Q3 2022 Garrett Motion Inc Earnings Call

October 26, 2022

The conference will begin shortly.

As Johan during Q&A, you can dial star one one.

[music].

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

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 a replay will be available later today after.

After the company's presentation, there will be a Q&A session.

I would now like to hand, the call over to Paul Blalock, Garrett Vice President of Investor Relations. Sir. Please go ahead.

Thank you, Chris Good day, and welcome everyone and thank you for joining the Garrett motion third quarter 2022 financial results Conference call before we begin I'd like to mention that today's presentation and earnings press release are available on the Garrett motion website at Garrett motion Dot Com, where you will find also fine.

Links to our SEC filings along with other important information about our company.

Turning to slide two we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act.

We encourage you to read the risk factors contained in our filings with the Securities and Exchange Commission have become aware of the risks and uncertainties in our business and understand that forward looking statements are only estimates of future performance and should be taken as such.

The forward looking statements represent management's expectations only as of today and the company disclaims any obligation to update them.

Today's presentation also includes non-GAAP measures to describe the way in which we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure and you are encouraged to examine those reconciliations which are found in the appendix to both the press release the slide presentation.

Also on today's presentation and comments, we may refer to light vehicle diesel light vehicle gasoline products by using the terms diesel and gasoline only.

With us today is Olivier <unk>.

<unk>, President and Chief Financial Officer, and Sean Deason, Garrett Senior Vice President and Chief Financial Officer.

Now I'll hand, it over to Olivier.

Thanks, Paul and welcome everyone to Garrett's third quarter 2022 conference call.

I will begin my remarks on slide three where we start with highlights for the quarter.

And I would like to start by saying I'm very pleased with soft quarter, our results and I would like to thank <unk> employees throughout the company for their dedication and <unk>, which helped drive strong software performance in what continues to be a volatile environment.

I am pleased to report that third quarter of 2022 net sales grew 13% to 402 $945 million on a GAAP basis, but on a constant currency basis sales grew 25%, although the prior year.

Strong operating performance in Q3 drove adjusted EBITDA of $146 million up 9% over last year and the adjusted EBITDA margin was 15, four firsthand with up to 16%.

While this strong margin is lower than the prior year. It is important to realize that the adjusted EBITDA margin. This quarter was diluted by 100 basis points from Asics and by 90 basis points from the pass through of inflation cost.

Total impact of 190 basis points.

Sean will discuss in a few minutes. However, taking these adjustments into consideration. This places this quarter's margin well above last year.

In the third quarter, we also generated robust adjusted free cash flow of $120 million, which was boosted by volume growth and the cash contribution from the change in working capital.

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

Increasing.

So Q2 thousand 22 volume was $3 6 million units up 15%, although the same quarter of last year and.

And reflects gradually improving supply chain conditions as well as new gasoline launches.

Importantly, we continue to successfully pass through inflation and deliver productivity, which when combined offset inflationary pressures.

We currently anticipate that the improved demand in Q3, we remain stable and resulting assuming algorithm of three 6 million units in Q4.

Based on these expectations, we are maintaining the midpoint of our adjusted EBITDA outlook, while narrowing and adjusting the previous range.

<unk> ability to consistently generate cash even in difficult times has allowed us to settle our quarterly dividend on the series a preferred share in cash for the first time, while maintaining a strong liquidity position of 674 million.

And as a reminder, we have no significant near term maturities and approximately 80% of our long term debt as low fixed interest rates and cash interest on the term loan is less than $10 million per quarter.

In summary, Garrett continues to generate strong results in a volatile environment, but we stand ready to flex, obviously, our IV valuable cost structure to address any potential risks and risks in the future.

Turning now to slide four.

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

Yes.

Looking at the left hand side of the page we continue to extend our leadership in our cultural business. This is a good industry, we continue to strengthen our leadership position.

Once again this year Gareth to secure that win rate in excess of 50%, which means that Garrett has contracted more than 50% of all customer well.

Since 2018.

This increasing share of demand nmc's, our cash flow generation and enables us to support major investments in differentiated technologies for the future.

Today about 50% of our gathering of wealth are related to our platforms confirming that our crop business is well positioned to benefit from the growth of hybrids as part of our transition to more electrified powertrains.

But although the past few years, the launch of E boosting and <unk> compressors as enabled us to develop differentiated knowledge in key areas like speed rotating machines power electronics and control software.

We are now building aggressively on these capabilities to develop new products in areas, where we think electrification offers opportunity for differentiation.

Today about 50% of our spend.

<unk> is dedicated to these electric products.

We are indeed, making significant inroads in should sell compressors, we are already in production today with some customers, but as mentioned last quarter. We have won some significant new programs and customers activities intensify.

To date Garrett as already delivered about 150 prototypes of fuel cell compressors I, just spoke which were delivered in Q3 alone.

More to come also on the electric traction side as we are leveraging our capabilities to provide our customers with solutions that will give them a step change in terms of power density and efficiency.

This is indeed, an exciting time for us and we will keep updating you as we are able to share more about progress we're making these areas.

Now putting things in perspective to the <unk>, 99% of the revenue of Garrett is made of developing and selling technologies focused on emission reduction, which makes vetoed cleaner and more efficient.

The purpose of what we work on combined with the efforts we have engaged with strengthen the sustainability of the company have been recognized by <unk>, We recently upgraded Garrett to gold.

In our sustainability rating from less sales reaching of silver.

This new rating places Gareth and the top 2% of our industry for our sustainability rating.

This is a great recognition of what we do at <unk>, but also the way we do it.

With that I will now turn it over to Sean to provide more insight into the results.

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

Looking at the upper left hand graph, you will see reported net sales for the last six quarters with Q3 2022 at $945 million on a volume of $3 6 million units as Olivier mentioned increased three Q 'twenty two volume drove net sales up 13% on a GAAP basis and <unk>.

Up 25% at constant currency due to improved semiconductor availability inflation pass through to customers and new gasoline product launches the.

The impact of these items drove our geographical split of sales from Asia up to 33%.

<unk> 22 from 27% in Q 'twenty, two and nearly back to the <unk> 21 levels. When Asia was 34% of total sales Europe declined <unk>, 22% to 45% from 51% in <unk> 'twenty, two and was 47% last year.

In North America were flat sequentially, but up from 17% in <unk> 'twenty one.

The swings geographically are mostly driven by Lockdowns in China earlier this year and then the resulting increased after the Lockdowns have ended.

Looking at the right hand side of the page you can see the improvement in adjusted EBITDA to $146 million and <unk> 22, as compared with $138 million in Q2.

$34 million last year.

The adjusted EBITDA margin came in at 15, 4% and while lower than a year ago include FX and inflation pass through which diluted the <unk> 20 to adjusted EBITDA margin by 190 basis points.

Lastly on the bottom left graph you can see that Garrett generated positive adjusted free cash flow of $120 million driven by increased earnings and a positive impact from the change in working capital.

In summary, Q3 results demonstrate <unk> ability to deliver strong operating performance as the industry continues to recover in the face of inflationary pressures.

Turning to slide six you see our year over year net sales bridge by product category.

In Q3, 2022, all verticals improved compared to the prior year, which was the peak of the semiconductor shortage on the industry.

Celine products grew 34% at constant currency, adding a $111 million in sales versus Q3 of 2021.

Helene products now comprise 43% of reported net sales up from 39% last year, driven by volume growth as well as new program launches.

By share of demand gains from our 50% new business win rate since 2018.

Diesel grew 21% at constant currency, adding $48 million to sales versus the prior year and now comprises 25% of total sales versus 27% last year.

Commercial vehicles remained strong growing 20% at constant currency versus last year, driven by strong demand in Europe , Japan, and North America.

These results are impressive given the recent headwinds in China, where there was a significant softening in the commercial vehicle industry.

Commercial vehicles represent 19% of total net sales flat to the prior year.

Next the aftermarket business remains strong growing 16% at constant currency over last year and comprises 12% of net sales compared to 13% last year.

On a combined basis, our commercial vehicle and aftermarket businesses comprised 31% of our sales.

And as they are higher than our average margin businesses. They comprised an even greater percentage of the total profitability demonstrating <unk> strong position in these critical verticals.

Overall Q3 growth was driven by improved semiconductor supply, partially offset by the weaker euro demonstrating the benefit of your it's well diversified and broad portfolio of products.

Turning to slide seven.

You see our strong operating performance drove adjusted EBITDA growth as compared to <unk> 2021.

<unk> 2022 volumes of $3 6 million units represented 15% growth over the prior year and 12% growth over Q2 of 2022, driving improved adjusted EBITDA by $38 million compared to the prior year product mix improved by $6 million and inflation pass.

Net of pricing was $43 million when.

With improved productivity of $11 million this more than offset commodity transportation and energy inflation of $52 million.

As discussed we increased spending on R&D by $7 million as we continue to dedicate over 50% to new technologies.

This improved performance was partially offset by the impact of a weaker euro which impacted adjusted EBITDA by $27 million.

The adjusted EBITDA margin came in at 15, 4% versus 16% last year as Olivier mentioned earlier.

If you exclude the impact of FX, the margin would be 100 basis points higher.

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

While we continue to successfully pass through the full impact of these increases to our customers mathematically since both sales and cost of goods sold include these amounts our adjusted EBITDA margin is further diluted by an additional 90 basis points.

This is in addition to the 100 basis points from FX as just mentioned.

So in total our Q3 adjusted EBITDA margin of 15, 4% contains 190 basis points of dilution from the combined effect of FX and inflation pass through.

This is yet another proof point of care its ability to work with customers and suppliers to successfully execute in a volatile inflationary environment.

Moving now to slide eight you can see our adjusted EBITDA to adjusted free cash flow walk for Q3 <unk>.

Looking at the left hand side, you will see that working capital has historically provided a source of cash on an annual basis, assuming a stable or increasing volume and sales environment. As it was in Q4 of 2020, and then again in Q1 and Q4 of 2021 and turning positive again this quarter.

And <unk> 22, working capital was a source of cash of $28 million as industry volumes sales and earnings increased sequentially from the prior quarter.

While volumes are expected to remain flat in Q4 as compared with Q3 working capital will continue to be a source of cash due to the timing of the increase in volume during Q3 as well as lower expected levels of inventory by year end.

Overall, we expect Q4 free cash flow to be $160 million equating to $340 million for the year at the midpoint of our updated full year 2022 outlook.

Free cash flow continues to improve as volumes increased in Q3 and stabilize through Q4.

Turning now to slide nine we ended <unk> 'twenty, two with $634 million of total liquidity comprised of $159 million in unrestricted cash and $475 million of undrawn revolving credit capacity.

Robust cash generation over the last year allowed Gareth to repay the series B preferred stock in full.

Driving improved leverage ratios.

<unk> remaining term loan b debt has no material maturities until 2028.

Currently all term loan debt is denominated in euros, and 80% is that a fixed interest rate for the next three years through cross currency and interest rate swaps executed in 2020.

This results in an effective cost of debt currently under three 2%, which equates to a cash interest expense of less than $10 million per quarter.

Improved free cash flow generation in Q3 and into Q4 has now allowed Garrett to pay the series a preferred stock dividend for Q3 in cash, which equates to approximately <unk> 17 per preferred share for a total of $42 million, which was paid on October <unk>.

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

Turning now to slide 10, you can see the latest forecast from S&P for light vehicle gasoline turbo penetration, which includes hybrid electric platforms.

Terrific.

<unk> penetration rate is expected to increase to 52% by 2025 for gasoline applications, particularly for hybrid solutions.

And when you combine this with a new business win rate of over 50% since 2018.

And note that 85% of the business or.

For 2025 has already been awarded.

This result in a stable and predictable growth trajectory for Garrett over the coming years as the industry stabilizes and recovers.

Moving to slide 11 for the full year of 2022, we are narrowing our net sales range to $3 57 to $3 $67 billion and increasing our net sales growth to seven 9%.

Our net income range allows us and increases to 325 million to $345 million up from the previous range, reflecting the mark to market from our hedges, primarily due to a weaker euro and increased interest rates.

The adjusted EBITDA range narrows to $545 to $575 million, but we are maintaining the midpoint of the prior outlook of $560 million.

Net cash provided by operating activities narrows to 382 $440 million with a lower midpoint of $410 million and adjusted free cash flow narrows to $310 million to $370 million to a lower mid point of $340 million due to a more moderate.

Stable Q4.

On R&D, we continue to expect to spend approximately four 5% of net sales aligned with our prior outlook.

In summary, we are revising our macro assumptions and maintaining the midpoint of our adjusted EBITDA at $560 million and lowering the adjusted free cash flow midpoint to $340 million.

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

Turning to slide 12.

We showed the adjusted EBITDA walk for the full year 2022 year over year, we have approximately the same volume and a slightly improved mix and we have demonstrated a strong ability to pass through inflation.

Overall Garrett is executing extremely well in a volatile environment with full year volumes flattish, but higher in the second half of 2022.

Fortunately we.

We continue to successfully pass through inflation, while delivering on productivity.

All while investing in new technologies.

Lastly on a full year basis. It is important to note the impact on our adjusted EBITDA margin of 70 basis points from FX and 80 basis points from inflation pass through based on our latest outlook.

In conclusion Garrett continues to achieve strong operational execution in Q3 is on track to do so in Q4 in a challenging and FX an inflationary environment.

With that I will now hand, it back to Olivier for his concluding remarks.

Thank you Sean wrapping up with the summary, slide slide 14.

I would stress once again that I am very pleased with the performance of Garrett in Q3, we delivered net sales of $945 million up 13% on a GAAP basis and a 25%.

From a constant currency basis from last year.

We achieved strong operating performance generating $146 million and adjusted EBITDA successfully offsetting inflation effects.

We maintain an adjusted EBITDA margin of 15, 4%, which includes the 190 basis points of impact from FX and inflation first combine that shown explained.

We declared our first cash dividend on our series a preferred which is supported by robust free cash flow of $120 million this quarter.

Continue to have a strong liquidity position of 600.

$4 million with 80% of our long term debt at a fixed rate and we know under 10 million.

Sure.

Forest on our debt.

We revised our outlook for the full year of 2020 to narrowing the range for adjusted EBITDA, but maintaining the previous weak points.

In closing I would like to once again, thank our employees for their dedication and resiliency as a contribution and affect CBD.

That they bring drove another successful quarter of strong performance for Garrett.

Thank you for your time and operator, we are now ready to begin the Q&A session.

Thank you Sir.

To ask a question you will need to press star one on your telephone.

Please standby as we compile the Q&A roster.

And well my first question.

Our first question will come from Amit <unk> of Dws financial your line is open.

Good morning, or good afternoon.

Good morning.

Could you.

Please first start off with.

The China recovery and the impact is the order flow stabilized now I mean, the headlines still suggests there's lockdowns there so how is that impacting.

Your order activity and also protect production activity in the region.

So.

We are not seeing.

<unk> mall.

Very good question, we're not seeing any more of the impact of the Lockdowns.

I see very minimal impact of the lockdowns on the supply chain.

So that's one good point versus what we saw in the first half of the year.

With the Lockdown of Shanghai, and then successive lockdown set up in the country.

What we are watching it very much is the strengths.

The demand in China, because as Shaun was saying of just see we see that the commercial industry suffering which is something we all anticipated, but we are seeing went into our numbers right now.

And.

There is.

Yeah.

A lot of checks that we are doing about the strengths of the demand on the vessel and Joel that ecocide.

We are more looking at the demand and the strength of the demand that's linked to the strength of the economy, New numbers were published last week.

Done then.

The supply chain look down direct effect.

On the on the industry.

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

Flybridge you already have a significant portion of that today. It is ramping up its ramping up everywhere.

And for IDEXX, <unk>, meaning battery electric vehicles.

You need to wait a little bit it'll be stronger so that we'd tell you when it reaches our revenue line today, we are already delivering on the full set aside.

We are not delivering yet on better predict <unk>, we are developing.

And we will update you once we can share more information about <unk> startup production operating.

Okay and then what is your updated guidance suggests Q4 sales might be down from Q3 with flat revenue, but that also implies <unk> being flat to down as well.

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

Question.

The ARPA average revenue per unit.

Our suggestion is three 6 million units.

It also implies it's going to be down.

So theres a lot of moving parts in that number but we are seeing I think if you recall when we had the call in July we had indicated we had thought.

The exit of the quarter would be a bit stronger to the upper end of the guidance. What we are now seeing as we stated in the deck is a flattish Q4.

And there is there are some mix issues associated with that that are driving that dynamic.

But we are able to maintain the midpoint of our guidance at this stage in terms of adjusted EBITDA.

Okay.

The sales impact mostly related to.

What the less commercial or less.

Higher priced units or is it FX related.

So alright, well, we look at it without FX, but over bad, but overall on a reported basis, which is what youre looking at yes. There is a component of FX.

In the guide, it's slightly weaker in the fourth quarter, but we maintained the full year. So.

Not that large of an impact when you compare to the prior guidance, but there absolutely is a mix impact going into Q4 with headwinds for commercial vehicle.

And also light vehicle gasoline being up and Thats, something we didn't necessarily see this quarter.

Okay.

And then.

Switching to 2023 since 98% as it has been awarded.

The unit volume outlook look like for Garrett and does <unk> begin to move up again in 'twenty three because of more inflation pass through.

So for 2023, we are still assessing where volumes will land I think if you've looked at what IHS has done in the last two months they.

They've been dropping their estimates so it still remains a very volatile environment and we will give you an update and our Q4 earnings call for our full year guide, but at this stage, we're still working through all of the macro dynamics.

FX is a component of that as well.

Maybe in addition to that.

In this business, we're leading with the macros that would happen to the industry and since we are selling most of the customers and pretty much everywhere around the world.

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

So if there is an element of macro volatility at the same time, we need to understand the 'twenty.

2023 will show an increase of what we could show you ma'am.

Which reflects the results that we get so fine winning more business. That's a key point to keep in mind.

But we will come back to you once we have more precise view on 2023.

I guess, what im trying to get.

For inflation quite frankly, it's IBD dependent on whether <unk> got trading we've seen.

We have seen recently a little bit.

Easing on the inflation side, so the same way by seeing that.

To the customers on the way up sorry, we're up I think thats due to the customers and we are managing debt with suppliers as well on the on the way down we would adjust for that.

Okay, what I'm trying to get to is that if.

Yes.

Yeah, Gary it's supposed to be a growth story. How are short are you that you can grow units and sales next year.

If it's going to come from different alternative.

Engine sources from your Turbocharges and compressors or I, just wanted to get into that a little bit more.

So those three components.

Three components once again first components macroeconomics second component turbo penetration and as we are showing in the deck turbo penetration is increasing.

Component shell of demand increase.

So the two last ones we are in control modest at least the last one the first one which is still a question of marketing for the overall industry is well do we positioned 2023, the overall automotive industry around the world.

Got it. Thank you and then last question it was.

Now that you're generating.

Free cash flow on it ample basis here and you paid off the series B.

Whats your plan for the excess free cash flow was the deleverage more buyback the series a.

So for the moment as I mentioned.

On the liquidity slide we plan to continue to pay this quarterly dividend on the series, a and cash assuming stable.

Stable stable macro with the macro environment continues to stabilize.

And then we're going to Opportunistically look at potentially paying down some of the accrued amount that we're carrying but we have to put that in perspective of a still a very volatile macro environment, where we are cautiously cautious about.

2023 at this point and also if any other inorganic opportunity may present itself. So for the moment. Our plans are to just pay the series, a and cash, but we evaluate that on a quarterly basis with our board of directors.

And we'll have more information for you.

In the next quarterly call.

Okay I appreciate thank you.

Okay.

Thank you.

As a reminder to ask a question you'll need to press star one one on your phone.

One moment for the next question.

Our next question will come from Philippe Gaza affects.

Your line is open.

I believe that.

Okay.

Your line is muted please <unk> your line.

If the Gaza.

Pardon me Philippe Gaza.

Your line is on mute. Please UN mute your line if they're using a headset. Please put on your headphones.

Okay.

Hey, it looks like Mr. Gaza is unable to ask a question at this time.

Can you hear me.

Yes. This is Brian <unk> from Gabelli funds.

Philippe from Factset.

Can you take my question.

Hi, Brian Okay great.

First of all excellent job and we look forward to seeing Paul next next week I'm just.

I'm just curious as you think about.

The structure of the industry now relative to maybe where you were.

When you were spun.

Has anything accelerated from an EV perspective that is changing the way you think about.

Your own your own product development.

And moving more towards.

Or maybe deemphasizing some programs or platforms that you were thinking or otherwise leaning into.

Three years ago four years ago.

That's a very interesting question, Brian So we've been reflecting on that and for US one more time.

There are two elements to your question. The first question. The first part of the answer is to say.

The travel industry keeps on growing.

And by the way we are winning share.

And it's not moving out anytime soon so I think we are seeing in the deck thats in excess of 70% of what we do comes from aftermarket and commercial vehicle.

And Thats the contribution.

To the bottom line of the company and to the cash generation of those two is obviously in excess of the share.

So think about it if the passenger vehicle business West does appear we would still do a significant business.

Commercial vehicle and aftermarket that's point number one the resilience of the company in the long run and the fact that even today the telco industry.

Growing and we are winning share.

What's happening to 2000 versus 2018.

I think in 2018, I was eluding to the points already that this industry the telco industry.

Is consolidating and it's a technology driven consolidation why because we had a number of challengers that came into the telco industry about 10 years ago.

And not all of the towboat players.

Offering the technologies that are necessary for the kilometers to as they chose that are compliant with regulations moving forward. So you should take the example of valuable geometry on gasoline you have only three players that can provide that if you get to stage technology. Its only two players.

That can provide that and saying you should get across the different verticals. So we are seeing a consolidation that is.

Two the favor off.

The incumbents into an industry that is growing let's keep that in mind.

By the way that technology content in.

<unk> also with the degree of electrification as we said before the percentage of hybrid vehicles that October charge.

Is superior to the percentage of.

Usual internal combustion engine vehicle that October chunk. Okay. So electrification is a good thing for <unk> not only for penetration, but also from technology.

Now if you put that aside and maintenance what is happening is that then all of that is happening in the context of a consolidation of customer platform, meaning that to achieve the same amount of revenue we need to do less April in.

The roofing products.

You have <unk> engine platforms, and therefore, I don't need to develop twice for the same amount of revenue.

That's.

That product Tvt's, you want that's happening on the cultural side.

Combined to all the investments we've made and all the leads that we have launched should get us to the point to date, well, 50% of the company and growing that we're putting behind investment that not treat 82% of total charters.

So we are already seeing the benefits of that and I've mentioned on the corridor. All the success. We are getting on the fuel cell, which is linked to hydrogen question could be our big outdoor Jen and I will soon but it's a very good optionality for the company.

And we are working on some of the things that we cannot share with you yet because these are confidential programs, but we are we are bringing some of these differentiated technology too.

Address the transformation towards more electrification.

And this is very important for us we are plain electrification as an opportunity. We are playing offense. We are not playing defense. We are notable.

<unk>, we are about we want to presume what the DNA of the company is which is going after technology differentiation opportunities and Thats. What we are doing with fuel cell compressor. We've mentioned on the call that we have some great things happening on the electric traction drive DAU also in this area.

We have not disclosed yet where we're pushing that to the same extent and we are seeing that today.

The wave of the transition towards electrification.

Will require much more technology and what it ourself today about a number of players and we want to be playing on those opportunities that offer us.

The nice.

Technology differentiation.

This business is really bringing so it's a long answer to your question, but I would say a lot of things have to change in the sense that there is an acceleration to the trend that we have seen and by the way we are playing that acceleration by putting these are 50% behind not only 50% this year unless John it was already more than 40% beyond electricity.

And we're starting to see some success.

With that.

Okay, that's very helpful.

Question on profitability.

You've done an excellent job given the cross wins that you have faced.

A inflation and FX perspective on incremental margin I am curious when you think about this business.

In a more normalized world.

Think about the incremental margins that you would have.

On the gross line.

Is there anything structurally in the wave of the.

Mid to high 20% range that you've had in the past.

I am not sure brand that were both 20%.

Just to maybe to Greg that points, but what I can tell you is that we.

We are referring back to what we said today.

When you look at this year.

Mid range of the guidance positions us at 15, 5%.

<unk> I was talking on the gross on the gross profit line.

On the on the.

Gross profit I'm, sorry are you talking incremental margin on the growth, yes, yes, we should be on the gross profit line incrementally because we have the necessary footprint in place. So we don't necessarily have to go out and put up a new plan to deal with some of the volume growth were expecting.

We would expect it to be.

Upwards of 20% that's correct okay.

Yes, I mean, you go back to 2015 2017 timeframe in your 24% gross margin business I'm. Just wondering if there is anything structurally preventing that from happening again.

No I think John I think to date would be just as when we are facing as they seek.

And the dilutive impact of cost pass through inflation.

Sure.

Okay, well, thank you very much for taking my questions.

Sorry for the confusion on.

No problem.

Thank you and thanks, Brian .

Yeah.

Again to ask a question. Please press star one one on your phone standby LC compile the Q&A roster.

<unk> no further questions in the queue I would now like to turn the conference back Olivier Latonia.

For closing remarks.

Thank you well once again I am very pleased with the great performance, we had in Q3.

Each.

When we put things back in perspective. It means that we are managing that we're seeing that are in our control.

And you've seen that in the way we are managing the inflation pass through.

Looking forward well.

Obviously, our win rate that is.

A good indication about that will increase shelf demand.

The stability of the outlook of the cash flow for the company and if anything we've proven for the past few years is that we have the flexible cost structure.

That helps us address and offset.

Some of the impact of valuations and volumes and as people look as people look at the uncertainty of 2023.

We feel well prepared to.

The address that uncertainty and take benefit of any seeing that comes our direction.

So with all of that I would thank you everyone.

We look forward to seeing you again beginning of next year.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Okay.

The conference will begin shortly to raise Johan during Q&A you can dial one one.

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Hello, My name is Chris and I will be your operator this morning.

I'd like to welcome everyone to the Garrett Motion Conference call. This call is being recorded and a replay will be available later today.

After the company's presentation there'll be a Q&A session.

I would now like to hand, the call over to Paul Blalock, Garrett Vice President of Investor Relations. Sir. Please go ahead.

Thank you, Chris Good day, and welcome everyone and thank you for joining the Garrett motion third quarter 2022 financial results Conference call.

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

Turning to slide two we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act.

We encourage you to read the risk factors contained in our filings with the Securities and Exchange Commission.

Where are the risks and uncertainties in our business and understand that forward looking statements are only estimates of future performance and should be taken as such forward looking.

Statements represent management's expectations only as of today and the company disclaims any obligation to update.

Also in today's presentation and comments, we may refer to light vehicle diesel light vehicle gasoline products by using the terms diesel and gasoline only.

With us today is Olivier <unk>.

<unk>, President and Chief Financial Officer, and Sean Deason, Garrett Senior Vice President and Chief Financial Officer.

Now I'll hand, it over to Olivier.

Thanks, Paul and welcome everyone to Garrett soft quarter 2022 conference call.

I will begin my remarks on slide three where we start with highlights for the cluster.

And I would like to start by saying I'm very pleased with third quarter results and I would like to thank employees throughout the company for their dedication and <unk>, which helped drive strong software performance in what continues to be a volatile environment.

I am pleased to report that third quarter of 2022 net sales grew 13% to 402 $945 million on a GAAP basis.

Currency base sales grew 25%, although the prior year.

Strong operating performance in Q3 drove adjusted EBITDA of $146 million up 9% of our last year and the adjusted EBITDA margin was 15, 4% thus to 16%.

Shouldnt, we felt as I'll discuss in a few minutes however, taking these adjustments into consideration.

Please see this quarters margin well above last year.

In the third quarter, we also generated robust adjusted free cash flow of $120 million, which was boosted by volume growth and the cash contribution from the change in working capital.

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

So Q2 thousand 22 volume was $3 6 million units up 15%, although the same quarter of last year.

And reflects gradually improving supply chain conditions as well as new gasoline launches.

Importantly, we continue to successfully pass through inflation and deliver productivity, which when combined offset inflationary pressures.

We currently anticipate that the improved demand in Q3, we remained stable and resulting assuming algorithm of three 6 million units in Q4.

Based on these expectations, we are maintaining the midpoint of our adjusted EBITDA outlook, while narrowing and adjusting the previous range.

<unk> ability to consistently generate cash even in difficult times as allowed us to set out our solid dividend on the series a presale sharing cash for the first time, while maintaining a strong liquidity position of $634 million.

And as a reminder, we have no significant near term maturities and approximately 80% of our long term debt as low interest rates and cash interest on the term loan is less than $10 million per quarter.

Turning now to slide four.

We are leveraging our cost trends to develop new technologies, which solve critical powertrain challenges.

Looking at the left hand side of the page we continue to extend our leadership in our cultural business. This is a good industry, while we continue to strengthen our leadership position.

Once again this year, Gary as a secure the win rate in excess of 50%, which means that Garrett that's contracted more than 50% of all customer whole well.

<unk> 2018.

This increasing shelf demand enhances our cash flow generation and enables us to ship of major investment in differentiated technology for the future.

Today about 50% of our gathering of wealth are related to our REIT platforms, confirming that our business is well positioned to benefit from the growth of hybrids as part of our transition to more electrified powertrains.

But although the past few years the launch of E boosting and Schuh said compressors as enabled us to develop differentiated knowledge in key areas like Peter rotating machines power electronics and control software.

We are now building aggressively on these capabilities to develop new products in areas, where we think electrification offers opportunity for differentiation.

Today about 50% of our.

<unk> is dedicated to these electric products.

We are indeed, making significant inroads in schuh sell compressors, we are already in production today with some customers, but as mentioned last quarter. We have won some significant new programs and customers activities are intensifying.

To date Garrett as already delivered about 150 prototypes of fuel cell compressors.

Which were delivered in Q3 alone.

More to come also on the electric traction side as we are leveraging our capabilities to provide our customers with solutions that will keep them step change in power density and efficiency.

This is indeed, an exciting time for us and we can keep the thinking you as we are able to share more about progress we're making these areas.

Now putting things in perspective today, although 99% of the revenue of Garrett is made of developing and selling technologies focused on emission reduction, which makes the cleaner and more efficient.

The purpose of what we will com combined with the efforts we have engaged to strengthen the sustainability of the company I have been recognized by <unk> recently upgraded Garrett to gold.

In our sustainability rating from less Charles rating of <unk>.

This new rating places Gary in the top 2% of our industry our sustainability rating.

This is a great <unk> of what we do at <unk>, but also the way we do it.

With that I will now turn it over to Sean to provide more insight into the results.

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

Looking at the upper left hand graph, you will see reported net sales for the last six quarters with Q3 2022 at $945 million on a volume of $3 6 million units as Olivier mentioned increased <unk> 22 volume drove net sales up 13% on a GAAP basis and <unk>.

Up 25% at constant currency due to improved semiconductor availability inflation pass through to customers and new gasoline product launches.

The impact of these items drove our geographical split of sales from Asia up to 33%.

<unk> 22 from 27% in Q 'twenty, two and nearly back to the <unk> 21 levels when Asia was 34% of total sales.

<unk> declined in <unk> 'twenty due to 45% from 51% in <unk> 'twenty, two and was 47% last year.

Sales in North America were flat sequentially, but up from 17% in <unk> 'twenty one.

These swings geographically are mostly driven by Lockdowns in China earlier this year and then the resulting increased after the Lockdowns ended.

Looking at the right hand side of the page you can see the improvement in adjusted EBITDA to $146 million and <unk> 22, as compared with $138 million in Q2 and $134 million last year.

The adjusted EBITDA margin came in at 15, 4% and while lower than a year ago includes FX and inflation pass through which diluted the <unk> 20 to adjusted EBITDA margin by 190 basis points.

In summary, Q3 results demonstrate <unk> ability to deliver strong operating performance as the industry continues to recover in the face of inflationary pressures.

Turning to slide six you see our year over year net sales bridge by product category.

In Q3, 2022, all verticals improved compared to the prior year, which was the peak of the semiconductor shortage on the industry gassy.

Gasoline products grew 34% at constant currency, adding $111 million in sales versus Q3 of 2021.

Gasoline products now comprise 43% of reported net sales up from 39% last year, driven by volume growth as well as new program launches driven by share of demand gains from our 50% new business win rate since 2018.

Diesel grew 21% at constant currency, adding $48 million to sales versus the prior year and now comprises 25% of total sales versus 27% last year.

Commercial vehicles remained strong growing 20% at constant currency versus last year, driven by strong demand in Europe , Japan, and North America.

These results are impressive given the recent headwinds in China, where there was a significant softening in the commercial vehicle industry.

Commercial vehicles represent 19% of total net sales flat to the prior year.

Next the aftermarket business remains strong growing 16% at constant currency over last year and comprises 12% of net sales compared to 13% last year.

On a combined basis, our commercial vehicle and aftermarket businesses comprised 31% of our sales.

And as they are higher than our average margin businesses. They comprised an even greater percentage of the total profitability demonstrating <unk> strong position in these critical verticals.

Overall Q3 growth was driven by improved semiconductor supply, partially offset by the weaker euro demonstrating the benefit of Gary it's well diversified and broad portfolio of products.

Turning to slide seven.

You see our strong operating performance drove adjusted EBITDA growth as compared to <unk> 2021.

Three Q2 thousand 22 volumes of $3 6 million units represented 15% growth over the prior year and 12% growth over Q2 of 2022, driving improved adjusted EBITDA by $38 million compared to the prior year.

Mix improved by $6 million and inflation pass through net of pricing was $43 million.

When combined with improved productivity of $11 million this more than offset commodity transportation and energy inflation of $52 million.

As discussed we increased spending on R&D by $7 million as we continue to dedicate over 50% to new technologies.

This improved performance was partially offset by the impact of a weaker euro which impacted adjusted EBITDA by $27 million.

The adjusted EBITDA margin came in at 15, 4% versus 16% last year as Olivier mentioned earlier.

If you exclude the impact of FX, the margin would be a 100 basis points higher.

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

This is in addition to the 100 basis points from FX as just mentioned.

So in total our Q3 adjusted EBITDA margin of 15, 4% contains 190 basis points of dilution from the combined effect of FX and inflation pass through.

This is yet another proof point of Garrett the ability to work with customers and suppliers to successfully execute in a volatile inflationary environment.

Moving now to slide eight you can see our adjusted EBITDA to adjusted free cash flow walk for Q3.

Looking at the left hand side, you will see that Garrett is working capital has historically provided a source of cash on an annual basis, assuming a stable or increase in volume and sales environment. As it was in Q4 of 2020, and then again in Q1 and Q4 of 2021 and turning positive again this quarter.

<unk> <unk> 22, working capital was a source of cash of $28 million at industry volumes sales and earnings increased sequentially from the prior quarter.

Overall, we expect Q4 free cash flow to be $160 million equating to $340 million for the year at the midpoint of our updated full year 2022 outlook.

Free cash flow continues to improve as volumes increased in Q3 and stabilize through Q4.

Turning now to slide nine we ended <unk> 'twenty, two with $634 million of total liquidity comprised of $159 million in unrestricted cash and $475 million of undrawn revolving credit capacity.

Robust cash generation over the last year allowed Gareth to repay the series B preferred stock in full.

Driving improved leverage ratios.

Gary its remaining term loan b debt has no material maturities until 2028.

Currently all term loan debt is denominated in euros and 80% is at a fixed interest rate for the next three years through cross currency and interest rate swaps executed in 2020.

This results in an effective cost of debt currently under three 2%, which equates to a cash interest expense of less than $10 million per quarter.

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

Turning now to slide 10, you can see the latest forecast from S&P for light vehicle gasoline turbo penetration, which includes hybrid electric platforms.

Triple play the turbo penetration rate is expected to increase to 52% by 2025 for gasoline applications, particularly for hybrid solutions.

And when you combine this with a new business win rate of over 50% as 2018.

And note that 85% of the business or.

For 2025 has already been awarded.

This results in a stable and predictable growth trajectory for Garrett over the coming years as the industry stabilizes and recovers.

Moving to slide 11 for the full year of 2022, we are narrowing our net sales range to $3 57 to $3 $67 billion and increasing our net sales growth to seven 9%.

The adjusted EBITDA range narrows to $545 to $575 million, but we are maintaining the midpoint of the prior outlook of $560 million.

Stable Q4.

On R&D, we continue to expect to spend approximately four 5% of net sales aligned with our prior outlook.

In summary, we are revising our macro assumptions and maintaining the midpoint of our adjusted EBITDA at $560 million and lowering the adjusted free cash flow midpoint to $340 million.

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

Turning to slide 12.

Overall Garrett is executing extremely well in a volatile environment with full year volumes flattish, but higher in the second half of 2022.

Importantly, we.

We continue to successfully pass through inflation, while delivering on productivity.

All while investing in new technologies.

Lastly on a full year basis. It is important to note the impact on our adjusted EBITDA margin of 70 basis points from FX and 80 basis points from inflation pass through based on our latest outlook.

In conclusion Garrett continues to achieve strong operational execution in Q3 is on track to do so in Q4 in a challenging and FX an inflationary environment.

With that I will now hand, it back to Olivier for his concluding remarks.

Thank you Sharon wrapping up with this summary, slide slide 14 them.

I would stress once again that I am very pleased with the performance of Garrett in Q3, we delivered net sales of $945 million up 13% on a GAAP basis and a 25%.

From a constant currency basis from last year.

We achieved strong operating performance generating $146 million and adjusted EBITDA successfully upsetting inflation effects.

We maintain an adjusted EBITDA margin of 15, 4%, which includes the 190 basis points of impact from FX and inflation pass through combine that shown explained.

We declared our first cash dividend on our series a preferred which is supported by robust free cash flow of $120 million this quarter.

We continue to have a strong liquidity position of 600.

$4 million with 80% of our long term debt at a fixed rate and we know under $10 million per quarter.

On our debt.

We revised our outlook for the full year of 2020 to narrowing the range for adjusted EBITDA, but maintaining the previous weak points.

In closing I would like to once again, thank our employees for their dedication and resiliency as their contribution and affect CBD key that they bring drove another successful quarter of strong performance for Garrett.

Thank you for your time and operator, we are now ready to begin the Q&A session.

Thank you Sir.

To ask a question you will need to press star one one on your telephone please.

These standby LC compile the Q&A roster.

And while my first question.

Our first question will come from Amit <unk>.

<unk> of Dws financial your line is open hi.

Good morning, or.

Good afternoon.

Good morning.

Okay.

Please first start off with.

The China recovery and the impact is the order flow stabilized now I mean, the headlines still suggests there's lockdowns there so how is that impacting.

Your order activity and also product production activity in the region.

So.

We are not seeing it.

In the mall.

Good question, we're not seeing any more of the impact of the Lockdowns.

I see very minimal impact of the lockdowns on the supply chain.

So that's one good point versus what we saw in the first half of the year with the Lockdown of Shanghai, and then successive lockdowns stood up in the country.

What we are watching very much is the strength of.

The demand in China, because as Shaun was saying, obviously, we see that the commercial industry suffering which is something we all anticipated, but we are seeing went into our numbers right now.

And.

There is <unk>.

<unk>.

A lot of checks that we are doing about the strengths of the demand on the best on Java Eco site.

We are more looking at the demand and the strength of the demand that's linked to the strength of the economy and our new numbers were published last week.

Dan.

Sure.

And look down direct effect.

On the on the industry.

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

Flybridge you already have a significant portion of that today, it's ramping up ramping up everywhere.

And for electric vehicles, meaning battery electric vehicles.

You need to wait a little bit a little bit stronger so that we would tell you when it reaches our revenue today, we are already delivering on the full set aside.

But we are not delivering yet on battery electric vehicle, we are developing.

And we will update you once we can share more information about <unk> startup prediction Anthony.

Okay.

Why does your updated guidance suggests Q4 sales might be down from Q3 with flat revenue, but that also implies <unk> being flat to down as well.

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

The ARPA average revenue per unit. So if your suggestion is $3 6 million units.

Also implies it's going to be down.

So theres a lot of moving parts in that number but we are seeing I think if you recall when we had the call in July we had indicated we thought the exit of the quarter would be a bit stronger to the upper end of the guidance. What we are now seeing as we stated in the deck is a flattish Q4.

And there is there are some mix issues associated with that that are driving that dynamic.

We are able to maintain the midpoint of our guidance at this stage in terms of adjusted EBITDA.

Okay, but is the sales impact mostly related to.

What the less commercial or less.

Priced units or is it FX related.

So alright, well, we look at it without FX, but over bad, but overall on a reported basis, which is what you are looking at yes. There is a component of FX.

In the guide.

Slightly weaker in the fourth quarter, but we maintained the full year. So it's not that large of an impact when you compare to the prior guidance, but there absolutely is a mix impact going into Q4 with headwinds for <unk>.

Commercial vehicle.

And also light vehicle gasoline being up with and Thats, something we didn't necessarily see this quarter.

Okay.

And then so.

Switching to 2023 since 98% as it has been awarded but what does the unit volume outlook look like for Garrett and does <unk> begin to move up again in 'twenty three because of more inflation pass through.

So for 2023, we are still assessing where volumes will land I think if you've looked at what IHS has done in the last two months.

They have been dropping their estimates so it still remains a very volatile environment and we will give you an update and our Q4 earnings call for our full year guide, but at this stage, we're still working through all the macro dynamics.

And FX is a component of that as well.

Maybe in addition to that.

More business.

So if there is an element of Macrobid actually G. At the same time you need to understand that 2000, 2023 will show an increase of off what we called shelf.

Which reflects the results that we got so fine when you more business, that's a key point to keep in mind.

But we will come back to you once we have more precise view on 2000 2000 straight.

I guess, what I'm trying to get.

For inflation quite funky, it's I D dependent on whether <unk> was off training we've seen we've seen recently.

Beat up eating on the inflation side, so the same way well I've seen that.

To the customers on the way up sorry, well I think that'll do it.

To the customers and while managing desperately suppliers as well on the on the way down.

For that.

Okay, what I'm trying to get to his status.

Gary it's supposed to be a grilled story you know how how are assured are you that you can grow units.

Sales next year.

If it's gonna come from you know different alternative Ah.

Engine sources from your Turbocharges and compressors or I, just wanted to get into that a little bit more so a three component.

Components once again components macroeconomics second components cable penetration as we are showing in the deck trouble penetration, increasing subcomponent shallow demand increase.

So the two last ones we are in control maness at least the last one the first one which is a question mark is sinful yoga or industry.

Is.

Well do we position 2023 called yoga all of them with your industry around the world.

Got it. Thank you and then last question was now that you're generating if it.

Free cash flow ample basis here and he paid off the series be what's your plan for the excess free cash flow is it deleverage more buyback at the series a.

So for the moment as I mentioned.

On the liquidity slide we plan to continue to pay the quarterly dividend on the series ending cash assuming stable.

[noise] stable disable macros macro environment continues to stabilize.

And then we're gonna Opportunistically look at potentially paying down some of the Ah crude amount that we're carrying but we have to put that in perspective of is still a very volatile macro environment, where we are cautious cautious about.

2023 at this point and also if any other inorganic opportunity may present itself. So for the moment. Our plans are to just pay the series a cash, but we evaluate that on a quarterly basis with our board of directors.

And we'll have more information for you.

In the next quarter to call.

Okay I appreciate it thank you.

Thank you.

Has it reminded to ask a question you need to pay a style one one on your phone.

One moment for the next question.

Next question will come from Philippe Gaza affects it your line is open.

I believe that.

[laughter].

<unk>. Please on your line.

If the Gaza.

Pardon me Philippe Gaza Uhm.

If your line is on US please I need your line if you're using a headset. Please put on your headphones.

Okay.

Okay. It looks like I'm missing that Gaza is unable to ask a question at this time.

Hello can you hear.

Yes. This is Brian spy are from good belly funds not.

Sleep from fax it.

Can you take my question.

Brian Okay.

First of all excellent job and we look forward to seeing politics next week I'm just.

I'm just curious as you think about.

The structure of the industry now relative to maybe where you were when.

When you were spun.

Has anything accelerated from Nev perspective that is changing the way you think about.

Your own.

One product development.

And moving more towards.

Or maybe deemphasizing. Some programs are platform said that you were thinking of otherwise leaning into.

Three years ago four years ago.

That's a very interesting question Bryan so we've been reflecting on that for us one more time.

<unk> to your question. The first question the first part of the again sorry to say.

The travel industry keeps on growing.

And by the way we are winning sure.

And it's not moving out anytime soon so I think we are seeing in the deck that's in excess of 70% of what we do.

Comes from <unk> market and financial detail.

That's the contribution.

To the bottom line of the company and to the guys generation of those two is obviously in excess of these share.

So think about each passenger all that <unk> business Westwood disappear, we would see I'll do a significant business.

Commercial vehicles and ethanol market that's point number one the residents of the company in the long run and the fact that even today the chocolate industry is growing and we are winning sure.

What's happening to 2000.

2018.

I think in 2018, I was alluding to the point already that this industry. The total industry is consolidating and technology driven consolidation why because we had a number off challengers that came into the timber industry about.

10 years ago.

And not all of the trouble players are offering the technologies that are necessary for the comic jurors to Ave. They chose that our compliance with regulations moving follow up. So you should take the example of valuable geometry home gathering you have only three players that can provide that if you.

Get to stage technology, it's only two players that can provide that and same you should get across the different vehicles. So we are seeing a consolidation that.

<unk>.

To the fever off.

The incumbents into an industry that is growing let's keep that in mind.

By the way that technology content increases also with the degree of electrification as we said before the percentage of hybrid vehicles that showboat charge is superior to the percentage off.

Mmm usual internal combustion engine vehicle that's October chunk. Okay. So electrification is a good thing for cable not lethal penetration, but also for technology.

Now if you put <unk> side of minutes, what's happening is that then.

That is happening in the context of a consolidation of customer platform, meaning that to achieve the same amount of revenue we need to do less <unk> in.

Directing products meeting.

Meaning you have bigger engine platforms, and therefore, I don't need to develop twice for the same amount of revenue.

That Ah that product Tvt's Yuan that's happening on on the cultural side.

Combined to all the investments we've made and all the leads that we are non should get us to the point to date, while we are 50% of the company and growing that we are putting behind investment that are not related to the total chapters.

So we are already seeing the benefits of that and I've mentioned on the court or the success, who are getting on this huge cell, which is linked to hydrogen question could be Vega Georgian and I was soon but it's a very good option for the company.

And we are working on some of the things that we cannot share with you yet because it's all confidential programs, but we are we are bringing some of these differentiated technology to address.

Address the transformation to <unk> and.

And this is very important for us we are playing electrification as an opportunity. We are playing offense wound up playing defense, we all know that but after <unk>. We all about we want to preserve what the DNA of the company is which is going <unk> technology differentiation opportunities and Thats.

We are doing we switch that compressor.

We've mentioned on the call that we have some great things happening on the electric shock traction drive down also and those are all area that we admit disclosed yet we are we are pushing that to the same extent and we are seeing that today. The second wave of the transition towards electrification will require much more technology and what is.

Self today about a number of players and we want it to be playing on those opportunities that are familiar to us.

The nice.

Technology differentiation that <unk>.

Business is really bringing so it's a long himself to your question, but I would say a lot of things after change in the sense that there is an acceleration to the trends that we have seen and by the way we are playing that acceleration by putting these are 50% beyond just mopane, 60%.

It was already more than 40% behind electrification and we are starting to see some success.

With that.

Okay. That's that's very helpful that a question on profitability.

You've done an excellent job given the crosswinds that you have faced.

A installation and FX perspective on incremental margin I'm curious what do you think about this business.

In a more normalized world.

When you think about the incremental margins that you would have.

On the gross line.

Is there anything structurally in the ways of the <unk>.

Mid to high 20 per cent range that you've had in the past.

I am not sure brand that we both.

Both 20%.

Just to maybe to Greg that point, but what I can tell you is that we.

We are referring back to what we said today.

When you look at this year.

<unk> of the guidance physicians us at 15.5%.

<unk> I was talking on the gross on the gross profit line not on the on the.

Gross profit I'm, sorry are you talking incremental margin.

<unk>, yes, yes.

We should be on the gross private line incrementally because we have the necessary footprint in place. So we don't necessarily have to go out and put up a new plan to deal with some of the volume growth. We're expecting we would expect it to be.

To 20%.

Correct.

Yep.

You go back to 2015 2017 timeframe in your 24% gross margin business I'm, just wondering if there's any spending structurally preventing that from happening again.

I assume charm I think to the the biggest the biggest is when we are facing is <unk> and the dilutive impact of course, best true integration, but huh.

Sure.

Okay, well. Thank you very much for taking my questions and I'm sorry.

Sorry for the confusion on no no comment.

Huh.

Thank you and express.

Again to ask a question. Please press star one one on your phone standby as a compiled the Q&A roster.

I see no further questions in the queue I would now like to turn the confidence that Olivier Latonia.

Closing remarks.

Thank you well once again I'm very pleased with the great performance, we add in Q3.

It's when we put things back in perspective. It means that we are managing Delaware sings the guy in our control.

And you've seen that in the way we are managing inflation burst through.

Looking for World, we have obviously when rates that is.

Good indication about that will increase shelf demand.

The stability of the outlook of the cash flow for the company and finishing with proven for the past few years is that we have the flexible cost structure.

That helps us address and offset.

Some of the impacts of valuations and volumes and people look at people look at the uncertainty of 2023.

<unk> <unk> <unk>.

<unk> and take benefits of any seeing that comes out while direction.

So we don't have that I would thank you everyone and we look forward to seeing you again beginning of next year.

This concludes today's conference call.

You all for participating you may now disconnect and have a pleasant day.

Q3 2022 Garrett Motion Inc Earnings Call

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