BorgWarner Inc.

Good morning. My name is Brittany and I will be your conference facilitator. At this time, I would like to welcome everyone to the BoardWarner 2023 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 that time, simply press star 1 on your telephone keypad. If you are using a speakerphone, please pick up your 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, Brittany. Good morning, everyone, and thank you for joining us today. We shared our earnings release earlier this morning. It's posted on our website, boardwarner.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 event section on our homepage for a full list. Before we begin, I need to inform you that during this call, we 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'll 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 markets. 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 today's earnings press release and 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. We're very pleased to share our results for the first quarter 2023 and provide an overall company update starting on slide five. With approximately $4.2 billion in sales, we delivered double-digit organic growth in the quarter, and we outperformed the market in both Europe and North America. As we expected going into the quarter, our margin performance was negatively impacted by our planned ERMD investment, debt inflationary costs, and the impact of low production in China. Our free cash flow usage in the quarter reflected our planned capital spending to support our e-product growth, as well as working capital usage and our normal annual payout of incentive compensation. Importantly, our charging forward progress continued on multiple fronts. We secured multiple new e-product awards since our last earnings report. We also announced multiple new e-product capacity investments during the quarter. And as I will highlight, Our battery pack expansion in Seneca, South Carolina, shows our ability to utilize our foundational assets and people. Lastly, we continue to work towards the intended separation of FINIA. Since our last call, we announced FINIA's name, as well as the key leadership roles. Brady Erickson will serve as President and CEO, while Chris Groff will serve as the CFO for Finnair. Both Brady and Chris have been at Port Warner for more than 20 years and have served in numerous important roles across a variety of Port Warner business units. Teams are progressing well through the various work streams. We now expect to complete the separation of Finnair by the end of the third quarter. Now, let's look at some new e-product awards on slide six. First, Portland has been selected to provide e-motors to a leading automotive manufacturer in China. The e-motors will be used in the Chinese automaker's dedicated hybrid transmissions and range extended electric vehicles, with mass production expected to start in August 2023. We're excited to supply this leading Chinese OEM with a new motor application, strengthening our partnership by providing them with the support needed to meet the growing challenges in new energy vehicles. Next, Port Warner has partnered with the Pontiac Michigan School District to provide direct current fast chargers to support the district's electric school buses. This program will utilize Port Warner's sequential charging technology that allows up to five dispensers to charge from a single power control system. This greatly reduces the initial investment and lowers installation costs while providing the ability to charge at DC fast charging levels. Next, Port Warner has been selected by a global commercial vehicle manufacturer to provide e-fans for battery electric trucks in both the North American and the European market, with production expected to begin in 2025. For this project, Fort Warner will supply its complete e-fan R10 system, which includes a fan, an e-motor, and an integrated high voltage inverter. Notably, The high-voltage inverter utilizes the expertise and capabilities of Drivetech, a company acquired in December of last year. Now, let's look at the growth and expansion of our battery pack business on slide 7. Bourgogne has been selected by a global power technology company to supply battery packs for a series of electric buses with production beginning earlier this year. This battery pack contains state-of-the-art safety features, including current overcharge protection, cell-level passive propagation resistance, and electrical disconnect at the individual cell wire bond that satisfy the industry's strict electric vehicle battery safety standards. During the quarter, BorgWarner announced its plan to expand its Seneca, South Carolina production facility by adding battery module production to the facility. After this expansion, BorgWarner is expected to have annual U.S. battery module capacity of approximately 3 GWh This investment will contribute to the growth of the company's battery module and pack production in the United States, focused on commercial vehicles, trucks, and buses. Our battery pack business is exceeding our initial expectations. Last quarter, we increased our 2025 revenue outlook for this business to approximately $1 billion five years ahead. of our 2030 business case when we announced the Acasol acquisition. We expect volume demands from our largest battery pack customers to continue to grow. And we have secured multiple new product awards for our battery pack business over the past two years. We're also making the organic investments to support this growth. This year, we expect to invest approximately $100 million of CapEx to support this business growth, which is a big driver of the step-up in our CapEx outlook for 2023 versus last year. So in our opinion, the Acasol acquisition from two years ago is poised to deliver well above our initial expectations. But now, I'd like to turn our attention to how last year Central's acquisition is performing on slide 8. Similar to our battery pack business, the revenue related to Central's e-motor business has tracked ahead of the expectation we had at the time we announced the transaction. In 2024, we expect this business to generate approximately $250 million of e-product revenue, about 40% higher than our original acquisition planning. If you recall, a key pillar of the transaction was for Central to improve our cost competitiveness through improved e-motor design and manufacturing capabilities. As a result of the improvements that we are achieving, we expect this business to already approach BorgWarner's average profitability levels by 2024. We expected this business to increase our speed to market and increase our scale in e-motors. And we are seeing just that in our booking, which are shown on the right side of the slide. The takeaways from today's are this. Port Warner's first quarter results were broadly in line with the directional guidance that we provided on our earnings goal last quarter. Importantly, our sales growth once again outperformed the industry and we continue to make investments to support our growth. As Kevin will detail, we expect another year of strong top-line growth in 2023 especially driven by strong demand of our e-products. Our guidance is also increasing based on FX tailwinds. We continue to expect our e-product portfolio to approach breakeven in late 2023, early 2024, and our new segment disclosure will help provide evidence of this. Looking beyond the near term, we believe we are successfully executing on our long-term strategy, charging forward, which we expect will deliver value to our shareholders long into the future. Before I turn the call over to Kevin, I would like to again share a thank you to the BorgWarner team. Proud to see both our e-product and our foundational businesses supporting our profitable growth in 2023. The progress made in just over two years since announcing charging forward is truly remarkable. It is the entire BoardWarner team and our culture of execution that continue to be the drivers of our ongoing success. With that, let me turn the phone over to you, Kevin.