Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nexteer Automotive Group Ltd (NTXVF, Financial) launched a record 38 programs in the first half of 2024, including 32 new or conquest awards and 18 pure BEV models.
- The company secured $2.1 billion in new business bookings in the first half, with significant contributions from Chinese NEV customers.
- Nexteer achieved first-half 2024 revenue of $2.1 billion, with EBITDA growing by 6% year over year and margins expanding by 50 basis points.
- Operational efficiency initiatives, such as global supply chain management and fixed cost reductions, are enhancing profitability and resiliency.
- The company is on track to achieve its full-year booking target of $6 billion, demonstrating strong business momentum and market alignment.
Negative Points
- The Brazil flood impacted first-half results with lower revenue and increased operational costs.
- Unfavorable foreign exchange rates, particularly the Polish zloty and Mexican peso strengthening against the RMB, negatively affected financial performance.
- Net profit of $16 million was lower by $18 million compared to last year, partly due to a $14 million impairment charge from customer program cancellations.
- North America revenue decreased by 6.3% year over year, driven by certain customer programs ending and underperformance in the truck and SUV segment.
- The company faces ongoing pricing pressures in the competitive APAC market, particularly due to extended price wars among OEMs.
Q & A Highlights
Q: Nexteer's new bookings amount reached $2.1 billion in the first half this year versus last year. It was around $2.7 billion. But as you mentioned, the team is still targeting $6 billion in bookings for the full year. What will drive the significant increase in the second half?
A: We are on track for a full year of $6 billion in new business bookings. The timing of bookings is based on customers' sourcing timelines, and more of these decisions are happening in the second half of the year. We have full expectations to achieve our goal by the end of the year based on our plan.
Q: Regarding project cancellations, are we expecting more program cancellations in the second half due to the industry's production volume forecast reductions and scaling back on EV targets?
A: The largest impairment was related to a US-based customer's autonomous vehicle program, which was a specialty program. We don't see a trend forming; it appears to be more of a one-off item.
Q: Am I understanding correctly that you're now expecting global auto production to be down 2% year over year for the full-year 2024, and Nexteer will be 300 basis points above the industry, implying around 1% YoY revenue growth?
A: Yes, we are now expecting a 2% reduction in global production volumes for the year. We had initially guided for 300-400 basis points above market, but now expect to be around 300 basis points above market due to lower volumes with certain customers and relatively lower EV volumes in North America.
Q: What are the key reasons for a lower first-half EBITDA margin compared to the readjusted EBITDA margin in the last year?
A: We posted a 9.4% EBITDA margin in the first half, which was aligned with our expectations. Typically, we see more performance improvements in material costs and revenue mix in the second half, allowing for higher profit margins. We still intend to finish the year above double-digit EBITDA margins.
Q: Is the revenue guidance adjusted for FX, or is it the reported revenue that we could expect?
A: The revenue guidance is adjusted for FX.
Q: Will the 35% income tax rate continue in the future, say, 2025 to 2026? And will early retirements impact margins in the second half?
A: The higher tax rate is due to our US operations being in a valuation allowance position, which we expect to exit by 2026. Once we exit, we anticipate our ongoing income tax rate to be in the mid- to high teens. Regarding early retirements, cost savings will be realized in the second half of this year.
Q: Can you provide more details about the customer program cancellation related to the local taxi by a US customer?
A: We can't comment specifically on which programs have been canceled, but the customer made an announcement of canceling one of their autonomous vehicle programs, and it is a US-based OEM.
Q: What are the key factors driving Nexteer's strong performance in the Asia-Pacific region?
A: Our strong performance in Asia-Pacific is driven by significant new and conquest program launches with China OEMs. We have strategically targeted opportunities to capture new growth momentum and capitalize on the electrification megatrend with diversified product lines.
Q: How is Nexteer addressing the challenges in the APAC market due to fierce competition and extended price wars?
A: Despite the challenging factors, our APAC team maintained healthy profitability through flexible modular design architectures, lean production systems, and cost controls through bill of material reductions and design and process innovations. We expect a gradual easing of pricing headwinds moving forward.
Q: What is the status of Nexteer's steer-by-wire technology development and its market adoption?
A: We continue our commitment to technology leadership with steer-by-wire development. We expect the market dominance curve to switch to steer-by-wire starting late in this decade. Our first steer-by-wire launch is expected in 2026 with a China OEM, followed by additional global programs before 2030.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
