Garrett Motion, Inc. Q3 FY2024 earnings call

• Operational performance was strong with an adjusted EBITDA margin of 17.4%, up 160 basis points despite industry softness.
• Commercial vehicle, aftermarket, and industrial segments, making up ~30% of revenue, were stable in Q3.
• Won new large turbo orders driven by demand from data centers. Accelerated development activities with customers for plug-in hybrid powertrains, especially in North America.
• Active quarter for zero-emission vehicle technologies with customers showing interest and concrete steps towards production, including a letter of intent with SinoTruk and the 2024 Stellantis Innovation Award.

Garrett delivered an adjusted EBITDA margin of 17.4% in Q3 2024, up 160 basis points from last year. Approximately 30% of revenue comes from commercial vehicle, aftermarket, and industrial segments. Revenue in these categories was stable despite challenges in the on-highway commercial vehicle industry in Europe and weakness in some verticals like agriculture. The company also generated $71 million of adjusted free cash flow in Q3.

• 2024 outlook: Net sales $3.45 billion, constant currency net sales decline 11%, net income $248 million, adjusted EBITDA $595 million (17.2% margin), net cash provided by operating activities $375 million, adjusted free cash flow $325 million midpoint.
• Fourth quarter sales flat compared to Q3. Over 50% of R&D spending in 2024 dedicated to zero-emission technologies.
• Adjusted free cash flow midpoint $325 million, ~$125 million in fourth quarter.

• Risks related to automotive industry and competitive landscapes, macroeconomic and geopolitical conditions, which could cause actual results to differ materially from expectations. Risks identified in annual report on Form 10-K and other SEC filings.

Q: Given your performance in Q3 and commentary in Q2, what's change that surprised you in Q3 that led to readjusting guidance for Q4?

A: The softness of the automotive industry was the main driver.

Q: Are you seeing any changes in China as far as customers and startup of production for won items?

A: Softness in passenger vehicle industry in China, but commercial vehicle industry on-highway in China showed signs of recovery in Q3.

Q: Are you in a position to talk about light vehicle market product mix and benefit to sales?

A: Consolidation of the industry drives mock programs to main players, and car makers reviewing strategic portfolio for more plug-in hybrid vehicles benefits turbo industry and Garrett.

Q: Are you seeing customers adopt more of higher price/higher margin or lower end product spectrum?

A: Variable geometry turbochargers in Europe, and Tier 4 emission regulations in U.S. driving more technology on turbochargers for both pure ICE and hybrid powertrains.

Q: Why wasn't benefit from refi in May reflected in quarterly interest expense number?

A: Seeing the benefit in run rate, with some accounting back and forth of fees and interest rate swap activity.

Q: On electrified solutions, is it targeted towards commercial side or larger vehicles, and what does it mean for industry?

A: Electrified solutions apply to both commercial and passenger vehicles, with awards and joint programs validating the change, and turbo business resilient long term.

Q: Concern about price pressure on light vehicle side and whether it's anticipated or already here?

A: Price pressure exists, but Garrett has demonstrated ability to get fair share of price, and helps customers reduce costs while maintaining performance.