Hello, everyone. My name is Jamie and I will be your operator today. I would like to welcome everyone to the Garrett Motion Quarterly Earnings 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 Blalock, VP, Investor Relations. Please, go ahead.

Thank you, Jamie. Good day, everyone, and thanks for listening to Garrett Motion's second quarter 2020 conference call. Before we begin, I'd like to mention that today's presentation and press release are available on the Garrett Motion website, at www.garrettmotion.com, where you will also find links to our SEC filings along with other important information about Garrett. Turning to slide two. We note that this presentation contains forward-looking statements regarding our business, prospects, goals, strategies, anticipated financial performance, payments to Honeywell and the anticipated impact of the coronavirus on our business. We encourage you to read the risk factors contained in our financial filings to become aware of the risks and uncertainties in this 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 uses numerous non-GAAP measures to describe the way in which we manage and operate our business and we reconcile each of those 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 comment, 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 Rabiller, Garrett's President and CEO; Sean Deason, our Chief Financial Officer; and Peter Brock, our Chief Transformation Officer. I'll now hand it over to Olivier.

Thanks, Paul, and welcome everyone to Garrett's second quarter 2020 conference call. First, I would like to welcome our new CFO, Sean Deason, on today's call. Sean joined Garrett in June after serving as CFO at Wabco, a successful commercial vehicle technology company that was acquired earlier this year. Sean brings to our company more than 20 years of financial leadership, with extensive experience in the auto industry. We are excited to have him as a member of our executive team, as he continues to work closely with Peter to ensure a smooth transition. Peter has transitioned to the newly created role of Chief Transformation Officer. I would like to personally thank him for his numerous contributions over the past nine months as Interim CFO and look forward to many more as he orchestrates Garrett's continuous evolution in preparation for the future. Turning to second quarter and first half of 2020. Garrett continued to build upon its long-standing track record in operational excellence. These have indeed been challenging times on massive global scale, requiring Garrett to rapidly adjust its operations around the world and reduce costs to conform to the COVID-19 pandemic. Of course, the health and safety of our colleagues, partners and communities in which we operate remains our top priority and our heart goes to everyone affected by the ongoing crisis. I'm very proud of the dedication and results our employees have shown during this difficult period, working tirelessly to keep our business running in a safe and highly efficient manner. The speed at which we responded from the substantial disruption emanating from China to the rest of the world during the first quarter and then disruptions around the rest of the world alongside restart in China in the second quarter was exceptional. The resiliency of our operating…

Thanks, Olivier, and welcome everyone. I'm thrilled to join such a talented and experienced leadership team and look forward to working with management to help Garrett achieve its strategic long-term objectives. I will begin my remarks on slide 6. In the second quarter, Garrett reported net sales of $477 million, down 39% at constant currency. As Olivier mentioned earlier, our performance for the quarter was adversely affected by the COVID-19-related plant shutdowns in Mexico and India as well as production slowdowns across Europe, partially offset by China. Adjusted EBITDA for the quarter was down 59% to $63 million and for a margin of 13.2% which is attributable to lower volumes stemming from the coronavirus outbreak. Our year-over-year decremental margin was 28%, which includes mixed headwinds resulting from significantly higher demand for gasoline products beginning in the second half of 2019 and into 2020. Further the sequential decremental margin from the first to second quarter was approximately 16% driven by the impact of various initiatives to flex our global operating structure and reduce cost that we put in place at the end of the first quarter. Our adjusted free cash flow was minus $174 million, which reflects the deterioration in market conditions and the associated impact on working capital. And lastly, adjusted diluted EPS, which excludes Honeywell indemnity obligation expenses and related litigation fees were $0.07 per share in the quarter. Turning to slide 7. We illustrate our net sales by region in product line. The strong rebound in China which grew 57% organically in Q2 compared to the same period in the prior year, during a time when the rest of the world was dealing with production curtailments from COVID-19 led to an outsized proportion of net sales in Asia. As a result, the percentage of net sales is a…

Thanks, Sean. On slide 13, we summarize our Q2 performance and year-to-date actions. All of our plants have safely resumed operations led by China, which has already returned to pre-crisis levels, and we expect our remaining plans to gradually increase production over time, as customer demand slowly improves. Indeed, our results for the second quarter reflect significantly lower volumes stemming from the impact of the COVID-19 pandemic. But despite the unprecedented shutdowns across the global automotive industry, Garrett posted $63 million in adjusted EBITDA for a margin of 13.2% in the quarter, highlighting our operational excellence by leveraging our highly variable cost structure and exhibiting strict cost control measures to respond rapidly to the abrupt deterioration in business environment. Going forward, we will strive to take full advantage of our resilient business model to mitigate the impact from the current crisis. But as global infection for the coronavirus has yet to stabilize and in fact are increasing in many countries, we consider that there is much uncertainty that lies ahead in our industry and the global economy. I am also encouraged by our strong ongoing win performance in our core turbo business and the continued accelerations across our innovative E-Boosting and software solutions. I am pleased that we successfully amended our credit agreement and further postponed payment to our former parents. But a set of information we share today about the consequences to Garrett of postponing obligations related to Honeywell subordinated indemnity payment highlights our concerns about our capital structure and remains a point of focus for us. In conclusion, I want to share my appreciation for our teams around the world who have done extraordinary work under such conditions. This concludes our formal remarks today, and I will now hand it back to Paul for the Q&A.

Thank you, Olivier. Operator, we are now ready to open the call for questions. Thank you, Olivier. Operator, we are now ready to open the line for questions. Operator? Operator, this is Paul. We are now ready to open the line for questions.

Ladies and gentlemen, at this time we will begin the question-and-answer session [Operator Instructions] Our first question today comes from Aileen Smith, Bank of America. Please go ahead with your question.

Good morning, guys. First question, obviously your free cash flow was very much hindered by the working capital unwind in the quarter. How much of this would you estimate gets reversed in the second half of the year? And is it dependent on certain volume levels at all?

Yes, this is Sean. Hi, good morning. It definitely is something that's dependent on volumes as we move into the third and fourth quarters. The trend we see coming out of June will naturally unwind a bit but it's very tough to predict as we mentioned earlier what will happen in the fourth quarter. It's very volume dependent and sales dependent in that regard. But we will see an unwind as I mentioned earlier in the third quarter.

Okay. As a follow-up some suppliers had outlined or estimated free cash flow breakeven levels versus production or production declines on a full year basis. Is this something that you've contemplated at all, or any guidepost that you can give us as we think about 2020 in total?

I would say that you will see cash flow improve in Q3 and continue to Q4 depending on where volumes end up. But again, we're not providing guidance. But I would hope that if the improvement continues, we would not see the use of cash, we would not exit the year with the use of cash at 150 or 170 we would be better than that. But again, it's very, very dependent on where we see the biggest risk and that net volumes in the second half but primarily September, October and November.

Okay. And then a second question, you've commented that all your planned operations. Do you have an estimate for rough cap out levels that you're running at across your various regions based on the volume trends? And then based on your variable cost structure do you have any estimates for cap out levels in plants or regions that are required for profitability?

Yes. I'm sorry, I missed part of your question. Could you please repeat?

Yes. So first I said more profitability. So when we think about ut levels required for profitability, we've historically benchmarked kind of 70% to 80%. But I'm wondering based on your variable cost structure whether that could be lower?

Sorry, it's difficult to hear that you are saying that we were at the point we got is that we are benchmarked that I got. I thank you for that. But I did not get the metric you wanted to point out.

I think we can take this offline. But broadly, do you have an estimate right now that you're running at in terms of capacity utilization levels across your plant's in various region?

Capacity utilization?

Yes.

Capacity utilization. Quite frankly when you look at -- when you look -- we should compare to the industry that we had, I would say end of 2019, so we don't see the volumes coming back to the level of 2019 before 2022. So in terms of capacity utilization that gives you a little bit of an idea of where we would be.

Okay. Great. Thanks for taking my questions.

[Operator Instructions] And our next question comes from Joseph Spak from RBC Capital Markets. Please go ahead with your question.

Hi, guys. It’s A.J. Ribakove on for Joe Spak. Two quick questions. First, I believe that I heard in the beginning of the call you mentioned 2020 global production down about low 20% to 30%. That seems a bit more conservative than what we're seeing on third-party assumptions was that more customer specific, or can you talk through some of your regional assumptions?

That's not really customer specific. I think we are -- we'd rather be on the conservative side. Because the way, we have seen volumes over the last few months and we can see how the economy over the next few months has been quite volatile. In fact, none of -- if you get back to what the OEs were publishing in terms of return-to-work in May and June none of them have match what they said or what they put in the forecast. And we were very wise to plan our supply chain not only our factories to lower level than that and adjusting to what at the end has been what they took. So we are very careful about the second half. We are obviously seeing a situation that's gradually improving even very strong I would say in China. July as Sean was saying is looking relatively strong. But it's just too early to say that the second half of the year will not be impacted not only by the infection rate that we can have from the COVID-19. But let's keep in mind that a lot of the permanent cost reduction measures that the companies around the world not only in the automotive industry are driving are still to be seen and to be implemented and the consequences of those measures on the consumer sentiment and the ability for people to buy a car may be impacted in the second half. So we'd rather be cautious on that because I think it's a little bit too early to say that everything is back to normal and everything is fine.

Got it. That's helpful color. Alright. Thanks. And then I guess on the cost reduction measures there was obviously some strong sequential decremental performance in the quarter and there's obviously some mix to that as well. But how should we think about those temporary cost measures and the ability of them to take hold permanently?

So I will start on this one and Sean will complete. But quite frankly obviously, we've been leveraging everything we could. And when you are having the flexible scheme that we have it's easier because we have a high level of temporary workforce that we always maintain in our operations as you know. Therefore, we have been able to combine that with the different schemes that we have in different countries and we have been even working very closely with some governments where we are quite relevant in term of size to make sure that we would benefit or the governments would put in place search measures. And obviously there is a temporary effect of that that at some point needs to be compensated by more permanent measures. In the more permanent measures, I would say you have two categories. You have the first one that's related to indirect costs. And quite frankly if you take the example of TME we are not expecting anyone to get on the plane any soon -- anytime soon. So obviously there is a long-lasting effort of a lot of the cost reduction things that we have done. And then there are more permanent measures that are linked to the structure of the business, namely, making sure that we adjust our resources to the amount of activity that we are seeing moving forward. So I would say on this one that first as we said in the presentation this is an exercise that we've been doing always in this company. Every year we are having repositioning plans, every year. And that's a culture. It's a little bit like going to the gym. If you don't do that at some point you get fat and then you get to get to a surgery. And this is what we are trying to avoid. So this year, obviously, the plans that we have launched are much bigger than what we usually do on a year-on-year basis. But I will let Sean comment on that.

Yes. As we -- A.J. as we stated, it's a $30 million impact in the second quarter. $20 million of that was more of the short-term state-funded leads. We are -- and so 10 carries over, but having said that, we are actively looking at what government programs are going to be renewed to put in place. And as Olivier mentioned, we are looking at additional actions. So I would say 10 is a baseline carryover into the next quarter and we have upside potential.

Got it. Thanks.

And our next question comes from Teresa Kutch [ph] from MNG [ph]. Please go ahead with your question.

Hi. Just two questions from me. First, can you talk through your margins and continue to Plan B? How much of it is due to the portfolio mix as we shift away to gasoline? And how much of it is due to other factors? I think in Q1, we talked about the increase in freight costs? And then secondly, can you talk through your supply chain? And if there has been any challenges there?

So, I'll let Sean comment on the decremental margins, because I think we are clear in the presentation to say that year-on-year, we have 28% decremental. But if you do the quarter-over-quarter, which excludes a significant piece of the mix effect we have year-on-year then we get to 16, which is quite low. But I will comment on the supply chain disruption first and Sean will come back to that. So in terms of supply chain disruptions, quite frankly supply chain disruptions due to COVID we have numbers of them. You can imagine that we were shutdown for six weeks in one. We have some suppliers in the one region that are used for global operations. We had a number of suppliers in China feeding the rest of the world. So Q1 was really a stretch for us from a supply chain standpoint. I'm amazed by the flexibility that the teams have put in place in order to keep on supplying the rest of the world. And then immediately after that, we started with the shutdown of the rest of the world. And then China is restarting extremely fast and we are not at a 100% local content, although we are very high in China. We are not 100%. And that created some other challenges as well. So from a supply chain disruption standpoint, obviously, now we are returning normal. I don't think there is any major one that remains. And we are very happy with the way we went through all of that minimizing at the same time as much as we could the impact on our costs. From a supplier risk management standpoint, we are monitoring that as we said before very, very carefully. I think the fact that we have a lot of our suppliers in Asia, which is the region that has restarted fast and that has been less affected overall when you look back from a cash standpoint has made us probably so far, I would say so far a little bit more immune to that point. But that remains a point that we are watching extremely carefully.

And just to add on to that regarding the decremental margins. As we look into Q3 and Q4 as we stated, we won't see such a strong sequential decremental margin. And Q3 in particular will have -- and Q4 we'll have a bit more pressure, because we did quite well on pricing in the second quarter and we see that the pressure coming back on pricing in the third and fourth again assuming the sort of tepid recovery continues. And additionally some of the savings. And again, it would be dependent upon if there are additional state-funded leave schemes that are in place and the effect of us implementing the programs, we discussed earlier to further generate permanent cost savings on an ongoing basis.

All right. So for normalized margins in the near term, should we think of it as roughly 16%?

I think we talked about that at the end of last year. We said that considering the mix impact of gasoline and we will keep on seeing margin in a normal environment without COVID that would be in the range of what we showed at the end of last year with a progressive gradual uptick linked to the implementation of new technology on the gasoline side. Starting with big ramp-ups SOP 2023 -- 2022, 2023 the viable geometry for gasoline. Now obviously you can imagine that the coronavirus is being displayed dropping a stone into the pond. We are looking at that. We are working actively on resizing the business to respond to lower volume. But at this stage I will not give a range.

All right. That's very helpful. Thank you for the color.

[Operator Instructions] Our next question comes from Milind Gupta [ph]. Please go ahead with your question.

Hi, guys. Thanks for taking my questions. I know you guys are giving guidance, but can you at least say whether you expect CapEx to be up or down for the year? And what your outlook is for the second half? It's running higher in the first half. So I was just wondering what it looks like in the second half.

Maybe just to introduce the question and that's probably a follow-on to where we are going with your colleague from RBC earlier. From a capacity standpoint, a lot of what we invest in CapEx is related to capacity. And that's the reason why we've been able to adjust our CapEx very quickly to something down 40% versus what we are expecting. So quite frankly, we are adjusting that. We will be adjusting our ramp-ups in terms of generic capacity linked to our own outlook of where the industry is going. The good thing for us is that when you look back due to the fact that the penetration rate of turbo is increasing, and due to the fact that our revenue was expected to increase on top of that due to sharp demand gains and program launches, we obviously expect a drop of volume or I would say time to return to pre-COVID-19 crisis probably faster for our business than the rest of the automotive industry. So we should not suffer as long as some components that are driven by the same macros. And in the meantime, we are adjusting the capital of the company the capital needs of the company according to that. And the beauty is that we have lower CapEx as percentage to revenue. And on top of that a lot of that is driven by capacity needs so this is the reason why we can flex. I don't know if I've answered your question.

Okay. That's helpful. And just shifting gears, can you talk a little bit directionally about how your market share has held up in the quarter specifically in North America and Europe? I'm just trying to square your comments about strong win rates with the sales being down in those geos a little bit more than deliveries by the big OEM. So I just -- I know there's a big lag between deliveries and production schedules in this environment. So I was just trying to understand what the turbocharge did in North America and Europe and how your share trended?

Well, we've explained that we are gaining shares in -- we are maintaining share on the diesel side, but we are growing much faster on the gasoline side, which is where we are gaining most of the share, and in China a good example. I mean, when we say that our volumes in China are in excess of 50% above what they were a year before you can understand that a lot of that is not driven just by the recovery of the China market itself. But more importantly by the launches that are the share gains that we've been talking about and saying on global platforms that are both, with American and European customers, that are driving the above the market performance we have. So a little bit difficult for me in a quarter like this one, just to say that we are outgrowing an industry. The industry has been somewhat disrupted that it's obvious that we are growing much faster than the industry. But an outgrowth into a big growth like this one, it's a little bit of a overstatement that would be a little bit too bold in my view.

Okay. That's fair. Last question. The market’s gotten really excited about fuel cells recently. And Eric talked about that as being a potential growth market for you guys. Are there any updates you guys can offer on the fuel cell front in terms of customer wins or product launches?

Fuel cell is very hard. I’ll tell you, fuel cell is very hard. We are very happy with the technology we have. We are engaged in discussions with about 10 big customers on that. The technology we have is really differentiating and provided a big help for these guys to improve the efficiency of the fuel cell system. And it's obvious that we are entering and participating to the hydrogen movements. And quite frankly, we are seeing a lot of traction with commercial vehicles. We are seeing also some car makers that have been looking very actively at that and now planning for super high volume products. So everything we've said so far has just been reinforced by all the movement that's happening to H2 investments over the past months.

Got it. Thanks for your time.

At the same time, let's keep in mind that we are not expecting fuel cell to take over the automotive industry by 2025, so that's a long-term investment. That's a good bet for ourselves, because we think that the powertrain industry moving forward much more diverse than it was a few years back. It will play with multi-forms of hybrid fuel cell batteries, IC and we want to be positioned on the technologies of these opportunities.

And ladies and gentlemen, with that we'll conclude today's question-and-answer session. The conference has now also concluded. We thank you for attending today's presentation. You may now disconnect your lines.