BorgWarner Inc.

Good morning. My name is Savannah and I will be your conference facilitator. At this time, I would like to welcome everyone to the Board of Warner 2023 fourth quarter and full year financial results call. All lines have been placed on mute to prevent any background noise. And 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 one 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 conference over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Thank you, Savannah. 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, both on 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 IR page for a full list. Before beginning to conform 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. And finally, 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 today's 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 pleased to share our results for 2023 and provide an overall company update starting on slide five. With approximately $14 billion in sales, we delivered more than 12% organic growth in 2023. Our margin performance was strong, coming at the high end of our guide, During the course of 23, we adjusted our e-products top line to reflect what we saw in the marketplace. It resulted in a slightly lower top line for the company, but higher margins. This is a good example of the product portfolio resilience that exists at BoardWarner. We delivered $565 million of free cash flow in 23, This free cash flow supported the $177 million of share repurchases that we executed during the fourth quarter, as well as the closing of the Eldor acquisition. Our charging forward progress continued on multiple fronts. We secured multiple new e-product awards during the fourth quarter, adding to those already announced over the course of the year. These awards were across our portfolio for both dev and hybrid architectures. We continue to see a strong sourcing pool for our products based on the strength of our portfolio globally. Lastly, we took steps to enable new business awards by executing several strategic actions to further strengthen our e-product portfolio, like the acquisition of Eldor electronics business, as well as the strategic agreement with BYD filtering batteries for LFP packs outside of China. Now, let's look at some new e-product awards on slide 6. First, For one has been selected by Xiaopeng to supply its e-motor rotor and stator for the X9 MPV as well as for their next electric B-class sedan. Production began in January 2024 for the X9 and we're planning to start producing for the B-class sedan in Q3 2024. Our high-voltage AirPin 220E motor offers high power and torque density and higher efficiency at a competitive cost. We're excited to supply Chaopeng with our proven stator and rotor as we believe it continues to position us for long-term success in China, where NEV penetration is already more than 35% of the market. Second, Paul Warner secured an award with a major global OEM to extend its existing business, supplying 400-volt high-voltage coolant heaters for some of the automaker's light vehicle-based platforms, specifically for its passenger truck and SUV programs. This business win is one of the three awards with North American OEMs, incorporating BorgWarner's high-voltage coolant heaters into their vehicles. Third, BorgWarner has secured an award with a major Chinese OEM to supply its 90kW dual inverter on a series of the automaker's plug-in hybrids and range extended electric vehicles. Production is expected to begin in September this year. The dual inverter is developed for hybrid vehicles as an integrated solution. The product utilizes 4105 per power module platform and leverages our inverter product leadership and scale. Next, on slide 7, in addition to securing new business, we took multiple steps to build additional capabilities within our e-product portfolio, driving product leadership and differentiations. I would like to highlight three of them today. First, BorgWarner completed its acquisition of the electric hybrid system segment of Eldor. This provides us with additional capabilities in on-board chargers, DC-DC converters, and integrated high-voltage boxes, all of which are expected to complement Port Warner's existing product portfolio in hybrids and BEVs. Next, Port Warner is continuing to expand its product portfolio for battery electric and hybrid commercial vehicles, following our agreement to form a joint venture with Shanxi Fast Auto Drive Group, a Weichai subsidiary. We're working together to accelerate the product efficiency and growth in the Chinese CV market with the largest CV powertrain supplier in China. We will then be able to use these products and technologies for the rest of the world. Finally, Port Warner signed an international strategic relationship agreement with BYD subsidiary Findream's battery for LFP sales and packs. Under this agreement, Port Warner will be the only non-OEM localized manufacturer unaffiliated with Findream batteries with rights to localized LFP battery packs for commercial vehicles titillating Findream's batteries' late sales. These packs are expected to be sold in the CV markets in Europe, the Americas, and select Asia-Pacific regions. The LFP battery chemistry is an exciting technology that is cost competitive in comparison with some other cell chemistries. we're seeing increased demand from our customers for packs with LFP sales. FinDream's battery is right for board warm-up in this area with over 20 years of experience in batteries with numerous successful product launches. Next on slide eight, I would like to summarize the growth we expect in our e-product sales in 2024. We expect 2024 e-product sales of 2.5 billion to 2.8 billion, representing a year-over-year growth of 25% to 40%. One important driver of our 2024 growth is expected to be our battery system product line. Battery systems demand from our commercial vehicle customers, trucks and buses, continues to outpace our ability to produce. However, we are continuing to increase our capacity to meet this strong customer demand, both in Seneca, North Carolina, and in Europe. We expect this capacity expansion to help drive a $250 to $350 million increase in battery system sales in 2024 which equates to 55% to 75% year-over-year growth, with more to come. Then looking at the other parts of our e-product portfolio, our guidance is 14% to 27% year-over-year growth, with the midpoint roughly in line with our expected dev and hybrid market growth. Overall, we expect 2024 to be a heavy year related to the number of launches across our light vehicle portfolio from IDM to motors, from power electronics to thermal management globally for both BEVs and hybrids. While we expect another year of volatility in BEVs and hybrids volume for the industry, we believe our capacity extensions and intense launch activities will support our outlook. Finally, on slide 10, I want to take the opportunity to remind you of the intent of Charging Forward 2027. Charging Forward 2027 has three pillars. One, e-products growth. Two, e-product profitability. And three, maximize the foundational value. The first two pillars center around supporting board owners' long-term profitable growth. We continue to believe that despite near-term volatility, the meet to long-term trends towards electrification, BEV, and hybrids remain strong. We believe that board owner is clearly positioning itself to be among the leaders in terms of e-product business awards and to do so profitably. The third pillar of Charging Forward is an enabler of this long-term growth. Our foundational business brings customer relationship, technological capabilities, and the ability to internally fund our investments. As importantly, with its leading market positions and strong margin profile. We believe our foundational business provides near-term earnings resiliency during times of bear and hybrid market volatility, just as we highlighted at our investor day back in June. As Kevin will review, that is evident both in our 2023 results and our 2024 outlook. The key takeaway is that both our e-product and our foundational business lines play important role in charging forward 2027. This was true when we unveiled our plan in June, and it remains true today. As I look back on 2023, my take is this. Ball Warner successfully managed another challenging environment during 2023. We delivered solid margins and strong free cash flow, which is a sign of the product resiliency that we built. We successfully completed the spin-off of Finnear. We secured new business awards that are supportive of our long-term revenue objectives in all types of electrification power train architectures. We also secured some critical alliances, especially on the CV side, with subsidiaries of OHI for inverters and BYD for battery packs. We also continued to return capital to shareholders. BorgWarner has repurchased about $600 million of stock since completing the Delphi acquisition in 2020. And over the last four years, we have also returned about $600 million to shareholders in dividends. So BorgWarner has returned about $1.2 billion to shareholders since 2020, and that's before considering the tax-free spin of Finneas. Moving into 2024 and beyond, we are balancing nearer-term margins relative to our long-term objectives. We expect to manage our incremental margin holistically while continuing to invest in our future growth. As we've always said, the industry growth in BEVs and hybrids will not be a straight line. The near-term volatility is a long-term opportunity for the companies with the financial strength, earnings resiliency, and the great product leadership focus that Core 100 processes. Our product portfolio is built for resiliency, such that a longer combustion tail will help margin and cash generation. As a company, we are executing our Charging Forward 2027, which we expect will deliver value to our shareholders here and now and long into the future. This is Kevin's last earnings call with the company, and I wanted to take a moment to personally thank him for his tremendous contribution to our company over the past years. Kevin has played an instrumental role in all of BoardWater's recent major strategic initiatives, ranging from the acquisition of Delphi to the creation and execution of Charging Forward, as well as the spinoff of Finia. On behalf of the entire Board of Directors and the management team, I thank him for his contribution to our company, for his friendship, and wish him a fantastic retirement. I look forward to Craig Aaron stepping into the CFO role next month. I am confident Craig has the right skills, the deep knowledge of Paul Warner and our industry to execute our next chapter of profitable growth. With that, let me turn the call over to Kevin.