Garrett Motion (NASDAQ:GTX) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

This transcript is brought to you by Benzinga APIs. For real-time access to our entire catalog, please visit https://www.benzinga.com/apis/ for a consultation.

View the webcast at https://event.choruscall.com/mediaframe/webcast.html?webcastid=fTv98mHJ

Summary

Garrett Motion reported strong financial results for Q1 2026 with net sales of $985 million, up 6% at constant currency, and adjusted EBIT of $151 million, representing a 15.3% margin.

The company increased its 2026 full-year financial outlook, driven by strong performance across all verticals, including commercial vehicle, industrial, and aftermarket sectors.

Strategic initiatives included multiple awards for their turbo technology, progress in zero emission technologies with a significant E Powertrain Production award in China, and advancements in industrial cooling systems.

Garrett Motion maintained its capital allocation strategy, repurchasing $87 million in common stock and paying $16 million in dividends during the quarter.

Management highlighted continued productivity measures, disciplined execution, and a robust liquidity position with no near-term debt maturities.

Full Transcript

Cindy (Operator)

Hello, my name is Cindy and I will be your operator this morning. I would like to welcome everyone to the Garrett Motion First Quarter 2026 Financial Results Conference Call. This call is being recorded and a replay will be available later today. After the company's presentation, there will be a Q and A session. I would now like to hand over the call to Cyril Granjon, Garrett's Vice President, Investor Relations and Treasurer.

Cyril Granjon (Vice President, Investor Relations and Treasurer)

Thank you Cindy and good day everyone. We appreciate you joining us to review Garrett Motion's first quarter 2026 financial results. Our presentation and press release are available on the Investor Relations section of our website. Today's discussion includes forward looking statements that involve risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K, for a discussion of factors that could cause our results to differ materially from these forward looking statements. Today's presentation also includes certain non-GAAP metrics which we use to help describe how we manage and operate our business. Please review the disclaimers on slide 2 of our presentation as the content of our call will be governed by this language. With me today are Olivier Rabier, our President and Chief Executive Officer, and John Deason, our Senior Vice President and Chief Financial Officer. Olivier will begin by sharing highlights from a very strong quarter both in terms of financial performance and strategic wins. Sean will then review our first quarter financial results and updated 2026 outlook. With that, I'll turn the call over to Olivier. Thank you Cyril and thank you all for joining the call today. We started the year by delivering another very strong set of financial results in the first quarter, driven by growth in a muted industry and disciplined operational execution. Net sales for the first quarter were $985 million, up 6% at constant currency. We delivered growth across all verticals including commercial vehicles and industrial. Considering that light vehicle production was down in Q1, Garrett's growth reflects share of demand gains in passenger vehicles and as well as continued strong performance in commercial, off highway and industrial. Through continued productivity actions and disciplined execution, we have been enabled to convert this growth into a very solid operating performance. Adjusted EBIT was $151 million and our adjusted EBIT margin was 15.3%. In addition, we generated an adjusted free cash flow of $49 million in the quarter. Together, these strong results support our decision to increase the upper range of our 2026 full year outlook. Lastly, we continue to allocate capital in line with our stated framework and our commitment to return capital to shareholders. During the first quarter, we maintained our share repurchase activity, buying back $87 million of common stock and we also paid $16 million in quarterly dividends. With that, let me now Turn to Slide 4 to share more on Garrett's continued success across our differentiated technology. Indeed, we continue to win across our turbo portfolio with multiple gasoline awards including VNT Turbo for hybrids and range electric vehicle applications. At the same time, we kept on the successful trend we have seen in industrial as we secured additional wins including for large power generation applications. Turning now to our zero emission technologies, we have made solid progress in Q1 2026 as we secured our second commercial vehicle E Powertrain Production award in China with startup production planned again for 2027. We also won a major production award for our industrial cooling compressor with Tonfai in China, a leading supplier for battery energy storage system cooling solutions. Overall, I'm very pleased with our progress. These wins demonstrate customer adoption of our differentiated technologies across a broad range of applications, supporting both portfolio expansion and growth while continuing to deliver strong financial results. I will now hand it over to Sean who will talk you through our financial results and outlook.

Olivier Rabier (President and Chief Executive Officer)

Thanks Olivier and good morning everyone. I will begin my remarks on slide 5 as Olivier highlighted We delivered strong financial performance in the first quarter. Our net sales were $985 million driven by sequential growth across all verticals. This was driven by share of demand gains in diesel and gasoline applications, recovery of commercial vehicle volumes and continued demand for industrial applications. We delivered $151 million of adjusted EBIT in the quarter, equating to a 15.3% margin. This represents both a year over year and a sequential improvement driven by strong volume conversion and favorable foreign exchange. Finally, adjusted free cash flow was $49 million as the business continues to convert earnings into cash in line with expectations. Now Moving to Slide 6, we show our Q1 net sales bridge by product category as compared with the same period last year. In the quarter net sales increased by $107 million versus the prior year or 12% on a reported basis and 6% on a constant currency basis. Double digit growth in commercial vehicle, industrial and aftermarket contributed significantly to the strong performance. We also benefited from continued gasoline share of demand gains and new launches in diesel. The sales growth occurred across all key regions. In North America, the key drivers of sales growth were off highway, industrial and aftermarket. In Europe we saw share of demand gains in light vehicle, gasoline and diesel as well as a recovery in off highway applications. And in China, growth was driven primarily by industrial and on highway applications. Turning to Slide 7 during the quarter we generated $151 million of in adjusted EBIT representing a $20 million increase over the same period last year. Our margin rate of 15.3% reflects a 40 basis point improvement year over year, 20 basis points of which are due to favorable foreign exchange currency impacts partially offset by tariff pass throughs. The increase in adjusted EBIT was primarily driven by volume and favorable mix from our strong growth in commercial, vehicle, industrial and aftermarket in the quarter. Year over year operating performance was slightly negative, largely as a result of timing and in line with our expectations. As we begin to execute on our productivity measures, we expect to generate positive operating performance through the balance of this year, continuing to benefit from sustained fixed cost actions and variable cost productivity. Turning now to slide 8, I'll walk you through the adjusted EBIT to adjusted free cash flow bridge. For the quarter we delivered positive adjusted free cash flow of $49 million aligned with our full year expectations. The working capital use in the quarter was primarily driven by our strong sales and is expected to be recovered throughout the year. All other bridging items were also in line with expectations. Now Moving to Slide 9, we ended the quarter with a liquidity position of $772 million, consisting of $630 million in undrawn capacity from our revolving credit facility and $142 million in unrestricted cash. We have ample liquidity with no near term debt maturities and our net leverage ratio remains unchanged versus the prior quarter at 1.92 times. Moving to slide 10 during the first quarter we repurchased $87 million of common stock under our $250 million share repurchase program, further reducing our outstanding share count to approximately 188 million. We continue to target returning approximately 75% of our adjusted free cash flow to shareholders over time through dividends and share repurchases, the latter of which will vary over time and depend on various factors including macroeconomic and industry conditions. As mentioned by Olivier earlier, the Board declared our quarterly dividend for the second quarter of $0.08 per share, which will be payable in June. I will now Transition to Slide 11 to discuss our 2026 outlook. Following our first quarter performance, we anticipate demand across all verticals to be strong through the first half of the year. Although our industry assumptions remain unchanged versus our initial outlook, we expect to continue to benefit from share of demand gains in light vehicle, continued recovery in commercial vehicle, and growth of industrial applications, particularly for stationary power generation. As a result, we've increased our high end and midpoint outlook across all metrics to reflect this stronger performance to date. Given macroeconomic uncertainties and geopolitical events, we are maintaining the low end of our outlook range at this time. Our updated outlook implies the following midpoints net sales of 3.75 billion or 2% growth at constant currency adjusted EBIT of $560 million, implying a 14.9% margin and adjusted free cash flow of $415 million. With that, I will now turn back the call to Olivier for closing remarks.

Sean

Thanks Sean. Let's now turn to Slide 12. As we announced during our Q4 earnings call and in our subsequent press release, we will host our 2026 technology and investor Day in person in New York City on May 20th. We will outline the next phase of the company's strategic evolution, including progress across turbo, zero emission vehicle and industrial technologies. Beyond the presentation, it is a fantastic opportunity to interact with management, see and touch new hardware, and better understand the way Garrett is expanding its technology differentiated portfolio both in auto, commercial vehicle and industrial. Let me wrap this up on our final slide. We delivered a strong first quarter driven by share of demand gains in gasoline, turbo and growth in commercial vehicle, off highway and industrial. Adjusted EBIT reached $151 million and we generated $49 million of adjusted free cash flow in zero emission technologies. Specifically, we secured our second Series Production Award for Commercial Vehicle High Speed E Powertrain, further validating the long term potential of this technology. In parallel, progress continues with our new Industrial compressor offering as we secure the Production Award in Battery Energy Storage Systems. Alongside this operational and technology execution during the quarter, we returned more than $100 million to shareholders through share repurchases and dividends, reaffirming our commitment to disciplined capital allocation and shareholder return. Lastly, based on the strong start of the year, we also raised our full year 2026 outlook, reflecting the strength of our execution and confidence in our trajectory. Thank you for your time and now Operator, we are ready to take on questions.

Olivier Rabier (President and Chief Executive Officer)

We will now begin the question and answer session. To ask a question, you may press Star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star then two. At this time we will pause momentarily to assemble our roster. Our first question comes from Nathan Jones of Stifel. Go ahead please.

Operator

Good morning everyone. I guess I'll start with some questions. I'll start with some questions on the oil free compressor side. I don't know how Much of that you want to answer today and how much you want to save for the. For the analyst day next month. But I'll ask them any updates that you can give us on the progress with shipping the first units to train. Any updates you can give us on. I guess I'll just ask a broad question, the interest levels that you've seen from other potential customers and how that's progressing.

Olivier Rabier (President and Chief Executive Officer)

I think we alluded to it a little bit last time because we are fresh from the big congress that's happening every year in Vegas about air conditioning systems. And since then we've confirmed a lot of interest from a lot of people in the industry. To your point about shipping units, I mean shipping the first unit for testing and everything will happen in the coming weeks already. And then what we said is that we would be in production from 2027. So it's on a fast pace. The wind we just report, which is in different system, which is a battery energy storage system. So you need a lot of cooling to cool these batteries. And these batteries are supplied by the way, and these modules are supplied by the biggest battery makers in the world. It's a very important one as well because it validates that our technology is not only for the scope that we expressed last time and the discussion we had about our agreement with Trane, but it's ranging beyond that into some other applications. So we'll share indeed more during the investor day. But a lot is happening and you may have seen a lot of points, a lot of communications already from us, whether it's on this bss, whether it's on our exhibition that we had in China at the leading show for air conditioning. And all of that validates the interest that we see from the industry, broad industry that's all involved into cooling.

Nathan Jones

Is there any update you can give us on? I know there's some exclusivity with Trane on some products in some markets for some period of time. Is there any update you can give us on what that is? It's certainly been a focus area from investors that we've spoken to.

Olivier Rabier (President and Chief Executive Officer)

I've told you that we are having discussions and by the way, we are announcing a new project with a new customer. So that shows that we are talking to a broad industry scope with a broad industry applications. More to come when we present all of that with real hardware and you can feel and touch it because it's not PowerPoint, clearly not when we are all in New York. But clearly the interest goes beyond what we've announced with Trane, although we are working extremely well with Trane and we are cooperating very well. It goes beyond that and then good to see another E-Powertrain. Is there any details you can give us on that? Talking about the size of it, potential revenue out of it? I think you said start of production is 27, but just any color you can give us on the scale and scope of this award. Thanks. The first point, I would say it's not exactly for the same application. The first application was heavy duty. So we are talking about trucks that are more on the medium duty size. But we are extremely proud because it really reflects that even in the most competitive market in the world, that is China, when it comes to electric, our technology is really validated by customers as being a way to differentiate for themselves. We've announced the first partnership with Hyundai and is the biggest player of the industry when it comes to transmissions in China and Yaxels. So that gives you a little bit of a scale. So we'll not share numbers today, but it's a very significant win for the company.

Nathan Jones

Thanks very much for taking the questions.

Operator

Our next question comes from James Mulholland of Deutsche Bank. Go ahead please.

James Mulholland

Hi, thanks for taking my questions and good morning. So I just want to focus on your industrial sales for the year. Last year you had guided to about 100 million in sales related to power gen with double digit growth for this year. Could you give us an update on that progress? And since double digits is a pretty wide range, would you be able to put a bit of a finer point on that?

Olivier Rabier (President and Chief Executive Officer)

Yeah, so with industrial we entered the sequentially we saw it flat, but we expect that it is going to grow significantly and I believe we said low double digits and so that's where we would remain. Low double digits. That's very significant anyway. And you see that when you look at the revenue growth bridge that we have into the financials that we published today, it is clear that there is a significant growth on commercial vehicle. Not everything is with industrial indeed, but a significant portion of it. So yes, it will keep on growing.

James Mulholland

And then. Oh, go ahead.

Olivier Rabier (President and Chief Executive Officer)

No, I'm just saying. And we are very happy with it.

James Mulholland

Great. And then since you brought a broader commercial vehicle, recognizing that North America is more off highway and Europe is more indexed to Class 8, we've seen some trucking manufacturers come out with pretty good numbers on orders. So could you maybe unpack a bit of what you're seeing in both of those geographies and is there maybe a little bit of conservatism in that 1 to 2% growth for the year

Olivier Rabier (President and Chief Executive Officer)

I will not relate to the commercial vehicle is, as you said, is a little bit of a mixed bag of several things. So we have off highway and you've seen that the offiway industry is starting to recover. There were some other people publishing results today that are customers that can give you hints about that recovery coming up. But I would say beyond that, and we think that the recovery is probably once it starts, it will be for if there is no crisis, it will be for a longer period. Because today when you look at on highway and off highway, we are pretty much on the low point that we reach in 2024 and the industry has not yet recovered that much from that. So we are optimistic that this trend will continue. And I would say the growth that we are seeing is not only driven by Europe on highway, it's also driven by a recovery that we are seeing on highway in China. It's probably more linked to shareholder demand gains and a significant introduction of new products that we have in that region.

James Mulholland

Okay, thank you very much.

Olivier Rabier (President and Chief Executive Officer)

So your analysis is good. I'm just adding China in the mix on top of the rest.

Operator

The next question comes from Jake Scholl of bnp. Go ahead, please.

Jake Scholl

Hey guys, first, profitability in the quarter finished towards the high end of your guidance range for the year. Could you just discuss some of the puts and takes that you see going forward, the puts and takes for the full year outlook

Olivier Rabier (President and Chief Executive Officer)

We are very pleased with what we see in Q1 and quite frankly, at this point in time, we have not seen a material impact of the consequences of the war in the Middle East on what we see in the company. But we are very mindful that on the one hand, we have a very nice trajectory with organic growth that we are in Q1, and on the other hand, we are having a world out there that everybody's looking at and trying to understand why it was so one more time. We have not seen anything specific, but it would be, in my view, a little bit too bullish just to give you an outlook that is disconnected from what's happening around us.

Jake Scholl

And then could you talk a little bit more about what's driving some of your success in China? You guys have obviously seen some pretty significant wins both for your E-Powertrain and E-Compressor in the last few quarters. And then specifically within the E-Compressor, can you talk about if there's any difference from your perspective for a liquid cooled application like this, battery storage system with tonfi or air cooling like a traditional HVAC.

Olivier Rabier (President and Chief Executive Officer)

Thank you. So, a few dynamics. The first point is to say that when it comes to specific applications that are linked to commercial vehicle electric mobility. So think about E Powertrain for trucks and think about the announcement that we did last quarter about cooling compressor for buses. China is indeed the biggest place in the world that committed with a very high number, that committed to a very high number of electric trucks. And that drives a lot of development and a lot of demand from customers when it comes to the specific point of battery energy storage system. You know that the two biggest battery makers in the world are in China. So indeed they are relying not only on global suppliers but also on local fast growing company to help them supply what they need in order to develop that battery business. And battery energy system storage that we have, the battery cooling that goes on that is clearly linked to that growth. And indeed it's happening in China, I would say a little bit faster than anyone else in the world as a consequence of the two major players being in China. But we should not think that all of that comes from China. It's just that China usually works faster and is currently into technology adoption pace that is higher than what we see in the rest of the world. But remember the first award that we've presented for cooling system was coming with Trane. And then we are indeed working with many more customers around the world than Chinese when it comes to E-Powertrain, whether it's for passenger vehicle and commercial vehicle. It's just that the speed in China is just faster.

Operator

Our next question comes from Ahmed Korschend of BWS Financial. Go ahead please.

Ahmed Korschend

So first off, these design wins that sparked this increase in sales, when did you win them and how are you positioned in design wins now for future quarters?

Olivier Rabier (President and Chief Executive Officer)

For the wins, we usually win businesses that are translating into volume about before we start production. So I would say when you look at the trend we have, and we've been very consistent with that, where we say that on average every year we win about 50% of what's available. We know that the mass between the business win rate to the share of demand doesn't go exactly one to one, but we know that when we win constantly at that level, the shareholder demand of the company is increasing. And this is exactly what's happening. It was a little bit hidden three, four years ago because we were adding some other points that were affecting the top line at the same time when it comes to diesel going down. And you know that we're doing a massive rebalancing and transformation in this company moving from revenue at the time of the spinoff that was about 42, 43% desired to what it is today where it's about the same amount on the gasoline side and a significant portion of that into variable geometry. So that rebalancing has probably dampened a little bit the top line. But now you see that coming and it's all driven by the success of the wins and the programs that we are on with customers

Ahmed Korschend

and the trend continues. My other question is on zero emissions, is it still too early to break

Olivier Rabier (President and Chief Executive Officer)

it out as to what the composition of that is to total sales? If you are a little bit patient for a few weeks you will know

D

But we will indeed disclose more information in three weeks.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.