Visteon Corp Q4 FY2025 Earnings Call

Good morning.

I am Chris Doyle, Vice President of Investor Relations and FP&A. Welcome to our earnings call for 2025. Before we begin this morning's call, I would like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled “Forward-Looking Information” in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon Corporation’s website. You can download them at investors.visteon.com if you have not already done so. Joining us today are Sachin S. Lawande, President and Chief Executive Officer, and Jerome J. Rouquet, Senior Vice President and Chief Financial Officer. We scheduled the call for one hour, and we will open the lines for questions after Sachin’s and Jerome’s prepared remarks. Please limit your participation to one question and one follow-up. Thank you again for joining us. I will now turn the call over to Sachin.

Thank you, Chris, and good morning, everyone. Overall, we delivered a strong performance in 2025 despite several industry challenges. Net sales for the year were $3,768 million, coming in largely as we expected at the beginning of the year. From a product perspective, displays will stand out with sales growing approximately 20% year over year, reflecting strong customer demand for larger and advanced displays as well as our execution capabilities. Growth over market was muted in 2025 because of two well-understood factors we have discussed throughout the year. First, battery management systems continued to be a headwind as EV demand in the US was softer than originally anticipated. And second, in China, our results were impacted by ongoing shifts in market dynamics, including the continued loss of share by global OEMs. These two factors negatively impacted GOM by about seven percentage points. From a profitability standpoint, 2025 was a record year, Adjusted EBITDA reached $492 million or 13.1% of sales, representing the highest level in the company's history. We also generated very strong adjusted free cash flow reflecting disciplined execution and continued focus on cost and capital efficiency. New business activity was another highlight of the year. We delivered a record $7,400 million of new business wins, surpassing our prior peak. Finally, a strong balance sheet and cash generation continue to provide significant flexibility. During the year, we deployed more than $120 million towards M&A and shareholder returns while maintaining a strong net cash position. Turning to page three.

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Before I go deeper into our 2025 results, I want to take a step back and briefly update you on the strategic work underway to build Visteon Corporation’s next phase of growth. While the majority of the benefits will come later, some of these initiatives are expected to show results in 2026. We are diversifying our customer base by expanding our presence with specification automakers, which have historically been underrepresented at Visteon. In 2025, we secured another $500 million of new business with Toyota. Building on the momentum from the prior year, we launched new products with Toyota, Mahindra, Tata, and Maruti Suzuki. We expect revenue from these OEMs to begin growing in 2026 and to ramp steadily over the next several years, making them an important driver of our future growth. At the same time, software-defined vehicles are now extending into other parts of the broader mobility ecosystem, particularly commercial vehicles and two-wheelers. While we have served these adjacent markets in the past, the changes driven by these trends are making them significantly more attractive growth opportunities while also helping us diversify our exposure. In 2025, nearly 15% of our new business wins came from two-wheeler and commercial vehicle manufacturers compared to about 4% of our sales today. A particularly important milestone was winning the largest digital program in the two-wheeler industry, approximately $400 million in lifetime revenue with Honda. Launches for this program are scheduled to begin in 2027. Our manufacturing footprint and cost structure have long been a competitive advantage for Visteon. To further strengthen this advantage, we have increased vertical integration in manufacturing to simplify the supply chain and capture incremental value. In 2025, we accelerated the insourcing of the molding of metal brackets used for large displays using an advanced lightweight textile molding process. We are the only tier one supplier that has this capability in-house in the industry. We have also increased our optical bonding capacity in various plants. Finally, we began manufacturing automotive cameras to complement our in-house surround vision software, enabling a complete end-to-end solution. More broadly, investing in the business remains a top capital allocation priority. In 2025, we deployed approximately $180 million across CapEx and M&A to support new program launches, technology development, and vertical integration initiatives. Advancing our technology portfolio and aligning it closely with market trends is a key element of our strategic priorities. Today, I would like to highlight two emerging product trends in particular: advanced displays based on OLED technology and AI in the cockpit. In 2025, nearly 50% of our new business wins were for displays, surpassing 2024 record levels and positioning this product for sustainable revenue growth. Importantly, we secured significant OLED display wins with luxury OEMs, establishing Visteon's leadership in this segment of the auto market. While TFT displays will represent the bulk of the automotive market for displays, OLED displays will have greater share in luxury vehicles. AI technology is advancing at an extraordinary pace. Newer AI models deliver significantly higher intelligence with far fewer parameters, enabling AI to move from cloud to device-based architectures, an essential shift for automotive applications. We are addressing this opportunity through two complementary offerings. First is our high-performance compute hardware, which provides the processing headroom and architectural requirements to run AI workloads in the vehicle. Early in 2025, we secured a win with Cherry in China and more recently follow-on business with Geely as they expand this architecture into the Lincoln co-brand, building on our Zika win in 2024. These are the most advanced cockpit systems in the industry and are scheduled to launch in 2026, reflecting both the pace of innovation and our ability to execute alongside our customers. Second is Cognito AI, our in-house AI-based smart assistant for the cockpit. Over the past year, we expanded Cognito AI to support multimodal AI, combining large language models with vision models, allowing the system to interpret visual information such as road signs and symbols alongside voice interaction, delivering more contextual and intelligent driver experiences. Following CES, we have seen growing customer interest and deeper technical collaboration. Together, our high-performance compute systems and Cognito AI position Visteon at the forefront of bringing AI into the automotive cockpit. Turning to page four. This slide provides more color on our original sales performance for the year. In the Americas, our sales were impacted by lower customer vehicle production and by the steep drop in production of EVs at GM and Stellantis. DMS sales took a further step down in Q4 after the expiration of the EV tax credit and resulted in a full-year headwind of about 8% to our 2025 Americas sales. Offsetting these headwinds were strong growth in digital clusters, displays, and infotainment programs at Ford, VW, Toyota, and Nissan on vehicles such as the Bronco, Tarok, Camry, and the Murano. With a strong performance in cockpit electronics, we were able to deliver a 5% growth of our market in this region despite the significant reduction in BMS sales. Europe was a standout market for us despite lower customer vehicle production and the cybersecurity-related disruption at JLR, one of our larger customers in the region. Our strong performance was driven by the ramp-up of newly launched products, mostly large displays and digital clusters, with Audi, Ford, and Renault delivering an outstanding 11% growth over market in this region. We also benefited from our recently acquired engineering services businesses, which is an important strategic capability we are building starting in Europe. In rest of Asia, our sales were essentially flat as our growth in India and Southeast Asia were offset by declines with some customers in Japan. Our market outperformance in the region was driven by two-wheeler programs with Honda, Royal Enfield, and TVS. We also benefited from a recently launched digital cluster program with Mitsubishi that is going on multiple car lines. Finally, as expected, sales in China declined year over year, resulting in a significant headwind to our overall growth over market performance. The underperformance in China was largely driven by continued market share loss among global OEMs, and to a lesser extent, by vehicle mix and our product transition at Geely. Encouragingly, we delivered sequential sales growth in the fourth quarter supported by new product launches, including a new cockpit domain controller with Geely. Overall, we delivered 2% growth over market globally despite EV headwinds in the US and the ongoing challenges in China. This performance reflects the strength and diversification of our product and customer portfolio, which has enhanced our ability to navigate market volatility. The strategic initiatives outlined earlier are expected to further strengthen the resilience of the business. Turning to page five. Our 2025 operational performance reflected strong execution and global reach, with new products launched on 86 vehicle models across 19 vehicle manufacturers. These launches were well distributed geographically, underscoring balanced growth across all major regions. From a product perspective, approximately one third of the launches were for large displays and SmartCore programs, aligned with the industry's accelerating shift towards software-defined vehicles. The launch mix also showed increasing momentum in hybrid vehicles, which performed particularly well in 2025 as well as in commercial vehicles and two-wheelers. Several key fourth quarter launches are highlighted on this page. In China, we launched a new digital cluster on the refreshed Toyota Corolla and Corolla Cross models. The Corolla has been a long-standing success for Toyota in the Chinese market, and the updated versions offered with both ICE and hybrid powertrains introduce enhanced smart features designed to reinforce Toyota's position in this highly competitive segment. We also launched a center information display on the Mazda CX-5 SUV, a key element of Mazda's return to growth plan for 2026. This launch supports both ICE and hybrid variants of the vehicle in the China market. In addition, we introduced a SmartCore system with Zeeker, further strengthening our position with Chinese OEMs adopting more advanced corporate architectures. In India, we introduced a fully integrated SmartCore-based corporate system on Mahindra’s XUV 7XO featuring three twelve inch displays. The centralized compute system offers state-of-the-art SDV capabilities including surround view, telematics, streaming media, OTA, ADAS visualization, besides advanced infotainment capabilities. Other fourth quarter launches included instrument clusters with Ford in North America, and Tata in India. In summary, we delivered strong operational performance in 2025, launching a high number of new products aligned with key industry growth drivers, including the shift to software-defined vehicles, increasing adoption of large displays, and rising demand for hybrid vehicles that sets us up for continued growth. Turning to page six. We delivered a record $7,400 million of new business wins in 2025, 20% higher than 2024. This performance is particularly impressive given the slower OEM port activity during the year, especially in Europe and the US, as automakers adjusted to shifting market dynamics around electrification and increased competition from Chinese OEMs. Displays and SmartCore performed exceptionally well, reflecting the continued acceleration of the software-defined vehicle trend across the industry. Together, they accounted for approximately three quarters of our total wins. We also continued to build momentum in high-performance compute systems for the cockpit, securing a second customer, Cherry, in China. We also secured significant wins in large format digital clusters to support the growth of ADAS and the increasing need to present safety-critical information directly in the driver's line of sight. Turning now to the fourth quarter, we secured approximately $1,700 million of new business wins, finishing the year on a strong note. A key highlight was a center information display program for a large full-size ICE pickup in North America, serving both commercial and retail customers. This is a flagship high-volume platform and underscores how OEMs continue to prioritize the cockpit as a critical area of differentiation even in pickups and trucks. We also won an integrated infotainment system on a high-volume global SUV and truck platform for a Japanese OEM, where we displaced an incumbent supplier. This win highlights our ability to deliver integrated cockpit systems at scale and compete effectively on both technology and cost. In China, we secured a driver display program for an entry-level sedan with Toyota and expanded our high-performance compute system on the Lincoln co-vehicle at Geely. Overall, the breadth of our cockpit product portfolio continues to create meaningful growth opportunities for the company. The product and regional diversity of our new business wins positions us well to navigate industry challenges and drive continued growth. Turning to page seven. Let me close with a look at how we are thinking about 2026 and how it sets the path for our next stage of growth. For 2026, we expect sales to be in the range of $3.625 billion to $3.825 billion. Starting on the left-hand side of the slide, there are two specific headwinds we anticipate to impact 2026, both of which we expect will be largely behind us as we move into 2027. First, US EV production is expected to be lower following the reset in demand. As a result, we are assuming that BMS volume in the Americas will decline by nearly 50% year over year. Second, Ford discontinued several vehicle models in 2025 where we had content, and there are no successful programs for those vehicles. In addition, we expect net pricing, foreign exchange, and other commercial items to represent roughly a 2% headwind, which is broadly in line with normal pricing dynamics. Jerome will walk through these items in more detail. Offsetting these pressures, the right-hand side of the slide highlights the building blocks of our next stage of growth, which begin to take shape in 2026. In China, we expect sales to grow modestly, lower customer vehicle production. We have two high-performance compute SmartCore programs launching with domestic Chinese OEMs along with cockpit domain controller and display programs with German OEMs launching in the second half of the year. While we have been conservative in our estimates, there is potential upside if the upper segment of the vehicle market performs well as indicated by January market trends. Our strategic initiatives also begin to contribute in 2026. We have multiple program launches during the year, including several with Toyota, continued growth in India, and further expansion in two-wheelers and commercial vehicles. These launches reflect the strategic work we discussed earlier, which helps set the foundation for sustainable growth. The final bar on the slide represents the net impact of program activity across the remainder of our customer portfolio. This includes new program launches and production ramps across a broader customer base such as the panoramic display and cluster with Audi, digital clusters on multiple Renault vehicles, and new displays with Nissan and Mercedes that more than offset normal program roll-offs. It should be noted that it excludes the specific headwinds and the strategic growth drivers we have already discussed. Separately, the supply of memory chips is tight throughout the industry, and we are working closely with suppliers to mitigate the gaps and develop alternative drop-in replacements. While the situation is still evolving, we expect to be able to cover customer demand by applying a similar playbook as with prior semiconductor shortages. Overall, 2026 represents an important year. While sales are impacted by temporary headwinds, the second half of the year begins to reflect the progress we have made in executing our growth strategy that positions us for a return to top-line growth as we move into 2027 and 2028. With that, I will turn the call over to Jerome.

Thank you, Sachin. Before getting into the details of the quarter and our outlook, I want to briefly step back and look at our financial performance over the past few years as it provides important context for how we have managed the business through a dynamic environment. Over this period, we have grown sales by more than $800 million, or 28%, despite our customer production declining by 13%. We have more than doubled adjusted EBITDA and extended margins by over 500 basis points. Importantly, this margin progression has been steady and consistent, reflecting disciplined execution across pricing, cost structure, and operational performance. We have also generated strong cash flows. Adjusted free cash flow totaled $1 billion over this period, with an average conversion rate of approximately 42%, driven by EBITDA growth and sustained focus on working capital discipline and capital efficiency. While not shown on this slide, our return on invested capital remains in the high teens, well above our cost of capital and above our peer group, reflecting the quality of returns we are generating from our investments in the business. Taken together, these results demonstrate our ability to expand margins and generate cash even as volumes, mix, and regional dynamics have shifted. Turning to page 10. Sales for the fourth quarter were $948 million, coming in above our expectations, primarily driven by customer recoveries related to program shortfalls. In the quarter, sales benefited by $30 million related to a customer claim on an EV program in the US, of which a portion was used to settle supplier obligations. From a product perspective, displays continue to be the main growth driver year over year, while battery management systems were down following the expiration of the EV tax credit in the US. We also experienced several discrete headwinds in the quarter, including the Novelis fire impacting Ford and the cyber attack at JLR, both of which were known headwinds going into the quarter. There was no impact on the volumes related to the potential Nexperia supply risk we referenced on the last call. Adjusted EBITDA for the quarter was $110 million, representing a margin of 11.6% and came in slightly above the midpoint of our guidance. One-time items in the quarter represented a modest headwind as elevated warranty expenses and some costs associated with sourcing away from Nexperia more than offset the EBITDA benefit from the customer claim I mentioned previously. When excluding these one-time items, adjusted EBITDA margins were approximately 12.5% on a normalized basis, reflecting continued commercial discipline and underlying cost performance. Adjusted free cash flow was strong, coming in at $77 million supported by robust EBITDA levels and continued discipline in working capital management and capital efficiency. During the quarter, we returned capital to shareholders through $50 million of share repurchases and $7 million through our quarterly dividend, which we initiated in the third quarter. Our net cash position was $472 million at the end of the quarter. Turning to Page 11. For the full year, sales were $3.768 billion, down $98 million or 3% year over year. Customer production was down 1% for the year, while currency was neutral. Pricing was a headwind of 4%. This includes our normal annual price reductions of 2%, which are consistent with historical levels, as well as lower customer recoveries. The reduction in recoveries reflects the unwind of prior year semiconductor inflation.

Offsetting headwinds from lower BMS volumes, in 2025, we delivered another record year for both our adjusted EBITDA dollars and margins. Pricing and lower customer recoveries were offset through disciplined cost execution. We delivered end-to-end product cost improvements, including supplier cost reductions and vertical integration initiatives and drove productivity gains across engineering and SG&A. Throughout the year, we actively managed our cost structure in line with market conditions, enabling us to improve margins while continuing to invest in strategic growth initiatives. For the full year, the net impact from favorable one-timers, including elevated one-time commercial recoveries, was just under $30 million. Excluding these items, normalized adjusted EBITDA margins are in the mid 12% range for the full year. Before moving on to cash flow, I want to highlight our voluntary decision to change the methodology used to calculate our valuation allowance on US deferred tax assets. While there are two methodologies available that are acceptable under US GAAP, the methodology we will be using going forward enhances transparency and reduces complexity while also aligning with industry norms. We have reflected this accounting change in our US GAAP tax expense for the past three years in the 10-K. This change impacts the presentation of US GAAP taxes but does not affect cash taxes or the underlying economics of the business. Additional details are included in the 10-Ks.

Turning to Page 12. In 2025, we generated $292 million of adjusted free cash flow, reflecting continued strength in the underlying earnings profile of the business. Trade working capital was a source of cash for the year, driven by lower sales and inventory reductions. Cash taxes increased year over year due to increased profitability, the timing of tax payments, and some level of discrete items. Interest was a net positive as income generated on our cash balances more than offset interest payments on debt. Other changes primarily reflect ongoing pension contributions and timing of cash flows. Capital expenditures were $133 million for the year, or 3.5% of sales, illustrating the capital discipline of the company. This included continued investments in vertical integration as well as the purchase of land in India in the fourth quarter to support growth in this market. Taken together, our conversion ratio from EBITDA to adjusted free cash flow was nearly 60%. In total, we deployed approximately $275 million of capital. This included both organic and inorganic investments and the return of approximately $72 million of cash to shareholders through share repurchases and the initiation of a quarterly dividend. During the fourth quarter, we completed $100 million pension derisking by transferring pension-related assets and liabilities to an insurance company. This transaction had a non-cash impact on net income of negative $7 million. Also in the fourth quarter, S&P upgraded Visteon to BA1, reflecting expanded margins, strong free cash flow generation, a conservative financial policy, and sustainable demand for advanced cockpit technologies. Turning to our 2026 outlook. Starting with sales, we expect revenue in the range of $3.625 billion to $3.825 billion. As Sachin discussed, we begin to see the benefits of our strategic growth initiatives in 2026, with more meaningful acceleration into 2027 and beyond, laying the foundation for sustainable annual top line growth beginning in 2027. At the same time, 2026 includes several discrete headwinds, including lower BMS sales and the discontinuation of certain programs at Ford, with both items largely behind us as we go into 2027. Our outlook is primarily based on the January S&P forecast. Customer-weighted production is expected to be down in the low single digits. Against this backdrop, we expect Visteon growth over market to be in the low single digits. This is below our long-term expectations due to the discrete headwinds in 2026 that positions us for stronger growth going forward as those headwinds roll off and our strategic initiatives accelerate. Before moving to EBITDA, let me provide some additional perspective on the commercial dynamics embedded in our outlook. Recognizing that this remains a dynamic area. There are several items that reduce sales year over year, including normal annual pricing to customers, lower customer recoveries related to semiconductor and supply chain disruptions from prior years, as well as the non-recurrence of certain commercial recoveries recognized in 2025. Partially offsetting these declines, we expect recoveries related to more recent semiconductor dynamics, including memory-related costs. We also anticipate a modest tailwind from currency. On a net basis, we expect these various items to represent approximately a 2% headwind to sales year over year. Adjusted EBITDA is expected to be between $455 million to $495 million. At the midpoint of guidance, margins are 12.8%. As we have highlighted previously, our 2025 results included a net benefit of just under $30 million above our normal run rate. Of that amount, we expect about $10 million to repeat in 2026, resulting in a $20 million year-over-year headwind. Excluding this factor, we expect adjusted EBITDA dollars to be roughly flat year over year despite lower sales, reflecting the underlying strength of the business and our continued operational focus. Compared to normalized margins of 12.5% in 2025, our guidance incorporates a 30 basis point improvement. Included in our guidance are ongoing benefits from cost discipline, emerging savings from vertical integration, and product costing initiatives. These are offset by increased investments in the business to support product development, including in AI and vertical integration. This outlook also incorporates an increase in memory cost with a year-over-year cost increase representing approximately 2% of sales. We are in active discussions with our customers to pass along these costs, and we have incorporated in our guidance a modest amount of potential timing mismatch between costs incurred and customer recoveries. These discussions are ongoing, and given their sensitive nature, we will not be providing additional details at this time. Turning to cash flow, we expect adjusted free cash flow of approximately $170 million to $210 million, representing a conversion rate of approximately 40% at the midpoint. We currently anticipate working capital will be a slight use of cash as we increase inventory levels. Capital expenditures are expected to be approximately $150 million or about 4% of sales, which includes the build-out of a second manufacturing facility in India, as well as support of upcoming program launches and continued investments in vertical integration. Overall, our 2026 guidance reflects a business executing with discipline, maintaining margin expansion on a normalized basis, generating strong cash flow, and continuing to invest in the growth initiatives that support the next phase of our top line growth. As usual, we are not providing formal quarterly guidance, but I did want to share some directional insight before moving on. We expect first-quarter sales to be the lowest of the year, reflecting the industry production profile for 2026, continued depressed BMS volumes, and launches that are weighted towards the back half of the year. From a profitability standpoint, Q1 EBITDA will be negatively impacted by lower volumes as well as higher memory costs, recognizing that not all customer recovery agreements will be finalized by the end of the first quarter. In 2026, we expect to have more than $500 million of cash available to deploy. This amount represents a combination of cash on hand and cash that we expect to generate during the year. We will continue to be guided by the same disciplined capital allocation framework, prioritizing investment in the business while returning excess capital to shareholders. Starting with investments in the business, this remains our top priority. As discussed earlier, we expect to allocate approximately $150 million to capital expenditures in 2026, positioning the business for future growth and supporting vertical integration initiatives. In addition to CapEx, we continue to see meaningful opportunities for M&A. Our focus remains on expanding capabilities through engineering services, while also selectively evaluating opportunities to enhance our technology portfolio. While the ultimate level of investment will depend on how the transactions progress during the year, M&A deployment could be up to twice our annual CapEx investment levels. As always, we will remain disciplined and prioritize strategic fit and financial returns. Even after funding these growth investments, we expect to maintain significant capacity to return capital to shareholders. First, we are increasing our quarterly dividend to $0.375 per share, representing an increase of 36%. This reflects our confidence in the durability of our cash flow and equates to approximately $40 million on an annual basis. In addition, we intend to remain active in share repurchases. At a minimum, we will offset dilution, with the intent to be more opportunistic depending on market conditions and the pace of M&A activity. At the end of 2025, we had $75 million remaining under our existing authorization, and we expect to revisit this level as the year progresses. To round out the cash flow picture, we have a modest amortization requirement on our debt facility, representing $18 million of cash outflow in 2026. Taken together, our capital allocation plan for 2026 reflects a balanced and flexible approach, continuing to invest in growth, returning capital to shareholders, and maintaining balance sheet strength as the business continues to transition and scale. Turning to page 15. Before we conclude, I want to highlight our upcoming investor day, which will be held on June 25 in New York City. We look forward to sharing more detail on our long-term outlook, including how the strategic initiatives we have discussed today translate into growth and value creation over the coming years. We hope many of you will be able to join us. Thank you for your time today, I would like now to open the call for your questions.

At this time, if you would like to ask an audio question, please press star then the number one on your telephone keypad. Again, that is star and the number one. Your first question is from the line of Luke L. Junk with Baird. Good morning. Thanks for taking my questions. Maybe

Just to start with, Sachin, hoping we could just

dig into the DRAM exposure a little bit more relative to the product portfolio, maybe just to scale that 2% impact to guidance both across the portfolio and then kind of what that represents from a cost standpoint? And then maybe qualitatively, if you could also just speak to the supplier side of this and your ability to get in front of this, and I am just curious from a timing standpoint, you know, were you working on this relatively earlier versus when this became more known in financial markets?

Sure. Sure. So in terms of the use of memory, look, as you can imagine, we use memory chips in virtually all of our products. And we use different types of memories. You know, they have DRAM for sure but also flash memory. Now the memory supply and that landscape looks different than the logic chips that we have had issues with in the past. As you probably know, almost 90 plus percent of the market is made up of essentially three suppliers, including Samsung, Kynix, and Micron. And we work with all of them, and we have a long-standing relationship with these suppliers and a very strategic one. We started to work with them toward the end of last year. As you might know, the memory industry typically plans for about a 10% growth in demand each year. But towards the second half, I would say more in the third quarter of last year, the demand signals from the rest of the industry, not automotive, but consumer electronics, data centers, etcetera, indicated that the demand in 2026 was going to be closer to about 50% and not the traditional 10% or so, thereabouts that the industry was accustomed to. So the main fallout of all that is that the supply is going to be tight for everybody in all industries. Right? And automotive will also have the same situation. So what we are doing in response to that and we started on this journey last year itself, and I believe earlier than many in the industry, we started to work with our suppliers to secure the capacity for the full year. So that is something that we have already made a lot of progress with. And we should be, I would say, in a better position than most to be able to get those capacity reservations secured. Now even with that, where we see gaps, we are developing alternate pin-to-pin compatible drop-in replacements. Similar to what we did with the logic chip shortages. Also evaluating new suppliers. There are some new suppliers, not many, but some that are emerging mostly in China. And we started engaging with them late last year and have already secured some supply from these emerging suppliers. So net-net, if I look at our full year demand for this year, we should largely be able to cover customer demand. There may be some timing impacts that we have to manage. Even that, I think as we work with our suppliers, we should be able to largely mitigate. Now on the cost side, as Jerome mentioned, we have an increase in cost in this memory chips due to our historical relationship with the suppliers and the early engagement that we have. I believe we will be in a good position to have a good cost despite the increase, which we will expect to recover from our customers similarity to the last semiconductor price situation. So now to answer your other question about specifically how much it is, we would rather not provide any breakdown of our materials mainly for competitive reasons. The increase that, as Jerome mentioned, represents about 2% of our sales is probably as much as we can share for now.

Got it. I really appreciate the color there, Sachin. For my follow-up, just want to dig into the kind of the weighting of revenue this year. So very much appreciate the comment about first quarter sales and the impacts there. Just want to think about weighting the first half versus the second half this year as well, given the impacts from Ford and BMS are seem pretty immediate stepping into the year versus your launch cadence picking up into the back half? And then maybe if we could just walk at a high level into 2027 as well as some of these transient have not seemed like they should drop out and that launch cadence maybe should more fully read through. Thank you.

Hey. Good morning, Luke. I will start, and then I will hand over to Sachin for 2027. So, for 2026, we have a second half, which is going to be slightly better than the first half of the year, and that is really due to the launches that we have that are more backloaded towards the end of the year. We have got that in China. We have got that with our key strategic initiatives, including Toyota, that will really ramp up in Q3 and in some cases for Toyota in Q4. So overall, we have got about a 3% improvement in the second half versus the first half. When IHS was, I think, close to 2%. So we are doing slightly better than the market in the second half versus the first half. Related to Q1, we do think that Q1 will be the lowest quarter of the year on the back of two things. The first one is the fact that IHS as well is guiding towards a decline year-over-year of about three to 4%. So we will have this reflected in our sales. And we do see at this point a pretty low level of BMS sales as we are going into the first quarter. So, that will obviously impact our Q1 sales, which will be, as I said, the lowest of the year.

Thanks. Thanks, Jerome. Before I get into the 2027 topic, I would like to just briefly touch upon our performance in 2025 and our outlook for 2026. Because I think the dynamics there have a significant bearing on how we think about 2027. In 2025, we had two major headwinds. One was China, which represented about seven percentage points of headwinds, and we were able to offset that through new product launches, mainly in North America and Europe. If you were to exclude headwinds and the one-timers, that represents about seven percentage points of growth over the market. Now when you look at 2026, especially in the walk that we have provided for our sales, we have BMS again as a headwind. Perhaps we might be a little more conservative than the S&P four's outlook. But nonetheless, we have BMS, and we have the discontinued vehicles at Ford that we mentioned earlier. But China is no longer a headwind. Now offsetting these are all two new product launches, mainly in Europe and in Asia, particularly in China. However, most of the high-value launches are in the 2026, which should add about five percentage points. Now as we go into 2027, although we will not provide specific financial targets on this call here today, by the way, we will do that in a much fulsome treatment at our investor day in June. What I can say is that we expect top-line sales growth since the headwinds, both China and BMS, would largely be behind us. The growth that we will have from the new product launches, especially high-performance compute systems in China, as well as displays and other products we are making in the adjacent markets and our strategic initiatives should bring us back to mid to high single-digit growth over the market in 2027 and drive top-line growth. So I hope that gives a much broader context on current performance as well as what we expect in 2027.

Yep. Thank you very much. I will leave it there.

Thank you. Your next question is from the line of Shreyas Patil with Wolfe Capital.

Thanks a lot for taking my question. Maybe just a quick clarification on your commentary around memory. So just is your memory exposure equivalent to 2% of revenues? Or are you expecting an increase in memory costs? That is equal to 2%?

What we have mentioned, the 2% is specifically regarding the increase in the cost that we anticipate this year.

Okay. Thank you. And then maybe, you know, looking at the bridge, the revenue bridge that you provided earlier, you are pointing to your traditional customers driving about two points of top-line growth. That is about $75 million. Just curious what you are seeing in terms of launch activity broadly this year amongst those OEMs from some of the other suppliers that have reported; it does seem like '26 is a somewhat lighter year for launch activity, particularly in North America and Europe. Is that similar to what you are seeing? And would that be a contributing positive if you are thinking about 2027?

So, Shreyas, I think we are seeing a little bit of a different perspective than some of our other peers perhaps. We have a significant amount of launch activity in Europe related to displays. As you might remember, we have fun a high level of displaced business. A lot of it has come from Europe in the past couple of years. And that is turning into revenue, especially in the 20 launches in China. After a sort of reset with many of our international OEMs, not just the domestic OEMs, they have been launching new vehicles to compete in that highly competitive market. And this seems to be the year, again, the second half, where they are introducing new vehicles. The timing also might actually work out very well if you have seen even the early numbers from January in China; the market seems to be tilting in favor of more higher-priced vehicles with all of the changes with respect to policies and pricing, etcetera, that have happened in that market. We think that might actually help our mobile customers, but also our domestic customers like Geely. They have some high-performance compute launches that we discussed earlier. With domestic OEMs, they go into the more premium flagship vehicle models. So I see a very healthy launch activity this year.

And that is really signals again this STV trend now. Complemented by this AI trend. Starting to really drive some momentum. Okay. Great. And maybe just one last one on the M&A pipeline you mentioned, I think it is about $300 million or so. Maybe you could just unpack how the what is in that pipeline are the size of the companies that you are looking at and maybe how should we think about the timeline for when you could you could execute on those deals? Thank you.

Yeah. Let me start, and I will hand over to Sachin as well. So we have not really given a number. The chart may indicate that it could be as much as twice the amount of CapEx we have for '26. But we will see how it goes. We are quite ambitious in 2026 given the pipeline that we have. The criteria that we have got in mind for M&A remain the same as the ones that we have talked about in the past. The first one is that we want to have M&A that are bolt-on by design, and by that, we mean we want to look at fairly small acquisitions so that we can tuck them into our existing business pretty quickly. The second criteria is that we want to have technology-slash-capability accretive to what we are doing today, augmenting essentially the platform that we have from a software standpoint. That includes as well engineering services. We have already done two acquisitions and we are considering further ones. And the third criteria that we have always considered as well is the fact that we want to have as much as possible these businesses being margin accretive from day one so that we do not get a return that is going to be, in five or even ten years. So that is kind of the three criteria that we have selected in the past and that we are still continuing to apply as we look at this pipeline of acquisitions in 2026.

And maybe just to add to what Jerome has said, you know, without necessarily getting into any specifics about sizes of the companies, etcetera, that we are looking at. One thing to keep in mind, Shreyas, is if you look at our journey of integrating more and more of the ECUs, we have gone from integrating the cluster and the IBI into CDC, not the HPC integrates even more ECUs including body control, gateways, plus additional rear-seat entertainment, passenger-side entertainment as well. And now with the regulations in ADAS, in particular in Europe, is also expected to follow-up in China. We see that ADAS is going to be more of a table stakes almost feature and something that we can look forward to in integration in one of our future products. So we continue to look for opportunities where we can bring in those technology elements in-house that can allow us to take costs out and integrate more of the content in our systems. So that should give you some sense of the kind of the companies we are looking at, none of which are big transactions. As Jerome mentioned, we prefer to focus on technology capabilities so that we can then integrate it in a better manner with our systems.

Okay. Thanks.

Your next question is from the line of Lupitae Macaulay with TD Cowen.

Great. Thanks. Good morning, everyone. A first question, just going back to Slide seven and the revenue bridge. On the 2% headwinds from discontinued vehicles, I am curious whether you have content in some of the competing vehicles to the vehicles that are being discontinued and whether it is an assumption for some pickup of revenue there? Or are you kind of more assuming that that headwind does not get recovered or recouped by other competing vehicles might have content on.

Yes. The answer is yes. We do have content in that sort of a very broad cross-section of vehicles at that OEM. But at least as yet, we are not necessarily seeing the benefit. Now that does not mean it may not happen. It could. Still early in the year, and we do not have full visibility into the OEM's plans. Given the fairly significant volume of vehicles that those represented, we do expect that they would try to fill that hole with some other vehicles, and if that were to happen, then we would benefit from it.

And I would add, Sachin, that we have used broadly IHS in fact for this discontinued vehicle, but as well just for overall Ford volume going into '26.

That is very, very helpful. And just as a second question, strong bookings in 2025, that is great to see. Sachin, I was hoping you had a target to share for bookings in 2026. And then if you kind of look at the last few years' average booking, it does seem to support maybe a mid to high single-digit revenue growth algorithm for the company in the medium term. I think I heard you say, Sachin, to an earlier question that you may even get to that level as early as next year. Just hoping you kind of talk a little bit about the implications of bookings for the company's growth in the medium term.

Yeah. Very good question. If you think about the 2025 performance in particular, the things I would like to highlight. One are displays, which we did really well across the board. If you look at our displacements, they were spread over Europe, North America, and also Asia. And those programs typically have a shorter lead time in terms of development and launch than the cochlear electronics programs. Those fundamentally with more software take longer to launch those systems. So that is one factor. The other thing is that about 15% of our wins were on two-wheelers and commercial vehicles. Two-wheelers in particular also have fairly short time to market. So that is really the reason why we feel that the injection of these wins turning into revenue and contributing to our growth of our market will be fairly earlier than traditional and historical sort of averages in terms of time. In terms of just outlook for this year in particular for new business wins, the pipeline of new opportunities is pretty robust. I am very happy to see that given this environment where a lot of the customers that we have, especially outside of China, still in some sort of form or the other are trying to get their portfolio adjusted. We still see a very robust pipeline. Again, thereby displaced, but also more for the domain controllers. An emerging opportunity, which is very exciting is this AI-dedicated ECUs to bring AI into cockpits without necessarily re-architecting the whole vehicle. This is starting in China and we are very excited and optimistic about it. It has the potential to come across into other regions fairly quickly.

That is very helpful. Thank you.

Your next question is from the line of Tom Narayan with RBC Capital Markets.

Hi. This is Tanaseo on for Tom. Thanks for taking the question. So on the last call, I think you guys mentioned a roughly 20% volume reduction for BMS in 2026. And it looks like that number has since jumped up to 50%. So it sounds like you guys are still anticipating BMS to show some recovery in 2027. But is there anything you can give us on your longer-term planning around BMS? And where you think it could get up to maybe as a percentage of revenue?

Absolutely. So let me give you this the way we think about BMS. Especially in the US, first of all, I would start by saying that it is very difficult to forecast what EVs will do this year, in particular the first full year without all the incentives. But we can look at Q4 as one data point, not necessarily sufficient, but at least that is what we have in front of us. So even with the pull-ahead that occurred due to the expiry of the incentive, we saw a market penetration of about just over 5% of EVs in the US in Q4. Now as we think about 2026, we do believe it will start very soft in the sense that Q1 is probably going to be the low point of EV sales in the US, continuing from the effects of the pull-ahead last year. And then Q2 onwards slowly recover. Now the question is to what level? What we have assumed in our outlook is a very conservative number. We have assumed a roughly 3% penetration of EVs with our customers. I mentioned Q4 was over 5%. For the full year, it was over 7%. So it feels like our 3% is fairly conservative. S&P has a 30% lower 2026 than 2025. And if you look at our numbers, it is closer to 50% drop year over year. So there could be some upside if we are found to be too conservative here, but given everything, we felt it would be prudent to be a little bit more on the conservative side. Now if you think about 2027 and going forward, the improvements that we see in the cost of EVs and a continuing focus on those wire customers, in particular GM, we believe that the market should recover modestly from the lows of 2026. We will wait a little longer to see what that could look like, but we believe it could be a very modest improvement and a steady growth from there.

Okay. Gotcha. Thank you. I guess on a slightly higher level, it looks like you guys have pretty strong growth over market in Europe in 2025. I was wondering if you could give us a sense of whether you see any opportunities to capture additional business wins, especially from the Chinese domestic export into Europe?

Yes. We do see a lot of positives from the Chinese OEMs activity in Europe, not just with them directly, but also with European OEMs who are responding to the competitive threat by essentially uplifting the capabilities in the cockpits. Now we also have been able to win business in Europe from the Chinese OEMs, and we expect to be able to do more of that as we go forward. To us, Europe represents an interesting data point where the growth of the Chinese OEMs sales actually helps the business in terms of driving more content in the cockpit. We expect to see this dynamic not just limited to Europe, but in other regions as there we see higher activity of the Chinese OEMs.

And to your point, we anticipate Europe to also contribute more in terms of new business opportunities this year as well.

Your next question is from Joe Spak with UBS. Thanks.

I guess I wanted to go back to better understand some of the memory commentary. And I know you are going to be you are talking about being limited here in what you are going to say. But in the overall bridge, you are talking about recoveries, pricing, FX being a 2% year over year headwind. Now you have the old recoveries, right? That is probably lower year over year as you sort of indicated from the original semiconductor challenges. Price is sort of minus two. FX looks like it is probably a positive. So I guess to get to that overall minus two, and if I take in the context your, you know, the increase is about 2% of sales. It looks like you are assuming very little in terms of actual recoveries on memory. Is that about right? And maybe just a comment on sourcing here because it sounds like you are doing a lot of work. I know a lot of the automakers are doing work as well, and there is some direction by. So you know, who is really responsible for what?

Joe, good morning. So the buckets that you described are the right ones. We have got in this 2% annual pricing. We have got what I would call the legacy or the reduction in recoveries related to the prior chip shortage that are coming down. And then we have got on a positive side, recoveries for the new memory tensions that are going on as well as some modest effects. Maybe just to be very clear on the memory, we are we have baked in our assumptions that we will be recovering the majority of these costs. When I said the majority is that we are fully intending to recover everything, but there will be some level of timing that we have accounted for between the cost incurred and the customer recoveries. We will, as I mentioned, we will see that in Q1, and that is probably going to be a sharing effect all the way until the end of the year on that topic. But these are the four full buckets, and we are absolutely intending to recover the memory cost increases through our customer.

And to your other question, Joe, the OEMs' activities are more related to understanding the situation and engaging with the suppliers. I do not believe that they have direct sourcing, at least not with us. So in our case, we do virtually all of the sourcing of memories directly ourselves.

Okay. But I guess on if the guidance also sort of assumes that you are re-recovering it all just with some timing mismatches, then it means it is also, rough numbers. Is that fair to sort of say that is like a 20 to 30 basis point hit to your margins this year?

We have not given any specific. It is embedded in this 2%, so I would take that 2% as kind of the essential piece of the work. As I said, in fact, if you decompose maybe these buckets, if you think about it, annual pricing as well as say, legacy semiconductor recoveries will be fully offset by the efficiencies that we are generating in the business. Will be offsetting the memory cost increases. The majority will have some level of leakage, but nothing major. And then you have in that bucket as well, as I said, the effects, which is a pretty small number. Overall, when we look at our business, and that is pretty valid in fact for the last two years, and it will be still valid as well for 2026. The dilution of recoveries has an impact of about 0.5 percentage points on the recoveries. So on EBITDA. Sorry. So that is kind of the dilution that you see coming from that bucket.

Good. Okay. Maybe just one quick one just to follow up on the capital deployment and the M&A. And I know those are gradiated bars; you said the M&A could be, you know, twice the CapEx or $300 million. If I look at M&A to buyback, that is like a two to one ratio. And if you add up, you know, CapEx, the dividend, the debt, like, it looks like there is about, you know, $300 million total left there. So I guess I am just wondering if the M&A outlay goes up to that $300 million, does that mean there is little left for buyback?

Yeah. These the slide shows, in fact, that buyback would be in the $100 plus million. Right. Our priority is going to be really focusing on, obviously, investing in the business with the CapEx, as well as focusing on these acquisitions. Obviously, the excess is going to go to dividend and as well share buybacks, but we do want to remain opportunistic in terms of the buyback. So that is really the key point as well. We will update you as we go throughout the year.

Okay.

Thank you.

Thank you.

This concludes our earnings call for the fourth quarter and full year of 2025. Thank you for participating in today's call and your ongoing interest in Visteon.

Thank you.

This concludes Visteon Corporation’s fourth quarter 2025 result earnings call. You may now disconnect.