Q4 2024 Visteon Corp Earnings Call
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.
Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.
Speaker Change: We have scheduled a call for one hour and will open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you for joining us. Now I will turn the call over to Sachin.
Speaker Change: Thank you, Ryan, and good morning, everyone. Thank you for joining our fourth quarter and full year 2024 earnings call.
Speaker Change: Record Adjusted EBITDA of $474 million and Record Adjusted Free Cash Flow of $300 million, all of which are outstanding numbers for our company.
Speaker Change: Our product portfolio is well aligned with key industry trends of digitalization, software-defined vehicle, and electrification.
Speaker Change: 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 outperforming underlying customer vehicle production by 4 percentage points.
Speaker Change: In the Americas, Visteon outperformed the market by double digits, driven by ramp-up of digital cluster and electrification products.
Speaker Change: 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.
Speaker Change: In Asia, robust demand for large displays and smart core drove mid-single-digit market outperformance in Japan and India.
Speaker Change: We secured $6.1 billion of new business wins in 2024 with strong demand for our large displays, smart core, and digital cluster products.
Speaker Change: 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.
Speaker Change: While our customers had lower-than-average quote activity in 2024, I am pleased that the breadth and strength of our product portfolio enabled us to exceed our new business win target for the full year.
Speaker Change: Adjusted EBITDA was a record $474 million, driven by strong operational execution and our continued focus on cost control.
Speaker Change: Adjusted EBITDA margin was a record 12.3% for the year, a 130 basis point improvement compared to last year.
Speaker Change: We delivered on our commitment to balanced capital allocation with more than $100 million deployed to M&A and share repurchases.
Speaker Change: 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.
Speaker Change: Visteon's product portfolio is aligned with these trends, which was also reflected in our new product launches in 2024.
Speaker Change: 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.
Speaker Change: Nearly 30% of our 2024 launches were for these products, which are a key driver of our market art performance.
Speaker Change: We are also seeing commercial vehicle and two-wheeler OEMs start to offer digital cockpit systems.
Speaker Change: About 40% of our launches in the year were for products targeting this section of the market.
Speaker Change: 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.
Speaker Change: In Q4, we launched our wireless BMS system on the Jeep Recon, our second launch with Stellantis.
Speaker Change: We launched a total of 95 new products in 2024 with 21 different OEMs globally and on ice, hybrid and fully electric vehicles.
Speaker Change: 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 4.
Speaker Change: We delivered $6.1 billion of new business wins in 2024, making it our third straight year at or above the $6 billion level.
Speaker Change: We made significant progress on our strategic initiatives to diversify our customer base and expand into adjacent end markets.
Speaker Change: 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.
Speaker Change: We also won our first corporate business with Maruti Suzuki, the market share leader in India with significant runway for further expansion.
Speaker Change: 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.
Speaker Change: Our displays, design and manufacturing capabilities are a competitive advantage for the company, and most of these are conquest wins for Visteon.
Speaker Change: In China, we expanded our base of domestic OEM customers by winning a smart core program with FAW and a large display program with Dongfang.
Speaker Change: Both these wins are for new affordable electric vehicles that are expected to launch at the beginning of 2026.
Speaker Change: In the fourth quarter, we won our first high-performance smart code program with Zikr, the premium EV brand of Chile, the leading domestic OEM in China.
Speaker Change: which requires significantly higher processing power than the usual cockpit domain controllers.
Speaker Change: This system will launch in mid-2026 in China and will be offered in the higher trims of Zickers vehicle models.
Speaker Change: Lastly, we won our first business for onboard charger and DC to DC converter with Mercedes-Benz.
Speaker Change: 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.
Speaker Change: Overall, 2024 was a very successful year for Visteon in terms of new business bookings.
Speaker Change: 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.
Speaker Change: Our strategy is focused on addressing fast-growing automotive technology domains with products that are aligned with the key industry trends, coupled with a best-in-class cost structure.
Speaker Change: 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.
Speaker Change: 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.
Expertise in emerging technologies is critical for continued success.
Speaker Change: We strengthened our technology capabilities through bolt-on acquisitions that complement our in-house R&D and bring critical expertise in-house.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Our technology platforms are a key competitive advantage for Vistion, and we are continuously enhancing these platforms and integrating more functionality in them.
Speaker Change: They're also driving vertical integration of hardware, bringing Tier 2 content in-house to drive innovation and increase our competitiveness, while removing layers from the supply chain.
Speaker Change: In 2024, we started manufacturing of automotive cameras in-house, as well as designing backlight unit for displays and injection molding of various metal and plastic components used in our products.
Speaker Change: However, we continue to look for opportunities to further align our footprint to the evolving market dynamics.
Speaker Change: And as software is core to Visteon, 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.
We remain committed to a balanced capital allocation approach.
Speaker Change: 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.
Speaker Change: We deployed $55 million to M&A in 2024 and have a pipeline of additional token acquisitions.
Speaker Change: We also returned capital to shareholders with $63 million of share repurchases in the year.
Speaker Change: 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 6.
Speaker Change: 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.
Speaker Change: Global light vehicle production is expected to decline slightly, with a mid-single-digit decline in Visteon's customers' vehicle production.
Speaker Change: 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.
Speaker Change: In China, where we've experienced sales headwinds in 2024 from the loss of market share by global OEMs.
Speaker Change: We expect our sales drop to moderate in 2025 and represent the low point for our sales in that market before recovering in 2026.
Speaker Change: This represents a flat base sales year over year, despite the headwinds from lower customer vehicle production and recoveries, as well as FX.
Speaker Change: 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.
Speaker Change: We are assuming that light vehicle production increases in line with S&P Global forecasts for both years, with customer mix improving from 2025.
Speaker Change: Growth over market is expected to be in mid to high single digit in 2026 and 2027.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Our BMS sales are expected to grow modestly in line with electric vehicle sales growth at GM and Silentis, and helped by the launch of BMS with a third customer based in Europe.
Speaker Change: Overall, we're targeting $4.15 billion in sales in 2027, which is a mid-single-digit sales growth kegger relative to our 2025 sales guidance.
Speaker Change: This represents an attractive multi-year growth profile as our strategic initiatives continue to gain traction.
Now I will turn the presentation over to Jerome.
Jerome Rouquet: Thank you, Sachin, and good morning, everyone. 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.
Jerome Rouquet: 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.
Jerome Rouquet: Over the last five years, sales increased almost 1 billion dollars compared to 2019, including recoveries.
Jerome Rouquet: 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.
Jerome Rouquet: We grew despite a substantial sales headwind from the changes in the China market since 2022.
Jerome Rouquet: 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.
Jerome Rouquet: Our ability to grow revenue and significantly improve margins at the same time is a testament to our strong product portfolio and operational efficiency.
Jerome Rouquet: 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.
all supported by strong balance sheets.
Jerome Rouquet: 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.
Jerome Rouquet: 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.
Jerome Rouquet: In terms of performance by geography, Europe had double-digit market outperformance, America's high single-digit outperformance, while China underperformed.
Jerome Rouquet: 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.
Jerome Rouquet: Adjusted EBITDA was $117 million for the quarter. Our EBITDA performance was driven by continued cost discipline and strong operational performance.
Jerome Rouquet: 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.
Jerome Rouquet: When adjusting for more normalized engineering and SG&A, our run rate margin exiting the year was around 12%.
Jerome Rouquet: 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.
Jerome Rouquet: This level of cash flow was above our expectations as we had several one-time working capital benefits.
Jerome Rouquet: Lastly, we continue to return capital to shareholders in the fourth quarter, repurchasing 43 million of our shares.
Jerome Rouquet: We remain committed to our balanced capital allocation framework with allocations to organic growth, M&A, and capital returns to shareholders.
Jerome Rouquet: Overall, we delivered a strong fourth quarter, with continued market outperformance, strong adjusted EBITDA margin, with significant cash flow generation.
Turning to page 10.
Jerome Rouquet: 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, smart core, and electrification, drove our 4% market outperformance.
Jerome Rouquet: 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 the market as a result of our global OEMs losing shares in the market.
Jerome Rouquet: Adjusted EBITDA for the full year was a record $474 million, a $40 million improvement compared to the prior year.
Jerome Rouquet: 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.
Jerome Rouquet: Net engineering costs were lower, mostly due to the favourable 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.
Jerome Rouquet: This decrease was despite additional engineering spending in 2024 associated with our acquisition of an outsource R&D firm.
Jerome Rouquet: Net engineering cost as a percentage of revenue was 4.9%, which is below our normal run rate.
Jerome Rouquet: SG&A, as a percentage of revenue, was 4.6% and in line with our expectations.
Jerome Rouquet: 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.
Jerome Rouquet: EBITDA margin was 12.3% in 2024, an expansion of 130 basis points year-over-year. Turning to page 11.
Jerome Rouquet: The improvement compared to the prior year was primarily due to higher adjusted EBITDA and an inflow from trade working capital.
Jerome Rouquet: This trade work in capital inflow was above our expectations, as we benefited not only from the unwied from lower sales, but as well from several one-time benefits in the fourth quarter of 2024, some of which will reverse in 2025.
Jerome Rouquet: Adjusting for these items, trade work in capital would have been a modest outflow for the year and our conversion would have been between 45 and 50 percent of EBITDA in 2024, closer to our targeted level of 40 percent conversion.
Jerome Rouquet: 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.
Jerome Rouquet: CapEx was $137 million for the year, an increase of $12 million compared to last year.
Jerome Rouquet: 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.
Jerome Rouquet: 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.
Jerome Rouquet: 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.
Jerome Rouquet: Before moving to our financial guidance, I would like to address the topic of tariffs.
Jerome Rouquet: 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.
Jerome Rouquet: If implemented, these tariffs would have a meaningful impact across the entire automotive industry, and especially the supply base.
Jerome Rouquet: We are working closely with our customers to identify mitigation actions and minimize any potential impact on Visteon should these tariffs be enacted.
Jerome Rouquet: Our guidance does not include any impact from these or any other potential tariffs.
Now let's turn to our 2025 guidance.
Jerome Rouquet: Our guidance range for sales is 3.65 to 3.85 billion. Excluding the impact of supply chain recoveries, our base sales are expected to be roughly flat year-over-year.
Jerome Rouquet: We have assumed this joint customer production declines mid-single digits, with customer production down the most in the Americas as OEM's right-sized dealer inventory, and in Europe due to the ongoing macroeconomic weakness.
Jerome Rouquet: Our growth of market is anticipated to be mid to high single digits, driven by strong expected performance for large displays, digital clusters, and infotainment products.
Jerome Rouquet: 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.
Jerome Rouquet: Adjusted EBITDA is expected to be between 450 and 480 million, representing a margin of 12.4% at the midpoint.
Jerome Rouquet: 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.
Jerome Rouquet: As a percentage of 2025 sales, we anticipate NetEngineering 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.
Jerome Rouquet: 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.
Jerome Rouquet: CAPEX is forecasted at $150 million as we invest for future growth and margin expansion with several notable vertical integration initiatives planned for 2025.
Jerome Rouquet: 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.
Jerome Rouquet: 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.
Jerome Rouquet: This represents a 5% growth CAGR and an increase of $400 million in sales between 2025 and 2027.
Jerome Rouquet: 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.
Jerome Rouquet: 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.
We continue to have significant new product launches.
Jerome Rouquet: 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 product on two-wheelers with Honda, TVS, BMW, and Royal Enfield, and a high-performance compute cockpit domain controller with Zicker in China.
Jerome Rouquet: 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 white space OEMs and in adjacent markets.
Jerome Rouquet: In addition, we anticipate we will return to growth in China starting in 2026.
Jerome Rouquet: 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.
Jerome Rouquet: This represents $230 million of adjusted free cash flow, or 10% CAGR, from 2025 levels.
Jerome Rouquet: 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.
Jerome Rouquet: Our strong level of cash flow will allow for significant capital to be deployed to M&A and shareholder returns.
Jerome Rouquet: 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.
Jerome Rouquet: Visteum remains a compelling long-term investment opportunity. We expect to benefit from a higher demand for more digital content in the cockpit, regardless of powertrain, and the growth of electric and hybrid vehicles.
Jerome Rouquet: Visteon is well-positioned for top-line growth, margin expansion, and free cash 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.
Jerome Rouquet: At this time, if you would like to ask an audio question, please press star, then the number 1 on your telephone keypad.
Again, that is star and the number 1.
Jerome Rouquet: We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of John Levy with Barclays. Your line is now open. Please go ahead.
Hi, good morning. Thank you for taking the questions.
Speaker Change: I wanted to ask a couple questions on the revenue outlook and mixed and innocent first.
Speaker Change: Maybe if we could just talk about the growth opportunity that you have ahead with, you know, the Asian OEMs, Toyota, et cetera. What percent of the revenue is it today? I think it's small.
Speaker Change: How significant is that in driving growth for this year and through 2027?
Speaker Change: of Revenue Makeup, and I'm talking about OEMs primarily in Japan.
and India.
So OEMs outside of China.
Speaker Change: 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 for them as well with us in the past few years.
Speaker Change: 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.
Speaker Change: And in terms of our current share of revenue, I think they are like mid, high single-digit levels. And if you think about even by 2027, they would almost double in terms of...
Speaker Change: their share of our revenue. So pretty, pretty robust growth and they represent between them.
Speaker Change: I would say somewhere around 25 to 30% of the global vehicle production. So it's a sort of a wide space opportunity for us.
Speaker Change: Great, thank you. The second question is also on mixed dynamics.
Speaker Change: and and it's maybe two parts of it you know you're talking about customer mix
Speaker Change: Sounds like it's weak this year, but turns around the next couple of years What's turning things around in China? So Cops4Mix? Yeah. Yeah, you know. Yeah. Thank you
Speaker Change: 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 24, overall production was down by let's say about a point in terms of LBP.
Speaker Change: 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.
Speaker Change: 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
Speaker Change: come up with our own perspective, a balanced perspective of how we feel the LVP will
Speaker Change: and the negative mix in 2025 is really driven by a few large customers that are forecasted by S&P Global to
Speaker Change: and lower production this year as compared to last year. For example, Ford and GM here in North America.
Speaker Change: In Europe, it is Mercedes primarily that's impacting us, it's dragging our mix down. And in Asia, it's Nissan and Mazda.
Speaker Change: 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
Speaker Change: the industry forecast point two 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.
Speaker Change: And so it's a moderating situation for us. Now, when it comes to China,
Speaker Change: Again, taking maybe a step back because I think this is going to be a topic for a lot of people listening today in terms of how do we...
Speaker Change: 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.
Speaker Change: And since 2022, the market has changed quite dramatically in many ways. So, the transition to electric vehicles also caused a transition
Speaker Change: of the products in the markets, from clusters and standalone infotainment to CDCs in large displays. And as the market changed quite rapidly, global OEMs have lost a significant amount of share in that market.
Speaker Change: Now, we were able to develop business with some domestic OEMs such as Geely, GMC, and Dongfeng.
Speaker Change: But that business, although it has developed well, was not sufficient to offset the loss of sales that we saw with the global OEMs.
Speaker Change: 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
Speaker Change: have 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.
Speaker Change: So, that's what is causing us 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.
[inaudible]
Thank you. That's very helpful.
Speaker Change: Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good morning and thanks very much for taking my questions. 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 $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've had any success with multi-domain controllers,
and Matt Sawyer.
Mark Delaney: 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 smart core or compute domain controllers are really what's driving the products in the mid-to-upper section of the market.
Mark Delaney: 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.
Mark Delaney: And, you know, inherently, smart cord winds tend to be lumpy. These are the more complex systems that car makers have in their electronics portfolio.
Mark Delaney: And so that's where there's a lot more activity that goes into the coating and wetting of the suppliers.
verified in my prepared remarks.
Mark Delaney: is that in 2024, we saw a slightly lower level of customer activity in terms of coatings.
Mark Delaney: especially in Europe and North America as the OEMs were dealing with the evolving market dynamics with the lower than expected demand for EVs and what has been happening to their sales in China.
Mark Delaney: So, if you look at, you know, 2023, we did pretty well, and that was also mostly with Western OEMs.
Mark Delaney: And in 2024, the majority of our new participants, for the reasons I mentioned, came from Asia.
and the products that are...
Mark Delaney: of, I would say, interest to the OEMs there. Yes, some smartphones, but largely displays and standalone clusters and IBI or infotainment.
Mark Delaney: Europe and U.S. return back this year and 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 quite okay for us.
Speaker Change: 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 multi-domain, you know, we do see some body control functions getting integrated into Smart Core.
Speaker Change: So when we talk about smart code, HPC is a good example.
Speaker Change: 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...
Speaker Change: ADAS, for example, integrated into a single compute cluster, that will probably take a little bit longer.
Speaker Change: My second question was 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.
Speaker Change: Yeah, absolutely. In fact, you know, the slowdown in 2024 that we, that I mentioned,
of this is causing 25 to be quite robust.
and many of these OEMs have to still.
Speaker Change: plan and launch new models. So the pipeline seems to be pretty robust and with a sort of a shift more towards Europe.
Speaker Change: U.S. 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.
Speaker Change: In terms of the overall target for us, it remains the same, 6 billion plus for the year as well.
Let's take the next question.
Speaker Change: Your next question comes from the line of Tom Narayan with RBC, please go ahead.
Tom Narayan: Hi, yeah, thanks. Hi, Sachin and Jerome. Thanks for taking the questions.
Tom Narayan: First one is on the 25 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 while S&P is flattish.
Speaker Change: 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...
for China or for ex-China.
Tom Narayan: Sure, sure. And Tom, you are correct that if you look at some of the OEMs that I mentioned, what they have publicly said,
It would imply a more, I would say,
Tom Narayan: our view being a little more conservative, which is why I wanted to clarify earlier that what we have assumed is based on.
Tom Narayan: S&P Global's outlook for, 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 one point.
In terms of growth of a market,
Tom Narayan: If you again look at 2024, new product launches were really the drivers of our growth over market, especially in America, which was a strong double-digit performance. And Europe and Asia, outside of China, were mid-single-digit, again driven by product launches.
Tom Narayan: Now, China 24 was a bigger negative, now as we look at 2025, more or less at a bigger picture, the same dynamics stays with.
Tom Narayan: China Improving, moderating in terms of the loss, right, and the rest of the world more or less of I would say looking the same
Tom Narayan: 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.
Speaker Change: Okay, thank you. And my follow-up, you know, a recurring theme that has appeared in on the supplier base this earnings season and even before is 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.
Speaker Change: 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.
Speaker Change: Yeah, 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.
Speaker Change: 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 have seen us do that now repeatedly.
In 2024, we launched a couple of products.
Smart Core HPC which I think is going to be
a big driver of growth for the company for a
Speaker Change: a fairly long period of time as more content and especially AI start coming into the cockpit.
Speaker Change: and Electrification, our product line is continuing to expand very much along the lines that we have.
Speaker Change: said earlier, if you go back a couple of years, we've been talking about
Speaker Change: adding power electronics to our BMS portfolio and that is starting to come to life.
So as our product.
Speaker Change: and technology landscape grows, it's critical that we have expertise in all of the key technologies that are important.
Speaker Change: 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.
Speaker Change: Your next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.
Oh, great. Thanks for taking my questions.
Speaker Change: I just 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 mostly customer mix, FX?
Speaker Change: Right, right. I'll start and then I'll also ask Jeroen 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.
Speaker Change: 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...
Thank you.
Speaker Change: 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.
Speaker Change: After that, you have electrification, right? BMS, in particular, you may remember back in those days, the expectation was much higher in terms of the ramp-up of electric vehicles and our customers, and that has come down significantly.
Speaker Change: between the two of them that's about 70-80% of the impact in terms of the billion dollars that we are talking about and the rest is just production expectations.
Speaker Change: Our customers' production over that period of time has come down, and that's really the third bucket.
Speaker Change: Jerome, did I miss anything? I would just add DEV as well, growth, so beyond BMS, which is for us essentially GM.
Speaker Change: EV was supposed to grow much more and we had some very specific programs that were on EV that obviously are not going to have the same impacts. So that's probably as well in the second bucket another area to mention.
Speaker Change: 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 25 and 26? When are you able to catch up there, or can you, given some of the economics of locals isn't always great?
Speaker Change: Sure, sure, sure. So if you look at, you know, our revenue, it's about 10% of the company revenue that's our China exposure now.
Speaker Change: And of that, the mix is 60-40, so 60% with global OEMs and 40% domestic.
Speaker Change: 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%.
Speaker Change: 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,
Speaker Change: They've been able to hang on to their market share in January in terms of retail sales.
Speaker Change: So, global OEMs are at about 35 percent, which is the same rate that...
Speaker Change: 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.
Speaker Change: and so I think that that's points to maybe some level of at least is slow down in the erosion of the share and maybe at some point it will form
a certain base level that we can work with.
Speaker Change: 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 questions.
Speaker Change: Your next question comes from the line of James Picariello with BNP Paribas. Your line is now open. Please go ahead.
Hi, everybody.
Speaker Change: Just 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?
Speaker Change: 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.
Speaker Change: Yeah, thanks a lot, Jim. So we had a very good quarter in terms of cash flow generation.
Speaker Change: a lot of little things that added up to a fairly large number. So it was, as you just said,
Speaker Change: mostly from working capital. Generally, I would say collections were very good with customers, but we were surprised.
Speaker Change: 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 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.
Speaker Change: So that's the second big driver. Third large driver as well, we generated inventory reductions, and that as well as driven some cash. And finally...
Speaker Change: Q4 of 2024, and we don't see that flowing through going into 2025. Our conversion, we think, is still around the 40% from EB-9 to cash flow. So it's very consistent with what we've been generated.
and Jerry King in the last...
Speaker Change: invest in vertical integration, where as well, because of all the winds 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.
Speaker Change: and 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.
Speaker Change: 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 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.
Speaker Change: 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.
Speaker Change: 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? If possible, could you also confirm what your BMS revenue total was in 2024? Thanks.
Thank you.
Speaker Change: So, you know, what we saw in 2024 was a pretty robust demand for our DMS product, especially with GM.
Speaker Change: And as you probably know, the supply chain pipeline is a little more extended.
So, there are the two reasons why we believe that
It's good to be prudent.
Speaker Change: as we talked about the IRA credit potentially being at risk.
number two
Speaker Change: Overall, demand is not as strong as perhaps was anticipated earlier.
Speaker Change: 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.
Speaker Change: So that's really been the main thinking, you know, the driver behind our
Jerome Rouquet: forecasting for a slightly lower BMS revenues for us in 2025. Jerome, you want to talk about how big was the... Our revenues in 2024 were high single-digit for BMS.
Jerome Rouquet: 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 there's a growth.
Jerome Rouquet: Oh, high single-digital percent of total sales. Got it. Thank you. All right. Correct, yeah. On total sales, yes.
Speaker Change: Your final question comes from the line of Priya Perel with Wolf Research. Please go ahead.
Priya Perel: 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 engineering and SG&A leverage, or do you have capacity that needs to be filled out?
Jerome Rouquet: Yes 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 at 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.
Jerome Rouquet: The rest of the improvement is coming from our operational improvement and we still have got a lot of areas that we think we can still improve.
fundamental driver for us to improve
in some areas like this place.
Jerome Rouquet: We will continue, obviously, to work on manufacturing productivity, but we do as well continue to work on engineering productivity.
Jerome Rouquet: 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.
Jerome Rouquet: 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%.
Jerome Rouquet: last year, it's about 40 percent of the current revenues. So just trying to get a sense of what happened.
Jerome Rouquet: what you were seeing in clusters last year and how you're thinking about the growth rate for that business going forward. Yeah.
Jerome Rouquet: Yeah, so that's a good question, Treyas, 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.
Jerome Rouquet: are in mid to high segment of the market are gonna be replaced by larger displays and cockpit domain controllers. So there will be some level of that sort of cannibalization, if you want to call it that, that's gonna happen in the industry.
Jerome Rouquet: And for us, we think that's a good thing because from an ASP viewpoint,
Jerome Rouquet: Both displace and CDC are higher than standalone clusters and IVI or infotainment.
Jerome Rouquet: 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 those clusters and infotainment.
and that's how we see the market evolve.
Jerome Rouquet: 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 a very strong...
displays, and CDC.
Jerome Rouquet: in a business that's growing, clusters is still growing. If you look at the volume, our digital clusters grew close to almost 17, 18% in 2024, year over year.
Jerome Rouquet: and ASPs have come down as their product has gone into more value.
Jerome Rouquet: This concludes the Vistian's 4th Quarter and Full Year 2024 Results Earnings Call. You may now disconnect.
Please wait, the conference will begin shortly.