Visteon Corp (VC) 2014 Q1 法說會逐字稿

Good morning and welcome to Visteon's first-quarter 2014 earnings call.

(Operator Instructions)

Before we begin this morning's conference call, I would like to remind you that the 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 risk factors and uncertainties that could cause our actual results to differ materially from those expressed within these statements.

Please refer to the slide entitled Forward-looking Information for further information.

Presentation materials for today's call were posted on the Visteon's website this morning.

Please visit www.visteon.com/earnings to download the material if you have not already done so.

I would let now like to introduce your host for today's conference call, Mr. Bob Krakowiak, Visteon's Vice President, Treasurer and Investor Relations.

Mr. Krakowiak, you may begin.

Thank you, Tiffany.

Good morning, everyone.

With us today are Tim Leuliette, Visteon's President and Chief Executive Officer; and Jeff Stafeil, Visteon's Executive Vice President and Chief Financial Officer.

We appreciate your interest in our Company and for taking the time to join us to review the first quarter of 2014.

We have scheduled a conference call for an hour and will open the lines for your questions after Tim and Jeff's commentary.

As mentioned, the presentation materials associated with today's call are posted on visteon.com within the Investors section.

Also note that our Form 10-Q was filed earlier this morning with the news release.

Again, thank you for joining us.

And now I will turn it over to Tim.

Thank you, Bob, and thank you all for joining us this morning.

As you know, we announced earnings this morning; and in addition to announcing earnings this morning, we also announced the initiation of a $500 million accelerated stock buyback plan, which will be executed -- well, documents have been executed, and will commence upon the window opening, approximately on the 13th.

So that, combined with the announcement of JCI Electronics purchase this quarter; the sale of interiors; the refinancing; etc., it was a fairly busy quarter.

So we have a lot to talk about.

So let's immediately go to the slides.

Let's go to page 2. As we said, the solid first-quarter financials -- sales of just under $2 billion, up 7% versus the prior year; adjusted EBITDA of $170 million, up 21%.

But what's surprising and what is comforting behind that is the headwind of exchange that we overcame.

There was $18 million of exchange headwind year over year, primarily in the climate business, combined -- it's rupee, rubel, Argentinean peso -- hence the strengthening of the yuan, which impacted our sales in other currencies.

About $12 million of that was reval/deval, which is sometimes more of a one-time event.

But again, the major exchange events -- many, many exchange events occurred in the first quarter, which we overcame.

In addition, on the electronics side -- electronics came in better than expected.

There were some one-time events there which improved already -- an improving position, a little more so than what we would expect our average to be through the year.

But all in all, a very solid quarter.

Overcame some exchange issues, and we were pleased with the performance.

Adjusted net income of $31 million.

Earnings per share of $0.63 a share.

Positive adjusted free cash flow of $64 million.

You can read the rest.

From a balance sheet perspective, we ended the quarter with $1.753 billion of cash -- that's up $758 million year over year.

Debt was down $54 million year over year to $723 million on an aggregate basis throughout the Company.

As I said earlier, we announced an accelerated share buyback plan.

As you recall, in September -- excuse me, in August 2013 we announced a $1 billion dollar share buyback program.

We were able to execute $125 million of that before year end, leaving $875 million remaining.

Of that $875 million remaining, we will now commence with this $500 million ASB program, leaving us with $375 million remaining under the current authorization.

Also, as I said earlier, we did refinance the bonds -- 6.75% bonds with a seven-year term loan at LIBOR plus 275 bps.

We are at this point reaffirming our key financial metrics.

One thing that I continually want to highlight to all of you is: remember that these numbers reflect interiors in -- for the entire year.

They do not reflect any JCI Electronic acquisition impact.

Obviously, as we rotate through the year, these numbers will be modified as we update, and modify, and change the Company around the new footprint of exiting interiors and acquiring the electronics business.

Let's move on to page 3. For the quarter there were 22.1 million vehicles produced, globally.

Over half of them were in Asia.

I think -- and I stress this point each time, but let me give you some additional information.

In the year 2000, 1 out of every 33 vehicles produced in the world was produced in China; that's 3%.

Today, 1 of 4 vehicles produced in the world is produced in China.

From 3% to 25% in a period of 14 years.

This is not a static industry.

This is a dynamic industry, and the impact of Asia will continue to grow.

If we look at Visteon's climate and electronics businesses, on an aggregate basis about 22% of our revenue is in China, so we reflect appropriately the balance of where vehicles are produced in the world.

And what's important as we go forward here is that China will probably add, between now and the remainder of the decade, an incremental revenue base -- incremental vehicle production base, I should say, that is equal to about half of the current size of the US market.

So as we look at the ups and downs and dynamics of Europe and the ups and downs and dynamics of the US market, we need to put that in context of what is still a significant growth opportunity in China and Asia, for which we are participating quite well in it.

Let's move on to page 4. We showed this slide earlier, and we keep adding blocks to it, but I think it's an important side to talk about the transformation of Visteon.

Going back to those -- early in 2013 and the actions we took, if we look at the actions in the circle here for this last quarter, there were some monumental announcements and some significant commitments made here by the Company.

One was the announcement of the acquisition of JCI Electronics, which, again, we hope to close here towards the middle of the year.

We also, as I said, refinanced for the bonds and put in place some more lower-cost and a more user-friendly, if you will, term loan facility.

We signed an agreement to exit the vast majority of the remaining interiors business.

I will expand upon that in a moment.

And we announced this accelerated share buyback plan.

So in addition to delivering numbers; in addition to executing a plan from the standpoint of factory floor performance, margin performance, etc.; we are seeing here also the building block issues of getting this Company focused and prepared for the future.

So I was pleased with not only the financial performance for the year, for the quarter, but also for the actions that were taken in the quarter.

Moving on to the next page, page 5 -- provides some additional detail here regarding the sale of the interiors business.

On May 1 we signed an agreement to sell the majority of that business to an affiliate of Cerberus Capital.

The businesses in question and the ones to be sold had revenues of approximately $1 billion in 2013.

And they encompass manufacturing/engineering facilities in Europe, South America, and Asia -- it's the broad, large percentage of our interiors business.

There will be a net book loss of approximately $250 million to $300 million as that transaction is finalized.

But when we look at the Duckyang transaction, which was announced earlier and is now closed; and we look at the remaining assets to be sold; that third piece, which was approximately $100 million of revenues -- that will now -- those three actions reflect the aggregate combination of all the pieces necessary to exit interiors.

We have said all along those three transactions would have a net neutral value impact to the Company.

They will also have to cash outflow of about $200 million, meaning that there is going to be about $200 million of liabilities -- mostly pension liabilities, etc., which will be removed from the Company's books.

We show down here in the table -- transaction one, the sale of the Duckyang position.

Number two, the Cerberus transaction.

And the last remaining transaction would obviously fill in the remainder of these financials.

That transaction is still targeted to occur somewhat by midyear; we are still targeting for that to occur.

That's in progress.

But in aggregate, when we are done, we are still comfortable with the commitment we have made to the investment community that this is going to be plus or minus 0 from a net value impact.

And we're on path to execute these three transactions.

Moving forward then, on page 6. Page 6, I think, is an important slide for all of us.

Page 6: on the left-hand side we start with the 2012 strategic plan.

If you recall, back in September of 2012 at the Citi conference in Boston, we outlined a template of where we wanted to take Visteon: by product segment, by activity, what the key needs and the key action items were that we determined had to happen to place Visteon in the proper place.

As we go down through those list of action items, we are at the end of that era.

Look, the era that I referred to to many of you as the paint-up, clean-up, and fix-up period for this Company is coming to an and.

We are achieving that and now moving forward to combining the two strong businesses of HVCC and Visteon electronics into now a more powerful Visteon.

Both HVCC and Visteon electronics, when the transactions are complete here on electronics, will be number two or three in their respective segments.

They are going to have significant good backlogs, significant higher growth in the market itself, and good margin and margin improvement opportunities as we go forward.

These two businesses are strong growth businesses, bringing value enhancement to the shareholders.

The in-between period of getting there is going to be the remainder of this year, as each one of these quarters is going to reflect changes in guidance and changes in the economics as businesses leave and the new ones come on board.

So as we end the year, we'll be in this position of having now completed this process and now can focus on these two strong businesses.

But what's important is the event-driven, the major-significant-issue-driven action items that really drove this Company for the last two years are now behind us.

This one page summarizes up, I think, a great deal of work done by the team.

I've been very pleased with the team; very impressed with what they have accomplished over this period of time.

And it now takes us to a new place.

Moving to the next page, on page 7. One of the questions has always been: are these underlying businesses -- can these underlying businesses really support that kind of growth?

Because as we look at Visteon, overall, we've seen, since 2009, really about 2.7% CAGR in revenue growth.

But as we look at revenue and take out the pieces that are no longer here -- the ACH service revenue that was in here early on; the Interiors, excluding Duckyang Lighting; the vehicle body electronics, which are no longer part of us -- so we look down at the core sales of just what is our climate thermal business and our Visteon ecosystem of electronics, you see that over that period of time, those businesses by themselves grew at a 13.7% CAGR.

So underlying the growth of the business going forward is the litmus test that historically these businesses accomplished the same task.

If you look at -- and we've now gone back to 2009, which was sort of the valley of the recession.

If we go back to 2008, before the recession, they still would have been growing at a 7.1% CAGR.

So these businesses have already shown their growth and capability, which is why taking them and enhancing them is what gives us confidence in the value and performance improvement that we see.

And value -- I should say share value of the opportunities as we go forward.

With that, I would like to go through the next section, which is the HVCC trends -- sort of a transaction overview.

And, really, the timing in this is as follows.

It was a year ago that we consolidated the Visteon climate business into the Halla climate business and formed HVCC.

At that time, as you recall, we received about $410 million of gross proceeds.

And we created this new HVCC.

HVCC today is the second-largest global automotive climate company, providing full line of thermal management products, from HVAC systems, to powertrain cooling, to battery cooling, to EGR cooling, supercharger/turbocharger cooling.

The whole element of thermal management of the vehicle is now managed by HVCC.

35 manufacturing facilities in four global technical centers, and expansions going on in the world -- which I will talk about here in a moment.

But HVCC has now consolidated, it's implementing the action plan, and it's achieving its goals.

As we go back and look at HVCC historically -- I'm now on page 10 -- from 2006 to 2012, that company acquired or increased its ownership in 11 operations.

And then, with the HVCC consolidation with Visteon, it picked up 10 more operations.

And it really bolstered its position by adding $1.5 billion of revenue and 6,100 employees.

As we go back and look at 2005 and look at HVCC stock, it's now up 340% over that period of time.

HVCC -- by participating in the growing and expanding Asian automotive market, that stock has outperformed many high-tech companies over that period of time because of the value creation opportunity that is not yet over, as we continue to see not only the growth of the Asian market, but also the technology impact and content share per vehicle impact of the technologies that it offers.

Over that period of time, from 2006 to 2013, the Company grew at a 19% CAGR.

So, again, one of the strong forces in the segment.

Moving on to page 11, as we look back first to 2013 and that full year of HVCC, as we prepare now to talk about Q1, let's remember that the sales were up 14%, and adjusted EBITDA up 20%, and margin was up 60 bps.

During that period of time, HVCC stock was up 60% when the S&P was up 26%.

So, again, even in 2013 it has outperformed the S&P, and again, creating value for shareholders.

Now, as we look on page 12 to the first-quarter results, again, climate was impacted significantly by the Korean won.

The Korean won has moved considerably and has continued to strengthen, and that is good and bad.

Obviously, from the standpoint of the value of the shares that Visteon holds of HVCC, the strengthening won makes those shares more valuable.

But also, as we export goods from Korea and sell them at local currencies, we get that squeeze on margin.

And we saw that impact us a bit.

Now, as I said earlier, it was about $18 million of currency impact, of which about $12 million was reval/deval, which was sometimes more of a one-time event.

But nonetheless, the Korean won will be some headwind for the rest of the year.

But it is reflective of the fact that -- and I think we have said in the past -- that over time, when we look at the new programs and the expansion plans that we do have for HVCC, we continue to sort of reduce our dependency on Korea and are more exposed to local currencies and local markets.

As you look at the first quarter on a constant exchange rate -- if we forget the exchange issue for the moment -- you see that, again, on an operating basis in constant currency, HVCC improved operating margin by 50 basis points.

As reported, it's down 100, but again, it reflects that $18 million of exchange.

And through the year, the stock has still outperformed the S&P.

As we look at the growth of HVCC and the 7% plus CAGRs, and we look out to the future, this chart here on page 13 embodies four critical factors here.

First of all, we are building new plants; we are expanding.

We do not build new plants on the expectation of build it, and they will come.

We build new plants because we have new business.

We are building plants now in Mexico, China, India, Russia, and one expansion in South Korea.

So a broad array of new facility launches and capabilities to support the growing customer base.

We won last year $1.2 billion in new business, of which $350 million was new wins and $850 million in gross rewins.

But not only are we maintaining the business that we have and the market shares that we have; we continue to expand with increased new business wins.

A $1.2 billion business win on a business base of $4.8 billion is quite strong.

Back in January -- and I'm looking at the top right-hand box -- back in January at the Deutsche conference, we mentioned the $680 million backlog for 2014, 2015, 2016.

Obviously that backlog is impacted by new wins that we win this year, because we still are winning business this year.

Then we'll have a launch in 2016.

So even though we only quote our backlog on a one-time basis every January, we have expanded that backlog over the first quarter, and we continue to see that occur.

So, again, strengthening that new corner book and strengthening the long-term growth in the Company.

So back at the bottom of the right-hand page, when we sat down and talked about long-term, we said that by 2017 we saw HVCC being approximately a $6 billion business.

And we are still quite comfortable with that position.

Looking at the margin story on page 14, in 2012 we were at 10%; 2013, at 10.6%.

We still feel comfortable targeting about a 12%-plus EBITDA margin.

150 basis points of improvement, driven by what?

Driven by leveraging that fixed cost base that we are still seeing because of the growth; reducing our dependence on Korean manufacturing base, which continues with each new platform launch; launching new products; restructuring the underperforming facilities.

We've got still some -- within the climate definition, some of the legacy facilities which we are exiting or shutting down.

Material manufacturing efficiencies are improving.

We are -- as you can see, the footprint of the added facilities have a much lower-cost footprint continuing going forward, as we expand in low-cost markets.

And so we are comfortable with that.

Now, obviously we will live with the exchange dynamics.

Korean won has moved quite quickly and quite dramatically.

But over time we see that the footprint we are putting in place is going to mitigate any of the exchange issues.

And we are comfortable with the long-term focus and forecast of this business.

So ending on page 15, with respect to HVCC: it's now the number-two automotive climate Company in the world.

It's one of only two full-line suppliers.

Customer-focused solutions.

The IP is very well received around the world.

Innovative products and technologies gaining share.

A backlog that is growing.

And again, a footprint in place to go and continue to increase its margin.

So there has been a lot of talk here about our focus on electronics and the expansion because of the JCI dialogue.

Let's not forget the impact of the performance, and the growth, and the value contribution that HVCC has had, has today, and will have in the future.

And with that, let me turn it over to Jeff, and he can go into more detail on the first-quarter financials.

Jeff?

Great.

Thanks, Tim.

Good morning, everyone.

I will start my comments on page 17.

On this slide we present our key financial results for first quarter of 2014 compared to the first quarter of 2013.

As we have explained on prior calls, our financial results are impacted by a number of items that make year-over-year comparisons difficult.

The adjusted financial information presented on this slide excludes these items and represents how we manage our business internally.

As non-GAAP financial measures, this adjusted financial information is reconciled to US GAAP financials in the attached appendix on pages 32 through 34.

Additionally, year-over-year comparisons are impacted by the sale of our YFVE interiors business and the consolidation of the Yanfeng Visteon electronics operation.

The consolidation of YFVE explains much of the year-over-year growth in sales, adjusted gross margin, adjusted SG&A, and adjusted EBITDA.

The increase in our adjusted SG&A was largely the result of our YFVE transaction, but was also impacted by currency and the loss of a billing arrangement with our former lighting business that ended in mid-2013.

Adjusted SG&A as a percent of sales in the first quarter of 2014 was slightly better than the full-year 2013 percentage.

The decrease in our adjusted EPS is more than explained by three items: a non-cash tax benefit of $54 million in the first quarter of 2013; lower equity income, primarily related to the sale of our Yanfeng Visteon interiors operation; and higher noncontrolling interest, primarily due to the consolidation of our climate operations under HVCC and the consolidation of YFVE.

The three items together negatively impacted first-quarter 2014 adjusted EPS by $2.12.

Excluding these items, adjusted EPS increased $0.73 year over year.

Adjusted free cash flow was $64 million, $31 million lower than last year.

The decrease is more than explained by lower trade working capital inflows.

I will cover these metrics more on the following pages.

On slides 18 and 19 I will take you through a relatively deep dive on foreign currency and its impacts on our margins.

The combined impact of movements in currencies had a negligible year-over-year impact on sales, as the positive impact of a stronger Korean won and euro offset the negative impacts of the weaker Indian rupee, Argentine peso, and Russian ruble.

However, year-over-year currency had a negative impact of $18 million in adjusted EBITDA.

And as Tim explained earlier, it had a particularly negative impact on our climate margins versus last year.

It's important to understand that currency movements impact our adjusted EBITDA in two significant ways.

The first is translation impact, or simply the gain or loss in the conversion of foreign currencies into the US dollar.

Generally speaking, these are manageable and not terribly material to our margins, if our revenues and our costs are in the same currency.

However, when we have a currency mismatch between our sales and cost of sales, we can have a large impact on our margin.

As we have noted in the past, we are particularly exposed to this risk in South Korea.

We have costs in Korean won for all regions, as we supply certain parts and supplies from Korea to operations elsewhere in the world where we collect our sales in a different currency.

Translation in operating currency, net of our hedging program, had a negative impact of $6 million versus the first quarter of last year.

The second impact of currency relates to our balance sheet revaluation from currency movements.

For example, if our Korean operations have accounts receivable designated in euros, the translation impact of this amount back into US dollars flows through our income statement.

This can also have a substantial impact on our margins.

Balance sheet translation benefited Q1 2013 adjusted EBITDA by $6 million, while it reduced adjusted EBITDA by $6 million in Q1 this year.

Thus, the year-over-year difference was $12 million.

Moving to slide 19, we provide additional detail on the two currencies that have the largest impact on Visteon's financials: the Korean won and the euro.

On the right side of the page we provide a table with our sensitivities to both of these currencies.

For a $0.05 movement in the euro, we receive an approximate annual impact of $100 million in sales and $25 million in EBITDA.

However, for a KRW25 decrease, we receive approximately $30 million more in sales, but a $12 million loss in EBITDA.

While we work to hedge these exposures, hedging is only effective only over a relatively short period of time.

Our underlying currency exposures on these programs last several years, and this exposure cannot be effectively managed using conventional financial derivatives.

Thus, we have been working to better operationally hedge ourselves by using more local suppliers and producing a greater percentage of our product in the same region as we sell it.

However, this process takes time and will not be 100% feasible -- and it not be 100% feasible to operationally hedge all these exposures anytime soon.

So currency will continue to play a role in our underlying margins, primarily in the HVCC business, going forward.

Turning to slide 20, we compare 2014 first-quarter sales and adjusted EBITDA to last year's results.

First-quarter 2014 sales and adjusted EBITDA both benefited from the consolidation of YFVE, which we began consolidating late last year.

Q1 2014 sales were $1.982 billion, or $126 million better than the first quarter of 2013.

The increase was driven by the consolidation of YFVE and a higher year-over-year sales in climate, which benefited from the higher volumes in Asia and Europe.

Adjusted EBITDA for the first quarter of 2014 was $170 million, $29 million higher than the first quarter of 2013.

The increase primarily reflected the consolidation of YFVE and higher volumes and positive business equation in climate and interiors, partially offset by unfavorable currency impacts that we just discussed.

It is important to note that the electronics adjusted EBITDA increase of $31 million in the first quarter of 2014 included $27 million related to the consolidation of YFVE.

Turning to slide 21, we show our full-year sales and adjusted EBITDA for our three product groups: climate, electronics, and interiors.

I'll cover each of these in more detail on the following pages.

Moving to slide 22, we provide an overview of climate sales and adjusted EBITDA for the first quarter of 2014 versus the prior year.

Climate sales in Q1 2014 were $1.268 billion, up $40 million or 3% compared with 2013.

The increase reflects higher volumes in Asia and Europe, as well as the launch of new Hyundai business in Asia and new business in North America and Europe, partially offset by ordinary customer pricing reductions.

Currency had a negligible net impact year over year, as the positive impact of the stronger Korean won and euro offset the negative impacts of a weaker Indian rupee, Argentine peso, and Russian ruble.

Adjusted EBITDA for the first quarter of 2014 was $117 million, down $8 million compared to the first quarter of 2013.

As mentioned earlier, currency lowered adjusted EBITDA by $18 million on a year-over-year basis, while increased production volume and positive business equation were partial offsets.

Climate's adjusted EBITDA margin was 9.2% in the first quarter.

On a constant currency basis, climate adjusted EBITDA margin would have increased to 10.2%, or 50 basis points higher than the first quarter of 2013.

Moving to slide 23, electronic sales for the first quarter of 2014 were $439 million, and adjusted EBITDA was $57 million.

Sales for the quarter increased $74 million versus 2013.

The increase was more than explained by the consolidation of YFVE.

Adjusted EBITDA for the first quarter increased $31 million versus 2013, almost entirely explained by YFVE.

First-quarter 2014 adjusted EBITDA margin was 13%.

While we anticipate that YFVE will help lift our historical margins in this business, it is important to note that the electronics adjusted EBITDA in the first quarter included approximately $10 million of favorable impacts relating to the timing of commercial settlements and prototype recoveries.

The timing of these items can be uneven throughout the year, and in 2014 we recognized disproportionate amount in the first quarter.

Turning to slide 24, interior sales in the first quarter were $303 million and adjusted EBITDA was $9 million.

Sales decreased versus the first quarter of 2013 by $14 million, primarily due to lower production volumes in South America.

Adjusted EBITDA increased by $13 million versus the first quarter of 2013, reflecting favorable mix and a $10 million increase related to positive business equation.

The positive business equation includes restructuring savings from the actions we took last year.

As previously discussed, we continue to operate and implement improvement actions in the interiors business while supporting and investing in it, with a target to complete the divestiture of the business this year.

Turning to slide 25, I will provide a breakdown of the key components of our 2013 and 2014 tax provision and cash tax payments.

Our first-quarter 2014 income tax provision was $35 million, primarily reflecting operating taxes in profitable countries and accruals of withholding taxes related to the current earnings from consolidated and non-consolidated affiliates.

The 2014 tax expense is broadly in line with last year, once you exclude the favorable $54 million tax contingency benefit from 2013.

Moving to the right-hand side of the page, we show our cash tax payments.

In the first quarter of 2014, cash taxes were $25 million, primarily related to operating taxes in profitable countries.

For the full year 2014 we estimate the midpoint of our tax expense and cash taxes to be $135 million and $170 million, respectively.

Turning to slide 26, take a look at our cash flow and our capital structure.

Free cash flow was $44 million in the first quarter versus $59 million last year.

Adjusted free cash flow, which excludes restructuring and transaction-related payments, was $64 million versus $95 million last year.

Adjusted free cash flow decreased by $31 million year over year, primarily reflecting lower trade working capital.

Trade working capital in Q1 2013 benefited from approximately $40 million more in calendar-driven payment delays from the end of March to the beginning of April, and $16 million in Asian customer term changes.

Cash balances were $1.75 billion as of March 31, 2014, up $758 million since the first quarter of 2013.

The improvement is primarily attributable to proceeds from the YFVE transaction in December of 2013 and positive free cash flow, but was partially offset by cash used to repurchase Visteon stock and repay a portion of our corporate bonds.

In April Visteon closed on a new $600 million, seven-year delayed-draw term loan B and a $200 million five-year cash flow revolver.

The term loan interest rate is LIBOR plus 275, with a 75 basis point LIBOR floor.

Proceeds from this facility will be used to repay our existing $400 million 6.75% bond and finance the JCI transaction.

In connection with this new facility, Visteon terminated the existing $130 million asset-based revolver.

Moving to slide 27, and as Tim briefly mentioned earlier, today Visteon announced that it has entered into an agreement with a third-party financial institution to repurchase $500 million of its common shares under an accelerated stock buyback program.

The program is a 10b5-1 plan, which will be administered by the agent and not subject to Visteon blackout criteria once initiated.

The program has a maximum maturity of approximately 12 months, and 50% of the repurchase is capped at a maximum per-share amount.

About 80% of the shares are expected to be received by the end of May, with 62.5% of the shares to be delivered at the inception of the ASB.

$375 million remains available under our current authorized share repurchase program.

Moving to slide 28, we provide our 2014 full-year financial guidance.

As Tim stated, we are reaffirming our full-year guidance for our key financial metrics.

For the full year we project the midpoint of sales to be $7.8 billion; adjusted EBITDA, $680 million; adjusted free cash flow, $125 million; and adjusted EPS of $2.65 per share.

Note that we have reduced our interest payment guidance by $5 million, reflecting lower interest rates on our new term loan facility.

Now let me turn it back to Bob for Q&A.

Thank you, Tim and Jeff.

Tiffany, please open the phone line for questions.

(Operator Instructions) Brian Johnson, Barclays.

I wanted to kind of more focus on the revenue side.

In the electronics business, it was flat, excluding the consolidation.

Can you give us, underneath that, some sense of the interplay of between global production growth, roll-on of new contracts, roll-off of old contracts, the impact of the body electronics, if there is any there?

And then how do you see that revenue growth changing on an organic basis once you start integrating -- A, before you integrate in JCI; and then after the JCI integration?

Brian, there's lots of good questions in there.

As it relates to 2014 in general, if you recall, we had said, when we giving our guidance way back when, in electronics, 2014 was a bit of a soft year.

There was a lot of transition.

This was a lot of, we'll say, turnover on some of the customer programs.

And 2015 was going to be a much larger sales increase year.

That being said, the first quarter definitely had some weakness in it, from particularly South America and Europe, on our programs in electronics.

As you look forward to the balance of this year, we do expect some uplift versus last year in just the core electronics business.

But the real growth will really kick in in 2015 on that area.

We were comfortable with the long-term CAGR -- as we said, I think back in January, there is annual dynamics to that CAGR.

And 2014 was not one of the stronger years in the cycle.

2013 was a good year for us, so 2015 is going to be a good year for us.

Okay.

I was just going to answer the last part, or at least address it.

Once we close on the JCI acquisition, we'll give you guidance and give you a better look at what we look like combined.

So -- I think you asked a question about what we would look like with JCI.

Yes.

So you can't really talk about what their backlog is looking at until you actually, I guess, bring it underneath your legal ownership?

Correct.

Correct.

But I think --

If I could just -- go ahead, Tim, sorry.

We clearly are very comfortable with the long-term direction of this business, and the medium- to long-term felt strong.

Order book is good.

So there is -- as Jeff said, South America was a little weak.

Europe had some soft spots.

But one quarter is -- we are seeing some of those leaving it themselves, especially the European side, as we go forward for the rest of the year.

Okay.

And the soft spots: are they just model-specific, production-specific?

Or is it anything to do with take rates varying on the stuff that you have in their cars?

Some of our markets -- generic markets issue of just soft market in South America in particular.

And on some of the vehicle programs we are on.

But as we look forward to releases, we do see a little bit of improvement in the next few quarters.

Okay.

And I guess just final question, sort of mid-to longer-term growth.

Your OpenSynergy and some of the other relationships that have come on since Marty joined you -- can you give us, maybe, an update on those?

I mean, we know the broad outlines of those, but more particularly, in terms of -- maybe it's too early for backlog, but either customer discussions or quoting activity around those?

Both Autonet and OpenSynergy are now engaged components of our product portfolio offerings as we go to the marketplace.

Marty is now in Europe.

We have major customer program presentations.

Basically, if you will, the electronics piece that you saw in the New York investor day has been now shipped to Europe, and we're taking key customers through that and obviously also expanding some of the connected car opportunities.

And also, to support that, Marty and I spent a week in Silicon Valley three weeks ago now, meeting with some of our already current investors looking -- excuse me, at our current invested companies, companies we have invested in already, as well as some potential additional ones as we expand that connected car footprint.

We met with some key customers out there.

So I see a lot of traction.

I think we've had probably more intensity with the customers over the last 60 days than we have had a long time.

As the vision of JCI's combination with us together as a combined, larger entity, and the broad definition of what connected car was going to mean to us -- as it resonated with the OEMs, there is nobody here that is a logical consolidator in this place.

It's going to be, as we have said before, suppliers taking pieces that make sense for them.

And the cockpit ecosystem is one that clearly makes sense for us.

We had one of the senior analysts out in the West Coast come back and say: you know, no matter who we talk to -- no matter if the information is leaving the car or coming into the car -- it has to go through you at Visteon.

So he said, we see Visteon as being kind of the critical node in this connected car expansion that's going on.

As you know, as we have talked about our guidance, and our vision, and our revenue targets, we have said the connected car was icing on the cake.

The cake to us is quite strong.

The cake looks quite good.

The issue of growth in cockpit ecosystems by itself is a very strong and attractive market for us.

But we're seeing the underpinnings of this other stuff start to work its way into the discussion and dialogue.

So we will update kind of that vision and that story once we can talk more publicly about the JCI acquisition.

But we're feeling fairly comfortable about what the story is and how it's being received.

Okay.

Thanks.

Itay Michaeli, Citi.

This is actually Justin Barell on behalf of Itay.

Just hoping to get some incremental color with regards to the interiors net book loss of $250 million to $300 million.

Is that kind of the stub revenue that you guys are believing would be kind of divested post-year relative to 2013?

How should we think about that?

It's primarily the -- writing off the net asset value of the business.

Got you.

And then just on climate: for the $350 million of incremental net wins, what's the time span for that period?

How should we think about that?

I know that there is some upside, it looks like, to 2016.

Is that kind of a three-year award out from there?

What is the cadence of that?

You are going back and looking at --

Yes, I would still say, Justin, the guidance we gave and how we balanced -- I'm going to guess the Deutsche Bank presentation back in January -- we gave you sort of a three-year look at what revenue in the backlog stacked up to be.

That's probably still the best one to do.

We can obviously influence a little bit on 2016 with some of the awards we win in the first part of 2014, and that's what you see reflected on that page 13.

Page 13 in the upper right-hand corner.

Yes.

But for the most part, the Deutsche Bank guidance would probably still be the operative ones for the odd years.

Okay.

Got you.

And then for electronics and the YFVE, how should we kind of think about the revenue CAGR and margins on that kind of business on a go-forward basis?

Yes.

Well, as I mentioned, the first quarter -- there's a couple of timing events that certainly benefited it.

I don't think I would think of a 13% margin as a go-forward, at least right away.

Okay.

We will obviously work to improve the margins over time.

That business is a strong business.

It will definitely lift our overall electronics margins.

And you have seen that, really, in the last couple of quarters here.

And the bulk of -- there's definitely growth in this business in 2014.

You will see more growth in 2015 and 2016.

Perfect.

We also gave guidance back in the Deutsche conference about the growth in the electronics business, as well.

So I think we are comfortable with that.

Okay.

Perfect.

And then just one last, final follow-up question.

I believe you mentioned earlier in the call the ASB -- something with May 13.

Did I hear that correctly?

That's correct.

That's when the blackout period end because of the quarterly earnings date.

Perfect.

All right, I appreciate all the questions.

Thanks so much for the time, guys.

Colin Langan, UBS.

Just will get moved into discontinued operations, and --

Colin?

You kind of came on to our line sort of midsentence.

Maybe you could start again.

Oh, sure.

Is there any color on when interiors will get moved into discontinued operations?

And also, I think in prior presentations, you said interiors was about a $0.45 earnings headwind for this year.

Is that still the accurate number where we are looking about when that comes out, in terms of moving to discontinued ops?

Yes.

Your question on the movement time -- we'll put at least the majority of the interiors business in discontinued operations in the second quarter.

The guidance for that $0.45 was certainly for all three parts of our interiors operation for 2014, but it's still the operative number.

I'd still use that number for your model.

But today's guidance hasn't been updated?

Correct.

You know, it's early in the year, I guess, first.

Second is we know we are going to need to re-update guidance when we complete and close on the JCI transaction.

At that point we will reflect the interiors, as well.

That makes sense.

And can you just make sure I understand the ASR?

When you said 80% up front, is that the $500 million at the current stock price?

Or is that based on 80% of the anticipated buyback price?

Essentially the current stock price is what we are thinking.

Okay.

It's going to be $400 million of shares, give or take, on the current price.

We are expecting by the end of May to have deliveries.

It will depend a bit on share price movements between now and then, but that's what we expect.

Okay.

That's very helpful.

And you mentioned -- you talked a lot about the currency issues.

It did actually look like from the US to won, actually, it didn't seem to move too much within the quarter.

So, what were the major won issues?

And then it actually seems to have moved a lot after the quarter.

So is that something that's going to be a worst of a headwind as we go forward?

Colin, a couple of things there.

The biggest portion we said was $18 million year-over-year difference.

$12 million of that was the revaluation -- just all your working capital accounts, effectively, at the end of the period.

So that portion of that I don't think will have as big of impact in the rest of the year.

The operating exchange certainly will move around the currency.

And in particular, if you think about our HVCC operation, there's a lot of common supplies and some sub assemblies that we make in Korea and then ship to our locations in, let's say, India, or Russia, or Thailand, or other spots around the world.

So it's not just the won to the dollar; it's effectively the won to all those other currencies -- where in India, you are getting paid in rupee, and you are having some portion of your cost base that is still in won.

That's what that reflects.

I do think that the first quarter was abnormally large of an impact from at least what we expect, even with the current exchange rates as of today.

But certainly, with the won down under [1030], it certainly is not a helpful element for us.

But I don't expect the same level of impact that we saw in the first quarter.

Okay.

And just one last question.

Any update on your strategic thoughts within climate?

You have mentioned in the past you would be a consolidator.

You have also thrown out the idea of maybe increasing your stake in Halla and set up for a potential factory spinoff.

Are those things that you are still considering?

And any color on the market outlook for the type of transaction?

I don't think we want to add any more to what we said in the past, other than to say that we fully understand, fully expect that we're going to need to address the balance sheet at HVCC in one form or another, as it's underlevered.

As we have said earlier, the amount of cash we have currently and the magnitude of stock buyback made it inappropriate for us to go throw a lot more cash on our balance sheet right now that we couldn't put to work, quickly -- whether we wanted to lever up, or whatever we want to do.

I think we are proud -- or pleased, I should say, with the forecast of HVCC.

If there are some opportunities to do some acquisitions that are both strategic and economically viable, we clearly would be interested in doing some.

So I think at this point, just from a sheer workload and focus perspective, and just from a management perspective, let's get us through this JCI consolidation, and then we can start talking more about HVCC later in the year.

Okay.

Thank you very much.

Ryan Brinkman, JPMorgan.

I understand that your full-year guidance is unchanged.

And I know you don't guide to the quarter, but as we look across our auto parts coverage, every company that does guide to the quarter generally beat their guidance in 1Q.

So I'm curious if maybe you can just share how you performed relative to your own expectations in the quarter?

And then maybe if you did to do a little bit better, while it might not be prudent to raise full-year guidance at this stage, whether there could in fact be some sort of upward pressure on the full year after the strong 1Q?

I would say that we are pleased with the quarter.

But the reason why we typically don't want to address, especially now, is no matter what we do this quarter, we've got to change it next quarter, just because of the action items and the transaction.

So we're not continuing to move the number here.

We're comfortable with the quarter.

We're comfortable with our guidance.

Pleased with the quarter.

But let us get the other transactions to the point where we can embed them into a revised guidance.

And then we can talk about all the aspects, which is the impact of the revisions and how we see this quarter and other quarters impacting any need to revise the absolute guidance.

It's just an issue about just jerking you guys around each quarter with changes in numbers, because we know it's coming.

Okay.

That's certainly fair.

And then a follow-up to Colin's question on climate M&A.

I guess it sort of relates to your response there, that there's a lot of balls in the air relative to M&A right now; and let's kind of get past those.

But if you do get past those, according to pie charts that you have shown, there's quite a bit of distance between you and the number-three competitor in HVAC, but also quite a lot of distance between you and the number-one competitor.

You've got pretty much all the best technology; right?

I think you have mentioned some compressor technology in the past being interesting.

But what would getting bigger benefit you at this stage?

Is it customer diversification?

Geographic diversification?

If you were to go from, like, 13% of HVAC market to 20%, does that scale -- is that somehow a game-changer in profitability?

I think, always, when you can leverage your fixed costs, your overhead on the engineering side by adding customers, it's good.

We, as you know, have sought to get better customer diversity for HVCC, and that is one of the goals.

I will say that the other thing I have mentioned in the past is that we have to look at the management team itself and say: look at just organic growth and the opportunities that exist there.

And you saw the facility launches that are existing on that one chart in the deck.

You combine that with the opportunities we see in the marketplace, and the question becomes: do we achieve our goals of organic growth and invest with the capital to platforms that are quite attractive, and we see some share opportunities with just the market coming to us?

Or do we had have to go buy something to step-functionally change that situation?

And right now it's a high-class problem, but it's still a problem.

We are going to be looking at those options.

We are very pleased with the customer reaction to some of the new technologies.

And I think I have spoken in the past about the European legislative issues and how that is impacting us.

So we're seeing a lot of organic opportunity.

And this is going to not be driven by financial resources, because we've got, clearly, the financial resources to do what we want to do.

The question is going to be: what is the pace and the cadence for which we can launch and expand the business in a comfortable manner?

That's kind of the issue on the table.

But as I said, we've got some time to assess that.

And I would suspect that we'll be talking more about HVCC later in the year, as we make some decisions on that front.

Okay.

That's very helpful.

Thanks.

And then just the very last question from me: on the $125 million of 2014 in free cash flow guidance, I'm curious if -- I think this will be helpful for us as we look out to next year -- if you could sort of talk about what that guidance would be if not for interiors?

Just because I think interiors is probably a disproportionate, I am guessing, user of your cash restructuring this year.

Yes.

We will -- certainly this year is going to have a lot of noise in it, Ryan, as we are acquiring a business; we are selling some businesses in interiors.

Next year we will certainly have a -- we gave a guidance on that, or sort of a farther-out vision in 2017, I think, at Deutsche Bank of what we look like there.

We'll come out and start to give better views of what we look like without interiors.

But the first real clean year from a cash flow -- or much cleaner year will be 2015.

We'll try to steer you in a -- we'll take that guidance, and we'll try to steer you a little bit more of what interiors's impact is to us in the future.

Not to sort of get things ahead of ourselves here, but I think that the January Deutsche conference 2015 is going to be an interesting conference for all of us, because that will be the first time you will see this new Visteon, clean for a year, all the dynamics of the transactions, and we'll have the transitions behind us.

And looking at the Halla Visteon climate piece, stable -- already is; but now the Visteon electronics piece with JCI, the combined order books, and the synergy impacts, where you will see really that footprint of that new Visteon.

And we are looking forward to that conference.

Okay.

That's helpful.

Thanks.

Congrats on the quarter.

Chris Van Horn, FBR Capital Markets.

Just a couple of questions on the pipeline, if you will.

Is there any specific products or programs that really stand out for you guys, both in climate and electronics?

And on the 350 new wins, was that driven by a few customers, one customer, or a product line?

If you could just give a little more detail around that, that would be great.

There is no one single program that is the bulk or magnitude of that growth.

It is across the board.

And it comes in really three buckets.

One, we are seeing content increases on existing customers, just because the nature of the technology -- adding features and adding content, or bringing technologies that didn't exist.

But we are also seeing an expanded footprint in both Europe and Japan because of new customers.

And then I would say in the latter part there, there is -- we are seeing traditional customers for which -- their products are moving more upmarket.

You are seeing added -- not technology content, if you will, but just traditional content increase on new products in India and some of the more emerging markets, because of those vehicles maturing.

So all of that is combined into that sale.

We have targeted some nontraditional customers of ours, for which we anticipate some, perhaps, expansion there.

But none of that is in that business that's been stated as of yet.

But this is primarily Europe- and Japan-driven more than anything else.

Okay.

Great.

And then assuming the JCI/Visteon combination, will there be kind of a developing pipeline coming out that combination?

Or will it be kind of enhancements to existing products?

How do you kind of visualize that playing out?

Two things.

One, we are bringing platforms to the market; they are bringing platforms to the market.

For the most part over the next 24 to 36 months, those things are in process.

What we are trying to do very quickly is to combine activities.

Case in point: we were not a major player in heads-up displays; they are.

So therefore, we are going to quickly utilize their heads-up display as our product array in that space.

I will use that as an example.

So we will quickly integrate that into ours, and eliminate our initiative and utilize theirs.

There are some other subsegments along that line that work both ways, where they will eliminate an initiative because we already have it, or vice versa.

The platforms that we launched at the Consumer Electronics Show that are the OpenAir for our infotainment package in the LightScape for the programmable clusters will be the primary platforms going forward that we will lead with in the post-2017 timeframe.

Various to that -- and different variants of those.

That will be -- both companies will be utilizing those platforms for their new product offerings.

So the synergies that come quickly are more the efficiency in the engineering side.

Because with the growth that we are seeing, we would otherwise be in the market for engineering that we don't need to be in, because we've now got a combined engineering workforce that we will utilize more efficiently.

There will be some manufacturing synergies that come on board, but that will take approximately a year as we consolidate where we need to be.

Not a lot of that, but some of that.

Of course, there is obviously immediately some SG&A synergies, because we are not bringing the overhead that the company had before as part of JCI.

So that's the early pop.

The product technology and capabilities will be combined fairly quickly, but those will impact only those programs we are quoting for the future.

Okay.

Great.

Thank you very much.

We have got time for one more question.

Kirk Ludtke, CRT Capital Group.

I just had a couple of quick follow-ups on interiors and slide 5, in particular.

Could you expand a little bit on what has to happen between here and closing?

And do you need any approvals?

Are your customers on board, etc.?

And then also maybe expand on the financing that needs to be raised, particularly the potential for some type of seller financing here.

Let we start with the last one.

It's important to us, Kirk, to make sure this business is going to be well capitalized as it left us.

And I think as we worked with the Cerberus team, we found a transaction that met everybody's interest and did provide comfort.

Specifically, what we agreed to on that financing is that they would have $90 million of financing available at close, primarily for things like factoring.

If you think about it today, there is already a factoring arrangement in France for that business.

We can expand that.

To the degree we weren't able to get to sort of what we had as a target level, which we had as $90 million, Visteon would give them sort of a last-use revolver liquidity for the difference.

So if we raised $75 million, we would give them $15 million of a revolver to be used after, essentially, the other stuff was gone.

And we would be repaid before those things were repaid, effectively.

Okay.

Thank you.

That's helpful.

And, you know, our anticipation was to very much minimize that amount to the degree that there is anything on it at close.

As far as things that need to happen, I'd say your regular approvals -- you know, customary approvals.

And we'll say the timing is primarily -- putting this thing in late Q3, early Q4, is primarily due to some carveouts and some other things we need to do from a legal entity standpoint between now and then.

Interesting.

I appreciate it.

And then, I thought maybe these plants would go back to your customers; it's really interesting to see private equity getting involved in the space again.

Do you have any thoughts on the interest that you got in the business that you could share with us?

I would say this -- private equity interest was greater, obviously, in the last year than it was two years ago.

I think there is an understanding in this segment that there is some consolidation necessary.

There will be some catalysts for that consolidation.

Private equity typically plays a role as a catalyst for that type of action.

I think now, given where we see Europe as being -- not necessarily recovering significantly, but not getting worse; so therefore, there is a planning horizon that you can sort of have some comfort in, you are starting to see more action there.

And I think that's why we took our time and paced this to put together what we believe was the right answer, not only from a Visteon perspective, but from these assets going forward.

This is a good business, in the right hands, combined with other assets, because it's got some good IP.

It's just not sufficient critical mass for us, nor is it a core segment for us but it is for someone.

And this company is going to leave with a damn good balance sheet, capability to compete.

And this story is not over.

We see this continuing and the consolidation of that space occurring, because the timing is right.

And as they always say, timing is everything.

But we see timing as being right in this segment now for consolidation.

Great.

Thank you.

As always, much appreciated.

Thank you.

Thanks, everyone for all of your questions.

And with that, I'd like to thank everyone for your participation on the call, and your time and interest in Visteon.

And I'd like to turn it over to Tim for his final comments.

Thank you, Bob.

And again, I want to thank all of you for your support and interest in the Company over this time frame.

I think this quarter is an interesting quarter for us, because it's not just an economic event for us to post earnings and to achieve certain targets; but also, the structural elements that occurred this quarter are critical to us, going forward.

So, again, we were pleased with the quarter.

We look forward to the rest of the year.

And as the year progresses, we will obviously keep you updated and quickly as to be closing of JCI and the integration of that; how it impacts our guidance; and as we said, rolling interiors off in the DISCO.

So, again, thank you all.

We appreciate your interest in the Company.

And we will talk to you again next quarter.

Thank you.

This concludes today's conference call.

You may now disconnect.