BorgWarner Inc.

Good morning. My name is Nick and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 third quarter results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by a 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. 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, Nick. 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, also on our homepage and our Investor Relations homepage. With regard to our Investor Relations calendar, we will be attending multiple 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 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 adjusted, that means excluding non-comparable items. When you hear us say organic, that means excluding the impact of FX. 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. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production waited for our geographic exposure. Please note that we've posted today's earnings call presentation to the IR page for 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 Joe.

Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the third quarter of 2026 and provide an overall company update starting on slide five. I want to begin by thanking our employees, customers, and suppliers for all of their trust, efforts, and continued support. In the quarter, we achieved sales of just under $3.5 billion, excluding the decline in our battery energy system segment Our organic net sales were down modestly year over year, or roughly in line with the decline in global market production. Importantly, our light vehicle e-product sales were up 33%, primarily due to European growth. Our adjusted operating margin and adjusted earnings per share performance was strong in the quarter. The company continued to operate at a very high level, and delivered 20 basis points of adjusted margin expansion and 12% adjusted earnings per share growth, despite a declining production environment. This solid result was once again driven by our focus on cost controls across our business. I'm excited to report that our strong award activity continued into the third quarter. Today, I'll highlight nine new business awards across our foundational and e-products portfolios. These wins represent only a portion of the awards secured during the quarter and highlight the strength of our foundational and e-product portfolio and the need for our products across combustion, hybrid, and electrified architectures. Additionally, I believe the sustained level of award activity that we've seen over the last several quarters underscores the strength of our technology-focused portfolio and our deep customer relationships. Equally exciting is the progress we made in the quarter in taking meaningful steps to advance our product readiness and accelerate our quoting activity across our data center and other industrial markets portfolio. I will share a more detailed update in a few moments. Lastly, We remain focused on the efficient deployment of capital to drive shareholder value. In the quarter, we returned approximately $210 million, or over 100% of our third quarter free cash flow, to shareholders through share repurchases and the payment of our quarterly cash dividend. Including our currently planned fourth quarter repurchases, We expect to return over $700 million to shareholders in 2026. Looking back on our year-to-date performance, I'm very proud of our team and our results. Once again, we executed at a very high level, which I believe positions us well to achieve our full-year sales, margin, free cash flow, and increased EPS guidance. Next, I'd like to highlight nine product awards that demonstrate both the competitiveness of our technology and our ability to support our customers' powertrain needs in key markets. First, FordWarner will supply engine control modules for a new internal combustion engine pickup truck platform for one of our long-standing global OEM customers. The new high-volume contract extends the company's existing customer relationship. Securing the strategic ECU program maintains BorgWarner's electronics leadership and extends our engagement with this longtime partner through 2034. Next, BorgWarner has secured three separate conquest business awards with a global powertrain technology leader. including one contract for our variable turbine geometry turbocharger and two contracts for our wastegate turbocharger. The technologies will be used on the customer's light vehicle gasoline platforms in both South America and Europe. I believe these awards reflect the strength of our offering, including our competitive solutions and technical expertise. Next. BoardWarner has secured its first business award for its new aluminum wire e-motor technology from a major Chinese OEM, marking the technology's introduction to the market. This product will be used in hybrid vehicles across multiple applications, including generator and traction motors for auxiliary drive applications. The technology combines aluminum conductors with BoardWarner's We are proud to introduce BoardWarner's aluminum wire e-motor technology to the market. and to further strengthen our long-standing relationship with this customer. Next, 4Warner has secured three e-motor business awards in China for a range of electrified and hybrid vehicle programs. The new business broadens the company's customer base and expands the application of its e-motor technologies in the Chinese market. I believe that the breadth of these programs demonstrates our ability to address diverse application requirements through strong product performance, cost optimization, and localized manufacturing. And lastly, 4Warner has secured a Next Generation High Voltage Inverter Award for future battery electric vehicle programs with a global OEM. The award builds on an existing electrification partnership and further strengthens BoardWarner's position as a leading provider of advanced power electronic solutions for electric vehicles. I believe this business reflects the confidence customers place in BoardWarner's power electronics expertise and our ability to deliver innovative, high-performance electrification solutions. Next, on slide seven. I would like to discuss how we are improving our product readiness and accelerating our quoting activity across our data center and other industrial markets portfolio. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. Our partner is planning to expand external demonstrations of the turbine generator system during the fourth quarter due to strong customer interest. Our UL compliance process continues to progress well. The UL certification process of the subsystems is now largely complete, and system UL certification is underway. The construction of the final assembly plant in North Carolina has now been completed, and manufacturing floor and capital installation are expected in December. As a result, we expect to begin production trials by year end. Overall, I'm very excited and pleased with the team's progress, which will position us well to meet the strong customer interest that we continue to see, including multiple hyperscalers. Turning next to our battery energy storage system, our energy storage solutions are intended to support a range of use cases and data center and other industrial environments, and we continue to assess new potential applications. Customer validation and our UL compliance processes are advancing well. In addition, we are getting solid engagement with multiple customers across both NMC and LFP cell applications. We continue to expect that we will be production ready in 2027. Now, turning to our microgrid inverter offerings. We have now shipped four Warner samples to seven customers and engagement with other potential customers are underway. We expect to complete UL certification of our microgrid inverter in early 2027. Customer reaction has continued to remain very positive. For example, our inverter system efficiency testing is ahead of peers based on customer feedback. Customers believe we have the right value proposition, including U.S. manufacturing. Additionally, our high voltage and power-dense liquid-cooled power electronics expertise is seen as a competitive advantage as we continue to advance our product readiness. We are also continuing to expand our power electronics portfolio for both data center and industrial applications. We've developed an 800-volt power supply unit, or PSU, and showcased it at the recent Data Center World Power Industry event in Dallas, Texas in the third quarter. Lastly, I'm proud to report that we have begun the initial quoting process with our first major customer for our micro rhythm bird. Overall, I view all of these steps as great signs of increased customer engagement and our right to win in this high growth market. To summarize, I believe there are four key takeaways from today's call. First, For Warner's third quarter results were strong. Our light vehicle e-product sales increased 33%. Our adjusted operating margin expanded 20 basis points and adjusted EPS grew 12% compared with the third quarter of 2025. Additionally, we increased our full year EPS guidance, reflecting our continued focus on growing the earnings power of the company. Second, we announced nine new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership and the need for our highly engineered solutions across combustion, hybrid, and BEV architectures. Third, we further improved our product readiness across our data center and other industrial markets portfolios. At the same time, we saw accelerating quoting activity. I continue to believe that our mechanical and electronic core competencies will enable us to successfully capture multiple growth factors outside of our core automotive market. And finally, we took meaningful steps to return capital to shareholders during the third quarter, with approximately $210 million returned to our cash dividend