Q3 2019 Earnings Call
If you like ask a question during this time simply press star one on your telephone keypad, if you'd like to withdraw your question press the pound Keith 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 Investor Relations Mr. No. One you may begin your conference.
Thank you Shirley.
Good morning, everyone. Thank you for joining us reassure our earnings release at 630 am Eastern time, it's posted on our website borgwarner dot com or homepage and order Investor Relations homepage.
A replay of todays call will be available through November 14th.
The dial in number for that coal is 85 five.
592 056.
The conference I'd for that replay is to six three.
875, where you can listen to the replay on our website.
With regard to Investor Relations calendar, we will be attending multiple comps is between now and our next earnings will be please see than bad section of our Investor Relations homepage for a full left.
Before we begin nature for me like during this call. We may make forward looking statements, which involve risks and uncertainties as detailed in our 10-K.
Actual results may differ significantly from the matters discussed today.
During today's presentation, we all highlights on certain non-GAAP measures in order to provide a clearer picture of how the core business performed thanks for comparison purposes with prior periods.
When you hear Santa comparable basis that means excluding the impact of FX that M&A and other non comparable items.
When you hear say adjusted that means excluding non comparable items.
When you heard through organic segment, excluding the impact of FX and the M&A.
We will also refer to our gross compared to our market. When you her say market that means the change in light vehicle production waited for our geographic exposure.
Our outgrowth is defined as our organic revenue change versus the market.
But now back to today's call first spread to solve our president and CEO will comment on our Q3 results.
This will be followed by discussion of our recent cash flow performance.
He will conclude with a discussion of our recent product highlights.
And Kevin Nolan, our CFO will discuss the industry outlook as well as the detailed results and guidance.
Please note that we posted an earnings call presentation to the IR page of our website <unk>.
We encourage you to follow along with the slides during our discussion with that I'll turn it over to front.
Thanks, Pat and good morning, everyone very.
We're very pleased to share our result from Q3 today and also provide an overall company update.
Let me start with the highlight of the quarter on slide four I'm pleased with a stronger than expected the top line and margin performance in the quarter.
With approximately $2.5 billion in sales were up about 4.5% organically.
This compares to a market being down approximately Boeing 4%.
So while our growth was about 490 basis points in the quarter, which was well ahead of our expectation.
Driven by stronger than expected revenue trends in Europe , essentially and in China.
Regionally, we saw outgrowth in all major regions.
On an organic basis, our European light vehicle revenue was up double digits.
North American in Chinese light vehicle revenue was up mid single digits year over year.
Our adjusted earnings per share came in at 96 cents ahead of all guidance driven by the revenue upside and better than expected margins.
Oh near term cost actions are beginning to drive our incremental margins and we are identifying additional cost saving opportunities to sustain on strong margin profile.
At the same time, we'll also see viewing gene you wins across combustion hybrid and electric which used to positioning us to then Eva continued revenue outgrow.
In fact.
And this school to secure the world's full two new products for electric vehicles, which I speak about in more detail shortly.
Next.
I would like to highlight all strong cash generation on slide five.
As you know cash flow is becoming important focus for the company over the last couple of years.
Year to date, we have generated 478 million of free cash flow.
Up significantly year over year, despite the volatile industry volume.
We are able to drive this level of free cash flow, thanks to a strong margin and earnings profile.
Combining this with an increased focus on capital spending efficiency and working capital management, we remain poised to continue to improve our free cash flow generation going forward.
A strong cash generation allows us to reinvest in the business to support our continued revenue outgrowth initiatives. It also gives us an ability to provide real cash returns to our shareholders.
We've been relatively balanced in how we've deployed these capital overtime.
As you can see over the past five years, we've utilized about a half of our free cash flow for strategy growth opportunities.
While deploying the other half towards returns of capital to shareholders.
We expect to maintain a balanced approach to capital deployment as we look ahead.
In a few minutes, Kevin will talk about a strategy deployment of capital that we just things that you did this week, which allows us to eliminate oh exposure to us best stuff.
[noise] beyond our track record of capital deployment, our prudent leverage profile combined with the strong cash generation better positions us to manage the business throughout the demand cycle.
At the same time as we manage through the challenging global markets environments. We continue to focus on pursuing new business and new technologies.
This quarter, we achieved continued success on both fronts bookings.
A new technologies.
Full combustion products on slide six I wanted to highlight two contract.
First we're supplying out total charges to global OEM boys gasoline engines in multiple markets, including North America.
This program, we stopped with two vehicles and expand two additional applications over the life of the program.
And second.
So playing out gasoline EG, all technology through the Indiana, OEM Floyd small gasoline engines.
This is an expansion of our existing business will discuss them up.
Both of these wins pointed to the increased penetration of highly efficient gathered in engine around the world.
They are also great examples of the planning already proven solutions towards meeting the mens although yen.
This allows us to reduce time to market reduce cost to our customers, while sustaining out product leadership in combustion propulsion.
Now, let's turn to slide seven and discuss our first awards for two new electric vehicle product.
First I'll talk Victorian dual clutch for electric vehicles.
This dual clutch design replaces the conventional differential in an electric drive line, while improving handling and maneuverability and then all wheel drive application.
This clutch distribute Stoke independently to the left and right wheels from its position on the rear axle.
The technology features disconnect capabilities to minimize energy loss and increase range.
This is a great example, although playing our its existing clutch and I'd really controls expertise to electric vehicle platforms.
This first the world is supplying a major global OEM with start of production expected in 2022.
Next I'm glad to announce that we have secured I'll first contract for integrated drive module, so called IDN.
This product integrates all highly efficient power electronics without advanced transmission system, and I'll drive motor technology.
All righty m. creates value to our customers in several fields, including packaging efficiency low NVH and of course ease of assembly.
We're supplying a China E V brand for an electric vehicle, which is scheduled to go into mass production in 2021.
Importantly, all components used in this idea him out part of bonus owned technologies.
We have ongoing interest from several customers and are currently pursuing multiple program awards for idea.
I'll differentiation in electric propulsion.
He is our food propulsion system expertise.
Many of our competitors purchase some of the components and sub systems.
Now case, we design and manufacture the motor the transmission and the power electronics.
Operating system that you fall customers.
This first I'd M. award is a significant step for Borgwarner.
So let me summarize the quota.
We exceeded our expectations for revenue growth.
Earnings were better than all guidance.
Driven by better top line performance and our cost saving measures.
We delivered strong free cash flow.
And the benefits of R&D investments in electric propulsion are continuing to pay off with the award of our first IDN contracts.
Before I turn it over to Kevin.
I also want to commands and thing the entire Borgwarner team for how they have reacted to the challenging external environment.
It is your actions smartness and dedication that allows the company to successfully manage the present, while continuing to position us for future success.
Now over to Kevin.
Thank you Brad and good morning, everyone.
Before I review the financials in detail I'd like to provide a quick overview of the two key drivers of our third quarter results.
First our revenue outgrowth was ahead of our expectations at 490 basis points in the quarter.
This was driven primarily by higher volumes of new programs and strong mix, especially in Europe .
This puts us on track to deliver full year revenue outgrowth of 350 to 400 basis points.
Second our margin performance was ahead of guidance driven by better than expected sales and our focus on cost management actions.
Let's turn to slide eight where you can see our perspective on industry production.
Overall, our production expectations continue to moderate in the quarter. The volatility of these forecasts has declined over the past few months. This is a welcome change.
Looking specifically at Q3.
Global production for our market declined by 0.4% year over year, roughly at the midpoint of our expectations going into the quarter.
Within that global result, we saw Europe European production up less than 1% against a relatively easy prior year comparison.
North America production was down modestly while China production was down about 5% as that market remains under pressure.
On a full year basis, we now expect the market decline to be in the minus 4% to 4.5% range, which is roughly inline with our prior outlook.
By region, we're now planning for China to be down anywhere from 9% to 11% on a full year basis, which is a modest improvement from a few months ago.
Europe is likely to be down three and a half the 4% just as we previously expected and North America is now likely to be down two and a half the 3.5%, which is a little bit worse than before.
As we look toward the remainder of 2019 and into 2020, we expect that the challenging industry conditions will continue so we are managing our cost structure accordingly.
Let's turn to slide nine.
As we look at your over your revenue you can see the impact from the thermostat divestiture, we executed earlier this year.
In addition, you can see that the stronger U.S. dollar reduced revenue by about 2.7% from a year ago.
Excluding these items are organic sales were up 4.5%, despite the 0.4% decline in industry production.
This is the 490 basis points of market outgrowth.
And importantly, this outgrowth occurred and all of the major light vehicle markets around the globe.
In Europe are light vehicle organic revenue was up double digits on strong new programs and platform mix and in China, We grew double digits over the market.
Partially offsetting the strengthen our light vehicle growth our commercial vehicle in off highway businesses declined relative to last year, resulting in a more than 100 basis point drag on our total organic growth.
Overall, we're pleased that we continued to deliver revenue outgrowth, even in this challenging end market environment.
Now, let's look at our adjusted operating income performance, which can be found on slide 10.
Q3, adjusted operating income was $294 million compared to 293 million in the third quarter of 2018.
Our adjusted operating margin was 11.8%, which was flat year over year.
On a comparable basis adjusted operating income increased $9 million on 109 million of higher sales, which translates to an incremental margin of roughly 8%.
Even though this was below our long term expected incremental conversion a 15%. The result was still ahead of our guidance due to stronger revenue and our cost management actions, which included a reduction in R&D spending in our engine segment compared to the same quarter in 2018.
Adjusted earnings per share was 96 cents for the quarter above the top end of our guidance range.
The four set decline in earnings per share compared to the third quarter of 2018 was driven by lower equity and affiliates earnings and a slightly higher tax rate.
Moving to cash flow.
Spread discussed earlier, we're proud of the fact, we delivered a strong result for the quarter.
In the third quarter, we generated $255 million, a free cash flow significantly stronger than the 126 million, we delivered in the same quarter a year ago.
This is a great result, as we continue to focus on cash generation as a management team.
Yes.
Now, let's take a closer look at our segment results on slide 11.
Engine segment sales were just over $1.5 billion in the quarter.
Organic sales for the engine segment increased 4.6% or $69 million, despite lower industry wide production.
Growth in Europe for our engine business was partially offset by the impact of the weaker China end market.
Adjusted EBIT was $241 million for the engine segment or 15.9% of sales.
On a comparable basis the engine segment's adjusted EBIT was up $8 million 69 million up higher sales.
Drivetrain segment sales were $993 million in the quarter on a comparable basis sales for the drivetrain segment increased 4.2% year over year also meaningfully outperforming the market driven by strong outgrowth in China and European mix.
Adjusted EBIT was $100 million for drive train or 10.1% of sales.
On a comparable basis the drive train segment's adjusted EBIT was down $5 million on 41 million of higher sales.
The adjusted EBIT decline was driven by higher R&D spending and launch related costs, primarily in China.
Now I'd like to discuss our full year guidance, which is on slide 12.
Our guidance is based on the end market assumptions I discussed earlier with global production down 4% to 4.5%.
Despite that we expect organic revenue to be in the range of down only 1% to roughly flat.
That's because we continue to expect to drive significant market outgrowth of 350 to 400 basis points for the full year.
This is inline with our year to date outgrowth of approximately 400 basis points.
With these organic growth assumptions, we now expect total revenue to be in the range of 9.95 billion to $10.1 billion.
The midpoint of this guidance is slightly lower than the midpoint of our prior guidance is there as an additional $105 million of FX headwinds that are offsetting the benefit of stronger organic growth.
Our adjusted operating margin is now expected to be in the range of 11.7% to 12.0%.
The 20 to 30 basis point increase in our margin outlook relative to our prior guidance.
Reflects stronger organic growth, which has a higher incremental margin than the margin impact of the additional FX headwinds.
And cost management actions, including lower full year R&D relative to our prior planning assumption.
We continue to proactively manage and aligned our overall cost structure. So the revenue we're actually seeing in the marketplace.
Ensuring we continue to support the investments that drive our sustained revenue outgrowth.
For full year adjusted EPS, we've tightened our guidance by increasing the bottom end of our range by 10 cents as a result of our stronger margin outlook.
Therefore, our new guidance range is $3.85 to $4 per diluted share.
And finally, we're now targeting free cash flow of $550 million to $600 million, which is up $25 million from our prior guidance.
In addition to higher earnings at the midpoint of our guide, we expect capital spending to come in lower than our prior guidance.
That's our 2019 outlook.
Before we move to Q and aim I'd like to spend a few minutes discussing an important transaction you saw us announced yesterday, which is summarized on slide 13.
On Wednesday, we signed and closed on a transaction in which we effectively sold the company's asbestos liabilities to subsidiary of Enstar, which is a publicly traded insurance company that specializes in managing runoff liability exposures like as best as.
The transaction involved borgwarner investing $172 million in cash into the non operating legal entity that holds the asbestos liabilities.
Then we transfer this entity, including the cash and other related insurance assets to the buyer.
The result of this transaction is that we expect to remove the $772 million in as best as liabilities from our balance sheet.
By eliminating the company's exposure to this liability we will also avoid future exposure to the annual defense, an indemnity cash costs, which had been running in the $45 million to $60 million range as you can see on the slide.
We think this was an important strategic deployment of capital that will eliminate the overhang of as best as liabilities on our balance sheet and our cash flow.
Overall, we had a really solid quarter as we delivered 11.8% adjusted operating margin 490 basis points of market outgrowth 96 cents of adjusted EPS, which was above our guidance range and $255 million a free cash flow.
On top of that we executed a very important de risking transaction this week.
As a management team, we're taking the necessary actions to maintain our companies historically strong margin profile and strengthen our free cash flow generation.
We'll continue to do this while managing through a very difficult near term market environment.
We expect will continue for the remainder of 2019 and likely into 2020.
With that I'd like to turn the call back over to Pat.
Thank you, Kevin Sharon rate open up for questions.
At this time I would like to remind everyone. If you'd like to ask a question press star one on your telephone keypad, if you're using a speakerphone. Please pick up the handset before asking your question any interest of time. Please limit yourself to one question and one follow up question well pause for just a moment to cathartic you any roster.
Your first question comes from Joseph Spak with RBC capital markets.
Thanks, and good morning.
I guess I just first wanted to.
Focus on the backlog about your understanding for this year.
It's within your range you talked about at the beginning here, but it does look like it was raised 15% at the midpoint versus what you indicated last quarter. So.
I apologize if I missed this but it did something come back or did something pull forward or what was the cause of that for that revision.
Joe the the the major driver is.
Actually from the engine group better than expected New program lounge and associated volume on small gathered in Europe . That's the that's the main driver.
Okay. So.
You took that down last quarter and then the volumes were just stronger than than you thought.
As this quarter progressed.
Yeah.
Yes, it was difficult to forecast with the volatility of the of the.
The market and it turned out to be better than expected.
Okay.
And then just on the on the idea market, it's nice to see a win there.
Can you talk a little bit about how you now that you're sort of bidding on those awards, how you see that market evolving it was having all the sub components or a true differentiating feature and winning that award and as you go after additional business.
Yeah, We think it's it is a true differentiating features.
Because by not only developing and buying but also manufacturing the three key elements of that idea him were able to design, it's small smelter.
And make it smarter and make it lighter.
And you know he knows system you see the interaction of those subsystem that make the product creating value in different shapes of form for our customers. So we think that is good it is going to be a different sheeting factor it as being full these who will this business win.
And in the quoting are you seeing any shift towards more of an integrated product versus more of a.
You know integrate sourced by component strategy.
This one was the system.
We also as you know our in production with where we go EM, which is transmission and motor.
We're not we're not forced to sell system, we are happy to sell systems or Subcomponents. What's important in this market is to understand the system.
In order to partner will come with our customers and sell them whatever the the wall and we we are on we're on we're on disposition.
Okay. Thank you.
Thanks, Joe next question next question comes from now Okay with Oppenheimer.
Thanks, Good morning, a high level question first we are few months away.
From the start of the implementation in Europe , the more stringent CEO to standards I guess, just based on your conversation with customers what you've got in the pipeline as this process plays out over the next two years.
How does this impact for Warner in terms of.
Content per vehicle growth backlog other dynamics.
So Europe .
First of all the second half of this year is stabilizing and it's a good thing it's true that its comparing to rather weak second half of the Dean.
And we see no signs of the value of GP disruption now as far as next year's comes and for our D. I would say that it's difficult to forecast and we will give you our Luke in our Q4 cool.
The good news for US is that these standards in Europe will drive opportunity for our.
You know.
Components and systems.
So we see that as a plus.
How these.
What will be the disturbance in 2020 due to the all the validation remains to be seen then again no. We'll give you some more color in our Q4 call.
Okay appreciate that.
I think you commented on the key points of having an integrated solution or with the idea be just knowing all the components. There. So I want to ask about integration on sort of a similar a product which would be a electric turbochargers I think when your competitors recently stated there.
We're introducing and you turbo, where the motors integrated on the shaft of the turbo units.
You know clearly you've got in house competencies around both turbos and electric Motors, So engineering and integrating it would seem feasible I guess just is that in your product Road map is something your customers are asking for and more generally how do you see your competitive positioning with respect to electrically Bruce the turbos.
Yeah. So we are in production that was he boosters since quite some time with diamond and others.
And it is pretty much also a motor around the turbo and our own power electronics. It's also.
System that requires a understanding of turbo motor and power electronics, So we have that in our.
Portfolio, that's the boost that we also have Ito Boeing Alf portfolio.
And we think that this market, we'll see some daylight.
In the next in the next years to come.
We are wheel, we believe is that.
In addition of total challenges will drive growth for us.
Okay very helpful I'll jump back in queue. Thanks.
Thanks No.
Next question comes from Ryan Brinkman with JP Morgan.
Hi, great. Thanks for taking my question, maybe just first can you talk about what you think the impact of customer consolidation is on the supply base around borgwarner are there any market share or pricing implications for investors to consider.
Are you.
Over overall, we are we are very we're very global.
And we so all markets around the world there is not one customers that we don't serve.
And to the extent that they use the same propulsion and they want to combine forces I think they'll custom benefits to both US and then so you know we focus on what we can control and what we can control is carried on delivering great products that deliver value to 80 customers around the around the world.
Okay, great. Thanks, and can you. Please remind us of your latest exposure to commercial vehicles in your outlook for this market. Some of the other suppliers reporting this quarter of called out softer production of off the road vehicles, where I think your as you are primarily commercial on highway that tracked better, but there's a lot of.
Changing estimate for next year, just curious how you're thinking about that.
Yep commercial vehicle overall is about 13, 14% of our revenue and it's very very.
I would say fragmented around the three continents.
About a third in North America third in Europe , and the last third between China and Brazil. It's also very fragmented as far as class Eightys concern of off highway and agricultural construction.
And it's true CV was down is a these quota.
Especially the class eight.
And we'll give you our view of 20 to 20 in the in the Q4 call, but again when you think about 14% of beef.
10% of revenue full CV for Borgwarner don't associate that to you as class eight.
It is much more than that.
Very helpful. Thank you.
Okay.
Your next question comes from Emmanuel Rosner with Deutsche Bank.
Good morning.
Good morning America.
<unk> first just some clarification on backlog if a if there's anything can give in terms of incremental color. So I guess last quarter, you were sort of like taking your expectations down for this year's backlog in particular you were.
Making a fairly bolts forecast assumption of essentially no backlog in the third quarter, obviously extremely pleased with the you'll performance this quarter onto at 53 million, but you sort of feels like just no incrementally higher volumes wouldn't sort of like explained gainful makes you would you like on the 50, so anything else can give us in terms of dynamics of while.
Maybe felt somewhat less positive and what actually sort of been playing out in the quarter that turned out to be a really really strong backlog.
Yeah.
So the last.
Quarterly gave them a firm backlog perspective, we actually thought that the China backlog it was going to be down.
And and we so that Q3 was modestly stronger than expected.
But as I mentioned in my prepared remarks, though the the majority of the backlog is better than expected engine products related to small gasoline.
European platforms and it was.
Also a little bit of mixed in Europe to and that was.
That was not forecasted right. It's it's it's good surprise that we take we have.
Enjoyed that that our growth and also.
Good.
A very well on it so.
Understood.
And are you able to.
Talk about implications from I guess, the backlog enough for this year trending towards the high end of the range communicated old way back in January despite some fairly meaningful weakening in I guess production environment. What are the implications for that in terms of your existing three year backlog as are the pool.
Since they still the same or you know the volumes are.
You know maybe weaker than you know it's back in January but the same time.
Potentially faster rollout of some of these launches or better volume on some of these new product or.
Is it too early to tell.
Yes, I think it's I mean, I think overall, what I would tell you is as we look ahead. Obviously the markets are looking a lot different than they were maybe a year ago at this time and undoubtedly that'll have an it have implications on the business, we'll give more updates on our longer term outlook when we get into our analyst day in this this spring upcoming.
But at this point, we're not prepared to give guidance on that in terms of the long range outlook, but I would say obviously market is has changed from where we were a year ago terms of our outlook.
Understood. Thank you.
Next question comes from I'm going to think a vicious with Morgan Stanley .
[noise].
Great. Thank you for taking the question I was hoping you could.
As we look ahead hearing and think about some of the puts and takes her margins into 2020.
Obviously, a lot of its driven by you know global production.
You know the environment in China, the backlog in China.
The the you know emission standards in Europe , but you know something within your control is the cost management would you've done a good job on but you're trying to think through you know how you plan attack costs of goods sold and manufacturing.
Yeah, I think I mean at focus point of ours as I've talked about in my remarks is sustaining our strong margin profile and obviously, we as we indicated on the call. We expect that the markets are going to remain under pressure and challenged as we look ahead to 2020 and so our continued focus on managing cost performance is going to be a key.
The month of how we think about 2020, so when we give guidance in February you can expect it to.
Reflect that we expect the markets would be under pressure and we're going to look at cost actions that are appropriate to take to make sure. We sustain the margin profile we have.
Okay.
And then with regards to the especially those transaction.
Can you remind me how the accounting works for the cash cost does it flows through the income statement or is it a cash flow item.
It's a cash by the entirety of the liability has been accrued on the balance sheet and so what happens is when we have cash cost it's simply relieves the liability. So it's not PNM, it's purely cash, but it's obviously real cash going out of our pockets $45 million to $60 million every year.
Okay much appreciated.
Next question comes from John Murphy with Bank of America.
Good morning, guys.
Just sort of in light of the Divesture, the thermostat business and what you're doing with these specified build it seems like you're a little bit more open to elite small portfolio.
Actions in sort of a little bit of restructuring here given the balance sheets pretty underlevered to your 0.7 times at least relative to other folks in the industry. Just curious how open you are or how active you are in portfolio in your portfolio review.
Potentially adding.
Maybe some acquisitions given the strength that we might see there might be some really good stuff that it opens up in the next year or too I mean, how you're thinking about that how far can you go on leverage.
Yes, we managing our portfolio.
Actively and and and we will do that going forward.
From an M&A perspective, what drives our approach is the dry full technology.
And into into elements first would be scale in competencies in electronics and second the system focusing electric propulsion. So we do that very disciplined and and it is a focus of us and we just carry on doing that.
So Fred it's fair to characterize that as small acquisitions that will be focused on the powertrain is really where you're headed nothing that would be big Bang nothing that would be in quote unquote sort of old school combustion technologies that a fair statement.
Again, it will be we'll be opportunistic and but also very disciplined about how we see that the drive will be technology. That's that's that that's the that's the that's the punch line.
Okay.
And then just a clarification on the sale the specified ability, it's being called Morse Tech is there anything going on with the chain business Thats being sold or is that all residing is this just the way that this has been structure under the name Morse Tech just a little gets yet.
Unfortunately happened to share the name more but at the Morse Tech entity that was transferred to end Star has is a non operating subsidiary of the company. So there is no portion of the operating business, including the chain business that was transferred as part of this it's a it's still absolutely an important part of Borgwarner.
Going forward.
Larry the liability any assets going going over that's called more systems. It's the liability we happened to reside in a legal entity that had the name more stack LLC, that's what's been transfer to enstar non operating it really how's the asbestos liabilities sums some environmental liabilities and the cash in the insurance related assets.
That's very helpful. Thank you very much.
Once again, if you'd like to ask a question. Please press star one on your telephone keypad, we have a question from David Kelley with Jefferies.
Good morning, guys. Thanks for taking my questions you alluded to the cost initiatives starting to bear fruit I think you're targeting 40 to 50 million in savings over some 18 months or so can you could update us on the on where we are in that process.
Yeah, I think use you starting seeing evidence on the resolute in our Q3 and as Kevin alluded to.
We'll give you some more.
Updates in the Q4 goal, we started by looking at the as Ginny and the corporate costs.
And now we take a bit of a more aggressive look at our manufacturing costs and other structural costs than that's the that's the the the picture that we going to give you hopefully in the early next year.
So far on track.
Okay perfect. Thank you and maybe I get the same answer for for this question, but just thinking back to your last through your backlog update at 80% of it was tied to ease and hybrid clearly weighted more to hybrid though it seems like over the last few MSB adoption has been a bit softer than the most expected, particularly in China.
Yeah.
Are you more or less bullish today on on hybrid adoption and potential sales growth and do you foresee the pace of you'd be easy adoption getting pushed out even further.
We are bullish on the electrification overall, we think that the world's moving towards electrification and for us without portfolio doesn't really matter if its hybrid or electric we are in a position to support the customers with whatever they want to do.
But okay. Thank you Ben just a quick follow you aren't saying any I mean, it's got a lot about you're getting a lot of traction in China in the market are you seeing any pullback and customer interest in the technology or transition to hybrids or anything there.
You have a little bit of nice driven by incentives and yes, we so the easy pull in China getting getting it it'd be choppy, but the contracts self to coming in and we and we think that the long term outlook for electric vehicle as well as hybrids in China.
Is very strong for us.
Perfect really appreciate the color. Thank you.
Thank you.
At this time I will turn the call over to Mr. Nolan.
Like to thank you all feel great questions. Today, if you have any follow ups feel free to reach out to me directly Sharron you can close the call.
That does conclude the Borgwarner 2019 theater third quarter results Conference call you may now disconnect.