Bill Robertson - VP of Operations, Finance and IR Sachin Lawande - CEO, President & Director Christian Garcia - CFO and EVP.

Steven Michael Hempel - Barclays PLC David Lim - Wells Fargo Securities, LLC David Tamberrino - Goldman Sachs Group Inc. Joseph Vruwink - Robert W. Baird & Co. Ryan Brinkman - JP Morgan Chase & Co Tavis McCourt - Raymond James & Associates, Inc..

Operator:.

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..

China, Europe, and North America as well as global vehicle production. If you recall, China had a strong first quarter in terms of production growth, which came on the heels of an even stronger fourth quarter of 2016. In the second quarter, production slowed and was slightly negative compared with the second quarter of 2016.

Looking ahead, IHS now projects that vehicle production in China will decline by 1% for the second half, which will reduce full year growth to about 1% compared with 2015. We believe that fourth quarter production volume will depend largely on whether the Chinese government retains the current level of incentives pertaining to automotive purchases.

This will only become clear towards the end of the third quarter. Nonetheless, based on our discussions with OEMs and partners in China, we are more optimistic about vehicle production in China than IHS for the second half and the full year of 2017. For Europe and North America, our outlook for production is in line with IHS.

Europe had a strong first half in terms of vehicle sales, which should drive better production performance in the second half. The headwinds faced by the industry in North America are expected to reduce production by 4% in the second half, resulting in a full year reduction of about 2%.

Looking at the global picture, vehicle production was up about 3% in the first half, and this is expected to slow to a rate of 1% growth in the second half of the year. According to IHS, this will result in global vehicle production growth of about 2% for the full year.

While we remain slightly more optimistic about China, our production outlook is generally in line with IHS, and we have taken this into account in our full year outlook for sales which we will discuss shortly.

We continue to watch global vehicle production very closely, and we will remain diligent in controlling operational costs to stay aligned with changing market conditions. Now moving to Page 10.

As we continue to transform the company from a traditional automotive supplier to a technology leader in cockpit electronics, it's important that our progress is visible to the industry and that our technology capability is recognized by key customers.

On this page, we highlight a few of the recent recognition and awards Visteon has received from customers and the industry for our innovative technologies.

Our SmartCore cockpit domain controller solution, for which we now have 4 key future programs with automakers, recently won a highly coveted technology innovation award from the German Center of Automotive Management.

SmartCore earned this top innovation prize in the category of strongest innovation from automotive supplier for interface and connectivity. We were also pleased to win a 2017 Innovation & Technology award from Volkswagen for all digital fully reconfigurable instrument cluster technology.

This is the first such award we have won from this customer and I had the pleasure of accepting this award from Matthias Müller, CEO of Volkswagen group; and Dr. Garcia Sanz, Head of Global Purchasing and Member of Management Board, at VW's annual supplier event in June in Berlin.

Additionally, we had a strong presence at the Shanghai Auto Show in April where we showcased all our key products and technologies, including SmartCore and our Phoenix infotainment platform.

It was a very successful show for Visteon, and we were visited by executives from 30 different automakers leading to meaningful new business discussions on multiple products. Moving to Page 11. In summary, we had a very strong second quarter, capping off a first half performance that established a solid foundation for the rest of 2017.

For the quarter, our sales of $774 million and adjusted EBITDA of $84 million were both above year-ago levels. We had exceptional performance in China on account of our new product launches, which offset the slowdown in vehicle production, and we achieved our 10th consecutive quarter of year-over-year adjusted EBITDA growth.

Our adjusted free cash flow was also strong at $87 million. Looking at the first half, a $3.1 billion in new business wins increased our order backlog to an all time high of $17.3 billion. We are encouraged that our new business wins align closely with the key industry trend of digitization, in instrument clusters, infotainment and domain controllers.

We launched a total of 25 new products in the first half, and we delivered an adjusted EBITDA margin of 11.7%. I'm pleased with the second quarter results and the progress we continue to make as the leader in the transformation of the digital cockpit.

Our results demonstrate that our customers, who include virtually all of the world's most significant automakers, value our technology, and we remain committed to drive shareholder value through technology innovation as well as operational excellence.

That concludes my overview comments, and now Christian will walk you through our financial results for the second quarter..

Europe, U.S. and China. In fact, despite the decline in production volumes in China in the second quarter, our Q2 China domestic sales increased 38%, excluding currency. This indicates a decoupling of our sales with the market's production volume profile as our revenue growth was driven by strong new product launches.

This is giving us confidence on our expectation of achieving double-digit sales growth for the full year 2017 for this market. Moving on to the next page. On Page 15, we highlight electronics adjusted EBITDA and adjusted EBITDA margins for second quarter of 2017 versus the same period last year.

Electronics adjusted EBITDA was $84 million in the second quarter. As we have stated previously, Visteon adjusted EBITDA is seasonal with the strongest quarters being the fourth and first quarters. The seasonality reflects production patterns during the year and the calendarization of engineering recoveries.

Adjusted EBITDA increased $5 million in the second quarter versus 2016. The increase reflected the impact of new business and favorable cost performance. Year-over-year currency decreased adjusted EBITDA by $5 million. The negative currency impact was primarily driven by the RMB and the euro.

The majority of this impact was related to a onetime balance sheet revaluation. We had strong contribution from materials savings, lower SG&A and engineering costs, including higher engineering recoveries, which provided a total of $27 million and fully offset the impact of contractual pricing arrangements with the customers.

Adjusted EBITDA margin was 10.9% in the quarter and represents an improvement of 50 basis points compared with the second quarter of 2016. Since 2015, we've had consecutive year-over-year quarterly improvements on this metric. Moving to Page 16. Page 16 provides our cash flow.

Adjusted free cash flow was a positive $87 million for the quarter compared with $79 million in the second quarter of last year. We have strong cash flow performance despite the timing of our trade working capital.

We had good cash inflows from working capital in Q2 of 2016 compared to Q2 of 2017, primarily driven by the timing of milestone billings for engineering recoveries this year. We had restructuring and other payments of $6 million in the quarter. The year-to-date payments are $18 million, and we expect full year payments to be approximately $40 million.

We also have one remaining legacy payment, which we expect will happen in the third quarter of this year. It is a $34 million payment related to the sale of an interiors facility. With this payment, we will have completed all actions pertaining to the transformation of Visteon into a pure play electronics company.

This page also shows our cash balance and leverage position. Our cash balance is currently $734 million, approximately $40 million higher than our cash balance at the end of the first quarter despite our ongoing buyback program. Debt is $389 million. Turning to Page 17.

As we have stated previously, we entered into a $125 million accelerated stock repurchase program in the first quarter in which the final delivery of shares was completed in May of 2017. This was the first piece of a $400 million buyback authorized by our board at the beginning of the year. We repurchased 1.3 million shares with this ASR.

During the second quarter, we repurchased an additional 359,000 shares worth approximately $35 million via the open market. This has brought our total repurchases to 1.7 million shares at an average price of $96.41 on a year-to-date basis. Our current diluted share count stands at 31.7 million.

We still have $240 million remaining in our authorization, which we intend to complete by March of 2018. Turning to Page 18. We are reaffirming our full year 2017 financial guidance for sales, adjusted EBITDA and adjusted free cash flow.

For the full year, we are projecting sales of $3.1 billion to $3.2 billion, adjusted EBITDA of $355 million to $370 million and adjusted free cash flow of $165 million to $180 million. As I mentioned, we do not expect to have any sales or adjusted EBITDA related to our other product group or discontinued operations in 2017.

Our first half performance gives us a strong start for the year. We've reaffirmed our guidance as the current IHS forecast supports our outlook for the remainder of 2017. Our second half financials will be subject to our typical calendarization.

The third quarter is our seasonally weakest quarter due to customer plant shutdowns, while the fourth quarter normally benefits from increased sales and higher engineering recoveries. This calendarization is typical and follows historical patterns. Now let me turn it back to Sachin for some closing thoughts..

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

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?.

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..

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?.

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..

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

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..

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..

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?.

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

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. .

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..

Your next question comes from David Tamberrino with Goldman Sachs..

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?.

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..

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?.

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..

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?.

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..

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

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?.

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..

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?.

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..

Your next question comes from Ryan Brinkman with JPMorgan..

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?.

instrument clusters and audio infotainment. And most of the business that we are launching is coming from these two product segments. As we are going forward here, we are also seeing a lot of interest in head-up displays, which we have recently started and have started to launch the products as well.

And as we go forward, our SmartCore technologies and Phoenix is attracting a lot of attention. In terms of our performance there, you are right, it matters less. But nonetheless, production always is important. It is a factor with the new business -- of the new products that we have launched as this impact of software production is mitigated somewhat.

But we would like to see the production environment still be very robust. So we are looking forward to see what the Chinese government will do here towards the end of October, early November with respect to the incentives. And that will have a big impact on the production environment.

Looking forward beyond this year, I still am very optimistic about our situation in China. China today represents still a much lower portion of revenues than what it represents as a share of the global vehicle production. So we have a long runway ahead of us. We have started to gain traction with domestic OEMs.

Most of our business in the past used to be focused on international joint ventures. We have made a very targeted effort at growing our business with domestic OEMs, which is starting to show results.

And we have started to take our new technologies, Phoenix and SmartCore in particular, and that's gaining a lot of attention, which will serve us well post this year. So overall, we remain very optimistic.

And even if the production volume in outer years starts to slowdown in terms of growth, which is what you would expect given the size of the market, we feel that there is a lot of room for us to play because of our relatively small size and the massive market that it represents..

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..

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?.

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..

Your next question comes from Tavis McCourt with Raymond James..

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?.

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

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

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

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?.

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..

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

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

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?.

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

Yes. Non-core, sorry. Yes..

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..

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

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..

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