Q1 2020 Earnings Call
Thank you.
Elena Rosman active as Vice President Investor Relations you May begin your conference.
Thank you Mary Ann Good morning, and thank you everyone for joining operatives first quarter 2020 earnings conference call to follow along with today's presentation. Our slides can be found at IR that active dotcom.
Today's review of our actual financials exclude restructuring and other special items and will address the continuing operation of active.
The reconciliation.
Between GAAP and non-GAAP measures for our Q1 financials.
Are included in the back of today's presentation and just the earnings press release.
Turning to the next slide please see our disclosure on forward looking statements, which reflect opt ins current view, a future financial performance, which may be materially different from our actual performance for reasons that we site in our form 10-K, and other FCC filings, including uncertainties posed by the cobot nine.
18, pandemic and the difficulty in predicting its future course and impact on the global economy.
Joining us today will be Kevin Clark.
That is president and CEO, and Joe Massaro, CFO and senior Vice President.
Kevin will provide a strategic update on the business and then Joe will cover the financials in more detail with that I'd like to turn the call over to Kevin Clark.
Thank you all in and good morning, everyone before I begin I'd like to first express my hope is everyone listening as things safe and healthy along with our family friends and colleagues amidst the crop.
Over 19 crisis.
Dopamine. These days is how our industry in active our position in this much more challenging environment, which John I will attempt to address over the course of today's call.
Kick things off I'd like to start by thanking our 160000 after team members wholly for their dedication and efforts to ensure the health and safety of our employees and their continued flawless execution for our customers.
Executing additional initiatives to ensure the preservation of our financial strength is due to their collective efforts that were so well positioned to weather the storm.
The run unwavering support and commitment to do the right thing the right they have position DAP to to be an even stronger company. Once this crisis is.
Over.
Turning to slide for the deliberate actions we've taken over the last few years to transform apto into a global technology company have better positioned us to respond and adapt in this more fluid environment.
These actions include optimizing our portfolio of market relevant technologies to enable a safer.
I'd product lines, including thermal and met Photronics and further increasing our focus on the brain and nervous system of the vehicle continuing to improve our industry, leading cost structure generating roughly 350 million in overhead savings over the last five years and reinvesting those savings to further strengthen our capabilities.
Hi growth areas, including active safety high voltage electrification and vehicle connectivity.
We deliberately improved our revenue diversification across regions across our customers vehicle platforms and end markets.
As we've executed our strategic initiatives, we've improved our ability to perform through cycle with more sustainable cash flows which has translated into a stronger balance sheet and a solid investment grade credit rating.
These actions better positioned captive to navigate the significant uncertainty we're now facing.
Moving to slide five the first quarter proved to be much more challenging than we anticipated coming into the year.
Revenues decreased 7% to 3.2 billion.
Market that was down 24% overall or 20% on an active weighted market basis.
EBITDA and operating income totaled 411 million in 231 million respectively.
And earnings per share totaled 68 cents after adjusting out the gain associated with the completion of the automated driving joint venture with Hyundai.
Looking at the region's vehicle production was down 48% in China during the quarter, reflecting year over year declines of 80% in February and 50% in March.
As Chinas economic activity continued to improve the recovery in vehicle production has been relatively slow as dealer inventories remain high and retail demand is slowly improving.
Vehicle production to declined 11% North America, and 20% in Europe, reflecting the early impact of customer shutdowns beginning in mid March.
While koby 19 had a significant impact on global vehicle production in the first quarter.
In Europe, and the current timetable for the restart and ramp up activities means the impact on the second quarter will be much more severe and is now estimated to be down over 50% from the prior year.
I'll have to sites in China are currently operating albeit at levels, which are below normal capacity.
With some sites in Europe, now restarting production and a few sites in North America operating to support a central business needs.
Although we currently lack clear visibility of the exact timing pace of restarts in North America in Europe.
We are prepared to safely ramp up in accordance with customer schedules.
And government approvals.
Moving to slide six the proactive steps, we've taken to protect our employees deliver for our customers reduce expenses and conserve capital has put us on an even stronger footing to deal with his current crisis.
After initially seeing the effective coded 19, our employees suppliers and customers in China, we implemented a robust measures.
Immediately establish a global crisis management team with regional and functional representatives across our businesses that continue to meet daily to monitor the situation exchange information and manage every aspect related to this crisis.
We halted I'll go will travel unrestricted visitors from entering our facilities.
In response to customer shutdowns and government restrictions, we close manufacturing facilities technical centers and administrative offices.
We implemented austerity measures to further reduce our cost structure and preserve our financial health, including significant cuts in executive pay.
Suspended for one k. matches in the us as well as planned salary wages.
Increases globally.
Implemented furloughs and temporary led.
We offer a salaried and hourly employees in line with customer closures.
Reduce capital expenditures and investment in working capital took a series of actions to further enhance the company's liquidity.
These included drawing down all remaining amounts on our $2 billion revolving credit facility and suspending our 225 billion dollar annual dividend.
These actions represent an incremental $600 million of annualized cash generation actions that allow us to continue our planned investments in advanced technologies enhancing the long term opportunities for our employees, our customers and our shareholders.
Further while our sights of have always had robust safety measures in place in light of Cobot 19, we've implemented additional safety protocols to ensure we protect our employees and deliver for our customers is operations resume.
We have to vote. We've deployed these safe operation protocols across all of our facilities, which I'll highlight in greater detail on the next slide.
Moving to slide seven protecting the health and wellbeing of active employees customers suppliers in the communities, where we operate is our top priority.
We work closely with medical and employee health and safety experts government, New representatives, and our OEM customers and supplier partners to expand to build upon the app and safe operation.
These protocols are based on information and guidance from the World Health organization, the centers for disease control and prevention and various other governor.
Okay.
After a strict safety measures include the cleaning and disinfection sites multiple times per shift.
Conducting daily health and risk screenings for all employees and visitors.
Checking employ temperatures prior to entering buses in facilities.
Ensuring social distancing it all work areas.
Providing personal protective equipment for all employees and visitors is wells utilizing physical barriers, where necessary and executing immediate response plans for suspected coated 19 cases.
As we've implemented the global Cold 19 pandemic plan across our business. We're also sharing our lead our learnings with the entire Echo system, which has been made available on our website.
Additionally, as one of the largest imports and the communities in which we operate we're doing our part and supporting local hospitals by supplying personal protective equipment and we're helping our customers produced critical equipment with components for ambulances diagnostic equipment and ventilators.
These are just a few of the many initiatives our team has undertaken to combat this crisis.
Collaboration at all levels is more important than ever we must come together to ensure consistent coordination communication execution and transform how we work day today.
Turning to slide eight as I mentioned previously the impact of Coven 19, and global vehicle production has been more subtenant severe than any recession scenario. We previously planned for.
What started is extended production downtime in China. After January lunar new year evolve into complete shutdowns in Europe, and the Americas beginning in mid March.
As we sit here today the situation is very fluid.
The ability of the timing and paid to restart remains very low we will account for record unemployment levels decrease personal income and declining consumer sentiment.
As a result of these factors.
We expect vehicle production decline in the range of 20% to 30% in 2020.
With a view that the current list of puts and takes tilts with scale closer to 30% than 20%.
Our outlook reflects a trough in the second quarter with production declining over 50% in a slow ramp up in the second half of the year.
With extensive learnings from China, and now and some restarts in Europe in the Americas, we gain meaning.
More meaningful production restarts in Europe, and North America are expected to begin to mid may and will be slow in phase.
We believe the impact of Cowen 19 will be with us for some time in as a result.
We anticipate operational inefficiencies to continue from the implementation of the incremental safety measures.
And supply chain disruptions, given the breadth of customer and supplier shutdowns globally.
As such we're not expecting a rapid recovery in global vehicle production and remain cautious as we begin our planning for post 2020.
Turning to slide nine it's in our culture to proactively manage change innovator disruption and be resilient in the face the challenges.
We believe that the secular mega trends are now as important as ever.
And as a result, we continue to fully fund investments in strategic growth initiatives, including advanced technology, enabling safer greener and more connected mobility.
These include investments in active safety high voltage electrification smart vehicle architecture and vehicle connectivity.
In the first quarter, we continued to see important validation that our competitive voted expanding in the long term trends remain intact.
New business bookings totaled 2.8 billion.
Reflecting the near term global impact of coded 19.
We continue to expect rapid growth in electrified vehicle platforms, driven by more stringent Seo to regulations and the declining total cost of ownership.
We had over 500 million of high voltage bookings in the first quarter, including one with a major European OEM for an innovative long rates easy launching in 2022.
We also saw continued strong launch activity in the quarter.
Our approach to flexible satellite architecture has been a game changer for the industry and our.
Recent launch of an L., two plus scalable laid out solution with an industry, leading customer in China March the first industries.
We also launched our best in class integrated cockpit controller with a major global OEM, which will be launch across all of their premium brands is high performance controller, which is fully OTI capable provides a fully reconfigurable cockpit managing up to four high definition displays.
Lastly in March we completed the formation of the active Hyundai autonomous driving joint venture advancing our shared vision of making mobility more safe green connected and accessible.
As a reminder, Sunday contributed 1.6 billion of cash at the close funding the operations of the joint venture for the next few years and is providing 400 billion of engineering and R&D services, making them a close technical partner and strengthening app to App This existing foundation and.
Before I hand, the call to Joe I'll wrap up on slide 10.
As we've all seen the impact of Cobot 19 has been significant to manage through the crisis. We remain laser focused on three key priorities first keeping our employees their families and communities we operate in safe.
Second flawlessly executing our current and future customer programs, while at the same time further differentiating our capabilities in safe Green and connected advanced technologies, and third running our business efficiently and effectively to minimize expenses and maximize cash conservation.
These priorities will preserve our financial help improve the sustainability of our business and create value for shareholders.
While the way we operate day to day May now may not go back to normal as we knew it we are.
Our committed to finding new ways of working that allow us to survive and thrive in this future.
With that I'll hand, the call earlier, it was a very difficult start to the year.
We began to see the impact of the cobot 19 outbreak at the time government restrictions.
Because were opposed across China in late January.
Lasting.
So the $3.2 billion were down 7% totally.
13% growth over market as vehicle production declines.
20%.
Adjusted EBITDA and operating income were 411 million and $231 million, respectively includes the $1.4 billion gain associated with the closing of the autonomous driving joint venture with Landay.
Lastly off.
Operating cash flow was $161 million, including a net positive contribution from working capital and lower Capex seems globally, we're more than offset by volume declined largely associated with the adverse impact.
The pandemic.
Price downs of approximately 1% and the unfavorable impact of FX.
Thanks and commodities.
Excluding acquisitions or given market.
We continue to see strength in Europe outgrew, both with revenues up 2% representing 22 points.
And high voltage electrification programs and lastly in China revenues declined, 31%, reflecting 17 points of growth over market.
Turning to slide 13.
First quarter earnings reflect the lower sales volumes, we saw in the quarter hundred 80, and 250 basis points, respectively in the quarter.
EPS declined 35%.
Variable the largest being material roughly 50% of sales, which flexes quickly.
While directly.
When production comes to an abrupt halt and restart schedules remain uncertain as employees are put on temporary layoffs referral.
Flows.
To that end, we've implemented a number of short term austerity measures to preserve liquidity and control costs advanced safety and user experience revenues declined 9%, reflecting 11 points of growth over market driven primarily by growth in active safety up 3% in the quarter.
Spend will be consolidated in the USA segment and going forward, we will recognize 50% of the joint ventures operating results and the equity income line.
Excluding automated.
Driving ask you X EBITDA declined 42% investments in the business.
Consistent with prior communications ask you X continues to make the necessary engineering.
Volume of New program launches in 2020 and beyond.
We will continue to evaluate the spend throughout the year as we gain more clever ways.
Turning to signal and power solutions.
Revenues were down 7%, adjusted reflecting 13 points of growth over markets.
Driven by strong growth.
But our high voltage electrification product lines and a favorable Ben.
Instead of found that GABAA calm acquisitions.
Partially offset by.
Production with an additional $12 million headwind from FX and commodities, primarily driven by the euro and RMB.
Beginning in Q1, as we saw the impact of Cobas 19 shutdowns on our Chinese operations.
We began to take meaningful actions to preserve our liquidity and it'll drawdown of our revolver in March and sharing we have ample cash.
And to manage through this crisis.
This couple.
Maintain conservative leverage and extend the weighted average tenor of our debt ensures we have sufficient liquidity into 2020.
First quarter, which total over $600 million and annualize cap.
Shavings preserve our liquidity and enhance our financial how we completed a one year extension of our credit facility.
Deferring the maturity date from August of 2021 to August of 2022 for both the revolver and the term loan.
With approximately 90% of the banking group participating.
I'm into the agreement, which includes a covenant relief period.
Second quarter of 2021 and.
And includes certain restrictions.
With respect to capital allocation during this period.
As expected in second quarter down over 50%, whereas in the second quarter.
We continue to take the necessary actions to minimize the impact of the eight to nine weeks of lost vehicle production in Europe, and North America, and we believe we are well positioned to navigate the uncertain environment once operations restart.
We will resume providing forward looking up.
Thanks.
Thanks, Joe Let me wrap up on slide 16 before.
For opening up for Q1, Inc.'s first quarter of 2020 proved very.
And namely in China.
Now with Europe, and North America model in a strong balance sheet.
As a result, we're in a strong position to weather the storm.
Additional actions, we're taking puts us on it.
My confidence in active in our ability to deliver sustainable value creation is underpinned by the dedication and commitment of our people our growth.
And equity owners and operate as one team to deliver safely for customers and our shareholders.
Looking ahead.
With that let's open up a line for QNX.
Thank you for you'd like to ask a question at this time please signal diapers.
Ken switched off to allow your signature equipment again, Please press star one to ask a question.
Yes.
So we can take our first question from became chairman of Citigroup. Please go ahead.
So I was hoping you could according to just hoping you could speak a bit more about thanks for the color on the EBITDA in Q2 was hoping.
Theres a few more parameters on the cash flow side, particularly around capex in the working capital thinking prospectively in second half of the year floor in China right now.
As well as major components of the cash savings that you do have announced today the incremental to Q1.
Yes, I won't I will be given a lot of specifically tied just yet.
And just given the lack of visibility.
As I said.
And then my prepared remarks, we're comfortable we've looked at a number scenarios and.
And a comfortable certainly from a liquidity perspective.
We're well positioned into 2021.
As it relates to a range.
That I talked about and then what I'd call almost maybe a like amount as it relates to.
Investment in working capital, we had a very favorable working capital quarter in Q1.
As the plans came down we started shutting things off fairly quickly.
And that a good job on that would expect that to ramp up in Vietnam investment in.
That's helpful. Joe and then maybe going back to bookings.
Market share gain opportunities across the supply chain.
We have in common do thatll be helpful.
Yes.
Yes, I think Q1 bookings.
Given just given the amount of uncertainty in the amount idling quite frankly, the number of people who are working from home.
Or were until or for a little across our customer base and supply base.
We'll see how Q2 in the balance of the year plays out.
As it relates to opportunity to pick up market share.
And just just.
Thats, our rationale for continuing to invest in some of the an opportunity there.
Near term just given the lack of visibility and what the industry is going through it is hard to be precise.
Thanks.
Thank you good morning.
Sure I was wondering if you give us now.
On.
So.
Your Mexico operations some of the shelter in place policies, there and how you're dealing with that as North America production starts looks to restart and how could impact your operations in second quarter.
Yes, maybe I'll wells ulcer, Julie can comment so we have.
Close to 30 manufacturing facilities in Mexico.
For all intents and purposes.
Facilities that have been operating to to provide product too.
Well.
A central businesses are businesses deemed a central.
Blaze in all those facilities prepping for re launch of product.
Relaunch of production for our north.
The safe restart protocols is wall is ensuring we're ready to start production one schedule.
To start.
Vehicle production schedule start to include to provide product.
To some of the Oems in North America Joe.
Okay.
The second Russia as Kevin one of things we've heard from some other companies.
There may have been some obligors quarters fewer students kept shipping product, but maybe the production that occurred to can you see on the evidence of that into your business.
Joe as Joe we didn't I mean, we were to vary.
Pinned down production or shutdown, we got we got out quick.
Didn't want to be running facilities that obviously had no place to ship too so.
Have heard that as others recorded but we did not experience that enviable and the business.
Okay. Thank you.
Right.
And we can now take our next question Mirantis English back from Morgan Stanley. Please go ahead.
Great. Good morning, Thank you for taking my question.
Revenue drilling a little bit MCV that 13% growth over market is that signal.
In power for.
Hello.
End markets.
Yes, yes, thats sort of in light of last quarter.
The high voltage performed better, but really looks like a lot of the.
Hey.
That effectively stable operating through around certain industry. So.
That helped drive the that really helped drive the outgrowth in.
And signaling our at this point.
Again, I think I think on top of what are the normal trends that Kevin reference of increased high voltage.
And just overall that businesses continue to see strong content growth.
Just given the size and scale.
Okay and.
And then around your comments.
China. The weekly data things would suggest that sales in April are down about 4% year over year. So.
The recovery appears to be pretty deep and on the demand side, what are you seeing that perhaps different I.
Yes, I mean, we're looking at different data the data.
You will sell down 18%.
Listen the market in China is improving.
[music].
Good we would agree that we're seeing that.
However from our perspective consumer demand and certainly vehicle production.
Isn't at levels that it was that last year, so from a year over year standpoint vehicle production continues to be down.
So it's something we monitor closely.
Something that we we hope we see continued strengthening we've not seen any sort of significant government.
Incentive plans.
Our put in place to really drive incremental demand.
But is it something that we'll watch very very closely.
Great. Thank you claim question.
Yes.
And we can now take our next question from Brian Johnson of Barclays. Please go ahead.
Yes, two questions just a quick housekeeping and then I kind of more.
Mr Graphic.
Decremental margins were obviously higher in HQ action Sps you mentioned engineering spend any way to think about their congrats on margins going into twoq.
Right I would I would where we've talked really since the beginning of of all of those are there we're running a little higher than our normal which was that sort of 25 to 30, 35% ranges as a little bit over 40%. So I continue to use that sort of 40% plus.
As I thought about Q2, partly.
It's very my prepared comments you know the balance at the moment.
Is that people out on T. look lower furlough, there's still some costs associated with those employees as we as we wait to gauge.
The timing of the restart and the level of the restarts and Thats in order to carry that workforce is really why we ran very hard at the other austerity measures.
But that does wind up in a higher decremental and the short term.
Okay. Second question is what you're thinking about the launch activity.
As we go into second half uneven 2021.
I don't know if we've had good conversations with your Oems or they're just scrambling to restart and then aren't ready to this conversation Jeff.
We have heard some talk.
At least some of the 2021 watches fee.
Pushed out some 2020 launches having multiple.
Delays and just wondering how you think about that.
The that risk and be whatever duty or grow there were marketing each division.
Yeah. No. This is a good question when I see the dialogue with with.
Customers has been extensive I think quite frankly from an industry standpoint, both from a customer on downturn supply base.
There's been a lot of communication over communication, we've seen some shifting of launch timing based on.
Some of the government requirements with with respect to.
Stay in place and other issues whether it's in.
The us Europe or China, so some shifting.
Nothing major.
On programs will shift out of 20 and 22.
21, but that will be based off of what they were when they were originally scheduled to be launched.
In 2020.
Matt seen any real cancellation of programs at this point in time.
I have seen shifting schedules, so I would say from a schedule standpoint, it has been very fluid.
Hi, there was this desire for Oems in Europe and use to be.
Launching late April earlier in May we see no schedule.
We will shift out of the supply chain is adjusting to it.
And again nothing major from up from an overall launch activity.
[music].
Back half, we have you even adjusted for the shifting schedules a significant amount of activity, it's especially true in the US you X business.
In critical launch activity is up over 50% back half of this year versus the same period last year.
A number of those programs relate to the advanced Adas.
And making sure we're in a position to execute flawlessly I think thats one of the reasons. When you talk about Decrementals and ask you X you're seeing the decremental levels of the investment in the technology, but also making sure we're positioned to launch will.
But again a lot of activity a lot of shifting nothing major Brian at this point in time and no cancellation of programs.
Okay. Thanks.
[music].
We can now take our next question from annual Ratner with Deutsche Bank. Please go ahead.
Hi, good morning, everybody.
Good morning.
[music].
In your in your prepared remarks.
Our remarks about asking you access to it but so we'll continue to evaluate trend as the engineering spending for potential.
Launch delays and other activities I know you just address the yes.
So you spending in what sort of like.
Movies would you be looking for.
To decide where their true value.
How leaseback warm so we're going to meet the and the current levels obviously usage.
A big factor in this in the magnitude of the decremental margin.
Yes, no it listening.
As a is a very fluid situation. So so again.
Very limited visibility.
For the we think there are a number of areas that we have a competitive advantage. We think it's important that we can continue to invest in those areas. We have a number of those programs that we're launching over the next few quarters.
So executing.
We will evaluate the market and see what sort of or if there is any sort of rebound and what the back half of this year looks like and what 2021 looks like in two weeks.
Okay, calibrate or adjust I will tell you dialogues with several customers where reader on some of these advanced program.
Or were doing advanced development programs.
With us in areas like smart vehicle architecture active safety.
Our real push from those OEM customers to continue.
Can you to invest because they're looking for opportunities down the line.
To reduce manufacturing cost right to enable more technology in the car more cost effectively.
Yes.
Among other things so.
Certainly our push from the from the customer by customer base continue investment Thats something that will again, we'll continue to look at based on our outlook for vehicle production.
Okay. That's helpful and then sort of next on the on the topic. So looking at your.
Your Mega trends I was curious you reach share some of your longer term Sox on the potential for similar.
Of these trends too.
Maybe slowed down a bit so as I'm looking at your slide nine.
Active safety user experience high voltage automated driving.
I am, particularly curious about hi, horrible disease in regions, where it's not mandated like let's say we use for example linear.
Beta driving sales mix just globally.
Yes, it was in our view on on the Mega trends as they remain intact.
That that.
The remains a push in the demand for safer vehicles.
For safer vehicles.
For greener vehicles and.
There may be interruptions for a quarter or too given macro situations, but there's still going to be demand from a from a from a customer standpoint, both end customers was OEM.
As it relates specific to after when you look at the bookings on in areas like high voltage electrification, 80% of those bookings are with European and Chinese Oems.
So there is not a significant portion of that business that is in North America and our view has been that although there will be demand for sure.
Electrified vehicles in North America is certainly going to lag Europe in China.
As it relates the active safety.
Solutions active safety is the highest rebuy rate of any of any option that's out there consumers buy.
Vehicles assays.
We'll continue to see you'll continue to see that that demand.
To the extent of players like ourselves and can provide a platform that can integrate a number of different features we feel that's more cost effective and ultimately that that positions us well for that increased demand.
As it relates autonomous driving.
We'll see I can't argue is always been the autonomous driving roadmap has been about the broad spectrum of active safety eliminates the driver.
And.
Our joint venture partner, Johnny and ourselves are both of them.
The view that we believe you're going to see autonomous vehicles.
Youre going to see them in consumer vehicles and mobility on demand that maybe pull forward. Some other applications, where autonomy can be applied whether its delivery vehicles, whether its warehouse vehicles you go through the through the laundry list. So developing the technology remains as important as ever we're positioned to.
Basically are commercially exploit the technology, that's developed there and incorporated into our active safety solutions, which we think is important.
And we are using quite frankly, the slowdown the.
Some of the macroeconomic challenges as an opportunity to go out higher.
Resources from some of the companies that are out there that maybe earnings and bank of America. Please go ahead.
Good morning, guys, great to hear from you.
Great year for you.
For getting and the answer your last met last question.
Obviously, there's been some concern that particularly on the economy side, there's a little bit of overlap between what you're working on and what the automakers are working on and then for that reason might sort of.
It almost seems like this crisis is going to open the door.
For you to do have greater winds, what's your autonomous technology in your office, Yeah, I'm just curious I know it's early days.
Your customers is this something you can you can kind of pitch and we could finally get the economies of scale that you could deliver to them on this technology.
Yeah I [noise].
Listened <unk>.
They are we on I'm, providing autonomous technology to only <unk>. If it remains there's a group of volume's that will continue to invest in the development of their own solution.
All it from third parties and and and our view is.
Is that likely continues if if the economic challenges continue for protracted period of time, probably those who we're on the fence are more likely to buy it from someone else.
So so.
Oh, you know that's something that we'll we'll we'll make sure the joint ventures his position to do.
You know, but I wouldn't tell everybody I come visibility short term visibility right now is extremely limited.
So it's very very <unk>.
Oh coal to draw any conclusions and our real focus and showing the team has done a great job mine.
Task transformation initiative, Hey, caches, King and maintaining flexibility is is critically important and that's what we're really focused on doing.
At the same time there were a couple areas that are really really important one we we have to continue to serve our our our customers we need to launch fall asleep.
And then two regardless of of the slow down we have a strong view that the world is looking for save for greener more connected vehicles and and based on that those are areas as what you know.
Is where we can reduce costs to invest in those technologies, we will continue to invest in those technologies.
The extent the market gets to the point, where it's a challenge for us to do that then we'll revisit we'll reprioritize.
Okay, a couple of that kind of second question.
I mean, as your winding up in in China, and and restarting and getting ready for the restart in Europe I mean, I'm just curious is going through that process, there's any opportunities.
Or issues with you some of your suppliers and and maybe you know what kind of always thinking about.
<unk>.
You know the tension for emanating Gration, you know sort of has sort of in parallel or hard Santo produced or any thing you see that might be opportunistic for.
Vertical integration as far as N.A.
Actually making yourself sort of stronger and more valuable over time.
More through the vertical side is supposed to hospital.
Yeah, John It's Joe I think at the moment, but work has been really says you know chew on in China and now globally.
It's it's the hell checking their readiness on the supply base. It's it's.
Constant communication with.
There's been we've sent surveys now we're looking at their preparedness, we've shared are safe restart.
With them to make sure that they can operate the way, we expect them to the way our customers expect them to well I would say, it's been a very tactical focus and I and I would expect that to continue through the second quarter of things start back up you know certainly you know dislocation creates opportunities you know that's something window when star.
To look out but for.
But you're down the road that right now we're focused on making sure where we're staying in touch with the supply base and that were yeah, John <unk>, Joe and I were talking about it the Joe's comment it's it's tough to get emanate done when there's limited.
So no visibility right so.
Reality near term houses [noise].
That's that's a very little likelihood.
Okay, great. Thank you very much stress.
Thanks Huh.
We can now take our next question from line kind of <unk>, marking team I think rounds of is a real source of good morning, real source of strength and the auto industry. You guys. I was on display in one q. et cetera, scrape, but thought to ask a little bit more around you know rather that the relative weakness of any of your customers are vendors to something you're pressing.
Focused on or your investors should be focused on I think it was John Murphy just asked on the tour too so I guess maybe.
A little bit more on the customer fronts, you know working capital tends to be a source of cash for you when production is declining some automakers, though I I.
Have to imagine are probably struggling here with the amount of payables coming out the door, particularly in in early two key without any of the offsetting cash coming in.
So without naming any customers of course, you know are there any that you're worried about you know their ability to pay or are they may be leaning into the supply base a little bit for extended terms is there room for tear ones to accommodate them what are you, saying there.
Yeah, I wouldn't say the.
Right by and large the industry is acting pretty responsibly through this crisis I I based on.
Dialogues, we're having was over the I I think there's broadly and understanding that that you know, believing you can solve your problem by creating a problem for someone the supply base is not a long term sustainable solutions.
Having said that you know all of US are focused on cash we we do get calls from customers.
There's about extending which is a perfectly appropriate and this one event, that's not a situation or a path that we've decided to to go down.
When we look at our customer base from thing, they're all in in pretty strong pretty strong financial position I think the question data how long does it.
Just last.
And how long do we go for a period with you know little to a.
And you know I think relative to where the industry wasn't Oh, you don't nine it's in a much better position.
And the things that was my prepared remarks, we've been very focused on the last five years in terms of diversification from from a reason standpoint, we understand point and vehicle platform standpoint, So making sure would we're in with the right customers in the right regions and on the right.
Vehicle platform <unk>.
Platform. So you know our view is that impact to the extent you'd have one would be much more muted them what it would have historically been.
Right. Thanks, that's really helpful. And then just last like from me I thought to ask about the sort of like rolling spaced restart in different geography is is that going to be problematic for the final assembly plants getting going.
Probably on the costs I think somebody asked about Mexico, where a lot of your computer facilities are in North America, but I think somebody's state you know governors regional cooperatives, maybe that's helpful. Along those lines that are there any you know bottlenecks that you're looking at and and you know if the industry was you know willing to go for.
And the final assembly plants, though those were in jurisdictions allowed to operate you know how quickly what kind of like factor are you looking at maybe.
Well, we so we have 65000 employees in my Oh as an example of we have close to 30 manufacturing facilities right all of whom are dependent upon.
Sure Twos cheer threes and and his Joe mention is is a part of our crisis management team. We have a spy came management team it's in daily contact.
With the entire supply.
Tire supply base globally and in region and is doing health checks financial Hell Chuck's operational health checks.
Safe start protocol Helen <unk>.
I'd say, we feel reasonably good about we're we're the supply chains since now.
All of our facilities now have employees, our manufacturing <unk> manufacturing facilities in Mexico. As an example has employees in those facilities preparing for launch I'd say, we're a little bit in front of.
Oh, just given some of the challenges in Mexico, we've we've been lucky to be in front of its we've been in dialogue with the federal government there as well state governments to make sure that we give people in.
So that once early m. customers flip a switch.
It shouldn't be in vehicle production, we can do everything on our part to make sure that we satisfy satisfy their demand having said that just given the complete shut down in the industry for a period of time.
We're sure there'll be some fit.
This is starts that there will be some problems earthquakes was like that of figuring out ways around it you know the China shut down as an example.
I'm not.
Aware of a single a single Oh, we.
Assembly plant shut down that we were tied into directly or indirectly. So it's something that the industry. It's on a pretty good job figuring out with you know owing only m. customers adjusting what they produce and folks in the supply chain figuring out alternatives to products where the.
There might be up a shortage.
Okay very helpful. Thank you.
We can now take our next question from Mcenany half Goldman Sachs. Please go ahead.
Ah, yes export anything taken the questions.
He mentioned that there will be operation at home operation on inefficiency from covert 19, and they could buy for some time I can you'd be more specific on the potential impacts from the new measure related to safety equipment, social Byzantine at our costs to deal with covert 90, I have a better understand what it will mean not just for near term, Oregon, So perhaps more importantly, any income implicate implicate.
<unk> two out of companies intermediate to long term market potential.
Yeah, I I don't know if we have exact hours I think certain amount of supply chain inefficiencies the second piece.
No. It isn't reality, we're operating differently right today, 84% of our salary workforce works from home.
Although we've operated extremely well I'm surprised.
[noise] well better than what Joe and I would have expected there still is some inefficiency tied into that.
Then when you overlay our protocols and the protocols of others, where you know you think about daily temperature Checkers health assessments.
P.P.E. you know the social distancing there is a certain amount of inefficiency that gets introduced into into the production process and supply chain.
So which will get you know <unk> as we learn as we're manufacturing in higher volumes will get better at M. will reduce but some of which will you know will remain in the supply chain and and this is an industry is is focused on on saving you know nickels and dimes and D. extent every employee.
Safety mask or advisor and you know six feet of distancing <unk>.
You're having to.
Yeah, you're you're having to juggle chefs at production facilities. There is a certain amount of of searches that it's Joe I I, you know I want that into just that kevin's lack of visibility comment right. It's it's hard to quantify those things. When you don't know exactly when folks are coming back to the plants, how many plants how many employees.
How fast is rap I mean, that's really what we're.
We're dealing with is just as you think you go down the P. analogy you go down the various cost elements, it's sort of starts with a when and how fast your come back and and and that's obviously going to take some time here. During the course of hopefully just the second quarter to sort out for for not only this quarter, but the balance of the year.
I don't think so it's time to for my second question I I realize if there's not a a near term focus for the company, but you haven't investors understand what financial metrics optic would be looking to achieve probably for throwing to resume returning capital to shareholders.
Mm.
Oh, yeah listen, we're going to be a liquidity preservation out here until we're very comfortable.
You know because this pandemic is understood you've got discussions you know all day.
Potential second wave and such so I I think you're you're well into the second half of 2021 before we'd.
You know best case be be able to start to talk about that were you know where we went out.
I think very prudently extended the credit facility because there was an opportunity to do that wasn't coming due until August of 2021, but again there was a window of opportunity. There. We took advantage to to bump up for a period of time or the debt to even t., a cow to four and a half times not not because we are necessarily worried.
About about preaching, but you know again, that's the type of thing you do to maintain flexibility and and Optionality.
You know as part of that while we're under that cover and it really period, we will will not be able to pay dividends are through to to 2021 dividends are buyback stock, but again.
I don't <unk> didn't necessarily view us in a position just given from liquidity perspective, so that we'd be we'd be in a in a position to do that so I think that's a you know that's a longer term look I think still a soft likely.
Around capital allocation doing things like investing in the business organically and energetically.
And ultimately returning return the castle shareholder philosophically those views, having change, but but for a paper for an extended period of time, we're going to be very much focused on liquidity first.
Thank you.
Mm.
And we can now take aren't next question caught her.
<unk> Kenny have checked face piece go ahead.
Alright, good morning.
On your discussion with.
Up on your discussion regarding visibility too ongoing advancement and.
Advanced solutions investments Ah at your level and buyer customers.
Whether it be actor safety or like occasion, I guess, how are you thinking about R.D. and and and why it up does ongoing secular chain, Greg, but factoring into weaker Mac back macro backdrop as well.
Yeah, I I'm, sorry, you're broke up a little bit I again, <unk>, we do not not looking at the business quarter to quarter, which which you know, we we do but but.
But setting that aside we still have a strong view as do our customers.
That consumers are looking for safer greener more connected vehicles.
And and a couple of those trends, putting safety and green, there's a government regulation overlay as well.
That the man for those <unk> vehicles from our only M. customers will continue.
Oh, we have specific data is relates to a consumer rebuy race on eight aspect of safety solutions as well as consumer preference or increasing preference for electric vehicles, especially in Europe in China.
That that you know basically underscore overall view that you're going to continue to see demand for that third.
Do you think about areas like eight at eight gases or product that helps R.O. in customer sell cars and it's it's a product that allows them to sell.
Vehicles at higher profit margins.
And especially in times like knees, our customers are going to be focused on selling the most profitable vehicles that they can sell.
<unk> their trucks S.U.V.s swine and so forth that have advanced eight s. systems Huh now will continue to evaluate that will continue to watch it will continue to watching closely.
Mentioned flexibility is critically important would maintain a real flexible business model and flexible pause structure.
And to the extent, we see any change to that will course correct.
Mm.
Great. Thank you and and apologize hopefully you can you hear me better now I guess my follow up a a longer term question.
Been targeting 25% sales mix outside of like vehicle autos by 2025.
That change given the current backdrop and how are you thinking about greenfield no humidity and so forth on that because they don't go for it assuming the ladder or something <unk> <unk> <unk>, yeah listen I I I., Joe Jones answer the question right I I'm philosophy from from a.
Little adaptation strategy hasn't changed but right now we're sitting in a period again, where there is is very very limited visibility and flexibility is key and flexibility is man is is measured today by cash.
And we're operating with the constraints of today as things stabilize.
We'll return to the historical strategy, but right now it's about maintaining flexibility.
And accumulating cash to make sure that that that you know we're in a position to do that the reality is near term.
People don't Tranzact, when there's lack of certainty they don't sell and they don't behind so I think in reality. It's it's a good theoretical question, but it's not a practical one.
As you know one thing subtle will continue the strategy and diversifying being more balanced from a revenue standpoint.
Mm.
Mm.
Mm.
So that when there.
Okay, but I think that's kinda clutch C.Q. and a portion of today's column I'll tend to call back over here for your final comments, Okay listen. Thank you everyone for your time today, we hope you're you're safe you in your families are safe and and healthy again, we we were really focused on making.
Sure that you understand the situation that we're operating in from a visibility standpoint.
And we're doing everything we can to to ensure that we can operate oh, we keep a flexible business model and we can operate through this and we're confident that we'll be able to do so.
Well that thank you very much.
Mm.
Yeah.
[noise]. Thank you that concludes after his first quarter 2020 earnings conference call.
Oh.
Oh.
Oh.
Oh.
[laughter].