BorgWarner Inc.

Good morning. My name is Jay, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2021 Third Quarter Results Conference Call. All lines have been placed in mute. Prevent any background noise. After the speaker's remarks, there will be a 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 a question, press the pound key. If you are using a speakerphone, please pick up the handset before asking your question. 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, Jay. Good morning, everyone, and thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, BorgWarner.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 performs and for comparison purposes for 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 and commercial vehicle production weighted for our geographic exposure. Our outgrowth is defined as our organic revenue change versus this market. Please note that we have posted an earnings call 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. Let's start on slide five. We're very pleased to share our results for the third quarter and provide an overall company update. The third quarter operating environment was very challenged, both from an absolute volume perspective and in light of the production volatility we experienced throughout this quarter. Overall, we're doing a solid job managing the near-term environment while securing our future growth. With just over $3.4 billion in sales, our third quarter revenue decreased by about 7% organically. Excluding the year-over-year growth in our aftermarket business, our OEM business declined 9% compared to the 22% decline in our market during the quarter as we benefited from new business and favorable mix Our margin and cash flow performance in the quarter was impacted by the volatile production environment, which put pressure on near-term cost containment and drove excess inventory within our plants. Even with those challenges, we're still on track to delivering a near double-digit operating margin for the full year, and we still expect full-year free cash flow to be amongst the strongest results in our history. I want to thank all our employees, and particularly our plant managers and plant management teams around the world, who are working very hard to manage the short term and serve our customers. At the same time, we're very focused on ensuring that we secure our future. To that end, this past quarter, we won multiple new product awards for electric vehicles, which I will speak about in a few moments. As a result of these awards, along with wins in prior quarters, we are well on our way to achieving the Organic Electric Vehicle 2025 revenue targets and allowing our project charging forward. In fact, we estimate that more than 90% of that target is already booked. Let's now turn to slide six. where you can see our perspective on global industry production for the remainder of 2021. The market environment continues to be extremely volatile, with the risk of future production disruption arising from ongoing supply constraints. With that in mind, on a full year basis, we now expect our global weighted light vehicle and commercial vehicle markets to be down 2.5 percent to flat year over year. This is down materially from our previous assumption, reflecting both the third quarter decline and our most recent expectation for the fourth quarter. As you can see from the line chart showing the different scenario, we do expect light vehicle industry production to improve sequentially Q3 to Q4. Underlying customer demand remains robust. However, just like we saw in the third quarter, industry production levels will be dependent on the varying impact of ongoing supply constraints and on the potential impact on our customer mix. Overall, we expect the challenging environment to continue throughout the remainder of 2021, and at this point, We think it will carry on well into 2022. As we manage this challenging environment, we're also continuing to focus on securing our meet to long-term opportunities in electric vehicle. And we did just that during this quarter, securing several awards for electric vehicle programs. I'm very proud of the team. Two of those awards are highlighted on slide seven. First, we secured a major award for a North American inverter with a global OEM expected to launch in 2024. This high voltage silicon carbide program is our largest inverter win to date. This business award also marks the company's first major win in the North American market. It will also be used in multiple battery electric vehicle platforms, including passcars and trucks. Our product performance, scalability, cost competitiveness, size optimization, and global manufacturing footprint all contributed to securing this business win. Additionally, we announced a new 800-volt silicon carbide inverter award with a German OEM expected to launch in early 2025. This award expands our existing 400-volt inverter business with this same German customer by now adding 800-volt product. This new technology offers enhanced power density, proven performance, and long-term reliability. Given these two new and significant inverter awards, I would like to give you an update on our positioning in the inverter market on slide 8. We've had tremendous success establishing ourselves in this market. When I think about BorgWarner's competitive advantages in power electronics, it's driven by, first, the breadth of our product portfolio. This allows us to be faster and more effective at bringing products to market. our ability to innovate, like with our VIPER power module technology. We can continue our innovations in part due to our vertical integration strategy. We have in-house capabilities for power modules, integrated circuit development, and software, which we feel are an advantage in the marketplace. And finally, I think the last driver is our ability to leverage the electronic scale that we already have across our company, and especially within our engine control units. The result is that we've secured significant new business awards. And as you can see by the chart on the slide, we expect the business to grow rapidly from about 500,000 units in 2021 to 2.5 million units by 2025, representing about 50% CAGR. We expect this volume to drive total inverter sales of $1.7 billion in 2025. And remember, these programs are already booked. We continue to pursue additional inverter opportunities with production volumes in 2025 and beyond, and we expect to secure more awards in the coming quarters. And one more thing. With the business we've already won, we believe that we are positioned to be the number one non-captive inverter producer globally by 2025. With that, I'll turn the call over to Kevin.