BorgWarner Inc.

Good morning. My name is Sharon, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2019 third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. If you're using a speakerphone, please pick up the handset before asking your question. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Thank you, Sharon. And good morning, everyone. Thank you for joining us. We assured our earnings release at 6.30 a.m. Eastern Time. It's posted on our website, ForkWarner.com, on our homepage, and on our Investor Relations homepage. A replay of today's call will be available through November 14th. The dial-in number for that call is 855- The conference ID for that replay is 263-8875, or you can listen to the replay on our website. With regard to our investor relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the Invest section of our investor relations homepage for a full list. Before we begin, I need to inform you that during this call, We may make forward-looking statements, which involves risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performs and for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, net M&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Our outgrowth is defined as our organic revenue change versus the market. But now back to today's call. First, Fred LaSalle, our president and CEO, will comment on our Q3 results. This will be followed by a discussion of our recent cash flow performance. He will conclude with a discussion of our recent product highlights. Then Kevin Nolan, our CFO, will discuss the industry outlook as well as the details of results and guidance. Please note that we've posted an earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'll turn it over to Fred.

Thanks, Pat, and good morning, everyone. We're very pleased to share our results from Q3 today and also provide an overall company update. Let me start with the highlights of the quarter on slide four. I am pleased with our stronger than expected top line and margin performance in the quarter. With approximately $2.5 billion in sales, we were up about 4.5% organically. This compares to a market being down approximately 0.4%. So our outgrowth was about 490 basis points in the quarter, which was well ahead of our expectation, driven by stronger than expected revenue trends in Europe, essentially, and in China. Regionally, we saw outgrowth in all major regions. On an organic basis, our European light revenue was up double digits. Our North American and Chinese light vehicle revenue was up mid-single digits year over year. Our adjusted earnings per share came in at 96 cents, ahead of our guidance, driven by the revenue upside and better than expected margins. Our near-term cost actions are beginning to drive our incremental margins, and we are identifying additional cost-saving opportunities to sustain our strong margin profile. At the same time, we are also securing key new wins across combustion, hybrid, and electric, which is positioning us to deliver continued revenue outgrowth. In fact, in this quarter, we secure the world for two new products for electric vehicles, which I'll speak about in more detail shortly. Next, I would like to highlight our strong cash generation on slide five. As you know, cash flow has become an important focus for the company over the last couple of years. Year to date, we have generated $478 million of free cash flow, up significantly year over year, despite the volatile industry volume. We're able to drive this level of free cash flow thanks to our strong margin and earnings profile. Combining this with our increased focus on capital spending efficiency and working capital management, we remain poised continue to improve our free cash flow generation going forward. A strong cash generation allows us to reinvest in the business to support our continued revenue outgrowth initiatives. It also gives us an ability to provide real cash returns to our shareholders. We've been relatively balanced in how we've deployed this capital over time. As you can see, over the past five years, We've utilized about half of our free cash flow for strategy growth opportunities, while deploying the other half towards returns of capital to shareholders. We expect to maintain a balanced approach to capital deployment as we look ahead. In a few minutes, Kevin will talk about a strategic deployment of capital that we just executed this week, which allows us to eliminate our exposure to asbestos. Beyond our track record of capital deployment, our prudent leverage profile, combined with a strong cash generation, better positions us to manage the business throughout the demand cycle. At the same time as we manage through the challenging global market environment, we continue to focus on pursuing new business and new technologies. This quarter, we achieve continued success on both fronts, bookings and new technologies. For combustion products on slide six, I want to highlight two contracts. First, we're supplying our turbochargers to a global OEM for its gasoline engines in multiple markets, including North America. This program will start with two vehicles and expand to additional applications over the life of the program. And second, we're supplying our gasoline EGR technology to an Indian OEM for its small gasoline engines. This is an expansion of our existing business with this customer. Both of these wins point to the increased penetration of highly efficient gasoline engines around the world. They are also great examples of applying already proven solutions towards meeting demands of OEMs. This allows us to reduce time to market, reduce cost to our customers, while sustaining our product leadership in combustion propulsion. Now, let's turn to slide seven and discuss our first awards for two new electric vehicle products. First, our torque vectoring dual clutch for electric vehicles. This dual clutch design replaces the conventional differential in an electric driveline, while improving handling and maneuverability in an all-wheel drive application. This clutch distributes torque independently to the left and right wheels from its position on the rear axle. The technology features disconnect capabilities to minimize energy loss and increase range. This is a great example of applying our existing clutch and hydraulic controls expertise to electric vehicle platforms. This first award is supplying a major global OEM with startup production expected in 2022. Next, I'm glad to announce that we have secured our first contract for our integrated drive module, so-called IDM. This product integrates our highly efficient power electronics with our advanced transmission system and our drive motor technology. Our IDM creates value to our customers in several fields, including packaging, efficiency, low NVH, and of course ease of assembly. We're supplying a China EV brand for an electric vehicle which is scheduled to go into mass production in 2021. Importantly, all components used in this IDM are part of BorgWarner's owned technologies. We have ongoing interest from several customers and are currently pursuing multiple program awards for IDM. Our differentiation in electric propulsion is our full propulsion system expertise. Many of our competitors purchase some of their components and subsystems. In our case, we design and manufacture the motor, the transmission, and the power electronics, creating system value for our customers. This first IDM award is a significant step for BorgWarner. So let me summarize the quarter. We exceeded our expectation for revenue growth. Earnings were better than our guidance, driven by better top-line performance and our cost-saving measures. We delivered strong free cash flow. And the benefits of R&D investment in electric propulsion are continuing to pay off with the award of our first IDM contract. Before I turn it over to Kevin, I also want to commend and thank the entire BorgWarner team for how they have reacted to the challenging external environment. It is your actions, smartness, and dedication that allows the company to successfully manage the present while continuing to position us for future success. Now over to you, Kevin.