Visteon Corporation
Q2 2017 Earnings Call Transcript

Published: 30 Jul 2017

[Bill Robertson:]

Good morning. I'm Bill Robertson, Vice President of Finance for Visteon. Welcome to our earnings call for the Second Quarter of 2017. Please note this call is being recorded. And all lines have been placed on listen-only mode to prevent background noise. Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the slide entitled Forward-Looking Information for further details. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. Our Form 10-Q was filed earlier this morning with the news release. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Christian Garcia, Executive Vice President and Chief Financial Officer. We have scheduled the call for one hour, and we'll open the lines for your questions after Sachin and Christian's remarks. [Operator Instructions] Thank you for joining us on our call today. Now I will turn it over to Sachin.

[Sachin Lawande:]

Thanks, Bill, and hello, everyone. We are very pleased to report that Visteon had a solid second quarter with significant improvements across all areas of our business on a year-over-year basis. On Page 2, let me briefly summarize our second quarter 2017 results for electronics. In the second quarter, Visteon reported sales of $774 million, which is an increase of 3% year-over-year on a constant currency basis despite the slowdown in global production in the quarter. Adjusted EBITDA was $84 million, a year-over-year increase of $5 million. And adjusted EBITDA margin was 10.9%, an increase of 50 basis points compared with the same quarter a year ago. Winning new business continues to be a major focus, and I'm pleased to report that through the first half of 2017, we won $3.1 billion in new business, which puts us on track to achieve our full year target. The order backlog has now increased to a record $17.3 billion. In summary, the company executed very well in all areas in the second quarter. I will provide more details in the next several pages before turning it over to Christian to discuss the financials. Moving to Page 3. On Page 3, we highlight key accomplishments for the second quarter and first half in terms of sales, profitability and returns and other operational areas. As noted on the previous page, we delivered $774 million in electronics sales in the quarter. The highlight in the second quarter was China where our domestic sales grew 38% year-over-year excluding the effects of currency. We will discuss China in more detail later on in the call. Our streamlined product and technology portfolio continues to do well in the market. We won over $1.6 billion of new business in the second quarter, which resulted in total new business of $3.1 billion in the first half. Our focus on operations and cost resulted in quarterly adjusted EBITDA for electronics of $84 million and adjusted free cash flow of $87 million. And through the first half, we executed $160 million in share repurchases. In terms of operational accomplishments, we continued to achieve cost efficiencies in engineering and SG&A. Despite the high number of new business wins in the past six quarters as well as new product launches, net engineering in the second quarter decreased by $10 million compared with last year. SG&A was also reduced by $2 million in the second quarter as compared with the prior year. And SG&A as a percent of sales for electronics now stands at 6%. And through the first half of the year, we launched 25 new products globally. I'm thankful to the entire Visteon team for an outstanding performance in the second quarter, which was our 10th consecutive quarter of year-over-year adjusted EBITDA margin growth. Moving to Page 4. We have been successful over the past two years in accelerating new business wins in the near term to drive future revenue growth. The first half of 2017 was no exception as we won new business with expected lifetime revenue of $3.1 billion, which is up 11% from the same period in 2016. As you can see on the top pie chart in the middle of this page, these wins are quite well distributed by region, with China accounting for 29% followed by North America with 28% and then the rest of Asia and Europe. The highlight of our first half new business was two additional SmartCore wins, both with Asian vehicle manufacturers for vehicle programs launching in 2018 and 2019. With these wins, we now have four customer wins for SmartCore technology. The trend of integrating cockpit electronics products through domain controller technology continues to remain strong, and we are engaged with multiple OEMs on new business opportunities in this category. Within cockpit electronics, across the industry, all digital instrument clusters and display audio infotainment systems are the fastest-growing product segments. In the first half of 2017, half of our $3.1 billion in new business wins came from these products. This is a clear indicator of the strength of our technology portfolio in clusters and infotainment. We will discuss our wins in these segments in more detail in the coming pages. As a result of our strong performance in the second quarter and the first half of the year, we're on track to deliver our two year target of $12 billion for new business wins. Moving to Page 5. Instrument clusters represent the largest product segment at Visteon and we are very well positioned to capitalize on the trends in this category. The industry is transforming from mostly analog and hybrid clusters with display sizes of less than five inches today to mostly digital clusters with display sizes of eight inches or greater and also all digital clusters. By 2021, we expect 3/4 of all clusters to be digital. This transformation is the result of digital clusters with larger displays evolving from luxury vehicles and into mass market vehicle segment. At the same time, display size and graphics performance continues to increase as new safety and comfort features are introduced in these systems. In the second quarter and first half of 2017, we have done very well with instrument clusters in general and digital clusters in particular. Almost all of our $1.8 billion of new business wins in instrument clusters are digital with a significant portion, more than 50%, being all digital. All digital and large display hybrid clusters have higher content and require significant computing resources in terms of silicon and software. As a result, they feed into the trend for use of domain controller technology such as SmartCore in the future, especially in conjunction with new trends in infotainment, which we will discuss on the next page. As a result of this performance, we enjoy a strong position in the fastest growing segments of the instrument cluster market, which is expected to experience significant growth over the next few years. Moving to Page 6. On this page, I would like to share some details about our performance in the audio and infotainment product categories with respect to new business wins. Two key trends are driving the infotainment segment today. The first is the use of smartphone integration technologies, such as Apple CarPlay and Android Auto to bring smartphone-based applications to the infotainment display. Infotainment systems that rely on the smartphone for all their applications are referred to as display audio systems and are expected to grow the fastest with a projected CAGR of 29% between 2017 and 2021. The second trend is the replacement of traditional proprietary and closed embedded infotainment systems, which is what most of the industry is using today with open systems that are based on new technologies such as HTML5 and embedded Android for automotive. In addition to smartphone integration, these new infotainment systems will offer rich embedded apps that are integrated with the cloud, similar to other mobile app platforms. These systems referred to as embedded infotainment on the chart on left are expected to grow at a healthy 7% CAGR between 2017 and 2021. Base audio systems that offer radio and Bluetooth media and telephony are expected to decline over this period. However, the systems are still relevant, especially in emerging markets. As you can see from the bar graph on the right of this page, Visteon has done very well in the first half in winning new embedded and display infotainment business, which together account for nearly 80% of our new business wins in this category. Our acquisition of AllGo Systems last year brought CarPlay and Android Auto technology and expertise in-house, which is making Visteon much more competitive in the industry. Additionally, we've seen strong customer interest in our Phoenix infotainment platform, which is based on HTML5 and targeted for embedded infotainment solutions. We are engaged with multiple OEMs for technical and commercial evaluation of the solution, and these business development activities are progressing as we have expected. At Visteon, our goal is to be a global supplier of audio and infotainment solutions to the industry. Our performance in 2016 and the first half of 2017 have given us a great start in this direction. Now moving to Page 7. A highlight of our second quarter results was of exceptional performance in China following up on a great first quarter. Despite a slowdown in vehicle production in China in the second quarter, Visteon sales in China increased 38% over the second quarter last year, excluding the effects of currency. This is due to the high number of new product launches, 47 in total over the past 6 quarters. Our sales in China in the near term are driven more by new product launches, which has more than offset the impact of the weak production environment in the second quarter and is expected to do the same for the rest of the year. We continue to win significant new business in China with $900 million in lifetime business won year-to-date. SUVs are the fastest growing vehicle segment in China, recording 20% year-over-year production growth in the first half of 2017 and making up about 41% of total production. We are pleased that 55% of Visteon's total new business in China came from the SUV segment. Our new business in China was also very well balanced across international and domestic OEMs with international joint ventures accounting for 63% and domestic manufacturers at 37% of the total. Vehicle production in China for the second half of 2017 is expected to slow down based on IHS projections. Nonetheless, we are confident that our full year sales in China will grow at double digit rate due to the new product launches that I mentioned earlier. Moving to Page 8. On Page 8, we highlight the continued growth in our order backlog which underscores the stability of our cockpit electronics business and also points to future revenue growth. As shown on the bar charts at the left, our backlog has grown 9% since the second quarter of 2016 and now stands at a record $17.3 billion in lifetime revenue. Asia represents the largest portion of our backlog at 37% with Europe close behind at 36%. It is significant that nearly 3/4 of our backlog is in faster-growing automotive regions of the world. From a product standpoint, instrument clusters represent the majority of our backlog, but it is worth noting that infotainment and audio have risen to represent a combined 20% of the backlog. Within instrument clusters, 18% of the backlog is represented by all digital clusters, where we are growing faster than the industry. In summary, we are pleased that our cockpit electronics business is accelerating in both faster growing geographies and product segments. Moving to Page 9. On this page, I would like to present Visteon's view of the vehicle production environment in comparison to what has been forecast by IHS. We will focus the discussion on three key markets for Visteon

[Christian Garcia:]

Thank you, Sachin, and good morning, everyone. On Page 13, we present our key financial results for second quarter 2017 versus the comparable period in 2016. The financials on this page reflect our ongoing Electronics Product Group and exclude discontinued and other operations. As explained on prior calls, our financial results in the prior year included businesses that were exited at the end of last year and were classified either in the other product group or discontinued operations. We did not have in the second quarter nor going forward expect to have any sales or adjusted EBITDA related to our other product group or discontinued operations. Electronic sales of $774 million in the second quarter increased by $12 million, driven by product launches and strong growth in China. Adjusted EBITDA for electronics was $84 million representing a $5 million increase over second quarter of 2016. The year-over-year increase in EBITDA largely reflects the flow through from increased sales and strong cost performance, partially offset by customer pricing and unfavorable currency revaluation. I will provide more detail on the following pages. Adjusted free cash flow for electronics was $87 million in the quarter, equal to electronics cash flow in the second quarter of last year. Turning to Page 14. We provide electronics sales for second quarter of 2017 versus the same period last year. Electronics sales for the second quarter 2017 were $774 million. Sales increased by 2% with new product launch more than offsetting unfavorable currency and contractual pricing reductions. Excluding the impact of currency, Visteon's sales would have increased 3% despite the industry's production volumes decreasing year-over-year in our three key markets

[Sachin Lawande:]

Thanks, Christian. Moving to Page 19. In closing, we are very pleased with Visteon's second quarter performance and with the value we delivered for our customers and shareholders. Midway through 2017, we have gotten off to a strong start, both financially and in new business wins that will drive future growth. I'm very proud of the work that everyone at Visteon has done to put us in this strong position. Thank you for joining us today. Now I would like to open up the call for any questions.

[Operator:]

[Operator Instructions] Your first question comes from Brian Johnson with Barclays.

[Steven Michael Hempel:]

Yes, good morning. This is actually Steven Hempel on for Brian. Just wanted to drill down on the instrument cluster business here. It looks like the conversion to all digital displays is starting to inflect, so that should be a good sign. Can you just remind us roughly what Visteon's content per vehicle is on call it all digital clusters relative to hybrids and analogs and/or maybe kind of what Visteon's average cluster ASP is today? And then is your mix of business consistent with the bar chart on Slide 5, the break out between digital, hybrid and analog? And then lastly I guess the margin profile on those various businesses, is one higher than the other?

[Sachin Lawande:]

In general, I should say that the value of digital clusters is higher than analog, but it depends on typically the size of the display. At the high end, when we're talking about all digital clusters, these are typically 12.3 inches that are also a 10.25-inch configuration that's quite common. It varies in terms of the value but the range is somewhere between $200 to $350 depending upon as I said the content size of the display and some other features. In general, as you mentioned, we have done very well in the first half of the year. We have a set of technology platforms that are extremely well-positioned in the industry to capitalize on this trend. And our current profile, you are right; it reflects more or less what you see on Page 5 of -- in terms of the breakdown between analog, hybrid and all digital. The reason we are very excited about this trend however is that as the industry shifts towards all-digital, the computing resources that are required in terms of silicon and software on instrument clusters feeds into the trend of cockpit domain controllers or in other words SmartCore solutions. So we are seeing as these customers transition from analog clusters to hybrid and then all-digital, it sets them up very nicely for consideration of the cockpit domain controllers and SmartCore technology for the future solutions. So that's something that I think we should be more focused on as we look at this trend. And especially, when you consider this trend in conjunction with what has been happening in our infotainment, especially with display audio, then we are starting to see that those two trends are converging with a cockpit domain controller approach, which I'm sure we'll be talking on this call here momentarily.

[Steven Michael Hempel:]

Okay. Any then any update on surround view and/or kind of driver camera monitoring technology. You noted on the last call that you might be looking to expand SmartCore's capability into these areas. And I think moving forward, in-vehicle cameras is going to be a larger part of the kind of human-machine interface and cockpit of the future so. And also can you just talk to kind of how important is that capability to have in-house? And whether or not Visteon would be looking to build that out organically or through some just kind of smaller partnerships or bolt-on acquisitions?

[Sachin Lawande:]

Right. Camera-based solutions, especially cameras that are pointing inwards into the cockpit to implement new capabilities and user interfaces are important, and we are in fact, in the midst of some pursuits that are using such technologies to improve the user experience. This is important and will continue to grow in importance as we go forward. But these are early days of the technology. Here at Visteon, we are focused on building that capability in-house, especially the software processing elements of driver monitoring, distraction detection, and then using those capabilities further to improve the HMI experience. But this is something that we expect to pick up more steam in the next two to three years in terms of new business opportunities. But in terms of actual production, this is probably another four to five years out in any meaningful volume.

[Operator:]

Your next question comes from the line of David Lim with Wells Fargo Securities.

[David Lim:]

Sachin, Christian and Bill. The question I have is on SmartCore. And correct me if I'm wrong. I thought you have 3, and I think today you've announced a fourth OEM. Can you give us a little bit more color on that? And then I have a follow-up on a more of a longer-term technology question.

[Sachin Lawande:]

Sure, David. So yes. So we are very happy first of all with our performance with SmartCore in the first half. As I mentioned earlier, we had two wins. The first one was with DongFeng, which is a very large manufacturer in China as I'm sure you are aware. And the second win is also with another Asian OEM, but unfortunately, we don't have permission to disclose the name of this second OEM. This would mean that we would now have four SmartCore wins, which is a very good position for us to be in. Now both the wins in the first half include an all-digital cluster. The DongFeng win has embedded infotainment, a bit native apps, and the other win is using display audio. Now that we have four customer wins, the other point I would make is that this really sets us up well for the possibility of vehicle platform extensions with these customers. And we are also in discussions with several other OEMs, new customers for SmartCore, and those discussions are progressing as we would expect. There's still a lot of excitement in the industry on this trend. And as far as I can tell, we are still the leaders in this space. And in fact, if anything we seem to be really increasing the separation between ourselves and the rest.

[David Lim:]

Excellent. I don't know if you could provide this. But with the other Asian OEM, is there any color of like is it from China? Is it Japanese? Is it Korean? Or you've restricted from providing that color as well?

[Sachin Lawande:]

At this point, they are really restricting us from what we can say. So I would like to stay away from that.

[David Lim:]

Yes. Understand. My second question is on the longer term. How do you -- given your technology background and where Visteon is going, how do you envision the overall cockpit in the next maybe 10 years? Are we going to see like an all-glass integrated cockpit that covers the IP as well as the center stack and then integrates it with the HUD, especially where we're going with autonomous? And we just wanted to get an idea of your vision of where that's going and how Visteon is positioned to benefit from all that. Thank you.

[Sachin Lawande:]

That's a great question and one that we internally discuss and debate quite a bit. There are also a lot of advanced engagements that we have with some of the OEMs in driving these concepts forward. But let me share with you what is the current level of thinking in this regard which obviously is subject to change as we go forward. So today, if you notice the cockpit as a whole is made up of largely discrete components that have varying levels of capability and resources as well as requirements. And at the same time, with the advent of all digital content and capabilities and displays, there is this need to share information across all of the displays. So where we see the next phase of cockpit electronics head towards is a cockpit computer, if you will, a really rich computer that is able to drive all these multiple displays. We have some initial concepts that use up to 16 displays within the cockpit, and this is effectively driven by a single ECU. As you can imagine, on account of the vastly different requirements in terms of ASIL and other capabilities, you cannot power this with a single CPU and an operating system. So SmartCore or a domain controller approach is the approach that allows one to segment these various displays and capabilities, yet power them off of a single big and rich ECU. So that's where we see the future go towards. Now it may not all systems or all vehicles may not need as many displays as I just mentioned, but the trend is very clear in increasing number of displays. And the displays are getting richer, and they are powered by a single cockpit computer that is a very complex system with multiple domains, some with ASIL B, others, perhaps, not requiring ASIL, and then integrated using a cockpit domain controller technology like SmartCore.

[Operator:]

Your next question comes from David Tamberrino with Goldman Sachs.

[David Tamberrino:]

Great. Good morning and thank you for taking our questions. Just wanted to dig a little bit into what you're seeing from your customers and your production schedules, which gives you a lot more confidence in the back half production relative to IHS projections?

[Christian Garcia:]

Right. So as you know, David, what Sachin has mentioned is that we have a cadence of product launches that will influence the second half. So even though the production volumes is actually on a year-on-year basis lower than what we are going to -- what IHS said that grew -- that happened in the first half, we are still very confident about the production volumes in the second half. So that's one. The second is that we might have an upside, a little bit of an upside on the currency front as well. This too is going to be offset by the roll off of some of our non-core products, which is typically more impactful in the second half. So all of this is now embedded or reflected in our guidance for sales and EBITDA for the full year.

[David Tamberrino:]

Got it. And then as we think about getting a little bit later cycle here at least in the U.S. and again some more incentives or price downs being layered on in China, how have the conversations gone with your customers in terms of pricing perspective? Are you seeing any further pressure? Or is it kind of normal as it always is? Or -- what are you actually seeing out there?

[Christian Garcia:]

Yes, yes. So it's very normal. We are not seeing anything that is out of cycle or any extraordinary requests with respect to pricing. We don't expect that to change. So I would say it is quite normal at this point in time.

[David Tamberrino:]

Got it. And then last one from us kind of two parts. Can you just talk about the bidding environment that you're seeing? Obviously, bookings tracking at $3.1 billion in line with getting to $6 billion for the year. Is there any specific cadence we should be looking at for 2H '17? And then finally just conversations on Phoenix. You mentioned a lot of engagement. Should we be expecting a new business win announced this year? Is that something that's likely to occur early next year?

[Sachin Lawande:]

Yes. Maybe I'll address the last question first. So as we have mentioned previously as well, realistically, we expect any new business wins in Phoenix to come either towards the end of 2017 or early 2018. That's just on account of the normal cycle of business development, the technical and commercial evaluations that occur, especially for infotainment, which is a very significant decision for the OEM. So we are in discussions with multiple OEMs, some at very advanced stages. So we are optimistic that we should have an announcement before the end of the year. So that's on Phoenix. But to your earlier question, we are seeing a lot of new business activity that is really driven by this transformation of the cockpit electronics towards all-digital products. OEMs are trying to first and foremost respond to the demands from the market and also respond to the competitive environment. And that transformation is really what is growing our opportunity pipeline. We saw that happen in the first half. We were very pleased to have the $3.1 billion of wins as a result of that. But as we look at the second half, it's also very strong in terms of the opportunity pipeline, and we believe that puts us in a great position to achieve our full year target.

[Operator:]

Your next question comes from David Leiker with Robert W. Baird & Company.

[Joseph Vruwink:]

Good morning. This is Joe Vruwink for David. I wanted to go back, Sachin. I think the very first presentation you did when you joined Visteon, it was full of new business announcements and the timing of when the programs are going to launch. And a lot of those programs were originally scheduled with a 2018 start date. And if I just add those all up and figure out what an annual contribution might mean, it seemed at the time that you were inheriting a pretty good backlog that was going to drive an organic acceleration in 2018. And then since that time, obviously, you've done even better and things like SmartCore are actually going to launch in our view sooner than what was expected if they are already launching by 2018. So I just wanted to see, is this organic acceleration an acceleration from your backlog? Do you think that's still set to be in place next year leaving end markets aside for the moment?

[Sachin Lawande:]

That's a very good question, Joe. And I should say that when I first joined, the backlog was not very strong, as you know, on account of the history here at Visteon and JCI. We have to remember back then that the situation that both companies were in, the backlog was kind of weak. There was also, if you remember us talking about, non-core products that were expected to roll off. Nonetheless, you are absolutely right that we have done a very good job in terms of winning new business and adding more than -- to be honest with you, more than what I had imagined we would by this time in terms of adding to our backlog, some of which is coming sooner than we expected such as SmartCore. As we've discussed today, SmartCore wins are launching the new ones even in 2018. So there are some puts and takes here overall. There will be some of this new business wins since 2015 that will start to launch in 2018 that will impact our revenue there. But also the production environment and the roll off of some of the non-core products will be some of the offsetting factors. So we will discuss this more later in the year and for sure at the Deutsche Bank Conference in terms of how we expect it all to play out.

[Joseph Vruwink:]

Okay, great. And then one follow-up. Sometimes success for a supplier breeds more success, and I think an interesting aspect to what Visteon is doing is a lot of your wins are coming in China. I think a lot of the North American and European OEMs are intrigued, interested, maybe concerned, maybe that's too strong, but they are looking to what the Chinese automakers are adding to their cockpits. And it seems the pace of evolution there is actually a bit quicker than what is going on here in Europe. So I'd be interested, do the backlog wins in China and how quickly Visteon is growing in China today, is that attracting the interest of your western customer base and maybe driving greater new business bookings for those customers wanting to not get caught flat-footed or behind what the Chinese OEMs are doing?

[Sachin Lawande:]

Joe, it is interesting that Asian OEMs in general, Chinese in particular, are quicker to adopt some of the new technologies than perhaps in other parts of -- OEMs in other parts of the world. And that has been the case with us here as well as you pointed out. I would say that, that is certainly generating interest in OEMs in other parts of the world in terms of what we are doing. I will give you an example here. So last year, we had launched a product. It was an infotainment system in what became known as the first Internet car in China. That was a very successful infotainment system. It was a connected infotainment system, and that got a lot of attention, especially here in Detroit in what Visteon was up to. So clearly, it helps us create awareness in other regions. I would also say, however, that there is just a tremendous amount of new business, new bidding opportunities for cockpit electronics simply on account of what this industry is going through the transformation that we talked about, both in clusters and in infotainment. It's happening with all OEMs. And there is a tremendous need for OEMs -- at OEMs I should say to get a credible supplier with deep capabilities in this area. And Visteon, over the last couple of years, has clearly stepped up several launches in the eyes of many of these OEMs. So we are now being requested to bid for business that we were not in the past been a party to. So we are pretty happy about where we are at. There's a huge amount of business opportunities ahead of us. The challenge always is our internal capabilities and execution, which we are putting a lot of attention to in terms of how we are setting ourselves up to be able to handle all of these new business wins.

[Operator:]

Your next question comes from Ryan Brinkman with JPMorgan.

[Ryan Brinkman:]

Great. Thanks for taking my question. Can you just talk a little bit more about the China growth up 38% in the down market? What are the customers that you're growing with there? What are the products that are accounting for the big increase? And I know you're more positive on production in the back half than is IHS. But how much does that even really matter given that your revenue there seems so much more dependent on content growth than volume? And then as we forecast China going forward, anything to keep in mind as regards lapping any of the big gains? How do you see yourselves tracking in China going forward post this year's big inflection?

[Sachin Lawande:]

Right, right. So with respect to the products question, we are very well established in China in two product segments

[Christian Garcia:]

And if I could add to that, you've heard us say that the reason why we're excited about China is because it's the largest market. It is still -- even though with -- there's some short-term volatility, its still seems to be the fastest growing market in the auto industry. And third is that we see the transition to being an early adopter of technology and as such very important to this job.

[Ryan Brinkman:]

Okay. And then just lastly from me to follow up on the earlier discussion of new business wins, to the extent that you tracked stronger than the $6 billion run rate, it appears that you are a little ahead this year. When does that -- when is that expected to translate into revenue, more towards the end of planned period in 2021 or potentially even beyond? And then given that the Phoenix wins are still ahead of you can you provide some color on what it is that you're already booking? Your SmartCore and Phoenix we know are higher margin. But is any of the stuff that you won in 2Q also of an intrinsically stronger margin?

[Sachin Lawande:]

So we had mentioned earlier that in order for us to make our plan, we would need to win $12 billion of business between 2017 and 2018. So you can imagine that the business in this time period that we win, a significant portion of that still launches and still converts into revenue within the planned period. So we remain focused on that. Hopefully, we will be a little bit ahead of our plan in terms of where we are at the end of this year, which would only help build more confidence in our plan in a five year outlook. In terms of the margin, the margin structures are different based on the different products. And infotainment has a higher content and higher value with a higher margin as well. At this point in time, we haven't really looked at in terms of the outer years of what that would mean. We have a margin target for ourselves, which is what we have discussed earlier, 14%, which is what we are focused on. And it's going to take this $12 billion of new business wins over these two years for us to be in a position to achieve that margin level by the end of our planned period.

[Operator:]

Your next question comes from Tavis McCourt with Raymond James.

[Tavis McCourt:]

Hey, guys. Thanks for taking my questions. A couple of them. First on the 4 SmartCore wins, I think you mentioned one would be entering production and revenue recognition in 2018. Can you remind us is there any -- are any of the others starting to enter production in 2018 or are they 2019 and beyond?

[Sachin Lawande:]

Yes. The first win, Tavis, is actually entering production early 2018 in the first quarter.

[Tavis McCourt:]

Okay. And was that one of the original 2 that you announced or --.

[Sachin Lawande:]

That's correct. That's part of the first two.

[Tavis McCourt:]

Okay. And then Christian, you mentioned a couple of financial ones for you that the nonrecurring engineering benefit that you received from your customers. Where on the income statement does that flow?

[Christian Garcia:]

Tavis, it's not nonrecurring. So we -- as you know, we do have engineering recoveries. Those are we bill based on meeting milestones, and we did have the benefit of that in the second quarter and that will continue. And in fact, as we talked about most of the engineering recoveries we actually experienced in Q4, it is going to be part of gross margin.

[Tavis McCourt:]

Okay. So let's say, it's an offset to cost of goods sold basically.

[Christian Garcia:]

Yes. It's actually an offset to our engineering cost.

[Tavis McCourt:]

And can you give us a sense, if you don't have exact numbers maybe just qualitatively, the size of what you would define as kind of the legacy revenues last year, this year and kind of what you would expect next year?

[Christian Garcia:]

I think Tavis, you might be referring to non-core, right, what we call non-core?

[Tavis McCourt:]

Yes. Non-core, sorry. Yes.

[Christian Garcia:]

Clocks and [composton] and so forth. And we think it's roughly about $200 million of those kinds of items, which over time are declining.

[Operator:]

We reached the allotted time for questions and answers. Bill -- Mr. Bill Robertson, you may begin.

[Bill Robertson:]

Okay. Thank you, Sachin, and thank you, Christian, and thank you to all for joining us on our call today. I will be available later today for any follow-up calls. So please feel free to contact me. At this point, we will end our call. Thank you.

[Operator:]

This concludes Visteon's Second Quarter 2017 Earnings Call. You may now disconnect.