Garrett Motion Inc

Previous wording

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Interim Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the audited annual Consolidated Financial Statements for the year ended December 31, 2023, included in our 2023 Form 10-K. Some of the information contained in this MD&A or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those set forth in the “Risk Factors” section of our 2023 Form 10-K and this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in, or implied, by these forward-looking statements.

Current wording

The following discussion and analysis of our financial condition and results of operations, which we refer to as our “MD&A,” should be read in conjunction with our Consolidated Interim Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the audited annual Consolidated Financial Statements for the year ended December 31, 2023, included in our 2023 Form 10-K. Some of the information contained in this MD&A or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve various risks and uncertainties. Please refer to the "Special Note Regarding Forward-Looking Statements" below.

Previous wording

The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three months ended March 31, 2024.

Current wording

The following MD&A is intended to help you understand the results of operations and financial condition of Garrett Motion Inc. for the three and six months ended June 30, 2024.

Previous wording

During the first quarter of 2024, the industry continued to experience supply chain challenges where ripple effects from disruptions in the global supply chain have impacted our OEM customers and altered the volume of customer orders received. In response, we flexed our variable cost structure to successfully achieve efficiencies on productivity and drive operational performance. Our agility enabled us to achieve Net income of $66 million and Adjusted EBITDA of $151 million for the quarter.

Current wording

During the second quarter of 2024, the industry was impacted by challenging regional dynamics associated with some weak end markets. In response, we flexed our variable cost structure to successfully achieve efficiencies on productivity and drive operational performance. Our agility enabled us to achieve Net income of $64 million and Adjusted EBITDA of $150 million for the quarter.

Previous wording

For the three months ended March 31, 2024, we repurchased $109 million of Common Stock in connection with our share repurchase program, with $241 million remaining under the share repurchase program.

Current wording

For the three months ended June 30, 2024, we repurchased $65 million of Common Stock under our share repurchase program. As of June 30, 2024, we had $176 million of the authorized amount remaining under our share repurchase program.

Previous wording

On April 3, 2024, we divested our equity interest in an unconsolidated joint venture for approximately $58 million, subject to customary debt and working capital adjustments, with cash consideration received on divestiture date of $46 million.

Current wording

As previously disclosed, on April 3, 2024, we divested our equity interest in an unconsolidated joint venture for approximately $58 million, subject to customary debt and working capital adjustments. We received cash consideration on the divestiture date of $46 million, with an additional $7 million still to be received, and recognized a gain of $27 million related to this divestiture.

Previous wording

The following tables show our revenues by geographic region and product line for the three months ended March 31, 2024 and 2023, respectively.

Current wording

The following tables show our revenues by geographic region and product line for the three and six months ended June 30, 2024 and 2023, respectively.

Previous wording

Results of Operations for the Three Months Ended March 31, 2024

Current wording

Results of Operations for the Three and Six Months Ended June 30, 2024

Previous wording

For the three months ended March 31, 2024, net sales decreased compared to prior year by $55 million or 6%, including an unfavorable impact of $8 million or 1% due to foreign currency translation driven by lower Chinese yuan-to-US dollar exchange rates, partially offset by higher Euro-to-US dollar exchange rates. Net sales decreased mainly due to lower volumes in gasoline, diesel and commercial vehicle applications, partially offset by demand for replacement parts on aftermarket sales. Net sales further decreased due to pricing decreases, net of inflation pass-through, driven by commodity deflation.

Current wording

For the three months ended June 30, 2024, net sales compared to prior year decreased by $121 million or 12%, (including an unfavorable impact of $18 million or 2%) due to foreign currency translation driven by lower Euro-to-US dollar, Chinese yuan-to-US dollar, and Japanese yen-to-US dollar exchange rates. This decrease was mainly driven by demand softness in gasoline, diesel, and commercial vehicles applications, and commodity deflation impact on pricing net of inflation pass-through, partially offset by increased demand for replacement parts on aftermarket sales.

Previous wording

Gasoline product sales decreased by $15 million or 4% (including an unfavorable impact of $5 million or 2% due to foreign currency translation), primarily driven by soft demand in Asia and North America. The decrease was partially offset by program ramp-ups in Europe and India.

Current wording

Gasoline product sales decreased by $80 million or 17% (including an unfavorable impact of $9 million or 2% due to foreign currency translation), primarily driven by soft demand in China and North America. The decrease was partially offset by program ramp-ups in Europe, Japan, and India.

Previous wording

Aftermarket sales increased by $2 million or 2% (including a favorable impact of $2 million or 2% due to foreign currency translation), primarily due to favorable aftermarket conditions and demand for replacement parts in North America, China and Brazil, partially offset by softer sales in Southeast Asia and Australia.

Current wording

Aftermarket sales increased by $7 million or 6% (including a unfavorable impact of $1 million or 1% due to foreign currency translation), primarily due to favorable aftermarket conditions and demand for replacement parts in China, North America, and Europe, partially offset by softer sales in Australia.

Previous wording

Commercial vehicle sales decreased by $22 million or 12% (including an unfavorable impact of $3 million or 1% due to foreign currency translation), primarily driven by soft demand in Europe and Asia in the construction industry, partially offset by higher demand in the heavy duty pick-up segment in North America and sustained demand in China linked to the start of production of compressed natural gas programs.

Current wording

Commercial vehicle sales decreased by $29 million or 8% (including an unfavorable impact of $6 million or 2% due to foreign currency translation), primarily driven by soft demand in the construction and agriculture industries mainly in Europe due to high interest rates and lower crop prices. This decrease was partially offset by sustained demand in China, linked to the ramp-up of compressed natural gas programs.

Previous wording

Gross profit decreased by $17 million, primarily driven by $12 million from lower sales, $16 million from lower pricing net of inflation recoveries, $11 million from unfavorable product mix and $2 million from higher R&D costs as discussed above. These decreases were partially offset by $15 million of higher productivity, net of labor inflation and repositioning costs, and $17 million of commodity, transportation and energy deflation. Foreign currency impacts also contributed to a $8 million decrease in gross profit.

Current wording

For the three months ended June 30, 2024, gross profit decreased by $17 million, primarily driven by $34 million of lower sales volumes, $22 million from commodity deflation impact on pricing, net of inflation pass-through, $2 million of higher R&D costs, and $9 million from foreign currency impacts. These decreases were partially offset by $27 million of commodity, transportation, and energy deflation, $21 million of productivity, net of labor inflation, and $2 million of favorable product mix.

Previous wording

For the three months ended March 31, 2024, cost of goods sold decreased by $38 million primarily driven by $29 million of lower sales volumes, $17 million of commodity, transportation and energy deflation and $10 million of productivity, net of labor inflation and repositioning costs. These decreases were partially offset by $16 million from unfavorable product mix and $2 million of higher R&D costs, reflecting Garrett's continued investment in new technologies.

Current wording

For the six months ended June 30, 2024, cost of goods sold decreased by $142 million, primarily driven by lower sales volumes of $107 million, $44 million of commodity, transportation, and energy deflation, and $29 million of productivity, net of labor inflation and repositioning costs, and $9 million from foreign currency impacts. These decreases were partially offset by $43 million unfavorable product mix and $4 million of higher R&D costs, reflecting Garrett's continued investment in new technologies.

Previous wording

Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2024 increased by $8 million compared with the prior year primarily driven by $4 million of higher stock-based compensation expenses. SG&A expenses also increased due to $1 million of labor inflation impacts, $2 million of additional professional services costs and $1 million of unfavorable foreign exchange impacts.

Current wording

Selling, general and administrative (“SG&A”) expenses for the three months ended June 30, 2024 decreased by $2 million compared with the prior year, mainly driven by $4 million of lower professional service fees partially offset by $2 million of higher bad debt expense. SG&A expenses also decreased due to $1 million of favorable foreign exchange impact.

Previous wording

For the three months ended March 31, 2024, interest expense increased by $4 million compared to the prior year, primarily driven by $18 million of additional interest expense from the 2023 Dollar Term Facility and higher interest rates. This increase in interest expense was partially offset by $6 million of higher gains on our interest derivatives in the current year. In addition, there were no marked-to-market remeasurement losses recorded during the three months ended March 31, 2024 on our undesignated interest rate swap contracts, in comparison to $7 million of marked-to-market remeasurement losses in the prior year.

Current wording

For the six months ended June 30, 2024, interest expense increased by $37 million compared to the prior year. This was primarily driven by $27 million of accelerated debt issuance cost amortization, $12 million of interest expense on our 2023 Dollar Term Facility versus none in the first six months of 2023, as well as $7 million of interest expense related to our 2032 Senior Notes. These increases in interest expense were partially offset by $28 million of gains, including settlements of $18 million, on our interest derivatives in the current year. In addition, there were $24 million marked-to-market remeasurement losses recorded during the six months ended June 30, 2024 on our undesignated interest rate swap contracts, in comparison to $5 million of marked-to-market remeasurement losses in the prior year.

Previous wording

For the three months ended March 31, 2024, non-operating income amounted to $5 million versus $3 million in the prior year. The higher non-operating income was primarily due to an increase in foreign exchange transactional gains.

Current wording

For the six months ended June 30, 2024, we had non-operating income of $6 million versus an expense of $5 million in the prior year. The increase in non-operating income was primarily driven by foreign exchange transactional gains, partially offset by $2 million of lower equity income due to sale of an equity interest in an unconsolidated joint venture.

Previous wording

The effective tax rates for thethree months ended March 31, 2024 and 2023 were 18.5% and 25.0%, respectively. The change in the effective tax rate for the three months ended March 31, 2024 compared to the prior period is primarily related to reversal of tax reserves and lower U.S. taxes on international operations, partially offset by increased withholding taxes.

Current wording

The change in the effective tax rate for the six months ended June 30, 2024 compared to the prior period is primarily related to reversal of tax reserves, lower U.S. taxes on international operations, and lower non-deductible transaction costs, partially offset by tax related to the sale of an equity interest in an unconsolidated joint venture.

Previous wording

Net income for the three months ended March 31, 2024 decreased by $15 million compared with the prior year, primarily due to $17 million of decreased gross profit, $8 million of higher SG&A expenses and $4 million of higher interest expense, partially offset by $12 million of lower tax expense, as discussed above.

Current wording

Net income for the three months ended June 30, 2024 decreased by $7 million compared with the prior year, primarily due to $17 million of decreased gross profit and $33 million of higher interest expense. These decreases were partially offset by a $27 million gain on the sale of equity interest in an unconsolidated joint venture, $9 million of higher non-operating income, and $7 million of lower tax expense.

Previous wording

It is management’s intent to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of the Company’s operating results as reported under GAAP.

Current wording

It is management’s intent to provide non-GAAP financial information to supplement the understanding of our business operations and performance, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the most directly comparable GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be comparable to other similarly titled measures used by other companies. Additionally, the non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation from, or as a substitute for, an analysis of the Company’s operating results as reported under GAAP.

Previous wording

We evaluate performance on the basis of EBITDA and Adjusted EBITDA. We define “EBITDA” as our net income calculated in accordance with U.S. GAAP, plus the sum of interest expense net of interest income, tax expense and depreciation. We define “Adjusted EBITDA” as EBITDA, plus the sum of stock compensation expense, repositioning costs, discounting costs on factoring, other non-operating income, capital structure transformation expenses, net reorganization items and loss on extinguishment of debt (if any). We believe that EBITDA and Adjusted EBITDA are important indicators of operating performance and provide useful information for investors because:

Current wording

We evaluate performance on the basis of EBITDA and Adjusted EBITDA. We define “EBITDA” as our net income calculated in accordance with U.S. GAAP, plus the sum of interest expense net of interest income, tax expense and depreciation. We define “Adjusted EBITDA” as EBITDA, plus the sum of stock compensation expense, repositioning costs, foreign exchange (gain) loss on debt net of related hedging gains, discounting costs on factoring, gain on sale of equity investment, acquisition and divestiture expenses, other non-operating income, capital structure transformation expenses, debt refinancing and redemption costs, net reorganization items and loss on extinguishment of debt (if any).

Previous wording

(1)Reflects interest income of $2 million and $0 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(1)Reflects interest income of $1 million and $5 million for the three months ended June 30, 2024 and 2023, respectively, and $3 million and $5 million for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

(5)Reflects the third-party incremental costs that were directly attributable to the transformation of the Company's capital structure through the partial repurchase and subsequent conversion of the remaining outstanding Series A Preferred Stock into a single class of common stock in June 2023.

Current wording

(6)Reflects the third-party incremental costs that were directly attributable to the transformation of the Company's capital structure through the partial repurchase and subsequent conversion of the remaining outstanding Series A Preferred Stock into a single class of common stock in June 2023.

Previous wording

For thethree months ended March 31, 2024, net income decreased by $15 million versus the prior year as discussed above within Results of Operations for Three Months Ended March 31, 2024.

Current wording

For thethree months ended June 30, 2024, net income decreased by$7 million versus the prior year as discussed above within Results of Operations for Three and Six Months Ended June 30, 2024.

Previous wording

During the three months ended March 31, 2024, we saw demand softness for gasoline, diesel and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China and Brazil. Net sales also decreased due to pricing decreases, net of inflation pass-through, driven by commodity deflation.

Current wording

During the three months ended June 30, 2024, we saw soft demand for gasoline, diesel, and commercial vehicle applications, partially offset by favorable demand in aftermarket for replacement parts in North America, China, and Europe. Net sales also decreased due to pricing, net of inflation pass-through, driven by commodity deflation.

Previous wording

R&D expenses increased $2 million which reflects our continued investment in new technologies, increased hiring to accelerate growth in the zero emission technologies.

Current wording

R&D expenses increased $2 million, reflecting our continued investment in new technologies and increased hiring to accelerate growth in the zero emission technologies.

Previous wording

Adjusted EBITDA decreased by $17 million compared to the prior year, mainly due to lower volumes across product lines, unfavorable product mix, pricing net of inflation pass-through, as well as unfavorable foreign exchange impacts. These decreases were partially offset by strong operational performance through productivity, net of labor inflation and repositioning costs, and commodity, transportation and energy deflation.

Current wording

Adjusted EBITDA decreased by$37 million compared to the prior year, mainly due to soft demand across product lines except aftermarket, pricing net of inflation pass-through, and unfavorable foreign exchange impacts and unfavorable product mix. These decreases were partially offset by strong operational performance through productivity, net of labor inflation, and repositioning costs, as well as commodity, transportation, and energy deflation.

Previous wording

The increased productivity from our ability to flex our variable cost structure was partially offset by year-over-year labor inflation.

Current wording

The increased productivity from our ability to flex our variable cost structure while driving sustained fixed cost productivity was partially offset by year-over-year labor inflation.

Previous wording

Losses in foreign currency from translational, transactional and hedging effects in the three months ended March 31, 2024, primarily driven by a lower Chinese yuan-to-US dollar exchange rates and partially offset by higher Euro-to-US dollar exchange rates versus the prior year period, also accounted for a $7 million decrease in Adjusted EBITDA.

Current wording

Losses in foreign currency from translational, transactional, and hedging effects in thesix months ended June 30, 2024, primarily driven by a lower Chinese yuan-to-US dollar and lower Japanese yen-to-US dollar exchange rates and partially offset by higher Euro-to-US dollar exchange rates versus the prior year period, accounted for a $14 million decrease in Adjusted EBITDA.

Previous wording

We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents, our Term Loan Facilities, and Revolving Facility. We expect to continue investing in our facilities as we expand our manufacturing capacity for new product launches and invest in new technologies and strategic growth opportunities, in particular in the electrification of drivetrains. We believe the combination of expected cash flows, the term loan borrowings, and the Revolving Facility being committed until 2028, will provide us with adequate liquidity to support the Company's operations.

Current wording

We employ several means to manage our liquidity, and our sources of financing include cash flows from operations, cash and cash equivalents, the 2032 Senior Notes, our Term Loan Facilities, and our Revolving Facility. We expect to continue investing in our facilities as we expand our manufacturing capacity for new product launches and invest in new technologies and strategic growth opportunities, in particular in the electrification of drivetrains. We believe the combination of expected cash flows, the term loan borrowings, the 2032 Senior Notes, and the Revolving Facility being committed until 2028, will provide us with adequate liquidity to support the Company's operations.

Previous wording

On February 13, 2024, the Board of Directors authorized a $350 million share repurchase program valid until December 31, 2024, providing for the purchase of shares of Common Stock. As of March 31, 2024, the Company had repurchased $109 million of Common Stock, with $241 million remaining under the share repurchase program. The Company may repurchase shares from time to time under the program through various methods, including in open market transactions, block trades, privately negotiated transactions, and otherwise. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Current wording

Stock, with $176 million remaining under the share repurchase program as of that date. The Company may repurchase shares from time to time under the program through various methods, including in open market transactions, block trades, privately negotiated transactions, and otherwise. The timing, as well as the number and value of shares repurchased under the program, will depend on a variety of factors. The Company is not obligated to purchase any shares under the repurchase program, and the program may be suspended, modified, or discontinued at any time without prior notice. For more information, see Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Previous wording

Cash Flow Summary for the Three Months Ended March 31, 2024

Current wording

Cash Flow Summary for the Six Months Ended June 30, 2024

Previous wording

Cash provided by operating activities decreased by $8 million for the three months ended March 31, 2024 versus the prior year. The decrease was primarily driven by a decrease of $31 million in net income, excluding the effects of non-cash items, as well as $11 million of unfavorable impacts from changes in other assets and liabilities. These decreases were partially offset by $34 million of favorable impacts from working capital changes.

Current wording

Cash provided by operating activities decreased by $46 million for the six months ended June 30, 2024 versus the prior year. The decrease was primarily driven by a decrease of $22 million in net income, excluding the effects of non-cash items, as well as $28 million of unfavorable impacts from changes in other assets and liabilities. These decreases were partially offset by $4 million of favorable impacts from working capital changes.

Previous wording

Cash used for investing activities increased by $20 million for the three months ended March 31, 2024 versus the prior year, mainly due to $24 million of increased expenditures for property, plant and equipment driven by the timing of the capital expenditures. This was partially offset by $4 million of proceeds received in the current year on our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations.

Current wording

Cash flow from investing activities increased by $42 million for the six months ended June 30, 2024 versus the prior year, mainly due to $46 million of proceeds from the sale of equity interest in an unconsolidated joint venture and a $12 million increase in proceeds on our cross currency swap contracts which have been designated as net investment hedges of our Euro-denominated operations. This was partially offset by $16 million of increased expenditures for property, plant and equipment.