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 corner 2020 fourth quarter and full year 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 one 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'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 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 under 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 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 and commercial vehicle production, waited for our geographic exposure. Our outgrowth is defined as our organic revenue change versus this market. Please note that we've posted an earnest 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 2020. and provide an overall company update starting on slide five. I'm very proud with our stronger than expected top line and cash flow performance for the year. With approximately $10.2 billion in sales, we were down about 11% organically. This compares to our market being down approximately 17%. So our growth was about 630 basis points for the year which was ahead of our expectations going into the fourth quarter. For the full year, we saw outgrowth in all major regions. We delivered close to 15% outgrowth in China. Our European and North American operations outgrowth were both in the low single-digit range. While our full-year earnings per share declined year over year due to the impact of COVID-19, our decremental margin performance was in line with our expectations. Importantly, our margin performance was achieved while preserving R&D spending to support future growth. We delivered very strong free cash flow of $743 million for the year. This represents a record for free cash flow generation for the company. This is a testament to the intense focus we've put on improving free cash flow generation over the last few years. While managing the operational challenges of 2020, we successfully completed the largest acquisition in the company's history and secured numerous business awards for electrified vehicles over the course of the year. Now let's discuss some of those new business awards. First, I'm happy to announce on slide six that we have secured an 800-volt electric motor award with a global commercial vehicle customer launching in 2024. This program will use four different variants of our latest air-pin motor design. Using our 800-volt rated machine, customers can significantly reduce charging time and achieve a higher power density through the 800-volt architecture enabling an even brighter future for electric trucks and buses. I am very pleased with this program. We will continue to focus on the electrification opportunities in commercial vehicles in addition to opportunities in our light vehicle market. Next, I would like to highlight another inverter win on slide seven. We are partnering with a major European OEM to supply our 400-volt silicon carbide inverter for the next generation BEVs that are expected to launch in 2022. While I can't share the details of this program, I can tell you that this is our second largest inverter program to date. This illustrates our ongoing innovation in power electronics as we're leading the market trend to upgrade from silicon to silicon carbide. This enables lower energy losses and drives higher efficiency. With the latest win, I would like to give you an update of our positioning in the European inverter market on slide 8. We've had tremendous success establishing ourselves in this market. When I think about Paul Warner's competitive advantages in power electronics, it's driven by, first, The breadth of our product portfolio. This allows us to be faster and more effective at bringing products to market. Second, our ability to innovate. We continue our innovations in part by our vertical integration strategy. We have in-house capabilities for power modules, integrated circuit development, and software. I think that the last driver is our ability to leverage the electronic scale that we already have, especially in our engine control unit business. The result is that we've secured significant new business awards. On the chart on the right side of the slide, you will see the inverter programs we've secured with three large European OEs. As you can see, we expect that will be delivering around 1.1 million inverters in 2025. As a result of the successes we're achieving, we're increasing our R&D spending in 2021 to support our continued innovation and new business awards in our power electronics portfolio. Kevin will touch on that a little later. Next, I would like to give you an update on the Delphi Technology integration on slide nine. Bottom line, all is on track. Starting with Q4 results, the Delphi technology's contribution to both revenue and operating income was ahead of our expectations. I'm seeing good progress across all the former Delphi businesses. The cost synergies related to the Delphi transaction are tracking in line with our plan, as Kevin will discuss later. And the customer feedback remained very positive. In addition to inverter wins that I just highlighted, we won new businesses across the rest of the Delphi portfolio, including awards in GDI. My overall takeaway is that the integration is on track from all perspectives. Before I wrap up, On slide 10, we are announcing our plan to hold an upcoming investor day on March 23rd. The event will be virtually broadcasted from the BorgWarner World Headquarters in Auburn Hills, Michigan. It will provide insights into our technologies and into the acceleration of our positioning in an electrified world. I look forward to interacting with you during the event. So let me summarize our 2020 results. and our outlook on slide 11. 2020 was an extremely challenging year in terms of the operating environment, and we've put the health and safety of our people first. Even in this challenging environment, we delivered better than expected outgrowth and generated record free cash flow, and our bookings on devs are accelerating. We closed on the Delphi transaction. We're successfully integrating the companies and we are on track to deliver the synergies as planned. As we look ahead, we expect to deliver another record year of free cash flow in 2021, which enables us to continue to invest in the business to successfully position the company for the future. The demand for efficiency improving products is growing. leading to a continued increase in our content per vehicle. In fact, as Kevin will highlight, when you look at our three-year backlog, 45 percent of it is already coming from e-products. And finally, I'm excited about our long-term positioning as we look to capitalize on the profound industry shift towards electrification. We are winning. We are ramping up R&D and focusing heavily on the acceleration of the company towards electrification. With that, I'll turn the call over to you, Kevin.