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 Fourth Quarter and Full Year 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. 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 pick up the handset before asking your question. I would like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you 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, boardwarner.com, on both our homepage and 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-Ks. 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 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 market growth. When we say market, this means the change in light and commercial vehicle production weighted for our geographic exposure. 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. We're very pleased to share our results for 2021 and provide an overall company update starting on slide five. I am very proud of our strong top-line performance relative to the industry declines. With approximately $14.8 billion in sales, we were up about 12% organically and we outperformed in all major regions. I'm also pleased with our margin performance, despite the significant production volatility we faced during 2021. This was achieved while continuing to significantly increase our R&D investment to support our e-product growth. This investment will continue and accelerate. We also delivered solid cash flow performance despite the impact of a one-time warranty payment for combustion-based products during the fourth quarter. We also have seen progress on all three pillars underlying our charging forward plan. We secured multiple new EV program awards during the fourth quarter, which I will discuss in a moment. And we are already beating our booking target. We completed the acquisition of ACASOL earlier this month, and today we announced the acquisition of Central's light vehicle e-motor business. We also completed the first step in the combustion disposition goals with the sale of the Water Valley, Mississippi facility to Attar Capital. Now let's discuss some of our recent new business awards starting on slide six. I'm happy to highlight two new product awards for the commercial vehicle market. First, I'm excited to announce our first win for our hydrogen injection system. This is a product that we've been discussing with our customers for quite some time. Hydrogen internal combustion is a quick-to-market powertrain solution that requires only slight adjustments to the traditional ICEs. This is our first award, and the program is with a top global manufacturer of construction equipment that is expected to launch in 2024. BorgWarner will be providing the full system, including injectors, rails, ECUs, system integration and calibration. Next, we announced that BorgWarner has secured its first high-voltage e-fan system with a global commercial vehicle OEM. Fully electric-powered AV-duty trucks will require dedicated high-voltage thermal management solutions, like the e-fan systems, for cooling components such as the e-motor, batteries, and electronics. BorgWarner has specifically optimized its fan design for performance and efficiency. The high-voltage e-fan is driven by a robust e-motor, which is powered from the vehicle's electrical system via an inverter. This is another application of the three-in-one concept with mechanical, motor, and inverter. The system will be utilized in battery electric heavy-duty long-haul trucks expected to launch in 2024. Both the hydrogen injection system and the e-fan are great examples of us continuing to organically develop new products to drive profitable growth in innovative powertrain systems. On slide seven, I'm happy to highlight two more wins in North America. First, BorgWarner has been awarded the generator inverter for an innovative electrified architecture. The North American program is anticipated to launch in 2024. Our product will be used in a range extension system to charge the main battery. This win highlights our technical capabilities in managing continuous high currents. Next, I would like to highlight a new battery system award for the North American electric commercial vehicle market, that we expect to launch in 2023. Port Warner will supply Gillick, a leading manufacturer of heavy duty transit buses in North America, with a third generation of our ultra high energy battery system. The battery system was developed for long distance application and can be scaled for the customer needs. It can offer close to 700 kilowatt hour of available energy This is the largest capacity in a North American transit bus. The system will be produced in our Hazel Park manufacturing facility here in Michigan. On slide eight, we highlight two additional 800 volts awards in China. First, I'm glad to announce that we have secured an 800 volt silicon carbide inverter with a leading Chinese OEM for electric vehicle. anticipated to launch in 2023. The award includes inverters for front and rear drive modules. Our 800-volt silicon carbide technology offers enhanced power density, proven performance, and long-term reliability. And our leadership in this area continues to be recognized by our customers globally. We're also partnering with a leading luxury new energy vehicle maker in China to supply an 800-volt IDM, expected to launch in 2023. Designed, developed, and manufactured by BorgWarner, the 800-volt IDM includes our electric motor, inverter, and gearbox. It features our exclusive and compact Viper power module, which is the core of the silicon carbide inverter. This is BorgWarner's first 800-volt IDM project worldwide, opening a new chapter in the company's global electric drive business. We're pleased to continue our longstanding partnership with this leading domestic manufacturer of luxury electric vehicles. As you can clearly recognize, we're seeing a strong pull for our new e-products. We are increasing our e-R&D investment by $130 to $160 million this year to support this growth. Now on slide nine, I would like to expand on our announced acquisition of Central's light vehicle e-motor business. E-motor is a key element of BorgWarner's electric vehicle growth strategy. The acquisition of Central's business is expected to have multiple benefits for us. First, we expect this acquisition to improve both our e-motor product leadership and our manufacturing capabilities, adding state-of-the-art equipment design and proven automation expertise. This acquisition will also expand our e-motor portfolio breadth and scale. Post this transaction, BorgWarner expects to produce more than 3.5 million units in 2026 for a wide range of customers and regions. With Central, BorgWarner now has a full suite of e-motor products at scale with application in small and larger passenger vehicles as well as for commercial vehicles. And we obviously see potential for significant revenue synergies over time globally. The acquisition will be funded with existing cash balances and is expected to close late in the first quarter 2022. As you can see on slide 10, we've made significant progress towards our charging forward plan, starting first with the organic electric vehicle revenue growth. With the award secured as of this course, we now have electric vehicle programs that we expect will generate about $2.7 billion of book revenue in 2025. This is an amazing achievement by the BorgWarner teams. Turning to M&A, which includes the completed acquisition of Acasol and the planned acquisition of Central's e-motor business, We've secured additional businesses that we expect to generate more than $600 million to $700 million of additional EEV-related revenue for 2025. And we expect to take additional M&A steps and are actively engaged with a number of potential targets which will impact multiple parts of our EEV portfolio. Related to dispositions, we completed the sale of our Water Valley Mississippi facility to Attar Capital during the fourth quarter. With just under $200 million of revenue in 2021, this transaction represents 20% of the dispositions that we plan to complete by late 2022. With less than a year since the announcement of charging forward, I am pleased that we've made significant progress across all pillars of this plan. The takeaway from today is this. BorgWarner successfully managed a volatile production environment during 2021. Our revenue growth outperformed the industry, and we delivered strong margins and free cash flow. We're seeing strong demand for our product. as evidenced by the numerous awards that we have secured throughout the course of the year. We're making the necessary organic and inorganic investment to support this significant growth in E. In short, we are successfully executing on our long-term strategy, challenging forward, which will deliver value to our shareholders long into the future. With that, I turn the call over to Kevin.