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 borg warner 2020 first 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'd 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. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, on our homepage, and on our Investor Relations homepage. 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. Okay. our actual results may differ significantly from the matters discussed today. During today's presentation, we'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes of 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. 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'm happy to turn the call over to Fred.

Thank you, Pat, and good morning, everyone. We're very pleased to share our results for the first quarter and provide an overall company update. Let me start with the highlights of the first quarter on slide five. While the industry production rates were clearly volatile during the quarter, we performed strongly on a relative basis. With approximately $2.3 billion in sales, we were down about 8.1% organically, and this compares to our market being down almost 20%. This means we drove significant outgrowth. In fact, for the quarter, we saw double-digit outgrowth in all major regions. Our decremental margin was approximately 26% in the quarter as our margin performance was impacted by COVID-19 related shutdowns. Given the pace at which the shutdowns occurred, we think this is a relatively good outcome. We delivered strong free cash flow of $146 million for the quarter, providing an additional cash cushion as we managed through the lower production levels expected in the second quarter. Lastly, I am proud on how the team has reacted to this challenging environment. We met the challenges of managing all the leaf production shutdowns at our facilities in Europe and North America, while also managing production ramp-ups in China. Let's now turn to slide six, where you can see our perspective on the global industry production. Overall, we expect a very challenging environment in 2020, especially in the second quarter. On the full year basis, we expect the market decline to be in the minus 25 to minus 31% range. Looking at this decline by region, we're planning for Europe to be down in the 29 to 38% range. In North America, we expect a 27 to 35 percent decline. On the relative basis, the outlook for China is stronger as their shutdown in Q1 was shorter than what we're seeing in the other two geographies, but we still expect 18 to 21 percent decline in China production for the full year. As you'll see from the line chart showing our different scenarios, Q1 is the quarter which has the largest expected production declines, and at the same time, the most uncertainty. The biggest drivers for these declines and the significant uncertainty are the timing of production restarts and the pace of industry production ramps. Under our high-end scenario, which is represented by the light green line, We're expecting Europe and North America production to largely resume by mid-May. Our low-end scenario, represented by the dark blue line, uses the assumption that Europe and North America will not resume production fully until mid-June. For both scenarios, we expect the second half of 2020 to remain challenged due to lower consumer confidence. Visibility into the production outlook had certainly improved versus a month ago, but there is still a tremendous amount of uncertainty around plant restarts, the pace of production ramp-ups, and ultimately consumer demand. We're maintaining a very active dialogue with our customers and suppliers in order to support an older production ramp-up and manage effectively through this challenging environment. On slide seven, you see the cost actions that we've taken to help moderate the impact of these severe production declines. These cost actions have been across all major areas of the company. We've taken temporary salary reductions in many locations throughout the world, including 20% pay cuts amongst our senior executive leadership team. Employees at many of our facilities have been put on temporary layoffs due to lower production or, in many locations, the complete production shutdown. And we also worked with our strategic third-party relationship vendors who have, in most cases, agreed to share in the economics of this situation by voluntarily reducing their work or billing rates. These actions what painful are the right things to do for the financial well-being of our company. I want to thank all involved, especially our internal team members who have kept their focus and strong engagement despite the sacrifices that have been endured. The industry's next big challenge will be to successfully manage the production restart. Let's take a look at how we'll manage this on slide eight. While we must be ready to supply our customers as they resume production, we are first and foremost focused on what is best in terms of health and safety of our people. We've formed a high-level task force that has and will continue to roll out our Safe Restart program to all our global facilities. The program includes a set of 17 minimum standards and nine additional recommended best practices. However, our focus on the safety of our people will extend beyond these standards. We have already seen additional innovative safety solutions developed at the plant level, and we will continue to utilize and promote this innovation to other facilities around the globe. It is this plant-level innovation and the appetite to share ideas that is promoted by the board on the culture. Let's now turn to slide nine. I would like to briefly comment on our Seneca South Carolina plant, which was unfortunately struck by a tornado on April 13th. Seneca is one of our largest plants supplying transfer cases to multiple OEMs in North America. Thankfully, the plant was not in operation at the time of the tornado struck. But unfortunately, a security guard at the facility was killed. Our thoughts and prayers are with his family. Now I'd like to give a status update on the plants. As you can see by the picture on the slide, the level of damage varied widely. The damage to machining portion of the facility was more limited. However, on the left side of the picture, you can see the roof of the final assembly area is missing. That assembly area sustained a more significant amount of damage. Over the past several weeks, there has been a tremendous amount of remediation work completed. We have also performed a significant amount of equipment testing and validation, and where appropriate, we have erected temporary structure. With all of this hard work over the last three weeks, I am proud to report that the facility resumed production on May 4th, and that the production rates should improve throughout the month of May. This was an amazing accomplishment I would like to personally thank the team in Seneca for their hard work and our customers for their support. We have turned a terrible situation into a BorgWarner success story. Next, I would like to provide an update on our planned acquisition of Delphi Technologies on slide 10. This morning, we announced that BorgWarner and Delphi Technologies agreed to an amendment of the transaction agreement. This amendment effectively cures the breach of the debt covenant that we asserted at the end of March. Under the terms of the amendment, Delphi Technologies has agreed to new closing conditions requiring that at the time of the transaction closing, its gross revolver debt cannot exceed $225 million and net of its cash balances will not exceed $115 million. In addition, the parties agreed that Delphi Technologies' net debt to adjusted EBITDA ratio will not exceed the specified threshold measured at closing. These new closing conditions were structured to provide Delphi with the flexibility it needs to manage through the current environment and execute on its current forecasts. At the same time, they also protect BorgWarner from scenarios that could result in more significant cash usage or EBITDA deterioration. The party also agreed to revise the purchase price. In recognition of the potential incremental debt that could be outstanding at closing, the equity exchange ratio was reduced by 5%. As a result, current BorgWarner and Delphi Technologies shareholders would own approximately 85% and 15%, respectively, of the outstanding shares of the combined company following completion of the transaction. We are pleased to put this issue behind us and turn our full, undivided attention to driving towards the closing. In regards to our effort to close on this transaction, there has been a significant amount of other work done over the past several months. The integration teams continue to work very well together. The regulatory filings are in process in several geographies. And last week, we closed on a $750 million delayed grant term loan to support our potential financing needs at the time of closing. I am pleased with the progress as we continue to work towards the closing of the transaction in the second half of 2020. Before I turn it over to Kevin, let me summarize our first quarter results and our outlook on slide 11. We achieved significant first quarter outgrowth in all major regions. We delivered positive free cash flow during the first quarter, and as Kevin will discuss, we expect to be free cash flow positive for the full year. BorgWarner has one of the most robust liquidity positions within our industry. It is this financial strength combined with the operational discipline of the company that will allow us to successfully manage the challenges we expect throughout 2020. As I look beyond the challenges of 2020, I am confident that we remain strongly positioned both from a financial and technology standpoint to capitalize on the long-term trends that will continue to support our future profitable growth. Now over to you, Kevin.