Q2 2025 Garrett Motion Inc Earnings Call

Unknown Attendee: Second Quarter 2025 Financial Results Conference Call. This call is being recorded and a replay will be made available later today. After the company's presentation, there will be a Q&A session.

Cyril Grandjean: I would now like to hand the conference call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer. Thank you, Megan. Good day and welcome everyone. Thank you for attending the Garrett Motion second quarter 2025 Financial Results Conference call.

Hello, my name is Megan and I will be your operator this morning. I would like to welcome everyone. To the Garrett motion, second, quarter, 2025 Financial results conference call. This call is being recorded and a replay will be made available later today. After the company's presentation, there will be a Q&A session I would now like to hand the conference, call over to silt gring Garrett's vice president, investor relations and treasure.

Thank you again. Good day. And welcome everyone.

Cyril Grandjean: 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 also find links to our SEC filings, along with other important information about the We note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities law. The statements, which can be identified by words such as anticipate, intend, plan, believe, expect, may, should, or similar expressions. represent management's current expectations and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations.

Speaker Change: The Garrett motion, second quarter, 2025 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's motions website at investors Garrett motion.com there. You will also find links to our SEC filings along with other important information about the company.

Speaker Change: We know that this presentation contains forward-looking statements within the meaning of the US Federal Securities laws.

Speaker Change: This statements which can be identified by words such as anticipate intent plan, believe expect, May should or similar expressions.

Speaker Change: represents Management's, current expectations, in our subject, to V, various risks and uncertainties that could cause our actual results to differ materially from such expectations,

Cyril Grandjean: These risks and uncertainties include the factors identified in our annual report on Form 10-K and other filings with the Securities and Exchange Commission, and include risks related to the automotive industry, competitive landscape, and macroeconomic and geopolitical conditions, among others.

Speaker Change: Exchange Commission and include risks related to the automotive industry, competitive landscape and macroeconomic and geopolitical conditions among others.

Cyril Grandjean: Please review the disclaimers on slide 2 of our presentation, as the content of our call will be governed by this link. Today's presentation also includes certain non-GAAP measures, which we use to help describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable gap measure in the appendix of our presentation and related press releases. Finally, in today's presentation and comments, we may refer to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only.

Speaker Change: Please review the disclaimers on slide 2 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.

Cyril Grandjean: 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.

Speaker Change: Finally, in today's presentation and comments, we may refer to light vehicle Diesel and light vehicle Gathering products by using the terms Diesel and gasoline.

Olivier Rabiller: I will now hand the call over to Olivier. Thank you, Cyril, and thank you all for joining today's call. I am pleased to report that Garrett delivered another set of very solid financial results in the second quarter, thanks to strong sales performance in a soft environment. Net sales for the first quarter were $913 million, which is flat at constant currency, representing outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, gasoline turbo cells grew by 4% in the quarter, outperforming the industry. Thanks to the team's effort, we've achieved another quarter of solid operating performance.

Shun: With us today, our Olivia Garrett's president and chief executive officer and shun these in Garrett's senior vice president and Chief Financial Officer.

Speaker Change: I will now hand the call over to a

Olivia Garrett: Thank you, and thank you all for joining today's call.

Speaker Change: I am pleased to report. That Garrett delivered, another set of very solid Financial results in the second quarter. Thanks to strong sales performance in a certain environment.

Speaker Change: Net sales for the first quarter, we are 913 million which is flat at constant, currency representing outperformance over the industry in light vehicle turboair for both gasoline and Diesel applications.

Speaker Change: In fact gasoline, turbo sales grew by 4% in the quarter outperforming the industry.

Olivier Rabiller: Adjusted EBIT was $124 million, and our adjusted EBIT margin was 13.6%, including 30 basis points of margin rate dilution from tariffs. We also delivered strong adjusted free cash flow of $121 million for the quarter, placing our first half 2025 conversion at 62% of adjusted EBIT above our stated target. We are also raising our outlook for 2025 to reflect the euro-dollar exchange rate. We will indeed remain alert and ready to take measures to adapt to slowing demand should it become necessary. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders.

Speaker Change: Thanks to the team's effort with achieved another quarter of solid operation operating performance.

Speaker Change: Adjusted a bit was 1 124 million and our adjusted a bit margin was 13.6% including 30 basis points.

Speaker Change: The margin rate dilution from tariffs.

Speaker Change: We also delivered strong adjusted free cash flow of 121 million for the quarter. Placing our first half 2025 conversion at 62% of adjusted a bit above our stated targets.

Speaker Change: We are also raising our outlook for 2025 to reflect the euro dollar exchange rate. We will indeed remain alert and ready to take measure to adapt to slowing demand. Should it become necessary?

Olivier Rabiller: During the second quarter, we repurchased $22 million of common stock and paid a $12 million quarterly dividend. Additionally, our Board of Directors has just declared a third quarter dividend payable on the 16th of September 2025.

Speaker Change: In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders.

Speaker Change: During the second quarter, we repurchase 22 million of common stock and paid a 12.

Speaker Change: Million dollar quarterly dividend.

Olivier Rabiller: Finally, Garrett was included in the Russell 2000 in the June Index Reconstitution, reflecting the positive impact of capital structure transformation and discipline approach to capital allocation.

Speaker Change: Additionally, our Board of director has just declared the third quarter dividend payable on the 16th of September 2025.

Olivier Rabiller: Let me now move to slide 4 to share more about Garrett's continued success across our differentiated technologies. I am very happy to share that we were awarded over $1 billion of light vehicle program extensions in Q2, some of which will last until 2034. This achievement increases visibility on future turbo cells and is a testament to the strong demand we continue to see for our differentiated turbo technologies. Moreover, we continue to see growing interest in the development of turbochargers for range-extended electric vehicles. We secured three additional wins to serve this technology in China this quarter. We were also awarded another major E-Turbo program in Europe, which highlights our leadership in electric boosting.

Speaker Change: Finally Garrett was included in the Russell, 2000 in the June indexed, reconstitution reflecting the positive impact of our capital structure transformation and discipline approach to Capital, allocation.

Speaker Change: Let me now move to slide 4 to share more about Garrett's continued success. Across our differentiated Technologies

Speaker Change: I am very happy to share that we were awarded over 1 billion dollar of light vehicle program extensions in Q2 some of which will last until 2034

Speaker Change: This achievement increases visibility on future, turbo sales, and is a testament to the strong demand. We continue to see for our differentiated turbo Technologies.

Speaker Change: Moreover, we continue to see growing interest in the development of turbocharger for range extended, electric vehicles.

Speaker Change: We secured 3 additional winds to serve this technology in China this quarter.

Olivier Rabiller: In addition, we won five awards for on-highway commercial vehicles and two for off-highway tractors with global OES.

Speaker Change: We were also awarding another major Echo program in Europe, which highlights our leadership in electric boosting.

Olivier Rabiller: Lastly, the recent field test of our Garrett MEG Turbo demonstrated superior performance against the existing Turbo solutions for Genset. As a reminder, the MEG Turbo line is the new line of products we launched at the end of 2023 to address the needs of big engines for genset and marine applications. These products represent the largest turbo we have ever engineered at Garrett, and they serve an industry that is seeing significant growth, mostly driven by data centers backed to power.

Speaker Change: In addition, we want 5 awards for on Highway, commercial vehicles, and 2 for off Highway tractors with global oems.

Speaker Change: Lastly.

Speaker Change: The recent field test of our Garrett Meg turbo, demonstrated Superior performance against the existing turbo solutions for gen sets.

Speaker Change: As a reminder, the Meg turbo line is, the new line of products we launched at the end of 2023 to address. The needs of big engines for Jeannette and marine application.

Olivier Rabiller: This quarter, we continue to make significant progress across our differentiated zero-emission products. For our high-speed e-powertrain business, we secured an additional Proof-of-Concept award with a major European passenger vehicle, OEM. In addition, we have seen growing interest from commercial vehicle OEMs for our offering since announcing our award with Hyundai Axel earlier this year. On the e-cooling side, we are happy with the traction we get for industrial, non-automotive cooling. We have demonstrated our ability to outperform existing compressor technology and exceed targets shared by existing players in that field. This is very promising for this. venture outside of the automotive space.

Speaker Change: Driven by data centers back to Power.

Speaker Change: This quarter, we continue to make significant progress across our differentiated zero emission products.

Speaker Change: For our high-speed E, power train business. We secured an additional proof of concept Award with a major European passenger vehicle OEM

Speaker Change: In addition, we have seen growing interest from commercial vehicle. Oems for our offering since announcing our award with Hyundai axle earlier this year.

Speaker Change: On the E cooling side. We are happy with the traction. We get

Speaker Change: For industrial. Non-automotive Cooling.

Speaker Change: We have demonstrated our ability to outperform, existing compressor technology and exceed targets, shared by existing player in that field.

This is very promising for this.

Olivier Rabiller: Additionally, we secured one of our largest awards today for our fuel cell compressor from a leading Asian OEM, which again demonstrates the significant value of our product and our industry-leading portfolio in this area.

Speaker Change: Venture outside of the automotive space.

Olivier Rabiller: Given the momentum we are seeing across our zero-emission technologies, we have also inaugurated a new state-of-the-art R&D center in Wuhan, China, reinforcing our presence in this fast-moving region.

Speaker Change: Additionally, we secured 1 of our largest award today for our fuel cell. Compressor from a leading Asian OEM which again demonstrates the significant value of our product and our industry-leading portfolio in this area.

Sean Deason: I will now hand it over to Sean to provide more details on our financial results.

Speaker Change: Given the momentum we are seeing across our zero emission Technologies. We have also inaugurated a new state-of-the-art R&D Center in wooin. China reinforcing our presence in this fast-moving region.

Sean Deason: Thanks, Olivier. And good morning, everyone. I will begin my remarks on slide five. As Olivier highlighted, we delivered solid second quarter financial performance. Our net sales were $913 million, driven by favorable foreign currency impacts, tariff recoveries, and new gasoline launches and ramp-ups in Europe and North America, partially offset by continued weakness in diesel and after. We delivered $124 million of adjusted EBIT in the quarter, which equates to a 13.6% margin. A sequential decline resulting from continued unfavorable sales mix, tariff dilution, which was partially offset by favorable foreign currency impact. Finally, adjusted free cash flow was $121 million, representing a marked increase over the prior quarter as we converted earnings into cash and released working capital, resulting in a free cash flow conversion of 98% for the quarter and 62% for the first half.

Speaker Change: I will know and it over to shun to provide more details on our financial results and Outlook.

Shun: Thanks, Olivia and good morning everyone. I will begin my remarks on slide 5.

Speaker Change: As Olivia highlighted, we delivered salad, second quarter financial performance. Our next sale over 913 million dollars, driven by favorable foreign currency impacts tariff, recoveries and new gas, gas gasoline, launches and ramp UPS in Europe and North America.

Speaker Change: Partially offset by continued weakness in diesel and aftermarket.

Speaker Change: We delivered 124 million dollars of adjusted ebit in the quarter, which equates to a 63.6% margin, a sequential decline resulting from continued. Unfavorable sales, mix tariff solution, which was partially offset by favorable foreign currency impacts.

Speaker Change: Finally adjusted free cash flow was 121 million representing a marked increase over the prior quarter. As we could further earnings in the cache and release working capital resulting in a free cash flow conversion of 98% for the quarter and 62% for the first half.

Sean Deason: Moving now to slide six, we show our Q2 Net Sales Bridge by product category as compared with the same period last year. In the quarter, net sales increased by $23 million versus the prior year, or 3% on a reported basis and flat on a constant currency basis, reflecting favorable foreign currency impact. We continue to experience strong gasoline growth, outperform the industry, and is driven by continued share of demand gains and new launches. Partially offset by diesel softness resulting from lower industry production in Europe as well as lower demand for aftermarket applications primarily in North America.

Speaker Change: Moving now, to slide 6, we show our Q2 net sales bridge by product category as compared with the same period last year.

Speaker Change: In the quarter, net sales increased by 23 million versus the prior year or 3% on a reported basis and flat on a constant currency basis, reflecting favorable, foreign currency impacts.

Speaker Change: We continue to experience, strong gasoline growth outperformed, the industry and is driven by continued share of demand gains and new launches.

Speaker Change: This is partially offset by diesel softness resulting from lower industry production in Europe as well as lower demand for aftermarket applications.

Sean Deason: Additionally, we recovered $14 million of tariffs within the quarter. Turning to slide seven. We show our Q2 adjusted EBIT bridge as compared with the same period last year. Within the quarter, we delivered $124 million of adjusted EBIT, representing a $1 million increase over the same period last year and a margin rate of 13.6 percent, a 20 basis point decline. Those softness in demand for aftermarket and diesel applications drive unfavorable product mix. We continue to benefit from the impact of sustained fixed cost action and variable cost productivity. In the quarter, the impact of newly implemented tariffs drove 30 basis points of margin rate dilution.

Speaker Change: Primarily in North America.

Speaker Change: Additionally, we recovered 14 million dollars of tariffs within the quarter.

Speaker Change: Turning to slide 7.

Speaker Change: We show our Q2 adjusted ebit fridge as compared with the same period last year.

Speaker Change: Within the quarter, we delivered a 124 million of adjusted ebit. Representing a $1 million increase over the same period last year and a margin rate of 13.6%

Speaker Change: A 20 basis point decline.

Speaker Change: Those softness in demand for aftermarket and Diesel applications Drive unfavorable product mix. We continue to benefit from the impact of sustained. Fixed cost action and variable cost productivity.

Sean Deason: Additionally, we've benefited from $11 million or 80 basis points of contribution from favorable foreign exchange impacts year over year. Turning now to slide 8, I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered strong adjusted free cash flow of $121 million. This performance was due to higher sequential sales and the conversion of earnings into cash, complemented by the release of working capital. Cash taxes, capital expenditures, depreciation, and cash interest were all in line with our expectations. And this strong Q2 result equates to a free cash flow conversion of 62% for the first half of 2025.

Speaker Change: In the quarter, the impact of newly implemented. Tariffs drove 30, basis points of margin rate dilution

Speaker Change: Additionally we've benefited from 11 million or 80 basis points of contribution from favorable foreign exchange impacts year-over-year.

Speaker Change: Now, to slide 8, I'll walk you through the adjusted ebit to adjusted Free, Cash Flow Bridge for the quarter.

Speaker Change: We delivered strong adjusted free cash flow of 121 million. This performance was due to higher sequential sales and the conversion of earnings Into Cash complemented by the release of working capital,

Speaker Change: Cash taxes, Capital, expenditures, depreciation and cash interest were all in line with our expectations.

Speaker Change: 62%, for the first half of 2025.

Sean Deason: Moving now to slide nine. We ended the quarter with a liquidity position of $862 million, comprised of $630 million of undrawn revolving credit facility capacity and $232 million of unrestricted cash. In the second quarter, our strong cash generation enabled us to pay our second $12 million quarterly dividend and repurchase $22 million of common stock in Q2 for a total of $52 million in the first half under our $250 million share repurchase program. It's important to note that since Q1 of 2023, we have reduced total outstanding shares by 39% through our share repurchase programs, demonstrating our commitment to return capital to shareholders.

Speaker Change: Moving now, to slide 9.

Speaker Change: We ended the quarter with a liquidity position of 862 million, comprised of 630 million of undrawn revolving credit facility capacity, and 232 million of unrestricted cash.

Speaker Change: In the second quarter, our strong, our strong cash generation enabled us to pay our second, 12 million, quarterly dividend, and repurchased, 22 million of common stock in Q2 for a total of 52 million. In the first half under our 250 million, share, repurchase program.

Sean Deason: 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 repurchase. As Olivier mentioned earlier today, our board of directors has also declared a third quarter cash dividend payable in September 2025.

Speaker Change: It's important to note that since q1 of 2023, we have reduced total outstanding, shares by 39%, through our share repurchase programs, demonstrating our commitment to return Capital to to shareholders.

Speaker Change: 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 Deason: I will now transition to slide 10 to discuss our 2025 outlook. We are raising our 2025 outlook to reflect the impact of a stronger euro US dollar exchange rate, reaffirming our commitment to deliver operating performance consistent with our prior outlook. This outlook maintains our prior industry view and reflects the impact of newly implemented tariffs on sales and adjusted EBIT margin net of recovery. This implies the following midpoints, net sales of $3.5 billion, net sales growth at constant currency of minus 1%. net income of $256 million, adjusted EBIT of $500 million. Net cash provided by operating activities of $410 million and finally adjusted free cash flow of $370 million.

Olivia Garrett: As Olivia mentioned earlier today, our board of directors is Al declared a third quarter, cash dividend, payable in September 2025.

Olivia Garrett: I will now transition to slide. 10 to discuss our 2025 Outlook.

Olivia Garrett: We are raising our 2025 Outlook to reflect the impact of a stronger. Euro US Dollar exchange rate reaffirming our commitment to deliver operating performance consistent with our prior Outlook.

Olivia Garrett: This Outlook, maintain maintains our prior industry View, and reflects the impact of newly implemented. Tariffs on sales and adjusted ebit margin, net of recovery.

Olivia Garrett: This implies the following midpoints net sales of 3.5 billion.

Olivia Garrett: Net sales growth at constant currency of minus 1%.

Olivia Garrett: Net income of 256 million.

Olivia Garrett: Adjusted ebit of 500 million.

Olivia Garrett: Net cash provided by operating activities of 410 million and finally, adjusted free cash flow of 370 million.

Sean Deason: Turning now to slide 11. This bridge illustrates our updated midpoint outlook of adjusted EBIT compared to the prior outlook. We anticipate continued gasoline strength and incremental operating performance will offset unfavorable product mix, slightly improving our margin rate before foreign exchange and tariff. Foreign exchange is expected to drive 70 basis points of rate improvement and the impact of full tariff recovery is expected to drive 20 basis points of margin dilution for the year.

Olivia Garrett: Returning now to slide 11.

Olivia Garrett: This bridge illustrates our updated midpoint Outlook of adjusted ebit compared to the prior Outlook.

Olivia Garrett: We anticipate continued gasoline strength and incremental operating performance will offset unfavorable product. Mix slightly improving our margin rate before foreign exchange and tariffs

Olivier Rabiller: I will now turn the call back to Olivier for his closing remarks. sanctioned. Turning now to slide 12. Our strategic priorities remain clear and consistent. We aim to identify and deliver on customer needs by leveraging our capabilities to develop differentiated, high-speed, and highly efficient technologies. In doing so, we generate robust returns for our shareholders.

Olivia Garrett: or in exchange is expected to drive 70 basis point points of rate Improvement and the impact of full tariff recovery is expected to drive 20 basis points of margin dilution for the year.

Olivier: I will now turn the call back to Olivier for his closing remarks.

Olivia Garrett: Sanction.

Olivia Garrett: Turning now to slide 12.

Olivia Garrett: I was strategic priorities, remain, clear and consistent? We aim to identify and deliver on customer needs by leveraging. Our capabilities to develop differentiated highspeed and highly efficient Technologies.

Olivia Garrett: In doing so we generate robust returns for our shareholders.

Olivier Rabiller: Let me wrap this up on our final slide, which is next slide. We deliver very solid results with an adjusted EBIT of $124 million and adjusted free cash flow of $121 million with gasoline sales outperforming the industry due to share of demand gains and new product launches. Second, we continue to return capital to our shareholders. This quarter, we paid our second quarterly dividend and completed $52 million in share repurchases in the first half. Overall, we have reduced our share count by 39% since June 2023 through our repurchase program. This quarter, we also secured significant business wins, including awards for over $1 billion in light vehicle turbo program extensions.

Olivia Garrett: Let me wrap this up on our final slide, which is next slide. First,

Olivia Garrett: we delivered very solid results with an adjusted Abit of 124 million and adjusted 3 cash flow of 121 million with gasoline in sales outperforming the industry due to Shell demand gains and new product launches

Olivia Garrett: Second, we continue to return Capital to our shareholders this quarter. We paid our second quarterly dividend and completed 52 million, in share repurchases in the first half.

Olivia Garrett: overall, we have reduced our share count by 39% in xuan 2023 through our repurchase programs

Olivier Rabiller: These wins reinforce our position and provide strong revenue visibility moving forward. In terms of innovation, we are making steady progress on zero-emission technologies. This includes a new proof-of-concept partnership on an e-power train, strong test results for our oil-free e-cooling solutions, and a significant fuel cell program award. Finally, we increased our 2025 outlook to reflect a stronger euro-dollar exchange rate. I am proud to highlight these achievements and the promising start we've had this year. With this strong third-half results, it's positioning us very well for the rest of 2025 and beyond.

Olivia Garrett: This quarter, we also secured significant business wins, including award for over 1 billion, in light vehicle, turbo program extension.

Olivia Garrett: These wins reinforce our position and provide strong Revenue visibility moving forward.

Olivia Garrett: In term of innovation, we are making steady progress on zero emission Technologies. This includes a new proof of concept partnership on a new power train.

Olivia Garrett: A strong test result for our oil, free cooling solutions and the significant fuel cell program award.

Olivia Garrett: Finally, we increase our 2025 Outlook to reflect the stronger euro dollar exchange rate.

Olivia Garrett: I am proud to highlight this achievements and the promising start with that this year.

Unknown Attendee: Thank you for your time, and operator, we are now ready for Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keypad. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Results. Its positioning has very well for the rest of 2025 and Beyond.

Olivia Garrett: Thank you for your time and operator. We are now ready for Q&A.

Speaker Change: We will now begin the question and answer session ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star. Then 2 at this time we will pause the momentarily to assemble our roster.

Hamed Khorsand: Our first question comes from Hamed Khorsand with BWS Financial. Please go ahead.

Olivier Rabiller: Hi, so my first question was, could you talk a little bit about this unfavorable sales mix and how you're adjusting the business for for such an environment? Well, that's a very good question, Amit. What we call unfavorable sales mix is basically driven by two things on the one hand. There is a very positive thing that's happening to us, which is we are growing very fast on the gas market. And we are going very fast on the gasoline side all over the world, whether it's in Asia, Europe, and to a certain extent in North America. So we are very pleased with that, but as you know, the margin rate on gasoline turbochargers is a bit lower than what we have on the rest of the business.

Speaker Change: Our first question comes from Hamed kourend with bws financial, please go ahead.

Speaker Change: Hi. Um, so

My first question was, could you just talk a little bit about this unfavorable sales mix and how you're adjusting the business for for such an environment?

Speaker Change: Uh, uh, that's a very good question. I mean, the, what we call on favorable sales mix is basically driven by 2 things on the 1 hand, there is a very positive thing that's happening to us which is we are growing very fast from the Gathering inside.

Speaker Change: and we are going very fast on the gasoline, side all over the world, whether it's in Asia Europe,

Speaker Change: And to raise an extent in the in North America.

Olivier Rabiller: But this unfavorable mix is a good thing to us.

Olivier Rabiller: Where we are seeing, on the other hand, a little bit of softness that is impacting us, that's the second aspect of that mix, is more on aftermarket off-highway, and that's basically more in North America, where we have not seen the traction yet on the aftermarket that would reflect demand recovering, because usually the demand is recovering first on aftermarket before it gets into OE, and I think our customers are probably still suffering from the fact that their sales channels have been having a lot of inventory, or have built up a lot of inventory for the past few years.

Speaker Change: So we are very pleased with that but as you know, the margin rate on gasoline, turbocharger is a bit lower than what we have on the rest of the business. But, uh, this unfavorable mix is a good thing to us.

Speaker Change: Where we are seeing on the other hand, a little bit of softness.

Speaker Change: That is impacting us. That the second aspect of that mix is more on aftermarket of Highway. And that's basically more in North America, where we have not seen the traction yet on the after market that would reflect demand, uh, recovering. Because usually, the demand is recovering first, and after market before it gets into e, and I think, uh, our customers are are probably still suffering from.

Speaker Change: the fact that their

Speaker Change: Sales channels have been having a lot of inventory in our build up, a lot of inventory for the past few years.

Olivier Rabiller: So these are the things adjusting the business for us, that do we adjust the business with the same recipe as we usually have? We have a high variable cost structure, and therefore for us, it's working on the fixed cost like we do every year. But more than that, it's adjusting on the variable cost side, and this is something we know how to do very well.

Speaker Change: So these are the things adjusting the business for us. That do we adjust the business with the same recipe? As we usually have, we have a high variable, uh, cost structure and therefore for us, uh, it's working on the fixed cost like we do every year, but more than that it's adjusted on a variable adjusting on the variable cost side and this is something we know how to do very well in the company.

Hamed Khorsand: Okay, my other question was, you ended the quarter with significantly more cash.

Sean Deason: Any reason why you didn't buy back more stock? Hi Hamed, this is Sean. You know, our buyback is not linear. But as I mentioned in my prepared remarks, you know, we're committed to returning 75% or more of cash over time to shareholders. So, you know, we believe the buyback is a very important tool to return value to our shareholders. and we'll continue to do so, but it's not linear.

Speaker Change: Okay, my other question was, you ended the quarter with sign significantly more cash? Any reason why you didn't buy back more stock?

Sean: Hi. Hmm, this is Sean, you know, uh our buyback um, is not linear. Um, but as I mentioned in my uh, prepared remarks, you know we're committed.

Sean: Starting 75%, or more of cash overtime to shareholders. So, um, you know, we, we, we believe the buyback is a very important tool to return value to our shareholder base and we'll continue to do so, but it's not linear.

Hamed Khorsand: Okay, thank you.

Sean: Okay, thank you.

Jake Scholl: Our next question comes from Jake Scholl with BNP. Please go ahead. Hey guys, congrats on the great quarter. I just want to ask if you could help us understand some of the drivers of your stronger operating performance in the second half. especially with volume assumptions roughly unchanged.

Speaker Change: Our next question comes from, Jake Shaw with BNP. Please go ahead.

Jake Shaw: Hey guys, congrats on the great quarter.

Speaker Change: Um, I just want to ask if you could help us uh understand some of the some of the drivers of your stronger operating performance in the second half.

Speaker Change: Especially with the volume assumptions of roughly unchanged.

Olivier Rabiller: Sure, we will continue to benefit from cost control. And I would say, the other point I wanted to make is that right now we've maintained our view, our prior view, I think the latest S&P estimate might be showing a bit more favorability. So depending upon how the second half works out, more importantly, is that could give us an opportunity to trend toward the upper end of our range, if we start to see volume stabilized. But at the moment, we felt it prudent to be a bit more conservative in our guide, from a volume and revenue standpoint, as the impact of tariffs starts to work its way.

Speaker Change: Sure, we will continue to benefit from cost control. Um, and I would say, um, the other point I wanted to make is that, uh, right now we've maintained our, uh, our view our prior view. I think the latest, uh, S&P estimate might be showing a bit more favorability. So, depending upon how the second half works out, more importantly, is that could give us an opportunity to Trend toward the upper end of our range. If, um, we start to see volume stabilized. But at the moment, we felt it prudent to be a bit more conservative in our guide, um, from a volume and revenue standpoint, as the impact of tariffs starts to work, its way through the system.

Jake Scholl: Got it.

Olivier Rabiller: Thank you. And then just a smaller one, if you could provide an update on the tariff recovery situation, do you guys still expect to be able to fully recover your tariff costs this year? Absolutely, absolutely. We expect that. Not only do we expect that this is what we've achieved. And obviously, if the situation is changing, we'll adapt to the changing tariff. We have the tools in place. Since we've been recovering everything since the beginning, there should not be a change moving forward.

Speaker Change: Effect.

Speaker Change: To be able to fully recover, your tariff costs this year.

Speaker Change: Absolutely, absolutely. Uh, we we, we expect that. Not only do we expect that this is what we've achieved.

Speaker Change: Uh and obviously the situation changing will add up to the changing tariff.

Speaker Change: uh, we have the tools in place and, uh,

Speaker Change: Since we've been recovering everything, since the beginning there should not be a change moving forward.

Jake Scholl: Thanks, guys.

Speaker Change: Thanks guys.

Eric Gregg: Our last question comes from Eric Gregg with Fortree Island Advisory. Please go ahead. Thank you. And to the Garrett team, just excellent results. Great to see all this communication on multiple levels.

Speaker Change: Our last question comes from Eric Gregg with 43 Island advisory, please go ahead.

Eric Gregg: Two questions. In terms of these large turbos for backup data center, AI and whatnot, can you give us a sense of when you think that business, or if you think that business will ever get to as much as 10% of revenues? I don't want to limit you there, but how big do you think that business can grow and how substantial do you think it can be for Garrett? It's a very substantial business. It's a big business for us because it's coming... When you get into very large turbo, I'm not talking only about the genset one, but more widely all the applications, there are a lot of genset and there are some marine.

Speaker Change: Um, thank you, um, into the guarantee just excellent result. It's great to see, um, all this communication on multiple levels. Um, 2 questions in terms of these large turbos for backup, um, data center, um, Ai and whatnot. Is that, can you give us a sense of when you think that business, or if you think that business will ever get to as much as 10% of revenues? Or I, I don't want to, um, you know, limit you there. But how how big do you think that business can grow and how substantial do you think it can be for Garrett?

Speaker Change: uh,

Speaker Change: it's a very substantial business. Uh it's a big business for us because it's coming.

Olivier Rabiller: A significant part of the revenue, once you've established your position, is coming from aftermarket. And we love that. We love aftermarket. We have a very strong brand in aftermarket. We have a very strong network of distributors on aftermarket. And that's an additional activity that we would develop. Before we get there, obviously, we need to establish our install base. I'm not saying that it should reach 10% of the activity just on the genset, that backup power, because today that would be a big number. We would talk about $400 million a year. And I'm not sure that there is any player out there that's doing $400 million a year on the turbo business.

Speaker Change: Uh, when you get into very large turbo, I'm not talking only about the Gen set 1, but, uh, more widely. All the applications, there are a lot of gen set and there are some Marine

Speaker Change: A significant part of the revenue, once you've established your position is coming from after market.

Speaker Change: And we love that we love our farm market. We have a very strong brand in a brand, in our Market, we have a very strong network of Distributors on after market, and that's an additional activity that we would develop with them.

Speaker Change: Before we get there, obviously, we need to establish.

Speaker Change: Our install base.

Speaker Change: Uh, I'm not saying that it should reach 10% of the activity just on the Gen set that back up power because uh, today, that, that would be a big number. We would talk about 400 million dollar a year.

Olivier Rabiller: I don't even see. that the industry is that big to allow that, but it will be in the hundreds of millions of dollars anyway and that should come within the next three to five years. Great.

And I'm not sure that there is any player out there. That's doing. 400 million dollar a year on on on the turbo business. I don't even think.

Speaker Change: Um that the industry is that big to allow that but it will be uh in the hundreds of millions of dollars anyway.

Eric Gregg: And then the second question is really thinking a little bit further on the linearity comments on stocker purchase. You probably did almost twice as much free cash flow this quarter. You had some of your sponsors who were more active on the sales front. Your valuation is incredibly low.

Speaker Change: And that should come uh, within the next uh 3 to 5 years.

Sean Deason: And you did almost 30% less stocker purchase this quarter. So can you give us a better kind of just sense of how, you know, it's nonlinear, but, you know, why you didn't why you didn't dig in further this quarter? And do you think you'll be more aggressive throughout the rest of the year? You know, like I said, it's not linear. And we had a very busy quarter. But what I would say is we also recognize that we have some dry powder for block trades as well, if they happen to come up.

Great. And then the second question is really digging a little bit further. Um, on the linearity comments on soccer purchase, um, you know, it was a private almost twice as much free cash flow, this quarter, you had some of your responses, your, um, were more active on the sales front. Um, your valuation is incredibly low, um, just, you know, and you did almost 30% less stock of purchases this quarter. So can you give us a better kind of just sense of how, you know, it's nonlinear. But um, you know, uh, you know, why you didn't why you didn't dig in further this quarter and, and do you think you'll be more aggressive throughout the rest of the year?

Sean Deason: But again, I would just reiterate the company's commitment, and the board's commitment to deliver to our capital allocation framework, which is 75% or more of free cash flow to to our shareholders.

Unknown Attendee: Well, great, great quarter. Thanks, everyone. Thank you.

You know, like I said, it's not linear. Um, then we we had a very busy quarter. Uh, but what I would say is we also recognize that we have, um, some dry powder for Block trades as well if they happen to uh, come up. But uh, again I would just reiterate, you know, the company's commitment and and the board's commitment to to deliver to our um uh Capital allocation framework, which is 75% or more of free cash flow to um to our shareholder base.

Speaker Change: Well, great, great quarter next to everyone.

Speaker Change: Thank you.

Unknown Attendee: This concludes our question and answer session. concretes our goal.

This concludes our question and answer session.

Speaker Change: This concludes our call.

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