Visteon Corporation

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 Vistion's website this morning. Please visit investors.vistion.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 Roque, 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.

Thank you, Ryan, and good morning, everyone. Thank you for joining our fourth quarter and 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 smart core, large displays, digital clusters, and BMS, was strong and resulted in our sales are performing underlying customer vehicle production by 4 percentage points. In the Americas, Visteon outperformed the market by double digits driven by 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 smart core drove mid-single-digit market outperformance in Japan and India. And while market headwinds faced by our customers in China muted our performance, Viztion delivered 9% growth over market outside of China. We secured $6.1 billion of new business wins in 2024 with strong demand for our large displays, smart core, and digital cluster products. We achieved important milestones in new product introduction with first wins for our high-performance smart core 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 code 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, 130 basis point improvement compared to last year. Adjusted free cash flow was also a record at $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. Viztion'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 smart core 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 and Asian two-wheeler OEM. Our wireless BMS offers OEMs the flexibility to offer a range of electric vehicles with different battery configurations without re-engineering 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 cockpit 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 smart core program with FAW and a large display program with Dongfeng. 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 smart core program with Zeker, the premium EV brand of Geely, the leading domestic OEM in China. Smart Core 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 ZQIRS vehicle models. While China is leading the industry in bringing AI in 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. These power electronics components offer 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 Viztion 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 that support 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. AI and large language models 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 Smart Core called Smart Core HPC that can run AI models in the car and secured our first win with Zeker 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 car makers to implement smart assistant features in their cockpits. Our technology platforms are a key competitive advantage for Viztion, 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 car makers. We're also driving vertical integration of hardware, bringing tier two content in-house to drive innovation and increase our competitiveness while removing layers from the supply chain. In 2024, we started manufacturing of automotive cameras in-house, as well as designing backlight unit for displays and injection molding 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 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 Turkey acquisitions. We also returned capital to shareholders and fixed $3 million of share repurchases in the year. Overall, 2024 was an impressive year for Viztion 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. On this page, 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 a 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 market is expected to be mid to high single digit 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 U.S. to stay flat in 2025 due to tariff and incentive uncertainty. We are 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 and recoveries as well as defects. The 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 market is expected to be in mid to high single digit in 2026 and 2027. We have some large smart core 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 their region. Our BMS sales are expected to grow more closely in line with electric vehicle sales growth at GM and Celantis. and helped by the launch of BMS, 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 trigger relative to our 2025 sales guidance. This represents an attractive multi-year growth profile as the strategic initiatives continue to gain traction. Now, I will turn the presentation over to Jerome.

Thank you, Sachin, and good morning, everyone. I want to 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 a 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. This 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 9. 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 Euro video performance in China is consistent with a 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 HPC with Zeker, 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 Q3 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 exiting 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 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... Our next-gen products, including digital clusters, displays, smart core, and electrification, drove our 4% market outperformance. This market of performance 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 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 of market and another year of significant operational improvements as we continue to optimize our manufacturing costs and increase vertical integration, which more than offsets 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 non-recurrence 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 11. 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 unwide 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 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 display 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 12. 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 automotive industry and especially the supply base. We're working closely with our customers to identify mitigation actions and minimize any potential impact on these films 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%. the impact of supply chain recoveries, our base sales are expected to be roughly flat year-over-year. We have assumed this year on customer production declines mid-single digits, with customer production down the most in the Americas as OEMs right-size their inventory, and in Europe due to the ongoing macroeconomic weakness. Our growth of our 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 effects are expected to be a 3.5% headwind in 2025. adjusted EBITDA is expected to be between 450 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 the 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 to 205 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, while 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 13. Looking now to the medium term, we are 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 rest of Asia, in SDV enabling products with OEMs in Europe, and in adjacent markets, including commercial vehicles and two-wheelers. 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, KVS, BMW, and Royal Enfield, and a high-performance compute cockpit domain controller with Zeker 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 wide-space OEMs and in-adjustment 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, which represents $230 million of adjusted free cash flow, or 10% CAGR, from 2025 levels. As a result of our capital business model, nearly 50% of the increase in EBITDA from 2025 to 2027 flows through adjusted free cash flow. A 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 14. Visteum remains a compelling long-term investment opportunity.

How significant is that in driving growth for this year and through 2027?

Great, great. Thanks, Stan. And let me take that question, and Jerome can add more to it. So, you know, these Asian OEMs historically have been underrepresented in our revenue of revenue makeup, and I'm talking about OEMs primarily in Japan and India, so OEMs outside of China. And just to put things into historical context, the reason why they were underrepresented is because we were working with many of them in China, where China was the focus of work for them as well with us in the past few years. So as we started to see this transition happen in China with the loss of market 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. And in terms of our current share of revenue, I think they are like high single digit levels. And if you think about even by 2027, they would almost double in terms of their 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 sort of a white space opportunity for us.

Great, thank you. The second question is also on mix dynamics. And it's maybe two parts to this. 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? Customer mix? Thank you.

Let me walk you through that because it is something that does need a little bit of explanation. If you look at customer mix, and I'll start with 24, overall production was down by, let's say, about a in terms of LVP. Our customer mix was negative slightly, about 1.5% in 2024. And as we look at 2025, we are essentially looking at industry forecasts, S&P Global's forecast for January, as well as the customer data that we get directly from our customers. And I would say that 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. In Europe, it is Mercedes primarily that's impacting us, striking our mixed arms. And in Asia, it's Nissan and Mazda. Now, most of that is 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 forecasts point to in terms of production. Now, if 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, 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 has 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 of the products in the markets from clusters and standalone infotainment to CDCs in larger displays. And as the market changed quite rapidly, global OEMs have lost a significant amount of share in that market. Now, we were able to develop business with some domestic OEMs, such as Geely, GMC, and Dongfang, 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 going to be moderated. We have a few product launches that I remarked in my prepared remarks with 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 but also with our domestic chinese oems so that's that's um is what is causing us to to think that our sales in china are going to be at a low point this year and then start to improve from 2026 onwards

Thank you. That's very helpful.

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

Yes. Good morning. Thanks very much for taking my questions. I was hoping to start with SmartCorps. If we look at the SmartCorps infotainment bookings, in total for 2024. I think it ended up at about $1.6 billion compared to $2.7 billion last year. You did mention some momentum, though, with 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 control, which I know had been an area of focus for the company in the last few years. As you think about smart core going forward, the last investor today spoke about that getting to a billion dollars of revenue in 26. I recognize the industry environment has changed, but maybe you can update us on when you see smart core revenue reaching that sort of a level.

Yeah, sure. So the thing I would like to first maybe discuss here is that what we're seeing is a couple of trends. So large displays and higher power smart core or cognitive main controllers are really what's 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, in more mass market. So both those dynamics are happening at the same time. And inherently, smart core wins tend to be lumpy These are the more complex systems that car makers have in their electronics portfolio. And so that's where there's a lot more activity that goes into the coating and wetting of the suppliers. The other 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 coding, especially in Europe and North America as the OEMs were dealing with the evolving market dynamics with lower than expected demand for EVs and what has been happening to their sales in China.

So... That includes with some multi-domains as an area where you could get some bookings?

Yeah, I think for us, when we talk about multi-domain, we do see some body control functions getting integrated into smart core. So when we talk about smart code, HPC is a good example. We don't really classify that as a multi-domain controller. For us, it's still more of an integrated cockpit domain controller with some body functions integrated. We don't yet see ADAS, for example, integrated into a single compute cluster. That will probably take a little bit longer.

My second question was just around bookings, and you just alluded to it, but the quoting activity in 24, 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.

Yeah, absolutely. In fact, you know, the slowdown in 24 that I mentioned, this is causing 25 to be quite robust. Many of these OEMs have to still plan and launch new models. So the pipeline seems to be pretty robust and with a sort of a shift more towards Europe and 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 this smart core. Thank you. And in terms of the overall target for us, it remains the same, 6 billion plus for the year as well.

you. Let's take the next question.

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

Hi, yeah, thanks. Hi, Sachin and Jerome. Thanks for taking the questions. First one is on the 25 outlook. So you called out, I think it was Ford, GM, Mercedes, was it Nissan and Mazda for why you're company-weighted LVPs down mid-single digits while S&Ps flash. But 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 I appreciate the comments on China. Just as a housekeeping, what are you including in your growth over market expectation in 2025 for China or for ex-China?

Sure, sure. And, Tom, you are correct that if you look at some of the OEMs that I mentioned or they have publicly said, it would imply a more, I would say, 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 in the top of the year. So there might be some upside if our customers' production plans do materialize. So that's one point. In terms of growth of a market, if you again look at 2024, new product launches are really the drivers of improving moderating in terms of the loss, right, and the rest of the world more or less are 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 of market.

Okay, thank you.

In my follow-up, a recurring theme that has appeared on a supplier basis starting this season and even before is what's been called the urge to de-merge. 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 24, it would appear that you're more likely to add assets instead of cutting. Just curious how you think about portfolio allocation. Thanks.

Yeah, 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'll see us do that now repeatedly. This 2024, we launched a couple of products, Smart Code HPC, which I think is going to 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 powered electronics to our BMS portfolio, and that is starting to come to life. So as our product landscape and technology 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 going to be our strategy

for the midterm, and we will see from there how it evolves. Thank you.

Your next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Oh, great. Thanks for my questions. wanted to look at the 27 sales target. It's over a billion lower than what you had talked about at the investor day. Can you just remind us, 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 most of the customer effects? I mean,

Right, right. I'll start and then I'll ask you 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. So if you think about China, where we were at and where the market is at now, we were expecting to see a 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 levels. consider what we were expecting. It's actually a bigger impact than the percentage point that I mentioned.

After that, you have electrification, BMS in particular, which is for us essentially GM.

EV was supposed to grow much more, and we had some very specific programs that were on EV. Exactly, yes. So that are not going to have the same impact. So that's probably as well in the second bucket, another area to mention.

Got that. And any color, where is your China? Obviously, China is number one on your list there. What is your China local mix in 24? And where do you see it going by? by 2025 and 2026? When are you able to catch up there? Or can you, given some of the economics of locals as noise creates?

Sure, sure, sure. So if you look at our revenue, it's about 10% of the company revenue. That's our China exposure now. And of that, the mix is 60-40. So 60% with global OEMs and 40% domestic OEMs. As you know, the market share is about, I would say, reversed, right? So the domestic OEMs have about 65% share 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 retail sales. So global OEMs are at about 35%, which is the same rate that they exited last year at. And that's the first time I've seen, even though the data is set 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 with the domestic OEMs.

All right, thanks for taking my question.

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

Hi, everybody. Just on free cash flow, can you confirm what specifically drove the working capital benefit in the quarter or 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? I apologize if I missed that. Thank you.

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 payment from some customers. So that's one driver. The second driver is the fact that we had very good 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. Third large driver as well, we generated inventory reductions, as well as 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 customers, the engineering recoveries, and as well the inventory reduction. So that's why you have such a bump up a little bit. You probably saw in the 25-hour capex plan to invest in vertical integration, where as 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 allocations. 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 24, which was at the end of 24, was pretty small in nature. It was more adding capabilities. So it's not really material to our numbers in definitely not in 24 and not even in 25. So we've not been disclosing any substantial information on that side.

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 an overlaid macro point of conservatism on your part? And if possible, could you also confirm what your BMS revenue total was in 2024? Thanks.

So what we saw in 2024 was a 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 two reasons why we believe that it's good to be prudent. One, we talked about the IRA credit 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, our product going into that extended supply chain. So we believe 2025 will be a year where that will get adjusted and balanced out. And then we can expect to grow with the market. So that's really been the main thinking, you know, the driver behind our forecasting for the slightly lower PMS revenues for us in 25.

Jerome, you want to talk about how big was the... Our revenues in 2024 were high single digit.

Your final question, comes from the line with Wolf Research. Please go ahead.

Hey, thanks so much for taking my question.

Jerome, you mentioned that 50% of the margin improvement by 2027 is being driven by scale. And I was wondering if you Is that mainly engineering and SG&A leverage, or do you have capacity that needs to be filled out?

Yes, absolutely. That's what I mean by scale. Generally, we've seen that this business is very sensitive to And we've done a great job over the years leveraging additional volume while keeping our SG&A and engineering levels that are reasonable, to use that word, not proportionally increasing to the level of sales. So that is what I do mean by scale. The rest of the improvement is coming from our operational improvement. We still have got a lot of areas that we think we can 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 bringing out 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. Okay.

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

Yeah, yeah, yeah. So that's a good question, Trias, 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 uh in mid to high segment of the market are going to be replaced by larger displays and uh cockpit domain controllers so there will be some level of that uh sort of cannibalization if you want to call it that that's going to happen in the industry and and for us we think that's a good thing because from an ASP viewpoint, both displays and CDC are higher than standalone clusters and IVI or infotainment. At the same time, we're seeing those go more down market in terms of more affordable vehicles. So the volumes are going to go up, ASPs are going to go down on And that's how we see the market evolve. What we have really done here is to anticipate these trends and position us in a manner where we can take advantage of them. So we have very strong displays and CDC business that's growing. Clusters is still growing. If you look at the volume, our digital clusters grew close to almost

This concludes the vision's fourth quarter and full year 2024 results earnings call. You are now disconnected.