Good morning. I'm Kris Doyle, Vice President of Investor Relations and Treasurer. Welcome to our Earnings Call for the Fourth Quarter and Full-Year of 2021. Please note, this call is being recorded, and all lines have been placed on listen-only mode to prevent background noise.

Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled Forward-Looking Information for additional details.

Presentation materials for today's call were posted on the Investors section of Visteon's Web site this morning. Please visit investors.visteon.com to download the material if you have not already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer.

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

Thank you, Kris, good morning everyone, and thank you for joining our fourth quarter and full-year 2021 earnings call. I would like to start with a summary of our full-year performance, as outlined on page two.

As we have communicated on prior calls, semiconductor shortages affected the industry throughout the year, presenting many operational and commercial challenges. However, the company responded effectively and consistently to deliver against the high demand from customers for our cockpit products.

The result was a strong financial performance in both the fourth quarter and the full-year despite the difficult environment. Full-year sales were $2,773 million, an increase of 7% year-over-year when excluding currency, and nine percentage points growth over market as vehicle production net our customers declined approximately 2%.

Adjusted EBITDA was $228 million or 8.2% of sales, an increase of $36 million compared to prior year. Strong operational and commercial disciple by the Visteon team helped mitigate the impact of frequent interruptions to supply and the higher incremental costs of semiconductors. Adjusted free cash flow for the year was $22 million.

The company's track record of launching a high number of new products remained intact, and in 2021, we launched 43 new products. In addition to digital cockpit products, we had launched the industry's first wireless battery management system on GM's new electric Hummer.

These launches and the $5.1 billion in new business wins continue to position us well for market outperformance in 2022, and beyond. I'm also pleased to inform you that we added a third customer to our growing DMS business. I would like to thank the entire Visteon team for their hard work and dedication throughout the year.

I'm proud of the way the team has rallied around the challenges to ensure we continue to deliver for our customers, and in turn drive shareholder value. We're excited about the secular changes underway in the industry as it continues to transition towards a more digital, connected, and electric future.

Visteon's product portfolio is well-positioned and aligned with these key industry trends, creating the right backdrop for continued sales growth, margin expansion, and cash flow generation.

I will discuss our performance in more detail on the subsequent pages, followed by our outlook for 2022, before handing it over to Jerome to discuss the financials. Turning to page three, automotive production recovered from Q3 levels, but was still significantly lower than the same quarter, last year, due to semiconductor shortages.

Visteon's customers were impacted more than the overall market, with vehicle production at our customers down 15% in Q4 year-over-year, versus 10% for the total market. The negative customer mix was highest in China, where international OEMs underperformed domestic China OEMs.

Nonetheless, our sales came in strong at $786 million, essentially flat compared to prior year, and representing an outperformance of 15 percentage points compared with our customers' vehicle production.

Our team did a great job in working collaboratively with customers and semiconductor suppliers who optimized production for the quarter, and by sourcing chips on the open market to reduce shortages.

We also benefited from redesign of some products to use alternate semiconductors, which will be a bigger factor for us going forward in reducing the impact of these critical chips on our sales in 2022.

Net pricing was positive in the quarter as recoveries of extraordinary costs related to semiconductors more than offset annual price reduction, increasing our market outperformance. Digital clusters did very well in Q4, and were up by more than 20% year-over-year.

Industry transition from analogue to digital continues to pick up pace even in this challenging environment. Digital clusters now represent more than half of our total cluster sales, and we expect this to continue to grow.

SmartCore cockpit domain controllers grew even faster, at 57% year-over-year, although from a lower base compared to digital clusters, driven by new product launches at multiple customers. Infotainment was impacted more by semiconductor shortages than our other products in the fourth quarter, and was down year-over-year.

Display sales were also down year-over-year, but in line with customer vehicle production. Sales for all products would have been higher if we had more supply of chips as demand from customers remained consistently strong throughout the quarter.

On a regional basis, our sales performance was balanced and delivered double-digit outperformance in all regions. Most of our legacy business is now phased out, and replaced with new digital products that are experiencing strong demand.

Turning to page four, global vehicle production in 2021 came in lower than initially anticipated on account of persistent semiconductor shortages throughout the year. Full-year industry production came in just over 2020 level, a year in which the industry was shut down for almost a full quarter.

Vehicle production at Visteon's customers was lower than the overall market, with a drop of 2% year-over-year.

Against this weak vehicle production backdrop, Visteon's sales of $2,773 million grew 7% compared to prior year when excluding the impact of currency, representing an outperformance of nine percentage points versus our customers' vehicle production.

Customer demand remained strong throughout the year, and our sales outperformed vehicle production in each quarter. At quarterly global production of 20 million units or greater, which was the case in Q1 and Q4, our sales outperformance was at high single-digit level or better.

The main driver of this outperformance is the strong sales of our digital clusters, which are doing very well, even in this supply-constrained environment. On a full-year basis, our total clusters business grew 13% over prior year driven by new product launches of digital clusters across multiple customers.

Making up about half of our total sales, the growth of clusters is also the main driver of our overall sales outperformance. SmartCore cockpit domain controllers grew even faster, at 45%, with multiple customer launches starting to ramp up in volume.

As mentioned on the previous page, infotainment was more adversely affected than other products due to chip shortages, especially in the second-half of the year.

Nonetheless, for the full-year, our infotainment sales performed in line with customer production volumes, with the growth of our Android-based infotainment products offsetting the roll-off of legacy business with Mazda that we have mentioned in previous quarters.

The same is true for our displays business with the growth of larger displays helping to offset the decline in smaller legacy displays.

Our performance in 2021 confirms our belief that the combination of a high number of product launches and the alignment of the product portfolio to current industry trends provides a solid foundation for continued outperformance in the coming quarters.

Turning to page five, 2021 was another busy year of launches, with 43 programs launched successfully across 15 different OEMs around the world. The industry continued its transition to digital and connected systems for the cockpit in 2021.

In addition to a high number of digital cluster launches, we also launched multiple infotainment systems and large displays on some of the most exciting and important vehicles platforms and models for OEMs globally. Our digital cockpit products are powertrain agnostic, and are used on both ICE and EVs.

About 20% of all our launches in 2021 were on electric vehicles. We also launched the industry's first wireless battery management system, on the GMC Hummer. It's a significant innovation that not only reduces total system cost, but also improves flexibility and reliability of battery packs for electric vehicles.

We finished the year strong with 17 new product launches in the fourth quarter, some of which are highlighted on this page. We launched three new products with GM that will contribute meaningfully to the growth of our business with this OEM.

These include a digital cluster that will be featured in full-sized trucks and large SUVs, such as the Chevy Silverado, and the Suburban, and Tahoe SUVs, as well as GMC Yukon and Sierra SUVs. We also launched the wireless BMS system and the digital cluster on the electric Hummer, which is the first model to launch on the Ultium Platform, at GM.

We also launched an S-shaped display on Nissan's brand new electric SUV, the Ariya. This multi-display system uses two 12-inch displays that are integrated behind a single large glass cover lens, creating an aesthetically pleasing cockpit design.

We believe that such multi-display systems will become a standard feature in future mid and higher-class vehicles. We are already seeing interest from multiple OEMs for such displays. Visteon is one of the few suppliers that have the engineering and manufacturing capabilities and experience in launching such displays in the automotive industry.

Lastly, I would like to highlight the launch of our SmartCore system with Mahindra, in India, on the all-new XUV700 midsized SUV.

It features dual 10-inch displays and a rich set of connected features, including integrated app store, over-the-air software updates, Alexa, and smartphone integration with Android Auto and CarPlay besides other conventional infotainment features.

This is the first cockpit domain controller to launch in the Indian market, and the most advanced digital cockpit by far in the region. The XUV700 vehicle has been very successful with over 100,000 in bookings since its launch, in October, in large part because of the advanced cockpit system.

I believe it has set the benchmark for future cockpit systems in that market. Turning to page six, we won over $5 billion of new business for the full-year, representing nearly two times the level of sales booked in 2021.

This was slightly lower than we had anticipated due to push outs of some business awards by OEMs as they worked through the supply chain challenges. Lower vehicle production outlook also depressed the lifetime value of new business wins as compared to prior years.

Our product mix reflects the key trends in automotive with digital clusters leading with more than $2 billion in wins followed by SmartCore with $1 billion, followed by displays electrification in infotainment. Many of these wins are high profile vehicle platforms and are likely to be extended as more models get added to the platform.

We added two new customer logos in 2021; one in the two-wheeler and one in the passenger car segment further diversifying our customer portfolio. About a third of our total wins are for electric vehicles reflecting the industry's focus on electrification. On the right side of the page, we highlight a few key wins in the fourth quarter.

The first win highlighted is a panoramic multi-screen display module under one seamless curved cover lens for 25 inches of total display area. This is our first win with this European luxury automotive brand. And our product will be featured across the platform for two premium brands launching in 2024.

The second win highlighted is a SmartCore award in China with a leading domestic OEM and our second win with them.

This is the first cockpit domain controller in the industry that uses dual high performance silicon chips to deliver the high processing power required to support new features such as augmented reality head-up display, occupant monitoring, and the replacement of outside rearview mirrors with cameras and displays.

This is in addition to the more conventional applications such as digital cluster, front and rear seat connected infotainment, and over-the-air software updates. This system will exclusively be featured on electric vehicle models and is expected to launch in 2024.

The third win highlighted on this page is for a 10-inch center stage display with a European OEM for their new electric vehicle platform for compact vehicles. This win compliments our previously announced 10-inch digital cluster for the same platform.

These two products combine to form a dual display cockpit and will launch on two EV models starting in 2024. In addition, we won our third customer for electrification business with the win of a next generation battery cell controller with a German OEM.

This is a conquest win for an upgrade to the OEM's EV platform for premium vehicles and initial award is for four vehicle models on two brands with the first launch in 2024. This OEM has an ambitious EV launch plan and additional vehicle models will follow creating more opportunities for Visteon.

Unlike the two other wins, this battery management system uses wired connections between the cell controllers and the master controller. It's also the first system that will support 800 volt charging, requires highly accurate measurements of battery cell state.

We also believe that this OEM will look at wireless solution for future BMS systems leveraging our experience in the technology. Turning to page seven, growth of electric vehicle sales in 2021 was a silver lining in an otherwise challenging year for the automotive industry.

With over 6.5 million electric cars sold in 2021, EVs were 9% of total vehicle sold globally and doubled the level from prior year. Electric vehicles are digital natives and are good for our digital cockpit business.

Our digital cockpit solutions are already on several battery electric and hybrid cares today the Renault Zoe, Ford Mach-E, and the Nissan Ariya. This page highlights the progress we've made with our electrification business which is quickly growing into a significant incremental revenue opportunity for the company.

With the third customer win, we have crossed $3 billion in bookings for our electrification business. Starting with the electric Hummer, we have a busy launch cadence with these OEMs leading all the way up to 2024. We anticipate electrification will represent 5% of our business by 2023 with a larger contribution in 2024 and beyond.

Our BMS technology offers best-in-class performance with respect to cell measurement accuracy, reliability, and safety. The wireless capability eliminates the need for complex and costly wiring harnesses which also improves safety as there are no connections for high current flow.

In addition, it makes assembly of the battery packs easier with fewer connectors to attach also improving reliability and reducing cost. For these reasons, we believe that over time most OEMs will make the switch to wireless BMS.

In the case of our third customer, they are upgrading an existing wired battery management system to meet new requirements of extended range and fast charging. The switch to wireless would have introduced timing risk to their already tight development schedule. We are looking forward to work this customer for their BMS requirements post this win.

Our goal in electrification is to build a broad base of customers with BMS and then extend into power electronic solutions like we demonstrated at CES earlier in January. I am pleased to report that we are making good progress on both fronts.

We are currently actively engaged with multiple OEMs for their BMS needs and are simultaneously working on developing our solutions for junction box, onboard charging, and other key products that will extend our offering in this space.

Turning to page eight, from an industry perspective automotive demand and supply dynamics in 2022 will look a lot like 2021. Strong consumer demand and depleted dealer inventories will keep demand higher than supply throughout the year.

Supply in turn will depend on the availability of semiconductors which will remain constrained as capacity increases will likely take another year before taking effect.

We expect semiconductor supply in 2022 to improve as compared to 2021 due to non-recurrence of natural disasters that disrupted supply in 2021 and due to the supply chain operating at higher efficiency with the currently installed capacity.

Semiconductor suppliers and fabs are allocating more wafers to automotive especially for chips that were bottlenecks in 2021, which will alleviate the shortages to some extent.

On the other side, semiconductor content in vehicles continues to increase due to the digitization of the cockpit, greater ADAS penetration, and an increase in share of electric vehicles. While this is good for Visteon in general, it will impact the number of vehicles that can be built.

The continued risk we face is from COVID outbreaks like the ones that impacted backend processing facilities for semiconductors in Southeast Asia last year. The net of all this we believe is an increase in industry production volumes of approximately 9% over last year. This puts our forecast in line with IHS outlook for the industry.

However, the quarterly cadence is different. We expect a slower start to the year as compared to IHS with lower production in the first quarter and steady improvement through the rest of the year. We expect supply and demand will continue to improve throughout the year, but will remain imbalanced putting a cap on industry vehicle production volumes.

On the demand side, we are seeing strong demand from our OEM customers driven by pent-up demand from consumers as well the need to restock depleted inventory levels at dealerships. Although customer orders are likely overstated due to over ordering, full-year orders coming directly from our customers are in excess of $4 billion in 2022.

Turning to page nine, in 2022 we anticipate sales will be between $3.15 billion and $3.35 billion representing a growth-over-market of approximately 9% for the full-year at the midpoint of guidance. The strength of our product portfolio has positioned us to grow sales faster than underlying vehicle production volumes at our customers.

Since 2016, we have consistently won new business at levels much higher than current sales. These awards have converted into new product launches over the last several years and are now starting to ramp up production providing a sustainable growth model for the years to come.

We anticipate robust growth-over-market throughout 2022 ranging from the high single digits to low double digits on the quarterly basis driven by our recently launched products and a less constrained environment, in which 20 million vehicles or more are produced in most quarters.

Looking beyond 2022, the ongoing transformation of our product portfolio will continue to drive robust growth-over-market despite higher comparables. The industry is still in its early years of digital cockpit transformation and growth of digital clusters, android-based infotainment, and large displays will continue for several years.

Our electrification product line will start to contribute meaningfully to our sales starting in 2023. And production will ramp up further in 2024 and beyond. We anticipate we'll be able to achieve our $4 billion sales target in 2023 assuming industry vehicle production reaches 89 million units or better.

Moving to slide 10, in summary, the company performed very well despite the challenging environment with COVID and semiconductor shortages. We delivered solid sales, outperforming vehicle production at our customers by nine percentage points.

Disciplined execution of our operational and commercial goals resulted in a robust adjusted EBITDA margin of 8.2%.

The company built a strong foundation for future growth by launching 43 new products and booking $5.1 billion in new business during the year, we launched a new product line, the industry's first wireless PMS product, and secured a third customer to drive growth in electrification.

The industry fundamentals appear to indicate we will be entering a multi-year upcycle in production volumes. The strength of Visteon's product portfolio is perfectly positioned in this environment. Now, I will turn the presentation over to Jerome to review the financial results..

Thank you, Sachin, and good morning, everyone. The last two years have been challenging for the auto industry. In this environment, the Visteon team has navigated both the pandemic and the global semiconductor shortages, with resiliency, highlighting the agility of our supply chain while demonstrating strict commercial discipline.

For the full-year, sales were $2.773 billion, an increase of 7% versus prior-year, when excluding the positive impact of currency. Production at Visteon's top customers was down 2% underperforming the overall industry by approximately five percentage points.

Compared to production at our customers, Visteon's growth of a market was 9% for the full-year, driven by the ongoing transformation of Visteon's product portfolio which our performance was supported by our proactive supply chain initiatives as well as positive pricing for the year.

Adjusted EBITDA was $228 million or 8.2% of sales, essentially at the low-end of our original guidance, despite volumes being much lower than anticipated.

Compared to prior-year, adjusted EBITDA increased by $36 million or 70 basis points of margin due to higher sales, lower engineering, continued cost discipline and a one-time customer recovery in Q4. Incremental costs related to the global semiconductor shortages were a partial offset.

For the full-year, adjusted EBITDA was negatively impacted by $40 million of net costs. As a result of open market semiconductor purchases, supplier price increase, higher freight and logistics costs, as well as product redesigns. These costs have continued to increase throughout the year.

But our recovery success rate also improved quarter after quarter, including full-year settlements in Q4. Combined with a strong pricing discipline with recoveries more than offset our annual price reductions. Adjusted free cash flow was positive $22 million in 2021.

Adjusted free cash flow benefited from higher adjusted EBITDA and continued capital discipline, partially offset by built in inventory levels due to the uneven supply chain environment throughout the year. Compared to our most recent guidance, Q4 results came in better than we were expecting, which I will provide more information on shortly.

We continue to have one of the strongest balance sheets in the industry, and ended the year with cash of $455 million and net cash after debt of $102 million. This provides a strong foundation for growth and tremendous flexibility as we move into 2022.

As Sachin mentioned, we expect the first half of the year to still be constrained with the supply of semiconductors improving throughout the year.

Combining our expectation for industry growth, through better supply and the strong demand of Visteon's products, we are anticipating strong top line growth, margin expansion and increased adjusted free cash flow in 2022. Turning to slide 13, on slide 13, we highlight sales and adjusted EBITDA for the fourth quarter.

Coming out of Q3, we had anticipated a very challenging market environment with production schedules in Q4 being very similar to what we had seen in Q3. Fortunately, production schedules improved throughout the quarter as semiconductor supply began to improve in late October.

Visteon sales for the quarter were $786 million in line with prior-year, despite a 15% reduction in our customer production volumes. This represents a 15 percentage point growth of a market driven by the acceleration of our product transformation and higher pricing.

This performance would not have been possible without the proactive measures we took to optimize supply throughout the quarter, including constant dialog with our suppliers and customers, a sizeable level of purchases of semiconductors on the open markets, as well as some product redesigns.

We also worked with our customers to recover the higher costs that we were incurring to support their operations in the fourth quarter.

Adjusted EBITDA was $92 million, representing a margin of 11.7% and a 220 basis point improvement from Q4 2020 with strong margin percentage performance, especially in a challenging environment was driven by volume levels, higher engineering recoveries, and a one-time customer recovery of $9 million related to a customer's decision to exit a particular geography.

Partially offsetting these benefits were the net costs incurred from the ongoing global semiconductor shortages, related inflation as well as higher freight costs.

In the quarter, net costs related to the semiconductor shortages were approximately $3 million, whereas the impact to margin was 120 basis points due to the dilutive nature of cost recoveries.

At a sales level of approximately $750 million, we continue to see adjusted EBITDA margins around 9.5%, when normalized for unusual items and timing, in this quarter, adjusted EBITDA would have also been in this range, once adjusted for the favorable impact from lower engineering, and one-time customer recovery, as well as the dilutive impact from semiconductor cost increases and higher freights.

Turning to page 14, page 14 provides an overview of our cash and net cash position at the end of the year, as well as our adjusted free cash flow for the full-year. Our balance sheet continues to be very strong, with a net cash position of $102 million and a net debt to the last 12 months EBITDA ratio of negative 0.4 times.

Adjusted free cash flow was $22 million for the full-year. Adjusted free cash flow benefited from a strong EBITDA performance in this challenging environment. Trade working capital was the largest headwind in 2021.

As you may recall, the timing of some working capital items benefited 2020 results by approximately $60 million due to some temporary supplier payment term extensions and early customer payments, this benefit helped our 2020 adjusted free cash flow, but was a headwind in 2021. In addition, inventory was an outflow of about $90 million in 2021.

Inventory has been building mostly as a result of the supply chain disruptions and the constant changes in the OEM schedule. Although this has been a negative on our cash flow performance, these levels of inventory will allow us to ramp up production easily as supply chain disruptions improve.

Cash taxes were flat in 2021 versus 2020, but included certain favorable discrete items. Other one-time items in 2021 included an increase in deferred income, a dividend received from a non-consolidated JV and lower working capital with unconsolidated JVs.

CapEx was reduced by approximately 30% compared to prior-year as we continue to benefit from our ongoing CapEx optimization initiatives, including the increase in equipment for use. In the last two years, most investments we have made were towards upgrading capability as opposed to capacity.

As volumes ramp up again in 2022, we will be increasing our CapEx capacity spending. Turning to page 15, on page 15, we present our full-year guidance for 2022. Our guidance for sales is between $3,150,000,000 and $3,350,000,000, which at the midpoint is $3,250,000,000, represents a 17% increase versus prior-year.

This assumes that production of our top customers will grow approximately 9% in line with the global industry production volumes. Excluding a slight headwind from currency, we anticipate growth of our market will in the high single digits to low double-digits for the second straight year.

Given the uncertainties around semiconductor availability, we have elected to broaden our sales range this year. We anticipate the semiconductor shortages will be more impactful in the first half of the year, impacting both industry production volumes and creating some unevenness in growth of a market on a quarterly basis.

Adjusted EBITDA is forecasted to be between $295 million and $335 million representing an adjusted EBITDA of $315 million or 9.7% at the midpoint, an expansion of 150 basis points versus prior-year despite the non-recurrence of a one-time customer recovery of $9 million, and an increase in net engineering expense to account for higher new business wins and ongoing investments to support the industry trends, including further investments in electrification.

The inflationary costs related to the ongoing semiconductor shortages are expected to continue in 2022. And we're in the midst of ongoing commercial negotiations with suppliers and customers.

As we have done in 2021, we are focusing on reducing the net impact of Visteon through a combination of product redesigns, and commercial actions, including price increases, lower annual price downs, and discrete cost recoveries.

Although we still anticipate a negative net cost in 2022, due to the semiconductor shortages and related inflation, we anticipate about a $20 million improvement in adjusted EBITDA on a year-over-year basis as we continue to reduce the ongoing impact to the bottom line.

Due to the ongoing negotiations with our customers and suppliers, we're not disclosing the rate of recoveries we're anticipating in our guidance. However, we do intend to vigorously pass along the vast majority of these costs to our customers while working to preserve margins.

Adjusted free cash flow is anticipated to be between $85 million and $115 million, representing about a 30% free cash flow conversion ratio to EBITDA at the midpoint of our guidance or $100 million.

Adjusted free cash flow will be positively impacted by higher adjusted EBITDA, a partial unwind of inventory, and the ongoing focus on optimizing capital expenditures.

We anticipate capital expenditures will be approximately $110 million, representing a 23% decrease from 2019 despite an increase in 10% in revenue, working capital is expected to be a use of cash in 2022, driven by an increase in sales partially offset by lower inventory levels.

Although we do not plan on providing quarterly guidance, I do want to reiterate that we expect the first half of the year to be more challenging than the second half.

In particular, we expect Q1 to represent a peak headwind on margins, as we absorb higher costs from suppliers while we are still in the process of negotiating 2022 cost recoveries with our customers. Turning to page 16, Visteon continues to be a compelling long-term investment opportunity.

We have positioned the company for top line growth, margin expansion, and continued free cash flow generation, while our strong balance sheet continues to provide significant flexibility. Thank you for your time today. I would like now to turn the call for your questions..

[Operator Instructions] Our first question is from the line of Joseph Spak with RBC Capital Markets..

Thanks. Good morning, everyone..

Good morning, Joe..

Good morning, Joe..

Good morning.

Jerome, I appreciate that you're not disclosing the rate of recovery better than guidance, and because you're still in active negotiations there, but your pricing was positive I think for two quarters in a row now, maybe you could at least tell us within that 9% growth over market you're assuming for '22 is what type of pricing is embedded there? Is it sort of still the typical negative price downs, or is it maybe a more neutral year?.

Yes. Thanks, Joe, good morning. We are -- yes, we're not disclosing pricing for 2022. We're looking at this holistically, meaning that we have price increases on one side recovering for surcharges and cost increases.

And then, on the other side, we still want to make sure that our customers benefit from some of the cost improvements that we are able to achieve in our business. So, it's really going to be a combination of both.

And as we are going into the 2022, we are looking at that business equation, making sure that, essentially, our margins stay pretty neutral year-over-year. So, that's how we're looking at it..

Okay.

And just the -- maybe the tone of the conversations you've been having with your customers thus far?.

We've had, I would say, good successes in Q3 and Q4. And these are difficult negotiations, obviously, it's not something that the automotive industry is very used to, it's normally the other way around. But I do think that customer understand that there is a need to pass on this inflation.

And we are very active as [technical difficulty] we speak, settling on the 2022 price increases, and just pricing negotiation overall..

Okay. And, Sachin, I noticed in new business wins for the year, infotainment was down to like 9%, I think it was up closer to 20% the year prior. And, obviously, that's been -- that it's been supplanted by some good wins in some of the other products.

But I am curious if there has been a change in reception to [indiscernible] infotainment product is indicative of a shift to maybe more Android-based wins or maybe there's some more content or can you describe a little bit what's going on?.

Yes, sure. So, what we see happen is that we are seeing more cockpit domain controller interest in the industry, our SmartCore solution. And when we talk about the cockpit domain controller, it includes the infotainment functionality.

So, when we have identified infotainment separately in our slides, it's the standalone infotainment, which we believe is going to be, as we go forward here, replaced with more and more cockpit domain controller wins..

Okay.

But just to be clear, was that a change versus how you disclosed the year prior or it is apples to apples comparison?.

I think it is a slight update to how we have disclosed as compared in the past. What we used to do previously was that cockpit domain controller was not a separate category; it has been a relatively new introduction..

Yes, and Joe, you'll see in the appendix, we also split out with revenue cockpit domain controllers for the first time. And so, we recast the last eight quarters for your convenience..

Okay, thanks very much, everyone..

Thank you..

Your next question is from the line of Brian Johnson with Barclays..

Hi, team. This is Jason Stuhldreher on for Brian..

Hi, Jason..

I was hoping we could follow-up, Jerome, maybe on the 2022 margin outlook. Number one, you mentioned, I think, on the last call about $40 million of chip-related or supply chain-related costs in 2021. Could you just update us on how that finished? And then into '22, you mentioned a $20 million year-over-year tailwind.

I just want to confirm, is that a target that includes your embedded assumptions for customer recovery? And I guess what I'm trying to get at is, in 2022, could you kind of quantify what sort of the nonstructural costs are in the P&L, and how that sort of fades out?.

Yes, no, thanks. So, the -- just starting with 2021, we did achieve the $40 million number on net cost that we had guided towards, starting from Q2. So, we incurred, in 2021, $40 million of net cost after recoveries as it relates to semiconductor shortages and inflation.

As it relates to our guidance for 2022, so we do -- the absolute number that we're guiding to is $20 million negative for the year, and that's again net of recovery. So, that means that we are going from a negative $40 million in '21, to a negative $20 million in '22, and therefore we'll have an improvement in 2022..

So, about a $20 million kind of net [multiple speakers]….

Absolutely, yes..

Yes, understood, which, by the way, seems better than a lot of your peers, so congrats on that, and well done. But -- okay, and then I guess just another question for Sachin. And maybe you could just kind of level-set us on where the -- where your market share is in analogue clusters versus your win rates in digital clusters.

And the reason I ask is as we move -- I mean, you've talked about moving out to 2025 around a 25% penetration rate of digital clusters.

As I understand it or as I would assume it would be, within EVs, that digital cluster take rate should be close to 100%, and that it's, for an ICE vehicle, a digital cluster is kind of a nice-to-have, for an EV it's pretty much a need-to-have. So, if you could just level-set us on those two numbers.

And then as EVs grow and as digital clusters grow in that penetration, how you see the defensibility of that product as others look to [multiple speakers]….

Yes, so the first thing I would like to highlight is that the industry, in terms of new product designs, are going completely all towards digital clusters.

So, if there's any analogue clustered business it's kind of more the ongoing business, as more and more of the features, whether it's ADAS or EVs, and other reasons that are driving that adoption of digital clusters, that's just accelerating, and we a significant interest in terms of replacing analogue with digital.

Having said that, I would still expect that the tail to be fairly long, especially in the lower segments of the market. Now, in our case, our market share of digital clusters is, I think, the highest in the industry. We continue to win. Most of our wins that we report are for digital clusters.

As I've said, if there's any win of analogue, it's sort of a continuation of the business. And that's where we are focused on. Now, today, 2021, we had about just over half of our clusters business come from digital clusters, and that market share is, for us, within our share of the clusters business, it's going to continue to grow.

And in terms of defensibility, I think we have a very good platform approach that's very competitive. We today have business with virtually all of the top 15 or even 20 OEMs globally. There are maybe a couple that we don't do digital clusters business with. And I expect even those, as we go forward, we will be able to penetrate.

So, I feel very good about our digital clusters franchise, and I see that, over time, as we go forward, however, that that's going to be replaced by more of the cockpit domain controller, SmartCore type of business, but that has some number of years to go..

Thank you..

Your next question is from the line of David Kelley with Jefferies..

Hey, good morning, guys. Thanks for taking my questions..

Good morning..

Maybe starting with the -- good morning, the net engineering impact. I was hoping you could provide a bit more color on how we should think about the cadence into the first-half of the year.

And then what do you see as the engineering expense levels necessary to support that sales ramp to the $4 billion target next year?.

Yes, the -- if I step back and look at our engineering expenses, you have to look at the gross expense as well as the recoveries. And if you look at our gross expenses, they've been fairly flat, in fact, in 2021, were have a little bit more lumpiness is on the recovery side. And it's just the nature of our business.

We've tried to be as even as possible, but we tend to have a little bit of lumpiness in Q4, and that's what happened this year and as well last year. So, we had quite exceptional recoveries in Q4, and that amounted to $46 million, when our run rate has been closer to $30 million.

But if you step back and look at what we've recovered this year, $134 million, it was similar to what we had recovered in prior year. So, that's again, as well a fairly stable number. As we think about engineering, going forward, we will -- we ended up the year with a little bit less than 7% in terms of engineering as a percentage of sales.

That's kind of the number we are thinking about going into 2022. And that means with sales growing, that we'll be able to invest a little bit more in areas that are pretty important to us connectivity or electrification, just to give a few example.

As we go into 2023, we'll continue to reduce slightly our engineering percentage, and again, that will allow us to continue to invest. So, we'll probably be still below 7% as we get closer to 2023..

And one thing I can add to that is that if you look at the $4 billion in revenue, most of that engineering is actually already behind us.

That's really just driven by now, the supply availability and that should get us to that target and all the engineering that we're talking about here will essentially contribute to revenue two or three years from now..

Okay, got it. Thank you. And then, Sachin, the improving semiconductor allocation that you noted, you are, Visteon is a bit closer to that dynamic than some suppliers and just our take, you seem a bit more optimistic than others on how the evolving supply chain dynamic here.

So, my question is, are you still seeing disruptions as it relates to component availability? And if so, are they just increasingly isolated to certain categories? And should we expect the spot market buys that impacted you last year, it was that a potential input cost we should be thinking about in the 2022 as well?.

That's a great question.

And the way we look at it is the overall situation has improved over last year, all the natural disasters that impacted supply, the industry towards the end of last year largely recovered from that, and you saw the result of that towards the end of last year, especially in November, December, that we were able to secure more supply.

And as you also know, there are different types of semiconductors. And not all of them have the same dynamic in terms of supply.

So, what we are seeing now is that a particular class of semiconductors typically referred to as analog chips are the ones that are more constrained than some of the others, we do expect that constraints will be more severe in the first half than in the second half, we will have to go out to the broker market to secure components to reduce the gap wherever we can.

And at the same time, much of the improvements that we expect this year, especially for those analog chips are going to be modest, and will likely come from these modest increases in wafer supply to that part of the chips, and maybe some efficiency improvements in both the fabs and the back end processing.

One point that may have not been as well understood is on account of how the industry came out of 2020, 2021 was not a year that had a lot of efficiency in the supply chain itself. So, we expect to see some improvements that come out of just that, and the more attention that semiconductor industry is paying to automotive this year.

But the new capacity investments which are happening, by the way, also for analog chips are likely going to really deliver increase supply in 2023, beginning 2023 and it's going to continue to increase every quarter.

And even though we may not necessarily achieve equilibrium between demand and supply in 2023, it should be good enough for us to achieve our midterm projects that we have set.

Post 2023, I mean, we will wait for the industry, the semiconductor industry to tell us more but my expectation is that, we will be by the end of 2023 more or less in a equilibrium between demand and supply..

Got it, thanks. Thanks a lot, guys..

Thank you..

Your next question is from the line of Aileen Smith with Bank of America..

Good morning, everyone..

Good morning..

First question, if we rewind the clock about a year ago, you were among the more conservative suppliers in your production assumptions that was underlying your outlook.

And now if we look at 2022 your production assumptions appear to be some of the more aggressive calling for up 9% year-over-year versus some suppliers that are around the mid single-digit range, can you help us bridge the gap in terms of what you may be seeing around the improvement in the supply chain and the production environment versus others or would you just characterize it as your outlook may be more realistic, and others may be more conservative?.

No, I think we have been really, we try to be very thoughtful, first of all about how we look at production outlook and a year-ago, when we were looking at the semiconductor supply situation, of course, we could not have anticipated the natural disasters that happened during the year.

But if you were to take the impact of those out, we would have been very close to our 80 million unit production forecast that we had at the beginning of last year. Obviously, we all know what happened, there were the natural disasters, Texas, in Japan, and then the impact of the COVID on the backend processing that impacted the supply.

But short of that we would have been at a part where we believe we are forecasted. So, now as we look at 2022, we again are taking a very thoughtful approach and are very closely aligned with the semiconductor supply base, we work with virtually all of them very closely.

And so, we believe that, number one, we are in a supply constrained environment to the demand is there, as you know, as well, there's a strong demand from consumers, the whole dealer inventories and pipelines are depleted. So, it's a environment that will be driven by how much material is available and mostly semiconductors.

So, if you were to take out the impact of the natural disasters from last year, that should give you somewhere between 8% to 9% of improvement on the supply, and then, on top of that, to comment that I just made about the efficiency of the supply chain, which wasn't necessarily very high, if you look at utilization of the fabs, it wasn't where you would expect them to be.

When you factor that in 2022, then you would be at a point where I think we will not see less than 20 million units per quarter in 2022. This is, of course, barring any unforeseeable events that could happen this year as well, which we are not factoring into our outlook. We don't think that we should be unnecessarily conservative.

We believe that this 9% improvement is within reach and that's the basis on which we have made our outlook..

Okay, great. That's helpful. And then second question, I wanted to follow-up on slide six in terms of the $5 billion new business wins, and specifically is your DriveCore Autonomous product in that number at all, the way I read it, DriveCore, maybe in that 4% other category, which is pretty small in the grand scheme of things.

So, if that is the case, can you talk about any traction or interest that you're seeing from your customers on DriveCore and if and when you could translate into new business wins because obviously, the competitive environment, there's really fierce?.

Yes, the first thing I would say is that just to clarify, it is not in the $5.1 billion, just to be clear, but here is how we see the industry evolve, and why we are still excited about the fact that we have DriveCore and what it means potentially, to our business.

So, one clear trend that is emerging is that there is an integration of some level of ADAS functionality with the corporate electronics. So, infotainment and cluster, which is already integrated, is now seeing the next level of integration with what I refer to as informational ADAS. So, this is not ADAS that is taking control of the vehicle.

So, for that you still have a dedicated ADAS system. But there's a lot more camera based processing that's coming into the vehicle to deliver more awareness, a 360 degree awareness of the environment around the vehicle.

And that kind of functionality uses the same underlying technologies that are used to camera based object detection and classification, which is part of our ADAS technology stack. So, we have that technology. We integrated that into our next generation SmartCore product. That was one of the things that we demonstrated at CES earlier this year.

And we are already in discussions with certain OEMs that see the same sort of path, the same trend. On the other side, you see the silicon industry now offer silicon system on chips that have integrated neural processing units of NPUs which enable us to while running infotainment and cluster, also integrate the ADAS stack.

So, we believe as we go forward, it's going to be very important to not only have cluster and infotainment, but also some level of camera-based processing ADAS processing whether it is occupant monitoring, driver monitoring, outside environment detection, and offered features like Sentry Mode, for example, which we have now the possibility on account of this ADAS tag that we have..

Okay, great. That's very helpful color. Thanks for taking questions..

Thank you..

Your next question is from the line of Ryan Brinkman with J.P. Morgan..

Hi, good morning. This is Ben [indiscernible] on for Ryan Brinkman. Thanks for taking my questions and congrats on a good quarter. My first question is we see a lot of interest lately for Visteon telematics business.

And I thought to ask how much of your revenue comes from telematics right now? And how big do you think this business segment could be? And also as OEMs are increasingly driving electrification and next-generation electrical architecture, how will telematics benefit from this trend?.

Yes. The first thing I would say is that you look at the big -- megatrends in the industry, it's about cars being connected and electrified. And connected means a few different things. So, you have a specific telematics functionality which is essentially the modem that connects the car to the cloud.

And obviously, every car already has that -- every new car. But then, what's also very exciting is what we have seen that more and more of the infotainment is also implemented now with android -- an android operating system. So, it's only natural that cars will also now require apps and other services such as OTA as we go forward.

So, we have developed our and we launched it at CES our own cloud services starting with our app store. We are working on an OTA service. And there are additional services being planned. So, this telematics offering from Visteon is going to be integrated into our in-car SmartCore system. So, you have an end-to-end solution.

And we expect to be one of the few in the industry to be able to offer this complete end-to-end solution. We already have today over 50 app developers signed up on our app store. And we expect to be able to sign up more. And this is to me a very exciting area of development for the cockpit.

You mentioned electrification, obviously that's a very big trend right now that we are all aware of. And we have a very competitive battery management technology and a very strong [indiscernible] roadmap to keep it current. So, we believe we have a very good mature product portfolio now that addresses the key megatrends in the industry.

Now specifically in terms of our revenue breakout, you don't necessarily breakout our telematics business only to reflect the modem portion of it that's interesting. Yes, we have a small [indiscernible] there, and what's more interesting to me is the integrated services -- online services together with our SmartCore solution..

Great, thank you. That's good to hear.

My second question is how much of incremental commodity and labor inflation costs are you expecting this year? And of those costs which are the costs that are recoverable? And which are the costs that are non-recoverable? And if you could please remind us how many percentage of this cost can you recover through your mechanism? Thank you..

Thank you. As I mentioned, we are -- we are not disclosing in 2022 the amount of inflation that we are forecasting. It's as we said, we are still in the middle of negotiating with customers and suppliers. So, we've recovered a fair amount in 2021. Most of that was in Q3 and Q4.

And based on the successful negotiations, we anticipate that we will be able to recover a fair amount as well. And we've given a net negative $20 million. For us, it's largely around semiconductor shortages. I am afraid these are kind of the costs that are essentially contemplated in this number..

Great, thank you..

Thank you..

Your next question is from the line of Colin Langan with Wells Fargo..

Great, thanks for taking my questions. Just thinking about the 9% growth-over-market, you've talked pretty clearly over 2021, how customer mix was a pretty big headwind. I think it was 5% for Q4 alone.

How much is that helping, that 9% growth over market, in terms of customer geographic and platform mix, and how much is just purely brand new business wins?.

Yes, so, first of all, Colin, we are not assuming any customer mix, it's neutral in our assumptions for 2022. And if you look at our geographic mix, I would say that we are similar to 2021, where we saw double-digit or close to that growth over margin almost all of the regions in Q4, we do expect a similar performance in 2022 as well.

I think what has happened, which I believe I made comments to that effect in my prepared remarks, is that some of our legacy business that used to cause us issues in the past, most of that is flushed from our system now.

So, the benefits of these new product launches, and we've had -- we've reported, over the last couple of years, quite a few of them, are really what's helping drive that growth over market. It's virtually -- almost all of it is new product launches.

And so, as we expect an improvement in the supply of semiconductors, we expect that to help us across all of the regions..

Got it, that makes sense. And then, as I look into the 2023 targets that you've reiterated today, I think if my math is right, it's 23% year-over-year growth at the midpoint of our 2022, and on the market assumptions only up 6% as well, so that's 17% growth over market.

What's driving that? Is that just a giant chunk of new business wins? Is that assumption that some of the customer mix headwinds you had last year finally start to recover in '23, how should we think about that?.

Yes, so, Colin, the first point I would make is that if you look at the demand, we have the demand already, so it's not based on any assumption of incremental new business wins. If you look at the assumptions, it's almost a similar performance with an improvement in our growth over market, as well 2022.

We do expect our growth over market performance to accelerate with more supply. As we have mentioned before, the secular trends are all very beneficial to Visteon. And on top of that, because we'll still be in a relatively constrained environment, we expect to see OEMs continue to prioritize higher content vehicles, like they have been, also in 2023.

So, we believe that if the supply improves the way we believe it should, and we'll know more through the rest of the year, but if -- we think it's going to improve the way we think it will, it should be well within reach..

Okay, all right, thanks for taking my questions..

Thanks, Colin..

And this concludes our earnings call for the fourth quarter and full-year 2021 results. Thank you, everyone, for participating in today's call and your ongoing interest in Visteon. If you have any follow-up questions, please contact me directly. Thank you..

This concludes Visteon's fourth quarter and full-year 2021 results earnings call. You may now disconnect..