Good morning. I’m Bill Robertson, Vice President of Finance for Visteon. Welcome to our Earnings Call for the Second Quarter of 2018. Please note this call is being recorded and all lines have been placed on listen only mode to prevent background noise. Before we begin this morning’s call, I’d like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled Forward-Looking Information for further details. Presentation materials for today’s call were posted on the Investors section of Visteon’s website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. Our Form 10-Q was filed earlier this morning with the news release. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Christian Garcia, Executive Vice President and Chief Financial Officer. We have scheduled the call for 1 hour, and we’ll open the lines for your questions after Sachin and Christian’s remarks. Please limit your questions to one question and one follow-up. Again, thank you for joining us. Now I will turn it over to Sachin.

Thank you, Bill, and good morning, everyone. On Page 2, we summarize our highlights for the second quarter of 2018. The company reported sales of $758 million and adjusted EBITDA of $81 million. Compared to prior year, some key Visteon customers had lower vehicle production in the second quarter. This impacted us, particularly in North America, where the decline in production was greater than expected and to a lesser extent in Europe, where concerns around diesel and the impact of new emissions testing muted our growth in the region. China continued to be a strong region for us, helping offset some of the decline. We continued the strong momentum in new business wins into the second quarter. Our focus infotainment is generating results, and we won the largest infotainment award in the company’s history with projected lifetime revenue of $640 million. The industry trend of moving to all-digital clusters is continuing to benefit us as the market leader. We won our largest instrument cluster award also in the second quarter, with projected lifetime revenue of $585 million. These and other awards resulted in the company winning $2.2 billion in new business, up 38% from prior year. In addition to this new business wins, our performance in China is a highlight for the quarter. Sales in China were up 18% year-over-year, while new business wins for the first half more than doubled compared to the same period a year earlier. Moving to Page 3. In the second quarter, the auto industry had a mix performance with respect to vehicle production across the key regions. In North America, production volume was down 3% year-over-year. However, volumes for Visteon’s top five customers declined more significantly and were down 9%, which impacted our total sales by about 3% in the quarter. We expect North…

Thank you, Sachin, and good morning, everyone. On Page 13, we present our key financial results for 2018 versus the comparable periods in 2017. Sales of $758 million in the second quarter decreased $16 million due to lower vehicle production volumes in the Americas, customer pricing net of design changes and product mix, partially offset by net new business and favorable currency. Adjusted EBITDA was $81 million, representing a $3 million decrease from second quarter 2017. Adjusted EBITDA margin was 10.7%, 20 basis points lower than last year’s levels and was impacted by lower volumes in the Americas and product mix, partially offset by favorable currency and continued operating efficiencies across our organization. On a year-to-date basis, sales and adjusted EBITDA are essentially flat against last year. If you exclude the increased investment associated with DriveCore, our year-to-date margins would have increased 20 basis points from continued operating efficiencies. Adjusted free cash flow grew about 38%, primarily as a result of strong working capital performance. I will provide more detail on the following pages. Turning to Page 14. We provide sales and adjusted EBITDA for the second quarter and year-to-date for 2018 versus last year. Sales for the quarter were $758 million, about 2% lower than 2017. Our sales increased in Asia and Europe and declined in the Americas. In Asia, particularly in China, new product launches and positive currency drove an increase in sales. We continue to see our sales outpaced on underlying production volume in that market. In the second quarter, China domestic sales grew by 18%, and we expect that our China domestic revenues will grow by double digits for the full year of 2018. European sales grew year-over-year as well, reflecting favorable currency and the impact of new business. Sales growth was dampened in the region…

[Operator Instructions] Your first question is from the line of David Leiker with Robert W. Baird.

Hi, good morning. This is Joe Vruwink for David.

Good morning, Joe.

I’m just trying to go through some of the puts and takes for the second half of guidance and just using some of the commentary on the call if I annualize how your North American customers are underperforming. So there was a nine point headwind. Or if I analyze the WLTP impact, I can pretty easily get to a $100 million revenue reduction relative to where you might have been at the beginning of the year, which is what essentially you’re now guiding too. But are there things that are going better for you in terms of your China performance or new business activity? I’m just trying to figure out if maybe this guidance does represent, let’s say, the final cut, and if industry conditions just hold until the second half, there might be some opportunities to actually outperform?

Joe, this is Christian. Let me take a stab at this and then give it to Sachin for further comments. But you are absolutely right. If you think about the headwinds that we’re experiencing for the year, whether it’s North America volumes, the transitory effects of WLTP and softening demand, they are much more impactful in Q3. And then the other portion of it is that we continue to spend on R&D for the programs that we’ve won as well as the investments that we have for DriveCore. It’s a little bit more back-end weighted. We think about Q3, it is going to show a very difficult comparisons, but we still believe that it’s going to recover in Q4. And as you pointed out, China is a good story. It will continue to be a good story, and it’s going to show a much better or much healthier growth in Q4. So we would see a very weak Q3 and then recover some in Q4.

Yes, thank you, Christian. And Joe, if you think about what we are experiencing here, it’s really a story of, I would say, two parts. On one side, you have the volume and the impact that we have discussed here on the call. And on the other side, the key trends in corporate electronics are continuing to help Visteon. So we talked about the digital clusters, which are migrating or moving into the mass-market volume vehicles. That’s a very big thing for us, and by the way, that’s not just happening in the Western world, it’s also happening in China. The move towards display audio in terms of the infotainment systems, which is becoming standard equipment across almost new vehicles, which is creating significant opportunities there, that’s continuing. And we have mentioned that SmartCore, our cockpit domain controllers, this is an inflection point. This year represents that major shift that more and more of the OEMs are moving into cockpit domain controllers, and we are very well positioned with our technology portfolio. In fact, I would say that it has never been a better time from a technology portfolio and how it addresses these needs in the industry. And again, so it’s a competitive environment out there, but we are doing pretty well and that is something that will continue to benefit us – and the hope is that it can offset some of the reduction in the production volumes that we are experiencing right now.

So on that point, thank you for that. I’d imagine, you are not in position yet to raise your 2021 revenue target, although given how much new business you’re winning. You’re 30% above the new business assumption, you embedded in the outlook. So I’d imagine maybe you’ll get there eventually. So I’ll ask a slightly different question. Sachin, when you joined Visteon and you talked about programs you’re winning in the backlog, there was a lot of programs, but they were small in magnitude, $25 million, $50 million, $100 million programs. Now that you’re winning individual programs that are $500 million, $600 million, what does that mean to the business model longer term, greater revenue stickiness, more consistency with incrementally EBITDA? Just how does this change kind of the outlook for Visteon going forward?

Yes, absolutely. So just to characterize what you said further. If you look at our new product launches going, say, two years back, the average size of a new product launch was somewhere around $50 million. What we have managed to accomplish in the last two years is to more than double the average size of new product launches. And if you look at the recent wins, that’s – that trend is going to continue. Now that trend is very important for us. It’s a requirement for us to be able to execute on our long-term targets of especially EBITDA margin expansion. So with respect to the 2021 targets, we will provide you with more updates later when we do the full update at the beginning of the year. But I think it’s appropriate to say that we have been winning higher than what we had said last – earlier last year, in terms of the two-year targets, in terms of new business wins. We are running ahead of that, but since the volumes have come down, it is an expectation that we will need to win higher than the $12 billion that we had talked about at the beginning of last year. But what I see in terms of the new opportunities pipeline and what we have been able to win in the first half of this year, I would expect us to be on track to win the level that’s required for our long-term target achievement.

Joe, if I can add to that, so Sachin mentioned the quantities there, but what is even more interesting is the type of wins that we have. It’s much more heavy on the software side. And as you can tell that as we move the company to much more software orientation, in terms of the technologies that we are commercializing, it has a lot of implications on the business model. It might be not as impactful in 2021 but certainly beyond 2021.

Great. Thank you very much.

And your next question is from the line of Itay Michaeli with Citi Research.

This is Justin on for Itay. How you guys are doing?

Hi, Justin.

So a quick question on the Q2 front. You guys mentioned product mix with respect to being a headwind in the quarter. Just kind of hoping you can elaborate a bit more on that? Is that effectively more hardware specific content at the expense of less software specific content? And then I guess how that relates to customers adjusting their product offerings, which I believe you mentioned as well? Were you more referring to that relative to segment-related strategies or is that also kind of like content-related technological offerings on the vehicle?

Yes, Justin, in the quarter, we really did not see much of a shift from what we were expecting in terms of the product mix, except that in Europe where we had a – where, I should say, the industry as a whole is going through a mix shift with respect to diesel versus gasoline, that has impacted some of our customers disproportionately, and that has impacted us in the sense that our sales to those customers have been reduced. Now there are a couple of things going on in Europe as you know. One is diesel, the other is WLTP. There are two different things the way we see them. And the WLTP impact would be probably felt here in the third quarter as well, but should be then recovered as we enter into the fourth quarter. But when it comes to the diesel versus gasoline mix, this does seem to be a somewhat longer-term trend, and then we will have to see how our OEM customers manage the mix change and its impact on us.

Great. Very helpful there. And then I guess from my follow-up, on Slide 4, you mentioned that you’re seeing increased interest at the OEM level from the evolution of, call it, ADAS and to the Robo-Taxi/Level 4, Level 5 maybe being a bit delayed in favor of Level 3, which kind of plays into the DriveCore tech. Can you provide some color in terms of the regions that you’re seeing that increased interest? Maybe any color there would be helpful.

Yes, absolutely. And just to maybe elaborate on that a little bit more, so as you might have seen, the impact of Level 1 and Level 2 ADAS in terms of reducing accidents and fatalities has actually been quite significant. I would say, impact has been greater than 25% across the board in terms of reducing those accidents. Now the technology that is available to the industry is able to make that impact at what I would term as lower speeds. When it comes to higher speeds, in other words, highway driving and making highway driving safer, this technology needs to evolve to a – more of a centralized processing system that performs sensor fusion from the data that it collects from multiple sensors. That requires a completely different kind of architecture and scalability in terms of the computing resources that we need to put into the system. Now that’s what DriveCore was designed to do. And by the way, that same approach is what is required as you move up from Level 3 to eventually Level 4 and Level 5, although I have to say at this point in time and the industry has also realized that it might take longer than expected to put Level 4 and Level 5 systems out on the road. So our focus on a couple of things: one, the trends of sensors continuing to commoditize that seems to be proven right. The focus on centralized computing of sensor data with sensor fusion that seems to be the right approach as well. And therefore, the interest from OEMs has been really high in this DriveCore solution. It’s been the highest in China, as we would expect it to be, considering how quickly that market is moving towards more safer and eventually autonomous driving. And by the way, we also believe that EVs, electric vehicles, are almost a precursor to more automated driving. And again, as you know, China is leading the market from their perspective. So we continue to see a lot of interest from China for DriveCore. But also, in Europe, which is where there’s a lot of activity in terms of technology development, we are engaged in predevelopment activities with multiple customers. Hopefully, we’ll be able to announce more in the coming quarters outside of China our engagement with other OEMs.

Perfect. Very helpful. Thank you so much.

And your next question is from the line of Emmanuel Rosner with Guggenheim Securities.

Hi, good morning, everybody.

Good morning.

Good morning.

Just wanted to ask you just a little more color on your revised 2018 guidance. In particular, I’m curious about the factors behind the cut in the EBITDA margin guidance because, obviously, the first half margin seemed to be pretty much in line. Is this mostly sort of the lower volumes and the headwinds you’ve spoken about? Or are there any specific margin headwinds as well?

No, no, you hit it head on, Emmanuel. If you – like I said, if we think about the headwinds that we’re seeing this year, the North America volumes and the softening of diesel demand and the transitory effects of WLTP, those are much more impactful in the second half, particularly in Q3. And so that’s one aspect of it. The second aspect is our engineering spend continues, and in fact, our DriveCore investments are actually back-end weighted, right? So as such, second half margins will be lower than the first half.

Okay. That’s helpful. And just to clarify, the – your multiple comments on diesel, I mean, obviously you’re not exposed to, I mean, your technology don’t apply to specific powertrain, right? So you’re just saying that because of the diesel you chose in Europe, overall production is coming down? Or are you partly really overexposed to diesel for some reason?

No. You are absolutely right, that we are powertrain-agnostic in that sense, right? So it doesn’t – our technology does not depend on the powertrain. However, we have customers who have higher portfolio diesel vehicles versus the other kind in their mix, and it’s impacting them and that’s the reference that we make to diesel here, right?

So to give you – so Emmanuel, so just to give you kind of a little bit more data, diesel – when you look at the diesel car market in Europe, it is down about 16%. But if you look at – it’s different for different countries. And some countries have a drop of about 35%. I mean so it is depending on where your exposure is. Again, as Sachin mentioned, what happens to that demand, will that move to gasoline and which ones will pick up the demand for vehicles in total.

Okay. That’s helpful. And I guess, sort of, just finally, would you be able to share some initial thoughts and sort of like the direction of your revenue walk through the, sort of, like, 2021 target? I mean I understand that you’re winning – your business wins are exceeding sort of expectations, but that some of the volumes are under some pressure. I’m just in particular interested in initial thoughts you have on next year, directionally?

Yes, and you can appreciate that we are not able to provide any specific guidance for next year, but I think what we should discuss here are the conditions or the factors that will drive our next year’s results. And they are not going to be that different than what is impacting us here in the second half. So mainly, it would be how North America performs with respect to production. In Europe, what happens with no diesel WLTP that we discussed earlier, and of course, currency. So that’s more specific to 2019. Having said all of that, we still expect on account of the new product launches for our 2019 revenues to be slightly higher than 2018. Now as we look forward beyond 2019, it’s a story of new product launches, and that’s driven by our new business wins starting 2016. If you remember, our new product wins that our chart looks like this, we won in 2015 $4.3 billion, $5.4 billion in 2016 and the $7 billion in 2017. And in this industry, it takes about three years for new business wins to convert into revenue. So you would expect the majority of the benefit of new product launches to occur in 2020. And we still expect that to be the case. Now some of that will depend on how production volumes look like in that period of time, which is difficult to say in the current environment. Nonetheless, our plan here is to find offsets for any the negative impact through increased new business wins in 2018 and 2019. So we would like to be as much as possible not impacted by what happens to production at the same time, the nearer the term, the greater will be the impact of what happens to production.

Great. Thank you very much.

And your next question is from David Tamberrino with Goldman Sachs.

Maybe just following up on that right now and kind of reading through some of the comments. Is 2019 kind of expected to be more of a flatter growth year from 2018 with where all the new business wins are launching? Or is there some incremental growth that we’re not thinking about for approximating?

Yes, the way I would like to think about 2019 is, again, based on what I’ve said, depends on how production volume shape up in North America, right? We have a huge exposure to the North American customers in terms of what they do with their production. And so you have seen that the latest results from some of them, and so it depends on how they perform next year. Given where we stand, we do expect next year to be slightly better than this year, in terms of production, but there is uncertainty there given what has just happened. And with respect to Europe, which I would not discount that either, that clarity in terms of what happens to diesel and WLTP, we will be in a much better position, I think, by the end of the third quarter to say much more on 2019 than what we can say today. But as I’ve said, on account of the new product launches going back to the wins that we had in 2016 will still benefit us in 2019. And as a result, I’m pretty confident that we will be up than 2018, the question is the magnitude of that change in 2019 revenues versus 2018.

That’s fair. Can you maybe just help us or remind us your mix of, call it, passenger car versus light truck in the North America region with the progress that you are on?

Yes, I think it’s difficult. We do not provide that mix information. And at this point, I don’t think I would be in a position to share that. But the way I would look at it is, our volumes are pretty linearly tied to the manufacturing volumes of our top five OEMs and our customers in North America. I would not say that it is that heavily mix oriented.

Okay. And then just lastly on the business equation for the quarter, looks like price-downs improved sequentially, I think, during the calculus maybe 3% versus the first quarter was about 4%. Is that 3% level the right go-forward metric? What was going on in 1Q from a one-time perspective? And is that potentially going to repeat? Or does it get better and go back down to the low to mid-twos?

You are absolutely right. It’s much more impactful in Q4 as we were negotiating the contract renewals for this year. It has floated down to about 3% in Q2, and we expect it to be around 3% for the year, right. So I think, that will hold, and that is our view at this point in time.

Okay. I appreciate it. Thank you very much.

Your last question is from the line of Steven Fox with Cross Research.

Good morning. I guess, first off, I was wondering if there was one or two areas of differentiation that you think drove the two big wins during the quarter? And then secondly, as you think about sort of – and you touched on this a little bit, the bigger size of the wins which seem to keep scaling and then more software intensity. Is that changing your thoughts at all in terms of how your global production will look going forward, especially as maybe China becomes a bigger piece of the customer base?

Yes, sure. So if you think about display audio, which is where the infotainment industry is – are trending towards, as I said earlier, they are starting to become the standard equipment in all vehicles. What was interesting about this win is that it is for a mass-market C segment vehicle, which normally would not have a 10-inch display audio product as the default, as the standard equipment. So that’s really significant. And because of the very high volume that it represents, this is very clearly what will drive the trend in that direction for everybody else. And I should say, that we are in discussions with other OEMs for similar systems. So it’s not a one-off. This seems to be where the industry is headed. Now in order to be really well positioned to win in display audio, you need to have a few things that you can truly differentiate yourself on. These are: core capabilities in CarPlay and Android Auto; expertise in Linux, HTML5 and now Android, and then, a hardware system that leverages the latest innovations in silicon. And hopefully, you have all of these things ahead of when these customers are asking you for. The new requirement that has popped up on account of the display size is getting bigger is that you also need to have best-in-class display, and I should say automotive display, manufacturing design capabilities in-house. Now when you look at Visteon, we are almost unique today in the industry with all of these capabilities in-house and at a very high level. Now this was not the case always. We have been working at this for the last three years. We have made several changes in terms of our design capabilities, our ability to understand also the sub-supplier’s cost and able to drive…

Great. Thanks. And just in terms of production outlook, is there anything changing in your plans? Obviously, you mentioned what you’re doing to build up in-house capabilities, but is there any other color you can provide? Thank you.

Yes, so I think in terms of the production environment what we are seeing here is more or less in line with what I just has been projecting, except that we have been consistently a little more optimistic about production environment in China. Just one piece of color there, with respect to China, we do see, however,that the second half growth will not be as good as the first half, but it will still be in the 2% to 3% range, which, given the size of the market, is still very significant and very beneficial to Visteon.

And we have no further questions, Sir.

Okay. And with that, thank you, Sachin; thank you, Christian; and thank you to all for joining today’s call. I will be available later this afternoon and tomorrow for phone calls. So please feel free to reach out and contact me. Thank you, again.

This concludes Visteon’s second quarter 2018 earnings call. You may now disconnect.