BorgWarner Inc.

Good morning. My name is Jerome, and I'll be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2022 First 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. 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, BorgWarner.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 Invent section of our IR homepage for a full list. Before we begin, I need you to inform me 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 during this call. During today's presentation, we'll 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 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. Please note that we've posted an article presentation to the IR page of our website. We encourage you to follow along with these slides during the 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 the first quarter 2022 and provide an overall company update starting on slide five. I am pleased with the resilience of our revenue relative to the industry decline. With approximately 3.9 billion in sales, we were up about 1% organically, and we outperformed in both Europe and North America. Our margin performance was negatively impacted by higher commodities and other inflationary costs. However, our M&A synergies and restructuring savings helped partially mitigate these headwinds. Free cash flow was a usage during the quarter due to inventory increases. However, we still expect to generate significant free cash flow in 2022. While navigating the near-term industry headwinds, we took steps to drive our long-term positioning during the quarter. We completed the acquisition of Central's light vehicle e-motor business. In addition to deploying capital to our M&A investment, we opportunistically repurchased $40 million of stock. And lastly, we secured multiple new electrification program awards. let's look at two electrification awards on slide six. First, I'm excited to announce our first OEM business win for our flexible battery management system. We have been selected by a leading global vehicle manufacturer to equip all its B segment, C segment, and light commercial vehicles with production expected to begin in 2023. We've been working with this global manufacturer for over two decades and are delighted to further strengthen our relationship by contributing our advanced battery management solutions for their vehicle platforms of tomorrow. Our battery management system for hybrid and electric is designed to monitor the state of charge, the state of health, and the battery temperature of each individual battery cell while precisely measuring current flow in and out of the battery pack. This self-balancing is performed during both the charge and discharge consumption cycles. It allows a higher state of charge to be achieved, optimizes battery lifespan, and enhances battery safety by preventing over- or undercharging. The system is suitable for battery applications operating at up to 800 volts. This is another great example of our wide range of products available for electrified vehicles. Next, I'm excited to announce our second dual inverter program. We will be providing a leading Chinese OEM with our highly efficient dual inverter for high voltage hybrid vehicle models slated to launch in 2023. 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. It also comes with a DC-DC converter as an option. These Advanced Inverter Awards showcase not only the product leadership we have in these domains, but also the trust and confidence we've built in our electrified application with multiple OEMs globally. In addition to their midterm revenue opportunities, advanced high-voltage 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 vehicle. On slide seven, I'm happy to highlight an additional e-motor award. Pogon has been selected to provide our high voltage hairpin e-motors for leading electric vehicle brand in China. The e-motors will be used in the company's second generation 800 volt propulsion system platform. The first vehicle equipped with this platform is expected to start mass production in 2023. These motors deliver peak efficiency of over 96% and feature our patented high-voltage hairpin stator winding technology. As you can see by the chart on the slide, our booked e-motor volumes, which are a testament to the recognition of our customers, are expected to grow rapidly from 800,000 units in 2022 to 2 million units by 2025, more than a 30% CAGR. With the additional booking opportunities that we see over the next one to two years, we believe our e-motor volume could reach more than 3 million units by 2025. Central's acquisition is a key part of our e-motor strategy, and I would like to provide a brief update on this acquisition on slide eight. Starting with revenue, we expect central acquisition to contribute 60 to $70 million to 2022 revenue over the next three quarters. We expect the impact to EBIT to be a modest negative for the full year. However, we did not acquire central for its near-term impact on results. We continue to expect the central acquisition to drive approximately $300 million of revenue by 2025, inclusive of assumed revenue synergies. Central's added manufacturing capabilities and e-motor design improvement should advance our overall competitiveness in e-motors. 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 commercial vehicles. that we will bring on a global scale. On the right side of the slide, we've provided a sampling of the revenue synergies that we're now in position to pursue. And we're excited that we've already secured two programs on this synergy list, and we expect to see additional success in the coming quarters. So let me summarize our first quarter results and our outlook. Overall, our first quarter performance was respectable. Our revenue, once again, proved more resilient than the industry volume. And while our margins are being negatively impacted by inflation, the proactive steps we have been taking to implement restructuring and cost synergies over the past several months and years are helping to partially mitigate these headwinds. As Kevin will detail shortly, our reduced full-year 2022 outlook is a reflection of the FX update, the moderated industry volume outlook at the top end of our range, and increased commodity costs. However, I'm encouraged that our relative revenue performance outlook has nonetheless improved. We are not accepting our current environment and its impact on our profitability and cash flow. As a management team, we are absolutely taking the measures that we believe are necessary to continue to optimize the short-term margins and cash flow. My eyes are focused on the longer term, and I'm extremely excited about our charging forward. We're taking significant steps that we believe will help us to secure our profitable growth well into the future. We're continuing to secure business in the electric world, and we have now booked significant scale across multiple product lines for electrified vehicles. By 2025, we have booked programs that will support approximately 2 million e-motors, 3 million inverters, and close to 4 million e-heaters, together with IDMs, EDMs, battery management systems, and battery packs. This represents more than $3.3 billion of booked business already in 2025, ready to carry on booking more and acquiring great assets to become even stronger. We're focused on disciplined, inorganic investment, like the acquisitions of Acasol, and Central's eMotor, which already are adding great technology to our portfolio while supplementing our growth profile. With that, I'm turning the call over to Kevin.