Garrett Motion (US:GTX)2022-07-28 17:08Financial Data and Key Metrics Changes - In Q2 2022, net sales were $859 million, down 8% on a GAAP basis, but unchanged on a constant currency basis compared to Q2 2021 [10][11] - Adjusted EBITDA was $138 million, with an EBITDA margin of 16.1%, virtually flat sequentially with Q1 2022 [11][26] - The net debt to EBITDA coverage ratio improved to 1.87 from 2.33 in Q2 2021, indicating significant deleveraging progress [15][39] Business Line Data and Key Metrics Changes - Gasoline turbo products saw a 9% growth at constant currency, driven by strong demand and a high win rate [17][28] - Aftermarket sales grew by 11% at constant currency, primarily due to off-highway demand in North America and Europe [28][30] - Diesel product sales were negatively impacted, with a 7% decline, while commercial vehicle sales dropped by 13% due to semiconductor shortages and China lockdowns [28][30] Market Data and Key Metrics Changes - Sales from Asia fell to 27% of total sales from 32% in the previous year, reflecting the impact of China lockdowns [25] - The overall foreign exchange impact from a weaker Euro reduced Q2 2022 sales by $73 million [30] Company Strategy and Development Direction - The company is investing over 50% of its R&D into new technologies beyond traditional turbocharging, including hydrogen fuel cell systems [20][22] - Garrett is focusing on maintaining a strong customer program win rate of over 50%, which is expected to drive future sales growth [68][70] - The company aims to capitalize on pent-up demand for light vehicles as supply chain constraints ease [42][51] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for improvement in production volumes in the second half of 2022, despite ongoing macro challenges [13][44] - The company noted that the automotive industry is currently supply-constrained, with significant pent-up demand expected to drive growth once production normalizes [88][90] - Management highlighted the importance of maintaining flexibility in cost structure to adapt to changing market conditions [14][54] Other Important Information - The company successfully navigated supply chain challenges and maintained strong operational performance despite a volatile environment [27][54] - Garrett ended Q2 2022 with $621 million in total liquidity, even after the redemption of Series B preferred stock [39][41] Q&A Session Summary Question: Can you discuss the activity regarding Series A repurchases? - Management indicated they are in the market to repurchase Series A shares but are limited by liquidity and availability [59][60] Question: What are the potential speed bumps to returning to normalized production levels? - Management mentioned concerns about semiconductor availability and energy shortages in Europe as potential challenges [61][62] Question: How is the commercial vehicle segment expected to trend in the second half? - Management expects a volume recovery primarily driven by smaller gasoline and diesel engines, with commercial vehicle volumes remaining flat [67][68] Question: What is the outlook for R&D spending? - Management indicated that R&D spending is expected to remain stable, with a focus on new growth vectors outside the traditional car business [72][74] Question: How did the company manage production during the China lockdown? - Management confirmed that production was maintained during the lockdown, avoiding reliance on inventory [78][79] Question: What is the nature of the contracted revenue mentioned? - Management clarified that contracted revenue is based on booked business with predetermined pricing per unit [80][82] Question: How prepared is the industry for potential demand variability? - Management noted that the industry is currently more focused on supply constraints rather than demand fluctuations, with significant pent-up demand expected to persist [86][90]