BorgWarner Inc.

Good morning. My name is Chelsea and I will be your conference facilitator. At this time, I would like to welcome everyone to the BoardWarner 2023 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 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 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.

Patrick Nolan, Vice President of Investor Relations Thank you, Chelsea. Good morning, everyone. Thank you for joining us today. We issued 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 of our IR page 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'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 market. When you hear us say market, that means the change in light and commercial vehicle production weighted for our geographic exposure. Lastly, starting in the third quarter of 2023, BorgWarner will no longer consolidate its fuel systems and aftermarket segments. Results of those segments for all periods prior to the Finneas spinoff we've reflected as discontinued operations. Our guidance relates to our continuing operations, and our commentary on today's call will focus on those continuing operations, which includes looking at some results on a pro forma basis to reflect the spinoff. We will not answer questions related to the performance of the fuel systems and aftermarket segments. please direct them to Finia, who will conduct their earnings call on Monday, August 7th. Please note that we've posted today's earnings call 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 second quarter of 2023. and provide an overall company update starting on slide five. With approximately $3.7 billion in sales, we delivered 22% organic growth in the quarter. Our margin performance was strong and positively impacted by the growth and by customer pricing. Our free cash flow usage in the quarter reflected our planned capital spending to support our e-product growth, as well as the working capital usage. Importantly, our charging forward progress continued on multiple fronts. We received several new product awards since our last earning report, as well as securing an additional long-term component supply agreement. In June, we unveiled Charging Forward 2027, which summarized the next steps in our accelerating e-product portfolio. We also released our 2023 Sustainability Report, which highlighted the progress we have made towards meeting our environmental stewardship, social responsibility, and governance objectives and outlined additional goals for 2023 and beyond. We announced the planned acquisition of the electric and hybrid segment of Eldor Corporation. And lastly, on July 3rd, we completed the spin-off of Finneir. I would like to wish the Finneir team good luck as they move forward as an independent company. Now, let's turn to slide six. summarizing Charging Forward 2027, which we unveiled at our investor day back in June. Charging Forward 2027 builds on the success that we've had with our initial Charging Forward strategy that we announced back in March 2021. Charging Forward 2027 has three pillars. The first pillar is to continue our e-products growth. We're expecting more than $10 billion of e-product revenue in 2027 compared to an estimated 2.3 to 2.4 billion in 2023 and an estimated 5.6 billion in 2025. This 10 billion target for e-product was the size of the overall company in 2019. So this gives you an idea of how purposefully we're moving. Second pillar is e-products profitability. We continue to move towards breaking even on those products by the end of this year. On the challenging fall of 2027, we set a target of 7% adjusted operating margin in 2027 on our way to double-digit margin later in the decade. The third pillar relates to our foundational products that remain after the spin-off of Finia. Here, we want to maintain our strong, top-quality margins and really maximize the value of those foundational products. These three pillars are simple. They are clear and measurable. As in the past, we will update you on our progress over time. On slide seven, I would like to discuss the plan acquisition of the electric and hybrid segment of Eldor Corporation, which was announced in late June. We believe Eldor's portfolio of high-voltage boxes DC-DC converters and on-board chargers will be a great complement to BorgWarner's e-propulsion portfolio, particularly as it relates to expanding in high-voltage power electronics beyond the inverters. Relative to our charging forward 2027 targets, we expect the acquisition to generate about €250 million in additional 2027 sales after synergies. The acquisition is as much about the portfolio and engineering capabilities as it is about short-term projected sales. We expect the Eldor acquisition to augment our existing resources with additional scale, capacity and capabilities with more than 100 engineers, two facilities and more than 125 million euros of R&D investments that have been deployed by Eldor over the last five years. We estimate that power electronics outside of inverters is a $31 billion addressable market by 2030. The on-board charger market is more fragmented and is trending towards high voltage and combination boxes. Until this point, BoardWarner's success in inverters has largely consumed our power electronics engineering resources. Eldor's experienced engineering team will now provide the base for BoardWarner to grow even faster in on-board chargers and other power electronics. We will build upon this strong base to accelerate our program pursuits. Next on slide eight, Let's look at the long-term agreement that we announced with OnSemi during the quarter. The resiliency and flexibility of our supply base will become even more important as we rapidly grow our e-product portfolio. Based on the growth of our power electronics products, we expect to purchase close to 200 million semiconductor dies annually by 2027. By the same year, our inverter business is expected to be 70% silicon carbide based, with almost 50% of our inverters being 800 volts. This really highlights the need to partner with quality semiconductor suppliers. Over the last quarters, we've taken several steps to secure the long-term supply agreements necessary to support our growth. In late 2022, we announced a significant capacity corridor for silicon carbide supply with Wolfspeed. We're now expanding our strategy collaboration for silicon carbide with Ansamai. As a result, with agreements to date, you can see the strong mix of semiconductor suppliers we now have in place to support our strong growth. Now, let's look at some new product awards on slide 9. First, 4WARN has been selected by a leading Chinese OEM to supply its IDM for hybrid vehicles expected to start production in 2024. The provided IDM comprises dual inverter units, dual e-motors, and an e-gear ensuring reliable durability. We're pleased to continue our collaboration with this leading Chinese OEM further strengthening the partnership through supplying our IBM product. Next, BorgWarner has been selected by a major East Asian OEM to supply e-motor and inverter for the automaker's new electric vehicle platform. We're very pleased to continue our longstanding relationship with this major East Asian OEM. And finally, Fort Warner has secured a contract with a thermal and energy management solution supplier to deliver high-voltage coolant heaters for use on a series of three electric vehicle platforms for major OEM. Our heater will be added to the supplier's heating and cooling module and will be used to provide heat to the battery pack and cabin in BEVS. The takeaways from today are this. Fort Warner's second quarter results were strong. We delivered strong organic growth and margin performance. We expect another year of strong top-line growth in 2023. Our top-line guidance is also increasing modestly based on our industry outlook and customer pricing actions. Looking beyond the near term, we believe we are successfully executing on our long-term strategy. Challenging Forward 2027 has now laid out the path forward for BorgWarner for the next four years, and we plan to continue to share our successes along this journey. And with that, let me turn the call over to Kevin.