Good morning, and hello. My name is Debbie, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion First Quarter 2024 Financial Results Conference Call. This call is being recorded, and a replay will be available later today. [Operator Instructions] And I would like to hand the call now over to Eric Birge, Garrett's Head of Investor Relations. Please go ahead.

Thank you, Debbie. Good day, and welcome, everyone. Thank you for attending the Garrett Motion First Quarter 2024 Financial Results Conference Call. Before we begin, I would like to mention that today's presentation and earnings press release are available on the IR section of Garrett Motion website at investors.garrettmotion.com. There, you will find a link to our SEC filings, along with other important information about our company. Turning to Slide 2, we note that the presentation contains forward-looking statements within the Securities and Exchange Act. We encourage you to read these risks factors contained in our filings with the Securities and Exchange Act and 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 how we manage and operate our business. We reconcile each of these measures to the most direct comparable GAAP measure and you are encouraged to examine those reconciliations in the appendix to 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 simply as diesel and gasoline only. With us today is Olivier Rabiller, Garrett's President and Chief Executive Officer; and Sean Deason, Garrett's Senior Vice President and Chief Financial Officer. I will now hand the call over to Olivier.

Thank you, Eric, and thanks, everyone, for joining Garrett's first quarter 2024 earnings conference call. I will begin today's remark on Slide 3. First, I would like to thank the Garrett team for their drive, energy and focus to deliver another great quarter. I am pleased to report today that Garrett delivered a solid performance in Q1, achieving net sales of $915 million and adjusted EBITDA of $151 million. We indeed had the strong adjusted EBITDA margin of 16.5%, up 120 basis points from last quarter, and adjusted free cash flow came in at $68 million in line with our outlook and expectations. Once again, we leverage our flexible cost structure and cash generation capability to enable us to adapt to industry softness, mainly in Europe. We expect this situation to improve during the second half of the year, and Sean will take you through the financials in more details later in the presentation. The performance we achieved in the quarter enabled us to make some very significant progress on our capital allocation priorities. First, we previously stated that we would continue to deliver, and on April 10, we made an early debt repayment of $100 million. Additionally, we continue to focus on returning value to our shareholders through our $350 million share repurchase program, and during the quarter, we repurchased $109 million of common stock. Finally, on April 3, we divested an equity interest in a non-core unconsolidated braking business, which resulted in a cash inflow of $46 million. Turning now to Slide 4. We continue to innovate and bring new differentiated turbo offerings to our customers across all regions and all verticals. This includes not only additional wins and launches on hybrid vehicles, but also natural gas application for heavy trucks, demonstrating our capabilities to support alternative fuels…

Thanks, Olivier, and welcome, everyone. I'll begin my remarks on Slide 6. Overall, we delivered solid Q1 results in line with our full year outlook in an industry that is beginning to see deflation on some commodities along with demand softness, primarily in Europe. We expect to see this trend continue into the second quarter and anticipate a stronger second half in 2024. Starting with reported net sales on the upper left-hand graph, our net sales are trending down due to lower inflation pass through and softer global industry trends, as just mentioned. Moving to the upper right-hand side of the page, we delivered a strong adjusted EBITDA margin by flexing our cost structure and continuing to perform operationally as we navigated mix headwinds and a lower demand environment. On the bottom left graph, we show that Garrett generated a strong adjusted free cash flow, again in line with full year outlook and in a quarter that normally is seasonally weaker. Turning now to Slide 7. Q1 net sales were down 6% on a GAAP basis and down 5% on a constant currency basis, reflecting a decrease of $55 million over Q1 of 2023, driven by continued industry softness in gasoline, diesel and commercial vehicles, primarily in Europe. This was partially offset by stronger aftermarket as well as lower inflation that pass through across all verticals. Lower industry volumes in Q1 were also affected by global supply chain disruptions that have impacted production at many of our OEM customers. Gasoline products were down 2% at constant currency, decreasing $10 million in sales, and comprised 42% of reported net sales flat from last year. Diesel products decreased 8% at constant currency, a decrease of $21 million in sales, and comprised 26% of reported net sales, down from 27% of reported net…

Thank you, Sean. Turning to Slide 12, it was a strong start of the year with solid first quarter. We are delivering on returning value to our shareholders through share repurchasing, divesting an interest in a non-core business, and repayment of debt through our solid cash generation. We are maintaining our leadership position in turbo with the world and launches across light vehicles, commercial vehicles and industrial offerings. Additionally, momentum continues for our zero emission technologies. With the progress we have seen, I am pleased to share that we are on target to achieve our target of $1 billion of annual sales of our zero emission vehicle technology by 2030. And finally, given our solid performance this quarter, we are reaffirming our 2024 full year outlook. Thank you for your time. And operator, we are now ready to begin the Q&A session.

[Operator Instructions] The first question comes from Hamed Khorsand with BWS Financial.

So, first question I have is, could you just talk a little bit more about the dynamics of the market right now? Is it more of OEMs waiting out on the inventory they have? Or are they just not ordering, or are they re-changing the ordering patterns of what they want?

Hamed, that's a very good question. I think we have a lot of dynamics going on that are both regional and industry driven. So, as an example, if I pick up the off-highway part of our commercial vehicle industry, we are notably impacted by the fact that the construction around the world is going down. Therefore, construction equipments are selling less agricultural equipment as well. And, you know, where I'm pointing in term of customers. And therefore, as a consequence, the part of the off-highway business is down. Now, on the other part of the business in off-highway, when I'm looking at the very big turbo and the very big engines, back to what we are sharing on those engines that are serving for data center backup power, the sales are booming. One is not compensating for the other. And today it's not so much a problem of inventory in between, it's more of a problem of the end demand. For the rest, looking at the passenger vehicle industry, different dynamics around the world. In China, we see a slight recovery versus what we saw last year. But Japan and Korea are down significantly in Q1. Europe is down in terms of production, and North America is up. Now, when you play with the size of all these things, you see that we are facing different dynamics, not always linked to some kind of stocking or destocking dynamics everywhere. There is, overall, if you take a little bit of North America, a demand weakness that we are seeing and customers are adjusting to that. The rest of the commercial vehicle industry, we talked about off-highway, we could have a bit of the same on the on-highway side. On-highway is quite weak in Europe, which is a place where we are quite strong on our on-highway business. It's a bit better in the U.S., but our presence is probably relatively smaller than the one we're having in Europe and China. And in China, it's recovering progressively. There is a shift going on from diesel to natural gas trucks, but still it's a weak industry compared to what it was a few years back. So a lot of different dynamics. The key for us is to be able to have, obviously, a position that is the broadest possible, so that when there is something doing well, we are compensating for customers or verticals that are doing less well and adapt our cost all the time. Hence the strength of Garrett to have this very strong variable cost percentage as part of the total cost, which enables us to react. You've seen what we did in Q1. We have a bit of a weakness on top line, but at the same time, we are compensating with a higher margin, as we could execute on everything we had in mind to preserve the earning capability of the company.

Okay. And then, Sean, could you just define, when you're talking about second quarter being weak, is that on a year-over-year basis? Or are you thinking that there's more downward move sequentially?

No. I mean, as you saw, we were sequentially up from Q4 that we expect to be -- we expect Q2 to be slightly up, but certainly comp to the prior year will be down still. That's what I meant coming. And the second half, though, improving on top of [ it ] sequentially again going forward.

But just to put these things back in perspective, we knew that Q1 and Q2 last year, we are really on a high note. So there is no real surprise there.

Right.

Got it. And then the placement that you talked about for those large powertrains in China for the data center, are those going to be sales recognizable this year? Or is that just purely an award for later on?

We are working at China Speed, which means that we could recognize a few of those by the end of the year.

The next question is from Michael Ward with Freedom Capital.

Two things. First, on Germany. From the data that we see, production in Germany was lower than expected. But based on what your comments are about the second half, you kind of expected it. Was there some planned downtime or was there any transition going on? And is that what is giving you confidence about the second half and your outlook for the year?

You were saying, production in -- sorry, Michael, production in Germany?

For Germany. Yes, Germany was weak. It was lower than expected from the data that I see. But obviously you have more data.

Yes, sure. Sure, yes, I think we all have the same data when we look at IHS. It's true that Europe was a bit weaker than anticipated, hence the reason why we've been a bit weaker on the top line than what we had in mind. And if we see a recovery for the back end of the year, it's a recovery that's driven not only by Europe, it's also driven by some recoveries that we would see in Asia as an example. So it's really a mix. But it's true that Germany was down in production in Q1. And that corresponds to the comment that we made that Europe was the driver of the weakness that we have seen overall.

Okay. And I'm curious on the conversations you had with vehicle manufacturers as it relates to hybrids. You know, I think in Europe, the hybrids are already a strong portion of the market, and it's growing considerably in North America. Have you seen vehicle manufacturers getting back and talking to you or picking up the pace of the discussions as it relates to hybrids and some of your applications?

Absolutely, and that's a very good point. First, we indeed see that in Europe, there is obviously a strong position on hybrid, not only in Europe, by the way, when you consider China. China, there is a very strong production of hybrid as well. And in Europe we've seen also something else coming in, but it's very early, is that diesel has not decreased to the extent we were expecting diesel to decrease this year. Meaning, if you take some countries like Germany, the end of the incentives on BEVs have been pushing people to buy more diesel. So it's too early for everyone to reschedule their production and everything. But we have seen a little bit of better production results there than what we are anticipating. Back to hybrid, and I think your question is probably more into the regions that are less on hybrid, like North America. It's indeed attracting a lot of discussions with customers on understanding what are the powertrains that we need to develop with them. Now, it's not for the next three months, obviously, when we develop a powertrain, it's further down the line. But those discussions have really intensified for the last six months.

And is it -- am I right that when I look at one of the trends with the vehicle manufacturers, is their investment or demand for the latest technology is higher than it's been in the past, where in the past they might have been looking for old applications. They're really trying to push the envelope with the latest and greatest technology, which is one of your product strikes, correct?

Well, you have 2 points. The first one is that, obviously, there is the hybrid push from the car makers, but at the same time, you probably know that in the U.S., we are planning for new emission regulations that on their own are driving for an increased level of technology. And that is the reason why we are talking with everyone, because it's not as simple as just saying, I'm taking that old engine I was having somewhere in the world and then putting an hybrid architecture on top and everything will be fine. The car makers are really taking that prime statement with a much deeper view on what is the way to optimize, not only in light of what's expected from these hybrid powertrains in the coming years, but also what are the emission regulations that need to be faced. All in all, it's a good discussion for us.

Absolutely. Sean, one quick question. What is the current share count or what will be the share count on the Q?

Let me look. I want to say it is 230-or-so, 233, but I mean look at that, I don't know -- let me look through my Q real quick, I believe it's around 233.

That was on the -- that was the average. But, like, where is it now? Because it seems like a lot of the share repurchase occurred late in the quarter.

Yes. Well, we -- obviously, we didn't authorize the new program until we reported our earnings. So -- and then we started after that our Q4 earnings. So in the middle of February. At that point, then we had authorized the new share repurchase program started then. So we got about half the quarter.

Okay. Okay. So as we look to 2Q and 3Q going forward, we should see it -- assuming you're able to go through a chunk of the repo program, we should see it come down by year end, somewhere in the $210 million range. Is that the right way to think about it?

Yes. I mean, we're going to -- we will continue to be in the market repurchasing shares and also the luxury of delevering, as you saw, this quarter. But we're being smart about it as well. We're trying to support the price and buy on the dip. So I can't -- I don't want to give you a guide as to how much we repurchase by the end of the year, but if you look at -- you know, we utilized almost -- most of the program we had in place last year, and we're going to try to do the same, assuming we can do it in a reasonable way and at a reasonable price, so yes.

Thank you, Debbie. Thank you, Debbie. I think that's the last call we'll take today. And thank you, everybody, for joining us on our Q1 results conference call. And if you have any other questions, please feel free to follow up with myself.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.