Visteon Corporation Q2 FY2025 earnings call

• Net sales of $969 million were higher than anticipated, driven by strong demand for digital cockpit products. • Adjusted EBITDA was $134 million with a margin of 13.8% and adjusted free cash flow was $67 million. • Reinstated and increased guidance for full year. • Launched 21 new products in the quarter. • Made progress on vertical integration initiatives, including in-sourcing pixel molding capability and display backlight unit. • Completed acquisition of an engineering services company in Germany. • Initiated a quarterly dividend starting in Q3.

Net sales were $969 million. Adjusted EBITDA was $134 million with a margin of 13.8% and adjusted free cash flow was $67 million. In Americas, growth in cockpit electronics sales partially offset decline in BMS sales, resulting in 4 percentage point underperformance vs customer vehicle production. In Europe, sales up year-over-year driven by new product launches, outperforming vehicle production by 8 percentage points. In rest of Asia (excluding China), sales continued momentum with 8 percentage point growth over market. In China, sales down year-over-year but sequentially higher, representing a drag on global growth over market, expected to modestly increase in second half.

• Reinstated and increased guidance for full year, with sales guidance range $3.7 billion to $3.85 billion, adjusted EBITDA between $475 million to $505 million, and adjusted free cash flow between $195 million to $225 million. • Anticipates lower customer production volumes in second half, but new product launches, contributions from M&A, and favorable currency offset some decline. • Growth over market expected to be mid-single digits for full year, slightly below original expectations due to lower BMS sales in China. • Midpoint of guidance assumes no change in tariff policy, with USMCA-compliant goods remaining exempt from tariffs.

• Uncertainty related to tariff policy changes, which could impact costs if not passed on to customers timely. • Market share shift towards domestic OEMs in China, affecting sales. • Potential impact of phaseout of EV tax credit by end of September on BMS sales and overall EV demand.

Q: Congrats on the quarter. Another quarter of very strong bookings. It looks like you're gaining market share. I was hoping you could talk about, a, the drivers behind Visteon's recent market share gains and b, what these strong bookings do to kind of your longer-term growth expectations beyond the 5% previously guided for from 2025 through 2027?

A: Yes, in fact, we're very happy about how the new business bookings have performed. And if you look at our Q2 performance, it was very similar to Q1, driven mostly by displays and also clusters. And what it does is really reflects the transformation that's ongoing in the industry with the revised outlook for EVs outside of China. In China, as you know, EVs continue to grow and more importantly for us, our interest in AI-driven infotainment and autonomous driving is growing, which is our focus in that region. So what this transformation is doing, however, in the regions outside of China, it's causing OEMs to shift their focus to extend existing platforms and refresh them and displays are a great way to enable them to offer more value-added and innovative experiences inside the vehicles. And as we have also mentioned earlier, the investments we have been making in displays is really setting us apart from our competitors in terms of the depth and the scale of our capabilities, which I won't repeat here. But I would like to also say that we should look at our new business win performance over a multiyear period. I think it's actually quite useful to think about how it has evolved. If you go back a couple of years to 2023, they were actually driven by SmartCore and CDC and infotainment wins. Now that ratio at the time -- I should say, at the time in 2023, displays were actually a small portion of our new business wins. That ratio became a little more even in 2024. And we are still in the process of implementing the infotainment and CDC programs that we won then. And this year, our displays is taking the lead. But we fully expect as we go forward to see more of a balancing to happen, especially with the interest that's growing in higher-performance CDC systems with AI coming into the cockpit, which is creating this need for high-performance compute, which we clearly see happen now in China, but we expect it to also catch momentum outside of China soon. Now in terms of the long-term impact of this, clearly, this is helping greatly in terms of driving the sales and especially in cockpit electronics. So we feel good about many of the initiatives that we had outlined as key to our -- achieving our 2027 targets. That includes the progress that we are making with the targeted growth automakers, especially in Asia, progress on 2-wheelers and commercial vehicles as well, which has also have done well. And if you look at our first half performance, about close to 20% of our wins has been in commercial vehicles and 2-wheeler markets. So that's very encouraging. So that's all very good, and it's going to help us in our achieving that long-term target. The one thing I would like to highlight, however, which we need to understand how that's going to play out, is BMS. And so we'll need to see how GM, in particular, will react to this market changes, including the phaseout of the tax credit. We think that EVs continue to have interest from consumers. So I do not prescribe to the notion that EVs are necessarily going away. But we'll need to see how and what it does in the near term, and we'll be in a better position to comment on our long-term outlook later this year as we get more insights into that part of it.

Q: With today's capital allocation announcement, can you just remind us how you're thinking about targeted net cash and future leverage, particularly with the business outlook improving?

A: Yes. No, thanks, Itay. Generally, we have given a $100 million net cash position as kind of our minimum target for net cash. And as you know, today, we are well in excess of this. So that is not the only reason, but one of the reasons why we feel very confident with initiating a dividend. We've been constantly generating good EBITDA as well as strong cash flows in the last few quarters and years, in fact, and we expect this to continue. So that's really a testament of the strong cash flow generation. We have still $125 million authorized on our $20 million share repurchase authorization, and we'll be reactivating this quarter on top of initiating the dividends.