Visteon Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2025

Key Takeaways

  • Positive Sentiment: Visteon reported Q2 net sales of $969 million, beating expectations on robust demand for digital cockpit products in North America and Europe.
  • Positive Sentiment: Adjusted EBITDA was $134 million (13.8% margin) and free cash flow was $67 million, leading management to raise full-year guidance and initiate a $0.275 quarterly dividend from Q3.
  • Positive Sentiment: The company won $2 billion in new business during the quarter, bringing YTD bookings to nearly $4 billion, and launched 21 new products including marquee OLED and panoramic displays.
  • Positive Sentiment: Tariff risk remains low as 97% of Mexico-to-U.S. shipments are USMCA-compliant, insulating Visteon from the 25% auto-parts duties.
  • Negative Sentiment: Battery management system sales declined year-over-year due to high 2024 comparables and U.S. EV market dynamics, though sequential growth and plans to expand into power electronics aim to mitigate this headwind.
AI Generated. May Contain Errors.
Earnings Conference Call
Visteon Q2 2025
00:00 / 00:00

There are 5 speakers on the call.

Speaker 2

Thank you for standing by. My name is Greg and I will be your conference operator today. At this time I would like to welcome everyone to Visteon second quarter 2025 results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you'd like to withdraw your question, press R1 again.

Operator

Thank you.

Speaker 2

I would now like to turn the call over to Kris Doyle, Vice President of Investor Relations and FP&A. Kris, good morning.

Speaker 4

I'm Kris Doyle, Vice President of Investor Relations and FP&A. Welcome to our earnings call for the second quarter of 2025. Before we begin this morning's call, I'd like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled Forward Looking Information in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website. You can download them at investors.visteon.com if you haven't already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.

Speaker 4

We scheduled the call for one hour and we'll open the lines for questions after Sachin's and Jerome's prepared remarks. Please limit your participation to one question and one follow-up. Thank you again for joining us. Now I'll turn the call over to Sachin.

Operator

Thank you, Chris, and good morning, everyone. Thank you for joining our second quarter 2025 earnings call. Visteon delivered another quarter of strong operating and financial performance, demonstrating the strength of our business while continuing to execute on our long-term strategy. Net sales of $969 million came in higher than we had anticipated at the beginning of the quarter, driven by strong demand for our digital cockpit products, particularly in North America and Europe. Despite the robust sales performance, lower BMS sales in the U.S. and the ongoing market dynamics in China resulted in sales slightly underperforming customer vehicle production. This trend is expected to reverse in Q3 and for the second half, driven by new product launches and improving comms. Adjusted EBITDA was $134 million, representing a margin of 13.8%, and adjusted free cash flow was $67 million for the quarter.

Operator

As a result of our strong first half and outlook for the remainder of the year, we are reinstating and increasing guidance for the full year. Operationally, the company performed very well, launching 21 new products, expanding profit margins through various productivity measures, and winning $2 billion in new business in the quarter. We continue to invest in the business both organically and inorganically while returning capital to shareholders. We closed another bolt-on engineering services acquisition, a second in the past 12 months. In addition, we are initiating a quarterly dividend starting in Q3, highlighting our confidence in generating free cash flow and our commitment to returning capital to shareholders. Turning to page three, our Q2 sales came in better than we had anticipated at the time of our first quarter earnings call earlier this year, despite the tariffs that went into effect in April and May of this year.

Operator

To recap the tariff situation, in early April a 25% tariff went into effect for all vehicles being imported into the U.S. In addition, starting in early May, the 25% tariff for all non-USMCA compliant auto parts went into effect while USMCA compliant parts remained exempt. For Visteon, virtually all goods that we ship from Mexico to the U.S. are USMCA compliant, and our direct exposure to tariffs under the current tariff structure is very low. In Q2, vehicle production schedules in North America remained stable and were not materially impacted by the tariffs for Visteon. Sales of cockpit electronics products in Americas was strong in Q2.

Operator

We benefited from the ramp up of several recently launched products, including clusters and displays on Ford vehicles such as the Bronco, Maverick, and Explorer, infotainment systems on VW Jetta and Polo, and a large display on the Murano SUV with Nissan Battery Management System. Sales came in lower than anticipated but grew sequentially from the first quarter. GM is our largest customer for BMS, and despite the general slowdown of EV sales in the U.S., they had a strong quarter. However, on a year-over-year basis, our BMS sales are lower in Q2 as GM and Stellantis are two customers for BMS in the U.S. ramping up battery manufacturing in 2024. Q2 of last year was the highest quarter in terms of BMS sales to GM, which makes the year-over-year comparison difficult for this quarter.

Operator

Overall, in Americas, the growth in cockpit electronics sales partially offset the decline in BMS sales on a year-over-year basis, resulting in a 0.4 percentage point underperformance relative to customer vehicle production. In Europe, Visteon sales were up year-over-year, driven by new product launches. Despite a reduction in vehicle production, electric vehicles performed well in Europe in Q2 with introduction of affordable hybrid and EV models by carmakers, and Visteon has cockpit electronics content on some that are doing well in the market. Key programs for Visteon in Q2 include displays and digital clusters on the R4 and R5 EVs from Renault, digital clusters on the Duster and Bigster vehicles with Dacia that come in ICE and hybrid versions, and digital cluster and audio system on the popular Ford Transit that offers ICE, hybrid, and all-electric powertrains.

Operator

Our sales in Europe also benefited from R&D services offered to carmakers through our recent acquisitions. While these services revenues currently are relatively small, we plan to expand our services engagement with additional automakers in Europe in the future. Overall, our sales outperformed vehicle production by 8% in Europe in the second quarter. In rest of Asia excluding China, we made good progress in Q2 on our strategic initiatives and of growing sales with targeted carmakers such as Toyota, Hyundai, Mahindra, and Mitsubishi, and with select two-wheeler manufacturers such as Honda and Royal Enfield. Overall, our sales continued the momentum from the first quarter with a growth over market of 8%. In China, our Q2 sales were down year over year primarily due to the ongoing market share shift towards domestic OEMs that we have previously discussed.

Operator

However, I'm pleased to note that sequentially our Q2 sales were higher than Q1 with higher sales on vehicles such as the new Buick GL8 with GM and the Toyota Corolla. We are in the middle of a product transition with Geely, our largest customer in China, replacing an earlier generation cockpit domain controller with a new and more powerful system that's also priced higher. That helped our sales in Q2. Overall, China represented a significant drag on our global growth over market, lowering it by 5% in Q2. We anticipate second half sales in China to modestly increase compared to the first half, driven by new product launches combined with easier comps. We expect growth over market to improve and be less of a headwind in the second half.

Operator

In summary, Q2 was a strong quarter for sales with our cockpit electronics products performing well and partially offsetting the anticipated decline in BMS revenues. Turning to page four, we had a very strong quarter of new business bookings with $2 billion of new business won in the quarter, bringing the year to date total to just under $4 billion through the first half of the year. This performance plus our pipeline for the second half of the year gives us confidence that we will exceed our $6 billion target for new business wins for the full year. Carmakers are extending existing vehicle platforms with hybrid and electric powertrain vehicles and delaying development of all new electric vehicle platforms.

Operator

Offering larger and a greater number of displays in the cockpit is an attractive option to upgrade and refresh these vehicles, which is driving more opportunities for Visteon for displays and digital clusters. The right hand side of the page highlights some of the key wins in the quarter. We won a 48 inch pillar to pillar OLED display with a leading German luxury automaker for their new hybrid and battery electric vehicles with first launch in 2028. This display will feature in all of the top selling sedans and SUVs from this carmaker. The next win is for a 16 inch display and digital cluster with Hyundai for the vehicles in India. Our localization efforts and investments in India was a key reason we were able to secure this business. We won a 5 inch digital cluster product with Honda for the two wheeler market.

Operator

This large program, representing about $400 million in lifetime revenue, establishes Visteon as a leading supplier to Honda in this segment of the market. The last win highlighted is for a cockpit domain controller for Traton, a leading commercial vehicle manufacturer. We are an existing supplier to Traton for our SmartCore product, and this win represents the next generation of the product, which will go across the customer's new vehicle architecture. The significant win represents about $350 million in lifetime revenue and will help build the foundation of a growing commercial vehicle business. Turning to page five, the second quarter was also strong in terms of new product launches. We launched 21 new products in the quarter with multiple automakers, including four products with commercial vehicle and two-wheeler manufacturers. This page highlights some of the key launches, illustrating the diversity of launch activity across powertrains, products, and vehicle markets.

Operator

We launched a digital cluster with Connected Services with Royal Enfield, a leading motorcycle manufacturer in India, and a SmartCore and digital cluster program with Volvo in their construction vehicles and heavy-duty trucks. We also launched new SmartCore products with Volvo and Polestar, two brands that are part of Geely. Finally, we launched a 25-inch panoramic display with Audi on the new Q3 vehicle, our first business with this carmaker. Audi has completely redesigned the vehicle with the focus on the cockpit anchored by Visteon's advanced display product. The panoramic display creates an immersive experience for the driver and was featured prominently in the market introduction of the vehicle. Turning to page six, we remain focused on executing our strategy, which is centered around offering products that are well aligned with key industry trends, supported by one of the best cost structures in the industry.

Operator

This approach has enabled us to successfully navigate the evolving industry trends and position the company for growth. In parallel, we seek to balance the allocation of capital to initiatives that strengthen our execution capabilities and returning capital to shareholders. In Q2, we made significant progress on our long-term strategic priorities. With the car becoming increasingly software-defined, displays are a key part of the user experience. We have been investing to develop deep expertise in automotive display design and manufacturing for the past several years, and these investments are continuing to pay off. In Q2, our display sales were up about 20% over prior year as we launched several new display products, including the panoramic display for the new Audi Q3 that I discussed previously.

Operator

The win of a large pillar-to-pillar display business with a leading luxury OEM, the biggest of its kind for OLED displays in the industry, reinforces our strong position in the industry. Commercial vehicles, including heavy duty trucks, buses, and even construction equipment as well as two wheelers, are converging on the same trends that passenger cars have been going through for some time. These adjacent transportation markets are an attractive growth opportunity for Visteon, and in Q2 we won about $750 million in new business for SmartCore and digital cluster products. We anticipate that these two markets could represent as much as 10% of our sales by the end of this decade, up from about 4% today. As noted previously, Asian automakers such as Toyota, Hyundai, Honda, and Maruti Suzuki represent an exciting growth opportunity for Visteon.

Operator

In Q2, we secured key new business with Hyundai and Honda that builds upon the good progress we have made with Toyota and Maruti Suzuki that was reported previously. A 5-inch digital cluster win with Honda for two wheelers is particularly interesting as it's a large size display for that market. As the global leader in two wheelers, Honda is the technology trendsetter in that industry, and this product will likely spur other two wheeler manufacturers to follow, creating additional opportunities for Visteon. We also made progress on several vertical integration initiatives. We continue to bring key display-related capabilities in house. Large displays require large metal frames to provide structural support that adds significant weight and cost to the overall product. We use a lightweight metal alloy that is injection molded using a special high temperature process called pixel molding to create this frame.

Operator

In Q2, we made progress in insourcing pixel molding capability at plants in Mexico and Tunisia. To our knowledge, we are the only supplier that has this capability in house, which not only saves cost but also de-risks the supply chain from China dependency. We also made good progress on the insourcing of display backlight unit, which is a key electronics component of displays. Together with optical bonding and pixel molding, we are successively bringing more of the display manufacturing process in house. Lastly, we completed the acquisition of an engineering services company with about 250 people in Germany that specializes in automotive user interface design as a service to car manufacturers. With the trend of large displays and the anticipated introduction of Gen AI in the cockpit, user interface design in cars will likely require a complete reboot.

Operator

This acquisition positions Visteon to engage with carmakers early during the concept phase of new cockpit UI designs. This is our second acquisition of an engineering services company in the past 12 months. The first acquisition is also a similar sized company focused on vehicle connectivity and E mobility technologies. Our objective with these acquisitions is to move up the value chain and engage early with our customers for next generation technologies. It also offers the potential to drive meaningful sales and profit contribution as we expand the services offering across our customer portfolio. Turning to page seven, I would like to provide an update on our outlook for the year. On our Q1 earnings call, we elected not to reaffirm guidance due to the potential risk of disruption to vehicle production due to tariffs.

Operator

A quarter later, the risk to our original full year outlook has reduced even if it's not mitigated altogether. Our strong Q2 and first half performance, coupled with customer demand visibility, especially for Q3, puts us in a position to reinstate guidance and increase the midpoint for all three financial metrics of sales, adjusted EBITDA, and adjusted free cash flow for the full year. Our outlook for customer vehicle production for the second half is based largely on S&P Global's latest forecast, with some modifications based on customer input. S&P Global is forecasting vehicle production to be down 5% for the second half, both sequentially and year over year. Compared to our original guidance, second half customer production has worsened slightly. It should be noted that in our guidance we are assuming that the perif status remains unchanged, including that all USMCA compliant parts remain completely exempt from tariffs.

Operator

Compared to our original guidance, our outlook is benefiting from favorable currency and the contribution from our recent engineering services acquisitions, partially offset by BMS. We have assumed lower BMS revenues due to potential lower consumer demand from the phase out of the EV tax credit by the end of September. Our sales growth over market in the second half is anticipated to improve from Q2 levels, mainly driven by upcoming new product launches for displays and cockpit domain controllers. We now anticipate growth over market of mid single digit for the full year, a modest decline from original expectations due to lower BMS sales in China.

Operator

In total, we remain cautiously optimistic despite the uncertain industry environment based on the strength of our product portfolio, the traction we are gaining in our strategic initiatives as evident in a strong first half performance, and the visibility we have in near term customer production schedules. Now I will turn the presentation over to Jerome.

Speaker 1

Thank you Sachin and good morning everyone. Similar to quarter one, our second quarter was another strong quarter both operationally and financially, allowing us to post excellent key metrics. Sales were $969 million, reflecting a 4% sequential improvement from Q1. It was better than anticipated and driven by robust demand for our digital cockpit products. Adjusted EBITDA for the quarter was $134 million, reflecting continued operational execution and cost discipline. Adjusted EBITDA margin for the quarter was a solid 13.8%, matching the record margin percentage that we set last quarter. We did benefit from some nonrecurring items, and when normalizing for these items, our margins were in the mid 12% range in line with our expectations. Adjusted free cash flow was $67 million, driven by a robust EBITDA performance as well as an inflow from working capital.

Speaker 1

In the quarter, we completed another bolt-on acquisition with a purchase price of $50 million net of cash required. We ended the quarter with $361 million of net cash on the balance sheet, and we are well positioned to continue executing on our balanced capital allocation strategy. Overall, we delivered another strong quarter driven by our ongoing focus on commercial and operational discipline as well as capital efficiency. Turning to page 10, sales were $969 million for the quarter, a decrease of $45 million compared to prior year. Customer production volumes were slightly negative year over year, declining in the low single digits in both the Americas and Europe while production increased in Asia. Growth versus market was negative 1% in the quarter. Recently launched programs with Ford, VW, Renault, and Nissan were positive contributors, while sales declines in BMS and China offset this growth.

Speaker 1

As a reminder, BMS sales peaked in Q2 last year as our U.S. customers ramped up production of batteries in anticipation of new product launches. Excluding China, growth over market was 4% in the quarter. Even with the additional headwind from BMS sales, contributions from M&A represented slightly less than 1% of sales. Customer recoveries, primarily related to semiconductor cost increases, reduced sales compared to prior year by approximately 2%. Normal annual price reductions to our customers were slightly below 2% and in line with our historical average. FX was a very modest benefit in the quarter. Adjusted EBITDA for the quarter was $134 million compared to prior year. Adjusted EBITDA was essentially flat, mostly as a result of lower sales offset by nonrecurring items which was a net positive on a year over year basis.

Speaker 1

The majority of these nonrecurring items are commercial in nature and highlight the commercial discipline that we have integrated in our operating model by negotiating recoveries from our customers for incremental cost incurred from prior periods. The timing of these recoveries depends on a variety of factors and we're not expecting a significant level of nonrecurring items in the second half of the year. Net engineering as a percentage of sales was 5.4% for the quarter and includes the recent engineering services acquisitions we've made in the last 12 months. On a year over year basis, net engineering costs increased slightly due to the recent engineering services acquisitions, partially offset by lower personnel costs and timing of engineering recoveries. We continue to leverage our platform approach, our best cost footprint, and have embarked as well on many initiatives that improve engineering productivity while continuing to invest in strategic engineering capabilities.

Speaker 1

Adjusted SG&A was 4.2% which reflects a healthy balance between ongoing cost controls and investment in key teams and technologies for the future. Our normalized margin for the quarter are in the mid 12% range when adjusted for several favorable nonrecurring items as well as net engineering and SG&A that are slightly below our full year expectations. On a run rate basis, our normalized margins have improved year over year and reflect the benefits of the various ongoing cost initiatives we have undertaken including product costing, engineering productivity, platform based product development, AI driven process improvements, just to name a few. Turning to page 11, Visteon generated $105 million of adjusted free cash flow in the first half of the year.

Speaker 1

We continue to benefit from a robust level of adjusted EBITDA and we were able to convert EBITDA into cash flow at a rate of 40% in line with our original full year guidance. Trade working capital was an inflow and included a modest inventory reduction. Cash taxes were higher compared to last year, reflecting our continued improvement in profitability in most countries as well as timing of cash payments. Net interest continues to be a modest positive as the interest income earned on our cash slightly exceeds the interest expense.

Operator

Paid on our debts.

Speaker 1

We also had an outflow in the first half of the year related to our 2024 annual incentive program, which was paid out at higher levels than prior year due to strong financial and operational performance in 2024. In addition to this payout in the first quarter, other changes in the first half also included U.S. pension contributions and the timing of various other cash flows. Capital expenditures were $66 million, representing 3.5% of sales, and were slightly below our original full year expected run rate in the first half of the year. In addition to ongoing investments supporting customer programs, we continue to invest in several insourcing initiatives. These initiatives include investments in various capabilities that are core to our product lines like magnesium injection molding, display bonding and assembly, or camera assembly capabilities. In the quarter, we deployed a net $50 million of capital towards acquisitions.

Speaker 1

We ended the quarter with $671 million of cash and a net cash balance of $361 million. Turning to page 12, we have elected to reinstate guidance this quarter while raising the midpoint of our outlook for sales, adjusted EBITDA, and adjusted free cash flow. Our guidance range for sales is $3.7 to $3.85 billion, an increase of $25 million versus our February guidance at the midpoint compared to our original guidance. We are benefiting from favorable currency movements, primarily with the Euro, as well as a modest increase in sales related to our recent Q2 acquisition, partially offset by lower Battery Management System (BMS) sales. We are largely aligned with S&P's latest outlook, which is forecasting that our customer production is down in the low single digits for the full year, slightly better than the forecast back in January compared to the first half of the year.

Speaker 1

Our guidance assumes a sequential decline in the second half of the year, reflecting lower customer production volumes of approximately 5%. This includes a sequential decline in Q3 of 7% for our customer production volumes compared to Q2, partially driven by normal seasonality in the U.S. and Europe to account for summer plant closures. Offsetting this decline are new product launches, contributions from M&A, and favorable currency. As a result, we anticipate Q3 will be close to Q1 2025 sales levels. Growth of a market is anticipated to increase from Q2 levels steadily throughout the year to a full year growth of a market in the mid single digits, slightly below our original guidance. This is mostly due to lower BMS sales and higher customer production volumes in China on vehicles we do not have content on compared to Q2.

Speaker 1

Growth of the market will improve as a result of new product launches for displays and SmartCore, while the headwinds from BMS and China will reduce primarily in the fourth quarter. As a result, we expect growth of a market will be higher in Q4 than in Q3. Adjusted EBITDA is expected to be between $475 million to $505 million, reflecting a 13% margin at the midpoint and an improvement of $25 million versus our previous guidance. We are integrating in our improved full year guidance the net benefit from higher sales, the favorable non-recurring items from the first half, as well as ongoing strong operational performance. This equates to a second half margin in the low 12% range in line with our normalized margins in the first half of the year.

Speaker 1

Once you adjust for the expected lower sales volumes, we anticipate net engineering to be approximately 6% of sales for the full year, reflecting the incremental engineering cost associated with our recent acquisitions. Adjusted free cash flow is expected to be between $195 million to $225 million, reflecting a 43% EBITDA conversion at the midpoint of guidance and an improvement of $20 million versus original guidance primarily from higher profitability. CapEx is still expected to be approximately $115 million for the full year or 4% of revenue. Before moving on, let me provide some additional commentary on how we are modeling tariffs in our guidance. The midpoint of our guidance assumes no change in tariff policy or impact, including the assumption that USMCA compliant goods crossing the Mexico-U.S. border remain completely exempt from tariffs. As a reminder, we have approximately $10 million of goods that cross the Mexico-U.S.

Speaker 1

border today on a weekly basis, out of which 97% are USMCA compliant and therefore currently do not incur any tariffs. If this situation were to change, we would seek to pass the cost on to our customers, although there would be likely a timing mismatch as we would work to get agreements in place. You can find additional information on our potential exposure to tariffs on our Q1 earnings call. Turning to page 13 at our investor day in early 2023, we laid out our balanced capital allocation strategy that had four maintaining a strong balance sheet, investing in the business both organically and inorganically through M&A, and returning capital to shareholders. Since our investor day, we have deployed approximately $650 million of capital towards these initiatives.

Speaker 1

We have been able to execute on this strategy as we continue to generate strong free cash flow, converting on average 40% of our adjusted EBITDA into free cash flow annually. Of the capital we have deployed, approximately 50% of this capital went towards internal investments as we continue to generate robust returns with a return on invested capital in the high teens, one of the best return profiles in the industry. We also have made progress executing on our M&A strategy. In the last 12 months, we have closed on three acquisitions for a total investment of approximately $105 million. Each acquisition adds technology domain expertise to the company to further expand our product and service offerings to our customers. These acquisitions are bolt-on, representing just over 1% of sales on a full-year run rate basis and are margin accretive to Visteon.

Speaker 1

We continue to have a robust M&A pipeline and we look to close out additional acquisitions in the future. We also returned $176 million of capital through share repurchases. We temporarily paused repurchases in Q2 due to the uncertainty related to tariffs. Although this uncertainty remains, we intend to resume share repurchases in an opportunistic manner. In addition, we are announcing today the initiation of a quarterly dividend of $0.27 per share, representing about a 1% dividend yield on an annualized basis at today's stock price. The implementation of the dividend illustrates our confidence in our ongoing ability to generate cash and our commitment to returning capital to shareholders. This is in addition to our ongoing share repurchase program and not a replacement. In summary, we have deployed a significant amount of capital since our investor day.

Speaker 1

At the same time, we have maintained one of the strongest balance sheets in the industry. Our current cash position plus the expectation of additional free cash flow generation in the second half of the year enables us to continue to execute on our balanced capital allocation strategy. We will continue to invest in the business both organically and inorganically while returning capital to shareholders. Turning to page 14, Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in the cockpit regardless of powertrain. Visteon is well positioned for long term top line growth, margin expansion, and free cash flow generation. While our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. Thank you for your time today. I would like now to open the call for your questions.

Operator

Thank you.

Speaker 2

At this time, I would like to remind you if you would like to ask a question, it is star and number one on your telephone keypad. Once again, star one. In the interest of time, we ask that you please limit your questions to one primary question and one follow-up. Thank you in advance, and we will pause just a moment to compile the questions.

Speaker 1

Q&A roster.

Speaker 2

All right, looks like our first question today comes from the line of Itay Michaeli with TD Cowen.

Operator

Itay, please go ahead.

Speaker 2

Great, thanks.

Speaker 1

Good morning everybody and congrats on the quarter. Just first maybe for Sachin, another quarter of very strong bookings. It looks like you're gaining market share. 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 2020 through 2027.

Operator

Hi, good morning and thanks. Yes, in fact we're very happy about how the new business bookings have performed. If you look at our Q2 performance, it was very similar to our Q1, driven mostly by displays and also clusters. 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, interest in AI-driven infotainment and autonomous driving is growing, which is our focus in that region. What this transformation is doing, however, in regions outside of China, it's causing OEMs to shift their focus to extend existing platforms and refresh them. Displays are a great way to enable them to offer more value-added and innovative experiences inside the vehicles.

Operator

As we have also mentioned earlier, the investments we've been making in displays is really setting us apart from our competitors in terms of the depth and scale of our capabilities, which I won't repeat here. I would like to also say that we should look at our new business performance over a multi-year 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.

Operator

By SmartCore and CDC and infotainment.

Operator

Now, that ratio at the time, I should say at the time in 2023, displays were actually a small portion of our new.

Operator

That ratio became a little more even.

Operator

In 2024, and we are still in the process of implementing the infotainment and CDC programs that we won then, and this year displays is taking the lead. 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. We expect it to also catch momentum outside of China soon. In terms of long term impact of this, clearly this is helping greatly in terms of driving the sales and especially in cockpit electronics. We feel good about many of the initiatives that we had outlined as key to our achieving our 2027 targets.

Operator

That includes the progress that we are making with the targeted growth automakers, especially in Asia, progress on two wheelers and commercial vehicles as well, which is also done well. If you look at our first half performance, about close to 20% of our wins has been in commercial vehicles in two wheeler markets. That's very encouraging. That's all very good, and it's going to help us in our achieving that long term target. One thing I would like to highlight, however, which we need to understand how that's going to play out, is BMS. We will need to see how GM in particular will react to this market changes, including the phase out of the tax credit.

Operator

We think that EVs continue to have interest from consumers, so 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. 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.

Speaker 1

Terrific.

Speaker 1

Thank you for all that detail. Satya, maybe a quick follow up for Jerome with today's capital allocation announcements. Can you just remind us how you're thinking about targeted net cash and future leverage, particularly with the business outlook improving? Yeah, no thanks, but generally we have given a $100 million net cash position as kind of our minimum target for net cash. As you know, today we are well in excess of these. 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. That's really a testament of this.

Speaker 1

Strong cash flow generation.

Speaker 1

We have still $125 million authorized on our $200 million share repurchase authorization, and we'll be reactivating this quarter on top of initiating the dividends.

Speaker 1

Terrific.

Speaker 1

All very helpful, thank you.

Speaker 2

All right, thank you, Itay. Our next question comes from the line of Mark Delaney with Goldman Sachs.

Operator

Mark, please go ahead.

Operator

Yes, good morning. Thank you very much for taking my questions. Visteon has talked about the success it's had with Toyota, and you mentioned at a recent conference that Toyota could account for about 10% of your total revenue in 2028. Given how big and important Toyota is as a global OEM, I am hoping to better understand if you think there's the opportunity to further penetrate that customer beyond what you've done so far, and if success with Toyota could also position Visteon to get additional wins with other Japanese auto OEMs.

Operator

Yeah, Mark, that's a good question and let me take that first. If you look at the progress that we have made with Toyota, it has really been on a few of their, I would say, very high profile vehicles such as Global Camry and Land Cruiser. They've also won content on the Tundra, Sequoia for North America, and Corolla for China. Our wins have been mostly for digital clusters and to a smaller extent, displays. I should also mention we have won displays for the Lexus brand as well. Of the various products that we offer, it's still relatively a, I would say, modest portion of the total opportunity that we see at Toyota. We believe that this year we have done well with them so far.

Operator

Last year was a very strong year in terms of new business wins and we expect to continue to win business with Toyota as we go forward. At this stage, really what we need to be focused on is the execution of the many programs that we have won and the successful launch and introduction into the market. So far so good. We're very happy with where the relationship is standing today and I'm looking forward to continuing this relationship and establishing even a stronger bond and a relationship here in the coming quarters.

Operator

I think everything so far is.

Operator

Going as per we would have liked it to go, nothing more to comment on that, and we continue to remain very optimistic about the future. Thanks for that.

Operator

Sachin, my other question was on EBITDA margins. I believe EBITDA margin guidance is now about 13% at the midpoint compared to guidance in the mid 12% range that had been provided back in February. Jerome, you mentioned one Q has some one-time benefits, but the full year is also tracking stronger. Can you help us better understand the different drivers of the improved EBITDA margin outlook and also how much is coming from some of the M&A that you spoke about?

Operator

Thanks.

Speaker 1

Yes, absolutely. Yes. We've raised adjusted EBITDA to your point and we're now at $490 million or 13% at the midpoint, an improvement of $25 million.

Operator

Or.

Speaker 1

About 60 basis points. What we're doing in the guidance, we're integrating the very strong H1 performance that we had so far, and we had a very good operational run rate in fact in H1. We are keeping that going. We also are adding obviously the non-recurring items that we had in H1. I didn't give a specific number in my prepared remarks, but we're talking about $10 million in Q2 of non-recurring items on top of the $15 million that we had in Q1, so about $25 million of non-recurring items. However, some of that was contemplated, I would say, in our original full-year guidance, maybe $5 to $10 million. If you think about H1 and H2, we have also included the small benefit of the acquisition. It's not very material in the scheme of things.

Speaker 1

We are adding a little bit of exchange and also contemplating a little bit more engineering and SG&A, largely to account for specific investments we're doing in AI, for example, in engineering.

Speaker 1

If you step back and look.

Speaker 1

At what we call our normalized margins, which are essentially excluding the nonrecurring items, we're running at 12.5% in the first half of the year, and adjusting for volume, that will be slightly lower in the second half, we'll be running at 12%. That gives you the overall 13%, including the nonrecurring items that we've guided to for 2020.

Speaker 1

Can you clarify what the non-recurring items are?

Operator

Thanks.

Speaker 1

Yes, the non-recurring items are very similar to what we had in Q1. I would say about 2/3 of them are commercial items for items or costs that we have incurred on specific programs in prior years when the program didn't really materialize or go as planned. We're negotiating recoveries with customers. These are kind of claims, if you want. They are not large individually, but they add up. We've been quite successful in Q1 and Q2 negotiating these items. It's quite unusual to have such a large number of claims or commercial items negotiated in Q1 and Q2, and therefore we don't anticipate having much in Q3 and Q4 on these forms.

Operator

Thank you. Thank you.

Speaker 2

Thanks, Mark. Our next question comes from the line of Emmanuel Rosner with Wolfe Research. Emmanuel, please go ahead.

Operator

Thanks so much. Maybe just a quick clarification on.

Operator

Your last point, Jerome, just to make sure I understand. You named essentially about $25 million worth of, you know, one times in the first half, but the guidance is basically on EBITDA level, raised by the same sort of like amount. Were these mostly like timing where it was unusual that it was all in the first half but you would have had them in the full year, or are those incremental? Basically, the one times are most of what's driving this improvement in guidance? Yes.

Speaker 1

As I just said, there's about $5 million to $10 million that was contemplated already in our guidance. You cannot really add the $25 million on the full year. You can add probably $15 million to $20 million. The rest is essentially a little bit of higher volume, partially offset by a little bit more cost on SG&A and engineering, but nothing material there.

Operator

Okay, thanks for the clarification. The second question, I was hoping to double click a little bit on BMS. I understand the challenging comparison in the second quarter.

Speaker 1

Can you maybe talk a little bit?

Operator

About how to think about cadence of comparisons on a go forward basis for rest of the year but also a little bit longer term as well in the context of some of these new U.S. regulations that could squeeze EV demand. I think you have that as, I guess, potential headwind for EV volumes, but then you also, I guess, still launching the program. How do you think about the overall trajectory of BMS from here? Yeah, let me take that, Emmanuel. This is Sachin. First of all, I would like to share with you how this first half has performed relative to last year with BMS. Last year, both our customers in North America, GM and Stellantis, were in ramp up mode in their battery manufacturing, and the supply chain for battery tends to be pretty long, especially when it's.

Operator

In the ramp-up phase.

Operator

The level of demand that we had from these customers last year didn't necessarily reflect their vehicle production last year. Now what we're seeing this year with the inventory being built up and completed is that our demand and our production of BMS therefore is reflecting what the vehicles or what these two OEMs are building this year as vehicles. One thing I would say is although it's lower on account of the reason I just mentioned, with the buildup of inventory last year, Q2 sequentially was higher than Q1 and it's very much.

Operator

In line with what we see as.

Operator

The demand that's driven from the sell through of the vehicles at our customers. We will have to see, to your point about the go forward basis, what happens. We will have to see how these OEMs respond to these credits being, this incentive being taken away by end of September. You probably know that the manufacturer credits still apply, the 4 to 5x, and that remains. We do anticipate that car makers will continue to improve affordability of their vehicles, and as those investments that they are making in driving better affordability with the demand that we continue to see, especially in younger demographics, I do believe that EVs will continue to be part of the mix of powertrains that our customers will offer. Ultimately, consumers will have a choice to pick the powertrain that best meets their lifestyle.

Operator

I think we may have a short term uncertainty, but longer term I think it will stabilize. If you look at other parts of the world, Europe, of course, China, even emerging markets, demand for EVs has grown, has not gone the other way. Incentives tend to be short term. At some point, this momentum in a big team and you hit critical mass. I do believe we have achieved that even here, especially with infrastructure improving and the understanding of the lower operating cost of EVs starting to become a little more widespread. I think we will see ongoing demand for it. Can't really quantify at this stage exactly what it's going to be, but we'll be in a better position as we go forward to make a better estimate.

Speaker 1

Of that and in terms of assumptions as well. In our outlook and guidance, we have assumed that our BMS sales would be for Q3 and Q4 similar to what we've seen in Q2. As Sachin said, it was a slight improvement from Q1. I think the good news these days is that there's more of a parity between production and demand. That's very encouraging.

Operator

Thank you.

Speaker 2

Thanks, Emmanuel. Our next question comes from the line of Joe Spak with UBS.

Operator

Joe, please go ahead. Thank you.

Operator

Actually wanted to pick up a little bit there just on the BMS and EV discussion. I mean if we think of Sachin.

Operator

About what you just said.

Operator

Right.

Operator

Is whatever you're sort of implying for like a 4Q run rate on that business like a bottom, and we can.

Speaker 1

Be stable from there.

Speaker 1

How should we think and annualize?

Operator

That as sort of a go forward.

Operator

Unless we see some sort of recovery, and if so, how should we think about how big that number is? I guess just given this business didn't really maybe pan out as many thought a few years ago. It sounds like maybe you're getting some. You mentioned you're getting recoveries for prior programs. I'm not sure it relates to this, but I guess I'm just wondering are you right sizing or restructuring your footprint for that business?

Operator

Yeah, let me answer that second part of the question first. In terms of how we think about go forward for our electrification business, given the fact that the volumes are not going to be at the levels that we had originally expected, what we are doing is to expand our offering in that vehicle category to go beyond BMS into more power electronics as well. We expect to have greater content on those vehicles where today we may just have BMS, to add other products to the mix and therefore have greater content per vehicle. We are well on our way in terms of executing on that strategy, both in Europe as well as in the U.S., and that should help us in terms of offsetting some of the loss that we will see in pure BMS sales as we go forward.

Operator

However, that is a window in time because those wins have to be launched in terms of power electronics and converted into revenue. In the meantime, we're still largely dependent on BMS. For that portion, for the rest of the year, we do expect, as Jerome mentioned, that Q1, Q2 run rate will essentially be at the same levels at least for the rest of the year. Now, going forward beyond that, if you think about where this level is in terms of the overall share of the vehicle sales, that's less than 5% of the customers' sales in the region. Looking at the overall market, we're still tracking at a penetration of 7% to 8% as a portion of the total sales. We think that is probably a reasonable expectation for us so that it should be able to either hold or slightly improve from these levels.

Operator

What's interesting is they've seen really good traction in the more affordable vehicle models that have been launched, and still there are very few that's available as a choice for consumers. As they expand their vehicle models, and especially in the case of GM, that is the new Bolt, for example, that's coming into production, we think that we will have more options and consumers will be able to pick from a wide variety of choice of battery range, performance, and other things. We think that it may be a good thing to look at this level as kind of the floor.

Operator

Okay, that's helpful. The second question is just on sort of your broadening of the customer base penetration with new customers that you've historically been underexposed to. You mentioned Toyota, mentioned some others, and I want to marry that thought with the more recent news that it seems like a lot of these players might be making further investments into the U.S.

Operator

Does that.

Operator

Perhaps make your opportunity with them even larger or maybe even a little bit more accelerated, given that you may already have some footprint here that existing suppliers may not?

Operator

Overall, this trend towards having more of the supply be based in the region where you are building vehicles has been a big benefit for us, not just for the U.S. but also in other parts of the world, including Europe. We have seen recently, for example, Chinese OEMs wanting to get suppliers in Europe to supply components. We see the same thing here in the U.S., and with this recent news that you are alluding to, it definitely is a positive for us as well, especially given the investments we have made in vertical integration in many areas that we have mentioned on this call previously as well. This is all very helpful for us in terms of future demand.

Speaker 1

Thank you.

Operator

Great, thanks, Joe.

Speaker 2

Our next question comes from the line of Colin Langan with Wells Fargo. Colin, please go ahead.

Speaker 4

Oh, great.

Speaker 4

Thanks for taking my questions. Maybe just to understand the sales guidance versus initial expectations, what are the major puts and takes? Just in terms of the market expectations sounded pretty similar. FX I think was a negative 1% or something like that. Now that's flat, and then recoveries are unchanged and growth over market is slightly worse. The main factors in the change here are better FX and M&A, offset a little bit by the growth over market. Is there other things that we're missing in terms of the puts and takes?

Speaker 1

Good morning, colleague. You've essentially summarized it pretty well. We had a $25 million improvement at the midpoint of the guidance. We've got favorable currency going into the second half, and that will represent versus.

Operator

Our previous guidance.

Speaker 1

About a % improvement. The acquisition is fairly minor in the scheme of things, and all this is partially offset by growth over market being slightly lower, mostly on the Battery Management System (BMS) side. We were, and we are, slightly more conservative than what IHS has given just for BMS. Yes, these are essentially kind of the puts and takes.

Speaker 1

Got it. There are obviously headwinds in China, headwinds from sort of BMS demand. Can you frame the percent of sales that these issues are? I think China last year was only 11% of sales. It feels like it's kind of shrunk to the point that maybe the impact of declines there is mitigating. You know, BMS, isn't that still a fairly small business, like maybe less than 3% of sales or something like that? Any framing of the size of these businesses?

Operator

Yeah, BMS is very small in the China context for us. I would say for us in China it has been mainly the cockpit domain controller as our main product. We have seen also a sort of a bottoming out of the demand, and we're expecting going forward here additional launches. I mentioned this more powerful system that we are introducing with our largest customer. There are other launches as well. We did get some small benefit in terms of BMS in China this quarter. There were some vehicles that were launched by GM that use our BMS that did well in Q2, and we have to see how it does in the second half of the year. I would say things are, after a few quarters of a decline, sequential decline, things are flattening and then starting to turn the corner for us in China.

Operator

We are cautiously optimistic and I.

Speaker 1

Think that's the key.

Speaker 1

The year-over-year comparisons are pretty tough with China and BMS as well globally. As Sachin said, we are seeing in fact for both China and BMS a slight improvement in Q2. We are planning to be fairly flat on the BMS side going forward, but we do see some minor increases in China for Q3 and Q4. Overall, China, Sachin said 9% and BMS mid to high single digit globally, obviously the business being mostly with our U.S. customers, which are GM, Stellantis, and Honda as well. We do supply ultimately through to Honda through GM.

Speaker 1

Got it. All right, thanks for taking my questions.

Operator

Thank you. Thanks, Colin.

Speaker 2

Our next question comes from the line of Luke Junk with Baird.

Operator

Luke, please go ahead.

Speaker 1

Thanks for taking the question.

Speaker 1

Maybe just one question from you.

Operator

We've covered a lot already.

Speaker 1

Sachin, would just be interested in getting your updated perspective on moving at China's speed incrementally and just generally playing some.

Speaker 1

Offense in China as the cyclical and.

Operator

Mixed headwinds start to bottom out here.

Operator

guess I'm thinking about both the software side where I know you've made a.

Speaker 1

Lot of investments in modularity, but maybe if we could talk about hardware in parallel as well. Thank you.

Operator

Yeah, no, I think both are very good questions. Luke and I will talk about the progress that we are making, especially with what you refer to as channel speed. I'm giving you a couple of examples. One is the recent display win that we had with Cherry that we talked about in the previous quarter. We won it last quarter. We will launch it essentially next year, at a speed which I think very few people even in China can match. The second one is we are working on cockpit domain controllers in China that are designed, developed, and launched under two years, which we can do largely because we have adapted ourselves to operating at China speed in China, and we have a platform approach, as you know, that was now a few years and continues to get stronger today.

Operator

We're at a point, especially for cockpit domain controllers, that we can, using our platform, get to about 70% of a customer's requirements right out of the gate. The very first release that we typically have, which is within three months of winning a business, we are able to meet a large number of the requirements. A great example is one that we are currently developing with another one of these targeted growth OEMs in Japan, Mitsubishi, where we have won for the very first time an infotainment system business with them, which, by the way, I think will have many additional opportunities on the backs of as we go forward, including CDC opportunities with them.

Operator

This program, just to give you some context, when we won it in Q1, already in this quarter we are able to showcase to them a running system on hardware with all of the design choices that will be in the final design, and the software is functioning and is able to meet quite a bit of the requirements. This is really only possible if you have a platform approach, and it takes a fair amount of time to put that in place. Today, I would say that in terms of being able to do these things at scale, very few companies can compare and meet our levels of scale and platformization both emerging at the same time. That's really customing to this progress that we made on this strategy. Now, with respect to the progress that we're making, I mentioned Toyota, already saw one comment on them.

Operator

Just as a reminder, we have been talking about Honda, Hyundai, Maruti Suzuki. One thing I would say is when you look at Honda, they have the two wheeler side of their business but also, very importantly, the four wheeler. We have made a lot of.

Operator

Progress on two wheelers.

Operator

We still have a lot of opportunity to go after on the four wheeler side. The progress we have made with Hyundai that we talked about and Maruti Suzuki in the previous quarter, I think all of these are well underway at the same time. Plenty of runway ahead of us.

Speaker 1

I think in these cases as well, it was not only innovation, cost, quality that differentiated us, but as well speed to market for all these customers. I think that highly speaks to what we've been able to achieve.

Speaker 2

Great, a lot of great detail.

Speaker 1

Thank you.

Speaker 2

I'll leave it there. All right, thank you, Luke. That does conclude the question and answer portion of today's call. I will now turn it back over to Kris Doyle. Kris.

Speaker 4

Thanks. Thanks for participating in today's call. I'd like to quickly point your attention to slide 26, in which we highlight several investor relations activities for the third quarter. If you are interested in learning more, please contact the investor relations team. This now concludes our earnings call.

Operator

The second quarter of 2022. Thank you.

Speaker 1

Thanks Chris.

Speaker 2

As Chris mentioned, this concludes Visteon's second quarter 2025 results earnings call. You may now disconnect.

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