BorgWarner (NYSE:BWA) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=TOyGHF5S

Summary

Borgwarner Inc reported first quarter 2026 sales of $3.5 billion, with a 3% decline in organic net sales year-over-year, aligning with market trends.

The company achieved a 10.5% adjusted operating margin and returned $185 million to shareholders through share repurchases and dividends.

Borgwarner Inc secured 12 new business awards across various product segments, highlighting their strength in propulsion technology and expanding capabilities in data center and industrial markets.

Key strategic initiatives include progress in turbine generator production, expected to launch in 2027, and expansion into battery energy storage systems and bi-directional microgrid inverters.

The company reaffirmed its full-year 2026 guidance, projecting total sales between $14.0 to $14.3 billion and an adjusted EPS increase of 4% compared to 2025.

Management emphasized strong cost control measures and the ability to manage potential inflationary pressures while continuing to drive organic growth and explore M&A opportunities.

Full Transcript

OPERATOR

Good morning, My name is Michael and I will be your conference specialist at this time. I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question during this time, simply press star one on your telephone. If you would like to withdraw your question, press star two. If you are using a speakerphone, please pick up the handset before asking your question. I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference.

Patrick Nolan (Vice President of Investor Relations)

Thank you Michael and good morning everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website BorgWarner.com both on our homepage and on our investor relations homepage. With regard to our investor relations calendar, we will be attending multiple conferences between now and our next earnings release. Please see the events section of our IR page for a full list. Before we begin, I need to inform you that during this call we may make forward looking statements which involve risks and uncertainties as detailed in our 10K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding non comparable items. When you hear us say organic, that means excluding the impact of fx. When you hear us refer to our incremental margin performance, our incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear a significant market, that means the change in light vehicle production weighted for our geographic exposure.

Joe

Please note that we posted today's earnings presentation to 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 Joe. Thank you Pat and good morning everyone. I'm pleased to share our results for the first quarter of 2026 and provide an overall company update starting on slide 5. I wish to begin by thanking our employees, our customers and our suppliers for all of their trust efforts and continued support. In the quarter we achieved sales of $3.5 billion excluding the decline in our battery energy systems segment. Our organic net sales were down approximately 3% year over year in line with the decline in the market production. I'm excited to report that our strong award activity has continued into the first quarter. Today I'll highlight 12 new business awards across our Foundational products and eproducts portfolios. These wins represent only a portion of the awards secured during the quarter, but I believe that they underscore the strength of our portfolio and the global demand for efficient high powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business and we are taking steps to grow our product capabilities for the data center and other industrial markets. I will share two additional products with you in a few slides. At the same time, our turbine generator continue to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value during the quarter, returning approximately $185 million to shareholders through share repurchases and our quarterly cash dividend. Looking back on our first quarter performance, I'm extremely proud of our team and our results. Once again we executed at a very high level which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value throughout long term profitable growth. Turning to slide 6, I'd like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First Org Warner has secured three electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S Winding and Ultra Short Hairpin Winding technologies for hybrid vehicles In South Korea, BorgWarner secured a new stator assembly business for an electric vehicle program. I believe these awards reflect the customer's confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia. Second, BorgWarner has secured a seven year contract extension to supply eight families of engine, machine, power, module and battery management controllers to a leading off highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications from construction vehicles and marine platforms to stationary power systems. I believe this contract expansion validates our position as a trusted long term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured three Turbocharger Program Extension Awards and one Turbocharger Conquest Award with a major European oem. Our turbochargers will be utilized on a range of passenger car and van applications. The awards include variable turbine geometry, twin scroll StateGate and regulated two stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements helping the customer meet demanding performance, fuel economy and emissions targets across a broad range of applications. I believe these business wins reflect BorgWarner's strong turbocharging technology, our competitive solutions and the trust we have built with this long standing customer. Fourth, BorgWarner secured Conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro 7 compliant heavy duty diesel engine platform. The award expands BorgWarner's product portfolio in the on highway commercial vehicle segment and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. And finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with two new program awards. BorgWarner will supply a next generation wet dual clutch for a Chinese OEM's SUV platform. BorgWarner also secured a Conquest win for a CAM torque actuated VCT system for a Japanese OEM's next generation hybrid engine. These new awards reflect BorgWarner's continued commitment to to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high performance cost competitive solutions for both combustion and hybrid powertrains. Next on Slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. First, strong customer demand indicators continue with ongoing end customer visits to our facility in Asheville. Next, I'm pleased to report that our first B sample turbine generators are now being delivered to our customer. This is a very important step to allow our customer to move towards field testing our product. In addition, our teams have continued their testing processes which are performing as planned and as part of our production readiness. I'm also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production currently expected in 2027. In the middle and right side of the slide, you'll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I'm really excited that this portfolio now includes battery energy storage systems and bi directional micro grid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage and power conversion. First, I would like to highlight our battery energy storage system offering. You've heard Borg Warner speak about the possible application of our battery technology for various industrial markets and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system design is cell chemistry, form factor and application independent. I believe this is important given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular, lean and scalable with redundancy in our design. We believe this design can be deployed for applications including peak shading, backup power and more. We believe our battery energy storage system will be Production ready in 2027 with ongoing customer validation and UL compliance and process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding BI Directional Micro Grid Inverter or Grid Tie Inverter to our portfolio for these markets and we expect this product to be Production ready in 2027. Our grid tie inverter features a power distribution unit critical for efficient and flexible grid forming across microgrid applications. Our grid tie inverter is designed to enable the significantly reduced weight and size compared to traditional systems, efficient bi directional power flow for seamless charge and discharge, wide voltage conversion capability to support diverse energy systems and fast dynamic response for improved microgrid stability and control. Our UL compliance for this new product is already underway. As part of our product readiness. We're excited to share that the first Grid Tie Inverter B sample units are being shipped to four customers, a major milestone for the program and a testament to the work behind it. To summarize, there are three key takeaways from today's call. First, BorgWarner's first quarter results were solid excluding the decline in our battery and charging sales. Our sales performance was in line with industry production and is consistent with our full year outlook. Our adjusted operating margin expanded 50 basis points and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid and bev architectures. And third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future while the current environment remains challenging and uncertain. I'm confident in our team's ability to effectively navigate these conditions which we clearly demonstrated in the first quarter. I also continue to firmly believe that we have the right portfolio, decentralized operating model and financial strength to deliver Our full year 2026 guidance and drive long term profitable growth. With that, I will turn the call over to Craig

Craig

thank you Joe and good morning everyone. Let's jump into our first quarter financials by turning to slide 8 for a look at our year over year sales block. Last year's Q1 sales were just over 3.5 billion in the first quarter. Stronger foreign currencies drove a year over year increase in sales of 167 million. Then you can see the sales headwind from our battery business which drove a year over year decrease in sales of 54 million. The remaining organic sales decline of 95 million or 2.7% was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America which was more than offset by foundational product headwinds in Europe and a timing related e product sales decline in China. The sum of all this was just over 3.5 billion of sales in the first quarter. Turning to slide 9 you can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was 372 million equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of 352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by 8 million year over year. Excluding this benefit and FX impacts, adjusted operating income decreased 4 million on 149 million of lower sales. This strong year over year performance benefited from ongoing cost reduction actions that our teams continue to take. Across our business, our adjusted EPS was up 13 cents or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over 650 million in share repurchases over the past four quarters. And finally, free cash flow was a generation of 13 million in the first quarter which was a $48 million improvement from a year ago. Now let's turn to slide 10 and take a look at our full year 2026 outlook which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of 14.0 to 14.3 billion starting with foreign currencies. A Our guidance assumes an expected full year sales benefit of 200 million compared to 2025 due to the strengthening of the Euro and the renminbi versus the US Dollar, we continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales, to perform broadly in line with our weighted light vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents 150 basis point headwind to our year over year sales growth. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year over year with which is roughly in line with our market excluding the decline in battery sales. Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7 to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year over year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits. While the high end of our outlook assumes we largely offset the impact of of the organic sales decline through further cost controls just like we saw in the first quarter, we view this as strong underlying performance with our first quarter results providing a strong start to the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $5 to $5 and $0.20 per diluted share of which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving earnings expansion despite lower industry production, battery sales declines and potential cost inflation. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion building off a strong 2025. With that, that's our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance. Despite a challenging first quarter production environment. We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales and our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrates the Boardwear team's ability to deliver strong financial results in a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth, despite our expectations that market volumes and battery sales are expected to decline in 2026. Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow Borewarner's earnings power and execute a balanced capital allocation approach that rewards shareholders. With that, I'd like to turn the

OPERATOR

call back over to Pat. Thank you, Craig. Michael, we're ready to open up for questions. Certainly 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 the handset before asking your question. To withdraw your question, please press star two. In the interest of time, please limit yourself to one question and one follow up question. At this time we'll pause momentarily to assemble our Q and A roster. And the first question today comes from James Piccarello with BMP Paribas.

James Piccarello (Equity Analyst)

Please go ahead. Hey, good morning everybody. So I'd like to hit on the company's non auto industrial focus to start things off, which is great. Clearly gaining momentum in terms of the company strategy. So for the battery energy storage product launch potential, how translatable is the company's competency regarding commercial truck battery packs to a proper energy storage system? I mean clearly you're targeting the potential for production next year. Is there additional investment that we should anticipate within that battery system segment this year? And how rich is the quoting pipeline? Yeah, hi James. So first of all, the battery energy storage business and our products are very portable to these types of stationary applications. If you think about the requirements in commercial vehicles and E buses, they're pretty significant in terms of reliability and quality. So we are leveraging our existing capacity to pivot Further into the data center space and other industrial markets. So from that standpoint, you know, it's a, it's a really smart play for our teams. And as we mentioned, the battery energy systems are cell chemistry and form factor independent. So we think we're well positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers, so we're real pleased with the pipeline we're seeing. Got it. And then, yeah. As a segue, my follow up. Is there a natural synergy for battery energy storage through your turbine generator partner, Endeavor? And as we think about the power generation business for Data centers for BorgWarner, I know production starts next year, targeting 300 million plus in sales. It's early days, but are there any considerations to potentially expand your turbine generator capacity like beyond the North Carolina plan? I know Endeavor and its subsidiary Edge have data centers, active data centers in Europe in addition to the US So I'm just curious how the company might be thinking about that capacity potential international expansion element. And then. Yeah, the synergy. The potential synergy on the energy storage piece. Thank you.

Joe

Yeah, sure. To the first question on synergy, there's definite synergy. I mean, if you think about the three offerings we show on page seven, turbine generator, battery, energy storage, and then power conversion, those are highly related products in the system and they're all solving the major issue, which is lack of power. So when it comes specific to Endeavor, definitely we've got a great partnership with Endeavor. We see it continuing to grow over time. The even better news is these energy storage systems and power conversion have lots of opportunities outside of the strong Endeavor relationship. So we're optimistic. There's a lot of applications and potential customers out there for both energy storage and power conversion. With respect to your question on the turbine generator, as we mentioned on the call, the progress is quite good in our view. We're on track for a 2027 launch sometime this year. We will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we've installed in North Carolina. But we'll take that decision as we get closer to the second half.

James Piccarello (Equity Analyst)

Much appreciated. Thank you.

OPERATOR

And your next question comes from Emmanuel Rosner with Wolff Research.

Emmanuel Rosner (Equity Analyst)

Please go ahead. Great. Thank you so much. Just one follow up on the power gen side. Obviously it's still early days and a lot to learn there from customers, et cetera. Are you able to give us some color on how to think about the value proposition that your solution offers? What unit Economics look like? How does that compare with existing established solution? Just trying to understand how the conversation

Joe

with potential customers is going. Sure. So a couple of things we're solving here. For one is time to market. You know, the backlog for power generation is pretty significant, sometimes up to five and six years. So our ability to leverage automotive scale and move quickly into the space is speed that's well needed in this market. That's the first thing. The second is the emission profile of these turbine generators raises the bar and meets even the CARB requirements out in 2027 and beyond. So from an emission standpoint, very clean power. The third thing is the total cost of ownership is very attractive. So we feel really good about the value proposition of this into the space, especially right now. Understood.

Emmanuel Rosner (Equity Analyst)

And then the. My second question would be on the capital allocation. So it looks like you have in front of you some opportunities to invest more capital into this industrial solution. You'll make a decision on capacity for power gen and then obviously you're trying to get into energy storage, power conversion. Is there any change at all into how you're thinking about capital allocation either within CapEx in terms of increasing that or just shifting that towards these solutions and away from autos. And then in terms of M and A versus buybacks, like if you have so many organic opportunities, do you still have as much focus on M and A as you did recently?

Craig

So let me begin by saying our top priority will always be on driving organic growth. And we're able to show that we're leveraging our entire portfolio, especially if you look over the last 18 months of win. So we want to continue with that winning strategy and the first priority then for capital will be to invest for those projects. Nothing has changed from our capital allocation process beyond that. I'll answer the M and A topic. Maybe Craig can talk more deep about the other way to serve shareholders. You know, on the M and A side we continue to open up the aperture and have a very disciplined process and flow of targets that we're looking at. But just to remind you, there's three main criteria here. One is really leveraging the core competence we already have. So it has to make some strong industrial logic. The second is we want any acquisition to be accretive. And third, we want to pay a fair price. So we're sticking with that disciplined approach. We continue to have a good flow of targets inside auto and out. And I would just say, you know, you can expect from Craig and I to stick to that game plan and maybe just to add on To Joe's comments, you know, what is our goal? Our goal is to create value with our cash. And I think we've done that very effectively over the past several quarters. Q1 was another great example of that $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past five quarters, we've deployed over $800 million of cash, which represents about 70% of our free cash flow. Now, Joe and I are focused on discipline, consistency in how we're allocating capital across the business, whether it's through those levers or investing in the business organically. So we feel really good about the actions we've taken over the last several quarters.

OPERATOR

Great. Thank you. Thank you.

Joseph Spack (Equity Analyst)

And your next question comes from Joseph Spack with ubs. Please go ahead. Thanks. Good morning everyone. Back on the best opportunity. I just want to be clear sort of what you're doing here. So it's similar to what you do on or we're doing on commercial trucks where you're putting the pack together into a system with some software because, you know, it does say sort of chemistry and form factor independent. Which leads me to leave your not doing the cells here. But. But I guess the reason I ask is I keep going back to this Fin Dreams LFP announcement from 2024 and I know that agreement, you know, said it was specifically for commercial vehicles, but I'm wondering if there's any leeway in that agreement to be able to leverage that relationship as well. Yeah. Hi Joe. So as you mentioned, we do have a strong partnership with findreams and our products are cell chemistry agnostic. So we're in production today on nmc, but we're also working on future cell chemistries like lfp, Sodium Ion and others. You know, the great part about the pivot here is, is we're leveraging both our technology that's existing on commercial vehicle and E buses and the current CapEx that's invested. So that's one of the reasons we can get to market so quickly. So we're moving forward with UL certification and quoting as far as our content on it, very similar to a CV or an EBUS in terms of, you know, procurement of the cells, design of the entire pack, the system, the BMS and the final testing. The main differences, these will be for stationary applications versus mobility. Okay, that's helpful. And then just to I guess follow on to Emmanuel's question on capital, you know, look, these opportunities are super exciting. They're still relatively small, but you can see how they are much more meaningful in the future. Is there any rule of thumb for. And I know you're using existing capital as you just mentioned, but is there any rule of thumb about how you would advise investors to think about incremental investment? Dollar per every. Pick your metric of revenue, just so we can understand, you know, how the return profile looks going forward?

Joe

Yeah, I think it would be fair to say that the ROI and capital intensity will be similar to our light vehicle business. So if I look at our turbine generator, which we talked about over the last quarter, you know, although we're putting a greenfield site in for the final assembly and test, and Hendersonville, we're leveraging four existing auto plants for all the components and sub assemblies. So I think it's a great example of how we're leveraging our CapEx, our capability and our speed so that we can move quickly into these new markets. Okay, thank you.

OPERATOR

And your next question comes from Colin Langan with Wells Fargo.

Colin Langan (Equity Analyst)

Please go ahead. Oh, great. Thanks for taking my questions. Just on the overall guidance to step back, I mean, production has come in a bit worse, raw materials have gotten better, and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX and any additional cost actions that may be needed to offset some of the inflation we've seen in the market?

Craig

Yeah, Colin, overall, we think we can manage the inflationary impact at this point in our mid teens decremental conversion. So let me start there, but I'll walk you through again the guide from a revenue perspective and a margin perspective at the midpoint. And really it's unchanged from our view. Q1 was a good start to the year. So when we think about sales year over year, we ended last year at 14.3 billion. We do see a headwind from industry production right around 1 1/2% decline versus last year. We see the battery business declining, but we see positive effects coming in as well as some modest outgrowth. And that's what gets us to 14.15 billion. When you think about the margin profile, we're excited that we're expanding margins at the midpoint and the high point of our guide. Despite some challenges from a market perspective, that's really coming from a couple areas. First, the exit of our charging business. That's about 10 basis points of enhancement. Additional cost controls, just like you saw in Q1. That's another 10 basis points. And then again, we're holding that decremental conversion in the mid teens, which includes the inflationary Pressures that might happen in Q1 and throughout the year. So we're closely monitoring that. But we feel good that we can expand margins and expand EPS this year despite some macro headwinds. Okay, so there's no incremental, there's no costs or there's no. You're going to offset those costs with cost savings actions from a raw material side. At this point we feel like we can manage that appropriately.

Colin Langan (Equity Analyst)

Okay. And then on the, just on the data center and storage just trying to understand all this one. Just from the the energy gen side. I mean just to be clear, this is more at this point you're just capacity constraint that looks like that market is just completely sold out. And then on the storage side, you know, anything any way to size that market, is that potentially just as big as the turbine generator opportunity? And then lastly as we think of these businesses together, does that actually help you market to customers? Because I believe hyperscalers are actually starting to actually have storage requirements as they build out data centers. Does the combo actually is that a selling package that you could provide both and that create an added opportunity to win business?

Joe

Yeah. Hi Colin. Maybe I'll start with that second question. You know when you think about again page seven power gen storage and power conversion those are highly related and they're all towards solving this power availability issue. So yes, there's synergy between those three and we do find customers that want more of a system solution or at least someone that understands the complete system across these very complex product segments. With regard to your first question, you know the ability to bring storage to market fits well within the same data center growth that we see across all three platforms. So you know, from our view we're talking mid teams kegr for the next ten years or more. So the backdrop and the demand very strong for these products and it's actually increased over the last 12 months as many folks know.

Colin Langan (Equity Analyst)

Got it. All right, thanks for taking my question.

OPERATOR

Thank you.

Chris McNally (Equity Analyst)

Your next question comes from Chris McNally with Evercore. Please go ahead. Thanks so much Keith. And sorry, some of these will be repeat questions. I get the tone of the call on the industrial extensions but I wanted to kind of phrase it differently. I think the way I'm questioning the size of it. Let's focus on the power gen opportunity over the next couple of years. Is would you characterize it as is there a supply constraint, a capacity constraint or signing up customer by customer? It's a new business to be deal by deal. But I would love to know is what is a capacity ramp look like. How does that occur? Is that the type of thing that you'll need multiple years lead time or as the deals come in, as the customer wins come in, your capacity will follow. But that supply versus demand, what would be the bottleneck? Thinking a couple years out would be great for sizing the business.

Joe

Sure. Thanks for the question Chris. So let's say this starts massively with demand, demand for power Gen, especially behind the meter, driven by the fact that many utilities have a 4, 5, 6 year lead time to get the power to serve these data centers. And on top of that, the growth of Gen AI specifically is creating a massive demand challenge. I would say over the last 12 months what we've seen is the supply constraints of the existing turbine generators and other behind the meter solutions has made the challenge even bigger. So you know, we're fortunate to come in at the time we are with a great product that has a lot of value to the customer. So I hope that answers that question, you know, with regard to the capacity we have installed and how do we go about selling that. So as a reminder, we've installed 2 gigawatts of capacity. The 300 million next year is the initial launch and revenue that we're planning. So it's a, you know, it's a subset of this capacity. So we feel really good about the installation of the two gig. You know we wouldn't have installed that much if we didn't feel that there was going to be a backlog created. And as we mentioned earlier in the call, you know we'll likely take a decision whether or not we add additional capacity based on the demand that we see in the purchase orders place and that that capacity could be installed in this market. But we also see demand in Europe and other markets so we'll also have to decide the location.

Chris McNally (Equity Analyst)

That's great. And I know we tried to do this math last call and obviously we're not going to get specific pricing but just ballpark like 2 gigawatt is multiples of 300 million of revenue.

Joe

Is that fair to say? Yeah, we haven't provided pricing so yeah, multiples is a fair way to think about it. I think if you look at the, the pricing that's out there for Power Gen, especially behind the meter you get a range that's out there and it's only increased over time. So that might give you some indication of where we're at. No, that's excellent. That was the check on the map and then the last follow up. I think someone asked right before it Seems like with the behind the meter and the battery storage that that also you could have great lead ins from some of the auto customers. Right. On the battery storage side, a lot of excess capacity we know in batteries. Is that helping on a cross sell specifically on those two businesses? Yeah, I would say it's adding significantly to our play. Our play is more about serving these industrial markets directly, not with our automotive customers. Clearly we have relationships with those customers and where we can work together we will. But you know, these plays are more about our relationships with the industrial customers.

Chris McNally (Equity Analyst)

Okay, great. Thank you so much.

Dan Levy (Equity Analyst)

Your next question comes from Dan Levy with Barclays. Please go ahead. Hi, good morning. Thanks for taking the questions. I'll continue the line of questions on the data center side and more. So just a supply chain question. I know you've talked about 2/3 on the turbine generator. Two thirds of the content is, you know, is coming from you and then, you know, you're heavily leveraging the automotive supply chain. But I think we've heard, you know, within the power gen side that, you know, one of the key sort of supply constraints out there is areas around blades and veins and very large lead times. So you know, we know that generally it takes maybe only one or two components to have, you know, a bottleneck. So maybe you could just walk us through, you know, your confidence that, you know, when you look across the supply chain there won't be any issues getting what you need for the turbine generator system and that if you're going to expand capacity that the supply chain can keep up with you even on the most supply limited components.

Joe

Yeah, no thanks, Dan. So a couple of things that I think may help address your question. So first of all, our turbine generator system, it does leverage not only our supply base but our technology. So our turbo products are radial turbos. You know, many of the large turbines are more flow through or axial turbos. So it's different technology, different levels of material. You know, the material selection for these are more consistent with what you see in commercial vehicle applications and sometimes Pascar. So you know, the requirements are different for what we're buying. Second point, it is true. 80% of the supply base for the turbine generator is already in a BorgWarner is already a BorgWarner supplier. So they know how to work with us from developing those components to launching and producing those components. So we feel that's a big risk reduction getting this product to market. I think the third important thing here is, is one of the things that we are experts on is global supply chain. I mean we have teams of people around the globe that manage suppliers in many, many commodities. So this is our wheelhouse. It's a core competence of the company and we're going to bring all that competence to launch these products. So from time to time, you do see a constraint or you see an issue with the supplier. But as a global company, we get boots on the ground to address those constraints and make sure it doesn't impact the products to our customers.

Dan Levy (Equity Analyst)

Great, thank you. As a follow up, I'll give you a question on the core business today. I mean, you're reaffirming the guidance for the growth of a market to be flat this year. But you've given sort of another slide of all these component wins. You know, you've talked about 27 really being this RE acceleration of growth. Maybe you could just give us an update on where we are on line of sight to the rest of the portfolio. Seeing a RE acceleration. You know, is it just content gains, new product, new program launches?

Joe

What's going on that's driving that uptick in growth from the core portfolio in 27? Yeah, I think it's fair to say, you know, in 26, we're still living with this overhang from some of those programs on the EV side from a couple years ago, but we're working through that. You know, in 27, what we like to point to are the product wins across the entire portfolio. So if you just go back the last 18 months, I mean, over 30 awards we've announced publicly, and, you know, it's not just one part of the world, it's not just a couple of product lines. The other thing to point to is if you just look at this quarter, we announced 12 wins. Three of them were conquest wins. So what we've been sharing over the last 12 months, that the strong will not only survive, they're going to thrive in this type of market. We're starting to see that in the program wins. Of course, as those launch, we'll start to see the revenue beginning in 2027. Great, thank you.

OPERATOR

And your next question comes from Luke Young with Baird.

Luke Young (Equity Analyst)

Please go ahead. Yeah, good morning. Thanks for taking the question. Johopen. Maybe you could just put a finer point on how you're thinking about capital allocation as a way to maybe potentially accelerate the data center and industrial story in an inorganic sense. Is that something that you're looking at intentionally in terms of building the acquisition funnel and thinking sort of holistically and deploying capital towards these efforts?

Joe

Yeah. Hi, Luke. So, you know, the capital allocation Story hasn't changed, I would say over the last 12 months, we've continued to open up the aperture of what we're looking at. So not only automotive and CV space, but also this new data center space. I just want to bring us back to the three criteria. You know, the first one is it needs to make a lot of sense and leverage our competence. We wanted to be accretive and we want to pay, pay a great price. We want to pay a fair price. So, you know, we want to stick to that discipline and you can count on Greg and I to do that. But we, we do feel more and more confident that our products and technology play really well into this data center space. So as you can see, we're leaning further into it with the R and D investment. And so I can expect, you know, we're going to look at some things that might help accelerate that journey. But you can count us, count on us being disciplined about it.

Craig

We will stay tuned there. And then second, maybe this is in unfair question, Craig, but I'll ask it just, you know, you mentioned that you're confident in the right path to achieve full year guidance. You know, why not raise it at this point, Margins especially, is it just too early in the year or is there something that we should be thinking about in terms of investments tied back to these incremental products that you're showing us this morning? Yeah, you know, from my view, I think, you know, we had a really good Q1. There's still a lot of uncertainty in the overall environment when you look at our performance. That's implied in the guide. And I'll walk through what we saw. Q2 through Q4 last year versus this year. Q2 through Q4 sales were about 3.6 billion. A quarter margin was about 11.0%. What's implied in our guide is revenues coming in a little bit lower. 3.54 billion per quarter, about 60 million less per quarter. And that's really the contraction in our battery business. But our margin profile is staying right about 10.9%. So basically on top of the 11.0. And it's managing that decremental conversion right around the mid teens, which is what we've communicated consistently. So from my perspective, I think, hey, solid Q1, there's a lot of uncertainty with higher energy prices around the globe. Q through Q4 looks pretty consistent year over year. We feel like we're on the right path to create value by executing our guide. So that's where we sit today.

OPERATOR

Got it. I'll meet There. Thank you. And your next question today comes from Andrew Percoco with Morgan Stanley.

Andrew Percoco (Equity Analyst)

Please go ahead. Great. Thanks so much for taking the questions. I do just want to come back to the power gen side one more time. I know you're in an exclusivity with with endeavor for this TurboCell product, but as you mentioned, it's such a capacity constrained market and you obviously have a decent amount of content and in house capability there. I'm curious whether or not you've evaluated if there is an opportunity to develop a product either on a standalone basis or work through Endeavor to look outside of their captive universe of customers to deploy this product.

Joe

Sure. So, Andrew, a couple of things. It is true we're in an exclusive relationship with Endeavor to bring that turbine generator to market. What we're hyper focused on is a successful launch next year in 2027. One of the things that's important to know. So Endeavor and the entity we're working through, TurboCell, they sell internally for their own data center use, but they also are able to sell to other customers and users. So you need to keep that in mind. They understand this market, they've been in this market for a long time, the principals have and of course they want to leverage those relationships and know how. And we're more the design and manufacturing house to help them deliver. So hopefully that brings some clarity. You know, as far as the other two products, battery we're actively quoting and I would say with and outside of Endeavor Inverters, the same. The exciting part about the inverters is the four customers we're shipping product to for their testing. So I feel real good about the overall momentum of these three product segments. Okay, so that makes sense. So essentially Endeavor could sell that turbo sale product outside of their own data center applications if there was demand for it. So that's a helpful clarification. Maybe to follow up on the battery storage for a second here. I think it was asked earlier about the content. Can we just double click on that? If you think about the current environment, I think battery storage, on average it's $225 to $250 per kilowatt hour. Is there a way to bracket what your content is as a percentage of that potential ASP as a follow on to that. I think it makes sense that you guys are getting into this market. You have core competencies there. I think one thing that we've seen across this landscape is that the service angle and the service requirements from some of these customers can be a lot different than Maybe what you see in auto. So I'm just curious in terms of the investment needs maybe on the service side of the organization to make sure you're providing the level of uptime needed for some of these customers. Sure. So the content of the battery energy storage, the way you want to think about it, it's very similar or maybe a little bit incremental to what we serve in the CB side. So you know, we're buying cells, we're designing complete packs, we're assembling those complete packs. There's other value add like battery management systems and control systems, software development and then we test and ship those packs. Now the main difference is these are in stationary applications as opposed to mobility. So you know, you would see a little bit different structure there. But in essence it's a very similar type of product that we serve the CV market with.

OPERATOR

We have time for one final question and that question comes from Mark Delaney with Goldman Sachs.

Mark Delaney (Equity Analyst)

Please go ahead. Yes, good morning. Thanks for fitting me in and taking my question one on the power gen business as well for me. Joe, you mentioned BorgWarner may need to expand capacity there and you're going to have to make that decision soon. We've also seen several hyperscale capex guides now during earnings season they've been pretty robust. So given that backdrop and based on your customer engagements and discussions with Endeavor, should investors think about Borg Warner shipping the full 2 gigawatts in 2028?

Joe

Yeah, we haven't shared that level of detail. I would say as we get into early 2027 we'll start to provide more color on the sales and a longer term view on the business. It is true we've seen recent announcements with the hyperscalers really growing their capital investments which I think bodes well for this entire data center space. But we'll provide more details as we get into late 26 or early 27. My other question was specifically on the

Mark Delaney (Equity Analyst)

auto business and China. The company spoke about a little bit of growth under market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past when G discussed. Thanks.

Joe

Sure, Mark.

Patrick Nolan (Vice President of Investor Relations)

So first it's important to note, you know, generally speaking we are really strong in the China market. We continue to win business there. It's a very important market for us. I think what you've seen in this last quarter, you know, if you start with the market itself, the domestic market was down, but overall it was buoyed by a lot of export sales. And much of that export sales has Bullworner content on it. So, you know, we continue to feel optimistic about that market. It's hard to read too much into one quarter like we have in the first quarter, but generally speaking, you know, the Chinese OEMs continue to grow their share globally, and a lot of it has to do with the export markets, which we're very well positioned in as they eventually localize in those markets. Thank you.

OPERATOR

Thank you all for your great questions today. If you have any follow ups, feel free to reach out to me or my team. With that, Michael, you conclude today's call. This concludes the BorgWarner 2026 First Quarter Results Conference call. You may now disconnect.

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