Visteon Corporation (NASDAQ: NASDAQ:VC), a leading automotive technology company, has reported a strong performance in the second quarter of 2024, with significant growth in sales, adjusted EBITDA, and free cash flow. Despite facing market challenges, including weaker sales in China and lower customer vehicle production, the company has maintained a positive outlook for the future, driven by their digital cockpit and electrification products. With $1.7 billion of new business won in the quarter and a solid year-to-date performance, Visteon is positioning itself for continued growth and market outperformance.
Key Takeaways
- Visteon's Q2 sales exceeded $1 billion, with significant demand for digital cockpit and electrification products.
- Adjusted EBITDA reached $136 million, with a margin of 13.4%.
- The company launched 15 new products and secured $1.7 billion in new business during the quarter.
- Market outperformance was noted in the Americas, Europe, and Asia excluding China.
- Visteon forecasts a full-year growth over market of approximately 7%.
- CEO Sachin Lawande highlighted the slow adoption of advanced technology by some OEMs, but remains focused on vertical integration to reduce costs.
- CFO Jerome Rouquet reported better than anticipated performance in H1 and expects to mitigate lower revenue impacts through strategic spending revisions.
Company Outlook
- Visteon expects continued market outperformance, particularly in digital cockpit and electrification products.
- The company remains optimistic about long-term growth prospects despite challenges in the second half of the year.
- Visteon plans to expand its customer base in Japan and India and focus on two-wheelers and commercial vehicles.
- Opportunities for M&A are being explored to strengthen their engineering services business.
Bearish Highlights
- Sales in China were weaker than expected.
- Lower customer vehicle production anticipated in the second half of the year.
- A 10% drop in customer vehicle production from 2019 to 2023 has impacted revenue growth.
Bullish Highlights
- Visteon's technology portfolio aligns with industry trends like digitalization, connected cars, and electrification.
- The company reported record adjusted EBITDA and strong cash flow generation in Q2.
- Year-to-date wins totaled $1.8 billion, with significant opportunities with Japanese and Indian OEMs.
- Visteon is well-positioned to provide integrated solutions to OEMs, especially in the EV market.
Misses
- The decline in vehicle production expectations from customers and external factors like COVID-19 have led to slower revenue growth.
Q&A highlights
- Sachin Lawande discussed the challenges of technology adoption by OEMs and Visteon's strategy to drive cost reduction through greater vertical integration.
- The transition to software-defined vehicles presents an opportunity for Visteon to offer solutions to OEMs.
- Jerome Rouquet highlighted the company's better-than-expected performance and strategies to mitigate the impact of lower projected revenue.
Visteon Corporation's earnings call for the second quarter of 2024 revealed a company navigating through market uncertainties with a clear focus on innovation and strategic growth. Despite headwinds, the company's leadership remains committed to executing their plans and capitalizing on the evolving automotive landscape. With a strong performance in the first half of the year and a robust pipeline of new products and business wins, Visteon continues to drive forward in its quest for long-term success.
InvestingPro Insights
Visteon Corporation's resilience in the face of industry challenges is further illuminated by the latest data from InvestingPro. With a market capitalization of $2.94 billion, the company's valuation metrics suggest a compelling investment case. The P/E ratio, a measure of a company's current share price relative to its per-share earnings, stands attractively at 6.37, indicating that Visteon's shares may be undervalued compared to the overall market. This is further supported by an adjusted P/E ratio for the last twelve months as of Q1 2024, which is slightly lower at 6.16.
The company's financial health is underscored by a strong liquidity position, as evidenced by InvestingPro Tips that highlight Visteon's ability to cover interest payments with its cash flows and its liquid assets surpassing short-term obligations. These factors are crucial for the company's financial flexibility and its ability to navigate economic downturns.
InvestingPro Tips also reveal that Visteon holds more cash than debt on its balance sheet, which is a testament to the company's prudent financial management and positions it well for future growth opportunities or economic shocks. Moreover, the company is expected to remain profitable this year, despite seven analysts having revised their earnings downwards for the upcoming period.
Investors interested in further analysis will find additional insights with InvestingPro, including a total of 9 tips for Visteon Corporation, which can be accessed at https://www.investing.com/pro/VC. For those looking to delve deeper, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. This exclusive offer provides access to comprehensive investment tools and data to inform your financial decisions.
Full transcript - Visteon (VC) Q2 2024:
Ryan Wentling: Good morning. I'm Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the Second 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 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.
Sachin Lawande: Thank you Ryan, and good morning everyone. Thank you for joining our second quarter 2024 earnings call. I would like to start with a summary of our second quarter performance as outlined on Page 2. Visteon delivered another quarter of strong execution with top line growth, margin expansion and free cash flow generation. We reported records for both quarterly base sales and adjusted EBITDA and delivered high single-digit growth over market. This level of growth over market is impressive considering the market headwinds this quarter. Sales were slightly over $1 billion driven by strong demand for both digital cockpit and electrification products. We saw double-digit year-over-year increases for digital clusters and displays, while electrification grew due to ramp-up of GM's EV production. Adjusted EBITDA increased to $136 million on higher volumes, strong operational execution and focus on cost. Adjusted EBITDA margin was 13.4%, which is a 270 basis point improvement year-over-year when removing the impact of last year's recall charge. Adjusted free cash flow was $28 million in the quarter. We also strengthened our foundation for future growth. We launched 15 new products in the quarter and won $1.7 billion of new business. We continued to diversify our customer base with new product launches and business wins with OEMs in Japan and India. Carmakers in Japan and Korea are currently underrepresented in our current customer base, and we believe there are significant opportunities to expand our business with them. Overall, I'm pleased with our second quarter performance, which was in line with our expectations, and puts us in a solid position entering the second half of the year. Turning to Page 3. Demand for our digital cockpit and electrification products was strong in the quarter. The powertrain agnostic nature of our digital cockpit products helped drive sales growth as strength in ICE and hybrids helped offset slower EV growth. Displays were our best performing digital cockpit product growing high teens year-over-year. This is a critical inflection after the declines in recent quarters due to the end of the BMW (ETR:BMWG) display program that we have mentioned in prior quarters. The growth was driven by programs with Ford (NYSE:F), Nissan (OTC:NSANY) and Stellantis (NYSE:STLA) and we anticipate this growth to continue in the coming quarters, as these programs ramp up and as we launch additional display products. Carmakers continue to prioritize larger and more sophisticated displays in the cockpit, and Visteon is positioned very well to take advantage of this trend. Digital clusters grew double digits in the quarter, benefiting from the ramp-up of recently launched clusters at multiple customers, including Ford, Volkswagen (ETR:VOWG_p) and Nissan. We remain the market leader in digital clusters, and expect a long runway of growth as digital clusters extend into the mass market and value segments of the automotive market. SmartCore sales continued to grow in the second quarter with ramp-up of recently launched products at multiple OEMs, including Harley-Davidson (NYSE:HOG), Mahindra and Scania. The SmartCore launch with Scania is the first cockpit domain controller introduction in the commercial vehicle market, and we see significant opportunity to develop further in this segment. Sales of electrification products were strong in Q2, driven by the ramp-up of production of electric vehicle models by GM and the start of BMS production for our second customer. It was a significant contributor of our market outperformance coming in stronger than we originally anticipated in the first half of the year. Even with the lower market expectations for the growth of electric vehicles, sales of our electrification products are delivering incremental sales growth for Visteon on a year-over-year basis. From a regional perspective, our market outperformance was driven by strength in Americas, Europe and Asia excluding China. Our sales in China were weaker than expected due to the ongoing market dynamics in that region, which muted our overall market outperformance in the quarter. Our sales in Americas benefited from the significant growth of electrification sales that I just mentioned. We also saw double-digit growth in digital clusters, driven by ongoing ramp-up of programs with Ford, which were partially offset by lower than anticipated sales of cockpit products on electric vehicles. In Europe, market outgrowth was driven by digital cluster and display programs with Volkswagen JLR and Mercedes. This was primarily due to the ongoing ramp-up of new product launches, which more than offset the lower than anticipated sales of products on electric vehicles. As you may recall, Ford delayed several launches in the first quarter to improve launch quality controls. The vehicles have subsequently been launched and were not a headwind to our second quarter results. Our sales in Asia, outside of China, outperformed the market due to the roll-on of SmartCore programs with Mahindra and ramp-up of digital cluster programs with Hyundai (OTC:HYMTF) and Royal Enfield. This region provides significant potential for both passenger vehicles and two-wheelers, providing further customer and end market diversification. China was a weak spot for us on account of the ongoing decline of market share for global OEMs and the unfavorable vehicle mix with our largest domestic customer Geely, where we have most of our business on premium high-value brands that are not doing as well in the market as we had expected. Our sales in China declined compared to prior year and reduced our overall growth of the market by about 3-percentage points. Overall, we delivered solid top line growth and high single-digit growth over market performance in the second quarter, overcoming market headwinds from China and lower EV sales. This performance demonstrates the resiliency of our product portfolio and the benefits of our diversification across customers, geographies and powertrains as well as our expansion into the two-wheeler and commercial vehicle markets. Turning to page 4. Our strong award momentum continued in the second quarter with $1.7 billion of new business wins bringing the first half total to $3.1 billion. We are targeting over $6 billion in new business wins for the third consecutive year and we are on track to achieve that target based on our first half performance. In the first half, we benefited from the focus we have placed in recent years on diversifying our customer base. Two-thirds of our first half new business wins were for customers outside our current top 10. In Asia, excluding China, where we have been particularly focused on expanding our presence, we had $1.8 billion of wins with Japanese and Indian OEMs. We believe there is a significant runway ahead of us to expand our business with these customers and other OEMs based in this region. Displays represented our largest source of awards in the first half accounting for just over 50% of our wins. Several years ago, we began to invest in our design and manufacturing capabilities to capitalize on the growing trend of large sophisticated displays for automotive cockpits. This included higher levels of vertical integration and a regionalized approach to production to help meet customer supply chain sustainability priorities. These investments are now paying off as we ramp up production of current programs and also gained significant traction on new business awards. Looking forward, we expect to invest in further vertical integration in displays that can help to expand our leadership position in this key product line. Our new business wins were also well diversified across our other digital cockpit products with significant SmartCore infotainment and digital cluster awards. These growing product lines are benefiting from the ongoing digitalization trend in the cockpit. On the right side of the page, we highlight a few key wins in the second quarter. The first win is for a large curved OLED display with a Japanese OEM, representing another significant win with this recently added customer. This display will be offered on the luxury vehicles, with initial launch on a new electric vehicle model with potential for additional launches on other platforms and powertrains. The second win is for a dual display product that will be featured on an SUV with ICE and hybrid powertrains with a different Japanese OEM. I'm really pleased to see the extension into displays with Japanese OEMs, following on the recent wins for digital clusters. Lastly, we would like to highlight a win for an infotainment system and multi-display module for an Indian OEM. These products will be utilized on the OEM's next-generation platform, and includes a 25-inch multi-display module along with the underlying infotainment system. Turning to page 5. Launches of new products are the primary driver of our sales growth. We had a strong first half with 41 new product launches on vehicles from 17 different OEMs worldwide. Digital cluster and SmartCore launches represented roughly half of our launches and mostly with OEMs in Asia, supporting our goal of growing our business with this currently underrepresented carmakers in our portfolio. Now, I would like to highlight some of our key launches during the quarter. We launched a digital cluster on the Toyota (NYSE:TM) Camry, our first on that vehicle and our second major launch with Toyota, after the launch of the digital cluster on the Corolla in China. This cluster will be offered on the Camry for all regions globally and on both ICE and hybrid powertrains. This is our first global launch with Toyota, and I'm pleased that this is also one of the best serving vehicles in the world. We also launched a high-resolution 10-inch center information display on the Mazda MX-30. This vehicle is a compact SUV and comes with both hybrid and electric powertrains, highlighting the powertrain agnostic nature of our digital cockpit products. The third launch I would like to highlight is the launch of 12-inch digital cluster with a curved display with Porsche (ETR:P911_p) on the electric Macan. The Macan is a high-volume module for Porsche, and this cluster will also launch on some other models with that OEM. I'm very pleased with our momentum we are building in Asia and particularly outside China, which is demonstrated by the fact that 60% of our first half launches were in this region. Many Asian OEMs outside of China have historically not been a meaningful part of our customer base, for example, Toyota, Honda (NYSE:HMC), Hyundai and Suzuki. These OEMs, however, produce a large number of vehicles annually and represent a significant opportunity for Visteon. Turning to page 6. I would now like to share our updated views on the market and Visteon sales for the full year. While our first half performance was in line with our expectations, we are seeing some market headwinds in the second half of the year, impacting our top line performance compared to the assumptions within our initial 2024 guidance. First, our customer vehicle production based on S&P global forecast is lower than the January forecast used in our initial guidance. Customer production is now expected to decline by 3% as compared to the original expectation of a 1% decline. While we did see lower customer vehicle production year-over-year in the first half, the more significant declines are in the second half. Second, we expect our sales in China to be weaker than our original forecast. The hyper competitive market dynamics and the ongoing price war is driving rapid changes to the automotive market in China. We are seeing unfavorable mix with Geely, our largest domestic customer in China, as they prioritize lower content vehicles in response to the market dynamics. Market share of our global customers in China is also continuing to decline versus domestic OEMs. New sales incentives that were discussed during Q1 have not boosted demand. We are now expecting our second half revenue in China to be roughly flat with the first half despite higher vehicle production in the second half. Outside of China, there are a couple of factors that are negatively impacting our market outperformance. First, we are expecting some mix impact from lower sales of key electric vehicle models where we have higher than average digital cockpit content. Second, the announced delays in the introduction of some model refreshes at our largest customer, Ford, is delaying the contribution from new product launches at this customer. On a positive note, we expect the ongoing ramp-up of recently launched digital cockpit and electrification products to drive continued market outperformance continuing the trend from the first half. Demand for digital cockpit products across powertrains remain strong and we expect continued growth in digital clusters and displays. Electrification sales should continue to grow year-over-year, as our customers build the pipeline for vehicle launches through the rest of the year. Putting all these factors together, we forecast continued market outperformance in the second half leading to growth over market of approximately 7% for the full year. Considering the environment this is a strong performance. Turning to Page 7. In summary, the company performed very well in the first half of 2024. Our technology portfolio is aligned with key industry trends including digitalization, connected car and electrification, megatrends that will drive future growth for years to come. We delivered growth over market of roughly 6% in the first half with further growth over market expected in the second half. The team continued to execute on our commercial and operational plans which resulted in a strong adjusted EBITDA margin of 12.2%. We continue to build our foundation for the future by launching 41 new products and winning $3.1 billion in new business. Now I will turn the presentation over to Jerome.
Jerome Rouquet: Thank you, Sachin, and good morning, everyone. Visteon delivered solid results in the second quarter. We continue to execute well with 15 successful product launches including on the Toyota Camry our first global program launch with Toyota. We won $3.1 billion of new business wins in the first half. These wins further diversify our customer base, especially in rest of Asia with $1.8 billion of wins with Japanese and Indian OEMs. We also delivered another quarter of excellent operational execution and commercial discipline. Which led to record adjusted EBITDA and a margin in excess of 13% for the quarter. I am very proud of our track record of consistently expanding our margins. Lastly, we continue to focus on cash flow generation and delivering on our capital allocation priorities. Our strong balance sheet with a net cash position will allow us to balance organic investments, selective M&A and capital returns to shareholders. Turning now to the second quarter's financial results in more detail. Q2 sales were slightly over $1 billion in line with our expectations as communicated last quarter. Sales benefited from our market outperformance, generated from new product launches, partially offset by lower customer volumes and lower recoveries. Our market outperformance was the strongest in the Americas with growth of market in excess of 20%, solid outperformance in Europe and rest of Asia excluding China, while China significantly underperformed the market. We saw year-over-year growth in sales across digital clusters, SmartCore, displays and electrification products. It is worth noting that after several quarters of declining display sales, as a result of the BMW display roll off, our displays business delivered 17% growth year-over-year in the second quarter. We expect the display's product line to continue to deliver growth in the coming quarters. Customer recoveries declined year-over-year, as a result of the improved semiconductor supply, but were stable sequentially as we're still recovering elevated supply costs. Adjusted EBITDA was a record $136 million for the quarter or 13.4%. Our strong EBITDA performance this quarter is the result of sales exceeding $1 billion, strong operational performance as well as combined net engineering and adjusted SG&A costs of 9.1% of sales down approximately 100 basis points from the level we are guiding for the full year. We also benefited from several million of onetime commercial items in the second quarter of this year. Adjusting for a more normalized level of engineering and SG&A spend reflecting our full year run rate guide and removing the Q2 2024 commercial one-timers, we estimate our EBITDA run rate be closer to 12%. Adjusted free cash flow was $28 million in the quarter, as a result of our focus on cash and our strong adjusted EBITDA performance. Overall, our second quarter was another step in the right direction, with continued revenue growth, margin expansion and cash flow generation. We are successfully navigating a changing environment as a result of our strong focus on operational performance, commercial excellence and cost discipline. Turning to Page 10. Sales were $1,014 million in the quarter, an increase of $31 million compared to the prior year. This increase in sales was primarily driven by our market outperformance, generated by recent product launches, partially offset by lower customer production and reduced customer recoveries related to semiconductor costs. Our growth of the market was 9% in line with our expectations of high single-digits. Adjusted EBITDA was $136 million in the second quarter. This was a $46 million increase from the prior year. Excluding the $15 million recall charge shown in the dotted box that we incurred last year, the year-over-year EBITDA improvement was primarily driven by three factors: volume, strong operational performance and lower cost for net engineering and SG&A. Exchange negatively impacted year-over-year EBITDA by approximately $4 million, while the favorable commercial items that we benefited from in Q2 2024 were neutral on a year-over-year basis. Net engineering was $12 million lower than the prior year due to the timing of project spend. Our net engineering cost as a percentage of revenue was 4.9% below our expected full year average of mid-5%. SG&A was $2 million lower than the prior year as we maintain a strict cost focus while continuing to invest in specific areas to support our growth. Adjusted SG&A was 4.1% of revenue, which is slightly below our full year expectation of mid-4%. Our continued success on delivering growth while managing our fixed cost base will continue to provide significant leverage as we scale up. Overall, we delivered solid financial results in the second quarter in line with our expectations. We continue to demonstrate our ability to overcome challenges, while preparing for future growth by delivering on a high number of program launches and substantial new business wins. Turning to Page 11. We generated $28 million of adjusted free cash flow in the second quarter bringing our first half total to $62 million, which is a $67 million improvement compared to the first half of last year, primarily due to the higher adjusted EBITDA. Trade working capital was an outflow for the first half as we build additional working capital to support our growth. Cash taxes were modestly lower than prior year, due to the timing of tax payments in the first quarter of last year. Interest payments remained low and primarily relate to our term loan, which were more than offset by interest income on our invested cash. CapEx was $68 million in the first half and remains on track for $145 million for the full year. We're investing in projects that are critical to deliver on our future growth and margin expansion. We ended the quarter with a total cash of $508 million and a net cash position of $181 million. Our balance sheet provides the flexibility to pursue our balanced capital allocation framework. We're highlighting on the right-hand side of the slide the amount of adjusted free cash flow before CapEx that we have generated over the last 12 months $359 million and how it was allocated. Our largest spend has been CapEx, which is critical for our future growth and margin expansion and represents approximately 40%. We will continue to look for ways to deploy capital to support organic growth initiatives at attractive returns, well in excess of our cost of capital. Our success in allocating capital to high-return projects is illustrated by our strong return on invested capital. Buybacks have also been a significant source of capital deployment, with $96 million spend in the last 12 months or 27%. Lastly, as I mentioned last quarter, we're looking to expand and improve our business via bolt-on M&A, primarily in further expansion of engineering services or additional vertical integration into our manufacturing processes. We have earmarked 28% for potential M&A opportunities in the coming quarters. Turning to Page 12. Following some of the market dynamics highlighted by Sachin, we are updating our guidance for the full year. For sales, we are revising our guidance range to $3.85 billion to $3.95 billion, a $200 million reduction at the midpoint. The change versus our original assumption is driven by lower customer vehicle production and several factors affecting our growth over market. For customer for vehicle production, we are forecasting a decline of approximately 3% which is a 2% reduction from our initial forecast. This is in line with S&P Global forecast. For growth over market the most significant headwind versus our prior forecast is the lowering of our expectations for China, both due to unfavorable mix with our largest domestic customer Geely and continued market share losses by the international OEs. Outside of China, we also expect some mix impact from the slower-than-anticipated ramp-up of EVs where we have higher-than-average digital cockpit content and from delays in the introduction of some model refreshes at Ford. As a result of the change in revenue, we are slightly lowering our range for adjusted EBITDA to $455 million to $475 million a reduction of $20 million at the midpoint, reflecting decrementals of 10%, as we continue to execute well. On a margin basis the 11.9% midpoint is slightly higher than our prior guidance, with our first half performance coming in ahead of our original expectations. We expect strong year-over-year incremental for the full year, as we continue to find efficiencies in the business, control costs and leverage our fixed cost base. Lastly, we are maintaining our adjusted free cash flow guidance, as our first half cash flow was strong. This range considers our assumptions of the current adjusted EBITDA range, the use of working capital for the year and CapEx spending of $145 million for the year. Our conversion ratio increased slightly from our prior year guidance and remains within our targeted range of 35% to 40%. Turning to Page 13, Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in a cockpit, regardless of powertrain and the growth of electric and hybrid vehicles. Visteon is uniquely positioned for multiyear top line growth margin expansion and free cash flow generation while our strong balance sheet provides us with significant flexibility. Thank you for your time today. I'd like now to open the call for your questions.
Operator: [Operator Instructions] Our first call comes from Luke Junk with Baird.
Luke Junk: Hi. Good morning. Thanks for taking my question. For my first question just hoping you could segregate cluster growth in the second quarter and your expectations through the back half of the year, just a lot going on here of digital cluster growth versus analog and hybrid. I think there's some product sunsets that we're seeing in the numbers and launch, delays or slower ramps. Can you just kind of square…
Sachin Lawande: Sure. Sure.
Luke Junk: … what we saw in the second quarter and then how that steps up in the back half? Thank you.
Sachin Lawande: Absolutely, Luke. So yes, first of all as you know, digital clusters have been a very strong product for the company now for the last several quarters. And even in Q2, we saw our sales of digital clusters grow good double-digit, year-over-year in a lower vehicle production environment. And it was one of the main drivers of our market outperformance. Today clusters overall make up about 40% of our sales. And of that, digital clusters, is about 80%. So the majority of what we do today in clusters are digital. And we are a clear market share leaders in that product category. And we expect this performance to continue. But I would like to also mention that what we are seeing in the industry is that in the mid-to-upper end of the market we are seeing more a transition towards Cockpit Domain Controllers and displays. And we are seeing also as a result of that, this digital clusters to migrate more and more into mass market vehicles. And we expect that transition to continue as we go forward from here. So this is why as you have seen, our displays performance has been very strong this year, the first half. And if you go back, last year, our SmartCore cockpit domain controller wins were also very strong. In fact, I believe that was the largest portion of our $7-plus billion in new business wins. And so with displays, being a product that requires shorter time to launch following the cockpit domain controllers which take longer to implement and launch, you see the sequence of CDCs followed by displays in the mid to upper end of the market and the migration of digital clusters into more and more mass market vehicles. We still feel that there's a lot of runway ahead for this product for the foreseeable future and we expect that to continue to be a leading product for us.
Luke Junk: Thanks for the Sachin. The mix of digital customers is helpful. For my follow-up, maybe you or Jerome, just hoping for some high-level thoughts on following the updated 2024 expectations through to your 2026 midterm targets? Thank you.
Sachin Lawande: Yeah. Let me talk about that, Luke, and I'll be happy for Jerome to also add any more color. But first of all, I would say that it is a little early for us to talk about 2026, but I want to share some of the things that we are looking at here as we look at the midterm. First of all, I would say that if you look at the last few years, we have demonstrated that we can grow our sales even in a flat LVP environment, right? If you go back to, say, 2019 to 2023, LVP was essentially flat at roughly 89 million units globally. And our revenues over that period of time grew 30% to almost $4 billion, and our EBITDA improved 300 basis points to about 11%. Now this year, we were expecting that performance to continue. But as we have discussed in our prepared remarks, the reduction in the outlook for customer vehicle production as well as the dynamics in China, has meant that despite those things, we will be in a position to deliver a flat, flattish performance 2023 to 2024, still representing a growth over market on account of the lower production expectations. Now, what I would also mention is that we are adapting to these market changes. We are first expanding our customer base in passenger car market to OEMs that historically have not been a big part of our revenue, for example, OEMs in Japan and India. Today, those set of OEMs make up about 5% of our revenue. And if you look at the production side of things, they make up almost 25% of the global passenger car production. So we see a lot of opportunity there. We're also focusing on two-wheelers and commercial vehicle segments. And in both the Asian OEMs as well as in two-wheeler and commercial vehicle segments, we have made a lot of progress. We have talked about our progress with Toyota. We also have one business with Honda and Hyundai that make up that group of OEMs. And when it comes to two-wheelers and commercial vehicles, I'm very happy that we have business with all of the top four or five leaders in each of those two segments. So as we go forward, some of these will start to contribute revenue even in 2026. And then lastly, as Jerome mentioned in his prepared remarks, we are also looking at some M&A to help build our engineering services business that we see a good opportunity for. As we all know, OEMs are going to do more and more software as the cars are going to be attracting a lot of software content. And we have the technology capability and scale to help them. So as I said, some of these will have an impact on 2026, but the full impact will be probably felt more in outer years. So we'll take all of that into consideration. And as we make up our midterm plan, including 2026, we will probably update you sometime this year at the date has yet to be determined.
Luke Junk: Understood. Thank you for that and we’ll stay tuned down. Thanks, Sachin.
Sachin Lawande: Thank you, Luke.
Operator: Our next call comes from Goldman Sachs.
Mark Delaney: I guess -- it's Mark Delaney, and thanks so much for taking my question. I guess to start hoping to better understand the second half EBITDA outlook. Jerome, if I heard correctly, you talked about a normalized EBITDA margin. If you adjusted for some of the one-time factors would have been more like 12%. I think second half revenue is pretty similar to first half and yet the EBITDA margin looks like it's implied to be in the mid-11% range. So, maybe talk about some of the factors impacting EBITDA in the second half of this year versus the first half? And how should we think about the second half EBITDA as a potential starting point to think about modeling 2025? Thanks.
Jerome Rouquet: Absolutely yes. Good morning, Mark. So let me maybe start by saying that we are very pleased with the way Q2 performance shaped out. We performed better than anticipated. And if you step back and look at essentially H1, we've been performing better than what we had anticipated even after normalizing for some of the commercial one-timers that I highlighted in my prepared remarks, which represented about 50 basis points of benefit to EBITDA margin in the quarter. So, to put things in perspective, we were planning to be slightly below our EBITDA margin midpoint of 11.8% for H1. And we've ended the first half with 12.2% at face value. And if you normalize that with the one-timers closer to 11.9%, so closer to the 12% that you were referring to. As we go into H2, we're expecting this level of performance to continue on flat sales as you said per our revised sales guidance. So what will be happening, we'll be slightly increasing our engineering and SG&A spending in H2 versus H1, but a little bit less than what we had originally anticipated. And this good performance will combine with as well the good cost control of our SG&A and engineering will allow us to raise our EBITDA percentage to 11.9% for the full year from that 11.8% that we had previously guided towards, so $465 million for the full year. When you look at it versus prior guidance, it's essentially a set of decrementals that are close to 10%, which we believe is a pretty good performance given the challenging environment we're in.
Mark Delaney: Got it. Thanks for all that color. Maybe a strategic question. There's been a lot of news out there OEMs looking to partner on electronic architecture or some of the big tech giants looking to maybe more with software. Maybe if you could talk a little bit more on some of those things. I guess the one I wanted to better understand was, specifically as you think about the digital electronics in the car, you had Apple (NASDAQ:AAPL) with the next version of CarPlay, you're looking to have more influence over the broader set of digital controls in the vehicle. I'm hoping to understand how that maybe impacting OEMs want to work with Visteon, maybe there's some opportunities for you, maybe some incremental challenges. If you could maybe talk about what you're seeing in regard as the digital electronics and the software ecosystem continues to evolve. Thanks.
Sachin Lawande: Sure. So first of all, I would say that all these new features and capabilities that CarPlay and other technologies bring, they're actually driving more content into the cockpit. And that's great for us, because that requires the OEMs to often redesign and reimplement some of these capabilities, because they were not conceived of at the time that they build their earlier generation systems. And more often than not, we see more of these technologies demand higher computing resources and power. You mentioned CarPlay, but one of the big topics that we see, that's going to impact the industry is AI and generative AI, in particular, coming into the cockpits of the future. Now that requires a significant level of uplift in terms of compute resources and therefore, the content and value that we can bring, but that's also going to be first entering into the space at a particular point in the market in terms of segmentation and probably not necessarily go across all of the vehicles on account of cost at least initially. So that -- all those things that are coming in for -- we look at them as a net positive for us. You also asked a question about this licensing of vehicle platforms. You probably are referring to the Rivian (NASDAQ:RIVN) VW deal. We look at those as essentially OEMs trying to figure out for the major term, how they can catch up to the state of the art in terms of the vehicle electrical architecture. It does not have as much to do with what I would call the top hat which is where we play. Now if you look at VW as an example, they have 15-plus brands in their portfolio. They cannot take an electrical vehicle architecture from anybody and just spread it across all 15 brands without any differentiation. Where does the differentiation come from? It comes from the kind of stuff that we provide, what the user sees inside the corporate. So the top hat we will be different by brand. And that's where we can help them build that differentiation. Now with all of the technologies that we talked about coming in it's not conceivable that any one OEM or even a Tier 1 makers can do all of those technologies themselves as a single company. Almost all of these in the future will require a collection of companies to come in to build these complex systems. OEMs will have to do their part, but so will have Tier 1s and other partners to step up and provide capabilities. And when you look at the Tier 1 space, I do not believe today there is anybody that's better positioned in Visteon in terms of all of the products and technologies that are required for the cockpits of today but also investing in the capabilities, especially things like AI and augmented reality that we think will be very key in cockpit of the future. So I think all of these things Mark is a very good thing. It underlines how important software and electronics is going to be for the industry.
Mark Delaney: Thanks so much for all those thoughts. I’ll pass it on.
Sachin Lawande: Thank you.
Operator: Our next call comes from Guggenheim.
Ron Jewsikow: Yes. Good morning It's Ron Jewsikow, Guggenheim. Sachin, Jerome, you highlight the $1.8 billion in year-to-date wins with Japanese and Indian OEMs. I guess we're particularly focused on the Japanese part but any color or even firm numbers on how that $1.8 billion compares to prior years? And I guess how big of an opportunity do you think this could be because traditionally it's a pretty high bar winning business versus the currency suppliers?
Sachin Lawande: Yes. No that's a great question. So if you look at – I will particularly focus on Toyota because of that group of OEMs they represent the biggest opportunity. Now as you know, Toyota has some very high profile, high volume vehicle brands the RAV4, Camry, Corolla represent these marquee brands that have very high volume. And until I would say about three years ago we had roughly maybe very small I would say single-digit million dollars of revenue with Toyota on some ancillary products but nothing in the cockpit. And our first launch with them was for the Corolla in China. And that was a regional product, limited volume. They were essentially testing our capabilities. The success of that launch allowed us to participate in the bidding for the bigger Camry clusters. And then there are two clusters that these products typically offer. They have a upper end and the mass market. And we were very pleased that we won the mass market a higher volume cluster product that we launched in the quarter that we talked about. So following that there are multiple, the regional launches as well as further more global program opportunities with Toyota, right? And Toyota represents over 10% of the overall production of vehicles. So – and yet today that's hardly even factors into our revenue list. So huge opportunity. And we see the same thing with the other guys that we talked about right Honda, Hyundai, Maruti, Suzuki. So that's where we are really putting a lot of our energies on. We were anticipating that the market in China is going to be a lot tougher given what's happening there and our energies are better focused and served on these OEMs and our products and technology is also fit where they see their vehicles go. So we're pretty happy with how it has turned out. And I should also mention I mean the Japanese OEMs in passenger car markets obviously is our biggest chunk of our revenue. But two-wheelers represent a huge opportunity as well. It has not been the focus so far because of mainly the nature of that product did not really allow for electronics with a lot of power consumption that came along with it. Now with that segment also turning to electrification, that's no longer the barrier and we can do a lot more with electronics and software than ever before.
Ron Jewsikow: Thanks for that. That's really helpful color. And then a follow-up question on the Chinese market broadly, certainly the local versus global mix issues in China are not a Visteon-exclusive issue to navigate. But I guess from our vantage point, it's pretty clear that global OEMs have a product issue in that market competing with I would say the more tech-forward Chinese local OEMs on things like displays and software. I guess my question is, these are things that I think Visteon can clearly help with. But what are your discussions like with the global OEMs about their plans in China to maybe drive more tech-forward offerings?
Sachin Lawande: No that's a great question. And let me try to explain, what we see happening today in the market in China. So it's clearly an earlier adopter market in terms of Tech and they are very keen on bringing latest and greatest technologies into the vehicles, at cost points that were considered prohibitively high, by the global OEMs. The global OEMs by definition have their sights set on the broader markets and some of the tech doesn't necessarily carry the same appeal in those regions, as it does in China which even from a consumer perspective is a lot more accepting of new tech than many other parts of the world. So the problem that everyone faces is, how do we differentiate and bring the right amount of tech for the various markets that is appropriate for those different regions? And that has been the challenge that they faced. And therefore they were a little late. But the global OEMs recognize this, just like we do. And they also recognize that they need help because their approach of building a vehicle for the globe doesn't really work in this kind of a market environment. So that's the first thing. Now what we see is that, in the long run it's very likely that the German and Japanese OEMs will figure out a way to get to that point. It might take them a little bit longer than we would all like. But they will get there. And our objective is to work very closely with them to work side by side and bring those types of solutions in China and different solutions for rest of the world. Now within China, with the domestic OEMs, we have been gradually increasing our portfolio of domestic OEM customers. And we've been very selective and careful about it. There are a lot of OEMs. We do not expect that most of them will actually be able to sustain their businesses through this very challenging time. But there will be some that have that sort of achieved that escape velocity. Geely clearly is one of them. The issue we are facing with Geely, I think is more of a temporary thing that is particular to the time that we are in with the domestic demand being a little soft, but we're also trying to expand to other OEMs domestic OEMs in the top five lists in China leveraging our technology capability. What we have to offer with respect to high-performance compute the AR -- the AI, that I talked about is probably going to be deployed in the market first in China, before it gets deployed anywhere else. And that's where we are investing and that's where we think we will be able to make some breakthroughs in the coming quarters.
Ron Jewsikow: Thanks. I appreciate the color. I will hop back in the queue.
Sachin Lawande: Thank you.
Operator: Our next caller is Bank of America.
John Babcock: Hey. This is John Babcock. I just wanted to ask I guess quickly yeah, I mean one of the things we're hearing obviously from EV OEMs is that they want to kind of keep costs under control. I mean Ford, has talked about this other OEMs have talked about it. Out of curiosity I mean are you getting sense that OEMs are starting to target electrification products as an opportunity to lower costs? Or what are you kind of experiencing on that front?
Sachin Lawande: Yeah. Great questions. And what we see is that the first generation of EVs -- okay they've all realized that they're not competitive to some of the Chinese competitors in terms of the cost. And a lot of it is actually cost that is coming through design. And so what we see is a lot more willingness on part of these OEMs to engage in discussions about how to lower the cost. Now there are certain requirements I would say that would necessitate a higher level of cost in say in US and Europe versus some of the Chinese vehicles, but the fact does remain that there is a cost disparity and that they will require updated designs with more modern technology, more integration to be able to achieve some sort of a parity with China. That's precisely what we see as our differentiation. And we don't want to be just one of the 10 suppliers that can do an OBC an onboard charger or a DC/DC converter. We want to be one of the few that can do a three in one, or four in one, or five in one type of a system. We started with BMS because that was kind of the most natural stepping stone for us given the similarity with what we did here at clusters mainly with ASB. But clearly where it needs to go to is more integrated solutions, more silicon-driven solutions. Now the hype has kind of cooled a little bit in terms of the growth expectations, but we all expect is to grow more steadily and it will be one of the powertrains of choice besides others. And we hope to have our fair share of that business as we go forward. I'm actually not too displeased with the fact that the industry is taking a little bit of time, because it wouldn't be -- we would not have been ready. And this time it really gives us the chance to take a step back and come up to speed on some of the tech through the activities that we have including the joint venture that we have with Shinry.
John Babcock: Okay. Thanks for that. And then also I mean one of the things I have noticed at least going to car shows and seeing what's out there in the market it seems like there are several OEMs that are perhaps lagging a little bit in terms of putting in larger displays and also even putting in more advanced technology. And I just want to get your view on what it's going to take some of these OEMs to adopt some of the larger more complex displays and technology?
Sachin Lawande: I think it's just a matter of time. I don't think it's the lack of desire. It's just an execution pace that some of these OEMs is much different than what we would like for sure. But we see it is going in that direction gradually. It is a matter of cost for some of them. They play in segments that in some cases cannot absorb fully the increased cost. And for those reasons we have also been very focused on driving greater vertical integration of those products. Displays today are very high priced on account of the cost that they take. And our approach has been to try to bring more of that content under Visteon control. So we can take some of the other tiers two, three, four suppliers out of the picture, and thereby, lower the total cost to the OEM represents still a very good opportunity for us. So we often talk about vertical integration as the term for many of those things whether there are modules with semiconductors or displays. The idea is to take more of that cost into Visteon's control, and thereby drive more affordability of those types of technologies. Without that, it will just remain at the upper layers of this vehicle market but we believe that the bigger opportunities are in the mass market segments.
John Babcock: Okay. Thanks.
Sachin Lawande: Thank you.
Operator: The next question comes from Dan Levy with Barclays.
Dan Levy: Hi. Good morning. Thank you for taking questions. I apologize if this has been asked already, I joined late. But maybe you can just talk to the impact of China not just beyond 2Q where we know is a drag there. But how much the weaker China outlook is being factored into the outlook for the remainder of the year? And then maybe if you could just talk about -- you still expect -- or you gave an update earlier in the year on low double-digit growth over market through 2026. Just given how we've seen China evolve and the continued pressures maybe you can talk about what offsets do you have there on the China front and the customer mix?
Sachin Lawande: Yeah why don't you start Jerome and then…
Jerome Rouquet: Yeah, let me maybe size first the adjustment to the guidance on the sales side. So we've upgraded -- downgraded, sorry, our sales guidance by about $200 million. About a third of that is coming from volume. We think that a little bit more than -- another third is coming from China and then a little bit less than the remaining would be -- a little bit less than a third comes from the EV mix that we see as well as the program delays that we've got with one customer. So that gives you an idea of the of the size of China about a little bit more than a third of our guidance revision on the sell side.
Sachin Lawande: Yes. So -- and to the question about if you look beyond 2024, what is the impact of China and the offsets. China, if you look at last year, domestic China was about 15% of our revenue, which has come down this year to I would say 11% 12% of our revenue. So, we have a couple of points of impact that we have to make up for. And yes there are offsets, especially on electrification, BMS as well as our cockpit products on EVs that we will have to get into more detail in terms of the vehicle build plans for 2025 and 2026. As you know even though there has been a lowered expectation of growth of production of those vehicles for regulatory reasons, OEMs have to continue to build our EVs, okay, without that, they will be facing very significant penalties which are going up with each passing year. So, we do expect growth. We'll have to figure out exactly what that represents that will offset some of the negative impact that we see in China. And then I mentioned our 2-wheelers and commercial vehicles perhaps, Dan, before you joined. So, we have been really focused on it the last couple of years. We have made good progress in winning business and launching products and that will also be a net positive. And then more perhaps for 2026, we are also looking at building our engineering services business. We have a very strong capability in software in automotive technologies both for the cockpit as well as for BMS and electrification. And we are able to now contemplate offering engineering services to support some of the software development plans of OEMs. So, those are some of the things that we see as positive that we will have to factor into what we will ultimately then come up for our midterm guidance.
Dan Levy: Great. Thank you. Just a follow-up and again I apologize if I missed this earlier. The -- one of your customers just gave some comments on a podcast about some of the challenges of transitioning to the software-defined vehicle because of sort of these widespread ECs and really the fact that there's just a proliferation of suppliers that each own their own ECUs and the challenge of getting through OTAs. And I think this gets to some of the other challenges we've seen for some of the other automakers in making the transition. What is the tone or tenor of the dialogue that you've had with customers on making this transition, knowing that there's this desire for the OEMs to own this but obviously them recognizing that they've had some of their own challenges in making the transition on owning -- apologizing if you've already talked to this.
Sachin Lawande: No, it's a great question. And I would say that if you were to go back two years, three years ago, there was a lot of talk about how OEMs would hire these mythical thousands of engineers to do their software themselves and build all of those technologies on their own. That tone has changed dramatically. Now, there is a sense of realism in that outlook. We understand that the problem is only getting bigger by every passing quarter. It's not getting smaller and their capabilities are far from being able to deal with it. So, what is clear from -- even some of the things that we have witnessed in terms of OEMs trying to license vehicle platforms from start-up OEMs, there's a clear indication that they cannot do it themselves. There's no reason to do it otherwise, right? And yet, those things are only a half step, because even if you license you're getting a snapshot at a point in time, while the industry keeps evolving. So we think that this problem cannot be easily dissolved especially for legacy traditional OEMs that have many brands different segments that they cover, it's not a simple thing as to say, let's build one software that will cover everybody because that's not realistic. So the problem isn't becoming smaller it's growing and that's what we see as our opportunity.
Dan Levy: Great. Thank you.
Operator: The last question comes from Wolfe Research.
Q – Shreyas Patil: Great. Thanks so much for taking my question. This is Shreyas Patil. Maybe just one. First of all, when I look at your bookings overall $3.1 billion so far for this year, on track to be over $6 billion for the full year. I look back over the last several years, even going back to 2017 2018 you've been booking at around $5 billion to $7 billion, a year. We tend to think about -- I tend to think that if you're consistently booking at that level, you should eventually get to that level of revenue. I understand volume has been less than expected in recent years. Obviously, we had COVID. But how do we interpret these bookings and what they mean for where revenue will go for Visteon in the coming years?
Sachin Lawande: Yes, Shreyas. I would say, that in general, again, the lots of details. But in general, that is the right way to think of it, right? But as you know, there have been a lot of changes somewhat disruptive including the latest what we are seeing in China, that does affect that linear sort of thinking about how the revenue should rise up to the booking level. The biggest impact, if you go back, actually has been the volume expectations, okay? So if you think about even 2019 to 2023, our customers' vehicle production and I'm not talking about outlook here I'm talking about actual, went down by 10%. So the 10% drop we had to know the makeup for and our revenues increased 30% over that period. So if you were to have even a flat line and mind you, we were actually in the bookings because that's what the customers gave us, the expectation was that there would be a steady 2% to 3% production growth, right? So if you really look at where we should have been versus where we were at over that four-year period it's a swing of almost 17% 18% in terms of production alone. Now if you were to add that to our 2023 revenue, we would have been closer to where we would have been if you were just to assume that -- of revenue growth. So the biggest impact has been LVP. And then there have been some other smaller impacts that have created a little bit of a headwind. Now, what's really good here at Visteon, is that we have been adapting to this market dynamics and finding opportunities for growth, whether it is looking at OEMs that have not been part of our top 10 list or the two-wheeler market or the commercial vehicle market and engineering services. So, we see plenty of pools where we can grow profitability in this time period. That to me, that's part of what we do. The market is the market. We have to react to it. And I think we have done a pretty good job of positioning the company for growth, even with all of the things that I mentioned.
Q – Shreyas Patil: Okay. That's helpful. And then maybe just Jerome, just a quick question on -- I believe you mentioned that the decrementals on the lower revenue is about 10%, which sounds quite low, but just maybe if you can help explain what some of the offsets are on that?
Jerome Rouquet: Yes, absolutely. Yes. So we've been performing better than anticipated in the first half. Q2 was a demonstration of that. So, we expect this performance to continue. That will obviously help the decrementals as we reduce our sales for the guidance. We also are helped by these commercial one-timers that represented about 50 basis points for Q2. So, the two combined as well as a little bit of a revision of our spending on SG&A and engineering as we go forward, will help us to get to 10% as opposed to have the 28% that we normally have.
Q – Shreyas Patil: Okay. Great. Thanks.
Jerome Rouquet: Thank you.
Sachin Lawande: Thanks, Shreyas
Ryan Wentling: This concludes our earnings call for the second quarter 2024. Thank you everyone for participating in today's call, and your ongoing interest in Visteon. Thank you.
Operator: This concludes Visteon's Second Quarter 2024 Results Earnings Call. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.