorcycle manufacturer in India, and a smart core and digital cluster program with Volvo in their construction vehicles and heavy-duty trucks. We also launched new smart code products with Volvo and Polestar, two brands that are part of Geely. And finally, we launched a 25-inch panoramic display with Audi on the new Q3 vehicle, our first business with this carmaker. Audi has completely redesigned the vehicle with the focus on the cockpit, anchored by Vistion's advanced display product. The panoramic display creates an immersive experience for the driver and was featured prominently in the market introduction of the vehicle. Turning to page 6, we remain focused on executing our strategy, which is centered around offering products that are well aligned with key industry trends supported by one of the best cost structures in the industry. This approach has enabled us to successfully navigate evolving industry trends and position the company for growth. In parallel, we seek to balance the allocation of capital to initiatives that strengthen our execution capabilities and returning capital to shareholders. In Q2, we made significant progress on our long-term strategic priorities. With the car becoming increasingly software-defined, displays are a key part of the user experience. We have been investing to develop deep expertise in automotive display design and manufacturing for the past several years, and these investments are continuing to pay off. In Q2, our display sales were up about 20% over prior year as we launched several new display products, including the panoramic display for the new Audi Q3 that I discussed previously. The win of a large -to-pillar display business with a leading luxury OEM, the biggest of its kind for OLED displays in the industry, reinforces a strong position in the industry. Commercial vehicles, including heavy-duty trucks, buses, and even construction equipment, as well as two-meters, are converging on the same trends that passenger cars have been going through for some time. These adjacent transportation markets are an attractive growth opportunity for Vistion, and in Q2, we've won about $750 million in new business for smart core and digital cluster products. We anticipate that these two markets could represent as much as 10% of our sales by the end of this decade, up from about 4% today. As noted previously, Asian automakers such as Toyota, Hyundai, Honda, and Maruti Suzuki represent an exciting growth opportunity for Vistion. In Q2, we secured key new business with Hyundai and Honda that builds up on the good progress we've made with Toyota and Maruti Suzuki that was reported previously. The 5-inch digital cluster win with Honda for two-wheelers is particularly interesting as it's a large-size display for that market. As the global leader in two-wheelers, Honda is the technology trendsetter in that industry, and this product will likely spur other two-wheeler manufacturers to follow, creating additional opportunities for Vistion. We also made progress on several vertical integration initiatives. We continue to bring key display-related capabilities in-house. Large displays require large metal frames to provide structural support that adds significant weight and cost to the overall product. We use a lightweight metal alloy that is injection molded using a special high-temperature process called pixel molding to create this frame. In Q2, we made progress in insourcing pixel molding capabilities at plants in Mexico and Tunisia. To our knowledge, we are the only supplier that has this capability in-house, which not only saves cost but also deletes the supply chain from China dependency. We also made good progress on the insourcing of display backlight unit, which is a key electronics component of displays. Together with optical bonding and pixel molding, we are successively bringing more of the display manufacturing process in-house. Lastly, we completed the acquisition of an engineering services company with about 250 people in Germany that specializes in automotive user interface design as a service to car manufacturers. With the trend of large displays and the anticipated introduction of GEN.AI in the cockpit, user interface design in cars will likely require a complete reboot. This acquisition positions Vistion to engage with car makers early during the concept phase of new cockpit UI designs. This is our second acquisition of engineering services company in the past 12 months. The first acquisition is also a similar sized company focused on vehicle connectivity and e-mobility technologies. Our objective with these acquisitions is to move up the value chain and engage early with our customers for next generation technologies. It also offers the potential to drive meaningful sales and profit contribution as we expand the services offering across our customer portfolio. Turning to page 7, I would like to provide an update on our outlook for the year. On our Q1 earnings call, we elected not to reaffirm guidance due to the potential risk of disruption to vehicle production due to tariffs. A quarter later, the risk to our original full year outlook has reduced even if it's not mitigated altogether. Our strong Q2 and first half performance, coupled with customer demand visibility especially for Q3, puts us in a position to reinstate guidance and increase the midpoint for all three financial metrics of sales, adjusted EBITDA and adjusted free cash flow for the full year. Our outlook for customer vehicle production for the second half is based largely on S&P Global's latest forecast with some modifications based on customer input. S&P Global is forecasting vehicle production to be down 5% for the second half both sequentially and year over year. Compared to our original guidance, second half customer production has worsened slightly. It should be noted that in our guidance, we're assuming that the tariffs status remains unchanged, including that all USMCA compliant parts remain completely exempt from tariffs. Compared to our original guidance, our outlook is benefiting from favorable currency and the contribution from our recent engineering services acquisitions partially offset by BMS. We've assumed lower BMS revenues with a potential lower consumer demand from the phase out of the EV tax credit by the end of September. Our sales growth over market in the second half is anticipated to improve from Q2 levels, mainly driven by upcoming new product launches for displays and corporate domain controllers. We now anticipate growth over market of mid-single digits for the full year, a modest decline from original expectations due to lower BMS sales and China. In total, we remain cautiously optimistic despite the uncertain industry environment based on the strength of our product portfolio, the traction we're gaining in our strategic initiatives as evident in a strong first half performance and the visibility we have in near-term customer production schedules. Now I will turn the presentation over to Jerome.