Q2 2020 Visteon Corp Earnings Call
[music].
Good morning, I'm, Chris Doyle director of Investor Relations for Visteon welcome to our earnings call for the second core.
Peter I'm 2020.
Please note. This call is being recorded and all lines have been placed on listen only mode to prevent background noise.
Before is again this morning's call I'd like to remind you. This presentation contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements are not guarantees of future results and conditions, but rather are subject to various factors risks and uncertainties. They could cause our actual results to differ materially from those expressed in these statements.
Please refer to the page entitled forward looking information for additional details.
Presentation materials for today's call who are posted on the Investor section of this downs website. This morning.
Please visit investors that visteon dotcom to download the material if you have not already done so.
Joining us today are such a one day, president and Chief Executive Officer, and Jerome Rouquet Senior Vice President and Chief Financial Officer, We have schedule the call for one hour and we'll open the lines for your question after sanctions Interims remarks.
Please limit your questions to one question and one follow up again, thank you for joining US now I'll turn the call over Sachin.
Thank you, Chris and good morning, everyone.
Before I start today's presentation I'd like to acknowledge the tremendous effort what employees in this challenging times.
They have been resilient and resourceful and delivered into our customer commitments, while simultaneously reducing costs.
We're also like could take a minute to reflect on the unexpected passing of David Leiker earlier this month.
It was all this a pleasure to work with David.
Come to regard him as a friend.
The visteon team since our deepest wonderful answers to his family.
And to his colleagues at Baird.
The second quarter was marked by extended vehicle production shut down in various parts of the word due to the covert Denton pandemic.
The exception of China vehicle production in the rest of the word well shut down well over half of the quarter.
Just one thing in global vehicle production to be down 45% year over year.
Vehicle production is this jones customers was down even more at 53% reduction year over year.
This John second quarter sales were $371 million down about 48% year over year, excluding currency.
Outperforming vehicle production that our customers by about five percentage points.
The company's set a comprehensive action plan at the onset of the pandemic with the focus on five key areas.
Managing cash and liquidity.
Reducing operational costs.
Strengthening commercial discipline.
Aligning supply chain in manufacturing global demand.
And finally positioning the company for the future.
In the second quarter, you were able to flex operational costs down across the business in response to the reduced sales volume.
Our manufacturing costs were reduced by more than 45%.
While gross engineering and adjusted as she anyway were both down approximately 30%.
This was achieved through a combination of temporary salary reduction.
Just went off a footprint from high to low cost.
The reduction of contractors and other purchase services.
In through strict control of all operational expenditures.
With respect to commercial negotiations with customers.
We were able to hold pricing to around 2% of the current quarter sales.
We also do this second half engineering recoveries were finalizing some negotiations with customers earlier than previously anticipated.
The strong performance on cost reduction in commercial negotiations resulted in adjusted EBITDA of negative $3 million for the quarter with a detrimental year over year margin of 15%.
The southern an extended shutdown of manufacturing operations that we experienced in April and May we're very challenging from a supply chain perspective.
The team did a great job, reducing inventory down $270 million for the quarter, which is down $10 million compared to Q1.
All for manufacturing plants globally are up and running.
In the supply chain is improving with each passing week.
Increased focus on customer receivables and reduced capex helped mitigate the impact on cash.
Adjusted free cash flow was a negative $52 million for the quarter.
As a result.
Cash balance was $759 million at the end of the second quarter.
Which gives us ample liquidity to better the crisis.
Our strategy of building greater share of new business.
And converting it into revenue through new product launches remained on track in the second quarter.
Even with the slowdown of activity, we launched eight new products, bringing the total comp to 21 for the first half.
We also won $900 million of new business into quarter.
Despite the low activity with Oems in North America and Europe.
Bringing the first half totaled just over $1.7 billion.
In summary, the company performed well in a challenging environment, where responding to the reduced sales with strong cost performance without impacting our long term plans for growth.
Turning to page three.
Automotive production recover to pre covered levels in China, but the beginning of the second quarter.
Outside of China returned to production was more uneven with Oems restarting production in Europe in early May and were delayed until early June to restart the production in North America.
In Brazil, and India production restarted by the end of me.
At much lower capacity and did not recover much during the quarter.
And this uneven production environment.
Vehicle production the top based on customers was down 53% year over year.
Lower than overall industry, which was down about 45%.
Visteon sales were down 48% excluding currency.
Outperforming vehicle production at our customers five percentage points.
This our performance would have been greater if not for the high implant inventories at our Oems towards the end of the first quarter.
From a regional perspective, Visteon sales in Americas, we're down about 70% and in line with the industry.
As we were impacted by late start of production at key customers in both U.S. in Brazil.
In Europe, our sales continued to outperform the industry due to new product launches with multiple customers, including for rental and PSC.
In China, although the market was up 6% year over year.
Vehicle production at our largest customer FDIC with joint ventures, with GM and VW.
Was down about 7%.
Nonetheless, this John sales continue to outperform the market in this region by nine percentage points on account of the new product launches over the past four quarters.
I should mention that the high take rates that we experienced with GM in China in 2019 have now come down to normal levels as a customer has ended the promotional campaign.
In rest of Asia, we continue to be in a product transition phase with the roll off infotainment that Mazda, which was partially offset by launch of digital clusters at Hyundai and monster.
In summary, Visteon continued to outperform vehicle production in the second quarter. Despite the challenges with only one restart of production in different parts of the word.
Moving to page four.
New program launches with customers remained on track in the second quarter. Despite the restrictions due to covert 19.
We launched eight new products with Oems in the quarter.
All of which four but in Europe to in Americas, and two in China, and bringing the total for the first half to 21 new products.
Some of the key launches are shown on the slide and starting with the 12 inch cluster for Toyota in China, Our first with this customer and launch on two vehicles in that region.
We also launched it 12 inch cluster with Nissan for the new Twentytwenty drove compact issue we.
Which will then be followed by four additional vehicles over the next 12 months.
We are starting to see all digital clusters come into mass market vehicles like the rule and the Ford focus and we expect this trend to continue going forward.
In addition to clusters, we also launched our first Android based infotainment system with VW in South America.
The first launch was on an all new Sq, we delivers in Brazil, which will be followed by additional vehicles as of mid cycle upgrade.
This infotainment system offers a few features.
That our first for an entry infotainment system for mass market vehicles, such as an app store with downloadable apps wireless carplay and Android auto and a large tenants display.
Just launch has put visteon on the map as an infotainment supplier.
And we are now in discussions with multiple Oems for solutions.
We have a very busy second half it's about 40, new products planned for launch that was make twentytwenty a record year for Visteon.
About half of this launches are in China.
The rest spread across the regions.
The majority of the new launches are for digital clusters.
Including the 12 inch digital cluster with over the air Soffit operative capability for the top selling pickup in North America.
And another 12 inch digital cluster for top of the line luxury sedan with the German OEM that enhance threed graphics and augmented reality.
In China. In addition to multiple digital clustered launches. We also have the first launch of our new Smart core system that uses Qualcomm silicon and cloud ecosystem from Tencent.
And the rest of Asia, we have several launches with Honda Hyundai and master, mostly for clusters, but also displays and multi display systems, including a dual 12 inch display system that integrated digital cluster for an OEM in Korea.
The 21 launches year to date, plus the upcoming launches into second half will put visteon in a good position to continue our better than market performance going forward.
Moving to page five.
In the second quarter as I mentioned earlier, new business activity with Oems in Europe, and North America was slow with the shutdown and restart of production taking most of the attention.
But we had a lot of activity in Asia.
We are seeing an exploration in the adoption of the new corporate solutions in Asia and in China in particular.
We were able to leverage our technology leadership in displays digital clusters, and smart core to win significant business in this region in the second quarter.
Some of the second quarter, new business highlights as shown on this page.
The first win on the left of the page visited China OEM for a multi display system with an integrated digital clustered in the large 27 inch center information display with horizontal orientation.
The second win in the Middle of the page is for tenants centered information display for the Japanese OEM.
And we'll include new features such as narrow borders and in cell touch capability.
Displays and costs continue to get larger and with new capabilities and our expertise and technology leadership in the design and manufacturing of this displays was key to winning this business.
The third one was for the smart core system with the Chinese OEM that Leverages. The work we've done for different OEM also in China.
The system offers integrated digital cluster and Android based infotainment with cloud based apps.
The system with launch on seven different models with this OEM.
And will solidify our position as the leader in corporate domain controllers in the China market.
As these wins indicate.
The key trends in cockpit electronics remains strong and continue to drive new business opportunities for Visteon.
I'm, particularly pleased to see that we are building high quality new business in large displays and smartphone in addition to digital clusters and broadening our product portfolio.
Moving to page six.
We won $900 million in new business in the second quarter, bringing the first half level to $1.7 billion.
Due to the shutdown in Europe, and North America, most of the Vincent the quarter came from Asia.
Second quarter wins were evenly distributed across digital clusters, Smartcore and displays.
And for the first half.
Digital clusters makeup about half of the new business, followed by infotainment industries.
We also had a couple of significant wins for smart quota in China. This year, which will help us maintain our global lead in this category.
As we look ahead to the rest of the year I expect our performance in the second half to be better than first half as Oems in Europe, and South America restart their activities with respect to new business.
Our new opportunity pipeline for the second half is between 8 billion and $9 billion, which is a little lower than in prior years as the industry is still finalizing vehicles medical plans in response to the crisis.
We expect to see continued interest in bringing digital clusters to all vehicle segments, especially for the mainstream B and C segment recalls.
Following the launch of our first Android based infotainment system that VW in Brazil, We're now seeing more opportunities for this product with other Oems.
Get in discussions with multiple potential customers and even though sales cycles for infotainment tend to be long, we hope to close some of the opportunities this year.
With this new infotainment system, our product portfolio is now complete and stronger than it has ever been.
As the industry continues on its part of recovery from the depth of the second quarter.
I'm confident that we will return to our prior levels of new business wins.
Moving to page seven.
On this page I would like to share our thoughts with respect to the outlook for the industry and for Visteon in the second half of this year.
The global automotive industry recovered late in the second quarter with production in June being down 21% year over year compared to the 61% drop experienced in April.
The outlook for vehicle production for the third and fourth quarters depends on a few factors. The most important being the ongoing crisis, two two corona letters and the resulting impact on global economies.
As well as the geopolitical uncertainties that have impacted consumer confidence even prior to covered 19.
It is difficult to predict when we will be able to overcome the corona letters, but it appears unlikely to happen. This year and we may have to live in this environment for the rest of the year.
Our discussions with Oems regarding second half vehicle production leaders to believe that production at Visteon customers may be down by about 15% year over year for the second half.
This is slightly lower than the forecast for global auto production by Hs.
Our outlook assumes that the situation with Corona wireless will not worsen beyond what we have already experienced.
And that the global economies will start to recover from the bottom experienced in the second quarter.
We expect this turn sales to continue to outperform the market in the second half due to the favorable clocked electronics trends and due to the contribution of new product launches.
The best we can do in this uncertain environment is to focus on the factors that we can control and let the market ticket scores.
We remain focused on controlling costs and execute on the new product launches in the second half of this year like we have done in the second quarter.
Moving to page eight.
In summary, the company executed very well in the face of a challenging business environment.
Our second quarter sales were better than the underlying vehicle production at our top customers, making it our fifth successive quarter of market our performance.
The proactive actions, we took to preserve cash and reduce operational costs are helping the company vetted the crisis and puts us in a good position eventually emerge stronger and more competitive than before.
Despite the challenging environment, we launched 21, new products and one $1.7 billion in new business in the first off of Twentytwenty.
Building the foundation for future growth.
In addition to digital clusters and displays.
We launched our first entered based infotainment system with several first to market features.
It drops out our product portfolio and puts the company in a great position to take advantage of all the key trends in the industry.
Now I would like to turn the call over to Jerome.
Thank you Sachin and good morning, everyone to second quarter was unprecedented with the entire automotive industry outside of China grinding to a halt before ramping backup in the second half the quarter.
Very early in the crises, we established a comprehensive action plan to actively preserve cash and aggressively adjust our cost base in response to the dramatic sales volume reduction.
As a result of our actions our balance sheet remains strong.
We ended the quarter with 759 million in total cash and 770 million of total debt, we're presenting at 11 million net debt position.
We continue to have one of the best balance sheets in the industry with a net debt to last 12 month EBITDA ratio of 0.1 times and no significant debt maturities before 2024.
Our cash actions in Q2 were mostly focused on capital expenditures reductions and working capital management.
Capex was reduced by approximately 40% in the quarter compared to prior year.
This reduction was achieved through a combination of initiatives, including equipment reuse negotiations with vendors as well as adjusting spending can you activity levels.
We are on track to achieve our Capex target of Wonderland 15 million for the full year, which represents a 20% reduction compared to prior year, while still investing to support our new business wins.
The second quarter, presenting numerous supply chain challenges, a supplier and customer manufacturing facilities reopened at different times throughout the quarter.
Despite these challenges we were able to reduce inventory by 10 million compared to the first quarter.
This reduction was facilitated by the creation early in the crises of global sales and supply chain task force managing the constant changes throughout the quarter.
Finally, we monitored our receivable balances daily during the quarter to ensure timely collections of our customers receivable.
Our strict cost controls in Q2 allowed us to reduce decremental margins for the quarter to a low 15% our manufacturing operations reduced cost by approximately 45% flexing material costs, reducing working hours and curtailing operating expenses gross.
Generating an adjusted as DNA, where both reduced by approximately 30% compared to prior year.
We see the result of our temporary salary reduction program, our focus on flexing contractors and purchase services to adjust to lower activity levels, but as well the benefit of our 2020 restructuring programs combined with our continued focus on cost reduction activities.
We were also able to secure engineering recoveries in the second quarter, which we had previously targeted for later in the year, thereby allowing us to substantially de risk the third and fourth quarter recoveries.
Finally, we are well underway with our restructuring initiatives announced earlier this year and we have recorded 37 million of restructuring expenses year to date.
Programs as on average a one year payback period, and it will allow us to reduce salaried headcount by approximately 10% by the end of the year.
Combined all these actions have helped us to not only navigate the global pandemic, but more importantly to position us to emerge stronger when volumes return.
On page 11, we provide our sales and adjusted EBITDA for Q2 2020 versus 2019.
Sales of 371 million in the second quarter decreased 362 million or 48% compared to last year, excluding the impact of currency.
In comparison.
Production volumes at Visteons key customers declined 53% as the spread of Koby 19 significantly disrupted operations throughout the automotive industry during quarter two.
Adjusted EBITDA was negative 3 million, representing a decrease of 49 million versus prior year.
The impact of volume mix and net new business decreased adjusted EBITDA by 127 million, while annual pricing reduced adjusted EBITDA by 8 million.
Pricing represented about 1% of prior year sales and approximately 2% of current year sales levels near the low end of our historical ranch.
Visteons cost performance increased adjusted EBITDA by 85 million close to 50% of our 85 million reported cost reductions were derived from reductions in net engineering.
Gross engineering, excluding exchange declined by approximately 30% year over year of 32 million down to 78 million. This year when engineering recoveries increased approximately 30% year over year or 7 million from 26 million last year to 33 million this year significantly de risking.
As expected recoveries for the full year.
Adjusted EPS DNA was 34 million, an improvement of 15 million compared to prior year excluding currency.
The remaining 31 million of cost savings, including material purchase price reductions value engineering activities manufacturing efficiencies and the non recurrence of 2019 operational challenges excluding the non recurrence of 2019 operational challenges decremental margins were at a low 15% for that.
Quarter illustrating the significant cost reductions implemented during the quarter in all areas of the company.
I'd like to build on sashimi earlier comments and provide some insight into Q3 and the second half of the year as you would expect due to the continued covis 19 pandemic the environment, it's still too uncertain to reinstate guidance for the rest of the year, but we do want to share with you how we're thinking about the second half.
The year.
First we anticipate industry production volumes were significantly recover in Q3 compared to the depressed levels experienced in Q2.
That will remain lower than Q3 2019 levels.
Session mentioned earlier, our discussions with Oems indicate that production at Visteon customers may be down by about 15% year over year for the second half.
Second we anticipate that Visteon will continue outperforming the market driven by favorable industry trends and the high number of product launches.
Third we're now targeting a 20% year over year reduction in net engineering expense for the full year.
Total gross engineering in the second half of the year will look similar to the total amount of gross engineering in the first half of the year.
Although we expect Q3 in Q4 levels to be higher than Q2 as activity levels resumed we expect to see a reduction compared to Q1 driven by both the short term and structural cost measures we are implementing.
Also unlike previous years, we expect recoveries to be at similar levels in both the first and second house as the year.
In total we could we present full year decremental margins of approximately 20%, which is a significant improvement from our original expectations a quarter ago, driven by the quick and aggressive cost actions, we implemented throughout the pandemic.
Page 12 provides an overview of our cash and that position at the end of the quarter as well as our adjusted free cash flow for the first half of the year.
As previously mentioned, we have one of the strongest balance sheets in the industry ending the quarter with nearly the same level of cash and debt.
Net debt to last 12 months of adjusted EBITDA is 0.1 times and provides detail with a significant amount of flexibility as we navigate through the crisis.
First half adjusted free cash flow was negative 66 million, we're presenting a 64 million decrease compared to prior year, mostly driven by the year over year decrease in adjusted EBITDA.
Trade working capital was a source of cash in the first half of the year of 16 million compared to a source of 35 million in the first half of 19.
We closely monitored our receivable balances throughout the quarter and did not see a deterioration in collectability as we finished the quarter.
Our purchasing and supply chain teams have continued to manage to supply chain challenges created by the pandemic, we were able to keep inventory levels flat compared to the end of the year down 10 million compared to the end of Q1.
Capital expenditures decreased by approximately 40% in the quarter compared to last year, representing 8% decrease in the first half for the year compared to prior year. The decrease in Capex is a combination of lower activity levels and strict cost controls.
Turning to page 13.
Visteon continues to be a compelling long term investment opportunity.
As a pure play cockpit electronics company, we are well positioned to adapt quickly to the changing environment, while ensuring our product portfolio is well aligned with the secular trends in the industry.
We continue to lead the cockpit electronics evolution launching several all digital clusters in the quarter as well as our first Android based infotainment solution with several first to market features.
We have made significant progress in building a competitive cost structure and demonstrated our ability throughout the quarter to quickly flex operating costs to align to lower industry activity.
Our strong balance sheet puts us in a great position to emerge stronger once the near term challenges dissipate.
Thank you for your time today I would now like to open the call for your questions.
At this time.
Ask a question. Please press Star then the number one on your telephone keypad again that star ending number one.
We will pause for just the momentum compiled acuity roster.
Your first question if I'm a line of Dan.
Research.
Hey, good morning, Thanks, Thanks for taking my questions.
I just wondering if you could kind of give us a.
A bit more color on how you expect your.
Your organic growth.
In comparison to our Visteons customer volumes.
The trend into the second half and out into 2021.
Good morning, Dan I will take first question first and then can us Jerome to also add more color to it.
So if you look at.
The second quarter, we saw good recovery late in the quarter.
In June.
And as you know in June was down about 20% are in terms of production year over year. As we look ahead to the second half our theres certainly a lot of uncertainty.
And we at this point are a little more conservative than it has in terms of the underlying vehicle production estimates.
Mainly in North America and in China.
For example, I. It just has four of flat I believe.
We are for the third quarter.
And given the number of new launches.
Delivers.
Prudent to be more conservative there also in the fourth quarter.
Look at China.
I chose has SJM in China up 10% Mitch.
We think it's a bit optimistic so if you look at.
The different puts and takes we think the underlying vehicle production is going to be down.
10% year over year.
Now compared to the first off.
I still want to be a pretty good performance in the second half somewhere around 20% to 25% in terms of the vehicle production increase.
And at the same time as we have been doing for the last three four quarters expect our market outperformance to continue into Q3 and Q4 as well.
So, let's see Oh in terms of 2021 right what how the market would look like there is still some more time to get a better feel for that.
But one thing should be clear with new product launches that we.
Anticipate.
In the second half just this year's want to be a pretty good deal for us from a new product launch perspective I.
I would expect that market our performance to continue.
Commenting on the only thing good morning, Dan the only thing I would add is that we're seeing a fairly strong month of July already which is.
Consistent with the exit rate that we had that cannot do and so.
As session was saying.
We are cautiously optimistic for Q3 at least eight.
Great and if I could just follow up it was interesting that you said your product portfolio is now complete what the Android based infotainment.
I believe that's the biggest.
Infotainment is the biggest segment of cockpit electronics from from a Tam perspective can you talk about your current revenue on infotainment and Youre, what what is your ambition in terms of market share in this market over time.
Sure. So if you look at infotainment as a segment in the industry. It clearly is the largest segment is approximately half of the market and then if you look at Visteon revenue profile on half of our revenues come from clusters.
And infotainment is somewhere between 15% to 20% of our revenue. So we have a lot of opportunity for growth. Our current market share is somewhere around 4% of the market and aspirations are good double that and with this new launch and this new technology that we have.
Now released in the market I believe we have a great opportunity to accomplish that in the coming quarters.
Okay. Thanks very much.
Your next question is on the line of kids that stack with RBC.
Good morning, everyone.
So.
Clearly.
So a good cost control.
And the corridor and I appreciate your comments on Incrementals in Decrementals. They go to the back half, but can you maybe a little bit more explicit about maybe.
The temporary savings and the quarter, you know and and how are those come back because clearly some are not sustainable, but but also that the timing of which one maybe they can replace or somewhat more permanent savings or an action to you guys are taking.
Yes, sure. So I would say generally speaking we were.
Very diligent in Q2, two a focus on cost.
And we were as well very early in a in the quarter focusing on that.
Activity.
And it's a it's it's a few things it's a commercial discipline first and I will talk maybe I'll be later about recoveries, but we were able to de risk the rest of the year by accelerating some negotiations with customers and have a set a fairly.
Decent level of recoveries in Q2 higher than what we've seen a in the past on the cost side.
We've got essentially short on actions and long term actions as you said the short on actions were first related to the temporary salary reductions that we announced earlier in the quarter and Reis will go on a into Q3, so you'll have that impact a favorable impact in Q3, but if it will be go.
Going away in Q4, we have also some actions that were essentially just related to volume and activity levels being lower and some of that will come back in Q3 and as well in Q4, what will stink are essentially the restructuring actions that we took again early.
In Q2.
And as I mentioned in my script earlier on we're very well advanced with a lot of our restructuring actions, we expect head count to be reduced by 10% by the of the year so that will be.
In.
Fairly full effect in the second half a year.
We'll have some of that in Q3, and then a pretty significant impact in Q4, so thats, how youre, you'll see in fact.
Our cost benefits rolling into Q3 in Q4, but if you step back and if you look at engineering LSG M&A.
The way we look at it is that Q3, and Q4 will be at similar levels they'll be higher than Q2, because some of the cost will come back, but they'll still be.
Lower than what we've seen in Q1, and adding Q1 in Q2 and Q3 in Q4 H one will be very similar to h. too in terms of cost base SDN and engineering again and that is with a higher volumes assessing said.
We're expecting to have volumes industry volumes, 20% to 25% higher in the second half and we'll be able to maintain a cost base flat.
Hi.
That's great color.
And second question is just Sachin and maybe paying off Dan's question on infotainment.
Specifically within China I saw this suite terrorism.
Another nasrallah Tencent getting involved with automakers are instrumental BMW and I know you have a bunch of initiatives right. What 10 cents can you just remind us of how you fit into the picture there as they seem to be getting more involved in the experience for it and the car or what your contribution and value add as Ted said those types of initiatives.
Absolutely also again, if you look at the market in China on it you have the three large cloud ecosystems, tencent being one of them.
Provide a whole range of services as you know aren't there are driven from the cloud off late some of these ecosystems of Tencent in particular have been coming into automotive and offering those technologies.
For integration into in vehicle systems.
So for US they are a third party supply out of technology like many others are all is still the same role as before we are the tier one responsible or integrating this technology is adding our own IP and then delivering a complete system to the customer so what what specifically in.
The case of Tencent that we are offering in the system that we have mentioned in the past as well includes access to reach at access to their voice recognition to service that has delivered through the cloud.
And then they have a bunch of features or you can think of them as apps that run on the infotainment system that connection to the backend powered by 10 cents deliver a host of different are connected services.
And so what you see in China. Unlike.
They anywhere else in the world, but we expect this to be the longer term trend is that are these services are coming into the vehicle and that is driving the demand for increased horsepower in terms of the computational needs to be able to serve these level off of our features and functions inside the cockpit.
So we are seeing really good.
And for smart core as a underlying technology to our.
Applications from our supplies like Tencent.
So it is your content opportunity different for.
A a systemic that in China that may be providing let's say, an android based system or elsewhere in the world is and let me maybe talk about that a little bit more so think about what you have talked about on the call with respect to the new Android based infotainment launch that's really addressing the more entry independents.
And then what must monthly Paypals right and if you look at the current scared of the industry.
Infotainment systems, our laws they do not offer downloadable apps displays tend to be small seminar eight inches, especially in interest segments.
And so what we have done with that line is really addressing the opportunity in the rest of the word which was frankly behind China when it comes from entertainment.
And you need that census, nipigon opportunity for industrial and Thats outside of China now in China, It's been a different China has already and all that said it very active infotainment.
Activity the loss on a decade, and so laying in the entry within that segment in China does not make no sense for us a lot of supply market is pretty competitive.
What do you see a verity opportunity is to go up the value chain, especially as the local Oems joint ventures or domestic compete but the more our premium brands international brands any optimism that fundings.
Well entrenched offering that for smart or enable them to.
Thank you very much.
Your next question from the line of Mark Delaney with Goldman Sachs.
Hi, good morning, and thanks for taking the questions.
First question is on the engineering recoveries, which I know you came in higher than the company was previously expecting a engine and the work you did there in the quarter. It can help us understand how much was much upside versus your original expectation that the indictments. Paul then for from the second half and.
I think that the French total if my math right to 60 million in the first half and I'd like you guys had to 69 and.
To age maybe here I know, what the 60 million well.
For a second half this year at as I compare to your second question.
Yes, good morning like market. So John so you're right. So far year to date, we've got $60 million and our expectation is to be close to 60 million as well for the second half a year. So thats a very different to compare to what we had last year last year. We had about two third of the recoveries 19 million where in the us.
The second half versus I think 40.
Million in the first out for the year, so I'm very different profile and our focus has been really to even D. The recoveries. This year and we've been very active since the beginning of the year, we were only better already in Q1 versus prior year and confirm that in Q2 as well.
So a pretty pleased with that it really allows us to de risk the rest of the year. It gives us well a no overall EBITDA profile, which is a much more smooth there or at least going forward than normal environment. So that's been really the goal and so far.
Working pretty well.
That's a that's very helpful.
Thank you and my second question was around free cash flow in the second half there and I realize we're going to come up at our on EBITDA assumptions, you get us into that.
Important pieces to think about forecasting EBITDA, but the on an EBITDA, maybe you talk about some of the other puts and takes 10 free cash flow second happening here in terms of.
Capex working cap at all any other chart charges or a challenge there should be thinking about thank you.
Yes, sure we've talked about EBITDA in terms of Capex, we're maintaining our full year, our forecast of $115 million, which is going to be essentially 20 compare to.
But we had last year what it means then for overall adjusted free cash flow from the second half a year is that we will be positive.
We should be very close to breakeven.
Give or take for the full year and that's obviously, excluding restructuring payments, which are not in our adjusted free cash flow so that needs to be taken into account obviously as you look at cash flow.
And we are still maintaining a about a 14 million a payment for restructuring for the full year for this year.
So that should give you as well a a net cash or led that very close to breaking even further.
At least at the objective.
Thank you.
Your next question based on the line of Emmanuel Rosner with Deutsche Bank.
Hi, good morning, everybody.
Funding them annually.
I was hoping you could provide a little more color on your bookings expectation on your business went expectations for the second half.
In the color on the pipeline of Eightnine doing is very helpful. In just remind us in terms of.
Traditional I guess.
Market share that your win rate that you expect to win and related to this I think you you've spoken recently quite a bit but the unfortunate and see from winning business with refreshes.
The automakers to maybe mid cycle, and how they're sort of Jeremy interested and larger displays and some of your other technology. When would you expect to start saying some of that in into the pipeline or into the your business one.
Yeah, very good and so our first of all our our second quarter. We saw very good activity for new business wins are in Asia and China in particular, despite as I mentioned on Europe, and North America, being more or less quiet.
And for the full have are our win rate.
Wasn't the range of 30% to 35% of which is similar to what we have done before so we see really no no difference I.
No between outperformance this year in prior years, there's just at the level of activity has reduced the opportunity pipeline.
Now at the same time, the quality of the Vince what actually very good.
If you look at the second half of the $900 million was actually evenly distributed across smart or large displays and digital clusters.
So some very good Vince.
And so we're really pleased but I'll Javier performed in the first off obviously the number would have been higher if not for the lack of activity that upper dahlman will head to the second half.
We are seeing activity return to all regions.
And as I mentioned, the pipeline looks pretty robust at $8 billion to $9 billion and I do not expect our performance there to be any different from the first off or prior years in terms of dividend rate.
So we do expect to do overall better in the second half compared to the first half.
And as the industry gradually returns back to normal obviously would be.
Going back to our earlier levels of annual new business wins.
In terms of of the second part of the question with respect to have more mid cycle action versus new vehicle models and business wins on those.
Oems in Europe, and North America are still in the middle of or is it the thing that cycle plans.
Our that activity has not concluded as yet in the meantime, the activity is more focused on some of their more active vehicles of the vehicles that they see more activity and more business on and we expect investments in those or vehicle platforms to continue.
We are by the way already on some of the better vehicle platforms that are still even in this environment seeing a good performance. So that gives me a lot of of confidence that as we go forward.
Our product mix is going to be better than it has been in the past and then as the Oems finalize their vehicle cycle plans. We expect one of two things one that there'll be some extension opportunity on the launches that we have recently had as the vehicles that we are on would be.
Seeing some extension of life and we're also seeing other second I'll kind of opportunity there on vehicles. They are not on today.
As a mid cycle action, bringing some of the digital clusters and now this entry infotainment system on Android onto those vehicles more as a mid cycle action of we are starting to see some of those discussions happen now it is still not get.
Up in the level that I would expect but we're starting to see that activity already. So it is all of a optimistic outlook from their perspective for us.
Okay, Great to hear and then my second question I Wonder if you dig a little bit more of a into your customer mix headwinds.
Okay can you just give a little more color around.
What are the primary factors there I think you mentioned in the slide.
So something that.
Our roll off I think there's also the.
Hi, good GM promotion lapping.
I guess at any other ones and these all it all issues or there's some new ones in terms of customer mix and from a timing point of view when can we expect some of these customer mix had with three other again a phased out.
Yes. So the first pointed I would like to make very clear is that all of this issues out of work. We are discussed before so there's nothing new.
So the monster roll off is continuing as we've said that Twentytwenty, we will see the bulk of the roll offs happen and so should be more normal activity going forward after twentytwenty with monster.
One thing that I wanted to clarify also that may not have come across very clearly in the second quarter.
On account of the only one start with some of our Oems, we saw an impact of that on our our revenues, but as we go forward.
The normalized than we do not expect to see that impact.
And with respect to China, which of the other.
Region, where we've had this issue of we have talked about the roll off off the not the roll off I should say, but this increased take rates that we experienced last year, which that program being being stopped by the OEM, we're not seeing.
The benefit of that this year now with SGN. The other issue that we highlighted was that relative to market.
Their production was lower so in that sense. It impacted us. Nonetheless, we are still had a rather than market performance of it in China.
Despite all of these issues.
Thank you very much.
Your next question is from the line of Brian Johnson with Barclays.
Yes, I'm just kind of following up on that is there anyway to kind of quantify especially as you kind of go out second happened. It next year the impact of backlog versus rolling on.
Central risks or opportunities from that.
Versus take rates for more digital cockpit. So in terms of you might be.
I'm seeing greater take rates in mid range tenure, each day, and then offsetting that I guess just last question, but just started or any specific Oems or platforms that when we model production, we ought to keep our eyes on the itself as a significant headwinds.
Yeah, Brian So let me try to address that now if you look at.
The product mix and take rates. If you go back last couple of years.
We have had.
Those product roll all impact us negatively and there was largely on account of the mix that we had was not favorable in some self sourced trends.
As you look at US today, our product portfolio with digital clusters displays is very well aligned with the trends that we see in the industry and so we are seeing the positive contribution of the trends in terms of the revenue.
Now.
It would be too early to quantify that and provide you some specific details but in terms of the the way to think about how this should benefit us the new product launches that you have discussed this year right clearly are going to be a big factor in our better than market performance.
Texture onwards.
And so if you look at what those products look like all the 60 that we are are launching this year up more than half our digital clusters.
And we are seeing digital clusters come down into mass market vehicles like the examples that we gave on the presentation Nissan role, which is a compact as who we now comes with the 12 inch cluster in some of the trends. So we expect to see more pressure competitively on other Oems.
I want to drive that kind of.
A nicks and so if you look at the Oems and you know.
Lets out are you can see how all this is going to play out over the next few years in terms of the headwinds I'm. The only one that I would watch are all going forward here that that something that we need to still understand better would be nissan on their troubles have been.
Quite public and we need to understand the impact of whatever their plans are on our revenues at this still out at large customer office jointly.
Okay and just following up on the take rate as you put together your revenue bookings forecast what kind of take rates are you assuming when you do get a platform for digital cluster and have you been able to track the assumptions.
That you put in versus the actual take rates and yes.
Well I'm fishing for is there opportunity that there could be upside on the has this trend towards mid and low range take rates improve sets on.
Leading model not just the platinum model so far.
Yes, Brian so at the current.
Assumptions of the making are based on exactly what the OEM, so giving us as the volume for the award we are not making any assumptions on top of that as to what the take rates are so for most of our products. The option is not determined by the end consumer it's actually determined by the OEM in terms of which trims would.
Okay that particular product, so it's pretty well well understood, but then at least planning time as to what the level of volume would be having said that we've had discussions now that the some of them have come back to us and I have asked for increased volume both in Europe, North America of digital.
As they see that are the take rates of that particular trim are increasing and they want to bring that into lower trends. It's too early to give you much more insight at this point in time in terms of the actual impact of that but without a doubt.
That is a clear up positive trend in terms of into stake there. So digital products that should be a tailwind for our revenues going forward.
Okay. Thank you.
Your next question is on the line of Steven Fox Fox Advisors.
Thanks, Good morning, a couple of questions. If I could first of all I'm in terms of your discussions with your customers. You mentioned the 21, new programs ramping how did that number compared versus your original thinking pre cobot, how many have been sort of pushed out next year or may be delayed indefinitely.
And then secondly, just in terms of how the industry could shift away from maybe some new models towards higher take rates on your technology mid cycle up upgrade what would what sort of your lead times be for seeing that Hum order come back to your production and shipping if we can get a feel for that thank you.
Sure. So when we started at the beginning of the your we had about 65 programs that Relaunching, our and all those 60 will actually make the cut this year some of that were in already in the fourth quarter all being pushed out.
To our next year. So are we have not seen a significant delay on account of the OEM shifting their plans whatever has happened has happened largely within the year. So most of the launches were a back end loaded and that's what we are seeing this year as well.
So the way I would characterize that as we've seen in your delays on account of all of the covert related restrictions that have caused people to reap plan. Some of the activities. We have not seen any significant push out into the next year, the four or five that I mentioned, which were earlier schedule for the fourth quarter on now.
Now into next year.
In terms of the second part of your question, we are starting to see some of the more short short cycling or no. Shortly I think but in fact collection I should say impact are already in our discussions with Oems one of the interesting points that I can share with you at all.
The 1.7 and business wins that we've had in the first half majority more than 80% of that is actually launching.
Under two years.
So typically what that tells you is that is launching on existing vehicles, because it takes them longer than one and a half years to our design and build a all new vehicle. So we are starting to see that and and I would like to see there's no more time before we can call that a.
A significant trend, but it's good to see that our products. The digital products are the ones that people want to see on even existing Naples, and that's the trend that we've been talking about us being favorable to two visteon. So that I expect to continue into second half.
Other says it's too early to call that out any more than what I've shared with you today.
Great. That's very helpful. Thank you.
And this concludes our earnings call for the second quarter of 2020. Thank you for participating on today's call on your ongoing interest understand if you have any follow up questions. Please contact me directly thank you.
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This concludes Visteon second quarter 2020, <unk> earnings call you may now disconnect.
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