Q1 2021 Veoneer Inc Earnings Call
[music].
Hello, and welcome to the DNA of Q1, 2021.
Throughout the call all participants will be in listen only mode. So there's no need to be try and individual lines and also would still be a question and answer session. I'll now hand, the flow to Thomas Jonsson. Please begin your weekend.
Thank you very much Mark and welcome everybody to our first quarter 2021 earnings conference call and webcast presentation.
So can we have our chairman president and CEO Jan Carlson, our new Chief Financial Officer Ray per car and myself, Thomas Jonsson Communications and IR.
During today's call Jan will comment on our current business highlights and provide an update on our launches and technology.
And then Ray will walk you through our financial results and provide some commentary on the 2021 outlook and then we'll remain on the line for Q&A session.
And as usual the slides and earnings release are available through a link on the homepage of our corporate website. So moving to the next page we have the safe Harbor statement, which is an integrated part of this presentation.
And the Q&A that follows here today.
During the presentation, we will reference some non U S. GAAP measures and the reconciliations of these figures are disclosed in our quarterly press release, and the 10-K that we'd be probably.
Yes.
This call is intended to conclude at three PM CET. So please limit yourself to two questions that way, we can work as many questions as possible.
With that I'll turn it over to our Chief Executive Officer, Jan Carlson Jan please thank.
Thank you Tomas.
When it comes to all of you from my side as well.
Now turning to page.
On this page we have the business highlights for the first quarter.
We continue to monetize the COVID-19 pandemic very closely with our first priority the health and safety of our associates, thereby reinforcing the message that we put in place at the beginning of the pandemic.
We are adapting to the current situation.
At the beginning of the quarter, we took a cautious view on light vehicle production based on our customer call offs, which overall proved to be Directionally correct.
Well I think global light vehicle production growth.
Essentially in line with IHS forecast at the beginning of the quarter the regional mix shifted significantly.
And I will elaborate.
Further on the geographic mix shift on the next slide.
Our strong 17% organic sales growth for the first quarter outperformed the global light vehicle production by four percentage points.
Based on our full year outlook, we expect our organic sales growth to accelerate in <unk>.
Anticipate an outperformance versus light vehicle production in the mid teens in percentage terms for 2021.
Semiconductor supply constraints continue to create the labor and cost challenges for our industry. This together with our continued build up for growth at temporary costs to our operations, which we were able to offset by efficiencies from our market adjustment initiative program.
Through these cost and cash control initiatives, we ended the quarter with extraordinary cash balance of $645 million.
Additionally, during the quarter, we added a new global joint venture customer in China, which includes our fourth generation motivation perception software and also radar.
This is an important step as China over the coming years is expected to be a growth engine for the active safety market.
So overall.
First full quarter for year on year, despite the continued underlying market uncertainties and volatility.
Now looking more into the light vehicle production development on the next slide.
As mentioned, our cautious view towards the light vehicle production heading into the quarter proved to be right.
The global LBP decreased with approximately.
0.5 percentage points from the IHS Markit January forecast and decreased sequentially by approximately <unk>.
<unk> 14 per cent from the fourth quarter.
However, the overall light vehicle production growth overshadows, the significant shift in the regional mix.
As compared to IHS expectations from the beginning of the quarter. The light vehicle production in North America, and Europe, which makes up more than 75% of unit sales were down close to 14 and 3% respectively.
While China, which makes up 28% of the global LBP.
Only 13% of unit sales was up 11%.
This geographic mix shift had temporary adverse effect on our organic sales growth and gross margin during the first quarter.
For real near all content per vehicle in Europe, and North America is approximately four times higher as compared to China and for active safety. It can be up to 10 times higher.
We expect this mix effect will improve in the future as our active safety organic sales growth accelerates.
Looking ahead into the second quarter. The light vehicle production is expected to decline sequentially by approximately two percentage points from Q1, which reflects a 60% year over year increase.
For the full year 2021, an increase of approximately 12% from 2020 as expected.
Reaching around 80 million vehicles produced compared to 72 million vehicles produced in 2020.
Volatility uncertainty is likely to remain high as semiconductor shortages are expected to continue at least through the second quarter and lingering into the second half of 2021.
Turning the page.
Just like 'twenty 'twenty 2021 is a very important launch here for beyond a year.
The launch that's reflected on this slide reflect.
$300 million of annual sales.
And this comes after 2020, when new launches also represented around $300 million of annual sales.
Executing well on these two years, it's key for us to achieve the mid term target of the two and a half billion dollar in sales.
In 2023, and I'm pleased to say that we are well on track.
During the first quarter, we saw virtually no slippage of launches despite the challenging industry environment.
And according to our non scheduled we will at the end of this year to have launched eight vehicle platforms from six different Oems with our fourth generation vision, including our in house developed perception algorithms.
We are making good progress as highlighted.
Looking on debt next page.
We have over the last few months seen strong customer and technology progress for beyond a year.
In March Polestar, two which.
The current generation of arrival software became the number one car in Europe cap safety tests.
This is an important proof point that we are on track to create a leading global challenger for Adas software.
Our collaboration with Qualcomm is progressing very well and the river all recently launched Adas and a soft per unit is well on track with the first functions running on the Qualcomm Snapdragon platform and we have so far had discussions with eighth tier ones and around.
20, Oh, yes.
Mercedes EQ dry pilot system contains veneers fourth generation stereo vision camera system comprised by fully integrated hardware and perception software to master the challenges all the highly automated driving.
The system also contains to be honest advanced 77 gigahertz radar operating at the distance up 250 meters.
With high range solution and Supreme angular accuracy.
So all in all solid progress we are ready to take on advanced active safety systems and integration programs.
Two areas that are key to Oems and will drive the market for many years.
So I stop here for my formal presentation and turn it over now to Ray for the financial highlights. Please.
Thank you Jan looking notes of the financial highlights on the next slide.
We are pleased with our continued strong organic sales growth of 17% during the first quarter, which represents a growth over market of approximately four percentage points.
Net sales for the quarter of $419 million were in line with our internal expectations at the beginning of the quarter.
The strong sales performance and our ongoing M. AI program resulted in an operating loss of $104 million, which includes extra costs of approximately $5 million related to supply chain disruptions and a currency headwind of approximately $7 million.
Our strong cash position of $645 million at the end of the quarter was essentially in line with our expectations at the beginning of the quarter due to our continued strong cash flow focus.
Also in this fast changing environment, we continue to identify opportunities to reduce our investments for growth without compromising future launches as illustrated by the 15 million capital expenditure reduction year over year, and our engineering cost control.
So overall solid performance during the first quarter as we prepare for continued organic sales growth.
And make strategic investments for the future.
Looking further into the first quarter details on the next slide.
Our sales increase of $57 million for the quarter was mainly due to the organic sales growth of $59 million as compared to the prior year.
The organic sales increase was across all major product areas, where rcs organic growth was $19 million or 11% active safety organic growth was $29 million or 18% and the organic growth for the other break ecu's was $13 million.
In addition, the net currency translation impact of $22 million, essentially offset the <unk> Asia divestiture impact of $24 million.
Our gross profit improvement from the organic sales growth and net currency effect for the quarter were somewhat mitigated by supply chain disruptions of approximately $5 million and a step up in production overhead of approximately $10 million, which supports the buildup of our strong organic sales growth.
Hardly any debt of $117 million decreased by $14 million during the quarter due to lower gross costs and the brake systems divestiture benefit of $15 million, which were partially offset by the additional costs related to annuity of approximately $13 million.
In addition, the SG&A improvement year over year of $5 million more than offset the restructuring costs of $2 million during the quarter.
Lastly, our operating cash flow of negative $110 million for the quarter was $101 million lower than last year or the year over year EBITDA improvement was more than offset by the change in net working capital.
Looking now to our sequential performance on the next slide.
Sequentially, our net sales decreased $36 million or 10% as compared to the fourth quarter last year, primarily due to the decline in the underlying <unk> BP, which declined sequentially by 14%.
Our sequential organic sales decline of $43 million or 9%, including $34 million in Rcs and $10 million and active safety was partially offset by negative currency effects from approximately $7 million.
Sequentially. The operating loss increase was mainly due to organic sales decline impact on gross profit some extra costs related to the supply chain disruptions.
The seasonality impact of <unk> and net currency effects.
And lastly, our operating cash flow decreased sequentially by $33 million, primarily due to the lower EBITDA and net working capital increase which was mostly due to the capital gains tax payment of approximately $20 million.
Looking now to our outlook on the next slide.
Our outlook for 2021 remains unchanged from the beginning of the year. Our full year 2021 indication is for net sales to increase by more than 30% as compared to 2020, where we expect organic sales growth to exceed 25% along with a currency translation tailwind of approximately 3%.
Net.
We also expect organic sales growth for 2021 will outperform the underlying <unk> in the mid teens in percentage terms.
As a result of our market adjustment initiatives program and strong organic sales growth, we expect our <unk> net in the range of $110 million to $120 million per quarter. During 2021, and our operating loss is expected to improve in 2021 as compared to 2020, despite certain headwinds.
Capital expenditures remain to be expected around $100 million in 2021, and we estimate our cash balance to be more than 400 million at year end 2021.
Lastly for 2021, we expect our operating loss and cash flow performance to improve sequentially during the year.
We expect our operating leverage on our organic sales growth will improve during the second half of 2021.
So overall.
Continued positive momentum in our outlook, especially in this very mixed and uncertain macro environment.
Now I'll turn the call back over to you.
Thank you Ray turning the page.
This concludes our formal comments for today's earnings call, but before we open up for Q&A I would like to extend a sincere. Thank you to the entire <unk> team for their dedication and strong execution.
With a continued sharp focus on health and safety quality and value creation.
The team remains focused on launching new technologies and customer programs during very difficult conditions, continuing in the first quarter of this year.
And by that I would like to turn it over to the operator Mark to moderate our Q&A session. Mark. Please go ahead. Thank.
If you wish to ask a question please don't see room.
Telephone keypad smelter Q once your names and you can ask a question.
So to your question is all set before you speak Cuban dull silver suits Council.
Our first question comes from the line of pumps in the low of Handelsbanken. Please go ahead you are monetizing.
Thank you very much two questions from me.
My first question is relating to the quarter.
<unk>.
And then lastly.
Vehicle production being changed.
Being changed.
I have picked up from some sub suppliers. Some Oems have chosen to take delivery from suppliers and sub suppliers, even though they have taken stopped weeks because day.
Sandy on benign them on them they fear having shortages.
Components for the remainder of the years My question do you guys use net.
Some of your customers taking delivery from U despite stopping production on tobacco some shortages.
Second question is related to arrive there maybe interesting press releases.
Davidson.
Maybe talk a little bit about where you are in terms of.
And actually having this.
The products now and have started to test their river.
Software in the Snapdragon shaped and industrial sales have you seen.
And our new Oems that are customers to Qualcomm that haven't been customers to the EMEA price deck.
Okay.
I can take the first question, we have seen some rare occasions. So all of our customers taking product and we have seen that our customers are parking our cars not being completely finished so that has happened I cannot quantify anything of it but we have seen that happening during the quarter.
When it comes to a river we are in the process as I mentioned, we have debt.
Software running on the Snapdragon chip, we are expecting to post this in vehicles to be able to demonstrate during this quarter.
We expect to do demonstrations to customers during the quarter and thereafter to evolve.
Further into customer engagement and customer activities throughout the second half of the year.
I also mentioned here in the format.
Tax tier debt, we have an interaction with approximately ballpark 20 Oems and.
Around.
Eight tier one.
And that is a discussion that is not only one year, having bad debt is qualcomm being involved and Qualcomm having that discussion. So among those 'twenty. We haven't yes, there or are we average that we don't have as customers directly today that are involved in it.
Yeah. So that is as much as I can say about it but there is a strong customer interest based on debt, we have only been able to demonstrate this more.
Visually rather debt practically in cars from customers that day. They are of course, you get to see it.
Reality.
Thank you very much.
Thank you. Your next question comes from the line of.
Manuel.
Please go ahead your line.
Yes, thank you very much.
Could you give us a sense of how much impact do you expect.
Semi shortages of supply chain issues to have over the rest of the year should things improve in the second and third quarter versus what you've seen in the first or will the second quarter is still be a large headwind.
Yeah, I think when we look into the to the second quarter here, we expect the semi issue to continue somewhat I think at the end of the day.
The releases continue to be quite volatile and changing quite frequently as we saw during the first quarter here. So we certainly I wouldnt say that we expect it to get worse during the second quarter, but we expect it to continue.
Into the second quarter, and I think it remains to be seen now.
How quickly this couldnt recover during during the second half of the year.
Generally speaking other key Oems tend to be a little bit more optimistic on the recovery, but as we know.
The numbers are changing quite dramatically here, so continue into the second quarter and it's still uncertain how much it will recover during the second half.
Okay, and then second question.
So your order intake tuchus debt.
I guess the last 12 months order intake took a step down.
The first quarter.
But you also indicated solid confidence and essentially being able to grow it over the full year.
Can you tell us what what are you seeing debt.
This confidence.
The timing I guess of some of these orders.
I think we commented on that already after our fourth quarter earnings release that the order intake will be backend loaded in 2021.
The leads and the prospects that we are targeting here and the progress we are targeting at the RF queues have such an award patents that it will fall into the second half.
Any major substance you were seeing this are somewhat lower.
12 month order intake now for first quarter and as I said.
Second half, we expect this to come back.
Some of it here in first quarter might have been slightly lower than we anticipated in the beginning of the quarter.
But that is due to the ship shortages some of their boards have been slightly.
Likely pushed out and to raise point to go to your first question here about how long debt will remain we don't know yet, but it may be even at somewhat lower than we expected at the beginning of the year, but we.
We don't see debt, we have had any any losses that we haven't.
Accounted for here during the quarter.
So this is more or less in line fully with what we expected at the beginning of the year structurally on debt to be backend loaded like this.
Okay. Thank you very much.
Our next question comes from the line.
Smith Bank of America. Please go ahead your box items.
Good morning, everyone and thanks for taking my questions.
First question in terms of the outperformance versus global light vehicle production, what factors, specifically would you point to as driving an acceleration in growth above market from what was 4% in the first quarter to something that we would estimate in the double digit range in the back half of the year, if we're going to get to that mid teens target that you provided for the <unk>.
And is it a function of normalization in Nexsan revenue contribution cost region or is it more so a function of product launches just trying to figure out what's in your control versus not.
Yes.
Yes, I would say, it's more of a normalization of the mix during the second half of the year in particular I would say.
You know as we as we indicated here in the first quarter all of the organic or all of the LDP growth came from China.
And with our sales less than 15% of our sales being in China, and the <unk> being lower in China as well that clearly has a negative impact on the mix for via near so but based on the outlook, we expect that to two shifts and to change during the second half of the year in particular in EBIT.
Perhaps even somewhat during the second quarter here as well.
Great. That's very helpful. And then a second question longer term around driver as you think about trying to sell more software into Oems on a direct level is there anything in the <unk> agreement that precludes you from selling software onto assets other than qualcomm's Snapdragon and apologies. If this is kind of a <unk>.
<unk> question, but is your software development agnostic to ASO fees or is it designed in any specific way force snapdragon.
We are developing this in a collaboration with Qualcomm and we would focus to work with Qualcomm here. So it's a little bit of a mute question for the time being we're starting off this collaboration and working very hard to make our software run on the Snapdragon platform I'm, focusing all our efforts and get that out there.
Ronnie.
We are doing that.
Because we think this is a very very competitive offer it's a very compelling financially cost twice the performance wise.
Scale wise offer in this industry and that gives superior value to customers. So that's why we're focusing on Qualcomm.
Perfect. Thank you very much for taking the questions.
Thank you next question comes from the law of.
Cooler of Seb. Please go ahead your line of sight.
Yeah. Thank you I have two questions. The first one coming back to what you said on the river those discussions with day to Oems and 'twenty Tijuana, what what's the feedback so far I mean, what do they say.
If we go with you it's going to be for this and that recent.
What are your percentage that they feel is unique and attractive.
And then the second question.
On on leverage.
Yes, the 2023 ambitions, you've put out those quarter reflect around 30% incremental margins through that period, which was where they were in Q1 Q2, I assume we'll see a big step back because of the R&D development, there last year, meaning debt to be at that debt, but for the full year, we should see incremental well above.
In the second half is that.
Right way of thinking.
Maybe I'll take the latter question first on the leverage and can take the question regarding the leverage I think coming back to what we said on the yearend earnings call back in February we talked about.
Operating leverage at the gross margin line of call. It around 20%, we still hold to that now when you look at what happens here in the first quarter. We had two headwinds right you've got the $5 million related to the supply chain disruptions.
Addition to that during the first quarter when youre comparing year over year, we have a step up in production overhead also.
$10 million, so that Oh.
Those two things is what really holds back the leverage here in the first quarter, but we expect that to improve sequentially throughout the year. So I think if we end the year closer to the 20% number then would indicate maybe the second half of the year it could be a little bit above the 20%.
If I continue with the unique selling points on the driver side.
I think what is compelling to customers here at least in open type of architecture that allows additional functionality coming from the Oems seem to debt into the system. It is day scalable yeah.
<unk> architecture, covering yet entry level up to.
A high level.
He is a high performing.
The low power consumption and.
Hi performance rates in the system that is compelling.
And also.
Cost wise.
Very competitive offered debt is interesting for customers I think also customers have seen that worked with Qualcomm on other areas seemed a car in connectivity and infotainment areas et cetera have been used to work with Qualcomm.
In other functionality you're thinking now.
See that also being extended into Adas, which is another thing that is giving customers an interest in this combination so.
Several areas of interest.
Its now very very wanted by many of the Oems to see this in car in reality, that's a net.
It's Ted.
Thanks, and then.
Just one follow up if I may on the order intake.
Even.
Slow development early in the year and then you say, it's gonna be backend loaded.
On your expectations are there are very few very big orders, that's going to be super important for you to wind or can you lose a couple and you still end up.
Getting a high number for the full year.
Our riskiest tender backlog.
It's not like you need all and everyone. But these orders that we are targeting here are substantial orders and day are important for us and they.
They are coming to the schedule in second half of the year. So that is.
Portal piece of all of us as always when we have taken orders also in our history.
But if you look to the radar area. So I think we have a quite a.
Thank you.
Lead base in the radar area on the Rcs area as well and I think also here when it comes to division really twofold. If you look through the vision system is somewhat in the generation.
Many customers are interested in our next generation and our fifth generation camera together with Qualcomm.
And that is probably looking for startup production, maybe 'twenty four 'twenty five timeframe.
And then when you look to the fourth generation day. So also there an interest in more of a predominantly coming also from Europe and the regulatory environment. The general safety regulations debt is gonna be mandatory.
Camera technologies for autonomous emergency braking et cetera here by the 'twenty 'twenty two 'twenty three time frame. So there is an interest and there is more of the normal type of business that we are looking for an existing generation. So that is on the patient side. So we are targeting all of these.
Of course debt.
The 50 and narration the bigger they want us debt or looking for Qualcomm situation or by nature.
Bigger and a bigger awards and important awards for us for several aspects.
Thank you.
Our next question comes from the line of James Pickerel Keybanc capital markets. Please go ahead feel along aside from.
Hey, guys.
It looks like the chip shortage or your supply chain disruption impact was $5 million in the quarter.
Just how should we be thinking about how that plays out in the second quarter.
Under the year it sounds as though from the press release commentary.
Company's baking in.
Strong near full recovery recovery related to the semiconductor situation in the back half can you just.
To elaborate on what that assumes relative to IHS as a preferred cash for the back half. Thanks.
Yes, I think when.
More or less for the second half of.
This year, we are assuming the IHS forecast and then for the current quarter.
Where we indicate that we will outperform the light vehicle production both year over year and sequentially, that's more geared towards our call offs. So certainly I think to the extent that IHS is looking for.
L B P to recover during the second half of the year, we certainly have that factored into our outlook as well.
I think what we should keep in mind is that when you look at the <unk> in the third quarter, it's essentially flattish from.
The second quarter.
So then you have a step up coming in the fourth quarter, which is very similar to I guess, what we saw last year, where we had a record L. V. P. During the during the fourth quarter here. So from a cost perspective, we have factored in that we would anticipate some additional costs also related to supply chain.
In particular during the second quarter I would say.
Okay got it and then.
Within the companies.
Trailing 12 month order intake of $400 million can you just share what the breakout is between active safety and restrict controls.
Yeah, I think if you look at the trailing 12.
It's somewhere between 75% to 280% would be the active safety and.
And then the remainder would be the restraint controls, which is a little bit higher than the mix of the order book I think when you look at the order book talk more like two thirds of the order book is in the active safety vs restraint controls.
Got it and if I could just ask a housekeeping item what was the 7 million equity income day and in the quarter just curious thanks.
Yeah that was related to the investment that we have an auto tech.
So that was just a bookkeeping issue whereby we had to.
Record a gain on the on.
The market value of that investment.
Non cash.
Thanks.
Thank you. Our next question comes from the line of Brian Johnson Barclays. Please go ahead your modified.
Good afternoon over there.
Noticed on the launch the Jeep Grand Cherokee includes night vision I guess, both the tactical question and then a more strategic what is that just on the upper trim levels I know they have a very upright trim level per that and then second kind of what does that say about the acceptance of Matt night vision.
The luxury market and third mid term with increased concern about pedestrian nighttime pedestrian safety, especially in Europe.
Do you see a route for end cap may be dumped mandating night vision, but making the standards for day time pedestrian detection chop it up that night vision comes much more into the picture.
Well I guess first of all the thermal fencing night vision has to call. It here, it's a superior sensor when it comes to putting additional information to a typical normal vision cameras or radars.
Has a very long distance to the object.
It is using a different technology as you all know and so I think that has a good future for higher level of autonomy.
And we.
We see there is an increase the interest this has been around for.
For 10 to 15 years, and we have sold this product for a number of years, but it has always been on the niche level.
But there is a somewhat increased interest now from the industry coming from the point that you were mentioning here in towards the higher level of autonomy. If you look to it.
<unk> share of key here that it's on the upper trim level, so to your to your point yeah. So.
It's not value standard in the in the vehicles, but we are seeing as I mentioned several Oems are showing interest in this and also more directed car companies, having an interest in more for global cap solutions attached to our support equating to vehicles with this so.
To be seen where it's going.
We keep developing it and we keep putting debt.
And also as a dedicated product area in our organization.
To take care of debt interest.
Thanks Tommy.
Okay, and just as a follow up infrared also used for driver monitoring is that something youre looking at as well.
So far it has predominantly been a radar.
But also a vision.
The vehicle.
It could of course be done with the.
Third about something as well.
So right now I think the cost efficiency of the other technologies has been superior.
Okay. Thanks.
Our next question comes from the line of NASCAR for Atlanta.
Please go ahead your line is open.
Thank you. So first I would like to ask you about 5 million costs related to the supply chain can you explain what is it four in detail is it because of the higher price of my.
Curt shapes or is it because of the more expensive price and also do you see a chance to.
Yes. This is kind of book to.
Inflation back through price increases to your customers. Thanks.
Yes.
Related to the $5 million, that's mostly related to the premium freight so that would be predominantly on inbound but it could also be some outbound premium freight there.
As you can imagine we have ongoing discussions with both suppliers and our customers. When it comes to this book to make any commitments on how that will end up being resolved.
It's too early to make any prediction on that but we continue to work with both the supply base.
Customers.
Great. Thank you and then can you give us some color on the 10.
$10 million higher production overhead cost what youre doing there and also should we expect this higher cost level to continue in the coming quarters and might be in connection with Tiger plenty for anymore kind of a cost savings program or is it more from holding right now when do you need to ramp up productions debt.
Thanks.
Yes, when we talk about the production overhead. This is kind of a step up to a new production overhead level cost too to support the growth that we have coming on here. During 2021. So we wouldn't expect us to continue to increase sequentially in any material way.
Throughout the year of course, there could be some further step up towards the end of the year preparing into 2022, but for the time being we stick with what we have.
The two main contributors to that.
To that cost increase is really related to your indirect labor personnel costs as well as the.
Depreciation for the for the equipment those are the two main drivers I would say of that.
Of that cost increase.
Thank you.
Thank you.
Question comes from the line of Dan Levy of Credit Suisse. Please go ahead from a modest size.
Hi.
Good afternoon, Thanks for taking the questions first just wanted to.
Follow up on the gross margin in the quarter. So appreciate.
The commentary on the on the premium freight.
Some of the overhead, but maybe you could talk about you did have obviously some business launching and you have additional business launching over the course of the year.
What type of incremental margin or contribution margin you've got.
On the launches in <unk> and maybe what you anticipate over the course of the year.
What that says about the broader gross margin outlook.
Well I think you could do the backwards math.
The contribution or the leverage I guess net leverage was.
Call it around 10% or so maybe even.
Slightly below that but when you when you take into consideration the overhead of 10.
$10 million on overhead that I mentioned as well as the $5 million.
Supply chain, you're talking about leverage of well above 20 per cent.
So again.
Contribution is there on the new business.
That's clear, it's just a matter of navigating through some of these extra costs that we're incurring for the time being and as I mentioned earlier, we expect the leverage on gross margin to be in the ballpark of 20 per cent for the year. So that's kind of how we're looking at things evolving and.
We will come back at a future time as to.
When we could expect that to be higher than that but we stick to the 20 per cent for now.
And just.
On that the margin on a program over its lifetime.
Maybe you could give us a sense directionally.
When you launch it sounds like your contribution margins are okay, but.
How does that margin.
Change your own core very over over the lifetime of the program.
Yeah, I don't think we should get into the details of how these things will evolve I think a program by program I think at the end of the day.
As we mentioned here.
This growth comes on you do have to bear.
<unk> steps you you make a step up in your your fixed costs are your overhead cost to support that growth.
The growth doesn't come for free. Unfortunately, so there is some some costs that you have to continue to layer in.
Uh huh.
But beyond that I think that.
We're not going to get into program by program I'll contribution goals.
Okay, Great and then my second question is.
Just a couple of weeks ago, we saw a headline involved though I think they are expanding their collaboration with Nvidia and you're taking up more compute. So I recognize there is multiple ways you can work with a given customer, but maybe you could provide some color on.
How does this at all impact your future.
Collaboration with wall, but maybe you could just talk more broadly also about weather.
Automakers are taking a more active role in forming their active safety functionality versus relying on suppliers. So what does that headline have implied for you and just more broadly.
The relationship is going with customers.
Customers as customers are trying to take home from the their own functionality.
Our Baltimore Youre correct, the Baltimore has.
<unk> gone out and said, they're going to do with their neck architecture based on Nvidia chip.
Chip in and in video architecture overall.
And.
Long term it remains to be seen how that is affecting us.
Short mid term we are just starting.
Starting to rollout.
Our existing architecture on the Volvo cars, and so we will have a longer lasting relationship with Volvo and we have had a long lasting relationship with Volvo.
Historically, if we will have that for years to come so.
I think that it remains to be seen on how it is playing out when we have our Qualcomm architecture up for demonstration and when that is all we can put into cars.
That is received also by Volvo and we will of course show them, what we can offer and there as well.
And we haven't had discussions, but we will have more discussions when it's up and running and vehicles.
Yeah, I think generally speaking carmakers are.
And taking more.
Active role into how the architecture is being <unk>.
And you can read and debt federal carmakers are hiring their own software engineers to do a lot more work in house.
But that is not valid for all carmakers are some carmakers are still relying.
More on to Oems and door ecosystems on Tijuana ecosystems of tier one and.
And I think that will be the case going forward.
As I said, we had 20 different discussions Qualcomm and the river ongoing on our alternative on our architecture on debt.
We will then be able to maybe from a year on year. It could be an integrator of that to work do more of the work or in some cases, the Oems will do more of the work that is going to be different from OEM to OEM.
Yeah.
Great. Thank you.
Thank you.
Next question comes from the line of.
Monday.
Please go ahead your line is.
Thanks, very much attune wholesale from JP Morgan.
Just a few items. Please the first one.
Can you talk a little bit about the.
The regional mix of geographical mix.
Seeing signs of improvement.
So April may.
Our ability to me so have you seen signs of improvement.
Europe, and North America picking up speed and also can you speak a little bit about Rcs.
Do you see any specific region that can drive the growth.
In the coming quarters second question I guess for Ray.
About you know.
The seasonality of the business over the coming over the coming quarters do you think.
The losses have peaked in the first quarter.
How we should be thinking about it from a.
A budget perspective.
And again.
Can you talk a little bit more about a river and <unk>.
Moving on the timing like in these higher SKU process and discussions with the Oems, we months away quarters away or Youre away from from some orders and then if I think about.
The complete system.
Qualcomm has some very good relations with our suppliers.
Non suppliers and as I think about the overall us hardware and sensor suite.
Do you think you could consider maybe a situation where you could change the structure of arrival to bringing new suppliers to create a much more rounded product.
Or is this something that you would not consider a.
So I think she can eat for the company.
That doesn't have any questions may introduce.
Maybe I'll take the the Rcs question and the question.
Question about the law, so I think when we look at the Rcs development.
Throughout the year.
We've given you some ideas on how the active safety will develop growth twice. So you can kind of back into the Rcs, but we we do expect the rcs too to grow above market throughout the year. So in percentage terms were not.
We haven't disclosed that information, but we certainly expect it to continue to grow.
Grow above market.
That's coming from all geographies, it's not just coming from any one particular geography I would say.
Regarding the operating loss I think I'd go back to the comment that I made in the prepared remarks.
Two we expect a sequential improvement throughout the year, both in cash flow performance as well as the operating loss performance.
So I guess, if that does that mean that the peak would be in the loss would be in Q1, I guess, you could imply that but we haven't come out and specifically said that at this point.
If we look into the mix if you look through the IHS numbers.
Here's debt for second quarter compared to what we thought in January of what say per day.
Projected in January.
China is somewhat down.
And of course debt are compared to a chip shortages and compare to us that they were earlier.
Through the pandemic situation and they have a different situation there.
We expect that make situations depending on the availability of ships are to continue to be.
You know down even though its recovery year over year due to very easy comparable from last year, but do you expect to ship shortages to have an effect for us in the second.
Second quarter event them to abate.
To the second half of the year.
So we believe this will correct itself and that's why we also.
Those on the launches that we're seeing in all the new products, we're bringing into the market.
We are reiterating our guidance.
For the year.
When it comes to our drivers and when it comes to tweaking the arrival collaboration and seeking other opportunities. So I think I mentioned that earlier, our focus is now to work with Qualcomm harmful focus is to make.
Make the demonstrations.
Up and running in due to the vehicles.
And then to take that are good.
Start that we have with the all the discussions on different.
Oems 20 are we out of a sudden day here one.
And to bring that into orders.
You asked if we are aiming to.
When we would get to results coming out of the way.
We are still positive and optimistic that we will see awards during 2021.
So we are holding on to that.
And then we will see how much and how that would play out but optimistic to take awards. This year.
Excellent. Thank you very much.
Thank you. Our next question comes from the line of Jason Kenney.
Jefferies. Please go ahead your line is open.
Hi, good afternoon, and thanks for taking my questions you've referenced the fourth generation system win in <unk>.
China I was just hoping you could provide a bit more detail on that opportunity.
Rolling that platform and then maybe how we should think about potential timing of that rollout.
Yeah.
If we're looking on the new orders. We believe that is that is a first order or something that can grow and that we should expect to see further follow on orders to this one.
As we said in the prepared remarks, it's a global joint venture Oems in China that has afforded us.
Yeah, I don't wanted to at this stage, it's very early so I don't want to give you a lot more callers onto it but are we.
We believe this is an important step toward this joint Spanish a customary for us to get this order.
And it has as I said fall on orders to tell.
Good maybe mentioned that this brings that up to our ninth division customer.
For that we have.
Okay got it. Thank you and then maybe just a quick follow up there.
Assuming I believe includes vision perception software and radars, so as far as the systems opportunity.
That's what you're referencing when you mentioned that the follow up the order opportunity as well or do you think it's more of a system space.
Approach go forward.
Yes, it would be more fall on orders on the architecture that we are starting off with here that then you never know what that can lead to then when we are coming in.
As a supplier to the joint venture customer. This is a new joint venture customer for us and if we are then planning.
Playing this well and they are happy with.
What we are giving them now that may lead to something but that's speculation. So we will have to come back to that if it happens.
So I just want to know okay got it.
Okay sorry.
Five minutes left and we have time for maybe one or two more questions.
Our next question comes from the line of each time, the Kelly from Citi. Please.
Please go ahead Sir.
Great. Thanks, everybody. Good afternoon, just two quick ones from me on the 2023 outlook first could you just remind us what kind of order intake.
We'll need to see or to get into 2023 revenue target or are you already believe you fully book there and then second you mentioned the incremental gross margins of about 20% is that what you need to get to profitability. In 2023 does that have to kind of accelerate from here. Thank you.
I can take the hurricane it's around 95 per cent of the orders that are book.
To get to the two at a heart failure from you're indicating for 'twenty three.
Yeah.
And then on the latter part just to clarify I think when we when we talk about leverage on the gross profit contribution margin is actually higher.
Then the 20% to 20% is what's the net effect is that.
Gross profit line once you factor in.
Your additional cost of goods sold and production overhead.
Which is in addition to your direct material, which is where the contribution calculation comes from of course so.
I think for US the contribution is higher than the 20 per cent, but we've I think.
Historically, we have talked about a range of 25% to 35% contribution margin.
Generally speaking, but I think when we talked about the net leverage we're really talking around that 20% level for now.
Yeah.
Got it right is that 20% net leverage sufficient to get to 2023 profitability.
Yeah, we haven't given any further details on how to leverage will evolve into 2021 into 'twenty two 'twenty three at this point.
Okay, great. Thanks, so much.
Thank you.
Question comes from the line of fall featuring Rakesh.
Please go ahead your line is open.
Yeah, Hi, guys. Just I was just wondering on the Qualcomm.
What I'm, saying is how should we look at the Asp's on some of those.
Southern Europe components pushing debt.
How does that compare to your current ASP retrenched.
Yeah.
Could you could you repeat the question C. J. Please.
Yes, just the content.
Sure.
So we haven't yet on that our platforms with Qualcomm.
Yeah.
Well the content per vehicle.
Will of course, then when the customer program. So we'll be set up for it be an integrator all that there'd be an ear Qualcomm and <unk>.
Solution and then it would be put on a.
The type of Adas <unk>, and then we would supply and a debt if you with the surround components to it probably also with the cash.
Camera and radar sensors into it as it's a natural part of it so that would be one thing.
But otherwise see in type of year on year with the whole software package.
From a river is a part of the on air.
Got it.
And so it gives you an order backlog I know you mentioned it should pick up nicely into back half I'm just wondering.
If we get back to a 19.
19 levels. Thanks.
We arent, giving more indications that we are saying that the order intake, we expect order intake for 2021 to be higher than 2020 and.
We will.
Probably see how that is developing as we report our CMS over the quarters to come.
But I was stressing again here now are being a bit into the second quarter that EPS in second half, we are expecting a bigger order wins here.
Got it great. Thanks, a lot.
Thank you.
Thank you Anna Sui or close to time, I'll hand back to speakers for closing comments.
Thank you very much mark.
And I also would like to thank everybody for your participation and your interesting and thoughtful questions today.
Now looking ahead to our next quarterly earnings call is tentatively.
Planned for.
July.
And we'll come back to you at a later stage with debt.
With a date.
But also.
We'd like to remind you about the capital market day that we have been talking about we've come back to that also.
With a firm date.
Sometime during the third quarter.
So thank you very much for today and.
I wish you until then.
Go down at this thing and stay healthy.
Good pre summer when we talk next time, so thank you very much weighted.
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