Summary of Conference Call Company Overview - The company is identified as Garrett, a technology company primarily involved in the automotive and transportation sectors, with a focus on turbocharger technology [2][3] - The company has approximately 192 million shares, trading around $17, with a market capitalization of about $3.3 billion and net debt of $1.2 billion, leading to a total enterprise value of approximately $4.5 billion [1] Financial Performance - The company reports adjusted EBIT margins of over 14% and adjusted EBITDA margins of 18%, indicating strong profitability [2] - The company generates significant free cash flow due to its aerospace-derived products [2] Market Position and Strategy - Garrett is a leading player in the turbocharger market, primarily competing with BorgWarner, and is described as the "last man standing" in turbo technology [3] - The company has a strong geographic sales distribution, with a significant focus on Europe due to stringent emission standards [3][4] - Turbo penetration rates are high in Europe (over 70%) compared to the U.S. (around 50%), with all diesel engines being turbocharged [4] Product Development and Innovation - Garrett has developed new zero-emission products based on its aerospace-derived intellectual property [5] - The company has a diverse product portfolio, including high-speed rotating machines, air and gas compression technologies, and fuel cell compressors [11][12] - The e-cooling compressor technology is highlighted for its potential applications beyond automotive, including HVAC systems for buildings [19] Growth Opportunities - The company sees growth in the commercial vehicle sector, particularly in backup power generation for data centers, and anticipates recovery in mining and agriculture [29] - There is a growing interest in e-boosting technologies and range-extended vehicles (REVs) in markets like China, which could drive demand for Garrett's products [17][18] - The company is well-positioned to benefit from the shift towards hybrid and plug-in hybrid vehicles, which typically have higher turbo penetration [39][40] Competitive Landscape - Garrett's strong balance sheet and financial stability are seen as advantages over smaller competitors, which may struggle with price increases and financial viability [9] - The company is actively monitoring the competitive landscape in China, where local OEMs are gaining market share [37] Regulatory Environment - The regulatory environment in Europe is evolving, with potential extensions to emission deadlines, which could favor Garrett's turbocharged products [39][40] Financial Discipline and R&D - The company maintains a financial framework that limits R&D spending to 5% of revenue, currently operating in the low 4% range [23] - Garrett has redirected excess cash from its turbo business to invest in new technologies without exceeding its R&D budget [24] Future Outlook - The company has set a target of $1 billion in sales from electric products by 2030, which may be conservative given the evolving market dynamics [53] - An investor day is planned for 2026 to provide updates on growth and strategic direction [54] Key Metrics - Free cash flow for the year is projected at $385 million, representing over 10% of the company's equity capitalization [51] This summary encapsulates the key points discussed during the conference call, highlighting Garrett's market position, financial performance, product innovation, growth opportunities, and strategic outlook.

Financial Data and Key Metrics Changes - Net sales for Q2 2025 were $913 million, flat at constant currency, indicating outperformance in light vehicle turbo sales for both gasoline and diesel applications [6][14] - Adjusted EBIT was $124 million with an adjusted EBIT margin of 13.6%, reflecting a 20 basis point decline due to unfavorable sales mix and tariff impacts [7][16] - Adjusted free cash flow for the quarter was $121 million, resulting in a conversion rate of 62% for the first half of 2025 [7][18] Business Line Data and Key Metrics Changes - Gasoline turbo sales grew by 4% in the quarter, outperforming the industry, while diesel sales experienced softness due to lower production in Europe and reduced aftermarket demand in North America [6][15] - The company recovered $14 million in tariffs during the quarter, contributing positively to financial performance [15] Market Data and Key Metrics Changes - The company secured over $1 billion in light vehicle program extensions, enhancing future revenue visibility [10] - There is growing interest in turbocharger development for range-extended electric vehicles, with new wins in China and Europe [10][12] Company Strategy and Development Direction - The company aims to leverage its capabilities to develop differentiated high-speed and efficient technologies, focusing on robust returns for shareholders [23][25] - A new R&D center has been integrated in Wuhan, China, to strengthen the company's presence in a rapidly evolving market [13] Management Comments on Operating Environment and Future Outlook - Management raised the 2025 outlook to reflect a stronger euro-dollar exchange rate, maintaining prior industry views while accounting for tariff impacts [20][21] - The company anticipates continued gasoline strength and incremental operating performance to offset unfavorable product mix, with expectations of full tariff recovery [21][37] Other Important Information - The company repurchased $22 million of common stock and paid a $12 million quarterly dividend, with a commitment to return at least 75% of adjusted free cash flow to shareholders [8][19] - The company has reduced total outstanding shares by 39% since Q1 2023 through its share repurchase program [19][24] Q&A Session Summary Question: Could you discuss the unfavorable sales mix and adjustments being made? - The unfavorable sales mix is driven by strong growth in gasoline sales, which have lower margins, and softness in aftermarket and off-highway segments primarily in North America [29][30] Question: Why didn't the company buy back more stock despite having more cash? - The buyback strategy is not linear, and the company remains committed to returning 75% or more of cash to shareholders over time [32][32] Question: What are the drivers of stronger operating performance in the second half? - Continued cost control and potential stabilization of volumes are expected to drive performance, with a conservative outlook due to tariff impacts [35][36] Question: Will the company fully recover tariff costs this year? - The company expects to fully recover tariff costs, having achieved this since the beginning [37][38] Question: How substantial could the large turbo business for backup power become? - The large turbo business is expected to grow significantly, potentially reaching hundreds of millions of dollars in revenue within the next three to five years [44] Question: Why was stock repurchase not more aggressive this quarter? - The stock repurchase strategy is non-linear, and the company has dry powder for potential block trades, while remaining committed to its capital allocation framework [47]