Q2 2024 Garrett Motion Inc Earnings Call

Hello, my name is Anthony and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion second quarter 2024 financial results conference call.

Eric Birge: second quarter 2024 financial results conference call. I would now like to hand over the call to Eric Birge, Garrett's Head of Investor Relations.

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. I would now like to hand over the call to Eric Birge, Garrett's Head of Investor Relations.

Eric Birge: Thank you, Anthony. Good day and welcome, everyone. Thank you for attending the Garrett Motion second quarter.

Eric Birge: 2024 Financial 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 our Garrett Motion website at investors.garrettmotion.com.

There, you will find links to our SEC filings along with other important information about our company.

Turning to slide two, we note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. These statements represent management's current expectation and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations. Thank you. Thank you.

These risks and uncertainties include the factors identified in our filings with the Securities and Exchange Commission.

Eric Birge: Please review the disclaimer on slide 2 of our presentation as the content of our call will be governed by this language. Today's presentation also includes certain non-GAAP measures which we use to help describe how we manage and operate our business.

Eric Birge: We reconcile each of these measures to the most directly comparable GAP measure in the appendix of our presentation and related press release.

Eric Birge: Finally, 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: We reconcile each of these measures to the most directly comparable gap measure in the appendix of our presentation and related press release. Finally, 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.

Speaker Change: 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.

Olivier Rabiller: Thanks Eric and thanks everyone for joining Garrett's second quarter 2024 earnings conference call. I will begin today's remark on slide 3.

Olivier Rabiller: Despite a volatile volume environment in the second quarter, I am pleased to report Garrett's very solid performance, driving outstanding operating results.

Olivier Rabiller: We deliver a strong adjusted EBITDA margin of 16.9%, up 40 basis points sequentially, while navigating continued challenging regional dynamics. We do not expect to see this volatility disappear in both...

Olivier Rabiller: We deliver the Strong Adjusted EBITDA margin of 16.9%, up 40 basis points sequentially while navigating continued challenging regional dynamics.

Olivier Rabiller: We do not expect to see this volatility disappear in both...

Olivier Rabiller: light and commercial vehicle volumes through the remainder of the year, but the performance that we achieve in Q2 illustrates the way we have anticipated this and set up the company for continued performance through the remainder of 2024.

Olivier Rabiller: Our Q2 performance allowed us to, once again, make significant progress on our capital allocation priorities.

Olivier Rabiller: Taking advantage of the favorable market conditions, we issued $800 million of senior unsecured notes at favorable interest rates, partially repaying our term loan B, and we also repriced our remaining U.S. dollar term loan B. At the same time, we kept on executing our share repurchase program. In this respect, I would like to highlight the additional turbo program we want for a new large industrial turbo aimed at the fast-growing power generation industry and also for marine applications.

Olivier Rabiller: Taking benefit of the favorable market conditions, we issued 800 million dollars of senior unsecured notes at favorable interest rates, partially repaying our term loan B, and we also repriced our remaining U.S. dollar term loan B.

Olivier Rabiller: These actions will generate annual cash interest savings of approximately $15 million.

Olivier Rabiller: In addition, we use $186 million to repay our Euro-denominated term loan fee and upsize our revolver capacity.

Olivier Rabiller: At the same time, we kept on executing our share repurchase program.

Olivier Rabiller: This quarter, we repurchased $65 million of common stock, bringing our total repurchases in the first half of 2024 to $174 million.

Olivier Rabiller: I wanted to pause on this and, turning to slide 4, I want to take the opportunity to recap the significant value we have returned to shareholders since the beginning of last year through our capital allocation priorities.

Olivier Rabiller: Since the successful conversion of our preferred stock last year, we have reduced our debt by $394 million.

Olivier Rabiller: At the same time, we have also repurchased $958 million in stock or 34% of shares outstanding.

Olivier Rabiller: If you do the math, this translates to a return in excess of $3 per share.

Olivier Rabiller: As of today, we have used more than half of our share repurchase program that we launched at the beginning of the year, and we will continue to use our strong cash generation to acquire more shares in the second half.

Olivier Rabiller: All the actions taken are driven towards making Garrett a highly attractive investment with potential for significant additional profit.

Olivier Rabiller: Turning now to slide 5.

Olivier Rabiller: During the quarter, we continued to build momentum across our entire portfolio, both in our core turbo business and in new zero-emission vehicle technologies.

Olivier Rabiller: We kept on securing business across our TurboRange.

Olivier Rabiller: In this respect, I would like to highlight the additional turbo program we want for a new large industrial turbo aimed at the fast-growing power generation industry and also for marine applications.

Olivier Rabiller: This additional win confirms the customer appeal for our technology in this new industrial segment for Garrett.

Olivier Rabiller: On the zero emission technology side, we also recorded significant progress in the quarter. For example, on the fuel cell compressor front, we secured our first series production contract for our largest fuel cell application to date, which will be used in the commercial vehicle and industrial segments. In fact, we continue to expand the broadest and most mature portfolio of fuel cell compressors in the industry. For ePowertrain, we decided to bring the benefits of our high-speed motor technologies to the commercial vehicle industry in addition to what we have already launched on the light vehicle side. I will now turn the call over to Sean to provide more insight on our global financial results and full year outlook.

Olivier Rabiller: On the zero-emission technology side, we also recorded significant progress in the quarter.

Olivier Rabiller: On the fuel cell compressor front, we secured our first series production contract for our largest fuel cell application to date, which will be used in the commercial vehicle and industrial segments.

Olivier Rabiller: In fact, we continue to expand the broadest and most mature portfolio of fuel cell compressors in the industry.

Olivier Rabiller: For ePowertrain, we decided to bring the benefits of our high-speed motor technologies to the commercial vehicle industry in addition to what we have already launched on the light vehicle side.

Operator: Finally, we continue to see momentum for revolutionary eye-power-equaling centrifugal compressors with two additional pre-development contracts for commercial vehicles during the quarter. All of this, once again, concerns the increasing traction we receive from customers for our differentiated eye-speed electrification solutions.

Olivier Rabiller: Finally, we continue to see momentum for our revolutionary I power equaling centrifugal compressors with two additional pre development contracts for commercial vehicles, one during the quarter.

Olivier Rabiller: All of this once again confirmed the increasing traction we receive from customers call well differentiated high speed electrification solutions.

Olivier Rabiller: I will note down the quote of Dr. Shen to provide more insight on our will, financial results, and for your outlook. Thank you, Olivier, and welcome everyone. I will begin my remarks on Slide six. Overall, and in light of a challenging production environment, we deliver the very solid Q2 result. On the upper left-hand graph, you see that our reported net sales are continuing to trend down due to softer global industry trends across light and commercial vehicles, as well as some regional dynamics with our customers. We also continue to experience commodity deflation, which impacts sales but is margin-accretive.

Olivier Rabiller: I will now turn the call over to Sharon to provide more insight on our well financial results and full year outlook.

Sharon: Thanks, Olivier and welcome everyone I will begin my remarks on slide six.

Sean Ernest Deason: Overall, and in light of the challenging production environment, we delivered a very solid Q2 result. We also continue to experience commodity deflation, which impacts sales but is margin accretive, a 40 basis point increase sequentially compared to Q1 of this year, which we expect to continue to increase in the second half of this year. We also experienced commodity deflation, the impact of which resulted in an additional $30 million reduction in sales compared to Q2 last year, but which also increased our adjusted EBITDA margin.

Sharon: Overall and in light of challenging production environment, we delivered a very solid Q2 result.

Sharon: On the upper left hand graph you see that our reported net sales are continuing to trend down due to softer global industry trends across light and commercial vehicles as well as some regional dynamics with our customers.

Sharon: We also continue to experience commodity deflation, which impact sales, but it is margin accretive.

Olivier Rabiller: Although we are operating in a volatile global production environment, as you can see from the graph on the upper right-hand side of the page, by flexing our cost rupture and continuing to perform operationally, we neutralize the impact of lower net sales and delivered solid adjusted EBITDA of $150 million in the quarter. This led to a strong adjusted EBITDA margin of 16.9%. A 40 basis point increase sequentially compared to Q1 of this year. In addition, we generated a healthy adjusted free cash flow of $62 million in the quarter, which we expect to continue to increase in the second half of this year.

Speaker Change: Although we are operating in a volatile global production environment as you can see from the graph on the upper right hand side of the page by flexing, our cost structure and continuing to perform operationally, we neutralized the impact of lower net sales and delivered solid adjusted EBITDA of $150 million into <unk>.

Speaker Change: Quarter.

Sharon: This led to a strong adjusted EBITDA margin of 16.9%.

Sharon: A 40 basis point increase sequentially compared to Q1 of this year.

Sharon: In addition, we generated a healthy adjusted free cash flow of $62 million in the quarter, which we expect to continue to increase in the second half of this year.

Olivier Rabiller: Turning now to slide seven, I will walk you through our year-over-year sales bridge. Similar to what I just mentioned sequentially, Q2 net sales are down 12% on a GAAP basis and 10% at constant currency, driven by industry softness across all verticals and regions, except for market, which was up 7%. We also experienced commodity deflation, the impact of which resulted in an additional $30 million reduction in sales compared to Q2 last year, but also increased our adjusted EBITDA margin. Gasoline and diesel products were down 15% and 14%, respectively, for combined impact to reported net sales of $17 million.

Sharon: Turning now to slide seven.

Speaker Change: I will walk you through our year over year sales bridge.

Speaker Change: To what I, just mentioned sequentially Q2, net sales were down 12% on a GAAP basis, and 10% at constant currency driven by industry softness across all verticals and regions, except for aftermarket which was up 7%.

Speaker Change: We also experienced commodity deflation the impact of which resulted in an additional $30 million reduction in sales compared to Q2 last year.

Speaker Change: But also increased our adjusted EBITDA margin.

Sean Ernest Deason: Gasoline and diesel products were down 15% and 14%, respectively, for a combined impact on reported net sales of $107 million. Commercial vehicle sales decreased 2% at constant currency, decreasing less than gasoline and diesel products, which resulted in an increase to 18% as a percentage of net sales, driving favorable mixed dynamics. Our aftermarket business increased 7% at constant currency, or $8 million, and comprised 14% of reported net sales, up 11% from last year, which, when combined with the mixed impact of commercial vehicles as a percentage of our total sales, resulted in a slightly favorable mixed impact year over year, primarily due to declining industry trends driving decreased sequential sales, as mentioned previously. During the quarter, we successfully issued $800 million in unsecured notes, which we utilized along with cash on hand to early repay $985 million under two of our term loans.

Sharon: Gasoline and diesel products were down, 15% and 14% respectively for a combined impact to reported net sales of $107 million.

Olivier Rabiller: In commercial vehicle sales decreased 2% at constant currency, decreasing less than gasoline and diesel products, which resulted in an increase to 18% as a percentage of net sales, driving favorable mixed dynamics. Our aftermarket business increased 7% at constant currency, or $8 million, and comprised 14% of reported net sales, up 11% from last year, which, when combined with the sales, resulted in a slightly favorable mixed impact year over year. Finally, we saw an unfavorable impact of $8 million due to foreign exchange on a year-over-year basis.

Sharon: Commercial vehicle sales decreased 2% at constant currency decreasing less than gasoline and diesel products, which resulted in an increase to 18% as a percentage of net sales driving favorable mix dynamics.

Sharon: Our aftermarket business increased 7% at constant currency or $8 million and comprised 14% of reported net sales up 11% from last year.

Sharon: Which when combined with the mixed impact of commercial vehicles as a percentage of our total sales resulted in a slightly favorable mix impact year over year.

Sharon: And finally.

Sharon: You saw an unfavorable impact of $18 million due to foreign exchange on a year over year basis.

Olivier Rabiller: Princess. Turning to slide 8, you will see our Q2 adjusted EBITDA bridge compared with the same period last year. Again, we delivered an adjusted EBITDA of $150 million in Q2, representing a $20 million decrease over the same period last year, with reported net sales decreasing $121 million, which decreased adjusted EBITDA by $34 million. This impact was partially offset by favorable mix, operational productivity, and cost actions driven by flexing or cost structure to adjust to lower sales volumes. These unfavorable industry dynamics, partially offset by our operational excellence, resulted in a 16.5% decrement in homargin, demonstrating our ability to quickly adapt to industry volatility.

Sharon: Turning to slide eight you will see our Q2 adjusted EBITDA bridge compared with the same period last year again, we delivered an adjusted EBITDA of $150 million in Q2, representing a $20 million decrease over the same period last year with reported net sales decreasing one.

Sharon: $121 million, which decreased adjusted EBITDA by $34 million.

Sharon: This impact was partially offset by favorable mix operational productivity and cost actions driven by flexing our cost structure to adjust to lower sales volumes.

Speaker Change: These unfavorable industry dynamics, partially offset by our operational excellence resulted in a 16.5% decremental margin demonstrating our ability to quickly adapt to industry volatility.

Speaker Change: Yeah.

Olivier Rabiller: Overall operating performance contributed $19 million to adjusted EBITDA versus the prior year, driven by the operational actions I just mentioned. By leveraging our variable cost structure and delivering fixed cost productivity, we were able to deliver a strong 16.9% adjusted EBITDA margin in this challenging macro environment. This represents a 10 basis point improvement when compared to the same period last year, and once again a 40 basis point sequential improvement over the last quarter. Moving now to slide 9, we show the adjusted EBITDA to adjusted EBITDA flow bridge for Q2 2024. We delivered a solid adjusted EBITDA flow of $62 million in line with our full year outlook.

Speaker Change: Overall operating performance contributed $19 million to adjusted EBITDA versus the prior year driven by the operational actions I just mentioned.

Speaker Change: By leveraging our variable cost structure and delivering fixed cost productivity, we were able to deliver a strong 16.9% adjusted EBITDA margin in this challenging macro environment. This represents a 10 basis point improvement when compared to the same period last year and once again, a 40 basis point sequential improvement over the.

Speaker Change: Last quarter.

Speaker Change: Moving now to slide nine we show the adjusted EBITDA to adjusted free cash flow bridge for Q2 2024.

Speaker Change: We delivered a solid adjusted free cash flow of $62 million in line with our full year outlook.

Olivier Rabiller: Adjusted EBITDA flow was impacted by a change in working capital of $52 million. Primarily due to declining industry trends, driving decreased sequential sales, as mentioned previously. We expect that working capital will stabilize and improve in the second half as industry volumes recover Q4. Total expenditures, cash taxes, and cash interests were all in mind with your expectations.

Speaker Change: Adjusted free cash flow was impacted by a change in working capital of $52 million, primarily due to declining industry trends driving decreased sequential sales as mentioned previously we expect that working capital will stabilize and improved in the second half as industry volumes recover in Q4.

Speaker Change: Capital expenditures cash taxes, and cash interests were all in line with your expectations.

Olivier Rabiller: Turning to slide 10, as Olivier mentioned earlier, we continued to generate cash and execute on our capital allocation priorities. We ended the quarter with a strong liquidity position of $698 million, comprised of $600 million of our up-sized, un-ron revolving credit facility, and $98 million of unrestricted cash. During the quarter, we successfully issued $800 million in unsecured notes, which we utilized, along with cash on hand, to early repay $985 million under two of our term loans. In addition, we reprised our remaining term loan. These actions, Olivier mentioned, are expected to generate annual interest savings of approximately $15 million.

Speaker Change: Turning to slide 10.

Speaker Change: Olivier mentioned earlier, we continue to generate cash and execute on our capital allocation priorities.

Speaker Change: We ended the quarter with a strong liquidity position of $698 million comprised of $600 million of our Upsized undrawn revolving credit facility and $98 million of unrestricted cash.

Speaker Change: During the quarter, we successfully issued $800 million in unsecured notes, which we utilized along with cash on hand to early repay 900 or $985 million under two of our term loans. In addition, we repriced our remaining term loan b.

Speaker Change: These actions as Olivier mentioned are expected to generate annual interest savings of approximately $15 million.

Olivier Rabiller: Importantly, these changes contributed to upgrades of our credit ratings of our secure debt from both SNP and Moody's to double B plus and B A one respectively. And as discussed, our cash generation enabled us to return significant value to our shareholders in the quarter, as we repurchased an additional $65 million of common stock for a total of $174 million repurchased in the first half of the year under $350 million stock repurchase program.

Olivier Rabiller: Importantly, these changes contributed to upgrades of our credit ratings of our secured debt from both S&P and Moody's to double B, plus and be a one respectively.

Sean Ernest Deason: And as discussed, our cash generation enabled us to return significant value to our shareholders in the quarter as we repurchased an additional $65 million of common stock for a total of $174 million repurchased in the first half of the year under our $350 million stock repurchase program. Moving to slide 11, you can see our updated 2024 Outlook, with the following implied midterm, net adjusted EBITDA of $608 million, implying an adjusted EBITDA margin of 17%, and net cash provided by operating activities of $405 million and adjusted free cash flow of $350 million.

Olivier Rabiller: And as discussed our cash generation enabled us to return significant value to our shareholders in the quarter as we repurchased an additional $65 million.

Speaker Change: Dollars of common stock for a total of $174 million repurchased in the first half of the year under our $350 million stock repurchase program.

Speaker Change: Moving to slide 11, you can see our updated 2024 outlook with the following implied mid points net sales of 3.57 billion constant currency net sales decline of 7% net.

Speaker Change: Net income of $265 million net.

Speaker Change: Net.

Speaker Change: Justice EBITDA of $608 million, implying an adjusted EBITDA margin of 17%.

Speaker Change: And net cash provided by operating activities of $405 million.

Speaker Change: And adjusted free cash flow of $350 million.

Sean Ernest Deason: These updates reflect lower production in both the light and commercial vehicle industries, implying a sales outlook of flat to slightly down in the second half of the year. Our adjusted EBITDA margin also continues to benefit from commodity deflation as we pass this effect to our customers. Although our industry is experiencing challenging macroeconomic effects, we will continue to dedicate approximately 60% of our research and development spending in 2024 to zero emissions technologies while still investing in turbo.

Speaker Change: These updates reflect lower production in both light and commercial vehicle industries, implying sales outlook of flat to slightly down in the second half of the year.

Speaker Change: Commodity deflation is expected to continue and results in a 2% organic decline versus prior outlook on net sales with no adjusted EBITDA impact due to pass through mechanisms.

Speaker Change: As demonstrated in the first half of this year, our ability to flex our cost structure and deliver operational productivity enables us to keep the same midpoint on an adjusted E. On adjusted EBITDA after adjusting for the non operational effects of foreign exchange and the equity income loss from our divestiture on April 3rd this.

Speaker Change: Quarter for which we received $46 million in cash.

Speaker Change: Our adjusted EBITDA margin also continues to benefit from commodity deflation as we pass through this effect to our customers.

Speaker Change: Although our industry is experiencing challenging macroeconomic effects, we continue to dedicate approximately 60% of our research and development spending in 2020 420 emissions technologies, while still investing in turbo.

Sean Ernest Deason: Our updated 2024 outlook reflects our strong operational execution as we continue to generate cash flow in a market where we see volatility in both light and commercial vehicle volumes through the remainder of the year. I'm turning now to slide 12. We have proactively deployed variable and fixed productivity actions that will generate $58 million of incremental margin contribution to offset the impact of sovereign industry demand for both light and commercial vehicles. As a result, our revised adjusted EBITDA midpoint has been adjusted only due to the non-operating impacts of foreign exchange and the loss of three quarters of equity income following our divestiture, as previously mentioned. And with that, I will now turn the call back to Olivier to conclude.

Speaker Change: Our updated 2024 outlook reflects our strong operational execution as we continue to generate cash flow in a market, where we see volatility in both light and commercial vehicle volumes through the remainder of the year.

Speaker Change: Okay.

Speaker Change: Turning now to slide 12, we bridge our prior outlook, our prior outlook midpoint, adjusted EBITDA of $620 million or updated outlook midpoint of $608 million.

Speaker Change: We are proactively deployed variable and fixed productivity actions that will generate $58 million of incremental margin contribution to offset the impact of sovereign industry demand for both light and commercial vehicles as a result, our revised adjusted EBITDA midpoint has been adjusted only due to the non operational impacts of foreign exchange and the loss.

Speaker Change: With three quarters of equity income following our divestiture as previously mentioned.

Speaker Change: And with that I will now turn the call back to Olivier to conclude.

Olivier Rabiller: Turning now to slide 13, I briefly want to remind you of the ways in which we are well positioned for the long-term success of Garrett. We continue to be the number one turbo player in a technology-driven industry. Our operational framework is highly cash-generative during our cycles, allowing us to invest in new technologies while reducing debt and returning cash to shareholders. All of this is made possible by what I consider to be one of the best teams in the industry.

Olivier Rabiller: Thank you Shannon.

Olivier Rabiller: Turning now to slide 13, I briefly want to remind you of the ways in which we are well positioned for the long term success of Garrett.

Speaker Change: We continue to be the number one player in a technology driven industry.

Speaker Change: Our operational framework is highly cash generative adult titles, allowing us to invest in new technologies, while reducing depth and reach on cash to shareholders.

Olivier Rabiller: Our priority remains to identify and focus on customers and make needs, where we can leverage our innovation capability to develop differentiated and exchange solutions at scale.

Speaker Change: All of this is made possible by what they consider to be one of the best team in the industry.

Speaker Change: And now concluding with slide 14.

Olivier Rabiller: I want to thank the entire Garrett team for driving outstanding operating performance in the quarter. Together, we offset some challenging regional dynamics, delivered strong financial performance, and set up the company to keep on performing for the quarters to come. And finally, we have updated our full-year guidance to reflect software industry demands, and we remain confident in our ability to deliver continued operating strength and cash generation across all economic cycles. Thank you. And Operator, I think we are ready for the Q&A.

Speaker Change: Thank you for your time and operator, I think we are ready for the Q&A.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Hamed Khorsand of BWF Financial.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: At this time, we'll pause momentarily to assemble our roster.

Speaker Change: Our first question will come from Comet core sand with BW life's financial.

Speaker Change: May now go ahead.

Hamed Khorsand: Hi, so first off, I just want to see, could you provide a little bit more details as to what that demand dynamic is between Europe and China that you're citing? Is it all related to end users? Sorry, the consumer isn't buying anything? Or is it production-related? Is it geopolitical-related?

Speaker Change: Hi, So first off I just wanted to see could you provide a little bit more details as to what that demand dynamic is between Europe, and China that you're citing is it all.

Speaker Change: All related to end user.

Speaker Change: Sorry, the consumer not buying anything or is it production related because of geopolitical related.

Olivier Rabiller: That's a good question, Ahmed. Let me help you with that.

Speaker Change: That's a good question Amit let me let me helps you with that first what we see is obviously the production off of the <unk>.

Speaker Change: Makers.

Olivier Rabiller: You know that there is a very strong price war in China; there are some losers, there are some winners, and this is affecting, obviously, and I'm talking about the light vehicle, gasoline, and hybrid segments, this is affecting the volumes, whether we sell to the global brands or whether we sell to the local brands. Some of them are winning, and some of them are losing. So we are just getting through all that.

Speaker Change: You'll know that there is a very strong price well in China, but there are some losers. They have some winners and this is influencing of you're seeing I'm talking about the light delight the chair.

Speaker Change: Gasoline and hybrid segment. This is influencing the volumes whether we sell.

Speaker Change: Two the global brands, all with or we sell to the local brands.

Olivier Rabiller: It's quite complex, quite volatile, and that's one of the drivers. But at the same time, we know that worldwide, all the issues are not coming from China. We know that Korea is still weak.

Olivier Rabiller: And it's a significant piece of our business. And as well, we know that globally, the off-highway... commercial vehicle of the highway is not exactly booming, to say the least. You've seen the result of some of the highway specialists in North America, and obviously, since we are the biggest suppliers to this industry, we are obviously seeing our revenue line with these guys suffering as well. So these are a mix of things that are happening a little bit across the globe, not mentioning the fact that from a production standpoint, Europe is not exactly doing great.

Olivier Rabiller: I breathe, it's immediate. We are participating in it because a very significant portion of what we sell is ending up on the hybrid platform. But you know that between the time at which car makers are deciding on hybrid programs and the time at which they put those into production, there are about three years. In the past, we had questions about how quickly we were seeing customers reacting to and developing more hybrids. I should say today that we are starting to see activities ramping up that we have not seen at that kind of pace in the past.

Obama: Obama winning them.

Obama: Our business and we are seeing those new hybrid programs lining up.

Speaker Change: But you know that between the time at which Tommy crews are deciding on that rig programs and the time at which they put that to production.

Speaker Change: There is about three years.

Speaker Change: We are the in the past questions about how quick we are seeing customers reacting and developing weighbridge.

Speaker Change: I should say today that we are starting to see the activity is ramping up.

Speaker Change: That we are not seeing that kind of pace in the past.

Speaker Change: The part of your question that she is on zero emission of H O. Today, we are in the middle of a lot of pre development with our customers. We are already in production on fuel cell compressors. We've said that this show will generate already 20 million there are onshore.

Speaker Change: Onshore sell comp ratio, which is very significant when you're comparing to the size of the hydrogen industry.

Speaker Change: And for the rest for Epo a trainer we have very promising pre developments going on I cannot say more at this stage.

Speaker Change: We just announced today in this release that we have decided to also tackle.

Speaker Change: <unk>.

Speaker Change: The Epo or train the <unk>.

Speaker Change: Three in one business and it was always with the E motor inverter and gearbox for commercialization, whether it's medium duty and heavy duty.

Speaker Change: And I've been even surprised at the speed at which customers we are banking on that.

Speaker Change: Because we have already signed three development three pre development contracts.

Speaker Change: On this very interesting technology for them so.

Speaker Change: I'm pleased to show that.

Olivier Rabiller: Unfortunately, I would say, or fortunately, because there is a good side to it, that we are focusing on the next generation of those electric vehicles. Fortunately, that means that we are not suffering from any kind of weakness that the industry is seeing in the ramp-up of those zero-emission vehicle technologies.

Olivier Rabiller: Okay, and the last topic is, are you still seeing the same dynamic of weakness now that you saw in Q2? I would say yes.

Speaker Change: Despite the revenue line dropped that's what this team when you do it and when you look at the fact that we did not move adjusted for FX and divestiture, we did not move our guidance full year on EBITDA go down it shows the capability and the confidence we have in the company to perform even when.

Speaker Change: The industry is weak outside.

Speaker Change: I am very proud of that I think it's a differentiating point for Garrett and the way we execute.

Speaker Change: I am confident we have the right setup to address what we have anticipated in the lowering of the guidance on the revenue side to keep on performing for what matters for all of US which is how much margin do we generate how much money do we generate and then.

Speaker Change: That money that we generate what do we do with it which is the strong capital allocation strategy that we followed since the beginning of the year.

Speaker Change:

Speaker Change: Even if we are in the middle of that it's always impressive to put those numbers together.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

Operator: Our next question we're going to...

Speaker Change: Our next question will come from Michael Ward with Freedom capital.

Speaker Change: You may now good morning, everyone.

Michael Patrick Ward: Good morning. My question is it is there a customer mix is most of your revenue in China coming from the U S and European based manufacturers.

Speaker Change: In fact, we are working both with global players and local players.

Speaker Change: Okay.

Speaker Change: Players with content tends to be less about it. So it's a mixed standpoint, it's a negative.

Olivier Rabiller: global players, and you have fewer global players in terms of the number of players, and you have more local players in terms of the number of players. So not only have we seen a swing between the globals and the locals for the last few years, a swing that for us is important, but at the end of the day, we are working on both sides. But we've seen swings even among the local players.

Olivier Rabiller: No, no, I think that's right. And are you seeing...

Olivier Rabiller: Yeah, to a certain extent, that's correct because hybrids are usually using engines that are a bit more advanced. I would say it's more of a general statement: we are getting more variable geometry, and we are getting a turbo penetration that is a bit higher.

Speaker Change: If this starts to redeploy a new range of DHL to hybrid.

Speaker Change: Address that that trend of more hybrid it takes three years for any kind of vehicle to be on the market. Okay. So obviously, we are very active in the bidding and working with many of them for some of them. They are planning to reuse some engines on which we are already so there is only there is less work to be done but still adapting.

Speaker Change: The data.

Speaker Change: Short term, though what you could see and you can see that in the registration in Europe to some extent.

Speaker Change: Some companies that are.

Speaker Change: Specialized on hybrid like Toyota are winning of our dealers.

Speaker Change: Okay.

Sean Ernest Deason: Sean, can you walk through the impact, the delay, really, and when it flows through your revenue line with the lower commodity costs? We've seen commodity costs come down across the board, and I think that's part of what you're seeing. And then you also have FX, and can you talk about which currencies are affecting that number?

Sean: So Sean can you walk through the impact.

Sean: The delay really.

Speaker Change: It closed through your revenue line with the lower commodity costs, we've seen commodity costs come down across the board.

Speaker Change: And I think just part of what Youre seeing in the north of Iraq, and could you talk about which currencies are being.

Sean: Affecting that number.

Speaker Change: Sure for US FX is that mainly we're seeing a little bit on the Korean won the Japanese yen and Chinese renminbi, which is in the past those have been more stable.

Speaker Change: As you know, we're very sensitive to the euro, but the euro is actually held in there.

Speaker Change: Quite well year over year and sequentially and folding in there about $1 109, so it hasn't been as big of an issue, but it does Asian currencies that where we've really seen an impact.

Speaker Change: Okay.

Speaker Change: On the commodities what is the kind of where it is.

Speaker Change: Or delay them, because we've continued to see prices come down into the third quarter is that does that your outlook for the first half.

Speaker Change: 25, yes.

Speaker Change: We will continue to pass through though so what that ends up doing is it will it will impact sales as I mentioned, but it but it also results in higher margins.

Speaker Change: So and we are on about a one quarter delay, but then also it's aligned matched up with our supply base as well. So we don't have really a mismatch between supply supplier and customer faster.

Sean Ernest Deason: Okay, and do you have any exposure, or is it a hundred percent pass-through?

Speaker Change: Okay, and do you have any exposure or is it a 100% pass through.

Sean Ernest Deason: I think we can pretty safely say we're 100% pass-through. The vast, vast majority of it is contractual, and then we're able to very effectively negotiate one-offs where we need to. And in fact, as we've talked about before, we've successfully passed through freight increases, even some labor increases.

Speaker Change: I think we can pretty safely say, we're 100% pass through the <unk>.

Speaker Change: Vast vast majority of it is contractual and then we're good we're able to very effectively negotiate one offs, where we need to and in fact as we've talked about before we've successfully pass through freight increases even some labor increases in the past.

Speaker Change: Oh.

Speaker Change: So we're seeing that before.

Sean Ernest Deason: Thank you. We have not seen some of those decrease, like labor, for example.

Speaker Change: Thank you.

Speaker Change: We have.

Speaker Change: We have not seen some of those decreasing that CAGR for example, yes chip.

Speaker Change: Okay.

Operator: This concludes our question and answer session. I would like to turn the comments back over to Olivier Rabiller for any closing remarks. Okay, well, thanks.

Olivier Rabiller: This concludes our question and answer session I would like to turn the conference back over to Olivier <unk> for any closing remarks.

Speaker Change: Okay, well, thank you very much for to everyone for joining.

Olivier Rabiller: OK. Well, thank you very much to everyone for joining us. Once again, this is an important quarter for us in the way it shows our ability to adapt our costs, even when the environment is less favorable. And we are set up the right way for the remainder of the year and for any cycle to come. The second point is the strength that we see in the pull from customers, not only on turbochargers but also on zero emission vehicle technology. And when I say turbocharger, it's obviously including hybrids. All of that makes us confident about the future. This company is a very nice investment opportunity.

Olivier Rabiller: Once again, the important quarter for us in the way to demonstrate our ability to adapt our cost even.

Olivier Rabiller: When a young government is less valuable and.

Speaker Change: We have set up the right way for the remainder of the year and for any cycle to come.

Speaker Change: The second point is the strength that we see in the pull from customers not only on Turbochargers, but also on zero emission.

Olivier Rabiller: Technology, and when I say turbocharged by service, including hybrid.

Olivier Rabiller: All of that makes us confident for the future.

Speaker Change: This company is a very nice investment opportunity.

Speaker Change: Thank you.

Olivier Rabiller: Okay.

Olivier Rabiller: Okay.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.