Good morning. I’m Kris Doyle, Vice President, Investor Relations and Treasurer. Welcome to our Earnings Call for the Third Quarter of 2021. 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 would like to remind you this presentation contains Forward-Looking Statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled Forward-Looking Information for additional details. Presentation materials for today’s call were posted on the Investors section of Visteon’s website this morning. Please visit investors.visteon.com to download the material if you have not already done so. Joining us today are Sachin 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 we will open the lines for your questions after Sachin’s and Jerome’s remarks. Please limit your questions to one question and one follow-up. Again, thank you for joining us. Now I will turn the call over to Sachin.

Thank you, Chris. Good morning, everyone, and thank you for joining our third quarter earnings call. Page two summarizes our results for the third quarter. Our sales was 631 million, down 17% year-over-year, excluding currency. Global automotive production was down significantly as a result of the semiconductor shortages, which have persisted beyond initial expectations. Adjusted EBITDA was 42 million or 6.7% of sales, a decrease of 45 million compared to prior year, mainly due to lower production volume. Adjusted free cash flow for the first three quarters was a use of 37 million as disruptions in semiconductor supply resulted in an increase of working capital. Despite the challenging semiconductor supply environment, our core digital products did very well with year-over-year growth in sales of digital clusters, SmartCore domain controllers and android-based infotainment. We launched 13 products in the third quarter and are on track to launch approximately 50 products for the full year. These new product launches and the 3.8 billion in new business wins year-to-date positions the company well for continued growth in the future. On the ESG front, we are pleased with the progress we have made on our previously announced environmental targets. Going forward, we have committed to the use of science-based target initiative for the setting and reporting of emissions reduction targets for the company. The company’s liquidity remained strong, and we ended the third quarter with 401 million of cash and debt of 354 million, representing a net cash position of 47 million with no material debt maturities until 2024. Turning to Page three. I Supply of semiconductors was significantly constrained throughout the third quarter, going against earlier expectations of recovery from the second quarter. Most of the recent investment in the semiconductor supply chain has been going into 300-millimeter wafer fabs for high-performance chips…

Thank you, Sachin, and good morning, everyone. Visteon continued to focus on execution throughout the third quarter, while industry production volumes were negatively impacted by the ongoing supply chain disruptions and the worldwide semiconductor shortages. Our focus continues to be on controlling the variables we can influence, including proactively negotiating cost recoveries from our customers. and ensuring we are well positioned for the industry’s future rebound. Third quarter sales were 631 million, representing a slight increase compared to prior quarter. Customer mix improved sequentially, and we were successful in recovering a large portion of the increased semiconductor costs from our customers. As a result, annual pricing, which is typically negative, was a positive for the quarter. Adjusted EBITDA was 42 million, representing a margin of 6.7%. Through the first three quarters of the year, adjusted free cash flow was negative 37 million. Industry production volumes were down 20% year-over-year while our customers’ production was down 25% in the quarter as some of our European and Japanese customers were more impacted than the overall industry. Excluding the favorable impact from currency, Visteon’s sales declined 17%, representing a positive performance versus both the industry and our customers’ production volumes. This solid performance was driven by the robust number of launches in recent quarters, combined with customer recoveries. Semiconductor cost recoveries have been a major focus in the quarter. We were able to recover 75% of incremental semiconductor costs incurred in the quarter despite an increase in the ongoing cost run rates. We discussed on our last call that recoveries had improved late in the second quarter, a trend that continued into Q3. As a result, the net impact of incremental supply chain costs related to semiconductor for Q3 was six million, an improvement of 11 million compared to the second quarter. We…

[Operator Instructions]. Your first question comes from the line of Joseph Spak with RBC.

Two questions, one sort of more near term and then one strategic. But just on the incremental semi costs, you are saying 40 million for the year. So that is like three million for the fourth quarter. Are you expecting that 75% recovery rate still in the fourth quarter and then how should we think about semi inflation moving into 2022?

Joe, it is Jerome. Yes, generally speaking, we are anticipating that our negotiations in Q4 will lead to similar results to what we have been able to achieve in Q3. So roughly 40 million for the full year. That means 75% to 80% cost recoveries for Q4. Talking about next year, it is still pretty early. In fact, we want first to finalize our negotiations for Q4, and we are right in the middle of that. But what we are today embarking on is or larger discussions with our customers, not only to include cost recoveries, but to make sure as well that we integrate in these discussions, more strategic elements, including supply, including visibility and as well the cost side of things. So we are still going through that, and we will definitely update you in our Q4 calls later on next year. The one thing I can say is that we are definitely targeting for at least 75%, if not 80% recovery going into next year.

Okay. That is helpful. And then just, Sachin, on sort of the longer term here, in the past, you sort of talked about new business wins needed to be about six billion a year to hit your targets. And it sounds like you are planning for a big fourth quarter to hit that this year. And then you showed this chart, which showed IHS is actually above 2023 now versus what you had for volume versus what you had considered. And it doesn’t sound like you are really sort of changing your view. So is the message here you still think those midterm targets are achievable even if path there is a little bit different given by everything that is been going on over the past year?

That is exactly it, Joe. So if you think about - when we talked about the midterm target at the beginning of the year that was on an assumption of vehicle production of 89 million units. And if you look at where we are at today, although our pace has been lowered with what has happened in this year, we do believe that the path to 89 million or even higher is definitely achievable based on the recovery that we expect to see in terms of supply next year and then continuing. And so nothing changes structurally from our other elements of the growth story. So the new business wins that we expect to be on target or close to it this year. There has been some delays in Q3 on account of all of the distractions that we have all faced, and I would say that has made Q4 even stronger than earlier. So let’s see how much of that is actually converted into our decisions and awards but these delays are still relatively within, I would say, very normal levels and will not change the trajectory of the revenue of those programs. And when you look at the midterm targets, virtually all of that revenue is already booked, and it is more about converting that through new product launches. So we are maintaining a pretty good cadence of new product launches. We will be at about 50 this year. We have another strong year next year as well. And so the way to think about the next couple of years for us is not an issue of demand. It is really one of a supply-driven environment for us and the growth over market is starting to shape up in the direction that we have always been talking about. So all of the other factors are aligned. So as long as we get the supply that we expect, and I feel good about it as we go forward here, we should be in a pretty good position to hit our midterm targets.

Thanks very much.

Your next question comes from the line of Luke Junk with Baird.

Good morning. Thanks for taking the question. First question that I wanted to ask is you having made this progress to the 75% cost recovery on the higher semi costs. Just wondering if we could talk a little bit more about what the next layer of those discussions with customers look like going into next year. Jerome, you mentioned some of the more strategic elements in terms of better visibility into your customer supply chains and whatnot. Is there an evolution in terms of terms, be it lower price downs, better terms on new business or other similar things that could enter into those discussions as well?

Luke, I will take it first, and then we will have Jerome also comment on it. The first thing I would say is that if you look at a part of the reason why we are in the situation we are in with supply is on account of the fact that demand visibility in this industry has not been very good in the past. Most of the OEMs have provided visibility that is much shorter than the lead times - typical lead times for semiconductors, which, by the way, have only increased. So that the difference between what we provide is visibility to our suppliers and what the lead times are, has actually grown, and that has caused a lot of inefficiency in the planning of certain semiconductor parts. So we have a situation where now we have more of some of the parts that we don’t need and are critically short on some parts that is holding up vehicle production. And as I mentioned in my prepared remarks, all it takes is one chip to stop the production of the entire vehicle. So just getting that planning in a better shape so that we provide our suppliers with clear 52-week at least visibility part by part that allows them to plan their production better itself will solve quite a bit of the challenges that we have encountered this year. So that is the first discussion at the next level that we are having with our customers and with suppliers. And by the way, this isn’t something that the industry is set up very well to do. So we are bringing some best practices. Some of our customers are doing a job better than others. We are bringing our own insights into the whole semiconductor supply chain to help make that discussion more efficient and effective with all of our customers. And as part of that, pricing and cost increases is also an integral part of those discussions. And we will all have to come to that realization that the industry will have to contribute more as the cost have gone up on account of the various inflationary pressures that the semiconductor supply chain is experiencing. So I would say the discussions are fairly advanced, and we hope to conclude the majority of it by the end of this year. You can imagine it takes a huge amount of effort to go end item by end item across all of the various OEMs and then map it out for the full year. So that is exactly what is going on. And it is going as well as you can imagine it would in these circumstances. Anything more to add Jerome?

The only thing maybe just to come back on Q3, we were pretty successful in achieving 75%. It is really because we started pretty early. So I think that is a great point to add. The fact that given the challenges that we were seeing very early in the year, we embarked on these discussions with our customers, and we are able to achieve 75%. So could host the team with this achievement.

Thank you for that. Yes, some great things to think about going forward. Second, I wanted to ask you bigger question. Now that it is been a year since you formally announced that first wireless BMS contract with GM on the LTM platform. I’m wondering what you have learned about the sales cycle for this product. GM clearly, someone on the front foot in terms of their EV strategy, some other OEMs, clearly, maybe playing a little bit of catch-up on that front. How does that dynamic play into what we might expect in terms of next bookings for wireless BMS beyond the first two that you have already announced?

Right. Look, before I speak specifically about the ones we are discussing with now, I just want to remind everybody that besides GM, we had also announced another large global OEM that we are working on a solution for them for BMS. So in addition to these two, we are engaged with multiple OEMs. And those discussions are, I would say, at various stages of progress. Our focus is on the larger OEMs that have ambitious EV plans with different models because we believe the solution that we have really scales very effectively. And we have developed a hardware and software solution that can work for almost all of the OEMs. So it is a platform approach, if you will, in trying to take our learning from the engagements that we have had so far and developing a solution that addresses most of the different OEMs needs. Now where I would say we are at is that the industry is going through a tremendous amount of new learning on account of the catch-up that some of the OEMs are faced with. At the same time, there is also a lot of evolution occurring with the underlying technologies, whether the battery chemistry or the semiconductor technology that is also evolving at the same time in terms of being able to perform better with respect to the accuracy of the measurements or the speed and also safety. So these are all starting to come in. And as you can imagine, for the next maybe a couple of years, given how relatively new this industry is, we will see a huge amount of activity probably not as structured as some of the more mature products are in terms of the cadence and the planning but expect that 2022 would be a fairly busy year for us as everyone is trying to get going with it. But more importantly, in terms of announcing the third customer. I hope that we will be in a position to do so yet this fourth quarter..

Thank you for that.

Your next question comes from the line of Ryan Brinkman with JP Morgan.

Hi. Thanks for taking my question. I think typically, suppliers enjoy countercyclical working capital as production declines given the nature of customer payables, receivables. And that can provide a nice offset to the impact of lower FCF when production is softer. On the other hand, we have heard from a few suppliers that the suddenness of customer call-offs has led to an inventory build of finished goods, or even that they are at times pursuing a conscious strategy to invest in raw materials or purchase components to ensure a continuity of supply amidst supply chain uncertainty. So I thought a bit softer FCF in the quarter. And I wanted to ask what may be the bigger drivers of that were and how you are thinking about managing working capital in the current environment and how we might expect cash flows to track going forward?

Yes. Thanks, Ryan. It is true that working capital and specifically, inventory has been challenging this year. The main reason for the negative adjusted free cash flow in Q3 is the inventory build. And a few things on that point. The first one is that we started the year with a fairly low level of inventory. We had close to 25 days going in this year. And therefore, due to the good management coming from our teams, we were maybe a little bit more exposed. So we have looked at during the year. And given the critical situations, we have increased safety levels. At the same time, exactly as Sachin was highlighting and as you were highlighting as well, we have been suffering from uneven supply schedules and as well from the fact that customers were changing their production schedules on a regular basis. So the most of the inventory builds we have seen has been around raw materials. And that is as well, as I said earlier, where we have been trying to be a little bit more safe and have increased our safety levels. So going into Q4, we are not planning to have any major reductions we want to be on the safe side, especially when we think that production will be ramping up into 2022. So we will probably be coming a little bit down going into the end of 2022. But at this stage, until there is a better supply, we want to be careful and will hold a little bit higher inventory levels.

Okay. That is very helpful. Thank you. And then I know, obviously, the current run rate of margin is not representative of the potential of the business. And of course, you are going to earn a decremental on lower revenue for as long as the situation persists. But I just wanted to check in on what your latest thoughts were on ordinary EBITDA margin, just given the high value-add nature of the product that you produce. It doesn’t seem totally congruous with where you stack up in margin relative to some of your peers. So when you do get the higher revenue, when industry conditions do normalize, what type of a margin do you think is reasonable to be able to target even a couple of years out?

Yeah, no, thanks. Definitely, Q3 similar to Q2 has been impacted by, I would say, by scale to a very large extent and to some extent by semiconductor costs. We think that scale has impacted us by about 300 basis points when we normalize our sales level at a level of 750 million. The best way to look at it, in fact, is to look at Q3 and Q4 of last year where we were running at these kind of levels, and we were able to achieve in a normalized way we had authority measures last year but we were able to run at a 9.5%, 10%. So in the current environment with 750 million in sales per quarter, that is kind of the run rate we have in mind, 9.5% and 10%. And every quarter has kind of demonstrated that level. So the way we are thinking about it this year, nothing has fundamentally changed. We are impacted by scale. We will be focusing as we alluded earlier on inflation recovery, and that is the key going into next year, making sure that we are minimizing inflation going into 2022.

Great, very helpful. Thank you.

Your next question comes from the line of Brian Johnson with Barclays.

Good morning. Just want to talk a little bit about the booking environment and the take rate environment. So maybe starting with the second, take rates. As you look at your outgrowth versus your customers’ production schedules, to what extent can you contribute if you try to ease out the factors between launch of new models with digital cockpits versus existing models where take rate has run ahead of maybe initial when the program was set up expectations and kind of related to that, we have heard sort of channel check things that some of the electronic features that automakers know the customers want and customers really want actually had to be throttled back to the chip shortage, which actually could be then depressing the take rates on some of those features. So could you just maybe talk about the digital cockpit in that environment?

Sure. Sure, Brian. And that is a great question actually. And I will try to put some light on it, but there is a bit of a nuance to it, as you alluded to it. So the first thing that we see is that the increase in take rates is quite I would say, are dramatic in the case of digital clusters. And that is largely driven by two factors. One is the popularity of ADAS, when you have ADAS features like blind spot detection, rain change assist, et cetera, you need to render that information on the cluster and the cluster has to be digital for that. So anecdotally, I can tell you, for example, in OEM in Europe, had initially given us an indication of about 40% take rates for our digital cluster on their vehicles, they are running at 80% take rates. And so it is a significant shift as all of these factors are coming together. Plus on top of that, the EV models are also driving the take rates higher because EVs have digital esters digital content and many of the vehicles are having different powertrains, but they are offering EV versions as well as your eyes and they are going with the same cluster just to make it easier for them. So that is a positive tailwind in terms of improvement and increase in the take rates for us. The challenge, of course, on the other side is obviously availability of semiconductors to meet that demand. But if you look at our performance even in the third quarter, in spite of all of the shortages that we have gone through, unit sales of digital clusters actually increased both year-over-year and sequentially. And we would have done far better if we had more semiconductors. So that hopefully gives you a perspective on what is happening with respect to the take rates and the puts and takes there. But as we go forward, where we start to see more semiconductor come available to us for parts, I expect that this trend will continue. We are not going to go backwards. So I think we are going to see an acceleration in the take rates of our digital products. We are seeing not just our clusters. We are also seeing the same for SmartCore, and we are seeing the same for larger displays.

Okay. And in terms of the quoting pipeline, even though - as you pointed out, the bookings were below typical rates due to OEMs just scrambling on securing chip supplies. How does the pipeline look of quoting opportunities going into 2022 and second, is there anything to give investors comfort that even with a little bit softer pace of bookings that your win rate, and more particularly win rate on attractively priced business is one that bodes well for the future.

Yes. So on the pipeline first, if you were to look at the pipeline at the beginning of this year even, it is come back to the pre-pandemic levels. And as I look at the pipeline for next year, it is actually even a bit stronger than this year. So the pipeline seems to be pretty strong. The product mix is evolving, as we have talked about it before. We are seeing more SmartCore opportunities. We are seeing more opportunities for larger displays. And what is interesting is that as a general observation, the ASPs are also increasing because of the increase in content. So I think that all bodes well for the future. In terms of win rates, we see nothing changed. Our win rates are roughly around the 30% or so that we have had historically for the last few years. We don’t expect that to change fundamentally. And the last point I would say is anything we are talking about next year obviously is beyond the horizon of the midterm guidance that we have given. So it is going to continue the growth of the business going forward even beyond where we currently have provided as outlook.

Okay. Thank you.

Your next question comes from the line of David Kelly with Jefferies.

Good morning, and thanks for taking my question. Maybe just starting with the Q4 revenue guide kind of similar to Q3 levels. Can you walk us through how you are thinking about Q4 auto production. It sounds like more cautious than IHS, but just wanted a little bit more color there. And then specifically, mix, your customers’ exposure has been a little bit of a headwind as well. Just curious as to how you are thinking about mix impact also.

Yes. That is just a great question. And let me try to share with you how we are thinking about it. So one thing to note is that the impact of semiconductor shortages kind of changed their nature in Q3 versus in the first half, and I have mentioned that in my prepared remarks. And so what we saw in the third quarter was that they were many more semiconductor suppliers that were impacted by the shortages and the shortages were also less predictable in the sense that many of the suppliers are at late changes to the supply plan not able to provide visibility beyond a couple of weeks. And so we ended up in a situation, as I mentioned, where we had more parts of some semiconductors and less of some critical parts. As we look at Q4, that situation seems to largely continue, although in aggregate, we may say that we will probably get more semiconductors, more parts in Q4 than in Q3. There will still be what I call as this unevenness in supply. And that is what is really causing us to be a bit cautious in terms of how we provide our outlook for Q4. So that is really the thinking behind what we have laid out here. We are certainly hoping that it improves more than what we currently have is visibility with some of these suppliers that have been out of the new problem suppliers. And I’m also certain that as we go further out, a lot of what has happened has being on account of COVID. And as those facilities come back online and get to full capacity, things will improve. But that is really where we are at in terms of our outlook for Q4.

Okay. Got it. That is helpful. Thank you. And then maybe a follow-up on kind of the pricing discussion. That it was a net positive in the third quarter and certainly not assuming that sustainable longer term, but it seemed to be in strange times. But I think you also noted you are targeting another 75% to 80% recovery rate with the elevated semi cost into next year. So I realize you are not guiding to 2022, but any thoughts on kind of the pricing into next year just given some of the pass-throughs and pass-along opportunities that are out there?

Sure, David. So you are right, these are exceptional times. So the positive pricing may not be something that is going to carry on. There are a few buckets. The first one is the pricing that we traditionally give to our customers, and that is generally offset, I would say, by pricing that we get from our suppliers. That is how we think about it. That is our business equation. So that is got to be neutral in the grand scheme of things for 2022. And then the other element is essentially making sure that any inflation that is either temporary or will last longer, gets us well recovered. So these are two different buckets, but we are negotiating, going into 2022, the overall equation with our customers. So a little bit early to say where we will land, but that is how we are looking at it.

Okay, perfect. Thank you.

Your next question comes from the line of Itay Michaeli with Citi.

Great. Thank you. Just back on the fourth quarter, and I do apologize if I missed it, Jerome, but did you quantify the engineering impact in the fourth quarter. I think you mentioned it should be going higher versus Q3.

We have not, but it is probably five million to six million incremental versus what we have seen in Q3, and that is a net engineering number.

Got it. And then maybe a couple of questions on the bookings. I think, Sachin, you mentioned you are still confident with six billion for the year. If you look at kind of what you are hoping to win in the fourth quarter, is it a few kind of large programs in there or is it just a bunch of kind of smaller or medium-sized programs that have been kind of delayed into the fourth quarter?

Yes, Itay. So on account of the delays in the third quarter, I would say it is now a mix of everything. So there is a lot of, I would say, higher value as well as your usual smaller programs. Our average typically is somewhere around 100 million program lifetime value, and I don’t expect that to change in Q4.

Got it. And maybe just 1 last thing on kind of growth over market kind of longer term. I think you mentioned Sachin earlier that the quoting environment may actually improve next year. Obviously, you are winning a lot of programs on EVs. Is there any kind of high-level thoughts around how to think about growth over market for the company, even beyond 2023 in terms of the pace of, I think, 8% to 12% you have previously highlighted.

Right. Yes, I don’t want to give you a specific number just yet, and we will talk more about it early next. But let me just share with you some of how we would be thinking about it. If you look at the near term, about 50% of our revenue comes from what we would call here as our new digital products that would be digital clusters, SmartCore and larger displays. And as I have mentioned on the call earlier, these products are doing very well with take rates actually improving, and we expect that to continue. So if you look at even Q3, one of the reasons why we had a good growth over market despite general shortages of semiconductors is that we were able to source more of the chips that go into these digital products. Now as we start to get more chips, we would expect that we would be able to drive this growth of our market into double-digit territory. And I expect that to be our growth of our market story for the next couple of years as long as we get the chips that we need for those products. And I fully see, as I talk to the suppliers that, that situation is going to continue to improve, barring any more natural disasters like what we have gone through this year.

That is all. Very, very helpful. Thank you.

Great. This concludes our earnings call for the third quarter of 2021. Thank you, everyone, for participating in today’s call and your ongoing interest in Visteon. If you have any follow-up questions, please contact me directly. Thank you.

This concludes Visteon’s third quarter 2021 earnings call. You may now disconnect.