Q2 2021 Veoneer Inc Earnings Call
[music].
Hello, and welcome to the view on their Q2 reported 2021 call.
Throughout the call all participants will be in a listen only mode and afterwards, there will be a question and answer session.
Today I'm pleased to present Thomas Jonsson.
Please go ahead with your meeting.
Thank you very much and welcome everyone to our second quarter of 2021 earnings conference call and webcast. The presentation here in Stockholm, We have our chairman President and CEO Jan Carlson, Our Chief Financial Officer Ray per car and myself, Thomas Jonsson Communications and IR.
During the call today Jan will comment on our current business highlights.
As well as provide an update on our launches on technology and Ray will then walk you through the financial results and provide some commentary on our 'twenty to 'twenty 1 outlook.
After that we will remain on the line for a Q&A session and as usual slides and earnings release are available through a link on the homepage of our corporate website.
We'll look to the next page.
We have the safe Harbor statement, which sit today actually cover 2 slides.
Which are both an integrated part of this presentation and includes the Q&A that will follow here today.
During the presentation, we will reference some non U S GAAP measures and the reconciliations of the figures are disclosed in our quarterly press release, and the 10-Q that will be filed with the SEC.
Can flip to the next page, which is actually the second page of Safe Harbor.
Wherever you just mentioned that we intend to conclude the call at 3 PM CET. So please limit yourself to a maximum of 2 questions and we can work in as many requests as possible with that I will turn the call over to our CEO Jan Carlson Jan Please take over.
You're very much Tomasz I would also like the welcome everyone to our Q2 earnings call.
Turning the page.
We see the merger agreement with the Magna on this focus on this bobcat is a quarterly report, but I would like also to comment on our merger announcement with Magnum.
Yesterday, our board of directors decided to enter into a merger agreement with Magna on that.
A large automotive supplier mechanized offering shareholders $31.25 per share, which represent the significant premium over our recent share price the.
The offer is supported.
By shareholders, representing 40% of our shares.
Market conditions have changed significantly since the spin Obelia, Inc..2018.
The vehicle production of forecasts have deteriorated significantly and it's not clear when or even if production will come back to levels of experienced a few years ago the share.
Changes, we MMS are going through with disruptive technology shifts are driving higher investment needs, both short term and long term.
This development is faster than expected.
Adding the unexpected events that have hit the wall during the past 18 months like ship shortages of supply constraints and COVID-19 has taught us to expect that more challenges could come from the coming years.
Combined these developments lead to a higher industry wide risk and for a smaller company like video near the surface is amplified.
Despite these developments, we have managed to position to be on.
Very wet through an ecosystem of partners cutting edge technology, and a strong order book.
In our main area of active safety. The market is set to go through consolidation since no active safety company today has more than 50% market share.
This will change as the active safety market continues its rapid development.
So when the large stable technology focused industry participant like Magna, we the need for Adas software and electronics capabilities and the seem to discussions with us and present, a compelling offer the board of directors saw it as a good opportunity to deliver immediate.
And the significant value to our shareholders.
Well as to find a good home for our employees.
With that let's get back to the main topic for this call on this webcast earnings release turning to page.
To sum up I'm very pleased with the only of its performance during a challenging quarter. Despite.
Despite the uncertainty from supply disruptions, the COVID-19, pandemic sequential lower light vehicle production, leading to lower sales.
<unk> improved its gross profit and operating loss as well as its cash flow.
These improvements were achieved through the progress of our on going market adjustment initiatives and we expect continuous progress throughout 2021.
Organic sales growth for the second quarter was 108%.
Strongly outperforming global light vehicle production the.
The overall outperformance of 58 basis.
The points.
If 2 of large extent part partly explained by region of shifts in the vehicle production in the second quarter.
Our ongoing heavy launch period also contributed to the outgrowth.
The semiconductor supply shortages continued to create industry delivery of challenges and drive costs in our operations. We expect these disruptions to continue into 2022, but gradually ease from the second half of this year.
Costs directly associated with the semiconductor shortages are estimated to amount to $4 million.
The market adjustment initiative program has been instrumental to improving our performance year over year, and thereby helping to mitigate the effects created by supply disruptions and the COVID-19 pandemic.
As a result, we reduced the operating losses and ended the second quarter with the cash balance of $556 million.
Our Adas and <unk> software unit arrival is on track we had the first in vehicle demonstrations to customers taking place with positive feedback.
And in China. The good momentum in active safety continues with new contract awards and launches during the quarter the.
The team recently celebrated being honored the best quality award by Great more modal for the.
The first time.
During the first half of the year, we had in.
Important customer wins and launches in the Chinese market.
And finally order intake during the last 12 months was slightly more than $530 million, which is the above.
Our own expectations and gives us further confidence in securing a higher order value of this year than in 2020.
Turning the page.
In fact in second quarter of light vehicle production was up 50% compared to the same quarter last year, when COVID-19 production down to a record low levels.
The regional mix worked in our favor this quarter compared to first quarter with strong year over year of growth in North America, Europe, and Japan, where our content per vehicle, it's more than 4 times higher than in China.
<unk> contributed greatly to our revenues outpacing light vehicle production with broad margin.
Looking ahead into next quarter the light vehicle.
Production is expected to increase by approximately 6% sequentially in third quarter 'twenty 1 for the full year 2021 on increase of approximately 10% from 2020 as expected, reaching approximately 7 to 9 million vehicles compared to 72 million vehicles in.
2020.
Let's have a look into our loss situation on the next page.
Just like 2000.22021 is a very important launch share for Veolia.
Executing well through these 2 years is key for us to achieve the mid term target of $2.5 billion in sales.
And therefore I am pleased that our launch timings are on track, although the positive volume effects are somewhat held back by the short term fluctuations in the OEM day, Matt.
I would like to highlight our content on the <unk>, where we have a full system and integration of supplier to the vehicle.
This is a flagship program for us illustrating the strength of our vision radar issue and not least software capability.
It further highlights the momentum we have in China, right now, where we among other customer wins signed yet another new customer for our vision technology, bringing the number of vision customers in China to 4.
According to our launch schedule, we will at the end of this year have launched 8 vehicle platforms from 6 different Oems.
Our fourth generation vision, including our in house developed perception algorithms further establishing us as the number 1 challenger inhibition based systems.
We are making good progress as highlighted in the next page.
Our river, whose software ran on Qualcomm Snapdragon platform in a vehicle for the first time, Inc. Quarter..1 is now being demonstrated to clients in vehicle with positive feedbacks.
In May <unk>.
<unk> ex the 40 recharge was appointed 2021 top safety pick buy insurance the Institute for highway safety in the United States, who, particularly highlighted crash avoidance and mitigation vehicle to vehicle and vehicle to pedestrian capabilities.
The vehicle run the current generation of the driver software.
Another proof point that we are on track to create a global leading challenger for active safety systems and software.
The Subaru Laborde won the prestigious best 5 Star Award in Japan, and cap outperforming 10, other 5 star rated vehicles, it's equipped with the new generation of ISI hardware variant of the <unk> 40 of innovation stereo vision system re engineered to meet.
Super of specification.
I would now like to turn it over to Ray for the financial highlights for the quarter of place right.
E on.
We turned to the next slide on our financial highlight slide we're pleased with our continued strong organic sales growth of approximately $200 billion during the second quarter, which represents the growth of over market of approximately 58 percentage points.
Our net sales of $398 million were lower than our expectations from the beginning of the quarter, mainly due to the erosion of our customer call offs during the quarter.
Our cash position of $556 million at the end of the quarter was slightly better than our expectation at the beginning of the quarter due to our continued strong cash flow of focus.
And in this quickly changing environment, we continue to identify opportunities to reduce our investments for growth without compromising future launches as illustrated by our capital expenditure reductions year over year and R&D cost control.
So overall, a very good financial performance for the quarter as we prepare for continued organic sales growth and make strategic investments for the future.
Looking further into the details for the second quarter on the next slide.
Our $214 million net sales increase for the quarter was due to new program launches and of course, the sharp LBP recovery from the pandemic in 2020.
The organic sales increase across most product areas or the active safety growth organic growth, rather was $110 million or 140%.
Well, the Rcs organic growth was $68 million or <unk>, 68%.
Our operating loss change year over year was mostly driven by lower engineering recoveries other income, which were partially offset by the higher gross profit during the quarter.
The $59 million improvement in gross profit was mostly due to the organic sales growth.
A $6 million net currency benefit and the market adjustment initiatives, which were partially offset by approximately $4 million of extra costs related to supply chain disruptions.
<unk> net of $108 million increased $64 million during the quarter as compared to last year due to the $80 million above normal engineering reimbursements that we saw in 2020.
SG&A and other income combined were 22 million of higher than the same period last year, mainly due to the 20 million brake systems recovery last year 2020 and of $3 million restructuring costs. This year in 2020 volume.
Lastly, our operating cash flow of <unk>.
Negative $69 million for the quarter was $38 million better than last year, mainly driven by a stable net working capital here in 2021 versus the negative impact.
Last year caused by the pandemic.
Looking now to the sequential performance on the next slide.
Our net sales of $308.398 million for the second quarter decreased $21 million or 5% sequentially from the first quarter as compared to the sequential LDP decline of 9%.
The sequential sales decline was more evident in our CFS of 7% since of the businesses more closely linked to the underlying RVP, while the active safety decline of 4% reflects our strong growth over market in this product area.
Gross profit increased $6 million sequentially, primarily due to the benefits from our market adjustment initiatives.
<unk> customer recoveries, which were partially offset by the lower organic sales development.
Or do you need net decreased $9 million sequentially from the previous quarter, primarily due to higher engineering reimbursements during the second quarter.
Lastly, our operating cash flow improved $41 million, primarily due to the net working capital and operating loss improvement during the quarter.
Looking now to our first half results on the next slide.
Our first half net sales increase of $270 million to $816 million was mostly driven by organic sales growth of $258 million or 49%, which represents a 20 percentage point outperformance versus the LPP.
The primary organic sales growth contributors were active safety, 58% 10 restraint controls, 33%, while net currency effects, most mostly or entirely offset the brake system divestiture.
The operating loss change year over year for the first half was driven by lower engineering recoveries and other income which were mostly offset by the higher gross profit.
During the first half of the year of gross profit increased to $118 million, resulting on a gross margin of 14, 4% as per.
<unk> to 10, 3% in 2020.
And I should mention that the gross margin on a LTM basis is now close to 15%.
These improvements are mainly due to our strong above market organic sales growth along with currency and market adjustment initiatives tail wins, which were partially offset by certain extra costs related to supply chain disruptions.
We estimate underlying engineering costs improved year over year for the first half of the year by approximately $40 million when we take into consideration the divestiture effects.
Lastly, our operating cash flow decreased $63 million during.
Due to the negative swing in net working capital of $64 million during the first half of the year.
Looking now to our outlook for 2021 on the next page.
Our 2021 outlook remains essentially unchanged from the beginning of the year. The current full year indication is for organic sales growth to exceed 25%, which implies an outperformance versus the underlying LBP in the mid teens as a percentage of.
Our outlook now indicates a net currency translation tailwind of approximately 4% versus a 3% at the beginning of the second quarter.
As a result of our market adjustment initiatives program and strong organic sales growth, we expect our <unk> net to be in the range of $110 million to $120 million per quarter during 2021.
The operating loss is expected to improve in 2021 as compared to 2020, despite certain headwinds.
We expect capital expenditures to be approximately $100 million in 2021, and we estimate our cash balance to be more than $400 million at the end of 2021.
And lastly for 2021, we expect our operating loss and cash flow performance to improve sequentially. During 2021, as we expect our operating leverage on organic sales growth to improve during the second half of 2021.
So overall, our continued positive momentum in our results and outlook carrying over into our midterm targets, especially on this very mixed and uncertain environment.
With that I'll turn it over to you.
Thank you Ray.
Turning to page, we come to the end of this formal presentation.
As you May have seen we are planning to host a capital market day on September 9th.
And due to the merger agreement with Magna of we have decided to cancel this event as I'm sure you understand.
Having said that.
This concludes the formal comments for today's earnings call, but before we move into Q&A.
I would like to extend the sincere. Thank you to the entire be on air team for their dedication of strong execution with the sharp continued focus on quality of health and safety.
The team remained focused on launching new technologies and customer programs using what still are challenging conditions.
And with that I'll turn the call back to <unk> and we open up for Q&A. Thank you.
Thank you.
If you do wish to ask a question. Please press the zero 1 on the telephone keypad and if you wish to withdraw. Your question you may do so by pressing the zero to cancel.
Our first question comes from the line of Joachim <unk> from Dnb markets. Please go ahead.
Thank you good afternoon. So so.
I agree with the industrial logic.
Market consolidations again soon.
The same slide.
Firstly on and strategy.
I will admit more so from junior introduced on the loan from from the tier 1 supplier and so on.
Can you just talk about the both what's the starting of this change in perception.
Well for us.
We are seeing a very different environment back in 2.
<unk> thousand 18 debt, we are seeing currently today and as mentioned we have seen a significant deterioration in light vehicle production, we haven't seen the change in the speed of technology and Oems and in the in the market in general.
We are also seeing that things can happen in the environment that we cannot have control over and that is something that we are taking into account.
Combining these things we think the.
It is better for the on a year or 2.
Coming to a company that is focused on aid us focused having a clear strategy on focus in electronics and focusing the software technology and focusing on an area, where our asset will make a significant difference in the core strategy. If you look to <unk> and compare the different when we spun it out what the labor.
The mainly a pyrotechnical and mechanical the company focusing on all the <unk> protection.
The absorption of the kinetic energy of the occupants.
There is magna here is articulated now the strategy focusing from the beginning on the 8 of the parts. So we think that the home here for 4 year on year in the Magna fits very well with their strategy and it fits very well with 1.3%.
Thank you on.
On the arrive or sorry to come can you give some more songs here with regards to wholesale some of the more advanced discussions on the tie.
Timing of 4.4 agreements to be signed.
Yeah, not really more than we are having a good customer discussions that are ongoing and debt. We are in the demonstration of in the vehicle demonstration.
On the road to customers.
And that we have an expectation to reach some conclusion with customers to get the first awards within the year, So nothing more concrete on debt.
Thank you.
Thank you.
And the next question comes from the line of Joseph Spak from RBC. Please go ahead.
Yeah.
Thank you very much.
I guess just as the first question.
On through some of the.
The deal materials and Magna talking about this as being accretive to them in 2024, I know previously you had indicated getting more towards.
The sustainable profit a year ahead of that so is there anything to read into that I know the environment, you keep saying sort of change but.
And maybe it will sort of see your some of your forecast from the proxy comes out but if you could talk about sort of the the longer term path here for being here that'd be helpful.
And we have nothing to add beyond what we are writing here of the earnings release that we are reiterating becoming cash flow positive.
Profitable at sometime during 2023 on the.
How they view on the accretion in 2024 et cetera, I am not in the situation to comment on <unk>, we have no change to the outlook here for the longer term, maybe you haven't changed the outlook here essentially on the year either since our previous earnings release.
And I think that is the strength to our execution, it's the strength to our team being able to manage the situation in a good way despite challenging times.
Okay, and then maybe just 1 final on Jan if you could if you could harken back on some of your auto experience rate, maybe some of it to some of the.
Opportunities, but also of challenges.
<unk>.
Magna may face in.
Having multiple suppliers on.
The Adas side and on the vision and sort of potentially the.
I think it would seem like.
It's the river sort of continues to make progress on it seems like you're having some good progress there that the.
There can be.
A good interest there, but obviously they've got legacy programs and legacy suppliers of all the deal of so maybe just based on again based on the history of sort of from your from your auto the days.
How the company can go about managing some of those challenges.
Yeah, I'll, let the comment on the magnesite stand from Magna on the on.
The left side here you remember we had a cooperation with mobile Ly and then we started off our own development on that worked out well. So I can only say that we have done the experience that we acted in a very good way with the customer and with the partner that we separated from a debt worked out fine for debt program and we did our own develop.
Now leading up to the you on a year on leading up to the situation. We are in today. So I had a good experience of that and how this will turn out from Magnus <unk>.
On paper.
Okay. Thank you very much.
And the next question comes from the line of Emmanuel Rosner from Deutsche Bank. Please go ahead.
Yes, thank you very much.
1 follow up question on.
I guess the outlook for horizon. So I think last quarter, you had updated the kind of rifle was in the discussion with multiple Oems.
As well as multiple tier 1.
Those being owned by the larger tier 1 going forward change of the ability to sell the software to other tier 1 I guess, you had sort of physician on fiber more of these tier 2 supplier really.
Yeah, we are operating under the current.
Our arrangement with the Qualcomm and we have no reason to believe not Qualcomm will support that so we are continue to operating debt in the same way.
Going forward. So there is no change to our strategy here.
Okay, but in terms of cost.
Partner and the feedback from some of the discussions that you had been having with these multiple Oems and tier ones.
Being acquired by matching the does it change anything in terms of their thinking.
First of all the I haven't had any discussions in these hours. This morning with that in all of our customers of this was announced as of.
Yesterday on the <unk>.
I have no I cant anticipate any change.
As such from customers magnets have weathered well known.
The company to where all of the Oems around the world. So I don't think that should be any any change.
Okay.
And I guess second.
Questions on the.
The new orders new orders of New business, you said the things played.
Played out a bit better in the second quarter than you had anticipated can you just give a little bit more detail.
I guess whats part of it was it sort of reflect contracts that you hadn't expected with the Sis playing out faster, it's more more volume and then obviously you reiterated the.
From your view with the oil.
Sales to be better in 2021. The 2020 of say 2020 was was actually from 30 million on the.
The last 12 months basis so.
Would you expect the better second half this year.
Hello.
We expect the 2 devices.
And the good order intake in second quarter. It's the combination of several things we have the some parts of that there have been pulled forward from the second half into.
The second quarter.
So that is what we said somewhat better than expected we had new orders coming also that we haven't seen on the radar. So we have a combination of both of them I think some of it that we were expecting in second half is really pointing out the second half is a very strong much stronger half year. The first quarter came in second quarter, but.
We are still of a strong opinion, we will outperform 2020 and order intake.
So there is no change to our outlook, we hold on to the Sun.
We are not in this volatile was able to give you more color on the numbers or quantification of the it's we're staying out of that because it's so easy for orders to be pushed the order the the.
Year end and then we are in the different situations, we may not lose it but it's coming in week or 2 or 3 later on then it's affecting the numbers. So we're staying out of it and calling on 2 better than last year.
Alright, thank you.
On the next question comes from the line of hump of singular from Handelsbanken. Please go ahead.
Thank you very much.
2 questions the first.
Question is.
And so on the back of the Qualcomm collaboration.
And also your current customers how have you mitigated the REIT securities.
Even going into this merger process on.
Forget the new business.
Given the magna as Rami the mobilization of software.
It remains the decision on how they would manage arrival.
Expectations of software.
That is going to play out.
That's the first question.
There is more on the timing issue here.
I mean, we've been struggling for some years every day.
The the IPO in 2018 of them.
Youre about not like really capitalize from the order backlog with the stellar growth coming years.
So the question is more on on the Board's decision on the timing on accepting the bid now and why not later than is the major change in terms of on capital need R&D spending to capitalize on the back of the best of luck.
Randall.
Which makes you.
Both of my 2 questions. Thank you.
Starting on the first 1 on the core kind of situation.
We are of a strong belief the Qualcomm has no intention to change the cooperation in the holiday. So we believe that debt Corporation will continue to operate as it has been agreed with the view of the year.
And then the Qualcomm on the Magna will have to get to know each other I'm sure. They know each other we're ready in the way of big suppliers, but they would have to talk about the details going forward, but the intention is.
We believe from Qualcomm side to continue the operation of asset.
When it comes to the timing of the Si tried to allude to here. We believe this is a very superior offer this is the.
Value creative offer from Magna on that the board is recommending to the shareholders.
And the reason why now on not later you don't know how the situation looks like in the year of 2 or 3 years down the road.
You know debt you have on offer do you have to decided upon as of right. Now you can only look into your own plants and see your own risks and opportunities that you have going forward and we believe that we have a strong plan. We believe that to have a strong outlook, we haven't changed our guidance since the quarter of or 2 quarters ago and we.
Of our holding on to that so in fact, there is no change in the environment around US you can see that 4.4.
The things that are going on.
If anything is changing on the more frisky side, it's more on certain side yeah.
And that is I think something that we have to take into account when you get an offer from a strong industrial player with the intent to find the home for this asset to satisfy our employers that creates value for shareholders and safeguard the commitments to customers.
The board has decided to accept that.
You don't know if that offer is on the table in the month in a in a year from now on in 2 years from now you don't simply know how of that it's going to happen. We are looking into the plan and making the best decision with the outlook on the information on forward looking information, we have of Tan and debt.
The board has carefully analyze this and have come to this conclusion.
Fair enough. Thank you.
Thank you.
The next question comes from the line of Dan Levy from Credit Suisse. Please go ahead.
Yes.
Hi, good morning, Thank you.
First maybe you could just.
Give us a sense of what extent will you was the competitive process where there.
Others.
Dan.
Sighted.
Interest in <unk>.
Acquiring you.
Well as I said the board has carefully analyzed.
Transaction as carefully looked into the situation.
And there has been discussions with the alternative partners debt has been the discussions along the way.
And I don't want to go into more of this as of right. Now we will all have the proxy coming out in the debt will describe the process.
Great.
Uh huh.
I just wanted to go to your order intake on it if we look at the progression over the years.
Has come down even if you adjust out the brake systems.
Quarter on the order intake was higher in 2017.2018, obviously, the LDP environment is lower today, so that share.
It plays a role but.
Maybe you can give us a sense over the past couple of years.
What extent has a more narrowed focus maybe limited some of your business pursuit.
Or maybe.
To what extent has.
Yeah.
More resource constraints were more <unk>.
<unk> focus on on resources limited some of your business pursuits, and how wonder of larger room does that change the business pursuit strategy.
I don't think we can see endpoint to resource constraints from lower order intake.
I think that an environment, where light vehicle production is under heavy pressure, where Oems are focusing on alternative the focus areas and the electrification where you have the COVID-19 pandemic going on is affecting a company like the on air it's affecting the entire industry and it's affecting the company like the only.
I think we are in the very good place with the very good the ecosystem and get very good product portfolio, but you can simply not neglect that we have a negative cash flow and debt. We have the balance sheet debt is very strong, but it's limited as long as we are providing negative cash flow.
And any net tough environment, I think that coming into a company of Magnus structure and.
The resources on the skill set we can have we can have a better position to offer at the product without constraints of eh.
The financial situation that we are in we are in a situation, where we see a good way forward. According to the guidance on the indications we have submitted but as of today you can't you can't deny that you have a negative cash flow and customer sees that and if they are then constraint in spite pacing of.
Of the difficult the area that may have a negative effect on us I think that our product portfolio is very much appreciated by magna. They have seen what our capabilities are they have seen the skills of our people and the products that we have and the abilities that we have to execute on our programs and that is <unk>.
Leading them to signing this agreement with the.
With me on a year and I have a very good hope in the I'm very much looking forward.
For the assets in this company as it is to come into that situation.
Net away from.
That type of financial constraints.
Okay, great. Thank you very much.
And the next question comes from the line of Alan Smith from Bank of America. Please go ahead.
Okay.
Good morning, guys on.
To ask the question around <unk>, perhaps in a different way.
The acquisition closes then obviously any of your capital needs will be fulfilled by Magna, which of the significant free cash flow generator. However, if the acquisition doesn't close for whatever reason on the future. Then you are still staring down the barrel of something like plan of $50 million on cash burn this year on a cash balance of 400 million at the end of the year.
Which line if we extrapolate how it puts you on a per.
And where you could acquire additional capital at some point in the next day or cloud.
So how should we think about the contingency plan internally as you think about keeping the business funded on investing in technology and product share the acquisition of potentially fall apart.
First of all we have 40% of support already from the shareholders of on signing the agreement we have a very good.
Hope and we are convinced that we will in the ER.
Make the successful closing on get the votes we are.
Definitely looking in that direction.
We also have the plan, where we become cash flow positive in 2023.
We are seeing at continuous improvement in the executions in performance.
So for us.
The speculation that you are talking about here has not being on our radar screen and we are executing and doing what we are focused to do in the.
Running the company according to our plan and we think that.
We will be able to take that question. When it comes at the later stage. So we have not had that discussion internally as the backup line Youre talking about.
Yes.
Okay. That's helpful. And then another question around the on the 2023 financial targets a lot of suppliers disclosed their kind of net new business backlog or roll on of new business revenue per annum, which can kind of help range current revenue the future revenue as we think about the the mid term targets for revenue out of 2 and a half million dollars.
Plus can you provide some color on how much of the targeted based on programs that have been signed and awarded and that you have a lot of visibility on in terms of timing or magnitude versus how much of today's on various assumptions and maybe kellen negotiation on you referenced a couple of times today that the macro environment has changed a lot.
On the past few years with lower volume not to mention the technology landscape. So just trying to figure out how much of that target is based on some big programs that have been won but are yet to be announced versus how much of based on more internal of Samsung on your guidance.
Yes, I think when we look at the 2023 targets that we've laid out.
That is primarily based on the 14 billion order book that we have at the beginning of the year. So when we look specifically at 2023 of the vast majority of that business or that target is already book.
So when we look at what we are.
What we're bidding for right now, it's primarily 2024 and beyond although we do we have won some business. This year that could positively or will positively impact the 2023 number but the vast majority of 2023 is booked so of course.
You have the uncertainty around take rates you out of the uncertainty around currency in L. V. P. As you mentioned, but.
I think we feel pretty good about the 2023 targeted experience today.
Okay, Great. That's helpful commentary, thanks for taking the question.
Thank you.
The next question comes from the line of Brian Lombardi from Seaport. Please go ahead.
Brian If your line is on mute can you. Please on mute yourself.
Okay.
We can't hear Bryan So let's try the next 1.
Brian Johnson from Barclays. Please go ahead.
Yes, good good afternoon, everyone and I think congratulations on the great long term home.
For the V near our technical team.
Couple of questions.
I know this will come on on the proxy.
But are there any breakup fees or anything else.
That had been negotiated as part of the deal.
As I said, we are referred and we are not commenting on the details on the deal here. We're staying out of this we will dull come on towards the process on how it's <unk>.
Structure on it would be described in the profit.
Okay, and then secondly, and I know this will become Magnus issue, but maybe your thoughts on it.
A couple of other questions kind of alluded to it. So Magnus has been traditionally a reseller of the Intel mobilized.
Product line, adding some value around it.
<unk> of course had chosen your own vision approach and of course with the arrival of we're making substantial progress.
How do you think that plays out going forward will make the transition to your to the <unk> technology.
Can they actually coexist and give large tier ones are the choice of 2 different vision based solutions.
Well I'm sure you may have seen or heard from.
Magna earnings call oil of call here on this conference call. This morning, I think they are excited about driver. They are looking forward to the dish.
Additionally, the software resources on the competence is the that the driver of represents.
How that will play out inside the magna you'll have to ask the magnitude of my stay out of it.
<unk> of that we got the question earlier on this call of all how we had an orderly over several years ago. When before we started our development of the.
I got the question here.
Around how we what the experience we had there and I can only reiterate that again, we had the it worked out fine for us in that sense in the.
In order to live, but how it will work out from Magna you'll have to ask the backup.
Okay. Thank you.
And the next question comes from the line of beyond <unk> from from <unk>. Please go ahead.
Yes, hi on the first of all of congratulation on the good Q2 numbers today.
Have a question on on the offer of course.
The board obviously sees these doses of.
The good offer and can you help us.
To understand the east if you believe that you'll get the fair valuation of the river.
Oh free of Indian diesel share or is it more of the assets.
You are addressing a little bit the jury of accepting it and overall for the.
The <unk> cash.
Being a standalone company has to increase so much of that do you think the basic.
This is the best of council for the shareholders. Thank you.
No.
This is not an offer on 1 or the other of parts or so we are getting an offer for the entire company in the totality and we have reflected the.
The value of V. On the year, we had of course, the different parts and we and of course the different developments on what we can do with an alternative to accepting the sulfur.
For the different parts on how the different parts can grow but 1 of the other part of that I'm staying out of commenting on this 1 on the board has looked on the totality for shareholders and the value per shareholders here on the Onvia on air side and the conclusion of this beta on based on that and the.
Then you can always dive into it but on staying out of debt commentaries here.
Thank you and on the river.
I would assume at least for the board is an important part of the calculation on Qualcomm is part of that game as well I would assume that they have been addressed by Martin.
That's helpful.
It's definitely a big part of the.
The discussion.
All of it of course, you're on and if you look into the different bits and pieces on you know the only are quite well I mean, the river is a very very interesting challenger in this market 1 of the few that can really take up the fight with the leading suppliers in this area. So that of course is an interesting part.
You can take on the other end of it the restraint control on the very mature business, the representing ballpark, 25% worldwide market share. So a leader in that space you can take care of our radar activities, which represents the bulk of our sales in the.
In active safety, which is also a leading player so each and every 1 of our bigger product out of here represents a significant position on a significant value for it.
And I think that is what the board seats.
Cant say that 1 we are trading 1 against the other we're looking on the totality on day, 1 day offer itself.
Thank you. Thank you very much.
Thank you.
And the next question comes from the line of David Kelley from Jefferies. Please go ahead.
Hi, good afternoon.
Good morning, everyone, just starting with maybe the competitive landscape.
I would assume the combined Magna beat here the put you on the top 4 maybe 5 players as it relates to market share and scale can you just talk about the market share opportunity you see of the combined company in particular, the liaison thinks about your historical on sleep, 9%, 10% share in active safety.
No I should stay out of talking about the combination of here and I referred that to the magna on to the buyer to view the the combination of the 2 end of how they want to position. The state represents a pro forma 2020 of ballpark $1.2 billion on active safety.
The growth rate there I think was portrayed in the conference call here in the hall.
The market growth is growing and in the slide set so am I have to defer that question to.
The 2 to Magna of I think we can speak for <unk> on a year end of the basis for the year on year on how we have viewed this and we have viewed ourselves as being in the very good position with the very good asset with the growth opportunities, we have indicated to $5 billion by 2023 and sales.
And I think that is giving a magna. The addition that theyre looking for in boosting their growth.
But how much on what Theyre going to do you you should probably ask magnum.
Okay got it thank you I had to ask.
The more shorter term question.
Apply disruption of shortages.
The continuing into the second half of the year I was just hoping you could provide some color on how you're thinking about the sequential impact versus the second quarter and even maybe the visibility to some pace of supply of normalization, just what youre seeing out there on the channel.
Yeah, I think when we look at the sequential into the second half from.
From the first half of the year, we certainly expect the the cost impact to subside or to improve.
However, there is still supply chain constraints out there and I think theres no.
There is no hiding behind that.
And we expect this could continue into 2022 as well I think there's more and more customers and more and more suppliers starting to acknowledge that this is going to go into <unk>.
Into next year as well so I think at the end of the day. All we can do is continue to be transparent with our customers work closely with our customers and.
And try to make sure that we can avoid being the constraint I think at the end of the day, but we do expect to see some improvement into the second half, but still be some cost impact in the P&L.
I wanted to point out actually the performance of our chip shortages, having a negative effect of $4 million for the second quarter.
For the company like ours here I think it's a very good achievement by our team.
To be able to it's $4 million, that's a lot of money, but still it could be much worse.
And I think we have been managing this quite well.
Okay, Great. That's helpful. Thank you both.
Thank you.
The next question comes from the line of Rod Lache from Wolfe Research. Please go ahead.
Hi, This is the choice of Patel on for Rod.
2 questions from me number 1.
The near it.
As you mentioned vineyards well regarded as the leader in radar systems, and <unk> been particularly ex.
Spamming in 77 gigahertz systems.
No. It has also been working on imaging radars, and it's not something I've heard from from <unk> in terms of kind of future development of work I'm not sure if thats something youre working on.
How do you see something like imaging radar of potentially impacting the traditional radar business that you currently have.
When we are looking also on the imaging radar scent I think that is an interesting product that we are.
Looking into them, having activities upon and again here I think that would be of magna.
Magna.
A discussion of how they are going to use the their own activities and how theyre going to use what we are having ongoing in the on a year.
Think listening to Magna and day listening to the discussion they find our product portfolio of very complementary to each other.
So I think that their thoughts maybe that what we have here.
Into what they are lacking etcetera. So again here I've said it many times on his call, but it's of course.
The thing you should talk to Magna about how they view what they are now volume compared to what they have.
We are not in detail of where all of their activities. As you can understand so it's hard for me to comment on.
Okay, and then just on on.
On the on the business can you remind us what the size of the market adjustment initiatives program, what that how big is that expected to be this year and what kind of savings do you see from that and then what were the size of engine of engineering reimbursements in Q2.
Okay.
Yes, typically we don't give specific engineering reimbursements during the quarter.
We called out last year of the $80 million is above normal engineering, because it had such a.
As such had such an impact in a lot of it was related to prior period work.
I think when we look at again, when we look at the market adjustment initiatives.
We don't give all of the details on what that is generating but I must say that I mentioned in the script here that we estimate that the engineering impact.
On the cost side has been about $40 million per the first half of the year and that's a combination of the an improvement in the gross cost and it's net of all of the divestiture impact. So you've got additional costs related to the annuity, but we don't have the equity method cost anymore in the P&L and then.
Also have the benefit from not having the brake systems R&D and then underlying core growth engineering costs has come down so I think the big 1 or the big contributor there has been on the.
The the engineering done and of course as I mentioned earlier, we did.
<unk> received some of some customer recoveries and the gross profit area during the quarter, but.
I think we should.
I'll talk about the out here.
Okay. Thanks.
And we have 1 more question from Michael Phillip Huff from Baird. Please go ahead.
Alright, Thanks for taking my question. So just looking on the incremental gross margins on a little bit higher than I think you would have expected I think initially the expectations of 20% to 25% how should we think about debt in the back half do you think you can sort of maintain this elevated incremental gross margin cadence.
And then I've got another follow up after that as well.
Yes, I think.
When you look at the leverage on the on the gross profit of underlying maybe around 20% in the quarter or anything like that.
I think that's pretty much in line with what we had indicated earlier in the year that as the gross margin leverage improves.
Throughout the year, we talked about the 20% level, maybe even slightly above the 20% level. So I think we're we believe that we're on track to meet those deliverables.
Okay got it and then just in terms of the the.
The acquisition.
You guys have some overlap in the portfolio and maybe some manufacturing overlap.
Is there any sort of expectation of rationalization of your sort of your facility footprint or your product portfolio of footprint or the product portfolio.
No well I cannot comment on the dominant in a position to comment on it.
<unk> had in their press release that they are looking for $100 million in synergies and the 2024.
And besides that I have no comments to it.
Okay, Great and just 1 quick 1 just because recently you announced sort of this partnership.
Bringing barrage lidar automotive grade to the Mark.
<unk>.
Magnus Scott the relationship within of is there any kind of.
Roadmap that of what their game plan is with Lidar given your your sort of experience with Lidar historically.
And we think that is of very good achievement with the IR with so we think that is the very good partnership and the.
How they are going to do this going forward, but on what's going to be their strategy between end of it and leave.
Leave it to Magna.
Understood. Thank you.
Thank you very much.
And as there are no further questions I'll hand, it back from the speakers.
Alright, very good. Thank you very much I would very much like the thank you everyone for your participation in the this earnings call.
Thanks for all or part of good and insightful questions. Now looking ahead to our next quarterly earnings release is tentatively planned for October 22021.
And we look forward to speaking you on the various meetings and calls et cetera in the meantime, and.
I wish you all a very good summer and please take care and drive safe out there and looking forward. The talk to you later thank.
Thank you.
This concludes the conference call. Thank you all for attending you may now disconnect your lines.
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