Good morning. I'm Ryan Ghazaeri, Director of Capital Markets and Strategic Planning. Welcome to our Earnings Call for the Fourth Quarter and Full Year 2022. 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 that 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've 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'll open the lines for your questions after Sachin and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you, for joining us. I will now turn over the call to Sachin.

Thank you, Ryan, and thanks everyone for joining us this morning. 2022 was an exceptional year for Visteon. Our industry-leading digital cockpit electronics products performed very well, resulting in full year sales of $3,756 million, an increase of 35% over last year, compared with our customers vehicle production growth of approximately 5%. We ended the year with the 15th consecutive quarter in which our sales outperformed our customers vehicle production. Adjusted EBITDA was $348 million, or 9.3% of sales, an increase of $120 million over last year. The Company's cost-efficient footprint combined with the shift to platform-based product development and operational and commercial discipline resulted in higher sales and drove margin expansion of 110 basis-points. Adjusted free-cash flow for the year was $101 million, in-line with the midpoint of the original guidance range that we provided at this time last year. Our liquidity remains strong with over $500 million in cash. Visteon has and remains focused on sustainability and I'm pleased to report that we have committed to reduce our Scope 1 and 2, greenhouse gas emissions by at least 45% by 2030 compared to 2019 and Scope 3 emissions by at least 25% compared to 2021. These targets were formally submitted for validation to SBTI in late December and they aligned well with our mission to make driving safer, cleaner and more convenient. We launched 45 new customer programs in 2022 and extended several existing programs on new vehicle models. The Company also achieved its goal of winning $6 billion in new business for the year, reinforcing the strength of our product and technology portfolio. We introduced several new products and services that extend our product offering to address emerging trends in the industry. These include a new cloud service for OTA that complements our app store service and…

Thank you, Sachin and good morning everyone. Visteons fourth quarter financial results came in strong reflecting another quarter of robust commercial and operational execution. Q4 sales were $1,064 million a record quarter for Visteon. We were able to outperform industry production volumes. Thanks to the unprecedented cadence and size of our recent product launches in the last few quarters, combined with a very proactive supply-chain management. Although semiconductor supply has improved since the first-half of the year, we are still seeing a disconnect between supply-and-demand. In the quarter, we benefited from our proactive product designs, while also securing an important amount of components through brokers and distributors. In partnership with our customers, we shared the elevated cost and recovered cost increases through customer recoveries in the quarter. Compared to prior year, sales were up 35%, including the negative impact from foreign-exchange, which reduced sales by approximately 8%. While Visteons customer production volumes were up 3%, our growth over market excluding net pricing was 26%. Incremental customer recoveries, partially offset by annual price-downs also increased sales by 14% for the quarter. Finally, excluding customer recoveries of base sales were approximately 900 million, a good indicator of how our underlying business is performing. On a comparable basis. This is also a record level for Visteon. Adjusted EBITDA was $103 million, up $11 million versus prior year, and representing a margin of 9.7%. Compared to prior year Adjusted EBITDA benefited from higher base sales and year-over-year operational improvements. The quarter also benefited from approximately $5 million of catch-up in customer recoveries related to costs incurred earlier in the year. Partially offsetting these benefits were the impact of currency headwinds, the non-recurrence of a one-time customer claim last year, as well as an increase in both gross engineering and SG&A. While we continue to…

[Operator Instructions] Our first question is from Emmanuel Rosner with Deutsche Bank. Your line is open.

Thank you so much. First question is, I was hoping you could maybe put the 2023 margin guidance or outlook I guess in the in the broader context of your sort of like existing midterm margin outlook, obviously, as reported, the margin sort of like mid-10s, but even if you add sort of like recoveries, which probably be sort of like in the sort of like low-to mid-11%, maybe that some. The environment is sort of like presented some challenges, but I guess what would it take, I guess, what sort of Inputs are needed for you to sort of back go towards the 12% that you saw in the past, you'd be getting to?

Yes, sure. It's Jerome. I'll take that, Emmanuel, good morning. So we are -- our guidance for '23 shows sales at $4.05 billion. And this is, in fact, with recoveries. And we've in our deck, we've showed that the recoveries in 2023 will go down from what we had in 2022, but we'll still have about $300 million of recoveries in 2023 with no margin. So, the right way to look at it is really to look at base sales, which are total sales minus recoveries. And they are at $3.075 billion for 2023. So essentially, we're shy of the $4 billion target in sales by $250 million. And if you essentially add this $250 million in sales at a mid-20% incremental margin, you would get essentially to the 12%. So -- and that's not even including any of the leakage that we are still factoring in, in our guidance for '23. So bottom line, we are very much on track towards our 12% volumes are lower because industry volumes are not at 89% as we had originally anticipated when we first gave the $4 billion target. And it is just a question of a few quarters before we get to the 12%.

Okay. That's very helpful. And then second one, I guess, on the free cash flow and specifically on CapEx, I guess this is a pretty meaningful step up, which seems to be driven by investment in growth. I guess how should we be thinking about it specifically in terms of the needed investments for this year and then what that means in terms of your capital allocation going forward?

Yes. So we had guided -- so we're going in fact, from $81 million this year or in '22 to $130 million in '23. And it is, to your point, a fairly significant step-up. I must say first that $81 million was a little bit on the low end of what we were expecting. There's a little bit of timing between '22 and '23. So we'll see some of that drifting into Q1 of this year. In terms of the step-up, it's really very much aligned with the growth profile that we have, investing in BMS, essentially electrification, capacity and capability as well on the display side. We do have a little bit of plant expansions going on, nothing major, but it's adding up as well to the CapEx for 2023. And then beyond manufacturing, I would say we are investing as well a little bit in IT. So that's part of the step-up in investment. Generally we're staying at close to the 3% range that we've been used to in the past.

Okay. Thank you very much.

The next question is from Luke Junk with Baird. Your line is open.

Good morning. Thanks for taking the question. First, Jerome the question on operating expense guidance. I'm just hoping you could expand on the investments in engineering and SG&A that you said in the prepared remarks and specifically, I'm just trying to square it with the onetime items and incentive comp impacts that we saw in the fourth quarter here just in terms of run rate levels going forward for those items?

Yes. So overall, our -- I'll start with engineering, and I'll let Sachin as well give some color in terms of the investments. But just in terms of numbers, we ended the year with engineering being fairly low. In fact, we were close to $200 million in terms of engineering, a little bit of a higher gross engineering because of the onetime that we incurred, but essentially offset by higher recoveries as well. So overall, we were, I think, at 5.2% for the full year in terms of engineering, which is slightly lower than what we had guided to originally. So a little bit like similar to CapEx, we're starting with a low base. In terms of investments for next year, it's very much aligned with what we've been talking about, electrification. Sachin talked as well in his prepared remarks about online services.

Yes. Maybe I can jump in here.

Yes, Sachin.

So yes, Luke, so we are anticipating that the technology trends in automotive are going to accelerate both on the corporate as well as in EV power train and electronics. And the trend towards a software-defined vehicle for the industry are going to go through these two domains initially, and we are anticipating and preparing for that. Now we have really good assets today in those areas, such as SmartCore and our BMS technology. But we are looking at opportunities to extend these assets and address even beyond the passenger vehicle market, two-wheelers, commercial vehicles, et cetera. And as Jerome mentioned, add new features and functions, especially in the areas of cloud services, and for BMS and for power electronics, add new features and capabilities, there's a push towards faster charging and higher levels of safety for EV power train electronics. And we are really driving the cutting edge of that technology, and this is going to require some investments from our side as we go forward.

So in terms of engineering percentage for next year, we are anticipating a slight increase versus where we were. So as I said, 5.2% this year on '22 and will be probably between 5.5% and 6% engineering cost as a percentage of sales for 2023. In terms of SG&A, modest investment there, inflation as well and investments in IT, we will essentially keep our percentage flat year-over-year versus what we had in 2022.

Okay. Great. Very helpful detail. Thank you both for that. And then Sachin, for my follow-up, hoping to ask about the launch that you mentioned with Lotus in partnership with ECARX, I was just hoping to better understand the mechanics of that relationship and how the two companies are working together? Thank you.

Yes. Great. Right. So when you talk about China, the market is, as you know, different from the rest of the world in terms of the level of cloud service integration that's expected in vehicles in China for the cockpit. So we provide our SmartCore platform. So that's all of the hardware, middleware, OS and all of these features and functions that SmartCore brings and ECARX has their services on top of it as well as the HMI and the cloud services. So this is something that we don't expect Visteon in China to be able to offer to the extent that our partners can. And so this collaboration brings the best of breed of both sites. Our proven SmartCore technology that we have now launched on more customers than virtually any other supplier and this has really been well accepted in the marketplace. And ECARX with their capabilities and assets that they bring, especially on the cloud services, smart voice using AI and other applications and also ADAS, by the way, that's getting more and more integrated with the cockpit in China. So that's the nature of our collaboration. We have had several vehicles launched already. And so pretty excited about what that means for our future growth for SmartCore in China.

That's very helpful. I will leave it there.

The next question is from David Kelley with Jefferies. Your line is open.

Good morning, guys. Thanks for taking my questions as well. I wanted to start with recoveries, and I appreciate the color on the expected impact on 2023 sales. I guess, how should we think about the visibility to those recoveries? How much has been negotiated in today versus ongoing discussions with your customers?

Yes, that's a good question. Good morning, David. So very pleased first with the level of recoveries we had in 2022. Net leakage was close to $20 million, slightly better, in fact, versus our original target. As we go into 2023, mechanically, I would say that most of the surcharge or recoveries are kind of a reset. But at the same time, we have had discussions with our customer for the last few months, indicating that these cost increases would continue into 2023. So, we are still in the middle of negotiations as far as recoveries are concerned. And there is definitely an expectation that 2022 cost increases will roll into 2023. And we'll add obviously some level of true-ups for the 2023 cost increases or decreases that we'll have. So right in the middle of that, we've indicated as well, I think, like a lot of other suppliers that our earnings profile will be a little bit distorted again this year by the level of success we'll have in Q1 versus the other quarters. And you'll see probably a ramp-up in terms of earnings profile throughout the year as we are more and more successful to close negotiations on recoveries.

Okay. Got it. That's helpful. And then maybe just a follow-up question on the mix impact from the ongoing supply chain disruptions. I guess, A, were you held back on let's call it, like higher dollar content shipments due to the supply shortages in 2022? And does the change in the type of those shortages moving to you acknowledge micro-controllers and away from some of the analog and digital issues of last year. Does that at all have an impact on mix in 2023?

Yes. No, that's a good question. And let me try to explain how that mix has impacted us in '22 and the shift that we expect in '23. So as I mentioned, primarily in 2022, the shortages were in the area of power and analog chips. And as such, they cut across all products. One of the things you can keep in mind is every product that we build requires these power chips to drive the rest of the circuitry. And if there are displays involved, there are some analog chips that also come into the picture. So virtually all of our products were impacted to some level in 2022. Towards the end of 2022, we started to see the supply of these power and analog log chips started to improve. And also on account of the work that we have done that I think is ahead of most in our industry in terms of working with the specific suppliers. So as we start here in 2023, we see our situation with respect to power and analog chips improve. We have already seeing those improvements, and we expect that to continue to improve. But there are emerging shortages in the areas of micro controllers that is more driven by the lack of wafer supply from foundries to our semiconductor suppliers that -- the visibility of that was not very great towards the end of last year. And as we started to come to the end of the year, it became more apparent that we will start with a shortage situation in those micro controllers. Those micro controllers, in particular, affect our digital clusters or our product line more than, say, SmartCore or others. So we anticipate some impact there. And we expect that to improve in the second half of the year, as I've also mentioned before. At the same time, we are continuing to redesign some of our products to give us more flexibility so that we would be in a position to address more demand as we anticipate as we go forward, especially on the clusters with the launches that we've had that we would be then in a position with the redesigns to work around some of the shortages, and that's what is factored in our forecast, especially the growth over market forecast that we have forecasted for '23.

Got it. That's really, really helpful. Thank you.

The next question is from James Picariello with BNP Paribas. Your line is open.

Good morning. Back to the supply chain, you're still taking some choppiness from a semi-supply standpoint through the first half, then assuming some demand weakness in the back half to get to your full-year LVP assumption of above just 1%. But again, from a chip supply perspective, if demand were to prove more resilient in the second half, to what extent do you think the industry can handle better production growth. Like relative to your up 1%, what's the supply chain limiting MAX growth for production this year as you see it?

Yes. So first of all, I would like to clarify that demand as we see it even today is stronger than what we believe the supply chain even with the improvements can address. But having said that, if the demand holds up, especially in the second half, then I expect that the vehicle production to improve beyond the 84 million units that we have outlined. Now how far from -- up from 84, it might go, that's hard for me to say. And so my expectation would be that if you think about 2021 to 2022, where the industry added about 5 million units of production, that would be the kind of range that I would expect that the industry would be able to do again if the supply constraints were to be somehow lifted.

Got it. And if we do add -- again, hypothetically, if we were to add 5 million units of production growth, would that force Visteon to likely have to reenter the spot buy, the broker market for chips? Or at this point, your best assessment would be possibly that your contracted supply could support that? How should we be thinking about that?

Right. In general, we expect that it would be less even in the case that the demand is higher because of all the redesigns that we have done. So there are two dynamics that will help us in '23. One, we do expect the supply levels themselves to go up on account of the work that has been done by our suppliers. And that specific area that we are now highlighting a bigger problem, which is the micro controllers. With the redesigns that we are doing, I expect that we would be able to work around it in the second half. So overall, I expect that our spot buy demand to be lower even in the event where we see our supply increase and keeping up with the demand.

Okay. Super helpful. Just one quick one. Any chance to get a finer point on the cadence for the year? I know it's a sequential ramp similar to last year. Just maybe a marker on 1Q relative to 4Q or on a year-over-year basis, just to get a better feel for how the year starts off?

We won't give any guidance for Q1, but it's really impacted by two things. First, the recoveries and the cadence of the negotiation. And then the second point is production. I think IHS is already showing 5% down for Q1. So that's essentially what drives the quarters throughout the year, production levels as well as the level of recoveries.

The next question is from Colin Langan with Wells Fargo. Your line is open.

Great. Thanks for taking my questions. Just wanted to ask about the new business wins. When I look at the mix of this year versus last year, clusters is just 17%, I think it was like 41% last year. That would be about $1 billion swing, obviously, offset by other areas. Is there a reclassification that's impacting that? Is there something going on in that segment or timing this year that would cause the big swing? Just kind of wondering if there's any color there?

No, no. So Colin, this is Sachin. So I don't think there's anything structural there. It's just a timing issue. Last year, we had a pretty good year for clusters, but some of the other sectors were not as strong, and this seems to be reversed in 2022. So I wouldn't say that we are expecting anything different with respect to our go-forward views on clusters.

Okay. Got it. And if I look at the guidance, it looks like something like a 16% incremental on the sales, excluding the impact of recoveries. I think you've mentioned just on this call a low 20s as normal. I just want to make sure I get all the offsets. The R&D is a headwind and then input costs, -- any color on the size of these input costs that we're expecting? And is there any -

Yes. So we are - sure. Sure, Colin. So you're right. So face value, we are -- I think we are 26% incremental but removing the recoveries, we are at 16%. So volumes are converting at the normal levels in the mid-20% range. The offsets are, as we said, engineering, and it's not just the increases that we are the absolute levels that we are seeing in '23. It's as well the comp, which is a little bit harder given that engineering came in low in 2022, largely because of recoveries. We have as well a modest increase in SG&A. And then all this is offset by operational improvements. In terms of, I would say, what I would call the leakage, in terms of the supply chain disruptions. We're essentially assuming that the net leakage of $20 million that we had in 2022 will carry forward into 2023. So same amount of leakage. The geography may be a little bit different, but the same amount is forecasted for 2023.

And that's related to -- and this year is at the same as last year because I thought last year it was more semiconductor costs and the timing of getting those recoveries? Or is this labor-related because a lot of other suppliers have called that out?

It's more -- for us, it's definitely more semi-related. Absolutely, yes.

Okay. Thanks for taking my questions.

The next question is from Itay Michaeli with Citi. Your line is open.

Great, thanks. Good morning, everyone. Just maybe a bigger picture question on the GOM sustainability -- mid-teens this year obviously is strong. How sustainable do you think that is beyond 2023? And what kind of bookings should we -- are you targeting this year that can kind of support that sustainability into future years?

Yes. So let's talk about this here and we'll see how -- what happens in terms of the market going into the future. But we will be, again, targeting $6 billion of wins this year, as we have done last year. And with that level of win, we should be able to continue our GOM mid-teens and at least in the near term. Now as we go forward, as our base sales increase it is going to be having some effect on the GOM percentages simply because of the increase of the base. But we will talk more about the future on our Investor Day here that's coming up on the 7th of March, and we will provide more color on how we see the outer years develop.

Terrific. That's helpful, Sachin. And maybe just a quick follow-up. Back to the cadence of the settlements this year, to make sure I have it clear, so is that just a timing issue from kind of normal course price downs? Or are some of these recoveries are proving to be more challenging early on here in the year?

It's very similar to what we had in 2022. So it takes some time to negotiate with the recovery. So the cadence we are anticipating in '23 will be similar to the cadence of negotiation and successful closing of the negotiation that we had in 2022. So no major differences between the two.

Perfect. That's very helpful. Thank you.

This does conclude our earnings call for the fourth quarter and full year of 2022. 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, Chris Doyle or Ryan Ghazaeri directly. Thank you.

This concludes Visteon's fourth quarter and full year 2022 results earnings call. You may now disconnect. Thank you.