BorgWarner Inc. (BWA) Earnings Call Transcript & Summary

Good morning, everybody. My name is Emmanuel Rosner, and I'm the senior U.S. autos analyst at Deutsche Bank. On behalf of the global autos team at Deutsche Bank, we would like to thank you all for joining the second day of our global automotive conference. With this year's edition, we might not be physically in sunny Detroit nor have the pleasure to check out together all the newest vehicles at the auto show. But at the very least, the virtual format is enabling many more of you to participate in the conference with investor registration up about 75% from previous year. So thank you so much for your interest in the autos industry and your support of Deutsche Bank. We have put together an exciting schedule of presentation and discussions over the 2 days, and I would like to bring to your attention some of yesterday's highlights in case you missed them. We kicked off the conference with a keynote from Ford's CEO and COO, followed by keynote session with Volkswagen and then General Motors' CFO. We also hosted a session with Nikola Corporation's CEO. It was Nikola's very first public presentation following its listing on NASDAQ last week. It was tuned in by about 2,800 investors, and we got about 300 questions in. And we chatted with the CEO of the U.S. autos industry trade group in Washington to find out what the industry is lobbying for in D.C. All these conversations are available as replays on the DB conference website. So now let's turn to our exciting program for today. We'll kick things off right now with a chat with BorgWarner, a global leader in automotive powertrain and an emerging one in vehicle electrification. It's a pleasure to welcome to our conference BorgWarner CFO, Kevin Nowlan; Head of Investor Relations, Pat Nolan; and Eddie Sander, Director of Investor Relations. Thank you so much for being with us and being with us on video, which is a real treat.

Yes. Thanks so much, Emmanuel.

Good to be here.

The format for this session will be a fireside chat around some of my prepared question as well as questions from all of you on the call. [Operator Instructions] I highly encourage you to do so and get involved in the discussion. Only I will see your question, and I will ask them on this call without mentioning your name or affiliation. And now without further ado, let's jump into the discussion.

So can we -- maybe to start, could you give us an update on the progress of your restarting production in North America, in Europe? What kind of capacity utilization are you seeing in this region? How is the supply chain holding?

Yes. From a restart perspective, we've been up and running really for almost a month now across North America and Europe. China is back to normal pretty much, I think, production running across our 10 facilities north of 90% across the board. 90% are back to normal, I would say, and even higher than that in most of the locations there. But North America and Europe, we started running production again in the earlier part of May. All of our plants are up and running in U.S., Mexico, Europe, and we're supporting production. I think the challenges that we're seeing are just there's a lot of volatility right now in production schedules from OEs and week-to-week they're changing. And so certain plants aren't necessarily running at the most efficient levels right now. You might be running 1 shift, 2 shifts. It really depends on the demand and how those demand requirements are changing from the customer. But up and running and optimistic that we'll continue to drive forward and ramp up over the course of the year.

That's very encouraging. Any issues or risk with the supply chain so far?

We are seeing some strain in the supply base. As you can imagine, with the production in North America and Europe being shut down for 2-plus months, a lot of our supply base, the Tier 2s and Tier 3s in particular, don't necessarily have as strong a margin profile or as strong a liquidity profile as companies like us or others. And so when you have the production shutdown, obviously that creates a pretty significant burden. And then on top of that, you turn around and you have the restart process, which drives working capital requirements. So thus far, we haven't had any production disruptions associated with the supply base, but we are definitely seeing strain, and I think we're going to continue to monitor that real closely with our customers and our suppliers. I think we'll really see how that plays out over the coming 30 days or so as the suppliers ramp back up.

Understood. And then maybe very finally, in terms of the ramp back up, any latest updates on your South Carolina plant? I know you ramped that back up pretty quickly.

Yes. And you're alluding to, obviously, the tornado that hit us back on April 13, I think it was, and we've put around-the-clock efforts in with our teams there to try to get production up and running with our T cases there. And the good news was after 500 hours, we were back up and running and online. And so there are still some things we're working through in that location, but we are online and producing parts coming out of that location. And the good news is, well, from an insurance perspective, we've obviously had a lot of costs that we're incurring associated with rebuilding that plant because part of the plant took -- sustained a pretty direct hit from the tornado. But the good news is that we've been covered from an insurance perspective. So as we rebuild, we've been receiving the cash funding to fully defray the cost of that rebuild process as well. So good news there. A success story for us in light of what could have been a really devastating issue. But we recovered very quickly.

Yes. No, absolutely. And it sounded from Ford's presentation at our conference yesterday that they're hoping that for -- their launches to be very much as on time as possible. So hopefully, you'll be supporting that.

We have been. We've been supporting Ford. Ford is a big customer of ours, as you know, globally and in that plant. And we have other customers in that plant as well. So we've been working very closely with those customers, have obviously been very keen on understanding and helping out in that situation. And we appreciate their support and all they've done, but we're pretty happy that we've been able to support their production requirements as they ramp back up.

Great. So let's maybe transition to some questions around BorgWarner's growth profile. So the first quarter growth above market was very solid at 12 points above market. Can you go back over what businesses drove the upside versus maybe earlier expectations and whether you view those trends as sustainable?

Okay. Yes. I mean the good news was we saw strong outgrowth in all of our regions. And if you start in China, we saw strong growth in our DCT business, along with the benefits of some of the new launches that we had in our emissions business. If I spend a moment on DCT. The growth in part was related to an easy year-over-year comp. And I'd also note that the DCT plant that we have in China had actually received an exemption to be up and running right after the Chinese New Year. So it actually saw less downtime than others of our plants as well as probably most of our customers saw. But that said, China is 50% of our backlog, and we do expect to continue to see above-average growth in this geography over the next few years, and DCT is a big, important part of that. I think when you go then to Europe, now Europe, our diesel revenue was stronger than we expected, and we did see some strong performance in small gasoline launches. As it relates to the diesel side of the equation, we're monitoring that situation closely because the overall market trend is to continue to see light vehicle diesel decline in Europe. But our portfolio seems to have been holding up pretty well. We've seen that now for a couple of quarters. We think that's probably in part due to the fact that we're on larger engines and possibly due to some of the customer mix. But at this time, I'm not sure we can really call that a trend. I think we just need to continue to watch that closely. And then finally in North America, we saw strong performance of several new product launches, particularly in the turbo business. So overall, outgrowth across the globe, different stories in each region, but we're pleased that it points to continued support of our 400 to 500 basis points of outgrowth this year. Now you asked about sustainability of that. I guess maybe to comment on that, the couple of things that I'd say we're keeping an eye on to say why we're not calling that a trend and why the 1,150 basis points in Q1 might not have been something that I would call sustainable, one, we're cognizant of the fact that in the first quarter, it was a pretty unusual quarter of production in light of what happened with COVID and production shutting down very rapidly in the middle of March in Europe and North America as well as what happened in China in the earlier part of the quarter. So I don't know if that in any way contributed to the results. I think, second, as I mentioned in China, we did have a relatively easy year-over-year comp when you look back to Q1 of a year ago, and that DCT plant did experience less downtime. Again, I'm not sure that's going to create a trend as we look ahead. And then as I mentioned, the diesel portfolio in Europe, we've seen some strength the last couple of quarters in our portfolio, but I'm not sure that's really necessarily a trend. So I think those are some of the things that we're just cautious about in suggesting that, that is going to continue at the type of pace we saw in Q1.

Understood. And so I guess that's a -- pretty much ties into my next question. The first quarter backlog of new business was very strong at like $333 million. That's more than 50% of your full year forecast midpoint of $600 million and implies basically just 1.5% to 2.5% of growth above market over the rest of this year. So what -- I guess you sort of answered it, but what would cause the rest of the year to slow down? Is it just let's watch if those trends still hold or anything else?

Yes. I mean as I mentioned in the past and we've been trying to really focus on in the last few quarters, I think it's better to look at the annual trends in this because there can be volatility as you look at the quarter-to-quarter movements in what we calculate as our revenue outgrowth. And we're pleased with what we saw in Q1 with the 1,150 basis points and believe it supports the 400 to 500 basis points for the full year. But again, the quarter-to-quarter movements can be somewhat volatile. And as we look ahead to the annual trends, 400 to 500 basis points this year, 500 basis points beyond that, that's what we really feel comfortable with. And again, some of the things that might impact us this year as to why Q1 might have been stronger than the rest of the year, the things that I talked about a moment ago, COVID-19 is impacting Q1, China comps and the diesel portfolio, what happens, whether that continues to outperform.

Okay. There's been several strong auto stimulus actions announced in Europe recently in several countries, all of them heavily skewed towards electric vehicle, if not entirely about them. Your 3-year backlog has high concentration in technology for electrified vehicles. But if I remember well, it's mostly in China, not so much Europe yet. So could these actions change your powertrain production mix in Europe? And how would this impact BorgWarner?

Yes. I mean I would say that we have seen some elements of stimulus that support non-EV programs. I think there's the EUR 3,000 incentive for low-emission gas or diesel vehicles in France, and there's the general lowering of VAT in Germany. But overall, you're correct. I mean the bulk of the stimulus actions we've seen announced thus far in Europe have been skewed toward battery electric or advanced hybrid vehicles. And as it relates to the European electrified programs being launched in the near term, I think you know it, but we're not participating in those in a meaningful way with electrified propulsion content. That's not where we've been competing. We've been competing on more of the advanced hybrids that are coming to market in 2023 and beyond. So the potential near-term volume uplift that could come from these stimulus packages probably has less of a benefit for us. But I think there's an underlying message in those stimulus programs, which is that the overall direction of the market toward electrification propulsion architectures is continuing. It's unchanged. In China, we're not seeing any slowdown in electrification. And remember, as you pointed out, that's 50% of our net backlog. And so it's continuing to grow in a strong way there. And in Europe, the 2025 and 2030 regulations in CO2 and emissions are continuing to lead to more electrification, and that's where our major electrification content is in Europe, advanced hybrids in 2023 and beyond. Those are the hybrids that OEs are going to need in order to meet those regulations. So we're encouraged by that but wouldn't expect to see much tailwind coming from the stimulus programs as they relate to the electrified portfolio in the near term.

Kevin, that makes sense. Maybe shifting gears to margins. Your first quarter decremental margin was 26% better than the customary, call it, low 30%, reflecting benefits from your cost action. Yes -- yet for the rest of the year, you suggest it will be difficult to do better than 30%. Was that a comment just on Q2? Was it a full year comment? And is this still your view? And why is that?

Yes. I mean we obviously did achieve the 26% in Q1, as you mentioned, and we're pretty happy with that result. But as we look ahead to the balance of the year, not just Q2 but the full year, we do expect decrementals to be more in that 30%-ish range really due to the significant and rapid declines in the year-over-year production and the volatility that we're seeing in that production week to week as we're relaunching right now. I'd say that's point one. And point number two is in addition to the wide range of revenue expectations and the volatility of that, there are the potential for other near-term cost factors that could impact those decrementals, like the efficiency of how our plants operate in this environment, and that can be both because of the volatility in production as well as any of the new requirements that we're putting in place related to sanitation, PPE, social distancing and how that might impact operating efficiency. And then second, the potential impact of any supplier issues or supplier distress. But then going the other way, there could be the potential for additional cost mitigation actions. And so all that's to say why we think directionally, 30% is the right way to think of us, but -- in this environment. But it's also why we didn't provide explicit earnings or margin guidance when we gave guidance a month or so ago. But we did consider these types of issues when we were thinking about the range of cash flow we could generate, which is why we expected to generate $100 million to $300 million in free cash flow this year. So margin, still a lot of uncertainty, but 30% is probably the right way to think about us.

Understood. And so how much benefit are you getting from your restructuring programs? Curious both in terms of the ones that are structural with benefits here to stay as well as some of the cost actions that you're doing that are more temporary. How much is there? And how much is left to be realized?

Yes. Right now, we are benefiting from the cost actions that we announced about a year ago at this time. It was, I think, April when we announced the SG&A actions, and that's primarily been benefiting our Engine and corporate groups. And you saw part of that in Q1. That's part of the reason the Engine segment was down only 20% from a decremental perspective year-over-year. And so the savings we expect in 2020 from that program primarily is $30 million to $40 million for the full year. Again, part of that we saw in Q1. Now looking ahead, we do expect to generate additional annual gross cost savings at $90 million by 2023 compared to the 2020 run rate where we're exiting because that's driven in part or in large part by the fact that we proactively embarked on that restructuring program we announced at the end of January, early February to mitigate potential margin headwinds for the coming years because we wanted to sustain our top-quartile margin profile. So this year, $30 million to $40 million in the P&L, and then an additional $90 million as we look out through 2023, with about half of that coming in next year.

Okay. That's great. In terms of the temporary savings for things that you put in place during this particularly strong downturn, any numbers that you can quantify for us?

No. The -- I think that's embedded in our decremental margins. So as production has been coming down and we've been taking advantage of some of the programs, the temporary layoff programs that have been sort of supported by governments around the globe, the salary reductions and those types of things that we've taken, those are helping us mitigate the margin impact. Because as you can imagine, when production -- take Q2 production being down 50% to 75% globally, hard to manage at something different than your contribution margin. But those programs, which are temporary in nature or those things we're taking advantage of, help us mitigate that in the short term.

Okay. With these -- the programs that you're running, would they help you resize the company's cost base for -- if volumes were to remain permanently lower or at least longer term lower post COVID?

Yes. Absolutely. Again, when we embarked on that restructuring program, it was really about proactively executing on a program that would help sustain our long-term margin profile and mitigate any risk that might come into that margin profile. So we were looking out a few years, and we didn't see a specific reason why we needed to execute it other than we know in the auto industry, bad things happen, surprises happen that impact your margin. We didn't know COVID-19 was coming, and it came. But the margin benefits that we could potentially get from that restructuring program will help us mitigate things like COVID-19 or other things that might come into the P&L. Do we need to do anything extra? That's a TBD. I think we want to see as we emerge from this, are there any long-term, sustained impacts on our margin profile coming out of this? And what do we think the long-term revenue outlook is coming out of COVID-19 and how might that impact our margin profile? And to be clear, we will not accept a structural reduction in our margins. So if there's something else we need to do beyond what we announced in February to make sure we sustain that top-quartile margin profile, then we'll look to do it. But I think we're not ready to say whether we need to do anything additional because that big program we announced in February is going to help quite a bit.

Understood. Why have you chosen not to cut back on R&D and CapEx in 2020, like I think many of your peers have, despite the tough environment?

That's a strategic decision we made as a leadership team was really to capitalize on the strong liquidity profile we have, the conservative leverage profile we have and the fact that in this environment, we're still expecting to generate positive free cash flow for the full year. So we made a conscious decision up to this point that we want to sustain our investments that support our long-term growth objectives of achieving the 500 basis points of revenue outgrowth over the next few years. So with R&D, as you pointed out, our current plan is to maintain our investment dollars at roughly the same level as last year, which means the percent is stepping up to like 5% to 5.5%. And so that's, again, a concrete decision we've made unlike some of the peers we've seen. And from a CapEx perspective, as long as the customer launch cadence remains intact -- we've seen some delays, but as long as it largely remains intact, we would expect to continue to invest our CapEx dollars to support those launches. We'll watch both areas. But at the moment, that's a strategic decision we've made to leverage our strong financial profile.

That's great. Maybe 2 more questions around margins. I think in the past, you have commented that you were seeing maybe some pricing pressure on the turbocharger side of the business, maybe a little bit more competitive than it used to be. Is that still the case in the current environment?

I'd say we haven't seen any real change in the past couple of quarters in the pricing dynamics there. But I'll be honest, as we look back over the last 90 days or so, I think the customers, the suppliers, they've been really focused on managing the production restart and ramp-up process. So I'm not sure we've seen a whole lot going on in that environment, a lot of intensity of focus around pricing here for the last 90 days or so.

Right. And the quoting activity has continued, correct, through the downturn?

The quoting activity has continued. I'd say the Q1 -- as I think of award activity, Q1 was relatively in line with our expectations. I think Q2 is probably going to be a little bit light, but we do expect the full year to be relatively in line. So future programs are still being quoted at this point and being awarded by our customers, albeit Q2 probably a little bit light.

Okay. And I guess just longer term, looking at your margin profile, with the bulk of future revenue growth essentially coming from the Drivetrain business, which is lower margin at least so far, is there a risk of ongoing margin pressure for the BorgWarner overall corporation from this mix shift?

We don't think so. I mean remember, part of the reason the Drivetrain segment has lower margin is because they are still investing quite a bit in R&D to support future growth. I mean it's a business that's still in ramp-up mode. And so when we price our new programs and when we look at significant new investments, we maintain that discipline of targeting a 15% ROIC, whether it's an Engine program or a Drivetrain program. But that's over the life of a program. And given the capital intensity of Drivetrain is relatively similar to what we see in Engine, it suggests that the margin profile at steady state should be relatively similar over time. But right now, we're not in steady state at that business. The Drivetrain business is still in growth mode. We're still in the investment phase of that, and that's having an impact on the margin profile today. And we would expect the current margins to be -- continue to be impacted as we're still growing that business and investing more for the future growth and future margin profile.

Okay. And just to be clear in terms of R&D, any specific goals around spending over the next year? Are you going to try to maintain it as a percentage at last year's level, for example?

I think the right way to think about it is at the moment, we continue to believe the 4% to 4.5% R&D investment is the level of investment that will continue to support our revenue outgrowth of around 500 basis points, which means as revenue ramps up, we're investing more dollars to support that growth. But I think that's still where our expectations are at this moment, 4% to 4.5%.

Perfect. Before I shift to some questions on electrification, I just want to definitely remind everybody on the call, feel free to send questions our way. Just type them in. I'll either read them out loud on your behalf or just bring them into the conversation. So turning to electrification. What are you seeing in terms of launch activity cadence for BorgWarner, mainly, obviously, China and Europe, hybrids, electric vehicles? But anything you can speak of in terms of cadence and importance, I guess, in the near term?

Yes. I mean I think the growth of the propulsion efficiency and vehicle electrification is going to continue to be driven by the regulations rather than consumer demand, and we see that continuing in both China and Europe. So when I look at China, we're not seeing any slowdown on our electrification programs. Things are moving pretty quickly there, and we're continuing to support the ramp-up. And in Europe, as we talked about earlier, the 2025 and 2030 regulations on CO2 and emissions are leading to more electrification. That's not really in question. And then just as we were talking about with the incentive programs, you see that drive continuing, that focus continuing in the European market. In the U.S., electrification maybe takes a little bit more time, but we'll continue to benefit from the technology that we have on our combustion products that make cleaner engines. But overall, China is continuing very strong. And in Europe, we see the trends continuing in the direction towards advanced hybrids and BEVs as we look out to '25 and '30.

Okay. One follow-up from a question from the audience. "Can you elaborate a little bit more on your second quarter order trends comments?" Was it -- I don't think this was a comment on backlog that you're making. We're just saying in terms of the quoting activity, correct?

That's correct. It's really about new business awards. I think customers in this environment over the last 60, 90 days have really been more focused on the restart process as opposed to awarding new business. So it was really a comment about new business award activity as opposed to anything with respect to revenue outgrowth or performance in the quarter.

Okay. And your expectation for this activity would be that the automakers would just make it up over the rest of the year?

Yes. That will be on a full year basis, it will be relatively in line with what we would have expected.

Okay. Perfect. One other follow-up from an earlier part of the conversation. Obviously, we started with that with the reopening and restart of production. I guess how would you qualify it versus your expectation from a month ago? And what are you concerned for the next 6 months, specifically on the production restart?

Yes. I mean if I start with China. I mean China, we're very pleased with how that market and how production has come back. I mean we're operating almost at normalized types of levels, albeit in a slightly down market. But the way production has come back and the way that we're operating, we feel very good about. As it relates to North America and Europe, I think the challenges over the next 6 months are really going to continue to be the volatility in the production environment. And do we start to get some normalization as we emerge from Q2, which is our hope? And what's embedded in the directional guidance that we provided to this point? And second, it's going to be really managing the supply base and making sure that we see our way through any supplier issues that we might experience as they're ramping up here over the next 30 days in particular. I think this is going to be the telling period over the coming weeks.

Okay. That makes sense. Just shifting back to electrification then. Are you seeing any sort of like business or business opportunities being pushed out in the U.S. on electrification? There seems to be much less of a regulatory push, obviously, even on the fuel economy side, honestly. And so there were some anecdotal programs being either pushed out or sort of canceled, but any trends you see in the U.S. in terms of less focus on electrification?

Not in terms of electrification in particular. I'd say generally speaking, we've seen some delays in programs and launches, but that's less of a focus on electrification, I'd say, and just more generally across the portfolio, just a little bit from a delay perspective. But the trends toward electrification seem to be strong and continuing, particularly in the geographies we talked about, China and Europe.

Great. Sorry to keep jumping off, but definitely trying to cover a lot of the investor question as well. Some suppliers yesterday noted day-to-day changes in the call-offs by automakers in Europe, creating issues with cost absorption and predictability and things like that. Is BorgWarner seeing this? And any risks to the decremental in Europe business because of that?

I mean that's part of the risk why we're talking about directional decrementals of 30%-ish, because of that volatility. I'd say the volatility, as much as anything, creates the uncertainty in the decrementals. Because if week-to-week your production is changing in a way that doesn't allow you to manage your labor and your plant operations efficiently, then you're going to have some pretty inefficient operations at times and hitting 30% becomes challenging. So I'd say that's why we say 30%-ish is a directional way to think about us, because there's volatility to the good and the bad, and that some of the bad is when you see the volatility in production schedules week to week.

Okay. Perfect. A few more topics hoping to touch upon in the next -- in the last 5 minutes or so. First of all, on Delphi. As we move towards closing the deal, can you give us an update on Delphi's underlying business, how has it been faring through -- during this pandemic? Is the Chinese business benefiting from a fast recovery? I don't know, profit trajectory for some of these underperforming businesses. Anything you can -- from the outside, it feels this is the part where we have a little bit less of a handle on.

Yes. And I understand. And I know they're not providing guidance right now either. And so I'm not going to comment specifically on Delphi's financial performance. But I will say with respect to the restructuring plan that you see coming through their numbers, Project Pioneer, as they call it, I think we feel very confident that, that program remains on track and that they're executing that plan very well. It's 1 of the 14 work streams we have as we look at integration associated with the Delphi acquisition. And so we fully expect that, that $150 million in annualized savings is going to come into the P&L, and you see that flowing through the results. But I'm not going to comment further on their financials at this point. Our focus has really been on the integration work being done by both companies, and we've been pleased with what we've accomplished thus far and progressing toward closing. And our expectation is when we get to that closing, we'll provide a more fulsome and updated outlook on the combined performance of the company and expectations for the company.

And I mean, you obviously renegotiated the price a little bit towards the end. Are you still comfortable with what the combined growth above market and margin profile look like on a combined basis?

Yes. From a revenue outgrowth perspective, we still think that this company is going to operate in the mid-4.5% range from an outgrowth. That's taking BorgWarner at 5% revenue outgrowth, which we still feel confident in and Delphi growing over the next few years at roughly 3% on a revenue outgrowth basis. That's through 2023. And remember, when we measure outgrowth, it's a little different than what Delphi has done historically. We measure a net outgrowth figure, which includes positives and negatives. And Delphi has an overhang for the next few years, which is their light vehicle diesel portfolio. And so that's part of the reason they're only growing at 3% net on the next few years. Once that headwind is behind them, the growth in the electronics and the GDI portfolio should provide some upside beyond that. So that's kind of from a revenue outgrowth perspective through 2023. Then as you look beyond that from a -- the growth perspective, the opportunity for those revenue synergies starts to kick in as you get to the middle part of the decade because those opportunities don't come in -- we'll quote on them in the next 18 to 24 months. They'll launch in 2024 beyond. That's not in those next 3, 4 years of revenue outgrowth metrics. And I think you asked about margin. From a margin profile, again, we'll update the financials of the combined company at the time of closing. But what I can tell you at this point is that the financial thesis of the acquisition remains intact. We're taking a 12% margin business in BorgWarner historically, combining with that 7% margin business Delphi was a year ago, combining those together, getting the benefit of the Project Pioneer initiatives, which mitigate any further erosion in the diesel portfolio, and then we layer on the cost synergies, which are largely expected to be in the P&L by 2022. And with respect to those synergies, I'm not going to update a number here today, but I would tell you we continue to feel great about the ability to deliver meaningful cost synergies over the coming few years, in addition to those long-term revenue synergies I alluded to. So when you put that all together from a margin perspective, we expect that this business, on a combined basis, will continue to be a top-quartile margin performer.

Great. No, that's a very helpful update. Maybe then to conclude, a couple of questions from investors around, I guess, capital allocation. "Given the strong liquidity profile, will BorgWarner look to inorganic growth in the electric vehicle space? Or will you look to buy any companies within the supply chain and be more vertically integrated? Basically, any inorganic move enabled by your strong position in the current environment when not everyone is in the same shape."

Yes. I mean we'll continue to maintain a balanced approach to capital allocation, which means that we're going to continue to support return of capital to our shareholders, whether it's through our dividend policy or the $1 billion buyback that we announced earlier this year, which we remain committed to over the coming years. But I think M&A is going to be part of the company's ongoing opportunities for capital deployment as well. Now that said, we obviously have a very large acquisition right in front of us, and we're not going to do anything that's going to cause us to take our eye off the ball from integrating a $4 billion company like Delphi into us. So the possibility exists if there's additional M&A in the coming few years, but I'd say probably not going to see another $4 billion type of deal imminently and not going to do anything that would distract us from messing up the execution of Delphi. But I think inorganic opportunities, particularly focused on technology as the start point, will continue to be part of our repertoire as we go forward from a capital deployment perspective.

That's a really great update and a great way to conclude. So I really want to thank you, Kevin, Pat, Eddie, for joining us today. Real treat to have you on video, too. And wishing you the best of luck. Hopefully, we'll get to also get together in person at some time, too.

Sounds good. Thanks, Emmanuel, and stay safe.

Thanks for having us.

And thanks to all investors for dialing in for your questions. Next up, we have Visteon's CEO and CFO. So stay tuned, it starts in 10 minutes. Thank you, everybody.

Thank you.

Thank you.