Conference Transcript - VC 2025-11-12

Luke Young, Analyst — Bayard

Okay, let's go ahead and kick it off here. Good morning. Thanks for joining us. My name is Luke Young. I cover vehicle tech and mobility for Bayard. My pleasure to introduce you today to Visteon, as you probably know. He's a technology leader in cockpit electronics for the automotive industry. We're happy to have Jerome Marquet with us, CFO of the company, for our discussion. Before we jump into Q&A, Jerome, you want to start us with some comments?

Jerome Rouquet, CFO

Thanks for having me Luke. Thanks for joining today. I'll give a quick introduction on Visteon for those who do not know the story. So as most of you know, the automotive industry is going through a lot of transformation these days. It's impacting the powertrain which is fragmenting as well as the cockpit and the cockpit is becoming more digital, more connected and a key way to differentiate OEMs between themselves. So that's where Visteon is playing. We're playing in the cockpit today and the cockpit of the future so if i look at what we are doing we are a cockpit electronic supplier and we are essentially designing manufacturing instrument clusters digital instrument clusters infotainment systems cdc which are a cockpit domain controllers we serve most of the oems globally we employ 10 000 people including 4 000 engineers which show the dedication that we have to technology despite the challenges that we've seen in the auto industry recently mostly related to EV volatility China changes in mix as well as some of the tariffs that have impacted some of us since the beginning of the year we've been pretty resilient as a company we have been able to increase margins year over year and had as well very strong cash flow generation throughout the year we also have very strong bookings which will be a great way going forward to resume growth in some areas mostly with new customers like toyota but as well in china where we've won recently a and i'll talk more about that high compute cdc system that is enabling ai and we are also diversifying our sales into two-wheelers as well as CV so a lot of things going on at Visteon from a growth potential standpoint from a balance sheet standpoint we are we've got a strong balance sheet and we have had a disciplined balance capital allocation investing in the business mostly in technology as well as pursuing some Bolton acquisitions and returning capital to shareholders. So that's a quick summary of who we are and what we're doing.

Luke Young, Analyst — Bayard

Okay, that's great. Why don't we start with the growth drivers? I want to talk about some of the product categories. Display certainly has been one of the great stories about 2025. Can you just talk about the line of sight to display growth in 2026 and beyond? Again, the fastest product category this year. Should we expect that to sustain into the future?

Jerome Rouquet, CFO

Yes, absolutely. Display has been a fantastic story. And it comes down to the decision that we've made a few years ago to invest and double down on displays as some of our peers were, in fact, exceeding that space. If you look at display, they are getting a great way to differentiate the cockpit for OEs. And they've grown as a result of that for us 25 percent year over year. Today, it's a 13% product line out of our total sales. We have won a lot of business recently, close to 5 billion in the last two years, and which represents close to 45% of our total business wins. We have 21 launches that have occurred between 24 and 25, and as a result of that, we'll see pretty nice growth in the years to come. We have high-profile launches like the OD panoramic display, the Renault Clio multi-display, or the Ford Puma center display. So a great product line for us. Vertically integrating as well keeps us competitive in that space. And that's, again, another reason for us being successful in displays.

Luke Young, Analyst — Bayard

Yeah, and it seems like CDC, that domain controller, is going to be a bigger opportunity for the company into the future. Can we talk about some of the key launches and maybe just how meaningful of a growth driver it could be into the next couple years?

Jerome Rouquet, CFO

It's after display, I would say CDC is our next product line, which is poised to grow quite substantially in the next coming years. And if you step back, we do have today a fairly diversified portfolio from a CDC standpoint. CDC represents about 11% of our total sales. We have customers like Mercedes in Europe, Jilly in China, Mahindra in India, as well as two-wheeler and CV customers like Harley-Davidson and Trayton. So a very balanced portfolio. As we look into 2006 and forward, we have very high-profile launches coming up with two HPC CDC, high-performance compute CDC, that we won recently in China. We are launching them in the second half of 2026 with Jilly and with Cherry. And we won this, Jilly was won last year, Cherry was won this quarter or this past quarter. And we are launching in the second half of next year. So that will give us a fantastic growth trajectory, especially in China. And we'll see some further ramp up in 27 and 28. We also have three other launches that are coming up in 27. Two European customers as well as one CV customer in 27. And therefore, the growth will accelerate in 28, 29. So display, the growth will start in 26 and then accelerate 27, 28. For CDC, it will be more end of 26, accelerating in 27, 28.

Luke Young, Analyst — Bayard

I think people are pretty familiar with kind of what has been the story in terms of cluster. And with the transition to digital cluster, there was a content lift there. Should we think that there's a similar opportunity with CDC? You mentioned that some of these high compute awards especially are fairly rich in content.

Jerome Rouquet, CFO

They are. In fact, the two systems that we won recently, which we call high-performance compute CDC systems, are AI-enabled. So with this kind of system, you have the latest processing chips. You also have a pretty complex system. So in terms of ASP, we're talking about three to five times the price of a normal CDC. So you're well over $1,000 in content in the car. So that is definitely an area that will allow us to improve and increase the content as we go forward. And I would say generally AI as well, outside of China, will ultimately be a content improvement, absolutely.

Luke Young, Analyst — Bayard

So you mentioned the relationship with Toyota. Can we just double-click on that? Certainly display is an important part of that story. I think you've given us some figures on the path to that higher mix in a few years. Maybe if you could just double-click on the launch cadence there specifically.

Jerome Rouquet, CFO

Yeah, so we started our relationship with Toyota in early 2020, and this relationship has been expanding since then. We've launched two programs this year, and we have another five programs that will be launching in 26, and then another seven in 27. So we will see an acceleration of that growth with Toyota. We are planning to have Toyota representing a top three customer going forward in 28, probably representing something like close to 10% of our total sales. And if you look at the opportunity that we still have with Toyota, the way to think about it is to look at Ford. Ford for us is a major customer, 25% of our sales, and yet Ford represents only a third of the Toyota volumes. So there is definitely tremendous opportunity to grow within Toyota. We have today, or let's say the businesses that we own with Toyota are mostly indexed on clusters, and the businesses that we own with Lexus are mostly indexed on display. So you have still tremendous opportunities to have further product line expansion within each brand. We also do not have some of the high volume programs with Toyota like the RAV4, which would be a fantastic program to get. So Toyota has been a good story. It's growing and will be growing quite substantially throughout 28. And we do think there is further potential to expand with this customer.

Luke Young, Analyst — Bayard

We'll stay tuned there. I wonder if we can maybe talk about Asia more broadly as a region as well. I mean, it seems like there ought to be supply chain benefits of building up that scale position with Toyota. How can you leverage that with other folks in Asia? And maybe if we could look at India as a specific opportunity as well.

Jerome Rouquet, CFO

Yes, absolutely. Asia generally has been a great opportunity for us. And it will be a great opportunity for us to grow going forward. Beyond Toyota, we are focusing on customers like Maruti Suzuki, which represents about 40-45% of the India market. We are focusing on Hyundai Kia, as well as on Honda. So these four customers represent today about 25% of the total car production in the world, and our sales with them are today less than 5%. So tremendous amount of growth in Asia as a result of this focus. two-wheeler as well, and that's mostly India, but as well Japan will be a good growth opportunity for us as we are tapping more into that market, which is becoming similar to the car, very much digitalized, connected, and I'm not sure about AI yet on the two-wheelers, but that's definitely a market that is growing for us. So Asia with these customers, these segments will grow And it's going to be largely us resuming growth in China as well as continuing growing in India.

Luke Young, Analyst — Bayard

Speaking of China, I mean, certainly that's been one of the challenges for the industry broadly, the customer mix change in China and for Vistion as well. How confident are you that China is at a bottom right now? How do you think about sort of the risks and opportunities into next year? And do you feel differently today about China than you did even, say, six or 12 months ago?

Jerome Rouquet, CFO

Yes, we think we have turned the corner with China, and we've had headwinds in the last three years, similar to what other peers have seen, largely because of the mixed change. For us, China today represents about 8% of our sales. We have between now and the end of Q4, as well as the end of 26, close to 20 launches that will happen in China. The two highest profile ones are the ones I talked about, which are Geely and Cherry, with HPC CDC systems that are enabling AI in the car. And they'll be launching in the second half of 2026, growing into 27 and 28. Beyond that, we also have some launches with international OEs, mostly the Germans and the Japanese. and we have a few product launches like CDC's displays and clusters that will help us as well in 26 and 27 to grow in in China what is interesting as well is that a lot of our growth in China is going to be on the D and the E segment which is a segment where that is expected to grow per industry expectations into next year unlike the lower level segments where we are less indexed so we see a good dynamic as well from that standpoint overall China will grow there will be some seasonality as you know Q1 tends to be a little depressed versus Q4 in general but overall we are confident that we've turned a

Luke Young, Analyst — Bayard

corner in China so a very different picture. What about what you can control internally in terms of Certainly moving at China speed is something that I think the investment community has gotten a lot more familiar with. As I think about Visteon, it's really a two-pronged proposition. It's the hardware side and it's the software side. Can you kind of speak to where we are right now on both of those?

Jerome Rouquet, CFO

Speed is a critical factor as you win. But not only this, you need to have the right technology in China and the right cost structure. So the fact that we've worn these two HPC CDC system in the last few quarters is for me a testament of our capabilities. And if you think about it, these capabilities on CDC started with our platform approach a few years ago. And we've been able to leverage that. We're able to compete in China. We're recognized as a very serious competitor. and it's largely due to that platform approach that allows us to be very well into very well positioned from a technology standpoint as well as having the right cost structure as well as the right quality. So that's the reason these are the reasons why we were able to win these two systems. If you look as well at Visteon and our CDC story generally we were if you remember We were the first ones to offer a cdc back in 2018 when mercedes will be the first one now to launch two cdc systems that are hbc with ai enabled so again we are at the forefront of innovation when it relates to

Luke Young, Analyst — Bayard

cdc what about working with local oems outside of china it's something that's been sort of discussion here in the industry the last couple years It feels like it's maybe becoming more real. What are your thoughts there?

Jerome Rouquet, CFO

We had our first win in Q1 with Cherry. In fact, Cherry was not even a customer in China, and we were able to offer them a competitive offer in terms of technology, price, and quality in Europe. So we see us being very well positioned to offer the right structure for Chinese OEMs to go into Europe, go into as well South and Central America. We offer a very regional footprint. Most of our plants have got pretty high technology levels with vertical integration as well. So we're able to offer them, if I can say, the full package, still at the Chinese speed, which is important, given that the launch's cadence are pretty short in most of the cases.

Luke Young, Analyst — Bayard

Let's switch to your investment posture. I guess, you know, you mentioned some of the investments in displays that you've made. But how should we think about where you're looking to incrementally press the advantage in cockpit electronics over the next couple of years?

Jerome Rouquet, CFO

Yeah, display, as we've discussed, has been a great story. and we see a path forward to continue to grow in this area. CDC has been really the area we've been focused on in the last few quarters, in the last few years. I think the major change in the CDC space is going to be the fact that AI will come in and we see that already as a reality in China where we have, again, these two launches that are coming up next year. VST01 has invested heavily in the last few quarters on AI technology. We've presented at CES our Cognito AI system, which essentially facilitates the interaction that the car driver or the passengers will have in the car. As opposed to have a reactive car, you'll have an interactive car, an interactive cockpit going forward. So that's where we see a lot of development going forward. It's happening in China next year with these two first systems. And we've been in contact with OEMs in Europe and the Americas. And it's going slower, but we are hopeful that there will be some movement at some time in the future.

Luke Young, Analyst — Bayard

What about competition for RFQs? As you mentioned, the awards have been really strong this year. I mean, there's been certainly some turbulence at some of your competitors. Do you think that's playing a role just in terms of relative investment capabilities across the industry?

Jerome Rouquet, CFO

We had a very strong year-to-date September. We are on track to have more than $7 billion in new business wins. It's been mostly thanks to displays. I must say 50% of our wins have been with displays. And I think what's happening with some of the OEs, they are taking time to rethink their architecture, but at the same time don't have the luxury to wait on the cockpit side. So that gives us a tremendous advantage, especially on display, where we can differentiate their offering with specific size, specific shapes. And again, the fact that we have invested heavily on display has played to our advantage. So again, differentiating is the key for OEs. And as much as some content has been a little bit de-emphasized in some of the areas of the car, We think that the cockpit remains very content driven and we'll probably see further increases as we go forward.

Luke Young, Analyst — Bayard

So if we pull that together, I mean, award strength, like you said, not only has it been strong this year, but that trend has been growing. If we look at Capital Electronics specifically over the last five years or so, you know, we've talked through some of these launch cadences through 2028. If we put a marker out kind of three to five years from now, either in dollar terms or sort of guardrails for outgrowth, what would you suggest folks should be thinking about as a reasonable target?

Jerome Rouquet, CFO

So we'll give more detail, obviously, at our Q4 earnings call. We'll get guidance going forward. But what I can say at this point is that we are expecting to have growth over market. That's one of the key indicators that we are following in the mid-single digits. as we go forward with potential acceleration as we go towards the end of the decade. So as we've talked about during our Q3 earnings call, there's a lot of things to like about 27, but I think there's even more about 27 and 28. So we'll see some acceleration as we go forward, thanks to these wins, which are, I would say, if I summarize, growing again in China, growing with underrepresented customers today, Toyota, Marotis, Suzuki, Honda, Hyundai, Kia, as well as expanding in areas like Civic and Tudelos. We are also, mostly through acquisition, but we are planning to organically grow, going forward, on the engineering service side.

Luke Young, Analyst — Bayard

Let's shift to the macro supply chain, certainly in the area of impact through three key reporting, whether it be JLR, the Nouvelle's related impacts, Ford, who as we know is a major customer in Xperia as well, maybe if you could just update us quickly on each of those things as you said right now.

Jerome Rouquet, CFO

Yes, so we've talked about a 30 to 40 million dollar impact going into the second half, related for us to JLR and the Ford supply issue, aluminum supply issue. JLR is about $25 million of a headroom for us, 50% in Q3, 50% in Q4. We saw obviously no production in September, and JLR has resumed production in mid-October. It looks like it's on track, so not much to add on this side. On the Ford aluminum issue, we highlighted during our earnings call that Ford would impact us to the tune of $5 to $15 million. And it was predicated at the time on about 20,000 to 50,000 cars being impacted at the Ford plant level. Since then, Ford has come up with official numbers, and they've talked about 90 to 100K in terms of production's impact. And therefore, our impact is going to be probably another 10 million higher versus what we had talked about during our earnings call. In terms of Nexperia, I think everybody is following very closely the news. It looks reasonably positive. There's been some favorable development on that side. So we are hopeful that things will get resolved. We still see this as a risk as supply chain has been challenged in the last few weeks. And therefore, there still may be some disruptions. We've heard a few OEs, like Honda, for example, being severely impacted. So we need to stay tuned on that topic.

Luke Young, Analyst — Bayard

We'll stay tuned there. So you think, obviously, we'll wait for the 4Q report in terms of specific guidance, but 2025 year, just from an industry backdrop, I think the trend has been less bad, generally speaking. As you look into next year, what do you see as sort of the glass half full, glass half empty elements, and do you care that much about vehicle mix into next year?

Jerome Rouquet, CFO

We do. And in fact, we are still waiting to see how S&P will revise their numbers given some of the disruptions that we are seeing in Q4. So it's a little too early probably to give some numbers for the global production as we go into next year. Today, SMP is planning a 3% to 4% negative vehicle production for Visteon, but as I said, we'll have to see how that evolves. We are more focused, I would say, in the near term on growth of a market, and that's where we'll be focusing our efforts.

Luke Young, Analyst — Bayard

I want to talk about the margin story. I mean, certainly it's been one of the really important components of the Visteon story, not just this year, but over the past several years. One of the pieces there has been operating costs and product costs. It seems like there's an evolution where there's maybe some product cost opportunities in the next few years. Just how should we size that opportunity? And one of the things that you're really focused on incrementally.

Jerome Rouquet, CFO

So my view is that there are no silver bullets. But it's true that in the early days, after 19, we started to focus very much so on our fixed cost structure. So by that I mean SG&A engineering cost as well as manufacturing cost. And that has given fantastic results. We were able to grow our margins from 19 to 2025, from 7.9% to almost 13%, 12.5% if you normalize with one-timer. So that cost structure, rationalization has been a very good thing for us. We've been in the last few years, maybe in the last two years, increasing our focus on product costing. And that is what has sparkled our initiatives on vertical integration as a way to bring more value in-house as well as control the technology that we are playing in. So there's more to come on this side. We are still in the early stages of vertical integration. We are talking about more bonding on the display side. We are looking at backlight unit integration as well. We are looking at more magnesium injection, which are the frames that are being used to be able to hold the displays, which are getting larger and larger. So, therefore, having magnesium is critical. So, a lot of initiatives are going on in this field, as well as purchasing initiatives. So we still think there are margin points to gain as we go forward.

Luke Young, Analyst — Bayard

You mentioned the margin this year, excluding those one-time customer recoveries. They've been, I guess I term them recurring, non-recurring recoveries in the sense that we've seen them, I think, every quarter this year. Maybe not so much on the recoveries themselves, but I'd be curious if you could speak to sort of the organizational structure that's giving rise to this. Because I think it maybe speaks to the finance organization that you've built.

Jerome Rouquet, CFO

Yes, I think it's been a cross-team effort. I would say on the front line, the sales team is definitely the one that has done a fantastic job on this side. They've been able to get new business wins as well as recover from customers. So it's a fine balance, obviously, that has got to be managed. But it's one of the key strengths, I think, of Visteon. We are very disciplined commercially as well as operationally. And that pays off.

Luke Young, Analyst — Bayard

Yeah. What about AI? Are you using AI internally at all? Or could that be a future opportunity?

Jerome Rouquet, CFO

Absolutely, yes. So it's obviously top of mind in our products. But as an organization as well, AI is everywhere now as we go forward. One very important area we are focusing on is engineering. cost structure was one key driver for improving our engineering structure cost structure we've spent a lot of time on platform and now are moving more into productivity with automation and AI making sure that codes are supported by AI it helps defect triage for example and can help us being more more efficient So still early days on that topic, but we are making good progress. And we think that will be a fantastic opportunity as well.

Luke Young, Analyst — Bayard

Leslie, capital allocations, I think you mentioned this. I just want to put a finer point on it. You've done a few of these, I guess you call them engineering services, acquisitions, should we expect any more of those? Or is now the focus going to shift to more of an organic focus?

Jerome Rouquet, CFO

Right, we've done two acquisitions. one last year, one this year, and they've been quite successful. They are engineering services companies, and we are planning to grow them organically from there. They have, in most cases, two or three customers, and if we can expand their customer base with our relationships, we should be able to grow. At the same time, we're continuing to look for further acquisitions, not only in the engineering service field, but as well in any other area that could be accretive from a technology standpoint in the cockpit.

Luke Young, Analyst — Bayard

Last question, just share repurchase. I think you've got a $300 million program

Jerome Rouquet, CFO

that you're executing right now. We have. We've hinted in Q3 that we would be buying between 20 and 30 million worth of shares in Q4. and we're on track for this quarter. So we'll keep on this side.

Luke Young, Analyst — Bayard

Okay, well, we're out of time, unfortunately, so we'll leave it there. Jerome, really appreciate the presentation this morning. Thank you very much, Luke. Thank you.