Good morning. I'm Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our Earnings Call for the First Quarter of 2024. 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 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 1 hour, and we'll open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to 1 question and 1 follow up. Thank you for joining us. Now I will turn the call over to Sachin.

Thank you, Ryan, and good morning, everyone. Thank you for joining our first quarter 2024 earnings call. I would like to start with a summary of our first quarter performance as outlined on Page 2. The team delivered another quarter of strong. Execution in a mixed customer vehicle production environment. Sales were $933 million, driven by strong demand for Digital Clusters and cockpit domain controllers. Both of these key digital cockpit products grew 20% year-over-year. We also saw strong demand for our BMS product, with sales more than doubling compared to prior year. As a result of the strong product performances, our growth-over-market inflected in the first quarter, returning to a positive at 2% after a negative performance in Q4 of last year. As anticipated, the impact of the timing of roll-offs and roll-ons that we discussed in the Q4 2023 earnings call also impacted Q1 sales, although to a lesser extent than last quarter. Our Q1 growth-over-market was. Also muted by some customer vehicle launch delays and a negative customer mix in China. We continued to demonstrate strong operational execution during the first quarter. Our adjusted EBITDA increased to $102 million, representing a margin of 10.9%. This is a 70 basis point improvement over last year. Adjusted free cash flow was $34 million in the quarter, representing a conversion ratio of 33%. We deployed $20 million of this cash flow towards share repurchases during the quarter. We also continued to strengthen our foundation for future growth. We launched 26 new products in the quarter and won $1.4 billion of new business across 14 OEMs. We previously discussed our strategy of diversification into 2 wheeler and light and heavy commercial vehicle markets. We launched our first SmartCore product for commercial trucks and won significant business with commercial vehicle and 2…

Thank you, Sachin, and good morning, everyone. The first quarter was a solid start of the year with results generally in line with the expectations we outlined in February. We delivered another strong quarter of operational execution and commercial discipline. We also strengthened the foundation for future growth with a high number of product launches and significant new business wins, paving the way for continued sales growth in the coming years. Turning now to our first quarter financials. Sales were $933 million. As we expected, growth-over-market rebounded to a positive 2%, and we returned to market outperformance after the negative 2% from the fourth quarter. We saw strong demand from our customers for our next-generation products, including digital clusters, cockpit domain controllers, and wireless BMS. Our sales performance was partially offset by a modest headwind from currency and a 1% reduction in customer production, with lower customer production in Europe and Asia, partially offset by an increase in the Americas. Our supply chain maintained the much improved levels that we saw in the second half of 2023. Recoveries were $22 million lower year-over-year with minimal open market purchases and related recoveries in the first quarter of 2024. Now that we have moved past the need for open market purchases, recoveries should be more consistent from quarter-to-quarter and therefore we will no longer separately disclose supply chain recoveries. Adjusted EBITDA for the quarter was $102 million. Compared to the prior year, adjusted EBITDA benefited from operational improvements and manufacturing efficiencies, partially offset by reduced sales, an increase in net engineering, and a modest headwind from foreign exchange. EBITDA margin in the quarter was 10.9%. This level of margin is consistent with the run rate of approximately 11% we had exiting the fourth quarter of 2023, and this despite sequentially lower sales.…

[Operator Instructions] Your first question is from the line of Dan Levy with Barclays.

I wanted to start with the growth-over-market in the first quarter, I think you touched on it, there were some issues with program roll-offs. But maybe any more color on the growth-over-market that we saw in 1Q, and what is the line of sight that you have to the growth-over-market ramp that you're expecting over the remainder of the year? Are there key launches that you would flag, key regions that you expect to reverse?

Yes. Dan, it's Jerome. I'll take that question. So we had signaled at the end of the year that we would be seeing a progressive ramp up of growth-over-market during 2024, and we returned to a positive growth-over-the-market in Q1 as expected, still low 2%, and there are a few reasons for that. We still have got some remains of the air pocket that we talked about in Q4, as you said, between roll-offs and roll-ons. We also still have a fairly significant China mix. And as you know, international OEM players are much less successful than domestic players where Visteon has got less content. We also had a few launch delays in Q1, and by now, these ones are mostly resolved. And all this was partially offset by better-than-expected BMS sales in Q1. As you know, GM is launching their entire range of Ultium products, so that has helped us a little bit in Q1. So as we look forward and look at Q2, we're expecting that growth-over-market in Q2 will improve significantly to, I would say, high single digits. And that's implied, in fact, in the Q2 sales number that I gave, which we think will be slightly over $1 billion. And the reason for this is that we had about 26 program launched in Q1. And we're now going to see these programs ramping up, and that will partially, if not totally, negate the air pocket that we saw in previous quarters. We also have launches that were delayed in Q1 and that are now ramping up according to expectations in Q2. On the Ford side, for example, we have the Ford Cougar, as well as the Ford Transit, which were slightly delayed, and they are now in full ramp up in Q2. We are expecting also BMS to continue to grow and that will help us on a go-forward basis. GM was pretty positive as well regarding their launch cadence during their call this week. So overall, we're seeing a lot of good momentum going into Q2. It's obviously early to talk even about April, but we're seeing good momentum already in the month of April. And that confirms all these data points that I was highlighting. So for the rest of the year, we continue to see an acceleration of the growth-over-market. Similar factors will come into play, and we'll see an acceleration as well of the BMS launch with GM. So if you step back, we are really expecting for 2024 to get back to the growth-over-market that we had seen in prior years. And that's really on the account of all the business wins that we've had in the last few years, as well as the fairly significant amount of launches that we had in '23. As a reminder, we had about 129 launches in '23. We've launched in Q1 26 products, and we're expecting essentially a very strong year in terms of launches for '24.

And just to clarify that, you're reiterating your sales guidance, the production assumption is slightly weaker. So I assume that the low-double digit, the 10 to 12 points of growth-over-market guidance, that's still intact, correct?

That is correct. As I said, Q1 really developed pretty much as expected. We had highlighted that sales would be lower sequentially as well slightly year-over-year. We did see a slight deterioration in customer production, 1% versus prior guide, largely coming from China mix. And at the same time, we've heard, and there is a lot of comment in the press around China incentives that could potentially help the second half of the year. So at this stage, it's absolutely in line with what we had talked about 2 months ago.

As a follow-up, wanted to ask about China, and I think we're all well aware of the negative mix issues that have really been an issue for the entire supply base. Maybe you can talk about increasing your mix with the domestics. Maybe you can give us any further color on the line of sight that you have that overcoming these mix issues, competitively are you well positioned? Is it the right domestics that you have in China? So just any more voiceover on China that can give us some confidence on these mix issues being overcome.

Yes, Dan, this is Sachin. I'll take that one. So maybe a little bit of context would be helpful. So if you go back a couple of years, the global OEMs operating in China had a larger market share. But since 2022, that share has been shifting in favor of domestic OEMs, and it really accelerated in 2023. So when you look at Q1, the share mix was 60% and 40% in favor of the domestic OEMs in China, as compared to 55% for domestic OEMs in full year 2023. Now, most of that growth with domestic OEMs have come from OEMs such as BYD, Geely, Chery, ChangAn, for example. And we have been pretty busy anticipating this, shifting our business more to these domestic OEMs, and over the past couple of years have done very well in terms of developing business with, for example, Geely, who is currently one of our largest customers already. In addition to that, we have launched SmartCore with JMC, and more launches are scheduled, and we continue to work closely with ChangAn and Dongfeng in particular in terms of developing our business with them. So, I feel that we are very well positioned, especially with SmartCore, with the experience that we have already supporting customers in China to be able to broaden our base. It has been a very dynamic market. The market shares have been shifting almost quarter-by-quarter. New entrants have come in, such as Huawei and some of the phone makers that have come into the automotive, especially for EVs. So our approach has been to focus on the ones that we believe will be in the market long-term. But also, I would mention that we believe that the European luxury OEMs, as well as the Japanese OEMs in the long run will do well in that market. And we continue to work with them for their products in China as well. So overall, I think we are making good progress. We expect the mix to be slightly more negative, as Jerome mentioned earlier. But then depending upon if we see the incentives come through, that might change our perspective in 2024.

Your next question is from the line of Joe Spak with UBS.

Just to confirm here. With the lower production than what you thought, are you implying you're more comfortable at the lower end of your guidance range, or is there some growth-over-market offsets that keeps you comfortable with in either the mid or the high end potentially?

Yes. Joe, at this stage, we're not changing our guidance for 2024. We're still giving the range. As I mentioned, there was a slight deterioration. We are watching and looking at how the markets are going to develop. It's very early to change anything, I would say. So pretty happy with the way things developed in Q1. We've got high expectations for Q2, which sells slightly over $1 billion, and then we'll take it 1 quarter at a time.

I guess just to quickly follow up on that, given some of these customer changes and share shifts. I think when you guided last quarter, you also gave 8% base sales growth. And I'm wondering if you actually feel maybe more comfortable with that target than with the growth-over-market target just considering some of the customer shifts, particularly in China. Is that fair?

That's a good point. And when we talk about growth-over-market, it also brings into question a lot of the production dynamics that are hard to necessarily predict. But what's really more important for us has been our absolute base sales growth, which for our 2026 target, we needed to hit an 8% CAGR in sales. So that's what we are really focused on in terms of our execution and delivery. Growth-over-market depends a little bit on other factors, but what we had said was at the beginning of the year, the assumption that we had for LVP, the implied growth-over-market would need to be in the 10% to 12% range. That could shift depending upon so many other factors, but I'm more focused on the underlying sales growth.

Okay. And maybe one quick one on just BMS. It sounds like that was helpful this quarter. Does shipping of a BMS system differ maybe from some of the other products? Is that shipped more in advance, just given some of the work that needs to be done on the pack? And I think you also mentioned the start of the SOP for the second BMS customer was this quarter. So how do you expect that to ramp? And is the third still on track for later this year as well?

Yes, Joe, you are absolutely correct. So the battery manufacturing challenges that OEMs have faced that have been well publicized has caused the shipping pattern to be pulled up a bit ahead of the launches. So we typically supply to the battery pack plants, which takes a few, maybe even sometimes months ahead of the vehicle launch. So that's definitely one of the dynamics. We are absolutely on track with the second customer that we have started to ship ahead of their vehicle launch plans. They are in the process of manufacturing their battery packs, and the third is on track for later in the year.

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

First question, maybe a bigger picture question Sachin, and just be curious for your updated thoughts on just how to position the company with local Chinese OEMs. And I'm thinking more from a process standpoint, cost repeatability, getting to market more quickly, and if the first quarter win that you had with this premium brand is maybe a window into how you're executing in China right now.

Yes. So, as you know, look, the market in China is very focused on very high-end, high-complexity systems with multiple displays in the cockpit and a lot of software and processing. So they tend to be very complex, high-value, and high content-type of businesses. Takes actually a little bit longer in terms of the development time as well, on account of the complexity. But our platform approach with SmartCore has been hugely important and critical in us being able to win and deploy the systems. So we feel that we have a strong reputation in the market now based on the launches that we've had, especially with Geely, also with JMC that we have talked about already, that puts us in a, I would say, very small group of suppliers with proven capabilities in the region to support their launch plans. Being a very competitive market, lots of changing dynamics. In fact, somebody, some leader of an OEM that I talked to, said they have to change their plans in terms of competitive positioning every quarter. And as a supplier, we have to react to it. So I feel like we are well positioned with our platform strategy. Our next focus for China is going to be displays. We believe we can also help our customers with displays, especially many of our customers are now focused on export markets as the demand in the domestic markets has slowed down. And we are in a very good position with our footprint outside of China to support their growth plans for export. So I think if you look at how we are positioning ourselves, it's really SmartCore, displays, and then being their partner for helping them in their exports.

And then for my follow-up, just hoping you could comment on capital allocation and any changes, maybe the updated outlook for share repurchase and whether or not where the stock is right now impacts you're thinking one way or the other.

Luke, so generally, I would say since we've initiated our $300 million share repurchase a year ago, we've been pretty active on share repurchases. We've purchased, in 4 quarters, $126 million worth of shares. So it's a very large portion of our free cash flow that has gone back to share repurchases. What I want to highlight is that in line with what we had mentioned a year ago as well during our Investor Day, we want to have a very balanced capital allocation strategy, and I think we've demonstrated this quarter again that we want to invest in the business. The Tunisia plant that we've highlighted in Sachin's presentation is a great example of the type of capital allocation that we will continue to do. We are obviously investing in engineering, in capital expenditures, on display, on electrification. On display, for example, we are seeing a lot of good momentum with display technologies these days. And we're looking as well at how can we integrate more on the manufacturing side on display. So a lot of activities going on these days on internal growth and internal capabilities that would help our returns. The second piece we are looking into are as well areas that could help us getting more margin-accretive type returns. And we are thinking about software, cloud compute technology, and that includes services. And for this, we are looking obviously at our capabilities, but as well at potentially bolt-on acquisitions that could enhance these capabilities. And we think that with the disruptions that are going on in the market these days, there's probably some opportunities. So we are remaining pretty active in these areas, and obviously we'll make sure that we always look at something that potentially could be a good fit. So we are definitely looking at a very balanced approach to capital allocation.

Your next question is from the line of James Picariello with BNP.

Just a question on currency first. So last year saw a transactional earnings hit of $24 million. Can you just confirm what's embedded in the full year guide, both from a sales and EBITDA perspective for FX? And sorry if I missed what those impacts were in the quarter as well.

Yes, so we had highlighted a small headwind in terms of exchange for the full year guide for 2024 in the 1% range for both sales as well as EBITDA. What we saw in Q1 was pretty much in line with that, in fact even slightly lower. To give you the exact numbers, our impact on sales was $5 million, negative headwind coming from currencies, and then the EBITDA impact was $3 million. So nothing major. We remain fairly well hedged. Naturally we have maybe potentially a bit more exposure here and there, but generally we've not had significant currency headwinds, or tailwinds in fact, for that matter.

Got it. And then just in regard to the 2-wheeler market for displays, can you help to mention at all how the average displays content on the 2-wheeler program compares to what you have in your standard displays backlog for light vehicle?

Yes. Let me maybe take a higher-level perspective on how we see 2-wheelers and how they could help us here in our more near-term growth. Now, 2-wheelers is a fairly large market. It's about 25 million units today. And I'm only looking at 2-wheelers outside of China, which is what we think is our addressable market, so India, Southeast Asia, Japan. And historically that market has used very low cost, mostly mechanical clusters, which on account of the same trends that market is impacted by as passenger vehicles, namely digitalization and electrification, are following the same trends that we are seeing in passenger cars. So we feel that some portion of that 25 million market, which is growing fairly rapidly, will switch over to more of a digital cockpit. And we have started to make really good progress in that market. So if you think about the top customers there, it's Honda, it's Hero, Royal Enfield, et cetera, TVS. We have current business with all of the key players, but we also have business with the ones that are more higher end. We talked about Harley Davidson previously, and also we have business that we are working on with BMW Motorrad. So our footprint in that market is growing and that market has needs for different price points and different levels of content, all driven by 2 things: more digital displays. The sizes vary from 4.2 inches to about 7 inches; and the content coming largely through the smartphone connectivity. And so we are extremely well positioned, as you can imagine, in that segment with our footprint, the products that we are already offering to the passenger vehicle side of the transportation market. And today I would say our revenues are fairly small, probably no more than between 1% to 2%. But we think we can more than double that by 2026. And the product introduction time in that market is much shorter, in many cases about 12 months. So that's something that has got us excited because the trend is now really picking up momentum. We are in a very good position to take advantage of it, and it can help derisk a little bit of our 2026 target.

That's very helpful. Just a very quick follow-on. Is it a similar list of competitors for the displays in 2-wheelers...

Actually not. In fact, the competitors are much more, I would say, regional players that I would not put them in the same category as the passenger vehicle competitors.

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

Just a couple follow ups for me. First, maybe on the booking, Sachin, hoping maybe you can share what you might be targeting for the full year for bookings. And second, I know it's only a couple of months since you updated it, but any just updated thoughts on the 2026 revenue target? Any kind of puts and takes have changed in the last couple of months, either good or bad, in the bridge to 2026.

Yes. Itay, I'll just put our new business win performance in Q1 in context. So if you think about what we were able to achieve in 2023, over $7 billion of wins, that was largely because the digital cockpit awards started to come back to the levels that we had seen prior to the dip that we experienced due to COVID and semiconductor constraints. And then added on top of that, we had our electrification wins. Now, if you look at Q1, there were $1.4 billion in wins, mostly from digital cockpit. We did not have any electrification wins in Q1, just the nature of the awards timing. So that's a great start, I would say, to the year. The pipeline of opportunities also looks very robust, virtually for all of the product lines and including electrification where we have opportunities for both BMS as well as power electronics. And it really reflects the strength of our product portfolio and the fit to the trends that they have. And at the same time, it helps us smooth out some of the inherent lumpiness in any of one of the product categories. So we believe for the full year, we should be in a position to exceed $6 billion in sales, hopefully similar to last year. And when it comes to 2026, I just want to make a couple of points. We will provide more details at some point here later in the year, but if you think about the foundations of our 2026 outlook, they were built on an expectation of a sales growth CAGR of 8% on 2023 levels. Now, if you think about what we have accomplished in the prior years, both 2022 and 2023, our sales growth was higher than that. And on top of that, we have won high levels of business, both in '22 and '23, and it seems like we're going to see that continue in '24. So that should put us in a good position to accomplish this 8% CAGR sales growth that we would need to achieve our 2026 targets.

Maybe just as a follow up, maybe for Jerome. You had really good margin performance in the quarter despite some of the customer vehicle launch delays that you outlined. So with revenue expected to improve for the rest of the year, how should we think about the puts and takes of the sequential incremental margin?

Yes, so we had pretty decent margins. In fact, in Q1, it was a solid start of the year. And to your point, we were at 11% overall margin, with sales being slightly lower than what we had exiting 2023. So I would say, it was a fairly clean quarter, a minimal amount of one-timers, pretty good on operational execution, including launches. And I would say that our cost controls remains pretty strong. And another thing as well I'd like to highlight is the fact that we were able to negotiate a lot of our annual pricing as well as recoveries already in Q1. So that derisks a little bit the rest of the year. So as we look at the second quarter, I've highlighted that we would have a level of sales that would be slightly over $1 billion. The way we're thinking about it in terms of margin progression is still going with the high-double-digit incrementals that we've been using in the past few quarters or years, with maybe the exception of engineering, that will continue to increase a little bit in Q4 from a gross engineering standpoint. And then we'll see later in the year improvement on the recovery side. So generally, that's how Q2 should shape up. And then for the second half of the year, we'll have, obviously, revenues, which will be in excess of $2 billion. And then we are thinking about incrementals as well in the same way, with a slight benefit coming from engineering because of the recoveries. So that's how we think the year will develop. But again, a very good base in Q1 with 11% EBITDA margin.

Your next question is from the line of Shreyas Patil with Wolfe Research.

Maybe just one just to confirm. So as you think about this quarter, I think, Jerome, in the past you've talked about a normalized margin is somewhere around 11%. That's kind of what you achieved in the fourth quarter. For the full year, I think the guide is for somewhere around 11.7%. So as we think about the levers of upside there, growth is obviously 1 factor, but just curious how you think about cost performance relative to increases in engineering or SG&A.

Yes. So to your point, 11.8% for the full year in terms of the guidance at the midpoint, so we're running pretty much on track. In terms of the drivers that are going to help us getting to the 11.8%, obviously, volume and scale has been very important for us. But at the same time, and we saw that already in Q1 versus prior year where we've gained 70 basis points of margin, execution, productivity, efficiencies are drivers that have been helping us tremendously over the years, and it did in Q1. So that's another driver that you'll see as we go through the year. In terms of engineering, we're still planning to be in the mid-5% range in terms of engineering as a percentage of sales and SG&A in the mid-4%. So it's very consistent with what we've been talking about 2 months ago. And that implies that engineering will go up slightly as we go throughout the year. But given the sales level, percentages will go down and it's a little bit the same for SG&A.

Okay. And then maybe, just maybe, looking beyond this year, I guess trying to think about the incremental margins that you've been expecting for the next few years, I think if you exclude the price recoveries, you're talking about high teens incrementals. And I'm just wondering in the context of the products that you're supplying, the amount of technology that's going into things like SmartCore, and obviously your own software that you're incorporating, do you see opportunities for that to be better? Because I guess when we just look at regular suppliers, we typically see incremental margins of somewhere around 20% to 30%. And given the amount of value add that you're providing, one would assume there's opportunity for that to be better.

Yes. So Shreyas, let me take that. This is Sachin. We do see opportunities in the mid-term to drive more of a software and services driven business opportunity in addition to our products, or I should say alongside our products, and that would have an incremental or accretive margin opportunity associated with that business. That's what Jerome alluded to earlier as being part of our focus as we broaden our business. We were largely focused on a platform approach as a margin driver. In the past couple of years, we've seen the benefits of that in our current performance. And now as we drive more of a platform strategy, now we can go forward with an IP-led services strategy for software with the same customers that we are providing the hardware to. As these systems need over-the-air updates, incremental feature updates, these things start to come into play, and we are building ourselves up for that opportunity as we go forward from here.

Your next question is from the line of Mark Delaney with Goldman Sachs.

You mentioned BMS was off to a strong start in 1Q, but I'm hoping to better understand how Visteon is thinking about the year. Last quarter, I think Visteon said it was using a more conservative view on EV volumes in its guidance for '24 than customer forecasts, and I'm hoping to understand if that's still the case.

Yes. No, the short answer is, yes, definitely, we are maintaining our guidance for the full year. I'm really happy that the first quarter has come strong and looks like the Q2 momentum is also pretty robust. And as we discussed previously, the pipeline of how the BMS is shipped to the customer and then eventually launched into the vehicle, that is a little bit longer than, say, our other products. So we are pretty comfortable with that strong performance for the next couple of quarters, and then we will have to see how it develops beyond that. So for now, I think it is still appropriate to take a slightly conservative perspective that we have in our original guidance for the year, and then we'll update it if things look different.

That's helpful context. My second question was trying to understand some of the share gain opportunities. I think 1 opportunity for Visteon has been to gain share at customers in Japan. You spoke to some wins in 1Q with Japanese auto OEMs, but could you put that into some broader context about how well Visteon is doing with its goal to gain traction in the region?

Absolutely. I think that's a great question and a topic that I think needs to be properly discussed. Historically, we've been underrepresented in Japan. So our customers have been Mazda and Nissan, with whom we have been doing business for a number of years. And at the same time, this rapid pace of digitalization in particular, and I would also say electrification, but first digitalization, is creating opportunities for us to grow with other OEMs, notably Toyota and Honda. And these are, as you know, very large. They have a large share of the global LVP, and we have had a very small level of business with them over the last few years. We have been, for the last couple of years, a little bit longer than that, made of a particular focus to work with these customers. I've been personally visiting these customers a number of times, did that earlier this year, and I'm very happy to share that we have been gaining a lot of traction, especially with Toyota. One of the wins that we talked about on this quarter is a large win for vehicles that are going to be launched in regions outside of Japan. And it's really important for us that we are represented there. And to me, there's still a lot of opportunity still with Toyota, with Honda to grow, and also with some of the 2-wheeler OEMs in Japan, Honda 2-wheelers, Yamaha, Suzuki. So it feels like the time is right, our product fit and the focus is really also appropriate. So this is an area where we will be investing more of our time and resources.

This concludes our earnings call for the first quarter of 2024. Thank you, everyone, for participating and your ongoing interest in Visteon. Thank you.

This concludes Visteon's first quarter 2024 results earnings call. You may now disconnect.