Thanks everyone for joining. My name is Rajat Gupta, a member of the Automotive Equity Research team at JP Morgan. Very pleased to have with us the team from BorgWarner, Craig Aaron, Chief Financial Officer, and Patrick Nolan, Vice President of Investor Relations. We'll just go right into Q&A. Thanks, Craig and Pat, for being here. Thanks for having us. Maybe a little high-level question to start. BorgWarner, you've spent the last couple of years expanding margins and earnings against a pretty flat and at times declining revenue backdrop, which is an unusual place for a supplier to be. Could you give us a sense of what's changed internally to make this possible, whether investors should think of this as a company that is being rebuilt rather than one that has just simply managed a difficult cycle pretty well? Yeah. I'd really point to going back a couple of years ago, I took over as CFO of the company, and Joe was the Chief Operating Officer, and obviously, he's the CEO now. But we really sat down and said, hey, what do we want the company to look like? What do we want to do differently? And we really decided on three things. The first one was we wanted to ask all of our business units to grow. If you go back three or four years ago, it was really all about eProducts growth, focused on hybridization and electrification. That was really engaging only $2-ish million of the organization. We wanted to engage all $14 billion of revenue to grow, and we are really pleased with the progress that we have made. We have announced around 60 awards over the last 18 months or so. That is phenomenal. The quality of the awards are across our foundational business, our eProducts business, so we are really excited about that. That was priority number one. We want to make sure that we are moving towards growth over market. The second item was to grow the earnings power of the company. We need to focus on what we can control, and growing the earnings power of the company is important internally, it is important externally. Let us make sure that we are growing profitably. The third was we want to have a really consistent, disciplined, balanced capital allocation approach that rewards shareholders. Let us make sure we are creating value with our cash. If we focus on those three items, that will be good for our employees, it will be good for our customers, and for our shareholders. So those were the three items that we are really focused on. Got it. No. Helpful. Just quickly, moving to the quarter and some of the guidance items. Obviously, pretty strong quarter across the board. Margins up meaningfully, every business unit contributing. Could you just talk us through the quarter briefly? Why the sales and margin guidance were left where they were? Obviously, you talked about the R&D spend pickup, but just given how the first half has tracked, how much cushion should we think there is in the fresh guidance? Yeah. I would say cushion, I think we have a really realistic guide for the full year. I was really pleased with the quarter. The business unit and corporate delivered in a really great way. Revenue came in about $3.6 billion. That was flat year-over-year, but we expanded margins 100 basis points year-over-year, getting to 11.3%. Like you said, every business unit expanded margins in the quarter. Corporate provided a nice tailwind, so that was phenomenal. We grew earnings per share 17% year-over-year. Part of it operating income enhancement, the other increase coming from share repurchases. Then we delivered about half a billion dollars in free cash flow. From every KPI, it was a great quarter. As you walk first half to second half, we do expect revenue to be down about $200 million first half to second half. There is really three components there. It is foreign exchange is an $80 million headwind. Our battery business, we expect to decline about $60 million. Then we do expect industry production to be modestly lower, about 1%. When you look at our margin profile first half to second half, and you exclude the step-up in industrial R&D, our margins are right on top of each other. It was 10.9% in the first half, 10.8% in the second half. So that is why I believe it is realistic. We are stepping up in R&D in the second half, $10 million- $15 million. When you take a big step back, what is the company doing year-over-year? In a relatively flat environment, we are expanding margins, we are expanding EPS, and we are leaning forward into industrial R&D because of strong feedback we are getting from our customers in that space. To me, that is what success looks like. Got it. Then just quickly, just a very early peek into 2027. Obviously, we will talk about the power products in a bit, but outside of the $300 million you have already communicated on the turbine system, any puts and takes around what is going to drive our growth in automotive, any regions or segments that might do more of the heavy lifting next year? Yeah. Well, really happy that we expect the contribution from turbine generator next year with $300 million. Let me start there. That is not the only driver of our improving growth as we look out to 2027. If you rewind back to 2024, we really just started to see a pickup in our order activity then. That should start flowing through, right? We saw that in 2024, picked up again in 2025, and it has continued into this year as Craig referenced. What is really exciting, though, is it is not one product, it is not one region, it is not even one customer group. It is a nice broad array of products, which means you should see the benefit versus our different business units at different markets that they serve, but their performance versus those markets should benefit from this award activity that we saw pick up about three years ago, and we are really excited to see that come through, because the past couple of years, we have been performing more or less in line with the market. Got it. So there is not one specific driver. No. It is pretty diverse. That's really the positive takeaway here, versus if you rewind back four years, it was all e, right? What's nice, we love our eProducts too, but it's nice to see a much broader base, that if one program doesn't take off, there's a lot of others that can make up. Got it. Maybe going just quickly on the margin side and the durability of that, cost control has obviously done a lot of work in a flat environment for you guys. Could you give us a sense of how much of that is structural versus just running lean through a tough phase? What happens once volumes eventually come back and all these opportunities that you're seeing, and how do you maintain and keep growing margins? Yeah. I would say it's all structural. When you go back a couple of years ago, we won a lot of awards coming out of the Delphi acquisition. It was primarily on the e-product side of the business. Because of all those awards, we heavily invested in R&D resources to support those programs. Those programs either didn't launch or launched at lower volumes, so it was important for us to right size those businesses. So we restructured our PowerDrive Systems business, we restructured our Battery Energy Storage business to get those cost structures in line with the current level of revenue. On top of that, the company has done a really phenomenal job focusing on what we can control as well, which is lower cost of poor quality, productivity in our plants, supply chain savings. Those are all sustainable items, and we found success in those areas to ultimately expand margins year-over-year. So it's a combination of a lot of different factors. Understood. Maybe just moving on to the fun stuff, which I think everyone wants to hear about on the turbine generator system. Could you just walk us through quickly for some who might still be newer to the story, how you got there, and what makes you believe that you have a right to win against companies who've probably been doing this for decades? Yeah. Well, I think starting with the technology and what we're leveraging there, if you look at our turbine generator, what is it leveraging within the BorgWarner competence? Well, it's leveraging our turbocharging technology, leveraging our rotating electric technology, our thermal technology, our electronics controls technology, right? So I think bringing our automotive scale across those different technology portions of the product is a big benefit that we have in this market. We've spent the past close to four years now developing this product that we believe is going to be competitive versus traditional offerings. I think what's going to bring our credibility to that market and allow us to be competitive is from a performance standpoint, we're really confident in the technology that we've developed. But not only that, bringing the automotive scale, cost competitiveness, viewpoint of constantly improving the efficiency of the product, we think that really is going to be a competitive advantage in that market. Got it. I know you're going to get this question asked in a lot of your meetings, but I probably have to just throw it in there. Are you at a stage where you're getting close to sizing what the 2 gigawatt capacity might mean from a revenue standpoint? I know you've given us the multiples number on the earnings call, but any more breadcrumbs on that? What we are laser-focused on is launch. This successful launch will set us up for a multiyear cycle that we are going to be taking advantage of. This is the first inning, right? We are focused on launch and successfully achieving that $300 million of revenue that we have set out for us in 2027. We will give more updates as appropriate as we go along, but we are really excited what we see from the demand side, and we need to continue to focus from our perspective, hitting the key KPIs of the different certifications, different testing, durability testing, and getting into production. Got it. You have said there is a capacity decision coming in the second half, and that it may not necessarily serve the same market or sit in the same geography. Could you talk us through how you are weighing demand, again, as you said, against proving out quality and just the supply readiness first? Well, I think it is both sides of the equation. I think we are continuing to receive indications of demand not only in the near term, but on the mid to long term. I think that is important. But I think we have, let us be clear, this is a new product for us in a new plant for a new market. We want to make sure we have ramped production in a very measured way and hit a lot of these key KPIs before we make that decision on capacity. Then what we see from end demand will dictate not only when we add capacity, but which region of the world does it make most sense is another consideration we will have to look at as well. Got it. You have described Endeavour as owning the customer interface while you are providing the guts of the system. Could you walk us through how that has evolved as you have just had more discussions and the business is scaling, or just the testing is scaling, whether the division of labor changes as you build more and more direct credibility with the end customers? I will walk you through kind of the relationship and how it has evolved over a period of time. The relationship started about four years ago. They came to us with certain intellectual property, and they could see our turbo competence, and that started with a proof of concept, and seeing if we could bring this type of product to market. We worked through a proof of concept phase, made sure the attributes of the turbine generator was meeting the requirements that we had set out together, and then ultimately, we ended up signing a supply agreement late last year, early this year, and that is what we announced in February. I would say the relationship is great because, one, they bring that customer interface, like you mentioned. They bring expertise in the data center market, and BorgWarner stays true to our core competence, which is we are able to manufacture at scale. I think that is the beauty of the relationship. They are bringing that customer interface, that data center knowledge, and what we are bringing is manufacturing capability at scale. Understood. Just one last one, maybe on the system. The mix has flipped versus what you originally underwrote, moving from backup to primary power. Could you give us a sense of what that change is commercially, and how customers evaluate you, and just how durable that position becomes once you are on the site? Yeah. I will not go into the details of the contract and our pricing, but I think it is a strong indication of the durability of the product that we are able to pursue this primary power market, and I think that is where we are seeing pull from our customers. That is to give an indication. When we started down this road 3.5 years, four years ago, we would have said we skewed more towards backup power. But given where we are seeing the supply-demand dynamic in the market, definitely skewing a bit more towards primary. Got it. I just want to pause there for a second to see if there are any questions from the audience. We've got a couple. Go ahead. Yeah. How would you think about when you think about capacity on the turbine side, customers funding it for you for seven years, in your space maybe not have said, Yeah, we'll add capacity because you're going to pay us and take a long-term contract. So how would you think about that? Yeah. I'd say we always look at business cases the same. Whether you're talking about an automotive business case or an industrial business case, what's the goal? The goal is 15% ROIC or higher. I'd also point to we're generating a lot of free cash flow, so cash or capital is not a constraint for us. We want to create value with that cash, and if it's investing further in the industrial space, we have the capability to do it, and we'll certainly take advantage of it. Jim, do you have a question? Yeah. Can you hear me okay? Yeah. There's a mic there. Oh, mic on table. Good to see you guys. You too. I wanted to just double-check the competitive landscape on all the products that you have geared towards electrification, not the traditional ICE product, which I think you've got a very clean line of sight on the competitive landscape. But on things like inverters, eMotors, things like that, are you seeing anything on the business that you're winning? Because I know you've been very successful getting wins in China. But from the contract standpoint, the competitive landscape, are you seeing anything on that front that is deteriorating? Like some of the newcomers in the space or maybe getting, Wow, it's amazing they're putting that price out or those terms. Anything on that front that gives you a little bit less visibility on that incremental margin, regardless of where it comes from? Thank you. Yeah. I'll start, and maybe Pat can add. Our goal ultimately is we need to convert that extra revenue into income in the mid-teens. Yes, is pricing dynamics, are they a challenge, whether you're in China or outside of China? Of course. That's always a major point of the conversation with any customer. But we need to find a way to make sure that we're turning that growth into income, and that just means we need to lean into other things if pricing is going to be a challenge. It means we have to lean into supply chain savings, and we've done that really successfully, continue to drive productivity. So we need to continue to work on our bill of material, our cost structure within the plants to make sure that we can ultimately deliver that income. I would say as time has gone by, we see the same competitive dynamics and the same players in most of our quotes. When you are going after an inverter award, it tends to be the same three or four players. In the past, if you were to take a step back three, four years ago, I think the concern was that there was going to be 10 players in the market. That is not really what we are seeing. We are seeing the same names over and over again. Anything to add? No. I think that was well said, Rajat. Okay, great. Thanks, Jim. Maybe moving to the other industrial products, energy storage. That portfolio has widened pretty quickly, from packs into blocks, backup power racks, controls, established categories with some entrenched incumbents. Could you talk us through what is driving that? Whether it is a customer pull or your own read on where the value sits across the power chain. Yeah. So you have seen us broaden out the portfolio a bit, the ESS business, and I think it is a combination of what we are hearing, feedback from our customers as we are actively quoting for that business, but also where we see the market going over time. So I think it is both of those. Remember on the BESS side, we are going to be focused more industrial data center markets than the larger grid storage market. So that is the way you should think about the market that we are playing. It is much more engineered solutions for what the needs that our customers have in these various applications than it is these larger scale, tractor trailer size battery packs, which will be great business for others, just not where we are focused. Really what we are focused on initially in that market is utilizing the existing capacity that we have, and particularly focused on NMC solutions. I think over time you will see us potentially move in LFP, but first it will be NMC. Got it. You also emphasized, it is chemistry agnostic and leveraging capacity that you had originally put in for commercial vehicles. Any way to size, help us understand how far that existing capacity takes you in this business and what the decision looks like when demand starts to outrun it? Yeah. Let us get the first award over the gate first. We have not broken down what the opportunity and revenue is yet, but really it is going to be focused, at least initially in North America, utilizing the capacity that we have in our Seneca, South Carolina. Got it. Nolan, the last one, on the inverter side, you have pointed to the power model you design and build yourselves, and how you manage cooling at high power. Could you walk us through why it is hard to replicate, and how it translates into a right to win against incumbents again, like just the previous questions, who have been in this market for a long time? We think our right to win and the window that we have to enter this market is the need in the data center market that they're moving up to the higher voltage configuration. Today's large-scale industrial inverter suppliers don't operate at 800 volts. Yeah. We do in our automotive side. in North America, there's not many companies that have produced more 800-volt inverters than we have in North America. I'd argue maybe not any. That's the benefit, and the window that we see in this market. How to be able to deal with the higher temperatures that come along with those 800-volt solutions is where we think is going to provide us the opportunity to enter this market. As we've started to have some of those initial conversations with customers, Joe shared on our call last week that we're actually going to broaden out the inverter portfolio from a voltage standpoint, from starting from 400-volt solutions up to potentially 1,500-volt solutions. We still do believe the first award will likely come in that 800-volt vertical, but we are expanding it out now. How would you characterize the timing of where the inverter system is, product is, versus the Battery Energy? Like six months behind? Is it 18 months? Any way that you'd like to help us understand the cadence? Timing's always a little bit difficult to predict because you're largely bound by what your customers are doing. I guess I would describe it this way. When you think about turbine generator, it's leading, right? Yeah. We have a manufacturing sales agreement with Endeavour. We are ramping capacity. We know what our first-year sales are going to be. Battery, we are in the active quoting phase, and hopefully that materializes into a win. Inverters is slightly behind that. They are in the developing the product phase, having some customers, having test units. Hopefully, that means we move towards quoting in the latter stages of this year. We intend BESS and inverters to be production ready in 2027, but ultimately, it is going to come down to what those award details look like. Understood. Just want to check any more questions on the industrial side here before we move on to automotive. Nope. All right. Maybe just on margins quickly. Mid-teens conversion is the yardstick you typically hold everything to, including the new industrial products. Could you help us understand what would have to go right for those businesses to convert better than that once the first year of inefficiencies are behind? Sure. On the turbine generator side, what we have communicated, $300 million in revenue next year and mid-teens incremental conversion on that revenue. What we expect in that mid-teens conversion is some inefficiencies. We have never launched this product before. We are not going to have complete utilization in our plants from an OEE perspective. We are going to have some scrap and other things, inefficiencies as part of that manufacturing. That is what mid-teens incrementals look like in the first year with all of that built in. As we move forward, I think we are going to have opportunities, whether that is productivity, whether that is supply chain savings, continuing to work on the bill of material. We are going to do all those things like we do on the automotive side of our business to ultimately continue to try to squeeze as much margin out of the product as we can, because that is what we do at BorgWarner. Got it. Makes sense. Maybe going to the automotive business, last 10 minutes here. Yeah. We talked about the order strength last two, three years and how that's the next few years. Just double-clicking on the order book itself, a meaningful part of the book is more conquest rather than replacement, and one of the competitors has also been pointing to share gains in turbochargers as a team. Could you give us a sense of how the competitive field there is actually evolving? Whether smaller players are generally under pressure and where have you been really taking business from? Yeah. Take a big step back. I think Joe, our CEO, gets a lot of credit for this. I think he really challenged the organization to go find your growth opportunities, and part of that is, clearly, we still have secular opportunities in many of our products, but why can't we gain share? Really challenging the organization of why can't you go out and conquest those. I do think the dynamics in the market have changed a bit too, as more and more of the engineering requirements are falling onto the suppliers. Which I generally think plays to if you're a larger supplier, generally, you're in a better position to win that contract. I think that's what you've seen started playing out, not only just in our turbo business. You see conquest awards, whether or not it's in our DMS businesses on all-wheel drive, VCT, as well as what you're seeing on the turbo and thermal side. Got it. Just wanted to see any questions here on the automotive side. No. All right, let's move to China. Just following up on some of Jim's questions here. Your China mix is weighted heavily towards domestic OEMs and towards the leading names rather than the long tail. Could you walk us through how that mix has moved over the past few years and where it settles? And whether the backlog is running at a higher domestic weighting than current revenue? Maybe also talk about the mix of that 70% exposure that we've talked about before. If you take a step back, China's about 20% of our sales. Within China, as you said, about 75% of our sales are with the Chinese locals, which puts us at a slightly overweight position where the market is. Last I saw it's very. If you were to double-click on that, what's the breakdown of those domestic sales? It's skewed towards the larger Chinese OEMs. The top six by market share represent about three-quarters of that domestic. That's important for a couple of reasons. First, those customers are the ones that are trying to pursue world-class propulsion technologies, whether or not it's on the E side, the hybrid side, or the combustion side of the business. Also, those customers are the ones that ultimately have the ambitions to export volumes, which is obviously a growing part of that market today. Just on that export topic, as those customers move from exporting to more localized production overseas, could you help us understand the visibility you have that your products are going to be traveling with them, and whether you have to compete afresh in every new region? I think the best indication we have is the success that we're having with them in China. Ultimately, as they move towards production in other regions, which will eventually happen, we think that is ultimately what puts us in a good position to compete for those awards that will come, right? They will be competitive bids. They won't be just given to BorgWarner right off the bat, but we think we're in a great position for it. Understood. Jim? Yeah, one follow-up on these two topics. Three-year view, things go really well on that launch and the 2 GW is all booked up. Walk me through on a three-year view, your CapEx, because I know your long-term framework, but is there a situation where three years from now we could have substantially higher CapEx for that opportunity? Then on the flip side, you're always getting ahead of the curve on the automotive right-sizing. What's going on on that front in terms of restructuring cash on the automotive side over the next three years? Thank you. Yeah. So maybe I'll just talk about CapEx really quick. Last year, CapEx was really. And why was it so low? Because we did a phenomenal job of reutilizing eProducts capital that we have put in for the last few years, but volumes were just lower, and we made a very strong effort to say, hey, plant manager, if you need a new piece of equipment, let's first look at a piece of equipment that might be sitting in North America and needs to be sent to Europe rather than getting a new piece of equipment. Th e teams did a fantastic job. So I'd start there. As we move forward, historically, we've been in this 5% of sales range. This year we're about 4.5% of sales, which includes an industrial investment for the turbine generator. I think we're in that 4.5%-5% range as we move forward. But if there's a great opportunity, we have incredible liquidity, a really strong balance sheet, we will invest. There's no question about it. As long as that business case, again, is 15% ROIC, we're going to put cash to work. So I would say that. As far as restructuring, we're constantly looking at opportunities to restructure our business. You can see every quarter there's a restructuring charge because we're looking at the automotive side of our business and making decisions to ultimately improve our cost structure, and that's how you should think about it. It's one of those things where we're just constantly assessing opportunities to try to squeeze additional margin out. Did you have another one, Jim? No. Right. Okay. So just again, following up on the original eProducts question, it didn't get much airtime on the last earnings call, last few calls. Just looking at the filings, looks like revenue was up slightly. Just could you give us an update on expectations around growth in that portfolio this year? How should we think about the next, or just the medium-term outlook there? Yeah. Well, I think first off, it's worth acknowledging they had a really strong growth last year. They well exceeded their markets. This year, what are we expecting from our light vehicle eProducts business? We think it is going to grow close to double digits off a really strong 2025 base. Ultimately, what is their objective as they move forward? They want to perform in line or modestly better than their markets. Their market is obviously, when you look at hybrid plus BEV volumes on a global basis, that is how they are measuring their success. Do they keep pace or outgrow that market? Where are we with margins just for that portfolio? What level of volume do you think we can break even there? Yeah, maybe I will take that one. What does success look like? What we were looking for last year, because remember, we restructured those businesses back was we want to see growth, and we want to make sure that that growth is generating income at a mid-teens incremental conversion. Last year, what did we see? We saw about 30% light vehicle eProducts growth, and they converted that growth into income right at the mid-teens. That was what Joe and I were looking for to say, Hey, did we get this restructuring right, or do we have more to do? That was success. As we move into 2026, what we are expecting is about 10% growth year-over-year. Still nice growth, and we want to make sure that we are converting that growth into income. As long as we are doing that, then we think we got that cost structure right, and it is more just let us continue to scale the business and continue to win new business both in China and Europe, and the Americas when this market catches up. Got it. Maybe last one here, just following up on the capital allocation and some of the M&A discussion. You have raised the hurdle on M&A while just opening the aperture beyond automotive, and you have passed on deals that did not clear it. Could you give us a sense of, obviously, a lot of your management bandwidth is going in ramping up the industrial business, but what else are you looking for from a product fit standpoint, technology fit standpoint, any capability you feel that you still need to buy rather than build? First, I would say we love our portfolio. We are operating from a position of strength from both our foundational businesses that we have owned for years, but also the acquisitions that we have made over the last several years. So we are operating from a position of strength. As we move forward, we really have three criteria, which is, you mentioned, raise the bar, but we have increased the aperture. We are looking in mobility, we are looking outside of mobility. That is increasing the aperture. But we have raised the bar, meaning we are not going to do any deal where you guys are scratching your head. It has to have industrial logic, and it has to link to the core competencies of the company, and we have a lot of core competencies. The second is it has got to be EPS accretive in the short term because our goal as a company is to grow the earnings profile of the company. That is what success looks like, and that is what great companies do. Then third, we do not want to overpay. We have to pay a fair price, and obviously in the industrial space, some of the multiples that are out there are pretty significant. So we want to make sure that we are paying a fair price for the asset. So I would say those are the three items that we are really focused on. Understood. Great. Any one final question here from the audience? Otherwise, we will end it there. Great. Thanks for the time. Thanks, everyone, for listening. Thank you.