Q1 2025 Garrett Motion Inc Earnings Call
It will be available later today.
After the company's presentation, there will be a Q&A session.
Speaker Change: I would now like to hand, the call over to Cerro Grande Shaw.
Again, its head of Investor Relations.
Devin: Thank you Devin.
Speaker Change: Good day and welcome everyone.
Olivier Rabiller: Is that later on this year? Could you just talk about the dynamics there as far as the split? So we actually, I think that in terms of the mix, you need to be a little cautious when you look at the segment revenue in North America. But what we have seen is gasoline ramping up, and you saw that on our sales.
Speaker Change: Thank you for attending the Garrett motion first quarter 2025 financial results Conference call.
Speaker Change: 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 the Garrett motion Dot com.
Speaker Change: There you will also find links to our SEC filings along with other important information about the company.
Speaker Change: We note that this presentation contains forward looking statements within the meaning of the U S Federal Securities laws.
Speaker Change: These statements, which can be identified by words, such as anticipate intend plan believe expect may should or similar expressions.
Unknown Attendee: Unknown Attendee, Olivier Rabiller, Eric Birge, Amit Khorsand, Garrett Motion, Unknown Attendee, Olivier Rabiller, Eric Birge, Amit Khorsand, Garrett Motion Got it.
Speaker Change: Presents managements current expectations and are subject to various risks and uncertainties.
Olivier Rabiller: And then as far as the The Gasoline Goes, how much opportunity is there as far as you look out into what you're bidding on for 26 and 27? Maybe your question relative to North America or for the world? for North America and Europe. We are seeing some significant opportunities, especially when it comes to North America. We have seen car makers, and I think we highlighted that last quarter, we have seen car makers reviewing their range of products. by voting to add more hybrids. whether it's North American car makers or foreign car makers operating in North America.
Speaker Change: That could cause our actual results to differ materially from such expectations.
Speaker Change: These risks and uncertainties include the factors identified in our annual reports on Form 10-K, and other filings with the Securities and Exchange Commission.
Speaker Change: And include risks related to the automotive industry.
Speaker Change: Competitive landscape and macroeconomic and geopolitical conditions among others.
Speaker Change: Please review the disclaimers on slide two of our presentation as the content of our call will be governed by this language.
Speaker Change: Today's presentation also includes certain non-GAAP measures, which we use to help describe how we manage and operate our business.
Speaker Change: We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release.
Olivier Rabiller: and with solutions that are for most of them implying that they need turbochargers. Whether it's plug-in hybrids or something that is growing very much, that's range extended electric vehicles. where the engine provides more of a generator, electric generator, to the power plant. So we are seeing a strong appeal for that, either directly with the carmakers in North America, the North American carmakers, I should say, or the ones that are operating in North America, meaning foreign brands. Got it. And as far as not, not all of that, not all of that will obviously come in 2027.
Speaker Change: Finally in today's presentation and comments.
You may refer to light vehicle diesel and light vehicle gasoline products by using the terms kyzyl and gathering known.
Speaker Change: With us today are <unk>, President and Chief Executive Officer, and Sean Deason, Garrett Senior Vice President and Chief Financial Officer, I will now hand, the call over to arty.
Speaker Change: Thanks cereal.
Speaker Change: Thank you everyone for joining today's call.
Speaker Change: I am pleased to resolve that Garrett delivered.
Speaker Change: The first quarter through continued outstanding operating performance in the soft industrial environment.
Net sales for the first quarter were $878 million slightly down year over year, yet outperforming the industry in light vehicle turbo sales for both gasoline and diesel application with gasoline growing 6% in the quarter.
Olivier Rabiller: 2027 is across the corner is two years down the line.
Olivier Rabiller: But we see that coming and increasing by the end of the decade.
Olivier Rabiller: Okay, and then switching to China. is China looking like it's going to be more and more EV and how do you feel about where you're situated as far as market share? We are feeling good about our share of demand in China.
Speaker Change: Thanks, two teams they thought we achieved outstanding operating performance adjusted EBIT was $131 million and our adjusted EBIT margin was 14, 9% up 170 basis points compared to Q1 2024.
Olivier Rabiller: Two things. First, in China, we are having not only a passenger vehicle business, We are having also a commercial vehicle business that is very strong, especially on highway. and more and more in off-highway. And I think in the earnings release, we are alluding to the position we are establishing on off-highway gen-set for data centers. But on-highway is a very strong business, has always been a strong business in China. We are feeling very good about it. We are providing differentiated technology that our customer wants. And I was once again meeting with some of them last week and they were reinforcing that they need that technology moving forward.
Speaker Change: This strong margin performance was primarily driven by a sustainable fix them valuable cost actions implemented in 2024 of which we are now seeing the benefits.
Speaker Change: Adjusted free cash flow of $36 million was in line with expectations for the quarter.
Speaker Change: Our 2025 outlook remains unchanged, we are closely monitoring the situation arising from Paris for imports into the U S.
Speaker Change: So far we have not noticed any material impacts on the demand forecast and have been able to implement passed through with our customers.
Olivier Rabiller: We are also equipping a lot of vehicles that are light commercial vehicles in China. that still need, and will need for a long time, diesel engines. And it's a good business for us, where our leadership, especially with variable geometry, is recognized.
Speaker Change: We are staying pilots and are ready to take some measures to reduce costs and adapt to slowing demand.
Speaker Change: In fact, garett as a well balanced sell fleet across geographies with only 20% of itself in North America, and the region for region manufacturing approach.
Olivier Rabiller: Now, coming back to probably the point of your question, which is passenger vehicles. We are pleased with what we are achieving in China, not only with the traditional carmakers and the traditional carmakers, I would put the global brands and their local partners, which are the big state-owned enterprises like SAIC, XIANGAN, NOBGAC, FAW and Dongfeng. But we have made significant progress with what I would call the the winners in China. So names like BYD, Sherry, GD, and even new brands that have come, like Socon and Ceres. Those companies are very innovative, and they are blurring the lines between battery electric vehicles and hybrids by really pushing the development of either plug-in hybrids or range extended electric vehicles and using extensively turbocharged.
Speaker Change: Finally, we continue to allocate capital consistent with our stated framework in the first quarter, we repurchased $30 million of common stock and paid $12 million quarterly dividend.
Speaker Change: Finally, our board of directors just declared our second quarterly dividend payable on June 16th 2025.
Speaker Change: Let me now move to slide forward to share more about Gareth continued success across our well differentiated technology.
Speaker Change: Our industry, leading and differentiated technologies were on display at the Shanghai Auto show last week, where we showcased our ability to innovate and bring new differentiated chubu and neighborhoods offerings to our customers across all regions and verticals.
Speaker Change: We see increasing demand for turbocharged range extended electric vehicles and plug in hybrids and we secured three new wins in China and North America in this area.
Speaker Change: In addition, we continued to win new on highway commercial vehicle programs in Europe, and China and launched natural gas applications for 80 trucks, demonstrating our capabilities to ship both alternative shoes with our troubled technologies.
Olivier Rabiller: So I had really the pleasure to meet with all of these people last week. And they were really reiterating to us that they need our technology moving forward. So I'm feeling quite good about it. Great.
Speaker Change: Our commitment to innovation.
Sean Deason: And then, Sean, I noticed in the guidance, you're keeping the euro assumption at 105.
Speaker Change: Led to wholesale notable accomplishments this quarter.
Speaker Change: As we were awarded multiple New awards for our large industrial troubles by local industry leaders in Asia.
Sean Deason: What would the dynamics be if the euro stayed, you know, north of 110 where it is right now? So we definitely see favorability and revenue and EBITDA as well, but with all the different moving parts in the current macro environment, we felt that the prudent thing was to just keep guidance to where it is for the moment. It's been a very recent move just toward the end of March, which is why you didn't really see any of that favorability come through in the first quarter. But again, you would absolutely see a favorability of revenue and profit driven by effects if this environment continues.
Speaker Change: We have now doubled our presents in the segment, mainly due to the growth of data center infrastructure.
Speaker Change: Simultaneously, we are also making great progress with our zero emission solutions, which are gaining substantial momentum today.
Speaker Change: Today, I am very proud to share that we reached a significant milestone in the development of our E bar train I speak technologies, securing our surf series production of walk from Hyundai leading external supplier.
Speaker Change: Integrated Garrett ice tea the E motor in industrial technology into their XO and transmission platforms for AG duty commercial vehicle with production targeted for.
Sean Deason: And how much exposure would you have to these North American tariffs? We think, and again, we're going to pass them through entirely, if everything stays the way it is today, which is also another if, we think it's around the 60-ish million dollars that would be passed through. Again, re-emphasizing that, like Olivier said, 20% of our sales is in North America. And some of that is to car makers in Mexico. Yeah, we have a significant portion of the sales that we are doing directly to customers that are in Mexico and exporting the cars to North America, and all the cars, all the engines and the rest we do direct.
Speaker Change: 27.
Speaker Change: These achievements demonstrate the substantial potential of our solutions and validates our position.
Speaker Change: Especially in China, where battery electric penetration in commercial vehicle tops the rest of the world.
Speaker Change: In addition, our <unk>.
Speaker Change: Our lightweight centrifugal equaling compressor as continued to receive positive testing feedback and increased customer interest setting the stage for business adoption not only for vehicles, but also for industrial applications.
Sean: I will now hand, it over to Sean to provide more details on our financial results and outlook.
Sean Deason: So The dollar value, you will see it only on the piece that we send from Mexico to the U.S.
Sean: Thank you Olivier and good morning, everyone I will begin my remarks on slide five.
Unknown Attendee: I will. Great.
Sean Deason: We have very limited exposure.
Sean: As Olivier highlighted we delivered strong first quarter financial performance in a challenging and volatile industry environment. Our net sales were $878 million trending upwards sequentially. As we saw increased demand for light vehicle applications in Europe and benefited from new gasoline launches and ramp ups.
Unknown Attendee: We have very limited exposure to anything that comes from Europe, because as we are saying in the script, we are very much manufacturing in the region for the region. All right, thank you guys. Thank you. As we have no further questions.
Sean: In North America.
Unknown Attendee: We will now conclude our conference. Thank you for attending today's presentation.
We continued to expand our adjusted EBIT margin delivering $131 million of adjusted EBIT, which equates to a 14, 9% margin in the quarter.
Unknown Attendee: You may now disconnect.
Sean: This trend is a direct result of the proactive and structural cost actions, we implemented in 2020 for which we will continue which will continue to benefit us throughout the year.
Sean: As we mentioned last quarter, we have transitioned to adjusted EBIT as a measure of profitability.
Sean: We believe adjusted EBIT more accurately reflects the profitability of Garrett makes it more comparable to peers and highlights our capital light model, which is highly cash generative.
Sean: For reference we have included a reconciliation to adjusted EBITDA in the appendix for your convenience.
Sean: Finally, adjusted free cash flow, while sequentially lower was inline with expectations and reflects timing of certain working capital elements, which we expect to recover in the coming.
Sean: Moving now to slide six we show our Q1 net sales bridge by product category as compared with the same period last year.
Sean: In the quarter net sales decreased slightly by $37 million versus the prior year down 4% on a reported basis and 2% on a constant currency basis.
Sean: We experienced strong year over year growth in gasoline applications benefiting from new launches and ramp ups, primarily in North America and share of demand gains.
Sean: This growth was offset by diesel softness driven by lower industry production, mainly in Europe.
Sean: Also saw demand for commercial vehicles and aftermarket applications lower.
Sean: Additionally, foreign exchange resulted in a $21 million or 2% sales decline, primarily driven by a weaker euro year over year.
Sean: Turning now to slide seven.
Sean: As I mentioned earlier, we now utilize adjusted EBIT is our measure of profitability and we believe it provides additional insight into our financial performance and profitability highlighting the strength of our asset light and cash generative operating model.
Sean: Within the quarter, we delivered $131 million of adjusted EBIT, representing a $10 million increase over the same period last year and a strong margin of 14, 9% up 170 basis points.
Sean: We achieved this strong performance through $31 million.
Sean: Operating improvement year over year.
Sean: Benefiting from price and structural actions taken in 2024 and more than offsetting the impact of lower sales and foreign exchange.
Sean: In the quarter, we also successfully passed through.
Sean: $4 million.
Sean: Our 100% of the impact of newly implemented tariffs, which we expect to continue to do throughout the remainder of the year.
Sean: Turning now to slide eight I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter.
Sean: We delivered positive adjusted free cash flow of $36 million in line with our full year expectations.
Sean: But working capital usage in the quarter is aligned with our typical seasonality and was primarily driven by the timing of sales and related collections, which we expect to recover in the coming quarters.
Sean: Cash taxes cash interest were in line with expectations and.
Sean: Capital expenditures were within our financial frame.
Sean: Turning now to slide nine we ended the quarter with a liquidity position of 607 $760 million comprised of $630 million.
Sean: Undrawn revolving credit facility capacity and $130 million of unrestricted cash.
Sean: In the quarter, we refinanced our term loan June better pricing and extending its maturity until 2032.
Sean: At the same time, we increased our revolving credit facility capacity by $30 million and extended its maturity to 2030.
Sean: With no significant near term maturities and ample liquidity, we are well positioned to navigate any potential future volatility that may arise as a result of macroeconomic or geopolitical uncertainty.
Sean: In the first quarter, our positive cash generation enabled us to continue returning capital to shareholders during the quarter, we repurchased $30 million of common stock under our $250 million.
Sean: Share repurchase program and paid our first $12 million quarterly dividend.
Sean: In line with our capital allocation policy, we continue to target a distribution of at least 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases.
Sean: As Olivier mentioned earlier, our board of Directors has also declared a second quarterly cash dividend payable in June 2025.
Sean: And I will now transition to slide 10 to discuss our 2025 outlook.
Sean: We are maintaining our 2025 outlook across all measures implying the following points.
Sean: Net sales of $3 $1 billion net sales growth at constant currency of negative 1%.
Sean: Net income of $232 million adjust.
Adjusted EBIT of $457 million.
Sean: Net cash provided by net cash.
Sean: By operating activities of $402 million and adjusted free cash flow of 345 million.
Sean: While our outlook and assumptions remain unchanged and although we expect to continue to pass through all implemented and future tariffs as previously mentioned by Olivier.
Sean: At this time, there are sufficient uncertainty around the near term impact new and future tariffs may have on the global economy, which could adversely impact the industry and subsequent demand for turbos.
Sean: We will continue to monitor these risks and adjust our cost structure to adapt to any changes in customer demand.
Olivier: With that I will now turn the call back to Olivier for closing remarks.
Olivier: Thanks, Sean.
Olivier: Turning now to slide 11.
Olivier: We indeed stick to our value creation framework, our priority remains to identify and focus on unmet customer needs, where we can leverage our innovation capabilities to develop differentiated and highly efficient solutions at scale.
Olivier: We are strengthening our leadership position in the telco industry, while developing news around mission until what technologies and extending into industry what obligations.
Olivier: The recent series production award with <unk> demonstrates that perfectly well.
Olivier: And our resilient operating framework is highly cash generative, allowing us to navigate the near term volatility while remaining focused on reducing debt and returning cash to shareholders.
Olivier: Reflecting on our final slide 12.
Olivier: I am proud to highlight the promising stocks we've had this year with strong first quarter results.
Olivier: Overall Garrett remains well positioned for the long term success of the company.
Olivier: Our outstanding operating performance consistent free cash flow generation and healthy balance sheet provides us with significant flexibility to invest and continue winning in <unk>.
Olivier: Advance, our differentiated high speed solutions and return value to shareholders, well disciplined capital allocation strategy.
Olivier: As already mentioned, we achieved a significant milestone by securing our first series production of wealth for ICP monitor and industrial technology.
Olivier: We are well positioned to succeed in what could be a challenging year for the automotive industry.
Olivier: Where we see opportunities to keep on delivering strong performance.
Olivier: Before we close I want to thank once again, the Ontario Garrett team for their strong performance into first quarter.
Olivier: Thank you for your time and operator, we are now ready for Q&A.
Speaker Change: Certainly we will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your 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.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Thomas: The first question comes from Thomas <unk> with BWXT financial Please go ahead.
Speaker Change: Hi.
Speaker Change: First off I just wanted to talk about your comments about the what you're seeing in North America with the new launches and ramps that.
Speaker Change: That really didn't show up as far as percentage of sales in Q1.
Speaker Change: Is that later on this year could you just talk about the dynamics there as far as the split between the sales that you reported.
Speaker Change: So we actually.
Speaker Change: We I think that in terms of the mix you need to be a little cautious when you look at.
Speaker Change: This segment.
Speaker Change: Revenue in North America, but what we have seen as gasoline ramping up and you saw that on our sales bridge.
Speaker Change: And a lot of that is driven by North America, plus share of demand gains as I mentioned in Europe.
Speaker Change: But there are offsets in North America in in commercial vehicle, particularly off highway as well as aftermarket there were slightly down so that is actually what.
Speaker Change: The dynamic that you're seeing there.
Speaker Change: Got it and then as far as the <unk>.
Speaker Change: The gasoline goes.
Speaker Change: How much opportunity is there as far as your as you look out into the year.
Speaker Change: What you're bidding on for 26 and 27.
Speaker Change: Maybe your question relative to North America off all that well.
For North America and in Europe.
Speaker Change: We are seeing some CMC counter opportunities, especially when it comes to.
Speaker Change: So North America.
Speaker Change: We are seeing Tom acres, and I think we highlighted that last quarter, we have seen some acres reviewing they'll range of products.
Speaker Change: By voting to add more hybrids.
Speaker Change: Whether it's in North America, and Tommy occurs all foreign Carmakers operating in North America.
Speaker Change: And with solutions.
Speaker Change: That's our fault most of them in playing that Denise troubled charters.
Speaker Change: Whether it's <unk> or something that is growing very much that range extended electric vehicles.
Speaker Change: Ah well the engine provides small also generator electric generator to the powertrain.
Speaker Change: So we are seeing a stronger P&L saw that is all directly with the Etame curse in North America the.
Speaker Change: The North American incoming tourists I should say all of the ones that's operating in North America coming in client brands.
Speaker Change: Got it and as far as I know.
Speaker Change: Not all of that not all of that we obviously come in 2027th 2017 across the corners three years down the line.
Speaker Change: But we see that's coming and the increasing by the end of the decade.
Speaker Change: Okay, and then switching to China.
Speaker Change: Is China looks like it's going to be more and more E V and how do you feel about where you're situated as far as market share is concerned.
Speaker Change: We are feeling good about.
Speaker Change: Offshore demand in China.
Speaker Change: Two things are soft in China, we are seeing.
Speaker Change: Not only the best one Joel the HR business.
Speaker Change: We are adding also.
Sure the can business that is very strong.
Speaker Change: Especially in on highway.
Speaker Change: More and more in off highway and are seeking to the earnings release, we are addressing to the position we are establishing.
Speaker Change: Off highway Gen sets.
Speaker Change: For data centers, but all night ways, a very strong business has always been a strong business in China. We are shooting very good about it we are providing differentiated technology that our customer wants.
Speaker Change: And that was once again meeting with some of them last week rainfall and there we are reinforcing that they need that technology moving forward.
Speaker Change: We are also increasing a lot of the chance that the light commercial vehicles in China.
Speaker Change: That steel that need and we need for a long time <unk> engines.
Speaker Change: And it's a good business for us, where our leadership, especially with valuable geometry is recognized.
Speaker Change: Now coming back to probably the point of your question, we see passenger vehicles.
Speaker Change: We are pleased with what we are achieving in China, not only with the traditional Tommy <unk> and traditional academy crews I would them.
Speaker Change: Put the global brands and download partners child, the Big State owned enterprise right.
Speaker Change: I chose <unk> Shanghai <unk>.
Speaker Change: And on Fang.
Speaker Change: Uh huh.
Speaker Change: But we have made significant progress.
Speaker Change: What I would call the.
Speaker Change: The the winners in China.
Speaker Change: A name like BYD.
Speaker Change: Sherry.
Speaker Change: J D.
Speaker Change: And even new brands that Ofcom are like Silicon and service.
Speaker Change: Those companies are very innovative and they are blurring the lines between.
Speaker Change: Battery electric the HL and hybrids.
Speaker Change: By really pushing the development of a plug in hybrids or range extended electric vehicles.
Speaker Change: And using extensively turbo Chargers.
Speaker Change: So I'd be I had to redo the pleasure to meet with the overlap.
Speaker Change: These people last week and they were really reiterating to us that they need our technology meaningful ups I'm feeling quite good about that.
Speaker Change: Great and then.
Speaker Change: Sean.
Sean: I noticed in the guidance or keeping the euro assumption of 105.
Sean: What would the dynamics be if.
Sean: The euro stays north of 110, where it is right now.
Sean: So we definitely see favorability.
Sean: Favorability in revenue.
Sean: And EBITDA as well, but with all the different moving parts in the current macro environment, we felt that.
Sean: The prudent thing was to just keep guidance, where it where it is.
Sean: For the moment, it's been a very recent move just toward the end of March which is why you didn't really see any of that favorability come through in the first quarter.
Sean: But again, you would absolutely see a favorability of revenue and in profit.
Driven by FX, if this environment continues.
Sean: And how much exposure or would you have to these north American tariffs.
Sean: We think and again, we're going to pass them through entirely if everything stays the way it is today.
Sean: Which is also out there if we think its around $68 million that would be pass through.
Sean: Again re emphasizing that like Olivia said, 20% of our sales is in North America.
Sean: And some of that is to carmakers in Mexico.
Speaker Change: Yeah, we have a significant portion of the cells that we are doing directly to customers that tie in Mexico and export team to cost in North America.
Speaker Change: And all the counsel the engines and the rest we do direct so.
Speaker Change: The dollar value you would see it only on the piece that we spend from Mexico to the U S.
Speaker Change: Our growth.
Speaker Change: I think we have very limited exposure that we have.
Speaker Change: Very limited exposure for anything that comes from Europe, because as we are seeing into the script. We are very much manufacturing in the region for the region.
Speaker Change: Alright, Thank you guys.
Speaker Change: Thank you.
Speaker Change: As we have no further questions.
Speaker Change: We will now conclude our conference.
Speaker Change: Thank you for attending today's presentation you may now disconnect.