Q1 2020 Earnings Call
Good morning, and Chris Doyle director of Investor Relations for Visteon.
Welcome to earnings call for the first quarter of 2020.
Please note. This call is being recorded and all lines have been placed on listen only mode suburban background noise.
Before we again 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 900, it's hard.
Forward looking statements are not guarantees of future results and conditions, but rather are subject to various factors risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements.
Please refer to the page entitled forward looking information for additional details.
Presentation materials for today's call we're person on the Investor section Visteons website. This morning.
Please resin investors diversity on back on to download and material. If you had not already done so.
Joining us today or sexual Wanda, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer.
We have scheduled the call for one hour and we'll open the lines for your questions. After Sachin Jerome turned out.
Please limit your questions through one question and one follow up again, thank you for joining US no turn the call over to Sachin.
Thank you Chris good morning, everyone.
Before it starts with the presentation I would like to acknowledge the hard work.
Well for employees during this unprecedented times.
Despite the disruption caused by the global outbreak of corporate banking.
Just don't support scored machines were $643 million.
<unk> percent year over year, it's moving their local currency.
Global production volumes declined 3%.
We were able to maximize Oh seems <unk> success will be mitigating the supply chain disruptions in China keep a global customers up and running.
And secondly, my launching 13, new products across multiple deeply into the core.
Adjusted EBITDA was $33 million, what 5.1% of sales compared to $41 billion, 5.6% last year.
Our profitability was impacted by Lucy.
Which were partially offset the nonrecourse loans with Clinton 19 operational challenges cost performance Inordinate engineering, which was down 13 person who you're excluding currency.
The one $800 million in new business into corridor.
Which is an exceptional performance given the circumstances.
Most of the new business was with new digital products, including digital clusters, Smartcore and displays which reflects the success will do but we have made towards next generation digital technologies.
These uncertain times for the industry and be happy and silver measures to ensure that we have sufficient liquidity to withstand the crisis.
It did road all the three Walgreens, we know.
Under the $25 billion some cash.
The net debt to last 12 month, you'd be daughter issue.
Good to zero point too.
Good inducing wont expenses in the near term when looking at ways you much stronger from the questions to structural improvements.
We plan to reduce capital expenditures for clarity person.
To put it would be reduced compensation across the board.
I'm proud of the discipline and dedication demonstrated by the discounting in focusing on execution. Despite the challenging in London.
I will elaborate further on the operational performance before handing it over to Jerome water discussion on our financials.
Turning to page three.
In most regions Visteon Q1, thank you couldn't do fields outperformed the global industry production volumes compared to the same period last year.
As I do some products continue to do well in the market.
On this slide <unk> performance in regions outside of China.
Cobra, China separately on the next page.
In the Americas, Visteon outperformed industry production volumes, but 12 percentage points.
The main drivers with the rental of recently launched products that food G M and months, though.
Hi decrease launch displays and do some clusters.
MW in food.
In Europe as well, we had silviu product launches at the end of last year as one to three launches in the first quadrant DSE cheer long it looks like.
The telco suits outperformed industry production by 16 percentage points.
In Japan, unlike in other regions.
In the product transition phase with the rule of infotainment with Monster, which continued into the first quarter.
We were able to partially offset the school off through the launch of digital clusters and displays at most of Hyundai and Nissan.
Our business with Hyundai in particular is growing with multiple launches scheduled for this year.
North America in Europe.
Well you upset with bookings should bones appliance the middle of March due to grow nobody does.
Let's turn was able to continue our shipment of products almost into the ended the month.
Which benefited Q1 sales.
Turning to page four.
Visteon has done very well in China for the past couple of years and has consistently outperformed the market, mainly driven by new product launches.
There was also the case into first quarter, you wouldn't want to the very difficult circumstances due to corporate banking.
Oh suits in China in the post quarter were down 47% compared to four to six person for the market.
In addition to lower volume.
Impacted by the non recurrence of the special seems promotion that's see him last year.
Excluding the non recurrence of the seems promotion.
It's in China were better than market.
About 10 percentage points, mainly driven by new product launches over the Pos system corridors.
Our launch cadence continued into first quarter, that's seven new products.
And we were able to work with all the shutdown in February.
Give silver additional launches this year in China, which will help us greatly in that region returns to be good 19 level of production.
Despite good 19 restrictions disrupting travel and face to face meetings, where most of the quota.
Managed to been well, what $200 million and new business in China.
Most of this Vince work for our new due to products, including Smartcore and digital clusters.
Turning to page five.
While responding to the crisis has consumed material part attention in energy.
The company continues to execute on its good strategy into first quarter.
We launched 30, new products with nine different Oems in the quarter.
And made significant progress developing a flows and good news infotainment system, which we expect to launch shortly often production response.
We've made significant progress in reducing high cost engineering resources in Western Europe by moving to work through lower cost sites in Western Europe.
Almost 80% before engineering footprint, no decides and best close countries.
Despite the high number of new product launches.
Net engineering cost in the quarter was down 13% excluding currency.
Lower gross spend and higher recoveries from customers.
As I mentioned earlier, we have one $800 million with new business in the quarter, which is a very good performance in light of the disruption because those cost across the globe.
Well the 500 million of this was for digital clusters.
Which underscores a strong position into screwing segment of the cockpit.
We also won significant smartfood business in China in collaboration with Tencent.
The other notable than what's extension of our battery management systems business within four Yemen North America.
The discipline, we wouldn't be the exclusive supplier of one component of the Vms system, what the school yet.
The sort of an unexpected impact of the holding corona, let us a brick across the different regions.
Quick cost adjustment a top priority.
At Visteon <unk> able to flex on manufacturing costs down quickly to align with production volume declines.
We would also successful in managing our supply chain inventory.
Cash conversion cycle was improved by about nine days versus last year.
The company has also correct could be taken additional cost reduction measures in anticipation affordable production decline in second quarter.
These actions include eliminating one quick resources missing strict controls on all expenses.
Implementing temporary Sobi productions.
And postponing projects that are not critical in the near term.
These steps were partially offset the impact of the drop into is expected in the second quarter.
Turning to page six.
This speech illustrates our disciplined approach to safeguarding the health and safety of one employees protect the company potentially and serve our customers in an uncertain coordinating environment.
Our first priority is to protect our 11000 global employees.
The company has developed comprehensive safety protocols and procedures for appliance and typical centers to safeguard our employees.
The deployed in effect to work from home infrastructure, the audio video conferencing and virtual desktop put on interviews to work on customer programs remotely.
But also able to bring smaller teams of people go on Daps work that cannot be done remotely.
Following its good safety protocols.
As I mentioned earlier, we had to come silver measures to preserve our cash, including the drawdown of the revolver and strict controls from all expenditures.
We have implemented temporary celgars reduction starting with my salary introduced a 40%.
The Companys Executive Committee, but 30 person.
And non employee directors cash compensation by 30%.
Subject to local logging conditions, all other employee salaries will be reduced by 20%.
The also reduced the amount of raw materials to be by and we've negotiated supply contracts for improved payment terms.
And we are reducing capital expenditures and working to ensure we receive payments on time for more customers.
Carbon factors outside of China are not planning to restart of the manufacturing operations.
It's some Oems starting during the first week of me.
We had been working closely with both customers and local authorities at our manufacturing sites to prepare for resumption of activities.
We expect to be fully prepared with the implementation of safety procedures and supply of raw materials to be up and running hurdle for customers.
Good old painfully aware of the shortage of personal protective equipment will frontline verticals caregivers the battle against cobot 19th.
Visteon has plastic injection molding capabilities, but many of appliance.
We are using some of these facilities to manufacture and donate up to 50000 predictive seems to be honest hospitals in our communities.
About 30000 abuse issues have already been manufactured and doing it it to medical stuff if several hospitals.
Turning to page seven.
The ruling impact of corporate banking and the global nature of the industry supply chain has made it difficult to plan, we've started operations outside of China.
In China, we exited the first quarter without manufacturing blondes fully up and running.
OEM production piston produce but also back online, although many Oems that opportunity on once youve business in sort of the normal two ships. The production doubled in March was about 50% of Greek will be thinking level.
We expect demand to continue to improve in China.
Production levels to slow the advice to all the second quarter.
Outside of China covered 19 has essentially broad industry production to a halt since the second half of March the shutdown has continued to all of April.
There's a lot of discussion about timing of the restart of production and Visteon isn't driven the dialogue with our customers and suppliers determine a return to work time people.
We expect to customers in Europe to start a little earlier than in North America, mostly into supposed to be cost me.
By mid me, we expect most customers to be starting production in Europe as well as in North America put at one shift for the initially.
As most Oems to push a button at Brooklyn, much believed that have some parts inventory adept bronson ready.
Allow us to restart appliance concurrently.
Beyond the first couple of weeks with low production based on our experience in China, We expect production volumes slowly increase to about 50% of Prequaled with 19 levels towards the end of the second quarter.
There was some stocking of inventory that occurred in the first quarter.
Would likely be worse in Q2.
And dealer inventories that also high which will keep production levels relatively low in the near term.
As a result of this uncertain and highly fluid situation.
We expect production volumes to decline by 50% or more into second quarter.
Beyond the second quarter and for the rest of the your production volumes will be determined more by the level of consumer demand, which is very unclear at this time.
A lot will depend on how that able to control the spread of Corona lettuce, and if there are additional waves of outbreak.
Due to the lack of sufficient visibility into highly dynamic nature of the situation that withdrawn our twentytwenty in long term guidance for the company.
Turning to page it.
Well good responding to the crisis close by Corona letters that also thinking about the post covered 19 scenario for the digital cockpit market.
We believe the secular trends prior to defend them because with the main drivers of growth of cockpit electronics been largely remain intact and continue to drive growth for the industry.
The transition of the cluster from analog to digital isn't really an advanced stages, it's expected to continue post crisis.
The flexibility offered but do some clusters and rendering evolving features such as it has features is a key driver of this trend.
Additionally, digital clusters, but smaller displays are starting to become an important part of for more affordable must more could recalls.
Traditional OEM infotainment systems are usually expensive to develop and the yet limited and their ability to offer downloadable apps or new market driven features.
On the other and Android based infotainment systems offer a much broader epic with system.
Can be more easily upgraded for new capabilities, such as voice assistance.
With respect to displays we expect the market to focus on value and avoid the extensive pillar to pillar dashboard fitting displays like those we have seen at recency issues.
Midstream displays we continue to go inside some features.
With more focus on cost than before which would likely to self inflicted delays and introduction of OLED displays.
Corporate domain controllers, thus far have demonstrated the ability to consolidate you see use but have often being too complex and difficult to develop especially in terms of software.
We expect the industry to develop new and unified software architecture for the cost with.
The together Nucivic on solutions offer improved cost and feature benefits to the Oems.
And lastly, this crisis will likely push upon this driving further out in time, but it does who continue to evolve as Neil and cost effective silicone and chemical solutions become available.
At Visteon that position without product and technology portfolio to address these trends.
In addition, our strategy of vertical integration and in house development of new technology to reduce cost is even more appropriate and relevant in the full scope of connected world.
Turning to page nine.
In summary, our focus on execution resulted in better than market sales and lower costs compared to prior year, despite the challenging environment.
The company continue to build upon vision for future growth, but launching 30, new products and billing $800 million and new business into quarter.
There are clear action plans to address the questions with focus on premium topics health and safety or for employees.
Preservation of cash and preparing for the start of operations.
In anticipation of further decline of production volume in the second quarter.
Proactively taken several measures to reduce the use of cash.
And lastly, we are confident that we will emerge from this crisis as a stronger company that continues to be aligned with the wasnt production technology trends and more efficient than before.
Now I'll turn the presentation over to Jerome to review the financial results.
Thank you Sachin and good morning, everyone. Our top priority is the safety of our employees followed closely by our constant focus on ensuring that visteon weathered the storm and emerges from the crises as a stronger company.
On page 11, we provide an overview of some key balance sheet items as well as the proactive measures. We are taking to actively preserve cash and aggressively adjust our cost base.
Visteon as uncertainties crises with one of the strongest balance sheets in the industry.
Cash at the end of the quarter was 825 million, which translates into a 41 million net cash position and a net debt to trailing 12 month EBITDA of negative 0.2 times. In addition, the majority of our debt, including our term loan and the revolving credit facility.
He does not mature until 2024.
To protect our strong balance sheet, we are proactively taking actions to preserve cash as such we're targeting a minimum 20% reduction in capital expenditures for the full year compared to 29 Keith.
A large portion of our Capex is related to new programs as such we're striking a balance between reducing their term investments.
While ensuring we continue to support future program launches and therefore disappear on future growth.
Working capital management has also been at the center of our activities very early in the crises and our performance was solid at the end of Q1 with working capital balances below 5.5% when annualized as a percentage of Visteon sales.
Scooby 19 began to impact businesses in China. We made you can set up a global task force to manage inventory levels.
First focused on ensuring supply continue we keep outside of China.
Quickly pivoting to reduce inbound orders throughout the rest of the world as customers were progressing the shutting down.
We have also been working in parallel with our suppliers to renegotiate payment terms.
Finally payments from our customers remained on track throughout the first quarter and we will continue to monitor Beast closely.
We're actively pursuing local governments supported cash before programs, which include in some jurisdictions partial deferral of payroll taxes indirect taxes for income taxes as well as pension contribution deferrals.
In anticipation of steel volume reductions in Q2 and potentially beyond Q2.
We have taken strong measures to reduce cost actively reducing personnel expense and discretionary spending.
As previously announced we have implemented a temporary reduction in wages and certain benefits for salary personnel, which includes a 20% reduction of salary for all employees, while the leadership team and the board of directors have taken larger reductions.
Non personnel expanding use also being curtailed.
Strict cost controls and renegotiations, including reducing contractor and consultants pens throughout the organization.
In our commercial pursuits, we continue to focus on pricing discipline during our negotiations with customers.
All of these cost actions are also complemented by further structural actions.
We have announced restructuring plans, which were being developed before could be 19, but have become even more important to ensure we emerge stronger from these crises and with a more streamlined organization.
The restructuring programs announced in Q1 will impact at counting manufacturing.
Engineering and administration and are expected to be completed by the middle of 2021 and have approximately a one year payback on average.
We are anticipating cash restructuring payments of approximately 40 to 45 million for the full year old programs that have been announced to date.
Turning to page 12.
On page 12, we present, our key financial results for the first quarter of 2020 versus the prior year.
Sales of 643 million in the first quarter decreased 94 million.
14% compared to prior year.
In comparison global industry production volumes were down 23% as the spread of cooking 19 significantly disrupted operations throughout the automotive industry.
Adjusted EBITDA was 33 million, we presenting an 8 million decreased from 2019, primarily due to the impact from lower sales, an unfavorable mix, which were partially offset by improved manufacturing performance the weren't that engineering and the non recurrence of 2019 operational Chuck.
Countries.
Excluding the 2019 operational challenges decremental margins were approximately 20% for the quarter.
Adjusted free cash flow was negative 14 million, representing an improvement of 16 million compared to the prior year and benefited from the improved year over year working capital levels and performance.
On page 13, we provide more detail on the year over year changes in sales and adjusted EBITDA.
Sales of 643 million were negatively impacted by approximately 100 million as a result of coffee 19.
Impact is present in all categories showing in our sales variances at the bottom of the page as lower activity decreased the level of volumes mix net new business, partially reduced the level of annual pricing and created additional volatility in foreign exchange.
Adjusted EBITDA was 33 million with adjusted EBITDA margin of 5.1%.
The impact from volume and favorable mix reduced sales, but was essentially offset by positive manufacturing performance and the non recurrence of the 2019 operational challenges of approximately 10 million.
And your pricing reduced adjusted EBITDA by 15 million, representing about 2% of prior your sales, which is on the lower end of our historical range.
Excluding the impact of currency net engineering expense decreased 11 million or approximately 13% compared to last year, primarily related to the benefits of previously announced restructuring actions lower activity levels in China, and the timing of program expenses and recoveries.
Just as June expense, excluding currency decreased 1 million compared to prior year, while currency reduced adjusted EBITDA by 3 million.
Excluding the non recurrence of operational challenges decremental margins were approximately 20% and included cost reductions, we initiated as well as favorable timing of engendering recoveries and program expenses.
The outlook for Q2 is uncertain at this time and as such in highlighted production volumes could be down 50% or more compared to prior year, we're presenting a much more significant decline that experience in Q1.
As such we expect decremental margins to be the high 20 percents range for the quarter, which incorporates the cost initiatives. We have implemented while also taking into account the severe declining production volumes.
Moving to slide 14.
Page 14 provides our adjusted free cash flow as well as an overview of our net cash position for the first quarter.
First quarter adjusted free cash flow was negative 14 million, representing a 16 million improvement compared to prior year, mainly due to the improved working capital metrics on a year over year basis combined with lower volumes.
This was partially offset by higher capital spending in Q1 2020, supporting a larger number of launches in 2020 versus 29 King.
Other assets and liabilities were also impacted by negative year over year cash outflows related to the annual incentive compensation plan highlighting different payouts between 2018 and 2019th.
We are actively monitoring daily receipts from our customers, which have remained on track throughout the first quarter.
We're expecting that the level of collections will significantly decrease towards the end of the second quarter payments are due for activity performed in late Q1, and earlier Q2, which were either significantly reduced or stopped altogether as we previously discussed.
In parallel were also working diligently with our supply base by entering into negotiations to extended payment terms.
We ended the quarter would want with an 18 million of inventory and are actively monitoring the situation to ensure we can support our customers plans to restart operations, while ensuring we control the level of inventory within our operations.
Finally, visteon completed $16 billion of share repurchases in the first quarter before the impact of could be 19 spread outside of China.
Suspending our share repurchase activity in the near term until the industry begins to show signs of sustainable recovery at which time, we will assess our future plans.
As previously mentioned, we have one of the strongest balance sheets in the industry with a net cash position and new material near term debt maturities, we'll continue to monitor our cash position daily while taking actions to actively preserve cash and aggressively reduce costs.
Turning to page 15.
Despite the near term uncertainty and challenges that industry faces. This film remains a compelling long term investment opportunity.
As a pure play cockpit electronics company, we're able to combined a deep understanding of the automobile industry with odd wear and software know how.
As a result, we're able to quickly adapt to the changing environment and we have created a product portfolio well aligned with the secular trends in the industry.
Our continued focus on maintaining a strong balance sheet as put us in a great position to weather the storm and we're taking proactive measures to reduce near term cost while focusing on building an organizational structure that will emerge stronger once the near term challenges dissipate. Thank you for your time today I would like.
Now to open the call for your questions.
Okay.
Thank you and at this time, if you'd like asking audio question. Please press Star then the number one of your telephone keypad again, that's star than the number one.
The first question is from David Leiker with Baird. Your line is open.
Good morning near enough.
Good morning, David go ahead, how can you hear you good morning.
Yeah, I was trying to figure out how to do all of this stuff that we do.
I.
About a focus on one thing from a couple of different angles than they literally could probably keep your all morning, but.
You look at a new business number.
Clearly below trend clearly some disruptions in the process of engineering a contract award bidding some thanks.
Can you characterize at all how much.
New business wins, you might have lost in the quarter because of some of these disruptions.
I think people are going to focus on that number versus the run rate that you've been out. Obviously this is a lot lower but if it can help bridge that.
Okay, great absolutely. So first of all David I would say that $800 million off new business wins under the circumstances is a pretty decent performance.
And as you know new business wins tend to be lumpy.
As a quarterly pursuits, vetri and the very quite widely from quarter to quarter.
Usually we see anywhere between two and a half two $5 billion of opportunities in a quarter.
And our win rates tend to be somewhere between 30% to 40%.
Even before the crisis.
No one was expected to be the lightest quarter in Twentytwenty every successive quarter has more opportunities.
The third and fourth quarters, where we see most of the decisions for awards to be made now keep in mind. This is before and you have the crisis related impact.
No in Q1 on account of all of the restrictions that we had to work around we saw roughly I would say about $300 million of impact to our new business been number.
Now on top of that perhaps not as well appreciated is the impact of lowered volume expectations into outer years.
And that's about 10%.
Okay, and so if you look at all of these impacts.
I would have expected us to be somewhere between 1.32 $1.5 billion in new but new business wins in Q1, if covered was not to happen.
Now that's still in line with what we have done in previous quarters. This time of the year, but.
So certainly not.
Go too far off and we would expect the later quarters of the year to be the larger quarters from new business wins viewpoint.
Fundamentally we don't see any change given now even as we talked to our customers are despite all of the restrictions work from home et cetera, There's still a lot of attention on.
The same technologies and trends that we've been talking about for the digital cockpit. So we don't see a fundamental shift.
Yet.
Q2, we do expect to see some delays.
Simply because the attention right now is on restart in a lot of energy is going into that but we expect to be able to catch up in Q3 in Q4, maybe not to the full extent, but there's opportunities I don't believe are going anywhere as the industry has a need to upgrade their technology.
In the cockpit and the diesel analog gauges are done.
It's about multi screen multi modal Dutch.
Weiss interaction and user experience.
I'll just give you a quick anecdote we are in the final stages off.
Developing a system the smartpost system for a customer in China, and we were surprised to find out the deal we're doing all of their testing.
Exclusively male wise you went through the system has a touch interface.
That's where the industry is headed so we don't believe that we will see a certain change in direction from the larger displays Weiss modalities.
Connected in applications coming into the cars. So we think the should continue.
And then just one follow up on that the other piece of this equation as it seems like every day every other day.
Other announcements about new products program watch or something we've been through multiple cycles here in times like this everybody's trying to conserve cash in one of those as a push out new launches can you characterize I know I know, it's early and I know, it's hard but is there any way to characterize the impact on the backlog converting to revenue and how much of that.
Might be pushed out or how how we should look at that.
Yeah, Yeah, yeah. So so this year Twentytwenty was also.
You're off the highest number of new launches.
For the past two to four years, if you look at our prior performance on an average we had been launching about 50 new products. This year. This year. When we started the year beard 64 launches in Twentytwenty.
No and 13 of them in Q1, Q1, we were able to.
Work around the restrictions in China. It was really felt all in China, and we were able to work around the stoppages since two launch all of the products and then the Q2 and three and four have higher number of new launches. We are expecting delays on account of covered anywhere between two to three months, but most.
Of these will be still contained within the year, what we have been informed so far out of the six before is that Ford launches, which were at the tail end of the year.
Towards the end of Q3, and then Q4 those four launches are being pushed out to a 2021, but we still have 60 launches that are at this point in time on track could be launched yet this year.
So we don't believe that there will be is significant delays simply because this program taught at the point, where it doesn't make sense for the OEM to delay them any further a lot of investment than effort has gone into them and they need this fresh product out in a highly competitive environment as and when they start to come back.
So don't really expect to see a huge amount of change what we do expect is some product that was expected to launch say 21, and 22, then there might be some level of.
Adjustments being made some portfolio pruning on though the vehicle models that we might see but those are still in early discussions we expect Oems to be going through those discussions internally now and we will only know in a few weeks time here as to how that might look like.
Okay.
Awesome, that's a perfect exactly was looking for thank you.
Thank you.
The next question is from Dan Galves with Wolfe Research Your line is open.
Hey, good morning. Thanks.
So your your revenue in Q1 was 13% below Q4 levels.
Can you talk to us about how much lower your headcount headcount was in Q1.
And looking forward, how do you think about actions to re size, but the cost structure to what you anticipate might be production rates and demand.
The wrong industry restarts.
Yes, I'll, let Jerome addressed this question good good morning, Don Thanks session.
So a 13% down versus Q4 is very similar to what we have as well versus prior year. So I.
I think Q1 was a fairly solid quarter in terms of execution, we were able.
Pretty early in the crises to adjust our cost.
We had as well previews Lee or prior to the coffee 19, we had as well taken actions like restructuring actions to reduce our cost base. So the good decremental margin percentage that we have 20% is it's a combination of both what we had done before.
Koby 19, and as well the quick actions we took.
After a coffee 19 going into Q2, obviously volumes will be much more severe in terms of decline. That's what we've seen in Q1. So we are expecting decremental margins to be the high Twentys and we are integrating obviously the higher volume declines.
The impact it has got on the fixed cost, but as well all the actions that we are taking head count.
But as well salary reductions, which are short term we.
Actions as well as the longer term actions that we're taking in terms of restructuring.
Okay, Great and could you just on.
Give us a sense of you know over the last couple of quarters of launch is on the profitability side is there anything you can tell us on how the launches are performing.
From an incremental margin standpoint, and launch costs versus right makes sense right. If you. If you go back to last year's performance.
Remember the first quarter, where we had this launch of challenges with a display product of which we had to work through.
Pretty much in the first half of the year. Since then our performance has been on track.
Not seen any issues with launches.
Having said that I think you understand that the launch margins tend to be lower than the margins of more more mature.
Product, but that's very normal and we expected. So we have not seen any issues and the same goes for the launches that we've had in the beginning of this year as well.
Great. Thank you.
Thank you. Thank you.
The next question is from Joseph Spak with RBC capital markets. Your line is open.
Hi, Thanks, good morning, everyone hope or everyone's okay.
I guess just to start maybe a couple things on China I thought you mentioned that you thought there was a little bit of an impact on on her growth are outgrowing from from an inventory they'll just wondering if you could quantify that impact in first quarter, because obviously that should reverse in the second and then last year as.
I'll now you.
Ah you benefited from some higher take rates in China, which I think was a promotional efforts helped to move units do you think theres a possibility such programs could return in 2020.
Yes, let's let me address that.
We go back a little but in terms of our market outperformance and what have you seen this quarter. So as you know our market our performance actually started in the second quarter of last year and continued into Q3 in Q4 last year and we were expecting at the beginning of this year to continue that into 25.
Okay.
And Genuity started on track as we were expecting that a double digit growth.
That month.
And in February we had to react to the shutdown that happened in China.
A lot of our focused at the time was too as we were shutting down in China secure enough supply of raw materials to keep our customer Sox outside of China up and running.
And then just as quickly as that was starting to get to some level of control we had to face another change and favorite to slowing down on the receiving of the raw material inventory as the rest of the world started to go into a shutdown.
So.
What we did towards the end of March because most of the OEM started to shut down some sometime middle of March.
And to the rest of the the month of we were still able to ship.
Approximately eight weeks worth of product even though.
The Oems were shut down.
And that is the inventory, we expect to be sitting at our customers plans as and when they come back and restart that they would be able to use that so we would not necessarily be required to ship product ahead of them starting the appliance.
We are starting to see some of that activity happening in Europe.
As they are ramping up that engine plans and then their plans to start their assembly plants, we expect to see some inventory that's already sitting there that.
Word impact us in this quarter, but it's roughly about I would say two to four days worth of <unk> production from our side outside of China that is expected to roll back.
So hopefully do I think Thats that was your question now with respect to the.
The specific promotion in China with SGN as you have had a couple of vehicle models that.
Needed the promotion and we saw the benefit of that in 19. This year. They have discontinued one model and the second model that is still.
In production.
As I would say more normal levels of take rate of that specifics product and that the customer. However, I should say that even in the first quarter. We are seeing an increase in peak rates with a broader set of customers in China, especially digital clusters that we expect to.
We continue through the rest of the euro and as the market is still somewhat depressed. We do expect that the vehicles would be up content with digital clusters that should help us for the rest of the year.
Thanks.
Yes, it's hard to anything you touched on this a bit as on activities expanded old and more just how customers are really thinking about you argue exchanges in the wake up call going I mean, it doesn't seem looks like you think there they are rethinking screens, but yes your point, maybe adding voice maybe gesture.
You also sort of thinking about maybe maybe additional functionality like you know maybe driver passenger help monitors might be more important. So I just think about how you guys are thinking about how you can yes.
Customers have sort of talked about right right. So the way I would characterize it as that the broader trends are still ongoing and so the displays are getting larger that is a drive towards more safety features level two level two plus gravel monitoring.
But the overall team that we had now starting to hear is of course cost and more than ever the development cost not just the product piece price cost. So the big shift I think is that the money that's going to be spent on building.
Technologies and products is the one that's going to come under more scrutiny and so suppliers will require two to figure out of the way that you can develop this product without spending the high months of engineering cost that used to be the keys earlier.
And that's exactly what we have been anticipating even prior to call that now we didnt realize that it would happen on account of what would necessarily but the whole move towards platforms is exactly designed to serve that particular point, which is that we should be able to reduce the cost of engineering and developing the product.
Below where it is equity as an industry, we spend far too much money in the custom development of whether its infotainment or clusters or displays and not making use sufficiently enough off.
Oh platform approach and that's that's the big shifted PCB also see their drive course integration of.
Many of these discrete products such as driver monitoring Great example, where there is a push towards introducing that feature but that's an incremental cost induced times thats going to be a very difficult proposition.
So.
That's that's one thing now with respect to.
Infotainment I believed that there was going to be a bigger shift towards more open platforms like Android and the days of custom infotainment might finally be now offer that the impact of covered so those are the general teams. This is too early days, Joe and I think we will.
On a whole lot more but that's what we feel at this point in time.
Thanks.
Thank you.
The next question, it's Ron Johnson with Barclays.
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Hi.
Yes, Thank you and good morning.
Right good morning near to the 17th.
A lot of good questions got answered before I, usually like to do the more strategic one so I won't get some of the financial one. So if we kind of think about US I know you don't want to give guidance, but I'm just trying to think through a second half where it may be China is closer to normal let's call it down 15%.
Europe is off significantly, 30% to 40% and North America, which as we pointed out on the supply side is just as uncertain demand side is down so for kind of looking at.
Let's call it a global production environment.
Down 25, 30%, how do you think about your margins in that sort of re sizing to global.
Production base that feels more like 2011, 2012 that like 2017 2018.
Right, Brian Let me start and they know us Jerome to also step in here, but we're looking at it in two different.
Prospectus first of all our internal planning is exactly assuming.
Scenario, where production can be down by about 30% for the full year.
So in some sense, we are a little more conservative than that I guess is today.
And so we are looking at our costs.
We have several actions that we have already taken and some underway to drive our cost structure down but at the same time, we want to make sure that we protect our future growth.
So it's that balance that we are trying to strike between how do we protect our growth and we actually see this as an opportunity.
As we are I believe much more nimble than many of our competitors I believe we are in a much better position with respect to the technology.
As well as the cost associated with it that we should be looking at this.
As an opportunity to take market share and not not just focus on the very near term. So it's that balance that we are trying to strike. So if you look at all costs.
Sites to the costs of the raw materials that go into the product, we have manufacturing and engineering as the two big cost elements. So there's a tremendous amount of focus right now on aligning manufacturing because that's the one that would it be impacted most in the near term.
And we have a lot of different strategies to reduce our manufacturing costs fixed costs to align with the new production levels.
Then when we look at engineering, we have very strong focus internally on a couple of for directions number one to move our cost structure to lower cost places.
And the second is to use a platform approach and I can't emphasize the platform approach enough and what it means is that we should be in a position to offer to Oems.
Hey ready to.
Deploy brought up at a much much lower cost than what they are accustomed to create.
Now to be able to do that they would have to also except a certain.
Restrictions and not be are demanding.
Pacific and unique features to them as much as they used to do in the past, but even that we should be in a position to support with certain extent to that's the general direction that we are getting organized to to set up the company in an hour us Jerome to jump in here, but maybe more of the yes, dicer, especially if I can maybe.
Two points. The first one is that very early we took some actions on the restructuring side.
So in fact before Koby 19, starting in January we announced one plan and we then announces second one in March. So the idea was really to adjust these cost structure that session was talking about and get already some benefits in.
In in this year adequate be largely Q3, and Q4 and will help us mitigate some of the volume decline, which now which in our some of our scenarios are pretty pretty steep as much as Seth mentioned the second thing I just would like to come back on engineering, we we were able to reduce engineering year over year by about 13%.
In Q1, and we see a VST continuing as well with again all the actions, we're taking long term and short term.
We should be able to get a great benefits from a cost standpoint on the engineering side. If you just look at Q2.
We don't see any further increases in engineering, if if anything we'll see.
Lower level in Q2, and that's at a high level will give you a 20% year over year decreased four just Q2 on the net engineering side. So early actions and benefiting manufacturer as you know, but as well obviously.
Engineering.
Okay, and you know just back.
Sosh in his comments about platforms, because certainly I remember that great for could get at Hartman.
Last decade on maybe the platforms I think how far along as the software and hardware.
Platform as a nation EFI well at Investor day on what's left to do and is a more question.
Kind of getting the Oems onboard or do you have additional work to do together yeah.
That's the Bible platform.
Yes, we are in a very good position that infotainment.
And the reason for that is that we didn't really have a a big legacy of infotainment that.
I have to work through after I came here so by the way.
The first product just got launched yesterday using the platform with VW August is actually now.
Available all in terms of the public of launch information. So just went live in Brazil with VW very very proud of the achievement of the team. There. So very good position with infotainment and they're making a lot of progress that our instrument clusters digital instrument clusters now.
The challenge here was harder because we have a very broad set of customers. We have many many programs and the implementations vary widely from OEM to OEM. So we have put together a team and the goal is we will launch our first platform of based cluster program.
Majority of the work would be done this year and then every successive cluster that we build.
The built off of that platform and that's going to represent a significant cost savings that we will pass onto the.
To the Oems, So that's where we're at and by the way we're taking the same strategy would drive core.
Where we are focused on level, two plus and here again I think our.
Initial views on the viability of the more advanced levels of the economy have been proven to be more correct and focuses on 2.5.
And with the goal of developing most of the technology in house. So that we can offer a very cost competitive solution made a lot of progress with the vision processing algorithms developing them in house also on the hardware and lift summer, we expect to be in a position that the technology will be mature enough, where we can then pick.
Two other customers beyond GAC, who is our lead customer that we're working with on that front. So the three main product platforms infotainment. That's ready to go we are actively using it with the one that dysport launched and some other Oems.
A lot of progress being made on clusters, and then drive quotas. The one that there's going to come third.
But still this year.
Okay, great. Thank you.
The next question is from it take my Kelly Citi. Your line is open.
Great. Thanks, Doug Good morning, everyone.
Thanks, just wanted to go back such into the new business discussion. So what was a 300 million you mentioned before just the delay in Q1 and how should we think about.
Where you see the opportunities.
The remainder of the year I mean did you think you still have an opportunity to your book over a billion dollars a quarter of new business and kind of.
How about that.
Right and it truly is a delay that we expect to be working on either in Q2 Q3, depending upon how.
This does delays cascade in the quarters, but fundamentally what you're seeing is more or less a similar situation as last year spirit.
Most of the opportunities coming from the transition of clusters from analog to digital.
And within that we're seeing a lot of interest in.
What we call now as the mixed digital clusters, so close to us at the lower end of the.
The market.
Eight inches of display size with some other elie d. in other capabilities to really drive the product into the.
Be segments of the of the market so lot of opportunity there, they're seeing a lot of opportunity based on the infotainment platform that I just mentioned earlier. So we've talked about this before where we are seeing the market collapse from the three segments that we used to have in infotainment effectively too.
Display audio and the high end infotainment and at Visteon, We're really not focused on the high end infotainment, we're focused on the display audio.
And the platform that we have that just what launched puts us in a good position to where few opportunities based off of that and then the third segment, which is relatively new to us, but we did see that last year as well our displays and within displays we have very clear focus we are not focusing on.
Commodity flat screen 810 inches walk through displays, but more the multi screen products that I mentioned earlier as well. So these are multi displays that are behind it clos cover lens often.
That does tend to be curved and does again, a great launched that that happened at CES with one of our products with the Nissan ARIA concept that say as who received an E V product.
Our mission is actually available online and the display is from Visteon and if so beautiful curved displays.
It's a of the kind of product that we see more opportunities off in the future, but what has happened here, we expect to see less interest in technologies like or led more interest in the traditional our display technologies.
At the same time, you know more of a focus on value. So our strategy of again, we're deeply integrating as much of the displays as possible in our plans will also serve us well.
That's helpful document on that point, given your view that all it could be delayed or are you starting to see incremental interest in the microphone product you introduce it's.
It's still early.
So absolutely we are and what it has done is.
It has really given visteon the credibility that we necessarily didn't have in this segment of the market rent visteons business with displays prior to last year was almost exclusively focused on forward.
And we were not really a supplier to the other Oems so getting on the supply of panels. Our strategy here to land first and then expand we need always when we do that it technology innovation that that becomes the calling card why we should be considered for that opportunity and micros on so that performs extremely well now we see.
We'll want to position it as a premium product it does not a replacement for the current commodity LCD technologies, and we will still continue to see more business that the study smelting LCD technologies, but fewer on on the Microsoft, but let's say a product that we believe will.
Also.
Interesting to those Oems that don't want to be for something like all that but once they better experience in there the carpets.
That's helpful. Just lastly for Jerome kinda back to balance sheet and liquidity.
Paul just if I missed this but are you able to share where cash is expected to end the month of April in and just how to think about cash.
Pre and post working capital to the extent that some of the production.
Presumptions are delayed.
Yes, so we will not give detail.
Regarding our cash balance for April nor will we give.
The amount of cash outflow will have for Q2, but let me help you maybe frame.
What we are looking out for Q2, so we talked about sales.
Decline being pretty dramatic I chess, showing close to 50% decremental margins.
Off in the high Twentys. So that's for EBITDA on the cash flow side, we will.
The reducing our capex spend we've announced.
Earlier on that we would be looking at a 20% reduction for the full year, so that will apply as well to quarter, two and a and then on the working capital side, we had some good.
A good performance in Q1, you can assume that GPU dsos will remain a pretty stable in terms of working capital and then on the inventory side, we are expecting.
Inventory to be fairly stable, we are obviously, making sure that we are ramping up with our customers and being able to supply goods at the same time will be monitoring these very carefully but I think it assumption of flat inventory between Q1 in Q2 is reasonable assumption that probably as well to be tough.
Cash taxes reductions so that gives you a kind of a frame to be able to think about Q2, EBITDA, but as well as cash flow.
Great. That's all that's very helpful. Thank you.
The next question is from Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody.
Good morning, good morning.
Yes, I was hoping to asks you.
But the competitive environments for your technology and products.
At the beginning of the the queuing asking you were talking about a consistent.
35% to 40% win rate on on the available. Unfortunately, so have you seen any changes in this.
Environment.
Recently, even sort of like before before Covis.
And in particular any changes in willingness or units of automakers to in source.
Software or other parts so far in some of the things that you could supply and I'm asking because I'm also wondering about just thoughts on the other side of Clovis is there no portrayed see from maybe estimate makers are sort of little bit more mindful of what they want to spend on is there an opportunity for you to supply more than.
Yes, yes. It was available sure. So let me just at first from the.
Very good perspective, and then we can talk about what Mike was quoted environment look like a competitively. So as you know we are laser focused on the digital cockpit for now what that means as our digital clusters displays infotainment and as we get forward here level too.
Plus autonomous now if you think about where we were at that digital clusters in.
Addressing the top OEM customers. If you look at the top 15 Oems.
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Right to about two years three years ago, we had only two out of the top 15 as visteon customers for digital clusters today.
There are only two Oems in that list there or not.
Visteon customers today.
Now we have a lot of opportunity to grow within many of them.
So.
In in some ways, we can say that we have landed but there's a lot of opportunity to non expand within those Oems for digital clusters, not let's take a look at infotainment and I came here, we had one customer effectively for infotainment outside of China.
And that was Mazda today, we have five.
Now we have launched with only the second and that to happen just yesterday, but we have other customers that were working with and we are in that land or phase of the land and expand strategy on infotainment.
Displays we are in a slightly better position. We have we were also earlier just with one OEM customer we have expanded that.
Also quite well and so that all of these as you can see we are taking market share we're growing our footprint and we have a lot of focus on the top 15 of the largest Oems simply because it gives us a better.
Ability to expand once we land.
So that's the that's the situation now with covered what is likely to happen here the will be a tremendous focused on engineering costs in engineering spend off digital cockpit, because if you look at the past four or five years trend.
Our Oems. This has been one area of cost that has kept increasing and that infusing at a pace faster than they can offset to other savings or pass onto the consumer.
Now this piece of changes not will reduce.
The amount of technology that is going to come into the cockpit will not slowdown so they have to figure out a way to offset that insourcing at this point in time mix virtually no sense, absolutely for any of the OEM. They don't have the capability they cannot build it fast enough, but the exception of very very few.
So we believe that going forward the in sourcing attempts will be either entirely canceled a slowed down substantially.
And our focus here is not to try to do everything ourselves. We are building platforms that more than happy to work with the Oems where they can bring in what truly makes them different from the others. They don't have to reinvent everything it doesn't pay to reinvent everything so our focus is the platform strategy, which I believe compare.
Typically we are ahead of almost all of our comp competitors and so this should serve well, especially in an environment, where there's a lot of focus on cost.
Okay. That's a that's great color just one quick follow ups.
On the financial side.
So the Capex reduction I'll do manage this the context of still a lot of the launches not really being pushed up too much more than like two or three months I guess, what part of the Capex is getting yeah. Yeah. Let me start and then I'll have Jerome jump in here as well. So if you think about the launches and the capex associated.
But then the Capex is usually spend anywhere between nine months to a year before the launches so lot of the launches. This year. The Capex was already spent most of it last year now the capex that we would spend this year is in the service of the programs that.
I will be launched saying 21 or 22.
These are typically things that we need to installed in our plans for the final assembly or testing or some special capability that that new product requests so depending upon the level of new business wins, we would be looking at that as a way to make sure that with dial the capex into the right level number two.
No.
I mentioned this earlier, we started an initiative to look at how we reduce the cost of building the equipment. That's required to do this final assembly or testing and do it more IFRIC efficiently and cost effectively.
These were things that in the.
Hustle of the daily business, we're not necessarily the focus of the company. We have put a lot more emphasis on it and we believe we have a lot of opportunity to take cost out.
And again, the platform position and the streamlining of our product portfolio there.
Don't really need different types of testers, if you're building a lot of different.
Digital clusters, the sizes, maybe different but the mentally there is the same product.
So as our products converge as a focus on cost reduction of those equipment starts to take effect I believe we have definitely an opportunity to save at least 20% if not more on the capex.
Yeah. So just to add a few comments so Q1 was.
Higher than probably you're exactly a session said we had.
Anticipated in 2019 D. The high your launches that we would have in a in 2020, so as a there's a lag between what we're spending and the volume so.
Going forward the volumes are obviously going to be lower and that's why we'll be able to reduce a portion of our capex. If you think about it so.
70, 80% of our Capex related to new business and and we are able to adjust for that I think another big driver as well he is negotiation.
Cost reductions that we are entering with suppliers.
As well as terms negotiation. So these are kind of the overall actions that we're taking to.
We do significantly capex in the next three quarters.
Perfect. Thank you.
Thank you.
Great. Thanks, and this concludes our earnings call for the first quarter of 2020, thank everybody for participating in today's call and your ongoing interest and let's see on do you have any follow up questions. Please contact me directly thank you.
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