BorgWarner Inc.

Good morning. My name is Gerald, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2020 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 are using a speakerphone, please pick up the handset before asking your question. I would now like to turn it over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Thank you, Jerome, and good morning, everyone. 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 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 for comparison purposes with prior periods. When you hear us say on a comparable basis, that means excluding the impact of FX, 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 are very pleased to share our results for Q3 today and provide an overall company update starting on slide five. The industry production rates steadily improved throughout the quarter as volumes in China and North America exceeded our expectation. Importantly, we continued to outperform on a relative basis. With approximately 2.5 billion in sales, we were up about 1% organically, and this compares to a market being down about two. This means we saw continued outgrowth in the quarter. We saw a significant outgrowth in China, driven by DCT and commercial vehicle business. We also outperformed in North America driven by new programs and beneficial mix. Our incremental margin performance was very strong, as revenue trends exceeded our expectations and we benefited from our restructuring savings and temporary wage reductions. We also delivered significant positive free cash flow. And we completed the acquisition of Delphi Technologies shortly after the close of the quarter. We're excited to move forward as one company and capitalize on our product leadership. Let's now turn to slide six, where you can see our perspectives on the global industry production. As you can see by the chart on the slide, the industry backdrop in the second half has significantly improved from the environment that we experienced during the first half. It's important to note that the market environment is still volatile with the risk of future disruptions arising from COVID-19. As you've seen the latest lockdowns announcement in Europe announced last night, the risk level of these potential disruptions has elevated and we're monitoring the situation very closely. With that important caveat in mind, on a full year basis, Overall, our industry production expectations for the full year have improved. We expect the market decline to be in the minus 18.5 to minus 19% range compared to our prior expectation of a 22 to 25% decline. Looking at this by region, we're planning for Europe to be down in the 23 to 24% range, and in North America, we expect a 20% to 21% decline. On a relative basis, the outlook for China is stronger, but we still expect 7% to 9% decline for the full year. As you see from the line chart, we expect a low to mid-single-digit decline in Q4. As we manage the balance of 2020, we will continue to maintain a very active dialogue with both our customers and our suppliers to manage any production volatility. Let's now discuss some new business awards. First, I'm happy to announce on slide seven our second eTurbo award with a major European OEM launching in 2023. Our eTurbo is an efficient solution capable of delivering crucial benefits for our partners, especially in hybrid application. The in-house association of the mechanical, in this case the turbo, state-of-the-art motor, and an electronic controller was key for us to win. Next, I would like to summarize our latest inverter win that was announced in September on slide 8. We're partnering with a premium European OEM to supply our 800-volt silicon carbide inverter for their next generation battery electric vehicle. This business will launch in 2024 and is another great win in power electronics. Our 800-volt silicon carbide inverter significantly improves efficiency and range, whilst enabling, through the 800-volt architecture, a 50% charging time reduction. We're excited to build upon the momentum of this win and position PorgWarner as a leading supplier of inverters for future battery electric vehicles. I would like to give you a little more detail on our planned customer engagement on vehicle electrification on slide nine. We have been looking forward to engaging with our customers about our expanded electrification product offerings after the closing of the Delphi transaction. And we're excited to report that we've hit the ground running post-closing with customer meetings currently underway. We have plans to meet with customers representing 70% of the global industry volume over the next four months. We will be pursuing both full system and component opportunities with these customers. The charts on the right are just a sampling of the programs we expect to pursue. We believe that we are very well positioned to secure our share of the expected industry award activity over the next 12 to 24 months. Before I turn it over to Kevin, let me summarize our third quarter results and our outlook on slide 10. We achieved a better than expected outgrowth in the third quarter, driven by new business in China. Our margin performance has been solid. Despite the industry challenges throughout 2020, we delivered strong year-to-date free cash flow. As I look forward, I'm excited about our positioning as we look to capitalize on the profound industry shift towards electrification. like the 800-volt silicon carbide inverter and the eTurbo only help support our continued and accelerated evolution. It is our people and their efforts that allow us to manage through a year like 2020 while continuing to secure our future position in the industry. I am very proud of the teams. With that, I will turn over to Kevin.