Hello, and welcome to the Q1 2022 Garrett Motion Earnings Conference Call. All participants will be in a listen-only mode. Please note, today's event is being recorded. I would now hand the call over to Paul Blalock. Mr. Blalock, please go ahead.

Thank you, operator. Good day and welcome everyone, and thank you for joining Garrett Motion's first quarter 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 and Exchange Act. We encourage you to read the risk factors contained in our SEC 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. 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're 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 Rabiller, 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 first quarter conference call. I will begin my remarks on slide three, where we start with highlights for the first quarter. Garrett achieved strong first quarter performance in a challenging near-term environment, highlighted by a slower than anticipated light vehicle production recovery, stronger inflationary pressure and supply chain constraints impacting OEM production volume. This created numerous difficulties for our employees and supply chain partners. And I would like to thank everyone for their hard work and dedication in these circumstances. Our employees did a great job in managing through these challenges. I would like to particularly thank our employees in China and specifically in Shanghai, as we maintained production near capacity through great personal sacrifice during the ongoing lockdowns. This again demonstrates that our people are key differentiators to our performance and the long-term success of Garrett. Compared with last year, Q1 of 2022 net sales of $901 million were down 10% on a GAAP basis and 6% on a constant currency basis. The constant currency decline of 6% in Q1, 2022 sales is approximately equal to, or flat with, estimated light vehicle production versus Q1 of 2021. This is driven by the ongoing semiconductor shortage and also supply chain challenges impacting vehicle production globally, but even more in China. These short-term constraints do not impact the strengths of underlying pent-up demand for light vehicles or the increasing base of turbo penetration. Adjusted EBITDA of $146 million and the resulting adjusted EBITDA margin of 16.2% are also down from Q1, 2021, due to the factors mentioned above, but trended upward from Q4 last year, as pricing pass-through initiatives and additional productivity offset inflation and increased supply chain costs. This is even considering our increased R&D investment into new technology for the future. Indeed, I'm proud of the performance we achieved as we managed to offset the impact of lower vehicle production due to supply chain constraints and disruptions, but more importantly of higher costs driven by additional inflation. This is the result of candid discussions with our customers to find business solutions to recognize increasing costs, but also the result of additional productivity initiatives that we have implemented. Garrett continues to improve its financial flexibility in the first quarter by prepaying an additional $197 million in Series B preferred stock as previously anticipated. We increased the capacity of our revolving credit facility to $475 million, adding to our liquidity position with an increase to $788 million from $720 million in Q4, 2021. Lastly, including the remaining Series B preferred balance, Garrett ended up the first quarter with a net debt to consolidated EBITDA coverage ratio of 1.88 times, down from 1.95 times in Q4, 2021. Turning now to slide four. I first want to reemphasize that the short-term OEM supply chain challenges do not impact the strong underlying pent-up demand for light vehicles. This, combined with increasing turbo penetration driven by toughening emission standards and technology-driven turbo industry consolidation, paves the way for robust growth in revenue and share of demand for the highly cash-generative car business of Garrett. This quarter, we are also happy to announce the first commercial launch of our industry-first E-Turbo technology on the Mercedes-AMG SL 43. This award-winning and innovative device highlights Garrett's remarkable progress in developing unmatched in-house capabilities in high-speed motors, power electronics and controls, as well as our software capabilities in electrified powertrains. This initial E-Turbo deployment is indeed expected to be followed by additional launches. In addition, I am proud to report a very important business win that underlines the advances we have made in the development of critical electric systems for fuel cell powertrains and the growing focus of our customers on hydrogen electric vehicles. In fact, we were just awarded a third-generation fuel cell compressor program from a major global OEM for a light commercial vehicle program that is expected to launch within the next two to three years. The strength of the cash flow generation of our core business enables us to continue to invest in the future of our technologies for growth, offering potential technology differentiation and addressing the industry's transformation. As mentioned during our prior earnings release, we plan to invest 50% of our 2022 R&D spend to new non-car turbo technologies. To support this, this quarter we have opened additional electric lab capabilities in our main development hubs, and we have recruited more than 150 new engineers that are experts in electrification technologies. This hiring success confirms the attractiveness of Garrett as a new technology provider and validates the credibility of the technological capabilities we've developed in the eyes of these electric experts joining our company. With that, I will now turn it over to Sean to provide more insight on our results.

Thanks, Olivier, and welcome everyone. I will begin my remarks on slide five. Looking at the upper left-hand graph, Q1 of 2021 was the strongest sales quarter over the last five quarters for two reasons. One, it was largely before the semiconductor shortage; and two, Q1 of 2021 had pent-up demand from the lifting of COVID lockdowns in 2020. As Olivier just mentioned, Q1 of 2022 net sales were down 6% at constant currency from Q1 of 2021. But as you can see here, the semiconductor shortage peaked in Q3 of 2021, which drove the lowest sales quarter for 2021. Sales had been on an upward swing since that low point on a sequential basis. Q1, 2022 sales increased 5% from Q4 of 2021. Turning to the right-hand side of the page, while adjusted EBITDA of $146 million in Q1 of 2022 decreased 17% from Q1 of 2021, it was up on a sequential basis by 13% from Q4 of 2021. Similarly, the Q1, 2022 adjusted EBITDA margin of 16.2% is down from 17.7% in Q1 of 2021, but importantly, our Q1, 2022 adjusted EBITDA margin of 16.2% improved 120 basis points sequentially from Q4 of 2021. This performance highlights Garrett's ability to manage core operations by flexing our variable cost structure and successfully passing through inflationary pressures. This is a key differentiator and competency for Garrett, and we will speak more on this point later in the presentation. Lastly, in Q1, 2022, adjusted free cash flow was $38 million, driven by lower volume and continued CapEx investments, which were higher due to carryover from 2021, which is typical in the first quarter. Turning to slide six. You see our year-over-year net sales bridge for Q1 by product category. As mentioned earlier, the continued impact of the ongoing semiconductor shortage weighed on vehicle production schedules and drove Q1, 2022 gasoline, diesel, and commercial vehicle sales lower. Compared to the same period in the prior year, gasoline product sales decreased 5% at constant currency and were 40% of total net sales. Diesel product sales decreased 14% at constant currency and were 28% of sales, and commercial vehicles decreased 7% and represented 19% of sales. On the positive side, strong aftermarket off-highway demand, particularly in North America and Europe, allowed this vertical to grow 19% year-over-year in constant currency and represented 12% of total sales. The strength of the aftermarket, and the fact that 32% of our first quarter sales were due to the more profitable verticals of commercial vehicle and aftermarket, demonstrates the benefit of Garrett's well-diversified and broad portfolio of products. Lastly, the overall FX impact hurt Q1, 2022 sales by $36 million and is reflective of a weaker Euro. Turning to slide seven. You see our Q1 to Q1 adjusted EBITDA bridge to Q1 of 2022. Although Q1, 2022 volumes of 3.4 million units were up 4% sequentially from Q4 of 2021, they were down 10% from Q1 of 2021, primarily driven by a 43 million volume and FX-related reduction, partially offset by product mix. The decline is due primarily to semiconductor shortages. It is important to note that we still see a very strong underlying demand for light vehicles, which we expect to result in sustained future demand once the semiconductor and supply chain issues are resolved. While these macro headwinds presented challenges, we successfully flexed our variable cost structure to adapt to volatile production schedules, continue to deliver material and production productivity, and pass through inflationary pressures, resulting in a strong margin even despite an increased investment into R&D spending as planned. So, in summary, Q1, 2022 adjusted EBITDA of $146 million led to a 16.2% adjusted EBITDA margin as we successfully offset inflationary pressures and a higher R&D spend through productivity and pass-through efforts, despite lower volumes and foreign exchange headwinds. On slide eight, you can see our adjusted EBITDA to adjusted free cash flow walk for Q1. Looking at the right-hand side of the slide, you'll see that Garrett's high working capital turnover has historically provided a source of cash on an annual basis, assuming a stable and increasing volume in sales environment. However, in Q1 of 2022, working capital was a slight use of cash of $7 million after being a source of $84 million of cash in Q4 of 2021 and $38 million in Q1 of 2021. The slightly negative working capital result this quarter was due to supply chain constraints limiting OEM production, which drove inventories higher. Shifting to the left-hand side of the slide, you will see the Q1, 2022 bridge from adjusted EBITDA to adjusted free cash flow. Deducting the change in working capital, cash taxes, capital expenditures, including carryover spend from 2021 projects, cash interest, which includes factoring and P-notes, and $11 million of Series B accretion related to the early retirement of $197 million of Series B shares and the $20 million in employee bonus incentives related to 2021, all resulted in adjusted free cash flow of $38 million for Q1 of 2022. Overall, Garrett delivered positive adjusted free cash flow in a challenging environment while increasing CapEx and R&D spending as planned. Turning now to slide nine. We ended Q1, 2022 with expanded revolver capacity, increasing our available liquidity to $788 million, including $315 million in unrestricted cash and approximately $473 million in undrawn commitments. We also redeemed $197 million in Series B preferred stock, helping to further improve our leverage ratio. Following the Q1, 2022 payment, the present value of remaining scheduled redemption payments on the Series B shares is $204 million as of March 31st, 2022. Importantly, including the Series B preferred stock, Garrett's net debt to consolidated EBITDA ratio declined to a coverage level of 1.88 times from 1.95 times in Q4 of 2021. Lastly, during the quarter, we also repurchased 50,000 common shares and 197,000 Series A preferred shares, bringing the total equity repurchase since the plan was adopted during Q4 of 2021 to $21 million, leaving $79 million of available capacity under our buyback program. In summary, Garrett continued to deleverage and enhance our financial flexibility through an expanded revolver and positive free cash flow generation.

Turning now to slide 10. We provide our revised 2022 outlook as compared with our prior outlook issued in mid-February. For the full year of 2022, we are lowering our outlook to reflect supply chain constraints, which are driving lower global light vehicle automotive production for 2022, as well as FX rates, in particular a weaker Euro. For global light vehicle auto production, our planning assumption is now flat to 2021 light vehicle production or approximately 77 million engines. To put our updated 2022 assumption of 77 million engines in context, the latest IHS low estimate for 2022 is 77.6 million engines, and the average for 2018 and 2019 was 91.8 million engines. As such, our new 2022 outlook calls for the ranges you see on the slide that imply the following midpoints: net sales of $3.6 billion, net income of $273 million, adjusted EBITDA of $560 million, net cash provided by operating activities of $455 million, and adjusted free cash flow of $380 million. This guidance also assumes continued disruptions in Q2, possibly into early Q3, and then a recovery in the second half with a strong finish in the fourth quarter of 2022. For greater detail, I point you to the reconciliations of each of these metrics to the nearest GAAP figure as shown in the appendix of this presentation. Turning now to slide 11, we show the adjusted EBITDA walk for our prior outlook versus our revised outlook. As we have discussed earlier, on a full-year basis and similar to our performance in the first quarter, we plan to continue to flex our variable cost structure to adapt to volatile light vehicle production schedules and mitigate current inflationary pressures through productivity and contracted pass-throughs. Like we said on the last slide, the two main macro pressures driving our lower adjusted EBITDA outlook are supply chain constraints and the OEMs resulting in lower auto production volumes and a weaker Euro. We expect these factors to persist in Q2 and possibly part of Q3 before beginning to improve. Operationally, we are delivering on our commitment to mitigate inflation and plan to spend $18 million more on R&D related to investments in new technologies. When you compare the prior adjusted EBITDA guidance, the macro factors of lower supply chain-related production drive a $40 million reduction in FX, mainly a weaker Euro now seen at US$1.08 to the Euro for the full year versus the prior assumption of US$1.13, resulting in a reduction of $28 million. As we noted earlier, we also see significant pent-up demand for light vehicles, which we believe will result in sustained growth for Garrett once supply chain constraints are resolved in the automotive industry. In summary and on slide 12, Garrett delivered solid results in Q1 of 2022, with net sales of $901 million. While this was a decrease of 6% at constant currency from the first quarter of last year, it was an increase of 5% over Q4, 2021. The current automotive supply chain challenges are not impacting the strong underlying pent-up demand for light vehicles. Additionally, the increasing turbo penetration and technology-driven turbo industry consolidation pave the way for robust growth in revenue and cash generation once the automotive industry supply chain normalizes. Garrett generated an adjusted EBITDA of $146 million with a margin of 16.2%. This is a steady performance in light of reduced production, increased inflation and overall supply chain volatility, giving us confidence that we have the means to address inflation and supply chain challenges. We also reduced our net leverage to 1.88, including the Series B preferred stock from 1.95 at the end of 2021. This continued improvement in our balance sheet positions the company well for the future. And we ended Q1 of 2022 with $788 million in total liquidity, up from $720 million last quarter. Indeed, we have revised our 2022 outlook to reflect essentially two macroeconomic factors, the weakening of the Euro and the more pessimistic view for the 2022 light vehicle automotive industry production that we now expect to be approximately flat to 2021. Our robust operational execution, even in these volatile times, as demonstrated in Q1, will enable us to take advantage of any improvement on these points. I would like once again to thank our employees for their dedication in these volatile environments; their contribution and flexibility drove another successful quarter of strong performance for Garrett. Operator, we are now ready, I think, to begin the Q&A session.

Yes. Thank you. At this time, we will begin the question-and-answer session. And the first question comes from Hamed Khorsand with BWS Financial.

Hi, Sean, I have a housekeeping question: could you disclose how many units were sold this past quarter?

We didn't disclose, but it was approximately 3.4 million turbos that were talked about.

Okay. Thank you. And then, the question I had was, are you seeing anything different from the ordering habits of customers, or is it still volatile like it was in 2021? Or have they just held back completely just given the macro factors going on?

That's a very interesting question because I think we were having a huge level of volatility. Let's say Q3, Q4, 2021. Then, we started the year with something that was a bit more stable. And then, we had increased volatility into the quarter. I would say all of the volatility we see today in our demand is very close to what we had in Q3 last year and very close to what we had after the first wave of COVID.

Okay.

We are back into the same, and quite frankly, that's what I'm hearing, not only from us but from everyone in the industry.

And Hamed, just on slide eight, the working capital slide, we do disclose the quarterly volumes of the turbos.

Okay. Just given that volatility comment, do you feel like it's different this time versus last year, or is it similar just given that some of this is with China lockdowns going on right now?

What we see is that obviously the lockdowns in China are not improving the situation, but overall the main driver for the volatility in the demand we see remains semiconductor shortages from what we see from our customers and the impact it has on them addressing their production.

And my last question is, given the state of the weaker Euro, is that changing your plans and how you spread out your investments in R&D, or is it still remaining mostly in Europe?

When it comes to our investments in R&D, we have a significant business in Europe, which is currently weakening. This situation makes it less expensive for us. However, we have not altered how we are distributing our long-term investments in R&D globally because our primary focus is on acquiring capabilities and expertise. Therefore, we have maintained our strategy in this area. As reflected in our results, we are committed to the level of investment we plan to make in R&D this year.

Okay. Thank you.

Thank you. And we do have a question from Chris McIntyre with McIntyre Partnership.

Hey, I was wondering if you could share your thoughts on the timing of the buyback, as it seems like the pace may have slowed down during the quarter. Any comments would be appreciated. Thank you.

Sure. Well, one of the reasons we were a bit slower is because we reported Q1 earnings and then we went into the blackout period quite quickly. We were under some limitations in the blackout period in terms of the volumes we could buy back based on regulation. But we did make several amendments to the Series A certificate designation and the credit agreement that allow us for greater flexibility. But again, in these volatile times, we want to see what cash flows look like in the coming quarters. We'll be making decisions on the level of buyback that we will take based on how the macro situation develops in the next coming weeks.

Okay. Are you considering holding an Investor Day? We still don't have a commitment regarding capital levels, so I'm trying to get a sense of the timing.

That's true. We are considering it, and we are reviewing a few options. We will get back to all of our investors as soon as we have made up our mind about it.

Okay. Great. Appreciate it.

Thank you. As we have no more questions, I would like to turn the floor to our management for any closing comments.

Well, thank you very much to everyone that has joined the call today. Indeed, the industry is facing some difficult times. As we've demonstrated today, we've executed quite well in Q1, giving us the confidence about our plans for execution for the backend of the year, and to adjust to the external macroeconomic levers that we had to adjust to in Q1 and for the backend of the year. So, with that, thank you all. We will keep you obviously posted about further instances if we do, or later on this year an investment day. We have a lot of things to share with everyone, that we've shared today with new business, new initiatives. And we, obviously, are very happy to share more about that.

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