Q3 2026 Garrett Motion Earnings Conference Call - GARRETT MOTION INC

Explicit Guidance:

• FY 2026 Full Year (Midpoint): Net sales of $3.8 billion (4% growth in constant currency); Adjusted EBIT of $580 million (15.3% margin); Adjusted Free Cash Flow (AFCF) of $430 million (74% conversion).
• Q4 2026: Reaffirming FY 2026 midpoint outlook despite expected foreign exchange headwinds primarily in Q4.
• Capital Allocation (Q4 2026): Quarterly dividend of $0.08 per share payable in December 2026.
• Capital Allocation (FY 2027): Board authorized new $250 million share repurchase program.

Business-Segment Outlook:

• Industrial: Sales expected to reach $230 million in 2026, growing to approximately $300 million in 2027 (representing 30% organic growth), driven by power generation applications; Gen-set constitutes the majority of this volume.
• Commercial Vehicles: Strong momentum with growth of 23% year-over-year in Q3; multiple new program launches across all regions expected to continue.
• Zero-Emission Technologies:
  • Heavy-Duty E-Powertrain: Launching in 2027 following completed testing and industrialization.
  • Industrial E-Cooling: Launches on track for 2027; secured new award with customer Multistack.
  • Light Vehicle E-Powertrains: Multiple proof-of-concept tests completed validating high-speed architecture.
• Light Vehicles: Secured multiple wins for hybrids and export programs in China; launched new high-volume e-turbo with Mercedes; new off-road turbo application with Polaris.

Market and Competitive Outlook:

• Demand Trends: Industrial and commercial vehicle demand remains strong and outperforms light vehicle industry production; power generation programs show accelerated growth.
• Share Shifts: Company is gaining share in key verticals (industrial, commercial) while navigating volatility in light vehicle regional mixes (Europe/Asia).
• Product Mix: Favorable product mix (industrial/high-margin turbo) expected to drive structural margin expansion post-2027 as these segments ramp larger volumes.
• Technology Adoption: HVAC and industrial cooling markets expected to see adoption curves accelerating; large cooling compressor prototypes in advanced stages.

Macro / Industry Outlook:

• Foreign Exchange: Expecting unfavorable FX impacts, particularly in Q4 2026, which will offset operational strength in the full-year outlook.
• Geopolitics & Trade: Tariff pass-throughs created a negative three-point impact on Q3 sales; potential Chinese export quotas to Europe remain uncertain with details pending, though company is positioned with both Chinese exporters and legacy European customers.
• Regional Markets: Light vehicle industry in Europe and Asia described as "fluid" and "uncertain" with no stabilization yet; China's domestic market remains under pressure, though exports are generating immediate sales.
• Interest Rates: All-in cash interest rate approximately 5.5% (95% fixed/swapped into Euro); net leverage ratio of 1.66x.

Strategic Initiatives:

• Capacity & Production: Accelerating launches of larger-sized industrial cooling compressors; ramping up heavy-duty e-powertrain production in 2027.
• M&A/Partnerships: No specific M&A announced; strategic partnerships include new awards with Multistack (e-cooling), Polaris (off-road turbo), and Mercedes (e-turbo).
• Capital Allocation: Continued focus on debt reduction (year-to-date $100M repaid) and shareholder returns via dividends and buybacks ($57M repurchased in Q3).
• Long-Term Goals: Maintaining alignment with May Technology and Investor Day financial framework; targeting significant player status in large industrial cooling market post-2030.

Risks and Headwinds to Outlook:

• Foreign Exchange: Significant FX headwinds anticipated, specifically in Q4 2026.
• Regulatory/Trade: Tariff pass-throughs impacting revenue; uncertain implementation and magnitude of potential export quotas between China and Europe.
• Market Volatility: Rapid shifts in China's car maker mix (domestic vs. export); fluidity in European and Asian light vehicle demand; timing of new product adoption curves.
• Operational Risks: Need to balance critical processes in-house with external capacity; margin expansion depends on successful volume ramp and mix of light vehicle recovery.

Management Tone on the Future:

• Confidence: Confident in reaffirming FY 2026 midpoint despite industry uncertainty; expresses optimism regarding industrial growth and zero-emission technology momentum.
• Hedges: Cautious on specific long-term contract sizing for new industrial products due to a "fluid marketplace"; avoids specific 2027 revenue forecasts for automotive segments due to lack of industry stabilization.
• Strategic Posture: Emphasizes conservative cost positioning and financial discipline; willing to adapt to regional mix changes while focusing on controllable growth drivers like industrial.

Miscellaneous:

• Liquidity: $841 million total liquidity ($630M revolver capacity, $211M unrestricted cash).
• Tax: Lower cash taxes noted in Q3 due to timing of tax refunds.
• Debt: $100M in year-to-date term loan repayments; $50M voluntary early repayment made in October.