Hello. My name is Sean and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion's Financial Results 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 Mr. Paul Blalock, VP, Investor Relations. Please go ahead.

Thank you, Sean. Good day, everyone, and thanks for listening to Garrett Motion's fourth quarter and full year 2018 financial results conference call. Before we begin, I'd like to mention that today's presentation is available on the Garrett Motion website where you will also find links to our SEC filings, as well as our 2018 financial results and our Investor Day presentation and webcast in September, along with other important information about Garrett. Turning to slide 2. We encourage you to read and understand the risk factors contained in our financial filings, 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. Today's presentation also uses numerous non-GAAP financial terms to describe the way in which we manage and operate our business. We reconcile each of these terms to the closest GAAP term and encourage -- and you are encouraged to examine those reconciliations, which are found in the appendix to this presentation both in the press release and in the slide presentation. Also in today's call, comments will be referring to light vehicle diesel and light vehicle gasoline products by using the terms diesel and gasoline only. On slide 3, please notice additional disclaimers related to basis of our financial presentation, the nature of our historical carve-out financial information and our new standalone post-spin financial results reported today. In accordance with the terms of our indemnification and reimbursement agreement with Honeywell, our consolidated and combined balance sheet reflects a liability of $1,244 million in obligations payable to Honeywell as of December 31, 2018 the Indemnification Liability. The amount of the Indemnification Liability is based on information provided to us by Honeywell, with respect to Honeywell's assessment of its own asbestos-related liability payments…

Thank you, Paul, and welcome, everyone, to Garrett's 2018 earnings conference call. We are pleased to provide you with the highlights of our full year 2018 results, which includes our first quarter as an independent company. Beginning on slide 4. Overall, Garrett had a strong performance in 2018 across all key metrics and Alessandro will cover in more detail in a few moments. In particular, organic growth in net sales was 6% and this despite a slowdown the automotive industry experienced in Q4. This confirms our trajectory to significantly outperform the growth of the light vehicle industry. This growth converted nicely into an adjusted EBITDA, excluding hedging impacts of $656 million, slightly above the high end of the previously provided guidance last November. The cash Garrett generated in Q4 also had reduced our net debt position by $116 million and start down the path of deleveraging the company. The combination of the strong results and the flawless operational execution of the spinoff closes a very strong year for Garrett and we are proud of our first quarter as a big company. We are off to a great start. As we now look into 2019, we forecast net sales growth between 2% to 4%. Alessandro will expand on this point but not uncommon from what you have heard from other operators at this point of the earnings season, we also anticipate a year that will be somehow unbalanced in terms of growth between H1 and H2. This revenue forecast is expected to convert into an adjusted EBITDA between $630 million and $650 million at current foreign exchange rates. We also expect that our continuous strong performance on cash generation will then first deliver an adjusted levered free cash flow conversion rate between 55% and 60%, and our portfolio to be rebalanced by the end of 2019. Turning on slide number 5. You will see our progress in rebalancing our portfolio, both geographically and by product line. On the left-hand side of the chart, you see our 2018 geographic mix of sales that was slightly lower from Europe and slightly higher from Asia, despite the recent slowdown in China, although the next few years we expect this shift from Europe to Asia to continue. On the product side, we grew our percentage of sales from gasoline products to 25% for the full year of 2018, up 3 percentage points from 2017. And again this happened despite the slowdown of China. We are still expecting to reach by the end of 2019, the point where light vehicle gasoline and diesel will have an equivalent size in our portfolio. Also noteworthy is that our aftermarket and commercial vehicle sales combined to account for about 32% of net sales in 2018. These important verticals continue to be solid performers for Garrett and generally are not correlated with short-term auto sales. I would now like to hand it over to Alessandro to cover more specifics of our financial results.

Thanks, Olivier and welcome everyone. I will start with my review of the financials on slide six. Our net sales in 2018 grew 9% on a reported basis and 6% organically. Income before taxes grew 8% in 2018 to $396 million, representing 12% of net sales. Adjusted EBITDA, including hedging impact, was $618 million in 2018, an increase of 5%. And adjusted EBITDA, without hedging impact, was $656 million, up 14% over 2017. Adjusted EBITDA minus CapEx was $521 million, representing an 84% conversion rate. Starting from 2019, our conversion rate will be calculated on an adjusted free cash flow metrics. Overall, Garrett had a strong year in 2018 across all key financial metrics. I would also like to mention that we had concluded with the same metric slide for Q4, 2018 as compared to Q4, 2017 in the appendix. Just to highlight for you, organic net sales were up 2% quarter-over-quarter, down from 6% growth in the nine months through September 2018, due largely to the strong double-digit deceleration in China late last year, which continued so far in 2019. In addition, adjusted EBITDA, excluding hedging, was up 5% in Q4, 2018, resulting in a margin improvement from 16.7% in Q4, 2017 to 17.6% in Q4, 2018. Turning to slide seven. Our net sales grew by $279 million in 2018 to $3.4 billion. In breaking down this performance, Gasoline products grew $180 million, representing 22% organic growth. Diesel products expanded on an absolute basis by $41 million, representing a 1% organic decline. Although, I note here that we were significantly outperforming the global industry, confirming again our ability to transform our strong business win performance in tangible revenue growth. And Commercial Vehicles products expanded by $59 million, representing 8% organic growth. The growth in Garrett net sales on both…

Thank you, Alessandro. I wanted to take the opportunity to share again with you some of the very strong fundamentals of Garrett. On the left-hand side of this slide, you will see the favorable secular drivers, 24 million new turbos per year as an industry by 2025. Turbo penetration growing from 43% to 61%, strong hybrid or electrified growth surpassing pure battery electric vehicle and growing to be 3 to 4 times larger by 2025. In the center, we have very strong business booking. This is if you look at the numbers and updates from the version presented last September, because we want new business, and therefore, we converted more into the red bar. So we have a very strong visibility five years out. And these wins convert into the above-industry organic growth numbers that Alessandro will share with you in all of the verticals we serve, light vehicle gasoline, light vehicle diesel and commercial vehicles. And then on the right-hand side, we have the cost structure that enables us to improve our operational performance and it's extremely important since the best way to address some substantive everybody here getting into 2019 is to have a flexible business that is already low cost so that the conversion of [Technical Difficulty] are optimized. We have approximately 80% of our cost that is variable. As we said before 75% of our footprint is in low-cost countries. All in all, this dynamic get us to superior cash generation and we have kept on turning our working capital more than 20 times per year. Turning to slide 18. Garrett is a technology company operating into the automotive industry and our technology growth strategy remains a key priority for our company. We have shared with you several times already the three stages of this. And…

Thanks, Olivier. Before we open the line for Q&A, I will mention that we will not to be taking questions today on our future course of actions related to the material weakness in our financial reporting under our indemnification obligation agreement. Operator, we are now ready for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Aileen Smith with Bank of America Merrill Lynch. Please go ahead.

Good morning. Thanks for taking my question. The first question, when bridging your outlook for organic net sales growth of down 2% to flat in the first half of the year to then up 6% to 8% in the second half, is it possible to break out specifically what your underlying global production volume growth assumptions are for the first half versus second half? And asked another way, what's the sensitivity for the assumed acceleration in revenue growth in the second half of the year, if production volumes remain weak and do not recover as expected?

Thanks, Aileen for the questions. I think what we have provided is the overview of the full year industry trends that we believe are there. So I think we provided minus 2% for the light vehicle market as a total decline for the year. The split is certainly -- I don't want to go into micro details, but the split is certainly for the first half to be much more negative than the second part. We are expecting a strong recovery in the second part of the year mostly driven by China. So we are expecting also the industry to drive as I believe most of the companies are now a second part of the year to be stronger. And that's in our projections. When you say what we expect if the industry is not recovering at the pace we are projecting out, I think what we believe is that we have enough -- as we have mentioned before, we have enough levers on our cost side in terms of variable cost structure to be able to mitigate the decline from the industry perspective and manage our variable cost structure from the P&L perspective. Balance sheet wise, I think we have enough levers at the same time to manage our CapEx in an optimum fashion, so we should be able to maintain the target. As we said in the slide, we are not expecting -- we haven't expected for this point in time strong impact from Brexit or from the trade negotiation. So we are still monitoring that and we will need to see what the outcomes are.

Okay, that's helpful. And looking at your adjusted levered free cash flow conversion calculation, how does the 55% target for 2019 compare with some of the metrics that you provided at your Analyst Day, I think for consolidated EBITDA less CapEx conversion in the 80% range? Are these comparable at all? Or alternatively what was the levered free cash flow conversion rate by your calculation in 2018?

They are not. And we are trying with this call from this moment on to depart from certain metrics that we had provided during the Investor Day and keep consistency in the metrics from this point on. So you've seen that we have also included our long-term projections for a -- with revised metrics for the business strategic plan. So we are using adjusted free cash flow levered and unlevered and you will see that going forward, because that is more representative now of the generation and our ability to convert cash. We believe that the most relevant and meaningful metric since it's consistent with the way we are measuring the operational performance on an adjusted EBITDA basis. And it's really reflecting the full operational structure of the company.

Do you guys have an estimate for what was the levered and unlevered free cash flow conversion rate for full year 2018? I think I saw 4Q in the slide deck or the calculation, but how does that stack up versus the 55% to 60% for 2019?

It's similar in terms of range. The complexity here is that as you know the first three quarters are not comparable. So you would need to get into a pro forma representation of all the different impacts and move that that back to the beginning of the year, which is very complicated at this stage. But in terms of operational conversion, we are in a similar situation.

Okay, great. And last question, can you give any color around the potential impact for the kick in of RDE regulations in Europe on your business and production schedules through 2019 and beyond? Do your customers seem prepared? Or could the implementation of these regulations create similar volatility around production as did WLTP last year?

Apart from clearing, this is Olivier speaking. I don't -- we don't know yet as an industry. I think some people can try to guess, but it was extremely difficult to get WLTP, and therefore, I’d say, this is probably a difficult. So we are monitoring, we're staying flexible. Obviously, we're looking at the carmakers that were most impacted by the WLTP because of the complexity of the range, but I think everybody has run their own mission into the industry at the same time. So it's too early to say anything about it.

Okay. That's it for me. Thank you very much.

Our next question comes from Colin Langan with UBS. Please go ahead.

Great. Thanks for taking my questions. Can you just tell us what is embedded in your forecast for China for this year or the overall China outlook?

From an industry standpoint or from our perspective? Just to clarify that.

Both – yes, both would be helpful. Yes.

I mean, we had a low double-digit decline expected for China for light vehicle.

For the industry or for both?

For the industry and for us.

Got it. Okay. I know in your comments you couldn't -- you said, I guess your LMN, what you could discuss on the indemnification, but can you just clarify? I mean, is the risk here to the estimate of the balance sheet? Or is there an income statement risk? I mean, what is -- what would the potential risk be here, we get under standard parameters?

I think everything we can say is what you see in the disclaimer that we presented at the beginning of the presentation. I think it's pretty clear.

Okay. And then just within the Q4 results there are some odd claims, I mean, other expenses benefit versus the cost. Was there anything unusual there? And then any color on the tax rate within the quarter? They seem unusually high?

Let's start with the second one. So the quarter is -- the first quarter as a public company. So we are considering all the elements as a result of the spin and there are certain elements that are a measurement that is part of Q4 in any case. So the impact of the opening balance sheet item is also reflected and there are certain items that are impacting Q4. So there are certain unusual items included in Q4, which are still part of the tail of the restructuring and the spin-off. In terms of the other, I think, we've provided the reconciliation about these different adjustments. The two ones that we are pointing at are repositioning charges that are much lower for the year and also in Q4. And the other part is just very straightforward in terms of interest expenses. The debt has been incurred at the end of September, so there is the component that is addition for Q4 this year compared to last year.

Got it. And just lastly, strategically, can you give us any color on when your estimated market share is on gas and diesel today and where you see it by the end of next -- by the -- when you get them entirely?

I think we have disclosed ...

We are usually not disclosing information on share demand. What we can tell you is that when you look at the win rate that we published into our Investor Day deck and also when you look at the increased wins that we provision to, this deck compared to September you can combine that with the fact that in gasoline we provided numbers that are showing growth that is obviously favorable in the industry. So, I would say our share demand is nicely increasing.

All right. Thanks for taking my questions.

Our next question comes from Joseph Spak with RBC Capital Markets. Please go ahead.

Thanks everyone. Good afternoon over there. So, organic for the year, you're saying 2% to 4%. If we look at sort of current spot rates, FX is maybe sort of a point or two headwind. So, you're looking total sales maybe flat or up low single-digits. And if I take your EBIT -- adjusted EBITDA guidance which seems to indicate current -- you're using current spot, it seems like that would imply margins in the high 18s versus the 18.3% in 2018. So, that's a pretty strong incremental of how I calculate over 65% and was just wondering if you could give some of the drivers of what's impacting the EBITDA higher?

Main impacts are still positive contribution from volumes. The mix component which is actually a combination of mix productivity and inflation items is still negative -- expected to be negative for the full year, but not in a relevant -- not with a relevant number. That is primarily driven by relevant effort that we have on the productivity side to recover pricing items, inflation and all the other components. So, expecting still positive volume contribution and slightly negative mix combined with productivity and pricing.

Sorry. So when you say mix, you mean the mix of gas versus diesel?

Yes. Gas versus diesel, yes.

Okay. So that sort of, I guess, leads to my second question, which you said by the end of 2019 sales of gas equal sales of diesel. And I just want to understand that a little bit more because you said -- I think you said diesel down low double-digits. I know back of the envelope we'll assume that's 10%. You're talking about $140 million, I think, in lower sales based on your 2018 disclosure which should mean like the gas organic growth would have to be up like mid-40s. That's like 2x the organic growth you did in 2018. Is that sort of roundabout how you're thinking about the trajectory of those two businesses?

Certainly, double-digit growth from the gasoline side. And you still need to consider that the total sales are including mostly strong Commercial Vehicles and Aftermarket. So combination of all the three components is rebalancing of diesel and gasoline to equal by the end of the year and a relevant contribution from commercial vehicles as well.

Sorry. So just to be clear like if I look on slide 5 what you're saying for the year diesel was 41% and gas was 25%. And I know in the fourth quarter I think gas was a little bit higher. But it's -- if you were to show that chart in 4Q of 2019 your expectation is that those first two bars will be equal with diesel coming down and gas going higher. Is that -- that's what you're saying right?

That's right.

Okay. So I mean -- so we then -- I guess going back to sort of the margin, if there's still sort of a mix headwind and looks like that's a pretty big delta between gas and diesel, it seems like a very high productivity number. And I know you're sort of touting your variable cost structure, but that would actually sort of lead me to believe that the sort of -- the incrementals wouldn't sort of be as great as you're implying. So is there something more, like there's cost coming out from the spin? Or are you throwing that into productivity? Because it just seems like a very big increase on the sales increase you're referring to.

I think when you're saying that -- Joseph when you're saying that we are a good company doing productivity you are spot on. This is what we've demonstrated this year. This is what we demonstrated in Q4 when you get results being able to convert nicely into the income, even with lower gross rate. So we are good at doing that. We have received very ambitious plan but they are not unusual because they pretty aligned with what we did in the present shares in term of productivity and therefore obviously the kind of performance that we have proven in the past. And obviously with more volume we get more leverage as well.

Okay. And then last one for me. Just was wondering if you could give us some sense of the latest conversations you're having with your customers on just they're -- on how they see sort of their portfolios progressing? And we're hearing a lot of different mixed things. But it seems like on the margin maybe some of those automakers are thinking that the lifespan of hybrids is maybe a little bit shorter than they previously think as they look to make more of a push towards pure battery electric vehicles. Is -- but any color you could sort of give from your conversations would be helpful.

At this point of the -- because you remind targets around 2025 in terms of mix and what is battery electric by 2025 which is hybrid. And at this point of this -- the product development cycle issue reflect back to some discussion we had in the past. Considering that bringing the technology to the marketplace you need about two years of predevelopment and three years of development, we are getting slowly but surely this year into the money time. Meaning whatever program that has not been started into development will not happen by 2025. So in the sense that, we do not have to reach the level of full maturity by 2025, so when you look at what we are wining today and all the bids we have is for share – stock production around 2023 which is pretty much aligned with the speed at which the industry is growing. And your last point is back to what we are seeing into the presentation. We are seeing an increased level of advance into hybrids. And it's not slowing down, it's accelerating. So, that's the only -- I tried to answer to you with some factual analysis that is not just guess into the future.

Okay. Thanks for the color.

Our next call comes from David Kelly with Jefferies. Please go ahead.

Hi thanks for taking my questions. Just a quick follow-up on that earlier margin discussion and thinking about the puts and take this year. Your first the gas-diesel mix shift and related margin delta. Second, underlying production lumpiness and the step-up expected in the back half of the year, and then, finally some of the productivity gains and opportunities there. I guess how should we think about how margin cadence throughout the year and the push to that -- what seems to be a decent underlying implied margin assumption guidance step-up?

You should expect Q1 to be the strongest decline in terms of margins similar to Q4. We are saying -- we've been saying during the call that we are expecting the slowdown in China to impact us also in Q1 and clearly the mix effect is still going to be there also for Q1. So, Q1 is certainly going to be the lower one. Expecting H1 to be still in the low end of the guidance and full year to be substantially similar in the lower end of the guidance or midpoint of the guidance.

Great, great. Thank you. That's helpful. And then just wondering if you could provide maybe a little bit more color on some of the gas outperformance. I guess how should we think about content gains versus new conquest wins? And you mentioned increased turbocharger penetration. Any view on how big of a market tailwind you expect that to be in 2019?

Yes. Surely. I mean when you look at our revenue forecast this is the calculation we are doing with Joseph a few minutes ago. We are seeing obviously a strong push towards gasoline. We are growing at a much faster pace than the industry. And I want to say that I'm saying the turbo industry in the sense that we are winning share. There are a lot of launches that are happening. And when I'm looking further in the future, a lot of the consolidation and the wins that are coming in the middle of the Slide 17 are also coming from gasoline. The good news that we've seen over the past few months that is reinforced again is the increased other trend of variable geometry on gasoline. And you should remember well the presentation we gave several times, we are seeing an increased content of variable geometry in gasoline versus the term gasoline technology. It is mostly what we call wastegate or fixed geometry. And therefore this increased content by the way is translating into increased margin and therefore, it's extremely encouraging for us. We are saying that we expect the growth of gasoline VNT to reach something that is mid-double-digit by 2025.

Okay, great. That's helpful as well. And then just last one for me. I think you have the 2020 year-end leverage target. Just given the underlying lumpiness that we should expect this year, how should we think about the step down in leverage by 2019 year-end?

You would expect -- we are expecting to see that impacted by seasonality as we have also highlighted for our Q4 this year. There is higher cash generation in our structure today by the end of the year, which means that also the deleverage is going to most likely take place by the end of the year. And when I talk the leverage I mean gross debt going down.

Okay, gross debt. Perfect. Thank you.

Our final question comes from Steven Hempel with Barclays. Please go ahead.

Hi, thanks for taking my questions. Just one on above market growth here. If you look at the 2019 guidance, which assumes light vehicle production down 2%, you comp overall organic growth up 2% to 4%. So that's implies about 400 to 600 basis points of above market growth. I believe, if I recall correctly if you go back to the Investor Day you were assuming underlying light vehicle production up 1% to 2% with a 4% to 6% organic growth CAGR. So, just wondering if this implies a bit of a step-up in above market growth, which is obviously good to see. Just wanted you to discuss some of the drivers behind that and then also if any color on the new order intake rate in 2018 versus prior years, which I believe, was around 15%.

I would probably get back to also some of the comments we made during Investor Day. As you remember, we said we would -- we are conservatively guiding for the future because in fact and we got some questions at that point in time that the forecast we are sharing for the total industry was not far from the forecast we were giving for the long-term guidance of our revenue. So we are challenged seeing how you guys are being a little bit too conservative, and therefore, where do you see the impact of the offshore demand gain. And we were also answering to that saying we want to be cautious because we know that the product launch cadence and some short-term movements into the different models, and the different programs could affect that outlook. So I think right now, we are pretty much on the high end of that. That's the conversion of our offshore demand gain. The order book is extremely healthy, we finished extremely well the year and we are starting already the year very well in term of booking programs for the future and booking program for the future that are aligned with our technology growth strategy. So when it comes to that, it means increased content on diesel, increased content on gasoline and we just talked about variable geometry, but also progress into the electrification with the e-boosting with the fuel cells and progress we are seeing on the connected side. So what I see moving forward is something that is quite optimistic at this stage. Now we want to be conservative in our outlook and that's probably the reason why you can challenge us. And I'm saying that we're already potentially a little bit at the high end where we are guiding to.

Okay. And then one of your competitors on the turbo side called out no net backlog -- net new business backlog in 1Q due to some launch timing and inventory corrections. Just wondering, if you're seeing similar launch time issues or any delays in launches? And then expectations so to speak as it relates to that in terms of Garrett's outperformance or above market growth throughout the year. Is it going to be a little more back-half weighted? Or do you expect it to be largely consistent throughout the year?

No, we have indeed a lot of programs that are launching during the second half of this year and this drives part of the comparison to last year. Last year, we had a very strong H1 because we had a lot of launches in H1 and we had the company growth at China. Now, we have I think a lot of launches that's happening in the second half, a lot of ramp-ups that's happening in the second half. That's our forecast for the second half is not only just based on macros. You should compare ourselves by the way to the others, you would see that in fact. It's extremely difficult to comment on launch delay on one program versus another, because usually you don't have all the programs that are being delayed at the same time. There is always one and that's -- when there is an issue, there is always one of two programs that are delayed. But at the same customer, it would be very difficult to have all the programs delayed at the same time and across the industry as well. So I really cannot comment on the delays that some other could experience, because we are not on the same platform.

Okay. Yes. And then just lastly on the year-end target for diesel similar to the gasoline. That's on an overall dollar basis. I was just wondering how that compares on an absolute unit basis and maybe you could discuss some of the differences roughly you'd expect for ASP by kind of diesel versus gasoline. And then the follow-on of that just in terms of when that does normalize on a sales basis at that point safe to assume that we should expect margins to be similar across diesel and gas. So no product mix headwinds to be discussed beyond 2019?

So the guidance we are giving is revenue based. So it's in sales in dollar value. It's not in units.

Right, yes. And that's why I was just trying to get to you on a kind of comparable unit or ASP-adjusted basis then.

So what we've said also in the past is that, today if you compare diesel turbo, which is almost always variable geometry or even we have some two stages products to gasoline products that are not variable geometry, today most of them while just renting up the variable nozzle technology, the average selling price of all this, and the reason being that on the one hand, you have more technology on diesel, but you lower operating value because diesels are working at lower exhaust structure. And on the other hand on the gasoline, you have less technology, but you have higher-grade metal ores, split of ASP that's about the same. And obviously by the time, we convert more and more the gasoline business to the variable nozzle technology what we've shared is that we would get to a significant contracting bridge level.

Understood. Okay. And then just a quick housekeeping on this conversion from diesel to gas. Is this done at the plant level? Or do you literally have kind of the new gasoline plants? Are largely separate to this versus the diesel plant? And any color around that conversion if they are at a similar plant?

That's a very good question. And it's a very good question that can call on the way we are organizing to the factories. So we are focusing and that's the reason why we’re having low CapEx. we are focusing our production means on what is really differentiating. And what is really differentiating for our turbo is the way you assemble not to be too technical, but the shaft of the turbo we do, so it's a specific welding process that is proprietary. And then the way we balance and then the way we assemble. And with the few differences, the way you balance, you assemble, you weld a shaft and everything between the gasoline and diesel is similar. So, most of the differences are coming from the suppliers. And we have to develop specific set of suppliers for gasoline engines that are providing us with the high operating materials that are required by the industry.

Understood. Great. Thanks for taking our questions.

Our next question comes from Sameer Al-Sadi with Morgan Stanley. Please go ahead.

Yes. Hi. I mean, just had a question on the guidance in terms of net leverage and just going back to the previous question. So if I think about your free cash flow conversion and then I take out the indemnity payments assuming the current run rates, we're looking like $100 million of free cash flow, $100 million - $120 million. So you're saying that you're going to use this $100 million-$120 million to pay down the term loan so that you reduce gross debt rather than build cash on the balance sheet?

Yes. That's correct.

Okay. Thank you.

This now concludes the question-and-answer session as well as the conference. Thank you for attending today's presentation and you may now disconnect.