Good morning. I'm Bill Robertson, Vice President of Finance for Visteon. Welcome to our Earnings Call for the Third Quarter of 2017. Please note this call is being recorded and all lines have been placed on listen-only mode to prevent background noise. [Operator Instructions] 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 slide entitled Forward-Looking Information for further details. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning. Please visit www.visteon.com to download the material if you have not already done so. Our Form 10-Q was filed earlier this morning with the news release. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Christian Garcia, Executive Vice President and Chief Financial Officer. We have scheduled the call for 1 hour, and we'll open the lines for your questions after Sachin and Christian's remarks. Please limit your questions to one question and one followup. Thank you for joining us on our call today. Now I will turn it over to Sachin.

Thanks Bill, and good morning, everyone. I'm pleased to report that Visteon had another solid quarter with improvements across all key areas of our business on a year-over-year basis. On Page 2, let me briefly summarize our third quarter 2017 results for Electronics. For the quarter, Visteon reported sales of $765 million, an increase of 2% year-over-year despite lower-than-forecasted vehicle production levels in North America and China. Light vehicle production in North America declined almost 10% year-over-year whereas it grew around 1% in China. Visteon sales in both regions performed very well and especially in China, which we will discuss in more detail later. Adjusted EBITDA was $83 million, a year-over-year increase of $8 million, resulting in an adjusted EBITDA margin of 10.8%. This is an increase of 80 basis points compared with the third quarter of 2016. Our streamlined technology and product portfolio continues to perform well in the market, and in the third quarter, we won $1.5 billion in new business awards. This includes the first win for our Phoenix Infotainment system, which is a significant milestone for the company. Year-to-date, we have won $4.6 billion in new business, and the order backlog of booked business now stands at a record $18 billion, a growth of 11% year-over-year. Moving to Page 3. On Page 3, I would like to highlight key accomplishments for the quarter and year-to-date in terms of sales, profitability and returns and operational execution. As noted on the previous page, we are pleased to have achieved $765 million in electronic sales in the third quarter, a growth of 2% over the prior year despite an unfavorable vehicle production environment. As with the prior quarter, China remained the bright spot with domestic channel sales growing 22% year-over-year, significantly outperforming vehicle production growth. Our technology platforms for…

Thank you, Sachin, and good morning, everyone. On Page 11, we present our key financial results for the third quarter of 2017 versus the comparable period in 2016. The financials on this page reflect our ongoing Electronics Product Group and exclude discontinued and other operations. As explained on prior calls, our financial results in the prior year included businesses that were exited at the end of last year and were classified either in the other product group or discontinued operations. We did not have nor expect to have any sales or adjusted EBITDA related to our other product group or discontinued operations. Electronics sales of $765 million in the third quarter increased by $16 million driven by product launches and strong growth in China. Adjusted EBITDA for Electronics was $83 million, representing an $8 million increase over third quarter of 2016. The year-over-year increase largely reflects operational efficiencies across our organization. Flow-through from increased revenue, favorable currency and strong cost performance was offset by customer pricing and product mix. Adjusted free cash flow for Electronics was $33 million in the quarter, $10 million greater than that in the third quarter of last year. I will provide more detail on the following pages. Turning to Page 12, we provide Electronics sales for the third quarter of 2017 versus the same period last year. Electronics sales for third quarter of 2017 were $765 million. Sales increased by $16 million with new product launches and favorable currency, more than offsetting contractual pricing reductions. This represents growth of 2% despite production volume declines in the North America market. As Sachin discussed earlier, we continue to generate strong China sales. Overall production volumes grew 1%, while our China domestic sales increased 22%, excluding currency in the quarter. On a year-to-date basis, our China domestic sales…

Thanks, Christian. Moving to Page 17. In closing, we are very pleased with Visteon's third quarter performance and with the value we continue to deliver for our customers and shareholders. We remain focused on executing our strategy of winning through technology leadership with a platform-based product development model, expanding margins and generating cash flow and enhancing shareholder returns through efficient capital deployment. I thank you for your continued support and look forward to seeing you at CES in Las Vegas in January. Thank you for joining us today. And now I would like to open up the call for questions.

[Operator Instructions] Our first question comes from the line of Brian Johnson with Barclays.

Yes, hi good morning. This is actually Steven Hempel, on for Brian Johnson. Just want to drill down on the Phoenix platform win, which is, obviously, a good sign here in the quarter. Just, I guess, a, can you just talk about this kind of seamless path to upgrading to embedded infotainment on Slide 6? How far in advance of the program launch does this need to be determined by the OEM or Visteon? What functionality is kind of included in display audio versus embedded infotainment? And then, kind of most importantly, what could that path to embedded infotainment really mean for content per vehicle, are we talking about like a 30% increase, a doubling, more than doubling?

Sure, so as we have said, Audio/Infotainment is the largest segment in corporate electronics. And within Audio/Infotainment, we see a tremendous growth in the display audio segment and also a very robust growth of embedded infotainment. There are a lot of underlying technological changes, especially the integration of smartphone and through technologies such as CarPlay and Android Auto and the desire on part of both consumers and OEMs to deliver this web integration capabilities and new web services such as Smart Assistance, right, which are creating the need for a new platform. So Phoenix, in our opinion, is the most advanced technology platform for infotainment in the industry today. And as we said in my prepared remarks, out of the box, it enables OEMs to build a display audio system. And then, with the addition of software components, it can be extended to support the needs of embedded infotainment. Now the way this transition or this migration would offer is that the OEMs will decide build the systems based on the feature requirements, and typically, it would be done in a manner that display audio systems will then be easily scaled to software. So the first win that we have talked about today is for a display audio system that will launch in 2020, but it offers the OEM a very seamless path to build an embedded infotainment system. Hopefully, that addresses your question.

Yes, that helps. And then, just a quick followup on that. Is this contract right now for the 2020 launch, is that sole-sourced for that specific model?

Absolutely, yes.

I guess, I'm just trying to wander how does it start off potentially the kind of low end trim levels for display audio, and then you can work your way up to mid and high with this embedded portion of it over time or is basically Visteon's secured as a sole source for the entire kind of model across trim lines?

Yes. So the first win is for a display audio system, as I've said earlier. And so we are single-sourced, sole-sourced, for that particular product, and it will go into a high-volume vehicle in the North American market initially with expansion opportunity to then get into other vehicles, first, within the region and then across the OEMs' multiple regions that they serve. In addition, as we discussed on account of the scalability of this platform, it offers us the potential to address the needs for embedded infotainment. But just to be clear, the first win is for display audio. It is for the North American region, and it offers the potential for vehicle expansion as well as for regional expansion.

Okay, and is this a foreign or domestic OEM?

It's a global OEM. And no, it's a large international global OEM.

Okay, and then just second question here. Toyota-Mazda, post their capital tie-up, they've announced they're collaborating on a connected car infotainment platform, supposedly in charge of navigation, music, video, smartphone. I guess, it's utilizing Linux, and it's being developed by Toyota. Just wondering how this could potentially impact Visteon's content with Mazda. I believe Mazda's your second largest customer. And does it mean Visteon might be supplying into Toyota now as well? Or is this something that Toyota and Mazda are developing kind of in-house?

Yes. So first, I would say that Mazda is a very important customer for Visteon, and we have a very strong relationship that goes over now a number of years. And as you know, we supply their infotainment systems today, and we continue to upgrade the capabilities of this infotainment system to make it more market competitive with features such as CarPlay and Android Auto, which are demanded by the market today. We launched a new version of the system in the market earlier this year, and we are working on a upgrade for launch in the market for next year. And we continue to ship the system, and we expect to be continuing to ship it for several years going forward. We've also expanded our relationship with Mazda with an instrument cluster win that we'll launch in the second half of 2018. So overall, the relationship is strong, continues to be strong. This Mazda's relationship with Toyota, we are not really in a position to comment a whole lot on it, and we're going to wait and see if there's any impact to our business in the future.

Okay. And then just a quick housekeeping question here. The noncore headwind, it looked pretty significant in 3Q. Just wondering what it was, what your outlook for 4Q is, what it potentially was in 3Q here and then any expectation for 2018 would be helpful.

Right. So yes, Steven, this is Christian. Our noncore sales, our products like clocks and compasses and other peripherals that we would be reemphasizing as we focus on the more software-oriented complex systems in corporate electronics, this is just to give you the magnitude of the noncore sales, so a little less than $200 million. The decline in the quarter was not that significant, but it could be a little bit more impactful in the fourth quarter. And to give you a sense of the size of the declines, the amount of declines for the fourth quarter, we expect to be something like 1% of our entire sales in Q4, and we probably expect a similar impact in 2018. So we're estimating that, as I said, it's a little less than $200 million. It's probably going to float down to about $100 million in the next three or four years.

Okay, perfect. Thanks for taking our questions.

Our next question comes from the line of the Steven Fox with Cross Research.

Thanks, good morning. Two questions from me. First off, I was just curious, given some of the cost efficiencies and changes in mix, can you maybe give us an update on how the operating leverage growth in the quarter and how it looks going forward, if there's some enhancements there? And then secondly, I was curious if you had any comments on, especially since you're looking to roll out DriveCore next year, the NuTonomy acquisition that Delphi announced and what you think the implications are for you and the new industry.

Steven, this is Christian. I'm going to answer the first question and turn it over to Sachin for the second one. Operating leverage was certainly one of the highlights of our third quarter. If you look at our incremental margins which is the change in profitability over the change in revenue, it was about, it was 50%, which is the highest that we've seen so far this year. Now we don't think that 50% incremental margins are sustainable given the level that we have achieved. Now for the core, operating leverage came from 2 categories: the reduction in fixed costs of about $10 million and manufacturing efficiencies that fully offset the pricing reduction impact of $19 million.

Okay. And so with respect to our plan for autonomous, we have said earlier that Visteon's strategy for autonomous driving is to offer a hardware and software platform that will enable OEMs to build self-driving solutions in a more collaborative and synergistic manner. It should be noted that automakers have their own self-driving efforts and are competing with each other on how well the technology works and who's going to be the first to market. And we believe, our DriveCore platform, which we will launch in January of next year, will be the most advanced hardware and software platform that OEMs can use to build these self-driving solutions. And I think, it will be the first such solution for self-driving in the industry when we launch it in January.

Great, I look forward to hearing more about it at CES. Thanks very much.

Our next question comes from the line of Christopher Van Horn with FBR Capital Markets.

Good morning, thanks for taking my call and congrats on the Phoenix win.

Thank you.

I wanted to ask around the new business awards that you're seeing. I was just curious of what percent or what mix are awards that, or proposals that you normally, or not normally, but in the past would not have bid on? And specifically, on this Phoenix win, was - what was some of the competitive factors that led you to win this piece of business?

Sure, Chris. So if you, again, look at the market, Visteon's legacy and historical competence has been mainly in what would be termed as driver information products, clusters, displays, et cetera. And we have a very strong base of technology and capability in those segments, and we have continued to do well throughout this year in terms of winning new business in those categories. What has been different on account of the launch of our new technology platforms first with SmartCore and then with Phoenix is that we are able to extend that into this Audio/Infotainment space, which also happens to be the largest space. It is the fastest-growing space as well. And when I first came here two years ago, I saw that as a opportunity for Visteon. We had a fairly low market share in the segment, and although it's a very crowded segment with a lot of suppliers, meaning that it's a very competitive segment, on account of the changes that are occurring in it that I mentioned earlier, this need to integrate smartphone capabilities and introduce web services, et cetera, it's creating opportunities for us, and I think our technology platforms that puts us in a great position to leverage those technologies and create opportunities. This is what has happened this year. We are extremely pleased with the $1.5 billion in new business that we have won in Audio/Infotainment. It is, I think, more than 2.5 times what we did in the same period last year, as I noted earlier. And yet, it is just about 10% of the market. So there is still more room for us to grow, and we fully expect that our performance in that segment will continue to be better than market going forward.

Okay, got it. Thanks for the color. And then on the digital clusters, where are we in kind of the adoption? I think you've mentioned in the past, maybe 5%-ish adoption rate for all digital clusters. Are you seeing that ramp or accelerating as we've headed through the past couple of quarters in terms of OEMs being interested on the all-digital side?

We are seeing a tremendous interest in all-digital clusters. I think through this first 3 quarters of the year, our business in all-digital clusters is disproportionately higher than what it is for the rest of the market. So we are clearly taking market share in that space. Virtually, all of our instrument cluster wins have some sort of display in it, but a significant percentage are all-digital. And it is part of our strategy to focus on that segment as it further helps our domain consolidation through SmartCore strategy as the cockpit becomes all-digital. So we continue to see tremendous interest on part of the OEMs, and even in this quarter, a fair amount of our wins in the instrument cluster space have come from all-digital clusters. We also have now a all-digital cluster win with, I think, upwards of 10 OEMs globally. So that puts us again in a great position to continue to drive at the leading edge of this trend and then to follow that up with domain controller and our SmartCore solution that can further add to the story.

Okay great. Thanks for taking my questions.

Our next question comes from the line of David Tamberrino with Goldman Sachs.

Hey this is Tim O'Brien, on for David. Yes, just on question on Phoenix now that you have your first win done. How are you thinking about the initial partners for making native applications on the platform for your Phoenix Studio? Do you anticipate that this will be mainly the OEMs themselves or potentially some third parties? And what's the potential for Visteon to generate any type of revenue streams from it?

So good question. And today, I would say we have over 20 partners that have ordered their applications to the Phoenix platform, using Phoenix Studio. And so one of the advantages, as you can guess from the fact that Phoenix allows OEMs to deploy or to create that application once and to deploy it across a vehicle lineup, means that all these 20 applications are available to all infotainment systems that use Phoenix InfoCore runtime capability. As we continue to win more business, I'm confident that we will be able to expand upon the number of applications that will be available to our OEM customers. One of the advantages, again, just to reiterate that point, is that an application done once for any OEM's vehicle would be very easily portable to other infotainment systems that use Phoenix Infotainment. That's one of the advantages of this platform, and we believe that any platform, any technology that wants to offer this capability to the industry must be able to support this cross-OEM, cross-vehicle requirement that we believe, with Phoenix, we are the first ones to address.

Thank you very much for that color. Just another one on China in the quarter. And you guys obviously had, again, another quarter of above market growth. But it looks like a deceleration from what you guys saw in 2Q, while we saw the underlying market improves sequentially. Just wondering what's driving that.

So again, our China story has been one of new product launches. And all through this year, we have been able to somewhat separate our growth in China from the underlying market. We had a strong number of launches this year but also in the second half of last year as well, and we expect that this would continue going forward. So our focus in China has been on winning and executing this new business, which has been the story for the last 2 years, and I expect that to continue.

Thank you very much for taking my questions.

And our next question comes from the line of David Lim with Wells Fargo Securities.

Hi good morning Such and Christian and Bill. I wanted to press on the Phoenix one just a little bit more. I guess the question that I have is, is this a platform win or is this a model win? And are we – and you talk about volumes here, I mean is this like a unit runner where it is a 100,000 units or more? Can you sort of dimension that a little bit more for us?

Yes, I can share with you to the extent that we are allowed by the customer to share details. So it is a model win initially on a high-runner vehicle that I would say multiple, I would say, over 100,000 units a year potential. So that's the first point. Then to address your second point, it also has - because we are single-sourced on it, we have the potential to extend on to other vehicles in the OEMs' lineup. So it is a single-sourced solution. It is for initially a high volume, by that, I mean, over 100,000 units a year of volume and with the potential to extend it to additional vehicles.

And then are you seeing more OEMs sourcing by - I think what I'm trying to make a connection here is, I think with instrument clusters, it's going more on a platform basis, but with infotainment, it still seems like it's a mix. What are you guys seeing there? And then after that, I do have one followup.

Yes, I think it is a reflection, David, of the dynamics of the industry. There is a lot of demand that is coming from the market, from consumers for new capabilities in infotainment. We are seeing OEMs react to it; in some cases, making decisions first on a lead vehicle, a single model, and then introducing it across the rest of their fleet simply because they have to react quickly to the market demands. I don't believe that it is a underlying sort of secular trend. I think it is more a reflection of where the market is at and the pressure that OEMs feel to introduce new vehicles into space. And this is, by the way, exactly what we are anticipating. We were expecting exactly this kind of pressure on OEMs because, in the past, infotainment systems were done more as a platform approach, but on account of what is happening in the marketplace and the intense pressure that OEMs feels to introduce this capabilities, those plans, in some cases, have to be redone, and I'm just very pleased that we happen to be in a great position with this technology platform to take advantage of those opportunities.

Excellent. The follow-up question I have is when we look at your wins in China and if you parse them out between the domestic wins versus the JV international wins, is there a difference in the content per vehicle between the two different populations there? So what I'm trying to get at is, is the CPV for the China domestics a little less, or is it more, or is it on par with the JV international customers?

Yes. So if you look at what's happening in China, as I mentioned in my prepared remarks, it is a two-segment market and also when you look at it from a domestic versus international JV OEMs, the market is split roughly 55-45 between the two, so 55% international and JV OEMs and 45% domestic. So it's an intensely competitive market. There are no real differences that we see between the product offerings of international versus domestic OEMs. Both are converging to similar sort of specs and capabilities. At the end of the day, they are competing in a single market. So as far as we are concerned, we don't see a difference. The other dynamic there that I should also mention is that there is an increased sort of push towards electric vehicles, and we see, again, no difference between electric versus conventional powertrain from the cockpit perspective, and it is a very interesting market for us, both from content technology capabilities and ultimately, margins.

Great, thank you so much.

Thank you.

Our next question comes from the line of David Leiker with Baird.

Good morning everyone.

Hi David.

On Phoenix, congratulations on that. You worked all year long to get to that point.

Thanks.

But in the world we all live in, it's like, what's next? Any sense on the engagement with customers as it relates to Phoenix and potential opportunities for you to announce something else here?

Yes. First of all, David, we have multiple engagements with Phoenix, multiple OEM customers at different stages in their, I would say, progress towards a decision. One, we are very happy, first of all, to have this very significant win on account of the, one, the nature of the OEM, the nature of the win itself and the scale of it, so very pleased with that. But I fully expect, as we go forward, to be in a position to announce more wins in the space. The other thing that we are also in the midst of is discussions with OEMs that integrate our Phoenix capability on to the SmartCore domain controller platform. So these are complex discussions with OEMs, as you can imagine. These are big decisions for them when - in terms of transitioning their approach towards a cockpit domain controller, and therefore, the timing of the awards and so on cannot be necessarily predicted very well. But we have good confidence that we will be able to convert some of these consumers into business wins for Visteon.

Great. And then just one additional one. We talked a lot about the Slide 8, it is and then - and the China wins there, and it's great to see those wins coming through. I might have missed this, but I don't think you talked about the range of products that are in the bookings here in the backlog as it relates to China.

Yes, I don't think we split the product - the wins by product here in the slide, but I can share with you that it reflects a lot of what we are seeing in our other markets as well. So we have a strong complement of instrument cluster wins, infotainment wins, and this new business win that we are showing here besides other products. So I would say that it reflects more or less our business outside of China.

And on that infotainment, it's more display audio or…?

It's actually both. So we have both display audio and embedded infotainment wins. Some of those were extensions of business that we had with existing customers, and others were new, and some of them are also built on earlier infotainment technology. But going forward, on account of these new requirements from feature viewpoint, all of the future implementations would be built on our Phoenix platform to be able to deliver what the market demands.

Great, thank you very much.

And our next question comes from the line of Matthew Stover with SIG.

Thank you very much. Most of my questions have been addressed, but I want to talk about kind of the outlook for growth and the scaling up of engineering resources. You guys have done a fabulous job getting manufacturing efficiencies and holding costs down. But as you think about the revenue acceleration in 2020 and 2021, I'm wondering when you think that the growth or headwind from larger deployment of engineering resources will have to play out. I would suppose that would be '18 and '19. It would be interesting.

So yes, so if you notice what we are doing here in terms of the transformation, beyond just adding to our capabilities in Phoenix and SmartCore and then DriveCore, we are also transforming the business towards more a platform-based development approach rather than the customer engineering approach that the industry has always taken. And as you can imagine, there's a lot of benefits of using a platform approach. It results in a much higher reuse of your engineering investments but also results in better quality. The technology is more hardened, and it enables us to enable our geographically disperse teams to build these products in the proximity close to the OEM customers. This is a significant departure for not just Visteon but, in fact, the entire industry, and the implications of this transformation are quite profound. It is a significant change. It requires a completely different way of engineering these products. And when we think of how we develop platforms versus the earlier custom product development approach, it requires a significant amount of upfront investment and capability, which we are making in the context of this transformation that we are doing here at Visteon. So as we go forward, we'll be able to better leverage our engineering resources through the platform strategy, through this platform-based development model, and we'll be able to deliver a much higher level of new products as compared to, say, the traditional approach.

The other thing I would add to that, besides the move to platform, is that we are doing programs that are much more complex and are able to get funding from our customers with change requests. And as such, if you look at the history or at least these past few quarters, we're seeing our ability to get engineering recoveries. And that will continue, and that's going to be recurring, but they may be lumpy at times.

Okay, thank you very much.

Okay, and with that, thank you, Sachin. Thank you, Christian. And thank you to all for calling in today. I will be available later today for your phone calls, so please feel free to contact me. And thank you for participating in today's earnings call.

This concludes Visteon's third quarter 2017 earnings call. You may now disconnect.