Garrett Motion Inc.

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

Thank you, Jason. Good day, and welcome, everyone. And thank you for joining the Garrett Motion Fourth Quarter Conference in full year 2022 financial results conference call. Before we begin, I'd like to mention that today's presentation and earnings press 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 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 those measures to the most directly comparable gap 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 Ravier, Garrett's President and Chief Executive Officer, and Sean Deason, Garrett's senior vice president and chief financial officer. In addition, I would like to introduce Eric Burge, who joined Garrett as head of investor relations earlier this month. He is based at our North American headquarters in Plymouth, Michigan, and is now responsible for investor relations. I will remain with Garrett until the end of March to ensure a smooth transition of all activities to Eric. I would like to thank everyone for your time and support over the past five years and wish you and Garrett a very successful future. I will now hand it over to Olivier.

Thanks for joining us and welcome everyone to Garrett's fourth quarter and full year 2022 results conference call. First, I would like to personally thank Paul for his support since the spin-off and I'm wishing him all the best. I would also like to welcome Eric as our new head of investor relations. I will begin my remarks on slide three, where we start with the highlights for the year. Garrett had a strong 2022 performance, and I'm very pleased with these results. I would like to recognize the global Garrett team for their dedication and flexibility, which helped achieve our results in what continues to be a volatile environment. In Q4, net sales were $898 million up 4% from the same period last year on GAAP basis, but up 15% on the constant currency basis. Adjusted EBITDA was $114 million in Q4 versus $129 million in the same period last year. Our Q4 adjusted free cash flow was the highest quarter of the year at $132 million. This strong operating performance upset headwinds from inflation, a weaker euro, and sequentially lower volume that were mainly driven by late-in-the-quarter softness in China. But I want to take a moment and give a special thank you to our employees in China, who once again handled the COVID disruptions in the fourth quarter in a very effective manner. In Q4, We also benefited from a richer mix driven by our higher margin commercial vehicle and aftermarket businesses. For the year, net sales were just over 3.6 billion, down 1% on a gap basis, but up 8% on a constant currency basis compared with 2021. This outpaced global light vehicle production by 200 basis points. This growth is driven by our successful efforts in recovering full inflation pass-through, improved mix, and strength in gasoline volume, essentially offsetting FX headwinds. Full-year adjusted EBITDA was $570 million, near the high end of our latest outlook, but down 6% versus 2021, mainly due to FX. For 2022, Garrett delivered solid improvement in productivity and pass through inflation, even as we increase investment into electrification technologies. Importantly, Garrett continues to achieve its target and manage volatility. We accomplished this by flexing our highly variable cost structure to offset ongoing volatility in production. Supply chain disruption, including semiconductor availability, and lower demand in China during lockdowns. The 2022 full-year adjusted EBITDA margin was 15.8% compared with 16.7% in 2021. While the margin is lower than last year, pass-through of inflation costs along with ethics had the combined impact of 80 basis points. Sean will discuss this in more detail in a few minutes. However, taking this into consideration, the 2022 margins are essentially flat with 2021. In 2022, Garrett accomplished great inflation pass-through, which along with significant productivity improvements, offset inflationary pressures. This was an important achievement and the result of very effective coordination throughout the company. Garrett's ability to consistently generate cash and produce solid margins, even in times of volatility, is a direct result of our highly valuable cost structure and our track record of flexing that cost structure. In addition, our road product portfolio helps manage solid performance across business cycles. For example, our combined sales from our higher margin commercial vehicle and aftermarket products comprise 31% of net sales and is independent of light vehicle trends and contributes to earning stability. Throughout 2022, Garrett both simplified and delivered its balance sheet. Specifically, the generation of $313 million in adjusted free cash flow enabled us to fully redeem the Series B preferred shares early in 2022 and, later in the year, to settle the Series A dividend payments for Q3 and Q4 in cash. Garrett's financial flexibility is also enhanced by our low interest payments at favorable terms, with 80% of our long-term debt now at fixed rates. Most importantly, Garrett continues to maintain a strong liquidity position of $721 million, with no significant debt maturities until 2028. Q4 and 2022 full-year results once again demonstrate Garrett's ability to deliver strong results and in a volatile environment while continuing to enhance our financial flexibility. Turning now to slide four, Garrett's core business performance is enhanced by our differentiated technologies. In gasoline products, which includes hybrid electric platforms, turbo penetration keeps increasing. The latest S&P forecast for light vehicle gasoline turbo penetration is forecasting now to grow from 47% in 2022 to 51% in 2025. As we will later discuss, we also expect our strong business win rate to translate into share of demand gains in 2023 and beyond to drive even greater growth for garrets. The Viable Northern Turbine, or VNT, applications are a Garrett innovation with decades of technology leadership. Emerging gasoline VNT applications are expected to ramp up threefold, reaching 35% industry penetration by 2025. Garrett's long history in diesel products has continued also to prove resilient, as light commercial vehicles now represent 50% of our diesel volumes, and we expect it will continue to grow. Our on-highway turbo business is equally resilient, with S&P projecting 22% on-highway industry growth from 2022 to 2025. In off-highway product also, turbo adoption is projected to have even greater growth, increasing from 52% in 2022 to 60% penetration by 2025. Our innovative e-turbo and e-compressor solutions continue to gain momentum in the meantime as we add a new customer contract in 2022 for these exciting new technologies. Lastly, emerging new hydrogen ice products require 100% penetration of highly engineered turbos. We expect to launch these H2I products into production later this year already. Summing it all up, Garrett's continued new business win rate of about 50% since 2018 continues to drive new commitments and program awards extending for many years into the future. Our awarded business already represents 88% of our projected 2025 sales, highlighting the strong visibility of future revenue. Now turning to slide five, Garrett is driving differentiation in electrification. On the left hand side of the page, you can see Garrett's key differentiated capabilities in turbo machines, where we have high precision component design and unique high speed balancing capabilities. The development of e-boosting has also enabled us to build unique cutting edge knowledge and capabilities in high speed motors and power electronics, High-speed motor suits as the one developed for the eTurbo can rotate in excess of 200,000 RPM. And Garrett has also designed and engineered high-switching speed power electronics and control software. Our aim is to leverage these advanced capabilities to provide our customers with differentiated solutions they need to address other non-turbo related electrification challenges where power density and efficiency are key. Very pleased to report that in Q4, Garrett won a first high-speed e-axle pre-development project with a major global OEM. Being awarded a pre-development in this area is a major victory for Garrett. We are also working with more than 10 additional customers on this very unique high-speed product concept. In the fuel cell area, Garrett continues to win serious development awards for commercial vehicle applications. In 2022, Garrett won three series production contracts for our fuel cell products, one in North America, one in China, and one in Europe. To help you size up the traction we have here, let me tell you we provided 200 prototypes to key industry innovators, and we are currently working with over 15 engaged customers. With that, I will now hand it over to Sean to further discuss our financial results and 2023 outlook.