Visteon's Third Quarter 2026 Results - VISTEON CORP

Good morning. I'm Ryan Gazzeri, Vice President of Investor Relations and Corporate Strategy. Welcome to our earnings call for the third quarter of 2026. 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 Statements in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Vistion's website. Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Roque, Senior Vice President and Chief Financial Officer. We have 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 for joining us. I'll now turn over the call to Sachin. Thank you, Ryan, and good morning, everyone. Vistion delivered strong sales growth in the third quarter despite a challenging industry production environment. Customer-weighted vehicle production declined approximately 5 percentage points during the quarter, yet our sales grew 6% year-over-year to $970 million, resulting in approximately 10 percentage points of market outperformance, excluding the impact of memory recoveries and pricing. During the quarter we recorded $77 million of specific warranty charges related to two instrument cluster programs with separate customers. The charges follow customer decisions made in the quarter and relate to two unrelated issues. In one program, we expect to remediate affected vehicles through software updates, in the other, through product replacement. The root causes have been identified and corrected, and the charges reflect our best estimate of the cost to complete these actions. As a result of these charges, our adjusted EBITDA for the quarter was $46 million, compared with $123 million excluding the charges. This represents an adjusted EBitda margin of approximately 4.7% or 12.7%, excluding the changes. While these charges had a significant impact on our profitability for the quarter, they relate to previously delivered products and our underlying operating performance remained strong. We have made good progress recovering higher memory costs incurred earlier this year. As component costs continue to evolve, we are actively working with customers and suppliers to mitigate the impact consistent with the disciplined approach we have followed during prior shortages adjusted free cash flow was neutral in the quarter as we increased inventory of critical semiconductor components in response to emerging parts shortages we ended the quarter with net cash of 136 million dollars beyond the financial results we continue to execute on the strategic priorities we outlined at investor day we launched 21 new products across 14 automakers including our first smart core high performance compute program the cherry we also secured approximately 1 billion dollars in new business awards bringing year-to-date bookings to 3.9 billion dollars finally we completed our 200 million dollar accelerated share repurchase during the quarter marking the first step in executing the capital allocation framework we outlined at Investor Day. Let me now turn to our third quarter sales performance on page 3. This slide shows our regional sales performance in what was a challenging production environment in most markets where we operate. Overall customer vehicle production declined during the quarter, most notably in China, yet our recent launches over the last few quarters enabled us to grow sales and outperform the market in the americas our performance was impacted primarily by lower bms sales to gm compared with elevated demand in the prior year quarter ahead of the expiration of the ev tax credits this was partially offset by the ramp up of new programs with ford and nissan europe was the strongest performing region with sales growth of nearly 20 percent our panoramic multi display and cluster program with Audi display and Cluster programs with Renault and display launches with Mercedes all contributed to this growth these more than offset roll-offs and lower volumes on legacy programs with BMW in Asia excluding China our sales grew approximately 14% led by new launches of our smart core domain controller in India with Mahindra as well as digital clusters on two wheelers with Royal Enfield and TVS. The strong performance in India more than offset the roll-off of a Mazda program in Japan and currency headwinds from the Indian rupee and Japanese yen. Finally in China customer production declined approximately 17% in line with the broader industry excluding exports. While lower domestic demand is impacting production at all OEMs, international OEM are impacted more, including Visteon customers such as Volkswagen. While our international OE customers continue to face lower demand, we are successfully repositioning our China business toward domestic OEM that are gaining share. Domestic OEM now account for approximately half of our China sales, compared with just over one-third a year ago. This is important as our strategy is increasingly aligned with premium segment brands of Chinese domestic OEMs that are gaining share in that market. With the anticipated launches of high-performance compute systems with leading domestic OMS Geely and SAIC, we expect our China sales to return to growth in the fourth quarter. Overall the quarter demonstrated that while customer vehicle production declined our launch execution and diversified customer portfolio enabled us to deliver strong sales growth and position the business well for the fourth quarter and into 2027. turning to page four we launched 21 new products across 14 automakers in the third quarter continuing a year of high launch activity that sets the stage for 2027 the highlight of the quarter shown on the right is the launch of our smart core high performance compute cockpit domain controller on the cherry freelander 8 in china the system consolidates more than 10 electronic control units into a single system and brings integrated edge ai capabilities into the cockpit addressing one of the fastest emerging areas of product differentiation in the chinese automotive market this launch with cherry is the definition of china speed as it represents the first to market system on a new fifth generation Qualcomm chip with a booking to start of production timeline of approximately 13 months. The program is following its planned launch ramp with volumes expected to increase in the fourth quarter and through 2027 as additional vehicles are introduced. With BMW we launched our cockpit domain controller in Europe on the new i3 one of the first vehicles built on BMW's next generation electric vehicle platform. This is an important high-volume program for Visteon with launches in additional markets planned later this year, followed by expansion to other BMW models in 2027. Also in Europe, we expanded our panoramic display and cluster program with Audi through the launch of the A3, adding another vehicle to this successful program that has been an important contributor to our market outperformance this year. Beyond Europe, we launched a driver display for a new Lexus electric SUV, serving the Japanese and North American markets. This is one of the several planned launches with Toyota that we highlighted at Investor Day, supporting our strategy to expand our business with this important customer. We also continue to expand our presence beyond passenger vehicles with launches of connected digital clusters for Royal Enfield and Honda two-wheelers, as well as cockpit domain controllers for Volvo construction equipment excavators in Korea and China. These programs demonstrate how we are leveraging our proven cockpit technologies to capture growth opportunities in adjacent mobility markets. Overall, these launches reinforce several important trends. First, our portfolio continues to migrate toward higher-value cockpit computing and display technologies. Second, our high-performance compute business has moved from new business awards into production. And finally, we continue to expand in adjacent mobility segments, supporting a more diversified growth profile. Turning to page 5, new business bookings were just under $1 billion during the quarter, bringing our year-to-date total to $3.9 billion. Several significant sourcing decisions that we anticipated in the third quarter shifted into the fourth quarter as car makers evaluate changes in memory technologies and product architectures. These opportunities remain in our pipeline, although some final award decisions may extend into 2027. Importantly, we have not seen a corresponding change in the underlying demand for our products. Based on our current pipeline of opportunities and anticipated customer sourcing decisions in the fourth quarter, we continue to target $6 billion in new business bookings for the full year. Looking beyond 2026, we also see opportunities for new product designs and platform upgrades as customers transition to newer memory technologies which we expect will further strengthen our pipeline our wins in q3 also support a strategic objective of growing our business with targeted customers in asia including toyota maruti suzuki and tata motors furthermore reflecting the shorter time from award to launch about half of our q3 new business awards will launch in 2027 with another 25 launching in 2028. let me highlight a few of the strategic new business wins from the quarter first we secured a cross-car platform display business with a japanese oem for its premium brand covering multiple markets the first launch is in china on an electric suv in 2027 followed by a global launch on a hybrid crossover in 2028 vistion is the sole supplier for this product and is well positioned to win follow-on opportunities second we won two display programs with a leading indian oem marking our first display wins with this customer this oem has traditionally offered small displays in its vehicles and the move to 12.3 and 12.8 inch displays represents a significant shift in its cockpit strategy these displays go into production in 2028 on two vehicles with opportunities to expand to additional models We also won a 10-inch center information display for a light-duty commercial vehicle with a North American OEM. The initial launch is for the European market with follow-on opportunities in other regions. And finally, we secured a center display and infotainment system with integrated vision processing across multiple vehicle models with an Indian OEM, further strengthening our position in one of the fastest-growing markets in the world. The program includes a 10.25-inch display along with a silver box that provides infotainment functions, rear-view camera processing, and visualization. Overall, our third quarter and year-to-date bookings reinforce the strategy that we presented at Investor Day as we continue to diversify our customer base across Japan, India, and non-passenger vehicle markets. Turning to page 6, let me now turn to our outlook for Q4. Demand for our advanced cockpit products remains healthy, supported by recent launches and increasing content per vehicle, even as industry vehicle production and component availability remain challenging. Our recent launches, including the Audi cluster and display system, the BMW cockpit domain controller, and our Cherry high-performance compute program continue to ramp, with volumes growing sequentially. We also have additional launches in the fourth quarter, including high- performance compute systems with leading domestic OEMs in China, a high-volume digital cluster program for a Japanese OEM in the North American market, and cluster programs for two-wheelers in India. Together, these programs are expected to more than offset normal program roll-offs and lower customer production volumes, driving strong market outperformance in the fourth quarter. Turning to the supply environment, memory and other electronic components have remained tight throughout the year. So far, we have successfully managed these constraints without impacting customer production, working closely with our supply chain partners. However, we are beginning to see greater industry-wide supply headwinds, particularly for memory and printed circuit boards, which could constrain vehicle production in the fourth quarter. To mitigate these challenges, we have taken several proactive measures. We have entered into strategic supply agreements with memory and printed-circuit board suppliers, Expanded our supplier base for DRAM and NAND memory, and undertaken product redesigns to reduce reliance on constrained components. These actions are already delivering benefits and are helping us maintain supply continuity, positioning us to finish the year with meaningful growth over market. Looking ahead to 2027, we expect memory costs to exceed the assumptions we outlined at Investor Day in June. We have made significant progress securing additional memory supply through strategic agreements with established suppliers and commitments from new suppliers. These actions have substantially improved our visibility into memory availability for next year, although this additional supply is coming at higher costs. We are actively working with our customers to address these increases and expect to provide greater clarity when pricing and commercial discussions progress as we are still finalizing pricing with suppliers. Jerome will provide our current planning assumptions at the end of our presentation based on the visibility we have today but ultimately the financial impact will depend on product mix, customer production volumes and our commercial arrangements with customers. Turning to page 7, let me conclude by summarizing what we accomplished this quarter first we delivered strong market our performance of approximately 10 percentage points driven by some high-value product launches with OEMs primarily in Europe and Asia second we maintained commercial and operational discipline in a difficult supply environment we are working on securing the components we need to support our customer demand while working to offset cost increases through recovery agreements third our Our growth pillars continue to build momentum. We launched new next-generation products in China, India, two-wheelers and commercial vehicles, as well as global programs with our Japanese customers. And finally, we completed our $200 million accelerated share repurchase program, continuing to execute the capital allocation framework we outlined at Investor Day. Overall, this quarter provided another proof point that the strategy we outlined at Investor Day is translating into market outperformance. We are addressing near-term operational challenges while continuing to execute our growth strategy with a strong pipeline of product launches and new customer opportunities heading into 2027. With that, let me turn the call over to Jerome who will review our financial results in more detail thank you sachin and good morning everyone our third quarter results reflect three key themes first strong sales growth and launch execution second resilient underlying profitability despite two distinct warranty charges and the timing of some customer recoveries and third deliberate working capital investments in inventory to improve supply chain resilience and support upcoming launches for the quarter sales were 970 million dollars up six percent from the prior year we delivered growth of a market of 10 percent relative to customer weighted production driven by strong launch execution most notably in europe and india adjusted EBITDA was 46 million or 4.7 percent of sales including approximately 77 million for two specific warranty related charges sachin mentioned earlier excluding these charges adjusted bida would have been 123 million or 12.7 percent of sales compared with 12.1 percent in the second quarter this demonstrates the resilience of our underlying performance despite additional inflation pressures beyond memory mostly in pcbs and other electronic components for which custom recoveries are still being negotiated adjusted free cash flow was almost breakeven for the quarter cash flow performance reflected our deliberate decision to build inventory to secure more strategic supplies increase safety stocks of selected components and support upcoming product launches at the same time we continue to execute our capital allocation priorities during the quarter we completed a 200 million accelerated share repurchase program and paid 9 million in dividends returning a total of 209 million to shareholders we have now returned approximately half a billion to shareholders since our 2023 investor day in the form of share repurposes and dividends we ended the quarter with net cash of 136 million near the target outline at our june investor day overall a quarter demonstrates strong market outperformance and launch execution resilient underlying profitability and disciplined deployment of our balance sheet while being able to manage near-term cost pressures and withstand working capital pressures turning to page 10. sales for the quarter were 970 million up 53 million or six percent from the prior year it is now the second quarter this year that vistion posted absolute year-over-year growth q3 customer weighted production declined approximately five percent with the most significant decline in china against that backdrop we delivered growth of a market of 10 excluding pricing and recoveries this outperformance was driven by the continued ramp-up of recent launches with audi renault nissan and mahindra partially offset by lower bms volumes with gm and the roll-off of certain legacy programs net customer recoveries for electronic cost inflation including both legacy costs and 2026 inflation contributed approximately 50 million to sales a year-over-year increase of approximately 20 million more than offsetting normal pricing reductions adjusted EBITDA was 46 million or 4.7 percent of sales including approximately 77 million for two specific warranty-related charges highlighted earlier. Excluding these charges, adjusted EBITDA would have been 123 million compared with 119 million in the third quarter of 2025, demonstrating the resilience of Visteon's underlying performance. The Euroviar EBITda bridge reflects higher volumes from recent launches, customer commercial recoveries, operational efficiencies, and lower accruals for incentive compensation. These benefits were offset by elevated warranty charges, higher supplier costs, and negative exchange rate impacts. Inflation-related recoveries remain an important driver of our 2026 results. In the third quarter, customer recoveries fully offset memory cost increases, consistent with the progress reported in Q2. However, we incurred approximately 10 million of cost leakage from a second wave of inflation in PCBs and other electronic-related components that began in the second quarter. We are actively negotiating with customers to recover these costs along with ongoing memory inflation. Overall, the quarter reflects strong growth of market performance and launch execution, resilient underlying profitability excluding the specific warranty-related charges, and continued progress on recoveries and cost initiatives. Turning to to page 11. Adjusted free cash flow was negative 1 million in a quarter and negative 4 million for the first nine months of the year, compared with 215 million in the same period last year. The year-over-year decline primarily reflects three factors, lower underlying earnings, a deliberate investment in working capital to strengthen supply resilience and support launches, and the timing of cash taxes and other annual payments. First, year-to-date adjusted EBITDA was lowered by $116 million compared to the prior year period. This primarily reflects $77 million of two specific warranty charges taken in Q3, which did not impact cash this quarter, cost inflation, and the timings of customer recoveries, as well as non-recurring commercial items that benefited prior year. Second, trade working capital was a use of cash of 99 million year-to-date. Inventory increased as we built safety stocks of critical components, absorbed higher component costs, and supported upcoming launches. This is a deliberate investment to improve supply chain resilience as the supply of certain components, including memory and other electronic components, is tightening while costs continue to rise. Receivables also increased due to higher sales and the timing of certain customer collections, which we expect to improve in the fourth quarter. Third, cash taxes were 14 million higher year over year, including the one-time settlement in India related to prior years that we discussed in the second quarter. As in prior years, first half cash flow also included the annual incentive compensation payments. Finally, year-to-date capital expenditures were $103 million, reflecting continued investment in new program launches, vertical integration, and capacity expansion in India and other growth markets. We ended the quarter with net cash of $136 million after returning $209 million to shareholders this quarter. This included the completion of our 200 million accelerated share repurchase by quarter-end, which reduced outstanding shares by approximately 2 million, or 7.5%. Turning to page 12. We are updating our full-year guidance to reflect our year-to-date performance, integrating our strong sales performance, the two distinct warranty-related charges discussed earlier, and our current outlook for component inflation and inventory. We now expect sales to be between $3.8 billion and $3,85 billion, with the midpoint being $25 million above where we were trending to in the second quarter. This outlook reflects our year-to-date performance, successful third-quarter launches, and confidence in our strong fourth-quarter launch cadence. Key launches include displays with several of our fastest-growing OEM customers and the continued ramp-up of our high-performance compute programs in China. These benefits are partially offset by softer customer production. Overall, for the full year, we expect sales to grow low single digits year-over-year, resulting in growth of a market in the mid-single digits. For adjusted EBITDA, we now expect $370 million to $410 million, compared with our prior range of $455 million to$495 million. The revised outlook primarily reflects the $77 million warranty-related charges highlighted earlier. As discussed in the second quarter, inflation, initially concentrated in memory, has broadened to other purchased electronic components, and we now anticipate that these combined incremental costs will represent approximately 3.25% of total sales for the full year. We are in active negotiations with our customers to recover these costs. However, we do not expect to fully offset these cost pressures in 2026, largely due to recovery timing. The estimated margin impact to our full-year EBITDA represents approximately 85 basis points of margin, including dilution and leakage. Elevated memory and other component costs are projected to continue in 2027, and while vehicle volumes, content decision, supply dynamics and other factors will drive the ultimate cost, based on current visibility, we anticipate additional cost in 2027 to be similar to the levels we saw in 2022. As a result, given the higher cost levels we now anticipate, both the associated recoveries and the resulting margin dilution are expected to be greater than what we had assumed in June. As mentioned by Sachin, we continue to be actively engaged with our suppliers and customers, and we will be providing an update in february 2027. turning back to q4 2026 even with these headwinds we expect margins to improve in the fourth quarter supported by additional customer recoveries and the continued ramp up of cost initiative across product vertical integration and engineering productivity for adjusted free cash flow we now expect 90 million to 130 million compared with our prior range of of 170 million to 210 million. The revision primarily reflects higher inventory as we secured supply of critical components with our customers, along with the timing of customer collections for cost inflation recovery agreements expected to be finalized in the fourth quarter. We continue to expect strong fourth quarter cash generation driven by higher EBITDA and a cash inflow from working capital, mostly as a result of collections for receivables and custom recoveries. Turning to page 13. Vistion remains a compelling long-term investment opportunity. We are 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. In summary, the third quarter reflects strong growth of our market in a challenging production environment. remain confident in the long-term opportunity ahead as we execute on the plan that we outlined in June. Thank you for your time today. I would like now to open the call for your questions. At this time, if you would like to ask an audio question, please press star then the number one on your telephone keypad. Again, that is star and the number one. We will pause just a moment to compile the Q&A roster. your first question comes from mark delaney with goldman sachs your line is now open please go ahead all right yes good morning thank you for taking the questions i guess maybe first to level set a bit on the 2026 top line outlook the company raised the midpoint by 25 million i think there's higher pass-throughs now assumed but you also have mentioned some softening i believe in the underlying business? Maybe put a little bit more detail around how big some of those different buckets are. And then to the underlying business and some of the softening, is that something that's more temporary in nature or you think potentially sustained into next year? Yeah, Mark. Yeah, this is Sachin. I'll take that question first. So what we are seeing here is uh some uh volatility in uh production call outs from some of our customers uh related to component shortages not not related to vistion by the way um and so we are we have taken that into account as we uh are looking at our outlook for q4 um if if uh those component shortages uh could be addressed and if the customers are able to recover that production this quarter uh then we may have some um you know uh tailwind uh in terms of what we have currently uh given as an outlook and maybe uh touching to add uh some color on the on q4 numbers so we've uh put in our guidance close to 940 million in sales uh that's fairly flat um year-over-year and sequentially down by 3%, and our customer production is expected to be down by approximately 6%, and the growth of the market will still be overall in the mid-single digits. So, it's still a very good performance despite these comments from Sachin. We see very strong launch cadence, including the HPC in China, and we have also these new launches with Geely and Syke over there. So overall, a pretty strong performance, which allows us to finish the full year on a strong note. I'm just going to thank you for those comments. My other question was better understanding the company's ability to recover costs. And given what you're seeing in 4Q and at this stage for 27, can you share more detail on how the conversations with OEMs are going at least qualitatively, and are you seeing any change in how willing they are to pay for the supply at now higher costs, and has that changed relative to what Viztian was able to recover over the last several years? Thanks. Yes, and I'll take that, Mark. We've seen, as you know, earlier this year, a lot of cost increases on the memory side, And we've done a very good job in recovering at the end of Q3. So we are pretty much set on that side. What we've seen, unfortunately, has accelerated since Q2 is inflation on other what I would call electronic components, PCB and even SOCs. And these costs have developed quite fast in Q2 and have accelerated as well in Q3. So we've obviously started negotiation with customers for what we call a second wave of cost increases. And we are very committed to recover the large majority of these. But given the timing, we do think there's going to be some level of leakage in 2026. And we have, therefore, assumed that our guidance would be lowered as a result of this leakage, but generally very committed. We also started to talk to our customers on cost increases and recoveries for 2027, and that's where we are in terms of status with customers. Thank you. your next question is from andrew percoco from morgan stanley your line is now open please go ahead yeah thanks so much for taking the questions good morning everyone so um maybe just to pick up where you just kind of left off there on on the cost side of the equation um i'm just curious if we can maybe double-click on the bridge to 2027, you know, relative to maybe what you guided to with your Investor Day outlook. Obviously, some incremental pressure here on the cost side of the equation. You gave some interesting data points in your prepared remarks around, you know, cost structure relative to, I think, 2022. But can you maybe just remind us, you know, what that could mean and just maybe provide some more numbers around, you know the bridge to 2027. yeah and let me start maybe first with just describing uh you know how we see the cost developed there are really two parts to the cost one is the memory and the other is the other electronics components that jerome mentioned let me first address the memory topic because i think besides just the cost i think it's important to understand and where the industry is at with the sourcing of memory, where Visteon is at, and what we then think of the cost. So just taking a step back, DDR4 supply is more constrained next year than it is this year. And we're already starting to see some constraints build in the fourth quarter. And the main reason for that is that some suppliers have exited the market for DDR4 for auto. Now, as we look at 2027, the first challenge is to secure sufficient supply to meet the anticipated customer demand. And we have, in that regard, made significant progress as we started to address this challenge early in the year, working with our established suppliers, while also qualifying additional new suppliers. So what we can say is that for the 2027 anticipated demand, we believe that we have secured the substantial portion of that demand already through this combination with strategic supply agreements plus commitments that we had from New Sapphires. Now, in terms of cost, we expected the cost to go up as we indicated on our investor date and that cost for DDR4 memory in particular has continued to see significant upward pressure this year and we expect that to continue into next year. And especially as we talk about the additional new suppliers that we are bringing on board to complement the supply that we have from micron i should mention though we're still in uh the process we're working on it as we speak to finalize pricing with micron and other suppliers so it would be premature for us to give you exact uh um you know to quantify it uh more precisely and what we've said is in combination with the other electronics components pcbs in particular but also some other components we believe that the cost increase is going to be in the range of what we saw in 2022. if you go back to that year it was roughly 500 million dollars of incremental cost that we saw back at the time and we believe that it's going to this you know somewhere in that range it will depend on the content clicks at our customers as well as of course production volumes so these should only be taken as very indicate so I would say just a range that you should take as indicative of what we think is the likely outcome anything more to add I would add as well that we are essentially from a size standpoint back to what we saw in 2022 and we've demonstrated at the time and I think so recently that we're able to recover this kind of cost obviously the fact that these costs are so large it's becoming it will become imperative to recover above so our objective for uh 2027 will be to maintain our ebitda dollar per our original guidance there's going to be obviously some dilution on the margin percentage but we want to keep the dollar intact that's that's the objective for next year okay paul that's a super super helpful commentary um and then maybe just to follow up on on china you know i i think obviously the market continues the domestic market continues to be you know quite quite weak um i know you guys in the past have talked about how you're you know a little bit more insulated just giving your tilt towards the premium end of the market but can you just maybe you know provide more context in terms of what you're seeing in china on the demand side as well with exports and you know if there's been any maybe change in timing on on some of the hpc launches uh just given some of the weakness that we've seen in the market yeah yeah thank you um so as you mentioned the domestic market in China is I would say even more than ever driven by tech content and AI in the cockpit is emerging as one of the biggest areas of product differentiation and with the launch that we just had with Cherry on the Freelander we're really encouraged by the level of interest that we are seeing from other OEMs in addition to the two additional OEM's that we are going to launch in q4 um the experience that we have gained in launching the uh this first program is obviously helping us in making our technology platform that much more mature it also allows us to demonstrate this technology to the other customers so we see really you know three distinct opportunities for expansion um one is uh this additional chinese oems that we are now able to demonstrate and have constructive discussions about how they can accelerate their own plans to bring ai in the cockpit and the second is with the three customers that we are working with cherry we've talked about psych and and uh geely who we are in the process of launching with uh as we speak um helping them take ai to their export markets in particular uh you know initially for europe and the third are global oems that are evaluating ai for the next-gen profits all those three are in active discussions at this stage various uh stages of um maturity um and i believe that this is going to be a really important long-term growth driver for invest on not just in china but also outside of china in terms of the volumes that we are seeing uh i would say that the cherry program is following its launch of a volume plan as as they have indicated to us initially and there are more vehicles coming online next year we'd like to see how they perform in the market but i think this is a trend that we believe is kind of irreversible in terms of that market for sure. And we see a lot of good signs that it will likely also come into other markets outside of China. Awesome. Thank you so much for all the helpful context. Your next question is from Shreyas Patil with Wolf Research. Your line is now open. please go ahead great thanks so much for for taking my my question maybe following up on on uh the prior comment jerome just wanted to understand some of the the tools that you would have to maintain uh the ebitda target for 2027 given the amount of inflation that you're talking about which i which i believe would be almost three times higher than what had been discussed previously um are there self are there fixed cost reductions that you can uh implement are there uh reductions to r d spending i'm just trying to think through uh some of the uh internal actions that that you could take uh alongside recoveries yes so my comment was mostly oriented around recoveries and the fact that uh we would maintain our ebitda by recovering uh essentially the amount of cost that we are incurring with minimal leakage that that's essentially where my comment was now as we go into next year there's going to be a lot of puts and takes and we'll be obviously looking at productivity material cost other material cost benefits commercial recoveries. So there's a handful of tools that we'll be using, obviously, to make sure that our EBITDA dollar amount stays untouched. One more comment I would like to add to what Jerome has just said. We do need to understand that the memory change that has happened is a structural change. It is not an increase that we expect just to impact the industry for one year, right? The industry is going to shift away from DDR4 to DDR5, and that's going to come at a higher cost. So as we go forward, the way to think about it is that the industry across both suppliers and the car makers have to just accept this as the cost of doing business going forward. So we fully expect that we'll be able to recover all of that incremental cost And yes, the cost may moderate as we go further beyond 2027. But for 2027, there is no option other than to use this DDR4. We will have greater flexibility as we go forward to have greater mix of DDR5. But the costs are not going to go back to the 2025 levels. We are seeing a very significant shift. And the industry will just have to come to terms with it. And therefore, it will be very embedded in our cost of the product. Okay. And maybe on the other parts of the inflation, PCBs, other electronic components, do you see that as also kind of structurally higher? Or is some of that just a function of higher copper prices or some other input materials? Yes, it is different. And I think in that particular case, it is a timing issue. There is a shortage of some specific components that go into making of the high layer PCBs. In fact, you can think of PCBs as essentially having once higher density, which are affected by the shortages. And that's where we see the higher prices. And then the more normal automotive PCBs are not quite affected the same way. we expect that to correct as more supply comes online so that may be more of a 2027 issue than the memory topic okay great and just a quick last one um any any thoughts on on free cash flow uh just this year obviously partly impacted by uh inventory building uh it do should it should we assume that that's kind of largely completed in 26 or or any uh or does that carry also into 27. thanks yes we've we'll still see some level of last time by next year that will probably put some strain early in the month in the year in the early month of next year but for the full year at this point we and obviously we'll give more updates in February 2027 but at this stage we are uh comfortable with what we have for 2027. it's just to give more color to what jerome said so that us you know we buy different memory chips of 25 plus in drams alone and then land and some of those chips are essentially going out of production and so we are securing our 2027 supply by buying the full year's demand and that requires some cash outlays early in the year obviously we will recover that through the year and for the full years it is not going to have an impact on the cash flow but it will be lumpy on account of this dynamic okay thanks Your next question is from Rajat Gupta from JP Morgan. Your line is now open. Please go ahead. Great. Thanks for the questions. I wanted to follow up on the new business target for the year. It looks like you were suggesting that there has been a push out of certain programs um but you're still retweeting the six billion guide for this year i'm curious are are there like certain uh wins um you know that they might have anticipated next year that's being pulled forward um just want to make sure i'm understanding those comments clearly yeah and have a follow-up yes good good uh so so essentially what happened in q3 was on account of this memory topic as you can imagine as car makers are looking at the next generation of their cockpit systems um previously they were on a product architecture that still relied on the old ddr4 memory now they have to take into consideration what they want to do in this entire period whether they stay on ddr 4 or go to ddr5 which comes with uh it other implications such as what is the micro that is associated with the memory so that in short becomes a bigger product architecture decision so that has caused some delays in timing it's important to understand that these are again timing delays not necessarily the same thing as the vehicle planned vehicle production delays which should not be linked and we continue to pursue those opportunities and they are part of our new business pipeline in q4 on top of that one thing that i would also like to highlight is because of this dynamic with memory this shortage situation and this need to shift to more um favorable architectures in terms of supply that's creating additional opportunities that were not part of the pipeline when they started the year so we're going to see a lot of dynamic changes that will happen in the industry from that perspective and with our platform approach our speed of of delivery uh and and our ability to launch products quickly i think we are in a great position to capitalize on what we see as as this opportunity that that will arise for due to suspense as we go forward understood that's that's clear um and just i just wanted to uh also follow up on just latest thoughts on on the whole insourcing debate um clearly a couple of the major north american manufacturers are going to come up with their new you know software defined architectures the next couple years curious where you are in discussions with them on potentially partnering uh in certain areas you know uh yeah you'd hinted at maybe you know you know on displays or other areas but and then also in china you know just hearing from the major manufacturers there there is still a push to in-source. So I'm curious if anything has changed around how you view the HPC penetration opportunity in the region as well, thanks. So yeah, there has been a, I would say, an increasing realization at OEMs. And we should separate China from the rest of the world. And more now this comment is regarding OEM's outside of China. There has been greater awareness of the complexities of what we're talking about here, but not only the underlying technologies complexity increasing, the supply chain related complexities also starting to impact the OEMs realization of the challenges in bringing everything in-house. And therefore we believe that in this memory situation and other supply situations that have arisen, that this will drive even a bigger need oems to balance what they do in their internal development versus what they do working with suppliers right and so we are starting to see this already this dynamic is starting to now play out where they are you know that they were initially trying to insource everything they're now starting to work with us to understand how we can help them mitigate these challenges and i think this is only going to become a bigger issue as we go forward and when you think about vistion right we have great cost structure i would say best in class cost structure we have in terms of our ability to source semiconductors perhaps the best uh you know abilities amongst our peers we are in a great position to help them navigate this this uh near-term challenges and that will help us establish a a better relationship that balance between you know what they do internally versus what they rely on us for and i think this will create more opportunities for us and then on the china piece yeah with respect to china so here's the piece that i would like everyone to understand right so the biggest opportunity for china oems right now is not within china the market is incredibly uh competitive and and And that will be the case as we go forward. Their biggest opportunity is exports. And Visteon is very well positioned to support them in large portion because of how successful we are in China, helping them with their HPC systems. So in China the CDC is essentially old technology now, the cockpit domain controllers. And where they're at now is AI into the cockpit. there are not too many players outside of china that have the capability that we have when it comes to hpc and ai to support their export ambitions and we are starting to really focus on that as a business opportunity for europe and for south america so i feel like we are in a pretty good spot with respect to our engagement with china we understand the overall market pressures there but we have a very specific strategy that is able to capitalize on what we can you know help them with understood great thanks for all the colors uh and give up your next question is from dan levy with barclays your line is now open please go ahead Hi. Good morning. Thank you. Maybe we could just quickly start with just a question on the warranty expense. And I know you mentioned that there was a couple of issues here, and one is sort of through an OTA. The other is there's a product replacement. I think that the queue mentioned it could be up to an additional $20 million of charges. But maybe if you could just double click and what is the confidence that uh these these charges are limited and and and after this this is a full non-repeat into uh 2027 thank you yeah hi uh dan um i'll comment on the on the 20 million so we've booked 77 million uh in the quarter and we believe that this addresses both issues we had a range for cost for one of the claims and we recorded our best estimates we do not anticipate additional costs but as additional costs could be possible not probable we were required to disclose the top end of the range so that's why in the queue you have this mention of of the 20 million but to be clear we believe that we are currently accrued at the right level for these warranty items okay and into 2027 so your view is that this is a full non repeat these were sort of very isolated incidents and there's nothing sort of more broadly that's going on just to confirm that right there's two warranty claims occurred in a quarter we've got corrective measures in place, and we still anticipate additional charges for them. Okay, thank you. The second question is just on trying to extrapolate what we saw in the third quarter, which was actually quite strong, especially in Europe and rest of Asia. And I know you gave some targets at the Investor Day a few months ago, and I'm not going to pin you down on, you know, updating your 2027 outlook. But the Invest Your Day commentary did, you know, show that sort of inflection in growth. So I'm just wondering, how much can we extrapolate what we just saw, you Know, in the strong third quarter, you're oppressive Asia, you know, you continue to see, you Know, China doing better. How much does that support your view that, you Know, we're going to see some growth inflection in 2027, even if the number, you know, you'll fine-tune it, you know, when we get the fourth quarter earnings. Yeah. So, I would say, Dan, that if you look at 2027 our growth is actually quite diversified. Yes, you know, passenger cars, which has been primarily the drivers this year, will continue to grow on account of the launches, mostly in the regions that we have been discussing uh uh which is europe um can is going to return to growth on account of the launches there um and india continues to be a very strong for us so in addition to that we some very high of value and high volume two-wheeler launches that are going to be coming on online next year as well as commercial vehicles. So coming back to the topic that you asked about Europe and what's driving it, I think we have discussed this before, but just to reiterate, Europe is where we are seeing a lot of demand for our display systems and cockpit domain controllers we we talked about one launch in europe this quarter there is another cockpit domain controller that's launching next year that's also very high value the combination of large displays cockpit domain and the pressure that that the oems there face on account of the competition from china we expect to see content continue to grow so yes there is the market share loss of our oems through the chinese oems that that however on the other side helps us in driving greater content but as i just mentioned on the previous comment that we fully expect to be able to do business with chinese oem's in europe so net net we expect to be able exploit you know what's available to us as opportunities in europe and europe is going to be where the content growth will be the greatest on account of the competitive dynamics outside of china and after that we see similar dynamics in india with respect to content growth so i think fundamentally right where we see the demand for our products remain really strong and that's continued this year this is why q3 has been so strong and q4 also will be very strong so i think what we talked about on an investor day we are starting to see exactly that play out and and we're very happy to see that despite the industry having challenges that we are able to execute to our plan great thank you all right thank you this concludes our earnings call for the third quarter of 2026 Thank you for participating in today's call and your ongoing interest in Visteon. This concludes Visteons third quarter 2026 results earnings call. You may now disconnect.