Visteon Corporation
Q3 2014 Earnings Call Transcript

Published: 6 Nov 2014

[Operator:]

Good morning, and welcome to Visteon's Third Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we begin this morning's conference call, I would 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 information. Presentation materials for today's call were posted on Visteon's website this morning. Please visit www.visteon.com/earnings to download the material if you have not already done so. I would now like to introduce your host for today's conference call, Mr. Bob Krakowiak, Visteon's Vice President, Treasurer and Investor Relations. Mr. Krakowiak, you may begin.

[Robert R. Krakowiak:]

Thank you, Brent. Good morning, everyone. Joining us today are Tim Leuliette, President and Chief Executive Officer; and Jeff Stafeil, Executive Vice President and Chief Financial Officer. We appreciate your interest in our company and for taking the time to join us to review the third quarter of 2014. We have scheduled the meeting for an hour and will open the lines for your questions after Tim and Jeff's remarks. [Operator Instructions] As previously mentioned, a presentation deck associated with today's call is posted on visteon.com within the Investors section. Also note that our Form 10-Q was filed earlier this morning with the news release. Again, thank you for joining us. And now I will turn it over to Tim.

[Timothy D. Leuliette:]

Thank you, Bob, and good morning, everyone. Appreciate you joining us this morning. A lot to talk about today, so let's jump right into the deck on Page 2. Our Q3 results, again, consistent with our guidance for 2014, sales a little under $2 billion. And now and from this point forward, obviously, we're reflecting a consolidation in both the JCI and the YFVE acquisitions, and obviously, the Interiors piece is out of our numbers for the most part. There's a small piece that we'll discuss in a moment, the remains. Adjusted EBITDA of $142 million, excluding discontinued ops, versus $126 million a year ago. This reflected an impact of $21 million negative currency impact, including a onetime reval/deval of $10 million. I think what's important for us, and we'll expand upon this in a moment, is that despite that currency headwind, we maintained the number, our internal target number and, again, are holding our guidance for the year. In absence of the significant currency swings in the third quarter, we would have probably have elevated guidance, but at this point, we absorbed that and will continue on. Strong balance sheet. We ended with $1.1 billion of cash, debt of a little under $1 billion, so positive cash. And our leverage was approximately 1.5x. We'll spend some time this morning on new business awards. I want to set the stage as we start to enter 2015 with some background information on the success this year of both businesses with new business awards. It's been and will be a phenomenal year for the company, and it sets the stage, I think, for a bright future. We'll amplify that in a moment. Summarizing on the bottom left side of the page, creating value for shareholders, some of the major items we did this quarter

[Jeffrey M. Stafeil:]

Great. Thanks, Tim. Hello, everyone. I'll start on Slide 19, where we present our key financial results for third quarter compared to the third quarter of last year. As we explained during the second quarter earnings call, we have reclassified the majority of our Interiors business as discontinued operations in our financial statement. Our income statement has been adjusted to exclude Interiors' specific income and expense, and the Interiors' net profit has been reflected on one line as discontinued operations. The top half of this slide highlights results for our continuing operations, while the bottom half of the slide, we provide financials, including our discontinued operations. As we have explained on prior calls, our financial results are impacted by a number of items that make year-over-year comparisons difficult. The adjusted financial information presented on this slide excludes these items and represents how we manage the business internally. As non-GAAP financial measures, this adjusted financial information is reconciled to U.S. GAAP financials in the attached appendices on Pages 34 through 36. Additionally, year-over-year comparisons are impacted by the consolidation of our Yanfeng Visteon Electronics operation starting in November 2013, the acquisition of Johnson Controls Electronics business in July 2014 and the acquisition of Cooper Standard's Thermal & Emissions division in August 2014. These transactions explain a considerable portion of the year-over-year growth in sales, adjusted gross margin, adjusted SG&A and adjusted EBITDA. For example, the $35 million increase in adjusted SG&A versus the third quarter of last year reflected approximately $30 million in increased costs related to the JCI and YFVE transactions. The SG&A increase also reflected $2 million related to currency as well as higher HVCC SG&A to support future growth. Adjusted EBITDA excluding discontinued operations was $142 million in the quarter, $16 million better than last year. The year-over-year increase reflects the impacts of YFVE and JCI Electronics acquisition and improved Climate performance despite unfavorable currency impacts and higher engineering spend to support future growth in both Climate and Electronics. As you can see on the table on the right, negative movements in foreign exchange and higher engineering expense were $21 million and $16 million, respectively, unfavorable versus last year. We will cover these metrics in more detail in a moment. Adjusted EBITDA including discontinued operations was $136 million in the quarter compared to $128 million last year. Adjusted free cash flow was $18 million, $19 million higher than last year. The increase was largely driven by trade working capital timing, partially offset by lower nonconsolidated dividends due to the sale of our Yanfeng Visteon joint venture in late 2013. I will cover these metrics more in the following pages. Turning to Slide 20. We highlight the transaction-related items that have impacted our financials in 2013 and 2014. In November 2013, we acquired a controlling interest in our Yanfeng Visteon Automotive Electronics Chinese joint venture, also known as YFVE, and began consolidating the business. Later in 2013, we sold our 50% stake in Yanfeng Visteon Automotive Trim, or YFV. These transactions increased our consolidated sales and adjusted EBITDA but significantly reduced our year-over-year equity income and nonconsolidated dividends. Our consolidated results were also impacted by 2 acquisitions which were completed in the third quarter of 2014. In July, we completed the acquisition of Johnson Controls Electronics business, and in August, we acquired the Thermal & Emissions business of Cooper Standard. These 4 transactions have a significant impact on Visteon's financial results and make year-over-year and quarter-over-quarter comparisons difficult. Also, as I mentioned last quarter, we began classifying the majority of our Interiors business in discontinued operations. On an annual basis, this action reduced Visteon's sales by approximately $1 billion. But in this case, prior periods have been recast to conform to this presentation as well. I would also like to point out that we have included expected fourth quarter 2014 sales and adjusted EBITDA implied by the midpoint of our full year guidance. Sales are expected to increase to $2.1 billion in the fourth quarter, while we expect adjusted EBITDA of approximately $212 million, plus or minus $15 million. As Tim discussed earlier, the fourth quarter is typically our strongest quarter of the year, driven by strong sales and the timing of engineering spend recoveries. Additionally, the Other product group has benefited from a commercial recovery in the fourth quarter of between $10 million to $12 million in years past, and we expect it to repeat this year. Lastly, on a year-over-year basis, we will benefit from a full quarter of YFVE and JCI Electronics profits as well as from operational improvements across the business. The transactions on Slide 20 have had an impact on our financial results, but as Tim mentioned earlier, currency has had a significant impact as well. on Slide 21, I will take you through these foreign currency impacts in a little more detail. The top of the slide, we highlight the key currency movements which have impacted Visteon during the third quarter of 2014. These impacts include both operating exchange, driven by year-over-year movements in exchange rates, as well as balance sheet revaluation impacts, driven by movements in rates within the quarter. The bottom of the slide highlights the combined impact of the movements in currencies on sales and adjusted EBITDA. Currency positively impacted third quarter and year-to-date sales by $29 million and $60 million, respectively. Stronger Korean won and euro were the most significant drivers, but our results have been impacted by a number of other currencies, including the Indian rupee, the Thai baht, Brazilian real and the Argentine peso. Although the year-over-year impact of currency on sales has been positive, the currency impact on adjusted EBITDA has been negative. Specifically, the impacts were $21 million and $43 million for the third quarter and year-to-date 2014, respectively. The year-over-year unfavorable impact in Climate is largely driven by the strengthening Korean won, which positively impacts Visteon's sales but negatively impacts our profits since we have more cost exposure to the won than sales exposure. For Electronics, currency had a $10 million unfavorable impact on the third quarter results, primarily related to losses on balance sheet amounts denominated in currencies other than functional currencies, largely in Japan and Brazil. The Other product group had an unfavorable currency impact of $2 million in the third quarter versus last year, largely explained by the weakening Brazilian real. As we highlighted at the bottom of the slide, the year-over-year changes in currency negatively impacted third quarter and year-to-date margins by 120 basis points and 90 basis points, respectively, versus last year. Moving to Slide 22. We provide an illustrative third quarter 2014 results for our Climates and Electronics product group, adjusted to exclude the year-over-year impact of currency movements I discussed on the prior slide. On a constant currency basis with third quarter 2013, Climate adjusted EBITDA would have been $121 million in the quarter or 10.2% of sales, up from $114 million and 10.1% of sales in the third quarter of last year. Electronics adjusted EBITDA would have been $60 million or 7.9% of sales, $33 million higher than third quarter 2013 adjusted EBITDA and in line with third quarter 2013 margins. Turning to Slide 23. This slide isolates the unfavorable currency impacts on our product group margins as well as the impact of increased engineering cost. Engineering cost increased year-over-year by $16 million, reflecting increased investments in product development to support our future growth. Adjusting for the increased investments in engineering as well as the unfavorable impact of currency, 2014 adjusted EBITDA margins would have been 9.2% versus the 7.2% reported. Turning to Slide 24. We compare our 2014 third quarter and adjusted -- third quarter sales and adjusted EBITDA to last year's results. Q3 2014 sales were $1.97 billion or $486 million better than the third quarter of 2013. The increase was driven by the consolidation of YFVE and the acquisition of JCI Electronics as well as from higher year-over-year sales in Climate, which benefited from net new business wins with Hyundai-Kia and Ford, among other customers. Total sales including discontinued Interior operations were $2.2 billion in the third quarter of 2014. Adjusted EBITDA for the third quarter was $136 million including discontinued operations or $142 million excluding it. Adjusted EBITDA increased versus 2013, reflecting the benefits of YFVE and JCI Electronics transactions, partially offset by increased engineering cost to support future growth, unfavorable currency and lower profits from the Other segment. The decrease in the Other segment primarily relates to the wind down of certain programs at our facility in Brazil. As a reminder, the Other product group represents operations previously reflected in our Interiors segment which were not included in the Interiors transaction parameter with Cerberus and, as such, are not considered to be held for sale as of September 30, 2014. Turning to Slide 25. We show our third quarter sales and adjusted EBITDA for our 2 product -- main product groups, Climates and Electronics. I will cover each in more detail on the following pages. On Slide 26, we provide an overview of Climate sales and adjusted EBITDA for the third quarter and for year-to-date 2014 versus the prior year. Climate sales in Q3 2014 were $1.2 billion, up $80 million or 7% compared with 2013. For the first 9 months of the year, sales increased $205 million versus 2013. The year-over-year increase for both the quarter and year-to-date periods largely reflects new business wins with Hyundai-Kia and Ford in Asia and North America as well as favorable currency impacts largely related to a stronger Korean won and euro, which more than offset the negative impacts of a weaker Thai baht in the third quarter and a weaker Thai baht and Indian rupee on a year-to-date basis. Year-to-date customer agreements include a $12 million commercial claim recognized in the second quarter. Adjusted EBITDA was $112 million in the quarter and $376 million year-to-date. For both periods, adjusted EBITDA was largely in line with 2013 despite the impact of unfavorable currency and higher engineering cost I previously discussed. Higher volumes, net new business wins, commercial claims and a positive business equation in both periods contributed favorably on a year-over-year basis. On a year-to-date basis, the $1 million year-over-year increase in adjusted EBITDA reflected an $8 million improvement to HVCC profits, partially offset by a $7 million decrease in profits for non-HVCC legacy plants in South America and South Africa. Climate's adjusted EBITDA margin was 9.2% in the third quarter, 90 basis points lower than the same period last year. As I previously mentioned, on a constant currency basis, Climate adjusted EBITDA margins would have increased to 10.2% or 10 basis points higher than third quarter of last year. As I mentioned last quarter, we have initiated a substantial effort to reduce our exposure to the Korean won by localizing more of our supply and production globally. These efforts will begin to have meaningful impacts in 2015, but we will continue to remain significantly exposed to the Korean won in the foreseeable future. Moving to Slide 27. Electronics sales for the third quarter of 2014 were $760 million and adjusted EBITDA was $50 million. On a year-to-date basis, sales were $1.6 billion and adjusted EBITDA was $157 million. Sales increased versus 2013 for both the quarter and on a year-to-date basis, largely driven by the YFVE consolidation and JCI Electronics acquisition and net new business wins primarily in Asia. Adjusted EBITDA increased $23 million in the third quarter versus last year and $74 million on a year-to-date basis. For both periods, the increase was primarily driven by the YFVE and JCI Electronics acquisitions and new business wins. As I mentioned, currency and increased engineering cost both had unfavorable impacts on adjusted EBITDA. As Tim highlighted, the JCI Electronics integration has gone well and as expected as we continue to integrate the engineering, IT and overhead structures of JCI Electronics into Visteon Electronics. We are creating one fully integrated company, which will make it difficult to provide separate financial results for JCI Electronics going forward. With that said, we are comfortable with the guidance previously provided for the Electronics business, and we are confident we will achieve the $40 million to $70 million in annual synergies we previously discussed. Moving to Slide 28. We take a closer look at the sales growth within Electronics product group. As shown on the previous slide, most of the year-over-year sales growth within Electronics has been a result of the YFVE consolidation and the JCI Electronics acquisition. This is not a surprise to us. In the past, we have shown how the drop in vehicle electronics sales has masked the growth in cockpit electronics business. On this slide, we also show how much of the growth in Visteon Electronics is YFVE-related. Since 2011, YFVE sales have grown nearly 17% annually compared with a 7.7% annual increase in the remaining cockpit electronics business. During Visteon's bankruptcy and for the period shortly thereafter, we launched most of our global business awards in Electronics out of our YFVE operation due to customer concerns associated with the bankruptcy. Many of these new wins launched in 2013 and 2014. This growth in YFVE has always been captured in our forward sales CAGR projections but is not clearly reflected in our historical financial statements since the entity was not consolidated prior to late last year. Today, the launch of our new business awards are distributed more around the globe based on normal business requirements as the concerns around our historical bankruptcy have long passed. Moving to Slide 29. We take a look at our cash flow and our capital structure. Free cash flow was negative $29 million in the third quarter and negative $29 million in the first 9 months of 2014. Note that the impact of our discontinued operations are included in these figures for both free cash flow and adjusted free cash flow. Adjusted free cash flow, which excludes restructuring and transformation-related payments, was positive $18 million in the quarter and positive $64 million year-to-date. Adjusted free cash flow for the third quarter was $19 million higher than third quarter 2013. This variance is more than explained by calendar-driven trade working capital payment delays, which unfavorably impacted the third quarter of last year. Cash balances, including cash held for sale were $1.1 billion as of September 30, and we closed the quarter in a net cash position of $66 million. As mentioned previously, we initiated a $500 million accelerated stock buyback program during the second quarter. The $250 million capped portion of the program was completed on October 15. The remaining portion of the program will be completed no later than May of next year. Turning to Slide 30. We provide our 2014 full year financial guidance. As Tim stated, we are reaffirming our full year guidance. For the full year, we project midpoint of sales of $7.6 billion; adjusted EBITDA of $690 million, excluding discontinued operations; adjusted free cash flow of $145 million; and adjusted EPS of $3.30 per share, excluding discontinued operations. Now let me turn it back to Bob for Q&A

[Robert R. Krakowiak:]

Thank you, Tim and Jeff. Brent, please open the line for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Colin Langan with UBS.

[Colin Langan:]

Any color on the FX impacts? You listed 8 different currencies. Any color on which ones we should be focused on going forward as the biggest drivers? And you also highlighted that the Korean won has moved. Does that mean we have a tailwind heading into Q4 related to that currency?

[Jeffrey M. Stafeil:]

Yes, Colin. I think you can definitely take the Korean won to the dollar and the Korean won to the euro as our 2 most significant exposures. The dollar to the euro, too, as well. So take those 3 and focus on those. As you look at Q4, we've seen a lot of movements, as you said. We have seen the won. When I was looking at it just before the call, it was under -- just under a KRW 1,090, which is almost back to where it was last year. If you look back in June or July, it was just barely over KRW 1,000. It was like KRW 1,008 at one point, so it has moved significantly. But those 3 currencies -- those 3 relationships on currency are going to be the 3 to watch for us.

[Colin Langan:]

And does the recent move mean that it's not going to be a, if it stays where it is, not a drag into Q4?

[Jeffrey M. Stafeil:]

We've seen -- the one movement has been favorable, certainly, over the last few weeks. The euro has crept down a little bit. It's gone down, $1.25 or maybe just under, so that's been a little bit negative. But I'd say in the last few weeks, if we sat here today, we're probably slightly favorable to where we ended the quarter.

[Colin Langan:]

And is that baked into your guidance? Or how should we think about what you're baking in?

[Jeffrey M. Stafeil:]

I'd say our guidance for the fourth quarter is roughly based on the October exchange rates, as we said a couple of weeks ago, which wouldn't change, which probably is maybe mildly favorable to where we are today. I mean, today, it's mildly favorable to where we were a couple of weeks ago.

[Colin Langan:]

Okay. And then any comments on the Bloomberg article that you were considering splitting off Climate and Electronics? It definitely seems like, based on the results of Electronics, it's a pretty solid business. How do you think about that long term at this point?

[Timothy D. Leuliette:]

Well, I think, Colin, we have been consistent, and I think the article probably picked up on some of the dialogue, I think, we've had with all of you over the last year or 2, which says we have 2 strong businesses. We want to integrate JCI into the group and get performance there, so we can establish that business as a measurable business. And then we were -- would expect that the marketplace would start to react favorably to that story. But we've always said -- and I think one of the things that drives us here is that there are 3 primary objectives this management team has with respect to the shareholders and the investors. And that is our first priority is shareholder value, our second priority is shareholder value, and our third priority is shareholder value. And to that degree, that we're open and we focus on optionality, and then we look at scenarios is something that we do routinely and will continue to do. If we see ourselves at some point where we're not seeing the proper value for these businesses and in the aggregate of the Visteon stock, we'll look at our options. But at this point, there's nothing to report, nothing to say. And as I said, anytime we talk about M&A actions or this or that, I said you guys will always be the second to know, but that's not something we discuss or report publicly. But I don't see anything new. I think this was -- these articles and the Jim Cramer piece were basically reflections of the dialogue and communication we've had with you over the last 12, 18 months.

[Colin Langan:]

And just one last question. In terms of -- there's some speculation about assets being on the market for Thermal. I mean, how do you think about -- do you still want to be a consolidator in that segment? And then some of the prices out there seem a little bit high. I mean, how would you consider -- what kind of valuation levels do you think are reasonable for that kind of business?

[Timothy D. Leuliette:]

Well, again, we don't comment specifically on M&A activities. We've always said that we have a balance sheet at both HVCC and at Visteon that affords us the opportunity to look at opportunities -- acquisition opportunities if they come along. And we are acquisitive if it makes economic and strategic sense, to the degree that events occur that make both economic and strategic sense, we'll take a look at them. We're not in the business typically of overpaying for assets. So if you think it's overpriced, I mean, that's your thoughts. But I guess at this point, we are in the market. We look at both external and internal and growth opportunities, and we evaluate them accordingly.

[Operator:]

Your next question comes from the line of Ryan Brinkman with JPMorgan.

[Ryan J. Brinkman:]

Most parts suppliers have actually lowered their full year outlooks this earnings season, just given a bit of deterioration in the markets, not a lot but a bit, in 2Q earnings and then the adverse currency. So my question is given that you're not lowering guidance today and given that the industry production and currency really are somewhat of a headwind relative to a quarter ago, is it fair to say that your underlying business can do better in the second half of the year that you've imagined several months ago? And if so, what are the biggest drivers there? Is it more the customer recoveries in 4Q, the JCI synergies? Or is it just more little things adding up or [indiscernible]?

[Timothy D. Leuliette:]

Well, there's a lot behind that, Ryan. I think first of all, as we forecast the year, we try to be realistic in what we saw as expectations in the marketplace. As I say, as you know, we don't use the customers' volumes. We kind of -- we use a third party to assess the volume basis of how we forecast the businesses. Secondly, we push aggressively on the operational acumen of the organization. And when issues occur or arise such as the currency issue, we force and we find opportunities to offset. So as we've seen the body blows of currency, for example, this quarter, we worked around them. And we feel very comfortable with the mix of customers we have and the launches of the new products we have to the point we're seeing a little softness, for example, in some volumes in selected customers in Europe, but we're seeing a little strength in others in other locations. So I think our portfolio balance is such that we've been able to offset some of the negativity that we do see in selected markets. We are exposed to Russia. We are exposed to Brazil, and we're seeing some of that flow through. And I think what was interesting is that in absence of all of that, we probably would have increased guidance, elevated guidance as opposed to just maintaining guidance. So there is -- I think the important message here is that there's some darn good product opportunities here. There's a good customer mix and customer portfolio and a very good operating team that Jeff and I and all others, who have arrived here and I have the privilege of working with, who address and deal with issues when they arise. So for the most part, we've got good business growth. We've got a good market position, and we've got an operating team that addresses issues when they surface. So for that part, we're comfortable maintaining guidance, would have liked to have increased guidance, but again, with the softness you represented -- you reflected and the currency, we decided to not increase but just to maintain guidance.

[Ryan J. Brinkman:]

Okay, great. Then sort of the last question. You already got the question from Colin sort of, I guess, probing on how patient you're willing to be for investors to sort of come around to properly valuing your 2 remaining business. So I guess sort of approach it from a different perspective, what avenues are available to you, short of separation, to get investors to more properly value the 2 business? I mean, your communication is already excellent. You've done so much already to kind of simplify the business. What more -- is it just kind of more the same? Is it execution? Is it passage of time? And by that, what -- how do you plan, short of separation, to get people to focus on just the fact that Electronics trades at a crazy discount if you take the face value of HVCC?

[Timothy D. Leuliette:]

Interesting question. I think, first of all, probably, you would never associate the management team here with having the patience of Job. I don't think we're going to hang around the hoop here waiting for years for some sort of resolution to this. But on the other side, remember that for the first time, today, for the first time, we reported Electronics with JCI consolidation. And for the first time, today, we have shown what reaction from the consumer, from the consumer to the OEMs have been to that business model from a standpoint of order book and order intake. So I think we're going to let this digest, and then, of course, we're going to have the end of the year coming up. And I think the January conference that we usually have around the auto show here is always a big one for us to talk about strategy and options and what have you. And I think we'll continue that process of focusing our January discussion on our strategic direction. But at this point, this is the first quarter that we reported the Electronics piece, and this is the first -- and next quarter will be the first quarter Electronics -- the Interiors results will be gone. So I mean, we are in the sequence of the cleanup that I think we've mentioned numerous times. And let's get to the January conference, and we'll sit down. And I think we'll explore more strategic options at that event.

[Jeffrey M. Stafeil:]

And I guess, Ryan, I'd just also emphasize performance as something we're -- we focus on as we continue to turn that new business awards into new sales and into profits. Cash flow will be a huge element to us, obviously, getting you guys better communication on what the overall cash flow and tax picture of this business will look like. We also think it can drive value into the Visteon equation as well.

[Operator:]

Your next question comes from the line of Itay Michaeli with Citi.

[Justin Barell:]

This is actually Justin Barell on behalf of Itay. Just had a quick question on Slide 6 that you posted with regards to the new business. So $700 million to $800 million of incremental wins in Electronics. Is there any way you can give us a sense of how much of that's from the JCI business?

[Timothy D. Leuliette:]

It's hard to bifurcate that out because we -- I would say that yes, there's components in there -- take for example the Fusion smart core technology. That award that basically emanated from JCI may be easy to trace. But for example, there's driver information pieces and infotainment pieces that are already coming from the combined group, so it's kind of hard to separate who got what and where it came from. But then you did mention it. I do want to make sure that we're clear. How do we measure new business award? And what we do here is we measure the first year of the business award. And as we look at these things, these typically have, on average, about a 5-year award. The first year is sort of kind of what I'll call almost a good average because it goes up the first, the second and third year, and then it starts to fall off the fourth and fifth year when you look at vehicle life, et cetera. So if you want to look at the aggregate amount of what these awards are, some of our peers and competitors will multiply that by 5 or so and say that's the value of the award. We typically think that it's a better approach for you to analyze our business, to look at it as what is the annual impact on -- and it's basically the average annual impact of this business awards, and that's what those reflect. And it's going to be more and more difficult because immediately beginning the end of the first -- of the third quarter here, the first quarter that we had consolidated, we started consolidating and combining engineering groups. So that will be practically impossible to trace the heritage or the award locale as to who should be accountable for it going forward.

[Justin Barell:]

Sounds good. And then just, I guess, a follow-up on the whole JCI piece. You mentioned that in Q4, we should start seeing a ramp in synergies. Are you able to give us kind of a quantifiable number to that or maybe relative to restructuring? Although I know it's not like-for-like since restructuring is factored out of EBITDA, so...

[Jeffrey M. Stafeil:]

Yes. That's a good question. To some degree, the synergies really kind of lose their -- they will lose complete identity because it will all just be wrapped into other businesses. But as we model it, as we think about it, there's a few things that need to happen for those synergies to really get going. The first was obviously the combination of the 2 entities. And Tim mentioned, in late Q3, we did some adjustments on headcount to bring some of those efficiencies in. Another -- one of the big milestones from an administrative perspective will be bringing our -- getting off of the JCI service agreements and bringing that work in-house into Visteon. That's going to be driven heavily by IT. And that integration, bringing all those operations onto our IT systems, will be going on through the first half of 2015, and we'll have more opportunity there. But things like purchasing, things like engineering and manufacturing synergies will start to ramp somewhat modestly, I'd say, in Q4, not too much but really starting to build in 2015 and, I'd say, somewhat modestly at first but will really start once the IT systems are fully integrated. And we can get some of the other synergies in the back half of 2015.

[Operator:]

Your final question comes from the line of Brian Johnson with Barclays.

[Brian Arthur Johnson:]

Just want to drill down a bit in Electronics, housekeeping question and then maybe more of a strategic midterm outlook question. Housekeeping, just what kind of -- you talked about the Q4 recoveries. What percent of those or how many million dollars are you expecting in Electronics?

[Timothy D. Leuliette:]

$30 million.

[Jeffrey M. Stafeil:]

Yes, I think it's about $30 million. But just remember, as you look through our -- we get recoveries every period in Electronics and in our other business as well. The average probably in the mid-teens or so for the year, give or take on the other quarters. And then are higher, obviously, in the fourth quarter.

[Timothy D. Leuliette:]

Let me look that number up. Go ahead.

[Brian Arthur Johnson:]

Second question is we recognize that the whole goal is to create one Electronics business, but if we sort of think of the book of business JCI brought with it combined with your book of business, where roughly is the EBITDA margin range we ought to be thinking about?

[Timothy D. Leuliette:]

We still see this as a 10% EBITDA kind of business or so going forward, but it's going to take a while to get the JCI assets to that point, again, through the synergies and through the consolidation. But can we do better than that? Maybe we can do better than that. But at this point in time, that's the kind of number we've been talking about externally, of at least getting it back to double-digit EBITDA. I think the important part here is, and again, we expand upon, amplify -- to give you an example of where the other opportunities are which bring interesting margin opportunities for us is when we talk about downloading clusters and downloading infotainment packages, remember that some place in the cloud, that has to exist. And what -- the ability that JCI brought, combined with our own assets, is not only to do the cockpit ecosystem and the array of products that exist there, but now every bit of information in the vehicle, every bit of information that leaves the vehicle or every bit of information that comes down to the vehicle comes through our node. We are the node that, that information comes through and exits or enters. Accordingly, it provides us an opportunity now to start expanding into those assets that do download that data or that information. So it allows us to expand to connected services over time. And that's what is going to also fuel growth, and there's some very interesting margin opportunities in those particular segments. So as we look at the core business of cockpit ecosystems -- and that should work its way back to double-digit EBITDA margin during the cycle here. But the opportunity set for the other array of businesses that it opens up is also very attractive to us.

[Brian Arthur Johnson:]

Yes, which leads then to my final question. You kind of brought $300 million-ish backlog to the wedding. They brought $300 million of backlog to the wedding. You talked about their margin profile being lower, the business that was running through in prior quarters. But where is that backlog relative to where you want to be? And just more broadly, where is that backlog relative to the type of sophistication, complexity, scalability, cloud-based margins, wherever you want to go? How much of that kind of business is in the backlog versus to be signed?

[Timothy D. Leuliette:]

The backlog, a lot of question and content there. The backlog reflects an array of businesses for which -- for the most part, clearly fit our profile and clearly fit our projected path of where we want to take the business. The issue of the margins that they contain, again, the margin issues here, for the most part, embedded inside JCI was the fact that they carried more SG&A and they carried more infrastructural cost than our business base did. And as we work through that and clean that up, we're looking at those margins being, if that's the question, consistent with our own once we achieve that cleanup. And the issue is you can't get the cleanup done next week. There's a process here. There's some manufacturing facilities and the longer lead items that Jeff had mentioned, there's some shorter lead items on SG&A. But overall, the pricing of that is not the problem. The cost was the problem, the cost infrastructure issues are the kind of stuff we do well and are already working towards. I hope -- does that answer the question?

[Brian Arthur Johnson:]

Yes. That's what I was looking at. And then I guess the final question is kind of the things you talked about in terms of disruptive technology, future cloud-based opportunities. When we kind of bridge that into backlog and new business signings, are we seeing any of that yet? Or is that more where the signings are going to be coming from?

[Timothy D. Leuliette:]

In Q3, you saw the Fusion smart core cockpit ecosystem award. And I would suspect, the next time we talk, that you will also see an iCool award or 2 in the backlog.

[Brian Arthur Johnson:]

Okay. And roughly how many years until those are in showrooms?

[Timothy D. Leuliette:]

These are basically 2017 calendar, 2018 model. It's typical of where we're at are today. And just an interesting point there. When we launch these products, again, we know that it will be iPhone 9 when they launch, so the technology is reflective of the future, not today. So interesting stuff coming, interesting stuff coming.

[Robert R. Krakowiak:]

Very good. Well, thanks, everyone, for your participation in today's call. If you have any additional questions, please feel free to contact me at your convenience. And I'd just like to turn it over to Tim for some final comments.

[Timothy D. Leuliette:]

Thank you, Bob, and thank you all for your support and what have you over the years and your interest in Visteon. We continue to focus, as I said, on shareholder value and the creation of a better business here. We're pleased with the team. We're pleased with the progress in Q3, and we look forward to a good Q4 and a good 2014. Thank you all.

[Jeffrey M. Stafeil:]

Thank you.

[Robert R. Krakowiak:]

Thank you.

[Timothy D. Leuliette:]

Thank you. This concludes Visteon's Third Quarter 2014 Earnings Call. You may now disconnect.