Garrett Motion Inc. Price & Performance (GTX)

Good day and welcome everyone Thank you for attending the Garrett Motion Fourth Quarter and Full Year twenty twenty four Financial Results Conference Call. Would like to mention that of Garrett Motion's website at investors.geretmotion.com Garrett. There, you will also find links to our SEC filings along with other important information about the company. We note that this presentation contains forward looking statements within the meaning of The U. S. [indiscernible] These statements which can be identified by words such as anticipate, intend, estimate, expect, likely, may, should, will 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. These risks and uncertainties include the factors identified in our annual report on Form 10 ks and other filings with the Securities and Exchange Commission, includes risks related to the automotive industry, competitive landscape and macroeconomic and geopolitical conditions, [indiscernible] Please review the disclaimers on Slide two 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. We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release.

Finally, in today's presentation and comments, we may refer to LifeVackel Gasil and LifeVackel gasoline products by using the terms Diesel and gasoline fondue. With us today are Olivier Ravier, Garrett President and Chief Executive Officer and Garrett Dizon, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Elise Thanks, Yiriel, and thank you everyone for joining today's call. As you can see on Slide three, Garrett delivered strong results in the fourth quarter, thanks to outstanding operating performance delivering adjusted EBITDA of $153,000,000 with a margin of 18.1%, an increase of two eighty basis points compared to Q4 twenty twenty three. And we achieved that despite the continuous sales softness That's the company experience. Thanks to its exposure to light vehicle industry weakness in Europe and in China as well as the competitive pressure certain OEMs are facing. At the same time, we kept winning new business across all applications, demonstrating the strength of our technology called leadership. But let's get back to operational performance. Our strong operational performance enabled us as well to generate $157,000,000 of adjusted free cash flow in the quarter allowing us to buy back stock under our share repurchase program repurchasing a total of $296,000,000 of common dollar of common stock in 2024.

This resulted in a reduction of 13% of our share count at the end of 2024 compared to the end of 2023. Our full year results continue to demonstrate our ability to flex our variable cost structure and proactively implement permanent cost actions which allowed us to deliver a 17.2% adjusted EBITDA margin for the full year. When you adjust for foreign exchange, and the sales of our unconsolidated joint venture in Australia, we delivered an adjusted EBITDA near the midpoint of our initial 02/2024 guidance, and thus despite the softness we experienced, this is quite remarkable. We believe the actions we have taken in 2024 position the company to deliver solid performance in 2025 offsetting again the impact of expected weak global in the [indiscernible] Excluding foreign exchange, we also expect to deliver similar adjusted EBITDA to 2024. We also expect to generate stronger adjusted free cash flow and use it to keep on returning value to our shareholders, through a combination of share repurchases, regular quarterly dividends, Our Board of Directors has indeed authorized a new $50,000,000 share repurchase program for 2025 and we expect to pay $50,000,000 in dividends throughout the course of the year. With the first quarterly dividend of 6% per share already paid in January.

Let me now move to Slide four so that we can share the momentum we experienced with our customers. Looking at full year 2024, we continue to expand our position in Turbo, maintaining our strong business win rate of more than 50%. We secured new light vehicle gasoline wins across all geographies reinforcing our position in The U. S. And growing in China, especially with new Chinese players. All powertrain types including plug in hybrids and range extenders for which we see a growing push from carmakers. We also kept on making significant progress in commercial vehicles across the world. More specifically, we are pleased with the progress we have been making in China, winning several natural gas on highway applications that we launched as early as 2026. Lastly, we secured new awards for Marine and backup power application with our largest turbochargers as we and we expect production to start also in 2026. Turning now to Slide five. [indiscernible] I'm very proud of the significant progress we made in 2024 validating our electrification solution with key customers who recognize the benefits of our differentiated technologies. We indeed continue to win with our extensive fuel cell compressor portfolio, the broadest in the industry with best in class efficiency and we continue to win new projects for fuel cell applications.

With our e POWER Train high speed technologies, we are seeing several passenger and commercial vehicle customers embracing and testing our Advanced three in one high speed technology solution. During the year, we've been moving from prototyping to testing in labs and on vehicles to first production awards, expecting to launch as early as 02/2027. This validates again the benefits of the high speed differentiated electric powertrain solutions that Garrett has focused on. Leveraging on this significant progress, we expect much more to come in 2025. Finally, our Equinium Compression technology is generating significant interest for both automotive and non automotive application. On the automotive side, it's a very good fit for battery and cabin cooling for commercial vehicle. And for industrial application, we see significant interest for residential office building, rooftop cooling as well as cooling solutions for data centers and battery farms. I will now turn it over to Chun to provide more insight into our financial results and outlook for 2025. Thanks Olivier and good morning everyone. I will begin on Slide six. As Olivier highlighted, once again, we delivered strong financial results in a soft industry environment driven by our continuous focus on variable cost management and the implementation of structural cost productivity actions.

Fourth quarter net sales were $844,000,000 slightly up sequentially stabilizing after declines over the past four quarters as new program ramp ups offset continued softness in Europe and declines in gasoline and diesel light vehicle We recorded fourth quarter adjusted EBITDA of $153,000,000 up $8,000,000 from $145,000,000 last year. This improvement was driven by variable and fixed cost productivity deflation and favorable product mix. Partially offset by by lower volumes and an unfavorable foreign exchange impact. The performance this quarter once again demonstrated our ability to deliver strong financial performance across industry cycles as can be seen in the upper right graph. Adjusted EBITDA margin was 18.1% for the quarter, up from 15.3% last year and up sequentially benefiting from the actions just mentioned. We generated very strong adjusted free cash flow of $157,000,000 in the quarter, up from $137,000,000 in Q4 twenty twenty three as we converted our adjusted EBITDA into cash and benefited from a positive working capital contribution. We expect to continue to deliver 60% adjusted free cash flow conversion on adjusted EBITDA annually, in line with our capital allocation framework. Moving now to Slide seven, we show our Q4 and full year net sales bridge by product category, as compared with the same period last year.

For Q4, we continue to experience gasoline softness in China and North America. Was partially offset by ramp ups in Europe, comprising 45% of net sales flat from last year. The diesel decline we saw in Q4 year over year was mainly due lower industry production, [indiscernible] where we have a higher share of demand.

We also saw a slight increase in commercial vehicle sales, which reflects of the beginning of an industry recovery in China and North America.

As mentioned, for the full year, we experienced both industry declines and demand softness from specific global OEMs due to competitive pressure in the auto space, in some cases forcing them to accelerate platform consolidation Revenue from our commercial vehicles throughout the year was impacted by Europe and North America but our aftermarket business increased 1% at constant currency, due to the continued demand for replacement parts primarily in China, and Europe.

Finally, 2% sales decline in foreign exchange was a headwind of $34,000,000 Japanese yen volatility and a weakening in Europe. Moving now to Slide eight, we walked you Representing again an $8,000,000 improvement over the same quarter last year. We achieved this strong performance by delivering fixed cost productivity coupled with strong price inflation This execution drove significant quarterly margin improvement year over year allowing us to deliver a strong adjusted EBITDA margin of 18.1%. Overall, in the quarter, delivered $37,000,000 in operating performance improvements year over year, offsetting both volume declines and a negative foreign exchange impact. For the full year 2024, we delivered adjusted EBITDA performance of $598,000,000 representing a $37,000,000 decrease from the prior year driven by sales declines in foreign exchange. Partially offset by operating performance. Our full year adjusted EBITDA margin was 17.2%, up 90 basis points compared to the prior year. If you adjust for the impact of foreign exchange and divestiture activity during the year, The effect of the volume decline is almost completely offset by by our operational performance of more than $100,000,000 and reflects the impact of structural fixed cost productivity act actions and our ability to flex our available costs in a volatile industry environment.

While the industry environment was challenging, 2024, continue to increase investments supporting the development of differentiated technologies. In both turbo and zero emission applications. Increasing spending on R and D by $12,000,000 as compared to the prior year. And turning now to Slide nine, I'll walk you through the adjusted EBITDA to adjusted free cash flow bridge for the full year 2024. The company's adjusted free cash flow of $358,000,000 represents 60% adjusted free cash flow conversion of adjusted EBITDA in line with our financial framework. We had minimal working capital usage on a full year basis with a strong recovery in Q4 as the industry stabilized. Cash taxes and cash interest were in line with expectations and our capital expenditures of 2.6% of sales were within our financial frame. Moving now to Slide 10, we ended 2024 with a strong liquidity position of $725,000,000 This is comprised of $600,000,000 of undrawn capacity $25,000,000 of unrestricted cash. Overall, we significantly improved our financial flexibility in 2024, finishing the year with total debt of $1,500,000,000 down from $1,700,000,000 the prior year. Reducing our total debt by $2.00 $3,000,000 in the year and representing a net leverage ratio that remained relatively flat at 2.21 times.

During the fourth quarter and throughout 2024, we continued to deliver We repurchased $70,000,000 of common stock in the fourth quarter and a total of $296,000,000 during 2024. Compared to a year ago, our share count has been meaningfully reduced by 32,000,000 shares or 13% of shares outstanding compared to the end of twenty twenty three. [indiscernible] Olivia mentioned earlier, our Board authorized a new share repurchase program of $250,000,000 and we are planning to pay $50,000,000 in dividends in 2025, to be paid quarterly. In early twenty twenty five, also important to note that we also refinanced our term loans, which should generate interest savings of $3,000,000 annually The new term loan will mature in 02/1932 extending the maturity of the company's existing term loan by approximately four years. We also refinanced and upsized our revolving credit facility to $630,000,000 with a maturity in 02/1930. Now as we turn to Slide 11, I'd like to take the time that to introduce that for 2025, and in the future, we will be using adjusted EBIT as a new financial metric. This will provide additional insight into our financial performance, and profitability to align with our peer group reporting practice and highlights the strength of our asset light operating model.

For the full year 2024, our adjusted EBIT was $485,000,000 achieving an industry leading margin of 14%. Now let's move to Slide 12 to see our 2025 outlook for adjusted EBIT our other financial metrics. You can see our 2025 outlook, which applies the following midpoints. Net sales of $3,400,000,000 net sales growth at constant currency minus 1% net income of $232,000,000 adjusted EBITDA of $575,000,000 adjusted EBITDA of $457,000,000 and net cash provided by operating activities of $4.00 $2,000,000 and an adjusted free cash flow of $345,000,000 reflects an improvement in the commercial vehicle market both on highway and off highway, which will partially offset the continued softness expected in the light vehicle industry. It also includes the continued benefit of the sustained sustainable fixed cost actions we mentioned earlier, which were implemented in 2024. When we exclude the negative effect of foreign exchange, our adjusted EBITDA is flat in 2025 compared to 2024, and our adjusted EBIT is down only 10 basis points due to a slightly higher stock compensation and depreciation. In this relatively flat revenue environment, we plan to execute productivity gains and pass through pricing. At the same time, we remain focused on increasing customer interest across all regions and verticals for our zero emission products and we expect a slight increase in our R and D spending to 4.6% of sales, up 10 basis points from 2024.

We expect to dedicate dedicate greater than 50% of this spend in 2025 to zero emissions technologies, while still meaningfully investing [indiscernible] On Slide 13, you see the walk of adjusted EBITDA from 2024 our 2025 outlook. As mentioned on the previous slide, our twenty twenty twenty five adjusted EBITDA outlook midpoint is $575,000,000 a decline of $23,000,000 versus 2024. While keeping margin flat year over year at 17.2%. The decline is driven by the impact of unfavorable foreign exchange. Mainly driven by U. S. Dollar appreciation versus the euro. As previously mentioned, excluding foreign exchange, our adjusted EBITDA is expected to be flat versus 2024. We expect to continue to execute on our productivity actions deliver operational performance, which will offset projected product mix and volume headwinds in 2025. The actions taken in 2024 to improve productivity performance will also continue to benefit the company's performance and reverse preserve strong margins in 2025. Without sacrificing investments in new technologies, which as previously mentioned will remain a priority. And with that, I will turn it back over to Olivier for closing remarks. Thanks, Chen. Let's turn now to Slide 14. Garrett continues to be well positioned for long term success.

We are strengthening our leadership position in the turbo industry while developing new technologies and expanding into industrial applications. Our operational framework is highly cash generative allowing us to invest in new technologies while reducing debt and reducing returning cash to shareholders. Let's now turn to Slide 15. In 2024, we are proven once again resilience of our financial framework delivering strong financial results and achieving a 17.2% adjusted EBITDA margin. Our financial performance positions us well to continue to deliver strong margin and free cash flow in similar industry conditions in 2025. These financial results enabled us to return value to our shareholders through share repurchases totaling $296,000,000 we expect to continue returning significant value to shareholders in 2025, through a combination of additional share repurchase under our new $250,000,000 share repurchase program and $50,000,000 in dividends paid quarterly. In addition, the structural cost actions that we drove in 2024 in anticipation of a softer industrial outlook for 2025 will enable us to continue to deliver strong margin and free cash flow.

Once again, we made significant progress this past year across existing and new differentiated technologies, setting the stage for another successful year. Our recent awards and customer recognition for our high speed solutions for zero emission platforms prove that we are developing the right solution for the next generation of electric vehicles. Lastly, obviously, I want to take the opportunity to thank the entire Garrett team for delivering an outstanding performance in the quarter and the full year and position well the company for success in 2025. Thank you for your time. And operator, we are now ready for Q and A. We will now begin the question and answer session. Addressed The first question comes from Amit Khorsand with BWS Financial. Please go ahead.

Hi. So I just wanted to ask you was how are you managing the year given a lot of the geopolitics and tariffs and how does that affect your business going into 2025 and 2026?

Amit, you're asking a very, very interesting question. Quite frankly, what we are doing is to stay as flexible as It's true that today difficult to predict exactly what will happen and when it will happen. We tend to be very fast at reacting We have already engaged in discussions with customers and we tend to be very fast at reacting to that kind of events For lack of a better word, we've been facing a lot of unplanned events for the past years as an industry. And we tend to be much more flexible and reactive now than we were probably five years ago. But yes, we are trying to anticipate as much as we can, but it's difficult to anticipate in a vacuum. We need to understand what we face. The next question comes from Michael Ward with Freedom Capital. [indiscernible] Go ahead.

Thank you. Good morning, everyone. Olivia, you mentioned in your presentation China and wonder if you could just expand on that a little bit. I saw that I saw in the 10 ks the revenue was down And it sounds like you have some new business with some of the local Chinese based manufacturers. You give a little more detail on what you're looking at in China?

Yes, absolutely. So China is is still an important region for us. This is the the biggest automotive industry in the world. And we play a significant role in China. Both in commercial data and in passenger vehicle. [indiscernible] And what we have seen over the last the last few years is there has been not only a shift towards more local Chinese players, But I would say a shift towards more new Chinese players that have come to the market sometimes through the battery electric vehicle angle. And now that are pushing some other solution to the marketplace, whether it's plug in hybrid vehicles or Orange Expander electric vehicle that we are calling reps So what we have been doing is that for some time now, we've been working with these companies that have come with new brands and new products to the marketplace. And I would say we are starting to get good traction and good success with these new players. And in some regions of the world, we tend to move from eyes to hybrid to battery electric vehicles. It seems that in China, We are seeing it moving from battery to begin hybrids and range extended vehicle because I think there is probably a good understanding that you need several solutions in order to satisfy the needs of the consumers.

So we are very active. We are seeing a lot of pursuits on these technologies. And we have been developing specific products to address the needs of those platforms.

Okay. Are there any customers you can point to or it sounded like you were alluding to some new business that's kicking in, in 'twenty six and 'twenty seven. Did I hear that correctly?

You heard that correctly. And I will not mention names of customers [indiscernible] That's usually not the practice we have in the industry. It's confidential with the customers. But I would point out successful and new brands [indiscernible] Okay, perfect. Sean, on two things. First, could you on the release, you talked about adjusted free cash flow 157,000,000 Can you define how you're getting there?

Sure. It's a very strong EBITDA performance, but then we did have quite a nice lift from working capital, which had been a use No, no, no, no, I see that, but how are you defining it? Like is it is it operating cash flow less CapEx?

Yes, sorry. You have a rec table in the back of the deck. That Leo plays that out, but in very high level terms, it's operating cash flow, less CapEx and then we exclude repositioning and other one time charges. But that can all be found on the rec table.

Okay. [indiscernible] A high level, that's what it is.

Okay. So when you look at your 2025 outlook, when you're talking about adjusted free cash flow, that's what you're alluding to. You're excluding any of the I see the 157. So okay. So there was a factoring in P notes, that was the big number, the $39,000,000 Right. And so with that, what we do is when we factor, we don't give ourselves the benefit for that. So if we actually sell receivables, even though it's a true sale, we don't look at that as a free cash flow benefit for that quarter. So it just gets so we would add it back in and then reverse up enough.

Yes, I see it. For the year, it's nothing. So, okay. Second thing is on M and A. I never hear you talk about M and A. And I'm jester, I should say, rarely. And are there M and A opportunities out there in your segment? Is it something you're just staying away from? Is do you feel like you can build it internally just because of the strength on the R and D side? How do you view M and A? On the overall capital allocation scheme?

So the way we look at that first we need to get back to our organic growth strategy. We have an organic growth strategy that we we think is very strong. Leveraging the two legs of the company. On the one hand, it's the strengthening of the Turbo business. The Turbo business we are seeing the world consolidating. We are expanding our portfolio. You've seen the big turbos we are launching on industrial. And then the second level of the company is the development of the zero emission vehicle solutions with the three that I've explained today. This is where resource and this is the base of our organic growth strategies recognizing that there are obviously some segments that we want to push more and it's quite obvious in everything we've said so far. That we want to expand further on commercial vehicle on highway or highway and industrial. So if you put that together, obviously, a good M and A strategy should reinforce that organic growth. So like any company, we are active, we are looking. But for the same meaning, we have not committed to anything on the M and A side.

And I would just add that that we are active, but you don't hear us talk about it that often just because we have a very high bar We do not want to take an action that will be dilutive to our shareholders.

So the bar is quite high.

And that's we obviously are always looking at opportunity.

Perfect. Thank you very much.

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.