BorgWarner Inc.

Good morning, everyone. My name is Beau and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2024 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 one on your telephone keypad. If you would like to withdraw your question, press star two. 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.

Thank you, Beau. 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, both on our homepage and our Investor Relations homepage. 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 incremental margin performance. Our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. Our all-in incremental margin includes our planned investment in ER&D, any impact from net inflationary items, and other cost items. We will also refer to our growth compared to our margins. 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. I'm very pleased to share our results for the second quarter of 2024 and provide an overall company update starting on slide five at approximately 3.6 billion dollars our q2 sales were relatively flat year over year outperforming a modest decline in production for the first half of the year we outgrew our market by about 350 basis points once again This sales outgrowth shows the resiliency of our efficiency-focused portfolio, which is, I believe, positioned to outgrow the market in any type of propulsion mix scenario. We secured multiple new product awards across combustion, hybrid, and electric for both passenger cars and commercial vehicles. Turning to our bottom line for the quarter, We delivered a very strong 10.4% margin, which was up 30 basis points versus prior year. We delivered EPS of $1.19 per share, which was 13 cents increase versus prior year. Our first half 2024 margin and EPS performance has allowed us to increase our full year margin and earnings guidance, as Craig will detail later. We carried on our restructuring actions, now focusing on our e-propulsion segment to adjust our cost structure to current market dynamics. We expect that these actions will result in annual run rate cost savings of of about 100 million dollars by 2026 with immediate positive impacts we also introduced a new business unit structure designed to maximize cost synergies enhance our go-to-market global strategies and bring further simplicity and clarity to our shareholders lastly we remain focused on efficient deployment of our capital and announced our intention to repurchase $300 million of ball runner stock in the second half of 2024. Next, on slide six, I would like to take a moment to highlight our 2024 sustainability report, which was published earlier this month. BorgWarner's vision is a clean, energy-efficient world, and I'm proud to lead a company where our business goals go hand in hand with our sustainability goals. At BorgWarner, sustainability means delivering value to all stakeholders for today and tomorrow. I would like to highlight just a few points of progress described in the report. First, Forerunners reduced Scope 1 and 2 greenhouse gas emissions by 32% from the 2021 baseline, making progress on our SBTI validated goal to reduce it 85% by 2030. Seconds. The company engaged our supply chain management and engineering teams to advance the company's goal of reducing Scope 3 emissions 25% by 2030 compared to a 2021 baseline. And third, we performed above all benchmarks on employee sense of inclusion and belonging on the company's engagement survey. I would like to thank our entire team for their dedication and excellence in innovating products for cleaner mobility, making leaps towards achieving our climate and other sustainability goals, and investing in our people. Now, let's look at some new product awards on slide seven. First, Port Warner has secured multiple contracts. to supply its electric cross differential, or EXD, to three major OEMs. The companies will incorporate BoardWarner EXD technology into both rear and front wheel drives of electrified powertrain application. Startup production is expected in 2024 and 2026. Our EXD is part of our electric torque management system, which offers a range of products that intelligently controls wheel torque to increase stability, provide superior dynamic performance, and improve traction during launch and acceleration. Next, BorgWarner has secured awards to deliver high-voltage e-fan systems for use on a major global OEM series of electrical commercial vehicles in North America. This marks the largest e-fan business win in North America for us, with expected start of production in Q4, 2027. BorgWarner's complete e-fan system is comprised of three components, including a fan, an e-motor, and an integrated high voltage inverter, with the capacity to reach up to 10 kilowatt of power and 40 Newton meters of torque. Lastly, BorgWarner has secured two EGR cooler awards with a prominent North American-based commercial vehicle customer. Start-up production is expected to be in Q4 2027 with implementation across various medium-duty commercial trucks. Our emissions-reducing EGR solution offers high robustness against thermal fatigue and optimizes coolant distribution throughout the engine for increased performance. We continue to see strong interest across our EGR product portfolio, which supports the need for highly efficient combustion engines That means increased fuel economy needs and stringent emission requirements across the world for combustion and hybrids. Now, let's turn to slide eight, where I would like to discuss our new business unit structure. As we have continued to outgrow the market, and leveraged the leadership, robustness, and scale of our product portfolio, it is now the right time to align our business unit structure to further enhance our ability to execute our strategy. We believe this will drive cost synergies, higher focus, and clarity for all stakeholders. As such, beginning in the third quarter, BorgWarner will reorganize its four business units and associated financial reporting segments as follows. Our turbos and thermal technology business unit is led by Dr. Volker Weng. This business unit is unchanged. Our power drive system, which today is our externally reported e-proportion segment, We continue to be led by Dr. Stefan Demeler. This business unit is also unchanged. Our drivetrain and more systems businesses are now combined into one business unit and is led by Isabelle McKenzie. We've combined our commercial vehicle battery and charging businesses into one business unit, which is led by Hank Pontournaut. To summarize, the takeaways from today are this. BorgWarner's second quarter results were strong. Our sales performance once again outperformed the industry. Our adjusted operating margin was the highest since the Finnair spinoff. And our cash generation was very strong and support our $300 million of intended share repurchase in the second half of the year. We secured multiple new business awards in the quarter, which we believe further demonstrate our product leadership position in all powertrain architectures. BorgWarner is focused on powertrain efficiency. This includes combustion fuel efficiency and electron efficiency, whether it is for hybrids or BEVs. I believe BorgWarner can support any power train architecture. We are a world leader in efficient mobility with a product portfolio that we believe is uniquely positioned to outgrow industry production for years to come. This quarter, we took additional meaningful steps to manage our cost structure in response to the industry mixed dynamics, as well as to provide increased clarity and transparency from a global product line organization. As we look forward, we expect to continue to secure global growth opportunities as the world transitions to more efficient mobility thanks to our product leadership position in combustion, hybrids, and BEVs. At the same time, we will continue to appropriately manage our cost structure as industry volumes and production mix outlook change while continuing to preserve our long-term profitable growth and technological edge. This will allow Port Warner to continue to deliver sales performance through organic growth above market production, convert that growth into higher earnings, and create long-term value for our shareholders. With that, let me turn the call over to Craig.