BorgWarner Inc.

Good morning. My name is Rocco, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2025 Second Quarter Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star 1 on your telephone. If you would like to withdraw your question, press star 2. If you are using a speakerphone, please pick up the handset before asking your question. As a reminder, today's conference is being recorded. 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, Rocco. 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. With regard to our investor relations calendar, we will be attending investor 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 you to inform me that during this call, we may make forward-looking statements which involve risk 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 performs 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 change in our adjusted operating income divided by the change in organic sales. 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. Finally, please note that we have 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 today. With that, I'm excited to turn the call over to Joe.

Thank you, Pat, and good morning, everyone. I'm very pleased to share our results for the second quarter of 2025 and provide an overall company update starting on slide five. I wish to begin by thanking our employees, our customers, and suppliers for all of their trust, efforts during this quarter, and for their continued support. Our sales performance was supported by a 31% increase in light vehicle e-product sales. This growth was well ahead of the high teens increase in global hybrid and BEV production in the quarter. Our organic sales were relatively flat year over year, which was in line with our market. However, excluding the decline in our CV battery and charging system segment, our organic sales were up modestly year over year. I'm excited to report that the strong award activity we saw in the first quarter continued into the second quarter. Today, I will share nine new business awards across both foundational and e-products, which are a sampling of the awards that we secured during the quarter. We believe these awards will illustrate the strength of our portfolio and the demand for efficient powertrain technology around the globe. Our adjusted operating margin performance was strong in the second quarter, coming in at 10.3%, which includes a 40 basis point tariff headwind. This strong underlying operational performance was once again driven by our focus on cost controls across our business, and turning those earnings into free cash flow. Lastly, we remain focused on the efficient deployment of our capital to drive shareholder value. In the quarter, we returned over $130 million to shareholders through share repurchases and payment of our cash dividend. Additionally, Our Board of Directors approved both a 55% increase in our quarterly cash dividend per share and an increase in our current share repurchase authorization to $1 billion. These actions demonstrate our confidence in the long-term cash-generating ability of our business and our focus on driving shareholder value through a balanced capital allocation approach. As I look back on the first half of 2025, I'm very proud of our team and our results. As Craig will detail, our first half financial performance was strong and enabled us to increase our sales, margin, EPS, and free cash flow guidance for the year. I'm equally pleased with the strong award activity we secured in the first half of 2025, which we believe supports our focus on long-term profitable growth. Now, let's look at some of the new foundational product awards on slide six. First, BorgWarner has secured two significant turbocharger conquest business wins for a major global OEM's next generation vehicles in Europe and North America. The company will supply its proven wastegate gasoline turbocharger for use in next-generation compact and light commercial vehicles in Europe. Production is scheduled to begin in August 2027. In addition, BorgWarner has also been awarded a high-performance turbocharger program for a North American engine platform with production planned to start in September of 2028. These awards underscore our ability to win in highly contested markets by offering reliable, cost-effective solutions and long-term supply commitments. Second, BorgWarner has secured a business win with a major East Asian OEM to supply turbochargers for their 1.6-liter engine, supporting primarily hybrid electric vehicle SUV applications. This win builds on BorgWarner's strong 18-year partnership supplying turbochargers to this customer and underscores our commitment to delivering high-performance, efficient turbocharging solutions that support the customer's HEV growth strategy. Production is scheduled to begin in 2027. And third, BorgWarner has secured a turbocharger award with a major global OEM. for use in a hybrid option for a sports car platform. Production is expected to begin in 2028. I'm excited to see demand for our foundational products, particularly turbochargers, remaining strong around the globe. These awards reflect our strategic focus on supporting global OEMs with combustion engine technologies while others exit the space. I also believe the conquest and hybrid awards speak to our technology leadership in turbochargers. Now, let's look at some of the new e-product awards on slide seven. First, BorgWarner has secured an award to supply its dual inverter with a major Chinese OEM to support its hybrid vehicle lineup. The project is scheduled to begin mass production by the end of this year. In China's rapidly evolving NEV market, BorgWarner remains committed to supporting our customers with innovative and high-quality electrification solutions. This award is a great example. Second, BorgWarner has secured an electric motor business with a major Chinese OEM. The award features a platform-based design, enabling compatibility across a full range of NEV applications, including battery electric and hybrid models, with a production expected to begin in 2026. We are pleased to see continued progress in our electric motor business in China. Next, BorgWarner has secured contracts with two major global OEMs to supply high-voltage coolant heater technology for plug-in hybrid electric vehicle platforms. The first win expands our technology into several of our customers' light vehicle PHEV platforms, including a pickup truck. The second win is with an existing heat heater customer, which will now be expanded into several PHEV platforms. Both programs are expected to begin production in 2028. Securing these contracts further validates our technology leadership and expertise in battery and cabin heating. Lastly, BoardWarner has secured a new program for our electric cross-differential technology for a leading Chinese OEM's electric vehicles in China. By dynamically controlling power distribution between the wheels, EXD technology improves handling and traction capabilities. Now, let's turn to slide eight and touch on our balanced capital allocation approach. Over the last two quarters, I've been asked about our capital allocation discipline. My view is we need to follow a capital allocation strategy that is focused on delivering sustained shareholder value. As we look back over the last five years, we have followed a balanced approach with just under 50% of our capital being deployed to shareholders through share repurchases and dividends, and just over 50% supporting technology-focused acquisitions. As I think about the next several years, I expect to see our balanced approach continue. We plan to focus on accretive, inorganic investments and a consistent return of cash to shareholders. Since 2020, we have returned more than $3.5 billion of capital to our shareholders. I believe that today's announcements to increase our quarterly dividends and buyback authorization show our commitment to returning cash to shareholders in a disciplined and consistent manner. As we move forward, we expect to continue to invest organically and inorganically to support our growth. So you should expect us to continue to be active as it relates to accretive M&A while still returning capital to our shareholders. Next, let's turn to slide nine and discuss how we plan to continue to assess our M&A opportunities. When we think about M&A, there are three criteria we're using to evaluate inorganic opportunities. First, an inorganic investment must have strong industrial logic. It must link to the many core competencies BorgWarner has developed throughout decades of innovation and product leadership. The second criteria is that we want to see near-term earnings accretion. We believe our product portfolio is strong and well-positioned for outgrowth, and as a result, potential M&As should not be driven purely by strategic rationale. Rather, we expect our future M&A to increase BorgWarner's long-term earnings power. Finally, we need to ensure we pay a fair price for the asset. It's critical that we run multiple DCF scenarios given the complex regional markets and customers we serve. Over the past few quarters, Craig and I have assessed a number of opportunities and have frankly passed because they didn't meet the hurdles I just spoke about. I'm really pleased with the discipline we follow to date and I'm confident in our screening process going forward. To summarize, the takeaways from today are the following. First, BorgWarner's second quarter results were strong. We saw a 31 percent increase in our light vehicle e-products business and delivered strong margin, free cash flow, and EPS performance. This was despite net tariff cost headwinds, reflecting our continued focus on cost controls. Second, we secured multiple new business awards in the quarter across our entire portfolio, which we believe demonstrates the continued need for efficient powertrain technology across combustion, hybrid, and electric architectures. And finally, we took meaningful steps to return capital to shareholders during the quarter, with over $130 million returned through our cash dividend and share repurchases. Additionally, increases to our cash dividend rate and share repurchase authorization demonstrate our commitment to following a disciplined approach of consistently returning cash to shareholders. Overall, I believe our year to date results illustrate the strength of our team, our product portfolio, and the long-term earnings power of our business. I'm excited to continue our positive momentum into the second half of 2025. With that, I'll turn the call over to Craig.