BorgWarner Inc.

Good morning. My name is Jerome, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2021 Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer period. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. If you are using a speakerphone, please speak up behind it before asking your question. I would like to turn it over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, he may begin your conference.

Thank you, Jerome. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, forewarner.com. on our homepage and on our investor relations homepage. With regard to our investor relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the events section of our investor relations homepage for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes 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 adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX and net M&A. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle and commercial vehicle production weighted for our geographic exposure. Our outgrowth is defined as our organic revenue change versus the market. Please note that we posted an earnings goal presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Fred.

Thank you, Pat, and good day, everyone. First, on slide five, I'm very proud of our strong performance in the quarter despite the ongoing component supply headwinds. With just under $3.8 billion in sales, our second quarter revenue increased over 72% organically with strong incremental margins and free cash flow. As Kevin will discuss, we are increasing our full-year guidance as we believe higher outgrowth and synergies are offsetting commodity and other headwinds. That's for the short-term execution. Now, going forward, I'm very proud of our sustainability strategy highlighted in our report that our team just published. The acquisition of ACASOL was completed in early June, and I'm very positive about what I see. great technology, great entrepreneurial spirit and mindset, welcome ACASEL to BorgWarner. And we secured multiple new product awards for electrified vehicles, which I'll speak about in a few moments. Starting with our overarching sustainability topic and our vision to a cleaner and more energy-efficient world, I would like to highlight some key takeaways from our global sustainability report called Evolving for All on slide six. Evolving for All compiles into one document what is possible when nearly 50,000 people resolve to do the right things. It is a testament to our commitment to create an enterprise that is shaping the future of sustainable mobility. We are accelerating our clean mobility technologies We're reducing our carbon footprint and are well on our way to achieving our stated goal of carbon neutrality by 2035. The report also includes Scope 3 emissions data to illustrate how our products are improving the world in which we all live. We're fostering a diverse and safe workplace and giving back to our communities, and our pay equity analysis shows parity results. I'm extremely proud of our sustainability focus. Moving on to another pillar of charging forward, we have completed the takeover offer of Accasol early June as detailed on slide 7. Since then, we have increased our ownership stake to approximately 93% through additional share purchases. we have informed ACASOL of our intention to progress towards a squeeze-out process to achieve 100% ownership. To put in perspective, we expect ACASOL to represent 20% to 25% of the M&A portion of our Charging Forward project announced just four months ago. ACASOL also continues to secure additional new business awards. Last month, They announced an agreement to supply their battery systems to a major bus and commercial vehicle manufacturer from Belgium. ACASOL will supply the second and third generation of their high-energy battery systems for the customers' new all-electric city bus starting in 2021. Now let's go to China and look at other recently announced new product awards for electrified vehicles on slide eight. First, we announced new contracts to supply dual inverters for Great Wall Motor and another major Chinese OEM. The dual inverters will be features on both hybrid electric vehicles and plug-in electric vehicles for these customers. By combining different power electronic technologies into one compact package, our dual inverter provides unrivaled functionality. A single unit can control and drive two electric motors while delivering cost and weight reductions. These advanced inverter awards showcase not only the product leadership we have in these domains, but also the trust and confidence we have built in our electrified applications with multiple OEMs globally. In addition to their mid-term revenue opportunities, advanced hybrid programs such as these allow us to drive additional scale and product capabilities that help improve our overall competitiveness in the world of battery electric vehicles. Also, downstream the battery, I would like to highlight another IDM award. This new three-in-one has a bigger size and output functionalities than the one already announced a few months ago with Hyundai. This one is also all Borg on a Mate, mechanical, motors, vertically integrated electronics and software. We're partnering with a leading luxury new energy vehicle maker in China with SOP in 2023. Designed, developed, and manufactured by BorgWarner, this IDM features our electric motor, our gearbox, and our integrated power electronics. It operates at 400 volts and has a peak power of 250 kilowatts. Now, adjacent to the battery packs, I would like to shed some light today on our high voltage coolant heaters on slide 9. This product line is a great example of a best product developed organically by BorgWarner and now commercialized and manufactured at scale. It helps improve the battery-operated range of our customer battery electric vehicles by controlling the battery temperature at an optimal level while also increasing passenger comfort through the delivery of an ideal interior climate. We recently expanded our existing business with the launch of a new program with Geely. And as you can see by the chart on the slide, the business is expected to grow rapidly from 600,000 units in 2021 to 4 million units by 2025. That's a 60% CAGR, six zero. With multiple customer awards, we expect the high voltage coolant heaters to already account for $400 million in revenue by 2025. Or to put it another way, we expect this product to account for close to 10% of our planned EV revenue by 2025 under charging forward. This product line does not get as much attention as the more high-profile product lines like IDM, inverters, or motors, but still contributes meaningfully. to our EV content. So let me summarize our second quarter results and our outlook. The second quarter results were strong, particularly considering the supply challenges currently impacting the industry. We delivered strong top-line growth, and we believe we're tracking well towards our full-year margin and free cash flow objectives. We're increasing our full-year revenue and adjusted earnings per share guidance. As we look beyond these near-term results, I'm extremely excited about our long-term positioning. We are continuing to secure new business for electric vehicles to support our long-term revenue targets, and I'm pleased to see awards both on the component and on the system level. BorgWarner continues to develop clean and energy-efficient solutions like our IDM family of products. And lastly, we're focusing on a disciplined, inorganic investment approach, like the acquisition of Accasol, that adds great technology and additional scale to our portfolio while supplementing our growth profile. With that, I'll turn the call over to Kevin.