Q1 2024 Borgwarner Inc Earnings Call

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Brittany: Good morning. My name is Brittany, and I will be your conference facilitator. At this time, I would like to welcome everyone to the BorgWarner 2024 first quarter results conference call. All lines have been placed on mute to prevent background noise.

Britney: Good morning, My name is Britney and I will be your conference facilitator at this time I would like to welcome everyone to the Borgwarner 2020 for first quarter results Conference call.

Brittany: 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 your 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, Brittany.

Britney: All lines have been placed on mute to prevent background noise.

Britney: After the Speakers' 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.

Britney: If you would like to withdraw your question Press Star two.

Britney: Youre using a speakerphone please pick up your 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: 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 on our investor relations homepage. With regard to our investor relations calendar, we'll be attending multiple conferences between now and our next earnings release. Please see the event 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 that involve risks and uncertainties as detailed in our 10k. Our actual results may differ significantly from the matters discussed today.

Patrick Nolan: Thank you Britney good morning, everyone and thank you for joining us today.

Patrick Nolan: We assure that our earnings release earlier. This morning is posted on our website Borgwarner com, both on our homepage and honor our Investor Relations homepage.

Patrick Nolan: 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.

Patrick Nolan: Before we begin I need to inform you that during this call. We may make forward looking statements, which involve risks and uncertainties are detailed in our 10-K, our actual results may differ significantly from the matters discussed today.

Patrick Nolan: 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 to a prior period. When you hear us say on a comparable basis, that means excluding the impact of FX, NetM&A, and other non-comparable items. When you hear us say adjusted, that means excluding non-comparable items.

Patrick Nolan: 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.

Britney: When you hear say on a comparable basis that means excluding the impact of FX net M&A and other non comparable items.

Britney: When you hear us say adjusted that means excluding non comparable items.

Patrick Nolan: 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.

Britney: When you hear us say organic that means excluding the impact of FX and net.

Britney: M&A.

Britney: We will also refer to our incremental margin performance.

Britney: Our incremental margin is defined as our again is the organic change in our adjusted operating income divided by the organic change in ourselves.

Patrick Nolan: Our all-in incremental includes our planned investment at ERMD, any impact and net inflationary impacts, and other cost items. Lastly, we refer to our growth compared to our market. When you hear us say our market, that means the change in light and commercial vehicle production has waited for our geographic exposure.

Britney: Our all in incremental includes our planned investment in E R&D any impact in net inflationary impacts and other cost items.

Britney: Lastly, we offered 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.

Patrick Nolan: Please note that we've posted today's earnings call presentation on 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.

Britney: Please note that we've posted today's earnings call presentation to the IR page of our website.

Britney: Cause you to follow along with these slides during our discussion.

Britney: With that I'm happy to turn the call over to Fred.

Fred: And good morning, everyone. I'm very pleased to share our results for the first quarter of 2024 and provide an overall company update, starting on slide five. With approximately $3.6 billion in sales, we delivered close to 7% organic growth in the quarter, despite a modest industry decline. We delivered strong incremental performance in the quarter on an all-in basis, which allowed us to achieve a 9.4% margin. This Q1 performance provides a nice start to the year, and we believe it positions us well to deliver on our full year guidance. Additionally, we continue to take steps in the quarter to create long-term value for our shareholders. We secure multiple new e-product awards.

Fred: Thank you Pat and good day everyone.

Fred: These awards once again demonstrate our focus on taking leading-edge technology, working closely with our customers, to help support them as they transition toward electrification. And, as I will discuss, we continue to expand our product offerings for electrified vehicles. We focused on the efficient deployment of our capital by repurchasing $100 million of stock during the first quarter.

Fred: I am very pleased to share our results for the first quarter of 2024 and provide an overall company update starting on slide five.

Fred: With approximately $3 $6 billion in sales, we delivered close to 7% organic growth in the quarter. Despite a modus industry decline.

Fred: We delivered strong incremental performance in the quarter on an all in basis, which allowed us to achieve a nine 4% margin.

Fred: These Q1 performance provides a nice start to the year and we believe it positions us well to deliver on our full year guidance.

Fred: Additionally, we continued to take steps in the quarter to create long term value for our shareholders.

Fred: We secured multiple new product awards.

Fred: These awards once again demonstrate our focus on taking the leading edge technology working closely with our customers.

Fred: To help support them as they transition towards electrification.

Fred: As I will discuss we continued to extend our product offerings for electrified vehicles.

Fred: We focused on the efficient deployment of our capital by repurchasing $100 million of stock during the first quarter.

Fred: As Craig will highlight, we received an increased share repurchase authorization of $500 million from our board of directors. Now, let's look at some new e-product awards on Slate 6. BorgWarner has secured an additional E-Motor award with Xiaopeng.

Fred: Craig will highlight we received an increased share repurchase authorization.

Fred: $900 million from our board of directors.

Fred: Now, let's look at some new product tools on slide six.

Fred: First.

Fred: Borgwarner has secured additional he moulds or we sell pain.

Fred: These awards include BorgWarner's 800V eMotor systems, comprised of stator and rotor components, which are customers for use on two upcoming SUV models. The start of production is planned for 2025. BorgWarner's HVH-220E motor offers high torque density, enhanced efficiency, and superior durability.

Fred: These awards include Borgwarner is 800 volts E motor systems.

Fred: Apprised of stater and relative components.

Fred: Customers for use on two upcoming SUV models.

Fred: <unk> production is planned for 2025.

Fred: Borgwarner as HV age to 20 E Motor offers high torque density.

Fred: Enhanced efficiency and super user that durability.

Fred: We're thrilled to extend our email business to business with Xiaopeng and build upon our strong partnership with them. Next, I would like to highlight a new product line for electrified vehicles, which is our Electric Torque Vectoring Disconnect, or ETVE. BorgWarner has secured new business awards with Polestar and an additional major European OEM to supply ETVD for their battery electric vehicles. ETVD is currently in production for the Polestar 3 SUV, and production for the additional European OEM is expected to begin later in 2024.

Fred: We are thrilled to extend our E motor business with shell paying and build upon our strong partnership with them.

Fred: The ETVD offers a three-in-one system, replacing the differential and featuring both torque vectoring and an on-demand disconnect functionality for BEVs and hybrids. ETVD is part of BorgWarner's Electric Torque Management System portfolio, which helps improve electrified vehicles' traction and stability. The added weight in hybrids and battery electric vehicles often results in reduced agility and safety performance. BorgWarner Systems helps overcome this by enabling a lighter feel and increasing traction, which improves safety.

Fred: Next I would like to highlight a new product line for electrified vehicles.

Fred: She is our electric Victor.

Fred: Victoria disconnect or TVD.

Fred: Both wanted to secure new business awards with Goldstar, and then additional major European OEM.

Fred: <unk> for the battery electric vehicles.

Fred: <unk> currently in production for the full staff three SUV and production sold in major European OEM is expected to begin later in 2024.

Fred: The <unk> offers a three in one system, replacing the differential and featuring both torque vectoring in an on demand disconnect functionality full beds and hybrids.

Fred: Etv's Potthast, Borgwarner electric choke management system portfolio, which helps improve electrified vehicles traction and stability.

Fred: The added weight in hybrids and battery electric vehicles also results in reduced agility and safety performance.

Fred: Borgwarner assistance helps overcome this by enabling our life of field and increasing traction which improves safety.

Fred: The ETDD is a great example of applying our foundational expertise and capabilities to develop an innovative solution to address our customers' needs as they transition towards electrification. Now, I want to take a few moments to remind you of the strength of our foundational portfolio on slide 7. First, it's important to highlight BorgWarner's estimated average content opportunity per combustion vehicle, which is approximately $550 on a global basis. However, you will note that this content opportunity varies by region.

Fred: The <unk> is a great example of applying our foundational expertise and capabilities to develop an innovative solution to address our customers' needs as they transition towards electrification.

Fred: Now I wanted to take a few moments to remind you of this trends of our foundational portfolio on slide seven.

Fred: First it's important to highlight full one is estimated to average content opportunity per combustion vehicle, which is approximately $550 on a global basis.

Fred: You will note that these content opportunity varies by region.

Fred: I would point out that our content support in North America is the highest of the three major regions we operate in. So to the extent that combustion vehicles have a longer tail in North America, that could provide a positive sales margin and cash flow tailwind for BorgWarner. We also continue to see potential opportunities for growth across our foundational portfolio, which will add revenue of about $12 billion in 2023. I would like to list just a few.

Fred: I would point out that our content opportunity in North America is the highest of the three major regions we operate in.

Fred: So to the extent that combustion vehicles have a longer tail in North America that could provide a positive sales margin and cash flow tailwind for borgwarner.

Fred: Okay.

Fred: We also continue to see potential opportunities for growth across our foundational portfolio, which added 2023 revenue of about $12 billion.

Speaker Change: I would like to list just a few.

Fred: And so though we.

Fred: [inaudible] We continue to see North America opportunities as penetration in the region is about 44%, compared to 92% penetration in Europe and 69% penetration in China. If EV growth slows in North America, the remaining combustion vehicles may need to improve efficiency, and turbocharging is one of the biggest enablers to make this happen for our EGR business. We see penetration opportunities for hybrid architectures. The efficiency benefit of EGR and cooling on hybrids is higher than traditional combustion only vehicles, as the internal combustion engine operates in a steadier state.

Fred: Continue to see North America opportunities as penetration in the region is about 44%.

Fred: Compared to 92% penetration in Europe, and 69% penetration in China.

Fred: If EV growth slows in North America the.

Fred: The remaining combustion vehicles may need to improve efficiency until were challenging as one of the biggest enabled us to make this happen.

Fred: For our <unk> business, we see penetration opportunities on hybrid architectures.

Fred: The efficiency benefit of ECR, including on hybrids is higher than traditional combustion only vehicles.

Fred: As the internal combustion engine operates in a steady state.

Fred: Our timing system business also sees penetration opportunities in plug-in hybrids and range extended EVs, as engine timing chain is the preferred technology in those hybrids due to its superior durability and strength. And finally... We see our all wheel drive business benefiting from penetration schools on combustion vehicles in Southeast Asia and from a longer tail for North American vehicles. Maximizing the value of our foundational products means capitalizing on these potential growth opportunities while at the same time maintaining the strong margin and cash profiles of this business. Now, let's turn to slide eight and take a step back.

Fred: Our timing systems business also sees penetration opportunities in plug in hybrids and range extended evs.

Fred: As engine timing chain is the preferred technology those hybrids due to its superior.

Fred: Durability and strength.

Fred: And finally.

Fred: We see our all wheel drive business benefiting from penetration schools.

Fred: Boston vehicles in southeast Asia, and from a longer tail full north American vehicles.

Fred: Maximizing the value of our foundational products means capitalizing on this potential growth opportunities.

Fred: While at the same time, maintaining the strong margin and cash profiles of these businesses.

Fred: Now, let's turn to slide eight and take a step back.

Fred: Let's discuss how we believe our foundational and e-product portfolios are positioned for growth under various combustion, hybrid, or best-growth scenarios. Starting with our combustion or foundational portfolio, which is on the top left of the slide. BorgWarner has decades of experience in product leadership in this field. We have a number one or number two market share for these products and can support our customers around the globe. This is critically important as customers potentially consolidate their supply base and look to industry leaders that have the financial strength and long-term technological leadership to support them.

Fred: Let's discuss how we believe are foundational in E product portfolios.

Fred: Physician full growth under various combustion hybrid or best growth scenarios.

Fred: Starting with our combustion or foundational portfolio, which on the top left of this slide.

Fred: Borgwarner as decades of experience and product leadership in these fields.

Fred: We have a number one or number two market share for these products and can support our customers around the globe.

Fred: This is critically important as customers potentially consolidate their supply base and look to industry leaders.

Fred: But as the financial strength.

Fred: And long term technology leadership to support them.

Fred: Let's jump to the right side of this page, where you see the breadth of our e-product portfolio. This portfolio has grown organically and through M&A over the past several years. We have systematically built a technology-focused portfolio that supports our customers' needs in EVs from grid to wheel. This has allowed us to establish product leadership in multiple areas of our portfolio, including inverters, e-motors, high-voltage coolant heaters, and batteries. We expect that our technological differentiation, scale, and share leadership will continue to enable us to secure new business.

Fred: Let's turn to the right side of this page, where you see the breadth of our product portfolio.

Fred: This portfolio has grown organically and through M&A over the past several years.

Fred: We have systematically built as technology focused portfolio that supports our customers' needs in evs from grid to wheel.

Fred: This has allowed us to establish products leadership in multiple areas of our portfolio, including in villages E Motors high voltage coolant heaters and batteries.

Fred: We expect that our technological differentiation scale and share leadership, we've continued to enable us to secure new business.

Fred: Quite simply, our foundational and e-product portfolio supports hybrid propulsion since a hybrid vehicle needs both a downsized combustion engine as well as an electric powertrain. We can utilize the expertise of both our portfolios to support our customers, which we are already doing successfully in Europe and in China. Importantly, when we sell products for hybrid applications, we're able to utilize the same engineering resources, modular design, manufacturing footprint, and sometimes even actual product lines that are utilized for BEVs and combustion vehicles.

Fred: Quite simply.

Fred: A foundational and E product portfolio simple hybrid propulsion since a hybrid vehicle needs, both with downside combustion engine as well as an electric powertrain.

Fred: We can utilize the expertise of both our portfolios to support our customers, which we are already doing successfully in Europe and in China.

Fred: Importantly, when we sell products for hybrid applications. We're able to you today is the same engineering resources modular design manufacturing footprint and sometimes even actual product lines that are used to that it's full beds and combustion vehicles.

Fred: We believe BorgWarner is well positioned to be successful under various electrification adoption scenarios, including regional specificities. Our product has been purposefully built for this state of the art environment, and will focus on achieving above market growth, regardless of varying levels of electrified propulsion adoption. Our focus is to convert growth into income at the mid to high teens level on an all-in basis. To summarize, the takeaways from today are these. BorgWarner's first quarter results were strong.

Fred: We believe borgwarner is well positioned to be successful under various electrification adoption scenarios, including regional specific cities.

Fred: Our product has been purposefully built for this type of an environment.

Fred: We will focus on achieving above market growth, regardless of varying levels of electrified propulsion adoption.

Fred: Our focus is to convert growth into income.

Fred: Mid to high teens level.

Fred: All in basis.

Fred: To summarize.

Fred: The takeaways from today all of this.

Fred: One is first quarter results were strong.

Fred: Our sales growth once again outperformed the industry, and we delivered strong conversion on an all-in basis. We secured multiple new e-product awards in the quarter, which further demonstrate our product leadership position. We're focused on efficient powertrains, and we believe that we have a resilient portfolio of products that allows us to convert mid to high teens wherever the incremental revenue comes from. And we continue to return capital to our shareholders through our first quarter share repurchases and increased authorization from our board. As we look forward,

Fred: Our sales growth once again outperformed the industry and we delivered strong conversion on an all in basis.

Fred: We secured multiple new product awards in the quarter, which further demonstrate our product leadership position.

Fred: We're focused on efficient powertrains.

Fred: And we believe that we have a resilient portfolio of products.

Fred: It allows us to convert mid to high teens wherever the incremental revenue comes from.

Fred: And we continue to return capital to our shareholders.

Fred: Through our first quarter share repurchases and increased authorization from our board.

Fred: As we look forward we.

Fred: We expect to continue to manage our business holistically. We plan to take the necessary steps to manage our costs while continuing to preserve our long-term profitable growth. While we cannot control the near-term volatility in propulsion mix across the globe, we can focus on what BorgWarner does best, driving sales growth above market production through technology-focused product leadership, converting that growth into earnings on an all-in basis, and following a balanced capital allocation strategy that creates long-term value for our shareholders. With that, I will turn the call over to Craig. Thank you, Fred, and good morning, everyone.

Fred: We expect to continue to manage our business holistically.

Fred: We plan to take the necessary steps to manage our costs.

Fred: While continuing to preserve our long term profitable growth.

Fred: While we cannot control the near term volatility in propulsion mix across the globe. We can focus on the wet fall winter does best.

Fred: Driving sales growth above market production.

Fred: Through technology focused products.

Fred: Converting that growth into earnings on an all in basis.

Fred: Following a balanced capital allocation strategy that creates long term value for our shareholders.

Fred: With that I will turn the call over to Craig.

Craig: Thank you Brad and good morning, everyone.

Craig: Before I dive into the financials, I'd like to provide a quick overview of our first quarter results. First, we reported close to 7% organic sales growth despite a modest decline in industry volume. Second, we had strong margin performance, which was driven by solid conversion on higher revenue, as well as appropriately managing our costs. This led to a year-over-year incremental conversion of over 23% on an all-in basis. Now, let's turn to slide nine for a look at our year over year sales growth for Q1. Last year's Q1 sales from continuing operations were just under $3.4 billion. You can see that the strengthening US dollar drove a year over year decrease in sales of almost 1%, or 32 million.

Craig: Before I dive into the financials I'd like to provide a quick overview of our first quarter results.

Craig: First we reported close to 7% organic sales growth despite a modest decline in industry volume.

Craig: Second we had strong margin performance, which was driven by solid conversion on higher revenue as well as appropriately managing our costs.

Craig: This led to a year over year incremental conversion of over 23% on an all in basis.

Craig: Then you can see the increase in organic sales, which was up roughly 7% year over year, driven by growth in China and in Europe. Finally, the acquisitions of Aldor and SSE added $11 million to sales year over year. Some of all this was just under $3.6 billion in sales in Q1. Turning to slide 10, you can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $339 million, equating to a 9.4% margin.

Craig: Now, let's turn to slide nine for a look at our year over year sales walk for Q1.

Craig: Last year's Q1 sales from continuing operations was just under $3 4 billion.

Craig: You can see that the strengthening U S dollar drove a year over year decrease in sales of almost 1% or $32 million.

Craig: Then you can see the increase in our organic sales, which was up roughly 7% year over year driven by growth in China and in Europe.

Craig: Finally, the acquisition of Al Dor, and SSE added $11 million of sales year over year.

Craig: The sum of all of this was just under $3 $6 billion of sales in Q1.

Craig: Turning to slide 10, you can see our earnings and cash flow performance for the quarter.

Craig: Our first quarter adjusted operating income was $339 million equating to a nine 4% margin.

Craig: That compares to adjusted operating income from continuing operations of $305 million, or a 9% margin from a year ago. On a comparable basis, excluding the impact of foreign exchange and M&A, adjusted operating income increased $54 million on $233 million of higher sales.

Craig: That compares to adjusted operating income from continuing operations of $305 million or 9% margin from a year ago.

Craig: On a comparable basis, excluding the impact of foreign exchange and M&A adjusted operating income increased $54 million and $233 million of higher sales.

Craig: That translates to an all-in incremental margin of roughly 23% driven by higher year-over-year sales and strong cost control. And that impacted M&A with a $12 million drag on operating income year over year. Our adjusted EPS from continuing operations was up 22 cents compared to a year ago, as a result of higher adjusted operating income, a decline in our effective tax rate, and the impact of our recent share repurchases on our share, And finally, free cash flow from continuing operations was a usage of $308 million during the first quarter, which was a higher usage than a year ago, as our working capital performance was impacted by the timing of customer collections due to the Easter holiday, as well as the timing of tax, Now, let's take a look at our full year outlook on slide 11.

Craig: That translates to an all in incremental margin of roughly 23% driven by a higher year over year sales and strong cost controls.

Craig: The net impact of M&A was a 12 million dollar drag on operating income year over year.

Craig: Our adjusted EPS from continuing operations was up 22 compared to a year ago. As a result of higher adjusted operating income a decline in our effective tax rate and the impact of our recent share repurchases and our share count.

Craig: And finally free cash flow from continuing operations was a usage of $308 million during the first quarter, which was a higher usage than a year ago as our working capital performance was impacted by the timing of customer collections due to the Easter holiday as well as the timing of tax payments.

Speaker Change: Now, let's take a look at our full year outlook on slide 11.

Craig: Starting with foreign currencies, our guidance now assumes an expected full-year sales headwind from weaker foreign currencies of $100 million compared to 2023. This also is a sales headwind of $100 million versus our prior guidance, with the Chinese renminbi and Korean Won being the largest drivers of the change in our output. Next, we expect organic growth of approximately 2 to 5% year over year, compared to our prior guidance of 1 to 5%. This increase is predominantly driven by strong sales growth in the first quarter.

Craig: Starting with foreign currencies, our guidance now assumes an expected full year sales headwind from weaker foreign currencies of $100 million compared to 2023.

Craig: This also is a sales headwind of $100 million versus our prior guidance with the Chinese RMB and Korean one being the largest drivers of drivers of the change in our outlook.

Craig: Next we expect organic growth of approximately 2% to 5% year over year compared to our prior guidance of 1% to 5%.

Craig: This increase is predominantly driven by strong sales growth in the first quarter.

Craig: Within this guidance, our full year end market assumptions of flat to down two and a half percent are unchanged. Additionally, we continue to expect to deliver between 2.5 to 2.8 billion in e-product sales, which is up significantly from approximately 2 billion in 2023. Finally, the Eldor and SSE acquisitions are expected to add approximately $30 million to 2024 sales.

Craig: Within this guidance our full year end market assumptions are flat to down two 5% is unchanged.

Craig: Additionally, we continue to expect to deliver between $2 five to $2 8 billion product sales, which is up significantly from approximately $2 billion in 2023.

Craig: Finally, the Eldar and SFC acquisitions are expected to add approximately $30 million to 2024 sales.

Craig: Based on these expectations, we're projecting total 2024 sales in the range of $14.4 to $14.9 billion, which is in line with our prior guidance despite the additional FX headings. Now, let's switch to Margin. We continue to expect our full-year adjusted operating margin to be in the range of 9.2 to 9.6%. Excluding the impact of Eldor-related losses in 2024, our outlook contemplates the business delivering full-year incrementals in the mid to high teens on an all-in-base. We believe this margin performance reflects the underlying earnings power of our company and our focus on delivering strong conversion on higher sales while also appropriately managing costs. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $3.80 to $4.15 per diluted share.

Craig: Based on these expectations, we're projecting total 2024 sales in the range of $14 four to $14 9 billion, which is in line with our prior guidance. Despite the additional FX headwinds.

Craig: Now, let's switch to margin.

Craig: We continue to expect our full year adjusted operating margin to be in the range of nine two to nine 6%.

Craig: Excluding the impact of Eldar related losses in 2024, our outlook contemplates the business delivering full year incrementals in that mid to high teens on an all in basis.

Craig: We believe this margin performance reflects the underlying earnings power of our company and our focus on delivering strong conversion on higher sales, while also appropriately managing costs.

Craig: Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $3 80.

Craig: $4 15 per diluted share.

Craig: This increase, compared to our prior outlook, is being driven by the impact of our share purchases on the full year share count and a reduction in our tax rate outlook compared to our prior guidance. Turning to free cash flow, we continue to expect that we'll deliver free cash flow of $475 to $575 million for the full year. Let's turn to slide 12 and discuss our recently increased share repurchase authorization. As Fred highlighted in his opening remarks, we repurchased approximately $100 million of BorgWarner stock during the first quarter.

Craig: This increase compared to our prior outlook is being driven by the impact of our share repurchases and full year share count and a reduction in our tax rate outlook compared to our prior guidance.

Craig: Turning to free cash flow, we continue to expect that we will deliver free cash flow of $475 million to $575 million for the full year.

Craig: This brings our share repurchases since 2020 to approximately $733 million. In addition, our board of directors approved an increase in our share repurchase authorization of up to $500 million over the next three years. When combined with the 267 million remaining under our prior authorization, management has the ability to repurchase up to 767 million of the company's outstanding shares.

Craig: Let's turn to slide 12, and discuss our recently increased share repurchase authorization.

Craig: As Fred highlighted in his opening remarks, we repurchased approximately $100 million and Borgwarner stock during the first quarter.

Craig: This brings our share repurchases since 2020 to approximately $733 million.

Craig: In addition, our board of directors approved an increase in our share repurchase authorization of up to $500 million over the next three years.

Craig: When combined with a $267 million remaining under our prior authorization management has the ability to repurchase up to $767 million of the company's outstanding shares.

Craig: In addition to the Sherry purchases I just highlighted, we have also returned about $623 million to shareholders in dividends since the start of 2020. We also completed the tax-free spinoff of Finian, which returned roughly $1.7 billion of additional capital to shareholders.

Craig: In addition to the share repurchases I just highlighted.

Craig: We have also returned about $623 million to shareholders in dividends since the start of 2020.

Craig: We also completed the tax free spinoff of Finian, which returned roughly $1 7 billion of additional capital to shareholders.

Craig: Adding this all together, BorgWarner has distributed roughly 3.1 billion of capital to shareholders since 2020, while also investing in the company's future. Our return of capital to shareholders has been a significant area of focus over the past several years. We believe our ability to return capital to shareholders while also investing in the business demonstrates the underlying strength of the company and the importance of a balanced capital allocation approach that is focused on maximizing shareholder value. The $500 million increase in our share repurchase authorization is simply another example of our commitment to a balanced capital allocation approach. So let me summarize my financial remarks. Overall, we delivered a solid first quarter.

Craig: Adding this altogether Borgwarner has distributed roughly $3 1 billion of capital to shareholders. Since 2020, while also investing in the company's future.

Craig: Our return of capital to shareholders has been a significant area of focus over the past several years.

Craig: We believe our ability to return capital to shareholders. While also investing in the business demonstrates the underlying strength of the company and the importance of a balanced capital allocation approach that is focused on maximizing shareholder value.

Craig: Yeah.

Craig: The $500 million increase in our share repurchase authorization is simply another example of our commitment towards a balanced capital allocation approach.

Speaker Change: So let me summarize my financial remarks.

Speaker Change: Overall, we delivered a solid first quarter of.

Craig: Our revenue growth was ahead of our expectations, and importantly, we delivered strong conversion on this revenue growth on an all-in basis. But this is my first call as BorgWarner's CFO, and I wanted to share what I think about the key financial goals for BorgWarner for the remainder of 2024 and beyond. As we move forward, I expect the company to first deliver organic growth, despite volatility in the global B2B and hybrid market.

Speaker Change: Our revenue growth was ahead of our expectations and importantly, we delivered strong conversion on this revenue growth and an all in basis.

Craig: Second, drive strong incremental margin performance on an all-in basis. And third, generate strong operating cash flow that allows the company to make organic and inorganic investments to support our long-term profitable growth while also returning capital to shareholders through a consistent quarterly dividend and opportunistic share repurchase. Executing on these goals is how we measure financial success at BorgWarner and how we hope to create long-term value for our shareholders for years to come.

Kevin A. Nowlan: As this is my first call as Borgwarner CFO I wanted to share how I think about the key financial goals for Borgwarner for the remainder of 2024 and beyond.

Speaker Change: As we move forward I expect the company to first.

Speaker Change: Deliver organic growth despite volatility in the global BD and hybrid markets.

Speaker Change: Second drive strong incremental margin performance and an all in basis.

Kevin A. Nowlan: And third generate strong operating cash flow that allows the company to make organic and inorganic investments support our long term profitable growth.

Kevin A. Nowlan: While also returning capital to shareholders through a consistent quarterly dividend and opportunistic share repurchases.

Kevin A. Nowlan: Executing towards these goals is how we measure our financial success at Borgwarner and how we hope to create long term value for our shareholders for years to come.

Kevin A. Nowlan: With that I'd like to turn the call back over to Pat.

Pat: Thank you Craig.

Patrick Nolan: Thank you, Craig, for the briefing. We're ready to open up for questions. At this time, I would like to remind everyone that if you would like to ask a question, press star 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before asking your question.

Pat: <unk>, we're ready to open it up for questions.

Pat: At this time I would like to remind everyone. If you would like to ask a question press star one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before asking your question and the interest of time. Please limit yourself to one question and one follow up question.

Patrick Nolan: In the interest of time, please limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Colin Langan with Wells Fargo. Your line is now open.

Pat: Pause for just a moment to compile the Q&A roster.

Pat: Your first question comes from Colin Lee with Wells Fargo. Your line is now open.

Colin M. Langan: Oh, great. Thanks for taking my questions. I started off very strong here. I think something like 8% growth over market in Q1. Your margins seem to be in the midpoint of your full-year guidance. But the guide for the year is an implied sort of growth over market, but actually moderate a bit. Midpoint margins wouldn't change.

Colin M. Langan: Oh, great. Thanks for taking my questions.

Colin M. Langan: Starting off very strong Harry I think something like 8% growth over market in Q1 your margin seem to be in the mid point of your forecast for your guidance.

Colin M. Langan: But the guide for the year implies that the growth of our market, but actually moderate a bit.

Colin M. Langan: Maybe at the midpoint margins wouldn't change.

Colin M. Langan: Anything sort of onetime in nature, we should be thinking about in Q1 that kind of boosted results.

Colin M. Langan: And then any reasons, we should be thinking about things moderating a bit as we go through the rest of the year.

Unknown Executive: Anything sort of one-time in nature we should be thinking about in Q1 that kind of boosted results? And then any reasons we should be thinking about, you know, things moderating a bit as we go through? Thanks, Colin, for the question. You know, nothing unique in the quarter, it was just a really strong operational performance for our business units. They did an exceptional job. As you think about our full-year guide, it implies a 13 to 16% incremental conversion, 13% on the low end, 16% on the high end. We feel really good about our first quarter performance, which sets us up quite well for the remainder of the year. You know, we're just focused on executing for the near term, and we're gonna keep doing that as we move into the second quarter.

Speaker Change: Thanks for the question nothing unique in the quarter. There was just a really strong operational performance for our business units. They did an exceptional job.

Colin M. Langan: As you think about our full year guide implies a 13% to 16% incremental conversion, 13% on the low end, 16% on the high end, we feel really good about our first quarter performance sets us up quite well for the remainder of the year.

Colin M. Langan: We're just focused on executing towards the near term.

Colin M. Langan: And we're going to keep doing that as we move into the second quarter.

Unknown Executive: It's just a really good operational performance. Okay, all right, sounds good. Slide eight was pretty helpful.

Colin M. Langan: It's just a really good operational performance from the company.

Unknown Executive: Maybe if you could talk a little bit about your plugin, the opportunity, you know, the content there, how much of your sales are there today? And have you seen any change yet? I guess it's quite early on interest in that given the EPA will. Colin, the PHEV is one architecture where we have our foundational products coming in and also most of our e-products coming in. I don't think we have given the granularity of our plug-in hybrid content.

Speaker Change: Okay that sounds good.

Speaker Change: Slide eight is pretty helpful. Maybe if you could talk a little about about your plug in.

Speaker Change: Th heavy opportunity.

Speaker Change: Content there how much of your sales today are there and have you seen any change yet I guess quite early on interest in that given the EPA rule seems to be more favorable.

Colin M. Langan: Towards a Phd.

Colin M. Langan: You commented that the ph Evs, one architecture, where we have.

Colin M. Langan: Our foundational products coming in and also most of our new products coming in.

Colin M. Langan: Don't think we have given the granularity of our of our four.

Colin M. Langan: Sure.

Unknown Executive: But on the hybrid overall, full hybrid, plug-in hybrid, and range extended EV, about 40% of our light vehicle e-product, which is guided at the midpoint at 1.9 billion this year, is going into those advanced hybrids. Got it. And have you seen any interest in PHEV improved, or is it? So globally, the interest in PHEV has always been there.

Colin M. Langan: Plug in hybrid content.

Colin M. Langan: But on a hybrid overall full hybrid plug in hybrid and range extended EV about 40% of our light vehicle E product, which is guided at the midpoint at $1 9 billion. This year is going into those advantaged hybrids.

Speaker Change: Got it have you seen any interest in ph UV improve or is it still just too early.

Unknown Executive: In the US, I would say that it's a little bit early to see requests for quotes from some of the American OEMs. But outside of the U.S., plug-in hybrids and advanced hybrids are an important part of new energy vehicles, and we have our fair share of those. Thanks for taking my question. Thank you, Colin. Your next question comes from John Murphy with Bank of America. Your line is now open. Good morning.

Speaker Change: So.

Speaker Change: Globally, the interest of Phe is always be there.

Speaker Change: In the in the U S. I would say that it's an EBIT early to see.

Speaker Change: Request for quotes from some of the American Oems.

Speaker Change: But outside of the U S.

Speaker Change: Average and advanced hybrids are.

Speaker Change: An important part of new energy vehicle and we have our fair share that we have our fair share of those.

Speaker Change: Alright.

Speaker Change: Thanks for taking my question.

Speaker Change: Thank you Colin.

Speaker Change: Your next question comes from John Murphy with Bank of America. Your line is now open.

John Joseph Murphy: I just want to follow up on that question Colin asked about hybrids. Is there any increase in schedules that you're seeing for hybrids? At the moment, I know you mentioned 40% of the E products are, you know, the 1.9 billion is on the hybrid side, and you're not seeing any new activity necessarily, but is there any step up in schedules? For hybrids at the moment, it might provide some upside there. Yeah, in China and in Europe, we see optics in hybrids.

John Joseph Murphy: Good morning, I just wanted to.

John Joseph Murphy: A follow up on that question Colin asked on hybrids.

Speaker Change: Okay.

John Joseph Murphy: Is there any increase in schedules that youre seeing for hybrids at the moment I know you said you mentioned 40% of.

John Joseph Murphy: The products is either the 1.9 billion is on on the hybrid side, but you are not seeing any new activity necessarily but is there any step up in schedules for hybrids at at the moment that you are seeing it might provide some upside there.

Unknown Executive: Actually, if you look at the share of growth of new energy vehicles in China, actually, hybrids are growing faster than that over the past few months. So, the answer to your question is, on a global basis, yes. And in North America, it's too early to say.

Speaker Change: Yes in China and in Europe.

Speaker Change: We see upticks in hybrids actually if you look at the share of growth of new energy vehicle in China.

Speaker Change: Surely highbridge are growing faster than that over the past few months, so and we pumped a those.

Speaker Change: So the answer to your question is on a global basis, yes.

Speaker Change: In North America, it's it's too early to say.

Unknown Executive: Okay. And then there is just one second question. You know, there's a debate whether it's stalling, whether it's short term, whether it's long term on EVs. But the reality is, you know, some of your customers, particularly in China and Europe, are heading in that direction, maybe less so in the US than we may have thought. I'm just curious, as you think about your investment, whether it be in R&D. Yeah, we are managing our costs holistically in line with the current sales outlook, as Craig and I mentioned in our prepared remarks.

Speaker Change: Okay, and then just a second question.

Speaker Change: Theres a dip.

Speaker Change: You can debate, whether installing whether it's short term, whether it's long term on evs.

Speaker Change: But the reality is some of your customers, particularly in China, and Europe were heading in that direction, maybe less so in the U S and we may have thought we would.

Speaker Change: Just curious as you think about your investment whether it be on the R&D.

Speaker Change: Syed.

Syed: Or the capital invested side do you have the ability to pull back and maybe spend at slightly more measured pace or is it just because there's such there's such a pushing in China and Europe that you can't.

Speaker Change: Pull back.

Unknown Executive: Nothing you can really you do here other than servicer clients as best you can and try to cut cost to keep it down as much as possible and maybe you can comment on really what you might think about doing on the R&D side, and then also sort of on the capex or capacity add side.

Speaker Change: Yes, we are we are managing our costs holistically in may with a comp sales outlook.

Speaker Change: As Craig and I mentioned in our prepared remarks.

Unknown Executive: We are setting up the company to convert me to 18 no matter where the incremental revenue comes from. What I would say is try not to box BorgWarner into a Borg death player or a hybrid player or a combustion player.

Speaker Change: We are setting up the company to convert to high teens, no matter, where the incremental revenue comes from.

Speaker Change: What I would say is.

Speaker Change: Try not to books borgwarner into a <unk> event or hybrid player old combustion player. We are focused on efficient powertrain.

Unknown Executive: We are focused on efficient powertrains, and we are now having scale in all those architectures in order to convert me to heighten, no matter what. And on the capacity side, is there any way to potentially be a little bit more capital efficient? Or is that possible? And I would certainly box you into a powertrain tech company across the board. That's where I'd box you, Fred.

Speaker Change: And we are now having scale in all of those architectures in order to convert mid to high teens no matter what.

Speaker Change: And on the capacity side is there anything any way to potentially be a little bit more capital efficient or is that is that possible and I would certainly box you into a powertrain Tech company across the board that's why I box you didn't need to.

Speaker Change: But you in one direction or the other.

Unknown Executive: I didn't mean to put you in one direction or the other. Um, I think from a facility standpoint, we're flexible for some of the products that I, As alluded to in the prepared remarks, we have the same engineering, the same, sometimes the same production equipment, sometimes actually the same product. Let me give you an example. We talked about dual inverters for hybrids the past few years, and we talked about inverters for BEVs. Well, those are the same animals.

Speaker Change: I think from a from a facility standpoint, we're flexible for some of the products that I.

Speaker Change: Alluded to in the prepared remarks, we have the same engineering the same.

Speaker Change: Sometimes the same production.

Speaker Change: Equipment, sometimes actually the same product let me give you. An example, we've talked over the past few years of dual inverters for hybrids and we've talked about in versus full base. Although it was all the same animals.

Unknown Executive: They might not look exactly the same from a space and form perspective, but all the inside of the guts of those things are similar. So it's difficult to answer without a specific program, but overall, we're quite flexible across those different elements that both go into BEVs and hybrids. Great, thank you very much. Your next question comes from Dan Levy with Barclays. Your line is open. Hi, good morning.

Speaker Change: They might not look exactly the same from a space and form perspective, but all the inside of the guests. So those things are similar.

Speaker Change: So it's difficult to answer.

Speaker Change: A specific.

Dan Meir Levy: Program, but overall, we are quite flexible across those different elements that both go in bags and hybrids.

Speaker Change: Okay, great. Thank you very much.

Unknown Executive: Yeah.

Speaker Change: Your next question comes from Dan Levy with Barclays. Your line is open.

Dan Meir Levy: Thank you for taking the question. Um, maybe in the quarter, you could just break out what the split of revenue between E product and foundational is, and then foundational, I assume, is still putting up pretty solid growth in the market. Maybe you could just talk about some of the dynamics driving that.

Dan Meir Levy: Hi, Good morning, Thank you for taking the question.

Dan Meir Levy: Maybe in the quarter you could just break out what was the split of revenue between.

Dan Meir Levy: E product and foundational and then foundational I assume.

Dan Meir Levy: Still putting up pretty solid.

Dan Meir Levy: Both of the market, maybe you could just talk about some of the dynamics driving that.

Unknown Executive: Yeah, so Dan, our breakout of e-products and foundational in the quarter was about 500 million, a little over 500 million in products; the rest was foundational. And I'm sorry, your other question was just about growth in the quarter. Yeah, within the growth of the overall market, do you have a sense of what the growth of the market was for foundational and, you know, what regions or products were driving that? Yeah, so I would say overall, the growth was both in China and in Europe.

Speaker Change: Yes. So then our breakout of key products and foundational in the quarter was about $500 million of rollover of $500 million new products. The rest was foundational.

Speaker Change: And I'm sorry, your other question was growth in the quarter.

Unknown Executive: Within the growth over market or do you have a sense of what the growth of the market was four foundational and what regions or products were driving that.

Speaker Change: Yes, so I would say overall the growth was both in China and in Europe.

Unknown Executive: And that includes both the growth that you saw on the foundational side of the business as well as the product side of the business, and whether or not the outgrowth within foundational was any sense on one, you can see a lot of it in the dry cream side of our business. Great. Okay. And then a second question on margins.

Speaker Change: And that includes both the growth that you saw on the foundational side of the business as well as the new product side of the business.

Speaker Change: And the the outgrowth within foundational ways.

Speaker Change: Any sense on that one.

Unknown Executive: You can see a lot of it and the drivetrain side of our business.

Unknown Executive: And I know you've noted that you're aiming for mid to high team incrementals across the business. But maybe you could just give us a sense of, you know, within some of the foundational products, is it possible that we actually are seeing higher incremental margins simply because there's less R&D that you've incurred, less application engineering, more that you are leveraging, getting a sense whether, you know, there is some split in that contribution margin between the product versus foundation.

Speaker Change: Great Okay.

Unknown Executive: And then.

Speaker Change: Question on margin.

Speaker Change: You noted that youre aiming for mid to high teens Incrementals.

Speaker Change: Across the business.

Unknown Executive: Could you just give us a sense.

Unknown Executive: <unk>.

Within some of the foundational product is it possible that we actually are seeing.

Unknown Executive: Higher <unk>.

Unknown Executive: Incremental margin simply because there is less.

Unknown Executive: R&D that you've incurred less application engineering more that you are.

Unknown Executive: Leveraging getting a sense, whether there is some split in that contribution margin between key product versus foundational.

Unknown Executive: I would say that we are balancing all those costs in order to get to the mid to high teens. And we're taking that business holistically and taking cost action so that all product lines are able, over time, to deliver those incrementals. Okay, thank you. Your next question comes from Noah Kaye with Oppenheimer. Your line is now open. Thanks very much.

Unknown Executive: I would say that we are we are balancing all those costs in order to get to.

Noah Duke Kaye: The mid to high teens, and we're taking that business holistically and taking cost actions so that bold product lines are.

Noah Duke Kaye: Being able over time to deliver those incrementals.

Noah Duke Kaye: Okay. Thank you.

Unknown Executive: Your next question comes from Noah Kaye with Oppenheimer. Your line is now open.

Noah Duke Kaye: You know, Craig, after the dividend and the purchases you've done here to date, it kind of leads me to the round. 250 million 300 million deployable free cash flow based off of a guide for the year. And I think, you know, we would certainly say that shares are trading below intrinsic value. So, how are you thinking about the pace of buybacks for the rest of the year? You know, is this going to be more ratable?

Noah Duke Kaye: Thanks, very much Craig.

Noah Duke Kaye: After the dividend and repurchases you've done year to date I can lease it around.

Noah Duke Kaye: 250 million 300 million and deployable.

Noah Duke Kaye: Free cash flow based off of our guide for the year.

Noah Duke Kaye: We would certainly say that shares are trading below intrinsic value. So how youre thinking about the pace of buybacks for the rest of the year.

Noah Duke Kaye: So there's going to be more ratable a remaining opportunistic.

Unknown Executive: Are you remaining optimistic? Yeah, thanks. Thanks for the question, Noah.

Craig: Yeah. Thanks, Thanks for the question.

Unknown Executive: So I just want to take a step back, you know, we purchased 277 million of the company's shares over the last two quarters. So 177 million in the fourth quarter of last year, 100 million in the first quarter of this year. Obviously, pleased with our board of directors, we got that additional authorization, which brings our total authorization up to 700, a little over 760 million. We're going to continue to repurchase opportunistically, just like we did in Q4 and just like we did in Q1.

Craig: So I just wanted to take a step back we repurchased $277 million of the company's shares over the last two quarters. So a $177 million in the fourth quarter of last year $100 million in the first quarter of this year, obviously pleased with our board of directors. We got that additional authorization takes our total authorization up to 700, a little over 760 million.

Unknown Executive: Dollars.

Unknown Executive: We're going to continue to repurchase opportunistically.

Unknown Executive: Just like we did in Q4 and just like we did in Q1, I'd say as we think about capital allocation, we take a holistic approach to it and so we look at liquidity, we look at leverage when we look at is there any short term funding for M&A. That's needed. Obviously as you mentioned, we have a dividend that's a fixed obligation. We don't want we don't want to turn that on and turn that off.

Unknown Executive: I'd say as we think about, you know, capital allocation, we take a holistic approach to it. And so we look at liquidity, we look at leverage, we look at is there any short-term funding for M&A that's needed. Obviously, as you mentioned, we have a dividend. That's a fixed obligation. We don't, we don't want to turn that on and turn that off.

Unknown Executive: And we look at stock buybacks as a lever as well. So I think as we move forward, continue to think about it, that we'll do it opportunistically. That's how you should think.

Unknown Executive: And we look at stock buybacks as a lever as well so I think as we move forward continue to think about it that we'll do it opportunistically. That's how you should think about it.

Speaker Change: Okay helpful. Thanks, and then.

Unknown Executive: Get the housekeeping on <unk> product sales in the first quarter.

Speaker Change: Can you give us some guideposts.

Unknown Executive: Even getting to the midpoint of guide for the year around how youre thinking about the cadence of brands I know you have some capacity coming online for a battery, but but.

Unknown Executive: Is this a fairly ratable ramp is it really heavily weighted to <unk> or <unk> in any particular quarter can you just help us think through how the ramp should proceed over the course of the year.

Unknown Executive: You know, how the ramp should proceed over the course of the year. Yeah, Noah, so in Q1 our product revenue went up 25%. And this is in line with our 4-year outlook of 25% to 40% for the year. And you're right; in the next quarter, in our e-propulsion segment, we're launching numerous programs with the VW Group, with Daimler, HMC, BYD, and others. We're ramping up our battery-packed capacity in Seneca later in the year in Europe, and we're also launching in other areas of e-products. So, you're right; it's going to increase over the next quarters. Thank you very much for taking the time to ask the question.

Unknown Executive: Yes.

Speaker Change: Yes Noah.

Unknown Executive: So in Q1 OE products revenue went up 25%.

Unknown Executive: And this is in line with our full year outlook of 25% to 40% for the year and you are right in the next quarter in our <unk> segment with announcing numerous programs with VW grew with Daimler HMC BYD and others.

Unknown Executive: We are ramping up our path.

Unknown Executive: Battery pack capacity and Seneca later in the year in Europe, who also announcing in other <unk> products. So.

Unknown Executive: You are right its going to increase over the next quarters.

Speaker Change: Thanks, very much taking the questions.

Unknown Executive: Your next question comes from Joe Spak with UBS. Your line is open, the conversations with customers on, you know, some of the traditional sort of core foundational products, and how quickly can we really see, you know, potentially greater levels of adoption there? And Joe, I guess you're thinking about North America here in your question, aren't you?

Unknown Executive: Your next question comes from Joe Spak with UBS. Your line is open.

Joseph Spak: Thanks, everyone.

Unknown Executive: Right.

Speaker Change: I know you sort of already touched on unplugging, it a little bit in the Q&A.

Joseph Spak: In your comments, you also sort of talked about turbos and other sort of core Borgwarner technology.

Joseph Spak: That can help us with what's been seemingly an increasingly choppy powertrains during the transition.

Unknown Executive: But presumably.

Unknown Executive: Your customers would need to do at least some engineering and it's going to take time to sort of.

Unknown Executive: Have a greater adoption so.

Joseph Spak: What are what's the conversations like with customers on some of the traditional sort of core foundational products and how quickly can we really see.

Joseph Spak: Essentially greater levels of adoption there.

Speaker Change: And Joe I guess, you were thinking about North America and your question on <unk>, Yes, yes, okay, yes, because in the rest of the world as I alluded to before it's happening.

Joseph Spak: Yes, yes. Okay. Yeah, because in the rest of the world, as I alluded to before, it's happening, right?

Joseph Spak: <unk>.

Unknown Executive: I think we have all the building blocks to support our customers here in North America as they also want to have those advanced hybrids. However, I feel that it's still a little bit early to get into the specificities of which products they need from BorgWarner. We are in the early phases of discussion about architecture.

Joseph Spak: Hi.

Joseph Spak: I think we have all the building blocks to support.

Unknown Executive: Customers here in North America.

Unknown Executive: Also want to have those advanced hybrids.

Unknown Executive: I feel that it's still a little.

Unknown Executive: Early to get into the specific cities or which products. They need from Borgwarner. We are in the early phases of discussion about architecture.

Unknown Executive: So I think it's going to take a little bit more time. And Craig, you know, obviously, did a great job sort of managing the incrementals. You talked about continuing to manage that. And I think you asked, you know, you've talked about on the foundational side, right, if things continue to go down, you look to restructuring or some pricing actions, but I'm curious, on the other side, just given, not what's still a mid to long-term sort of trajectory toward electrification, but certainly a lot of volatility on the programs within that.

Unknown Executive: So I think it's going to take a little bit more time.

Unknown Executive: Okay.

Unknown Executive: Correct.

Unknown Executive: Obviously, great job sort of managing to the Incrementals.

Unknown Executive: You talked about continuing to manage to that.

Unknown Executive: And I think asked.

Unknown Executive: You've talked about on the foundational side right if things continue to go down.

Unknown Executive: The restructuring or some pricing actions, but I'm curious.

Unknown Executive: <unk>.

Unknown Executive: On the other side just given.

Unknown Executive: Not what's a still mid to long term sort of trajectory.

Unknown Executive: Is there an opportunity, not this year, because it's probably locked, but is there an opportunity, as you think about ER&D for next year, to maybe push some of that? Or is there even a pricing opportunity on some of the products stuff if the volumes don't hit certain thresholds?

Unknown Executive: Trajectory towards electrification, but certainly.

Unknown Executive: A lot of volatility.

Unknown Executive: On the programs within that.

Unknown Executive: Is there an opportunity not this year, because it's probably locked but is there an opportunity.

Unknown Executive: Think about E R&D for next year to maybe.

Unknown Executive: Pushed some of that or is there even a pricing opportunity.

Unknown Executive: On some of the products stuff, if the volumes don't hit certain thresholds.

Unknown Executive: Joe, you may have seen that our e-propulsion segment is running at about a 30% decline all year, and we're not satisfied with that. So we'll take some steps to improve the margin performance. And again, we have a strategy to adjust costs to wherever the market is going. And, and we are doing that wherever it is necessary. And this is what we're looking at right now. If you have one follow-up question, on the decrements, I guess the battery stuff is not in the product, so, never mind, I'll just strike the question. Yeah, thank you.

Unknown Executive: Joe you may have seen that our E. Propulsion segment is running at about 30% incremental year and we're not satisfied with that so it will take some steps to improve the margin performance.

Unknown Executive: And again, we have.

Unknown Executive: Have a.

Unknown Executive: Strategy to adjust.

Unknown Executive: Ross to wherever the market is going.

Unknown Executive: And we are doing that.

Unknown Executive: Wherever is necessary.

Unknown Executive: And this is this is what we're looking at right now.

Unknown Executive: The one follow up on the increment on the Decrementals I guess.

Unknown Executive: Well I guess the battery stuff is not in any product so.

Speaker Change: Never mind the question, yes. Thank you.

Speaker Change: Thanks, Joe.

Unknown Executive: Thank you. Your next question comes from Douglas Dunton with Evercore ISI. Your line is open. Hey, team.

Unknown Executive: Your next question comes from Douglas <unk> with Evercore ISI. Your line is open.

Douglas Dunton: Thanks for taking my question. Just a quick one here. And then one follow-up.

Douglas Dunton: Hey team. Thanks for taking my question just a quick one here and then one follow up can you maybe tell us the percentage of your orders from those Chinese domestics and how that compares to the percentage of anticipated recognize revenue from that same group for 2024.

Unknown Executive: Can you maybe tell us the percentage of your orders from those Chinese domestics and how that compares to the percentage of anticipated recognized revenue from that same group for 2024? Are you talking about e-products? Correct. Yeah. So on eProducts for 2024, about 45% of the 1.9 billion light vehicle market is for China, and within that, 95% is for the Chinese OEM. Okay, great. And then, on a more granular note, can you maybe quantify the exposure you have to some of those newer growers in China, you know, the BYDs, XPengs, and Xiaomis of the world? Unfortunately, I can't disclose some of those names, and I can't disclose which product we have with those names in particular. So, not that I would love to do it, but I just can't.

Douglas Dunton: You're talking about E products.

Speaker Change: Correct, yes.

Unknown Executive: So on new products for 2024.

Unknown Executive: About 45% of the $1 9 billion in light vehicle is for China.

Unknown Executive: Within that 95% is for the Chinese Oems.

Unknown Executive: Okay, great. Thank you and then just on a more granular note can you maybe quantify the exposure you have to some of those newer growers in China Byd's ex tangs Xiaomi is of the world.

Speaker Change: I Unfortunately cant disclose.

Unknown Executive: Some of those names.

Unknown Executive: And I can't disclose which product we have with those names in particular, so not there.

Speaker Change: Love to do it but I would just call.

Speaker Change: Okay got it and ask the question. Thank you very much.

Unknown Executive: Okay, I've got to ask the question. Thank you very much. Your next question comes from Alex Potter with Piper Fandler. Your line is open. Great, thanks, guys. So, first, maybe following on that question about China, I'm interested in, I guess hearing your opinion regarding the degree to which China, that market, can serve as maybe a foreshadowing or a harbinger of the way the rest of the world will evolve. Obviously, China has been moving much more quickly toward electrification.

Unknown Executive: Your next question comes from Alex Potter with Piper Sandler Your line is open.

Alexander Eugene Potter: Great. Thanks, guys. So first maybe following on that question from China I'm interested in.

Alexander Eugene Potter: I guess hearing your opinion regarding the degree to which China that market.

Alexander Eugene Potter: Conserve as maybe.

Alexander Eugene Potter: Foreshadowing are a harbinger of the way the rest of the world will evolve obviously, China has been moving much more quickly toward electrification, there's a lot of dynamism.

Alexander Eugene Potter: Regarding the architectures that those new companies are pursuing do you think that China represents the way the rest of the world will eventually evolve or do you think do you see those markets sort of trending in different directions with China doing its own thing in the rest of the world doing their own thing.

Alexander Eugene Potter: There's a lot of dynamism. [inaudible] Adam, in China, under the umbrella of new energy vehicles, you will see that hybrids, essentially advanced hybrids, are having about 40% of the market in China and actually growing faster within that segment. All growing the fastest within that segment. Um, that is also our ratio of e-products versus e-products within hybrids and devs. For I wouldn't say that it doesn't matter. But it kind of doesn't matter. We have the right product portfolio to support customers around the globe. And we don't. We're not attached to any regional specificities.

Alexander Eugene Potter: In China under the umbrella of new energy vehicle, you will see that.

Alexander Eugene Potter: Hybrid essentially the advanced hybrid.

Alexander Eugene Potter: Our I think about 40% shares in China.

Alexander Eugene Potter: And actually growing faster.

Alexander Eugene Potter: Within that segment.

Alexander Eugene Potter: Or growing the fastest within that segment.

Alexander Eugene Potter: That is also.

Alexander Eugene Potter: Our ratio of.

Alexander Eugene Potter: Key product for us.

Alexander Eugene Potter: Products within hybrids and <unk>.

Alexander Eugene Potter: Yeah.

Alexander Eugene Potter: Hi.

Alexander Eugene Potter: For us.

Alexander Eugene Potter: I wouldn't say that it doesn't matter but.

Alexander Eugene Potter: Kind of doesn't matter.

Alexander Eugene Potter: We have the right product portfolio to simple.

Alexander Eugene Potter: Customers around the globe.

Alexander Eugene Potter: And we don't.

Unknown Executive: We are resilient to any propulsion scenario, fuel combustion, hybrids, or BEVs. [inaudible] So I'm not, I don't have a crystal ball. I won't, you know, I can't tell you China is a good proxy for the rest of the world.

Alexander Eugene Potter: We're not attached to any regional specificities, we are resilient.

Unknown Executive: Two a knee.

Unknown Executive: Olson scenarios fuel combustion hybrids or beds.

Unknown Executive: But we believe that you will see a variety of electrified propulsion, propulsion architecture, and we're ready to support those on a global basis at that board. Okay, yes, good.

Unknown Executive: So im not I don't have a crystal ball I won't.

Unknown Executive: I can't tell you China is a good proxy for the rest of the world, but we believe that you will see a value of electrified propulsion propulsion architecture, and we're ready to support.

Unknown Executive: Both of those on a global basis.

Unknown Executive: Very clear. Maybe that other question, more of a near-term tactical question on another call this morning, one of your peers noted, particularly over the last couple weeks or several weeks in the month of April, some real volatility and generally downward adjustments to production schedules at the OEM. Have you seen anything similar to that?

Unknown Executive: Okay, yes, good very clear.

Unknown Executive: Maybe the other question more of a near term tactical question on another call. This morning, one of your peers noted.

Unknown Executive: Particularly over the last couple of weeks or several weeks in the month of April.

Unknown Executive: Some real volatility and generally downward adjustments to production schedules at the Oems have you seen anything similar to that I know that you or your overall market projections haven't changed versus last quarter, but anything you'd be willing to say regarding near term or back half production schedules will be helpful. Thanks.

Unknown Executive: I know that your overall market projections haven't changed versus last quarter, but anything you'd be willing to say regarding near-term or back-half production schedules would be helpful. Thanks. Yeah, I, I, I don't have a granularity of what happened over the past two weeks, but overall, for the full year, our view of the market is already below companies like IHS, so we adjust to whatever comes to us.

Unknown Executive: Yes.

Unknown Executive: Aye.

Unknown Executive: I don't have that granularity of what happened over the past two weeks, but overall photo through full year, our view of the market is already below companies Reg IHS.

Unknown Executive: So.

Unknown Executive: But we will.

Unknown Executive: We will adjust to whatever comes to us.

Unknown Executive: Great. Thanks, guys. Your next question comes from James Picariello with BNP Paribas. Your line is open. Hi, everybody.

Speaker Change: Great. Thanks, guys.

Unknown Executive: Your next question comes from James Picariello with JMP.

James Albert Picariello: Paradise Your line is open.

James Albert Picariello: Just back to e-products, based on the first quarter's performance and the visibility into the year, can you speak to Akis Bell's battery systems revenue? I believe this business, the guidance, called for $700 to $800 million in revenue.

James Albert Picariello: Hi, everybody.

James Albert Picariello: Just back to the <unk> product.

James Albert Picariello: Based on the first quarter's performance and the visibility here can you just due to ACA false battery systems revenue I believe this business the guidance called for 700 $800 million in revenue just curious if there any moving pieces tied to this within the product range and can you clarify what portion of this year he products.

Unknown Executive: Just curious if there are any moving pieces tied to this within the e-product range? And can you clarify what portion of this year's guidance is $2.65 billion for e-products at the midpoint, out of which 750 million are battery packs for commercial vehicles. So 1.9 billion are for light vehicles, 40% of which are for hybrids on a global basis. Regarding your first question on battery packs, there is nothing particular in Q1. The ramp-up is on plan, and what we see in Seneca and the preparation for increasing capacity in Europe is also in line with our expectations. Yeah, that's helpful.

Unknown Executive: <unk> attributes to hybrid.

Unknown Executive: So.

Unknown Executive: This year's guidance $2 $65 billion for E products at the mid point out of which $750 million battery packs for commercial vehicle.

Unknown Executive: So $1 9 billion as for light vehicle, 40% of which is for libraries on a global basis.

Unknown Executive: Accounting Youll first question on battery packs.

Unknown Executive: There is nothing particular in Q1, the ramp up is to plan and what we've seen in Seneca and the preparation of increasing capacity in Europe is also in line with our expectations.

Unknown Executive: And then, just as we think about foundational profitability versus the product for the rest of the year, and I think this touches on Colin's question regarding margin cadence, given that the first quarter was squarely in line with your full-year range. As your e-product revenue improves sequentially through the remainder of the year, is it safe to assume that the margin loss rate also improves? And so my question, if that's true, my question is, why would foundational profitability degrade through the year if the full-year guidance range is the right number? If that makes sense.

Speaker Change: Got it that's helpful. And then just as we think about foundational profitability versus a product the rest of the year and I think this touches on Collyns question regarding margin cadence given that the first quarter was squarely in line with the full year range.

Unknown Executive: As you read product revenue improved sequentially through the remainder of the year is it safe to assume that the margin loss rate also improves and so my question. If that is true. My question is why would.

Unknown Executive: The foundational profitability.

Unknown Executive: Great tune a year, if that's the full year guidance ranges.

Unknown Executive: Right number if that makes sense. Thanks.

Unknown Executive: Yeah, I think the way we're looking at it is we're focused on executing at the mid to high teens on an all-in basis, wherever that growth may come from. So I think that's how you should think about it.

Speaker Change: Yes, I think with the way we're looking at is we're focused on executing at the mid to high teens on an all in basis wherever that growth may come from so I think thats. How you should think about it we're really pleased with our 23% all in and the FERC quarter, we think it sets us up quite well to execute for the full year. So that's how we're looking.

Unknown Executive: At it.

Unknown Executive: We're really focused on incremental at all in basis, regardless of where that revenue growth comes from.

Unknown Executive: You know, we're really pleased with our 23% all-in growth in the first quarter; we think it sets us up quite well to execute for the full year. So that's how we're looking at it. You know, we're really focused on incrementing on an all-in basis, regardless of where that revenue growth comes from. Okay, thank you. Your next question comes from Luke Junk with Bear.

Speaker Change: Okay. Thank you.

Unknown Executive: Your next question comes from Luke junk with Baird. Your line is open.

Luke L. Junk: Your line is open. Good morning, thanks for taking the questions. First, looking at the segments, just hoping you can maybe unpack the top-line strength that you saw in your rear and drivetrain and battery systems. This quarter sounded like that was foundation-related in large part, maybe just sustainability of that strength. And then the margin there stepped up nicely sequentially, especially in the second half. I don't know if there's anything specific to point

Luke L. Junk: Hi, Good morning, Thanks for taking my questions first looking at the segments. Just hoping you can maybe unpack the topline strength that you saw year over year in drivetrain and battery systems. This quarter sounded like that was foundation related in large part and may be just a sustainability of that strength and margin stepped up nicely sequentially.

Luke L. Junk: Especially as well I don't know if theres anything specific to point to.

Unknown Executive: Thank you. Yeah, I would say it was just overall a good performance from a margin perspective. Again, 23% all in great performance by our business units. When you think about growth, it's really China and Europe, both on the foundational side of the business and on the battery side of the business, particularly in that DBS segment. But we also had nice growth overall, just in general, both in China and in Europe. But again, you can see most of it in the DBS segment. That's where I would point you to it.

Speaker Change: Yes, I would say it was just overall good performance from a margin perspective again, 23% all in great performance by our business units. When you think about growth, it's really China and Europe.

Unknown Executive: Both on the foundational side of the business and on the battery side of the business, particularly in that DBS segment, but we also had nice growth overall.

Unknown Executive: Just in general both in China, and in Europe, but again, you can see most of it in the DBS segment, that's where I would point you to.

Unknown Executive: Got it. And then for my follow-up, maybe a bigger picture question, Fred, and just thinking about e-product net engineering requirements going forward, both as, you know, you think about on a gross basis and, you know, e-propulsion margins going forward here and how you can improve those margins. But I'm also wondering, just given some increases in uncertainty in the West, if you can push for more engineering recoveries as you book business or build in structures to pay for more of that engineering? Yeah, I mean, we're looking at all this.

Speaker Change: Got it and then for my follow up maybe a bigger picture question trend and just thinking about.

Unknown Executive: Product net engineering requirements going forward both.

Unknown Executive: You think about it on a gross basis in E propulsion margins going forward here and how you can improve those margins, but I'm also I'm wondering just given some increases and uncertainty in the west if you can push for more engineering recoveries as you book business that we build and structures to pay for.

Unknown Executive: More than engineering.

Speaker Change: Yes, I mean, we're looking at all of this.

Fred: From a from an engineering recovery, we're also looking at.

Unknown Executive: From an engineering recovery standpoint, we're also looking at adjusting costs, especially in those segments for which growth is not happening as fast as we thought, in order to improve the marching performance. So in those e-products segments, we fully expect this business to grow going forward and with those upcoming cost actions to get to meet 2019's incremental home-made rents. Got it.

Unknown Executive: Ill.

Unknown Executive: Adjusting.

Unknown Executive: Especially.

Unknown Executive: In those segments.

Unknown Executive: Full withdrawal season is happening as fast as we thought.

Unknown Executive: In order to improve the margin performance.

Unknown Executive: So in those product segments, we fully expect this business to grow going forward.

Unknown Executive: Those upcoming cost actions to get to mid to high teens incrementals when it ramps.

Speaker Change: Got it thank you.

Unknown Executive: Thank you. We have time for one final question, and that question comes from Mark Delaney with Goldman Sachs. Your line is now open. Good morning.

Unknown Executive: We have time for one final question and that question comes from Mark Delaney with Goldman Sachs. Your line is now open.

Mark Trevor Delaney: Thanks for fitting me in. I think that a part of BorgWarner's customer value proposition for e-products has been that utilizing BorgWarner's power electronics products can be a more efficient way for OEMs to do business. I'm curious if that played a role in some of the wins you were able to announce today. And given the challenges that a lot of the OEMs are dealing with in BEVs, a lot of price competition, might that be an opportunity for your bookings to outperform some of the broader market trends if some of these customers do need to find ways to be more efficient? You're absolutely right. Power electronics is a key strength of the company. Borg has always been focused on efficient systems and efficient mobility.

Mark Trevor Delaney: Good morning, and thanks for fitting me in I think that part of Borgwarner is our customer value proposition for <unk> products has been at utilizing borgwarner as power electronics products can be a more efficient way for Oems due to your business I'm curious if you think that played a role in some of the wins you are able to announce today and given the challenges that a lot of the Oems are dealing with in <unk>.

Mark Trevor Delaney: A lot of the price competition.

Mark Trevor Delaney: That would be an opportunity for your bookings to outperform some of the broader market trends or if some of these customers do need to find ways to be more efficient.

Unknown Executive: And power electronics is the new frontier of efficiency in bed and or hybrids, fighting against those switching losses and fighting against those mechanical losses downstream the inverter. So the answer to your question is absolutely yes, we're focused on that. And at the system level, at the power electronics level, at the power module level, and that's in our DNA. That's what we do best, the e-products revenue outlook for this year. Of course, we've seen a lot of volatility and light vehicle bed plans.

Mark Trevor Delaney: But youre absolutely right Paul electronics as a key strength of the company <unk> has always been focused on efficient systems and efficient mobility.

Unknown Executive: In power electronics is the new frontier or efficiency there is NOI bridge.

Unknown Executive: Writing against those switching losses and fighting against those mechanical losses downstream to invoke the.

Unknown Executive: So the answer to your question is absolutely, yes, we focused on that.

Unknown Executive: And at the system level at the power electronics level at the module level and that's how DNA, that's what we do best.

Speaker Change: Thanks for that Friday.

Unknown Executive: Ani products the company reiterated that two and a half.

Unknown Executive: $2 8 billion in products' revenue outlook for this year you are of course, we've seen a lot of volatility in light vehicle about plans.

Unknown Executive: And so as we've seen that, I'm hoping to better understand, do you think that the 2025 outlook that you've previously communicated for e-products of $4.5 to $5 billion is that something you still see as achievable? And as you think about that, the revenue ramp, and what maybe for 2025, maybe you could also touch on how you're thinking about e-products profitability, not only this year, but into 2025. Thanks. So you're right, it will absolutely depend upon customer volume, and that will ultimately decide what 10 2025 will be.

Unknown Executive: As we've seen that I'm, hoping to better understand do you think that the 2025 outlook that you've previously communicated any products at four $5 billion to $5 billion is that is that something you still see as achievable and as you think about that revenue ramp and what maybe for 2025, but maybe you could also touch on how youre thinking about your products profitability not only this year, but into 2025.

Unknown Executive: We are, as we mentioned, focused on what we can control, which is securing new businesses in new products for dev and hybrids, focusing on strengthening our portfolio for it to remain in a great position and managing our costs. You know that overall, they will need to make items incremental on an all-in basis. That's, that's our focus, and we'll give you more Carlisle 25 closer to 25.

Unknown Executive: So you're right it will absolutely depend upon customer for you and that will ultimately be say with 10 to 2025 will be.

Unknown Executive: We are as we mentioned focus on what we can control, which is securing new businesses EU products full bev and hybrids.

Unknown Executive: Focusing on strengthening our portfolio for it to remain in a great position and managing our costs.

Unknown Executive: In order to overall deliver mid to high teens incremental on an audience basis, that's our focus.

Unknown Executive: And we'll give you more color on 25 closer to 25.

Speaker Change: Understood. Thanks.

Speaker Change: Thank you.

Unknown Executive: Understood, thanks. Thank you. Thank you all for your great questions today. If you have any follow-ups, you can follow up with me or my team. With that, Brittany, you can go ahead and conclude today's call. That does conclude the BorgWarner 2024 First Quarter Results Conference Call. You may now disconnect. BF-WATCH TV 2021

Speaker Change: Thank you all for your great questions. Today, if you have any follow ups you can follow up with me or my team with that Britney you can go ahead and conclude today's call.

Brittany: That does conclude the fourth quarter totaled 24 first quarter results Conference call you may now disconnect.

Unknown Executive: [music].

Unknown Executive: Okay.

Unknown Executive: Hum.

Unknown Executive: Hum.