Hello. My name is Megan, and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion Second Quarter 2025 Financial Results Conference Call. This call is being recorded, and a replay will be made available later today. I would now like to hand the conference call over to Cyril Grandjean, Garrett's Vice President, Investor Relations and Treasurer.

Thank you, Megan. Good day, and welcome, everyone. Thank you for attending the Garrett Motion Second Quarter 2025 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's website at investors.garrettmotion.com. There, you will also find links to our SEC filings, along with other important information about the company. We note that this presentation contains forward-looking statements within the meaning of the U.S. federal securities laws. These statements, which can be identified by words such as anticipate, intend, plan, believe, expect, may, should, or similar expressions, represent management's current expectations and are subject to various risks and uncertainties that could cause our actual results to differ materially from such expectations. These risks and uncertainties include the factors identified in our annual report on Form 10-K and other filings with the Securities and Exchange Commission and include risks related to the automotive industry, competitive landscape, and macroeconomic and geopolitical conditions, among others. Please review the disclaimers on Slide 2 of our presentation as the content of our call will be governed by this language. Today's presentation also includes certain non-GAAP measures, which we use to help describe how we manage and operate our business. We reconcile each of these measures to the most directly comparable GAAP measure in the appendix of our presentation and related press release. Finally, 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 are 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, Cyril, and thank you all for joining today's call. I am pleased to report that Garrett delivered another set of very solid financial results in the second quarter, thanks to strong sales performance in a soft environment. Net sales for the first quarter were $913 million, which is flat at constant currency, representing outperformance over the industry in light vehicle turbo sales for both gasoline and diesel applications. In fact, gasoline turbo sales grew by 4% in the quarter, outperforming the industry. Thanks to the team's effort, we've achieved another quarter of solid operating performance. Adjusted EBIT was $124 million, and our adjusted EBIT margin was 13.6%, including 30 basis points of margin rate dilution from tariffs. We also delivered strong adjusted free cash flow of $121 million for the quarter, placing our first half 2025 conversion at 62% of adjusted EBIT, above our stated target. We are also raising our outlook for 2025 to reflect the euro-dollar exchange rate. We will indeed remain alert and ready to take measures to adapt to slowing demand should it become necessary. In addition, we continue to allocate capital in line with our stated framework and our commitment to delivering value to shareholders. During the second quarter, we repurchased $22 million of common stock and paid a $12 million quarterly dividend. Additionally, our Board of Directors has just declared the third quarter dividend payable on the 16th of September 2025. Finally, Garrett was included in the Russell 2000 in the June index reconstitution, reflecting the positive impact of our capital structure transformation and disciplined approach to capital allocation. Let me now move to Slide 4 to share more about Garrett's continued success across our differentiated technologies. I am very happy to share that we were awarded over $1 billion of light vehicle program extensions in Q2, some of which will last until 2034. This achievement increases visibility on future turbo sales and is a testament to the strong demand we continue to see for our differentiated turbo technologies. Moreover, we continue to see growing interest in the development of turbochargers for range extended electric vehicles. We secured 3 additional wins to serve this technology in China this quarter. We were also awarded another major E-Turbo program in Europe, which highlights our leadership in electric boosting. In addition, we won 5 awards for on-highway commercial vehicles and 2 for off-highway tractors with global OEMs. Lastly, the recent field test of our Garrett MEG turbo demonstrated superior performance against the existing turbo solutions for gensets. As a reminder, the MEG turbo line is the new line of products we launched at the end of 2023 to address the needs of big engines for genset and marine applications. These products represent the largest turbo we have ever engineered at Garrett, and they serve an industry that is seeing significant growth, mostly driven by data center backup power. This quarter, we continue to make significant progress across our differentiated zero-emission products. For our high-speed E-Powertrain business, we secured an additional proof-of-concept award with a major European passenger vehicle OEM. In addition, we have seen growing interest from commercial vehicle OEMs for our offering since announcing our award with HanDe Axle earlier this year. On the E-Cooling side, we are happy with the traction we get for industrial nonautomotive cooling. We have demonstrated our ability to outperform existing compressor technology and exceed targets shared by existing players in that field. This is very promising for this venture outside of the automotive space. Additionally, we secured one of our largest awards to date for our Fuel Cell Compressor from a leading Asian OEM, which again demonstrates the significant value of our product and our industry-leading portfolio in this area. Given the momentum we are seeing across our zero-emission technologies, we have also inaugurated a new state-of-the-art R&D center in Wuhan, China, reinforcing our presence in this fast-moving region. I will now hand it over to Sean to provide more details on our financial results and outlook.

Thanks, Olivier, and good morning, everyone. I will begin my remarks on Slide 5. As Olivier highlighted, we delivered solid second quarter financial performance. Our net sales were $913 million, driven by favorable foreign currency impacts, tariff recoveries, and new gasoline launches and ramp-ups in Europe and North America, partially offset by continued weakness in diesel and aftermarket. We delivered $124 million of adjusted EBIT in the quarter, which equates to a 13.6% margin, a sequential decline resulting from continued unfavorable sales mix, tariff dilution, which was partially offset by favorable foreign currency impacts. Finally, adjusted free cash flow was $121 million, representing a marked increase over the prior quarter as we converted earnings into cash and released working capital, resulting in a free cash flow conversion of 98% for the quarter and 62% for the first half. Moving now to Slide 6. We show our Q2 net sales bridge by product category as compared with the same period last year. In the quarter, net sales increased by $23 million versus the prior year or 3% on a reported basis and flat on a constant currency basis, reflecting favorable foreign currency impacts. We continue to experience strong gasoline growth, outperforming the industry and driven by continued share of demand gains and new launches. This is partially offset by diesel softness resulting from lower industry production in Europe as well as lower demand for aftermarket applications, primarily in North America. Additionally, we recovered $14 million of tariffs within the quarter. Turning to Slide 7. We show our Q2 adjusted EBIT bridge as compared with the same period last year. Within the quarter, we delivered $124 million of adjusted EBIT, representing a $1 million increase over the same period last year and a margin rate of 13.6%, a 20 basis point decline. Though softness in demand for aftermarket and diesel applications drives unfavorable product mix, we continue to benefit from the impact of sustained fixed cost actions and variable cost productivity. In the quarter, the impact of newly implemented tariffs drove 30 basis points of margin rate dilution. Additionally, we benefited from $11 million or 80 basis points of contribution from favorable foreign exchange impacts year-over-year. Turning now to Slide 8. I'll walk you through the adjusted EBIT to adjusted free cash flow bridge for the quarter. We delivered strong adjusted free cash flow of $121 million. This performance was due to higher sequential sales and the conversion of earnings into cash, complemented by the release of working capital. Cash taxes, capital expenditures, depreciation and cash interest were all in line with our expectations. And this strong Q2 result equates to a free cash flow conversion of 62% for the first half of 2025. Moving now to Slide 9. We ended the quarter with a liquidity position of $862 million, comprised of $630 million of undrawn revolving credit facility capacity and $232 million of unrestricted cash. In the second quarter, our strong cash generation enabled us to pay our second $12 million quarterly dividend and repurchased $22 million of common stock in Q2 for a total of $52 million in the first half under our $250 million share repurchase program. It's important to note that since Q1 of 2023, we have reduced total outstanding shares by 39% through our share repurchase programs, demonstrating our commitment to return capital to shareholders. In line with our capital allocation policy, we continue to target a distribution of at least 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases. As Olivier mentioned earlier today, our Board of Directors has also declared a third quarter cash dividend payable in September 2025. I will now transition to Slide 10 to discuss our 2025 outlook. We are raising our 2025 outlook to reflect the impact of a stronger euro-U.S. dollar exchange rate, reaffirming our commitment to deliver operating performance consistent with our prior outlook. This outlook maintains our prior industry view and reflects the impact of newly implemented tariffs on sales and adjusted EBIT margin, net of recovery. This implies the following midpoints: net sales of $3.5 billion, net sales growth at constant currency of minus 1%, net income of $256 million, adjusted EBIT of $500 million, net cash provided by operating activities of $410 million; and finally, adjusted free cash flow of $370 million. Turning now to Slide 11. This bridge illustrates our updated midpoint outlook of adjusted EBIT compared to the prior outlook. We anticipate continued gasoline strength and incremental operating performance will offset unfavorable product mix, slightly improving our margin rate before foreign exchange and tariffs. Foreign exchange is expected to drive 70 basis points of rate improvement, and the impact of full tariff recovery is expected to drive 20 basis points of margin dilution for the year.

Thanks, Sean. Turning now to Slide 12. Our strategic priorities remain clear and consistent. We aim to identify and deliver on customer needs by leveraging our capabilities to develop differentiated high-speed and highly efficient technologies. In doing so, we generate robust returns for our shareholders. Let me wrap this up on our final slide, which is next slide. First, we delivered very solid results with an adjusted EBIT of $124 million and adjusted free cash flow of $121 million, with gasoline sales outperforming the industry due to share of demand gains and new product launches. Second, we continued to return capital to our shareholders. This quarter, we paid our second quarterly dividend and completed $52 million in share repurchases in the first half. Overall, we have reduced our share count by 39% since Q1 2023 through our repurchase programs. This quarter, we also secured significant business wins, including awards for over $1 billion in light vehicle turbo program extensions. These wins reinforce our position and provide strong revenue visibility moving forward. In terms of innovation, we are making steady progress on zero-emission technologies. This includes a new proof-of-concept partnership on an E-Powertrain, strong test results for our oil-free E-Cooling solutions, and a significant fuel cell program award. Finally, we increased our 2025 outlook to reflect a stronger euro-dollar exchange rate. I am proud to highlight these achievements and the promising start we've had this year. With the strong first half results, it's positioning us very well for the rest of 2025 and beyond. Thank you for your time. And operator, we are now ready for Q&A.

Our first question comes from Hamed Khorsand with BWS Financial.

So my first question was, could you just talk a little bit about this unfavorable sales mix and how you're adjusting the business for such an environment?

That's a very good question, Hamed. The unfavorable sales mix is mainly driven by two factors. First, we are experiencing significant growth in gasoline sales globally, particularly in Asia and Europe, with some growth in North America as well, which we are pleased about. However, the margin for gasoline turbochargers is lower compared to other areas of our business, meaning this unfavorable mix, while challenging, reflects positive growth. On the other hand, we're seeing some softness in the aftermarket off-highway segment, especially in North America, where we haven't yet seen the expected demand recovery in aftermarket sales that typically precedes original equipment sales. Our customers are likely still dealing with excess inventory from previous years. To adjust our business, we are focusing on managing both fixed and variable costs effectively, as we have done in the past, leveraging our strong understanding of these adjustments.

Okay. And my other question was, you ended the quarter with significantly more cash. Any reason why you didn't buy back more stock?

Hamed, this is Sean. Our buyback is not linear. But as I mentioned in my prepared remarks, we're committed to returning 75% or more of cash over time to shareholders. So we believe the buyback is a very important tool to return value to our shareholder base, and we'll continue to do so. But it's not linear.

Congrats on the great quarter. I just wanted to ask if you could help us understand some of the drivers of your stronger operating performance in the second half, especially with the volume assumptions roughly unchanged.

We will keep benefiting from cost control. Additionally, we've held onto our previous outlook. The latest S&P estimate appears slightly more positive. Depending on how the second half plays out, there may be a chance to move towards the higher end of our range if volumes begin to stabilize. However, we believe it's wise to be conservative in our guidance regarding volume and revenue due to the effects of tariffs making their way through the system.

Got it. And then just a smaller one, if you could provide an update on the tariff recovery situation. Do you guys still expect to be able to fully recover your tariff costs this year?

Absolutely. We expect that. Not only do we expect, but this is what we've achieved. And obviously, if the situation is changing, we'll adapt to the changing tariff. We have the tools in place. And since we've been recovering everything since the beginning, there should not be a change moving forward.

And to the Garrett team, excellent results. It's great to see all this communication on multiple levels. I have two questions. Regarding the large turbos for backup data centers, AI, and related areas, can you provide an estimate of when you think that business might reach 10% of revenues? I don't want to limit you there, but how big do you foresee that business growing? How significant do you believe it can be for Garrett?

It's a very substantial business for us as we expand into large turbo applications. This includes not only gensets but a variety of sectors, such as marine. A significant portion of our revenue, once we establish our market position, will come from aftermarket sales, which we highly value. We have a strong brand and a robust network of distributors in the aftermarket sector, and we plan to further develop this area. However, we first need to build our installed base. I'm not suggesting that genset backup power alone will account for 10% of our activities, as that would represent a significant figure—around $400 million a year. I doubt any competitor is achieving $400 million in the turbo business, as the industry doesn't seem large enough for that. Regardless, I expect our revenues will reach the hundreds of millions of dollars within the next 3 to 5 years.

Great. The second question goes deeper into the stock repurchase comments. You likely generated nearly double the amount of free cash flow this quarter, and some of your sponsors were more active in sales. Your valuation is very low, yet you executed almost 30% fewer stock repurchases this quarter. Could you provide more insight into why this quarter didn’t see a stronger commitment to repurchases despite the nonlinear trends? Do you anticipate being more aggressive for the remainder of the year?

Like I said, it's not linear, and we had a very busy quarter. But what I would say is we also recognize that we have some dry powder for block trades as well if they happen to come up. But again, I would just reiterate the company's commitment and the Board's commitment to deliver to our capital allocation framework, which is 75% or more of free cash flow to our shareholder base.

This concludes our question-and-answer session.

And this concludes our call.

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