Q4 2022 Garrett Motion Inc Earnings Call
Speaker 2: 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's Vice President of Investor Relations.
Speaker 3: Thank you Jason, good day and welcome everyone and thank you for joining the Garrett Motion 4th Quarter in full year 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 GarrettMotion.com.
Speaker 3: where you will also find links to our SEC filings along with other important information about our company.
Speaker 3: Turning to slide two, we note that this presentation contains forward looking statements within the meaning of the Securities Exchange Act, and we encourage you to read the risk factors contained in our filings with the SEC, become aware of the risks and uncertainties in our business, and understand that forward looking statements.
Speaker 3: are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations only as up today and the company disclaims any obligation to update them.
Speaker 3: Today's presentation also includes non- GAAP measures to describe the way in which we manage and operate our business. We reconcile each of those measures to the most directly comparable GAP measure and you are encouraged to examine those reconciliations which are found in the appendix to both the press release and the slide presentation.
Speaker 3: Also, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only.
Speaker 3: With us today is Olivier Ravier, Garrett's president and chief executive officer and Sean Deason, Garrett's senior vice president and chief financial officer.
Speaker 3: In addition, I would like to introduce Eric Burge, who joined Garrett as head of Investor Relations earlier this month.
Speaker 3: He is based at our North American headquarters in Plymouth, Michigan, and is now responsible for investor relations. I will remain with Garrett until the end of March to ensure a smooth transition of all activities to Eric. I would like to thank everyone for your time and support over the past five years.
Speaker 3: and wish you and Garrett a very successful future. I will now hand it over to Olivier. Thanks for joining us and welcome everyone to Garrett's fourth quarter and full year of 2022 Results Conference call.
Speaker 4: First, I would like to personally thank Paul for his support since the spin-off and I'm wishing him all the best.
Speaker 4: I would also like to welcome Eric as our new head of investor relations.
Speaker 4: I will begin my remark on slide 3 where we start with the highlights for the year.
Speaker 4: Garrett had a strong 2022 performance and I'm very pleased with these results.
Speaker 4: I would like to recognize the Global Garage team for their dedication and flexibility which helped achieve our results in what continues to be a volatile environment.
Speaker 4: In Q4, net cells were 898 million up 4% from the same period last year on gap basis, but up 15% on the constant currency basis.
Speaker 4: Juste Divida was 114 million in Q4 versus 129 million in the same period last year.
Speaker 4: Our Q4 adjusted free cash flow was the highest quarter of the year at 132 minutes.
Speaker 4: This strong operating performance upset headwinds from inflation, a weaker euro and sequentially lower volume, that were mainly driven by a late in the quarter softness in China.
Speaker 4: But I want to take a moment and give a special thank you to our employees in China, who once again end all the COVID disruptions in the fourth quarter in a very effective manner.
Speaker 4: In Q4, we also benefited from a rich or mixed driven by our higher margin commercial vehicle and our tomato market business company.
Speaker 4: For the year, net sales were just over 3.6 billion, down 1% on the gap basis, but up 8% on the Concentreurancy basis compared with 2021.
Speaker 4: This outpaced global light vehicle production by 200 basis points.
Speaker 4: This growth is driven by our successful efforts in recovering full inflation pastures, improving mixed and strength in gas and in volume. This growth is driven by our successful efforts in recovering full inflation pastures, improving mixed and strength in gas and in volume.
Speaker 4: essentially offsetting a fixed atwind.
Speaker 4: The first one I just did a big day was 570 million. Near the ironed wall, later styled loops, but down 6% versus 2021, many due to ethics.
Speaker 4: For 2022, Garrett delivered solid employment in productivity and fast-swim inflation.
Speaker 4: even as we increase investment into electric aviation technologies.
Speaker 4: Importantly, Garrett continues to achieve his target and manage volatility.
Speaker 4: We accomplish this by flexing our highly variable cost structure to offset ongoing volatility in production. Supply chain disruption including semiconductor availability and lower demand in China during lockdowns.
Speaker 4: The 2022 Fudior adjusted EBITDA margin was 15.8% compared with 16.7% in 2021.
Speaker 4: While the margin is lower than last year, pass-through of inflation costs, along with Essex, are the combined impact of 80 basis points.
Speaker 4: Shen will discuss this in more details in a few minutes. However, taking this into consideration, the 2022 margin are essentially flat with 2021.
Speaker 4: In 2022, Garrett accomplished great inflation pass rule, which along with significant productivity and productivity improvements offset inflationary pressures.
Speaker 4: This was an important achievement and the results of very effective coordination throughout the company.
Speaker 4: Garet's ability to consistently generate cash and produce solid margins, even in times of volatility, is a direct result of our highly valuable costructure and our track records of flexing that costructure.
Speaker 4: In addition, our growth product portfolio helps manage solid performance across business cycles.
Speaker 4: For example, our combined cells from our IOMargin commercial vehicle, Ernaston market products, comprise 31% of net cells and independent of light vehicle trends and contributes to our instability.
Speaker 4: Throughout 2022, Garret both simplified and delivered its balance sheet.
Speaker 4: Specifically, the generation of 313 million adjusted free cash flow enabled us to fully redeem the series B-Preserve shares early in 2022 and later in the year to settle the series with a dividend demand for Q3 and Q4 in cash.
Speaker 4: Yaret's financial flexibility is also enhanced by our low interest payments at total adult terms with 80% of our long-term debt now at fixed rates.
Speaker 4: Most importantly, Gareth continues to maintain a strongly-quiddity position of 721 million with no significant depth materialities until 2028.
Speaker 4: Q4 and 2020 to fully a result once again demonstrate guaranteed stability to deliver strong results and enable the time on the enrollment while continuing to announce our financial flexibility.
Speaker 4: Turning 9 to slide 4. Garrett's co-business performance is an end by our differentiated technologies.
Speaker 4: In gasoline products, which includes hybrid electric platforms, turbo penetration keeps increasing. In fact, the latest S&P forecast for light-surgical gasoline turbo penetration is forecasted now to grow from 47% in 2022 to 51% in 2025.
Speaker 4: As we will later discuss, we also expect our strong business win rate to translate into shared demand gains in 2023 and beyond to drive even greater growth for Gareth.
Speaker 4: The valuable noses and turbine of VNT applications are a guaranteed innovation with decades of technology leadership.
Speaker 4: Emerging gasoline VNT applications are expected to ramp up threefold, reaching 35% in the street penetration by 2025.
Speaker 4: Garrett's long story in diesel products has continued also to prove residents as like the commercial vehicles now represent 50% of our diesel volumes and we expect it will continue to grow.
Speaker 4: Our on-eye wage elbow business is equally resilient with S&P projecting 20% to 22% on-eye and in the street growth from 2022 to 2025.
Speaker 4: In off-high web product also, turbo adoption is projected to add even greater growth, increasing from 52% in 2022 to 60% presentation by 2025.
Speaker 4: Our innovative, each oboe and e-compress of solutions continue to again momentum in the meantime as we had in Newcastle contract in 2022 for these exciting new technologies.
Speaker 4: Lastly, emerging new hydrogen-ice products require 100% penetration of highly engineered turbos.
Speaker 4: We expect to launch these H2I products into production later this year already.
Speaker 4: Semigodole, Garrett's continued, new business win rate of about 50% since 2018, continues to drive new commitments and program awards extending for many years into the future. Our awarded business already represent 88% of our projected 2025 self, highlighting the strong visibility of future revenue.
Speaker 4: Now turning to slide 5. Carrot is driving differentiation in electrification.
Speaker 4: On the left hand side of the page you can see Garrett's key differentiated capabilities in turbo machines, where we have high precision component design and unique high speed balancing capabilities.
Speaker 4: The development of e-boosting has also enabled us to build unique cutting edge knowledge and capabilities in high-speed motors and power electronics. High-speed motor suits as the one developed for the e-turbo can rotate in excess of 200,000 rpm.
Speaker 4: and Gareth has also designed and engineered high switching speed power electronics and control software. Our aim is to leverage these advanced capabilities to provide our customers with different shared solutions they need to address other non-turbo-related electrification challenges where power-density and efficiency are key.
Speaker 4: I am very pleased to report that in Q4, Gareth won the first I-speed E-AXEL pre-development project with a major global VM.
Speaker 4: being awarded a pre-development in this area.
Speaker 4: awarded a pre-development in this area is a major victory for Garrett.
Speaker 4: We are also working with more than 10 additional customers on this very unique I-Speed product concept.
Speaker 4: In the fuel cell area, Garrett continues to win series development awards for commercial vehicle applications. In 2022, Garrett won three series production contracts for our fuel cell products, one in North America, one in China and one in Europe . To help you size up the traction we have here, let me tell you we provided 200 prototypes to key industry innovators.
Speaker 4: and we are currently working with over 15 engaged customers. With that, I will now hand it over to Shem to further discuss our financial results and 2023 outlook.
Speaker 2: Thanks Olivier, and welcome everyone. I will begin my remarks on slide 6.
Speaker 2: Looking at the upper left-hand graph, you will see reported net sales for the last eight quarters with Q4 2022 at 898 million, up from Q4 of 2021 by 4% on a gap basis.
Speaker 2: 15% on a constant currency basis driven by continued past
Speaker 2: Looking at the upper right-hand side of the page, Q4 2022 adjusted EBITDA of $140 million was up 9% from $129 million last year.
Speaker 2: The adjusted EBITDA margin in the period was 15.6 percent, up from 15 percent last year, and includes the delutive impact of FX and inflation pass-through of 70 basis points. On the bottom left-hand graph, we show that Garrett generated positive adjusted pre-cash flow of 132 million in Q4.
Speaker 2: 22. Up sequentially from 120 million in Q3, 2022 and the best quarter of the year even with the slowdown of volumes in Q4 mentioned earlier by Olivier.
Speaker 2: Turning to slide seven, we show our two Ford Net Sales Bridge by product category as compared with the same period last year. Net sales were up 4% on a gap basis and 15% on a constant currency basis.
Speaker 2: We had double digit gains across all major product lines driven by our ability to pass through higher costs in a flat volume environment combined with improved mix primarily across commercial vehicle and aftermarket businesses.
Speaker 2: across all major product lines, driven by our ability to pass through higher costs in a flat volume environment combined with improved mix primarily across commercial vehicle and aftermarket businesses, partially offset by FX.
Speaker 2: All verticals improved compared to the prior year, with gasoline products up 17% to Compton currency adding 60 million in sales. Gasoline products now comprise 42% of reported net sales, with verses 41% last year, proven by new program launches and share of demand gains.
Speaker 2: Diesel products grew 13% accounts to currency adding 29 million to sales and comprised 25% total sales flat with last year. Commercial vehicles grew 14% accounts in currency driven by strong demand in Europe , Japan, and North America.
Speaker 2: These results are impressive given recent headwinds in China, where there was a significant softening in the demand for commercial vehicle products.
Speaker 2: Even with the downturn of this business in China, commercial vehicles represented 19% of total net sales in Q4 2022, unchanged from 2021.
Speaker 2: Our aftermarket business remains strong, growing 14% at constant currency over the last year, and comprises 13% of net sales up from 12% last year.
Speaker 2: Overall, Q4 growth was driven across all products partially offset by FX.
Speaker 2: Turning the slide 8, we show our Q4 adjusted evid up bridge compared with the same period last year.
Speaker 2: While this period's volumes were virtually flat with the same period last year, adjusted EBITDA of 140 million represented in 11 million improvement.
Speaker 2: This performance is mainly attributed to improvement in inflation past due in productivity.
Speaker 2: R&D investment increased by 4 million as planned and we continue to dedicate over 50% of total R&D to new technologies.
Speaker 2: Overall, operating performance improved by 23 million year-over-year and was partially offset by the impact of a weaker euro.
Speaker 2: As mentioned earlier, the adjusted EBITDA margin in the quarter was 15.6% versus 15% last year, and included the delude effects of 70 basis points from FX and inflation pass-through, without which puts our margin in the solid 16% range.
Speaker 2: Overall, Garrett delivered improved results in a flatish volume environment, offsetting inflation, and the weaker Euro in Q4.
Speaker 2: Turning now to slide 9, we show our 2022 performance compared to the prior year.
Speaker 2: On a full year basis, 2022 reported net sales were down 1% on a gap basis, essentially flat at 3.6 billion and up 8% at constant currency.
Speaker 2: The geographical revenue split was affected by lower volume in China associated with continued COVID lockdowns, which caused net sales in Asia to decrease by 3% and was offset by an increase in North America.
Speaker 2: Adjusted EBITDA of 570 million for 2022 was at the high end of our previously provided 2022 outlook, but lower than 2021 by 37 million, and includes an unfavorable FX impact of 67 million due to the weaker euro.
Speaker 2: The adjusted EBITDA margin of 15.8% for 2022 was down 90 basis points with the vast majority of this variance driven by FX and inflation pass-through.
Speaker 2: Without those impacts, the margin would have essentially been the same in both periods.
Speaker 2: Adjusted pre-cash blow of $313 million for 2022 was lower than last year by $54 million, due to lower adjusted EBITDA and increased capital expenditures.
Speaker 5: Now let me walk you through the specifics of each of these items.
Speaker 5: Turning to slide 10.
Speaker 5: We show our net sales bridge by Friday, Cateorg for the full year of 2022 as compared to 2021.
Speaker 5: which shows a similar trend to what we discussed earlier regarding Q4.
Speaker 5: Garrett delivered growth across all verticals, particularly in gasoline products, where we expect to become number one globally in 2023. We expect our share of demand, gain to be a key driver to higher sales volumes in 2023 in an essentially black global production environment.
Speaker 5: This growth translated into 274 million in operating performance improvement in 2022, which is offset by the impact of that fact of 304 million as the Eurodalar rate declined from 1.18 in 2021 to 1.05 in 2022.
Speaker 5: Without the FX impact on a constant currency basis, net sales increased 8% in 2022.
Speaker 5: The key drivers of this operating performance were pass-through of higher costs and a flat volume environment, improved mix primarily across commercial vehicle and aftermarket products, and higher gasoline volumes from share of demand gains.
Speaker 5: In 2022, gasoline product sales increased 183 million or 13 percent and comprised 41 percent of net sales up from 39 percent in 2021. Jordan by volume growth as well as new program watches.
Speaker 5: Diesel products grew 1% for the year at constant currency, adding 12 million to sales in 2022, and comprised 26% of total sales versus 29% last year.
Speaker 5: Commercial vehicles were 3% of constant currency driven by strong demand in Europe , Japan, and North America. Again, these results are impressive given recent headwinds in China, where we saw significant softening in the commercial vehicle industry.
Speaker 5: Commercial vehicles represent 19% of total net sales flat with last year.
Speaker 5: Aftermarket was up 15% at constant currency year over year in comprises 12% of net sales up from 11% in 2021.
Speaker 5: Overall, revenue growth was driven by improved mix and inflation pass-through but offset by FX.
Speaker 5: Turning out to slide 11, we show the adjusted EBIT Dubbridge for the Fulure 2022 versus 2021.
Speaker 5: We continue to successfully pass through inflation while delivering on productivity and investing in new technology for the future.
Speaker 5: For 2022, slightly lower volumes are offset by MEX for a positive net impact of 17 million compared to the prior year.
Speaker 5: We delivered on productivity and passed the replacement, which more than offset all inflationary pressures in a higher R&D spend for the year. In total, we produced 30 million in operating improvements versus 2021, which was offset by a weaker euro that negatively impacted full-year adjusted EBITDA by 67 million.
Speaker 5: Over the year, we invested an additional 17 million in R&D as planned, and we continue to dedicate over 50 percent of total R&D spending to electrification technologies.
Speaker 5: The total 2022 adjusted EBITDA of 570 million was lower by 37 million due to FX headwinds offsetting operational improvements.
Speaker 5: The 2022 adjusted EBITDA margin came in at 15.8% versus 16.7% last year. On a full-year basis, adjusted EBITDA was lower by 90 basis points.
Speaker 5: of which, uh, 90 basis points due to the combined impact of FX and inflation pass through.
Speaker 5: In summary, Garrett had another year of strong operational performance delivering predictivity and passing to reemplation while continuing to invest in new technologies.
Speaker 5: Garrett had another year of strong operational performance delivering predictivity and passing to inflation while continuing to invest in new technologies. Moving to slide 11.
Speaker 5: We show the adjusted EBITDA to adjust the pre-cast flow bridge for 2022.
Speaker 5: Garrett delivered solid adjusted pre-cast flow of 313 million despite lower than expected volumes in Q4 and this performance was within our full year outlook at the low end of the guidance range. Adjusted pre-cast flow was impacted by a use of working capital of 22 million driven by a lower Q4
Speaker 5: Volume versus Q3 sequentially, cash taxes were 42 million, capital expenditures came in at 91 million, including 8.7 million for electrification technologies.
Speaker 5: which is queued recently. Cash taxes were 42 million. Capital expenditures came in at 91 million, including 8.7 million for electrification technologies. And cash interest was 37 million.
Speaker 5: In addition, the Series B preferred stock interest was 28 million and represented our final payment as the Series B was fully redeemed in 2022.
Speaker 5: Overall, this solid cashflow generation and a volatile environment allows Garrett to improve liquidity.
Speaker 5: Turning the slide 13, we ended 2022 with a strong liquidity position of 721 million, comprised of 475 million of under-on revolving credit facility capacity and 246 million of unrestricted cash.
Speaker 5: which decreased 97 million sequentially, which increased 97 million sequentially, and it added to the 42 million payment at year end for the Q4 Series A dividend settled on January 3rd, 2023.
Speaker 5: During Q4, we purchased 2.5 million dollars of Series A for Ferdstock. Moreover, we paid a total of 83 million of Series A cash dividends for Q3 and Q4 combined.
Speaker 5: Here it significantly improved its leverage ratio in 2022, driving our net debt to the last 12 months consolidated EBITDA ratio to 1.64 times.
Speaker 5: in Q4 of 2022 down from 1.95 times in Q4 2021.
Speaker 5: Robotic and consistent cache generation has enabled us to simplify and deliver our balance sheet.
Speaker 5: In early 2022, Garrett completed the full redemption of the $595 million in series B preferred stock issued at Emergence, and we received a debt rating upgrade from Moody's, increasing a rating from BA3 to BA2 with a stable outlook.
Speaker 5: Changes in the term OMB balance are primarily driven by exchange rate movements in the Euro.
Speaker 5: that you see in the table above. As of year end 2022, 80% of our long-term debt is at fixed rates during the year. And during the year we increased our revolving credit facility to $470 million from $300 million at year end 2021. And finally on the bottom of the left slide.
Speaker 5: You will see we had a combined equity market cap at the end of the year over $2.6 billion when you include both the common stock and our series A.
Speaker 5: Now I'll move to slide 14, where I'll provide you with our outlook for 2023.
Speaker 5: As with prior practice, we provide our high and low ranges of our expectations with the midpoint of our guidance, being as follows.
Speaker 5: Net sales of 3.7 billion representing a growth of counseling currency of 3.5 percent.
Speaker 5: Net sales of 3.7 billion representing a growth of constant currency of 3.5%. Net income of 278 million.
Speaker 5: Adjusted EBITDA of $585 million.
Speaker 5: Netcash provided by operating activities of $440 million, adjusted free cash flow of $350 million.
Speaker 5: As mentioned, our full year 2023 assumption for the Euro Dollar is 1.05 flat 2022.
Speaker 5: On R&D and capital expenditures, we expect to continue to spend at 4.6% and 2.4% of net sales respectively, FLAF 2022. It is important to note that more than 50% of R&D and 20% of capital expenditures will be spent on our electrification technologies.
Speaker 5: in this year. For greater detail, I point you to the reconciliation of each of these metrics to the nearest gap figure as shown in the appendix to this presentation.
Speaker 5: In summary, our 2023 outlook is for continued adjusted EBITDA growth and solid cash generation in a volatile macroeconomic environment. I would now like to hand it back to Olivier for his closing comments.
Speaker 4: Sanction, wrapping up with the summary on slide 15, I am very pleased with the performance of garage in 2022.
Speaker 4: We delivered net sales of 3.6 billion down 1% on the gap basis, but up 8% at constant frequency versus 2021.
Speaker 4: We've achieved strong operating performance generating 570 million in adjusted EBITDA, successfully upsetting inflation and near the iron of our latest outlook.
Speaker 4: We achieved an adjusted EBITDA margin of 15.8% for the failure of 2022, which includes 80 basis points of diluted impact from ethics and inflation best through.
Speaker 4: In Q3 and Q4, we paid our series A dividend in cash, which was supported by solid adjusted free cash flow of 313 million for the year.
Speaker 4: We continue to invest about 50% of our DNA into electrification technologies and we have one new prediablobment contracts with major OEMs.
Speaker 4: In 2023, Garrett plans to grow in an industry flat.
Speaker 4: Thanks to our new launches and a growing share of demand. We expect this to translate into a full year outlook of 585 million in adjusted EBITDA and 350 million in adjusted free cash flow.
Speaker 4: Overall, I'm quite pleased with the performance of Garrett in 2022 and I'm looking forward to an even better 2023.
Speaker 4: I would like, in closing to thanks once again all of our employees along the world for that dedication and residency as their contribution and flexibility drove a successful 2020 to forgaret and positions as very well for 2023.
Speaker 2: Operator, with that, I think we all know ready to begin the Q&A session. Thank you. We'll now begin the question and answer session. And to ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.
Speaker 2: To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Ahmed Kursand from BMS Financial. Please go ahead.
Speaker 6: Good morning, so good evening since you're in Europe . First off, I just wanted to ask you as far as the new turbos are considered, you know, fuel cell and the e-axle, when can you actually see these come to market and generate revenue in a meaningful way, not just, you know, you need to be...
Speaker 4: being just nominal news from you. So just, I mean, that's a great question. Just a correction for everyone. When we talk about E-AXL or when we talk about Schulzell, we are not talking about turbochanges. We are talking about new products that are not turbochanges. We are talking about electric motors plus the gearbox, plus the inverter.
Speaker 4: There is a significant difference between the two. And as the first wave of electrification in the industry was directed at providing customers with
Speaker 4: A solution available to buy battery electric vehicle, our focus is pretty much on the second wave where customers, meaning OE's, are trying to differentiate from each other by working on the efficiency of those solutions in order to bring technology to their customers. So we are pretty much...
Speaker 6: traction as far as generating the sales or as it really all been trials and with different
Speaker 4: So I think with a specifically to the the axle, I think very early we said that we have an expertise in this company which is the ice speed.
Speaker 4: Nobody else is running electric morals at the speed at which we run that.
Speaker 4: And we were looking at opportunities to differentiate with those high-speed solutions for the mainstream battery electric vehicle. We've been working on that silently with a lot of customers and we have won a pre-development contract, which is very significant in our world.
Speaker 4: because it means that there is a customer that believes into our solution and starts to put money behind it. So that's the milestone that we are sharing with everyone today. And my last question was given the cash increase in Q4 from Q3, in 2023, what's going to be the primary allocation of cash?
Speaker 5: that the balance of the series they preferred and buying back more shares. Hi, I'm Ed. This is Sean Deason. For us, as you know, we've paid the series a dividend in cash the last two quarters. You can expect that we'll continue to do that. And then we'll be evaluating the best use of the excess funds, whether that's share by back or payment of the accrued dividend amount that we're still carrying.
Speaker 5: And from there, really just trying to get line of sight to when we think the capital structure will normalize. As of right now, our midpoint guide does not allow us to achieve the $600 million to quarter target. And then you also have the trigger of the 75-day VWAP on the share price of $788.
Speaker 5: But we do think if we see some tailwinds from FX and perhaps volumes come in a bit higher, we could be in a position to start to meet those targets by the end of the year. But again, there's a lot of uncertainty in the second half still. So we are forecasting growth in the second half. We need to see how the macroeconomic environment is.
Speaker 6: headwind as far as passing through further cost increases.
Speaker 4: Maybe first to correct the perception. I think we did achieve a great margin in 2022 with the recovery of the inflation with customers and the productivity efforts we did. So we are basically at quite a high level.
Speaker 4: If you consider on top of that the fact that we had increased shift between desire to gather together. So I think we are delivering quite well in the company. If you look at the bridges that we've shared today, we have basically two things that are holding us back. The first one is FX.
Speaker 4: That's an obvious one in the bridge. We are very much exposed to euro and therefore this has a negative impact on the margin that we report. And the second one is obviously that the market has been slowing down quite a bit and is pretty much slightly up, that's a SPY, and even if we are growing faster than the market as we explain today with...
Speaker 4: grow faster than the market in 2022. We will grow faster than the market in 2023 thanks to the sharp demand gains that we have. A little bit of a more strength on the end market with Elpas, obviously grow faster above some of the milestones that we talked about. Okay, great. Thank you.
Speaker 2: Again, if you have a question, please press star then one. Our next question comes from...
Speaker 5: Eric Greg from FTIA, please go ahead. Congratulations on the strong quarter and the good outlook. Just one more question on the capital allocation. What is holding you back? Your cash is up over the last quarter from paying out the accumulated unpaid dividend on the Series A preferred.
Speaker 5: Given that that compounds is such a high interest rate, it would seem like a high priority to get rid of that. Thank you. Sure. As I mentioned, that's something we're considering. But as I mentioned earlier, that is one of the top priorities we're looking at to utilize our excess cash. All right. Of course, I'll just to advance to doing what a monthly cash right now.
Speaker 2: Access liquidity. Our next question comes from Chris McIntyre from McIntyre Partnerships. Please go ahead. Hey, Morning, afternoon guys. Can you talk a little bit about the spaces of the VNT ramps and like how and when you expect that to start in fact in March. Thanks.
Speaker 4: So, three short question is about the VNT ramp. And when do we expect that to get it to our margin? Quite frankly, that VNT ramp has started already. I mean, in 2023 will be a significant increase in VNT production. When does it translate into our margin? We are already seeing the benefits of that, I would say. We are seeing the benefits of that, I would say.
Speaker 5: I'm sure Sean can comment on this further. Yeah, the technology penetrates and starts to displace wastegate. You will see overall gasoline margins start to improve a bit. As you know, wastegate gasoline is one of our lower margin products. But that does take some time and the program is at the launch and then also ramp up.
Speaker 5: We see growth in 2023 primarily in China on VNT, small gasoline engines, launching in the second half. So the margin benefit of that won't necessarily be completely recognized in 2023 as those programs have to ramp up. And there's always a higher cost when you launch a program into the market. But I think going forward into 2024 and in the future, we'll see a higher cost.
Speaker 4: If we see penetration rates increased like the industry is forecasting, you'll see the gasoline margins creep up. Maybe one addition, I sure remember Chris when we did the spin-off who was in a shell of gasoline as percentage of revenue that was in the mid-20s and everybody was predicting that as we are transitioning.
Speaker 7: My part of the thing about it is like a 500 basis fund cross margin sort of benefit.
Speaker 5: for those units obviously not. Okay. I'm on some as possible, but I wouldn't use that as your average. It can be anywhere from two to five, depending upon the product we're in the product complexity. Again, the reason gasoline is lower margin is because it has a higher nickel content because of the level of temperature it burns at. Yeah, not too much into details, but I owe this temperature, the more nickel you have,
Speaker 7: You guys have done very well in keeping S, G and A, just made all the craziness in the world of inflation. What not?
Speaker 7: flat, right? You know, if we were to get a volume tail in this ear, like where do you think, you know, if finally auto has a not a semi-issue and everything else, like where do you think has Q8?
Speaker 4: ramps for all of them to increase in sales rates. Didn't fail like a 10% market growth carrier. Well, when you look at the way the constructors of the company is built up, and I'm giving you the I level view, first, we have positioned ourselves to deliver a stronger.
Speaker 4: has shown that when you look at the last few years, everybody was wrong. So we decided to position the company right from a six-cost standpoint to deliver in an industry that would be flat. It doesn't mean that we are flat because we are growing in volume thanks to our sharp demand growing and the trouble penetration growing.
Speaker 4: Quite frankly, when you look at the way we have planned the year, one six costs are set. There is no reason for a significant increase of six costs that would be driven by volume
Speaker 4: And we have very significant portion of our cost that is variable, which is a way to protect on the downside, but it's also a way to deliver on the upside. So that's the way we are thinking about it.
Speaker 2: Great. Thank you guys very much. This concludes our question and answer session. I would like to turn the conference back over to Olivier Rebel there. Please go ahead.
Speaker 4: Thank you. Well, thank you all for your time. You spent with us reviewing the results of 2022 and you all look for 2023. I'm quite pleased about what we delivered and the way we positioned the company in 2022. We are, we have been planning very carefully 2023 as we've said on the call, depending on the macroeconomics.
Speaker 4: It could be better, but we have prepared the company to deliver in a flat environment. And we are all looking forward to 2023 to be a strong success that will reinforce our financial position and give us even more options for the future. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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