Q2 2020 Veoneer Inc Earnings Call
Gentlemen, thank you just standing by welcome to the teach went to 20.
At this time.
<unk>.
After the presentation.
A question.
Yes.
On your telephone keypad.
Sure.
<unk>.
I'd now like tend to speak of today Thomas Young. Please go ahead.
Thank you very much summer and welcome everyone to our second quarter Twentytwenty earnings Conference call webcast presentation here, Oh, we have our chairman President and CEO of course, Chief Financial Officer.
So much on some communications.
During today's call you want me to comment on our current business highlights as well as provide an update on our strategic reviews launches into <unk>.
Well, then you'll get through our <unk> efficiency programs provide commentary.
For the remainder of this year.
We remain on the mine for acuity session and as usual slide and earnings release are available through a link on the homepage over corporate website.
If we moved to the next page we have the safe Harbor statement, which isn't integrate support the presentation and commenced acuity photos here today.
During the presentation, we will represent some non-GAAP measures reconciliations of these figures are disclosed in our quarterly press release, and the 10-Q that wouldn't be filed with yet.
This call is intended to conclude at three P.M.C.T.. So I ask everybody kind it to limit yourself to one or two questions that we can get everybody's request in.
I'll now turn it over to see.
So.
As Tim.
Thank you.
And welcome everyone to or second quarter earnings call.
Turning to page.
We have the business highlights for our second quarter.
<unk> Health and Safety award. So it's the first priority and we are taking the necessary actions to protect or people safeguard our operations.
Hey, Colby 19 pandemic continues to create challenges to our industry.
Before moving on to our business highlights for the quarter I would like to extend my warm and sincere. Thanks to the entire it'd be on your team with the way. They have performed under these circumstances staying focused on execution launching new technologies and customer programs, while continuing to make progress with our market the job.
But the initiatives.
During the quarter, there, we I'm in China and rest of Asia gradually recovered however, still below pre crisis volumes why do we honestly in Europe, and North America, but essentially shut down for the first two month of the quarter then gradually recover did you.
Although we see some optimism in the.
Third quarter customer caught up we remain cautious about second half recovery, which will ultimately be connected to the underlying consumer demand.
There is over market action initiative and program continued to gain traction and thereby mitigating the negative contribution effect caused by the lower light vehicle production volumes, resulting from the corporate 19.
During the quarter. We're pleased to have completed the integration of senior team and we continue to make progress towards finalizing that Bbs divestiture.
Despite unfavorable timing effects in working capital and longer than expected finalization of the VBS divestiture, we're pleased with our strong position or 851 million at that and of the quarter.
The positive impact or am I actions on cash flow is expected to result in a significant improvement in our cash flow in twentytwenty as compared to 29 team.
Considering the current market conditions, we continue to see some launch delays. However, our order intake remains fairly robust at more than 300 million all the average annual sales during the first half twentytwenty and more than 600 million over the last 12 month.
Turning to page.
Here, we have summarized our key accomplishments during first half will twentytwenty many of which are direct keep harder by market adjustments initiative program, which we started during Q1 last year.
We didn't know strategic abused they'd be N.B.S. Asia divestiture in combination with the missing cold you dispute resolution he generated approximately 890 million of net cash proceeds.
We also completed this split toolbox annuity software joint venture and successfully integrated approximately 200 software experts into our system development team.
And we expect to receive some compensation during that first half Twentytwenty Wow.
Although the Bbs divestiture has taken longer than expected to finalize the expects to have found a good home for our associates and reliable solutions for our customer.
Looking now to our efficiency improvements, we're pleased with the outcome of certain customer negotiations, where we recovered approximately 18 million above normal engineering reimbursements as well. That's our continued focus to reduce gross cost you know already in E. N S. DNA.
We twentytwenty being the beginning of an unprecedented launch phase four be linear we successfully completed that pulled start to launch, including the latest Cindy with the software stack as well it seems reduction of our Gen. Four monovision camera.
In addition, we are on track with our launch readiness for our upcoming happy launch period, starting with the second halt this year.
That's a result of all these facts shows we have been able to improve the year to date operating loss versus last year by $79 million and our cash flow before financing activities by $262 million.
All doing unprecedented pandemic.
And lastly, we have seen a better success for startup of water facilities and remote working for most of our support stuff.
Thanks to the dedication and perseverance or a soap <unk> associates.
Looking now on the next page.
As mentioned on previous earnings calls this slide provides an overview of our key new technology launches during twentytwenty.
Despite some lead customer timing delays, those delays or not impacting or in yeah, internal technology development timing and launch readiness, thereby maintaining our quality delivery and cost performance.
I should acknowledge that this has been a very challenging period for our teams you to constrain that the Corbett 19 pandemic has placed us apart.
Looking now to our customer launches on that next flight.
We have updated our top 15, new program customer launches for Twentytwenty, where you can see the updates from last quarter highlighted in red.
The updates include some further launched late as well as where we see some potential and your vehicle volume changes older. Though it's too early to estimate the net impact beyond twentytwenty.
In aggregate the vehicle models and platforms being ripped up close to 500 million dollar on average annual insane with an average content per vehicle or approximately $270, including brake systems.
Fuming and the Bbs brake systems divestiture closest we will come back with further updates on this side on the next earnings call.
The content range of these top 15 remains unchanged in the range of approximately $30 to more than $800 vehicle.
We still expect these launches which are more load into the second half of the year and should contribute to our.
Outperformance versus global light vehicle production 2020.
Now looking on or products on the next page.
The light vehicle decline and.
Continues with an additional 3 million vehicles, however, not nearly as severe as last quarter.
We now see approximately 87 million fewer be it cuts today with the time period 2019 through Twentytwenty too as compared to you like 2080.
This is an additional 37 million fewer via because then we reported at the beginning of this year.
And this equates to essentially at 22% reduction in the global light vehicle production development for the period 2019 through Twentytwenty too.
That's illustrated by the short on the right.
And the expectation is that or industry will not recovered to 2019 vehicle volumes hunton sometime between 20 to 23 2025.
As a result of this continued market uncertainty and potential changes to our customer launch cadence.
It's too early to provide any updates on our grow beyond twentytwenty.
Fortunately for B, one year or future growth will be much more product and customer Lawrence driven and less dependent on the light vehicle production recovery.
Therefore, we continue to focus on successful nauseous, what's driving effective cost control and cash flow management.
Looking on our customer programs on the next light.
We made solid progress in expanding our active safety product portfolio across our customer base during the first half of Twentytwenty.
We're pleased to have added new business awards inhibition.
13th radar customer and the fixed customer for software features.
Although we see some continued customer delays in sourcing we continue to not only expand our customer pessimist, but also increase or market share with certain customers.
As mentioned earlier, our order intake remained fairly robust where we'd during the first half of this year approximately.
40% or ordering think was related to vision systems, while more than 70% was related to active safety.
Looking now to our market drivers on the next stage.
On June 20 sick. They you when you see ball for them for harmonization, albeit can regulation and now that first finding international and regulation on level three vehicle automation.
The new regulation marks an important step towards the wider deployment of automated be it cuts to help realize additional safer more sustainable mobility for everyone.
Starting in January 2021, the regulation provides guidelines to that Hey, Adam K S feature requires driver and their inability recognition systems and a black box data storage system for 80.
It also outlines requirements for emergency and minimal risk maneuvers and drive it transition demand as well as cyber security software uptake protocols.
We see this a natural evolution for the view into your hardware software and system offering where we already have they required capabilities in in the house within our portfolio control.
Lastly, I should also mentioned that on May six the Euro handicap announced that it intends to postpone the rollout of its road map updates by one year from 2020 to 20 to 23, all though this have minor near term effects on our markets evolution and the long term.
Market growth remain trend remains intact.
Looking now on the next night.
Is there any thought the recent didn't do it to split we now have in house competence is yeah under our control, including perception and sensor fusion localization and vehicle control.
Driver policy, along with vehicle integration as system engineering.
As well as food data collection, and verification and validation capabilities.
It's in combination with our scalable architecture and global presence in neighborhoods or company to capture the evolution of and cap and the collaborative driving market added to plot.
The last piece of the Pos and he has to finalize or S., So see strategy, which we are working.
We believe our strategy over the long term will provide muni or with a competitive differentiating advantage.
Especially in these out of certain times as OEM customers are looking to tier one suppliers with complete components software and systems integration capabilities.
This concludes my part of our formal her prepared remarks for today and I will now turn it over to Mark.
Please.
Thanks, Jerry on looking out for the next slide.
Considering the steep decline in out of it at a VP both year over year and sequentially were able to mitigate the effects on our financial results very well during the quarter.
Net sales for the second quarter over 184 million, where essentially in line with our internal expectations.
However, we estimate the negative impact, resulting from the core with 19 pandemic was approximately 190 million when organic sales for the quarter.
The underlying cost structure improvements year over year or primarily due to our ongoing market adjustments in each of these the primary drivers included or the any gross costs and above normal engineering reimbursements mitigating the negative sales effects, which resulted in an operating loss being better than expected.
Our strong cash position over 851 million at the end of the quarter is progressing according to plan. Despite unfavorable timing effects in working capital of 30 million, which are expected to reverse during the third quarter.
Our cash flow before financing activities over the negative 141 million includes negative 30 million related to VBS U.S. operations.
Despite the Corbett 19 impact or industry or company continues to be in EMEA delivered tremendous investment Korea to support the ramp up or future sales growth, which is supported by strong order book.
In this environment, we continue to look for ways to reduce and even post for capital expenditures during.
During the second quarter, Capex was 24 million 26 million lower as compared to last year.
So overall in an extremely unpredictable environment were very pleased with the progress were making.
Looking further into the details for the quarter on the next slide.
Well the same for the quarter declined to 305 million as compared to the same quarter last year, which includes 81 million related to VNB, Yes Asia divestiture.
The main drivers or 53% organic sales decline, whether rcs business with declined 50% what active safety declined 56, mainly due to our high CPV on premium brands in Europe, and North America led to L. B P drove 62% and 70% respectively.
Net currency translation effect, a 1% accounted for the remaining decline.
The gross profit decline of 74 million for the quarter versus prior year was mostly due to the covert ninth in impact on volume and product mix, causing the organic sales decline.
Net currency effects or minus two Amelia and Trevi MBS Asia divestiture effect or 30 million accounted for the reminder of the decline.
Or the any net so 44 million decreased 550 million during the quarter compared to 2019.
Mainly due to the improved gross cost and above normal engineer reimbursements or about 80 million.
In addition, as DNA improved 12 million year over year due to lower consultancy iced tea and associate related costs.
Yes, Asia divestiture benefit for all the any and as you know combined was 11 million for the quarter.
Last night, our operating cash flow for the second quarter was 37 million lower than last year, mainly due to the negative swing in networking capital mainly related to accounts receivables and payables, which were impacted by coal with 19.
Looking out for a sequential performance from the next slide.
Net sales declined Honda 78 million as compared to the first quarter, primarily due to covert 19 effects on lower LPP, mostly in Europe and North America.
The sequential organic sales decline of 153 million includes a decline in or C.S.. So 62 million active safety decline of 84 million.
In addition to reinvest Asia divestiture impact was 24 million on that same sequentially from the previous quarter.
The gross profit sequential decline of 50 million was mostly due to the lower L. B P along with some product and customer mix impact on an organic sales.
The or the Indian that sequential decrease of 87 million was mainly due to the above normal engineered reimbursements and lower associates related costs.
Our operating cash flow declined 98 million sequentially.
Well, it's mainly due to timing effects in working capital mentioned earlier and the 767 million positive impact from the MBS Asia divestiture in the previous quarter.
We have lost split as mentioned earlier capital expenditure continues to run at lower levels without compromising our customer launches.
Looking now for Paul financial performance from the next slide.
Net sales declined 438 million during the first off as compared to 2019, whether it be MBS Asia divestiture impact was hundred influence the eighth media.
In addition, the organic sales decline in or C. S 454 million or 36% and active safety of hundred 27 million or 34% accounted for most of the remaining sales decline.
Estimate the first Paul Corbett nine can impact on organic sales was approximately 220 million.
The gross profit decline of 106 million for the first off as compared to 2019 was mainly due to the core with 19 impact on lower LPP, and some product and customer mix effects, the net currency and be best Asia divestiture impact what 21 million combined.
The or the any net improvement of 140 million was partly due to the above normal engineered reimbursement of 80 million lower gross cost and the MBS Asia divestiture impact of 15 million.
Operating cash flow improved improvement of 44 million for the first off compared to 2019 was mostly driven by the lower operating loss.
Capital expenditures declined 58 million first Paul primarily due to the prudent capital management.
Turning now to our markets adjustment in each of them on the next slide.
That's we had mentioned earlier there is south markets adjustments in each of his continued to have a significant positive impact on our financial results, thereby mitigating the negative financial effects from the corporate 19 pandemic in the quarter.
Looking now taught friendships went the outlook on the next slide.
We have taken significant actions to adopt they vote to their evolving macroenvironment and mitigate effects on our operating loss and cash flow.
Our outlook for the second half of plant. The plant is primarily based on customer calls, which are supplemented by the latest I your chest estimates.
For full year 20, we expect organic sales to outperform the global light vehicle production, primarily due to our new customer program launches what currency net is expected to be a slight headwind to 1% birthdays develop them.
Do thought well established market adjustment in each of the program, we hold to our original plenty plant the outlook for an operating loss improvement versus 2000, or 90 and on a comparable basis and we expect our cash flow before financing activities to be negative 200 million for the second half of 20.
Right.
We know target to reduce or the net by more than hundred million plant. Its went from 29, t. and on a comparative basis and new toward yet on capital expenditures to be less than hundred 25 million in twentytwenty.
So overall, a positive outlook, especially in this very uncertain macro environment, an unprecedented LDP environments I will now turn the call back over to yours.
Thank you up by turning to page.
Conclude or for my comments for today's call them. We would now open up for you at night, So I'll turn.
Going back to you a to operate the Q1 I session Summer. Please go ahead.
Once again I will remind participants if you like to ask your question. Please press star on one on your telephone keypad and she'd like to talk to you can.
So that's on one ask your question.
And your first question comes from Compass and alone.
Please go ahead.
Thank you very much three questions for me.
Firstly, especially as more are listed on the outperformance. This it's fair to assume that it's more geared to fourth quarter.
A.
Second question is related to Costar that to you could maybe talking in about minimum.
And it's just that you have in the platform and no. One so you need dimension somewhat but when installation that and what type of 11.
To close because what missile, but we're looking at.
Last question is related to the comments you made an order intake in the second core Chris you could maybe it's too late to market development.
There.
Performance or maybe it would put numbers marketshare also so somebody questions. Thank you.
My back to talk with the first one emphasis as much so in terms of the outperformance on what we see in favor of develops and you are correct. That's.
Yes.
More pronounced I mean, the fourth quarter, we see a gradual improvement.
Sequentially down.
Very much in line with that with alone shifts when they are coming up.
Yes, it's on or not in the fourth quarter.
Okay. If I continue that with the post for two this is the first launch of our next generation one of vision camera motivation for them and then we have always on this a car line to the north shore bar.
Moving to 70 gigahertz radar technology.
We have also at the first launch together with the Monovision camera on the driving policy stack from Citi.
And that is also to them to be launched a further on to a more car lines on the same platform and then we also have as a final part on this program a.
And eight us easy you.
Also together for for them computing power of the the sensor information.
Yeah. So should we have the whole new program technology, including the software package on this vehicle on to it. So far we have gotten a lot of the positive momentum on the positive feedback onto it.
Is it.
Yeah.
Sorry, Okay.
Yeah. They order. The next one is the order development as you talked about and on the I'm wondering tickets we commented here.
We had an ordinary and take all the ballpark hundred $40 million for the quarter ending up to more than two or three handling more than 300 million for.
The first half of the year.
And if we look to the volume it has clearly been a lower activity on the order side and it's kind of stature and of course and you did they come at night and pandemic.
Yeah, but as we commented here on the form it's Greg if you look upon it on the first half we are happy to say that 40% over this value or more than 40%. This coming from our vision products and the more important for south of the told in order intake for first half is coming out of extra safety.
So birch and just a follow up question on the post like stuff is that the 11th two plus it's just an it.
Where is the 11 three system or or.
And did you not putting in lumber.
It's a page 11, two level two clos that at the on it or not to direct Eleventhree system. So it's a more 11 to 11 to plot the system.
Fair enough thanks very much.
Thank you.
And your next question comes from Emmanuel Rosner.
Hello.
Oh, Hello, everybody, one or two.
For a few clarification regarding the higher engineering recovery.
How should we think about it or was it trulia sort of onetime sitting or is this something that you have a efforts to to get more off on an ongoing basis and I was curious if the guidance for.
Lower R&D a need for the year of more than 100 mill down does that include.
The 80 million.
Extra recovery in the quarter because it's so.
In the first half a yard the and these are the 140, new and better year over year. So there will be in already well above the 100 million.
Yes, I mean to start with the reimbursements when it comes through engineering income. This is what you see in the quarter.
Normally high.
So they say SEC.
To some extent taking care of historical standards that are getting reimbursed for.
We're working on continuously.
Yes to kind of more reimbursement going forward, but for the for the work we are doing down but this is there more more historical rates and meaning that if and more of a one time effect in the quarter.
Yes. It is included in the guidance, if you're looking at and that's all the any.
For the full year, but we're also facing more than harm that million in terms of improvement than what you also need to remember is that in the second half of the year you will find there, it's a new with C or D any costs.
On the R&D any and no asset equity method investments down below the operating loss.
And that is I would say for the second that second hall. Some 30 merely on that we are adding in terms of or the any that isn't it with it related.
But again, we are talking about more than hundred million an improvement.
So just Justin just a clarification on this point directionally in the second half do you expect.
R&D in the on a comparable basis to be improved or to the extent that you've already achieved most of the full year goals. These would be more stable.
I mean, it's looking year over year I mean, the reduction we have done in terms of gross cost.
And that's where kind of come through in the in the second half and we will continue to reducing time, so well girls cost.
But I mean in when you're looking at the next already a knee as that you would not have the same effect in terms of the engineering reimbursements in the second half at U.S. you had in the in the first though.
Understood and then my second question is.
For everything earlier, this week or maybe last week announced to reflect this long term partnership with the tier through supplier of Ah algorithm for.
Active safety, Nina low level of economy.
Are you able to comment on whether a tier one was selected for for this and whether this represents a or opportunity were lost opportunity.
There are in with the Ford business.
No. We all are not able to comment on that front, we read about it too, but we don't have any commentary as to that.
Okay. That's I understand that I guess in the past you attributed some of the lower order intake shortfall on.
I mean, a piece of it doesn't lost business to potentially newer tier two entrance.
You, maybe elaborate a little bit on the competitive landscape in the that's not something that you see more off recently.
Where do we see and we can all read about a partnership being formed and.
With that new entrance is some bigger companies coming into a once a day area of the eight up to we havent seen anything on the quote that is out on the basis Youre.
Bidding for right now that that has had any major effect on us.
Remain to be seen how that is evolving and how was that we all are evolving in this landscape that is changing.
You see our effort on the launches you see our effort on technology here. So also with the moving landscape. We will also move with it and then we will have to see how we that stand to gain the newly formed partnerships and the entrance new companies coming into this.
Great. Thank you so much.
Your next question comes from Victoria <unk> from Morgan Stanley. Please go ahead.
And I afternoon, and thanks for taking the question Mtwos for me, please and I just wanted to come back a bit on there aren't any commentary can you have given us already and the 81 million that you had in the core chair and CEO should we think about not having any sort of impact on the the level of investment in Q4, you should we think about this is pulled forward are we.
Just a one off on historical stuff and the pace of the reimbursement pretty normal for H. too and and can you talk they also tight and R&D any she doesn't 21, I guess, we need to think about Annualizing. This actually many increased sums and you see that you'll have an h. to also then into each one of she doesn't 21 and do you have any visits.
Yes on on an underlying what could happen to Ardine for next year and the second one on working capital.
And for H. to what are you assuming in your 200 million and cash flow for financing and loss and for working capital do you recover that's actually million of timing impact and then also that's actually million bright and you mentioned from CMBS U.S. would we see anything event that reverse one state and what's hot that divestment is complete thanks.
Well that was a lot of questions and one that I can maybe to start with the working capital and effects in the in the second homes, we have a timing effect.
We'll we'll recover about 30 million in the third quarter, but other than that.
Looking at flat working capital development in the in the effect involved.
On the R&D any side and that reimbursement that we had in the second quarter that is one off and not related to our normal kind of fourth quarter, a higher engineering income.
Yeah, if we are looking at that.
Yes that effect in the second quarter without talking about the negative cash flow effect of about 30 million in terms of cash flow before before financing coming from the best.
Yeah, we will let it once we close this transaction, we will let Rick comp there at 16 million off of that third it but if you're looking into cash flow. We have funding item in the quarter of 16 million. It that's related to that transaction and that will be.
So to speak when we close the transaction so in terms of cash flow before financing at least 60 million will be recovered from new Beth.
And I think its excellent alipay too early to start talking about the or the any.
Develop planting plan and 21, but.
What I can say is that we will continue to address the gross cost.
We have improvement sequentially going forward, that's well on the gross cost and that will that we'll continue to focus on NIM in plenty plenty one.
That when it comes to that.
Engineering reimbursements I think that's what you have seen now in the second quarter Ism is that more of kind of an extraordinary things that you would not expect to have in in Singapore.
Great that's clear thank Keith.
Thanks.
And do next question comes from James to correct from Keybanc Capital. Please go ahead.
Hey, guys.
Just to clarify so the the.
What's the latest timing on the VNB aid the majority BMD a sale.
Breaking.
Timing on that.
Oh, I really haven't said any timing we had hoped to conclude that divestiture during second quarter. It is delayed and.
It will as far as we can see it today happened within not too long future here.
Okay and using that this past this current quarter as the example, the.
Makes systems, the reported 20 million EBIT loss.
Portion of that 20 million loss would would leap year on year.
I mean, that's the front I mean, and it's fully realize this will be there.
Well that will be.
Going so to speak on that but that's something completed.
Okay.
Got it.
And then within the second half the 200 million.
Guided cash flow before financing laws.
That includes.
The 20 million payments involved though.
Let's turn to take place is that right.
Yeah, I think you're referring to the 50 and one five that was mentioned individual.
Yeah. So what we have in the in the second half we have the difference in new with the.
Effects included in the number though.
Right.
Got it too in the prepared comments here the payment term payments here, it's likely to come in Twentytwenty while.
Anyone.
Got it and then just go back to order trends.
To that.
Trailing 12 month basis down down 40%.
Year over year there about.
What is the expectation for the second half how would you expect.
You know orders to kind of go from here.
Given the current quoting activity and what you what you're seeing right now.
Hard to say, we're already seeing yeah, and we are involved in several of discussions it's a very difficult to.
Give any forecast or any guidance always we believe that it's going to be lower than what we expected in the beginning of the year, but we haven't given any.
Numbers, where you remember we said about a billion dollar expected for order intake for the full year all the twentytwenty are at or call in February.
But we believe that is gonna be lower but how much remains to be Steve here. It depends on what is also pushed over between 20 and 21 not lost but may be one that's really a year later so.
Lower than the billion dollar, we said, but are not to any numbers to give you. Unfortunately.
Got it then but just on RG any and Capex on that on a couple comparable basis as we exit this year.
The Argentine Capex as a percentage of sales are these sustainable run rates from here again on on a comfortable basis or as we as we see Uh huh.
At some point here right, a very nice recovery and strong growth off the bottom due to these levels as a percentage of sales change dramatically or the sustainable run rates.
I mean in relation to sales. We are in then kind of an investment period right now one of a ramping up for loans shifts and that goes well for the capex at flat, that's wireless or the any even though we're looking at the first quarter second quarter due to their kinda younger of business environments webbing cutting down on Capex, but what you have seen.
On a quarterly basis in a mixture three to four last year Q1, this year and and so for that I.
I mean, when we see the launches coming through when we see the the organic growth from launches coming that we need to reduce the capex, that's left or the any relation to say this in order to get leverage.
Hi, Thanks.
Your next question comes from key Lady from Credit Suisse. Please go ahead.
Hi.
Good morning.
Thank you.
Just wanted to start like going back on the.
Question on our DSD and the the reimbursement.
Maybe you could give us a sense perhaps of the order intake that you've had in recent years what percent of that order intake was booked with R&D any that was maybe you realized after the fact is higher than anticipated meaning.
How wide is the opportunity for you to pursue additional reimbursements and maybe what's the timing of how long it takes maybe.
She this reimbursement.
I think it's very difficult to give you any.
Timing of Ah you know.
Retroactively reimbursement of or do you need most of this work that's coming in here in the second quarter is for work that has already been done and that we have seen then do reached agreements with customers to.
To get or additional funding for it and to give any number of any ideal to Hobbs section the indication, but before that I think it's almost impossible. What I think it's important for you to look at point in our and in our my eye program here is that.
We are not only looking for cost reductions. We're also looking for income improvements that we're looking for business development of our contracts and we are renegotiating and negotiating activities, where you can probably see that the specifications have changed overtime and that you can recoup.
Some of that work or the extra work that has been done in projects because.
Yes, it's the nature of this business is so faster so much evolving during long programs things happened with technology, along the way.
And that it's a giving us opportunities for renegotiate infant maybe getting morning count them what was into a written on contract.
But to give you an indication I don't think it's even possible.
Uh Huh right. It's I would just think that you fit you booked a lot of a lot of orders in past years.
I guess, there's no sense of.
What percent of that retroactively say that.
We booked with R&D any that maybe there's some opportunity to no no sense on on a directional amount.
How much that it.
But if you look upon all our programs. If you look on the slides that we had here. The presentation you can see that that technology developed by going hand in hand, with the launch platforms and so we are developing technologies along the way, yes, we are launching the car lines and it's going across the board of our product portfolio, whether it is restrained.
Controllers or camera radars et cetera.
And it's very hard to see how when you have a program at how that is developing over let's say three years development time, a lot of things are happening in the industry along.
The year long program, meaning that you are you are asked to do different specification requirements at the end to the car line that is launching than you were all at the time of their board.
That renders different engineering work and probably gives us room for a maybe a different discussion around engineered again, Kevin sweat, but to give you a room for an indication I think is difficult, but most of that program that you see here all of this nature absolutely so far.
Okay. Thank you and then just a follow up on the active safety landscape and I wanted to follow up.
Somewhat similar to an annual was prior question, but.
It related to that.
You know what we saw earlier this week with Ford you know in the past and seen a very standard relationship.
In the tier one then to the extent the tier twos included where the tier twos supplies to the tier one tier one does all the integration work and get the complete solution to the OEM minutes.
Typically plug and play do you find that that relationship still holds or has there been you know efforts by the Oems to handle maybe more of the integration work or more effort by tier two to handle.
Sensor fusion.
I think there are differences between different Oems different Oems have different ambitious and different as skills and experience so on and our type of products. So far yeah, I think that might be a situation where more Oems do more work inside and you can see partnerships being formed and.
Yeah companies, having ambition to do so as being OEM.
So you can't exclude that to happen.
But I think what is important is that.
The tier one integrated the one that have on automotive experience integrating safety related components.
Whether it's coming from big companies or smaller companies.
It's essentially.
Because it has to work and so many examples out there right now where.
The software has been an issue for many launches with the many car companies on the has being causing delays et cetera. So I.
I think they say hey for be Onea sake.
The position, we have being an integrator being a technology provider is a very good position for US right now as we alluded to in our prepared remarks here, we have now complete.
Portfolio, all software and and driving policy perception stack and we have the radar program. We have an integration capability. We need also now to find the right partnerships for our test to see for this scalable architecture going forward.
And then that is to work that is ongoing and with that I think we already have very good place for for the next generations to come.
Okay. Thank you very much.
And your next question comes from Joseph Spak from RBC Capital markets. Please go ahead.
Thank you good afternoon.
Sorry, sorry to go back to Ardine here, but it's still a little unclear to me I realize the reimbursement was.
Extraordinary in the quarter, but.
Why is this something youre planning originally to receive throughout the year and it's the timing that was unusual or is the amount overall unusual for the year.
I mean, we had in looking at the guidance, we haven't done that already a knee, we could foresee the reimbursements coming through but Dan that I.
It is more of the kind of a discrete item that we get this kind of amount in a single quarter.
So planned or not.
And I think it's also a combination of several discussions with not only want to customers. So we are as we said in our.
My eye program here are working hard on a.
Also recouping and.
Talking to customers about reimbursement on the engineering being carried out.
So now it happened to come here.
Several of these discussions coming in.
In second quarter, and therefore also them mountain decisive. This I don't think we should have the an expectation to see in the quarters to come.
Even though we will we will continue to work hard to on in the same way to increase or reimbursement for for the activities that we do.
Okay. So just so do you in your internal forecast in the.
Total amount of reimbursements for the annual number change post this post this quarter.
So take that again.
So internally I'm sure you're budgeting for some level of reimbursements.
Did that annual number change post what you received this quarter.
Yeah, I mean that.
Again, I mean this is a discrete item that we see in the quarter. This is not the kind of a pull forward of other reimbursements, if you're looking at the norm So big.
But that Weve had ongoing negotiations when it comes to reimbursement that we knew when included in our plans, but it's not affecting the more normal underlying reimbursement that we see normally coming through in the fourth quarter for instance.
Okay. So can you I mean, there's a lot of puts and takes here then with the you know with what the reimbursements and you know.
Taking into annuities somebody other divestitures like on a like for like basis, What's your sense of how gross R&D is trending.
I mean, it's trending down after we can see savings coming through in the in the growth gross or the a knee quarter by quarter sequentially.
Okay.
The.
Second question is I think you mentioned and I'm not prepared slides.
Are there was a comment about you know footprint optimization.
I guess, you inherited right your footprint and capacity from from the Autoliv days.
How do you think about that now given the volume outlook is likely lower than prior seems like there might be an opportunity to reevaluate, especially with everything going on.
Some of these regions, but on the other hand, you know it sounds like you still need to be able to plan for for future growth. So how do you sort of balance that decision and then how do you think.
Think about your current capacity alignment.
I think we had talked about in last quarter ending quarter fourth quarter earnings release also looking for partnerships for work that it's more suitable to be outsourced.
And we are continuing to look for that opportunity and what is important for US is that we continue to defend and develop our core competence. When it comes to software development and hardware development for a core products ambition and radars and I say that these views and they're better controllers, but there are more work that could probably be used to it.
Within partnerships and that is one phase we have already looked at and also carried adopt.
Yeah. So so I think there we are looking for foot footprint optimization by using partners, then preferably in best cost contracts and a lower cost countries.
Where they come and we can benefit from scale that we cannot do more standardized work that we cannot do.
Hi, good.
Yeah, but also Janet.
Hey, I mean, this is something we need to safeguard to our people or engineers or core competencies in the software development et cetera itself or the spinal beyond here.
So we have to safeguard that and also make sure that that is further develop for.
Sure future products and future.
Versus over product portfolio.
So for so just regular for certain elements of your business do you think you can move that's the sort of a more contract manufacturing type operation.
Well, if you're talking about manufacturing a manufacturing for us It also and a very important piece to safeguard the quality of our product set the I was talking on engineering type of activity, Okay and engineering okay.
But in terms right in terms of manufacturing capacity.
So again.
In terms of manufacturing footprint, you or is there opportunity there or you think you need.
Well take our force reviewing everything, but nothing that I would to be.
We are prepared to discuss here at this earnings call, but you know.
Manufacturing piece and the manufacturing knowledge and the launch knowledge of advanced product or a key ingredients goes into the when you're offering at the making probably customers looking favorably to everyone here because we have long lasting experience. So.
Using safety products.
Thank you very much.
Maybe I should clarify on the or the any adjust to as you said there are so many moving parts if you're looking at the guidance on what we have seen in terms of EQT shows and what we're expecting in the second half done so.
What we have guided is more than hundred million in terms of improvement year over year.
We had 80 million in the higher than normal kind all of that reimbursement for engineered now in the second quarter. So that is affecting the engineering Inca, but if you're making a year over year comparison. Please remember that we had in the fourth quarter 2019 25 million in a similar.
Discrete item for engineering reimbursement stuff. So the net is now 80 to 80 minus 25, if you're looking at the kinda discreet items.
And on top of that you need to in your comparison year over year, you need to add 30, mainly in terms of growth cost increases coming from the new at this.
So that clearly indicates that that more than hundred million improvement is quite low growth.
Are there any improvements on not only related funding incumbent.
And your next question comes from David Kelley from Jefferies. Please go ahead.
Hi, good afternoon. Thanks for taking my questions I guess looking at slide six to start.
Are you referenced a couple of additional launch delays looks like pushed out a quarter and then even there is a partial pool for in here. My question is how do you see the potential risk for launch push outs in second half.
And is there better launch visibility given that industry rebound over the last couple of months.
I think it's very hard to say, it's a I think very much depending on the general climate in the.
Customer demand and the industry overall, and the cobot 19, and how the different countries are coping with the cobot 19, and what's going to happen on the.
Oems ability to restart production et cetera, and I.
I cannot speculate into it we have not seen message, we see here any delay that or beyond the quarterly it has been pushed over the year end about.
The most of it has been a quarter either within the year over into Q1.
So it's very hard too hard to say in the closer you get to the launch them. The more difficult. It is too can only with the of course stop it if you haven't some issues, but otherwise the Oems.
Or very much.
Inclined to go ahead and do the launch.
Somewhat normal environment so I.
I don't have any better picture than what we have here. This is the latest update onto it and we are monitoring this.
Yeah, but yet.
No no other indications and what 3% here or any more color I can give you.
Okay got it and I appreciate the color and then maybe taking a step back there's a growing discussion and debate around the demand for light are in that eight as sensor suite.
I'm curious to get your thoughts on that and given your relationship with melody and how would that position be anywhere from a competitive standpoint, if we start folding and white are endless somebody say das ones.
Well, we do have our corporation with a valid dying and we do have projects running with the Paladyne. We also do have or internally.
Competence and our internal technology and short range light. Our also there we have projects ongoing a with the customers.
So I think that light or it's a promising a technology for their higher level of the autonomy and that is where it really is necessary and really paying off.
Yeah, seeing it more into the lower level of L. to flops. It's I think at the end of the day cost issue, it's a integration on the cost matter.
Whether you need it for that performance or not.
But we see it feel as being a predominantly a higher level of autonomy product.
Okay got it and maybe one quick clarification on your point are you seeing any increased or uptick in customer appetites for light, our and let's call a level two plus at all or is that still strictly tied to.
The rest of the sensor suite and wide ours in your mind still.
On a mess level for level, five applicability and like I would I would not say they say increasing its not decreasing either it's supposed to make more the line all the thought that I sat here that is more for the higher level of autonomy.
Customers are working with higher level of autonomy and you can see partnership being formed for for the those ambitions are but it's all dependent also on their call with 19 out how this will have an overall effect on.
The industry as a whole lot knowing the efforts being invested into those programs. So hard to say I don't see it going in there really from a quarterly standpoint here in either direction either in a more negative one or more positive way.
Got it thank you.
Okay. So we're almost stuck to the over here, but we will take one more question. Thank you.
And your next question comes from each time Mckenzie from Citigroup. Please go ahead.
Great. Thank you good afternoon everybody.
So just going back to the order intake to just to clarify.
You could just quantify where your win rates has been in Q2 and throughout the year relative to last year and then maybe if you can size.
How much you're quoting today relative to the three months ago, and maybe six to nine months ago as well.
Well, if you're talking about the quoting perrier to order quoting activity as it has been significantly down in.
And pool for us we've seen a significant decline.
I haven't that good number whether it's down 30, or 40 or present or something but it has been down I don't have a good number to give you have it it has been down during the quarter and yeah, I think that it's because of the focus on the finishing off the launches and focusing on the.
Those activities.
We haven't seen any.
Cancellations on the coal side on some of that sense or.
Not any major whilst at least a.
So we expect the quoting activity to pick up again, but again here. This is very hard to predict it's.
Almost impossible for us to Tetra Tech.
What's pace, that's going to happen.
And then lastly on slide eight it looks like you had some progress with some software features since the beginning of the year both on the bid list in the and the technical qualifications.
Awarded business I was hoping you could just maybe.
Dig into what specific software features these are and maybe what some of them more advanced.
Features that you're seeing some progress with.
These are features related to or see one technology that we have been.
Working with any within that we have now integrated into a are yeah, our own activities in our own system group. So it's a related to a two dose features where we are happy and able to sell also feature sets a standalone basis before and we are.
Now were seeing an increased customer interest or for the software as a feature as such but also as a part of its bigger system.
Got it that's helpful. Thank you.
Thank you very much.
Okay.
I guess that concludes our today.
Formal part and the QNX session.
I would like to thank everyone for your participation today and thought school and insightful question.
But before we wrap up today I would like to take a moment dimension and acknowledge David Leiker, who has a was unfortunately not with us on our call today.
The first time in more than 60 quarters going back to the Autoliv days.
At some of you know David unexpectedly passed away a few weeks ago whole sincere condolences.
And deepest sympathies goes to Dave's family has his knowledge expertise.
Integrity and passion, we'd be through limits.
Now looking ahead, our next quarterly earnings call.
Tentatively planned for Friday October 23rd Twentytwenty.
And we look forward to speaking to many of you during the third quarter, various investor calls and event.
Until then I wish you Goodbye and have a good summer. Thank you very much.
Thank you that does conclude.
Thank you for joining you may now disconnect.
[music].
[noise] Oh.
[music].