Garrett Motion Inc.

Hello, my name is Michelle Schlosser, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Conference call. This call is being recorded, and the replay will be available later today. After the company's presentation, there will be a Q&A session. I would now like to hand over the call to Paul Blalock, Garrett's Vice President of Investor Relations.

Thank you, Michelle. Good day, everyone, and welcome. Thank you for joining the Garrett Motion second quarter 2022 financial results conference call. Before we begin, I'd like to mention that today's presentation and earnings release are available on the Garrett Motion website at garrettmotion.com, where you will also find links to our SEC filings along with other important information about our company. Turning to slide two, we note that this presentation contains forward-looking statements within the meaning of the Securities and Exchange Act, and we encourage you to read the risk factors contained in our filings with the SEC, become aware of the risks and uncertainties in our business, and understand that forward-looking statements are only estimates of future performance and should be taken as such. The forward-looking statements represent management's expectations only as of today, and the company disclaims any obligation to update them. Today's presentation also includes non-GAAP measures to describe the way in which we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure, and you are encouraged to examine those reconciliations, which are found in the appendix to both the press release and the slide presentation. Also 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. With us today is Olivier Rabier, Garrett's President and Chief Executive Officer, and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand it over to Olivier.

Thanks, Paul, and welcome everyone to Garrett's second quarter 2022 conference call. I will begin my remarks on slide three, where we start with highlights for the quarter. During Q2, we continued to experience the impact of the China's zero-COVID lockdown that ultimately began to ease mid-quarter. I want to thank again our employees in China, and specifically in Shanghai, where we were able to maintain production through great personal sacrifice during the lockdown period. As the supply chain began to restart in China, we successfully navigated through a series of supply bottlenecks experienced by our customers and suppliers by flexing our variable cost structure while continuing to successfully implement inflation management strategies. The Semicon shortage also continued to impact our customers in Q2, but we are beginning to see gradual improvements as we enter Q3. Second quarter, 2022 net sales of 859 million were down 8% on the GAAP basis, mainly due to the weaker euro, and were unchanged on a constant currency basis as compared with Q2 last year. This level of constant currency sales growth outpaces estimated Q2 global auto production by approximately 600 basis points, demonstrating strong underlying demand for our portfolio of products, as well as the ability of Garrett to pass through inflationary pressures. Q2 adjusted EBITDA was $138 million and the EBITDA margin was 16.1%, virtually flat sequentially with Q1, which is notable considering Q2 unit volumes were sequentially lowered by 6%, driven by the factors mentioned above. Compared to Q2 2021, Adjusted EBITDA was down 30 million from 168 million, half of which was due to foreign exchange driven by a weakening euro and the remainder due to lower volume, while margins still remained above 16%. This is a testimony to the operational strength of the company. More recently, we exited Q2 with stabilizing demand and increasing production cadence. As such, We are updating our full year 2022 outlook to reflect higher production and foreign exchange rate changes driven by a weaker euro and maintaining our adjusted EBITDA min point and range. While we are keeping our overall outlook unchanged, this means on a constant currency basis that we are increasing our sales outlook because of improving demand and supply chain constraints, the benefit of which unfortunately is offset when adjusted for a weakening euro. I should caution that while we currently expect some of the ongoing macro issues to improve, more challenges may materialize such as additional lockdowns and additional supply chain constraints. All things considered, we remain cautiously optimistic for improvement to production volume in the second half of 2022, while we remain ready to flex our cost structures if needed. Most importantly, Garrett's ability to consistently generate cash, even in difficult times, allowed us to significantly reduce leverage for the third consecutive quarter with the Series B prepayment in Q2 resulting in a full redemption of all outstanding shares while maintaining a strong liquidity position for the company. Our net debt to EBITDA coverage ratio now stands at 1.87, down from 2.33 in the second quarter of 2021. This is reflecting substantial deleveraging progress over the last year and represents a key milestone for the company as we work towards normalizing our capital structure. An improving single half of 2022 coupled with expected strong cash flow generation will further improve our financial flexibility and growth prospects, as we continue to accelerate strategic initiatives to bring advanced differentiated new technologies to the transformation of the powertrain. In summary, Garrett delivered solid Q2 results in a volatile environment that positions us to capitalize on any further upside to the anticipated recovery we expect in the second half. Turning now to slide four. The 9% growth at constant currency in gasoline turbo confirms the impact of our strong reported win rate and our growing share of demand. Combined with the fact that 50% of our gasoline awards are related to hybrid platforms, it confirms that our turbo core business is well positioned to benefit from the growth of hybrids as part of the transition to more electrified powertrain. In the second quarter, The breadth of Garrett's aftermarket portfolio, the strength of the brand, and our wide distribution network helped us to generate 11% growth at constant currency in this high-margin business. In parallel, we are also starting to see increased commitment on H2I, meaning hydrogen internal combustion engine, low-emission technology, and obviously this uses hydrogen as a promotion engine. And the good thing for us, it requires advanced boosting solution. We were awarded our first H2ICE program with a major European off-highway OEM, and we are currently supporting over 10 pre-development programs spread across Europe, China, and the U.S., demonstrating a growing number of OEMs have selected Garrett as their boosting partner for this emerging H2ICE application. In addition to strengthening our core business, we are investing for a sustainable future where we are devoting more than 50% of our R&D investment into new technology beyond traditional turbocharging. In that regard, Garrett is now also developing a full portfolio of air compressors for H2 or hydrogen fuel cell systems ranging from 40 to 250 kilowatts. And you can see the picture on the page. which is the Gen 2 100 kilowatt fuel cell application scheduled for start of production in 2023. In Q2, we were awarded another heavy duty truck fuel cell compressor application with a major player in China, adding to the progress we have already made in fuel cell applications so far. As we work to strengthen the sustainability of the company, not only in our product portfolio, but also in the way we operate, I am pleased to report that Garrett earned the top rating globally of A-minus from the Carbon Disclosure Project, or CDP, for supply chain sustainability engagement. This is a positive recognition for our progress in driving a sustainable future. With that, I will now turn it over to Sean to provide more insights into the results.