Q3 2020 Veoneer Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and one go to treat Twentytwenty here.
Oh, I didn't listen on them old enough that the speaker person. They show they will be a question around just shoot.
Good question alluded. This session you wouldn't need to press star one on your Stephanie Hello.
Now I'd like to have the conference over to your Speaker today Thomas Jonsson. Please go ahead.
Thank you very much Roberto and welcome everybody to our third quarter Twentytwenty earnings conference call and webcast presentation.
Here is how can we have our chairman President and Chief Executive Officer, John called <unk>, Chief Financial Officer month by month and myself.
From communications and IR.
During the call today, you want me to comment on our current business highlights and talk little bit about launches technologies as well then.
And Mark will walk you through the financial results efficiency programs and provide some commentary on our updated outlook for the remainder of the year Twentytwenty.
After this we will remain on the line for acuity section.
As usual the slides and earnings release are available through a link on the homepage of our corporate website.
If we look to the next page we.
We have the safe Harbor statement, which is an integrated part of this presentation and include the Q and a follow up here today.
During the presentation, we will reference some non us GAAP measures, where the reconciliations of these speakers are disclosed in the quarterly press release, and the 10-Q that will be filed with the SEC.
This call is intended to conclude as for PMC.
So I ask everybody to please limit yourself to a maximum of two questions. So we can get as many request and as possible.
Short time, we have with that I will turn it over to our CEO. The young calls on so John please take over the quarter. Thank you very much trauma and also have warm welcome to this morning's call. It from my side, Yeah, now look alone to our business highlights on that third quarter by turning the page.
Yes, we are all aware the macro environment remains very challenging and uncertain.
Despite the volatility we have experienced between the second and third quarter. We continued to gain strong momentum with our execution on new technology and customer program launches and our M&A program there.
The EMEAI program has been an important contributor to improving our operating and cash flow performance year over year, thereby helping to mitigate the effect created by cold at 19.
We are especially pleased with our strong cash flow performance for the quarter, where our cash balance remains relatively unchanged at $846 million from the previous quarter, mainly due to our continued focus on working capital and Capex.
We announced with Qualcomm or intent to collaborate on Ada collaborative and ATP solutions powered by Veneers next generation perception and driving policy software stack and the Qualcomm Snapdragon ride scalable EPS, we'll see an accelerators.
In addition, we completed the divestiture of the Bbs us operations to setup.
And considering the current market conditions, we continue to see sourcing delays of business. However, our order intake remains ahead of our prior year's levels at approximately 600 million over the last 12 months.
Thank corrupting sign as we see a robust pipeline of opportunities, which align with our product portfolio Roadmaps as we head into the fourth quarter and 2021.
We also expect to return to organic growth during the fourth quarter and accelerate that into Twentytwenty walk.
I would like to extend my sincere thanks to the entire be on your team for their continued resilience and strong performance.
The team has focused on our execution and launching new technologies and customer programs without compromising quality and our first priority is the health and safety of our associates.
Now looking onto the next page.
As we have mentioned earlier 2020 at the beginning of an unprecedented launch period that will continue over the next several quarters.
The launch as highlighted on this slide not only illustrate our strong active safety portfolio of agenda for mono and stereo vision camera 77, gigahertz radar and Adas Heath use but also our highly regarded perception and driving policy software stack.
Over the next several quarters. This software stack will be launched across multiple new customer models.
And on October 5th the Mercy. This jie Li was recognized with the highest rating of nine competitors. According to the new Euro and kept Twentytwenty AB test rating system.
And we are proud to be the main active safety tier one on this important vehicle, which includes our stereo vision camera radar or eight RCC, you and perception software.
These are all important proof points that we have the right product portfolio and technology roadmaps to create long term.
Shareholder value.
If we now turn the page.
We have updated our top 50, new program customer launches for Twentytwenty, two reflected recent divestiture of VBS U.S. business.
In addition, we now include a first look on the first quarter over Twentytwenty one this.
This illustrates a continuous pipeline of new program launches for our active safety portfolio building a strong base already established this year.
During the third quarter, the customer launch delays seems to have stabilized with no new substantial changes to our previous communication.
In aggregate the top 15, Twentytwenty vehicle models and platform launches represent approximately 300 million of average annual sales with an average content per vehicle of approximately $165.
Now excluding brake systems.
The content range. So the top 15 in Twentytwenty remains unchanged in a range from approximately $30 per vehicle to more than $800 per vehicle.
And as we mentioned previously these launches are expected to contribute to a return to organic growth during the fourth quarter.
Looking now on the recent strategic announcement on the next page.
On August 27th we signed a nonbinding letter of intent with Qualcomm to jointly deliver on next generation Adas collaborative and autonomous driving platform.
This platform will range from level, one to level four systems uniquely designed to create an open platform for tier one suppliers and automakers. This.
The scope of the agreement is intended for both companies to collaborate and jointly deliver a full software stack and SSP platform for next generation Adas collaborative and autonomous driving and this joint solution built on view near software stack for perception and driving policy and the next year.
Duration, Qualcomm Snapdragon right automotive scale about portfolio all the system on a ship has so see and accelerators.
This platform will be marketed and sold two automotive manufacturers and tier one suppliers and we are targeting customer launches during 2020 four.
We continue to make good progress with finalizing that definitive agreements and aim to have the transactions signed during the fourth quarter. This year and so far have had good feedback from a handful of OEM customers and a handful of potential tier one customers.
Now looking on the next page on the current market situation.
The light vehicle production rebound or more than 60% during the third quarter sequentially from the previous quarter is unprecedented even if.
Even if we look back to the financial crisis 2008, nine timeframe. The eventual recovery took many quarters over several years and was aided by the support of numerous incentive programs the shell.
The challenge in front of US today is managing the uncertainty in demand as it is becoming increasingly difficult to predict underlying consumer demand, especially given the fact that a substantial portion of the third quarter rebound was replenish depleted inventories.
This is shown in the current low light vehicle production forecast, which is approximately 8% higher than the IRS forecast 990 days ago and for the time period of course quarter three 2020 two quarter, one 2020 one.
Looking ahead as illustrated on the short this strong recovery is expected to continue into the fourth quarter, improving approximately 10% sequentially from the third quarter.
I will now turn over the presentation to mats backman or CFO for a review of the financials and outlook for the remainder of the year. Please go ahead. Thanks.
Thanks are you all looking now for our financial results for the third quarter on the next slide.
Console during the show sequential rebound in activity from the second quarter. We are pleased to have managed to financial results during the quarter appointing adverse cash flow effects and premium costs.
Net sales for the third quarter or 371 million were slightly better than our internal expectations. However, we estimate the negative impact resulting from the call. It 19 pandemic was approximately 30 million on our organic sales for the quarter.
Our ongoing market adjustments in each of his continued to show an improvement in our underlying cost structure, which resulted in an operating loss of 103 million essentially in line with our internal expectations.
Our strong cash position of 846 million at the end of the quarter remains relatively unchanged from the previous quarter due to our positive 6 million of cash flow before financing activities, which was driven by exceptional working capital performance during that during the third quarter.
Despite the call it 19 impact on our industry. Our company continues to be in the middle of a tremendous investment to support the ramp up of future sales calls, which is supported by our strong order book.
In this environment, we continue to look for ways to reduce and even post poll, our capital expenditures without compromising talents or future launches.
During the third quarter capital expenditures was $19 million or 40 million lower as compared to last year.
So overall, we are pleased with the progress were making on the cost structure and balance sheet as we continue preparations for upcoming upcoming launch period.
Looking forward into the details for the quarter on the next slide.
Our sales for the third quarter declined 91 million as compared to the same quarter last year, which includes the 77 million related to the MBS Asia divestiture.
The organic sales decline of 27 million or 7% was mainly due to a 9% decline in active safety, which to a high expense was driven by the wind down of the mono vision business with BMW, while at 5% or sales decline was essentially in line with the LDP decline of 4%.
These sales effects were partially offset by a positive net currency translation impact of 3% or 30 and Amelia.
The gross profit decline of 19 million for the quarter versus prior year was mostly due to the brake systems divestiture effect on 11 million.
Along with volume and product mix impact caused by the organic sales decline diesel.
These were partially offset by a positive net currency effect of 3 million.
All the new left or 124 million decreased by 20 million during the quarter compared to $2019 due to lower gross cost and higher engineering reimbursements. The net benefit from the brake systems divestiture and additional annuity cost was 7 million combined.
In addition on EPS DNA improved 2 million year over year.
Also the benefit in other income of 10 million due to the IPO recovery, mostly offset the lower gross profit year over year in the quarter loss.
Lastly, our positive $1 million of operating cash flow for the third quarter was 62 million better than last year, mainly due to positive timing effects in networking working capital all of which 50 million is expected to reverse during the next quarter.
Looking now for sequential performance on the next slide.
Net sales of 371 million more more than doubled from the 184 million as compared to the second quarter, primarily due to the sharp rebound from the depressed LDP levels in Europe, and North America due to the cold with 19 pandemic.
The sequential organic sales increase of 181 million included 85 million in Rcs and 87 million in active safety there.
The reminder of the increase was related to the legacy on the brake system business of 8 million.
The gross profit sequential increase of 51 million was mostly due to the high LDP, along with some product and customer mix impact on organic sales.
The audience in that sequential increase of 80 million was mainly due to $80 million at above normal engineering reimbursements in the second quarter, which was cost recoveries for application development incurred in prior quarters in years, we had multiple customers.
Our operating cash flow 1 million positive increased by 108 million sequentially. This.
This increase was mainly due to the 106 million an improvement of networking capital from the previous quarter of which 30 million will see that the fight in the second quarter as a timing effect.
Additional 50 million of the increase is expected to reverse during the fourth quarter this year as.
As long as Cliff mentioned earlier capital expenditure continues to run at low lower levels without compromising customer launches.
Looking now to our market adjustments initiatives on the next slide.
As we have mentioned earlier the results of our market adjustments in each I think continue to have a significant positive impact on our financial results, thereby mitigating the negative financial effects on the call. It 19 pandemic for the quarter and full year look.
Looking now to our plant the plant the outlook on the next slide.
We continue to take significant actions to adapt to the evolving macro environment and mitigate the effects of our operating loss and cash flow.
Outlook for the fourth quarter or 20 plant is primarily based or a customer call offs, which remained relatively strong as compared to the third quarter and in some geographies or increasing.
For the fourth quarter, we expect to return to organic sales growth and consequently outperformed the global SVP during the second half of 2000 and plant.
Primarily due to our new customer programs launches.
Currency net is now expected to be a slight tailwind or 1% on our full year Twentytwenty sales development.
Due to our well established markets adjustments in each of the programs. We are holding our own original 20 plant the outlook for an operating loss improvement versus two.
2019, and on a comparable basis.
In addition, we still expect to reduce all the Mets by more than 100 million and Twentytwenty from 29 teams on a comparable basis and expect capex to be less than 125 million in 2020.
Due to our strong third quarter, we now expect our cash flow before financing activities to be better than negative 170 million for the second half Atlanta plant there. So.
So overall, a continued positive outlook, especially in the unprecedented NBP situation I'm very mixed and uncertain macro environments I will now turn the call back over to you all.
Thank you Mark.
With that outlook, we conclude.
Formal comments for today and turned the page.
I will now leave the call back to Roberto and open up for Q2.
Two please go ahead.
Yes, gentlemen, so.
Hi, Matt.
If you wish to ask a question. Please press star one.
We have the first question from the line of Dan Levy from Credit Suisse.
Please go ahead your line is open.
Hi.
Good good afternoon, and thank you.
Wanted to first start with a question on the Hardy.
Our DNA.
You highlighted.
Some extra engineering reimbursements and I think this just continues what we saw in seeking out obviously that very large property and not the same magnitude, but just give us a sense of the potential for further recoveries are you having more conversations with customers to recover some of these prior cost outlays and then.
Specific to Fourq you I know Fourq is typically a good quarter for recoveries.
What should we expect is there another large would probably to expecting for Q.
This is mark I mean from a seasonality point of view the fourth quarter is always the strongest when it comes to that.
Are there any with the.
As part of the growth of the engineering reimbursements coming in the fourth quarter at what we have seen this year in terms of the high reimbursement in the second quarter that was more kind of a discrete.
Items, but.
But that is not affecting the fact that we have the seasonality into the fourth quarter. So so we are expecting to see higher.
Ending and reimbursements also this year in the in the fourth quarter.
Okay, great. Thank you.
No. The second question about Youre about the.
About the order book and the launches and what that implies for the outgrowth similar we've seen obviously a positive inflection in end market estimates.
And I guess I'm wondering what the implications are for your your launch cadence and I realize it's probably a little too early for questions on 2021, but assuming the end markets are in line with the expectation you've seen from some third party forecasters like Hi, Josh I mean, what is a reasonable expectation for the types of how.
Is that your order book might might deliver and how long does it take before we get to call. It you know.
Full run rate of all the revenue from that order book hitting is that more of a 2022 effects. There just trying to get a sense of.
How positive the impact is of the the end markets are probably on the order.
Order book and what that such rockets.
Based on the existing a cadence that we see on the planning for that you also alluded to on this page where we extended the.
The launches into Q1 that we will see an acceleration from Q4 into Q1 already so.
We we anticipate to return to growth.
Q4, but that from there to accelerate into Q1.
And more granular information, we will be back to you with the in the beginning of next year.
Okay, and then just any sense on when we start to see the full run rate of all that work or is it something that just accelerates into 2022.
You know how to think of the the rough directional shape of it.
Directionally, we can't say that its accelerating into Twentytwenty, one and during 2000 people on that let us come back to talk about the future then escalate to say, it's just a little bit too early to see US all of course also depending on how the LTPS developing and the macro situation.
The macro situation is developing but we see from the order book and the platforms that we have lined up for launches that it will accelerate into 21 and during 2012.
Okay, great. Thank you.
Thank you for your question. The next question came from the line of David Kelley from Jefferies.
Please go ahead your line is open.
Hi, good good morning, or good afternoon. Thanks for taking my question.
I guess a question first on 2020 launches and looking at slide five I think you noted the top 15 launches you're expecting 165 dollar content per vehicle.
Yes, that's down from I think you had previously noted $270 CPB expectation, so it sounds like you're saying pushouts skewed towards higher.
For its higher content so just.
Just curious how we should think about implications for 2021.
Are we going to see outsized launches our premium content next year, and maybe what that could mean for our growth.
Well as you can see also in Twentytwenty. One Q1, we have now illustrated here. The first quarter you can see that you have a significant content on many of these cars you can see that there was or the average vehicle volumes here are are significant with over 200000 units.
The year end several cases so.
We see that this will continue in the same shape at least in the beginning of the year as we have.
Twentytwenty yeah.
When we go further down the road, let us come back as I said on the previous casting a question to discuss more in detail when we come back in 21.
Yeah. The difference of course here between the previous 270 isn't it. The updated he won 65 is that brake systems is out now so that itself.
That is of course are causing the big difference.
Okay got it. Thank you and then maybe just one more.
You referenced the BMW mono impact can you just update us on kind of where we are in that wind down process. What we go forward.
It is a longer tail than what we originally expected, but it's a very very thin right now and getting thinner, but detailed will continue to be there for life, but its a very small.
Okay perfect. Thank you.
Thank you for your question. The next question came from the line. Okay go ahead.
<unk>.
Please go ahead your line is open.
Thank you first.
First question is on order intake I guess, it was pretty low activity in in Q3.
I, you said something about a robust pipeline there will opportunities, but what's the outlook here for the.
Fourth quarter, and then could you put a you previously had an ambition on full year orders at 600 million, a rolling 12 month basis, where would you hope.
Hope to see that end up on on a full year basis.
And then the second question is on costs going into Q4 is there a lot of discretionary spending coming back here towards year end that perhaps a bit more activity based and also what's the number if any in terms of government subsidies supporting Q3 earnings.
Okay.
I can start with order intake, we see a robust pipeline and we see that activities have been lower already.
Our estimate internally as being that maybe it has been there between 30 and 40% lower than what we have expected it to be prior to the COVID-19 due to that effect and that is not only for view near that is what we believe.
I believe it is the industry activity so its from in light of that or order intake in the quarter of a around.
Around a 100 million and an LTM of around 600 million, we think it okay and the pipeline that we have now is several awards coming up but you know how it is it's very hard to say, whether it's going to fall on this side of new year or be pushed over I think that the patents on the appetite.
On the OEM side, but there is then build up over more activities here also very encouraging which is not order, but it is initial discussions to point out there is there.
They're very immediate interest from other tier ones and also automakers Oems on their cooperation with Qualcomm as we mentioned here in the formal comments, we have entertained a handful discussions with Oems and another handful of discussions with tier ones and so that is.
We're also building up here for US and then we said in the call earlier here back.
Earlier here back in August that we would hope at that time to have an order within 12 months on the or Qualcomm Portware Corporation. So we're optimistic about that looking forward to it the Anda also stronger activity more in general.
In terms of the other question related to cost first of all when it comes to the government support that is about $4 million in the quarter.
All in all.
Looking at I mean more forward looking at the on the cost side and in terms of it.
Discretionary costs.
I cannot foresee.
Any kind of that increase is coming through that of course, I mean, what we have in in terms of savings if I would say sustainable on on that side.
On top of that if you're looking at even though their core with 19 and the younger activities has been at a somewhat lower.
Somewhat lower out there.
Internally and be on here looking at the third quarter with all the activities going on in terms of the structure transactions. We have had a lot of things the activity in the company have been rather high in the in the quarter.
Thank you.
Thank you for your question. The next question came from the line of.
Rosemarie from Deutsche Bank. Please go ahead your line is open.
Yes. Thank you very much I apologies, if I missed it before but from you. Please go back over some of the drivers so what.
What seems to be some pretty widespread delays in launching what's really happening in sort of I'm struck by the fact that I think we sort of like started the year with the expectation for seven to eight points of growth. So both markets. Then obviously you know call. It happened and I think second half was going to be sure.
Market conditions for the quarter was quite a bit below and I, even for the fourth quarter. It doesn't seem like a very strong growth in both markets. So I guess again and I do apologize if I missed it but what what are these delays based on.
Well first of all I think we see no more delay I think it's very important to point out that.
What you're pointing to here is it more of historical situation, where some of the launches was pushed out from the second to third quarter and some others from third to fourth et cetera, but the current plan seems to be robust that seems to stay there.
And of course, there was a lot of the things if we want to go back and dig into that what's causing it COVID-19 is one thing. The fact that people working from home. The fact that people cannot perform tests and a lot of all the things in a very volatile situation that is causing delays due to happen.
But as I said that it seems to be over now and we are on that plan going forward that it seems to be robust.
Okay, I mean, but to be clear in default in the fourth quarter Darling netting.
Delays at least compared to your previous expectation correct.
Well there are there are some of the launches coming from third quarter into the fourth quarter, but there are no further delays right. Now there is no delay said that is happening right now.
Okay and then.
And then the.
The Qualcomm agreements.
How should we think about it in terms of impact on your R&D.
R&D budgets going forward I realize that it should reflect more mid term dynamic.
I mean to the extent that you put together in a teenage towards this but are you planning in the hiring for this is there sort of like higher spending they can this be done within sort of your existing framework.
A lot of the job that was planned to be done.
Yeah, it's already accounted for in the in the plastic we had before announcing the Qualcomm things. So the activity is now done together with Qualcomm in the collaboration so a mid term short mid term here, we should not see any deviations from previous assumption to make.
Based on the collaboration with Qualcomm.
And later on in the outer years, we'll have to come back its all depending on also how successful we will be with the orders et cetera that I talked about before but no big changes or no changes to previous plans.
Okay. Thank you.
Thank you.
Thank you for your question.
The next question came from the line, though he time be Kelly from Sidoti.
Great. Thank you good afternoon.
Got to go back to the order intake you talked about the overall level of activity to be but I was curious if you can.
If you can comment on your win rates and how that progressed in the third quarter relative to your internal expectations.
I think we have here at the win rate in this distressed environment that we could anticipate I think as we commented here the overall.
Situation has been affecting.
The order activity and.
Based on what we were targeting more or less the expected what true to come but we expect it to to see happening. It has been a little bit fluid because some orders have been up for discussion than being delayed et cetera over the last couple of quarters due to the overall situation.
Great and then just to just secondly, let's go back to the 2022 revenue target I think from earlier in the year. After a lot of changes, our VP and FX, but if we just kind of isolate the order intake the backlog component of that.
Also in relation to your original I think the billion dollar goal how do we think about that that component in terms of 2022 definitely you can kind of make up potentially in the coming quarters or at this point should we think about some degree of of a shortfall there.
Well when it comes to the 2022 situation and the.
The information we have had over the quarter 22, there is so many things right now that.
I would not comment on the 2022.
Targets that we have set out because a lot of things have happened and being affected the overall situation due to the corporate Knights and it will come back and speak about that at a at a later stage.
Okay, great. Thank you.
Thanks.
I think what is important to point out here to your point is that.
Regarding the launches and the delays there it is.
And outperformance as we said in the in quarter four.
Quarter, four and that is of course that given the fact that we are returning to growth and.
Expecting to return to growth in the fourth quarter.
Absolutely. Thanks.
Yes.
Thank you for your question. The next question came from the line of retail healthcare from Morningstar.
Go ahead your line is open.
Thank you good afternoon, everyone. Thanks for taking my questions.
Wanted to ask a little bit about the.
The order activity.
Yeah.
H.A.D. areas because hordes third earlier this year.
They still plan on a level four vehicle being launched in 2022 G. M is no lobbying for a vehicle along with cruise.
With no steering wheel and no pedals.
To come out so I'm wondering you know that's the.
Activity, a little bit better in that.
And that the markets are than what you might the previously expected and the launches maybe coming.
Coming a little sooner than what you thought.
I wouldn't say so I would say is the is ER.
As expected or.
Around that.
What we have seen before I wouldn't see that there is an acceleration in it.
Yeah, there is discussions around the level for cars and.
The question is when will it really materialize in some volumes that so obvious that we will see.
Cars with level for capability calm and the question is how many and what areas et cetera.
The technology is evolving and the architecture.
Architecture, where the central computer is supporting that future.
Feature level and of course that is what we are preparing for also in our corporation with Qualcomm.
But I wouldn't say that that is accelerated or.
Brought.
Into an earlier launch I cannot say that.
Okay.
Then with respect to.
Vehicle Digitization and this you know.
So everything over the next three to five years.
You know.
What's it look like in terms of recurring revenue streams for software update in your your revenue base as we grow over time.
Are we talking about something long the lines that maybe 1% of revenue or 10% of revenue.
How substantial that those revenue streams actually become overtime.
Well I think that will accelerate over time and if you look to the core corporation here with Qualcomm, we are expecting that to launch in Twentytwenty. Four so yeah I think over time this will be a part of the revenue stream and over the air update when that capability is expanded of course we.
We'll see that also coming our way and the yeah that will.
That will that will also comment that quote as a part of the collaboration but.
And you know for that for the time being I think now we are very much attacking the the growing that rapid growing market on l. to plough seem to level three and that market is really a a a substantial.
Substantial market for us to to increase our activity and then the that is where we are focusing that is the collaboration with the Qualcomm, where we're focusing to start with and from there. We are planning for expansion at some point into a more normal level four type of active.
But over the air capability will be a driver strong driver for updated software and updated features.
Okay. Thank you very much.
Thank you for your question. The next question came from the line no Brian Johnson for Barclays.
Go ahead. Thank you.
Thank you just wanted to dive in a little bit to the Qualcomm collaboration agreement I guess, what element that's difficult to get our heads around is.
How the JV would address how their tier one suppliers can you. So can you give a sense of kind of.
What you'd be pitching the other tier one providers what it would mean in terms of obvious.
Obviously, if you're showing Qualcomm chips, they make money, but what's in it for the near to work with other tier ones.
Four per unit area, it's a it's a great business and a new market to address by selling our complete perception stack and drive policies stack through the Qualcomm marketing channel.
Disagreement that caught up duration builds upon that Qualcomm will have the go to market responsibility for the combo the combination of the stack and the Src.
Qualcomm will then be able to address other integrators other tier one yeah.
And beyond a year through Qualcomm, then we'll sell our software stack to a market that we are near has not addressed before.
Beyond the year, we'll continue to address its market as the tier one and of course, then Ed work.
Work as we have in the past addressing directly to the Oems the integration of the.
The ambition and stack and ask to see but also other products directly to the Oems, but yet there.
The thing here is that we will together with Qualcomm develop co develop our software and there will also of course develop their silicon to fit with the requirement that this market will address.
And thereby also having a very competitive product and we believe looking into the performance of their silicon that it hasn't it.
Has an advantage from a.
Powerpoint point of view from a scalability point of view from a capability point of view when we think this will be a very competitive the combination at that customer.
That customers would be interested in looking at.
And I just drilling down on the tier ones again, so one year at a time when I looked at the pipeline talks about in the past is fairly defined set of tier ones medical news the mobilized vision platform and so starting point, who seem to have I would assume that means that showing up with CJ.
And then their own cuts that Adas software, so with Qualcomm be taking that the tier ones, who may not be active an active safety or are there unique things in your stack that maybe you can sell directly to a competitor, but qualcomm can.
Well I guess the thing is Qualcomm has an extensive contacts and an extensive network through its telematics activities in vehicle infotainment activities. So they have a substantial.
Contact surface to the automotive industry today, they are not active in the area of aid us and there by taking this step they can use their existing network to also brought in there.
Product portfolio into aid us and enthuse.
Air by also laboratory 11 for.
Yeah, they will be the party that will address the other tier ones and we will sell our software through Qualcomm and did that with a part of their product offering.
Okay, and then final question in terms of happy.
In terms of having a system on a chip.
You talked about launches in 2024, but is there a chip design and as you know having.
Having followed mobilized they had a team who worked with their fab to take the algorithms and Bruce on the check what's the timetable for that kind of work.
Well actually we've had this is ready to start production in that 24, and there is a family and under its way and that is now in discussions with video near how to really optimize that family and to tailor make that to get the best out of it for my performance standpoint.
From a power consumption standpoint.
At two to fit their requirement to bring to market a state of the art products and the state of the art combination.
I think also here from a market perspective, or just the fact that we have I would say all ready in weeks. After the announcement. It was down in late August August 27th already being able to have the initial discussions with a handful of Oems and a handful of tier ones.
Really points to that having a challenger in this market.
It's warranted by many players and here comes the Qualcomm Munir at say, yeah, as a real challenge or two what's there already today and to bring all sorry high performing product into the into the market.
Okay. Thank you.
Thank you for your question. The next question came from the line of Peter Testa from one investments. Please go ahead. Your line is open.
Hi, Thank you to please one is just trying to get a sense on how we perceive some of the financial metrics as we go now into the ramp up of the of the new new models on the revenue coming with that one.
One just when we try to look at the gross margin, which you know it's it's slow at 14.6 or some fixed costs in there, but when you think about the active safety win can you give us a sense as to how we should think about gross margins.
Now, they're going to have multiple model launches and associated with that also when you look at operating working capital. It's about 140 million at the moment about 38% of sales is this representative of the working capital requirement tissue grow.
If we start with the working capital question I mean, as you're seeing in terms of the working capital in relation to sales. If you look at the third quarter.
That's a negative minus seven.
Minus 117 million and when Youre getting into a growth phase I mean that is not sustainable and if you're looking at the historical numbers as well.
You are all there on on that slightly positive you, maybe want to 2% or something like that if you're looking at the kind of that more of a long term.
Development of the working capital, but saying that what we also need to remember is that we have improved our kind of underlying processes and if you're looking at the different key ratios in terms of working capital.
So the Io d. pills, and so forth so in terms of inventory days.
Receivable days or payable days, we are on a very good day.
Hi, good level right now that we will continue to have that in terms of efficiencies.
You can not to kind of assume this level of negative working capital in the long term.
Looking at the development or therefore, their gross profit and.
A more kind of operational performance, yeah, if I mean, when you all in that in that launch phase that we are right now with that with that I would say huge now.
The huge number of big launches you will have volatility between core test when it comes to it.
The gross profit driven by additional launch costs and lower volumes initially and I think we will see that coming quarters as well done.
In terms of maybe limited leverage depending on where we are in terms of the launches, but looking at mid to long term. We are expecting you have kind of leverage on the on the volumes that are coming through now, but the full impact will not be there until we have had the ramp up of the of the volumes. So it will be a big volatility if you're just looking over.
Our all in to have some kind of a baseline if you're looking at the operational leverage EPS sequentially from the second quarter and for the third quarter I think we had some 30 plus.
30% in terms of the of leverage.
Oh, the leverage on the on the growth in between quarters, just to give a kind of a sense of the of the performance right now.
Sorry, just to clarify on the working capital was looking receivables plus inventory minus accounts payable superior way to say the operating working capital, which is a positive number is that sort of ratio something that's representative or not.
No I mean into into I mean, if you put it putting it in relation to sales I think it's better than the average that you can see going forward.
Okay.
And then the other question was just looking at the slide five with the top 50 model. So just wanted to clarify you.
You mentioned that the top 15 models represent when fully ramped about 300 million of sales is that right and I know those models are represented on this slide or how which which models or are they also representing other models to be launched in 21 no.
No. These are the ones that are representing an average annual sales of 300 million.
Okay, then what we see on the screen. Okay. All right. Thank you thanks very much. Thanks.
Thank you.
Thank you for your question. The next question came from I know Keith Goodman from Dnb markets.
Go ahead.
Thank you very much so if we go back.
Go back a bit on an order before a covert.
Orders for Continental was in the range of 600 million. So so so can you just elaborate a bit on the what what's driving.
Driving the Realex, there's already a hub of covert if Oems are increasingly taking a break from this or I'm I'm, giving the quoting activity that you alluded to earlier order. So orders left to reinforce the sustained high medium term growth as well for for veneer. So 2020 four and beyond if we don't include the Qualcomm them.
But we are talking about here is not including the Qualcomm deal. So the Qualcomm deal is coming on top of it and we're seeing increased activity is here and talking about the higher movement from Oems that is excluding the Qualcomm the coal can be lower in an initial discussions here, we haven't yet signed a definitive agreement with Qualcomm.
We expect to do that here during the fourth quarter.
So these are and this is an increased activity that we see and we take that as a sign of that Oems or.
Moving more efforts into the future orders here.
Corbett.
Alright, Thank you all and perhaps a follow up on the tourism and now that we have been a couple of quarters inter covert months and uncertainty there have been some Oems have disorder autonomous driving partnership.
If we assume down into it does this in any way sort of benefiting your afford some are you seeing any trends here, where Oems increasingly yeah stopped doing it in house and into the outsource it.
I think if we see a lot of transceiver C. diff.
Different type of partnerships and collaborations and our collaboration with Qualcomm is another thing you see some Oems with capabilities that may do more in house. So I see I think you'll see a variety of activities going on but.
Many of the activities, our focus toward scalable architecture, central compute and driving preparations for L. Two Clos, but.
But our some may be having in mind, the higher level of autonomy and down the road or a penny.
Our opinion is that it will take time, and we'll have to see an architecture to mature and being proven and tested before you a switch on and May.
More at boss software stacks and there is different the advanced features to enabling a level four or level at the level of autonomy into it.
Very clear thank you very much.
Thank you.
Thank you for you.
The next question came from the line of brutal Ash from Wolfe Research. Please go ahead, let me say thank you just as a follow up on Qualcomm I just was hoping you can just confirm.
Confirm or clarify you are saying that there are other ad.
Active safety suppliers that do not have their own perception software that could use yours and.
And if that's correct I presume that these are adjacent hardware companies that are interested in becoming more full stack a eight EPS suppliers is that my my hearing you correctly.
No. What we're saying is that there are other tier ones that can use the combination of a qualcomm SSC and our hardware stack. So.
You could have other tier one being an integrator of the combination of a Qualcomm says to see an hour or dry policy and perception stack and that is.
That is Dan handle through Qualcomm at the marketing channels to market channel.
Okay.
So they they would they would they would use your your hardware and then certain parts of your software along with the [noise].
You know along with that that chip Oh, no. It would be it would be the Qualcomm chip the Qualcomm EPS will see US yes without hardware and then of course, they would that they do what they do with the integration of it were using their own hardware yes.
Okay.
And then secondly, but yes, we are R&D head count is down pretty meaningfully versus this time last year. It was over 5000 people now it's a little bit over 4000.
For 4400.
Should we think about the personnel or the your head count having to increase as you launch more business in 2021 or 2022.
Okay, Okay, and that you may be able to mitigate that through other measures like more low cost countries and can you give us an update on how you're thinking about the level of revenue just based on your current cost structure and level of revenue.
That would support that breakeven EBIT.
We are we are you seeing a partnerships and a lot of the things that you see here is that we have for instance, annotation et cetera use through partnerships. We have used also partners for other type of at work like basic et cetera in there our company we are focused.
Being a lot of our activities on the core business and that is why you can see a headcount reduction we.
Depending on the order intake and the level of order intake. We believe that we are finding a good number of headcounts here right now we will do more in terms of the.
Of course efficiency gains through our market adjustments initiatives on the R&D side, yeah, but.
But not in a substantial way.
I also think you need to remember when it comes to the application engineering, we have had I mean looking at the kind of launches on the launch we are going through right now that will naturally kind of ramp down when it comes to application engineering. So you need to remember that one as well.
We might have people ready to take on board.
New business, new activities or when the all current programs here or going into production.
Okay. That's helpful and any thoughts on just the the targeted level of revenue that would be required.
To achieve breakeven even.
No. We haven't discussed that you know that there is a lot of things happening in the industry and with US at the time for the time being we are doing a lot of activities here, we are significantly improving our cost structure. Our activities. There are processes inside munir, yeah, So let us come back.
So that one at a later stage.
All right. Thank you.
Just mentioned that we have about four minutes left so one or potentially the two questions more.
Thank you.
Thank you for your question the next call.
They should came from the line will help boost and again Lou from Handelsbanken.
Go ahead your line.
Thank you very much I live in one after one question you know at the time.
I would be interested to hear a little bit if you could spend some discipline the Qualcomm chip.
If you would kind of diversify your product offers which means that you might sound just objects identification software on the ship on them do it.
Solution and if that is the case also will that mean that you would stop developing your own industries that you are correct.
So trying to it too.
Hi, there. Thank you no we would not stop the Ada. This year, we will continue to use that as a vehicle for the vehicle integration for the integration job of course, but you would be able to then sell a separate feature that has.
That has not been not been discussed in depth with Qualcomm how they feature selling we as you know we are selling features and so part of the software for almost annuity or sold separately as a feature we have talked about that at the earnings release them.
We are seeing that to be an auction and to be continued yeah, but the main focus right now is to develop the stack the complete stack and integrate that into.
The Qualcomm has to see of course.
But they are the ones that are definitely continue.
Thank you.
Thank you for your question next.
Question came from the line no clear Mckinley from heat and cool. Please go ahead. Your line is open.
Hi, Thanks, so much gentlemen.
A quick one you mentioned from the implied guidance is that Q4 would be a better than a revenue quarter on maybe I missed it in the prepared comments did you say anything whether we eat.
He just lost within will improve sequentially on the on the better revenue.
No yeah, I mean, we have that full year kind of outlook when it comes to the.
Improved.
Operating income.
Year over year on a like for like basis, so that smoke to have in terms of the outlook in in Arabic add but again from a seasonality point of view. If you are looking at the beach.
Turning around that and the development over quarters.
Traditionally the fourth quarter, EPS or west a stronger quarter supported by Hi, Angie.
Engineering income or reimbursement so all the engineering took to customers and we cannot see any kind of different for a normal seasonality this year.
Okay, Great and then just a follow onto what Rod asked I mean, if you don't want to give maybe up a hard number about breakeven.
Breakeven.
Could you just at least discuss when you may have positive incremental margins and what what potential range that maybe as we think about at least 21, you should have some visibility and active safety is gonna grow again.
Okay.
It's somewhat premature to start giving that kind of that for anyone that outlook. When it comes to development, but I mean naturally workforce, we need that's the volume and the leverage on the volumes yeah.
But we will come back EPS as you wish.
Usual way to kind of a full year 21 outlook when we release, the fourth quarter down, but I would hesitate to give any anything now.
Okay No no arrangement at least incremental margin would be would be would be positive on on positive telco.
Yeah, I mean, you should expect that kind of leverage when we see the volumes ramping up yes.
Okay. Thank you.
And of course, as we alluded to on this page in our prepared.
Prepared remarks here, we have a two quarters ahead of US all the 10 major launches coming out we are returning to growth here now in view of the year during fourth fourth quarter EPS. We expect and then we said that this is accelerating into a pig 2020 one and you are.
For the year.
So of course that will give a positive contribution we expect that to give a positive contribution to it so clearly.
All right. So we are actually slightly past at four o'clock area around our time as a run up so we are.
We are ready to conclude the call.
The call back to you on for any final comments.
Thank you Tomas I am I would like to thank everybody for your participation and your questions and we are hearing be unit or committed to continue to develop the company to drive EPS.
Both their technology their collaboration with Qualcomm at two am to drive our launches to drive our execution in that or market adjustment initiatives to further improve our performance and but we also look forward to talk to you about that and also what more color on Twentytwenty one.
At our fourth quarter earnings release that is now tentatively plan to be at February 3rd.
The next year, So February 30, sort tentative planning for the fourth quarter earnings release.
Of course, we'll meet many of you also in virtual the investor events during the quarter and before that so.
Until then I hope you stay safe a you have a relaxing upcoming holiday season and a first.
First and foremost prioritize or health and stay safe. Thank you.
Thank you very much for now and goodbye.
That concludes the conference.
Today. Thank you for participating you mail disconnect.
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