BorgWarner Inc.

Good morning. My name is Connie and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2024 third 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 and the number one on your telephone keypad. If you would like to remove yourself or withdraw your question, please press the star and the number two. If you're 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 Thank you, Connie, and good morning, everyone. 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 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 events section of our investor relations homepage 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 will 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-incremental includes our planned investment in ER&D, any impact from net inflationary items, and other cost items. Lastly, we 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 IRPage or 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 third quarter and provide an overall company update starting on slide five. At more than $3.4 billion, our Q3 organic sales were down about 5% year over year, modestly outperforming a 6% decline in our market. Year-to-date, we have outgrown our market by about 270 basis points. This demonstrates the resiliency of our technology-focused portfolio that we believe is positioned to outgrow the market production. We secured multiple new product awards for both foundational and e-products which we believe further support our long-term profitable growth. Turning to our bottom line for the quarter, we delivered a very strong 10.1% margin, which was 50 basis points higher than last year. We also delivered earnings per share of $1.09, which was 11 cents higher than prior year. This strong underlying operational performance was primarily driven by our focus on cost controls across the business. Our strong year-to-date margin and cash performance enabled us once again to increase our full year margin and earnings guidance, as Craig will detail later. Lastly, We remained focused on the efficient deployment of our capital and completed our planned 2024 repurchase of $400 million of BorgWarner stock. Now, let's look at some new product awards on slide six. First, BorgWarner has furthered its business with a major North American OEM by securing the extensions on two transfer cases for full-size pickups. BorgWarner will supply two types of transfer cases to the OEM for use on three platforms. Stands of production for two of the platforms are slated for 2027, with the third expected to begin in 2028. We have supplied this OEM with transfer cases for over 40 years. We believe these extensions solidify our team's reputation and the proven architecture, field performance, and quality of our products. Next, BorgWarner has secured three high-voltage coolant heater business wins in Asia, expanding our technological reach in the Asian electric vehicle markets. In China, our high-voltage coolant heater will be used in a leading domestic OEM's fully electric SUV with production expected to start in the second quarter of 2025. This partnership marks a significant step forward in our continued expansion in China's rapidly growing electric vehicle industry. In Korea, The product will be used in an electric pickup vehicle with production estimated to begin in March 2025. The heater will be critical in managing cabin temperatures, improving energy efficiency, and enhancing the driving experience. In Japan, our high voltage coolant heater has been chosen by Japanese OEM for its small battery electric vehicle. With production expected to start in 2028, this marks the company's first heater program in the country. The compact heater design offers a perfect fit for smaller vehicle platforms, delivering superior performance and efficiency. These three important business wins demonstrate the strength of BorgWarner in this growing field and further solidify our presence in the Asia-Pacific region. And lastly, BorgWarner will deliver its turbochargers for use on GM's Corvette ZR1 sports car platform, marking the largest passenger car twin turbochargers to be released and produced to date. We're proud to secure this contract and support General Motors in making the most powerful Corvette ever built. This technology has been in the works for some time now, and to see it come to fruition is both exciting and fulfilling for our passionate teams. BorgWarner and General Motors have a long history of producing market-leading applications across a wide range of segments, and we look forward to continuing to develop new technologies with them and push industry boundaries. Now, let's turn to slide seven, where I would like to share our net sales breakdown following our business unit realignment that was effective July 1st. Our business units are now aligned with our externally reported segments. On the left side of the slide, you see that our turbos and thermal technologies and drivetrain and more system segments each represent approximately 40% of our net sales. These segments generate most of their net sales from our foundational products. They both enjoy a number one or number two positions in the different product market segments they serve. These are mature businesses with strong margin and cash flow profiles that we expect will continue to strive as the world looks for more efficient combustion and hybrid powertrains. The remaining 20% of our net sales is comprised of our power drive system business unit, which was previously reported as e-propulsion, and our battery and charging systems business unit, except for our engine control products. All of these sales generated from these two segments are e-products for hybrid and battery electric vehicles. These segments are expected to be significant drivers of our future growth. As these businesses continue to scale, we expect to capitalize on their growth by converting at-meet teams, which is what we are seeing this year. I also want to highlight our regional and customer diversity shown on the right side of the slide. Regionally, Americas, Europe, and Asia, rest of the world, each represent approximately a third of BorgWarner's net sales. We are also strongly positioned in terms of exposure to various customer groups. For example, our sales to the Chinese local OEMs represents roughly 15% of our overall net sales so far this year. This is comparable to our net sales to the German OEMs in Europe and our North American sales to the Detroit III. I think this chart clearly shows Fort Warner's sales resiliency and highlights the benefits of strong diversification across products, customers, and regions. To summarize, the takeaways from today are BorgWarner's third quarter results were strong. Sales performance was slightly better than market production. Our adjusted operating margin was over 10%, and our cash generation was very strong. This allowed us to accelerate our second half $300 million share repurchase plan, taking our full year repurchases to $400 million. We secured new foundational and e-product business awards in the quarter, which we believe, once again, demonstrate our product leadership on both sides of our portfolio, further supporting our focus on profitable growth over market production. As we look forward, our formula for success is unchanged. We expect to continue to secure business opportunities that will allow us to continue to grow faster than market production. As I mentioned before, Paul Warner's DNA is to focus on propulsion efficiency, which includes both combustion fuel efficiency and electrons efficiency for hybrids . I expect efficiency to remain an industry trend for years to come, and a strong drivers of poor owners growth regardless of propulsion architecture we continue to seek to appropriately manage our cost structure as industry volumes and propulsion mix outlooks change while continuing to preserve our long-term profitable growth and product leadership edge We believe this focus will allow BorgWarner to continue to deliver sales performance through organic growth above market, convert that growth into higher earnings, and create long-term value for our shareholders. With that, let me turn the call over to Craig.