Visteon Corporation

Good morning. I'm Ryan Ghazaeri, Vice President of Investor Relations and Corporate Strategy. Welcome to our earnings call for the third quarter of 2026. 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 Statements in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website. Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for one hour, and will open the lines for questions after Sachin's and Jerome's prepared remarks. Please limit your participation to one question and one follow-up. Thank you for joining us. I'll now turn over the call to Sachin.

Thank you, Ryan, and good morning, everyone. Visteon delivered strong sales growth in the third quarter despite a challenging industry production environment. Customer-weighted vehicle production declined approximately 5 percentage points during the quarter, yet our sales grew 6% year-over-year to $970 million, resulting in approximately 10 percentage points of market outperformance excluding the impact of memory recoveries and pricing. During the quarter, we recorded $77 million of specific warranty charges related to two instrument cluster programs with separate customers. The charges follow customer decisions made in the quarter and relate to two unrelated issues. In one program, we expect to remediate affected vehicles through software updates The root causes have been identified and corrected, and the charges reflect our best estimate of the cost to complete these actions. As a result of these charges, our adjusted EBITDA for the quarter was $46 million, compared with $123 million excluding the charges. This represents an adjusted EBITDA margin of approximately 4.7%, or 12.7% excluding the charges. While these charges had a significant impact on our profitability for the quarter, they relate to previously delivered products and our underlying operating performance remains strong. We have made good progress recovering higher memory costs incurred earlier this year. As component costs continue to evolve, We are actively working with customers and suppliers to mitigate the impact consistent with the disciplined approach we have followed during prior shortages. Adjusted free cash flow was neutral in the quarter as we increased inventory of critical semiconductor components in response to emerging parts shortages. We ended the quarter with net cash of $136 million. Beyond the financial results, we continue to execute on the strategic priorities we outlined at Investor Day. We launched 21 new products across 14 automakers, including our first smart core high-performance compute program, the Cherry. We also secured approximately $1 billion in new business awards, bringing year-to-date bookings to $3.9 billion. Finally, we completed our $200 million accelerated share repurchase during the quarter, marking the first step in executing the capital allocation framework we outlined at Investor Day. Let me now turn to our third quarter sales performance on page 3. This slide shows our regional sales performance in what was a challenging production environment in most markets where we operate. Overall, customer vehicle production declined during the quarter, most notably in China, yet our recent launches over the last few quarters enabled us to grow sales and outperform the market. In the Americas, our performance was impacted primarily by lower BMS sales to GM, compared with elevated demand in the prior year quarter ahead of the expiration of the EV tax credits. This was partially offset by the ramp-up of new programs with Ford and Nissan. Europe was our strongest performing region with sales growth of nearly 20%. Our panoramic multi-display and cluster program with Audi, display and cluster programs with Renault, and display launches with Mercedes all contributed to this growth. These more than offset roll-offs and lower volumes on legacy programs with BMW. In Asia, excluding China, our sales grew approximately 14%, led by new launches of our smart core domain controller in India with Mahindra, as well as digital clusters on two wheelers with Royal Enfield and TVS. The strong performance in India more than offset the roll-off of a Mazda program in Japan and currency headwinds from the Indian rupee and Japanese yen. Finally in China, customer production declined approximately 17% in line with the broader industry, excluding exports. While lower domestic demand is impacting production at all OEMs, international OEMs are impacted more, including Visteon customers such as Volkswagen. While our international OEM customers continue to face lower demand, we are successfully repositioning our China business toward domestic OEMs that are gaining share. Domestic OEMs now account for approximately half of our China sales, compared with just over one-third a year ago. This is important as our strategy is increasingly aligned with premium segment brands of Chinese domestic OEMs that are gaining share in that market. With the anticipated launches of high-performance compute systems with leading domestic OEMs, Geely and Syke, we expect our China sales to return to growth in the fourth quarter. Overall, the quarter demonstrated that while customer vehicle production declined, our launch execution and diversified customer portfolio enabled us to deliver strong sales growth and position the business well for the fourth quarter and into 2027. Turning to page 4, we launched 21 new products across 14 automakers in the third quarter, continuing a year of high launch activity that sets the stage for 2027. The highlight of the quarter shown on the right is the launch of our smart core high performance compute cockpit domain controller on the Cherry Freelander 8 in China. The system consolidates more than 10 electronic control units into a single system and brings integrated edge AI capabilities into the cockpit, addressing one of the fastest emerging areas of product differentiation in the Chinese automotive market. This launch with CHERRY is the definition of China speed as it represents the first to market system on a new fifth generation Qualcomm chip with a booking to start of production timeline of approximately 13 months. The program is following its planned launch ramp with volumes expected to increase in the fourth quarter and through 2027 as additional vehicles are introduced. With BMW, we launched our cockpit domain controller in Europe on the new i3. One of the first vehicles built on BMW's next-generation electric vehicle platform. This is an important high-volume program for Visteon, with launches in additional markets planned later this year, followed by expansion to other BMW models in 2027. Also in Europe, we expanded our panoramic display and cluster program with Audi through the launch of the A3, Adding another vehicle to the successful program that has been an important contributor to our market outperformance this year. Beyond Europe, we launched a driver display for a new Lexus electric SUV serving the Japanese and North American markets. This is one of the several planned launches with Toyota that we highlighted at Investor Day, supporting our strategy to expand our business with this important customer. We also continue to expand our presence beyond passenger vehicles with launches of connected digital clusters for Royal Enfield and Honda two-wheelers, as well as cockpit domain controllers for Volvo construction equipment excavators in Korea and China. These programs demonstrate how we are leveraging our proven cockpit technologies to capture growth opportunities in adjacent mobility markets. Overall, these launches reinforce several important trends. First, our portfolio continues to migrate toward higher value cockpit computing and display technologies. Second, our high performance compute business has moved from new business awards into production. And finally, we continue to expand in adjacent mobility segments, supporting a more diversified growth profile. Turning to page five. New business bookings were just under a billion dollars during the quarter, bringing our year-to-date total to $3.9 billion. Several significant sourcing decisions that we anticipated in the third quarter shifted into the fourth quarter as carmakers evaluate changes in memory technologies and product architectures. These opportunities remain in our pipeline, although some final award decisions may extend into 2027. Importantly, we have not seen a corresponding change in the underlying demand for our products. Based on our current pipeline of opportunities and anticipated customer sourcing decisions in the fourth quarter, we continue to target $6 billion in new business bookings for the full year. Looking beyond 2026, we also see opportunities for new product designs and platform upgrades, as customers transition to newer memory technologies, which we expect will further strengthen our pipeline. Our wins in Q3 also support a strategic objective of growing our business with targeted customers in Asia, including Toyota, Maruti Suzuki, and Tata Motors. Furthermore, reflecting the shorter time from award to launch, about half of our Q3 new business awards will launch in 2027, with another 25% launching in 2028. Let me highlight a few of the strategic new business wins from the quarter. First, we secured a cross-car platform display business with a Japanese OEM for its premium brand covering multiple markets. The first launch is in China on an electric SUV in 2027, followed by a global launch on a hybrid crossover in 2028. Visteon is the sole supplier for this product and is well positioned to win follow-on opportunities. Second, we won two display programs with a leading Indian OEM, marking our first display wins with this customer. This OEM has traditionally offered small displays in its vehicles and the move to 12.3 and 12.8 inch displays represents a significant shift in its cockpit strategy. These displays go into production in 2028 on two vehicles with opportunities to expand to additional models. We also won a 10-inch center information display for a light-duty commercial vehicle with a North American OEM. The initial launch is for the European market with follow-on opportunities in other regions. and finally we secured a central display and infotainment system with integrated vision processing across multiple vehicle models with an Indian OEM, further strengthening our position in one of the fastest growing markets in the world. The program includes a 10.25 inch display along with a silver box that provides infotainment functions, rear view camera processing and visualization. Overall, Our third quarter and year-to-date bookings reinforce the strategy that we presented at Investor Day as we continue to diversify our customer base across Japan, India, and non-passenger vehicle markets. Turning to page 6, let me now turn to our outlook for Q4. Demand for our advanced cockpit products remains healthy, supported by recent launches and increasing content per vehicle, even as industry vehicle production and component availability remain challenging. Our recent launches, including the Audi cluster and display system, the BMW cockpit domain controller, and our Cherry high-performance compute program, continue to ramp, with volumes growing sequentially. We also have additional launches in the fourth quarter including high-performance compute systems with leading domestic OEMs in China, a high-volume digital cluster program for a Japanese OEM in the North American market, and cluster programs for two-wheelers in India. Together, these programs are expected to more than offset normal program roll-offs and lower customer production volumes, driving strong market outperformance in the fourth quarter. Turning to the supply environment, memory and other electronic components have remained tight throughout the year. So far, we have successfully managed these constraints without impacting customer production, working closely with our supply chain partners. However, we are beginning to see greater industry-wide supply headwinds, particularly for memory and printed circuit boards, which could constrain vehicle production in the fourth quarter. To mitigate these challenges, we have taken several proactive measures. We have entered into strategic supply agreements with memory and printed circuit board suppliers, expanded our supplier base for DRAM and NAND memory, and undertaken product redesigns to reduce reliance on constrained components. These actions are already delivering benefits are helping us maintain supply continuity positioning us to finish the year with meaningful growth over market. Looking ahead to 2027, we expect memory costs to exceed the assumptions we outlined at investor day in June. We have made significant progress securing additional memory supply through strategic agreements with established suppliers and commitments from new suppliers. These actions have substantially improved our visibility into memory availability for next year, although this additional supply is coming at higher costs. We are actively working with our customers to address these increases and expect to provide greater clarity when pricing and commercial discussions progress as we are still finalizing pricing with suppliers. Jerome will provide our current planning assumptions at the end of our presentation based on the visibility we have today, but ultimately, the financial impact will depend on product mix, customer production volumes, and our commercial arrangements with customers. Turning to page 7. Let me conclude by summarizing what we accomplished this quarter. First, we delivered strong market outperformance of approximately 10 percentage points, driven by some high-value product launches with OEMs, primarily in Europe and Asia. Second, we maintained commercial and operational discipline in a difficult supply environment. We are working on securing the components we need to support our customer demand, while working to offset cost increases through recovery agreements. Our growth pillars continue to build momentum. We launched new next-generation products in China, India, two-wheelers and commercial vehicles, as well as global programs with our Japanese customers. And finally, we completed our $200 million accelerated share repurchase program, continuing to execute the capital allocation framework we outlined at Investor Day. Overall, this quarter provided another proof point that the strategy we outlined at Investor Day is translating into market outperformance. We're addressing near-term operational challenges while continuing to execute our growth strategy with a strong pipeline of product launches and new customer opportunities heading into 2027. With that, let me turn the call over to Jerome, who will review our financial results in more detail.

Thank you Sachin and good morning everyone. Our third quarter results reflect three key themes. First, strong sales growth and launch execution. Second, resilient underlying profitability despite two distinct warranty charges and the timing of some customer recoveries. And third, deliberate working capital investments in inventory to improve supply chain resilience and support upcoming launches. For the quarter, sales were $970 million, up 6% from the prior year. We delivered growth of a market of 10% relative to customer-weighted production, driven by strong launch execution, most notably in Europe and India. Adjusted EBITDA was 46 million or 4.7% of sales, including approximately 77 million for two specific warranty-related charges Sachin mentioned earlier. Excluding these charges, adjusted EBITDA would have been 123 million or 12.7% of sales, compared with 12.1% in the second quarter. This demonstrates the resilience of our underlying performance despite additional inflation pressures beyond memory, mostly in PCBs and other electronic components for which custom recoveries are still being negotiated. Adjusted free cash flow was almost breakeven for the quarter. Cash flow performance reflected our deliberate decision to build inventory to secure more strategic supplies, increase safety stocks of selected components, and support upcoming product launches. At the same time, we continue to execute our capital allocation priorities. During the quarter, we completed a 200 million accelerated share repurchase program and paid 9 million in dividends, returning a total of 209 million to shareholders. We have now returned approximately half a billion to shareholders since our 2023 Investor Day in the form of share repurchases and dividends. We ended the quarter with net cash of $136 million near the target outlined at our June investor day. Overall, the quarter demonstrates strong market outperformance and launch execution, resilient underlying profitability, and disciplined deployment of our balance sheet while being able to manage near-term cost pressures and withstand working capital pressures. Turning to page 10. Sales for the quarter were 970 million, up 53 million or 6% from the prior year. It is now the second quarter of this year that Visteon posted absolute year-over-year growth. Q3 customer-weighted production declined approximately 5%, with the most significant decline in China. Against that backdrop, we delivered growth of a market of 10%, excluding pricing and recoveries. This outperformance was driven by the continued ramp-up of recent launches with Audi, Renault, Nissan and Mahindra, partially offset by lower BMS volumes with GM and the roll-off of certain legacy programs. Net customer recoveries for electronic cost inflation, including both legacy costs and 2026 inflation, contributed approximately 50 million to sales, a year-over-year increase of approximately 20 million, more than offsetting normal pricing reductions. Adjusted EBITDA was 46 million, or 4.7% of sales, including approximately 77 million for two specific warranty-related charges highlighted earlier. Excluding these charges, adjusted EBITDA would have been 123 million compared with 119 million in the third quarter of 2025, demonstrating the resilience of Visteon's underlying performance. The Eurovere EBITDA bridge reflects higher volumes from recent launches, customer commercial recoveries, operational efficiencies, and lower accruals for incentive compensation. These benefits were offset by elevated warranty charges, higher supplier costs, and negative exchange rate impacts. Inflation-related recoveries remain an important driver of our 2026 results. In the third quarter, customer recoveries fully offset memory cost increases, consistent with the progress reported in Q2. However, we incurred approximately 10 million of cost leakage from a second wave of inflation in PCBs and other electronic-related components that began in the second quarter. We are actively negotiating with customers to recover these costs along with ongoing memory inflation. Overall, the quarter reflects strong growth of market performance and launch execution, resilient underlying profitability excluding the specific warranty-related charges, and continued progress on recoveries and cost initiatives. Turning to page 11. Adjusted free cash flow was negative 1 million in the quarter and negative 4 million for the first nine months of the year, compared with 215 million in the same period last year. The year-over-year decline primarily reflects three factors. Lower underlying earnings, a deliberate investment in working capital to strengthen supply resilience and support launches, and the timing of cash taxes and other annual payments. First, year-to-date adjusted EBITDA was lower by 116 million compared to the prior year period. This primarily reflects 77 million of two specific warranty charges taken in Q3 which did not impact cash this quarter, cost inflation, and the timing of customer recoveries, as well as non-recurring commercial items that benefited prior. Second, trade working capital was a use of cash of 99 million year-to-date. Inventory increased as we built safety stocks of critical components, absorbed higher component costs, and supported upcoming launches. This is a deliberate investment to improve supply chain resilience as the supply of certain components including memory and other electronic components is tightening while costs continue to rise. Receivables also increased due to higher sales and the timing of certain customer collections which we expect to improve in the fourth quarter. Third, cash taxes were 14 million higher year over year, including the one-time settlement in India related to prior years that we discussed in the second quarter. As in prior years, first half cash flow also included the annual incentive compensation payments. Finally, year-to-date capital expenditures were 103 million, reflecting continued investment in new program launches, vertical integration, and capacity expansion in India and other growth markets. We ended the quarter with net cash of 136 million after returning 209 million to shareholders this quarter. This included the completion of our 200 million accelerated share repurchase by quarter end, which reduced outstanding shares by approximately 2 million or 7.5%. Turning to page 12. We are updating our full year guidance to reflect our year-to-date performance, integrating our strong sales performance, the two distinct warranty related charges discussed earlier, and our current outlook for component inflation and inventory. We now expect sales to be between $3.8 billion and $3.85 billion, with the midpoint being $25 million above where we were trending to in the second quarter. This outlook reflects our year-to-date performance, successful third quarter launches, and confidence in our strong fourth quarter launch cadence. Key launches include displays with several of our fastest-growing OEM customers and the continued ramp-up of our high-performance compute programs in China. These benefits are partially offset by softer customer production. Overall, for the full year, we expect sales to grow low single digits year over year, resulting in growth of a market in the mid-single digits. For adjusted EBITDA, we now expect 370 million to 410 million compared with our prior range of 455 million to 495 million. The revised outlook primarily reflects the 77 million warranty-related charges highlighted earlier. As discussed in the second quarter, inflation, initially concentrated in memory, has broadened to other purchased electronic components, and we now anticipate that these combined incremental costs will represent approximately 3.25% of total sales for the full year. We are in active negotiations with our customers to recover these costs. However, we do not expect to fully offset these cost pressures in 2026, largely due to recovery timing. The estimated margin impact to our full-year EBITDA represents approximately 85 basis points of margin, including dilution and leakage. Elevated memory and other component costs are projected to continue in 2027, and while vehicle volumes, content decision, supply dynamics, and other factors will drive the ultimate cost, based on current visibility, we anticipate additional costs in 2027 to be similar to the levels we saw in 2022. As a result, given the higher cost levels we now anticipate, both the associated recoveries and the resulting margin dilution are expected to be greater than what we had assumed in June. As mentioned by Sachin, we continue to be actively engaged with our suppliers and customers and we will be providing an update in February 2027. Turning back to Q4 2026, even with these headwinds, we expect margins to improve in the fourth quarter, supported by additional customer recoveries and the continued ramp-up of cost initiatives across product, vertical integration, and engineering productivity. For adjusted free cash flow, we now expect 90 million to 130 million compared with our prior range of 170 million to 210 million. The revision primarily reflects higher inventory as we secured supply of critical components with our customers, along with the timing of customer collections for cost inflation recovery agreements expected to be finalized in the fourth quarter. We continue to expect strong fourth quarter cash generation driven by higher EBITDA and a cash inflow from working capital, mostly as a result of collections for receivables and custom recoveries. Turning to page 13. Vistion remains a compelling long-term investment opportunity. We are well positioned for long-term top-line growth, margin expansion, and free cash flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. In summary, the third quarter reflects a strong growth of market in a challenging production environment. We remain confident in the long-term opportunity ahead as we execute on the plan that we outlined in June. Thank you for your time today. I would like now to open the call for your questions.