Q1 2024 Garrett Motion Inc Earnings Call
Debbie: Good morning and hello. My name is Debbie, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion First Quarter 2024 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. After the company's presentation, there will be a Q&A session, and I would like to hand the call now over to Eric Birge, Garrett's Head of Investor Relations. Please go ahead.
Good morning, and Hello, My name is Debbie and I will be your operator. This morning, I would like to welcome everyone to the Garrett motion first quarter 'twenty 'twenty four financial results conference call.
This call is being recorded and a replay will be available later today.
After the company's presentation, there will be a Q&A question session.
And I would like to hand, the call now over to Eric Birge Garret's head of Investor Relations. Please go ahead.
Eric Birge: Thank you, Debbie. Good day and welcome, everyone.
Eric Birge: Thank you Debbie good day and welcome everyone. Thank you for attending the Garrett motion first quarter 'twenty 'twenty four financial results conference call before we begin I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett motion website at investors that care motion Dot com.
Eric Birge: Thank you for attending the Garrett Motion first quarter 2024 financial results conference call. Before we begin, I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett Motion's website at investors.garrettmotion.com. There, you will find a link to our CCC filings along with other important information about our company.
Eric Birge: There you will find a link to our S. E T SEC filings along with other important information about our company.
Eric Birge: Turning to slide 2, we note that the presentation contains forward-looking statements within the Securities and Exchange Act. We encourage you to read the risk factors contained in our filings with the SEC and 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.
Eric Birge: Turning to slide two we note that the presentation contains forward looking statements within the Securities and Exchange Act.
Eric Birge: We encourage you to read these risk factors contained in our filings with the Securities and Exchange Act.
Eric Birge: And 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 a forward looking statements represent managements expectations only as of today and the company disclaims any obligation to update them.
Eric Birge: Today's presentation also includes non-GAAP measures to describe how we manage and operate our business. We have reconciled each of these measures to the most direct comparable gap measure, and you are encouraged to examine those reconciliations in the appendix to the press release and in the slide presentation. Also, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products simply as diesel and gasoline only. With us today are Olivier Rabiller, 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.
Eric Birge: 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 direct comparable GAAP measure and you are encouraged to examine those reconciliations in the appendix to the press release and the slide presentation.
Eric Birge: Also in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products simply as diesel and gasoline only.
Eric Birge: With us today is Olivier <unk>, President and Chief Executive Officer, and Sean Deason Perez Senior Vice President and Chief Financial Officer, I will now hand, the call over to Olivier.
Olivier Rabiller: Thank you, Eric. And thanks, everyone, for joining Garrett's first quarter 2024 earnings conference call. I will begin today's remarks on slide three. First, I would like to thank the Garrett team for their drive, energy, and focus to deliver another great quarter. I am pleased to report today that Garrett delivered a solid performance in Q1, achieving net sales of $915 million and adjusted EBITDA of $151 million. We indeed had a strong adjusted EBITDA margin of 16.5%, up 120 basis points from last quarter, and an adjusted free cash flow came in at $68 million, in line with our outlook and expectations.
Olivier: Thank you Eric and thanks, everyone for joining garett its first quarter of 2024 earnings conference call.
Olivier: I will begin today's remark on slide three.
Eric Birge: First I would like to thank the Garrett Jim Feld they'll drive.
Eric Birge: G and focused to deliver on those a great quarter.
Olivier: I am pleased to report today that Garrett delivered 30 performance in Q1, achieving net sales of 915 million that al and adjusted EBITDA of 161 million at all we indeed add the strong adjusted EBITDA margin of 16, 5%.
Olivier: 120 basis points from last quarter and that just your free cash flow came in at six 8 million, they're all in line with our outlook and expectations.
Olivier Rabiller: Once again, we leverage our flexible cost structure and cash generation capability to enable us to adapt to industry softness, mainly in Europe. We expect the situation to improve during the second half of the year, and Sean will take you through the financials in more detail later in the presentation. The performance we achieved in the quarter enabled us to make some very significant progress on our capital allocation priorities. We previously stated that we would continue to deliver, and on April 10th, we made an early debt repayment of $100 million.
Olivier: Once again, we leverage our flexible cost structure and cash generation capability to enable us to adapt to industry softness mainly in Iraq.
Olivier: We expect this situation to improve during the second half of the year and Sharon will take you through the financials in more detail during the presentation.
Sharon: The performance, we achieved in the quarter enabled us to make some very significant progress on our capital allocation priorities.
Sharon: First.
Sharon: We previously stated that we would continue to deliver and only pretense, we made and the only debt prepayment of 100 million the route.
Olivier Rabiller: Additionally, we continue to focus on returning value to our shareholders through our $350 million share repurchase program, and during the quarter, we repurchased $109 million of common stock. Finally, on April 3rd, we divested an equity interest in a non-core unconsolidated breaking business, which resulted in a cash inflow of $46 million. Turning now to slide four.
Sharon: Additionally, we continue to focus on returning value to our shareholders Schwab well $350 million share reduction program and during the quarter, we rebuilt chasing $109 million of common stock.
Sharon: Finally on that pre owned the cell, we divested an equity interest in a non call and consolidated breaking business, which resulted in a cash inflow of 46 million there at all.
Sharon: Turning now to slide four.
Olivier Rabiller: We continue to innovate and bring new differentiated turbo offerings to our customers across all regions and all verticals. This includes not only additional windings and launches on hybrid vehicles but also natural gas applications for heavy trucks, demonstrating our capabilities to support alternative fuels with our turbo technology. During the first quarter, we also secured two new awards for our large industrial turbos. This is part of the plan we unveiled during our October Technology and Investor Day.
Sharon: We continue to innovate and bring new differentiated job offerings to our customers across all regions and all the ft calls.
Sharon: This includes not only additional wins and launches on hybrid vehicles, but also natural gas application for heavy trucks, demonstrating our capabilities to shoot bolt I tell them that your shoes without wealth Showboat technologies.
Sharon: During the first quarter. We also secured two new wells for our large industry or Joe Bose. This is part of the plan we unveiled during our October with technology in Investor Day dose large industrial jumbos are key to the power generation equipment required by the global expansion of that.
Olivier Rabiller: Those large industrial turbos are key to the power generation equipment required by the global expansion of data center infrastructure, a new industry for us. As we continue to advance our zero-emission solutions, our success continues across all three new offerings, fuel cell compressors, e-powertrain, and e-cooling compressors. Garrett already has the broadest portfolio of high-speed fuel cell compressor applications.
Sharon: Center infrastructure, a new industry for us.
Sharon: As we continue to advance that zero emission solutions. Our success continues across all three new offerings, She would say compressors, Ebola train and equaling compressors.
Sharon: Garrett as already the broadest portfolio of ice speed fuel cell compressor applications. In Q1, we added two additional series production of World Firewall ice speech, we set a compressor.
Olivier Rabiller: In Q1, we added two additional series production awards for our high-speed fuel cell compressor. In addition, a few weeks back, we delivered and installed on a prototype our first breakthrough high-speed e-power train traction model at a leading global OEM. This is a key milestone for the validation of this differentiated technology. In fact, we have been able to move from concept to drawings to product being tested on the vehicle at the customer in record time.
Sharon: In addition.
Sharon: A few weeks back we did you build an installed on the prototype IRA fils breakthrough I speed Ebola train traction motor after a leading global OEM.
Sharon: This is a key milestone for the validation of this differentiated technology in fact, we have been able to move from.
Sharon: Concept, two drawings to product being tested on the vehicle at the group customer in a record time.
Olivier Rabiller: At the same time, we are also delivering our high-power, lightweight centrifugal e-cooling compressor to a range of customers for hardware performance testing of this revolutionary thermal management device. With this product, we are looking to enhance both fast charging and high load performance of battery electric vehicles. With all that, I continue to be encouraged by the speed at which we progress and the interest we are generating with our customers for all these zero-emission technologies. Turning now to slide five.
Sharon: At the same time, we're also delivering a well I'd power lightweight centuries should go equally compressor off to a range of customers call. All the way up at home in States thing of this revolutionary Downhole management device.
Sharon: With this product we are looking to enhance both fast charging and Idaho performance of battery electric vehicles.
Sharon: With all of that I continue to be encouraged by the speed at which we progress and the interest we are generating with our customers for all these zero emission technologies.
Sharon: Turning now to slide five and before <unk> gets into the financials I want to highlight the ways in which we are well positioned for success.
Olivier Rabiller: And before Sean gets into the financials, I want to highlight the ways in which we are well positioned for success. We are the number one player in a technology-driven industry and plan to keep expanding our turbo offerings, not only to serve the expected growth in hybrids but also to develop our position for larger turbos for industrial applications. At Garrett, we continue to enhance our operational framework that is highly cash-generative through cycles and that allows us to invest in new technologies while at the same time delivering and returning cash to shareholders through our share repurchase program.
Sharon: We are the number one player in a technology driven industry and plan to keep expanding our chub offerings not only to sell the expected growth in hybrids, but also to develop our position for larger shabbos for industrial applications.
Sharon: And you're right we continue to enhance our operational framework that is highly cash generative keeps through cycles and that allows us to invest in new technologies, while at the same time, delevering and returning cash to shareholders. So our share repurchase program.
Olivier Rabiller: Our priority remains to identify and focus on customers' unmet needs where we can leverage our innovation capabilities to develop differentiated and highly efficient solutions at scale. All this is made possible by what I consider to be one of the best teams in the industry, being able to, at the same time, deliver strong operational performance and push the boundaries of innovation. I will now turn the call over to Sean to provide more insight into our financial results and outcomes.
Sharon: Our priority remains to why don't you find focus on customers' unmet needs, where we can leverage our innovation capabilities to develop differentiated and highly efficient solutions at scale.
Sharon: All the above is made possible by what I consider to be one of the best teams in the industry being able to at the same time did he built strong operational performance and push the boundaries of innovation.
Sharon: I will not tell them to cologuard, two <unk> to provide more insight into our financial results and outlook.
Sean Ernest Deason: Thanks, Olivier. And welcome, everyone.
Speaker Change: Thanks, Olivier and welcome everyone I'll begin my remarks on slide six.
Sean Ernest Deason: I'll begin my remarks on slide 6. Overall, we delivered solid Q1 results in line with our full-year outlook in an industry that is beginning to see deflation on some commodities, along with demand softness, primarily in Europe. We expect to see this trend continue into the second quarter and anticipate a stronger second half in 2020. Starting with reported net sales on the upper left-hand graph, our net sales are trending down due to lower inflation pass-through and softer global industry trends, as just mentioned.
Olivier: Overall, we delivered solid Q1 results in line with our full year outlook in an industry that is beginning to see deflation on some commodities along with demand softness primarily in Europe.
Olivier: We expect to see this trend continue into the second quarter and anticipate a stronger second half in 2024.
Olivier: Starting with reported net sales on the upper left hand graph. Our net sales are trending down due to lower inflation pass through and softer global industry trends as just mentioned.
Sean Ernest Deason: Moving to the upper right-hand side of the page, we delivered a strong adjusted EBITDA margin by flexing our cost structure and continuing to perform operationally as we navigated mixed headwinds and a lower demand environment. On the bottom left graph, we show that Garrett generated a strong adjusted free cash flow, again, in line with its four-year outlook and in a quarter that normally is seasonally weaker. Turning now to slide 7.
Olivier: Moving to the upper right hand side of the page we delivered a strong adjusted EBITDA margin by flexing, our cost structure and continuing to perform operationally as we navigated mix headwinds and a lower demand environment.
Olivier: On the bottom left graph, we show that Garrett generated a strong adjusted free cash flow again in line with full year outlook and in a quarter that normally is seasonally weaker.
Olivier: Turning now to slide seven.
Sean Ernest Deason: Q1 net sales were down 6% on a gap basis and down 5% on a constant currency basis, reflecting a decrease of $55 million over Q1 of 2023, driven by continued industry softness in gasoline, diesel, and commercial vehicles, primarily in Europe. This was partially offset by a stronger aftermarket, as well as lower inflation passing across all verticals. Lower industry volumes in Q1 were also affected by global supply chain disruptions that have impacted production at many of our OEMs.
Olivier: Q1, net sales were down 6% on a GAAP basis and down 5% on a constant currency basis, reflecting a decrease of $55 million over Q1 of 2023, driven by continued industry softness in gasoline diesel and commercial vehicles, primarily in Europe. This.
Olivier: This was partially offset by stronger aftermarket as well as lower inflation.
Olivier: Passenger across all verticals lower industry volumes in Q1 were also affected by global supply chain disruptions that have impacted production at many of our OEM customers.
Sean Ernest Deason: Gasoline products were down 2% at constant currency, decreasing $10 million in sales, and comprised 42% of reported net sales, flat from last year. Diesel products decreased 8% at constant currency, a decrease of $21 million in sales, and comprised 26% of reported net sales, down from 27% of reported net sales last year. Commercial vehicle sales decreased 11% at constant currency, or $19 million, and represented 18% of reported net sales, again, down from 19% last year.
Olivier: Gasoline products were down 2% at constant currency decreasing $10 million in sales and comprised 42% of reported net sales flat from last year.
Olivier: Diesel products decreased 8% at constant currency, a decrease of $21 million in sales and comprised 26% of reported net sales down from 27% of reported net sales last year.
Olivier: Commercial vehicle sales decreased 11% at constant currency or $19 million and represented 18% of reported net sales again down from 19% last year.
Sean Ernest Deason: Our aftermarket business increased 2% of constant currency, or $2 million, and comprises 12% of reported net sales, up from 11% in Q1 of 2023. And finally, we saw an unfavorable impact of $8 million due to foreign exchange on a year-over-year basis. Moving now to slide 8, on the top of the page, we show our Q1 adjusted EBITDA bridge compared with the same period last year. In Q1, we delivered an adjusted EBITDA of $151 million, representing a $17 million decrease over the same period last year. This decrease was due to volume declines and an unfavorable mix, primarily from a decrease in sales of diesel and commercial vehicles in Europe, impacting adjusted EBITDA by approximately $23 million.
Olivier: Our aftermarket visits increased 2% at constant currency or $2 million and comprises 12% of reported net sales up from 11% in Q1 of 2023.
Olivier: And finally, we saw an unfavorable impact of $8 million due to foreign exchange on a year over year basis.
Olivier: Yeah.
Olivier: Moving now to slide eight on top of the page we show our Q1 adjusted EBITDA bridge compared with the same period last year in.
Olivier: In Q1, we delivered an adjusted EBITDA of $151 million, representing a $17 million decrease over the same period last year.
Olivier: This decrease was due to volume declines and unfavorable mix primarily from a decrease in sales of diesel and commercial vehicles in Europe impacting adjusted EBITDA by approximately $23 million.
Sean Ernest Deason: Overall operating performance was a net positive of $13 million as we continue to successfully pass through inflation and generate productivity while dedicating over 50% of total R&D expenditures to zero emissions technology. By leveraging our flexible cost structure, we were able to deliver a strong 16.5% adjusted EBITDA margin in this challenging macro environment. I'm turning now to slide nine.
Olivier: Overall operating performance was a net positive of $13 million as we continue to successfully pass through inflation and generate productivity, while dedicating over 50% of total R&D expenditures zero emissions to Alex's.
Olivier: By leveraging our flexible cost structure, we were able to deliver a strong 16, 5% adjusted EBITDA margin in this challenging macro environment.
Olivier: Okay.
Olivier: I'm turning now to slide nine we show adjusted EBITDA to adjusted free cash flow bridge for Q1, 'twenty 'twenty four.
Sean Ernest Deason: We show an adjusted EBITDA to adjusted free cash flow bridge for Q1, 2024. Garrett continued to deliver a strong adjusted free cash flow of $68 million in line with our full-year outlook. This was driven by a use of working capital of $9 million, primarily due to inventory seasonality partially offset by strong collections. And capital expenditures came in at $32 million in the quarter, primarily due to timing but also in line with four-year expectations.
Olivier: <unk> continued to deliver a strong adjusted free cash flow of $68 million in line with our full year outlook. This was driven by a use of working capital of $9 million, primarily due to inventory seasonality, partially offset by strong collections.
Olivier: Capital expenditures came in at $32 million in the quarter, primarily due to timing, but also in line with your expectations and finally cash taxes and cash interest interests were also consistent with our outlook.
Sean Ernest Deason: And finally, cash taxes and cash interest were also consistent with our outlook. Turning to slide 10, as Olivier mentioned earlier, we continue to generate cash and execute on our capital allocation priority. We ended the quarter with a strong liquidity position of $766 million, comprised of $570 million of undrawn revolving credit facility capacity and $196 million of unrestricted cash. Our cash generation enabled us to return significant value to our shareholders in the quarter as we repurchased $109 million of common stock under our $350 million stock repurchase program.
Olivier: Turning to slide 10.
Olivier: Olivier mentioned earlier, we continue to generate cash and execute on our capital allocation priorities. We ended the quarter with a strong.
Olivier: Liquidity position of $766 million comprised of $570 million of Undrawn revolving credit facility capacity and $196 million of unrestricted cash or.
Olivier: Our cash generation enabled us to return significant value to our shareholders in the quarter as we repurchased $109 million of common stock under our $350 million stock repurchase program.
Sean Ernest Deason: Additionally, in the first two weeks of April, just after the end of Q1, we completed a divestiture of an equity interest in an unconsolidated joint venture, resulting in the receipt of $46 million of proceeds, and we made an early debt repayment of $100 million on our term loan, continuing to deleverage. We are also evaluating various debt refinancing strategies for our capital structure to extend debt maturity and lower interest expense given current market conditions. Moving to slide 11.
Olivier: Additionally, in the first two weeks of April just after the end of Q1, we completed the divestiture of an equity interest in an unconsolidated joint venture, resulting in the receipt of $46 million.
Olivier: Proceeds and we made an early debt repayment of $100 billion on our term loan continuing to deleverage the company.
Olivier: We are also evaluating various debt refinancing strategies for our capital structure to extend that maturity and lower interest expense given current market conditions.
Olivier: Moving to slide 11.
Sean Ernest Deason: On this slide, we are reaffirming our 2024 outlook communicated on our last earnings call. All ranges have remained the same, and, as mentioned earlier, we expect a stronger second half of the year. The midpoints for adjusted EBITDA, margin, and adjusted free cash flow continue to be $620 million, 16%, and $375 million, respectively. We continue to expect to dedicate approximately 60% of our research and development spending in 2024 to zero-emissions technologies with a total R&D representing approximately 4.5% of sales as we continue to see increasing customer interest across key regions and verticals for our zero-emission technology.
Olivier: On this slide we are reaffirming our 2024 outlook communicated on our last earnings call. All ranges. It remained the same and as mentioned earlier, we expect a stronger second half of the year the midpoint for adjusted EBITDA margin and adjusted free cash flow continued to be $620 million, 16%.
Olivier: $375 million respectively.
Olivier: We continue to.
Olivier: Do you expect to dedicate approximately 60% of our research and development spending in 2024 zero emissions technologies with a total R&D representing approximately four 5% of sales as we continue to see increasing customer interest across key regions and verticals for our zero emission technologies.
Sean Ernest Deason: As we did in the first quarter, in 2024, we plan to continue to deliver productivity, pass through inflation, and flex our variable cost structure to adapt to a dynamic production environment. And with that, I will now turn the call back to Olivier to conclude.
Olivier: As we did in the first quarter and 'twenty 'twenty four we plan to continue to deliver productivity pass through ablation and flex our variable cost structure to adapt to a dynamic production environment.
Olivier: With that I will now turn the call back to Olivier to conclude.
Olivier Rabiller: Thank you, Sean. Turning to slide 12, it was a strong start to the year with a solid first quarter. We are delivering on returning value to our shareholders through share repurchasing, divesting an interest in a non-core business, and repayment of debt through our solid cash generation. We are maintaining our leadership position in turbochargers with the world and launches across light vehicles, commercial vehicles, and industrial offerings. Additionally, momentum continues for our zero emission technologies with the progress we have seen.
Olivier: Thank you Sean turning to slide 12, each was a strong start of the year with solid soft cluster.
Olivier: We are delivering on returning value to our shareholders through share read belt chasing divesting an interest in a noncore business and repayment of debt through our solid cash generation.
Olivier: We are maintaining our leadership position in <unk> with the world and launches across light vehicle commercial vehicles and industrial offerings.
Olivier: Additionally, momentum continuous firewall zero emission technologies with the progress we have seen I am pleased to share that we are on target to achieve our target of $1 billion of annual selves, Although a zero emission vehicle technology by 2030.
Olivier Rabiller: I am pleased to share that we are on target to achieve our target of $1 billion in annual sales of our zero emission vehicle technology by 2013. And finally, given our solid performance this quarter, we are reaffirming our 2024 full year outlook. Thank you for your time, and Operator, we are now ready to begin the Q&A session.
Olivier: And finally, given our solid performance this quarter, we are reaffirming our 2020 for full year outlook.
Speaker Change: Thank you for your time and operator, we all know ready to begin the Q&A session.
Operator: We will now begin the Q&A session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Hamed Khorsand of BWS Financial. Please go ahead.
Speaker Change: We will now begin the Q&A session to ask a question.
Speaker Change: Western you May Press Star then one on your telephone keypad.
Olivier: If you are using a speaker phone please pick up your hands handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two at.
Olivier: At this time, we will pause momentarily to assemble our roster.
Olivier: The first question comes from Ahmed correspond with B Ws financial.
Ahmed: Please go ahead.
Hamed Khorsand: Hi, so the first question I have is, could you just talk a little bit more about the dynamics of the market right now? Is it more of OEMs waiting out on their inventory they have, or are they just not ordering, or are they re-changing their ordering patterns of what they want?
Hamed Khorsand: Hi, So first question I have is could you just talk a little bit more about the dynamics of the market right now is it.
Hamed Khorsand: It's more of a.
Hamed Khorsand: Oems waiting out on their inventory that they have or are they just not.
Hamed Khorsand: Ordering or are they re changing there the ordering patterns of what they want it.
Olivier Rabiller: So, Ahmed, that's a very good question. I think we have a lot of dynamics going on that are both regional and industry-driven. So, as an example, if I pick up the off-highway part of our commercial vehicle industry, we are notably impacted by the fact that construction around the world is going down. Therefore, construction equipment is selling less, agricultural equipment as well, and you know where I'm pointing in terms of customers
Hamed Khorsand: Oh.
Olivier Rabiller: I mean, that's a very good question I think we have a we have a lot of dynamics going on that are both original and industry driven so.
Sean Deason: As an example, if I pick up the.
Olivier Rabiller: The off highway part of all commercial vehicle industry.
Ahmed: We are notably impacted by the fact that the construction around the world is going down therefore, construction equipments offsetting less.
Ahmed: Agricultural equipments as well and you know, what I'm pointing and tons of customers.
Olivier Rabiller: And therefore, as a consequence, some parts of the off-highway business are down. Now, on the other part of the business in off-highway, when I'm looking at the very big turbos and the very big engines, back to what we are sharing on those engines that are serving for data center backup power, the sales are booming. One is not compensating for the other.
Olivier Rabiller: And therefore as a consequence the start of the off highway business has done now on the other part of the business and off highway when I'm looking at.
Olivier Rabiller: The very big Schobul under very began jeans back to what we are sharing on those.
Olivier Rabiller: Those engines that are selling for data center backup power sounds all moving one is not compensating for the other and today, it's not so much.
Olivier Rabiller: And today, it's not so much a problem of inventory in between; it's more a problem of end demand for the rest. Looking at the passenger vehicle industry, different dynamics around the world, in China, we see a slight recovery versus what we saw before last year. But Japan and Korea are down significantly in Q1. Europe is down, in terms of production, and North America is up. Now, when you play with the size of all these things, you see that we are facing different dynamics, not always linked to some kind of stocking or destocking dynamics everywhere.
Olivier Rabiller: Problem of AR inventory in between the smaller prime of yen demand.
Olivier Rabiller: For the rest.
Olivier Rabiller: Looking at the best on Java, Adrian industry different dynamics around the world in China, we see a slight recovery versus what we saw.
Olivier Rabiller: Last year.
Olivier Rabiller: But Japan and Korea, all down significantly in Q1.
Olivier Rabiller: Europe is down.
Olivier Rabiller: In terms of production.
Olivier Rabiller: And North America is up now when you play with the size of all these things do you see that we are we are facing different dynamics.
Olivier Rabiller: Not always linked to some kind of stocking or destocking dynamics everywhere.
Olivier Rabiller: There is overall, if you take a little bit of North America, a demand weakness that we are seeing, and customers are adjusting to that. The rest of the commercial vehicle industry, we talked about off-highway; we could have a bit of the same on the on-highway side. The on-highway is quite weak in Europe, which is a place where we are quite strong in our on-highway business. It's a bit better in the U.S., but our presence is probably relatively smaller than the one we have in Europe and China.
Olivier Rabiller: There is overall lunch take you a little bit of a north America demand weakness.
Olivier Rabiller: We're seeing them and customers are adjusting to that.
Olivier Rabiller: The rest of the commercial vehicle industry, we talked about Oh, five way, we could have beat up the same on the on the on highway side.
Olivier Rabiller: Oh, and I witnessed quite tweak in Europe, which is a place where we're quite strong on the on the on highway business.
Olivier Rabiller: It should be better in the U S. But what presents is probably a relatively small element. The one way I think in Europe in China and in China. It's recovering progress here there is a shift going on from diesel to natural gas trucks.
Olivier Rabiller: And in China, it's recovering progressively. There is a shift going on from diesel to natural gas trucks, but still, it's a weak industry compared to what it was a few years ago. So a lot of different dynamics. The key for us is to be able to have, obviously, a position that is the broadest possible so that when there is something doing well, we are compensating for customers or verticals that are doing less well and adjusting our cost all the time. Hence the strength of Garrett to have this very strong variable cost percentage as part of the total cost, which enables us to react.
Olivier Rabiller: Sure, it's a weak industry compared to what it was a few years back so a lot of different dynamics. The key for us is to be able to Oh, just your position that you have the broadest possible. So that when there is something doing well we are compensating for our customers all the articles that are doing less well.
Olivier Rabiller: And adapt.
Olivier Rabiller: Our cost all the time and the strength of Garrett.
Olivier Rabiller: Out of this very strong valuable cost percentage is due to as part of the total cost which enables us to react you've seen what we did in Q1, we have a bit of a weakness on the topline but at the same time, we are compensating with iron mountain as we execute on everything we have in mind to preserve a gianni and capability of the <unk>.
Olivier Rabiller: You've seen what we did in Q1. We have a bit of a weakness on the top line, but at the same time, we are compensating with a higher margin as we can execute on everything we had in mind to preserve the earning capability of the company.
Olivier Rabiller: Okay.
Sean Ernest Deason: Okay, and then, Sean, could you just define when you're talking about the second quarter being weak, is that on a year-over-year basis, or are you thinking like, you know, there's more downward movement?
Speaker Change: Okay, and then Sean could.
Sean Ernest Deason: Could you just define when you're talking about second quarter being weak is that on a year over year basis or are you thinking that you know there's more bombed down downward move sequentially.
Sean Ernest Deason: Now, I mean, as you saw, we were sequentially up from Q4. That we expect to be, we expect Q2 to be slightly up. It's certainly comp to the prior year will be down still. That's what I meant, Thomas. And the second half, though, improving on top of it sequentially again.
Sean Ernest Deason: No I mean as you saw we were sequentially up from Q4 that we expect to be we expect Q2 to be slightly up it's certainly comp to the prior year will be down still.
Sean Ernest Deason: And that's what I meant comment.
Sean Ernest Deason: Okay.
Sean Ernest Deason: In the second half, though improving on top of outright sequentially again going forward.
Olivier Rabiller: But just to put things back in perspective, we knew that Q1 and Q2 last year were really on a high note. So there is no real surprise there.
Sean Ernest Deason: But just to put these things back in perspective, we knew that Q1 and Q2 last year. We are really on the I node. So there is no real surprise there right.
Hamed Khorsand: Got it. And then... The placement that you talked about for those large power trains in China for the data center, are those going to be sales, you know, recognizable this year, or is that just purely an award for later on? We are working at Chinese speed.
Hamed Khorsand: Got it and then.
Hamed Khorsand: The.
Hamed Khorsand: Placement that you talked about for those large powered trains in China for the datacenter are those going to be sales you know recognizable this year or is that just purely a award for later on.
Hamed Khorsand: We are working at China's Peter which means that we could recognize a few of those by the end of the year.
Olivier Rabiller: We are working at China's speed, which means that we could recognize a few of those by the end of the year.
Speaker Change: Thank you.
Michael Ward: The next question is from Michael Ward with Freedom Capital. Please go ahead.
Olivier Rabiller: The next question is from Michael Ward with Freedom Capital. Please go ahead.
Michael Ward: Thanks, good morning everyone. There are two things. First, on Germany. From the data that we see, production in Germany was lower than expected, but based on what your comments are about the second half, you kind of expected that. Was there some planned downtime, or was any transition going on? And is that what has given you confidence about the second half and your outlook for the year? For your thanks for the cleaning, sorry, Michael, production in Germany. For Germany, yeah. Germany was weak. It was lower than expected from the data that I had, but obviously, you get better data. Yeah, sure.
Michael Ward: Thanks, Good morning, everyone.
Michael Ward: Two things first on Germany from the data that we see production in Germany was lower than expected, but based on what your commentary about the second half you kind of expected. It is was there some planned downtime or was any transition going on and is that what is giving you confidence about the second half and your outlook for the year.
Michael Ward: But what I'm, saying.
Michael Ward: Sorry, Joe production in Germany.
Michael Ward: For Germany, Yes, Germany was weak was lower than expected from the data that I see but obviously you can shoot it.
Michael Ward: Sure.
Olivier Rabiller: Sure, I think we all have the same data when we look at IHS. It's true that Europe was a bit quicker than anticipated, and that's the reason why we've been a bit quicker on the top line than we had in mind. And if we see a recovery at the back end of the year, it's a recovery that's driven not only by Europe. It's also driven by some recoveries that we would see in Asia, as an example.
Speaker Change: Yeah, I think we would have to send it out when we look at IHS.
Olivier Rabiller:
Olivier Rabiller: It is true that true up was it between Aon and anticipated and the reason why.
Olivier Rabiller: We've been a bit weaker on the topline that what we had in mind.
Olivier Rabiller: And if we see a recovery for the backend of the year. It's a recovery is driven not.
Olivier Rabiller: Not only by Europe.
Olivier Rabiller: It's also driven by some recoveries that we would see in Asia as an example.
Olivier Rabiller: So it's really a mix. But it's true that Germany was down in production in Q1, and that corresponds to the comment that we made that Europe was the driver of the weakness that we have seen overall.
Olivier Rabiller: It's really a mix, but it is true that Germany was it was done in production in Q1 and that corresponds to the comment that we made that Europe was.
Olivier Rabiller: The driver of the weakness that we have seen them go.
Michael Ward: Okay, and I'm curious about the conversations you've had with vehicle manufacturers as it relates to hybrids. You know, I think in Europe, hybrids are already a strong portion of the market, and it's growing considerably in North America. Have you seen vehicle manufacturers getting back and talking to you or picking up the pace of the discussions as it relates to hybrids and some of your applications?
Olivier Rabiller: Okay.
Speaker Change: I'm curious on the conversations you've had with vehicle manufacturers as it relates to hybrid.
Michael Ward: Yeah.
Michael Ward: I think in Europe. The hybrids are already a strong portion of the market and it's growing considerably in North America.
Michael Ward: Have you seen vehicle manufacturers getting back and talking to you are picking up the pace of the discussions as it relates to hybrids and some of your applications.
Olivier Rabiller: Absolutely. And it's a very good point. First, we indeed see that in Europe, there is obviously a strong position on hybrid, not only in Europe, by the way. When you consider China, there is a very strong production of hybrids as well. And in Europe, we've seen something else coming in, but it's very early, is that diesel has not decreased to the extent we were expecting diesel to decrease this year.
Speaker Change: Absolutely and it's a very good point.
Olivier Rabiller: First we indeed see that in Europe.
Olivier Rabiller: There is a there is a obviously a strong position on hybrid not only in Europe by the way when you consider China, China. There is a very strong position as well interesting.
Olivier Rabiller: And in Europe, we've seen also something else coming in but it's very early is that diesel has not decreased to the extent we were expecting diesel to decrease this year.
Olivier Rabiller: Meaning, if you take some countries like Germany, the end of the incentives on BEVs has been pushing people to buy more diesel. So it's too early for everyone to reschedule their production and everything, but we have seen a little bit of better production results there than we anticipated. Back to hybrids, and I think your question is probably more about regions that are less focused on hybrids, like North America. It's indeed attracting a lot of discussions with customers on understanding what the powertrains that we need to develop with them now. It's not for the next three months, obviously, when we develop the powertrain. It's further down the line. But those discussions have really intensified in the last six months.
Olivier Rabiller: Meaning if you take some countries like Germany.
Olivier Rabiller: At the end of the incentives on Bds I've been pushing people to buy more detail. So it's too early for everyone to reschedule the collection and everything but we have seen a little bit of a better.
Olivier Rabiller: Production results down than what we anticipated back to a hybrid than I think your question is probably more into the regions that are less on hybrid like North America.
Olivier Rabiller: It seemed leader.
Olivier Rabiller: Attracting a lot of discussions with customers.
Olivier Rabiller: Understanding what all the power trains.
Olivier Rabiller: That we need to develop with them now it's not solve the next three months of <unk>, we developed a thorough training it fills out on the line, but those discussions have really intensified for six months.
Olivier Rabiller: And is it in my <unk>.
Michael Ward: And is it my right that when I look at one of the trends with the vehicle manufacturers, is their investment or demand for the latest technology higher than it's been in the past? In the past, they might have been looking for old applications. They're really trying to push the envelope with the latest and greatest technology, which is one of your products, correct?
Olivier Rabiller: Right.
Michael Ward: I look at one of the trends with vehicle manufacturers.
Michael Ward: Is there investment or demand for the latest technology is higher than it's been in the past.
Michael Ward: They might have been looking for all the applications. They are really trying to push the envelope with the latest and greatest technology, which was one of your products correct correct.
Olivier Rabiller: Mm-hmm. Well, you have two points. The first one is that, obviously, there is a.., there is hybrid, the hybrid push, from the Garmakers, but at the same time, you probably know that in the US, we are planning for new emission regulations, that on their own are driving for an increased level of technology and that is the reason why we are talking with everyone because it's not as simple as just saying I'm taking that old engine I was having somewhere in the world and then I'm putting an hybrid architecture on top and everything will be fine.
Speaker Change: Mhm well you have a you have two points. The first 20, that's obviously there is a.
Olivier Rabiller: There is a hybrid of the hybrid bush.
Olivier Rabiller: From the gummy terms, but at the same time.
Olivier Rabiller: Probably know that are in the U S. We are planning for a new emission regulations.
Olivier Rabiller: Right.
Olivier Rabiller: On their own are driving for an increased level of technology and that is the reason why we are talking with everyone. Because it's not as simple as just saying I'm, taking that old engine or was it being somewhere in the world and then reaching a hybrid architecture on top and everything will be fine.
Olivier Rabiller: The car makers are really taking that prime statement with a much deeper view of what the way to optimize is not only in light of what's expected from these hybrid powertrains in the coming years but also in light of the emission regulations that need to be faced. All in all, it's a good discussion. Absolutely. Sean, one quick question. What is the current share count, or what will be the share count on the queue?
Olivier Rabiller: Academy crews are are we taking the debt problem statement with a much deeper view on what is the way to optimize.
Sean: Only in light of what's expected from these hybrid powertrains in the coming years, but also what are the emission regulations that need to be faced.
Speaker Change: So all in all it's a discussion.
Speaker Change: Next question.
Speaker Change: Absolutely Sean one quick question what is the current share count or what will be the share count on the on the queue.
Sean: Well look I want to say it is.
Sean Ernest Deason: me, look, I want to say it is Birdie or so, 233. But let me look at that. I don't have, let me look through my queue real quick.
Sean Ernest Deason: Two.
Sean Ernest Deason: 30, or so $2 33.
Sean Ernest Deason: But.
Speaker Change: When you look at that.
Sean Ernest Deason: Look through my queue real quick I believe it's around $2 33.
Michael Ward: I believe it's around 2.33. No, that was on the average, but where is it now? Because it seems like a lot of the share repurchase occurred late in the quarter. Yeah, well, we, you know, obviously, we didn't authorize the new, the new program until we reported our earnings. So and then we started after that our Q4 earnings. So in the middle of February, at that point, we had authorized the new share repurchase program started then. So we got about half a quarter. OK.
Michael Ward: So I was talking about with those the average, but like where is it now.
Michael Ward: Because it seems like a lot of the share repurchase occurred late in the quarter.
Speaker Change: Yeah, well we.
Michael Ward: Obviously, we did not arise the new the new program until we reported our earnings.
Speaker Change: And then we.
Michael Ward: We started after that our Q4 earnings so in the middle of February at that point, then we had authorized a new share repurchase program.
Michael Ward: And so we got about half the quarter.
Michael Ward: Okay, okay. So as we look to 2Q and 3Q going forward, we should see it, assuming you're able to go through a chunk of the repo program, we should see it come down by year-end somewhere in the 210 million range. Is that the right way to think about it?
Michael Ward: Okay. So as we look to <unk> and <unk> going forward, we should see it assuming youre able to go through a chunk of the repo program, we should see it come down by year end.
Michael Ward: Somewhere in the $210 million range is that the right way to think about.
Sean Ernest Deason: Yeah, I mean, we will continue to be in the market repurchasing shares and also the luxury of de-levering, as you saw this quarter, but we're being smart about it as well. We're trying to support the price and buy on the dip, so I don't want to give you a guide as to how much we will repurchase by the end of the year. But if you look at it, we reutilized almost most of the program we had in place last year.
Speaker Change: Yeah, I mean, we're going to we will continue to be in the market repurchasing shares.
Sean Ernest Deason: And also have the luxury of Delevering as you saw this quarter yeah.
Sean Ernest Deason: But yeah, we you know, we're being smart about it as well.
Sean Ernest Deason: We're trying we're trying to support the price and buy on the dip. So I can't I don't want to give you a guide as to how much.
Sean Ernest Deason: No problem, we purchased by the end of the year, but if you look at you know we realized almost start you know most of the program we had in place last year.
Michael Ward: Perfect. And at a very reasonable price, so thank you. Thank you very much. Thank you, Debbie.
Sean Ernest Deason: And we're going to try to do the same you know assuming we can do it in a reasonable way.
Michael Ward: Perfect.
Michael Ward: Michael price.
Michael Ward: Yep.
Speaker Change: Alright. Thank you. Thank you Debbie.
Debbie: Thank you, Debbie. I think that's the last call we'll take today, and thank you everybody for joining us on our Q1 results conference call. If you have any other questions, please feel free to follow up with me.
Speaker Change: Thank you Debbie I think that's the last call will take today and thank you everybody for joining us on our two one.
Debbie: <unk> results conference call and if you have any other questions. Please feel free to follow up with myself.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Debbie: Yes.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.