Q1 2024 Visteon Corp Earnings Call

Participants

Ryan Wentling; IR; Visteon Corp

Sachin Lawande; President, Chief Executive Officer, Director; Visteon Corp

Jerome Rouquet; Chief Financial Officer, Senior Vice President; Visteon Corp

Dan Levy; Analyst; Barclays

Joe Spak; Analyst; UBS

Luke Junk; Analyst; Robert W. Baird

James Picariello; Analyst; BNP Paribas

Itay Michaeli; Analyst; Citi Research

Shreyas Patil; Analyst; Wolfe Research, LLC

Mark Delaney; Analyst; Goldman, Sachs & Co.

Presentation

Ryan Wentling

Good morning. I'm Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the first quarter of 2024. 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 detail. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning, please visit investors dot 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'll open the lines for your questions. After sessions and Jerome's remarks, please limit your questions to one question and one follow-up. Thank you for joining us.
And now I will turn the call over to Sachin.

Sachin Lawande

Thank you, Ryan, and good morning, everyone. Thank you for joining our first-quarter 2024 earnings call. I would like to start with a summary of our first quarter performance. As outlined on page 2, the team delivered another quarter of strong execution in a mixed customer vehicle production environment. Sales were $933 million, driven by strong demand for digital clusters and cockpit domain controllers. Both of these key digital cockpit products grew 20% year over year. We also saw strong demand for our BMS product with sales more than doubling compared to prior year.
As a result of the strong product performances, our growth over market inflected in the first quarter returning to a positive at 2% after a negative performance in Q4 of last year. As anticipated, the impact of the timing of roll-offs and roll-offs that we discussed in the Q4 2023 earnings call also impacted Q1 sales, although to a lesser extent than last quarter, our Q1 growth over market was also muted by some customer vehicle launch delays and a negative customer mix in China, we continued to demonstrate strong operational execution.
During the first quarter, our adjusted EBITDA increased to $102 million, representing a margin of 10.9%. This is a 70 basis point improvement over last year. Adjusted free cash flow was $34 million in the quarter, representing a conversion ratio of 33%. We deployed $20 million of this cash flow towards share repurchases during the quarter, we also continued to strengthen our foundation for future growth. We launched 26 new products in the quarter and won $1.4 billion of new business across 14 OEMs.
We have previously discussed our strategy of diversification into two wheeler and light and heavy commercial vehicle markets. We launched our first SmartCore product for commercial trucks and won significant business with commercial vehicles and two wheeler OEMs in the quarter. Overall, I'm pleased with our first quarter performance, which was in line with our expectations for a solid start to what we believe will be another year of sales growth, margin expansion and cash generation in 2024.
Turning to page 3, vehicle production at Visteon customers in the first quarter was down year over year and was marginally lower than industry vehicle production in North America. Customer vehicle production was up in the first quarter and demand for Western products, in particular for our digital cluster and VMS products was also robust. This was offset somewhat by customer vehicle launch delays that muted some of our growth overall this year and delivered a strong market outperformance in the region.
In Europe, industry vehicle production was down year over year due to soft consumer demand and the withdrawal of incentives for EVs. Our customers' vehicle production was down more than market in the region. The timing of product roll-offs and rollouts as well as some customer driven launch delays with a couple of OEMs resulted in a flat sales growth over market for us in the region. We anticipate returning to high single digit growth over market for this region as product launches ramp up in volume in subsequent quarters.
Lastly, in Asia, we saw different market dynamics in China than in rest of Asia in China, while overall vehicle production was up, global OEMs saw continued loss of market share to domestic OEMs. Most of the growth in vehicle production was due to higher exports by Chinese OEMs as domestic demand has slowed down. The negative customer mix resulted in our sales in China to be down year over year and reduced our overall growth over market.
On the other hand, this John performed very well in other Asian markets, including Japan, Korea and India. We have been actively targeting these other Asian markets in recent years and winning substantial business with customers like Toyota, Sundi, Tata Mahindra and others. Our sales outperformed customer vehicle production resulting in a positive growth over market in the first quarter for this region.
In summary, we returned to positive growth market in the first quarter. Our diversification across both products and geographies positions us well to navigate the rapidly changing market dynamics in the industry.
Turning to page 4. Demand for our digital products was strong in the quarter, particularly for digital clusters. And SmartCore. We are the global leader in digital clusters with a broadly diversified set of customers. The ramp-up of recently launched digital clusters at multiple customers helped this product line grew by about 20%, even in a down market. It should be noted that there is still significant opportunity to further penetrate the market as only a third of the vehicles being produced today equipped with digital clusters.
Our momentum and SmartCore also continued during the first quarter, driven mainly by the ramp-up of programs with Harley Davidson and Mahindra. We continue to see traction with customers for our SmartCore product as our customers launch new vehicle models with the product as the industry transitions to software-defined vehicles, SmartCore puts us in an excellent position to drive this trend in partnership with our customers in displays.
The end-of-life of a large display program with BMW in the prior year created a challenging comparable in the first quarter sales from that program ramped down in the first half of 2023. And the ramp-up of recently launched display programs with other customers should improve the year-over-year comparison for the remainder of the year. And Audio Infotainment sales were down due to the roll-off of infotainment business at Mazda, which was partially offset by the ramp-up of Stellantis. We have several launches of infotainment planned for the rest of this year. That will help this product line returned to growth.
Lastly, our sales of BMS products more than doubled compared to the first quarter of last year. As noted last quarter, we expect BMS to be a substantial contributor to our growth over market for the year as our customers ramp up battery production ahead of upcoming electric vehicle launches.
Turning to page 5, we continued our strong launch cadence with 26 products launched on vehicle models across 14 different passenger and commercial vehicle OEMs around the world our launches were well diversified across regions with about half of the launches in Asian markets and the rest distributed evenly in Europe and North America. Most of the launches were for digital cockpit products, reflecting the ongoing digitalization of the broader transportation industry, including commercial vehicles.
These products were launched on vehicles with different powertrains, ICE, hybrid and battery electric, demonstrating the powertrain agnostic nature of our digital cockpit products. I would like to highlight some of the key launches during the quarter. In Europe, we launched multiple products on the Ford Puma, which is one of the top-selling vehicles in the region. The products include a digital cluster centered display and an audio system across all three models on ICE and hybrid powertrains. We also launched a dual 10 inch display system.
On the one hand I critter, which is a high-volume compact SUV for emerging markets, we have seen significant growth with 100 over the past several years with launches on key vehicles in their lineup. We launched a 10 inch digital cluster on the all new E and S two electric crossover vehicle from Honda for China. And Japan and Thailand markets. They're expanding our business with Japanese OEMs as they go through their digitalization journey.
Lastly, we'd like to spotlight the SmartCore launch on Skandia's heavy-duty trucks, Scania is one of the leading manufacturers of commercial heavy-duty trucks and are well known for their focus on customer experience. This June, SmartCore is the technology behind Scania's newly announced smart dash digital dashboard, which delivers an advanced in-cabin digital experience for their drivers is the most advanced digital cockpit system for commercial vehicles in the market and set the benchmark in the industry.
I'm pleased with the progress we made in our strategy of diversification into adjacent transportation markets. Together with the two-wheeler market, the commercial vehicle market represents a significant potential growth driver for Visteon with the launch of the Skandia program this quarter, Visteon adds another nameplate to our commercial vehicle customer portfolio that includes Daimler, Volvo and Renault Trucks. These OEMs are leading the digital cockpit transformation and commercial trucks, and we are very pleased to have them as our customers.
Turning to page 6, we had a strong start to the year with new business wins with 1.4 billion secured in the first quarter. Our new business wins were well-balanced across our digital cockpit products as well as regions. Smartcore and infotainment represented almost 40% of the total. We had multiple wins with domestic Chinese OEMs, and we also won a significant infotainment program with a European OEM for their vehicles for the Indian market displays also represented a large portion of our wins in Q1 with multiple wins for both passenger and commercial vehicles have been targeting the two wheeler and commercial vehicle markets as a key source of growth and diversification for Visteon.
This quarter, we had more than $300 million of wins for these markets, including a display program with a European commercial truck manufacturer and cluster and Bluetooth module wins with two-wheeler OEMs. The two wheeler industry is rapidly transitioning to display based fosters and smartphone connectivity, which is creating new opportunities for Visteon in this market.
On the right side of the page, we highlight a few key wins in the first quarter. The first win is for a 12-inch digital cluster for multiple vehicle models with a Japanese OEM, a second significant win with this recently added customer. This digital cluster is expected to launch on multiple vehicle models in North America and Europe, starting in mid 2026. Growing our business with Japanese OEMs is a key priority for Visteon, and this win is a significant step forward in this regard.
The second win is for the SmartCore system on an electric vehicle model for a domestic Chinese OEM for the premium vehicle brand, we continue to diversify our business with more exposure to domestic China OEMs, reflecting the changing market dynamics in that region.
Lastly, we would like to also highlight the robust wins for display products. During the first quarter, we won six display programs with four OEMs highlighting the progress we have made in emerging as a top supplier to the industry for this dynamic and evolving product. Our display wins were across powertrains and included passenger vehicles, light commercial vans and heavy commercial vehicles.
Turning to page 7, Visteon has emerged as a technology leader and a trusted partner to OEMs with displays for the cockpit. This is the result of more than six years of focused investment in building a top-class engineering and manufacturing capability in displays for automotive, automotive displays face different technical challenges compared to displays used in consumer electronics. Our strategy, which is unique in the industry, is based on bringing in-house all the key expertise required for design and manufacture of the increasingly complex automotive displays complemented by a regional manufacturing footprint that is close to our customers to support their localization and decarbonization goals.
I'll now highlight a few of our $400 million of displacements this quarter. We won our first holiday display program for the rear seat monitor for an electric vehicle with a German luxury OEMs. Despite this higher cost, although it is gaining traction with some premium and luxury vehicle brands due to superior graphics quality and design flexibility compared to LCD displays. We also won a 10 inch LCD display business for electric vehicles with a European OEM which will be used on several passenger and light commercial vehicles beginning in 2027.
The last trend highlighted is for the 12-inch driver and center display for the European commercial vehicle OEM. The trend of multi display systems is also starting to impact heavy-duty commercial vehicles, which offers additional growth opportunity for us. Our in-house engineering and manufacturing capabilities allows us to be highly cost competitive without sacrificing quality and features. Large curved displays are difficult to transport across long distances and manufacturing. These products in the region, sales logistics cost and reduces carbon footprint for us and for our customers' overall displays are expected to be a meaningful driver of our growth over the medium term. We have a leading position in displays and are focused on maintaining our lead and continuing to bring more automotive focused innovations to these products.
Turning to Page 8. Europe is an important market for Visteon with a large base of customers and is also an early adopter of new digital technologies, particularly for the cockpit.
Earlier this month, we opened our newest manufacturing plant in Tunisia in Northern Africa to serve our customers in Europe. This plant is equipped with state of the art equipment to produce next-generation digital cockpit and electrification products. This plant will also manufacture displays for our customers in Europe that were discussed on the previous page. We have been operating in Tunisia for more than a decade and have been very impressed by the dedication and capabilities of our two Nutrien team. I'm proud to invest in the long-term future of Visteon in that country. We are very optimistic about the future in Europe, the investment in this plant as well as other investments we are making in Europe will provide us with the resources to drive the growth that we anticipate in this region.
Turning to page 9, I would now like to share our views on 2024. We had a solid start to the year with results that were largely in line with our expectations. Looking at the remainder of the year, we see several factors that have changed in the market since our Q4 2023 earnings call in February first, S&P Global has slightly increased their forecast for vehicle production for 2024.
However, we expect Visteon customer production to deteriorate slightly compared to our previous expectations, mainly driven by the weakness in China. We now expect customer production to decline by about 2% for the full year compared to our earlier expectation of a 1% reduction in incentives that might be enacted in China, which has been reported in the media recently would represent an upside to our customer production forecast.
Second, BMS sales were slightly above our internal expectations for the first quarter. We expect demand for BMS to remain strong as our customers build their pipeline for vehicle launches through the rest of the year.
Lastly, we expect the ramp-up of recent and upcoming product launches to help drive sequential improvements in our growth over market performance. These launches should accelerate our growth over market over the remainder of the year and drive higher sales overall, based on our current expectations, we are maintaining our sales guidance and look forward to delivering another year of sales growth in 2024.
Turning to page 10. In summary, the company performed well in the first quarter. Our technology profile is aligned with key trends, including the connected car, digitalization and electrification that will drive future growth for years to come. We delivered growth over market of 2% in the quarter, and we expect growth over market to accelerate through the rest of the year. The team continued to execute on our commercial and operational plans, which resulted in a strong adjusted EBITDA margin of 10.9%. We continue to build our foundation for the future by launching 26 new products and winning $1.4 billion in new business.
Now I will turn the presentation over to Jerome.

Jerome Rouquet

Thank you, Sachin, and good morning, everyone. The first quarter was a solid start of the year with results generally in line with the expectations we outlined in February, we delivered another strong quarter of operational execution and commercial discipline. We also strengthened the foundation for future growth with a high number of product launches and significant new business wins paving the way for continued sales growth in the coming years.
Turning now to our first quarter financials, sales were $933 million as we expected growth of the market rebounded to a positive 2%, and we returned to market outperformance after the negative 2% from the fourth quarter. We saw strong demand from our customers for our next-generation products, including digital clusters, cockpit domain controllers and wireless BMS.
Our sales performance was partially offset by a modest headwind from currency and a 1% reduction in customer production with lower customer production in Europe and Asia, partially offset by an increase in the Americas. Our supply chain maintained much improved levels that we saw in the second half of 2023 recoveries were EUR22 million lower year over year with minimal open market purchases and related recoveries in the first quarter of 2020.
For now that we have moved past the need for open market purchases. Recoveries should be more consistent from quarter to quarter, and therefore, we will no longer separately disclosed supply chain recoveries, adjusted EBITDA for the quarter was $102 million compared to the prior year.
Adjusted EBITDA benefited from operational improvements and manufacturing efficiencies, partially offset by reduced sales, an increase in net engineering and a modest headwind from foreign exchange. EBITDA margin in the quarter was 10.9%. This level of margin is consistent with the run rate of approximately 11% we had exiting the fourth quarter of 2023.
And this despite sequentially lower sales, our first quarter margin performance positions us well to deliver on our targeted margin improvement in 2024. Adjusted free cash flow was $34 million, a strong performance for the first quarter, which is traditionally an outflow.
The improvement versus the prior year was driven primarily by reduced working capital outflow. We repurchased $20 million of shares during the first quarter at an average price of approximately $117 per share. This brings our repurchases under our existing plan to $126 million. As of the end of the first quarter, we ended Q1 with total cash of $507 million and a net cash position of $175 million. We remain on track to deliver strong sales growth and margin expansion in 2024.
Thanks to the acceleration throughout the year of recent and new product launches that touch in highlighted earlier. Our strong commercial and operational execution continues to support incrementals in the high 10s and free cash flow conversion of approximately 33%.
Turning to page 12, sales in the first quarter of $933 million were a slight decline compared to prior year. The lower sales resulted primarily from lower pricing related to semiconductor recoveries and annual customer price reductions, slightly negative year-over-year customer production and a modest headwind from currency, partially offset by higher volumes driven by our positive growth of the market.
Visteon customer vehicle production declined 1% from the prior year. Lower customer production was driven by weaker production in Europe and in Asia, partially offset by strong performance in North America as the Detroit three production rebounded after the UAW strike in the fourth quarter compared to our customers' production, we delivered a positive 2% growth over market in the first quarter, primarily driven by strong demand for digital clusters and DMS.
On the regional basis, market outperformance was highest in Asia when excluding China as well as in the Americas, supported by both launches and strong demand for new products. Europe was essentially in line with the market with sales muted due to the timing of roll-offs and rollouts mentioned last quarter as well as some customer launch delays.
China underperformed the market due to the roll-offs of programs with international OEMs and negative vehicle mix with domestic OEMs. We continue to be focused on commercial discipline, combining our discussions with customers on both recoveries and annual pricing. We made significant progress on recoveries and pricing negotiation with customers in the first quarter, and we will remain disciplined on a go-forward basis.
Adjusted EBITDA was $102 million, an increase of $3 million compared to the prior year, higher adjusted EBITDA was driven by strong operating and cost performance across the company. Net engineering increased $4 million year over year, which was primarily due to the timing of recoveries as a percentage of sales.
Net engineering was 6.4% in the quarter, and we continue to expect it to be in the mid 5% range for the full year. Adjusted SG&A increased $1 million year over year to $45 million or 4.8% of sales. We continue to expect SG&A to be in the mid 4% range for the full year.
Adjusted EBITDA margin improved to 10.9% in the first quarter of 2020 for a 70 basis point improvement year over year. Q1 results were largely in line with our expectations as the weaker than expected top line from Europe and Asia was largely offset by the strength in the Americas. Through continuous focus on execution, we were able to maintain our 2023 margin run rate. And this despite lower sales in the first quarter, our Q1 EBITDA performance sets us up nicely for further margin expansion.
Looking forward. We anticipate maintaining our momentum from recent quarters with sales and EBITDA expected to grow sequentially throughout the year. Thanks to the acceleration of our growth of the market in the second quarter, we currently expect sales to increase sequentially to slightly more than $1 billion as we benefit from the continued ramp-up of recent and new product launches across our digital cockpit and electrification products.
Turning to page 13, starting with the balance sheet. We ended the quarter with a total cash position of $507 million and a net cash position of $175 million, and our strong balance sheet continues to provide us with significant flexibility to allocate capital.
Turning to cash flow. We generated strong adjusted free cash flow of 34 million in the first quarter of 2024. This is a $71 million improvement compared to the prior year, primarily due to the lower outflow from working capital, partially offset by higher capital expenditures. The outflow related to trade and other working capital declined substantially year over year with a strong improvement in the first quarter of 2024.
We're still expecting a working capital outflow for the remainder of 2024 as we build additional working capital to support growth during the first quarter of 2024, our inventory levels increased as we were able to rebuild adequate safety stock of critical components following the stabilization of the semiconductor supply chain. Cash taxes were lower in the quarter versus prior year due to the timing of discrete tax payments in Q1 of last year.
Interest payments remained low and primarily relate to our term loan, which were more than offset by interest income on our invested cash CapEx was $37 million in the quarter and remains on track for EUR145 million for the full year. These investments will allow our operations to deliver on future growth.
Examples of CapEx spending this quarter included our new plant in Tunisia mentioned by Sachin earlier, as well as continued investment in DMS and display capacity as well as capability that will support our growth for the years to come. We'll continue to look for ways to deploy capital to support organic growth initiatives at attractive returns. Our success in allocating capital to high-return projects is illustrated by a return on invested capital of 16%, which is at the top of the peer group.
Turning to page 14, Visteon remains a compelling long-term investment opportunity. We benefit from the higher demand for more digital content in the cockpit regardless of powertrain and the growth of electric and hybrid vehicles. Visteon is uniquely positioned for multiyear top line growth, margin expansion and free cash flow generation. While our strong balance sheet provides us with significant flexibility to execute on our plan.
Thank you for your time today, and we'd like now to open the call for your questions.

Question and Answer Session

Operator

(Operator Instructions) Dan Levy, Barclays.

Dan Levy

Hi, good morning. Thank you for taking the questions. Wanted to start with. Hi, good morning. The growth over market in the first quarter, I think you touched on it. You know, there were some issues with PROGRAM roll off? And then maybe any more color on sort of the growth of a market that we saw in 1Q? And what is the line of sight and that you have to the growth of market ramp that you're expecting in the remainder of the year. Are there key launches that you would flag key regions that you expect to reverse?

Sachin Lawande

Thanks, Dan. It's Oklahoma. I'll take that question. So we had signaled at the end of the year that we would be seeing a progressive ramp-up of growth of the market during 2024, and we returned to a positive growth market in Q1, as expected, still low 2%. And there are a few reasons for that. We still have got some remains of the air pocket that we talked about in Q4.
As you said, between roll-offs and rollouts, we also still have a fairly significant China mix and as you know, international OEM players are much less successful than domestic players where Visteon has got less content. We also had a few launch delays in Q1. And by now these ones are mostly resolved. And all this was partially offset by better than expected VMS sales in Q1. As you know, GM is launching their entire range of Ultium products, so that has helped us a little bit in Q1.
So as we look forward and look at Q2, we're expecting that a growth of the market in Q2 will improve significantly to I would say, high single digits. And that's implied, in fact, in the Q2 sales number that I gave, which we think will be slightly over EUR1 billion. And the reason for this is that we had about 26 of program launch in Q1, and we're now going to see these programs ramping up. And that will partially, if not totally negate the air pocket that we saw in previous quarters.
We also have launches that were delayed in Q1 and that are now ramping up according to expectations in Q2 on the Ford side, for example, we have the Ford Kuga as well as the Ford Transit, which were slightly delayed, and we are now in full ramp up in Q2. We're expecting also BMS to continue to grow, and that will help us on a go forward basis. Gm was pretty positive as well regarding the launch cadence during their call this year. So overall we're seeing a lot of good momentum going into Q2.
It's obviously early to talk even about April, but we are seeing a good momentum already in the month of April and that confirms all these data points that I was highlighting. So for the rest of the year, we should continue to see an acceleration of the growth of a market. Similar factors will come into play, and we'll see an acceleration as well of the BMS launch with a with GM.
So if you step back, we are really expecting for 2024 to get back to the growth of a market that we had seen in prior years. And that's really on the account of all the business wins that we've had in the last few years as well as the fairly significant amount of launches that we had in 23. As a reminder, we had about 129 launches in 23, we've launch in Q1 26 products, and we're expecting essentially a very strong year in terms of launches for 24.

Dan Levy

And just to clarify that you're reiterating your sales guidance, the production assumption is slightly weaker. So I assume that the low double digit, the 10 to 12 points of growth over market guidance that's still intact.

Sachin Lawande

That is correct. As I said, Q1 really developed pretty much as expected. We had highlighted that sales would be lower sequentially as well, slightly year-over-year. We do see we did see a slight deterioration in customer production, 1% versus prior guide, largely coming from China. And at the same time, we've heard there's a lot of comments in the press around China incentives that could potentially help the second half of the year. So at this stage, it's absolutely in line with what we had talked about two months ago.

Dan Levy

As a follow-up I wanted to ask about China, and I think we're all well aware of negative mix issue that has really been an issue for the entire supply base. Maybe you can you talked about increasing your mix with the domestic. Maybe you can give us any further color on the line of sight that you have and overcoming the mix issues competitively. Are you well positioned. Is it the right domestics that you have in China? So just any more voiceover on China that can give us some confidence and on the nerve issues being overcomes Yes,

Sachin Lawande

Dan, this is Sachin. I'll take that one. So maybe a little bit of context would be helpful. So if you go back a couple of years, the global OEMs operating in China had a larger market share. But since 2022, that share has been shifting in favor of domestic OEMs and it really accelerated in 2023 so when you look at Q1 on the share mix was 60% and 40% in favor of the domestic OEMs in China as compared to 55% for domestic OEMs in on a full year 2023.
Now most of the growth with domestic OEMs have come from OEMs such as BYD, Geely, Joel Cherry, Chengshan And for example, and we have been pretty busy anticipating this shifting our business of Renault more to the domestic OEMs and over the past couple of years have done very well in terms of developing business with, for example, Geely who's currently one of our largest customers already on.
In addition to that, we have launched SmartPool with ARM, GMC and more launches are scheduled and we continue to work closely with Chengdu and of Dongfeng, in particular in terms of developing our business with them. Also, I feel that we are very well positioned, especially with SmartCore with the experience that we have and already supporting customers in China to be able to broaden our base. It has been a very dynamic market.
The market shares have been shifting almost quarter by quarter. New entrants have come in such as Huawei and some of the phone makers that have come into the automotive, especially for EVs. So our approach has been our to focus on the ones that we believe will be in the market long term. But also, I would mention that we believe that the European luxury OEMs as well as the Japanese OEMs in the long run, we'll do well in that market and we continue to work with them for their product in China as well.
So overall, I think we are making good progress. We expect the mix to be slightly more negative, as Jerome mentioned earlier, but then are depending upon if we see the incentives come through, that might change our perspective on 2024.

Operator

Joe Spak, UBS.

Joe Spak

Good morning. Okay, confirm here with the lower production than sort of what you thought does that are you implying you're sort of more comfortable at the lower end of your of your guidance range? Or or is there some growth over market offsets that keeps you comfortable with either the mid or the high end potentially?

Sachin Lawande

Thanks, Joe. At this stage, we're not changing our guidance for 2024. We're still giving the range. As I mentioned, there's a slight deterioration we are watching and looking at how the markets are going to develop. It's very early two to to change anything I would say. So pretty happy with the way things developed in Q1. We've got high expectations for Q2 with sales slightly over 1 billion, and then I will take it one quarter at a time.

Joe Spak

And I guess just to quickly follow up on that, given given some of these some customer changes and sort of share shifts, like I think when you guided last quarter, you also sort of gave a like 8% base sales growth. And I'm wondering if you actually feel maybe more comfortable with that target than with the growth over market target, just considering some of the customer shifts, particularly in China, is that is it fair?

Sachin Lawande

You are that's a good point. And, you know, when we talk about growth in the market. It also brings into question a lot of the production dynamics that are hard to necessarily predict. But what's really more important for us has been our absolute best sales growth, which are for our 2026 target, we needed to hit 8% kegger and sales.
So that's what we are really focused on are in terms of our execution and delivery on growth over market depends a little bit on other factors, but what we said was at the beginning of the year, the assumption that we had for LVP, therefore the implied total market would need to be in the 10% to 12% range that that could shift depending upon so many other factors, but I'm much more focused on the underlying sales growth.

Joe Spak

Okay. And maybe one quick one on just BMS., it sounds like that was helpful this quarter. Does that and just shipping of IBMS. as system sort of differ maybe from some of the other products, like is that shipped more more in advance just given some of the work that needs to be done on the pack. And I think you also mentioned started the SOP for the second VMS customer was this quarter. So how do you expect that to ramp? And is the third still on track for later this year as well yet, but you're absolutely correct.

Sachin Lawande

So the battery manufacturing challenges that Williams has faced some that have been well-publicized as caused the shipping pattern to be pulled up a bit ahead of the launches. So we typically supply to the battery pack of plants, which it takes a few, maybe even sometimes months ahead of the vehicle launch. So that's there's definitely one of the dynamics.
We are absolutely on track with on the second customer that we have started to ship ahead of their vehicle launch plans. Are they're in the process of manufacturing their battery packs and the third is on track for later in the year.

Operator

Luke Junk with Baird.

Luke Junk

Good morning. Thanks for taking the questions on first question, maybe a bigger picture question session and just speed. Curious for your updated thoughts on just how to position the company with local Chinese OEMs. And I'm thinking more from a process standpoint and cost repeatability getting to market more quickly. And if the first quarter win that you had with this premium brand is maybe a window into how you're executing in China right now?

Sachin Lawande

Yes. So look, the market in China is very focused on very high end high complexity systems with and multiple displays in the cockpit and a lot of software and processing. So are they tend to be very complex, high value and high content type of businesses takes actually a little bit longer in terms of the development time as well on account of the complexity. But our part platform approach with SmartCore has been hugely important and critical in us being able to win and deploy the systems.
So we feel that we have a strong reputation in the market now based on the launches that we've had, especially with Geely also with GMC that we have talked about already, right, that puts us in a, I would say, very small group of suppliers with proven capabilities in the region to support their launch plans being a very competitive market, lots of changing dynamics. In fact, somebody some of the leaders and OEM that I talked to said they have to change their plans in terms of competitive positioning every quarter and as a supplier, we have to react to it. Also, I feel like we are well positioned with our platform strategy.
Our next focus for China is going to be displays. We believe we can also help our customers with displays, especially of many of our customers are now focused on export markets as the demand in the domestic market has slowed down and we are in a very good position with our footprint outside of China to support their growth plans for export. So I think if you look at how we are positioning ourselves is really SmartCore displays and then being their partner for helping them in that exports.

Luke Junk

Thank you for that. And then for my follow-up, just hoping you could comment on capital allocation and any changes maybe the updated outlook for share repurchase and whether or not where the stock is right now impacts your thinking one way or the other?

Sachin Lawande

Yes. Thanks. Thanks, Luke. So generally, I would say, since we've initiated our EUR300 million share repurchase a year ago, we've been pretty active on share repurchases. We've purchased in four quarters, 126 million, what's our share? So it's a very large portion of our free cash flow that has gone back to our share repurchases.
What I want to highlight is that in line with what we had mentioned a year ago as well during our investor day, we want to have a very balanced capital allocation strategy. And and I think we've demonstrated this quarter again that we want to invest in the business, the Tunisia plant that we've highlighted in such presentation is a great example of the type of capital allocation that we will continue to do.
And we are obviously investing engineering in capital expenditures on display on electrification on display, for example, we are seeing a lot of good momentum with display technologies these days, and we're looking as well at how can we integrate more on the manufacturing side on display. So a lot of activities going on these days on our internal growth and our internal capabilities that would help our returns.
And the second piece we are looking into are as well areas that could help us getting more margin accretive type returns. And we are thinking about software, cloud compute technology and that includes services. And for this, we are looking obviously at our capabilities, but as well at a potentially bolt-on acquisition that could enhance and these capabilities. And we think that with the disruptions that are going on in the market these days, there's probably some opportunity.
So we are remaining pretty active in these areas. And obviously, we'll make sure that we always look at something that potentially could be a good fit. So we are definitely looking at a very balanced approach to capital allocation, and I'll leave it there.

Operator

James Picariello, BNP Paribas.

James Picariello

Just sequentially a question on currency first. So last year saw a transactional earnings hit of 24 million. Can you just confirm what's embedded in the full year guide, both from the sales and EBITDA perspective for FX? And sorry, if I missed this, what those impacts were in the quarter as well?

Sachin Lawande

Yes. So we had highlighted a small headwind in terms of exchange for the full year guide for 2020 for the 1% range for both sales as well as EBITDA. What we saw in Q1 was pretty much in line with that if in fact, even slightly lower, we had to give you the exact numbers. Our impact on sales was EUR5 million negative headwind on a coming from currencies.
And then the EBITDA impact was $3 million. So nothing major. We remain fairly well hedged. Naturally, we have maybe potentially a little bit more exposure here and there. But generally, we've not had significant currency headwinds or tailwinds impact for that matter.

James Picariello

Got it. Thank you. And then just in regard to in regards to the two-wheeler market for displays. Can you help dimension of all how the average displays content on the two-wheeler program compares to and what you have in your standard displays backlog for? Yes, or no for light vehicle yet.

Sachin Lawande

Yes, let me maybe take a higher perspective, high level perspective on how we see two wheelers and how that could help us here in a more near term growth. Now two wheelers is a fairly large market. It's about 25 million units today. And I'm only looking at two wheelers outside of China, which is what we think is our addressable markets of India, Southeast Asia, Japan and ARM.
Historically that market has used very low cost on mostly mechanical in clusters, which on account of the same trends that that market is impacted by as passenger vehicles, namely, our digitalization and electrification are following the same trends that we are seeing in passenger cars. So we feel that some portion of that $25 million market, which is growing fairly rapidly, will switch over to more of a digital cockpit. And we have started to make really good progress in that market.
So if you think about the top customers there, it's Honda Hero, Royal Enfield, et cetera. Tvs, we have current business with all of the key players, but we also have business with the ones that are more our in a higher end. We talked about Harley-Davidson previously. And also we have a business that we are working on with BMW Motorrad. So our footprint in that market is growing and that that market has needs for different price points and different levels of content, all driven by two things, more digital and in displays, the sizes vary from 4.2 inches to about 7 inches and the content coming largely to the smartphone connectivity.
And so we are extremely well positioned, as you can imagine, in that segment with our footprint, the products that we are already offering to the passenger vehicle side of the transportation market. And today, I would say of revenues are fairly small, probably of no more than between 1% to 2%, but we think we can more than double that by 2026. And the product introduction time in that market is much shorter in many cases of about 12 months. So that's something that has got us excited because the trend is now really picking up momentum. We are in a very good position to take advantage of it, and it can help derisk a little bit of our 2026 target.

James Picariello

That's very helpful. And just a very quick follow on. Is it a similar list of competitors for the displays to or actually actually not all.

Sachin Lawande

In fact, the competitors are much more, I would say regional players of that. I would not not put them in the same category as that passenger vehicle competitors.

Operator

Itay Michaeli, Citi Research.

Itay Michaeli

Great, thanks. Good morning, everyone. Just a couple of follow-ups from me. First, maybe on the bookings such and hoping maybe you can share what you might be targeting for the full year for bookings. And second, I know it's only a couple of months since you updated it, but any just updated thoughts on the 2026 revenue targets? Any kind of puts and takes of change the last couple of months, either either good or bad in the bridge to 2026?

Sachin Lawande

Yes. Thanks, Peter. And I'll just put in our new business for relevant performance in Q1 in context. So if you think about what we were able to achieve in 2023 over $7 billion of rents, and that was largely because the digital cockpit awards started to come back to the levels that we had seen prior to the dip that we experienced due to COVID and semiconductor constraints and then added on top of that, we had our electrification wins.
Now if we look at Q1, the $1.4 billion in wins, mostly from digital cockpit, and we did not have any electrification wins in Q1. Just the nature of the awards timing up. So that's a great start. I would say to the year, the pipeline of opportunities also looks very robust virtually for all of the product lines and of including electrification, where we have opportunities for both BMS. as well as power electronics. And it really reflects the strength of our product portfolio and the fit to the trends that they have.
And at the same time, it helps us smooth out some of the inherent lumpiness in any of one of the product categories. So we believe for the full year, we should be in a position to exceed $6 billion in sales, hopefully similar to last year. And when it comes to 2026, I just want to make a couple of points, and we will we will provide more details at some point here later in the year.
But if you think about the foundations of our 2026 outlook, they were built on a our expectation of a sales growth CAGR of 8% on 2023 levels. Now if you think about what we have accomplished in the prior years, both 2022 and 2023, our sales growth was higher than that. And on top of that, we have one high levels of business, both in '22 and '23. And it seems like we are going to see that continue in '24. So that should put us in a good position to accomplish this 8% figure sales growth that we would need to achieve our 2026 targets.

Itay Michaeli

That's very helpful. Thanks so much. And maybe just as a follow-up, maybe for Jerome, you had good margin performance in the quarter despite some of the customer vehicle launch delays that you outlined. So with revenue expected to improve for the rest of the year, how should we think about the puts and takes of like the sequential incremental margin?

Sachin Lawande

Yes. So we had a pretty decent margins. In fact, in the in Q1, it was a solid start of the year. And to your point, we were at 11% overall margin with sales being slightly lower than what we had exiting 2020 with 2023. So I would say it was a fairly clean quarter, a minimal amount of one-timers, pretty good on operational execution, including launches of.
And I would say that our cost controls remains pretty strong and another thing as well, I'd like to highlight is the fact that we were able to negotiate a lot of our own annual pricing as well as recoveries already in Q1 sort of kind of derisks a little bit the rest of the year.
So as we look at the second quarter, I highlighted that we would have if a level of sales that would be slightly over $1 billion. The way we're thinking about it in terms of margin progression is still going with the a high double digit incrementals that we've been using in the past few quarters or years with maybe the exception of engineering that will continue to increase a little bit in Q4 from a gross engineering standpoint. And then we'll see later in the year improvement on the recovery side. So generally that's how Q2 should shape up.
And then for the second half of the year, we'll have obviously revenues which will be in excess of 2 billion. And then we are thinking about incrementals as we're in the same way, with a slight benefit coming from engineering because of the recoveries. So that's how we think the year will will will develop. But again, a very good base in Q. one with 11% EBITDA margin for the commercial product itself, actually much more.

Operator

Your next question is from the line of Shreyas Patil with Wolfe Research.

Shreyas Patil

Thanks so much for taking the question. And maybe just one just to confirm that. So the as you as you think about this quarter? I think Jerome, in the past you've kind of talked about a normalized. Our margin is somewhere around 11%. That's kind of what you achieved in the fourth quarter. And for the full year, you're that I think the guide is for somewhere around 11.7%. And so as we kind of think about the the levers of upside there and growth is obviously one factor. But I'm just curious how you think about cost performance relative to increases in engineering or SG&A?

Jerome Rouquet

Yes. So to your point 11.8% for the full year in terms of the guidance at the midpoint. So we're running pretty much on track in terms of the drivers that are going to help us getting to the 11.8%. Obviously, volume and scale has been very important for us, but at the same time, and we saw that already in Q1 versus prior year where we've gained 70 basis points of margin execution, productivity efficiencies are drivers that have been helping us tremendously over the years and it did in Q1. So that's another driver that you'll see as well as we go through the year.
In terms of engineering, we're still planning to be in the mid 5% branch in terms of engineering as a percentage of sales and SG&A in the mid 4%. So it's very consistent with what we've been talking about two months ago. And that implies that engineering will go up slightly as we go throughout the year. But given the sales level percentages will go down and it's a little bit the same for SG&A.

Shreyas Patil

Okay. Thanks. And then maybe lastly, just looking beyond this year, I guess trying to think about, you know, the incremental margins that you've been expecting for the next few years. I think you're if you exclude the price recoveries, you're talking about sort of high 10s incrementals.
And I'm just wondering in the context of the kind of products that you're supplying and the amount of technology that's going into things like SmartCore and obviously your own software that you're that you're incorporating, do you see opportunities for that to be better because it I guess when we just look at regular suppliers, we typically see incremental margins of somewhere around 20% to 30%.
And given the amount of value add that you're providing, your one would I would assume there's opportunity for that to be to be better things?

Jerome Rouquet

Yes. So so our shares are let me take that. This is such and we do see opportunities in the midterm to drive more of a software and services driven our business opportunity are in addition to our product or I should say, alongside our products. And that would have a incremental or accretive margin opportunity associated with that business. That's what Jerome alluded to earlier.
As being part of our focus as we broaden our business, we were largely focused on a platform approach as a margin driver in the past couple of years, we've seen the benefits of that in our current performance. And now as we drive more of a platform strategy now we can go forward with a IP lead services strategy for software with the same customers that we are providing the hardware to as these systems need over the updates, incremental feature updates, these things start to come into play and we are building ourselves so up for that opportunity as we go forward from here.

Operator

Mark Delaney, Goldman Sachs.

Mark Delaney

Yes, good morning. Thanks for taking the questions on emissions. Vms was off to a strong start in 1Q, but I'm hoping to better understand how Visteon is thinking about the year last quarter, I think you said it was using a more conservative view on EV volumes and its guidance for 24 than customer forecasts. And I'm hoping to understand if that's still the case?

Sachin Lawande

Yes. No, the short answer is yes, definitely, we are maintaining our guidance for the full year. I'm really happy that the first quarter has come strong and it looks like the Q2 momentum is also pretty robust. And as we discussed previously, the pipeline of how the BMS. is shipped to the customer and then eventually launch into the vehicle that is a little bit longer than than, say our other products.
So of this, we are pretty comfortable with that strong performance for the next couple of quarters. And then we will have to see how it develops beyond that. So for now, I think it is still appropriate to take a slightly conservative perspective that we have in our original guidance for the year and then we'll update it if things look are different, the total contract signings.

Mark Delaney

And my second question was just trying to understand some of the share gain opportunities. I think one opportunity for Visteon has been to gain share at customers in Japan is focused on wins in 1Q with Japanese auto OEMs. But could you put that into some broader context about how obviously United is doing with its goal to gain traction in the region?

Sachin Lawande

Absolutely it. That's a great question. And a topic that I think needs to be properly discussed because historically, we've been underrepresented in Japan. So our customers have been Mazda and Nissan with whom we have been doing business for a number of years. And at the same time, this rapid pace of digitalization in particular. And I would also say electrification.
But first, digitalization is creating opportunities for us to grow with other OEMs, notably Toyota and Honda and these are, as you know, very large, they have a large share of the global LVP and we have had a very small level of business with them over the last few years. We have been for the last couple of years of a little bit longer than that made of a particular focus to work with these customers. I've been personally visiting of these customers a number of times that earlier this year.
And I'm very happy to share that we have been gaining a lot of traction, especially with Toyota, one of the wins that we talked about on this quarter. It's a large win for vehicles that are going to be launched in our regions outside of Japan. And it's really important for us that we are represented there. And to me, there's still a lot of opportunity still with Toyota with Honda to grow and also with some of the wheeler OEMs in Japan Honda two wheelers, Yamaha Suzuki. So if it feels like the time is right, our product fit and the focus is really also appropriate So on this is an area where we will be investing more of our time and resources.

Operator

This concludes our earnings call for the first quarter of 2024. Thank you, everyone, for participating and your ongoing interest in Visteon. Thank you. This concludes Visteon's first quarter 2024 results earnings call. You may now disconnect.