Patrick Nolan - BorgWarner, Inc. Frédéric Lissalde - BorgWarner, Inc. Ronald T. Hundzinski - BorgWarner, Inc..

Richard M. Kwas - Wells Fargo Securities LLC Noah Kaye - Oppenheimer & Co., Inc. David Leiker - Robert W. Baird & Co., Inc. David Tamberrino - Goldman Sachs & Co. LLC John Murphy - Bank of America Merrill Lynch Colin Langan - UBS Securities LLC Stephen Hunt - Barclays Capital Securities Ltd. Joseph Spak - RBC Capital Markets LLC.

Good morning. My name is Sharon, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2018 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.

I would 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, and good morning, everyone. We issued our earnings release at 06:30 AM Eastern Time. It's posted on our website at borgwarner.com, both on our homepage and our Investor Relations homepage. A replay of today's call will be available through November 8.

The dial-in number for that call is 855-859-2056 and the conference ID is 8387049, or you can simply listen to the reply on our website. With regard to our investor relations calendar, we will be attending a number of events and 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 today's call, we will make forward-looking statements which involves risks and uncertainties as detailed in our 10-K/A. Our actual results may differ significantly for 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 performed and for comparison purposes with 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, on an adjusted basis, that means excluding non-comparable items. When you hear us say, on a reported basis, that means U.S. GAAP. Now, on to today's call. First, Fréd Lissalde, our President and CEO, will comment on the industry, followed by a high-level overview of our Q3 results and full year outlook.

He will then discuss some of our recent product wins and highlights from our recent Investor Day. Then, Ron Hundzinski, our Chief Financial Officer, will discuss the details of our results as well as our guidance. Please note that we have posted an earnings call presentation to the IR page of our website.

You'll find the link in the Events & Presentations section, beneath the notice for this call. We encourage you to follow along during our discussion. With that, I'll turn it over to Fréd..

one in Europe, and one in Asia. We also would like to point out that our win rates across all propulsion systems – combustion, hybrid, and electric – are strong. Finally, I wanted to recap very briefly the highlights of our last Investor Day on slide 9. Our new business win supports the long-term outlook we shared last month.

We expect 2023 revenue of $14 billion before any benefits from M&A. By 2023, we'll be overweight hybrid and electric revenue compared to industry volume, and we're targeting $1 billion of free cash flow in 2023. These targets are achievable because electrification accelerates the opportunities for BorgWarner.

This is Ron's last earnings call with the company and I wanted to take a moment to personally thank him for his tremendous contribution over the years to our company. I speak for the entire management team in wishing Ron well in future career opportunities. So, thank you, Ron. All the best. Good luck. And with that, I turn the call over to you..

Thank you, Fréd, and good morning, everyone. Before I review the financial details, I'd like to provide you some of the highlights as I see them for the quarter. First, our organic revenue over market was better than our expectations. The lower overall organic growth was the result of lower industry volumes.

However, we still outgrew the industry volume by more than 600 basis points. Second, incremental margin performance was negatively impacted by the rapid decline in industry volumes, which when combined with the temporary nature of the European volume weakness, limited our ability to reduce cost within the quarter.

And finally, EPS was at the high end of our guidance we provided last month. Now, as Pat mentioned, I will be referring to supplemental financial slide deck that is posted on our website and I also encourage you to follow along. Let's turn to slide 11. On a reported basis, sales were up 2.6%, and on a comparable basis, our organic sales were up 3.6%.

This is solid performance compared to our weighted average light vehicle industry production for the quarter, which was down approximately 3% year-over-year. We saw 4% growth in China against a production market that was down more than 4%. Europe revenue was down 2% compared to the 6% industry production decline in the quarter.

North America revenue was up double-digits versus the 2% production growth in the quarter, and commercial vehicle was a benefit, contributing about 50 basis points of our growth. And diesel and gas mix in Western Europe was a headwind. Now, let's look at the year-over-year comparison for operating income which can be found on slide 12.

Q3 adjusted operating profit was $293 million compared to $297 million in Q3 of 2017. Our operating margin of 11.7% was 50 basis point decline year-over-year due to the impact of Sevcon and higher R&D spending as a percentage of sales. On a comparable basis, operating income was up $6 million on $88 million of higher sales.

That gives us an increment margin of 7% in the quarter which is below our mid-teens target. There are three main drivers of this weaker incremental margin performance. First, the rapid decline in industry volumes which when combined with the tempering nature of European volume weakness did limit our ability to reduce costs within the quarter.

R&D timing related to new launches distorted our margin performance in the quarter as well, and raw material and tariff-related costs and inflation impacted us. Earnings per share on reported basis where at $0.98 per share, on an adjusted basis, net earnings were $1 per diluted share.

Now, let's take a closer look at our operating segments in the quarter beginning on slide 13 of the deck. Engine segment net sales were $1.516 billion in the quarter. Sales growth for the Engine segment on a comparable basis was 2.1% as growth in North America was offset by lower China volumes.

Adjusted EBIT was $238 million for the Engine segment or 15.7% of sales. On a comparable basis, the Engine segment adjusted EBIT was up $5 million on $32 million of higher sales for an incremental margin of 17%. This incremental margin performance is partially driven by better performance in our noncore emissions business.

Turning to slide 14, Drivetrain segment net sales were $977 million in the quarter. Sales growth for the Drivetrain segment on a comparable basis was 6.3% primarily due to strong DCT growth in China, transmission components and all-wheel drive.

Growth was partially mitigated by lower volumes in European customers were higher than average Drivetrain content. Adjusted EBIT was $108 million for the Drivetrain segment or 11% of sales. Sevcon had a 60 basis point negative impact on margins.

On a comparable basis, the Drivetrain segment adjusted EBIT was up $2 million on $58 million of higher sales for an incremental margin of just 4%. This was driven by limited European cost reduction due to the temporary volume decline and timing of R&D spending for awarded programs. Now, I'd like to discuss our 2018 full year guidance.

Turning to sales growth guidance for the full year on slide 16, we expect organic growth of 4.5% to 5.5%, which is consistent with last month's update.

The Sevcon acquisition is expected to add approximately $57 million to revenue in 2018, currency is expected to be a $192 million tailwind, and total revenue is expected to be in the range of $10.48 billion to $10.58 billion. Our operating income walk is on slide 17.

From a performance perspective, we expect mid-teens incremental margins on our sales growth. Our consolidated operating income margin is expected to be 12.3% to 12.4% or flattish year-over-year. To finish our full year guidance, please turn to slide 18. EPS guidance range of $4.35 to $4.40 per diluted share is unchanged from last month.

We continue to target free cash flow of $550 million to $575 million; however, working capital pressures and tax payments will present a challenge in achieving this target. That being said, this is our goal and we are continuing to drive for this target. The tax rate is still expected to be in the low-26% range.

Now, our fourth quarter guidance is on slide 20. Our guidance range for Q4 is wider than typical, which reflects the continued industry volume uncertainty we see through year end. First sales; we expect organic growth of 1% to 4.5%. EPS is expected to be in a range of $1.07 to $1.12.

This guidance is based on a low-26% tax rate and incorporates a $75 million FX revenue headwind year-over-year. So, now let me summarize Q3. Overall, execution was solid in light of the challenging industry volumes. Like we mentioned before, organic sales growth of 3.6% was more than 600 basis points over industry production.

The Q3 incremental margin of 7% was explained by the pace of revenue slow growth and R&D timing to support awarded programs. As we look at the remainder of 2018, the environment will remain challenging. However, we have an experienced team in place to react to these changes while still positioning the company for its future growth.

Now, before I turn it over to Pat, I'd like to say a few things. First, BorgWarner is in an extremely strong position to compete in the coming electrification trend in powertrain. We have an outstanding portfolio of products. I have never seen this company stronger. Next, I would like to thank many people as I retire from BorgWarner.

I'd like to thank the board of directors for their support over the years, and especially our Chairman. I would also like to thank the investment community from the buy and sell-side analysts who I've met over the years, in addition to the advisors from the accounting firms to the bankers.

Also, I owe a big thank you for all the BWA employees, but even a bigger thank you to my finance staff, who I think are the most talented, humble and hard working group around.

And I have a big endorsement goes out to Tom McGill, who has been a loyal Treasurer for me, and I have no doubt that his leadership alongside with Fréd will continue to deliver the results expected by our investors. And finally, my most important thank you goes out to my wife Tina, who without her support, none of this would have been possible.

So, with that, I'd like to turn it over to Pat..

Thank you, Ron. Sharon, we're ready to open up for questions..

And your first question comes from Richard Kwas with Wells Fargo Securities..

Hey. Good morning, everyone..

Good morning, Rich..

Good morning, Rich..

Hey, Ron. Best wishes..

Thank you, Rich..

Enjoy it. So, on China, down 4% for the market; you were up 4%, so 8 points outgrowth. Obviously, this past quarter was pretty sudden in terms of the changes to schedules, et cetera.

If we just take a step back and think about growth rate in that market, which had been double-digits in a little better production environment, but if we think about kind of a flattish production environment, what should we be thinking with what you know with regards to backlog, et cetera and mix, what we – should be thinking about outgrowth for that market for you?.

So, thanks, Rich. So, first of all, in Q3, China was a positive contributor. But first half of the year was ahead of the plan, and I think China also fixed a little bit of inventory for us, but still the new business growth is really, really significant for us. And going forward, I think you can expect double-digit over market in China..

Okay. So, no backing off of that with regards to what you see right now....

No..

...particular side, okay..

No..

Okay. And then, just on – so, we're all square on tariffs. Last quarter, you talked about 10% to 20% in terms of impact, I think Ron did.

Is that still playing out as envisioned? And then, if we're starting to think about 2019, any incremental impact from List 3? And then, I assume there's some lap over negative impact for 2019, but just if you could level set us there, I'd appreciate it..

All right. Rich, I'll do 2018 and Fréd will talk about 2019. You're correct that $10 million to $20 million of headwind in tariffs. We did see approximately about $10 million of headwinds in Q3 related to tariffs. So, I feel that we're still on track for what we've communicated – I think it was last month.

I think in Q4, we'd probably continue to see about another $10 million of headwind in tariffs – and inflation, we kind of combine those together.

And then, Fréd?.

Right. So, for 2019, one way to look at it is that we certainly see that pretty much in line. For 2018, we have a low recovery, and we are focused into working with our customers to get more recovery than zero. And so, that's going to be our focus going forward in 2019..

So, the way to think about this is, once we get into 2019, the impact should be less than $10 million a quarter (22:53)..

We might see a little bit more tariffs going forward, because I think it might be the beginning of the impact, but we also think that our focus into getting some recovery is going to compensate some of those increases..

Okay. All right.

And then real quick, last one on return of capital with the stock, where it is, given where we are in the cycle, what are the latest thoughts there?.

I would say, Rich, at this point, we're going to reevaluate that going into the 2019 plan, that will be communicated in the first quarter, because at this point, we're finished with the $150 million buybacks that we did for 2018. But we'll be up – the opportunities are there, we're going to take them. There's no question.

But we'll have to communicate exactly what that buy is going to be as we go into the first quarter, okay?.

Okay. Thanks. Thanks, again, Ron..

Your next question comes from Noah Kaye with Oppenheimer..

Thanks very much. Good morning and Ron, congratulations on your retirement. It's been great working with you..

Thank you..

So, just to pick up on the question that Rich was asking about, he was looking at the tariffs and materials side. You talked earlier about basically inability to or decision not to moderate spending in view of what we saw as EU temporary weakness.

So, I just want to understand what is your view to how long that kind of WLTP really weakness lasts? Should we see a short-term continued pressure on margins in view of that and how long do you think it lasts?.

So, our view is that it's essentially a second half of 2018 impact and it's certainly going to carry on in Q4. And we also think that the volumes that have been lost in 2018 might not be recovered in 2019. But going forward, we'll do a better job in fixing costs to reduction of volume overall.

Now, I think in Europe, early-2019 what we know is that it might actually be back to normal..

Okay. That's helpful. And then, Fréd, you talked about strong win rates across propulsion types. We've seen some peers recently stepping up a bit or talking about stepping up their inorganic spend in electrification and I think that certainly validates some of the earlier moves you've made.

But just any changes you might be seeing in the competitive environment? Any risk at this point you see to kind of expected product margins on the hybrid and electric side?.

No, we don't. We're very, very successful in booking business on hybrids and electrics. And what Ron and I see when we get these requests for capital installment, we don't see any changes in margin going forward. So, we're very pleased with the booking rate. It remains strong across combustion, hybrid and electric.

And there are many booked items that we can't disclose, as you may imagine, but we don't see any things changing from what we've told you in the past which is pretty much the same margins and capital intensity and return on capital..

Okay. Perfect. I'll jump back in queue. Thanks..

Your next question comes from David Leiker with Baird..

Hi. Good morning, everyone..

Good morning, David..

Good morning, David..

And Ron, likewise, congratulations..

Thank you, David..

Look forward to it.

Fréd, as we look at WLTP in Europe, I know it would be bouncing around a couple of different ways, but do you have a sense of your customers, what share of their vehicles they have gotten certified here as of the end of October, and what's left to go yet?.

No, I don't. I don't have that detail..

Okay.

But from what you're seeing, that's something that should be – everyone should be pretty close to caught up by the end of the Q4?.

I think it's getting better. In Europe, we don't have views of inventories. And so, I think they still have some work to do, but I – we're not in those – we don't have those info. We don't – we're not in those types of details, David..

Okay. And then, on China, since you updated your guidance going into your Investor Day, it's gotten weaker. There are some talks here in October of even a more severe weakening, double-digit-type declines.

Just, what are your – it sounds – I mean, what you have in your numbers, in your guidance, and that double-digit kind of decline carried into next year, anyway you can characterize what that might mean for you?.

So, you're right. There is a lot of volatility. This is why we have kind of wide top line Q4 guidance, and I don't want to comment for next year, but we think that we are seeing public forecast a little bit on the optimistic side. If you see the car registration in September, it's down double-digit.

So, we're protecting for a bit of that and it's difficult to forecast short-term, but, yeah, we see that market is going down and that's why we have that wide range of guidance. (29:21)..

Okay. And then, one last item here. As we look at the sub-comment in the power electronics business and your work, I don't think you've booked anything on the automotive side yet on power electronics.

But where are you on developing that product portfolio in the bid activity and opportunities for win there?.

Yeah. We are absolutely on track. Sevcon is focused into playing in our iDM, so integrated Drive Module. That's their focus. As you know, on battery electric vehicle, we have transmissions. We also have transmission and motor as we've announced with Great Wall.

And the next step for us is to develop and manufacture an integrated Drive Module including power electronics, that's the focus of Sevcon, and we are absolutely on track for doing that..

So, what do you think the timing is for you to be in a position to announce your first win with the power electronics business?.

It might be a little bit early for commenting on the date, but we're getting there. It's a very high focus of ours..

Okay. Great. Thank you very much..

Thank you, David..

Thank you..

Your next question comes from David Tamberrino with Goldman Sachs..

Great, guys. Thanks for getting us on and taking our questions today. I just wanted to follow-up on that.

So, to be clear, your eDM doesn't have any power electronics embedded in it, the eDM (31:02)?.

So, we have two types of product, Dave. We have the eDM, which is motor and transmission, and we have the iDM, which is power electronics, motor and transmission. The eDM is in production. The iDM is in development..

Okay.

And then, I guess for my follow-up, as you looked at the China production schedules and kind of thought back to the guidance that you put out in September 18 of this year, how much – or how weak did you really fully expect that China industry to go? And what are you seeing from an inventory level of your customers' end market supply and if there's any risk to your views in the back – or at least the last quarter of the year?.

WLTP and China. WLTP and China was pretty much half and half for Q3 and Q4. And so far, even if I have already commented, we think we're going to be between the midpoint and the low-end of the guide, we don't see a change from what we guided back a month ago..

Okay. That's helpful. Thank you, gentlemen..

Next question comes from John Murphy with Bank of America..

All right. Good morning, guys, and Ron, congratulations. I look forward to staying in touch, hopefully..

Thank you, John..

Fréd, as you went through page 9 and talked about $14 billion as still the goal for 2023, you kind of had a heavy emphasis saying that that didn't include acquisitions.

I'm just curious, given some of the stuff that's going on more recently with the KKR acquisition of Magneti Marelli – or the announcement of acquisition, if you're seeing any of this M&A activity heating up, either on a smaller or larger basis, and that may be a real opportunity for you in the future?.

Yeah. So, the $14 billion is without any M&A. And John, we're always active on the M&A front. We have a team of great people focused on optimizing our product portfolio, making proposals for M&A – small, medium or big M&A – and this is something we will always focus on. Technology is always a key. M&A is always focused on, for us, for product leadership.

And so, this is the direction we're marching towards..

Okay. When you say big, though, what does that mean? I mean, usually we've been hearing about sort of smaller stuff.

What does big mean? Same size as Borg or is it half the size? What does that mean?.

Small is small, medium is bigger than small, and big is bigger than medium..

Borg is huge..

And Borg is huge..

Yeah. Okay.

So, in the context of that, Borg is huge, in the context of that small, medium, big, is that a fair statement?.

It's a fair statement..

Okay. Then, just one quick follow-up, and Ron just because you're the numbers guy and you used to talk about this stuff. I mean, when we think about margin expansion, it used to be you needed high-single-digit to low-double-digit top line growth to get margin expansion.

Has the equation changed when you look at sort of mid-single-digit top line growth, you may still be able to eke out a little bit of margin expansion? Is there sort of a new formula here that you guys might be able to sort of illustrate for folks, so we can understand sort of the rough math around margins versus top line?.

that mid-teens is more over a range of time as well. So, when you look at changes in volume in short order, it's a little bit harder to adjust your cost structure to get margin expansion, which happened to us in the third quarter.

But I would say that this company right here is operating in a range where we can get margin expansion at the lower end, say, to this 3%, 4%, 4.5% growth. That's where we're operating right now. But you can't have rapid declines in volume like we saw in Q3. So, we've lowered that bar from like back in the days to be 8% to 9% to more about 3% to 4%.

We can still expand margins..

And thanks for pointing out that I've been around for a while, Ron. I appreciate that. Thanks. So, thanks very much. Congratulations, buddy. Take care..

All right. Thanks..

Your next question comes from Colin Langan with UBS..

Just want to like everyone else said, congratulations, Ron, on your retirement..

Thank you..

Can you just touchback on – I think I missed the first question on China tariff, what can you do if the tariff go from 10% to 25% next year? I mean, how should we think about that impact and what kind of mitigation actions might be possible?.

So, we're focused on that. We have plans in place. We have several mitigation actions – localizing, resourcing, sharing, passing it along to our customers some of it. So, we have a view on what we need to do and we have plans in place if that will happen..

And I mean, do you think you can execute those plans fairly quickly or should we think about that sort of – I think it would be like $20 million to $40 million annualized for this year.

Does that more than double if it goes to 25%?.

So, those resourcing plans would take time. There will be negotiation with customers on validation periods. So, the $20 million that you've seen in 2018, we've incurred that all our own. We've not passed anything through. Discussions take time and are happening.

So, when tariff increases or when we see a bigger impact of what's already enacted, we also think that we can be successful in closing some negotiation with our customers..

Okay. Got it.

And I apologize if I missed this as well, but any color on the weak incremental in the Drivetrain margin of just 4%, if we look slide 14?.

Yeah. I had that comment in my remarks.

It's a combination of R&D spending and – what's the other item?.

Europe..

Europe. I'm sorry, (38:48). So, the rapid decline in the volumes, we didn't take any cost out, because we saw them as temporary in Europe. So, we didn't respond and take cost out. And as we saw it, the term we use in accounting is lack of absorption basically in our plants. And as Fréd was saying earlier, we see that as a temporary thing in Europe.

So, we do fully expect that our fourth quarter incremental margin to come back to a more reasonable level..

And why don't you see that in Engine?.

Engine, we get a tailwind little bit from the noncore emissions business as well. Remember, last year, there was a tremendous headwind on the Engine side, and this year, we're seeing a little bit more tailwind. And R&D spending was more heavily rated to the Drivetrain as well.

So, Engine had a good incremental margin primarily because of the tailwinds of the emissions business or the thermostat business we're trying to sell..

Got it. And then just lastly, it sounds like you have a pretty broad range in your guidance anyway. But any color on the sensitivity to China production if we see it come in – I think IHS has it flat if it comes in down 1% for the year.

What would that mean in terms of your risk?.

So, as I mentioned before, we have a wide range of guide. We've protected for some downturn. I suggest Pat can follow-up with you on that particular question, if you like..

Okay. All right. Well, thanks for taking my question..

Thanks, Colin..

Next question comes from Brian Johnson with Barclays..

Yes. Hi. Good morning, team. This is actually Stephen Hunt on for Brian. Ron, congrats on retirement and your future opportunities, I wish you the best. Just want to drilldown a little bit on European light vehicle here. So, Europe light vehicle production was down 5% in the quarter.

Just wondering if you guys can provide any color on Borg's outperformance or in line performance, not sure what it was in the quarter.

And then, also as we think about the supply chain from (41:03) standpoint as we think about each OEMs that you're serving and how to think about kind of from a manufacturing just-in-time standpoint delivery, et cetera.

How tie are you guys to each individual plant versus kind of just overall levels of production in Europe? And then, I've a couple follow-up questions..

So, before Fréd, let me just start give you some of the numbers on – in my script. I was saying that we saw negative 2% growth in Europe where the market was negative 6%. I think you asked about China. China, we saw, was up – we said China 2% growth on a market that was down about 4%.

So, just on the numbers side, all right? So, Fréd?.

No. It's absolutely right. It's consistent with the fact that regularly we overgrow or outgrow the market by 500 basis points to 600 basis points. So, in Q3, it was closer to 600 basis points and a little bit more. But this outgrowing the market is where we want to be, and you see that in Q3 and also you see that in our longer-term guide..

Okay. And then, just any color on – because you guys are pretty close to WLTP right now.

Just wondering from supply chain manufacturing standpoint, particularly as we think about the differences between kind of the transmission versus trends in the Drivetrain versus the Engine, how to think about kind of Borg's positioning as you think through kind of the next couple months and get through these WLTP issues? Just wondering if there's any key differences in how to think about maybe OEM's ability to stock up or build more engines or drivetrains, et cetera, through the WLTP.

Any color you could provide on that would be helpful..

It's tough for us to have that detail. We don't see a lot of impact – or differences between the Engine side of the business and the Drivetrain side of the business regarding call offs.

We also think that progress are being made by the carmakers on getting this done and – yeah, for sure, it's going to impact Q4, but having a longer term view is a little bit difficult for us. But to your questions, we don't see any impact between Engine and Drivetrain..

Yeah, understood. Okay. Good. And then just one last housekeeping one, free cash flow, it sounds like there's some potential downside to that due to working capital and tax payments. Just wondering if you can kind of quantify – roughly quantify what the downside could potentially look like.

And then also, as you think heading into 2019, is it just a one-time thing that's going to reverse, so to speak, into 2019 or is that kind of ongoing?.

I'm not going to quantify the headwinds. All we're going to say is that given some customer responses we saw at the end of Q3, we're anticipating some of our customers may short pay us a little bit in the fourth quarter. And we're going to make sure that we do everything, given them phone calls to make sure they don't do that.

We just want to make everybody know that there are some challenges in hitting the free cash flow target at this point. 2019 is too early right now, Stephen, to say anything. They'll have to come out in the first quarter when we provide guidance. But it is kind of on a temporary basis I would say. Our working capital is temporary..

Okay..

The focus on free cash flow and working capital and CapEx is very central, and we're certainly marching towards our $1 billion free cash flow in 2023..

Got it. Thanks for taking my questions..

And we have a question from Joseph Spak with RBC Capital Markets..

Thank you. Ron, all the best as well from me..

Hey, Joe..

Fréd, maybe just bigger picture, at the Analyst Day and in the past, you've sort of mentioned that the sweet spot for you from a content perspective is really on the plug-in hybrids. Near-term, right, with some of the WLTP rulings and I think some of the credits to some of the countries as well, it seems there has been a step back from that.

Are you seeing that? And I guess specifically with the WLTP stuff, are you seeing any sort of change in how customers are thinking about plug-in hybrids as they begin to source next-generation platforms?.

No. I don't see any changes. Hybrid is, for sure, a great product for us. It adds content. We have two times more content on the hybrid than on the combustion propulsion architecture, so – and we don't see any slowdown in any parts of the world in going towards hybrids.

P2, for sure, but also other technologies that we can support, so it's still a great story for us, we're booking hybrids to plan, and the overweight strategy on hybrids and electric is taking shape..

Okay.

And then, from the near-term impact on maybe some customers pulling plug-in hybrids that doesn't impact you that much, because really that's more in your bookings than in your base business?.

You're right..

Okay. Thank you..

Thank you, Joe..

Thank you, Joe..

There are no further questions in queue. Mr. Patrick Nolan, I will turn the call back over to you..

Thank you. I'd like to thank you all for your great questions today. If you have any follow-ups, please feel free to reach out to me. With that, Sharon, you can close the call..

That does conclude the BorgWarner 2018 third quarter results conference call. You may now disconnect..