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 Board of Warner 2020 Second 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'd 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'd 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. With regard to our investor relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the events 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 involve 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'll highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performs 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 outgrowth compared to our market. When you hear us say market, that means 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 second quarter today and provide an overall company update starting on page five. While the industry production rates were clearly weak during the quarter, we performed strongly on a relative basis. With approximately 1.4 billion in sales, we were down about 43% organically and this compares to a market being down about 50%. This means we drove a significant outgrowth. In fact, for the quarter, we saw outgrowth in all major regions. Our decremental margin was about 28% in the quarter, as our margin performance was impacted by the COVID-19-related shutdowns and inefficiencies related to the production restarts. We delivered positive free cash flow for the quarter, despite lower production levels, which we believe is a testament to the underlying cash-generating ability of this company. I am proud of how the entire BorgWarner team has reacted to this extremely challenging environment. We met the challenges of managing costs and cash during the production shutdowns while ensuring our ability to supply our customers as production resumed. All this was done putting the health and safety of our employees in front. Let's now turn to slide 6 where you can see our perspectives on the global industry production. Overall, we expect the challenging environment to continue throughout the remainder of 2020. our industry production expectations for the full year have improved, primarily due to the second quarter production coming in at the high end of our prior expectations. It is important to note that the market environment is still volatile with the risk of future production disruptions arising from COVID-19. With that important caveat in mind, on a full year basis, we expect the market decline to be in the minus 22 to minus 25% range, compared to our prior expectation of a 25 to 31% decline. Looking at this by region, we're planning for Europe to be down in the 26 to 28% range, and in North America, we expect a 24 to 27% decline. On a relative basis, the outlook for China is stronger, but we still expect 13 to 15 percent decline for the full year. As you will see from the line chart showing our different scenarios, we expect the second half production declines to be less significant than those we experienced during the first half. However, at the midpoint of our guidance, we still expect low double-digit market declines in the second half. As we manage through the challenging global market environment, we continue to maintain a very active dialogue with both our customers and our suppliers while remaining focused on pursuing new business and technologies. Next, I would like to highlight a significant new business program that we announced this morning on slide seven. I'm really excited to tell you that we're building a power-packed integrated drive module, or so-called IDM, for Ford's new all-electric Mustang Mach-E. The IDM comes complete with a BorgWarner thermal management systems and gearbox, integrated with a motor and power electronics from other suppliers, and showcases our system integration expertise. The IDM is being supplied to power the Mustang Mach-E's rear wheel, and all-wheel drive configurations. On the all-wheel drive GT version, Ford Corner is supplying the secondary drive unit as well. We were able to capitalize on our experience with scalable and modular approaches to IDMs to deliver this customized drive module that met Ford's stringent requirements. We're excited to partner with Ford to deliver our high-quality clean and efficient propulsion solution to the high-performance electrification market. This is another significant milestone for our electric business, and there is still more to come, particularly as we expand our power electronics portfolio following the close of the Delphi Technologies acquisition. Let me provide an update of that particular pending acquisition on slide 8. we achieved several milestones towards closing during the last few months. First, we completed a 1.1 billion senior notes offering at favorable terms, and Kevin will discuss this in more detail later. Second, Delphi Technologies shareholders approved the transaction by an overwhelming majority. We believe this underscores the value that is inherent in bringing our companies together. Third, we've now received regulatory approval in six of the seven jurisdictions required for us to close the transaction. Importantly, there have been no conditions placed on the regulatory approvals we've received so far. We expect to receive approval in the remaining jurisdiction in the coming month. And finally, the integration teams continue to work very well together. There is a high level of commitment and excitement among the teams as we drive towards day one readiness and capitalize on the value creating opportunities of the combination. To sum up, I'm pleased with the overall progress as we drive towards the expected closing of the transaction in the second half of 2020. Next, on slide 9, I'd like to highlight that we published our sustainability report last month. At BorgWarner, we embrace sustainability to deliver value to all stakeholders. And there are three pillars to our sustainability strategy. First, create a cleaner, more energy-efficient world. We do this first and foremost through the products we offer. products that drive cleaner mobility and efficiency in moving vehicles from point A to point B. We're also very focused on how we manufacture these products in a cleaner and more energy efficient way. Our goals include reducing our energy intensity usage by 37% and our greenhouse gas emissions intensity by 50% by the year 2030. Second, is to live the BorgWarner beliefs. We encourage our employees to live our beliefs which serve as a foundation for how we work together. I would like to highlight that we are focusing on developing a talented and diverse workforce. In late 2019, I signed the CEO Actions for Diversity and Inclusion where BorgWarner is pledging to take actions to cultivate a workplace with diverse perspectives and experiences are welcomed and respected. BorgWarner employees around the world are also involved and engaged in their communities and have given about 63,000 hours of service, helping others last year. And finally, we partner with and report to our stakeholders. We want to promote responsibility and sustainability within our supply base, while also providing transparency in our impact and reporting accordingly. In summary, BorgWarner strives to make the vehicles we drive more efficient and the world we live in cleaner. We embrace diversity and inclusion, develop our employees, and give back to the communities where we live and work. Before I turn it over to Kevin, Let me summarize our second quarter results and our outlook on slide 10. We achieved a significant second quarter outgrowth in all major regions, and we are excited to continue to drive that outgrowth as the market shifts towards electrification. Wins like the IDM for the Ford Mach-E continue our evolution into electrification. We delivered positive free cash flow during this exceptional quarter, and as Kevin will discuss, we expect the second half free cash flow to meet or exceed our year-to-date generation. We are on track to close the Delphi Technologies acquisition in the second half of this year. There have been tremendous challenges in 2020 with the COVID situation. As I look at what we've accomplished at Port Warner, thus far in this environment, and what we're positioned to accomplish over the balance of the year, I am confident that we remain strongly positioned to execute in the near and long term from both a financial standpoint and a technology standpoint, driving our profitable growth. Now over to you, Kevin.