Ladies and gentlemen thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to Visteon's First Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. It is now my pleasure to turn today's call over to Mr. Ryan Wentling, Vice President of Investor Relations and Treasurer. Sir please go ahead.

Good morning. I'm Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the first quarter 2023. Please note that this call is being recorded and all lines have been placed on a 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 one hour and we'll open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you for joining us. Now I will turn the call over to Sachin.

Thank you, Ryan and welcome to the Visteon team. Good morning everyone and thank you for joining our first quarter 2023 earnings call. H2 provides a summary of our results for the first quarter. The company continued to execute its growth strategy well starting the year on a strong note. First quarter sales were $967 million, an increase of 22% year-over-year excluding currency compared to a 6% increase in global vehicle production. The outperformance in sales was mainly driven by the strength of our product portfolio, which continues to benefit from the industry shift to digital and connected cockpit experiences. Our sales have now outperformed industry vehicle production for 16 consecutive quarters. Adjusted EBITDA was $99 million or 10.2% of sales an increase of $28 million when compared to last year. Our global team continues to demonstrate excellent operational and commercial discipline and deliver exceptional results despite the challenging industry environment. Proactive engagement with customers and suppliers helped us mitigate the impact of semiconductor shortages and was a critical factor in driving our overall performance in the quarter. Adjusted free cash flow followed historical patterns and as anticipated was a negative $37 million in the quarter. On the operational front the company had a busy quarter with our products launching in 34 new vehicle models which will help us to continue our sales growth in the near term. The company also had a strong start to the year with $1.5 billion in new business wins for the first quarter. This puts us on track to achieve our full year goal of $6 billion in new business wins. We continue to make good progress in our electrification business in the quarter with the extension of our existing BMS business to support additional electric vehicle models with existing customers and signing strategic…

Thank you, Sachin and good morning, everyone. Visteon's first quarter financial results came in strong, with our focus on commercial and operational discipline continuing to drive results. Excluding exchange, Q1 sales grew 22% versus prior year benefiting from an increase in customer volumes, a double-digit market outperformance and higher customer recoveries. Compared to customer vehicle production volumes, growth of a market net of pricing was 11% representing our 16th consecutive quarter of growth of our markets. Semiconductor supply continued to improve in the quarter, with a number of parts in critical shortage decreasing significantly from the fourth quarter of last year. As a result, the amount of semiconductors purchased through the broker and distributor sport market channels decreased. However, we continue to see elevated prices from our Tier 2 suppliers which we are sharing with our customers. Compared to prior year, we were able to finalize more customer negotiations in Q1 this year, which increased sales while reducing the impact to adjusted EBITDA. Although, this was a large year-over-year improvement, the net leakage in the quarter still negatively impacted adjusted EBITDA by a few million dollars. Adjusted EBITDA was $99 million, representing a 10.2% margin. Compared to prior year, EBITDA benefited from higher sales and the favorable timing of customer recoveries secured in Q1, partially offset by increases in net engineering and SG&A expenses supporting our growth. Adjusted free cash flow was negative $37 million, in line with the cash outflow we've experienced in Q1 of last year, partially driven by the increased 2022 incentive compensation paid out in Q1, as well as the cash timing of customer recoveries negotiations that settled late in the quarter. We ended Q1, with total cash of $487 million, representing a net cash position of $135 million and a net leverage ratio of negative…

[Operator Instructions] Your first question is from the line of Tom Narayan with RBC. Your line is open.

Hi. Thanks for taking the question. Curious if you could just give us maybe a sense of the guidance. There's a range there. Given the performance in Q1 just wondering if you would consider -- should we consider the upper end of that range as kind of what you're looking for, or could we interpret the results, as potentially signaling maybe slightly -- slight downshift perhaps for your expectations in the remainder of the year? Thanks.

Thanks Tom. It's Jerome. It's a good question. So let me take that one. I would start by saying that we are very pleased with the way the quarter developed indeed with EBITDA very close to $100 million. Industry volumes were slightly better than original forecast -- originally forecasted. But I think more important is the fact that we were able to close much more deals with customers on recoveries that we had originally anticipated and that helped the quarter. We had originally anticipated that a lot of these deals would drag into Q2 and that was not the case. We were early in the process this quarter and able to close a lot of these deals. So it's important to state that nothing has fundamentally changed for the full year. We are still going to have the amount of recoveries that we had originally planned with a leakage of about $20 million for the full year. So that's unchanged. It's just timing between quarters. On the production side, yes, a little bit better production in Q1. We are still cautious, I would say about the second half of the year in terms of the demand. And therefore, we wouldn't change our guidance at this point. And then third, costs. Costs are tracking close to the midpoint of our guidance. So again, I would reconfirm the guidance at the midpoint as it is for now.

Okay. Thank you. And maybe you could give us kind of a sense of what you're seeing in China? We heard from a supplier earlier this morning some cautious tone on what's going on in the Chinese market.

Yeah. Let me take this. Hi. This is Sachin. So vehicle production in China started slow in Q1 with January coming lower than prior year. And we talked about why that was the case. There was a pull ahead of sales towards the end of Q4, on account of some of the incentives that were about to expire. But since January and February and March the sales and production did recover in China. But overall, as a result of that, production was still lower year-over-year. We also had a negative customer mix in Q1. But despite that, our sales in Q1 if you exclude the effects of currency are essentially flat. And as we look ahead at the rest of the year, we believe that our sales will grow despite the overall environment from our customers' vehicle production to be still negative for us. We are benefiting from ramp-up of new product launches that we have introduced in the market over the last couple of quarters and that dynamic will continue through the rest of the year. So we expect overall for us in China to still experience growth despite the production environment not being a positive.

Okay. And if I may just sneak in the last one, there's certainly a lot of commentary on autos about OEM pricing coming down in the back half of the year or at least normalizing. Given the dynamics of your contracts that you guys have with your customers, is there any kind of negative read-through if that should happen? Or are those contracts already kind of fixed such that -- perhaps it's a positive right because it could mean higher volumes. Just curious as to your thoughts on how a weaker retail auto OEM pricing environment it affects your business? Thanks.

Yeah. Sure. And this is by the way not something that is happening for the first time. This has happened before. And in automotive as you know our contracts tend to be long-term. So we do not necessarily benefit when the OEMs experience positive pricing. And we expect it to remain the same when it turns around and the pricing turns out to be more of a negative. So the industry is very competitive. We continue to have the same pressures in a good or a more challenging environment. And I don't expect that to change this time either. But as you said, if the prices come down, if the volumes benefit from that we would see a positive benefit from that if that were to happen.

Thank you. I’ll turn it over.

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

Yes, very good morning. Thank you for taking the questions. The first one is a follow-up on the pricing discussion. You mentioned some good fixed asset getting recoveries in the first quarter. Maybe just to better understand, how much success you still need to have for the balance of the year with passing on inflationary costs in order to meet your guidance?

Yes. We've got a few deals that are open as I indicated on the slide, but nothing major. It's just a few customers. So we are – essentially we've recovered in Q1 close to $75 million recoveries, which is pretty much in line again with our full year outlook, it was $300 million. And the dynamic going forward will be that you'll see some spot buys going down. We had already a lower amount of spot buys in Q1 versus Q4, $25 million versus more than $1 billion in Q4. So you're seeing that decline and it will be partially offset by further surcharge recoveries or cost increase recoveries from customers. So overall we are tracking pretty well. There is still a little bit more to collect. I'd like to mention as well the fact that we had some level of catch-up in Q1 related to costs incurred in Q4, but it's no different from what we've seen in other quarters as well. So that's kind of a sharing effect, if I can call it like that as we go forward.

That’s helpful. Thanks. And other question was on power electronics and good to see the strong bookings momentum again there in the first quarter. At CES and in your comments today, you guys are also highlighting the newer power electronics products and power conversion. Maybe remind us if you could the content step-up when we sell that – potentially sell that broader set of power electronics? What does that look like relative to just selling BMS? And you spoke about proof-of-concept moving forward, I believe with one customer. Can you give us a sense now that you've been sampling and speaking to customers with that set of products, what kind of response you're seeing? And could you just speak about the longer-term opportunity that you see now evolving there? Thanks.

Sure. So yes, so with respect to BMS – I'll start there and then talk about our electronics. We have previously said that the content ranges between $350 to $500 depending upon the number of cells that we have to manage which obviously then impacts the size of the battery. But when it comes to power electronics, I should again mention that our focus is really to focus on enabling the shift to 800-volt architectures for the battery, which requires higher power density as well as efficiency. And we are focusing on three product areas within that: the on-board charger; DC-to-DC converters; and the high-voltage junction box. Now depending upon the features that they are required to contain, they come in the range of prices. But all three together would typically amount to about $700 to $1200 in terms of content per vehicle. So that gives you a little bit of a comparison to how it would look versus BMS. The joint development agreement that we have with one customer that we talked about earlier is in Europe. And this particular product will have multiple DC-to-DC converters in addition to and on-board charger and also will require an ASIL level of safety because this DC-to-DC converters will need to provide power to ADAS systems. So it's a very complex product, has very high power density to support charging this higher capacity batteries and to reduce the charge time. And that's the area that we want to focus with respect to power electronics. There's a lot of what I would consider as more commodity power electronic solutions out there. But with the industry shifting to 800 volts, we believe that it creates opportunities for us to bring some technology innovations in this area, especially leveraging new semiconductor solutions and our system design and understanding that we can bring in order to achieve the specific requirements of products. So a very exciting area for us. But I should also mention that in terms of when we expect to see revenue contribution from this area it's likely going to be post 2025 so the second half of the decade. And we believe that it can be a business that is as big as BMS has been for us or is shaping up to be for us. So very excited about it overall.

Thank you.

Your next question is from the line of Dan Levy with Barclays. Your line is open.

Hi. Good morning. Thank you. I wanted to ask about your -- about the chip environment and your purchases specifically. On the last call, I think, you noted that in 2022 the issue was more on power and analog and this year the issue is a bit more on microcontrollers if I recall correctly. So just wondering how the shift in those constraints is impacting your pace of recoveries? And if that's still broadly the case that it's MCs that are more constrained than power and analog?

Yes. So it's a great indication of the volatility that still exists when it comes to semiconductor supply. The specific microcontroller that I mentioned was not an issue last year and there was I would say enough supply. Now with our demand also increasing the supplier was not able to keep up with demand and that is essentially what is the issue that we have here. As I mentioned our action in terms of mitigating that impact is to redesign that micro to use an alternative option that is also from the same supplier, but has higher supply availability. And that's going to help us mitigate, especially, in the second half impact of any reduction in supply. I do not believe that that is going to have a material impact on our ability to recover any of the extraordinary costs from the customers. They understand the situation and appreciate us being nimble and come up with alternatives that minimize the impact to their vehicle production. So I think it's going to be more normal business like we have already done in 2022 as well with the redesigns that we have launched.

Okay. Great. So the mix doesn't really impact the pace of recovery. Thank you. Second, GM noted on their call the other day that one of their plans on simplification to reduce the number of infotainment screen configurations by 60%. And I'm just wondering generally speaking just how wide the number of SKUs you have within the digital clusters and displays? And generally speaking is fewer SKUs good for you, or is it a neutral? Can you just talk about sort of proliferation and simplification? Thank you.

Yes. That's a great question. And I think it is a reflection of how the industry has jumped on to these displays in the various configurations and are now experiencing a little bit of that fragmentation effect that is not helping supply and management of the various SKUs. So it clearly is something that is beneficial to us. We have been trying to drive standardization within the displays and try to bring the benefit of higher volume on a fewer number of SKUs. So we believe that the industry fundamentally can settle down on maybe three or four different configurations that will benefit from the standardization and the high volume that can be then following this approach. And our approach to that has been also to come up with more of what we would refer to as a platform solution for these products so that we can share more of the components across a greater number of customers. So the short answer to your question is it would be very helpful to us and the industry to reduce the number of variations that we have today in SKUs.

For input on design even if they're limiting the number of SKUs, there's probably little impact to you. I mean it's still you would still be fully responsible for design even if there's a more limited number of SKUs out there?

That is correct. So nothing changes other than just it makes -- or simplifies the management of the various variants.

Great. Thank you.

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

Hi, everyone. Just on the recoveries you guided to the $300 million for the full year. You realized $73 million this quarter, which I believe came in better than expected with respect to your progress in negotiations with certain customers, if I heard that correctly. So should we be expecting a relatively smooth $75 million per quarter type recovery rate? And did any open market spot purchases take place this quarter? My apologies if I had missed that.

Yes no problem. Good morning, James. Absolutely yes. I think the -- at this point, it can be a little bit lumpy, but we are seeing something to the tune of $75 million per quarter. We did incur some spot buys in Q1. $25 million was recovered which was in line with Q1 of last year but much lower than what we have seen towards the end of last year. We were at over $100 million in Q4 of last year. So, it's -- the spot buys are coming down. And then surcharge as I said, we are -- we've recovered a fairly large number of -- we've negotiated and closed a large number of deals in Q1. So there's still a few open but it will be offset by spot buys that we expect will be declining going forward.

But if the surcharge recovery is happening faster and at a better rate that doesn't alter the full year view in any material way then in terms of recoveries?

So faster, yes. At a better rate, it doesn't change essentially the EBITDA impact. It's still for the full year close to $20 million. So it's again, just timing between I would say, Q1 and Q2. We even had some deals last year that were closed in Q3. So I had indicated in Q4 that our earnings profile in 2023 would be similar to what we had seen in 2022. It probably will be a little bit more flatter, and will be more a function of sales and a function of engineering recoveries which are kind of the two big variables for our profit.

Got it. And just on the latest BMS add-on award and relative to your electrification revenue target of $600 million by 2026, does this latest award alter that view in any way?

Not really. No. We did anticipate that we would see extensions with this particular OEM. We had the initial award with them on a couple of vehicle models and more were to follow. So this is more a validation of our sort of patience in terms of the growth with this OEM on the BMS win.

And if I could just squeeze one more. Share buybacks should we expect any execution of that authorization this year, or is that more of a 2024 and beyond dynamic?

We've announced the authorization in March. So our intent is definitely to be active in the market and it will depend on a variety of factors. So we will expect to see some share repurchases this year.

Got it. Thank you.

Thank you.

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

Good morning. Thanks for taking the questions. For start session just wondering, if you can give us any more background and the follow-on award for where the BMS is this quarter? On the outside looking in it seems like in part this is a customer that you're helping to scale more quickly in EV, am I reading that right? And if I am -- if I look at other customers you're engaged with is there a similar basis there? Asking based on -- clearly there's some pressure on OEMs right now given the proposed CAFE standards in the US. I'm just wondering how that might impact your business in wireless BMS? Thank you.

Yes. So this extension win that we talked about this quarter is really with a global OEM that has a fairly strong presence in North America. And it's for -- as I mentioned on the prepared remarks earlier, for some of their higher-end large SUVs and trucks. So, this is, I would say first look a great example of the platform strategy of awards that we have discussed previously where the development of the product occurs across multiple vehicle models at the OEM. So, we were anticipating to grow in terms of the number of vehicles we would have with this OEM. We are hopeful that more will follow. But we're very pleased to see how it is developing with them. And we have talked about our win and the number of vehicle models that we have with GM, which has also seen some extensions. It's good to see it's the same dynamic with this second OEM. So I would say that it is progressing as we had anticipated. It will keep us fairly busy over the next couple of years in terms of the number of launches that we have. Even though when we talk about it as a platform approach, the integration of any new product in a vehicle always is a fairly challenging task, especially for something like BMS, which is the brains, if you will, of the electric power train. So we would be I think, in a very strong position to help these OEMs achieve their near-term and mid-term targets in terms of the number of vehicle models that they have scheduled for launch. And I think that will continue to position us well with these OEMs for future growth as well.

Thank you for that. And then for my follow-up, I'm going to zoom out to 10,000 feet here. I'd just love to get your perspective on where you think the underlying demand trend is in the business today relative to what you're reporting in revenue ex-pricing? Really thinking about that in two lenses: one is your ability to supply being the primary lens; and then second, just the level of demand that you're seeing real time in cockpit electronics versus volumes that are in your backlog or your execution when you book that business? Thank you.

So the demand situation, I would say, is as follows. So Europe, as you know, they have a real order backlog there with people placing their orders ahead and deliveries happening later. So we entered the year with a very strong order backlog with most of our customers in Europe. And with the supply improving, we've been able to supply more and meet most of the demand although not all of it. So there is still some order backlog that needs to be fulfilled and also some catch-up to be done in terms of filling the pipeline of dealer inventories, et cetera as far as the European side is concerned. So we remain optimistic that at least in the near term Q2, we will continue to see pretty strong demand there. In North America, we would also say that the demand is pretty strong from our customers. It has more to do with the launches that we have and there are vehicle launches that we are supporting. And so that should remain pretty robust in the near term. China, we mentioned that we have a different dynamic with the customer production mix that is not favorable. But nonetheless our new launches there have been helping us in terms of our revenue growth. So now, the concern if any, which is what we have -- tried to also have shared in this discussion is how long does this demand last and whether we will continue to see this demand in the second half. We see no indication at this point that it should weaken but we are just watchful and therefore, we would continue to think of the full year in terms of the guidance that we have provided earlier and stay consistent with it for now.

Thanks. I’ll leave it there.

Your next question is from the line of Emmanuel Rosner with Deutsche Bank. Your line is open.

Thanks and good morning. So thanks for all the good color on the wireless BMS win -- follow on win. Can you maybe remind us -- when I look at the Slide 6 and the various wins and milestones accomplished. Can you just remind us the expected sequence of start of production or some of these announcements so far?

Sure. So with respect to GM, we have already been in production with them since last year and this will continue with some of the launches that they have scheduled this year. And GM has also been public about their expectations of the volume that they have discussed on their call. So you'll probably have it directly from them and we'll be supporting those volumes in the near term. With respect to this extension, the second OEM that we talked about on this call, those launches are happening in the middle of 2024 and early 2025. And that's -- we talked about a couple of vehicle models previously. What this win adds is four more vehicle models. So there's going to be an addition to our 2024, 2025 launches. And so -- again, I would want to suggest that this was something new. We were anticipating this, but it's always good to be booking this business and we'll follow that up with a launch plan. So that's how this near-term 2023-2024 launch schedule is looking like. As we mentioned, we have about 24 vehicle models that we will be launching on with BMS in this time frame which will probably take us all the way to the middle of 2025 before most of these are launched.

And the premium brands of the German OEM in terms of timing?

That's also 2024.

Okay. Understood. And I guess as a follow-up, I think -- in the early part of the presentation I think you suggested that the second quarter performance could be similar to the first quarter. Could you just help us out with a sort of like a high-level bridge of the puts and takes?

Yes. No, that's a good question. So there are three factors impacting Q2. First, we -- and you saw IHS being slightly up in Q2 versus Q1. So we think that volumes could be slightly higher, but I think IHS is up by 1.8% so nothing dramatic. So we still expect our sales to be slightly $1 billion for Q2. In terms of recovery, which is the second driver of profitability, we do expect to see a similar level of leakage in the second quarter versus what we've seen in Q1 with some customer deals as I said -- as you see that deals earlier, but all the deals are essentially retro 1st of Jan. So it doesn't really change the dynamic so much. And then the third item is the fact that our engineering costs will go up a little bit in Q2. And as you see throughout the last few quarters, we've been seeing some uptake on gross engineering. We are expecting as well some level of offset on the engineering recovery side, but we'll still be a slight negative. So in summary, maybe a little bit higher volumes offset by a little bit more engineering cost and then flat or neutral recoveries from an EBITDA leakage standpoint quarter-over-quarter. So that should give us an EBITDA in the 10% mark similar to what we've seen in the third quarter.

That’s super helpful. And I guess just for the year overall in terms of cadence, do you see any specific pronounced cadence for the growth of the market I guess on a year-over-year basis?

So in terms of growth of our market which by the way is dependent obviously on the prior year's performance right it's a year-over-year calculation. We do expect that on account of the vehicle production being slightly maybe down in terms of year-over-year comparison that the growth of our market in the second half should be similar or slightly positive or higher compared to what we experienced in Q1.

Thank you so much.

Thank you. This concludes our earnings call for the first quarter 2023 results. Thank you everyone for participating in today's call and your ongoing interest in Visteon. If you have any follow-up questions please contact me directly. Thank you.

This concludes Visteon's First Quarter 2023 Results Earnings Call. You may now disconnect.