Cummins Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 and full year 2020 Meritor, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please advise that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Todd Chirillo, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Chirillo. Good morning, everyone, and welcome to AmeriCorps' fourth quarter and full fiscal year 2020 earnings call. On the call today, we have Jay Craig, CEO and President, Carl Anderson, Senior Vice President and Chief Financial Officer, and Chris Villiver-Ryan, Executive Vice President and Chief Operating Officer. all of whom will be available for questions following the call. The slides accompanying today's call are available at Meritor.com. We'll refer to the slides in our discussion this morning. The content of this conference call, which we're recording, is the property of Meritor 8. It's protected by U.S. and international copyright law and may not be rebroadcast without the express written consent of Meritor. We consider your continued participation to be your consent to our recording. Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me now refer you to slide two for a more complete disclosure of the risk that could affect our results. To the extent we refer to any non-GAAP measures in our calls, you'll find the reconciliation of GAAP in the slide on our website. Now, I'll turn the call over to Jay.

Thanks, Todd, and good morning, everyone. Before we review our results, I would like to take a moment to address the leadership transition plan we announced last week. After nearly six years as CEO, I will transition to the role of executive chairman of the board on February 28th. At that time, Chris Bilberian, our chief operating officer, has been selected to succeed me as Meritor's next CEO and president. Additionally, Bill Nuland, our current chairman, will become the lead director of the board. Since I assumed the CEO position, we have made great strides through execution of our M2016, M2019, and now our M2022 plans. We have advanced our innovation and product portfolio, strengthened our financial foundation, and created a collaborative and diverse organization that fosters growth. And 2022 is well underway, and we are seeing signs of recovery in our business and industry since the onset of COVID-19, which I'll touch upon more later. That said, we believe now is the ideal time to set in motion our long-term succession plan. Many of you know Chris, who has been with Meritor for more than two decades now. and is an integral member of our leadership team. He has had a significant impact on our company during his tenure, and this transition represents a natural next step. On a personal note, Chris has been a true partner to me, helping to execute our successful M plans. In the months ahead, I will continue to lead Meritor and work closely with Chris as we prepare for a smooth transition. Now let's turn to our results on slide three. Obviously, our fourth quarter and full year results were unfavorably impacted by lower volumes due to the pandemic. However, we were able to partly offset the impact on our margin for the quarter and for the year with the cost reduction actions we implemented in the second half. Carl will give you more detail on the results, but the important takeaway here is the extent to which we were able to preserve our financial stability, considering the significance of the headwind created by COVID-19. As you see in the center of the slide, we're able to execute well on an approximate 50% increase in sales sequentially from the third quarter to the fourth, with a conversion rate of 22%. All things considered, we recovered from the crisis exceptionally well. We took aggressive actions to protect the company financially, and most importantly, we took immediate steps to protect our employees while at work. While certain countries and states where we have operations are experiencing rising case counts, we remain fully operational globally with no limitations at this time. Let's turn to slide four. While the pandemic required a great deal of management attention in 2020, we still had many achievements that support all aspects of M2022. Our safety, quality, and delivery metrics were excellent. With regard to safety, the total recordable case rate was .57 per 200,000 hours worked, with more than 50% of our facilities reporting zero recordables for the year. We believe this makes us one of the safest global manufacturers in the world. This speaks volumes for our team's commitment to each other and is certainly one of the accomplishments I am most proud of during my tenure. We are honored to receive Daimler's coveted Global Supplier Award this year for providing more than one million axles, brakes, and drivelines with excellent quality and parts-per-million rates during the peak 2019 North American market. In addition, we were able to repurchase 10.4 billion shares in fiscal 2020, were added to the S&P 600 Small Cap Index, and announced four footprint actions, three in the United States and one in Europe. We expect these actions to generate annual run rate savings of approximately $10 million and give us added confidence to achieving our M2022 objectives. In July, we celebrated production of our 100 millionth remanufactured brake shoe with nearly 50% of remanufactured brake shoe production in North America. Meritor is the industry leader. We continue to win new business With important customers and later in this discussion, Carl will review our expected outperformance against the M2022 new business target. And finally, we received approval from our board for an incremental $30 million to industrialize medium and heavy applications for our e-powertrain portfolio. More on that in a moment. On slide five, you will see additional detail related to the long-term agreement we signed with Daimler. This is an important contract for us that extends our relationship with Daimler through 2027 and will now put Meritor in standard position for air disc brakes on the Freightliner Cascadia through 2025. Let's look at slide six for an update on electrification. Essentially, the takeaway here is that we will be in production with our electric powertrain in 2021. The picture on this slide was taken recently at our EE powertrain assembly operation. We are very excited that we are only months away from delivering under the contract we secured with PACCAR for its heavy-duty electric trucks. In advance of production, the Fortune XE is already receiving industry acclaim. Earlier this year, we told you we were recognized as a 2020 Pace Pilot honoree by Automotive News for our Blue Horizon electrification solutions. And recently, Meritor received the Diesel Progress Achievement of the Year and Electric Application of the Year awards. We believe we will be the first supplier to begin production of electric powertrains for Class 8 electric vehicles, and we anticipate additional production contracts in 2021. Let's go to the next slide. As you know, customers have numerous electric drivetrain solutions to consider. We are often asked about the remote mount architecture versus the electric powertrain. Meritorious electric powertrain is revolutionary in that we are taking an electric motor and a multi-speed transmission and integrating them into the carrier. We are not just bolting on a motor. This design is fully integrated and designed to maximize efficiency, performance, weight savings, and space utilization. By partnering with the leading motor technology companies in the world, we have designed the electric motor from the ground up to meet and exceed customer expectations and performance targets. And since this technology is based on Meritor's traditional 14X axle design, manufacturing is easier and OEMs can integrate it into existing chassis using the same mounting locations and hardware. Although we are prepared to deliver E-optimized axles for remote mount solutions, Meritor's class-leading integrated powertrain architecture is beginning to be the product of choice within the commercial vehicle industry. We believe we've developed the most advanced electric powertrain for medium and heavy-duty commercial vehicles in the industry, and that it will be game-changing. On this slide, we have provided the hot link to Meritor.com, where you can get an inside look at the e-power train production at our plants, in addition to a video that shows the differences between the architectures I described. With that, I'll turn the call over to Carl.