VISTEON CORPORATION 2026 Q3 Earnings Call

Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for one hour and will open the lines for questions after Sachin's and Jerome's prepared remarks. Please limit your participation to one question and one follow-up. Thank you for joining us. I will now turn over the call to Sachin.

Thank you, Ryan, and good morning, everyone. Visteon delivered strong sales growth in the third quarter despite a challenging industry production environment. Customer-weighted vehicle production declined approximately 5 percentage points during the quarter, yet our sales grew 6% year-over-year to $970 million, resulting in approximately 10 percentage points of market outperformance, excluding the impact of memory recoveries and pricing. During the quarter, we recorded $77 million of specific warranty charges related to two instrument cluster programs with separate customers. The charges follow customer decisions made in the quarter and relate to two unrelated issues. In one program, we expect to remediate affected vehicles through software updates, in the other, through product replacement. The root causes have been identified and corrected, and the charges reflect our best estimate of the cost to complete these actions.

As a result of these charges, our adjusted EBITDA for the quarter was $46 million, compared with $123 million excluding the charges. This represents an adjusted EBITDA margin of approximately 4.7% or 12.7% excluding the charges. While these charges had a significant impact on our profitability for the quarter, they relate to previously delivered products, and our underlying operating performance remained strong. We have made good progress recovering higher memory costs incurred earlier this year. As component costs continue to evolve, we are actively working with customers and suppliers to mitigate the impact consistent with the disciplined approach we have followed during prior shortages. Adjusted free cash flow was neutral in the quarter as we increased inventory of critical semiconductor components in response to emerging parts shortages. We ended the quarter with net cash of $136 million.

Beyond the financial results, we continue to execute on the strategic priorities we outlined at Investor Day. We launched 21 new products across 14 automakers, including our first SmartCore high-performance compute program with Chery. We also secured approximately $1 billion in new business awards, bringing year-to-date bookings to $3.9 billion. Finally, we completed our $200 million accelerated share repurchase during the quarter, marking the first step in executing the capital allocation framework we outlined at Investor Day. Let me now turn to our third quarter sales performance on page 3. This slide shows our regional sales performance in what was a challenging production environment in most markets where we operate. Overall, customer vehicle production declined during the quarter, most notably in China, yet our recent launches over the last few quarters enabled us to grow sales and outperform the market.

In the Americas, our performance was impacted primarily by lower BMS sales to GM compared with elevated demand in the prior year quarter ahead of the expiration of the EV tax credits. This was partially offset by the ramp-up of new programs with Ford and Nissan. Europe was our strongest performing region, with sales growth of nearly 20%. Our panoramic multi-display and cluster program with Audi, display and cluster programs with Renault, and display launches with Mercedes all contributed to this growth. These more than offset roll-offs and lower volumes on legacy programs with BMW. In Asia, excluding China, our sales grew approximately 14%, led by new launches of our SmartCore domain controller in India with Mahindra, as well as digital clusters on two wheelers with Royal Enfield and TVS.

The strong performance in India more than offset the roll-off of a Mazda program in Japan and currency headwinds from the Indian rupee and Japanese yen. Finally, in China, customer production declined approximately 17%, in line with the broader industry, excluding exports. While lower domestic demand is impacting production at all OEMs, international OEMs are impacted more, including Visteon customers such as Volkswagen. While our international OEM customers continue to face lower demand, we are successfully repositioning our China business toward domestic OEMs that are gaining share. Domestic OEMs now account for approximately half of our China sales, compared with just over one-third a year ago. This is important as our strategy is increasingly aligned with premium segment brands of Chinese domestic OEMs that are gaining share in that market.

With the anticipated launches of high-performance compute systems with leading domestic OEMs Geely and SAIC, we expect our China sales to return to growth in the fourth quarter. Overall, the quarter demonstrated that while customer vehicle production declined, our launch execution and diversified customer portfolio enabled us to deliver strong sales growth and position the business well for the fourth quarter and into 2027. Turning to page 4, we launched 21 new products across 14 automakers in the third quarter, continuing a year of high launch activity that sets the stage for 2027. The highlight of the quarter, shown on the right, is the launch of our SmartCore high-performance compute cockpit domain controller on the Chery Freelander 8 in China.

The system consolidates more than 10 electronic control units into a single system and brings integrated edge AI capabilities into the cockpit, addressing one of the fastest emerging areas of product differentiation in the Chinese automotive market. This launch with Chery is the definition of China speed, as it represents a first-to-market system on a new fifth-generation Qualcomm chip with a booking-to-start of production timeline of approximately 13 months. The program is following its planned launch ramp, with volumes expected to increase in the fourth quarter and through 2027 as additional vehicles are introduced. With BMW, we launched our cockpit domain controller in Europe on the new i3, one of the first vehicles built on BMW's next generation electric vehicle platform. This is an important high-volume program for Visteon with launches in additional markets planned later this year, followed by expansion to other BMW models in 2027.

Also in Europe, we expanded our panoramic display and cluster program with Audi through the launch of the A3, adding another vehicle to the successful program that has been an important contributor to our market outperformance this year. Beyond Europe, we launched a driver display for a new Lexus electric SUV serving the Japanese and North American markets. This is one of the several planned launches with Toyota that we highlighted at Investor Day, supporting a strategy to expand our business with this important customer. We also continued to expand our presence beyond passenger vehicles with launches of connected digital clusters for Royal Enfield and Honda two-wheelers, as well as cockpit domain controllers for Volvo Construction Equipment excavators in Korea and China. These programs demonstrate how we're leveraging our proven cockpit technologies to capture growth opportunities in adjacent mobility markets. Overall, these launches reinforce several important trends.

First, our portfolio continues to migrate toward higher value cockpit computing and display technologies. Second, our high-performance compute business has moved from new business awards into production. Finally, we continue to expand in adjacent mobility segments, supporting a more diversified growth profile. Turning to page 5. New business bookings were just under $1 billion during the quarter, bringing our year-to-date total to $3.9 billion. Several significant sourcing decisions that we anticipated in the third quarter shifted into the fourth quarter as car makers evaluate changes in memory technologies and product architectures. These opportunities remain in our pipeline, although some final award decisions may extend into 2027. Importantly, we have not seen a corresponding change in the underlying demand for our products.

Based on our current pipeline of opportunities and anticipated customer sourcing decisions in the fourth quarter, we continue to target $6 billion in new business bookings for the full year. Looking beyond 2026, we also see opportunities for new product designs and platform upgrades as customers transition to newer memory technologies, which we expect will further strengthen our pipeline. Our wins in Q3 also support a strategic objective of growing our business with targeted customers in Asia, including Toyota, Maruti Suzuki, and Tata Motors. Furthermore, reflecting the shorter time from award to launch, about half of our Q3 new business awards will launch in 2027, with another 25% launching in 2028. Let me highlight a few of the strategic new business wins from the quarter. First, we secured a cross-car platform display business with a Japanese OEM for its premium brand, covering multiple markets.

The first launch is in China on an electric SUV in 2027, followed by a global launch on a hybrid crossover in 2028. Visteon is the sole supplier for this product and is well-positioned to win follow-on opportunities. Second, we won two display programs with a leading Indian OEM, marking our first display wins with this customer. This OEM has traditionally offered small displays in its vehicles, and the move to 12.3 and 12.8-inch displays represents a significant shift in its cockpit strategy. These displays go into production in 2028 on two vehicles with opportunities to expand to additional models. We also won a 10-inch center information display for a light-duty commercial vehicle with a North American OEM. The initial launch is for the European market with follow-on opportunities in other regions.

Finally, we secured a center display and infotainment system with integrated vision processing across multiple vehicle models with an Indian OEM, further strengthening our position in one of the fastest-growing markets in the world. The program includes a 10.25-inch display along with a silver box that provides infotainment functions, rearview camera processing, and visualization. Overall, our third quarter and year-to-date bookings reinforce the strategy that we presented at Investor Day as we continue to diversify our customer base across Japan, India, and non-passenger vehicle markets. Turning to page 6. Let me now turn to our outlook for Q4. Demand for our advanced cockpit products remains healthy, supported by recent launches and increasing content per vehicle, even as industry vehicle production and component availability remain challenging.

Our recent launches, including the Audi cluster and display system, the BMW cockpit domain controller, and our Chery high-performance compute program, continue to ramp with volumes growing sequentially. We also have additional launches in the fourth quarter, including high-performance compute systems with leading domestic OEMs in China, a high-volume digital cluster program for a Japanese OEM in the North American market, and cluster programs for two-wheelers in India. Together, these programs are expected to more than offset normal program roll-offs and lower customer production volumes, driving strong market outperformance in the fourth quarter. Turning to the supply environment, memory and other electronic components have remained tight throughout the year. So far, we have successfully managed these constraints without impacting customer production, working closely with our supply chain partners.