Visteon Corporation (NASDAQ:VC) Q4 2024 Earnings Call Transcript

Visteon Corporation (NASDAQ:VC) Q4 2024 Earnings Call Transcript February 18, 2025

Visteon Corporation beats earnings expectations. Reported EPS is $4.44, expectations were $1.97.

Ryan Wentling: Good morning. I’m Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the fourth quarter and full year 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 details.

Presentation materials for today’s call were posted on the Investors section of Visteon’s website this morning. Please visit investors.visteon.com to download the material if you have not already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for one hour, and we’ll open the lines for your questions after Sachin’s and Jerome’s remarks. Please limit your questions to one question and one follow-up. Thank you for joining us. Now I will turn the call over to Sachin.

Sachin Lawande: Thank you, Ryan, and good morning, everyone. Thank you for joining our fourth quarter full year 2024 earnings call. Visteon delivered a strong performance in 2024 with robust sales of $3.87 billion, record adjusted EBITDA of $474 million, and record adjusted free cash flow of $300 million, all of which are outstanding numbers for our company. Our product portfolio is well aligned with key industry trends of digitalization, software-defined vehicle, and electrification. Demand for Visteon products that enable these trends, such as SmartCore, large displays, digital clusters, and DMS, was strong and resulted in our sales outperforming underlying customer vehicle production by four percentage points. In the Americas, Visteon outperformed the market by double digits driven by the ramp-up of digital cluster and electrification products.

In Europe, Visteon outperformed the market by mid-single digits with the launch of digital clusters and large displays in mass-market passenger vehicles as well as on heavy commercial vehicles. In Asia, robust demand for large displays and SmartCore drove mid-single-digit market output. While market headwinds faced by our customers in China muted our performance, Visteon delivered 9% growth over the market outside of China. We secured $6.1 billion of new business wins in 2024 with strong demand for our large displays, SmartCore, and digital cluster products. We achieved important milestones in new product introduction with first wins for our high-performance SmartCore and onboard charger and DC to DC converter, which further expands our product portfolio into fast-growing parts of the market.

While our customers had lower than average court activity in 2024, I’m pleased that the breadth and strength of our product portfolio enabled us to exceed our new business win target for the full year. Adjusted EBITDA was a record $474 million driven by strong operational execution and our continued focus on cost control. Adjusted EBITDA margin was a record 12.3% for the year, a 130 basis point improvement compared to last year. Adjusted free cash flow was also a record $300 million for the year. We delivered on our commitment to balanced capital allocation with more than $100 million deployed to M&A and share repurchases. Overall, our 2024 performance is proof of the strength of our product portfolio, a continued focus on operational excellence, and our best-in-class cost structure.

Turning to page three, key industry trends of digitalization, software-defined vehicle, and electrification continue to drive increased digital content in the vehicle. Visteon’s product portfolio is aligned with these trends, which was also reflected in our new product launches in 2024. Software-driven features and functions are growing rapidly in the mid and upper part of the market, which is driving demand for our industry-leading SmartCore and large display products. Nearly 30% of our 2024 launches were for these products, which are a key driver of our market outperformance. The trends of digitalization and connected car are now impacting mass-market vehicles. Digital clusters and Android-based infotainment systems are becoming mandatory features of affordable vehicles in all regions of the world.

We’re also seeing commercial vehicle and two-wheeler OEMs start to offer digital cockpit systems. About 40% of our launches in the year were for products targeting this section of the market. As shown on this page, in the fourth quarter, we launched digital clusters on the popular Citroen C4 and on a scooter for TVS, an Asian two-wheeler OEM. Our wireless BMS offers OEMs the flexibility to offer a range of electric vehicles with different battery configurations without reengineering the system, which reduces time to market and cost. In Q4, we launched our wireless BMS system on the Jeep Recon, our second launch with Stellantis. We launched a total of 95 new products in 2024, with 21 different OEMs globally and on ICE, hybrid, and fully electric vehicles.

This is a testament to the strong execution capability of the Visteon team and to the powertrain-agnostic nature of the business. Turning to page four, we delivered $6.1 billion of new business wins in 2024, making it our third straight year at or above the $6 billion level. We made significant progress on our strategic initiatives to diversify our customer base and expand into adjacent end markets. The breadth of our product portfolio and success in new customer acquisitions enabled us to win a high level of new business despite lower than usual customer quoting activity. OEMs from Japan, Korea, and India accounted for about 40% of the total wins, with Toyota emerging as the top customer for bookings for Visteon in 2024. We also won our first corporate business with Maruti Suzuki, the market share leader in India, with significant runway for further expansion.

Customer interest for large displays was strong across all regions, and we won substantial displays business with multiple OEMs including Lexus, Mahindra, Stellantis, Volvo, and Audi. Our display’s design and manufacturing capabilities are a competitive advantage for the company, and most of these are conquest wins for Visteon. In China, we expanded our base of domestic OEM customers by winning a SmartCore program with FAW and a large display program with Gongfun. Both these wins are for new affordable electric vehicles that are expected to launch at the beginning of 2026. In the fourth quarter, we won our first high-performance SmartCore program with Zeekar, the premium EV brand of Geely, a leading domestic OEM in China. SmartCore HPC is designed to run large language models for AI in the cockpit, which requires significantly higher processing power than the usual cockpit domain controllers.

The system will launch in mid-2026 in China and will be offered in the higher trims of Zeekar’s vehicle models. While China is leading the industry in bringing AI into the cockpit, we expect OEMs globally to follow quickly and bring the exciting potential of LLMs to their customers. Lastly, we won our first business for onboard charger and DC to DC converter with Mercedes Benz. This power electronics component offers best-in-class power conversion efficiency in a small package, which is critical for improving battery range and reducing charging time for electric vehicles. Overall, 2024 was a very successful year for Visteon in terms of new business bookings. These wins highlight the breadth of our technology portfolio and our ability to stay in sync with emerging technology trends and launch new products.

Moving to page five, before turning to our forward-looking outlook, I wanted to take a moment to reflect on the highly successful year we had and the significant progress we made on our strategic initiatives. Our strategy is focused on addressing fast-growing automotive technology domains with products that are aligned with the key industry trends coupled with the best-in-class cost structure. We added new customers and expanded our business with leading OEMs in Asia, particularly in Japan and India, which was a key priority for the company. We achieved significant bookings for our digital products, supporting key industry trends such as large displays and cockpit domain controllers, laying a solid foundation for our continued growth. We are also constantly innovating and enhancing our product portfolio.

We displayed our onboard charger and DC to DC converter for the first time at CES in 2022 and delivered our first win for these products within two years in 2024. Expertise in emerging technologies is critical for continued success. We strengthened our technology capabilities through bolt-on acquisitions that complement our in-house R&D and bring critical expertise in-house.

Ryan Wentling: AI and large language models

Sachin Lawande: will drive the next cycle of innovation and content growth in the cockpit and require new hardware and software solutions. We introduced a high-performance version of SmartCore called SmartCore HPC that can run AI models in the car and secured our first win with Zeekar as discussed on the previous page. And at CES earlier this year, we introduced an industry-first software solution for AI-based user interface called Cognito AI, that enables carmakers to implement smart assistant features in their cockpits. Our technology platforms are a key competitive advantage for Visteon, and we are continuously enhancing these platforms and integrating more functionality in them. We integrated new software technologies such as surround view and software-defined radio that eliminates the need for third-party solutions, reducing the total system cost to carmakers.

We’re also driving vertical integration of hardware, bringing tier two content in-house to drive innovation and increase our while removing layers from the supply chain. In 2024, we started manufacturing automotive cameras in-house, as well as designing backlight units for displays and injection molding of various metal and plastic components used in our products. Our cost structure is already very competitive, with most of our manufacturing and engineering footprint located in best-cost regions. However, we continue to look for opportunities to further align our footprint to the evolving market dynamics. In 2024, we increased our resources to support growth in Japan and India, while reducing our footprint in China to reflect the changes to the market in that region.

And the software is CoreTwistion. We have established a training and development program to build a pipeline of talent to meet our growing needs for software developers that are specialized in key automotive technologies. This is truly a competitive advantage as it’s very challenging to find such expertise in the market. We remain committed to a balanced capital allocation approach. We are laying the foundation for future growth with the organic growth initiatives I mentioned earlier, while layering in M&A to expand our product and technology offerings. We deployed $55 million to M&A in 2024 and have a pipeline of additional Turk and acquisitions. We also returned capital to shareholders with $63 million of share repurchases in the year. Overall, 2024 was an impressive year for Visteon, as we expanded our product and customer base, delivered strong financial results, and set ourselves up for future growth with strong bookings.

Turning to page six,

Ryan Wentling: On this page,

Sachin Lawande: I would like to share our sales outlook for 2025 and through 2027. For 2025, our customer vehicle production forecasts are based on S&P Global’s January forecast and include company estimates where our production expectations differ from S&P. Global light vehicle production is expected to decline slightly with the mid-single-digit decline in Visteon’s customers’ vehicle production. Several of our largest customers, including Ford and GM, are expected to adjust production to work down elevated vehicle inventories. Our growth over the market is expected to be mid to high single digits in 2025, with another year of outgrowth in every region outside of China. Our strong performance is driven by new product launches with several customers, including Ford, Renault, Stellantis, and Toyota, as well as commercial vehicle and two-wheeler OEMs. Despite a strong performance in 2024, we expect electric vehicle sales in the US to stay flat in 2025 due to tariff and incentive uncertainty.

We’re forecasting our BMS sales to be slightly lower in 2025, accounting for the elevated levels of electric vehicle inventory in the market. In China, where we have experienced sales headwinds in 2024 from the loss of market share by global OEMs, we expect our sales drop to moderate in 2025 and represent the low point for our sales in that market before recovering in 2026. Overall, we’re guiding to sales of $3.75 billion at the midpoint for 2025. This represents a flat base sales year over year despite the headwinds from lower customer vehicle production recoveries as well as FX. This is a very solid performance as a strong product portfolio and business win momentum offset the near-term market headwinds. Now turning to our outlook for 2026 and 2027.

We’re assuming that light vehicle production increases in line with S&P global forecasts for both years, with customer mix improving from 2025. Growth over the market is expected to be in mid to high single digits in 2026 and 2027. We have some large SmartCore and display programs that are launching with customers in Asia and Europe that will drive our market outperformance in those regions. In China, in particular, we have several new launches with domestic Chinese OEMs as well as German and Japanese OEMs that are expected to do relatively better and hold their market share in that region. Our BMS sales are expected to grow modestly in line with electric vehicle sales growth at GM and Seltos, and helped by the launch of BMS with the third customer based in Europe.

Overall, we’re targeting $4.15 billion in sales in 2027, which is a mid-single-digit sales growth CAGR relative to our 2025 sales guidance. This represents an attractive multiyear growth profile as our strategic initiatives continue to gain traction. Now, I will turn the presentation over to Jerome.

Ryan Wentling: Thank you, Sachin, and good morning, everyone.

Jerome Rouquet: I want to start by taking a step back and looking at our financial performance over the past five years. For perspective, I would like to compare our current results to what we delivered in 2019, the last year before the COVID crisis. During this time, the industry has faced several challenges, with significant supply chain disruptions and inflation, and yet we have grown revenue, improved margin, and generated impressive free cash flow. Over the last five years, sales increased almost $1 billion compared to 2019, including recoveries. Our leading market position in digital clusters and cockpit domain controllers drove strong growth in the first half of the period, while innovations in displays and electrification generated growth later in the period.

We grew despite a substantial sales headwind from the changes in the China market since 2022. We doubled EBITDA over the same five-year period, EBITDA margin reached a record of more than 12% in 2024, an improvement of 440 basis points compared to 2019. Our ability to grow revenue and significantly improve margins at the same time is a testament to our strong product portfolio and operational efficiency. Improvements in margins have been the result of scale from additional sales, our laser-focused cost approach, and our drive for best-cost footprint as well as an engineering platform approach, which allowed us to optimize cost while continuing to invest in the business. Our EBITDA to cash conversion was 38% on average over the five-year period, which is the direct result of our increased profitability, our success in managing working capital, as well as turning Visteon into an efficient business with light capital requirements, all supported by a strong balance sheet.

Overall, Visteon has delivered impressive improvements in sales, margins, and cash flow over the last five years. With an innovative technology-based product portfolio and a team focused on execution, Visteon has a strong foundation for continued profitable growth. Turning to page nine. We had a very strong finish to the year with Q4 sales of $939 million. Compared to last year, sales benefited from our market outperformance driven by new product launches and robust performance of our digital cockpit and electrification product lines, offset by lower customer production, lower recoveries as a result of improved semiconductor supply, and annual pricing. In terms of performance by geography, Europe had double-digit market outperformance, America’s high single-digit outperformance, while China underperformed.

The weaker year-over-year performance in China is consistent with the trend from recent quarters and is due to the ongoing market share shifts towards domestic OEMs. While we remain underexposed to domestic OEMs relative to the market, we continue to make inroads with these customers, including a significant Q4 new business win for our HPC with Zeekar as mentioned by Sachin. Adjusted EBITDA was $117 million for the quarter. Our EBITDA performance was driven by continued cost discipline and strong operational performance. Net engineering, while including the recent acquisition we made in Q2 2024, was lower due to the favorable timing of engineering recoveries offset by higher SG&A. Margins improved to 12.5%, a 70 basis point expansion compared to the prior year.

When adjusting for more normalized engineering and SG&A, our run rate margin exceeding the year was around 12%. Adjusted free cash flow was a record $165 million in the quarter, a result of our strong adjusted EBITDA and a significant inflow from working capital. This level of cash flow was above our expectations as we had several one-time working capital benefits. Lastly, we continued to return capital to shareholders in the fourth quarter, repurchasing $43 million of our shares. We remain committed to our balanced capital allocation framework with allocations to organic growth, M&A, and capital returns to shareholders. Overall, we delivered a strong fourth quarter with continued market outperformance, strong adjusted EBITDA margin, and significant cash flow generation.

We continue to launch a high number of new products and win new business which will drive future growth. Turning to page ten. For the full year, sales were $3.87 billion, representing a slight decrease year over year. Base sales, which excludes the impact of supply chain recoveries, were roughly flat compared to the prior year. Our next-gen products, including digital clusters, displays, SmartCore, and electrification, drove our 4% market outperformance. This market outperformance was offset by lower customer production, lower recoveries, price downs to customers, and a headwind from FX. China was also a 5% headwind to growth of the market as a result of our global OEMs losing shares in the market. Adjusted EBITDA for the full year was a record $474 million, a $40 million improvement compared to the prior year.

Our EBITDA performance was driven by solid incrementals on our growth as we continue to optimize our manufacturing costs and increase vertical integration, which more than offset the impact of annual pricing to customers. Net engineering costs were lower mostly due to the favorable timing of engineering recoveries, which can be lumpy in nature, as well as lower spending in China in response to the challenges in the region. This decrease was despite additional engineering spending in 2024 associated with our acquisition of an outsourced R&D firm. Net engineering cost as a percentage of revenue was 4.9%, which is below our normal run rate. SG&A as a percentage of revenue was 4.6% and in line with our expectations. Finally, we benefited from the nonrecurrence of the $15 million recall charge incurred in 2023, but were also negatively impacted year over year by approximately $12 million of foreign exchange driven mostly by the Brazilian real and the Japanese yen, partially offset by the peso.

EBITDA margin was 12.3% in 2024, an expansion of 130 basis points year over year. Turning to page eleven. Visteon generated a record $300 million of adjusted free cash flow in 2024. The improvement compared to the prior year was primarily due to higher adjusted EBITDA and an inflow from trade working capital. This trade working capital inflow was above our expectations as we benefited not only from the end wide from lower sales but as well from several one-time benefits in the fourth quarter of 2024, some of which will reverse in 2025. Adjusting for these items, trade working capital would have been a modest outflow for the year, and our conversion would have been between 45% and 50% of EBITDA in 2024, closer to our targeted level of 40% conversion.

Cash taxes were modestly higher than the prior period as we paid higher taxes in line with our increased profitability. Interest was positive for the year as interest income on our invested cash exceeded the interest cost from our term loan. CapEx was $137 million for the year, an increase of $12 million compared to last year. The increase was primarily focused on investing for the future, including setting up our new plant in Tunisia, as well as several vertical integration initiatives, including investing in our product line. Our consistent cash flow generation and solid balance sheet enable significant allocations of capital to both invest in our future and return capital to shareholders. In 2024, we deployed $55 million to M&A and $63 million to share repurchases.

We expect to continue executing on these important strategic initiatives. Turning to page twelve. Before moving to our financial guidance, I would like to address the topic of tariffs. The tariff situation continues to evolve with the tariffs against Mexico and Canada currently postponed until early March and global reciprocal tariffs proposed last week. If implemented, these tariffs would have a meaningful impact across the entire and especially the supply base. We’re working closely with our customers to identify mitigation actions and minimize any potential impact on Visteon should these tariffs be enacted. Our guidance does not include any impact from these or any other potential tariffs. Now let’s turn to our 2025 guidance. Our guidance range for sales is $3.65 billion to $3.85 billion.

Excluding the impact of supply chain recoveries, our base sales are expected to be roughly flat year over year. We have assumed Visteon customer production declines mid-single digits with customer production down the most in the Americas as OEMs right-sized dealer inventory and in Europe due to the ongoing macroeconomic weakness. Our growth of the market is anticipated to be mid to high single digits driven by strong expected performance for large displays, digital clusters, and infotainment products. Regionally, we expect the strongest performance in the rest of Asia and Europe, offset by continued double-digit underperformance in China. Recoveries and FX are expected to be a 3.5% headwind in 2025. Adjusted EBITDA is expected to be between $450 million and $480 million, representing a margin of 12.4% at the midpoint.

This is a margin improvement year over year as continued strong commercial performance and further operating efficiencies partially offset the impact of a more normalized net engineering spend. As a percentage of 2025 sales, we anticipate net engineering to be in the high 5% range and SG&A to be in the high 4% range, as we continue to invest in our teams to support future growth. We also expect FX to be a modest headwind to EBITDA in 2025. Adjusted free cash flow is expected to be between $175 million and $200 million, which at the midpoint is a conversion of 40% of adjusted EBITDA into adjusted free cash flow. We expect working capital to be a modest outflow for the year to come, as the one-time benefits from 2024 unwind next year. CapEx is forecasted at $150 million as we invest for future growth and margin expansion, with several notable vertical integration initiatives planned for 2025.

And finally, when we do not provide quarterly guidance, we expect a slight decline sequentially in both revenue and EBITDA in the first quarter of 2025. Turning to page thirteen.

Sachin Lawande: Looking now to the medium term,

Jerome Rouquet: we’re providing 2027 targets for sales, adjusted EBITDA, and adjusted free cash flow. For sales, our target for 2027 is $4.15 billion. This represents a 5% growth CAGR and an increase of $400 million in sales between 2025 and 2027. Our forecast assumes a modest LDP growth for our customers over the period. We’re expecting growth of a market of mid to high single digits in both 2026 and 2027, driven by the progress on our strategic initiatives. We expect our growth to be largely driven by launches of next-generation products that align with our strategy of growing our business with wide space customers in the rest of Asia in SDV enabling products with OEMs in Europe, and in adjacent markets including commercial vehicles and two-wheelers.

We continue to have significant new product launches, including a few key programs such as a display with Toyota, a cluster with Maruti Suzuki, a large CDC program with a luxury German OEM, or multiple products on two-wheelers with Honda, TVS, BMW, and Royal Enfield, and a high-performance compute copy domain controller with ZKAR in China. As a result, our product portfolio mix will continue to evolve with growth driven by displays, electrification, and cockpit domain controllers, while at the same time expanding our market share with voice space OEMs and in adjacent markets. In addition, we anticipate we will return to growth in China starting in 2026. For adjusted EBITDA, margins are expected to expand to 13.3% in 2027. This represents a 90 basis point increase from 2025.

Roughly half of the increase in margin is from leveraging scale as we grow the business, and the other half relates to further improvements in operational performance and manufacturing costs, including vertical integration. Our continued focus on cost controls drives incrementals in the low 20% range. With regard to cash flow, we expect to convert more than 40% of adjusted EBITDA to adjusted free cash flow in 2027. This represents $230 million of adjusted free cash flow or 10% CAGR from 2025 levels. As a result of our capital-light business model, nearly 50% of the increase in EBITDA from 2025 to 2027 flows through adjusted free cash flow. Our strong level of cash flow will allow for significant capital to be deployed to M&A and shareholder returns.

Overall, I am excited to deliver on this plan and the substantial growth in sales, EBITDA, and free cash flow we are showing here. I am confident that the foundation we have put in over the past few years positions us very well for strong financial results through 2027. Turning to page fourteen. Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in the cockpit regardless of powertrain and the growth of electric and hybrid vehicles. Visteon is well-positioned for top-line growth, margin expansion, and free flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities. Thank you for your time today.

I would like now to open the call for your questions. At this time, if you would like

Q&A Session

Operator: please press star then the number one on your telephone keypad. Again, that is star and the number one. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Dan Levy with Barclays. Your line is now open. Please go ahead.

Dan Levy: Hi. Good morning. Thank you for taking the questions.

Jerome Rouquet: I wanted to ask a couple of questions on the revenue outlook and mix dynamics. And first, maybe if we could just talk about the growth opportunity that you had ahead with, you know, the Asian OEMs, Toyota, etcetera. What percent of the revenue is it today? I think it’s small. How significant is that in driving growth for this year and through 2027.

Sachin Lawande: Great. Great. Thanks, Dan. And let me take that question and Jerome can add more to it. So, no. These Asian OEMs historically have been underrepresented in our revenue makeup. And I’m talking about OEMs primarily in Japan and India, so OEMs outside of China. And then just to put things into historical context, the reason why they were underrepresented was because we were working with many of them in China. China was the focus for them as well with us. In the past few years, also, as we started to see this transition happen in China, with the loss of one per share for global OEMs, about a couple of years ago, we made it our strategic initiative to grow business with these OEMs outside of China. In terms of our current share of revenue, I think they are, like, mid-high single-digit levels.

And if we think about even by 2027, they would almost double in terms of the share of our revenue. So pretty robust growth. And 80% between them. I would say somewhere around 25% to 30% of the global vehicle production. So it’s a sort of a white space opportunity for us.

Dan Levy: Great. Thank you. Second question is also on mix dynamics. And it’s maybe two parts of it. You know, you’re talking about customer mix as a headwind this year, but improving next year. If you could unpack that. And you’re saying China sounds like it’s weak this year, but turns around the next couple of years. What’s turning things around in China? So customer mix, yeah. Yeah. You know, yeah. Thank you. Yeah. Let me walk you through that because it is something that does need a little bit of explanation. So if you look at customer mix, and I’ll start with 2024. Overall, production was down by, let’s say, about a point in terms of LBP. Our customer mix was negative. Slightly up by about one, one and a half percent in 2024.

And as we look at 2025, we are essentially looking at industry forecasts, S&P Global’s forecast, mid-January, as well as the customer data that we get directly from our customers. And I would say that our customer data tends to be more accurate. In the near quarters, first couple of quarters after that, we tend to use more industry forecasts to come up with our own perspective, a balanced perspective of how we feel the LVP will turn out. And the negative mix in 2025 is really driven by a few large customers that are forecasted by S&P Global to have lower production this year. As compared to last year, for example, Ford and GM here in North America, Europe, it is Mercedes primarily that’s impacting us. Just dragging our mix down. In Asia, it’s Nissan and Mazda.

Now most of that is in the second half of the year, so we will have to wait and see how much of that actually transpires. But as I explained, it’s really driven from what the industry forecast points to in terms of production. Now, you look at again, the forecast for 2026, the mix is still negative, but it improves from the 2025 level. And so it’s a moderating situation for us. Now when it comes to China, again, taking maybe a step back because I think this is gonna be a topic for a lot of people listening today. In terms of how do we see the China market and our performance there. Now historically, our business in China has been with global OEMs. And clusters have been our main product that we offered with them in China. And since 2022, the market has changed quite dramatically in many ways.

So the transition to electric vehicles also caused a transition out of the products in the markets from cluster and standalone infotainment to CDC’s larger displays. And as the market changed quite rapidly, global OEMs have lost a significant amount of share in that market. We were able to develop business with some domestic OEMs such as GV, GMC, and Dongfeng. But that business, although it has developed well, was not sufficient to offset the loss of sales that we saw with the global OEMs. Now, this dynamic will continue also in 2025, but that impact is gonna be moderated. So we have a few product launches that I remarked in my prepared remarks, but both international OEMs operating in China, the Germans and the Japanese who we think are going to do relatively well.

As compared to the rest of the global OEMs. Also that our domestic Chinese OEMs. So that’s what is causing us to think that our sales in China are gonna be at a low point this year and then start to improve from 2026 onwards.

Dan Levy: Thank you. That’s very helpful.

Operator: Your next question comes from the line of Mark Delaney with Goldman. Please go ahead.

Mark Delaney: Yes. Good morning. Thanks very much for taking my questions.

Sachin Lawande: I was hoping to start with SmartCore. If we look at the SmartCore infotainment bookings, in total for 2024, I think it ended up at about $1.6 billion compared to $0.7 billion last year. You did mention some momentum that was SmartCore specifically. So could you elaborate on how SmartCore bookings are tracking? I’d be especially interested if you had any success with multi-domain controllers, which I know had been an area of focus for the company in the last few years. As you think about SmartCore going forward, the last Investor Day, you spoke about that getting to a billion dollars in revenue in 2026. And I recognize the industry environment has changed, but maybe you can update us when you see SmartCore revenue reaching that sort of a level.

Sachin Lawande: Yeah. Yeah. Sure. So the thing I would like to first maybe discuss here is that what we’re seeing is a couple of trends. Right? So large displays and higher power SmartCore or company domain controllers are really worth driving the products in the mid to upper section of the market. But there’s also a lot of interest in standalone digital clusters, IVI, are in more mass market. So both those dynamics are happening at the same time. And we have inherently SmartCore wins tend to be lumpy. These are the more complex systems that our carmakers have in their product portfolio. And so that’s where there’s a lot more activity that goes into the coating and vetting of the suppliers. Another thing I would like to mention and which I also verified in my prepared remarks is that in 2024, we saw a slightly lower level of customer activity in terms of quoting.

Especially in Europe and North America as the OEMs were dealing with the evolving market dynamics with lower than expected demand for EVs and has been happening to their sales in China. So if you look at, you know, 2023, we did pretty well. And that was also mostly with Western OEMs. And in 2024, the majority of our users were from Asia. For the reasons I mentioned came from Asia. And the products that for of, I would say, interest to the OEMs there. Yes. Some SmartCores, but, lastly, displays and standalone clusters and IVI or infotainment. As many of those OEMs were a little late in following some of those trends and are now quickly catching up. Now I expect to see SmartCore activity in Europe and the US return back this year and then next year.

So things, you know, ultimately are a little lumpy when you talk about new business wins. But overall, I do expect it to be okay for us.

Mark Delaney: And, Sachin, that includes with multi-domains as an area where you could get some bookings?

Sachin Lawande: Yeah. I think for us, you know, when we talk about multilevel domain, you know, we do see some body control functions getting integrated into SmartCore. So when we talk about SmartCore HPC, it’s a good example. Don’t really classify that as a multi-domain controller. For us, it’s still more of an integrated cockpit domain controller with some Polycoms that’s integrated. We don’t yet see ADAS, for example, integrated into a single compute cluster. That will probably take a little bit longer.

Mark Delaney: Helpful. My second question is just around bookings and you just alluded to it, but the quoting activity in 2024, you said was somewhat subdued. Could you talk about your expectations for the market opportunity for bookings in 2025? And do you have any guidance relative to the $6 billion that you did last year, do you think you could grow it in 2025? Thank you.

Sachin Lawande: Yeah. Absolutely. In fact, you know, the slowdown in 2024 that we mentioned is causing 2025 to be quite robust. Many of these OEMs have to still plan and launch new models. Also, the pipeline seems to be pretty robust, and with this sort of a shift more towards Europe and the US. More. And from a product perspective, it does look very similar to what we have seen in the last couple of years. Displays are pretty strong. As is SmartCore. And in terms of, you know, the overall target for us, it remains the same, $6 billion plus for the year as well.

Jerome Rouquet: You.

Sachin Lawande: Okay. Let’s take the next question.

Operator: Your next question comes from the line of Tom Narayan with RBC. Please go ahead.

Tom Narayan: Yeah. Thanks. Hi, Sachin and Jerome. Thanks for taking the questions. First one is on the 2025 outlook. So you called out, I think it was Ford, GM, Mercedes, was it I think Nissan and Mazda for why your company-weighted LVP is down mid-single digits. Well, S&P is flattish. I mean, based on what I think those OEMs have said on their respective earnings calls or just in general, it might appear that your guys’ forecast could be maybe conservative, just seeing if that’s the case. And then appreciate the comments on China. Just as a housekeeping, what are you including in your growth over market expectation in 2025? For China or yeah. For ex-China.

Sachin Lawande: Sure. Sure. And, Tom, you are correct that if you look at some of those OEMs that I mentioned, what they’ve publicly said, it would imply a more, I would say, or our view being a little more conservative, which is why I wanted to clarify earlier that what we have assumed is based on S&P Global’s outlook, especially for the second half of the year. So there might be some, you know, upside if our customers’ production plans do materialize. So that’s some point. In terms of growth over market, you know, if we again look at 2024, you know, new product launches were really the drivers of our growth over market, especially in the Americas, which was strong double-digit performance. Europe and Asia outside of China were mid-single digit again driven by our product launches.

Now China 2024 was a bigger negative. Now as we look at 2025, more or less at a bigger picture, the same dynamic space China improving, moderating in terms of the loss right, and the rest of the world more or less, I would say, looking the same. It does shift a little bit. We have more launches in Europe that’s going to drive market outperformance there, stronger than the rest of the regions. But, overall, it should look very similar in terms of growth over market.

Tom Narayan: Oh, okay. Thank you. And my follow-up, you know, recurring theme that disappeared in, on a supplier basis earning season and even before this what’s been called the urge to demerge. A couple of tier-one suppliers announcing their intentions to divest certain businesses to unlock shareholder value. Just curious how you view your portfolio of assets. I know in the prepared comments, you talked about a pipeline of tuck-ins and the M&As you did in 2024. It would appear that you’re more likely to add assets instead of cutting. Just curious how you think about portfolio allocation. Thanks.

Sachin Lawande: Yeah. Yeah. Look. That’s a great question, Tom. And if you think about the spaces that we are focused on, there’s a lot of activity there. There’s a lot of content growth happening there, driven by technology. So we really believe that we are in a position to take market share really based on our ability to add new product lines right, and anticipate and position the company to take advantage of the emerging trends. And you’ve seen us do that now repeatedly. This 2024, we’ve launched a couple of products, SmartCore HPC, which I think is gonna be a big driver of growth for the company for a fairly long period of time. As more content and especially AI start coming into the cockpit. And electrification, our product line is continuing to expand, very much along the lines that we have said earlier, if you go back a couple of years, we’ve been talking about adding power electronics to our BMS portfolio and that is starting to come to life.

So as our product landscape and technologies landscape grows, it’s critical that we have expertise in all of the key technologies that are important. And so we will continue to look for those types of acquisitions. So that’s gonna be our strategy for the midterm, and we will see from there how it evolves.

Tom Narayan: Thank you.

Jerome Rouquet: Thanks, Tom. Your next

Operator: question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Colin Langan: Oh, great. Thanks for taking my questions. Just wanted to look at the 2027 sales target. It’s over a billion lower than what you had talked about at the Investor Day. Can you just remind us what I know, obviously, a lot has changed in the last couple of years, but any way to bucket the major drivers here? I mean, I know EV is one of the factors. Is it really just mostly custom mix, the fact?

Sachin Lawande: Right. Right. I’ll start, and then I’ll also ask Jerome to maybe expand if I’ve missed anything. The main drivers are really, I would say, three. That you can consider close to a billion dollars as you said, lower than what we thought it would be. Number one, would be China. Right? So if you think about China, where we were at, and where the market is at now. We were expecting to see steady growth from the 2023 levels. And since then, we’ve lost almost about I would say five percentage points of revenue in China alone from just where we were at in 2023, let alone the growth. So if you consider what we were expecting, it’s actually a bigger impact than a five percentage point that I mentioned. After that, you have electrification.

Right? BMS, in particular, you may remember back in those days, the expectation was much higher in terms of ramp-up of electric vehicles and our customers. And that has come down significantly. Between the two of them, that’s about 70% to 80% of the impact in terms of the billion dollars that we’re talking about. And the rest is just production expectations. Our customers’ production over that period of time has come down, and that’s really the third bucket. Jerome, do you have anything?

Jerome Rouquet: I would just add EV as well. Growth. So beyond BMS, which is for us, essentially GM, EV was supposed to grow much more, and we had some very specific programs that were on EV that obviously are not for electronics content. Exactly. Yes. So that are not going to have the same impacts. So that’s probably as well in the second bucket. Another area to mention.

Colin Langan: Got it. And any color, where is your China obviously, China’s number one on your list there. What is your China local mix in 2024? And where do you see it going by 2025 and 2026? So when are you able to catch up there, or can you given some of the economics of locals, isn’t always great.

Sachin Lawande: Sure. Sure. Sure. So if you look at, you know, under revenue, it’s about 10% of the company revenue that’s out channel exposure now. And of that, the mix is 60/40, so 60% with global OEMs and 40% domestic. As you know, the market share is about, I would say, reversed. Right? So the domestic OEMs have about 65% of the market versus global OEMs, 35%. And that has come down quite quickly over the last couple of years. However, I would like to just point out that if you look at the performance of global OEMs in the market. In January of this year. Although it’s just one month’s data, they’ve been able to hang on to their market share in January in terms of video sales. So global OEMs are at about 35%. Just the same rate that they exited last year at.

And that’s the first time I’ve seen even though the data is, as I said, just one month data, that there hasn’t been a further degradation of market share. And so I think that points to maybe some level of at least a slowdown in the erosion of the share and maybe at some point, it will form a certain base level that we can work with. In the mid to long term, I do expect that German and Japanese OEMs in particular will have a certain share of the market that we can participate in. And then the rest of the business will be the domestic OEMs.

Colin Langan: Got it. Alright. Thanks for taking my questions.

Sachin Lawande: Okay.

Operator: Your next question comes from the line of James Picariello with BNP Paribas. Your line is now open. Please go ahead.

James Picariello: Hi, everyone. Based on free cash flow, can you confirm what specifically drove the working capital benefit in the quarter, how that influences your 2025 free cash flow outlook? And can you speak to the M&A pipeline, how that looks and will be balanced against share buybacks for this year? And, also, what was the inorganic revenue contribution in the quarter? Apologies if I missed that. Thank you.

Jerome Rouquet: Yeah. Thanks a lot, Jim. So we had a very good quarter in terms of cash flow generation. Indeed. And there are a few drivers. And in fact, it’s a lot of little things that added up to a fairly large number. So it was, as you just said, mostly from working capital. Generally, I would say collections were very good with customers, but we were surprised in some cases with the timing of some of the payments from some customers. So that’s one driver. The second driver is the fact that we had very good recoveries, engineering recoveries in Q4. And again, the timing of these recoveries allowed us to collect the cash in Q4 where normally it would have probably gone into Q1. So that’s the second big driver. The third large driver as well, we generated inventory reductions.

And that as well has driven some cash and finally, what you have in Q4 generally is a reduction in sales. And that generates some positive as well working capital. So some of that will not reoccur, obviously, in Q1. Mostly, the timing of the customer’s engineering recoveries and as well the inventory reduction. So that’s why you have such a, let’s say, large cash inflow in Q4 of 2024, and we don’t see that flowing through going into 2025. Our conversion we think, is still around 40%. From EBITDA to cash flow. So it’s very consistent with what we’ve been generating in the last few quarters. In terms of capital allocation, we remain very balanced. We’ve done about $43 million of share repurchases in Q4. When I say balance, we continue to invest in the business.

We bumped up a little bit. You probably saw in 2025 our CapEx spend to invest in vertical integration, whereas, well, because of all the wins that we are having in the rest of Asia, we need to as well rebalance a little bit our footprint and we’re investing in India. And the rest of Asia, to be able to accommodate that. We’re investing in vertical integration, so that’s one aspect of our capital allocation. We are working on a pretty extensive pipeline of M&A in 2025, and we’re making good progress on that side. And then finally, we’ll remain opportunistic on the share repurchase side. So again, a very balanced approach as far as capital allocation is concerned. And then maybe back to your final question, the acquisition we did in 2024, which was at the end of 2024, was pretty small.

In nature. It was more adding capabilities. So it’s not really material to our numbers in definitely not in 2024. And not even in 2025. So we’ve not been disclosing any substantial information on that side.

James Picariello: Got it. Okay. Super helpful. And my last question just on BMS. You’re assuming flat to slightly down. This year to account for IRA tax credit repeal uncertainties. I, of course, think that’s prudent, but just curious if that’s getting informed by your own bottoms-up roll-up of customer indications, or is it simply just, you know, an overlayed macro point of conservatism on your part? And if possible, could you also confirm what your BMS revenue total was in 2024.

Sachin Lawande: So what we saw in 2024 was pretty robust demand for our BMS product, especially with GM. And as you probably know, the supply chain. Pipeline is a little more extended for BMS than for some of our other products because we supply to the battery plant that then supplies to the vehicle manufacturing plant. So there are the two reasons why we believe that it’s good to be prudent. One is we talked about the IRA, correct. Potentially being at risk. Number two, overall demand is not as strong as perhaps was anticipated earlier. And as a result, there is a fair amount of inventory both of vehicles as well as from our perspective, product going into that extended supply chain. So we believe 2025 will be a year where that’s gonna get adjusted and balanced out.

And then, 2026 onwards, we can expect to grow with the market. So that’s really been the main thinking, you know, the driver behind our forecasting for slightly lower BMS revenues for us in 2025. Jerome, we want to talk about how big was the

Jerome Rouquet: Our revenues in 2024 were high single digits for BMS. And as Sachin said, it was a great year for us with a lot of ramp-ups and probably quite some inventory building as well. I see that as a growth.

James Picariello: Is that the high single digit? Oh, high single digit percentage of total sales. Got it. Thank you. Alright. Correct. Yeah. So on total sales. Yes. Yes. That’s okay.

Operator: Your final question comes from the line of Shreyas Patil with Wolfe Research. Please go ahead.

Shreyas Patil: Hey. Thanks so much for taking my question. Jerome, you mentioned that 50% of the EBITDA margin improvement by 2027 is being driven by scale. And I was wondering if you could just expand on that. Is that mainly SG&A leverage or do you have capacity that needs to be filled out?

Jerome Rouquet: Yeah. So, absolutely, that’s what I mean by scale. Generally, we’ve seen that this business is very sensitive to scale, and we’ve done a great job over the years leveraging additional volume while keeping our SG&A and engineering up. Levels that are reasonable, to use that word, not proportionally. Increasing to the level of sale. So that is what I do mean by scale. The rest of the improvement is coming from our operational improvement, and we still have got a lot of areas that we can we think we still improve. We’ve done, as I said, a pretty good job in the last few years. I’m mentioning vertical integration as one fundamental driver for us to improve margins and bring in as much as what we can control not only for cost-saving purposes, by the way, but as well to stay relevant from the technology standpoint in some areas like displays.

We will continue obviously to work on manufacturing productivity, but we do as well continue to work on engineering productivity automation in engineering, AI as well, will be a tool that we’ll be using to be able to be more productive from an engineering standpoint. So there are a lot of drivers that we are considering as we look into 2027.

Shreyas Patil: Okay. And then looking at 2024, clusters as a percent of total bookings it’s about 17% last year. It’s about 40% of the current revenues. So just trying to get a sense of what happened or what you were seeing in clusters last year and how you’re thinking about the growth rate for that business going forward.

Sachin Lawande: Yeah. Yeah. So that’s a good question, Shreyas. And this goes back to the point that I was making about some of the changes we are seeing in terms of the product makeup as we go forward here. So standalone clusters and infotainment in the mid to high segment of the market are gonna be replaced by larger displays and copy domain controllers. So there will be some level of that sort of cannibalization, if you want to call it that, gonna happen in the industry. And for us, we think that’s a good thing because from an ASP viewpoint, both displays and CDC are higher than standalone customers. And IVI or infotainment. At the same time, we’re seeing those go more down market in terms of more affordable vehicles. The volumes are gonna go up.

ASPs are gonna go down on those clusters and infotainment. And that’s how we see the market evolve. What we have done here is to anticipate these trends and position us in a manner where we can take advantage of them. So we have a very strong displays and CDC business that’s growing. Clusters are still growing. If you look at the volume, our digital clusters grew close to almost 17%, 18% in 2024 year over year. Right? And ASPs have come down as those their product has gone into more volume-oriented vehicles. So we will continue to see this dynamic, which is, I think, a very natural progression of how content is growing more starting with the upper end of the and then coming down into the mass market.

Operator: This concludes Visteon’s fourth quarter and full year 2024 results earnings call. You may now disconnect.