Q4 2023 Garrett Motion Inc Earnings Call
Operator: Good morning, everyone. And welcome to the Q4 and full year 2023 Garrett Motion earnings conference. All participants will be in a listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key and then one using a touchtone telephone.
Good morning, everyone and welcome to the Q4 and full year 2023, Garrett motion earnings Conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star and then one thing a touchstone telephone.
Operator: To withdraw your questions, you may press the star. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Eric Birge, Head of Investor Relations. Please go ahead.
Withdraw your question you May press Star two.
Please also note today's event is being recorded.
At this time I'd like to turn the floor over to Eric Birge head of Investor Relations. Please go ahead.
Eric Birge: Thank you, Jamie. Good morning, and welcome, everyone. Thank you for attending the Garrett Motion fourth quarter and full year results conference call. Before we begin, I would like to mention that today's presentation and earnings release are available on the IR section of Garrett Motion's website at investors.garrettmotion.com. There you will also find links to our RCC 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 and Exchange Act. We encourage you to read the risks contained in our filings with the Securities and Exchange Commission.
Thank you Jamie.
Good morning, and welcome everyone. Thank you for attending the Garrett motion fourth quarter and full year results conference call before we begin I would like to mention that today's presentation and earnings release are available on the IR section of Garrett motion website at investors Doctor motion Dot com.
There you will also find links to our SEC filings along with other important information about our company.
Turning to slide two we note that the presentation contains forward looking statements within the meaning of the Securities and Exchange Act. We encourage you to read the risks contained within our filings with the Securities and Exchange Commission.
Eric Birge: Please become aware of these 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-gap measures to describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable gap measure, and you are encouraged to examine these reconciliations in the appendix to the press release and the slide presentation. Also, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline by using the terms diesel and gasoline only. With us on today's call are Olivier Revier, Garrett's President and Chief Executive Officer, and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Olivier.
Become aware of these risks and uncertainties in our business and understand that forward looking statements are only estimates of future performance and should be taken as such a 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 how 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 these reconciliations in the appendix to the press release and the slide presentation.
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.
With us on today's call is Olivier <unk>, Cara's, President and Chief Executive Officer, and Sean Deason, Garrett Senior Vice President and Chief Financial Officer, I will now hand, the call over to Olivier.
Olivier Revier: Thanks, Eric. And thanks, everyone, for joining Garrett's fourth quarter and full year earnings conference call. I will begin today's remarks on slide three. I am very pleased to report today that Garrett delivered a great performance in 2023, achieving full-year results above midpoint guidance across all financial metrics, with record net sales of $3.9 billion and record adjusted EBITDA of $635 million. Our full-year adjusted free cash flow came in at a very robust $422 million at a conversion rate of 66% on full-year adjusted EBITDA. Our fourth quarter financials contributed to the full-year results with net sales of $945 million, up 5% from the same period last year and adjusted EBITDA of $145 million and adjusted free cash flow of $137 million.
Thanks, Eric and thanks, everyone for joining garett fourth quarter and full year earnings conference call.
I will begin today's remarks on slide three.
I'm very pleased to report today that Gary did you build the great performance in 2023, achieving full year result.
Bullet point guidance across all financial metrics with record net sales of $3 9 billion due at all and recall that adjusted EBITDA of 675 million.
Our full year adjusted free cash flow came in at a very robust $422 million.
Collection rate.
66% on adjusted EBITDA.
Our fourth quarter financials contributed to the full year results with net sales of 945 million.
Up 5% from the same period last year, and adjusted EBITDA of 145 million at all and adjusted free cash flow of $177 million.
Olivier Revier: I would like to thank the entire Garrett team for their contributions and dedication to our customers and operational excellence, which continues to enable us to perform in all economic cycles. Once again, our very strong cash flow generation in 2023 has allowed us to execute a thoughtful approach to capital allocation priorities. We simplified our capital structure to welcome new equity holders, strengthen our liquidity position and flexibility, and return value to our shareholders through our share repurchase program.
I would like to thank the entire Garrett team for their contributions and dedication to our customers and operational Nordics tenants, which continues to enable us to perform in all economic cycles.
Once again, our very strong cash flow generation in 2023 has allowed us to execute a thoughtful approach to capital allocation priorities.
We simplified our capital structure will come new equity orders strengthened our liquidity position and flexibility and return value to our shareholders, who our share repurchase program.
Olivier Revier: In 2023, we'll repurchase $213 million of common stock in addition to the preferred stock redemptions while investing more than half of our RD&E into zero emission technology. We also meaningfully delivered by paying down $200 million of our term loan to bring our net leverage ratio under 2.2 times and finish the year with $829 million of liquidity. Garrett's continued exceptional financial performance and cash flow generation allows us to take a similar approach to capital allocation for 2024. I am pleased to announce that our board has authorized a new $350 million share repurchase program.
In 2023, we rebuilt shaved.
$217 million of come Unstuck in addition to the presale stock redemptions.
While investing more than alpha, while our guinea into zero emission technologies.
We also meaningfully delayed by paying down $200 million term loan to bring our net leverage ratio under our two two times and finished the year with $829 million of liquidity.
Gareth continued exceptional financial performance and cash flow generation allows us to take you seem you know approach to capital allocation for 2024.
I am pleased to announce that our board has authorized a new $350 million share repurchase program.
Olivier Revier: From a macro perspective, we are anticipating the global industry to be flattish, with light vehicle production expected to be flat to down, and commercial vehicle production expected to be flat to up. With these expectations, we have once again proactively implemented productivity and efficiency actions to achieve and sustain our financial performance through a flat to down economic cycle in 2024. This year, we will continue to increase our investment in zero emission technologies, supported by increasing momentum across all verticals for our differentiated technologies. We also expect to see close to $20 million in revenue from our industry-leading, high-efficiency fuel cell compressor, while, at the same time, we are continuing to see increasing demand for our turbo technology. Turning now to slide four.
From a macro perspective, we are anticipating that global industry to be flattish with light vehicle production expected to be flat to down in commercial vehicle production expected to be flat to up with.
With these expectations, we have once again proactively implemented productivity and efficiency actions to achieve and sustain our financial performance was flat to down economic cycle in 2024.
This year, we will continue to increase our investments in zero emission technologies, she partied by increasing momentum across all the ft called firewall differentiated technologies.
We also expect to see close to $20 million revenue from our industry, leading high efficiency fuel cell compressor. When at the same time, we are continuing to see increasing demand for our showboat technologies.
Tell me now to slide four.
Olivier Revier: As I just mentioned, the increasing momentum across all product verticals allows us to continue to strengthen our leadership position in turbo offerings and further develop our differentiated zero-emissions technology. Our turbo business once again achieves more than 50% win rate, and we won a series of production awards in several hybrid and alternative fuel applications. In light vehicles, we want two additional high-volume electric compressor applications.
As I just mentioned the increasing momentum across all product. He calls allows us to continue to strengthen our leadership position in job offerings, and so they'll develop a well differentiated zero emission sticks and energy.
Our sugar business once again achieved more than 50% win rate.
And we want a series production awards in several I breathe and anytime that you shoot application.
In light vehicles, we won two additional high volume electric compressor applications and with International Beach L. We successfully launched our agile Gen ice application or H, two ice with JCB for off highway equipment.
Olivier Revier: And within commercial vehicles, we successfully launched our hydrogen ICE application, or H2 ICE, with JCB for off-highway equipment. Our H2ICE applications are gaining heightened attention from our commercial vehicle customers as they progress towards their decarbonization targets. This trend towards zero emission technology continues to drive increased interest and demand for our fuel cell compressor, e-powertrain, and e-cooling compressors. We have the broadest range of fuel cell compressors in the industry.
H two ice applications are gaining eitan attention from our commercial vehicle customer.
As they progressed well the Dell decarbonization targets.
This trend towards zero emission technology continue to drive increased interest in demand fall off shoots that compressor equal well trained and equally in compressors.
We have the broadest range of human cell compressors in the industry and we achieved an additional series production of world in Q4.
Olivier Revier: And we achieved an additional series production award in Q4. We have also added another pre-development award for our breakthrough high-speed and high-power density e-powertrain. And finally, we added three more pre-development awards for our game-changing centrifugal e-cooling compressor.
We have also done and it was all pretty even looking at the wildfire breakthrough ice speed.
And I thought well density Ebola train.
And finally, we added three more pre developmental wells for our game changing centrifugal equaling compressor.
Sean Deason: These achievements are proof that our zero-emission technologies address the evolving needs of our customers as they develop new generations of electrified vehicles. Consistent with our last Investor Day presentation, we see significant runway ahead as we progress towards our target of $1 billion of annual sales of zero-emission products by 2030. I will now turn the call over to Sean to provide more insight into our financial results and outlook for 2024. Thanks, Olivier, and welcome, everyone.
These achievements.
That we're all zero emission technologies address the evolving needs of our customers as they develop new generations of electrified vehicles.
Consistent with our last Investor day presentation, which he he don't significant I'm trying to weigh red as we progressed well with our target of 1 billion dollar of annual sales of zero emission products by 2017.
I will now turn the call to Sean to provide more insights into our financial results and outlook for 2024.
Thanks, Olivier and welcome everyone I will begin my remarks on slide five.
Sean Deason: I will begin my remarks on slide five. Starting with reported net sales on the upper left-hand graph, you will see net sales for the last two years, with Q4 2023 at $945 million, up from Q4 2022 by 5% on a gap basis and up 3% on a constant currency basis. This increase was driven primarily by ramping ups of small engine gasoline applications, partially offset by lower sales of commercial vehicles. Moving to the upper right-hand side of the page, the increased sales translated into higher adjusted EBITDA in the fourth quarter of $145 million, a 4% or $5 million increase from $140 million last year. This reflects our continued strong productivity and operational execution net of the unfavorable product mix I mentioned earlier. As a result, the adjusted EBITDA margin was 15.3%, down from 15.6% last year.
Starting with reported net sales on the upper left hand graph you will see net sales for the last two years with Q4 2023 at $945 million up from Q4 of 2022 by 5% on a GAAP basis and up 3% on a constant currency basis. This increase was.
Driven primarily by ramp ups of small engine gasoline applications, partially offset by lower sales of commercial vehicles.
Moving to the upper right hand side of the page the increased sales translated into higher adjusted EBITDA in the fourth quarter of $145 million up 4% or $5 million from $140 million last year. This reflects our continued strong productivity and operational execution net.
Unfavorable product mix I mentioned earlier as a result, the adjusted EBITDA margin was 15, 3% down from 15, 6% last year.
And on the bottom left graph, we show the Garrett generated positive adjusted free cash flow of $137 million in Q4 of 2023 up slightly from $132 million in Q4 of 2022.
Sean Deason: And on the bottom left graph, we show Garrett-generated positive adjusted free cash flow of $137 million in Q4 of 2023, up slightly from $132 million in Q4 of 2022. Compared to last year, this increase is driven by working capital efficiency due to stronger year-end collections, partially offset by higher tax, interest, and capital expenditures. We continue to see our adjusted free cash flow conversion to adjusted EBITDA trend above 60%, which is in line with our capital allocation framework. Turning to slide six, at the top of the page, we show our Q4 net sales bridge by product category, as compared with the same period last year. As mentioned, Q4 net sales were up 5% on a gap basis and 3% on a constant currency basis, reflecting an increase of $47 million over Q4 of 2022. Gasoline products were up 11% at constant currency, adding $39 million in sales.
Compared to last year. This increase is driven by working capital efficiency due to stronger year end collections, partially offset by higher tax interest and capital expenditures.
We continue to see our adjusted free cash flow conversion to adjusted EBITDA trend above 60%, which is in line with our capital allocation framework.
Yeah.
Turning to slide six at the top of the page we show our Q4 net sales bridge by product category as compared with the same period last year as mentioned Q4 net sales were up 5% on a GAAP basis, and 3% on a constant currency basis, reflecting an increase of $47 million over Q4 of 2022.
Gasoline products were up 11% in constant currency, adding $39 million in sales.
Sean Deason: Gasoline products now comprise 45% of reported net sales, up 42% from last year, driven primarily by small engine product ramp-ups in China and North America. Diesel products increased 5% at constant currency, primarily from higher production volumes on existing platforms in Europe, an increase of $12 million in sales and comprising 25% of total sales, flat from last year. Commercial vehicle sales decreased 16% to constant currency or $27 million, driven by industry weakness as a high interest rate environment and softness in the construction and real estate markets continued to pressure growth.
And gasoline products now comprise 45% of reported net sales up 42% from last year, driven primarily by small engine product ramp ups in China and North America.
Diesel products increased 5% at constant currency, primarily from higher production volumes on existing platforms in Europe, an increase of $12 million to sales comprising 25% of total sales flat from last year.
Commercial vehicle sales decreased 16% at constant currency or $27 million driven by industry weakness.
High interest rate environment and softness in the construction and real estate markets continued to pressure growth.
Sean Deason: Commercial vehicle products represented 16% of total net sales in Q4 of 2023, down from 19% in Q4 of 2022. And our aftermarket business decreased 2% at constant currency, or $2 million. It comprises 12% of net sales, down from 13% in Q4 2022. And finally, we saw a favorable impact of $19 million due to foreign exchange on a year over year basis. Moving now to the bottom of the page, we show our full-year net sales bridge by product category as compared with last year. Net sales are up 8% on both a gap basis and a constant currency basis, reflecting an increase of $283 million over the full year 2022, allowing us to achieve record net sales this year of $3.9 billion. As Olivier mentioned, gasoline products were up 17% to constant currency, adding $255 million in sales.
Commercial vehicle products represented 16% of total net sales in Q4 of 2023 down from 19% in Q4 of 2022.
And our aftermarket business decreased 2% at constant currency or $2 million. It comprises 12% of net sales down from 13% in Q4 2022, and finally, we saw a favorable impact of $19 million due to foreign exchange on a year over year basis.
Moving now to the bottom of the page we show our full year net sales bridge by product category as compared with last year net sales were up 8% on both a GAAP basis and constant currency basis, reflecting an increase of $283 million over the full year 2022, allowing us to achieve record net sales this year.
We're at $3 $9 billion as Olivier mentioned.
Gasoline products were up 17% at constant currency, adding $255 million in sales gasoline now comprises 44% of reported net sales up from 41% last year, driven by light vehicle industry recovery and product ramp ups, primarily in China and Europe.
Sean Deason: Gasoline now comprises 44% of reported net sales, up from 41% last year, driven by the light vehicle industry recovery and product ramp-ups primarily in China in Europe. Diesel products increased 3% to constant currency, an increase of $33 million to sales and comprised 25% of total sales, down slightly from 26% last year. And commercial vehicle sales declined 1% at constant currency, a decrease of $10 million to sales.
Diesel products increased 3% in constant currency, an increase of $33 million to sales and comprised 25% of total sales down slightly from 26% last year.
In commercial vehicle sales declined 1% at constant currency decrease of $10 million to sales again, driven by a high interest rate environment and softness in the construction and real estate markets, primarily in the second half of the year.
Sean Deason: Again, driven by a high interest rate environment and softness in the construction and real estate markets, primarily in the second half of the year, commercial vehicles represented 70% of total net sales in 2023, down from 19% in 2022. Our aftermarket business increased 3% at constant currency and increased to $12 million. It comprises 12% of net sales flat to 2022. And finally, on a full year basis, we saw an unfavorable impact of $14 million due to foreign exchange.
Commercial vehicles represented 17% of total net sales in 2023 down from 19% in 2022.
Our aftermarket business increased 3% in constant currency, an increase of $12 million. It comprises 12% of net sales flat to 2022, and finally on a full year basis, we saw an unfavorable impact of $14 million due to foreign exchange.
Sean Deason: Turning now to slide seven, at the top of the page, we show our Q4 adjusted EBITDA bridge compared with the same period last year. In Q4, we delivered an adjusted EBITDA of $145 million, representing a $5 million improvement over the same period last year. However, increased volumes, driven mainly by gasoline, were offset by weaker commercial vehicle volumes, resulting in a net product mix headwind, as previously mentioned, impacting adjusted EBITDA by $33 million.
Turning now to slide seven at the top of the page we show our Q4 adjusted EBITDA bridge compared with the same period last year and Q4, we delivered an adjusted EBITDA of $145 million, representing a 5 million dollar improvement over the same period last year increased volumes driven mainly from gasoline were offset.
By weaker commercial vehicle volumes, resulting in a net product mix headwind as previously mentioned impacting adjusted EBITDA by $33 million.
Sean Deason: Overall, operating performance was a net positive of $24 million as we continue to successfully pass through inflation and generate productivity while dedicating over 50% of the total R&D expenditures to zero emissions technology. Moving to the bottom of the page, we have our full year adjusted EBITDA bridge compared with 2022. This year, we delivered record adjusted EBITDA of $635 million, which was above our midpoint outlook of $630 million. This represented a $65 million improvement over the prior year. Our full-year adjusted EBITDA margin also came in 10 basis points better than our midpoint outlook at 16.3%, in line with our financial framework. Drawn growth in volumes in the first half of the year contributed $89 million and was partially offset by $79 million of unfavorable product mix impact as strong double-digit growth in small engine gasoline applications was partially offset by weaker commercial vehicle volume.
Overall operating performance was a net positive $24 million as we continued to successfully pass through inflation and generate productivity, while dedicating over 50% of the total R&D expenditures to zero emissions technologies.
Moving to the bottom of the page we have our full year adjusted EBITDA bridge compared with 2022.
This year, we delivered record adjusted EBITDA of $635 million, which was above our midpoint outlook of $630 million. This represented a $65 million improvement over the prior year, our full year. Adjusted EBITDA margin also came in 10 basis points better than our midpoint outlook at 16.
3% in line with our financial framework.
Strong growth in volumes in the first half of the year contributed $89 million and was partially offset by $79 million of unfavorable product mix impact as strong double digit growth in small engine gasoline applications was partially offset by weaker commercial vehicle volumes.
Sean Deason: Our overall operating performance was a net positive of $55 million, and we consistently delivered productivity throughout 2023 and passed through inflation. All this while growing our spend on zero emission technology development by $14 million versus the prior year. Moving now to slide eight, we show the adjusted EBITDA to adjusted free cash flow bridge. For 2023, Garrett delivered a record-adjusted free cash flow of $422 million for a very healthy adjusted free cash flow conversion of 66% of adjusted EBITDA. This performance was driven by higher earnings that we once again converted into cash, as well as an improvement in working capital of $23 million, primarily due to improvements in inventory and payables. Capital expenditures and cash taxes were in line with expectations, and cash interest increased to $89 million due to the issuance of our $700 million term loan B used to facilitate the normalization of our capital structure earlier in the year. Turning out of slide nine, we ended 2023 with a strong liquidity position of $829 million, up $108 million versus 2022. This was comprised of $570 million of capacity on our undrawn revolving credit facility and $259 million of unrestricted cash.
Our overall operating performance was a net positive of $55 million and we consistently delivered productivity throughout 2023 and pass through inflation.
All of this while growing our spend on zero emission technology development.
Development by $14 million versus the prior year.
Yeah.
Moving now to slide eight we show the adjusted EBITDA to adjusted free cash flow bridge.
For 2023, Garrett delivered a record adjusted free cash flow of $422 million for very healthy adjusted free cash flow conversion of 66% of adjusted EBITDA.
This performance was driven by higher earnings that we once again converted into cash as well as an improvement in working capital of $23 million, primarily due to improvements in inventory and payables.
Capital expenditures and cash taxes were inline with expectations and cashing interest increased $88 million to $89 million due to the issuance of our $700 million term loan b used to facilitate the normalization of our capital structure earlier in the year.
Yeah.
Turning now to slide nine we ended 2023 with a strong liquidity position of $829 million up $108 million versus 2022. This was comprised of $570 million of capacity on our undrawn revolving credit facility and $259 million of unrestricted cash with.
Sean Deason: We finished 2023 with a net leverage ratio under 2.2 times ahead of our expectations and driven by strong cash transactions for the year, coupled with $200 million of delevering in the second half. The normalization of our capital structure, delevering, and Garrett's strong and consistent cash generation also resulted in a ratings upgrade from S&P to BB- with a stable outlook in Q3. During the quarter, we repurchased $35 million of common stock for a total of $213 million repurchased in 2023.
Finished 2023 with a net leverage ratio under 2.2 times ahead of our expectations and driven by strong cash generation for the year, coupled with $200 million of de levering in the second half.
The normalization of our capital structure, Delevering and gear its strong and consistent cash generation also resulted in a ratings upgrade from S&P to double b minus with a stable outlook in Q3.
During the quarter, we repurchased $35 million of common stock for a total of $213 million repurchased during 2023.
Sean Deason: Close to 10% of our market capitalization as we continue to use our earnings and cash generation to return value to our shareholders. As Aline mentioned earlier, our board has authorized a new share repurchase program of $350 million for 2024. Our consistent and robust cash generation and capital-wide financial framework enables us to return significant value to our shareholders and maintain a healthy balance sheet. For example, our current level of adjusted free cash flow is close to 20% of our market capitalization. And we think that a share repurchase program is a good use of cash given current financial market conditions. Moving to slide 10.
10% of our market capitalization as we continued to use our earnings and cash generation to return value to our shareholders.
As Olivier mentioned earlier, our board has authorized a new share repurchase program of $350 million for 2024 are consistent and robust cash generation and capital light financial framework enables us to return significant value to our shareholders and maintain a healthy balance sheet, our current level of adjusted free cash flow.
It's close to 20% of our market capitalization, and we think that a share repurchase program is a good use of cash given current financial market conditions.
Moving to slide 10 on this slide you can see the assumptions we used in planning our 'twenty 'twenty four outlook and financial ranges that imply the following mid points net sales of $3 9 billion net sales growth flat at constant currency net income of $253 million.
Olivier Revier: On this slide, you can see the assumptions we used in planning our 2024 outlook and financial ranges that imply the following mid, net sales of $3.9 billion, net sales growth flat at constant currency, net income of $253 million, adjusted EBITDA of $620 million, implying a margin of 16%, net cash provided by operating activities of $475 million, and adjusted free cash flow of $375 million. A robust new business win rate of greater than 50% on average over the past five years is driving share of demand gains. This, when coupled with increasing turbo penetration on internal combustion engines, allows us to offset both an increase in average BEV penetration of 3%, as well as a decrease in light vehicle production compared to the prior year.
Adjusted EBITDA of $620 million, implying a margin of 16% net cash provided by operating activities of $475 million and adjusted free cash flow of $375 million.
Our robust new business win rate of greater than 50% on average over the past five years is driving share of demand gains. This when coupled with increasing turbo penetration on internal combustion engines allows us to offset both an increase in average be EV penetration of 3% as well as a decrease in light vehicle production.
Compared to the prior year.
Olivier Revier: In this bladdish revenue environment, we plan to deliver productivity and pass-through inflation to offset mixed and inflationary headwinds in 2024. At the same time, increasing customer interest across key regions and verticals for our zero-emissions products drives us to responsibly increase our research, development, and engineering spend to 4.5% of sales, up 30 basis points from 2023. And with that, I will now turn the call back to Olivier to wrap up. Thanks, John.
In this flattish revenue environment, we plan to deliver productivity and pass through inflation to offset mix and inflationary headwinds in 2024 at the same time, increasing customer interest across key regions and verticals for our zero emissions products drives us to responsibly increase our research development and engineering spend for five person.
A sales up 30 basis points from 2023, and we expect to dedicate roughly 60% of our research development and engineering spending in 2020 420 emissions technologies.
And with that I will now turn the call back to Olivier to wrap up.
Thanks, Sean turning to slide 11, it was a great year and once again, we deliver strong financials in a challenging macro environment.
Olivier Revier: Turning to slide 11, it was a great year, and once again, we delivered strong financials in a challenging macro environment. We continue to strengthen our leadership position in Turbo, once again winning greater than 50% of the available business in 2023. Additionally, interest in our zero emission technologies and applications continues to intensify with new series production and pre-production contracts, and pre-development contracts awarded in Q4 across multiple regions and customers. We expect to maintain our strong financial performance once again in 2024 in a flat-to-down industry and have taken decisive productivity actions to control fixed costs and to adapt our highly variable cost structure to this environment. We also plan to return value to our shareholders through our new $350 million share repurchase program, supported by Garrett's ability to constantly generate strong cash flow, even in tough times. Thank you for your time.
We continue to strengthen our leadership position in <unk>, once again, winning greater than 50% of the available business in 2023.
Additionally, interest in our zero emission technologies and applications continues to intensify with new series production and pre project production contract pre development contracts.
In Q4 across multiple regions and customers.
We expect to maintain our strong financial performance once again in 2020 fall in a flat to down in the street and uptick in DC productivity actions to control fixed cost and to adapt our IV valuable cost structure to this environment.
We also plan to return value to our shareholders well, new $350 million share repurchase program supported by Garrett <unk> ability to consistently generate strong cash flow, even if stock even in tough times.
Thank you for your time and operator, we all know ready for the Q&A session.
Operator: And operator, we are now ready for the Q&A session. Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one on a touchtone telephone; if you are using a speakerphone, we do ask that you please pick up your headset prior to pressing the keys to ensure the best sound quality. To withdraw your question, you may press star.
And gentlemen at this time well begin the question and answer session.
Can I ask a question you May press Star and then one on a touchtone telephone.
If you are using a speakerphone, we do ask that you. Please pick up your headset prior depressing the key.
Sure the best sound quality.
To withdraw your question you May press star into.
Hamed Khorsand: And again, that is a star and then one to join the question. We will pause momentarily to assemble the roster. Our first question today comes from Hamed Khorsand from BWS Financial. Please go ahead with your question. Hi, good morning, or good afternoon, as well.
Once again that is star and then one to join the question queue.
We will pause momentarily to assemble the roster.
Yeah.
Our first question today comes from Hammam Croissants from BW US financial. Please go ahead with your question.
Hi, good morning, or good afternoon, as well first off could you just talk about the environment that you're going into.
Olivier Revier: First off, could you just talk about the environment that you're going into? You talked about being flat. Are you taking market share right now? What are your expectations? And do you feel like there's any sort of, you know, inventory stocking or de-stocking happening that's also being reflected in your guys? So, Omar, that's a very good question. Obviously, let me unpack a little bit what we mean by flat-ish to down.
Yeah, you're talking about being flattish.
Taking market share.
Right now what your expectations are there.
Do you feel like there's any sort of.
Inventory stocking or Destocking happening, that's also being reflected in your guidance.
So amount that's a that's a really good question, obviously, let me.
The impact should it will meet our what we mean by a flattish to down.
Olivier Revier: When we say flat-ish to down, we are referring to light vehicle production worldwide. And I think we are very consistent in our forecast with the consultants, and from what I've seen from our peers reporting for the last few weeks, we are very consistent as well in that environment. We are planning to have increased turbo penetration and increased share of demand, which at the end is the reason why we are maintaining our revenue flat despite a forecasted growth of battery electric vehicles. That is about 300 basis points, which also is very consistent with everyone in the industry since we have not seen yet in the predictions the impact of the so-called slowdown of battery electric vehicles. So we are planning for a 15% battery electric vehicle. Some people may say it's a bit aggressive at 15% or conservative depending on the way you, where you place yourself in the short term.
When we say flattish to down we are referring.
To the light vehicle.
Production worldwide.
And I think we are very consistent in our forecasts with the consultants and from what I've seen from our peers reporting for the last few weeks, we are very consistent as well.
And that's all environments.
We.
Planning.
To add increased turbo penetration and increase shall demand, which at the end is the reason why we are maintaining our revenue flat despite.
With forecasted growth of battery electric the H L.
That is about 300 basis point.
Which also is very consistent with everyone into the industry.
Since we have not seen yet.
Into the predictions.
The impact of the so called slowdown.
Battery electric vehicle.
So we are planning for 15% Battery Day Street H O. Some people may say, it's a beta I agree with you that 15% of conservative diverting it depending on the way you.
Well you place yourself in the short term.
Olivier Revier: But we'd rather plan like everyone for the timing and the results of all that, despite that expected growth in EVs, we are having our share of the business that's growing. Yes, we are getting a share of the demand gain. Okay, great. And then, as far as the battery electric goes, what is Garrett's timing as to being able to generate revenue from there? I know you've been talking about a lot more in weeks and quarters. But we have a...
But we'd rather plan like everyone for the timing of the results of all that despite that the expected growth on.
On the DS.
We are winning our share of the business that drawing, yes, we aren't getting the shelf demand gains.
Okay, Great and then.
As far as the battery electric goes what Gary its timing is being able to generate revenue from there.
Talking about it a lot more.
Quarters.
Yeah.
We have.
Olivier Revier: I think we have explained several times that we are planning to get to $1 billion in revenue on zero-emission technology by 2030, which comprises three technologies. The first one is fuel cell compressors, so it's for hydrogen fuel cell vehicles. It's not for battery-electric vehicles, but these are zero emission solutions as well.
I think we have explained several times that we are planning to get to $1 billion revenue on zero emission technology by 2030, which comprises of three technologies. The first one.
He is on fuel cell compressors.
So its fall hydrogen from Saturday job.
You cannot full battery electric vehicle, but these are zero emission solutions as well.
Olivier Revier: This is a business where we are already recording revenue. I think we've said that today that we are expecting about $20 million of revenue already on true cell compressors in 2024. The second technology is the high-speed electric motors coupled with a gearbox and an inverter, which is a technology that is specific to us and unique to us with high power density. We have already secured a number of pre-development contracts. And obviously, there is a significant portion of that $1 billion outlook that is coming from that technology. And the last one is e-compressors. The idea is to use centrifugal electric, high-speed electric compressor technology that is once again unique to us, to provide a step change to our customers in terms of power and power density when it comes to the huge needs of cooling that you have for battery electric vehicles.
Yeah.
This is a this is a business where we are already recording revenue I think we've said that today, that's why I expecting about $20 million of revenue already on true <unk> compressors.
In 2020 fall the second technology easy ice Peter.
The electric motors, coupled with a gearbox, how an investor.
Which is a technology that is specific to us and.
And unique to us with Ipi well density.
We have recall need already a number of pre development contract.
And obviously there is a significant portion of that 1 billion that I'll look at that is coming from the technology and the last one is E compressors.
The idea is to use centrifugal electric ice PD electric compressor technology that once again is unique to us too.
To provide a step change to our customers in terms of power and by well density when it comes to the huge needs of coatings that you have for battery electric vehicle. So that technology. Once again will be applicable to a battery electric day, Joe and this is a technology, where we have recorded again three mall.
Olivier Revier: So that technology, once again, will be applicable to a battery electric vehicle. And this is a technology where we have secured, again, three more pre-development contracts during Q4. So, more to come. Today, what we say is that we are confirming the trajectory that we had highlighted in October during our investor day. Okay, one last question. What's the plan or allocation for free cash flows here?
Pre development contracts during two fall.
So more to come today, what we say that we are confirming the trajectory there.
We are United in October during our Investor day.
Okay.
Okay. One last question.
One what's the plan or allocation for free cash flows here as it is.
Sean Deason: Is it going to be the same more about stock buybacks versus that or any plans to reduce the debt this year? Yeah, I mean, we take a balanced approach to capital allocation, you know, and as we stated before, first and foremost, we fund the business, which you can see we're doing per guide. And then second, we were looking to do a mix of deleveraging and share buyback, but that's subject to how the market develops as the year develops. But, as you can see, we've got very good optionality and very robust cash flow generation, so we have the ability to do both. Okay, great.
It's going to be the same more about stock buyback versus debt or.
Plans to reduce debt this year.
Yeah, I mean, we take a balanced approach to capital allocation, you know and as we stated before first and foremost we fund the business, which you see we're doing per our guide and then second we are we were looking to do a mix of deleveraging and share buyback and but that's subject to how the market develops.
And the year develops but as you can see we've got very good optionality and very robust cash flow generation. So we have the ability to do both.
Okay, great. Thank you.
Sean Deason: Thank you. Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question. Thank you. Good morning, everyone.
Our next question comes from Michael Ward from Freedom Capital. Please go ahead with your question.
Thank you good morning, everyone.
Michael Ward: I just want to talk a little bit about your ability to adjust to shifting markets. And also, as we look in the market, hybrids are a bigger percentage of the European market, and how is the turbo content in Europe versus the U.S., and then what impact does it have if you start to see an increased shift in the U.S. towards hybrids away from, you know, just strict ICE engines? So, Michael, that's a very good question.
Good morning, I wanted to.
Talk a little bit about your ability to adjust the shifting market trends and also as we look in the markets.
Words are a bigger percentage of the European market.
Yeah.
How are we the turbo content in Europe versus the U S. And then what impact does it have if you start to see an increased shift in the U S towards hybrids away from you know district ice engines.
So Nigel that's a very good question, what we see in Europe is that the turbo penetration.
Olivier Revier: What we see in Europe is that the turbo penetration that you have on hybrids is higher than the turbo penetration that we have on non-hybrid vehicles. So, you would expect the same to happen in the U.S. if there were more hybrids. Obviously, in the short term, that should come at the expense of some level of BEV, so maybe that's an opportunity on that side. And at the same time, that's another opportunity for us for increased turbo penetration. But more than the increased turbo penetration, it's also the increased level of technology that you have for the turbo on the hybrid application, which tends to be higher than what you have on non-hybrid applications as well, higher thermal penetration, and more technology.
Uh huh.
You have all neighborhoods.
Higher than the turbo penetration that we have them Nonhybrid Rachel.
So you would expect defend to open in the U S. If there is more hybrids.
Obviously in the short term that could come.
The expense to some level of B V. So maybe that kind of opportunity on that side.
And at the same time that Thats another opportunity for us on increased turbo penetration, but more than the increase total penetration. It's also the increased level of technology that you are for the turbo on hybrid application, which tends to be higher than what you have on non hybrid applications as well so it's.
I have trouble penetration and more technology.
Olivier Revier: So what type of impact does that have on content? Is it a 20 to 30% increase in content per unit? I think we've published, by the way, recently, the content of the vehicle that we have on the different technologies, so we can refer to that again. If we move to a variable geometry turbocharger, we are obviously increasing the content by a percentage. And then, if we move to electric turbocharging or electric boosting, there is another increase that can even double the price of the turbocharging system.
So what type of when you look at the technology what type of impact does that have on content is at a 20% to 30% increase in content per unit.
I think we've published Baidu recently, the content per vehicle that we have on the different technologies. So we can we can reach out to that again, if we move to a valuable geometry turbocharger on we're obviously increasing the content.
By a percentage and then if we move to a electric turbocharging our electric we're seeing.
There is another increase that can even double the price of the turbocharging system.
Olivier Revier: Wow, okay. Okay, and just as far as turbo penetration goes, I see good data on the U.S. market on where we are with turbo, and it's like 42%. How does that compare in Europe? And in Europe, you have a higher hybrid concentration, smaller vehicles, obviously, driven by the higher gas prices in Europe relative to the US. Do you have any kind of turbo penetration number for the European market? In Europe, we are between 85% and 90%.
Okay.
As far as turbo penetration I see good data on the U S market on where we are with turbos.
It's like 42%, how does that compare in Europe and in Europe.
Hybrid concentration smaller vehicles, obviously, driven by the higher gas prices in Europe relative to the U S. Do you have any kind of a turbo penetration number for the European market and what it looks like really neurotic America.
In Europe, we're between 85 and 90%.
Olivier Revier: Well, it looks like if we start to grow... And if you look at the, if I may, if you look at the three regions that we are serving, between, just to make a shortcut, Europe, China, and the U.S., the U.S. is lagging behind the two other regions. So the potential in the U.S. is huge. Okay. And then, in addition, you get the increase if you go to hybrids and presumably higher tech, so you get growth and then additional content.
Wow.
Okay.
It looks like it.
And if you look at the.
If you look if I may if you look at the three regions that we are solving.
Between just to make yourself get between Europe, China, and the U S. The U S are lagging behind it was a region. So the potential in the U S is huge.
Okay and then in addition, you get to the increase if you go to hybrids and presumably higher tech. So you get growth and then additional content. So I'm looking at the right things.
Olivier Revier: So I'm looking at the right things. Yes, you're looking at it. Absolutely. Thanks very much. If you would like to ask a question, please press star and then one. Again, that is star and then one to join the question.
Yes, you're looking at.
Absolutely.
Thanks very much.
Once again, if he would like to ask a question. Please press star and then one.
Remove yourself from the question queue, you May press star into.
Again that is star and then one to join the question queue.
Eric Birge: And ladies and gentlemen, if there are no additional questions, I'd like to turn the floor back over to Eric Birge for any closing remarks. I want to thank everybody for the time you spent today reviewing our 2023 results and our outlook for 2024, and please contact me directly if you have any further questions. Thank you. And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect.
And ladies and gentlemen, I'm showing no additional questions I'd like to turn the floor back over to Eric Birge for any closing remarks.
I want to thank everybody for the time you spent today reviewing our 2023 results and our outlook for 2024 and please contact me directly if you any further questions. Thank you.
Yeah.
Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.
Okay.
Yeah.
Okay.
Okay.