Garrett Motion (GTX) 26 Oct 222022 Q3 Earnings call transcript

Hello, my name is Chris and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Conference Call. This call is being recorded and the replay will be available later today. After the company’s presentation, there will be a Q&A session. I would now like to hand over the call to Paul Blalock, Garrett’s Vice President of Investor Relations. ahead. go please Sir,

Good the welcome XXXX Garrett Conference Chris. you Financial and for Call. joining Motion’s day you, everyone and thank Results Thank Third Quarter

earnings mention begin, about website Motion our important SEC where find today’s like filings we also garrettmotion.com, available to company. will to Before presentation the I’d at and information links release you Garrett along are on other that our with

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the pass-through minutes. While points the year, this a costs was basis and impact of points strong XXX total XXX of from quarter important adjusted a realize inflation margin FX by in is points. from by discuss diluted this margin Sean the is that than to will prior basis EBITDA XX few further it basis for lower

year. which from contribution free cash adjustments this was adjusted of margin robust this and we cash into the quarter's the well third million, working in change growth last these taking volume consideration, boosted However, quarter, generated by places, above the also flow capital. In $XXX

generate means reminder, that working capital operates sales we position, with structurally which As a a are when cash increasing. negative Garrett

and well supply Q of gasoline volume the chain reflects improving Third million quarter was as units, conditions launches. year XXXX X.X same new XX% over as up last gradually

as will adjusted anticipate that these in environment, And narrowing the first remain reminder, a the near-term while inflation term QX. to is A offset stable volume in less of inflationary our in structure on Importantly, allowed approximately volatile of consistently results QX strong us strong on a potential units pressures. than and interest summary, dividend expectations, maintaining obviously, share when which pass-through improved productivity, difficult midpoint loan deliver results maturities we of address maintaining are currently the and Based long-term ready to but to million in and highly $XX million preferred low significant per combined our in interest stand the successfully a cash in generate cost for position cash any We of and continue demand our while similar to X.X and rates times EBITDA to resection range. adjusting we has cash quarter. have generate flex, Garrett our a settle even future. to as we outlook, Garrett’s the no risk continues capital time, liquidity the we In $XXX debt XX% ability Series on fixed in variable million. previous the

slide Turning four. now to

are solve We our to develop challenges. core new leveraging which powertrain technologies strengths critical

contracted enhances of continue the of enables of to industry is the of growth turbo us electrified XX% areas has gasoline future. powertrains. of power leadership cell well First, investments our part continue launch and to cash enabled in knowledge this we software. again excess and awards side This past But our to and a leadership XXXX. demand page, that positioned for looking secured XX% technologies the are in support customer a of as of platforms, the years, the where year, e-boosting our means our more hybrid win fuel over electronics left-hand hybrid Today, related from the to differentiated core since differentiated in than compressors generation that to like benefit flow to machines, This which about few business all our position. rotating good has transition rate develop more XX%, us awards our to high-speed control at share increasing confirming key in Once is core Garrett extend Garrett major has we of turbo strengthen business. our

think areas building dedicated offers Today, We products. are these opportunity electrification capabilities for XX% to aggressively electric is we products to our develop now on spend differentiation. of new these RD&E where about in

indeed inroads significant making in cell fuel compressors. are We

This are last as To-date, won already on make has We compressors, which of exciting quarter, time we customers. and come in them traction that in But programs and the some Garrett intensifying. about we production able we alone. to are we keep mentioned More over electric leveraging significant have are updating prototypes customers' XXX we already for indeed our in give as also you areas. will a to provide are terms is change will these also an capabilities us, have progress our customers today in side, power density new with efficiency. QX some step fuel cell more we solutions with and to as activities share delivered delivered of

recognition who Now, have engaged putting gold emission is have we in for been recently insight silver. rating provide we we Ecovadis, but of vehicle things do our is new which from With of it. now cleaner results. our of and rating and more a rating the sustainability rating. great more what makes the work Garrett Garrett in RS, to upgraded efforts purpose strengthen over technologies, The last XX% at top perspective, recognized focused of that, into efficient. This X% Garrett places This I revenue it with today, over do company the sustainability the on the Sean of combined year's of to also sustainability to we our industry in of will developing reduction, way turn by the the the made selling of to on, what

will Olivier, welcome, remarks my on Thanks, and everyone. begin five. slide I

the six $XXX left-hand net million of quarters with sales Looking see a X.X for graph, million at on last at QX will the upper units. volume reported you XXXX

a items in nearly of Olivier Asia in XX% up in up earlier this from America China was Europe drove from XQ Sales mentioned, when the back North improved levels XX% was inflation declined basis lockdowns XX% to XXXX. new Asia constant up year. The split XXXX XX% and sales the pass-through XXXX from at sequentially geographical up XXXX XQ customers, last XX% to increased year XX% to XX% and from on in in flat and XQ sales swings but XX% currency were XXXX These volume net XXXX; due increase XQ in availability, and in product and by GAAP XQ total driven semiconductor after drove As geographically of resulting XQ to mostly gasoline ended. of then are lockdowns launches. these and sales. XXXX; the to our and XQ impact XX%

million $XXX to side of the than in in in XQ XXXX million right-hand XX.X%. you and $XXX EBITDA in XXXX XQ EBITDA improvement and the the lower adjusted EBITDA came compared the margin inflation at FX The a can as includes with Looking year see $XXX at million QX last adjusted year. while basis diluted pass-through, ago, XXX which And points. by margin page, adjusted

QX generated impact the In increased recover Garrett's earnings cash on flow in by of the demonstrate to to industry Lastly, adjusted can Garrett million, performance summary, left ability positive see that positive pressures. $XXX capital. as you inflationary strong driven results a face bottom free the in of change working graph, from and deliver operating the continues

strong QX which bridge in reported and QX net Commercial gains verticals by by by XX% impressive million rate improved to vehicles driven $XXX launches, These Turning up now North you total shortage In sales, XX% $XX versus win XXXX. our of constant XX% since demand to represent Diesel share growing was Europe, where prior net strong, comprise remained comprises Commercial sales, currency currency, XX% and America. XXXX. year, last sales six, year. XX% of recent prior constant adding growth flat as net new to sales in in sales currency, at adding year, the XX% the vehicle constant the commercial all compared softening year-over-year grew are the was year products at driven Gasoline a peak vehicles last in last prior by Gasoline of year. China slide industry. there driven sales well million the semiconductor now see industry. headwinds XX% demand new versus the results products from on XX% total at XX% given our year, product of Japan, versus significant grew volume business as the to of XXXX, of from program versus category.

year driven as sales average Next, growing they aftermarket net a commercial are was even comprised basis, percentage growth sales an the last of but our position in of by currency by critical total last XX% semiconductor and demonstrating strong businesses of the they business supply vehicle and Garrett's improved at comprises XX% constant of offset euro Overall, our products. businesses, comprised well-diversified to portfolio verticals. On weaker our strong, demonstrating the and XX% broad margin than year. XX% combined greater aftermarket partially the benefit profitability Garrett's these over of remained higher and compared QX

seven, million, $XX XQ commodity, million. adjusted to EBITDA XXXX prior productivity than million, slide as $X with over see drove Product year you adjusted and $XX QX EBITDA volumes to of prior inflation offset million. XX% of $XX pricing by year. million by compared units of of strong and compared XXXX. growth net Turning of more When the inflation $XX mix the combined was represented XXXX, operating energy growth this growth, pass-through, XQ over and million transportation improved our improved to improved XX% performance X.X driving

EBITDA increased The by offset at XX% euro, of last This $X to a As to weaker we which new spending performance over in R&D the million. improved continue adjusted came by dedicate technologies. versus partially XX% discussed, as by adjusted EBITDA impact margin was million, year. $XX impacted XX.X% we on

As Olivier points FX, be the the if would impact basis exclude XXX you mentioned of margin earlier, higher.

to is are our from that of suppliers goods our note, costs cost Additionally, higher. sold inflationary important it driving

impact include cost to continue sold these we the successfully mathematically, since of and through pass amounts. sales these increases customers, full of While goods both to our

basis in addition adjusted XX margin EBITDA is the an XXX points. diluted points mentioned. further just to is from basis FX, as additional by Our This

is adjusted and our to contains proof XX.X%, This So work ability margin pass-through. environment. QX EBITDA another inflationary with dilution of execute a Garrett's successfully yet in in and from the to basis customers of volatile combined total, XXX points suppliers of point effect of FX inflation

X, you EBITDA to cash adjusted slide see to walk now our free QX. Moving adjusted flow can for

QX and you side, working sales source on increasing of has left-hand Looking capital in at provided assuming the XXXX $XX capital and the XXXX cash a that quarter. of as annual volumes, Garrett's QX of a an cash will environment source of million positive stable sequentially from XQ and was in see a industry earnings basis, volume historically as it or again, then and working increased In turning XXXX, again, QX sales and this of quarter. prior was

remain year-end. the we flow to inventory in flow as timing in QX free through While be outlook. with volume year to million, stabilized midpoint to Overall, a volumes by QX, expected increased of million are due as to as Free QX, expected and working capital year equating a flat will expect $XXX our updated volumes full QX be the compared cash for improve cash cash to XXXX at $XXX as source continues of of to QX the continue QX. during in levels the well increase of lower

stock undrawn years. three in $XXX which of effective B debt cash an the for of quarter. and fixed in interest leverage last full, interest A Garrett debt $XX rate preferred A Currently, QX generation $XX preferred was on at and to of October total executed repay rate million in in of Improved Term unrestricted approximately a dividend for million than no QX next maturities in Garrett's Garrett the share Series Loan million in flow to the XXXX. is year per allowed interest total Turning X.X%, remaining less the per This credit a Loan we now cross-currency under into preferred allowed denominated capacity. which ratios. cost over Series equates comprised euros currently now $XXX to and slide cash with equates XQ improved XXXX cash cash swaps a free until to in has all expense to million QX results is stock of of pay driving XX% which cash, $X.XX and for Xrd. B revolving has $XXX Robust generation liquidity paid through debt million, material Term X, ended XXXX.

and currently We quarters, dividend A pay future Series the to environment to quarterly continues macro are industry cash the the planning in in stabilize. assuming

Turning now slide XX. to

This see note vehicle rate XXXX from with turbo and platforms. growth a includes electric by already has to rate win the that XX% when can S&P trajectory forecast for for gasoline to penetration, of particularly expected over over for latest light You results XXXX, the gasoline The for business hybrid which of is hybrid for years in a penetration turbo you increase solutions. the And predictable the applications, stable this XX% Garrett recovers. since new XX% and XXXX business been as and awarded. coming stabilizes industry combine

slide to XX. Moving

the $X.XX range are and narrowing increasing growth to billion to we of net XXXX, our year sales to to $X.XX X% net For billion sales full X%. our

to $XXX to from cash to weaker up narrows income previous In by assumptions increased adjusted revising midpoint to our flow of to a adjusted the the $XXX $XXX a activities adjusted the we adjusted cash range to $XXX $XXX million, $XXX million $XXX million free our at On with million. lower of of outlook. R&D, expect to $XXX and net operating due to are to approximately prior range, lowering we million midpoint X.X% EBITDA the interest narrows and $XXX increases million. lower a continue stable provided spend sales our outlook allows Our flow million to prior $XXX to Net million, but a euro million range at $XXX moderate of aligned but rates. $XXX maintaining summary, the net mark-to-market cash QX. midpoint million The midpoint and reflecting million macro and midpoint to with $XXX we hedges from of primarily narrows and are maintaining to EBITDA the of more due our million free million to

For the presentation. to the as reconciliations metrics greater to shown of detail, point this I'd GAAP of these appendix to you nearest each the in figure

to through show year Garrett demonstrated the in We XXXX. volatile year-over-year, higher volume approximately a a we have slide well the volumes slightly the with EBITDA mix, Overall, to for environment but strong full improved year inflation. half have walk and of and ability executing in same extremely Turning second pass is XX. a the adjusted we XXXX, flattish full

through productivity, to continue pass delivering while technologies. we all new investing while successfully inflation Importantly, on in

achieve year conclusion, Lastly, important XX FX environment. based our it QX Olivier remarks. basis, challenging from is latest will for of full in to hand from it I back XX In inflation on on a pass-through, concluding that, operational do in continues strong impact inflationary note QX to is outlook. our basis to on on his EBITDA points now a and execution margin and With points in Garrett to and basis track the adjusted so FX

robust inflation that would adjusted on quarter. in impact XX.X%, margin of FX $XXX Thank up with you, and We once basis currency pass-through explained. summary an and We up XXX I'm free pleased Sean. again $XXX basis XX% EBITDA, inflation Garrett basis of a million from is $XXX very effects. strong GAAP up Sean offsetting of A generating from this the delivered that QX. constant from cash the performance, We We preferred, which maintain adjusted includes million, XX. points I first XX% successfully which with dividend slide, slide a our cash Wrapping performance sales Series declared operating on EBITDA the combined year. net stress last the of in flow supported achieved of by million

like I In adjusted session. once quarter again performance Garrett. thank year employees in the for of for of of We to liquidity they under outlook but with and the for for our and now interest the million Thank narrowing EBITDA, growth that successful debt would revised full ready of range the another quarter closing, XX% we debt. our their rate, maintaining the begin XXXX, time. your fixed dedication on a Q&A And to $XX our per and Session have their a now we flexibility position We strong resiliency $XXX are as previous continue Questions-and-Answers our operator, at long-term for midpoint. contribution bring you to have million strong

Thank you, moment for one first sir. [Operator question. instructions] our And

question from of Hamed Our Khorsand will first BWS come Financial.

line Your open. is

morning Good afternoon. or good Hi.

Hamed. morning, Good

the is stabilized please in you activity China the impact? Could lockdowns order region? production order start-off impacting your that there, flow the how there's and mean first also so the and with still recovery I suggests, now? Is the headline activity

-- So, more we seeing very question. are any not that's a good

not chain. any more of of are We the minimal the very impact the supply of lockdowns the seeing impact I lockdowns. see on

So China, what Shanghai was country. in successive of in and of demand we saying, suffering, the that of strength are doing point of still one obviously, about industry in now. we we lockdowns of lockdown with is And that's the the are the much there because side. What a the first saw something vehicle numbers that as which watching year happened into strength commercial the are checks is half good we see versus the the is right demand seeing anticipated, then that is very the lot we the we well but passenger Sean our on

demand week the chain than direct that's published industry. last the So, looking linked the we are effect strength the look at of the on the down a supply demand numbers economy strength were new of and to more and the

products, from expect of sales timing And we when on electric that vehicles? then the should hybrids Okay. in for new the

meaning wait we up that already it's our you And side, electric on reaches share more are bit you electric happening. we delivering portion to for line. Today, update cell so ramping it developing. about fuel battery little vehicles, those vehicles, are the yet we we delivering when vehicle, need are but already tell battery revenue once have are that. everywhere. electric And we'll you we hybrids, when a not on significant information start-up production you can of Today, For a longer

be down then being implies And sales might QX does that Okay. from down suggests to as why because revenue well? flat flat guidance updated ARPU QX with your also

question? sorry, the last was I'm of what part your

average revenue the unit. ARPU, per The

X.X be also if units, suggesting it So it's to million going you're it's down. implies

seeing, we recall, that that exit What flattish call lot a – the we I we There's of issues a moving the there be had number, the the driving in would in some there's indicated are terms at of of maintain end think of stronger in guidance. our if in guidance dynamic. the stated upper we parts of that, the we but But we as are that thought this had stage to is July, a QX able are now – the quarter we when you bit EBITDA. deck to mix adjusted and with are midpoint associated are seeing

is higher-priced Okay. the or units, impact to sales FX it But less is commercial the related? related mostly less or

well, look is But without you're it's FX of we at the fourth basis, quarter, reported but looking is maintained slightly a FX. So component the year. a what there which we on in at, full guide, overall, it weaker yeah, the in

you compare commercial and large going this absolutely headwinds is it's So not there light necessarily QX impact impact quarter. being something gasoline for see an when to off, vehicle mix of a also didn't the with guidance. we prior vehicle that's But it and into that

what because outlook to like switching again of look to ARPUs since been pass-through? volume more has XX% those XXXX in does awarded begin for Okay. XXXX, inflation unit And move the then up and Garrett

assessing for are will we volumes where So XXXX, land. still

months, it's think they've been – done if what the has I you've two in dropping last looked at estimates. their IHS

component at that remains macro an and So well. it for of a But stage, we'll full guide. QX still working as all the call earnings we're our environment, give FX is our still this you and very on dynamics a volatile through year update

addition and of that, we and industry macros, the the around are everywhere customers with in the they in the happen business, are much way the we world. most serving this since to pretty living to Maybe

business. control, what point are do We with though subject is The winning do to more macros. we these we

the same understand the increase to time, business. macro more reflects an shareholder there we what demand, XXXX at which volatility will had if winning that you results element is we So far of call so that an show in need of

back So that's we mind. to a a on XXXX. view But once have come you we key point will more to precise keep in

I guess, what I'm trying

quite raw trading. the inflation recently the it's where a of highly bit We've materials side. frankly, inflation, dependent seen on For are little on easing

same customers are we down, passing customers, up way way that So sorry, to on the we'll the on the we as passing to managing we suppliers are for -- the adjust that and are that. way well the that with

I'm supposed your to get if growth Okay. alternative sources What little from that you from bit to trying to is to assured into turbochargers be sales you just a more. come or next that that are and if grow how wanted compressors, get to and it's is can a units different Garrett engine year I story, going

once component, again, first components, Three macroeconomics.

in turbo are third component, increase. component and penetration turbopenetration Second is the deck share showing as increasing, we demand of

at the last the in one. we So less, two control, more last or are least ones

the automotive industry a overall still for is do around is we the overall XXXX marketing the for which where one, industry question position first The world.

it. last Series flow? Is you. the now A? here excess you more B. the an then cash it Got free for plan buyback generating on ample the basis free and flow deleverage What's question Series was that paid your And off you're cash Thank

macro continue opportunistically the And are to present that amount that carrying, have to we at stabilize. opportunity we're in still of or in inorganic but Well, A any we're accrued some environment down at we stable volatile may the a as so the to and I paying the for plan slide, also look the itself. dividend Series if on to the perspective cautious continues very where on macro potentially about liquidity macro environment, of going the to pay cash, quarterly mentioned XXXX we then moment, this other point, assuming put

of are we more for Board the a moment, in Series for the basis A quarter pay but that evaluate So Directors. And just quarterly the information cash, have with in call. on to you we'll next our plans our

you. it. Thank Appreciate Okay.

the Instructions] [Operator next moment question. you. for Thank One

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Philipe. Hi,

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Brian is take Felipe from you Gabelli from Can This not Funds, question? FactSet. Sponheimer my Yes.

Yes, Brian.

Okay. Great.

and just you EV about moving curious, from now maybe is you look or your I'm programs otherwise First development were forward when the were seeing – the industry structure you three changing ago. of where just think relative and or accelerated all, thinking excellent you of an landing to to the were Paul we way that job, ago, spun, years about deemphasizing platforms product to I'm anything maybe towards think next you week. perspective as some more that own into has years four

a Brian. That's very question, interesting

your So we've question. more been reflecting elements to on that. And for us, one time, there two are

the And we say, And first soon. keeps The winning of growing. turbo moving not it's by the industry answer the way, to on anytime first are question part – is share. the out

of from this the cash contribution what vehicle XX% I company aftermarket the are and in excess and generation in of share. think the those we seeing of is the line the excess that to that bottom we of comes of two So deck in to and do commercial obviously

the happening business So the are a think vehicles Why? What's fact the industry not to we to have it, of and passenger XX to Because point players XXXX, are XXXX about That's was company years of with commercial share. do we and run that of point consolidating, business still all if resilience the into offering think alluding today, winning had the I are vehicle I and carmakers moving the was already turbo and disappear, a the the challengers the that are that growing significant that the came in regulations one, technologies the technology-driven number it's this turbo forward. the consolidation. for compliant is a vehicle in versus is industry industry And about necessary industry, even number would long aftermarket. ago. turbo with turbo we that

on geometry gasoline, can you players So if of three you take have the that. variable that example provide only

technology, two-stage only get provide can verticals. should get that it you same the And two across players If different that. it's

we into growing. an favor So are seeing that to that the consolidation industry is of is the a incumbents

keep vehicle also only turbocharge percentage for usual By before, percentage Let's degree said So the is is electrification electrification technology the are of increases turbocharge, mind. in as turbo technology. that of that of vehicles thing not okay? but also are internal for penetration, engine way, combustion superior a to content that the good the we hybrid that with for

that profitable the revenue. where all on of the have investment happening That of all what's happening Now if XX% have minute, related need amount products, same turbochargers. engine and -- to develop behind to you get less growing consolidation meaning side, all combined in the context that's customer platforms, are are do if are a of not then the twice that in point the is the leads of bigger aside productivity, the made we've that a the putting and we you same don't efforts therefore, company need today to we of to to we developing amount happening that and us the for you investments want, I launched, we that platform, that that to meaning put revenue, that achieve of is

But mentioned could are be the the And a success it's we fuel which I've linked but cell, the the and soon, -- we technology electrification some is on more all things opportunity. And working good are and for some us, we very to electrication. because towards for on the the address And you this is transformation big of So we confidential our benefits yet, these playing cannot are already important programs. as question optionality bringing very hydrogen of share getting call, we differentiated an are with seeing that, how company. other that are to these we hydrogen. the on are

are We playing offense.

playing not are defense. We

about We per vehicle. are not after -- content

that There happening electrification differentiation the we want technology disclosed same usually transition want another where are on electrification the require that cell what are than much of And and are on the we technology which on We opportunities also going about number bringing. technology mentioned what the offering us the are great wave call are is second fuel drive. things what after more is -- business the compressor. is, And DNA the opportunities. be will that we of company is We've a doing to today the not area nice that are preserve we yet to -- those this have that of we playing have players, pushing to [ph] offered that seeing some that's differentiation extent. we today, we the by with towards

acceleration that with question, but your lot things a last or acceleration behind, long already it's is have sense and say would answer -- that there I way, starting was are changed we in XX% seen year putting the of an So are XX% we the it a this and year, some by not more the success by than this playing it's that. have to that we XX% to only trends to electrification, see behind

a had We've helpful. very question That's on profitability. Okay.

a business the you normalized cross-wins and on You've think past? done you I'm from in perspective when this margins would there that that of the curious, have you about wave Is you've the have in the gross more given the in XX% world you range high had faced that on anything structurally line. an mid- incremental to excellent the think about job a and incremental margin. FX inflation

Brian, ever back -- positions we this I mid-range the not am look been When I we've point. above to year, guidance tell -- today. you what are that of it's XX% XX.X% at adjusted the that EBITDA just at we can sure, you to -- referring maybe us But said is to what that correct

the profit line, talking the was not gross on I

And profit, are sorry. growth? gross the talking you on the margin incremental I'm On

Yes.

XX%. line Yes. with be volume to up That's footprint out necessary the we place, incrementally we gross a We profit of the and because on plant go correct. put should to be some so it have the we're we don't new to upwards of have necessarily growth expect expecting, would deal in

I time wondering to your I'm that Yes. mean anything if XXXX, XX% go you structurally just preventing happening gross Okay. XXXX business. from and again. margin frame there's back the

No.

I of on headwind and but… think impact inflation, the facing is are cost we today, FX the dilutive pass-through biggest

and much on. thank the for you questions tire confusion my taking Okay. for very Well,

problem. No, no

Thank you.

Thanks, Frank.

now to Q&A [Operator Instructions] further remarks. conference the see I to like turn would Rabiller in I End for no closing of back queue. questions the Olivier

performance back again, seen when you've And QX. things inflation -- it with had managing are our perspective, once you. pass-through. we means pleased great the very way It's the managing in Well, there Thank are in put I'm the we in are that we we that things control. in were that

flow variations for the our and indication the cost of that anything, our have if a increased that our obviously volumes. take and flexible we demand past well outlook structure offset have we as stability of look good is share of that And us of prepared people have address uncertainty uncertainty of proven of that in rate that forward, cash years XXXX, win the address helps is direction. the for few about company. the we to we at impact feel the anything And benefit comes of the and the Looking some

that, you, and all to of I forward beginning with look seeing of would So again you thank everyone, year. next we

conference concludes Thank you today's for call. all participating. This

You now may and have a day. pleasant disconnect,