Third Quarter 2023 Highlights
- Net sales totaled $960 million, up 2% on a reported basis, down 1% at constant currency*
- Net income totaled $57 million; Net income margin 5.9%
- Adjusted EBITDA* totaled $152 million; Adjusted EBITDA margin* of 15.8%
- Net cash provided by operating activities totaled $74 million
- Adjusted free cash flow* totaled $57 million
- Early debt repayment of $200 million
- Repurchased $161 million of Common Stock
- Upgraded by S&P to BB- rating, with stable outlook
- Revised and narrowed 2023 outlook range for currency headwinds
ROLLE, Switzerland, Oct. 24, 2023 (GLOBE NEWSWIRE) -- Garrett Motion Inc. ( GTX), a leading differentiated automotive technology provider, today announced its financial results for the three and nine months ended September 30, 2023.
| $ millions (unless otherwise noted) | Q3 2023 | Q3 2022 | 2023 YTD | 2022 YTD | ||||||||
| Net sales | 960 | 945 | 2,941 | 2,705 | ||||||||
| Cost of goods sold | 784 | 767 | 2,374 | 2,183 | ||||||||
| Gross profit | 176 | 178 | 567 | 522 | ||||||||
| Gross profit % | 18.3 | % | 18.8 | % | 19.3 | % | 19.3 | % | ||||
| Selling, general and administrative expenses | 59 | 57 | 178 | 164 | ||||||||
| Income before taxes | 70 | 131 | 279 | 361 | ||||||||
| Net income | 57 | 105 | 209 | 278 | ||||||||
| Net income margin | 5.9 | % | 11.1 | % | 7.1 | % | 10.3 | % | ||||
| Adjusted EBITDA* | 152 | 146 | 490 | 430 | ||||||||
| Adjusted EBITDA margin* | 15.8 | % | 15.4 | % | 16.7 | % | 15.9 | % | ||||
| Net cash provided by operating activities | 74 | 61 | 330 | 238 | ||||||||
| Adjusted free cash flow* | 57 | 120 | 285 | 181 | ||||||||
* See reconciliations to the nearest GAAP measure in pages 5-12
“Garrett delivered solid Q3 financial results through productivity gains and operational excellence which successfully offset headwinds from currency and product mix. We also introduced our largest turbo yet, the GT80, enabling us to better serve our industrial and off-highway customers, and reflecting our strategy of continuing investment in our industrial turbo business. Further momentum continues to build across our differentiated zero emission vehicle products; we received two new pre-development awards in E-Cooling. Additionally, we repaid $200 million of debt and repurchased $161 million of our stock in line with our capital allocation priorities," said Olivier Rabiller, Garrett President and CEO.
Results of Operations
Net sales for the third quarter of 2023 were $960 million, representing an increase of 2% (including a favorable impact of $21 million or 3% due to foreign currency translation) compared with $945 million in the third quarter of 2022. This increase was driven by foreign currency translational impacts and ramp up of new products in small gasoline engines applications. These increases were partially offset by unfavorable product mix from demand softness for diesel and commercial vehicle applications due to global macroeconomic conditions.
Cost of goods sold for the third quarter of 2023 was $784 million compared with $767 million in the third quarter of 2022, primarily driven by $12 million of higher sales volumes, $5 million of unfavorable product mix and $2 million of Research and Development ("R&D") costs reflecting Garrett's continued investment in new technologies and headcount increase year-over-year. Cost of goods sold further increased by $10 million due to foreign currency impacts from transactional, translational and hedging effects, offset by a decrease of $12 million due to the Company's continued focus on productivity, net of labor inflation and repositioning costs.
Gross profit totaled $176 million for the third quarter of 2023 as compared to $178 million in the third quarter of 2022, with a gross profit percentage for the third quarter of 2023 of 18.3% as compared to 18.8% in the third quarter of 2022. The decrease in gross profit was primarily driven by $23 million of unfavorable product mix, $5 million of pricing net of inflation recoveries from customer pass-through agreements, and $2 million R&D costs as discussed above. These decreases were partially offset by $12 million of higher productivity net of labor inflation and repositioning costs, and higher sales volumes of $5 million.
Selling, general and administrative (“SG&A”) expenses for the third quarter of 2023 increased to $59 million from $57 million in the third quarter of 2022. The increase compared with the prior year was mainly due to $2 million in legal and advisory fees related to Garrett's capital structure transformation transactions and $1 million of labor inflation.
Interest expense in the third quarter of 2023 was $50 million as compared to $18 million in the third quarter of 2022. The increase was primarily driven by $25 million of higher interest expense from our new $700 million term loan B (the "2023 Dollar Term Facility") and increased market interest rates, and $10 million of debt issuance cost amortization primarily due to the $200 million early repayment of the 2023 Dollar Term Facility.
Non-operating income for the third quarter of 2023 was $4 million as compared to $29 million in the third quarter of 2022 primarily due to a decrease of interest income recognized in the prior year for unrealized marked-to-market gains on the Company's interest rate swaps.
Tax expense for the third quarter of 2023 was $13 million as compared to $26 million in the third quarter of 2022, driven by lower income before taxes and a lower effective tax rate. The decrease in effective tax rate is primarily related to an increase in global R&D benefits, lower taxes on non-U.S. earnings partially offset by nondeductible expenses and prior year non-recurring decrease in withholding taxes on undistributed earnings.
Net income for the third quarter of 2023 was $57 million as compared to $105 million in the third quarter of 2022 primarily due to $32 million of higher interest expense as discussed above and $25 million of lower non-operating income, partially offset by $13 million of lower tax expense.
Net cash provided by operating activities totaled $74 million in the third quarter of 2023 as compared to $61 million in the third quarter of 2022, primarily due to favorable changes in working capital of $17 million, and other accrued assets and liabilities of $5 million. These increases were partially offset by a decrease of $9 million in net income excluding non-cash charges.
Non-GAAP Financial Measures
Adjusted EBITDA increased to $152 million in the third quarter of 2023 as compared to $146 million in the third quarter of 2022. The increase was mainly due to higher volume, improved productivity, as well as favorable foreign exchange impacts, partially offset by unfavorable product mix and inflation pass-through net of pricing.
Adjusted free cash flow, which excludes capital structure transformation expenses, cash paid for repositioning and factoring costs, was $57 million in the third quarter of 2023 as compared to $120 million in the third quarter of 2022. The decrease in adjusted free cash flow was primarily due to a $69 million usage of working capital (net of factoring) and higher cash paid on interest, driven by the 2023 Dollar Term Facility and increased interest rates. This was partially offset by lower payments for capital expenditures and taxes, as well as favorable impacts from other assets and liabilities.
Liquidity and Capital Resources
As of September 30 2023, Garrett had $732 million in available liquidity, including $162 million in cash and cash equivalents and $570 million of undrawn commitments under its revolving credit facility. As of June 30, 2023, Garrett had $1,048 million in available liquidity, including $478 million in cash and cash equivalents and $570 million undrawn commitments under its revolving credit facility.
As of September 30, 2023, total principal amount of debt outstanding amounted to $1,677 million, down from $1,891 million as of June 30, 2023, primarily due to the $200 million early debt repayment during the third quarter of 2023.
During the third quarter of 2023, we repurchased $161 million of common stock under our authorized share repurchase program and we had remaining repurchase capacity of $72 million as of September 30, 2023. During the second quarter of 2023, our repurchases of common stock were $17 million and we had remaining repurchase capacity of $233 million as of June 30, 2023.
Full Year 2023 Outlook
Garrett is providing the following revised outlook for the full year 2023 for certain GAAP and Non-GAAP financial measures.
| Full Year 2023 Outlook | Prior Outlook | |
| Net sales (GAAP) | $3.83 billion to $3.90 billion | $3.84 billion to $4.03 billion |
| Net sales growth at constant currency (Non-GAAP)* | +7% to +9% | +6% to +11% |
| Net income (GAAP) | $252 million to $272 million | $255 million to $290 million |
| Adjusted EBITDA (Non-GAAP)* | $615 million to $645 million | $620 million to $670 million |
| Net cash provided by operating activities (GAAP) | $413 million to $463 million | $410 million to $510 million |
| Adjusted free cash flow (Non-GAAP)* | $350 million to $400 million | $340 million to $440 million |
* See reconciliations to the nearest GAAP measure in pages 5-12.
Garrett’s full year 2023 outlook, as of October 24, 2023, includes the following expectations:
- 2023 Euro/dollar assumption of 1.08 EUR to 1.00 USD, 1.05 EUR for Q4, decrease vs. prior outlook of 1.10 EUR to 1.00 USD
Conference Call
Garrett plans to issue financial results for the third quarter 2023 on Tuesday, October 24, 2023 before the open of market trading. Garrett will also hold a conference call the same day at 8:00 am EDT / 2:00 pm CET. To participate on the conference call, please dial +1-877-883-0383 (US) or +1-412-902-6506 (international) and use the passcode 1022468.
The conference call will also be broadcast over the internet and include a slide presentation. To access the webcast and supporting material, please visit the investor relations section of the Garrett Motion website at http://investors.garrettmotion.com/. A replay of the conference call will be available by dialing +1-877-344-7529 (US) or +1-412-317-0088 (international) using the access code 1678098. The webcast will also be archived on Garrett’s website.
Forward-Looking Statements
This release contains “forward-looking statements” within the Private Securities Reform Act of 1995. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements including without limitation our statements regarding inflationary pressure on Garrett's business and management's inflation mitigation strategies, financial results and financial conditions, industry trends and anticipated demand for our products, Garrett’s strategy, anticipated supply constraints, including with respect to semiconductor, anticipated developments in emissions standards, trends including with respect to production volatility and volume, Garrett's capital structure, new product development and capital deployment plans for the future including expected R&D expenditures, anticipated impacts of partnerships with third parties, and Garrett's outlook for 2023. Although we believe forward-looking statements are based upon reasonable assumptions, such statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results or performance of Garrett to be materially different from any future results or performance expressed or implied by such forward-looking statements. Such risks and uncertainties include but are not limited to those described in our annual report on Form 10-K for the year ended December 31, 2022, as well as our other filings with the Securities and Exchange Commission, under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. Forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements.
Non-GAAP Financial Measures
This release includes the following Non-GAAP financial measures which are not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”): constant currency sales growth, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted free cash flow. The Non-GAAP financial measures provided herein are adjusted for certain items as presented in the Appendix containing Non-GAAP Reconciliations and may not be directly comparable to similar measures used by other companies in our industry, as other companies may define such measures differently. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and analysis of ongoing operating trends. Garrett believes that the Non-GAAP measures presented herein are important indicators of operating performance because they exclude the effects of certain items, therefore making them more closely reflect our operational performance. These metrics should be considered in addition to, and not as replacements for, the most comparable GAAP measure. For additional information with respect to our Non-GAAP financial measures, see the Appendix to this presentation and our annual report on Form 10-K for the year ended December 31, 2022.
About Garrett Motion Inc.
Garrett Motion is a differentiated technology leader, serving customers worldwide for more than 65 years with passenger vehicle, commercial vehicle, aftermarket replacement and performance enhancement solutions. Garrett’s cutting-edge technology enables vehicles to become cleaner, more efficient and connected. Our portfolio of turbocharging, electric boosting and automotive software solutions empowers the transportation industry to redefine and further advance motion. For more information, please visit www.garrettmotion.com.
| Contacts: | ||
| MEDIA | INVESTOR RELATIONS | |
| Maria Santiago Echandi | Eric Birge | |
| 1.734.386.6593 | 1.734.228.9529 | |
| [email protected] | [email protected] |
| CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| (Dollars in millions, except per share amounts) | |||||||||||||||
| Net sales | $ | 960 | $ | 945 | $ | 2,941 | $ | 2,705 | |||||||
| Cost of goods sold | 784 | 767 | 2,374 | 2,183 | |||||||||||
| Gross profit | 176 | 178 | 567 | 522 | |||||||||||
| Selling, general and administrative expenses | 59 | 57 | 178 | 164 | |||||||||||
| Other expense, net | 1 | 1 | 3 | 2 | |||||||||||
| Interest expense | 50 | 18 | 108 | 61 | |||||||||||
| Loss on extinguishment of debt | — | — | — | 5 | |||||||||||
| Non-operating income | (4 | ) | (29 | ) | (1 | ) | (73 | ) | |||||||
| Reorganization items, net | — | — | — | 2 | |||||||||||
| Income before taxes | 70 | 131 | 279 | 361 | |||||||||||
| Tax expense | 13 | 26 | 70 | 83 | |||||||||||
| Net income | 57 | 105 | 209 | 278 | |||||||||||
| Less: preferred stock dividends | — | (40 | ) | (80 | ) | (117 | ) | ||||||||
| Less: preferred stock deemed dividends | — | ||||||||||||||
