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.

Thank you, Fred, and good morning, everyone. Before I review the financials in detail, I'd like to provide a quick overview of the two key drivers of our third quarter results. First, our revenue outgrowth was ahead of our expectations at 490 basis points in the quarter. This was driven primarily by higher volumes of new programs and strong mix, especially in Europe. This puts us on track to deliver full-year revenue outgrowth of 350 to 400 basis points. Second, our margin performance was ahead of guidance, driven by better than expected sales and our focus on cost management actions. Let's turn to slide eight, where you can see our perspective on industry production. Overall, while production expectations continue to moderate in the quarter, the volatility of these forecasts has declined over the past few months. This is a welcome change. Looking specifically at Q3, global production for our market declined by 0.4% year-over-year, roughly at the midpoint of our expectations going into the quarter. Within that global result, we saw European production up less than 1% against a relatively easy prior year comparison. North America production was down modestly, while China production was down about 5%, as that market remains under pressure. On a four-year basis, we now expect the market decline to be in the minus 4% to 4.5% range, which is roughly in line with our prior outlook. By region, we're now planning for China to be down anywhere from 9% to 11% on a four-year basis, which is a modest improvement from a few months ago. Europe is likely to be down 3.5% to 4%, just as we previously expected. And North America is now likely to be down 2.5% to 3.5%, which is a little bit worse than before. As we look toward the remainder of 2019 and into 2020, we expect that the challenging industry conditions will continue, so we are managing our cost structure accordingly. Let's turn to slide nine. As we look at year-over-year revenue, you can see the impact from the thermostat divestiture we executed earlier this year. In addition, you can see that the stronger U.S. dollar reduced revenue by about 2.7% from a year ago. Excluding these items, our organic sales were up 4.5% despite the 0.4% decline in industry production. This is the 490 basis points of market outgrowth. And importantly, this outgrowth occurred in all of the major light vehicle markets around the globe. In Europe, our light vehicle organic revenue was up double digits on strong new programs and platform mix. And in China, we grew double digits over the market. Partially offsetting the strength in our light vehicle growth, our commercial vehicle and off-highway businesses declined relative to last year, resulting in a more than 100 basis point drag on our total organic growth. Overall, we're pleased that we continue to deliver revenue outgrowth even in this challenging end market environment. Now let's look at our adjusted operating income performance, which can be found on slide 10. Q3 adjusted operating income was $294 million compared to $293 million in the third quarter of 2018. Our adjusted operating margin was 11.8%, which was flat year over year. On a comparable basis, adjusted operating income increased $9 million on $109 million of higher sales, which translates to an incremental margin of roughly 8%. Even though this was below our long-term expected incremental conversion of 15%, the result was still ahead of our guidance due to stronger revenue and our cost management actions, which included a reduction in R&D spending in our engine segment compared to the same quarter in 2018. Adjusted earnings per share was 96 cents for the quarter, above the top end of our guidance range, The $0.04 decline in earnings per share compared to the third quarter of 2018 was driven by lower equity and affiliates earnings and a slightly higher tax rate. Moving to cash flow, as Fred discussed earlier, we are proud of the fact we delivered a strong result for the quarter. In the third quarter, we generated $255 million of free cash flow, significantly stronger than the $126 million we delivered in the same quarter a year ago. This is a great result as we continue to focus on cash generation as a management team. Now let's take a closer look at our segment results on slide 11. Engine segment sales were just over $1.5 billion in the quarter. Organic sales for the engine segment increased 4.6%, or $69 million, despite lower industry-wide production. Growth in Europe for our engine business was partially offset by the impact of the weaker China end market. Adjusted EBIT was $241 million for the engine segment, or 15.9% of sales. On a comparable basis, the engine segment's adjusted EBIT was up $8 million on 69 million of higher sales. Drive train segment sales were $993 million in the quarter. On a comparable basis, sales for the drive train segment increased 4.2% year-over-year, also meaningfully outperforming the market, driven by strong outgrowth in China and European mix. Adjusted EBIT was $100 million per drivetrain, or 10.1% of sales. On a comparable basis, the drivetrain segment's adjusted EBIT was down $5 million on $41 million of higher sales. The adjusted EBIT decline was driven by higher R&D spending and launch-related costs, primarily in China. Now I'd like to discuss our full year guidance, which is on slide 12. Our guidance is based on the end market assumptions I discussed earlier, with global production down 4 to 4.5%. Despite that, we expect organic revenue to be in the range of down only 1% to roughly flat. That's because we continue to expect to drive significant market outgrowth of 350 to 400 basis points for the full year. This is in line with our year-to-date outgrowth of approximately 400 basis points. With these organic growth assumptions, we now expect total revenue to be in the range of $9.95 billion to $10.1 billion. The midpoint of this guidance is slightly lower than the midpoint of our prior guidance, as there is an additional $105 million of FX headwinds that are offsetting the benefit of stronger organic growth. Our adjusted operating margin is now expected to be in the range of 11.7 to 12.0%. The 20 to 30 basis point increase in our margin outlook relative to our prior guidance reflects stronger organic growth, which has a higher incremental margin than the margin impact of the additional FX headwinds, and cost management actions, including lower full-year R&D relative to our prior planning assumptions. We continue to proactively manage and align our overall cost structure to the revenue we're actually seeing in the marketplace while ensuring we continue to support the investments that drive our sustained revenue outgrowth. For full-year adjusted EPS, we've tightened our guidance by increasing the bottom end of our range by 10 cents as a result of our stronger margin outlook. Therefore, our new guidance range is $3.85 to $4 per diluted share. And finally, we're now targeting free cash flow of $550 to $600 million, which is up $25 million from our prior guidance. In addition to higher earnings at the midpoint of our guide, we expect capital spending to come in lower than our prior guidance. That's our 2019 outlook. Before we move to Q&A, I'd like to spend a few minutes discussing an important transaction you saw us announce yesterday, which is summarized on slide 13. On Wednesday, we signed and closed on a transaction in which we effectively sold the company's asbestos liabilities to a subsidiary of NSTAR, which is a publicly traded insurance company that specializes in managing runoff liability exposures like asbestos. The transaction involved BorgWarner investing $172 million in cash into the non-operating legal entity that holds the asbestos liabilities. we transferred this entity, including the cash and other related insurance assets, to the buyer. The result of this transaction is that we expect to remove the $772 million in asbestos liabilities from our balance sheet. By eliminating the company's exposure to this liability, we will also avoid future exposure to the annual defense and indemnity cash costs, which have been running in the $45 to $60 million range, as you can see on the slide. We think this was an important strategic deployment of capital that will eliminate the overhang of asbestos liabilities on our balance sheet and our cash flow. Overall, we had a really solid quarter as we delivered 11.8% adjusted operating margin, 490 basis points of market outgrowth, 96 cents of adjusted EPS, which was above our guidance range, and $255 million of free cash flow. On top of that, we executed a very important de-risking transaction this week. As a management team, we are taking the necessary actions to maintain our company's historically strong margin profile and strengthen our free cash flow generation. We'll continue to do this while managing through a very difficult near-term market environment that we expect will continue for the remainder of 2019 and likely into 2020. With that, I'd like to turn the call back over to Pat.

Thank you, Kevin. Sharon, we're ready to open it up for questions.

At this time, I would like to remind everyone, if you'd like to ask a question, press star 1 on your telephone keypad. If you're using a speakerphone, please pick up the handset before asking your question. In the interest of time, please limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Joseph Spack with RBC Capital Markets.

Thanks, everyone. Good morning. I guess I just first wanted to focus on the backlog that you're indicating for this year. It's within the range you talked about at the beginning of the year, but it does look like it was raised 15% at the midpoint versus what you indicated last quarter. So I apologize if I missed this, but did something come back or did something pull forward, or what was the cause of that revision?

Joe, the major driver is – actually from the engine group, better than expected new program launch and associated volume on small gasoline in Europe. That's the main driver.

Okay. So you took that down last quarter and then the volumes were just stronger than you thought as this quarter progressed?

Yeah. Yeah. Yeah, it was difficult to forecast with the volatility of the market, and it turned out to be better than expected.

Okay. And then just on the IDM market, it's nice to see a win there. Can you talk a little bit about how, now that you're sort of bidding on those awards, how you see that market evolving, you know, is having all the subcomponents a true differentiating feature in winning that award and as you go after additional business?

Yeah, we think it is a true differentiating feature because by not only developing and buying but also manufacturing the three key elements of that IDM, we're able to design it smarter and make it smarter and make it lighter. And, you know, in those systems, this is the interaction of those subsystems that make the product creating value in different shapes of form for our customers. So we think that it is going to be a differentiating factor, and it has been for this business win.

And in the quoting, are you seeing any shift towards – more of an integrated product versus more of a source by component strategy?

This one was a system. We also, as you know, are in production with what we call EDM, which is transmission and motor. We're not forced to sell system. We're happy to sell systems or subcomponents. What's important in this market is to understand the system. in order to partner with our customers and sell them whatever they want. And we are in this position. Okay. Thank you. Thanks, Joe.

Next question. Next question comes from Noah Kay with Oppenheimer.

Thanks. Good morning. So a high-level question first. You know, we're a few months away from the start of the implementation in Europe, the more stringent CO2 standards. I guess just based on your conversation with customers, what you've got in the pipeline, as this process plays out over the next few years, you know, how does this impact BorgWarner in terms of content-previewable growth, backlog, other dynamics?

So Europe, first of all, the second half of this year is stabilizing, and it's a good thing. It's true that it's comparing to a rather weak second half of 2018. And we see no signs of WLTP disruption. Now, as far as next year is concerned for RDE, I would say that it's difficult to forecast, and we will give you our look in our Q4 call. The good news for us is that these standards in Europe will drive opportunity for our, you know, components and systems. So we see that as a plus. How this, what will be the disturbance in 2020 due to the RDE validation remains to be seen. And again, Noah, we'll give you some more color in our Q4 call.

Okay. Appreciate that. You know, I think you commented on the key points of having an integrated solution with the ITM. and just knowing all the components there. So I want to ask about integration on sort of a similar product, which would be electric turbochargers. I think one of your competitors recently stated they're introducing an e-turbo where the motor's integrated on the shaft of the turbo unit. You know, clearly you've got in-house competencies around both turbos and electric motors, so engineering an integrated unit would seem feasible. I guess just, you know, is that in your product roadmap? Is it something your customers are asking for? And more generally, how do you see your competitive positioning with respect to electrically boosted turbos?

Yeah. So we are in production with e-boosters since quite some time with Daimler and others. And it is pretty much also a motor around the turbo and our own power electronics. It's also... a system that requires understanding of turbo, motor, and power electronics. So we have that in our portfolio. That's the e-booster. We also have e-turbo in our portfolio, and we think that this market will see some daylight in the next years to come. We believe that electrification of turbochargers will drive growth for us.

Okay, very helpful. I'll jump back in queue, thanks.

Thanks, Noel.

Next question comes from Ryan Brinkman with JPMorgan.

Hi, great. Thanks for taking my question. You know, maybe just first, can you talk about what you think the impact of customer consolidation is on the supply base or on BorgWarner? Are there any market share or pricing implications for investors to consider?

Are you – well, overall, you know, we are very global, and we serve all markets around the world. There is not one customer that we don't serve. And to the extent that they use the same propulsion and they want to combine forces, I think there are costs and benefits to both us and them. So, you know, we focus on what we can control, and what we can control is carry on delivering great products that deliver value to any customers around the world.

Okay, great. Thanks. And can you please remind us of your latest exposure to commercial vehicles and your outlook for this market? Some of the other suppliers reporting this quarter have called out softer production of off-the-road vehicles where I think you're primarily commercial on highway. That's tracked better, but there's a lot of, you know, changing estimates for next year. Just curious how you're thinking about that. Yep.

Commercial vehicle overall is about 13%, 14% of our revenue, and it's very, very, I would say, fragmented around the three continents, about a third in North America, a third in Europe, and the last third between China and Brazil. It's also very fragmented as far as Class A is concerned and off-highway and agricultural construction. And it's true, CV was down this quarter, especially the Class 8. And we'll give you our view of 2020 in the Q4 call. But again, when you think about 14% or 13% of revenue for CV for BorgWarner, don't associate that to U.S. Class 8. It's much more than that.

Very helpful. Thank you. Welcome.

Your next question comes from Emmanuel Rosner with Deutsche Bank.

Good morning. Good morning, Emmanuel. First, some clarification on backlog, if there is anything you can give in terms of incremental callers. I guess last quarter you were sort of like taking your expectations down for this year's backlog. In particular, you were making a fairly bold forecast or assumption of essentially no backlog in the third quarter. Obviously, extremely pleased with your performance this quarter, 153 million, but it sort of feels like just incrementally higher volumes wouldn't sort of like explain going from like zero to like 150. Anything else you can give us in terms of dynamics of why you maybe felt somewhat less positive and what actually sort of been playing out in the quarter that turned out to be a really, really strong backlog?

Yeah. So the last quarter guide, from a backlog perspective, we actually thought that the China backlog was going to be down. And we saw that Q3 was modestly stronger than expected. But as I mentioned in my prepared remarks, the majority of the backlog is better than expected engine products related to small gasoline European platforms. And it was also a little bit of mix in Europe, too. And that was not forecasted, right? It's a good surprise that we take. We have enjoyed that outgrowth and also converted very well on it.

Understood. And are you able to talk about implications from, I guess, the backlog now for this year trending towards the high end of the range communicated all the way back in January despite some fairly meaningful weakening in, I guess, production environment. What are the implications for that in terms of your existing three-year backlog? Are the puts and takes still the same where the volumes are maybe weaker than back in January but at the same time potentially faster rollout of some of these launches or better volume on some of these new products or is it too early to tell?

Yeah, I think it's I mean, I think overall what I would tell you is as we look ahead, obviously the markets are looking a lot different than they were maybe a year ago at this time, and undoubtedly that will have implications on the business. You know, we'll give more updates on our longer-term outlook when we get into our analyst day in the spring upcoming. But at this point, we're not prepared to give guidance on that in terms of the long-range outlook. But I would say, obviously, market has changed from where we were a year ago in terms of our outlook.

Understood. Thank you.

Next question comes from with Morgan Stanley.

Great. Thank you for taking the question. I was hoping you could, as we look ahead here and think about some of the puts and takes for margins into 2020, obviously a lot of it's driven by global production, the environment in China, the backlog in China, the emission standards in Europe. you know, something within your control is the cost management, which you've done a good job on. But, you know, trying to think through, you know, how you plan to attack costs of goods sold and manufacturing.

I think, I mean, a focus point of ours, as I've talked about in my remarks, is sustaining our strong margin profile. And obviously, as we indicated on the call, we expect that the markets are going to remain under pressure and challenged as we look ahead to 2020. And so our continued focus on managing cost performance is going to be a key element of how we think about 2020. So when we give guidance in February, you can expect it to reflect that we expect the markets to be under pressure, and we're going to look at cost actions that are appropriate to take to make sure we sustain the margin profile we have.

Okay. And then with regards to the asbestos transaction, can you remind me how the accounting works for the cash cost? Does it flow through the income statement, or is it a cash flow item?

It's a cash flow. The entirety of the liability has been accrued on the balance sheet, and so what happens is when we have cash costs, it simply relieves the liability. So it's not P&L. It's purely cash, but it's obviously real cash going out of our pockets, $45 to $60 million every year. Okay. Much appreciated.

Next question comes from John Murphy with Bank of America.

Good morning, guys. Just sort of in light of the investor of the thermostat business and what you're doing with the specified ability, it seems like you're a little bit more open to at least small portfolio actions and sort of a little bit of restructuring here. Given the balance sheet's pretty under levered, 0.7 times, at least relative to other folks in the industry, I'm just curious how open you are or how active you are in your portfolio review and potentially adding maybe some acquisitions, given the stress that we might see, there might be some really good stuff that opens up in the next year or two. I mean, how are you thinking about that, and how far could you go on leverage?

Yeah, we're managing our portfolio actively, and we will do that going forward. From an M&A perspective, what drives our approach is the drive for technology in two elements. First would be scale and competencies in in electronics and secondly, system focus in electric propulsion. So we do that very disciplined and it is a focus of us and we just carry on doing that.

So Fred, it's fair to characterize that as small acquisitions that would be focused on the EV power train is really where you're headed. Nothing that would be big bang, nothing that would be in quote unquote sort of old school combustion technology. Is that a fair statement?

Again, we'll be opportunistic, but also very disciplined in how we see that. The drive will be technology. That's the punchline.

Okay. And then just a clarification on the sale of the specific liability. It's being called Morse Tech. Is there anything going on with the chain business that's being sold, or is that all residing? Is this just the way that this has been structured under the name Morse Tech? Just a little confusion.

Can I say it? They unfortunately happen to share the name Morse, but the Morse Tech entity that was transferred to NSTAR is a non-operating subsidiary of the company. So there is no portion of the operating business, including the chain business, that was transferred as part of this. It's still absolutely an important part of BorgWarner going forward. So it's literally the liability and the assets going over. That's called Morse systems. It's the liability that happened to reside in a legal entity that had the name Morse Tech LLC. That's what's been transferred to NSTAR. Non-operating, it really has the asbestos liabilities, some environmental liabilities, then the cash and the insurance-related assets. That's very helpful. Thank you very much.

Once again, if you'd like to ask a question, please press star 1 on your telephone keypad. We have a question from David Kelly with Jefferies.

Good morning, guys. Thanks for taking my questions. You alluded to the cost initiative starting to bear fruit. I think you're targeting $40 million to $50 million in savings over some 18 months or so. Can you kind of update us on where we are in that process?

Yeah, I think you're starting seeing evidence on the results in our Q3, and as Kevin alluded to, We will give you some more updates in the Q4 call. We started by looking at the SG&A and the corporate costs, and now we take a bit of a more aggressive look at our manufacturing costs and other structural costs, and that's the picture that we're going to give you, hopefully, early next year. So far, on track.

Okay, perfect. Thank you. Maybe I get the same answer for this question, but just thinking back to your last three-year backlog update, 80% of it was tied to EVs and hybrids. It clearly weighted more to hybrids, though. It seems like over the last few months, EV adoption has been a bit softer than most expected, particularly in China. Are you more or less bullish today on hybrid adoption and potential sales growth, and do you foresee the pace of EV adoption getting pushed out even further?

We are bullish on electrification overall. We think that the world's moving towards electrification. And for us, with our portfolio, it doesn't really matter if it's hybrid or electric. We are in a position to support the customers with whatever they want to do.

Okay, thank you. Just a quick follow-up. You weren't seeing any – you've got a lot of – you're getting a lot of traction in China in the EV market. Are you seeing any pullback in customer interest in the technology or transition to hybrids or anything there?

You have a little bit of noise driven by incentives. And, yes, we saw the EV pool in China getting a little bit choppy. But the contracts are still coming in, and we think that the long-term outlook for electric vehicle, as well as hybrids in China, is very strong for us. Perfect. Really appreciate the call. Thank you.

Thank you.

At this time, I will turn the call over to Mr. Nolan.

I'd like to thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me directly. Sharon, you can close the call.

That does conclude the BorgWarner 2019 Third Quarter Results Conference call. You may now disconnect.